tag:blogger.com,1999:blog-8152901575140311047.post5785171128225938651..comments2024-03-29T07:41:47.433-04:00Comments on Musings on Markets: When the pieces add up to too much: Micro Dreams and Macro DelusionsAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-8152901575140311047.post-30358873268978341032013-12-26T12:52:07.307-05:002013-12-26T12:52:07.307-05:00I do not see any but the largest of firms relying ...I do not see any but the largest of firms relying on significant online ad revenues maintaining a 25% margin. Social media has very low barriers to entry and you can go from #1 to Blackberry very quickly if the retail consumer no longer perceives you as "cool." Consumer tastes change quickly in tech. Consider that my young cousin has already told me Facebook is "for old people." The social media companies that will last (and maintain margins) are those that will use their early success to diversify into higher margin lines of business, IMO.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-57195171718118553702013-11-14T08:06:23.197-05:002013-11-14T08:06:23.197-05:00Namaste Professor!
There's one stock named Bal...Namaste Professor!<br />There's one stock named Balmer Lawrie & Co. listed on indian stock exchanges...people are valuing the share to about Rs.1000 per share when on the stock market, its mere Rs.300. I personally valued it to Rs. 231 per share. There's a hell lot of difference and I cannot understand why...would you...if possible...please value the stock in your way?Ameya S. Kanetkarhttps://www.blogger.com/profile/14495111873692019426noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-75029416164586476492013-10-23T08:11:32.551-04:002013-10-23T08:11:32.551-04:00Great and timely post. With all the market chatter...Great and timely post. With all the market chatter looking for bubbles and the recent focus on "cult" stocks that are flying high, it is prescient to point out how while the story behind many of these stocks is sound, the collective actions of markets is driving their price. I think this can also be seen simply in the private market (massive tumblr valuation) and in secondary markets (twitter has had a steady ascent pre IPO in private exchanges, I believe it was closer to $15 about a year ago)<br /><br />There was an interesting quote recently about the dot com era in which valuations were driven at the time by "eyeballs" (i.e. online users who see a page) where as the real focus needs to be on how the websites generate their revenues from the paying companies, as mentioned in this article. Seems to be another one of the stories backing some of these valuations.<br /><br />It will surely be interesting to see who the winners and losers are in the coming decade.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-85169692065235157472013-10-23T05:22:06.370-04:002013-10-23T05:22:06.370-04:00Professor,
I don't understand why you use EBIT...Professor,<br />I don't understand why you use EBIT instead of EBITDA in calculating FCFF.<br /><br />As EBIT does not include depreciation and amortizatoi, your method reduces the firm value.<br /><br />FCFF/Revenues should be larger than your forecast in Google and Tesla's valu, in my view.<br /><br />During year 5~9 in projection of Tesla, you assumm negative cashflow of $4.4~1.2bn with good operating margin of 5.4%~11.0%.<br />This seems unreasonalbe as a company with OP marign 5~11% is supposed to generate positive cashflows.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-88080486792687913182013-10-17T22:19:23.814-04:002013-10-17T22:19:23.814-04:00Hi Guys, I found a Website to perform Discounted C...Hi Guys, I found a Website to perform Discounted Cash Flow Model calculations, no need to do those calculations on the Excel file anymore, check it out:<br />http://turnkeyanalyst.com/2013/09/19/cloud-based-discounted-cash-flow-analysis-tool/Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-59312829166551481492013-10-16T14:14:53.309-04:002013-10-16T14:14:53.309-04:00I want to pose a question pertaining to the second...I want to pose a question pertaining to the second point in the implications section in your blogpost.<br />We, with hindsight bailing us out can pinpoint that this particular stock(Amazon being your example) has been a good investment after 10 years. But if we want to be a potential investor who has to "tag the winners early in the process" ,we need to assess which companies are going to be there after 10 years and are going to generate the cashflows that we expect them to make in the long run. So my question is what are the tools that you use for making the judgement that the company can really make it to the 10th year and generate the expected revenues and margins. The micro dreams will definitely remain as dreams even without macro delusions if we are simply value the company without the dreams shaping up as we expected. If you take Apples case, when you have invested after Steve Jobs had made a comeback in 1997, you have accepted that you bought the stock not becuase its valuation was looking opportunistic but rather as an option play with an expectation that Steve Jobs might turn around the the company and the investment has played out well for you. But for a potential investor who wants to be a long term investor say in a young sector like social media how can he assess the competetive advantages of say fb being a destination of choice for advertisers leave alone after 10years rather in 2 years down the lineAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-54387199317251324332013-10-16T07:38:54.495-04:002013-10-16T07:38:54.495-04:00http://www.iamwire.com/2013/04/indian-digital-adve...http://www.iamwire.com/2013/04/indian-digital-advertising-spend-snapshot-projections-by-imrb-a-report/ ...... Given that India is in the infancy with regards to online advertising.. Just reiterating my earlier pointUniverseofRisksnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-67421888023437880412013-10-15T15:52:42.386-04:002013-10-15T15:52:42.386-04:00Prof. Damodaran's analysis is conservative. Th...Prof. Damodaran's analysis is conservative. There are thousands of other content providers fighting for advertising dollars. For example, Apple just launched iTunesRadio, where a minimum ad buy is $1 million at this point. Don't forget about advertising on Amazon.com (website and Kindle) or eBay, not included in these calculations. This long tail of online advertising will add up to a very significant number.Andrei Volginhttps://www.blogger.com/profile/11165536085715858490noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-83006180269907615542013-10-15T13:06:29.737-04:002013-10-15T13:06:29.737-04:00This has little to do with population but more to ...This has little to do with population but more to do with a different constraint. Advertising revenues come from companies spending money on advertising and those budgets are not unconstrained. Put differently, you can make all the arguments about people getting online but if companies don't have money to spend on advertising, the story does not go very far.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-39649990523498022512013-10-15T11:33:47.140-04:002013-10-15T11:33:47.140-04:00While agree with your conclusions given your assum...While agree with your conclusions given your assumptions. I think the estimate of $303 Billion is very very pessimistic. Considering how large populations (India, China)and other are increasing internet users at an alarming rate. India grew 31% from march 2012. The total computer based internet users are at 74 Million in India. If you add the mobile component to this equation. The growth potential is enormous. Brazil's online penetration grew at a faster pace than India'sUniverseofRisksnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-77648061504270813622013-10-15T07:35:38.685-04:002013-10-15T07:35:38.685-04:00Ben,
Good points all.
1. I agree. Raising Google&...Ben,<br />Good points all. <br />1. I agree. Raising Google's margin does bring down the imputed revenue, though raising the tax rate over time has a partially offsetting effect.<br />2. On Facebook, I am not sure that margins will be higher. As growth slows, Facebook will try harder for more growth which tends to drag down margins.<br />3. You are right. Lowers the imputed revenues for the company.<br />4.On Linkedin, I did go back and forth on this one and your point is a good one. This revenue is not from the ad business but primarily from the manpower business.<br />5. We have been waiting a long time for AOL to post higher margins. <br />6. Good point on Yelp, though I have to figure out how much to take out for transactional services<br />7. I did go through the same debate on OpenTable. I am not sure.<br />If I get a chance, I will rerun the number with these changes and see how the aggregate value shifts.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-30515324745745554892013-10-15T01:24:37.589-04:002013-10-15T01:24:37.589-04:00Prof, for Google, the marginal tax rate has stayed...Prof, for Google, the marginal tax rate has stayed at 24.21% in the spreadsheet instead of 40%. This might have some effect on the output.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-13598921497111245972013-10-14T23:34:11.741-04:002013-10-14T23:34:11.741-04:00Professor, you may be onto something here, but thi...Professor, you may be onto something here, but this analysis has some flaws. I'll even concede that plenty of the online ad companies are overvalued. But I have some issues with your figures.<br /><br />1) Your margins for Google are low - you are including the losses from Motorola, a non ad business. Google breaks out it's core business, more like 30% margins. Secondly, on Google, you ignore that its fastest growing segment, L&O (growing ~140% a year), is not ad revenue, so Google's % of revenue from Advertising will not be as high in 2023 as you show.<br /><br />2) Your Facebook target margin is also too low. Margins will be higher once investing for growth slows. Especially once Instagram starts to monetize.<br /><br />3) The vast majority of Yahoo's Market cap has nothing to do with Yahoo's ad revenue, but instead its stakes in Alibaba and Yahoo Japan. Back those out, and Yahoo's core Enterprise value is well under $10B.<br /><br />4) Not even close to 80% of LinkedIn's Revenues are Ad related. The Talent Solutions business is not Advertising. Recruiter seats and job postings are not advertising. It's more like 25% of their revenue. If you count 80% of LinkedIn Rev as advertising, you'd have to count temp agencies, corporate recruiters, and the entire HR department of every organization in the world. <br /> <br />5) AOL margins are being dragged down by the Patch Network (which they are downsizing). Margins should be higher after that. <br /><br />6) Yelp (which I agree is overvalued), has run up, largely due to their addition of transactional services, like delivery.<br /><br />7) I guess this is debatable, but I don't view OpenTable as advertising. Also, the margins assumption for Opentable is too low. Not really a needle mover for this analysis though.<br /><br />Granted, you don't include plenty of other companies with online ad revs, but you have flaws in the 4 of the 5 largest Ad Rev and market cap contributors - which makes the conclusions fuzzy, imo.Ben Reynoldsnoreply@blogger.com