Monetising mobile for days

“What is telling is that whilst the US (and Canada) accounts for only 213 million monthly users of the service (Facebook), that being 14.3 percent, those users are responsible for 48.6 percent of all revenues. Yet Average Revenue per User (ARPU’s) are a paltry 9.3 Dollars in that region. In Europe, ARPUs are 3.36 Dollars apiece, currency headwinds there no doubt.”


To market to market to buy a fat pig. Most stocks enjoyed a cracking day on the local front, most of it towards the last hour. Industrials and resources added a whopping 1.8 percent apiece, the overall market rallied one and two-thirds of a percent by the end of the market. I saw some decent numbers from LVMH which lifted Richemont, British America Tobacco had results that were welcomed by Mr. Market, trading at an all time high in Rand terms. It seems that until revenues decline, or profits decline, the market will ignore steadily shrinking volumes, focusing on the dividends instead. I guess whilst we live in a world of low returns, yield on offer will be snapped up.

Talking of which, Janet Yellen and the FOMC indicated that rates are going to go up, some suggest that this may not even happen this year. All eyes on the incoming data however, most of the labour related (and to a lesser extent housing) data has been good, some of the consumer data has been average. As the data comes in, the Fed will watch it. Everyone will watch it. The Fed will act accordingly. I even saw someone take the previous meetings statement and this one, and mesh the words together. For what? To see the subtle differences and try, as I have seen over the years, people interpret Fedspeak. Fedspeak is a fictional language of the all seeing and knowing, not too dissimilar to Big Brother, right? No, they react to the same data, gather data of their own and make decisions based on that. For the full statement, check it out here: July 29, 2015.

The last line as I interpret it, is that the Fed will reach a lower high on the interest rate cycle, i.e. technological advancements will mean real growth is lower for now, building in massive productivity gains in time. Here goes: “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” So there will continue to be a “search for yield”, as fixed income remains lower, the good thing is that the same technological gains we are talking about above translate to lower inflation. That is my interpretation, like almost everything in life, people see things from their point of view.

After all was said and done, the broader market S&P 500 advanced nearly three quarters of a percent, the nerds of NASDAQ added 0.44 percent whilst the Dow Jones was a little better than two thirds of a percent. If you are looking for data today, then look no further than second quarter GDP, the “advanced” estimate. This is the first read, it is updated, called the “second estimate” and then finalised and called the third estimate in late September. So, I am pretty sure that all and sundry will pay attention to the data today, it certainly does not get much better than that. And then next week, the non-form payroll numbers. In our world these numbers could be anything, what matters to us is company profitability, the companies we own. The economy is what it is, the best policy makers are making sure that they stick to their mandate. Keep calm and carry on.


Company corner

Facebook. Something your parents did not have, heck they had no idea what a personal computer was, that was something that you only saw around the late eighties. My dad got a Commodore 64, that was the first time that I ever saw something that awesome. It did not capture me straight away, it took a while. I can’t even say that I was quick on the draw with Facebook, Twitter I was a little early, Instagram I was way early. WhatsApp, I am getting better at that.

Facebook owns three of those, the one they do not own reported Wednesday and the stock sank to 31 Dollars. Sis. Hint, Twitter. Facebook reported half year and second quarter results last evening. Just after the market closed, a few minutes, the conference call was a full hour later which is the norm. What is really awesome for the people living on the West Coast of the US (or Canada, the weather in Vancouver is good at this time of the year) is that you get longer days, if you are in the market. Markets close at 1pm San Fransisco time, if you are in finance in that part of the world, you can start real early and finish early!

A reminder (if you needed one), what is Facebook? As per their website: “Facebook’s mission is to give people the power to share and make the world more open and connected. People use Facebook to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them.” Opinions are like you-know-what, everyone has one. The company employs nearly 11 thousand people, aptly its headquartered at 1 Hacker Way, Menlo Park. Not the Pretoria one, rather in California.

The board is pretty interesting, consisting of Peter Thiel (PayPal fame), who was an early funder, Reed Hastings, the Netflix founder, Erskine Bowles, a former White House Chief of Staff and ex director at Morgan Stanley, Sheryl Sandberg who is an ex-Googler and COO at Facebook, as well as Susan Desmond-Hellmann who is the CEO of the Bill and Melinda Gates Foundation. Fancy that Bill Gates took a swipe at Mark Zuckerberg, that must have been a little awkies (urban dictionary translates awkies to awkward). Who did I miss, oh, Marc Andreessen, the guy who sold Netscape to AOL for 4.2 billion Dollars.

That took place back when the Zuck was still in high school, attending the pretty exclusive Phillips Exeter Academy. The most recent notable alumni is the chap who acted as Dewey in Malcolm in the Middle, the younger brother of Malcolm. The writer of the popular Da Vinci Code, Dan Brown also went there. Enough about schools, one could talk about that all day long.

OK, let us focus on the numbers, revenue for the quarter topped 4 billion Dollars for the first time (4.04), a beat, EPS clocked 50 cents for the quarter, also a beat by three cents. They nearly reached one and a half billion users, also a beat. 1.49 billion. Facebook now has more global users than any country on the planet has citizens. The universe of the Facebook! The only “miss” in terms of what the street was looking for was daily active users, that number was a very impressive 968 million. What is pretty telling is that 65 percent of all users make this part of their daily routine. 844 million people are daily mobile active users, outnumbering desktop users 7 to 1.

I think, when you dig through the presentation slides for Q2 that when you see Facebook daily active user growth in Canada and the US slowing, you understand Twitter’s problems. As we well know, Twitter is not Facebook. Facebook has more users in Europe than the US, in fact, US Facebook user growth is flat over two years, relatively speaking. Facebook has more monthly users in Europe than Twitter has entire subscribers. Asia Pacific and “Rest of the World” account for nearly two-thirds of all users. According to their about us section, 83.1 percent of the daily active users are from outside the US and Canada.

Mobile only users (those who sign in from their smartphone exclusively) are 655 million of the 1.49 billion, a fairly sizeable number. So those are the users, Facebook revenue grew nearly 40 percent, daily users in terms of subscribers grew 17 percent. I suspect that there will be a time that they “mature” in terms of subscriber numbers, if there is a such a thing with this company.

What is telling is that whilst the US (and Canada) accounts for only 213 million monthly users of the service (Facebook), that being 14.3 percent, those users are responsible for 48.6 percent of all revenues. Yet Average Revenue per User (ARPU’s) are a paltry 9.3 Dollars in that region. In Europe, ARPUs are 3.36 Dollars apiece, currency headwinds there no doubt. In the rest of the world, that number plunges to a mere 90 cents per user. There is certainly loads of scope for the company to earn, via their advertising channels across their platforms a whole lot more money. There are still many businesses advertising in the “old” ways, I know that it works for certain businesses.

Believe it or not, there is a whole lot more to Facebook than your news feed, find all their Products, which I see includes Instagram there. I see. Not Oculus and not WhatsApp. The amazing thing about Instagram is that it is not even five years old, October is the big hip, hip, hooray. And here is a less known fact, the Instagram app is only available for people using iPhones and smartphones with Android software.

The first photo was taken on the 6th of October 2010 and featured a golden retriever, taken and uploaded by the founder, Kevin Systrom, of his girlfriend’s dog. Yes, whilst old Kevin has 1.1 million users, his girlfriend Nicole has fewer, yet she looks like (from her feed), she has a new golden retriever. Kevin has posted only 1425 times, less than 1 a day since he founded the business. I guess he has been busy, amongst other things, selling it to Facebook for 1 billion Dollars, along with cofounder Mike Krieger. 13 other employees shared 100 million Dollars, a pretty mean payday. See the original picture below, great dog, dodgy flip-flops.

Wall Street analysts (I have seen this) have valued Instagram alone at 35 billion Dollars, says Mark May at Citi. Kevin Systrom still runs the joint, good for him, the transaction did have shares, I am sure he isn’t struggling. WhatsApp has double the number of users that Instagram has, 600 million as at January this year to 300 million for Instagram as of last December. Jan Koum, the WhatsApp founder and CEO is a board member, we forgot to mention that above. And Facebook own these all, they bought Whatsapp for 16 billion Dollars, and Oculus, the Rift will be released in the first quarter next year. Virtual reality, allowing you to be at the cricket, when you are actually in your living room.

Facebook, the original (only 11 years old) platform has plenty of road, video sharing is growing like gangbusters. I guess the hardware and the software that we have and use have made that all possible. The greatest anxiety when the company listed three and a half years ago was that they were unable to monetize mobile, 75 percent of revenues are now from mobile. The Zuck is on it, people laughed when he bought Instagram, WhatsApp, he certainly has the execution spot on so far. He surrounds himself with incredibly talented people too, and yet is seemingly accessible to the outside world, travelling and speaking. He certainly is a modern day Thomas Edison, an inventor, a person who is hell bent on changing the world. And in doing that, the company will continue to be profitable too. The marginal swoon after-hours to just below 95 Dollars still represents a strong buying opportunity, we remain long the shares of this business. Stick that in your status bar for “likes”.


Cerner stock roared up 7 percent and some change last evening. We had been expecting some sort of announcement about the contract to digitise the medical records of the military in the US (yes really, we were watching this one) and whilst Cerner was in the running, there were other service providers. In fact a more fancied crowd called Epic Systems, a private healthcare systems provider. The contract, awarded by the Department of Defense (with an s) to overhaul all of the military health records of current and past military personal, will be several parties, including Cerner. It will take ten years to digitally migrate documents of nearly 10 million past and present records. Nice, good work and unexpected.


Linkfest, lap it up

We give gold a very hard time, here is a piece to show that we try stay neutral when looking at the data – Actually, gold RISES after rate hikes begin. The two big take aways from the piece are: “Most people read a few things here or there and just run their mouths, without worrying so much about the actual data.” and “The other takeaway is that anything can happen, even the most unexpected thing”

Having order and set systems in place for drones is a vital component to have before drones become mass market – Amazon unveils drone traffic control system at NASA centre

Enough sleep is important, there are a growing number of studies which point to the long and short term negative impacts of lack of sleep – The Walking dead. So how Much Sleep Do We Really Need?


Home again, home again, jiggety-jog. Ahh, the Shanghai market is up, I guess that is all that counts these days, according to the screens that we watch. Dale Steyn, he has taken 400 wickets, only the 13th person to ever achieve this in test cricket. That is pretty amazing, he hardly fits the mould, a surfer and fisherman in his spare time, longish hair and a whole lot of body art, I guess this is 2015 however, anything goes, right?


Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

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