Facebull

I am a fan of Facebook. I truly am. But will I put my money in it? I don’t think so. Like I mentioned in my earlier post, I still think tech stocks are naturally bubble prone. We have seen it in the past with Groupon, Zynga, Pandora et al. And soon it will be Facebook’s turn. The on-going IPO, which values the firm around $ 104Bn, is simply atrocious.  While it may not be right to compare Facebook with the likes of Groupon and Zynga, there are many reasons to do so.

While Facebook’s revenues may have increased in Q1 2012 compared to the previous quarter, its ARPU (average revenue per user) dropped 12% to $ 1.21. Facebook cited ‘seasonal trends’ as the reason for this decline. Seasonal trends! Really now?  The truth is, while Facebook’s user base continues to grow, it is not able to generate enough revenues. Online display advertising, Facebook’s chief source of earning, does not hold a strong promise. Let’s pause here and ask ourselves how many times have we ever clicked on a display ad on Facebook? 900m plus users is impressive. But it also poses a challenge for growth. Forget doubling profits, I really doubt if Facebook can even sustain a modest q-o-q growth.

For Facebook to sustain profitably, it clearly has to think of innovative ways of making money. Its biggest challenge would be to retain existing advertisers. As I write this, GM has announced that it will stop advertising on Facebook as it has little impact on the users.

The on-going IPO has generated much heat which, I believe, is nothing but herd mentality. Most of the investors are in for short-term gains. And they should! Knowing that Mr. Zuckerberg would continue to control more than 50% of the voting rights, why would any shareholder like to stick around for long?  Imagine a hypothetical scenario wherein Facebook files for Chapter 11. What can you, as a shareholder, possibly get in liquidation? What are the tangible assets of the Company? Hmm.

I read somewhere that Facebook is not a Company. It’s a social experiment. How true!

Documentary for dummies

A very simple yet hard hitting documentary on the ongoing Euro crisis. Definitely a must watch for those who don't understand the magnitude of this problem. Lets hope 2012 seals the fate of the Euro. 

Here's the link:

Euro on the brink

Rollback of FDI in retail? Ridiculous!

What a sad day for the Indian retail sector. After announcing 100% FDI in retail, the Government today decided to put the proposal on ‘hold’ until a consensus is reached among political parties. The Governments decision to allow FDI in retail resulted in strong criticism from the opposition parties which have led to a logjam of sorts at the recent parliament sessions.  The opposition fears that the Governments proposal would result in loss of livelihood of the 12 million odd kirana [mom-and-pop] store owners.

I wrote about this in my earlier post wherein I mentioned how silly the opposition’s argument is. To reiterate, the kiranas would only integrate with modern retail. One has to keep in mind that about 75% of India’s population still earns less than $2 a day. So unlike in more advanced economies with high per capita income, kirana stores will continue to be a part of the Indian market given the shopping styles of consumers. The culture of shoppers to shop daily coupled with lack of storage space make the kirana store an integral part of the Indian middle class.

Not to mention the 6-8 million odd jobs that experts believe would be created if FDI in retail is opened up. A large number of MNCs would setup shop in India which would create a huge number of jobs, not just directly but indirectly as well [sourcing, logistics, etc]. Like Schumpeter has rightly pointed out in this post, if there is a paradise for multinational supermarket chains it must be India. The country boasts more than one billion inhabitants and an economy that is growing healthily. Its retail market is forecast to nearly double to $850 billion by 2020. It is also very fragmented with only very few supermarkets and no dominant chain.

The organized retail sector in India forms a measly 7% of the total retail trade. To improve this, it is critical that the sector is integrated with the outside world. And just when there was a ray of light, the UPA government has chickened out. What a shame!

Xmas Charting

Can't wait to unveil the daily chart. Wonder what's behind the 25th!

Happy charting

To stretch or not to stretch?

Being a workout addict but an absolute hater of stretching, this article comes to me as a breather. When it comes to stretching, I am probably the only one at my gym who cheats. Where fellow workout enthusiasts stretch for around 10-15 minutes, I wrap it up in less than 5 :). The fitness trainers at the gym always advise to stretch both before and after the workout, which I more often than not ignore. And I have no guilt. I can safely vouch for the research outcome mentioned in this article because trust me, I feel absolutely fine with my cheat stretching :)

Here is a gist:

Researchers at the University of Sydney in Australia reviewed dozens of recent studies of stretching, hoping to determine whether the practice prevents people from getting sore after they exercise. The authors found 12 studies completed in the past 25 years that looked directly at that issue. Most were small and short-term. But each produced essentially the same result, the review authors write, showing that “stretching does not produce important reductions in muscle soreness in the days following exercise.”

In a study, which was conducted by Robert D. Herbert, a professor at the George Institute for Global Health at the University of Sydney, who also wrote the comprehensive review, the rates of reported muscle soreness were similar regardless of whether the volunteers completed a standard 15-minute program of static stretching. About 32 percent of those who didn’t stretch reported sore muscles the day after a workout. About 25 percent of those who had stretched reported the same.

Other studies have produced comparable data, with one experiment cited by Dr. Herbert finding that static stretching before or after endurance exercise reduced volunteers’ self-reported muscle soreness the next day by a grand total of just half a point on a 100-point scale of discomfort.

“It does not mean that you should not stretch,” said Dr. Michael Fredericson, a professor of sports medicine at Stanford University and the chief physician for that school’s cross-country and track-and-field teams, who recently completed an online report about stretching. Try substituting jumping jacks for toe touches before a run, he says. “And if you feel frequent tightness” in certain muscles or tissues, like in the iliotibial band that runs along the outside of your knee, a common occurrence in distance runners, “then stretch those particular muscles after exercise to lessen your chances of serious injury.”

If you’ve never stretched, though, don’t feel obligated to begin now, Dr. Herbert says. “There is little evidence that stretching does anything important,” he says, “but there is also little to be lost from doing it. If you like stretching, then do it. On the other hand, if you don’t like stretching, or are always in a rush to exercise, you won’t be missing out on much if you don’t stretch.”

The King of Bad Times

If you go by media reports alone, the Vijay Mallya-promoted Kingfisher Airlines is just a step away from bankruptcy. It had to cancel over 200 flights over the past few days while its pilots are missing and suppliers are demanding immediate payment. As a result, the airline has knocked on the doors of the Government for a possible bail out. Like the Air India/ Indian airlines mess wasn’t enough for the Government to battle. It would be just a matter of time before other private airlines like Jet Airways, Spice Jet and Go Air who are all making losses come knocking.

In my opinion, the Government must not bail out private airlines like Kingfisher whose biggest problem is the large size of $ 1.3Bn debt on its books. Major part of this debt was to finance the buyout of Air Deccan. This is a self created problem which must be tackled by the airline on its own. The airline’s immediate cash requirement is estimated at $200 Mn. This includes dues to the private airports, AAI, oil companies and other vendors. It would need another $200 Mn to be able to run its operations properly. The immediate problem that the airline is facing today is that GMR, which operates the Hyderabad and Delhi airports, has put the airline on “cash and carry” in Hyderabad. That means the airline can operate only if it pays the money upfront. Other vendors/ suppliers have also placed the airline on “cash and carry” basis which has resulted in the recent cancellation of flights.

The board of the airline is considering a proposal to cut debt by more than half by selling property, converting loans from its parent company into equity, and changing the terms under which it leases aircraft. The airline promoted by Mallya's UB Group, which owns United Spirits, India's biggest liquor company. The UB Group will also convert $135 Mn of debt into equity as part of the plan to pare debt. The airline would also approach its existing bankers for additional working capital financing to meet immediate commitments towards salary payments and dues to AAI.

The Government must stay put on this issue as setting a precedent by helping in a bailout of one private airline would be dangerous for the future. As Mr. Rahul Bajaj, Chairman – Bajaj Auto, rightly said "If it's a free market economy, those who die must die."

The shoe-thrower's index

You gotta love The Economist and the charts and indexes it creates.

Here is another interactive one called The shoe-thrower's index with weightings that caused the Arab Spring. Play along. It's brilliant!