We need to stop this kind of thing

by Mathew on September 28, 2006 · 4 comments

Didn’t we learn anything from Bubble 1.0? Apparently not — or at least some of us seem to be determined to jump right back into it with both feet, regardless of the consequences. Guys like Mark Zuckerberg of Facebook could be forgiven, since they were probably playing on the swingset or learning long division when the first tech bubble came around. But how do you explain someone like RBC Capital analyst Jordan Rohan?

He apparently thinks that MySpace (which does not have 100 million users after all, as ForeverGeek tells us) could be worth $15-billion in a few years, or at least that’s what he told clients in something ironically called a “research note.”

As Pete Cashmore over at Mashable notes in a post, this estimate of MySpace’s theoretical value is predicated on a whole series of loony assumptions, including the alleged $1-billion value of Facebook and YouTube, multiplied by the market value of Google and the CPM (cost per thousand) ad rate that a premium show such as The Simpsons fetches.

In other words, Mr. Rohan’s argument (if I can even call it that) amounts to what philosopher Jeremy Bentham referred to as “nonsense on stilts.” Take some fictitious number that someone else has plucked out of the ether and multiply it by some other ridiculous number that can’t (or shouldn’t) be extrapolated — yup, that’s quite the “research” note, alright.

I know that getting attention is seen as a good thing in the brokerage business, as my friend Paul Kedrosky points out, but this is ridiculous. And former analyst Henry Blodget, who did his own bit to help inflate the first bubble, isn’t helping with a post that effectively says MySpace might be worth more than Yahoo, or not. Rob Hyndman is similarly unimpressed, as is Duncan Riley.

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