5 ms·

It's kind of mind boggling that HP has nearly 350,000 employees. Facebook is soon to be worth twice (maybe three times) what they are, with a mere 3,500 employ

It's kind of mind boggling that HP has nearly 350,000 employees. Facebook is soon to be worth twice (maybe three times) what they are, with a mere 3,500 employees, despite HP earning seven times more profit. Something will have to adjust with that math.

joshu 14y ago
It's not current revenue that determines price. It's prediction of future value.
- sliverstorm 14y ago
  It's PREDICTION of future value Which is where things get sticky.
- adventureful 14y ago
  If we're going to be pedantic about it, it's not revenue that determines price, it's earnings, and specifically the expectations of future earnings. And it still makes absolutely no sense. HP has a great track record over the last decade of generating solid profits. I understand why they have a low PE ratio, the market is anticipating very slow growth. However, Facebook's growth meanwhile is slowing significantly, and they're IPO'ing at perhaps 120 times earnings (or more). That's a very large bet that Facebook will figure out how to accelerate their growth again. The market is wrong in its pricing of Facebook, and retail investors are going to suffer for it. Facebook is a compression trap. You slow their growth to 35%, peg their PE ratio to 35 times, and they need $3 billion in profit to justify their IPO price. Growing at 35% it would take Facebook about five years just to trade at a reasonable valuation. These things correct themselves one way or another; either FB accelerates, or the market will slice it in half in the next year to 18 months.
  - reitzensteinm 14y ago
    Future earnings isn't correct either (through pedantic glasses), because it doesn't handle cases where companies build value and then are acquired for a strategic reasons (think PA Semi). Expectation of future value and dividends is probably the truely pedantic thing to say, since (earnings - dividends) accrues to value. That way Walmart is covered.
  - joshu 14y ago
    sure. i was just correcting the earlier statement, not arguing for the validity of the relative valuations.
PakG1 14y ago
It depends on the business a company is in. Some businesses by nature have lower margins and have to make it up on volume, and the process requires a lot of labour, just due to the nature of the business. For example, retail and logistics companies. While I haven't done the analysis yet, I can see how Facebook's business is probably higher margin than HP's business. HP provides hardware, services, etc, at a large but limited scale. Facebook provides a web service to a global population at a seemingly unlimited scale. edit: Also look at which has more growth potential (which is admittedly under debate right now for Facebook).
viraptor 14y ago
Facebook is pretty much virtual. It doesn't have factories, hardware testing labs, R&D labs, physical presence in as many countries as HP, business sales / contracts, support people, etc. It's an apples to oranges comparison. One company provides a website, the other provides so many products they wouldn't fit in this box.

joshu 14y ago

It's not current revenue that determines price. It's prediction of future value.

sliverstorm 14y ago
It's PREDICTION of future value Which is where things get sticky.
adventureful 14y ago
If we're going to be pedantic about it, it's not revenue that determines price, it's earnings, and specifically the expectations of future earnings. And it still makes absolutely no sense. HP has a great track record over the last decade of generating solid profits. I understand why they have a low PE ratio, the market is anticipating very slow growth. However, Facebook's growth meanwhile is slowing significantly, and they're IPO'ing at perhaps 120 times earnings (or more). That's a very large bet that Facebook will figure out how to accelerate their growth again. The market is wrong in its pricing of Facebook, and retail investors are going to suffer for it. Facebook is a compression trap. You slow their growth to 35%, peg their PE ratio to 35 times, and they need $3 billion in profit to justify their IPO price. Growing at 35% it would take Facebook about five years just to trade at a reasonable valuation. These things correct themselves one way or another; either FB accelerates, or the market will slice it in half in the next year to 18 months.
- reitzensteinm 14y ago
  Future earnings isn't correct either (through pedantic glasses), because it doesn't handle cases where companies build value and then are acquired for a strategic reasons (think PA Semi). Expectation of future value and dividends is probably the truely pedantic thing to say, since (earnings - dividends) accrues to value. That way Walmart is covered.
- joshu 14y ago
  sure. i was just correcting the earlier statement, not arguing for the validity of the relative valuations.

PakG1 14y ago

It depends on the business a company is in. Some businesses by nature have lower margins and have to make it up on volume, and the process requires a lot of labour, just due to the nature of the business. For example, retail and logistics companies. While I haven't done the analysis yet, I can see how Facebook's business is probably higher margin than HP's business. HP provides hardware, services, etc, at a large but limited scale. Facebook provides a web service to a global population at a seemingly unlimited scale. edit: Also look at which has more growth potential (which is admittedly under debate right now for Facebook).

viraptor 14y ago

Facebook is pretty much virtual. It doesn't have factories, hardware testing labs, R&D labs, physical presence in as many countries as HP, business sales / contracts, support people, etc. It's an apples to oranges comparison. One company provides a website, the other provides so many products they wouldn't fit in this box.