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I thought this was going to be a puff piece before I opened it but the most interesting thing--and perhaps this is posted elsewhere and I merely missed it--is i
by cletus 16y ago
I thought this was going to be a puff piece before I opened it but the most interesting thing--and perhaps this is posted elsewhere and I merely missed it--is it has basic Facebook financials.
$2 billion revenue for $400 million profit gives a P/E ratio of 125. That is simply nuts.
Now I fully realize that the stockmarket is driven on the expectation of future value rather than the simpler view of the ability to produce income, which is why "growth" companies trade much higher than their P/Es but 125? That's like the height of the dot.com era pricing.
Remember at 600 million users, if you exclude those who are illiterate, have no access to computers or the internet, are infirm or simply too young, there's only so much bigger Facebook can actually get (given ~6 billion people on Earth you'd exclude at least half of them).
The counterargument to that is that Facebook has only scratched the surface of monetizing those users and I guess that might be true but I'm also of the opinion that there isn't as much room to monetize as some seem to think.
The usual MO for a VC-backed company is to go all out to build scale. They'll burn through millions of dollars to do it without concern for how to generate money. Why? Because once you have scale many things become easier, even possible.
Facebook has scale and can only generate $400 million in profit a year and only a 20% profit margin? That's less than impressive.
- jonknee 16y ago$400m is the best case too... No word on what that figure actually is (gross, operating, net). Considering they are still taking lots of investment money, I doubt they are really generating that much free cash.
- nostrademons 16y agoI said the same thing about Amazon in 1999 ("they won't even turn a profit until 2003? How the hell does Wall Street think they're worth $40B when they lose money on each sale?") and ended up with egg on my face for it. FaceBook's a bit too risky an investment for me now, but I can see how someone who really believed social networking will fundamentally change society and FaceBook is the horse to bet on would go for it.
- klochner 16y agoIf you bought amazon at the top in 1999, it took 10 years before you broke even on the investment. Not really what I'd call egg on your face.
- terryjsmith 16y agoMark stated at Startup School that Facebook hasn't posted huge profits (if any) because they continue to invest almost everything back in for as long as they can [1]. Whether that's true or not remains to be seen, but I think it's fair to say that if/when Facebook chooses to turn more of a profit than they are currently, they can/will. [1] http://www.justin.tv/startupschool/b/272178321 http://www.justin.tv/startupschool/b/272178321
- neworbit 16y agoI wonder what fraction of that $2B gross revenue number is purely Zynga.
- mahmud 16y ago"there's only so much bigger Facebook can actually get" Here is a hint of their plan to remedy that: http://twitter.com/BigThingist/statuses/22913399742537728 http://twitter.com/BigThingist/statuses/22913399742537728 Also, now that social-networking sites are driving up demand for humans, is there something we can do to ramp up supply? Perhaps some sort of large-scale human production.
- chunkbot 16y agoFacebook is doing all it can to ramp up supply; I heard that Mr. Zuckerberg made Facebook for the sole purpose of getting laid (his users, not him).
- whatusername 16y agohttp://www.jwz.org/doc/groupware.html http://www.jwz.org/doc/groupware.html "So I said, narrow the focus. Your "use case" should be, there's a 22 year old college student living in the dorms. How will this software get him laid?"
- T_S_ 16y agoNice summary. Must take issue with a couple of points. "$2 billion revenue for $400 million profit gives a P/E ratio of 125. That is simply nuts." More likely it means that the sum of Facebook's earnings growth and discount rate needs to be about 15 percentage points higher than your favorite comparison point. Is that nuts? Merely debatable I would say. "Facebook has scale and can only generate $400 million in profit a year and only a 20% profit margin? That's less than impressive." Most of their investments can be expensed. Not so surprising really. I'm not a fan of the product or the stock, but I don't believe absurdity is approaching. Much older Google and Amazon have monetized adequately.
- sorbus 16y ago> Much older Google and Amazon have monetized adequately. Google is an advertising company. Amazon is a retailer. Facebook is a data mining company, with the one problem that they're too focused on getting the data and not focused enough on monetizing it. Seen in that light, it makes sense that they'll be able to monetize well, eventually.
- dasil003 16y agoI'm not exactly bullish on Facebook, but you have to admit the upside is completely unknown. No company has ever had so much detailed information about so many people; and thanks to Facebook Connect, Like button, and FBJS in general, they are continuously growing the personalized data they are collecting. There's no telling where all this data could lead. Why would they potentially strangle the golden goose to extract a couple billion today when they are healthily profitable and still agile and innovating on a daily basis? Personally I think Facebook is and has been playing its hand perfectly, and I think the potential is definitely there for the stratospheric valuation; no one really knows what it will be worth, but it's not too hard to imagine Facebook becoming the most valuable dataset in existence.
- numbchuckskills 16y agoSalesforce has a hefty P/E of ~ 258. This pales in comparison. Both are absurd in my opinion.
- phlux 16y agoThe only real pivot that I can see being a true revolution is if FB takes on Amazon and starts selling stuff to its users through an internal facebook store apps - and gives FB users a discount to the purchase of said items.