Last week's Week in Review

This story was originally posted last Friday on TCM's web site

It's been a curious week for results reports. All looks very good on the surface, but not so great deeper down. Google said that for the fourth quarter, its net profit nearly tripled over the quarter last year to $1.03 billion from $372.2 million. But nevertheless its shares were sent down on the news and are still trading down two days later.

What gives? There were different reasons floating around explaining why: some believed the market's response was because people have become inured to the Google good-news wagon, and what they really need to see is wildly excellent news to be enthusiastically buying up the stock, which is already trading at sky high prices of just under $500/share.

Others in the investment community say they are getting concerned with Google's business model being too focussed on a single revenue stream. The reality of breaking into all the new markets that they'd like to tackle to grow their business - online video (with YouTube), online payments (using Checkout), and putting their advertising model onto other media like newspapers - could be more costly than originally expected.

The online shopping giant, Amazon, provides an instructive example for Google about what this can mean to the bottom line in the longer run. Amazon had beat analysts' expectations for the fourth quarter on sales of $4 billion, an increase of 34% on the year before. But while still profitable, with sales of $98 million, this number was down significantly on sales of $199 million for the quarter a year ago, and is its lowest profit margin since 1999. This rather huge drop has been attributed to shrinking margins: its traditional businesses of selling books, movies and other items online has matured, and it's been spending a lot of money trying to shift products in new areas, like toys and electronics.

The lesson here might be that Google needs to get some value creation in those new areas before the old, established ones start to really fade.

Comcast, the US cable operator, is another company that's reported a tripling of profits for the quarter. With a lot of their growth coming from a welcome triple-play boost of customer spend, Comcast is going to reinvest a chunk of their money on expanding their telephone services. Their new attention could not be coming at a better time: they were also in Washington this week filing an appeal with the FCC over a recent set-top box ruling that will force them to 'open' their STB's to competitors' services. With the huge influx of new companies out there offering video on demand and other TV-based entertainment, this could seriously disrupt Comcast's (and other pay-TV providers') bread and butter.

Over in the UK, the satellite broadcaster owned by News Corp., BSkyB, also reported some healthy numbers on the back of triple play excitement. We'll be providing a full analysis of what they are doing in our launch issue of TCM magazine, which will be out in a couple of weeks.

Yo space or Myne?
Emap is the latest media company to try to follow the News Corp. example of getting into social media by acquiring an existing user-generated content player. Today it announced it bought Yospace Technologies, for £8.7m, with a possible further £5.7m in deferred payments based on their performance between now and March 2010. Yospace is behind a number of social-networking sites like "See me TV," a video sharing site designed for mobile operator 3 (which happens to have a content deal with Emap…). Three has claimed that it has had huge success with its video service, thanks largely to See me TV.

The price that Emap's paying for Yospace is a tad less than the $580 million that News Corp. forked out for MySpace. Yospace made a loss of £480,000 in 2005 (no figures for '06 have been released), and it's not yet clear that MySpace is turning a profit, either. No matter how much you pay for social networking, it's still not clear whether it will pay back.