Tuesday, January 31, 2012

What If It Isn't Facebook?

A bit of squiggly "journalism" which appears to promote a finance newsletter offers a defense for Facebook's ginormous $85-100B pre-IPO valuation:

The basic reasoning behind Facebook's valuation goes something like this: every new technology cycle is dominated by one company, and that company usually ends up being worth around $200 billion. Microsoft dominated the PC era, and Google dominated the search era. Facebook is going to dominate the social era, and therefore it's going to be worth $200 billion some day. Discount that to today and $100 billion looks like a steal.

It's widely considered a foregone conclusion that A) the era which follows Google's traffic era is the social era, and B) Facebook will dominate it. The details are kind of flawed:

Facebook is becoming one of the biggest sources and referrers of traffic on the internet—and on the internet traffic is money. The reason why Google became the most valuable and feared internet company was because most of the traffic on the internet came from Google.

This analysis tries to have its cake and eat it too. Facebook will be king, because the Google era will end soon; and Facebook will be king, because by the metrics which defined the previous era, it's almost as good as Google. But how awesome is Google, if you measure it by the number of cardboard boxes containing disks containing software that it has shipped to Circuit City? The whole point of a new era is that the old metrics don't apply. This "Facebook will be king" mania is all over the Web, and everywhere you find it, you see this same obvious oversight.

If you read Daring Fireball, you know that Apple criticism is all over the Web as well, along with perpetual reports that the stock's price is about to fall -- reports which almost never come true. In fact, those reports differ so wildly from reality that Andy Zaky claims Apple's the most undervalued large cap stock in the country:

it is now an incontestable FACT that Apple is the most undervalued and underappreciated large-cap growth company in America. The stock trades at an extremely depressed valuation that Wall Street isn’t taking seriously (8.25 Forward P/E Ratio), the company’s growth continues to outpace every large cap company on the entire S&P 500, and the company’s growth rate percentage – defying all laws of gravity – continues to accelerate without any sign of abating...

There seems to be an ever-present sentiment-war being waged against Apple as it is constantly hit from all sides in a very concerted way. And this is not something new. It’s been going on for years with Apple. With the recent passing of Steve Jobs, it has only gotten much much worse. I’m here to try and balance the scales a little by reminding everyone about the simple truth concerning Apple. While the company’s earnings have absolutely skyrocketed since 2008, to the dismay of investors and to the delight of Business Insider, the stock has gone nowhere.

You can track the "sentiment-war," aka incomprehensible excessive negativity in Apple media coverage, on Daring Fireball if you want -- there's definitely more than enough evidence -- but let's just compare two excerpts here. First, from Andy Zaky's piece:

In just four years, Apple’s earnings have grown 600% to $27.68, and its revenue skyrocketed 341% to $108.2 billion.

Second, from the Facebook post:

The basic reasoning behind Facebook's valuation goes something like this: every new technology cycle is dominated by one company, and that company usually ends up being worth around $200 billion.

Apple made $13B last fiscal quarter; that's over a billion dollars per week. This trend would not have to continue for a very long time in order for Apple to be considered a $200B company. What's funny about Silicon Valley is that even if Apple passes $200B, continues to operate as the primary distribution system for the global music industry, and successfully leverages its fantastic Apple TV product and iTunes movie/TV downloads to replace film and TV distribution as well, Silicon Valley will probably still be yapping about the Facebook era replacing the Google era.

While Apple will still be making money.