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Facebook’s 1st-Quarter Profit Falls 12%

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Re: Facebook’s 1st-Quarter Profit Falls 12%

#21

Post by tomkarlo »

zred wrote: post #17

Assuming earnings of $205M per quarter and a valuation of $100B, that would put Facebook's P/E ratio at 122. Today, Apple is at 16.3, Google at 18.1, Netflix at 24.4, and Microsoft at 11.7. Now, it's completely possible that Facebook's earnings growth will outstrip those more established companies. However, it does show that one has to think Facebook will grow its earnings at a considerably faster rate than those com…

Nice writeup.. one thing I'd add is that usually when companies are given 100 P/E type valuations, it's because everyone's assuming they have lots of growth in front of them. FB is already a dominant player that pretty much _everyone_ in developed countries is either using or has decided not to use. Is there really a scenario in which one sees the usage doubling or tripling down the road? It seems like you'd need to believe that to support a 100 P/E and ~20x sales kind of valuation. 30B or so seems like a much more viable level.

Re: Facebook’s 1st-Quarter Profit Falls 12%

#23

Post by Trezoid »

PaperclipTaken wrote: post #13

I am predicting that eventually Facebook is going to go the way of MySpace and AOL, but I don't think that this quarter is indicative of the trend. Both the number of daily and monthly active users jumped by more than 100 million, and Facebook also increased their marketing and S&D expenditures by more than 100 million. If someone were to suggest that Facebook will eventually fall, the raw data from this quarter will…

I completely agree. Facebook is providing a platform in a market that has always been extremely volatile, and are using their position to make questionable decisions. It will back-fire eventually.

Personally, I can't honestly see facebook being nearly as central in 5 years time, if it exists at all. Some hot new thing will come along and do sharing better and everyone will jump all at once.

Re: Facebook’s 1st-Quarter Profit Falls 12%

#24

Post by mediaman »

tomkarlo wrote: post #21
zred wrote: post #17

Assuming earnings of $205M per quarter and a valuation of $100B, that would put Facebook's P/E ratio at 122. Today, Apple is at 16.3, Google at 18.1, Netflix at 24.4, and Microsoft at 11.7. Now, it's completely possible that Facebook's earnings growth will outstrip those more established companies. However, it does show that one has to think Facebook will grow its earnings at a considerably faster rate than those com…

Nice writeup.. one thing I'd add is that usually when companies are given 100 P/E type valuations, it's because everyone's assuming they have lots of growth in front of them. FB is already a dominant player that pretty much _everyone_ in developed countries is either using or has decided not to use. Is there really a scenario in which one sees the usage doubling or tripling down the road? It seems like you'd need to…

I doubt it's based on userbase expansion so much as it is a bet on massive monetization.

Personally, with their existing model, I think that's tough. Unlike search, the monetization rates just won't be that high, since it's not a point where a user is trying to solve a problem they're willing to pay for.

But they might surprise us, and if they find a good monetization model, that's a lot of collective person-hours of exposure.

Re: Facebook’s 1st-Quarter Profit Falls 12%

#25

Post by dj_axl »

gauravk92 wrote: post #8
objclxt wrote: post #5

Earlier quoted context omitted.

Don't fall into that trap: it's dangerous. Twelve years ago AOL was doing just as well ($1-2 billion each quarter, $300-400 million in earnings), and was the largest portal/ISP around. Blackberry and Nokia were kings of the mobile mountain five years ago. You are only as good as your current product: Facebook's commodity is people, and people are not as loyal as you might think. Facebook could very well be around a l…

Facebook also owns your social graph and that is what they exclaim proudly about the most as well. If any other service wants access to it they have to ask Facebook and they can't just take it. And if there is no Facebook integration, then theres an additional level of friction in getting new users. It's definitely a tough market to breakthrough in because of Facebook (Ask google).

> Facebook also owns your social graph

Any email provider also has your social graph. The only problem with email is that it is seen as "old" compared to the "new" of Facebook and Twitter. Something else will come along and be the new "new" and that will be the end of Facebook.

Re: Facebook’s 1st-Quarter Profit Falls 12%

#26

Post by pessimist »

rabidsnail wrote: post #16

That's compared to the previous quarter, not the same time last year. Web usage is cyclical.

No - net income in the 3 months ending Mar 2012 declined to $205m from $233m in the 3 months ending Mar 2011. A big surprise, probably some big investment in datacenters or something. Net income can be rather bumpy, revenue growth was more solid at 45% year-over-year, but even that can't justify the massive valuation. The valuation is really a bet that FB future monetization will be amazing.

Re: Facebook’s 1st-Quarter Profit Falls 12%

#27

Post by zred »

mediaman wrote: post #24
tomkarlo wrote: post #21

Earlier quoted context omitted.

Nice writeup.. one thing I'd add is that usually when companies are given 100 P/E type valuations, it's because everyone's assuming they have lots of growth in front of them. FB is already a dominant player that pretty much _everyone_ in developed countries is either using or has decided not to use. Is there really a scenario in which one sees the usage doubling or tripling down the road? It seems like you'd need to…

I doubt it's based on userbase expansion so much as it is a bet on massive monetization. Personally, with their existing model, I think that's tough. Unlike search, the monetization rates just won't be that high, since it's not a point where a user is trying to solve a problem they're willing to pay for. But they might surprise us, and if they find a good monetization model, that's a lot of collective person-hours of…

I think you've hit the key - if they find a good monetization model. I remember an article on here about Facebook shutting down a social shopping experiment, but if that had panned out it could have been huge. There are always rumblings of "social search" every once in a while. Likewise, it isn't hard to imagine communications changing in the next 10 years to a system where your wireless carrier is just a data connection and Facebook could potentially power VoIP and video communications over that.

But I think the valuation is quite high for a potential that they haven't shown they can leverage their users toward. Google hasn't shown that it can leverage its might toward, say, social. However, Google's valuation isn't so high compared to its earnings. For me, it's a big bet to assume a company can drastically change its monetization.

Re: Facebook’s 1st-Quarter Profit Falls 12%

#28

Post by repsilat »

redthrowaway wrote: post #20
zred wrote: post #17

Assuming earnings of $205M per quarter and a valuation of $100B, that would put Facebook's P/E ratio at 122. Today, Apple is at 16.3, Google at 18.1, Netflix at 24.4, and Microsoft at 11.7. Now, it's completely possible that Facebook's earnings growth will outstrip those more established companies. However, it does show that one has to think Facebook will grow its earnings at a considerably faster rate than those com…

Facebook's valuation is based on potential , as opposed to any real metrics. It has a staggering number of active users and frightening amounts of data about them. The bet is that they find a way to capitalize on it. I'm not bullish on facebook by any stretch of the imagination, and their P/E is ridiculous, but it's also the wrong metric to be looking at when deciding whether it's a good investment.

> It has a staggering number of active users and frightening amounts of data about them

The financial value of those users must grow super-linearly. The most recent figures I can find put them at having 901 million active users, which means they're valued at $111 per active user. Crazy stuff.

Re: Facebook’s 1st-Quarter Profit Falls 12%

#29

Post by tomkarlo »

mediaman wrote: post #24
tomkarlo wrote: post #21

Earlier quoted context omitted.

Nice writeup.. one thing I'd add is that usually when companies are given 100 P/E type valuations, it's because everyone's assuming they have lots of growth in front of them. FB is already a dominant player that pretty much _everyone_ in developed countries is either using or has decided not to use. Is there really a scenario in which one sees the usage doubling or tripling down the road? It seems like you'd need to…

I doubt it's based on userbase expansion so much as it is a bet on massive monetization. Personally, with their existing model, I think that's tough. Unlike search, the monetization rates just won't be that high, since it's not a point where a user is trying to solve a problem they're willing to pay for. But they might surprise us, and if they find a good monetization model, that's a lot of collective person-hours of…

So it's based on the assumption that to date, they've failed to efficiently monetize their user base? They've had advertising for years. They're not going to start charging users. Shopping stuff is great but it's basically affiliate sales.

Saying "we're super popular, and we're going to figure out the monetization later" is pretty bubbly. It's equivalent to "ignore the financials."

Re: Facebook’s 1st-Quarter Profit Falls 12%

#30

Post by eldavido »

kragniz wrote: post #12
moreorless wrote: post #10

Earlier quoted context omitted.

Please explain why it is bad for a growing company to turn a profit?

I assume one could say the spare money could be spent on growing the company, making more money in the longer run. (disclaimer: I have no idea what I'm talking about)

Right.

Good corporate governance points toward the maximization of long-term shareholder value, as measured by the present value of payments to shareholders (dividends, buybacks, etc.) http://en.wikipedia.org/wiki/Net_present_value

Silicon Valley has a somewhat bizarre culture of viewing dividend payments as "defeat", as in, "We can't find anything better to do with the cash because we aren't innovative, so we're giving it back to our investors". This is where the (strange) logic of profit=evil comes from in these conversations.

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