Wall Street

by Joseph Weisenthal

Valuation Justification Through Proper Buzzword Usage

from the sippin-on-some-syrup dept

One of the hallmarks of bubble thinking is the use of relative logic to justify ridiculous valuations. As we've seen, MySpace, despite all of its traffic has found it very difficult to monetize its base. In fact, the big payoff, so far, for News Corp., has been the deal it signed with Google for search services, which is a secondary aspect of the site. In spite of its challenges, a Wall St. analyst has pegged a $10-$20 billion valuation on the company, arguing that if Facebook and YouTube are worth $1 billion each, then MySpace must be worth much more. Just one problem, there's no reason to think that either Facebook or YouTube are really worth $1 billion. Sure those numbers have been bandied about, but no company has given any indication that it's willing to pay those prices. And certainly neither of those companies are making enough in profits to justify that price tag. In addition, the analyst thinks that due to MySpace's size it has the potential to become an "intellectual property distribution powerhouse." We're not sure what that means, but we think he might be saying that the site could sell music and videos. Of course "intellectual property distribution powerhouse" sounds a lot better than "music store", which conjures up an image of an iTunes also-ran. It does appear in retrospect that News Corp. made a smart move when it acquired the site last year, but to assign it such a big valuation, based on buzzwords and relative comparisons, seems shortsighted, particularly in a space that's so prone to turnover.

Reader Comments (rss)

(Flattened / Threaded)

  1. identicon
    Anonymous Coward, Sep 27th, 2006 @ 10:31am

    If MySpace is worth $10 billion, the crap I took this morning is worth $100 billion...

    reply to this | link to this | view in thread ]

  2. identicon
    Annoying Bastard, Sep 27th, 2006 @ 10:47am

    Why hate MySpace?

    I'd agree that $10 billion is just a little over inflated.

    Buzzwords aren't the problem.

    People who accept buzzwords without asking them to be defined (out of the fear of looking stupid or dated) are the problem.

    Murdoch's sandbox is a useful and free social networking tool.

    Yes, it may even be Spam 2.0.

    I've gotten a ton of content that would've been much harder to find (let alone obtain) otherwise.

    Heck, I've even met a few new, cool people.

    If you can't handle it, just leave it alone and go back to your knitting circle. :-P

    What's next, hating FrakParty (www.frakparty.com) because it encourages social networking based on a common taste in television programming?

    reply to this | link to this | view in thread ]

  3. identicon
    Steve E, Sep 27th, 2006 @ 12:06pm

    I have no problems with valuation based on buzzwords, if the investors are too stupid to question and find out what lies behind the buzz then more fool them and we will see some sort of a burst as buzzed up companies fail.

    reply to this | link to this | view in thread ]

  4. identicon
    nedu, Sep 27th, 2006 @ 3:32pm

    New Hypervalue

    Welcome to Bubble 2.0... tomorrow's next leading breakthrough.

    reply to this | link to this | view in thread ]

  5. identicon
    Solo, Sep 27th, 2006 @ 7:07pm

    Step 1: steal underpants

    1. provide *free* hosting blob with photo-gallery/blog/miscelanious/network/friend/tracking/stalking service with a accent on bad web design. Did I mention free as in no cost. For some reason turn immensely popular so you can claim more than 765 billions simultaneous users.
    2. ...
    3. profits.

    That's for myspace.

    1. Provide *free* video hosting for user provided video with a dash of user comments/networking/friendly thing doodad. Video is the killer app for the web. Killer as in bandwidth/cpu/server killer. Did I mention free?
    2. ...
    3. profits.

    Sure, the profit is when you syphon enough venture capital to stay alive and the payout is when google/yahoo/aol buys you out for a trillion dollars. Brilliant.

    What? What bubble?

    reply to this | link to this | view in thread ]

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