Facebook gets an Elevated face-lift

Last investment by Elevation Partners of $120m, giving the firm a 1.5% stake in the social networking site gives a latest valuation of $23b. Based on $90m investment in Novemeber last year , the blended valuation range is $14b. (Source: Reuters) Facebook has 500m users and $800m in revenue. This gives the company a rev multiple of 29x – 18x.

Facebook is the most popular social networking site currently. It might be the most important thing for a 16 year old teenager, but is this a winning investment? The company has yet to moentize its user base to the utmost. So one can’t ignore the upside factor. To dig deeper, I decided to look at other ‘hot’ tech startups which have gone big over time. There isn’t a comparable which is exactly like Facebook as none of the social networking companies are public. So I decided to go with tech startups that were considered the ‘Hot’ thing in their times. Below is the rev multiple and stock price movement of 2 big companies from their IPO days, Google and VM Ware.





Source: CapitalIQ

Given the range of these tech stocks, Elevation might be lucky to get return on their current round of investment. Then I decided to look at valuation of companies in the current economic environment and did a screening analysis of companies globally that are above 20bn market cap and have revenue of less than a billion. As my screen results only two companies showed up worldwide: Baidu and a Ezdan Real Estate (a real estate company in Qatar)

Can someone point out how to go short a private company?
Good news: Facebook is hiring and big time, several engineering and business positions are open both in US and globally. So if Facebook gets the valuation that Elevation is going for, there is no better place to work in US (other options can be China and Qatar)
Not so good news: Elevation yet again makes a marginal return investment

Slow death of Cable TV

Today I visited the online video aggregator www.clicker.com . The website does an amazing job of pulling content and presenting it in a user friendly way with superb user interface. Options range from Live Tv to watch On demand stuff to movies and what ever your media needs might be. I tried several videos and the quality and was as good watching shows on TV.

I wonder how are the cable companies going to survive, given all the online choices to users (Hulu, Clicker, Fancast and many others). Online sites offer the user the freedom to not only watch free quality content but pay ala carte for shows that might not be available free. The online companies will eventually start charging a subscription fee for premium content either monthly basis, but this is still going to be lower than the $40-$90+ cable fee.

Arguments like cable companies partnering or buying out content providers can allow them to force the medium of distribution to be Cable TV. However, as internet TV and even Mobile TV gets scale, the content owner would want to be where the views are and where Ad revenue gets maximized. Cable companies bundling other services like Internet and phone is spoken as another saving strategy. As TV gets popular on internet and cable and voice get converged into internet connected devices, the bundling will have to go away.

Shorting cable companies looks like a winning trade to me.

How long is Apple an Overall Hit?

AT&T suspended taking new preorders on iPhone as first day orders exceeded an unprecedented amount of 600,000. AT&T commented that their systems are not being able to support these huge numbers and AT&T will postpone new orders till they are able to replenish inventory.
This definitely gets both AT&T and Apple lot more press coverage than anticipated from a product launch. To my mind this begs the immediate reactions
a. Did the sales amount take the companies by surprise? Why were the systems not prepared for the increased demand? After all iPhone 3GS sold 1m phones over the weekend.
b. Most likely the majority of demand for the iPhones is not from new users, but rather than Apple fans. As Apple introduces more product versions with better functionality and features there will be a strong secondary market for the older versions. Ebay and other online markets are going to be soon auctioning off older versions.
To search for these questions, I decided to look at Apple’s Revenue estimates by product and found these estimates on Bloomberg:





Given that most of the growth is coming from the iPhone sales, I am puzzled at the ill preparation by both Apple and AT&T on the launch of their latest gadget. Also what gets my attention is that Music related products and services hasnt really grown at the same CAGR as iPhone sales. They have remained relatively constant over the years from 2007. This category hasn’t really grown with the iPhone ecosystem and once the newer hardware iPhone craze outgrown the Apple fans, is Apple still going to remain a hit?

HTC acquires Abaxia

HTC announced today to acquire Abaxia, a mobile software company for 13.2 m USD. Even though the deal is small amount, it indicates the strategic direction of the mobile industry. Mobile companies are increasingly vertically integrating the hardware and software designs to control the end user experience. Software deisgn and capabilities along with UI is how companies want to differentiate their products as hardware features are getting commoditized. Be it Apple, RIM, Nokia, HP or HTC now, each wants to control the way the content is experienced. This questions the future for horizontal software platform plays like Windows Mobile and Android as OEMS and handset manufacturers develop their own softwares.

Quote to ponder

Speculation is the name given to a failed investment and that investment is the name given to a successful speculation.

Smartphone Data plan trends

New Data plans announced by AT&T today reveals data ARPU of $24 per data user (assuming 50% overage) compared to the current $30 ARPU. AT&T is betting that the usage distribution pattern is going to change, people are going to use their smartphone devices to tether and be heavy users and they are going to be able to add enough Light users to overcome the ~$6 shortfall. Press releases are quite confident that Vzn and others are going to follow soon. Looks like beginning of a change in operators stakes in the smartphone growth story and value chain.


Current Unlimited $30 / mnth (100% usage)

New Plans
200 megabytes $15 / mnth (65% usage)
200mb-400mb $30 / mnth (assume 50% overage)
2 gb $25 / mnth (33% usage)
2 gb + every GB $10 mnth (2% usage)
2gb + tethering additional $20 / mnth (assume 50% overage)