The Tale of Two Techs: Yelp and Zynga

On a day like today, it isn’t rare for one to sit idly by observing the successes and failures of himself and the traders around them. The social media gods have chosen both a winner and a loser. The winner happens to be Yelp, for the time being, and the loser, much to my chagrin, is the gaming giant, Zynga. This game, stock picking, the game of choosing the winners and the losers, is far from the end. I will, as a proponent of Zynga, refrain from an admission of defeat and keep playing “the game.” However, we can sit, as more informed investors today, and see where exactly the divergence between Zynga and Yelp emerged.

This tale of two new tech babies can actually be broken down into a war of two tech giants. Yelp has the backing of Apple while Zynga has the backing of Facebook. Apple announced some time ago that Yelp would be an integral part of their next and best iPhone (and iPad, baby iPad, iTV?). Facebook, for the longest time, has derived many of its revenues from the social gamer Zynga. If you can’t see the ocean parting these two tech giants, let me inform you using the most basic terms. Yelp has sided with the one and only Apple, the tech giant of our generation. Apple has proven its merit to investors time and time again, even when it was thought to undermine your portfolio. Zynga has built their business around a company that has questionable profits and a questionable business model. In laymans terms: the investing public loves Apple and is yet to believe in Facebook.

Another disparity between these two up-and-coming tech companies happens to be extremely basic (while still playing a major role in the valuation of these names) is size. This may seem like a minute detail, but the size of these new tech darling say volumes about their trading. Simply put, Yelp trades with a takeout premium and Zynga does not. If you recall the small start up Instagram and their purchase price of around a billion, you now see the story emerge. Yelp trades at a range where a large corporation, say Apple, could come into tomorrow and buy them out for access to their valued reviews. If someone wished to buy Zynga, say Facebook, they would have a bit more of a challenge coughing up the $8 billion or so to pay for Zynga at premium cost.

The last and final point that the investing public seems to have fallen for Yelp once again is its use. Yelp serves a purpose, it’s the new word of mouth. Yelp allows users to say how they feel and give recommendations in the occasional form of insults. Zynga, in my opinion, serves a purpose as well, though the investing public believes that they can be replaced tomorrow. Yelp has proven it can stand on its own and the recent news out with Apple shows that they are the best-in-breed when it comes to reviews.

It is arguable that good companies trade well and bad companies trade poorly, blah blah. You might say “Zynga is down because it encompasses everything wrong in tech and Yelp trades up because it encompasses all the good in the world;” though you would be premising your argument on flawed logic. Both companies are of quality and will ultimately get their cake (preferably vanilla with chocolate icing) and eat it too. As anyone knows, companies do not always trade where they should, where they will, or where you want them to. I still am a long-time believer in Zynga (though I wish my money had been in Yelp) being that Yelp currently seems to be playing all the right cards.

I ain’t gonna lie, I bought Zynga way too early, but time heals all wounds.


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The Celebrity Bump

A fine line exists between a succesful advertisement campaign and a bad advertisement campaign. More often than not companies waste large quantities of money on advertisements that net them no return. Many companies have looked to commercials or online campaigns with big names to revitalize their lagging business as seen below.

This above ad came out last year mid summer 2011. Take a look at where the stock is today compared to last summer at that time. Yeah. Kenny Powers got his check and K Swiss got a ghetto shoe to the face. The above campaign can be taken as a prime example of what not to do, how to waste money on a failing endeavor. The campaign did lead to a increase in online sales of shoes shortly thereafter, though a faltering business can not be saved in a few sales. “Kenny Powers” could also have just not been a big enough star to get the money spenders going. Either way, this campaign was uh… horrible.

Taking a different approach we can take a look at Dos Equis. We are going to take a look at this company because their ads are nothing short of amazing. Yes Dos Equis does not front a real celebrity, but due to pure marketing genius they have created their own celebrity to give them a bump. The most interesting man was able to increase sales off Dos Equis in the United States while other foreign beers dropped dramatically due to the economy. Now that’s good business.

If you watch any television as of late you will have noticed that Burger King has been taking your screen by storm. These advertisements are cute? They have put to work some big stars to sell the healthy options at their stores. An obvious attempt to take on McDonald’s perceived healthier menu. The burger King advertisement campaign may be the key to moving the momentum their way. It is nowhere near as creative as the Dos Equis commercial, by the same token Burger King also has a product that’s actually worth selling, unlike K Swiss. With such good earnings last quarter and a possible celebrity bump coming soon Burger King may be the king you want to put your money with.

No matter if you are a bull or bear on Burger King, one thing remains true, a good celebrity advertisment can change the landscape for a company. Though Dos Equis created their own celebrity in a sense, many other companies have come leaps and bounds with celebrities. Look around you and heed the celebrities because more often than not that is where the consumers money is headed. If the advertisement campaign is done correctly and the product can actually be sold (unlike K Swiss), then the campaign will net profits.

Here is a good piece by The New Yorker on the guy who plays the most interesting man.

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Listening To Fools Will Net You Foolish Results

We are all headstrong and egotistical. We all would not have gotten to the point in our lives where we can put money in the markets if we had failed at all the endeavors we had set out upon. Reality speaks a hard truth, the market doesn’t care about your previous successes, be that in the market or out of it. That is why many traders fail, many investors lose money and do so through their own negligence. Many will claim fault on exterior forces but the facts remain that you, the man (or woman) in front of the screen pressed the button, called the buy or sell. Not at all am I suggesting that I am immune to mistakes, I have made some costly ones, but through trial and error I have learned a key to my future success:

If you listen to fools you are nothing more than a fool.

Aligning yourself with the right team, be that news sources, bloggers, tweeters, your mother (I watch what she buys like a hawk to judge the masses) is crucial to successful trading or investor. Below is a clip from one of my favorite shows, Boardwalk Empire. The background is that Chalky White is a man of his people, a supporter of his community. By looking out for those around him they look out for him. The comparison I am drawing is that aligning yourself with quality people in trading or business will benefit you extensively.

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Apple Versus The Television Makers

In the wee hours of the morning Howard Lindzon retweeted a tweet that I think best sums up Apple. It not only shows the impact of the tech giant on their competition but shows just how successful they are. It makes me wonder if the destruction the iPhone caused was a mere fluke or if Apples competition truly stands no chance. So I took that tweet and looked a little deeper.

The first step to delving deeper is looking at the basic numbers. To get a better overall picture of Apple and their effect on the Television makers we need to take a look at the Apple effect when it comes to their most recent premium product, the iPad. Here is a look at the competition and their reaction since the launch of the Apple iPad on April 3 of 2010.

Apple +157.34%
Microsoft +.05%
Google + .74%
Amazon +71.89%
Hewlett Packard -63.35%
Dell -15.67%

The numbers above speak for themselves. Though looking deeper and trying to understand the overall picture, there are a few points that one should take from the numbers. First off, those established in the market Apple is coming for should be on their A game or they soon won’t have any game. Second, Apple has the ability to create a new market which some of their competition may be able to take advantage of. In other words, Apple created a market and the competition often steals their premise to better serve themselves. Google and Amazon are players in the tablet market and even though they have mediocre products compared to Apple, they are still competing (or attempting to) they have not fallen by the wayside.

At the end of the year when Apple launched their next generation product, the iTV, you as an investor will be the one to judge the merit of the competition. As obvious through the above figures their is a right way and a wrong way to survive when Apple is gunning for your business. The companies that focused solely on one product line that Apple could make better, suffered. Those companies that diversified and offered a decent competition or put up a fight against apple, for example Google and their android phones, had a chance. Though the one theme that repeatedly presents itself is that betting against apple when it comes to new products is a fools errand.

Either way you cut it, the television makers are Apples new target and this tech giant is currently using a scorched earth policy when it comes to the competition.

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Are All Coffee Shops Made The Same?

I spend a lot of time in my local coffee shop. Mostly due to the closed door policy at my household often being construed as a “please come in and bother me” policy.The one thing that many coffee shops have in common as their naming suggest, is coffee. This may come as a surprise to many, but the product of coffee can be reproduced very easily. The same can be said about certain restaurants, though everyone knows that a Big Mac taste different than a Whopper. As we see Starbucks take on new markets throughout the world that are dynamically different from the United States, the best coffee play may be those with room to grow here at home.

Yes its easy to say that Starbucks is synonymous with coffee.That does not mean that only Starbucks will sell in America. I know Americans well and they are synonymous with lazy. If you offer me, the average lazy american, coffee at the corner I am at or the corner 5 blocks away, I will choose the former. As I mentioned above, coffee remains a interchangeable product. A cup of coffee from Starbucks can be swapped for that of a coffee cup from Dunkin’ Donuts (obviously this does not pertain to the minority of coffee enthusiasts). Just ask McDonald’s who has in the past year made leaps and bounds in the breakfast market, in particular in coffee sales, even in the frozen coffee drink sector that was thought to be owned by Starbucks. So as the success as McDonald’s and the obvious laziness of the masses suggests, ease of access prevails over branding when it comes to coffee.

Starbucks sits at the head of the class looking to expand globally. Others in the coffee industry still have room to go at home. Yes global growth has worked out well for many a company. When it comes to such a commodity as coffee the game may be different. New markets bring new challenges. I am not sitting here suggesting that Starbucks will fail in its continued expansion plans, though accessing new markets such as China and Latin America will not be an easy task as these consumers are a different beast with differing price points then their United States counterparts. For example tea rules with the caffeine heads of China which suggests that Starbucks will have to adjust its game plan extensively as it enters China. Being that Starbucks is a coffee company this movement should be a interesting ride.

As one looks for growth they can find it safely here in the United States. Some may prefer the riskier growth story, but as the global economy continues to look weak I would rather bet on American breakfast than Greece. It is to early to count out Caribou and other regional coffee shops. A portion of America runs on Dunkin’ and the potential is there for growth in an established coffee market. Starbucks is looking at growth abroad in markets that are more challenging and diverse. So to answer the above question simply, no all coffee shops are not made the same. As one bets on the future of coffee, which I will do in about 5 minutes with my second cup of the day, it is best to know where you think the most profits lay.

Photo by jennpopz


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