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This topic contains 4 replies, has 3 voices, and was last updated by  Erik Kobayashi-Solomon 8 months ago.

  • #9350

    Wilson
    Participant

    Anybody like Facebook (FB) here? The stock is down almost 20% from its high on news that its data was used to influence the last Presidential election.

    It looks undervalued even assuming a sharp deceleration in revenue growth going from 50% YOY to 25% for the next five years and operating margins eventually declining from 59% in 2017 (adj to capitalize R&D) to 40% over the next 10 years from increased costs related to regulations and some users being turned off by their products. I came up with a fair value of $235 for 50% upside.

    #9352

    Carey
    Participant

    I hate facebook and hope it runs into the ground and leaves a massive crater. I despise what it has done to our society. And like tobacco companies, I will not directly invest in it. There are far classier places to make money, even Oracle (but just barely).

    #9355

    Hi Carey,

    I see you couldn't resist making a dig at my favorite dog, ORCL… 🙂

    I haven't looked at FaceBook, but was looking at Amazon some last week and will post my valuation work on that. I agree with you that I FB has some potentially very large downside risk vis-à-vis their legal exposure in both the US and Europe. This creates real uncertainty for the business two ways: potential for revenue drop due to lower usage levels and potential for a drop in profitability due to government remediation actions / class action law suits, etc.

    Amazon's case is different, I think. The stock took a hit at least in part because of Trump's Twitter tirade against the company claiming that Amazon was hurting the profitability of the USPS, didn't pay taxes, etc. In this case, I think that the possibility for government remediation action is much lower than it is for FB, and the idea that people would stop using AMZN because Trump doesn't like it is far-fetched as well.

    The problem with AMZN is, as you'll see with my valuation, the uncertainty inherent in the business gives it a really enormous valuation range (e.g., $200 / share to $4,500 / share), so it is hard (for me at least) to have much conviction about an investment in the firm.

    Joe and I were talking about this this morning, and I may write an article fleshing this out a bit… Stay tuned!

    All the best,
    Erik

    #9806

    Wilson
    Participant

    Easy come, easy go, right? (I'm still up 10%, so I don't feel that bad yet.)

    Based on last night's long term guidance of mid-30s OP margins, which may be conservative, and assuming 15% average revenue growth in the next five years, FV estimate drops to $190.

    #9808

    I was in a meeting most of the day, but saw the news story hit the wires… I had taken a look at FB's valuation a while back, but I can't recall my assumptions for operational measures. The company seemed undervalued me when I looked at it before, but it seems like there was guidance for much lower profits…

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