5 ms·

So, assuming this is correct, then we extrapolate their yearly income to $474m, that puts their P:E at about 105:1

jerf 16y ago
At that price, it seems like buying into them is a bet that they will be the first company to completely take over the Internet, even moreso than Google. I'm not sure I can buy that, at least not at that price. (Or, more accurately, a bet that enough other people will think so for long enough that you can unload your stock on them for a profit. I wouldn't buy and hold, I don't think.)
- nixme 16y ago
  Salesforce is trading at over 250 times earnings: http://www.google.com/finance?q=NYSE:CRM http://www.google.com/finance?q=NYSE:CRM
  - jerf 16y ago
    Well, I don't think I'd buy-and-hold that either. I want to jump up and down and yell "bubble" as much as the next guy, but I do have to admit this one seems relatively focused... at least at the moment. Just a small handful of companies trading way above what they "should" from a buy-and-hold perspective.
- redthrowaway 16y ago
  Exactly. I think most people looking at facebook are expecting it to be a bubble, but they're hoping that getting in pre-IPO will get them a large discount. I wouldn't be surprised if many of them are looking to dump when facebook IPOs.
- nl 16y ago
  It's worth noting that that high P/E ratio means an expectation in growth in revenue, not just traffic. While I think most people expect Facebook traffic to continue to grow for a while yet, it should also be clear that their moneterization efforts are pretty still primitive. For example, did you know it's possible to get > 50% cheaper advertising on Facebook by selecting CPM rather CPC when you build your ads? Even ignoring that, in my experiments advertising on Facebook is still hugely cheaper than on Google (taking the cost of a customer from acquisition to fulfillment). In any mildly competitive market (like online selling) that difference doesn't seem likely to continue. Anyway, my point is that I think that while "completely taking over the internet" may be crazy, there are plenty of ways for Facebook to easily grow their revenue by huge factors.
  - jerf 16y ago
    I'm pessimistic about that. YMMV. (Note, I'm not saying you're wrong and I did upmod you. I'm just disclosing my pessimism.) Facebook's basic play is to build a lot of value into their network by bringing as many people in as possible, make some pocket change in the process, then eventually figure out how to milk the surplus value which will certainly be a large amount of value. My skepticism lies mostly in the execution of that second step; I'm totally unconvinced there's an ad bonanza large enough to fund this. Maybe there is. I think somebody's going to actually have to sell something and it's not clear to me what will work on the promised scale. That or they're going to have to raise the barrier of entry and if they do that they'll trigger the open internet competition in a heartbeat, competition already coming together and will be ready to go when that happens. The act of squeezing the surplus value of the network is the exact same act that will create their decentralized open competition. But hey, who knows. Sometimes you get MySpace, sometimes you get Google. You tend to only be able to definitely tell them apart in hindsight.
    - nl 16y ago
      Have you tried advertising on Facebook? It's pretty easy. You can select your target audience by gender, location, age group, and interest(s), and then select if you want to pay per impression or per click. It is a good system (just as easy to use as Google's) and it gives good results. I've tried it, and that's why I'm bullish on them. (It's worth noting that advertising has funded newspapers for hundreds of years, television for 50 years, and Google for 10 years and is proven to work in those cases. I shouldn't have to say it, but apparently some people continue to doubt that advertising is a reasonable funding model at all, regardless of the specifics of Facebook) Another way to look at it: Do you think Yahoo or Facebook is more relevant to the average user, and what is the trend for each one, and what is the likely trend for advertising spend on each platform? (Note that Yahoo is currently worth $22 billion)
      - michaelchisari 16y ago
        Advertising is a reasonable funding model, but when the expectations are unreasonable, then people will question whether advertising can be an unreasonable funding model, in the sense of positive returns.
- Aegean 16y ago
  thing is, internet is a fragile market. Especially in social, if something else becomes hot, users can go away very quickly. It's not like some manufacturing business where you build relationships over years. Some possible risks: * Orkut-like sites were around for a long time, now nobody uses them today. People shifted to facebook and may move elsewhere. * It is possible that a decentralized, autonomous solution may come up for social profiles. * The fact that the company is not mature is a double-edged sword, a new idea or feature may come up that may well make facebook a less attractive place to be.
  - ikonique 16y ago
    "It is possible that a decentralized, autonomous solution may come up for social profiles." ucentric.org are building exactly this with their FOS myCloud server-to-server network.
rorrr 16y ago
P.E. of 105 is fine, as long as they can 1) Grow at a crazy rate (which I doubt they can) 2) Increase their revenue with the existing userbase (which they can do, but not at 5X) They can also reduce their spending, but that alone will not take them to a reasonable P/E. Basically, their valuation should be at 15-20 billion, at best.
sploink 16y ago
You might be interested to know that this is not unique - Baidu's PE ratio is almost 90 at the moment. (Not to say that both aren't overvalued.)
silverlake 16y ago
The P/E for Baidu is 83, Amazon is 75, Netflix is 68. PE of 100 for Facebook isn't outrageous. If they implement Groupon without pissing off their users, they'll easily earn tons of money.

jerf 16y ago

At that price, it seems like buying into them is a bet that they will be the first company to completely take over the Internet, even moreso than Google. I'm not sure I can buy that, at least not at that price. (Or, more accurately, a bet that enough other people will think so for long enough that you can unload your stock on them for a profit. I wouldn't buy and hold, I don't think.)

nixme 16y ago
Salesforce is trading at over 250 times earnings: http://www.google.com/finance?q=NYSE:CRM http://www.google.com/finance?q=NYSE:CRM
- jerf 16y ago
  Well, I don't think I'd buy-and-hold that either. I want to jump up and down and yell "bubble" as much as the next guy, but I do have to admit this one seems relatively focused... at least at the moment. Just a small handful of companies trading way above what they "should" from a buy-and-hold perspective.
redthrowaway 16y ago
Exactly. I think most people looking at facebook are expecting it to be a bubble, but they're hoping that getting in pre-IPO will get them a large discount. I wouldn't be surprised if many of them are looking to dump when facebook IPOs.
nl 16y ago
It's worth noting that that high P/E ratio means an expectation in growth in revenue, not just traffic. While I think most people expect Facebook traffic to continue to grow for a while yet, it should also be clear that their moneterization efforts are pretty still primitive. For example, did you know it's possible to get > 50% cheaper advertising on Facebook by selecting CPM rather CPC when you build your ads? Even ignoring that, in my experiments advertising on Facebook is still hugely cheaper than on Google (taking the cost of a customer from acquisition to fulfillment). In any mildly competitive market (like online selling) that difference doesn't seem likely to continue. Anyway, my point is that I think that while "completely taking over the internet" may be crazy, there are plenty of ways for Facebook to easily grow their revenue by huge factors.
- jerf 16y ago
  I'm pessimistic about that. YMMV. (Note, I'm not saying you're wrong and I did upmod you. I'm just disclosing my pessimism.) Facebook's basic play is to build a lot of value into their network by bringing as many people in as possible, make some pocket change in the process, then eventually figure out how to milk the surplus value which will certainly be a large amount of value. My skepticism lies mostly in the execution of that second step; I'm totally unconvinced there's an ad bonanza large enough to fund this. Maybe there is. I think somebody's going to actually have to sell something and it's not clear to me what will work on the promised scale. That or they're going to have to raise the barrier of entry and if they do that they'll trigger the open internet competition in a heartbeat, competition already coming together and will be ready to go when that happens. The act of squeezing the surplus value of the network is the exact same act that will create their decentralized open competition. But hey, who knows. Sometimes you get MySpace, sometimes you get Google. You tend to only be able to definitely tell them apart in hindsight.
  - nl 16y ago
    Have you tried advertising on Facebook? It's pretty easy. You can select your target audience by gender, location, age group, and interest(s), and then select if you want to pay per impression or per click. It is a good system (just as easy to use as Google's) and it gives good results. I've tried it, and that's why I'm bullish on them. (It's worth noting that advertising has funded newspapers for hundreds of years, television for 50 years, and Google for 10 years and is proven to work in those cases. I shouldn't have to say it, but apparently some people continue to doubt that advertising is a reasonable funding model at all, regardless of the specifics of Facebook) Another way to look at it: Do you think Yahoo or Facebook is more relevant to the average user, and what is the trend for each one, and what is the likely trend for advertising spend on each platform? (Note that Yahoo is currently worth $22 billion)
    - michaelchisari 16y ago
      Advertising is a reasonable funding model, but when the expectations are unreasonable, then people will question whether advertising can be an unreasonable funding model, in the sense of positive returns.
Aegean 16y ago
thing is, internet is a fragile market. Especially in social, if something else becomes hot, users can go away very quickly. It's not like some manufacturing business where you build relationships over years. Some possible risks: * Orkut-like sites were around for a long time, now nobody uses them today. People shifted to facebook and may move elsewhere. * It is possible that a decentralized, autonomous solution may come up for social profiles. * The fact that the company is not mature is a double-edged sword, a new idea or feature may come up that may well make facebook a less attractive place to be.
- ikonique 16y ago
  "It is possible that a decentralized, autonomous solution may come up for social profiles." ucentric.org are building exactly this with their FOS myCloud server-to-server network.

rorrr 16y ago

P.E. of 105 is fine, as long as they can 1) Grow at a crazy rate (which I doubt they can) 2) Increase their revenue with the existing userbase (which they can do, but not at 5X) They can also reduce their spending, but that alone will not take them to a reasonable P/E. Basically, their valuation should be at 15-20 billion, at best.

sploink 16y ago

You might be interested to know that this is not unique - Baidu's PE ratio is almost 90 at the moment. (Not to say that both aren't overvalued.)

silverlake 16y ago

The P/E for Baidu is 83, Amazon is 75, Netflix is 68. PE of 100 for Facebook isn't outrageous. If they implement Groupon without pissing off their users, they'll easily earn tons of money.