Friday, October 25, 2013

Twitter's Valuation

Twitter—like all of the social media—is totally dependent on advertising revenues from a purely commercial point of view. Like virtually all other so-called tech companies, it is losing money even as it is preparing to go public with an initial public offering (IPO).

The company values itself at $11.1 billion, which seems from out here, viewed through innocent eyes, as rather a huge number considering that it had revenues of $422.2 million as of September of this year, alongside losses of $133.9. Let’s annualize those figures. Extended to 12 months, revenues will be $562.9 in 2013. That would be equivalent to 1.5 percent of total Internet advertising expenditures of $36.6 billion last year. Twitter’s losses for 2013 project to $178.5 million, meaning that its revenues don’t even cover costs yet—never mind profits.

More to the point, advertising, considered as a function of the total economy, is actually much ado about nothing, as I illustrate in the last post. Total ad revenues, all media, stood at $141.7 billion in 2008—and had dropped to $135.9 billion in 2012. Doesn’t look like a growth industry at present.

The message, of course, is that the Tech Bubble continues still. Come to think of it, “tech” seems to produce them. There was the Railway Mania in Britain in the 1840s—an illuminating bit of history worth revisiting as we see the “social media” and “mobility” soaring. There are such a thing as real utility, real industry, and real technology. But when irrational expectations produce investment hysteria, even real estate can have an unreal bubble—based on “innovation” in financing instruments—another “technology.”

Much Ado About Almost Nothing

This is a repost of an entry from the first LaMarotte originally published on July 27, 2009. I revive it now, with an update of the numbers, to support another posting which follows this one.

The Gross Domestic Product in 2008 was $14,264.6 billion (all right, that’s $14.3 trillion). GDP is the sum total of all economic activities in the United States. In that same year total expenditures on advertising amounted to $141.7 billion. With calculator in hand we can determine that advertising is just a sliver under 1 percent of GDP (0.99%).

[Corresponding values for 2012? Here they are: GDP $16,244.6 billion ($16.2 trillion), Advertising $139.5 billion, and advertising as a percent of GDP still only a hair of the total GDP, less than 1 percent (0.86%).]

I was led to make this calculation because today’s Business Day, the business section of the New York Times, perhaps coincidentally, was crowded with stories about advertising or closely related subjects. Stories dealt with (1) curbing commercials, (2) measuring responses to advertising messages, (3) late night TV programming battles (featuring ratings), (4) a TV morning show, (5) the role of giveaways in marketing, (6) NPR activities on the Internet,  (7) a technology convention being used as an advertising medium, (8) promotion of investing by using cartoons,  (9) a trademark battle between brands, and (10) a user-designed magazine and user-designed ads. Other stories were closely linked to the communications field: (a) iPhone, (b) Amazon and the Kindle, (c) a wireless acquisition, (d) Twitter, (e) the digital divide (African Americans are less represented on the Internet),  and (f) a story about the Gannett news organization. Only a single story, about toxic assets, even hinted at the fact that 99.01 percent of the economy [in 2008] might be doing something other than worrying about advertising or the media. I hasten to add here that the New York Times’ coverage of business is usually more diverse.

Since advertising is intrinsically linked with communications, it is visible because it has to be, intrusive because, well, it has to be, and therefore its presence is artificially exaggerated by its very function. We’re barely aware of the rest of the economy—unless some part of it fails us.



Our ways of perception have evolved so that we notice change above all—any deviation from the normal, ordinary, and habitual. Advertising exploits this aspect of our natural design. Our communications media, similarly, can only prosper when they’re seen. Both commercial and regular media therefore attempt to grasp our attention. The two ways to do so are by tempting or by shocking us. The relentless auction that modern life has become therefore produces a highly distorted sense of reality—sex and violence everywhere. But we see virtually none of that unless we’re in contact with media. Interesting. In the chart I’ve inserted, what we see is “All the Rest.” What we see on the media, writ very large, is the little sliver that I’ve labeled “Advertising.” Inverted impressions.

Wednesday, October 23, 2013

Employment Update: September 2013

Thanks to the government shutdown, this monthly report came yesterday, some 19 days after its regular appearance (first Friday of the month). The results are a gain of 148,000 jobs in September, lower than the number reported for August. These data come from the Bureau of Labor Statistics press release of yesterday (link). The BLS also published revisions for July and for August, netting out to an additional gain of 9,000 jobs. Herewith the graphic:


If we project year-to-date numbers to the entire year 2013, we see that 2013 is likely to turn in a lower gain in total employment than 2012 did. This month, like last, the projection has dropped. Last month in was 2.163 million jobs, this month 2.132 million. That graphic follows:


Despite the theme of the year 2013, which is Sluggish, a positive note is that all but two major sectors show gains. The two posting losses are Finance (down 2,000 jobs) and Leisure and Hospitality, down 13,000. People don’t seem to be in the mood to take a vacation.

It will be interesting to see what impact the October troubles will have had on this all-important indicator of our economic health.