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The Facebook IPO and economic literacy.

The Facebook IPO and economic literacy.

The big news this week was Facebook’s initial IPO filing. The paperwork itself makes a good read, apparently “Facebook users upload 250 million photos a day, signal that they “like” items posted by friends about 2.7 billion times a day, and have created a web of 100 billion friends and connections on its site.” The company itself thrives by selling display ads targeted to users.

Debates about privacy aside, I’ve noticed that this has sparked a rather heartwarming interest in the way companies are valued by some of my most unlikely friends and peers. The other day, I had this discussion in a class with people who earnestly did not know how market mechanisms work. I have no doubt that some of them have gripes with financiers and the like, but maybe the press surrounding this IPO will enlighten people who would otherwise remain uninterested – and possibly resentful – of stocks. Most of my generation procrastinates on Facebook (including your humble correspondent), maybe the consequences of “going public” will help them care more about the world outside.

General aside: Barack Obama is trading at 57% for re-election on InTrade. Probably the result of the jobs report; any other ideas?

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For a discussion of Facebook valuation, read this post by Bill Gurley. It is much better than any Wall Street analyst post:

http://www.abovethecrowd.com

For a great discussion on technology company valuations in general, read the back posts from Bill Gurley, too.

Notice the focus on economic moat and switching costs, among other things, just as Buffett did. Great insights.

Is there a problem with ‘blog updates’? All the ones showing are from 4 hours ago….

MomInLatteland | February 3, 2012 at 12:08 pm

My guess is that Mitt’s tone deaf comments about the poor and his arrogance towards us little folks are impacting those numbers. The more people see of Mitt, the less there is to like. Sort of a “devil you know” vs. the one you do not perhaps?

Barack Obama is trading at 57% for re-election on InTrade. Probably the result of the jobs report; any other ideas?

Other ideas? How’s this: after the South Carolina and Florida primary tilts, conservative voters are starting to understand what an unprincipled snake Mr. Romney is and are seeing that this coming Fall he will probably reprise the McCain campaign model (of not wanting to call out Mr. Obama on his policy failures lest the “racist” charge be levied against him); moreover the establishment Republicans are beginning to understand that Mr. Romney cannot win the presidency without the (Tea Party?) base, which Mr. Romney has seemingly dismissed out of hand.

I even understand that that particular idea is now starting to germinate over at NRO of late and they’ve been busily ordering in several cases of smelling salts and cheap Scotch.

DINORightMarie | February 3, 2012 at 12:21 pm

As I recall, one of the scandals exposed in Peter Schweizer’s book Throw them All Out was the IPO offerings information “shared” with Congress first.

My question: which Congress members/Administration pols profited from this IPO? Hmmmmmmm?

Nancy? Reid? Obama himself? Just wondering. “Blind trusts” and all.

MaggotAtBroadAndWall | February 3, 2012 at 12:48 pm

Many of these high flying internet IPOs (Google, Yahoo!, Groupon, Facebook, etc.) have a revenue model that depends on advertising. I suspect that some day the advertising market will reach saturation.

However, Facebook supposedly has the ability to better target its advertising by mining the demographic data of its users, which is very valuable. Presumably they’ll cannibalize advertising from TV, newspapers, etc. which are not able to tailor their advertisements by demographics very effectively (how effective is a Geritol commercial to a 21 year old skater punk watching TV?). Newspapers are already in decline. If my theory that there’s not an infinitely large market for advertising, and avertisers do ultimately get a better return on their investment from internet advertising than from advertising on TV, then maybe the “free” TV model that relies on advertising is at risk.

The thing that bothers me about the Facebook IPO is there’s really no reason for it to go public. They have $4 billion of cash on the balance sheet and only $400 million of long term debt. So they don’t need to raise money to finance growth. It looks like they’re creating a public market for the stock so the founders, angel, and venture capital investors can get liquid.

I’m not sure I want to be buying when they are selling.

    Consider to that Google actually has a lot of demographic data too and much more indepth information due to their control of search. Plus Google owns Adsense, AFAIK facebook contracts advertising.
    Social networks come and go, MySpace anyone? Facebook is likely a decent enough investment for 5 years or so, but much after that you’re risking.

I’ve always been slow to warm to some of the dot-com “fad” offerings. While a lot of folks have made money on these stocks, there are a lot of folks who ended up with “vapor.”

I personally blame the merger of AOL and Time-Warner for bring on the “dot-com bust” in 2000. This was the first big merger of “real money” Time-Warner with “dot-com money” AOL, it made people finally examine the claim that “the old “business model” was obsolete“. It wasn’t.

Obama at 57%…so many factors. Key ones, in my opinion, are: GOP continues to thumb its nose at its base, particularly the Tea Party element (rememer Dede Scozzafava?); high probability of Romney as the candidate, who is Obama lite; unemployment numbers went down; economy (at least in the South) not as bad this winter, probably due to the absence of winter.

All those things are short-term. Voters seem to be forgetting that our government cannot continue to borrow 43% of its budget and cannot sustain entitlement spending of 60.9% of its total expenditures. The Tea Party is the segment of the nation that has been trying to focus on the reality of that situation. As much as I support Newt from the remaining four, he is a big government Republican. Bush spent like a drunken sailor on furlough. We must not win the White House (hopefully we can) and simply shift *what* we spend the tax dollars on, we must make real cuts of real dollars in real federal agencies. If enough people wake up, I suspect that Obama’s numbers will go back down.

Our local unemployment numbers just came out. We went from 9.3 to 10.5% unemployment and the local Employment Security Commission office reported that it had 20 job listings currently. That’s right, about two dozen employees at the unemployment office are working to fill 20 current job openings. That picture alone should alert tax payers to what our priorities ought to be immediately.

I’m wondering if the uptick in Barry-O’s numbers is simply the result of people adjusting to the depressed economy. The longer you’re squeezed, the more it becomes the norm…like a form of Stockholm syndrome.

Obama’s reelection prospects go up with the likelihood that Romney is the nominee.

Henry Hawkins | February 3, 2012 at 5:59 pm

Though more than simply reflective, Intrade is hardly predictive. So much happens that is unpredictable. Who knew Pawlenty would quit the first instant he had a political battle opportunity? Who knew Bachmann would go all cold fusion and bigfoot with her science? Cain’s supposed woman problems? There are good surprises too – Gingrich’s media takedowns x 3, Santorum’s Iowa win, etc. Intrade adjusts with these surprise events, good and bad, but only after they happen. All any given Intrade rating or a poll can tell us is “if the election were held today, then…” or “if nothing changes between now and the election, then…”

As for unplanned or unusual events, they can predict big things will happen, both good and bad, but it’s not so easy to predict to whom or whether it’ll be a good or bad thing. Even though they look forward to November, there is an as yet unknown and unforeseeable set of events that will occurr between rightnow and November that is not being factored in. It’s too early for anything but wildass guesses. It’s the wild card effect, among other factors, that make it awfully difficult to predict a November election from a February viewpoint.

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