The Next Net

Bubble Watch: Glam Media Shops Around a $200 Million Private Placement

How much froth is there in the online ad industry?  One market signal comes from a leaked private-placement document for Glam Media, which is trying to raise an eye-popping $200 million (which is very large for a private deal).  Allen & Company and Bank of America are raising the round on behalf of Glam.  According to the leaked document (thank you, TechCrunch):

Glam Media is the fastest-growing web property in the United States based
on the year over year increase in unique visitors from 782,000 to more than 19.1 million monthly unique visitors in June 2007.

Except that it's not.  Glam Media owns a collection of women oriented sites, including its flagship Glam.com.  But the bulk of those 19 million visitors comes from the ad network that it runs for other sites like MyYearbook.com, QualityHealth.com, and Kaboodle (which was recently acquired).  In other words, Glam Media is trying to tell prospective investors that because it serves up ads on a site, the visitors to those affiliated sites should count towards its own total as a "web property."

Yet, according to comScore, all of Glam Media's sites accounted for only 1.6 million of those 19 million visitors in June.  And Glam.com itself only accounted for 654,000 visitors.  Some of its lesser sites include Celebrity-Hairstyles.org.  The fact is that the bulk of Glam Media's traffic and revenues comes from its ad network, not its web properties.  Trying to sell itself as the No. 1 destination on the Web for women is misleading at best. 

Hyperbole aside, there is nothing wrong with being an ad network. In fact, they are in great demand.  But if investors cannot even trust Glam Media and its bankers to describe the business properly, how can they put any faith in the revenue and cash-flow projections set forth in the private placement?  (The numbers go from an estimated $21 million in revenues this year to $150 million next year and $392 million in 2009.  Meanwhile, cash flow (EBITDA) is shown going from a loss of $3.7 million this year to $119 million in 2009).

If this deal gets done, it will be as good a sign as any that we are now officially in Bubble 2.0 territory.

Yahoo Prez Susan Decker Bets $1 Million On Its Stock

Yahoo President Susan Decker is buying up shares the company's beaten down stock (YHOO), to the tune of $1 million.  CNNMoney reports:

The buy was Decker's first ever open-market stock purchase, according to filing tracker InsiderScore.com, and came one-day after the stock fell to $22.44 - its lowest level since March 2004.

Decker's buy was "just the fourth by any Yahoo insider in more than four years; and, the largest by any Yahoo insider in more than four years," InsiderScore analysts wrote in a research note Friday

That's quite a vote of confidence.  Is she just trying to shore up the stock, or does she know something we don't?

New York Times' Web Growth Doesn't Make Up For Print Decline

In what's becoming an all-too common theme among old-media companies, the New York Times reported a 5.7 percent drop in overall ad revenues and a 59 percent drop in operating profits. 

The one bright spot: it's Web properties, including NYTimes.com, Boston.com, and About.com, saw a 23.4 percent rise in revenues.  But it's $81 million in revenues only makes up 10 percent of the company's overall sales, and is still not enough to counter the decline in print.  Still, operating profits at About.com alone ($8.5 million) represent 38 percent of the company's total operating profits.  Web revenues don't have to rise tenfold before Web profits can offset the decline in print profits.  But with online ad growth expected to slow at the Times, it could still be a while.

Andreessen Rakes in $138 Million on HP-Opsware Deal

Marc, originally uploaded by Gina Bianchini.

Hewlett-Packard's (HPQ) $1.6 billion acquisition of Opsware (OPSW) announced this morning strengthens its hand in the market for automated data center management software.  Corporate data centers are getting bigger and more complex, so software to automate it all is a growth area for HP.

The big winner in this deal, though, is Marc Andreessen.  Yes, that Marc Andreessen.  Opsware was his second startup after Netscape (originally dubbed Loudcloud).  At HP's offer of $14.25 a share, he stands to make $92 $138 million off the deal personally (according to Yahoo Finance, he owns 6.5 million shares Update: according to the May 25, 2007 proxy, he owns 9.7 million shares.)  Now, all he needs to do is sell Ning (which he also co-founded), and he'll have a hat trick.

Opsware has had many ups and downs since it was formed during the dotcom bubble in September, 1999.  As Andreessen notes on his blog:

Loudcloud took off like a rocketship, raised $350 million in equity and debt financing, went public in March 2001, and was rapidly nearing $100 million in annual recurring managed services revenue when the entire market blew up and virtually all of our competitors and peers went bankrupt.

In September 2002, we did a complete restart as a public company -- we sold our managed services business to EDS and turned Loudcloud into Opsware, a software company based on the core intellectual property developed at Loudcloud. Over the next five years, we executed on our original vision -- automation of large-scale modern datacenters and computer systems.

We have become the clear market leader, and today our software is in use at more than 350 of the largest and most advanced businesses and government agencies, including Goldman Sachs, JP Morgan Chase, Home Depot, GE, Microsoft, Samsung, Comcast, Tivo, and the US Department of Defense. Along the way, Opsware has grown to more than $100 million in annual revenue and 550 employees, and has become one of the fastest-growing software companies in the world.

And you thought data-center software was boring.

Sell Apple, Buy Google

After all the buildup over the past couple months to last Friday's launch of the iPhone, the clearest winners are Apple's shareholders, who have seen a 35 percent jump in the stock since April.  In fact, Cowen and Company estimates that the price jump has added $24 billion  to Apple's enterprise value in that time period (when the stock went from $90 to $122, as of the close on Friday), meaning that the market thinks the iPhone alone is worth two-thirds the enterprise value of Motorola and one-third that of Nokia.  (Enterprise value is slightly different than straight market value because it takes into account debt and other liabilities).  To put that into perspective, Apple hopes to sell 10 million iPhones in 2008.  Nokia and Motorola together are expected to sell a combined total of 650 million cell phones.  In a note technology Cowen sent out on Friday, it cautions:

We smell a lot of retail participation in this process.

That is code for the average investor, suckers like you and me who have been watching too many iPhone ads on TV as opposed to the Wall Street pros who supposedly look at the market dispassionately through the cold logic of their spreadsheets.

The analysts at Cowen also made another observation.  Over the past two years, Apple's stock (AAPL) and Google's stock (GOOG) have tracked each other very closely) see chart at right).  But there's been an extreme divergence since April (see chart above).  Since Wall Street always assumes that stocks revert to the mean, Cowen suggetsts this is a great signal to dump the overhyped Apple shares and pick up more Google shares, which deserve at least the same mobile Internet premium as Apple.  As the note puts it:

Will Dow Jones Ruin Murdoch's MySpace Premium?

As Rupert Murdoch moves in to buy Dow Jones (DJ) for $5 billion, shareholders might want to ask themselves what effect the deal will have on News Corp. (NWS) stock.  At a PriceWaterhouseCoopers media panel I attended aerier this week, Media Metrics CEO Laura Martin raised a good point.  News Corp's stock price gets a bit of a shine from the fact that it owns MySpace, the largest social network on the planet. 

What happens to that premium if News Corp's digital business all of a sudden contributes a smaller percentage of overall revenues and profits?

Martin thinks MySpace accounts for $2 billion of News Corp's total market capitalization (far less than the $10 billion valuation it was looking for in a deal to swap MySpace for a quarter of Yahoo's stock).  But adding Dow Jones  to its mix of media properties would significantly increase the percentage of News Corp's cash flow coming from no-growth print businesses, and at the same time dilute the percentage of cash flow coming from its faster-growing digital businesses (i.e., MySpace). 

But then, the reasons for this deal might have more to do with ego than with financial logic.

Martin feels that the proposed Yahoo-MySpace deal also made no sense.  As she put it to me:

Why would News Corp. give up the thing that is giving their stock a premium to somebody where they don't even know will be running it, with all of the management turnover there.  And why would Yahoo give up 25 percent of their company for MySpace?. 

On thing about Murdoch is he always knows who is going to run the business before he does a deal.  It is usually some loyal manager back in Australia or somewhere else in his global media empire.  So swapping MySpace for Yahoo right now is probably dead in the water

But what no one has been asking in the Dow Jones deal is: Who does Murdoch have in mind to run it.  You can bet he's already hand-picked the whole management team. Why don't the Bancrofts ask him that?  His attitude is pretty clear, as you can tell from this outburst of his captured by Time:

They're taking five billion dollars out of me and want to keep control, in an industry in crisis! They can't sell their company and still control it — that's not how it works. I'm sorry!

He also threw out the idea of getting rid of the print version of the Wall Street Journal and making it a completely online entity (after knocking down the online subscription wall).  It might happen some day, but online ad revenues could not support the staff of the newespaper at current levels.

 

eBay Gives Google a Slap

  Fighting Cats - 2 
  Originally uploaded by Nikographer [Jon]

eBay and Google have a tense relationship.  eBay is Google's single largest advertiser, buying keywords to drive traffic and purchases to eBay (EBAY) auctions.  But Google (GOOG) is also eBay's biggest potential competitor, as consumers realize they can simply search for things to buy on Google instead of going directly to eBay. 

With projects like Google Checkout aimed at online sellers, Google is trying to make further inroads into eBay's turf.  Not surprisingly, eBay does not allow its sellers to use Google Checkout on its site.  (And is plotting its own strike into search territory with its recent announced acquisition of StumbleUpon)

So when Google decided to throw a tongue-in-cheek freedom party in Boston and invited big sellers in town this week for an eBay convention to come check out its Checkout service, eBay pulled all of its ads from Google.  And now Google has canceled its party.

The lesson here: Don't mess with a cornered animal.

Update: I'll be on CNBC talking about this with Paul Kedrosky at around 7:30 PM ET tonight.  Let me know how I did.

The Trials of Terry Semel

  Be a Better Fun Worshipper 
  Originally uploaded by Jeremy Johnstone

Yahoo (YHOO) shareholders are losing patience with CEO Terry Semel, whose total pay package last year (including 6.8 million stock options)  by one measure totaled $107.8 million.  That brings his total compensation since he took the helm in 2001, including all gains on stock options not yet exercised,  to a whopping $451 million.  Meanwhile, the stock is barely treading water, despite a big shake-up and reorganization last December. 

It's not just shareholders who are fed.  So too are top executives, who continue to flee the company.  Reports the NYT:

Since Mr. Semel reorganized the company into three units in December, it has experienced a steady stream of executive departures, .  . . Now two of . . .  three operating units lack a permanent leader. The head of Yahoo’s technology group, Farzad Nazem, left late last month after 11 years with the company. And Yahoo has yet to name an executive to run the audience group, which was created in December and oversees many of the Yahoo’s most important Web offerings.

In addition, 17 executives at the vice president level or higher are known to have left Yahoo since the December shake-up.

Why Google Should Buy Salesforce.com

Tomorrow, Salesforce.com (CRM) and Google (GOOG) are expected to announce a strengthening of their ties in the area of enterprise applications.  (Perhaps Salesforce customers will get a special deal when buying Google's AdWords, or perhaps Gmail, Google Maps, and other Google Apps will be more tightly integrated into Salesforce.com.  Update: It turns out the two companies are announcing a"global strategic alliance" making it easier for companies to buy and manage their AdWords campaigns from inside Salesforce.com.  Last year, Salesforce bought a startup called Kieden that does the same thing, so this is likely a formal extension of that).   

Partly because of that alliance, Salesforce's stock has been on a tear this past month.  There's even been talk of an outright acquisition by Google.  Salesforce's $5.4 billion market cap would make it Google's biggest deal yet.

Although it's unlikely, Michael Arrington of TechCrunch makes a persuasive case for such a deal.  Excerpt:

The future of software delivery is the browser. Google’s betting on it. Salesforce has already made a business at it.

Google wants Salesforce. Google Office fits perfectly with Salesforce CRM and App Exchange. Google can take all of it offline with Gears. And Salesforce can sell it with their existing sales team. And the timing is right - Benniof is signalling that he is ready to retire.

But Microsoft can’t let that deal happen, and is very likely to enter a bidding war to try to keep Google and Salesforce apart.

While Google could use a sales team that targets enterprise software customers, don't underestimate the value to Google of Salesforce.com's considerable Web-based software talents.  In particular, it's Apex development platform solves some thorny issues with Web-based software.  Combine that with Google Gears, which turns Web apps into offline desktop apps, and you can see how such a deal might worry Microsoft. 

Of course, this is all just idle (but fun) speculation. 

Can Private Equity Save Palm?

  Palm Foleo 
  Originally uploaded by KlausNahr

Private equity firm Elevation Partners agreed to buy a 25 percent stake in Palm (PALM), the struggling handheld computer company behind the Treo.  The price: $325 million.  Palm was earlier rumored to be looking for a buyer for the whole company, but apparently could not find any takers.  Elevation Partners' Roger McNamee and Fred Anderson will join Palm's board.  As will Jon Rubinstein.  Both Anderson and Rubinstein are former Apple executives—Rubinstein ran hardware and introduced the iPod under Steve Jobs; Anderson was CFO, until he left amidst the stock options scandal.

How Elevation hopes to turn around Palm is unclear, especially when  it  will soon be facing competition from Apple itself when the iPhone hits stores at the end of June.  Palm's announcement just last week of a new Treo companion ultramobile laptop called the Foleo garnered a ho-hum response.

It's going to have to do better than that, and fast.