Monday, February 28, 2005

Slowdown in Internet Advertising?

Shares of Yahoo and Google were downgraded on the 24th February by an analyst of Caris & Co. citing a slowdown in paid advertising. Yahoo, Google and Valueclick (vlk) were all hit hard.

What is paid advertising? It is a form of online advertising where Ads appear on search result pages returned by a search engine and the advertisers pay based on the number of clicks. For example, when you search for the term 'Ipod' with Google, it would return a list of websites containing various information on the Ipod. However, on the right side of the page are a list of paid advertising. When you click on the links on those links, the advertisers pay Google. Advertisers buy keywords from Google to have their Ads appear.

Some say paid advertising had reached a bubble top in late 2004 with companies such as Ebay and Amazon buying large numbers of keywords. I suspect that the slowdown in paid advertising is only temporary. Paid advertising is one of the most effective forms of online advertising currently available because it is essentially a pay-as-you-see-results system. Advertisers can theoretically pay nothing if the search engine do not bring potential customers to their doors. Online advertising is going to continue its growth after this short slowdown. This creates a great opportunity to pick up some shares of Yahoo and Google while they are beaten down.

Happy investing!

I'll leave you with a good book I've read with an excellent chapter on Yahoo and their advertising businesses:

Sunday, February 20, 2005

Go Daddy

Did you watch the Super Bowl this year? How about the commercials? It's funny how so many people tune in to the Super Bowl just to watch the commercials. It's big business at 2.4 million for a 30 second clip.

Most of the commercials I've noticed are either beer or automobiles. But one commercial caught many people's attention this year. I'm talking about the raunchy commercial that poked fun of Janet Jackson's wardrobe mishap from the previous year.

This was reminiscent of the dotcom days of the late 90's. Could these crazy online companies be at it again spending big money and making no revenue? Hardly I believe.

GoDaddy is just one of many web hosting companies that registers your desired domain name (if available) and offers hosting services for a monthly subscription fee.

There are thousands and thousands of companies offering such services and the competition to gain customers is becoming fierce. Afterall, its an attractive business model with customers paying an on-going fee and relatively low running costs. Customer turnover is low because once a customer has parked his/her website to a hosting company, they feel it is troublesome to change. The competition is fierce to win over customers while it is still cheap to do so.

An analogy sometimes used is trench warfare. In trench warfare (most common in World War 1), armies on both sides would dig deep trenches to position their troops and try to move forward and gain ground towards each other in the midst of heavy gun fire and artillery. Once the trenches are dug and the positions are established, it becomes exponentially harder to gain ground. In a similar fashion, web hosting companies are seeing the growing competition and is trying to establish the best position now.

Beside GoDaddy there are many other strong web hosting companies that are fighting it out as this industry consolidates. Among them are Yahoo Domains, 1and1 and Network Solutions. Have you noticed Yahoo's strategic placement of Yahoo Domain Ads on their front page? This is a sure sign of how seriously Yahoo views this portion of their business.

Saturday, February 19, 2005

A New Asian Crisis: A shortage of Girls

I just read an interesting and amusing chapter from Jim Rogers' book Adventure Capitalist regarding a new crisis developing in Asia. In particular, China and South Korea. Here are excerpts from the chapter:

"Thoughout history, Mother Nature has skewed birth figures in favor of boys, roughly 51 to 49 percent"

"Today, throughout the world, for the first time in history, people, for cultural and economic reasons, are purposely having fewer children. It costs a lot of money to have children, and the time and energy children require put a serious strain on the modern married couple's freedom. Many nations, for different reasons -e.g., socially engineering themselves out of a population crisis- are actively working toward lowering their birthrates. In China until recently, it was official policy."

"In Korea, couples are having fewer children for personal rather than social reasons - they are doing so voluntarily rather than under pressure from the government- but the results are no different from those in China, where the ratio for current births is 117 boys to every 100 girls"

"You have a child, it's a boy, you stop. Even if those with a boy try again, half the second children are boys. That alone skews the population. You have a girl, you try again: if the second child is a boy, you stop. If the second child is a girl? Numerous girls are given up for adoption. But many couples, using sonogram technology, especially when it comes to a second child, simply abort the females."

"Where is all this leading? One thousand years ago, at the turn of the last millennium, for a variety of reasons - principally because girls were seen as a drag on the economy - the same situation arose in Europe. There were more men than women in the population. And girls suddenly became very valuable.....I believe that today's twelve-year-old Korean girl, in a decade or so, is going to realize she can have almost anything she wants."

Through his unconventional observation. Jim Rogers decided to invest in companies that manufactured birth control pills because equivalent companies in the US skyrocketed after women began using the pill.

What happens in a society when women have a lot of power and choice? One is many will choose to marry later and delay having children. With many in the workforce with an income and no commitments, they will choose to experience things that their mothers did not- pamper themselves, travel and spend money on designer clothing and accessories.

Spas, women's designer labels and beauty products are some areas that are poised to benefit from these trends. As an investor, these are areas that I have begun to pay more attention to.

Thursday, February 17, 2005

Where are the jobs?

One of my favorite analysts Charles Payne from Wall Street Strategies had a quote today:

"On the topic of interest rates, we could be getting set up for another round of Fed speculation when the next jobs report is released. This morning, the initial jobless claims report indicated that only 302,000 folks filed for unemployment benefits last week. This number is extremely low, and coupled with the trend over the last six weeks, one has to believe we are going to see a huge jobs report real soon. By the way, I don't buy this notion that so many people are out of the jobs market, and they simply aren't looking for jobs according to the pundits. Instead, I think people are working in so many non-traditional ways that it isn't being captured on traditional radars."

I believe Charles hit the nail in the head with this one. Many people in America today are finding work in non-traditional ways and the old metrics and systems that the government uses do not capture them. For starters, many people now work from home running their own businesses. These people earn their living and do not claim unemployment benefits. One example are the numerous number of people running successful online stores through eBay.

There is no doubt in my mind that this trend will continue as the traditional paradigm of working for large corporations (usually for life) shifts to a more individualistic paradigm. This trend is further accelerated by the mass layoffs we have witnessed in many industries.

How can we benefit from this trend from an investment point of view? I believe online advertising will continue to grow at phenomenal rates. The publicly traded companies standing to benefit the most at this moment are Google, Yahoo and eBay. Their advertising revenues are increasing every quarter.

Have you noticed that Google's revenues have almost caught up to Yahoos at over 3 billion! Given that Yahoo is still increasing revenues, this illustrates exactly the trend that I'm talking about.

Wednesday, February 16, 2005

Building the life you want to live

Have you ever stopped to think about what kind of life you wish to live? Are you so busy that you haven't had quiet time to evaluate your life today and where it will be headed if it stayed on the current course?

These questions are multi dimensional but I'd like to approach them today from the perspective of a career.

How many hours do you want to spend at work daily?

How much money do you want to make? How much do you think will make you happy?

How important is your work/life balance?

After working as an employee for many years. I've come to understand myself more. I'm the type that is most motivated when I'm working for myself. Putting in the work to built up my own assets.

Working for yourself, you lose the comforts and security of a paycheck. But you get time in exchange. You can go travel for longer periods of time. You can work at night if you find yourself more productive then. You can go exercise or play tennis during the day. Manage your investments better (wink wink).

Having said that, we are only as free as our options. If you don't have significant savings and stable investments yet, you may not be in the position to become self But if you can envision the life that you wish to live and you'd like to take control, it's never too late to start planning and saving. Freedom will always come at a price and in this case, it may be uncomfortable in the short term.

The question I'd like to leave you is this:
If your preference is to have a secure job. How secure is it really?

Monday, February 14, 2005

Nokia on the come back?

Have you paid any attention recently to Nokia? Once the King of cell phones, they have fallen from grace in the eyes of many for losing the flip phone battle to the Korean manufacturers such as Samsung and LG.

I believe it was in January 2004 when Nokia announced in a press release that they were forecasting continued growth. Their share price in New York spiked into the $20 range. At the time, I was noticing around me the growing number of Korean flip phones offered in the market and how all the hip teenagers carried a Samsung with fancy face plates and bright flashing LEDs. I could not recall any new Nokia phones coming out or any friends owning a new Nokia phone. I could not understand how Nokia was backing their claims.

I thought, Nokia must be doing well in Europe. After all, Europeans tend to be protective of their brands and support them patriotically. Plus, I've made some good money on Nokia before so I should not doubt them. With that rationale, I loaded up on some shares at around $19 a share.

April 2004 came around quickly and Nokia suddenly issued an earnings warning and that they were losing market share! The stock was hit hard. What a scam I thought! How could they suddenly warn after making a growth forecast just 3 months earlier. I took the loss and learned a valuable lesson for myself- which was to notice the trends around me and invest accordingly. Nothing could be more accurate sometimes.

My point of this post was not just to tell you about what happened last year, but also to share some of my thoughts about Nokia and why it may be a good buy at this point.
  • Nokia is a recognized and trusted brand name. They may have missed out on the flip phone war in the last two years but it's not rocket science to make them. They can catch back up easily with a few new offerings. They already have many new phones in the pipeline.
  • They are a solid company with solid earnings and low price to earnings ratio and low price to book ratio
  • They are determined to be great again after being slapped in the face by their complacency when at the top of the mountain
Nokia has bounced back from a low of $10.89 to the current $15.97 and I've made back some of my losses. I think there is still more upside for this stock.

Stay tuned for some of my thoughts on the other giant named Motorola, the inventor of the original Star Tac flip phone.

Sunday, February 13, 2005

Jim Rogers - Adventure Capitalist

I'm currently reading Jim Rogers' book entitled "Adventure Capitalist". Jim Rogers is a very successful investor who retired at 37 after making a fortune in the stock market. He believes that life is more than just money and he wanted to experience life as much as possible having earned the option to do so with his fortunes.

He and his fiance Paige took a 3 year trip to travel across the world in a modified Mercedes SLK / G-Wagon. See It's unreal! This guy drove this bright bumble bee yellow sports convertible with big wheels around the world! How could he not get robbed and killed just from the attention alone!

Did I mention that Paige is a beautiful young lady who is the daughter of one of Jim's clients? He asked Paige to travel around the world with him on their first date. Good stuff.

Jim is an insightful investor and one of his goals while traveling was to find good investment opportunities. He can see a place for what it is from the ground up.

I'll be certain to share with you the most interesting stories from this facinating book. Stay tuned.

"Hello World"

Hello World! Welcome to my new blog on anything to do with investing! On this blog, I will share with you my thoughts and experiences, things that I read, news items that are of interest and even specific stocks that I trade.

As of today, I have been working in the high tech industry for 7 years and been investing in the stock market for most of those years. A lot of what I write here would naturally have to do with technology. What are the future trends in technology? Where can we invest to benefit from those trends? To these questions and lots more I hope to give my 2 cents. This will be lots of fun.

I hope you will enjoy my blog and come back often. Feel free to add your comments and thoughts too!