Last week, Morgan Stanley internet analyst Mary Meeker was embarrassed when it was revealed that a math mistake
on her part caused her to vastly
overstate (by a factor of 1000x) the revenue potential from YouTube's new ad overlay system
. After having her mistake pointed out to her by none other than Henry Blodget, Meeker went back and fixed the report. But she did more than just correct the math. She also tweaked some of her original assumptions
so as to boost the significance of the new advertising scheme. Whereas she originally predicted that ads would be shown on approximately 1% of streams, that number has now been boosted to yield a greater revenue impact. Meeker's new model now has the company garnering an additional $75-$189 million in net revenue over the coming year, as compared to the $720,000 that her original model predicted. This whole fiasco is quite revealing about the way Wall Street analysts sometimes operate. Rather than start out with a fixed set of assumptions and then figuring out what that will result in, they come up with an end result and then figure out what reasonable assumptions will get them there. While we're sure that this sort of thing happens all the time, it's rare to get such a stark glimpse into the way it happens.