I read an article on Forbes titled "The Truth About What Facebook Is Really Worth" at http://www.forbes.com/sites/brettnelson/2012/05/24/the-truth-about-what-facebook-is-really-worth/ and thought I'd comment on it here. I'd also like to preface that I'm not a stock analyst, so please correct me if I'm wrong.
At this point, why anyone would purchase FB stock is beyond my understanding. Perhaps we can blame the investment banks for misleading people on the IPO. Maybe we can blame FB for "poor service" and for fabricating advertising revenue. Maybe we can blame it for being over-hyped. It's all possible.
My opinion is that the technology is entirely too new. FB offers a service, but what is the dollar valuation of this service? An arbitrarily valued service, at an arbitrarily valued company, will no doubt lead to arbitrarily valued stock prices and profits. What product or service are we consuming from FB that can be (arbitrarily) monetized? We see on the news that the IPO will start at $38, but never ask why. We never ponder what social media enables us to do, and how much that enablement is valued at.
So my ultimate question is how much would you buy FB for, if you were hiring it like you would with a contractor? Has it really solidified itself as a product/service that you can't live without? What does it have (technology-wise) that other services do not? Who is selling, and who is buying?
I believe it's the banks and brokers (and Zuckerberg himself) who bought and dumped the stock are the only ones to benefit from this. Morgan Stanley and JP Morgan received $175 million for managing the IPO, and then an additional 65 million(ish) in FB stock. Zuckerberg dumped about $1.1 billion in stock early. Also, consider that the fact that FB employees are locked into their shares. After 90 days, they can start selling. I believe it is somewhere close to 300 million shares, which will plummet the prices even further. So in a nutshell, as a technologist and not a stock broker, I would dump all your FB stock. The company does not have a monopoly on social media, nor will it ever be as good as the new ones that are sure to become prevalent in the future as the technology matures.
In the end, investors didn't have a magical formula to determine that it's fair to value FB at $30, as the Forbes suggested. In the end, we knew that the valuation of FB is arbitrary, just as the investors did. We just didn't know how to price something that is visibly arbitrary. As a technology company, I don't believe FB is worth very much. It has terrible code, an awful UI that changes every two months, and privacy issues that gets worse with every iteration. Back in May, I told myself that I would jump on Facebook stock if it ever hit $7 a share. I just didn't think it would get there so soon.
At this point, why anyone would purchase FB stock is beyond my understanding. Perhaps we can blame the investment banks for misleading people on the IPO. Maybe we can blame FB for "poor service" and for fabricating advertising revenue. Maybe we can blame it for being over-hyped. It's all possible.
My opinion is that the technology is entirely too new. FB offers a service, but what is the dollar valuation of this service? An arbitrarily valued service, at an arbitrarily valued company, will no doubt lead to arbitrarily valued stock prices and profits. What product or service are we consuming from FB that can be (arbitrarily) monetized? We see on the news that the IPO will start at $38, but never ask why. We never ponder what social media enables us to do, and how much that enablement is valued at.
So my ultimate question is how much would you buy FB for, if you were hiring it like you would with a contractor? Has it really solidified itself as a product/service that you can't live without? What does it have (technology-wise) that other services do not? Who is selling, and who is buying?
I believe it's the banks and brokers (and Zuckerberg himself) who bought and dumped the stock are the only ones to benefit from this. Morgan Stanley and JP Morgan received $175 million for managing the IPO, and then an additional 65 million(ish) in FB stock. Zuckerberg dumped about $1.1 billion in stock early. Also, consider that the fact that FB employees are locked into their shares. After 90 days, they can start selling. I believe it is somewhere close to 300 million shares, which will plummet the prices even further. So in a nutshell, as a technologist and not a stock broker, I would dump all your FB stock. The company does not have a monopoly on social media, nor will it ever be as good as the new ones that are sure to become prevalent in the future as the technology matures.
In the end, investors didn't have a magical formula to determine that it's fair to value FB at $30, as the Forbes suggested. In the end, we knew that the valuation of FB is arbitrary, just as the investors did. We just didn't know how to price something that is visibly arbitrary. As a technology company, I don't believe FB is worth very much. It has terrible code, an awful UI that changes every two months, and privacy issues that gets worse with every iteration. Back in May, I told myself that I would jump on Facebook stock if it ever hit $7 a share. I just didn't think it would get there so soon.
