9 ms·

Facebook Stock Hits A New Low, Down More Than 50% Since IPO

39 points by maayank 14y ago

rdl 14y ago
The employee lockup is what scares me. Most Facebook employees were hired early in their careers, didn't have other money, and a lot have bought or want to buy houses, cars, etc using their still substantial paper wealth. I believe in the Facebook product, quality of team, and future revenue potential, but sale at lockup(as well as concentration of control in Zuck) scare me, unless it gets to $10-20b capitalization.
SeanDav 14y ago
If every time FB hits a new low it makes HN front page then we are going to have a very boring front page. I fully expect FB to drop below 10.
- eru 14y ago
  Do you hold a short position?
  - SeanDav 14y ago
    I realize this is likely a tongue-in-cheek response, but I wouldn't have touched (and didn't) the FB IPO from either a long or short position. Too much emotion and too much hype. Even if I believed the stock was grossly over priced it would have been silly to take a short position because the stock was and is quite capable of spiking hugely. In this case you might be correct about the value of the stock but can still be taken out the market due to "irrational" movements in the price. The "real" value of FB starts becoming "realistic" somewhere below 10 and unless FB announce some major improvement in revenue generation I just cannot see FB going anywhere but south in the short term.
  - tomjen3 14y ago
    The market can stay irrational longer than you can stay solvent.
  - raganwald 14y ago
    Not everyone invests. I recall some years ago when I was living in a bit of a moral vacuum. I was at UofT and I spent all of my spare time playing bridge, poker, and backgammon, for as much money as possible. One night I had a chance to play an extremely plump pigeon, I think they call them "whales" today. He asked for various handicaps to narrow my edge, and we worked out something I thought was going to make me a lot of money. He then dropped the big kicker: He wanted to play for extremely high stakes, enough that if he got hot, he would bankrupt me. Naturally, this dismayed me. Although I thought I could keep my cool and not "steam," I knew that being the better player, I wanted the chance to let the odds play themselves out, not subject my self to the possibility of a bad swing. So I sought out a friend who had an extremely large and dependable cash flow. Would he back me in exchange for a share of the profits? We both knew I was going to win. He turned the deal down. "I only bet on myself," he said. I was incredulous. Why turn down an extremely lucrative business opportunity? "I like knowing that I made my own money," he said. He didn't see investing in me as being the same kind of thing as running his various schemes and dealings where he had his own hands on the levers of commerce. I'm not saying it's a better thing, but some people simply aren't that interested in investing, they like to bet on themselves.
    - sanj 14y ago
      I tell folks I either invest in the broadest possible market -- namely index funds -- or the narrowest: me.
  - veyron 14y ago
    I shorted from 31.50 down to 27 .. wish I held onto the position ...
    - spaghetti 14y ago
      By what percentage did you increase your initial investment? I'm just curious about trading options in general. Would be interesting to learn how holding onto your postition for that time period paid off.
      - veyron 14y ago
        I shorted the equity directly. The main costs are: - Transaction and Margin costs (those are generally 1 cent per share per side, roughly .06%) - Borrow costs (For that trade it was 30% annualized. I held it for 6 days so its .7%) So the cost to the trade was .76%. The gross return (since you calculate returns relative to the starting point) is (31.5 - 27) / 31.6 = 14.28% and the net return is 13.53% Note that I didnt short as much as I could have -- obviously the return would be higher if I borrowed extra money to short.
        spaghetti 14y ago
        Interesting. +1 for sharing actual numbers as that helps the learning process along quite a bit imo.
  - benologist 14y ago
    Would it make what he said less true? Daily updates on FB's stock are boring.
    - tatsuke95 14y ago
      Lots of articles on the front page are, in my opinion, boring. My solution is to not click on them. I happen to find media and public sentiment on the biggest, most hyped IPO of the decade (ever?) to be fascinating.
    - marvin 14y ago
      I think the comment was more about his stock prediction. It's very easy to make confident claims about the performance of a stock when you're not invested in it yourself. Financial opinions would be a lot more interesting if they were only given by people who followed their own advice to the letter.
      - georgemcbay 14y ago
        Just because you believe a stock will eventually be at a lower price than it currently is doesn't mean it makes sense to short it unless you also think you can time the drop perfectly, and if you think that you're a fool. The virtually unlimited downside of shorting is a lot of risk that has to be factored into any decision and thus shorting isn't to be taken lightly even if you're pretty damn sure of your opinion.
        eru 14y ago
        > doesn't mean it makes sense to short it unless you also think you can time the drop perfectly, With the right options, you don't have to time it perfectly. Just good enough. You can limit the risk of shorting relatively cheaply by buying way out-of-the-money call options.
- tallanvor 14y ago
  Before the IPO when a couple of people asked me when I would buy FB stock, I told them that I wouldn't pay more than $10 for it. They're starting to believe me now.
dave_sullivan 14y ago
FWIW, looks like FB still has a P/E of 62. That's high, but could be much higher. For reference, however, Google is at 20. P/E is certainly not the only number that matters, but I think the two companies have a lot in common re: their major profit sources, and it suggests FB has quite a bit of room to go down more if they don't turn things around with eg an especially good quarter.
- xxpor 14y ago
  In terms of their profit centers, there's a fundamental difference in the type of advertising they do. Fb does demographic based ads, while google does ads based on what people are searching for RIGHT NOW. 99% of the time, google style advertising is worth more.
- ramblerman 14y ago
  Am I correct in understanding that as, for 62 dollars worth of shares I buy 1 dollar of the earnings?
  - WiseWeasel 14y ago
    No; for $62 of shares, you buy $62 of shares. The Price-to-Earnings ratio is the ratio of the total outstanding share value to the company's income in the previous year. Facebook's income in 2011 was $1B. At the IPO share price of $38, the value of the total outstanding shares was around $100B, giving them a P/E ratio of 100 ($100B / $1B = 100). Now that the share price has fallen by half, the P/E ratio is closer to 50. The P/E ratio is used to give an indication of how highly a company's stock is valued in relation to the profit they make. Companies with a high P/E ratio are typically expected by shareholders to report higher profits in the future. Those with a low ratio are expected to remain flat or contract. For high-growth companies, like triple-digit growth, a P/E ratio between 50-100 is not unheard of, but is relatively high, and an indication of an exceptionally high degree of confidence in the company. A ratio in the 20-40 range is more common for growing companies. 10 and under typically indicates a relative lack of faith in growth prospects by investors. There are many more factors to consider than relation to last year's profits when determining the value of a stock, but this is a very commonly used metric.
yuvadam 14y ago
This is not surprising, we have passed peak Facebook [1]. It was a very successful fad, but it is no longer the right place to be. [1] - https://www.google.com/trends/?q=facebook https://www.google.com/trends/?q=facebook
- citricsquid 14y ago
  google has also flatlined recently: https://www.google.com/trends/?q=google https://www.google.com/trends/?q=google is it not possible that the internet has reached capacity, that companies like Facebook and Google are never going to be in a position to add 100/200 million users a year any more?
- spaghetti 14y ago
  I found the "myspace" trend interesting: https://www.google.com/trends/?q=myspace https://www.google.com/trends/?q=myspace Perhaps the facebook trend so far is a repeat of the myspace trend through mid-2007.
veyron 14y ago
Yesterday's discussion: http://news.ycombinator.com/item?id=4459958 http://news.ycombinator.com/item?id=4459958
- raganwald 14y ago
  If you could post a link to tomorrow's discussion, you'd have something. "You sunnavabitch! Lemme see that browser... Howdja do that?"
  - veyron 14y ago
    In this case, there's a nonzero chance the author saw the HN discussion and made a quick post. After all, it is TechCrunch ...
    - raganwald 14y ago
      Oh I know, I was just riffing off a Mitch Hedberg line: One time, this guy handed me a picture of him, he said,"Here's a picture of me when I was younger." Every picture is of you when you were younger. "Here's a picture of me when I'm older." "You son-of-a-bitch! How'd you pull that off? Lemme see that camera... what's it look like? " I like it because it reminds me of an old Twilight Zone episode.
dj2stein9 14y ago
Facebook stock simply had no business being valued that high to begin with. This was a classic pump and dump operation by the investment firms who took this company public. I thought Facebook was at best fully valued back when Microsoft bought in at 15B valuation, so they absolutely have room to fall further.
kalininalex 14y ago
The first link on the Yahoo Finance page for FB: "It’s Becoming Clear That No One Actually Read Facebook’s IPO Prospectus or Mark Zuckerberg’s Letter to Shareholders": http://finance.yahoo.com/blogs/daily-ticker/becoming-clear-no-one-actually-read-facebook-ipo-160120121.html http://finance.yahoo.com/blogs/daily-ticker/becoming-clear-n...
majani 14y ago
The thing that shocks me the most about this whole situation is how hackers also bought into the hype about potential revenues. Any forum administrator could tell you that running an ad-supported social network is a not such a great business plan. I don't think Facebook is doomed to die, but I believe it(along with other free social networks) will soon be found out as very poor businesses.
binarysolo 14y ago
Just a further reminder for people looking at FB (disclosure - mild short position): Stock unlock schedule: August 16th, 2012: 268 million shares, 10% of shares outstanding. October 14th, 2012: 249 million shares, 9% of shares outstanding. November 13th, 2012: 1.332 billion shares, 49% of shares outstanding. December 13th, 2012: 124 million shares, 5% of shares outstanding. May 17th, 2013: 47 million shares, 2% of shares outstanding.
- calvinlough 14y ago
  November 13th is going to be an interesting day...
  - spaghetti 14y ago
    Indeed. Glad it's not a Friday!
grandalf 14y ago
The banks who helped boost the price around the IPO are reclaiming their capital gradually, letting stories like this happen, and letting Facebook plan out the next phase of its capital generation strategy. Giving early investors a strong exit was part of the plan. The biggest irony is that spectators view the downward trend in share price as evidence that the early price was hype driven. In reality, both upward and downward trends are equally impacted by hype. I plan to invest when the price gets to $15. The only alarming sign so far is the massive number of ads for Target that appear daily on the mobile version. Clearly a few large companies made big ad purchases, and Facebook now regurgitates the news that a friend liked Target again and again at every opportunity. It's supremely annoying and might actually make me stop using Facebook.
- clobber 14y ago
  Yet you still plan on investing?
  - grandalf 14y ago
    So far I've seen Facebook recover from a lot of bad decisions. I think the leadership at the company is very strong and that the core business concept ads lots of value to a lot of people's lives.
    - clobber 14y ago
      Disagree. It's been one privacy blunder after the next- each further tarnishing the reputation of the company and service. If you find oversharing, memes and cat pics valuable, then yes it's "valuable."
      - grandalf 14y ago
        I look at it as a tension between things that humans find viscerally entertaining vs privacy that we would all value if we were rational. Sort of a classic challenge analogous to the difference between homo economicus and regular people.

39 points by maayank 14y ago

rdl 14y ago

The employee lockup is what scares me. Most Facebook employees were hired early in their careers, didn't have other money, and a lot have bought or want to buy houses, cars, etc using their still substantial paper wealth. I believe in the Facebook product, quality of team, and future revenue potential, but sale at lockup(as well as concentration of control in Zuck) scare me, unless it gets to $10-20b capitalization.

SeanDav 14y ago

If every time FB hits a new low it makes HN front page then we are going to have a very boring front page. I fully expect FB to drop below 10.

eru 14y ago
Do you hold a short position?
- SeanDav 14y ago
  I realize this is likely a tongue-in-cheek response, but I wouldn't have touched (and didn't) the FB IPO from either a long or short position. Too much emotion and too much hype. Even if I believed the stock was grossly over priced it would have been silly to take a short position because the stock was and is quite capable of spiking hugely. In this case you might be correct about the value of the stock but can still be taken out the market due to "irrational" movements in the price. The "real" value of FB starts becoming "realistic" somewhere below 10 and unless FB announce some major improvement in revenue generation I just cannot see FB going anywhere but south in the short term.
- tomjen3 14y ago
  The market can stay irrational longer than you can stay solvent.
- raganwald 14y ago
  Not everyone invests. I recall some years ago when I was living in a bit of a moral vacuum. I was at UofT and I spent all of my spare time playing bridge, poker, and backgammon, for as much money as possible. One night I had a chance to play an extremely plump pigeon, I think they call them "whales" today. He asked for various handicaps to narrow my edge, and we worked out something I thought was going to make me a lot of money. He then dropped the big kicker: He wanted to play for extremely high stakes, enough that if he got hot, he would bankrupt me. Naturally, this dismayed me. Although I thought I could keep my cool and not "steam," I knew that being the better player, I wanted the chance to let the odds play themselves out, not subject my self to the possibility of a bad swing. So I sought out a friend who had an extremely large and dependable cash flow. Would he back me in exchange for a share of the profits? We both knew I was going to win. He turned the deal down. "I only bet on myself," he said. I was incredulous. Why turn down an extremely lucrative business opportunity? "I like knowing that I made my own money," he said. He didn't see investing in me as being the same kind of thing as running his various schemes and dealings where he had his own hands on the levers of commerce. I'm not saying it's a better thing, but some people simply aren't that interested in investing, they like to bet on themselves.
  - sanj 14y ago
    I tell folks I either invest in the broadest possible market -- namely index funds -- or the narrowest: me.
- veyron 14y ago
  I shorted from 31.50 down to 27 .. wish I held onto the position ...
  - spaghetti 14y ago
    By what percentage did you increase your initial investment? I'm just curious about trading options in general. Would be interesting to learn how holding onto your postition for that time period paid off.
    - veyron 14y ago
      I shorted the equity directly. The main costs are: - Transaction and Margin costs (those are generally 1 cent per share per side, roughly .06%) - Borrow costs (For that trade it was 30% annualized. I held it for 6 days so its .7%) So the cost to the trade was .76%. The gross return (since you calculate returns relative to the starting point) is (31.5 - 27) / 31.6 = 14.28% and the net return is 13.53% Note that I didnt short as much as I could have -- obviously the return would be higher if I borrowed extra money to short.
      - spaghetti 14y ago
        Interesting. +1 for sharing actual numbers as that helps the learning process along quite a bit imo.
- benologist 14y ago
  Would it make what he said less true? Daily updates on FB's stock are boring.
  - tatsuke95 14y ago
    Lots of articles on the front page are, in my opinion, boring. My solution is to not click on them. I happen to find media and public sentiment on the biggest, most hyped IPO of the decade (ever?) to be fascinating.
  - marvin 14y ago
    I think the comment was more about his stock prediction. It's very easy to make confident claims about the performance of a stock when you're not invested in it yourself. Financial opinions would be a lot more interesting if they were only given by people who followed their own advice to the letter.
    - georgemcbay 14y ago
      Just because you believe a stock will eventually be at a lower price than it currently is doesn't mean it makes sense to short it unless you also think you can time the drop perfectly, and if you think that you're a fool. The virtually unlimited downside of shorting is a lot of risk that has to be factored into any decision and thus shorting isn't to be taken lightly even if you're pretty damn sure of your opinion.
      - eru 14y ago
        > doesn't mean it makes sense to short it unless you also think you can time the drop perfectly, With the right options, you don't have to time it perfectly. Just good enough. You can limit the risk of shorting relatively cheaply by buying way out-of-the-money call options.
tallanvor 14y ago
Before the IPO when a couple of people asked me when I would buy FB stock, I told them that I wouldn't pay more than $10 for it. They're starting to believe me now.

dave_sullivan 14y ago

FWIW, looks like FB still has a P/E of 62. That's high, but could be much higher. For reference, however, Google is at 20. P/E is certainly not the only number that matters, but I think the two companies have a lot in common re: their major profit sources, and it suggests FB has quite a bit of room to go down more if they don't turn things around with eg an especially good quarter.

xxpor 14y ago
In terms of their profit centers, there's a fundamental difference in the type of advertising they do. Fb does demographic based ads, while google does ads based on what people are searching for RIGHT NOW. 99% of the time, google style advertising is worth more.
ramblerman 14y ago
Am I correct in understanding that as, for 62 dollars worth of shares I buy 1 dollar of the earnings?
- WiseWeasel 14y ago
  No; for $62 of shares, you buy $62 of shares. The Price-to-Earnings ratio is the ratio of the total outstanding share value to the company's income in the previous year. Facebook's income in 2011 was $1B. At the IPO share price of $38, the value of the total outstanding shares was around $100B, giving them a P/E ratio of 100 ($100B / $1B = 100). Now that the share price has fallen by half, the P/E ratio is closer to 50. The P/E ratio is used to give an indication of how highly a company's stock is valued in relation to the profit they make. Companies with a high P/E ratio are typically expected by shareholders to report higher profits in the future. Those with a low ratio are expected to remain flat or contract. For high-growth companies, like triple-digit growth, a P/E ratio between 50-100 is not unheard of, but is relatively high, and an indication of an exceptionally high degree of confidence in the company. A ratio in the 20-40 range is more common for growing companies. 10 and under typically indicates a relative lack of faith in growth prospects by investors. There are many more factors to consider than relation to last year's profits when determining the value of a stock, but this is a very commonly used metric.

yuvadam 14y ago

This is not surprising, we have passed peak Facebook [1]. It was a very successful fad, but it is no longer the right place to be. [1] - https://www.google.com/trends/?q=facebook https://www.google.com/trends/?q=facebook

citricsquid 14y ago
google has also flatlined recently: https://www.google.com/trends/?q=google https://www.google.com/trends/?q=google is it not possible that the internet has reached capacity, that companies like Facebook and Google are never going to be in a position to add 100/200 million users a year any more?
spaghetti 14y ago
I found the "myspace" trend interesting: https://www.google.com/trends/?q=myspace https://www.google.com/trends/?q=myspace Perhaps the facebook trend so far is a repeat of the myspace trend through mid-2007.

veyron 14y ago

Yesterday's discussion: http://news.ycombinator.com/item?id=4459958 http://news.ycombinator.com/item?id=4459958

raganwald 14y ago
If you could post a link to tomorrow's discussion, you'd have something. "You sunnavabitch! Lemme see that browser... Howdja do that?"
- veyron 14y ago
  In this case, there's a nonzero chance the author saw the HN discussion and made a quick post. After all, it is TechCrunch ...
  - raganwald 14y ago
    Oh I know, I was just riffing off a Mitch Hedberg line: One time, this guy handed me a picture of him, he said,"Here's a picture of me when I was younger." Every picture is of you when you were younger. "Here's a picture of me when I'm older." "You son-of-a-bitch! How'd you pull that off? Lemme see that camera... what's it look like? " I like it because it reminds me of an old Twilight Zone episode.

dj2stein9 14y ago

Facebook stock simply had no business being valued that high to begin with. This was a classic pump and dump operation by the investment firms who took this company public. I thought Facebook was at best fully valued back when Microsoft bought in at 15B valuation, so they absolutely have room to fall further.

kalininalex 14y ago

The first link on the Yahoo Finance page for FB: "It’s Becoming Clear That No One Actually Read Facebook’s IPO Prospectus or Mark Zuckerberg’s Letter to Shareholders": http://finance.yahoo.com/blogs/daily-ticker/becoming-clear-no-one-actually-read-facebook-ipo-160120121.html http://finance.yahoo.com/blogs/daily-ticker/becoming-clear-n...

majani 14y ago

The thing that shocks me the most about this whole situation is how hackers also bought into the hype about potential revenues. Any forum administrator could tell you that running an ad-supported social network is a not such a great business plan. I don't think Facebook is doomed to die, but I believe it(along with other free social networks) will soon be found out as very poor businesses.

binarysolo 14y ago

Just a further reminder for people looking at FB (disclosure - mild short position): Stock unlock schedule: August 16th, 2012: 268 million shares, 10% of shares outstanding. October 14th, 2012: 249 million shares, 9% of shares outstanding. November 13th, 2012: 1.332 billion shares, 49% of shares outstanding. December 13th, 2012: 124 million shares, 5% of shares outstanding. May 17th, 2013: 47 million shares, 2% of shares outstanding.

calvinlough 14y ago
November 13th is going to be an interesting day...
- spaghetti 14y ago
  Indeed. Glad it's not a Friday!

grandalf 14y ago

The banks who helped boost the price around the IPO are reclaiming their capital gradually, letting stories like this happen, and letting Facebook plan out the next phase of its capital generation strategy. Giving early investors a strong exit was part of the plan. The biggest irony is that spectators view the downward trend in share price as evidence that the early price was hype driven. In reality, both upward and downward trends are equally impacted by hype. I plan to invest when the price gets to $15. The only alarming sign so far is the massive number of ads for Target that appear daily on the mobile version. Clearly a few large companies made big ad purchases, and Facebook now regurgitates the news that a friend liked Target again and again at every opportunity. It's supremely annoying and might actually make me stop using Facebook.

clobber 14y ago
Yet you still plan on investing?
- grandalf 14y ago
  So far I've seen Facebook recover from a lot of bad decisions. I think the leadership at the company is very strong and that the core business concept ads lots of value to a lot of people's lives.
  - clobber 14y ago
    Disagree. It's been one privacy blunder after the next- each further tarnishing the reputation of the company and service. If you find oversharing, memes and cat pics valuable, then yes it's "valuable."
    - grandalf 14y ago
      I look at it as a tension between things that humans find viscerally entertaining vs privacy that we would all value if we were rational. Sort of a classic challenge analogous to the difference between homo economicus and regular people.