Facebook is a shining beacon of hope in a terrible economy, the only true successtory of the internet in recent years. I get that. I do not dispute the company has a huge potential to make lots of money. What I don’t get is the price people are paying for the stock.
As far as my economic understanding goes Facebook has to multiply their revenue by about five to justify the current price.
What is the rationale behind this ‘bet’?
I bet you a dollar the sun will shine for the next 50 days, if I win I get to keep my dollar; if I lose you keep my dollar?
I must be missing something. Why did you/do people buy this stock at these prices? (What scenario are they seeing that gives a positive expected value?)
I’m no expert and I’m extremely cynical about the FB offer price but I imagine there are few world-wide tech stocks and fame has its own ephemeral value. So buyers see a utopian future for what is really a momentary glimpse in the spotlight. FB is close to useless IMHO - I use it but certainly do not spend money on it.
But hey - I’m middle-aged. Maybe modern yoof will pay megabucks into FB. Can’t see why but stranger things have happened.
Well that’s just it – that’s true for vast numbers of FB users.
All they need to do is get a small proportion of those users spending money and I think they could double or triple their revenues, maybe more, no problem.
Of course, this is easier said than done, but you’d much rather be in the position of having a huge user base and having to monetize it than trying to get people on to your site in the first place.
Facebook is in the business of selling very specific advertisement. (Cynics say that it’s actually selling us to advertisers.) In that regard, it’s very similar to Google.
Stock valuation, nowadays, is only loosely tied to revenue. For many investors, the question is not :
“Will this company make enough profit that this stock will earn dividends soon?”
, but rather :
“Will other people soon be willing to pay more for this stock than what I’m paying now?”
… with the underlying assumption that the company must not go bankrupt in the meantime.
Down the right hand side of the window, is there not a column labelled “sponsored”?
It’s easy to ignore it, and it wouldn’t surprise me if you could disable it. This is why I think FB haven’t really tried to extract money from the masses.
And I don’t think it’s just about banner ads and the like. People put their interests and hobbies into FB, so there could be targeted stuff.
The difficulty is doing it without pissing off their users, but heck, Google / Microsoft / Apple have shown once you’ve got enough users, you have quite a lot of leeway to screw around with your apps and annoy your users.
Do you mean that they’re used the massive amount of data we provided to delivery extremely targeted advertising? Because for all the information they’ve collected I’ve yet to see them put it to use in a way that would make them a valuable advertiser.
Whenever I log in with a browser that’s not adblocked every ad is for online dating - I guess because I’m listed as single. The last time I looked at facebook logged in through a woman’s account every ad was for cellulite treatments. Because she’s listed as a woman and all women have cellulite.
I wonder - has anyone ever seen a facebook ad that they thought, “wow, facebook really used its massive store of information and delivered an ad that was perfect for me”?
I find “suggestions” for things some of my friends like. I see sponsored ads for things related to books and movies I have in my lists of favorites. I also see when friends “check in” at local businesses they’re visiting–a certain cafe, bookstore, Five Guys, etc.
All of this is meant to motivate me to click on those links, “like” and visit those businesses. . .
So you are saying FB (and most other stocks) are in fact a pyramide (ponzi) scheme?
I’m sure that is partially true but there are all kinds of stocks being traded that represent a real part of a real company that makes real money (old fashioned economics like I got taught in school). Are you saying there is a parallel universe in wallstreet with 18 billion in cash that gets spent on a whim?
Don’t they know there is a crisis going on?
Nitpick: pyramid. Stocks are not ponzi schemes. Ponzi schemes depend on growing the number of suckers; stocks are one-to-one. Ponzi schemes are also based on items that have no real value if you hold onto them; stocks do. They may be “greater fool” schemes, which are another term for bubbles, but everything is subject to that. If people collectively decide that gold is worth a dollar an ounce tomorrow then owning it today is worthless unless you can sell in the next 24 hours.
Stock prices technically are calculated by their net present value. That’s an estimate of what you should pay today to get the value inherent in it over a future time period. Obviously, every person who does that calculation for a stock comes up with a different answer. When Google had its IPO at $100, I thought that number was nuts. Today Google is at 600. And I still think that number is nuts. Its profits last year were less than $10 million. Healthy, for sure, but about half that of JPMorganChase, whose stock is now at 33 due to its recent kerfluffle. Will Google make 20 times as much money over a reasonable time period as JPMorganChase? Inconceivable.
Stocks are valued by emotion as much as anything else. The stock market is never rational at any given point, no matter what the economists say. (Whether it smooths out in its totality to rationality is a more interesting question.)
But then you have to ask another big question. If I don’t put my money in stocks, where should I put it? That’s much harder to answer. Over the long run, stocks offer a higher yield on average than just about any other form of investment. And knowledge about stocks, markets, companies, and investors is public and easy to find. Art may give you a higher return but there aren’t objective numbers on art. Real estate is often good, but holding real estate entails high costs, while holding stocks is free.
$18 billion is a pittance in an $18,000 billion economy. That’s sofa cushion money for the U.S. as a whole. Why not put it where it may someday increase in value 6 times, just like Google? Or just buy JPMorganChase, accept the sleaze factor, and hope for a large dividend.
I think you’re looking at it from the wrong direction. It’s not whether the ad is perfect for you, just that it’s perfect (or at least better) for the advertiser - after all, the perfect advertiser for you might not be advertising on Facebook.
Cellulite cream is a good example. The assumption is not that all women want it. Rather, the assumption is that the only people who want it are women; by not showing it to men, you double the response rate to the ad compared to something like a radio spot that can’t specifically target women.
As for the OP’s question: This kind of targeted advertising and delivery system is new. Some people are willing to take a risk - they know there’s a chance Facebook will stagnate, but they also know there’s a chance it will go up 10x. If the odds of both are roughly equal, then buying at 5x is a reasonable risk.
This is really the case with almost every stock. A company has to be doing terribly for investors to not pay a premium on the stock in anticipation of future revenues.
Don’t you mean that Google’s profits were $10 billion and not $10 million? Because I think that this page says that its net income was $9.7 billion.
And as for Facebook, its ad revenue was about $4 billion last year. They have about 900 million members, so they only made about four dollars per member in ad revenue. That doesn’t seem like very much, given how much time people spend on the site and how much information they have on their members. (Internet companies can charge a lot more for highly targeted ads than ones that are delivered to all visitors.)
No, I was thinking like a business owner who spends extensively on online advertising. I only worded it from the point of view of the user.
As an advertiser I’m interested in displaying my ads to people I want to be my customer. Showing an ad only to women is not in any way a very specific advertisement. There’s been dozens of magazines for many decades that are read almost exclusively by women.
On the other hand, targeting only singles is a great way to avoid wasting ad impressions for online dating on happily married people.
The question I was trying to raise is, Why isn’t facebook able to monetize me to any other advertisers yet? They’ve got thousands of bits of information on me, but only online dating sites seem to want me.
I think Mijin makes a great point that it’s better to have 900 million users to try and monetize effectively than a great idea and no members. I’m just saying they haven’t seemed to have done it effectively yet, in my experience. Incidentally, I personally spent very little, under $10,000 advertising on facebook to dismal results before pulling the plug.
Well they don’t do any of those things on my profile. That’s why I don’t see them. That’s a problem facebook needs to solve, wouldn’t you agree? The only thing on your list I see come across my facebook page is local check ins, but only voluntary ones. I’ve never seen a sponsored/promoted check in.
Not only does Facebook target its ads to people that have expressed interest in a certain topic, but sometimes its ability to analyze its users borders on scary. I have an Indian friend who has very dark skin (she could easily be mistaken for an African American), but she doesn’t specify that anywhere on the site. But she gets ads for African-American dating services all the time on the sidebar. My assumption is that Facebook has some ability to read profile photos, but I’m not sure. Clearly there’s some pretty deep behind-the-scenes user analysis going on.
