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Facebook is not worth $33 billion

37signals.com

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Re: Facebook is not worth $33 billion

#11

Post by _delirium »

spolsky wrote: post #5

I hate to leap in with what seems like an ad-hominem attack on the 37 signals, but their utter and complete misunderstanding of all the basics of business is starting to grate on me, and I'm wondering if it has anything to do with Chicago. Is the problem that they're sitting there in a city without any other Internet industry, stewing in their own witty ideas, listening only to the adoring comments they get from the…

I agree mostly, but it is true that in private equity, it's not always taken for granted that you can take a small stake's buy-in price and multiply it out to get a valuation. It depends on why that investor bought in, what the prospects for similar investors are, etc. It's taken with much bigger grains of salt than the standard (share price * shares outstanding) valuation for public companies is, anyway.

Re: Facebook is not worth $33 billion

#12

Post by jacquesm »

rmah wrote: post #8
jacquesm wrote: post #2

What facebook is really worth we'll know when they IPO and they sell off a majority portion of the stock. Until then it's anybody's guess. I wouldn't buy their stock at any valuation, there are much more solid ways of investing than speculating on something that already feels over valued. And if I would want more risk then I'd rather put my money in start-ups than facebook. The next bubble is here, and it will go the…

Companies rarely "sell off a majority portion of the stock" when they IPO. More typically, they sell an additional 20% to 30% new shares to select investors.

Sorry, I meant to write major... apologies.

Re: Facebook is not worth $33 billion

#13

Post by seldo »

spolsky wrote: post #5

I hate to leap in with what seems like an ad-hominem attack on the 37 signals, but their utter and complete misunderstanding of all the basics of business is starting to grate on me, and I'm wondering if it has anything to do with Chicago. Is the problem that they're sitting there in a city without any other Internet industry, stewing in their own witty ideas, listening only to the adoring comments they get from the…

A dime per user is nice and all, but they need to make 20x that for a billion dollars in revenue. That's still only $2 per user, but a lot harder.

Re: Facebook is not worth $33 billion

#14

Post by ericb »

jacquesm wrote: post #2

What facebook is really worth we'll know when they IPO and they sell off a majority portion of the stock. Until then it's anybody's guess. I wouldn't buy their stock at any valuation, there are much more solid ways of investing than speculating on something that already feels over valued. And if I would want more risk then I'd rather put my money in start-ups than facebook. The next bubble is here, and it will go the…

I agree, but as an aside, is it possible Netscape merited that valuation? Was Netscape's a squandered opportunity, or the most likely outcome.

I mean this in the sense of odds--was the valuation wrong because the odds of success were really so slim, or are we calling the die roll of a hard six inevitable after the fact?

I bring this up because I had a similar feeling to what you describe about Google around its second stock offering, but it has done extraordinarily well since then. I second guess these judgments because in hindsight everything seems inevitable.

Re: Facebook is not worth $33 billion

#16

Post by Keyframe »

Sure it is, it is called Speculation http://en.wikipedia.org/wiki/Speculation Just because there is no real value going on for proper financial analysis behind it yet, doesn't mean prospective valuation couldn't be derived. Obviously, people that invested worked on a model that derived said valuation. Maybe it's a bubble, maybe it's not - but valuation is here. That's how speculative market works, without it there would be no investments.

My take is that Facebook is transitioning into a phase where they will try to monetize their user base by a large factor. Vector of their approach is widely speculated in media (they'll take on google, they'll make phone, they'll do this, they'll do that). The fact is that we don't know for sure what and where will they hit, but certain fact is they must hit somewhere. Speculation is fed with that fact.

Google had a 5 year span before it hit Adsense. Amazon was in the gutter for quite some time... I really see no point in this article from the arguments perspective.

I see a point in subjective matter where one who understands only a traditional commerce model (http://en.wikipedia.org/wiki/Commerce) would have trouble with speculative nature of business like this. From the tone of the post it looks like the message here is the messanger's emotions rather than fundamental aspect of point being made (since there isn't any to begin with).

Re: Facebook is not worth $33 billion

#17

Post by Andrew_Quentin »

ulf wrote: post #3

"Facebook has been around for seven years. It has 500 million users. If you can’t figure out how to make money off half a billion people in seven years, I’m going to go out on a limb and say you’re unlikely to ever do." This is a strawman. If they wanted to make money right now they would. But they also observed many examples of turning-the-faucet-on gone wrong, especially with the whole privacy issues, that they are…

what exactly are they waiting for? They have half a billion users. You know, that is more than America and Russia together, or comparable to the entire population of the geographical Europe. They can only go down hill from here I think. Therefore, personally I certainly would not wait.

The truth is really that they do not know how to monetize themselves effectively

Re: Facebook is not worth $33 billion

#18

Post by dhh »

spolsky wrote: post #5

I hate to leap in with what seems like an ad-hominem attack on the 37 signals, but their utter and complete misunderstanding of all the basics of business is starting to grate on me, and I'm wondering if it has anything to do with Chicago. Is the problem that they're sitting there in a city without any other Internet industry, stewing in their own witty ideas, listening only to the adoring comments they get from the…

1. Thanks for the word correction, updated.

2. Publicly traded companies have instant liquidity on many more shares, which makes using "last share sold" an meaningful metric.

3. When only 3% of the money a company is supposedly worth has been moved around, it's a poor indicator of what the other 97% would go for.

4. They haven't figured out how to make much profit yet. And it's still questionable whether they will. MySpace supposedly also just needed to turn on the faucet, but apparently the water ran out before they got to it.

5. Oh, and New York smells. (take that!)

Re: Facebook is not worth $33 billion

#19

Post by ZachPruckowski »

dabeeeenster wrote: post #4

"In other words, the evaluation is resting on the flawed assumption that Facebook could actually ever get 33 times as much money to change hands if they wanted to. There’s just no way, no how that’s happening right now. If it could, they’d IPO tomorrow." This is simply not true. There are many reasons why a company may want to stay private.

> "There are many reasons why a company may want to stay private"

True. But there are a billion reasons to be looking for an exit - all those VC investors are eventually going to want to close out their funds and get real money for their institutional clients. Not to mention all the employees.

Most of these shareholders are going to want to cash out in the next few years, and $200 million in profits won't go far towards making that happen. They've got to exit eventually, and $33 billion is a lot for a major company to pay for Facebook when they don't have a clear monetization strategy. I mean, that's twenty times bigger than the YouTube sale. So IPO it is.

Re: Facebook is not worth $33 billion

#20

Post by spolsky »

seldo wrote: post #13
spolsky wrote: post #5

I hate to leap in with what seems like an ad-hominem attack on the 37 signals, but their utter and complete misunderstanding of all the basics of business is starting to grate on me, and I'm wondering if it has anything to do with Chicago. Is the problem that they're sitting there in a city without any other Internet industry, stewing in their own witty ideas, listening only to the adoring comments they get from the…

A dime per user is nice and all, but they need to make 20x that for a billion dollars in revenue. That's still only $2 per user, but a lot harder.

They're almost certainly making $2 per user. Another dime is gonna be easy.
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