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I'm not really sure why everybody here is so bearish on FB. Sure, its an unproven company with a high P/E ratio, but so are most tech startups when they go IPO

I'm not really sure why everybody here is so bearish on FB. Sure, its an unproven company with a high P/E ratio, but so are most tech startups when they go IPO. I think Zuckerberg has shown that he knows how to innovate, grow the company, and even make painful changes that eventually lead to more growth and profit. There is at least a decent chance that FB will refine their business model and turn into a large, stable technology company with good returns. Is this some kind of HN Schadenfreude?

gfosco 14y ago
How is there a decent chance of that? Have they refined anything in the past and grown beyond a simple "get users, show ads" model?
- WillyF 14y ago
  Isn't that Google's model? It's worked out pretty well for them.
  - simonsarris 14y ago
    Well, when I look at companies that I might legitimately invest in, arguably the most important question is "what kind of room for growth is there?" Without getting too deep, its not hard to see Google become more than an ads company in the near future. Google Research. Google (self-driving) cars. Google ISP. Google Space Mining. Google the hardware manufacturer (hello moto). It's very difficult from my little point of view to see the same thing happening with Facebook. Their room for growth seems an awful lot smaller than most other companies worth investing in, and with their stats (higher market cap than Ford, huge P/E, etc), one would have to expect massive room for growth, but they haven't floated much in terms of monetization ideas other than ads and things that people may not like very much (privacy intrusive things, etc)
    - nollidge 14y ago
      There's nothing stopping Facebook from diversifying, too...
      - pnathan 14y ago
        The big win I see right now is that Google has a stable of brilliant researches in Google Research, and that is something that could be producing high quality industrial research for decades (Microsoft has a similar department). I actually think that Research departments are the long-term investment a company does, they will produce new and interesting concepts. I have never heard of a similar group for Facebook. I am sure they could put one together, but it takes years and years to get the right people and environment.
      - Retric 14y ago
        There's nothing stopping Honda from diversifying, too...
  - gfosco 14y ago
    Google is everywhere, in everything. Google built a platform that allows others to build businesses on. I'm getting quite scared of them as well, but there's no comparing them with Facebook. Google has moved beyond just advertisements. Android, Chrome, ChromeOS, Autonomous Cars, GMail, to name a few. Facebook is a colossal failure in the making, and I'm actually enjoying watching the stock fall. Disclosure: I have no connection to either company. I am a privacy advocate and think both will eventually become harmful to society at large.
  - potatolicious 14y ago
    Google isn't strictly in the "get eyeballs, show ads" business - their meteoric success has been due to ad brokering, not the showing of the ads themselves. In short, they show ads to other people's eyeballs - being the broker is a much, much stronger position than being the one who has to collect all the pageviews.
- lionheart 14y ago
  They've done several major redesigns that initially the users rebelled against but then came to like. I can tell you that's not easy to do.
  - fosk 14y ago
    Making users accept a UI redesign is one thing. Making lots of billions out of them is another. Plus, advertisers and not regular users are Facebook's paying customers (unless Facebook starts a subscription model). Attracting users to sign up and attracting advertisers to pay are two completely, different, challenges.
  - debacle 14y ago
    No one I know likes Timeline. They all just put up with it.
ceejayoz 14y ago
> Sure, its an unproven company with a high P/E ratio, but so are most tech startups when they go IPO. Most don't go IPO at $100B. Even Google only started at $23B.
thereason 14y ago
People here are bearish on FB because they 1. have a conscience and 2. understand the company's business (the simple technology). People here are bullish on FB because they either 1. lack a conscience or 2. do not understand the company's business (the simple technology), or both.
krschultz 14y ago
I think the big stumbling block is that Facebook's growth is getting population limited. That is remarkable to even think about, but they're running out people left on Earth that don't have a Facebook account. So your opinion on Facebook's (financial) value really comes down to how much money you think they can make per user. Their current system seems to be 'show the user ads based on the users hobbies, interests, likes, etc'. That isn't massively effective for them, at least compared to a Google ad that has more 'intent' to it. Now, if they start actually going through posts and pictures similar to how Gmail scans your email to contextualize the ads, that might bump up the ad relevancy and increase their margins. But a lot of people will complain about privacy (as was seen when Gmail started doing that). Alternatively, Facebook could figure out some way to really monetize your social graph. Something more than just showing you personally ads. Maybe a recommendation engine or something like that, but whatever it is needs to be an order of magnitude greater revenue than what they have now. I think if you don't believe they are going to make some kind of revolutionary change, then you end up being bearish on Facebook. And then some people just simply don't like Facebook. Whether because it looks too much like something the popular kids like, or because most hackers are contrarians by nature, or because Facebook plays fast and loose with privacy at times, or because some people don't like PHP (I don't know, some of the haters have random reasons), people just hate on Facebook.
- j_baker 14y ago
  Facebook works in "over 70" languages: https://developers.facebook.com/docs/internationalization/ https://developers.facebook.com/docs/internationalization/ One estimate says there are 6,910 languages in the world: http://www.science20.com/science_20/blog/rarity_koro_brand_new_language_discovered http://www.science20.com/science_20/blog/rarity_koro_brand_n... In other words, you're simply wrong that Facebook is running out of people who don't have a Facebook account. I might buy that Facebook is running out of people that don't speak the languages it supports though.
  - carbocation 14y ago
    Facebook has 900 million users: http://www.pcmag.com/article2/0,2817,2403410,00.asp http://www.pcmag.com/article2/0,2817,2403410,00.asp Say we assume that all users have the same economic value to Facebook (an extremely unlikely assumption; it's most likely that the first billion have much more discretionary income than the rest). Assuming Facebook gets the remaining 5.9 billion humans (including all those without Internet), they will only be able to increase their userbase by 7.5X. Assuming the world 'wants' businesses to have a P/E ratio of around ~15, Facebook either believes in the two above totally fallacious assumptions (they don't), or they anticipate rolling out new revenue strategies to create value.
IsaacL 14y ago
I'm cautiously bullish too. Been planning to write a blog post about this, but I'm in the middle of finals right now. Anyway, summarised: - They still have lots of growth potential in Asia, and other places as more and more of the planet comes online. - Zuckerberg is a Gates-style evil genius. Being grey hat is bad for PR, but good for figuring out monetisation. (cf Twitter, loved by the Valley and make no money). He is also able to make painful changes that are widely mocked but turn out to be right (news feed etc). - Facebook has lasted longer than the previous "hype cycle" for social networks. So it won't fall like MySpace, Friendster. (My theory: early SNs were mostly used by early adopters who get bored quickly. Facebook has crossed the chasm and the mainstream users aren't so keen to switch). - Think of all the people who've said they're going to quit. How many have? Have you? FB has made a really, really sticky product; which again, goes back to the "grey hat" streak in the company. - Finally monetisation. Display ads suck. But companies spend a ton on FB marketing (for pages and so on), and FB doesn't yet capture that value. Ex 1: Facebook likes are now sold on the grey market. Ex 2: In Malaysia I saw graffiti promoting someone's FB fan page. Ex 3: Have you noticed how your local cafe/pub/restaurant now asks you to "like" them? I had a friend who got paid £500 to set up a Facebook page for a small business; sure, the business owner overpaid, but the point is that FB marketing is worth a lot to such companies. If Facebook can capture that value, they're set. - There's also "black swan" revenue streams. A few years ago, who would have predicted virtual vegetables would have accounted for over 10% of FB's revenues? There might be more unknown opportunities like that in the future. I still think the stock is risky, as there's every chance this won't happen. But, say Facebook does succeed as planned; I think one FB employee said they've only done 5% of what they set out to do. Imagine 10 years time: a guy in Kazakhstan buys his first smartphone. Activating the phone requires a FB account. His contact list is his FB friends list. Instead of SMS, it's FB chat. That's the scale I imagine Zuck is thinking at. Admittedly, that's an unlikely scenario. But if it happens, Facebook could be worth two, three hundred billion, or more. Do a simple multiplication, probability times upside, and suddenly $70 billion might not seem like so much. PS I'm glad Sebastian Marshall agrees with me ;)
- tomkarlo 14y ago
  "Might be worth $200-$300 bn eventually" doesn't justify "worth $100 bn now" unless you believe that either: 1. That outcome is highly probable 2. That outcome will occur very quickly (within 2-3 years.) Let's say we believe the low end of that ($200bn, or 100% growth.) If we believe that will happen in 3 years, that's about 25% growth in market value annually (and a much larger rate of growth in revenues / profits to produce that, since they'll need about a 10X change to balance the multiple compression that will occur as they grow.) The potential for 25% annual returns isn't anything to sneeze at. But that's what we're saying the "upside" scenario is... 25% stock returns with a company achieving something like 200% growth in profits annually (which seems highly unlikely.) The numbers are pretty unforgiving.
vibrunazo 14y ago
I'm yet to see a single solid and empirical evidence that they have actual potential for growth. Other than the very foggy, subjective and certainly doubtful argument of "but Zuck is smart, he'll figure something out". Which is a logical fallacy called argument from ignorance. Betting the future of your money on a logical fallacy, is sure not smart. Facebook needs to figure how to make an extremely high profit from mobile. Which is just another mobile messaging app like thousands of others. No messaging app in the history of humanity has ever figured out a genius revenue model. Facebook needs to find an innovation that thousands of others have failed to. Name one single innovation Facebook has ever come up with, that is as big as this one they need. That would justify your confidence on their growth potential. I haven't seen a single solid reason yet. Other companies have IPO'ed when there was a very clear path for growth. When they had just a small share of a potentially huge market, or when there were clear monetization strategies they just didn't implement yet for lack of time. Facebook fails both these checks, there aren't many more users for them to acquire and it seems they've already tried everything in their repertoire to milk each user. Coming out of these spot thinking "oh whatever, they'll figure something out" isn't a good reason to be bullish.
yumraj 14y ago
I don't think people are bearish on FB, they are bearish at the current valuation of ~100B. Say, if the FB IPO was at $1 Billion valuation, then the same people would have been bullish on it. So, it depends.
sampsonjs 14y ago
Tell it to Wall Street, Sun Tzu. The user just submitted the story, he didn't write it.
forgottenpaswrd 14y ago
"I'm not really sure why everybody here is so bearish on FB." Here and everywher 100 Billion $ valuation for FB is nuts. "its an unproven company with a high P/E ratio, but so are most tech startups when they go IPO." Startups do not IPO at 100 Billion but at hundreds of times less. "I think Zuckerberg has shown that he knows how to innovate, grow the company, and even make painful changes that eventually lead to more growth and profit." Zuck has shown that he is able to make people use their system. He has not show that people COULD PAY for this system for a 100 Billion company. "Is this some kind of HN Schadenfreude?" Schadenfreude means enjoying the misfortune of others. MZ and other founders are going to make less bilions for their work in single years, is that misfortune?. I don't think so. FB valuation is going to be cheaper for those that buy in the future. This is good news.

gfosco 14y ago

How is there a decent chance of that? Have they refined anything in the past and grown beyond a simple "get users, show ads" model?

WillyF 14y ago
Isn't that Google's model? It's worked out pretty well for them.
- simonsarris 14y ago
  Well, when I look at companies that I might legitimately invest in, arguably the most important question is "what kind of room for growth is there?" Without getting too deep, its not hard to see Google become more than an ads company in the near future. Google Research. Google (self-driving) cars. Google ISP. Google Space Mining. Google the hardware manufacturer (hello moto). It's very difficult from my little point of view to see the same thing happening with Facebook. Their room for growth seems an awful lot smaller than most other companies worth investing in, and with their stats (higher market cap than Ford, huge P/E, etc), one would have to expect massive room for growth, but they haven't floated much in terms of monetization ideas other than ads and things that people may not like very much (privacy intrusive things, etc)
  - nollidge 14y ago
    There's nothing stopping Facebook from diversifying, too...
    - pnathan 14y ago
      The big win I see right now is that Google has a stable of brilliant researches in Google Research, and that is something that could be producing high quality industrial research for decades (Microsoft has a similar department). I actually think that Research departments are the long-term investment a company does, they will produce new and interesting concepts. I have never heard of a similar group for Facebook. I am sure they could put one together, but it takes years and years to get the right people and environment.
    - Retric 14y ago
      There's nothing stopping Honda from diversifying, too...
- gfosco 14y ago
  Google is everywhere, in everything. Google built a platform that allows others to build businesses on. I'm getting quite scared of them as well, but there's no comparing them with Facebook. Google has moved beyond just advertisements. Android, Chrome, ChromeOS, Autonomous Cars, GMail, to name a few. Facebook is a colossal failure in the making, and I'm actually enjoying watching the stock fall. Disclosure: I have no connection to either company. I am a privacy advocate and think both will eventually become harmful to society at large.
- potatolicious 14y ago
  Google isn't strictly in the "get eyeballs, show ads" business - their meteoric success has been due to ad brokering, not the showing of the ads themselves. In short, they show ads to other people's eyeballs - being the broker is a much, much stronger position than being the one who has to collect all the pageviews.
lionheart 14y ago
They've done several major redesigns that initially the users rebelled against but then came to like. I can tell you that's not easy to do.
- fosk 14y ago
  Making users accept a UI redesign is one thing. Making lots of billions out of them is another. Plus, advertisers and not regular users are Facebook's paying customers (unless Facebook starts a subscription model). Attracting users to sign up and attracting advertisers to pay are two completely, different, challenges.
- debacle 14y ago
  No one I know likes Timeline. They all just put up with it.

ceejayoz 14y ago

> Sure, its an unproven company with a high P/E ratio, but so are most tech startups when they go IPO. Most don't go IPO at $100B. Even Google only started at $23B.

thereason 14y ago

People here are bearish on FB because they 1. have a conscience and 2. understand the company's business (the simple technology). People here are bullish on FB because they either 1. lack a conscience or 2. do not understand the company's business (the simple technology), or both.

krschultz 14y ago

I think the big stumbling block is that Facebook's growth is getting population limited. That is remarkable to even think about, but they're running out people left on Earth that don't have a Facebook account. So your opinion on Facebook's (financial) value really comes down to how much money you think they can make per user. Their current system seems to be 'show the user ads based on the users hobbies, interests, likes, etc'. That isn't massively effective for them, at least compared to a Google ad that has more 'intent' to it. Now, if they start actually going through posts and pictures similar to how Gmail scans your email to contextualize the ads, that might bump up the ad relevancy and increase their margins. But a lot of people will complain about privacy (as was seen when Gmail started doing that). Alternatively, Facebook could figure out some way to really monetize your social graph. Something more than just showing you personally ads. Maybe a recommendation engine or something like that, but whatever it is needs to be an order of magnitude greater revenue than what they have now. I think if you don't believe they are going to make some kind of revolutionary change, then you end up being bearish on Facebook. And then some people just simply don't like Facebook. Whether because it looks too much like something the popular kids like, or because most hackers are contrarians by nature, or because Facebook plays fast and loose with privacy at times, or because some people don't like PHP (I don't know, some of the haters have random reasons), people just hate on Facebook.

j_baker 14y ago
Facebook works in "over 70" languages: https://developers.facebook.com/docs/internationalization/ https://developers.facebook.com/docs/internationalization/ One estimate says there are 6,910 languages in the world: http://www.science20.com/science_20/blog/rarity_koro_brand_new_language_discovered http://www.science20.com/science_20/blog/rarity_koro_brand_n... In other words, you're simply wrong that Facebook is running out of people who don't have a Facebook account. I might buy that Facebook is running out of people that don't speak the languages it supports though.
- carbocation 14y ago
  Facebook has 900 million users: http://www.pcmag.com/article2/0,2817,2403410,00.asp http://www.pcmag.com/article2/0,2817,2403410,00.asp Say we assume that all users have the same economic value to Facebook (an extremely unlikely assumption; it's most likely that the first billion have much more discretionary income than the rest). Assuming Facebook gets the remaining 5.9 billion humans (including all those without Internet), they will only be able to increase their userbase by 7.5X. Assuming the world 'wants' businesses to have a P/E ratio of around ~15, Facebook either believes in the two above totally fallacious assumptions (they don't), or they anticipate rolling out new revenue strategies to create value.

IsaacL 14y ago

I'm cautiously bullish too. Been planning to write a blog post about this, but I'm in the middle of finals right now. Anyway, summarised: - They still have lots of growth potential in Asia, and other places as more and more of the planet comes online. - Zuckerberg is a Gates-style evil genius. Being grey hat is bad for PR, but good for figuring out monetisation. (cf Twitter, loved by the Valley and make no money). He is also able to make painful changes that are widely mocked but turn out to be right (news feed etc). - Facebook has lasted longer than the previous "hype cycle" for social networks. So it won't fall like MySpace, Friendster. (My theory: early SNs were mostly used by early adopters who get bored quickly. Facebook has crossed the chasm and the mainstream users aren't so keen to switch). - Think of all the people who've said they're going to quit. How many have? Have you? FB has made a really, really sticky product; which again, goes back to the "grey hat" streak in the company. - Finally monetisation. Display ads suck. But companies spend a ton on FB marketing (for pages and so on), and FB doesn't yet capture that value. Ex 1: Facebook likes are now sold on the grey market. Ex 2: In Malaysia I saw graffiti promoting someone's FB fan page. Ex 3: Have you noticed how your local cafe/pub/restaurant now asks you to "like" them? I had a friend who got paid £500 to set up a Facebook page for a small business; sure, the business owner overpaid, but the point is that FB marketing is worth a lot to such companies. If Facebook can capture that value, they're set. - There's also "black swan" revenue streams. A few years ago, who would have predicted virtual vegetables would have accounted for over 10% of FB's revenues? There might be more unknown opportunities like that in the future. I still think the stock is risky, as there's every chance this won't happen. But, say Facebook does succeed as planned; I think one FB employee said they've only done 5% of what they set out to do. Imagine 10 years time: a guy in Kazakhstan buys his first smartphone. Activating the phone requires a FB account. His contact list is his FB friends list. Instead of SMS, it's FB chat. That's the scale I imagine Zuck is thinking at. Admittedly, that's an unlikely scenario. But if it happens, Facebook could be worth two, three hundred billion, or more. Do a simple multiplication, probability times upside, and suddenly $70 billion might not seem like so much. PS I'm glad Sebastian Marshall agrees with me ;)

tomkarlo 14y ago
"Might be worth $200-$300 bn eventually" doesn't justify "worth $100 bn now" unless you believe that either: 1. That outcome is highly probable 2. That outcome will occur very quickly (within 2-3 years.) Let's say we believe the low end of that ($200bn, or 100% growth.) If we believe that will happen in 3 years, that's about 25% growth in market value annually (and a much larger rate of growth in revenues / profits to produce that, since they'll need about a 10X change to balance the multiple compression that will occur as they grow.) The potential for 25% annual returns isn't anything to sneeze at. But that's what we're saying the "upside" scenario is... 25% stock returns with a company achieving something like 200% growth in profits annually (which seems highly unlikely.) The numbers are pretty unforgiving.

vibrunazo 14y ago

I'm yet to see a single solid and empirical evidence that they have actual potential for growth. Other than the very foggy, subjective and certainly doubtful argument of "but Zuck is smart, he'll figure something out". Which is a logical fallacy called argument from ignorance. Betting the future of your money on a logical fallacy, is sure not smart. Facebook needs to figure how to make an extremely high profit from mobile. Which is just another mobile messaging app like thousands of others. No messaging app in the history of humanity has ever figured out a genius revenue model. Facebook needs to find an innovation that thousands of others have failed to. Name one single innovation Facebook has ever come up with, that is as big as this one they need. That would justify your confidence on their growth potential. I haven't seen a single solid reason yet. Other companies have IPO'ed when there was a very clear path for growth. When they had just a small share of a potentially huge market, or when there were clear monetization strategies they just didn't implement yet for lack of time. Facebook fails both these checks, there aren't many more users for them to acquire and it seems they've already tried everything in their repertoire to milk each user. Coming out of these spot thinking "oh whatever, they'll figure something out" isn't a good reason to be bullish.

yumraj 14y ago

I don't think people are bearish on FB, they are bearish at the current valuation of ~100B. Say, if the FB IPO was at $1 Billion valuation, then the same people would have been bullish on it. So, it depends.

sampsonjs 14y ago

Tell it to Wall Street, Sun Tzu. The user just submitted the story, he didn't write it.

forgottenpaswrd 14y ago

"I'm not really sure why everybody here is so bearish on FB." Here and everywher 100 Billion $ valuation for FB is nuts. "its an unproven company with a high P/E ratio, but so are most tech startups when they go IPO." Startups do not IPO at 100 Billion but at hundreds of times less. "I think Zuckerberg has shown that he knows how to innovate, grow the company, and even make painful changes that eventually lead to more growth and profit." Zuck has shown that he is able to make people use their system. He has not show that people COULD PAY for this system for a 100 Billion company. "Is this some kind of HN Schadenfreude?" Schadenfreude means enjoying the misfortune of others. MZ and other founders are going to make less bilions for their work in single years, is that misfortune?. I don't think so. FB valuation is going to be cheaper for those that buy in the future. This is good news.