BillyB wrote:You make an interesting point re: the market and a potential crash.
One area of particular interest to us at the moment is the social media frenzy. Facebook, groupon, foursquare etc. I'm not sure its a bubble waiting to happen but the valuations are absurd. We have ripped facebook apart fundamentally and cannot justify the $75 bn valuation given the revenue streams are $2 bn at best. From another perspective - 500 mn customers means that each customer needs to generate $150+ in revenue per year!!
The problem is Goldman have a strong interest in FB and are perhaps making a market to drive up prices. And Goldman are bullet proof as far as reputation and advisory is concerned. They have been involved in so much sh*t over the past decade but it never seems to affect them. What they say is gospel to the majority.
The next 2/3 years will be interesting in this space.
Very interesting read. I too think that FB is overvalued and 75b seems to be blown out of proportion.
Billy, how do you see the Apple/Google/Microsoft/Amazon quartet? Which ones are over/underpriced, have good long-term perspectives, etc.?
I'm just wondering how much more Apple can squeeze out of its current position and for how many more years. The iPhone was a novelty, so was the iPad, but the competition is learning quickly. Or maybe they will continue to deliver and surpass all expectations, with share price heading close to 4-digits?
As much as I love Amazon and see their move into online content distribution as a good thing, or even a necessity in terms of survival, where will they be when downloading music, tv shows and movies will be cheaper to do via the likes of iTunes? Will traditional book sales and just a slice of the online distribution market be enough?
Microsoft seems to have lost the plot a while back. They're in a comfortable situation though, having the corporate world completely hooked on using Office. Windows is still huge too, though there's always talk of Google unleashing its own OS for PCs. The problem is I just can't see MS doing anything spectacular that would put them back in the game so to speak. I mean they were even beaten to the punch by Google's Android mobile OS.
That leaves us with Google. About 20% down from it's record high. A lot of people I speak with see great potential for growth and development. Fair enough, Google wields a lot of power on the internet. The question is, aren't a lot of their products really useful/fun to use, like Google Maps or Google Earth, but not exactly as promising when it comes to making money from them? Not sure how their browser is doing, but would an OS for PCs be big? Or would it have to be free as well?
Or maybe they should break into social networking since they've already got tons of people using their email system? I just can't drop the notion that they're still just a big search engine, but yet I keep believing all this talk that we haven't seen anything of Google yet.
Now there's a few questions that I could spend an hour writing about!!
Have a read of this article - a very good read http://buswk.co/hA7zhO
I'll try and keep this brief. We all love the large cap tech stocks as they induce mixed reviews and analyses, and are great for liquidity and taking a large position when views change.
Ironically, by their very nature, the fact that thousands of equity analysts worldwide cover them makes them quite efficient animals. They tend to be well understood and disclosure is great. Therefore its quite easy to put a 'reasonably' accurate valuation on them. Where the problems, or advantages if you are a hedge fund for example, come into play, is trying to make that 3-5 year prediction or call as to where they will be in the future. The problem can be sifting through the masses of bad rumours and unreliable information available in the press, news, commentaries etc.
Another thing to factor in when looking at future valuation and possible pricing inefficiencies are the fact that most of the above hold excellent leadership teams apart from MS (Jobs arguably being the best CEO from a product perspective), first Mover
advantage, significant investment and a constant strive for innovation.
Here are my 2 cents - I am assuming the fundamental figures are consistent: (I don't / haven't covered amazon so will exclude them, but include Intel and also FB)
Facebook: Isn't public as yet so difficult to get complete discolsure and also a feel in the market. Goldman are inflating the prices artificially in their own interests. At the moment facebook IMO is at a crossroads. They have a unique platform that keeps users on the site for hours, but how do they translate this experience into something more useful and to generate big bucks? Do they try to take a piece of the search market by offering a wider selection of tools - search, email (already penned) etc and try to knock google off it's perch in that space. After all, FB do have cutting edge blackbox technology that allows them to know everything about us - more so (quite scarily) than google apparently. It can predict our behaviour and this is something they will be looking to leverage on. This is my mis-informed opinion but I just don't see how they will build something that will smash google in this space. However, if FB does hit a goldmine I believe it could blow everything out of the water and hit valuation figures of at least $150-200 billion on IPO with Goldman making an absolute killing. The next few years are going to be really interesting in this space.
Google: At the moment it is under-priced. There is some room for an upward shift. Its took a bit of a hammering recently but its foolish to short the stock, or short any tech stock with a great management team in place. Target price IMO is around 650. The ad-click model is a solid cash cow and should support the share price on its own, and the Android development was a masterstroke - pinning people by default to the platform and scaling the ad reach at the same time. What surprises me is that Google fails to win much buy-in and has flopped in other areas. They say that technology and innovation, even if the companies fail - as per the dotcom era - drives the industry forward with the residual advances and understanding that are leftover. Yet google's ground breaking products in other areas such as the labs division, that have flopped, don't seem to be gaining much traction or awareness. After $650 is reached, I'm not too sure where the next breakthrough will stem from.
Apple: At the moment trading at market. The cynics would argue undervalued by about 10% partly due to Job's leave of absence. Great leader although there are serious inside rumours about his health. Jobs is apple. If he goes permanently expect a short term drop and slow recovery. But at present the best product led company by a country mile. The great thing about Apple is they control the device level. In essence you like the products so you buy, and thus they control the way you access the net. If they wanted to exercise their muscle even more they could enhance their own ad-linked search and really push this (at the end of the day, google is only leading in this space by its search algo's - despite how good they are, they can be bettered by other S.E's - but they have significant proprietary expertise and it will take a while for them to be overtaken ) and then control the whole user process. But that could be their downfall too. I don't see too much more upward movement and wouldn't go long on the stock.
Microsoft: Well, where do we start with MS. A complete disaster and the stock is cheap for a reason. The software business is crap. The fact they still have a monopoly is keeping the price higher than it should be and will continue to generate cash for a few more years. But long term, steer well clear. Their leader is about as inspiring as toothache and they are simply a slowly dying dinosaur. When Gates left, Microsoft faded badly.
Intel: A dark horse and undervalued. Very out of favour at the moment in the markets. They have a good history of getting things right and building at lower cost than everyone else. If they make the right inroads and become the backbone of the cloud industry they could hit it big time. A clever acquisition of McAfee from a security standpoint was a shrewd move to address the concern over cloud security and leverage on McAfee's expertise in this space. I'm not sure I'd be bullish on them as they need to make serious inroads into the tablet space. But if anyone can get it right it should be Intel. Worth a punt if you can hold for a few years.
As I keep saying, this space is going to be really interesting over the next few years. I don't think there is a bubble just yet, but once that innovation stops there is only one way that prices will go!! But with the mega cash flows around, that can be channelled back into the firms for innovation and to attract the top talent, I think there are plenty of legs left in this space for quite a few years to come before we start seeing a downward trend.