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Facebook is not worth $33 billion

37signals.com

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Re: Facebook is not worth $33 billion

#241

Post by carlton »

dhh wrote: post #18
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. M…

David's point 2 is a good one. It is the reason why bourses insist that a large percentage (IIRC >25% for the LSE) of share capital is in public hands at all times. (Where "public" means people or organisations not associated with the directors or major shareholder.)

Nonetheless, Joel's post is quite funny.

Re: Facebook is not worth $33 billion

#242

Post by tptacek »

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…

Maybe the equity markets. The bond markets not so much.

Re: Facebook is not worth $33 billion

#243

Post by vseloved »

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…

The only correction is that in this phrase "Facebook works on the theory that when you have a lot of people, you don't have to make as much per person, because the amount of money you make is the number of customers times the amount of money you make off of each one" you confuse customers and users. Facebook users are not their customers. The customers are advertisers, and there ain't 500m of them. So, although their profit hugely depends on the number of users, it's not the only component in the formula.

Re: Facebook is not worth $33 billion

#244

Post by flocial »

I think one area people overlook with Facebook is that they pretty much leave social games to eat their lunch. There's only so much they can squeeze out of advertising (it's already starting to feel over-priced).

In Japan Mixi got eclipsed by Gree when it came to making an IPO because Gree focused on games and selling virtual goods. Gree had way more profits and growth potential. They eventually opened up to social gaming but their profits are still strong. Ditto Mobage.

The way Zynga built on Facebook is similar to how MicroSoft and Intel took off of IBM. Facebook's valuation and growth potential would be astronomical if they owned a piece of social gaming instead of just providing infrastructure.

Re: Facebook is not worth $33 billion

#245

Post by [deleted] »

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…

[deleted]

Re: Facebook is not worth $33 billion

#246

Post by pchristensen »

bl4k wrote: post #165
pchristensen wrote: post #149

Earlier quoted context omitted.

when dhh says "make $X", he means profit, not revenue.

I can't edit above so I will add it here: * '09 spent $400 on $700M of revenue ($300M profit) * profitable since Q2 of 09 * one of the only social networks to ever reach profitability * 55% of US retailers present on Facebook * 20% of global social network ad revenues * 550,000 approved apps, 1M developers * 20% of users have logged into another site using connect * Zynga revenue is over $40M a month. Up to $10M of t…

Then his estimate wasn't too far off, although his error bars were in the wrong direction. Facebook is making 9-figure profit, not 10.

FWIW, I believe that $50-100B is where Facebook's market cap will plateau. More than Amazon, about half of Google. I'm not at all in agreement with dhh on this one.

Re: Facebook is not worth $33 billion

#247

Post by rob08 »

kwamenum86 wrote: post #71
timr wrote: post #26

Earlier quoted context omitted.

"Secondly, EVERY SINGLE COMPANY IN THE WORLD that has shares that trade is valued by taking the last share traded and multiplied by the number of shares outstanding. It's just the DEFINITION of valuation. It's TAUTOLOGICAL." Indeed. And Pets.com was worth $100 million on the day of its IPO. And tulip bulbs were worth more than a man's annual salary in 1637. And that house down the street was worth a million dollars l…

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…

Actually, in my mind price is what anyone will pay for something - the value may not be the same as the price

Re: Facebook is not worth $33 billion

#248

Post by Semiapies »

bherms wrote: post #130
jbarham wrote: post #112

Earlier quoted context omitted.

> If they break even for the rest of the existence of the business, they're still doing pretty damn well IMO. Presumably Facebook's investors are hoping for more than to merely "break even".

From an investor standpoint it'd be disappointing to not get a big payoff, but 37signals sometimes frames it as a failure to not be a huge profit machine. They don't consider the positive repercussions of operating a sustainable business (jobs, quality of life, etc). As I said, I'd be more than happy to make an average salary and be responsible for creating jobs that allow others to support themselves and their famil…

Profit is a major component of sustainability. Businesses that put off making profit long enough tend to go poof much more often than become sustainable or profitable in the end.

Re: Facebook is not worth $33 billion

#249

Post by runako »

vseloved wrote: post #243
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…

The only correction is that in this phrase "Facebook works on the theory that when you have a lot of people, you don't have to make as much per person, because the amount of money you make is the number of customers times the amount of money you make off of each one" you confuse customers and users. Facebook users are not their customers. The customers are advertisers, and there ain't 500m of them. So, although their…

Users who aren't spending (at the moment) are better termed "product" since their presence on the site is being sold to others.

Re: Facebook is not worth $33 billion

#250

Post by runT1ME »

xentronium wrote: post #170
subbu wrote: post #152

Earlier quoted context omitted.

I think it all started with Joel's "Language Wars" article http://www.joelonsoftware.com/items/2006/09/01.html for which DHH responded with "Fear, Uncertain, and Doubt by Joel Spolsky" http://www.loudthinking.com/arc/000596.html . They have been at loggerheads since then.

If you're like me and can't access loudthinking link, here's a copy: http://www.artima.com/forums/flat.jsp?forum=123&thread=1...

Did joel ever post a response?
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