March 1st, 2014
by George Leong, Profit Confidential
As I have recently discussed in this column, I am positive on the technology sector, yet there is also some obvious froth in these stocks, namely in the social media space.
My freshman son in high school is currently producing a sports blog that I admit is pretty good. In less than a week since going live, his blog has more than 40 unique visitors and well over 200 page hits. He is asking how he can make money from blogging. I say it's all about the eyeballs and traffic to your site and how active the users are.
If you simply look at the social media space, you'd realize the massive money being thrown around in driving the valuation of companies in this space. Facebook, Inc. (NASDAQ/FB) comes to mind, which I recently named as one of my top plays in the Internet sector. When you have more than a billion subscribers, the upside is enormous if the company can monetize its traffic.
In the case of my son, he has a long way to go, but for companies like Facebook or Twitter, Inc. (NYSE/TWTR), they have the eyeballs, so now it's all about converting them to money. (Read "Two More Internet Stocks to Watch.")
If you doubt the euphoria in the social media sector, think about Facebook deciding to put down a whopping $19.0 billion to acquire mobile messaging company WhatsApp. The four-year-old company is growing exponentially, with more than 450 million users taking advantage of its cross-platform mobile messaging service each month. The deal makes sense for Facebook, as it adds an additional mobile service to its own billion-plus user base. The mobile messaging space has great upside, but paying $19.0 billion is clearly ridiculous for a company that is still essentially trying to find its way.
But there are still other opportunities in the mobile messaging space that you can consider playing.
The mobile messaging space is also very competitive. My favorite service in the mobile messaging space is "Skype," which is offered by Microsoft Corporation (NASDAQ/MSFT). At this point, I don't think Microsoft has yet harnessed the full market value of the Skype service, based on what was paid for WhatsApp. Skype was launched in 2003, and Microsoft really hasn't done enough to push it in the mobile messaging market that I feel will have explosive growth. If Skype was offered as a separate company, the valuation would likely move much higher, as the value would be unlocked.
Another major player in the mobile messaging space is troubled BlackBerry Limited (NASDAQ/BBRY). I have talked about this former darling of Wall Street and the e-mail market before, but the company, which has been falling into the abyss, appears to have found new life and hope under the leadership of new CEO John Chen.
However, the potential of BlackBerry does not lay with its smartphone unit, which has fallen deeply into the abyss, but with the company's mobile messaging service, "BBM." The service has attracted rave reviews, especially after Chen's decision to make it available to all operating platforms, including "iOS" and "Android." The most recent 2.0 BBM upgrade now offers free calling among BBM users, similar to a service already offered by Skype, which really makes for some interesting times for BlackBerry.
At this time, social media is hot, but there are clearly alternative ways of playing the sector, starting with mobile messaging.