Facebook’s 1st-Quarter Profit Falls 12%
dealbook.nytimes.com
dealbook.nytimes.com
Myself, I don't see Facebook necessarily going the way of AOL and MySpace. Facebook's engineering chops are a lot better. Sure, there's an amount of social lock-in that they shared with AOL and MySpace, but that isn't the only thing keeping Facebook on top right now. Facebook has made sure that their site runs well - a minimum of errors, predictable and decently speedy response, and a willingness to address technological challenges that keep the site humming. While we might lambaste Facebook a bit from a social perspective, they've open sourced some genuinely good tools and seem to be sticking to their technological guns. Unlike MySpace, AOL, and Yahoo, Facebook isn't morphing into a company where "media" types run the show. While the social aspect is very important for Facebook, I think there's a more engineering-centric or engineering-friendly culture that will persist there like it has at Google. I don't see the higher-ups at Facebook thinking "oh, I get the cool stuff the kids today are hip to and I just need some peon programmer to translate my awesomeness into computer speak. All programmers are interchangeable cogs, right?" I think that does speak to Facebook's longevity. In technology, you need to be able to improve your product, not just keep the lights on.
However, Facebook relies on non-technological factors more than Google or Apple. Facebook needs to remain the place people sign up when they join a social network. It isn't too hard to imagine Facebook becoming the place known as the hangout for people's parents. As someone in my twenties, I'll probably have teenagers in 15-25 years (a decent number of my friends will in 15 years). Will they want to be on the social network that I'm on - the social network of my generation? It's already weird to me when old people sign up for Facebook. I don't want to "friend" my actual friends' parents. Frankly, I'm a (slightly) different person when I'm talking to my friends and when I'm talking to my friends' parents. Likewise, Facebook is treading a thin line on sharing. In the early days, Facebook was very closed and putting something on Facebook felt more private. Facebook has been slowly changing that to the point that I wonder whether I should just edit myself a bit more and publish publicly rather than on FB in a more formal way (ie. a blog). Finally, people could just get tired of it. I'm finding less interesting things in my newsfeed as time goes on. I find that I don't feel like posting as much.
For me, Facebook's valuation at $100B seems high given its earnings. It's PE ratio is above 100 and so one has to assume much more growth than other very good companies. It might happen. However, I think Facebook faces a decent amount of uncertainty in its future. It's well-engineered and well-run compared to those who have failed that we might point to as Facebook's future, but with a social product there's more than just having good service and any number of things could hurt Facebook from privacy concerns to becoming the network of the people who went to college from 2000-2015 while younger folk find a different place to digitally hang out. I wouldn't compare them to AOL, Yahoo, or MySpace, but I'd still say Facebook's valuation is quite high.
I'm not bullish on facebook by any stretch of the imagination, and their P/E is ridiculous, but it's also the wrong metric to be looking at when deciding whether it's a good investment.
The financial value of those users must grow super-linearly. The most recent figures I can find put them at having 901 million active users, which means they're valued at $111 per active user. Crazy stuff.
40K impressions would require 110 pageviews/day over 365 days. For comparison, Reddit averages 13 pageviews/visit [0]. I imagine both are largely dependent on their image traffic; can we draw conclusions between the two? Anecdotal evidence would have me believe I load less "ad pageviews" on Facebook than Reddit.
Personally, with their existing model, I think that's tough. Unlike search, the monetization rates just won't be that high, since it's not a point where a user is trying to solve a problem they're willing to pay for.
But they might surprise us, and if they find a good monetization model, that's a lot of collective person-hours of exposure.
But I think the valuation is quite high for a potential that they haven't shown they can leverage their users toward. Google hasn't shown that it can leverage its might toward, say, social. However, Google's valuation isn't so high compared to its earnings. For me, it's a big bet to assume a company can drastically change its monetization.
Saying "we're super popular, and we're going to figure out the monetization later" is pretty bubbly. It's equivalent to "ignore the financials."
If someone were to suggest that Facebook will eventually fall, the raw data from this quarter will not provide a sufficient argument. My argument would come from the idea that Facebook is currently acting like a very greedy company, with aggressive publishing of advertisements and aggressive policies that may eventually scare away the user base.
Especially with the internet becoming increasingly aware of the lack of privacy vs. the usefulness of privacy, it would be easy for Facebook to end up on the list of "bad guys" if they don't tread carefully. My prediction is that they will eventually overstep their bounds in greed, but it's too early to be comfortable with that prediction.
Personally, I can't honestly see facebook being nearly as central in 5 years time, if it exists at all. Some hot new thing will come along and do sharing better and everyone will jump all at once.
(disclaimer: I have no idea what I'm talking about)
Good corporate governance points toward the maximization of long-term shareholder value, as measured by the present value of payments to shareholders (dividends, buybacks, etc.) http://en.wikipedia.org/wiki/Net_present_value
Silicon Valley has a somewhat bizarre culture of viewing dividend payments as "defeat", as in, "We can't find anything better to do with the cash because we aren't innovative, so we're giving it back to our investors". This is where the (strange) logic of profit=evil comes from in these conversations.
considering that Facebook are about to raise $5B it isn't unreasonable to expect them to ramp up spending with revenue as well.
Facebook had over 1 billion dollars revenue in the quarter and they were profitable. Why is it so bad that they decided to spend most of that revenue to grow the business further rather than keep it as profit.
If revenue is decreasing, thats another story, but profit being down for one quarter is a result of how much they are reinvesting their money.
You are only as good as your current product: Facebook's commodity is people, and people are not as loyal as you might think.
Facebook could very well be around a long time, but 'forever and ever and ever'? Smart people have lost a lot of money thinking like that. I certainly wouldn't gamble on it.
Any email provider also has your social graph. The only problem with email is that it is seen as "old" compared to the "new" of Facebook and Twitter. Something else will come along and be the new "new" and that will be the end of Facebook.
They really don't. Not the way Facebook does; not for the post-Millennials. People email bosses and professors and acquaintances; they use Facebook for friends.
Google can easily de-throne facebook from the analytics crown:
1) establish a semi-dominant browser with automatic updates: done (chrome; strong on desktops, very strong on mobile)
2) establish "privacy mode" - disable likes in page, add them as a browser feature. Opt-in of course, but warn users about the privacy implications for letting a "like" button on the page go unquarantined.
3) wait a little and enjoy as Firefox (and Opera and Safari) do the same.
Within a year, facebook analytics stronghold is gone. Google has all that data from google analytics, which is about as prevalent as "likes", but does not look as devious (even though it is).
Facebook's SSO might be here to stay, but I'm sure Google are already working to undermine that as well. And that makes me happy. Not because I think google is less evil than facebook (it is less evil for now, but that could and will change after a couple of bad quarters) -- but because facebook's "like" buttons are a plague upon the web, the functionality of which SHOULD be included in browsers (assuming people and web masters want that, and it appears they do).
(Writing this as a happy RequestPolicy user who is not telling Facebook or Google Analytics anything he does not want them to know, except an IP address; I don't want them to know that, but I do have to tell them).
[1] http://investor.google.com/financial/tables.html -- compare "Revenues" to "Total Advertising Revenues".