About 10 minutes ago (as I start writing this blog post at least) investors were able to buy into Facebook. At opening the price was estimated at $38/share which gives Facebook an overall value of $107 billion. Wait … let me say that again. That’s one hundred and seven BILLION dollars (insert into your brains if you will an image of Dr. Evil laughing).
So, what’s obvious is that money in the real world has no connection to money in the tech realm. Here’s just a few statistics about Facebook:
Q1 revenue – $1.058 billion
Q1 net earnings – $205 million
Members – 835,525,280
So let’s think about this for just a second. This means that each member is worth $128.06 if things go Facebook’s way and the value at the end of the day reaches $107 billion. Now if we look at what they earned from their members in Q1 (and I’m talking about profit here, not revenue) they earned $0.25 off each one in the quarter. Essentially this means that at the current rate they’ll make roughly $1 off each user per year so simple math tells us that the company is being valued at 128 years of profit. That’s right … 128 years.
Now let’s take a different approach in valuation and look at it from revenue instead of profit. You shouldn’t … but lets. If Facebook’s Q1 earnings hold through the rest of the year that would give them an annual revenue of $4.232 billion but let’s be nice, let’s say that over Q3 and 4 their revenue spikes for the holidays and they earn a cool $5 billion; they’re still being valued at 21.4 years of revenue. Not profit … revenue.
The Real World
So let’s put this in real world terms. Let’s look at the valuation of a brick-and-mortar company, a little company called Ford. Here’s their statistics:
Q1 revenue – $30.5 billion
Q1 net earnings – $1.4 billion
Members – NA
So, with the math noted above on Facebook’s evaluation Ford is worth 2.6108 trillion dollars (note: this is higher than the total US deficit for 2011).
So what is Ford worth? $38.34 billion. You heard me … the value of a company that shows over a billion dollars in real-world profit each quarter and generates $30.5 billion in revenue in a single quarter is valued at 1.257 times quarterly revenue or 27.39 times quarterly net earnings.
Let’s Do Some Math
As an SEO I love math so I won’t make you do it. Let’s look at what Facebook should be valued at if the tech world was ruled by the same general laws of reality that the real world is.
If we base Facebook’s valuation on their Q1 revenue and subscribed to the notion that a company should be valued by some reasonable measure of what they earn (it’s crazy I know) and used Ford as the benchmark they would be valued at $1.33 billion dollars (that’s about $0.48 per share). If we go the route of valuing them based on net earnings and use Ford again, they would be valued at $5.615 billion, a healthier $2.05 per share.
But Investors Are Apparently Detached …
from reality. During just the time of my writing this blog post (about 30 minutes) share prices have gone from $38.00 (a low after opening at $45) back up to $41.16 valuing the company at $112.73 billion dollars.
Can anyone else see the pin coming that’s going to pop this bubble?
</rant>
Update: 3 Hours Later …
Poor Facebook, back down at $38.01. personally I think it’s not dropping below $38 simply because there’s noone who’ll sell for less right now. Don’t worry, if you want to grab a deal on FB stocks just wait … they will go down once people get beaten down.
Other social media properties have been tanking throughout the day. Some speculate that’s due to investors pulling their money out to buy Facebook shares. Zynga (game maker, you’re probably familiar with many of their products … I for one am addicted to Words With Friends) dropped 16.2% as of the time of this writing. But let’s take a look at their financials:
Q1 revenue – $321 million
Q1 net earnings – $47 million
Members – NA
Their company value is currently $1.425 billion. If we assume Q1 revenue will continue (which is unlikely – Zynga is likely to increase in revenue in Q3 and Q4) their annual revenue would be $1.284 billion. So what I’m seeing is investors valuing Facebook at over 21 times yearly revenue and bailing on Zynga to the point where the stock was frozen earlier today based on a multiplier of a virtually 1 to 1 annual revenue vs company valuation. I think I’ll just go scratch my head and wonder at the state of the economy for a while. While I’m doing that you can wonder at why companies like Zynga and LinkedIn are tanking. Groupon is too (down 6.57% as of this writing) but that just makes sense to me as I viewed it as over-valued and then there’s that issue of unusually heavy trading just hours before a favorable earnings announcement (just a titch suspicious – you can read more on that on the Wall street Journal at http://online.wsj.com/article/SB10001424052702303879604577410503063634984.html). Not so favorable (in my opinion) as to warrant their market value of over $7 billion ($559.3 million in Q1).
Note: I may find it overvalued however I do think their pricing is far more realistic than … say … Facebook. But then, they actually provide a real-world deliverable so they can’t be worth as much right?
If you use a Google product or service to call someone instead of sending them some GMail, that conversation isn’t relevant to Google, at least not yet.
I can just picture the sales team at Google are sitting around thinking about how knowing their users, via analysis of email/search/etc.., drives their product, and how people using their services via video/audio are escaping that analysis.
And yet, doesn’t Google own the most sophisticated voice analysis system on the planet? Wouldn’t it be really easy to compress audio/video data, upload it to a Google server, and process it for relevance?
The Canadian government has imposed a limit on Parliamentary debate for Bill C-11: The Copyright Modernization Act which will completely change the way that Canadians interact with web content.
While the bill’s proponents state that there are many benefits to the act, opponents state that the bill’s “digital lock” provisions are excessively restrictive and feel that they are the result of increasing pressure from US corporations.
Opponents state that these provisions will lock down content that has previously been available to consumers and must be immediately revised. In effect Canadians will not have the right to take material they purchase (music, movies etc) and transfer it onto different devices. If the proposed bill passes without amendment, any circumvention would be a crime; regardless if you have legally purchased the material you want to view on another platform.
The Stephen Harper conservative government has decided to defeat all proposed amendments to the bill from the Liberal and NDP parties. The Speaker of the House has selected 18 proposed amendments from Green Party Leader Elizabeth May for debate in the House of Commons.
In an email newsletter sent to constituents and in a video release, May contends that this is Canadians last chance to make any changes to the act:
“These amendments represent sensible changes that will ensure this bill does in fact modernize our copyright law, rather than unfairly undermine our rights as consumers – They will remove digital lock provisions and allow for exceptions, while addressing creators’ concerns about the possible effects of the addition of ‘education’ to the list of fair dealing categories.”
The Liberal party has also launched a petition calling for amendments to Bill C-11’s digital lock rules which would make it illegal to copy a DVD so that you can watch it on your tablet device even if you are not infringing on the copyright.
They also state that “If the Bill passes without amendment, any circumvention will become a crime, even if it is only done to enjoy material you have legally purchased on the platform you want to view it on.”
Following in the footfalls of the SOPA and PIPA controversies the ongoing debate for a fair and equitable balance between the copyright infringement and legitimate fair public usage is far from being resolved.
In a piracy case that’s been sitting around since 2010, a Finnish Court(*Ylivieskan käräjäoikeus) has officially sided with the defendant, stating that she is not liable for her open WiFi connection.
The details of this particular case were very unique in that the timing of the infringement, a 12-minute period of piracy, occurred shortly after the woman in question hosted a public play with an audience of over 100 people in her home, which used to be a school until she purchased it.
Since there’s clearly no way to prove the home owner committed the act of piracy the court moved on to deliberate if the woman could be liable for ‘copyright infringement’ simply for not applying password protection to her WiFi connection.
After some deliberation the court concluded that an owner of open WiFi cannot be held responsible for the acts of third parties. Had this not been the final decision the legal status of all other open WiFi units, and wireless devices in general would have suddenly become questionable.
Personally, when I consider the frightening implications of assigning blame to someone who is partially a victim in a crime is horrible.
Lets put this in another context:
How would you feel if someone used a sophisticated cordless phone to attach themselves to your mom’s old cordless base station, ran some credit card fraud with her phone line, and she went to jail/was fined because she didn’t have enough security on her cordless phone?
It’d be like charging someone with a robbery because the suspects eluded the police by driving through someone’s property. You can’t say someone’s guilty of a crime because they didn’t lock their driveway gate.
While these examples aren’t exactly the same thing, this case opens the door to all sorts of concerns where we can’t hold people accountable for unwittingly providing an avenue for crime.
Google Glass Design is Patented
Not only does this show some further commitment to ‘finishing’ the Google Glass project, it also gives us a ‘sneak peak’ at a bit more of the design of the hardware.
You have undoubtedly heard about the Penguin algorithm update from Google and the effects it has already to have on rankings. There is increasing speculation around the Google webmaster forums that another update has just been rolled out.
Scattered communications from Google seem to indicate that this is not a new update being rolled out, and that it is not a Panda refresh either.
Regardless, there have been many reports in the forums discussing major ranking fluctuations during the last 24 hours. One user details the steps he took to recover after being hit by the latest update stating:
“I had around 30 sites hit by Penguin on the 24/4, yesterday the first one resurfaced back to number 2 for its keywords which is encouraging.”
“What did I do – the site was just 15 pages, the inner pages were all thin content boiler plate stuff, so I deleted them all to see what would happen and left the home page which is 500 words of original content.”
“Links – did i touch incoming links, no I am going to try anchor text dilution on some other sites where I suspect this problem but did not create any more links on the recovered site.”
Barry Schwartz is in the process of contacting Google for clarification on weather this is an isolated incident related to Mother’s Day search skewing traffic and rankings or is it a legitimate algorithm change.
As with the Panda updates, several more iterations of the Penguin algorithm are inevitable and will certainly cry havoc on many sites over the coming months.
While Google retains its standoffish approach to divulging information to the public, it is comforting to have someone like Mr. Schwartz advocating on behalf of the confused millions left to the mercies of the Google gods.