12 years since the Google IPO

It's been 12 years since Google went public at a valuation of $23 billion. There was a lot of skepticism 2004 was only a few years after the dot.com bust. Bankers were hoping to price Google at $135 a share but the final price was $85 which resulted in a modest first day pop of 18%. To celebrate the occasion CNBC have put together the best and worst performing stocks since the Google IPO. Only ten stocks have beat it.

Decisive has a long position in Google. The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Facebook thumbs up

It has been a historic turnaround for Facebook since their IPO. Barron's sums up the sentiment perfectly with a thumbs down in 2012 in contrast to a thumbs up released this weekend (August 2016). Technology is an easy area to get wrong and Facebook traded on the perception that mobile was a risk to the business but now four years later 84% of advertising revenue is from a mobile device. Mobile generated $5.24 billion in the last quarter alone and its driving the business as users spend more time on Facebook. At the time of the 2012 article Facebook was expected to earn nearly $1.36 a share in 2016 instead analysts are expecting nearly $4 a share. Perception vs reality is the key to the market where different views can lead to large rewards if proven correct. We attempt to find these differences but like everyone else we get things wrong and can be influenced by the media. Facts and opinions are very different things. Barron's price target has increased from $15 to $149 let's hope that Barron's has it right this time.


                                       2012                                                2016

Decisive has a long position in Facebook. The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Top 20 R&D spenders

Innovation and disruption are words associated with the big technology giants. But looking at the actual top 20 research and development spenders might surprise you. Topping the list is Volkswagen (this was a surprise to me) with 5 automotive companies making the top 20 in terms of spend. Healthcare companies dominated the list with 8 participants. Apple also made the list for the first time. Personally I am glad to see so much spending go into auto and healthcare and not just making the latest consumer electronic.

Source: http://www.strategyand.pwc.com/global/home/what-we-think/innovation1000/top-20-rd-spenders-2015

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

For Apple a billion is the new million

Late July Apple announced they had sold 1 billion iPhones. It's an amazing milestone not many products have sold that amount let alone a product that was released in 2007 taking less than a decade to achieve. To put it in context the total number of computers sold since 1981 is likely to pass 5 billion this year.

That's the problem with Apple the sharemarket is always asking what is next. Coming up with a successful product after the iPhone is tough. The Apple Watch would have been a success for any other company but for Apple it was a relative disappointment. We expectations reset we do think investors have become too pessimistic on Apple products. Software can scale to a billion users but to actually manufacture a billion products is a massive achievement. Apple's spending on Research and Development is now 6% of sales up significantly from the 2-3% average over the last couple of years. The spending is likely on the much rumoured car and TV but also the tenth anniversary of the iPhone will likely result in major product updates for the phone. Having just one success will likely positively impact the share price given expectations are low.

Apple Free cash yield vs the market

Source: Bloomberg

Is the phone a consumer staple?
While Apple is not a consumer staple most people would notice their phone missing ahead of losing their wallet. Smartphones are a must have product but because of their volatility (time to upgrade has increased) Apple hasn't participated in the large cap consumer brand rally. We think the Apple system is very sticky (think iTunes, iCloud) while it might not be a "consumer staple" users are highly likely to continue buying their products once they become a part of their system. Most people would regard Apple as an above average company yet the market prices Apple below the average. Apple's free cash yield is significantly higher than the market. In other words we are paying 11x for Apples cash flow versus 19x for the S&P500.

Great "problems" to have
In addition to 1 billion iPhones sold Apple has $231.5 billion in cash. The market always looks ahead but its current "problems" highly successful products and high levels of cash are the right "problems" to have.

Decisive has a long position in Apple. The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

How does your netflix catalog compare?

Reporting season has been kind for most technology names. Facebook, Amazon and Google all showed accelerating revenue growth as these companies expand their domination overseas. An exception short term has been Netflix. Comparing Netflix catalogs across the world helps us to understand why. In Australia it costs $8.99 a month in America its $9.99 but the difference in the number of titles is staggering. In Australia for example we only have 2,418 titles available just 47% of what US subscribers receive though we are a lot better off than Sudan with only 908 titles. Netflix is a fantastic service it dominates online TV with users viewing 1.8 hours of content a day. The global opportunity is there for Netflix but it will take time as NFLX needs to obtain licenses for each region as some are tied up with other providers. Creating more successful original programming (House of Cards, Orange is the new black) has been a smart way for Netflix to get around this problem. Having exclusive content available globally should help them get back on track. (Picture can be hard to see the link is below).

http://cordcutting.com/how-many-titles-are-available-on-netflix-in-your-country/

Decisive has no position in Netflix. The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

What do you do after making 44% per annum for 18 years?

There are many great venture capital investors out there but I haven't seen anyone who was come close to Masayoshi Son's returns of 44% per annum over 18 years. Masa is the CEO and founder of Softbank in Japan. His biggest win was investing $20m in Alibaba when it was a startup. At the time of Alibaba's IPO this investment was worth $58 billion.

http://www.softbank.jp/corp/d/sbg_press_en/list/pdf/pressconference_01/material_en.pdf

Masa's investment style can be described as getting ahead of trends. He has benefited from the shift to mobile. His next bet is on the internet of things buying Arm Holdings a UK based developer and licencor of semi conductor technology.

http://www.softbank.jp/corp/d/sbg_press_en/list/pdf/pressconference_01/material_en.pdf

On the Arm acquisition conference call he explained how he made his returns.

"So, people ask me how, Masa, did you do that? And people tell me it was lucky incident. But to me, if I can answer only one key factor, one thing in common that I always make investment is that I always make investment at the beginning of the paradigm shift. I never chase from the backward. I always go at the front of the edge of the paradigm shift. So in my last 40 years, okay, the PC started, PC internet started, PC broadband started, mobile internet started, okay. So, to me everything was internet. It was all getting connected and I invest at the every beginning of paradigm shift.

Now going forward what will happen in the next decade? Every 10 years, the big paradigm shift comes then what is the next 10 years, okay, next 20 years and so on. I say biggest paradigm shift that's coming is that internet is going to get connected, not just PC, not just mobile, but everything else. Everything else will be interconnected, so that is Internet of Things in today's terminology. So that paradigm shift is really happening from here on next 10 years, big-time. It's going to explode and in 20 years, 30 years, it's even going to more-and-more accelerate. Today 10 device per population are having Internet Of Things that is smartphone and tablets or PCs. But in 40 years from now, 1,000 devices per population is going to get all connected, that's my view. That's the view I kept on saying the last few years."

Masa believes Arm Holdings chips will be the biggest beneficiary of the internet of things with a track record like his it's a view worth listening to.

Note Decisive has no position in Softbank. The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Pokemon catch 'em all but not the stock

You can't escape Pokemon Go its everywhere. Since its release on July the 6th (Australia and US were the first) it has already become the most successful mobile game of all time. Nintendo shares are up 93% since then with a market value of $37 billion. To put this in context Activision Blizzard the maker of Warcraft and Call of Duty is worth $31 billion. Pokemon Go is attracting traders to Nintendo according to Bloomberg on Friday $4.5 billion shares traded the biggest daily turnover for any company in Japan's Topix index this century. 

 

Some of the increase is justified as investors extrapolate Pokemon success to other franchisees like Mario and Zelda. The only problem is its hard to live up to these expectations. Nintendo has a historically volatile share price great expectations led to slight disappointments and the realisation they have to bring out a hit product all over again. As a reminder they only own 32% of Pokemon Co and the game was released by Niantic (Nintendo owns a stake) whose augmented reality technology helped the game become a hit. It's good to see a game where users are active similar to Wii Fit which led to a similar rise below but expectations again brought Nintendo back. There is a reason traders are trading the stock long term returns in Nintendo have been average. Surprisingly Pokemon hasn't been released yet in Japan I suspect once Pokemon Go does comes out in Japan trading and the stock will settle down. 

Note Decisive has no position in Nintendo (7974). The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.