Category Archives: Investing

LinkedIn future

The future of LinkedIn

I used to hate the LinkedIn platform. More explained in this Linkedin blogpost. I’m still convinced of the business case of LinkedIn with three different revenue streams. So I did what I wrote before:

“Best thing to do is short Facebook and go long LinkedIn – be market neutral with these high levels of valuation.”

And yes that is still a position with red numbers.

Since then I have read more about LinkedIn, used it more. Even advertised on LInkedIn for some customers. And for the time being: This is a perfect business network. They still irritate me when using it. But it develops, and is getting better over time. Mobile works great. I love Slideshare. And at the same time I don’t see all my friends on the platform. That is a huge negative.

LinkedIn information

What I find really strong is that with founding LinkedIn all current steps where already mentioned by its founder. Reid Hoffman explains it perfectly in this blogpost and slideshare.

And now I just came across this video below from the current LinkedIn CEO, Jeff Weiner. Explaining where Linkedin currently stands and how it sees the future. Or better, the next ten years.

The LinkedIn platform gains more and more ground to be a business content publisher, and is currently rolling out the option to have your personal blog on your profile. LinkedIn wants to make an economic graph of the world. It can do so if it continues to attract working professionals. “We simple need scale”. 

And I guess that is what is the biggest challenge for LinkedIn. Getting a better footprint in Asia. Besides India that is currently the second biggest country on the LinkedIn list.

So far it is fulfilling its mission: connect the world’s professionals to make them more productive and successful. 

Stockprice

The absurt high levels of $240 per share were too much the last time i wrote about LinkedIn. Now at a price of $140,- it is still high but more reasonable. LinkedIn current value is 17 billion dollar. Around the price Facebook paid for WhatsApp, (although that price also came down with Facebook shares being down 20%). But LinkedIn also got more than 2 billion on cash reserves. 

So if I calculate with a enterprise value of 15 billion than each member is currently valued at 50 dollar (Facebook $110).  But also a market value of 10 times revenues. Far from cheap. But I see many more revenue streams from this business network. A B2B lead is simply far more valuable than all Facebook advertising could bring in imho. Facebook has a really big lock-in with Facebook.com, Instagram & WhatsApp. But a professional network takes longer to build up. And so there is also a lock-in. Up to you if the user life time value (LTV) is above $50. The Future will decide.

Disclaimer: Long Linkedin < short position Facebook. 

On the money - Ericsson

Future of Money

Ericsson has got a beautiful series of what the connected world means to us. (This is going to be BIG, bigger than anything else). This video shows the future of money and shows cases that already proof these changes. 

Big fundamental changes coming up with how we use money and capital. Connections once again on the base of the shifts:

  • Crowdfunding
  • Bitcoin (and other currencies)
  • Collaborative or sharing economy

See this 16 minute video about the impact;

  • Crowdfunding

Not only getting finance, but an extra layer of community building and support. All done without normal financial institutions. Getting your working capital from the end-users. perfect way of doing business. The incentive of being first, getting a reduction.

  • Bitcoin (and other currencies)

This is really the one to watch. Not that it must be Bitcoin to be the currency to go. But the major shift is a currency that is not in possession of a national bank. One that cannot be centrally controlled.

  • Collaborative economy

What we use to call sharing or even bartering is now part of the collaborative economy.

We can share a lot of assets to others and get a small return for doing so. This will have an impact on a lot industries, We have to much potential value that wasn’t being used before because barriers to share were to high. But that becomes lower and lower. And trust is gaining on the internet. The reputation economy is going to start these days (will blog about that).

These changes are going to have enormous impacts on all different levels of the economy, for example:

  • Less taxes collected
  • Less income needed
  • Shift in power from government to the community (or just a few)
  • Another business model for financial institutions
Linkedin Deck

LinkedIn – Human capital

LinkedIn did some remarkeble things last year. Investors noticed it too. The stock tripled last year and currently this online business network is valued at 25 billion dollar. So after Twitter and Facebook I am touching the surface of LinkedIn potential future and the investment case for LinkedIn.

I hated LInkedIn. It was irritating, not working, not properly designed, yet somehow it got tracktion along the business side. It was a better way to connect than with the paper businesscards. Nothing more than a rolodex 2.0. 

And than some big changes were made last year. Linkedin did something really really good last year. I was always hating this platform during my work at Social Inc.  But now I see endless opportunities in a B2B market that is an the edge of discovering online. Don’t even get me started on social. So much more potential.

But LinkedIn made some important decisions:
– mobile first (and building the mobile environment from the ground up; not looking at the current desktop version of LinkedIn)
– It gave way to more and better updates about business related items. It became more a content platform instead of just a tool for connections.

Somehow they still don’t get LinkedIn groups. and nobody does. It is a mess. You cannot do any good community management on these pages. But i think it is probably on purpose because the focus will become more on the company page instead of communities around a topic. That’s were the money is coming from. Company pages that are relevant and give great content updates. (and Companies will love to advertise these pages).

And that is way different than the other social media platforms: it has currently three revenues streams:

  1. Plain ads
  2. Hiring solutions
  3. Pro accounts

And yet the big B2B market still has to explore and move to these platforms.
Yes LinkedIn is also really expensive on the stockmarket. But somehow I see so much more potential in this environment. Human resources and toptalent will become scarce, or better. There will be a bigger fight for talent because of the transparency networks bring along. And this ‘fight’ between companies can be in LinkedIn advantage. Take the demographics of all the working force you can add to you advantage for your sales department and two major markets can be mined.

Current numbers are:

linkedin members

Out of 600 mln professionals worldwide available at this very moment.

Next year estimates for the LinkedIn company are ‘only’ just more than 2 billions in sales. and EPS (Earnings per share) of 2.20. which calculates back to a lot of future promises that are already discounted into the shareprice paying 100 times the profit of next year. Or to put it in other way: only getting a 1% return on your investment.

I know we Dutch were the first to take advantage and rank high amogst LinkedIn users, always eager to do some business and making connections. But to see the rest of the business world also connecting is really good. I don’t have a good view of what is happening in Asia but in the US & Europe there is now real compititor except Facebook (nNot that business minded) or Xing (slowly dying out in German territory).

What makes LinkedIn worth the 25 billion dollar? The richest part of the working class is on this platform.  People on this platform will not switch that easily like other social media platforms. And LinkedIn developed several different revenue streams. That makes a really good total package. And I have got the feeling that focus is an the long term, like Amazon.

Seeing these figures i might buy some shares these days, although I missed out a really big ride. There is still a lot of potential left I guess with LinkedIn members currently valued at the same valuation as Facebook.
(That is crazy, best thing to do is short Facebook and go long LinkedIn – be market neutral with these high levels of valuation)

See the full LinkedIn vision and potential here in this slideshare (also owned by LinkedIn);

Facebook waarde

Facebook – time to invest?

Facebook was going public last year like Twitter is doing now. And subscribers to the IPO are in positive territory right now. They have a return of 28% right now. That is really good for any share in one year! (it even gained 175% since the low at 18 dollar). Is it now a good time to invest in Facebook shares?

Belegger.nl interviewed me last year to make a call on the Facebook IPO. (Dutch). Reading back I didn’t say anything stupid. Good to know. Although I didn’t expect the Facebook share price to rise. If we look at current levels and revenues it is still ‘in the clouds’. Not anywhere realistic on the basis of good old Benjamin Graham grounds with fair value. Like I said with Twitter. You have to fill in the empty spaces of what it possibly can do. The database of knowledge and connections it can make is outrageous.

The current number is somewhere around 1.3 billion people. Facebook compared itself with a country. It is on the edge of overtaking China this very moment to become the number one country in the world. (How bizarre!).

The current valuation on the market is 120 billion dollars. This values every member just above 90 dollar. ( and yes there is a big divide between de US citizen and the one from Nepal). Compared to Twitter, Facebook has already there sales up and running and is indeed making a good progress on that. 2013 will end up somewhere around $7.4 billion in sales and EPS (Earnings per Share) of 0.72 (grand total of analyst estimates). Full year 2014 will bring in almost 10 billion in sales and 1 dollar per share profit. That’s what financial analyst expect. And so next years P/E (Price / earnings) will be 50. That is a lot. Normal it is somewhere between 10 – 25. So they still have a huge potential growth rate discounted in the shareprice.

I failed several times to oversee what kind of impact a growth rate can do to high growth companies. But then again. How big is the lock in with Facebook? I see quite a lot of people surrounding me not longer engaged to anything from Facebook. Maybe they check once in while but the amount of content uploaded seems to decrease.

Facebook has a gigantic dataset that can be used to their benefit. But in the end it still is dependable on their ad sales right now. But on a moment you don’t want to buy something. You want to be entertained by friends. It feels like what we have in Holland “teleshopping”, only really ridiculious items for unsecure people. That is weak and not sustainable for a longer period because people will get annoyed and leave. It happened before with social media platforms.

The lock-in is high for a free platform with all connections, data points and pictures inside but still. It doesn’t feel for me to be the best there can be online. I’m only waiting for the platform that will bring this new dimension. 

Back to the valuation of Facebook. That is high, with 12x next year sales and 50x next years profit. The monitization part can be increased a lot. but there is a fine balance between monitization of the product (you and me) that can run away really easy. It is in a way shifting more and more to explore more from us than ever before. No privacy will be left at all in the end. That will take time for Facebook to show off what actually can be done with all the data. Probably they can do it right now. But it is not culturally accepted right now. Meanwhile it builds up a profile that is really valuable for any company.

But only one too big a mistake and everything is ruined for Facebook.

So it must grow hard to meet the expectations of the shareholders and the same time Facebook must find a good balance to not let any members get away building this monitization machine.

I don’t see how they can outperform the current expectations with this fine balance.

Pixar birds

Twitter flies away

Twitter is going to be publicly traded (IPO), probably on November the 15th. That is going to be a really nice exit for the original investors and (co)-founders who will have huge returns. But how much is it worth?

Offtopic: I always think about this short movie from Pixar when I see the blue bird from Twitter.

I use Twitter. Maybe too much. But it has it own rythm. It’s own culture. it has its own style and you can perfectly curate your newsstream by choosing who to follow. And especially who not to follow (yeah, I create my own filterbubble plus any confirmation bias and the world gets really small in such a open internet space; true)

Anyhow: something special is happening to Twitter. It brings two worlds I am interested in together. It will be publicly traded any time soon.

But what will it be worth in a few years?

Co-founder Jack Dorsey (@jack) in the official filing:

The mission we serve as Twitter, Inc. is to give everyone the power to create and share ideas and information instantly without barriers.

But like we also see with Facebook, it has to keep all their stakeholders happy. Including the shareholders. And so Twitter turned to advertising models a while ago. It is nowhere near their top saleslevels per user. The current numbers are just somewhere in between zero and what can be possible. Definitively not any point of reflection of its real sales level in the coming years. And that’s sales, Twitter is currently makes losses to finance the growth. So any oldskool P/E measurement can’t be done. In the end that’s what we want in a world of capitalism. Current value is the best estimation of the discounted value of all future cash flows. So we have to estimate a lot with Twitter being somewhere in between.

Current state is not that important, it is more what it can be in the future. But still the latest figues from the official filing: 218 million montly active users, growth of almost 50% compared to 1 year ago.

twitter growth

In an ideal world in which all things be going smooth and perfect for Twitter, what would be the upper limit? If you know that, you can judge on that for any further reasoning. Here is my shot:

  • Twitter to have in 5 years time 750 monthly active users
  • Every user is worth 100 dollar
  • Add a few per cent for data sales (access to Twitter firehose and other sources for selling data )

That will give Twitter a value of 80 billion dollars in 2018.
With a 20% discount rate it will give a fair value today of $32.1 billion maximum. With 472 million shares outstanding it will give a maximum share price of: $68.11

But these are perfect conditions and high numbers for both active users and value per user. These are really the upper limits with the current business. If they add new streams of revenue other than advertising it might be another story but i don’t see any right now (and they would have tought about them right now).

This is the perfect storm. Why it probably doesn’t get such a value is mainly because;

  • It is mainly mobile. And they still haven’t found a businessmodel that matches desktop revenues.
  • Twitter isn’t for everyone. It is for the top 10% of internet users that want to express themselves. Not everyone likes to tweet. A lot of people in my surroundings have tried it. Didn’t like it. And quit. Not so with Facebook, Not so with LinkedIn.
  • You go to Google to search for something. Go you to Facebook to be entertained. Same with Twitter. You are not there to buy something but more to get an update about the latest news/ jokes. An instant shot of bits and bytes. In “real” life. No buying intention at all. Maybe after a really good piece of content. But that is just pure luck when you click on such a link or Twitter Card.
  • Inflation and competition of eye balls business models (a.k.a. advertising).
  • Twitter forgot the demographics and profiling part when building up Twitter. and yeah they are building up target groups based on connections and content.

That’s why it worth less than current values of LinkedIn and Facebook users in my opinion. Targeting can be done, but not as accurate as other platforms. More reasonable numbers would give Twitter 400 million  users maximum and value of $75 per user (still pretty random).  

With those number you end up with a value of $12 billion (shareprice of $25.5) And even than I guess I won’t buy the shares because of the high uncertainty.

But what value will be good for Twitter shares?
I don’t know. And sorry to tell you. Nobody knows. Even those securities analysts don’t know (They are just contentmarketeers to let you trade).

To finish with Jesse Livermore, world’s greatest gambler stocktrader

“People who look for easy money invariable pay for the privilege of proving conclusively that it cannot be found on this earth.”

Are you interested in buying Twitter Shares? And for what price?