Current States - The big IPO, FB and Apple
2018 is over and 2019 has begun and there is much ado. There are multiple big-tech IPOs about to happen including Lyft, Uber, Palantir and Pinterest. For early investors & VC's this will be vindication and they will get back their money and then some. But there is one IPO that interests me. Pinterest. I will go through why they are the best big-tech IPO of 2019, I will also go through why Facebook is not as doomed as their current stats or the news-media say they are, and lastly I will quickly talk about Apple.
Pinterest is a sort of free catalogue of ideas that allows users to create 'pins' with images and GIFs that they add to their boards (users can have multiple boards usually sorted thematically). I have spent some time using the platform to look for tattoo ideas, to me it comes off as an interesting Instagram/Flickr hybrid. Importantly it is paid for with promoted pins by companies. I have spent a lot of recent time talking about technology and advertising. After all free technology is only free as long as there is advertising paying for it.
With recent issues with online companies struggling to show that advertising is working or if the metrics are real Pinterest offers something that neither Google nor Facebook cannot at all times: users of Pinterest are proclaiming what they want. Facebook creates a profile of similar users like you; and what they seem to buy and when. Google does the exact same. What we see with Pinterest though is instead of finding similar users and what they may want or buy - users on Pinterest create boards with their wishlist. Usually the users creating the boards want to make something or have an idea of what they want, making for better, less intrusive personalised advertising. In an age where we are using adblocks and even tuning out of advertising this should be welcome to advertisers.
Some quick and important metrics: it's on pace for a $700m revenue for 2018, has over 250m users that on average spend 34 minutes a day on the platform, and lastly 55% of users use the platform to shop (here). The users also skew women, international and young a good target for advertisers. Even more importantly:
50% have made a purchase after seeing a promoted pin.
87% of pinners have purchased a product because of Pinterest.
72% of pinners use Pinterest to decide what to buy offline.
Some more metrics can be found here.
This is easily the most exciting IPO of 2019 I can think of off the top of my head. Here is a great 2014 Forbes article on why it should be an advertising machine.
44% of Facebook American users between the ages of 18-29 have deleted the app off their phone. These are the users which marketers definitely want to catch. Whilst this is bad for Facebook and moreso for their advertiser partners, the truth is that those users are using Facebook's other services: Instagram and Whatsapp. I think you would find it hard pressed to find many people of that age who understands or even knows that Facebook owns either social media channel. As long as these teens think that they are not 'using' Facebook they will keep using Instagram & Whatsapp. Making Facebook money and creating an evermore comprehensive database on which to sell advertising to.
The bigger issue is the political response to the repeated Facebook privacy violations. Apart from allowing users more access and control of how their data is used; the government in America (which is FB's largest market; page 37) probably cannot break up Facebook or regulate them in such a way that would be palatable to their freedom of speech or liberal values. The users worried about privacy or how their data is used will have already left Facebook meaning even with an EU like GDPR in the US it is doubtful the bottom line will be too impacted. The platforms that Facebook has created mean that people do not want to leave them, and they are happy to pay for them with their data and ultimately with their attention. As long as advertisers do not leave in droves - which is doubtful - Facebook will be fine. I will leave a caveat; if the Facebooks metrics scandal getting worse would wreck my analysis due to advertisers leaving first, not the users.
To me they are approaching long term buy opportunity at these prices, I eagerly await their FY18 results as I want to know how revenue has been impacted over this years scandals. With a forward PE of 18 according to Reuters, it looks good for a tech company.
Apple
Apple's recent profit downgrade is the first one since 2002 or 2004. They partly blame it on China, which they think is a product of economic slowdown and the effect of the tariff war. Whilst I do not dispute this, I think it's overly simplistic. There are two other big reasons in China they have not pointed out. One their prices are too high, secondly Apple cannot differentiate itself properly in China - which is why their prices are too high. I will focus on the differentiation issue.
You probably read me say that Apple cannot differentiate itself in China and went 'what?'. So let me explain. Across the world there are multiple phone hardware OEMs and and a software for them (Android). There is also Apple which has its' own exclusive hardware and software. For most people that means if you are in the Apple or Android ecosystem you do not want to leave. Since China is the largest smartphone market it should have the perfect market for Apple as once you start using their services why would you leave? But there is a massive problem. Users in China do not live their life in their phone like they do in the West, rather they live their life through an app called Wechat which is owned by Tencent.
Wechat is a superapp which can do many things. You can obviously chat to people and use video call functions. But also "WeChat users in China can access services to hail a taxi, order food delivery, buy movie tickets, play casual games, check in for a flight, send money to friends, access fitness tracker data, book a doctor appointment, get banking statements, pay the water bill, find geo-targeted coupons, recognize music, search for a book at the local library, meet strangers around you, follow celebrity news, read magazine articles, and even donate to charity … all in a single, integrated app" (Sonal Chokshi, Anthony Horowitz, 2015).
The phone ecosystems are no longer Android or Apple in China; it's just Wechat. The best hardware for a price whether that is Apple, HTC, Xiaomi or OnePlus will be bought as they all have Wechat on their respective appstores. Apple needs to work out what that means and how to compete with some of the most innovative phone companies in that market.
Wechat is a way of life; Apple is just a lifestyle company.