Comment by tokenadult | Hacker News Reader

Comment by tokenadult | Hacker News Reader

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FB may be many things but average is certainly not one of them.

Several of the other comments you have received relate to this idea, so please allow me to ask a specific question (directed both to you and to onlookers). What is not average about Facebook? For some commenting here, the specific question I have is what is above average about Facebook, related to its revenue, to suggest it will overperform the average of historic experience of companies that have IPOed? As an investor, interested in a non-lazy analysis, what should I look for to decide whether or not Facebook is a good investment at the current price of its stock? I note that you wrote,

I'm as bearish as anybody on FB but this seems like extremely lazy analysis.

so I'm not specifically asking you for a rationale for buying Facebook. Other comments at this comment level or below imply that there may be a rationale (perhaps unconvincing to you, but perhaps convincing to some onlooker) for buying Facebook's stock at today's price. What rationale is that? If I had some extra money, would I be well advised to invest it in Facebook stock? Why or why not?

I'd appreciate hearing from anyone who has an analysis that goes deeper than the news headlines of the last week since the Facebook IPO. Thanks.

Well, the analytical question here is: what is the appropriate sample for comparison?

The article uses US IPOs 1996-2010 as the initial sample. I'd like to know how sensitive this is to expanding or narrowing that range. How does that average change if you adjust the range? (The academic article may have some note of this.)

Then, the article makes comparison to Google's current price-to-sales ratio as a benchmark (5.51-1). The analytic justification is nothing more than "[s]ince Facebook FB -0.64% is most often compared to Google GOOG -0.66%..."

Some questions I'd ask about this:

- What did Google's P/S ratio look like at IPO, and what was its growth?

- What does Facebook's P/S ratio look like compared a broader sample of tech companies' P/S ratios? Or including non-tech companies?

- Why not use price-to-earnings ratio? (I'm not a finance guy, but the subtle difference in wording here gives me pause to at least investigate the question.)

So what you're hearing me say is: we need sensitivity analysis. The assumed benchmarks appear arbitrary enough that we have to see how the results change when you adjust the inputs.

Lastly, there's the age-old fundamentals versus intangibles question: investors make their decisions based on both. The fundamental analysis (of earnings, etc., like the article does) is not deterministic: it just gives you context. Intangibles (faith in management, broader understanding of how the market will shift and affect the firm's competitive position) matter, too. They're just, well, intangible.

But also included under the umbrella of intangibles is how investor sentiment toward the company may change. If people think FB is going to make some huge announcements in the next year that will send the share price skyrocketing for a short (but not sustainable) high watermark, then that potential short-term return is worth buying.

[Edit 5/25 6:57a PT - changed range from 96-00 to 96-10 based on correction. Thanks!]

The article says the analysis uses the 1996-2010 timeframe, not 2000, so that is a few more IPO's.

You don't want to use price to earnings for a company in a growth phase like this. The reason is that they are likely spending their revenue to grow the business (in the simplest example, buying more servers and staffing up).

Bearish == skeptical. I don't intend to buy FB and I think it's overvalued.

But I say that because I think FB's style of social networking is a fad, not because I believe crude aggregate statistics of internet companies in general tell us something useful in FB's case.

Social networking is not a fad. If anything it's becoming an underlying utility of the internet much like email, instant messaging and search. Any technology that's so core to the internet starts out as a standalone application (hotmail, AIM, Google) and becomes an underlying layer.

Facebook's advantage? They have a virtual monopoly on this utility. Not only that, switching costs are high (unlike email and search).

Look at the kind of growth apps gets from integrating with Facebook (Instagram, Viddy, Spotify). All social apps going forward will only reinforce their position by integrating with them.

People used to say exactly the same things about Compuserve and AOL. Internet castles tend to be built on sand.

I think what makes Facebook above average is that at IPO they are looking better than Google did at IPO. I think we can all agree Google is above average.

1) Current P/E is 74 (Google IPOed at 132 and was proven to be undervalued).

2) Facebook has higher revenues than Google did at IPO.

3) Facebook has more users, and more engaged users than Google did at IPO (though there is some question as to whether or not FB can continue to grow users).

Yes, they have to figure out the "facebook way" of delivering ads, but if they do...

Google IPOed into a growing market. It is not clear how FB's market or ARPU will grow from here.

They left negative money on the table at the table at the IPO. Good for them, and probably good for their long-term prospects (big buffer), but from a retail investor perspective, the business has a lot of catching up to do to meet the market.

I actually agree with the $10-15 conclusion right now, but the business has a chance to make up some of that gap before the share price goes there. Probably.

(not invested, and happily so)

A lazy analysis but look at revenue they're getting from payments. From their S-1:

Mar 31, 2011: $94MM Mar 31, 2012: $186MM

Obviously it's only two data points but payment revenue has grown 100%. Payments revenue only represents 10% of their total revenues.

WRT to this, the question becomes whether they could ramp up payments. I'm guessing that their main driver for payments revenue is games.

They recently launched offers. That could potentially drive revenue.

I think that Facebook should take on Square and enter the payments market. They're in a unique position to create Facebook Wallet.

The biggest barriers I see from this is that Zuckerberg would have to drive this kind of strategy and it doesn't seem like a move he'd take.

The main argument is that Facebook has created a platform that reaches nearly 15% of the entire planet. Nothing like this has ever happened this fast. Coke and other consumer brands may have similar or even larger markets, but it took them many, many years to get there.

Generally speaking it's that they haven't had their 'ah-ha' moment of monetization yet that Google had with ad-words.

Some think it'll never come. But it's a factor.

They have, and it was facebook credits. If that didn't maximise their profits then nothing will.

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