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Well...Facebook's IPO valuation was about 100 billion US dollars. So if Facebook generates 100 billion dollars in profits throughout its history, inflation-adju

by marvin 14y ago

Well...Facebook's IPO valuation was about 100 billion US dollars. So if Facebook generates 100 billion dollars in profits throughout its history, inflation-adjusted, IPO investors who hold onto their shares will get their money back. Otherwise, their gamble will not have paid off. There won't necessarily have to be any fools anywhere.

RichardKim 14y ago
You are not taking into account risk premia i.e. discount rate for investing in a highly volatile tech stock such as facebook. So to be net present value neutral it would need to generate over 100 bn in profits. And not only that, the market cap (at ipo valuation) is based on a stock price * number of diluted shares outstanding. Diluted shares increase on avg of about 1% per year for tech companies. Next. Stock price is based on nothing but forward earnings. If in year 10 facebook earned 100 total amount in profits but is declining then stock price will not imply a 100bn company. greater fool? it's the public shareholders who bought facebook at ipo v. some other public company with better risk adjusted prospects. I mean everything should be based on risk adjusted investment. right now fb is worth 50bn so who's the fool for taking a 50% loss in less than a 3 months? answer: everyone who invested at ipo.
rustynails77 14y ago
I'm not so sure about that. Facebook is WAY overpriced. It will take years to recoup the costs and they have very few prospects of making money in the forseeable future. I support your theory that Facebook will make 100bn back, but by the time Facebook does, the 100bn will be worth far less than that amount, due to potential earnings. As an example, I bought Qantas shares a while ago - and held them for 10 years. Their value didn't go up much in 10 years, so the "potential" earnings of that money was not realised - so despite the shares not going backwards, I lost out. Facebook is a losing proposition, unless they pull a rabbit out of the hat - and there's nothing on the horizon at all that even indicates they will come up with something.

by marvin 14y ago

RichardKim 14y ago

You are not taking into account risk premia i.e. discount rate for investing in a highly volatile tech stock such as facebook. So to be net present value neutral it would need to generate over 100 bn in profits. And not only that, the market cap (at ipo valuation) is based on a stock price * number of diluted shares outstanding. Diluted shares increase on avg of about 1% per year for tech companies. Next. Stock price is based on nothing but forward earnings. If in year 10 facebook earned 100 total amount in profits but is declining then stock price will not imply a 100bn company. greater fool? it's the public shareholders who bought facebook at ipo v. some other public company with better risk adjusted prospects. I mean everything should be based on risk adjusted investment. right now fb is worth 50bn so who's the fool for taking a 50% loss in less than a 3 months? answer: everyone who invested at ipo.

rustynails77 14y ago

I'm not so sure about that. Facebook is WAY overpriced. It will take years to recoup the costs and they have very few prospects of making money in the forseeable future. I support your theory that Facebook will make 100bn back, but by the time Facebook does, the 100bn will be worth far less than that amount, due to potential earnings. As an example, I bought Qantas shares a while ago - and held them for 10 years. Their value didn't go up much in 10 years, so the "potential" earnings of that money was not realised - so despite the shares not going backwards, I lost out. Facebook is a losing proposition, unless they pull a rabbit out of the hat - and there's nothing on the horizon at all that even indicates they will come up with something.