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Louis Rhéaume
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Mr. Rhéaume has the scolarity of a doctorate in business administration, concentration in strategic management, innovation management and corporate finance. He holds a Master’s degree in finance. He has numerous years of experience in consulting, strategy, financial analysis and business... More
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Infocom intelligence
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  • Does new media has actually the same value as old media?
    The CEO of Business Insider suggests that new media has actually almost the same value as old media.

    It appears, according to Heny Blodget, that: "new media companies running the gamut from Google to Gawker Media are now collectively worth $289 billion — nearly as much as the total market value, $296 billion, of traditional media companies like Time Warner, Disney, and News Corp. The two groups are “neck and neck”.

    Blodget adds, content isn’t king: “Content plus distribution is king.  Blodget made the observation in opening remarks for Business Insider’s Ignition 2010 conference in New York City on December 2th. In Bloget's valuation, Google makes the most of new media value.  However, It is true that growing new media such as Huffington Post is valued around $112 million by 24/7 Wall Street and Gawker Properties value is around $300 million,  Perez Hilton, $44 million, Drudge Report. $42 million, and  TechCrunch was sold for $25M to AOL recently.

    New media is growing fast, while values of traditional media face stagnation.

    Convergence of information content with information highways, and information appliances are transforming the information and communication industries.  Those industries  were traditionally vertically integrated by functions (ie. the old computing model of Apple).  There are now more horizontally integrated across information functions, with the surge of specialist players inside an information sector (ie. Information Content and Google).   Google has started in "Content" and diversified later indirectly in  "Appliances" through the Android licenses and in "Highways" through applications. 

    New information industry
    Those figures were published in Louis Rhéaume and Harjeet Bhabra, 2008, Information & Management, Value creation in information based industries through convergence: A study of U.S. mergers and acquisitions between 1993 and 2005.
    Louis Rhéaume
    Infocom Intelligence 

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Dec 08 7:40 PM | Link | Comment!
  • Are we entering in a second Internet stock market bubble?
    Everybody knows the Internet bubble of 1998-2000.  Valuations of most firms with a link with Internet got very high valuations and after lost a lot of value in 2000-2002.  At that time a firm with the name .com was found sexy by acquirers and represented a great potential takeover target with the exchange of shares (which were only going up) instead  of cash.  After the crash, firms surrounding the Internet, which had a poor business model, lost most of the time 90-95% of their values, or went bankrupt.  E-commerce mutual funds which had 200% return in one year and a half, like Altamira E-commerce fund lost 90% of their value in 2001-2002.

    Time has changed and the web 2.0 has seen the emergence of new sexy players such as Youtube, sold to Google and Facebook, just to name a few. I just read that Facebook's value has triple in 2010 only.  Social networks is the new sexy sector and now you can find a 4 years old firm like Zynga, which is a social video game firm, with a value higher than Electronic Arts, which is 28 years old firm in video game.  Zynga is now valued on the secondary market at $5.27 billion on SharesPost, where Zynga employees can sell shares that they own in the private company. EA is worth $5.24 billion in public trading on the NASDAQ stock market. The SharesPost listings are thinly traded compared to EA’s stock, but it is perhaps the only real measure of the value of Zynga’s stock at any given moment. Several hope that Zynga will go public, but it hasn’t any plan yet. 

    I simply don't understand why people will pay real dollars to use virtual currency in virtual games. Zynga is expected to grab roughly a third of the $1.6 billion market for virtual goods in the U.S. in 2010,  thanks to virtual goods sales.  Zynga got the momentum when in the middle of 2009 they launched FarmVille, which is still the No. 1 game on Facebook with 57.4 million monthly active users. With such popular games, Zynga can cross-promote its titles and advertise them as well, allowing it to turn lots of its games into huge hits. In addition to FarmVille and Texas Hold Em Poker, FrontierVille, Mafia Wars, Cafe World, Treasure Isle and PetVille all have more than 10 million users. Overall, Zynga has 214.5 million users. CrowdStar has 54.2 million monthly active users, and EA is No. 3 at 44.7 million users. EA bought Playfish for $400 million in the fall of 2009, but is still behind Zynga in that area. However, EA’s online game revenue is at $750 million in the current fiscal year, or around 20 percent of overall revenue, is significantly bigger than Zynga’s online game revenue, which the only source of revenu of Zynga.  The largest independent maker of video games is Activision Blizzard, which has titles such as World of Warcraft.

    It appears that the market values Zynga as equal to EA in market share, so it is deeply discounting the rest of EA’s nearly $3 billion or so in traditional video game console and PC game revenues. It seems that Zynga is truly overvalued and in some sectors of the Internet, like the Web 2.0 we are in the presence of a second Internet bubble.

    Another example of this is Apple, which has 83% of the market capitalization of Exxon Mobil.  Apple has a P/E ratio of 20.8 and Exxon a low 12.8.  It is true that Apple is one of the best innovator in the world and has created a dependency for its customers toward its proprietary platforms, such as iTunes and Apple Apps store.  Apple is more a telecom firms and a content firms than it was before, as an hadware firm.  The potential of its mobile advertising network is huge.  The question is can Apple create on the long term 83% of the profits of a firm, such as Exxon Mobil?  I explained in previous comments that the dependency of Internet mobile can create huge values.  However, I have a certain doubt that it would represent a long-term oligopoly, such as gas with Exxon Mobil.  We are much more dependent right now (and in the medium term) toward gas than toward Internet Mobile access and its ecosystem (apps, music, etc.). In a bubble it won't mean that P/E ratios will diminish in the short term, but in the medium and long term, there will be important depreciation of overvalued Internet stocks.

    Louis Rhéaume
    Infocom Intelligence 

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: AAPL, GOOG, XOM, internet
    Dec 05 11:57 PM | Link | Comment!
  • What is the hype in Groupon (group-buying local daily coupon offers)?

    Launched in November 2008, Groupon features a daily deal on the best stuff to do, see, eat, and buy in a variety of cities across the U.S., Canada, Europe and soon beyond. They have more than 300 people working in their Chicago headquarters, a growing office in Palo Alto, CA, as well as local account executives in many cities. How Groupon obtained around  $500M to $2 billion in revenues in two years and a valuation around $6 billion (according to rumours of acquisitions by Google)?

    According to LA Times:

    “A new breed of coupons — zapped daily to consumers' e-mail accounts and offering local deals for spa treatments, restaurants, yoga classes, hot-air balloon rides, stores and even Botox — has transformed the dowdy discounts into a social media phenomenon that's attracting a new generation of fans. The savings are eye-popping: 50% to 90% off is typical. But there's a catch. If you want that $40 mani-pedi for 15 bucks, you'll have to pay upfront with a crddit card and you'll have to move fast. The chance to snag one of these vouchers usually lasts no more than 24 hours (though merchants will honor them for weeks or months).

    Bargain-hungry shoppers are hooked. "Daily deals" websites including Groupon, LivingSocial and Screamin Daily Deals have attracted millions of users, a lot of them young, urban and tech-savvy. Many say they love the excitement of waking up in the morning, checking the latest deal online and deliberating with friends on Facebook or Twitter about whether to buy — all while the clock ticks down... The daily deals phenomenon "is a rocket ship unlike anything we've probably seen in consumer shopping online," said Brad Wilson, a discounts expert and founder of "It's brilliant... Wilson said he's betting that the trend will survive the economic downturn, in part because consumers simply can't resist the allure of a bargain. "There's such a compulsion to it," he said. "People end up spending more than they intended in the excitement of the countdown of that day."

    Launched two years ago, Groupon is now the leader in this sector. It really takes off over the past year. Groupon offers a way to get important discounts while discovering fun activities in your city. Their daily deals consist of restaurants, spas,massages, theaters, hotels, and a whole lot more, in dozens of cities across the US and Canada. It recently acquired firms outside the USA for expansion.

    Yahoo made it known to Groupon executives and backers that it was willing to pay as much as $3 billion to $4 billion to acquire the company. Besides Yahoo, other potential Groupon suitors include Amazon, Google, and eBay. The company is deciding between an eventual IPO, opening itself to acquisition talks with bigger companies, or raising more capital. Last week, Bloomberg reported that Groupon is looking to raise money at a $3 billion valuation. Groupon raised $135 million at a valuation above one billion dollars in April. The company currently has 3,000 employees serving markets in 29 countries. Internally, it is believed to be "many, many multiples larger" than its nearest competitor, LivingSocial.

    Read more:

    However, Living Social continues to nip at the heel of Groupon; last month, it actually had more unique visitors than the coupon giant. The company currently has 10 million subscribers in the U.S., Canada, Britain and Ireland — said it has saved consumers more than $100 million this year.

    Businesses not only have to offer deep discounts but also must give the daily deals websites a big chunk of those sales: A 50-50 split is typical. 

    According to Business Insider here are the main reasons for Yahoo to acquire Groupon:

    “Yahoo's most valuable assets is its HUGE lead in email. Unfortunately for Big Purple, the the once-fast growing business it has developed with that traffic – brand advertising – is starting to slow. So how would buying Groupon help? Groupon makes ALL of its money ($400 million this year?) sending mostly local coupons to its users' email inboxes. Its biggest cost is user-acquisition – buying its way into inboxes. If Yahoo were to buy Groupon, it would eliminate Groupon's biggest cost AND increase its subscriber base to over 100 million people. Cha-ching!

    The kicker? Yahoo is ALREADY making money off Groupon ads in its inbox. See the screenshot of my Yahoo Mail inbox below. But instead of reaping Groupon's huge margins, Yahoo is just collecting mediocre CPMs for lousy email banner ads. Worse, it doesn't have any relationships with the local businesses fueling Groupon's spending.”

    Read more:

    It appears that Groupon rejected a $6 billion offer from Google last week. It seems that they want to become a public firm with an IPO.  Several experts said that Google would be a bad acquirer for Groupon.  Google has an engineer culture and Groupon is a big salesperson culture. The 2010 revenues should be around $2 billion, which is the values of the coupons offered to customers. 

    Industry outlook

    “Right now, Groupon-style group buying is more or less just coupons that get sent to you via email to entice you to sign up. What if you could look at a real-time, auction-style exchange of local offers from merchants or retailers or restaurants in your vicinity — maybe even on your mobile device — and pick the offer you wanted for dinner that evening? You can’t do that now, but that’s one vision of where the local group-buying phenomenon is headed in the future, according to Don Rainey, a partner with Grotech Ventures and an investor in LivingSocial, the number two player in the U.S. group-buying market next to Groupon. Rainey said he sees a day when merchants and potential customers interact through a kind of real-time exchange — like a stock exchange, with buyers and sellers, but for local offers on meals or other goods. “I can see local retailers and consumers bidding in a real-time system for where that consumer is going to go for dinner,” says Rainey. If a merchant is having a slow night, they can put an offer into the system and users can choose between that and multiple other offers, based on location and the time they want to go out. As someone who is constantly looking for new options for places to eat in my local area, this sounds like a winner to me.

    Groupon gets all the press when it comes to group buying, primarily because it’s the largest player in that market by far; it has raised more than $165 million in venture financing. However, LivingSocial is a strong number two in that expanding space, and in some regional markets, it’s a larger player than Groupon, according to Rainey. “


    One important value added brought by group-buying coupons is that some small and medium businesses who could not afford a decent advertising budget, can now do it for a very small percentage of what it costs before via print, radio or TV.

    Recently, Amazon invested around $175M in Living Social the main competitor of Groupon, which has around the same number of daily visitors on its website.

    A big potential resides in the connection between mobile and social networks. Daily mobile alerts, which can be personalised to customers, would bring value added to both consumers who can make targeted very interesting deals, and retailers who can reach more "offers-friendly" customers. 

    Louis Rhéaume
    Infocom Intelligence

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Dec 05 11:46 PM | Link | Comment!
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