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By: realist50 Thu, 09 Aug 2012 15:46:25 +0000 @TFF – fair point that some of their cash is offshore. According to Google’s 10-K, as of 12/31/11 just under half (48%) of its cash is held by foreign subsidiaries. That actually makes sense, as in recent years Google says that it’s revenue is split roughly 50/50 between the U.S. and the rest of the world. There would be additional tax to bring this money back to the U.S. I can see that the tax impact of bringing cash back to the U.S. impacts how much money Google returns to shareholders, but it doesn’t set the answer as zero.

Plenty of multinational U.S. corporations with large foreign operations face similar tax issues regarding repatriating foreign profits to the U.S. – e.g., GE, Honeywell, IBM, ExxonMobil, etc. All of these, however, find ways to work through the issue, through some combination of tax strategies (loopholes, if one prefers that term) and paying the difference between U.S. and foreign tax rates, without building up a Google-like net cash position. If Google management is using that as a rationale, it is really just an excuse for them doing what they want to do.

In searching Google’s 10K for this number, I ran across the following quote in reference to Google’s foreign cash – “our intent is to permanently reinvest these funds outside of the U.S.” – which is quite a whopper unless they are using “invest” so broadly as to include parking funds in short-term cash equivalents such as commercial paper. I cannot believe that Google has plans to reinvest anything like $15 billion in its foreign operations – remember that these foreign operations are generating lots of additional cash each year.

By: TFF Wed, 08 Aug 2012 23:16:58 +0000 @realist, how much of that cash hoard at Google is held by off-shore shell companies? If they were to return it to shareholders as a dividend, they would need to pay corporate tax on it first. The tax would destroy their net income for a year!

Not sure how much of Google’s actual income is overseas, but I imagine they can use the same patent-renting tricks that Microsoft recently adopted.

By: realist50 Wed, 08 Aug 2012 19:41:12 +0000 @Dan – Yes, it would be quite the weekend. It would then be quite the shareholder meeting when Zuckerberg, who has voting control of Facebook, elects a new board who, in turn, hire him back as CEO.

That is the frightening thing to me about both Google and Facebook – you have CEO’s who essentially cannot be removed due to their voting power and who show little if any inclination to return cash to shareholders. Google has $33.6 billion of cash (net of debt) and is generating $10 billion plus of net income per year, almost all of which is converting into cash that adds to that pile. A business with that cash flow and untapped borrowing ability has no need for that much cash. They ought to do a massive special dividend before dividend rates increase on 1/1/13 and institute at least a small quarterly dividend. As for those who say a dividend signals that Google has no good use for the cash, I say that’s irrelevant BS. Google has already signaled it has no use for the cash by letting it accumulate on its balance sheet. I realize the post is about Facebook, but my connection is that Facebook/Zuckerberg will do exactly the same thing if/when Facebook generates large profits.

By: DanFarfan Tue, 07 Aug 2012 23:24:11 +0000 If I were a big time investor in FB (e.g. a Peter Thiel) I’d “kidnap” Zuck for a weekend retreat, of sorts. We’d fly (private of course) to some ultra exclusive mountaintop or seaside or island getaway. Maybe Sir Richard’s Necker Island (if the construction is complete).

Joining us on this retreat would be some former head honcho of 3M circa 1990. I’d have the 3M dude (or dudette) explain to Zuck the famous bogey/mantra of “X% of our revenue today comes from products that didn’t exist N years ago.”

Play with the x and N, exchange “products” for revenue streams and … “Now, tell me, Mr. Public Founder/CEO beholden to some of the most powerful people on Wallstreet… how are you going to do that at FB? How do you keep FB from being a 1 trick pony no one with money is surprised by or particularly impressed with or crawling over top of each other to buy anymore? Sleep on that. See you at breakfast.”

When Zuck woke up the next morning under his door would be 2 blank sheets of paper and a Post It that says, “Show me your answer on these 2 sheets only. Room service for breakfast. See you at noon for lunch.”

At lunch, when his answer sucked (and it would), I’d say, “You’ve had about 15 hours to answer this question and this is the best you can do? After eating, sleeping, breathing this company for all these years? This is it? I have to be honest with you, Z. I’ve know every tech legend you admire. There was never a time they couldn’t answer that question for their company. That’s why so many admire them.”

“What if I told you I gave that exact challenge to 5 other people last week? I gave them 24 hours. Two of them didn’t make the cut. The other 3 are here. Want to see what they came up with?”

Which of course is code for, “READY TO PICK YOUR NEW CEO?”

It would be quite a weekend. :-)

By: QCIC Tue, 07 Aug 2012 14:42:16 +0000 Facebook, as a “company for the ages” is a pretty comical thought.

It had the first mover advantage on the idea of a well done modular customizable homepage. That is about it. Better and more importantly free/advertisement-less options will arise, and that market will fragment a bit. Facebook is AIM in 1999, something everyone is using because it is currently the best tool for the job, but not long for this world.

The main thing I think Zuckerberg has shown is a shrewd business sense. Selling much of his company at more or less its all time high.

By: skyman123 Mon, 06 Aug 2012 21:23:26 +0000 The Class A problem, when you are a platform that has dependencies on developers is how to not piss them off and encourage tight integration with you. Microsoft is the classic example of this. Their developer tools are the best on the planet. Period. They nurture the relationship and reward people for developing for their OS and products. That’s long term success. Anyone who thinks their suite of products are going anywhere, or even into the cloud, are wrong. Especially at the enterprise level.

The issue with FB is that if they screw their ecosystem in any way, people will RUN to “the next thing”. This is the issue Twitter faces (other than 99% of what passes through Twitter being garbage) and ads will not save either of them. Google is also not going anywhere. In my opinion, the best FB can hope for is more games, interactivity for regular users to keep them engaged so that they *might* click on an ad here and there, and some play to turn their business listings into something better and more integrated with people’s lives. That’s monetizable. But it isn’t a robust ad platform in the manner of Google. I can tell you from experience. If they’d figure out some way for my business page to be more important to people, I’d gladly pay. But nothing they’ve come up with so far works well. And to me that’s where Zuck’s leadership is lacking.

By: thispaceforsale Mon, 06 Aug 2012 20:47:47 +0000 Isn’t the value of FB still higher than what it was 365d ago? Or is that not how the human psyche works?

By: KenG_CA Mon, 06 Aug 2012 20:31:12 +0000 If Blodget said that Zuckerberg is a great CEO, then it should settle that question – he most certainly is not. I hear this comment a lot, but never hear about the great or genius decisions that he made, other than starting the company in the first place, which makes it just a great idea (which he didn’t even realize for a while).

I don’t think Facebook engineers are getting paid relatively modest salaries; especially not the ones who get hired by acquisition. Facebook lured away a lot of talent by offering the chance to be part of a fast growing company, and by offering good salaries.

It will be hard for Zuckerberg to keep his employees focused on long term platform building, because there is no long term for that platform. They have yet to demonstrate how to generate google-like revenue from their desktop page views, let alone how to monetize their mobile apps (psst: it’s not going to be easy).

The problems you mention have nothing to do with going public; they can only play the “we’ll go public soon and you’ll get rich from your options” card so long. Being a public company is not going to stop them from building a platform for the ages, what will stop them from doing that is that it’s extremely difficult, if not impossible, especially when the main refreshment served at the company is kool-aid.

To his credit, I don’t think Zuckerberg will focus on quarterly results at the expense of the “platform’s” success, but that doesn’t mean he will know what to do next. He thought of a cool way for students to interact over the web, and it proved attractive to people who had already left or never attended college, but it’s no evidence of knowing what the next big thing is.

The problem with going public is that at some point, mercenaries will run the company, and they don’t care about the product the company will sell. Zuckerberg is still in charge and doesn’t have that problem.

By: MattL Mon, 06 Aug 2012 20:19:11 +0000 What? Facebook has oceans of money. It can pay its people in money, not in equity. If it gives them enough money they don’t need to worry about their stock price. I have trouble believing that public market equity volatility is what’s causing a change in Facebook culture.

But you’re right that people want to work at a company that will make them rich, whether pre or post-IPO. A company that is on its way to taking over the world feels like that even if it’s not making any money. Once it’s taken over the world, though, it doesn’t feel like that if there’s no revenue growth.. And revenue, to Facebook, means ads, and meant ads long before the IPO.

The problem Caldwell identifies is real enough, but it’s inherent in Facebook’s business model, not in the public markets. The original sin in Facebook is Zuckerberg’s choice to monetize his users by selling them to advertisers, not his (forced) choice to go public.