I found a very entertaining story while catching up with my reading on searchengineland. While estimating the impact on Google’s revenues from introducing overlay advertising on Youtube videos, Mary Meeker, superstar analyst at Morgan Stanley, made a mistake in failing to account for CPM (Cost Per Thousand) impressions (she assumed that they were revenue per impression numbers). As Henry Blodget at Alley Insider points out that would leave
The original estimate was of an increase of $4.8 billion of gross revenue and $720 million of net revenue for Google. When the error is corrected, if the rest of the assumptions are held constant, these numbers become somewhat less impressive. Blodget puts it well:
> What happens to Mary’s estimates when you do the math right? Well, that $4.8 billion of gross revenue becomes $4.8 million, and the $720 million of net revenue becomes $720 thousand. So if, as Mary suggests, Google can float ads on top of 20 million streams a month, secure a $20 CPM, and keep 15% of the gross revenue, the overall impact will actually be, as we suggested yesterday, immaterial.
The interesting bit comes, however, when she and her team learned of the mistake and included the correction in their calculations. All of a sudden, they weren’t happy with the rest of their assumptions (perhaps because it kinda changes their conclusions?) and so they changed ‘em....
With the error corrected but the new estimates plugged in, the Morgan Stanley position is that Youtube will generate $75 - $189 million of net revenue....
Now, Blodget is not blameless in over-hyping tech stocks (see first bubble). But then who is? I certainly held some shares that, how shall we say, underperformed. Nevertheless, this kind of finagling to get the answer you first thought of shows a weak analysis in my opinion and Blodget’s summing up is very funny:
> We estimate that Google will generate $100 trillion of revenue in 2010. Or maybe $10 billion. Whatever.
I think it’s a shame that this kind of tomfoolery isn’t more widely reported. At present, it remains a reputation issue within a relatively closed sphere.