Liberty Posted September 5, 2014 Share Posted September 5, 2014 I bought a small stake in FB recently. Interesting. Can you elaborate a little on your thesis, Scott? Thank you. Link to comment Share on other sites More sharing options...
ScottHall Posted September 5, 2014 Share Posted September 5, 2014 I bought a small stake in FB recently. Interesting. Can you elaborate a little on your thesis, Scott? Thank you. Sure. Here are some notes I took on it a while back. EDIT: Actually, I'm going to hold on to this for a couple weeks. I'll make a new post then. Link to comment Share on other sites More sharing options...
VAL9000 Posted September 17, 2014 Share Posted September 17, 2014 Does anyone else find it remarkable that FB earns ~ 50% operating margins while also growing revenue by ~ 50% year over year ? The company is expensive, but the earnings power is remarkable. Last fiscal year revenue increased by 55% while operating expenses rose by just 11%. What am I overlooking when I say these metrics are stunning? Link to comment Share on other sites More sharing options...
meiroy Posted October 16, 2014 Share Posted October 16, 2014 http://www.theonion.com/articles/facebook-offers-to-freeze-female-employees-newborn,37189/ MENLO PARK, CA—As part of their efforts to accommodate women who wish to delay parenthood, Facebook officials announced Wednesday that the company will offer financial assistance for female employees to freeze their newborn children. “We recognize the many challenges women face starting a family and balancing a career, which is why our company will provide extensive support to female employees who want to preserve their infant in a frozen state of suspended animation until they’re ready for child-rearing,” said Facebook spokesperson Mary Copperman, who added that the company would pay up to $20,000 for the cryopreservation procedure, which involves submerging a baby in a vat of supercooled liquid immediately after birth and storing the offspring in a specialized containment cylinder until the newborn is thawed. “Women deserve to have the option to postpone motherhood until they feel fully prepared, which is why Facebook will also cover the cryonic facility’s annual maintenance costs for as many years as our employees feel they need. And when the time comes, female employees can simply unfreeze their child and take advantage of our competitive four-month paid maternity leave.” Facebook also confirmed that the company would begin covering the costs of a procedure that involves freezing a female employee’s husband until he is emotionally prepared to be a father. Link to comment Share on other sites More sharing options...
peter1234 Posted October 16, 2014 Share Posted October 16, 2014 http://www.theonion.com/articles/facebook-offers-to-freeze-female-employees-newborn,37189/ MENLO PARK, CA—As part of their efforts to accommodate women who wish to delay parenthood, Facebook officials announced Wednesday that the company will offer financial assistance for female employees to freeze their newborn children. “We recognize the many challenges women face starting a family and balancing a career, which is why our company will provide extensive support to female employees who want to preserve their infant in a frozen state of suspended animation until they’re ready for child-rearing,” said Facebook spokesperson Mary Copperman, who added that the company would pay up to $20,000 for the cryopreservation procedure, which involves submerging a baby in a vat of supercooled liquid immediately after birth and storing the offspring in a specialized containment cylinder until the newborn is thawed. “Women deserve to have the option to postpone motherhood until they feel fully prepared, which is why Facebook will also cover the cryonic facility’s annual maintenance costs for as many years as our employees feel they need. And when the time comes, female employees can simply unfreeze their child and take advantage of our competitive four-month paid maternity leave.” Facebook also confirmed that the company would begin covering the costs of a procedure that involves freezing a female employee’s husband until he is emotionally prepared to be a father. Thanks, this is a good read. ;) Link to comment Share on other sites More sharing options...
JBird Posted October 27, 2014 Share Posted October 27, 2014 Facebook advertising fraud and Click Farms Link to comment Share on other sites More sharing options...
valueinvestor82 Posted December 2, 2014 Share Posted December 2, 2014 When I initially saw Facebook as an actual subject on a value investing website, I checked the web address to make sure I hadn't visited the wrong site, then assumed it was a bunch of short theses. I was wrong...and stunned. Link to comment Share on other sites More sharing options...
innerscorecard Posted February 16, 2015 Share Posted February 16, 2015 http://qz.com/333313/milliions-of-facebook-users-have-no-idea-theyre-using-the-internet/ Fascinating stuff. I don't see this first-hand, as I live in the no-Facebook-zone that is China. Here, some of the functions of Facebook are unbundled into things like Wechat, but the way the services stack up is different than the Facebook ecosystem itself. Link to comment Share on other sites More sharing options...
Liberty Posted October 1, 2015 Share Posted October 1, 2015 Interesting piece on Facebook's positioning: https://stratechery.com/2015/the-facebook-epoch/ Link to comment Share on other sites More sharing options...
JayGatsby Posted October 1, 2015 Share Posted October 1, 2015 Interesting piece on Facebook's positioning: https://stratechery.com/2015/the-facebook-epoch/ Few things I disagree with here: 1. I don't think Google's Android/Chrome initiatives are totally scorched earth strategies to defend web-based search. They have great market share but are constantly trying to do better. If they control the starting point, it's easy for them to direct people to their search. They have 67% marketshare on the computer and 83% market share on mobile. 2. I don't see how the acquisition of Whatsapp can be compared to Android. Google paid ~$50M for Android. Facebook paid $22B for Whatsapp. 3. In Peter Thiel's book he's very critical of the typical VC mindset that market is #1. He discusses how the typical VC pitch is "this market is huge and if we capture 1% of it we're rich!". He looks for the exact opposite.. "we control this tiny market and..". Ironically, what he liked about Facebook when he invested was they had a tiny market (Harvard) that they completely dominated. This guy seems to classify Facebook's current market as mobile internet advertising.. I'm short Facebook. Few reasons: 1. I think it was new and cool, but people are losing interest. My newsfeed used to be constantly refilling itself, but now I can scroll for 10 minutes and be back at yesterday's news. I think a lot of this is people shifting to other platforms. The Google trends also pretty clearly indicate decline: https://www.google.com/trends/explore#q=facebook&geo=US (I don't know who Google's "facebook" either, but less people do it now than they used to). In some ways I think they're a victim of their own success. When it was first started it was college only and you needed a .edu. Now with grandparents, coworkers and share buttons, it forces people to be more careful (post less). 2. Their user growth now is coming almost exclusively internationally. The problem is those customers are way less valuable on average than North American customers. (Slides 5 and 12: http://edge.media-server.com/m/p/r62axc3n) Part of it may be that advertisers haven't caught up, but my guess is the value of a user is pretty correlated with GDP/capita. 3. I think Instagram is good platform but I don't think it monetizes as well. Because there's very little text, people don't need to spend as much time on it. 4. I've heard a lot of their best people got rich and left. 5. I don't really understand the whatsapp acqusition. Sure, it had a lot of users, but users of one app don't necessarily translate to another. If someone isn't messaging through facebook they probably don't want to. There really was nothing gained from a technology perspective that I can see. Definitely an amazing company.. Let me know if I'm missing something and cover. Time to go check my facebook.. Link to comment Share on other sites More sharing options...
Guest Grey512 Posted October 1, 2015 Share Posted October 1, 2015 he Google trends also pretty clearly indicate decline: https://www.google.com/trends/explore#q=facebook&geo=US (I don't know who Google's "facebook" either, but less people do it now than they used to). I would be careful with reading into Google Trends too much, what with the increasing migration to Chrome, which has an auto-complete function and takes people straight to FB whenever they start typing "facebo.." etc. What you see on Google Trends could simply be a representation of the fact that people who were unfamiliar with FB and interested in it now have FB accounts or have already somehow found out what FB is, so there are fewer people searching for FB on Google. So Google Trends is probably more correlated to the annual # of new user signups at FB than anything else. Link to comment Share on other sites More sharing options...
Liberty Posted October 1, 2015 Share Posted October 1, 2015 I wouldn't trust google trends for that kind of stuff either. Grey is right about autocomplete of URLs, but most people go on facebook in an app on a mobile device now, so they're not even going to Google search... 3. In Peter Thiel's book he's very critical of the typical VC mindset that market is #1. He discusses how the typical VC pitch is "this market is huge and if we capture 1% of it we're rich!". He looks for the exact opposite.. "we control this tiny market and..". Ironically, what he liked about Facebook when he invested was they had a tiny market (Harvard) that they completely dominated. This guy seems to classify Facebook's current market as mobile internet advertising.. I don't think that's quite what Ben Thompson is saying here. It sounds similar, but it's not the same. He's more saying that there's now a gigantic market for attention without intent, and it's very huge and very valuable to both users and advertisers in a way that is aligned for Facebook's interest. This is more about market structure, with people demanding what you offer (people just want to pull out their phone whenever they're bored and see what their friends are up to, see some news, message people, etc) and facebook being solidly entrenched (network effect, can buy competitors, etc). In the typical "the market is huge" example, you usually don't have a dynamic like that, you are trying to ram something down people's throats that they don't necessarily want, they're not beating a path to your door. Link to comment Share on other sites More sharing options...
TheAiGuy Posted October 1, 2015 Share Posted October 1, 2015 This is definitely something I didn't understand when FB was cheep, but here's my take: 1. I think it was new and cool, but people are losing interest. My newsfeed used to be constantly refilling itself, but now I can scroll for 10 minutes and be back at yesterday's news. I think a lot of this is people shifting to other platforms. The Google trends also pretty clearly indicate decline: https://www.google.com/trends/explore#q=facebook&geo=US (I don't know who Google's "facebook" either, but less people do it now than they used to). In some ways I think they're a victim of their own success. When it was first started it was college only and you needed a .edu. Now with grandparents, coworkers and share buttons, it forces people to be more careful (post less). I think people are pretty entrenched here. I can give you an anecdote: about a year ago my brother in law was helping a refugee get settled in the states. The organization got him a dumb phone but the man asked for one with Facebook so he could call his family. They got him a new phone --> I think Thompson is right that Facebook is like email and everyone will be on it. 2. I don't see how the acquisition of Whatsapp can be compared to Android. Google paid ~$50M for Android. Facebook paid $22B for Whatsapp. Yeah, that's a lot for WhatsApp. Thompson is a strategy guy, FWIW. 2. Their user growth now is coming almost exclusively internationally. The problem is those customers are way less valuable on average than North American customers. (Slides 5 and 12: http://edge.media-server.com/m/p/r62axc3n) Part of it may be that advertisers haven't caught up, but my guess is the value of a user is pretty correlated with GDP/capita. Revenue growth substantially lags user growth, so the growth story here is that they can gobble up all of the TV advertising dollars in developed markets. Also, international users will become more valuable overtime as those societies become richer (which they will, in part because of Facebook, to be controversial). 3. I think Instagram is good platform but I don't think it monetizes as well. Because there's very little text, people don't need to spend as much time on it. Instagram should actually be pretty easy to monetize. My wife, for example, follows several brands on Instagram and many people post pictures of things like Nike shoes. My take is there are a number of people who would actually be fine with highly targeted brand adds in their Instagram feed. Link to comment Share on other sites More sharing options...
JayGatsby Posted October 1, 2015 Share Posted October 1, 2015 I wouldn't trust google trends for that kind of stuff either. Grey is right about autocomplete of URLs, but most people go on facebook in an app on a mobile device now, so they're not even going to Google search... Those are definitely fair points, but I do think it's indicative. Piper Jaffray does a teen survey that showed use is declining. I definitely see less posts per person on my newsfeed than I did a few years ago. Maybe that's partly the mobile effect where it isn't quite as easy to post / share content? I don't think that's quite what Ben Thompson is saying here. It sounds similar, but it's not the same. He's more saying that there's now a gigantic market for attention without intent, and it's very huge and very valuable to both users and advertisers in a way that is aligned for Facebook's interest. This is more about market structure, with people demanding what you offer (people just want to pull out their phone whenever they're bored and see what their friends are up to, see some news, message people, etc) and facebook being solidly entrenched (network effect, can buy competitors, etc). In the typical "the market is huge" example, you usually don't have a dynamic like that, you are trying to ram something down people's throats that they don't necessarily want, they're not beating a path to your door. That's fair as well. I definitely pop on my facebook app when i get bored. The problem is Facebook doesn't have any of their own content, so they need users to be generating that content. If users generate less content, readers consume less content, and revenue per user declines. I think people are pretty entrenched here. I can give you an anecdote: about a year ago my brother in law was helping a refugee get settled in the states. The organization got him a dumb phone but the man asked for one with Facebook so he could call his family. They got him a new phone --> I think Thompson is right that Facebook is like email and everyone will be on it. I 100% agree witht that. Personally I find it immensely valuable for keeping in contact with friends I wouldn't otherwise see. I just think people are spending less time on it and will continue to do so. I think Facebook is a tremendously valuable platform, just not $250B valuable. Revenue growth substantially lags user growth, so the growth story here is that they can gobble up all of the TV advertising dollars in developed markets. Also, international users will become more valuable overtime as those societies become richer (which they will, in part because of Facebook, to be controversial). I don't think the trends on page 12 here support this, at least over the short term. The value of a user has actually been pretty constant with the exception of North America, for whatever reason: http://files.shareholder.com/downloads/AMDA-NJ5DZ/795783791x0x842064/619A417E-5E3E-496C-B125-987FA25A0570/FB_Q215EarningsSlides.pdf Instagram should actually be pretty easy to monetize. My wife, for example, follows several brands on Instagram and many people post pictures of things like Nike shoes. My take is there are a number of people who would actually be fine with highly targeted brand adds in their Instagram feed. I agree that Instagram is hugely valuable for advertisers, and some people are making a fortune from it. The problem, at least today, is that money isn't going to Instagram. I see the "sponsored" ads today but typically scroll right past them. Link to comment Share on other sites More sharing options...
Liberty Posted October 1, 2015 Share Posted October 1, 2015 Facebook is now driving more traffic to most sites than Google is. I don't think there's less content generated overall. Maybe on your feed, though? If you don't care about facebook, you probably haven't been curating much, adding new people, "liking" new organizations, etc. Facebook is starting to get big publishers to host content directly on it (NYT, etc) and will share ad revenue with it. But not having to pay for your own content is a benefit, not a problem. The thing about teens and facebook is way overblown, IMO. A lot of that was based on the article written a couple years ago by a young teen saying that nobody at her school used facebook, etc. Well, she just wrote a new article on Medium (can't find it right now), and she's in high school now, and says most people uses facebook and/or instagram... I don't even study facebook the company that much, and I'm certainly no investor. But I don't think your reasons for shorting it are very strong. Facebook has become part of the internet's infrastructure, like Google, and they'll collect their toll... Branding advertising and native advertising are the next thing, and facebook is well positioned. Link to comment Share on other sites More sharing options...
JayGatsby Posted October 1, 2015 Share Posted October 1, 2015 Regarding teen use, I was referring to Piper Jaffray's survey: http://www.buzzfeed.com/sapna/only-14-of-teens-say-facebook-is-the-most-important#.st1v18b3p I was using # of posts on my feed as a proxy of user engagement. My guess was if people are posting less, they're also engaging less, but you could be right that people (at least the ones I know) are consuming more while posting less. I'm not saying Facebook will go the way of MySpace. I do think they have a moat and are a very valuable platform, but I think they're priced for perfection with some very real challenges. Link to comment Share on other sites More sharing options...
Jurgis Posted October 1, 2015 Share Posted October 1, 2015 It's so nice not to use FB or any other social networking crap *. Now, get off my lawn! :P * Yes, I am aware of the irony of posting this on CoBF. Link to comment Share on other sites More sharing options...
ScottHall Posted October 2, 2015 Share Posted October 2, 2015 Maybe I'm the only guy who doesn't care much if teen use is down or not. The 15-year-old scene kids of today will be mothers and fathers 15 years from now. Will they still prefer private social media services that delete embarrassing information quickly at that point, or will they be sharing videos of baby's first steps on Facebook? Maybe if they have an Ashley Madison account they'll go for the former, but otherwise... We all go through phases in our lives. Being a teenager has its own problems and challenges. Being an adult has completely different problems and challenges, and those experiences will probably be related with others much differently. More importantly, teenagers are not particularly important advertising targets. Link to comment Share on other sites More sharing options...
Liberty Posted December 1, 2015 Share Posted December 1, 2015 Zuckerberg following in Bill Gates and Buffett's footsteps: https://www.facebook.com/notes/mark-zuckerberg/a-letter-to-our-daughter/10153375081581634?pnref=story Impressive guy. Like Bill Gates on fast-forward, doing this so young with so much money... Link to comment Share on other sites More sharing options...
johnny Posted December 2, 2015 Share Posted December 2, 2015 More importantly, teenagers are not particularly important advertising targets. They may not be the most important for purchase-intent-demonstrated, deal-about-to-close things like ads for people searching for "insurance". But they are incredibly important for media and brand advertising. And that is probably why you see so much money being raised for social media applications aimed at 15-25 year olds. Link to comment Share on other sites More sharing options...
fareastwarriors Posted January 18, 2016 Share Posted January 18, 2016 WhatsApp and Instagram shift business models WhatsApp and Instagram unveiled changes to their business models on Monday, as the Facebook-owned apps look to find ways of turning their wide user bases into substantial businesses. http://www.ft.com/intl/cms/s/0/fac63040-bddd-11e5-9fdb-87b8d15baec2.html#axzz3xXJSWaHW Link to comment Share on other sites More sharing options...
ScottHall Posted January 28, 2016 Share Posted January 28, 2016 What a glorious quarter from Facebook. Holding this one for a long time to come. http://investor.fb.com/releasedetail.cfm?ReleaseID=952040 Link to comment Share on other sites More sharing options...
DCG Posted April 27, 2016 Share Posted April 27, 2016 I'd like to own Facebook, but just don't know how to value it. There's plenty of room to grow earnings from Facebook, Instagram, OR, and WhatsApp, but FB is currently valued to 57% of the size of Apple, yet Apple has 13 times the amount of earnings than FB. Link to comment Share on other sites More sharing options...
gjangal Posted April 27, 2016 Share Posted April 27, 2016 In my view secular growth companies like Facebook growing revs at 40% will rarely be cheap and its "pe" will be unpredictable. If growth materializes paying a high pe within reason will be worth it . IMO it's best to think about these companies from an opportunity cost perspective, if you have something better to buy one can ignore FB, else joining the bandwagon of a fast growing company may not be a bad idea Link to comment Share on other sites More sharing options...
glorysk87 Posted April 27, 2016 Share Posted April 27, 2016 I'd like to own Facebook, but just don't know how to value it. There's plenty of room to grow earnings from Facebook, Instagram, OR, and WhatsApp, but FB is currently valued to 57% of the size of Apple, yet Apple has 13 times the amount of earnings than FB. I found it difficult to value as well but hopefully my line of thought helps you. Keep in mind this is just a crude way to approximate/ballpark the value of the company. It leaves a lot of factors out so take it with a grain of salt. It's more of a "sanity check" than anything. Basically, global media advertising sums to about $550B annually, right now. Facebook currently captures about 6% of peoples' total media consumption time. However, they're not earning a proportionate amount of those ad dollars - 6% would be $33B, whereas FB only takes in somewhere around $17B currently (2015 revenue). If we assume that FB can capture their "justified" 6% of total media ad dollars, they could potentially earn up to $33B annually. Keep net margins the same at mid 30%'s gives you EPS of around $4.25, or a valuation of 25x earnings. At recent growth rate of 50% YoY, that's achievable within a few years. If you assume that FB can continue to grow their "% captured" of the global ad market to 10%, that gives $55B in revs and $7.00 of EPS, or a forward multiple of 15x. Obviously there are some HUGE assumptions in there, but I found it a useful thought exercise to go through. The other thing is that the above thought process basically values FB on earnings. It might be better to look at cash, since they have phenomenal ROIC and FCF conversion. Link to comment Share on other sites More sharing options...
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