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Author Archives: Steve Meltzer
Posts: 3 (archived below)
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Nice Visualization on Apple’s Revenues
This is an awesome way visualize every dollar coming into Apple and going out.
See the little developer payment in the lower right? That’s a billion right there. I stared at this for 20 minutes and am still in awe.
(Bigger version available here: http://imgur.com/fpGeLbd)
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What Becomes of a Broken Start-up
Here’s an article from valleywag.com, a Gawker product covering Silicon Valley, detailing what one poor sap happened to collect from his investment in Meez.com. Who would have thought that a business model consisting of paying for avatars and virtual coins could never sustain itself? (More after the entry)…
This Is What It Looks Like When You Lose All of Your Startup Money
Well, technically not all of it. After working as a programmer for online gaming community Meez.com, our tipster saw his scoop of the corporate money sundae reduced by 8,000,000 to 1, leaving him with just a little more than it cost to mail him this check. “Sometimes you win,” he told us, “but you rarely hear about the losers.”
Meez was never a terrific idea, nor a particularly original one—users were encouraged to customize a cartoonish 3D avatar and purchase virtual good with “coinz”—in turn purchased by dollars. Sound familiar?
It might’ve been cutesy and derivative, but according to the company, it was also profitable—a rarity even for the best ideas. Meez was greeted by write-ups in the San Francisco Chronicle, Forbes, andTime—although the latter named it one of the “five worst websites” of 2007. From that point on, it was clear a pixellated tween dollhouse wasn’t going to be a longterm moneymaker, and the site’s brief popularity diminished. So did its bank accounts.
Meez found itself $16 million in the hole with no way of paying it off, so it pulled one of modern finance’s most dazzling sleights of hand: it recapitalized, diluted everyone’s stock in the company, and cashed them right out.
By 8,000,000 to 1—meaning a check for $0.56.
This left our friend at Meez, who not only had his own stake in the company, but had spent thousands to enlarge it, with less than a dollar. I asked Meez CEO John Cahill what this stake might’ve been worth before the insane dilution, but he answered only that it’d be “very hard to put a number on it”
What does one do here, left without enough money to eat dollar nuggets at McDonalds? Nothing—because it was never real money to begin with, remember? Our tipster just realized that too late:
“People all too often don’t hear about the harsh reality that sometimes happens. You bust your ass for years and inflict a self brainwashing mentality that your product kicks ass, only to find out that it a series of mistakes were made that end up forcing a company into the situation that we see here.”
Paper wealth can just as easily become paper poverty.
In auditing news, here’s a list of (NSFW) words from an E&Y software designed to weed out the suspicious terms used by “persons of interest.”
Enjoy
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Target Breathing Big Sigh
It’s been a very hectic three years for retailers. Back in 2008, discretionary spending was down amid greater concerns of a failing economy. Target felt this uncertainty, as seen on their “bad debt expense.” As the retailer saw its third-quarter earnings fall a whopping 24%, it attributed the loss to a higher bad debt expense. Its annual reports stated that the figure, which estimates the amount of uncollectable write-offs it would encounter in the next period, increased about three-fold from 2007 to 2008. Posing a bedeviling problem, the bad debt expense seemed it would linger for as long as the industry-wide credit deterioration would.
It wasn’t until 2010 that Target would see the bad debt expense go down–by nearly 90%. After clearing out its cadre of not-so-receivable receivables, cardholders began to pay down their unpaid credit. This resulted in a decrease of bad debt expense from $138mil in 2009 to $15m in 2010.
Retail consultant at AT Kearny Laura Gurski also attributes the drop to retailers like Target now learning how to manage inventories and delay markdowns. By keeping their inventory priced higher for longer, Target, among other retailers, can retain higher margins. Obviously, the downside to that practice can be the price-sensitive customers who refuse to buy items not on sale.
Furthermore, relying on customer solvency (and therefore credit solvency) to rescue Target’s receivables was a risky move in and of itself. Had the consumer credit crisis lasted longer than it had, Target’s writeoffs would only be exacerbated. There simply cannot be enough said for the effect that the recovery in customer sentiment had on earnings, regardless of how well the firm manages their inventory.
Source:
http://media.corporate-ir.net/media_files/irol/65/65828/AP_Hi.pdf
http://ftalphaville.ft.com/2008/11/18/18331/more-us-retailers-report-grim-results/
http://www.ft.com/intl/cms/s/0/b2d837c4-c8e1-11e0-aed8-00144feabdc0.html#axzz2OIHY6KgV
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