A Simple Facebook IPO Analysis

Disclaimer: I am not a stock analyst, and it's been a long time since I've invested in the stock market. Although, I am proud to say that when the stock market tumbled in 2008, I made money all the way down to the bottom, around DOW 7000, by purchasing an ETF that is 2X bear on the DOW with the symbol SDS. Once the market hit what I thought was the bottom, I flipped my position and purchased SSO which is 2x bull on the DOW. I was once again correct and the market began to climb. I thought I was a stock market genius. Once the market reached 10,000 (see my chart below) I flipped my position again since I thought things were going to tumble again, but the market proceeded to go to 13,000, and I got crushed.

I guess I am a tech nerd, and I should stick with what I know and leave my investing to the professionals. Despite this, I think I have some basic insight into the Facebook IPO. Although, a gazillion articles have been written about this IPO, I am sure nothing I have to say is original, I'd still like to share.

There are a few basic numbers and comparisons one can look at that I believe paint a very clear picture. I stumbled across a Barrons article here which showed the following data:

Some basic things to point out, Market Capitalization is the total number of outstanding shares multiplied by the price of one share. So according to this chart, if you take all of Apple shares and multiply that by the current price you get a number close to $500 billion! This makes Apple the company with the biggest market capitalization in the world. I did some basic math (I hope there are no mistakes) on the numbers above and you see the ratios are very out of whack.

What sticks out to me here is the fact that Apple has a market capitalization that is 4.7 times that of Facebook. Apple has revenues that are 31 times that of Facebook. Despite these astounding metrics, Facebook is trading at a P/E ratio (Stock Price to Profits) that is 6.9 times that of Apple (76 for Facebook vs. 11 for Apple). To put this in perspective, if Apple were to trade at the same P/E ration that Facebook is today, the Market Capitalization would be $3.4 trillion and the stock price would be around $3,600. See the following table. This is what seems so insane to me, and why the upside on the stock price seems so limited right now in the short term.

So why is Facebook trading at this level? This is probably due to the fact that people think there truly is a tremendous upside to Facebook. And there is probably some validity there considering the fact that they almost have 1 billion users worldwide, and have barely figured out how to make money with mobile. After doing some research online, it seems that more than 50% of Facebook traffic comes through mobile devices and probably a lot more. Facebook is not monetizing mobile at all! Facebook indeed had a disappointing opening day as the IPO price went nowhere, but in the coming years, I think it's entirely possible they do become the biggest most successful company in the world.

Lastly, I regularly check The Drudge Report for a quick snapshot of whats going on in the world. I love when he publishes his obscene misleading headlines such as the ones shown here:

Let us be clear here. The IPO provided a return to the pre-IPO investors that is unprecedented. There were reports that more than a 1000 millionaires were created, and a handful of billionaires. The people who did not receive a return were those people who bought at the $38 dollar level the day the stock began trading. I am confident, that if these people hold on, they will be very happy with the returns that Zuckerberg provides in the coming years. To see just how big the IPO was, check out this awesome set of info-graphics provided by the New York Times

On the other side of the coin, after doing this tech nerd analysis, it seems Apple might be undervalued. Take a look a this chart from TechCrunch:

In only 4 years Apple has sold almost 200 million iPhones, and in 2 years nearly 50 million iPads, and there is absolutely no sign of a slowdown for either product, look at that trajectory! Maybe Apple's P/E ration should be trading closer to the P/E ratio of Facebook which is an amazing 76. The average P/E ratio of the S&P is 20, and Apple's is a meager 11. Either way, it's exciting times for the tech industry, and I am more excited than ever to be a part of it.

In conclusion, I think Apple is a buy right now, and I'd stay away from FB for a while until the dust settles.

VIdeo of High Rise Construction in River North, Chicago

Construction of a 43-story, 450-unit apartment tower at 360 West Hubbard in Chicago’s River North neighborhood, according to my calculations began December 22nd, 2011 when they shut down the parking lot. I have a unique view since my office is across the street. Since the beginning I have been taking a picture a day and compiling them into a video slideshow.

The exact location of the building can be seen here in the circle, as well as my vantage point from the 3rd floor of my office building across the street:

The video, so far can be seen below....  I know this is nothing new, but cool nonetheless. I also added some romantic background music. Enjoy!

Cloud Chaos

Everybody’s talking about the CLOUD. It might save the U.S. Government $12 billion from the annual deficit, it’s currently creating a generation of tech-savvy kids with their heads stuck in this new trend, and according to Bloomberg’s Adam Johnson, it’s the “single most powerful theme within tech today.”  Cloud storage, or the ability to quickly access your content from any device when and where you want it, is a cultural phenomenon. The biggest players right now are Dropbox with an impressive 50 million users and Box with 8 million users respectively. Their valuations are incredible and the amount of capital they have raised is mind boggling. Moreover, finally after 6 years of talk and rumors, Google recently released their version of cloud storage named Google Drive. And even Microsoft hopped on the bandwagon when they released their version called SkyDrive.  So what does this all mean? Though the Cloud has made content easily sharable and accessible for users, it has become significantly more complex and difficult for system administrators to contain and control such content– a phenomenon we call “Cloud Chaos”.

I recently read an article from Box that had some absolutely fascinating statistics. Apparently, 82% of Fortune 500 companies choose Box! I don't know exactly what that means – are they enterprise customers where these products were rolled out across organizations, or just individual users that happen to work at these companies? I find this interesting, because a number of my colleagues whom I have spoken to that work at Fortune 500 companies are explicitly prohibited from using these types of tools due to corporate compliance and privacy policies.

I’ll admit it; these products are awesome when you need to collaborate within your organization. From one employee to another, they have enabled organizations to share, collaborate, discuss, and review, like never before.  These products connect staff within an organization allowing anyone to upload content and share with whomever they want, but management has little ability to track their employees’ actions. It is difficult to see which content has been shared, who has shared it, or how many times an employee or customer accesses a particular document.  I think it’s safe to say that most companies’ management teams would love the ability to directly manage content, customers, and employees through advanced activity tracking on a cloud based application. But today’s mainstream products don’t have these abilities.

Furthermore, if you want to share outside of your organization, it’s nearly impossible to maintain absolute control.  Although Dropbox, Box.net, and Google Drive, are great for sharing information among employees, they do not create any boundaries. The question that remains is:  Do Fortune 500 companies really want to invite their customers into a Box folder to share sensitive data? Do they want to force their customers to download Dropbox just to keep them up-to-date?  By using these powerful cloud storage tools sharing becomes the easy part, but it is impossible to control the user experience or the organizations’ intellectual property. Even more, instead of highlighting each individual organization’s brand or unique web experience, the Box or Dropbox logo is the first thing a customer sees when logging in and all content sharing transports the customer to an outside environment, which diminishes the exclusive customer experience each company normally creates.

The capabilities of cloud storage today are phenomenal, but in practice, the act of sharing outside of organizations demands a more secure, branded environment. Without this protected environment, organizations will become a part of this ever growing mass of cloud chaos. Basically, companies need to keep track of content sharing for ROI purposes and must be able to control the look and feel of their distinctive customer experience across all devices. This is cloud storage with boundaries and control, something that today's mainstream tools simply do not offer. So as we look to the future of technology, there is no telling which direction this cloud trend will blow, but one can surely say this type of storage must become organized with specific restrictions to protect company and user privacy; or we just might end up in a world of Cloud Chaos.