A couple of days ago I found out the secret behind the Facebook Social IPO, that Facebook plans to start selling its shares directly to customers on a monthly subscription.
It suddenly hit me, that if I am on it, Google probably found this out, and that’s why they recently issued a new class of shares which don’t have any voting rights. It was odd why they are doing this step, what if it was simply to sell their shares to their users too ?
If this is really going to happen, and Facebook and Google will start selling their shares directly to the Billion users they have, it will detach very quickly any traditional financial indicator from the prices of these stocks, I wouldn’t be surprised to get back to P/E of hundreds very soon, as they will not reflect expectations for profit, but expectations from product.
I also received today a great related email from Trefis , Trefis slogan is “Trefis helps you understand how a Company’s product Impact its stock price”. The email had the concept of the The Berman Value Folio :
“There’s the old story of the man looking for his glasses. His wife asks him why he’s looking in the kitchen when she last saw them in the den. “There’s more light in here,” he replies. In our laziness, we humans tend to solve problems by choosing the path of least resistance, even if it’s less likely to work. Investors are no different: they tend to look for “first-order” indicators, simple shorthand bits of data that are easy to pluck out of a complex world. Trouble is, these bits are often flawed. Price-to-earnings (p/e) ratios are a good example. The humble and
ubiquitous p/e, a fraction solved by dividing the price by the earnings, fails due to its very simplicity. The idea of comparing Coca-Cola (KO) and Pepsico (PEP) based on p/e ratios looks like a good idea. Until you realize that those two companies are in completely different businesses. Despite that familiar expression to denote
sameness – “it’s like Coke and Pepsi” – half of PEP is the snack division Frito-Lay, while KO makes
only beverages “, They show the difference between Coca-Cola (KO) and Pepsico (PEP)
The new equation will become :
More happy users using your products = More stock buyers = higher valuation = Ability to buy more companies with more users and products
As I said on Instagram Sale, any social service with 20M+ users (keeping its DAU high) is going to be grabs for the Facebook/Google battle.
“This is only the beginning of a great Bull market, the greatest Bull market we have ever seen”
Alex Vieux, @ RedHerring Europe 2012
$NASDAQ to 5000