Archive for May, 2009

Facebook gets $10B valuation…really???

By: ispeculatornew | Date posted: 05.29.2009 (5:00 am)

facebook_logoFacebook, the leading social network by many measures received a cash injection a few days ago by a Russian investment firm that purchased close to 2% of shares in exchange for $200M valuing the company at $10 B, which is less than it was a few months ago when Microsoft purchased its stake but given the market decline, that is actually a very decent valuation and still a healthy sign for a company that is increasingly facing competition from all kinds of different companies from LinkedIn to Twitter, Google and others. Can Facebook survive? It is certainly still growing and doing so through a more open website that allows for useful applications to be used, much like the Ipod. And in a way, Facebook is indeed remaining sticky and certainly an interesting investment for a company that is looking for eyeballs. But in pure financial terms? I’m not as convinced. While Facebook will probably not fade anytime soon even if it loses its “coolness” factor (MySpace is a great example of this), it is still not clear how the company will be able to generate much profit.

There is talk about more advertisements as well as possibly charging users for some features, but in the era of “free”, it’s not easy to see what these features would be and why a company like Google could not simply come in and offer that service for free. Of course, Facebook has the logistic advantage of c0nnecting friends that Google cannot quite compete with but the line between the two is not as big as it seems. Google would simply need to add a more “socially integrated” platform through its Gmail email system for many users to be able to forbid Facebook to keep in contact. It is not quite clear if Google will even attempt this but as it has itself admitted, live search is becomming more important and it will be difficult for Google to be competitive with Twitter and Facebook if it does not receive the same kind of user interaction..

All in all, I do think Facebook is a wonderful venture and would love to invest if I had spare money. But would I invest in it because it is the best investment, never… It is just not quite clear to me how Facebook would ever be able to generate the same earning power as a Google, Apple, Microsoft…

Will there be any magazines left in a decade??

By: ispeculatornew | Date posted: 05.27.2009 (5:00 am)

wiredAbout 10 years ago, you could find magazine stores at almost every corner street in major cities and for a while it looked like there were no limits as more and more specialised mags came to the market. I was the first person who would enjoy walking into those stores to buy a few different magazines, learn about different subjects, etc. But with the internet’s growing popularity, the landscape has changed tremendously in many ways:

-First, with the internet, news comes out and it is about hours and minutes. How can a magazine that is written, published and sent out ever be up-to-date? Some newspapers have adapted and switched from a “news” perspective to more in-depth analysis

-Second, in a world where users can get almost unlimited content for free on the internet, it is more and more difficult to get them to pay to subscribe

And as if things were not already difficult, the tough economy has crushed the ad market and magazines such as “Wired” are suffering from ad rates half of what they were one year ago…For that reason, and for many others, several magazines are shutting down, more and more every month it seems.

The editor of wired said: ““This is the annoying question I get all the time, which is, ‘Is print dead?’ ” he said. “We need to do something that doesn’t exist online, and do it in a superior way. Otherwise we should just do it online.”

And so far, that has been the strategy employed by most magazines, getting more of their content online and either offering their content for free getting paid with ads, or offering the content to their subscribers only.

That is great and surely the best way to deal with the new landscape. The problem of course is that the competition is not comparable on the internet which makes it very difficult to be certain how things will turn out. The good part is probably that the overall survivors will end up being the ones that can generate the best content. Wired is one of those publishers that i think can survive no matter what the format, even if it were to become an online publisher only… Will the magazine industry survive? It will, but probably in a very different format than what it currently is..

Investing in products you do not understand….

By: ispeculatornew | Date posted: 05.25.2009 (5:00 am)

crocodile_marin_thoiry_19801I was recently reading “The Economist” and two articles caught my attention. Firstly, an article about a major scandal right now in Italy as it turns out that many banks and brokers sold products to investors that clearly did not read the fine lines before signing the papers as they did not buy. They either were not told or did not understand the downside risks of the contracts that they signed. While the recent market downturn and volatility in the markets (including FX) had not been predicted by many, it was a risk that clearly was not understood. I’ve read a similar article about similar things that happened in South Korea, on a much bigger scale. There are clearly many elements at stake here:

-Obviously, there should be regulation that explains clearly the risks involved before taking such contracts. Often, companies that want to hedge are clearly not specialised in finance and so understanding these contracts can prove to be quite a challenge.

-But also, how is it possible that these companies or individuals have signed contracts without understanding them completely

And to a certain extent, it is easy to imagine how companies can be fooled. Think about a fisherman that is costs in CAD$ and sells his inventory in the US. He will have a FX risk and might meet with his banker to offset this risk. Chances are that this fisherman does not have a deep knowledge of derivative products and that he might sign a contract that he is told will resolve his problem… and who could blame him?

That was bad but I figured that it was at least partially the investors fault for they signed up for these contracts.

But you might have heard about P2P, in this case Peer to Peer lending. This offers the possibility of investors and lenders doing business with less participants in the middle. And when a group of small visitors lend 5000$ to a student that has provided his credit history, motivations and plan for a business idea or for grad school, you can imagine that they have a good idea what the creditors are going up for. But now, with credit markets somewhat frozen, some banks are starting to unload these frozen assets through such P2P networks. This to me, sounds dangerous. If multi-billion banks have been saying for months now how difficult (i.e. impossible) it is to value such loans, that are often a group of loans on hundreds and thousands of lenders grouped together. There just seems to be no way for investors to know who they are lending to, and then how could you possibly sign up for that? But as these are geared towards mainstream investors, I have no doubt they will find a few people that will be more than happy to offer money since they will be receiving higer interest rates…doesn’t that sound almost criminal???

Is the US doing as well as we think???

By: ispeculatornew | Date posted: 05.22.2009 (5:00 am)

wallstA few days ago, numbers by the OECD were released regarding the life satisfaction numbers, or “happiness” rankings. And no surprise, the US did not come out with flying colours. In fact, the US did not make the top 10 coming out in the 11th spot. Of course, you would expect that with its very liberal policies, it might rank less well than more social countries such as those in Northern Europe simply because it is more difficult for the less fortunate portion of the population to get access to health care and education. When discussing this with other Americans, I often get the response that this is a rather subjective matter and that it is has paid economically. I’m not sure it is that subjective but let’s say it is, let’s compare GDP.

Of course, I think it is fully justified to take the GDP per capita because that is what matters really isn’t it? And you might be surprised to hear that in that category, the US sits at #15! So no, things are not perfect! I’m not saying the US does not do some things right but I just find it ironic when some act as if the US was the example to follow. I think the US does many things right and is an example to follow in many ways. But I think this is one of the reasons why Barack Obama has been so embraced by the world. As he said. The US is perhaps the most powerful nation in the world, but it is ONE nation among many. And should act as a leader, not a dictator.

Just thought it made for an interesting post. Before you ask the most “happy nations” are:

1-Denmark
2-Finland
3-Netherlands

While the richest per capita are:

1-Luxembourg
2-Norway
3-Qatar

Now as we have written in the past we are generally right wing and thus not fans of taxes. But it is still interesting to see how the nations that do best in both of these statistics are generally nations that have higher taxes and are thus able to offer more equal services in terms of health care and education. I’m not saying that all nations should go on that road but I think we do need to look into such measures instead of simply refusing to even consider measures such as universal health care as many republicans wish for.

What are your thoughts on this? Would a universal model exist or does each nation have a different ideal?

Newspapers just don’t get it

By: ispeculatornew | Date posted: 05.20.2009 (5:00 am)

newspaperchartIs it really so complicated? Every day for months now, I have heard newspapers executives discussing the “death” of the paper, and how something must be done quickly in order to save whatever is left. There are many different solutions offered but one of them is that all newspapers get together to no longer their content for free on the internet…! Seriously!?!? Is that the best they can come up with? The problem with that vision is that there will always be other organisations that will be willing to offer their news out for free. Why? Simply because through the internet, a media company can be run with almost no resources. A group could rent out an apartment, publish and write all of their content from there and easily make a profit simply through advertisements. The problem here is not the revenue structure but rather the cost structure.

The one example that seems to always come up is Newscorp’s Wall Street Journal, the much respected business/investment outlet. The WSJ has been very successful in its internet venture with enough paying members to account for a very significant amount of revenues. Many other newspapers come up with the comparison as justification for trying to switch to a membership model.

However, it seems obvious to me that there are 2 very major differences between most newspapers and the WSJ.

#1-The WSJ is by far one of the leaders in its field. It has proved for decades that in terms of analysis, reporting and research, it is one of the three or four best media outlets. That makes its content a lot easier to charge for.
#2-The WSJ is generally paid for by employers. This is a major difference of course. Employees and consumers might be willing to pay for it, but you can bet a lot of money on the fact that most would not be members if their employer did not foot up the bill.

I think any newspaper that fills in one of these two conditions can be successful with an online model (although exactly how to set it up is very much up for debate, depending on the newspaper and strategy).  But let’s be honest, most newspapers that we hear complaining do not fill either condition. And when that is the case, then the model is not for them, it’s that simple.

Let’s not live in a dream, we cannot turn back time and go back to having no free news on the internet, it’s not going to happen. So I would really appreciate if the debate about newspapers’ future would be a little more constructuve…

Smartphone battle: Apple(AAPL) – Research in Motion (RIMM)

By: ispeculatornew | Date posted: 05.18.2009 (5:00 am)

storm_iphoneHere at IS, we have discussed the battle between RIM’s Blackberry and Apple’s Iphone very often discussing the implications of RIMM’s new apps world in the battle. There is no doubt, the smartphone battle is one that will not be won in 2009, but as Apple gains more market share, it will start to put more pressure on RIM as it goes after the “corporate market”. Right now, Apple is clearly the player for consumers while Blackberry is the choice for businesses. The winner will be the one that can gain momentum and market share in its competitor’s space. Right now, both look very solid in their segments.

If we look more in depth at their opportunities, RIMM certainly looks to be in a prime position, having a clearly defined business phone, that is very reliable, has more battery life and has already penetrated the markets in most major corporations around the world making the change to another company very costly and complicated, especially when the Blackberry continues to be up to expectations. On the other hand, the Blackberry had had a tougher time getting market share in the consumers business as its design is not as attractive and its applications far below the level offered by Apple. RIMM launched the Blackberry Storm a few months ago to try gain back some share but it has been seen as not much more than a cheaper version of the Iphone which few have settled for.

Apple on the other hand has been gaining a lot of momentum among consumers and to a certain extent has been getting some business with smaller businesses. But it has not been able to go after big corporate clients so far, its phone being seen more as fun than as business. Apple has not really spoken about plans to change that so we have to assume that for now, they are happy with the very large consumer business where they have been mostly unchallenged so far.

The implications are very interesting though from a trading perspective. While Apple does have a computer and an ipod business, its growing business and reliance on the Iphone makes the trade on RIMM vs AAPL an increasingly interesting trade.

Our partner InoTV made an interesting analysis (you can see their free video here) and they consider Apple cheap compared to RIMM and thus they recommend going long Apple against RIMM, considering this pair trade a low risk trade with good expectations for return.

Again, we recommend seeing the InoTV video on this trade here🙂

Ramblings

By: ispeculatornew | Date posted: 05.17.2009 (8:33 am)

marketreboundI personally think these are very interesting times in the world of personal finance and investment as markets are in much uncertainty. A lot of investment companies had predicted a rebound later this year, and it is very difficult to determine if the rebound is now out of steam and thus if this is the time to put money back into the markets or to take back the recent gains.

TFB discusses the choice of taking an annuity of a lump sum when changing jobs
DGI discusses the changes in Warren Buffet’s Berkshire portfolio
Very interesting article about how one could/should view failing🙂
Set your own interest rate
Zach discusses the impact of OTC regulations on the CME stock
lnteresting point of view from MDJ about what to do with 5K🙂
Creating an LLC, why would you do it?
Should you use a fee only financial planner??
Paying cash could soon pay off!

The Ugly Truth

By: ispeculatornew | Date posted: 05.15.2009 (5:00 am)

uglytruthposterIn a few months, the movie “Ugly Truth” will hit movie theatres in the US. And while I’m sure it will be good as it stars Katherine Heigl, this post has nothing to do with the movie. In fact, the title is the only thing in common between the two.

It is always interesting to me how many truths are not said even though few would argue with them. One is that economic tough times such as the ones we are currently living through have good sides. Think about major corporations, and how they strive to constantly improve their operations and their efficiency.

Often, such companies are able to improve their capabilities and change what they’re good at. The problem of course is that even though a company might need fewer employees to do the same job. For many reasons, companies are often not able to lay off their least effective employees or close out divisions that are not performing up to expectations. Some of the reasons include employee morale as it is often seen as a very negative sign to work in a company that is laying off employees. Not saying it should be the case but it just is.

But these days, who would ever doubt a company that is laying off employees? Every day (5% of global workforce at Nike today), companies are announcing more layoffs. Not to say that they are not necessary or that these are not tough times but it just seems like the perfect timing for any company to either lay off less effective employees or to set in place a new company structure. I’m not complaining, far from it. I am actually one of those who would prefer if companies would have more flexibility performing such functions even though it might mean one day I could be the victim. I personally think it is employees job to justify their position, not the opposite. Companies pay us every week for the work done and once that is performed, we are even.

Let’s face it, both on a corporate or a society level, we should hope to be as effective and productive as possible, not bound to keeping jobs just to keep jobs. I personally think that I only have to always remain good enough to justify my job…As long as that is true, you will have a job, if not at your current company, in another one…

Federal reserve out of control?

By: ispeculatornew | Date posted: 05.13.2009 (5:00 am)

acf690aWe’ve seen it a million times, a corporation or bank that notices a missing amount of money, and starts an investigation. Of course there are many different reasons for missing money and not all of them are fraudulent. And with all the billions of dollars going around right now in this current economic crisis, most Americans expect and have confidence that the money is being well spent and used responsibly.

The following video is shocking to say the least. I’m the first one to say that asking questions about every dollar being spent is not fair, useless in terms of effort vs result and can incur more trouble than benefit. But between a few dollars missing from an account, and hundreds of millions of dollars that are not accounted for, there is a major difference. The worse part is probably not even the answers to the specific questions but rather the general lack of knowledge or lack of system to account for all of these expenses, it is shocking.

This is one of the problems with government entities and the public sector in general in my opinion. No doubt, there are many problems in private companies as well (think Enron for example). But the difference in my opinion is that there just does not seem to be much that can be done when the government is responsible. Imagine a company being unable to explain where $1 billions went. You can be sure that there would be some executive movements and probably some lawsuits as well. But testimonies such as the one you will see below often got without much notice or without even making headline news..

Am I the only one not to get it?? What is wrong with our society to simply accept such answers. I would not mind the lady not knowing where the money is if she could simply tell us that all money is accounted for and that while she is unable to give out details on the spot, she’ll be able to get back with answers. But clearly, that does not seem to be the case.

Honestly, shouldn’t Barack Obama have to answer to this? He should be able to give out directions to improve the monitoring and transparency of the Fed, something he promised across the board.

Did Google screw up buying Youtube???

By: ispeculatornew | Date posted: 05.11.2009 (5:00 am)

youtube_logoA few years ago, when Google announced it was purchasing Youtube for 1.65 billions, it almost seemed like a bargain. Sure, the high growth website had lingering issues with copyrights and wasn’t able to turn a back of profit, but it was getting so many eyeballs and with Google’s talent for turning eyeballs in cash, it seemed like the perfect match. And in a way, it started off that way as Google did start showing signs of progress through deals for copyrights, and started saying publicly it had plans to turn the site into profit. And even with no profit, the high growth was justification enough for the purchase.

But fast forward to 2009 and suddenly, it is not as clear if Youtube was a bargain or if it was worth the energy. Youtube is the undeniable leader but with competitions such as Hulu.com and TV.com, the model of showing lower quality user powered content is not as clear. While advertisers are lining up to display ads on Hulu and TV, Youtube is having problems as it is not able to guarantee if the video shown next to the ad will be legal and will be something a brand would want to be associated with.

hulu-logoWhile no one truly expects Google to give up and might come out on top with this idea, it is still interesting to see blogs talking about Google spinning off Youtube and other ideas that give a clear idea about the poor success the internet giant has had with Youtube.

While we do remain optimistic about Google and about its future, it is not quite clear how video fits in to its future. As we have written in the past, Google is gaining a spot of choice in the population’s life, especially through its wireless strategy with Androit, Google maps, etc. But video??? Hulu shows high quality content similar to what you would see on tv. And because the content is generated by network members of Hulu, they are able to organize it in an optimal manner for users to browse through. Unfortunately, serching through Youtube can sometimes become a rather difficult experience…

It will be interesting to see how Google will be able to fit Youtube in its future and its plans for Google’s expansion, as of right now, I’m a bit confused, am I the only one?