Comments on: When will the M&A market wake up? http://www.michaeldolan.com/1100 Linux, Law, Open Source, and a Comedy of Errors Mon, 21 Jun 2010 13:57:38 -0700 hourly 1 http://wordpress.org/?v=3.0 By: Tel http://www.michaeldolan.com/1100/comment-page-1#comment-13378 Tel Sat, 16 Feb 2008 01:09:13 +0000 http://www.michaeldolan.com/1100#comment-13378 I'm pretty sure google cannot live up to its current valuation either. Yes they are a good search engine, yes there's steady advertising revenue rolling in off the search engine and off their blog ads. Is that revenue going to be big enough to justify all the other stuff that google dabbles in? Having said that, if you got in early with google then you would be laughing now, and there's the trick with investing... picking the right moment to buy. The next big risky investment is VoIP. Seems like all the VoIP companies were zooming up in valuation and now they are getting deflated again. ASX:ENG dropped down to 5c and I'll come clean and admit that I bought a few at that lowly price... see what happens. Never gamble more than you are willing to lose, that's the rule. There's also a theory that the Internet is going to grow and eat up other communications channels. Thus, even a slim revenue stream now will fatten up over time. Growth fixes everything as they say. That's what investment markets are all about, people making guesses about the future and where it goes. I’m pretty sure google cannot live up to its current valuation either. Yes they are a good search engine, yes there’s steady advertising revenue rolling in off the search engine and off their blog ads. Is that revenue going to be big enough to justify all the other stuff that google dabbles in? Having said that, if you got in early with google then you would be laughing now, and there’s the trick with investing… picking the right moment to buy.

The next big risky investment is VoIP. Seems like all the VoIP companies were zooming up in valuation and now they are getting deflated again. ASX:ENG dropped down to 5c and I’ll come clean and admit that I bought a few at that lowly price… see what happens. Never gamble more than you are willing to lose, that’s the rule.

There’s also a theory that the Internet is going to grow and eat up other communications channels. Thus, even a slim revenue stream now will fatten up over time. Growth fixes everything as they say. That’s what investment markets are all about, people making guesses about the future and where it goes.

]]> By: md http://www.michaeldolan.com/1100/comment-page-1#comment-13251 md Wed, 13 Feb 2008 15:18:08 +0000 http://www.michaeldolan.com/1100#comment-13251 I agree on there being room for more calculated risks, it's just these mega-valuations are nonsense. They have no viable underlying business case that makes sense. Sure, you can whip out a model and justify it, but I'm severely disappointed in the rigor of testing these models and cases. It's as if "volume" now equals "profits" and while in some cases, that may be true, but often these communities of users around platforms are often fleeting (MySpace->Facebook) in a shorter span than a business case typically runs. Look at AOL, when TW bought them we all knew dial-up was dead in 5 yrs time and that was the biggest advantage to AOL (access). The press, AOL and analysts wanted to convince you it was the content, but look where that landed AOL. It turns out the driver was the brand and the access to the Internet that drove AOL. Once cable and DSL came along... Once Facebook came along.... Google did things differently for its own business - it established key links into everything - and now Google has an ad distribution platform that no one can get around. Now that is a savvy move and justifies its stock price. These latest valuations are dangerous. If I was a Microsoft looking at buying Yahoo.... If I was looking at buying Facebook... I agree on there being room for more calculated risks, it’s just these mega-valuations are nonsense. They have no viable underlying business case that makes sense. Sure, you can whip out a model and justify it, but I’m severely disappointed in the rigor of testing these models and cases. It’s as if “volume” now equals “profits” and while in some cases, that may be true, but often these communities of users around platforms are often fleeting (MySpace->Facebook) in a shorter span than a business case typically runs. Look at AOL, when TW bought them we all knew dial-up was dead in 5 yrs time and that was the biggest advantage to AOL (access). The press, AOL and analysts wanted to convince you it was the content, but look where that landed AOL. It turns out the driver was the brand and the access to the Internet that drove AOL. Once cable and DSL came along… Once Facebook came along….

Google did things differently for its own business – it established key links into everything – and now Google has an ad distribution platform that no one can get around. Now that is a savvy move and justifies its stock price. These latest valuations are dangerous. If I was a Microsoft looking at buying Yahoo…. If I was looking at buying Facebook…

]]> By: stephen o'grady http://www.michaeldolan.com/1100/comment-page-1#comment-13230 stephen o'grady Wed, 13 Feb 2008 00:53:41 +0000 http://www.michaeldolan.com/1100#comment-13230 To an extent, agreed, but there's also room - in my view - for speculative investments. For example, IBM failed to perceive the revenue opportunities of the operating system because they were myopically focused on the revenue stream of the hardware. Microsoft in turn failed to perceive the advertising revenue stream because they were myopically focused on the operating system and office software revenue streams. You are entirely correct that most of the M&A activity today will not return the original investment. But that's not terribly different than the M&A in other historical contexts; it's the nature of speculative investment. My own view is that the data in aggregate of a Facebook or a Google is significantly undervalued relative to the "simple" revenue measurement. Not that the current valuations are appropriate, just that I don't think the determining process is quite as simple as you make out. More focus on the underlying financials is undoubtedly a good thing, but I think that there needs to be a happy medium where firms can lift their heads up occasionally and take a risk. To an extent, agreed, but there’s also room – in my view – for speculative investments. For example, IBM failed to perceive the revenue opportunities of the operating system because they were myopically focused on the revenue stream of the hardware. Microsoft in turn failed to perceive the advertising revenue stream because they were myopically focused on the operating system and office software revenue streams.

You are entirely correct that most of the M&A activity today will not return the original investment. But that’s not terribly different than the M&A in other historical contexts; it’s the nature of speculative investment.

My own view is that the data in aggregate of a Facebook or a Google is significantly undervalued relative to the “simple” revenue measurement. Not that the current valuations are appropriate, just that I don’t think the determining process is quite as simple as you make out.

More focus on the underlying financials is undoubtedly a good thing, but I think that there needs to be a happy medium where firms can lift their heads up occasionally and take a risk.

]]>