Friday, February 02, 2001

Welcome, OpenWave!

We welcome OpenWave to the Bubble Monitor. I decided to compare its price-to-sales ratio with that of a real company, Worldcom. That becomes its key ratio.

Nowadays, the typical earnings statement from an Internet company is, "We achieved profitability, defined as some random line on our income statement that is positive $5 million. Meanwhile, under GAAP, we lost hundreds of millions of dollars." My guess is that investors are going to start demanding GAAP profitability soon.
posted by Arnold Kling 2/2/2001 01:28:06 PM

Removing Excrement from Amazon

So, Mr Bozos wants to eliminate waste at Amazon. That is rich, considering he was the one who took Amazon into that territory. I guess it must be good to be CEO: you can fire people to cover your screw-ups and actually look like a hero to Wall Street!

I am not quite convinced that OpenWave is quite the slam dunk bubble stock, even if was plugged by Mr Bubble Blodgett himself. I see it more like an eBay or Cisco decent business model, but ridiculously overvalued. They did turn a profit last quarter, although with all the shenanigans with pro-forma stuff, who knows?

posted by Suresh Krishnamoorthy 2/2/2001 01:13:27 PM

Still High on Kool-aid

If you think that the collapse of the bubble has stopped venture capitalists from drinking Kool-aid, then read Business Week online. At one point, a VC says, "It's when you meet some guy and, after half an hour, you decide the laws of physics have been suspended, the laws of economics are out the window, and this thing is really going to work." Sounds like somebody who would have bought MSTR when it was over 300.
posted by Arnold Kling 2/2/2001 01:08:19 PM

Thursday, February 01, 2001

Blodgett nominates Bubble Stock

We've been looking for a stock to replace slumping PXCM on the bubble monitor, and what better place to look than the recommendations of Henry Blodgett? The other day, Blodgett made some Buy Recommendations for Internet stocks. Of these, the juiciest appears to be OpenWave (OPWV), a merger of two failed dotcoms that enjoys a market cap of $11 billion and which seems to be unlikely ever to report a profit. Today or tomorrow, OPWV will join the bubble monitor.
posted by Arnold Kling 2/1/2001 10:49:00 AM

Wednesday, January 31, 2001

Accounting

AOL Time Warner reported a $1 billion "pro forma loss." I wonder what that means. If they really lost $1 billion, then that would seem to me to be not a good thing. I don't know how anyone can come to grips with the accounting in a company that is so big, so complex, and so filled with intangibles.
posted by Arnold Kling 1/31/2001 01:58:50 PM

This page is archived every Sunday. The URL for the first archive is

For more on the bubble, see itulip.com and bubbleeconomy.com

1. Yahoo's key ratio is the required number of page views per day per individual on the planet needed to justify its market cap. As of 12-27-99, this value was 11, meaning that everyone, regardless of age, language, or Internet access, needs to view 11 pages on Yahoo per day. See Arithmetic in a Bubble. This reflected their then-current revenues of $4.70 per thousand page views. As of July 12, 2000, we reset this to $4.30 per thousand page views, to reflect recent performance.

2. On October 23, 2000, Corvis replaced Engage Technologies, which in late February had replaced Koop . Corvis' key ratio is their market cap in billions divided by two, which is the number of times they are listed in the index of George Gilder's book Telecosm. Gilder's imprimatur is the main source of value for some of the "bandwidth and infrastructure plays."

3. On Feb. 12, Y2K, WebMethods replaced MusicMaker, because MusicMaker appeared to be dying. WebMethods' key ratio is its market cap to annualized sales. In WebMethods in WebMadness I suggest that a reasonable price-sales ratio in this industry might be 7.

4. On February 2, 2001, OpenWave replaced Proxicom. Worldcom's price-sales ratio is about 1.6. OpenWave's key ratio is its price-sales ratio divided by 1.6.

5. MicroStrategy sells a "data mining" product to Fortune 500 companies. Let's assume that the price is $50 million per company. What percent of the Fortune 500 need to pay this price in order to justify MicroStrategy's market cap? We assume that MicroStrategy's production costs are zero, since what it is selling is smoke and mirrors. As of 12-27-99, MicroStrategy "only" needed about 25 percent of the Fortune 500 to pay it $50 million in order to equal its market cap.

6. As of February 12, Y2K, the total market cap of the five companies was 112704, or $112.7 billion. Coincidentally, on Feb. 29 when we substituted Engage for Koop, the market value also came to about $112 billion. I feel quite confident that this is at least 100 times their true value.