It’s becoming an annual event now: Liberty Media releases an earnings report and everybody ignores the important parts.
As usual, those looking at it chose to focus like a laser on a single number: revenue.
Revenue is a useful figure on these reports, but it’s hardly the most important thing worth consideration.
This is pretty simple – even for non-economics majors: let’s say that there’s a local Italian restaurant that you like visit. When you go, you always order the same thing: a sausage and pepperoni calzone…
- Normally, the price of this is $10. But on your most recent visit, you see that the price has been raised to $11.
- From the restaurant’s perspective, that’s a 10% increase in revenue, or $1 per calzone.
- However, when asking the restaurant manager about the change, you learn that they had to change meat suppliers and the cost of that sausage and pepperoni went up by 80 cents… with the restaurant choosing to round to the nearest dollar.
- So ignoring taxes and other considerations, the actual profit has increased only 20 cents, or 2%… and there’s not a lot that can be done with those dimes.
That’s an oversimplified view of the world, but it illustrates the kind of problems that one can run into if you only look at one isolated number.
…and it results in dumb tweets like these:
Financial reports are typically about as exciting as a hypothetical matchup of pitcher Steve Trachsel vs. hitter Mike Hargrove (the ‘Human Rain-Delay’) would have been… but we’ll risk it for the moment in the interest of the greater good.
Let’s dig it…