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.)
Facebook-
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.
Google-
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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