Before I officially started this blog, I would send my brief commentaries via email (I know, so 1990′s). Anyway, I am moving them all here for those who were not on my email list and also for those who “accidentally” deleted priceless information.
12/17/10 – I am fascinated by the direct correlation between ad spending and the growth of the stock market. The stock market grew dramatically during the 20’s, 50’s and 90’s as ad spending escalated during those decades each driven by a new innovation in mass media. The growth of the stock market boils down to the advertisers’ quest to find better and newer ways of reaching the consumer. This quest is currently driving the escalating valuations of social media companies which in turn is fueling the growth of the second marketplace (because this is the only marketplace where these companies are traded). What radio did for the market in the 20’s, what TV did for the dow in the 50’s, what dot com did for Nasdaq in the 90’s IS EXACTLY what I predict social media will do for the second market in the 2010’s. In my opinion, we are now witnessing the beginning of the next evolution of mass media as well as the emergence of a new marketplace containing the fastest growing companies. What an incredible moment in history!
12/30/2010 – Today I read an article about how conventional corporations are increasingly paying Facebook and Twitter top dollar to access their audiences and how social networks’ are transforming traditional advertising by convincing a target audience to willingly participate in an ad campaign’s execution. The article used the upcoming Super Bowl TV commercials as a prime example. These ads are expected to be social network-integrated machines looking to hook customers across a variety of platforms. It made me think of Super Bowls of yesteryear when the dot com ads during the game were all the rage. The difference is that now instead of spending money on ads, today’s web companies are the ones generating the money from the ads. I believe that this next evolution of mass media that is driving the second market is unlike any we have seen before and is placing this marketplace in a class all by itself.
1/1/11 – I just read an article that stated that there are reports that Zynga is making over $1 million in revenue per day with 90% of this revenue from the sale of virtual goods. That is just blowing my mind! Zynga, a company that did not even exist 4 years ago and which is now trading in the second market at a $5.5B valuation has, in my opinion, done two things to revolutionize social networking: 1) prove that consumers will pay for micro-transactions and 2) demonstrate that a multi-billion dollar company can built on the back of a social networking platform (in this case, Facebook). Unlike the “lazy susan” and barter deals in the dot com era of yesteryear, today’s consumer web companies are taking in bona fide cash. The only “phantoms” in today’s transactions are the products that consumers are purchasing with this actual cash. I think the old proverb has officially changed to: “Give a man a virtual fish; you have fed him in spirit. But teach a man to fish in a virtual world; and he’ll spend boat loads of money on intangible fishing equipment.” Happy New Year, everyone!
1/3/11 – Wow! It is the first trading day of 2011 and I awake to read that the big Daddy on Wall Street, Goldman Sachs, has adopted a second market strategy. Thank you, Goldman, for validating Facebook’s astonishing valuation and for endorsing the second marketplace. Like Michael Jackson’s first nose job, Wall Street has officially begun its transformation. 2011 is about to get a lot more interesting.
1/7/11 – I just read that according to sources close to the deal, Goldman’s Facebook investment came together over the course of the last month subsequent to a recent second market auction in which Facebook shares traded at a $50B+ valuation. In hopes of authenticating the lofty valuation, Facebook knocked on Goldman’s door. It seems to me that Facebook used second market like some drunk, cute slut at a fraternity party before taking the ugly girl to the semi-formal. So what exactly was Goldman Sachs doing for its clients as Facebook’s valuation rocketed from $11B a year ago? One thing Goldman was clearly not doing was providing its clients with an opportunity to realize Facebook’s 355% appreciation. But, I guess Goldman is now making amends by setting a sizable $2M investment minimum, charging steep fees and restricting sales for 2 years. Leave it to Goldman Sachs to arrive late to the frat party but still get a date to the formal. Had Goldman’s clients gone to the second market just six short months ago, that $2M would have already yielded them $4M in sellable stock. Perhaps next time Goldman’s clients will make a left off Wall Street and head right toward Second Street.
1/10/11 – I read an ncredibly interesting article which stated that of the total $1.67B raised by social media companies in 2010, it is estimated that $619 million, or 30% of the total Social Media investments in 2010, was invested in companies whose primary business is leveraging the Facebook platform. This speaks to my recent email about how Zynga, a company that did not even exist 4 years ago and which is now trading in the second market at a $5.5B valuation, has, in my opinion, established a new precedent by demonstrating that consumers will pay big for micro-transactions and that a multi-billion dollar company can built on the back of a social networking platform. According to Parks Associates, in their new report, Online Gaming: Global Outlook: worldwide micro-transaction revenues is expected to reach $6 billion by 2015. I believe that this burgeoning market for micro-transactions will give rise to a number of promising companies that are growing their revenues through micro-transactions. I would also venture to guess that one would be hard pressed to find these budding companies in the public marketplace. Like their predecessors, the most logical home for them would be in the second market. Perhaps, another reason to make a left off Wall Street and head right toward Second Street.
1/11/11 – I found it unfeasible to liken Facebook’s impressive valuation to the dot coms’ of the 1990’s. Comparing today’s social media company to yesterday’s dot com is like comparing a vacation in St. Barts to one in Iraq. It is equally absurd to compare the second marketplace with traditional capital markets. In my opinion, we are 180 degrees away from bubble territory.
Here are some interesting facts to ponder:
- According to thehistoryconnection.com, in the 1920′s, 60% of cars and 80% of radios were bought on credit. Even the stocks themselves were bought for 10% down.
- According to many economists including Paul Tudor Jones, a legendary commodity trader, the main culprit of the ’87 crash was derivatives. People were not buying actual stocks, instead people were buying options, or the right to buy those stocks.
- During the dot com era, phantom revenues through barter and lazy susan deals were booked as actual cash received. In the 1990’s, the IPO market had new companies trading at over $1B market cap with no profits and less than $1M in annual revenue (even with the funky accounting). According to The Business Insider, Zynga makes $1M a day in Revenue, 90% of which is pure profit coming from the sale of virtual products! Today, people are not purchasing a $3.99 virtual pig on installment.
- What are the margin requirements for buying stocks in the second market? 100%.
- What is the short interest of stocks trading in the second market? Big fat 0. Shorting does not exist here.
This is not your Daddy’s stock market nor your older sibling’s web company. I believe that we are at the toe of the hockey stick and that we should reserve the “overvaluation” discussions for when we’re near the handle. Perhaps, another reason to make a left off Wall Street and head right toward Second Street.
