5 ms·

Reminds me of Facebook six years back: "There's no way they're worth $33B" [1]. Now they're worth 10X, publicly traded, and printing money. Respectfully, even

by beambot 10y ago

Reminds me of Facebook six years back: "There's no way they're worth $33B" [1]. Now they're worth 10X, publicly traded, and printing money. Respectfully, even professional prognosticators (ie. VCs) get this shit wrong 9 times out of 10... so lamenting all the ways it could "fail to be a great business" isn't really that insightful (in the probabilistic priors sense). TL;DR: You could be right (and frequently will be), and you could be spectacularly wrong. But we're just Monday-quarterbacking while they're trying to make the future bad-ass with magical "autonomous" cars (whether human drivers or computerized). That's cool in my book; I wish them the best of luck! [1] https://signalvnoise.com/posts/2585-facebook-is-not-worth-33000000000 https://signalvnoise.com/posts/2585-facebook-is-not-worth-33...

drieddust 10y ago
This is I don't get. How much money Facebook have made so far vs how much they have burned on operations and various acquisitions? Yes Facebook is earning money but will it be a great business to justify 300B+ valuation in long term?
- user5994461 10y ago
  They're probably fine as far as they keep having the detailed life and all information of billions of people.
- edblarney 10y ago
  FB has a P/E ratio of 42, which is high. The market assumption is that they can probably grow their /user revenues quite a lot because they're not getting that many new users. I suggest that FB is probably a very viable, very profitable company long term, but that their stock is probably over-valued. From an investors perspective, it may have nothing to do with the reality of underlying fundamentals - but how other investors will perceive them. Ergo - FB may still make a great investment if you think they will come out with some new shiny products to keep other investors hopped up on the juice. Purely by the books, they are about 4x overvalued right now. 10x price/earnings is the normal place for a healthy, strong, reasonably growing company.
  - justapassenger 10y ago
    ~10 P/E is ratio for a well established, stable business - ones that maybe deliver 10% growth. FB revenue growth is still insane - https://www.wolframalpha.com/input/?i=facebook+revenue https://www.wolframalpha.com/input/?i=facebook+revenue - once that stops, honeymoon will be over. But FB is stabilizing - https://www.wolframalpha.com/input/?i=facebook+p%2Fe+ratio+compared+to+stock+price https://www.wolframalpha.com/input/?i=facebook+p%2Fe+ratio+c... - P/E is dropping even as stock is going up. Market is betting that in a couple of years revenue growth should stabilize.
    - edblarney 10y ago
      "FB revenue growth is still insane" Agreed, but in order to justify the massive P/E they would have to be growing quite a lot for the next 10 years. I don't seem them delivering this kind of growth over that time. Maybe. Google was able to do it for a long while.
      - justapassenger 10y ago
        Google has P/E ratio of 28. Facebook P/E ratio is right now only ~60% bigger, at 46 (and it already showed huge drop from >100 last year, as earnings are catching up with investors bets). G revenue is growing at the rate of ~20%, while FB is doing >50%. If stock price for FB growth continues, it'll reach Google P/E ratio pretty soon - not 10 years. More like a year.
  - drieddust 10y ago
    Thanks I think your explanation makes more sense to me and I do think fundamentals are not right. I am not a finance guy so I don't understand a lot of thing but Facebook has issued 44.22B in common stocks and Zukerberg's personal worth is 50B plus. How does that work? In a way entire common stock is contributing to his wealth. I personally think a lot of investors will be the suckers in this game in the end.
    - chrisabrams 10y ago
edblarney 10y ago
That 'someone said something about another company' is basically irrelevant. The underlying issues are the facts that need to be addressed. X years ago, what was FB's user base, how much was it growing, could it be disrupted, and how much were they spending on ops/acquisitions ... and of course, how many $ could they squeeze out of each user are the fundamental questions. The article is not unfair. Uber is a great business that is probably wildly over-priced at this point.
- beambot 10y ago
  It's not irrelevant -- it's the same story every time, just with a different company. The "underlying issues" are things Uber management (1) understands better than outsiders looking in; (2) they're actively working to address; and (3) they have vastly-superior metrics to understand their own internal growth rate. They want to stay private precisely for this reason: They don't want to answer whiny questions from people who think they know better. "Wildly overpriced" is speculative on your part (at best). This isn't a publicly traded stock. It's preferred stock, and valuation is ~1 line item in a contract that probably spans dozens of pages. Those other T&C's matter a lot: liquidation preference, participating preferred, etc. Those newest investors are certainly getting superior liquidation preference, and likely getting guaranteed ROI.
  - edblarney 10y ago
    " it's the same story every time, just with a different company." No - it's definitely not the 'same story' :) The same was said about Google and FB, and Amazon - and they are doing very well. It was said about Twitter and they are failing. These companies are all quite different.
TylerE 10y ago
How long is it going to last though? I expect FB to face some very hard questions about it's ad business (click farming, bots, etc) in the next 12-24 months.
- ec109685 10y ago
  Google has weathered those same issues just fine.
- a13n 10y ago
  Really? I don't. Companies aren't blindly paying FB billions of dollars for ads without verifying they actually deliver a return... Clearly it's working, that's the reason so many companies pay for them. Sure, they could probably get better at managing "click farming, bots, etc", but despite these things, advertising on FB has proven incredibly valuable and there's no clear indicator that'll change soon. If anything it'll just grow more valuable across a larger user base, hence their lofty P/E ratio (implying growth).
ithinkinstereo 10y ago
There are significant differences between Uber and FB. Two very important ones: 1) Moat - barriers for entry in the ride-"sharing" space are low. See Austin for example. 2) Economies of scale - the costs for FB to add each incremental user got increasingly cheaper due to cost savings at scale. Not so much for Uber.
- beambot 10y ago
  1) People said the same about FB wrt Myspace. 2) Even if Uber's CAC doesn't decrease, it could have a vastly-higher CLV to justify the crazy spending to capture market share now. It's a calculated strategic decision -- and it's impossible to say if it's "wrong"; only time will tell.
  - ithinkinstereo 10y ago
    2) CLV depends on customer loyalty. In the case of the ride-sharing market, this ultimately comes down to the cost of service. Plus remember that Uber has to satisfy both sides of the coin here: drivers + riders. AND they have to be profitable. Tall order here.
xkcd-sucks 10y ago
The difference is that Uber's network effects aren't as important. As long as a service has a minimum number of users (and there isn't any cost to maintaining accounts on multiple services) they're essentially equivalent. Anecdotally, people in my region refer to these services as "Ubers" like "Kleenex" or "Xerox", or refer them as "cars."

by beambot 10y ago

drieddust 10y ago

This is I don't get. How much money Facebook have made so far vs how much they have burned on operations and various acquisitions? Yes Facebook is earning money but will it be a great business to justify 300B+ valuation in long term?

user5994461 10y ago
They're probably fine as far as they keep having the detailed life and all information of billions of people.
edblarney 10y ago
FB has a P/E ratio of 42, which is high. The market assumption is that they can probably grow their /user revenues quite a lot because they're not getting that many new users. I suggest that FB is probably a very viable, very profitable company long term, but that their stock is probably over-valued. From an investors perspective, it may have nothing to do with the reality of underlying fundamentals - but how other investors will perceive them. Ergo - FB may still make a great investment if you think they will come out with some new shiny products to keep other investors hopped up on the juice. Purely by the books, they are about 4x overvalued right now. 10x price/earnings is the normal place for a healthy, strong, reasonably growing company.
- justapassenger 10y ago
  ~10 P/E is ratio for a well established, stable business - ones that maybe deliver 10% growth. FB revenue growth is still insane - https://www.wolframalpha.com/input/?i=facebook+revenue https://www.wolframalpha.com/input/?i=facebook+revenue - once that stops, honeymoon will be over. But FB is stabilizing - https://www.wolframalpha.com/input/?i=facebook+p%2Fe+ratio+compared+to+stock+price https://www.wolframalpha.com/input/?i=facebook+p%2Fe+ratio+c... - P/E is dropping even as stock is going up. Market is betting that in a couple of years revenue growth should stabilize.
  - edblarney 10y ago
    "FB revenue growth is still insane" Agreed, but in order to justify the massive P/E they would have to be growing quite a lot for the next 10 years. I don't seem them delivering this kind of growth over that time. Maybe. Google was able to do it for a long while.
    - justapassenger 10y ago
      Google has P/E ratio of 28. Facebook P/E ratio is right now only ~60% bigger, at 46 (and it already showed huge drop from >100 last year, as earnings are catching up with investors bets). G revenue is growing at the rate of ~20%, while FB is doing >50%. If stock price for FB growth continues, it'll reach Google P/E ratio pretty soon - not 10 years. More like a year.
- drieddust 10y ago
  Thanks I think your explanation makes more sense to me and I do think fundamentals are not right. I am not a finance guy so I don't understand a lot of thing but Facebook has issued 44.22B in common stocks and Zukerberg's personal worth is 50B plus. How does that work? In a way entire common stock is contributing to his wealth. I personally think a lot of investors will be the suckers in this game in the end.
  - chrisabrams 10y ago

edblarney 10y ago

That 'someone said something about another company' is basically irrelevant. The underlying issues are the facts that need to be addressed. X years ago, what was FB's user base, how much was it growing, could it be disrupted, and how much were they spending on ops/acquisitions ... and of course, how many $ could they squeeze out of each user are the fundamental questions. The article is not unfair. Uber is a great business that is probably wildly over-priced at this point.

beambot 10y ago
It's not irrelevant -- it's the same story every time, just with a different company. The "underlying issues" are things Uber management (1) understands better than outsiders looking in; (2) they're actively working to address; and (3) they have vastly-superior metrics to understand their own internal growth rate. They want to stay private precisely for this reason: They don't want to answer whiny questions from people who think they know better. "Wildly overpriced" is speculative on your part (at best). This isn't a publicly traded stock. It's preferred stock, and valuation is ~1 line item in a contract that probably spans dozens of pages. Those other T&C's matter a lot: liquidation preference, participating preferred, etc. Those newest investors are certainly getting superior liquidation preference, and likely getting guaranteed ROI.
- edblarney 10y ago
  " it's the same story every time, just with a different company." No - it's definitely not the 'same story' :) The same was said about Google and FB, and Amazon - and they are doing very well. It was said about Twitter and they are failing. These companies are all quite different.

TylerE 10y ago

How long is it going to last though? I expect FB to face some very hard questions about it's ad business (click farming, bots, etc) in the next 12-24 months.

ec109685 10y ago
Google has weathered those same issues just fine.
a13n 10y ago
Really? I don't. Companies aren't blindly paying FB billions of dollars for ads without verifying they actually deliver a return... Clearly it's working, that's the reason so many companies pay for them. Sure, they could probably get better at managing "click farming, bots, etc", but despite these things, advertising on FB has proven incredibly valuable and there's no clear indicator that'll change soon. If anything it'll just grow more valuable across a larger user base, hence their lofty P/E ratio (implying growth).

ithinkinstereo 10y ago

There are significant differences between Uber and FB. Two very important ones: 1) Moat - barriers for entry in the ride-"sharing" space are low. See Austin for example. 2) Economies of scale - the costs for FB to add each incremental user got increasingly cheaper due to cost savings at scale. Not so much for Uber.

beambot 10y ago
1) People said the same about FB wrt Myspace. 2) Even if Uber's CAC doesn't decrease, it could have a vastly-higher CLV to justify the crazy spending to capture market share now. It's a calculated strategic decision -- and it's impossible to say if it's "wrong"; only time will tell.
- ithinkinstereo 10y ago
  2) CLV depends on customer loyalty. In the case of the ride-sharing market, this ultimately comes down to the cost of service. Plus remember that Uber has to satisfy both sides of the coin here: drivers + riders. AND they have to be profitable. Tall order here.

xkcd-sucks 10y ago

The difference is that Uber's network effects aren't as important. As long as a service has a minimum number of users (and there isn't any cost to maintaining accounts on multiple services) they're essentially equivalent. Anecdotally, people in my region refer to these services as "Ubers" like "Kleenex" or "Xerox", or refer them as "cars."