As the 1st Quarter draws to close two things have become very apparent. First of which is that 2014 is not shaping up to be another 2013, where the Dow Jones shot up a miraculous 22% including an over 1,030 point rise in the 1st quarter (comparatively speaking the Dow is down some 181 points or 1.1% in the first quarter of 2014).
Another thing that has become apparent is that the technology giants of Silicon Valley are playing a vast game of Monopoly in which the victor gains control of the future of the technology industry. That sounds very dramatic but when you think about it, but the truth is large technology companies are going on a shopping spree, buying up start-ups that might be the key to diversification and continued dominance in the future.
The two main players in this so called “monopoly” game are Google and Facebook; both companies in recent months have made many highly publicized and in many cases expensive buys such as Facebook’s $19 billion deal to buy Whatsapp.
But while Facebook and Google wage war over who controls the future of technology other companies such as Twitter and Apple are being left behind in the dust.
(Below there is an analysis of various large tech companies and their strategies heading into th3 future.)
I have never been a fan of investing in Facebook, the social media giant always seemed overvalued and one dimensional to me. With a P/E of over 100 and with only advertisements bringing in revenue I saw Facebook as the next big fad that was doomed to go the way of MySpace and Friendster.
Yet despite what I think Facebook has had a stellar year, with its stock up 135%. And Facebook C.E.O Mark Zuckerberg has over the last few months sought to reassure skeptics (like myself) that Facebook is here to stay. I have to admit Facebook’s new strategy has led me to reconsider my stance on the company.
The strategy of buying tech startups in order to diversify and expand is nothing new, but Facebook has certainly captured Wall Street’s eye by making a number of purchases that have been amazing in their size and scale.
A few weeks ago Facebook purchased the messaging company Whatsapp for $19 billion. That’s an amazing sum considering that Whatsapp is not even monetized yet. Personally I feel that Facebook overpaid but that is merely my opinion that facts are that by buying Whatsapp Facebook is betting huge on the future of social messaging.
This is probably not a bad idea considering that social media and messaging are replacing email as the prime choice for communicating information. With that said Whatsapp is still not making any money and it will take years until Facebook see’s any return on investment.
Another high profile tech purchase recently made by Facebook, is its $2 billion buy of virtual reality headset maker Oculus Rift. The headset has not hit the mainstream market yet but its applications for gaming are obvious.
Whether these particular investments work out or not is yet to be seen but one thing is clear Facebook is not done. I believe Facebook will continue buying up startups and continue gaining footholds in various tech related industries solidifying Facebook as a tech giant and a significant rival to the likes of Google.
As for Facebook stock, it has enjoyed a good run in 2014 so far but as the last few week’s has shown it is highly prone to market volatility (something that is not in short supply now a days). I believe Facebook stock still has some room to go up but do not invest unless you are ready to experience times of extreme volatility.
Rest assured Google, the undisputed king of technology, has not stayed silent as its up and coming rival, Facebook, continues buying up hot new startups. Google has made some high profile purchases of its own.
One of which was the buying of smart house appliance maker, Nest, for $3.2 billion. By buying Nest Google is entering into the next market to be revolutionized by advances in technology, the home. The investments in Nest will definitely payoff for Google in the near future but Google has not always made wise investments. The $8 billion buyout of Motorola clearly did not payoff. Only a few months after the buyout Google sold Motorola’s hand set division for a mere $2 billion.
Yet Google shareholders should not despair, Google has a market cap of over $376 billion, giving it a distinct advantage over Facebook’s 153 billion. So in terms of investing in Google I would think it would be a good idea. Since as long as Google remains innovative its stock should continue to go up and up.
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