Social network valuations
The past year has seen excessive valuation of social network companies at the IPO. Our research group developed some quite novel modelling techniques to challenge these valuations. Our credo is "Quis Pendit Ipsa Pretia" or, Who Values these Valuations.
You will find the work on Facebook and Zynga below (For Zynga, please scroll down).
The Facebook Bubble
Original Works
Facebook's pending initial public offering was greatly anticipated by the media, investors and investment banks. To bring some substance into the debate, ETH senior researcher Dr. Peter Cauwels and Prof. Didier Sornette estimated the company's value using a novel approach. In a base case scenario, they estimate the value of the company around 22 billion USD, for a high growth and extreme growth scenario this would be 24 and 29 billion USD respectively. User growth is expected to stagnate around 1 billion users in the base case and 1.1 to 1.4 billion in the high - and extreme growth scenarios. According to their model, this would imply that facebook would need to increase its profit per user before the IPO by a factor of 3 to 6 in the base case scenario, 2.5 to 5 in high growth scenario and 1.5 to 3 in the extreme growth scenario in order to meet the current, widespread, high expectations.
A synthesis of the paper written by the authors can be found under: external page "The facebook-bubble", schweizer monat, and in german: external page "Die Facebook- Blase", schweizer monat.
The full paper can be downloaded at external page http://arxiv.org/abs/1110.1319
It was published in the Journal of Portfolio Management 38(2), 56-66 (2012)
The most recent valuation and analysis is available as a Download PDF file (PDF, 553 KB).
TV and Radio Coverage
Peter Cauwels, Swiss Television SF1 "10vor10" (23 May 23 2012, 21:51h)
external page Facebook -Verpatzter Börsengang
Peter Cauwels, Interview BBC Radio 4 News programmes (17 May 17 2012 - 12:30 news)
Facebook IPO
Peter Cauwels, Interview on RSI Radio Svizzera Italiana (17 May 2012, 12:30 news)
Facebook IPO
Peter Cauwels, Swiss Television SF1 "ECO - Das Wirtschaftsmagazin" (14 May 14 2012 - 22:20h)
external page Facebook, das überschätzte Unternehmen
Peter Cauwels, Television Interview "SF Tagesschau" (11 April 2012)
external page Facebook kauft Foto-App für eine Milliarde
Peter Cauwels, Radio Interview at RSR in the program "Le Journal du matin" (3 February 2012)
The IPO of Facebook
Peter Cauwels, Radio Interview at external page RSR in the program "Forum" (7 October 2011)
Didier Sornette, Radio recording at Radio Suisse on the question of a possible bubble on Facebook following the report of 500 millions of earnings for the first half of 2011 and an estimated valuation of 70 billions dollars. (September 9, 2011)
Newspapers and Magazines
Interview Peter Cauwels with the Belgian Financial Newspaper "DE TIJD", (22 May 2012 - in dutch)
Download Facebook kan niet blijven gedijen op konijnen, schapen en groene schoenen (PDF, 389 KB)
Peter Cauwels, LE TEMPS (14 May 2012) Download Facebook: l'action à ne pas conseiller à un ami (PDF, 106 KB)
Peter Cauwels, BILANZ 09/2012 (May 2012) Download Die Facebook-Blase (PDF, 6.5 MB)
Peter Cauwels, LE TEMPS (24 May 2012) Download Il faut absolument enquêter sur Facebook (PDF, 53 KB)
Interview Peter Cauwels with New Scientist, Science in Society (4 May 2012) external page Facebook shares are overvalued, say financial analysts
Peter Cauwels, Interview with the Belgian Financial Newspaper "DE TIJD" (11 April 2012 - in dutch)
Download De sociaalnetwerk-sector bevindt zich in een zeepbel (PDF, 123 KB)
Peter Cauwels , Interview with Tagesanzeiger / Newsnet (April 10 2012) external page Instagam ist cooler als Facebook
Peter Cauwels, Interviews with the Belgian Financial Newspaper "DE TIJD" (16 and 17 March 2012 - in dutch)
- Download Kernfysicus wordt zeepbelwatcher part I (PDF, 152 KB)
- Download Kernfysicus wordt zeepbelwatcher part II (PDF, 175 KB)
- Download Facebook & co blazen volgende beursbubbel (PDF, 369 KB)
Peter Cauwels, Interview avec Patricia Michaud, printed in La Liberté (Fribourg) (Vendredi 17 février 2012)
Download Facebook attendu au tournant (PDF, 777 KB)
Peter Cauwels, LE TEMPS, Economie & Finance (7 November 2012)
Download Les banques se sont vite séparées de Facebook (PDF, 1.8 MB)
L'EPFZ juge la valeur de Facebook et de Groupon surévaluée
Download Le Temp "Finance" (PDF, 582 KB), 15.11.2011
ETH-Forscher holen Facebook auf den Boden der Realität zurück
Download Tagesanzeiger (PDF, 1 MB), 28.10.2011
Links to Blogs and Websites
external page Facebook Shares Could Fall Another 50 %, The Motley Fool, July 31, 2012
external page Should You Buy Facebook Shares? Read This First, Investor Center, May 17, 2012
external page Be warned against the overvalued Facebook and their IPO, Blog, May 14, 2012
external page Time to short some social network stocks?, Blog, December 9, 2011
external page Social network valuation with logistic models, Blog, November 17, 2011
external page Time to short some social network stocks? Blog, November 16, 2011
external page Wieviel ist Facebook wirklich wert?, Computerworld.ch, November 3, 2011
external page Facebook massiv überbewertet, ICT Communication, October 28, 2011
Is Facebook massively overvalued? ETH Life, October 28, 2011
external page Facebook value overstated, study finds, ScienceNews, October 28, 2011
external page Aktien: Was Facebook für Physiker wert ist, Die Presse.com, October 17, 2011
external page Obacht vor der Facebook-Blase, Science.ORF.at, October 17, 2011
external page Econophysicists claim Facebook's valuation has been dramatically overblown, Vatornews, October 12, 2011
external page Smart Guys Prove Facebook Valuation is Insane, Businessinsider, October 13, 2011
external page Facebook Vastly Overvalued, Say Econophysicists, MIT Technology Review, October 11, 2011
The Zynga Bubble
Original Work
A new methodology was developed to put a value on Zynga. It was shown that the company had been massively overpriced since the IPO. From this diagnostic, on April 19, 2012, we posted on the arXiv a version of this paper with a trading strategy playing on two important coming events (the quarterly financial result announcement around April 26, 2012, followed by the end of a first lock-up period around April 30, 2012).
The full paper is available at
Download https://edit.ethz.ch/er/zynga_valuation_FCS.pdf (PDF, 622 KB)
It was published in the Journal of Investment Strategies, 1 (3), 119-145 (2012)
The published version includes a post-mortem analysis added on May 24, 2012 showing we have successfully predicted the downward trend of Zynga.
Newspapers and Magazines
Zalán Forró, Peter Cauwels und Didier Sornette, Schweizermonat, Nr. 997 (June 2012) external page Wenn die Würfel fallen
Didier Sornette, Peter Cauwels, Zalán Forró, Schweizermonat, Nr. 996 (May 2012) external page Fällt der Kurs von Zynga?
Didier Sornette, LE TEMPS (28 avril 2012) Download Didier Sornette prévoit la chute des actions Zynga (PDF, 36 KB)
Blogs and Websites
P. Cauwels, D. Sornette, Z. Forró, The Physics arXiv Blog (5 April 2012)
external page Social Gaming Company Zynga Vastly Overvalued, Say Econophysicist