Thursday, April 26, 2012

RIM Turnaround Could Take Three to Five Years, Watsa Says - Bloomberg

RIM Turnaround Could Take Three to Five Years, Watsa Says - Bloomberg:

Below is an interesting excerpt from Bloomberg's article:

A turnaround at Research In Motion Ltd. (RIM) may take three to five years and the BlackBerry maker’s stock is undervalued, one of RIM’s biggest investors said today.
Prem Watsa joined RIM’s board in January and days later said his Fairfax Financial Holdings Ltd. (FFH) had doubled its holding, making it RIM’s third-largest investor, now with 5.1 percent. After Fairfax’s annual meeting today, he said he’s confident about RIM’s future.
“Is it going to turn around in three months, six months, nine months? No,” Watsa said. “But if you’re looking four, five years -- we make investments over four, five years. “Here’s a company with $2.1 billion of cash and no debt.”

Wednesday, April 18, 2012

Canadian Owner of Mac's to Conquer European Convenience Market with Norwegian Purchase.

Canadian convenience store operator Alimentation Couche-Tard Inc. is making a powerful foray into northern Europe and its first into overseas markets. Currently, the owner of Mac's convenience stores operates in Canada and the United States, and now it is expanding into Norway. 

The Canadian company is paying $2.8 billion for retail assets of Norwegian oil giant Statoil ASA. The plan is ambitious for the Canadian retailer and it represents a key and important peg in a new European growth strategy.

Couche-Tard shareholders were pleased and bidding on the shares shot up 15 percent on the news today. Some analysts are estimating that the deal could increase annual earnings by 20 percent. The deal will include 2,300 gas and retail stations in six Scandinavian and Baltic countries, including: Norway, Sweden, Denmark, Latvia, Estonia, and Poland. 

To ensure some continuity, the existing European management team will be left in place. To improve performance, they plan on streamlining operations and increasing profit margins with different mixes of new product and enhanced store designs.

Tuesday, April 10, 2012

Social Media Investment Bubble: Watch-Out! Advertising is Limited.

The Atlantic Wire recently published an article concerning the existence of a new bubble in the stock investment community. Facebook's recent purchase of Internet company Instagram for $1 Billion highlights The Atlantic's thesis, and I would have to second their opinion. Now, this is not to say that Facebook and other social networking corporations like LinkedIn cannot increase in valuation, but simply that sooner or later they have to come crashing down if they do not better learn how to profit from their users.

Instagram has no clear source of revenue, and at $1 Billion is valued far beyond its current earnings. As a business owner, one should expect a reasonable return over a reasonable period of time. Of course, proponents of many social media businesses would say that future earnings and future growth are coming, but investing based purely on expectations of future profitability with no clear path how to get there is a fools game and makes one inherently susceptible to market crashes irrecoverable losses.

Revenue comes from getting customers to buy something, or by selling advertising. Every social media company is largely claiming that their earnings will simply come from advertising, but it is not that simple. AOL, for instance, for years had an established network of users, but only recently by selling its patents to Microsoft, was it able to realize any significant value for shareholders. If all AOL had to do was simply rake in money from advertising, it would have made its investors a fortune by now. Remember GeoCities? Yahoo paid almost $3.6 Billion for GeoCities in 1999, and it is now defunct and shuttered. Why didn't Yahoo just utilize the magic of Internet advertising to make everyone rich? Because company's already have pre-existing advertising relationships that are often difficult to break. Ford, for example, cannot advertise via every medium, it has to select what it thinks will realize it the largest return. This often means it shells out lots of money to traditional outlets like CBS, but not necessarily to Instagram, which it might see as a flash in the pan.

Essentially, resources are limited and social media sites have to compete with other forms of media for advertising dollars. In tough economic times, this is not easy!