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Google was underpriced at the IPO; there's no indication that stocks should be systematically underpriced to the same extent.

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.

> If "Can it go up 5X" were the threshold for going public, investors would price this in, so the actual threshold would drop.

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...

Well, yes. Facebook's IPO is unlikely to perform like one of the best-performing IPOs ever, especially since we can look back at why investors underestimated Google after that IPO.

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.

I agree with this as well.

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...

Google was massively underpriced at the IPO, (as in $80/share or so if I recall) but this was mostly for insider reasons -- they IPO'ed using a sort of reverse auction method that cut out traditional I-Banking pre-sales. The bankers largely revolted in exchange; this led to at least one of the Google VCs pulling the shares from the offering altogether and holding them.

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.

Google's market cap is 188B, and they are changing everything to compete with Facebook. Google is based on information that people want. Facebook is based on the social interactions of people themselves. That's one giant leap closer to where the money comes from (people).

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...

> That's one giant leap closer to where the money comes from (people).

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.

The value of one eyeball-hour is not fixed. The more targeted the advertising, the more effective and therefore valuable it is. In fact, for sufficiently well-targeted advertising, it doesn't need anything - as when you seek a product. Overture/goto made money like this (google used its ideas for adwords).

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.

You're right, I agree.

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.

Eyeballs aren't necessary, if you accept that automated consultative selling is possible (unproven so far!). The model stops being advertisement-riding-on-content, and instead is a message sent directly to you (or that you request).

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.

The more targeted the advertising, the more effective and therefore valuable it is.

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's one giant leap closer to where the money comes from (people).

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.

My (sure to be wrong) Facebook predictions:

* 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.

I'd like to add to your list of Facebook products. * Facebook Search Engine.

I don't get why people seem to ignore this. If facebook added internet search to their site they would instantly become the second biggest provider. I would be very surprised if they weren't already working on this.

Facebook does provide Bing searches integrated into the platform.

I've never been thought; Oh I need to look up something... Let me Facebook it so they can Bing it for me.

But for people who are already on facebook its natural to just use the search box that's 5 inches away. For better or worse, facebook is the new homepage of the internet for a lot of people. There are endless ways they can monetize this.

100% true. They'll unveil it soon enough. I bet it's Zuck's ace-in-the-hole.

People go to FB to communicate, they go to G to search. Brands are associated with products. That's why this G+ thing is a bad idea, it totally waters down G's brand in search. FB offers Bing on their site, but still nobody uses that.

I don't think this is true for most people. This has been discussed on HN a few times. While the techie crowd usually has distinct sites for different purposes, this isn't true for most people. Facebook is the only thing a large number of people get on the internet for. Portals work at engaging visitors, it's just a matter of monetizing the eyeballs. Facebook has the engagement locked down, now they just need to monetize the eyeballs.

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.

if only zynga was so smart to make fun learning games instead of hamster cages

Heh - you'll have to wait for someone else to make a fun learning game - then Zynga can copy it.

HN

The Facebook Phone actually is planned.

http://allthingsd.com/20111121/the-facebook-phone-its-finall...

The education thing is interesting (and didn't they recently restart some old intra-school features they had in the old days?), and there's a lot of opportunity in the Blackboard space.

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.

I really really really hope Khan Academy doesn't sell to anyone, especially to FB

How about a Facebook OS (maybe fork Chromium OS like Amazon did with Android)?

Remember: Google was a search engine, and Amazon was a book store. Facebook doesn't have to stay a social network, and there are plenty of things they can do with their resources. There's a lot you can do once you have a global network of users assembled.

Like what?

Chat and games are excluded, as Facebook was doing that before having a global network of users assembled.

I'm talking about the infrastructure that brings those users together, not the users themselves. They could start an AWS competitor, or anything they want.

In that case they could have done all that before having the "global network of users assembled".

Ignore that part if it helps you focus on the point.

Sure, although, there is one thing that bothers me, Facebook reaches so many people so quickly that even reasonably big companies now use a Facebook page instead of a website. There is something intrinsically wrong with this, because Facebook cannot (hopefully) become a synonym of internet.

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)

When Google went IPO their valuation hovered around 30B, compare that to Facebooks 3 times that, now nearing 90-100B in the private markets. Companies are staying the private markets a lot longer so by the time they hit the public market they are already overvalued/valued appropriately. I doubt Facebook will see exponential growth initially until they have healthier profit numbers. Unless a lot of amateur investors buy it because they saw The Social Network.

It doesn't even require a lot of amateur investors to drive it up beyond reason, just the belief that there will be a lot of amateur investors. Who cares if I paid a stupid price if I can sell to them at a stupider price? Some people call this the "Greater Fool Theory."

http://en.wikipedia.org/wiki/Greater_fool_theory http://en.wikipedia.org/wiki/Keynesian_beauty_contest

> Wall Street made a mistake with Google, since now their shares now are worth 5 times as much as they were at the opening.

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.

Once I can buy food directly with my 1oz of gold, I'll buy your gold-based-valuation argument.

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.

Since when can you buy food in exchange for stocks?

That's the point. You can't buy food with gold or stocks, but you can with money (currency). So that is what you measure the value with.

What's the value in Economist Burgernomics?

http://www.economist.com/blogs/dailychart/2011/07/big-mac-in...

You should check again. While food prices haven't quadrupled they have doubled...

According to the IMF Commodity Price Index, at least. http://www.imf.org/external/np/res/commod/index.aspx

How much of food commodities prices (and for that matter, gold prices) are the result of pure speculation?

http://triplecrisis.com/food-price-volatility/

It's weird that you critiqued his analysis by using gold, which makes no sense for comparison. You might have strong feelings about unbacked paper money, but that doesn't make comparing with gold a sound financial model.

  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 ~= 293.25

You just can't compare to one currency and say it costs 5 times more. What I tried to say was that USD's value changed over the years. Apparently no one understood and everyone is trying to be funny. Sad.

What you really said though was that the value of gold has changed compared to the dollar. Gold is a usual "safe haven" in times of economic troubles - and you could say that we have had those in the last few years.

Since 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...

What you were saying was wrong, and more importantly invalid. Gold rising in price does not equate to the USD being less valuable, because there are more than 2 things in the world. Bring the Euro and the Yuan into it if you're going to make currency-valuation based arguments.

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.

> if nobody understands the brilliance of your argument

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%.

Upvoted for admitting you were wrong about the gold comparison, it's hard to do that on the internet and we could all do it more often.

He means in real people's dollars not Ron Paul bucks.

> Wall Street made a mistake with Google, since now their shares now are worth 5 times as much as they were at the opening.

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.

Now, this is stupid.

The point is that comparing Google's price in 2004 and 2012 to the price of gold is just as arbitrary as comparing it to the price of AAPL.

It may be interesting to compare growth VS gold.. but is it standard to compare against the price of gold?

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?

People price things in gold as there is a roughly known and finite quantity either in vaults or in the ground. USD's however have no upper bound and can be conjured into existence as 1's and 0's.

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

It's also possible that gold is not a good indicator of value. (Go to the store and try buying something with gold.)