CashBurnBook, I Mean FaceBook

I was listening to NewsCorp's dismal earnings report last week, in which operating income declined 47% YoY due to weakness at all divisions except Cable, and in which CEO Rupert Murdoch declared that the worst of the economic decline is over. FIM revenues, where MySpace's numbers are reported, declined 11% YoY due to 16% lower advertising revenues, due to a reduction of branded and performance based advertising at MySpace.

I have long held that social networking sites will be a challenge to monetize and then a greater challenge to drive to significant profitability. In my NewsCorp model, I have MySpace generating about $630 million in revenues for the year, about half of that comes from Google's disappointing search deal. Most reports have FaceBook generating about $300 million in revenues in 2008. My quick slight of hand calculations, so to speak, has FaceBook's revenues growing about 50% in 2009 to about $440 million.

According to the Compete data graphed below, FaceBook's domestic unique visitor traffic has been on a tier, jumping 250% in April 2009, while MySpace's domestic traffic declined 9% YoY and has declined every month for the past year. My guess is that MySpace's enormous traffic is shifting to FaceBook.



That's all good news for FaceBook. As shown by the following graph, FaceBook's page views have grown enormously, as everyone and their daddy, is now on FaceBook. My 70 year old dad recently requested that I add him as a friend.



But all that glitter isn't necessarily gold. My back of the envelope analysis shows that those billions of page views are digging FaceBook into a big hole and they will likely have to raise a significant amount of capital this year. My calculations show that FaceBook will burn through approximately $250 million in cash in 2009.



Good luck to FaceBook, but those numbers will make it difficult for them to go public in 2010 and they will have to sell out to Microsoft, in my less than humble view.
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YouTube Will Lead hulu in Online Video Indefinitely

With all the talk about hulu edging towards Google, I decided to take a look at the traffic stats, courtesy of Compete, to determine what's conjecture and what's reality.

In my analysis of the unique visitor data, I went back two years on a monthly basis. Instead of comparing growth rates, which are in the high tripple digits for hulu, I decided to look at hulu's (and Crackle) YouTube penetration, meaning hulu's traffic divided into YouTube's traffic.

In August 2007, hulu's traffic was 0.1% of YouTube's traffic. By April 2009, hulu's YouTube penetration grew to 8.9%, a meaningful and envious jump in two years. [All domestic data.]

In April 2009, hulu's unique visitor traffic grew 630% YoY compared to YouTube's 25% YoY growth rate. I decided to extrapolate the growth rates for as long as I could. My analysis showed that in three years, hulu will reach about 30% of YouTube's traffic in three years, and will likely stall at those levels.

Thirty percent will be an enormous traffic level given that YouTube owns the user generated content eyeballs while hulu is only professional content. Yet still, YouTube should feel safe from a competitive position. Now all they have to do if figure out how to make money.

My bet is that hulu's owners spins it out into a public company in about two years.

hulu: Founded in March 2007, Hulu is co-owned by NBC Universal, News Corp. and Providence Equity Partners. It is operated independently by a dedicated management team with offices in Los Angeles, New York, Chicago and Beijing.

Crackle, Inc., a Sony Pictures Entertainment Company, is a multi-platform next-generation video entertainment network that distributes digital content including original short form series and full-length traditional programming from Sony Pictures’ vast library of television series and feature films. Crackle is one of the fastest growing entertainment destinations on the Internet today, offering audiences quality programming in a variety of genres, including comedy, action, sci-fi, horror, music and reality. Crackle reaches a global audience through its impressive online and mobile distribution network.

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Telecom Trading and Valuation Multiples

Telecommunications trading and valuation multiples

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Telecom Trading


Telecom Pricing

Telecom Valuation



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Media Trading and Valuation Multiples

Media Trading and Valuation Multiples


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Note that these EV/EBITDA multiples may not reflect ownership interest for several companies, particularly the conglomerates, and may not be 100% accurate.

Media Trading


Media Pricing


Media Valuation



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Tech Trading and Valuation Multiples

Technology Trading and Valuation Multiples

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Technology Trading



Technology Pricing






Technology Valuation


















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Internet Trading and Valuation Multiples

Internet Trading, Pricing, and Valuation Multiples.

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Internet Trading


Internet Pricing


Internet Valuation


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Implications of Google's 14% Y/Y Decline in CPC Pricing

Google revealed in its 10K that CPC pricing declined 14% YoY compared to Street back of the envelope estimates of a 10% YoY decline. Google attributed the decline to FX impacts as well as advertisers lowering bids on keywords due to the economy.

It is difficult to quantify which of the two had a greater impact on the CPC growth rate, however, the latter of the two is more important and has a direct impact on Google’s business model.

From Google: “ we believe advertisers managed their advertising costs in response to the general economic downturn….Specifically, we believe that as a result of the general economic downturn, advertisers, in aggregate, have lowered their bids for keywords in response to a decrease in the sales they are able to make per paid click”

Key here is whether this is a cyclical or secular change. If it is cyclical, then this is a positive for Google as advertisers will likely adjust pricing upward as/if the economy recovers. If this is a secular change then this adjustment to Google’s model is a negative and will impact Google’s growth multiple leading to a decline in the stock’s valuation.

Initially, I was inclined to write-off the 14% YoY decline as a cyclical event and nothing more. Supporting this is commentary coming out of Time Warner and New York Times’ (About Group) earnings conference calls that CPC pricing on their respective search businesses actually increased YoY. This was surprising to me given that both Google and Yahoo! reported CPC declines in 1Q09.

Nonetheless, what gives me pause is the precedent secular decline in other ad mediums, namely radio and newspapers. Pricing for those two mediums will likely never recover.

In Google’s case, a permanent deflationary scenario in pricing cannot be ruled out, I believe. My Google model and several other Google models on Wall Street have CPC pricing rebounding in 2010. That assumption, I admit, can turn out to be wrong. Given that volume (search queries) has turned out to be relatively resilient in this recession and that Google owns the volume game now, pricing is the one metric I believe should get more scrutiny.
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