Facebook Hits Record $75 Billion Valuation | Hacker News Reader

Facebook Hits Record $75 Billion Valuation

techcrunch.com

18 pointsolivercameron27 comments

Full disclosure: I have a horse in this race (Appleseed).

I used to think that the problem was that Facebook wasn't worth what it was valued at. Now, I'm starting to rethink that, but not in a positive direction. I think maybe Facebook may be cursed by it's valuation.

Right now, Facebook is like a developer-oriented gravy train. They can work on cool features, do redesigns on a whim, play with heavy scale, and there's enough investment to keep it going in every which direction they want.

But profits aren't there, not on this level. And remember that, for as indispensable as Facebook is, most people can survive without it, and the achilles heel of social networks is that the trickle of users leaving can quickly become a flood. Myspace found this out, and they were twice as profitable, per user, as Facebook is (although they did have many problems that Facebook hasn't, terrible engineers being one of them).

What I'm wondering is, will the valuation force Facebook to make the kind of hard decisions they're putting off right now. Are ads lucrative enough to appease the investors? If not, where do they go? Do they start heavy data mining? Do they push the boundaries of privacy even further?

I'm starting to consider the fact that these astronomical valuations may end up contributing to Facebook's eventual demise by setting expectations that they cannot meet without fundamentally alienating their users.

We'll see.

The higher you get, the harder you fall. Their foundation is built upon false assumptions of invincibility and permanence. People WILL leave when something 'cooler' and/or 'smarter' is created. Facebook is not exempt from this basic fact of business. People are fickle and are converted with the right words, images, and features.

Facebook has an Achilles heel that can't be overlooked, that is it's complete dependence on people sharing as much as they can with as many people as possible. That is going to eventually turn something that was once clean and simple into something cluttered and complex. It's already happening...

Another major factor, they have hit their ceiling for media attention. They have actually broken it and are now starting to get on some people's nerves. It's only natural...it happened to Apple and Google too. Remember how innocent and perfect they once seemed?

P.S. (I am not a "Facebook hater" or anti-Zuckerberg. I respect the founder and his baby. This is just plain obvious to me.)

At this valuation, Facebook is worth almost 1/4 the value of Apple, a company which is now generating $75 billion a year in revenues. Facebook is reported to have generated between $1.2 billion and $2 billion for 2010. To compete with Apple's valuation, Facebook has to generate at least $18 billion a year.

Am I crazy or is something wrong here?

Revenue is not a good comparison, e.g. Ford has much higher revenue than Apple. Net retained earnings [profit] is what matters and that is unreported because Facebook is a private company.

Apple made $16.64 billion profit in 2010, how much profit do you think, if any, Facebook made on their $1-2 billion?

well, since the valuation of FB is clearly a random smoke and mirrors number...I'd say FB made between $300-400 billion on their $1-2 billion.

They say they're profitable, but if the profits were impressive, they'd probably publicize them more (obviously not in explicit terms, but they'd describe the scope - i.e "8 digits"). Random guess, $40 million.

To play devil's advocate, the relevant number is expected future earnings, not current ones: at a 0.95 discount rate, $75 billion amounts to an income stream of $3.75 billion a year. Clearly they're not making that now, but: 1) there's a good chance that they will have far richer data, and therefore the ability to target ads better and more profitably, than google 2) there's a nonzero chance that they will be able to monetize micropayments in a far bigger way than paypal ever did.

There are plenty of other potential revenue streams, but these two alone make the valuation seem like not so much of a stretch — they might just be a $20b company, but then again, they could conceivably end up being a $200b company.

Not enough to justify the recent valuation.

You are not crazy my friend. You are sane. I think the investors who invest at this valuation are insane and in need of a serious meditation session.

This secondary market is far from liquid, take the crazy valuations with a grain of salt.

Not only that, but these kinds of figures are always used in an attempt to attach a folklore of value to something, in the service of creating an expectation and therefore a "real" value once the IPO comes along or whatever. They're laying the foundation now, and it's FB executives' job to maximize value, after all. How could it possibly be worth any less than what they say? Wouldn't that expose them to impossible-to-prove-anyway fiduciary incompetence? It just has to be believable...enough.

A big problem I have with these absolutely ridiculous numbers is the assertion then that Zuck is a multi-billionaire. Unless he's figure out how to turn investors dreams into a Scrooge McDuck vault full of money of course.

The public perception seems to be that Mark has many billions just sitting in the bank. It reminds me of the Business Week cover of Kevin Rose, basically saying he had $60 million lying around: http://businessweek.com/magazine/content/06_33/b3997002.htm

If I understand it correctly, though, couldn't Zuck have just sold some of his shares to an investor and gotten some money? Yes, not several billion, but he's rolling in a couple hundred mill right now, I'm sure.

I remember reading how several investors bought into Twitter by buying $100 million from one of the founders...

By the same token, he could have already sold most of it. $70B is the valuation established by those who have already bought shares, after all. It's in their interest to convince the rest of us that they got a good deal. Heck, if $70B is such an insane valuation, you'd have to be insane not to sell out at that price.

I haven't really questioned facebook valuations in general, but the last month or so is definitely feeling like pump and dump.

Hype around Second Market, the Goldman-Sachs deal - I get the feeling that there's lots of people working very hard to find a larger set of fools to dump the stock on. The SEC investigation of Second Market seems timely.

Combine that with the fact that facebook is less exciting as a product, the APIs are a huge, buggy, expanding mess, and their market is looking saturated.

Techcrunch on the bandwagon kind of seals it.

Next week, "Facebook Hits Record $1 trillion dollar Valuation (techcrunch.com)"

Yay! let's make up numbers!

TechCrunch:Facebook::FoxNews:Republicans

EDIT: and MSNBC:Dems, and...

This just confirms that for the layman trading stocks is nothing more than legal gambling.

I personally work for a company whose P/E is > 200, while this is nice for me at the moment, I realize that the value in this situation has nothing to do with performance.

Facebook will probably be slaughtered once they go public have to adhere to reporting standards.

There will be some justification for the high valuations when Facebook enters the display advertising space. Facebook will use like button log data and user profile information for superior ad targeting. Their ad targeting might not be very good now, but they are going to figure it out because that's where the money is.

Have you ever run ads on Facebook in their current format? They're terrible. We work in a very niche industry that is easy to target via FB profiles but results are much worse than Google.

Why will display advertising be any different?

Google has been at that for so much longer, though. While Facebook can mine my profile, Google has years of AdSense data about the actual sites I visit and what I do there, in addition to profile info from several different portions of my Google account (assuming they use that, I don't actually know).

One of the reasons reasons that Facebook is implementing features for third party sites (like buttons, the new comment system) is that Facebook wants to collect the same type of data that Google collects with AdSense.

The profile data and the interactions between users on Facebook is much richer than the interactions and profiles on Google. Facebook will eventually derive more value from their data than Google does from theirs.

shortage of supply, therefore demand goes up. Simple economics. Definitely not a true value, you can call it bubble, or you can call it whatever you want.

I would just ignore it.

It's a growing bubble!

This is insane.

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