This page has been archived and commenting is disabled.
Guest Post: Facebook & the Bubble Mentality
Submitted by John Aziz of Azizonomics
Facebook & the Bubble Mentality
So Facebook keeps falling, and is now floating around the $27 mark. We’re a third of the way down to my IPO valuation of FB as worth roughly $2-4 a share (or 5-10 times earnings), although I wouldn’t be surprised for the market to stabilise at a higher price (at least until the next earnings figures come out and reveal — shock horror — that Facebook is terrible at making money).
The really stunning thing is that even after all these falls, FB is still trading at 86 times earnings. What the hell did Morgan Stanley think they were doing valuing an IPO without any viable profit model at over 100 times earnings? The answer is that this was an exit strategy. This IPO was about the people who got in early passing on a stick of dynamite to a greater fool which incidentally is precisely the same bubble mentality business model as bond investors who are currently buying negative-real-yielding treasuries at 1.6% hoping to pass them onto a greater fool at 0.5% (good luck with that).
This was achieved by convincing investors to ignore actual earnings and instead focus on projected future earnings. From Bloomberg:
Facebook, with a market capitalization of $79.1 billion, is trading at 29.5 times the company’s projected 2014 profit of $2.69 billion, data compiled by Bloomberg show.
Or much more simply, counting chickens before they hatch.
There’s an interesting comparison to the development of AAPL. Steve Jobs — who went on to do great things — was never fully in charge of AAPL until much later on. AAPL externally recruited CEOs with business experience, and Jobs was eventually thrust out of the company he founded, to continue his journey on his own. Failure is a really valuable lesson. Jobs was lucky to experience it and learn from it early before he ever got a chance to destroy AAPL.
FB isn’t really a bad business, and prospects would look much rosier if it were priced more realistically. It’s generating a profit — just a much smaller one than suggested by the IPO pricing. And management are being swept along by everyone else’s irrational euphoria. Zuckerberg can freely throw away a whole year’s earnings buying Instagram — an App whose functionality FB actually duplicated in-house almost certainly for a tiny fraction of the cash thrown at Instagram. And Zuckerberg — who controls a majority of the voting rights — isn’t going to get thrust out into the cold by shareholders. He can keep wildly throwing cash around so long as it keeps flowing into FB. The problem is, given the steep price falls, it looks like the river is running dry.
As I wrote before FB started falling:
The big money coming into Facebook just seems to be money from new investors — they raised eighteen times as much in their flotation yesterday as they did in a whole year of advertising revenue. For an established company with such huge market penetration, they’re veering dangerously close to Bernie Madoff’s business model.
That’s life. Bubbles get burst; the Madoff bubble, the securitisation bubble, the NASDAQ bubble, the housing bubble, the Facebook bubble, the treasury bubble. The trick is not getting swept up by the irrational euphoria. Better to miss a blow-out top than to end up holding a stick of dynamite.
»
- 10839 reads
- Printer-friendly version
- Send to friend
- advertisements -
I hear if you create a new Facebook account now you get a free Spiderman beach towel.
Plunge Protection Team just intervened.
FB at 28.70 and soaring.
Oh, the hilarity.
FB became a screaming buy at exactly 2pm. Fascinating.
Up 6.5% in a little over an hour.
I'm sure it had absolutley nothing to do with Morgan Stanley doing a Cnbs interview about it.
Up 8%+ in less than two hours.
$FB to change ticker symbol to $FBI, possibly $NSA
Actually, the listed name is Facebook Inc. CIA. ;)
I ain't making this up, take a look:
http://www.marketwatch.com/investing/stock/FB
This could be the IPO of the decade. If you're short.
FB attempts a manufactured short squeeze at 2pm. Hang in there shorts.
the sreaming you heard was from the crowd long at the IPO
Goldman must have recommended shorting it.
In the case of both Google and Facebook, three talented students in their 20's came out of obscurity to establish multi-billion dollar enterprises.
Do you think they had any help?
Future social network IPOs should take a couple hundred pages from Facebook and not do one.
I was convinced you made it up until I just checked.
You didn't expect it could go straight down did you? It's only short covering.
The volatility in the options is crazy. Have a look at the june 30 puts. Up 350% in two days, and giving most of it back today.
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=FBR16124...
If the short covering has enough legs I may look to buy some July 30-35 puts once it starts to sputter.
The major desks are going in and buying to try to save face, not going to work, they f*&ked up......
It's not who buys first but who sells last......
Or who strategically fails to deliver.
+1000 (inflation adjusted)
ROFLAO
Some say the end is near.
Some say we'll just see more bailouts soon.
Spain certainly hopes we will.
Europe sure could use a vacation from all this
Bullshit, political circus sideshow of
Liars.
Here in this hopeless fucking country we call USA
The only way to fix our budget is to tell China we won't pay.
Monetize more debt, Every fucking day.
Convert to Gold now before your savings gets wiped away
Fret for your Facebook and
Fret for your Zynga and
Fret for your Linkedin and
Fret for your Netflix and
Fret for your Yelp and
Fret for your Twitter and
Fret for your Pandora and
Fret for your Groupon.
It's a Pooooonzi...
There's.... No.... Profits
Sell these worthless companies to the public right away
We've got to dump our shares before their value goes away
Could be any fucking time. Any fucking day.
Convert to Gold now before you lose your fucking face.
Some say the Euro will completely collapse
Followed by bank runs, riots, and pepper spray.
Followed by markets that cannot sit still.
Followed by millions of dumbfounded eurotrash
Some say the end is near.
Some say we'll see Armageddon soon.
I certainly hope we will cause
I sure could use a vacation from
Europe's stupid shit. Obama's stupid shit. Bernanke's stupid shit.
One great big unending political distraction,
I've a suggestion to keep you all occupied.
Convert to Gold.
Market's gonna crash soon.
Market's comin' round to put it back down where it ought to be
Convert to Gold
Fuck Warren Buffet and
Fuck all his clones.
Fuck all these inside trading
Piece of shit democrats
Convert to Gold.
Fuck your book value and
Fuck all your hedges.
Fuck your derivatives and
Fuck your short memory.
Convert to Gold.
Fuck all these CEO's,
With hidden agendas.
Fuck these continuous,
European Referendas.
Convert to Gold
Greece is breaking into mayhem
Japan's recovering from tsunami waves
I wanna see the DOW give way.
I wanna watch it all go down.
Just please flush our debt away.
I wanna see the Nikkei go right in and down
I wanna watch it go right in
Watch you flush it all away
Time to refinance my house again
Don't just call me pessimist.
Try and read between the lines.
I can't imagine why you wouldn't
Welcome a market crash, my friend.
I wanna see it come down
Bring it down.
Suck it down.
Flush it down.
Excellent!
A+
I don't think attack subs could dive that hard without help.
The buyer of bonds of last resort ... Bernanke. His helicopter may end up being a sub plumbing new depths.
Party like it's 1999 ...
When will Twitter IPO?
I'd have said when they start making money. But that really doesn't matter.
Never. DARPA and the CIA will fund them forever.
Speaking of Farcebook.........a friend of mine just posted this:
passed huge convoy of military trucks and vehices moving up ___ i stopped counting at 90 as i had to exit - 1 caused a fatel accident near ____ ky - drivers were wear comboots cammys and black t-shirts all truck were not marked with a spec mil branch mark - trucks were mostly all carrying steeld 1/4 bed contaners , or tarp covered payloads. after exiting as i was moving thru backwoods KY spotted 15 heli's all black, apaches black hawks and 2 ch47's toting containers,
I thought it was interesting
Perhaps you missed the top Google trends today then (with special notice to #5 and 8):
Hot Searches (USA) 1. seattle shooting 2. kathy lee gifford martin short 3. nba mock draft 2012 4. defense of marriage act 5. zombie attack 6. bath salts 7. rajon rondo 8. zombie apocalypse 9. doma 10. new orleans hornetsThe funny thing is they are # 5 and # 8 after kathy lee and mock draft.....Priorities I guess.
Really, I think all the appeal of Fecebook goes away when it becomes an advertiser's cesspool. The problem is that's the only way it can make money. I'm not a genius but I long ago quit going to sites that inundate me with popup ads.
The potential earnings of this pig are greatly overstated and it's probably a decent $2-3 stock
FB is not about making money (that's just a potential added bonus). It's the world's foremost networking intelligence tool. The CIA will spend whatever is necessary to keep it going.
True, but I wonder how long until they launch their own search based on the "like" system. That might spice things up a bit.
This was a pump and dump.
but but but facebook is up
only because MS is buying it up because MS's Gorman coming on CNBC at 4pm
That's CNBS to you!
It's worth at least the BV of the cash on hand. $12/share.
$12 is my price as well.
Faceplant's tangible BV is under $5.50 a share. You forgot to deduct the $300 million payment for Instaloss and the $550 million payment to Microsoft for intangibles. You could also further dilute book value by the 200 million or so shares that are estimated to be awarded to officers and employees in the future. And you should probably discount cash in bank by the Suckerberg shareholder equity vaporizing factor.
Eh what problem? At this rate it'll be back at ipo price by next weds. The worst news is the best news for stocks.
Obviously a deteriorating economy is the best signal to buy stocks.
I only disagree on one thing. Treasuries are not in a bubble., unless by bubble you mean mad printing by the FED. The yields on treaasuries fully reflect the reality of this deflationary deleveraging cycle. Arguably it is a matter of definitions, after all this cycle is an "inverted bubble" that was caused by the credit bubble exploding.
I'm with you, Dr. Dre. People aren't piling into bonds because "bonds only go up", or " You can't beat them as an asset" , which are the mantras of real bubbles. They are just convenient shelters of relative safety. The 20 year experience of Japanese bonds demonstrates that as long as deleveraging is occuring, even in the face of monetary stimulus attempts, interest rates can remain low.
+1 for proper use of the term relative safety
Low yields are just a symptom of too much money not seeing real investment opportunities.
I thought the major hype pump & dump was in motion when they did the fucking movie.
Everyone that had a vested interrest was pumping the FB pig and building the drama for the IPO.
I sensed a scam when someone told me I had a FB account, even though I never applied for one.
I once clicked on a Facebook ad by mistake.
so YOU'RE the one ... Suckerburg says thank you ...
Adblocker can solve that problem for you
I was thinking about the same $10 to $12, I still would'nt buy at $5.
The government will keep it going..its easy spying
This observation is worth some serious upvotes.
FB is a valuable tool in the arsenal of a govt that wants to know everything it possibly can about the debt slave muppets to make sure they remain debt slave muppets.
5~10 times earning?
Hope this means that Morgan Stanley will fall flat on its face and be disbanded.
the chances of that are the same as me winning a gold metal for synchronized swimming in London this summer ...
so what are you wearing?
Would love to see them have their Lehman moment
The markets must be feeling nostalgic, feel like some old school 1910s bucket shop squeezes are going on right about now...
The whole stock market has a Bubble mentality, thanks to Bubbles Bernanke!
PMI Manufacturing -- Bad
GDP -- Bad
Jobless claims -- Bad
Stocks -- Higher
Go figure!
Who needs an economy? We have PRINTED prosperity now! Thank you, Bubbles!
Fecebook stages a rally as Maria and her lips broadcast from MS
Had to turn the sound off ... gawd she makes me ill
I'm waiting for Fuckbook's Initial Pubic Offering. I smell a winner.
I think there is a close connection between fb, internet and the state of world financial affairs. Investors who question the underlying value are mocked as contrarian, orthodox "stock pickers". Things of substance and diligence are taken lightly. The implication is that it is not worth the effort to understand and you are not capable of understanding. Facebook was bought by retail and pro's not because of what it does but because it is expected that others will buy it to keep the party going - its not so much about being dumb as playing dumb because the alternative would be hard work and cooperation.
I'm really surprized that it is not tanking today into the close. It's the last day of the month -- who in their right mind would actually want to have to explain to clients why they own this dog?
Honestly? I don't think Bernanke will call a single one of us to explain why "we" own it.
I think it is difficult to say because the price is completely detached from the value. There will be periodic spikes on crap news it will probably ramp big time at some point - its truly a zombie operation no life of its own but plenty of beta for those prepared to play that game.
The other day someone posted a perfect list of the future news flow - potential aquisitions and synergies and such. I suspected they would let it fall by at least half before ramping it and pawning it to retail "clients".
I am sensing a bit of an implied entitlement in this commentary--that investors get a 'fair' deal from an IPO, as determined by the subsequent performance of the investment. Its the job of those selling securities to get the highest price they can. Its the responsibility of investors to take the risk, and if they refuse to exercise common sense and good judgement, to take an even greater risk. Absent any signs of accounting fraud, its the Greater Fool's problem if he chooses to play the Greater Fool--and gets his investment advice from the mass media.
Now I don't think facebook has much of a moat--any other social networking site can become fashionable, and we all recall that at one point myspace was the big dog on the block. So, a sane PE ratio may decimate the stock as the writer suggests, but the vicissitudes of fate bedevil the most thoughtful among us, and the irrationality of the investor in the aggregate is just that.
PS. Gold has gone down quite a bit lately--how dare those folks sell me an investment that would subsequently decline in value? ;)
You're very much on point. Everyday and everywhere I see and hear people blaming others for their incorrect and money-losing decisions. If you decided to engage in stock speculation you have to realize that you're on your own and against some very smart machines, i.e. HFT algos. If you don't understand that concept just stay the fuck out.
Internal locus of control for success + external locus of control for failure = American mind.
It's been nurtured that way for generations.
This is not a "bubble" but a Madoff. The difference is that in a bubble "the media shall not speak of such things" whereas in a Madoff "the media must create the reality of what is an unreality." Morgan Stanley was not the sole underwriter here...though obviously they were the smallest (which is why they bought protection.) JP was top table pounder here with Goldman (of course) as "the bag man." MS might be the driver of the getaway car..but they neither planned nor executed the heist. That would be CNBC, CNN, MSNBC, etc..etc...
Are you implying that sheeple blindly bought a hyped up stock? I get 10 e-mails a day of pump and dump schemes. At some point people need to grow up and man up. And since it's now UNIVERSAL knowledge that mainstream media pushes lies and falsehoods, therefore do not do as they preach, especially that you know that they are lying to your face.
Apparently Facebook trades at a multiple higher than 99% of the S&P 500.
Apple on the otherhand, trades at a multiple lower than 50% of the S&P 500.
One can only conclude that this market frowns upon revenues.
FB has much higher mark-to-unicorn numbers than Apple ever will. That is all that matters.
Maybe Zuckerberg can drop dead so he and steve can assrape each other for eternity in hell.
If it's consensual, it isn't rape. I think.
CIA has declared FB TBTF, government has begun acquiring shares...
facebutt..
So now we are seeing FB Phase 2.
It's not a $45 stock.
It's really a $29 stock. Seriously folks. If you got burned on the IPO or if you held off, now is the time to jump in!
Don't let this Golden Opportunity pass!
In another month, there should be a great opportunity for FB at $17.
I have all my money tied up in GRPN right now, once I get even from my IPO entry price I'm going to transfer over to FB.....
1 OZ of AG is almost the same price as a 1 share of assbook...hmmm should I wait another month until the price is $17?
In other news, Groupon's lockup period ends tomorrow. That should make for nice nose dive.
I'm sure the insiders will want to hold on this one, there's so much upside
Newsflash: Morgan Stanley was shorting FB the day of the IPO....
Lucky for them. Otherwise, they'd been dead by the end of the day buying it all back at $38.
If I did my job the way these assholes run the markets I would have been fired 100 times in the past month alone.
I'll have the product done on Wednesday.
On Wednesday: unforeseen circumstances caused a delay in getting the product done, but it will be done on Friday.
On Friday: The product is done but the manufacturer forgot to wire the power supply. It will be fixed by Tuesday.
On Tuesday: They hooked up the power supply but it turns out it was the wrong voltage. The new power supply comes in on Friday.
On Friday: The power supply works but I was too busy focusing on the power unit and I didn't notice that all the shells are the wrong color.
Meanwhile on my recommendation the company has already sold $100 million worth of the product and is waiting for the finished product to ship. Only in finance and politics could you be a complete fuckup and get paid millions of dollars. Ahhh the glory of getting rich without ever having to do a minutes worth of actual work.
Up a flat 5% on the day...down .50% in the aftermarket....a 2pm spike up....of course, no "news" driving this...
Just....MDB calling his broker..and a bunch of whales....
Manipulation..............NOOOOOOOOOOOOOO...come on )sarc(
pass this around.....
http://dl.dropbox.com/u/69942131/facerip.jpg
It even goes beyond this in regards to the sheer idiocy of buying instagram.
They just released an in house app, which of course is enough to make the entire rationale behind buying instagram completely retarded. But I forgot to mention, and I'm sure others realize, you don't even NEED an app to post pictures to facebook. (which is the entire purpose of the app).
The ability to send photos to facebook is already pretty much standardized on today's phones out of the box. (then of course realize you don't even need this since you can upload pictures the old fashioned way of actually uploading on-site).
So not only is the instagram puchase retarded, but one could also say even the in-house app is redundant and very easily is a waste of money since one's phone can already achieve the main reason that people are supposed to 'need' such an app. That is if you can't be bothered by doing it the old fashioned way.
Maybe on older model phones it makes a little sense, but this pool by nature, is shrinking every day. So while I can undestand an in-house app being designed as a stop gap until people upgrade their old phones, as taking a reasonable loss for bigger picture purposes, even it doesn't make much sense. Surely they can add more features in later versions, but the core functionality is already present in phones without the app, and you don't even need functionality to upload the photos on-site.
So why pay 1 billion dollars for somethign that is
a) possible without any app OR any built in standardized functionality
b) is standardized with newer phones with built in fuctionality
c) have an in house app which he MUST have known was coming out weeks after his 'purchase'
Zuckerberg isn't fit to make decisions for a Dairy Queen. He is a certifiable idiot. At least Jobs had a vision. In other words, there was a REASON Jobs did what he did. With Suckerberg, there isn't. Jobs saw the trends coming decades ahead, and needed to create the technology/wait for others to create it, on a grand life altering scale to achieve what he saw coming. Suckerberg's 'steve jobs vision' involves a few lines of code that is easily produced as it is software, that is only waiting for the people to degenerate into being hooked into his service further than they already are. Somehow I don't see the two visions as being even remotely comparable.
I don't even think Steve Jobs was all that, but he deserves the credit for seeing and driving the world on a macro basis that really influenced how the world works. Suckerberg just thinks more people interacting on facebook is the future and it in of itself is the change in the world, that he'll control, with pseudo data worth a quadrillion. In a sense they are actually quite opposite. Jobs was about empowering the person. Suckerberg is more about controlling the person.
Glass-Steagall
He bought the Instagram userbase.
He may have the idea that there's an "elite" of social networking--the people who make things look cool to all the followers. If so, it could've been a bet that the folks who were using Instagram a year ago will be cool and will be pushing the coolest and most popular ideas in the future.
So looking at whatever THEY'RE taking pictures of might make sense.
Personally, I don't buy it, because that whole "tastemaker" concept of elite social consumers makes far less sense in a world of people struggling to get by.
Once disposable income is gone, "chasing the trend" is a lot less appealing as a hobby.
It probably has more to do with ownership being censorship.
Capturing any mainstream way that people exchange information especially proof related information like photographic evidence and video recordings is essential for two reasons.
1. forces people back to lapdog media
2. prevents people exchanging reality based information about incidents and this in turn promotes narrative over fact.
there will always be a idiot that will buy something that is worthless
..well, apparently, right now there is about 2,545,300 people of whom you describe...buying it all up like the good lemmings that they are...the scary part is that they know they are lemmings and are o.k. with it.
If my paranoid dillusion holds true, FB will be pounded into a penny stock & some entity will step in & buy it out from the Zuck & turn it around. Maybe an entity that will allow uncle sam to keep tabs on chicks flashing their tit's etc ... oh well, back for another bong hit ...
Let us all celebrate together the gullibility of the brainwashed American (and worldwide) investor.
If it weren't for them, we might be at endgame, and that might not be too fun.
Give thanks to them for giving us time.
Keep on stacking, keep on preparing, for what you know must inevitably come some day.
right on about the insider unloading job
http://www.marketoracle.co.uk/Article34934.html
WHy did FB want to buy Instagram for 1 billion when they refused Yahoo's offer?
Funniest thing I have ever seen. Mark Zuckerberg refuses to sell his company to Yahoo for 1 billion. Now he offers 1 billion for Instagram. He is full of it.
Know I now Zuckerberg is totally corrupt and a greedy liar.
Instagram is the same thing as Facebook. Just a picture posting site and he feels threatened. Its actually quite comical.
Breast North Face Kids Denali sale North Face 2 In 1 sale cancer north faceensure North Face 3 In 1 sale North Face Men's 3 In 1 sale that your holiday does not turn intoa major health North Face Denali sale North Face Men's Apex Bionic sale North Face Women'sapex Bionic sale North Face Women's 3 In 1 saleNorth Faceapex Bionic sale disaster. These coatsare very comfortable,andare specially designed to protect the wearer North Face Ski saleagainst extremeNorth Face Men's Denali Hoodie sale North Face Men's Denali sale cold temperatures by becominga protective shieldagainst the cold, cruel blasts. Theyare not uglyand loose, like North Face Windstopper sale North Face Women's Denali Hoodie sale North Face Women's Denali sale most other jackets, which make you look fatand North Face Down sale short. These jacketsare designed exquisitely to providea stylish, sophisticated look, while North Face Men's Gore Tex saleNorth Face Women's Gore Tex saleat the same time, being your shieldagainst the cold. Thereare jackets for North Face Triclimate sale North Face Men's Gore Tex sale North Face Women's Gore Tex sale men, women North Face Steep Tech sale North Face Greenland Womens sale North Face Polyester McMurdo Parka saleand kids,andall of them can be ordered online.