Facebook's Market cap at their IPO divided by the number of active facebook users
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Facebook's value per user
May 18th - $90.72
August 18th - $45.30
For some reason, we are only worth half as much now as we were 3 months ago - how odd. Did we only click on half as many ads? Do we only upload half as many pictures for their facial recognition database? Do we only provide half as many juicy demographic/psychographic details about our lives?
Since our resident WF economists taught us in the OFFICIAL Facebook IPO thread that the value of a company is whatever someone is willing to pay for the stock, then obviously their revenue and LTV of their customers has dropped in half in just 3 months.
Strangely enough, a lot of us thought based on basic business valuation metrics that Facebook was clearly overpriced, but apparently the market is never wrong so I guess this will just remain one of life's great mysteries. How on earth could this have happened?!?!?
May 18th - $90.72
August 18th - $45.30
For some reason, we are only worth half as much now as we were 3 months ago - how odd. Did we only click on half as many ads? Do we only upload half as many pictures for their facial recognition database? Do we only provide half as many juicy demographic/psychographic details about our lives?
Since our resident WF economists taught us in the OFFICIAL Facebook IPO thread that the value of a company is whatever someone is willing to pay for the stock, then obviously their revenue and LTV of their customers has dropped in half in just 3 months.
Strangely enough, a lot of us thought based on basic business valuation metrics that Facebook was clearly overpriced, but apparently the market is never wrong so I guess this will just remain one of life's great mysteries. How on earth could this have happened?!?!?
For Q2, the average revenue per user was $1.28 ... a whopping 2% increase from last year... buy when there's blood in the streets! good luck bros.
For Q2, the average revenue per user was $1.28 ... a whopping 2% increase from last year... buy when there's blood in the streets! good luck bros.
Adjusted for inflation?
Analysts didn't milk anyone they just analyzed the situation, whether that means poorly analyzed or accurately analyzed. Maybe you mean some were swayed by the investment banks behind the deal to make analyses which would benefit wall street? The bankers who ran the ipo surely didn't fail, they bought the stock privately at a lower price than the opening price, made money on all the ipo fees, and then shorted it on the way down too.
-forbes
They milked regular joe investors out of their money with success. You can't put the blame entirely on wall street since they don't force investors to make trades, but imo this was yet another clever wall street scheme to print money by inflating the value of the company during the ipo and got a lot of greenhorn investors to believe the hype.
It was worth what people paid for it then, just as it's now worth what people are paying for it now. Something's value is entirely determined by what people are currently willing to pay for it.
I don't understand what's so hard to understand about that.
"Basic business valuation metrics" can be used to determine its value to you - as that is your own personal definition of what a company's value is. Not the market's.
The stock rising or falling in price does nothing to counter Guerilla's points about what value means.
November 14th will be the time to buy, when supply of shares will be at its highest. I'd expect a rally afterwards, then who knows how FB will do long term.
Your argument makes no sense. So because it happened in only 3 months...therefore the market was wrong?
CNBC was stoking the Facebook IPO for months, I never noticed them challenging the wisdom of its huge valuation; instead they tended to measure excitement levels and focused on the IPO's significance and meaning.
Then for a month after the IPO later CNBC was a driving force questioning everything.
I think, at the very least, there was collusion for favorable press in the run up.
CNBC is fine for market people who are informed but dangerous for anyone who relies on it for anything. Examples are legion, starting with Cramer.
ITT: People that still don't understand the difference between price and value in finance, despite Facebook volunteering as exhibit A.
When market price > value = price will eventually decrease
When market price < value = price will eventually increase
For examples of this, look at every stock ever.
The way I look at it, there are currently two ways to determine the value of a company according to Wickedfire:
1) total shares available * price of share
2) a multiple of net revenue (usually 6-20x monthly, based on previous month's performance)
For whatever reason, everyone thinks it's reasonable for a company to "lose" $70bn in "value" in 3 months and think that's still an accurate method for company valuation. My argument (and Unarmed Gunman's) is that that method is not attached to true performance of the company and that is why we've seen such a drastic drop in Facebook's "value" in the last 3 months.
Now if the value of Facebook had been determined 3 months ago by classic private equity valuation methods, which is #2 above, then the value of their company would have probably stayed relatively stable in 3 months.
So when it comes to nailing down a price for a company, in let's say an acquisition situation, which method would you choose? The stable one? or the volatile one?
The stock market in no way reflects the true value of Facebook's product, which is ads at this point. The stock market allows for speculators. There cannot be advertising speculators within Facebook's actual market, which is their ad platform.
A company's value is determined by the profit margin created by how much their customers (advertisers in FB's case) pay for their product (ads in FB's case). That is a reliable metric. That is a metric that reflects the true health of the company per the one and only metric that matters in business, which is profit.
I'm in no way arguing that FB doesn't have the "market value" of $45bn or whatever it is right now, I'm arguing that that number has no relation, nor impact, on the actual equity value of the company. Market value is bullshit in my opinion as it's subject to speculators and all other market volatility. A company's value should be tightly coupled with its actual financials.
1) total shares available * price of share
2) a multiple of net revenue (usually 6-20x monthly, based on previous month's performance)
For whatever reason, everyone thinks it's reasonable for a company to "lose" $70bn in "value" in 3 months and think that's still an accurate method for company valuation. My argument (and Unarmed Gunman's) is that that method is not attached to true performance of the company and that is why we've seen such a drastic drop in Facebook's "value" in the last 3 months.
Now if the value of Facebook had been determined 3 months ago by classic private equity valuation methods, which is #2 above, then the value of their company would have probably stayed relatively stable in 3 months.
So when it comes to nailing down a price for a company, in let's say an acquisition situation, which method would you choose? The stable one? or the volatile one?
The stock market in no way reflects the true value of Facebook's product, which is ads at this point. The stock market allows for speculators. There cannot be advertising speculators within Facebook's actual market, which is their ad platform.
A company's value is determined by the profit margin created by how much their customers (advertisers in FB's case) pay for their product (ads in FB's case). That is a reliable metric. That is a metric that reflects the true health of the company per the one and only metric that matters in business, which is profit.
I'm in no way arguing that FB doesn't have the "market value" of $45bn or whatever it is right now, I'm arguing that that number has no relation, nor impact, on the actual equity value of the company. Market value is bullshit in my opinion as it's subject to speculators and all other market volatility. A company's value should be tightly coupled with its actual financials.
If one follows the "it's worth whatever people are willing to pay for it" model you'll get burned just about every in the market long-term. It's simply too vague. That is what is involved in bubbles and it never lasts. Fundamental valuation almost always comes back with a pin to pop the bubbles.
You need to follow at least the most basic of fundamentals -- the most common used valuation methodology is P/E ratio. Start with that and dig further using the other popular metrics (growth rate, EPS, PEG, EV, EBITDA, etc)
The reason FB stock tanked is because their revenue growth is decelerating. Then you combine that with the transition into mobile (and lack of proven monetizing methods), Zuckerberg refusing to give guidance and it's a major concern to investors. Stock market is about paying for future growth and it doesn't appear to be there for FB.