Explaining Southern California's economy

Rocketdyne is only worth half an Instagram?

Mercer 10129

AP Photo/Reed Saxon

This Feb. 12, 2009 photo shows buildings at the old Rocketdyne facility, the Santa Susana Field Laboratory, in the Simi Valley area near Los Angeles. The company was just sold for $550 million.

The success of SpaceX and its historic Space Station servicing mission put the space business in California back on the map. But the sale of on a space pioneer in the Golden State reminds us that the economy has changed. In the 1950s, high-tech meant aerospace and rocketry. In the second decade of the 20th century, those industries still command respect and inspire a romantic view of the future. But if you want to sell your company for billions, smartphones and photo-sharing apps are the way to go.

This encapsulates the rise of Silicon Valley and the decline of Southern California. Although SoCal can still turn in some good results. As I reported back in March, United Technologies decided to sell Rocketdyne — the company makes exactly what it sounds like it makes, rocket boosters — to fund a record-breaking $16.5-billion acquisition of Goodrich Corp. UT has now completed that sale, to GenCorp for $550 million, according to the L.A. Times.

That's a little more than half what Facebook paid for Instagram, $1 billion, prior to the social network's IPO. One "Instgram" has gone on to become Silicon Valley and tech-biz shorthand for a cool billion. 

So why is a 60-year-old rocketmaker worth only half a photo-sharing app that was started less than two years ago? The simple answer is future growth. If you want to launch satellites or spacecraft, you need the know-how that Rocketdyne offers. But you're not going to see crazy growth in the space business, even if more commerical enterprises, like SpaceX, enter the fray. 

Facebook, meanwhile, sees half a million mobile users it hasn't reached yet, in terms of showing them ads. And then it looks at a company like Instagram, which exists only in the mobile realm and built up a base of 50 million users from zero in record time. Getting a piece of that future growth in Facebook's mobile presence and revenue was worth $1 billion to Mark Zuckerberg, who probably remembers Yahoo's critical decision to not buy Google in 2001. Back then, Googler said it was worth $3 billion and the then-CEO of Yahoo, Terry Semel, balked. 

Google is now worth $200 billion. Yahoo is worth about $19 billion.

So although the growth may now be all in the consumer web and with mobile, aerospace is experiencing a mild renaissance in California. And in that sense, the Roketdyne price...isn't all that bad.

Even if it's far from being and "Instagram."

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

blog comments powered by Disqus