Ask any Amazon competitor about the strategies they use and tell you that the company is a big bully. Competing with Walmart (WMT) and its low prices as one thing but when you face a company of Amazon’s size that does not seem to care about losing money for several years on certain segments, it can become very tricky to compete. Time after time, Amazon has entered areas, offering extremely low prices in order to weaken and eventually eliminate competitors. Since the company does not break down its financials much, it’s difficult to say how bad it is but there’s no doubt that Amazon is ready to lose money in order to advance its long term goals.

Already, Amazon has been a major force in getting companies such as Barnes & Nobles, Best Buy and so many others to go further down the road to bankruptcy. There are few public companies willing to take such a long term view and I’d argue that perhaps none takes it as far as Amazon. Is the company making money selling its Kindle devices? Most analysts strongly doubt it.

In Come Groceries

Amazon has been running Amazon Fresh, a grocery delivery service for a few years now and is apparently ready to start scaling to other regions in the US and abroad. On the surface, it doesn’t look like a very attractive business:

-margins are already low
-many established competitors
-keeping and delivering “fresh” food will be a challenge
-such a local service that it will require warehouses in many more locations
-will require dealing with thousands of local producers (as opposed to dealing with a few international companies)

Of course, if you know how brilliant Jeff Bezos is, it makes sense to figure out why he could be doing it. As others have pointed out, and I’ve argued in my post about owning Amazon as a long term play, the main competitive advantage that Amazon has revolves around its warehouse, distribution and sales process which is as streamlined and efficient as you’ll find. Google and a few others are looking at competing but I just don’t see that happening. At least not anytime soon. But if Google wants to build on that advantage, it needs to make sure that more users use it more frequently. The best way of course is venturing into areas such as Groceries where scale matters, where others will not venture because the margins are too low and where consumers spend a significant amount of money every month.

Impact Of Amazon Fresh’s Expansion?

I personally don’t think there will not be much impact on earnings and revenues from this expansion but it will give us a better look into what Amazon’s long term strategy is which will be incredibly fascinating.

What do you guys think of Amazon competing for your grocery budget?

Disclaimer: No position on Amazon (AMZN)

A few months ago, I put money into Facebook, buying at $19.99. I had made my case for owning Facebook over and over and would have been paid the IPO price. I didn’t though. I try to stay away from IPO’s. It’s too volatile, too risky. Instead, I waited a while and once the price seemed more stable, I purchased. There are many reasons why I was bullish on Facebook and I did start off doing very well with the trade. I was up 40% or so a few months later and things seemed promising on many fronts.

The Mood On Facebook Has Changed

These days though, the news is not as exciting for Facebook shareholders. The stock is down to $23.55 and there are many reasons to question the social network. I have not considered selling and doubt it will be the case today as this is a very long term pick. I do look at such stocks every few months to make sure they still make sense and adjust my position if needed.

Points Of Concern

-Facebook’s Status As The Leading Social Network: You could certainly argue that Facebook is not as dominant as it once was. Some will say that it’s because teens and others are getting tired of Facebook which is true. I would also argue that a big reason is simply the fact the fragmentation of social networks. Facebook, LinkedIn, Google+, Twitter, Tumblr, Instagram, Pinterest, etc. Increasingly we are using different social networks in different ways. As Sherly Sandberg said yesterday at D11, “Teenagers are using other things more. At the same time, they continue to very active, engaged Facebook users”. Is it bad news if Facebook continues to be the leader in an exploding market? I did write about the fact that Facebook might be forced into more acquisitions similar to Instagram. In fact, you could argue that it should have outbid Yahoo for Tumblr.

I think it’s also fair to say that while Google+ is no Facebook, it has done much better than I had anticipated. It remains relevant and perhaps increasingly so. Google is truly committed to making Google+ a critical part of its product offering and while I don’t see it as a threat yet, it’s not great news either.

-Overall User Growth: Yes, user growth has slowed but even when I made my initial case for Facebook, I never argued that user growth would be a driver of earnings. It would be a bad sign if things slowed down significantly but slower growth is more than fine with me. After all, there’s not as much space for growth left once you reach 1 billion users. What I pay much more attention to is how much time users spend on Facebook and in that regards, metrics remain incredibly strong so not a big source of worry to me.

-Transition To Mobile: Many argued that Facebook had a major problem because its users were increasingly accessing the network through mobile. I never got that. Yes, it created a short term challenge because those banner ads don’t work in the same way. Is that a challenge? Maybe. But having hundreds of millions of users accessing your site when they have free time is a good thing. Facebook has made a smooth transition and a growing portion of its earnings comes from mobile ads, mostly in the newsfeed. The negative feedback has been fairly limited.

A much more disappointing fact has been the whole Facebook Home fiasco. I do get that it’s just a start and that Facebook will likely improve its product in the coming months. You do only get one chance to make a good first impression and it’s safe to say that for Facebook and its first mobile operating system, it’s been a failure no matter how you look at it (ratings, reviews, downloads, etc). The only positive I see is that I did not even expect such a product to be released so needless to say that I was not “let down”. It is still a negative though because it does affect the perception of Facebook.

-Revenue Sources Diversification: This is by far the most disappointing aspect so far. From the start, I’ve said that Facebook’s future and potential did not depend on advertising. I believed other sources such as ecommerce, virtual currencies, and others could end up making an incredible difference in how much it can make per user. There have been very few signs of this happening. Yes, Facebook does offer users the opportunity to buy physical gifts but that is not nearly enough. I have not heard much about this either from Mark Zuckerberg.. are such ideas not being worked on?

Facebook Continues To Have Potential

I’m a bit more skeptical about Facebook’s upside potential than I was a year ago but I do think the potential remains there and do believe that being long makes a lot of sense. I will continue to monitor and adjust if needed and will of course keep you posted.

Disclaimer: Long Facebook ($FB)

I’ve been very impressed by how quickly things have moved in Japan. I read about the fact that markets rarely move smoothly because as soon as they anticipate something happening, they’ll move as quickly as possible. I guess the same will happen in the US when the market ends up believing that interest rates will rise. They’ll immediately anticipate (or try to) where rates will go up to and adjust in consequence. It’s rarely as smooth as you’d think.

Yes, you might think this Japan rise has been smooth, but if you think about the fact that it is one of the biggest markets in the world and is up 80% or so in a few months, I’d say that the move is very rapid.

Back to today’s post. Things are moving very fast at Yahoo! These days ever since Dan Loeb brilliantly got Marissa Mayer in as CEO.. the stock has been doing incredibly well:

It’s not just confidence, there’s a lot happening on the ground as well:

-New HR policies regarding remoteworking, maternity leave, free food, new smartphones, etc.
-New focus on specific areas such as mobile (where new beautiful apps were launched), search, etc.
-Complete Revamp of the Yahoo homepage, major changes in Yahoo mail and Flickr, one of Yahoos more social and successful products (arguably Yahoos only true web 2.0 property).
-Small acquisitions (mostly in order to gain top notch experts but also some technology).
-The more important Tumblr acquisition which I’ve Tweeted about.. Great move in my opinion, which Facebook should have done.

Things are Moving at the Speed of Light

As you can imagine these moves are generating a lot of excitement and interest in Yahoo but there’s also been a lot of criticism from employees, the press, employees, competitors, etc. It’s been a very rocky ride but as is the case with Abe in Japan, Marissa Mayer is moving things, taking big risks, etc.

What Should Happen Next?

Now that Yahoo has started to focus on many critical areas, it has started to move into properties that are still highly relevant. An overhaul of Flickr was a necessary and logical first step. What should be next? I think there are a few candidates:

Yahoo! Finance
Yahoo! Sports
Yahoo! News
Yahoo! Answers

Why these specifically? Because its useless to have 1000 good products. What Yahoo needs is to have 10 incredible properties. Each area would require different elements but let me give the example of Yahoo finance because it’s one I know very well. Despite competition from dozens of high profile names that include Google Finance, Yahoo continues to be a leader. It has a product that is easy to use and understand. What could Yahoo do?

A couple of key acquisitions: Yahoo already integrates content from SeekingAlpha and StockTwits, two very solid upcoming finance players. I’m not sure they are for sale but if I were Marissa Mayer I’d certainly consider those. It would make a ton of sense to have them remain independent (as is the case with Tumblr) but have an even bigger incentive for deeper integration of their data and content into Yahoo finance. In many ways they represent the future of finance on the web.

SeekingAlpha has a unique platform where 2 million members gain access to high quality information about stocks, economics, etc.

StockTwits was initially built on top of Twitter but is clearly independent now and has been growing extremely well by integrating those 2 products, Yahoo could remove some of the least attractive parts of Yahoo finance and have a much stronger community (or 2 in fact).

Then Yahoo could work on improving the general design, making it more modern with a responsive design, a new mobile app, etc.

Finally, I think there is also potential to launch very solid desktop & mobile apps that would be powered by the new Yahoo finance data. It would not compete with Bloomberg for many stock professionals but would be a major improvement for most other traders that can’t afford the Bloomberg offering. After all, Yahoo would arguably be the best placed company to provide such data.

These are just a few examples for Yahoo! Finance but I think you could argue that the same could be applied to at least 45 of Yahoos major properties.

How Much Upside Exists?

You might be wondering how much upside exists at Yahoo. I don’t think anyone expects the stock to increase by 80-100% in a few months, especially considering the rise that we’ve already witnessed. One thing to note is that Yahoo’s core company was basically valued at $0 up until Marissa Mayer joined. The value of Yahoo’s stock was almost equal to:

Yahoo stock = Cash + Value of Yahoo Japan stake + value of Asian properties stakes (mainly Alibaba)

The expectation was for everything else to eventually die off. I think it’s fair to say that the new Yahoo is working on preventing that. It’s difficult to say how much upside there remains but I would say its still significant. In terms of downside, I just don’t see that much at this point which makes going long Yahoo exactly the type of trade I like to put on.

Disclaimer: No position on Yahoo (YHOO)

Rackspace is one of those stocks that I’ve had on my radar for a long time but have struggled to get a solid opinion on. I have made comments during my Tech Stock Power Rankings (2012 and 2013) but have not been able to get enough of a sense to trade it. There are many things to like and dislike about the company:

Pros:

-Operates in the high growth cloud computing business
-Revenues and earnings per share have climbed steadily for years

Cons:

-Competes with the likes of Amazon (AMZN) and Google (GOOG)
-Being unable to compete on prices, it’s stuck trying to find other ways to generate value
-Trades at a high P/E

In the end, it does seem overvalued. Yes, I understand that companies such as Amazon trade at even higher P/E’s but there is the hope that they will be able to raise prices on some of its segments and become highly profitable. I don’t see how that could happen with RackSpace. It is already priced higher than most of its competitors and I simply don’t see where that growth would come from.

RAX Revenue Quarterly YoY Growth data by YCharts

Is It Too Late Though?

The biggest problem of course is that it seems late to short RackSpace, just look at how poorly the stock has done in the few months:

So would it be too late sell/short RAX? Here are the current numbers:

I personally continue to think the upside is limited but I would struggle to take a decisive view so would likely “hold” for now. Do any of you hold a position on RAX?

As many of you know, TechCrunch is one of my favorite Tech blogs and I loved one specific post that came out this weekend:

-Google’s cloud is eating Apple’s lunch

I invite you to take a read if you are interested about either or both of these stocks. Jon Evans basically explained how Google has been able to dominate most cloud-based services such as Google Now, Google Maps (vs Apple maps), Google Drive (vs iCloud), etc. I can’t imagine anyone arguing with that point. Google is clearly building an incredible lead, especially in the maps segment where it will be very difficult to catch up with (arguable maybe as difficult as it is to compete with Google on search).

I do also agree with the premise that the future of phones in the next few years will be driven much more by software than hardware. We’re at the point where the top phones can all take decent photos and video, are light and have incredible screen quality. The distinctive factors are increasingly related to apps, services, etc. So yes, any company trying to compete with Google and its Android O/S is at a severe disadvantage.

Here Is Where I Disagree

While I do think that Google’s cloud-based services are dominant, I don’t think that spells the end for Apple. It lacks in some areas such as maps, where it made a horrible mistake a few months ago. It does however have other strengths when compared with Google’s Android:

-A closed operating system has downsides but also benefits in terms of experience, security, etc
-There are other areas where Apple has a better offering (iTunes being one example, but you could also include its iMessage and a number of emerging apps that focus on iOS first)

I also think that any relevant service, no matter who builds it, will eventually be able to get it up on the iPhone I do have an iPhone but I use Google Chrome, Google Drive and Google Maps every day. Google is not offering those as charity for Apple users, it does help the company be more present in mobile, sell ads, etc.

So yes, Apple is behind in many cloud-based applications and should work on those, especially in a world where software will be central. But I would personally say that this is just one of many factors in the battle between Apple and Google. It is not a weapon of mass destruction:)

What Are Your Thoughts, do you think this is one reason to get rid of Apple? 

Disclaimer: Long Apple and Google