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Comment by hackinthebochs | Hacker News Reader

I conjecture that this price is a reflection of the fact that facebook realizes their stock is way overvalued, and so they used this opportunity to make a huge purchase which would be too expensive otherwise. The fact that a huge amount of the purchase price in stock is a strong signal for this. These same sorts of deals happened in the first internet bubble (although this is clearly different as there is also a huge amount of cash changing hands).

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The biggest shareholder hero of dotcom 1.0 was Steve Case buying a real company (Time Warner) with bubble shares. But is whatsapp Time Warner? $1/user/year even with a huge user base is still not that much revenue.

Just under half a billion a year is a decent amount coming in, I'd say!

It might not be a lot of revenue, but I'd hazard a guess that it's pretty inexpensive to run. Hundreds of times cheaper per user than something like Facebook.

My dotbomb stock hero was always Cuban.

Yeah, Mark Cuban actually managed to turn his bubble shares of YHOO into cold, hard cash.

How much cash did Steve Case manage to withdraw from the stock market piggy bank?

With the options he had made so he could retain value even when YHOO crashed. Whatsapp founders will probably do something similar w/ FB.

And AOL Time Warner just about ruined the chances of that sort of thing happening again.

If any Board of Directors tried to pull off that kind of stock-based deal today, they're going to have a proxy fight on their hands. These days, the shareholders of the target company are going to want cash.

But during Bubble 1.0, plenty of bubble companies acquired other bubble companies.

Why is their stock overvalued? Do you have any evidence of this beyond you thinking there is a bubble? Honestly curious, since it seems to me their stock is rising for a reason: the fundamentals of the company are strong, and they have demonstrated an ability to rapidly react to new trends.

They have a P/E of ~100. They'd need to grow earnings 7x to reach a typical P/E of ~15.

Not saying it's impossible, but they're already very large. They have as many users as they're going to get (who isn't on there now?) so they need to earn 7x the income from the existing base.

Well, they continue to add users (albeit more slowly), and the world population is increasing, so I don't see any evidence that they won't add any new users. They actually don't even have 20% penetration of "everyone" by monthly active users, and I'd argue Facebook is on its way to being as ubiquitous as email.

>Why is their stock overvalued?

Because delusional people still didn't learn their lesson from the first bubble.

>Do you have any evidence of this

Their P/E is 112. That's the very definition of overvalued. The price of their stock makes the company worth far more than they earn. If you purchased facebook, it would take you 112 years to break even on that "investment" at their current earning rate.

Consensus analyst 12 month estimate (Feb 15th) is Hi: $82, Lo:$24, Mean: $70. So basically, consensus growth on the year in the stock price is 3%. Compare that to a market of 32% last year. Does not look like the analysts think FB is going to grow much. It's going to take a while to grow into that valuation.

I have to say, this really makes the most sense. It seems that a new bubble is growing as we speak, it's just a matter of time before it pops.

This doesn't make much sense to me since most of the transaction was in cash.

No, it isn't:

"The deal is being cut for $12 billion in Facebook shares, $4 billion in cash and an additional $3 billion in RSUs for employee retention."

21% cash.

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