I’ve always wondered where Wall Street analysts learned their maths. Know I know. It’s at the same school of thinking that allows Wells Fargo to use any old figures it likes. How do I know this? Check Henry Blodget’s discussion about Mary Meeker’s calculations of YouTube projected ad revenues.
A first glance indicates what looks like an impressive number. As Blodget points out, Ms Meeker made a fundamental error in her first set of calculations. Having corrected that error, her numbers looked daft. What do you do then? Change the assumptions of course. According to 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.
Now she has a new set of numbers. Believe them if you will. My take? You’d get just as good a set of figures by asking the Oracle to read a chicken’s entrails.
This story gets curiouser. Last week, CNet reported that YouTube would be testing unobtrusive inline ads from Wednesday of this week. On Thursday, I clicked on the link which produced a page error. This morning I see the video but no ads. Quite a few others made the same observation. The video has been watched more than 973,000 times so presumably a fair few people are curious. Or Cnet got the link wrong. Or YouTube pulled the ad. Or they’re subliminal or…???
Having said that, I remember when my first care home client came looking for finance. The numbers were ridiculously high and appeared unachievable to me. They were unsalable to any reasonably level headed banker. We downgraded them 30%, secured the finance and then delighted the bank by exceeding estimates. Rinse and repeat a few times and you have a millionaire. And so it was.
Historical note: Mary Meeker was the analyst who thought that internet startups could be monetized based on the number of ‘eyeballs’ a company could muster. A lot of investors believed her. Henry Blodget was the sell side analyst who pumped clients by day and slagged them off by night. A lot of investors believed Blodget’s daytime prognostications but were far from pleased by his night time revelations. Such is the world of high finance on Wall Street. Or as they say in Yorkshire: “They make a rum pair.”
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