FB stock priced at $38/share on Thursday, raises $18.4 billion

It couldn't be because Ford is a much healthier company than GM and people are more interested in their cars?

It could very well be, but it could also be that Ford is just using this as a creative marketing opportunity, to piggyback on the GM and FB hype to get their name out. It would be interesting to see if Ford continues with their current FB Ads investment or increases in future.

Not all 16B is going to go into FB's bank. Insiders are selling in the IPO. So not all of it will into FB's books.

This is just my personal opinion and I'll be the first to admit that I'm conservative with my money. That said, I think that a bet on Facebook's growth might be overreaching.

1. Facebook's profits are declining (by 12%). Revenue is up 43%, but revenue isn't what counts - profits are. Likewise, 43% isn't such an amazing increase. By contrast, Apple's profits are up 117% and their revenue is up 73%. Apple's P/E ratio is around 13. Even if you consider Apple an outlier, Google's profits are up 14% with revenue up 29% and a P/E ratio of around 19. So, in terms of growth, it doesn't look like Facebook is there. They don't seem to show a stronger growth pattern than companies that are trading with much more favorable P/E ratios.

2. Facebook could be a fad. While I think Facebook has much better engineering chops than AOL, Friendster, or MySpace, it's definitely possible that they could suffer the same fate. In a certain light, Facebook is a club and sometimes the crowd up and moves somewhere else. I have to emphasize that I really respect Facebook's engineering and that such strength and willingness to confront hard problems will help them a lot. Still, I remember when everyone used AIM and now everyone I know uses GTalk.

3. Facebook hasn't found a way to monetize users well. I read some estimate that Google earns 10-20x more per user. Facebook is at 900M users. They aren't going to justify such a high price by adding users. They need to figure out how to monetize them. Now, they may very well do that. If you think they will, it might justify that price. If Facebook could get its monetization per user up to Google's level, they would certainly justify that price (shrinking that P/E ratio to 8 or maybe even better). However, that's a big "if" (at least for me). I think that people betting on Facebook are betting that they will be able to figure that problem out.

4. Their mobile app doesn't have ads. To stay in the same place, they need to be able to monetize mobile as well as they've monetized their site.

5. People might become wary of Facebook. I hear a lot more ramblings about privacy and Facebook than privacy and Google. Maybe people feel more confident about Google being able to make money off of them through more traditional means. Maybe people have just felt Facebook trying to force them to be more open for their own ends several times before.

6. People are gunning for Facebook. Facebook has something that isn't making a ton of money, but people really want to be in that space. That's not great. Apple has a bunch of people that want in on mobile, but it's somewhat limited to major players - making a phone takes more than making Instagram in terms of time, money, and diversity of skills. Plus, Apple's making great money.

7. I think that Facebook isn't the best positioned for cool, new, useful things. I think that the mobile telecom industry is going to be flipped upside-down over the next half decade or so with LTE and then LTE Advanced. It's possible that a mandate for neutrality toward VoIP will come down. Google will be in a great position owning Android and GTalk. Apple has the iPhone and FaceTime. Even Microsoft has Windows Phone and Skype. Google and Apple are both working hard on mapping and other geo problems. While I like being kept up on random things in acquaintances lives, GMail and my phone know who I really interact with.

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To be fair, I do think that Amazon is overvalued. While their revenue has grown well, their margins and profits haven't. Frankly, unlike social networking, retail isn't going to be a single-source industry in the future. Amazon will continue to have to compete against other retailers and they may face better organized competition in the future. Plus, when a company can increase its revenue so much and not have its profits go up, it just seems like a business model that relies on such thin margins that an attempt to thicken them leads to great loss of business.

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Again, Facebook very well might justify that price. If they're able to greatly increase their monetization per user, that P/E ratio could drop fast. However, currently people are speculating that social doesn't lend to good monetization. We're also seeing that investors are willing to throw money at this with no monetization strategy (ala Instagram) and that means that Facebook isn't going to be on easy street with the space to itself.

Frankly, it isn't always about whether a company will justify a price. It's sometimes about having other options. Apple is trading at a P/E ratio of 13. If we assume that companies hit an equilibrium around 15 for slow-growth companies, Apple could get 15% earnings growth per year and return a little more than 15% per year in the stock market to get to that 15 P/E ratio. By contrast, if Facebook increases earnings 50% per year for 5 years, their P/E ratio would be 17 assuming absolutely no increase in Facebook's share price. To kind of put that growth in perspective, if Facebook's user base grew at that rate for 5 years, everyone on earth would be on Facebook.

So, Facebook has to figure out how to increase monetization per user by a good deal, fend off challenges from very smart people, make sure user apathy doesn't happen and that people don't go somewhere else, and make sure that it can adapt to mobile and other cool new things. I'm not saying they won't. I just think that there are places I could put my money that are smoother sailing. Facebook hasn't given me a plan of how they expect to increase their earnings: Zuck has even said that earnings aren't really their concern. In some ways, he's more interested in running a good site that people like - and that's good for me as a Facebook user. However, if earnings don't hockey-stick, that would leave me in an unfortunate position as an investor. Facebook is sustainable in that they're a profitable business. That doesn't mean the share price won't tank at some point if people begin to believe that Facebook will merely remain sustainable rather than hockey-sticking. Zuck is exiting this IPO with $1B in cash. It doesn't matter if Facebook tanks from here on out and he might be happy to see it remain more popular rather than more profitable. I think a lot of companies can operate that way - Patagonia does - but I don't think that's the ethos of those getting in on this IPO (even if it may be Zuck's).

I'm indifferent toward being proven wrong - I'd rather risk less and this is just an opinion. I respect Facebook's engineering and they've done a much better job than those who have come before as well as open-sourcing some great stuff. Facebook just hasn't shown me a plan for increasing profits. Without that, I wouldn't bet on that happening - and that's what people are betting on. Likewise, while Amazon has shown me how they intend to continue getting more popular, they haven't shown me increasing profitability. Again, Bezos is interested in creating a great customer experience that I appreciate as a customer. For the most part, I appreciate Facebook - it's reliability, consistency, speed. But that isn't the only thing I'm looking for in an investment - certainly not an investment with such a high P/E ratio. If Amazon's P/E ratio were 8, I would care less about a plan to increase profits - being able to keep them relatively level would be good enough. The same applies to Facebook. And I'm not saying that it won't happen. I just don't yet see how and I don't think Facebook does either - I think they're hopeful that they will figure it out later. They definitely could. I just prefer something more concrete.

P/E is a crude tool sometimes, and it's important to know it's limits of utility. Amazon, for example, has more than 10x the revenue of Facebook and has been undertaking a great deal of expansion, hiring, and investment in recent years, which has kept it's earnings relatively depressed. More so, the future growth potential of Amazon is very straightforward. They will almost assuredly garner a larger portion of the retail goods market over the coming years, especially throughout Europe, Asia, and South America where they have only recently started making inroads. More so, their digital goods businesses (eBooks, MP3s, video on demand, PaaS hosting, etc.) are on track for a hefty amount of growth as well. More so, Amazon is an enormously diversified business. Betting that Amazon will continue to execute well in enough areas to continue to expand immensely and to bring in enough profit to warrant today's seemingly inflated P/E ratios is not actually that crazy of a bet. Amazon's market cap is only around $100 billion total, which is barely twice Amazon's annual revenue.

Now, compare that to Facebook where they already have more than 10% the population of the entire Earth as users and yet have less than $4 billion in annual revenues and yet are slated to IPO with the same market cap as Amazon. In order for that bet to make sense Facebook would need to grow its business by one or two orders of magnitude and dramatically change their profitability structure. In short, they would need to fundamentally transform their business. That's the bet that people are making when they buy facebook at a 110 P/E ratio and to me that seems a lot riskier than the Amazon bet.

Amazon has a recent track record of adding new kinds of product & service offerings that (1) people actually want, and (2) pay for. What Facebook offers today for 99% of its users is about the same as it was 4 years ago. And they just give it away to those 99% for free. IIRC advertising and Zynga (another company, not them really) is where Facebook makes most of their money, and there's a lot of anecdotal evidence that Facebook ads don't work and don't get people to buy things. In contrast, Amazon monetizes almost every thing they've developed and invested in, people are throwing money at them, and they're more innovative. And Jeff Bezos is still alive and in charge, whereas Steve Jobs is dead. So yes, I'd expect a much better, more "expectations of future awesomeness" kind of P/E from Amazon than Facebook.

And it's much easier to start from scratch and build a functional replacement for Facebook (see Instragram, etc.) than it would be to replace Amazon's offerings. See the recent probably fear-based-buy of Instagram for $1B, etc. Zuck knows this. Zuck has way more things to fear than Bezos.

He may have actually meant share in the sense of percentage: I'd rather have 1% of Google than 2% of Facebook.

1 Google: 203.13 billions (market cap in http://www.google.com/finance?q=GOOG )

2 Facebooks: 2 * 104 billions = 208 billions

> Beat them out for that (and Facebook could potentially do so)

Google searches have purchasing intent, see http://cdixon.org/2012/05/15/facebooks-business-model/ .

I completely agree. When the perceived value of a company whose only asset is a clever idea and some hype is bigger than that of a established company with a real business model (say, Philips) you know you are treading into make-wish territory.

But nooo, say that to most people in the industry and they'll chew your head off for being narrow-minded and oblivious to how 'the economics of startups' works.

Agreed. One is literally rocket science (ok, engineering) and if things go wrong, people die. The other is something I could code up this weekend, and if things go wrong, a tweet is mistweeted or delayed, oh noes.

But these insiders most certainly do have FU-level wealth, and they are selling, pre-IPO.

Greed knows no bound, clearly. This being said, my rent got jacked up $300 a month. I must leave this place before I start paying to work here.