Showing posts tagged facebook

Facebook is a binary stock

I don’t know if Facebook is overvalued right now, it seemed a stretch at $100Billion and has been “corrected”, but then Google used to trade at many times sales also. Cisco was once worth nearly 5 times that (that WAS overvalued). 

What is true (for sure), is that Facebook is a risky stock. But risky in both directions. Three years ago, the business had hardly any sales, it is now selling 3,700 million dollars per year and growing. It was a megatastic war chest of cash and a brand name that spits in the face of most other online properties.

So - some heads will roll at Facebook for the IPO fiasco and disclosure baloney, they’ll first be unfriended in the media and then blocked by Facebook, but their egos will be massaged with millions they made. And, the business will go on…

Facebook will or will not dominate social networks and related advertisements/ gaming and music for the next decade. If you think it will BUY, if you think it  won’t, SELL…take your pick

Facebook buys YouTube, why not?

So. The IHT has a wonderful article on Peter Thiel (founder PayPal, early shareholder Facebook). His life could have been different if he hadn’t failed to get a key legal position, instead he starts PayPal and the rest is billions of dollars of glorious history. His thinking is, people confuse capitalism with competition, sure there are overlaps but beating the other guy isn’t always best. Finding “creative monopolies” is what you should do. Not the Mr. Burns nuclear plant monopoly but creatively finding niches where you can prosper at least for a while, like Facebook has OR Pinterest will OR Google did. They never tried to kill their opposition, they just were more creative for long periods of time in growing new industries. 

Now. Google is poor at social networking. They really are. But they own YouTube which is growing and social. Still, they want to focus their efforts on Google +, a foolishness which will run its course soon. What they may want to do is to work on those platforms that still make a lot of money, and stretch them into  mobile and build on the world of opportunity that exists in local commerce and connected advertising. 

Then. They they could sell their assets that are really social networks that they will never have the DNA to grow and monetise properly. Say Facebook then buys YouTube for $10Billion+ in shares and cash, they get the video piece, they get the social network and they get the next generation and a super high valuation. Google gets out profitably and focuses on what they are good at. Why not?

Acquisition truths - Facebook/Instagram

So Facebook laid down cash and stock worth $1Billion to buy Instagram. In this world we live in the following can be true:

1. $1Billion is a ridiculous amount of money for a 15 person start-up with no revenue

2. Facebook could have copied much of Instagram’s work and saved a lot of money

3. Technology companies seem to have lost faith in internal development to some extent

4. There was likely some competition to buy Instagram

5. As Facebook is growing so fast and they will IPO soon, they most likely made the right decision in buying Instagram for $1Billion 

Thing is, shareholders/owners are fairly rational. They tend to agree on what is right to maximise value with some fairly near term horizon (i.e. 12-24 months). No shareholder likes dilution or less cash unless there is a reason for it. A number of strategy discussions would have shown, to keep building the picture upload story AND strengthen Facebook’s mobile position, Instagram were a fast growing threat…Eliminate that threat before an IPO before it becomes a viral monster hit. 

Now, I’ve been around a while ;) I remember Cisco paying $4Billion for Stratacom, no way it was worth that, far too much etc. It became the voice/data platform for Cisco which to some extent explains why “24” has Cisco IP phones…Some crazy prices are paid because the feeling is it makes sense in the long term, that’s what has happened here. Simple.