I like to think I’m pretty good when it comes to new technology. I can use many of the thingy-ma-bobs on my phone.
Every-so-often I even use Skype to video with my chums and offspring in foreign places. I haven’t opened a book in years because I’ve loaded thousands of them on my phone and i-Pad. What a modern Badger I am…
We live in a fabulous age.
Yet, I maintain a healthy scepticism of most new tech innovations – taking the view there is lots more money to be lost in tech investment than there is to be made. I was there – and already into my dotage – when tech blew up in 2000. It was a harbinger of pain to come across all markets later that decade. My point is simple. Tech and all the associated flummery of internet selling seems awfully fully-priced.
I’m more and more convinced the whole tech sector mayhem is going to happen again.
When I hear that private equity firms are investing billions in apps that allow young girls to share nail-painting patterns I inwardly groan. Everyone wants to fund the next Candy-Crush. It’s easy to get caught in the hype – and forget the simple rules about not investing in products that have no discernible purpose or loyal users. I am reminded of the popular TV comedy Big Bang Theory where the chaps develop a “formulae identification app” that despite its undoubted genius, has a potential user base of up to, but not more than 5 people. A VC Fund manager recently admitted to me he’d bought into at least 3 or 4 similarly flawed deals.
So I’m not surprised to read the credit ratings agency Standard & Poors have rated Twitter as “Junk”.
It is considered to be a speculative credit, and according to my bond traders that means there is a better than 40% average chance it will go bust in the next 10 years. The stock price fell and investors are wondering what the reality of its recent spending binge leaves behind the façade. My kids tell me Twitter is so yesterday. I have tweeted precisely once, yet I do have four followers – the kids and wife. I also have their phone numbers.
For Twitter’s credit to improve it has to: broaden revenue, launch new products, build market share and improve profits.. Not going to happen is it? I expect to hear it’s been downgraded shortly.
But I’m also concerned about the biggest story of them all – the marvellous treasure cave of bright shiny things and prosperity that is Alibaba. I read they are about to launch an $8 billion bond issue to repay previous borrowings. But look at the numbers. What justifies its $290 billion market cap?
I am told that Alibaba makes between 5-10% margin on every sale – which would translate into a daily profit of $900 million based on its sales on a single day last week. That $9.3 billion record day of sales was from Singles Day, a geeky Chinese invention designed to part lonely Chinese men from their dosh. It doesn’t happen every day.
I can’t believe Alibaba’s margin is sustainable at 10% for a moment. In fact I’d be surprised if it makes 1% – it may have the closed Chinese market locked up but its global competitors in terms of payment services and Ebay/Amazon are increasingly having to compete and innovate to hold clients. What next we wonder…
So what is the trade of the week?
I’m reliably informed the Nikkei is going much much higher and the yen will further weaken versus the dollar. I have my doubts, but am going with it for now.
Badger