It hit me, like a ton of bricks, and made perfect sense. A majority of investors are so worried about their past mistakes they can't see the future right in front of them. So many long term investors are fearful of the chaos the tech bubble of the 90's wreaked on their portfolios, how they were fooled into thinking that companies had potential when they did not. Today, many of those investors are still around, and they watch the market with blinders on. These individuals fail to realize the growth potential of a technology company compared to the ig box store, the growth potential in mobile, the future of the worlds technology needs. No longer are companies coming to market that don't offer services, revenues, or users. The technology companies of today are part of our daily life. The younger generations no longer check the paper for the news, rather log into their twitter from their smartphone. The dinosaurs of the investing world will be missing the growth potential and great returns in the coming months.
I constantly hear that the first day of Facebook will likely be huge, but after that the day of reckoning will come. Why is Facebook destined to trade down? I am not suggesting that the stock will trade in one direction, it's a market, stocks trade both directions. To suggest that the peak of Facebook's stock price and return to investors will be the first day is just ridiculous. This could be the year of tech, or the decade of tech for that matter. The growth potential is huge, the monetization will come, and the returns for investors will be obvious.
I think you are exactly correct in the fact that comparisons to the bubble are questionable. The PE's were sky high in 2000 and most companies were ideas at best rather than businesses that have found ways to generate billions in revenue in less than 10 years of operation. I hear the same thing, but find it comforting if the crowd feels that way.
ReplyDeleteYes, like Yelp. Here's a company with 25 straight quarters of losses, that in their first quarter as a public company increased revenues by 50% and tripled their loses. I don't understand why investors are concerned. Here is a company which has never made money in which the voting shares are held by the company owners and the nonvoting shares were sold to the public. Currently, there are such limited shares available of the total number so $1 million in trades can change the company valuation (capitalization) by $50-70 million. Not to mention that early investors, owners and underwriters were paid prior to the stock offering and employees have to wait until August to sell their stock. I like this company. It doesn't matter that Google, where 80% of Yelp's traffic comes from, has started a similar service (Places) which consistently outranks Yelp on searches or that Aroundme.com local business mobile app had 1 million downloads and 20% more searches than the Yelp app. Aroundme.com is run at a profit with a staff of 4 compared with 15,000 employees at Yelp. The good news is that Yelp announced with would be reducing its workforce by 2,000 employees - a great sign for a growing company. Your father must not know anything if he can't see the potential here. Too bad for him.
ReplyDeleteI appreciate your opinions on the matter. Profitability has really been a question for these technology companies, I see it as though many of the companies are on the verge of revolutionizing the monteization of their profits. In the coming months and years with the users at there discretion they will be able to profit handily once they can take advantage of them. The float size is also a valid concern and as Facebook will show on Friday, a technology company can succeed in the free market with a larger float. This will likely incentivize future companies that come public to follow their path of a larger float. Lastly you point to Yelp. You attempt to question the company in terms of competition. You obviously have been misinformed, because the two companies you mention are far from competition. You also suggest that Yelp derives a majority of their web traffic from Google. As Yelp becomes a brand of its own, as the growth suggests, this will be far from an issue.
Delete“We do not see with our eyes. We see with our brains… What we see is only what our brain tells us we see, and it’s not 100 percent accurate.” — John Medina
DeleteA Ponzi scheme involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in profitable business activities. These people prey on greed and the notion that by handing over your money you will get something for nothing. This is a fundamental unsustainable system as the last players always get burned. Right now, by the time a company goes public, all the VC's and producers have been paid and there is little incentive for repaying investors.
Those who do not know history, are doomed to repeat it. Throw in technology, monetization, incentivize, revolutionize and float and you rebrand the means to take public money. In today's world we call it screwing the nowbies.
Facebook is going into the IPO with $4 billion cash on hand, not $100 million in debt as Yelp did. So yes, there are opportunities. Any investing requires an understanding of an industry and understanding of sound investment decisions.
I might say you are right in saying your father generalized the entire technology market as a bubble, but you may also be in error in generalizing that all in technology is destined to succeed.
Your father is in the safest position for if he is right or wrong, he will lose nothing. The tech market is a gamble and any other illustration is self-delusion.
Firs off, assuming that companies such as Facebook and those similar to it are Ponzi schemes borders on ridiculousness. Secondly, obviously you are not schooled in history, being that you fail to realize that the U.S. economy has become completely serviced based. In other words, that our economy inherently focusing on servicing others, which happens to be a category in which a large majority of the technology excels in. Thirdly you suggest that Yelp fails to be a solid company, you do so by overlooking the mere fact that their content is worth its weight in gold. An active user group that provides quality information is truly priceless, and Yelp has that, something its competition has failed to capture. Lastly my father is wrong, scared money has never made money, those that are ahead of the trend, and can see the future will profit handsomely. You sir are obviously to afraid of repeating past missteps of the late 90's to realize the potential the future holds.
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