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Three reasons why I’d buy stock in a Spotify IPO

The debate over the future of the streaming music industry has me depressed. Executives, it seems, are incapable of divining what listeners want out of the music industry. I’ll try to distill it down: we want a Netflix for music. We don’t want a download-driven iTunes for music. We don’t want a custom-radio radio station (ala Pandora or Slacker) for music or a cloud-based music storage system. We want a subscription-based service that gives us access to millions of songs that we can listen to on demand.

The only company that seems to have figured this out is Spotify – a Swedish start-up that’s reportedly nearing a $100 million financing deal with venture capital tech titan Digital Sky Technologies (DST). DST’s well-known for investing in late-stage start-ups that are nearing an IPO. They own 10 percent of Facebook, for instance. They were in early on Zynga and Groupon, and now they’re ready to give Spotify a war chest as the streaming radio company looks to move into the U.S. market.

Here are three reasons why I’d buy stock in a Spotify IPO:

1) Spotify gives us full control. Lets be honest here. Part of the reason I use Pandora is because I’m too lazy to spend time transferring music onto my iPhone. I just can’t be bothered to deal with the multi-gig folders full of music I’ve built up over the years. If I can access what I want to hear when I want to hear it, I’ll pay for it. I don’t necessarily like Pandora’s model, but it’s easy. There’s just one glaring problem: Pandora doesn’t let you play specific titles or albums. You type in a song or artist you like, then get a “custom radio station” that plays similar music and – every now and then – the actual song or artist you wanted to hear in the first place. Don’t get me wrong, I’ve discovered some new bands I love (and probably wouldn’t have found any other way) while using Pandora, but they’re still leaving up that last little hurdle that’s infuriating: the inability to play a specific track. Spotify’s model gives us what’s missing in the streaming music industry: full control.

2) Subscriptions save me money. If Spotify’s music catalog is good enough when the company launches in the U.S., I’d be more than happy to fork over $15 a month to gain access to millions of songs. In essence, users would get an entire music store of albums for the cost of a single CD. This is precisely like the Netflix, Inc. (NASDAQ:NFLX) model; the model that brought down Blockbuster. If I were renting DVDs from a brick-and-mortar store at $5 a pop rather than streaming movies from Netflix, I’d easily be spending $50 or more a month.

3) Subscriptions offer steady revenue. The beauty of Spotify’s model comes from a long-term base of steady revenue – something most tech start-ups are lacking (i.e. Twitter). Lets say Spotify snags 20 million subscribers (Netflix’s total) at $15 a month; that’s good for $3.6 billion in revenue every year. That kind of money will buy you a lot of bandwidth and give you a whole lot of cash to use while negotiating deals with record labels.

So long as Pandora and Apple cling to models that provide a sub-par user experience, I’m betting all my chips on Spotify. Now, let’s just cross our fingers that an IPO is in the works.

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NFC: The next trillion dollar industry (AAPL)

Just when you started to think that Apple Inc. (NASDAQ:AAPL) couldn’t possibly come up with another multi-billion dollar money-making venture, rumors have started trickling in that the iPhone 5 and iPad 2 will contain near field communication systems.

This “wave and pay” technology, dubbed NFC for near field communication, will allow you to swipe your phone like a credit card at Macy’s or the local gas station. And it will all rely on a small chip that can exchange data with a checkout terminal when the terminal’s within four inches of your phone. If Apple adopts the technology, it should have an inherent advantage over competitors thanks to the fact that most iPhone and iPad users have already linked their devices with a credit card or bank account via iTunes.

The biggest hurdle to adoption? Ensuring that retailers support NFC. According to Reuters, Apple is considering deeply subsidizing the terminals, or giving them away for free to encourage nationwide adoption of the technology.

With Americans charging more than $1.8 trillion a year on credit cards, the move could be yet another game-changer for Apple and the credit card industry in general. Indeed, an army of startups have been working on ways to make purchases easier and more rewarding for smartphone-wielding customers.

I wrote recently about the Bay-area startup Bling Nation, which has partnered with PayPal to test a RFID sticker that users could affix to their phones and use to make charges. Other companies are experimenting with key fobs, loyalty cards and NFC-enabled SIM cards.

The stakes are enormous as businesses start chipping away at the 2 percent+ cut credit card companies have been siphoning off purchases for decades. The progression from plastic to mobile makes perfect sense, though. Mobile phones are centralizing all of our tasks in one device. They’ve replaced watches, calculators, MP3 players, notepads, day planners and phone books. And that leaves just two more things in our pockets that phones will one day eliminate: wallets and keychains. Today the battle is being fought over the wallet, and the spoils in this war couldn’t be any larger.

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App market size forecast for 2011

After capturing $6.8 billion in sales in 2010, the global app market is projected to grow at a compound annual rate of 29.6 percent over the next five years, according to a new research report by MarketsandMarkets.

Indeed, MarketsandMarkets expects the global app market to be worth $25 billion by 2015. Based on their numbers, expect the app market size to grow to more than $8.8 billion in 2011. According to the report, North America currently dominates the global app market in terms of revenue, but Asia has an edge in the total number of app downloads. North American mobile users spent more than $2.8 billion on apps last year. That’s not chump change, and it’s a number that’s going to keep getting larger every year.

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Smartphone market share and penetration in the U.S. in 2010

Time for the State of the Mobile Union Address from TradingStocks.me: The U.S. population is approximately 310 million. As of October of 2010, 234 million of the roughly 264 million Americans ages 13 and older used mobile devices, according to comScore.

Of the 234 million U.S. mobile users, 60.7 million owned smartphones, again per comScore. That means roughly 26 percent of the mobile market in the U.S. uses smartphones. That rate is growing at nearly 15 percent per quarter, which means that by the end of 2011, we should see the smartphone market share eclipse the 50 percent.

It’s important to note, though, that just because someone owns a smartphone, that doesn’t mean they’re using it to browse the web, check email or surf the Internet. In fact, just 36 percent of smartphone owners used their devices to browse the web. Just 33 percent downloaded an app, and 21 percent used their smartphone to access a social networking site.

According to these numbers, just 21 million or so of the smartphone-toting American population are online. You can look at that as a small number, or a market that’s poised for explosive growth over the next five years. I choose the latter.

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Top seven largest Chinese tech stocks of 2010

Tencent Holdings Ltd. (HKG:0700) has knocked Apple, Inc. (NASDAQ:AAPL) off its perch to become the world’s best-performing technology company, according to Businessweek.com. Boasting China’s largest market cap for a tech company on the strength of its free instant messaging platform Tencent QQ, or, simply, QQ, Tencent commands more cash than even Baidu.com, Inc. (ADR) (NASDAQ:BIDU).

Over the past 12 years, QQ has helped grow Tencent from from an instant messaging business into a sort of Wal-Mart of services for China’s Web user. The company makes online games, provides Internet dating services and online storage. Most of its income, though, comes from the premium services it provides for its QQ users. For a modest monthly fee, you can add things like avatars, games, music, virtual pets and more to your IM account, and since Tencent has more than 636 million users, those modest fees have started piling up as monumental mounds of cash. We all know, too, that growth in China’s Internet market shows no signs of slowing.

Here’s a run-down of four other Chinese tech stocks you might want to consider investing in:

1) Baidu.com, Inc. (ADR) (NASDAQ:BIDU). The most popular search engine company in China, Baidu is the seventh most-visited Web site on the Internet. Available in China at baidu.com, they’ve also recently branched out into Japan with their domain baidu.jp. The company’s stock isn’t cheap, though, as it trades at a P/E ratio of 81 (compared to Google’s P/E of 24).

2) NetEase.com, Inc. (ADR) (NASDAQ:NTES). The owner of a popular Chinese Web portal, NetEase’s 163.com is the sixth most-visited site in China, which gives it more traffic than American heavyweights like ESPN, Craigslist and CNN. One of the company’s most successful products is its online role-playing game Fantasy Westward Journey.

3) SINA Corporation (NASDAQ:SINA). A news and blogging site that caters to a wide audience in China, sina.com and its subdomains attract some 3 billion page views per day. The company’s $4.3 billion market cap makes it the fourth-largest tech company in China.

4) Sohu.com, Inc. (NASDAQ:SOHU). A search engine and online gaming company, Sohu.com often falls under the giant shadow cast by Baidu, but the company’s still got a market cap of $2.5 billion, and it trades at a much more reasonable P/E ratio than Baidu (20 vs. Baidu’s 81). Sohu was ranked by Fortune as the world’s 12th fastest-growing company in 2010.

Other Chinese tech stocks to keep an eye on:

Youku.com, Inc. (ADR) (NYSE:YOKU). The Chinese version of YouTube.com, Youku.com is (like its American counterpart) yet to make a profit, but that hasn’t stopped them from an IPO on American exchanges. Over time, Youku’s focus has shifted exclusively from user-generated videos to professionally-produced videos, which it licenses from more than 1,500 content partners. Call it the Chinese equivalent of Netflix, Inc. (NASDAQ:NFLX).

Shanda Interactive Entertainment Ltd. (ADR) (NASDAQ:SNDA). China’s leading publisher of online games (and a major online and paper-bound book publisher), Shanda claims to have more than 1.2 million users playing its online games at any given time – and that’s based on numbers from 2005! The company’s trading at a P/E ratio of 20.4.

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Biggest iPhone app game earnings of 2010

Plants Vs. Zombies iPhone App

The ballooning world of mobile game and app development has minted a lot of basement millionaires, and it’s an industry that’s still so young that a kid with a laptop can compete alongside a giant corporation for cash. For all the buzz we hear about social gaming companies like Zynga Game Network Inc., which has an estimated market cap of $5 billion on private exchanges, there are thousands of other small-time operations that are making a killing building mobile apps.

Mashable just released their Top iOS Apps of the Year, and I quickly browsed through their lists of the Top 10 Paid iPhone Apps and Top 10 Grossing iPhone Apps to see if any game publishing companies are really starting to differentiate themselves in the field. Here are the things that immediately jumped out at me:

1) Just because an app makes the list of the Top Paid iPhone Apps, that doesn’t mean it’s going to make the list of the Top Grossing iPhone Apps. Take the example of TomTom U.S.A., an app that provides turn-by-turn GPS-based navigation for iPhone users. It’s not on the list of Top Paid Apps, but it definitely makes the list of the Top Grossing Apps. It probably should at a cost of $49.99 per download, too!

2) Game development is the overwhelming winner when it comes to making money with iPhone apps. Of the 20 apps on both lists, just four were NOT games: MLB.com At Bat 2010, FriendCaller 3 Pro, TomTom U.S.A., and, arguably, The Moron Test. It is interesting to note, though, that MLB.com is the highest grossing iPhone app of the year. Currently free (since it’s the off-season), the app retails for as much as $14.99 for unfettered access during the season.

3) There are only two game development studios that have more than one app on either list. They’re Chillingo Ltd., which publishes Angry Birds and Cut the Rope, and PopCap Games, Inc., which publishes two of the more bizarre titles on the lists in Pocket God and Plants vs. Zombies.

4) Dorky games seem to out-perform more sophisticated games. Presumably, this is because the mobile app market caters to a young audience that isn’t afraid to shell out cash for binary-based products. The kids buying Angry Birds today are the ones who will be using their mobiles to pay their mortgages and buy their work slacks 10 years from now. That means that if you’re a publisher of any sort, you better start gearing up to cater to a mobile audience. Otherwise, you can start plans for closing down your business sometime in 2015 or so.

5) Mankind’s fascination with zombies is seemingly endless. Three zombie-based titles in Plants Vs. Zombies, Zombie Farm and Call of Duty: Zombies made either or both lists of Top Paid iPhone Apps and Top Grossing iPhone apps of 2010. Make an iPhone app that focuses on Zombies and you just might start making some money.

[Shameless plug: My friends over at the mobile app development company SpringTide Software and I just released what I consider the best horoscope app for the iPhone in The Interactive Horoscope. Download it and let us know what you think!]

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A savior for Microsoft (MSFT)?

It seems Microsoft (NASDAQ:MSFT) is the company everyone loves to hate. And the sad fact is, it’s because just about every human in the United States has benefited from their products at one point or another. Now, one gets the sense that the giant’s against the ropes.

Barclays (NYSE:BCS) cut their earnings estimates for Microsoft on slowing PC shipments, a leading gaming exec jumped ship for Amazon (NASDAQ:AMZN), and the company’s COO, B. Kevin Turner, just sold 141,407 shares. The Kin was a failure, the Wii’s cutting into their gaming market and their search deal with Yahoo! (NASDAQ:YHOO) hasn’t done much yet.

Can Bill Gates and Steve Ballmer re-invigorate the giant? Or is it time to turn the company into a dividend-paying value stock like General Electric Company (NYSE:GE)?

Perhaps not yet. Microsoft has just released the first ad for their Windows Phone 7, a device that they’re pinning much of their hope for the future on.

“This is make-or-break for them. They need to do whatever it takes to stay in the game,” Jonathan Goldberg, an analyst with Deutsche Bank, told TechCrunch. They don’t need Windows Phone 7 to crush the iPhone, but they need it to stop people from switching to the iPhone, and they’re spending the cash to make that happen. Marketing efforts for the new mobile OS are estimated to be near half a billion dollars (and that excludes the phone’s substantial development costs).

If it pays off, it could do wonders for investors’ perceptions of Microsoft – especially if they can create a thriving app marketplace similar to the iPhone’s AppStore (NASDAQ:AAPL). That could add a whole new revenue stream to the giant’s bank account, and that would make investor’s swoon. Thankfully, too, the phone’s on tap for an October release; well ahead of the holiday season.

Here’s their first ad for Microsoft’s Windows Phone 7. Does it make you want to buy it?

Why Microsoft (MSFT) is poised for a major pop

Here are five reasons we expect Microsoft (NASDAQ:MSFT) to enjoy a big move upward, despite the shaky investment environment:

1) Microsoft is trading at a P/E ratio of 11. That’s preposterously low when you look at its peers like Google (NASDAQ:GOOG) with a P/E of 20 and Apple, Inc. (NASDAQ:AAPL) with a P/E of 19. Even Yahoo’s (NASDAQ:YHOO) trading at a P/E of 22, and we won’t even talk about AOL, Inc. (NYSE:AOL).

2) Hedge funds are betting big on Microsoft. According to GulfNews, there are a handful of big fish moving into the stock, including Singh’s TPG Axon, Einhorn’s Greenlight Capital, John Griffin’s Blue Ridge and Thomas Claugus’s GMT Capital. They slowly accumulate millions of dollars in shares. They don’t move in and out on a whim.

3) Microsoft appears poised to raise their dividend (currently at $0.13). The stock’s maturing and moving into value mode. That means you get something out of owning them for the long haul. Many expect a dividend rise in November.

4) The company’s new mobile OS (Windows Phone 7) is due out in the next few months. Users won’t be able to upgrade their old phones to the new OS, so that means you can expect a whole lot more functionality. After the death of the Kin, expect them to fully go after the market they should have been going after in the first place: business class users. If I were Research In Motion Limited (NASDAQ:RIMM), I’d be nervous.

5) Microsoft’s “value momentum” is pointed in the right direction. In fact, it “is now greater than 83 per cent of US companies.” Stocks eventually return to their equilibrium, and Microsoft appears artificially cheap right now.

Now, they just need to unveil a tablet at CES.

Time to buy Apple (NASDAQ:AAPL)?

One of my favorite trading techniques is to buy a volatile stock a few days before the company’s earnings report, then sell it before that company actually reports. Traders generally like to speculate that a specific stock will beat analysts estimates, and that can push prices higher. Still, no one – not even professional analysts – know exactly how a company is going to perform in a given quarter.

Apple, Inc. (NASDAQ:AAPL) is due to report their earnings after the stock market close on Tuesday July 20, 2010, and they’re one of the exceptions to the “I-don’t-know-if-they’re-going-to-beat-estimates” rule. Apple always seems to beat estimates. In fact, they’ve done it for the past 29 quarters in a row since April of 2003! The release of the iPhone 4 and ongoing iPad sales will definitely help bolster their earnings, too. All’s rosy, right?

Not really, Apple’s stock is down 6 percent over the past month. There’s a dark cloud hanging over the company’s head with the release of a Consumer Reports blog post that cites an antennae “design flaw” in the phone. The magazine recommends consumers avoid the new iPhone due to reception problems when users cover the devices lower left corner with their hand.

Now, there are grumblings of a recall that could cost the company $1.5 billion. I’m not so sure it would cost Apple that much; particularly since a cover for the phone eliminates the reception problem, but it’s clear that the markets have been punishing the company.

In effect, I believe they’re pricing in the cost of a recall. That means that when the news hits, the stock probably won’t drop as far as a casual investor might believe. In fact, I argue that the stock will shoot up when Apple finally decides to answer for themselves — particularly if they offer a low-cost solution to the problem BEFORE they release their earnings report next week. If past performance is any indication of future results (haha), Apple WILL beat analyst earnings this quarter especially since their phone came out on June 24 and some sales should be reflected in the upcoming report. That’ll be good news for investors who buy this dip.

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