September 16, 2006

Japanese MySpace, Mixi, Doubles on IPO Worth $1.9 Billion

posted by MR WAVETHEORY at 9/16/2006 03:52:00 AM
Mixi doubled on its IPO debut in Japan. From the chart it looks like it had a great day. Read more previous blog post on Mixi IPO. It is worth $1.9 billion. Bids stood at 3.15 million yen per share, more than double its initial public offering price of 1.55 million yen.

Charlene Li writes that Mixi is valued at $18.60 per user implying that MySpace's 100 million users is worth $1.8 billion. Using Charlene's metrics, it also means that Facebook is only worth $139.5 million - which is far lower than the $500 million valuation that it raised its recent round of funding at!

The FT writes that founder Kenji Kasahara is 30 years old, owns 64% of the company, and is now a billionaire. The first site Kenji started in 1997 was Find Job which was not a success. But, Mixi, founded just 2 years ago, had more than made up for it! It is interesting that he started Mixi to drive traffic to Find Job!

Below is the summary of Mixi from Wikipedia:

mixi, Inc. TSE:2121 is one of several SNS (social networking service) sites in Japan. The focus of mixi is "community entertainment", that is, meeting new people by way of common interests. Users can send and receive messages, write in a diary, read and comment on others' diaries, organize and join communities and invite their friends.

There are more than 4 million members and 490,000 communities. (May 2006)
  • A community is a place for people to share their opinions through an online forum and a way to express tastes and hobbies.
  • A footprint ashiato (足跡, ashiato?) is a function that allows a user to see who has visited their page.
  • mixi is an invitation-only service, meaning that one can only join via an invitation from a current member of the service. However, once invited, membership is free and open to anyone over 18.
  • The word mixi is a combination of mix and I, referring to the idea that the user, "I", "mixes" with other users through the service.
  • "Mixi Station", a client program that detects songs being played in ITunes and Windows Media Player and uploads them automatically to a communally accessible list in the "Music" section, was implemented late in June 2006. By July 2006, support for winamp was implemented via a winamp plugin, which was quickly made official by Mixi.
  • Batara Kesuma was the only developer at the start of the social networking site.
  • mixi heavily adopts the use of open source and several hundred MySQL servers.

Weekend Headlines

posted by MR WAVETHEORY at 9/16/2006 03:07:00 AM
1. Steve Cohen of SAC Capital is no longer a day trader. Apparently, he now wants to be like Warren Buffett. He looks kind of bald in the photo.
In years past, Mr. Cohen might have sold frantically as the market fell. He had achieved celebrity status in the hedge-fund world, overshadowing such influential managers as George Soros and Julian Robertson Jr., with a hair-trigger approach to trading that was extraordinarily profitable. When stocks appeared to be mispriced, Mr. Cohen would pounce, then he would bail out as soon as they ticked in the right direction. His success had inspired a generation of scrappy Wall Streeters -- some of them with no experience whatsoever handling other people's money -- to open their own hedge funds.

That quick-trading game is now over, says Mr. Cohen. With about 7,000 hedge funds competing for investment ideas, good stock investments are getting more scarce. "It's hard to find ideas that aren't picked over, and harder to get real returns and differentiate yourself," he says. "We're entering a new environment. The days of big returns are gone."

2. Forbes says the best time to buy IPOs is after the initial public offering.
Of the 427 stocks, 339 (79%) underperformed the S&P 500, and a similar number are now worth less than their first-day closing price. The usual pattern we have observed in new-issue results is clear here, namely, that busy years are bad years. In mania-driven 2000, underwriters took 238 technology stocks to market and raised $39 billion. These stocks have an average loss of 71% and a relative-to-market score of 34.

Interesting fact is that Goldman Sachs underwrote the most offerings (dollar wise) but Lehman Brother's IPOs had the best performance since 2000.

3. Traffic is rising fast. Akamai, VitalStream, and Limelight are benefiting big.
But Akamai's stock multiple -- it trades at 52 times expected 2006 earnings -- makes it a rich target. Small rivals Vital-Stream (VSTH) and Limelight are enjoying blistering growth; Vital-Stream's $6 million revenues in the second quarter were just 6% of Akamai's, but they rose 57%, and its customers include MySpace (NWS) and Walt Disney (DIS). Limelight co-founder and chief strategist Michael Gordon claims that by clustering hundreds of servers in a few locations, he is actually better positioned to deliver big video files. Not surprisingly, Akamai dismisses that as marketing hype. Still, Limelight has picked up such notable customers as and the new movie service from (AMZN). A bigger threat, though, could be looming from Akamai's own customers. Right now, Microsoft and Yahoo are both clients; Akamai says it isn't allowed to discuss Google Inc. (GOOG), which leads some analysts to believe it's one as well.
4. It's Hard to Search Video even with Blinkx.
A search on Blinkx for "CBS doubles ratings" turned up a clip of Fox News' analysis of the anchor's debut.

September 15, 2006

Real Networks Launches China Portal

posted by MR WAVETHEORY at 9/15/2006 08:44:00 PM
While everyone was talking about Real's acquisition of WiderThan this week, one piece of news that is worth is mentioning is Real's entry into China. Real (Nasdaq RNWK) launched last week. The site is promoting Real Player 10.6 which is now available in simplified Chinese.

Real is targeting three verticals - Games, Movies, and Music. The games channel is being powered by Real. The other two hcannels are outsourced. The movies channel is being powered by HBOL.NET. The music is run by For most American companies, I think partnering is the new way of entering China and building a China strategy. Real looks like it is serious about reasserting its leadership as an innovator in multimedia products.

September 14, 2006

Good News for VCs and Web 2.0 Companies: Viacom Looking for Small Acquisitions

posted by MR WAVETHEORY at 9/14/2006 10:17:00 PM
In a move that probably surprised some investors, Viacom Inc announced there probably won't be any big acquisitions on the horizon. Instead, it will take the venture route, investing in small, emerging businesses that could potentially complement its media properties.
Wariness of a big acquisition was underlined by the stock drop that followed Mr. Freston's ouster. Investors were put off when Mr. Redstone, on a Wall Street conference call, explained the firing by alluding to Mr. Freston's failure to acquire MySpace, the wildly popular social-networking Web site that News Corporation. purchased last year. The comments led many to believe Mr. Redstone wanted a big acquisition.

Messrs. Dauman and Dooley have taken pains to persuade Wall Street that they have no such plans. Instead, they have said, their investment focus will be similar to the approach taken by venture capitalists. That is, to invest in start-ups with new ideas or technologies that would bolster Viacom's core media operation -- before they take off.

In an interview, Mr. Dauman said he didn't see a "large transaction on the horizon" and would focus on investing in existing businesses. Any acquisitions would likely be small and in areas that complement existing operations in the areas of music, comedy, gaming and children's programming, he said. Viacom has recently bolstered its involvement in videogames with several purchases. But Mr. Dauman rejected the suggestion that Viacom might acquire a major video game maker such as Electronic Arts Inc.

It sounds like good news for Web 2.0 companies and for VCs investing in early stage companies.

Average Comp at VC Firms: $770,000

posted by MR WAVETHEORY at 9/14/2006 12:41:00 AM
The WSJ reports that on average employees at venture capital firms made $770,000. Partners on average earned $1.5 million.
Pay for venture capitalists is up 35% this year, with senior partners at venture firms earning nearly $1.5 million a year and managing general partners raking in almost $2 million. The average employee -- comprising lower-level analysts, associates and even office managers as well as the top earners -- is expected to haul in $777,000 this year in salary, bonus for 2005 and investment profits, according to a new study from Holt Private Equity Consultants and Dow Jones Private Equity Analyst, a trade publication. (Dow Jones Private Equity Analyst is owned by Dow Jones & Co., publisher of The Wall Street Journal.)
On how they do it...
"The hidden secret in venture capital is, as you raise larger funds ... and you keep the core team relatively the same, the compensation [per partner] goes up," says Woodside Fund's Mr. Occhipinti. "If you're raising funds every three years, then you're getting fees on top of fees," all of which can enrich the fund's partners. Management fees also pay for rent, travel and other overhead expenses. Mr. Occhipinti says his firm has kept its funds small lately in order to try to align its partners' interests with those of investors. A recent Woodside fund raised in 2003 was just $150 million.

September 13, 2006

Mobile Consolidation Game Has Begun with WiderThan and Jamba Deals

posted by MR WAVETHEORY at 9/13/2006 06:35:00 PM
RealNetwork buys WiderThan Co Ltd for $350 million. It seems like a Real steal.
WiderThan Co Ltd had $93 million of cash. So, the enterprise value of the company was closer to $257 million. WiderThan generated $14.2 million of EBITDA in the first half and we can assume it will do even better in the second half since that is when. Just being conservative, let's assume EBITDA for full year 2006 of $28.4 million, and you get a EV/EBITDA ratio of 9 times. Real (Nasdaq RNWK) paid 9x EBITDA for a global mobile distribution business! Nice!

News Corp buys 51% of Jamba for $187.5 million from Verisign Inc.
EBITDA at Jamba? It's anyone's guess. The deal values Jamba at $367 million. If price is indicative of value, then Verisign Inc didn't add much value to Jamba since its acquisition of Jamba two years ago for $274 million.

Which deal was better?
I think strategically Verisign needed to do a deal more than Real Networks needed to do a deal. Verisign's Jamba business wasn't getting crushed because content licensing fees were reducing its gross margin into non-existence. With News Corporation on board, Jamba gets content and escapes the death grip of the spiral costs of content licensing fees. It also introduces the possibility of captive distribution through News Corp's print and online publications.

Real Networks on the other hand got a steal with WiderThan. Real's biggest problem has been EBITDA and generated profits. Now, Real can:
  • distribute online games to cell phone users
  • show profits to shareholders
  • have direct access to mobile carriers - key to a mobile platform/story that is credible
I think the carrier distribution alone is worth the cost of the deal. I give the thumbs up to Real!

Goldman Sachs Hedge Fund Blows Up - Down 10% in August

posted by MR WAVETHEORY at 9/13/2006 02:38:00 AM

A few months ago, the Economist wrote a glowing article about Goldman Sachs, ironically entitled Goldman Sachs, On Top of the World, which also hinted that the extreme profitability of its hedge fund/proprietary trading business also posed extreme risks. Goldman Sachs is on top no more.

It seems like the Economist was prescient in calling for a blowup at Goldman Sachs Group, Inc. The WSJ writes that
Goldman's Global Alpha fund, managing $10 billion, lost 10% of its value in August. To put that into perspective, the average hedge fund is expected to generate 10-20% returns per year. It looks like there won't be fat bonuses this year for the hedge fund guys - and perhaps even some layoffs!

What is interesting is that Goldman did very poorly in August when hedge funds as a whole did well:

"Unfortunately, many of our strategies underperformed in August, in particular those strategies to which we have allocated most of our risk," the preliminary draft of a letter to investors says. "There was no particular strategy of outsized magnitude that alone drove poor performance." The letter's estimates
were calculated on estimates as of Sept. 7.

By contrast, last month was generally positive for the hedge-fund industry as a whole (though the year has been lackluster for funds like these). When the Federal Reserve paused in early
August after 17 consecutive interest-rate rises, both the bond market and the stock market rallied in relief. For example, the Hedge Fund Research composite index for August was up 1.14%.

Perhaps Goldman was trading/taking bets against its customers? It appears so. Bonds rallied in August because of the pause in rate hikes. How did Goldman lose so much money? Goldman Sachs took the wrong bet. Goldman Sachs was short bonds.

Goldman was hurt by negative bets on both Japanese Government bonds and 10-year U.S. treasuries at a time when both rallied, according to the letter. The Alpha fund also lost money in other global bond markets by betting price would fall
when in fact that rose. The Alpha fund also bet that the New Zealand dollar would fall against the U.S. dollar, but instead it rose by 6%.

Goldman Sachs's blowup is a perfect example of long tail risk. It is easy to get lulled into thinking that generating small, smooth incremental returns is easy - until the big one hits.

The fund has rarely turned in monthly performance as bad as the recent numbers. One came in October 1998, when the fund dropped 10.5% on a net basis.

By the way, Goldman Sachs hasn't reversed its position due to the blowup. It intends to stay the course with its short bond position.

Global Alpha told investors it doesn't intend to change course. "Our overall view on U.S. Treasuries was and continues to be negative given poor long-term value and a less favorable macroeconomic outlook," the letter says. "We still have a negative overall view" on Japanese debt, and in general the fund says it considers "global bonds to be expensive."

If you're a hedge fund managers, keep buying bonds and keep squeezing the shorts! It is starting to sound like another Long Term Capital Management.

Link: Goldman Sachs Conference Call Transcript
Related Link: Hedge Funds Miss Their Target

September 12, 2006

Blog Your Way to Haut Couture

posted by MR WAVETHEORY at 9/12/2006 05:54:00 PM
Bloggers are becoming celebrities and getting invited to New York's fashion events. The WSJ says PR agencies are now targeting specific blogs for coverage of runway events.
Public relations firm LaForce + Stevens, which organized shows for clients like Nanette Lepore and Baby Phat, drew up ad hoc guidelines for this week's invitees. Rule No. 1: Bloggers who post photos of themselves don't make the cut. "Self-promotion is a bad sign," says principal James LaForce.
Fashion companies really care about the opinions of bloggers.
Some fashion companies are concerned about what bloggers are likely to say about their shows. One blogger who has gained entrée into the tents this year is Mario Lavandeira, founder of the gleefully catty celebrity-watching site Mr. Lavandeira's blog recently posted a photo of Chanel designer Karl Lagerfeld in an all-white ensemble, with the caption "Unkle Karl and the case of the Male menopause." A spokeswoman for Chanel had no comment.
It's for good reason. Some blogs are attracting audiences that are comparable to offline rags. Example:

According to BlogAds, an agency which sells ads on, the site is viewed, on average, 40 million times per month -- a figure that's hard to ignore. By comparison, an established site such as (owned by CondéNet, a joint venture of Condé Nast and Fairchild Publications), gets viewed 87 million times per month.

Bid on Warren Buffett's Lincoln Town Car on eBay

posted by MR WAVETHEORY at 9/12/2006 05:43:00 PM
If you are a Buffettologist, then you may want to bid on Warren Buffett's Lincoln car at eBay Inc.. Proceeds will go to Girls Inc. The specs are: 2001 Lincoln with 13,673 miles on it. He doesn't drive very much for a 5 year old car.

Apple Movie Store: Does It Make Sense to Buy Movies Online?

posted by MR WAVETHEORY at 9/12/2006 05:29:00 PM
With today's announcement that Apple Computer Inc will be offering downloadable movies through iTunes, it still amazes me that companies like Apple are charging so much for downloading movies online.

The iTunes Music Store, however, will initially carry movies only from the studios of The Walt Disney Co., where Apple CEO Steve Jobs is a board member. By contrast, Inc.'s movie service launched last week with distribution deals with seven studios -- but not Disney.

Jobs said more than 75 films will be available on iTunes from Walt Disney Pictures, Pixar, Touchstone Pictures and Miramax. New releases will be priced at $12.99, when pre-ordered and during the first week of sale, or $14.99 afterward. Library titles will be sold for $9.99 each.

The prices of movies online doesn't reflect the economic fundamentals of an online business. Rather they reflect the fundamentals of an offline business where production, distribution, sales and marketing, and inventory add significantly to the costs of providing a snailmail business.

$12.99 is the cost of a new release in stores today. $9.99 is the cost of a library title from BlockBuster when you walk in. It was the price 10 years ago!

With the online business, I find it uncompelling to buy movies online if not for the convenience factor.

Update: Video of Steve Jobs Announcing iTunes 7

MobiTV Partners With AT&T Inc To Offer Web TV on PCs

posted by MR WAVETHEORY at 9/12/2006 01:15:00 AM
MobiTV, which recently was best known for providing TV to cell phones subscribers, is launching a WebTV service with AT&T. The service will be called AT&T Broadband. What a brilliant idea!USA Today writes:
AT&T Broadband TV initially will offer 20 channels of cable and made-for-broadband TV, including Bloomberg Television, HGTV, Food Network, History Channel, Oxygen, Maxx Sports and the Weather Channel. New channels and other content will be added regularly, says Daniel York, AT&T's senior vice president of programming.

The service will cost $19.99 a month. That's on top of the cost of a broadband connection, which must be purchased separately. At AT&T, DSL starts at $12.99 a month.

Good news: AT&T will be offering a two-week free trial for AT&T Broadband.

September 11, 2006

Tying the Knot with WeddingChannel

posted by MR WAVETHEORY at 9/11/2006 05:54:00 PM
The Knot Inc (KNOT) and WeddingChannel, two dot-com darlings, tied the knot today in a $78 million deal. WeddingChannel was backed by Idealab Capital Partners, RRE Investors , and Goldman, Sachs & Co. It had raised a big chunk of money during the heyday.

You can see that The Knot Inc was one of the last companies to make it out of the gates in the hot IPO market of the late 90s.It looks like the traffic on both sites has been stagnating. This wage of mergers may be driven by the fact that the life cycle of the VC funds that invested in the late 90s are coming up.

Duke and Brown Offer Pay for Admission (PPA)

posted by MR WAVETHEORY at 9/11/2006 04:50:00 PM
In the world of Internet advertising, Google offer Pay Per Click (PPC) advertising. In the world of college admissions, Duke offers Pay For Admission (PPA). WSJ has an interesting article on how Duke has:

What makes Duke and Brown, among other institutions, stand out, is the way in which they ramped up and systematized their pursuit: rejecting stronger candidates to admit children of the rich or famous, regardless of their ties to the university.

Now imagine what this does to the morale of parents and students who actually work hard and earn their keeps!

The Cheap Revolution

posted by MR WAVETHEORY at 9/11/2006 04:38:00 PM
Bill Coleman is featured in this week's Forbes as the leader of the Cheap Revolution - all software open source, all hardware off the shelf - think Linux, mySQL, Apache running on pizza boxes. Bill was one of the founders of BEA Systems and now heads up Cassatt. He offers an interesting view on how the Cheap Revolution is challenging proprietary hardware powered by Sun processors and operating systems powerd by Windows. Cassatt is creating middleware to virtualize hardware, processing, and storage - a very big vision that is similar to what VMWare accomplished with VMWare Server.

SportingBet PLC Down 43% After Chairman Arrest

posted by MR WAVETHEORY at 9/11/2006 03:55:00 AM
Bloomberg says that SportingBet was down as much as 43% After Chairman Peter Dicks was arrested.
What I find very ironic is that Sportingbet admitted breaking US laws in an interview with the Guardian:
In July, the company admitted to the Guardian that it continued to take a small number of bets from the US by phone. "We are an online operator with 99% of our wagers in the US taken via the internet. However, there is a telephone service available to a select number of customers should they experience problems with the internet when trying to place a bet."
Can you believe it? Whoever is managing their PR clearly lacks a law degree - or any common sense for that matter.

Update: This is a nice quote. Sportingbet's finance director, Andy McIver, said: "Until this is resolved I won't be travelling to the US." He added: "The Louisiana laws involved are incredibly wide-ranging. It covers practically any form of doing anything involving any sort of gaming and a computer." Andy, I think you have more common sense than your CEO. Since there are no other qualified or willing candidates, maybe it's time for you to get a promotion to CEO.

Regarding the second part of Andy's comment, it appears there is a gap between federal and state law. The SportingBet case may boil down to an issue of federalism - whether state laws supercede federal law.

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September 10, 2006

New York Lady Wins $1 million Lottery Twice!

posted by MR WAVETHEORY at 9/10/2006 09:47:00 AM
The odds of winning the lottery twice are 1 in 3 trillion. Make that 1 in 3,669,120,000,000. Valerie Wilson won it twice!

Software Pirate iBackUps Gets 7 Years in Jail + $5.4 Million Fine

posted by MR WAVETHEORY at 9/10/2006 03:16:00 AM
It looks like Microsoft really nailed this guy - 7 Years in Jail + $5.4 million for selling Microsoft and Adobe software at a deep discount. What I find amazing is that someone would have done that - literally just setup a website and started selling pirated software! Check out the site - I guess that's what your site will look like when you FBI shuts down your site.Tags: