Feeds

back to article Facebook's ONLY failure: Expectations management

As I type this, Facebook stock is trending toward a $26.84 per share price, valuing the company at $57bn, or roughly half the value Facebook held on its first day of trading two weeks ago. While the market plays a round of "You're to Blame!", Facebook is suffering from inflated expectations. Facebook's net profit margin and …

COMMENTS

This topic is closed for new posts.

Page:

Anonymous Coward

Like with cars and houses

It's worth whatever someone will pay at the date / time you sell it, next day it may be worth half or twice the price.

at least a car or house has some physical worth, unlike some dot-com companies who have no solid assets, just a business models, it's all so similar to Ponzi and Pyramid schemes, buy into something that doesnt really exist apart from in theory.

7
0
Anonymous Coward

Hey want to buy some fresh air? Going cheap....

1
0

Re: Like with cars and houses

You are putting money on the ability to generate future income - which is basically what an investment is.

Assets are worthless by themselves as they are ultimately expenses (say hi to depreciation), the worth comes from what the assets can be used for and how are they managed to generate future income.

Cars are not investments and neither are houses (it is the land that can appreciate in value): they both lose value over time. Buy a car and in the end you'll be guaranteed a loss when you sell it.

0
0
Silver badge

How do you manage the expectations of oblivious morons? All the signs were there; some people seem to want to lose their money.

14
0
Silver badge

A fool and his money are soon parted

no truer words were ever spoken.

5
0
Stop

Re: A fool and his money are soon parted

Except that a lot of the fools are parting with other peoples money

3
0
Silver badge

Re: expectations of oblivious morons?

By making the IPO manager legally responsible for not being an oblivious moron. That is what Morgan Stanley was supposed to do.

In these socialist swamps, you won't find anyone more in favor of capitalism and capital markets than me, and even I smell something rotten at Morgan Stanley on this deal. They pushed the price to the high end of the offer range just days before the public offering tanked? Not buying it, especially since it seemed to be missing the required effort to make sure investors knew this was a HIGH, HIGH risk stock. Neither FB not Zynga have a proven business model. So while it is possible that at some point in the future they will be raking in the cash and we'll all be wishing we'd just coughed up the money to buy even a single share, it is equally possible you'll lose everything you invested in it. So far I haven't been willing to risk it. Maybe next week after the price falls a bit more, but likely not even then.

1
1
Anonymous Coward

Re: expectations of oblivious morons?

>>In these socialist swamps, you won't find anyone more in favor of capitalism and capital markets than me

Like every unthinking right-wing merkin fool parroting what Rush Limbaugh, Fox News and their ilk tell you to say and think, you really need to learn what Socialism means economically and politically.

You'll find that nothing in the United States even remotely resembles Socialism. At all.

2
0

This post has been deleted by its author

Bronze badge
Headmaster

Re: You'll find that nothing in the United States even remotely resembles Socialism

Except that it does. Socialism being defined as the entire gamut between unregulated, laissez faire, capitalism and strict, "government as the only employer" communism.

So pretty much every economy from the US to China is socialist, just to varying degrees.

1
1
Mushroom

dot-bomb v2.0

Is it really only twelve years since something similar happened to a few websites here and there? Maybe the investors were still at school back then.

Have to hand it to Zuckerberg, though - he's cleaned up by capitalising on people's greed and stupidity. I wouldn't be remotely surprised to learn he expected the Facebook feeding frenzy from the start.

Wish I'd done it.

4
0
Anonymous Coward

Re: dot-bomb v2.0

It's all based upon a graph showing advert revenues increasing. At the moment they don't bring in that much ad revenue compared to the big boys, but if they are creative they can increase that.

Of course the real problem is doing so without annoying people and I recently had a message from HP Sauce about something and then though "I don't remember Liking that". It's going to be pretty hard to show more adverts. If they solve that problem then they'll have a bright future.

0
0
Pirate

Re: dot-bomb v2.0

Isn't that the sort of misleading graph that led to dot-bomb v1.0? Extrapolating to infinity on the blithe assumption that the money will just keep rolling in?

A fair point about pushing more ads, but there will surely come a point where users - even teenagers - will get tired of the gaudy crap. When the ratio of revenue to advertising becomes uneconomic, tat peddlers will have to look at other channels.

And that's without handy little utilities like AdBlock doing the rounds. And perhaps folks like me, with some modest technical ability, access to tools like LoadRunner and a dislike of intrusive pay-per-click ads.

0
0
Silver badge

Investers' failure

I thought there was a simple rule for investments: buy stocks of business which you understand.

$38 for one share of FB - valuing it at over $100b - somewhat shows that those who paid that price do not understand FB's business model and prospects. Surely, there were/are some market participants having their own agenda, trying to manipulate the price... But I do not pity those who lost money with farcebook shares nor those buying now, who will lose it in the future.

Free market is such a beautiful thing. Especially when it hits the stupid. There's no one else to blame.

2
0
Holmes

Re: Investers' failure

Why is it an investors failure?

Weren't Morgan Stanley, Morgan Stanley, JP Morgan and Goldman Sachs, the underwriters for the IPO, also running roadshows for the IPO as well, telling everybody that FarceBook was well worth $38 a share. I'm sure that was good advice for such reputable and upright firms.

Oh Hang on, Goldman Sachs, aren't they the same people that helped Greece cook the books when they joined the EU and shorted their own (sub-prime) mortgage backed financial derivative products into the market?

I think I see what the problem may have been....

4
0
Silver badge

Re: Investers' failure

Acting upon the advice of the IPO underwriters is worse than believing what a used-car dealer tells you. With the used car you may at least get some warranty. It all falls back to investors' failure. But I guess, Von Krakenfart, I wouldn't need to tell you.

1
0
Silver badge

Re: Investers' failure

To fiddling Greek finances to get them into the Euro and scandals in the sub-prime mortgage derivatives, you'd better add the war in Lybia. The Libyan government was persuaded by the US and Goldman Sachs to invest $1.3 billion with them. Which they promptly lost 98% of on bad investments. They were forced to negotiate a compensation scheme which would have allowed Libya to purchase $5bn of preferred shares in Goldman Sachs. That was in January 2011. Imagine - Libya having a significant influence in one of the USA's most prize corporations! A month later the Libyan government was declared illegitimate by the West and their funds frozen. Think the Libyan people saw their money again? No, nor do I.

Goldman Sachs. Not just fraud, but war profiteering too!

1
0
Thumb Up

Re: Investers' failure

There should be zero incidents of professional investors having lost money, sadly I expect this is far from the truth. I can imagine fund managers of high risk, longer term funds (and I mean only those specifically advertised as such) starting to think about it now or in the coming months, but if you bought at $38 you're in the wrong job.

0
0
Anonymous Coward

Well maybe it's a good thing...

Well maybe it's a good thing, those stupid enough to buy the overpriced shares based on nmothing but hype rather than fundamentals deserve to lose their money - oh wait, that was my pension fund manager, dam.

7
0
WTF?

Failure?

I think the Facebook sale achieved exactly what it was supposed to, ie hoover up lots of lovely money for the early owners. Expectation management would have scuppered that plan.

11
0

Facebooks actual failure.

Most people are uninteresting and boring and they don't care for ads. Zuckerberg took you for suckers, yet you're still suckling from his bottle of promise.

The Evil Auditor is right, a fool and their money deserve to be parted, given how many of these people are professionals in their supposed field it shows just why we are in the state we are in worldwide.

2
0
Anonymous Coward

Oh there it is...

"Open ... And Shut Apple has become the world's most valuable company by filling us with childish wonder at (and ravenous lust to buy) its Jesus phone, but Facebook seems sure to surpass Apple's $350bn-plus market cap by providing the social fabric for all internet traffic."

http://www.theregister.co.uk/2011/10/21/apple_vs_facebook_smartphone/

10
0
Silver badge
Happy

Re: Oh there it is...

Nice find.

If you had followed the 'Matt Asay Guide to Investing' - short Apple and buy Facebook - you would not be reading this, for you would be destitute.

6
0
Anonymous Coward

Re: Oh there it is...

That comment was so ridiculous and over the top that it still sticks out in my head whenever I read Matt's column.

It's even more amusing that he mentions P/E ratios here. A $350bn Facebook would have had a P/E ratio of 82. P/Es like that don't exist - for long at least - in the markets.

5
0
Bronze badge

Re: Oh there it is...

Err, no. At $350 bliilion Facebook would have a price /revenues thingie of 82.

It already (or at least did have) a price/earnings of 80 or so.

1
0

It's there?

I thought it was here:

http://www.theregister.co.uk/2011/07/09/facebook_trillion_dollar_valuation/

As Matt so eloquently says, whoever wrote that article should be ashamed of talking up the value of nascent companies before they're ready to deliver.

Oh, wait...

10
0
Trollface

Re: Oh there it is...

Oh yes, you can hear the breathy cheerleading even now. Nero had nothing on this one, and there are loads more out there bleating away on Twitter, blogs and the rest..

It's the whole culture of relentless happy clappy positivism regardless of reality that get's my goat. Dim Day traders deserve all they got (or rather, lost), but like others here have said, it's easy (and fun) to mock, but what about our pension funds?

That Steve Jobs has sooo much to answer for, bloody trendy dressing git b*******d tech evangelist type person....

1
0
Anonymous Coward

Re: Oh there it is...

Except he also mentions linkedin, implying it's more stable, with a P/E of 575 (really) right now.

3
0
Silver badge

Re: Bernard

Read the first commenter (bojennett) on that article you referenced, who said the following on the 9th of July last year:

"The only reason it hasn't gone public yet is because Goldmann Sachs has not hyped up the investment enough so that they can make kajillions of dollars off of the IPO, leaving the rest of the folks holding the bag. Once they get that right, FB will go public, will soar on the first day, and then crash hard."

Substitute Morgan Stanley for Goldman Sachs and that basically hit the nail on the head. Indeed, most commenters thought Mr. Asay was talking complete shite.

4
0

Re: Bernard

Looks extremely prescient. Full marks that man/woman/rogue AI (delete as applicable).

I suspect that the moral hazard effect doesn't just apply to the bank though. It won't have escaped anyone's notice that journalists tend to be gung ho to the point of inanity in their upward estimations of dotcom stocks while being extremely careful with their language in any rare stories daring to whisper the possibility of a bubble.

I suspect that being gung ho raises the likelihood of junkets, speaking invitations and PR puff-piece articles while being sceptical raises the likelihood of going hungry. Because noone wants to look stupid, though, wise-after-the-fact articles like this are put out to muddy the water over your position once everything falls in a heap so that you can smoothly jump on the next bandwagon.

Matt's understanding of business fundamentals looks shaky at best from the articles I've read, but I don't think it's really shaky enough to value Facebook above Apple or Google. I suspect that he wanted a share of the PR money they were squirting out to keep the brand on the road pre-IPO.

Whether corruption is better or worse than stupidity is a seperate question entirely...

1
0
Anonymous Coward

Re: Tim Worstal

My calculation was done in 2011 so most likely done against an estimate for FB's 2011 revenue. What I can find now is that according to this 2011 revenue was $3.7B... which would mean Matt's theoretical $350bn Apple equivalent market for Facebook vs. actual 2011 revenue would yield a P/E of 94.6 - so I must have used an overestimation for 2011 earnings when I calculated 82. I could also have botched my math - that's always a possibility too : )

*Current* market cap vs. 2011 revenue would give a P/E of 15... which isn't too shabby if they could have kept their revenue up to what they did last year.

Since they are currently showing as having a P/E of 83.38 against a market cap of $55.7bn . If my math is right... that would mean their earnings are now calculated at $668M down from last year's $3.7B !?

Eeeek!

0
0

Re: Tim Worstal

P/e is based on profits ('net earnings' in the chart you link to). Revenue is the sum total of money coming in, and so the revenue number doesn't automatically tell you how much profit a company are earning.

Price to revenue is a metric which is principally used by dot com hucksters to try to hide the fact that the firms they're pushing are usually drowning in red ink. If you tried to measure any normal company using it then you'd find a ratio in the low single digits (Apple's is a bit over 3, for example).

Facebook aren't drowning in red ink, and actually do make a profit. It's just not anything like big enough or growing anything like fast enough to warrant the valuation it has.

They're far from the scariest company to be invested in though. Linkedin's p/e and p/r ratios are absurd, and Salesforce are valued at $19Bn despite running at a loss and having annual revenue just over $2Bn.

The only reason not to short those two is that if the sheep keep plowing in (on the back of glowing analyst recommendations), then you might be bankrupted before someone spots that the emperor has no clothes.

1
0
Anonymous Coward

Thanks Bernard

Was calculating based on gross earnings (i.e. revenue) instead of net (profit). Big difference : )

That said, 2011 profit for FB was $1 billion and they are currently showing as roughly 2/3 of that. Any idea if that was a drop in revenue, or the Instagram acquisition?

0
0

Re: It's there?

Yes! That was the one I remembered and I was looking for.

Looking back on it now, I like Asay's comment in the middle: "Facebook's current valuation of roughly $75bn is almost certainly too low"

I remember I wrote a comment to that article too about the consistent inanity of Asay's writing, but it got deleted by a moderator I guess.

2
0
Bronze badge
FAIL

bigger problems

Facebook has a bigger fundamental problem, which is that its financial model is doomed.

FB's main revenue is advertising. But it's not based on sound economics of selling stuff, it's more about the vanity of businesses wanting to look more popular than they are. The Facebook 'shill' is basically this - advertise to get your number of 'likes' up and make your site look busy and happening. You won't get any extra business, but you'll make that little lonely 'LIKE' button on your site look a bit more happening if you have 1000 'likes' instead of 32.

To make it nice and easy, they even have an ad-targeting setting (I paraphrase it, but it is basically this): "target this ad to morons who click 'LIKE' on absolute everything"

So even FB knows that a significant amount of its revenue is just advertisers wanting to boost their 'LIKE' count, regardless of whether the people doing the clicking are actually the target market or not.

That is not a sustainable business, it is a fad.

10
1
Silver badge

Re: bigger problems

If Facebook had been a fad, it would have been gone before I became aware of it. I actually expect the mobile market that is supposed to be eating their lunch as the more fad market. I gave it a go for a year and a half, then dumped it because I've got better things to do with $100+/month.

FB is here, it serves a purpose for millions of people even if you aren't one of them, and that in and of itself makes it likely to survive in some form. Their problem for the moment is working out the mechanics of monetizing it so the business remains sustainable. And even if they manage that, it isn't at all apparent they will make the sorts of money they were hyped to make.

0
1

Re: bigger problems

I rather suspect what cap'n actually means is not that facebook will disappear (it won't), but that it isn't sustainable at its current level.

Myspace was incredibly popular. It still exists and has apparently grown a little again post sale and re-branding, but it had to fall a very long way before that happened..

Ditto friendsreunited. Still alive, but look at the losses.

0
0
Silver badge

No mea culpa?

I seem to remember a certain columnist jumping on the bandwagon and trying to justify the silly valuation...

Still, that must have been, oh, months ago.

5
0
Silver badge

Promising businesses!?!?!

The ponzi scheme that is Groupon is anything but a promising business.

Zynga is an overvalued one trick pony that is beholden to Facebook and the whims of a fickle game playing public who will drop them for the next cool thing in a heartbeat.

I've never heard of Jive but since you describe it as "with red ink all over its books" then it definitely isn't worth $1.6bn.

These aren't promising businesses, at best they're a bubble waiting to pop and at worst they're scams waiting for the perpetrators to cash out.

7
0
Anonymous Coward

SHARES

OMG I GOT A PAYDAY LOAN TO BYE SOME SHARES IN FACEBOOK AFTER ALL MY MATES TOLD ME IT WOULD BE LIKE GOOGLES IN HALF THE TIME NOT ONLY THAT I HAD HOLIDAY MONEY SAFED UP WHICH I SPENT AN ALSO SOLD MY DAUGHTERS XBOX YOU CAN IMAGINE HOW SHE FELLS ABOUT IT NOW I HAVE LOST LOADS AND THINK PEOPLE LIKE ME SHOULD DEMAND A.N.S.W.E.R.S

6
4
Silver badge

Re: SHARES

You posted that same comment on the last Facebook story. It was about as funny as cotdeath then, too.

10
2
Facepalm

Re: SHARES

I really hope OP is trolling. If not, this is just depressing, because the correct response to playing with fire & getting burned is not getting angry with the fire.

2
1
WTF?

Re: SHARES

Troll alert? Surely you cannot be serious.

2
1
Bronze badge

Children in Sweetshops

The trading around the Facebook IPO reminded me on young children in a sweetshop with holiday money. The traders displayed the same sort of financial acumen.

The children spent rashly and quickly, disregarding (if they even knew) what was good for them. They bought on impulse and spent all that they had. They then gorged on the sweets and were unpleasantly surprised when they complained the next day of stomach-ache and lack of sleep.

I suppose that one could say that the moral of the story is not to buy sweets from strangers, but, the sweeties seemed so nice...

1
0
Bronze badge
FAIL

Disingenuous would be a kind word for this

Poor old facebook forced to an IPO?

What utter garbage - Facebook went for IPO cos the people who own it wanted to grab some cash.

Underwriters hemmed in by secondary markets? Complete drivel. Secondary markets on a non-public company don't make the underwriters decision for him - and if it does he shouldn't be cleaning the toilets anywhere near Wall Street - in fact - if he is shown to have done that then the people suing him will almost certainly win. It would be like saying he based his price on his horoscope. There may even be a criminal offence in there somewhere.

The bottom line is the people FB needs to even start developing a real profit line are getting their numbers back telling them that it doesn't deliver what they need - its just a bunch of people wasting time on the web and you are better spending your - what was it now? - oh yes - "comparative pittance of $10m" on "blaring ads generically on TV and billboards". The market isn't going to play nice with people with a vague idea to get into "the social conversation between friends" and maybe somehow make some money in about a hundred years. I suppose when you can lose £50bn in a couple of weeks £10m might be a pittance but hoping people keep making multi-million dollar bets based on no evidence at all isn't a business model - it's a gambling addict's mantra.

3
0
Silver badge

no news here

Markets have been doing this since there were markets. its a fundamental property of the system

and there are more than enough idiots like matt so impressed with their own cleverness that i daresay

it will happen again.... soon

listening to market experts is like listening to gambling addicts. everyone else is a fool taking risks ,but they have a system. sad really

5
1
Anonymous Coward

closer to home - look at Apples investment in IMG

As I write this...blah blah

IMG has a P/E (ttm) of: 8,249 on a price of 470p

they make bits for apple etc

if an average p/e of 15 is ok, the price will either have to be

470* 8249/15 = 258469p = £2,546.89

or earnings will multiply in next few weeks by 8249/15 = 550

puurfect place for your savings - I will be happy to charge you 10% of your investment for my advice

Signed..

the Banker..

0
0
Facepalm

Stopped reading when you said Groupon is a promising business!

5
0
Silver badge

Several things wrong with this article...

FIrst off is the entire premise: that it is a failure on Facebook's part that it is overvalued. On the contrary, it is a great success on the part of the original owners who just IPO'd that people were willing to pay so many times what the company was actually worth. That translates directly into more money for them. That the price is falling steadily from there is a shame for them, but a better scenario than starting off down there.

Secondly is the part about investors hoping to make their money back from company profits. Some very silly investors conceivably might have done. But the vast majority of investors bought into it thinking they would sell at a profit when the stock had risen. And everyone of them thinking they would be smart enough to do so before everyone else.

Thirdly, the line about Facebook being an exceptional company that is doing quite well. That's open to some significant examination. Exceptional - yes, in the sense of being almost unique. But so far its revenue stream has been pretty poor considering the amount of outlay. It has been existing so far primarily on the belief that no company can have such a huge number of users and not be a goldmine. But can they actually start plucking that cutting up that pig without the pig squealing and running away. That is the big question. And I think the answer is more no than yes.

It reminds me of the old joke about the businessman who sells things for £3 that cost £4 to make. When asked how he makes a profit, he replies: "I intend to sell a lot!"

10
0
Anonymous Coward

+1 Insightful: Several things wrong with this article...

Good post, really.

"It reminds me of the old joke about the businessman who sells things for £3 that cost £4 to make. When asked how he makes a profit, he replies: "I intend to sell a lot!""

"We lose money on each unit but we make it up in volume!"

4
0

Page:

This topic is closed for new posts.