Ford IS more valuable that facebook. This guy's analysis is an apples to oranges comparison. Ford has $100.5 billion in debt and facebook has no debt - the companies should be compared based on enterprise value:
Enterprise value in billions = market capitalization + debt - cash
FB could just as easily issue debt in billions and I'd think that the market will be valuing it higher than that of Ford's for the same issue coupon (which just came back into the investment grade club after residing in the junk club for quite a while). FB would probably have a good income-to-interest coverage ratio if it ever issued debt so the discounting of its debt's cashflows would be less severe than that for Ford.
You are correct these things can be viewed as assets. However, if the author is deriving his data from Facebook's own declarations, then even they aren't claiming the value of their assets including User-loyalty, are anywhere near their market cap.
Certainly what makes Facebook valuable is their huge network which is sustained, I think, through barriers to entry (network effect), and barriers to switching (owning your data).
I wonder what might happen, if it could happen that the EU or US FTC mandates api access into and out of Facebook, perhaps after a decision that 2015 Man will use social networking as a needed public infrastructure, to be provided on a common carrier like basis.
Can the sheer size of Facebook's network trigger monopoly break up? Or the sheer size combined with lack of API access?
Facebook does make it surprisingly easy to get a copy of all your data. There's a single big button on the site which will make a ZIP file containing all your data on Facebook, except for data stored in Apps (outside of FB's control), and comments you've made on other people's posts. It will even tell you your previous IP addresses and I think auth tokens.
Valuation lower than assets means you get eaten by corporate raiders, unless you're as big as Ford or the majority of the stock is held by a single family. That just shows how unhealthy Ford is.
That's not true. Ford is more than $100 billion in debt. If a corporate raider were to take over Ford, they would be saddled with a ton of debt too, making such a takeover a much less attractive option.
> You forgot one important thing: Potential for Growth
The key to understand this madness is so right in front of our faces, that we can't even see it.
Due to the dynamics/nature of the market, stock investments seems to be more about a gamble today, and you can't gamble on Ford too much except for it to go down.
Forget trying to spot the value. It's all about what's hot.
That's how I used to feel too until I read more economic history. Turns out, that's the way it's always been. At the end of the day, stock prices are 100% driven by supply & demand (beside the IPO price I suppose).
Sure, fundamentals are what a lot of people base their buying or selling off of, but what's "hot" is all that matters just like it always has. Maybe a company just crushed their numbers for the quarter or a drug company attained a new patent; and while that may contribute to the true value of the company, when it comes to the stock price nothing matters except how many people buy.
These two businesses are in entirely different industries. Not only that, they have very different market characteristics.
Ford is a capital intensive industry that reminds me of Berkhire Hathaway - the textile company that Warren Buffett could never figure out how to make money from. It has competitors everywhere making relatively undifferentiated products.
Facebook on the other hand, is more like a media company. It has 1 billion eye balls who spend an average 30 minutes a day on its site on user-generated content. If you were a TV station, how much would you be valued at with that kind of metrics? FB has a beachhead in the sense that it is a marketplace of users who create content, and users who view them. This makes it incredibly sticky and also difficult for a competitor to come about. The downside with FB is that audiences can be fickle. If they think FB is a fad, they will start leaving. Therefore, FB had to establish itself as a habit-forming medium, like e-mail, so that people constantly reengage with it.
> You forgot one important thing: Potential for Growth
The problem arises when that growth occurs but instead of the price now being reasonable at those levels, it increases further...which is probably what it's going to do.
This is why investing in stocks is also called speculation, investors are speculating that Facebook's revenue and profit is going to grow to exceed that of Ford in a reasonable amount of time.
I've heard so many people talk about buying Facebook "as soon as I can get in". I think that's ridiculous. When it comes to individual stocks, buying or selling without concern for price is for suckers. That's what got us into the last bubble (or few): people who would buy something (like a house) regardless of the price based on an obscene overconfidence that it would appreciate.
I have no idea what the thing's worth, but I cringe when I hear people talking about how they're sure it's a good bet because of some X which is almost certainly already priced into the market.
People still feel like that about investing in land and houses (where I live at least) - they are seen as an investment that is never going to be a bad one (freqently comparing this to renting a place to live).
Hype is what drives anything up. You just have to get out before the hype dies. The problem is that most people ("suckers" as you call them) get in late and don't get out in time.
[+] [-] jwilliams|14 years ago|reply
This is just the market saying "I'd rather see what Facebook can do with X billion than Ford."
Which on the face of it seems fair - Google had a similarly crazy PE when they floated. They grew into it pretty quickly though.
[+] [-] johnhartigun|14 years ago|reply
[+] [-] HackersCapital|14 years ago|reply
Enterprise value in billions = market capitalization + debt - cash
Ford’s enterprise value = 40.4 + 100.5 - 15.2 = $125.7 Billion
facebook’s enterprise value = 90 + 0 - 1.5 = $88.5 Billion
See here for a post I did on this article: http://hackerscapital.tumblr.com/
[+] [-] photon137|14 years ago|reply
EV should include debt at _market value_.
FB could just as easily issue debt in billions and I'd think that the market will be valuing it higher than that of Ford's for the same issue coupon (which just came back into the investment grade club after residing in the junk club for quite a while). FB would probably have a good income-to-interest coverage ratio if it ever issued debt so the discounting of its debt's cashflows would be less severe than that for Ford.
[+] [-] DVassallo|14 years ago|reply
Users, pageviews, etc, are assets. If the market will be able to determine their "correct" value... that's another question.
[+] [-] AndrewDucker|14 years ago|reply
[+] [-] joe_the_user|14 years ago|reply
[+] [-] TazeTSchnitzel|14 years ago|reply
Tell me that's not an asset. A single company has lots of information about and can display advertising to an eighth of the alive human race.
Then again, so does Google, I suppose.
[+] [-] moocow01|14 years ago|reply
[+] [-] GoodIntentions|14 years ago|reply
If anything, that brings FB into a whole new realm of risk. Combine this with the fundamentals ( or lack of ) and it seems better left untouched.
[+] [-] excuse-me|14 years ago|reply
[+] [-] bgentry|14 years ago|reply
The "dot-dot-com" era?
[+] [-] sandieman|14 years ago|reply
[+] [-] moocow01|14 years ago|reply
Historically for internet based companies this metric on average has been very low especially when put in comparison with the auto industry.
Where Facebook will be in 5-10 years is just about anyone's guess.
[+] [-] rmATinnovafy|14 years ago|reply
It is paying a twenty cent dividend on a stock price of about $10.
Cheap. Plus its making cars that are very competitive.
[+] [-] firefoxman1|14 years ago|reply
[+] [-] jerrya|14 years ago|reply
I wonder what might happen, if it could happen that the EU or US FTC mandates api access into and out of Facebook, perhaps after a decision that 2015 Man will use social networking as a needed public infrastructure, to be provided on a common carrier like basis.
Can the sheer size of Facebook's network trigger monopoly break up? Or the sheer size combined with lack of API access?
[+] [-] TazeTSchnitzel|14 years ago|reply
[+] [-] rabidsnail|14 years ago|reply
[+] [-] natnat|14 years ago|reply
[+] [-] photon137|14 years ago|reply
[+] [-] siavash|14 years ago|reply
[+] [-] powertower|14 years ago|reply
The key to understand this madness is so right in front of our faces, that we can't even see it.
Due to the dynamics/nature of the market, stock investments seems to be more about a gamble today, and you can't gamble on Ford too much except for it to go down.
Forget trying to spot the value. It's all about what's hot.
Hence Facebook is getting crazy valuations.
[+] [-] firefoxman1|14 years ago|reply
Sure, fundamentals are what a lot of people base their buying or selling off of, but what's "hot" is all that matters just like it always has. Maybe a company just crushed their numbers for the quarter or a drug company attained a new patent; and while that may contribute to the true value of the company, when it comes to the stock price nothing matters except how many people buy.
[+] [-] teyc|14 years ago|reply
Ford is a capital intensive industry that reminds me of Berkhire Hathaway - the textile company that Warren Buffett could never figure out how to make money from. It has competitors everywhere making relatively undifferentiated products.
Facebook on the other hand, is more like a media company. It has 1 billion eye balls who spend an average 30 minutes a day on its site on user-generated content. If you were a TV station, how much would you be valued at with that kind of metrics? FB has a beachhead in the sense that it is a marketplace of users who create content, and users who view them. This makes it incredibly sticky and also difficult for a competitor to come about. The downside with FB is that audiences can be fickle. If they think FB is a fad, they will start leaving. Therefore, FB had to establish itself as a habit-forming medium, like e-mail, so that people constantly reengage with it.
[+] [-] firefoxman1|14 years ago|reply
The problem arises when that growth occurs but instead of the price now being reasonable at those levels, it increases further...which is probably what it's going to do.
[+] [-] hartror|14 years ago|reply
[+] [-] michaelochurch|14 years ago|reply
I have no idea what the thing's worth, but I cringe when I hear people talking about how they're sure it's a good bet because of some X which is almost certainly already priced into the market.
[+] [-] swah|14 years ago|reply
But there is got to be a catch.
[+] [-] firefoxman1|14 years ago|reply
[+] [-] forkandwait|14 years ago|reply
[+] [-] vibrunazo|14 years ago|reply