First off, thanks to the many people who emailed or commented on our new format. I’m glad it was so well received.
Already into mid-November, the winter holiday season is rapidly approaching—and you know what that means… a flurry of IPOs! Shopping for the latest gizmos and toys for kids and adults alike isn’t the only tradition to assault us this time of year.
Investors are also typically besieged by a flurry of end-of-year IPOs, as banks try to push out all the new offerings to capture the capital from all of the gains or tax losses investors are harvesting as they clean up their portfolios at the end of the year.
We’ll start there today, looking at one of the frothier IPOs we’ve seen in a while. Then we’ll get to those gadgets, including last week’s most-talked-about item, a unique little speaker from Amazon that talks back to you—showing once again how a technology that already exists can turn into a sensation when packaged up right and marketed well.
Chinese Dating App Files for Billion-Dollar IPO—And Other Q4 Stock-Offerings Froth
2014 has been a banner year for IPOs. Take that for the good and bad that it is. The excellent quarterly IPO round-up that Price Waterhouse puts out shows in clear detail just how much different this year has been than its predecessors:
And Q4 is shaping up to be the doozy that it typically is.
Following on the heels of a number of hugely successful Chinese IPOs completed on American markets this year—including Weibo (WB), what most call China’s Twitter, as well as ecommerce powerhouse JD.com (JD), and of course the monster success of its big-brother rival Alibaba (BABA)—another Chinese firm is planning to IPO with a market valuation rumored to be stretching into the billions.
Documents have started circulating for the IPO of Chinese dating app maker Momo. The company, which makes a “flirting” app for phones, is planning to raise up to $300 million to fund its growth. Exact details of the deal are still thin, but the amount being raised gives back-of-the-envelope estimates of a $1-2 billion market cap.
$2 billion might not sound that high after seeing mega-IPOs like Alibaba turn into $300 billion market caps in short order. But consider that Momo’s quarterly gross revenue, while growing quickly, was a mere $8 million last quarter. Even if the company can triple that number over the next two years, it’s still taking about a $100 million run rate, which would mean trading at 20x sales at the top end, and a P/E of 133x at the typical net margins of its competitors. To get in line with the current decade-high Nasdaq Index P/E ratio, the company would have to increase revenues about 900% from here.
With a massive 60 million monthly active users, the current run rate is still a small amount of revenue per user, and it only recently started monetizing. But the company also faces stiff competition from new entrants such as white-hot Tinder (nearing 40 million monthly actives) from InterActiveCorp (IACI), and stalwarts like Match.com (also from IACI, with 17 million monthly actives, all paying) and Plenty of Fish (private, with an estimated 30 million monthly actives), as it plans to release an English-language version to find more growth.
Plus, Momo’s growth might be hampered by its own government. China has cracked down on many chat and dating apps recently, and state media has linked Momo to prostitution, with similar accusations prompting competitor WeMo to remove 20 million accounts linked with porn/escorts/etc.
Momo and the Chinese aren’t the only ones offering up stock right now either. VC Peter Fenton had not one, but two separate analytics companies file IPOs on the same day: New Relic (NEWR) and Hortonworks.
Action-sports-oriented camera maker GoPro has filed for a secondary offering of a whopping $800 million, of which only $100 million will go to the company—the rest will serve to let insiders cash in their shares. This just months after its mega-IPO. The company is pitching that it’s better than letting lockups expire and all those sales drag shares down on the open market as supply exceeds demand. (Sounds like rigging the price… no wonder famed short-seller Citron Research is targeting GoPro now.)
How is Wall Street able to garner such multiples and share demand for these companies right now? It’s a classic combination of ingredients:
- Money is cheap, with EUR and JPY interest rates at all-time lows. This is flooding US markets with liquidity as carry trades soak Treasuries with demand and hold US rates down, driving up use of margin interest and lots of other borrowing.
- That same liquidity has pushed the S&P 500 to all-time highs, meaning lots of investors are borrowing even more dollars on inflated balances, pushing liquidity into the stock markets, and giving rise to a self-fulfilling debt cycle where new money boosts stocks and unlocks yet more new money to chase them.
Excess liquidity always drives up asset prices. We saw it in the 1980s with junk bonds, again in the dot-com bubble, and then once again in the housing bubble where stupid-easy-to-get mortgages sent housing prices skyward. And now, we have it back again in the stock market—and bond market, where Apple can raise €3.5 billion in debt at just 1% interest.
Of course, in each of these cases, today included, the liquidity binge was driven by ill-conceived, “short-term gain” politics. That can only last so long, and so today’s liquidity will dry up at some point. Until then, Wall Street is going to sell those IPOs like bats out of hell.
Until it does die down, we’re also all sitting on lots of gains to cash in and start scooping up holiday gadgets with zeal…
Amazon’s Talking Speaker Is Holiday Must-Have Gadget, for Now
Last week, Amazon announced a curious little device that sent the tech media into a tizzy. For those who missed it, the Echo is a Bluetooth speaker with a new twist—it also accepts voice commands and can read you back answers to questions like, “When is Black Friday?”
The simple device looks like nothing more than a black tube on the outside, like a thousand others available at any electronics retailer:
But it’s much smarter apparently, with software to listen to and synthesize voices.
Of course, for anyone with an iPhone/Windows Phone/Xbox/Android, this already exists.
- Just ask Siri most of the same questions, or give it the same commands such as “Set an alarm for 7 a.m. tomorrow.”
- Microsoft has Cortana, the Siri-like assistant for its own phones that has been the center of a huge (but so far unsuccessful) marketing push for Windows Phone.
- The Xbox One, when equipped with the $100 Kinect accessory, has voice commands of its own, but they’re quite limited—to gaming and TV-watching.
- Android has the same, with the awkward but functional “Okay Google…” prompt.
So maybe Amazon just felt left out. Or maybe it realized that the future of computing we’ve long been promised—that we can simply walk around our homes and offices talking out loud to the computer like the bridge crew from Star Trek—is finally arriving, and it didn’t want to be left in the dustbin with punch cards or magnetic tape.
While the experience is hardly bug-free, with my phone regularly thinking I spoke to it when I didn’t or my Xbox pausing the show whenever the volume jumps during an action-packed scene, it’s really quite a huge leap forward in convenience.
I can turn on my TV via the Xbox by simply talking while I walk into the room with two plates in hand (yeah, yeah, we eat dinner while watching last night’s Daily Show most days, so judge us as you will). I can set a nearly forgotten alarm by just speaking instead of thumbing through endless screens half-asleep and trying to fidget with my clock app while the backlight completely destroys any chance of falling back to sleep.
Prepare for a lot more voice recognition to come.
Also prepare for the answers to come piped right into your ears and eyeballs as the tech world pushes Daemon’s beautifully haunting vision of the near future into being. Facebook bought virtual reality company Oculus for $2 billion before it even released a product, and now Google has sunk at least half a billion into stealth-mode competitor Magic Leap.
Big Government Regulation Coming to an Internet Near You
When he isn’t busy trying to encourage Millennials to create their own jobs, since corporate America won’t hire them, the president has been weighing in on the Net Neutrality debate. This past week he came down on the side of letting regulators finally have at the Internet, by supporting the FCC’s attempt to shove the Internet into a 1930s regulatory regime called Title II.
In my speech in San Antonio earlier this fall, I explicitly warned that Title II regulation of broadband would ultimately harm innovation on the Internet. I stand by that, as we’re talking about the kind of regulatory bodies that once allowed phone companies to charge $14.99/month just to tell us who was calling us—in other words, just for exposing data that was always there.
There was one saving grace in the attempt to give broad, sweeping powers to the agency that has spent five years and millions of dollars to stop “robocalling,” only to pass completely ineffectual rules that the entire industry ignores and can never be effectively enforced (ever get an opt-out option? me neither, and now I get 10-15 robocalls a day). El Presidente insisted they adopt Net Neutrality rules as a precondition to making the move. Taking away the ability of the oligopoly of providers (whose very status was conferred to them by the FCC and its poor handling of spectrum allocation) to trash the Internet by dividing it into a slow lane and a fast lane for the highest bidders (or no lane at all for those who don’t pony up, in effect turning the Internet back into Cable TV) is at least one step in the right direction.
I’d certainly rather see whitespace deregulation, simple and standalone Net Neutrality, and anti-censorship rules from Congress (as if those guys could pass anything but pork), the rescinding of pooling rights exclusivity deals nationally, and a dozen other changes before going down this particular path. But if this is what it takes to get some basic consumer protections in place, then we’ll get what we deserve for electing these fools.
Boom and Bust for Semiconductors
According to the Semiconductor Industry Association, global semiconductor sales in Q3 2014 reached $87 billion, the highest level ever. The result: foundries are hauling it in hand over fist. In Q3, Taiwan Semiconductor (TSM), one of the world’s largest foundries, reported record sales and profits. The stock is currently trading near an all-time high.
But it’s not all sunshine and roses for the industry. On the other side, chipmaker AMD is getting hit hard. The company has been losing share in PCs to Intel and has virtually no presence in the exploding mobile or server markets. To make matters worse, AMD is running out of money—its cash has fallen under $1 billion for the first time since 2001. That’s got many wondering just how long the chipmaker can survive.
But not all hope is lost. The sinking ship has a new captain, short-term insider Lisa Su (a 2008 defector from Freescale, which itself has been a disaster), with a plan to turn things around. It started with cutting 700+ jobs in week one. Su was apparently instrumental in landing the big Xbox One contract with Microsoft, but only time will tell if she can revitalize the rest of the flagging company.
Apple and Google Both Make Way for New Smartphone King
After months of losses, Apple’s new iPhones are stealing back market share from Android, at least in the Enterprise. It’s got 69% of all those devices in its camp, according to Good Technology. If that’s any indication of consumer adoption, it’s going to be a good quarter for Apple.
Apple’s ass-kicking position has it throwing its weight around. A few months ago, the company was rumored to be adopting a new sapphire-based glass for its phones. It even struck a deal with a small supplier, GT Advanced Technology, whose stock soared on the news. However, a recent blowup has exposed the risks of investing in Apple suppliers. Since GT’s early October bankruptcy filing, Apple supplier stocks have lost ground. Among the hardest hit were Glu Mobile and Knowles Corp., both of which have shed over 20%.
Synaptics is another Apple supplier that has taken a hit lately, falling almost 10% since the beginning of the month on rumors that Apple has approached other display-driver suppliers to reduce its reliance on Synaptics. In an attempt to retain all of Apple’s business, Synaptics is in a rush to beef up its display-driver offering.
But if what’s happening in China is indicative, Apple (and Google) may soon get some karmic payback. That’s because China is the new battleground for smartphone share. And much to the dismay of Samsung, Xiaomi Corp. has taken the lead. According to research firm Canalys, Xiaomi more than tripled its share of the world’s largest smartphone market to 16% in the most recent quarter from 5% a year earlier. Samsung fell to second place as its market share dropped to 14% from 21%. Xiaomi isn’t currently a publicly traded company, but that may change as early as next year.
(Shameless plug for one of my colleagues:, Dan Steinhart called this one months ago in The Casey Report—one of the excellent picks in his all-new, big trend-driven investment portfolio.)
It may just be that the American duopoly could be letting principal help accelerate their irrelevance in many countries, just as Blackberry did. Former NSA lawyer Stewart Baker thinks so. By encrypting user data, Blackberry limited its business in countries that demand the ability to spy, such as India and China. Apple and Google are making the very same mistake, according to Baker.
Other Bits and Bytes
In what is probably the most fascinating story I’ve read in months, hackers (probably employed by the government) in China have been conducting “NSA-Level” attacks on specific, high-profile hotel guests, mostly connected to the nuclear industry and defense. It’s a peek behind just how crazy the hacking world really is and vulnerable everyone is.
Google bought NASA. Or at least part of it.
Holy Moore’s law! Those über-cheap computers powering the home-grown robotics revolution continue to come, with Raspberry PI, probably the second most-loved behind the Arduino, releasing a new version, the A+, with bumped specs, lower power consumption, and nearly half the size, for a mere $20.
China’s so worried about the robot drone army that it has developed a laser cannon to shoot them right out of the sky.
Taser, the stun-gun maker, is taking aim at a new growth market: body cams, which are receiving much more interest from police departments in the wake of the Ferguson tragedy. Currently, fewer than 15% of police forces use body cameras, but that number is heading toward 100%, claims Taser’s CEO. In addition to selling the hardware, Taser is also offering a cloud storage service, Evidence.com, which costs $15-$55 per officer per month. The company is already beginning to rack up orders for the new product.
Microsoft’s new CEO, longtime insider Satya Nadella, has been making the rounds explaining Microsoft’s strategy to the media and investors. Business Insider has a great redux that shows a much more thoughtful (and some might saying boring) approach to the market than in years past.
Speaking of, Microsoft made its Office for iOS apps much cheaper, with a “freemium” offering last week, and they jumped to the top of the app lists in no time flat, showing there is still much demand for their still-unreplaceable productivity apps. (Not all the company’s promotions have worked so well though, as the promotional Surface Pro 3s it gave CNN for election night just got used as iPad stands.)
Microsoft also announced it’s going to open a flagship store in Manhattan. The Microsoft Store is expected to be just like the Apple Store, but without all of those pesky lines in front, joked late night host Conan O’Brien.
Another late-night comic, Craig Ferguson, poked fun at Amazon’s decision to open its first physical store. In other words, says Ferguson, Amazon doesn’t understand the point of Amazon.
A few months back, hedge fund manager David Einhorn made headlines with big bets against “cool kid” technology stocks, such as Athena Health. Now he’s adding to the list, citing Amazon as a prime short candidate. He’s not all bearish though—one of his largest holdings is memory maker Micron, which is benefiting from consolidation in the memory chip industry.
Dendreon is emblematic of the ups and downs of biotech investing. A few years ago, the stock surged from $3 a share to over $50 a share on hopes that its prostate cancer treatment, Provenge, would generate billions in sales. But those sales never materialized, and just this week, the company filed for Chapter 11 bankruptcy. The stock plummeted 75% on the news and now trades for under a quarter a share.
Europe’s lagging startup community just got a boost in the arm with a new €500 million fund from Deutsche Telekom. These enterprise venture funds don’t have the best track record, but it’s about time Europe had a little more tech capital available.
Networking equipment maker Juniper fired its CEO, Shaygan Kheradpir, after less than one year on the job. The company’s board of directors cites conduct related to dealing with a customer and his overall leadership as the main reasons for making the change. Longtime Juniper exec Rami Rahim will take over as CEO… and will soon feel the heat from Elliott Management, an activist investing firm that has been pushing for big changes at the company.
For Q3, AOL reported sales of $626 million, edging out Wall Street estimates and rising 12% over last year. But that’s not the fascinating part of the story. In the report, the company also revealed that it still has 2.2 million dialup subscribers.
The founder of Pirate Bay, a software and movie pirating site that was busted up only to be quickly replaced by many others, is now out of jail after two years on the lam and a five-month prison sentence.
A number of the popular “hidden” sites on the Tor network were shut down by the government in a sting operation that has the whole community baffled and rightly concerned about privacy and the pursuit of justice. The questions might just put a damper on the controversial “anonabox” crowdfunding for a Tor router for your home, which picked back up this week.
In stranger news…
- Or your spaghetti printed on demand?
- And in a sign that 3D printing has a ways to go before it’s truly mainstream, you too can pay upwards of $70 for a monochromatic plastic Christmas ornament, thanks to Target and Shapeways’ new partnership. Or pay $0.99 for something of much better quality at Walmart.
Last, in a sign of the future to come for America, Black Friday punters are being shown up this year by China, which celebrated its own shopping-binge day this week: Tuesday’s “Singles Day,” in which single denizens of the nation celebrate their freedom and wealth by conspicuously consuming… spending more money in a few hours than all of Black Friday and Cyber Monday combined are expected to pull in the US. The power of large numbers.