Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Facebook trades under $30, down 7%+

google.com

Post reply on HN
Print view View original

111–120 of 164 posts

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

#111

Post by marcusf »

brown9-2 wrote: post #110
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…

Can anyone explain to me how the P/E ratio is a meaningful metric for a company's stock price and what it "should be" at when that company does not distribute earnings to the shareholders? I don't understand why this metric is tossed around for stocks in which the regular shareholders receive no compensation for the shares owned (nor have any voting power for that matter). Owning stock in these companies seems like a…

Just an amateur, so speculation abound. But presumably, on the basis that other investors that you hope will value it higher will use the P/E ratio as a metric as well, and that it gives a comparative metric between "similar" companies. E.g. it's an often used metric just because it's an often used metric.

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

#112

Post by unreal37 »

planetguy wrote: post #63
unreal37 wrote: post #9

Can anyone explain why they are down 7%?

If I could explain why it's down 7% today then I could also explain why it's gonna be up/down n% tomorrow, and m% the next day. Unfortunately I'm not quite that smart.

I guess I meant why so much. I understand that on any particular day, a stock can be up or down by some small percentage on no news. But it's now down 10% for the day.

I'll buy the "options trading, short sellers" theory. Thanks!

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

#113

Post by potatolicious »

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)?

Because the app has been out since 2008, gone through multiple iterations, currently holds a 2-star rating on the App Store, and still hasn't managed to monetize 60% of their impressions.

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

#116

Post by chromatic »

brown9-2 wrote: post #110
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…

Can anyone explain to me how the P/E ratio is a meaningful metric for a company's stock price and what it "should be" at when that company does not distribute earnings to the shareholders? I don't understand why this metric is tossed around for stocks in which the regular shareholders receive no compensation for the shares owned (nor have any voting power for that matter). Owning stock in these companies seems like a…

Can anyone explain to me how the P/E ratio is a meaningful metric for a company's stock price and what it "should be" at when that company does not distribute earnings to the shareholders?

There are two ways to gauge the value of a company. One way (the way to which you allude) is to buy it and hope that in the future, someone thinks it's worth more than what you paid for it. Some people call this the Greater Fool theory.

The other way is to treat owning shares like owning part of a business. (You might hear about this as the Graham-Dodd or Graham-Dodd-Buffett model.) In this case you consider the value of the company as the current liquidation value of the company's assets plus the total amount of free cash the business can produce over its useful lifespan.

The math of that valuation gets a little bit interesting, because if you project the free cash growth into the future ten or twenty years, you can use a present value calculation to get a fair price for the company right now. Divide that by the number of outstanding shares and you get a target price per share.

One of the flaws of this method is that you need to have a sane sense of the growth rate of free cash, so you'd better base that on a stable and measurable history, and you have to verify that against sanity and the company's published plans.

Graham's real insight was saying "If you do all that work, also add a significant margin of safety to account for any flaws in your calculations."

Of course you shouldn't use reported earnings for these calculations; they're far too easy to manipulate under GAAP and accrual accounting. Even so, finding realistic numbers and ruling out most stocks as overvalued is relatively easy.

(I'm working on a financial analysis site right now.)

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

#117

Post by ryanmerket »

potatolicious wrote: post #113
ryanmerket wrote: post #46

Earlier quoted context omitted.

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

Because the app has been out since 2008, gone through multiple iterations, currently holds a 2-star rating on the App Store, and still hasn't managed to monetize 60% of their impressions.

It's not that is hasn't "managed to monetize," they haven't even TRIED. Very big difference.

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

#118

Post by ryanmerket »

InclinedPlane wrote: post #90
ryanmerket wrote: post #46

Earlier quoted context omitted.

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.

Now take the 9 million sites with the Like button and throw in some extra Javascript for a 'Social Adsense' product. Now they have implicit and explicit data to target off of. There's your 10x growth in revenue.

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

#119

Post by brown9-2 »

chromatic wrote: post #116
brown9-2 wrote: post #110

Earlier quoted context omitted.

Can anyone explain to me how the P/E ratio is a meaningful metric for a company's stock price and what it "should be" at when that company does not distribute earnings to the shareholders? I don't understand why this metric is tossed around for stocks in which the regular shareholders receive no compensation for the shares owned (nor have any voting power for that matter). Owning stock in these companies seems like a…

Can anyone explain to me how the P/E ratio is a meaningful metric for a company's stock price and what it "should be" at when that company does not distribute earnings to the shareholders? There are two ways to gauge the value of a company. One way (the way to which you allude) is to buy it and hope that in the future, someone thinks it's worth more than what you paid for it. Some people call this the Greater Fool th…

So does this mean that if you use the Graham-Dodd-Buffet model of valuation, a company that pays a dividend to shareholders would get a higher valuation (all other factors being equal) than the hypothetical same company that does not pay dividends?

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

#120

Post by ryanmerket »

InclinedPlane wrote: post #54
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…

The problem is that mobile is just one of their problems. They need to increase their monetization by an order of magnitude per user. This will require them going from a niche advertiser to taking over a significant fraction of all worldwide ad revenue, this is no small feat. They also need to tackle mobile better and respond to all the other competitive threats that will come their way in the next decade. They have…

"This will require them going from a niche advertiser to taking over a significant fraction of all worldwide ad revenue, this is no small feat."

But it is small for Facebook. They already have the footprint with over 9 million sites all running the Like button. Utilizing that same JS they can have a 'Social Adsense' revenue stream overnight. They can potentially grab the search queries from the headers and have implicit and explicit data to target off of (the holy grail of targeting).

Post reply on HN