Archive for February, 2006

“Symbols For Our Times”

Posted: February 27, 2006 in Uncategorized
Read one of those "stop and take pause" articles by Marc Gellman of Newsweek today.
 
He wrote it because of the passing of Don Knotts, who never achieved superstardom, but rather, maybe something more:  A regular face in everyone’s family throughout the 60’s and 70’s.
 
Marc highlighted the sad loss of Knotts as well as James Doohan — Scotty on Star Trek — and Bob Denver — everyone’s favorite Gilligan on Gilligan’s Island.
 
Marc related each star’s signature character to real world stuff.  I thought Scotty’s was particularly touching:
 
     "Scotty represents all of us who are constantly asked to do the impossible and to meet unreasonable deadlines by bosses who just don’t understand that you can’t run engines at warp speed after Klingons have blasted the engine room.  I think mainly of the soldiers in Iraq and Afghanistan now and of how every day they are asked by well-meaning bosses to go out there and do a job that everyone knows is impossibly hard but most people know must still be done if Iraq is to be stabilized, so that the Middle East can be stabilized, so that the war on terror can be won.  If that example is too politically incendiary for you, then perhaps you might think of the linemen who repair power lines in the winter during a storm, or think of single mothers raising kids with not enough money or help, or think of clergy folk trying to get people out of the malls and off the golf courses on the weekends and into church or synagogue on the Sabbath.  So many people I know feel like Scotty and so few like Captain Kirk.  So many of us say, “I canno give ya more power captain.  The engines are already overloaded!” And then…we do."
 
Marc summed up best what I was feeling in his opening paragraph:
 
     "May God receive their souls into the world where everyone is a star and where every life is syndicated."
 

A $100 Billion Formula

Posted: February 23, 2006 in Uncategorized
While we’re on simplicity of design, it blows me away how few people really understand Google’s formula for advertising success:
 
     At worst, don’t be distracting… at best, be helpful.

Who Doesn’t Like a Big KISS?

Posted: February 23, 2006 in Uncategorized
The key to all design — maybe even to life — is: 
 
     "Keep It Simple, Stupid."
 
Good reminder, eh?
Went to a big book launch party Fri night — hosted by TechCrunch, an awesome source for Web 2.0 info and written by all around all-star Michael Arrington.
 
Was packed.
 
And fun!
 
The new book is called Naked Conversations, written by ubber blogger Robert Scoble and PR expert Shel Israel*. 
 
Think of it as teaching old dogs (corporations) necessary tricks (blogging) to survive in a connected world.
 
What made the party fun?  Why, Web 2.0 did.
 
What’s Web 2.0?
 
What everyone is now officially calling the current period of development we’re in… essentially the second leg of development in a totally connected world. 
 
(See my 8 Oct 2005 post, "Web 2.0 — Intel’s Biggest Mistake That Nobody Talks About" for more on Web 2.0.)
 
There’s nothing like being in the early or romantic phase of a new period…
 
…where everything is still relatively small and intimate… where everyone knows everyone… where good, interesting, exciting things are happening… where VC $’s are j-u-s-t beginning to flow… where anything and everything is possible.
 
I’ve been fortunate enough to have been on the front lines during a few of these periods.  It’s certainly energizing to be back in one again.
 
 
P.S.  Way back when, Shel was our first outside PR person at T/Maker… and, interestingly enough, we were his first client <smile>.
Well, not quite.  My wife and a gaggle of friends have descended on LA… excellent star watching at the Four Seasons… Kiefer Sutherland of Lost Boys and 24 fame just passed Ann W. in the hallway, which immediately prompted Liz B. to run out in the hallway — in her underwear — to look.
 
Turns out they also saw Kiefer kissing a woman before getting in his car. 
 
Now, no one knows who this woman is… but, I just know it’s Kiefer and Julia getting back together!
 
What a scandal.  What a scoop.  You heard it here first! <s.e.g.>
 
UPDATE:  This actually happened yesterday around 11:22am.  Like a bonehead, I forgot to hit the "Publish Now" button.  There goes my scoop! <groan>
I am still — as advertised — the most optimistic guy in the world about online advertising. 
 
But, sometimes it’s tough.
 
Whether I like it or not, that puts me in the, "you idiot!  GOOG has gotten creamed in the last few weeks!" camp.
 
<gulp>
 
So has YHOO.  Only MSFT has held its ground.
 
Truth is, stock price isn’t always indicative of performance — remember my favorite investing phrase:  The market is always wrong in the short-term… and always right in the long.
 
Take GOOG:  Regardless of the way the stock performed over the last few weeks, GOOG had a quarter that any company would kill for.  It was spectacular. 
 
YHOO’s 40% performance was pretty darn good, too.
 
So — regardless of GOOG and YHOO stock gyrations — online advertising continues to make dramatic gains relative to offline offerings… and will for the foreseeable future.
 
There just never seems to be a dull moment in this revolution, eh?
 
 
P.S  With all the negative press lately, thought it might be helpful to share a positive GOOG comment:  Here’s a piece from Andy Swan of TradingMarkets.com.
 
I watched the opening ceremonies for the Olympics last night. 
 
Personally, I’m not a big "pageantry" guy.
 
But, I do respect what they are trying to do.
 
Even with the worse music selection of all time (Disco??), there was something magical about watching the very proud, the very deserving athletes of every nation — big and small — walk onto the world stage.
 
All nations but the US.
 
What do we get? 
 
One American clown acting like a chimpanzee in front of the camera.
 
Another — I think it was the half-piper, Gretchen Bleiler — was offensively chatting away on her cell phone.
 
It’s not like there weren’t other kids there.  Or self-confident people.  Or rebels. 
 
It’s just all those others weren’t embarrassingly disrespectful to the entire world.
The other night I woke up in a cold sweat about my last post.
 
No, nothing about the actual skiing… but my GOOG numbers.
 
My conclusion is right… but my calculation is embarrassingly — boneheadedly? — incorrect.
 
GOOG quarterly comparison year-to-year may "slow" to 50%… and 33%… and 25%… but that’s not the measure I should have used below… rather, I should have used quarter-to-quarter growth rate.
 
It’s tough to figure out what rate to use, they’ve been all across the board for the last two years:  8%, 15%, 28%, 22%, 10%, 14%, and 22% for the most recent q-to-q.
 
So, to be conservative, let’s pick 10% q-to-q growth rate for 2006 (which kinda equals 50% growth per year), 7.5% for 2007 (about 30% growth), and 5% for 2008 (about 20% growth), here’s what the revenue analysis should have looked like:
 
   Q4 05     $1.9b (actual)
   Q1 06     $2.1b (projected)
   Q2 06     $2.3b
   Q3 06     $2.6b
   Q4 06     $2.8b
   Q1 07     $3.0b
   Q2 07     $3.2b
   Q3 07     $3.5b
   Q4 07     $3.8b
   Q1 08     $3.9b
   Q2 08     $4.1b
   Q3 08     $4.3b
   Q4 08     $4.6b x 4 quarters equals about $20 billion run rate
  
 
So, my main statement — that Google will be a $20 billion company before anyone knows it — was correct… but it won’t be in less than two years, rather, about three years… or faster if q-to-q growth is greater than 10%/7.5%/5%.
 
This calibrates with another simple observation I’ve made: 
 
If total advertising per year is $400-$600 billion (Ad:Tech stat), and online takes a 10-15% portion of that by the end of the decade (or faster), then online will represent $40-$90 billion in revs.
 
If GOOG share slips from 40%+ to say a third, then GOOG will still be a $13-$30 billion company by the end of the decade (or faster).
 
So, my 24-month price target stays the same:  $160 billion market cap ($20 x 8 multiple) divided into number of shares available, which keeps changing as more shares come on to the market.  At current share levels, though, this suggests a 24-month price target of $541.30.  Give or take.
 
Sorry for any confusion here!
 
P.S.  Disclaimer:  I am just using simple math.  We all know life isn’t always so simple.  <g><groan>  Appreciate any and all comments!
My wife and I took our daughter skiing for the first time yesterday.  Absolutely adorable! <says the very biased dad>  Was also my wife’s birthday so we had a wonderful family outing all the way around.
 
Even when all of Google showed up to ski!
 
Unbeknownst to us, our quick trip coincided with Google’s annual ski trip — yes, the entire company goes skiing — albeit in three "shifts" since there aren’t enough accommodations at Squaw Valley to handle the entire company at once these days.
 
I, of course, engaged as many folks as I could.  Here’s what I learned:
 
(1)  Everyone at Google snowboards.
 
(2)  Like all youth, Google employees remain — despite the earnings announcement — supremely confident.  (Ah, remember when we were invincible?  Hey, wait a minute, I still feel that way! <smile>)
 
(3)  Unlike other youth, Google employees have a sense of maturity and purpose… and a clear mission to change the status quo.
 
(4)  GOOG didn’t miss it’s numbers… well, at least using, uhm, fuzzy logic.  I haven’t been through all the reports yet, but according to a couple employees, if you factor in one-time charges (like establishing a $90 million charitable fund) and adjust for a bonehead tax rate goof, earnings would have been in the "$1.80’s".  (Even more amazing than GOOG actually beating its numbers is the fact that the rank & file employees know these details… stock stuff must be widely and intensely discussed by the watercooler, er, I mean Odwalla Juice fridge.)
 
 
My take?
 
Same as always.
 
Google will be a $20 billion company before anyone knows it… and, at about the same price/sales ratio as MSFT, that means GOOG should have a market cap of about $160 billion.
 
The $160 billion question, then:  When?
 
This quarter, Google’s revenue was almost $2 billion, about 86% growth… or an $8 billion run rate.
 
Let’s say GOOG rev slows to 50% next quarter.  That’s $3 billion next quarter… or a $12 billion run rate.
 
And let’s say GOOG rev slows to 33% the following quarter.  That’s $4 billion… or a $16 billion run rate.
 
And let’s say GOOG rev slows to 25% that very next quarter.  That’s $5 billion… or a $20 billion run rate.
 
What this suggests is that Google will be a $20 billion company well before the end of the decade… like in less than two years.
 
What’s my 24-month price target?  (Hey, everyone else gets to play GOOG lottery!):  $160 billion market cap divided into number of shares available, which keeps changing as more shares come on to the market.  At current share levels, though, this suggests a 24-month price target of $541.30.  Give or take.
 
[Royal Note:  This conclusion is correct but the calculation is — embarrassingly — incorrect.  See Feb 9th post for correct calculation.]
 

So, why the panic in the stock price yesterday?

 
Easy:  Dejection.  ("They missed!")  Confusion.  ("Did they miss?!")  Emotion.  ("Yes!  No!  Which one?!  Oh, shit!") 
 
Those things, plus the fact that shares really have gotten ahead of themselves. 
 
In truth, yesterday was a much needed event… a weird detente of sorts between warring factions.  Everyone got something: 
 
     Those rooting against the stock saw the significant drop they’ve wanted.
 
     Those rooting for the stock saw significant support in the face of an emotional sell-off for what can only be described — despite all rhetoric — as an outstanding quarter.
 
P.S.  By the way, I think GOOG’s performance means great things for both MSN and Yahoo, too.  We really are witnessing a total revolution — a coup d’ tate — of traditional media.  MSN and Yahoo are next in line to benefit.