NATIONS WITH THE MOST WEB SITES:
1. United States: 54,641,322
2. Germany: 15,029,978
3. United Kingdom: 6,189,578
4. Canada: 2,812,669
5. France: 2,550,717
Source: Netcraft as seen in this story.
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WatchMojo NewsletterThere may be a reason. Netcraft, an Internet monitoring company that has tracked Web growth since 1995, says a mammoth milestone was reached during the month of October.
“There are now 100 million Web sites with domain names and content on them,” said Netcraft’s Rich Miller.
“Within that, there are some that are busy and updated more often, and that represents the active sites, which are at about 47 or 48 million,” he said.
Bloggers, small businesses, and simplicity have combined to create the dramatic growth of sites, much of it just in the past two years.
“The bottom line is it’s much easier to create a Web site nowadays, and it’s much easier to make money with a Web site,” said Miller.
Netcraft uses the domain name system to identify Web sites, check how many of them are in a particular location, such as what operating system and Web server software they’re running, and then publishes its information in a monthly report.
There were just 18,000 Web sites when Netcraft, based in Bath, England, began keeping track in August of 1995. It took until May of 2004 to reach the 50 million milestone; then only 30 more months to hit 100 million, late in the month of October 2006.
Read more.
The revenue outlook for social networking sites has always been murky. Case in point? When MySpace was acquired by News Corp. for $580 million, critics called foul and suspected another bubble. Today with MySpace being three times larger, everyone thinks that Rupert Murdoch and his top dog Ross Levinsohn are geniuses.
RBC analyst Jordan Rohan added to the euphoria by saying that MySpace would be worth $15 billion. It won’t. It might, but not anytime soon. And even if it would be worth a hell of a lot, its value will be within News Corp., and the kind of multiples News Corp. gets implies that MySpace’s revenues and profits would have to be so high that make his entire argument not very realistic. But, every analyst tries to make a name for themselves: one day it’s Jordan Rohan, the other it’s Merrill Lynch’s Justin Post. They’re just doing their job.
And when it comes to someone else who seems to be putting his head down and doing his job and not letting the external noise affect him, comes Facebook’s founder and CEO Mark Zuckerberg.
While Facebook is much smaller than MySpace, it does offer advertisers some nice benefits, such as a lack of anything goes content that freaks out mainstream marketers. Oh, it probably boasts less sex predators as well. That’s always a nice addition if you’re Procter & Gamble or GM.
Just this afternoon, I wrote about how fickle the Web has become: last month Facebook was a darling about to fetch $1 billion, today Mark Zuckerberg is questioned for not selling. I certainly must say that I think that Zuckerberg can be criticized for many things, but not selling should not be one of them. Once you sell, you lose everything, no matter how much money you pocket. If Mark values his freedom more than the $200-300 million he stands to make, more power to him.
Well, this evening I read some interesting stats courtesy of Bambi Francisco’s blog:
In 2006, ad spending on US social networking sites is expected to spike to $865 million from $350 million in 2006, according to eMarketer’s just-relased report, Social Network Marketing: Ad Spending Update. By 2010, eMarketer estimates, spending will hit $2.15 billion. These numbers make Facebook - the most popular independent social network — look a lot more attractive to Internet and media companies. Facebook wants well more than $1 billion if it’s to sell.
As these numbers suggest, maybe Mark is onto something after all. And… in four years, he’ll be 26, far more mature than any 22 year old can… man, I sound old, and I’m 28.
If:
- the social network market were to be $2.15 billion, and Facebook - as a far distant second place player to MySpace - could get 10% of that (in search, admittedly a different market, market leader Google gets 50% market share and 25% of US online ad dollars, number 2 Yahoo! boasts 30% and 18% of the US online ad dollars, so a 10% share in all social network dollars is not unreasonable),
- That’s $215M per year in revenues,
- Assume a 35% profit margin (since the content is user generated, we can assume a high profit margin), that’s $75.25M in profits each year.
- Tack on a conservative P/E of 30 and you are looking at a valuation of… $2.257 billion in 2010.
I don’t know if Zuckerberg, his investors and management team have seen these numbers or done the math, but if the offers he’s getting now are for $800 million and he wants $2 billion, he might just have to wait four years.
Of course, older guys recall how easily markets as fickle as the Web can turn to be. Just ask former Excite co-founder Joe Kraus whose paper wealth all but evaporated and yesterday “contented” himself with a much smaller sale of his latest company Jotspot to Google…
And, this also assumes that the ever more fickle high school and college crowd think that Facebook is the coolest thing since sliced bread…
No guarantee in that. Zuckerberg dropped out of Harvard, had he stayed, he would have learned about the bird in hand theory. Of course, in the school of life, only he knows the answer:
Is $800 million for sure better today than maybe $2.2 billion in four years? If he owns 30% in the company, this means $240 million today versus a potential $677 million in four years. Of course, the likelihood of him getting that - or anywhere near that - is up for discussion.
Top 10 Accident Causing Foods…
I thought it would be funny to re-enact the actual accident causing foods…
I probably unloaded more shares in Q3 2006 than at any other point in my life. I had to offset some gains I had realized earlier this year to avoid a large tax bill. I also have to fund the growth of our company so I thought the timing was right to unload some of the companies I had owned for a while.
Two companies I unloaded (somewhat reluctantly) were Valueclick and 24/7 RealMedia. As feisty competitors in the online advertising industry, I expected both to continue their upward progression, but today both companies released quarterly reports and while Valueclick seemed to surpass expectations and as such, is up in after-hour trading, 24/7 RealMedia swung to a loss and is down.
This got me thinking into their values as potential M&A targets, and look at privately held companies in the space.
Some interesting stats from the reports:
24/7 Realmedia:
- Unlike the most recent quarter, last year’s results did not expense stock options. Excluding items and stock options costs, the company earned $4.7 million, or 9 cents per share, compared with last year’s adjusted earnings of $2.3 million, or 5 cents per share, during the year-ago period.
- Revenue jumped 40 percent to $49.1 million from last year’s $35.1 million.
- The company said its international operations contributed 61 percent of sales for the quarter, fueled by strong growth in Britain and South Korea. 24/7 also said it is extending its existing search engine marketing partnership with Tokyo-based advertising conglomerate Dentsu Inc. “to address strategic Asian markets outside of Japan,” including China, India, South Korea and Taiwan.
- The company expects fourth-quarter earnings between a penny to 2 cents per share, adjusted earnings between 11 cents and 12 cents per share, and sales in the range of $55 million to $59 million. Analysts are looking for earnings of 12 cents per share on sales of $57.6 million.
As of this writing, the shares are down 9% after-hours.
Valueclick:
- 37% year-over-year organic revenue growth.
- Revenue for the third quarter of 2006 was a record $137.9 million, well above the high-end of the Company’s previously issued guidance and a 69 percent increase from the third quarter of 2005. Third quarter 2006 results include a full quarter of operations from Fastclick, acquired on September 29, 2005.
- Net income for the third quarter of 2006 was $16.8 million, or $0.17 per diluted common share, compared to $11.0 million, or $0.13 per diluted common share, for the third quarter of 2005.
- The consolidated balance sheet as of September 30, 2006 includes $230 million in cash, cash equivalents and marketable securities, $595 million in total stockholders’ equity and no long-term debt.
- More importantly, the company upped its guidance for the year, and as such, the stock is up 3% in after hours trading.
Accounting for the post hours trading, 24/7 boasts a market cap of $436M while Valueclick weighs in at $1.9B.
More importantly, as the market consolidates, I see Valueclick as an acquirer of smaller companies while 24/7 would be a target company. Valueclick bought FastClick last year.
Potential M&A Activity?
I can especially see Google buying 24/7 (or even Valueclick) to further its display/banner ad focus.
Remember, Google runs ad networks’ campaigns on YouTube but splits the revenue with these (other networks include Blue Lithium, Tribal Fusion, 24/7, MaxOnline) so it would make sense for them to buy one of these networks and retain 100% of the revenue.
To see what YouTube can make per month in display ads, click here.
To see how little Google can earn with Ad Sense on YouTube, click here.
Privately Held Targets: Blue Lithium, Tribal Fusion
I have no idea what privately held Tribal Fusion is worth, I can guesstimate that Blue Lithium does not want to sell unless the offer was ridiculously high. I know the company’s Chief Revenue Officer Tim Mahlman, a genuine gentleman whom I worked with sopradically between 2000 and 2005.
Anyway, according to a Business 2.0 story, BlueLithium has been profitable since its third month of operation and is on track to hit $100 million in revenue by the end of next year, 2007.
I am just guesstimating the following numbers:
If the 2007 $100M revenue figure is right, assuming a 40% growth rate then 2006 revenues for Blue Lithium are probably in the $70M range.
[note: using that 8 billion impressions / month figure in the same Business 2.0 article, and assuming the company makes $1.50 CPM gross, that equals to a monthly revenue of $12M, or $144M in revenue already this year, which is 44% higher than what CEO Gurbaksh Chahal says the company will make next year! So, is something off? No, the article says that Blue Lithium serves 8 billion impressions per month but Blue Lithium serves both CPM and CPC impressions, so not all of those impressions are sold on an impression basis. This is the only rational explanation we can think of to reconcile the numbers.]
Project a profit margin of 20% (it seems to be growing rapidly - thus hiring a lot - and has a higher than average R&D cost compared to its peers), then its earnings are $15M. Valueclick’s margins were 18% and 13% in 2004 and 2005 respectively, according to Google Finance, but since Valueclick is publicly traded and undertaken many acquisitions, I project them to have endured a lot of administrative costs that privately held Blue Lithium had not had to.
Valueclick boats a P/E of 38 (according to Yahoo! Finance), Blue Lithium grows faster but is privately held, so assume a 25% liquidity discount - thus a P/E of 75% x 38 = 28.5 times profits… and:
Blue Lithium right now could be worth $427M.
But if 2007’s revenues hit $100M, at the same margins and P/E, it will be worth some $700M.
Of course, with a CEO as ambitious as founder Gurbaksh Chahal (how many CEOs in online advertising do you know who openly mock Google?
“They’ve miserably failed in the last year with display ads,” he notes, “because they look at the world through text advertising.”), I am not sure even a $500M offer would entice Blue Lithium to sell, at $750M it could be a different story, but for $500M you can buy 24/7 RealMedia… though Mr. Chahal might be the first to tell me that I’m comparing apples with oranges…
Once upon a time, I was sitting on a nice 6-month, 50% paper gain on my position in Infospace. I did not sell, because I was pretty convinced that News Corp. would acquire Infospace. My rationale was that Infospace was strong in mobile and had interests in search and directories. If a sale did not materialize, I figured, the stock had increased enough to give me a margin of security.
Then, things changed. Infospace lost a major carrier which sent its stock pummelling. Suffice to say the gains evaporated. Hey, that happens with the stock market.
Today the stock closed at $620M, after the market close, it announced earnings and slipped a further 5%, and is now “boasting” a market cap of $608 million, but, its cash, cash equivalents, and marketable investments at September 30, 2006 totaled $411.0 million, an increase of $4.0 million from June 30, 2006. At the end of the third quarter, the Company had no debt obligations.
That means that INSP’s enterprise value is $197 million.
For everything its got in mobile and search, that is not very expensive. I am certainly not ancouraging anyone to buy it, but at an enterprise value of $197 million, it looks pretty cheap for a company with 3rd quarter revenues of $96.3 million (up 16%).
My reason for staying in the stock is that it bought Switchboard a few years ago and could make a comeback in local search. But, again, I’m not sure anyone should buy the stock… but the company, at those levels, could be interesting for some larger entities.
Disclosure: I own shares in Infospace, the company founder Naveen Jain said would one day be worth $1 trillion…
Two days ago I said that Google’s management will probably use Google Video as the professional platform for media companies to reach audiences. In other words, legit Web TV (I also said that they will YouTube as is, clean it up by removing copyright violated content).
Look at what Google is doing with NHL sports programming.
Told ya.
The Web is a freaking fickle forum.
One month ago, Facebook was a darling fetching nearly $1 billion.
A month goes by, Comscore Media Metrix shows Facebook’s traffic growth is slowing down and boom, Facebook is down in the dumps. I commend the company’s founder for wanting to walk to the beat of his own drum, let’s see if history will be that kind.
Read more.
From MediaPost:
Let’s face it; when investors began to see the rise in Google’s value a few years ago, they rushed to find the “next Google.” Prior to that, when they saw the value of Yahoo start to increase, they all rushed to find the “next Yahoo.” The natural prediction would be that with the value of YouTube being high, investors would rush to find the “next YouTube”–but I think conventional wisdom will lose here, because investors are afraid to inflate a bubble that may already be gaining steam.
I think investors will acknowledge the lead YouTube has in UGC and focus attention on the kinds of companies where no clear winner has emerged. The market for quality, highly produced, original content is high–and the audience is clamoring for it. That’s why so many people turned to UGC in the first place; to find an alternative to traditional television programming that satisfies their need for entertainment by providing exactly what they’re looking for.
I think consumers are interested in quality original programming that can’t be found on the traditional networks or the cable networks, and the Internet evolution of television represents the most significant growth opportunity there is. Plus, original content can command a higher CPM for advertising, and it is safe for an advertiser– which is something that Google will help YouTube to figure out, but will still take some time.
This is written by Cory Treffilletti, VP at online ad agency Real Branding. Read his entire article here. I’ve never worked with Cory (who joined Real Branding this year) but have done a lot of business with Real Branding over the years on accounts like Diageo, WB, Newcastle and Time Warner. Hearing him (and anyone in the buying business) say all of that is wonderful news because RB is a great online agency that will get its share of business over time from major advertisers and from a personal perspective, it validates our business model: I agree with that assessment 100% and the theory is the rationale behind WatchMojo.com, a producer of original video content for the web and wireless devices.
Also, I do agree that the YouTube/Google will make things very hard for those playing second fiddle in the online video sharing social networking space. Read my previous post here.
VCs totally shot themselves in the foot by funding some of the 200 YouTube clones out there. Sure, many are large enough to get bought out for a nice return, but with:
- YouTube in Google’s hands,
- MySpace Videos being a leader as well (and safely tucked away in Rupert Murdoch’s backpocket),
- Yahoo!, AOL and MSN launching or having launched online video platforms,
I do not see many options for many of these companies that got funded at lofty levels. I wish them all well, because their growth is beneficial to my business, but the fact remains, YouTube being bought my Google sucks for them because it removes a lot of leverage in deals with anyone else and removes a layer or two of growth from the projections and models.
How did VCs shoot themselves in the foot?
According to Thomson Financial:
- 27 online video companies secured $126.7 million in financing in 2003,
- 23 online video companies secured $121 million in 2004,
- 37 online video companies companies secured $160.7 million in financing in 2005.
(Mind you, in 2005, the entire U.S. venture capital industry invested $20 billion in 3,000 new companies, so only 5.3% of that was invested in online video).
Most of the money outlined above went into tech platforms such as the YouTube clones. These companies do not really own any of the content and user generated content in the form of a cat falling off a window gets lame quickly and is simply not something an advertiser will piggy back on. Don’t take it from me, take it from a professional in the buyer’s chair like Cory above.
VCs have a lot of money, but traditionally VCs do not invest in content, they invest in technology, which is fine and dandy.
But, what VCs fail to realize (who am I to tell VCs how to run their business? Especially since we’re in talks with a couple, but hey… I’m just writing here what I tell them in meetings so nothing should shock the interested parties) that content is, has been and will always remain king. We all know that cliche, right?
But what we sometimes forget is that content is a trojan horse to get users to play with your technology. I’ve seen wonderful applications die because they could not attract enough users, or the cost of attracting users would drain any potential profits.
It is content that allows people to stumble on a company’s offerings. Why else would the CEO of a company blog? Why else would VCs blog? It’s the content on those blogs that builds an audience, creates visibility and generates interest.
A wise man once said that a VC’s real client is the entrepreneur, not the investors who invest in their funds. Well if that is the case, then perhaps just perhaps a VC creates content on a blog not simply to pontificate but to attract potential clients. One VC I met last week told me that one of their partner’s blogs has led to an uptick in interest from entrepreneurs.
At Mojo Supreme, have a lot IT IP under the hood, but the acquisition cost of a user would be sky high without the content. It’s just that simple. The content is a means to an end.
For someone to do a search on MetaMojo.com without our content to lure them, it would be expensive. But our search users are essentially acquired at an acquisition cost of $0, the revenue we derive is thus profit after we pay R&D costs, salaries etc.
For someone to sign up to StreetMojo.com without our content to lure them, it would be expensive. But we build up our subscribers at an acquisition cost of $0, etc.
Oh, and then there is the mere fact that online advertising is a $15 billion industry (in the US alone) going on to become a $25-32 billion business in four years.
Alas, I really do not like to tell others who are experts in their fields and who hold a comparative advantage at what they do why they “don’t get it.” But it’s very that just a few months ago when I would say all of this to a VC who was interested for one reason or another, they were not sure if I was right. Now, nothing has changed in either the strategy, gameplan or execution, the only difference is that the company is not 3 months old but 10 months old and the business plan is moving from concept to reality.
Was I right then? Now? Who knows, I might still be wrong, but judging by trends around us, it sure seems that he who laughs last laughs best… and we all know the cliche about where one laughs to…
I try not to give advice that is not realistic to others’ reality. In other words, my experience and the realities I face as an entrepreneur are not universal and are in fact unique to me. That applies to all advice-givers.
That being said, here goes: More often than not an entrepreneur with an idea will sell blood to secure funds to launch his venture. And, that means that sometimes some young minds tend to get in bed with less than desirable characters. It’s part of the system. Other times, the financial partners we find tend to really help the business.
Sale of a Soul
Looking at the usual websites I check out in the morning, I came across a link to Charles River Ventures new program which offers loans to entrepreneurs with smart ideas.
It’s somewhat fitting that in a day and era when eBay can be programmed over a Labor Day weekend, become cash flow positive quickly, secure $4.5M from Benchmark Capital for 22% of the company and go on to become a $40 billion entity (making Pierre Omidyar a billionaire ten times over), VCs realize the rules are changing.
That’s one extreme. At the other end of the spectrum you see a company like Reddit secure $100,000 and flip for millions a year later (for a guesstimate of the price there click here).
Bottom line: Venture Capitalists have realized that the rules of engagement are changing. Many VCs are adapting to the new model. Here’s some insight from one doing just that.
Different Strokes for Different Folks
I have personally been able to avoid outside financing thus far because I held a speck of ownership (for which I am extremely grateful since I was the last employee in through the equity door before it shut close) in my old company, which was acquired by IGN Entertainment last year (who itself got acquired by News Corp.). I was also in charge of sales and generated some 50-75% (maybe more) of the company’s revenue, so my income from 2000-05 was enough that I was able to stash some cash for a rainy day. Instead of hoarding my savings for that rainy day, I decided to put it to use to launch my company. I have no regrets.
Regret Minimization
Ah yes, regrets. Everything we do, at least subconsciously deals with “regret minimization.”
I left a cushy job at News Corp. to start a company. As much as I said “no regrets,” an underlying aspect of how hard I work is not to regret that decision. The freedom one gets in a startup is worth the price of admission alone. But the fact remains that a potential regret would have been “why did I leave Rupert’s kindgom?”
Another regret however is “why did I partner with X or Y?”
And, whether we like it or not, finding a financial partner - be it a lender or an investor - is going to impact you in so many ways. I know how tempting it is to blindly accept a blank check, but before you accept a convertible loan from a venture capital that gives them the right but not the obligation to participate in a round of financing, explore all options.
Friends, families, an old boss… heck Mark Cuban is an email away!
There are so many VC’s out there, all you have to do is look for them. Finding one whose risk profile and geographic focus matches your business is probably harder than finding a VC looking for a reason to invest. I’d say a VC’s money is yours until you say the wrong thing.
All to say, while the details are very different, consider how any deal impacts subsequent ones. Google bought 5% of AOL and thereby ensured that it can block any bid Yahoo! or MSFT make for AOL.com. For more on that click here.
Before accepting a loan deal from a VC, explore all options. After all, if they were so interested, why don’t they actually invest? Don’t get me wrong, oftentimes getting a loan might be better than giving up equity. But a loan does not put a VC’s real skin in the game.
What’s worse is that an entrepreneur that CRV decrees is interesting enough (or whose idea is interesting enough) would probably get actual venture capital. You know what they say about banks: when you need the money, good luck. When you don’t, they’ll line up to sign you a check.
Close, but no Cigar
Charles River Ventures is apparently one of the oldest VCs out there, I certainly don’t want to criticize anyone, especially a venerable and respected VC. But, VC’s are already risk averse as it is, if they now want to double up as bankers and offer debt financing so that they can earn the right to participate in equity but have no obligation to do so, then the entire VC landscape is more troubled and scared than I thought it was.
