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JPM Decides to Drop Out
JP Morgan made comments today that they will no longer be participating in the student loan market. They will continue to service existing loans but will not make new ones. This is likely due to one or both of the following reasons: 1) Feds are crowding out private lenders; 2) risk profile of the loans getting too high. Obviously it is the second reason that is cause for a concern given the sheer size of the student loan market. This is a subtle but meaningful change in the outlook for student loans. Many have pointed to the growing balance, but this may mark a turning point in that discussion.
A few other things to note. First, the fact that the largest bank with the strongest balance sheet and “plenty” of reserves doesn’t want to make new loans is alarming. Second, the transition from student to household formation is stunted. The weak job market and uncertain housing dynamic, compounded by excess student debt may be complicating and hindering chances at a housing recovery. Lastly, student loans, since that are not taken against assets, are locked against the individual, there is not getting out of it…then again, it is a Federal loan in most cases…could make for a very interesting chess piece.
Facebook pays $1.25b to help protect its Achilles heel
Once we get over the initial shock value of the Instagram purchase by Facebook, it is much more interesting to look at the why as opposed to HOW MUCH? Yes, Instagram was worth $20m only 14 months ago, $500m last WEEK, and now $1.25b (cash and FB stock w/ valuation $74b). Their user growth and activity levels are growing rapidly, they just added the app to the Android platform, they are a leading photo sharing site, AND they have users interacting OUTSIDE of the Facebook network. And that leads us to the why…
From a fundamental perspective there are four truths to consider: 1) photos are the leading activity on FB; 2) viral activity leveraging Facebook, Twitter, the mobile web and other social outlets has never been so pervasive or explosive; 3) mobile web activity will overtake desktop and laptops soon; 4) FB activity on mobile is fundamentally different and lower than on the desktop.
On the desktop FB is a platform, on mobile… just another app. There is a HUGE difference. On the desktop a users entire web activity and most of their time is through the FB platform. On mobile, they are just another one of the many apps consumers use to manage their mobile lives. In addition, the FB mobile app is cumbersome compared to others. Instagram is fast and elegant, Twitter simple, Foursquare simple. Yes, FB has more information and flexibility, but in a mobile world the whole point of the app is simplify. FB is aware of their limitations on mobile and is actively pursuing a mobile phone platform strategy and in the meantime is willing to buy competitors.
The Change Investor 