Facebook trades under $30, down 7%+
google.com
google.com
In contrast to the Google IPO in which the stock skyrocketed on the first day and really took off after that. Google may have been able to extract quite a bit from their IPO than they did.
Among other things, this means that employee options would still be above water. Rather more motivating than underwater options after years of death-march hours.
I never checked my FB options package. Largely on account of not receiving one.
No, the strike likely isn't 38. But downward valuation on stocks or options decreases their value.
If options were granted (and apparently this isn't the case at FB, see the RSU comment -- restricted stock units), then there would be _some_ strike value. Often shares are granted at some price as well (though it's frequently at some nominal "par" value, typical $0.01).
With options, it's possible for employees to end up with no value at all. In some cases, companies have re-issued "above-water" grants, though this has been frowned on in recent years.
With stock, again, you have the situation of sitting on, say, a few hundred or thousand shares, and watching your paper worth drop from $40k to $20k to .... Now, according to Zuck, that's not cool money, but to your typical Valley engineer, it's still plenty green, and hurts to see it wash away.
Last minute change to $38+ was suicide.
Remember market cap = total shares * price. :)
More realistically, Facebook should have sold less shares, which would have kept the price at that target. But I guess it couldn't sell less: they had a bucketload of people who wanted to sell, and all the biggest potential buyers had already bought... Lesson learned: don't get talked into secondary market abuse...
Sure I get the supply and demand thing you're trying to articulate, but the reality is that I as an investor am concerned that FB is overvalued at 100B marketcap, whether the shares are sold at $1 or $10000.
http://www.nasdaq.com/symbol/gknt/interactive-chart , then click the "Max" button down the bottom ...
Google priced their shares based on an auction, I'd say it was priced right. It was also much smaller because it wasn't a bunch of insiders trying to dump their shares at an inflated value.
Google sold 19.6M shares, 14.1M of them were from corporate. There were 271M shares in total, so only a very small amount of the company was transferred. In contrast for FB, there are 2.14B total shares and the IPO was for 421.2M of them, a much larger percentage of the company. In addition, insiders made up 241M of those shares sold, which is actually the majority of the IPO.
You'd be gambling enough already if you bought FB stock at 20x earnings (the tech norm for well-established companies), let alone at 100x.
At 20x, you'd be speculating on FB's ability to sustain its current earnings power in an increasingly competitive and verticalized space. That's a tough proposition, particularly since social graphs are not as much of a competitive moat as people thought (Orkut for example had at some point virtually the entire online population of Brazil engaged with it, virtually none now), and everybody and their mother is investing in a new social network for a different vertical.
Of course, it is entirely possible that FB will not only maintain its market position, but also increase its earnings power five-fold or whatever. In that scenario, they would have squashed most other vertical social networks and found a sustainable business model (they haven't really yet, see [1]).
Again, not impossible, but bear in mind what assumptions the current valuation implies. It's not surprising to see the market re-adjust its valuation after the IPO craze.
That the social graph feeds ubiquity and vice-versa is what makes the proposition appealing.
Google+ is about the only real competition, and it's really designed for a separate purpose.
1. The premiere clients of Goldman Sachs and Morgan Stanley who bought into the lie that FB should trade at >100:1 P/E; and
2. Facebook.
(1) I don't care about. (2) is the interesting one. You'll note that I don't include the employees in the list of injured parties. They're largely in a lockout anyway (I assume?). Whether it opens at $38 and drops to $30 or starts at $20 and climbs to $30 is of little consequence.
Facebook strategically seems concerned with only two companies: Google (disclaimer: I work for Google) and Apple, both of which have established, proven businesses and strategic assets in Internet and mobile going forward.
Facebook is a platform company without a mobile platform in a world becoming increasingly mobile.
Facebook has a lot of cheerleaders, optimists and pundits all backing this idea that the potential of all this data is huge, so much so that I believe they started to believe their own positive press. It's an easy trap to fall into.
But make no mistake: this is bad for Facebook. Sure some investors, Zuck and (maybe?) some employees made a few more dollars but Facebook doesn't need the money and neither do most of the investors. But that's incredibly shortsighted.
Facebook's ability to retain and attract talent and make stock-based acquisitions is in large part determined by the health and outlook of their stock. If they'd IPOed for $20-25 and jumped to $30 then they would have a lot of momentum behind them.
Instead the press is "how low will it go?" What kind of position is that to be in if, say, you're trying to negotiate a $1B+ stock-based acquisition?
Anyway, I'm glad about this drop. Not out of any kind of schadenfreude but because the market is acting... rationally. These P/Es were never justified and instead of not mattering and the stock skyrocketing anyway (which would happen were we in a bubble, which we are not), the stock is seeking a more appropriate level.
This is good for us, the tech industry and the market and the fact that some choice clients of Goldman Sachs and Morgan Stanley got bilked along the way is just gravy as far as I'm concerned.
EDIT: to clarify, I don't really have a position on what the appropriate level is other than $38 is and was too high. It could still well go lower than $30.
If there's money on the table, it's because everyone in the field has failed to figure out how to grab it.
So in 2014 it will be a 2B market - across ALL mobile. How big of a share can FB have - 20-30%? Still looks like a very small number.
Oh yes, even less confidence-inspiring.
So what you mean to say is, we have here a company whose traffic has been bleeding off their monetized, desktop platform into the unmonetized, mobile platform that has existed for four years, and they still haven't done anything about it?
Are we still talking about FB? I swear this sounds more like RIM.
Agreed entirely. Everyone's been acting disappointed by the lack of an IPO extravaganza, but that would have been horrifying-- this drop should be heartening to anyone in tech.
FB made less money in Q1 2012 than in Q1 2011. That was reported by them before the IPO. FB blamed it on the fact that more users are accessing Facebook through their mobile clients, which don't get them as much advertising money. Normal response to these kinds of reports is for the stock price to drop.
There's also the fact that they were horrendously overvalued in the first place. Facebook is quite possibly the most mature tech company to ever IPO. They already have their sources of income. They have arguably saturated their target market(1/6th of the human race has created accounts), and really don't have that much farther to grow, without seriously monetizing their current users. Unfortunately, as FB and all the other social network companies have found out, it's difficult to get more money out of your users without growing the user pool. Facebook can't grow their userbase exponentially, which really puts a lot of doubt on their future growth potential.
My gut feeling is that the IPO was not driven by Facebook needing the money(which would be normal), but that all the private investors and VC funds wanted to get out. They wanted as much money as possible, which would explain the high valuation.
Normally a private company cannot have most than 500 stockholders. Facebook obviously has more than that number of employees. They previously applied for and got an exemption from the SEC on the basis that most stockholders were employees.
That all changed early last year with Goldman Sachs' "investment vehicle" of holding stock on behalf of clients (a move the SEC will see through). That was deliberately done in January as it put a clock on filing for IPO by April this year, which is what happened.
Now they may have wanted to go public anyway. Whether or not they wanted to they signaled this event over a year ago.
I'm sure that you probably know this but just to be clear, the 500 shareholder limit is about whether or not a company has to report certain financial data to the SEC, not whether or not they must be publically traded.
They have several thousand employees and a few billion in cash now. They need to pivot and scramble like crazy. If they don't they will end up on the wrong side of the inflection point and on a glide slope to obsolescence. I don't get the sense that people inside facebook see things the same way, I think they see themselves as the crowned king of social, and with the IPO they are transitioning to being a value company, which could not be more wrong.
But it is small for Facebook. They already have the footprint with over 9 million sites all running the Like button. Utilizing that same JS they can have a 'Social Adsense' revenue stream overnight. They can potentially grab the search queries from the headers and have implicit and explicit data to target off of (the holy grail of targeting).
They are also going to be tapping into a new market (mobile advertising) which is a market that is seeing 1.5x-2x yoy growth. Open Graph has already been proven to propel apps that use it to the top 10 of the Apple App Store. With apps paying $1 to $5 per user, Facebook is an interesting position where they can be a HUGE channel for these app companies to spend their money.
The success of Android forks has also impacted iOS to some hard to measure extent (were it not for Android and Android forks, Apple would, I think, be even more successful in the mobile spaces it plays in).
NOTE: This is not to say I think a P/E of 100 was remotely justified.
>Facebook's ability to retain and attract talent and make stock-based acquisitions is in large part determined by the health and outlook of their stock. If they'd IPOed for $20-25 and jumped to $30 then they would have a lot of momentum behind them.
Why do you think the momentum of their stock has an effect on facebook's ability to attract talent? That's certainly not something I'm looking at (future stock price, yes; current momentum, no). Facebook's stock performance thus far has not changed my view of the potential future success of the company, and I think anyone who has actually done their homework regarding the Facebook valuation would feel the same way.
Certainly there are many good reasons to work at facebook, but how many of those reasons can make up for missing out on millions of dollars? This is all the more relevant right now because so many of the early employees have gotten their millions through the IPO, and that has all the makings of creating a cultural divide in the company between those who got theirs and those who haven't, and won't.
This kind of statement first has to be qualified as "two parties immediately hurt by this. It is common for price moves in a well known stock to exert a strong psychological influence on similar stocks and on the broader market. All markets are subject to flux but where things have fluxed to currently, it seems quite possible that others could be "injured" here.
Sure Facebook's move could, might, be good for the tech industry if investor perception separated Facebook from the rest of tech industry. If not, it is easy for things to go from irrational optimism to irrational pessimism.
>1. The premiere clients of Goldman Sachs and Morgan Stanley who bought into the lie that FB should trade at >100:1 P/E; and
>2. Facebook.
Wrong. FB did crazy volume on the first day at $45 to $38. 580 million shares were traded and the total number of shares in IPO was only ~470MM IIRC. That does not mean that the big clients unloaded all their shares because of shares getting traded multiple times and by HFT, but the really smart ones(most of them I would guess) sold their shares above $38 and some even went short and are making bank now, while the retail investors and other financial companies who bought the first day are left holding the bag.
I agree that Facebook sees mobile as a serious problem, as evidenced by their planned foray into mobile phones, however I think it's a distraction and will be a money pit for them. Much as Microsoft felt they had to get into search to compete against Google (they still don't compete in a meaningful way), Facebook feels they have to compete in the mobile space, but will never be able to execute as well as Apple on hardware or Google on integration with web services. It's very hard to get right, and I doubt very much they have the product design talent and supply chain experience to pull it off consistently and long-term, and it is way off their main area of competence. I'd be very surprised if they do well with a mobile platform given all the challenges it presents - they should work on improving their offerings on the main platforms instead, otherwise they will have 4 Facebook app binaries instead of 3 to maintain, and no obvious advantage as most of the users will not be on their phone.
Mobile is a complement to other devices, and a way of accessing the web, it is not a new segment which is orthogonal to web use - I'd argue mobile has only become popular as handsets became capable of accessing the web fully, and mobile apps may or may not win out over websites for some services, but for websites like Facebook they offer no real advantages save more access to user hardware for uploading pics etc. - something that a website can offer with an API and third party apps. Mobile apps are of course competing with the desktop, and will continue to do so, but not really with websites, they usually complement websites and use their APIs, not replace them.
Facebook's real problem, and real competitor, is the open web.
Facebook has been opposed to opening up from the beginning, and has pursued a very successful strategy of corralling their users, and requiring anyone who wants to interact with the service to sign in and share their info - I'm constantly plagued by their login messages when I visit a page. At some point this walled garden is going to start feeling very restrictive - it only works if there is a continually growing, or at least not shrinking, pool of people using the service - if it feels like everyone is logged in all the time, otherwise it becomes a bit of an echo chamber, infested with spambots and spammy companies like Zynga, and if your friends don't bother to check it any more or post, what's the point?
I suspect as the gloss wears off Facebook, particularly if they make a foray into mobile and waste energy there, it will be harder and harder to keep users inside their bounded version of the web, and competitors without the barrier to entry for readers (sign-in required for all essential services), will come in and capture user interest, as pinterest has for example.
As to their stock price, given their current revenue/profits and potential future profits, I'm astounded anyone still believes it was worth > $20B in today's money.
2(a). The Instagram team
700M of the 1B acquisition was stock. Assuming they didn't sell it yet, that's a good amount of money lost.
I don't understand why this metric is tossed around for stocks in which the regular shareholders receive no compensation for the shares owned (nor have any voting power for that matter). Owning stock in these companies seems like a pure speculation move, as the only upside to be seen in purchasing shares is that one day other people will value the share higher than the day you bought it.
There are two ways to gauge the value of a company. One way (the way to which you allude) is to buy it and hope that in the future, someone thinks it's worth more than what you paid for it. Some people call this the Greater Fool theory.
The other way is to treat owning shares like owning part of a business. (You might hear about this as the Graham-Dodd or Graham-Dodd-Buffett model.) In this case you consider the value of the company as the current liquidation value of the company's assets plus the total amount of free cash the business can produce over its useful lifespan.
The math of that valuation gets a little bit interesting, because if you project the free cash growth into the future ten or twenty years, you can use a present value calculation to get a fair price for the company right now. Divide that by the number of outstanding shares and you get a target price per share.
One of the flaws of this method is that you need to have a sane sense of the growth rate of free cash, so you'd better base that on a stable and measurable history, and you have to verify that against sanity and the company's published plans.
Graham's real insight was saying "If you do all that work, also add a significant margin of safety to account for any flaws in your calculations."
Of course you shouldn't use reported earnings for these calculations; they're far too easy to manipulate under GAAP and accrual accounting. Even so, finding realistic numbers and ruling out most stocks as overvalued is relatively easy.
(I'm working on a financial analysis site right now.)
If you measure only the average growth in free cash for the trailing ten years, you're ignoring whether the company pays out dividends. You only measure how much free cash it generates. Dividends are irrelevant to the free cash growth rate.
If you measure something like a return on invested capital, you measure how much actual cash the business reinvests in itself and how effective it is at free cash growth from that reinvestment. That metric does account for dividends, because money paid out in dividends or used to buy back stock is obviously no longer available for reinvestment.
edit With that said, some investors value regular and reliable dividends more highly than the fluctuations of the market's semi-random valuation of a stock at any point in time. If you're confident that Coca-Cola will always pay, for example, 4% of what you paid for a share in dividends every year, that stability might be worth something to you.
That's psychology and harder to measure and predict than numbers from financial reports filed with the SEC. You might get some interesting data if you calculate the time value of that money--is KO more valuable because you can get $0.13 per share quarterly in dividends starting now rather than holding onto it for up to ten years to make even more money? That's the kind of decision individual investors have to make for themselves.
I treat dividends as bonuses rather than expectations, but that's my own investment philosophy.
Because if the company keeps the cash it still is part of the company worth calculation (unless investors expect managers to steal it in the future). Not issuing a dividend is also a signal that the company believes it can earn a better return on the cash then if it were returned to the shareholder.
0. Keeps people guessing.
1. The company got most of its IPO market value, instead of having a portion extracted by Wall St. insiders.
2. The 'bubble' got popped early, which is probably a good thing for most everyone but Wall Street insiders.
3. Wall Street's ability to orchestrate asset bubbles, whether coordinated or purely emergent, and profit off them at the expense of potential crashes and financial crisies later, just took a hit.
4. There's less or no irrational exuberance this time around. The market may actually have learned from the 2000 and 2007/8 crashes.
But, the problem is they have not proven they can monetize those users efficiently and effectively yet.
I remember when everyone questioned how Google was going to monetize on their traffic and they figured it out and hopefully FB will too.
The one interesting thing that is a big difference between Google and FB though is that Google had "traffic" and FB has a group of people hanging out so to speak. You would think that FB has the better potential to maximize monetization of customers, but how remains to be seen.
Realistically, they need to be making somewhere on the order of $6.7 billion/year to have a "healthy" P/E of 15.
So, assuming that costs scale linearly with profit(they won't), FB needs to really be making around $25/user for the $100 Billion valuation to have a healthy P/E.
Business in those countries will not pay the same to publish their ads in FB, simply because the expected return will be lower.
[1] http://www.socialbakers.com/facebook-statistics/?interval=la...
I'm agree with many hn's that mobile is a general way for today Facebook. But today main Zuck plan look like a only increasing ads on Facebook - I'm talking about new Promote button - http://www.socialbakers.com/blog/587-get-ready-4-new-faceboo... Let me be honest - I'm not undersand Zuck. He have long war with Google for search traffic but still not released a Facebook Search. He can build a many new sections with new features (with ad) but still not. Well, he can experience with new brand pages (bild a new guidline and start migrate website inside Facebook and host it) or choose a absolutley new way of monetization (they are obvious) but this all still do not. I think, Zuck must hire a new CEO and calm down, then stocks can grow up to $160-$220 and more.
I'd love to see MS take a beating for that 100m they got for underwriting this poorly orchestrated IPO, I just haven't been able to see it happening unless there is proof I am unaware of.
Underwriters start out with a net short position on an IPO so that they can step in to support if necessary.
A pretty spectacular rate of value loss
To get that stock going up they'll have to increase their market share and the only way to do that is to start acquiring big social networks, something they don't seen prepared to do, or diversify.
Which social network(s) are they supposed to acquire for growth? While there are certainly other social networks out there, I sincerely doubt there are any that don't have a huge user overlap with Facebook.
Facebook could do worse than "Go Yahoo!" and start acquiring properties simply for their userbases.
I'm sure QQ is expensive, but it's not out of reach for a company that's public. Issue enough shares and anything's possible...if you can get shareholder approval.
The WSJ reported the options market has just opened for FB stocks. A lot of people seem to be very bearish about FB so a lot of short action could significantly impact the demand of FB stock.
I'm an amateur at this though, and would love someone to correct me if I'm completely off here :)
I'll buy the "options trading, short sellers" theory. Thanks!
[edit] I just learned below that that market just opened, so that strategy must not have been available to them.
I wonder how much of the current froth is based on people trying to be the next Facebook or Instagram?
If Facebook takes off and justifies their early valuation, the startup/angel/incubator/VC world would go into the stratopshere.
If it continues to languish, people are going to be much more skeptical in making investments and even starting web based businesses.
A lot hinges on this stock price for the rest of us....
Is the latter part of that really true? Starting a web based business is worlds easier/cheaper than just about any other kind. I see this more as injecting a dose of reality and doing away with the give-things-away-to-get-big-then-monetize-somehow "business plan".
If FB valuations keep slipping, it will put downward pressure on all social startup valuations, which means those companies have less money to throw around.
This is great new for non-social startups. It could mean everything from cheaper rent for office space in SF to a larger pool of available talent to recruit from.
There's only so much you can glean out of a social network where the vast majority of the time people are talking about how their day went. I think that some people fundamentally misunderstand the difference between Facebook and Google when it comes to figuring out what ads people want to see.
Let's say I'm on Facebook and I ask my friends for advice on which is the best lead pencil to purchase. They might tell me a few recommendations, and Facebook may even start producing ads based upon that conversation should I choose to revisit it.
But then I want to actually PURCHASE the lead pencil. Where am I going to go to look for that? Google. It will give me price recommendations, and once I've done the search, Google will continue to follow me around with ads tailored to my search.
This number has always irked me. How many of those are unique? And I don't mean unique accounts, I mean actually unique people.
I did some work in the social gaming space. We would routinely discover people with 5, 10, sometimes 20+ Facebook accounts that would be logged in and actively used in order to "game" social gaming mechanics ("add 10 friends!", "log in 10 days in a row and get a prize!", "complete these offers to get game currency!"). There are businesses on the internet that can get your page thousands of "likes" in the span of hours, by using multiple accounts.
Having a single account was the exception. And even though this was against FB's terms of use, I don't recall anyone, ever, getting banned for it. What would Facebook's incentive be to do so?
Really? Do you have any evidence to support that? Because my experience working with a game that had about 1MM DAUs at its peak was completely different. The analysis wasn't perfect, because it's very difficult to prove there is no unique user on the other end. But there are behavioral queues. And we determined that 1/4 to 1/3 of the accounts playing our game were fake.
Have you spent much time playing these games? They're hyper competitive. So any mechanics which require or benefit a player by having more friends will be taken advantage of. Need 20 friends to advance past a level? It's far easier to make and use 20 Facebook accounts accounts than it is to spam your friends list for people to play, especially if no one on your list actually plays the game. The whole system was designed to promote this sort of activity. That's why I can't understand why people would be shocked at this. The ruse is good for users (more stuff!), good for the games and good for Facebook (more DAUs!).
Again, it's the industry's dirty little secret: nobody has any incentive to tell people that large numbers of people using their game or application aren't even real. That goes for Facebook, Zynga or any small gaming shop anywhere.
Look at companies like this:
http://www.buyilikes.com/20000-likes/
Do you think that they rally 20,000 people to "like" your page? Or do they have a script with many accounts?
The point is, nobody really knows how big of a problem this is. You seem to think it's small; my experience tells me that it's big. Either way, the data advertisers are using to determine spends and ROI is skewed in an undetermined direction.
Edit: Have you ever played World of Warcraft? Do you know how people use characters to store and transfer goods? Depending on the Facebook game, that principle can exist on a very large scale. Except, as opposed to WoW, every storage character is counted as a unique DAU. I would bet my life that any game where an edge can be gained by having multiple accounts has a large multiple account problem.
I predict that Facebook is going to have a hard time hiring good talent now. This is one of the downsides of filling up your stock with a lot of hot air. It's all short term gain.
Website becomes popular.
Website gets personal details from users: email, maybe photos, address, etc., plus it gets a list of "friends" for each user.
Website shows display ads.
(Website gives birth to games company. Games company goes public then loses half its value in two months.)
Does website have a "business model"?
Wait, we're not done.
Website monitors everything users do on the website as well as, to the extent they can, the other websites users visit, using web beacons scattered across the web (Like buttons, aka "Facebook Connect").
Website shows display ads.
Do we have a business model yet?
But wait, there's more.
Website goes public and raises a heap of easy cash.
Website acquires a web browser, produces a mobile phone and begins monitoring everything users do on the web and every conversation they have with their friends.
Website shows display ads.
Do we have a business model yet?
Or is this just lots and lots of spying, information collection and dreaming that this is somehow useful for business?
Display ads are not a business model that will grow a business, unless the business is itself a display ad company.
(And Google already acquired those guys years ago.)
The winners in the IPO, and this has been said before (not just by me), is facebook and zuckerberg. The losers are the underwriters and their clients who the underwriters placed the stock with (and now, the rest of the retail investment market).
Typically an IPO is priced such that 'insiders' are getting a better deal than the retail investors will have when supply starts to open up. This IPO, that methodology was reversed. It was a huge stock->cash dump, and will benefit $FB near term because they have some 20+bn in cash now, but probably ruin them long term because of the reputation hit they took, and the prevailing view that their stock is worthless.
TL;DR; facebook screwed wallstreet more than it got screwed by wallstreet.
It's all just hindsight garbage.
Even if they all sold all of them, is it really enough to have a meaningful impact on the price of the stock with that much trading volume and that large of a market cap? Probably not!
Even if you don't, a huge slab of the company is owned by current and former employees.