News Corp.’s Rupert Murdoch told a crowd of analysts that Myspace could now sell for $6 billion, even though UBS pegs all of Fox Interactive Media at $2 billion.
Having studied in finance and worked as an in-house analyst sitting across the table from the nation’s “top analysts,” I’ll be the first to admit that all analysts (yours truly if I can be counted as one) are full of crap. If I can’t be counted as one, then I’ll simply say ”take what analysts say with a grain of salt.”
Fact is: Numbers, trends and assumptions are meant to be manipulated. Half the time, you are trying to reach an end-number you have in mind practically from when you start the exercise. If you don’t have an end number in mind (the remaining 50% of the time), then you shake, mix and stir the numbers to get to something attention-grabbing (if I could tag this statement, I’d tag it “Mary Meeker, Henry Blogdget, Walter Piecyk, Jordan Rohan”).
Anyone who tells you otherwise is a liar and a phony whose colleagues has an investment banking relationship with you.
Anyway, if Rupert Murdoch is right, the $6 billion price tag would represent a 10-fold increase in what News Corp. paid for all of the Intermix, Myspace’s parent.
Of course, he is not right, he’s biased. He is still selling Myspace to investors and analysts.
Obviously, Mr. Murdoch is not applying a discounted cash flow, accounting-based valuation model but it is interesting to see that the price he attributes to Myspace is 3 times larger than what Facebook founder Mark Zuckerberg wanted to sell his company for, and 6 times more than people wanted to buy Facebook for.
According to recent numbers by Hitwise, Myspace has 82% market share in social networking circles compared to 12% for Facebook. Of course, that does not mean much, since Facebook up to recently only targeted students whereas Myspace targeted sexual predators web surfers of all kinds. Point is: no one actually paid $1 billion for Facebook, and I am not sure any one would pay $6 billion for Myspace, let alone $2 billion.
Youtube - this year’s answer to Myspace with its own legal problems (did we mention the sexual predator thing?) - fetched $1.65 billion from Google…
What is Myspace worth?
Not the $15 billion that RBC’s Jordan Rohan threw out, and not the $6 billion Mr. Murdoch claims today.
More than Youtube? Since the market dictates prices, and YouTube sold for $1.65 billion with the end price tag coming to $1.77 billion, that is the price we attribute to YouTube, not what we think it is actually worth.
So… when you consider that analysts at UBS peg the entire value of Fox Interactive Media at $2 billion (UBS’s institutional investors own 0.53% in all of News Corp.), and “analysts know everything” (only if I’m excluded from the lot, if I am, then it’s “we take as accurate what analysts say at face value”) then Myspace must be projected a value lower than that of YouTube’s $1.77 billion.
After all, considering that IGN sold for $650M, and FIM includes the legacy sites in News Corp. (FOXSports, American Idol etc)., as well as Scout, then all of sudden, it looks like the sum of the parts are worth more separately than together.
Oh, oh. Are we seeing a repeat of media mergers gone wrong of the 1990s?
Let’s see.
Is IGN worth $650M? Well, I worked at IGN for 6 months after they bought my old company. IGN wanted to go public or sell for $600-800 million, it got $650M from News Corp., and initially some people said that the price was on the low range of what it was shopping for.
But, last year in September, 2006 when News Corp. bought IGN, MySpace had yet to further explode. It was also a bastion of user generated content, there were also increasing rumors of sexual predators lurking on the site. News Corp. was not sure it wanted to peg its future prospects in online on Myspace, the black sheep of the world wide web. So, in that context, IGN managed to pin News Corp. against Viacom and got News Corp. to pay 40 times EBITDA for a money-losing dot com: IGN. That transpired into a $650 million deal.
But, that does not guarantee that IGN is worth $650M today. After all, in a recent interview, News Corp./FIM’s media cazr Ross Levinsohn himself admitted that traffic on IGN fell and is only now at its old levels. Furthermore, judging by News Corp.’s recent financial statements, IGN is still losing money. Finally, few companies would be so desperate to be compelled to pay 40 times EBITDA for a digital media company, so if you combine all of these variables, it’s highly unlikely that IGN is worth more than $650 million; it’s very likely that IGN is worth less and not more than $650 million. But since the market dictates prices, we’ll be kind with IGN and say that they are worth what they were worth last year: $650 million. I do not think that News Corp. would be able to sell IGN for $650 million though. Ironically, I think that as an independent company, IGN would be worth more than $650 million. Perhaps a spin off is optimal, so long as IGN can get into the black. Time will tell.
Trying to reconcile all of these numbers, we realize that we will break ranks with experienced, savvy and knowledgeable analysts at UBS and say that they might be a tad too conservative with their $2 billion tag on all of FIM’s assets.
Or, maybe, just maybe, in the world of media, Gestalt’s phenomenon - maintaining that the whole is greater than the sum of its parts - does not hold.
Could it be that Rupert Murdoch’s vision of amalgamating a wide array of digital assets do not add value, but take away? I have always felt that IGN would be worth more outside than inside News Corp. And with these numbers, could it be that these assets should be spun off?
Don’t take it from me, of course, take it from the analysts at UBS and from Rupert Murdoch; after all, if they are both right, then indeed, News Corp. should be looking at splitting up their online assets…
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November 15th, 2006 at 1:04 pm
[…] Is Rupert Flipping MySpace? November 15th, 2006 at 12:09 pm by Tony I’m no stock analyst, but I do love an unsubstantiated rumour: is Rupert planning on flipping the web property he spent $650M on at a valuation 10x the asking price? Beats me (some educated folks say the valuation, is, and I think its a technical term here, “hokey”) — but other offering a metaphorical patting on the back, I’m not quite sure why he would tout out numbers like this and provide statements to the effect of “if it were to sell today”. […]
January 20th, 2007 at 5:22 pm
I want so badly so understand all of this. I wish I could hold my own finances in my hands so I didn’t have to trust others with my money. How do you guys know all of this??
http://tothecenter.com/news.php