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Crispin Odey's flagship investment strategy, the Odey European Fund, lost - 30.5% in 2020, according to a copy of the strategy's fourth-quarter letter to investors, a copy of which ValueWalk has been able to review. This was one of the worst performances in the fund's history. Since its inception in 1992, it has lost more Read More
Apple Inc. (NASDAQ:AAPL)‘s co-founder Steve Wozniak said in an interview that he would buy Facebook (NASDAQ:FB) shares in the big IPO, to take place this Thursday.
Wozniak built the first Apple computer with Steve Jobs in 1976.
He called Mark Zuckerberg a “real acute” businessman and comparing him to Apple’s late CEO, Steve Jobs.
Wozniak stated that valuation does not matter, and even stated “I don’t care what the opening price is.” He did not give any valuation for selling the stock nor his reasoning.
Wozniak has an edge over most people in regards to Facebook. First, he clearly understands technology better than almost anyone including this author.
Second, as a chief scientist at Fusion chief scientist at Fusion-IO, Inc. (NYSE:FIO), which makes flash-memory technology, Facebook is a large customer, in-fact the firm’s largest.
However, statements like these are troubling to hear. We will avoid behavioral finance aspects and focus more on some facts.
Facebook could be the next Apple and even with a valuation of $100 billion continue to grow 5x and reach Apple’s market cap of over $500 billion.
However, as we noted in previous articles, Facebook is already trading at a large premium. The firm is trading at a TTM PE of 100 by some estimates. Apple in comparison is trading at a PE of closer to 14, and net of its gigantic cash load, closer to 11.
There is always the chance that Facebook will be the next Apple, but the odds are against it. For every company like Apple, there are numerous firms, which have failed some point along the way.
Even companies like Cisco Systems, Inc. (NASDAQ:CSCO), which possessed huge moats, are rapidly seeing their competitive advantage disappear as technology rapidly evolves.
Facebook being a social networking giant is in an area that is always facing new technology and innovation. The company is already facing competition from Google plus.
Many people regard Google Inc (NASDAQ:GOOG)‘s social networking site Google+ as a ghost town, but Larry Page is no dummy either. Just like 5-6 years ago, no one could imagine the evolution of smart phones, so too no one can predict if Google+ will evolve to take over Facebook.
Apple Inc. (NASDAQ:AAPL) itself faces competition and its future are not guaranteed. However, at least Apple is trading at a relatively cheap price on an earnings basis, and is a cheap company by most metrics. Facebook has a young management, which also has complete control over the company.
The company has not faced the challenges like Apple, which have rapidly evolved over the past decade, Apple has. Apple is the country’s largest company currently. Started when personal PCs were unavailabe until to today as the latest iPhone 5 is due out, Apple Inc. has proven itself a success beyond peoples’ wilfest immiginations.
Apple experienced bumps along the way and was able to succeed, when many others have and did fail. Facebook has not shown its ability to do this yet.
In conclusion, Facebook is overpriced based on current metrics and is a young company in a constantly changing field. Apple Inc. (NASDAQ:AAPL) is cheap and has proven itself overtime.
(The author is long Cisco, no positions in any companies mentioned.)