Broadband has to take off before any impact is made on retail. In fact, we probably need faster speeds than what is commonly offered as broadbad these days.
"He said at the bottom of his original post that it's often a negative action, since the company offers discounts to big investors, and has to pay commissions..."
That's negligible... but...
"...and there's quite possibly going to be a drop in stock price as well."
If there is a drop in stock price doesn't that conflict with his/her original point? If he/she is saying that the stock will drop then his claim that it is a neutral event cannot be true...
But growth is not relevant to our discussion because it is an expectation which may or may not turn out to be true. If you bring growth into the discussion then what you are saying doesn't apply to a general case.
I thought you were taking about a general case, which is why I said that share offering dilutes ownership. The general case is that stock offering ALWAYS dilutes ownership!
I have to think about where you are going wrong. Something doesn't seem right... If what you are saying were true, why don't companies constantly issue shares? If it it a neutral move, diluting like crazy should have no impact. In fact, why even use debt financing when you can simply dilute all the time?
"
Growth != earnings. While growth is nice, profitability is not just dependent upon revenues, you must factor in costs as well.
"
Yeah... but the poster is talking about earnings growth so that takes into consideration your point...
"
Furthermore, please cite source for median projected growth rate of 30% over next 5 years. What units are we talking about hear? Median of what industry, or of the economy as a whole? As estimated by whom?
"
I think Google is overvalued but nevertheless, the previous poster is right with his earnings growth rate of 30%. HEre is the analyst consensus forecast . Go down to the bottom and look at the 5 yr forecasted growth rate. It's 30%. Of course, tech analysts are overly bullish and have been wrong many times...
"Is Google selling $4B dollars of stock, or 14M shares of stock? In other words, can they set the price of the offering, or is it subject to market price?"
They are selling 14 million shares which happen to be around $4billion. It doesn't matter how you look at it, it's all the same... The price is set by the market. More precisely, it is determined by the investment bankers who are working for Google. They will come up with a price that they think they can sell the shares at. Generally, the selling price will be close to the market price (sometimes below; sometimes above; but close). If it were priced too high, no one will buy it (why not simply buy the share on the open market instead of going through this placement?); if it is too low, the company and its existing shareholders loses out.
What about a theoretical example that they double their outstanding shares through a secondary offering. Will they still be able to sell the new shares at $300?
It's all supply & demand. It's whatever the buyers will buy at. If the supply is high, then price will be drop.
Generally the offering price tends to be slightly lower than the stock price (because of dilution, as well as increased supply). For example, Google closed yesterday at $285.10 while the offering price was around $281 (roughly).
AFAIK, that's wrong. The company will be diluted. The share price will drop due to dilution. You can look at the 5 day chart to see a gap down due to the announcement. The drop was due to dilution...
What you are overlooking is the fact that your shares will have that much less ownership call on the company. If the dilution is 10%, you own 10% less of the company and the earnings attributable to you is 10% less... All the stuff about assets and assets per share are laregely irrelevant. If what you were saying were true, why can't a company constantly keep diluting itself into the stratosphere?
"OK that was just an example number. What if you owned 1%. Then they released more shares so your 1% is only worth 0.5%. Surely they can't do that? They're effectively stealing your part of the company. Imagine if your next door neighbour 'released' ten square feet of your garden and sold them."
That is precisely what happens in certain sectors. This is actually more common than people think in small-caps and micro-caps. Someone who has investing in junior mining or biotech would know all about this. The companies keep diluting their shareholders like crazy and the stock keeps dropping gradually (because the new investors sell out and increase supply). These juniors make no money so banks won't give them a (large) loan and no one wants to buy their debt either, so they constantly dilute their shareholders...
I responded to a couple of posts saying that the original poster's analysis is wrong--or my understanding is wrong. My understanding is that stock offering actually has a material impact (contrary to what the original parent says)...
I think the original poster's analysis is incorrect. My understanding is that stock offerings actually have an impact. They dilute the shareholders. I don't think the original poster's claim that stock offerings have no impact is correct..
The only things that have no impact on valuation is stock splits and dividends*.
(* However these things may provide signals that can increase or decrease the market value).
" In THEORY, a secondary offering has no impact on current shareholder..."
That's wrong. Secondary offering dilutes the shareholders. Therefore it has a negative impact. In theory if the company issues 10% of market-cap in new stock, the value of the company will drop by 10%. All existing shareholders will lose 10%...
The stuff you are talking about future potential, and the possibility of returning more money than was raised doesn't show anything. The shareholders are worse off because of the dilution. What you are saying would make more sense if a company issued debt or took out a bank loan. Those activities should theoretically have no impact on valuation...
I think the whole patent system, or just a system for protecting ideas is doomed to fail. I don't necessarily think it is due to any changes in the system but it's simply due to the change in society and economy. What I mean by that is that we are more knowledge-oriented nowadays.
A far greater percent of the GDP goes into knowledge, ideas, etc than 100 years ago. A hundread years ago, industrial technologies and processes were common, which meant that you generally ended up producing a tangible product. Sure, there was an idea behind these products but it was well defined. Nowadays, in contrast, we have big industries which aren't tied to anything tangible per se (eg. software, entertainment, media, biotech). Such industries will become a bigger portion of the economy (think of biotech, for instance, which will move from the fringes into mainstream within 20 years).
With the massive increase in these "knowledge" industries, I think what has happened is that the patent office has (i) run into problems patenting often abstract forward-looking knowledge-oriented concepts, and (ii) run out of resources. The first problem simply cannot be avoided. Patenting a portable music playlist before it is even a product is a lot more complicated than patenting a physical device that is about to be developed. The second problem can be solved by pumping more money at the system but I don't know if governments can afford it anymore. If rich countries like USA can't even afford to fund education or social services (like decent police), I don't know if funding the patent office is going to be a big priority. Higher fees can be charged but this will mainly hurt the small inventor/entrepreneur and give a big advantage to the large corporations (actually the system is already skwed towards them but that's another story).
I predict that the end-result will be a total collapse of the patent system*. Literally anyone can potentially generate an idea for a patent nowadays whereas 50 to 100 years ago, only the so-called professionals (eg. doctors, scientists, engineers, etc) were able to do it before. Right now, everyone reading this post can roll-out some software to do something totally new; or we can develop a new process or technique for a website; or something. The patent office simply can't keep up with the population anymore...
(* You bring up an interesting point about developing countries like China and India. Will they follow the patent-oriented business system or not? Clearly, WTO and other world regulations require it but I just wonder if it will mean much. A lot of the developing countries are skipping "useless and inefficient" methods and techniques. Just like how most of those countries jumped from no phones to wireless phones (eg. mobile phones) since landline was too expensive and inefficient, I wonder if they will skip the patent-oriented system. Although corporations and investors like to have patents since it provides a steady stream of income (assuming you can litigate the opponent), it is generally detrimental to the inventors, entrepreneurs or anyone else actually trying to do something. On the surface it would seem that a small entrepreneur can develop something, patent it, and make money off that, but in reality, most of the patents are filed by large corporations. Given all that, countries like China, India, Brazil, etc may just skip the patent-oriented system. Those countries do not have a history of a strong patenting system (copying is more common) so it wouldn't surprise me if nothing much happens for the next 50 years).
Yes, MS probably invented the portable MP3 device. This is not to say that the iPod was created by MS (it clearly was not) but a generic MP3 player that this patent refers to may have been developed by MS prior to Apple.
It is pretty common to have tech companies develop things way ahead of others and yet fail to succeed. It is also quite common to see companies improve upon others' prior works. Ideally, such progress won't result in lawsuits but unfortunately capitalism will necessarily lead to everything being resolved through some pricing mechanism (which are basically what corporate lawsuits are about--this is also why I think lawyers and everyone associated with the process get paid a lot, relative to the people who invented the idea).
It is quite common nowadays to have start-up tech companies simply patent something and not deploy it to the field or attempt to sell it. Once upon a time, it was thought that inventing something meant that you needed to develop a product and sell it. Nowadays it is becoming more profitable to not develop an end-product and instead sit on some intellectual property and then live off the royalties you earn by suing whoever runs afoul of the patent. There have been quite a few good examples of this shift in trend (eg. cases involving RIM, Rambus, etc).
I think the trend I'm talking about will become the norm within 20 years. I don't think it'll play as much of a role in the computer industry (since the industry is well developed with large companies have more power) but I anticipate that it will be the norm in developing industries like biotech, nanotech, and stuff like that. Biotech companies will simply develop some intellectual property and sit on it (without developing any drugs or anything). It'll end up being more profitable for investors to do that...
While we are on the topic of patents and lawsuits, it looks like Apple has bigger problems. Apparently Microsoft has patented some elements that the iPod uses. In other words, MS patented a device similar to iPod before Apple conceived of the iPod. I don't think this will result in any lawsuits but I'm sure Apple will think twice before suing MS in the future...
I hate to be the bearer of bad news but I predict that you will get at least one nuclear meltdown within the next 15 years. If I had to guess, I would say that it'll happen in China...
Not trying to single out any country or preach doom&gloom, but that's what I see happening...
What's wrong with editable resumes? If you don't trust a potential employer with your resume, I'm not sure it's even worth pursuing them for a job. Employers can do whatever they want with your resume anyway...
Now, if you are putting your resume on a website for public access or something then I would agree with your point that it is perhaps best to have it in PDF or something...
Cisco and Nokia used to be the de facto #1 leaders in their market. Nowadays, they are just two struggling behemoths.
I'm not really sure how benefitial such a merger would be. I guess Cisco's plan is to offer vertically integrated solutions, from the networking stuff all the way to the handset. I don't know... might be a bad merger...
I don't know about that... a lot of them were run by business people. Also, a lot of them were taken over by VCs, who are some of the best businesspeople around...
As far as Ebay is concerned, I don't know if that is due to business skills or just being in the right market. The thing about Ebay is that it makes money off others selling stuff. So it never really had any of the problems the typical dot-com outfit ran into, or even the problems the survivors like Amazon had. For instance, companies like Amazon kept bleeding money because it had to carry inventories in large warehouses. Ebay really didn't have any of those problems. In some sense Ebay is the perfect dot-com: totally dependent on the web, but with very low costs...
I think you can definitely have real estate prices dropping a lot in isolated regions or areas. For instance, I can definitely see prices dropping a lot in some parts of California (like San Diego) since the vast majority of people can't afford the houses (affordability index is extremely low). However, as a sector, I don't think it will drop like tech stocks did.
If you actually look at real estate in USA, it has historically gone up in nominal terms. Even the corrections, such as the one in late 80's/early 90's, was very minor overall. Of course, a single owner or investor may be hurt way more than the average.
Development costs, and support costs will be higher if you try developing for multiple platforms EVEN if you use some abstraction (eg. use openGL, which is available on multiple platforms). There are so many little things that are different. Since the market oustside Windows is so small, especially for games, this is not worth it for most companies...
hmm.. The Chinese DO lend money to the US. That's the definition of debt. USA owes it back in the end but nevertheless, the lending is what is called debt... original poster was correct (although I don't support his general view of what he/she was saying)...
Tariffs and controls never work over the long run. If MS was banned for such a questionable reason (which is next to impossible and illegal under interationally accepted principles), all that will happen is that the citizens of EU will suffer. You will either get a black market catering to MS products, in which case MS would still be popular. Or you will get Europeans stuck with some inferior products, which in the long run will hurt their competitiveness and productivity and end up dooming them relative to other countries.
The reason MS is popular is not because it is a monopoly; rather, it's because its products are better than most of the competition. European businesses and individuals trying to compete against the rest of world without MS Office (which is far superior to anything else), or WIndows Server (cheaper for medium and large businesses than any product from IBM, Novell, etc), or Visual Studio (although I guess this won't be needed if Windows is banned), and so on, will be a tough proposition.
Slashdot Mirror
Broadband has to take off before any impact is made on retail. In fact, we probably need faster speeds than what is commonly offered as broadbad these days.
"He said at the bottom of his original post that it's often a negative action, since the company offers discounts to big investors, and has to pay commissions..."
That's negligible... but...
"...and there's quite possibly going to be a drop in stock price as well."
If there is a drop in stock price doesn't that conflict with his/her original point? If he/she is saying that the stock will drop then his claim that it is a neutral event cannot be true...
But growth is not relevant to our discussion because it is an expectation which may or may not turn out to be true. If you bring growth into the discussion then what you are saying doesn't apply to a general case.
I thought you were taking about a general case, which is why I said that share offering dilutes ownership. The general case is that stock offering ALWAYS dilutes ownership!
" This is a forecast of 270% aggregate over the next five years... almost unbelievable."
Yeah, that's crazy. But then again, that's why GOOG is trading at a P/E of 82.
For reference, Yahoo has a P/E of around 32 and has an expected EPS growth of 30%.
Microsoft has a P/E of 24 and an expect earnings growth of 10.5%.
It remains to be seen if GOOG will hits its expectations, which are very high... I personally think GOOG is overvalued and wouldn't touch it...
BTW, your homepage URL doesn't work...Anyway...
I have to think about where you are going wrong. Something doesn't seem right... If what you are saying were true, why don't companies constantly issue shares? If it it a neutral move, diluting like crazy should have no impact. In fact, why even use debt financing when you can simply dilute all the time?
" Growth != earnings. While growth is nice, profitability is not just dependent upon revenues, you must factor in costs as well. " Yeah... but the poster is talking about earnings growth so that takes into consideration your point...
" Furthermore, please cite source for median projected growth rate of 30% over next 5 years. What units are we talking about hear? Median of what industry, or of the economy as a whole? As estimated by whom? " I think Google is overvalued but nevertheless, the previous poster is right with his earnings growth rate of 30%. HEre is the analyst consensus forecast . Go down to the bottom and look at the 5 yr forecasted growth rate. It's 30%. Of course, tech analysts are overly bullish and have been wrong many times...
"Is Google selling $4B dollars of stock, or 14M shares of stock? In other words, can they set the price of the offering, or is it subject to market price?"
They are selling 14 million shares which happen to be around $4billion. It doesn't matter how you look at it, it's all the same... The price is set by the market. More precisely, it is determined by the investment bankers who are working for Google. They will come up with a price that they think they can sell the shares at. Generally, the selling price will be close to the market price (sometimes below; sometimes above; but close). If it were priced too high, no one will buy it (why not simply buy the share on the open market instead of going through this placement?); if it is too low, the company and its existing shareholders loses out.
What about a theoretical example that they double their outstanding shares through a secondary offering. Will they still be able to sell the new shares at $300? It's all supply & demand. It's whatever the buyers will buy at. If the supply is high, then price will be drop.
Generally the offering price tends to be slightly lower than the stock price (because of dilution, as well as increased supply). For example, Google closed yesterday at $285.10 while the offering price was around $281 (roughly).
AFAIK, that's wrong. The company will be diluted. The share price will drop due to dilution. You can look at the 5 day chart to see a gap down due to the announcement. The drop was due to dilution...
What you are overlooking is the fact that your shares will have that much less ownership call on the company. If the dilution is 10%, you own 10% less of the company and the earnings attributable to you is 10% less... All the stuff about assets and assets per share are laregely irrelevant. If what you were saying were true, why can't a company constantly keep diluting itself into the stratosphere?
"OK that was just an example number. What if you owned 1%. Then they released more shares so your 1% is only worth 0.5%. Surely they can't do that? They're effectively stealing your part of the company. Imagine if your next door neighbour 'released' ten square feet of your garden and sold them."
That is precisely what happens in certain sectors. This is actually more common than people think in small-caps and micro-caps. Someone who has investing in junior mining or biotech would know all about this. The companies keep diluting their shareholders like crazy and the stock keeps dropping gradually (because the new investors sell out and increase supply). These juniors make no money so banks won't give them a (large) loan and no one wants to buy their debt either, so they constantly dilute their shareholders...
I responded to a couple of posts saying that the original poster's analysis is wrong--or my understanding is wrong. My understanding is that stock offering actually has a material impact (contrary to what the original parent says)...
You make an excellent point...
I think the original poster's analysis is incorrect. My understanding is that stock offerings actually have an impact. They dilute the shareholders. I don't think the original poster's claim that stock offerings have no impact is correct..
The only things that have no impact on valuation is stock splits and dividends*.
(* However these things may provide signals that can increase or decrease the market value).
" In THEORY, a secondary offering has no impact on current shareholder..." That's wrong. Secondary offering dilutes the shareholders. Therefore it has a negative impact. In theory if the company issues 10% of market-cap in new stock, the value of the company will drop by 10%. All existing shareholders will lose 10%...
The stuff you are talking about future potential, and the possibility of returning more money than was raised doesn't show anything. The shareholders are worse off because of the dilution. What you are saying would make more sense if a company issued debt or took out a bank loan. Those activities should theoretically have no impact on valuation...
I think the whole patent system, or just a system for protecting ideas is doomed to fail. I don't necessarily think it is due to any changes in the system but it's simply due to the change in society and economy. What I mean by that is that we are more knowledge-oriented nowadays.
A far greater percent of the GDP goes into knowledge, ideas, etc than 100 years ago. A hundread years ago, industrial technologies and processes were common, which meant that you generally ended up producing a tangible product. Sure, there was an idea behind these products but it was well defined. Nowadays, in contrast, we have big industries which aren't tied to anything tangible per se (eg. software, entertainment, media, biotech). Such industries will become a bigger portion of the economy (think of biotech, for instance, which will move from the fringes into mainstream within 20 years).
With the massive increase in these "knowledge" industries, I think what has happened is that the patent office has (i) run into problems patenting often abstract forward-looking knowledge-oriented concepts, and (ii) run out of resources. The first problem simply cannot be avoided. Patenting a portable music playlist before it is even a product is a lot more complicated than patenting a physical device that is about to be developed. The second problem can be solved by pumping more money at the system but I don't know if governments can afford it anymore. If rich countries like USA can't even afford to fund education or social services (like decent police), I don't know if funding the patent office is going to be a big priority. Higher fees can be charged but this will mainly hurt the small inventor/entrepreneur and give a big advantage to the large corporations (actually the system is already skwed towards them but that's another story).
I predict that the end-result will be a total collapse of the patent system*. Literally anyone can potentially generate an idea for a patent nowadays whereas 50 to 100 years ago, only the so-called professionals (eg. doctors, scientists, engineers, etc) were able to do it before. Right now, everyone reading this post can roll-out some software to do something totally new; or we can develop a new process or technique for a website; or something. The patent office simply can't keep up with the population anymore... (* You bring up an interesting point about developing countries like China and India. Will they follow the patent-oriented business system or not? Clearly, WTO and other world regulations require it but I just wonder if it will mean much. A lot of the developing countries are skipping "useless and inefficient" methods and techniques. Just like how most of those countries jumped from no phones to wireless phones (eg. mobile phones) since landline was too expensive and inefficient, I wonder if they will skip the patent-oriented system. Although corporations and investors like to have patents since it provides a steady stream of income (assuming you can litigate the opponent), it is generally detrimental to the inventors, entrepreneurs or anyone else actually trying to do something. On the surface it would seem that a small entrepreneur can develop something, patent it, and make money off that, but in reality, most of the patents are filed by large corporations. Given all that, countries like China, India, Brazil, etc may just skip the patent-oriented system. Those countries do not have a history of a strong patenting system (copying is more common) so it wouldn't surprise me if nothing much happens for the next 50 years).
Yeah, patents are lame but that's the trend nowadays. Slashdot is simply showing the trend in business towards trying to lock in ideas...
All these patent stories have huge implications. Just ask RIM shareholders (although it looks like RIM may win)...
No, George W Bush did ;)
Yes, MS probably invented the portable MP3 device. This is not to say that the iPod was created by MS (it clearly was not) but a generic MP3 player that this patent refers to may have been developed by MS prior to Apple.
It is pretty common to have tech companies develop things way ahead of others and yet fail to succeed. It is also quite common to see companies improve upon others' prior works. Ideally, such progress won't result in lawsuits but unfortunately capitalism will necessarily lead to everything being resolved through some pricing mechanism (which are basically what corporate lawsuits are about--this is also why I think lawyers and everyone associated with the process get paid a lot, relative to the people who invented the idea).
It is quite common nowadays to have start-up tech companies simply patent something and not deploy it to the field or attempt to sell it. Once upon a time, it was thought that inventing something meant that you needed to develop a product and sell it. Nowadays it is becoming more profitable to not develop an end-product and instead sit on some intellectual property and then live off the royalties you earn by suing whoever runs afoul of the patent. There have been quite a few good examples of this shift in trend (eg. cases involving RIM, Rambus, etc).
I think the trend I'm talking about will become the norm within 20 years. I don't think it'll play as much of a role in the computer industry (since the industry is well developed with large companies have more power) but I anticipate that it will be the norm in developing industries like biotech, nanotech, and stuff like that. Biotech companies will simply develop some intellectual property and sit on it (without developing any drugs or anything). It'll end up being more profitable for investors to do that...
While we are on the topic of patents and lawsuits, it looks like Apple has bigger problems. Apparently Microsoft has patented some elements that the iPod uses. In other words, MS patented a device similar to iPod before Apple conceived of the iPod. I don't think this will result in any lawsuits but I'm sure Apple will think twice before suing MS in the future...
I hate to be the bearer of bad news but I predict that you will get at least one nuclear meltdown within the next 15 years. If I had to guess, I would say that it'll happen in China...
Not trying to single out any country or preach doom&gloom, but that's what I see happening...
What's wrong with editable resumes? If you don't trust a potential employer with your resume, I'm not sure it's even worth pursuing them for a job. Employers can do whatever they want with your resume anyway...
Now, if you are putting your resume on a website for public access or something then I would agree with your point that it is perhaps best to have it in PDF or something...
Cisco and Nokia used to be the de facto #1 leaders in their market. Nowadays, they are just two struggling behemoths.
I'm not really sure how benefitial such a merger would be. I guess Cisco's plan is to offer vertically integrated solutions, from the networking stuff all the way to the handset. I don't know... might be a bad merger...
They'll just offer Cisco stock or something. You are right in saying that it is next to impossible for them to raise $70 billion in cash.
I don't know about that... a lot of them were run by business people. Also, a lot of them were taken over by VCs, who are some of the best businesspeople around...
As far as Ebay is concerned, I don't know if that is due to business skills or just being in the right market. The thing about Ebay is that it makes money off others selling stuff. So it never really had any of the problems the typical dot-com outfit ran into, or even the problems the survivors like Amazon had. For instance, companies like Amazon kept bleeding money because it had to carry inventories in large warehouses. Ebay really didn't have any of those problems. In some sense Ebay is the perfect dot-com: totally dependent on the web, but with very low costs...
I think you can definitely have real estate prices dropping a lot in isolated regions or areas. For instance, I can definitely see prices dropping a lot in some parts of California (like San Diego) since the vast majority of people can't afford the houses (affordability index is extremely low). However, as a sector, I don't think it will drop like tech stocks did.
If you actually look at real estate in USA, it has historically gone up in nominal terms. Even the corrections, such as the one in late 80's/early 90's, was very minor overall. Of course, a single owner or investor may be hurt way more than the average.
Development costs, and support costs will be higher if you try developing for multiple platforms EVEN if you use some abstraction (eg. use openGL, which is available on multiple platforms). There are so many little things that are different. Since the market oustside Windows is so small, especially for games, this is not worth it for most companies...
hmm.. The Chinese DO lend money to the US. That's the definition of debt. USA owes it back in the end but nevertheless, the lending is what is called debt... original poster was correct (although I don't support his general view of what he/she was saying)...
Tariffs and controls never work over the long run. If MS was banned for such a questionable reason (which is next to impossible and illegal under interationally accepted principles), all that will happen is that the citizens of EU will suffer. You will either get a black market catering to MS products, in which case MS would still be popular. Or you will get Europeans stuck with some inferior products, which in the long run will hurt their competitiveness and productivity and end up dooming them relative to other countries.
The reason MS is popular is not because it is a monopoly; rather, it's because its products are better than most of the competition. European businesses and individuals trying to compete against the rest of world without MS Office (which is far superior to anything else), or WIndows Server (cheaper for medium and large businesses than any product from IBM, Novell, etc), or Visual Studio (although I guess this won't be needed if Windows is banned), and so on, will be a tough proposition.