25x revenue is a company valuation? Huh?

I was reading the article by Mark Evans that laid out how Flickr could have an independent valuation of $4 billion dollars.  He used a multiplier defined by Henry Blodgett in determining the value of Facebook: 25 times a company’s annual revenue is their valuation.

Wow.

I decided to apply this to a few other companies that have been in the news lately: Yahoo!, Microsoft, and Google.

Based on 2007 10K filings for each company:

Company Annual Revenue Valuation Market Cap (as of 5/8/2008)
Yahoo! $6.425B (2006) $160.625B $36.08B
Microsoft $51.122B (2007) $1.278T $272.60B
Google $16.593B (2007) $414.825B $182.92B

This gives between 2.5 and 4.5 of over-estimate in independent publicly traded companies.  I’m not a finance guy, but it seems like that 25 times number is quite a stretch, to me.

GOOG: A daytrader’s delight

So, I'm having an IM conversation with a buddy at work, and we inevitibly get to talking about the day's stock market activity. Quote of the day goes to Stephen, regarding GOOG stock:

that stock is all over the place. It looks more like a heartbeat than a fund-owned security.

at any given point today, based on where you invested, you could have lost $1, made $2.50, lost $2, lost $4, lost $1, made $4, lost $2, or made $1

Oh, to be a day trader.

Will Google’s Pagerank collapse itself?

So I'm cruising around town the other day, doing what I often do while I should be paying attention to the road — thinking.

Google uses something they call Pagerank to rate website popularity based on how websites link to other websites.

PageRank relies on the uniquely democratic nature of the web by using its vast link structure as an indicator of an individual page's value. In essence, Google interprets a link from page A to page B as a vote, by page A, for page B. But, Google looks at more than the sheer volume of votes, or links a page receives; it also analyzes the page that casts the vote. Votes cast by pages that are themselves “important” weigh more heavily and help to make other pages “important.”

Important, high-quality sites receive a higher PageRank, which Google remembers each time it conducts a search. Of course, important pages mean nothing to you if they don't match your query. So, Google combines PageRank with sophisticated text-matching techniques to find pages that are both important and relevant to your search. Google goes far beyond the number of times a term appears on a page and examines all aspects of the page's content (and the content of the pages linking to it) to determine if it's a good match for your query.

But with Google's increasing success, I often find myself linking to a Google search for a subject I'm writing about rather than a particular website with information about the subject. (i.e., if I'm writing about salt-water aquariums, I can link it to a Google search of salt-water aquariums rather than a particular site about salt-water aquariums )

This isn't a big deal until Google's success reaches a critical mass and more websites start linking to Google searches of the subject rather than a direct link. Then the Pagerank system will not be able to use the direct links to judge the usefulness of the sites in question.

I'm sure the great folks over at Google have thought about this and have alternate methods in place, but it's something that makes me think.