> Facebook is already more profitable non-inflation adjusted than what Microsoft was at the height of its power
As a nit, what's the point of using a non-inflation adjusted comparison? You wouldn't say have compared Facebook to Standard Oil :).
It turns out that 1998 to today is only a 50% change according to CPI [1] and MSFT had $4.5B in net income for FY 1998 [2]. So your point still stands given Facebook's massive ~$10B FY2016 net income [3].
> And of course, running the biggest growth business on Earth at a significant profit probably isn't the wisest decision.
That depends on how easily the growth is achieved, and whether growth is well-served by shoving more margin at it.
For a time Facebook was the fastest growth business on Earth, and they were carrying 50% operating income margins, because their growth didn't require them to cut into their profitability to accomplish it. Facebook increased sales 91 fold in ten years, from $777m to $70.7 billion. At their peak of profitability in 2017 (prior to the big spending expansion for network control & monitoring purposes) they had a 55% operating income margin. The growth came so easily their margin just kept expanding as they went.
Before Facebook, Google and Microsoft both accomplished something similar along their growth paths (before eventually sprawling and becoming obese). Those beautiful software margins.
> As an aside: it was interesting when the stock cratered last year to the point where the market cap of the company was lower than its annual revenue -- all the revenue in the world doesn't make up for negative margins.
Yup, revenue doesn’t really mean anything; Walmart’s market cap is less than their 2017 revenue.
> It seems like investment priorities or consumer demands are out of whack when electrical utility companies (PEPCO) are valued less than social media platforms (FB).
This is really not a logical comparison. These are 2 companies in different fields and have very different characteristics. Investors almost certainly have different reasons from buying one or the other. The comparison between their value is not really relevant.
> Facebook spent $20 billion on WhatsApp and Instagram; Microsoft spent $26 billion on LinkedIn and $7.5 billion on GitHub. Deals such as these were possible only because those acquiring companies were themselves so very profitable.
Instagram had $0 revenue when acquired. WhatsApp had some revenue, but was not profitable IIRC.
>Ask the average person what brands and products they like and use the most (or just look at the data on where and how they spend their time and money) and you’ll see that Silicon Valley is doing just fine in the eyes of the populace.
By this logic, Walmart is one of the most beloved companies in the US, right behind the oil companies and the cable companies.
>Aside from higher expenses and a lower operating margin, it’s hard to find a metric by which Facebook is worse off than it was a year ago. And yet we the market public value the firm at $24 billion less than on its first day.
How is this surprising? Growth is always priced in. Stock prices move because expectations change, not because a company changes.
> not only is Wal-Mart the largest company by revenue - on the planet - but Amazon doesn’t even crack the top 20.
Nokia and RIM were the biggest players in phone market in terms of revenue once, just because you are leader now does not mean you will be a leader in the future.
>And as time goes by, that return on tangible equity should increase quite a bit for Facebook, while it is highly unlikely to improve all that much for JP Morgan because of competition in the banking industry.
But Facebook is also much more likely to disappear due to competition than JP Morgan is.
> It is remarkable how big these companies have gotten over the past few years.
Walmart hasn't gotten much bigger in the past few years. They've lost position in terms of scale & power versus other large companies and Amazon has been taking a lot of retail market share. Walmart has also lost a big chunk of their profitability, their business has become less profitable (a business that was already operating on tiny margins). They've only been growing their sales a few percent per year the past five years. Their operating income is below where it was four years ago.
On an inflation adjusted basis, Walmart is lucky if they've been standing still the past decade. Their peak was circa ~2000-2010. It's unlikely they'll ever exceed the position of dominance they held at that time.
I'm not sure how Walmart - a $524 billion sales global juggernaut - eating a comparatively tiny social media company, reminds of the AOL Time Warner merger? The AOL merger was a merger of near-peers in terms of valuation, AOL at the time was booming and massively profitable. TikTok isn't profitable, and they're barely a rounding error compared to Walmart in sales.
AOL was somewhat in the publishing & media platform business, they were both in the ad business, and both AOL and Time Warner were in the connectivity business.
Walmart's business has nothing in common with TikTok, there's no sound synergy at all (even theoretical). About the only distant reach, would be the idea of trying to appeal to younger consumers, to use (abuse) TikTok for that purpose. It would of course end disastrously for WMT shareholders, Walmart would take a giant write-down eventually.
There's nothing new about it of course. GM bought Hughes and EDS for example. Giant companies do this type of thing historically.
> and yet none of them make money except search advertising.
I actually think lots of them make money -- over $5 billion in non-advertising revenue in 2013 [1]-- its just they are dwarfed by the scale of the revenue from search advertising ($50 billion in 2013.)
> they haven't successfully SOLD anything to date.
If they haven't sold anything but advertising, they must have just conjured that $5 billion in non-advertising revenue (and that total, and the proportion of non-advertising revenue to total revenue -- has been growing every year) in 2013 out of thin air. Which, you know, would be even more impressive than selling stuff.
Facebook took 17 years and Walmart took 25 years to reach $85B in sales.
Most tech companies have ~80% gross margins. Walmarts is ~25%.
You simply cannot compare the two.
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