Facebook Stock Hits A New Low, Down More Than 50% Since IPO

http://techcrunch.com/2012/08/31/facebook-stock-hits-a-new-low-now-down-more-than-50-since-ipo/

by maayank • 14 years ago

39 46 14 years ago

rdl• 14 years ago

The employee lockup is what scares me. Most Facebook employees were hired early in their careers, didn't have other money, and a lot have bought or want to buy houses, cars, etc using their still substantial paper wealth.

I believe in the Facebook product, quality of team, and future revenue potential, but sale at lockup(as well as concentration of control in Zuck) scare me, unless it gets to $10-20b capitalization.

SeanDav2• 14 years ago

If every time FB hits a new low it makes HN front page then we are going to have a very boring front page.

I fully expect FB to drop below 10.

eru2• 14 years ago

Do you hold a short position?

SeanDav2• 14 years ago

I realize this is likely a tongue-in-cheek response, but I wouldn't have touched (and didn't) the FB IPO from either a long or short position. Too much emotion and too much hype.

Even if I believed the stock was grossly over priced it would have been silly to take a short position because the stock was and is quite capable of spiking hugely. In this case you might be correct about the value of the stock but can still be taken out the market due to "irrational" movements in the price.

The "real" value of FB starts becoming "realistic" somewhere below 10 and unless FB announce some major improvement in revenue generation I just cannot see FB going anywhere but south in the short term.

tomjen3• 14 years ago

The market can stay irrational longer than you can stay solvent.

raganwald3• 14 years ago

Not everyone invests. I recall some years ago when I was living in a bit of a moral vacuum. I was at UofT and I spent all of my spare time playing bridge, poker, and backgammon, for as much money as possible.

One night I had a chance to play an extremely plump pigeon, I think they call them "whales" today. He asked for various handicaps to narrow my edge, and we worked out something I thought was going to make me a lot of money. He then dropped the big kicker: He wanted to play for extremely high stakes, enough that if he got hot, he would bankrupt me.

Naturally, this dismayed me. Although I thought I could keep my cool and not "steam," I knew that being the better player, I wanted the chance to let the odds play themselves out, not subject my self to the possibility of a bad swing.

So I sought out a friend who had an extremely large and dependable cash flow. Would he back me in exchange for a share of the profits? We both knew I was going to win.

He turned the deal down. "I only bet on myself," he said. I was incredulous. Why turn down an extremely lucrative business opportunity? "I like knowing that I made my own money," he said. He didn't see investing in me as being the same kind of thing as running his various schemes and dealings where he had his own hands on the levers of commerce.

I'm not saying it's a better thing, but some people simply aren't that interested in investing, they like to bet on themselves.

veyron4• 14 years ago

I shorted from 31.50 down to 27 .. wish I held onto the position ...

benologist• 14 years ago

Would it make what he said less true? Daily updates on FB's stock are boring.

tallanvor• 14 years ago

Before the IPO when a couple of people asked me when I would buy FB stock, I told them that I wouldn't pay more than $10 for it. They're starting to believe me now.

dave_sullivan2• 14 years ago

FWIW, looks like FB still has a P/E of 62. That's high, but could be much higher. For reference, however, Google is at 20.

P/E is certainly not the only number that matters, but I think the two companies have a lot in common re: their major profit sources, and it suggests FB has quite a bit of room to go down more if they don't turn things around with eg an especially good quarter.

xxpor• 14 years ago

In terms of their profit centers, there's a fundamental difference in the type of advertising they do. Fb does demographic based ads, while google does ads based on what people are searching for RIGHT NOW. 99% of the time, google style advertising is worth more.

ramblerman• 14 years ago

Am I correct in understanding that as, for 62 dollars worth of shares I buy 1 dollar of the earnings?

WiseWeasel• 14 years ago

No; for $62 of shares, you buy $62 of shares.

The Price-to-Earnings ratio is the ratio of the total outstanding share value to the company's income in the previous year.

Facebook's income in 2011 was $1B. At the IPO share price of $38, the value of the total outstanding shares was around $100B, giving them a P/E ratio of 100 ($100B / $1B = 100). Now that the share price has fallen by half, the P/E ratio is closer to 50.

The P/E ratio is used to give an indication of how highly a company's stock is valued in relation to the profit they make. Companies with a high P/E ratio are typically expected by shareholders to report higher profits in the future. Those with a low ratio are expected to remain flat or contract. For high-growth companies, like triple-digit growth, a P/E ratio between 50-100 is not unheard of, but is relatively high, and an indication of an exceptionally high degree of confidence in the company. A ratio in the 20-40 range is more common for growing companies. 10 and under typically indicates a relative lack of faith in growth prospects by investors.

There are many more factors to consider than relation to last year's profits when determining the value of a stock, but this is a very commonly used metric.

dave_sullivan2• 14 years ago

Yes, that's the general idea.

Your $62 today theoretically gives you some right to $1 per year of earnings + every other year after that, taking into account earnings growth (So, the case for high P/E ratios is that earnings growth will be fast enough that that $1 quickly turns into $2 each year) Apple's P/E, for more comparison, is at 16.

But more specifically, since facebook doesn't pay a dividend, you won't see that $1 each year because Facebook will re-invest their earnings into their business. You're essentially saying that facebook will invest that $1 into growing their earnings faster than you could generate a similar return by investing in something else. When a company reaches a point where the market is mature and further investment will likely not result in a earnings growth rate that beats similar alternative investments, it pays a dividend and the stock actually becomes a cash stream, which you can then re-invest or spend freely.

marvin2• 14 years ago

Yes. A P/E rate this high implies that the market believes Facebook will considerably increase its earnings in the future. The lower P/E ratio of Google and Apple implies that the market does not believe in significant earnings growth in the future.

You rarely buy a stock looking only at the company's present situation. For instance, Ford for a long time had a price/assets value smaller than 1, which meant that one dollar of Ford stock gave you more than 1 dollar's worth of Ford's assets. But during this time, Ford was also losing a lot of money.

rm999• 14 years ago

You're looking at the trailing P/E, which looks at the past four quarters of earnings, but for fast growing companies investors tend to use the forward P/E, which is based on estimates of the next four quarters. FB's forward P/E is 29, google's is 14.

Neither estimate is perfect, but the forward P/E tends to take expected growth into account much more effectively.

gfodor• 14 years ago

Forward P/E is particularly bad in this case though since it's hard to have much confidence in forward earnings estimates for FB since analysts know nearly nothing about it yet.

calvinlough2• 14 years ago

Google Finance says the P/E is 100. I don't know enough about this stuff to say whether 62 or 100 is right. Does anyone know which value is right? Where did you find the value 62?

tedunangst• 14 years ago

Trailing (previous results) vs forward (projected results).

majani2• 14 years ago

I think that's been a big problem with this stock: people using wrong comparables. Facebook's product is much more similar to Yahoo/AOL than Google.

yuvadam• 14 years ago

This is not surprising, we have passed peak Facebook [1]. It was a very successful fad, but it is no longer the right place to be.

[1] https://www.google.com/trends/?q=facebook

citricsquid• 14 years ago

google has also flatlined recently: https://www.google.com/trends/?q=google

is it not possible that the internet has reached capacity, that companies like Facebook and Google are never going to be in a position to add 100/200 million users a year any more?

spaghetti4• 14 years ago

I found the "myspace" trend interesting: https://www.google.com/trends/?q=myspace

Perhaps the facebook trend so far is a repeat of the myspace trend through mid-2007.

veyron4• 14 years ago

Yesterday's discussion: http://news.ycombinator.com/item?id=4459958

raganwald3• 14 years ago

If you could post a link to tomorrow's discussion, you'd have something. "You sunnavabitch! Lemme see that browser... Howdja do that?"

veyron4• 14 years ago

In this case, there's a nonzero chance the author saw the HN discussion and made a quick post. After all, it is TechCrunch ...

dj2stein9• 14 years ago

Facebook stock simply had no business being valued that high to begin with. This was a classic pump and dump operation by the investment firms who took this company public. I thought Facebook was at best fully valued back when Microsoft bought in at 15B valuation, so they absolutely have room to fall further.

kalininalex• 14 years ago

The first link on the Yahoo Finance page for FB:

"It’s Becoming Clear That No One Actually Read Facebook’s IPO Prospectus or Mark Zuckerberg’s Letter to Shareholders": http://finance.yahoo.com/blogs/daily-ticker/becoming-clear-n...

majani2• 14 years ago

The thing that shocks me the most about this whole situation is how hackers also bought into the hype about potential revenues. Any forum administrator could tell you that running an ad-supported social network is a not such a great business plan. I don't think Facebook is doomed to die, but I believe it(along with other free social networks) will soon be found out as very poor businesses.

binarysolo• 14 years ago

Just a further reminder for people looking at FB (disclosure - mild short position):

Stock unlock schedule: August 16th, 2012: 268 million shares, 10% of shares outstanding. October 14th, 2012: 249 million shares, 9% of shares outstanding. November 13th, 2012: 1.332 billion shares, 49% of shares outstanding. December 13th, 2012: 124 million shares, 5% of shares outstanding. May 17th, 2013: 47 million shares, 2% of shares outstanding.

calvinlough2• 14 years ago

November 13th is going to be an interesting day...

spaghetti4• 14 years ago

Indeed. Glad it's not a Friday!

grandalf3• 14 years ago

The banks who helped boost the price around the IPO are reclaiming their capital gradually, letting stories like this happen, and letting Facebook plan out the next phase of its capital generation strategy. Giving early investors a strong exit was part of the plan.

The biggest irony is that spectators view the downward trend in share price as evidence that the early price was hype driven. In reality, both upward and downward trends are equally impacted by hype.

I plan to invest when the price gets to $15. The only alarming sign so far is the massive number of ads for Target that appear daily on the mobile version. Clearly a few large companies made big ad purchases, and Facebook now regurgitates the news that a friend liked Target again and again at every opportunity. It's supremely annoying and might actually make me stop using Facebook.

clobber2• 14 years ago

Yet you still plan on investing?

grandalf3• 14 years ago

So far I've seen Facebook recover from a lot of bad decisions. I think the leadership at the company is very strong and that the core business concept ads lots of value to a lot of people's lives.

Facebook Stock Hits A New Low, Down More Than 50% Since IPO

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