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I agree with this and have posted numerous comments here to that effect, particularly on the value of intent (with respect to the effectiveness of online advert

by cletus 14y ago

I agree with this and have posted numerous comments here to that effect, particularly on the value of intent (with respect to the effectiveness of online advertising). Th attitude of "eyeballs not revenue" and finding that repeatable, scalable formula are almost a religion on HN and in startups. It's generally a strategy I approve of. Even dropping 20% since the IPO (currently trading at just over $30 as I write this; and bear in mind that even Groupon--at least initially--enjoyed a nice IPO bounce), the company is trading at a huge P/E ratio. I get why this is: it's speculative. FB is still viewed as a growth company and the speculators feel that there is huge unrealised monetization potential. I remain a skeptic regarding the value of "social" in advertising. The OP is right: all this data just means--maybe--a slightly higher CTR, at which point Facebook is just another display ad network and that doesn't justify their valuation. As an aside, IMHO Twitter is in this same "put up or shut up" boat. I don't believe Facebook is doomed (IMHO Twitter is). I just believe the value of the data silo they have is both overstated and transitory (at some point--one way or the other--Facebook won't be the gatekeeper to your profile and social graph). Facebook has done a lot of things right as a business (the Like button being foremost among those IMHO). Personally I believe their biggest mistake was spurning Apple: Apple wanted to use Facebook for their Ping boondoggle. Disclaimer: I work for Google in display advertising.

RegEx 14y ago
I'm confused over the significance of the P/E ratio. It seemed like a big deal when I was reading these stories about the FB IPO, but then I got to look at other ratios in tech. Amazon's is much higher than FB's 93.72 at 175.23 [0] [0]: http://www.google.com/finance?q=NASDAQ:AMZN&authuser=0 http://www.google.com/finance?q=NASDAQ:AMZN&authuser=0
- tatsuke95 14y ago
  Oh, don't worry, the bears consider it out of whack and a good short as well. I'm not exactly sure what the deal is with Amazon, but their p/e was much more realistic in the not-so-distant past: http://ycharts.com/companies/AMZN/pe_ratio http://ycharts.com/companies/AMZN/pe_ratio
- dj_axl 14y ago
  > I'm confused over the significance of the P/E ratio. Ratios have to be considered in context of expected future growth and expected future profit margin (revenue grows a little but profit grows a lot). Even considering that, some ratios seem extreme. FB Forward P/E: 44.85 FB PEG Ratio: 1.67 AMZN Forward P/E: 85.52 AMZN PEG Ratio: 5.92 CRM Forward P/E: 69.06 CRM PEG Ratio: 3.29
- afterburner 14y ago
  One thing that is said about Amazon a lot is it sinks its profits into growing the business. That makes it more attractive as a growth stock since they are actively expanding their business into new areas, but affects their current bottom line with all the R&D overhead.
- loumf 14y ago
  Some interesting observations about Amazon's P/E ratio here http://www.mondaynote.com/2012/05/27/decoding-share-prices-amazon-apple-and-facebook/ http://www.mondaynote.com/2012/05/27/decoding-share-prices-a... on Jean-Louis Gassée's "Monday Note". Basically, Amazon forgoes profit to get market share, will push out all competitors, build a huge barrier to entry with excellent execution and logistics, and then raise prices to increase profit. Traders are buying now and holding until that happens.
  - gamble 14y ago
    Supposedly. Everyone has been waiting for the big payoff since the 90s, but Amazon remains a stubbornly low-margin retailer. Eventually people are going to be forced to face the fact that there is no sinister Phase 2. Amazon is just happy being a low-margin, high-volume Walmart-of-the-Internet with little interest in its investors.
- mdkess 14y ago
  P/E ratio is a terrible, meaningless way to evaluate the price of a share. It sounds remotely technical, and hey, there are numbers there so I guess people talk about it like it's important. P/E ratio is the ratio between profits to price per share. If the company had shares trading at $100 and their profits were $10/share, their P/E ratio would be 10. The thing is, P/E ratio doesn't capture expenditures very well, or long term corporate plans. So if a company is spending a ton of money trying to expand their business, they will have a really high P/E ratio. That doesn't make it a bad thing, just a measure of how much they're spending. AMZN is spending a ton of money lately, so they are not as profitable as they could be (and hence, high P/E ratio), but it is presumably to secure their future success.
earl 14y ago
1 - fb has the potential to be the first serious adsense competitor: slightly poorer context data (though they certainly can repeat much of the work google has done, and I bet bing would love to do a data deal with them) but much better data about the user. Adsense earns roughly $10B/ year; ex my quick guess at tac (23% from 2009q4) and adsense makes $7.7B/year net. FB stands to take a bunch of that if they wish. They still are trying to invent new types of social advertising, and it would certainly be weird if facebook.com was just a giant data honeypot, but they have the data and the technical ability. And the demand from pubs is certainly there: pubs love anyone who pays them. 2 - anybody citing GM pulling $10M in annual spend is an idiot, unless you think GM is in the business of sending out press releases announcing all of their advertising budget changes. No? Then there's something else going on here; perhaps some bare-knuckled negotiation tactics. 3 - fb collects a tax on gaming. Plus Zynga and some others may be cleared to start doing online poker for real money [1]. fb taxes that at 30%. 4 - low ctr is fine for direct response as long as you have proportionally low costs. What this does for the user experience is another question =P 5 - lots of people in adtech very much want Google not to win everything. See the rise of the ABG (anybody but google) exchange: appnexus + aol + microsoft [2]. I expect yahoo inventory to start showing up there once yahoo realizes they no longer have the technical ability to run an ad exchange. Scott talking about selling off rmx can't have helped retain technical talent, and at this point it's a fat question why anyone would want it. Yahoo will sell a bunch of guaranteed delivery, but I think a bunch of the rest will show up on appnexus eventually, if it isn't already there blind. 5a - contributing to the above, hopefully google will get investigated for antitrust. For starters, hiding search query terms in the referrer string should trigger an investigation. They use that data in adsense, and it's particularly valuable for targeting ads on low text pages. Now they're hiding that from other ad networks, I can't find any public statement guaranteeing they're not letting adsense see it. Google also uses search query results to juice display retargeting. 6 - ctr isn't particularly important for brand advertisers. There is a growing disparity of the ratios of ad spend / time spent in different media, with TV higher. Thus behind some of fb's valuation is the thesis that brand advertising dollars will be moving from tv to online, and fb is probably poised to take a big chunk of those. If/when this happens is unknown, but winning bets on those sorts of things is how investors get paid. 7 - fb may still be given a giant present from the EU depending on just how their anti cookie laws work in practice. The morons in GB rolled it all back 24h before the implementation deadline, but other member states may go all in and more or less ban 3rd party cookies. Then we'll be stuck in a tagless world, and I bet fb will get an enormous amount of spend. [1] http://venturebeat.com/2012/01/20/the-deanbeat-should-zynga-move-into-online-gambling/ http://venturebeat.com/2012/01/20/the-deanbeat-should-zynga-... [2] http://www.adweek.com/news/technology/aol-make-inventory-available-yahoo-s-right-media-exchange-137958 http://www.adweek.com/news/technology/aol-make-inventory-ava...

by cletus 14y ago

RegEx 14y ago

I'm confused over the significance of the P/E ratio. It seemed like a big deal when I was reading these stories about the FB IPO, but then I got to look at other ratios in tech. Amazon's is much higher than FB's 93.72 at 175.23 [0] [0]: http://www.google.com/finance?q=NASDAQ:AMZN&authuser=0 http://www.google.com/finance?q=NASDAQ:AMZN&authuser=0

tatsuke95 14y ago
Oh, don't worry, the bears consider it out of whack and a good short as well. I'm not exactly sure what the deal is with Amazon, but their p/e was much more realistic in the not-so-distant past: http://ycharts.com/companies/AMZN/pe_ratio http://ycharts.com/companies/AMZN/pe_ratio
dj_axl 14y ago
> I'm confused over the significance of the P/E ratio. Ratios have to be considered in context of expected future growth and expected future profit margin (revenue grows a little but profit grows a lot). Even considering that, some ratios seem extreme. FB Forward P/E: 44.85 FB PEG Ratio: 1.67 AMZN Forward P/E: 85.52 AMZN PEG Ratio: 5.92 CRM Forward P/E: 69.06 CRM PEG Ratio: 3.29
afterburner 14y ago
One thing that is said about Amazon a lot is it sinks its profits into growing the business. That makes it more attractive as a growth stock since they are actively expanding their business into new areas, but affects their current bottom line with all the R&D overhead.
loumf 14y ago
Some interesting observations about Amazon's P/E ratio here http://www.mondaynote.com/2012/05/27/decoding-share-prices-amazon-apple-and-facebook/ http://www.mondaynote.com/2012/05/27/decoding-share-prices-a... on Jean-Louis Gassée's "Monday Note". Basically, Amazon forgoes profit to get market share, will push out all competitors, build a huge barrier to entry with excellent execution and logistics, and then raise prices to increase profit. Traders are buying now and holding until that happens.
- gamble 14y ago
  Supposedly. Everyone has been waiting for the big payoff since the 90s, but Amazon remains a stubbornly low-margin retailer. Eventually people are going to be forced to face the fact that there is no sinister Phase 2. Amazon is just happy being a low-margin, high-volume Walmart-of-the-Internet with little interest in its investors.
mdkess 14y ago
P/E ratio is a terrible, meaningless way to evaluate the price of a share. It sounds remotely technical, and hey, there are numbers there so I guess people talk about it like it's important. P/E ratio is the ratio between profits to price per share. If the company had shares trading at $100 and their profits were $10/share, their P/E ratio would be 10. The thing is, P/E ratio doesn't capture expenditures very well, or long term corporate plans. So if a company is spending a ton of money trying to expand their business, they will have a really high P/E ratio. That doesn't make it a bad thing, just a measure of how much they're spending. AMZN is spending a ton of money lately, so they are not as profitable as they could be (and hence, high P/E ratio), but it is presumably to secure their future success.

earl 14y ago

1 - fb has the potential to be the first serious adsense competitor: slightly poorer context data (though they certainly can repeat much of the work google has done, and I bet bing would love to do a data deal with them) but much better data about the user. Adsense earns roughly $10B/ year; ex my quick guess at tac (23% from 2009q4) and adsense makes $7.7B/year net. FB stands to take a bunch of that if they wish. They still are trying to invent new types of social advertising, and it would certainly be weird if facebook.com was just a giant data honeypot, but they have the data and the technical ability. And the demand from pubs is certainly there: pubs love anyone who pays them. 2 - anybody citing GM pulling $10M in annual spend is an idiot, unless you think GM is in the business of sending out press releases announcing all of their advertising budget changes. No? Then there's something else going on here; perhaps some bare-knuckled negotiation tactics. 3 - fb collects a tax on gaming. Plus Zynga and some others may be cleared to start doing online poker for real money [1]. fb taxes that at 30%. 4 - low ctr is fine for direct response as long as you have proportionally low costs. What this does for the user experience is another question =P 5 - lots of people in adtech very much want Google not to win everything. See the rise of the ABG (anybody but google) exchange: appnexus + aol + microsoft [2]. I expect yahoo inventory to start showing up there once yahoo realizes they no longer have the technical ability to run an ad exchange. Scott talking about selling off rmx can't have helped retain technical talent, and at this point it's a fat question why anyone would want it. Yahoo will sell a bunch of guaranteed delivery, but I think a bunch of the rest will show up on appnexus eventually, if it isn't already there blind. 5a - contributing to the above, hopefully google will get investigated for antitrust. For starters, hiding search query terms in the referrer string should trigger an investigation. They use that data in adsense, and it's particularly valuable for targeting ads on low text pages. Now they're hiding that from other ad networks, I can't find any public statement guaranteeing they're not letting adsense see it. Google also uses search query results to juice display retargeting. 6 - ctr isn't particularly important for brand advertisers. There is a growing disparity of the ratios of ad spend / time spent in different media, with TV higher. Thus behind some of fb's valuation is the thesis that brand advertising dollars will be moving from tv to online, and fb is probably poised to take a big chunk of those. If/when this happens is unknown, but winning bets on those sorts of things is how investors get paid. 7 - fb may still be given a giant present from the EU depending on just how their anti cookie laws work in practice. The morons in GB rolled it all back 24h before the implementation deadline, but other member states may go all in and more or less ban 3rd party cookies. Then we'll be stuck in a tagless world, and I bet fb will get an enormous amount of spend. [1] http://venturebeat.com/2012/01/20/the-deanbeat-should-zynga-move-into-online-gambling/ http://venturebeat.com/2012/01/20/the-deanbeat-should-zynga-... [2] http://www.adweek.com/news/technology/aol-make-inventory-available-yahoo-s-right-media-exchange-137958 http://www.adweek.com/news/technology/aol-make-inventory-ava...