Is Facebook Worth $100 Billion?

[CountDeMoney]

Where once the CEO's job was to maximize profits in pursuit of the company's goals, these days it seems that most people feel that the only thing a CEO should be concerned with is maximizing shareholder value and laying off CdM.

Yeah, that's the view from here.

[HVC]

It seems like the nature of corporate governance has changed.  Where once the CEO's job was to maximize profits in pursuit of the company's goals, these days it seems that most people feel that the only thing a CEO should be concerned with is maximizing shareholder value and laying off CdM.

everybody wants a quick buck now. if its what the shareholders and public wants, then thats what happens.

[Martinus]

No, my argument as to why Zuckerberg shouldn't personally care is because he's already cashed out. But you don't replace a CEO for no reason at all, can you point to anything Zuckerberg has done since the IPO that would justify his removal as CEO? (A moot point by the way, since he controls the board he cannot be removed against his will.)

The assumption is if the share price went down, the CEO has done something wrong?

That's stone cold retarded, and in general CEOs often have little control over share price. In some ways if I was an investor I'd prefer a CEO who isn't overly concerned with share price. There is an oft-repeated argument that because bonus schemes are tied to stock performance, CEOs will manipulate things to maximize the stock performance to the detriment of the overall company's long term competitive advantages. That argument isn't really that apt, if you actually look at CEO compensation plans at big companies they tend to be based on a nexus of performance metrics such as EPS, corporate free cash flow, total revenue etc...basically corporate boards aren't typically so stupid as to just base it on simple market price of the company's shares. So while the argument doesn't really apply to real world situations, it comes from the right place...namely that fluctuations in a company's share price can happen for any number of reasons. Many of them actually have little or nothing to do with that company individually, and for that reason it is foolhardy for an executive to obsess on them.

Profit is the lifeblood of a company, you need enough to remain a going concern, and then enough to maintain your business or grow your business against your competitors. If a CEO does boneheaded things, like make big bets on poorly designed new products (and for fun taking out lots of debt to finance it) and runs the company deep into the red that is time for action. If the CEO burns bridges with import supply chain partners, is allowing market share to be lost and isn't responding aggressively...those are all reasons to fire a CEO. If the CEO is just generally inept, that's a reason to fire the CEO. However, lots of very good companies have weird stock fluctuations that don't really affect the underlying value of the company itself. In this case you had a very high IPO price that was essentially the result of "media hype" and in fact that was good for Facebook; because of all that media hype Facebook the company (not Mark Zuckerberg) raised billions of dollars it can now use to make capital improvements or invest in new technologies or etc to increase revenue. On the balance sheet I'd be surprised if Facebook is not doing better right now than it was before the IPO just because it has more cash laying around. (I am aware they had a revenue decline in their first earnings report after the IPO.)

This.

[crazy canuck]

There is good reason Zuckerberg doesn't care about the stock price, that money is basically fake money to him. On IPO day Zuckerberg sold enough shares at $38 or whatever stupid number the shares were trading at so that he'd basically have $5bn in actual cash. He basically is now permanently uber-rich no matter what.

That is a good reason why Zuckerberg should not be the CEO.  Your argument boils down to "dont blame him for the share collapse.  He got his and now he doesnt care what happens to the share price."

Now that is prime CEO material right there. 

It is a rather Orwellian concept that a guy founds a company with priorities ostensibly beyond the bottom line, is forced by law to go public, and is then forced out because he has priorities other than the bottom line.

It is worth remembering that facebook made a billion dollars after taxes last year--and Zuckerberg founded the company in his dorm room not too long ago. Whatever his focus is, he has produced some really remarkable returns in a very short period of time.

Your premise is that Zucker was forced to go on the IPO marketing spree, make a bunch of money by selling to the public and therefore the people that bought those shares are precluded from complaining that he has done a piss poor job since then.

Because why he is the founder.  You do know that most founders do a poor job after their companies make a transition like this.  Zucker is just the latest example of that.  Of course rarely is such big money involved.  But you know what the are calling the people that bought into the hype right...  here is a hint it rhymes with Zucker...

I believe Garbon called it in the very first post in this thread.

Like I said, people had to suspend disbelief to think the initial valuation was valid.  And Zucker took all the suckers for all they were worth.  Hardly the type worthy of defending I would say.

[DGuller]

Doesn't matter how much stock you own, I'm sure you can't agree to sell the entire company for 1 cent per share to another entity happened to be owned entirely by you, even if the majority of the shareholders (i.e. you) votes for it.

Why are you sure of that? I don't doubt it, but you don't actually have anything I've seen to back up that assertion. I've owned decent sized (for regular people like myself) stakes in companies that got bought out before, and the documents I got about it always basically indicated the shareholders would vote and if the majority approved the buyout price then I'd receive that value in cash or equivalent shares of the acquiring company.

Because I know that this country has minority shareholder protections, and doing what I described would be the most obvious and egregious scam.  If doing what I described isn't illegal, then there are no such things as minority shareholder protections.

[MadImmortalMan]

He could have done a lot in the beginning to keep the valuation from going too high, but my understanding from others who have gone through the IPO process is that it takes on a life of its own and you have little input after a while. Especially if it's hyped.

[Admiral Yi]

Because I know that this country has minority shareholder protections, and doing what I described would be the most obvious and egregious scam.  If doing what I described isn't illegal, then there are no such things as minority shareholder protections.

You're basically talking about self-dealing.  Zuck sells all of Facebook's assets to a shell company he also owns.  Regular shareholders are left with nothing.  That's how a lof of the Russian oligarchs made their money originally.

[Martinus]

Doesn't matter how much stock you own, I'm sure you can't agree to sell the entire company for 1 cent per share to another entity happened to be owned entirely by you, even if the majority of the shareholders (i.e. you) votes for it.

Why are you sure of that? I don't doubt it, but you don't actually have anything I've seen to back up that assertion. I've owned decent sized (for regular people like myself) stakes in companies that got bought out before, and the documents I got about it always basically indicated the shareholders would vote and if the majority approved the buyout price then I'd receive that value in cash or equivalent shares of the acquiring company.

I don't about the US legal system, but in the EU, minority shareholders can challenge any resolution that is done to an obvious prejudice of minority shareholders or the company. Plus it's a crime for the management to act obviously to the detriment of the company even if this is approved by the majority shareholder. Both would apply here.

[alfred russel]

Your premise is that Zucker was forced to go on the IPO marketing spree, make a bunch of money by selling to the public and therefore the people that bought those shares are precluded from complaining that he has done a piss poor job since then.

Because why he is the founder.  You do know that most founders do a poor job after their companies make a transition like this.  Zucker is just the latest example of that.  Of course rarely is such big money involved.  But you know what the are calling the people that bought into the hype right...  here is a hint it rhymes with Zucker...

I believe Garbon called it in the very first post in this thread.

My premise is that he made very clear what the focus of the company would be and what its priorities were prior to going public, and those definitely did not involve a focus on short term stock performance. So people that bought in at the IPO price aren't precluded from complaining about the short term stock performance, but I tend to think they had it coming. It also seems silly to judge Zuckerberg against metrics he was never setting out to measure himself against (ie, short term stock performance).

Like I said, people had to suspend disbelief to think the initial valuation was valid.  And Zucker took all the suckers for all they were worth.  Hardly the type worthy of defending I would say.

I disagree. For whatever reason the market felt that an IPO price of $38 a share (or whatever it was) was a fair price. Morgan Stanley offered to underwrite at that price. Why would facebook price the IPO at $20 a share in that environment? That would just mean Morgan Stanley and short term speculators would get the extra $18 a share.

[OttoVonBismarck]

If DGuller is so sure about things, I'd love to see him actually produce some evidence. I agree Zuckerberg would probably face suit if he tried to sell the whole company off at $0.01 per share. However the original contention, that Zuckerberg here in the real world has done anything that any court in America or any regulatory body in America would view as such a breach of fiduciary duty to the shareholders that he have his company taken away from him it is on you to prove that silly assertion. Or is that not what you were asserting? Because if not, your basic premise is...what? Zuckerberg should resign? Well if he just should resign, but doesn't have to, then why would he?

[The Brain]

If DGuller is so sure about things, I'd love to see him actually produce some evidence. I agree Zuckerberg would probably face suit if he tried to sell the whole company off at $0.01 per share. However the original contention, that Zuckerberg here in the real world has done anything that any court in America or any regulatory body in America would view as such a breach of fiduciary duty to the shareholders that he have his company taken away from him it is on you to prove that silly assertion. Or is that not what you were asserting? Because if not, your basic premise is...what? Zuckerberg should resign? Well if he just should resign, but doesn't have to, then why would he?

[alfred russel]

Also, in terms of the valuation, I'm not supporting the valuation, and I realize this is a crude way of looking at it, but the rate on 10 year US treasuries is under 2%. Those aren't indexed to inflation, and are subject to full income tax rates.

Facebook earned $1 billion last year. A $100 billion valuation means earnings of 1% a year, which even without growth in the core business should keep pace with inflation. Returns to shareholders are also taxed at the capital gains rate.

Of course an internet company has more risk than a government bond, but then also such a new company probably hasn't developed all its revenue streams and global internet access is exploding.

[crazy canuck]

My premise is that he made very clear what the focus of the company would be and what its priorities were prior to going public, and those definitely did not involve a focus on short term stock performance. So people that bought in at the IPO price aren't precluded from complaining about the short term stock performance, but I tend to think they had it coming. It also seems silly to judge Zuckerberg against metrics he was never setting out to measure himself against (ie, short term stock performance).

Like I said, people had to suspend disbelief to think the initial valuation was valid.  And Zucker took all the suckers for all they were worth.  Hardly the type worthy of defending I would say.

I disagree. For whatever reason the market felt that an IPO price of $38 a share (or whatever it was) was a fair price. Morgan Stanley offered to underwrite at that price. Why would facebook price the IPO at $20 a share in that environment? That would just mean Morgan Stanley and short term speculators would get the extra $18 a share.

I have no idea who you are talking to but your points do not address the fact the guy cant do what a CEO in his position needs to do and that is communicate will with the investment community - especially after such a high initial public offering price.

Also it is striking that Otto knows nothing about minority shareholder rights but feels perfectly qualifies to say that others who raise it are idiots.

Is there some kind of wierd facebook apologist coolaid going around.

[Neil]

Is there some kind of wierd facebook apologist coolaid going around.

I think it's hard for people to side with the financial orthodoxy on any issue, as they are bad people who have made decisions that have devastated the global economy while enriching themselves.

[Admiral Yi]

Of all CEOs of publicly traded companies in the world Zuckerberg has the least need to communicate well with investors, with the exception of CEOs that own even larger shares of their company like the Kochs.  He doesn't need their approval to remain as CEO.  They can exit the stock and bid down the price, but Zuckerberg has publicly stated he's indifferent to the share price and as was already mentioned he's already sitting on a mountain of cash.