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Facebook Shares Hit $28.26 Per Share, That’s a $70+ Billion Valuation

42 points by ssclafani 16y ago

bane 16y ago
It may as well be a trillion dollars for all the sense that valuation makes.
dstein 16y ago
By reading this email, the recipient acknowledges and agrees that all of the information contained herein is confidential Was this unintentional humour? It's implied that by reading this "super secret" email that the valuation is meant to be secret, which of course it's not. It's no secret at all anymore that Facebook hired Goldman Sachs to pump and (eventually) dump it's shares.
- noahc 16y ago
  E-mail confidentiality statements are used more as scare tactics or to impress people. They have no or little legal standing. http://www.snewsnet.com/snews/gt_upload/Fitness07_lawreview.pdf http://www.snewsnet.com/snews/gt_upload/Fitness07_lawreview....
  - cookiecaper 16y ago
    Interesting article, though its assumption that since an IT administrator could look at your email it cannot be considered privileged is a bit worrisome. It basically means nothing done electronically can be counted as privileged. Why are phone conversations privileged? If the phone company was so inclined, it could (and has) hook up a listening device and listen to whatever they wanted, just like an IT administrator could hook up his email program to point to your mailbox (or packet sniff or use some other method). Fortunately, from the skimming I did, it doesn't look like there's case law on the matter, just an assumption that emails can't qualify as privileged. Note that most IT administrators could get any private keys you use at work by logging into your machine and copying them off and he could get your passwords by hooking up a keylogger. By the standard promulgated in the article, a defendant could then be forced to offer any passphrase for anything. We know that at least isn't considered the rule yet, let's hope it never becomes such.
    - electromagnetic 16y ago
      If your email is from your company, you don't own it and there's no expectation of privacy as you're working as a representative of that company. It's well established that what I do outside of work can get me fired if it's deemed inappropriately representing the company. So I don't get why there's an expectation of privacy when I'm doing something with work property, even if it's an email. I'll get fired if I'm inappropriately using the vehicle my work gives me, why wouldn't I get fired if I'm inappropriately using an email address my work gives me?
    - pyre 16y ago
      > Fortunately, from the skimming I did, it doesn't look like there's > case law on the matter, just an assumption that emails can't > qualify as privileged. IIRC there was a court case in California where the judge ruled that email can't be privileged because the sysadmin can read the email. I don't know if that was overturned on appeal or anything though. It may have been a federal case too (what's California? The 9th Circuit?).
- k33n 16y ago
  The recipient further agrees that -->it<-- will not copy, reproduce, or distribute this email in whole or in part.
jdp23 16y ago
sounds pretty bubble-icious to me ...
fleitz 16y ago
That would put FB on par with McDonalds or around the 80th largest corp in terms of market cap. That said, however overvalued I may feel it is, I don't think its going to head in a downward direction for at least a year. At least FB is a little more fun to hype than Gold.
- sandee 16y ago
  > At least FB is a little more fun to hype than Gold. There is no fun in hyping gold. That's simple because gold is not a hype
  - getsat 16y ago
    Gold has gone from $725 USD/ounce in the 2008 US economic crash to nearly $1400 USD/ounce today. This is likely more due to the fact that the USD is falling out of favour worldwide than hype, though.
xenophanes 16y ago
So how do you short facebook?
- chrisaycock 16y ago
  Convince a banker to write an over-the-counter put option on private equity? Though the banker will presumably want a really low strike price to justify the risk at any premium.
- noahc 16y ago
  Create a contract that allows you to do the following: 1. Buy Shares for $x from person A 2. Immediately share sells of Facebook 3. If the price of facebook drops below $x, rebuy for $y 4. Transfer new shares to person A The tricky part is #3 on what conditions do you have to rebuy shares when $y > %x.
- rorrr 16y ago
  put options
- jsm386 16y ago
  Perhaps Goldman would be kind enough to sell you some puts: http://blogs.wsj.com/deals/2011/01/14/struck-out-on-facebook-stock-maybe-goldman-will-sell-you-some-options/ http://blogs.wsj.com/deals/2011/01/14/struck-out-on-facebook...
imkevingao 16y ago
Goldman Sachs did it... so they must be right.. There are many reasons Goldman Sachs did the deal. If Facebook goes public and chooses GS as the financial institution to do the paperwork, that's one reason. In addition, if they believe speculation will drive Facebook stocks up after the IPO, then it's a good investment. Overall at 70billion valuation, Facebook has a P/E of 170 ~ ish. So earning 1 million dollar will drive the valuation of Facebook to 170 million. Let's try to use some common sense in this. Either Facebook start to monetize like crazy, like earn 10 billion profit next year, 10x of what it was this year, or the valuation has a problem?
- bl4k 16y ago
  You can't really treat Facebook stock in that way, for two reasons: a) They aren't putting in financial performance to impress investors. They are growing the company. b) Treat it more like a resources stock were they have large mining leases and rights, have started exploration but are 2-3 years away from actually mining anything.
  - imkevingao 16y ago
    that's how the dot com boom happened in the turn of the century. Everybody thought the tech companies were like mining resources and silicon valley young stars were all getting rich as if they found the next petroleum site... except when it came to harvest profit, they couldn't meet the ultra high expectations... and the bubble goes "pop" There are lots speculation that says Facebook is a bubble, I honestly think it has a lot more potentials as well, and it could potentially meet its expectations, but I don't think Mark Zuckerberg is exactly the right guy to meet the $50b or $70b expectation that investors believe.... I mean the guy is a legend and he continues to build amazing stuff for the world, but when it comes down to monetization, it's not cool, but maybe he'll find a cool way to make Facebook money.
    - bl4k 16y ago
      Ye I think that is the difference. Most resources stocks have risk built into the price (from nationalization through to a drop in minerals demand) but Facebook hasn't done much wrong in the past 5-6 years.
chailatte 16y ago
People who think that Facebook is undervalued always brings up the 'But they've yet started to monetize' reason. My question is, is it that easy to 'just' monetize? Because they would have to either A.) Enter an existing revenue space occupied by entrenched players (likely Google, Yahoo, Microsoft, Linkedin, Amazon, Ebay, Apple) and grab a big chunk of market share large enough to validate the $50-70 Billion valuation. With some of the competitors having cash warchest almost the half size of Facebook itself. B.) Create a brand new way/market to monetize. Has to be around $6-15 Billion/year revenue to justify valuation. Quickly, before they run out of money/hype. In a maturing/saturating online space. (for comparison, Digital Music is a $15 billion dollar market) On top of that, they have to be mindful of the declining game ad spend, declining monthly active game players, and the increasing costs from users overseas that cannot be monetized. I am sorry, I just don't see it.
- ig1 16y ago
  Local advertising is a $100 billion/year market in the US. Facebook are better positioned to take that market than anyone else. Local leafleting has a reply rate of about 1-2% but costs 200-300x as much to reach the same number of people, which means you only need a 0.005 response rate on Facebook to get the same value. A decent Facebook ad campaign will have a response rate around 0.08 - 0.1. That implies facebook advertising is 15-20x more effective than leafleting. Facebook ads might convert less well, but I doubt they convert 10x less well. Local adverts on Facebook make sense, it's just a case of making them easier to use and selling local business on the idea.
  - chailatte 16y ago
    If anything, Yelp and Groupon are better suited at taking that market than Facebook. They already have the built-up salesforce and relationship with local vendors. Not to mention for local advertising, mobile is where it's at. And Facebook would have to play nicely with Android and iPhone. Think Google or Apple will let Facebook anywhere near the sweet center of local advertising?
    - 16y ago
mynameishere 16y ago
Try advertising on facebook. Seriously. Try it. Go into that exercise with some adwords/adsense experience. You'll be calling your broker on the day of their IPO asking for some shares to short.
btipling 16y ago
You know it's easy to poke fun at this, but they are a gigantic fucking website. They are in a position to be beat the giants at everything. Google: search - Facebook can create a better search using the data it has about people and beat them. Microsoft - software, Facebook can add it's social aspect to software for phones, pcs, whatever in any way imaginable and beat them. Facebook is in the position to rule the world. To be what others have imagined but could never have been, to tie it all together and make more money than god. I'm not saying they will, but underestimating the skill, the determination, and the savvy of Facebook is probably likely. Of course there maybe some bubble mentality in the people bidding, but perhaps these people are in luck and it's not a bubble at all.
- wippler 16y ago
  With the given strength of 500 or 600 software engineers they have, I don't see how it is possible for them to diverge into every other vertical. The most important thing for their valuation is the leverage they have (lots and lots of data about every user).
  - btipling 16y ago
    Well they are hiring. It doesn't have to happen in Q1 of 2011, but it can happen in the next five or ten years.
  - waterlesscloud 16y ago
    If only they had some way to raise hundreds of millions in cash to hire more engineers...
- anigbrowl 16y ago
  http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=logarithmic&chdeh=0&chfdeh=0&chdet=1295071224728&chddm=1894786&chls=IntervalBasedLine&q=NYSE:TWX&&fct=big&authuser=0 http://www.google.com/finance?chdnp=1&chdd=1&chds=1&... Note the log scale for price.
- code_duck 16y ago
  I hear this 'rule the world' phrase in relation to facebook a fair bit. What is actually meant by this? What will facebook be doing that qualifies as such?
deleted 16y ago
[deleted]
maxklein 16y ago
If email were owned by a single company, would it be worth $70 billion in valuation? I think it would be worth much more than that, and that's why facebook is so valuable. Facebook is undervalued at $70 Billion.
lawfulfalafel 16y ago
I do agree with most people saying the valuation based upon their current business model is idiotic, which is why I think the investors thinking bigger. Maybe someday soon we will log into our banks with our facebook account. Someday we will be able to make a request to the DMV using our facebook account. Think about buying a laptop, and when you boot it up, it isn't windows asking you to create credentials but facebook asking you to login. If those investors aren't betting on game-changing stuff happening than I have no clue how the hell they are justifying this move to themselves.
bhickey 16y ago
I was most surprised at this statement: Thank you to those who participated in this week’s SecondMarket auction for Facebook shares. The auction was successful and fully cleared at a per share price of $28.26. Next week, the floor price will be $26.25 and we will require a minimum sale of 25,000 shares. In observance of the national MLK, Jr. holiday, please find the adjusted auction timeline for next week below. I've never used Second Market, so hopefully someone can explain things: * How the heck is are they organizing their auctions? If someone wants to dump FB shares at $25.47, what's the problem? * Why the minimum trade size of 25k shares? Is this driven by some sort of reporting requirement? * They state that 2.7m shares have cleared their exchange. Should I conclude that the volume of shares on Second Market is 500k? Something just doesn't seem to add up.
dsulli 16y ago
The big problem with Facebook is that their business isn't defensible in the long term. There have been lots of other social networks come along in the past (AOL, classmates, Friendster, Myspace). The prior ones are all in shambles now, that people have moved on to a new place. I don't see why another network can't come along in a year or two, and start stealing away visitors from them. Compare a few publicly traded companies in the range of 50 to 70 billion dollars market cap (all seem to have a pretty strong 'durable competitive advantage', as Warren Buffett notes): Comcast (63B) - millions of subscribers for phone, internet, and cable services, paying money every month for services. Amex (55B) - receives a chunk of every payment that their millions of card holders make. Card is accepted at stores and websites around the world. 3M (62B) - sell 20+ billion dollars of "diversified technology" products a year.
cryptoz 16y ago
> With 2. 5 billion or so shares outstanding, that’s a $70.65 billionish valuation. Wow, that's a total failure of understanding significant figures. "2.5 billion or so" is significant to one digit (assuming the "or so" refers to uncertainty about the 5). Then he magically finds four sig figs? Ridiculous.

42 points by ssclafani 16y ago

bane 16y ago

It may as well be a trillion dollars for all the sense that valuation makes.

By reading this email, the recipient acknowledges and agrees that all of the information contained herein is confidential Was this unintentional humour? It's implied that by reading this "super secret" email that the valuation is meant to be secret, which of course it's not. It's no secret at all anymore that Facebook hired Goldman Sachs to pump and (eventually) dump it's shares.

noahc 16y ago
E-mail confidentiality statements are used more as scare tactics or to impress people. They have no or little legal standing. http://www.snewsnet.com/snews/gt_upload/Fitness07_lawreview.pdf http://www.snewsnet.com/snews/gt_upload/Fitness07_lawreview....
- cookiecaper 16y ago
  Interesting article, though its assumption that since an IT administrator could look at your email it cannot be considered privileged is a bit worrisome. It basically means nothing done electronically can be counted as privileged. Why are phone conversations privileged? If the phone company was so inclined, it could (and has) hook up a listening device and listen to whatever they wanted, just like an IT administrator could hook up his email program to point to your mailbox (or packet sniff or use some other method). Fortunately, from the skimming I did, it doesn't look like there's case law on the matter, just an assumption that emails can't qualify as privileged. Note that most IT administrators could get any private keys you use at work by logging into your machine and copying them off and he could get your passwords by hooking up a keylogger. By the standard promulgated in the article, a defendant could then be forced to offer any passphrase for anything. We know that at least isn't considered the rule yet, let's hope it never becomes such.
  - electromagnetic 16y ago
    If your email is from your company, you don't own it and there's no expectation of privacy as you're working as a representative of that company. It's well established that what I do outside of work can get me fired if it's deemed inappropriately representing the company. So I don't get why there's an expectation of privacy when I'm doing something with work property, even if it's an email. I'll get fired if I'm inappropriately using the vehicle my work gives me, why wouldn't I get fired if I'm inappropriately using an email address my work gives me?
  - pyre 16y ago
    > Fortunately, from the skimming I did, it doesn't look like there's > case law on the matter, just an assumption that emails can't > qualify as privileged. IIRC there was a court case in California where the judge ruled that email can't be privileged because the sysadmin can read the email. I don't know if that was overturned on appeal or anything though. It may have been a federal case too (what's California? The 9th Circuit?).
k33n 16y ago
The recipient further agrees that -->it<-- will not copy, reproduce, or distribute this email in whole or in part.

jdp23 16y ago

sounds pretty bubble-icious to me ...

fleitz 16y ago

That would put FB on par with McDonalds or around the 80th largest corp in terms of market cap. That said, however overvalued I may feel it is, I don't think its going to head in a downward direction for at least a year. At least FB is a little more fun to hype than Gold.

sandee 16y ago
> At least FB is a little more fun to hype than Gold. There is no fun in hyping gold. That's simple because gold is not a hype
- getsat 16y ago
  Gold has gone from $725 USD/ounce in the 2008 US economic crash to nearly $1400 USD/ounce today. This is likely more due to the fact that the USD is falling out of favour worldwide than hype, though.

xenophanes 16y ago

So how do you short facebook?

chrisaycock 16y ago
Convince a banker to write an over-the-counter put option on private equity? Though the banker will presumably want a really low strike price to justify the risk at any premium.
noahc 16y ago
Create a contract that allows you to do the following: 1. Buy Shares for $x from person A 2. Immediately share sells of Facebook 3. If the price of facebook drops below $x, rebuy for $y 4. Transfer new shares to person A The tricky part is #3 on what conditions do you have to rebuy shares when $y > %x.
rorrr 16y ago
put options
jsm386 16y ago
Perhaps Goldman would be kind enough to sell you some puts: http://blogs.wsj.com/deals/2011/01/14/struck-out-on-facebook-stock-maybe-goldman-will-sell-you-some-options/ http://blogs.wsj.com/deals/2011/01/14/struck-out-on-facebook...

imkevingao 16y ago

Goldman Sachs did it... so they must be right.. There are many reasons Goldman Sachs did the deal. If Facebook goes public and chooses GS as the financial institution to do the paperwork, that's one reason. In addition, if they believe speculation will drive Facebook stocks up after the IPO, then it's a good investment. Overall at 70billion valuation, Facebook has a P/E of 170 ~ ish. So earning 1 million dollar will drive the valuation of Facebook to 170 million. Let's try to use some common sense in this. Either Facebook start to monetize like crazy, like earn 10 billion profit next year, 10x of what it was this year, or the valuation has a problem?

bl4k 16y ago
You can't really treat Facebook stock in that way, for two reasons: a) They aren't putting in financial performance to impress investors. They are growing the company. b) Treat it more like a resources stock were they have large mining leases and rights, have started exploration but are 2-3 years away from actually mining anything.
- imkevingao 16y ago
  that's how the dot com boom happened in the turn of the century. Everybody thought the tech companies were like mining resources and silicon valley young stars were all getting rich as if they found the next petroleum site... except when it came to harvest profit, they couldn't meet the ultra high expectations... and the bubble goes "pop" There are lots speculation that says Facebook is a bubble, I honestly think it has a lot more potentials as well, and it could potentially meet its expectations, but I don't think Mark Zuckerberg is exactly the right guy to meet the $50b or $70b expectation that investors believe.... I mean the guy is a legend and he continues to build amazing stuff for the world, but when it comes down to monetization, it's not cool, but maybe he'll find a cool way to make Facebook money.
  - bl4k 16y ago
    Ye I think that is the difference. Most resources stocks have risk built into the price (from nationalization through to a drop in minerals demand) but Facebook hasn't done much wrong in the past 5-6 years.

chailatte 16y ago

People who think that Facebook is undervalued always brings up the 'But they've yet started to monetize' reason. My question is, is it that easy to 'just' monetize? Because they would have to either A.) Enter an existing revenue space occupied by entrenched players (likely Google, Yahoo, Microsoft, Linkedin, Amazon, Ebay, Apple) and grab a big chunk of market share large enough to validate the $50-70 Billion valuation. With some of the competitors having cash warchest almost the half size of Facebook itself. B.) Create a brand new way/market to monetize. Has to be around $6-15 Billion/year revenue to justify valuation. Quickly, before they run out of money/hype. In a maturing/saturating online space. (for comparison, Digital Music is a $15 billion dollar market) On top of that, they have to be mindful of the declining game ad spend, declining monthly active game players, and the increasing costs from users overseas that cannot be monetized. I am sorry, I just don't see it.

ig1 16y ago
Local advertising is a $100 billion/year market in the US. Facebook are better positioned to take that market than anyone else. Local leafleting has a reply rate of about 1-2% but costs 200-300x as much to reach the same number of people, which means you only need a 0.005 response rate on Facebook to get the same value. A decent Facebook ad campaign will have a response rate around 0.08 - 0.1. That implies facebook advertising is 15-20x more effective than leafleting. Facebook ads might convert less well, but I doubt they convert 10x less well. Local adverts on Facebook make sense, it's just a case of making them easier to use and selling local business on the idea.
- chailatte 16y ago
  If anything, Yelp and Groupon are better suited at taking that market than Facebook. They already have the built-up salesforce and relationship with local vendors. Not to mention for local advertising, mobile is where it's at. And Facebook would have to play nicely with Android and iPhone. Think Google or Apple will let Facebook anywhere near the sweet center of local advertising?
  - 16y ago

mynameishere 16y ago

Try advertising on facebook. Seriously. Try it. Go into that exercise with some adwords/adsense experience. You'll be calling your broker on the day of their IPO asking for some shares to short.

btipling 16y ago

You know it's easy to poke fun at this, but they are a gigantic fucking website. They are in a position to be beat the giants at everything. Google: search - Facebook can create a better search using the data it has about people and beat them. Microsoft - software, Facebook can add it's social aspect to software for phones, pcs, whatever in any way imaginable and beat them. Facebook is in the position to rule the world. To be what others have imagined but could never have been, to tie it all together and make more money than god. I'm not saying they will, but underestimating the skill, the determination, and the savvy of Facebook is probably likely. Of course there maybe some bubble mentality in the people bidding, but perhaps these people are in luck and it's not a bubble at all.

wippler 16y ago
With the given strength of 500 or 600 software engineers they have, I don't see how it is possible for them to diverge into every other vertical. The most important thing for their valuation is the leverage they have (lots and lots of data about every user).
- btipling 16y ago
  Well they are hiring. It doesn't have to happen in Q1 of 2011, but it can happen in the next five or ten years.
- waterlesscloud 16y ago
  If only they had some way to raise hundreds of millions in cash to hire more engineers...
anigbrowl 16y ago
http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=logarithmic&chdeh=0&chfdeh=0&chdet=1295071224728&chddm=1894786&chls=IntervalBasedLine&q=NYSE:TWX&&fct=big&authuser=0 http://www.google.com/finance?chdnp=1&chdd=1&chds=1&... Note the log scale for price.
code_duck 16y ago
I hear this 'rule the world' phrase in relation to facebook a fair bit. What is actually meant by this? What will facebook be doing that qualifies as such?

deleted 16y ago

[deleted]

maxklein 16y ago

If email were owned by a single company, would it be worth $70 billion in valuation? I think it would be worth much more than that, and that's why facebook is so valuable. Facebook is undervalued at $70 Billion.

lawfulfalafel 16y ago

I do agree with most people saying the valuation based upon their current business model is idiotic, which is why I think the investors thinking bigger. Maybe someday soon we will log into our banks with our facebook account. Someday we will be able to make a request to the DMV using our facebook account. Think about buying a laptop, and when you boot it up, it isn't windows asking you to create credentials but facebook asking you to login. If those investors aren't betting on game-changing stuff happening than I have no clue how the hell they are justifying this move to themselves.

bhickey 16y ago

I was most surprised at this statement: Thank you to those who participated in this week’s SecondMarket auction for Facebook shares. The auction was successful and fully cleared at a per share price of $28.26. Next week, the floor price will be $26.25 and we will require a minimum sale of 25,000 shares. In observance of the national MLK, Jr. holiday, please find the adjusted auction timeline for next week below. I've never used Second Market, so hopefully someone can explain things: * How the heck is are they organizing their auctions? If someone wants to dump FB shares at $25.47, what's the problem? * Why the minimum trade size of 25k shares? Is this driven by some sort of reporting requirement? * They state that 2.7m shares have cleared their exchange. Should I conclude that the volume of shares on Second Market is 500k? Something just doesn't seem to add up.

dsulli 16y ago

The big problem with Facebook is that their business isn't defensible in the long term. There have been lots of other social networks come along in the past (AOL, classmates, Friendster, Myspace). The prior ones are all in shambles now, that people have moved on to a new place. I don't see why another network can't come along in a year or two, and start stealing away visitors from them. Compare a few publicly traded companies in the range of 50 to 70 billion dollars market cap (all seem to have a pretty strong 'durable competitive advantage', as Warren Buffett notes): Comcast (63B) - millions of subscribers for phone, internet, and cable services, paying money every month for services. Amex (55B) - receives a chunk of every payment that their millions of card holders make. Card is accepted at stores and websites around the world. 3M (62B) - sell 20+ billion dollars of "diversified technology" products a year.

cryptoz 16y ago

> With 2. 5 billion or so shares outstanding, that’s a $70.65 billionish valuation. Wow, that's a total failure of understanding significant figures. "2.5 billion or so" is significant to one digit (assuming the "or so" refers to uncertainty about the 5). Then he magically finds four sig figs? Ridiculous.