Now I know it is weird that a value and income investor should be writing about technology stocks as they do not normally have a place in those type of portfolios - but bear with me. This is really a follow on from my recent piece about billionaires and an add on to my Rise of the machines and Best way to get rich posts. As I concluded before, owning and running your own business is the best way to get rich in the long run as evidenced by the billionaires list. But maybe technology offers a faster way?
This is because technology businesses seem to have a much shorter half life or much more rapid life cycle as technology seems to change so rapidly - think Palm, Nokia and Blackberry to name just three. So given this and the way Venture capitalists and other technology Companies seem to be prepared to finance and buy up fledgling enterprises and app based ventures, this seems a promising way for people with the relevant skill to get rich quick and maybe even become a billionaire.
Take for example the app Snapchat which is the logo featured above in case you are wondering what the hell that is. Snapchat, a two-year-old picture messaging company with no revenue, last year rejected a $3bn (£1.8bn) buyout bid from Facebook. The 23-year-old boss Evan Spiegel has turned down the all-cash offer from the social network, claimed the Wall Street Journal, citing people briefed on the matter. Snapchat has no sales and no business model — but it does have a smartphone app that delivers hundreds of millions of picture messages, mostly from teenagers and young adults. The bit I don't get is that these photos then vanish in 10 seconds or less, go figure. Hot on the heals of that near miss Facebook then decided to buy WhatsApp which Mark Zuckerberg apparently described as "incredibly valuable." He certainly paid a lot for it as the deal to buy it included $4 billion in cash and approximately $12 billion-worth of Facebook shares, plus an additional $3 billion in stock to WhatsApp’s founders and employees at a later date. So "only" $4bn of real money, but not bad nevertheless and hey what do I know maybe Facebook will be worth trillions soon although it is on 55 times this years forecast earnings with no yield of course.
Now I would query the "incredibly valuable" statement as the price was certainly very high but I'm not sure about the value. As Warren Buffet is fond of saying "price is what you pay and value is what you get." Now they certainly paid a high price to access all those users who send messages over internet connections, avoiding text messaging fees or as Facebook said it was to "speed up their ability to bring connectivity and utility to the world”. Call me old fashioned, but it is not yet clear to me or anyone else how it will bring profits and cash flow to shareholders when it only charges a few users $1 and carries no advertising (disclosure: I do not hold any Facebook shares). WhatsApp was founded in 2009 and apparently had one round of funding of $8 million, yes million in 2011 - hats off to Sequoia Capital, trees really do grow to the sky in Silicon Valley.
So if you are worried about your job being vulnerable to the rise of the machines, then get yourself on a coding course, come up with an app and maybe one day soon you'll be a billionaire too! That's all for now but it does make me wonder about markets and valuations as a lot of this activity is quite similar to what went on back in 1999, although its not quite as extreme yet. So I suppose we should let the good times roll and enjoy the current bull market, but I think I'll revisit market valuations and thoughts on that soon.