A stock’s ‘sex appeal’ plays big role in price

Investors greatly underestimate a stock’s ‘sex appeal’ when they’re trying to value a company. There are a handful of companies that have something special: a great niche at precisely the right point in history, a compelling story or a truly revolutionary idea. Those stocks don’t trade on reason and numbers alone. They trade on beliefs, ‘gut feelings’ and a desire for change in the world.

Last summer, a friend of mine asked me what I thought about investing in Tesla (TSLA). At the time, Tesla had shot up from $30 to north of $100. It was up more than 250 percent in the space of a few months. I told my friend we’d missed the boat. The stock had run too far too fast.

Boy was I wrong. Telsa has more than doubled since then. And that leads me to my thesis for this post: investors greatly underestimate a stock’s ‘sex appeal’ when they’re trying to value a company. There are a handful of companies that have something special: a great niche at precisely the right point in history, a compelling story or a truly revolutionary idea. Those stocks don’t trade on reason and numbers alone. They trade on beliefs, ‘gut feelings’ and a desire for change in the world. Put another way, they trade on hope, hype and hot air.

And yet, we can’t discount the power of a transformative company or CEO to grow into incredibly high expectations for a stock. The example I like to give is Amazon (AMZN). People complain about the valuation of a company like Facebook (FB), which is trading at a P/E of 92. But people aren’t that surprised Amazon’s trading at a P/E of 587!

And yet, Amazon is one of the few tech stocks that’s trading well above it’s dot-com highs from the late 1990s. 15 years ago, Amazon was just an online bookseller. Today, it’s a retail shopping giant, a media powerhouse for online movies, music and books, a hardware manufacturer, a cloud hosting company and a database of product reviews that’s unrivaled. Amazon has lived up to the hype.

Not every company lives up to the hype, of course, but you can’t deny that a few companies do. With that in mind, here’s my stab at a list of the Top 12 stocks with the biggest ‘sex appeal’ right now:

  1. Tesla (TSLA)
  2. Facebook (FB)
  3. Netflix (NFLX)
  4. Amazon (AMZN)
  5. Twitter (TWTR)
  6. Plug Power (PLUG)
  7. Pandora (P)
  8. RF Micro Devices (RFMD)
  9. Under Armour (UA)
  10. NQ Mobile Ads (NQ)
  11. 3D Systems (DDD)
  12. HEMP (HEMP)

I’m going to start blogging more about each of them regularly in the future so stay tuned!

Twitter (TWTR) closes below IPO price; it’s time for acquisitions!

Twitter needs rapidly-growing revenue to keep stockholders happy, and acquisitions are a great way to do that.

Twitter’s (TWTR) stock got hammered today along with a raft of other leading technology stocks. The blue bird’s in need some of some serious momentum, and I have a feeling Twitter’s CEO feels the same way. The usual pattern for a tech IPO goes like this:

1) Raise tons of cash.

2) Go on an acquisition spree.

3) Sell bonds or more stock to raise even more cash.

4) Buy more companies.

Facebook (FB) is in phase 2. The company’s rumored to be buying a drone company to spread internet access in Africa. They’re also buying virtual reality headset-maker Oculus Rift.

I have no doubt that Twitter’s going to follow suit. They need rapidly-growing revenue to keep stockholders happy, and acquisitions are a great way to do that. The company’s also just yanked it’s music app from iTunes. The speculation is they’ll bundle music streaming services in with their core app. I doubt that’ll bring in much revenue since they’re going up against titans like Pandora, Spotify and iTunes itself. My advice? Buy Spotify!

5 reasons to invest in the Imperva IPO

Given Imperva’s geeky niche and the relatively small size of the expected proceeds ($75 million), the company’s upcoming IPO hasn’t garnered much press, but I’m still bullish.

Imperva, Inc. first announced plans for an IPO under ticker “IMPV” on the New York Stock Exchange late in June. Given the company’s geeky niche and the relatively small size of the expected proceeds ($75 million), the announcement hasn’t garnered much press. Still, I’m bullish on Imperva, and here are five reasons why:

1) The perfect niche. Imperva allows companies to outsource one of the trickiest parts of doing business in the Internet Age: keeping data safe from hackers. As hackers get more sophisticated, so too does the expertise required to keep them out. Worldwide, spending on IT security products is expected to grow 40 percent – according to an Imperva-cited study by IDC – from $27 billion last year to to $38 billion in 2014.

2) Surging revenue. Imperva’s yet to turn a profit. The company lost $12.3 million in 2009 and $12 million in 2010, but it’s not all bleak news. Revenue surged 40 percent during that same time period from $39.3 million in 2009 to $55.4 million in 2010.

Unlike a lot of high-tech companies that are struggling to define their business models, Imperva’s got a great one: it’s a subscription-based service. Once a company signs on, they’re going to keep re-upping unless a competitor lowballs Imperva on price, goes belly up or finds it needs services Imperva can no longer provide. On top of that, internet security is one of those things we like to set and forget. We’ll happily pay someone else to take care of it so long as we don’t have to think about it.

3) The law’s on their side. New regulatory requirements out of Washington have upped the ante for corporations and governmental agencies that store sensitive personal information on their servers. Compliance with those laws is cumbersome and burdensome to companies without data security expertise. Imperva specifically cites those clients as a key part of its business strategy.

4) Going after the little guy. Not content with just enterprise-level clients, Imperva launched an Israel-based company called Incapsula, which targets small- and medium-sized clients. For $50 a month, Incapsula’s customers can get firewall protection for their web apps. That’s a small price to pay for peace of mind, and – if things work out – a fair number of those small businesses will one day be enterprise-level clients with more sophisticated security needs.

5) Clients with deep pockets. Imperva doesn’t publish a full list of its clients, but the company does divulge a bit in their S-1 filing: “Our customers include four of the top five telecommunications companies, three of the top five commercial banks in the United States, three of the top five financial data service firms, three of the top five computer hardware companies, two of the top five food and drug store companies, over 150 government agencies around the world and more than 100 Fortune 1000 companies.”

In the past, Imperva has publicly acknowledged several clients including GoDaddy, Accor, Vonage and Fool.com.

A few reasons NOT to invest in the Imperva IPO

Lest we forget, all investments come with risk. Imperva has plenty. Namely: High-debt, a lack of profitability, heavyweight competitors – International Business Machines Corp. (NYSE:IBM), F5 Networks, Inc. (NASDAQ:FFIV), Citrix Systems, Inc. (NASDAQ:CTXS) and others – as well as a product that requires constant updates and monitoring as the company seeks to stay a step ahead of hackers. Still, there’s plenty of room for growth in the sector, and with every new customer Imperva attracts, it becomes a more appealing buyout target. I like the product, the niche and the prospects for this stock.



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The Baby Boomer stock shock and what you can do to avoid it

A prolonged sell-off in the stock market thanks to the retirement of waves of Baby Boomers could mean stock prices won’t recover to their 2010 levels until 2027.

Two researchers buried amid reams of data at the Federal Reserve Bank of San Francisco emerged recently with a disquieting prediction: the first great wave of Baby Boomer retirements is going to push down stock prices for the next 10 years. According to researchers Mark Spiegel and Zheng Liu, stocks in 2021 could be worth 13 percent less than were in 2010.

Worse than that, Spiegel and Liu don’t expect stock prices to fully recover to their 2010 levels until 2027. I’ve dubbed it the Baby Boomer stock shock, and its had me exploring ways to protect my capital over the next 16 years.

Born between 1946 and 1964, Baby Boomers are the single largest demographic in America, and they make up fully 25 percent of the population. The youngest Boomer is now 44 years old, and the oldest Boomers should start qualifying for retirement benefits this year. According to Speigel and Liu, those Boomers are going to start selling shares they’ve spent decades accumulating, and that’s going to drive down the overall stock market.

How to avoid the Baby Boomer stock shock

While the overall stock market might suffer from prolonged selling as Boomers cash in their equities, stocks that specifically cater to an older population could be poised to outperform. JPMorgan Chase & Co. (NYSE:JPM) has actually put together a list of just such stocks. Dubbed the Aging Population Index, this group of 21 stocks has outperformed the S&P 500 six out of the eight past years (per the Financial Post).

The index is heavily weighted toward healthcare (at 48 percent), consumer discretionary items (at 33 percent) and financial stocks (at 14 percent). Among the companies?

Royal Caribbean Cruises Ltd. (NYSE:RCL). Stress-free trips on clear blue Caribbean waters. Just what the doctor ordered. There are even a handful of retirees who have opted to live out the rest of their days on cruise ships (per Snopes). The industry’s been working hard at appealing to younger travelers, but their bread and butter for the next 20 years will be Boomers.

Chico’s FAS, Inc. (NYSE:CHS). With a clothing line that’s specifically targeted at high-income women over 35, the company’s stock is up more than 123 percent over the past 10 years (not counting three stock splits earlier in the decade). Chico’s designs its clothes with a toned-down color palette and fills its racks with sizes aimed at “plumper” figures.

Sun Healthcare Group Inc. (NASDAQ:SUNH). One of Sun Healthcare’s largest businesses is SunBridge, which operates more than 200 nursing homes and post-acute care centers. All told, SunBridge houses 22,000 beds in 25 states, and that number should start accelerating rapidly 10 years from now. The average age upon admission to a nursing home is 79 (per PBS.org). As Boomers start aging, long-term care will be inevitable for many.

The Scotts Miracle-Gro Company (NYSE:SMG). The National Gardening Association pegs the average age for gardeners at 55 (per Mlive.com). Companies like Miracle-Gro that cater to that niche are in the fat part of the growth curve. The oldest Boomers are still gardening and the youngest Boomers could just be getting started.

In general, Boomers won’t be fully liquidating their portfolios, but they probably will be moving from high-risk sectors like tech into stable, dividend-paying stocks. Keep the macro-trend in mind, and you should fare better than the S&P in the years to come.



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Eleven reasons to AVOID investing in Dow Jones Industrial Average stocks

Of the 30 stocks in the Dow Jones Industrial Average, 11 of them would actually be worth less or just about the same as they were 10 years ago (including dividends!).

When I first started writing this blog post, I was going to call it “How to Invest Safely in Stocks.” My second recommendation was that beginners should start with a handful of the 30 stocks that make up the Dow Jones Industrial Average. Once I started digging through the numbers, though, I was a startled at what I found. Apparently, the blue-chip stocks aren’t the no-brainers most investors like to think they are.

Need proof? Check out this chart I put together of the 10-year returns for each of the 30 Dow Jones stocks:

Company 10-Year Stock Return 10-Year Dividend Return on $1,000 investment $1,000 is now worth
3M Company +46.6% $590.94 $3,458 (aided by a stock split)
Alcoa Inc. -68.1% $134.46 $449.82
American Express Company +41.47% $122.40 $1,514
AT&T Inc. -31.8% $357.12 $1,024
Bank of America Corp. -51.8% $718.58 $1,109
The Boeing Company +12.54% $218.16 $1,311
Caterpillar Inc. +208.7% $787.17 $7,093 (aided by a stock split)
Chevron Corporation +113.9% $794.85 $4,791
Cisco Systems, Inc. -7% $7.20 $933
The Coca-Cola Company +45.2% $284.76 $1,734
du Pont +11.1% $372.72 $1,462
Exxon Mobil Corporation +82% $319.44 $2,086
General Electric Company -61.9% $200.4 $572
Hewlett-Packard Company +2% $123 $1,129
The Home Depot, Inc. -32.7% $117.58 $780
Intel Corporation -29.7% $136.54 $825
International Business Machines Corp. +57.1% $127.26 $1,605
Johnson & Johnson +20.8% $257.22 $1,426
JPMorgan Chase & Co. -16.1% $273.12 $1,107
Kraft Foods Inc. +8.7% $283.34 $1,339
McDonald’s Corporation +198.4% $387.25 $3,351
Merck & Co., Inc. -51.2% $218.70 $698
Microsoft Corporation -20.1% $416.64 $1,998
Pfizer Inc. -56.3% $196.56 $634
The Procter & Gamble Company +68.6% $607.79 $3,884 (aided by a stock split)
The Travelers Companies, Inc. +11.8% $120.34 $1,206
United Technologies Corporation +94.9% $529.54 $4,305
Verizon Communications Inc. -31.5% $305.33 $988
Wal-Mart Stores, Inc. +4.7% $130.29 $1,141
The Walt Disney Company +25.1% $110.20 $1,330

What’s startling is this: of the 30 stocks in the Dow Jones Industrial Average, 11 of them would actually be worth less or just about the same as they were 10 years ago (including dividends!). That’s remarkable considering I didn’t factor in inflation, which have averaged 2.4 percent over the past decade (per FinTrend.com).

That means your odds of throwing a dart at a list of the Dow stocks and hitting a winner are only around 63 percent. That’s not much better than going to the casino and counting a few cards at the blackjack table.

Before you toss your hands up and cash in your IRA for guns and ammo, though, I’d be remiss if I didn’t point out that the average return on $1,000 for the 30 Dow component stocks was $1,842 over the past 10 years. Indeed, a $1,000 investment in Caterpillar Inc. (NYSE:CAT) would be worth $7,093 today. That’s not bad, but seeing the returns from a company like GE, which has crumpled more than 60 percent over the past 10 years is scary. And this year hasn’t been kind to the Dow, either. Take a peek at the YTD returns on each of the component stocks:

Company Ticker YTD Return Dividend Yield
3M Company NYSE:MMM -10.8% 2.86%
Alcoa Inc. NYSE:AA -27% 1.07%
American Express Company NYSE:AXP +3.9% 1.61%
AT&T Inc. NYSE:T -3.17% 6.05%
Bank of America Corp. NYSE:BAC -51.8% 0.62%
The Boeing Company NYSE:BA -10.5% 2.88%
Caterpillar Inc. NYSE:CAT -14.7% 2.3%
Chevron Corporation NYSE:CVX +2.25% 3.34%
Cisco Systems, Inc. NYSE:CSCO -25.8% 1.6%
The Coca-Cola Company NYSE:KO +2.28% 2.79%
du Pont NYSE:DD -12.1% 3.74%
Exxon Mobil Corporation NYSE:XOM -4.02% 2.68%
General Electric Company NYSE:GE -17.3% 3.97%
Hewlett-Packard Company NYSE:HPQ -41.9% 1.96%
The Home Depot, Inc. NYSE:HD -7.9% 3.1%
Intel Corporation NYSE:INTC -7.85% 4.33%
International Business Machines Corp. NYSE:IBM +8.33% 1.89%
Johnson & Johnson NYSE:JNJ -1.51% 3.6%
JPMorgan Chase & Co. NYSE:JPM -21.2% 2.99%
Kraft Foods Inc. NYSE:KFT +6.47% 3.46%
McDonald’s Corporation NYSE:MCD +14.3% 2.78%
Merck & Co., Inc. NYSE:MRK -13.1% 4.85%
Microsoft Corporation NYSE:MSFT -14% 2.67%
Pfizer Inc. NYSE:PFE +0.9% 4.52%
The Procter & Gamble Company NYSE:PG -4.07% 3.40%
The Travelers Companies, Inc. NYSE:TRV -11.8% 3.34%
United Technologies Corporation NYSE:UTX -14.02% 2.84%
Verizon Communications Inc. NYSE:VZ -2.6% 5.6%
Wal-Mart Stores, Inc. NYSE:WMT -3.23% 2.80%
The Walt Disney Company NYSE:DIS -14.6% 1.25%

Just seven out of the 30 Dow component stocks have actually appreciated in value this year. That should give you pause before you invest in a high-profile company solely on the strength of its name and brand.

The Takeaway

Here are three key things I take away from the charts above:

1) Energy is the name of the game. One sector in the Dow has strongly out-performed others in recent years. Namely, oil (ala Chevron and Exxon). And I wouldn’t expect that to change – particularly as fears over inflation mount.

2) Banking stocks have a lot of ground to make up. The fact that JPMorgan Chase is down 16.1 percent over the past 10 years, and Bank of America’s down a whopping 51.8 percent could get you thinking banking stocks have to turn the corner soon. I’d argue there’s a lot of pain for them on the horizon, particularly with the imminent threat of inflation. Banks thrive and dive on interest rates, and all those fixed mortgages BAC’s underwriting at 3 percent could come back to bite them in a high-inflation environment. That’s a big part of why banking stocks have fallen in recent months, and it’s a trend I expect to continue.

3) Follow the macro-trends. If you would have invested $1,000 in gold at the start of 2001, you’d now be holding onto $6,797 in bullion. Energy and inflation are the stories du jour, and your portfolio should reflect that reality. No one can say the next 10 years will play out the same as the past 10, but we can say the demand for oil isn’t going away anytime soon, and neither is our government’s debt problem. You can’t afford to ignore the macro picture anymore, unless, of course, you’re happy rolling the dice in your IRA.



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Why Bank of America stock (NYSE:BAC) got crushed

It’s clear investors feel like Bank of America’s the ugliest house in a pretty crummy-looking neighborhood. Here are five reasons why.

It’s not often that one of the 30 largest stocks in the country drops 20 percent in a day. That’s what happened to Bank of America Corporation (NYSE:BAC) yesterday, though. The Dow component stock crumpled from $8.17 a share to $6.51 and it shed another 1.5 percent in after-hours trading.

Year-to-date, Bank of America stock is down 51 percent. But the bad news just doesn’t seem to be going away for America’s largest bank holding company. Here are five reasons the stock got crushed yesterday:

1) The mother of all lawsuits. American International Group, Inc. (NYSE:AIG) filed suit against BAC yesterday seeking at least $10 billion in damages for alleged fraud at the bank and at Countrywide Financial, a mortgage origination company that Bank of America acquired in 2007.

2) Did we mention the other lawsuits? AIG is just the latest in a string of high-profile lawsuits against BAC. Freddie Mac, Fannie Mae, BlackRock, Inc. (NYSE:BLK), PIMCO and Goldman Sachs Group, Inc. (NYSE:GS) have also filed suits against the bank. And no one’s sure just how much it’s going to cost BAC to defend itself (not to mention how much it will cost if the bank does have to pay for damages one day).

3) Stock dilution, anyone? Bank of America maintains its stance that the company won’t have to issue more shares in order to cover costs associated with ongoing litigation. If the lawsuits keep coming, though, BAC might not have a choice. Win or lose, lawyers need paid.

4) Jumping ship. Regulatory filings released yesterday showed that hedge fund manager David Tepper of Appaloosa Management LP took a carving knife to his stake in BAC last quarter. Tepper pared off 42 percent of his holdings in the bank, narrowly escaping the guillotine that dropped yesterday. The news of Tepper’s move added fuel to an already fiery sell-off.

5) Downgrade central. In just two trading days, Bank of America shares were downgraded three times. On the heels of downgrades from Standard & Poor’s and Wells Fargo, the most recent thumbs-down comes from CLSA analyst Mike Mayo (per TheStreet). Mayo cut the stock from “buy” to “outperform” (which almost seems meaningless considering the stock’s loses year-to-date). Still, it’s yet another vote of no-confidence for BAC.

All told, yesterday’s 20 percent plunge in Bank of America’s share price wiped out $16 billion. Other banks didn’t fare much better, but it’s clear investors feel like Bank of America’s the ugliest house in a pretty crummy-looking neighborhood. For the year, BAC is down 51 percent. Citigroup Inc. (NYSE:C) is down 41 percent YTD, Wells Fargo & Company (NYSE:WFC) is down 26 percent, and JPMorgan Chase & Co. (NYSE:JPM) seems heroic having lost just 20 percent since the start of the year.



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How far down will the stock market crash go?

The warning lights have officially started flashing, and it’s an indication that you shouldn’t start bargain hunting yet.

Yesterday’s 513-point plunge in the Dow marked the ninth-worst stock sell-off in the history of the Index. The warning lights have officially started flashing, and it’s an indication that you shouldn’t start bargain hunting yet. Investors are jittery. Here’s why:

1) The debt ceiling debate. Yes, Congress found a way to avoid defaulting on its debt, but the strung-out drama was a wake-up call for investors – particularly after S&P threatened to downgrade the country’s credit-worthiness.

2) Sluggish growth. Last week, we learned Gross Domestic Product – the sum total of the U.S.’s economic output each year – grew just 1.3 percent during Q2. On top of that, QI-growth was revised down from 1.9 percent to 0.4 percent. That’s dangerously close to negative growth, and two consecutive quarters of negative growth is the generally-accepted definition of a recession.

Even scarier? The Treasury Department announced yesterday that the National Debt now stands at 100 percent of the country’s GDP. That hasn’t happened since World War II, and we now collectively owe out some $14.58 trillion.

3) Anemic consumer spending. For the first time in nearly two years, consumer spending dropped in June. That’s troubling as consumer spending accounts for 70 percent of the U.S. economy.

4) Say ‘no’ to QE3? The days of easy money are winding down now that QE2 has officially ended. If things get worse, the Fed might have to act, but for now, they’re standing by their “no QE3” stance. Without an extra kick in the economy, there’s just not a lot to get excited about.

Where do we go from here?

The bigger question, though: how far will this latest stock market crash go? That depends on economic growth, of course, and some of the world’s leading banks have started upping their bets that a double-dip recession’s on the horizon.

In the words of Bank of America Merrill Lynch economist Michelle Meyer, “The economy is only one shock away from falling into recession.”

Meyer says there’s a 35 percent chance of a recession in the next year (per the Financial Post).

Here are a few more predictions:

IHS Global Insight: 40 percent odds of a new recession (per Mercury News).

Vanguard: 35-40 percent odds (per Mercury News).

Former Fed officials: 20-40 percent (per UpperMichigansSource).

The boldest prediction, though, comes from Harvard economics prof Martin Feldstein, who has laid down 50 percent odds for a double-dip recession (per Bloomberg). If he’s right, the stock market is due for a lot more pain.

Regardless of the predictions, though, the financial crisis in 2008 taught us that sell-offs shouldn’t be taken lightly. Sure, you should buy when there’s blood in the streets, but you want to make sure the bleeding’s not just getting started.



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How to invest in internet stock IPOs

Two new ETFs, EIPO and EIPL, make it easy to invest in a basket of new Internet IPOs, from LinkedIn to Yandex.

One of the easiest ways to identify hot stock sectors is by following the release of new ETFs and ETNs. Last week, the Internet stock IPO market got its first two ETNs. The ETRACS Internet IPO ETN (NYSE:EIPO) tracks a UBS index of 20 tech-related stocks that have debuted on the NASDAQ or NYSE within the past three years. That includes headliners like professional social networking company Linkedin Corporation (NYSE:LNKD) and Russian search giant Yandex (NASDAQ:YNDX).

A sister ETN – the Monthly 2X Leveraged ETRACS Internet IPO ETN (NYSE:EIPL) – ratchets up the stakes even more by seeking to return twice the performance of UBS’ new tech index.

The funds give investors exposure to new tech stocks without forcing them to put all their eggs in a single company. That could prove appealing as many of the hottest tech IPOs have come from companies based outside of the U.S. Unstable political environments and intense competition in China and Russia, for instance, makes sinking cash into a single company risky.


Here’s a look at the Top 10 stocks in the UBS Internet IPO Index. The index, which the new tech IPO ETNs will attempt to track, reads like a who’s who of the hottest tech IPOs over the past three years:

No. Company Ticker Weighting
1) LinkedIn Corp. LNKD 10%
2) HomeAway Inc. AWAY 10%
3) Yandex YNDX 10%
4) Rackspace Hosting RAX 10%
5) Pandora Media P 9.57%
6) RenRen RENN 9.2%
7) OpenTable OPEN 6.48%
8) Ancestry.com ACOM 5.97%
9) SouFun Holdings SFUN 3.44%
10) Demand Media DMD 3.39%

5 reasons LinkedIn’s stock is set to plunge (LNKD)

Here are five reasons LinkedIn stock forecasts might be overly optimistic, and a fall from grace for the professional social networking company could be overdue.

Since its IPO on May 20, 2001, shares in LinkedIn Corporation (NYSE:LNKD) have tumbled 35 percent from a first-day high around $120 to $78 a share. That’s still 73 percent higher than the IPO price set by Morgan Stanley, Bank of America and JPMorgan Chase. And yet, not everyone’s convinced LinkedIn’s future looks like a fairy tale. Here are five reasons LinkedIn stock forecasts might be overly optimistic and a fall from grace could be overdue:

1) Small numbers. For the nine months ended Sept. 30, LinkedIn netted $2 million on revenue of $161 million, and the company is forecasting a loss for 2011 as it looks to aggressively expand its user base. Not only are the profit margins fairly small at LinkedIn, they’re going to be shrink as the company gambles on growth at the expense of profits. Ongoing losses could force out speculative investors with short investing timelines. Even the company’s initial IPO valuation at $4 billion “assumes an $100 million-plus in 2012 net, along with a Google-like growth trajectory for the next 5-10 years,” writes Promod Radhakrishnan at SeekingAlpha. Those are heady numbers for any company – even one with the clout of LinkedIn.

2) Narrow context. Investors and analysts seem overly eager to dub LinkedIn the next Facebook. The fact is the site serves a niche (white-collar employees and recruiters) that faces practical limits. All told, there are roughly 150 million people in the U.S. workforce. Of that number, approximately 60 percent (or 90 million) hold the professional, managerial and/or sales jobs that dominate LinkedIn’s user base. At the moment, LinkedIn claims more than 100 million users, and the U.S. market could be reaching maturity. Growth will likely be powered outside of the country where native start-ups are directly targeting LinkedIn. Facebook, which doesn’t serve a limited niche, will – by default – appeal to a broader user base (and likely grow faster as well).

3) “This is a sideshow.” To say LinkedIn’s meteoric valuation has professional investors scratching their heads is a bit of an understatement. Lawrence Haverty who helps oversee $35 billion at Gamco Investors, Inc., put it bluntly in an interview with BusinessWeek: “This is not something we even consider investing in. This is a sideshow. It’s a magic show. The only question for the investor is how soon they should sell.” Per Haverty’s EBITDA analysis, shares should be trading closer to $35 a share – not $80.

4) Insider selling. Six months from now, more than 85 million LinkedIn shares held by company insiders will start to be eligible for trading. That means the public’s been swapping back and forth a mere 7.8 million of the 95 million shares outstanding. Once supply and demand begins equalizing (and LinkedIn employees look to cash in on their paper wealth), prices could fall quickly.

5) Shorters aren’t in short supply. LinkedIn bears have borrowed 65 percent of the shares available for shorting, according to Bloomberg. That makes it the sixth-most shorted stock in the S&P by percentage. Indeed, the average S&P stock has a mere 8.2 percent of short-eligible shares actually sold short. There are a lot of folks betting on LinkedIn making lots of cash, but rest assured their are just as many convinced the stock’s setting up for a dramatic collapse. My guess is, the pros are short, and they’re probably going to make a fair amount of cash in the months to come.



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Tudou IPO: Is Tudou stock a buy?

Tudou IPO: Is Tudou stock a buy?

Tudou’s IPO will face stiff competition in Youku.com (YOKU) and Baidu’s (BIDU) Qiyi.com, but the company’s convinced it will soon emerge as China’s largest online video site.

Despite some catty disagreements between Tudou Holdings’ CEO and his ex-wife, it appears the online video sharing site will soon IPO on U.S. stock exchanges.

The move has been delayed for several months for unspecified reasons even as rival site, Youku.com (NYSE:YOKU) enjoyed a spectacular IPO in December. YOKU shares have risen more than four times their IPO price of $12.80, and it will be interesting to see if investors greet Tudou shares with the same enthusiasm.

Traffic at the two online video sharing sites is nearly even. Alexa.com ranks Youku as the 10th-most-visited site in China, but Tudou’s not far behind in the No. 12 slot (as indicated by the red line below):

Source: Alexa.com

Still, there is no clear-cut winner in the market yet, and there probably won’t be anytime soon. The question is which company will differentiate itself first as China’s leading video site? Investors will get their chance to make their bets soon enough.

Tudou IPO: Key Facts and Figures

Profits? Not yet. Tudou lost $55 million last year, more than twice its loss in 2009. About a third of that loss was attributed to share-based compensation and “fees paid to third-party advertising agencies” (per the Wall Street Journal). Youku fared somewhat better with a 2010 net loss of $31.5 million. Throughout 2010, Tudou generated revenue of $43.3 million while Youku’s revenues were $59.6 million.

Ex-wife? That spat between Tudou CEO Gary Wang and his ex-wife could have serious implications for the company. Wang’s ex believes she’s entitled to half of his Tudou holdings. If that’s upheld in court, it could fundamentally shift the power structure for the company creating as much internal pressure as external pressure from rivals like Youku and Baidu’s (NASDAQ:BIDU) Qiyi.com. “Under PRC law and judicial practice, in principle, community property during marriage should be equally divided upon divorce, subject to any agreement reached by the divorced couple and other principles such as the impact on the continuous operation of the involved business,” Tudou writes in its recently-amended F1 filing.

The true “YouTube of China?” Youku relishes its nickname as the “YouTube of China,” but in fact both Tudou and Youku have diversified by offering pay-as-you-go, professionally produced content.

“Through building long-term partnerships with copyright holders and communicating with our media partners, Youku Premium is creating a whole new way for people to find and watch the content they want, when they want it,” Youku founder and CEO Victor Koo said in January.

Tudou has also branched out from user-generated video. Not only does the company license professionally-produced content for paying members, it also produces its own in-house premium content (including That Love Comes in November 2010 and last month’s debut of Utopia Office, which has been compared to the U.S. sci-fi show Fringe).

Still, user-generated content remains the heart and soul of the site with users uploading more than 40,000 video clips to Tudou last year. Total user registrations on the site climbed from 56.4 million in 2009 to 78.2 million by by the end of 2010.

Coming to a Chinese mobile near you. One of the brightest spots in Tudou’s business plan comes from a partnership with China Mobile – the PRC’s state-run mobile company that happens to operate the largest telecommunications network in the world. “We … began generating revenues in January 2010 from our mobile video services, which we provide primarily through a video channel with China Mobile, and we had an aggregate of approximately 15.8 million users with a total of approximately 27.7 million clip views in 2010,” Tudou writes.

China Mobile users can opt to pay a monthly subscription fee for the service. As the number of smartphones proliferates behind the Great Wall, expect mobile revenue to start contributing a lot more to Tudou’s bottom line. Still, it’s unclear how long it will take Tudou (or Youku for that matter) to start generating profits. In the meantime, a lot of investors seem to have their fingers crossed hoping for the best.



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