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Golden Age of Silicon Valley Is Over With Facebook IPO
Hugh Pickens writes "Steve Blank, a professor at Berkeley and Stanford and serial entrepreneur from Silicon Valley, says that the the Facebook IPO is the beginning of the end for Silicon Valley as we know it. "Silicon Valley historically would invest in science, and technology, and, you know, actual silicon," says Blank. "If you were a good venture capitalist you could make $100 million." But there's a new pattern emerging created by two big ideas that will lead to the demise of Silicon Valley as we know it. The first is putting computer devices, mobile and tablet especially, in the hands of billions of people and the second is that we are moving all the social needs that we used to do face-to-face onto the computer and this trend has just begun. "If you think Facebook is the end, ask MySpace. Art, entertainment, everything you can imagine in life is moving to computers. Companies like Facebook for the first time can get total markets approaching the entire population." That's great for Facebook but it means Silicon Valley is screwed as a place for investing in advanced science. "If I have a choice of investing in a blockbuster cancer drug that will pay me nothing for ten years, at best, whereas social media will go big in two years, what do you think I'm going to pick?" concludes Blank. "The headline for me here is that Facebook's success has the unintended consequence of leading to the demise of Silicon Valley as a place where investors take big risks on advanced science and tech that helps the world. The golden age of Silicon valley is over and we're dancing on its grave.""
I wish I could agree with, but I can't. You see, Facebook uses the single most readily available resource humanity has - mediocrity, an outlet of which it essentially is. The vast majority of people are simply statistics. Nobody knows or cares about them except maybe for their relatives and a handful of acquaintances. Every like they get, every stupid comment on a picture they post compensates for their lack of self esteem and fuels their exhibitionism. Facebook it's not something you grow out of, but rather something you grow old into, because the older you get, the better you realize you're not worth much.
I watched the last 8 mins of trade and **SAW** the huge buys (didn't know who was making them at the time). Something's sour here, indeed.
Having said that, either you're engaging in pureplay sophistry or your understanding of how stocks prices, market cap, and profit interact are pretty damn weak. Handwavy bullshit everywhere.
Market cap is useful. Personally, I only care once I see P/E, which is a Share Price vs. Profit ratio. Newbie rule is that high P/E's (above 10-20) are signs of inflated stocks. Right now, stuff I buy has values like 12, 17, 11, 48, and 7. Seeing n/a or - makes an investor's job harder, since it means 'we lost money last year'.
Applying just this rule, here's what we get: I was considering Red Hat (RHT - hate 'em, but they're 'executing' a profitable business better than Ubuntu or Suse), but dropped that idea because they've got a P/E of 71. Eew, Fsck That. Everyone else already is overpaying a 'but they'll grow' premium for RHT; so much so that RHT has to about triple in size to be worth my investing in a company I can't stand. OTOH, I overruled disdain and bought MSFT at a P/E of 11.
From there, what you can do to find an economic edge is limitless. Stock trading's possibilities for seeking an edge via statistics and predictive models is the proverbial "elephants all the way down".
Back to FB's value: Let me take your 2nd 'graf and say the truth vs. your spin: The conditions under which FB would really be worth $100B are that someone buys all shares available at the asking price associated with $100B, and/or if FB has profitability and business growth that fit such a share price. The first one's getting some serious propping up by institutional investors. That's spooky as fsck.
So, let's look at Facebook's P/E: 88.xx -- (whistles /) Huh. That's pretty damn steep. It really is analogous to AOL-TimeWarner's albatross pricing. Or a bunch of dot-coms. But it's also close to RHT at 71. And freakin' AT&T is selling at a P/E of 48.
Again, what's Facebook worth? Well, a good question is: Between RHT, T (AT&T) and FB (all overvalued according to P/E) : which one's going to do a better job of carving new income streams and profitabilities out of the next 3 years? And if FB deflates to 30 bucks a share, would you change your opinion if it was more profitable per share than T and RHT? If we shrink FB shares to make a P/E of 12, we get '
No conclusions offered -- I'm just watching the show. Full disclosure: I own some MSFT and T, but no FB or RHT. My brother bought some FB, though. When I started writing this, I would have said 'dumbass brother'. Given the ways I could monetize a billion users without even touching their personal information... hmm.