Ford vs Facebook • Hacker News Board

Re: Ford vs Facebook

#71

Post by HackersCapital » Mon, May 14, 2012, 2:12 PM UTC

DVassallo wrote: post #15

joe_the_user wrote: post #7

Earlier quoted context omitted.

You are correct these things can be viewed as assets. However, if the author is deriving his data from Facebook's own declarations, then even they aren't claiming the value of their assets including User-loyalty, are anywhere near their market cap.

Auditors would stick to the the accounting standards and conventions to give a monetary value to users and other intangible stuff. Whereas the market (in theory) can value the whole company's ability to use these intangibles to generate money in the future. That's why there's often a significant difference between the "assets - liabilities" on the balance sheet, and the market cap. Now, whether such a big discrepancy…

Under GAAP, there are a lot of intangibles that are not reported on the balance sheet. Basically all of facebook's internally developed intangibles are not on the BS, but all of Instagram's intangibles will be there. Kind of weird, but this is how purchase accounting works.

Re: Ford vs Facebook

#72

Post by HackersCapital » Mon, May 14, 2012, 2:12 PM UTC

alexmgrove wrote: post #69

photon137 wrote: post #45

Earlier quoted context omitted.

It will. Issued debt rarely ever trades at 100 (except in special cases - ie debt near maturity etc). And, in any case, you cannot compare market values of two companies with different leverages such as FB and Ford without renormalizing earnings to the same leverage level. Earnings on equity are amplified if the company has debt (which Ford has). FB has no leverage - its unleveraged earnings give it a whopping market…

Issued debt typically trades near par (100) unless the borrower's credit rating has changed or interest rates have changed (both of which happen all the time, but still, the vast majority of debt trades in the 90-110 range.) You can compare two companies with different levels of leverage. They both have Enterprise Value (EV), which is normally calculated as operating income (EBITDA to be precise) * a multiplier. Mark…

This is an awesome comment.

Re: Ford vs Facebook

#73

Post by photon137 » Mon, May 14, 2012, 7:44 PM UTC

alexmgrove wrote: post #69

photon137 wrote: post #45

Earlier quoted context omitted.

It will. Issued debt rarely ever trades at 100 (except in special cases - ie debt near maturity etc). And, in any case, you cannot compare market values of two companies with different leverages such as FB and Ford without renormalizing earnings to the same leverage level. Earnings on equity are amplified if the company has debt (which Ford has). FB has no leverage - its unleveraged earnings give it a whopping market…

Issued debt typically trades near par (100) unless the borrower's credit rating has changed or interest rates have changed (both of which happen all the time, but still, the vast majority of debt trades in the 90-110 range.) You can compare two companies with different levels of leverage. They both have Enterprise Value (EV), which is normally calculated as operating income (EBITDA to be precise) * a multiplier. Mark…

"...but still, the vast majority of debt trades in the 90-110 range."

That's usually for freshly issued/on-the run or about-to-mature debt. It _used_ to be the case before the financial crisis that most debt traded near par - that has changed as the cost of repo financing has become disjoint of the risk-free rate since the crisis.

EV/EBITDA is the multiple to compare - as you rightly pointed out. A naive EV comparison, as done by HackerCapital, is misleading.

The description of leverage is also a bit simplified - typically, you would discount earnings with the weighted average cost of capital (WACC) = (cost of debt)(debt/EV) + (cost of equity)(equity/EV). So the discount factor does not simply "balance out" the leveraged (and volatile) returns - it depends on the relative cost of debt vs. equity _and_ the leverage ratio.

It's in the (cost of equity) factor that you can normalize different sectors as (cost of equity) = risk_free_rate + historical_beta * (sector_return - risk_free_rate). Sector return would typically be from a benchmark equity index specific to the industry - whether tech or autos.

Re: Ford vs Facebook

#74

Post by photon137 » Mon, May 14, 2012, 7:48 PM UTC

HackersCapital wrote: post #70

photon137 wrote: post #45

Earlier quoted context omitted.

It will. Issued debt rarely ever trades at 100 (except in special cases - ie debt near maturity etc). And, in any case, you cannot compare market values of two companies with different leverages such as FB and Ford without renormalizing earnings to the same leverage level. Earnings on equity are amplified if the company has debt (which Ford has). FB has no leverage - its unleveraged earnings give it a whopping market…

I checked and almost all of Ford's securities trade at or above par, so the market value of Ford's debt is higher than I presented above. When I was doing the research, I noticed that Ford has Corporate Debentures that were issued in May 1997 and come due in May 2097!

Exactly - and if FB issued debt - it will trade higher than that of Ford's (with the implicit assumption that FB is a better credit name than Ford).

Those debentures are usually used to finance pension liabilites. I am not sure if corporates are still issuing debt with that kind of duration anymore after the crisis :)

Re: Ford vs Facebook

#75

Post by tatsuke95 » Thu, May 17, 2012, 2:33 PM UTC

kmavm wrote: post #57

tatsuke95 wrote: post #16

Earlier quoted context omitted.

So, they have good information for advertising. And that's going to valuable, no doubt... ...but that's it. They aren't building a physical product, they're going to sell other people's products. Or, sell information so that other people can sell other people's products. I find it absurd that the market for web based adverting, between Google and Facebook and others, can be this valuable in the long run. These are ad…

> there are more automobiles worldwide than there are Facebook users. http://www.wolframalpha.com/input/?i=how+many+cars+are+on+th...

There are 76 countries that have "unavailable" information, meaning the metric is based off of registered vehicles, somehow. Really, no one drives a car in Cuba? I've been there, and there are cars. Somalia? Well, I watched Black Hawk Down, and they had cars there too. There are far more cars than that number. I've seen the estimate at a billion:

http://www.huffingtonpost.ca/2011/08/23/car-population_n_934...

All that leaving aside the fact that car companies build other things, like heavy equipment and military vehicles.