Facebook is the current hype

and everything this company does these days never fail to run away from the media attention. So what’s with the decision to splash out $19b on Whatsapp, a cross platform instant messaging service? It certainly does not spare Facebook any reprieve if they are trying to avoid hitting the front covers!

facebook-whatsapp

The only closest representation to this deal would be to compare to one similar in 2011. This deal was executed by Microsoft (another cash flushed company like Facebook).

Back then, Microsoft paid $8.5b for Skype. It was perhaps the boldest move back then by any IT company. And now it seems to have been eclipsed by this new social media giant in Facebook. So, what exactly is the real intent of Microsoft and Facebook, in acquiring Skype and Whatsapp?

IS THE REAL INTENT ABOUT THE DATABASE AND REACH OF USERS?

With Skype, Microsoft was buying into a service which boasted a huge user base. But it has failed to make a single dollar of profit since its inception. And until now, this investment has failed to generate any significant benefit to Microsoft’s bottom line.

Whatsapp is yet another service that boasts a huge database. And if you were to look carefully, there is no real means of profitability from the user base.

But in the dot com space, it is always a challenge to stay fresh, hip and fashionable. When your popularity wanes, you have to constantly look for fresher ways to re-attract your previous profile of customers.

And for street smart cash investors like myself and our income investing community, these would be the exact sort of stocks we would avoid and flee.

IMAGINE THE SCENARIO

of running a business selling laptops right now . . . Whereby your inventory does not have a long shelf life, and there is intense competition that yields you low profit margins? Would you see a sustainable business? Is this something you would want to get yourself into, or to hold as a long term investment?

You are a wise investor if you answered me with a resounding ‘No!’

POOR BUSINESSES

are businesses that are constantly in need of fresh capital injection to stay ahead of their competitors. They also constantly need to be in front of customers’ faces to remind them of the brand. This is prevent their customers from jumping ship!

Now, what sort of business differentiation is this?

TRUE INCOME INVESTORS

will never consider Facebook a worthy stock, no matter what the outcome is for this company. We would prefer to stick to our good old boring counters that allow us to sleep well, gush cash into our investment portfolio accounts, and only bear the potential ultimate danger of bankruptcy.

 STREET SMART CASH INVESTING PORTFOLIOS

that consist of stocks such as Coke, McDonalds and Phillip Morris, only serve to remind us of our wise choice of wanting to have an ample good night’s rest with our investment dollars.

Stay clear of growth stocks, unless your ambition to securing financial freedom through investments, is via the form of pure speculation and gambling.

We all know the outcome of this route, which is all too familiar to many now, don’t we?

 

Terence Tan

Chief Investment Strategist

Giants Learning Technologies