Whitney Tilson, founder and CEO of Empire Financial Research, has some opinions about the current prospects for technology’s biggest players, some of which he’s recommended to his subscribers.
Tilson is bullish on a few but sees muddled business models and headwinds for others.
by Whitney Tilson
Facebook looks the most undervalued of the six companies, but one reason is that it seems to have lost its story script.
For a decade whether you liked or hated the company, the story that drove its valuation was a simple one: a platform of billions of users, about whom Facebook knew a great deal, and they then used that knowledge to deliver focused advertising.
In short, this is a company that has built its business on accessing and using private data, and the privacy backlash seems to have finally led the company to try to redefine itself, first by renaming itself (Meta), and then muddying the waters about its business model.
I think that the company is still a profit-generating behemoth, with some of the highest operating margins in American business, but I think that until it finds a cohesive story line, the price recovery will be stilted.
Netflix is the most overvalued company in the mix, even after its major price knock down, after the last earnings report.
The company has upended the entertainment business and made everyone else in the business play the game their way, but it has always been on a hamster wheel, where its primary sales pitch to investors is its capacity to keep growing its subscriber base, and the only way it can keep doing this is by spending ever-increasing amounts of money on new content.
The question of how the company would get off this hamster wheel has always been there, and now that user numbers are starting to slow, and new users are becoming more costly to acquire, the challenge of doing so has become larger.
Microsoft and Apple have kept their heads low, as the rest of the FANGAM stocks have been buffeted by controversy and blowback.
Apple seems to have found a way to be one of the good guys in the privacy battle, and in the process, intentionally or not, it has helped deliver punishment to others (like Facebook) in this rarefied group.
For Microsoft, buying Activision advances them further towards becoming a premier platform business, and the company’s diverse platforms (Office 365, LinkedIn, and now Activision) offer the potential for growth and sustained high margins.
Google surprised me the most, delivering high growth and increased margins, suggesting that Facebook’s problems are its own, and that Google continues to steamroll its online advertising competition.
The other bets at Google continue to be cash-draining investments that deliver little in value, and after six years, I am not sure that they will ever be big value creators, but that search box is the gift that keeps on giving.
Amazon has, for much of its life, been a Field of Dreams company, offering investors a promise of revenues now, and if they wait patiently, profits in the future.
For the first decades of its existence, all that investors saw was revenue growth, but margins remained slim to non-existent.
In the last five years, Amazon’s margins have climbed and the company is solidifying its profit pathway, and while regulators and governments will try to rein it in, its mix of businesses and geographies will make it difficult to legislate against.