Facebook IPO

jkimcpa said:   With a $100b market cap you can print money and do whatever you want.

So? You can do anything at Zombocom.

Hype is what fuels this estimated market cap. Remember when every national brand put an AOL keyword on every TV commercial and package because AOL was the entire Internet for the masses? No? Most people don't.

This too shall pass.

luckybob04 said:   While I agree companies have their day in the sun and will someday fade away, I don't think comparing Facebook to AOL's fate is a fair comparison. A couple of points:

1) Switching search engines (in the grand scheme of things) is easy. But social networks are different in that the experiences of users are intertwined with the experiences of other users. That makes it more difficult to leave. If I wanted to use a Facebook competitor, I would have to convince my friends and family to use it as well...no easy task, especially since 2) Facebook has done what other social networks before it failed to do: Convince the populace that FB is THE place to connect with people on the Internet. 3) Sure, it can be copied. It has been. Google+ has tried. So far, it has garnered a fraction of the users. Just because something can be copied doesn't mean people won't stop buying it or using it.

That being said, this IPO will be hyped big time. (Oh, and I personally would love to see a legitimate competitor to Facebook/Google+ with a track record of adequately managing the privacy of its users. Just sayin'.)
1) Switching search engines (in the grand scheme of things) is easy. But social networks are different in that the experiences of users are intertwined with the experiences of other users. That makes it more difficult to leave. If I wanted to use a AOL competitor, I would have to convince my friends and family to use it as well...no easy task, especially since 2) AOL has done what other social networks before it failed to do: Convince the populace that AOL is THE place to connect with people on the Internet. 3) Sure, it can be copied. It has been. Google+ has tried. So far, it has garnered a fraction of the users. Just because something can be copied doesn't mean people won't stop buying it or using it.

There, I just replaced FB with AOL in that second paragraph of yours. Remember how AOL was proprietary and had everyone locked in?

Could they stay around for a long time? Maybe. But your argument about Facebook was the exact argument about AOL.

kamalktk said:   luckybob04 said:   While I agree companies have their day in the sun and will someday fade away, I don't think comparing Facebook to AOL's fate is a fair comparison. A couple of points:

1) Switching search engines (in the grand scheme of things) is easy. But social networks are different in that the experiences of users are intertwined with the experiences of other users. That makes it more difficult to leave. If I wanted to use a Facebook competitor, I would have to convince my friends and family to use it as well...no easy task, especially since 2) Facebook has done what other social networks before it failed to do: Convince the populace that FB is THE place to connect with people on the Internet. 3) Sure, it can be copied. It has been. Google+ has tried. So far, it has garnered a fraction of the users. Just because something can be copied doesn't mean people won't stop buying it or using it.

That being said, this IPO will be hyped big time. (Oh, and I personally would love to see a legitimate competitor to Facebook/Google+ with a track record of adequately managing the privacy of its users. Just sayin'.)
1) Switching search engines (in the grand scheme of things) is easy. But social networks are different in that the experiences of users are intertwined with the experiences of other users. That makes it more difficult to leave. If I wanted to use a AOL competitor, I would have to convince my friends and family to use it as well...no easy task, especially since 2) AOL has done what other social networks before it failed to do: Convince the populace that AOL is THE place to connect with people on the Internet. 3) Sure, it can be copied. It has been. Google+ has tried. So far, it has garnered a fraction of the users. Just because something can be copied doesn't mean people won't stop buying it or using it.

There, I just replaced FB with AOL in that second paragraph of yours. Remember how AOL was proprietary and had everyone locked in?

Could they stay around for a long time? Maybe. But your argument about Facebook was the exact argument about AOL.
AOL was a social network? Prodigy? Earthlink? I used all three back in the day. There was no hook to keep you at one place. Also 1 in 6 people on Earth didn't use AOL.

Side note: why won't people and businesses switch away from Microsoft Office? Open Office does the exact same thing and it's free, yet we pay hundreds of dollars on Microsoft.

svr411 said:   jkimcpa said:   With a $100b market cap you can print money and do whatever you want.

So? You can do anything at Zombocom.

Hype is what fuels this estimated market cap. Remember when every national brand put an AOL keyword on every TV commercial and package because AOL was the entire Internet for the masses? No? Most people don't.

This too shall pass.
I take it you're 40+? Possibly even over 50?

jkimcpa said:   kamalktk said:   luckybob04 said:   While I agree companies have their day in the sun and will someday fade away, I don't think comparing Facebook to AOL's fate is a fair comparison. A couple of points:

1) Switching search engines (in the grand scheme of things) is easy. But social networks are different in that the experiences of users are intertwined with the experiences of other users. That makes it more difficult to leave. If I wanted to use a Facebook competitor, I would have to convince my friends and family to use it as well...no easy task, especially since 2) Facebook has done what other social networks before it failed to do: Convince the populace that FB is THE place to connect with people on the Internet. 3) Sure, it can be copied. It has been. Google+ has tried. So far, it has garnered a fraction of the users. Just because something can be copied doesn't mean people won't stop buying it or using it.

That being said, this IPO will be hyped big time. (Oh, and I personally would love to see a legitimate competitor to Facebook/Google+ with a track record of adequately managing the privacy of its users. Just sayin'.)
1) Switching search engines (in the grand scheme of things) is easy. But social networks are different in that the experiences of users are intertwined with the experiences of other users. That makes it more difficult to leave. If I wanted to use a AOL competitor, I would have to convince my friends and family to use it as well...no easy task, especially since 2) AOL has done what other social networks before it failed to do: Convince the populace that AOL is THE place to connect with people on the Internet. 3) Sure, it can be copied. It has been. Google+ has tried. So far, it has garnered a fraction of the users. Just because something can be copied doesn't mean people won't stop buying it or using it.

There, I just replaced FB with AOL in that second paragraph of yours. Remember how AOL was proprietary and had everyone locked in?

Could they stay around for a long time? Maybe. But your argument about Facebook was the exact argument about AOL.
AOL was a social network? Prodigy? Earthlink? I used all three back in the day. There was no hook to keep you at one place. Also 1 in 6 people on Earth didn't use AOL.

Side note: why won't people and businesses switch away from Microsoft Office? Open Office does the exact same thing and it's free, yet we pay hundreds of dollars on Microsoft.
Remember when you exported all your AOL email when you left them? No, because you couldn't, it was proprietary. Remember when you could just use any IM and talk with AIM? No, because it was proprietary and AOL blocked you. Remember all that content on AOL's proprietary network? Yeah, you probably do. Remember in 2001, when around 8-10% of the world's internet connected population paid money every month for AOL?

AOL had roughly 27 million US subscribers in 2001, when the total US online population was 142,823,008. That's 1 in 5 Americans. Sources: Text and Text

Why did I just give the US numbers? Having 1 in 6 of the globe's population doesn't help lock-in. I doubt most people give a hoot what people in other country's use (doubly so if they don't speak the language). Google's Orkut is massively popular... in Brazil. People care what those around them are in, and that makes the lock-in effect of the social network a national or language limit for most everyone.

Yes, AOL was a social network. They were one of the first ones.

MS Office is a side note, like you said. It's targeted for business, not consumer use. Ditching a social network won't cost you your job if things go wrong.

jkimcpa said:   AOL was a social network? Prodigy? Earthlink? I used all three back in the day. There was no hook to keep you at one place. Also 1 in 6 people on Earth didn't use AOL.

Side note: why won't people and businesses switch away from Microsoft Office? Open Office does the exact same thing and it's free, yet we pay hundreds of dollars on Microsoft.

More than 1 in 6 people used AOL during its heyday. It kept people seemingly locked in for both the access itself as well as the services which went along with it (email, IM).

Back then, AOL had a much tighter grip on its users than Facebook does today.

The Facebook killer will be mobile apps which abstractify away how the person to person communication is handled.

How much brand equity does Facebook have? The positives think its merely cool, many people hate it but put up with it out of necessity, and others abhor its practices. You don't have a ton of people who will stand with the brand itself like with Pepsi or Budweiser.

Stop thinking of Facebook as a brand and start thinking of Facebook as a protocol. Ordinary eople care about the data itself, not how it gets from point A to point B.

Even if mobile apps continue using Facebook as the protocol that will severely cut into their ad impression inventory. A protocol for moving data around is not worth $100 billion.

People are rapidly switching away from Microsoft Office. Did you miss Google Apps? Have you seen all of the Office-free smartphones and tablets? The future of licensed, end-user copies of Office is in the enterprise field, which is a huge loss from its near stranglehold over the family and SOHO market.

And for all the people who are arguing about whether Facebook is AOL or not. You should read "Information Rules" by Shapiro and Varian. You would really understand that while technologies themselves are new and changing, the economic forces behind technologies repeat over and over and over again.

I was the only person that had AOL amongst my friends who even had access to the internet. Others used non-AOL dialup and used ICQ to communicate. My life was not vested in AOL so I switched away easily when cable internet became available.

My life is more or less vested in Facebook. All my photos, my friends photos, my kids photos, videos, etc, are on FB. I don't even keep them on my HD anymore. I just don't see the comparison to AOL. I guess time will tell who's right.

Hunter111 said:   to the OP's question: check out ticker GSVC
i forget how much facebook they own, but you can buy them right now.

Thanks Hunter for the hint. Might be late to the party on this one too. It popped 20+% on Friday.

Personally I think Facebook is a worthless company as an investment. People only use their products because they are free... and that is bad news for shareholders trying to generate wealth over the long run.

People said the same thing about Google. How'd that work out?

I have read many posts saying 700-800 million users on FB. I dont know what the source is and am not necessarily disputing it (I just dont know). More importantly, how many of those accounts are actually "active." I am sure at least some here have a zombie account on FB. Is there any reliable number?

uutxs said:   I have read many posts saying 700-800 million users on FB. I dont know what the source is and am not necessarily disputing it (I just dont know). More importantly, how many of those accounts are actually "active." I am sure at least some here have a zombie account on FB. Is there any reliable number?
http://www.facebook.com/press/info.php?statistics

People on Facebook
More than 800 million active users
More than 50% of our active users log on to Facebook in any given day
Average user has 130 friends
Approximately 80% of users are outside of the United States (so 160 million FB users in US - half the population)

lampy2k4 said:   jkimcpa said:   Side note: why won't people and businesses switch away from Microsoft Office? Open Office does the exact same thing and it's free, yet we pay hundreds of dollars on Microsoft.
Lots of people and companies do - for example, to Google Apps. I haven't used Microsoft Office in many years, and I stopped installing OpenOffice a couple years ago. Our entire company uses Google Docs and I couldn't possibly look back to emailing documents as attachments. Microsoft knows this which is why they have Office 365.

svr411 said:   More than 1 in 6 people used AOL during its heyday.
1-in-6 of people in United States. That's just "a bit" different from Facebook's probably 15% of world population, or likely over half of population of most developed countries.
Eeks...my productivity would drop severely if I had to rely on Google Apps (with my primary weapon being Excel). Hell, I can barely stand remotes apps (which I would imagine the performance being similar to Office 365)...which I use multiple instances of to run queries outside my machine.

svr411 said:   Most Office users don't go much further than typing up memos or writing basic email. An Excel-heavy CPA is not the norm.I would say 90% of a typical public accountant and corporate accountant's eyes are glued to Excel spreadsheets, 5% in Outlook, 5% other. I am neither, but have been there.

jkimcpa said:   stanolshefski said:   Facebook tried to compete with Google in messaging, and failed as well. Zuckerberg tried to position their revamping messaging tool (http://www.allfacebook.com/live-from-facebooks-massive-messaging... as a direct competitor to Gmail/Gtalk/Google Voice, and Facebook flopped big.

The simple fact is that it's hard to unseat the leader in a tech category you usually have to offer both a better product and catch your opponent off guard (see Facebook/MySpace and Apple/RIM).

I would hardly call FB messaging a failure...in fact I could even see them dominating messaging in the future. Gen X/Yers and prior use AIM/Yahoo/GT, but my 14 year old cousin has no need to use anything other than as all her friends use FB (along with 1 out of 6 humans on Earth). No need for signing up for email either.

Facebook could overtake everyone else when it comes to messaging, but the current messaging product sucks. For example, threading every message with the same person -- no matter the topic -- into one conversation makes it next to impossible find something in the past. In addition, the messaging product has either no search or highly ineffective search -- try finding the name of the restaurant that your buddy recommended two months later, it's impossible.

Also, at least as of right now, you are required to have an email address to sign up for Facebook. That could always change -- for example, they could tie your account to a mobile phone number -- but for now its how it works.

For years, I've heard a lot of people says that some technology was going to replace email but -- every time -- those proclamations have proven wrong.

As a digital marketer, one thing I always keep in mind is that I can likely find a customer/lead/prospect/user/supporter on any social network once I know their email address. Email addresses are the hub of the social internet, because you are generally required to have one before you can sign up for any service.

NoKnownPurpose said:   FB has a revenue model. They are estimated to generate $5.78B in revenue in 2012. In my mind, the question isn't whether they can generate revenue, clearly they can, but will that revenue ever be great enough to justify a $100B market cap. I tend to think no, even though they will probably reach that. As someone above mentioned, it will be a great short.

samiam68 said:   Why would anyone buy FB shares? The company produces nothing, has no revenue model, and is considered by many to be just an annoyance, similar to AOL/AIM, not to mention a privacy/security nightmare. This annoyance will soon be replaced by some other "fad". Remember when AOL was "hot"?

As I posted above, I'm a little leery about Facebook's ability to grow revenue at the rate they have been, because they've already added as many ads per page as can possibly be displayed.

I think their best bet to increase revenue is to build an advertising network like Google did with AdSense, and to leverage their user data to charge an advertising premium.

stanolshefski said:   As a digital marketer, one thing I always keep in mind is that I can likely find a customer/lead/prospect/user/supporter on any social network once I know their email address. Email addresses are the hub of the social internet, because you are generally required to have one before you can sign up for any service.

Excellent observation.

As the average level of tech savvy grows, and historical experience mounts, more and more people will be pushing back against purveyors of advertising garbage. The ability for marketroids to link a person's entire digital life together is becoming a growing anti-feature in the minds of more and more users.

Many casual users will disengage Facebook over the growing creep factor. Just wait until what people like on Facebook starts driving the television commercials they see - and it will, because you guys have no limits and no shame - the pushback will finally be severe. Just wait until they start selling facial biometric points to the operators of the new facial recognition systems going in grocery stores.

The Facebook concept - free, petty distractions in exchange for total self-surveillance - will meet resistance once the novelty of the site wears off.

stanolshefski said:   As I posted above, I'm a little leery about Facebook's ability to grow revenue at the rate they have been, because they've already added as many ads per page as can possibly be displayed.

I think their best bet to increase revenue is to build an advertising network like Google did with AdSense, and to leverage their user data to charge an advertising premium.

Then they will grow revenue by selling data out of the network.

Zuckerberg (and his counterparts at Google) truly, deeply believe that privacy is an obsolete notion. They see value in sharing with the whole world, advertisers included, what song you were listening to at 8:13 PM on July 17, 2008, how many times you listened to it before, and since then, and everything else conceivable.

There is a shark jumping moment in there somewhere. I'm not sure what it will be, but they will eventually push too far. Maybe it will be when Facebook preferences jump into personalized television commercials. Perhaps it will be when the local police save us all from terrorists by trawling through private pictures to find and arrest everybody holding a bong. It might be when physical junk mail tries to become your friend.

How might things decline?

a) People clean up their pages so much they become like biographies on Realtor sites, fully polished yet devoid of any substance. Nobody reads them.
b) The information overload reaches a level of such absurd pointlessness that it becomes Myspace all over again.
c) People no longer find the privacy cost worth the minor benefit of receiving photos or invitations in a new way.
d) The sharing paradigm diminishes, with more and more content being produced by a shrinking proportion of attention whore users, and a growing proportion being on the site only to read. Less saleable information is collected.
e) What people did on Facebook becomes a native feature of their phone. If Facebook is worth $100 billion imagine what AT&T is worth if it writes some social networking code and pushes the limits of antitrust.

The market cap will be based on lofty, heavily forward looking expectations. It's hard to justify that when there is only so much further the total creepiness and control can advance, yet so many reasons why people will be fed up.

svr411 said:   stanolshefski said:   As I posted above, I'm a little leery about Facebook's ability to grow revenue at the rate they have been, because they've already added as many ads per page as can possibly be displayed.

I think their best bet to increase revenue is to build an advertising network like Google did with AdSense, and to leverage their user data to charge an advertising premium.

Then they will grow revenue by selling data out of the network.

Zuckerberg (and his counterparts at Google) truly, deeply believe that privacy is an obsolete notion. They see value in sharing with the whole world, advertisers included, what song you were listening to at 8:13 PM on July 17, 2008, how many times you listened to it before, and since then, and everything else conceivable.

There is a shark jumping moment in there somewhere. I'm not sure what it will be, but they will eventually push too far. Maybe it will be when Facebook preferences jump into personalized television commercials. Perhaps it will be when the local police save us all from terrorists by trawling through private pictures to find and arrest everybody holding a bong. It might be when physical junk mail tries to become your friend.

How might things decline?

a) People clean up their pages so much they become like biographies on Realtor sites, fully polished yet devoid of any substance. Nobody reads them.
b) The information overload reaches a level of such absurd pointlessness that it becomes Myspace all over again.
c) People no longer find the privacy cost worth the minor benefit of receiving photos or invitations in a new way.
d) The sharing paradigm diminishes, with more and more content being produced by a shrinking proportion of attention whore users, and a growing proportion being on the site only to read. Less saleable information is collected.
e) What people did on Facebook becomes a native feature of their phone. If Facebook is worth $100 billion imagine what AT&T is worth if it writes some social networking code and pushes the limits of antitrust.

The market cap will be based on lofty, heavily forward looking expectations. It's hard to justify that when there is only so much further the total creepiness and control can advance, yet so many reasons why people will be fed up.

They wouldn't sell data out of the network, they'd sell access to very targeted buckets of users. When you do this kind of marketing, the ad networks never tell you who you reach and who exactly took action to the ad -- mostly because they are trying desperately to keep the FTC and EU off their backs.

BEEFjerKAY said:   I can't think of any other major on-line service that had such strong incentives for massive alt-id abuse.

Perhaps Groupon with its poorly policed referral bonuses might be #2. Even then I'm not sure they would be anywhere near what went on at FB.

FB members cost FB roughly the same regardless of where they are located. Revenues are much more a function of where the member is located.

For some reason, high growth stats for low revenue locales doesn't impress me much.

Even if they prove to be successful long-term and avoid the CompuServe/Prodigy/AOL/MySpace endgame -- which I think is possible -- I'm going to keep them on my "potential short" list for the time being so long as their operational stats are so FUBAR.

Some Friday late afternoon they will come clean. Probably right before a 3-day weekend so it gets buried in the newscycle.FB's FS is not as hocus pocus as Groupon (if at all). Last I heard their 2011 run rate was $1b in GAAP net income with $1.6b pro forma EBITDA on $3.33b revenues. If they trade at $100b and get 40x EBITDA/EV valuation and 25x forward EBITDA/EV...it would be suicide to short it. Hell, if they open at $80b I'd be inclined to trade it long.