Facebook

Facebook, everyone i know has an account there, nearly everyone i know plays some sort of games in there ( mafia war, avengers etc and i have been bombarded with game requests everyday!) This shows that the time spent on the website by their users should theoratically increase. ( Ok i admit, i spend at least an hour in there playing games, another hour stalking other people's profiles)

Facebook shares currently is being pummeled by investors for whatever reasons they can think of. Facebook is not growing fast enoug, facebook is not generating enough revenue from mobile ads and another few thousand reasons the sane mind can conjure up. And most of them have their own merits.

i for one beg to differ.

Facebook’s total revenue in 2011 was $3.7 billion, of which $3.1 billion came from ads. Meanwhile, more than half of its 845 million monthly active users accessed the social network through mobile apps or its mobile website, both of which sport no ads.

Lets take a look at this statement and the numbers linked to it.

3.7 billion USD. even if we assume that it makes only 10% profit margin, it will be making 370 million a year! Those are good numbers to be associated with.

Ok lets go through their strategy.

They still have a vast ocean of potential customers to tap. China, India and the far-flung countries in Africa. Ok lets take the worst case scenario in which they could not penetrate any of those countries. NO more growth in their customer base. So bloody what? They still have at least 845 million active users every month. and im sure not shifting to any other social sites such as Orkut as all my friends are in Facebook. and most of my data are in facebook. They have achieved the critical mass that does not allow for competitors to chip away their customer base.

Ads on their website. Granted, they suck. Most of them are telling you how to be a expert foreign currency trader within 48 hours. All you need to do is click on the ad that brings you to ijustscammedyou.com. It just does not give you the confidence to click on any of the links. But, if Facebook can utilize the one thing called "Like" and the "Groups" we join, they can systematically target us with the ads no? I liked Adidas facebook page. Well, it does not take a NASA genius to figure out that if an ad for Adidas comes out from their official page, i would click on it ( and hope it does not bring me to zalora, now dont get me started). Are they doing it currently? I hope so. Or else they should be fired.

Ads on mobile. Currently, nothing is on their mobile app that utilizes ads. And they cant really make money off the mobile users. They are currently working on a system to capitalize on the mobile advertising sphere but no official news is out yet. Im puzzled at their inability to do so. I really am. So mark, if you are reading this, i have one word for you, its called Groupon. Unless you tell me that Groupon's business model is trademarked, patented and what not, why on earth is Facebook not capitalizing on this model? Facebook has this feature called check-in ( Mr X has checked into Chilis Bar at KLCC, Malaysia). So Facebook ( assume that they have Chilis as their advertiser) sends an ad to Mr. X, telling him about this deal that if they come back next week they get 10% off their midwestern lamb chop. Or even better, Zara KLCC is having a sale, and since Mr. X is in Chilis, why don't Mr. X hop down to check them out? The potential is unlimited!

It is unwarranted that facebook is being pummeled. Their business is growing, it is difficult for their competitors to poach us away from facebook, unlimited ad potential from mobile.

My bet on Facebook. It will be a roaring success.

 

Favco, my new darling of a Gem

Called up favco to ask them about their business, their future projections and etc.

Found this

PE: less than 4 (@RM1.80)

Profit has been increasing year on year from 2007-2012.

Potential:

Muhibbah Engineering is the parent company and will buy the cranes from Favco

Profit margin is high due to the customization of the cranes, servicing of the cranes helped to boost revenue as wel

Malaysian plant is a full fledged plant, the risk of operation inefficiency is reduced

Oil and gas industry booming in Malaysia, have a high chance that the purchase of cranes go to Favco

Going to China with the same business model; thus looking at them maintaining their high profit margin.

Risks:

Servicing of the cranes may go to other Companies instead of favco ( can go to Ah Kong Servicing) as cranes are not proprietary in nature

Customized cranes, overhead costs high for labour/manpower. Hard to scale down the manpower costs should the market goes into a downturn

No mass production, thus cannot achieve Economies of Scale. However, this is mitigated as you will need to be ‘big enough’ to achieve EOS. A bigger company does not mean better EOS.

Recommendation:

Strong buy but with an eye out for the GE, lets buy in stages

HP strategy

http://www.cnbc.com/id/48753689
If you read this particular article by CNBC you would have thought that they are heading in the right direction. And you would be right. They are moving away from the shrinking red-ocean battle for personal computers and personal laptops and moving into the more profitable segment such as servers, networking and storage. Thus if your analysis is based on current situation, yes you would be right.

But stock picking is based on future earnings, ie: you are buying today X stock for USD1 that in the next few years will increase to USD10; giving you that sweet taste of profit.

So if you look at HP's strategy of moving into servers, the biggest company that pops into my head is really Big Blue aka IBM. So you think they will sit by and let HP come in and dominate? Likely no. They will fight back tooth and nail to maintain or even grow their market share. and when there is a fight between two dogs, my bet would be on the bigger dog.

Their customers such as Facebook and Google are building their own data centres and thus reducing the need for HP's services. ( It could lead to an increase in sales for Dell though as they are no focused on selling to Enterprise). So their customer pool is shrinking.

All in all, potential customer is shrinking, a competitor hell bent on defending its territory, weak external demand, a sinking ship all leads to my one conclusion. HP better get his act right, and soon!

My best bet, for the PC makers, it would be a bloodbath and only companies such as Lenovo could make money due to their low ( lower than most cost) and not HP or Dell who currently is moving like a rudderless ship.

Update-23 August 2012

All,

Apologies for the late posting, but has been busy in the past couple of weeks,

with the General Election coming to malaysia soon, be prepared for the share market to fall from their current highs. But, I am not God, in the short term ( next few months) i will not predict the movement of stocks which are under my radar ( anyone who claims that they can predict stock market movements in the short term is either a Toyota Salesman or God. My guess is the former)

Thus to eliminate the problem I have decided to do this: Buy a few lots first, and conserve cash to wait for the market to turn sour. Why don't i wait until the market falls before buying? Like i said, im not God and I will not be able to foresee when the market is heading for a downturn. So if the market goes up instead of down, i would have missed a chance to profit. So by buying in stages, either way im happy. If the market goes down, i get to buy more at a cheaper rate. If the market goes up, i am happy as my investment just grew in value.

So this is what i bought:

Ivory (30 lots)-average price of RM0.54
Favco ( 20 lots) average price of RM1.78

Will look to buy more if the market turns bearish