The Hyperion Effect

Archive for the ‘Companies’ Category

If you have been watching the news you will have undoubtedly seen the Occupy Wall Street movement which sprung up in the U.S. and in various other places around the world. Now if you also believe everything they told you you would possibly be left with the impression that large corporates are ruining the world, exploiting their workers and keeping all the profits for themselves through the clever use of tax loopholes…….

Whilst there are probably many cases of loophole use all around the world, to cast all big companies as being tax dogers seems a little extreme, particularly when you see the chart below.

Remember the days back in the late 90′s when every new IPO jumped on floating and everyone made money regardless of what they company was or did? Well those days appear to be long gone, notwithstanding the recent float of Groupon, the U.S. discount website that has taken the world by storm over the past few years.

After pricing listing at $20, the company jumped to as much as $28 and at the end of its first day closed at $26.11, up 30.5 percent.

But based on what’s happened over the past 2 years they have a less than 20% chance of being above their float price…..

But its not all bad news for those at the top. Have a look at the severence packages for some of the CEO’s recently given the boot.

                     Source: New York Times

Great chart from a few months back, which i was reminded of last week with the sad news of Steve Jobs passing. I thought that President Obama encapsulated in one sentence the essence of his impact on all of our lives when he said “there may be no greater tribute to Steve’s success than the fact that much of the world learned of his passing on a device he invented”.

News of his death set a new record on Twitter with 10,000 tweets per second and when Mark Zuckerberg posted on facebook 53,000 people had ‘liked it’ within 15 minutes.

So maybe this new Internet resurgence, Web 2.0 if you like, might be different to the late 90′s/early 2000′s which the chart below tends to support.

At least this time around they have more revenue!

It has been a bad few weeks for Newscorp with the full revelations of the appalling behaviour of journalist’s at the News of the World forcing them to shut the paper down. Compounding that they then withdrew from their bid for control of BSkyB  and the money train that it generates, while the scandal seems to be creeping closer and closer to the top. I just went through some articles that I saved and I remembered that I also had this one on News’s investment in MySpace.

Have a look at the chart below which shows the visitors to MySpace in comparison to Facebook. You might also notice that News paid $580m for it and sold it in the last few months for $35m……a loss of $545m plus the money that it was costing them just to keep it running. 

Talk about going from bad to worse.

A recent report by IBIS world has looked at the industries that, by their measure, appear to be dying. Technological advances and increased competition (the report focuses on U.S. Industries) headline the list and whilst none of these should surprise you, their revenue declines are quite alarming.

Have a look at the chart below (apologies for the formatting)

Maybe I should rethink my second career in journalism……well at least in newspapers.

I keep seeing articles and notes coming through about Facebook and its valuations and almost every time it is a story about the continued increase in value. I have collected a number of articles with the intention of reading them and posting a piece about it but i then came across this chart which i think tells you much better in pictures than i could in words.

Facebook is a behemoth, easily dwarfing both its rivals today and those back in 1999. As you can see this time there are 5 companies that make up around $71 billion compared to 24 companies back then, but if you look carefully at the names do you recognise any?, maybe Priceline.com perhaps even TD Waterhouse. I can’t tell you who the unnamed ones are but i suggest we probably haven’t heard of them either. Now the difference this time may be that Facebook and their kind have built a better mousetrap and can actually make money and with 500 million users its hard to argue that they won’t. However history is littered with companies that were flying high one day, and yesterdays news the next.

Anyone remember MySpace?

I had a mate who would often quote this lyric from a very ordinary Human Nature song as he always seemed to be the last one at the party to leave, and reluctantly.

It was this line that popped into my head when i saw this chart showing the decline in the music industry. Now the current accepted view is that sales of hard music (CD’s, and alike) is declining but is being replaced by digital music (ipod’s etc) however the graph below seems to cast doubt on that. Since 1997 global sales of ALL music has dropped from $26.1 billion all the way down to $15.9 billion despite the rise of digital music.

Perhaps this is the reason that the industry keeps going so hard at the music pirates that download through peer to peer sharing. My theory….they just aren’t making that much good music anymore.

I woke up a week or so ago to the news that Charlie Sheen had been hospitalised after a 36 hour bender involving a briefcase of cocaine and 3 porn stars. This news barely caused a raised eyebrow and I nodded my head thinking, yep that sounds about right. In the last few days I also read a piece from the New York Times  telling me that Wall Street bonuses for 2010 were at record levels again.

To this news I thought ‘Great Scott’ have we gone back to the future, is this the 1980′s all over again?, Charlie Sheen, Cocaine, Porn Stars, Wall Street, Greed is Good, had I taken a ride in the Delorian back to 1985? Well no of course I hadn’t but apparently I wasn’t the only one that noticed the culture of those heady days, all be it a small microcosm, had perhaps returned. This post from Yves Smith talks about why now (and probably then as well) Greed is not Good.

http://www.nakedcapitalism.com/2011/02/the-specious-logic-of-wall-street-pay.html

‘Is it just me or does anybody see, the new improved tomorrow isn’t what it used to be, yesterday keeps comin’ round, it’s just reality, it’s the same damn song with a different melody’.

I happened to be listening to this relatively new Bon Jovi track last week and I found these words quite prophetic with the circus that surrounded on one day the announcement that Steve Jobs was taking indefinite medical leave, followed by the spectacular results they released a few days later. Before we get to what the song has to do with Apple lets look at some facts first:

• Apple is the second largest company in the world, behind Exon Mobil;
• Its balance sheet is larger than the GDP of 2/3rds of countires around the world;
• They sold 14.8 million iPads in 2010;
• Their revenue in the December quarter was $27 billion; and
• Their profit for the quarter was $6 billion

Steve Jobs is clearly the icon and cultural leader of Apple, but the announcement of his leave saw the value of Apple fall by as much as 6% presumably on the fear that perhaps Steve may not return and the uncertainty that this may create for the company and its longer term development pipeline. These are probably not unreasonable views to hold and given the efficiency of markets we saw how quickly these were priced into the stock.

However the puzzling part is that two days later, when the company announced results that clearly exceeded market expectations, the stock rebounded and moved to record highs again. So in the space of 48 hours the concerns that people had for the future of the company seemed to have evaporated and were no longer an issue? Mind you the people that sold the stock and then presumably bought it again after the results (read Active Managers/Brokers) were the same group that estimated iPad sales that ranged from 1.1 million at their most conservative to 7 million at their most bullish, and averaged out at 3.3 million……Did i mentioned above they sold 14.8m…..oh wait I did.

So maybe Apple won’t be so bad if Steve doesent come back, although we are all hoping he will and not just for the sake of the company. But the point is with or without Steve, Apple is clearly a very well run company that relies on more than one man, has a solid product line and balance sheet and has a COO who has run the company before in the absense of the CEO.

For long term passive investors these events should not be a cause for concern (other than for Steve’s health) . However in this microcosm of days we can see the benefits of staying in the market rather than acting on short term news. For investors who ignored the news and continued to hold the stock, they ended up making all of the gain when it moved to its new high with no costs incurred. For those who panicked and sold, then rejoiced and bought, they lost something in the middle depending on their timing, plus the transactions costs (including tax).

This again shows us the perils inherent with active management and the futility of trying to pick the right stock at the right time. We see this type of behaviour repeated every day in the market as those trying to pick the market bounce in and out of stocks based on the slightest good or bad news. Of course the costs of this movement is always borne by the investor with the fees and brokerage flowing back to the ‘adviser’.  Which brings us back to the line from Bon Jovi, be wary of advice to sell good companies on short term news as after all………Its the same damn song with a different melody.