HallSlug.com

Archive for the ‘Cyberspace’ Category

Show Me the Deal

FRANK: The opportunities come as people start to really feel pain. There’s still shock, but I don’t think the actual pain has really set in. I think there will be good deals come this fall? It’s like a sneeze. It’s still getting there.

ANGLES: But isn’t this broad-based downturn so much different than the last one? Then, people were saying the Internet was over. Internet advertising was a fraud. No one’s saying that now.

FRANK: That was really a stock downturn. Everybody’s stocks were in the toilet and no one could get free money any more for your Pets.coms. It was just a stock play, all driven by The Greater Fool. That was then. In some respects, that is replaying now. People are not in a rush to spend, and I don’t think it’s going to snap back.  It’s harder for people to raise money.

Unless the Dow goes back to 14,000, which it won’t, people will start to realize, by this fall, that this stuff is not bouncing back. The economy is not going well, and we’re going to see some serious panic selling set in and it’s going to create huge opportunity.

ANGLES: So what should people do?

FRANK: The name of the game right now is to keep your cash close. So if you’ve got cash and a good opportunity comes along, you can go for it. Look for distressed situations. But for now, save. There will come a time to spend, based on the prices that I’m seeing.

ANGLES: Isn’t one reason that prices of domains are not aligned with the economy because, no matter how hard people try, there’s not a liquid aftermarket?

FRANK: Exactly. And that’s a blessing and a curse. You can go in and buy names way below true value because not everyone knows about it. On the other hand, there’s no liquidity and names go for too much.

ANGLES: Have you been buying many names?

FRANK: We’ve been buying names the whole way. We’re buying a lot less now then we used to. We saw Gocart.com come down the chute a while back and we were hemming and hawing, should we? We came up with a sensible number and it went for three times that, over $90,000.

ANGLES: Wow.

FRANK: Right. And it’s not just gocarts.com. It’s everywhere right now.

ANGLES: Fair enough, but isn’t it in your best interest to say domains are expensive now? Whereas a few of years ago, when VCs and big money guys were prowling in the space, it was in your advantage to talk about how much names are worth?

FRANK: That statement is true, but I never felt that good “talking my own book,” because firstly people see through that, and, secondly, I’d feel terrible if somebody reads something I write, acts on it and fails. Total bad karma.

The truth is that today, while plenty of people expect way too much, some names are valued fairly, and others are cheap. But collections of portfolios still sell at a fairly large discount to intrinsic value because there are very few people who can hold each name to the light and correctly assign a fair value to each, so the PPC value of the collection becomes it’s default value (it meets GAAP rules and seems sensible) but that massively undersells the break-up value of most portfolios.  The breakup value flows to the buyer for free.

ANGLES: But who’s buying giant portfolios these days?

FRANK: Nobody. A great deal of this is moot because there are no corporate or equity buyers today—when most of the publishing world and corporate-America and the equity and investment shops are trying to keep their head above water and survive the worst global downturn in 80 years.

ANGLES: But isn’t that shortsighted? Don’t we all now know and accept that more advertising is migrating to the Web and that prices and payouts are just that things are down because the economy is a mess?

FRANK: That’s true. And you have a dominant marketplace, Google, which performs exceedingly well and could pay out much more. The next nearest market place, Yahoo, cannot pay out as well. Google knows that, so it pays out a lot less than it could, and so that’s just the way it is.

What you need is a disruptive force – or a series of disruptive forces – to come along and create another ad market place and create some competition. You can’t have a marketplace where the entire domain world is parked on Yahoo and Google and the power rests with the publisher, but that’s what we have.

13. Isn’t part of the problem that, in so many cases, there’s really no way to value a name in so many cases? That it’s really not like real estate because so often comps don’t exist?

FRANK: Yes but real-world comps exist. Take any name—and I’m pulling this out of the air—“Hair Styles” (actually, my wife just suggested it). There may be ZERO comparables for hair and hairstyle related names, but we know that a cut costs $15 at Supercuts and $600 at the Christophe Salon in Beverly Hills, then I know that products range from $15 to $100s, I know that a monthly rent or an ad in a national magazine can cost thousands or tens of thousands, so with that sort of back-of-the-envelop-thinking, and without much effort, I can set a floor of ten or twenty thousand dollars for the name.

That’s a price I’d consider paying, that would make it worthwhile to part with the cash and carry the name.

Then you have external factors such as competitors and other hair companies who may be willing to buy the name and relatively quickly you can see how something with no obvious comparables can still have a high market value.

There are always traffic that the name gets but we rarely actually price these into the value of the name. Traffic is just the bonus for owning the name.

Recession Hits Hard But Good is Unfazed

It took awhile, but the recession has definitely sunk its teeth into Google’s financial performance.

“No company is recession-proof. Google is absolutely feeling the impact,” Google CEO Eric Schmidt said in a conference call Thursday after reporting first-quarter financial results.

The company, as is customary, reported results that most business only dream of, recession or not. Its net income grew 8 percent to $1.42 billion and its revenue, excluding commissions paid to advertising partners, grew 10 percent to $4.07 billion.

It generated free cash flow of $2 billion for the quarter, the vast majority of it derived from money advertisers pay Google when people click on ads next to search results.