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Facebook Channel Checks: Investing like a hedge fund

What is a channel check you ask? It’s what an analyst does to find out if a given product is selling well or poorly. It could be checking in with Apple stores to see sell through of iPhones or it could be talking with resellers of Cisco routers. Channel checks are a piece of the puzzle that analyst use to fill out there models when they are investing, and an important one at that.

It may not be as easy as giving Apple or Cisco a call, you have to get somewhat creative. You have to call third party resellers, and even move up the supply chain and call component manufacturers. Well, it turns out that you can also do channel checks with Facebook.

First, you need to think about Facebook not as a social network but as an advertising company, one with a rich data set about every one of its users. Everything you add to your profile helps Facebook decide what might be good to show you in an ad. Our next question is, who is buying all these ads? From the laypersons perspective its big brands like Gap or Best Buy, game companies like Zynga or King trying to get you to download Candy Crush, or even Paramount Pictures showing you that they have a new movie coming out. It would be difficult to make channel checks just by calling every company that advertises on Facebook and asking them about their spending, but Facebook makes it a bit easier. Most advertisers don’t actually go directly to Facebook, they go through a Facebook partner, either a Preferred Marketing Developer (PMD) or FBX partner (http://www.facebook-pmdcenter.com/), which Facebook nicely lists on its webpage.

We have now gotten down the supply chain and know who to speak with in order to get an idea of where Facebook spend is trending. These calls could be extremely valuable as Facebook makes roughly 90% of its revenue from advertising. While analysts may be able to take calls directly with executives at these companies to get the data points they are looking for (CPCs, CPMs, total ad spend, etc…), the normal person cannot. Luckily for us many of these companies blog about what they are seeing, and putting this all together can add to our model. Below are some examples to get you started.

SPMD partner comments:

http://www.nanigans.com/2014/04/17/nanigans-releases-q1-2014-facebook-advertising-trends-report/

http://www.kenshoo.com/blog-post/q1-2014-search-and-social-drive-positive-roi-and-strong-yoy-growth/

http://www.socialcode.com/facebook-advertising-developments-summary-q1-2014/

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Visa and MasterCard putting NFC in the forefront

This morning Gemalto is taking a hit as Visa and MasterCard back host card emulation (HCE) for NFC based mobile payments. HCE enables NFC based payment services to bypass the secure element controlled by mobile operators.

What will happen now is that both Visa and MasterCard will allow customers cards to be stored in the cloud for NFC payments, giving them the opportunity to check out at stores by touching their smartphone to a reader.

With this shift from carrier control, this will open up a host of new applications and could be a great push for NFC chip manufacturers like NXP.

For more reading on the topic, see the links below.

http://www.mobileworldlive.com/mastercard-visa-back-hce-nfc-based-mobile-payments

http://www.theverge.com/2014/2/19/5425634/visa-mastercard-enable-hce-mobile-payments

http://www.bloomberg.com/news/2014-02-20/gemalto-drops-as-visa-backs-rival-mobile-payment-systems.html

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Top 5 reasons why Candy Crush going public is crazy!

With Zynga still never recovering from its 2013 highs, but at least off its 52-week lows of 2.50 a share, Candy Crush has decided to go public. Well, they decided to go public a few months ago, but they have finally released their F1 Filing today as they had filled its pre-IPO documents secretly in 2013 under the JOBS Act. See my quick thoughts below.

1. While its top three games, Candy Crush Saga, Pet Rescue Saga and Farm Heroes Saga accounted for 95% of total gross bookings, Candy Crush Saga accounted for a startling 78% of total gross bookings! Not only that but it makes up 86% of mobile channel gross bookings and 68% of web channel gross bookings. Read the rest of this entry »

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Opining on Programmatic Ad Buying

Given the hype around programmatic ad buying and in particular Rocket Fuel, I thought it would be timely to discuss the space.

I have been interested in the space quite a while and what got me here was Goldman Sachs initiating coverage on Rocket Fuel at buy with a $69 price target, a 30% increase from where we are now. That sounds like a pretty bullish statement to me.

Debra Schwartz an analyst for GS said:

“We view the acceleration of programmatic buying to be one of the more significant undercurrents shaping the online advertising landscape in 2014…Rocket Fuel, with its “artificial intelligence” technology, is helping to enable this shift.”

She added, “While the competitive landscape is expansive and technology differentiation is a challenge, we expect increased penetration and emerging channels to drive upward estimate revisions.”

While I agree with her rational and that companies involved in programmatic buying are in a rising tide lifts all boats type of scenario, I don’t think the case is as bullish as she makes it out to be.  Read the rest of this entry »

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Thoughts on Blackberry and the MDM market

Yes, I know that Blackberry has recently been written about quite a bit, but as an avid reader of news, blogs, and equity research, I always think there is space for another opinion. As it stands there are two very different stories to the company. One is that the handset manufacture has clearly been pushed out of favor by the likes of Apple and Android devices and doesn’t have much hope of ever regaining its former glory. On the other hand, bullish investor’s think that Blackberry can reinvent itself not as a handset company but as an enterprise software company.

While I believe that John Chen has done some great things in the past, i.e. Sybase turnaround, Blackberry is a much more difficult situation. Read the rest of this entry »

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Case for Crown Castle International – NYSE: CCI

Business Description:

Crown Castle International (CCI) owns, operates and leases shared wireless infrastructure, including towers and other structures. Its core business is renting space or physical capacity on its towers through long-term contracts in various forms.

Investment Thesis:

- CCI ended up flat for and the market up over 30% in 2013, CCI could be poised for growth given a number of reasons including its tower deal with AT&T, REIT conversion and aggressive spending on network builds. The stock has also pulled back almost 5% this year, presenting an attractive investment opportunity. Read the rest of this entry »

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