Several BoomBustBloggers inquired as to my opinion of what apparently was an overpriced acquisition of Skype by Microsoft. At first blush, it appears as if the management of Microsoft has lost their mind. A second look (as well as access to our proprietary research) reveals a more interesting perspective. To make a long story short, Microsoft is trying to replicate Google's cloud services.
If you reference pages 29 to 36 in our the Google valuation report from 8 months back (63 pg Google Forensic Valuation - tutorial, [Google Final Report 10/08/2010 to download] to plug in your own assumptions see Google Valuation Model (pro and institutional), you will find the answer to why Microsoft is willing to pay $8.5B to buy Skype. Skype, like Google Voice which is tightly integrated into Android, will be folded into the mobile operating system to give full mobile VOIP capabilities that will most likely tie in with Microsoft’s server products ex. Exchange server for storing voicemail along email, voice recognition, transcription services, etc.) , just as Google purchased Grand Central (page 55 on, in the report) to turn it into Google Voice to move vast amount of profitable mobile telephony services out of the reach of telcos and totally to Google’s cloud – leaving only data services to the telcos. This is happening now, reference Sprint’s wholesale adoption of Google Voice by offering users to switch transform their Sprint numbers into GV numbers without breaking their contract. As excerpted from the afore-linked source:
Google was already a competitor
Communications services, especially voice services, are rightly seen as the last bastion of clear telecoms operator advantage over alternative means of offering such services, with the telephone number itself being the key enabler.
In many other areas, such as applications and content, telecoms providers are already losing out in terms of service usage and brand loyalty to aggressive, software-driven players such as Google and Apple. Verizon may previously have partnered with Skype for similar-looking services, but Skype is not Google; as an Internet voice specialist, Skype’s ability to impact the telecoms value system is nowhere near as profound as Google’s.
As such, Sprint’s inviting of Google into the telecoms inner sanctum, through this formal partnership to offer Google Voice, might therefore look something like throwing the baby out with the bath water.
But may prove a better friend than foe
So, what does this really mean?
My many warnings on the impending dethroning of Apple by Google has produced more flak and negative response since any proclamation since my warning about Goldman Sachs in the spring of 2008. Of course, fast foward to the spring of 2011 an you will find Reggie was right on point. I am just as confident, or more, about Apple vs Google, and for the same reasons as I was confident about Goldman Sachs. You see, its not about the quality of the company. Both are strong American companies with strong management, but both are (or at least in the case of one of them, "were") also seen as iconic to such a degree that investors and customers failed to look at the actual numbers, outlook and underlying trends beneath said iconic, "spit-shined-to-perfection-through-marketing" patina. Remember, don't look to BoomBustBlog for what you want to hear, look to us for what you need to hear. With that being said, we have released our valuation numbers for Apple to Subscribers (Pro/institutional level subscribers may contact me directly about the analysis) and the reviews of the latest credible competition to Apple's fastest selling products are now out - the Samsung Galaxy Tab 10.1 (Samsung's reworked answer to the iPad) is now taking pre-orders, and the reviews are very positive.
- Engadget's Darren Murph: It's quick, nimble, and easy to hold, and it's both thinner and lighter than the heralded iPad 2. There's no question that we prefer the handling of the Tab 10.1 over Apple's alternative, and with the improvements coming with Android 3.1 (and in time, Ice Cream Sandwich), it's going to be mighty hard to overlook this device come June 8th. The 16GB WiFi model will hit for $499 -- exactly in line with the iPad... There's just no other way to say it: the iPad 2 finally has a real competitor. If Samsung could somehow undercut Apple by even $25 here, the choice would be obvious, but it's going to have a whale of a time convincing the masses that a Samsung device is superior to one Designed in California when prices are equal. That said, we'd still recommend the Tab 10.1 over the iPad 2 for heavy Gmail users and all-around fans of Android."
There are several other reviews around, but Endgadget is, by far, one of the most objective, least unbiased reviewers popularly available. Examples of bias were evident when the reviewer would list how the Samsung pre-release product was faster, shot better pictures, had a better screen, was slimmer, lighter etc., yet in the conclusion states that they prefer the iPad 2 over the Samsung because it is "sexiest", but considers the Samsung the "iPad 2" of Android world. At least from our perspective, this strays from a straightforward comparison, but does exemplify the results of Apple's superior marketing capabilities which should serve it quite well as competition is rapidly ramping up.
As a refresher, here are reviews for the Asus Transformer priced at 80% of the cheapest iPad:
Note: This is a very long post, and would have been longer if I didn't decide to break it up into pieces. I am presenting plenty of background material in it that regular readers have probably seen before because the subject matter is so pertinent to asset values both today, and tomorrow. I suggest those with interest in the real estate and/or banking arena read it in its entirety. The latter portion of the post is all new material that leads into valuations of real CRE properties that are currently on the market and ties in seemingly unrelated issues such Portugal's bailout and Greece's inevitable restructuring.
Last night, I spent an interesting time with the esteemed and world reknown macro economist, entrepreneur, NYU professor and strategist, Dr. Nouriel Roubini. Nouriel is a very, very bright guy. He has to be, he agrees with many of my viewpoints :-). Dr. Roubini had a client reception at his downtown loft in NYC. It was a delightful affair, plenty of heavy thinkers, a bevy of beautiful women, engaging debate of things geopolitical, macro-economic and financial... and of course at least one trouble maker. That would be that tall handsome fella in the middle who had the nerve, after Roubini literally deadened the room with his proclamations of what could come in the case of China crash, European default or US hard landing, to actually burst out and say the esteemed economist was actually being TOO OPTIMISTIC!
Hmmm, and they have the nerve to call Roubini Dr. Doom. Don't they know Dr. Doom wears a mask, a suit of armor, and is truly no joke?.
Yesterday, I bluntly called out the European state of economic affairs as I saw them in "Liar, Liar, European Pants on Fire!" Today, I present the article published by Property EU, one of the leading real estate publications in Europe which illustrates much of my thoughts on the topic of how and why Europe is nowhere near out of its economic malaise, and more importantly how this may pull the value of real estate down. The vast majority of European banks lend against real estate and when the value of said collateral goes down in conjunction with the value of what many are carrying on their books at par as risk free and hold to maturity assets at 30+x leverage... Well, you can use your imagination for the Lehman like results...
This week I will go through several property devaluation scenarios as applied to what looks like very promising cash flow scenarios using real life examples of NYC commercial real estate starting tomorrow, and culminating with a more in depth analysis for subscribers next week. The most interesting part of the analysis will be the application of our real asset protection program to hedge against the risk of property value decline. Stay tuned, it should be exciting, and if you are not a finance nerd like me - at the very least interesting...
As promised, I am presenting historical justification of the logic behind my call of absurdity in the drastic drop in share price after Google announces a redoubled effort in investment and marketing of its nascent businesses. I went into the logic in detail via our Google Q1 2011 earnings review - Google’s Q1 2011 Review: Part 2 Of My Comments On The Gross Misvaluation of Google. The following pages are excerpted the subscriber forensic analysis (63 pg Google Forensic Valuation, to plug in your own assumptions see Google Valuation Model (pro and institutional).
To begin with, Google apparently realized early on that it could better realize returns by investing shareholder capital through acquisitions. It has actually been quite acquisitive, making 88 purchases over the last 13 year. Last year was Google's most acquisitive year, ever!
Of the major economic powers, China is the only economy that is facing true inflation as I see it and China is primed for a hard landing - at best. The US, EU, and UK face stagflation. After the AP excerpt below is a clip from my recent keynote presentation at the ING Real Estate Valuation seminar in Amsterdam on this very timely topic.
LONDON (AP) — Rising inflation around the world weighed on stock markets Friday as investors wondered how fast central banks will raise borrowing costs to counter the threat of rising prices, while the euro was undermined by ongoing worries that Greece will have to restructure its massive debts.
Figures Friday reinforced market expectations that both the European Central Bank and the People's Bank of China will soon be raising interest rates again to counter rising inflation.
In China, figures showed consumer prices rose 5.4 percent in the year to March, up from February's 4.9 percent. The increase was largely driven by surging food costs and represents a setback for the government, which has boosted interest rates four times since October to cool prices.
Analysts expect the People's Bank to enact further measures in the days to come in response to those figures.
Here is a collection of my archived posts on the topic:
- Economic contractions AND rising prices, dare Reggie utter the “I” word – Enter a global phenomenon
- Reggie Middleton’s Take on Investing for Inflation, pt. 1
- Reggie Middleton’s Take on Investing for Inflation, pt. 2
- Reggie Middleton’s Take on Investing for Inflation, pt. 3
- Reggie Middleton’s Take on Investing for Inflation, pt. 4
- Reggie Middleton’s Take on Investing for Inflation, pt. 5
- More on my stagflation rant
- Deflation, Inflation or Stagflation – You Be the Judge!
- Is My Warning of the Risks of a Stagflationary Environment Coming to Fore?
- China’s Most Expensive Export: Price Inflation
Attention subscribers: related content is available for download: BoomBustBlog Complimentary FX Index model
The definition of "Inflation" is when the "value" and "price" of some of the most widely held and most used assets fall dramatically in price... NOT!!! Well then, why are all the financial rags, blogging pundits and mainstream media outlets crowing about inflation? Mr. and Mrs. Editor, stand up and stick that "S" on your chest. That's right, not Superman, but "Stagflaton Man".
With all due respect to that Nassim Taleb dude who popularized the term "Black Swasn", Black Swan events are both overrated and the term is sloppily bandied about by those who may not be putting the requisite thought into just how utilitarian the knowledge of Black Swans actually are. Since you can't accurately predict, nor back test against, nor adequately hedge against such events, exactly what good is a Black Swan discussion. Well, I can answer that question. Black Swan events do maximum damage when the economic cycle is at its weakest. In Reggie Middleton's Economic Circle of Life (think the Lion King) it is the right portion of the circle in which Black Swan events do the most damage.
Actually, it is not the Black Swan events themselves that do the damage but said event do serve as the catalyst that either bust a bubble that was waiting to pop anyway, or break a structure that was hobbling along on one leg as it was - where we happen to be now in many places of the developed world - sans rampant propaganda, misinformation and disinformation from less than disinterested sources.
I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the "Peak" phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality...
What do you get when you add...
The world's most prolific mobile OS with the largest market share and greatest growth rate
The world's greatest advertising company
The world's largest cloud computing company
The world's largest online retailer???
A hell of a lot of competition for everyone else in the mobile computing space. Amazon app store: Launchpad for mobile dominance! Amazon is opening it's Android app store Tuesday (today). It will run as a subset of Google's Android Marketplace and will be heavily monitored and moderated by reviewers, very much like the Amazon store is - which will set it apart from Google Marketplace and be similar Amazon's running of the FAO Schwatz and ToysRus websites.
The tech media has multiple reports of Amazon focusing on competitively lower prices for apps to gain a competitive edge.
Bloomberg has Warren Buffet saying:
"Warren Buffett said he’ll probably prolong his aversion to electronics makers such as Apple Inc. (AAPL) because their business prospects are harder to predict than companies such as Coca-Cola Co. (KO)
“We held very few in the past and we’re likely to hold very few in the future,” the billionaire chairman of Berkshire Hathaway Inc. (BRK/A) said in Daegu, South Korea, today, referring to electronics makers. Coca-Cola, based in Atlanta, is “very easy for me to come to a conclusion as to what it will look like economically in five or 10 years, and it’s not easy for me to come to a conclusion about Apple,” he said".
He's absolutely right. Not only does Warren not know what lies in store for Apple's future, nobody else does either. Combine that with the fact that everyone is acting like they do know what lies in store for Apple's future - with the majority preaching abject and unfettered success if not domination, spells opportunity.
See my post from earlier this morning - How the “I Love Apple, There Is No Other Fever” Adds To The Attractiveness Of An Ever So Unpopular Apple Short and More On Realistic Views of Apple and the Undervaluation of Google.