Peter Thiel Sells Majority Of His Facebook Shares In Deal Planned Pre-IPO
techcrunch.com
techcrunch.com
Even for company insiders who really believe in the future of their company, it isn't prudent to hold more than a small fraction of a billion-dollar fortune in one stock, from a purely rational perspective. Of course, the public expects irrationally enthusiastic behavior from founders, which is the only thing that leads to the gigantic fortunes amassed by the Gates/Ellisons of the world.
Why can't people just accept that Facebook is a fad?
It does not mean the world is going to end. It's a fad, not a solid company. We went through this before 12 years ago. Eventually the market figures it out. Move on. That's what Thiel is doing.
More fads are around the corner. Investors will keep falling for the same old tricks.
Gates and Ellison are very poor comparisons. Their software was not web-based (=ad-based), their main market was the enterprise and they went to great lengths to create long-term customer lock-in. They began in a different era, and are nothing like Facebook, which is a photo-sharing website that relies on display ads and game-playing "whales" to make money.
I'm pretty bearish on Facebook's stock, but there's nothing here to indicate its just a fad. This is a company with over a billion dollars in revenues per quarter with a pretty consistent 15-25% profit margin.
Is it the next Google? Its looking more and more like its not, but that doesn't mean its going to be the next Yahoo! either.
You can make the argument that it's a different era now, so looking at total profit isn't an apples to apples comparison, but a counterargument could be that the internet is a much more competitive landscape than it was in, say, 1996 so that it's actually more impressive what facebook has done in this era.
Even if you've created a company which cures cancer, educates the world's children, and solves global poverty at a 40% profit margin, once you have 100% of your multi-billion dollar fortune tied up in it, it's time to diversify.
You could claim that everytime an insider at any company sells the majority of his stock he is diversifying. But that's not really looking at what the real reason is. There is a reason that "now" is the "time to diversify". And it's not just because diverisification is generally smart investing.
I guess Facebook represents something for a lot of HN commenters. When Facebook starts it's decline it signifies some larger problem.
It was a tremendous success, some people made many millions from Facebook. So what's the problem if the fad dies down and it all goes south eventually?
(quote from WSJ/All things D).
So, if you believe that Thiel is a savvy investor, then it's hard to be bullish in Facebook.
Didn't USV did a similar thing on twitter? Before IPO?
Let's say Company X has a 10% chance of being worth nothing, and 90% chance of being worth five times what it is today. Is that a good investment? Of course. Would you want to bet a billion dollars on it? If you had $20 billion, sure -- if you had $1 billion, probably not.
You can easily create a real-world analogy, a dice game where you pay me $X and roll a single die. I keep your money if you roll a six, but give you five times your money back if you roll anything else. You can only play once. How much do you bet? I hope you do bet something, because it's a very favorable game to play, but I also hope that you don't sell your car, house, everything in your refrigerator, and your dog to wager everything you have.
The IPO price is not really relevant since he couldn't sell at that price -- he sold nearly everything at the first chance he had, which was wise of him regardless of whether Facebook's stock price goes to $0 or $500.
The bottom line is that this has nothing to do with Facebook and is based solely on the mathematics of random variables.
No, it isn't what I would do. You might re-balance your portfolio if your capital is limited, but you'd be crazy to sacrifice high expected returns for the sake of zero beta. Admittedly, my personal portfolio is much smaller than Peter's.
>"How much do you bet?"
If I were looking to profit from games? A lot. What I wouldn't do is go to a game with worse odds, that paid me for a roll of 6, for the sake of "diversifying", which is essentially what you're implying by saying Thiel sold his stake for this purpose. I would stick to the game with the best odds just like I would stick to the asset with the highest expected return.
I other words, if Mr. Thiel truly believed FB was a $100BB company, he'd be a fool to sell off his shares right now. I think this reveals that he doesn't really believe that. Neither do I, so I don't blame him.
I actually made the prediction that Facebook would be where MySpace is--forgotten and irrelevant by the mainstream--by 2006. I was wrong.
I'm excited about the decline because it means the rise of something better. Continual improvement. When one door closes, another opens. But I recognise that many others do not share my optimism. Facebook represents something to them, I guess. I can't quite understand it.
Facebook is one step along the path. It was a fad that drew a remarkable amount of attention and participation. The internet just keeps growing. We are in its infancy.
Exactly. The internet 10-15 years from now will be unrecognizable, especially the social parts. Facebook (and Twitter, by the way) certainly won't be doing the innovating, and odds are they won't be able to keep up either.
Personally, I thought FourSquare might be the next big thing, but they failed to do anything compelling with the basic idea of location-based social networking. I still think that something big will come along in that space eventually, though.
The social web is just as important as search on the web. The web will always have search engines, and it will always have social networks. Google took over where Excite and Altavista left off. Facebook took over where MySpace and Friendster left off.
Google controls the majority of the social search market. Facebook controls the majority of the social network market.
So you might be saying, that's nice, but Facebook can't monetize it's users!
Have you ever looked at Google search results lately and noticed that nearly 1/2 the screen above the fold could be ad space? Don't believe me? Search for "iphone".
Yet we all think nothing of it. We've accepted it as users of Google.
Imagine if Facebook found a way to get it's users to ACCEPT ads. Start small, like Google and gradually increase it over time to what it is now.
That doesn't sound far fetched does it?
Social websites, widely, are websites that allow users to connect to each other. Even 4chan is social. Without search, we couldn't find anything on the web, but without social we couldn't talk to anyone. I don't know which is worse, but they would both be enormous losses.
Facebook, or "the social web" as its coined these days, is about the friend graph (ditto with twitter - its about who you follow, and who follows you), not about discussions.
Imho, the web will function perfectly well without facebook - each of the features of facebook such as photosharing, event organizing etc, all have ready replacements. Sure, the friend graph helps you connect easier/faster, but taking it away isn't as detrimental as taking away search.
Facebook wants to portray itself as a one-person-one-account service, but the lack of extra accounts is largely because they've obsoleted most of the reasons people would create multiple accounts.
Teachers are just as important as lawyers. But search captures people looking to solve problems (i.e. potential customers) while social captures people looking to waste time.
I remember about four or five years ago when everyone was asking each other to look them up on Facebook. I never hear this anymore! The only time I ever note that Facebook is mentioned in conversation is with respect to their stock price or some privacy gaffe. And yet Google, Apple, and even Microsoft products frequently crop up in discussions I have.
... and I'm in the biochemistry field!
Thiel is an investor. Most investors eventually move on. He invested in 2004. 8 years, and he netted a billion dollar cash profit so far on a $500,000 investment. He's not in it for long-term company building like Zuckerberg is. He's not trying to be Warren Buffett. He shouldn't be panned for this. And he still owns millions of shares. So it's not like he's completely out.
But judging by the past response to privacy issues, there are a lot of people that will complain for a week before jumping headfirst.
I think you overestimate the extent to which average users are aware of/care about Facebook's privacy gaffes.
Getting into payment processing will expose them to SOX and PCI compliance. They'll still be able to reset your privacy settings for your profile, but they'd be sued out of business if they did something like that for your payment profile. No matter how much it looks like they do, Facebook rarely makes mistakes.
I'm betting they're on the brink of slicing dicing and selling everyone's personal information. It's more profitable. It makes use of their principle asset. There are few comparable companies to act as competitors. It's a really big and lucrative market.
And it solves their problem with monetizing mobile.
Sure, it's got a lot of upside if you can buy it at the right price, but up till now, it hasn't shown advertisers (who make up the majority of their revenue) that it can deliver customers as acceptable CPAs. Until that happens, we'll still be waiting for facebook to be an "awesome business."
Facebook should also launch a web search similar to Google just go capture some market share in search-driven advertising.
Around the world, Facebook is the fastest loading website (it often beats Google). Its infrastructure is ready to make a truly global play of some kind.
Expect something huge after the stock price stabilizes a bit.
What if there was a "real world FB" where FB users live together and drama ensues - and the only way to watch it is FB.com.
There are so many other things that FB could do to truly be a platform: Education via FB, Work via FB (think having a mechanical turk via FB where users could sign up to be a part of the service and use the FB platform to earn money), videoconference within FB, etc etc etc.
And I think the "look how many users we have!" metric is going away quickly.
I personally don't mind ads on sites, but the Facebook ads that I'm fed all appear to be for slimy businesses (I'm constantly seeing ads for Canadian Pardons that are using what I believe to be unauthorized images of celebrities) or have seemingly low-to-no production values.
They need to fix or curate the way ads are displayed, because I think it will eventually become a hindrance to their success.
How many new accounts did you create annually 10 years ago? How many new accounts did you create annually 5 years ago? How many new accounts did you create this year?
People don't mind switching, and in fact they don't mind having simultaneous accounts. People on this forum think that they are 'special' inasmuch they don't mind negotiating multiple accounts with relative ease, but it's an inevitable tactic.
Facebook can be used to login to other sites, but with Google+ and Twitter and the $20 share price, nobody small wants to bet on Facebook. It's like making an Xbox 360 exclusive game if there was a $0 porting cost.
If Facebook is bought out by Microsoft or Apple, it will truly be a threat as a universal login system. But until then, they will die a death from a 1000 paper cuts.
Of course it is possible to overcome these network effects but I think that if they are smart enough they can keep it going. Then it just becomes a question of what valuation they can sustain without being so invasive as to completely alienate their userbase.
On an anecdotal level I have seen people try things like Path, Instagram, the location based networks etc. Most when the mental overhead of all the social networks get to much eventually just mainly settle back on Facebook (with Twitter being the only real exception)
this is the problem - facebook's value proposition for a user is not Facebook itself, but the ability to interact with another person easily (games, photoshares, pokes etc). However, this isn't actually worth very much money, and to try to extract that from the user is fruitless.
The only real way to monetize is really to sell behavioural data of its users to advertisers. There is real value in that, even if the users don't like it. But its a double edged sword, and this sword is what is going to kill facebook!
I myself prefer more direct and personal forms of communication like Skype, Instant Messaging(Facebook Chat is merely adequate), phone calls or email. Unfortunately, I am saddled with Facebook because everyone I know has abandoned all other forms of communication.
1. Their social graph is great but it has one major flaw. It's very bad at profiling intent.
They also have a problem they share with Google.
2. They haven't found a way to make advertising work on mobile, an increasing part of their visits.
Unless they find a way to solve those two areas they will not be able grow their revenue without hurting their visitors.
And herein is the problem: Apple - Apple is so against advertising that they created their own iAd network to keep other companies out of the game (it doesn't have to really be a success - just enough to keep devs off competing ad networks).
As long as Apple is influential in the mobile world, Google and Facebook are going to have a tough time with mobile ads... do consumers actually want ads? Apple is betting no, and as far as they're concerned - screw the devs and advertisers.
Actually I think the problem is bigger than that.
Android is a more popular mobile OS than iOS by far and in fact googles reason for approaching it that way is that they want a platform to serve ads on.
But so far they havne't managed to find a way to do it.
If Google can basically kick Apple back into niche status (not there yet), then they could extract monopoly rents on a defacto standard of ad-based apps either using Google's mobile ad network, or a consortium of which they are the sole influential player.
Perhaps that explains why they haven't tried to heavily monetize this yet - that would pus more consumers into non-ad-based apps where Apple is strongest.
People are paying apple for their products and do not want to pay to have that product riddled with spam.
Frankly, FB has to figure out how to make a search service, via fb.com and their mobile apps.
An interesting twist could be to allow users to search for things that other users are doing or planning to do. e.g. "who is interested in going to the movies tonight?" and let a group organize around that activity - then sell them discounted movie tickets.
More about this point on my blog if you're interested: http://diegobasch.com/facebook-and-twitter-dont-know-what-yo...
So I think Thiel had lot of legal pressure, although technically not an obligation, to sell as per his trading plan filing. He could have taken risk but it's probably not worth it for another half-a-billion of profit if you are already multi-billionaire and if you are already cultivating 1000X returns as it is.
On the other hand it is surprising that he decided to sell most of his stock instead say only quarter or so. I would think Thiel as a long term investor in FB from what I've read in the book "Facebook Effect". Thiel is one of the few person that probably knows most upcoming plans and products in works and problems at FB. A typical strategy for investors like Thiel is to cash out in stages instead of dumping most stock at once like regular VCs do (10-25% each quarter, for example). Considering his level of insider knowledge this only means he did not expect FB stock going up at the time of trade filing in at least 1 to 2 year horizon.
This is even more surprising because I keep thinking FB is going to come out with something like AdSense any day now and almost instantly double its revenues bringing stock back to $25-30. Obviously Thiel has calculated things differently.
If you get too far ahead of everyone else you become the target, and there are simply so many startups and smart brains working against Facebook and Twitter at this point that they simply will not be able to maintain their leads indefinitely (which is what their market values are incorrectly predicting).
Certainly no system ever built can match Facebook's penetration rate, but it will probably always pale in comparison the real world social network. The difference is mobile devices are going to map a lot better to the actual network in ways that Facebook will be unable to capitalize on.
A. $1000B ? No... B. $100B? Maybe C. $10B? Possible
I think Theil is obvi not betting on $1T.
Thus, after 8 yrs, time to go.
At ranges between B and C, holding a large position in a public stock that is exhibiting true volatility (ie, something other than upward drift), is not likely to please his LP investors.
Nor, similarly would it be advised for his own holdings.
Reading more into the tea-leaves (ie, operationally) might be fun, but I'm not sure its adding explanatory power to what we are seeing here.