4 ms·

Facebook Is Currently Worth $24 Billion Less Than When It First Went Public

25 points by bavidar 13y ago

loceng 13y ago
And within 3 years traffic will start to rapidly, and so will the stock.
- drstrangevibes 13y ago
  short facebook?
- hackinthebochs 13y ago
  Yes, if we all keep predicting that facebook's traffic will drop, eventually we will be right. But that's not useful information, nor does it add anything to the conversation.
  - tedsanders 13y ago
    To be fair, he did say "three years." But on the whole I agree with you. :)
  - loceng 13y ago
    I've said lots in the past before as to why. I was just making the end concluding statement.
- s3r3nity 13y ago
  This is neither productive or substantive - so will Google, Apple, Microsoft, etc. If we keep saying "the sky is going to fall - just you wait" with no data/analysis to back this up, eventually we all will be proven right. But you're not really saying anything.
  - loceng 13y ago
    I was stating a conclusion of previous thoughts that I've written out. True, it's not helpful in explaining to people in this thread.
- tedsanders 13y ago
  If you think the stock is overpriced, does that mean you're already shorting it to the extent that your risk aversion has kicked in? Otherwise people might think you don't believe what you say.
  - loceng 13y ago
    I don't have any stock in Facebook, nor would I put my money into it - I will make more putting into my own projects.
klaustopher 13y ago
Damn ... They could have bought 24 more Instagrams with that :(
josefresco 13y ago
Headline implies Facebook lost value however the article indicated that the value we and investors assigned to Facebook was batshit crazy.
eliben 13y ago
I'm trying to recall what innovations Facebook has introduced since the IPO and can't think of anything except a failing skin for Androind. What am I missing?
- s3r3nity 13y ago
  Basic Google search: Graph Search, Site Re-design on all platforms, Newsfeed algorithm changes that increased engagement, Significant growth and mobile penetration in international markets (now over 1.1+ BILLION people) -- i.e. making it easier for people on dumb phones to access Facebook, messaging improvements and stickers (which is HUGELY popular), ...etc.etc.
  - eliben 13y ago
    Honestly all of that doesn't sound remotely close to what I'd consider "innovation". Well, except the graph search perhaps, although I'm not sure how successful that came to be.
    - s3r3nity 13y ago
      Perhaps -- maybe it's not Apple style crazy innovation. However I'm intrigued at tech that makes it easy for those in the developing world to access the internet and connect with others in the social graph. And when you really think about it only maybe Google and Facebook are pulling this off (maybe Twitter, though I'm bearish on their capabilities on 'dumb phones' at the moment.)
jamesaguilar 13y ago
I was thinking about this, and was wondering if anyone on here who is a financial nerd can comment. Is market cap really a good way to measure the value of a company? My understanding is that market cap is (spot price * outstanding shares). The problem is that the spot price is representative only of what a single pair of investors believe their shares are worth. It seems like a better valuation would be something like, "How much would you have to spend to buy the company." Which at any given instant in time is much higher than the spot price-share product, and also probably fluctuates much more slowly.
- crapshoot101 13y ago
  James, which is why when you do an acquisition of a public company, you py a significant premium - because you don't need to consider just the spot investor; rather, you have to consider what those who think its undervalued believe as well. The spot price / market cap is a good way of getting the marginal value, so to speak of the company - in an acquisition, you're paying a premium to convince others to sell even if it is a significant surplus to what the marginal investor believes.
  - jcnnghm 13y ago
    Actually, the premium is usually a multiple of the present value added by the combination of the two companies. Imagine two airlines with many different routes, but a bit of overlap. If they merged, some of those redundant routes could be eliminated, which would reduce the costs and probably increase utilization on the remaining routes, they may also be able to sell the redundant planes and terminal slots. This could potentially represent billions of dollars of value above the sum of the values of the two companies separately. Think about how you would divide this premium between the target and the acquirer. It's actually pretty simple, imagine the next best possibility for the target. If there are many acquirers, the target should appropriate most of that value, hence, a high premium. If the next best alternative isn't as good, the acquirer should capture value. It follows logically that the optimal rational bid for a company is slightly more than the value added in their second best alternative (as an aside, this is really close to how IPO pricing works). Companies aren't necessarily rational though, so in competitive acquisitions companies frequently pay more than the actual value added. Empirically, acquirers in single-bidder acquisitions typically see price-appreciation of about 2% in event studies, whereas acquirers in multi-bidder acquisitions typically see price drops of about 1.33% in event studies. This indicates that acquirers in single-bidder acquisitions typically appropriate some of the added value, whereas in multi-bidder acquisitions, the target company captures all of the value added (plus some) by the acquisition. A really interesting example of this was RJR Nabisco in the 80s. The idea was to separate RJ Reynolds, the tobacco company, and Nabisco, the food company. RJR was a cash machine, but they had a huge uncertain liability from tobacco lawsuits that was depressing the value of the entire company; the separated company was worth a lot more than the company was together. It was trading for about $55/share, then KKR structured a LBO to buy it and break it up, and paid $109/share (management initially bid $75/share for a takeover). In that case, there were many bidders, so the vast majority of the value was appropriated by the shareholders (in fact, KKR didn't generate a good return). [1] In general, the market cap is the best indicator of the true value of a company in it's current configuration. That does not mean there is not some other configuration or combination where the company could be worth a lot more. It's worth mentioning that whenever the market price is incorrect, there is an arbitrage opportunity available to move the price to its true value. HFT is basically designed to capture these opportunities almost instantly, which is exactly what you would expect if markets are efficient. 1: I highly recommend the 1993 HBO movie Barbarians at the Gate, about this LBO.
tedsanders 13y ago
>Facebook has torched tens of billions of dollars of shareholder equity since it first went public. Not necessarily. Price movements in a stock are not necessarily caused by bad decisions of the company. Stock prices can change for many reasons outside of the company's control. By the article's logic, the Facebook torched a lot of shareholder value on the day of its IPO. But that day, Facebook made very few decisions, despite its price falling drastically. Rather than Facebook's bad decisions, I'd argue that investor uncertainty was the driver of the price movements.
tedsanders 13y ago
>Aside from higher expenses and a lower operating margin, it’s hard to find a metric by which Facebook is worse off than it was a year ago. And yet we the market public value the firm at $24 billion less than on its first day. How is this surprising? Growth is always priced in. Stock prices move because expectations change, not because a company changes.
- rtpg 13y ago
  Also, the simple point that it was simply grossly overvalued when it initially went out. It's probably stabilized at a "more reasonable" price.
izendejas 13y ago
Flagged and others should, also. I don't think we need to feed TC any more clicks for worthless content. Edit: if you need any more evidence to flag it, just witness the quality of the comments this "article" inspired.

25 points by bavidar 13y ago

loceng 13y ago

And within 3 years traffic will start to rapidly, and so will the stock.

drstrangevibes 13y ago
short facebook?
hackinthebochs 13y ago
Yes, if we all keep predicting that facebook's traffic will drop, eventually we will be right. But that's not useful information, nor does it add anything to the conversation.
- tedsanders 13y ago
  To be fair, he did say "three years." But on the whole I agree with you. :)
- loceng 13y ago
  I've said lots in the past before as to why. I was just making the end concluding statement.
s3r3nity 13y ago
This is neither productive or substantive - so will Google, Apple, Microsoft, etc. If we keep saying "the sky is going to fall - just you wait" with no data/analysis to back this up, eventually we all will be proven right. But you're not really saying anything.
- loceng 13y ago
  I was stating a conclusion of previous thoughts that I've written out. True, it's not helpful in explaining to people in this thread.
tedsanders 13y ago
If you think the stock is overpriced, does that mean you're already shorting it to the extent that your risk aversion has kicked in? Otherwise people might think you don't believe what you say.
- loceng 13y ago
  I don't have any stock in Facebook, nor would I put my money into it - I will make more putting into my own projects.

klaustopher 13y ago

Damn ... They could have bought 24 more Instagrams with that :(

josefresco 13y ago

Headline implies Facebook lost value however the article indicated that the value we and investors assigned to Facebook was batshit crazy.

eliben 13y ago

I'm trying to recall what innovations Facebook has introduced since the IPO and can't think of anything except a failing skin for Androind. What am I missing?

s3r3nity 13y ago
Basic Google search: Graph Search, Site Re-design on all platforms, Newsfeed algorithm changes that increased engagement, Significant growth and mobile penetration in international markets (now over 1.1+ BILLION people) -- i.e. making it easier for people on dumb phones to access Facebook, messaging improvements and stickers (which is HUGELY popular), ...etc.etc.
- eliben 13y ago
  Honestly all of that doesn't sound remotely close to what I'd consider "innovation". Well, except the graph search perhaps, although I'm not sure how successful that came to be.
  - s3r3nity 13y ago
    Perhaps -- maybe it's not Apple style crazy innovation. However I'm intrigued at tech that makes it easy for those in the developing world to access the internet and connect with others in the social graph. And when you really think about it only maybe Google and Facebook are pulling this off (maybe Twitter, though I'm bearish on their capabilities on 'dumb phones' at the moment.)

jamesaguilar 13y ago

I was thinking about this, and was wondering if anyone on here who is a financial nerd can comment. Is market cap really a good way to measure the value of a company? My understanding is that market cap is (spot price * outstanding shares). The problem is that the spot price is representative only of what a single pair of investors believe their shares are worth. It seems like a better valuation would be something like, "How much would you have to spend to buy the company." Which at any given instant in time is much higher than the spot price-share product, and also probably fluctuates much more slowly.

crapshoot101 13y ago
James, which is why when you do an acquisition of a public company, you py a significant premium - because you don't need to consider just the spot investor; rather, you have to consider what those who think its undervalued believe as well. The spot price / market cap is a good way of getting the marginal value, so to speak of the company - in an acquisition, you're paying a premium to convince others to sell even if it is a significant surplus to what the marginal investor believes.
- jcnnghm 13y ago
  Actually, the premium is usually a multiple of the present value added by the combination of the two companies. Imagine two airlines with many different routes, but a bit of overlap. If they merged, some of those redundant routes could be eliminated, which would reduce the costs and probably increase utilization on the remaining routes, they may also be able to sell the redundant planes and terminal slots. This could potentially represent billions of dollars of value above the sum of the values of the two companies separately. Think about how you would divide this premium between the target and the acquirer. It's actually pretty simple, imagine the next best possibility for the target. If there are many acquirers, the target should appropriate most of that value, hence, a high premium. If the next best alternative isn't as good, the acquirer should capture value. It follows logically that the optimal rational bid for a company is slightly more than the value added in their second best alternative (as an aside, this is really close to how IPO pricing works). Companies aren't necessarily rational though, so in competitive acquisitions companies frequently pay more than the actual value added. Empirically, acquirers in single-bidder acquisitions typically see price-appreciation of about 2% in event studies, whereas acquirers in multi-bidder acquisitions typically see price drops of about 1.33% in event studies. This indicates that acquirers in single-bidder acquisitions typically appropriate some of the added value, whereas in multi-bidder acquisitions, the target company captures all of the value added (plus some) by the acquisition. A really interesting example of this was RJR Nabisco in the 80s. The idea was to separate RJ Reynolds, the tobacco company, and Nabisco, the food company. RJR was a cash machine, but they had a huge uncertain liability from tobacco lawsuits that was depressing the value of the entire company; the separated company was worth a lot more than the company was together. It was trading for about $55/share, then KKR structured a LBO to buy it and break it up, and paid $109/share (management initially bid $75/share for a takeover). In that case, there were many bidders, so the vast majority of the value was appropriated by the shareholders (in fact, KKR didn't generate a good return). [1] In general, the market cap is the best indicator of the true value of a company in it's current configuration. That does not mean there is not some other configuration or combination where the company could be worth a lot more. It's worth mentioning that whenever the market price is incorrect, there is an arbitrage opportunity available to move the price to its true value. HFT is basically designed to capture these opportunities almost instantly, which is exactly what you would expect if markets are efficient. 1: I highly recommend the 1993 HBO movie Barbarians at the Gate, about this LBO.

tedsanders 13y ago

>Facebook has torched tens of billions of dollars of shareholder equity since it first went public. Not necessarily. Price movements in a stock are not necessarily caused by bad decisions of the company. Stock prices can change for many reasons outside of the company's control. By the article's logic, the Facebook torched a lot of shareholder value on the day of its IPO. But that day, Facebook made very few decisions, despite its price falling drastically. Rather than Facebook's bad decisions, I'd argue that investor uncertainty was the driver of the price movements.

tedsanders 13y ago

>Aside from higher expenses and a lower operating margin, it’s hard to find a metric by which Facebook is worse off than it was a year ago. And yet we the market public value the firm at $24 billion less than on its first day. How is this surprising? Growth is always priced in. Stock prices move because expectations change, not because a company changes.

rtpg 13y ago
Also, the simple point that it was simply grossly overvalued when it initially went out. It's probably stabilized at a "more reasonable" price.

izendejas 13y ago

Flagged and others should, also. I don't think we need to feed TC any more clicks for worthless content. Edit: if you need any more evidence to flag it, just witness the quality of the comments this "article" inspired.