Insane Value of Companies

How much is a company worth? For a company listed on the stock exchange, that’s easy. Multiply the total number of shares with the price of a single share and you get the value of the company (as seen by the market).

But sometimes, the numbers just don’t add up. Like Matthew Klein showed about Yahoo! in March this year. Yahoo! was valued at $39 billion by the stock market. It owned 24% of Alibaba that in turn was valued at $153 billion. 24% of $153 billion is $37 billion. Did that mean Yahoo!’s own businesses were only worth $2 billion? But wait, it gets even more insane. Yahoo also has a 35% stake in Yahoo Japan, which was then valued at $32 billion. 35% of $32 billion is $11 billion. That meant Yahoo!’s intrinsic worth was…negative!! And you thought Wall Street guys were smart!

Stock markets like to value companies in the same industry (somewhat) similarly. Like all steel companies. Or all airline companies. Then the tech companies complicated that system. Like Apple (both software and hardware). So what do you treat them like: hardware or software? On the one hand, they give away their software for free (think iOS upgrades), which is why analysts decided to treat Apple as a hardware company. But Apple charges unheard of premiums for their hardware, something no other hardware company comes even close to. And yet analysts rate Apple as a regular hardware company! Or take Google. Do you know what Wall Street treats Google as? A media company! Why the insanity? Because analysts couldn’t find a match for a company that gives all its services for free (search, mail, maps, Android, you name it); so they looked at how Google makes money. Since the answer was ads, they looked around, found “media” as the category that makes money via ads and thus Google became a media company! Ever heard of a single news reporter/anchor interview for a job at Google?!

But tech companies don’t always lose in the stupidity of Wall Street valuations. Leonid Bershidsky showed that Facebook, currently valued at a bit over $200 billion means that it is worth more than Vladimir Putin’s “crown jewels”:
“(Russian companies) 0il producer Rosneft Oao, natural gas monopoly Gazprom Oao and state-owned lender Sberbank…combined market cap is $202.3 billion, meaning that Russia’s vaunted energy wealth plus its financial power is worth about as much as (Facebook)!”
Or if you want a positive interpretation, Bershidsky has this to offer:
“10 years of bold innovation using little except your brainpower and some silicon chips can make you wealthier than building infrastructure for decades and having hundreds of thousands of people run it. It’s a fairy tale with a moral almost everyone—with the possible exception of Putin—likes.”

It’s a mad, mad world…

Comments

Post a Comment

Popular posts from this blog

Student of the Year

Image
As a toddler, my daughter loved Alia Bhatt’s songs, esp. the ones from Student of the Year . (That movie did have many good songs and well-choreographed dances). Fast forward to present day, when she is 12 yo. She rarely watches Hindi movies now, but one of the few ones she likes of late, Raja aur Rani ki Prem Kahani has, yes, Alia Bhatt.   If I had any hopes that there was anything to be read in the name of her toddler-time favorite ( Student of the Year ), they have been dashed. Our conversations come exam time are perfectly captured by this photo and its caption: In fact, the pic below captures how she and I look at her answer sheets – me intently, she with an expression of “It’s over, so why are you even looking at it?”   Of late, we pull her leg and tell her that she isn’t showing any signs of academic prowess, she’d better find a rich guy to marry. Some time later, she showed us this meme on the Internet: “Me No Study, Me No Care Me Go Marry Millionaire If He Die
Read more

Animal Senses #7: Touch and Remote Touch

Instinctively, we think touch is based on contact. Not entirely true, explains Ed Yong in Immense World – there’s a more important aspect than contact: “These incredible feats are possible through movement. If you rest a fingertip upon a surface, you can get only a limited idea of its features. But as soon you’re allowed to move, everything changes. Hardness becomes apparent with a press. Textures resolve at a stroke.” As you run your fingers over a surface, they hit the tiny peaks and troughs and set off vibrations in the mechanoreceptors at their tips.   At the tip of its snout, the star-nosed mole has many pairs of hairless appendages. It uses them to touch things around itself. Alive or dead? Food or ignore? It does these movements at an insane speed. In the time it takes to blink our eyes, the star-nosed mole can probe, identify and swallow its food. “Light may be the fastest thing in the universe, but light sensors have their limits, and the star-nosed mole’s sense of
Read more

The Retort of the "Luxury Person"

Image
Coming up with biting and witty retorts. It’s something we dream of, but rarely manage to pull off. Worse, the more we stew over the offending remark, the more likely we are to come up with that dream retort, as Calvin ruefully points out: During our last holiday at the Taj Resort, seeing my wife carrying towels to our poolside chairs, one of the kids there mistook her for a member of the staff and asked for a towel. When my wife narrated this to us, I did not imagine that my 8 yo daughter would come up with her own retort. But a day later, my daughter recapped the incident, an incident that didn’t even involve her in the first place , and said, “You know what I’d have told that kid who asked for the towel?”. And without waiting for an answer, she told us anyway: “I don’t work here. I too am a luxury person who is living at this resort. Go get your own towel.” We were highly amused by the phrase she had coined: “luxury person”. It certainly captures the kind of holid
Read more