Archive for October, 2007

China is big.
 
I’ve been enamored with China ever since I found out (many years ago) that there were more cell phones in China than people in the United States.
 
Was pretty easy to see that companies like Baidu (BIDU) were going to be something special.
 
China — and Chinese stocks — have been on an amazing tear.  For example, BIDU priced at $27, opened at $66, and now trades above $350… in about two years time.
 
But China is scary to most U.S. investors.  Too much like the Wild Wild West for our taste.  (BTW, that’s true on so many levels.)
 
So I think it came as a big surprise to many U.S. investors over the last few weeks that one of the year’s most hotly anticipated foreign IPO’s — Alibaba.com (1688.HK) — is almost 40% owned by America’s very own — surprise — Yahoo!.
 
How hot is the Alibaba.com IPO?  They had $100 billion in IPO orders chasing just $1.5 billion in IPO shares.  That’s red hot.
 
But, Yahoo! doesn’t just own almost 40% of Alibaba.com… they own almost 40% of The Alibaba Group, a holding company for a number of other important Chinese web properties, most of which are expected to come public in as equally a frenzied state.
 
What this all means is YHOO is now very much a Chinese play… especially for the U.S. investor that can’t stomach a direct investment in China.
 
And, it’s only a matter of time before U.S. investors realize GOOG is a Chinese play, too.  After all, Google is #2 (behind Baidu) in search, not an insignificant position.
 
And, didn’t Microsoft just report killer earnings, fueled in large part by international strength?  Let’s not forget Microsoft has been investing in China for years.
 
Bottomline:  Pretty much every major American technology company has a footprint in China… and that will pay big dividends, starting, well, right now.
 
P.S.  Re: YHOO:  At least initially, look for YHOO to have a taste of volatility as Alibaba.com (stock symbol:  1688.HK) goes through its inevitable gyration upwards.
The rise of after hours trading seems to be creating some market inefficiencies for companies that report after the market has been closed.
 
For example:
 
*  eBay (EBAY) traded up 5% in after hours trading when they announced recent earnings.  Stock was down 5% the next day.
 
*  Baidu (BIDU) traded as low as 9% down after hours after announcement.  Stock was up 6% the next day.
 
I don’t remember after-hours trading being this far off… maybe a new market inefficiency?
While we’re all cheering Microsoft — and they deserved to be cheered loudly for their blow out quarter — I’d like to put this in a more historical, reflective perspective.
 
Allow me to work backwards.
 
Friday was a pretty wonderful day for the tech sector.  The big catalyst was Microsoft.  Microsoft blew everyone away.  So many positives… but obviously the one that stands out — much to everyone’s disbelief and now chagrin — is heightened Vista adoption.
 
Now, Microsoft is not just your average tech company.  Microsoft is the tech mothership.  When Microsoft blows everyone away, it rains business on top of every single other company in high tech.
 
Guess we’ve all forgotten that since Microsoft hasn’t blown anyone away for quite a while.
 
But it happened on Friday.  Since almost every single investing person on the planet has some exposure to the technology sector — either by direct stock purchase, mutual funds, IRA’s, etc. — Microsoft’s phenomenal Friday will rain value creation on top of, well, every single investing person on the planet.
 
Mind-boggling to think about, actually.  Microsoft is truly more like a government — or a good old fashioned monarchy — in this regard.  An awesome responsibility.
 
Rewind 3-4 years… when Vista was supposed to ship.
 
The upgrade cycle everyone is enjoying today should have happened 3-4 years ago.  (And, today, we should be enjoying yet another upgrade cycle, call it Vista 2.0.)
 
But it didn’t.  Which means we got cheated out of an upgrade cycle… what smart folks know as the life blood of the entire tech industry.
 
So, no wonder the tech-heavy NASDAQ sucked from 2003-2005.  Failure to deliver Vista anywhere close to on time hurt every single investor on the planet.
 
That’s a pretty loud ouch.
 
Please don’t do this to us again.
 
P.S.  Obviously, failure to execute hurt MSFT directly, too.  Not only has MSFT stock been flat for seven years, but they let Linux in the front door and Mac in the back door (again).
Now it’s the rarest of the rare (at least over the last few years):  Good headlines for GOOG, YHOO, and MSFT:
 
There is interesting news for online advertising players:
 
*  GOOG seems poised to buy a big piece of telco spectrum — yet another industry sorely in need of disruption.
 
*  YHOO is going to own about 40% of the next hot Chinese IPO, Alibabarecreating the same shareholder-appreciating glow EMC is enjoying with VMWare.
 
*  And now, Microsoft has just landed a most coveted investment in Facebook.
I kicked myself for not writing this last Friday when the Dow and Nasdaq plunged, only to retrace earlier this week.
 
So, with the Dow and Nasdaq plunging today, let me say this:  Smaller blow offs, while painful, are a healthier way to moderate (dare I say) exuberance than a big ‘ole crash.
 
After all, you wouldn’t want a water heater without a pressure value, right?
 
But the $64 question is this:  Is this a small blow off or The Beginning Of The End?
 
My observation:  As long as the long list of companies leading this market up (GOOG, AAPL, etc.) continue to surpass expectations, the trend will be up.  The moment they don’t, the trend will be down.
 
Duh, eh?
 
Harkens back to 2000.  As I recall, I remember crediting MSFT, one of the companies leading the market back then, with being the catalyst for the entire dotcom bomb.  (I just didn’t have a blog to state it then!) 
 
Things were clearly frothy at that time.  I remember the Nasdaq being up 17% in one week — or was that one day?  Either way, that’s not supposed to happen with an index.  Everything was just grand until — until — MSFT, the leader, missed earnings by 1 cent… for first time in many years.
 
This sent a strong signal:  Unbridled growth (and enthusiasm) were no longer in front of us… but behind us.
 
What happened? 
 
MSFT closed 20 April 2000 @ $78.94 on volume of 52 million… and closed on 24 April 2000 @ $66.62 on volume of 314 million.  As we all know, MSFT — and the entire rest of the market — kept dropping.  When MSFT leveled out, it never really recovered, staying flat for the next seven years… and counting.
 
When will this happen with the current crop of leaders?
 
For GOOG, the go-go years should continue until online advertising hits at least 15% of the current spend… which, at only 5% +/- penetration today, still should give GOOG a year or two run-way. 
 
That’s why I’m the most optimistic guy in the world about online advertising:  15% penetration is not an "if" but "when".
Exactly seven days ago, Cal could have been ranked #1 in the country for the first time in something like 56 years.
 
What an amazing, amazing honor it would have been.
 
What utter heartbreak for Cal when their game-tying drive completely, utterly, and abruptly came to a stop with 10 seconds left on the clock.
 
I wonder, in their misery, if Cal would trade "The Play" (vs. Stanford, 1982 Big Game) for a clock stoppage at the end of last week’s game?
 
Hmmm… the first #1 ranking in 56 years… or — as difficult as this is for me to admit — the greatest ending to a football game EVER… ?
 
For any Cal fans actually contemplating that one, well, that really would make you a Cal weenie.
 
P.S.  Believe me, I wish Cal had won and gotten a #1 ranking… Cal would have been favored by probably another 10 points for Big Game… and Stanford could use those points!