Archive for September, 2010

Betfair going public

By: ispeculatornew | Date posted: 09.24.2010 (5:00 am)

British company Betfair announced it would be going public in a sector I would love to invest in; sports betting. It hopes to  get a valuation of 1.5 billion british pounds. Regular readers know that I am a huge fan of Betfair and its whole business model. Just seems like the equivalent of the New York Stock Exchange for Sports betting. They do have other activities but Sports Betting is where the bulk of their activity comes from and honestly it is where the whole business makes the most sense.

Financials

In the year ending April 30th 2010, Betfair made a profit of 53 million pounds on revenues of 340.9 million pounds. The company has 150.9 million pounds in cash and no debt.The company has 3 million customers and is getting many more every day. Sounds like a success story.The stock has a had double digit growth in revenues for over a decade now with no signs of slowing down.

Why is Betfair different?

When you head into a sports gambling shop or a casino, you are betting against the house. That is good but the disadvantage is that the house takes a huge cut. You have surely read about it. When you head into a casino, there is one objective for that casino, to keep you inside, playing. They will do everything possible to keep you playing because the odds are staked so much in the house’s favor that the longer you play, the more the house ends up with the chips.

Now think about stock exchanges and how they have profited from increasing volumes. Thanks to hedge funds and high frequency trading, volumes have been rising fast which has helped exchanges make bigger and bigger profits. It’s quite simple, they charge a small fee on every trade and as volume increases, so do profits. Simple formula but it explains why stock exchanges have been so active in trying to gain more market share.

Finally, a brief look back on Ebay. The power of Ebay of course is connecting users from across the world. Ebay has been able to build a business model that increases through the work of others.

EBAY + NY STOCK EXCHANGE + CASINO = BETFAIR

The concept is simple. Betfair positioned itself as a marketplace where individuals, companies or even sports betting funds can place wagers on all kinds of different events. Because of the fact that there is no “house” involved, the quotes offered are almost always the best available which has attracted volumes. Besides, since gamblers can take either side of any trade, any “bad quote” is quickly replaced in most markets as users can arbitrage that quote with any other website. This helps ensure the best betting conditions for users on almost all markets (i.e sports or specific events & matches).

This has helped Betfair gain huge market shares in the sports gambling business. While the business is still illegal in the US, Betfair has already been able to get growth from almost everywhere else in the world.

How does Betfair make its revenues? It simply takes a small take out of every winning transaction. Simple but smart. It is similar to stock exchanges in the sense that it will benefit from increased volumes more than anything else. And while competitors will surely jump in and offer smaller fees, Betfair will be able to keep its edge because that is where the volume and liquidity can be found. Will it always be the case? Not necessarily. But I would make a big bet on Betfair’s long term future. Hopefully laws in the US change so we can all enjoy the website but also have Betfair traded on US exchanges, a win-win proposition.

Quick news – September 23 2010

By: ispeculatornew | Date posted: 09.23.2010 (3:30 pm)

Tech news: (concern the stocks we follow)

Apple (AAPL) became the 2nd most valuable company in the world passing Petrochina
Amazon’s (AMZN) Kindle store now has over 700,000 books
Piper Jafray estimates that Apple (AAPL) will sell 21 million Ipad’s in 2011
Forbes released its list of richest persons and Facebook’s Mark Zuckerberg came ahead of Apple’s (AAPL) Steve Jobs

Best return:     Baidu (BIDU) +3,51%

Worst return:      Monster WorldWide (MWW) -2,37%

The case for and against 3000$ Gold (Part 2 of 2)

By: ispeculatornew | Date posted: 09.23.2010 (5:00 am)

Yesterday, we took a deeper look into how gold investments were being made and also the main reasons why gold could continue its move towards the $3000. However, like any other subject, there are many doubters and some say that gold is vastly overvalued. It is a very difficult asset to predict but there are many reasons or forces that could lead gold way back down. Is it already a bubble? Difficult to say honestly but some arguments are difficult to argue with…

Contrarian: Few financial principles have held true for decades as markets usually adapt but one that has is that if everyone is putting money in one asset, you are usually better off betting against the crowd. Finding examples is the easiest thing in the world. Think of real estate… Remember how crowds were leveraging everything to get into real estate because prices could not decrease? How well did that turn out? And when everyone was negative a year or so ago thinking that the market would collapse? If they got out, they missed the whole rally. You could easily find tens of examples. That is a very worrying thing about gold. It just seems like everyone from your financial adviser to your dentist or your cab driver

Based on belief: Yesterday we discussed how gold had historically been a good hedge against inflation and was seen as a hedge against apocalypse. I can see both but I think it’s easy to forget that the source of gold’s value is similar to that of the US dollar, it is based on belief. In reality, gold’s main “utility” is for jewelry. If chaos falls upon us, I am not 100% convinced that gold would hold its value. Who will be looking to exchange for gold exactly? It could happen but maybe not. And if I’m starting to prepare for the worst possible situation, I would prefer something that has more intrinsic value such as land or food. I’m not saying they are easy to store (can you imagine storing soup or fire wood?) but just saying that gold is maybe not the bulletproof solution.

Governments getting rid of gold: If you look at the past decade or so, governments, the main gold holders, have been selling more gold than buying. There are many reasons behind it of course but I think that if it was so obvious that gold was going to rise to $3000 or higher, these governments would hold on a little longer to find out.

Not a true inflation hedge: Gold has always been seen as a good hedge to inflation and it certainly seems like it will continue to do so. But if hedging inflation is the goal, don’t you think that buying TIPS (inflation protected treasuries) is a far better hedge? I’m not sure why gold is seen as the ultimate inflation hedge when a product like the TIPS is directly linked to inflation numbers?

What will happen when the economy/markets recover? Just take a look at the chart on the left, from Clusterstock. This proves what we already know; that gold has been enjoying a good run every time there is uncertainty about the markets or the general economy. I don’t think anyone expects the US to be thinking about recession for the next 10 years. Recovering is a challenge and will remain so for some time, but what will happen to gold when the market recovers?

So which is it?

There are good arguments on both sides and I guess everyone has an opinion about where gold is headed, I would love to hear yours. Is gold headed to $3000 or even higher as some predict or is it already a bubble ready to burst?

Closing trade on Apple (AAPL) vs Blue Nile (NILE)

By: ispeculatornew | Date posted: 09.22.2010 (3:40 pm)

Finally! It took some time and while we were still making picks in our premium newsletter every week, we were anxious to put some more trades on the table. Finally today Apple continued its spectacular rise and helped the trade reach its “stop gain” point. As it stands, the trade on long Apple (AAPL) & Short Blue Nile (NILE) that was initiated August 16th is up 21,03%.

We will close it out tomorrow morning, and have a new trade on Monday,

Quick news – September 22 2010

By: ispeculatornew | Date posted: 09.22.2010 (3:16 pm)

Tech news: (concern the stocks we follow)

Netflix (NFLX) officially launched its streaming service in Canada
Microsoft (MSFT) raised its quarterly dividend to $0.16
Research in Motion (RIMM) is rumored to plan its Ipad rival launch, the Blackpad, for next week
Adobe (ADBE) was cut to “Market Perform” by FBR Capital Markets
Adobe (ADBE) was downgraded to “Neutral” by Robert Baird, UBS & Credit Suisse
Adobe (ADBE) was downgraded to “Hold” by ISI & ThinkEquity
Adobe (ADBE) buy rating reiterated by Goldman Sachs

Best return:    Netflix (NFLX) +6,61%

Worst return:     Adobe (ADBE) -19,03%

The case for and against 3000$ Gold (Part 1 of 2) – GLD

By: ispeculatornew | Date posted: 09.22.2010 (5:00 am)

One of the best returning assets in the past year as well as in the past 3 or 5 years has been gold. Yes, that old metal that has been around for centuries and was for some time the default currency used in the world. Its role has changed but Gold continues to be hyped. And while you might have missed a lot of gains if you did not buy gold already, there are many bright minds who think that Gold is headed much much higher in the next few years. We decided to take a deeper look into how and why that could happen and how to profit from it of course.

A decade ago, trading or owning gold was something that was done by one type of institution on a large scale; central banks. But nowadays, Gold is owned by central banks, pension funds, hedge funds, institutional and even retail investors. It is becoming a more “trendy” investment thanks to those who pump it as the best investment, or as the only way to do well when everything collapses. More on that in a bit. There are many ways of owning gold of course and that has also contributed to gold’s recent emergence. Let’s take a quick look at the ways to own gold or gold exposure:

Physical gold: Surprisingly, owning physicaly gold has been gaining popularity in recent years. Generally these investors want to own the yellow metal in case things go wrong. While owning gold used to be expensive, the costs have come down quite a bit as many companies have gotten into the business. These companies try to buy gold (in form of jewely or others), melt the gold back into coins or bars.It does turn out to be a bit more expensive but there is upsize as I will discuss a bit later on. Other companies have been buying gold in large quantities and reselling Companies like GoldLine and Scotia (Canada) have been making markets on selling physical gold.

Funds/ETF’s: Those investing in gold for investment purposes have generally been doing so through low cost ETF’s. A few years ago, buying gold required trading futures which makes it both complex and expensive. In contrast, owning gold through an ETF like GLD (by far the biggest) gives investors exposure to the yellow metal and to its price movements. There are many types of ETF’s, some invest in the physical gold, others do it through futures and some even buy the actual miners like Barrick Gold. They all provide different exposures of course but can all be interesting depending on your reasons for investing. Here are some of the main gold ETF’s that trade on US markets:

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Futures: It’s not the easiest to invest in futures and is probably not even worth considering for long term smaller investors but for short term speculation and large investors, it can be the right way to go about it.

So why is gold such a great investment right now?

Historical Hedge against inflation: One of the big reasons why investors have gone to gold is because historically it’s been a good hedge against inflation. The reason is quite simple. When money starts to lose value, hard assets such as gold keep their “relative value”. What I mean is that if the value of currency goes down (inflation does that), money invested in gold will generally more or less keep its value. Since inflation is usually triggered by central banks “printing money”, you can imagine how many are worried about this problem given the way the Treasury resolved the past crisis. Many believe it could take a decade to see inflation pop up but eventually it will.

Hedge against apocalypse: Increasingly, many believe that at any point in time, the whole system could collapse. The idea of course is that our system is based on belief. Belief that currency will be worth something, that banks will be able to pay back deposits, etc, etc. After the major crisis and smaller events such as May’s flash crash, there are more doubters about the system and some believe that there is at least a possibility that it could all collapse. Will it happen? Very unlikely. But if it did and we did return to a “simpler” way of life, Gold’s value would almost certainly pick up big time.

New Asset Class: If gold prices depend on supply and demand, there is a clear case for much higher prices. A decade or two ago, when only central banks were buying, the demand was mostly based off of their purchases and jewelry. But with many funds and other investors now wanting to get involved, the demand has clearly picked up big time and that can be self-fulffiling. If commodities (and more specifically oil and gold) are now an asset class of their own, there is little doubt that it puts huge pressure on demand for these products. That by itself will push prices up. And you know what happens when prices go up? More investors will feel the urge to get involved.

New World Currency?
: This is a tendency and a theory that has been going for on for some time now. As the US government continues to accumulate deficits, there are many US dollar holders who are losing their belief in the long term fundamentals of the US dollar. As that happensm they are looking for better ways to diversify and protect their assets. It’s not quite clear how to do it the most efficiently. Some have purchased Euros, Yen, and other currencies, often through baskets. And many have decided to buy gold. If this tendancy continues, gold could regain some of its lost purchasing power. Likely? It’s not clear honestly, but it’s not a far fetched scenario if the US government keeps up these deficits…

Where do you expect gold prices to move towards? Tomorrow, we will bring some counter-arguments…stay tuned!

Quick news – September 21 2010

By: ispeculatornew | Date posted: 09.21.2010 (5:33 pm)

Tech news: (concern the stocks we follow)

Ebay (EBAY) said its 3rd quarter results will be at high end of estimates
Adobe (ADBE) reported earnings of $0.54 per share (estimates $0.49$ but announced lower guidance on revenues
Monster Worldwide (MWW) was rated a new “Sell” by UBS
Dice Holdings (DHX) was rated a new “Hold” by UBS
Research in Motion (RIMM) was rated a new ” Hold ” by Cannacord

Best return:    Sohu (SOHU) +7,10%

Worst return:    Travelzoo (TZOO) -4,54% 


Most valuable blog on the internet?

By: ispeculatornew | Date posted: 09.21.2010 (5:00 am)

In the past I have written about how internet properties are similar to real estate properties from an investment perspective and received many comments and emails about it. The big thing of course is that few people know enough to invest in this market which has helped keep prices much lower than they will be in a few years.

I read a very interesting story in Inc magazine regarding TechCruch, one of the biggest and most valuable blogs on the internet. I highly recommend reading the article. Tech Crunch is now pulling in over $10 millions per year in revenues and those are rising very fast. If you compared this model to a more traditional magazine, you can imagine why “old media” is in so much trouble.

Not trying the “conglomerate” model

One thing that I admire about TechCrunch is that they have been able to stick to what they do best, the technology field. While it could be tempting to start different related websites or blogs related to tech stocks, to financing, etc, etc. TechCrunch has been more or less able to focus. That is also one of the big reasons why I do not like models like Yahoo, AOL or IAC Interactive. These companies have one successful blog which then becomes 5 good ones and one year later you are looking at 50 average blogs. The internet is so competitive that it becomes very difficult to compete with many average products and I personally think that is why a company like TechCrunch is a huge success.

Others like Facebook and Google have became involved in many different activities but they do seem to grow much more carefully.  Facebook launched a competitor to Foursquare in the “local” aspect of social but it was after months of preparation and careful thoughts. When I hear AOL’s plans to launch hundreds of new blogs this year alone, I don’t exactly get that same impression.

Isn’t it the most basic thing? Apple has very few products in its line but sells many more of them than other companies such as Dell which maintain hundreds of products. It’s so simple yet few companies actually follow through or even attempt to follow these principles.

Difficult to quantify

Of course, it is a challenge to quantify in numbers the “attitude” or “management qualities” of a company and that becomes something that I personally keep in the back of my mind at all times. How? AOL is a good example. Whenever I look for trades, I will look at AOL but I would rarely be one to go long on the company so I would be looking to see if I could short AOL against something else. It’s not impossible for me to go long on such a company but the odds are very low. Just take a look at the trades we’ve done this year and you will see that we have gone short 3 times on IAC Interactive, 1 time on AOL and 2 times on Yahoo. We did not go long on these names.

Of course, these names will have good and bad times but my bet is all else being equal, bad companies will under perform. A bad company can be seen through financial statements but also through the way a company is managed and how it gets its growth. Is a company like Tech Crunch growing as quickly? Not necessarily, but the revenue-cost structure is a lot easier to build on.

Quick news – September 20 2010

By: ispeculatornew | Date posted: 09.20.2010 (7:57 pm)

Tech news: (concern the stocks we follow)

Priceline (PCLN) was reiterated a “Buy” by Citi with a price target of $425
Research in Motion (RIMM) was rated a new “Buy” by Cormark Securities
Google (GOOG) announced its Google Doc were now used by 30 million employees
Google’s (GOOG) Android has now reached #3 in terms of smartphone market share ahead of Microsoft (MSFT)
Valueclick (VCLK) was raised to Buy by Benchmark
Research in Motion (RIMM) was raised to Buy by Societe Generale

Best return:  Valueclick (VCLK) +9,42%



Worst return:   Research in Motion (RIMM) -3,38%

Google’s (GOOG) attack on Verizon (VZ), AT&T (T) and others kicks into high gear

By: ispeculatornew | Date posted: 09.20.2010 (5:00 am)

Until recently, you needed to have a phone carrier to use a mobile phone or a traditional line. That gave all kind of power to companies such as Verizon and AT&T as they were the key that users needed to use friends and family. That is changing very very quickly. Already, companies like Skype made “calling” an action that could be done through any internet connection.

That being said, using Skype as a complete solution was too tricky for the average user and often complex for most users to use as a mobile device. The key was that phone carriers held the phone number thus keeping much of the power. But Google voice, a recently launched service gives that power back to the end user. Basically, users have a number that they can then redirect easily to a home, work, mobile or any other number. That makes the carrier less useful in most cases and irrelevant in many other cases.

Why? Because as wifi becomes widespread, it becomes less and less important to use these carriers. In many cities, wifi is being offered either for a small fee or even for free which makes it possible to only use wifi. We’re not quite there yet but it’s getting there very quickly and you can expect line carriers to see net users decrease as a whole over the next few years.

More power to Google

Google had seen its Google Voice application blocked by Apple but with the recent changes in Apple’s app policies, Google Voice’s app is being rolled back onto Itunes giving it access to Ipod/Ipad/Iphone users, not bad to get more users. The goal of course is to increase Google’s role in our information flow. Like many other of its products, the objective for now concerns market share, not revenues or profits. With solutions like Android gaining so many new users every month, Google will have many different avenues to get revenue streams from but as much as analysts and investors put pressure, it’s not the top priority at Google which is fine by me as long term growth should be the top goal in my opinion.

How big can Google Voice become?

I would expect slower growth than other products because using it is not as straight forward as other products like search or email. That being said, there are a lot of pros and money to be saved for users of the service so I would expect the service to catch up gradually. Actually, having an app on Itunes is a great way to get users to gain knowledge. It will also be interesting to see how soon Google can open the product to international users as it is currently offered to US residents.

Skype also in trouble

What is also clear is that Google intends to compete head on with Skype regarding calls made from the internet and when it made calling possible from Gmail, it was a major step forward and a major threat to Skype which is still expecting to do an IPO later this year. If that happens, I would expect the stock t become a good stock to short… We’ll see! Do you have any thoughts on Google’s venture into the phone business?