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Verizon Sells AOL and Yahoo to Apollo for $5B

nytimes.com

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Re: Verizon Sells AOL and Yahoo to Apollo for $5B

#361

Post by nl »

blihp wrote: post #343
nl wrote: post #315

Earlier quoted context omitted.

No, the opposite. The value of a company in a fair market is a function of the confidence of investors that someone in the future will pay more for the same stock. For a highly profitable company like Facebook, this isn't a foolish confidence in anyway. Even if you don't like Facebook it would be a very radical position to take to think that their profits next quarter will be remarkably lower than this quarter. In gr…

Thinking like that is what drove AOL and Yahoo! to their peak valuations. It's not that the companies didn't produce something of value and have some level of earnings, it's that their stocks priced in a fantasy land future that could never be achieved. At some point, there will not be someone willing to pay more, or even the same amount, for the stock. When you are counting on the 'confidence' of future investors to…

Sure, one could argue that AOL and Yahoo were overvalued at their peak. They had low existing earnings and the price was supported by expectations of magical new profits.

But that's a difficult argument to make for Facebook. Facebook is highly profitable - they have averaged something like 80% gross profit margins for a decade[1] while sustaining significant revenue growth. That's pretty much guaranteed that their stock will continue to appreciate - with margins that high they have a lot of room to play with things to keep growth going.

What metric makes it look like that is a greater fool situation?

[1] https://www.reuters.com/companies/FB.O/key-metrics

Re: Verizon Sells AOL and Yahoo to Apollo for $5B

#362

Post by nl »

blihp wrote: post #344
berkes wrote: post #241

Earlier quoted context omitted.

Not really. The crucial piece is the future profit.

Right, but notice that wasn't the emphasis of the post I was responding to. OK, there was 1/2 a sentence that touched on profits as almost an afterthought. The thing that sets me off about these threads is the (I believe sincere) thinking that 'well if that's the share price, it must be worth that much'. That's fine if you're speculating/trading but is absolutely wrong if you think what you're doing is investing.

> OK, there was 1/2 a sentence that touched on profits as almost an afterthought.

Are we reading different posts? The post you responded to repeatedly made the point that profits are one of the key builders of market confidence:

>> Firstly, say 5 years down the line, the holders have confidence that FB will still be making money, be profitable and be on the market.

...

>> They too must have confidence on FB that a further 5 years or more down the line, FB will be profitable and will be in the market and keep earning money.

...

>> So is FB really worth 900B, yes, if the holders keep holding it and FB keeps earning profits.

It's a key point of their argument!

Re: Verizon Sells AOL and Yahoo to Apollo for $5B

#363

Post by csunbird »

HappySweeney wrote: post #355
csunbird wrote: post #148

Earlier quoted context omitted.

Probably, yes. Also, it is very likely that any posts/trends that are not "desirable" are prevented manually from entering the trending feed as well.

"Cocaine" trends every Saturday early morning, leading me to believe nobody has their thumbs on that particular scale.

I think Twitter is OK with drugs and adult content being trendy, but not OK with politically incorrect ones. There has to be a manual approval process, but effectively invisible, because in my opinion, an automated and non-supervised system for trending is a recipe for the disaster.

Re: Verizon Sells AOL and Yahoo to Apollo for $5B

#364

Post by gen220 »

nl wrote: post #361
blihp wrote: post #343

Earlier quoted context omitted.

Thinking like that is what drove AOL and Yahoo! to their peak valuations. It's not that the companies didn't produce something of value and have some level of earnings, it's that their stocks priced in a fantasy land future that could never be achieved. At some point, there will not be someone willing to pay more, or even the same amount, for the stock. When you are counting on the 'confidence' of future investors to…

Sure, one could argue that AOL and Yahoo were overvalued at their peak. They had low existing earnings and the price was supported by expectations of magical new profits. But that's a difficult argument to make for Facebook. Facebook is highly profitable - they have averaged something like 80% gross profit margins for a decade[1] while sustaining significant revenue growth. That's pretty much guaranteed that their st…

I don’t think you can make an argument against the present valuation of FB on a historical performance basis.

Investors will tell you that historical performance does not guarantee future performance. It’s one yardstick, but it’s not always the best one.

Facebook’s historical revenue growth was catalyzed by environmental factors that are shifting underneath them.

In 2021, FB would not be allowed to acquire Instagram or WhatsApp. In 2021, Apple (custodians of their most valuable user base) is no longer cooperating with adware.

What does future revenue growth for a Facebook look like, who is not allowed to acquire upstart competitors, who is not allowed to extract maximum value from its mines, and who is facing regulatory scrutiny for past deeds?

Would you be willing to bet that $900B, or $300ish/share on $30 revenue/share have these uncertainties priced-in?

Yahoo! and AOL were dumpster fires in comparison, of course. But I wouldn’t be so certain that FB hasn’t passed its peak valuation, just because it has had a money printing machine for the past decade.

Re: Verizon Sells AOL and Yahoo to Apollo for $5B

#365

Post by nl »

gen220 wrote: post #364
nl wrote: post #361

Earlier quoted context omitted.

Sure, one could argue that AOL and Yahoo were overvalued at their peak. They had low existing earnings and the price was supported by expectations of magical new profits. But that's a difficult argument to make for Facebook. Facebook is highly profitable - they have averaged something like 80% gross profit margins for a decade[1] while sustaining significant revenue growth. That's pretty much guaranteed that their st…

I don’t think you can make an argument against the present valuation of FB on a historical performance basis. Investors will tell you that historical performance does not guarantee future performance. It’s one yardstick, but it’s not always the best one. Facebook’s historical revenue growth was catalyzed by environmental factors that are shifting underneath them. In 2021, FB would not be allowed to acquire Instagram…

Despite all these technology challenges we love to discuss on HN, the truth is that last quarter every single metric except US/Canada daily FB users was up. Daily US/Canada users fell by ~0.5% but this was more than offset by a 1% growth in EU.

Their average revenue per user increased by the largest amount ever (in both absolute and percentage terms) last quarter.

In terms of technology challenges, the iOS changes will reduce FB's ability to target ads. However, it is quite possible this will lead to more revenue for FB because the market structure (ie, domination by FB and Google) means FB maybe able to pass on the loss inefficiency to advertisers.

Re: Verizon Sells AOL and Yahoo to Apollo for $5B

#366

Post by _jal »

airstrike wrote: post #225
_jal wrote: post #172

Earlier quoted context omitted.

A lot of PE follows a well-understood playbook. Buy a player in a settled industry, cut costs (== reduce maintenance, make the workforce cost less, etc.) and milk it for as long as possible. That tends to work for investors; customers and employees, well. The Artist Formerly Known as SolarWinds is PE owned.

They don't milk it for as long as possible. In fact, they exit the investment in 3-5 years. Anything longer and their IRR dwindles fast.

"As long as profitable" is basically the same thing when talking about a FPE, but if you like those words better, fine.
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