Sign up for our free daily newsletter
Get the latest news and some fun stuff
in your inbox every day
"Of the top ten, there are only three that are still in the red, one that barely breaks even, one company that did not exist and was therefore not listed, one other company that was not listed. It might be difficult for many to stomach, this time and at this juncture with newer technology that is really profitable (whisper - they even pay dividends) it really is different."
To market, to market to buy a fat pig. The big story last evening was the nerds of NASDAQ hitting a 15 year high. 15 years ago there was no Facebook. 15 years ago Google was in its infancy and not even there to invest in. Tencent, Alibaba, forget it! LinkedIn and Twitter, no ways. 15 years ago it was Microsoft, Intel and Cisco, Oracle, heck Nortel had a market cap of one quarter of a billion Dollars, it is now bankrupt. Lucent imploded. AOL was huge, remember that little line in which they told you that you have mail? I can see that you are getting all starry eyed thinking of your Pentium 386, your dial up modem noises and Netscape 4.1 browser.
Let me remind you, those were not the days, these are the days now. WorldCom, there is another bad reminder of what it was back then. Technology as a whole only represents around 20 percent of the overall US market, back then it was nearly 30 percent, from 6.3 percent in the early 90's. And back in the 80's it (technology stocks) was completely dominated by IBM. A business called International Business Machines, now there is something! There is something of a misconception that the NASDAQ is entirely technology, that is definitely not the case. The makeup has changed significantly, if you check this WSJ article out, you will see that it is 42 percent last evening, when compared to 65 percent on the 10th of March 2000 -> Nasdaq Composite Closes at Record High.
Consumer services and healthcare have become more and more important, more importantly however is the bottom right hand quarter of the graph, where you can see the average earnings multiple of the NASDAQ went from 70 to 20, where it is now. The order, by market cap and company of the NASDAQ is worth pointing out, via the NASDAQ website -> NASDAQ Companies. Making up the top ten companies by market capitalisation, Apple ($755B), Google ($379B), Microsoft ($355B), Facebook ($230B), Gilead ($156B), Intel ($153B), Comcast ($150B), Cisco ($146B), Amgen ($128B) and lastly Qualcomm ($112B).
How have those companies done since 10 March 2000, their share prices that is, as this is all we are talking about. I bet from a sales and profitability and technological advancements point of view, they have done markedly better, that is however not what we are talking about. I used Google Finance's (which was not available back then) trusty graphing tool to give me the answers. So this is since the index was basically flat, from 10 March 2000 to present the nerds of NASDAQ returned 0.15 percent. That is it. That is all.
In that exact same time, Apple returned 2787 percent. Nearly a 30 bagger, unprecedented at this sort of size and scale. Google of course only lists in the second half of 2004, since then the stock is up 911 percent. Microsoft, this is where it starts to get a little ugly, the stock is down just over 14 percent since then. Facebook only listed in May of 2012, the stock is up 115 percent since listing. Gilead is the star performer, up a whopping 4596 percent. The mind boggles. This is where it starts to hit home, since March of 2000, the Intel stock price is down 46 percent. Comcast is up 133 percent. The ugliest of them all is Cisco, down 58 percent since the highs. Amgen is up 184 percent. Lastly, Qualcomm is up a mere 0.4 percent over the 15 year and one month and a week. Most of these are taken from 17 March 2000, Google finance does not compare properly on an exact day basis, from way back then.
The conclusion I guess is simple, the NASDAQ constituents as a collective are far cheaper now than they were then, more importantly there is a new breed of companies and specifically Apple which reengineered itself, equally Gilead, which is not a tech company, I suppose being biopharma there is a huge element of technology. Of the top ten, there are only three that are still in the red, one that barely breaks even, one company that did not exist and was therefore not listed, one other company that was not listed. It might be difficult for many to stomach, this time and at this juncture with newer technology that is really profitable (whisper - they even pay dividends) it really is different.
On the local front the JSE all share closed at an all time high. 54687 points. Our market over the same time (March 2000) has managed to go from under 10 thousand points to the current level. 5 years prior to that, it was half the level. I guess if you had simply hugged the index for the better part of 20 years, you would have seen an 11 fold return in that same time, of course the constituents of the index would have changed dramatically. I remember that back then in March of 2000, Dimension Data would dominate trade, accounting for over one-third of all trade on any specific day. The lowest point of the All share index over the last twenty years, according to the data from TradingEconomics is 4319.95 points. Which looks around about when the 1998 Asian currency crisis was in full swing. Here is a graph, courtesy of TradingEconomics.
source: tradingeconomics.com
In that time, according to the same data from TradingEconomics, we have had to pay 20 percent for our debt. True story, current government bonds attract a yield of 8 percent, which is pretty lofty by international standards. And the thing that people get more anxious about? The Rand. That seems to grip people MORE than anything else. The level of the Rand and where it is going to next. I remember when the naysayers back in 2001 said that the Rand was going to 20 to the Dollar. The next move was back to 5.65 to the Dollar. Currently we are much weaker, the fundamentals look a little ropey.
source: tradingeconomics.com
I suppose that if you choose a longer dated graph it always looks a little worse. The long and the short of it all is simple, if you wish to invest offshore, you should and you should act. It is far easier than at any time in the past. And you must never invest offshore just for the simple purpose of looking to run away from the currency, rather invest for the right reasons. The right reasons being owning quality global businesses with reach beyond their own borders.
Company corner
MTN was on a bit of a tear yesterday. Here it is: MTN Group records 227,5 million subscribers. That is quarter on quarter growth of 4.1 million subscribers. MTN is only 21 years old, as a listed business. The company always measures these updates on a quarter on quarter basis, in other words measures the number of subscribers that they had in the reporting quarter versus the prior one, rather than measuring it year on year.
For instance, if you read the headline number and see that in South Africa the Postpaid segment saw a fall of 0.3 percent subscribers, there is cause for concern. When measured against the prior year however, there are still 200 thousand more. In total, the company has 17 and a half million more subscribers today than they had last year. To put that number into perspective, there are only 63 countries with more than 17 million people, by population that is. The Vatican has only around 850 folks living there, the Cocos islands has 550 and the Pitcairn islands has only 50 odd folks living there. That is the bottom of the list.
We don't live there, MTN does not and never will operate there, the Pitcairn islands. They will operate across the continent, where the average age is very low when compared to the rest of the world, the average wealth (which is evident in the Average Revenue per User numbers) is very low and most importantly the GDP growth rates of Sub Saharan Africa are expected to be higher for longer across most of the region. In other words, to generalise (to paraphrase Morgan Freeman's character in the Shawshank Redemption), and generalising is a dangerous thing, the future of our continent looks bright. Notwithstanding the terrible events of the weeks gone past here in South Africa, notwithstanding the horrible and dreadful attacks on humanity in Kenya and Nigeria. The business may appear mature, and that it may be from a voice point of view, data is growing strong, everyone wants a better handset that uses more data than NASA did in the whole of 1966 (I am making that up), communication is at our core.
We certainly have been patient and long term holders with this company, as private investors we tend to get too itchy, wanting to move too quickly. MTN have paid 21 dividends as a listed company, I remember when they paid nothing for a few years whilst they were in growth mode and then only an annual one, a small one at that. The first interim dividend in this current cycle was declared in August of 2010. Last year the company paid 12.45 Rand in dividends, pre tax of course. Expectations are for a modest 8 percent per annum increase. Ironically, the yield forward looks greater than that of Vodacom, there is a turn up for the books! We continue to hold the MTN positions that we have, they are a superb dividend payer with growth prospects that still require deep investment to keep pace, equally they have good growth prospects.
YouTube turned 10 unofficially yesterday. On the 23rd of April 2005, the first ever post titled "Me at the Zoo" was uploaded by Jawed Karim, the co-founder of YouTube. The clip itself is terrible. It is shocking actually. I guess the company has been a success beyond their wildest dreams. Check this out, the first and only ever video, as per below the link.
The other two folks involved with YouTube at the beginning were Chad Hurley and Steve Chen. Chen was born in Taipei and Karim in Germany, (East Germany actually, his family crossed the border). Salar Kamangar is the current CEO, he was born in Tehran, the capital of Iran. Three out of four of the people closely associated with YouTube are foreigners initially to a country they now call home. Sergey Brin, the Google co-founder is born in the USSR. Immigrants founding American companies, there is a massive lesson in that for everyone, most especially here at home.
Why I spoke and am speaking about YouTube is their parent company, Google also released numbers last evening. They were decent, currency headwinds as expected, as much as 795 million Dollars impact on revenue. Google is still a "one trick pony" as many businesses are, that does not concern me. As long as you can display the best trick over and over. Cash on hand, that swelled to 65.4 billion Dollars. Which as a percentage of their market capitalisation is 17.6 percent. The company recorded revenues of 17.2 billion Dollars for the quarter past, which was a 12 percent increase on the comparable quarter in 2015, without the currency headwinds the increase would have been an impressive 17 percent.
Most of their revenues (like Facebook) were derived from their Advertising business, the Google website or the Network member sites. That of course includes YouTube, the Google websites, they have never quite broken it down. Most of the growth in their "other category" revenues were from the Google App store. Those big Android users will know what I am talking about. Top paid Android app in South Africa? Minecraft. Wow.
Now you may view that as sad, in my mind there is no difference between watching the telly and fiddling on your phone or tablet. They are both entertainment, the difference is that when fiddling on your device, it is two way entertainment. You have no control over the content on the TV apart from what to watch, nowadays you are given the freedom of when to watch it. Minecraft? You can partake whenever you want to. What amazes me about that is the lack of the quality of the Minecraft graphics, it is almost "retro". If you needed to know how many potential customers there were for the Google app store, there are more than 1 billion Android devices globally. The most popular apps? You guessed it, Google app (the search), YouTube, Gmail and Maps. Stuff you use every day.
How does Google stack up? Is it expensive? Cheap? Should you buy some shares now? Yes. You should own this company. The company has multiple businesses and when I try and use a comparison of businesses of yesteryear I sometimes suggest that this is the General Electric of the 21st century. They have a strong Robotics business (have you seen those crazy packhorse robots?), they are starting to branch out into medical technological research and partnerships. Lots of their businesses don't or did not work, if it does not, they close it down. Google Labs. Their Ten things we know to be true segment is quite entertaining, their business is still highly connected amongst all your lives. The Nest purchase (for 3.2 billion Dollars) indicates that the company is always on the hunt, for something unexpected. Also, their recent artificial intelligence purchases, DeepMind, which learns from experience is pretty interesting.
Something struck a chord with me, on the earnings conference call the chief business officer, Omid Kordestani said the following, seeing as we (the royal we) take so much for granted: We are also working very hard to make our products more accessible to the next billion people who are coming online. The first computing experience for these users won't see on a desktop machine or a laptop. They will be on a mobile phone from day on one. In fact, many of them will use a mobile device as their only computer.
I suspect that there has not been a time to buy Google on the cheap, since they listed, apart from a period of a year during the great washout of 2008 and 2009. Currently the investment community has the stock on a forward multiple of 19.25 times current year earnings and 16.7 times next years earnings. Cheaper than the index. Market participants have decided that the company has lost its mojo, I guess there are serious competitors in search, Facebook is one of them. Apple phones are awesome, the iPhone 6 is incredible, the Samsung S6 runs Android software, that belongs to Google. Of the high end smartphones, it seems to me that these are the two that get consumers excited. I digress, in summary the stock has never been cheaper, with 55 thousand employees the company may be perceived to have lost their entrepreneurial edge, their core business may be under pressure a little, in that lies an opportunity. Buy, you will have to be very patient, as much as two years patient. Mr. Market agrees, in after-hours trade the stock is up over three percent.
Things we are reading
The headline is self explanatory, the numbers are mind boggling - A quick reminder of how gigantic Facebook is
I always find the stories of people who start businesses interesting, given that Famous Brands is one of our core shares makes the story even more interesting - Natasha Sideris: Inspirational creator of Tasha's, SA's hottest restaurant chain
Home again, home again, jiggety-jog. Another record high for stocks here. 55 thousand points. Greece, the clock is ticking. All the other EU finance ministers seem to think that time is running out. Is there anything that you, in your personal capacity, can do about the finances of Greece? The answer is actually no, there is nothing that you or I can do. What we can choose are the quality of the companies that we can hold, and seeing that we are at the end of the busiest week for earnings in the US (147 S&P 500 companies have reported thus far), we can be perfectly sure that with markets globally near or at all time highs, that is what the collective thinks of it all. More importantly, Michael gets married tomorrow, we wish him all the very best! He is away for a couple of weeks, honeymooning.
Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.