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I read this with a heavy heart, especially after working at Facebook before my current startup. Facebook is an amazing company with some of the best people in

I read this with a heavy heart, especially after working at Facebook before my current startup. Facebook is an amazing company with some of the best people in Silicon Valley working to make Facebook a once-in-a-generation company. But if Google debuted at $25b, and grew into a $200b company, how can Facebook grow by a similar multiple starting at a $100b valuation? In my opinion, opening at $38/share sucked all the oxygen out of the room, in the IPO market, especially the later stage market, and potentially downstream as well. Instead of debuting at $50b or even $75b, the delta was the price of the collective hope of entrepreneurs and early stage startups everywhere. Because at the end of the day many investors will ask, "If even Facebook couldn't do it, who can?" The price of leaving a little money on the table for most retail investors would have been worth the good will and Facebook's reputation. Because Facebook really is a great company that is doing and will continue to do great things, but PG is saying the air is gone, and no one knows if more will come. Is all this a bad thing? Perhaps more companies should be valued based on revenue in stead of API calls/month etc.

malandrew 14y ago
I think the thing that people need to remember is that Facebook really only IPOed because the had too. If Google had tried to wait things out as long as Facebook did, then it's quite possible that it would have IPOed near $100b (Sep 2005) and grown to the $200b they are at today. The money that was there to be made in the Facebook IPO was made before Facebook went public in the secondary market. For professional investors that are getting in at the seed round until the C round or so, Facebook isn't indicative of a problem. Those investors can still make money, it's just that they are going to exit via secondary markets now instead of an IPO.
- ericfrenkiel 14y ago
  true wrt filing, but still doesn't change that the market doesn't value Facebook at $100b. The current P/E is just too high. Will Facebook get back to $100b and beyond? yes as soon as it starts making more money.
  - rdl 14y ago
    I don't think anyone disagrees that the P/E is way too high. Some people (including me) just think the E is going to move up, rather than the P move down. I made this mistake with LNKD -- thinking it was an absurd P/E, not realizing that the costs were relatively constant and that increasing revenue would produce huge increases in profits.
astrodust 14y ago
It's important to remember that pre-IPO Google was a vastly different company than post-IPO Google. It wasn't just the Eric Schmidt factor, which cannot be ignored, but the way the company seemed to position itself. With billions in the bank they could take more risks, explore new markets, and branch out in somewhat unpredictable ways. In 2004 Google Maps didn't exist. Android was an independent entity. The Google server farms were still few and far between. It was a search-based advertising company and nothing more. You could argue they're still fundamentally the same, but that's just because they have a rock-solid foundation to expand from. Facebook in 2020 could be a completely different company and who knows, maybe a $500B one.
- netcan 14y ago
  Maybe, that's a possibility.There is a very good possibility that Facebook will be in the same range as Google or Apple. an if any companies have a chance at $500b in 2020, Facebook are probably in the run. It's just not all that likely. There is also a possibility that Facebook won't be able to monetize with the same effectiveness as Google. It's also possible that Facebook will have fewer active users in 2020. Valueing a company purely in terms of its current cashflows and assets without taking into account its potential is wrong. I'm not saying that. Companies have quality and Facebook is absolutely a quality company. This way of thinking about businesses (good companies & bad companies) is rightly ingrained in the way we talk about companies. Talking about them as over/under valued companies seems shortsighted and it is, especially if you are talking about startups. When good startup investors make their most hopeful investments, valuation comes second. This is also true of bigger companies. Google has quality that Yahoo doesn't. Facebook has quality that Groupon doesn't. Warren Buffet evaluates companies this way - great companies at a fair price. but.. every rule of thumb has a reductio ad absurdum. "Valuation doesn't matter if the company is a great company" only goes so far. The way Facebook was/is valued takes into account their potential to grow like Google. It takes into account their potential to be the biggest company in the world. It doesn't take into account their potential to fail. The way its priced even defines as failure outcomes that should be defined as success. If Facebook can double its profits every 3 years for the next 10 years they'll probably still be a moderate failure for those who bought at $100b. If they double every 5 years, it'll be a bomb.
vtdata 14y ago
I'm not so sure you need to be so worried with your heavy heart, Eric. I know you and MemSQL will be just FINE. Certainly with all of your YC connections, you must be able to make something happen? You must have at least one strategic friendship you gained say... six months ago that could be of some tremendous value to you? Sometimes you need to socially climb and never look back in order to get what you want. I learned that from someone I used to respect. To me, a man without integrity is nothing. He's worthless. And so too is the value of his pursuits.

malandrew 14y ago

I think the thing that people need to remember is that Facebook really only IPOed because the had too. If Google had tried to wait things out as long as Facebook did, then it's quite possible that it would have IPOed near $100b (Sep 2005) and grown to the $200b they are at today. The money that was there to be made in the Facebook IPO was made before Facebook went public in the secondary market. For professional investors that are getting in at the seed round until the C round or so, Facebook isn't indicative of a problem. Those investors can still make money, it's just that they are going to exit via secondary markets now instead of an IPO.

ericfrenkiel 14y ago
true wrt filing, but still doesn't change that the market doesn't value Facebook at $100b. The current P/E is just too high. Will Facebook get back to $100b and beyond? yes as soon as it starts making more money.
- rdl 14y ago
  I don't think anyone disagrees that the P/E is way too high. Some people (including me) just think the E is going to move up, rather than the P move down. I made this mistake with LNKD -- thinking it was an absurd P/E, not realizing that the costs were relatively constant and that increasing revenue would produce huge increases in profits.

astrodust 14y ago

It's important to remember that pre-IPO Google was a vastly different company than post-IPO Google. It wasn't just the Eric Schmidt factor, which cannot be ignored, but the way the company seemed to position itself. With billions in the bank they could take more risks, explore new markets, and branch out in somewhat unpredictable ways. In 2004 Google Maps didn't exist. Android was an independent entity. The Google server farms were still few and far between. It was a search-based advertising company and nothing more. You could argue they're still fundamentally the same, but that's just because they have a rock-solid foundation to expand from. Facebook in 2020 could be a completely different company and who knows, maybe a $500B one.

netcan 14y ago
Maybe, that's a possibility.There is a very good possibility that Facebook will be in the same range as Google or Apple. an if any companies have a chance at $500b in 2020, Facebook are probably in the run. It's just not all that likely. There is also a possibility that Facebook won't be able to monetize with the same effectiveness as Google. It's also possible that Facebook will have fewer active users in 2020. Valueing a company purely in terms of its current cashflows and assets without taking into account its potential is wrong. I'm not saying that. Companies have quality and Facebook is absolutely a quality company. This way of thinking about businesses (good companies & bad companies) is rightly ingrained in the way we talk about companies. Talking about them as over/under valued companies seems shortsighted and it is, especially if you are talking about startups. When good startup investors make their most hopeful investments, valuation comes second. This is also true of bigger companies. Google has quality that Yahoo doesn't. Facebook has quality that Groupon doesn't. Warren Buffet evaluates companies this way - great companies at a fair price. but.. every rule of thumb has a reductio ad absurdum. "Valuation doesn't matter if the company is a great company" only goes so far. The way Facebook was/is valued takes into account their potential to grow like Google. It takes into account their potential to be the biggest company in the world. It doesn't take into account their potential to fail. The way its priced even defines as failure outcomes that should be defined as success. If Facebook can double its profits every 3 years for the next 10 years they'll probably still be a moderate failure for those who bought at $100b. If they double every 5 years, it'll be a bomb.

vtdata 14y ago

I'm not so sure you need to be so worried with your heavy heart, Eric. I know you and MemSQL will be just FINE. Certainly with all of your YC connections, you must be able to make something happen? You must have at least one strategic friendship you gained say... six months ago that could be of some tremendous value to you? Sometimes you need to socially climb and never look back in order to get what you want. I learned that from someone I used to respect. To me, a man without integrity is nothing. He's worthless. And so too is the value of his pursuits.