So the Fed lowered the prime rate again to between 0% to 0.25%. While most folks may cheer about this, I believe it is a harbinger of some tough times ahead. Back in the early part of the decade, Japan cut its interest rates to 0% and that's where it remained for almost 6 years. Could that mean the US is in for a recession that could last that long. Not sure, but I think the optimists who think this is a half to one year long recession are deluding themselves. The circumstances of Japan's decade long recession are different so it's not an apples to apples comparison. However, Japan's recession was for the most part localized to Japan. The recession we are in now is a global recession that touches almost every country on the planet. If it took one country a decade to emerge from its recession (only to be caught up now in a global recession), how long will it take us to turn the corner?

News came just a few hours ago that the proposed government bailout of the three major US automakers had failed. The speculation is that at least one or maybe all three may file for bankruptcy in the near future. At stake is not only up to 350,000 jobs but the future of the US auto industry. Will we see any or all of the big three being sold off to foreign companies? Or will they just go away and the only cars available in the US will be from Asia or Europe?
 
For those who may think the worst during this time, I actually think a "correction" in the US auto industry might be good in the long run. Of course in the short term many people will lose their jobs - never a good thing. However, my hope is that this wake up call will jolt the US auto industry into action. That could mean cleaning out obviously ineffective executives, restructuring to become leaner/meaner, focusing on quality and designer, or hopefully all of the above. America has invented a lot of great products like the automobile, television, and microprocessor. The microprocessor is probably the only one of those three which the US still can be considered a leader in terms of innovation and quality. Let's hope this shake out is the first step towards regaining that stature in the global automobile industry.

Netflix and TiVo had announced they were launching their streaming service over 4 years ago but it finally hit mainstream today. Check it out here. As a long time customer of both services, I was hoping for something like this to happen years ago. TiVo's CEO, Mike Ramsay, sat on Netflix's board for a long time (he no longer does) and both companies have been close even before their announcement in 2006. I'm not sure if it was a technology issue or a studio permissions that prevented them from moving forward but it was well worth the wait.
 
Overall, I'm very impressed with the service. First, as a Netflix and TiVo subscriber, there's no additional costs. We pay $12.95 for TiVo service and $9.78 for Netflix service each month. I always felt the Netflix fee was well justified but never was happy paying $12.95 for channel listings from TiVo. But now for about $23 a month, I get access to unlimited DVD rentals, unlimited movie streaming, AND TiVo service - a much better value than before. Second, the quality is a lot better than I expected. Most of the movies stream in standard definition. Not great since I've been spoiled by HD video but far from the choppy fair you'd expect from online video. As for the HD streams, those come through remarkably clear. I'm actually quite amazed at the quality of the video coming from a streaming service. It's about the same quality as movies on any of my HD channels. Unfortunately, there are only about 400 HD movies available versus the thousands available in standard definition. Neil Hunt, Chief Product Officer of Netflix, provides a great breakdown of the quality and limitations of the current service. Hopefully, bandwidth speeds in the next few years will increase enough for full 1080p streams.

As reported by the Wall Street Journal, Facebook has pulled its planned employee stock sale. This would have allowed the 800+ employees of Facebook to sell a portion of their stock to private investors - supposedly $900,000 worth or 10% of vested shares, whichever is less. Reasons that some outlets are stating was that Facebook couldn't find any private investors who wanted to buy the stock at a company valuation of $4 billion - a far cry from the $15 billion valuation Microsoft got for its $240 million investment.
 
I'm not really shocked that there were no takers at $4 billion. At the time of the original Microsoft investment, I thought Facebook's value was somewhere around $7 - $8 billion. Then when Techcrunch got a hold of some internal financials, I did a back of the envelope recalculation and stated that they should be valued at $4.5 - $5.25 billion which is 15 times projected 2008 revenues. Contrast that with Yahoo or Google which are valued at 2.19 and 4.13, respectively. These have gone down some recently but even if you calculate at January 2008 share prices, Yahoo and Google would still only trade at 4.44 and 10.91 times revenue, respectively. You can make the argument that these are more mature, slower growing companies but these are also PROFITABLE companies - in the case of Google, VERY PROFITABLE. Facebook, on the other hand has huge capital expenditures for servers/bandwidth ($200 million according to Techcrunch) and a hard to monetize audience. They may be GAAP profitable or break-even but most definitely not cash flow positive. Given the eventual slowdown in the online advertising market, I don't think it will get easier for them to squeeze more revenue from their users. However, the cost to support their growing legion of users is going to grow as they'll need more servers and bandwidth.
 
With that said, my new calculation of Facebook's value would only be at best 5 times revenue or $1.5 - $1.75 billion. Of course if they had allowed the employee sale to reset the value of their company, I doubt they'd raise enough through an eventual IPO to cover their growing capital expenditures. The more important question is, how much of the $516 million that they've raised is still there? My guess is that if they can't raise another $100+ million round soon, Facebook could be in for some tough times.