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The first two sectors for 2013 are beginning to overlap in a lot of ways – but for this purpose when we talk cloud we are focusing on providers and the data center while mobile is more equipment and service providers. In general, we continue to be positive on technology spending as a whole. There are not a ton of pie-expanding investments out there – tech spending is all about ROI now and the faster the better. Technology investments are enabling more efficient and nimble companies and helping profitability (and even morale in many cases). There are more themes and more specific niches to consider – but here are the major groups.
1) Cloud
a. Premise: I want what I want, where I want, on any device I want…
b. Delivery: leaders in the cloud services space are AMZN and GOOG. Names to watch: MSFT, RAX, CTXS, and HPQ (last hope). Specifically – CTXS, RAX, and NTAP get attention as acquisition candidates by Cisco
c. Data Center: the “cloud” is a generic term, but in general the idea of housing all of your data at remote data center and delivering it on a global basis instantaneously puts heavy demands on computing resources. The ability to cost effectively scale the data center and deliver speed is critical. Top names: EMC (has VMW and will spin out Data Analytics), CSCO, IBM
d. There are some consultant type plays that would include CTSH, IBM, SAP and ORCL
e. Salesforce.com (CRM) falls into the “cloud” and I love what they are doing, but the valuation, like Amazon, is difficult to digest. CRM represents the SaaS (software as a service) space which saw several M&A deals this summer. The recent darling IPOs are Workday (WDAY) for HR Solutions and ServiceNow (NOW) for cloud infrastructure management
2) Mobility
a. Premise: Freedom; flexibility, and the same premise as cloud only I want it NOW
b. Delivery: telecom networks are traditionally high div paying and we still think VZ and T are fair plays on sell offs – but nothing to be exicted about
c. Infrastructure: as the world seeks to build out 4G networks the lead players are CSCO, ERIC, …
d. Equipment: there are only 3 names to watch: AAPL, GOOG, Samsung. Hail Mary plays in RIMM and NOK
e. Components: QCOM, ARMH, BRCM
f. Mobile Ad Spend – the only pure play is Millenial Media (MM) – but the big guys to watch are Google, FB, and Amazon – Apple is trailing.
3) Data Analytics
a. Premise: the world is generating data on a exponential scale – but what does it all mean?
b. The only way to describe this space is to say there are lots of people working the solve the problem of extracting information from data – across nearly any end market – healthcare, utilities, retail, tech…etc. There are hundreds of small, private companies working on solutions –most are getting gobbled up by the bigger players: IBM, ORCL, SAP. This space is likely to see several smaller IPOs this year and many more acquisitions.
Niche to Riche?
1) 3D Printing – initial market for industrial prototypes becoming saturated – key to the story is first, low cost home/office printing. Second, improved material possibilities leads to new “mass customization” market: only two real public plays are SSYS, DDD – expect HPQ to try something (they currently license SSYS); Autodesk (ADSK) for software – they will be a part of this.
a. Unknown what Trimble may do – they bought the 3D CAD software from Google (SketchUp) – they likely want to integrate with construction GPS aided equipment but something to keep an eye on. We like Trimble as a productivity enhancement play for construction, agriculture and fleets
2) Social Networking – yes, overhyped and underdelivered in many cases… a lot of this has to do with the misconceptions of what these firms actually DO vs the optionality you are buying. Moving forward, LNKD and FB are interesting, they have the ability to monetize their users and to expand the optionality of their platforms. LinkedIn has an actual market, job placement, and is expanding its offerings. FB is facing lots of problems, the biggest being mobile. The good news is they were able to generate $3-4b in revs without trying – currently they are rolling out new services, revenue models like mobile ads and ad exchange networks at the fastest pace to date. YELP not working. Hail Mary in ZNGA on gambling legislation
3) Housing meets Data – Zillow (Z) and Trulia (TRLA)
Favorite large cap names:
GOOG, IBM, QCOM, ORCL, AMZN, EBAY, EMC, CRM
Turnarounds: MSFT (data center), INTC (servers), YHOO
SMID Names: high valuation – prone to blow ups but like the technology
FIO, FTNT, SPLK, WDAY
When will then be now? Soon…
The first part of the migration to the online world was really about replicating activates that we previously did offline… mail a letter, make a phone call, book a reservation. The second act was/is about improving those, scaling those, and fundamentally altering those activities…online chat and video calls, Open Table. The third act is more immersive, it crosses more boundaries, or better said, removes them all together. It’s about actions that are fundamentally born in the digital world – shifts that are taking place that don’t have an offline precedent. A major driver of that third act is the influence of data and who controls it. The start of this can be seen in social networking. Our desire for a social network is not unique to online, nor is “sharing” and online phenomena – but the mixture of a private and public persona…a quasi public life on top of which interests, new, stories, general communication, and even commerce and business marketing all occur – that is new. Prior to this third act this type of mixture of life and data wasn’t really available offline, and it really isn’t all about scale – sure for marketing or sharing a picture the scale is the trick – but the idea of instant updates, commentaries, locations, recommendations, and actions that leverage the social graph is unique.
But as we look forward, what will it mean to conduct a greater and greater percentage of our lives in a connected way? The lines of traditional commerce and community, already blurred by the forces of the connected world, are all but disappearing.
Big Data: Real Time, Real People, Really Important…
Companies like Social Flow and Bitly present wonderful sets of data that show context as being the most important factor of all in a data stream. Location is nice, demographics and history too… social circle a good bonus, but context… or the conversation as someone put it, is a much more important piece. For example, if you and I are walking down the street near a Starbucks talking intensely about the Yankees win last night it may be more relevant for someone at that moment somehow someway to suggest I get my son a Jeter jerseys for his birthday RIGHT THEN as opposed to interrupting me about a 10% coupon for lattes after 3pm. Sure, I but lattees a fair amount, but right then you are interrupting my conversation, my space, to present me something that is not additive to my experience. Yes, I understand why you are doing it, but it’s still misplaced. The jersey is additive and captivating. Data sets like Twitter often have better context. The main draw back of the social data is that it is curated. Your Facebook persona is curated. Your search history on the other hand, is random and representative, but may just be tangents. Twitter is RIGHT NOW. The three are distinctly different.
Another dynamic that is emerging is true realtime web interfaces. Not those that require a refresh or an automatic browser request. But true interactivity on a website. This raises the specter of “web 3.0” being something transformative for both consumers AND companies. A company called Realtime is working on this.
Fun Data Anecdote…
This is from a data analytics professional. The best indicator of the potential for a prison riot is…. A run on Snickers bars at the sundry shop. This rational activity reflects concern that the sundry will close during and following the riot.
The Change Investor 