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Is Yahoo Really Worth More Than What Microsoft Offered?
Yahoo’s stock had been declining steadily for almost two years before Microsoft showed up with Mad Money, yet the Internet portal thinks it’s worth $40 a share. Fact, or a case of corporate delusion? I think it’s the latter. Why is it worth $40 a share? (Is it because Microsoft offered $40 a share for Yahoo earlier, and Yahoo never took the offer and now are banging their head against the wall?)
Last time Yahoo traded at over $40 a share was back in January 2006. Now I am not against the idea of Yahoo squeezing more money out of Microsoft, as long as Yahoo can make a good case for it. Still, a 60 percent premium isn’t enough for Yahoo’s investors such as Bill Miller of Legg Mason, a mutual fund company. In a letter to investors in his fund, he writes:
Our own valuation work puts the value of YHOO in the range of those reported numbers, though, and we think MSFT will need to enhance its offer if it wants to complete a deal. YHOO shares were recently trading at a four-year low, and the stock averaged above the current offer price for all of 2004. YHOO is a uniquely valuable asset, and we expect MSFT will do what it takes to acquire it.
I would love to see Miller’s valuation work on Yahoo. Call me cynical, but there is a reason the stock is trading at a four-year low. Of course, this is the same fund that has big positions in stellar performers like Countrywide Financial, eBay and Sprint Nextel.
Many Wall Street analysts think Yahoo is worth between $34 and $35 a share. And that is the best case scenario, and assumes that everything will go right for the company in the display advertising business. Gee, I wonder why Google is spending over $3.1 billion trying to buy DoubleClick?
I think Yahoo is suffering from a case of corporate delusion. The company’s litany of woes is so long that it’s going to take some time before the proverbial sun will shine on Yahoo’s cow patch in Sunnyvale again. People seem to have already forgotten some of the problems that showed up in the fourth quarter of 2007 (not that they’ve been resolved), such as:
- Yahoo’s search revenues slowed down after growing for four straight quarters.
- Yahoo used to get paid by the broadband providers, but now it will have to pay them a piece of the advertising action. That will result in between $150 million and $200 million in lost fees in 2008. This was presented as a positive, but getting paid isn’t the same as paying. (AT&T and BT are offering between $300 million and $400 million as upfront payments, while Rogers will pay $50 million.)
And look at yesterday’s layoffs. After sending out an email thanking the troops for sticking by the company, Jerry & Co. cut about 1,000 jobs. Nice morale-boosting move. Memo to Yahoos: Jerry-atrics are as likely to shank you as the Barons of Redmond.
There will be some of you who might accuse me of being too hard on Yahoo, and perhaps I am. But it is hard to have empathy for a company that has consistently managed to underperform. It has been losing the talent that made it great. More importantly, there seem to be very few reasons to catalyze growth and a better future at Yahoo.
And if Microsoft wants to pay a 60 percent premium for this kind of a future, that’s a pretty good deal.
By the way, if you want to catch up with the roller coaster of the Yahoo-Microsoft showdown, Kara Swisher has a nice wrap-up today, while Michael Arrington is reporting of talks between Yahoo and News Corp.
MySpace Takes A Page (Or Two) From Facebook
MySpace President Tom Anderson posted a blog last week detailing a bunch of recent changes to the site. The new features lead me to believe that the company is finally starting to realize that Facebook, with its anti-spam features, clean-cut layout, and growing traffic figures, might be on to something.
One of the most annoying things about MySpace is the gobs of spam that get through to members’ inboxes. Getting dozens of unsolicited friend requests and emails from faux porn stars gets old pretty quickly.
Facebook doesn’t seem to have these problems. Plus MySpace, despite being owned by News Corp. (NWS), still looks like a hobby project. Maybe that pseudo-authenticity is why it still thrives, porn spam and all.
Here’s a list of all the changes to MySpace, and how they compare to what Facebook offers:
New (Optional) Homepage
MySpace’s new optional layout for its homepage is a bit like Facebook, except with a lot more color. The layout separates each area of the page in boxes, with a prominent friends status box, similar to Facebook’s user interface. In his blog post, Anderson notes that eventually users will be able to drag-and-drop the boxes to different parts of the page (exactly like what Facebook already allows). Note: Facebook uses this content-dragging interface for user profiles, whereas it sounds like MySpace just plans to implement this feature for the user homepage, which cannot be seen by other members.
Updated Music Player
Compared to Facebook, MySpace has a strong musician presence. The latest music player update on the site just adds volume control and a song history link that will display songs previously added to a profile. Facebook doesn’t have an official music player for user profiles, though users can add sound files by putting a music app (such as Project Playlist, Imeem, or iLike) on their pages.
Updated Forums. MySpace’s forums are traditional message boards. Facebook only has a forum-type communication option within its networks and groups.
New “Friends View” MySpace’s Friends View display has traditionally made it very difficult to sort through people on a user’s friend list, while Facebook’s user interface for organizing friends is thorough and one of the best features on its site. The new display on MySpace now lets users choose to view “all friends,” “online friends,” “mutual friends,” and “recently added friends.” It’s still nowhere near as good as Facebook.
Updated Photos Section “You can now tag photos and link them to a friend’s profile,” writes Andersen. This sounds suspiciously similar to Facebook’s photo section.
Spam Control MySpace finally makes it possible to block inbox spammers and cut down on random friend ad requests. Users can decide what level of spam filtering they want through their account settings. Facebook already has many of these controls built into its user contact system. Then again, Facebook is now cluttered with what I like to call AppSpam — dozens of unwanted application invites sent by “friends.” There are days when I think MySpace’s porn spam is easier to deal with than nine thousand invites for the latest Vampire or Zombie game on Facebook!
Why Facebook Needs Big Money
All these rumors about Facebook getting a massive investment from one corporate behemoth or another have got to make you wonder: Why would a company that is expecting revenues of $150 million, and profits to boot, need fresh capital? Why would a company whose dominance of the social networking space is being touted as some sort of manifest destiny possibly need this sudden influx of cash?
That is the real $300 million to $500 million dollar question. The Wall Street Journal thinks it’s to build an advertising platform to cash in on its fast growth. And while that might be so, there are other, more pressing needs for all that money. The biggest one: Andrew Cuomo.
The New York attorney general has started investigating the safety measures Facebook has put in place, and based on his preliminary investigations, he is not happy. His staff has found sexual predators and a wide variety of pornographic material, including images and videos, prompting him to issue a subpoena.
“My office is concerned that Facebook’s promise of a safe website is not consistent with its performance in policing its site and responding to complaints,” Cuomo said in a press release.
“Parents have a right to know what their children will encounter on a website that is aggressively marketed as safe.” Cuomo is angered by the fact that Facebook has “ignored several — and repeated — complaints from our undercover investigators concerning persons who made inappropriate sexual advances to underage users.”
Call me a conspiracy theorist, but the way it looks to me, Facebook needs money for what is clearly a big crisis facing the company. MySpace, the company the FB-crew used to mock, has already had to deal with a similar mess, both legal and image-wise, which not only proved to be a major disruption to their business but cost a ton of money. And that was without a subpoena.
Facebook’s subpoena is going to require some serious legal resources and even more serious dough. Today it’s New York, tomorrow it could be attorney generals from any of the other 49 states. What if the European Union gets on board? Who’s going to foot the bill then? Who is going to make up for the loss of advertising revenues if the brand advertisers deem Facebook unacceptable? Ergo, time to find an outside funder.
MySpace had already found its corporate sugar daddy, News Corp. (NWS), when its mess started to unfold. In its case, sporadic articles in local media became a national story that led to Fox Interactive hiring a safety czar and implementing a plan that costs the company tens of millions of dollars every year.
A similar scenario might be awaiting the Z-meister and his crew. And the fact that it would involve a flip-flop wearing, young Harvard dropout running the hottest web site on the planet? That would be just too good of a story for the mainstream media to resist.
Facebook will have to do some nimble dancing here and come up with technologies/methods that add layers of safety to their network. Scanning for pornographic images and videos, developing technologies that prevent predators and other such issues are something Facebook will have to deal with — they cannot be wished away.
Never mind that the not-for-profit groups (and there are many) would want them to undertake educational programs and what not — just like in the case of MySpace. To do so, the company will have to boost its headcount, which already stands at 250. And more staff means more real estate for which it’s going to have to pay. As a comparison, MySpace has over 1,000 people working for them.
Do the math: it all adds up. No wonder Facebook needs money… fast.
Why Facebook Needs Big Money
All these rumors about Facebook getting a massive investment from one corporate behemoth or another have got to make you wonder: Why would a company that is expecting revenues of $150 million, and profits to boot, need fresh capital? Why would a company whose dominance of the social networking space is being touted as some sort of manifest destiny possibly need this sudden influx of cash?
That is the real $300 million to $500 million dollar question. The Wall Street Journal thinks it’s to build an advertising platform to cash in on its fast growth. And while that might be so, there are other, more pressing needs for all that money. The biggest one: Andrew Cuomo.
The New York attorney general has started investigating the safety measures Facebook has put in place, and based on his preliminary investigations, he is not happy. His staff has found sexual predators and a wide variety of pornographic material, including images and videos, prompting him to issue a subpoena.
“My office is concerned that Facebook’s promise of a safe website is not consistent with its performance in policing its site and responding to complaints,” Cuomo said in a press release.
“Parents have a right to know what their children will encounter on a website that is aggressively marketed as safe.” Cuomo is angered by the fact that Facebook has “ignored several — and repeated — complaints from our undercover investigators concerning persons who made inappropriate sexual advances to underage users.”
Call me a conspiracy theorist, but the way it looks to me, Facebook needs money for what is clearly a big crisis facing the company. MySpace, the company the FB-crew used to mock, has already had to deal with a similar mess, both legal and image-wise, which not only proved to be a major disruption to their business but cost a ton of money. And that was without a subpoena.
Facebook’s subpoena is going to require some serious legal resources and even more serious dough. Today it’s New York, tomorrow it could be attorney generals from any of the other 49 states. What if the European Union gets on board? Who’s going to foot the bill then? Who is going to make up for the loss of advertising revenues if the brand advertisers deem Facebook unacceptable? Ergo, time to find an outside funder.
MySpace had already found its corporate sugar daddy, News Corp. (NWS), when its mess started to unfold. In its case, sporadic articles in local media became a national story that led to Fox Interactive hiring a safety czar and implementing a plan that costs the company tens of millions of dollars every year.
A similar scenario might be awaiting the Z-meister and his crew. And the fact that it would involve a flip-flop wearing, young Harvard dropout running the hottest web site on the planet? That would be just too good of a story for the mainstream media to resist.
Facebook will have to do some nimble dancing here and come up with technologies/methods that add layers of safety to their network. Scanning for pornographic images and videos, developing technologies that prevent predators and other such issues are something Facebook will have to deal with — they cannot be wished away.
Never mind that the not-for-profit groups (and there are many) would want them to undertake educational programs and what not — just like in the case of MySpace. To do so, the company will have to boost its headcount, which already stands at 250. And more staff means more real estate for which it’s going to have to pay. As a comparison, MySpace has over 1,000 people working for them.
Do the math: it all adds up. No wonder Facebook needs money… fast.