Recently a few loose threads have come together on the Internet and some “old school” high tech companies.
Yahoo! – Yahoo! (I guess I need the exclamation mark) has a value that is less than the sum of its component parts. The market capitalization of Yahoo! comes in the fact that it owns a significant portion of two Asian internet companies. Per this pithily titled article “How Is Yahoo So Worthless“:
Yahoo is huge. It is the fourth-biggest Internet domain in the United States. It is the fourth-biggest seller of online ads in the country. It is the most popular destination for fantasy sports, controls one the most-trafficked home pages in news, and owns the eighth-most popular email client. In the last three months, it collected more than $1 billion in revenue. It’s very rich.
It’s also totally worthless.
Technically, it’s worse than worthless. Worthless means without worth. Worthless means $0.00. But Yahoo’s core business—mostly search and display advertising—is worth more like negative-$10 billion, according to Bloomberg View’s Matthew C. Klein.
The math: Yahoo’s total market cap is $37 billion. Its 24 percent stake in Alibaba, the eBay of China, is worth an estimated $37 billion (Alibaba hasn’t IPO’d yet, so this figure will vary), and its 35 percent stake in Yahoo Japan is worth about $10 billion. That means its core business is valued around negative-$10 billion.
This isn’t just a random business article; there is some actual financial science behind this analysis. At my trust fund site Yahoo! is one of the stocks I selected since I believe that their new CEO Marissa Meyer is a badass but according to the math she is still losing the battle.
At one point in my career I worked for a public company that had $300M in cash on hand and a market value of $200M. Your business plan could be to fire everyone and drink in a bar all day and you’d be much closer to $300M than $200M (after all, how much can you drink). The market is anticipating that bad things are going to happen or that Yahoo! won’t be able to successfully sell and repatriate the cash for these investments. It is like that famous postcard my relatives in Montana had that said “If I won a million dollars I’d just keep ranching until it was all gone.” That is what the market today thinks of Yahoo! – even if they successfully extracted the cash from these investments, they’d invest it into something of less value (by $10B or so, apparently).
The Death of the Web – Another interesting view is that 1) everything is now mobile 2) mobile is really a lens through which either IOS (Apple) or Android (Google) dominate. We’ve basically given these two companies the gateway path to the internet.
Per this article, 84% of the time on your mobile you are on apps and only 16% of the time are you on the open internet. I have seen similar discussions elsewhere, although the numbers are always a bit different (and vary by country). This article by an Andreesen Horowitz venture capitalist talks about the potential pitfalls of this approach:
[Apple and Google] reject entire classes of apps without … allowing for recourse (e.g. Apple has rejected all apps related to Bitcoin). The open architecture of the web led to an incredible era of experimentation. Many startups were controversial when they were first founded. What if AOL had controlled the web, and developers had to ask permission to create Google, Youtube, eBay, Paypal, Wikipedia, Twitter, Facebook, etc. Sadly, this is where we’re headed on mobile.
This is something to think about when you look at your own information consumption; are you working through an application or on the open web? And how much of your time is spent on a desktop vs. Laptop vs. Tablet vs. Mobile. The trend is definitely towards apps across these platforms and almost no one uses a desktop for much besides work anymore.
AOL Had the Future in their Hands, But Dropped the Ball – in the wake of Facebook’s purchase of What’s App messaging service for $19B, it is interesting to consider what “might have been” had AOL realized the power of instant messaging when they had that market mostly locked up. AOL could have built Skype or some other sort of calling application, or it could have just bet on messenger entirely and moved it onto the phone. People often talk of “first mover” advantages and AOL definitely had that, along with a large installed base that could have jump started a messenger only approach. While people remember AOL for their disastrous merger with Time Warner and other illogical items such as paying hundreds of millions for the Huffington Post and pouring millions into the “patch” local internet effort (with real human reporters, no less), these items should also be stacked against the lost opportunity of the enormous IM app that “could have been”. While it is hard to top the Time Warner merger (one of the dumbest mergers, ever), the lost tens of billions of opportunity for messaging is another giant air-ball.
Silicon Valley TV Show – there is a show on HBO called “Silicon Valley“. It was written by Mike Judge who created the famous “Office Space” and after seeing the first two shows I think it is great. While I am not an expert I know enough about these internet companies to recognize the stereotypes of executives, engineers, wealth, and the entire tech industry. Highly recommended, and only a half hour long to boot. This article explains how they created the milieu and over-the-top ethos of the office layouts and even the extremely narrow car that one of the big VCs drives.
Cross posted at LITGM