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Facebook is not worth $33 billion

37signals.com

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Re: Facebook is not worth $33 billion

#111

Post by dhh »

edw519 wrote: post #33
dhh wrote: post #18

Earlier quoted context omitted.

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…

It's weird, it's like in Chicago they don't have multiplication or something. Oh, and New York smells. (take that!) Two of my heroes dragging discourse on hacker news into the toilet. What's the world coming to?

Apparently it wasn't obvious from the "New York smells" point that it was a joke. So let me spell it out: It was a joke (even if it's actually, technically true. Many parts of New York really do smell from all that trash on the street!).

Re: Facebook is not worth $33 billion

#112

Post by jbarham »

bherms wrote: post #68

I agree that this valuation is absurd and that Facebook will never really be worth this much. I also really like the 37signals guys and a lot of their opinions. HOWEVER, one thing that has been bugging me is the thought, espoused by 37signals, that not generating a large profit as a business is a bad thing. We're forgetting that these businesses that don't make huge profits are still employing large amounts of people…

> 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".

Re: Facebook is not worth $33 billion

#113

Post by jonpaul »

ryanwaggoner wrote: post #25
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…

their utter and complete misunderstanding of all the basics of business is starting to grate on me Their linkbait really grates on me as well (though I happen to agree with this post's conclusion, if not the methods), but I think it's pretty unfair to say that they misunderstand all the basics of business. They seem to be doing pretty well for a shop their size. In fact, I'd say there's a good chance they're doing be…

Considering their success, how do they misunderstand the basics of business?

Re: Facebook is not worth $33 billion

#114

Post by mapgrep »

edw519 wrote: post #33
dhh wrote: post #18

Earlier quoted context omitted.

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…

It's weird, it's like in Chicago they don't have multiplication or something. Oh, and New York smells. (take that!) Two of my heroes dragging discourse on hacker news into the toilet. What's the world coming to?

Having senses of humor, they are clearly JOKING with these lines.

Warning: Prolonged exposure to HN comment sections may blunt your sense of humor, too.

Re: Facebook is not worth $33 billion

#115

Post by joshuacc »

GavinB wrote: post #57
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…

http://www.sharespost.com/companies/facebook I think the simple summary of your point is this: Things are worth what people are willing to pay for them, not what other people think they should be willing to pay for them. Facebook is worth $26 billion. That doesn't mean that buying it at a valuation of $26 billion is a good investment. Worth and my estimation of what it will be worth in the future two are different th…

"Things are worth what people are willing to pay for them, not what other people think they should be willing to pay for them."

I agree with this, but there is a difference between the market being willing to pay $26 billion for a company, and minority investors being willing to pay $26 billion/0.03. Only the former establishes the actual* value.

Re: Facebook is not worth $33 billion

#116

Post by mnemonicsloth »

spolsky wrote: post #41
dhh wrote: post #18

Earlier quoted context omitted.

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…

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…

Uh, Joel, have you bought any Facebook stock on Sharespost?

Valuing Facebook just by the market price on Sharespost is like predicting the outcome of an election when only 1% of the votes have been counted. Maybe those votes are a representative sampling, maybe not.

I'm inclined to think not, because you have to be an accredited investor, ie already wealthy, to buy pre-IPO shares. Facebook's investors are there for the potential upside and are more comfortable with risk than Joe Blow saving for retirement or his kid's college education.

So Sharespost prices will be higher because (PROB_FB_DIES * NEG_UTILITY_FORME_IF_IT_DOES) will be less negative for millionaires than for the middle-class people or conservative mutual fund managers who will buy most of Facebook's equity when the company goes public.

Re: Facebook is not worth $33 billion

#118

Post by timcederman »

lovskogen wrote: post #65
spolsky wrote: post #20

Earlier quoted context omitted.

They're almost certainly making $2 per user. Another dime is gonna be easy.

Haven't got a dime from me, and they don't have an idea on how to.

You don't think so, but they probably have.

I always used to think I was a 'leech' user of TripAdvisor, until I worked there.

Re: Facebook is not worth $33 billion

#119

Post by CallMeJeffrey »

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…

I don't entirely disagree with your points here, but as someone who is from Chicago and spent many years helping to build a very successful Chicago-based business (Threadless), I take offense to the notion that David's misconceptions have something to do with Chicago.

First of all, he's from Denmark – he just lives in Chicago. Secondly, ever heard of a little startup called Groupon? They're from Chicago and I'm assuming they have a few people there that excel at multiplication.

The location of 37signals has nothing to do with it, and you're clouding an otherwise clear and well articulated set of points with the asinine notion of "no one outside the valley understand business".

Re: Facebook is not worth $33 billion

#120

Post by weezer »

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 cynic knows the price of everything and the value of nothing." -- Oscar Wilde

Disregarding the technical usage of the word valuation in investing, I see three ways of interpreting the terms in the argument here. The price of Facebook is 33B, simply extrapolating from the price of tiny percentages of Facebook.

The value is related to the price people are willing to pay, but is actually unknown and only exists as a prediction of future cash flows.

The worth is a more nebulous concept and related to how much Facebook improves the world.

It seems like spolsky is talking about the price, and dhh is talking about the value, and making illusions to the worth.

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