Please be sure to check out my new project Underage Investor where I will be more actively posting about personal finance and business. Hope to see you there!
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My thoughts on technology and business.
The Forgotten Industry
Coming from the consumer startup world, I never imagined to work at a large enterprise company. The hype and inflated valuations of companies like Facebook, Instagram and Groupon had blinded me from the rest of the world. Unfortunately, I wasn’t the only one that was blinded. The glitter from these companies had spread across several entrepreneurs and as a result an industry was forgotten – the enterprise.
For decades, enterprise companies have been pushed to the side with their slow product cycles and their efforts to continue to milk money while not innovating. But now the time has come and they cannot hide. They cannot sit back and relax with the tide of mobile and social coming. The trends of mobile and social are a golden opportunity to liberate the entire enterprise industry. For so long, their lack of openness has hindered innovation and prevented others from building applications on top of the enterprise platform.
At the same time, developers continue to be glamoured by Facebook’s API allowing them to access the entire social graph hoping they can win the lottery and be the next acquisition of Facebook or Google. To those, I prompt the question what value are you adding by creating applications on top of Facebook? What is it exactly that Facebook’s API allows you to push the envelope and innovate and to what level? If Facebook went down tomorrow, would the world stop running? I don’t think so. What about SAP? If SAP systems went down tomorrow, the world would not run. Financial transactions, cross-carrier text messages, customer management, inventory management and millions of other processes would not be able to occur. The world would not be able to run if SAP went down.
The point here isn’t to show how amazing SAP is and get brownie points as I end my internship. The point is to realize how blind sighted us professionals and entrepreneurs have become about missing one of the greatest opportunities in history. How long more do we need to duplicate the same ideas of photo sharing and daily deals? How many more Angry Birds copies need to be made to realize the utter waste of time and effort being poured into these applications? How long more till we finally bring a productive and useful aspect to our smartphones besides dreadful email?
This golden opportunity of forever revolutionizing the enterprise industry and allowing applications to be built on top of platforms that run the best businesses in the world is awaiting us. Box and Yammer are some of the very few companies that have begun to realize this opportunity and scratch the surface. The only question is will you seize the opportunity?
P.S. Developers: Want to know more about how to more about developing applications on top of SAP systems? Checkout SAP Developer Center
The Real Fools of Wall Street
Over the past couple months, I have been studying hundreds of companies in the stock market. I spend at least a couple hours a day reading about different companies that have a strong growth value and may be worth investing in. I’ve had this passion for several years now but lately I’ve had the opportunity to share my thoughts and experiences with a new group I started called Underage Investors. The goal of Underage Investors is to allow us as Gen-Y to learn about the companies and brands that we love by studying them and investing in them. This allows us to not only develop a solid understanding of how our favorite companies operate but also to have an opportunity to be a part of their success.
While many view the stock market as a virtual Las Vegas filled with selfish bastards trying to make a quick buck, I have to come to appreciate learning about hundreds of companies and make strategic discussions about investing in a few of them.
Allow me to explain.
Many people are glamoured by these fools on Wall Street that sell stocks in milliseconds and pocket thousands of dollars. And if you follow these fools trying to make a fast buck by continuously trying to buy and sell you will fail. You will fail hard. Because tomorrow you may pocket 10 grand but the day after you may lose half of it while attempting to do it all again. Maybe you don’t do it on a millisecond basis like the quants on Wall Street but you do it daily or monthly. And to those of you that fall into this trap, I have news for you…you are as big as fools as the folks on Wall Street. Because you’re not making strategic investments on companies, you are trying to play poker by going all-in in every round.
Let’s take a look at the celebrity investor Warren Buffet. Does he try to flip stocks in milliseconds? Is that how he is one of the richest people in the world? No he doesn’t. He buys shares of a company with the intention of keeping them forever. He buys shares of a company because he believes the company is going to do well not the stock price. Yes, at the end of the day a stock price of a company is determined by the number of puts and calls. But that fluctuation you see is all the fools trading with each other. Some will win today and some will lose and for that they are fools.
As a young investor, I have read a lot about Warren Buffet but did not really internalize this strategy till I noticed patterns in some of the companies I was researching.
Take a look at these companies. They may not be the sexiest companies doing ground breaking things or going up 300% everyday but every year they are steadily growing and every year their stock price is rising despite all the fools on Wall Street playing in the kids playground.
Coca-Cola. If you purchased shares of Coca-Cola 20 years ago, you would have made a return of 300%.
Disney. If you purchased shares of Disney 20 years ago, you would have made a return of 312%.
Apple. If you purchased shares of Apple 20 years ago, you would have made a return of 5600%.
Public Storage. If you purchased shares of Public Storage 20 years ago, you would have made a return of 1600%.
IBM. If you purchased shares of IBM 20 years ago, you would have made a return of 1000%.
The next time you go invest in stocks, don’t play poker. Invest with intelligence and don’t be fooled by the fools of Wall Street.
Be sure to join our group Underage Investors and follow me on Twitter.
Amazon
Amazon is truly one of my favorite companies. I have 100% confidence in Amazon becoming a major player in the tech industry if not already. As mentioned earlier on Underage Investors, I previously owned Amazon stock. I purchased AMZN in September of 2009 at $98 and eventually sold it in April of 2012 at $226.
First, I want to mention a few points on why Amazon is such a great company. Then I’ll dig into my concerns and finally I will talk about a few points that are making me reconsider purchasing some shares.
- Not afraid to innovate and invest. Amazon is one of the few companies that is willing to take risks. Most companies like to stay in their own arena but Amazon is far from that. Amazon has established highly successful business such as Amazon Web Services (AWS) which are far from its initial business objective. Some shareholders punish Amazon for being so aggressive in tackling on new opportunities but I highly value that aggressiveness and see it as a tremendous growth opportunity.
- AWS. This is huge. Most people don’t even know that Amazon Web Services exist. Amazon Web Services is a cloud computing platform that allows people to host their servers and services in the cloud. Many companies such as Netflix, Instagram and thousands of others use AWS. It is a $1.5 billion business for Amazon. Google has only in the past couple months come up with a competitor but AWS has been around since 2002.
- World’s largest online retailer. Amazon is the king of online retail. They know that in a couple years, if not already, many of the things we purchase will be shipped to our door instead of us driving to a store and spending 15 min in line. With their brands such as Zappos.com, Diapers.com, Endless.com, AbeBooks and several others, Amazon has established themselves as a global online retailer that will dominate online retail. I would not be afraid to estimate that Amazon is shipping more than a million packages a day. They ship so many packages that it is rumored that they will be eventually starting their own shipping service instead of going through UPS.
- Content. Amazon sells millions of items from toothbrushes to movies to eBooks. This is why the Amazon Kindle is a huge investment from Amazon. What you have to realize is Amazon will not only be selling you books on your Kindle, they will be selling their entire inventory. If you take a look at the Google Nexus or the Apple iPad, they are limited just to music, movies and books. However, Amazon sells millions of products on its store and being able to purchase all of that on a Kindle will bring massive returns to Amazon.
- Long Term. Amazon is not thinking about today. They are thinking five years down the line. They are establishing a rock solid online retail brand and are not afraid to invest and take risks for that future.
Concerns
- P/E ratio. This is the main reason why I was driven away from the stock. Their P/E ratio is 178 which is way too high. In comparison, Google’s P/E is 18, Apple’s is 13 and Walmart’s is 15. You might say that Google and Apple are primarily software companies but Walmart is similar to Amazon and has a much better P/E than Amazon. There’s a few reasons why this P/E ratio is high. First, Amazon is investing and expanding like crazy. Like seriously crazy. They are expanding into new markets and aren’t afraid. The second reason why is their margins are very low. However, I am optimistic about these margins increasing which I will discuss later. Overall, I am concerned that AMZN’s current stock price cannot be supported given the high P/E ratio. I may be wrong on this because since I sold it in April and the stock price has stayed in the same range. Regardless, either margins need to increase or that stock price needs to go down to get a better P/E ratio. I realize that many people are optimistic of Amazon’s business which I passionately am as well but I think a P/E of 178 is too high and am not sure can be supported.
Re-considerations
There are a few reasons why I am reconsidering to invest in Amazon. First, if that P/E ratio goes down I will definitely re-invest but there are a couple factors that may boost up Amazon’s margins which I will elaborate on.
- Kiva Systems. This is crucial for Amazon raising their margins and it was a brilliant move by Amazon to acquire them. Kiva Systems makes warehouse robotics to increase efficiency of orders being packaged and shipped. (It’s pretty fascinating how this works and I highly recommend you look up on YouTube about Kiva Systems). When we’re talking about hundreds of millions of packages, even a one second improvement in completing an order could save Amazon millions of dollars. I’m sure Kiva will be saving much more than seconds and more like minutes in order processing. This may take a year or two to fully incorporate in Amazon’s warehouses but once its done, I expect to see dramatic differences in Amazon’s returns.
- Software and Hardware. Amazon is getting more and more involved in software and hardware. They are not just a retailer anymore. With the Kindle, AWS and the rumored Amazon smartphone, Amazon’s margins could significantly improve.
- Taxes. This is big for Amazon. Soon Amazon customers will have to start paying taxes and while that’s unfortunate it was inevitable. However, there are some key positive elements that could come out of this. There are two main reasons why people purchase things from Amazon. One is so they don’t have to go to the store and they can get it shipped to their house and the second reason is taxes. Even with taxes however, Amazon should be cheaper than most physical stores but that’s besides the point. Since Amazon will be paying taxes now, they can open up many more distribution centers in areas where they previously could not have. For example, they have a distribution center in Reno, Nevada but none in California because of tax issues. With this new change of taxes, Amazon will be able to open up distribution centers anywhere and could be a game changer in online retail. With distribution centers everywhere, Amazon could save costs on shipping and most importantly can introduce same-day shipping. Most people purchase something from a physical store when they need it immediately and offering same-day shipping could revolutionize online retail and dramatically increase Amazon’s sales.
Despite my concerns, I think Amazon is an outstanding company. The high P/E ratio is what’s holding me back right now but we’ll have to see in the coming quarters if the stock stabilizes or margins improve. Earnings do come out tomorrow for Amazon so definitely be on the lookout.
Microsoft Surface: Challenging an iPad’s existence in a Post-PC Era
Yesterday, Microsoft launched a new type of device. Microsoft Surface.
I wouldn’t call it a tablet nor would I call it a computer. It’s a new type of device that fundamentally questions the existence of an iPad. It questions the value of an iPad besides being an enlarged version of an iPhone. Many people are using the iPad to give presentations, answer email and other small miscellaneous work activities but are they really able to get full productivity out of the iPad? Don’t get me wrong, I use my iPad everyday. At times, I haven’t touched my Macbook for days and just use my iPad. But I still need to carry around my Macbook and use it time to time when I need to sit down and get work done that I cannot do on my iPad whether it’s coding or writing long papers.
But yesterday, Microsoft innovated. As much as Apple fanboys and Microsoft haters might not say so, Microsoft innovated. I love Apple and their products. I have basically converted our entire household into Apple products but to claim that Microsoft copied the iPad and did not innovate is foolish. Microsoft changed the game yesterday by making a statement that there is no need to carry around three devices. You need to only carry around two. A Microsoft Surface and your smartphone. Because with the Microsoft Surface, you have the simplicity and portability of an iPad without compromising its power. The Microsoft Surface Pro will support traditional Windows Desktop applications and have a physical keyboard to ensure you can still work and play all at once from one device. Microsoft recognized the “post-PC” era. It recognized that the functionality of a laptop for normal consumers is decreasing. However at times their still is a need for this functionality and simply replacing your computer with an iPad is not a solution.
I’m not even saying that Microsoft Surface will be successful. I honestly don’t know and it will depend on how consumers view it. But to say that Microsoft did not innovate is absurd. The Microsoft Surface is revolutionary, an acceptance to the “Post-PC” era and a realization that the segregation of enterprise and consumer is over. With today’s bring your own device theme in the workplace and the existence of companies like Box and Yammer, it is clear that a device that can provide an entertainment value as well as a productivity value is needed and the Microsoft Surface is a call to that.
Dare I say that next summer it may be that Apple may be the one “copying” Microsoft.
A Visual World
Lately we’ve seen a couple superstar companies like Pinterest and Instagram rise like never before. While I may not agree with their crazy valuations, they are revolutionizing the Internet while we may not even notice it. The world is become visual. With the 8MP iPhone 4S Camera and it being the most used camera on Flickr, everything is changing. Stores like Nike and Sephora are now placing iPads in their stores as displays to bring a visual and dynamic aspect to their store.
Why are Retina displays getting so much hype now? It’s not that it’s some breakthrough technology. I mean it is but if we wanted to build higher resolution displays three years ago, we could’ve but we didn’t. And the reason is because the quality of pictures that the average consumer camera produced was horrible so only designers or companies could create such high quality images. But now with everyone carrying smartphones that have at least 5MP cameras, the quality of images that we post on social networks and other applications are much higher.
Even in the last few months, Facebook has consistently increased the size of the photo viewer to allow for the higher quality photos.
But let’s look at the bigger picture. This is going to effect other industries besides social networking. Big Data is probably the hottest non-consumer industry right now and this will certainly take an effect on it. Search is another huge industry that this will take effect on. Take a closer look the next time you search something on Google. You will notice that it contains primarily text with no images. Recently Paul Graham talked about how we’re ready for a new search engine and I can be sure that the next Google will be much more visual. Think about when you search. How do you determine whether a search result is good or bad? Most of the time you will be able to tell just in the first couple seconds of looking at the page simply because of its appearance and style. If this can be illustrated before the search result is clicked, it would dramatically improve the way that we search.
I could go on and on about the number of industries and products that the higher resolution smartphone camera is changing but in the next couple years you will see a dramatic shift into a much more visual world. Relationships between consumers have become much more visual with products like Instagram but you will see relationships with companies and consumers that create products and offer services become much more visual as well not only in their presence on social networks but as a whole in how they present and define themselves.
