One correction: Goldman did not increase the value of Facebook, just the appearance of their value. Who knows how much Facebook is actually worth? Their profits are tiny compared to the latest valuation. They are up to their ears in invested money. Their business model is showing ads that nobody clicks on. Goldman and the private investors might make out all right. But their recent investment has done little in my eyes to make Facebook more valuable.
Facebook's worth exactly as much as people are willing to pay for it. If Goldman gets people to invest at a higher valuation then they've increased Facebook's value by definition.
Maybe one could say: "Goldman has increased Facebook's price" -- the word "value" has several definitions; the commenter was talking about fundamental value, not net present value...
This is a content-free comment. There may be a bubble, or, the decreased cost of capital afforded Facebook by Goldman's work will allow them to make major strategic investments, maybe multiple where they only could have afforded one, that will drastically increase the value of the company. This "bubblicious" stuff is only valuable if you support it with evidence.
I believe Facebook is overvalued. I cannot provide hard evidence since I cannot look into their finance books, but from what I understand their yearly revenue is about 4% of their latest valuation. I also do not see how their business model can sustain itself, let alone grow exponentially. Yes, they have a ton of users, but they manage to extract precious little money out of them.
Getting back to my original point: I believe FB is overvalued, but apparently someone out there is willing to buy their shares at these prices. Eventually, it will come to light that while FB is profitable, etc. they are not going to grow much and their stock will plummet. Until then, the FB stock craziness will continue.
First, have you really done the math on how much money Facebook earns for each penny it extracts from end-users? Do you use Facebook today? I do, and I couldn't tell you what they're really making money on. They don't appear to have turned on the money spigot yet.
Second:
When you cry "bubble", you have to be talking about the market as a whole. It makes less (some, but less) sense to me to talk about there being a "Facebook bubble".
With that said: it's not just about how much money Facebook gets; it's also a question of what Facebook does with the money. During the Internet bubble, companies went public and spent the cash on Super Bowl ads with no revenue, or go-for-broke ship-free-hardware-to-all-of-America schemes. But Amazon was also a product of the Internet bubble. Were they a bad investment?
> First, have you really done the math on how much money Facebook earns for each penny it extracts from end-users? Do you use Facebook today? I do, and I couldn't tell you what they're really making money on. They don't appear to have turned on the money spigot yet.
No. I was talking about revenue, not profit. From the OP: $50B valuation vs projected $2B revenue this year. No idea what they do with what they get to keep.
> When you cry "bubble", you have to be talking about the market as a whole. It makes less (some, but less) sense to me to talk about there being a "Facebook bubble".
FB is a private company. The distinction is that it's a huge company that now major players on Wall Street are trying to invest in. These types of dealings could potentially put Goldman in a compromising position with another bailout just over the horizon. Also, could this trigger a bunch of inflated valuations of other companies in this industry?
I'm not objecting. Most of this is not affecting me at all. Just pointing out that Goldman did not increase FB's fundamental value. It's only trying to set up favorable conditions to offload FB on someone else and make out on the profits. The "someone else" may end up getting burnt. In fact I believe that they will get burnt sooner or later. Or possibly, it may be Goldman, who is then going to ask for a second bailout. In either case, it's not my money.
> This "bubblicious" stuff is only valuable if you support it with evidence.
I think it's going to be difficult to get our hands on that until hindsight clears everything up for us a few years hence. There's just too much that we don't know right now.
You all seem to be intentionally avoiding the fact that facebook has an intrinsic value independent from its market cap.
Goldman increased the value of facebook stock by 20%. Directly linking market cap to intrinsic value would require the Efficient Market Hypothesis, which I'm pretty sure no one believes anymore.
Look, the parent post stated that if people are willing to buy into a company at a particular valuation, then the company is by definition worth that much to investors. This is false and the Madoff scheme demonstrates it, as would any other ponzi scheme or speculative bubble that has collapsed. If you prefer a different example, write your own post.
I think the argument here is that the value of an investment ought to be the net present value of expected future returns on it (which in the case of a stock is theoretically equivalent to net present value of future dividend or stock buyback gains over the lifetime of the stock) If people are buying stock for more than that they're overpaying, whether due to misrepresentation of facts or bad predictions of the future. Unlike consumer goods, there is an objective measure of a "wrong" price[1], and that's one where you have no long term prospect of recovering the income from the share of the company itself, even if you can still profit from selling to other speculators willing to pay more.
[1]albeit not one that non-omniscient investors are ever likely to know
