Salto Partners

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Amazon Upgraded by Morgan Stanley

Interview with E-Commerce Times on Amazon which continues to be Wall Street’s darling. Morgan Stanley justified the upgrade by pointing towards Amazon’s growth potential in emerging markets such as China and Brazil as well as its strong fulfillment network. Indeed Amazon has been aggressively investing in BRIC countries implementing a “winner takes all” – strategy. It will continue to do so in 2013 and beyond. Last year the company made headlines by building out same-day delivery capabilities here in the US. Presumably these capabilities will also find their way into international markets. Once the build out is complete there will be no other company that is commanding a global ecommerce infrastructure of that magnitude. Amazon will operate in its own class.

There are a few watch-outs. First, making big bets by entering new markets as well as building out expensive warehouse infrastructure requires a lot of money. This strategy will impact Amazons ability to produce meaningful profits in 2013. Second, there is a high level of execution risk associated with such a strategy too. Brazil. Russia. India. China. These are vastly different markets, ecosystems and cultures. It takes a high degree of confidence to go to these places and make it happen all at once.

Amazon has proofed critics wrong in the past. The markets like its chances to capture a significant portion of the world’s ecommerce sales. Morgan Stanley predicts this number to hit $1 trillion in 2016. Amazon’s market share is projected to be well above 20%. Now, that would be exciting.

See the full article with E-Commerce Times here.

 

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T-Mobile and Apple

T-Mobile mentioned almost en passant that it will finally start offering Apple iPhone in 2013. Now, that is newsworthy. The carrier has tried for years to give its customers access to Apple’s smartphone. What does it mean for T-Mobile and its customers?

First of all, this is one more arrow in the quiver of T-Mobile against the ATT’s for the world. Customers can move from ATT to T-Mobile without having to purchase outright the still very expensive device.

Second, the deal involves an new, unannounced iPhone model. If we dare to speculate then this will be in all likelihood an LTE ready iPhone 5. This move would fit nicely with the company’s overall strategy. As T-Mobile prepares for its merger with MetroPCS the company is upgrading its LTE infrastructure heavily. The idea is that both companies will upgrade their existing client basis aggressively to the new network. The iPhone 5 fits perfectly in this picture.

All in all this is good news for consumers. More choices, more competition and the hope for more speed in 2013.

You can read more in this E-Commerce Times Article.

I also commented on this deal in a Forbes interview.

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RIM

Just gave an interview to E-Commerce Times on RIM. Here is some more background information.

There was a time when a Blackberry was the must–have-gadgets for executives, venture capitalists and business people. Those days are long over. In a recent report published by the NY Times (http://graphics8.nytimes.com/packages/pdf/technology/20121128_RIM.pdf) RIMs market share went down in most key markets between Oct 2011 and Oct 2012. Here are a few examples:

Great Britain: from 19% to 7.9%
United States: from 8.5% to 1.6%
Spain: from 23.7 % to 3.4%
Brazil: from 8.7 to 2.7%
Only in Germany RIMs market share increased from 1.6% to 2.5% in the same timeframe.

 iOS and Android based devices have the commanding lead in all globally relevant markets. That’s what RIM is up against. Now, the early reviews of the new Dev Alpha B were positive. With BB10 RIM was able to create a competitive platform. However, it takes much more to win back market share the company has lost to iOS and Android.

First of all, RIM needs to win back the hearts and minds of the consumer. Then, they have to convince mobile carriers to aggressively push its devices. Those are two major preconditions for success. It will be interesting to see which niche RIM is trying to carve out for itself. There could be room for a third mobile platform at a lower price point.  Having that said, it’s likely a rocky road ahead for RIM. Even though the company is vertically integrated manufacturing its own devices, it’s an open question how well RIM will be able to drive the costs down to a point that they can become and remain profitable in serving a niche market. For now, investors have to choose between the “too little too late” or the “niche player” scenario. It will take a lot more for RIM to return to its glory days.

You can read more here.

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800 Million Facebook Shares Came Online

I gave an interview to E-Commerce Times on Facebook. Here is the back story.

Yesterday, 800 million Facebook shares came online. Shares opened at $20.08, and by afternoon were up by more than 11 percent, to $22.17. The increase was unexpected because a stock’s price generally falls when a glut of shares becomes available. For Facebook, the increase was particularly fortuitous, because the stock is worth just over half of its initial public offering price in May. So what happened.

Market dynamics can be complex. So, there is a lot going on behind the scene. To start with, Facebook had a better than expected Q3. It was able to beat revenue expectation. What is even more important, the company was able to jumpstart its mobile business. So, employees and investors have reasons to believe that the company is able take its business to the next level. This is probably the main reason, why we didn’t see people running to exits today.

Secondly, the fact that today 800 million shares were coming online was well known. For those market participants who speculated on a lower stock price it was time to cover any short sales. So, in that regard, todays increase could have been easily just a technical reaction to a market that was simply oversold.

The bottom line for Facebook hasn’t changed. It has to show that it is able to grow its topline. Investors will particularly take a closer look at its mobile revenue numbers.

You can read more here.

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Facebook – Aftermath of the Earnings Call

Facebook’s first earnings call last week was a big deal. Investors had a lot of questions after the initial IPO and the subsequent decline of the stock. I did an interview with E-Commerce Times on the results. Here is the long version of my analysis.

Numbers: Facebook was able to produce a non-GAAP profit of $0.12 per share and $ 1,184M in revenue. According to GAAP they are reporting a loss of $743M or a loss of $0.08 per share primarily driven by share based compensation expenses that they didn’t recognize pre-IPO. This is all good, though. Facebook made its numbers.

Mobile Strategy: I did like that Mark Zuckerberg discussed the mobile strategy of his company right at the beginning of the call. He acknowledged the importance of mobile for the future of his company. The company is heavily investing in this space. He mentioned that they are working on a deeper integration between Facebook and Apple’s IOS. This is very much needed, because the current Facebook experience on the iPhone is less than stellar.

Making sense of the acquisition puzzle: Two surprising statements. The Instagram-Acquistion hasn’t closed yet. The deal had been announced before Facebook’s IPO in early April 9 2012. The other surprising statement was that Facebook will continue to buy company to acquire talent. This can be truly a very expensive way to hire and even for a company with a 10B war chest it his hardly sustainable.

What to expect going forward: Here is the crux. Facebook’s user base joined the site to connect with their buddies. They want to talk about what’s on their mind, share pictures, stories and goof around. They want to continue to do this for free. That expectation was set the moment they signed up. So, Facebook won’t make money from their audience directly. They need to find ways to make the site appealing for advertising companies.

In the online advertisement space they don’t have the commanding market share we would expect from a site commanding nearly 1B strong audience. Why? It’s very easy to ignore those ads. Hence, the idea to sell “sponsored stories” which are essentially ads in disguise. They appear in the news feed of a user. It makes sense to place these “ads” in the news feed because there they are harder to ignore. However, it’s a thin line. We expect to read news from our friends. Companies are not our friends. If the news feed becomes too “spammy” users won’t go there anymore. They might leave the site altogether. Facebook has to sell to its audience that sponsored stories are cool. A fine balance act.

 Then there is the business side of this. Sponsored stories are a new concept at least in the online advertising world. Facebook started just recently to test them out more aggressively. Advertisers don’t understand the value, yet. It’s unchartered territory. Facebook’s has to explain to advertisers why they are different. They have to explain why their ads and sponsored stories are more targeted and consequently more valuable. We are talking B2B selling. The true growth of Facebook sits on the shoulders of his business development organization that has to do educate a skeptical market. This can be tedious and slow. Once again, Facebook has to sell it.

We are past the times when concepts and visions convinced investors to write checks. The stock market is much more demanding. Facebook has a lot of potential. No doubt. Its success depends heavily on the ability of its leadership to pull it all together: The shift to mobile, the user experience that keeps the audience on the site and sustainable monetization strategies. It’s future growth depends on succeeding in unchartered territory while everybody is watching.