Mary Meeker's YouTube Math

Henry Blodget | August 23, 2007 11:36 AM

MarymeekerheadshotMorgan Stanley's Internet analyst Mary Meeker was a good deal more optimistic than we were about the revenue impact of YouTube's new overlay ads.  Specifically, Mary concluded that the overlays could immediately add $4.8 billion of gross revenue and $720 million of net revenue to Google's annual results.  This compared to the tiny $12 million to $360 million of gross revenue that we projected.

Well, we were baffled at how Mary could be so amazingly bullish, so, on a tip from a reader, we checked her numbers.  And it seems Mary may soon be revising her estimates.  Why?  Because, in advertising lingo, "CPM" means "Cost Per Thousand" not "Cost Per One."  When Mary updates her model to divide by 1,000, her numbers will look a bit different.

What happens to Mary's estimates when you do the math right?  Well, that $4.8 billion of gross revenue becomes $4.8 million, and the $720 million of net revenue becomes $720 thousand.  So if, as Mary suggests, Google can float ads on top of 20 million streams a month, secure a $20 CPM, and keep 15% of the gross revenue, the overall impact will actually be, as we suggested yesterday, immaterial.

Here's Mary's note (PDF) Meeker's YouTube Math.  Here's a page laying out Mary's math and the correct math.  And here's our own YouTube math.

UPDATE 1: And let he who is without sin cast the first stone...  The original version of this post had a couple of numerical typos of its own.  We feel your pain, Mary!

UPDATE 2: A day later, Mary corrects the error and publishes new YouTube estimates.  Of course, because  the correct math produces a tiny estimate, she also changes the assumptions.

Marymeeker "We estimate that Google will generate $100 trillion of revenue in 2010.  Or maybe $10 billion.  Whatever."

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46 Comments

sabahat akkiraz (URL) said:
very nice info thank you
Craig said:
Why only 1% of streams?
Alex said:
....."We estimate that Google will generate $100 trillion of revenue in 2010. Or maybe $10 billion. Whatever."


I was rolling when I read this. Great job Hank
mary_had_a_little_lamb said:
billion here, billion there. what's a few billion amongst google billionaires!
dave hibbitz said:
that is hilarious, go henry!
okknairb said:
or who knows? that person might take over the Morgan Stanley franchise eventually...somewhat unfortunate, eh?
Markus said:
I agree with the comments from MoG, okknairb, bollywood, and 2%.

I mean this is basic math that's misleading investors. What a shame for the Morgan Stanley franchise. Whoever made this mistake is probably not gonna be working there for much longer.
Henry Blodget said:
Mary and her team are good analysts, and they acknowledged and corrected the error.

I think the broader issue is actually the tendency of analysts to "back into" numbers (see the follow-up posts). As long as this is presented clearly--"What it would take for YouTube to generate, say, $500mm in revenue..."--this can be very helpful. The trouble with doing it when you're actually appearing to work forwards, however (ie, from the assumptions to the estimate instead of the estimate to the assumptions) is that the specificity of the conclusion is misleading.
MoG said:
"Wow!" What a nice catch Henry but a lousy way to communicate it - no feelings for the poor guy who will not only loose his job but probably be blacklisted from the research industry. Poor guy, console yourself with your achievement - setting Mary up for a fall!
exStreeter said:
Since the columnist, as well as his subject, were two of the biggest perps of the .com bust, neither has credibility with me.
bollywood star said:
Imagine you were Mary's underlying. Poor chap, is probably on the unemployed line today.
Orikinla Osinachi said:
But how much will YouTube pay the millions of members providing the vital content of daily loads of videos?

They should be paid their commissions!

I am happy that Google is going to make millions and trillions of dollars from YouTube, but Google should pay the millions of labourers supplying their content.

Google should not cheat or exploit members of YouTube.

Pay Day is here!
beijingcowboy said:
Henry - spot on! Probably not Mary, but she should nevertheless be embarrassed that she signed off this flawed report.
Kristen said:
Well, first off, your numbers are off as well. Go watch one of the full videos. The ad appears sure enough once time where they say it will. Now watch the video all the way through. There is a 'post-video' ad. So multiply your calculations by two. Now imagine they decided to add in a third ad somewhere within the longer-form content.... hmmm.
2% said:
I think it was the stupid person working right under her. what a joke..... this research is a joke.
okknairb said:
I am sure it wasn't Mary Meeker, but someone below her...
asif pathan said:
Nice catch Henry. not sure if it was merely a misunderstanding of the term CPM. Seems funny that fortunes are made/lost by stock market reactions mostly influenced by the number crunching done by financial analysts (who apparently do not even have a vague idea of underlying business!)
howard Lindzon said:
awesome...funny. nice catch henry.
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