MediaMemo » growth

Microsoft Goes Back on Message: No Recovery in the Works

Peter Kafka — Mon, 02 Nov 2009 11:37:34 +0000

Say what you will about Microsoft executives, they have been consistently on message during the past year or so. That message: Things aren’t getting better any time soon.

The latest in a string of downbeat declarations comes today, via Steve Ballmer’s visit to South Korea, where the Microsoft (MSFT) CEO warned that tech spending would take years to get back to its pre-recession peak. AP:

“The economy went through a set of changes on a global basis over the course of the last year which are, I think is fair to say, once in a lifetime,” Ballmer told a meeting of South Korean executives in Seoul.

Spending on information technology, which accounted for about half of capital expenditures in developed countries before the crisis, was unlikely to rebound fully because capital was more scarce these days, he said.

“While we will see growth, we will not see recovery,” Ballmer said.

Which is pretty much what he’s been saying for some time.

There’s at least one upside to this kind of relentless and sensible negativity, though: If you deliver any news that isn’t straight-up awful, people get ecstatic. As they did last month, when Microsoft posted a downbeat but better-than-expected earnings report (click on graph below to enlarge).

Mixed Signals From Meredith: Ad Sales Are Less Bad, but Still Lousy

Peter Kafka — Thu, 29 Oct 2009 13:28:35 +0000

So now that the economy is officially growing again, when will marketers start spending again? It can’t happen soon enough for ad-supported companies (and their employees).

The latest unpleasant news comes from magazine heavyweight Meredith (MDP), which does its best to explain that things aren’t that bad: Two of the publisher’s big titles–Better Homes and Gardens and Family Circle–saw ad revenue grow in the last quarter, and the company says its magazine unit notched its “third consecutive quarter of advertising performance improvement.”

That sounds good, right? Except that magazine ad revenue still dropped five percent compared with the same quarter a year–and last year’s quarter was a terrible one in which ads dropped by 18 percent.

More data points to watch for in the next few days: The Washington Post (WPO), which reports tomorrow, and Time Warner (TWX), due up next week.

Ad Market Prediction of the Day: Recovery Is Here, Says Ad Giant Publicis

Peter Kafka — Tue, 27 Oct 2009 20:15:03 +0000

It’s all well and good for Google (GOOG) to say the worst is over. But what about media companies that survive on revenue streams other than search ads?

Things should be better for them, too, says Publicis, one of the biggest advertising companies in the world. The French holding company, which announced its results today, says things bottomed out this summer, and that “the advertising market is starting its recovery which will be slow and progressive.”

For a slightly less stilted version of that statement, see Publicis boss Maurice Levy: “The recovery will be slow, but all the signs we have are going in the right direction.”

As always with these stories, context is key: For now, “recovery” generally means “less bad.” As in this case: Publicis says organic growth–the company’s performance after you strip out acquisitions and currency effects–declined 7.4 percent in the last quarter, which isn’t exactly sizzling. But it’s better than the 8.4 percent decline it notched in the previous quarter.

NBC Cleans Up Its Earnings Act for Comcast

Peter Kafka — Fri, 16 Oct 2009 11:27:57 +0000

After a couple of miserable quarters, NBC Universal and Jeff Zucker finally have some good news to announce: Earnings actually increased in Q3, even though the entertainment conglomerate’s revenue kept dropping.

The numbers, via parent company GE’s (GE) release this morning: NBCU posted a $732 million operating profit, up 13 percent year over year, on revenue of $4 billion, which is down 20 percent. Important footnote: As GE explained during its earnings call, if you adjust NBCU’s performance for one-time gains, operating profit would actually be down nine percent.

Still, even that result is an improvement over previous quarters. So perhaps those numbers will cheer Comcast investors, who have been beating up the cable company ever since news of its talks to buy NBCU surfaced last month.

GE usually spends very little time discussing NBCU’s performance during its earnings calls, since investors are much more concerned with the rest of the company’s performance, and in particular, its troubled finance arm. But perhaps the pending Comcast (CMCSA) deal will change that this time around.

Some notes from the earnings call: GE CEO Jeff Immelt has joined the “recession is over” crowd, but only mentioned NBCU briefly during his opening statement. He says scatter pricing–ads that marketers buy during the TV season, as opposed to the spring “upfronts”–is “better.”

GE booked a $283 million one-time gain from the sale of some of its stake in the A&E cable channel. And it took charges on write-downs related to its stake in NDTV, its Indian TV investment, as well as the Weather Channel, which it bought alongside some private equity groups for $3.5 billion last year. But the company still ends up $89 million ahead in the one-time events column–the equivalent of a penny per share of earnings.

And as the company explains in the table below, if you take out the one-time gains, NBCU’s quarterly profit increase turns into a loss. This is a reverse of previous quarters, when the company told investors to ignore one-time losses that made horrible earnings look even worse.

More color on the scatter market: CFO Keith Sherin says Q4 pricing is up “double digits” for primetime TV spots, and more than 20 percent for cable TV.

Asked a vague question about the proposed NBCU deal, Immelt gave a vague answer, noting that while “NBCU is a great franchise that’s consistently delivered income growth and cash…we always evaluate our portfolio.” He then suggested that GE doesn’t need to sell NBCU, which is the right thing to say. “We just want to be ready for several scenarios….We don’t have a specific pronouncement, or a specific need for cash.”

Here’s GE’s broad-stroke description of NBCU’s quarter (click to enlarge):

How Good Is Google's Growth Story? Time to Find Out.

Peter Kafka — Thu, 15 Oct 2009 11:34:58 +0000

Google CEO Eric Schmidt couldn’t be any clearer: He’s been saying, over and over, that he thinks the recession is in his company’s rear-view mirror. And Wall Street has been listening: It has been steadily pushing up Google shares for months.

Now we get to find out just how good Google’s (GOOG) growth story is. Read three different analyst reports and you’ll get three different descriptions of Wall Street’s “consensus” estimates for the search giant’s Q3 numbers, out this afternoon. But Thomson Reuters thinks the Street expects earnings of $5.42 per share on revenue of $4.24, so we’ll go with that.

Here’s a more detailed breakdown of expectations, courtesy of Bernstein Research’s Jeffrey Lindsay. Note that per above, his description of consensus differs from the one at Thomson Reuters (click to enlarge):

More broadly, Wall Street expects to hear that U.S. ad dollars picked up in the last quarter, that international markets have as well, and that margins have held up due to cost-cutting, because Eric Schmidt has been saying all of those things out loud in recent days. Schmidt has also continued to talk up YouTube’s prospects for profits, so expect to hear about that this afternoon as well.

Google Says Google's Perks Are Overrated, and Belt-Tightening Is Underrated

Peter Kafka — Wed, 07 Oct 2009 19:41:56 +0000

Hey Googlers! All those perks the company is famous for: The great food, the high-end daycare, the fancy bathrooms? Overrated, your bosses say. So is the dream of getting insanely wealthy at your job.

Instead, Google CEO Eric Schmidt said today, you ought to be happy to work at Google…because it’s Google. In that sense, Schmidt said, the recession of the past year has been good for the company since it has highlighted the difference between working at his company and other options–including not working at all.

Schmidt’s comments came during a press conference he and Sergey Brin held today, which was wide-ranging and went down several interesting avenues. I’m reproducing a long chunk of it here from my recording of the chat, because I think it addresses one of the core challenges Google (GOOG) has: How to keep the innovative energy and intelligence the company had from its garage start-up days now that it’s a 20,000-person monster.

Google has been grappling with this for quite some time, but the challenge became more evident in the last year or so as the company began cutting back on perks like free food and low-cost child care, and even made its first-ever layoffs. (The photo at the top of this post is from the 2008 version of the company’s annual “Google Dance,” which was canceled this year).

Those moves were made in response to the economy, but they also did double duty by helping the company “reset the culture,” Brin said.

The exchange kicked off when a reporter asked the duo about a sense of entitlement among Google staff, in reference to a passage in Ken Auletta’s new book about the company.

Brin: I do think there was a period of time where the culture, as it were, was misinterpreted. I certainly remember when we would start, when there were a few of us working in the garage, and occasionally [co-founder] Larry [Page] would rollerblade in with a few sandwiches for food. And that grew up into everybody’s expectation: “Oh, they should have all the gourmet food they want, at any time.”

I think it’s important to reset the culture from time to time. And I think several years ago we did that. Clearly, people had extrapolated from our past practices what the vision might be. And having actually been there, and knowing the rationale…we decided to, for example, we significantly cut down all the snacks that had been available. [laughter]

[The question is reframed: Isn't the real perk at Google supposed to be stock options, and aren't those much less valuable, now that the company's go-go growth days are over?]

Brin: Well, I don’t know. it depends on where in the graph you look. Certainly it has fluctuated ever since we’ve gone public. Up and down, so…

Schmidt: Let’s say this: It is axiomatic that the best thing to do is to found a multibillion-dollar corporation with free stock, take it public and have the difference between zero and the stock price….That would be the maximum gain possible. For most people, they don’t have the wherewithal and the skills to do that.

Brin: Or the luck.

Schmidt: And luck. Yes, I suppose. In your case, I think, skill and brilliance. People make decisions….The way to state this is that Google pays very well. Google is clearly a growth company, by any metric. And people at Google don’t work for those reasons at Google. We don’t want them to come to Google for those reasons. We want them to come to Google to change the world.

Life is short. And everybody here understands that. Life is short; you should work on the things that are most important. If you want to work on what Google is working on–cloud computing, search, all the things that we talk about all the time–then come to Google and we will pay you well.

That works. We don’t want a different workforce than the one that I just described.

And I would also answer the entitlement question, as I understood your question, as to say that the last year has been very good at solving that problem.

The tightening that [CFO] Patrick [Pichette] in particular did, who I think is the current Google hero, really did change the culture in a much more pragmatic way: “We’re happy to work here. We’re happy to be employed. We love what we’re doing. Our friends, you know, have been laid off.” It’s been a maturing process. And I think a generally good one.

[Image credit: permanently scatterbrained]

Here Are the Condé Nast Cuts: Modern Bride, Elegant Bride, Gourmet, Cookie Closing

Peter Kafka — Mon, 05 Oct 2009 14:56:55 +0000

Here are some of the long-awaited cuts that Condé Nast has been mulling: The publisher is shuttering Modern Bride, Elegant Bride, Gourmet and Cookie.

It’s not a huge shock to see some of those titles go: Cookie, for instance, wasn’t a prestige title for Condé–like Domino, which the publisher closed down earlier this year, it was founded in 2005.

But Gourmet is one of Condé Nast’s most famous titles, and editor Ruth Reichl is one of Condé’s best-known editors. Most observers would have figured that Bon Appétit would go instead. CEO Chuck Townsend says the Gourmet brand will live on, zombie-style, via TV and publishing deals.

Condé has long cultivated a reputation as the magazine world’s most glamorous outpost, impervious to the petty concerns that bedeviled lesser folk. But the double-punch of the ad industry’s move away from print titles and a recession that pole-axed the luxury brands Condé depends on, has staggered the publisher. (Disclosure: I do some free-lance work for Condé title Vanity Fair).

Signs of trouble showed up late last year when the publisher made uncharacteristic staffing cuts. And in 2009, it began shuttering magazines: In addition to Domino, it closed Portfolio in April, just two years after a high-profile launch.

By July, Townsend had brought on consultants from McKinsey and Company to help figure out where else it could trim; the news that September ad pages would be down anywhere from 17 percent to 47 percent made it clear that other titles would be going.

I wouldn’t expect this to be the last big set of magazine cuts, by the way: Time Warner (TWX), for instance, has made it clear that it wants to hang on to Time Inc. but that it thinks the publisher employs too many people who produce too many titles.

Here are the details on the Condé cuts, via an internal memo (intended for public consumption) from Chuck Townsend:

From: “Townsend, Chuck”
Date: Mon, 5 Oct 2009 10:16:52 -0400
To: Conde Nast Publications-All <_273fee@condenast.com>
Conversation: Announcing Changes within Condé Nast
Subject: Announcing Changes within Condé Nast

We have now completed an extensive review of our business–an important undertaking given the dramatic changes in the U.S. economy. The review has led us to a number of decisions designed to navigate the company through the economic downturn and to position us to take advantage of coming opportunities.

Condé Nast’s success comes from the ability of our publications to attract readers with a wide range of interests, as well as advertisers who value them. But in this economic climate it is important to narrow our focus to titles with the greatest prospects for long-term growth.

As a result of our review, Brides will increase its frequency to monthly to solidify its position as the most important brand in the bridal category, and Modern Bride and Elegant Bride will close.

Gourmet magazine will cease monthly publication, but we will remain committed to the brand, retaining Gourmet’s book publishing and television programming, and Gourmet recipes on Epicurious.com. We will concentrate our publishing activities in the epicurean category on Bon Appétit.

Finally, Cookie magazine will be discontinued, and resources that had been dedicated to its publishing will be invested elsewhere.

The editorial and business staffs of Modern Bride, Elegant Bride, Gourmet, and Cookie all have earned their magazines large and devoted followings. We have been proud to publish these titles, and we are grateful to the staffs for their hard work and dedication.

These changes, combined with cost and workforce reductions now underway throughout the company, will speed the recovery of our current businesses and enable us to pursue new ventures. In the coming weeks, we hope to announce initiatives to develop digital versions of our brands that will make use of new devices and distribution channels.

Condé Nast is now in its 100th year of creating the most respected and iconic brands in the publishing world. These changes will ensure that our unique publishing company will continue in its preeminent position for many years to come.

Twitter Goes for Broke, if Broke Means "A Lot of Money": New Funding Round at $1 Billion Valuation

Peter Kafka — Wed, 16 Sep 2009 23:00:31 +0000

Is Twitter a billion-dollar company? It is now, according to its investors. People familiar with the company tell me it has raised around $50 million in a funding round that values the start-up, which has no real revenue to speak of, at about $1 billion.

TechCrunch, which first reported the funding, says CEO Evan Williams informed his employees about the new deal at a recent companywide meeting. I’m told the round is all but finished: “If the money isn’t in the bank yet, it will be soon,” a source tells me.

No word on who has invested in the company in this go-round, but it’s almost certain Twitter was able to entice new backers to join its existing investors: Silicon Valley logic dictates that each successive funding round should attract new money.

In February, Twitter raised approximately $35 million in a round led by Benchmark Capital and Institutional Venture Partners that valued it at $250 million.

And just to spell this out–Twitter’s new investors, along with older investors who have reupped, believe the company will ultimately be worth much more than $1 billion. In order to get a return on their money, they will expect it to hit $3 billion or more.

Feel free to debate the merits of Twitter’s growth prospects, and its chances of creating a real business out of all of those 140 character messages its users create.

But in retrospect, this funding round seems obvious: Twitter’s founders have insisted that they want to build the company on their own instead of selling it to the likes of a Google (GOOG) or Microsoft (MSFT), and they’ve already turned down Facebook. And if they weren’t going to sell, raising yet more money to give the company time and resources to build out a real business is the logical choice.

Here are Williams and co-founder Biz Stone talking to Walt Mossberg and Kara Swisher at the D: All Things Digital conference in May. Discussion of the company’s future as a standalone business kicks in around the 31-minute mark.

[ See post to watch video ]

Waiting for the Economy to Bounce Back? So Is Google.

Peter Kafka — Thu, 16 Jul 2009 20:45:43 +0000

Waiting for the economy to come roaring back? So is Google. The search giant had a decent quarter, but not one that’s going to blow away Wall Street, or convince anyone that the economy is roaring back. But it’s an okay performance for a media company in a recession.

Top line for Google’s Q2 earnings: Net revenue of $4.07 billion and earnings of $5.36. The Street was looking for net revenue of $4.05 billion and earnings of $5.05.

CEO Eric Schmidt isn’t overly effusive: “Google had a very good quarter, especially given the continued macro-economic downturn. While most of the world’s largest economies shrank, Google’s year-over-year revenues were up 3%. These results highlight the enduring strength of our business model and our responsible efforts to manage expenses in a way that puts us in a good position for the economic upturn, when it occurs.”

Meanwhile paid-click growth was up 15 percent, and the company continues to clamp down on expenses: Google’s headcount actually shrank in the last three months, from 20,164 to 19,786 full-time employees.

I’ll be listening in on the call and occasionally updating here.

Schmidt: “Youtube is now on a trajectory we’re very pleased with.”
“Too early to tell when the recovery will materialize.”
CFO Patrick Pichette: Still hiring, but decrease in headcount came from previously announced layoffs.
Product SVP Jonathan Rosenberg: We’re focusing more than ever on power users.
Mobile monetization picked up, driven by smart phones. YouTube’s monetized views have tripled in the last year.
Sales boss Nikesh Arora: Small advertisers have stayed consistent during downturn, and larger advertisers who have been on sidelines are coming back.
Schmidt on Chrome OS: We’re talking to manufacturers about designing “products that are very, very exciting.” Will Chrome run on existing hardware? Available for download? Still to be worked out.
Was June soft? Schmidt: We generally don’t parse interquarter trends. On YouTube: Monetizing “billions of views” per months. [Nothing approaching real numbers or real context].
Arora: “Significant sellthrough” in markets where Google has YouTube homepage for sale. Next phase of YouTube sales emphasis will be preroll ads on short-form videos.
Arora on YouTube “trajectory” comment: We’re excited about getting pieces in place to drive this forward [i.e., not talking about numbers]. Customers accepting YouTube ads: “It’s becoming accepted user behavior where they’re going to watch premium content that people have invested in, they’re going to watch pre-roll ads.”
Is YouTube profitable? Pichette: We don’t give out economics. But in the not-too-distant future, we see it being very profitable.

Here again, per Citigroup’s Mark Mahaney, is a crib sheet for interpreting the results (click to enlarge):

And here are the slides from Google’s investor presentation:

2009Q2_google_earnings_slides –

Old Michael Jackson Story: Traffic Snarls the Web. New Michael Jackson Story: Look at Our Traffic!

Peter Kafka — Fri, 26 Jun 2009 22:30:59 +0000

Remember all those stories about Web sites buckling under the weight of all that Michael Jackson traffic? Here’s the flip side, now being promoted by those same Web sites: Look at all of our Michael Jackson traffic!

I’ve seen stories touting big traffic spikes at Time Warner’s (TWX) TMZ, which broke the story; Wikipedia, which apparently was flooded with Wikipedians squabbling over the details of Jackson’s demise; and Gawker, which lives for this sort of thing. At some point, the man-bites-dog story will be a site that doesn’t report a huge spike in Jackson traffic.

In any case, here’s the latest one I’ve seen: Yahoo (YHOO) boasting that Jackson’s demise has been its good fortune. Here are the data, per Yahoo PR:

Yahoo! News:
· Yahoo! News set a record in unique visitors with 16.4 million UV’s in a day. Our previous record was on election day when we had 15.1 million visitors.
· Yahoo! News had 4 million visitors come to the site between 3-4 pm, setting an hourly record.
· Yahoo! News recorded 175 million page views yesterday, our 4th highest day after the Inauguration and Hurricane Ike.

Front Page:
· On our front page, the story “Michael Jackson rushed to hospital” was the highest clicking story in our history. It generated a whopping 800,000 clicks within 10 minutes and news of his death saw 560,000 clicks in 10 minutes. Also, the news area on our front page experienced five times the amount of traffic it normally receives.

Yahoo! Music
· Yahoo! Music’s blog post on Michael Jackson has generated 21K comments in under a day.

UPDATE: Here’s some boasting from CBS’s (CBS) Web group. Happy to keep adding to this if anyone else wants to do a little chest-beating.

· Since the news broke, Last.fm saw a huge surge in users streaming music tracks by Jackson. On average, users were streaming 43,000 Jackson tracks per hour. The Michael Jackson artist page has received heavy traffic with more than 30 page impressions per second as fans log on to pay their respects to the pop icon. The traffic for the artist page continues to increase, and the site continues to see more than 45 times the normal traffic.

· TheInsider.com reported record traffic for June 25, with an increase that was close to double compared to the previous week. Prior to yesterday, the record for high traffic was held on May 5 when the site shared revealing photos of former Miss California Carrie Prejean.

· Within 12 hours of the announcement, CBS.com saw 100% aggregate growth over the same day last year as fans turn to CBS.com for breaking news about the tragedy, as well as to link to CBSNews.com and THE EARLY SHOW for their streaming coverage.

· CBSNews.com traffic tripled during the hour in which Jackson’s death was officially announced (3 p.m. PACIFIC/6 p.m. EASTERN) on June 25 as people turned to the site to learn more about the circumstances involving his death.

And yes, this is the third Michael Jackson post I’ve written today. Which gives me an opportunity to embed a third Michael Jackson video. This one is the intro to the “Jackson 5ive” animated series from the 1970s, procured by our eagle-eyed Beth Callaghan. Enjoy.

[Image credit: Library of Congress]

Tuning Out: Last.fm Founders Leave Two Years After Selling to CBS

Peter Kafka — Wed, 10 Jun 2009 15:43:45 +0000

The founders of Last.fm, the London-based Web music start-up CBS snapped up for $280 million two years ago, are leaving the company. No word yet on whom CBS will appoint to replace the founding trio of Felix Miller, Richard Jones and Martin Stiksel, or what any of the men intend to do next–though Jones did tell users that the trio planned an “epic farewell party” and “a much needed holiday.”

UPDATE: I’m told the trio will stick around for a few months to help out with the transition. But to what? First priority is finding a replacement for CEO Miller.

Miller announced the deal in a short blog post today.

Last.fm, which provides free, ad-supported music streamed over the Web, was the first major acquisition the broadcaster made after bringing on digital M&A pro Quincy Smith, who is making plans to set up shop on his own. CBS (CBS) sends out a steady flow of press releases touting the site’s growth–the most recent one I have, from last month, pegs its audience at 30 million monthly users, while Miller’s post says they’re up to 37.3 million–but turning online eyeballs and ears into dollars has been hard for every Web music start-up, and Last.fm is no exception.

The unit saw its headcount cut significantly during CBS’s reorg of its interactive group late last year, and last month the company combined Last.fm with the online stations from its CBS radio unit.

Here’s text of the post announcing the founders’ departure:

After two years running Last.fm within CBS we feel the time is right to begin the process of handing over the reins. This is the latest stage in a long journey for us founders, which began in a living room in East London in 2002, and took us to the headquarters of one of the biggest media companies in the world.

It’s been a privilege working with the incredible team here in our London office, and we’re extremely proud of what we’ve achieved together. Last.fm’s users have more than doubled in the last 12 months (we are now at an all-time high of 37.3M monthly unique visitors), and we’re confident the site will continue to go from strength to strength. Being a part of CBS, and the recently formed CBSi music group, continues to open up many opportunities for Last.fm. Recent product releases such as the new visual radio, and the Last.fm on XBox announcement, are an indication of how much more Last.fm will achieve.

A huge “Thank You!” has to be said to all of you in front of your computers. With your contribution, enthusiasm and scrobbles you have helped to make Last.fm into what it is today: the best place for music online. Big up yourself for that, as we say here in East London.

That’s all folks, we are going to miss you!

Facebook's Zuckerberg: $10 Billion Is a "Fair" Valuation

Peter Kafka — Tue, 26 May 2009 17:48:56 +0000

Looking for lots of specifics about the $200 million at $10 billion valuation deal that Facebook and Digital Sky Technologies just announced? Then you have come to the wrong conference call, my friend. But for what it’s worth, Facebook CEO Mark Zuckerberg did sound fairly upbeat and confident during his chat with reporters Tuesday morning–the way you’d expect someone who just cashed a check for a couple hundred million to sound.

The big picture: Even though Facebook’s official valuation has slid from $15 billion–November 2007, when Microsoft (MSFT) invested–to $10 billion, Zuckerberg is OK with that, arguing that 1) that deal was done at the peak of the market and 2) the pact was never really a financial deal, but a way for Microsoft to partner up with Facebook–and, though he didn’t say it, to box out Google (GOOG). That sounds pretty reasonable.

Zuckerberg’s main talking points were that his company didn’t need the money, but it sure was nice to have, both to fund growth and make any M&A easier to pull off. And when it came to his new partners, he argued that DST’s existing portfolio, which includes several other social networks, would provide models/examples for his company as it continued to expand outside the U.S.

Earlier:

Facebook and its newest investors Digital Sky Technologies, are holding a teleconference to discuss the $200 million at 10 billion valuation deal the two parties just announced. I’ll be covering the call live.

Call starting “momentarily.”

On the call: Facebook Mark Zuckerberg, DST CEO Yuri Milner. Also, via phone (from D7!): Facebook COO Sheryl Sandberg and DST’s Alexander Tamas.

Zuckerberg reading statement that more or less tracks press release: “Advertising product” improving, “our business is doing really well” and we’re on track to create a “nice” business, and that’s why investors want in. DST approached us, has interesting profile and experience and insight into social networks. “We found their thinking and their leadership to be really impressive.”

Money provides “cash buffer” to support our continued growth, also possible other moves. No specific plans to talk about “but nice to have flexibility.”

Milner: “I realize not all the participants on the call are familiar with us.” Goes over DST portfolio. “We have now started to actively expand abroad.” We’re a holding company, have raised and invested more than $1 billion since 2005. Rattling off portfolio companies now.

Q&A:

What does this mean for possible IPO? Zuckerberg: “Our approach to financing has really been that we want to take money and work with partners”…”for a lot of start-ups, you get the feeling that the IPO is really the end goal…that’s not the case for us…we’re not rushing toward it…that’s really all I have to say about that today.”

What’s valuation for common stock? Zuckerberg: No comment. “There are different transactions that we’ve structured differently…we hope that there will be different things in the future…probably sometime in the next few months.”

What does this say about Microsoft’s $15 billion valuation? Zuckerberg: We did that deal at the peak of the market. That was part of a broader relationship. That investment was just one piece of it. This is also a relationship that we’re forming with DST…we hope we will work with other things over time.

“We feel really good about the progress we made…we feel this is a good and fair valuation for us.” The Microsoft deal was at peak of market and was a strategic deal. “The world was in a pretty different place at that time.”

The international audience is 70 percent of our users. How do you monetize that? Zuckerberg: I have a few things to say, but want Yuri to talk, too. Milner: We have invested in five social networks in Europe. They have been able to monetize better than Facebook because they’re further along the curve than Facebook, which is a global company. But we think that Facebook will improve. Money will come from micropayments and advertising.

Zuckerberg: We can do advertising and have been experimenting with payments. Social networks in DST’s portfolio all monetize in different ways. Each is doing well, with a different model. We’re still growing. Online and direct advertising are growing the quickest, but over time, we expect to be able to build out a large number of these things.

What is your ad revenue going to be? Zuckerberg: A couple of months ago, we felt that everyone outside the company was underestimating our performance. We’ve been EBITDA-profitable for five straight quarters coming on six. Revenue growth has been 70 percent. Cash-flow positive sometime in 2010. That’s important because it means this investment is pure buffer. I realize those aren’t absolute numbers, but those are the ones we’re talking about.

Will DST be involved in management? Milner: We have our own businesses to run. We’ll keep in touch.

Questions about micropayments. Zuckerberg: We’ve tested a lot of things. It’s not a big part of our business, could be greater one day. They create a lot of value for users, and there are ways to monetize them. I’m looking forward to learning how these models are working.

Please talk about common stock/employee stock purchase plans. Zuckerberg: Going back to first question re. IPO. We want to make sure that we can continually make it so employees can be focused on the long term. We felt that if we let people have a little bit of liquidity, it can take some of the pressure off and let people focus on making company as good as it could be. We started to do this last year and had to hold off. Now we hope to be able to do it again.

Will that be the only way you are allowing employees or ex-employees to sell shares? Zuckerberg: Still talking about.

Is current Facebook ad business to be the main business going forward? Doesn’t mean it will be main business in the long term. You guys know everything that we’re talking about now.

Why aren’t you running big brand ad campaigns? We’re very interested in it. We have a big ad sales team. Building out offices internationally: U.K., France, a few more coming up. We think the best way to serve advertisers is to create ads that people interact with, that are “social and engaging.” I don’t want anyone to think that this isn’t a big part of our business, because it is.

Sandberg: Heavily engaged with brands. Ads specifically designed for Facebook, so they look different and behave differently than other ads on other sites, and that’s a good thing.

Preferred shares–are these are substantially similar to the ones Microsoft bought? Zuckberg: “I’m gonna duck that one.”

Does the company have any debt? Zuckerberg: [pause] There’s been some information that’s been public about debt we have for operating equipment. Beyond that, we do equity deals.

Will you do other investment deals? How many did you look at? Zuckerberg: He doesn’t really answer this question; instead he goes on to praise DST. Milner: We see things that other people don’t see, which is monetization that other social networks have been able to do. So we “kind of feel comfortable with that valuation.”

Is this largest foreign investment in Facebook? Zuckerberg: Um… [pause]. There’s been some public information about other folks we’ve worked with, but I think from reading some of the records you can get the answer to your question.

Other new deals? Zuckerberg: It was really at our option to find someone we were comfortable with. We didn’t feel like we needed to take an investment, and now we feel like we have the buffer we want.

Working on video chat product? More international products? Zuckerberg Yes. There are lots of things like that that we’re working on now. We want the site to be available in every country. We’re not translating the site. Users translate the site themselves. And a lot of the features are universally applicable.

Call finished.

Microsoft Starts the Layoff Machine Again With Thousands of Cuts: Steve Ballmer's Memo to the Troops

Peter Kafka — Tue, 05 May 2009 14:45:04 +0000

Here comes the second round of layoffs at Microsoft, following a first round that started in January. Today’s cuts will likely end up costing about 3,000 workers their jobs. Microsoft had previously warned that it would cut up to 5,000 jobs by 2010. The good news, says CEO Steve Ballmer: The newest round means “we are mostly but not all done” with layoffs.

As Todd Bishop at TechFlash notes, Microsoft (MSFT) previously cut 1,400 jobs, and hadn’t actually committed to the 5,000 number.

But the company just posted a miserable quarterly-earnings report, and company executives spent most of the ensuing conference call warning investors that things look dire.

Here’s Ballmer’s memo to the troops:

From: Steve Ballmer
Sent: Tuesday, May 05, 2009 5:43 AM
To: Microsoft – All Employees (QBDG)
Subject: Update: Realigning Resources and Reducing Costs

In January, in response to the global economic downturn, I announced our plan to adjust the company’s cost structure through spending reductions and job eliminations. Today, we are implementing the second phase of this plan.

This is difficult news to share. Because our success at Microsoft has always been the direct result of the talent, hard work, and commitment of our people, eliminating positions is hard.

Today’s action includes positions in the United States and in a number of countries around the world. In the U.S., affected employees will be notified directly by their managers today. In other countries, local leadership teams will provide more specific information about the impact to their organizations.

With this announcement, we are mostly but not all done with the planned 5,000 job eliminations by June 2010. We are moving quickly to reach this target in response to consistent feedback from our people and business groups that it’s important to make decisions and reduce uncertainty for employees as quickly as possible, and so that organizations can concentrate their efforts and resources on strategic objectives.

As we move forward, we will continue to closely monitor the impact of the economic downturn on the company and if necessary, take further actions on our cost structure including additional job eliminations.

For those of you directly affected by today’s announcement, I want to thank you for your contribution to Microsoft and assure you that we will continue to provide support as we did during the previous job eliminations.

And for everyone across the company, I want to reemphasize how much I appreciate the way you have pulled together to help the company respond to this difficult economic environment. There’s no doubt that these are very challenging times. But together, we are making the right choices to ensure that we will continue to deliver great products and position ourselves for strong future growth and profitability.

Thank you for your continued hard work, commitment, and focus.

Steve

Google Still Shaking Up Sales Force: Nikesh Arora Replaces Omid Kordestani

Peter Kafka — Thu, 16 Apr 2009 20:31:17 +0000

Here’s the other shoe that hadn’t dropped following Tim Armstrong’s move from Google to run Time Warner’s (TWX) AOL: Omid Kordestani, who was the official head of Google sales, has been moved aside in favor of Nikesh Arora (pictured).

After Armstrong, who was Google’s best-known sales exec but not its highest-ranking, left, Arora was supposed to be a candidate for his job. But that post, or a version of it, went to company veteran Dennis Woodside.

Here’s the text of the announcement, buried at the bottom of Google’s earnings report:

“After ten years of building and managing our global sales and partnership operations, Omid Kordestani has decided to hand over the reins to Nikesh Arora, currently President of International Operations, and take on a new role as Senior Advisor, Office of the CEO and Founders. Continued growth is essential to our future success and no one is better placed to advise on new revenue opportunities than Omid, the business founder of Google. In his new role as President, Global Sales Operations and Business Development, Nikesh Arora will have responsibility for all Google’s revenue and customer operations, as well as marketing and partnerships. He has a proven track record at Google, having spent the last four and a half years building our European operations into a substantial business.”

Google (GOOG) points out that Kordestani’s new position will be a full-time job and will report directly to CEO Eric Schmidt. And during the company’s earnings call, Schmidt took pains to both praise Kordestani, who was on the call, and repeatedly refer questions to him.

Still, the move is bound to bring up the question: Is Kordestani being blamed in any way for the sales slowdown at Google? During the call, Schmidt argued (quite sensibly) that sales were down because the economy was down. But Google also just let go of 200 of sales people, after Kordestani explained that “When companies grow that quickly it’s almost impossible to get everything right–and we certainly didn’t.”

Twitter's Astonishing Hockey Stick

Peter Kafka — Wed, 15 Apr 2009 20:27:36 +0000

Earlier this year I talked to someone who was an early investor in Twitter and asked him whether the company’s lack of revenue had bothered him when he made the bet.

“No,” he said. “I bet on the hockey stick.”

That is, he was looking at Twitter’s staggering month-over-month growth–which looks like a hockey stick when you plot it on a graph–and assuming that any company that moved that fast had to be worth something, eventually.

That kind of thinking is common during bubbles, and much less so after they burst. But in this case, betting on Twitter’s hockey stick looks like a good wager–especially if you made your bet prior to this year. Because this is what the hockey stick looks like now (click to enlarge):

And note that the chart just illustrates U.S. traffic to Twitter, which comScore (SCOR) pegs at 9.3 million unique visitors in March, up 131 percent from February. Factor in international users, and those who use Twitter but never visit the site, and you get to 20 million easily.

I’m going to write many more stories about Twitter (a phenomenon that is itself part of the Twitter story) so we can try to assess exactly what that growth means, whether it makes sense for Google (GOOG) or Microsoft (MSFT) to do a search deal and what Twitter is really worth, later. But unless the Twitter guys really make a hash out of this, my anonymous investor is going to be right: That hockey stick is going to be worth something to someone.

Side note: As popular as Twitter is, most people are still new to it. So here’s a tip: If you don’t want the general public to know that you and many of your coworkers got laid off today, don’t Twitter about it.

[Image credit: Mykel Roventine]