Can we take a break from all this Hewlett-Packard business for a minute and talk about MySpace? We first heard about MySpace when one of our favorite rock-and-roll lawyers posted a bulletin to her friendster account announcing, “I’m outta here! Check me out on MySpace suckers!”
In the couple of years since then MySpace has gone from a niche space for emo kids and the bands they love to a genuine cultural phenomenon. And it's done this despite the fact that its search function is nearly useless and its user interface is completely heinous.
Yesterday RBC Capital analyst Jordan Rohan said that he believed MySpace could be worth $15 billion. This provoked gawking of disbelief from many observers, and flashbacks to 1999 for others.
Paul Kedrosky, however, has an even more cynical take. On his Infectious Greed blog he warns readers not to take the $15 billion valuation seriously. It was just analyst posturing, trying to get attention.
Like Henry Blodget during the bubble did with Amazon, and other analysts did with Qualcomm and others, putting up oversized estimates of a company's value is a marketing exercise for an analyst, not an exercise in financial valuation. The number doesn't matter; it is simply a piece of red meat to attract the media pack, like me saying, Draper-style, that one of my portfolio companies is worth a billion dollars (which it is, of course).
Ouch. That seems a bit unfair to Henry. He might have pumped his share of air into the internet bubble but all the evidence we’ve seen indicates that he actually believed his hype. And the best, most recent evidence of this is Henry’s own reaction to the MySpace valuation.
The most surprising thing about RBC analyst Jordan Rohan's comment that MySpace could be worth $10-$20 billion in a few years is that he deemed this assessment "audacious"--and the press seemed to agree. Why is this audacious? In little more than two years, MySpace has come out of nowhere to become the 7th biggest site in the U.S. Per NetRatings, it now has 50 million monthly users--closing in on half of Yahoo!'s domestic user base--and it is still growing at a fantastic rate (a reported 250,000 sign-ups a day). MySpace recently signed a $900 million multi-year search deal with Google, showing that the revenue is starting to follow. Etc. Given all this, the theory that, in a few years, MySpace could be worth less than half of what Yahoo is worth with its now-battered valuation seems eminently reasonable. On its current trajectory, in fact, MySpace could end up being worth a lot more.