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Facebook is not worth $33 billion

37signals.com

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Re: Facebook is not worth $33 billion

#221

Post by skyepn »

TWAndrews wrote: post #203
mrtron wrote: post #58

Earlier quoted context omitted.

People are horrible at taking variables like growth into account. It isn't 66$ per user. It is 33billion/expected number of total users over the lifetime of facebook. So if you throw in rough estimates of 2 billion facebook users and give them a decade of profiting from an average user...3$ per year per user.

"rough estimates of 2 billion facebook users" Right. Because the Chinese and Indian Peasantry is definitely going to be on FB.

Not to mention other platforms are more popular in other countries. For example, Google's Orkut is very popular in Brazil and I'm sure Baidu et al are working on offerings for the Chinese market. USA != world

Re: Facebook is not worth $33 billion

#222

Post by jonshea »

I largely agree with dhh’s thesis that “minority investment valuations aren’t real”, and I agree that the lack of liquidity is part of the problem. But I think it’s “liquidity preference” that totally breaks the investor valuation.

As a toy example, imagine a company that could be worth $3, $30, or $300 each with equal probability. The logical valuation of this company is $111. A risk tolerant investor would pay $11.1 for 10% of the company.

Now imagine you have a 3x liquidation preference. If the company liquidates for less than 3 times your investment, then you get it all and the suckers holding common stock get nothing. How much will you pay for 10% of the company in this situation?

Well, if the company exits at $3 or $30 then you’ll get all of it, and if it exits at $300 then you get $30. The total expected value is ($3 + $30 + $30)/3 = $21. That’s almost twice what you’d pay if didn’t have liquidity preference! Even though, with 3x liquidity preference, you’d pay $21 for 10% of the company, $210 is clearly a nonsense valuation for the company as a whole.

Re: Facebook is not worth $33 billion

#223

Post by 10ren »

spolsky wrote: post #139
dhh wrote: post #111

Earlier quoted context omitted.

Apparently it wasn't obvious from the "New York smells" point that it was a joke. So let me spell it out: It was a joke (even if it's actually, technically true. Many parts of New York really do smell from all that trash on the street!).

people don't have a sense of humor. obviously my comments about chicagoans not knowing how to multiply was a joke, too. They multiply like bunnies.

Let this be a lesson to you edw519: you make a joke, and both your heroes attack you! Biff! Bam! Actually, I can't imagine a funnier response.

Re: Facebook is not worth $33 billion

#224

Post by pak »

nano81 wrote: post #93
dhh wrote: post #76

Earlier quoted context omitted.

Also, Sharepost currently has 3 positions for sale at valuations between 33 and 44 billion. The total outstanding shares for sale represent 0.001% at 44B. That's pretty close to the 0.000000001% that put our $100B valuation on paper: http://37signals.com/svn/posts/1941-press-release-37signals-... But hey, you better snatch these shares up quickly. It's rare that you get a chance to a clear shot at a company where "pr…

6 orders of magnitude is not pretty close.

His $1 trade was in jest. The point is, both are very small numbers compared to 100%, or even 1%.

Re: Facebook is not worth $33 billion

#225

Post by 2arrs2ells »

joshuacc wrote: post #115
GavinB wrote: post #57

Earlier quoted context omitted.

http://www.sharespost.com/companies/facebook I think the simple summary of your point is this: Things are worth what people are willing to pay for them, not what other people think they should be willing to pay for them. Facebook is worth $26 billion. That doesn't mean that buying it at a valuation of $26 billion is a good investment. Worth and my estimation of what it will be worth in the future two are different th…

"Things are worth what people are willing to pay for them, not what other people think they should be willing to pay for them." I agree with this, but there is a difference between the market being willing to pay $26 billion for a company, and minority investors being willing to pay $26 billion/ 0.03. Only the former establishes the actual* value.

Now, now. Let's be reasonable. No one is valuing Facebook at $866.67 billion.

/pedantry

Re: Facebook is not worth $33 billion

#226

Post by kwamenum86 »

JabavuAdams wrote: post #187
kwamenum86 wrote: post #71

Earlier quoted context omitted.

Value is determined by what someone- anyone- will pay for something. And it makes sense if you think about it. The goal is to find out how much you can sell that something for and it is the exact same problem as figuring out how much someone will pay for that something. Company valuations are messier than tulip bulb valuations though. With tulip bulb valuations you are saying that since someone will pay x the bulb is…

Value is determined by what someone- anyone- will pay for something. This is unexamined Econ 101 dogma. See the other posts on intrinsic value.

I say this coming from a practical point of view though. If I can sell something today for at most 15 bucks, that is how much it is worth, no?

Re: Facebook is not worth $33 billion

#227

Post by kwamenum86 »

bad_user wrote: post #190
kwamenum86 wrote: post #71

Earlier quoted context omitted.

Value is determined by what someone- anyone- will pay for something. And it makes sense if you think about it. The goal is to find out how much you can sell that something for and it is the exact same problem as figuring out how much someone will pay for that something. Company valuations are messier than tulip bulb valuations though. With tulip bulb valuations you are saying that since someone will pay x the bulb is…

> Value is determined by what someone- anyone- will pay for something. Not "someone", but THE MARKET ... when you buy a piece of Facebook, but won't be able to sell at least at the same price, then you're the loser ;) When multiple losers gather and start buying stupid shit with no value to THE MARKET, that's called a BUBBLE, that will burst sooner or later. The trick for estimating if "the valuation goes up" is to s…

I dont disagree with anything you or dhh said although I don't know for sure if his predictions will hold.

Re: Facebook is not worth $33 billion

#228

Post by kwamenum86 »

TWAndrews wrote: post #202
kwamenum86 wrote: post #71

Earlier quoted context omitted.

Value is determined by what someone- anyone- will pay for something. And it makes sense if you think about it. The goal is to find out how much you can sell that something for and it is the exact same problem as figuring out how much someone will pay for that something. Company valuations are messier than tulip bulb valuations though. With tulip bulb valuations you are saying that since someone will pay x the bulb is…

Right. But unless you think there's someone (or a set of someones) who would pay 33B for all of Facebook, it's not unreasonable to assert that it's not worth that much.

Agreed. We are valuing the whole pie based on the cost of a slice, which is problematic for many reasons...

Re: Facebook is not worth $33 billion

#229

Post by toolate »

portman wrote: post #205
krschultz wrote: post #198

Earlier quoted context omitted.

The problem with the comparison of Facebook VS Google is that Google advertising is fantastically targeted. You literally type into Google "I have this problem" and get a bunch of ads solving that problem . It is practically the holy grail of advertising. Now consider that it is a catch all for personal and corporate questions, it is a cash cow. It is perfectly acceptable to google something at your job, click on a l…

Speaking as someone who has spent $30,000 on Facebook ads in the last several months: Facebook advertising is fantastically targeted as well. Google ads work when there is so-called "purchase intent": I know I want a new waffle maker, so I search for it. Facebook ads work when there is demographic correlation: I just got engaged, and I might not know that I now need a waffle maker, but a Facebook ad can target me and…

So you're the one putting all those wedding ads on my Facebook page. I hate you.

Re: Facebook is not worth $33 billion

#230

Post by smallchou »

dhh wrote: post #62
spolsky wrote: post #41

Earlier quoted context omitted.

2. That's just not correct. Spend twenty minutes talking to anyone who trades in bonds or equity before you make assumptions about what liquidity you need to get a good price... it's not much. Facebook trades all the time on sharespost, certainly enough to be liquid and to reach a market price. Google itself only has a tiny fraction of the shares available to the public (10% if I remember correctly) and far less than…

2. The bond and equity markets are based on sound regulation, transparency, and quarterly statements. Facebook has none of those things when it operates in the dark of the secondary markets. 3. Again, these premiums are based on outstanding shares traded under the transparency of the public stock market. See Secondary Suckers for a nice take on the perils of the secondary market: http://www.homethinking.com/brontemed…

Do YOU have their P&L handy to back up YOUR statements about how they have no idea how to monetize their users? Or is that only a valid critique of people who are arguing with you?
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