If you can’t get a good bubble started on the Internet, then where can ya? Aye, times are indeed bad if analysts are even poopooing hot Web properties. And if it’s one thing Wall Street’s got these days, it’s credibility!
Well, Sanford Bernstein analyst Jeffrey Lindsay does make some pretty—no, not pretty—good, sober, hard truth reality points and backs it up with a decade’s worth of questionable acquisitions. But maybe he’s overcorrecting the bubble euphoria with the standard Jon-Stewart-was-mean-to-us negativity pervading the Street right now.
Ahem, Wall Street.
In a research note, Lindsay laid it on the line about “pre-businesses” like Twitter and Facebook, comparing them with pre-business acquisitions of the past like Netscape, AOL, ICQ, Skype, MySpace, and YouTube. The guiding wisdom is sound: If they aren’t making money now, and have no good idea how to make money in the future, then it’s not such a great idea to buy them.
“The problem is that Twitter falls into the broad category of new internet businesses that are almost un-monetizable,” wrote Lindsay. “Whoever buys it will likely have to operate it at a loss in perpetuity, or until the next cool web 2.0 social networking concept comes along and Twitter tweets no more.”
So Netscape lost big time to Internet Explorer, AOL lost a hundred or so billion in value, ICQ is now IC-who?, and eBay overpaid for Skype by a couple of billion. Everybody makes mistakes, right? And can’t we leave MySpace and YouTube out of this?
No, says Lindsay. MySpace will likely crumble after Google pulls its search deal with them and YouTube, at $1.65 billion now and $1 billion in Viacom demands later, is a massive monthly bandwidth sink. (Some have argued Google had to buy YouTube to corner the market on video search, making it more of a long-term investment.)
Lindsay puffs up his criticism with discussion of the “Web 2.0 fallacy,” which says interactive user-generated content sites that grab huge audiences and celebrity users are actually worth something. As soon as the new owners try to recoup their investment, they’re met with a hostile audience loyal to only to all things free, white spaces uncluttered with advertising they don’t click on anyway, and the notion they shouldn’t be spied on for their valuable data.
He makes users sound like a swarm of teenage locusts who eat up all the bandwidth in your fridge and dirty up your bathrooms.
“The ones that do make money all seem to involve either mailing stuff to people who have paid for it online or getting advertising deals from the likes of General Motors.”
GM. Now there’s a company on solid ground.
“We think that Google and Yahoo! and any other potential buyer should stay well clear of Twitter (and Facebook for that matter) at the ‘large but un-monetized stage’. We think they should leave it to the original founders to develop a business model and if the business survives, consider acquiring it then. Taking on un-monetized services has proven to be a very uneconomic proposition for the Internet players over the last decade.”
Some CEOs got some work to do, looks like. One imagines Sergey Brin and Larry Page think that all sounds familiar. A little over ten years ago, they couldn’t sell Google, either.
