Facebook SUCKS!

Facebook SUCKS!


Facebook Shareholders Suck…(Or, Why This Is Not Bubble 2.0) | TechCrunch

@Balaji Viswanathan
A great article. I love it. However, I do disagree with you on the Web 1.0 part. Lots of those failed companies and ideas in 1999 would not even be funded by VCs (leave alone an IPO) in a much saner era. The present day behemoths (Google, FB, Apple) all deserve to be priced that high.
@David Jameson
I don't quite get your definition of 'bubble'. Just because there is value in an industry doesn't mean it can't have a bubble. The housing market isn't just a bunch of tulips, but I don't think you can deny that there was a bubble. And looking at NASDAQ, it's sitting at 2555 now, but it reached a peak of almost 5000 in the middle of 2000 so it's still almost 50% lower than it's peak during the "imaginary" bubble. Also, I don't think facebook is a very good investment right now...it is likely overvalued, and it is at risk of being overtaken by rivals such as google+.
@James Altucher
If you look at the long term average on housing prices you can see we weren't in a bubble. It was a normal market (housing prices were going up 20% a year at the peak - no big deal) and they were going down in an orderly fashion (but housing bust happened in 2007) but then in 2008, mark to market was enforced at the bakns and that put the banks in a bad situation vis a vis their derivatives. Note that when mark-to-market went back to mark-to-model in 2009 the "problems" disappeared and the US banking system is probably the healthiest in the world.
@Robert Bradford
James Altucher How could you deny the housing bubble? Securitization created a complex cesspool of bad loans and redistributed those loans to investors. Since lenders were no longer on the hook, they were giving away mortgages like candy to unqualified buyers. Everyone in America became a home owner under false pretenses. Between 2000 and 2003 the number of mortgage loans nearly quadrupled. Home values going up 20% a year is "no big deal?" Are you kidding me?? It was the direct result of millions more people being given mortgages that they weren't qualified for, thus the value of homes were artificially inflated. Crowds of people from all walks of life practically beat down bank's doors in order to purchase real estate. Financial institutions essentially manipulated the housing market and fueled consumer confidence. That is the very definition of a bubble James. The consistent losers in the market, from my personal experience, are those who are unable to resist being swept up in some kind of tulip-bulb craze. The housing bubble is no different. So "bubble" or not, call it what you may, its all semantics.
@George Bonano
interesting............. do I smell my first mil?
@Ahmad Kadhim
I think you might have even contradicted yourself on the bubble standpoint. You said the definition basically amounts to "it went up today because it went up yesterday." Even if we agree to that definition, then Internet 1.0 was definitely a bubble because rising prices and widespread gold rushes on internet stocks were simply caused by looking at how much the prices had already inflated. Internet 1.0 was caused by a fear of "missing out" (among other factors) leading to rapid price rises, and so it was a bubble. Your argument amounts to saying: "Well there are a few construction firms still doing well so the 2007-08 housing market crash wasn't a bubble, because 10 years from now the housing market will recover."
@James Altucher
I think some people might've been buying because yesterday a stock was up (in 1999) but the initial reason why people were excited about companies like pets.com is because the opportunity itself was very real (as evidenced, I bet, by dogfood sales on Amazon if there is such a thing).
@Balaji Viswanathan
James Altucher You could also have added that we have barely reached a fraction of our potential. Total ad market in 2014 is predicted to be around $570b of which Google would hold only $28b. Think of all the growth potential for new companies who would snatch more money out of the ad spending pie in TV, Newspapers etc. Beyond ad models, there are also plenty of others. By 2014, India for example is expected to quadruple its internet users to over 200 million - close to the size of the US userbase. And just like in communication, India might skip modern retail to directly go to ecommerce. And there would be a sizable online education market. I think tech has very strong fundamentals and those who cry bubble have no idea of the potential market size. We are just doing our baby steps. I would not be surprised if Google or Facebook becomes a trillion dollar company in 2020.
@George Adams
A guy who is involved in selling fb shares is telling there's no bubble...right.
@James Altucher
Well, as I state in the article, I'm not involved at all in any financial way. I just introduced the players.
@Vishnu Alexander Acharya
James Altucher aren't you market making basically and deserve your 2% or whatever? :-)
@Jeremy Short
The 1840s Railroad bubble, the Roaring 20s (driven by auto industry), the housing bubble. Yeah, you're right no one uses any of those things! Tulips! This Groupon and Zynga now that sounds like they make something real. What's that real thing again? I think I saw a groupon for 1-800-flowers? Do they sell tulips?
@Devlin Dunsmore
This is so brilliantly written, actually laughed out loud in a few places.
@James Altucher
Thanks!
@Joshi Jose
C'mon James Altucher, honestly; what were you on when you wrote this? It's blistering brilliant! Hey we have hope left on TC. Besties James.
@Chris May
I think the problem with bubbles in the public's mind is that they are all or nothing, dialectically opposed opposites. Internet companies are in a bubble, or they are not. I remind everyone - CONTEXT CONTEXT CONTEXT. Facebook is not going anywhere anytime soon, but there are plenty of other companies who are waaaaaaay overvalued. If you want to call that a bubble, or refrain makes no difference, you are arguing semantics at this point.
@Chris May
All that to say, your logic is flawed, just because Facebook is not a bubble, does not mean others are not.
@James Altucher
Chris May I dont think you can look at every company and say "bubble" or not "bubble". A bubble has always occurred in an asset class. Even if you look at issues like the "South Seas bubble" there were MANY companies trying to benefit off the South Seas boom (and btw, that stock recovered in the long run) that ultimately went bankrupt. A great book on this is "Famous First Bubbles" by Peter Garber. I highly recommend the book to get a better understanding.
@Dan Bowen
Just when everyone thinks Facebook is the new internet, Facebook will face its challenges...there will always be better mousetraps and Facebook has a lot more to do with Socializing than it does Networking. Commerce added onto a platform such as this will always have limitations and they will play out...$100B for this thing, have at it, in fact, invest your entire life in it like others have done in the past...ie...Enron...I don't buy it. But then again, Groupon and its fantastical financials, nearly 11,000 employees and spectacular burn rate made it onto the markets for someone to buy. Fastest growth company in history? Sure, and if my company was offering people $7.50 if they simply gave me $5 I'd grow pretty fast as well. Up 5 or 10% one day and down the same the next, is this the new norm? Maybe we're not talking about a bubble anymore because nobody has an attention span, and the vast majority of the 500K failures of mobile apps aren't really failures, they're just 'pivoting'. We may in fact look back ten years from now and talk of 3 or 5 amazing successes like this article has pointed out, but when we do that, let's not forget the tens or hundreds of billions that were pissed down the drain on countless dreams, frauds, and just pure stupidity both in the Web 1.0 as well as current times.
@James Altucher
bad investing doesnt equal a bubble. And, the sort of critique you are making on Groupon could've been made on Amazon in the 90s. Groupon is 3 years old. Lets see how it plays out. I think you simplified their business model and removed the critical aspect that they are a marketing company. I am not defending their valuation (I have no opinion on it at all) but clearly they are valuable to their clients and customers at this point.
@Dan Bowen
Time will tell James, I personally believe if Groupon makes it through the Q2 2012 it might just might just make it, but I see nothing in them that suggests its really sustainable. As for their 'value', sure some, however I would suggest you can find an almost equal number of horror stories on Groupon as you can successes. The fact is Amazon is an easy example of people sticking with their idea (and massive investment), but was it done because it was a sound business idea or that there was simply too much money pumped into it? After all, if many of our tech startups were financial institutions I'd suggest some would pick those that are simply too big to fail...Amazon may highlight that better than any other. Facebook may also be part of that mindset...but who knows...just my humble opinions.
@Damiaan van der Heijde
James Altucher Just curious, but is Groupon still the fastest growing by revenue if you discount their practice of claiming total coupon value revenue for their own? Imagine if eBay claimed all revenue from transactions on their site as their own.
@Robert Bradford
James Altucher , I guess that depends on your definition of a "bubble." To break it down simply, a bubble just describes the madness of crowds and group thinking. History, especially in this instance, has not taught investors a lesson. Greed run amok has been an essential feature of every speculative boom in history. Facebook is clearly no different. Call it what you may, Facebook's valuation is absolute GARBAGE. Generic online advertising is no real business model. I wouldn't touch Facebook with a ten-foot pole. The overvaluation of Facebook is yet another warning that neither individuals nor investment professionals are immune from repeating the errors of the past. Its hard to avoid the temptation to throw money away on short, get-rich-quick speculative binges. If you look at it that way, Facebook is no different than the Dutch Tulip craze. Facebook is overvalued at $100B, $50B, hell probably even $10B. Its past time to cash in your chips. Facebook's valuation is absolutely INSANE!
@Mike Gilfillan
You are right, it wasn't a bubble, not in the sense of tulips, but we were all too optimistic back then. It took 12 years instead of "internet time" to create lots of this real wealth you describe. Amazon was still burning lots of cash back then and no one knew (except Bezos) if they were going to turn the corner to profitability. The question is not whether we're in a bubble again, but whether valuations and corresponding expectations are just too lofty in the short term. Something will trigger a more skeptical view resulting in lowering of valuations and the media will be calling it a bubble again. It's just a swing of the pendulum between optimism & pessimism.
@James Altucher
Well, I think what you just described is "a market". Groupon has a $14bb market cap. In 2012 they will maybe do up to 6bbb in revs. Is 2x revs high? Its probably high for me. But not for others. Facebook will earn $1bb this year. Maybe $2bb next year. Is $70bb (last secondmarket transaction) high? It's not a value play but a growth investor might be able to justify 35x next year's earnings if there is 100% growth. This strikes me as a normal market. Then there's the next question: will SOME valuations be way too high. Sure. That's called "bad investing" and it occurs in every market, in every asset class. But doesn't necessarily mean its a bubble.
@Mike Gilfillan
James Altucher: I guess then a good definition of a bubble is a market dominated by the bigger fool theory (ie: "bad investing"). There will always be over- and under-valued companies, but as the saying goes, when the shoe-shine boys or little 'ol ladies are giving stock tips or talking about flipping their shares/condos/tulips/etc, then it's a bubble. We're not there yet, but based on your desc of FB stock, I'd say we are getting closer.
@Dave McClure
Fucking. Brilliant. (and although "Software will eat the World" by Marc Andreessen was perhaps more groundbreaking, this was a helluva lot more fun to read ;). golf clap, standing O.
@Bryan Neuberg
Agreed. I fwd'd to many.
@Francine Hardaway
I always love his writing.
@Arabella Santiago
AMEN! I should send this to the American Chamber of Commerce in PI. Spoke to a director over there and he tried to tell me (in short) that web technology is something he could care less about since he's working on a light rail system for the country. Yeah go ahead, put a light rail system across the archipelago and watch it go under with a flash flood or a typhoon...
@Roger Williams
You can't compare bubble 1.0 and bubble 2.0 with a straight face. Most of 1.0 companies (yahoo, google, amazon, ebay) had real tangible value and solid business models that extended beyond hype - IP protection, real profits, real niches, real value added. 2.0 is all about post-Glass-Steagall environment where zombie investment banks are still packaging BS wholesale. Every app is just like any other app (oh no you didn't! we have "better interface"), "business models" that don't scale and rely strictly on accounting gimmicks and Offer Memorandum omissions and white lies, market momentum which is built primarily on burning millions of PR (investor) cash. I'd take "pets.com" over Angieslist, Zynga or Groupon any day of the week. At least their failing was poor execution, which could have been avoided. These 2.0 companies are bridges to nowhere.
@Akram Annous
First, great article. Definitely have found the facebook brokering market quite entertaining. But as for the bubble aspect of it you might want to rethink your argument. Cisco in 2000 was trading at 150x earnings and at a valuation of 500billion. The company grew earnings at a 20% clip for the next decade, and if you invested in 2000 you were still down 80% ten years later. Companies like groupon, homeaway, zipcar, and zynga look even worse at this point. And then you have the Chinese versions which are even more amusing. Rennren raised $1.2billion six months ago at a $7billion valuation. Its market cap today is just about equal to the cash in the bank. This company looks better off converting into a hedge fund or a bank here, and is a perfect example of severe capital misallocation. Same goes for youku, dangdang, tudou, and qihu. Amazon is a great company but at $45billion in revenue it hit a $100billion market cap this year. Walmart does 10x their sales and trades at 2x the market cap. It is also paying a generous dividend and trades at 11x earnings versus 100x for amazon. The fact that a company delivers value to people does not make it a good investment. if facebook's leaked financials are real they are quite disappointing. 500ml to 700mln in 1yr is not the growth I am looking for if I am paying 100x for a $100billion company. As for your comments on housing, I'd have to completely disagree. We don't compare housing in a mature market like the USA to internet stocks in China or web 2.0 ipos. What transpired was most definitely a bubble. Again an example of severe capital misallocation because the banks were able to find ways to enrich themselves without on boarding the risk, and then of course failed to manage that model because they got too greedy. Us banking system is nowhere close to the healthiest in the world.
@George Revutsky
Akram - I think one of James' points was that you can't look at investing in Facebook as investing in a normal company. You're kinda investing in an "organized mini-internet" and the future value is immeasurable.
@Akram Annous
Look this is a very well written article, and the first part is awesome. But when he ventures into the 'is this a bubble' realm, he completely loses it. The most common characteristic of a bubble is that it is rooted in something game changing. Railroads, airlines, beach front real estate, automobiles, oil sands, potash, pc's, wireless, fiber optics, online video, social media.....you could go on forever. The same story applies for countries like Japan, korea, thailand, signapore, dubai, china, and brazil. So, to sit here and tell me that amazon, google, twitter, and facebook changed the world and thus can't be bubbles is ridiculous. When investors fall in love with a story they start to poorly allocate capital. There is clear evidence of that today. Groupon is only impressive in so much as its ability to raise the money needed to acquire customers as they have. They can spend 2billion dollars and go out and acquire customers regardless of their cost because every investor expects to exit before any evidence of the ability to generate an adequate return on capital materializes. This is how a company like groupon raises the money it raises or a company like renren finds itself with a cash hoard generating more interest than revenue. It's why post 2000 we still had so many fiberoptic companies in business despite the collapse of the whole industry and nearly a decade of no profits to look forward to. It's how companies like commerce one stay in business and why there are so many soic companies listed despite the failure to generate consistent returns. Investors get excited and boom assets get mispriced in half a second. Investors generally end up losing, but consumers often benefit. Without the fiber nonsense of 2000 we wouldnt have had the cheap infrastructure build out that led to the next boom online. Same goes for consumer electronics. Without so many soic out there and a glut of memory makers courtesy a bubble, we'd never had cheap gadgets so quickly. Without the last bubble there would be no amazon today because it would have gone out of business long ago if it hadn't received so much cheap capital. I can assure 'social' is a bubble and you will see it bursting. And when it does there will be a lot less people on tech crunch discussing hot startups because they know the fast money dream is now gone. But that doesn't mean there is no utility to what has come out of the space. Still, once the ipo door closes all these startups will struggle to find the next round of funding, and that's when things start turning. Angel money can only go so far, and vc's will get very tough once they have to back companies that can't be taken public anytime soon. When they don't many companies will shut down, and we will be talking about how this bubble burst. But by then i am sure most of these stocks will be trading at huge discounts to their ipo price.
@George Adams
EXACTLY, thank you. While I like James' articles on TC, in this he definitely loses it
@Theo Zacharatos
'Bubble' is such a relative term. The 'bubble' (or non-bubble) you speak of was pretty much how America was built. (everyone should read 'A Short History of Finacial Euporia'). So long as the euphoria Creates a value added structure, then an argument can be made there was no 'bubble'. But that's relative to time and proof of how important that structure turned out to be. Today, I agree with you James, but in 2000 I would not :)
@Christopher Morris
I think if there was any bubble at all, it was in domain names, not companies. Just because a company starts with a choice domain name (like Pets.com) doesn't mean it's a great company. If it sucks, it sucks. That's not a bubble, that's just great branding mixed with poor execution.
@Garfield Coore
Your article about all those middlemen traders are so true. This is why I left the international trade business. It's really hard to find real buyers (or sellers for that matter). Now, however there is one point that I need to disagree with you on and that's where you state that the Internet may be responsible for the permanent 8 - 9 % unemployment rate. Frankly that is non-sense. This unemployment is due to reduction in demand that occurred as a result of the drop in over-all wealth from the tanking of home prices in 2007. If demand can be stimulated this will go back to the normal 4 - 5% level, unless of course your believe the Internet effects only start showing up in 2007. Also please note, companies do not create jobs! DEMAND create jobs or more precisely "the expectations of demand" create jobs. Companies are just organizational structures for the methods of production that leads to the fulfillment of said demand. Labour, like capital is an input of production. In short, if no one wants what you sell you will not make it how rich you are. So a healthy middle-class is what powers job creation by virtue of its demand for products and services. Finally, the Internet has you have pointed out has increase opportunities for the masses and has lead to increase demand for a range of products and services, this by definition will leads to increase in jobs. Further, the innovations that can be optimized from leveraging the Internet can lead to the provision of these services at a lower cost (think of all those small business that came about becuase the Internet removing barriers to entry). In short the Internet leads to reduction in the unemployment rate becuase of two effects: 1) It leads to increase in demand for product and services and. 2) it leads to a reduction in costs of providing said product and services, further leading to a high level of consumption of said product and services (this is the virtuous cycle).
@Julian Hugh
Facebook need to stay private, once it goes public its all downhill from there. It will be just like Myspace, it was cool when it was owned by Tom and then Rupert Murdoch bought it...then it was all downhill from there and today.
@Hans-Poul Veldhuyzen Van Zanten
right on! btw, for .25 spread I will introduce you to mr. Z.
@Vijay Pravin
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@Eric Rosser Eldon
Tulips!
@Will Armstrong
Proves we aren't all wasting our time lol. Thank you
@Thabo Thorn
cool stuff, Life is more easier than before.
@Jaimin Patel
Well written..
@Dan Austin
The essence of all 'This is not a bubble' arguments: This time it's different.
@James Altucher
Actually, I'm saying this time its the same. Not a bubble.
@Dan Austin
James Altucher So there was no bubble...? Okay! I'm convinced!
@Dan Austin
James Altucher The 2.0 version of 'This is not a bubble' arguments: There are no bubbles.
@Joe Neale
I've not posted a comment on TechCrunch for a few years now, but this article is so fantastic it would have been a crying shame for me not to give it it's worth.
@Yoni Ende
Good luck on your deal. Well put article.
@Randy Mont-Reynaud
Bubble, bubble, toil and trouble. Defying gravity and physics, always going up up up... Full of hot air?
@Colin Pape
You're on the money, James. Internet companies have displaced hundreds of billions of dollars of 'traditional' revenue by doing things more efficiently. Tech valuations based strictly on revenue are no longer valid, as in many circumstances, there's no need to drive significant revenue as costs are minimal. Companies can elect to increase revenue at the expense of goodwill, or increase goodwill at the expense of revenue. Either way, there is significant value that should be accounted for. Considering the degree of influence Facebook, Google & other internet/tech companies now have over commerce, they should be valued at significantly more than they currently are. Facebook is probably more like a $250-300 billion company. Google and Apple, more like $750 billion. IMO, all three will be trillion dollar companies one day. Twitter, not so much, though it should probably still be valued at $50 billion, based on its reach. LinkedIn is another very strong and currently undervalued player. PayPal (eBay) is the other one to watch. Much of this value is being taken from traditional companies that have been disrupted, but are still afloat due to bankruptcy filings that have postponed the day of reckoning, creative accounting, and lenders that have not yet written down their investments. Many traditional companies may have been able to maintain revenue, but at an increasingly greater cost (they're less profitable). These tech company valuations might not make sense using straight revenue as the only guideline, but if you factor in goodwill, IP and network effects, it's not a stretch at all. People believed this during the first tech wave in the 90s & early 2000s - hence the run up. Though the crash is tied closely to a loss of confidence in this analysis, 9/11 was the real culprit. A bubble in housing had to be created to take up the slack and provide an orderly transition, though it was short-lived due to the closer ties between affordability and housing prices, as well as the pressure from a lousy employment market. One of the biggest problems is that tech companies employ far fewer people, as you mentioned. This combined with offshoring has created most of the structural changes that are now forcing a tipping point in the general economy and real estate market. If we don't have another increase in the value of an asset class, we are at risk of serious deflation, or inflation of currency. Tech stocks are one of the only vehicles that make sense. When more people shake off the memory of the few blatant examples of overvalued tech companies (ex. Pets.com & Webvan), and realize that this value is real, it won't take long for the pile-on to begin. I am an entrepreneur and domain investor, not a stock investor, and my vested interest in seeing tech companies increase in value does not come through the public markets. Domains are the other asset class that make sense for a rapid increase in value, IMO, though they are a slightly longer play. Interesting story overall, BTW. Good luck in helping to close some deals. I bet the sellers will be the ones who regret it over the long term.
@Clint Johnson
Great Article.
@DeeAnn DeZarn
You're acting silly. It's not a bubble, it's a house made of Legos as always. Now there are quite a few things you can demonstrate with Legos, but can you actually continue to DO things with them? How far can you take these plastic blocks on their own? http://www.forbes.com/sites/briancaulfield/2011/12/15/peter-thiel-convenes-his-league-of-extraordinary-wackaloons/ So, does anyone think Facebook has built a platform out of their Legos that is strong enough to support that valuation? Has this company built in real life what it says it has built, are they a foundation from which we can all jump into the world, propelled by clever ads? It better be pretty strong, because when the base cracks, the whole house falls down.