Archive for the ‘long term investment’ tag
In a dramatic move befitting of his company’s business, Netflix CEO Reed Hastings ponied up more than $1 million for a small stake (0.0017 percent) in Facebook, a company for which he already maintains a board seat.
According to a regulatory filing with the Securities and Exchange Commission, Hastings purchased 47,846 shares at $21.03 a piece on Wednesday costing him $1,006,201.38. The investment has already accrued more than 37,000 for Hastings, as Facebook’s stock closed up at $21.81 on Friday.
The move suggests that Hastings holds confidence in the stock, which hit new lows after Facebook provided zero guidance on its earnings expectations for the rest of the year. Perhaps Hastings knows something the market doesn’t, or maybe the buy is a symbolic gesture meant to show support for a close partner. Netflix was a launch partner of Facebook’s Open Graph and may soon be able to enable U.S. subscribers to automatically share their viewing actives with their Facebook friends.
Facebook got a second vote of confidence today courtesy of Microsoft. Bloomberg claims that Microsoft will be holding on to its trove of Facebook shares, even though the company will be free to unload its stock next week. Microsoft, said an anonymous source, views Facebook as a long-term investment.
Surely no one, save Facebook, would fault Microsoft for dumping its stake. Even with the stock resting around $22 a share, a much depreciated value from the IPO price, the software giant would stand to make a handsome profit from its 2007 investment. At the time, the company put in $240 million and holds a 1.7 percent stake in Facebook. That stake is worth around $1 billion.
But investing in Facebook has been one of Microsoft CEO Steve Ballmer’s more highly regarded decisions in the last decade. Both companies also have a common enemy in Google, and they remain tightly aligned in many ways, including patent-sharing deals and a partnership that gives Microsoft’s Bing search engine a Facebook advantage. Cashing out now doesn’t seem likely.
The market has reacted well to both pieces of news, but Facebook will be put to the test yet again on August 16, when a share lock-up period expires and insiders are allowed to sell.
Facebook declined to comment on this story.
Filed under: social
So, Facebook is now public, and it got off to the most unimaginable and inauspicious start, losing $4 between the NASDAQ’s opening and closing bells.
But don’t go jumping out any windows just yet.
There’s no question that the IPO defied expectations in the worst way possible (well, perhaps not the worst), offering at $38 and closing just a few cents higher at $38.37. Even our more conservative sources thought trading would close in the low $40s.
But while the numbers are, as one candid entrepreneur expressed it, “a total crapshoot,” almost everyone we spoke to was quick to point out that both Facebook’s revenues and its stock price are still very much in their infancy.
“This is an eight-year-old company,” pointed out Rebecca Lieb, an Altimeter Group analyst. “When Google went public, they had only recently developed ad products. Facebook is at the beginning of mobile products, advertising products — and it hasn’t even started with commerce products.”
“Facebook has just scratched the surface of its revenue and advertising,” said Menlo Ventures managing director Mark Siegel. “They’re going to grow with a much more diverse income stream than what they have today.”
Siegel, who bought shares today and said he plans to hang onto them, concluded, “I think Facebook is a good long-term investment.”
Facebook’s shaky standing with advertisers has been troubling, especially as one high-profile advertiser packed up and went home just days before the IPO.
The Facebook IPO
Shares were priced at $38
Bad sign: GM pulls out of Facebook ads
Facebook employees celebrated the IPO with a hackathon
On IPO day, the company gets slapped with a privacy lawsuit
Facebook stock slides, taking other tech stocks with it
Analysts warn us: This one won’t pop
Facebook closes at a disappointing $38
This move and related stats prompted highly unfavorable statements from experts. For example, Pace University marketing professor Larry Chiagouris said, “The Facebook IPO is… likely to be a disappointment to all the new investors. This is because its real financial value is tied to its marketing value, and the marketing community is increasingly recognizing that Facebook is of very limited value as a marketing tactic.”
But Lieb said a lot of the angst around Facebook’s ad performance has to do with the fact that agencies and marketers are still figuring out how to use Facebook’s tools.
“It’s a completely different form of online advertising,” Lieb said, stating that Google’s ad network had previously defined a search-based paradigm for online advertising. But as we shift from search-based online behavior to social networking, she said, “Advertisers still have to figure out how to work in these environments. It’s not just about a display ad.
“It’s a brand new form of advertising and marketing, but I don’t think it’s at all mature yet,” the analyst concluded.
While advertisers need to do better at making Facebook marketing work, Facebook needs to do better at indicating to brands, investors, and the public about where its revenue is going to come from.
“Facebook will crash and burn unless the company can better communicate where it is going with its business,” said investor relations communications expert Jeff Corbin. “The people who will suffer will be those caught up in the frenzy and purchase Facebook stock [today] at what will probably be a high.”
Still, every social media expert between here and Timbuktu has come forward with thoughtful and creative ways for Facebook to make money. All Facebook has to do now is figure out how to capitalize on at least one of them without compromising users’ data and privacy, thus losing the userbase that makes Facebook value in the first place.
“Facebook is a highly creative and deeply resourced company that has the potential to develop wonderful products,” said Lieb.
“Are they gonna do it? We hope so.”
Sprint’s CEO views his company’s up front payment to offer the iPhone as a long-term investment that won’t see any returns until 2015.
Facebook had a choice to make: With just 56 patents to its name at the start of 2012 it could pay its way out of Yahoo’s infringement lawsuit with gobs of money and remain vulnerable to other patent attacks, or make a long-term investment into an intellectual property portfolio it could protect itself with for years to come. Facebook has wisely taken the second path, upping its patent stockpile to over 1400 with today’s $550 million cash purchase and licensing of 650 AOL patents from Microsoft today. These new patents cover email, instant messaging , web browsing, search, ads, mobile, and ecommerce according to a source with direct knowledge of the purchase.
Surely, Facebook might have gotten better deals on this cache from Microsoft and the package of 75o patents it bought from IBM had it not been so desperate, but better late than never. Now with a healthy patent portfolio that I breakdown below, Facebook may be able to stop scrambling to buy IP, and can fend off the attack of any who would spoil and suck money from its IPO.
Really, Facebook should have predicted a patent lawsuit onslaught and beefed up its defenses a year ago. Riding boldly towards an IPO with such a tiny IP portfolio was brash, and perhaps too trusting. It had bought a few patents here and there from companies like HP, Friendster, BT, and Halliburton, but publicly only held around 60 issued patents as of a few months ago. Maybe it thought other tech giants would have more scruples, but it was essentially piling $100 billion+ in value into a rickety rickshaw rather than an armored car.
Lucky for it, though, Yahoo attacked just a bit too early, announcing it would sue Facebook over ten mostly vague patents around social networking, communication, privacy, and advertising in mid-March. Facebook snapped into action, buying 75o patents from IBM March 22nd. Because these were purchased in a state of emergency, IBM may have been able to command a higher price than it could have in times of peace, but Facebook had its back against the wall and had limited time and options.
Come April, Facebook filed a masterful countersuit against Yahoo with ten patents invented by its employees including Mark Zuckerberg and a former Yahoo employee and that it had bought from academia and entrepreneurs. It was a cunning move that offset Yahoo’s attack while still making Facebook look like the victim.
Regarding Facebook’s Microsoft patent buy, Yahoo gave us the statement:
“Nothing about today’s action changes the fact that Facebook continues to infringe our patents. Companies who purchase patents are often working from a position of weakness and take these actions to strengthen their portfolio. We see today’s announcement as a validation of our case against Facebook.”
Facebook likely had to overpay again, this time sending $550 million in cash to Microsoft for 650 of the 925 patents it bought last week from AOL (who owns TechCrunch) for $1 billion. Microsoft struck a great deal, as it will retain a license to all the patents it sold to Facebook.
The purchases are not likely to change Facebook defensive stance on patents, but its healthy portfolio and tough response to the Yahoo attack should deter future trolls. Facebook’s total portfolio of roughly 1461 patents that we’re aware of now breaks down as such:
- 56 U.S. issued patents as of December 31, 2011 that it cited in the S-1 from employees and purchases, and 33 foreign patents
- 503 pending U.S. patent applications and 149 foreign patent applications cited in the S-1
- Roughly 5 patents purchased from NYU Professor Alexander S. Tuzhilin and San Jose entrpreneur Chris Cheah
- 750 patents from IBM
- 650 patents from Microsoft, formerly owned by AOL
- Any patents attained in its recent acquisitions of Instagram and TagTile
At this point, Facebook has likely built its walls high enough and may not make any other massive IP purchases in the near future. Now investors can confidently buy into the social network’s IPO, knowing Facebook has a thick suit of armor and a sword of its own for the next time someone tries to stab it in the back.
Google’s Page, Founders’ Letter: 2-for-1 Stock Split Is An Investment For The Long Term, Not Any Big Acquisitions
Larry Page kicked off Google’s earnings call today with a run-down of his statements in the Founders’ Letter and some broad brushstrokes around the company’s new stock structure, which will see Google create a new class of shares, effectively a two-for-one stock split for existing shareholders.
As with the company’s original two-class voting structure, Page today reiterated that this new structure is a sign of the company’s long-term investment in its future, but not a signal that it is planning “any big acquisitions.” It is also something of a bold statement on the part of Google — possibly to show the company’s confidence in its business in the run-up to Facebook’s IPO, and to give its founders more control over how Google develops in the future.
Some points on the new structure, which is explained in more detail below, and will be further laid out next week in a proxy statement that Google will file with the SEC:
The new class, Class C, will have many of the same existing rights as Class A and B but no voting rights, Page said. “Everyone will retain the same voting interests.”
If Larry Page, Sergey Bring and Eric Schmidt sell shares in the Class C stock in the future, their voting rights will also diminish proportionately via a “stapling” provision.
What to make of this? One take we have seen: this could essentially give a lot more power to Google founders. Effectively the new class will not have voting rights while the Class A shares, held by Page, Brin and Schmidt will continue to hold voting rights. Currently, the three control 66 percent of voting power over the company’s shares.
Page explains it otherwise in the Founders’ letter: First he explains how many the products that Google builds require years of commitment. But “the day-to-day dilution from routine equity-based employee compensation and other possible dilution, such as stock-based acquisitions, will likely undermine [Google's current] dual-class structure and our aspirations for Google over the very long term. We have put our hearts into Google and hope to do so for many more years to come. So we want to ensure that our corporate structure can sustain these efforts and our desire to improve the world.”
Google will be filing a proxy statement with the SEC next week with more detail on how the stock split will work.
The full Founders’ Letter below.
2012 Founders’ Letter
Throughout our evolution, from privately held start-up to large, publicly listed company, we have managed Google for the long term—enjoying tremendous success as a result, especially since our IPO in 2004. Sergey and I hoped, though we did not expect, that Google would have such significant impact, and this progress has made us even more impatient to do important things that matter in the world. Our enduring love for Google comes from a strong desire to create technology products that enrich millions of people’s lives in deep and meaningful ways. To fulfill these dreams, we need to ensure that Google remains a successful, growing business that can generate significant returns for everyone involved.
When we went public, we created a dual-class voting structure. Our goal was to maintain the freedom to focus on the long term by ensuring that the management team, in particular Eric, Sergey and I, retained control over Google’s destiny. As we explained in our first founders’ letter:“We are creating a corporate structure that is designed for stability over long time horizons. By investing in Google, you are placing an unusual long term bet on the team, especially Sergey and me, and on our innovative approach…
We want Google to become an important and significant institution. That takes time, stability and independence…
In the transition to public ownership, we have set up a corporate structure that will make it harder for outside parties to take over or influence Google. This structure will also make it easier for our management team to follow the long term, innovative approach emphasized earlier…
The main effect of this structure is likely to leave our team, especially Sergey and me, with increasingly significant control over the company’s decisions and fate, as Google shares change hands…
New investors will fully share in Google’s long term economic future but will have little ability to influence its strategic decisions through their voting rights…
Our colleagues will be able to trust that they themselves and their labors of hard work, love and creativity will be well cared for by a company focused on stability and the long term…
As an investor, you are placing a potentially risky long term bet on the team, especially Sergey and me. …. Sergey and I are committed to Google for the long term.”
I wanted to quote all that because these were the clear, well-publicized expectations we established for investors in 2004. While this decision was controversial at the time, we believe with hindsight it was absolutely the right thing to do. Eight years later, these statements are still remarkably accurate, and everyone involved has realized tremendous benefits as a result. Given Google’s success, it’s unsurprising that this type of dual-class governance structure is now somewhat standard among newer technology companies.In our experience, success is more likely if you concentrate on the long term. Technology products often require significant investment over many years to fulfill their potential. For example, it took over three years just to ship our first Android handset, and then another three years on top of that before the operating system truly reached critical mass. These kinds of investments are not for the faint-hearted.We have protected Google from outside pressures and the temptation to sacrifice future opportunities to meet short-term demands. Long-term product investments, like Chrome and YouTube, which now enjoy phenomenal usage, were made with a significant degree of independence.We have a structure that prevents outside parties from taking over or unduly influencing our management decisions. However, day-to-day dilution from routine equity-based employee compensation and other possible dilution, such as stock-based acquisitions, will likely undermine this dual-class structure and our aspirations for Google over the very long term. We have put our hearts into Google and hope to do so for many more years to come. So we want to ensure that our corporate structure can sustain these efforts and our desire to improve the world.
Effectively a Stock Split: And a New Class of Stock
Today we announced plans to create a new class of non-voting capital stock, which will be listed on NASDAQ. These shares will be distributed via a stock dividend to all existing stockholders: the owner of each existing share will receive one new share of the non-voting stock, giving investors twice the number of shares they had before. It’s effectively a two-for-one stock split—something many of our investors have long asked us for. These non-voting shares will be available for corporate uses, like equity-based employee compensation, that might otherwise dilute our governance structure.We recognize that some people, particularly those who opposed this structure at the start, won’t support this change—and we understand that other companies have been very successful with more traditional governance models. But after careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users. Having the flexibility to use stock without diluting our structure will help ensure we are set up for success for decades to come.In November 2009, Sergey and I published plans to sell a modest percentage of our overall stock, ending in 2015. We are currently halfway through those plans and we don’t expect any changes to that, certainly not as the result of this new potential class. We both remain very much committed to Google for the long term.It’s important to bear in mind that this proposal will only have an effect on governance over the very long term. In fact, there’s no particular urgency to make these changes now—we don’t have an unusually big acquisition planned, in case you were wondering. It’s just that since we know what we want to do, there’s no reason to delay the decision. Also note that there will be no immediate change in votes, because everyone will still have the same number. In addition, Eric, Sergey and I have all agreed to “stapling” arrangements so that, above set thresholds, if our economic interest in Google were to decline, our votes would as well. We also have provisions to ensure all shareholders are treated fairly from an economic perspective.For more details on all of this, please see the postscript below from our Chief Legal Officer, David Drummond, and the preliminary proxy statement we will file with the SEC next week.
We have always managed Google for the long term, investing heavily in the big bets we hope will make a significant difference in the world. Some of these bets have been tremendous, funding our activities and generating significant gains for our shareholders. Others have been less successful. But the ability to take these kinds of risks has been crucial to Google’s overall success and we aim to maintain this pioneering culture going forward.The proposal we announced today is consistent with the governance philosophy we articulated when we took the company public, as well as the trend for newer technology companies to adopt strong dual-class structures. We believe that it will provide great competitive strength—insulating Google from short-term pressures, whatever the source, for a long time to come, while also giving us more flexibility around equity grants.Investors and others have always taken a big bet on us, the founders, and that bet will likely last longer as a result of these changes. We are honored that so many of you have put your trust in us and we recognize the tremendous responsibility that rests on our shoulders. We think this is a good thing because users rely on Google to produce and operate amazing technology products and to safely and responsibly store their data. This is our passion.Sergey and I share a profound belief in the potential for technology to improve people’s lives and we are enormously excited about what lies ahead. I couldn’t write a better conclusion to this founder’s letter than what we wrote in 2004… so here goes: “We have a strong commitment to our users worldwide, their communities, the web sites in our network, our advertisers, our investors, and of course our employees. Sergey and I, and the team will do our best to make Google a long term success and the world a better place.”Larry Page CEO and Co-founderSergey Brin Co-founderApril 2012
Postscript from David Drummond, Chief Legal Officer, Google Inc.
This is not the usual yada yada… so please read on.Although we’ll be filing a comprehensive proxy statement soon, I wanted to share some details about today’s proposal to create a new class of stock and the process our board of directors followed to approve it.As Larry and Sergey note above, the stock dividend we are announcing today will have the basic effect of a two-for-one stock split. Each holder of a share of Class A or Class B common stock will receive one share of the new non-voting Class C capital stock. So after the dividend, a stockholder who currently owns one Class A share with a single vote will continue to own that share plus one Class C share without a vote.The Class A shares will continue to trade under the “GOOG” ticker symbol, while the Class C shares will trade under a different ticker symbol, so stockholders will be able to trade these shares, just as they can with Class A shares today. Except for voting rights, the Class C shares will have the same rights as the existing Class A and Class B shares. As is typically the case with stock splits, the Class C stock dividend will be tax-free.One thing to keep in mind is that immediately after the Class C dividend, all stockholders, including Larry, Sergey and Eric, will retain the same voting interest they hold prior to the dividend. In addition, Larry, Sergey and Eric have agreed to subject their shares to a Transfer Restriction Agreement. This agreement will maintain the same link between their voting and economic interests that exists today, even if they sell some of their non-voting Class C shares. If the founders or Eric wish to sell or transfer their non-voting Class C shares, a “stapling” provision in the agreement requires them to either sell an equal number of Class B shares, or convert an equal number of Class B shares into Class A shares. No other stockholders will be subject to these restrictions upon the transfer or sale of their shares. The stapling requirement will terminate as to the founders when their collective ownership falls below a certain threshold, and as to Eric when his ownership falls below a certain threshold. Further details of the Transfer Restriction Agreement will be included in our proxy, but it’s important to note that the stapling provision is designed so that, subject to the thresholds, the votes held by the founders and Eric will be reduced proportionally as their economic interest in the company declines.Our board of directors carefully considered this proposal to create a new class of stock before reaching a decision. In January 2011, the board established a special committee, comprised of independent, non-management board members to consider a new class of stock, or other alternatives. This committee retained its own financial and legal advisers to assist with its deliberations, and met on numerous occasions over the 15 months that the special committee considered the proposal separately from the board. The committee recommended, and the board unanimously approved, today’s proposal.The proposal is subject to the approval of a majority of the voting power of Google’s common stock, voting together as a single class, at our annual meeting on June 21, 2012. Given that Larry, Sergey, and Eric control the majority of voting power and support this proposal, we expect it to pass. The Board of Directors has not set a record date for the issuance of the Class C dividend and currently expects to set the date following the annual meeting.Next week, we’ll file a preliminary proxy statement with the SEC, which will contain further details regarding today’s proposal.David Drummond Chief Legal Officer, Google Inc.April 2012
Globalfoundries marked its third year as a chip manufacturing foundry by buying out the shares owned by Advanced Micro Devices. That fulfills the company’s goal of becoming an independent foundry, or contract chip manufacturer.
The deal will trigger a $703 million charge for AMD, which separated from Globalfoundries three years ago to focus on designing and selling microprocessors. AMD will pay $425 million to Globalfoundries over two years and give up its 8.8 percent stake in the foundry. In return, AMD re-negotiated chip pricing with Globalfoundries and it will not have to make a $430 million payment during 2012.
AMD will also no longer give Globalfoundries exclusivity in manufacturing AMD’s 28-nanometer accelerated processing units (APUs). That will give AMD more flexibility in sourcing its chips.
Milpitas, Calif.-based Globalfoundries will still have AMD as primary customer, but Globalfoundries will now be wholly owned by the Advanced Technology Investment Company (ATIC), the investment arm of Abu Dhabi.
“Today marks the start of a new era for Globalfoundries as it becomes a truly independent foundry,” said Globalfoundries chief executive Ajit Manocha. “Globalfoundries has a clear vision to be the leading semiconductor foundry partner to AMD and one of the world’s top technology companies. We continue to execute on our strategy to propel ATIC’s long-term investment philosophy into true value creation for our shareholder and customers.”
Globalfoundries showed an 80 percent increase in the number of 32-nanometer microprocessors shipped to AMD in the fourth quarter, compared to the third quarter. In January, Globalfoundries said it would spend more than $3 billion in 2012 to expand its chip factories in Singapore, Germany (pictured above), and New York. The company is building a new 300-millimeter-wafer manufacturing plant in New York as part of a plan to make chips for IBM.
Sunnyvale, Calif.-based AMD said that its gross profit margin guidance remains unchanged as a result of the deal.
Filed under: deals
Groupon (GRPN), the popular daily deal company, saw brisk trading on its first day of public trading, peaking at $30 per share and closing the day at $26 per share.
That puts the company’s market value at $16.5 billion. Market value is the value of a company’s total number of shares — equal to the total number of shares multiplied by share price.
Overall, the share price increased 30.5 percent from an opening price of $20 per share, which was announced after the market closed last night.
Earlier this morning as trading started, GRPN quickly jumped to $28 per share, peaking at $30 per share at 10:48 a.m. Eastern Time.
Still, some analysts are concerned about the value of Groupon stock as a long-term investment.
“If you look at the company’s prospectus, they say they expect to see losses for the foreseeable future,” said Dun & Bradstreet tech specialist Lee Simmons in a call with VentureBeat last week.
Analyst Rocky Agrawal, who has previously written on VentureBeat about Groupon’s “tricky” math in SEC filings, said that Groupon stock was “a terrible investment” but that he would still be buying it.
“Unless the company substantially changes its business model, investing in Groupon will be like investing in a leaky bucket,” he wrote yesterday in a column.
“All of that said, I’ve put in my request with my broker for shares in the IPO because Groupon has scientifically engineered its IPO to inflate share prices.”
At the end of the summer, Groupon announced that in spite of revenue gains, it was still showing staggering net losses of $102.7 million for both the first and second quarter of 2011, a figure that was nearly three times the $36 million loss from Q2 2010.
The company’s IPO saw several delays leading up to and in the aftermath of the late summer and early fall’s market tubulence.
Groupon began with an offering of just 5 percent of its total shares for public trading starting November 4 and added 5 million shares late Thursday.
Comparing Leica and Kodak is an interesting exercise. While they’re not the same by any stretch of the imagination, both rode the wave of photography throughout the 20th century and, come the age of digital imaging, both stumbled. Kodak is starting to leverage its IP and Leica has found a new prosperity in its high-end digitals.
But Kodak is still in its crisis period and Leica appears to be well past. So much so that they’re selling nearly half of the company in order to make a big push in emerging markets. What use “emerging markets” have for $5000 cameras, clearly Leica knows better than I.
44% of the company was sold to Blackstone Group LP, which considers it a “medium- to long-term investment. The price was not disclosed, but the Wall Street Journal cites a source close to the matter who put the purchase at $179 million. If true, that would put their valuation at just north of $400m. That’s a far cry from the $82m Andreas Kaufmann paid for the nearly the entire company back in 2004, but with $250m and yearly sales and $36m in net income, it easily passes the smell test.
They’ve shown steady growth over the last few years, but that’s been primarily in Europe and the US, markets already familiar with the brand and, generally speaking, quite rich. The investment by Blackstone gives Leica some capital to work with in expanding their business to Asia, the Middle East, and Latin America. Their plans were not detailed beyond that.
That kind of money is sufficient to fuel research and development of an entirely new camera system. Is this Leica signaling that the M system is going to have a new sibling soon? It’ll be a while before the deal goes through and the money is put to use, but I’d say that’s a fairly good bet.