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> Lets see how the story will unfold You left it unstated that Facebook is now worth $283bln more than Ford. So, yes, the video looks silly for crying wolf bac

> Lets see how the story will unfold You left it unstated that Facebook is now worth $283bln more than Ford. So, yes, the video looks silly for crying wolf back in 2007. But I'm at a loss to draw the correct conclusion from this. Is it rational that Facebook is now worth 6x as much as Ford?

GCA10 10y ago
On Facebook v. Ford, in terms of how shareholder value gets built and sustained, yes, the market is being as rational as it ever gets. Consider the following five dimensions: CREATING THE PRODUCT: Facebook's engineers provide the framework, but each day's content is created free of charge by 1.5 billion active users. That's great for profit margins! At Ford, cars don't get built unless the company buys steel, glass, tires, etc. and pays workers to put it all together. That really squeezes margins. GENERATING DEMAND: Facebook's users share content and invite their friends to join, at no cost. Media companies beg to play in Facebook's ecosystem. By contrast, Ford needs to spend billions on advertising to get people excited about cars. OBLIGATIONS TO CUSTOMERS: Facebook has a modest-sized fraud and security team that keeps everything tidy. They do heroic work, but there aren't 50,000 of them. At Ford, the requirements for inspections, safety tests, recalls, legal settlements when vehicles go bad, etc. are vastly larger. OBSOLESCENCE: Ford has $58 billion invested in plant and equipment. Every day, those factories get a little closer to being obsolete. Ford must constantly either raise cash or reinvest profits to keep its factories competitive. That means less free cash for shareholders. By contrast, Facebook has just $8 billion invested in server farms, beautiful headquarters, etc. Its asset-maintenance burden is vastly less -- and should stay that way forever. MAKING MONEY: Ford's net income zigzags all over the place, jolted by lots of market/economic issues. Net income was down last year; historically it's ranged from $11 billion to sizable losses. Facebook's net income totaled $3.7 billion last year and is climbing at a very snappy rate. 35% a year? Doubling? Still hard to tell, but it keeps going up. Put all those factors together, and Facebook is a growth stock with a pretty straightforward path to making its business hum. Ford is a cyclical stock that may have already posted its peak profits. Ford may be a bedrock part of the U.S. economy, but that doesn't always get you a lot of love in the stock market, for reasons above. Yeah, Ford has $150 billion in revenue a year and Facebook had just $18 billion. But markets value companies on their growth prospects. I've got no trouble believing that Facebook's overall opportunity to make money is 6x better than Ford's.
- lvs 10y ago
  Snore. It's just advertising. If internet advertising is overvalued, then SV company valuations are dramatically too high.
  - cm2187 10y ago
    Plus advertising aren't exactly the most stable form of revenues in a downturn. Some investors will be in for a harsh awaking at the next bear market.
    - adventured 10y ago
      That very much depends on the context of the ad business in question. What stage it's at in terms of expansion and so on. Google zoomed right through the great recession, growing its advertising business while most businesses were struggling. As far as Google's business was concerned, the great recession hardly happened at all.
  - vecter 10y ago
    Google is "just advertising". What's your point?
    - lvs 10y ago
      I made my point. If internet advertising is an overvalued sector of the economy -- which it most certainly is -- then all your favorite companies need new business models. What more do you want to hear?
      - 03pxkexce5 10y ago
        And if cars are overvalued, then Ford needs a new business model. Kind of a tautology there.
        coldtea 10y ago
        The insight the parent offered though is pointing out the tautology in the former case. Because while everyone knows Ford == cars, lots of people see SV/Google and miss that most of it is in the selling ads business and much less in selling tech.
eggie 10y ago
> But I'm at a loss to draw the correct conclusion from this. Is it rational that Facebook is now worth 6x as much as Ford? I worry that I see it as over-hyped because of my discomfort in the future it proposes. Its valuation represents the market's belief in what I feel is a very dark future.
- arcticfox 10y ago
  And unfortunately the valuation means there are a lot of powerful people invested in making that a reality.
- mwfunk 10y ago
  One of the many weird things about the stock market is that it doesn't really reflect how investors feel about a given company, so much as it reflects how investors are predicting how other investors will feel about a company in the coming years. So, a slightly more optimistic way of looking at it is that investors think that other investors think that there's a dark future ahead, but may not believe so themselves. It's quite possible that no one really believes in that particular dystopian future, but everyone thinks that everyone else does.
- 03pxkexce5 10y ago
  I'm a lot more optistic about a world where everyone is socializing on the internet than one where everyone is burning carbon.
  - coldtea 10y ago
    >where everyone is socializing on the internet Or, as we used to called it in my day, not actually socializing.
    - 03pxkexce5 10y ago
      So kids these days are exchanging enough words but not touching enough bodies?
heurist 10y ago
Facebook uniquely knows the social network, communications, whereabouts and psychological makeup of ~1 billion individuals across the world. They've demonstrated the power to manipulate their users' emotions. Ford manufactures motor vehicles in a highly competitive industry. Comparing early Ford to current facebook might be a better comparison as they were both heralds of new disruptive technologies.

GCA10 10y ago

On Facebook v. Ford, in terms of how shareholder value gets built and sustained, yes, the market is being as rational as it ever gets. Consider the following five dimensions: CREATING THE PRODUCT: Facebook's engineers provide the framework, but each day's content is created free of charge by 1.5 billion active users. That's great for profit margins! At Ford, cars don't get built unless the company buys steel, glass, tires, etc. and pays workers to put it all together. That really squeezes margins. GENERATING DEMAND: Facebook's users share content and invite their friends to join, at no cost. Media companies beg to play in Facebook's ecosystem. By contrast, Ford needs to spend billions on advertising to get people excited about cars. OBLIGATIONS TO CUSTOMERS: Facebook has a modest-sized fraud and security team that keeps everything tidy. They do heroic work, but there aren't 50,000 of them. At Ford, the requirements for inspections, safety tests, recalls, legal settlements when vehicles go bad, etc. are vastly larger. OBSOLESCENCE: Ford has $58 billion invested in plant and equipment. Every day, those factories get a little closer to being obsolete. Ford must constantly either raise cash or reinvest profits to keep its factories competitive. That means less free cash for shareholders. By contrast, Facebook has just $8 billion invested in server farms, beautiful headquarters, etc. Its asset-maintenance burden is vastly less -- and should stay that way forever. MAKING MONEY: Ford's net income zigzags all over the place, jolted by lots of market/economic issues. Net income was down last year; historically it's ranged from $11 billion to sizable losses. Facebook's net income totaled $3.7 billion last year and is climbing at a very snappy rate. 35% a year? Doubling? Still hard to tell, but it keeps going up. Put all those factors together, and Facebook is a growth stock with a pretty straightforward path to making its business hum. Ford is a cyclical stock that may have already posted its peak profits. Ford may be a bedrock part of the U.S. economy, but that doesn't always get you a lot of love in the stock market, for reasons above. Yeah, Ford has $150 billion in revenue a year and Facebook had just $18 billion. But markets value companies on their growth prospects. I've got no trouble believing that Facebook's overall opportunity to make money is 6x better than Ford's.

lvs 10y ago
Snore. It's just advertising. If internet advertising is overvalued, then SV company valuations are dramatically too high.
- cm2187 10y ago
  Plus advertising aren't exactly the most stable form of revenues in a downturn. Some investors will be in for a harsh awaking at the next bear market.
  - adventured 10y ago
    That very much depends on the context of the ad business in question. What stage it's at in terms of expansion and so on. Google zoomed right through the great recession, growing its advertising business while most businesses were struggling. As far as Google's business was concerned, the great recession hardly happened at all.
- vecter 10y ago
  Google is "just advertising". What's your point?
  - lvs 10y ago
    I made my point. If internet advertising is an overvalued sector of the economy -- which it most certainly is -- then all your favorite companies need new business models. What more do you want to hear?
    - 03pxkexce5 10y ago
      And if cars are overvalued, then Ford needs a new business model. Kind of a tautology there.
      - coldtea 10y ago
        The insight the parent offered though is pointing out the tautology in the former case. Because while everyone knows Ford == cars, lots of people see SV/Google and miss that most of it is in the selling ads business and much less in selling tech.

eggie 10y ago

> But I'm at a loss to draw the correct conclusion from this. Is it rational that Facebook is now worth 6x as much as Ford? I worry that I see it as over-hyped because of my discomfort in the future it proposes. Its valuation represents the market's belief in what I feel is a very dark future.

arcticfox 10y ago
And unfortunately the valuation means there are a lot of powerful people invested in making that a reality.
mwfunk 10y ago
One of the many weird things about the stock market is that it doesn't really reflect how investors feel about a given company, so much as it reflects how investors are predicting how other investors will feel about a company in the coming years. So, a slightly more optimistic way of looking at it is that investors think that other investors think that there's a dark future ahead, but may not believe so themselves. It's quite possible that no one really believes in that particular dystopian future, but everyone thinks that everyone else does.
03pxkexce5 10y ago
I'm a lot more optistic about a world where everyone is socializing on the internet than one where everyone is burning carbon.
- coldtea 10y ago
  >where everyone is socializing on the internet Or, as we used to called it in my day, not actually socializing.
  - 03pxkexce5 10y ago
    So kids these days are exchanging enough words but not touching enough bodies?

heurist 10y ago

Facebook uniquely knows the social network, communications, whereabouts and psychological makeup of ~1 billion individuals across the world. They've demonstrated the power to manipulate their users' emotions. Ford manufactures motor vehicles in a highly competitive industry. Comparing early Ford to current facebook might be a better comparison as they were both heralds of new disruptive technologies.