Interesting distinctions. Here is the follow up: While FB has a much more desirable demographic today it is hard (maybe impossible?) to stay cool. Being cool ain't easy but staying cool over the years is Apple territory -- rare indeed. You have made the point that FB's value is not just the zillion people they have but that in that zillion there are a half-a-zillion really worth having. What happens when half of that half leave? Even if they replace them with "less cool" users doesn't the intrinsic value of the audience they sell go down? I buy your premise that they, like media in general, are not simply selling eyeball but, instead, are selling eyeballs that have desirable demographics and are giving the advertisers the ability to segment and buy which ones work for them. But to give those guys on Madison Avenue those sliceable and diceable segments they value most you must stay cool. I'm well past the age when anyone is cool and you should take my word for it ... it ain't easy to stay cool for very long!! BTW ... I'm not an FB basher. When I say I have no idea of its value I really mean that. Could be $5 or $50 a share a year from now ... beats me as to how to predict that but I do think what we are speaking of here is highly relevant to value. My Space never had the juice but we (or at least I) really do not know if FB can keep the juice. Lose the juice and, in a trendy environment, you lose more juice with every article and online post that says the juice is gone. How hard is it to imagine that we will hear people in SoHo and Willamsburg say "you mean you are still on FB" a year from now?
i have a question: those 1.5 billion [or so] shares coming unlocked in the next few months - are they already calculated into the current EPS, PE and market capitalization? i will also refrain from "knowing" where FB will be a year from now, but i have bet the farm on it... marc
All good points you make. The hipsters I know - the kids of my friends- yeah, they barely go to FB anymore. However, I believe I have an understanding of the ad biz (have friends in it) is that its not the cool factor that keeps ad buyers spending on FB. it might seem that way on the surface, but what actually keeps them spending is ROI. They will stop spending when they no longer get the ROI and/or they can get better ROI elsewhere. Could that happen? Yes, and if that happens my investment in FB will be wrong. However, its a bet I'm willing to make given that I think I know a bit more about how advertising works than the average trader or investor who thinks in terms of number of users. Time will tell. This will take a while to play out.
yes, the lock-up ending presents a problem, and FB is well aware of this. back on Sept 4th, Zuckerberg stated that he will not sell any shares for a minimm of 1 year http://allthingsd.com/20120904/facebook-8-k-zuckerberg-will-not-sell-any-shares-for-one-year/ and I believe several BOD members have also agreed to it. FB shares responded very favorably to this announcement on Sept. 4 TA or price wise, I can't make any predictions, but we all know there is: 1) significant supply above which will act as resistance at the places everyone can plainly see on a chart, and 2) significant short interest which could add fuel to any up move and potentially trigger new buying, not just covering.
I spent big chunks of my life writing ad copy for a fairly diverse set of businesses I owned here and in Europe including three brokerage firms and North America's second largest Stop Smoking Seminar group. In the stop smoking business we used hypnosis at large (400 to 600 people) seminars in hotel ballrooms. I've spent millions on advertising (mostly print of one form or another) and of course ROI is key. But knowing that metric is key does not mean that you can leave out the component parts of getting there in your analysis. As you have pointed out the "ghetto" demographic of My Space degraded the value of their eyeballs. That didn't happen because the audience good it happened because the segments agencies wanted were not purchasable on My Space. It is never the cool factor that the advertiser calculates but it can be the degree of cool (it is all a matter of degree) that determines what demographic is migrating to you or deserting you in droves. Look at the Apple phenomena. Those that had an IPhone in NYC had to have ATT as there carrier at one time. The number of dropped calls was so high that some people -- including my own brother -- carried another phone to actually make and receive calls. The loyalty of THE key American demographic -- young with $$$ -- that Apple commands and keeps is astonishing. Excuse the vernacular but it's like they are giving you a free piece of ass (rated 9 or higher on the Richter scale) everytime you buy another product. The company is worth more than Exxon -- it's insane. They blow one product cycle and the magic is gone except, so far, they have not blown any. Cachet is great when you have -- particularly it in media -- precisely because it contributes mightily to the ROI you can deliver yet still maintain your margins. The key is how do you keep it, the ROI and the margins. It is my understanding that Steve Jobs is currently (and maybe permanently) unavailable to advise on the subject. And no one else seems to know much about staying cool. A few guys know how to be cool but now we are talking about extending the half life of cool. Only Jobs knew the secret.
I thought we were talking about FB, not APPL. But I can see your point regarding the cool factor. I just think that its a bit of a red herring. With your experience in the ad world, did it involve digital ads? The reason I ask is that digital ads are handled very differently then print or other mediums - the biggest difference being that digital ads are constantly and continuously being measured for effectiveness, measured with hard data about those who see and interact with the ads or respond to an ad - maybe not clicking on it but seeing it and then maybe 3 days later going to the web site to check it out. In other words the ad world has changed a lot with the web, and digital ad buyers know a lot more about which ads work and how to measure ROI.
My metrics were simple to compute but no less precise. In the seminar business I computed how many asses filled how many chairs and at what cost per ass to the penny. In the brokerage business I knew my lead cost from every piece of creative and every media choice. Every business I have been in that involved ad expense revolved around direct response. Digital did not invent metrics. I once did a true AB split run in the Cherry Hill NJ daily paper. The A version of the ad brought me attendees at $13 each and the B version came in over $50 per. None of the digital metrics are new or more precise. What they are is faster, cheaper and less of a pain to employ. Those are all important things but for those of us that took the pains to get it right in the day got the numbers and used them very effectively. In some ways more effectively since the mechanics eluded many and those of us on top of it beat the others like rented mules. The fact remains -- FB has a very valuable audience but will they keep it? Will mobile belong to Google and others? All the ability to calculate metrics in the world means nothing if you end up being less cool than the demographic you need to sell. Lots of leading ladies went from starring roles to character roles the year after even the face lifts and makeup could not hide their age. More of them went into retirement.
I disagree with your statement, "None of the digital metrics are new or more precise". With cookies they know what ads you've seen and can track your behavior - do you go to the advertisers web site - for the next 30 days more or less. Print ads can't track future behavior. Google is an interesting example - their ads and their audience are not dependent on a cool factor - search ads and text ads on run-of-the mill web sites targeting the average Joe brings in a lot of money. They don't need a cool factor to haul in the dough.