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Looks like FB priced it perfectly - they made the maximum money they could out of it. Was it not obvious in advance that FB was being priced such that the shar

• ollerac 14y ago
  Companies are allowed to carry high P/E ratios because they've recently undergone a period of exponential growth and people believe they can continue to execute at the same pace. Amazon (amzn) is the perfect example of a stock that continually exceeds people's expectations while carrying a high P/E ratio -- and the stock has responded accordingly. From listening to Zuckerberg I think he's a true capitalist, more interested in creating long term value than making a quick buck. I'm sure he's not excited that some very hopeful people who believed in his company are hating him right now because his stock (temporarily) seems over-priced.
  • richardw 14y ago
    Problem is, when you hit 1 billion users, you've run out of "exponential growth" headroom. All you can do is multiply that by 6.5ish (therefore, linear growth), and even finding new sources of revenue doesn't get you exponential anytime soon. Certainly, most future growth will come from extracting more cash from the pool of users (or people selling to them), not growing the pool.
    • ollerac 14y ago
      I agree that most future growth will come from extracting more cash from their current pool of users, but I can imagine a situation in which new sources of revenue would lead to exponential growth. The world economy has never seen anything quite like Facebook before -- that's why it's so exciting. They could become Google/Netflix/LinkedIn/Zynga combined. I'm not saying they will, but they've got the prerequisites: 1 billion active users.
      • Retric 14y ago
        I think the telegraph, telephone, and internet where both similar to and far larger than Facebook.
      • MaysonL 14y ago
        They could become Google/Netflix/LinkedIn/Zynga combined Or they could become the next AOL/Myspace/Friendster/Ning combined... (IMNSHO, that's at least as likely as the former).
        • dmgz 14y ago
          Facebook has pretty accurate data on 1 billion people. They have not even scratched the surface of how they can monetize it. Think about the equivalent of Google Adsense, syndicated across the entire world wide web, but targetable by detailed and fairly accurate demographic and psychographic profiles. Now layer in the social elements to help marketeres "earn" impressions. There is a fairly strong chance they will own an enormous % of market share of ALL online and mobile display advertising in the near future.
    • deleted 14y ago
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    • philjr 14y ago
      I think there's plenty of opportunity for exponential growth in Revenue. When we start measuring that in users, I think something is broken.
      • cube13 14y ago
        The problem is that Facebook's primary asset is users. They're making money off of them(approximately $1/user in profit and $3.5 in revenue), but it's not clear if they can make exponentially more per user. They certainly can't expand the user pool by that much, which means that they need to find a way to monetize their existing users more effectively. I think that Facebook can certainly make more/user than they currently are. $5, maybe $10/user is possible. But $100? I don't think so.
        • marshray 14y ago
          Hard to imagine exponential growth in what either users or advertisers are willing to pay. An analogy to FB as a user service might be, say, MMORPGs like WoW. They seem to exhibit early exponential growth due to peer pressure. Yet they are never priced more than $10 - $15/mo. Often they start out as a subscription service and then move to free-to-play. So then are advertisers willing to increase their FB advertising budgets exponentially? Does FB have something coming down the pike on a regular basis to make that happen?
          • sanxiyn 14y ago
            Virtual goods. It is a proven revenue model for social networks. http://venturebeat.com/2009/03/19/the-worlds-most-lucrative-social-network-chinas-tencent-beats-1-billion-revenue-mark/ http://venturebeat.com/2009/03/19/the-worlds-most-lucrative-...
            • duskwuff 14y ago
              Soo... Facebook Gold? ;)
            • marshray 14y ago
    • Duff 14y ago
      User count is only one dimension of the value that Facebook has. The user connections are arguably the more important dimension. As Facebook figures out more ways to be a more pervasive force in people's lives, they'll have the ability to multiply the revenue they receive on a per-user basis.
    • SudarshanP 14y ago
      Those who are already not on facebook are either too poor to make FB significantly richer or care enough about their privacy that that they have chosen not to use FB.
  • AndrewDucker 14y ago
    Oh, I'm sure he wants to grow the company and make it successful. And I'm sure that he will do, he's shown the ability to make it happen. I don't, however, think it will ever live up to the price they floated at. I suspect that Facebook will be a successful company worth about a third of what they launched at.
• deleted 14y ago
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• mattmcknight 14y ago
  CRM has been trading well in excess of 100 P/E for almost 3 years- and they were negative last quarter- yet everyone that owns an S&P 500 index fund owns some of that. Maybe that's your point though, diversify...
  • krschultz 14y ago
    Does Facebook make the S/P 500 cut?
• cake 14y ago
  I don't get it, why would it be priced perfectly ? Why would you want it to decrease ?
  • ceejayoz 14y ago
    Facebook only gets the IPO money. If the shares double on opening day, it's a sign they could've made a lot more money (or given away less equity for the same amount of money). Zuckerberg et. al. did pretty well out of this.
    • phamilton 14y ago
      No they didn't. They would have if they had dumped all their shares the first day, which they did not. Zuck's net worth may have dropped 10% this morning (depending on how many shares he sold yesterday).
      • ceejayoz 14y ago
        > No they didn't. They would have if they had dumped all their shares the first day, which they did not. I'm talking about the money Facebook made off the IPO shares, not the net worth of Facebook employees. > Zuck's net worth may have dropped 10% this morning (depending on how many shares he sold yesterday). Changing the IPO price wouldn't have changed that. If they'd opened at $15 and popped up to $35, Zuckerberg's net worth would still be the same as it was when it opened at $38 and dropped to $35... but Facebook itself would've gotten much less money out of the IPO.
        • drstrangevibes 14y ago
          i agree the 51% that has been retained is there so that he can retain control, he doesnt actually care if it tanks , his made a huge wad and still has command, perfect!
          • ceejayoz 14y ago
            Well, minority shareholders do have some rights. They can sue him for breach of responsibility if he runs things into the ground.
• jsdalton 14y ago
  Of course, Facebook and its original investors made out well. But a stock that immediately falls below its IPO price represents a failure of the underwriters, not of the company itself. Basically, Morgan Stanley convinced a whole bunch of its most favored clients to buy a stock at $38 that was worth only $33 or whatever. Those are the people who got "ripped off", so to speak.
  • rondon1 14y ago
    Morgan Stanley makes a ton of money this quarter, while telling their customers that they should stay in for the long term (5+ years). It is too bad those people are getting screwed by Wall St. But a fool and his money are soon separated, or whatever that quote is.
    • ajays 14y ago
      On the other hand: MS also spent ~ $3B providing a floor on Friday by buying up FB shares in the open market. Since FB is down 11%, they've already lost about $330M on that. Not chump change even for MS.
      • tomp 14y ago
        The shares they bought were just to cover their short position. They didn't loose a bit, they just didn't profit even more (which they would if the share price would go up).
        • chucknthem 14y ago
          You mean they would profit more if the price would go *down? The way I understand it, you make money on a short when the price goes down because you can buy back the shares you shorted at a lower price.
          • tomp 14y ago
            No, see the link in the comment below. If the shares go up, the underwriter can close his short position by buying a number of shares from the IPO company, at the IPO price (which is below the market price), therefore effectively profiting.
• nlz1 14y ago
  Wrong. http://www.businessinsider.com/chart-of-the-day-why-facebook-never-fell-below-38-per-share-2012-5 http://www.businessinsider.com/chart-of-the-day-why-facebook...
  • tybris 14y ago
    Not wrong. Facebook and the investors that sold stock in the IPO got $38*the number of shares. Whatever happens after the IPO is essentially irrelevant to them, except their remaining shares have gone down in market price. That probably doesn't hurt much if you realize that a day earlier there was no market price, and you got a great deal on the shares you did sell. Morgan Stanley is probably also not being harmed in this transaction (see http://en.wikipedia.org/wiki/Greenshoe http://en.wikipedia.org/wiki/Greenshoe ). They do have reason to support the IPO price level. Otherwise, it will be much harder for them to find investors for the next Internet IPO, which means lower prices, which means lower underwriter fees. The people on the wrong end of the deal are those that bought Facebook shares pre-IPO or in the hours after the IPO. The people on the right end are all early Facebook investors selling shares and the underwriters.
    • rdl 14y ago
      Higher stock price makes it easier to use stock to buy other companies.
    • nlz1 14y ago
      You are basically admitting that Zuck didn't build a valuable company, but instead he conned investors (and Main Street) out of billions (coming days and weeks will tell exactly how much). So, congratulations to him I guess.
      • mikeryan 14y ago
        There's no con here. Anyone who bought at the open price had all the information they needed to make an educated purchase of the Facebook stock. I'm not an institutional investor and I looked at the P/E of 100 and thought it would be kind of silly to buy at that price and many others here seemed to think the same thing. Zuck has built a valuable company - its just not $100B valuable. But a $25B company isn't peanuts.
• jpdoctor 14y ago
  > Was it not obvious in advance that FB was being priced such that the shares would be either flat, or decrease? Funny thing: All IPO's are priced by the sellers. If they get it right, all of them should have prices which then stay flat or decrease. It is the buyer's interest for the price to increase, a fact that seems to have been forgotten since the bubble V1. Maybe now people will again recognize the IPO for what it is: A company begging for money.
• foolinator 14y ago
  FB only released not even close to 1/2 of their stock. The investors are still stock rich and won't sell off their shares yet. If they did, the price would tank to less than $20. The investors will cash out, but they'll gradually release the stock to the public. The problem is that the sheer number of shares that need to be bought won't have enough humans in our population to buy it at the price. So you're going to see this stock gradually tank as investors dump their shares into the public. It's really a legal ponzi scheme - Facebook only makes less than 1B in real revenue and their cap is riding at 90B and falling.
  • dave1619 14y ago
    You mean 1B in profit? FB makes 4b/yr in revenue and growing. It's just not growing fast enough to justify the market cap.
    • duaneb 14y ago
      The market cap is for potential, not reality. It's a gamble, but IPO market caps are never about reality - they're always about getting money.
  • socratease 14y ago
    Plain English. Nice job.
• nextparadigms 14y ago
  But the employees who were promised shares at a $100 billion valuation (which probably happened since 2 years ago), won't get that kind of money. They will get whatever Facebook is worth a few months from now.
  • drstrangevibes 14y ago
    er this IS Zukerberg, his screwed over pretty much everyone he's ever worked with, hardly surprising
    • rikramer 14y ago
      Here's a guy who went into his competitor's site and started deleting user accounts. It's amazing that people overlook this: http://www.businessinsider.com/exclusive-mark-zuckerbergs-secret-ims-from-college-2012-5#before-launching-thefacebookcom-zuckerberg-had-to-decide-whether-to-work-on-it-or-a-similar-project-he-was-already-working-with-his-harvard-schoolmates-the-winklevoss-twins-this-is-the-conversation-where-he-works-out-that-hed-like-to-do-his-own-thing-1 http://www.businessinsider.com/exclusive-mark-zuckerbergs-se...
    • duaneb 14y ago
      He also rented out theatres so that his employees could see The Social Network on opening night - a movie that puts him in a decidedly unfavorable light. Saying that he "screwed over pretty much everyone he's ever worked with" screams of someone who doesn't know what they're talking about.
  • Drbble 14y ago
    No one was promised a hundred billion dollar valuation. Everyone saw the prices on Sharespost.
• fleitz 14y ago
  Anyone who invested doesn't care that it's down 8% today. Facebook's investors have always done extremely well, however, it appears that traders with a two day sell window have done extremely poorly. I don't think they priced it right, a $30 sell price could have created a 13% bump today, a big gain on opening day can create demand from retail. It changes the whole story, Facebook should know well enough the social effects of perception, even though the fundamental story is the same. The idea is not to cash out on IPO day, it's to create a story of growth and success and then cash out a few days later as the growth has whipped investors into a frenzy. It reminds me of my realtor who would put houses on the market extremely underpriced generate huge amounts of interest. A bidding war would ensue almost immediately amongst those emotionally attached to the 'great deal'. After the bidding war the seller would have an offer 25 to 30% higher than market. The internet equivalent is $300 ebay items listed for 99 cents. Facebook fucked the IPO up by failing to generate interest through a success story, it will recover though. Honestly, if you're 'investing' for two days you're not interested in P/E but rather technical analysis and market sentiment, both of which are poor right now, as nothing fundamental about Facebook's business has changed in the last week.
  • daniel_solano 14y ago
    I disagree. If I understand things correctly, the purpose of the IPO is to raise capital for Facebook. As such, if they sell the stock for $30/share, that's what they get. If the stock then goes up to $34/share, they don't get the extra $4. That goes to whoever bought it from Facebook and resold it. In effect, they would have raised 12% less than they could have. On the other hand, if they sell the stock to the public at $38 and it drops down to $34, it's someone else that's out the $4. Sure, it may create some temporary negative publicity, but, as you stated, they will recover.
    • fleitz 14y ago
      Kinda, I'm assuming that a portion of the IPO stock was from entities that owned the stock other than Facebook, eg. employees, early investors, etc. If not those shareholders may also want to exit shortly after the IPO, creating a success story for the IPO should increase demand creating a better market for shareholders. I do agree with you that in a market with rational agents and solely from the POV of Facebook, Inc. that they did the best thing, but I think in a market filled with irrational agents motivated primarily by price movements that it creates the wrong story for the next 3 to 6 months in the overall social context. What they've created is dinner conversation about how Facebook is flopping and has provided lots of ammunition to the nay-sayers, rather than 'proving' the nay-sayers wrong. I tend to see Facebook's business fundamentally as hype, people use it because other people use it, not because of some intrinsic thing that makes it better than any other social network. It's moat is it's userbase not it's technology. It's like Coca-Cola, people drink Coke because other people drink coke, not because it tastes better than Pepsi. It's the fundamental reason why New Coke was a flop and Pepsi taste tests don't matter.
• InclinedPlane 14y ago
  There are two problems with facebook's P/E. The first is that it's questionable whether they can grow revenue enough to justify such a figure. They can't grow their userbase by a factor of 10 because there aren't enough humans on Earth. And they have a huge roadblock in terms of further monetizing individual users. Ultimately investing in facebook isn't a bet that they'll keep doing what they're doing now (as it is with amazon or apple), it's a bet that they are going to fundamentally change everything about how they advertise and somehow garner a huge increase in per user revenues. Second, facebook stock is already priced at a level where it's expected they'll be taking in a huge percentage of total worldwide ad revenues. Where can it go up from there? There isn't much reasonable headroom there, which makes it a very poor stock to hold on to.
• tomkarlo 14y ago
  Keep in mind they didn't sell all of the company, only a fraction of it. The biggest shareholders are basically the same as before the IPO... the idea is not to price that one day to perfection, it's to maximize the value over a period long enough to unwind the rest of your position in the secondary market. If you IPO a company and the IPO "busts", it reduces investor demand for shares when you actually try to sell the rest of them out into the market.