As a happy ex-owner of Opentable, it is nice to eat from the table of internet bubble mark two.
I small but bited size internet company should have a market cap of about 10 times sales.
In a real world where companies like Whatsapp can be bought for as near as we care, infinity, a business with a bit more ground and a lot less blue sky should still bring in high valuations.
Like the dynamic in all bubbles the only way to gauge value apart from pulling it out of your ear, is to go for some relative value calculations.
So Opentable got bought by Priceline, kerchiiiiing and farewell! It was bought at around 10 times sales and you are left wondering was there any real haggling involved???
Probably not, because these deals are about momentum and “deltas” won’t be penny pinched.
Yet the flip side of all this mania is the depressive side to Wall Street. If you don’t have sizzle, your stock simply isn’t steak, even if its called filtetmignon.com.
This is another form of madness.
Yet this is great news for investors and speculators. The efficient market leaves not a fleck of meat behind except a little fleck of gristle, amargin beyond the allegedly riskless US Treasury bond. However this is clearly not an efficient situation.
So there are opportunities to invest in companies thrown in the trash can by the bi-Polar bears of Wall Street. If it isn’t going to be worth trillions tomorrow its worth nothing today.
So lets have a look at some dogs. They might be our friends. From zero to hero, how many times do we need to see that to look for some interesting Nulls.
We are going to start with a great company that just doesn’t get the respect it should.
Activision.
For me Activision is World of Warcraft and the rest well, in for free. It is less than 3 times sales and is making a billion. I suppose the fact it is making profits, is an established company and has a P/E spoils the picture but the market is catching on. It has doubled in 2 year but if it ever gets sexy it is quite capable of going off the dial.
Focus on the 10 times sales, anywhere between 3 and ten is just fine.
Lets push the risk boat out a bit.
Conversant, which used to be called Valueclick. I bought this last week with my Opentable profits which were demanding to be put back to work. Who needs cash when you can own stock.
Google is six times sales and 28 p/e, Conversant is 3 times sales and 18 p/e. I intend to buy any big dips. I do a lot of both sides of internet advertising, buying and selling. Conversant is a favoured supplier as is Google. Even is snack sizes Conversant hit massive Google’s 6 times sales I’m smiling all the way to the bank.
So let’s get dangerous.
Blackberry.
I’ve got this one too. I’m a contrarian, I write a well subscribed to contrarian newsletter in the UK. You can’t be a contrarian and not own Blackberry.
I have to admit I do not believe US companies numbers. US accounting so full of poop you have to guess what’s really going on. As such the sudden drop in sales and magically costs at Blackberry feel like someone threw the transparency switch. That is a very good start.
My tack is, how many subscribers did you say they had???
Clearly they won’t have zero subs in a couple of years as some analyst suggested. In the old days a subscriber was worth anywhere from $1000-$2000. You have to discount the numbers a lot to get down to the current $5bn especially with $2.5 in cash in the bank.
It is no wonder when the recent results came in above expectations the price jumped from $8 to around $10.
If the company makes any sort of comeback the price will double.
Last and by most standards least, is the The Street. I’m not sure you can even call it Jim Cramer’s The Street anymore, but in spirit at least he sits large on both sides of the balance sheet when it comes to the stock price.
The Street has $50m in sales and an $80 in market cap. It has, apparently $50m in cash. Now I hear its stock structure is a mess with all sorts of preference share gumming up the works. This is one of the reasons it has a basket case valuation.
But here is the thing…. We are in the early stages of a stock boom. I’ve had a huge spike in traffic on our investorhub.com site, which is the biggest small cap site on earth, so I know the sector is hot! It should be red hot for The Street too.
Even the Wall street journal has taken note of the rampant private investor and small cap environment. http://online.wsj.com/articles/penny-stocks-like-latteno-foods-rally-fueling-big-dollar-dreams-1400796289
This is The Streets heart land. OK, so this company is stale but remember the ten times rule. I don’t hold them because the chart is weak. So I’ll be waiting for either a bear to end or a sudden break up above the recent high.
The chart shows the lines that if broken will fire my imagination.
(the street no genius)
If you care to look at the long term chart you will be enchanted.
(enchanted long)
So there you have 4 internet dogs all capable of waking up and bounding over high hurdles.
One thing is for sure, they all won’t stay in the dog house forever.