Lets say there is a restaurant on an island and most of the people on the island eat at this restaurant. Now there are a few other restaurants, but by far 90% of the island eats at this restaurant....(Well call the restaurant Fish Bucket, or FB for short) So the owner of Fish Bucket decides he wants to sell. How much does he want to sell it for. Well the business makes $100,000 per year so the owner of Fish bucket, Mike Zacharyburg, decides to put it up for sale for $7,170,000. Now, we know the business can't keep growing much because nearly everyone on the island eats there, and there is always a risk that a new restaurant might pop up one day that sells better tasting fish. After all...Fish Bucket did once replace "MyFish" as the number one restaurant on the island some years back. So tell me...would you buy Fish Bucket for $7.1 million dollars when it only makes $100k per year and you know it cant grow much more and it runs the risk of being replaced by a new restaurant one day? Because Facebook and Fish Bucket are the exact same thing (at todays closing price of $20.72.) Fish Bucket is just scaled down. It shocks me that so many people just hear "facebook" and no price matters. The name is popular enough to justify the price in their eyes.
Your story reminds me of the one where the guy thought his "Seven Minute Abs" video would never be beat. That is until "Six Minute Abs" hit the informercial highway, and there it went. A $40bn idea sunk because some scmuck marketed similar info and shaved a minute off your workout. So, you think there is a better FB out there? Anyway, I prefer eating at the Chum Bucket, Mr. Krabs can go pack sand; to hell with those Krabby Patties.
That was from the movie "Something about mary" There is currently nothing out there that can compete with facebook. But the problem is, there might be one day. Facebook can't really grow from where it is and advertisers are not getting a return for their ad revenue on FB, so they will have less and less advertisers soon.
I short FB once a while when I see the time is right. I called it a"short term cover" when it dropped to 19.80. I have no position on FB now but your reasonings have one big flaw. You don't value a stock or avoid a stock because of a possible future competition. It can happen but it has not happened and is not for sure. When it happens or gets close to happen, price drops 50% like what happened to PCLN today which $100 was shaved off from the face of stock. As I have always said, FB could have been $40 now if the initial public offering was at $15. FB pissed off many many many people. Small investors, big investors, brokers, ..... I agree FB is overvalued now and will see 15 and lower in 3 months.
Nice analogy, but the restaurant at least knows how it intends to make money. It's just too expensive. Everyone can see that FB has vast potential, if only there was a way to monetize it. It's like a city has a great seaside park that everyone loves to go to and hang out. They just can't make any real money off it. If they charge to go to the park, people will just go somewhere else. FB has yet to demonstrate a way to make money, except for relatively dinky ad revenue and cuts from games like Zynga. Now it looks like even the ad revs may be suspect. Amazon has a somewhat similar set of problems. They have never really made any money. Vast revenues, unlike FB, but everything gets plowed back into the business. Interestingly, the same criticism has been made of the shale oil and gas producers. A horizontal well with 30 plus frac stages costs maybe $10 mill in the Bakken. These wells suffer an exponential decline in production volume over the first year, and some have claimed they will never be economic. Like Amazon, you have to keep investing in new wells constantly to keep production up.
Is AMZN worth nearly 300x earnings? If not, the f*cker sure is persistent! Yet FB isn't worth 70x? Do you think that you're the first clown to question the valuation of social media? Jeez Bro, how enlightening! The fish house analogy really drove it home. I am sure all the hedgies are lining up to hit the bids on the opening print tomorrow. *** FB will buy YELP for <$3B in stock before the end of 2012. ***
Thank you. Finally somebody stated what I have been thinking for years. But anyhow, back to the problem. As atticus also said, the OP's little fundamental analysis is very nice, and also completely worthless. For tech stocks, fundamentals don't apply. AMZN went up from $40 to $240 in the last 4 years. With the recent IPOs like GRPN, ZNGA and FB reality has started to set in, but that doesn't mean you can just short the shit out of these stocks without risk....