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Doug Meeks is a Registered Investment Advisor in Plano, Texas. He is the Principal Advisor for Pier LLC, an investment management company. The focus at Pier is to build and manage income-producing portfolios for our clients. We provide individual service to those who are inclined to see their... More
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  • Evaluating Social Media As An Investor 0 comments
    Jun 8, 2012 6:57 AM | about stocks: FB

    I was talking with the CEO of a cutting edge hardware developer in the television market. A friend and a smart guy. Social media had become a part of that conversation and this is how it ended with both of us staring out into space.

    "......I know, I know, but what does 800 million users mean?"

    Chart below from icrossing:

    (click to enlarge)

    I still ask myself that same question and as an investment advisor I should have an answer that is relevant to investors (who are not to be confused with speculators).

    Let's look at social media as we know it today.

    It's free.

    What does that price mean to a customer and what value is that customer. What do those customers do with that product? What ultimate value is that business to an investor.

    I get it, or at least I think I get it. There is this place, but's not a real place it's an on-line place, that you can go and connect with anybody that has any level of relevance to you that you decide is worth connecting to. You can get together, well virtually, with people who like the same things that you do. You can play games, chat, share pictures and have a personality or not. It's free.

    Information can be gathered, space can be sold, well it's not real space, it's web space. It's social media. So instead of knowing your neighbor you can know somebody else's neighbor. Again, it is social media, but wait it's not the real old-world definition of 'social', it's on-line social.

    That is just my worry as an investor. What keeps your client coming back? What is in a clients way that keeps them from walking away. We could sit down and talk to the MySpace guys about that. Justin Timberlake and some business associates bought MySpace for $35 million dollars recently. I suggest everyone have a fascinating read at Wikipedia about the history of MySpace.

    I'm not bashing Facebook (NASDAQ:FB), I would never do that. I'm reaching for a thought process that will help value a company like Facebook. I understand revenue, profit and popularity (or demand). I also understand that if a client has nothing to loose or can be tapped by a competitor for zero dollars then something as simple as a new color scheme could be a companies worst nightmare. I find this revolution of an on-line society to be a captivating study, but can a metric be developed to predict the direction of that revolution.

    I don't want to just rant here about how I can not figure it out. Let me put out a few things I need to see from a social media company before I would invest.

    1. A healthy dividend.
    2. A full business cycle including the birth and co-existence of competitors.
    3. A fundamentally understandable price metric, like P/E in line with the S&P500.

    Until I see these things I will go out on a limb and call the ownership of Facebook to be a speculation. I understand that speculators can do very well for themselves, best of luck to you.

    In my dry world of reading balance sheets, watching commodities, utilities and the financial markets I see no way to know what direction this revolution is going to go or how long it is going to take social media to develop an understandable place in the business world. Those reasons help me rest comfortably with no plans to invest in social media. It's a world of venture capital and news stories. My clear focus is long term value and growing income.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: ipo-analysis Stocks: FB
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