Those Irresponsible Publicity Seeking Analysts

Well, there was a bit of a traffic/linking explosion after yesterday's post about Jordan Rohan's MySpace-might-be-worth-$15 billion musings.  Jordan mostly took it on the chin, as did I for not dismissing his comments as idiotic and irresponsible. 

And maybe the howlers are right.  Maybe Jordan's a braindead moron who just wanted to see his name in print.  Maybe MySpace is such a pile of junk that it will never be worth anything more than Newscorp paid for it (This seems to be the general line of reasoning: Newscorp paid $600 million a year ago, so the property can't possibly be worth much more than that).  Maybe.

But here's the thing: Yesterday, amid the screams, Jordan's comments triggered some intelligent debate.  Could MySpace be worth $15 billion someday?  (The equivalent of about 1/3 of a Yahoo! and 1/10th of a Google)?  If not, why not?  If so, why?  I haven't read Jordan's note, so I don't know what his reasoning was, but I'd be interested in hearing it.  And so, I imagine, would many thoughtful observers, whether they ultimately concluded that Jordan is a far-sighted thinker or a reckless idiot.

Back when Google went public, at $85, the consensus was that this price was absurd: A six-year old search engine worth $30 billion, almost as much as Yahoo! or eBay--how ridiculous was that!?  And, so, dutifully, carefully, terrified of being ridiculed, most analysts painstakingly constructed 10-year DCF models, with perfectly calculated WACCs and terminal multiples, and ventured--to howls of ridicule--that Google might someday, if all went well, be worth as much as...$150!  And then, when Google blasted through $150, the analysts scrambled back to their DCFs, adjusted their assumptions, and carefully, dutifully ventured that Google might someday be worth...$180!  More howls.  Then Google broke $200.  And analysts raised their targets to $220.  And there was pandemonium--those cheerleading idiots were just taking a time-machine back to 1999!  And so on.

Bottom line: Back in September 2004, I, for one, would have appreciated an analyst with the balls to explain why Google could be worth not $150, $180, or $220 after a few years, but $500 in one year.  Even if I decided that the analyst was an imbecile, I'd have been grateful to him or her for helping me think through the extremes. I would have the same admiration for an analyst who made a compelling argument that, say, GE, Microsoft, the DOW, or some other sacred cow was about to drop 90%.

So, here's a toast to Jordan Rohan, prophet or moron.  And here's a toast to any analyst with the guts to say something interesting.

Comments

[hack]

Paul Kedrosky says it well:

http://paul.kedrosky.com/archives/2006/09/28/myspace_dabble.html

[King Troll]

Fuck SECOND

[Jake Wolf]

Isn't there a difference between sticking your neck out for something you truly believe in and just trying to get your 15 minutes of fame? I'm betting that Google will never reach the $600 mark that the crazy Piper Jaffrey(?) guy through out there at the beginning of the year. In fact, I bet that Google will close 2007 at under $400. Now no one is going to say that I'm sticking my neck out when I say this because I'm a nobody. Just read my blog and you'll see what I mean.

What does a guy who mow lawns all day know anyway?

[abe shorey]

You ignore the fact the GOOG bulls, pre IPO, had a massive incentive to remain silent. Some were dubtlessly motivated to feed bearish quotes (we consider it fairly valued between 38-50$/sh) at the hungry, child-like financial media. No one has an accurate snapshot of what expectations were. That the stock opened 10 points above pricing, hit 100 within minutes and never looked back, is a strong indication that the bulls played the game well.

[Victor]

Great post Henry, I completely agree. The pendulum has swung so far in the opposite direction after the excesses of the dot-com boom that analysts have self-circumscribed themselves. The only person who had the balls to make outrageous calls on Google was, suprisingly enough, Jim Cramer! Actually, he's been amazingly prescient with regard to the stock. I guess that doesn't say too much since he gets so much other stuff wrong.

[Victor]

Henry, I wanted to refer you to an interesting article in this week's Economist about Yahoo:

http://www.economist.com/business/displaystory.cfm?story_id=7968333

In particular, the section which supports the view I've been positing (that the slow down in the economy isn't yet affecting search, and that Yahoo's problems are specific to its business):

"Jim Lanzone, the boss of Ask.com, the fourth-largest search engine after Google, Yahoo! and Microsoft's MSN, says that his firm is not seeing any similar easing of demand."

So it seems the Google coterie (Google, AOL, Ask) all seem to be doing fine.

btw You were quoted in the article which is pretty cool! It mentions that you're founder of Cherry Hill Research. I'm interested in hearing about your business if you'd like to do a post on it.

best,
Victor.

[Paul]

I think the comparison to Google is a little bit absurd. Google is almost like a utility company-Google provides an essential search service to billions of internet users with a proven revenue model, click=$$ . It's not a fad.

[Josh Ellstein]

Henry, Really interesting article published by the efinancial news about Wall Street Analysts...along the lines of your spot.

Wall Street analysts lose their nerve:
http://www.efinancialnews.com/index.cfm?page=comment&contentid=1045488770

[walt]

Excellent post, Henry.

"I'm betting that Google will never reach the $600 mark that the crazy Piper Jaffrey(?) guy through out there at the beginning of the year."

Ever? Man, that's a long time.

" In fact, I bet that Google will close 2007 at under $400. "

Seriously, keep your lawn mowing job.

P.S. Cramer says $500 by January as money managers start factoring in 2007 earnings as 2006 winds down.
Appears he's up 10% already!

[sugun]

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