Perry Glasser

WHATSAPP, DOC?

In Business, Economy, Finance, M&A, Personal Finance, Wall Street on February 21, 2014 at 1:40 pm
Reads Dollar$

Reads Dollar$

Dollar$ finds the headline of this column irresistible. Bugs Bunny is a hero. True, there are better things that need to be done, but since the mission of this blog is to be instructive, Dollar$ will instruct.

In case you were in a cave yesterday, the tech business world short-circuited over the news that Facebook dropped a cool $19 billion to buy WhatsApp, a 4-year old startup with 450 million worldwide young users.

Gen Y entrepreneurs worth a mere $2 billion have their shorts in a knot. They should. Dollar$ doubts it, but perhaps they know they know  the Spanish philosopher George Santayana who wrote

Those who cannot remember the past are condemned to repeat it.”

George Santayana

George Santayana

 The Past.

All right, class, let us review.In the Great Tech Bubble of the late 1990s, every kid in Palo Alto who could spell “electron” was certain to become a billionaire. Many achieved their goal.

But only on paper.

Accepting stock options in lieu of salary, 20-somethings got wealthy as stock prices rocketed upward. When the companies tanked, since they had been unable to exercise those options, they were left holding paper. This condition is bad, but it is worse when one has leveraged the options as collateral for buying a condo, a car, a yacht, or a private island in the Caribbean. People who lend money get testy at tales of woe about why they are not getting paid.

Problem was the companies lacked was a revenue model that supported the stock valuation.

No one built businesses. Pets.com. Furniture.com. The list of failed Dotcoms is long. They were constructing entities with the intention of being bought, a business strategy roughly the equivalent of having a daughter for the sole purpose of selling her to a pimp.

Wall Street Prognosticator

Wall Street Wizard

Wall Street Wizards went into a frenzy.  What could be more profitable than creating businesses that did no business? All that needed to be done was sell the stock. The comapnies were operated by a handful of geeks who liked working 16-hour days, ate only pizza, drank Evian water, and whose idea of relaxing was to glom M&Ms while playing Foosball. The ruling investment strategy was to buy and sell quickly. Remember day-traders? Neither does anyone else. They all boarded the trolley to the Poor House when they learned that an investment strategy designed to make a killing by selling to the bigger fool fails when the bigger fool is you. 

Today.

So Facebook has bought a few million youth, fully aware that its original subscriber base is ageing while up and coming youth are fleeing Facebook as a grim place where parents monitor their movements or a place where you can volunteer to get ads with no pesky content?

Youth needs privacy. You know, maybe messaging services that auto-destruct nude selfies. Come to think of it, quite a few politicians need that, too.

There’s Twitter, of course. Where else can you sign-up to receive endless stream of stupefying non-news and marketing?

Now we’ve got the acquisition of WhatsApp, a kind of chat mode that duplicates what every smart phone already does. Dual thumb typing is an art reaching new heights.

The Future.

  • Property values in Silicon Valley will soar until they collapse—all that money looks for somewhere to go.
  • Watch for the Wizard Dance that tells us revenue is irrelevant in this brave new world of investing.
  • Watch for mutual fund directors to expose their clients to unnecessary risk because they have to look as if they are besting averages and the only way to do that is to latch on to businesses that have no business, but have stratospheric valuations.
  • Watch for people who need their money get reamed because they have paid for professional financial management, and professionals want revenue, not your financial safety.

And always watch for the ghost of Santayana. That’s the one laughing loudest.

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