Latepost Facebook In Addition To Plain Of Dreams: Hoodies, Hubris In Addition To Hoopla
In mid-February, I posted my valuation of Facebook as well as my thoughts on what would arrive at at the IPO. Since the actual offering appointment is tomorrow as well as the frenzy mounts, I idea it would brand feel to revisit those posts.
1. Valuation Update
In my February sixteen post on the company, I attached my valuation of the company, based on the S-1 filing as of that date. Quickly reprising that valuation, I valued the equity inward the fellowship at $29/share (assigning an overall value of nearly $72 billion for Facebook's equity), with the next primal assumptions:
a. Revenues growing to $44 billion inward 10 years, with a compounded revenue increase charge per unit of measurement of 40% for the side past times side 5 years, fading downwards over time
b. Influenza A virus subtype H5N1 pre-tax operating margin of nearly 35%, higher than Google's 30% as well as on par with Apple
c. Reinvestment (in internal projects as well as acquisitions) that generate a $1.50 inward revenue for every dollar inward capital.
d. Influenza A virus subtype H5N1 cost of upper-case missive of the alphabet of 11.42% initially, fading downwards to 6.50% inward steady state
So, what select nosotros learned nearly Facebook inward the lastly 3 months that may alter this valuation?
a. Facebook wants increase as well as volition pay for it: Facebook has acquired 3 companies inward the lastly twosome of months, Instagram, Tagtile as well as Glancee. While the Tagtile as well as Glancee deals were a continuation of a long term strategy of buying pocket-size firms with technologies that augment the Facebook experience, Instagram represented a novel front: the determination to purchase Instagram (at to the lowest degree at the lastly price) was made past times Zuckerberg, with lilliputian input from the board. If you lot are going to live a stockholder inward Facebook, you lot should acquire used to this scene beingness played out inward pocket-size as well as large ways over the side past times side few years.
c. The "Field of Dreams" work concern model: Finally, Facebook's value even as well as then lies inward its promise, rather than inward actual numbers. Remember the line from the movie, "Field of Dreams", where Kevin Costner wanders through a corn champaign as well as hears a vox that tells him that "if you lot construct it, he volition come". With Facebook as well as other social media companies, this draw tin paraphrased as "if you lot acquire the users, they (products, advertising) volition come". While I practise non desire likewise much of a unmarried story, the tidings floor of article/SB10001424052702304192704577406394017764460.html?mod=WSJ_hp_LEFTWhatsNewsCollection" target="_blank">GM abandoning its Facebook advertising should furnish a cautionary notation to the optimistic stance that Facebook tin easily convert its monstrously large user base of operations into advertising fodder.
Bottom line: Revisiting the valuation, at that spot is non a groovy bargain I would alter as a upshot of tidings over the lastly few weeks: a higher revenue increase charge per unit of measurement (45% compounded with revenues growing to $ 56 billion) accompanied past times lower margins (30%) as well as to a greater extent than reinvestment ($1.25 of revenues for every dollar invested) delivers an approximate of value that stays at the $70-$80 billion range.
2. Pricing (IPO) Update
When I labeled this the "IPO of the century" inward February, I was speaking natural language inward cheek. After all, the century is immature as well as at that spot are other IPOs to come. While at that spot is lilliputian that you lot volition larn nearly the value of the fellowship from the IPO process, at that spot is a groovy bargain that nosotros tin larn nearly human behaviour as well as the ecosystem that feeds off large deals.
a. The bankers volition practise anything to live part of a "big deal": As you lot rail the tidings stories, it is quite clear that the bankers postulate the Facebook bargain to a greater extent than than Facebook needs the bankers. In fact, I am quite surprised that Facebook did non follow the Google model as well as bypass the investment bankers only as well as fix an auction. I think that the only argue that they chose to follow the conventional route is because investment banks are article/SB10001424052702304192704577406394017764460.html?mod=WSJ_hp_LEFTWhatsNewsCollection" target="_blank">essentially doing this bargain at cutting charge per unit of measurement prices as well as bending to Facebook's volition at every turn..
b. And Mark Zuckerberg know it: As someone who has never been comfortable wearing a necktie or a suit, I must confess that I establish the brouhaha over Zuckerberg's hoodie to live hilarious. I don't particularly attention for Zuckerberg's corporate governance, but I, for one, select never believed that your professionalism is determined past times what you lot wear. I am certain that Bruno Iskil, who lost billions for JP Morgan, wore a really expensive suit, piece making his trades. I think Zuckerberg, inward add-on to mimicking i of his idols, Steve Jobs, was sending a message to Wall Street nearly who has the upper manus inward this game.
c. Investors are replaying an age-old phenomenon: Individual investors are clearly caught upwards inward the mood of the moment, lining upwards to acquire allotments of Facebook shares. Is it a bubble? Who knows? If those who forget history are destined to repeat it, it certain looks similar a replay of events from the past, as well as for those who practise no recall them, I select a reading suggestion.
d. The insiders: While I don't assume that insiders are infallible, it is telling that they are article/SB10001424052702303448404577407774136362662.html?mod=WSJ_hp_LEFTWhatsNewsCollection" target="_blank">heading for the exits at the same fourth dimension as individuals are piling in. Is it possible that they think that the stock is beingness priced at the top halt of the value range? Do they non trust Mark Zuckerberg? Inquiring minds desire to know as well as i guess nosotros volition detect out as events unfold.
Bottom line: I don't think that at that spot has e'er been an IPO where investment bankers select had to a greater extent than data (from private portion marketplace prices to institutional investor feedback) to operate with, when pricing the stock, than this one. I would live really surprised, if the stock were overpriced; the bankers as well as the fellowship select likewise much likewise lose. I would live as surprised if the stock were dramatically nether priced; a popular of 50% or fifty-fifty 25% would reverberate really badly on the bankers' pricing skills. In short, this is shaping upwards to live a Goldilocks IPO, at to the lowest degree inward the initial hours: a popular of nearly 10-15% (just correct for both the bankers as well as the company). The enquiry is how long the popular volition last. This fellowship is likewise large as well as likewise world to phase care inward the weeks after the IPO. If the popular fades quickly, perchance fifty-fifty past times the halt of trading tomorrow, I think it is a really bad sign for the momentum game inward all social media stocks.
3. Investment strategies
So, what should investors practise nearly Facebook? You tin play the IPO game, as well as I select described some of the ways you lot could practise it, inward an before post. Generically, hither are the 4 strategies you lot tin adopt:
a. Short term buy: It may live likewise belatedly for you lot to arrive at the offering price, but if you lot believe inward the brusk term momentum story, you lot tin purchase correct as the marketplace for Facebook opens tomorrow morning, hope to ride the crest of the toll motion upwards as other investors doing the same as well as locomote out before they do.
b. Short term sell: If you lot think that the hype is overdone as well as that disappointment volition laid inward really soon, you lot tin sell brusk correct after the marketplace opens tomorrow, particularly if it does non opened upwards with a meaning pop, with the intent of roofing inward the side past times side calendar week or two.
c. Long term buy: You may live a believer inward Facebook's potential as well as its capacity to dominate the advertising marketplace as well as to sell products to its users. If so, you lot should purchase sometime inward the close hereafter as well as concur for the long term. How long volition you lot select to hold off to run into profits? It depends on how speedily Facebook converts its potential to large revenues as well as profits... could live a year.. could live five..
d. Long term sell: If you lot practise purchase into my "Goldilocks IPO" scenario as well as come upwards up with an approximate of intrinsic value around mine, though, the investment with the best odds of success on Facebook would live a "long term, short" seat on the stock.
Bottom line: I think that the hype is overdone, that disappointment volition laid inward sooner or after as well as that the stock has far to a greater extent than downside than upside. You tin seat me inward the lastly grouping (long term sell) though I am even as well as then searching for the most efficient (and to the lowest degree costly) way to execute this.
4. Broader implications
Does the Facebook IPO select broader implications for the overall equity market? I select heard arguments that a successful Facebook IPO volition Pb to a rebirth of organized faith inward equities with investors as well as live a shot inward the arm for fiscal service firms. I think that is nonsense.
Bottom line: Facebook, inward spite of its ubiquitous presence inward our lives, is only i fellowship as well as non a really large i (at to the lowest degree inward terms of revenues as well as earnings) yet. The marketplace volition obsess nearly it tomorrow but it volition motion on really speedily to the side past times side worry, fright or fad.
1. Valuation Update
In my February sixteen post on the company, I attached my valuation of the company, based on the S-1 filing as of that date. Quickly reprising that valuation, I valued the equity inward the fellowship at $29/share (assigning an overall value of nearly $72 billion for Facebook's equity), with the next primal assumptions:
a. Revenues growing to $44 billion inward 10 years, with a compounded revenue increase charge per unit of measurement of 40% for the side past times side 5 years, fading downwards over time
b. Influenza A virus subtype H5N1 pre-tax operating margin of nearly 35%, higher than Google's 30% as well as on par with Apple
c. Reinvestment (in internal projects as well as acquisitions) that generate a $1.50 inward revenue for every dollar inward capital.
d. Influenza A virus subtype H5N1 cost of upper-case missive of the alphabet of 11.42% initially, fading downwards to 6.50% inward steady state
So, what select nosotros learned nearly Facebook inward the lastly 3 months that may alter this valuation?
a. Facebook wants increase as well as volition pay for it: Facebook has acquired 3 companies inward the lastly twosome of months, Instagram, Tagtile as well as Glancee. While the Tagtile as well as Glancee deals were a continuation of a long term strategy of buying pocket-size firms with technologies that augment the Facebook experience, Instagram represented a novel front: the determination to purchase Instagram (at to the lowest degree at the lastly price) was made past times Zuckerberg, with lilliputian input from the board. If you lot are going to live a stockholder inward Facebook, you lot should acquire used to this scene beingness played out inward pocket-size as well as large ways over the side past times side few years.
c. The "Field of Dreams" work concern model: Finally, Facebook's value even as well as then lies inward its promise, rather than inward actual numbers. Remember the line from the movie, "Field of Dreams", where Kevin Costner wanders through a corn champaign as well as hears a vox that tells him that "if you lot construct it, he volition come". With Facebook as well as other social media companies, this draw tin paraphrased as "if you lot acquire the users, they (products, advertising) volition come". While I practise non desire likewise much of a unmarried story, the tidings floor of article/SB10001424052702304192704577406394017764460.html?mod=WSJ_hp_LEFTWhatsNewsCollection" target="_blank">GM abandoning its Facebook advertising should furnish a cautionary notation to the optimistic stance that Facebook tin easily convert its monstrously large user base of operations into advertising fodder.
Bottom line: Revisiting the valuation, at that spot is non a groovy bargain I would alter as a upshot of tidings over the lastly few weeks: a higher revenue increase charge per unit of measurement (45% compounded with revenues growing to $ 56 billion) accompanied past times lower margins (30%) as well as to a greater extent than reinvestment ($1.25 of revenues for every dollar invested) delivers an approximate of value that stays at the $70-$80 billion range.
2. Pricing (IPO) Update
When I labeled this the "IPO of the century" inward February, I was speaking natural language inward cheek. After all, the century is immature as well as at that spot are other IPOs to come. While at that spot is lilliputian that you lot volition larn nearly the value of the fellowship from the IPO process, at that spot is a groovy bargain that nosotros tin larn nearly human behaviour as well as the ecosystem that feeds off large deals.
a. The bankers volition practise anything to live part of a "big deal": As you lot rail the tidings stories, it is quite clear that the bankers postulate the Facebook bargain to a greater extent than than Facebook needs the bankers. In fact, I am quite surprised that Facebook did non follow the Google model as well as bypass the investment bankers only as well as fix an auction. I think that the only argue that they chose to follow the conventional route is because investment banks are article/SB10001424052702304192704577406394017764460.html?mod=WSJ_hp_LEFTWhatsNewsCollection" target="_blank">essentially doing this bargain at cutting charge per unit of measurement prices as well as bending to Facebook's volition at every turn..
b. And Mark Zuckerberg know it: As someone who has never been comfortable wearing a necktie or a suit, I must confess that I establish the brouhaha over Zuckerberg's hoodie to live hilarious. I don't particularly attention for Zuckerberg's corporate governance, but I, for one, select never believed that your professionalism is determined past times what you lot wear. I am certain that Bruno Iskil, who lost billions for JP Morgan, wore a really expensive suit, piece making his trades. I think Zuckerberg, inward add-on to mimicking i of his idols, Steve Jobs, was sending a message to Wall Street nearly who has the upper manus inward this game.
c. Investors are replaying an age-old phenomenon: Individual investors are clearly caught upwards inward the mood of the moment, lining upwards to acquire allotments of Facebook shares. Is it a bubble? Who knows? If those who forget history are destined to repeat it, it certain looks similar a replay of events from the past, as well as for those who practise no recall them, I select a reading suggestion.
d. The insiders: While I don't assume that insiders are infallible, it is telling that they are article/SB10001424052702303448404577407774136362662.html?mod=WSJ_hp_LEFTWhatsNewsCollection" target="_blank">heading for the exits at the same fourth dimension as individuals are piling in. Is it possible that they think that the stock is beingness priced at the top halt of the value range? Do they non trust Mark Zuckerberg? Inquiring minds desire to know as well as i guess nosotros volition detect out as events unfold.
Bottom line: I don't think that at that spot has e'er been an IPO where investment bankers select had to a greater extent than data (from private portion marketplace prices to institutional investor feedback) to operate with, when pricing the stock, than this one. I would live really surprised, if the stock were overpriced; the bankers as well as the fellowship select likewise much likewise lose. I would live as surprised if the stock were dramatically nether priced; a popular of 50% or fifty-fifty 25% would reverberate really badly on the bankers' pricing skills. In short, this is shaping upwards to live a Goldilocks IPO, at to the lowest degree inward the initial hours: a popular of nearly 10-15% (just correct for both the bankers as well as the company). The enquiry is how long the popular volition last. This fellowship is likewise large as well as likewise world to phase care inward the weeks after the IPO. If the popular fades quickly, perchance fifty-fifty past times the halt of trading tomorrow, I think it is a really bad sign for the momentum game inward all social media stocks.
3. Investment strategies
So, what should investors practise nearly Facebook? You tin play the IPO game, as well as I select described some of the ways you lot could practise it, inward an before post. Generically, hither are the 4 strategies you lot tin adopt:
a. Short term buy: It may live likewise belatedly for you lot to arrive at the offering price, but if you lot believe inward the brusk term momentum story, you lot tin purchase correct as the marketplace for Facebook opens tomorrow morning, hope to ride the crest of the toll motion upwards as other investors doing the same as well as locomote out before they do.
b. Short term sell: If you lot think that the hype is overdone as well as that disappointment volition laid inward really soon, you lot tin sell brusk correct after the marketplace opens tomorrow, particularly if it does non opened upwards with a meaning pop, with the intent of roofing inward the side past times side calendar week or two.
c. Long term buy: You may live a believer inward Facebook's potential as well as its capacity to dominate the advertising marketplace as well as to sell products to its users. If so, you lot should purchase sometime inward the close hereafter as well as concur for the long term. How long volition you lot select to hold off to run into profits? It depends on how speedily Facebook converts its potential to large revenues as well as profits... could live a year.. could live five..
d. Long term sell: If you lot practise purchase into my "Goldilocks IPO" scenario as well as come upwards up with an approximate of intrinsic value around mine, though, the investment with the best odds of success on Facebook would live a "long term, short" seat on the stock.
Bottom line: I think that the hype is overdone, that disappointment volition laid inward sooner or after as well as that the stock has far to a greater extent than downside than upside. You tin seat me inward the lastly grouping (long term sell) though I am even as well as then searching for the most efficient (and to the lowest degree costly) way to execute this.
4. Broader implications
Does the Facebook IPO select broader implications for the overall equity market? I select heard arguments that a successful Facebook IPO volition Pb to a rebirth of organized faith inward equities with investors as well as live a shot inward the arm for fiscal service firms. I think that is nonsense.
- If Facebook does launch successfully tomorrow as well as the stock toll goes upwards 10%, 20% or fifty-fifty 30%, I don't run into how it volition crusade adventure averse investors to come upwards dorsum to stocks. In fact, it volition likely feed into their suspicion that the stock marketplace has locomote a casino that they cannot trust their savings in.
- As for investment banks, a successful Facebook IPO may select inward some fees as well as commissions but it volition non live a reflection of their skills at pricing or bargain making. This is a stock that priced as well as marketed itself, with lilliputian or no assistance from the investment bankers.
Bottom line: Facebook, inward spite of its ubiquitous presence inward our lives, is only i fellowship as well as non a really large i (at to the lowest degree inward terms of revenues as well as earnings) yet. The marketplace volition obsess nearly it tomorrow but it volition motion on really speedily to the side past times side worry, fright or fad.
0 Response to "Latepost Facebook In Addition To Plain Of Dreams: Hoodies, Hubris In Addition To Hoopla"
Post a Comment