Thinking like that is what drove AOL and Yahoo! to their peak valuations. It's not that the companies didn't produce something of value and have some level of earnings, it's that their stocks priced in a fantasy land future that could never be achieved. At some point, there will not be someone willing to pay more, or even the same amount, for the stock.
When you are counting on the 'confidence' of future investors to (over)pay more than you did for something, rather than any rational valuation, you are quite literally counting on a greater fool[1] being willing to buy it from you.
[1] https://en.wikipedia.org/wiki/Greater_fool_theory - note that it isn't always about an asset having no value, just that for an overpriced asset that there will be someone else willing to pay more for it.
Sure, one could argue that AOL and Yahoo were overvalued at their peak. They had low existing earnings and the price was supported by expectations of magical new profits.
But that's a difficult argument to make for Facebook. Facebook is highly profitable - they have averaged something like 80% gross profit margins for a decade[1] while sustaining significant revenue growth. That's pretty much guaranteed that their stock will continue to appreciate - with margins that high they have a lot of room to play with things to keep growth going.
What metric makes it look like that is a greater fool situation?
I don’t think you can make an argument against the present valuation of FB on a historical performance basis.
Investors will tell you that historical performance does not guarantee future performance. It’s one yardstick, but it’s not always the best one.
Facebook’s historical revenue growth was catalyzed by environmental factors that are shifting underneath them.
In 2021, FB would not be allowed to acquire Instagram or WhatsApp. In 2021, Apple (custodians of their most valuable user base) is no longer cooperating with adware.
What does future revenue growth for a Facebook look like, who is not allowed to acquire upstart competitors, who is not allowed to extract maximum value from its mines, and who is facing regulatory scrutiny for past deeds?
Would you be willing to bet that $900B, or $300ish/share on $30 revenue/share have these uncertainties priced-in?
Yahoo! and AOL were dumpster fires in comparison, of course. But I wouldn’t be so certain that FB hasn’t passed its peak valuation, just because it has had a money printing machine for the past decade.
Despite all these technology challenges we love to discuss on HN, the truth is that last quarter every single metric except US/Canada daily FB users was up. Daily US/Canada users fell by ~0.5% but this was more than offset by a 1% growth in EU.
Their average revenue per user increased by the largest amount ever (in both absolute and percentage terms) last quarter.
In terms of technology challenges, the iOS changes will reduce FB's ability to target ads. However, it is quite possible this will lead to more revenue for FB because the market structure (ie, domination by FB and Google) means FB maybe able to pass on the loss inefficiency to advertisers.
When you are counting on the 'confidence' of future investors to (over)pay more than you did for something, rather than any rational valuation, you are quite literally counting on a greater fool[1] being willing to buy it from you.
[1] https://en.wikipedia.org/wiki/Greater_fool_theory - note that it isn't always about an asset having no value, just that for an overpriced asset that there will be someone else willing to pay more for it.