Possible Facebook IPO: History reapeating itself?
 

http://paul.kedrosky.com/archives/20...ok_ipo_wa.html

I don’t want to talk about whether or not you think Facebook will go public. Save that discussion for bbv4stockmarkets or something. For the purpose of this thread, let’s just assume they do.

A lot of people in the tech industry have been talking about whether or not we’re in a bubble right now. One of the most popular justifications for the late 2000’s being different than the late 1990’s is that the enthusiastic investments and high valuations have not spilled over into the public markets. Facebook has been the apple of Silicon Valley’s eye and Zuckerberg has resisted offers over $1 billion in the past. According to rumors they’re doing about $500 million in annualized revenue, but I don’t think they’re making a lot of profits, if any (someone correct me if I'm wrong, this is just based on old news and the fact that they recently did another round of funding).

I think that if we do repeat a bit of history this might be a moment people look back on and say “that was the beginning of the end.” Obviously that could prove to be a good observation or completely retarded. I wouldn’t be surprised if this leads to some other well known but currently private companies ended up going after public capital. I can't predict the future but this story I've concoted does start to sound a bit like 1998 all over again.

What do you guys think?

Re: Possible Facebook IPO: History reapeating itself?
 

People said the same thing about google going public. The thing is this time around the only companies going public seem to be the big ones that are well placed and making money or very close to it. It's a lot more conservative than in the past where it seemed every day companies that had barely rolled out their websites were going public.

What we do have that is reminding me of the last bubble is a shortage of developers and a big increase in payouts and perks to them(nice for someone like me).

I don't think we are entering a bubble so much as a realization that not all .coms are boo.com.

Re: Possible Facebook IPO: History reapeating itself?
 

I'd say instead of a tech bubble, its the opposite currently going on. People are overly cautious as the bubble is still fresh in their memories. It reminds me of stories about old timers in the 1950's who kept shorting any slight market downturn b.c. the depression permanently imprinted itself in their heads, and thereby could never make any money even while the times were booming.

Zuckerberg is not making any decisions at Facebook other than tech stuff, b.c. if he were, Facebook would already be sold. Instead, its a bunch of very moneysmart and bubble-experienced VCs / Peter Thiel, who would never have the balls to hold on given their experiences if there wasn't a very strong reason behind holding. Zuckerberg knows he has no idea how to price companies, especially when he sees 1990s Zuckerbergs walking all around him who fukked up valuations back in their day b.c. of their inexperience.

Re: Possible Facebook IPO: History reapeating itself?
 

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I'd say instead of a tech bubble, its the opposite currently going on

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Regardless of your conclusion I really can't see how this is possibly true, the companies raising 8 figures at hilarious valuations are just too common imo.

Re: Possible Facebook IPO: History reapeating itself?
 

Here is the "leaked" docs of how Yahoo arrived at a $1.6 billion valuation.

Project Fraterity

MySpace will disappear just as geocities did but Facebook is here to stay.

Re: Possible Facebook IPO: History reapeating itself?
 

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Here is the "leaked" docs of how Yahoo arrived at a $1.6 billion valuation.

Project Fraterity

MySpace will disappear just as geocities did but Facebook is here to stay.

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I was going to link to that Yahoo valuation but I decided to leave it out since there have been reports of other offers since then at higher prices.

As far as Myspace disappearing, that seems like a big claim. Personally I hate Myspace and I can't understand why anyone uses it, but I'd still be pretty surprised if it disappeared.

Re: Possible Facebook IPO: History reapeating itself?
 

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It reminds me of stories about old timers in the 1950's who kept shorting any slight market downturn b.c. the depression permanently imprinted itself in their heads, and thereby could never make any money even while the times were booming.



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Exactly what I think. I've never seen so many doomsayers and permabears before, from just hearing some of the talk, you would think we were in a depression.

Re: Possible Facebook IPO: History reapeating itself?
 

Yup. Lots more numbers thrown around since Yahoo's failed bid. But if you look at how Yahoo projected the growth and revenue, $1.6 billion isn't all that much especially since they've actually grown faster than originally projected by Yahoo.

Facebook is just very well done. From the photo tagging, to classifieds, to 3rd party applications on the newly launched F8 platform, it's just so much easier to use than MySpace. MySpace on the other hand chokes off 3rd party devs whenever they feel like it, is populated by a ton of spammers, and profiles look like ass.

By opening up their platform, I'm sure we'll soon see apps that allow college students to order food online (instead of going to another site, it'll all be on Facebook!), order all the books for your courses online, and etc.

A lot has changed since 2000. There are a lot more people online and people are generally more comfortable with buying stuff off the internet. I remember Webvan was a horrible failure but Fresh Direct today is a success.

Re: Possible Facebook IPO: History reapeating itself?
 

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It reminds me of stories about old timers in the 1950's who kept shorting any slight market downturn b.c. the depression permanently imprinted itself in their heads, and thereby could never make any money even while the times were booming.



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Exactly what I think. I've never seen so many doomsayers and permabears before, from just hearing some of the talk, you would think we were in a depression.

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When people are saying "Wow these valuations are getting really high and there's a ton of money being thrown around" you'd think we're in a depression? That actually sounds like the exact opposite of a depression to me.

Re: Possible Facebook IPO: History reapeating itself?
 

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It reminds me of stories about old timers in the 1950's who kept shorting any slight market downturn b.c. the depression permanently imprinted itself in their heads, and thereby could never make any money even while the times were booming.



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Exactly what I think. I've never seen so many doomsayers and permabears before, from just hearing some of the talk, you would think we were in a depression.

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When people are saying "Wow these valuations are getting really high and there's a ton of money being thrown around" you'd think we're in a depression? That actually sounds like the exact opposite of a depression to me.

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what I'm saying is that people are quite negative and skeptical of the general economy. Rarely do you hear anything positive even though things like internet marketing and the job market for college grads are booming. Everyone talks about housing and the middle class getting destroyed. I also hear a lot of talk from some friends in financial services about how their clients want to short every time the market goes down. That sort of thing never happened in the 90s. If you want a real laugh, you should go to elitetrader, a third of the threads there are people calling market tops everyday!

Re: Possible Facebook IPO: History reapeating itself?
 

I can't believe the number of people saying that the stock market is undervalued at this point due to the recent tech boom fiasco. Take a look at the S&P's current P/E ratio after normalyzing earnings then consider if you want to keep that conclusion.

Re: Possible Facebook IPO: History reapeating itself?
 

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It reminds me of stories about old timers in the 1950's who kept shorting any slight market downturn b.c. the depression permanently imprinted itself in their heads, and thereby could never make any money even while the times were booming.



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Exactly what I think. I've never seen so many doomsayers and permabears before, from just hearing some of the talk, you would think we were in a depression.

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When people are saying "Wow these valuations are getting really high and there's a ton of money being thrown around" you'd think we're in a depression? That actually sounds like the exact opposite of a depression to me.

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what I'm saying is that people are quite negative and skeptical of the general economy. Rarely do you hear anything positive even though things like internet marketing and the job market for college grads are booming. Everyone talks about housing and the middle class getting destroyed. I also hear a lot of talk from some friends in financial services about how their clients want to short every time the market goes down. That sort of thing never happened in the 90s. If you want a real laugh, you should go to elitetrader, a third of the threads there are people calling market tops everyday!

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Internet marketing is not something I'd really care about when we're talking about important economic factors. Internet advertising is going to be a long tailed business, a lot of the people that were making a ton on it a year ago are making nothing now. Just because anyone can make a blogspot blog and an adsense account doens't mean anything is booming. The middle class getting destroyed gets more attention than internet marketing for very good reason.

Re: Possible Facebook IPO: History reapeating itself?
 

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Facebook has been the apple of Silicon Valley’s eye and Zuckerberg has resisted offers over $1 billion in the past. According to rumors they’re doing about $500 million in annualized revenue, but I don’t think they’re making a lot of profits, if any (someone correct me if I'm wrong, this is just based on old news and the fact that they recently did another round of funding).


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The difference here is that if you are right, FaceBook has a hell of a lot of revenue and it's growing hella fast. I can't think of any internet startup that ever had that much revenue during the bubble other than Amazon, and Amazon's revenue was of questionable value (no margins).

Remember, the bubble got out of control when zero revenue companies were being valued at huge amounts because they were leaders in their "segment" and someday they'd figure out a business model and how to make money. Now it just seems like some companies have figured out business models and have revenues and possibly profits to show for it.

If Facebook does $1B in revenue in 2 years with 20% pretax margins (and strong future growth prospects), that's $200M. That's easily worth many billions.

We may later decide that Facebook et. al from this period were overvalued because it turns out their growth prospects weren't as shiny, or their business models not as profitable, as projected. But I doubt we'll ever regard this era as overvalued as 1998-99.

Think back to the railroads. In the middle 1800s they were the dotcoms, investors lost millions in trying to fund trains to anywhere. Eventually after enough failures the survivors became solid businesses as rational investment expectations, taught by the lessons of the first wave, took hold.

Re: Possible Facebook IPO: History reapeating itself?
 

OP I dont know why you would think one company valued at 2-3x revenues might be the start of another bubble.

The tech bubble had literally 100's of companies with little or no revenues financed with all VC money. Because nobody really understood the nature of the internet at the time, valuations were nearly impossible to make with any acuracy. Inv banks just bought into the idea, along with the public, that any company with a .com attached to it would be able to reach millions of more consumers and eventually be profitable. The "I dont want to miss this one (irrational exuberance)" mentality only added fuel to fire.

I think your comparing apples to Licoln Town cars.

Post deleted by Mat Sklansky
 

Re: Possible Facebook IPO: History reapeating itself?
 

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OP I dont know why you would think one company valued at 2-3x revenues might be the start of another bubble.

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Because revenues aren't inherently worth anything. If they're cashflow negative with 500 mil in revenue who the hell cares? Obviously if you think they'll figure out how to produce cash that's woth buying, but that's the sort of optimistic jumpt hat was made often in the late 90's. I'm not saying it will happen again, it's just a thought that I think warrents discussion.

Re: Possible Facebook IPO: History reapeating itself?
 

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OP I dont know why you would think one company valued at 2-3x revenues might be the start of another bubble.

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Because revenues aren't inherently worth anything. If they're cashflow negative with 500 mil in revenue who the hell cares?

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I'm curious how it's even possible to spend $500M operating facebook.

eastbay

Re: Possible Facebook IPO: History reapeating itself?
 

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OP I dont know why you would think one company valued at 2-3x revenues might be the start of another bubble.

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Because revenues aren't inherently worth anything. If they're cashflow negative with 500 mil in revenue who the hell cares?

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I'm curious how it's even possible to spend $500M operating facebook.

eastbay

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I don't have a clue. My guess is that the 500 mil is an annualized number based on last month's revenue and projected growth, if there's even any truth to it at all.

Re: Possible Facebook IPO: History reapeating itself?
 

Does the fact that certain companies are public while others not at certain times have any impact on anything?

Re: Possible Facebook IPO: History reapeating itself?
 

If they are doing $500 million in revenue I can assure you they are making a lot of profit. I've seen talks done by their developers and their systems are really well engineered. You're not going to be seeing a lot of wasted resources in that area. If they were spending over $150 million a year on infrastructure I'd be surprised(I'd be surprised at $100 million to be honest, even $50 seems high. They also aren't massive by headcount scales.

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Does the fact that certain companies are public while others not at certain times have any impact on anything?

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I have no idea what you are asking.

Re: Possible Facebook IPO: History reapeating itself?
 

If you read the version of Securities Analysis that was written in the 1930's you'll see Ben Graham write that "the end of bull markets can be seen when a wave of inferior companies sell their stock to the public." And that statement obviously could have been written in 2001 or any other bull market. I honestly don't know the merits of Facebook going public, but if it has $500mm in revenues then it is still not approaching what was going on 8-10yrs ago when you had crappy websites with a few million in revenues and huge losses going public and getting valuations in the hundreds of millions or more.

Could be that this time around the froth isn't in IPO's; we could very well look back in a few years and look at the froth being in LBO's and private equity and there may be a certain deal that stands out as being the sign of the top.

Re: Possible Facebook IPO: History reapeating itself?
 

i've read an article somewhere that facebook internally values their own company at 8 billion with projected revenues reaching $1b in 2010 or so...which may be why they're not selling.

but they're definitely not the beginning of the end...facebook is generally a scaleable business and the costs of running it can't be spectacularly high...i can't imagine that they're not raking in the cash big time. and with their expansion of the 65 companies ready to launch their applications, i can't see it not getting more engrained in our everyday lives on the internets. they also have a ton of stuff that they're experimenting with and not collecting revenue yet for.

Re: Possible Facebook IPO: History reapeating itself?
 

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facebook is generally a scaleable business and the costs of running it can't be spectacularly high...i can't imagine that they're not raking in the cash big time.

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Common opinion is that they're certainly not raking in the cash. They raised more venture capital recently.

Re: Possible Facebook IPO: History reapeating itself?
 

I have no idea how a website as successful as Facebook is could need venture capital. What do they need funds for?
Ad revenue could easily pay for servers bandwidth and an army of programmers.

Re: Possible Facebook IPO: History reapeating itself?
 

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facebook is generally a scaleable business and the costs of running it can't be spectacularly high...i can't imagine that they're not raking in the cash big time.

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Common opinion is that they're certainly not raking in the cash. They raised more venture capital recently.

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source? and what is the capital used for?

Re: Possible Facebook IPO: History reapeating itself?
 

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facebook is generally a scaleable business and the costs of running it can't be spectacularly high...i can't imagine that they're not raking in the cash big time.

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Common opinion is that they're certainly not raking in the cash. They raised more venture capital recently.

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Do you have a source for this? I know they took on VC when they were first growing super fast to help cover costs but I haven't heard of any recent rounds.

Re: Possible Facebook IPO: History reapeating itself?
 

Evan,

it was a good thought, but i think you're sticking to your guns too strongly in the face of strong evidence against your initial hypothesis.

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I can't predict the future but this story I've concoted does start to sound a bit like 1998 all over again.


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i think this is too strong a term.

i think more reasonably, P/E companies & VC companies have been awash with liquidity in the recent past and found some good business plans in which to invest some of that cash. myspace, facebook et.al. are the result of public contagion effects (luck) favoring the prepared (good business plans/company ideas w/ scalable businesses).

compare that to tons of compuglobalhypermeganets with no revenues, no business plan, no office, no employees, and no toilet paper going public week after week (hyperbole)

i think we are right now witnessing investor demand for tech companies that have caught the eye of good VCs & PE firms. the signs of a bubble just aren't there.

there are instances/occurances that could very quickly & harshly decimate the prices of risky assets, but none that i can think of trace their roots back to taking some tech companies public with not overly outlandish valuations.

can you provide evidence counter to my argument? feel free to critique my thoughts above and let me know if i've missed anything.

thanks,
Barron

Re: Possible Facebook IPO: History reapeating itself?
 

I also think the term bubble is thrown around too much, if you look at real bubbles(the .com boom being the latest one) people lose almost all their money and have no prospect of gaining it back. That was true with .com stocks, tulips, south sea shares, etc...There's nothing going on today that can be compared with real bubbles. There's always going to be excess somewhere but bubbles don't come around too often.

Re: Possible Facebook IPO: History reapeating itself?
 

I think if we start looking away from Facebook and at some of the other startups we start to see some strange valuations.

I'm still wondering how PhotoBucket got bought out at a reported $300 million. I can't figure out how MySpace plans to make enough money to cover the cost.

StumbleUpon is another strange one for me. I can't really figure out how StumbleUpon is worth ~$50mil to eBay. I've never once seen an ad for stumbleupon. Then again, eBay could be acquiring the technology for other uses.

Digg with a ridiculous 200mil valuation which is at least 65x rev and 400x earnings. Of course this reported by Business Week so it's probably full of [censored].

Of course YouTube's successful exit at $1.6bn made me scratch my head. Who really clicks those ads at the lower right corner?! But Google may have other plans.

And then there are all the crazy startups I read daily on TechCrunch that get funded for multiple millions. Some into 2nd and 3rd rounds of VC money.

So far none of these companies have been peddled to the public. So if the VC want to throw their money around then so be it.

Re: Possible Facebook IPO: History reapeating itself?
 

The funding I was thinking of was apparently 14 months ago. Jesus time flies sometimes. Anyway, that was $25 million and they had previously raised 12.5 mil, so the total is 37.5 over the last couple years. I was mistaken on the time frame. There was a rumor recently that the 25 mil was raised under "duress" because they desperately needed more servers and they had to sell off 10% of the company to get it. Facebook recently denied that rumor, it was originally reported by the London Times, so make of that what you will.

I think a lot of you are misunderstanding my point. I see a lot of people saying, "yea but last time all these stupid companies went public." Well yea, that's the point. Up until now these web 2.0 (or 3.0 or whatever term you like) companies had been staying private with their super high valuations.

Barron, I think you have a rose-colored view of how good the business models of a lot of companies getting VC funding are, but that's just my personal opinion. If you want me to provide evidence of companies raising way more money than makes any sense to me I can, but I don't think that's the point here.

maxtower, with all due respect, how could you possibly know how much facebook makes in ad revenue. All reports I've heard say that their target market (young adults) are actually performing worse than their already low expectations in terms of facebook advertising.

Hawk, I don't really care what term you use. Call it overenthusiastic investing for all I care.


To reiterate, I am NOT NOT NOT NOT NOT saying we're currently in a stock market bubble. I'm just doing a little bit of guesswork/storytelling to see if maybe we could be HEADED to one.

Re: Possible Facebook IPO: History reapeating itself?
 

evan,

i have no certain knowledgeof what is good/bad in terms of VC/PE firms investing. just the ones i've seen (the ones you mentioned, facebook/myspace) aren't like the 1998 events.

that was the point i was refuting.

i think we'll have the 'headed toward the bubble' route cut off as liquidity becomes less readily available. it is certainly possible that we are headed towards some market correction, but bubble i dont think so.

we just happen to have a ton of money available and are stretching for places to put it. as global real yields rise, they'rell be less money and those marginable valuations will be the ones that are first ditched.

Barron

Re: Possible Facebook IPO: History reapeating itself?
 

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evan,

i have no certain knowledgeof what is good/bad in terms of VC/PE firms investing. just the ones i've seen (the ones you mentioned, facebook/myspace) aren't like the 1998 events.

that was the point i was refuting.

i think we'll have the 'headed toward the bubble' route cut off as liquidity becomes less readily available. it is certainly possible that we are headed towards some market correction, but bubble i dont think so.

we just happen to have a ton of money available and are stretching for places to put it. as global real yields rise, they'rell be less money and those marginable valuations will be the ones that are first ditched.

Barron

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Myspace and Facebook are a pretty select group of private companies. Another big name private company, Amp'd Mobile, recently filed for Chapter 11 after having raise $360 million. Obviously this is all a matter of personal knowledge/preference, but read Venture Beat for a few days and I'm sure you'll find more than a couple stories that makes you scratch your head.

Edit: and again, I'm not saying Facebook and Myspace are "peack of the bubble" type" companies. That's the whole point. I'm saying this might be the VERY VERY early stages of something similar to that.

Re: Possible Facebook IPO: History reapeating itself?
 

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OP I dont know why you would think one company valued at 2-3x revenues might be the start of another bubble.

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Because revenues aren't inherently worth anything. If they're cashflow negative with 500 mil in revenue who the hell cares?

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I'm curious how it's even possible to spend $500M operating facebook.

eastbay

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it's easy. you pay freshly minted college grads $90k and hire devs from google/ms/yahoo by offering them ludicrous salaries.

Re: Possible Facebook IPO: History reapeating itself?
 

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OP I dont know why you would think one company valued at 2-3x revenues might be the start of another bubble.

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Because revenues aren't inherently worth anything. If they're cashflow negative with 500 mil in revenue who the hell cares?

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I'm curious how it's even possible to spend $500M operating facebook.

eastbay

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it's easy. you pay freshly minted college grads $90k and hire devs from google/ms/yahoo by offering them ludicrous salaries.

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I am positive facebook hasn't spent $500 million.

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OP I dont know why you would think one company valued at 2-3x revenues might be the start of another bubble.

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Because revenues aren't inherently worth anything. If they're cashflow negative with 500 mil in revenue who the hell cares?

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I'm curious how it's even possible to spend $500M operating facebook.

eastbay

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it's easy. you pay freshly minted college grads $90k and hire devs from google/ms/yahoo by offering them ludicrous salaries.

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even with 1000 employees (and i'm sure they have a fraction of this) at these salaries, that still doesn't cover $500m

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OP I dont know why you would think one company valued at 2-3x revenues might be the start of another bubble.

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Because revenues aren't inherently worth anything. If they're cashflow negative with 500 mil in revenue who the hell cares?

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I'm curious how it's even possible to spend $500M operating facebook.

eastbay

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it's easy. you pay freshly minted college grads $90k and hire devs from google/ms/yahoo by offering them ludicrous salaries.

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even with 1000 employees (and i'm sure they have a fraction of this) at these salaries, that still doesn't cover $500m

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They're not spending $500 mil. That's got to be a number based on recent history/projections. There's no way they've made even 10% of that in the last year.

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maxtower, with all due respect, how could you possibly know how much facebook makes in ad revenue. All reports I've heard say that their target market (young adults) are actually performing worse than their already low expectations in terms of facebook advertising.


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I just know that the guy who runs plentyoffish.com reportedly makes $10,000 per day running google adsense. He runs his site by himself. I know its probably not the same scale as Facebook, but it is the largest free dating website on the internet.

I just looked at Facebook's site and realized there aren't many ads. They just don't show them. I think they are trying to grow right now and not dilute the user experience with advertisements. However, it seems to me they are leaving a ton of money on the table by not running some small ads. I am very familiar with how internet traffic can be monetized, and huge margins are indeed possible when you have Facebook's traffic volume. I guess they are just choosing to sell more of the company than show a few ads to pay the bills.

Re: Possible Facebook IPO: History reapeating itself?
 

Evan,

You picked just about the worst possible example for this.

Facebook is a cash cow.

They raised VC money when they were scaling super fast and focused on just growing users and page views, and weren't worried about monetizing anything yet.

They have just started that process and initial numbers are pretty staggering. They have been widely reported.

Now with Facebook Platform they instantly have created one of the most locked in and strongest ecosystems in the internet business world to help fuel their growth.

Your whole thesis is so messed up it's barely worth discussing. There are many indicators that point to a possible bubble repeating past mistakes, and many indicators pointing to things being very different this time around. But the starting point of your discussions is just completely backwards and fundamentally flawed.

Your research, analysis, and commentary is very disappointing.

Re: Possible Facebook IPO: History reapeating itself?
 

Evan,

Read this: http://blog.pmarca.com/2007/06/bubbles_on_the_.html

Then see trackbacks and comments to read blog posts agreeing and disagreeing w/ Marc and related blog posts.

Then you'll be able to make a more informed post, including links to a lot of relevant posts on both sides of this debate.