BusinessWeek has got hold of Digg’s financial statements, and man o man they are really scary. In 2007 the company’s revenues were $4.8 million while it spent $7.6 million – thereby posting a net loss of $2.8 million. In the first three quarters of 2008, Digg’s revenues were $6.4 million, whereas it spent $10.4 million – thereby racking in losses of $4 million. At an annualized rate this brings the losses for 2008 to be around $5.3 million.
But this is not all, Valleywag has some more scary insights:
Keep in mind that Digg has a lucrative three-year advertising deal with Microsoft, that pays the site a guaranteed rate for its inventory. Without that arrangement, struck last year — driven, most believe, by Microsoft executives’ desperation to get in on the Web 2.0 craze — Digg’s losses would likely be far worse.
Now it all makes sense: Digg CEO Jay Adelson’s repeated attempts to sell the company to News Corp., Current Media, and Google, at a valuation of $300 million or more, came to naught because there’s no real business there. Those sales talks, while they were still under discussion, prompted entirely unfounded speculation that founder Kevin Rose was personally worth $60 million on paper. Instead, Digg took $28.7 million in venture capital at a valuation of almost half what the company hoped to sell for.
It seems that Digg is getting a taste of something that it popularized, a burial from investors.
Yearly revenue is not a good indicator of value. Operational cost and expenses do not equal actual price or perceived value.
Think about it this way: Say Picasso bought some paint for $500 and stretched his own canvas for say another $500. Took him a week to paint the piece, at an operational living cost of say $500 a week for rent and food. Add a 50% profit margin. Should his paintings be sold at around $3000? Probably not. More like in the tens of millions.
So it really depends. In Picasso’s case it could be his name and body of work and the historical and cultural significance of his art. In Digg’s case it could be something else entirely different, maybe brand recognition, existing user loyalty, etc. or whatever it happens to be.
Simply reading the financial statements is only half the picture of a company’s true wealth. You can’t go by those metrics alone. Anyone who tells you otherwise is not a good investor.
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@LDMYERS, thank god someone said it.
As for Valleywags scary insights, scary indeed, it makes me weep for journalism. Two broad “statements”, which are actually opinions.
“Without that arrangement, struck last year ….. Digg’s losses would likely be far worse.”
“Instead, Digg took $28.7 million in venture capital at a valuation of almost half what the company hoped to sell for.” What is the point of this statement? And where did Valley wag get the figure of 300 million?
Now this article is based on Valley Wags. Can someone start doing some real journalism.
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“Took him a week to paint the piece, at an operational living cost of say $500 a week for rent and food. Add a 50% profit margin. Should his paintings be sold at around $3000? Probably not. More like in the tens of millions.”
Unless he’s prepared to fake his own death and then wait half a century for his name to get some notoriety, about $250 per painting sounds about right.
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