Facebook sinks to record low, 43% below IPO price, as doubts grow
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The sponsored posts that look similar to normal user 'likes/shared' posts, the 'Friend has just accepted an offer' posts when they haven't, the 'Pages you may like' ads that appear in the mobile FB app ... to me, it feels grubby, deceptive and invasive of my user experience.
I know FB has to make a profit somehow, but that's really not my problem - I can only rank a service on my user experience, and FBs is sliding downhill. It's been said by others that Google Adwords has been so successful because it captured intent and context. I also think it was successful because (for the most part) it was non-disruptive to the overall user experience on the page it was displayed. The ads were reasonably discrete and clearly defined.
FB's approach of 'disrupt' or 'trick' the user into clicking on ads seems like a throwback to interstitials, pop-ups and other dubious methods. I can't see this as being a good approach and believe this will only hurt their user base (and stock price) in the future.
From account deletion, to clearing out my OS X and installing Lion on a new SSD, and using a fresh email for the new signup a year later, I still have my same friends showing up.
I wasn't trying to lose track of these friends, I'm just surprised that FB was able to figure that out with what I assumed was new information.
How does that even work? Maybe my old Time Machine brought long-living cookies back for Chrome?
It was just disconcerting.
Edit: (and then correlate the account I used to use for Facebook to my newer LLC FB account I use for testing)
Edit: must have been my mobile number, though I can't remember if I went through the confirmation/security step for this one.
Ask facebook as it is somewhat concerning though I'd imagine.
===== HOW IT WORKS =====
If someone has a Facebook account and shares their gmail or yahoo contacts with Facebook. Facebook will crawl through the email contact info and see if any of its already registered Facebook members' emails match the contact list. It will then put those matches up on the "People you may know" sidebar and suggest that you friend them.
That's what happened to me. I had 2 identities, one for family and relatives and one for my personal life & friends (goofing around, joking with friends). Facebook revealed my other identity to all my family and relatives. Some of them added me to their friends list and asked about my other name. I worked so hard to keep them separate but made the mistake with the emails. As soon as I changed the email the suggested friends recommendations stopped.
That. Really. Pissed. Me. Off.
I will never forget that, nor will I ever forgive Facebook for it. It was creepy and disrespectful.
The mantra on HN anymore seems to be to love any and every startup when they are small, but as soon as they start making lots of money they suddenly can't do anything right, should open source every aspect of their company for newer and smaller sartups to use free of charge and are generally evil. See this months threads regarding Craigslist, Facebook, Twitter, Google and Dropbox for more info.
I'm reminded of a few other blog posts I sometimes spot here on HN. They say something along the lines of "please charge me for your service so you'll still be around next year." Facebook's profit margins are a problem for all their users.
I do not agree with their methods for making a profit, but I can see why they have high costs to cover. I've had to build social-network-like features for clients. I can attest to the following about functionality like the news feed or photo sharing. It's:
1. complicated to implement
2. complicated to maintain and expand upon
3. resource intensive
For these reasons, maintaining the status quo requires non-trivial engineering and hardware. Users expect persistent storage of their old photos and content, after all. I could see that by refreshing my news feed a few times, I'm incurring a cost on Facebook that they can't recoup with non-invasive measures like Adwords on the side.
Facebook IS making a profit. A very nice profit in fact.
Facebook can easily be a profitable company with a $5B market cap. That'd still make it bigger than 99% of the start ups out there.
The problem is Facebook is trying to be the $100B company that they sold investors at IPO. They are not a $100B company. Not even close.
Investors see a good chance of turning Facebook into a $100b company. Even if it's a poor chance (say 25%) its worth pursuing. For users, this gamble pays nothing. Facebook doesn't have to serve more users or serve them any better to make that move.
Users are not going to like it. They get the downside and none of the upside.
Facebook was somehow hyped as being above the middling concerns that every other public company must address. But they are not, and have lost value accordingly.
There's many more reasons, but that's a big one. No one is going to come work for a company for equity that doesn't care about their stock price.
What??
Facebook employees apparently work pretty hard. They get huge rewards, when their stock goes up, so they want to company to succeed.
Once the stock stops shooting up, they stop caring about the company. They won't make money from their stock options, they'll make money from getting promotions or a good bonus. Impressing their manager is going to be more important than the company's overall success.
Employees will lose interest, and managers will have to introduce more rules, to "incentivise" the workers (and other managers).
Gets down to the classic: it's not what you do but how you are seen to be doing it.
Yeah, superhard way of making millions. Making a web site in your 20s and convincing the pension funds to give their savings from 30 years of real "hard work" while trying them not to notice the scam before you sell all your stock.
Bringing psychology back in, yes I can see how it would really tear people up to feel like they are "missing out," and the understanding that they are getting the "true value" is probably not much of a substitute. If the money in my bank account fluctuated daily, for reasons beyond my control, it would drive me right up the wall.
Edit: So based off the downvote, either someone didn't like my lack of explanation, or it Zuck is lurking on HN. I'm guessing the former, so I'll explain. FB's value is so heavily tied to future growth expectations. Current P/E is 116, and compare that to a peaked out company whose P/E is more typically between 10-20 (see: YHOO, GOOG, APPL, ADBE, ORCL). If FB gets to $15, it's a P/E of 82, $10 = P/E of 55, $5 and you have 27. At $5 and its current earnings, FB is basically toast as an "innovative" company. So, I say a "sub-$15" value above because once it gets to that point this quickly after the IPO, dropping into single digits has to be a possiblity they consider. They won't have billions of dollars at their disposal to do whatever they please and will have to be more judicious in their spending.
P.S. I'm a programmer, not a finance-guy, so please correct me if I'm wrong about something.
They have to cut expense if they are making net loss or are in cash flow negative. Which is quite different from share price.
And as of your second part. Why would not FB have billions of dollars at their disposal if their share price tanks? They sold the IPO and already have got that cash in their bank account. They won't gain a single dollar if the share price rises neither won't they lose a single dollar if it tanks.
But is there an indirect relation besides the obvious? That's what the original poster asked. Your answer didn't reply it.
1. A lower stock valuation affects their ability to raise money and greatly reduces the amount raised,
2. Affects morale because employee stock holdings and options are worth less,
3. Causes investors to put social or board pressure on Facebook to make changes, effectively reducing management's control,
4. Possibly attracts SEC or DoJ attention which could mean time-expensive hearings and possibly fines for misstatements (a.k.a. lies.)
5. Has a psychological effect on users who want to be part of something popular and winning and on app developers uncertain if they want to trust a company on the downs with their livelihoods.
Edit: this doesn't concern Facebook directly, but its investors and its newly created millionaires/billionaires will want the price to stay up so it doesn't affect IPO prospects of their other companies. This is more the case for VC with a steady deal pipeline than the newly rich employees who won't have anything ready for IPO for several years, possibly with an entire cycle between now and then.
If your stock is going down you are less able to raise capital by doing a private placement (basically a pre-planned sale to fixed investors kind of like Zynga did and is currently being sued for) Anytime a company sells a large amount of stock, and then the stock continues to go down, a number of law firms will file lawsuits.
Perhaps most importantly your 'buying power' is reduced. If you notice there are a lot of 'acquihires' going around. Those can be done 'all stock' when the stock is strong but require 'cash and stock' or worse 'all cash' when the stock is weak. So if Facebook wants to continue to gobble up things like Instagram is can't go into a deal with "Hey, its a billion dollars, uh today, perhaps on Friday it will be 800 million." [1]
[1] Yes, I know its more complicated than that but I simplify for brevity.
I think everybody sees the value in facebook in the tech world, for all the data they have, but the general public does not.
That will make it look like a cycle of cashing the over hype.
http://www.pehub.com/146588/the-%E2%80%9Cfacebook-problem%E2...
The second argument I've heard is that it allowed Zuckerberg and some of his closer companions to cash out a large chunk of cash for the first time.
Facebook itself did not need money to my knowledge
It also hurts the morale of all the employees that started working in the past ~12 months, whose equity was valued at an amount higher than $20.
Over the last few years, many Fortune 500 companies signed $20MM+ yearly deals to advertise on Facebook, develop fan pages, etc. Some -- most infamously, GM -- are starting to pull back (or pull out altogether).
In very basic terms, Facebook makes the majority of its money from advertising. It makes the majority of its advertising money from a relatively small handful of very big advertisers. Shaken confidence in Facebook, for whatever reason, shakes the confidence of these advertisers, which jeopardizes Facebook's ability to make money.
All of this is leaving aside the financial damages associated with declining market cap. In a weird way, that's actually less relevant than the effect the busted IPO is having on Facebook's position in the ad sales business.
Google is doing exciting and important things like building self-driving AI, google glasses, google fiber and android. However, I don't really consider Google + by itself, "cool".
It's way cooler for me than, say, a self-driving car (I live in the city and have no need for one).
Google are doing a lot of things that can't be replaced with competing services.
What would you replace self-driving AI, google glasses and google fiber with?
I think Google are in a different league altogether than Facebook which is just a glorified noticeboard.
What would you replace self-driving AI, google glasses and google fiber with?
Taxis, AR iPhone apps, and DSL? Ridiculous, yes, but no more so than saying Facebook could just be replaced by e-mail.
Heck, you could even claim that e-mail itself is "just a glorified noticeboard" or a fancy version of the Postal Service. You can glibly disparage nearly any innovation this way if you want.
The only problem I have with a comment like this is that there were millions of factors and pieces to the puzzle of creating Facebook, that this is a ridiculous over simplification of how it came to be.
Luck, timing, market condition, state of competition etc...
Zuck is the luckiest person alive to have been in the place he was when he was - its not like he simply invented everything required to make Facebook from zilch. Friendster and MySpace verified the market, zuck had a great twist on that and a million other thing fell into place.
Not to say it was simple and non-trivial, but that comment just has way too much bravado and ego and is just plain stupid.
He did a great job, but there is nobody else who should be using that line in any other context.
I think you're reading too much into this.
http://www.amazon.com/The-Drunkards-Walk-Randomness-Rules/dp...
It's not rare for people to attribute success only to them self and failure to market conditions.
I'm don't even know what the twist is. People seemed to leave Friendster because it was slow, then left Myspace because it made you sick, then joined Facebook which was like Friendster with active development and also initially seeded with smart people.
The only innovation I can see is that the company was run by a developer who showed that he was going to experiment with and build out the platform continuously in order to attract third-parties to invest in it.
I don't see the same happening with driverless cars, so I am assuming it is more difficult to implement driverless cars than Facebook.
There are actually multiple companies that have prototyped driverless cars, we're just much earlier in the technology cycle for it. But, I digress.
One can also imagine a massive drawback: the continuation of sedentary lifestyle status quo and all of its associated ills.
But hey, who wants to walk 10 minutes to transit, maybe you can take the driverless car to the gym.
Driverless vehicles have the potential to transform transportation, full stop. This obviously includes public transit (I highly doubt that a driverless bus is much of a technological leap from driverless cars). Whatever benefits public transit provides are included in the changes that driverless vehicles will bring (unless, as it seems, your only in support of inefficient public transit?).
I have no idea where the car accidents or pollution sentence came from. I'm "rooting" for less cars, not the least because it will reduce pollution, and live my life accordingly. I try to minimize the disease in my life by minimizing my car use - automated or otherwise - rather than addressing the symptoms using a new wundertechnology. I don't control the number of car accidents because I can't control the choices others make.
To be fair, a self-driving taxi may revolutionize urban life by making short taxi trips FAR less expensive and at least moderately more convenient. If self-driving cars become commonplace, city life should also be safer for pedestrians and cyclists.
I kept thinking of _The Fifth Element_ while reading your comment. Except instead of flying cars, HOV lanes packed tightly together carrying thousands of passengers traveling safely at 90 MPH. Saving emissions, being efficient. I can see it happening.
Free energy forever might revolutionize things. Cheaper and easier to find taxis will be a small improvement.
Taxis are disproportionately located in cities because that is where they make the most money (largest customer base). Making taxi rides cheaper would cut into their earnings, and would result in a corresponding loss of taxis until profit margins are restored.
Maybe I'm just starting to get old, and the idea of certain elements from all those cheesy movies about the future I watched as a young kid coming true just isn't as "cool" as it used to be.
Everyone from universities to BMW and Mercedes are working on self driving cars, Google Glasses aren't AR and better attempts have been made previously and as for cheap fibre well countless countries have in reality what Google is just talking about.
In many respects Google is like Apple - taking existing ideas and making them more polished.
The future is (mostly) already laid out, the roads just need to be paved to get everyone there. That is what Apple & Google are doing, along with some others.
Edit: Just realized we actually used to have (dumb) automated cars. They were called horses.
Google's real test will be putting their wundermachines on the market and standing behind them when the liability suits inevitably come in. That's not to say the vehicles themselves will malfunction, but that won't stop some people.
Edit: here are some dates.
- Staying in lane, 2003, Honda Inspire provides up to 80% of required steering torque: http://en.wikipedia.org/wiki/Lane_departure_warning_system#T.... Want to bet why it wasn't 100%?
- Traction assist in cornering, 1995-1997 (notably retrofitted onto the Mercedes A-class in 1997 after it was beaten by a Trabant in the elk test): http://en.wikipedia.org/wiki/Electronic_stability_control#In.... Early forms of braking traction assist available as ABS starting in 1971.
- Following the car in front, at any speed from 0 to 100 km/h, 2006, Lexus LS 460, with first systems becoming available 1997-2000: http://en.wikipedia.org/wiki/Adaptive_cruise_control#Availab...
- Standard roadside traffic sign recognition, currently implemented for speed limit and overtaking restriction signs, 2008, BMW and GM, soon followed by others http://en.wikipedia.org/wiki/Traffic_sign_recognition
- Blind spot detection, circa 2006, second generation Volvo S80: http://en.wikipedia.org/wiki/Blind_spot_detection
- Pedestrian detection, circa 2010, Volvo: http://www.popsci.com/bown/2010/product/volvo-pedestrian-det...
Kinze plans to release their fully autonomous agriculture tractor to the buying public later this year. I realize the field is not quite the highway, but it is still pretty exciting to see this kind of stuff come into production already.
(I'm strictly comparing internet speeds, not TV channel lineup).
First, the connection you're talking about is 50/25 Mbps, while Google is a symmetric 1 Gbps. Second, Google includes 1 TB of Google Drive, which Google normally sells at $50/mo.
Granted, it's cheaper for them to give you Google Drive if you're a fiber customer. And, of course, you might not even want it, but it's one hell of an extra if you want even part of it. I wonder if that's one of the things they're testing with Google Fiber: What do people do with a lot of cloud storage they have fast access to (at least at home)?
Even on the TV side, the comparison isn't that bad once you realize Google is throwing in a DVR (with 8-way recording??). They lose some ground because of the bundle savings (unless you count the Nexus 7 / local storage towards that), but the competing high-end plans are so expensive (~$200/mo for FiOS) and still a lot slower (3x download, 15x upload) that it's no contest, assuming you want the speed.
And just because Google is putting money behind all three doesn't mean it's doing any good. Until they release a product or share their research, it's all vaporware. And I'm not saying that to hate on Google, I actually like that Google is pouring money into these projects, but it doesn't change the fact that Google is getting preferential treatment from the media making it sound like Google is the organization trying to make advancements in these areas, no different than the way the media treats Apple during its product releases.
But Facebook isn't cool, no. It's too established now, in the same way that Gmail isn't cool. However, they're both indispensable services for huge, huge numbers of people.
But otherwise what is non-dividend stock but a ponzi/confidence game? The way shares are classed as well now you don't even really "own" a piece of the company. You have limited to no voting privileges, and don't share in the company's profits. No wonder the banks have to push them onto investors!
Basically you are hoping someone comes along who also doesn't mind buying a stake in a company where the only benefit is that there might be a third person in the future who will pay even more, and so on.
Have I got it wrong? I can understand stock when you are expecting your investment to generate returns based on a company's performance, but most stock these days buys you nothing but the ability to sell it to someone else down the road. Ownership itself has no value.
Yes, it's a confidence "game" on the company's fortunes when one buys with the expectation of selling before one of these outcomes are realised. But then so is staying in a country a confidence game that it won't blow up, holding cash that it won't be inflated away, holding gold that it won't plummet, etc.
It is not a Ponzi scheme as the shares try to approximate the productive value of the assets they represent ownership to - buying a tractor and putting it in your house is about the same as buying a piece of paper that says you own a tractor in a lot and neither is remotely Ponzi-ensqe for lack of presently producing cash flows. Stock of non-fraudulent companies represent real net assets while Ponzi shares don't.
But successful companies do return money to shareholders eventually. The question is when. If you owned Microsoft in 1986, would you have asked for a dividend instead of letting them use the money to build their Windows and Office franchise?
So, no, it's not a ponzi scheme. You're buying future dividends. In the case of Microsoft, every dollar you invested in Microsoft's IPO earns you two dollars in dividends today.
At any moment in time, you have ask: Can the company invest my money better than I can, adjusted for risk? If the answer yes, then any dividend payout is a net loss for you.
The board, which is chosen by the shareholders, decides how to allocate these resources. Whether the profits are paid out to your bank account or stays in the company is irrelevant with regards to ownership. Part of the assets belong to you regardless.
Of course, the board can make stupid decisions, and the value of the company will fluctuate depending on investors' view of the company's future. But as a shareholder, you do own part of the company and if the board acts against your interests, shareholder laws are there to protect you.
A little cold water getting splashed on Silicon Valley is just what the doctor ordered. The system is working.
At $40bn, I dunno. FB's revenue & profits are pretty close to Yahoo's, whose market cap is at $20bn (though much of that is in assets).
So, just guesstimating here, with no growth FB can probably justify a $15bn value. Anything on top of that is a bet that they'll find some other way to grow the company. Certainly possible.
I see 421 million shares @ $38 ~ $16 billion, but presumably some of those were investor stock, not company stock.
and products have a life cycles ... and its definitely not the growth cycle for facebook anymore, i think they are in maturity now ... and i think they should have went for IPO while still in growth
and they definitely need to start making new products ... they need to innovate or die! simple and basic, but i believe correct
The strategy behind the high dollar IPO was to maximize the return to the early investors who wanted to cash out and who were influential in the IPO negotiations.
The investment banks look at the IPO price in terms of the risk that the sell side of the firm will look bad. Once sufficient time has passed nobody assumes the bank had anything to do with propping up the price weeks after the IPO, when in fact it has lots of control over this.
Also, the relationship between share price and marginal supply and demand is by no means likely to be linear.
The bigger fool theory i.e. I can unload these for a profit to an even bigger fool.
Blind greed and/or blind stupidity.
At least, that's what I'm thinking.
The real damage I suppose is that, if it continues to drop, they'll certainly be a number of newish hires that have their option grants underwater. Not practically a big deal because there's certainly a cliff to their vesting, but underwater options aren't much of a retention tool.
Now sad part is that there now in a position were they have to do knee-jerk responses to maintain the hype and in that as many have said they are diluting there trust with there user base by doing adverts saying such and such a friend got this or liked this when IRL that friend will say they did not and is news to them. That is a level of marketing that is akin to fraud.
I do wonder what the advertising laws are like in comparision to TV adverts and online adverts - laws need to catch up to reality and fast or it will just carry on.
[1] https://www.google.com/webhp?sourceid=chrome-instant&ie=...
I think facebook haven't used their huge cash reserves wisely which is why faltering in a single area (aka. advertising) puts them in a very precarious position.
What has google done (just off the top of my head)?
android, gmail, google maps, search, self-driving cars, glass, hardware (I know the nexus/q are manu. by asus but google do have their name on it)
What has facebook done?
facebook.com, facebook app for mobile? thrift?
Pretty much every YC company risks money (vasts quantities for some) in the hope of making money.
Ideally intelligently.
HN FTW!
It's a stock on its way to $5, and even that is too high at the current earnings.
Which justifies this high P/E. Amazon is about to grab a huge section of retail by offering cheap next day shipping.
Same for Salesforce - consistent growth:
http://blogs.wsj.com/marketbeat/2012/07/31/tweet-this-j-c-pe...
" Tweet this: Facebook shares have been pushed down so far, so fast, that they now cost less than J.C. Penney shares. J.C. Penney shares right now are around $22.55, Facebook shares are around $21.75.
Now we know what you’re going to say: look at the valuations, dummy! (There, we saved you the trouble.) J.C. Penney’s PE (forward, one-year) is about 18. Facebook’s is 45 (and it’s trailing PE is 81). Plus, J.C. Penney has about 219 million shares outstanding; Facebook has 2.1 billion. "
I wouldn't trust the opinion of whoever wrote this. Pure stock prices are meaningless, you can't compare them.
I find it ok when some online commenter says it [he might be a fifth grader]. But I find it surprising that a leading financial newspaper publishes such statement.