Facebook to File for IPO Next Week
mashable.com
mashable.com
http://online.wsj.com/article/SB1000142405297020457370457718...
Google's Retargeting product drives insanely strong conversions for clients vs. their traditional adwords.
You're able to re-reach folks that, by arriving on your site in the first place, have categorized themselves as interested and, as a result, close at a much higher rate.
Google's recent move to consolidate privacy policies, and in effect, sets of customer data is going to provide massively better targeting capabilities.
As a result they'll be able to sell the exact same ad-space to advertisers and yet advertisers will see better results, thanks to better targeting.
In the "bid-for-space" model this will translate to higher ECPM to Goog, to site owners, etc.
Now, enter FB, coiner of the "Social graph" and consolidator of all the things and people.
They are doubtlessly working to build and improve their advertising products.
They are going to earmark a lot of that $100b to buy large advertising businesses, just like Goog bought AdMob etc, that they believe they can improve ECPMs on.
Is it speculative? Absolutely.
Does $100b already have a lot of this expected upside baked-in? No doubt.
But still, I have seen the future of online advertising and it be profitable.
He with the most customer data wins, and FB has that in abundance.
It could have advantages in hiring, where now, people can actually realize the value by selling their options/stock.
The largest secondary market (secondaryMarket) allows the company to list the terms of who, how and when their stock can be traded.
I doubt any of those are a primary concern - I think it's much more likely that since they broke 500 shareholders last year they've just assumed they would. With a calm, up market it's probably a better time to IPO than recent conditions. Being able to put $10B in the bank for a rainy day is nothing to sneeze at.
However, registration means that they have to publish almost the same information as public companies do and be subject to many of the same regulations. Since there are some benefits to going public, such as liquidity for current shareholders, few companies choose to register and stay private for very long.
Since they are going to go through most of the downside involved with an IPO anyways, they might as well get some cash too.
Plus, share/option holders (employees, investors, etc) are probably clamoring for liquidity. It's great if you own a hundred million dollars of FB stock on paper - but it's even better if you have the option to sell and diversify your holdings.
In other words, they NAT'ed the shares.
To facebook, goldman sachs is a single investor. However, many individual investors are part of that GS banner.
In much the same way, with a NAT, there may be many computers within an internal network (but to the outside world there is a single external IP address)
Didn't the same happen when Google IPO'd?
4 year to vest for most companies here so if you were hired in winter of 2008 into spring of 09 all of those shares will be vested by time the lock up expires.
That is assuming they file next week go through the 3-4 month quiet period and revisions to their S-1 and then IPO late spring, maybe June and then the lock up expires in December 2012.
http://news.ycombinator.com/item?id=689993
http://news.ycombinator.com/item?id=1163144
Would still be happy to take $200 in Facebook stock instead. :)
http://www.bloomberg.com/news/2011-09-20/facebook-revenue-wi...
I'm not saying that Facebook is dying or that it's gonna die anytime soon, but I am not able to foresee any significant growth.
The article compared, with sort of negative terms, Facebook's IPO to Google's, saying that google didn't even impress that much when it went public.
But we all know here, that Wall Street made a mistake with Google, since now their shares now are worth 5 times as much as they were at the opening.
So, my question is, how can Facebook ever be worth half a trillion dollars? What should the company do to get evaluated 5 times as much as it is now?
At least with the number of users, it seems to me that they can't be too far from their natural limits.
Facebook is a company certainly with great minds and ideas, but after all it's a website, and I'm not sure people will want to stick around for so much longer on just a website. It seems unfeasible to me that people will stop using the rest of internet, just doing everything on Facebook.
Sure, they can improve a million things (like a real search in Facebook posts, or ways of sharing more complicated things, or better off site integration (which is already pretty good though), but at the same time they can't just open too much, or people will just start migrating. Yet, if they stay too close, people will get bored and start migrating anyways.
Sure, they can start having actual physical products and increase their presence on different markets, but there are lots of tradeoffs for that too. People won't eventually be happy to have a anything-Facebook.
So, maybe I'm wrong, but I tend to believe that this might be one of the highest points that Facebook can reach. I'm sure it can still grow, but I can't expect a growth of orders of magnitudes, it just seems unreasonable.
Maybe it's just that I got bored of Facebook's social life a long time ago and ended up spending very little time on it, almost using it as an email server for certain friends. But I certainly don't think that things like timeline can do this huge difference. To me, timeline is just another improvement (maybe) to avoid people to get bored after a while. One of the constant and frequent improvements and changes that every feature/product has to do to feel alive, but can anyone see any change that could make this company much bigger than what it already is?
If I were Zuckerberg I would probably sell a bunch of my shares and buy a bunch of companies, without necessarily integrating them into Facebook, you never know...
* The Facebook Phone
* The Facebook Netbook
* Major user datamining product sales to global governments
* Acquiring binge (gaming, education (I think they will go for Khan Academy)
* video hosting
* Their own voip platform
Facebook still has a lot of room to innovate, not that they would necessarily be successful in each iteration. But I would say that the number one thing FB could do right now to have a major impact is to create an education platform.
If their nearly billion users can all take education throgh the platform that would be very game changing. Allow users to sign up for classes, watch them, participate on them and collaborate with other students directly through facebook - plus have their progress and status tracked and gamefied then we could see real growth.
As facebook could start absorbing every person on the planet that is newly born.
Seriously, if facebook didnt buy KhanAcademy and integrate it for this reason, then I would say they lack vision and are simply the worlds most bloated PHP website.
FB may have Bing search integrated, but its not in any prominent location. I've been on facebook for years and have never seen it, not once. Perhaps its integrated with facebook's people search? The point is, if they put a plain-ol internet search box on each users homepage it will get plenty of use. With the plenthora of data they're generating, internet search can be trojan horsed by way of a history/activity search.
http://allthingsd.com/20111121/the-facebook-phone-its-finall...
The Khan Academy in particular, though, is a non-profit. I don't even resemble an expert on the subject, but I think that would make acquisition difficult to (practically) impossible. And even if it were legally easy, Salman Khan's success and ambitions makes it extremely unlikely he would agree to it (eg move from CC to "sign in using your facebook ID?").
A partnership might fall in line with their mission, though.
August 2004:
Gold $405
Google $85/share (thought it was $100/share, huh)
Now:
Gold $1735
Google $576/share
1735/405 ~= 4.27
85*4.27 ~= 364
So no, Google's shares are not worth 5 times more. They value went up some 50% in six years, which is great but nothing scary.
Comparing one asset (share of GOOG) vs. another, namely, gold is silly when you contrast to assigning currency value.
Last I checked, food hasn't become 4x more expensive, so things still revolve around currency (or currencies), not the value of gold.
http://www.economist.com/blogs/dailychart/2011/07/big-mac-in...
According to the IMF Commodity Price Index, at least. http://www.imf.org/external/np/res/commod/index.aspx
August 2004:
Orange Juice Concentrate Futures $61
Google $85/share
Now:
Orange Juice Concentrate Futures $211
Google $576/share
211/61 ~= 3.45
85*4.27 ~= 293.25Since 2009 gold has tripled in dollar value [1]. That does not mean that the dollar has lost a third of its value.
What your figures show:
--- August 2004: Gold $405 Google $85/share
Now: Gold $1735 Google $576/share --- Is this: Gold: 1735/405 ~= 4.28 GOOG: 576/85 =~ 6.77
GOOG/Gold: 6.77/4.3 = 1.57
Google have given their shareholders a value worth 57% more than gold.
If you instead had kept your $85 in your pocket since 2004, how many dollars would have today?
[1] http://goldprice.org/NewCharts/gold/images/gold_5_year_o_s_u...
But even more than that, compare it to stock market indices. We're talking about how the market valued it, not about currency valuations. The whole argument about currency valuations is a silly sideshow.
In conclusion, if nobody understands the brilliance of your argument, it's probably stupid.
What they didn't understand (what I said they didn't understand) was that I tried to determine value of the USD, not compare price of the gold to price to the shares.
Almost everyone pulled out some stupid comparison, trying to be funny. The Ron Paul, Apple and Juice comments looked like they came here from reddit. Only few comments were actually valuable and tried to correct me in a non-condescending way.
Anyway, after some more reading around I came to conclusion that valuing USD by gold is indeed not the right idea. I was somehow convinced that gold is something stable. From what I found, the difference between 2004 and 2012 dollars is inly something above 25%.
August 2004:
AAPL $16
Google $85/share (thought it was $100/share, huh)
Now:
AAPL $447
Google $576/share
447/16 ~= 27.94
85*27.94 ~= 2374.90
So no, Google's shares are not worth 5 times more. Their value went down a massive amount in six years.
I know nothing of valuation, but by that logic the price of gold would never be worth more.. than.. the price of gold?
I thought you'd value the gain in the market currency, aka dollars. No?
Remember there are three functions of money
1) Unit of account 2) Medium of exchange 3) Store of value
Currency is not a good store of value - it can be printed at will. It does store value over a short time frame but if you were given a box from 1930 that inside held somones life savings from 1930 - would you wish it to be in USDs or gold? Hint: USDs is the wrong answer! Currency is an excellent medium of exchange. You can buy food at the supermarket with it. Just don't save your surplus wealth in it.
Gold is used as a store of value instead of orange juice concentrate since it has historical value, it is fungible, divisible and inert (ie: it won't spoil). Also you are not impinging on the economy by hoarding it as a store of value since it has relatively little utility otherwise.
If you think gold is not valuable because you cannot excahnge it for food, then ask yourself why the US Government banned its ownership in 1933 for citizens and why the Euro has it as its number one asset on its consolidated financial statement - above all currencies - including USD http://www.ecb.int/press/pr/wfs/2011/html/fs110706.en.html
http://en.wikipedia.org/wiki/Greater_fool_theory http://en.wikipedia.org/wiki/Keynesian_beauty_contest
Chat and games are excluded, as Facebook was doing that before having a global network of users assembled.
I'm cool with iPad apps, with iPhone apps and Android apps, but stopping using websites and just focus on Facebook apps seems to be a false step, maybe good for now, but not very envisioning. Unless...
...unless Facebook starts mutating towards an actual product. To be clear like the blackberry with the old blackberry chat, you'll buy one (of the many) Facebook things, like a Facebook pad, and you'll have your Facebook OS with all the Facebook apps running on it.
And I think this is the direction they are headed to... but still, they can't take down the house (the whole world), sooner or later something else will need to put some checks and balances.
They can't become infinitely rich, I don't think the market and the planet will allow it. They can be a little dominant, but not like emperor dominant.
Plus, it's still a website based on participation, if the people get bored or there is some wikileaks kinda breach (think of some crazy attempt to make public all the private messages and pictures on a mirror evil site), many many users could leave is a second... (although ultimately we are just going to be forced to redefine what we consider privacy, in general, not just in this unlikely case)
Since Google went public, investors have learned a lot more about how these business models work, and how quickly they can build durable competitive advantages.
If "Can it go up 5X" were the threshold for going public, investors would price this in, so the actual threshold would drop.
The bull case for Facebook is basically that it's by far the cheapest platform for spreading memes--whether those memes are shared infographics, political slogans, or, say, the existence of Gap's latest sale. Plus, FB owns identity in a way few other sites can match--even Google only owns identity around the ages (they know what you want but don't yet have; Facebook knows more about who you are). Through credits, FB essentially owns a piece of any successful business built on its platform; if it were a country, $100bn would not be an excessive valuation to put on the net present value of its future taxes collected, less collection costs.
I agree with this. All I'm saying is that most companies can in general grow, and so it depends on you whether or not you want to buy stocks.
In Google case, they underestimated it. And who bought might be doing quite well right now.
In Facebook case, in my opinion they aren't underestimating it, and I just think it's hard to grow much more than they are already.
First, they have already 1 billion users (order of magnitude). There is no way they can go to 10 billions, just because they don't exist.
Second, I believe that the external pressure from other companies will somehow kick in, not allowing one only company to rule the world. Maybe some anti monopoly laws, some other platform, a yahoo -> google effect, I don't know.
It just seems unlikely to me that Facebook will be doing much much better. I may be wrong, but in the long run I'd still buy GOOG or AAPL towards whatever Facebook code will be.
What the stock will do in the short run is a different thing, maybe boosted by the media, who knows...
The bull case on Facebook doesn't rely on a linear increase in the number of users; it's about an increase in the amount of revenue per user. (That's the case with Google, too; searches per year are going up at ~10% per year in the US; Google is making money by directing more of the end clicks to stuff that monetizes.)
So the people who are bullish on Facebook largely agree with you; they're just bullish based on stuff you haven't mentioned.
In finance, it's not enough to know that you disagree with the market. It's important to articulate what other people think, and why they're wrong. You can't truly say that you'd be willing to bet against the consensus unless you can explain what that consensus is.
It's a little bit like religious debates; someone like Dawkins or Dennett doesn't just have a theory of existence--they have a meta-theory explaining why other people would believe in a different explanation, and why such beliefs are compatible with their general worldview.
My second point was maybe short but it was about the revenue per user. I certainly believe that Facebook will increase the amount of revenue per user, but there is where I believe that they can do a lot but not too much without risking to crunch.
I really liked your Dawkins/Dennett reference. In this case, I believe that people feel like Facebook is unstoppable and that can do more than Google, Apple, Microsoft and so on. In my opinion this is understandable since so many people spend time on it that they can't believe it'll disappear.
The reason why I think they are wrong just relies on how I think these things go. I am not saying that Facebook will stop growing or disappear in less than 2 years, I would be just silly.
I'm saying that if you compare Google, Microsoft and Apple, just to mention few of the big ones, to Facebook, they have many many more products. It's true that the search doesn't increase too much in the US for Google, but they are developing many products like wallet or automated cars or (huge list). Apple is doing the same.
But I think that there is a physical limit. How can a software company (maybe also hardware in the future), be orders and orders of magnitude larger than all the other ones. By the time you are so much bigger than the other ones, natural selection rules start pressuring you and you'll have to stop trying to be everything.
Now, Apple is probably considered to be worth $500B and Microsoft and Google a couple of hundred billions, and, to me, Facebook still needs to do a lot of work to shift enough to be like them. The difference is that they have only one product: a website. If they start losing Facebook users, they might not have a lot of time to shift, because they might lose them all. Yahoo made some mistakes when they were pretty strong and lost traction.
Will Facebook be able to sustain the impact of a $100B evaluation without making (big) mistakes?
Maybe I'm naive, but I believe that they will start selling physical things and will have their OS and all that, but just because they will become an entire world like PC vs MAC vs Linux then they will probably sattle near those companies, probably at the same order of magnitude evaluation.
Speaking of memes, maybe I'm naive, again, but something called Facebook can only cross some lines, but it can't be the internet or too much related to a product that doesn't exist any more.
Shifting is very complex in a world where the imprinting is so strong (try play loose the first game of poker with some players, they will be convinced you are a loose player for a long time, even if you are a tight player and played loose only the first game to throw them off).
Same, in my opinion, goes with Dropbox. They can probably absorb the $250M investment to buy more servers/expand/develop new features. But it triggers my attention when a company does that. Because first, it basically means that they will never sell any more (to whom at this point? Facebook maybe? ;-) ). And second, because I wonder why a company that is supposed to have something on the order of $250M revenue per year needs a $250M investment. It scares me (it scares me also becuase they don't seem very concerned about security). And the meme is strange also over there. Can I immagine some sort of generic OS or product called dropbox? I can sell harddrives called dropbox, I can sell a place where to look at pictures called dropbox, I can sell some sort of Netflix machine called dropbox, but can I sell a phone called dropbox? Or a laptop? Again, I'm not saying they'll crash or anything. But I'm just looking at them with suspicion, maybe intrigued to see what they come up with.
It's all about "shifting wisely" after all when you get so big, and unlike Google and Apple that accomplished so much shifting, Facebook so far has shifted very very little (and so has Dropbox). The code is maybe different, the look maybe a little more elegant, the platform for developers maybe a lot more elaborated, but overall it's still pretty maniacally and maybe dangerously close to what it was on day 1.
OK sorry, I didn't mean to write an essay! But it's done, so...
Smart VCs!
Anyway, that said, I'm a bull on Facebook. It's incredibly hard to stop using. And they're (purportedly) profitable, and growing, and have barely started monetizing their user base.
As for what need Facebook meets... it's communication (and communing): people connecting with people. This is the basis of many technological innovations (telegraph, phone, internet; some would include trains, planes and automobiles as "communication" technologies). There is plenty of need left unsatisfied. The question is, has Facebook perfected what can be gotten out of the internet yet? If not, that means they have room to grow. (one day they'll be blindsided by a new technology that better satisfies that need; but that's a different issue). And, if there is room to grow, are they going to retain leadership? e.g., will Google overtake them? (google serves a different need of customers, so I think google will win there, yet not beat facebook at the need it serves).
Big issue: some people thought myspace would be long-lasting, yet facebook toppled it. Facebook is very aware of this fact. They have some idea about what would make them vulnerable, and, like Microsoft being very aware that they won out over IBM, they won't be complacent.
That said, IPOing before google+ hits its stride is good timing...
Actually, the money comes from advertisers.
Eyeball-hours are a fixed-sum game at any point in time (the sum grows over time). Eyeball-hours spent on Facebook are eyeball-hours not spent elsewhere looking at Google searches, Google products or Google-mediated advertising.
Consider advertising on TV and print media: you try to hit your demographic and hope for the best. Next is direct marketing: you can measure your success based on response rates. Then, internet advertising (eg google) accelerated this feedback to be instant.
But it's still hard to know what people want or need to buy right now - ideally, it would go far beyond your demographic (a huge set of which you are a member), beyond an ultra-fine-grained demographic (a tiny subset), beyond what you want right now, to anticipating your need so exactly that you don't have to ask. Like consultative selling (or perhaps a PA/butler), it stops being advertising and starts being a service in itself.
Google has a lot of information, and can do some of this really well; but Facebook is much closer to the user, and so has much more and better information about them, so they are better-placed to do this.
Google has the long-term goal of anticipating the information you want; and they are doing well (e.g. search suggest). But it's primarily aggregate prediction, not personalized. They can (and do) personalize it somewhat, but just aren't as well-placed as facebook, because they aren't as close to the user (people).
People are ultimately where the money comes from. That's how advertisers get it.
But I didn't say that eyeball-hours have a fixed value. I said that there is a fixed supply (at a point in time).
It is necessary to get the eyeball-hours in the first place. That Facebook may be able to wring more out of them than Google is important; but from Google's POV the attrition of its eyeball-hour supply is more important.
Well, I guess it must be somewhat possible, because overture/goto did it... (they aren't around any more because Yahoo acquired them, and their technique was adopted by Google - but no one else has done it, so maybe it's not workable any more. Perhaps because Google does it (i.e. it's a feature of Google search - just turn off adblock and ignore the search results - and Google has better access to users (eyeballs), so advertisers would prefer it.))
What I'm saying is that it doesn't really need eyeballs, but what eyeballs bring: access to you. There are other ways to gain that access (that aren't as good so far). It does need to know you intimately, so content probably helps (is crucial?). And you need to trust it. (Which you would do, if it turned out really to be fantastically helpful.) It also needs fantastic AI to predict your needs before you do...
My understanding is that getting info about users was the business model behind (the failed) Color. Maybe, in theory, content/eyeballs aren't strictly necessary for automated-consultative-selling, but perhaps it's the only effective way to get the information to model them, and to get access to them, in practice, at the moment.
This could change.
EDIT by coincidence, the frontpage has an example of non-content access to users: Curebit http://techcrunch.com/2012/01/27/yc-alum-curebit-raises-1-2-...
BTW: I agree eyeball-hours are a fixed-sum game. I wasn't contradicting that, but the assumption behind it.
But it's still hard to know what people want or need to buy right now
They can (and do) personalize it somewhat, but just aren't as well-placed as facebook, because they aren't as close to the user (people). People are ultimately where the money comes from. That's how advertisers get it.
So who's information is more valuable? Facebook's because they know more about you overall (your friends, your habits etc.) or Google's because they know what you want right now (because you just entered it right fucking there in the search box)
I'm leaning toward Google. If someone has a problem, they go to Google to search for ways to solve it, and as you point out, that's precisely when they're most amenable to advertising. People go to Facebook to connect with other people. Advertising will always be noise there. (Stupid mindless games notwithstanding.)
That statement is backwards. Facebook sort of knows what I kinda like, but Google knows exactly what I want, right now. If I type "Escort midtown manhattan" and click the Google ad, Google will make about $4, which is more than Facebook will make during an entire year by guessing what I want.
Search ads are 1-2 orders of magnitude more valuable than perfectly targeted display ads.
* The escort example was to only prove the point that wants are where the money in advertising is, not people or interactions.
Does anyone know what normal IPO timelines are? My uneducated expectation is that shares begin trading something like 3-6 months after filing the prospectus.
http://www.streetinsider.com/IPOs/Entire+Social,+Online+Medi...
Is anyone paying attention? Just because a company has a massive user base, big popularity, and lots of VCs, doesn't mean it has a great business model.
Sure,you can buy shares, watch them triple in the first 24 and dump them, but when the dust settles, what really happens?
Groupon is trading at $20.04. It IPO'd at $20. Zynga is trading at $10.05. It IPO'd at $10.
Good for the VC's, finally getting a return on their money and all, but it doesn't seem that the companies are really doing much to deserve the hype.
Facebook is presumably making money, and has a crap-load of user-data, but 100 Billion dollar valuation? Maybe based on what people are willing to pay for it, in the hype to get some of it's stock, but its revenues were 2.5 Billion last year. A valuation that's 50x their revenues seems a little steep to me - but again, that could just be me.
Insanity.
(Disclaimer, I have a vested interest in this stock going down.)
Or you could buy Facebook, with $2-3bn in revenue and a big database of users which they haven't really worked out how to monetise yet.
http://www.quora.com/How-long-does-it-take-between-a-company...
Sometimes it's not about the product, but the people. Maybe the current Apple board /really/ wants Zuck to run the show. Best way to do that is to buy FB.
I agree with you, though. Apple buying FB would be a not-so-small mistake.
Use their software holdings to become a major success story? I'm sure the people helped, but Apple wouldn't be anything like they are today without ownership of NeXTStep. And it was no secret at the time that Apple was looking for software as they were also courting Be.
So I'm going to buy shares.
ZNGA: 6.5X sales
LNKD: 16.2X sales
P: 8.7X sales
S&P 500: 1.3X sales.
It appears that valuations are very high right now. The stocks are down from their peaks—-in other words, investors are not at a record level of optimism about these companies. But a fair assessment is that they've gone from "Wildly optimistic" to "Optimistic."
tweets - https://twitter.com/search?q=facebook+ipo
google results for past 24 hrs - https://www.google.com/search?q=facebook%20ipo&tbs=qdr:d