Last.fm, youtube, flickr, etc. all sold for hundreds of millions of dollars. My tiny little mind cannot fathom how they could be worth the prices paid by the purchasers. Please explain to me how these are sensible deals.
Advertising. A popular website like YouTube most likely generates an incredible amount of advertising revenue, or at least has a strong potential for it. Google’s success is overwhelmingly through selling GoogleAds.
You are making a rather large assumption. Why should they be worth the prices paid? Why should they be sensible deals? Markets are generally efficient, and investors are usually sensible. Dotcoms have a rather high rate of exceptions to these general rules.
Feast your eyes on this little lot, and please don’t forget the whole telecoms boom either. As far as I am aware the only firm making serious money off a pure web play at the moment is Google, which made total profits of about four billion dollars last year, about the same as Amex, but it’s valued at $169 billion whereas Amex is valued at about $45bn.
Google is trading at something like 37 times earnings, whereas ExxonMobil and Amex (both money machines) are trading at 11-12 times earnings.
There is obviously an expectation of greater growth from all things webby, but I have to say that I think a lot of people have totally lost their minds when it comes to this kind of pricing.
It isn’t the company or its product that is valued - it’s the users of the site that are valuable. It’s the same reason why advertising rates during the Oscars are so much more expensive than the rates during your local newscast.
But are the users, potential advertising from, for example, youtube worth over a $1 billion?
It seems to me that Youtube could easily be superceded by the latest ‘in’ video website. It has dozens of competitors as it stands.
Competitors such as who? Do they pass the “my mom knows” test? As in, does your mom know about these other sites? If not, they’re nowhere near as popular - and therefore valuable - as YouTube.
Go to ovguide.com and you’ll see the other competitors. Sure mom doesn’t know the names of any of them, yet. People seem to be hopping from one social network to another as they come in and out of fashion, the same could happen for streamed video.
You’re asking a question about the future. Anybody knew the future not only could answer the question but make huge amounts of money handling the stock correctly. Unfortunately, since nobody knows the future, you’re asking for an opinion and then fighting the opinion when it’s given to you.
It’s true that the track record for such deals is poor. But that doesn’t preclude the next deal being a fantastic bargain.
Nobody knows. If you want to bet, you can buy the stock or short the stock or do more sophisticated variants. But nobody knows and nobody will know until the future happens.