Google - Yelp: Deal Analysis

Reuters:

"...Google Inc is in talks to buy Yelp Inc, the popular website for reviews of local businesses, in a deal that could help the Internet search leader tap a lucrative local ads market, media reports say.

Google may pay more than $500 million for Yelp, according to reports confirmed to Reuters by a person familiar with the situation. It came as the Web giant embarked on an acquisition spree that has netted at least five companies since August.

By swallowing privately held Yelp, Google would own one of the Web's most popular repositories of local restaurant and small-business information, including more than 8 million reviews penned by Yelp's users.

That trove of content and a heavy focus on local businesses could provide a valuable foothold for Google as it seeks to convince local merchants to shift their advertising spending to the Internet.

"The local advertising market is a multibillion dollar market that for all intents and purposes is still untapped on the Web," said Needham & Co analyst Mark May.

In July, Internet portal Yahoo Inc teamed up with AT&T Corp in a partnership that involved the phone company's 5,000 sales people selling Yahoo advertising inventory to local businesses.

News of the recent talks between Google and Yelp -- backed by Benchmark Capital and other venture capital firms -- and the $500 million price tag were first reported by the blog TechCrunch.

The source familiar with the situation said talks were currently bogged down by concerns among some Yelp investors that the company could be selling itself prematurely, and that it could be worth far more than $500 million if it had a chance to develop its business.

The source added that Friday's news stories may have been floated to put pressure on for the deal to be consummated at a price that was too low.

Apparently, Google has had its eye on Yelp for some time. According to one former Google executive, the Internet company had had "early discussions" with Yelp about an acquisition several years ago, but ultimately passed on the deal.

"Yelp doesn't monetize very well, so it's always a bit hard to justify an acquisition," the person said.

The local businesses that Yelp sells online advertising to are more interested in promoting their businesses through coupons than online ads, he added, noting he believed Yelp was still an unprofitable business.

Yelp was founded in 2004 and has received $30 million in funding from Benchmark Capital, DAG Ventures and Bessemer Venture Partners.

The acquisition talks are the latest in a string of recent deals by Google, including the $750 million acquisition of mobile ad firm AdMob announced in November, that are designed to extend Google's reach into new advertising markets.

The world's No. 1 Internet search engine generated roughly $22 billion in revenues last year, but has seen its top line growth slow from the 40 percent-plus clip it was managing as recently as early 2008.

Google has stepped up efforts to court local merchants recently, encouraging businesses to register their information on its small-business online directory.

But some analysts say Google will have its work cut out trying to sell online ads to local merchants more comfortable with traditional channels like local television, newspapers and the Yellow Pages.

Needham's May estimated that Yelp, which had 8.9 million unique visitors to its site in November according to comScore, is generating revenue at an annual rate of $15 million to $20 million.

"That's a pretty tough nut to crack," May said about selling online ads to local merchants. "Whether Google can crack the code on it, is still to be seen."

..."

Here is my analysis of the (potential) Google - Yelp Deal

 Google:

1. With growth slowing down, it is becoming difficult to justify the high revenue multiple on its stock price, so its seems it is buying growth or, at least in this case, a (potential) growth engine
2. Google has been trying to tap the locals market for some time but has not been able to make a splash despite its obvious strengths in search. Hopes Yelp would help it make a dent. 
3. 8 million + reviews (on Yelp) are useful (think user reviews on Amazon),  but you know, these are not exactly like product reviews on Amazon. Restaurants change and so do people's tastes. So while there is a network externality, it may not be as strong.  
4. If Yelp's reveneus are really only 15-20 million then the quoted price ($ 500 Mn) is really over the top.  Am sure if Google really commits even half of the money on local search it can do a better job.  (Build Vs Buy)
5. Surely, its not to get another bunch of great engineers ( Not at this price)

End Game:

I think this deal (if it goes through) would be paid for mostly through Google Stock. One over expensive stock (currency) for another. Perhaps it would be best for both companies. Yelp's investors would happily cash out by selling Google stock in the open market and as for Google, it would  would have acquired another growth engine where it has been unable to make a huge headway by itself.

 PS: On second thoughts, Yelp + AdMob could be an explosive combination and help Google recover the price paid, many times over.

Avatar: Fantastic!

Watched Avatar yesterday. Loved the movie. I don't know if this qualifies to be the greatest movie ever but it was fantastic. Visuals were simply out of this world.

Three cheers for Cameron and his team!

IIM falters in CAT and Mouse game, on debut!

CAT 2009 got off to a disastrous start and despite huge efforts by the Prometric and its partners. The exam did not finish on schedule and is continuing to cause anxiety to students, parents, IIMs and even to the HRD ministry. However, what was has been most interesting is the clamor we have seen from the players not involved.

1. Media: Of course media had a field day. TRPs were up, confusion reigned and they kept adding fuel to fire. Well you could argue that It is their business to do so, even if media would say that they do this only in public interest (I’ll be damned if any of the coverage was inspired by concern for these students)

2. Other Online Testing Providers: Sore losers and vultures. You could almost see them laughing secretly and were happy to see Prometric fail. Are now clamoring that if they had been given a change they would have done a better job. Please guys, you were part of a bidding process, if you can do a better job, you should have done a better job at that time. (I can bet my shirt that Prometric and its Indian partner would do a much better job next time, what are these vultures betting?)

3. Coaching Institutes: Most vocal (after media). Want current exam to be scrapped, return to pen and paper format for this year (So they can charge students again for preparation). Act like they are acting in students' interest while a large silent majority was actually able to complete the test.

4. Other Xenophobes - Want contract to be given to an Indian company (yes, we have xenophobes in India too). These are racists, casteists, fascists in new avatar. There is no talk of merit.


Which brings me back to the organizers of the CAT exam. Poor show guys! You need to get your act together. You should make sure that every student who suffered is given another chance, and that this is not repeated the following year.

Twitter, Facebook and MySpace give into Search Seduction!

After holding out for a long time, Twitter, Facebook and MySpace are now falling in (like dominoes) to provide feeds to search engines for real time search. Makes sense, the search engines had to get just one of these to get the others to fall in line. The public bloggers (and in this case micro-bloggers) do suffer from varying bouts of narcissm  or maybe are lonely or  just too desperate to be heard (read 'read') and therfore the advantage to a social network to being visible in real time. Having a rival micro blog network available while you are left behind is a (doubly) huge disadvantage.

Of course, this is one more battle field for Bing and Google. My fear is that both will end up overpaying for this ability to search but can't do without it either.

What is Jugaad? - And, do you need some of it?

The western world, it seems, has suddenly taken a liking for ‘Jugaad’. Indians have always held ‘Jugaad’ very close to their hearts. Jugaad may be trade-marked Indian, but the concept is not uniquely Desi. However, still, the current fascination of the developed world is amusing. Refer two interesting posts on Jugaad in Techcrunch by Sarah Lacy (who was in India doing research for her upcoming book on entrepreurship) and in Businessweek, which calls it Indian style of Innovation and Invention.

As a verb, Jugaad is the antithesis of ‘Process’. It is improvised (and sometimes very creative) problem solving and with the end result sometimes called a ‘Jugaad’ (noun) or described as ‘Jugaad’ (adjective). Which brings me to, why I find this amusing?

Over the past many years, the western (and pseudo western) trained managers have derided the ‘Jugaad’ solution. I remember an external speaker at the ISB, a few years ago, who was convinced that India is underdeveloped back only because of its ‘Jugaad’ mentality (everything else he said in his hour long speech was just gibberish).

Anyways, now, that the world is now discovering Jugaad, one must be careful not to over use it. Here are my thoughts on Jugaad

1. It provides an improvised quick fix but no long term warranty

2. It can certainly help you solve problems (especially if you are desperate)

3. Its gels perfectly with entrepreneurship, especially while starting out and want to ‘get it done’ ever which  

    way. Has a lot of overlap with 'Bootstrapping' in VC parlance

4. It is low ‘immediate’ cost, but long term costs may not be immediately apparent

PS: A person practicing Jugaad is called ‘Jugaadu’

PS, PS: The article in Businessweek mentions that TCS and Infosys gained world stature by having oodles of Jugaad. Having worked in one of these for over five years, I can tell you that while Jugaad had a role to play, do did 'Process'.

PS, PS, PS: There is a blog detailing list of Indian 'Jugaads'

Better Product = Market Leadership?

Split right down the middle. I am talking about the first poll I conducted on this blog. The question asked was
"Does having the best product ensure market leadership?". Fifty percent of the voters agree, while the other half disagree. I belong to the latter category.

Now, I am not saying that having a good product is not important and that it does not help. It does, surely. But It takes more than just having the perfect product to gain market leadership. Sales and Marketing for example, Distribution reach is other, Price is equally important. And, sometimes it is something purely superficial such as color etc


Internet based markets are democratizing some of these effects. But product managers would do good to take some of the other considerations in to account and not fall into the hype of their own products

PS: More importantly how do you conclude a product is better.  For whom. Humans are (some economists may diagree) not completely rational. I wonder if it is sometimes "Arbit' and more importantly "Is it Luck". Which brings me to the next poll?  How important is luck to business success?

Black Friday

Okay! This is interesting

Came across this term, " Black Friday" in the context of Thanksgiving a couple of days ago. Could not understand as to why this phrase was associated with this day. Of course being a finance person, the first thought that occurs on hearing the term is a market collapse (like here).  So, I was confused about the association.

Finally checked the term on wikipedia today. Accoding to the entry, the first known usage of the term is from 1965 Philadelphia

"Black Friday" is the name which the Philadelphia Police Department has given to the Friday following Thanksgiving Day. It is not a term of endearment to them. "Black Friday" officially opens the Christmas shopping season in center city, and it usually brings massive traffic jams and over-crowded sidewalks as the downtown stores are mobbed from opening to closing.

There are other interesting facts. Check them out here

Chidambaram is "Sorry"

The former finance minister and the current home minister, P Chidambaram, is a learned man and he has a sharp, almost acidic wit. Despite that, I have always liked him for his intelligence. He appears to know what he is doing (unlike many others) and has clearly thought through situations. However, in this TV show, hosted by Barkha Dutt, he just took his superiority complex too far.


When one of the survivors of 26/11 made an emotional plea to him that there should have been stronger measures to bring the perpetrators to justice, Chidambaram went out on the offensive and put the poor chap on the hot seat and asked him what he would have done in his place.

It was totally unbecoming of his position although not completely surprising coming from him. It certainly appears that Mr. Chidambaram is still sulking on his loss of the finance portfolio. Even then, this does not mean he can vent his anger on an innocent man, who is so overcome with emotions that he is barely coherent. Of course Chidambaram got no reply.
This, after all Chidambaram could say, on the issue of the Maharashtra Polices’ inability to locate Karkare’s bullet proof vest, was “I Am Sorry”

Shame on you Mr. Chidambaram for doing this! You had no right. Rather than giving a straight answer, you chose to be vitriolic. I am sorry too Chiddu, but if you don’t have an answer then you ought not to be the home minister. Correct me if I am wrong, but you are the home minister and the fact is, that despite the government making tall claims, none of the accused has been brought to justice. Not even one. So it was a fair question and deserved a straight reply.

Devdutt Pattanaik: East vs west -- the myths that mystify

Deeply resonates with my belief on why a lot of economic analysis is flawed as it does not take into account all the dimensions of "My World"

New Poll: Does having the best product make you the market leader?

Well, this is the first poll on this blog. Have a decent number of people reading this blog, so thought that it would not hurt if I could do some primary research on areas that have been intriguing me and may have, at some point, intrigued you. Would be kind of nice to know what you think. Promise to publish the analysis soon

The questions is

"Does having the best product make you a market leader?"

Educomp: Securitization?

Secutization Debate: How Educomp is turning its Financing Cash Flows into Operating Cash Flows? But isn't that a good thing?

India's largest education company by market capitalization, Educomp Solutions, has been the "Darling" of investors since its IPO days. And for good reasons, many would argue. It has consistently maintained an explosive growth, the profit margins have been excellent and growing at an even faster rate and of course, more importantly, has given its investors over 30x returns since its IPO (despite falling over 25% from its high). Educomp has had a near "Dream Run" in the markets ever since it debuted, in fact rallying 100% on day 'One' of its listing.

However since its last results, Educomp has suddently lost favor with the "Investment Experts". To be fair, there were enough people who privately and not so privately expressed doubts about this company from the beginning. However, never have I seen another company being panned like this, and "rather rudely" in public. At least not a company which had a 9000 crore market cap and certainly not in India. I mean they have had had their share of controversies in the past. But which company, growing at an explosive rate, does not?

To be sure, its Q2 FY10 results were just as "stupendous" and the management upped the guidance for FY10 and FY11. So what changed, that a large swathe of investors and analysts suddenly did an about turn and are now calling it "... a very unique and strange company." or "..the only company I would short in the Indian market.."

Almost every one now blames, their newly announced securitization policy. This is what they have done

Educomp "Smart Class" Model

Before Securitization

With a high "upfront" capex model, their operating cash flows have always been low, putting a constraint on their growth. Therefore they have had to constantly borrow or raise equity to maintain the high growth rate. Now, one of the ways to ensure scalability is to securitize your investment/receivables which privide a company with enough liquidity to fuel its growth without the need to dilute equity. Which is what Educomp did, in last quarter.

New "Securitization" arrangement

Where Edu-SPV is an "unrelated" entity, apparently floated by ex-employees of Educomp

Now, "Securitization" is not a bad thing and sure it does turn Financing CF into Operating CF and the management should have been applauded for this, but there are curious angles to this peculiar case and apparently are the source of discomfort for the investors. Can you guess, why?

Mind you, nothing is illegal here, just what some people may call "smart" and "innovative" structuring

The Hidden Cost of 'Free' Online Information

While we like to get information for free, especially when it comes to online sources, one must watch out for biases and hidden motivations of the writers.Now, I am not implying that information carried in other channels is always free of such biases but given the ease of being able to shout out loud over the internet, makes this medium particularly susceptible.

To be fair, information can be flawed for other reasons as well including lack of research or because the writer placed undue reliance on another such information source.

While we do not pay for the these 'biased statements' masquerading as 'expert knowledge', there are hidden agency costs that we can end up being saddled with, aside from the time that we 'spend' browsing.

HDFC Credila: Deal Analysis

HDFC has acquired 41% in education loan provider - Credila Financial Services from DSP Merrill Lynch for $2.2 Mn. The transaction values the Mumbai based company at $ 5 Mn.


Promoters - Anil Bohora and Ajay Bohora hold the remaining 59% in the company.

The deal marks HDFC's entry into Rs 30,000 Cr education loan market, which is expanding at 30% per annum. At present, HDFC Ltd offers very specialized education loan to students in select institutions like ISB, Hyderabad, IIM Ahmedabad and Symbiosis, Pune.

Formed in 2007, Credila has disbursed loan of Rs 16 cr in 2008-09. It currently has offices in Pune, Bangalore, Hyderabad, Chennai, Delhi and Nashik.

Unlike bank education loans, Credila’s loans are all secured. The company insists on one or more creditworthy co-borrowers for all disbursals. It has also entered into agreement with a students tracking agency abroad.

Before founding Credila, the Bohoras founded a healthcare claims processing company called ClaimsBPO in January 1997 with a US joint venture partner. In 2003, ClaimsBPO was sold to WNS Global Services, a Warburg Pincus-owned company, listed on NYSE.

The promoters are both engineers who have relocated from executive positions in the US. Ajay was earlier with MetLife in its New York office, while Anil had worked in senior positions in AOL Time Warner and Pitney Bowles.

The Education loan space have seen good credit growth in the recent past. Most of the players have reported over 25% growth in the student loan portfolio.

Union Bank of India reported 40% growth for the quarter, while Bank of India and Bank of Baroda reported 24% and 29% growth respectively in their education loan porfolio.


Here's My Analysis

1. Provides HDFC with an excellent platform for expanding into education loans.
2. Enters a high growth market: HDFC needs to create more growth engines to keep its growth momentum
3. Buy vs build approach gives them quicket acess to market. Credila's conservative approach (all loans are secured) to lending, gels well with that of HDFC's
4. Backing a winning team with their skin still in the game.


End Game
Behoras are serial entrepreneurs and would probably be bought out by HDFC over the next couple of years. HDFCs huge reach and brand would give them the leverage to expand, create value and exit.

PVR - DT Deal analysis

Multiplex chain PVR Ltd has announced twin deals. It has acquired the cinema exhibition business of DT Cinemas Ltd, a subsidiary of real estate major DLF, in a cash-cum-stock deal. As per the structure of the deal, PVR will pay a cash component of Rs 20.02 crore and allot 2.55 million shares to DT Cinemas.


Simultaneously, PVR has also raised Rs 42.19 crore through a preferential share allotment of over 2.55 million shares to Major Cineplex Group Plc. of Thailand. The deal involves an overall stake dilution of 18.18% by PVR, with both Major Cineplex and DT Cinemas getting 9.09% stake each

PVR already has a joint venture called PVR bluO Entertainment Ltd with Major Cineplex for setting up bowling alleys, karaoke centres and ice-skating rinks.
Here is my analysis
 
PVR: 
1. Low risk capacity addition (they know the kind of revenue generation run rate DT has)
2. Gives them virtual monoply in certain regions (Gurgaon for example)
3. Gets closer in size to Adlabs - Gives them greater bargaining power over producers
4. DLF and PVR have also entered into an agreement by which the latter will gain exclusive and unlimited access to the multiplex space in all future mall developments of the DLF group
5. Ties Major Cineplex's interests to growth of PVR and thus increasing coordination for their JV
 
DLF:
1. Gets a strong anchor partner for new shopping mall and recreation properties
2. Reduces cash requirement for non core businesses
 
Currently, DT Cinemas operates 26 screens with three more screens expected to start in the next six months. This will add to PVR's existing 108 screens and further strengthen its position in the National Capital Region (NCR).


DLF and PVR have also entered into an agreement by which the latter will gain exclusive and unlimited access to the multiplex space in all future mall developments of the DLF group. The deal further re-affirms company's strategy to rapidly grow in the film exhibition space and to be a dominant player in all key markets, it said, in its filing to BSE.

The preferential issue has been made at Rs 165 per share. The shares of PVR Ltd closed at Rs 139.8 today, up by more than 1%. Taking today's closing price, DT Cinemas stands to get another Rs 35.74 crore over its the cash component of Rs 20.02 crore.

DLF, which is looking cut its debt of around Rs 12,000-13,000 crore, has been shedding its non-core assets and plans to raise Rs 4,500 crore through this process.

Random Walk & Mean Reversion

The question of market efficiency has puzzled many experts. There is a group that stands by their belief that market is efficient and takes in to account all information available up to that point of time. Others vehemently oppose this and say that the market is a Random Walk and has a mind of its own.  Yet others believe in the theory of mean reversion and quote Horace (including Buffett)

I believe that market is efficient, but only on average and its displays mean reversion but ends up swinging to the other extreme and for large periods its just appears to be on a random walk in some territory. 

There are others still, who find patterns in this random dance and call it momentum, support, resistance, breakout etc. No expert has a unifying theory of the markets.

Will the real Einstein (of the markets) please stand up!

Sh*t his dad says!

This guy has apparently landed a TV deal for his twitter account.

Sample this:

"Son, people will always try and fuck you. Don't waste your life planning for a fucking, just be alert when your pants are down."

Captive M&A

Captive M&A is the current hotspot for deal making activity in India. Some of the recent deals include the following

Cognizant - UBS India - $ 75 Mn
Mphasis - AIG Systems Solutions - NA
Wipro - Citi Technology Services - $ 127 Mn
TCS - Citigroup Global Services - $ 505 Mn
WNS - Aviva Global Services - $ 228 Mn
EXL - American Express Business Travel - $ 30 Mn

EXL American Express Deal Analysis

Nasdaq listed EXL has signed a deal with American Express to acquire the global travel service center operations located in Gurgaon, India, from American Express Business Travel (AEBT) for approximately $30 million. The deal follows the trend of sell off of technology captives by large multinationals. For a seasoned outsourcer like American Express, you would think that this would have happened sooner than now.

Despite being a big outsourcer Amex has always had a strong internal IT department. This department is responsible for outsourcing and vendors get little direct access to business (except IBM)

Now, for EXL, this is certainly a step up, both in terms of deal size and that it gives them a marquee customer in the travel industry as well as ready access to new capabilities that they can put to use in other deals.

However, I am surprised by the fact that we did not hear of IBM vying for this. IBM is a deeply entrenched player in Amex’s technology operations (Credit Cards and Travel). It even provides office supplies, or at least used to a few years ago, to Amex. This effectively shuts out IBM from at least this part of the business for the next 8 years. I would not be surprised if IBM attempts to buy EXL at some point in the near future.

From my time at Amex, I remember that once one of the VPs there had given a contract to a small vendor instead of IBM, to diversify risk and also perhaps to make a point that IBM needs to improve its service. However, by next quarter IBM came back in and took over this small company.

Abu Azmi hit by MNS leader for taking oath in Hindi

WTF... Now I am not commenting on Azmi, but he too, like the FUBAR MNS MLA who hit him, is a democratically elected member and many of those who voted for him knew that he does not speak Marathi and he represents them. The rules allow him to take the oath in Hindi so why the fuss

If proficiency in speaking Marathi language is the only criteria for judging, then lets hold a language exam to elect the assembly. Why the fracas and expense of elections?

Someone needs to put a leash on these MNS guys and stop this nonsense...

Check the out the Video Coverage here: Abu Azmi hit by MNS leader for taking the assembly oath in Hindi

Deja Moo, Ear Job, Blamestorming and the The Office Life

Could not resist posting these!

• Al Desco - Describes any meal eaten at your desk (you have our sympathies if it's dinner).
• ALAP - As Late As Possible
• Blamestorming - Meeting to discuss a failure and find a scapegoat
• Deja moo - The nagging feeling that you've heard this B.S. before
• Enail - An email sent for the sole purpose of making a point in writing, usually at another person's expense. Most effective when cc'ed to as many senior people as possible
• Ear candy: Flattery
• Ear job: The act of passing on some juicy company gossip verbally, and in private. "I'm just running into a meeting, but I'll give you an ear job later."
• Facipulate - An unfortunate mix of 'facilitate' and 'manipulate', this contrived verb refers to influencing the course of a discussion by indirectly promoting particular lines of thought
• FUBAR- F***ed Up Beyond All Repair
• Head shunting - The secret hiring of a head hunter to persuade an ineffectual employee to take a position at another firm. Nicely eliminates the mess of having to fire someone

My favorite is Deja Moo. Perfectly describes what you feel while listening to the "experts" on business channels predicting whether the market is going to go up or down

These are a few samples from the new / interesting jargon at the office life