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At $22, they are just fine. But if it continues to drop, then you will start to see some changes at FB as they have to free up high operational expenses. If it

by drgath 14y ago

At $22, they are just fine. But if it continues to drop, then you will start to see some changes at FB as they have to free up high operational expenses. If it goes sub-$15, then they'll start making some tough decisions. Edit: So based off the downvote, either someone didn't like my lack of explanation, or it Zuck is lurking on HN. I'm guessing the former, so I'll explain. FB's value is so heavily tied to future growth expectations. Current P/E is 116, and compare that to a peaked out company whose P/E is more typically between 10-20 (see: YHOO, GOOG, APPL, ADBE, ORCL). If FB gets to $15, it's a P/E of 82, $10 = P/E of 55, $5 and you have 27. At $5 and its current earnings, FB is basically toast as an "innovative" company. So, I say a "sub-$15" value above because once it gets to that point this quickly after the IPO, dropping into single digits has to be a possiblity they consider. They won't have billions of dollars at their disposal to do whatever they please and will have to be more judicious in their spending. P.S. I'm a programmer, not a finance-guy, so please correct me if I'm wrong about something.

z92 14y ago
As the first part, I think you are confusing between profit and share price. They have to cut expense if they are making net loss or are in cash flow negative. Which is quite different from share price. And as of your second part. Why would not FB have billions of dollars at their disposal if their share price tanks? They sold the IPO and already have got that cash in their bank account. They won't gain a single dollar if the share price rises neither won't they lose a single dollar if it tanks. But is there an indirect relation besides the obvious? That's what the original poster asked. Your answer didn't reply it.
1123581321 14y ago
I see what you're trying to say; let me try as a programmer and a finance guy. 1. A lower stock valuation affects their ability to raise money and greatly reduces the amount raised, 2. Affects morale because employee stock holdings and options are worth less, 3. Causes investors to put social or board pressure on Facebook to make changes, effectively reducing management's control, 4. Possibly attracts SEC or DoJ attention which could mean time-expensive hearings and possibly fines for misstatements (a.k.a. lies.) 5. Has a psychological effect on users who want to be part of something popular and winning and on app developers uncertain if they want to trust a company on the downs with their livelihoods. Edit: this doesn't concern Facebook directly, but its investors and its newly created millionaires/billionaires will want the price to stay up so it doesn't affect IPO prospects of their other companies. This is more the case for VC with a steady deal pipeline than the newly rich employees who won't have anything ready for IPO for several years, possibly with an entire cycle between now and then.

by drgath 14y ago

z92 14y ago

As the first part, I think you are confusing between profit and share price. They have to cut expense if they are making net loss or are in cash flow negative. Which is quite different from share price. And as of your second part. Why would not FB have billions of dollars at their disposal if their share price tanks? They sold the IPO and already have got that cash in their bank account. They won't gain a single dollar if the share price rises neither won't they lose a single dollar if it tanks. But is there an indirect relation besides the obvious? That's what the original poster asked. Your answer didn't reply it.

1123581321 14y ago

I see what you're trying to say; let me try as a programmer and a finance guy. 1. A lower stock valuation affects their ability to raise money and greatly reduces the amount raised, 2. Affects morale because employee stock holdings and options are worth less, 3. Causes investors to put social or board pressure on Facebook to make changes, effectively reducing management's control, 4. Possibly attracts SEC or DoJ attention which could mean time-expensive hearings and possibly fines for misstatements (a.k.a. lies.) 5. Has a psychological effect on users who want to be part of something popular and winning and on app developers uncertain if they want to trust a company on the downs with their livelihoods. Edit: this doesn't concern Facebook directly, but its investors and its newly created millionaires/billionaires will want the price to stay up so it doesn't affect IPO prospects of their other companies. This is more the case for VC with a steady deal pipeline than the newly rich employees who won't have anything ready for IPO for several years, possibly with an entire cycle between now and then.