I think people are getting confused by mixing up P/Earnings and P/Book.
FaceBook does not have a high P/B becuae they don't own much of anything. I am not sure, but I would guess they lease most of their computers. Most of their book value is their cash held.
BP on the other hand has lots of assets. Oil refiners, wells, etc. And while they do have 300B pounds worth of assets they also have 180b pounds worth of liabilities. So yeah, it does kind of make sense they are worth 150b.
I think you need to reread the article. MS would not have a net short from this transaction.
The Greenshoe exception is that if the prospectus says the company is offering X shares, and the demand is high, the underwriters can issue additional 15% of shares without filling a new prospectus. It MS did offer extra shares, they would not be short - they would be offering additonal new shares. They would pick up their 7% commsion and FB would ger the rest. And I don't think they used the Greenshoe expection - I can't find any fillings on that. Also, they increase the number of shares prior to the IPO and had trouble selling those extra shares - Greenshoe only applies after.
And I am trying to figure out why people are saying the underwritters are propering up the shares. I have read reports talking about it but as far as I can tell they are talking out of thier hat. I can't find any primary source to suggest that they are. (And it feels wrong. Underwritting is about not taking risks. Sell the stock of shares you have been allocated and pick up your 7%. You are not supposed to have any inventory left over).
So, let me try to refine your thinking some and get away from the hand waving.
First, some facts. Their book value is $3.22. Of that $2.94 is cash. There assets (such as IP) is probably higher, but this lets us start off with some hard numbers. I am not sure where you are getting $0.35 EPS. Their trailing EPS is $0.46 and the consensus forecast is $0.564.
What’s the right P/E ratio? Don’t try to guess at the P/E ratio and then discount it. You are making 2 guesses. Just knock down the P/E ratio – it’s simpler. For the S&P 500, which we can use as a baseline for “normal” growth, it’s currently 13. Stocks warrant a P/E ratio above 13 only if they have above normal growth prospects.
In order to justify Apple at we must assume that Apple is going to be growing 15% for 5 years before reverting to average growth. And while high, Apple has been experiencing a long period of high growth.
FB is currently trading at around 60. That requires 25% growth for 10 years. But, unlike Apple, FB experiencing exponential growth. It’s growth has been increasing at a increasing rate. Trying to peg when this growth will revert to normal is the tricky question. However, once you answer that question, you can back into the P/E ratio. If you want to discount for a margin of error, then decrease the P/E ratio. (or better yet, increase your risk premium when calculating the P/E ratio – but that is another conversation.)
There are 3 reasons why you would expect the price to be higher in the future. (Most) companies
Inflation: Companies tend to own real assets. As inflation occurs the values of the assets go up.
Growth: Most companies are economically viable, meaning they generate real value. Some value they pay out as dividends, the rest is reinvested. This reinvested profit grows at a compounding rate. As time goes on, this compounding growth become more certain and the discount value goes down (See my post below)
And the big one - Buybacks. Some companies prefer to use their profits to buy back their shares instead of paying a dividend. Dividends are taxed at ordinary income (33% before Bush’s tax cuts) while long term capital gains are at 15%. Same amount of profit but fewer shares means a higher price. (It’s trickerier then that, but the basic grist is right.)
I have read the article and it does not feel right.
First, I would like to know what filings the reporter is talking about because I can’t find them. And, if the banks were holding the stocks it would be on their proprietary account – and banks don’t like disclosing their current holdings at all.
Second, it does not feel right. As you say, of the $16b offered the banks still hold $11.76b, or 75% of the stock offered. The goal of an IPO, from the underwriter’s perspective, is to sell the entire inventory. The underwriters increased the price and amount of the IPO in response to heavy demand from their customers. I am sure that some got cold feet on Friday but it would have required a huge miscalculation by the underwriters to be left with 75%
Technically, it is not dividends – it is future cash flow. To refine you argument, the value of a stock today is the sum of all discounted future cash flows to the shareholder.
Where “discounted” = time value. i.e. a $100 dividend a year from now is worth, say 90, while a $100 dividend 5 years from now is worth, say $40, based on 10%.
I say this because dividends are not the only way for the shareholder to get cash. Stock buybacks, company mergers, etc. at other ways,.
While zero is the least money you could invest, I knew people back in the.com days whose investment was less then zero.
They would buy a lot of.com stock on margin (i.e. a stock loan), and the stock would fall faster then they could sell it - leaving them with no stock plus a loan (i.e. a negative investment)
You lost me here. When you say they were paid $177, I think you are talking about the underwritting fee that was paid to the 11 brokers, JP Morgan only being one.
That fee was to sell and market FB shares to thier clients - they earned that fee around mid-day Friday when they sold all of their stock to their clients.After that they don't have much in the way of responsblites. It might dent their reputation on the client side - having sold shares too high. However, they would not have any monatary loss since they would not have any shares left on theri books.
Generally speaking, there is not much they can do to prop up the price. And I don't even know why they would.
Legally they can prop up the price if they still have shares on their books, but they don't.
They could try to manipulte the secondary market. Over 100m shares have traded today, or over 4 billion. Hard to move anything with that much volume. And if you tried to move the market the High Fequance Trades would rip your face off. (If anybody is looking for a reason to love these "bloodsuckers" just remeber they keep the big boys honest.)
What you are saying is true today, but what about tomorrow?
I am still reading the articles, but IIRC ARM was going to launch a line of low end server CPU in about 2 years - which would aim squarely at Intel. As ARM grows, both Intel and ARM will start invading each others territories.
It's not random. They are copying us - thus they don't want IP laws (China more so then anyone else.).
Brazil, India and China's is based on convergence. Get the basics right (education, infrastructure, workable business law & regulations), then all you have to do is copy what the west has already done. The majority of China's growth is not sexy - it's basic industrialization that the west has already done.
Now, jump forward 0 to 40 years depending on the industry.In order to grow China et. al will have to innovate in order to grow. All of the easy copying will have been done. Which means pouring huge amounts of dollars into R&D. I don't think China would look kindly on other people using that R&D.
You are right. The solid rockets are kind of like bottle rocks - once lit they stay lit.
IIRC after the first shuttle disaster they looked at installing at some kind of exotic method of shutting down the solid boosters after ignition, but it was impractical.
The difference is in how you incentivize the contractor. I have to agree with you, in the sense that we have the same buyer in either case.
Under the old system, it was lead by NASA on a cost + profit basis. Bureaucrats are punished more for failure but then rewarded by successes, so they are going to be a bit more cautions. Since the contractors are cost plus, they are always willing to follow, charging extra for more tests, more gold plating.
Under the new "private" system SpaceX is paid for each cargo they haul up, so the lower they can keep costs the more they can reap in profits. This makes them more aggressive / risk taking then the current NASA system..
It means that the Investment Bankers priced the stock too high. That they were able to force / persuade their clients to buy it up front, but there was nobody in the secondary market.
For Facebook, in the short run they don't care. They have gotten their cash.
In the long run - maybe something, maybe nothing. I see that FB finished up. As I mentioned in a prior post, Google also had slow start. I think it is because the underwriters up the shares and price at the last moment - so they grabbed the majority of the "up" before it went public.
However, I could be wrong. If so this means that FB is priced too high and could fall sharply in the next 6 months.
First - making any other predictions? Let us say you have a 50/50 chance with FB. In 5 years you could be right because you were perceptive or lucky. Statistics won't tell you which. You need to make a lot of predictions.
Second, why don't you try some type of forced investment planning? Something like investing in your 401(k) and only checking and rebalancing your portfolio once a year? Promise you will put 50% of your next pay increase into savings? If you know you have poor control you can set up road blocks that will give you extra time to think.
Mod parent up. It's the winner's curse of auctions.
Google also "stumbled" out of the blocks because it's reverse dutch auction shifted a lot of the money to the founders and away from the IPO investors.
Facebook is kind of doing the same thing. They cranked up the price and quantity when the figured out demand would be so high - once again shifting profit to the founders who are selling.
But you can't short an IPO for the first 30 days, IIRC. (For myself, it is not the mechanics that scare me, it's the risk. Saw I guy short.coms in the 90's - lost all of his money before the bubble burst. The market can remain irrational longer then you can remain liquid.) So you are better off with the puts - which I predict will be very expensive.
How do you calculate the subsides? We are not talking about direct subsides but indirect.
When a "private" bank (where the state owns shares and a party member sits on the board) offers a loan, how do you determine if it's cheap or just competitive? When the state has lax pollution controls, is that because they are favoring the industry or because they have their NIMBYs under control?
Or, my favorite example, Boeing vs.Airbus. Airbus has gotten launch loans - loans they did not have to repay if they airplanes designs failed. That takes a lot of risk out of a project - heads I win, tails you loose. We can measure that. On the other hand, Boeing was able to do a lot of aircraft desgin for the Defense Department / NASA which they transferred over to their civilian division. How do you measure that?
1. Fire a lot of people, breaking the pact that the Communist part can stay in power as long as they provided jobs and growth for everybody or
2. Take ill advised loans. Sure, there is a chance you can't pay them back - but that's o.k. - you can always borrow more money to pay back the nonperforming loans.
Chin'a capital system is susceptible to political power.
Or, another theory is that they are willing to subsides the venture until they become profitable. Sorta of like Microsoft and (XBox / Zune). Willing to loose money for years until they hit a break even point. Of curse, this ties nicely into my second point. What is the difference between an ill advised loan and a gamble for long term gains? I will give you a hint - it's the subsisted loans.
I am not talking about people renouncing citizenship to dodge taxes. I am talking about how expatriate get taxed in the normal, income sense of the word.
US citizens get taxed twice when they work overseas. Once locally, once by the US.
Foreign citizens who work in the US get taxed only once - by the US.
Yes, there is some tax relief written in the tax code, but it makes things harder and more complex. If a US company wants to expand overseas it puts them, and any US citizens they want to hire, at a disadvantage.
And, to your point directly, I am o.k. with people who renounce their citizenship to come visit the US. I would be o.k. if Terry Gilliam (Monty Python, Brazil) came back for an extended stay in the US. We live in a global economy. If we expect to lure top flight talent to the US we kind of have to play fair and expect some the talent to flow the other way. Being small and petty will not help the US. And it looks like Saverin is paying the taxes due as per the law, I have no issue.
The US if fairly unique in that we tax
1. People who live & work inside our boarders (which is common) and
2. US citizens who live and work abroad. IIRC only South Africa has a similar tax regime.
So if you live in the US and renounce your citizenship you still have to pay US taxes.
And sadly, in a global economy, this puts US workers and companies at a disadvantage. Foreigners (either people or companies) pay lower taxes then if the situation was flipped.
But he is moving to Singapore which has a zero capital gains rate - so unless the U.S. drop's it's capital gain to zero....
On the other hand, it's not like he is not paying his taxes. When he drops U.S. citizenship he has to pay capital gains tax on the FB stock as if he had sold it - so he will be paying taxes. Add to the face that many slashdotters think that FB stocks is going to zero soon it would be in the US interest for him to pay capital gains tax now. What is happening is the US is forgoing potential future capital gains.
And in the larger picture, we should be less petty. If we want to grow that means engaging in the world. In order to attract the best people and best opportunities we need to be open. If we selfishly hold to tightly to what we have today we won't have it tomorrow.
I think you are mashing two different ideas in your first point.
The standard way to value a stock is the P/E ratio. If FB makes $.59 per share next year and the stock is priced at $37.50 that would give us a P/E ratio of 63. If you take the inverse of the P/E ratio you get a simple rate of return of 1.6%. This is a better way to calculated then your method.
Which moves us to $120 price per head. This is a hoary method of valuating stock, normally used when the growth of a company is unpredictable. This was used in the early days internet bubble #1, when Google bought YouTube, NewsCorp and MySpace and again during Internet 2.0. What you are saying here is that we have a large core of passionate users. We donâ(TM)t know how to exploit / monetize them â" but we will figure it out. And this method kind of worked at the tail end of the first internet bubble. People had figured out that if we get X eyes viewing ad banners, content and servers cost Y, we should be able to make profit Z. Because at that point people knew how much ad revenue to expect. (Of course, being able to put a value on something does not mean things will work out well. MySpace did deliver the profits to NewsCrop as long as the delivered the eyeballs required â" and when the eyeballs stop showing upâ¦..)
Which brings us to your points 2 to 4. A P/E ratio is not exactly safe number. The only reasons why one would buy FB at that value is because 1. You think FB is going to get a lot more users and/or 2. FB is going to be able to generate a lot more revenue from the existing users. (Selling better data to advertising and search agencies, (up)selling better games, etc)
I am not saying you are wrong â" I am just pointing out that the items 2 to 4 can be boiled down to getting more money per user.
I love it when people use the hackneyed logic. Yes it is true – but it does not mean that a company hast to rape, pillage or commit short term fixes to make next quarter’s earnings. As long as the C.E.O. can stand up and say – with a straight face – that their actions is part of a plan for the long term good of the company their safe.
What this phrase means is that Zuckerberg can’t screw the minority shareholders because it’s inconvenient. If company X offered to buy out FB at a 20% premium, Zukcerberg must evaluate that offer in the interest of all shareholders – not on the basis that he would be kicked out of the door the following day.
And to answer the original question, I would not think the FB will change it’s privacy policy much. Yes, shareholders can bring pressure. But Zuckerberg controls over 50% of the voting stock and he has been exerting a lot of pressure to grow Facebook – so I don’t see the overall pressure, which is high, to change. (Which I thinks says something about my opinion about FB’s privacy policy – so take it with a grain of salt.)
Slashdot Mirror
They got 16b of funds, not 100b. They only sold a fraction of their shares.So they were worth 100b - and now only 68b
I think people are getting confused by mixing up P/Earnings and P/Book.
FaceBook does not have a high P/B becuae they don't own much of anything. I am not sure, but I would guess they lease most of their computers. Most of their book value is their cash held.
BP on the other hand has lots of assets. Oil refiners, wells, etc. And while they do have 300B pounds worth of assets they also have 180b pounds worth of liabilities. So yeah, it does kind of make sense they are worth 150b.
I think you need to reread the article. MS would not have a net short from this transaction.
The Greenshoe exception is that if the prospectus says the company is offering X shares, and the demand is high, the underwriters can issue additional 15% of shares without filling a new prospectus. It MS did offer extra shares, they would not be short - they would be offering additonal new shares. They would pick up their 7% commsion and FB would ger the rest. And I don't think they used the Greenshoe expection - I can't find any fillings on that. Also, they increase the number of shares prior to the IPO and had trouble selling those extra shares - Greenshoe only applies after.
And I am trying to figure out why people are saying the underwritters are propering up the shares. I have read reports talking about it but as far as I can tell they are talking out of thier hat. I can't find any primary source to suggest that they are. (And it feels wrong. Underwritting is about not taking risks. Sell the stock of shares you have been allocated and pick up your 7%. You are not supposed to have any inventory left over).
So, let me try to refine your thinking some and get away from the hand waving.
First, some facts. Their book value is $3.22. Of that $2.94 is cash. There assets (such as IP) is probably higher, but this lets us start off with some hard numbers. I am not sure where you are getting $0.35 EPS. Their trailing EPS is $0.46 and the consensus forecast is $0.564.
What’s the right P/E ratio? Don’t try to guess at the P/E ratio and then discount it. You are making 2 guesses. Just knock down the P/E ratio – it’s simpler. For the S&P 500, which we can use as a baseline for “normal” growth, it’s currently 13. Stocks warrant a P/E ratio above 13 only if they have above normal growth prospects.
In order to justify Apple at we must assume that Apple is going to be growing 15% for 5 years before reverting to average growth. And while high, Apple has been experiencing a long period of high growth.
FB is currently trading at around 60. That requires 25% growth for 10 years. But, unlike Apple, FB experiencing exponential growth. It’s growth has been increasing at a increasing rate. Trying to peg when this growth will revert to normal is the tricky question. However, once you answer that question, you can back into the P/E ratio. If you want to discount for a margin of error, then decrease the P/E ratio. (or better yet, increase your risk premium when calculating the P/E ratio – but that is another conversation.)
There are 3 reasons why you would expect the price to be higher in the future. (Most) companies
Inflation: Companies tend to own real assets. As inflation occurs the values of the assets go up.
Growth: Most companies are economically viable, meaning they generate real value. Some value they pay out as dividends, the rest is reinvested. This reinvested profit grows at a compounding rate. As time goes on, this compounding growth become more certain and the discount value goes down (See my post below)
And the big one - Buybacks. Some companies prefer to use their profits to buy back their shares instead of paying a dividend. Dividends are taxed at ordinary income (33% before Bush’s tax cuts) while long term capital gains are at 15%. Same amount of profit but fewer shares means a higher price. (It’s trickerier then that, but the basic grist is right.)
I have read the article and it does not feel right.
First, I would like to know what filings the reporter is talking about because I can’t find them. And, if the banks were holding the stocks it would be on their proprietary account – and banks don’t like disclosing their current holdings at all.
Second, it does not feel right. As you say, of the $16b offered the banks still hold $11.76b, or 75% of the stock offered. The goal of an IPO, from the underwriter’s perspective, is to sell the entire inventory. The underwriters increased the price and amount of the IPO in response to heavy demand from their customers. I am sure that some got cold feet on Friday but it would have required a huge miscalculation by the underwriters to be left with 75%
Technically, it is not dividends – it is future cash flow. To refine you argument, the value of a stock today is the sum of all discounted future cash flows to the shareholder.
Where “discounted” = time value. i.e. a $100 dividend a year from now is worth, say 90, while a $100 dividend 5 years from now is worth, say $40, based on 10%.
I say this because dividends are not the only way for the shareholder to get cash. Stock buybacks, company mergers, etc. at other ways,.
While zero is the least money you could invest, I knew people back in the .com days whose investment was less then zero.
They would buy a lot of .com stock on margin (i.e. a stock loan), and the stock would fall faster then they could sell it - leaving them with no stock plus a loan (i.e. a negative investment)
You lost me here. When you say they were paid $177, I think you are talking about the underwritting fee that was paid to the 11 brokers, JP Morgan only being one.
That fee was to sell and market FB shares to thier clients - they earned that fee around mid-day Friday when they sold all of their stock to their clients.After that they don't have much in the way of responsblites. It might dent their reputation on the client side - having sold shares too high. However, they would not have any monatary loss since they would not have any shares left on theri books.
Generally speaking, there is not much they can do to prop up the price. And I don't even know why they would.
Legally they can prop up the price if they still have shares on their books, but they don't.
They could try to manipulte the secondary market. Over 100m shares have traded today, or over 4 billion. Hard to move anything with that much volume. And if you tried to move the market the High Fequance Trades would rip your face off. (If anybody is looking for a reason to love these "bloodsuckers" just remeber they keep the big boys honest.)
What you are saying is true today, but what about tomorrow?
I am still reading the articles, but IIRC ARM was going to launch a line of low end server CPU in about 2 years - which would aim squarely at Intel. As ARM grows, both Intel and ARM will start invading each others territories.
It's not random. They are copying us - thus they don't want IP laws (China more so then anyone else.).
Brazil, India and China's is based on convergence. Get the basics right (education, infrastructure, workable business law & regulations), then all you have to do is copy what the west has already done. The majority of China's growth is not sexy - it's basic industrialization that the west has already done.
Now, jump forward 0 to 40 years depending on the industry.In order to grow China et. al will have to innovate in order to grow. All of the easy copying will have been done. Which means pouring huge amounts of dollars into R&D. I don't think China would look kindly on other people using that R&D.
You are right. The solid rockets are kind of like bottle rocks - once lit they stay lit.
IIRC after the first shuttle disaster they looked at installing at some kind of exotic method of shutting down the solid boosters after ignition, but it was impractical.
The difference is in how you incentivize the contractor. I have to agree with you, in the sense that we have the same buyer in either case.
Under the old system, it was lead by NASA on a cost + profit basis. Bureaucrats are punished more for failure but then rewarded by successes, so they are going to be a bit more cautions. Since the contractors are cost plus, they are always willing to follow, charging extra for more tests, more gold plating.
Under the new "private" system SpaceX is paid for each cargo they haul up, so the lower they can keep costs the more they can reap in profits. This makes them more aggressive / risk taking then the current NASA system..
It means that the Investment Bankers priced the stock too high. That they were able to force / persuade their clients to buy it up front, but there was nobody in the secondary market.
For Facebook, in the short run they don't care. They have gotten their cash.
In the long run - maybe something, maybe nothing. I see that FB finished up. As I mentioned in a prior post, Google also had slow start. I think it is because the underwriters up the shares and price at the last moment - so they grabbed the majority of the "up" before it went public.
However, I could be wrong. If so this means that FB is priced too high and could fall sharply in the next 6 months.
Two points.
First - making any other predictions? Let us say you have a 50/50 chance with FB. In 5 years you could be right because you were perceptive or lucky. Statistics won't tell you which. You need to make a lot of predictions.
Second, why don't you try some type of forced investment planning? Something like investing in your 401(k) and only checking and rebalancing your portfolio once a year? Promise you will put 50% of your next pay increase into savings? If you know you have poor control you can set up road blocks that will give you extra time to think.
Mod parent up. It's the winner's curse of auctions.
Google also "stumbled" out of the blocks because it's reverse dutch auction shifted a lot of the money to the founders and away from the IPO investors.
Facebook is kind of doing the same thing. They cranked up the price and quantity when the figured out demand would be so high - once again shifting profit to the founders who are selling.
But you can't short an IPO for the first 30 days, IIRC. (For myself, it is not the mechanics that scare me, it's the risk. Saw I guy short .coms in the 90's - lost all of his money before the bubble burst. The market can remain irrational longer then you can remain liquid.) So you are better off with the puts - which I predict will be very expensive.
How do you calculate the subsides? We are not talking about direct subsides but indirect.
When a "private" bank (where the state owns shares and a party member sits on the board) offers a loan, how do you determine if it's cheap or just competitive? When the state has lax pollution controls, is that because they are favoring the industry or because they have their NIMBYs under control?
Or, my favorite example, Boeing vs.Airbus. Airbus has gotten launch loans - loans they did not have to repay if they airplanes designs failed. That takes a lot of risk out of a project - heads I win, tails you loose. We can measure that. On the other hand, Boeing was able to do a lot of aircraft desgin for the Defense Department / NASA which they transferred over to their civilian division. How do you measure that?
Social Stability.
You can either
1. Fire a lot of people, breaking the pact that the Communist part can stay in power as long as they provided jobs and growth for everybody or
2. Take ill advised loans. Sure, there is a chance you can't pay them back - but that's o.k. - you can always borrow more money to pay back the nonperforming loans.
Chin'a capital system is susceptible to political power.
Or, another theory is that they are willing to subsides the venture until they become profitable. Sorta of like Microsoft and (XBox / Zune). Willing to loose money for years until they hit a break even point. Of curse, this ties nicely into my second point. What is the difference between an ill advised loan and a gamble for long term gains? I will give you a hint - it's the subsisted loans.
I am not talking about people renouncing citizenship to dodge taxes. I am talking about how expatriate get taxed in the normal, income sense of the word.
US citizens get taxed twice when they work overseas. Once locally, once by the US.
Foreign citizens who work in the US get taxed only once - by the US.
Yes, there is some tax relief written in the tax code, but it makes things harder and more complex. If a US company wants to expand overseas it puts them, and any US citizens they want to hire, at a disadvantage.
And, to your point directly, I am o.k. with people who renounce their citizenship to come visit the US. I would be o.k. if Terry Gilliam (Monty Python, Brazil) came back for an extended stay in the US. We live in a global economy. If we expect to lure top flight talent to the US we kind of have to play fair and expect some the talent to flow the other way. Being small and petty will not help the US. And it looks like Saverin is paying the taxes due as per the law, I have no issue.
My point was that the only way we could undercut Singapore's zero capital gain rate would be to drop the tax or impose a negative tax.
If Saverin's main point is to find a find the lowest tax regime, and his primary income is from capital gains, Singapore is going imposable to beat.
The US if fairly unique in that we tax
1. People who live & work inside our boarders (which is common) and
2. US citizens who live and work abroad. IIRC only South Africa has a similar tax regime.
So if you live in the US and renounce your citizenship you still have to pay US taxes.
And sadly, in a global economy, this puts US workers and companies at a disadvantage. Foreigners (either people or companies) pay lower taxes then if the situation was flipped.
But he is moving to Singapore which has a zero capital gains rate - so unless the U.S. drop's it's capital gain to zero....
On the other hand, it's not like he is not paying his taxes. When he drops U.S. citizenship he has to pay capital gains tax on the FB stock as if he had sold it - so he will be paying taxes. Add to the face that many slashdotters think that FB stocks is going to zero soon it would be in the US interest for him to pay capital gains tax now. What is happening is the US is forgoing potential future capital gains.
And in the larger picture, we should be less petty. If we want to grow that means engaging in the world. In order to attract the best people and best opportunities we need to be open. If we selfishly hold to tightly to what we have today we won't have it tomorrow.
I think you are mashing two different ideas in your first point.
The standard way to value a stock is the P/E ratio. If FB makes $.59 per share next year and the stock is priced at $37.50 that would give us a P/E ratio of 63. If you take the inverse of the P/E ratio you get a simple rate of return of 1.6%. This is a better way to calculated then your method.
Which moves us to $120 price per head. This is a hoary method of valuating stock, normally used when the growth of a company is unpredictable. This was used in the early days internet bubble #1, when Google bought YouTube, NewsCorp and MySpace and again during Internet 2.0. What you are saying here is that we have a large core of passionate users. We donâ(TM)t know how to exploit / monetize them â" but we will figure it out. And this method kind of worked at the tail end of the first internet bubble. People had figured out that if we get X eyes viewing ad banners, content and servers cost Y, we should be able to make profit Z. Because at that point people knew how much ad revenue to expect. (Of course, being able to put a value on something does not mean things will work out well. MySpace did deliver the profits to NewsCrop as long as the delivered the eyeballs required â" and when the eyeballs stop showing upâ¦..)
Which brings us to your points 2 to 4. A P/E ratio is not exactly safe number. The only reasons why one would buy FB at that value is because 1. You think FB is going to get a lot more users and/or 2. FB is going to be able to generate a lot more revenue from the existing users. (Selling better data to advertising and search agencies, (up)selling better games, etc)
I am not saying you are wrong â" I am just pointing out that the items 2 to 4 can be boiled down to getting more money per user.
I love it when people use the hackneyed logic. Yes it is true – but it does not mean that a company hast to rape, pillage or commit short term fixes to make next quarter’s earnings. As long as the C.E.O. can stand up and say – with a straight face – that their actions is part of a plan for the long term good of the company their safe.
What this phrase means is that Zuckerberg can’t screw the minority shareholders because it’s inconvenient. If company X offered to buy out FB at a 20% premium, Zukcerberg must evaluate that offer in the interest of all shareholders – not on the basis that he would be kicked out of the door the following day.
And to answer the original question, I would not think the FB will change it’s privacy policy much. Yes, shareholders can bring pressure. But Zuckerberg controls over 50% of the voting stock and he has been exerting a lot of pressure to grow Facebook – so I don’t see the overall pressure, which is high, to change. (Which I thinks says something about my opinion about FB’s privacy policy – so take it with a grain of salt.)