A Half-Dozen Ways to Look at the Unit Economics of a Business

3 01 2017



McCaw Cellular Communications sold to AT&T for $12.6 billion in September 1994. And yet the business did not show an accounting profit on its income statement until the second quarter of that year (after the deal was announced on August 17, 1993). The McCaw  Cellular example shows that you can create a tremendous amount of value for shareholders without showing any profit on an income statement. Or not. Here below is a picture of a real letter from Craig McCaw sent in July of 1994 which documents what I said above.


Amazon and Netflix are examples of the same value creation phenomenon as are many businesses that John Malone has created over the years. This post will try to help people understand why this is true.

The drumbeat of people (especially reporters) saying a that a business is “losing money” and is therefore doomed is constant. People with a…

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Indian IT: As growth cracks, acquisitions the only way forward

17 11 2016

Big IT companies are parking their cash in mutual funds and bank FDs now

Source: Indian IT: As growth cracks, acquisitions the only way forward

Bitesize: Sovereign debt, default and “r-g”

7 11 2016

Mark Joy. Government debt as a share of GDP is at its highest since WWII in advanced economies and since the 1980s debt crises in emerging markets, but so far, apart from Greece, Ukraine and some h…

Source: Bitesize: Sovereign debt, default and “r-g”

Govt still very important for business

1 11 2016

Ratan Tata immediately after taking over as Chairman wrote a letter to PM Modi. Yesterday he called on the LIC ( a govt Financial institution ) Chairman.

If even after 25 years of so called liberalisation, such events are happening with the largest business house of India, what does it tell us about the role of govt in business. Government is still very important. The difference between PSUs and public limited companies is not much in India. In PSUs, govt owns the stakes directly and in public limited companies, indirectly via the public FIs.

The mandarins in Delhi need to be kept in good humour if you have to do business in India. Why are we surprised that India still ranks low in ‘Ease of doing business” Social media campaigns and conferences have not changed the things on the ground. Tata actions is just one example.

Update on ‘An enigma called Siva’

1 11 2016
C.Sivasankaran ( better known as Siva) is in the news for his mention in the Tata vs Mistry saga.
Many years ago I wrote a post on Siva in this blog, that I rarely update these days. Siva was known for his friends like Tata, Ruia, Mallya and Subroto Roy. I am indeed chuckling when I read my own comment “He has a friend in Mr Tata, whose sense of ethics and morals are unquestionable”.
Much has transpired after that. The 2G scam broke out. The Radia tapes happened. Siva declared himself bankrupt in 2014 in a Seychelles court ( He is a citizen of Seychelles).in order to avoid paying his dues to his creditors, which includes Tata Capital.In 2016, this bankruptcy order has been lifted. Siva is back in business launching a taxi aggregator in Chennai called UTOO, competing with the likes of Uber and Ola.
Eight years ago when I wrote it, I saw him as an enigma but today I am more likely to put him in the cabal of crooks with his friends like Mallya, Ruia and Subroto Roy.

Would the Swiss someday demonitize the 1000 franc note?

16 06 2016

Prof. Jayanth R. Varma's Financial Markets Blog

I wonder whether someday the Swiss would be tempted to simply demonitize the 1000 franc note and earn a windfall gain. After falling for decades, Swiss currency in circulation started rising after the global financial crisis and is now higher than at any time in the last 35 years. Notes in circulation are now well above 10% of GDP and the 1000 franc note accounts for 62% of this or over 6% of GDP. The Swiss central bank publishes a nice set of tables and graphs about all this. Even the US whose currency circulates so widely all over the world (half of all US currency is estimated to circulate outside the US) has a currency to GDP ratio of only about 8% (currency data from the FED and GDP data from the BEA).

As Swiss interest rates remain in highly negative territory (-0.75% at the short end and…

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Investment Banks and IPO Pricing Power

6 03 2016

Prof. Jayanth R. Varma's Financial Markets Blog

Krigman and Wendy have an interesting paper on how issuers pay for their investment banks? past mistakes. Their conclusions are based on the IPOs that came to market after the the botched Facebook IPO of 2012 in which the stock fell below the IPO price and the investment banks had to buy shares in the market to stabilize the price. IPOs after this event were underpriced by an average of 20% compared to only 11% prior to the Facebook IPO. More interestingly:

We show that the entire increase in underpricing is concentrated in the IPOs of the Facebook lead underwriters. We find no statistical difference in underpricing pre and post-Facebook for non-Facebook underwriters. We argue that investment bank loyalty to their institutional investor client based propelled the Facebook underwriters to increase underpricing to compensate for the perceived losses on Facebook.

?Loyalty to investor client? sounds very nice in a scandal…

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