by Gary Spivak, Investment U Research
Tuesday, May 15, 2012: Issue #1773
Over the last couple of weeks, investors have been hearing a lot about the Facebook IPO and the accompanying high-profile road show.
For those who are confused, the road show is a planned set of meetings where the management team of the company going public, accompanied by its investment bankers, shares the investment merits of its about-to-be traded stock and why you, the investor, should buy in on the IPO.
It is not about whether the CEO of said company is wearing a suit, or a “hoodie,” or will even show up at all.
What’s challenging about the Facebook IPO isn’t whether this is a leading company in the new field of social media – oh, it certainly is. And it isn’t, in our opinion, about whether Facebook will continue to get “eyeballs” to its site – oh, it will.
What’s more meaningful to us is simply: Can an entire industry or company that has been in existence for less than 10 years continue to grow at its current torrid pace? Will social media continue to stay “hot hot hot” or will it merge into the mainstream? If it takes a company seven years to “rule the world,” how long could it take a competitor to come in and simply be cooler or just plain better?
And the more important question to us is: Should I even be asking those questions?
This brings me back to a recent essay I wrote about cloud computing…
Facebook’s stock may go up or it may go down. But how do I profit from that when the largest institutional investors in the country get to see whether Mark Zuckerberg is wearing a “hoodie” or a suit? What advantage can I gain over them?
The honest answer for me is, “I don’t have any advantage,” and, sorry to say, neither do you.
So, let’s take a step back and look at Facebook another way. In its barest form, what is it? It’s a company offering a service by utilizing the internet. In the cloud computing essay, we defined cloud computing as “simply any technology service, such as an application, infrastructure, or platform that’s offered to customers over the internet.”
Sounds like Facebook to me!
And in that same note, I suggested investors look to the stocks of the “arms suppliers” to the big guys already at war. Make no mistake about it – Facebook’s war is no longer with the Winklevoss twins – it’s now with Google (Nasdaq: GOOG), LinkedIn (NYSE: LNKD), Apple (Nasdaq: AAPL) and even Microsoft (Nasdaq: MSFT), despite any appearances of cooperation. All these companies seek world domination in their sectors.
In the movie Social Network, the Zuckerberg character, irate because someone had threatened the website’s availability, states, “Facebook does not go down, Facebook never goes down,” or words to that effect.
So who are the arms suppliers to a company whose website “can’t go down?” There are a number of different areas in addition to those mentioned in our earlier note.
Admittedly, this term sounds about as sexy as a burlap sack covering a Sumo wrestler. But it is important, and these are the companies that help a company like Facebook stay “up” and performing to expectations.
What are some of the weapons required?
- Suite-based infrastructure management – Companies like CA Technologies (Nasdaq: CA), BMC Software (Nasdaq: BMC), Hewlett-Packard (NYSE: HPQ) and even IBM (NYSE: IBM) sell entire suites of products aimed at keeping data centers up and running.
- Website performance management – If Facebook users in Boston are having problems with the site, but users in San Francisco are fine, what early detection mechanisms are available? Companies like Keynote Systems (Nasdaq: KEYN) and Compuware (Nasdaq: CPWR) have utilities that can monitor this constantly and give the site operator early notification if there is a particular problem in a particular location.
- Application performance – There’s a group of companies that focus on monitoring and managing the performance of applications. Facebook likely has hundreds, if not thousands, of individual applications, and they need to be monitored. Companies like OPNET Technologies (Nasdaq: OPNT), as well as Compuware and Keynote, help with this.
- Network performance – What if there’s something wrong in the network? Companies like NetScout Systems (Nasdaq: NTCT), OPNET, Hewlett-Packard, Cisco (Nasdaq: CSCO) and the other suite vendors can give visibility into what’s going on in the network.
Don’t try to keep up with what the big guys know about Facebook. Figure out what’s going on behind the scenes that makes Facebook work.
You’ll find the grounds far less crowded, and you may make a pretty penny along the way. And you won’t have to figure out if the “hoodie” is going to be the next big fashion trend, either.
Gary SpivakHow to Profit From the Facebook IPO Without Buying Facebook,