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Color Will Be The Pin That Bursts The Startup Bubble

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Re: Color Will Be The Pin That Bursts The Startup Bubble

#21
post #12
post #11

Earlier quoted context omitted.

The value of a stock is the total future profit of a company priced in today's dollars.

So if I'm understanding correctly, if they only make $1 per user per year, and do that for the next 166 years (not adjusting for inflation,) then they're just as well off?

Except that it is more formally the negative of the expected future loss of the company as a present value; it takes into account the probability of a given income in a given year, not the best case scenario.

I would say the probability Facebook is making much in PV terms 166 years in the future is very low. Facebook has such a high value now because they have lock-in for their users; a user has a lot of Facebook friends and so can't make a unilateral decision to leave the platform and still have access to the value having their friends on the platform provides - and so that limits the threat to Facebook right now from competitors. However, there are still significant threats to Facebook longer term, and some of those threats could open Facebook up to threats from other firms with smaller costs that Facebook can't easily transition to compete with profitably long term.

Facebook therefore has very good prospects short term, but this position is still relatively precarious and the probability of maintaining as many users and as much revenue decreases progressively into the future - the probability of high revenues continuing after 50 years or even 20 is so low that it is not worth taking it into account when working out the intrinsic value of a share, and profits in the near future make up a much greater proportion of the total 'area under the integral' (i.e. future profits).

Formally: v = -E(L_{total}) = integral_0^infinity (integral_(-infinity)^infinity (l * P(L(t)=l)) dl) dt where v is the intrinsic value of a stock, E(L_{total}) is the expected total loss of a stock in Present Value terms, and l and t are bound variables used for time and rate of loss, L(t) is a random variable representing rate of loss at time t, and P(L(t)=l) represents the probability that the rate of loss at time t is l.

Re: Color Will Be The Pin That Bursts The Startup Bubble

#22
post #7

Earlier quoted context omitted.

i see ~$83b valuation, and ~500m active users, putting it at around $166/user

you really think there are 500m active users? My BS detector goes off when I hear that number. Unless they have a couple billion total users... Edit: just to be clear, that's not a rhetorical question. Anyone know how they define "active"?

An "active user," by their definition, is someone who has logged on in the last 30 days.

Re: Color Will Be The Pin That Bursts The Startup Bubble

#23
post #7

Earlier quoted context omitted.

i see ~$83b valuation, and ~500m active users, putting it at around $166/user

you really think there are 500m active users? My BS detector goes off when I hear that number. Unless they have a couple billion total users... Edit: just to be clear, that's not a rhetorical question. Anyone know how they define "active"?

no clue, just pulled the # off their website. they also said that approximately 250m log in every 24h

Re: Color Will Be The Pin That Bursts The Startup Bubble

#24
post #20
post #19

Earlier quoted context omitted.

And they should. There's a big difference between two guys renting a house and living of their savings accounts pre-launch and 41 million dollars and 27 employees pre-launch.

Why?

Well for one, you shouldn't have issues like the app crashing when someone tries to take a photo. 27 employees means you have plenty of QA and a testing environment. Two guys in a house means you maybe have one iPhone version to test on and no time to do thorough QA.

Re: Color Will Be The Pin That Bursts The Startup Bubble

#25
post #11
post #9

Earlier quoted context omitted.

Is a valuation actually given with the expectation that they'll make that amount of money each year?

The value of a stock is the total future profit of a company priced in today's dollars.

The value of a stock is whatever people are willing to pay for it

Re: Color Will Be The Pin That Bursts The Startup Bubble

#26
post #18
post #13

How come everyone misses the fact that the app doesn't make the company. I think color actually redefines "social". If these guys are successful in executing their vision, their current valuation will seem a no-brainer. I seriously don't understand all the negativity and backlash around their launch. This is coming from a guy that couldn't get their app to work. Every time I try to take my picture, the app crashes. B…

All of the startup mantras hacker news recites go out the window if you raise lots of capital, apparently.

ya, it applies to a team of founders living off their savings who need to push their product out and get quick feedback from initial users to set their product/service in the right direction.

A team of 20+ people with $41 million in the bank has the luxury of not having to worry about missing a rent check and they have the resources to do thorough QA testing and run a beta program to get initial feedback (maybe color ran a beta program I'm not sure).

Color definitely has the resources to run a 6 month beta program to get feedback and test their app....a founding team of two living off their savings may not have the time or money to do this.

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