OFFICIAL Facebook IPO Thread

[WhatupG]

Guerilla is arguing that the value of a company is derived from whatever people will pay for its stock at a given time.

I'm arguing that the value of a company is a product of its balance sheet and financials, or as I said up top a few posts ago, that the value of a company can be derived from what its customers (advertisers) are willing to pay for its product (ads).

FaceBook is now public, so it's value is derived from it's stock price and the # of outstanding shares, it's market capitalization. If Google wanted to buy FB, they would have to pay AT LEAST the current stock price or none of the boardmembers and stockholders would accept the offer since they can sell right now at the current price. It's illogical that a company would ever be bought for less than the current stock price, it just doesn't make sense.

 

[dchuk]

FaceBook is now public, so it's value is derived from it's stock price and the # of outstanding shares, it's market capitalization. If Google wanted to buy FB, they would have to pay AT LEAST the current stock price or none of the boardmembers and stockholders would accept the offer since they can sell right now at the current price. It's illogical that a company would ever be bought for less than the current stock price, it just doesn't make sense.

I've already explained my logic, which is the same logic for why Google is at an 18.55 P/E ratio right now:

the value of a company can be derived from what its customers (advertisers) are willing to pay for its product (ads).

 

[guerilla]

Guerilla is arguing that the value of a company is derived from whatever people will pay for its stock at a given time.

Technically this is incorrect.

The price of a company is based on what people will pay for it (and implicitly, what they will sell it for).

The value of a company is completely subjective. Prices are formed when the values of buyers and sellers meet up.

I'm arguing that the value of a company is a product of its balance sheet and financials

Those are facts, they have to be interpreted by a human mind to create a concept of value.

Value is ordinal, not cardinal. It is expressed in relationships. (X is worth Y).

 

[pocketrockets]

I don't understand why everyone keeps bringing up Myspace.

Completely different. Facebook is many times bigger than Myspace, and has far greater engagement across a much larger demographic than Myspace ever did. It's like comparing Bing with Google.

Of course there are many differences but the underlying theme is basically the same. As MySpace learned, getting people to click on ads isn't easy on social networks. Myspace and Facebook are profitable BUT people just don't click on them like they do in search engines. People go to Facebook to socialize, not to pull out their credit card.

 

[dchuk]

Technically this is incorrect.

The price of a company is based on what people will pay for it (and implicitly, what they will sell it for).

The value of a company is completely subjective. Prices are formed when the values of buyers and sellers meet up.

But the buyers and sellers you're talking about are investors and shareholders. The buyers and sellers I'm talking about are advertisers and Facebook.

The market determining Facebook's value is their own market of advertising customers, as those buyers (advertisers) are meeting up with sellers (facebook ads) to determine what Facebook's product (ads) are really worth.

The stock market price for Facebook is not connected to anything objective, it's purely speculation.

Those are facts, they have to be interpreted by a human mind to create a concept of value.

Value is ordinal, not cardinal. It is expressed in relationships. (X is worth Y).

A company profiting more than another company is objectively more valuable on a fundamental level. There is nothing subjective about that.

 

[mituozo]

Of course there are many differences but the underlying theme is basically the same. As MySpace learned, getting people to click on ads isn't easy on social networks. Myspace and Facebook are profitable BUT people just don't click on them like they do in search engines. People go to Facebook to socialize, not to pull out their credit card.

But how much would it take for Facebook to start doing things which draws them in when they actually have commercial intent?

 

[guerilla]

But the buyers and sellers you're talking about are investors and shareholders. The buyers and sellers I'm talking about are advertisers and Facebook.

All buyers and sellers. I try to avoid abstractions and stick to principles.

The market determining Facebook's value is their own market of advertising customers, as those buyers (advertisers) are meeting up with sellers (facebook ads) to determine what Facebook's product (ads) are really worth.

Your perception of value. More abstractions.

Creating categories (inclusions and exclusions) to prove our point always forms a weak argument.

The stock market price for Facebook is not connected to anything objective, it's purely speculation.

That has been my point all along.

A company profiting more than another company is objectively more valuable on a fundamental level. There is nothing subjective about that.

No, valuing profit over another metric is indeed subjective.

You're so close, and yet so far away.

 

[dchuk]

All buyers and sellers. I try to avoid abstractions and stick to principles.


Your perception of value. More abstractions.

Creating categories (inclusions and exclusions) to prove our point always forms a weak argument.


That has been my point all along.


No, valuing profit over another metric is indeed subjective.

You're so close, and yet so far away.

why would two days of public stock trading take precedence over multiple years of revenue records for a company based on the sales of their product (ads) to their customers (advertisers)?

An investor is not Facebook's customer. Facebook's market (that is determining its value) is its network of advertisers, not investors.

The buyers and sellers you're talking about are absolutely, in no way whatsoever, the same as the buyers and sellers I'm talking about. I have explained why I think my idea of buyers and sellers is more accurate, so why is your assertion better than mine? I want an explanation, not a "learn economics please lololol" personal attack. I'm explaining the fundamental financial reasoning behind proper company valuation.

Profit is the ultimate objective evidence of success in business. It should be at the forefront of any valuation exercise.

 

[guerilla]

why would two days of public stock trading take precedence over multiple years of revenue records for a company based on the sales of their product (ads) to their customers (advertisers)?

Precedence where?

An investor is not Facebook's customer. Facebook's market (that is determining its value) is its network of advertisers, not investors.

They are a customer for their stock.

This may be too deep for you, but everyone is simultaneously a buyer and a seller.

The buyers and sellers you're talking about are absolutely, in no way whatsoever, the same as the buyers and sellers I'm talking about.

You're just creating abstractions. It's lazy arguing, plus you're obstinate and refuse to address my fundamental argument, instead trying to create exceptions in order to avoid it.

I have explained why I think my idea of buyers and sellers is more accurate, so why is your assertion better than mine?

It's not an assertion, it's a fact you can determine independent of me, through deduction.

Will you stop trying to argue with me long enough to do some serious thinking about what I have written? If not, nothing I write will change your mind.

Profit is the ultimate objective evidence of success in business. It should be at the forefront of any valuation exercise.

Maybe it should be. But it isn't. Everyone values everything subjectively.

 

[rusvik]

Lol people, give up that overly theoretic discussion about value. There are several definitions of value at play here. The price of the stock is not the value of the company. It's a time discounted price of future earnings. Obviously a bad measure of current value. But even stock price is not static but deviating around the mean or golden state for whatever future estimations are being used. Fundamentals always prevails. But you're correct that fundamentals mean absolutely nothing on the short term, only thing that matters is how the other market traders are thinking and other traders beliefs about other traders beliefs.

 

[pocketrockets]

But how much would it take for Facebook to start doing things which draws them in when they actually have commercial intent?

No idea but the ARPU (Average Revenue Per User) is around a $1.17 and on the decline! Not the trend you want to see.

Facebook's Revenue Per Monthly User Declines - Businessweek

 

[mGrunin]

Facebook and Zynga, both down pretty had. No surprise. I knew selling off all my shares on Friday was the right move. It does seem that FB has reached a support level at $34. Which I personally think is still too much for them. I predict them dropping in the low $20's by Friday.

A stock that I have been keeping my eyes open to is Sprint. They were at $6 a year ago and $20 before the 08/09 market crash. Lately they've made some shitty business decisions as well as some of the board members were involved in tax evasion. But I predict that once they clean up their shit, they shouldn't have problems doubling in a year. Several credible articles have placed Sprint in the category as one of the companies most likely to double in the next year. It's currently trading at $2.36, cheap as fuck. </pump>

 

[stick2Herbs]

Are any shorts available for facebook?

 

[mGrunin]

Are any shorts available for facebook?

From what I've read, you'll be able to start shorting starting Tuesday/Wednesday.

 

[Dresden14]

shit... down a bit... fuck it tho, wait it out. down 11%.

 

[Pb.com]

Guerilla is arguing that the value of a company is derived from whatever people will pay for its stock at a given time.

I'm arguing that the value of a company is a product of its balance sheet and financials, or as I said up top a few posts ago, that the value of a company can be derived from what its customers (advertisers) are willing to pay for its product (ads).

Well you are both right. But dchuk, you are failing to overlook something. The potential value of a company. According to your analysis every company would start out with a value extremely low if not negative based on their current balance sheets. But... it's the potential market cap that drives up the "value" that causes the valuations of companies to go up. Will they reach their "market cap"? Who knows but if they get anywhere close to 50%, the current valuation will look like a fucking steal.

You have to realize that Fb, as much as I hate it, has the potential to branch out into a ton of different markets. They have the userbase, the knowledge about the users, and the resources to do some incredibly profitable things. Maybe they are going to start serving external ads, maybe they'll start a mturk only to branch into a payment processor only to branch into an online bank with free micropayments, maybe they'll start serving online school classes for free only to lure you into a paid education system where everyone has to go through them, maybe they'll compete with amazon, etsy, and ebay all at once with a marketplace, maybe they'll compete with youtube, maybe they'll make a better search engine than google, or maybe they'll hire me and have their evaluation tripled (kidding).

The point here isn't what they will do. The point is that they have the potential to reach into a broad range of markets with huge market caps. They also have the technical resources and the userbase to make anything worth it's salt popular overnight. For them, if they build it, they will come. So whether they succeed or fail, I support their current price of ~$33 as a damn good price considering their potential.

 

[mGrunin]

Alright, well that was a shitty day for Facebook. Finishing off 11% down on it's 2nd day is bad news. I see it opening at $31.50 tomorrow. It's already down 28c in the aftermarket.

 

[ardent]

Facebook will be fine in the longterm but it's nice to see a bit of reality slap them around first.

 

[pocketrockets]

The point is that they have the potential to reach into a broad range of markets with huge market caps. They also have the technical resources and the userbase to make anything worth it's salt popular overnight. For them, if they build it, they will come. So whether they succeed or fail, I support their current price of ~$33 as a damn good price considering their potential.

Potential, would, could, etc. is already priced generously into the stock. .. when are they going to use all this "potential"? Zuckerberg better figure it out quick because shareholders aren't going to keep waiting around long for the numbers to improve.

 

[guerilla]

Potential, would, could, etc. is already priced generously into the stock. .. when are they going to use all this "potential"? Zuckerberg better figure it out quick because shareholders aren't going to keep waiting around long for the numbers to improve.

See Amazon.