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Blodget Accuses Morgan Stanley’s Meeker Of Backing Into The Numbers on GoogleTube
Posted by Tiernan Ray
There’s been a hilarious little side-show to the research on Google (GOOG) going on in the last 24 hours. Yesterday, Henry Blodget, who is no longer an equity research analyst with Merrill Lynch but instead serves as editor in chief of the blog Silicon Valley Insider, penned a little item accusing Morgan Stanley Internet analyst Mary Meeker of bad math: in a report on Google’s YouTube business, she estimated the company could produce $720 million in net revenue by laying ads on top of YouTube’s video feeds. Blodget pointed out that Meeker had failed to divide by 1,000, which would more accurately represent the revenue per thousand impressions, the standard metric in advertising. That turned Meeker’s $720 million to $720,000, wrote Blodget.
Well, today, Meeker introduced a revised report, correcting the math, writes Blodget in a follow-up post. But she still got a different number from Blodget, as he discusses today in a follow-up. Meeker has now come up with a range for potential YouTube revenue of $75 to $189 million, says Blodget, but only after she raised the percentage of YouTube traffic that could be monetized, thus offsetting the divide-by-1,000 dilemma. Says Blodget:
And now that the math has been fixed–and the calculation has produced an immaterial revenue estimate–the assumptions have been changed. This is what’s known in the trade as “backing into the numbers.” It’s quite common, and, used appropriately, it can be helpful: Mary’s new estimates are probably still too high, but they seem far more reasonable than those with yesterday’s assumptions would have. But the episode clearly reveals the risk of blindly accepting what appear to be carefully developed assumptions, not to mention the estimates derived from them. |
