Despite being a long time Apple investor I was caught completely off gaurd that Jobs only owns 5,500,000 shares out of well over 900,000,000 outstanding.
Makes the perks like the private jet look like peanuts vs. value he's brought to the table.
The Apple board has consistently granted him options, but he never exercises them (except for a couple grants in 1998-1999 that brought his company ownership to SEC-required levels for the CEO position). He has given up billions of dollars by simply letting his options expire.
Apple's SEC filings are generally interesting, if you're ever incredibly bored.
This is why I always find the Apple hate from Google fan boys amusing. If Jobs is evil, what are his goals? It can't be money because he's literally throwing away billions. He wont live long enough to take over the world. I think he just wants to go down in history as providing the best user experiences so he's doing what he thinks will make that most likely. You may disagree with how he's trying (I do myself on some things) but I think he believes in it.
Compared to that, how benevolent is Google actually? Not that they need to be. They don't owe that to anyone anymore than Jobs does. So I wish conversations about Apple/Google could drop the good/evil nonsense. It's about trade offs and results. Why they do what they do is their own business.
EDIT: Removed unnecessary sentence (made an irrelevant call on Google's benevolence).
Every company gives to charity. It's tax deductible and great PR. Think of the most evil fortune 100 company you can come up with and then go look how much they're giving in charity. Did Google's founders join Warren Buffett and co. on donating half their wealth to charity?
My point is that people should stop looking for motivations in these companies and see them for what they are: companies who provide us some service or product. Especially since if you force the issue and make us compare who is more benevolent I think a strong argument can be made for Jobs being more benevolent than Larry and/or Sergey (and again, it doesn't matter).
Why not take the options and just give to money to charity rather than let it lapse? I don't believe taking the options would impact Apple much, just add a (minor) dilution to existing shareholders who would never begrudge this being done for Jobs. Even if he doesn't care for the money I'd have thought he'd see the positives of becoming a large philanthropist.
Zuckerberg obviously still retains a large portion of his founding shares (whatever he hasn't sold for FU money and hasn't been diluted). I imagine Steve Jobs lost and/or sold a good majority of his Apple stock after he was ousted and now only has what has been awarded to him since his return.
Jobs actually sold himself down to 1 share of Apple soon after NeXT was acquired, which triggered the ouster of Gil Amelio and the appointment of Jobs as interim CEO. The stock that he sold was all given to him by Apple as part of the Next acquisition--he had no stock (aside from perhaps one share, again for sentimental reasons) between when he left Apple and when Next was acquired, and after coming back he only got stock in later years when the board gave him stock and options.
IIRC Steve Jobs sold all his Apple shares when he was ousted by John Sculley. All Steve Jobs has right now are options granted during last 14 years plus what he received from acquisition of Next Inc.
On a semi-related note, I think it's really interesting that something like 80% of Jobs' net worth is from Pixar (now Disney), not Apple. And yet a lot of people don't even know he was involved in Pixar at all.
I watched the Pixar story movie and learned a lot about Jobs, Lasseter and Pixar. Lasseter is definitely the visionary behind Pixar, financially so is Jobs. He bought them from Lucas in '86. Toy Story wasn't released until '95. That means for 9 years, not only was he not making money, he had to write personal checks to pump in money every year just to keep the company afloat.
The man deserves every bit of credit he gets for Pixar.
The Pixar company originally sold hardware and then software, before it became all about animation. Even on the animation side it was doing adverts to bring in money. So it wasn't a charity project with the aim of creating great art, it was just an unsuccessful technology business until the Disney deal.
Jobs' money is closer to real money than some arbitrary (and frankly unbelievable in the realm of fantasy) valuation metric. Steve could (in theory) cash out tomorrow and those 5.5million shares would be worth more or less their face value. Zuckerberg has to actually sell his company.
And to be honest, Facebook would be a really lousy investment at the current valuation (whatever that number happens to be depending on the phase of the moon $14-$100 billion). Even at the conservative end of this ridiculous metric, say $25 billion, it would take about 30 years at current revenue to equal that let alone make any money on it -- that's a shitty investment as bad as buying a house. They'd have to double their revenue stream every single year to make it worth buying at that price within some reasonable payoff-time like 5 years (a saner metric that most people use when valuing corporate assets, "what's the 5 year revenue expectations of this company?). Sure they're on an exponential growth path right now, how much longer do exponential growth paths last? History shows, "not long".
Their bigger problem is that they pretty much have most of the Internet connected human species with broadband and disposable income already signed up. I don't think any of the analysts understand this. You'd have to drag huge chunks of the population of the planet out of poverty and into middleclassdom to make any meaningful movement upwards in those numbers. FB might be able to squeeze 750 million users this generation out of the planet. But getting more than that will involve bringing world peace to the Earth and feeding and educating all of humanity.
Looking at hard numbers, in markets where FB has about %50 market penetration, their growth rate is ~4% per month. Actually, the ~4% metric works even down to 30% penetration. And you see <10% growth for places with around a 15% penetration. The only places with high growth are current low penetration markets like India and Brazil, with ~14% growth, but <4% penetration. One could reasonably expect that as penetration increases, growth will decrease (yeah yeah every point growth in India is some huge number, but India is not some huge middle-class affluent market waiting for penetration, You're simply not going to sign on 30% of India's population only 7% have any Internet access at all, exactly the same as last year).
Doubling revenue year over year for 5 years is fantasy-land in most cases, not going to happen if you've saturated the market. And unless we make interstellar contact soon, or can expand Facebook into the Dolphin and Chimp populations, it's not going to grow much more. At some point, FB's new signons are going to start tracking global birthrates (and active users will start to decline as the baby boomers start to pass on). The human population growth curves of the planet look bleak for FB.
Don't get me wrong, FB is a valuable company, maybe $5-7 billion, maybe 10 on the very high end. Those are still very impressive numbers. But these valuation numbers that float around are some of the most fantastic multiples of revenue I've seen in ages. Either the models the analysts are using are wrong, or they're simply pulling random numbers out of their asses. I'm guessing the later since I've seen some pretty wild ranges.
So my real question is, Zuckerberg is richer than Jobs, based on what? How many wishes and unicorns Zuck can buy with his fantasy valuation money?
Valuation means nothing until it's turned into real money.
and now they can grow revenue up across the base and increase effective $/user with:
1. More time on site through more features, more facebook connect implementations and more platform support
2. More efficient and targeted advertising with better technology (Google did this very well and are the envy of everybody)
3. Taking a bigger slice of platform revenues by forcing the use of Facebook credits, which means they get 30% of what Zynga et al make (Zynga made more than Facebook in '09)
Your argument assumes that $/user will remain static, when in truth it is very early days for Facebook in that regard. I think their $/user run-rate is good atm considering how shitty their ads are.
Point 3 alone could more than double $/user in the next 12 months. Point 2 is the jackpot that could see them surpass GOOG revenues in due course.
These are excellent points. Basically, FB is going to have to radically change their revenue model in order to make this valuation seem worth it. More ads, more cross licensing deals, bigger cuts of current deals, sell junk direct. I can only imagine the outcry when all that junk starts hitting user's pages. (FWIW, I have yet to see a single advertisement on my FB page)
I was actually having this exact conversation recently with some friends (which is why it's all so fresh for me), and by way of comparison. Google's revenue for 2008 and 2009 is 21.8bil, 23.6bil and looks on track to be just over 24bil for this year. Their exponential growth curve is over, it ended in 2006 but nobody was paying attention because their growth percentages were still really good.
I'm still not sold on FB using Adverts to grow to Google sizes. I just don't see it. Their friend suggests are terrible, I don't think they've suggested anybody I actually know ever, I can't imagine how bad targeted adverts will be. Plus they have a miserable privacy record. On top of that, FB isn't really used in the same way Google is. It's an entirely different usage model, one that I'm not sure lends itself to adverts the same way.
I think #3 is their best bet. Turn FB into a platform for apps, and license access to that platform. Basically an online videogame console with really really good social connectivity.
One thing to think about, my group of FB friends is almost entirely different from my group of linkedin friends is almost entirely different from my group of steam friends. I know I'm an anecdote, but other anecdotal evidence from people I know with the same type of disjoint friends and associates across different sites seems to support this data point.
Facebook and Google have a similar reach, but Facebook has much higher pageview counts (pageviews are redundant today anyway) and much more time on site (I will dig up the numbers again).
The problem that Google has is that it is a doorway to other sites - they have spent 10 years now trying to find ways to keep this userbase on their site further with different applications. I think it is fair to say that Gmail is probably their only success in this regard - and even that hasn't solved their problem of diversifying revenue.
I think much of the current GOOG valuation is predicated on both the revenue growth they were seeing (as you point out, though investors should have seen the flat line coming) and a bet on the ability for Google to utilize their place on the web to build out a 'platform' of sorts with applications and other services. They have failed at both tasks, and it is only a matter of time that the market wises up to this and brings the value of the stock back to a PE more in line with that of a traditional media company (as that is what Google is at its core with this revenue model).
Watching Facebook grow must be really painful for Google, a real punch in the face and a bruised ego. At some point, I wonder, when will they take a step back and admit failure and re-evaluate their entire management structure.
I have the numbers somewhere, but Google's eCPM rate is just insane. I imagine that Facebook atm would be lucky to achieve a penny - so there is some room for improvement but I do agree with you that their primary business model will come from platform.
I think if FB are game, they could try in-stream advertising. A scenario would be a new movie being launched. The marketers for the movie could throw away their traditional website and go to the FB sales team, setup a custom page and then specify who they want targetted - say, 18-30 year old males in the US. Facebook could carve out this demographic, and then run an exclusive in-stream pop-in for a 24 hour period for millions of dollars. The users might react, but they could just make the ad clear. This is much more powerful than what Google offers - since they can only target a users attention, while Facebook is the only website with a global reach where users can be targeted directly.
I think in 2-3 years time that $3-5B from advertising is possible. Add another $3-5 from platform, and you are at $6-10B, with a lot of room to grow and a potential $60-150B valuation.
Also as an aside, won't Facebook be forced to go public at some point due to SEC regulations? I know they have placated employees by offering a sanctioned second market, but at some point they have to bite the bullet and list. It could be possible that they are waiting to book 12 months of platform revenue and a full year of those results for the prospectus (which will make the filing look a lot better - 2 major sources of revenue and strong growth).
Overall a very interesting topic. If you had a chance to today, would you buy Facebook stock at $20B? or $10B? :)
This is really a great piece of analysis. I don't have anything to add at all.
Basically, becoming a platform is where both companies need to go, and start monetizing that platform. But unfortunately for Google, they are much further away from being that than FB is.
I would go so far as to say that Google has utterly failed to figure out a good diversification strategy -- at this point, they just dump something out there and slap some targeted ads on it. But outside of search and gmail, they don't really have much of interest they can monetize on.
Google Apps might be their next billion dollar product line,
if they can turn it into something decent. Enterprises are where lots of money is at, but their enterprise offerings are really rather lousy.
I'm actually sometimes flabberghasted at how much wasted potential Google has in terms of obvious monetize-able offerings they have in their basket, but all of them are treated like incomplete one-off projects done on employee's 20%...with vast stretches of time between obvious enhancements and/or some necessary things never getting built at all.
FB, on the other hand, has the platform but isn't doing anything with it that's readily monetize-able, and they can manage to keep people at the site, but there's really not a whole heck of a lot for people to actually spend money on. Once again, I don't understand why something like Ping or Pandora/last.fm isn't a central part of FB's strategy. It's like a videogame console with only 1 or 2 games.
For big, hyped-up tech companies, I don't think 5x becomes the norm any more, though 30x is still definitely pretty unheard-of since the bubble-1.0 days. But the last tech IPO that I think hits Facebook levels of investor interest was Google, and they IPO'd for $23 billion in 2004. Depending on how you count, that was a 7x-15x multiple on revenues (their fiscal-2003 revenues, the last complete ones at the time of the IPO, were $1.5b; their fiscal-2004 revenues ended up being $3.2b).
I agree. But with some of the FB valuations, we're talking 30x or 50x valuations -- which are not just hype, these are cocaine and ecstasy fueled hooker party numbers.
Even if, given their current revenue model, they tripled revenue tomorrow. They're still only a marginal investment with either a 10 to a 50 year payout depending. Those are U.S. federal securities time periods. If I had $40 billion I had to dump for 10 years, I'd put it into bonds before I'd put it into FB.
As I was attempting to point out, no matter the hype, once you saturate the market, you can't hype away the math. Right now at the lower end valuations, they are a 30 year investment. I don't think anybody in their right mind would take on those odds considering the population growth curve of the human species.
FB is going to have to adopt a seriously different revenue model in order to try and keep their revenue growth curve up and bring down these insane valuation multiples on their revenue -- they simply can't keep relying on new signups and ads. I have a feeling anything they do will be intrusive and along lines that won't be what people like (first 10 friends are free! $5/friend after that!).
Thanks! dunno why you ended up downvoted. I'm totally the wrong person to look at Twitter I think. I can find almost no value at all in the entire platform (wheras I do find lots of value in FB). But I know many people here who think it's the bee's knees. Here's a nice look at their revenue model http://www.goospoos.com/2010/01/twitter-revenue-model/
I know the article I linked to ends on a fuzzy note, I'd have ended it quite down. Basically, they have no idea how to revenue their service. And they're really only reaching <20million people anyways (in theory, word on the street is that only a fraction stay as active users).
Thanks, what I see is that the users invented what twitter is, and in my perspective they are filling the gap the web left: having a distributed social graph (e.g.: FOAF, etc).
Now, about revenue? it seems more related to social analytics, since using the API (with its limitations) it's difficult to do big scale analysis.
Do you have some inside knowledge of what Facebook's revenues are? What makes you think you know more about their valuation than investors who actually know these numbers?
Actually, I'm using a fairly recent $800m/yr revenue estimate figure (which btw has been downgraded from just over $1bil for 2010 (though I saw estimates earlier this year betting the farm that they'd break $2bil) ).
> They'd have to double their revenue stream every single year to make it worth buying at that price within some reasonable payoff-time like 5 years.
That's not so ridiculous for an internet company dominant in a developing space. Minecraft seems to have doubled its revenue stream every single month for the last few months.
I'm aware of these concepts, but they don't defeat my objection. The question is still open whether Facebook is in that region or in the "grow by a factor of ten in the next year" region. Hard to predict the answer to that question.
Google was able to maintain growth doubling until 2006. Then the curve started to flatten out. Assuming FB is where Google was in 2003, they can grow. FB right now claims 500million users, but only about Google's 2003 revenue figures. In 2004, Google boasted they had 60million unique visitors. I'll leave the rest of the math up to the reader.
I bet Steve wishes he hadn't ditched all that stock in the 80s. Not like it really matters; obviously he has total say over the company and is surely more than comfortable enough financially.
And, we'll see what happens in 10 years, huh? Facebook might be worth 20 times as much, or 1/20th. Apple is pretty stable at this point and not likely to go anywhere but steadily up, in my opinion.
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Ha! Please, wise HN users, explain to me why you downvoted this. I'm interested in hearing the rationale.
I'm not a big Apple fan, but I think Jobs gives his users exactly what they want. That probably isn't what is right or what we want, but we're not the users he wants.
When you look at how Jobs quit Apple and sold his shares, the fact that he's even a billionaire is pretty impressive. He made all the money from NeXTSTEP and Pixar.
He bought Pixar, and founded Next, from the money he made at Apple.
Next was actually acquired on a down valuation--according to Wikipedia, Canon's investment gave them a $600 million valuation in 1989, whereas they were acquired by Apple for $429 million in 1996.
Can someone explain to me Facebook's value? And please understand, I don't ask that to be antagonistic - from what I understand and have read, I've yet to take a side on whether facebook is the new king in SV or if its a sign of another bubble. If someone can calmly explain what value they provide, their prospects for future growth, and future competitive advantage, I'd seriously be grateful.
Here is what I understand:
Facebook earned $650M in revenue in 2009. Most of that came from brand and performance-based advertising. $50M from Microsoft ads alone. $10M on virtual goods. [1]
Their biggest revenue share comes from advertising. Now, again, from what I understand, their ad targeting isn't as focused as, say, Google. I'm going to make an assumption, but it makes sense to me that Google users demonstrate more purchasing intent, which is why they can charge high CPC. I've never found a Facebook ad relevant to my purpose for being on the site, but regardless, I can understand the value for any company to spend money on brand awareness, getting views on a high traffic site with quantifiable demographics.
Performance advertising is interesting in facebook's case. When I type in 'Digital Camera' in google, I'm voluntarily giving out a query in exchange for information. Ads for digital cameras, photography books, etc would in fact be quite welcome for a decent percentage of people. But the search-engine user controls that exchange of service. Its akin to using a hammer. Google is the tool. The functionality is in your hands.
Facebook's model is more of an extraction process. Someone has opened a coffee shop with free coffee - but its only free if you hang around the place. Over time, they are trying to develop a model of you based on information that is overheard and asked of you. This is where I'm unsure if its sustainable. I'd also say a great majority of facebook users don't realize how the site has changed since its inception. A large majority of my non-technical friends have no idea how information is being analyzed. I'm not sure how robust facebook's brand is if some terrible scandal/event breaks out and people become really sensitive to what they share with the site. This "social contract" between users, facebook, and advertisers is something I don't think the majority of users understand. They just see it as a site with their friends. And its to facebook's benefit for users not to fully understand.
The last point I want to make is about Social Media. I understand how its shifted interaction and all that. But my concern is with its ties to the capitalistic sense of value. Technological progress does not always = making a ton of money. There are a lot of major technologies that changed the world . There were 2000 car companies at one point, and now only 3 american companies remain. Cars changed everything, city planning, etc, but investors, in aggregate, got fucked. The airline business is a similar story. There was also the tech bubble.
EDIT: I also want to add that since it is a private company, it is in almost everyone's favor to drive up its valuation. Founders, investors, and employees with stock, etc all benefit. When a company is public, there is an incentive to introduce negative information (hence the utility of short sellers).
Now, I'd love to hear an explanation on why its such an 800lb gorilla in the valley.
I can think of a few things that would make Facebook worth a lot more money. The biggest is the "Instant Personalization" idea.
You say, rightly so, that Google's ads are more targeted than Facebook's, because users show purchasing intent. But Facebook knows a lot more about users overall than Google knows (Google only knows a search term). Right now, this isn't such a big deal, since Facebook isn't really exploiting it. But pretty soon, Instant Personalization will give any site you visit a lot of useful information about you that can help them sell you stuff. This is something companies will pay a lot for.
Let's take a simple example. Let's say I have a friend called "Tom" who has a birthday next week. I visit Amazon's site (just looking for something for myself), but right there on Amazon's front page, I see a huge ad, with a picture of Tom, saying "Tom has a birthday next week. Why not buy him this book from his favorite author?" Obviously this is just a quick first example, but I'm guessing ads like this will drive up sales for Amazon big time. How much would Amazon pay Facebook for making ads like the above possible?
I think you underestimate the "social" value that FB brings to the table.
For the last 10 years, every time you were looking for some information regarding places you should visit, things you should buy, you were going to Google, typed your query and filter through its results to find something you might like. For serious purchases, you'd go to review sites, forums and other user generated content sites.
Today, most of your friends are on FB. Let's say you're planning a trip to Italy and don't really know the places you should go, and hotels you should stay at. If you ask that question on FB (which thus replace Google), some of your friends might give you recommendations based on their past experiences. If your best friend stayed in a nice hotel in Firenze, and was satisfied by the experience, his recommendation weights much more importance than a random guy on a random forum.
A significant part of ad dollars that would traditionally go to Google, would fly to FB. Hunch and Quora play in the same league. Google is dethroned from the number 1 destination to "ask for information".
Facebook questions + credits will certainly bring in a ton of revenues for FB but I doubt they'll make FB worth $25 billion one day…
All the real money vs hyped money thing apart, I read somewhere that a 2003 decision by Steve Jobs to swap his options for a low return but safer alternative has costed him a lot. As per the article his worth would have been at least $13 billion now.
Whats more interesting for me, is the way that a lot of news stories are specific examples of interesting things ripped out of the odd bit of research. For example, once the Forbes 400 list has been compiled you could pretty much auto-generate articles like this one.
They've just dragged in a load of facts about the two people, combined with facts about the people from their Rich List. There's pretty much no non-trivial analysis here.
Maybe, but Job's still doesn't get paid a wage if I recall correctly meaning he wouldn't be overly liquid unless he has cashed in a fair amount over time.
No expert but wouldn't it depend on the scale of what he wanted to take out. Say for example Job's attempting to take a billion dollars off the table would have to effect the share price.
And this matters because?? I've heard Larry Ellison is the most illiquid billionaire, as he finances everything with loans against his massive equity in Oracle. He's still in the top 5 richest people. Zuckerberg is no different.
Makes the perks like the private jet look like peanuts vs. value he's brought to the table.