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Victor Cook  

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  • Margin Myopia [View article]
    Your point is well taken. Being sure about which companies belong in any set of competitors is fraught with questions. It's likely that in Q1-2004 Mr. Gates would have laughed out loud at the idea of comparing MSFT ($295b market cap) with AAPL ($9.6b market cap) SG&A cost per dollar revenue, unlike Mr. Gerstner 's IBM (the elephant in the room) who saw DELL's low SG&A cost per dollar revenue as a challenging benchmark. One can never be sure about what comparisons are reasonable. But it may be wise never to overlook David especially if you're Goliath! Thanks for your comment.
    Mar 28, 2013. 02:59 PM | Likes Like |Link to Comment
  • Margin Myopia [View article]
    In smart-tech companies nothing is typical, especially the revenues from R&D spend.
    Mar 28, 2013. 01:39 PM | Likes Like |Link to Comment
  • Margin Myopia [View article]
    Exactly. But not "of course." “Best in class” depends on the companies included in the analysis. In Gerstner's “Who Says Elephants Can’t Dance?” the best in class was DELL with a SG&A cost per dollar revenue of around 32 cents. That was in 1993. IBM's cost per dollar revenue was 43 cents. You're right, 11 cents does not seem like a lot until you multiply it by the company's $62.7b in revenues. That was reason for what Gerstner called IBM’s $7 billion expense problem. By 2000 he had cut IBM’s cost per dollar to 24 cents but still fell short of DELL's 17 cents per dollar revenue.
    Mar 26, 2013. 01:02 PM | Likes Like |Link to Comment
  • Sell Facebook Down To $5: A Story Of Slashed EPS Estimates And Diminishing Visibility [View article]
    In my October 11, 2010 article “What’s Facebook Worth?” I wrote:

    “At this point it’s not clear whether Facebook will be a money machine like Google (GOOG), with a market value eight times revenue, or suffer from accelerated decrepitude like America Online (AOL), with a market cap less than revenue.”

    Based on the 243,000 firms that reported (non-zero) revenues and market cap in COMPUSTAT from January 1, 1950 through December 31, 2008 I found the expected value of the distribution was 1.0. Or, in the long run, market cap equals annual revenues. Applying this expectation to a 2009 sample of 51 companies that would occupy the internet service market space with Facebook should it go public in 2012 with assumed annual revenues of $7 billion I found:

    “The chance that Facebook’s 2012 market value will equal sales revenue [$7 billion] is one in two. The chance its market cap will reach $50 billion is around one in twenty.”

    This prediction was neither bullish nor bearish. It was just what the data said. So what’s the point? For one thing, knowledge that the long run value/revenue ratio is 1.0 is a useful benchmark in premarket valuation of an IPO. For another, my prediction brackets approximately FBs market caps since it went public. And it presents probabilities for all the points in between.
    Sep 28, 2012. 01:04 PM | 3 Likes Like |Link to Comment
  • When Art Informs Science: Three Of Facebook's Optimal Revenue Plays [View article]
    Thanks. I'm pleased you liked it.
    Sep 20, 2012. 07:34 PM | 1 Like Like |Link to Comment
  • When Art Informs Science: Three Of Facebook's Optimal Revenue Plays [View article]
    PF, thank you for your understanding of my analysis. BTW. I taught at the Wharton School in 1968 before moving with the Marketing Science Institute when Bob Buzzell took over leadership at HBS. Before your time I know, but common ground in any event. Victor
    Aug 23, 2012. 09:19 AM | 1 Like Like |Link to Comment
  • When Art Informs Science: Three Of Facebook's Optimal Revenue Plays [View article]
    Good question. There could be, but I didn't run it.
    Aug 21, 2012. 03:23 PM | 1 Like Like |Link to Comment
  • When Art Informs Science: Three Of Facebook's Optimal Revenue Plays [View article]
    Aug 21, 2012. 11:41 AM | Likes Like |Link to Comment
  • When Art Informs Science: Three Of Facebook's Optimal Revenue Plays [View article]
    Dec. 9, 2010
    Aug 21, 2012. 11:33 AM | Likes Like |Link to Comment
  • What's Facebook Worth? [View article]
    A footnote on “What’s Facebook Worth?”

    On October 11, 2010 I calculated the chance Facebook’s market cap would reach $50 billion January 2012 was around 1 in 20. The chance it would top $56b was about 1 in 33.

    On May 18, 2012 (the first day of trading) FB peaked at $45.00 a share. With 2.14b shares outstanding its market cap was $96.3b. On June 1, 2012 FB closed at $27.72 a share with a corresponding market cap of $59.3b. That’s a loss of $37b after two weeks.

    What’s next? Does anyone still see $104b in Facebook's future?
    Jun 3, 2012. 12:57 PM | Likes Like |Link to Comment
  • Seat Wars: Delta Vs. Southwest [View article]
    James, there are two surprises in your comment:
    (1) My seminar on the history of economic thought in the 19th century did not include Claude-Frédéric Bastiat and
    (2) He is the first economist I've seen quoted in support of my theory of the little guy advantage!
    Thank you.
    Dec 8, 2011. 11:44 AM | 1 Like Like |Link to Comment
  • Physics Of Market Share: The Little Guy Has More To Gain [View article]
    You sure have a right to quibble about the title of my article. On the one hand it doesn’t fit Merriam-Webster’s first definition physics as "... a science that deals with matter and energy and their interactions." On the other, it does fit neatly into the second definition as "... the physical processes and phenomena of a particular system."

    I question your conclusion that LUV’s move into Tampa presents a “… public interest in preventing any one carrier to buy up gates the way it appears LUV did in Tampa.” In my opinion the public interest should not extend into micro-regulating strategic distribution decisions like buying up gates, or contracting for shelf space, or winning more patents and copyrights, or more buying more time for ads than any other company on the Superbowl. Especially if these decisions increase the level of public service offered.

    On a personal note, I’ve been flying from MSY to PBI for many years. And I noted in my article that before LUV moved into Tampa the other carriers charged too much and took too long to make the trip. Clearly, management's move into improved the level of service dramatically.

    Semantics aside, thank you for your thoughtful comments.
    Feb 10, 2011. 12:21 PM | Likes Like |Link to Comment
  • Physics Of Market Share: The Little Guy Has More To Gain [View article]

    I'll have to think about the answer to your question. That curve first appeared in a working paper I wrote at Chicago Booth in 1971. I've still got a copy of that paper in my office at school. I'll see if I can find the seed there.

    Meanwhile, your conclusion "that the size of a company eventually
    stands in the way of its growth" is brilliant. It suggests another take on the curve: the cost of monopoly is infinite.

    Thank you!
    Feb 9, 2011. 06:19 PM | Likes Like |Link to Comment
  • What's Facebook Worth? [View article]
    " ... Richard A. Friedman, a longtime Goldman partner, decided the Facebook deal was not suitable for his clients, in part owing to the high valuation and to a mismatch with his investment criteria. The $450 million investment values the Web company at $50 billion. After Goldman’s deal, some industry experts cautioned that Facebook’s growth would need to accelerate rapidly over the next couple of years to justify such a steep price — a risk with many brand-name technology upstarts." See Dealbook at
    Jan 6, 2011. 10:31 AM | 1 Like Like |Link to Comment
  • What's Facebook Worth? [View article]

    Every so often I have a student, usually an undergraduate, who’s very smart, often not well prepared and quick to shoot from the hip. He tries to dominate class discussion by challenging his professor in the belief that this will impress his classmates. Because of this behavior his most frequent achievement is to divert more class time than is necessary to answering his questions. At least this last question, for its brevity and relevance, is a big improvement on your earlier ones.

    First, I did not say that Goldman had “…only a 5% chance” of making money on its recent investment in Facebook. As you noted above I did estimate that “The chance its market cap will reach $50 billion is around one in twenty.” Let’s revisit this question after Facebook’s IPO.

    Second, Goldman invested $450 million for a number of shares in the still private Facebook entity. From this base they reportedly will create a “special purpose vehicle” and sell off pieces to HNW clients for a total of $1.5 billion. In this way Goldman provides Facebook with cover concerning the 499 shareholder limit imposed on private companies and gives Facebook badly needed cash. Bottom line: in a matter of weeks Goldman likely will book a little over $3 for every $1 it invested in the deal. What do I think of this transaction? It’s brilliant … unless the SEC finds it violates the 499 rule and the congress supports this finding. See the “500-Investor Threshold Debated for Its 47-Year History” on Dealbook

    Finally, the Goldman transaction is reported to value Facebook at $50 billion. But to my knowledge neither the number of shares Goldman bought nor the number outstanding are on the public record. This information is necessary to calculate the implied secondary market value associated of this transaction. Which, BTW is NOT its market cap.
    Jan 5, 2011. 01:06 PM | 1 Like Like |Link to Comment