Internet stocks Frenzy !!!

Internet stocks Frenzy !!!

So TWITTER finally priced its IPO much above its initial range … from earlier thought price range of $17-$20, which it revised higher to $23-25 and finally priced it even more aggressively at $26/shr. This double pump makes it a rare IPO that boosted range and priced it above that range.

Back home, Zomato, a web-based restaurant search engine in India, said on Wednesday it had raised $37 million from Sequoia Capital and Info Edge India Ltd to fund its expansion in overseas markets. Before this InfoEdge had invested Rs 31 crore in Zomato over three rounds of funding. Fourth round of funding in pretty quick succession ??? … now values the five year old firm at INR 900 crores !!

Post its latest round of funding, Flipkart is now valued at INR 9000 crs or USD 1.5 bn. Flipkart is now worth more than the total market cap of all 15 listed retail companies, including Future Retail, Shoppers Stop etc. Filpkart’s business model is a money guzzler. Unfortunately, little money seems to be coming out at the other end. The only way PEs will get their money back will be through listing…

We all have seen the craze in India’s recently listed search engine firm JUST DIAL. The stock has doubled since its IPO in June this year and now trades at a staggering 20x FY14 sales and 70x FY14e profits !!!

Just came across this blog which summarizes the present euphoria in the internet stocks, worth a read :

Shouldn't Internet companies actually "make a profit" at some point before being considered worth billions of dollars?  A lot of investors laugh when they look back at the foolishness of the "Dotcom bubble" of the late 1990s, but the tech bubble that is inflating right in front of our eyes today is actually far worse. For example, what would you say if I told you that a seven-year-old company that has a long history of not being profitable and that actually lost 64 million dollars last quarter is worth more than 13 billion dollars? 

You would probably say that I was insane, but the company that I have just described is Twitter and Wall Street is going crazy for it right now.  Please don't get me wrong - I actually love Twitter. Twitter is a lot of fun, and it has had a huge impact on the entire planet.  But is it worth 13 billion dollars?  Of course not.

When it comes to the Internet, what is hot today will probably not be hot tomorrow.

Do you remember MySpace?

At one time, MySpace was considered to be the undisputed king of social media.  But then something better came along (Facebook) and killed it.

It is important to keep in mind that Facebook did not even exist ten years ago.  Yes, almost everybody is using it today, but will everybody still be using it a decade from now?

Maybe.

But the way that the financial markets are valuing these firms can only be justified if they are going to make absolutely massive profits for many decades to come.

Will Twitter eventually make a little bit of money?

Probably, as long as they get their act together.

In fact, Twitter should be making significant amounts of money right now if it was being run correctly.

But will Twitter ever make 13 billion dollars?

No, that simply is not going to happen.  But that is what Wall Street says that Twitter is worth.

The utter foolishness that we are witnessing on Wall Street right now is so similar to what we saw back in the late 1990s.  It is almost as if we have learned nothing from our past mistakes. These days I keep having flashbacks of the Pets.com sock puppet.  For those too young to remember, the following is a brief summary from Investopedia about what happened to Pets.com...  It's impossible to think of the first Internet era without thinking of the Pets.com sock puppet. He was everywhere and was nearly as well-known as the Geico gecko is today.

That familiarity, in part, persuaded many investors to lay down money in the company's February 2000 IPO (which was backed by Amazon.com). Pets.com raised $82.5 million – but nine months later it folded, due to major recurring losses. Part of the reason for that was aggressive advertising, but the company also lost money on virtually every item it sold. In the third quarter of 2000, Pets.com reported negative gross margins of $277,000. (The second quarter had seen a $1.7 million margin loss.) That same quarter (its last full quarter as an operating entity), the company lost $21.7 million on $9.4 million in revenue.

As for the puppet, he went on to shill for BarNone, which helps people with bad credit histories get car loans. He's still there today, front and center on that website.

Everyone loves to laugh at the poor little sock puppet, but the truth is that the tech bubble that is inflating right now is far worse than the Dotcom bubble of the late 1990s.  The following are 14 facts about the current tech bubble that will blow your mind...

#1 In just a few days, the Twitter IPO is expected to raise close to 2 billion dollarseven though Twitter actually lost 64.6 million dollars last quarter and has a long history of not being profitable.

#2 It is being projected that after the IPO Twitter could have a market valuation ofmore than 13 billion dollars.

#3 Twitter is not expected to make a profit until 2015 at the earliest.

#4 According to CNBC, Pinterest is currently valued at 3.8 billion dollars even though it has never earned a profit.

#5 Yahoo paid more than a billion dollars for Tumblr even though Tumblr's revenues are so small that Yahoo is not even required to report them on financial statements.

#6 Snapchat, an Internet service that allows people to send out messages that "self-destruct", is supposedly worth 4 billion dollars.  But it actually has zero revenue coming in, and many believe that it is essentially worthless as a money making enterprise. 

#7 The stock of Rocket Fuel, an online advertising company, is trading at about 60 dollars a share and it has a market valuation of about 2 billion dollars even though it has never made a profit.

#8 The stock of local business review website Yelp is up 241 percent this year even though it has never earned a quarterly profit.

#9 Fab.com just raised 165 million dollars from investors even though it recently laid off 44o employees.

#10 LinkedIn stock has risen in price by 136 percent since the 2011 IPO, and it is now supposedly worth more than 18 billion dollars.

#11 The head of engineering at Twitter, Chris Fry, got a 10.3 million dollar pay package when he joined Twitter last year.

#12 Facebook's VP of engineering, Mike Schroepfer, earned 24.4 million dollars in 2011.

#13 Office rents in San Francisco (where many of these tech companies are based) are now 23 percent higher than they were at the peak of the real estate market in 2008.

#14 Facebook stock is up close to 140 percent over the past 12 months and the company is now worth more than 120 billion dollars.

And I am certainly not the only one that is concerned that we are repeating the mistakes of the late 1990s...

“When you look at valuations and look at the lack of earnings and revenue, it seems to me much like the dot-com bubble,” said Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc. who helps oversee $10.2 billion. “This market looks a little frothy and Twitter is the personification of a risky trade.”

In fact, as the Wall Street Journal recently noted, we have seen some of these tech stocks crash more than once during the Internet age...

"It's fascinating to me that today's mini-mania includes shares of Amazon, Netflix and Priceline that have previously peaked and crashed before—in some cases they've peaked and crashed twice before," says Darren Pollock, portfolio manager at Cheviot Value Management. "Stocks like these have again captured the imagination of speculators. We're skeptical that there is enough underlying intrinsic value to many of the highfliers to support today's prices."

So how long will it be until the current tech bubble implodes?

9 Valuable Life Lessons We Learned From Gaming

9 Valuable Life Lessons We Learned From Gaming

http://mashable.com/2013/10/16/gaming-life-lessons/ 

 

An integral part of many a childhood, video games helped players develop more than hand-eye coordination. Many taught gamers about friendship, love and war.

Yes, video games contain valuable life lessons that can stay with a person years after he shelves the discs. Here are nine games that imparted such wisdom.

1. Nothing is too big to tackle. — Final Fantasy VII

Never has saving the world been a more frequent motif than in the Final Fantasy series. In the seventh title, players must save the world from Sephiroth (one of the most menacing video game villains ever designed) from becoming an all-powerful god. No one is saying you personally need to fight a murderous science experiment gone wrong. But the game teaches you the importance of taking a stand and fighting for the right reasons, even in the face of defeat. (Note: That doesn't include fighting with your teacher to cancel the midterm.)

2. Determination is key. — The Legend of Zelda

Whether it's powering through the many dungeons of Hyrule in a Legend of Zelda game or trying to complete an especially difficult assignment at work, you're not going to accomplish it all in one day. That's no reason to be discouraged, though — even Majora's Mask takes a full three days to complete. The key to getting through it all is to remain steadfast and keep moving forward, no matter the difficulty. Procrastination certainly doesn't help; it'll still be waiting right where you left off. If you're determined to make it through, there's the sweet satisfaction of accomplishment and personal growth awaiting you.

3. Sometimes it takes teamwork. — Team Fortess 2

Working in a group can be hit or miss, but being on a team does have its benefits. When everyone fits into his role, like a writer, researcher and organizer (or a Pyro, Heavy and Demoman), tasks come easily and smoothly — no hurt egos or feelings. Sometimes the best teams come together from different walks of life, so don't be afraid to bring your cocky Scout and your experimental Medic even if it seems they won't work well together. If Team Fortess 2 has anything to teach, it's that even the motliest of crews can win the day when they work together toward a common goal.

4. Confront your problems. — Silent Hill 2

There's nothing worse than being in denial — well, other than being stuck in a malevolent town full of monsters. Big issues don't go away on their own, and it's no fun going through life with them constantly hanging over your head. Silent Hill 2 protagonist James spends the majority of the game denying that he murdered his wife, and the town of Silent Hill feeds on his guilt and grief. Tackling the situation full on isn't always the easiest solution, but it's more effective than denying its existence and letting it slowly consume you. Try to move on and make amends.

5. The world is yours to explore. — Grand Theft Auto V

It's certainly one of the newest games on this list, but Grand Theft Auto V best encapsulates the lesson. In GTA V you can do almost anything: hang-glide, play tennis, go to the movies, even take artsy photos with a cameraphone. It's endless fun to sample all the activities. The big question is: Why not do these things outside, in the real world? Okay, don't rob a bank or steal cars, but scuba diving is way more fun when you're in actual water with real-life fishes, no matter how beautifully rendered the graphics.

6. Always be prepared. — Call of Duty

You didn't just learn this lesson from Call of Duty, but rather from every single war and combat simulator and first-person shooter game ever produced — and maybe the Boy Scouts. Whether it's ammo and healing items or tissues and water, it's important to know what's necessary to get through the day — especially when you're down to your last granola bar and you've got a nine-hour bus trip ahead of you. Being well-prepared goes beyond supplies; it's vital to learn how to use your environment to your advantage, to find the best tool for the job ... and to hide your reserves of cheese puffs so your co-workers will never find them.

7. You can do anything you put your mind to. — Super Mario Brothers

If the Mario franchise has taught us anything (other than Koopa kings really like to kidnap princesses), it's that you can do anything so long as you can try your best. Mario is a plumber by profession, yet he successfully navigates through several dungeons, defeats bosses and rescues the princess on a regular basis. That doesn't include when he plays soccer, drives go-karts, beats up other Nintendo characters and successfully trounces his friends at party mini-games. Take some risks and try new things, especially if you're in a rut. You never know: maybe you're better at golf than you realized.

8. Things aren't always what they seem. — Pac Man

This might seem like a strange lesson to take from Pac Man. After all, most people simply learn to avoid ghosts at all costs. Even more important is that in every level of Pac Man the ghosts move in particular patterns. It's a trick most seasoned arcade players have noticed. In the same way, the answer to a problem or situation may not be immediately obvious. It may take a lot of thinking or planning to achieve your desired result, but it will be well worth it in the end. Especially if you can beat those conniving ghosts.

9. Choices have consequences. — Fallout 2

In the real world and in gaming, you are forced to make difficult decisions. Most choices in video games are morally clear — one is the good choice, the other is villainous. Maybe you start a game deciding to act as either the hero or the bad guy, or maybe you let your mood decide, but most players aim for a specific type of ending. Fallout 2 doesn't work that way. Depending on the choices you make, who you kill and the quests you complete, there are 47 different endings you can achieve. Just like in real life, everything you do in gameplay has a consequence; so it's unwise to haphazardly make decisions about who to trust and what to prioritize. When you do make a decision, think through all the possible ramifications — you don't want to get the Bad Ending by mistake.

JEREMY GRANTHAM'S GOT A TRACK RECORD

JEREMY GRANTHAM'S GOT A TRACK RECORD that's impossible to ignore—he called the Internet bubble, then the housing bubble. While moves like those have earned the famed forecaster the nickname "perma-bear," in early 2009 he also told clients at GMO, his $100 billion, Boston-based money-management firm, to jump back into the market. It was the same week that stocks hit their post-Lehman low.

Now, however, the outspoken Yorkshireman, who is chief investment strategist at GMO, is making headlines with a new prediction: Dire, Malthusian warnings about environmental catastrophe. To hear him tell it, the world is running out of food. Resources will only keep getting more expensive. And climate change looms over it all. Indeed, at times he sounds like someone Greenpeace would send door-to-door with a clipboard. (He's not above likening the coal-industry spin to the handiwork of Goebbels.) If it were anyone else, Wall Street would probably laugh him off. But because it's Jeremy Grantham, they just might listen.

Q: You've been ringing alarm bells about commodity prices. Why all the worry?

A: They came down for a hundred years by an average of 70 percent, and then starting around 2002, they shot up and basically everything tripled—and I mean, everything. I think tobacco was the only one that went down. They've given back a hundred years of price decline and they gave it back between '02 and '08, in six years. The game has changed. I suspect the game changed because of the ridiculous growth rates in China—such a large country, with 1.3 billion people using 45 percent of the coal used in the world, 50 percent of all the cement and 40 percent of all the copper. I mean these are numbers that you can't keep on rolling along without expecting something to go tilt.

Q: This led to some surprising conclusions, like your concerns about natural resources most of us have barely heard of.

A: We went through one by one, and we decided the most important, the most valuable and the most critical was phosphate or phosphorous. Phosphorous cannot be made, only placed. It is necessary for all living things. And we are mining it, and it's depleting. And I like to say, if that doesn't give you goosebumps, then you're tougher than me. That is a terrible equation. So I went to the professors, and I said, what's going to happen, and they said, 'Oh, there's plenty of phosphorous.' But what's going to happen when it runs out? 'Oh, there is plenty.' It's a really weak argument. We do have a lot, but 85 percent of the low-cost, high-quality phosphorous is in Morocco…and belongs to the King of Morocco. I mean, this is an odd situation. Much, much more constrained than oil in the Middle East ever was—and much more important in the end. And the rest of the world has maybe 50 years of reserve if we don't grow too fast.

Q: What are investors supposed to do?

A: The investment implications are, of course, own stock in the ground, own great resources, reserves of phosphorous, potash, oil, copper, tin, zinc—you name it. I'd be less enthusiastic about aluminum and iron ore just because there is so much. And I wouldn't own coal, and I wouldn't own tar sands. It's hugely expensive to build coal utilities, and the plants they have to build for tar sands are massive, and before they get their money back I suspect that the price of solar and wind will have come down so much.

So I wouldn't use that, but I think oil, the metals and particularly the fertilizers, I would own—and the most important of all is food. The pressures on food are worse than anything else, and therefore, what is the solution? Very good farming, which can be done. The emphasis from an investor's point of view is on very good farmland. It's had a big run. You can never afford to ignore price and value, but from time to time you can get good investments in farmland, and if you're prepared to go abroad, you can do it today. I wouldn't be too risky. I would stay with distinctly stable countries—Australia, New Zealand, Uruguay, Brazil, Canada, of course, and the U.S. But I would look around, in what I call the nooks and crannies. And forestry is the same. Forestry is not a bad bargain, a little overpriced maybe, but it's in a world where everything is overpriced today, once again, courtesy of incredibly low interest rates that push people into investing. A wicked plot of the Federal Reserve.

Rising Commodities

Total return over 10 years (2003-2013)

Source: S&P Dow Jones Indices

Q: Why is this problem so hard for us to deal with? You've railed against short-termism.

A: A career politician has a very short horizon. They're not really interested in problems that go out five or 10 years. Secondly, you have what they call the discount-rate effect, which is a dollar in 10 years has a much lower value to a corporation than a dollar today. So they're only interested, at the corporate level, in the short term. And politicians, in the very short term. And you have a vested-interest effect. In other words, it's very hard to get change when the people who are benefitting very nicely, thank you, from the current situation don't want it. If the oil industry is making a bundle, which they are, they don't want to change to a system that recognizes climate change and the need to have a tax on carbon. And they can fund right-wing think tanks, and they do.

So you have vested interests fighting like mad to keep the situation the way it is. And that's always the case. So change is difficult, and with our politicians with the short-term election problems, it's nearly impossible. And when they depend so much on campaign contributions, and they find the campaign contributions come so much from the vested interests, the financial world, but more particularly the energy world, it's a bloody miracle anything gets done.

Q: And that long-term perspective is important, not only to changing society, but also to investing. As an investor, you're known for that.

A: I like to get what I consider the central idea, which in the stock market is patience and value and mean reversion. And in society, it is resources and climate damage. That's plenty to go on, and that's a pretty strong focus. We have a shockingly short horizon in the stock market, as witnessed in the Internet bubble. And we have a shockingly short horizon about social problems, where all we want to hear is how rapid the growth will be and how good everything is.

Q: How about a stock forecast. You called the market's initial 2009 rally, but by 2010 you were predicting "seven lean years." So far, however, the market's soared.

A: And it can go a lot higher than this with the Fed pushing it. And we can have another real bubble. Based on the Fed's history, that seems to be what they like. You know we had one in 2000 with Greenspan, and then we had a housing bubble and a financial bubble with Bernanke and Greenspan. And it looks like Bernanke is perfectly happy to keep the rates down and watch as stock prices rise. They do that because as the rising stock prices give you a little consumer kick, you feel richer—and then, when you least need it, the whole thing bites you, and the prices go back to fair price or lower, like they did in '09, and the consumer reacts, and you have a recession and a bad stock market. But they've had two of these, and they seem bound and determined to do it a third time. As I've said, it's a workable definition of madness to keep doing the same thing and expect a different result.

Q: Like many Englishmen, you seem to regard Americans as wildly, fool-heartedly optimistic.

A: America is a very, very optimistic-biased society, as I believe, incidentally, Australia is, for whatever that means. We're the two great optimistic societies. You can have a conversation about a housing bubble in England, and they'll say, 'oh, is that right? Let me see the data.' If you have one in Australia, you have World War III! They hate you. They hate you for years! [laughs] The idea that you could suggest that they were having a housing bubble. [laughs]

Q: So the stereotypes about us are true?

A: Absolutely. Now, it's been very useful in enterprise, in venture capital...in start-ups. We have more failures here than probably every developed country added together, but in consequence, when the smoke clears, we tend to end up with the Amazons and the Googles. It's not an accident. We just throw more darts at the dartboard. The Germans are very conservative about throwing darts. We have an admirable risk-taking attitude, and we're very tolerant of failure.

Q: We benefit from it?

A: Absolutely, but the downside is you're willing to throw darts because you think you're going to win. American entrepreneurs all know they're going to win. Only 10 percent survive, but they all think they're going to win.