Relevant Market Caps:
Facebook: 525.34B, PE Ratio: 33.61
Alphabet: 727.00B, PE Ratio: 35.12
Amazon: 558.65B, PE Ratio: 292.63
Apple: 895.91B, PE Ratio: 18.99
Tesla: 52.64B
Ford: 48.08B, PE Ratio: 10.98
IBM: 140.35B, PE Ratio: 12.65
Microsoft: 641.20B, P/E Ratio: 28.12
FB has 2.07 billion monthly active users, about 1/3 of the world population, with significant user engagement. Their userbase is on par with major world religions and continents.
Google is the same, though their engagement is a lot more fleeting.
Amazon is hoovering up almost all of the retail growth in e-commerce, and is now extending beyond e-commerce. They to an absurd extent, try to match their R&D and capital investment to their revenue and almost operate as a non-profit, so their P/E ratio always looks absurd, but their book value has increased tremendously over the years.
This isn't 1999 where like Tesla, there was no P/E ratio because there were no earnings (profits), and in the life of the company there had never been a single dollar of profit made, and companies were often rated at 50x their revenue numbers!
These are companies that have shown sustained revenue and profit growth. You can call them overvalued, but this is not in my opinion a bubble, and I think its important you understand the difference between now, 1999, and 2007 or you won't recognize the next one when it comes. In 1999 there was an absolute mania over .com stocks. In 2007 we had a credit bubble that was clear in many statistics and being shouted from the rooftops by some that was impossible to sustain and accompanied by speculators flipping houses, phrases like "buy now or be priced out forever," and other nonsense.
Today, while there are some high P/E ratios, they are at least backed up by long periods of sustained growth rates. Of course it can't last forever, and one can only hope that they will gently reduce their growth rates and have a soft landing rather than a hard crash.
In past 4 years Facebook have grown their user base by 80%, mostly in lower-income countries. But over the same period revenue has grown 400% and pretax profit 600%.
So Facebook will likely have significant growth long after their user base levels off.
I like the rate of bookvalue compouding over time instead of PE.
However, stock options can fuel this by turning a cost (wages) into cash and dilution.
Facebook "only" took in around $26Bn in advertising revenue last year. But their ads are considered more reliable and higher quality than Google's products, so admit some speculation about growth potential. With a global advertising market (across all mediums) of half a trillion dollars that is quickly moving into digital, is it any surprise that these top dogs have high P/E ratios? Those P/E's are based on anticipated future revenues, shares of a pie that is rapidly expanding in size. Comparing P/E using earnings of this year doesn't give the full picture.
That said, they're certainly not undervalued either, and this analysis does nothing to explain Amazon (WTF is going on there? Surely they don't have $200bn of inventory and warehouse property. Do they?). But 35 P/E is only 3.5x more than the 10x rule of thumb, and the entire market could reasonably grow by that amount. That appears to be what investors are betting on too.
(If I had to turn this into stock picking advice, I'd note that if the market is predicting the future accurately here, then one can also say that traditional non-digital advertisers aren't going to do well in the years to come [no surprise], and also that general tech will likely see a huge influx of revenue and capital investment as the top dogs trickle down their market share gains. Baring some black swan catastrophe things will likely be good in Silicon Valley for some time to come, even outside of the FANG companies. But you should not take this as investment advice, which I would not be qualified to give, etc. etc.)
ETA: For the record there's a third prominent SV category I forgot to include in the list, which is peer-to-peer services. AKA the sharing economy. AirBnB, Uber/Lyft, Instacart. Part of why these were so exciting in the last two years or so is because it was a gold rush on new markets that hadn't been colonized by tech companies yet. Doesn't really affect this comment in any way though, other than technical accuracy of that sentence.
Private: If we can't co-opt it then it's not useful to us
FB angered the US government by allowing foreign agents to use its tools. So that's only an example of Russians using it on Americans. Now imagine how the US government is using it. You are not going to see it in this "Transparency" report that's for sure.
The business model itself is so solid, it's scary. It's on better footing than Amazon in my opinion.
For the downvotes - are you implying that stock price is directly correlated with business performance and that the market is completely rational?
If anything, it's implying the stock price is not always correlated with business performance, otherwise the statement would be redundant.
My opinion of their business model and their performance is independent of my opinion of the product.
When you look at the numbers you'll see that they're actually similar companies who've monopolized segments of the digital advertising space. If you're going to complain about Facebook's market cap then you should also complain about Google.
Facebook's even got "other bets" -- Oculus, Workplace, WhatsApp, etc.
But I will not entertain low-quality, emotional comments like this and this community shouldn't either.
Facebook the user experience has - objectively and measurably (even almost by definition) - taken a severe nose dive since attempting to capitalize on the page views. They’ve spent their time evolving into an advertising behemoth that has upended the advertising market, but very poorly despite all the access they have to metrics and use identifiable data because the user’s best interests and the advertiser’s best interest are almost at polar cross purposes such that it isn’t possible to optimize for one except at the cost of the other.
Facebook ads simply do not convert except to Facebook properties (with the obvious “exceptions that prove the rule” aside); they are measurably worse investments than CPC advertising, probably worse than traditional CPM adverts (fake clicks), and probably better than old-school mass media advertising (billboards, bus stations, tv ads). They make their buck on people that either invest xxx thousand dollars until it becomes measurably obvious to the them or that don’t be know enough to measure.
Facebooks only “social” innovations that are actually forward-looking past the heyday of feeds and in-feed apps (FarmVille and co) for consumers are Instagram and WhatsApp, both of which were bought out when facebook’s own in-house attempts failed to compete.
Facebook Ads work. They work when you put effort into them and know what exactly what you're doing. Ask any marketing firm. It's a complicated mechanism that has to be learned and experimented with but now Facebook Ads are among the lions share of the advertising market along with Google. They work for many businesses. Just ask Dollar Shave Club. Ask Stitch Fix. Ask Warby Parker. Ask King.
Facebook Ads also don't work if all you're doing is throwing $10k into them with a bunch of random targeting. In fact, no advertising works if you don't know what you're doing and if you're not tracking everything to a T. That's not Facebook's fault - their engine is completely self-serve. As are AdWords from Google. You can blow $100k on AdWords and get no results just as easily as you can blow it on Facebook and get no results.
I made no value judgement on their innovations. I've learned better than to do that on HN where people become so hostile if you even suggest that Facebook might be useful in some ways. I only made a value judgement on their business which is sound and growing rapidly.
Furthermore, in many third world countries, the only internet they know and will ever see is facebook properties via internet.org.
I see the facebook logo on almost all retailers in my patch of the world. Retailers no longer advertise their websites or phone numbers. See us on facebook, they all say. This doesnt just happen without a lot of people brilliantly working hard and smart.
If FB is an industry on the level of TV or radio, then it's almost certainly not overvalued.
The implications and consequences of the consolidation of this power and influence into one company is a different discussion entirely (and an important one).
1. Much more precise user targeting
2. Direct feedback on effectiveness (did the user click-through or even just linger looking at the content?)
TV and radio seem like very crude tools in comparison.
What does Amazon do? Sell stuff and logistics in a handful of countries. Facebook meanwhile has a very sizeable user base giveing them a lot of attention in a lot of countries, so much so they (allegedly) influenced multiple elections.