To market to market to buy a fat pig. This whole week Wall Street has been trying to guess what the final tax bill will look like and when it will finally pass. Yesterday, the US Senate released their version of the tax bill for discussion. The big factor for US business is that the tax cuts will only be implemented in 2019, which would mean delays in the increased profits that analysts have started pricing into stocks. For now, we just need to wait and see where the politicians decide the middle ground is.
Market Scorecard. It wasn't a great day all-round for equity markets, they were red which isn't a colour we are accustomed to seeing. The Dow was down 0.43%, the S&P 500 was down 0.38%, the Nasdaq was down 0.58% and the All-share was down 0.36%. You know you have become accustomed to the current, low volatility bull market when you are complaining about less than half a percent downward move. Nvidia, the GPU chip maker, reported market-beating numbers after the close last night. The stock is trading higher by 3% in after hour trade, meaning it has doubled in 2017 and is up 1500% since the end of 2012! We will have more on the results in days to come.
Company corner
Bright's Banter
In his book, Prof. Scott Galloway mention's the fact that Facebook owns three of the five platforms that got to 100 Million Active Users the fastest, i.e. Facebook, WhatsApp and Instagram. People laughed at the Instagram purchase. Instagram was bought for $1 Billion and everyone and their dog second guessed it. Fast forward to today, it's worth between $60-$100bn in most traditional valuation metrics. Probably one of the best acquisitions in tech in the past 20 years. Instagram is all about the double V's; the visuals and vanity which millennials love so much! This was a big bold bet, and Zuckerberg and team kept the growth going, maintained passion among millennials, it's been a fantastic acquisition.
Now let's segway a little bit and talk about Apps. If the phone is the most important screen in our lives and the most important technology device. Studies show that 80% of the time spent on our phones is "in App" and six of the top ten Apps are owned by Facebook. The phone isn't just a piece of technology, it's basically a utility for Facebook Inc.
Millennials now have more disposable income than boomers, they are the most influential. If you look at what a lot of successful consumer brands now have in common for growing their shareholder value, is that their core competence is being able to advertise successfully on Instagram.
Now lets take a look at their 3Q numbers:
- Revenues: grew by 47% to $10.33 Billion vs $9.84 Billion expected.
- Earnings Per Share: $1.59 vs $1.28 expected.
- Monthly Active Users: 2.07 Billion, up from 2.01 Billion last quarter.
- Daily Active Users: 1.37 Billion, up from 1.32 Billion last quarter.
The Zuck did caution investors to lower their expectations going forward because of the political noise that is clouding the business with regards to the 2016 election which I talk about below. Here is what he said "Our community continues to grow and our business is doing well. . . But none of that matters if our services are used in ways that don't bring people closer together. We're serious about preventing abuse on our platforms. We're investing so much in security, that it will impact our profitability. Protecting our community is more important than maximizing our profits" he said that in this press release.
Statista's Neil McCarthy reminded us in a recent email that "When Accel Partners invested $14.8 million in a website called 'thefacebook.com' back in 2005, they made a return of $5.6 billion - 378 times their original outlay." He did emphasise the fact that more often than not, however, startups tend to fail brutally!
Prof. Scott Galloway notes that Facebook's response to accusations about U.S. 2016 elections being swayed by a foreign adversary have evolved from a crazy allegation, to millions of people being impacted, and finally to hundreds of millions. He continues to say that if a firm wittingly or unwittingly becomes weaponised by Russian intelligence, isn't the responsible thing to do to shut the company down?
The average age of a Cleveland Cavaliers players is 29, Detroit Lions is also 29; however the average age of a Facebook employee is 28. Is it possible that Facebook management doesn't have the historic context regarding the important role the fourth estate plays in our society? When you claim it's impossible to ensure your platform is not weaponised, don't you really mean unprofitable? It could be stopped but its substantial detriment to your free-cashflow? Haven't you chosen profit over country? If the New York Times can protect us from the intelligence arms of the Russian Government with $100Million in free-cashflow, shouldn't Facebook be able to with $12 Billion?
Facebook needs to reassure the people of the U.S.A and the rest of the world that this will never happen again.
Facebook might be facing a lot of regulatory scrutiny in the interim, but here at Vestact we have argued about different scenarios, and the conclusion is that their earnings will continue to be strong as ever, as long as their Daily Active Users keep increasing. Over 2 Billion people have a relationship with Facebook, that's more than any Islam, capitalism, communism etc. the only thing I can think of that has more meaningful relationships than Facebook is Soccer and Christianity.
Linkfest, lap it up
Michael's Musings
Accenture released a report on the 10 'Mega Trends' impacting the payments industry. The basic conclusion of the report is, adapt or risk becoming irrelevant in the next decade - Driving the Future of Payments. Visa is well positioned for the future of payments, thanks to their network being a connector of merchants to new fintech applications. The biggest threat is to banks, who may find themselves cut out of the payments market.
This real life incident is probably the best advert for having driverless cars - A Human Driver Crashed Into Las Vegas's Driverless Shuttle In Its First Hour Of Service. It was interesting to see some news outlets spin the headline to imply that the driverless car was at fault. I suppose humans don't like change and a headline implying that driverless cars are unsafe would get more clicks than one implying humans are the unsafe variable on our roads.
Home again, home again, jiggety-jog. Asian markets are mostly lower this morning and Tencent is flat, expect our market to open slightly down. Richemont released their 6-month numbers this morning, which looked good. The stock is up 1%. Good luck to the Bokke and Bafana this weekend!
Sent to you by Team Vestact.
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