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Facebook trades under $30, down 7%+

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Re: Facebook trades under $30, down 7%+

#81

Post by joe_the_user »

cletus wrote: post #40

There are only two parties hurt by this: 1. The premiere clients of Goldman Sachs and Morgan Stanley who bought into the lie that FB should trade at >100:1 P/E; and 2. Facebook. (1) I don't care about. (2) is the interesting one. You'll note that I don't include the employees in the list of injured parties. They're largely in a lockout anyway (I assume?). Whether it opens at $38 and drops to $30 or starts at $20 and…

There are only two parties hurt by this

This kind of statement first has to be qualified as "two parties immediately hurt by this. It is common for price moves in a well known stock to exert a strong psychological influence on similar stocks and on the broader market. All markets are subject to flux but where things have fluxed to currently, it seems quite possible that others could be "injured" here.

Sure Facebook's move could, might, be good for the tech industry if investor perception separated Facebook from the rest of tech industry. If not, it is easy for things to go from irrational optimism to irrational pessimism.

Re: Facebook trades under $30, down 7%+

#82

Post by InclinedPlane »

eshrews wrote: post #74
cletus wrote: post #40

There are only two parties hurt by this: 1. The premiere clients of Goldman Sachs and Morgan Stanley who bought into the lie that FB should trade at >100:1 P/E; and 2. Facebook. (1) I don't care about. (2) is the interesting one. You'll note that I don't include the employees in the list of injured parties. They're largely in a lockout anyway (I assume?). Whether it opens at $38 and drops to $30 or starts at $20 and…

>But make no mistake: this is bad for Facebook. Sure some investors, Zuck and (maybe?) some employees made a few more dollars but Facebook doesn't need the money and neither do most of the investors. But that's incredibly shortsighted. >Facebook's ability to retain and attract talent and make stock-based acquisitions is in large part determined by the health and outlook of their stock. If they'd IPOed for $20-25 and…

To get and keep talent you need not just a good work environment but cold, hard cash. Paying employees with stock options and grants on a stock on the way up is a very efficient way to encourage people to work for you or to stay working for you. You can also pay people with actual cash, but that's significantly more expensive to match the same level of reward. People who worked through the elbow at Microsoft, Google, Amazon, etc. became millionaires. And there are plenty more elbows out there for the taking in silicon valley, in new york, and elsewhere. It can be hard to compete for and retain employees who are talented enough to earn their millions by seeking out some other company. This is a huge problem at Microsoft, for example, where the stock has been flat for a decade.

Certainly there are many good reasons to work at facebook, but how many of those reasons can make up for missing out on millions of dollars? This is all the more relevant right now because so many of the early employees have gotten their millions through the IPO, and that has all the makings of creating a cultural divide in the company between those who got theirs and those who haven't, and won't.

Re: Facebook trades under $30, down 7%+

#83

Post by woodall »

planetguy wrote: post #76
woodall wrote: post #52

In 1 month the price will be back to, or above, the original IPO.

And how much of your own money are you putting where your mouth is on that one? If you're right, you could make a lot of money with that bet.

This is just my prediction. In a month's time I'll read back over my comments and, hopefully, I'll see this, check, and have an answer.

Re: Facebook trades under $30, down 7%+

#84

Post by cube13 »

stonemetal wrote: post #58

I know everyone keeps pointing to the 100:1 P/E but with 900 million active users that is more than 100 bucks per user. Is the average FB user worth 100 dollars to FB?

To be fair, FB doesn't need to get $100/user to be worth the $100 billion valuation.

Realistically, they need to be making somewhere on the order of $6.7 billion/year to have a "healthy" P/E of 15.

So, assuming that costs scale linearly with profit(they won't), FB needs to really be making around $25/user for the $100 Billion valuation to have a healthy P/E.

Re: Facebook trades under $30, down 7%+

#85

Post by zeroonetwothree »

cube13 wrote: post #64
chucknelson wrote: post #53

Earlier quoted context omitted.

I would argue that the drop isn't from the market acting rationally at all, but in response to yet more hype supplied by the press, specifically the "how low will it go?" narrative you mention.

I disagree. While the market hasn't been acting too rationally in general over the last few years, FB dropping like a rock is actually a fairly rational response to their circumstances. FB made less money in Q1 2012 than in Q1 2011. That was reported by them before the IPO. FB blamed it on the fact that more users are accessing Facebook through their mobile clients, which don't get them as much advertising money. Nor…

They actually said the drop in income was just because of timing of stock grants. After all, revenue was up YOY.

Re: Facebook trades under $30, down 7%+

#86

Post by zeroonetwothree »

dredmorbius wrote: post #61
bdr wrote: post #18

Earlier quoted context omitted.

I'm skeptical that FB would be higher today if it had IPOd lower.

It would be higher relative to the IPO price . Among other things, this means that employee options would still be above water. Rather more motivating than underwater options after years of death-march hours.

All employees since 2008-ish have gotten RSUs, not options.

Re: Facebook trades under $30, down 7%+

#87

Post by gregable »

eshrews wrote: post #74
cletus wrote: post #40

There are only two parties hurt by this: 1. The premiere clients of Goldman Sachs and Morgan Stanley who bought into the lie that FB should trade at >100:1 P/E; and 2. Facebook. (1) I don't care about. (2) is the interesting one. You'll note that I don't include the employees in the list of injured parties. They're largely in a lockout anyway (I assume?). Whether it opens at $38 and drops to $30 or starts at $20 and…

>But make no mistake: this is bad for Facebook. Sure some investors, Zuck and (maybe?) some employees made a few more dollars but Facebook doesn't need the money and neither do most of the investors. But that's incredibly shortsighted. >Facebook's ability to retain and attract talent and make stock-based acquisitions is in large part determined by the health and outlook of their stock. If they'd IPOed for $20-25 and…

Option based compensation usually has a strike price at the value of the company around the point of hiring. Options are more volatile than stock. If the share price drops further, the options would be worthless. As the share price rises, the option value rises even faster.

Re: Facebook trades under $30, down 7%+

#88

Post by zeroonetwothree »

cjrp wrote: post #11
ddet wrote: post #6

Earlier quoted context omitted.

I am assuming they have to wait 6 months, by then FB will not be worth much compared to their strike price.

3 months - http://blogs.wsj.com/digits/2012/05/24/facebook-lock-up-expi...

It's 6 months for most employees.

Re: Facebook trades under $30, down 7%+

#89

Post by joezydeco »

tedunangst wrote: post #24
gamble wrote: post #8

Earlier quoted context omitted.

The early investors made out like kings, but I doubt Facebook's employees are in a cheery mood as they watch their options sink underwater and their vested paper wealth dissipate while waiting for the lockup period to end.

I'd like for someone to explain precisely what Facebook should have done to ensure a big pop. Value the shares at $5? What if their internal projections indicated the company was worth more than that? Picking an artificially low strike price for the options probably would have resulted in people going to jail, not to mention all the employees owing taxes on the difference.

How about a time machine to take all the retail investors back to 1999? Back then everyone just piled in their orders without thinking twice. This attitude is what Wall Street was hoping would return.

Re: Facebook trades under $30, down 7%+

#90

Post by InclinedPlane »

ryanmerket wrote: post #46
cletus wrote: post #40

There are only two parties hurt by this: 1. The premiere clients of Goldman Sachs and Morgan Stanley who bought into the lie that FB should trade at >100:1 P/E; and 2. Facebook. (1) I don't care about. (2) is the interesting one. You'll note that I don't include the employees in the list of injured parties. They're largely in a lockout anyway (I assume?). Whether it opens at $38 and drops to $30 or starts at $20 and…

How can you say the P/E isn't justified when Facebook isn't monetizing +60% of their impressions (mobile)?

Right, so Facebook could potentially grow by 150%, maybe. But their valuation is predicated on them growing by a factor of 10x or more. That's the issue.
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