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Economics & Research Blog

Internet Shakeup, and Economic Data Disappoint


By Dr. Joe Webb
Published: February 1, 2008

Today's offer by Microsoft for Yahoo! is certainly grabbing the headlines from other sorts of economic data that I will discuss more completely in Monday's column. Microsoft is offering a 62% premium over yesterday's close in Yahoo!, offering $31 a share. What this means for Google is all the more interesting. Their revenues were up 17% and analysts were disappointed. Imagine how that news would be received in our beloved industry for one of our companies. Google shares, as I write this, are trading at $530 per share, well down of their highs of weeks ago. If you applied the value that Microsoft is placing on Yahoo!, Google's price would be $722! Yahoo! has been a growing business for some time. But every percentage of growth had virtually the same percentage of cost, as if they never escaped the gravitational pull of their fixed costs. It's been an underperformer for a long time, despite a large customer base, and significant page views. This situation is a reminder for all businesses, that the one metric that matters most is a sustained record of profitability, no matter how the revenue side of the business may change. The fact that Yahoo! could not grow faster than its fixed costs is also a warning: even digital or “cool” businesses have these kinds of problems. Yahoo! is an underachiever, and has been for some time, despite being in some great segments and interesting initiatives. (Note: I do not own GOOG or YHOO stock... but this morning I wish I had). >On the unemployment data released this morning, December's +18,000 payroll jobs were revised up to +82,000 instead, meaning that they detected +64,000 more jobs than they had originally thought. November's payrolls were revised -55,000. So that nets +9,000 for the two months. January's payroll number was down -17,000, so for the three months, payrolls are -8,000. Even though the household survey was up since last month, there are -399,000 fewer people employed than in November. The household survey is far more important in the economy than the payroll survey, at least in my mind. Yesterday's initial jobless claims report was up significantly, but is an unreliable report as their adjustment factors for the Martin Luther King, Jr. holiday have rarely been correct. We won't have good data on initial claims until next week's report. GDP data for the fourth quarter was +0.6%. The number is likely to be revised up at the end of February, but in the end should stay below +1%, even with the March revision.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink's Economics and Research Center.



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