Facebook Stock Hits A New Low, Down More Than 50% Since IPO
techcrunch.com
techcrunch.com
I believe in the Facebook product, quality of team, and future revenue potential, but sale at lockup(as well as concentration of control in Zuck) scare me, unless it gets to $10-20b capitalization.
is it not possible that the internet has reached capacity, that companies like Facebook and Google are never going to be in a position to add 100/200 million users a year any more?
Perhaps the facebook trend so far is a repeat of the myspace trend through mid-2007.
P/E is certainly not the only number that matters, but I think the two companies have a lot in common re: their major profit sources, and it suggests FB has quite a bit of room to go down more if they don't turn things around with eg an especially good quarter.
The Price-to-Earnings ratio is the ratio of the total outstanding share value to the company's income in the previous year.
Facebook's income in 2011 was $1B. At the IPO share price of $38, the value of the total outstanding shares was around $100B, giving them a P/E ratio of 100 ($100B / $1B = 100). Now that the share price has fallen by half, the P/E ratio is closer to 50.
The P/E ratio is used to give an indication of how highly a company's stock is valued in relation to the profit they make. Companies with a high P/E ratio are typically expected by shareholders to report higher profits in the future. Those with a low ratio are expected to remain flat or contract. For high-growth companies, like triple-digit growth, a P/E ratio between 50-100 is not unheard of, but is relatively high, and an indication of an exceptionally high degree of confidence in the company. A ratio in the 20-40 range is more common for growing companies. 10 and under typically indicates a relative lack of faith in growth prospects by investors.
There are many more factors to consider than relation to last year's profits when determining the value of a stock, but this is a very commonly used metric.
Your $62 today theoretically gives you some right to $1 per year of earnings + every other year after that, taking into account earnings growth (So, the case for high P/E ratios is that earnings growth will be fast enough that that $1 quickly turns into $2 each year) Apple's P/E, for more comparison, is at 16.
But more specifically, since facebook doesn't pay a dividend, you won't see that $1 each year because Facebook will re-invest their earnings into their business. You're essentially saying that facebook will invest that $1 into growing their earnings faster than you could generate a similar return by investing in something else. When a company reaches a point where the market is mature and further investment will likely not result in a earnings growth rate that beats similar alternative investments, it pays a dividend and the stock actually becomes a cash stream, which you can then re-invest or spend freely.
You rarely buy a stock looking only at the company's present situation. For instance, Ford for a long time had a price/assets value smaller than 1, which meant that one dollar of Ford stock gave you more than 1 dollar's worth of Ford's assets. But during this time, Ford was also losing a lot of money.
Neither estimate is perfect, but the forward P/E tends to take expected growth into account much more effectively.
I fully expect FB to drop below 10.
Even if I believed the stock was grossly over priced it would have been silly to take a short position because the stock was and is quite capable of spiking hugely. In this case you might be correct about the value of the stock but can still be taken out the market due to "irrational" movements in the price.
The "real" value of FB starts becoming "realistic" somewhere below 10 and unless FB announce some major improvement in revenue generation I just cannot see FB going anywhere but south in the short term.
One night I had a chance to play an extremely plump pigeon, I think they call them "whales" today. He asked for various handicaps to narrow my edge, and we worked out something I thought was going to make me a lot of money. He then dropped the big kicker: He wanted to play for extremely high stakes, enough that if he got hot, he would bankrupt me.
Naturally, this dismayed me. Although I thought I could keep my cool and not "steam," I knew that being the better player, I wanted the chance to let the odds play themselves out, not subject my self to the possibility of a bad swing.
So I sought out a friend who had an extremely large and dependable cash flow. Would he back me in exchange for a share of the profits? We both knew I was going to win.
He turned the deal down. "I only bet on myself," he said. I was incredulous. Why turn down an extremely lucrative business opportunity? "I like knowing that I made my own money," he said. He didn't see investing in me as being the same kind of thing as running his various schemes and dealings where he had his own hands on the levers of commerce.
I'm not saying it's a better thing, but some people simply aren't that interested in investing, they like to bet on themselves.
The main costs are:
- Transaction and Margin costs (those are generally 1 cent per share per side, roughly .06%)
- Borrow costs (For that trade it was 30% annualized. I held it for 6 days so its .7%)
Note that I didnt short as much as I could have -- obviously the return would be higher if I borrowed extra money to short.
I happen to find media and public sentiment on the biggest, most hyped IPO of the decade (ever?) to be fascinating.
The virtually unlimited downside of shorting is a lot of risk that has to be factored into any decision and thus shorting isn't to be taken lightly even if you're pretty damn sure of your opinion.
With the right options, you don't have to time it perfectly. Just good enough.
You can limit the risk of shorting relatively cheaply by buying way out-of-the-money call options.
The biggest irony is that spectators view the downward trend in share price as evidence that the early price was hype driven. In reality, both upward and downward trends are equally impacted by hype.
I plan to invest when the price gets to $15. The only alarming sign so far is the massive number of ads for Target that appear daily on the mobile version. Clearly a few large companies made big ad purchases, and Facebook now regurgitates the news that a friend liked Target again and again at every opportunity. It's supremely annoying and might actually make me stop using Facebook.
If you find oversharing, memes and cat pics valuable, then yes it's "valuable."
One time, this guy handed me a picture of him, he said,"Here's a picture of me when I was younger." Every picture is of you when you were younger. "Here's a picture of me when I'm older." "You son-of-a-bitch! How'd you pull that off? Lemme see that camera... what's it look like? "
I like it because it reminds me of an old Twilight Zone episode.
Stock unlock schedule: August 16th, 2012: 268 million shares, 10% of shares outstanding. October 14th, 2012: 249 million shares, 9% of shares outstanding. November 13th, 2012: 1.332 billion shares, 49% of shares outstanding. December 13th, 2012: 124 million shares, 5% of shares outstanding. May 17th, 2013: 47 million shares, 2% of shares outstanding.
"It’s Becoming Clear That No One Actually Read Facebook’s IPO Prospectus or Mark Zuckerberg’s Letter to Shareholders": http://finance.yahoo.com/blogs/daily-ticker/becoming-clear-n...