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Google Films Presents: Short Attention Span Theater


Let's take a look at what's playing in the boardrooms of Silicon Valley...

Rearranging is exactly what's happening these days. It's a flurry of events all over again; the only missing ingredient is the pure dot-com boom across multiple sectors and categories. Google (GOOG) is a microcosm of the dot-com boom and last week reinforced this notion.

It all started with NewsCorp (NWS) and MySpace. Now Google buys YouTube for $1.6 Billion. YouTube is the definition of short attention span theater! If you want to read the opinion of someone who knows what happens with these kinds of acquisitions, check out Mark Cuban's blog. He aptly summarizes this acquisition: "Would Google be crazy to buy YouTube? No doubt about it. Moronic would be an understatement of a lifetime."

For those that forgot or actually bypassed the past seven years, Yahoo! (YHOO) bought Mark Cuban's company for $5.7 bln in July 1999. That makes YouTube look like a bargain. Now I'm not sure if Yahoo ever made any money off the acquisition, but it seemed like a good idea at the time.

Now take a look at what happened to Yahoo! post the acquisition of Their market cap on that day in 1999 was roughly $48 bln. The next year it went to $25 bln, the year after $9.2 bln and the year after that $7.9 bln and $6.2 bln at its low in 2003. Now it's back at $32 bln, but we're talking seven years later and it's still 33% below its high. Also, remember, was a public company at the time unlike YouTube, so investors had a framework for the actual value of what was being purchased. (Not to say that that value was reasonable in a way – remember this was the dot-com boom!) I'm not saying that buying YouTube is a catalyst for a down turn of Google. As a matter of fact, there's certainly more gas in the tank, especially when we see analysts targets in the $450+ range. However, if we were climbing the DEFCON charts, we should be at DEFCON 3 - Increased readiness. It seems to me that as soon as alternate media channels get their act together, they too will have similar issues to those outlined in this week's article on Yahoo – "Yahoo's Growth Being Eroded by New Rivals."

It's incredibly hard to dissect this landscape today from a value standpoint. You can look at MySpace and say NewsCorp made a good deal. And they did, based on the ad deal they struck with Google. However, it will be interesting as a long-term investor to see where that plays out in the course of a year. They certainly will capitalize on advertisers' desire to put video online, but I'm not sure how long that will last. Now the rumors are abounding that Yahoo! or Google may buy FaceBook for $2 bln. I for one can't see it. These are all destinations for people who do not want advertising, yet advertisers are buying it. And they will continue to do so.

We have all been here before. We have seen this movie, heard this song and know how it ends. Nobody wants to be the last man standing when the music stops.

So let's take a look at what's playing in the boardrooms of Silicon Valley:

Sergey and Larry at Google:

This is the time to remember
Cause it will not last forever.
-Billy Joel

Terry and team at Yahoo:

I been in the right place but it must have been the wrong time
I'd have said the right thing but I must have used the wrong line.
-Dr. John

So what's next on our playlist?
Position in YHOO
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