20
Mar 08

Nah, they don't need $5 Billion dollars.

Speaking of Visa’s IPO…

I was reminded today of a series of lectures given by Professor Swaminathan when I was in Business School.  In addition to just being a brilliant teacher of finance, he’s an expert in the field of corporate valuation, including the valuation of real options.  I remember Swami explaining the concept of underpriced IPOs to us from his research.  For you MBAs out there this won’t be a new thing but the rest of you might find this interesting.

 Most IPOs leave money on the table.  In other words, when a company goes public, it deliberately under prices what it think the market price will be.  In Visa’s case today, since the market price ended up being $56.50 and not the $44.00 a share it was initially offered at, that translated into $5 Billion dollars Visa left on the table.  Technically the shareholders as a whole lost out–since that is cash now not available to invest in positive NPV projects.

 But you see the money wasn’t exactly left on the table.   It was handed quite deliberately into the pockets of the firms below: (thanks to the Wall Street Journal for the information) 

First, the original IPO Shareholders….okay, they deserve some compensation for all the “risk” involved in investing in the nation’s largest IPO–as you might know, Visa was owned and originally founded by the banks, so it’s not like they haven’t been getting returns from their investment in Visa along the way.

The largest owners of Visa ahead of the IPO were J.P. Morgan Chase & Co. (guess one could now say JP Morgan Bear Stearns Chase and company, or perhaps JP Morgan Bear Chase ;) ) , Bank of America Corp., National City Corp., Citigroup Inc., U.S. Bancorp and Wells Fargo & Co.; all continue to own stakes in the company.

 But wait, there’s more….don’t forget about those hungry investment banks.   We know how underfed and overworked they are.

Given today’s current credit crunch and tightening of Wall Street bonuses, I’m sure more than a few folks were bailed out by the fees they raked in on this one. Per the WSJ:  More than three dozen underwriters participated in Visa’s IPO. The deal was led by bankers from J.P. Morgan, Goldman Sachs Group Inc., Bank of America, Citigroup, HSBC Holdings PLC, Merrill Lynch & Co., UBS AG and Wachovia Corp.

 It’s always bothered me that so many insiders benefit from IPOs in the way the average stockholder does not.  Gotta give Google credit for keeping some of the food to themselves.

Perhaps even more frustrating, the popular press continues to perpetuate the myth of the “hot” IPO.  Consider today’s article in Time.  To quote:

Perhaps the biggest reason that Visa’s IPO price soared from $44 to $60 a share by noon on its first day of trading is simply that the company has massive growth potential, especially internationally.

Umm, no.  Most of the smart money had seen the road show and had priced in their valuations the growth prospects.  The fact is that most insiders know the real market number (or a close approximation) and they under price the shares accordingly to guarantee that juicy 30% pop the first day.

Nice work if you can get it.  I’m reminded of a quote from Robert Sarnoff:  Finance is the art of passing money from hand to hand until it finally disappears.


20
Mar 08

The Metric no eCommerce manager seems to be talking about

On the occasion of today’s Visa IPO, especially given my former life at PayPal, a few thoughts…

 

I recently attended one of the largest in-person gatherings of online marketing professionals.  I asked each of the people I met, close to 15 large, name brands the same question:

 

What % of your total revenues are you spending on payments processing?

 

Not one single eCommerce manager could answer the question, even within a ballpark.

 

Why do you all think no one’s looking at this?

 

Some ideas I thought of:

 

  1. Overemphasis on top line vs. bottom line
  2. “not sexy” relative to cutting CPA or increasing conversion rate
  3. lack of knowledge among GMs about how payments work (a corollary might be that there are assumptions that payment processing costs like electricity—necessary, but fixed).

  

Take a look at your payments metrics.  Evaluate the competition.   Run a quick model—it only takes an hour or so.  You might be surprised about how much opportunity there is for you to be a hero and save some money. 

 

Then get in there and make those payments vendors give you back some of your site’s hard earned cash. In this economy, everyone can use a little extra profit, right?

 

Personally, I’m taking a good hard look at Visa.  Given its business model, it’s as close as we’re going to get this year to a blue-chip IPO.


19
Mar 08

Eliot Spitzer is in the middle

Every year around this time as a child, I was certain of 2 things:

  1. I’d get a plastic basket with a hollow chocolate rabbit and a bunch of Easter Grass. 
  2. My mother would buy and eat a package of Marshmallow Peeps.

You can imagine the joy this photo brought me today.  How I love this website.

Humorous Pictures
see more crazy cat pics


19
Mar 08

Let’s get it started

Hello, and welcome to my blog.  So….a little bit about the title and the header picture.  The title is one I’ve been kicking around for the better part of a year.  I think the title of a blog is critical to its virality–who can forget www.dooce.com?  I wanted to chose something easy to remember, but also something that has meaning to me.  

 A few years back I read Steven Covey’s The Seven Habits of Highly Effective People.   His story in the beginning about imagining your own funeral and its tombstone was very effective in getting me to work on the question–just what do I want out of life?  Begin with the end in mind is Habit #2–Here’s a good summary.

So, When it comes to websites or even my life, this motto of “Begin with the end in mind” has always been a mantra.  It’s hard to plan a strategy when you don’t have goals.  Very Specific Goals.  So specific you can smell them and imagine every detail about them.  When I wanted to start losing weight, I imagined not just the general idea of “thinner.”  I envisioned the exact piece of clothing I wanted. ( I can’t share it here–it’s a custom made Dior Suit.)  I envisioned the feeling of climbing Half Dome.  I envisioned the feeling of simply walking up the stairs without getting winded.  I haven’t climbed Half Dome yet, but I made it half way (quarter dome?) last summer and I can walk up stairs without getting winded. 

This past January I travelled to Antarctica with my boyfriend Frank and his family.  This picture was taken at the farthest point south we went, 65 degrees latitude.  It really felt like the end of the Earth.  In time I may find something more appropriate but I thought it was a good start.

So….Now you know where Begin with the end in Mind comes from and what it means to me.

So, what’s the end here?

Someone who makes a living figuring out ecommerce needs to be eating her own dog food.  As yummy as that sounds. 

So look for that from me–various musings on what I see, mostly about eCommerce, but I reserve the right to opine about what suits my fancy.  My friend Adam Nash has really been my inspiration.  His blog is here. I aim to be as thoughtful as he is.  Another really great blogger,  Avinash Kaushik, shaped my views on web analytics and their use in business strategy.  He’s done an amazing thing by donating all the proceeds from a book he wrote to charity.  The book wouldn’t have been possible without the readership he developed just writing a blog.  Amazing what a blog can do.

So, with that end in mind, let’s begin.

Disclaimer:  My opinions do not in any way represent those of my employer and this blog is not intended to reflect the thoughts of anyone, or any thing, other than myself.  I am solely responsible for its content–so send all those brick bats to me, personally.