[byrneseyeview]

Google was underpriced at the IPO; there's no indication that stocks should be systematically underpriced to the same extent.

Since Google went public, investors have learned a lot more about how these business models work, and how quickly they can build durable competitive advantages.

If "Can it go up 5X" were the threshold for going public, investors would price this in, so the actual threshold would drop.

The bull case for Facebook is basically that it's by far the cheapest platform for spreading memes--whether those memes are shared infographics, political slogans, or, say, the existence of Gap's latest sale. Plus, FB owns identity in a way few other sites can match--even Google only owns identity around the ages (they know what you want but don't yet have; Facebook knows more about who you are). Through credits, FB essentially owns a piece of any successful business built on its platform; if it were a country, $100bn would not be an excessive valuation to put on the net present value of its future taxes collected, less collection costs.

[RuggeroAltair]

> If "Can it go up 5X" were the threshold for going public, investors would price this in, so the actual threshold would drop.

I agree with this. All I'm saying is that most companies can in general grow, and so it depends on you whether or not you want to buy stocks.

In Google case, they underestimated it. And who bought might be doing quite well right now.

In Facebook case, in my opinion they aren't underestimating it, and I just think it's hard to grow much more than they are already.

First, they have already 1 billion users (order of magnitude). There is no way they can go to 10 billions, just because they don't exist.

Second, I believe that the external pressure from other companies will somehow kick in, not allowing one only company to rule the world. Maybe some anti monopoly laws, some other platform, a yahoo -> google effect, I don't know.

It just seems unlikely to me that Facebook will be doing much much better. I may be wrong, but in the long run I'd still buy GOOG or AAPL towards whatever Facebook code will be.

What the stock will do in the short run is a different thing, maybe boosted by the media, who knows...

[byrneseyeview]

Well, yes. Facebook's IPO is unlikely to perform like one of the best-performing IPOs ever, especially since we can look back at why investors underestimated Google after that IPO.

The bull case on Facebook doesn't rely on a linear increase in the number of users; it's about an increase in the amount of revenue per user. (That's the case with Google, too; searches per year are going up at ~10% per year in the US; Google is making money by directing more of the end clicks to stuff that monetizes.)

So the people who are bullish on Facebook largely agree with you; they're just bullish based on stuff you haven't mentioned.

In finance, it's not enough to know that you disagree with the market. It's important to articulate what other people think, and why they're wrong. You can't truly say that you'd be willing to bet against the consensus unless you can explain what that consensus is.

It's a little bit like religious debates; someone like Dawkins or Dennett doesn't just have a theory of existence--they have a meta-theory explaining why other people would believe in a different explanation, and why such beliefs are compatible with their general worldview.

[RuggeroAltair]

I agree with this as well.

My second point was maybe short but it was about the revenue per user. I certainly believe that Facebook will increase the amount of revenue per user, but there is where I believe that they can do a lot but not too much without risking to crunch.

I really liked your Dawkins/Dennett reference. In this case, I believe that people feel like Facebook is unstoppable and that can do more than Google, Apple, Microsoft and so on. In my opinion this is understandable since so many people spend time on it that they can't believe it'll disappear.

The reason why I think they are wrong just relies on how I think these things go. I am not saying that Facebook will stop growing or disappear in less than 2 years, I would be just silly.

I'm saying that if you compare Google, Microsoft and Apple, just to mention few of the big ones, to Facebook, they have many many more products. It's true that the search doesn't increase too much in the US for Google, but they are developing many products like wallet or automated cars or (huge list). Apple is doing the same.

But I think that there is a physical limit. How can a software company (maybe also hardware in the future), be orders and orders of magnitude larger than all the other ones. By the time you are so much bigger than the other ones, natural selection rules start pressuring you and you'll have to stop trying to be everything.

Now, Apple is probably considered to be worth $500B and Microsoft and Google a couple of hundred billions, and, to me, Facebook still needs to do a lot of work to shift enough to be like them. The difference is that they have only one product: a website. If they start losing Facebook users, they might not have a lot of time to shift, because they might lose them all. Yahoo made some mistakes when they were pretty strong and lost traction.

Will Facebook be able to sustain the impact of a $100B evaluation without making (big) mistakes?

Maybe I'm naive, but I believe that they will start selling physical things and will have their OS and all that, but just because they will become an entire world like PC vs MAC vs Linux then they will probably sattle near those companies, probably at the same order of magnitude evaluation.

Speaking of memes, maybe I'm naive, again, but something called Facebook can only cross some lines, but it can't be the internet or too much related to a product that doesn't exist any more.

Shifting is very complex in a world where the imprinting is so strong (try play loose the first game of poker with some players, they will be convinced you are a loose player for a long time, even if you are a tight player and played loose only the first game to throw them off).

Same, in my opinion, goes with Dropbox. They can probably absorb the $250M investment to buy more servers/expand/develop new features. But it triggers my attention when a company does that. Because first, it basically means that they will never sell any more (to whom at this point? Facebook maybe? ;-) ). And second, because I wonder why a company that is supposed to have something on the order of $250M revenue per year needs a $250M investment. It scares me (it scares me also becuase they don't seem very concerned about security). And the meme is strange also over there. Can I immagine some sort of generic OS or product called dropbox? I can sell harddrives called dropbox, I can sell a place where to look at pictures called dropbox, I can sell some sort of Netflix machine called dropbox, but can I sell a phone called dropbox? Or a laptop? Again, I'm not saying they'll crash or anything. But I'm just looking at them with suspicion, maybe intrigued to see what they come up with.

It's all about "shifting wisely" after all when you get so big, and unlike Google and Apple that accomplished so much shifting, Facebook so far has shifted very very little (and so has Dropbox). The code is maybe different, the look maybe a little more elegant, the platform for developers maybe a lot more elaborated, but overall it's still pretty maniacally and maybe dangerously close to what it was on day 1.

OK sorry, I didn't mean to write an essay! But it's done, so...

[vessenes]

Google was massively underpriced at the IPO, (as in $80/share or so if I recall) but this was mostly for insider reasons -- they IPO'ed using a sort of reverse auction method that cut out traditional I-Banking pre-sales. The bankers largely revolted in exchange; this led to at least one of the Google VCs pulling the shares from the offering altogether and holding them.

Smart VCs!

Anyway, that said, I'm a bull on Facebook. It's incredibly hard to stop using. And they're (purportedly) profitable, and growing, and have barely started monetizing their user base.