On the macro front Iraq is being plagued by a budding civil war, oil prices are higher, and volatility increased just a touch this week, though not much by historical standards (see yesterday’s post). The fighting in Ukraine continues, though the headline writers have turned their attention elsewhere. Meanwhile the World Cup began with Brazil’s opening victory yesterday.
On the micro front, the sentiment this morning feels downright giddy. PCLN announced its plan to acquire OPEN for a nearly 50% premium vs. yesterday’s closing price. Some analysts are scratching their heads as to the rationale of Priceline, focused on the travel industry, buying a restaurant booking company. Darren Huston, Priceline’s CEO, said the following about the plan in this morning’s statement:
OpenTable is a great match for The Priceline Group. They provide us with a natural extension into restaurant marketing services and a wonderful and highly-valued booking experience for our global customers. We look forward to helping the OpenTable team accelerate their global expansion, increase the value offered to their restaurant partners, and enhance the end-to-end experience for our collective customers across desktop and mobile devices.
It’s the last part that caught my attention – mobile devices. OpenTable was one of the first movers in the mobile space, and my hunch is that Priceline management wants to reach many of those mobile users to sell them its own travel services as well. And OpenTable, which has had trouble internationally, will get a platform to expand across the globe.
This space could heat up as companies like Ebay (Paypal), Google, Apple etc. start to stake their claim to transactions in the real world using mobile devices, not just online at home. (think about the size of the market of phone payments at the point of purchase replacing credit cards)
Mobile user growth at the expense of traditional media platforms is THE focus of the tech world. Marc Andreessen, Netscape founder and now billionaire venture capital investor, tweeted the following graphic yesterday about the growth in mobile:
The graphic was from a Nieman Lab article that had an interesting snippet about Google and Facebook’s domination of mobile ads:
Online advertising has long been dominated by a few big players, but their market power is even stronger on mobile. Just two companies — Google and Facebook — will earn 68.5 percent of all the mobile advertising revenue worldwide in 2014. They can do so because they have the best data about individual users: Google knows what you’re searching for, Facebook knows who and what you like. That advantage is almost impossible for a small news outlet to beat.
Since mobile is taking share from other platforms so quickly, the technology industry and many other industries, like journalism, advertising, taxi cabs (sorry guys), etc., are scrambling to adapt. Moreover, the mobile infrastructure is much more conducive to reaching hundreds of millions of people since practically everyone in the world has a phone, so the technology can spread at breakneck speed.
Given the mobile revolution, Intel’s increased guidance yesterday evening took the investment world by surprise. Intel is stuck in the personal computer age, and the stock has struggled for the past 5 years compared to a competitor like QCOM, which is the leader in mobile chips. However, INTC is breaking out to a 5 year high this morning, and the increased guidance makes the stock’s multiple look much more reasonable. The Windows upgrade cycle for businesses has been a major tailwind, even as consumer demand remains stagnant.
Bears on INTC would argue that even though the numbers look decent, and the valuation is reasonable, the company, like many tech hardware stalwarts is fighting last decade’s battles. The growth in mobile is leaving the company behind. If INTC chips do not find their way into a phone soon, future growth could be nonexistent.
On the other hand, bulls would argue that there is still a place for personal computers, particularly in the workplace. INTC’s dominance in that space offers a home base from which to try new technologies in emerging areas like mobile, and the cheap valuation already offers protection against bad future scenarios.
I don’t have a strong view on INTC either way, but QCOM remains a better long-term bet in my view. I’d rather bet on mobile all day, especially since the valuation gap is not large. We have an existing position on QCOM from last week.