Currently the market is telling me that Facebook is a $900+ billion company. Will investors ever get $900 billion back?
All those who hold shares in FB, combined, are holding paper that is worth 900B. However, if even 10% of those wanted to sell their holdings at a time, the price would fall and the total holdings would be worth less for all.
Now, why are they holding the shares then? Two things come into play. Firstly, say 5 years down the line, the holders have confidence that FB will still be making money, be profitable and be on the market. Secondly, that five years down the line, there is someone else who is willing to pay for the shares at a premium of what they have originally purchased for. Now what about those who are buying 5 years down the line? They too must have confidence on FB that a further 5 years or more down the line, FB will be profitable and will be in the market and keep earning money. And so on and so forth.
So is FB really worth 900B, yes, if the holders keep holding it and FB keeps earning profits.
Can everyone get their worth from the shares? Not at once. Not in a hurry.
With tech this might be implicit if they are “profitable and still in the market.” But it is different than say John Deer or Miller Paint in that regard.
The thing that sets me off about these threads is the (I believe sincere) thinking that 'well if that's the share price, it must be worth that much'. That's fine if you're speculating/trading but is absolutely wrong if you think what you're doing is investing.
Are we reading different posts? The post you responded to repeatedly made the point that profits are one of the key builders of market confidence:
>> Firstly, say 5 years down the line, the holders have confidence that FB will still be making money, be profitable and be on the market.
...
>> They too must have confidence on FB that a further 5 years or more down the line, FB will be profitable and will be in the market and keep earning money.
...
>> So is FB really worth 900B, yes, if the holders keep holding it and FB keeps earning profits.
It's a key point of their argument!
The value of a company in a fair market is a function of the confidence of investors that someone in the future will pay more for the same stock.
For a highly profitable company like Facebook, this isn't a foolish confidence in anyway. Even if you don't like Facebook it would be a very radical position to take to think that their profits next quarter will be remarkably lower than this quarter.
In greater fool theory, you know there is no reason the investment is going to increase in value. You are just hoping someone else is going to buy from you and accept that risk too.
When you are counting on the 'confidence' of future investors to (over)pay more than you did for something, rather than any rational valuation, you are quite literally counting on a greater fool[1] being willing to buy it from you.
[1] https://en.wikipedia.org/wiki/Greater_fool_theory - note that it isn't always about an asset having no value, just that for an overpriced asset that there will be someone else willing to pay more for it.
But that's a difficult argument to make for Facebook. Facebook is highly profitable - they have averaged something like 80% gross profit margins for a decade[1] while sustaining significant revenue growth. That's pretty much guaranteed that their stock will continue to appreciate - with margins that high they have a lot of room to play with things to keep growth going.
What metric makes it look like that is a greater fool situation?
Investors will tell you that historical performance does not guarantee future performance. It’s one yardstick, but it’s not always the best one.
Facebook’s historical revenue growth was catalyzed by environmental factors that are shifting underneath them.
In 2021, FB would not be allowed to acquire Instagram or WhatsApp. In 2021, Apple (custodians of their most valuable user base) is no longer cooperating with adware.
What does future revenue growth for a Facebook look like, who is not allowed to acquire upstart competitors, who is not allowed to extract maximum value from its mines, and who is facing regulatory scrutiny for past deeds?
Would you be willing to bet that $900B, or $300ish/share on $30 revenue/share have these uncertainties priced-in?
Yahoo! and AOL were dumpster fires in comparison, of course. But I wouldn’t be so certain that FB hasn’t passed its peak valuation, just because it has had a money printing machine for the past decade.
Their average revenue per user increased by the largest amount ever (in both absolute and percentage terms) last quarter.
In terms of technology challenges, the iOS changes will reduce FB's ability to target ads. However, it is quite possible this will lead to more revenue for FB because the market structure (ie, domination by FB and Google) means FB maybe able to pass on the loss inefficiency to advertisers.
Or perhaps a medieval wheel of fortune.
[1]: https://www.sciencephoto.com/media/539503/view/the-wheel-of-...
I miss my Visor, tbh.