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Old 14th Jun 2011, 12:20   #1
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Facebook expected to go public in early 2012

Investors are expecting Facebook to hit a $100 billion valuation.

http://www.bit-tech.net/news/bits/20...n-early-2012/1
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Old 14th Jun 2011, 12:36   #2
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I think $50 billion is still a ridiculous number. Even Google (which actually makes significant profits) has a market cap of $162 billion, which I still reckon is too much. Dotcom bubble, Mk. II is coming soon.
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Old 14th Jun 2011, 12:42   #3
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I expect to see Adverts Galore.
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Old 14th Jun 2011, 12:42   #4
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Dotcom bubble, Mk. II is coming soon.
This.
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Old 14th Jun 2011, 12:42   #5
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Oh man, I'd be so desperate to cash my Facebook shares if I was an employee...
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Old 14th Jun 2011, 13:01   #6
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Goldman Sachs valued the company at $50 billion, which seems more realistic
You'd be willing to pay a significant portion of - for instance - the UK defence budget for a website on which people describe the awesome new shoes they bought that day?

Please insert the "sometimes I feel like the only sane person on the planet" quotation of your choice here.
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Old 14th Jun 2011, 13:13   #7
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Quote:
Originally Posted by Phil Rhodes
You'd be willing to pay a significant portion of - for instance - the UK defence budget for a website on which people describe the awesome new shoes they bought that day?
No, but that's the figure from Goldman Sachs, and while it is ridiculous, it is more realistic than $100 billion. Good point, though - I've removed the bit about it being realistic.
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Old 14th Jun 2011, 14:05   #8
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The valuations for social networking sites are totally absurd. Facebook is believed to be making net operating profit of around $500m, which is a sizeable amount of money, but I don't see how it justifies a $50bn valuation, i.e. a price/earnings (P/E) ratio of 100/1. Put it another way - if your bank offered to pay you $10 a year interest on a $1,000 deposit (a 1% return), would you consider it a good deal? And how about if the bank said your $1,000 may go up or down and we may add the $10 to your $1,000 rather than pay it to you in cash (at our discretion) and anyway we don't guarantee we'll be able to pay you $10 next year. Sounds great, huh?

Facebook must be reaching saturation point as there's a finite number of people in the world. Their net adds for the last couple of months are significantly down, so growth is slowing, and I think many people are "over" Facebook - I know I am. I'm still on there, but I use it less and less for anything but private messaging people. The constant privacy policy changes, the aggressive retention of personal data, and the encroachment of ever more intrusive advertising with every site redesign all contribute to make the whole experience a lot less satisfying.

In the context of LinkedIn's IPO, however, a $50-100bn valuation for Facebook doesn't look outrageous - LinkedIn opened at $45 per share and hopped up to $92 per share in the first day. It's currently sitting around $75, valuing the company at over $7bn today, and LinkedIn's profitability is tiny. A $3.9m LOSS in 2009 followed by around a $13m profit in 2010 ($10m for the first 9 months is what I saw), which represents a P/E at the $9bn peak valuation on day 1 of the IPO of 692/1. Even at today's slightly softer market capitalisation of $7.1bn the P/E is 546/1. Apply that crazy ratio to Facebook's reported $500m and you'd get to $273bn, which is clearly absurd, but then the frenzied world of tech IPOs seems to be pretty insane. $100bn may be a complete fantasy-land valuation for Facebook on its fundamentals (that is assets, profitability and potential for growth), but mark my words - unless they completely cock up the IPO the buy side pressure generated by investor frenzy to get a slice of Facebook means that company WILL hit a 12 figure market capitalisation on day 1 of its listing. No question. Zuckerberg is going to be a very, very rich man.
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Old 14th Jun 2011, 14:42   #9
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Quote:
Originally Posted by r3loaded View Post
Dotcom bubble, Mk. II is coming soon.
Quoted again for truth.
Quote:
Originally Posted by Phil Rhodes View Post
You'd be willing to pay a significant portion of - for instance - the UK defence budget for a website on which people describe the awesome new shoes they bought that day?

Please insert the "sometimes I feel like the only sane person on the planet" quotation of your choice here.
Also QFT

Without wanting to get into a debate over intellectual property, IT'S NOT A TANGIBLE ASSET! How does Facebook actually contribute to the economy*? If anything, it's actually detrimental since people waste time at work on it (much as I'm doing right now typing this).

*I expect someone to start quoting facts and figures from somewhere.
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Old 14th Jun 2011, 14:55   #10
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Quote:
Originally Posted by Pete J
Without wanting to get into a debate over intellectual property, IT'S NOT A TANGIBLE ASSET! How does Facebook actually contribute to the economy*? If anything, it's actually detrimental since people waste time at work on it (much as I'm doing right now typing this).

*I expect someone to start quoting facts and figures from somewhere.
Um, are you saying that only the production of tangible assets contributes to the economy? So Microsoft, Google, Yahoo and eBay, all of which make the vast majority of their money from the provision of intangibles (software and services) don't contribute to the economy? iTunes doesn't contribute to the economy? Taking it wider, record, TV and film production companies don't contribute? I don't get this argument.

Facebook contributes because it is successfully generating profits from tailored advertisements which it displays alongside content to users, much the same as Google and Yahoo make their money that way. The revenues are then dispersed to shareholders, suppliers and tax authorities. This is the very definition of trade - it's nothing more or less than the movement of money. Now you can argue that the services provided by Google and Yahoo are at least potentially more conducive to business use (a Google search can yield results much more relevant to my work as a lawyer than a set of photos from last week's party, for example), but that's really irrelevant - Google, Yahoo and Facebook all provide services which are at no monetary cost to their users for two key reasons: first and foremost to generate traffic so they can sell advertising space alongside the content served; and secondly to harvest as much information about individual users as possible so that those advertisements can be tailored to the individual, thereby allowing them to sell the space at a higher price. Strip away the nature of the content served and they're all doing exactly the same thing.
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Old 14th Jun 2011, 14:58   #11
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Anyone remember that unstoppable behemoth Myspace? No? oh.
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Old 14th Jun 2011, 15:10   #12
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Quote:
Originally Posted by Pete J
Quote:
Originally Posted by r3loaded View Post
Mk. II is coming soon.
Quoted again for truth.
Quote:
Originally Posted by Phil Rhodes View Post
You'd be willing to pay a significant portion of - for instance - the UK defence budget for a website on which people describe the awesome new shoes they bought that day?

Please insert the "sometimes I feel like the only sane person on the planet" quotation of your choice here.
Also QFT

Without wanting to get into a debate over intellectual property, IT'S NOT A TANGIBLE ASSET! How does Facebook actually contribute to the economy*? If anything, it's actually detrimental since people waste time at work on it (much as I'm doing right now typing this).

*I expect someone to start quoting facts and figures from somewhere.
Something's worth is simply a reflection of how much someone else is willing to pay for it. If enough people are stupid enough to believe Facebook is worth £50 billion, then that's how much it's worth.

Shares aren't just about earnings, they're as much a currency as anything else. People buy them because they believe they'll be able to sell them for more.

You don't hear people complaining about the worth of gold because it doesn't earn you any money.
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Old 14th Jun 2011, 15:31   #13
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Quote:
Originally Posted by Bauul
Something's worth is simply a reflection of how much someone else is willing to pay for it. If enough people are stupid enough to believe Facebook is worth £50 billion, then that's how much it's worth.

Shares aren't just about earnings, they're as much a currency as anything else. People buy them because they believe they'll be able to sell them for more.

You don't hear people complaining about the worth of gold because it doesn't earn you any money.
All true, but then gold has historically been the safe haven that people run to when currency markets are unstable, and therefore has entrenched a position which gives it a form of intrinsic value despite the fact that its practical uses are limited and the vast majority of the world's exctracted supplies lie as bars in underground vaults. And at least if you were holding gold and the market for it disappeared you could fashion it into a massive medallion and chain and make like Mr. T.

Of course the price of a share in a company is only loosely connected to the company's earnings, and for those punters who took a gamble on LinkedIn shares heading north so steeply on listing, that disconnect paid dividends (figuratively rather than literally!) The problem is though that this is how bubbles form - where prices spiral as a result of buy side demand fuelled purely by greed and the prospect of selling for a higher price in the short term, with no regard to the fundamentals. It's what happened at the turn of the 21st century - an investor feeding frenzy where pretty much anyone with a quirky website and a few thousand users could generate tens or hundreds of millions of dollars of investment, with no regard whatsoever to future earnings potential.

Eventually someone says "hang on, this company is just burning cash and we can't see it ever dlivering a return", at which point everyone realises the emperor is naked and the market plummets, the guys that got out early take their cut, and some poor shmoe who got caught up in the frenzy and bought at the top of the market ends up with his life savings wiped out because he bought into something that "just can't fail". And from where I'm sitting it looks an awful lot like it's going to happen again. Put it this way - I'd be far happier if I were to take a 12 month position on LinkedIn I'd be far happier to be the guy who shorted at $90 than the guy who bought at $50.
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Old 14th Jun 2011, 15:42   #14
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Perfectly reasonable argument
I'm aware of the fallacies of my statement (software being an example) but I still think it's very dangerous to assign such arbitrary monetary values to an entity such as Facebook. Using software as an example, people will need something that solves a problem they have e.g. Word can produce nice documents, Excel can crunch numbers. Facebook is...I can't think of a good way to describe it...a distraction, perhaps?
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Something's worth is simply a reflection of how much someone else is willing to pay for it. If enough people are stupid enough to believe Facebook is worth £50 billion, then that's how much it's worth.

Shares aren't just about earnings, they're as much a currency as anything else. People buy them because they believe they'll be able to sell them for more.

You don't hear people complaining about the worth of gold because it doesn't earn you any money.
With gold, you have a real material you can do stuff with. I know it's a very simple way of looking at things, but it's just the way my mind works. Also, gold can earn money if its value increases for various reasons. Still, I'm glad that you think it's stupid to think that Facebook is worth £50 billion, as I'm in the same mindset.

TBH, I'm out of my league here. My version of being clever with money is to stick it in a savings account. Things like the recent economic crash confuse me - did a part of the Earth worth $9 trillion (or whatever it was) just jump off into space?
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Old 14th Jun 2011, 16:06   #15
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Quote:
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TBH, I'm out of my league here. My version of being clever with money is to stick it in a savings account. Things like the recent economic crash confuse me - did a part of the Earth worth $9 trillion (or whatever it was) just jump off into space?
We're going way off topic here, but this is an interesting point. I also find it pretty mindbending that so much value can just "disappear". Think of it like this though - imagine if you had a bar of gold worth $1,000. Now it's only worth $1,000 because someone else is willing to pay you $1,000 for it. If more people show up with bars of gold to sell, or gold goes out of fashion and nobody wants to buy it any more, the price of a bar of gold drops. No gold has disappeared, and no money has disappeared, but the total asset value has dropped.

This is hugely compounded, however, because while you and I are buying and selling bars of gold (or copper, or coal, or wheat, or rice, or shares in companies), lots of clever financial geniuses are gambling on the value of our gold. So they have various forms of derivatives or "contracts for difference". Some of these are exceptionally obscure and complicated, but fundamentally they are promises to pay a certain amount of money on the occurrence of a certain event. So if Alice thinks gold is going to go up in price and Bob thinks it is going to go down, Alice might sell Bob a put option for $100 allowing him to sell his bar of gold in 3 months time for $1,000. It doesn't matter if Bob doesn't have a bar of gold now - in 3 months time, if the price has gone down, he can buy a bar for (say) $800 and sell it to Alice (who must buy it) for $1,000. Bob can sell the option to whomever he wants, and its value changes depending on the current price of gold and the length of time the option still has to run. Or Alice and Bob (neither of whom own a bar of gold) make a contract that for every dollar gold goes up by a certain future date, Bob pays Alice $100, and for every dollar it drops, Alice pays Bob $100. All these bets, hedges and contracts mean that even a small shift in the udnerlying value of certain assets can be amplified up to have huge effects.

The market makers who come up with these derivatives typically work for banks. They're gambling with the money in your savings account, and in boom times they make a lot of money out of it. The money doesn't actually exist in any physical sense, it's just an entry in a computer system somewhere, but the bank attributes a value to it which appears on the bank's balance sheet as an asset. The banks can be quite creative with how assets are valued, but basically if a bank holds a million of something (shares or tonnes of copper, or call options, or whatever) at a time when that share or asset is trading at $100, the bank's balance sheet shows an asset of $100m. If the market confidence drops and the trading price falls to say $80, the bank's balance sheet falls to $80m. If the asset is a derivative, then a drop of 20% in the value of the underlying asset may be multiplied many, many times into the value of the derivative - so if it's a contract for difference it may go from being an asset worth $100m to being a liability of $100m or more. And THAT is how the world's banks went bankrupt and trillions of dollars just evaporated.

What we need to do now to reduce the risk of this happening again is require banks to be more prudent with investments. This means, among other things, increasing capital requirements (the amount of cash a bank must have compared to the amount it borrows), and requiring banks to encourage their traders to take less volatiile positions by remunerating them based on long term success rather than short term gains.
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Old 14th Jun 2011, 18:24   #16
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and requiring banks to encourage their traders to take less volatiile positions by remunerating them based on long term success rather than short term gains.
Don't forget to add "employing them for more than two years". Many of them speculated on assets that gave big rewards but which they knew would collapse in a few years. They reaped the bonuses from the returns these assets gave, left the bank and got a job elsewhere. The bank (and the trader's successor) was left to deal with the fallout, the trader made their money and the cycle repeated at a new bank.
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Old 15th Jun 2011, 12:08   #17
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adam_bagpuss - it's over 9000!!!!!!!!1!1!1!!!adam_bagpuss - it's over 9000!!!!!!!!1!1!1!!!adam_bagpuss - it's over 9000!!!!!!!!1!1!1!!!adam_bagpuss - it's over 9000!!!!!!!!1!1!1!!!adam_bagpuss - it's over 9000!!!!!!!!1!1!1!!!adam_bagpuss - it's over 9000!!!!!!!!1!1!1!!!adam_bagpuss - it's over 9000!!!!!!!!1!1!1!!!adam_bagpuss - it's over 9000!!!!!!!!1!1!1!!!adam_bagpuss - it's over 9000!!!!!!!!1!1!1!!!adam_bagpuss - it's over 9000!!!!!!!!1!1!1!!!adam_bagpuss - it's over 9000!!!!!!!!1!1!1!!!
when it goes public get ready for been shafted as facebook becomes an advertising platform even more than it is now.

its all downhill from here
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Old 15th Jun 2011, 13:24   #18
Xir
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Xir is definitely a rep cheat.Xir is definitely a rep cheat.Xir is definitely a rep cheat.Xir is definitely a rep cheat.Xir is definitely a rep cheat.Xir is definitely a rep cheat.Xir is definitely a rep cheat.Xir is definitely a rep cheat.Xir is definitely a rep cheat.Xir is definitely a rep cheat.Xir is definitely a rep cheat.
For me the worth should be based on potential income generated....and that's just not the case here
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Old 15th Jun 2011, 16:32   #19
leveller
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leveller has yet to learn the way of the Dremelleveller has yet to learn the way of the Dremelleveller has yet to learn the way of the Dremelleveller has yet to learn the way of the Dremelleveller has yet to learn the way of the Dremelleveller has yet to learn the way of the Dremel
In the latest Podcast 17 interview with Gabe Newell, he mentions this Facebook sale, along the lines of it failing, people losing cash, kinda like a bubble bursting ... he also jokingly added people being arrested ... he isn't far off for it being daylight-robbery ...
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Old 15th Jun 2011, 17:24   #20
Gtek
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Gtek is a hoopy frood who really knows where their towel is.Gtek is a hoopy frood who really knows where their towel is.Gtek is a hoopy frood who really knows where their towel is.Gtek is a hoopy frood who really knows where their towel is.Gtek is a hoopy frood who really knows where their towel is.Gtek is a hoopy frood who really knows where their towel is.Gtek is a hoopy frood who really knows where their towel is.Gtek is a hoopy frood who really knows where their towel is.Gtek is a hoopy frood who really knows where their towel is.Gtek is a hoopy frood who really knows where their towel is.Gtek is a hoopy frood who really knows where their towel is.
There are tons of much better shares out there, than LinkedIn or Facebook will ever be, and everybody knows that. This is nothing but speculative trading and it will probably go short fast and deep ones first big profit taking will start.
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