Facebook shares

[TheFaQQer]

Facebook needs to continue growing at 65% a year (as they did last year) until 2015 to bring earnings close to the likes of Apple. (Assuming that the share price stays at about $31 for that time).

Apple is trading at around 14 times earnings because investors don't think that they can keep their 85% growth a year.

Average expectations from analysts seem to be around $933 million next year for Facebook (range from £333mn to $1.7Bn) which is way off what it needs to be growing at to get close to the 15 times earnings ratio, never mind 100 times earnings.

In August 2009, Facebook was valued at about $7Bn. If they had IPOd then, to get to the current valuation, they would have grown 15-fold in just under three years.

When they drop to about $20 I might be interested.

[Old Hack]

It was said all IPO's need 6-12 months to see where their true value lies.

Seems like FB is heading down to at least, 50% of it's initial offering, which baffles me even more why the banks involved bought in so heavily.

[fullyautomatix]

Possibly misunderstood me, I am just asking if ever before, there's been an IPO at 1000 * earnings ratio. Its that I found amazing, as though something was not being disclosed. I am just trying to find others like it. Thats all.

There was no misunderstanding. I know what you are asking but the mistake you are making is that you are thinking all business models are alike. The earnings potential is in the future because the user base has been established. The current earnings dont matter because all this while they made sure that they had a system that attracted users and they put all the money into creating a stable and addictive platform. Now is the time to exploit this eco system they have created. You cannot compare this to a brick and mortar business that values an IPO at xx * earnings ratio.

[OwlHoot]

In all fairness, FB are already exploiting the users, I just think it wil get worse.

Can anyone else think of an IPO that valued the business at such a ratio? I have been looking and can't find any.

If they try getting too pushy and intrusive, what's to stop some new company taking off where Facebook were five years ago? Everyone could migrate like a slock of starlings surely. I'm not a big facebook user admittedly (had to set up my page for a clientco project, but last looked at it a couple of years ago), but surely a social network shackles one far less than an email address.

Plus there's the novelty aspect - If the kidz all start thinking Facebook is mainstream and cramping their style, they'll move away in droves for that reason too.

[Old Hack]

There was no misunderstanding. I know what you are asking but the mistake you are making is that you are thinking all business models are alike. The earnings potential is in the future because the user base has been established. The current earnings dont matter because all this while they made sure that they had a system that attracted users and they put all the money into creating a stable and addictive platform. Now is the time to exploit this eco system they have created. You cannot compare this to a brick and mortar business that values an IPO at xx * earnings ratio.

Fair enough, but my main point, which is what I may not have explained well enough, is that the very best earnings to share price ratio, in american business, is 20: Apple and Google, who all have a clearly defined 'product'. If FB equals the very best, then is will be worth $20b, not 105b.

Their IPO went out at 100 and, if I remember rightly, valued each user at $105, where the real value is $4.

I just don't get it, thats all.

[doomage]

There was no misunderstanding. I know what you are asking but the mistake you are making is that you are thinking all business models are alike. The earnings potential is in the future because the user base has been established. The current earnings dont matter because all this while they made sure that they had a system that attracted users and they put all the money into creating a stable and addictive platform. Now is the time to exploit this eco system they have created. You cannot compare this to a brick and mortar business that values an IPO at xx * earnings ratio.

WHS. The potential in FB is a marketeers wet dream. Their user base is incredibly massive and grows more or less by itself (i.e. it's users do FB's own marketing for them). And the personal data that FB has access to is a freaking goldmine.

But the real value is that FB knows it's members networks - who your friends are, what they like, who has influence etc etc. So any product or service that can tap into this - "word of mouth marketing" should find it quite powerful.

[BrilloPad]

But the real value is that FB knows it's members networks - who your friends are, what they like, who has influence etc etc. So any product or service that can tap into this - "word of mouth marketing" should find it quite powerful.

Just like Friends Reunited.

[d000hg]

If they try getting too pushy and intrusive, what's to stop some new company taking off where Facebook were five years ago? Everyone could migrate like a slock of starlings surely.

Google have spent untold billions creating solid alternatives to FB but cannot achieve this. MS have done the same trying to get Bing used. It CAN happen but it needs something quite dramatic to overcome inertia and the network effect.

[Old Hack]

Just like Friends Reunited.

Indeed. Look what happened when rumours abounded that it was charging. Dumped overnight amd tanked in value.

I know not an awful lot like FB, but the premise is there, as someone elsewhere has stated; if it starts being too uncool, it's gone.

Not too sure whoever invested in this, heavily, will still have shirts on in a few years.

[fullyautomatix]

Indeed. Look what happened when rumours abounded that it was charging. Dumped overnight amd tanked in value.

I know not an awful lot like FB, but the premise is there, as someone elsewhere has stated; if it starts being too uncool, it's gone.

Not too sure whoever invested in this, heavily, will still have shirts on in a few years.

Most investors are comparing FB with GOOG to be honest and do not want to miss out. The significant difference between these two internet companies is that GOOG has a patented and secret search algorithm which works brilliantly. Over the past decade many companies have tried to best this and failed. Its this precedence that the investors are banking on. However, FB does not have any single algorithm that works. They have a platform built in such a way that is is user friendly and addictive to young and old alike. All it takes is some start up to come up with something better and snatch all the millions of users away. We can never predict if this will happen.