I seem to be getting terribly lucky with US internet tech companies.
In the UK having a bet on four winners in a row is called an “Accumulator,” in the circumstances I was hoping it was called a Yankee, but that’s a bet too complicated for a value investor like me.
So after 3 takeovers in a row I’m after four. Greed is meant to be good after all.
You can’t get three takeovers in a row and not try for a fourth. There is nothing to lose and all to gain.
If I can get four I can dine out on that for years. I could even start another news letter!
The first takeover was Opentable (NADAQ:OPEN). I liked the stock because I used the site. I was building a US portfolio and needed a crazy stock to spice it up. Why not an internet company.
Opentable’s product is everywhere and its valuation was low when you compared it along side any headline transaction in the internet space
The thought was simple. An internet company with a great market presence at around a billion dollars is cheap.
If the company made old style stuff, that wouldn’t be true, but in the glory tech zone, 10 times sales is the benchmark and much less starts to look like lunch for the divide by zero brigade who valuations often have a dream like quality.
So I then bought Valueclick which had sizzled up its name to Conversant. (NASDAQ:CNVR).
I know a bit about internet advertising, its al license to print money in the world of user engagement. Brands are hypnotized by new media and pouring their advertising budget cornucopia into internet advertising. That is a good place to be as Google knows.
Half a billion dollars of internet advertising made me feel the company was worth a lot more than it was trading at and Alliance Data agreed and bought them up.
Now I won’t claim to be a US stock genius, I’m a UK share guru, I like to talk macro but I’ve been toying with the US market more than usual because while it is so much wilder than the UK markets it is still rather wonderful.
After all cricketers can hit baseballs far, or so they claim.
So I took a tilt at Orbitz.
People disagree about what cheap is and people often laugh when I say, “if you sell a lot of stuff that’s a good sign.”
I like to look at sales when I look at companies because it is another acid test.
I have spent a lot of time trying to sell stuff and I can tell you it is not easy. So any company that can sell a ton of product gets my respect.
Orbitz sells a lot of travel and being a small contender it was vulnerable to getting snaffled up.
Boom. Right/lucky again.
For more details on the whole sequence, go here:
So here I am looking for number 4.
In the process I’ve bought 3 stocks. (I own them all.) I will tell you which one I like the most and is my candidate for no 4.
The first is Gain Capital (NYSE:GCAP). This is one of my advertisers on ADVFN. These guys are busy. They are out doing deals and buying plucky companies like Galvan in the UK. That pricked my ears up.
This sector is fraught with difficulties as FXCM found out when the Swiss Franc’s depegging torpedo’d them below the waterline a few weeks back. MF global. Kaboom, gone. 2008, the whole of Wall Street nearly ended up in a smoking crater. However, survivors can get massive and the survivors of the Swiss Franc meltup will have a tail wind for a few years. So I grabbed some Gain Capital. To some it is a financial, to me it feels internet-like, it could be both. Takeover material… it’s a long shot but at $400m its kind of cheap.
So I decided my real pick should be Expedia, the company that is grabbing Orbitz. Expedia is cheap too but it feels like a cheap shot to call “takeover.” Of course it would make a great purchase for any number of huge companies wanting a fat travel vertical, but it is hardly a work of genius to work that one out.
So today I’m interacting with my sales people about getting signed up with an advertising platform that’s ripping it up in the UK and US. The jungle drums say they are THE place for supply-side advertising. The players in the market are Google, OpenX, Rubicon, Appnexus, Right Media and AOL. These are all great players, but the buzz that reaches my cloth ears is Rubicon.
I thought I’d better give them a Google and then nearly swallowed my tongue when I saw they were listed and valued at not much more than half a billion. I practically tripped over my mouse buying some.
Then their figures came out after close and they jumped 11% after hours. Their sales are exploding up 50% year on year.
This is of course complete and blind luck, but that’s a function of buying in a bubble, even a fool can make money in a bull market. Getting three takeovers in a row however is a bit more tricky and four, well I’ll start buying lottery tickets if I pull this off.
Joking apart programmatic internet advertising is going, sorry already is, a massive thing. It will only get bigger and smarter and more pervasive. A few hundred million for a hit player is peanuts in the current divided by zero valuation tech market, so whether it gets taken over or not you’ve got to love the company and love the sector.
And I do.