How long before Silicon Valley property becomes cheap?

I feel it in the air. Cheap is relative btw.

http://venturebeat.com/2016/02/28/playtime-is-over-investors-want-their-money-back/

And Seattle and Austin.

Not much of a shock.

And it makes me even more cautious of really following Wall St- as in why are the indexes reported EVERY DAY.

It's one thing that Apple produces an actual product, and ebay gets some fees for helping sell stuff. But Facebook and Google are just advertising agencies- in terms of actual income. How can advertising be worth that much?

Right now- Facebook's market Cap is $306B. For a company that hosts people posting stuff- they advertise, but don't actually make stuff. Their revenue from 2015 was $5B.

On the other hand, Ford's market Cap is just under $50B. Being that they make a LOT of stuff, their revenues are $149.6B. The profit for 2015 was almost twice as much as FB's total revenue.

How is it that FB is "worth" 6x Ford when revenues are 3% of Ford's?

BTW, you can run this analysis for many other major manufacturers in the US. I just use Ford as an easy example for me, and FB instead of google since google does make some stuff.

Who knows, the bubble has already lasted this long...I was expecting the burst to at least begin while I was playing the MarketWatch game last year (or year before last? The first round), but I guessed too early. Although if I'd stayed in the Twitter stock rodeo, I would've done a helluva lot better.

As a tech insider. Is it bad for me to want all the 25 year olds with gtr's to get a dose of reality? Two trips a year to Maui and a Porsche, here's a 90% pay cut beeotch. Luckily I work on the ops side of things and my skills are always needed.

Oh I will shamelessly enjoy the schadenfreude, if you'd feel bad for them you're probably not familiar with them. These are the same people who say that privacy is obsolete and that the best fix for inequality might be to put all the poor people in the Matrix.

I've seen this before. I used to work for Saraide, a wireless company that was bought up by InfoSpace at the height of the 2000 boom. At the time, InfoSpace was worth more than Boeing. Article. It turns out InfoSpace was really only interested in one portion of the company, and that essentially boiled down to four of us. After being flown out, wined and dined and shown everything including the twin F50s owned by the two head programmers, I walked. It felt sketchy and the owner of the company exuded sleaze.

At the time of the deal, the stock was worth $434. It peaked at $1305/share a few months later. A year after that, it was worth $26. The taxes on my stock options were based on the price at the time of the sale.

Silicon Valley property will never be cheap. I know, you mean in relative terms, but I still say: never. At least not in our lifetime, or several generations following.

For those of us grumpy and old enough to have seen this movie at least 1 1/2h times, the writing has been on the wall for at least a year now.

Although the "my skills are always needed" part didn't always hold up that well when the job market is flooded with cheaper 'talent' - for a lot of companies, cheaper trumps experienced.

But as dculberson said, cheap is relative. With the building boom, one might be able to get a small condo in SF for 1/4-1/2 million soon (and not for long), but that's only cheap compared to median condo prices > 1m.

In reply to BoxheadTim:

When I mean operations I don't mean it ops. I mean real on the ground building and managing of facilities, operations strategy. I've worked in food manufacturing, aerospace and automotive. Worst I could do is get my bag and become a consultant. I've had plenty of those opportunities in the past. But I get what you are saying. I'm a relatively low paid worker in tech, people my level in software are make 2-3x me but i have noticed salaries starting to fall for new hire offers.

Cheap is a relative term because it's still in California. So...never.

But they are no longer offering the 10K mountain bikes as signing bonuses any more either.

As a long time Tech employee, I've never understood most of the companies valuations. How is Uber worth what it is when it's basically a billing and dispatch company? FB, Go Pro, the list goes on and on.

It's totally crazy. Austin is leveling out but that is more supply catching up to demand vs anything else. Most of the larger employers are pretty established like Apple, IBM, Dell, Freescale, AMD, Etc so I don't see a big shift in prices here soon. If anything what I'm seeing happening is more California companies shifting more heads here like Apple and Oracle.

Appleseed wrote: Cheap is a relative term because it's still in California. So...never.

my sister works for a fruit company in bay area. she bought a house in Oakland. (yes the hood) for nearly 900K, it's 1100 sqft 2 bedroom. I expect the farther out houses to drop first.. I told her not to buy.

bmw88rider wrote: But they are no longer offering the 10K mountain bikes as signing bonuses any more either. As a long time Tech employee, I've never understood most of the companies valuations. How is Uber worth what it is when it's basically a billing and dispatch company? FB, Go Pro, the list goes on and on. It's totally crazy. Austin is leveling out but that is more supply catching up to demand vs anything else. Most of the larger employers are pretty established like Apple, IBM, Dell, Freescale, AMD, Etc so I don't see a big shift in prices here soon. If anything what I'm seeing happening is more California companies shifting more heads here like Apple and Oracle.

I'd totally take Austin over seattle. I too work for an established publicly listed company. Our valuation is a bit wonky, but we do actually make money and could really make money if we wanted to do so.

Also, remember that Silicon Valley (and San Fransisco now), are not just a tech hub (some of which are less "vaporware" then others, as noted). It's also a hub for biotech.

It's all a bit of a self propagating thing. The companies are there so the workers are there. The workers are there so the companies go there.

bmw88rider wrote: But they are no longer offering the 10K mountain bikes as signing bonuses any more either.

When I worked at Nortel, you could get an Audi TT for referring a hire in fiber.

I know. I worked for Worldcom selling bandwidth and was handed 2000 shares of stock options just to walk in the door at a not really high level position. Too bad by the time it vested, The stock was well below the strike price as it plummeted to zero.

I'm so glad not to have to worry about the whole stock price BS any more. Going private made things a lot different around here.

GameboyRMH wrote: These are the same people who say that privacy is obsolete and that the best fix for inequality might be to put all the poor people in the Matrix.

You mean like Ready Player One? That life kinda sucks.

I think people are also getting wise to the fact that a long commute isn't desirable, no matter how much you get paid. I think thats what these sprawling suburbs of so many previous boom towns aren't selling like they used to.

In reply to PHeller:

great point. My sister wanted the live in a cool place with get a vintage house, so she paid through the nose and got a place 1.5 hours each way from work. I'd pay for a crappier house closer... I've had long commmutes, not worth it. 45 min max.. each way.

In California, we have something called Proposition 13 which controls property taxes. Once you’re 55, you can transfer your property tax base from one home to another within a county or between adjoining counties that have an agreement. There are some complexities such as the homes needing to be of similar value but it’s all doable.

Many people are willing to pay a fortune for a tiny POS so long as it’s close to a high paying job because they know they can trade it for a nice big fancy home in the quiet suburbs once they’re ready to walk away from the rat race in their mid-fifties.

BTW, I have a very attractive property tax to home value ratio as a result of Prop 13’s estate transfer provisions so these things aren’t vapor ware…learn the code – exploit the code – get multiple challenge car savings per year.

Bay area real estate prices will never be "cheap" because even if you ignore the tech aspect the climate makes this a very desirable place to live and the amount of land available is limited.

As for why FB is worth more than Ford, it's about growth potential. Ford is what it is, and it's not likely to change much, whereas Facebook is growing.

I don't get the schadenfreude thing. Sure, there are a few obnoxious jerks, but most of the people who live in the bay area and work in tech are just average people.

codrus wrote: As for why FB is worth more than Ford, it's about growth potential. Ford is what it is, and it's not likely to change much, whereas Facebook is growing.

In theory, sure. But what is FB going to grow into? What do they bring to the economy? Other than advertising, I don't see them bringing anything to the economy.

How can the value be 60x their total revenue- not profits, revenue?

That kind of valuation in the tech market is totally illogical.

alfadriver wrote:

codrus wrote: As for why FB is worth more than Ford, it's about growth potential. Ford is what it is, and it's not likely to change much, whereas Facebook is growing.

In theory, sure. But what is FB going to grow into? What do they bring to the economy? Other than advertising, I don't see them bringing anything to the economy. How can the value be 60x their total revenue- not profits, revenue? That kind of valuation in the tech market is totally illogical.

Facebook provides a communications platform, one that's valuable enough that hundreds of millions of people use it for several hours a day each. Their revenue model for it is advertising-based, but there wouldn't be that many people using it if they weren't deriving a benefit from it. Advertising-based revenue models have a long history of working well for media and communications businesses, look at ABC, NBC, CBS, etc. Think about magazines -- the $10/year I pay for my Car & Driver subscription barely covers the printing and postage cost, all the actual content is paid for by the ads. I'm pretty sure the same thing is true of my GRM subscription as well, yes it's more than $10/year, but since the circulation is just a tiny bit smaller than C&D, their print costs are likely to be higher.

As for the figures, I dunno where you're getting 60x. Yahoo finance says FB's market cap is 304B, with a revenue of 18B, my calculator says that's 16.8x. Note that that's also trailing revenue -- projected revenue for next year is significantly higher. Remember that the stock market cares a whole lot more about how much money you're going to make next year than it does about how much you're making today. Note also that Ford has $132 billion dollars of debt, Facebook has essentially zero (OK, $300M, but that's peanuts for a company with their kind of revenue)

Is FB overvalued? Yes, probably. I'm certainly not going to buy any. But comparing them to Ford is stupid, it's a totally different business model.

The real values is in the data that FB, Google and the like collect on us and can monetize. Heck, they probably have more data on most of us here than certain three letter agencies.