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Entries for May 2011
Boy am I glad we started our blog a few days ago – social media is just exploding in value. Linkedin came public today at $45 a share for a valuation of about $4.5 billion or so. The stock, in short order, is trading over $100 so make it $9 billion and change now. So – do we have another bubble run coming for social media companies? I am not sure – LNKD generated over $250 million of revenue last year, so it is not a flash in the pan and this year it’s expected to generate over $400 million – pretty good growth! Of course earnings and cash flow are the real drivers of value and they may be a few years away still. Henry Blodgett (remember that guy from the 90’s internet bubble craze) is out with some thoughtful points on the situation (
http://www.businessinsider.com/sorry-linkedins-ipo-is-not-proof-of-a-new-tech-bubble-2011-5 ). His view is that the estimates analysts are putting on the company’s future projections are absurdly low – he thinks they could cash flow $400 million in 2013 and have EPS of $1.50. If that is true, then relative to a company like Open Table (OPEN) trading at 90x 2011 expected EPS currently, it is actually not “absurdly” overvalued. They do also seem to have a lock on their niche space of the go-to site for corporate hiring (especially head hunters and corporations). For sure, our value-oriented managers will not be touching this stock – from either the long or the short side! Shorting this name could be dangerous to your financial health. At this price, some analysts have suggested they could make “tuck-in” deals for companies like Success Factors (SFSF) or Taleo (TLEO) who sport market caps of $2 and $1 billion respectively. My own view is that this stock is overvalued – why? Because they decided to issue only 7.84 million shares into a very hot social market ($352 million of market cap at the time of issue) – a game Jim Cramer calls the “sliver” game. Keep it tight and controlled and let the animal spirits run wild! It does not mean the party cannot continue – it most likely will. One thing you can count on is that there will be a lot more social media names coming to market!
Jim McGovern
Back in the office today after spending a rainy day in NYC yesterday. Between meetings, I found myself surfing the web on my Playbook (it’s a terrific tablet – great screen and very portable) visiting some of favourite financial blogs. So, I thought I would share my favourite sites with visitors over time .
My favourite blog by far is called The Big Picture (http://www.ritholtz.com/blog) and it is run by financial strategist, commentator and author Barry Ritholtz. Barry’s day job is CEO and Director of Equity Research of Fusion IQ, an online quantitative research firm. You can subscribe for free and get a daily email forwarded to you that contains highlights of his postings.
The postings are varied and always interesting – from macro issues affecting securities markets (eg. for how US corporations avoid paying taxes, check out this piece: http://www.onlinemba.com/corporate-taxes/ ) to technology (I flipped this very cool space website he mentioned (http://www.solarsystemscope.com) to my son, who had a blast with it last weekend). It also has excellent summaries and thought-provoking articles on geopolitical issues, ranging from Greece (http://www.ritholtz.com/blog/wp-content/uploads/2011/05/greecescenarios.jpg) to China and to the US real estate market.
From this blog alone, you can spend an entire day mining useful information on so many varied and interesting topics while being in touch with some of the finest thinkers, especially on financial matters. Many of the folks will be the subject of future posts – they are by nature more specialized than this blog, but nonetheless very interesting. Stay tuned. Jim McGovern
Via:
Medical Billing And Coding
There obviously has been a lot of discussion about commodities this past week and I thought the charts below were pretty interesting when thinking about what could happen to commodity prices here in the coming months (years).
The first chart is of the Shanghai Composite Index from the time it bottomed in Nov 2008 to its peak in August 2009 (nine months later) after a basically +100% return.
The second and third charts are the recent price action in both Silver (+100% return across six months to April peak) and Oil (+40% return across five months).
The basic point is that the underlying fundamentals and performance of the economy in China have been outstanding across the last several years; but after hitting these peak almost two years ago, the stock market there has done nothing. In fact, it is down some -20% across this period of exceptional fundamental performance. After the initial fall in early August 2009, there was an initial rally followed by a lower low and then a recovery to a lower high across the next three months before then moving lower. Note that during this period, the SPX and other global markets actually moved considerably higher.
Right now, I think the charts of many commodities and commodity related stocks are in a very similar situation. This doesn’t mean that they consolidate for two years (they could) and maybe they simply consolidate for a period of 2 to 5 months now (pretty typical) but I think it is highly likely that the near-term top in commodities has been set. Especially once we consider that every major economy on the face of the planet (except Japan) is or will be in the process of restraining monetary liquidity now. Also considering the extreme one-sided consensus of this trade recently (I call it a “Charlie Sheen” trade – winning no matter what), I think this could be a very difficult period for commodities. Not that they will be down a ton from here but I think it will be quite some time before they move to new highs.
Overall, I would argue this is positive (and potentially VERY positive) for most global markets. Growth will remain positive, inflation will settle down and multiples are not demanding – especially in emerging markets.
Enrique Abeyta, 360 Global Capital.
(Chart sources: Bloomberg)
Jim McGovern