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Friday, March 18, 2011

Betting on Internet & Social Media...

A bullish social media industry

I tweet, visit Facebook on the go and network through LinkedIn almost every day. I often locate myself through Foursquare. But Groupon? I have never used it and am not planning to use it even though there is so much buzz around this 2 year old company which has given the new definition of "daily deal market". While there has been so much talk on the streets regarding social media companies going public, two of them- LinkedIn and Groupon have announced their potential IPOs in the 2011.

LinkedIn & Groupon both have different business models (please note that Groupon has not been able to explain their exact business model). LinkedIn specifically emphasizes on "professional networking" and the other is focusing on "discounted deals covering food, electronics, tickets, gifts and counting...". Though not accurate, but they have got vast difference in their valuations as well. On the personal front, I have been a big fan of LinkedIn and so I can be bias about my insight on Groupon. But certainly, Groupon's whopping valuation of $25 billions is eye-popping and dubious to me. Because:

  • Daily deal market is pretty crude and fresh for valuation analysts. Immaturity of this industry is one of the impediments behind mighty valuation numbers.
  • A new industry and particularly new company is often valued by venture capitalists and I believe that their perspectives are always overstating.

Here are few things I want to enunciate about Groupon's atypical growth story which is not new to anyone who knows what Groupon is:

  • A year ago from now and a year after its inception, it was valued slightly over $1 billion and now it is valued as $25 billion company. 
  • Hot off the press. They successfully drew around $950 millions last year in funding from venture capitalists.
  • Recessionary environment and looking for discounted deals are positively correlated with each other. And that beautiful correlation helped Groupon to be a bull.
  • It has been hiring employees and adding clients/ merchants all around the globe to its portfolio.
  • Presence in 35 countries with immense competitive presence in China and South Korea, which is the most active daily deal market.
  • Almost doubled their subscriber base in last 3-4 months.

......................... And there is "NO COUPON" for Groupon's IPO price or its valuation!!

Tuesday, March 15, 2011

8.9, Earthquake, Tsunami, Japan, Economy and the US

"Jasmine Revolution" began in Tunisia in the early 2011 and it rippled across the Egypt, Libya, Bahrain and the other middle east countries. I believe that's what we have been listening to and watching since last two and so months. And suddenly, a 8.9 magnitude quake and tsunami hit the Japan- the world's third largest economy. Though Japan is located on one of the most active geological fault lines, it experienced one of the biggest quake in its history and the most severe after the Kobe. The worst situation this quake followed by tsunami created is  "The Nuclear Explosion". And the country is trying hard to prevent its spreading along with other rescue efforts.

Looking at Japan's standing in the world economy, the ripple effects of this natural calamity are as horrified as expected. It may likely to impair nascent economic recovery in the developed markets. I have come across few areas where the US have some potential or immature impacts from this disaster.

  • Borrowing cost of US Treasury securities: Japan needs handsome capital to trigger reconstruction and recovery efforts though Bank of Japan has recently infused cash in to the economy following the quake. As Japan is the second largest holder of US Treasury securities after China, it may sell those to get capital it needs. In that case, borrowing costs or rates may be increased to lure investors in the global markets. On the contrary, investors have responded by huge sell off globally and by dumping the risk assets. Their demand for safe haven- US Treasury securities seem to be increased.
  • Money managers' holdings: Money managers across the globe will likely to face short term losses from their holdings in Toyota, Canon, Hitachi and other Japanese companies. These losses are strictly being considered as short term because of global presence of these companies.
  • Pharmaceuticals: Japanese pharmaceutical market is the second largest market after the US and it is expected to grow at the highest rate among the developed markets. For example, Pfizer gets his $5-$10 billions of revenues from Japan alone. Such a high correlation could slow down the industry growth.
  • High end retailers: Japan is one of the huge market for high end products. To name a few, US based retailers like Tiffany, Callaway Golf, Coach may be the worst hit high end retailers in the first two quarters of this year because of potential squeeze in consumer spendings in Japan.
  • Tourism: Based on some news & research, Japanese travelers contribute approximately 20% to the tourism in Hawaii. Looking at the potential ebb in spending patterns in Japan following this disaster, Hawaii tourism may likely to see some fall.

I wish and pray for their safety and well-being.