Groupon: what is happening to the company

Groupon’s stock price since IPO in November 2011:

groupon, facebook, stock price, valuation

Groupon (GPRN), has been getting hammered by the stock market for almost two years. Once the “fastest growing company in history,” it has lost over 90% of its valuation since its IPO in November 2011. But Groupon has no long-term debt, is still growing, and has over $2 billion in annual revenue. So what caused Groupon’s beating, and is it time to invest in the company?

Groupon is suffering from what is commonly described as the “Facebook bug.” Its rapid growth and huge buzz created around its IPO shot up its value indiscriminately, but just like Facebook, Groupon did not have the revenues to back up its valuation. For both companies, they have seen tremendous losses in their valuation and stock price (Facebook down about 50%, Groupon at 90%).

Now, with their stock price decreasing, we should expect their revenues to be decreasing also – but they are not. Groupon’s revenue’s have been increasing each quarter since their IPO. Here are the numbers that matter the most (for stocks):

  • Q3 2011: $430 million in revenue
  • Q4 2011: $492 million in revenue
  • Q1 2012: $559 million in revenue
  • Q2 2012: $568 million in revenue
  • Q3 2012: $569 million in revenue

Well, that’s not looking good. Although their revenue is increasing – it looks as if it is about to come to a halt. With competition now rampant, Groupon has not been able to make the extraordinary revenues anymore from its original business model, Daily Deals. But with $1.2 billion in cash and a current valuation of $1.74 billion, it can almost backup each share cash.

Groupon is walking a thin line, and if it goes one direction, it will disappear just as fast as it appeared, and in the other, it can be a great investment. Since Groupon is bleeding revenue and talent (at least eight senior executives have left the company since 2011), BusinessJad does not see Groupon rebounding.

BusinessJad advice to fix Groupon:

1. Refocus on email deals and scale back on mobile apps. With email deals, each deal was likely viewed more than on a mobile app. The mobile app provides let of an incentive to open as it could be tucked away on a user’s phone.

2. Use what you have to your advantage: subscribers. It’s estimated that Groupon has over 60 million subscribers. This is extremely valuable and allows Groupon to market new ideas and products to its entire base quite easily, so they need to use it, which they haven’t done recently!

3. With their massive user base, they can turn themselves into an Amazon or eBay, and be very successful. They have the brand recognition and infrastructure in place to do so. Go for it, Groupon.

The Crystal Ball is not always right, so heed the information and advice in this article at your own risk!

Apple: A ship without its captain

Tim Cook, Apple, CEO

Tim Cook, Apple’s current CEO

Since Steve Jobs’s death one year ago, Apple’s stock price has increased 80% and catapulted the company to be the most valuable company in the world. Many will argue that this is case and point of Tim Cook’s success as the new leader of Apple. But the truth is, Tim Cook’s success can only begin to be measured, as the success of Apple over the past year was largely predestined by plans and products set forth before Steve Jobs past away.

Anyone in business would understand that it takes time to see the true abilities of a leader come to fruition. Depending on the institution’s size it could a couple months or a couple years, all depending on the programs that will proceed with any individual after the incumbent has left. In the case of Tim Cook, he has done exactly what he should have done that resulted in Apple’s tremendous growth and that is ride the wave Steve Jobs has already set in place.

While its too early to tell whether Cook is the right man for the job or not, some cracks in the empire Steve Jobs built are starting to be seen. Jobs was a fearless, and sometimes ruthless leader who knew what he wanted and would stop at nothing to get it accomplished. Like a horse with blinds, he only saw one direction, but that direction comprised of incredibly high standards, innovation, and building products for consumers that always worked well. He let very few people into his circle, and allowed very little information out of his company. In this tenure, Apple kept the names of its manufacturing partners under wraps. Many of his products, from laptops to the “i series” of iPods, iPhone, and iPad have refined the market and signal handedly created an industry worth trillions through its App Store. His business model has resulted in Apple stores being the most profitable retail shops in the world.

Cook’s first real test was the launch of the iPhone 5, and what a fail – comparatively speaking to Apple’s previous products – that was. Its back is much fun susceptible to damage due to the aluminum casing. After moving away from Google Maps for legitimate reasons, Apple’s rendition of Maps in iOS 6 achieved the same performance and outcome as this now famously failed restoration of the painting of Jesus:

Apple has also recently confirmed there is a problem with the iPhone 5 camera, which can show a “purple haze” in a picture taken using the phone.

Arguably, Tim Cook is on a learning curve, and yes, the company was never as big as this when Steve Jobs was at the helm, but Tim Cook has so far failed to provide the key ingredient of Jobs’s success, and that’s vision. He may be a great engineer, manager, or leader, but in order for Apple to continue its streak of innovation, Cook has to hold, or better the values and integrity that got the company here in the first place.

This is true for any company, and there are many current examples of how new individuals struggle and even fail following people as brilliant as Steve Jobs. For instance, Starbucks’s founder, Howard Schultz, left the company to new management who practically drove Starbucks into the ground. Since staging a successful coup and retaking the helm, Starbucks has shown phenomenal growth – synonymous to what happened when Steve Jobs stepped in to bring Apple out of the brink of extinction in the 1990′s.

Let’s take a look at Apple’s once mighty foe, Microsoft. Since Bill Gates left Steve Ballmer to run the show, Microsoft reported its first loss in twenty years! Once an innovator, Microsoft still hasn’t figured out a successful strategy to break into the smartphone market. They are like a sheep in a cage with a Godzilla and King Kong, respectively Apple and Google. Its gotten so bad, that Apple’s iPhone division alone makes more money than all of Microsoft. Bing? Let’s not even go there. Thank God they have XBox.

Cook and Ballmer are not bad guys, they are actually proven successful individuals. But it is extremely hard to fill the shoes of two geniuses such as Bill Gates and Steve Jobs. It is because of Steve Jobs’s unique philosophy to “think different” that makes it quite difficult for anyone to take over his role and achieve the same level of results.

What is a mortgage-backed security?

Ben Bernanke, Federal Reserve, mortgage-backed securities, mortgage backed securities

Macro close-up of Federal Reserve logo on USA Federal Reserve Note

Today, the US Federal Reserve announced that it will purchase, indefinitely, $40 billion/month of mortgage-backed securities until the labor market improves (economy gets better/unemployment rate goes down).

The Federal Reserve chairman Ben Bernanke believes this will help the economy, but will it? To answer this, let’s first answer the question, what is mortgage-backed security is?

What is a mortgage-backed security?

Let’s use you as the example. If you want to purchase a house for $1 million, you could go to the bank and get a loan of $1 million to buy your house. The bank makes money from charging you interest, let’s say, 10% per year for 30 years. But, the bank will have to wait 30 years to get back all of its money plus the interest that it loaned you. This ties up the bank, and reduces the amount of money it has to loan other people which is a problem for the banks. This is where mortgage-backed securities were born. The bank, wanting to have more money to loan to more people, will group their mortgages together and sell them as a bond, or mortgage-backed security to investment banks. The investment bank will buy the mortgages from the bank, as a result giving banks the money to give out more loans. That means you, the person who just bought the house, are actually paying the investment banks, not the bank you originally borrowed $1 million from.

For the sake of explaining if this will actually effect the economy, we do not need to dig deeper into mortgage-backed securities. If you are interested in learning more, watch the video from Khan Academy at the end of this article.

Now, will the Federal Reserve, in this case the “investment banks”, buying up mortgage-backed securities improve the economy? BusinessJad’s guess is no, at least not long term. To make it clear, no one really knows – not even Mr. Bernanke. But what will happen for sure, is that banks will have more money to loan people to buy homes, even people that the bank SHOULDN’T be loaning money to because they are not qualified. Does that last sentence sound familiar? It should, because that’s the exact reason that caused the “Great Recession” in 2009. If banks promise to only give loans to qualified individuals, this may be good for the economy. But history repeats itself and it will do so again in this instance. The banks will loan to unqualified home owners, who have a much higher risk of defaulting and cause another major mortgage crisis. Yes, we may be good for now, but at a great expense of our future. Thank you Mr. Bernanke for restarting the countdown on the bubble that caused this whole mess to begin.

Understanding Mortgage-Backed Securities – Investopedia Videos

Mortgage-backed securities III

 

Facebook stock: Can the bleeding be stopped? (Part 1 of 2)

 If you have read any of my previous articles on Facebook’s stock, the disastrous free fall it’s in would come as no surprise.

As of August 1st, the Facebook stock price is down 50% from its IPO, which happened just 52 days ago on May 18th, 2012. It’s embarrassing. But, what can Facebook do to stop the bleeding?

In this article, we are going to discuss and debunk what investors say the problem is. Part 2 will focus on the strategy Facebook can implement to stitch its wound once and for all.

Problems that need to be debunked:

Revenue:

Unfortunately for Facebook, now that the company is publicly traded, it’s ability to monetize is top priority. But revenue really isn’t a problem for Facebook. Last year, the company made $4 billion in revenue, which is something to brag about. In its first earnings report on July 24th, the company raked in $1.184 billion which puts them on pace to possibly double their revenue from last year. So, why isn’t this good enough for investors? Because the stock was extremely, EXTREMELY overvalued during its IPO. Essentially what happened was the banks and other holders of Facebook’s stocks played on the hype of the company going public. You know much hype exists when your grandparents were looking to buy Facebook stock for its launch. The banks saw this huge “demand” for Facebook, inflated the stock to the point of no return, sold their stock during the IPO, and ran with the money.

New users:

When revenue isn’t good enough for investors, the next item they look at is growth. Growth at Facebook is measured by new users – but Facebook already has almost 1,000,000,000 users (at 955 million the end of June 2012). Without a doubt generating new users is going to be a problem, when there are only 2.3 billion people with internet access in the world! The focus of investors shouldn’t be get more users, but “how do we make money from the ones we have?”.

Investors can be too predictable…

Now, what does Facebook have to do to stop the bleeding? “Focus” is key to their strategy, with the ultimate goal of making users spend more money. Facebook can use the three principles in Part 2 of this article, found here!

Work from home monitoring software is the next cash cow

As cultures, societies, and technologies evolve, new industries and products will develop to support the evolution. New industries mean new jobs, new business, and ultimately – new money.

Take the smartphone era for example, billions of dollars were created and exchanged to develop applications for businesses, institutions, and consumers, as well as to design, manufacture, and sell phones/cases/screen covers for these devices. But like humans, these industries’ growth spurts will eventually cease and mature. When an industry matures, new forms of revenue become limited as the market is saturated with product growth and competitors.

It is best to invest or join an industry before or in its growth period, as the opportunity for growth and income is high. So what’s the next industry to hit puberty? Corporate monitoring software. This type of technology helps companies know that employees are using their computer time in productive ways.

Currently, fewer than 10% of companies in America use computer security-monitoring programs. But as the number of people working from home increases, so will a company’s investment in monitoring software. It is estimated that 60% of all companies in America will use this type of technology by 2015. That’s a huge jump!

According the US Bureau of Labor Statistics, 24% of all employees have done some or all their work at home as of 2010 and the number of employees working at least one or two days from home has been rising 69.5% since 2007. Working from home is a win-won for companies and employees. It saves companies a tremendous amount of overhead costs, including office space/heat/electricity and employees working from home tend to be just as, if not more productive.*

Some companies to look into for corporate monitoring software:

  • InterGuard by Awareness Technologies
  • WorkTime by NesterSoft
  • SpectorSoft
  • StaffCop
  • WorkExaminer

* Google search: “employees working from home more productive?

Facebook, show us your report card: Q1 earnings

It is an exciting – and nerve racking – day for Facebook, fans, and investors.

At 4 P.M. EST today, Facebook, the company with the largest U.S. technology IPO will show Wall Street and the world their 1st report card ever. The big picture is easy: To perform well this quarter, the company needs to beat earnings of 12 cents per share and revenue of $1.15 billion.

Wall Street is being very generous to Facebook and letting them off easy to help stabilize their stock price. These are extremely reasonable numbers for a company worth $100 billion during their IPO. Facebook does have more to lose than to gain, which is why Wall Street is being so nice. Their stock price has been slipping after their IPO, and the only way to stop this is with a positive earnings announcement and good numbers on growth.

Besides the numbers, Facebook will have to increase investors’ optimism including plans for future revenue – whether through online or mobile ad business – and demonstrate some sort of growth rate – through new users, or user engagement.

Drum roll please….

Stock predictions for the week

This is going to be a very exciting week on the stock market. Major companies including Facebook will be announcing their earnings, and we expect to see some positive numbers, but not for all companies.

Let’s look at the companies announcing their earnings, and predict how they will do. Of course, when predicting the stock market, it’s important to proceed with caution. Crystal balls something don’t work, especially with regards to the stock market.

Top 2 picks:

July 26th (earnings announcement): There will be gains for Amazon for sure as not much can stop them right now. They are on pace to become larger than Walmart within the decade, and with their main business thriving, have plenty of cash to focus on other, and currently successful projects.

Moving away from online shopping, Amazon’s Kindle is the next best success story after the iPad (Samsung Galaxy is not included since it is not a tablet). With their elite web services growing, Amazon’s role in the market keeps getting stronger.

July 26th (earnings announcement): Facebook’s stock will be extremely volatile this week as anticipation builds for their first ever earnings report. After their IPO flop, Facebook has been struggling, and will continue to struggle after July 26th. This company is just not worth $100 billion. In 2011, it was estimated that Facebook raked in only $4 Big ones. Not worth $100 billion. Since going public, not much has changed with regards to their revenue – if anything, there is speculation that their ad services aren’t effective. Plus, in the past quarter all they have done is spend money. With seven acquisitions, including $1 billion for Instagram (1/4th of their total revenue in 2011 – and Instagram doesn’t make any money either), we should be expecting to see a hit on their shares. Of course, we cannot forget about market expectations. With the trading issues the Nasdaq had during Facebook’s IPO and poor start for Facebook, we shouldn’t be surprised if some individuals with power lower expectations for Facebook and help boost their stock. 

Other picks:

July 24th (earnings announcement): Apple, as usual, will meet their own earnings expectations. The bar is set high for them, so I doubt they will beat market expectations. As always, they will have phenomenal sales and we will see an increasing number of other Apple products sold besides the iPhone/iPad – namely laptops.

There is doubt their stock will jump, but with the release of Mountain Lion expected this Wednesday, it may create enough buzz to shoot their stock up a bit.

 

July 24th (earnings announcement): Netflix has a good chance of making a slight gain. Their last quarter, although better than expectations, was relatively weak. This quarter included excellent streaming numbers (for the first time ever Netflix was streamed for 1 billion+ hours in July), plus new partnerships to make Netflix available on a more devices should provide a boost. As the online streaming market is becoming saturated with competitors such as Amazon, Verizon, and Hulu – Netflix is going to have some struggles differentiating themselves in the market, and will have to pay more for exclusive content.

 

$640 Million Jackpot: What are your odds of winning?

By tomorrow morning, there may be a new member of the 500+ million dollar club. And all it would have taken is luck!

Tonight, the largest lottery jackpot in history will be drawn for $640 million. Will you be the winner? Let’s check out your odds:

The chance of winning this lottery is 1 in 178,000,000. According to your probability, you have a much greater chance of dying in a car on your way to purchasing a lottery ticket than winning the lottery itself (1 in 75 chance you will die in a car accident over your lifetime).

Ok, how about if you had $178,000,000 already? You could purchase 178,000,000 tickets, couldn’t you? Think again. Estimating it takes 5 seconds to purchase each ticket, it would take you three years to purchase 178,000,000 tickets!

Sorry to say it, but you, and unfortunately, I, have very little chance of winning the $640 million lottery. But, one of us can win and I personally have a 20 out of 178,000,000 chance of winning!

Best of luck!

Fun odds and probabilities:

Chances of being killed by a lightning strike: 2,290,000 to 1

Chances of lightning striking you: 587,000 to 1

Chances of being murdered: 19,000 to 1

Chances of getting away with murder: 2 to 1

Chances of getting a royal flush in poker with first 5 cards dealt: 655,750 to 1

Chances that a 1st marriage will survive without separation/divorce for fifteen years: 1.4 to 1

Chances that a marriage comprising two celebrities will last a lifetime: 4 to 1

Chances of becoming the United States president: 10,000,000 to 1

Chances of dating a super model: 89,200 to 1

Odds of getting a hole in one in golf: 5,000 to 1

Chances of becoming an astronaut: 12,100,000 to 1

Chances of winning a Olympic medal: 655,000 to 1

Chances of being killed by parts falling from a plane: 10,000,000 to 1

Chances of being killed by a shark: 3 hundred million to 1

Chances of being injured by fireworks: 22,000 to 1

Chances of being injured from operating a chainsaw: 5,100 to 1

Chances of being injured by mowing the lawn: 3,554 to 1

Chances of fatally slipping in bathtub/shower: 3,333 to 1

Chances of drowning in the bathtub: 693,000 to 1

Chances of being killed next year from any form of transportation accident: 87 to 1

Chances of being killed on a five kilometer bus ride: 450,000,000 to 1

Chances of developing hemorrhoids: 28 to 1

Chances of twins being born: 90 to 1

Chances of being on airplane with a drunk pilot: 115 to 1

Chances of being IRS-audited: 180 to 1

Chances of marrying a millionaire: 220 to 1

Chances of writing a New-York Times best-selling book: 228 to 1

Chances that your son/daughter is a genius: 265 to 1

Odds of catching a foul ball or home run at professional baseball game:776 to 1

Chances of becoming a professional athlete: 24,550 to 1

Chances of winning a Hollywood Oscar award: 12,200 to 1

Chances of sighting a U.F.O. today: 3,200,000 to 1

Chances of winning California’s lottery: 13,000,000 to 1

Chances that you will become a saint: 22,540,000 to 1

Chances of having your identity swiped: 200 to 1

Chances of a meteor hitting your home: 182,138,800,000,000 to 1

Chances of an asteroid hitting Earth in the next hundred years: 1 in 5,500

Chances of dying from an asteroid hitting Earth: 20,000 to 1

Chances of being killed in an airplane accident: 355,318 to 1

Chances of being executed for capital punishment: 1 in 3,221,700

Source: http://www.casinomaze.com/gambling-fun/chances-are.html

Apple stock hits $600. Is it overvalued?

Apple, the most valuable company in the world with a market capitalization of over $500 billion has achieved another first recently. With the excellent sales number of the new iPad, Apple’s stock has hit and is continuing to hover around $600 per share.

There is no doubt that Apple’s success is something any company dreams to achieve, but there is much discussion on how long this success will last. Some analysts, like Steve Cortes from the TV show “Fast Money” are ready to short Apple. But, I disagree with Cortes.

Cortes’s logic doesn’t make sense. The main reason he believes Apple should be shorted: “When I look at charts, I look at Google [GOOG  621.13    5.14  (+0.83%)   ] from late 2007, in late November 2007, and overlay Apple, present tense, over that chart it looks incredibly similar.”

But Cortes, you can’t compare Apple to Google. They are too completely different companies. Google’s computer search engine market is already saturated, and Google has spread its global reach as far as possible. If it wasn’t for Android, Google would be in big trouble right now. [After reading this blog post, scroll back up and click here to learn what type of company Google is.]

Apple on the other hand has a sustainable revenue model and high profit margins, and is entering new markets and existing markets that have not been tapped in 15 years. The new market refers to the mobile/tablet market where Apple’s sales numbers are great and they are making a tremendous amount of money at the same time. Also, Apple is just starting to tap into the international markets.

Besides the new mobile/tablet market, what Apple has going for itself is a huge surge of sales in the computer industry. In a market dominated by Microsoft and unchallenged for the last 15 years, Apple is making gains on Microsoft’s market share. Yes, Microsoft still holds anywhere from 75%-85% of the market share, but 5% can easily represent 50 million people. More and more people are buying Apple computers and all you have to do is open your eyes to see this happening. Visit any university or urban center and Windows computers have been replaced by Macs. Businesses (especially executives) are making the switch as well. This is all happening at a time when Microsoft can’t figure out how to sell a smartphone, forget about building a reliable and safe operating system.

Mr. Cortes, Apple still has much more conquering to do that your stock charts can’t decipher. Short-term, who knows what will happen – but be assured, if all stays constant, Apple’s stock will be close to $800 by the end of 2012.

Crystal Ball: Google’s Downfall

Google’s bread and butter to this day is revenue from ads. That’s it. Even with Android, the only money Google makes is through ad revenue. Oh – let’s not forget about the Android Market (now called ?Google Play?). Google makes 30% of each download of a paid app. In a nutshell, that’s it.

Let’s examine Google revenue over the next few years. The search engine market is saturated. Google got kicked out of China, and there is no new growth in developed nations. The only way a business can make more money is through growth. Growth for Google is only going to come through Android devices, which Google is kicking butt at by applying the same strategy Microsoft did to dominate the PC market.

But Google has some really big issues, the biggest being itself. Google has changed. It is turning into a traditional company that is loosing its revolutionary genes. Specifically, it is no longer unbiased. Since co-founder Larry Page took over, projects have been cut and bonuses are based on the success of the dying Google+. Also, semantic search is now here, which means that Google will “guess” your answer without you having to visit a webpage. But Google will be finding you answers from information they crawled from other websites. This could very easily turn bad for Google, with sites boycotting Google and evaluating other sites engines that care about them.

If it weren’t for Android, the best bet right now would be to short Google because they are getting a little too hot-headed.