FB and GOOG have been hoovering up practically all growth in the digital ad space. Those PE ratios are high, but they have been blowing out their earnings quarter after quarter.

FB has 2.07 billion monthly active users, about 1/3 of the world population, with significant user engagement. Their userbase is on par with major world religions and continents.

Google is the same, though their engagement is a lot more fleeting.

Amazon is hoovering up almost all of the retail growth in e-commerce, and is now extending beyond e-commerce. They to an absurd extent, try to match their R&D and capital investment to their revenue and almost operate as a non-profit, so their P/E ratio always looks absurd, but their book value has increased tremendously over the years.

This isn't 1999 where like Tesla, there was no P/E ratio because there were no earnings (profits), and in the life of the company there had never been a single dollar of profit made, and companies were often rated at 50x their revenue numbers!

These are companies that have shown sustained revenue and profit growth. You can call them overvalued, but this is not in my opinion a bubble, and I think its important you understand the difference between now, 1999, and 2007 or you won't recognize the next one when it comes. In 1999 there was an absolute mania over .com stocks. In 2007 we had a credit bubble that was clear in many statistics and being shouted from the rooftops by some that was impossible to sustain and accompanied by speculators flipping houses, phrases like "buy now or be priced out forever," and other nonsense.

Today, while there are some high P/E ratios, they are at least backed up by long periods of sustained growth rates. Of course it can't last forever, and one can only hope that they will gently reduce their growth rates and have a soft landing rather than a hard crash.

This is nit-picky but the world population is 7.5 billion these days so it's closer to 1/4 (27.6%) the world population than 1/3.

That's actually a good thing for their long term outlook- a higher ceiling on their potential growth.

True, although the number of active users is only a small component of Facebook's enormous growth.

In past 4 years Facebook have grown their user base by 80%, mostly in lower-income countries. But over the same period revenue has grown 400% and pretax profit 600%.

So Facebook will likely have significant growth long after their user base levels off.

I don’t think the fact that the big 5 are doing well means we’re not in a bubble. Tesla is far from alone in holding a lofty valuation without profits to justify it, and we’re in the middle of an irrational mania over cryptocurrencies.

ha! skimming, I didn't spot amazon is an order of magnitude higher than fb/goog.

I like the rate of bookvalue compouding over time instead of PE.

However, stock options can fuel this by turning a cost (wages) into cash and dilution.

Nearly all of Silicon Valley post-2001 is either (a) online retailers/ecommerce, or (b) parasites hanging off of the $100+Bn/yr online advertising industry. At the top of that latter food chain sit only a handful of companies -- Google and Facebook being the big ones. So much of everything you see in IT and tech in general, from the IT worker to the graphic design consultant to analytics and "big-data" machine learning startups are living off of money that came from clicks on ads or checkout carts at buy-and-ship retailers.

Facebook "only" took in around $26Bn in advertising revenue last year. But their ads are considered more reliable and higher quality than Google's products, so admit some speculation about growth potential. With a global advertising market (across all mediums) of half a trillion dollars that is quickly moving into digital, is it any surprise that these top dogs have high P/E ratios? Those P/E's are based on anticipated future revenues, shares of a pie that is rapidly expanding in size. Comparing P/E using earnings of this year doesn't give the full picture.

That said, they're certainly not undervalued either, and this analysis does nothing to explain Amazon (WTF is going on there? Surely they don't have $200bn of inventory and warehouse property. Do they?). But 35 P/E is only 3.5x more than the 10x rule of thumb, and the entire market could reasonably grow by that amount. That appears to be what investors are betting on too.

(If I had to turn this into stock picking advice, I'd note that if the market is predicting the future accurately here, then one can also say that traditional non-digital advertisers aren't going to do well in the years to come [no surprise], and also that general tech will likely see a huge influx of revenue and capital investment as the top dogs trickle down their market share gains. Baring some black swan catastrophe things will likely be good in Silicon Valley for some time to come, even outside of the FANG companies. But you should not take this as investment advice, which I would not be qualified to give, etc. etc.)

ETA: For the record there's a third prominent SV category I forgot to include in the list, which is peer-to-peer services. AKA the sharing economy. AirBnB, Uber/Lyft, Instacart. Part of why these were so exciting in the last two years or so is because it was a gold rush on new markets that hadn't been colonized by tech companies yet. Doesn't really affect this comment in any way though, other than technical accuracy of that sentence.

Interestingly the exceptions to this rule, namely companies with $1B+ valuation, are almost all HQed or originally started outside SV.

P/E (price/earnings) is a poor metric because it is biased toward hoarding cash (low P/E) over investing profits in new ventures (high P/E). Better to distinguish "cost of revenue" from "investment" and look at P/"cost of revenue"

It's odd that you think FB is over-priced when Amazon is the one at 292 and FB is in-line with the rest in the range of 10-35. You should be saying "can you believe Amazon is that high, it's on par with Facebook".

It's a propaganda and indoctrination tool. It's the holy grail of mind control that multiple governments attempted to build for decades. It will be worth trillions until most governments ban it (or already had banned it, not sure the current status of it in China and Russia)

Some very strong words. I don't know if i'd go as far as saying it is the "holy grail", however, I do see your point. For sure it allows propaganda, misinformation, and lies to be disseminated at a very fast pace.

What would the reasons for government to ban it ? (public and behind the scene reasons)

"Continuing Transparency on Russian Activity" https://news.ycombinator.com/item?id=15758852 "It is important that people understand how foreign actors tried to sow division and mistrust using Facebook before and after the 2016 US election."

FB angered the US government by allowing foreign agents to use its tools. So that's only an example of Russians using it on Americans. Now imagine how the US government is using it. You are not going to see it in this "Transparency" report that's for sure.

Or imagine corporations using it.

Yes, Monsanto/agribusinesses/GMO or Pharma/Opioids crisis possibly are using FB to sway public's opinion. It would be great if this FB's transparency tool wouldn't be limited to Russians. I think there is an opportunity for development of some sort of network analysis tools or visualizations similar to how newspapers analyzed Panama papers.

Public: Russian election hacking

Private: If we can't co-opt it then it's not useful to us

It's a well-deserved market cap. It's an incredible business and they've been firing on all cylinders for years now.

The business model itself is so solid, it's scary. It's on better footing than Amazon in my opinion.

Whatever else you may think of Facebook, it’s incredibly naive or unfair (not sure which) to suggest they’ve been “firing on all cylinders for years now.”

Facebook the user experience has - objectively and measurably (even almost by definition) - taken a severe nose dive since attempting to capitalize on the page views. They’ve spent their time evolving into an advertising behemoth that has upended the advertising market, but very poorly despite all the access they have to metrics and use identifiable data because the user’s best interests and the advertiser’s best interest are almost at polar cross purposes such that it isn’t possible to optimize for one except at the cost of the other.

Facebook ads simply do not convert except to Facebook properties (with the obvious “exceptions that prove the rule” aside); they are measurably worse investments than CPC advertising, probably worse than traditional CPM adverts (fake clicks), and probably better than old-school mass media advertising (billboards, bus stations, tv ads). They make their buck on people that either invest xxx thousand dollars until it becomes measurably obvious to the them or that don’t be know enough to measure.

Facebooks only “social” innovations that are actually forward-looking past the heyday of feeds and in-feed apps (FarmVille and co) for consumers are Instagram and WhatsApp, both of which were bought out when facebook’s own in-house attempts failed to compete.

Look at their revenue growth, their stock performance, their cost of revenue, their profit margins, and their incredible strategic bets like Instagram/WhatsApp as well as their well-executed transition to mobile. What about hiring of COO Sheryl Sandberg at the perfect time, their well-executed competition with SnapChat, their well executed video strategy, multi-app strategy, look at messenger, look at their growth numbers quarter over quarter which are crazy. I mean you'd be incredibly naive to ignore those things and how well they've worked.

Facebook Ads work. They work when you put effort into them and know what exactly what you're doing. Ask any marketing firm. It's a complicated mechanism that has to be learned and experimented with but now Facebook Ads are among the lions share of the advertising market along with Google. They work for many businesses. Just ask Dollar Shave Club. Ask Stitch Fix. Ask Warby Parker. Ask King.

Facebook Ads also don't work if all you're doing is throwing $10k into them with a bunch of random targeting. In fact, no advertising works if you don't know what you're doing and if you're not tracking everything to a T. That's not Facebook's fault - their engine is completely self-serve. As are AdWords from Google. You can blow $100k on AdWords and get no results just as easily as you can blow it on Facebook and get no results.

I made no value judgement on their innovations. I've learned better than to do that on HN where people become so hostile if you even suggest that Facebook might be useful in some ways. I only made a value judgement on their business which is sound and growing rapidly.

Well said. For years now, I hear people say Facebook is not useful for "me" and I dont even disagree. But how typical are the "me"s among the billions of facebook users?

Furthermore, in many third world countries, the only internet they know and will ever see is facebook properties via internet.org.

I see the facebook logo on almost all retailers in my patch of the world. Retailers no longer advertise their websites or phone numbers. See us on facebook, they all say. This doesnt just happen without a lot of people brilliantly working hard and smart.

Actually, Facebook shopping ads (from Amazon, Banggood, and the like) and news ads are pretty much the only ads I click. Mostly because, unlike Google ads, when I am browsing Facebook I am not really looking for anything in particular. Facebook ads are like TV ads in that respect.

Deserved? A market cap is based on investor sentiment, not how hard you work or even necessarily how sound your business is.

For the downvotes - are you implying that stock price is directly correlated with business performance and that the market is completely rational?

What askafriend is saying is that in this case the investor sentiment is appropriate for the soundness of the business.

If anything, it's implying the stock price is not always correlated with business performance, otherwise the statement would be redundant.

This is exactly what I'm saying.

My opinion of their business model and their performance is independent of my opinion of the product.

HA! that is...oh wait you are SERIOUS!)*&^%$# it is cat pictures. That cap is way too high, they only reason it is successful is that people are sheep. Once they figure out how soylent green is made and the FCC chair ignites the internet apocalypse and people will suddenly have to PAY for that "service" Zuck will turn into Bill Gates. And I think we will all be better off.

Actually Facebook is not "cat pictures." It's a very efficient advertising engine the same way Google is. Similarly to Google (whose revenue is dominated by search ads), Facebook has feeds straight to consumers as well as valuable information about what the consumers are interested in. That's what makes money. Instagram, News Feed, Facebook News --> these are Facebook's Google Search & YouTube.

When you look at the numbers you'll see that they're actually similar companies who've monopolized segments of the digital advertising space. If you're going to complain about Facebook's market cap then you should also complain about Google.

Facebook's even got "other bets" -- Oculus, Workplace, WhatsApp, etc.

Advertising that you as the product have to opt into! Google is at least providing a service/product they give you a shiny something while they siphon your data. I think FB is pretty straight forward they take ALL of your information that you are willing to give up and they sell it. repeatedly. without conscience. for the money. If people stopped sharing or looking where would FB be? That is my problem with cap. They can buy other companies but none of them have anything productive to offer either but I bet they sell that info too.

Just because you don't find value in what FB provides its users doesn't mean others don't.

Look, if you want to have a serious, nuanced conversation about Facebook and it's business. I am all ears.

But I will not entertain low-quality, emotional comments like this and this community shouldn't either.

Nuanced and HN pretty much mutually exclusive. Additionally, on low-quality, given the level of discourse with in the US in general this is PBS level here! HN is pretty much 20-ish people whom think that you can have an actual discussion on the internet, and those over 30 who have enough experiential data to realize that will not happen. So where would you be on position Facebook's market cap and contribution to humanity has a whole are both overly valued but that within the vaccum of Silicon Valley there is more of a drive to be successful (make them dolla billz y'all) than advance mankind as a whole. And I will even conceded that Palantir would be the most vexing for me. In that it has enabled some rather spectacular work at the Nation-State level in making data accessible and malleable, but is the reason why the freedom of data movement is most at risk.

I think it’s unlikely that Future Zuckerberg is going to behave with anywhere near the benevolence of post-Microsoft Bill Gates. How he tried to pull one over on the public with his “foundation” already demonstrated that quite clearly.

Facebook was one of the main tools that allowed trump to win. That is some value right there. How much money would a government or a company spend to control people? That is kind of what facebook is allowing people to do.

And TV was the tool before that, and Radio was the tool before that. What's your point?

Surely both radio and TV have been used for the same purpose. I think the Internet, and in particular Facebook, is very different for at least a couple of big reasons.

1. Much more precise user targeting

2. Direct feedback on effectiveness (did the user click-through or even just linger looking at the content?)

TV and radio seem like very crude tools in comparison.

Er, those are both insanely large industries with untold amounts of money flowing through them (well, radio not so much but in its heyday).

If FB is an industry on the level of TV or radio, then it's almost certainly not overvalued.

Yes it is company that is larger, more influential, and more relevant than the entire industries of TV or Radio and even print/online journalism at large.

The implications and consequences of the consolidation of this power and influence into one company is a different discussion entirely (and an important one).

FB is better than tv and radio because it can give you ads that are more likely to affect you, because it knows you, maybe better than you know you.

American people allowed Trump to win. Its a democracy and there is no government media control, so American people had access to all the information they wanted and they made an active choice.

What? But when social media companies help the other guy win (Obama for an example), it's not a problem? Your president is a fool but by the look of it, you deserve exactly that kind of leader.

No do not think a bubble. Those are also not forward P/Es. Google and Facebook all have incredible growth and justify the prices. Amazon a bit expensive but incredible opportunity and growth.

You missed Microsoft 641.20B P/E 28.12

...seems right, right?

What does Amazon do? Sell stuff and logistics in a handful of countries. Facebook meanwhile has a very sizeable user base giveing them a lot of attention in a lot of countries, so much so they (allegedly) influenced multiple elections.

Not sure what there indicates “bubble.” A 33 P/E ratio for a company growing as quickly as Facebook seems entirely reasonable.

I haven’t studied FB much, but do they have a strategy for continued growth? They don’t seem to be expanding into new growth areas as much as Goog or Amazon?

Look at their revenue and user growth. They’re still growing like a weed.

soon they will saturate world population. Their monthly active user count might even be close to the maximum they can attain even...presumably a lot of the people in developed countries who aren't using facebook now are probably doing it for good reasons and so probably won't add to facebook's MAU count.

Also Tencent which is now the fourth most valuable company with 500B+ displacing Facebook

Information sells.