Ford vs Facebook

https://plus.google.com/106909838320943141098/posts/PXGiGug9qBn

by asto • 14 years ago

71 74 14 years ago

plus.google.com

DVassallo3• 14 years ago

Value is being determined based on activity (page views, ad impressions, users), instead of real things like... you know... money and assets.

Users, pageviews, etc, are assets. If the market will be able to determine their "correct" value... that's another question.

AndrewDucker• 14 years ago

Users and pageviews are _potential_ assets. You cannot sell either of those things, but you might find ways of making them produce money.

DVassallo3• 14 years ago

There are many other intangible assets that produce money but are not easily sell-able: Trademarks, human capital, trade-secrets, other intellectual property, etc.

joe_the_user• 14 years ago

You are correct these things can be viewed as assets. However, if the author is deriving his data from Facebook's own declarations, then even they aren't claiming the value of their assets including User-loyalty, are anywhere near their market cap.

DVassallo3• 14 years ago

Auditors would stick to the the accounting standards and conventions to give a monetary value to users and other intangible stuff. Whereas the market (in theory) can value the whole company's ability to use these intangibles to generate money in the future. That's why there's often a significant difference between the "assets - liabilities" on the balance sheet, and the market cap. Now, whether such a big discrepancy is justified... that's another thing.

TazeTSchnitzel3• 14 years ago

Perhaps it's a bubble, but Facebook is used by an eighth of the people on the planet.

Tell me that's not an asset. A single company has lots of information about and can display advertising to an eighth of the alive human race.

Then again, so does Google, I suppose.

excuse-me• 14 years ago

The English language is spoken by a larger number - that doesn't mean the OED is worth a trillion $

TazeTSchnitzel3• 14 years ago

The OED doesn't know your social connections, your sexual orientation, your date of birth, your address, your previous address, your current location, your gender, your age, your interests, your employer, all the websites you've visited or even what you look like.

rudiger• 14 years ago

This is a stupid statement. Hundreds of millions of people aren't reading OED every day.

GoodIntentions• 14 years ago

>> They have an eighth of humanity as users.

If anything, that brings FB into a whole new realm of risk. Combine this with the fundamentals ( or lack of ) and it seems better left untouched.

moocow013• 14 years ago

Its an asset but what is the value (in dollars and cents)?

derleth• 14 years ago

What the market decides. Just like with Ford.

jerrya2• 14 years ago

Certainly what makes Facebook valuable is their huge network which is sustained, I think, through barriers to entry (network effect), and barriers to switching (owning your data).

I wonder what might happen, if it could happen that the EU or US FTC mandates api access into and out of Facebook, perhaps after a decision that 2015 Man will use social networking as a needed public infrastructure, to be provided on a common carrier like basis.

Can the sheer size of Facebook's network trigger monopoly break up? Or the sheer size combined with lack of API access?

TazeTSchnitzel3• 14 years ago

Facebook does make it surprisingly easy to get a copy of all your data. There's a single big button on the site which will make a ZIP file containing all your data on Facebook, except for data stored in Apps (outside of FB's control), and comments you've made on other people's posts. It will even tell you your previous IP addresses and I think auth tokens.

jerrya2• 14 years ago

I'm thinking more of API access so that external apps can be created to link Facebook to other networks, so that tweets and google plus and tumblr posts and all that stuff can just flow from one network to the next like telephone calls can do now.

I just clicked on "Start my archive", Facebook will email me when they are done zipping it up.

jwilliams2• 14 years ago

Capital will ("should") flow to where it can be the most useful at producing wealth.

This is just the market saying "I'd rather see what Facebook can do with X billion than Ford."

Which on the face of it seems fair - Google had a similarly crazy PE when they floated. They grew into it pretty quickly though.

johnhartigun2• 14 years ago

Investors don't invest because of curiosity. They want to earn money.

jwilliams2• 14 years ago

I didn't mean it in a frivolous way.

What I'm saying is it's not a basic value equation. Buying an asset does not create wealth. It's the application of that asset.

It's not simply Facebook has a book-value of X -- It's The market thinks Facebook can build more wealth with their $ than Ford.

rabidsnail3• 14 years ago

And the reason they're allowed to earn money is that their capital produces more value than it's worth. The only way that can happen in an efficient market is by taking risk. If you don't want any risk don't invest in the stock market.

rjb• 14 years ago

Yes. Investors believe Facebook's value perception will catch up with its reality, since they are currently out of whack. They believe the current imbalance is in their favor. It's the only way to make money investing.

photon1377• 14 years ago

Investors care about marginal returns. An additional $1 invested into Ford won't bring as much returns as an additional $1 invested in Facebook.

Ford's is a capital-intensive business. That's what gives it hard assets that make its market cap 70% of assets (btw, the author totally forgets the liability side of equation - equity investors aren't owed assets - they are owed (assets - liabilities) - look at big banks, they have trillions in assets - but they have equally enormous liabilities too).

forkandwait• 14 years ago

I am personally a lot more likely to log on to Facebook than to EVER buy a Ford -- just saying.

vibrunazo2• 14 years ago

The point is that even tho you are logging to facebook, you are not paying them as much as those buying fords.

potatolicious2• 14 years ago

But we know that the auto industry is cut throat and low-margin. Paying $30K for a Ford doesn't mean Ford just made $30K. Between manufacturing, R&D, marketing, and raw customer acquisition cost (dealerships aren't free), I'd be surprised if Ford walked away with 5% of that.

rabidsnail3• 14 years ago

Valuation lower than assets means you get eaten by corporate raiders, unless you're as big as Ford or the majority of the stock is held by a single family. That just shows how unhealthy Ford is.

siavash• 14 years ago

Could you please elaborate on this?

Lexarius• 14 years ago

Suppose that someone is able to buy up enough of your stock to essentially own your company, and they notice that the cost of doing so is less than the value of all of the things your company owns. Someone could make a profit by buying your company and then butchering it, keeping a few prime cuts for itself and selling off the rest.

This doesn't happen if the raiding company can't put together enough money to make the purchase, or if not enough of the stock holders are willing to part with their shares.

nandemo• 14 years ago

Lexarius' answer is great, but if you want to read more about it just look up "corporate raid[ing]" or "leveraged buyout", e.g.:

http://en.wikipedia.org/wiki/Corporate_raid

photon1377• 14 years ago

You mean equity valuation lower than book value of equity. Assets don't come into the picture at all.

natnat• 14 years ago

That's not true. Ford is more than $100 billion in debt. If a corporate raider were to take over Ford, they would be saddled with a ton of debt too, making such a takeover a much less attractive option.

rabidsnail3• 14 years ago

I didn't say that Ford is going to get raided. In fact I said that it isn't, because there isn't anybody big enough to do it.

Although there probably is some way to siphon off the assets and default on the debt without committing fraud.

bgentry• 14 years ago

This is the Dot.com era all over again

The "dot-dot-com" era?

sandieman• 14 years ago

Dot 2.0

moocow013• 14 years ago

The other thing that isn't reflected is staying power or perhaps it might be called company lifetime revenue/profit/etc.

Historically for internet based companies this metric on average has been very low especially when put in comparison with the auto industry.

Where Facebook will be in 5-10 years is just about anyone's guess.

HackersCapital5• 14 years ago

Ford IS more valuable that facebook. This guy's analysis is an apples to oranges comparison. Ford has $100.5 billion in debt and facebook has no debt - the companies should be compared based on enterprise value:

Enterprise value in billions = market capitalization + debt - cash

Ford’s enterprise value = 40.4 + 100.5 - 15.2 = $125.7 Billion

facebook’s enterprise value = 90 + 0 - 1.5 = $88.5 Billion

See here for a post I did on this article: http://hackerscapital.tumblr.com/

photon1377• 14 years ago

Wrong.

EV should include debt at _market value_.

FB could just as easily issue debt in billions and I'd think that the market will be valuing it higher than that of Ford's for the same issue coupon (which just came back into the investment grade club after residing in the junk club for quite a while). FB would probably have a good income-to-interest coverage ratio if it ever issued debt so the discounting of its debt's cashflows would be less severe than that for Ford.

HackersCapital5• 14 years ago

I will take a look at the book value of Ford's debt tomorrow on Bloomberg. I agree that the market value of debt should be used for the analysis, but I don't think it will change the conclusion.

rmATinnovafy3• 14 years ago

Buy F now.

It is paying a twenty cent dividend on a stock price of about $10.

Cheap. Plus its making cars that are very competitive.

firefoxman16• 14 years ago

http://www.youtube.com/watch?v=8ZwvImsYo4E

rmATinnovafy3• 14 years ago

Would you mind explaining what the video is about?

I do not use youtube.

Thank you.

powertower• 14 years ago

> You forgot one important thing: Potential for Growth

The key to understand this madness is so right in front of our faces, that we can't even see it.

Due to the dynamics/nature of the market, stock investments seems to be more about a gamble today, and you can't gamble on Ford too much except for it to go down.

Forget trying to spot the value. It's all about what's hot.

Hence Facebook is getting crazy valuations.

firefoxman16• 14 years ago

That's how I used to feel too until I read more economic history. Turns out, that's the way it's always been. At the end of the day, stock prices are 100% driven by supply & demand (beside the IPO price I suppose).

Sure, fundamentals are what a lot of people base their buying or selling off of, but what's "hot" is all that matters just like it always has. Maybe a company just crushed their numbers for the quarter or a drug company attained a new patent; and while that may contribute to the true value of the company, when it comes to the stock price nothing matters except how many people buy.

michaelochurch• 14 years ago

I've heard so many people talk about buying Facebook "as soon as I can get in". I think that's ridiculous. When it comes to individual stocks, buying or selling without concern for price is for suckers. That's what got us into the last bubble (or few): people who would buy something (like a house) regardless of the price based on an obscene overconfidence that it would appreciate.

I have no idea what the thing's worth, but I cringe when I hear people talking about how they're sure it's a good bet because of some X which is almost certainly already priced into the market.

firefoxman16• 14 years ago

Hype is what drives anything up. You just have to get out before the hype dies. The problem is that most people ("suckers" as you call them) get in late and don't get out in time.

swah• 14 years ago

People still feel like that about investing in land and houses (where I live at least) - they are seen as an investment that is never going to be a bad one (freqently comparing this to renting a place to live).

But there is got to be a catch.

firefoxman16• 14 years ago

> You forgot one important thing: Potential for Growth

The problem arises when that growth occurs but instead of the price now being reasonable at those levels, it increases further...which is probably what it's going to do.

hartror• 14 years ago

This is why investing in stocks is also called speculation, investors are speculating that Facebook's revenue and profit is going to grow to exceed that of Ford in a reasonable amount of time.

teyc• 14 years ago

These two businesses are in entirely different industries. Not only that, they have very different market characteristics.

Ford is a capital intensive industry that reminds me of Berkhire Hathaway - the textile company that Warren Buffett could never figure out how to make money from. It has competitors everywhere making relatively undifferentiated products.

Facebook on the other hand, is more like a media company. It has 1 billion eye balls who spend an average 30 minutes a day on its site on user-generated content. If you were a TV station, how much would you be valued at with that kind of metrics? FB has a beachhead in the sense that it is a marketplace of users who create content, and users who view them. This makes it incredibly sticky and also difficult for a competitor to come about. The downside with FB is that audiences can be fickle. If they think FB is a fad, they will start leaving. Therefore, FB had to establish itself as a habit-forming medium, like e-mail, so that people constantly reengage with it.

Ford vs Facebook

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