4 ms·

This confuses me. I believe Zynga has earnings, because in the comments of the OP Fred Wilson estimates their P/E at 13x ("Zynga trades at something like 13x p

This confuses me. I believe Zynga has earnings, because in the comments of the OP Fred Wilson estimates their P/E at 13x ("Zynga trades at something like 13x pre-tax cash flow when you back out the $1.5bn of cash they have.") And I know Pandora has earnings, because I pay them $36/year myself.

cletus 14y ago
Revenue != earnings. Earnings = revenue - expenses It's super-important to remember the distinction.
- Estragon 14y ago
  Thanks, I understand.
moocow01 14y ago
P/Es are a little confusing... earnings by that metric really means net income or earnings per share. In other words their liabilities and costs figure into "earnings". Fred Wilson is using some wonky math there. Using projected earnings their P/E would be easily be calculated at 100+ and possibly much more. They would really have to do something out of this world to have a P/E in the teens. http://www.google.com/finance?q=NASDAQ:ZNGA&fstype=ii http://www.google.com/finance?q=NASDAQ:ZNGA&fstype=ii
- fredwilson 14y ago
  here's the math. it is not wonky. market cap = ~$6bn, cash = $1.5bn, enterprise value = ~$4.5bn, pre-tax earnings/EBTIDA in Q1 = $87mm, annualized = $358mm, enterprise value/annualized ebitda = ~13
rhplus 14y ago
Forbes ran an article recently describing how some social media companies may be deferring revenues of digital purchases by classifying them as "durable goods", which could be seen as a way to make themselves more attractive as an ongoing investment. The Forbes article is quite skeptical. Worth a read: http://www.forbes.com/forbes/2012/0507/features-social-media-zyga-facebook-groupon-phony-accounting_print.html http://www.forbes.com/forbes/2012/0507/features-social-media... Your $36/year is revenue, not earnings [1]. Unless I'm misreading the numbers, both P[2] and ZNGA[3] still have yet to report a profit and establish actual ratios for P/E. [1] http://en.wikipedia.org/wiki/Earnings http://en.wikipedia.org/wiki/Earnings [2] http://finance.yahoo.com/q/ks?s=P+Key+Statistics http://finance.yahoo.com/q/ks?s=P+Key+Statistics [3] http://finance.yahoo.com/q/ks?s=ZNGA+Key+Statistics http://finance.yahoo.com/q/ks?s=ZNGA+Key+Statistics
tatsuke95 14y ago
I read Fred Wilson's blog on occasion and he seems like a decent human being. But I get a chuckle out of the fact that he's the first to leap into the comments of post like this, discussing the bubble. He's a VC for crying out loud. He benefits from the bubble. Like I've said before: I'm a reasonably young man, and this is my first go-around having actual money as these various economic cycles occur. I watched the housing bubble closely. And the whole way down the realtor associations were screaming, "There is no bubble! This is the best time to buy!" I think it's something we all know, but it feels more "real" to me, because I witnessed it. The lesson is, don't listen to the opinions of people whose livelihoods depend on maintaining the run-up. Keep that in mind when you read these blogs, written by techies, with comment sections filled with VCs and and CEO/CFO/CTO's of 1 employee companies waiting for their funding.
- fredwilson 14y ago
  i don't benefit from the bubble. it drives up the cost we have to pay to invest in companies. i pray for the day the markets tumble.
  - wiredd 14y ago
    True, but the other side of the coin is that investments can exit at much higher value in a bubble environment.
  - tatsuke95 14y ago
    It's not the price that matters, it's the activity level. House-flippers don't complain about the price of the house; returns are relative. You can't honestly tell me that times like this aren't better than, say, 2003? Now, I don't mean to imply that you, personally, have some sinister intentions to keep the bubble going. But in general, VCs have to speak highly of the industry. Otherwise, how do they explain any investment? If I'm wrong, and I could be, I'd love to see some examples of tech VCs who are actively calling a bubble. I'll bet there aren't many, and that's no coincidence.
    - fredwilson 14y ago

cletus 14y ago

Revenue != earnings. Earnings = revenue - expenses It's super-important to remember the distinction.

Estragon 14y ago
Thanks, I understand.

moocow01 14y ago

P/Es are a little confusing... earnings by that metric really means net income or earnings per share. In other words their liabilities and costs figure into "earnings". Fred Wilson is using some wonky math there. Using projected earnings their P/E would be easily be calculated at 100+ and possibly much more. They would really have to do something out of this world to have a P/E in the teens. http://www.google.com/finance?q=NASDAQ:ZNGA&fstype=ii http://www.google.com/finance?q=NASDAQ:ZNGA&fstype=ii

fredwilson 14y ago
here's the math. it is not wonky. market cap = ~$6bn, cash = $1.5bn, enterprise value = ~$4.5bn, pre-tax earnings/EBTIDA in Q1 = $87mm, annualized = $358mm, enterprise value/annualized ebitda = ~13

rhplus 14y ago

Forbes ran an article recently describing how some social media companies may be deferring revenues of digital purchases by classifying them as "durable goods", which could be seen as a way to make themselves more attractive as an ongoing investment. The Forbes article is quite skeptical. Worth a read: http://www.forbes.com/forbes/2012/0507/features-social-media-zyga-facebook-groupon-phony-accounting_print.html http://www.forbes.com/forbes/2012/0507/features-social-media... Your $36/year is revenue, not earnings [1]. Unless I'm misreading the numbers, both P[2] and ZNGA[3] still have yet to report a profit and establish actual ratios for P/E. [1] http://en.wikipedia.org/wiki/Earnings http://en.wikipedia.org/wiki/Earnings [2] http://finance.yahoo.com/q/ks?s=P+Key+Statistics http://finance.yahoo.com/q/ks?s=P+Key+Statistics [3] http://finance.yahoo.com/q/ks?s=ZNGA+Key+Statistics http://finance.yahoo.com/q/ks?s=ZNGA+Key+Statistics

tatsuke95 14y ago

I read Fred Wilson's blog on occasion and he seems like a decent human being. But I get a chuckle out of the fact that he's the first to leap into the comments of post like this, discussing the bubble. He's a VC for crying out loud. He benefits from the bubble. Like I've said before: I'm a reasonably young man, and this is my first go-around having actual money as these various economic cycles occur. I watched the housing bubble closely. And the whole way down the realtor associations were screaming, "There is no bubble! This is the best time to buy!" I think it's something we all know, but it feels more "real" to me, because I witnessed it. The lesson is, don't listen to the opinions of people whose livelihoods depend on maintaining the run-up. Keep that in mind when you read these blogs, written by techies, with comment sections filled with VCs and and CEO/CFO/CTO's of 1 employee companies waiting for their funding.

fredwilson 14y ago
i don't benefit from the bubble. it drives up the cost we have to pay to invest in companies. i pray for the day the markets tumble.
- wiredd 14y ago
  True, but the other side of the coin is that investments can exit at much higher value in a bubble environment.
- tatsuke95 14y ago
  It's not the price that matters, it's the activity level. House-flippers don't complain about the price of the house; returns are relative. You can't honestly tell me that times like this aren't better than, say, 2003? Now, I don't mean to imply that you, personally, have some sinister intentions to keep the bubble going. But in general, VCs have to speak highly of the industry. Otherwise, how do they explain any investment? If I'm wrong, and I could be, I'd love to see some examples of tech VCs who are actively calling a bubble. I'll bet there aren't many, and that's no coincidence.
  - fredwilson 14y ago