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The math’s not pretty on digital advertising’s future revenues? (2017)

172 points by taigeair 8y ago

chillacy 8y ago
> But these stocks are based on a reality that no longer exists. The emperor has no clothes. Ok, buy deep OTM put options for tech stocks then? They say the market can stay irrational longer than you can remain solvent. I’d say the market wasn’t all that rational to begin with. At some level investing is a big game of chicken where you try to get out before everyone realizes how inflated it’s become. As Taleb says, don’t tell me what you think, show me your portfolio.
- whatshisface 8y ago
  "Buy options" and "don't put this in to your passive retirement fund" are two very different levels of gloom-and-dooming. The market might actually become rational over the next 50+ years; there is such a thing as true information that can't be used to make money in any reasonable term. Another example of true information that can't be used to make money is information that is already priced in. Since this author is not exactly the first tech doomsayer I would be surprised if the future where everyone goes back to highway billboards is not already contributing to the price.
  - whttheuuu 8y ago
    The difference between "buy options" and "don't put this in your passive retirement fund" is the same difference as "I'm confident in the advice im dispensing" and "I have no idea what I'm talking about".
    - palebluedot 8y ago
      The difference between "buy options" and "don't put this in your passive retirement fund" is the same difference as "I'm confident in the advice im dispensing" and "I have no idea what I'm talking about". No, it's not at all. Buying options is actively betting on both price and time targets, and carries a much different risk profile compared to simply avoiding a specific investment.
      - whatshisface 8y ago
        Buying a stock is a "rise eventually" bet, I wonder if it is even possible to buy a "fall eventually" bet. Probably not because nobody would be willing to bet that a company will be around forever!
        hedora 8y ago
        Holding cash is a “fall eventually” bet. It has negative payoff after inflation, which is worse than other low to zero risk options (like savings accounts and govt bonds). In one view, and with long return horizons, an index-based etf is a “will be around forever bet”, in that it bets there will be economic growth on average for as long as the dollar is worth anything. The main way it can go wrong is with hyper inflation. Maybe going long, with 100% govt bonds is a decent fall eventually bet, but again, that’s targeting a very specific scenario where all of the economy crashes for a long time, but bonds still pay out (better than real estate or other physical goods).
        monochromatic 8y ago
        Short selling. But be careful with margin calls.
        whatshisface 8y ago
        Shorting has a specific delivery date, which is different from holding stock because you can choose when to sell it.
        monochromatic 8y ago
        I don’t believe that’s right.
    - disishhsha 8y ago
      Option pricing has a time value component, and at a multi-year time horizon this component is prohibitively high. Eg. suppose I want to bet Oracle will go under in 20 years, how do I do that?
      - deleted 8y ago
        [deleted]
goatherders 8y ago
Thank you for posting this one. Saving for later.
- hn_throwaway_99 8y ago
  The article was originally posted in October 2017, so your "1 year later" is already passed.
  - goatherders 8y ago
    What's it to you? I was responding to a new thread for an article I hadn't seen before. My favorite internet trolls are the ones that use throwaway addresses.
tomrod 8y ago
This is an open secret among techonomists and others in the arcane space of digital campaign measurement.[0][1- preprint] Digital advertising has a lot of smoke and mirrors. There is _some_ incrementality, but it seems oversold. [0] https://academic.oup.com/qje/article-abstract/130/4/1941/1914592 https://academic.oup.com/qje/article-abstract/130/4/1941/191... [1] https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2498290_code1130222.pdf?abstractid=2367103&mirid=1 https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2498290_cod...
- everdev 8y ago
  And how much of the internet is powered by digital advertising? The web will look a lot different if that bubble bursts.
  - qha 8y ago
    Going back to what it was 20 years ago? I'm sold!
    - bryanrasmussen 8y ago
      If the web went back to what it was 20 years ago that would be economically catastrophic, I mean if it happened like nearly instantly, if it happened over a space of 10-15 years OK.
      - hedora 8y ago
        In the context of the quote, let’s ignore non-ad based stuff, like amazon’s shipping network, and online banking. In what way would resetting the ad based parts 20 years be catastrophic? Were RSS and semi-curated news portals like yahoo and google news that much worse for publishers? (I thought they were actually better, economically, than FB...)
        bryanrasmussen 8y ago
        the context of the quote was that the web went back to what it was 20 years ago, ignoring the non-ad based stuff is cherry picking after the fact.
irishcoffee 8y ago
2017
jiveturkey 8y ago
lead sentence: “Today, its market cap — the total value of the company ...” really? there’s a single person reading this that won’t know what market cap is? i stopped reading. edit: also, TFA is dated material and could use a 2017 tag. also important because its predictions have failed to come true.
- jiveturkey 8y ago
  ok i just read the article. it is indeed written at the 8th grade level implied by the opening, with naive understanding of google and disney’s business. nice waste of my time. can’t understand the downvotes but that’s HN i guess. have to spell everything out here
gaius 8y ago
So, here we are in 2017 Here we almost are in 2019. The authors premise seems sound, but it hasn’t happened (yet).
- shhehebehdh 8y ago
  Looking forward to seeing this posted in 2021 and 2023 with the hypothesized massive drop in google’s valuation having failed to materialize.
  - T2_t2 8y ago
    To be fair the P/E will start to move towards 12. That's just inevitable. If the P/E moves from the 39.37 I just Googled towards 12, the profit needs to triple to maintain share value. Heck, it was over 60 to start the year: https://ycharts.com/companies/GOOG/pe_ratio https://ycharts.com/companies/GOOG/pe_ratio, and that seems a little insane to me.
    - petra 8y ago
      It depends. Assuming that there's some special r&d, and hard to replicate in their moonshot division(IDK?), or at least the image of one, Some successful moonshots could do wonders to their P/E.
samspenc 8y ago
But... here's the revenue and profits for Google and Facebook since 2017 (when the article appears to have been written), including analyst forecasts for the next year (* are analyst forecasts). 2017 2018* 2019* Google revenue $110.86B $136.47B $162.64B Facebook revenue $40.65B $55.36B $68.87B Apple revenue $265.60B $277.91B $289.25B While Apple's growth rate seems to be slowing down (due to iPhone sales slowing), both Google and Facebook are apparently predicted to be growing well (by 20% - 30% growth each year.) Sources: Google: https://finance.yahoo.com/quote/goog/analysis/ https://finance.yahoo.com/quote/goog/analysis/ Facebook: https://finance.yahoo.com/quote/fb/analysis/ https://finance.yahoo.com/quote/fb/analysis/ Apple: https://finance.yahoo.com/quote/aapl/analysis/ https://finance.yahoo.com/quote/aapl/analysis/
- T2_t2 8y ago
  The article is weird in that Google has the single greatest advantage - YouTube. Ctrl + F youtube and ... nothing. TV ad revenue is going to start changing, but the value of video ads is massive. Google has not just YouTube, but the best video advertising platform for others to use. If 15% of the US$70B on TV ads moves to YouTube, Google's growth should be sustainable. Multiply that by not just by the USA but Europe, Japan and Asia, and Google's growth looks fine. If Google reaches the point they can buy the NBA TV rights for YouTube, heck, start small and buy the TV rights for a major Australian sporting league as a test run, or perhaps a single college conference like the ACC, and lets see how that article ages.
  - votepaunchy 8y ago
    The ACC Network is wholly owned by ESPN. The professional networks are certainly an opportunity when the current contracts expire.
  - ThrowawayR2 8y ago
    > If 15% of the US$70B on TV ads moves to YouTube, Google's growth should be sustainable What do you base that estimate off of? The last anyone heard, there were leaks saying that YouTube was barely break-even as late as 2015 and then the "Adpocalypse" occurred in 2017 that dropped ad spending on YouToube significantly. Articles corroborating both are easily found on Google.
millstone 8y ago
This should have 2017 in the title. In particular Facebook's P/E has dropped from 37 to 20.
- carlivar 8y ago
  It also says Facebook's market cap is $500 billion. It is now ~$383 billion. Although it lists Google market cap at $690 billion. It's currently $728 billion and that's after a bit of a haircut recently with the overall market.
deleted 8y ago
[deleted]
sologoub 8y ago
This article completely missed the forest for the trees - the battle for TV is not just a battle for content, it’s a battle for the delivery medium itself! Think about it - how was TV delivered to you before? There are over the air broadcast, satellite, cable/settop, and what’s been called OTT. Except, more and more settop boxes are Rokus, Android TV-based and even some Apple TVs (Verizon 5G was offering those in test markets). So now you have a convergence of what was OTT/cord-cutter audience with the settop box. And who owns these platforms? Hint, it’s not the cable company. So now the battle ground for those as dollars looks very different - why bother produce content when you can own the entire ecosystem where that content is delivered? Amazon doing an amazing job with this - their FireTVs include ability to target based on your purchases and search/other activity within Amazon. That’s insanely powerful for brands and where brand dollars will definitely be spent. Not all of the dollars, but enough to matter.
- Jarbooski 8y ago
  As you say, the delivery method changes and no one cares. At the end of the day, nothing matters but the content. Look at Disney muscling providers around.
- petra 8y ago
  This is true. The problem, for Google, is they lose market share in the platform market: https://i2.wp.com/www.cordcuttersnews.com/wp-content/uploads/2018/05/Streaming-Player-Report.jpg?w=500&ssl=1 https://i2.wp.com/www.cordcuttersnews.com/wp-content/uploads... And my guess is that Amazon will win this, because like you say, it's better. But also - Since Amazon controls all the buyer's journey, it can make more money per each ad. Which equals better content. And in any case, FireTv is a loss leader for Amazon. Hard to compete against those.
  - pbalau 8y ago
    Here is a question to ponder about: is Google loosing market share or is the market expanding?
    - 8y ago
o_nlogn_420 8y ago
It's important to bring up that in the last year AT&T bought Time Warner, Direct TV, and other media companies, as well as As Tech pioneer AppNexus to try and merge Digital, OTT, and linear advertising all together in an effort to make up ground on Google and Facebook
- o_nlogn_420 8y ago
  Ad Tech
- manigandham 8y ago
  They're already failing at that with nonsensical rebrands and rotating leadership. You can't compete with the giants by buying a bunch of companies and strapping their products together. That just leads to a dysfunctional mess. They need to build from scratch with a focused approach as seen with The Trade Desk, but their corporate politics won't let that happen.
- adventured 8y ago
  AT&T is about to be the next GE. The acquisitions are the desperate flailing before the spiral down (GE did the same thing, it's all financial engineering with minimum real sustainable strategy). They're spending $8 billion per year just on debt interest now with very little organic growth in their business. $170 billion in long-term debt with only $8 billion in cash. Negative $128 billion in net tangible assets. And a very rich dividend to maintain. Eerily similar to GE's doomed setup. ~80% of their income is going to the debt and the dividend, which is a foreshadowing of the debt vs investor value battle that is looming. When they're forced to slash that dividend, the stock tanks, the rest of the process unspools quickly. Once debt of that magnitude grows larger than their market cap - as a signal of inbound distress, it's pretty much a point of no return for mega cap companies. They'll cross that line with the next recession (or sooner) and will never fully recover thereafter, ending in bankruptcy or piecemeal liquidation. I'd bet on their debt interest costs nearly catching up to their net income in the next six or seven years.
jameslk 8y ago
Troll bait 2017 article that compares the P/E of growth stocks with heavy R&D budgets to blue chip stocks. The author and those reading would be better off spending time reading this instead: http://www.efficientfrontier.com/t4poi/Ch1.htm http://www.efficientfrontier.com/t4poi/Ch1.htm
manigandham 8y ago
Another nonsensical article about adtech. This is not how the industry works. Apple does not have a chance at buying Google because they have the same market cap. Google and Facebook have a massive advantage in scale and precision which is why 2 of the top 10 biggest companies on the planet are ad networks. The valuations come from the sheer profit they generate, not their assets, and how much Disney spends on content is utterly irrelevant. You cannot easily replicate what they do otherwise it would've already been done. Half of the world's population still isn't online so there's plenty of room for growth in the future too. Everyone loves to talk about waste but skip over how much worse it is with TV and print ads. What matters is getting a positive return. Even if you can't measure anything else, you can see what sales were like before and after doing any advertising, and that's as simple as it gets. Advertising is a key component of marketing, and marketing is how a company grows and creates customers, so unless you change human behavior advertising is not going away.
- troygoode 8y ago
  FWIW while I don't think it would actually happen, yes, Apple could "buy" Google. When companies merge the expectation is that the resulting combined entity will equal the two companies combined market caps. Take theoretical company (Company A) worth $100MM and with a single shareholder (Shareholder A) who owns 100% of the 10MM shares of stock. They "buy" Company B which is also worth $100MM and has a single shareholder (Shareholder B) who owns 100% of Company B's 10MM shares. Company A executes this by issuing 10MM _new_ shares in Company A that will now be owned by Shareholder B. Company A now has 20MM shares and is worth $200MM because it has added Company B's assets, income, etc. Of course in practice it frequently goes terribly wrong (ref: Microsoft & Nokia, Verizon & Yahoo, many others) and I don't think Google would actually have much incentive to go along with this. Just saying it COULD be done if both companies truly believed the outcome would be favorable.
- disishhsha 8y ago
  > Half of the world's population still isn't online so there's plenty of room for growth in the future too. The offline half doesn’t have that much money to spend, right? Making some assumptions and approximating, would it be wrong to say that potential gains from bringing new people online ≈ global GDP growth? Currently that’s in the low single digits.
mudil 8y ago
Regardless of the article's arguments regarding tech's p/e ratios, I believe that Disney stock is a screaming buy, esp since Disney is coming up with its Disney+ service next year. But that's just my opinion.
MarkMc 8y ago
Wow this article is so very wrong - Google and Facebook have enormous advantages over Disney because (a) they have other people producing valuable content for free; (b) they know much more about each viewer than Disney. Google's revenue today is six times as large as it was a decade ago. And I expect its revenue in a decade to be at least 3 times as large as it is today. The reason is that many of the causes of past growth will continue for the foreseeable future: 1. The people who are connected to the internet will continue to become richer - in particular booming poor countries like India and Indonesia 2. The amount of time people spend on the internet will continue to grow 3. The amount of advertising Google can show people per hour will continue to grow. For example, Google can show many more ads on YouTube and still be less saturated than the old network TV model. Another example: The Economist app currently shows untargeted ads copied from their print magazine - but in 10 years these ads will probably come from Google. 4. Google can continue to improve its algorithm for placing of ads. Google knows so much about me yet I'm amazed how stupidly untargeted its ads sometimes are. Eg. if my photo stream doesn't include pictures of cats, don't show me ads for cat food! 5. Google can continue to collect more personal data. Right now it doesn't know when I last purchased toothpaste, but it might in 10 years from now. 6. The number of people connected to the internet will continue to grow (although of course at a slower rate than in the past) [Disclaimer: I own shares in Google and Facebook]
- joering2 8y ago
  The moment you owe the stocks thats the moment your view will be biased. Anyways Google search is most likely at its peak because next evolution of internet is voice control. And take it from horse mouth - Google CEO on shareholders call said he is most concern about voice controlled search. Because you know, its hard to show people ads when they use voice to get search result.
  - deleted 8y ago
    [deleted]
  - burntwater 8y ago
    And we move nearly full circle back to radio-style ads.
tanilama 8y ago
Well, when people abandon TV they go to YouTube, and Google owns YouTube, end of story... Video hosting is, by surprise, a very technology driven business, not as simple as upload a file then waiting for the profit. And as regulations tightens up, Google's advantage is only going to grow.
icelancer 8y ago
This guy not knowing why Amazon's P/E ratio is intentionally over 200 sums up his "expertise" on the situation - he has absolutely none.
user5994461 8y ago
>>> Eight seven percent of Google’s revenue comes from advertising Is this eight or seven or eighty seven? First line and the author is already confusing.
chiefalchemist 8y ago
> "There is zero reason to think that a tech company can create content better than anyone else — which is the only way anyone knows of to capture any future ad growth. They have zero advantage over Disney." I was following but til this point. Unfortunately, it is false assumption, fatally false. I'm going to over-simplify a bit but...The tech companies know what you watched, how much you watched, at what point you stopped, what you shared (or didn't), etc. If Spotify can guess / predict what you might want to hear, the same can be done for other content. Furthermore, the traditional media companies spent a fair amount on marketing hoping to get the message out to the appropriate target markets. FB and Google already know who is where, when, why, etc. Correct me, but didn't Netflix use viewing data / analysis to understand which film's and even scenes "worked" and which did not in order to grow their own content.
- arthurofbabylon 8y ago
  I think you’re fundamentally misinterpreting the value of creativity here. While audience data is valuable for marketing existing shows, it currently has almost no value for creating new shows. Just take a look at YouTube creators. Some guy in Australia who ignores data and makes things with mud and plants produces content more popular than almost anything else. Sure, Google owns the platform, but they remain reliant on the creative, anti-data processes of others.
  - joshuamorton 8y ago
    >While audience data is valuable for marketing existing shows, it currently has almost no value for creating new shows. Netflix's success story entirely contradicts this. Netflix's whole strategy with their originals is to create lowish cost things that appeal to market segments that they know exist but currently don't have shows anywhere (one of their big bets here is international/non english audiences).
    - arthurofbabylon 8y ago
      Your point only highlights my own. The Netflix strategy is to try new things out, largely sans data, and then turn the dial up on things that perform well.
z3t4 8y ago
Web ads is already dead, but if you have users, you can still monetize, for example by product endorsement, up-selling additional services, etc. Companies will still pay for the top spots in the search result though, and Facebook will make it harder to block ads. But for normal web sites, like news sites, they have to focus on quality instead of quantity in order to make people pay. And also we badly need micro-payments for the web.
therealmarv 8y ago
This is a bubble which will not burst because we are speaking of Google. If (theoretical) Google will be valued by it's real profits and downgraded by ads profit the WHOLE online ad industry will go bankrupt. But this is really unlikely because ads pricing is not the same as stocks on an a stock exchange.
HillaryBriss 8y ago
> There is zero reason to think that a tech company can create content better than anyone else — which is the only way anyone knows of to capture any future ad growth. They have zero advantage over Disney. They are coming from a position of weakness — Disney already has significant TV ad revenue, and extensive experience in making content we love. totally agree. and, in November, we had this crazy agreement between Google and Disney for online digital ads: https://variety.com/2018/digital/news/disney-google-digital-advertising-deal-1203037372/ https://variety.com/2018/digital/news/disney-google-digital-... I gotta wonder what kind of terms Disney squeezed out of Google for this.
gpsx 8y ago
The article talks about people companies and factories, and I think it is calling a tech company a people company. Lawyers and engineers are not the same in the sense that lawyers have to spend hours of time to bill clients (in theory at least). With a software company, if all the engineers walk out, the company can still go on serving the same product (in theory at least). Once software is made you can make as many copies as you want essentially for free. And there is a huge barrier to entry for something like Google or Apple, or any large software product, so it is difficult to replace these companies. So I think they deserve to be in a different multiples category. But this isn't the only reason someone like Google can have such a large multiple. I think there is the possibility of transformation into a new market, not just dominance of its existing market. You could call Google an AI company instead of an advertising company. There might be some big economic potential for AI and that is what the large multiple can capture. The same applies for Amazon in that they could become a strong player in everything that is purchased, not just in online shopping. And they seem to have a real chance of moving in this direction. And, to underscore the fact that they are trying to do this, they are taking a very small profit right not to try to build their presence, and then they will start pulling profit later when they have a more dominant position.
partingshots 8y ago
The funny thing is that Disney is now using the Google Ad platform for 100% of it’s online advertising.
beezle 8y ago
A good way to get me to stop reading your article is to be sloppy or confused with basic terminology. Calling revenues earnings is an immediate stop, do not continue flag.
harry8 8y ago
Elon musk seems to have digital advertising figured with a spend with goog/facebrick/etc of precisely $0. Why is this so seldom mentioned when digital advertising is mentioned? He sells a crapload of stuff with fantastic advertising campaigns with no paid spots at all.
- simonsarris 8y ago
  By that metric, so does Trump. Twitter doesn't send them a bill because they make money for Twitter by existing, so maybe it's really Twitter that has it figured out. The big names work for Twitter for free! It's true that for certain kinds of people and circumstances you can sell your own brand. But generally people cannot be Musk or Trump (least of all want to take any risks) so they have to pay for eyeballs.
  - harry8 8y ago
    I'm avoiding politicians because sensible discussion points are obscured by emotion, to put it nicely. Rather than a politician. try "Wendy's" burger joint twiter feed and it is largely the same point. Advertising works a hell of a lot better when you're not paying for the slots. I can't see a meaningful discussion of digital without addressing it. Musk hires talent from "the onion" - we can assume it isn't to design rockets and cars, right? Flamethrowers, awesome, right. Can't make money selling them obviously. How much did that campaign cost him? Nothing in placement slots right but there it was in a better slot than can be bought from facebrick all over facebrick. In a better slot than can be bought from google in newspapers with google ads being ignored somewhere on the same page. Remember when google were hiring engineers like they meant it and had all that nonsense about secret codes and quizzes all around the web? Remember when they hired 17 year olds in a fanfare of publicity? Remember when they placed an ad-sense ad saying they were hiring? Well that last never happened as far as I'm aware and the cost to google would have been next to nothing, so maybe it wasn't worth even that. They hired a lot of direct marketers to ring us and tell us we should apply though, right? Pick your successful ad campaign. It doesn't involve paying google, or facebrick, or does it? Do go ahead and list any examples that have escaped my notice. I can't think of a business that got on ad-sense or facebrick early and took a huge market share out of their competition as a result, can you? Do you even have to think to come up with a list for TV early adopters? I can't see how digital advertising discussions can be fruitful without addressing these things.
nicodjimenez 8y ago
In media you roughly have 3 segments: 1) High end (HBO, Disney, ...) 2) Medium end (TV, Netlix, ...) 3) Low end (Youtube, Facebook, Instagram) The supply of (1) and (2) are limited. There's only so many shows that can be produced at the quality of Sopranos, and only so many sports people are willing to sit though commercials to watch (in the US it's NFL, NBA, MLB, NHL, UFC). The supply of (3) (mostly user generated content) is nearly infinite because the curation is low touch and automated with software. Ultimately the big constraint for media is the amount of time people are willing to spend watching either high end content with no ads, or low end content with ads. Time is precious. In the long term there will probably be a backlash against tech addiction and people will spend less time on low end user generated content. But even that is hard to predict.

172 points by taigeair 8y ago

> But these stocks are based on a reality that no longer exists. The emperor has no clothes. Ok, buy deep OTM put options for tech stocks then? They say the market can stay irrational longer than you can remain solvent. I’d say the market wasn’t all that rational to begin with. At some level investing is a big game of chicken where you try to get out before everyone realizes how inflated it’s become. As Taleb says, don’t tell me what you think, show me your portfolio.

whatshisface 8y ago
"Buy options" and "don't put this in to your passive retirement fund" are two very different levels of gloom-and-dooming. The market might actually become rational over the next 50+ years; there is such a thing as true information that can't be used to make money in any reasonable term. Another example of true information that can't be used to make money is information that is already priced in. Since this author is not exactly the first tech doomsayer I would be surprised if the future where everyone goes back to highway billboards is not already contributing to the price.
- whttheuuu 8y ago
  The difference between "buy options" and "don't put this in your passive retirement fund" is the same difference as "I'm confident in the advice im dispensing" and "I have no idea what I'm talking about".
  - palebluedot 8y ago
    The difference between "buy options" and "don't put this in your passive retirement fund" is the same difference as "I'm confident in the advice im dispensing" and "I have no idea what I'm talking about". No, it's not at all. Buying options is actively betting on both price and time targets, and carries a much different risk profile compared to simply avoiding a specific investment.
    - whatshisface 8y ago
      Buying a stock is a "rise eventually" bet, I wonder if it is even possible to buy a "fall eventually" bet. Probably not because nobody would be willing to bet that a company will be around forever!
      - hedora 8y ago
        Holding cash is a “fall eventually” bet. It has negative payoff after inflation, which is worse than other low to zero risk options (like savings accounts and govt bonds). In one view, and with long return horizons, an index-based etf is a “will be around forever bet”, in that it bets there will be economic growth on average for as long as the dollar is worth anything. The main way it can go wrong is with hyper inflation. Maybe going long, with 100% govt bonds is a decent fall eventually bet, but again, that’s targeting a very specific scenario where all of the economy crashes for a long time, but bonds still pay out (better than real estate or other physical goods).
      - monochromatic 8y ago
        Short selling. But be careful with margin calls.
        whatshisface 8y ago
        Shorting has a specific delivery date, which is different from holding stock because you can choose when to sell it.
        monochromatic 8y ago
        I don’t believe that’s right.
  - disishhsha 8y ago
    Option pricing has a time value component, and at a multi-year time horizon this component is prohibitively high. Eg. suppose I want to bet Oracle will go under in 20 years, how do I do that?
    - deleted 8y ago
      [deleted]

goatherders 8y ago

Thank you for posting this one. Saving for later.

hn_throwaway_99 8y ago
The article was originally posted in October 2017, so your "1 year later" is already passed.
- goatherders 8y ago
  What's it to you? I was responding to a new thread for an article I hadn't seen before. My favorite internet trolls are the ones that use throwaway addresses.

tomrod 8y ago

This is an open secret among techonomists and others in the arcane space of digital campaign measurement.[0][1- preprint] Digital advertising has a lot of smoke and mirrors. There is _some_ incrementality, but it seems oversold. [0] https://academic.oup.com/qje/article-abstract/130/4/1941/1914592 https://academic.oup.com/qje/article-abstract/130/4/1941/191... [1] https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2498290_code1130222.pdf?abstractid=2367103&mirid=1 https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2498290_cod...

everdev 8y ago
And how much of the internet is powered by digital advertising? The web will look a lot different if that bubble bursts.
- qha 8y ago
  Going back to what it was 20 years ago? I'm sold!
  - bryanrasmussen 8y ago
    If the web went back to what it was 20 years ago that would be economically catastrophic, I mean if it happened like nearly instantly, if it happened over a space of 10-15 years OK.
    - hedora 8y ago
      In the context of the quote, let’s ignore non-ad based stuff, like amazon’s shipping network, and online banking. In what way would resetting the ad based parts 20 years be catastrophic? Were RSS and semi-curated news portals like yahoo and google news that much worse for publishers? (I thought they were actually better, economically, than FB...)
      - bryanrasmussen 8y ago
        the context of the quote was that the web went back to what it was 20 years ago, ignoring the non-ad based stuff is cherry picking after the fact.

irishcoffee 8y ago

2017

jiveturkey 8y ago

lead sentence: “Today, its market cap — the total value of the company ...” really? there’s a single person reading this that won’t know what market cap is? i stopped reading. edit: also, TFA is dated material and could use a 2017 tag. also important because its predictions have failed to come true.

jiveturkey 8y ago
ok i just read the article. it is indeed written at the 8th grade level implied by the opening, with naive understanding of google and disney’s business. nice waste of my time. can’t understand the downvotes but that’s HN i guess. have to spell everything out here

gaius 8y ago

So, here we are in 2017 Here we almost are in 2019. The authors premise seems sound, but it hasn’t happened (yet).

shhehebehdh 8y ago
Looking forward to seeing this posted in 2021 and 2023 with the hypothesized massive drop in google’s valuation having failed to materialize.
- T2_t2 8y ago
  To be fair the P/E will start to move towards 12. That's just inevitable. If the P/E moves from the 39.37 I just Googled towards 12, the profit needs to triple to maintain share value. Heck, it was over 60 to start the year: https://ycharts.com/companies/GOOG/pe_ratio https://ycharts.com/companies/GOOG/pe_ratio, and that seems a little insane to me.
  - petra 8y ago
    It depends. Assuming that there's some special r&d, and hard to replicate in their moonshot division(IDK?), or at least the image of one, Some successful moonshots could do wonders to their P/E.

samspenc 8y ago

But... here's the revenue and profits for Google and Facebook since 2017 (when the article appears to have been written), including analyst forecasts for the next year (* are analyst forecasts). 2017 2018* 2019* Google revenue $110.86B $136.47B $162.64B Facebook revenue $40.65B $55.36B $68.87B Apple revenue $265.60B $277.91B $289.25B While Apple's growth rate seems to be slowing down (due to iPhone sales slowing), both Google and Facebook are apparently predicted to be growing well (by 20% - 30% growth each year.) Sources: Google: https://finance.yahoo.com/quote/goog/analysis/ https://finance.yahoo.com/quote/goog/analysis/ Facebook: https://finance.yahoo.com/quote/fb/analysis/ https://finance.yahoo.com/quote/fb/analysis/ Apple: https://finance.yahoo.com/quote/aapl/analysis/ https://finance.yahoo.com/quote/aapl/analysis/

T2_t2 8y ago
The article is weird in that Google has the single greatest advantage - YouTube. Ctrl + F youtube and ... nothing. TV ad revenue is going to start changing, but the value of video ads is massive. Google has not just YouTube, but the best video advertising platform for others to use. If 15% of the US$70B on TV ads moves to YouTube, Google's growth should be sustainable. Multiply that by not just by the USA but Europe, Japan and Asia, and Google's growth looks fine. If Google reaches the point they can buy the NBA TV rights for YouTube, heck, start small and buy the TV rights for a major Australian sporting league as a test run, or perhaps a single college conference like the ACC, and lets see how that article ages.
- votepaunchy 8y ago
  The ACC Network is wholly owned by ESPN. The professional networks are certainly an opportunity when the current contracts expire.
- ThrowawayR2 8y ago
  > If 15% of the US$70B on TV ads moves to YouTube, Google's growth should be sustainable What do you base that estimate off of? The last anyone heard, there were leaks saying that YouTube was barely break-even as late as 2015 and then the "Adpocalypse" occurred in 2017 that dropped ad spending on YouToube significantly. Articles corroborating both are easily found on Google.

millstone 8y ago

This should have 2017 in the title. In particular Facebook's P/E has dropped from 37 to 20.

carlivar 8y ago
It also says Facebook's market cap is $500 billion. It is now ~$383 billion. Although it lists Google market cap at $690 billion. It's currently $728 billion and that's after a bit of a haircut recently with the overall market.

deleted 8y ago

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sologoub 8y ago

This article completely missed the forest for the trees - the battle for TV is not just a battle for content, it’s a battle for the delivery medium itself! Think about it - how was TV delivered to you before? There are over the air broadcast, satellite, cable/settop, and what’s been called OTT. Except, more and more settop boxes are Rokus, Android TV-based and even some Apple TVs (Verizon 5G was offering those in test markets). So now you have a convergence of what was OTT/cord-cutter audience with the settop box. And who owns these platforms? Hint, it’s not the cable company. So now the battle ground for those as dollars looks very different - why bother produce content when you can own the entire ecosystem where that content is delivered? Amazon doing an amazing job with this - their FireTVs include ability to target based on your purchases and search/other activity within Amazon. That’s insanely powerful for brands and where brand dollars will definitely be spent. Not all of the dollars, but enough to matter.

Jarbooski 8y ago
As you say, the delivery method changes and no one cares. At the end of the day, nothing matters but the content. Look at Disney muscling providers around.
petra 8y ago
This is true. The problem, for Google, is they lose market share in the platform market: https://i2.wp.com/www.cordcuttersnews.com/wp-content/uploads/2018/05/Streaming-Player-Report.jpg?w=500&ssl=1 https://i2.wp.com/www.cordcuttersnews.com/wp-content/uploads... And my guess is that Amazon will win this, because like you say, it's better. But also - Since Amazon controls all the buyer's journey, it can make more money per each ad. Which equals better content. And in any case, FireTv is a loss leader for Amazon. Hard to compete against those.
- pbalau 8y ago
  Here is a question to ponder about: is Google loosing market share or is the market expanding?
  - 8y ago

o_nlogn_420 8y ago

It's important to bring up that in the last year AT&T bought Time Warner, Direct TV, and other media companies, as well as As Tech pioneer AppNexus to try and merge Digital, OTT, and linear advertising all together in an effort to make up ground on Google and Facebook

o_nlogn_420 8y ago
Ad Tech
manigandham 8y ago
They're already failing at that with nonsensical rebrands and rotating leadership. You can't compete with the giants by buying a bunch of companies and strapping their products together. That just leads to a dysfunctional mess. They need to build from scratch with a focused approach as seen with The Trade Desk, but their corporate politics won't let that happen.
adventured 8y ago
AT&T is about to be the next GE. The acquisitions are the desperate flailing before the spiral down (GE did the same thing, it's all financial engineering with minimum real sustainable strategy). They're spending $8 billion per year just on debt interest now with very little organic growth in their business. $170 billion in long-term debt with only $8 billion in cash. Negative $128 billion in net tangible assets. And a very rich dividend to maintain. Eerily similar to GE's doomed setup. ~80% of their income is going to the debt and the dividend, which is a foreshadowing of the debt vs investor value battle that is looming. When they're forced to slash that dividend, the stock tanks, the rest of the process unspools quickly. Once debt of that magnitude grows larger than their market cap - as a signal of inbound distress, it's pretty much a point of no return for mega cap companies. They'll cross that line with the next recession (or sooner) and will never fully recover thereafter, ending in bankruptcy or piecemeal liquidation. I'd bet on their debt interest costs nearly catching up to their net income in the next six or seven years.

jameslk 8y ago

Troll bait 2017 article that compares the P/E of growth stocks with heavy R&D budgets to blue chip stocks. The author and those reading would be better off spending time reading this instead: http://www.efficientfrontier.com/t4poi/Ch1.htm http://www.efficientfrontier.com/t4poi/Ch1.htm

manigandham 8y ago

Another nonsensical article about adtech. This is not how the industry works. Apple does not have a chance at buying Google because they have the same market cap. Google and Facebook have a massive advantage in scale and precision which is why 2 of the top 10 biggest companies on the planet are ad networks. The valuations come from the sheer profit they generate, not their assets, and how much Disney spends on content is utterly irrelevant. You cannot easily replicate what they do otherwise it would've already been done. Half of the world's population still isn't online so there's plenty of room for growth in the future too. Everyone loves to talk about waste but skip over how much worse it is with TV and print ads. What matters is getting a positive return. Even if you can't measure anything else, you can see what sales were like before and after doing any advertising, and that's as simple as it gets. Advertising is a key component of marketing, and marketing is how a company grows and creates customers, so unless you change human behavior advertising is not going away.

troygoode 8y ago
FWIW while I don't think it would actually happen, yes, Apple could "buy" Google. When companies merge the expectation is that the resulting combined entity will equal the two companies combined market caps. Take theoretical company (Company A) worth $100MM and with a single shareholder (Shareholder A) who owns 100% of the 10MM shares of stock. They "buy" Company B which is also worth $100MM and has a single shareholder (Shareholder B) who owns 100% of Company B's 10MM shares. Company A executes this by issuing 10MM _new_ shares in Company A that will now be owned by Shareholder B. Company A now has 20MM shares and is worth $200MM because it has added Company B's assets, income, etc. Of course in practice it frequently goes terribly wrong (ref: Microsoft & Nokia, Verizon & Yahoo, many others) and I don't think Google would actually have much incentive to go along with this. Just saying it COULD be done if both companies truly believed the outcome would be favorable.
disishhsha 8y ago
> Half of the world's population still isn't online so there's plenty of room for growth in the future too. The offline half doesn’t have that much money to spend, right? Making some assumptions and approximating, would it be wrong to say that potential gains from bringing new people online ≈ global GDP growth? Currently that’s in the low single digits.

mudil 8y ago

Regardless of the article's arguments regarding tech's p/e ratios, I believe that Disney stock is a screaming buy, esp since Disney is coming up with its Disney+ service next year. But that's just my opinion.

MarkMc 8y ago

Wow this article is so very wrong - Google and Facebook have enormous advantages over Disney because (a) they have other people producing valuable content for free; (b) they know much more about each viewer than Disney. Google's revenue today is six times as large as it was a decade ago. And I expect its revenue in a decade to be at least 3 times as large as it is today. The reason is that many of the causes of past growth will continue for the foreseeable future: 1. The people who are connected to the internet will continue to become richer - in particular booming poor countries like India and Indonesia 2. The amount of time people spend on the internet will continue to grow 3. The amount of advertising Google can show people per hour will continue to grow. For example, Google can show many more ads on YouTube and still be less saturated than the old network TV model. Another example: The Economist app currently shows untargeted ads copied from their print magazine - but in 10 years these ads will probably come from Google. 4. Google can continue to improve its algorithm for placing of ads. Google knows so much about me yet I'm amazed how stupidly untargeted its ads sometimes are. Eg. if my photo stream doesn't include pictures of cats, don't show me ads for cat food! 5. Google can continue to collect more personal data. Right now it doesn't know when I last purchased toothpaste, but it might in 10 years from now. 6. The number of people connected to the internet will continue to grow (although of course at a slower rate than in the past) [Disclaimer: I own shares in Google and Facebook]

joering2 8y ago
The moment you owe the stocks thats the moment your view will be biased. Anyways Google search is most likely at its peak because next evolution of internet is voice control. And take it from horse mouth - Google CEO on shareholders call said he is most concern about voice controlled search. Because you know, its hard to show people ads when they use voice to get search result.
- deleted 8y ago
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- burntwater 8y ago
  And we move nearly full circle back to radio-style ads.

tanilama 8y ago

Well, when people abandon TV they go to YouTube, and Google owns YouTube, end of story... Video hosting is, by surprise, a very technology driven business, not as simple as upload a file then waiting for the profit. And as regulations tightens up, Google's advantage is only going to grow.

icelancer 8y ago

This guy not knowing why Amazon's P/E ratio is intentionally over 200 sums up his "expertise" on the situation - he has absolutely none.

user5994461 8y ago

>>> Eight seven percent of Google’s revenue comes from advertising Is this eight or seven or eighty seven? First line and the author is already confusing.

chiefalchemist 8y ago

> "There is zero reason to think that a tech company can create content better than anyone else — which is the only way anyone knows of to capture any future ad growth. They have zero advantage over Disney." I was following but til this point. Unfortunately, it is false assumption, fatally false. I'm going to over-simplify a bit but...The tech companies know what you watched, how much you watched, at what point you stopped, what you shared (or didn't), etc. If Spotify can guess / predict what you might want to hear, the same can be done for other content. Furthermore, the traditional media companies spent a fair amount on marketing hoping to get the message out to the appropriate target markets. FB and Google already know who is where, when, why, etc. Correct me, but didn't Netflix use viewing data / analysis to understand which film's and even scenes "worked" and which did not in order to grow their own content.

arthurofbabylon 8y ago
I think you’re fundamentally misinterpreting the value of creativity here. While audience data is valuable for marketing existing shows, it currently has almost no value for creating new shows. Just take a look at YouTube creators. Some guy in Australia who ignores data and makes things with mud and plants produces content more popular than almost anything else. Sure, Google owns the platform, but they remain reliant on the creative, anti-data processes of others.
- joshuamorton 8y ago
  >While audience data is valuable for marketing existing shows, it currently has almost no value for creating new shows. Netflix's success story entirely contradicts this. Netflix's whole strategy with their originals is to create lowish cost things that appeal to market segments that they know exist but currently don't have shows anywhere (one of their big bets here is international/non english audiences).
  - arthurofbabylon 8y ago
    Your point only highlights my own. The Netflix strategy is to try new things out, largely sans data, and then turn the dial up on things that perform well.

z3t4 8y ago

Web ads is already dead, but if you have users, you can still monetize, for example by product endorsement, up-selling additional services, etc. Companies will still pay for the top spots in the search result though, and Facebook will make it harder to block ads. But for normal web sites, like news sites, they have to focus on quality instead of quantity in order to make people pay. And also we badly need micro-payments for the web.

therealmarv 8y ago

This is a bubble which will not burst because we are speaking of Google. If (theoretical) Google will be valued by it's real profits and downgraded by ads profit the WHOLE online ad industry will go bankrupt. But this is really unlikely because ads pricing is not the same as stocks on an a stock exchange.

HillaryBriss 8y ago

> There is zero reason to think that a tech company can create content better than anyone else — which is the only way anyone knows of to capture any future ad growth. They have zero advantage over Disney. They are coming from a position of weakness — Disney already has significant TV ad revenue, and extensive experience in making content we love. totally agree. and, in November, we had this crazy agreement between Google and Disney for online digital ads: https://variety.com/2018/digital/news/disney-google-digital-advertising-deal-1203037372/ https://variety.com/2018/digital/news/disney-google-digital-... I gotta wonder what kind of terms Disney squeezed out of Google for this.

gpsx 8y ago

The article talks about people companies and factories, and I think it is calling a tech company a people company. Lawyers and engineers are not the same in the sense that lawyers have to spend hours of time to bill clients (in theory at least). With a software company, if all the engineers walk out, the company can still go on serving the same product (in theory at least). Once software is made you can make as many copies as you want essentially for free. And there is a huge barrier to entry for something like Google or Apple, or any large software product, so it is difficult to replace these companies. So I think they deserve to be in a different multiples category. But this isn't the only reason someone like Google can have such a large multiple. I think there is the possibility of transformation into a new market, not just dominance of its existing market. You could call Google an AI company instead of an advertising company. There might be some big economic potential for AI and that is what the large multiple can capture. The same applies for Amazon in that they could become a strong player in everything that is purchased, not just in online shopping. And they seem to have a real chance of moving in this direction. And, to underscore the fact that they are trying to do this, they are taking a very small profit right not to try to build their presence, and then they will start pulling profit later when they have a more dominant position.

partingshots 8y ago

The funny thing is that Disney is now using the Google Ad platform for 100% of it’s online advertising.

beezle 8y ago

A good way to get me to stop reading your article is to be sloppy or confused with basic terminology. Calling revenues earnings is an immediate stop, do not continue flag.

harry8 8y ago

Elon musk seems to have digital advertising figured with a spend with goog/facebrick/etc of precisely $0. Why is this so seldom mentioned when digital advertising is mentioned? He sells a crapload of stuff with fantastic advertising campaigns with no paid spots at all.

simonsarris 8y ago
By that metric, so does Trump. Twitter doesn't send them a bill because they make money for Twitter by existing, so maybe it's really Twitter that has it figured out. The big names work for Twitter for free! It's true that for certain kinds of people and circumstances you can sell your own brand. But generally people cannot be Musk or Trump (least of all want to take any risks) so they have to pay for eyeballs.
- harry8 8y ago
  I'm avoiding politicians because sensible discussion points are obscured by emotion, to put it nicely. Rather than a politician. try "Wendy's" burger joint twiter feed and it is largely the same point. Advertising works a hell of a lot better when you're not paying for the slots. I can't see a meaningful discussion of digital without addressing it. Musk hires talent from "the onion" - we can assume it isn't to design rockets and cars, right? Flamethrowers, awesome, right. Can't make money selling them obviously. How much did that campaign cost him? Nothing in placement slots right but there it was in a better slot than can be bought from facebrick all over facebrick. In a better slot than can be bought from google in newspapers with google ads being ignored somewhere on the same page. Remember when google were hiring engineers like they meant it and had all that nonsense about secret codes and quizzes all around the web? Remember when they hired 17 year olds in a fanfare of publicity? Remember when they placed an ad-sense ad saying they were hiring? Well that last never happened as far as I'm aware and the cost to google would have been next to nothing, so maybe it wasn't worth even that. They hired a lot of direct marketers to ring us and tell us we should apply though, right? Pick your successful ad campaign. It doesn't involve paying google, or facebrick, or does it? Do go ahead and list any examples that have escaped my notice. I can't think of a business that got on ad-sense or facebrick early and took a huge market share out of their competition as a result, can you? Do you even have to think to come up with a list for TV early adopters? I can't see how digital advertising discussions can be fruitful without addressing these things.

nicodjimenez 8y ago

In media you roughly have 3 segments: 1) High end (HBO, Disney, ...) 2) Medium end (TV, Netlix, ...) 3) Low end (Youtube, Facebook, Instagram) The supply of (1) and (2) are limited. There's only so many shows that can be produced at the quality of Sopranos, and only so many sports people are willing to sit though commercials to watch (in the US it's NFL, NBA, MLB, NHL, UFC). The supply of (3) (mostly user generated content) is nearly infinite because the curation is low touch and automated with software. Ultimately the big constraint for media is the amount of time people are willing to spend watching either high end content with no ads, or low end content with ads. Time is precious. In the long term there will probably be a backlash against tech addiction and people will spend less time on low end user generated content. But even that is hard to predict.