Top 10 Predictions for 2015

Predictions

I’ve been very lucky to have a history of correctly predicting trends, especially in identifying stocks that would outperform. I say lucky because even assuming one gets the analysis right, the prediction can still be wrong due to poor management execution and/or unforeseen events. Last year I highlighted 10 trends that would occur in 2014 and I’m pleased that each proved accurate (see 2014 Predictions). Rather than pat myself on the back for past performance, my high-risk, A-type personality makes me go back into the fray for 2015. Last year’s highlighted stocks, Tesla and Facebook, were up 48% and 43%, respectively, from January 3 to December 31, 2014 vs. 15% for the Nasdaq and under 13% for the S&P 500. This year, I’ll identify more than two stocks to watch as I am probably over-confident due to past success. But because I’m not doing the level of work that I did on Wall Street, there is significant risk in assuming I’m correct.

So consider yourself forewarned.

  1. Facebook will have a strong 2015. I have not sold my Facebook shares (I’m up over 3x since acquiring them in mid-2013). Momentum appears just as solid as it did a year ago and revenue and earnings multiples have contracted. In 2014, revenue grew over 60% and earnings per share nearly 100% (using analyst estimates for Q4) vs the share price increase of 43%. Beware that high growth stocks can go through periods of multiple contraction, but Facebook ($75/share) seems well positioned to continue to see revenue surge and EPS increase even faster.
  1. Tesla should have another good year in 2015. I continue to hold my stock and think it will perform well despite expecting numerous wild gyrations ($192/share). Because the SUV launch has been delayed to 2016, revenue growth could taper off from the approximately 75% in 2014 (using analyst Q4 estimates). Investors could fear that lower gas prices will impact people’s desire for an all-electric car. But, do you believe customers paying $90,000 for a Tesla are doing so to save on fuel? I don’t. Tesla sales will be helped by: increasing distribution, more locations to charge one’s car (reducing one of the biggest buying inhibitors), more knowledge of the car, increasing awareness of its relative price attractiveness given the new $136,000 BMW I8 high-end sports hybrid and continued governmental incentives to buy an electric vehicle.
  1. Amazon should rebound in 2015. Last year the stock was down over 22% for a variety of short-term reasons. Amazon 2014 revenue is expected to be about 20% over 2013 revenue. Its competitive advantages in retail, if anything, improved as its local delivery capabilities continued to dominate competition (we expect Amazon to leverage this further by opening showrooms/ordering centers in several cities in 2015) and Amazon Prime service saw further and further adoption. But, 2014 was a year of substantial investment and this hurt the stock ($288/share). Such investment stimulating increased market share has occurred before and the stock typically bounces back subsequently. While it doesn’t have the growth dynamics of Facebook or Tesla and I don’t own the stock yet, I believe it is worth considering for any portfolio.
  1. Netflix power in the industry should increase in 2015. Like HBO before it, Netflix’ superior economics provides the opportunity to create more of its own proprietary content. It also may see more opportunity to launch movies online simultaneous to their launch in theaters – the success of The Interview could help drive this trend and no one is better positioned than Netflix to exploit it. After peaking mid-year at $480/share, the stock closed 2014 slightly down from a year earlier and is now at $332.
  1. Azure portfolio company, Yik Yak, will continue to emerge as the next important social network. This will cause a number of entrenched competitors to modify their products to try to slow Yik Yak growth. The most vulnerable public entity is Twitter as Yik Yak is the next, more modern version of Twitter. Given Twitter’s large user base, this will not likely affect its stock in 2015, but it is something to monitor.
  1. Curated Commerce will continue to emerge. This trend was one we forecast in last year’s blog and appears to have solid resonance. A number of startups in the category saw valuations rise to $300M – $1B including Honest Company, Birchbox, Stitchfix, and Dollar Shave Club. There is more to come as many shoppers want a better shopping experience from etailers. To date, most web shopping starts with knowing what item one wants to buy rather than “browsing”. The best brick and mortar retailers create a shopping experience by stocking items that are pleasing to those that visit their store. Most of us know people that prefer shopping in a particular store due to this experience. This trend is emerging on the web and will continue in 2015. At Azure, we continue to believe in this model and made investments into Julep, Le Tote, The Bouqs and Filter Easy in 2014.
  1. Wearable activity will slow. With the exception of the iWatch which is expected to release in early 2015, the hype around wearable devices will be more muted. Fitness trackers, wearable cameras, smart watches, heart rate monitors, and GPS tracking devices will largely be replaced by phone or watch-based apps. An early indication of this trend was an October 2014 report that claimed Apple had plans to remove Fitbit products from its physical retail stores. 
  1. Robotics will continue to make further inroads with products that provide value. Specifically, the commercial use of UAVs and drones will continue to accelerate. The recent FAA issuance of permits to use drones to monitor crops and photograph properties for sale is an initial first step in a broader application of UAVs. Companies involved in infrastructure and software related to UAVs will continue to attract more interest. 
  1. Part-time employees and replacing people with technology will continue to be a larger part of the work force. The Affordable care Act and increasing minimum wages will each be a force in driving this trend.
  1. 3D printers will be increasingly used in smaller batch and custom manufacturing.

Soundbytes.

  • Switched to an iPhone from Blackberry and while this may sound prehistoric, I will miss many of the efficiencies of a Blackberry that the iPhone lacks; but I had to change because the iPhone is so much better for online, graphics and had apps I felt were mandatory and it made more sense to switch than to buy the newest Blackberry.
  • Wanted to put a stake in the ground predicting the Cavaliers will have a much better second half of the season assuming LeBron is healthy.
amazon-vs-walmart

Wal-Mart is making progress in ecommerce but it is less than people think

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Many years ago it became obvious to some of us that online retail would continue to grow at a much faster pace than brick and mortar stores. This appeared to be less obvious to traditional retailers until more recently. In 2001, I suggested to some colleagues that Wal-Mart should acquire Amazon to gain an edge in online retail (Amazon stock was about $5 a share at the time). This idea was scoffed at. I bought Amazon stock but, clearly, didn’t maximize my execution as I sold it within 18 months for 3 times the return (it’s now $317). I’m guessing there were also some prescient investment bankers who received a similar response after suggesting that Wal-Mart buy Amazon. Who knows what the world would be like today had that occurred, as Amazon could easily have been derailed under Wal-Mart management.

Linkedin

A Different Perspective on LinkedIn, The Dominant Business Social network

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A high proportion of people I know use Facebook as their social network and LinkedIn as their business network. LinkedIn has executed well in capturing a massive audience of business users with over 300 million members, especially in North America which has approximately one third of the network’s members (with Europe quickly catching up). Having done so, it is well positioned to replicate what Facebook has done on the social side – capture business discussions. The question is how can they best do this? LinkedIn’s Influencer Series identifies the most influential voices on LinkedIn and invites them to allow LinkedIn to distribute their articles. The distribution goes to the LinkedIn feeds of people who have opted into seeing posts from each writer. However, the relatively small number of posts and limited distribution doesn’t drive the user value and uptick in page views that could be possible if LinkedIn is to own business discussion in the way that Facebook owns social discussion. Earlier this year LinkedIn recognized this opportunity and opened its Influencer programs to its wider member base with hopes that it would generate more engagement. The move came shortly after the company disclosed that page views declined for the second consecutive quarter.

Microsoft Introduces Larger Surface Tablet in Bid to Take Share

Will Satya’s manifesto make Microsoft a tech leader again?

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The CEO correctly lays out some of the ways the world is changing, but can the software maker really change? 

Microsoft CEO Satya Nadella recently emailed Microsoft employees a speech that I’ll refer to as his “Satya Manifesto.” In it, he points out that the software maker must make fundamental strategic and cultural changes to deliver on his vision of being “the productivity and platform company for the mobile-first and cloud-first world.” He further states: “We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more.”

I was impressed with his willingness to shift Microsoft’s focus to the mainstream of where the world is moving. Yet, I couldn’t help compare his memo to a 1999 speech by Carly Fiorina after assuming the CEO role at Hewlett Packard. In her speech she said, “…we are a single global ecosystem – wired, connected, overlapping …”

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How Microsoft can disrupt the tech industry again

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By rethinking its acquisition strategy, the computer software and electronics company can be an innovator in growing sectors, such as cloud services, smart phones and teleconferencing

Microsoft’s stock has been stagnant as investors lose faith in the company’s plans for its future. After peaking at just under $60 a share in early 2000, Microsoft’s stock fell to about $22 later that year and has traded mostly between $25 and $40 a share in the 14 years since then. While revenue and earnings per share have more than tripled since then, the stock price has not followed suit. The question of why can be answered fairly simply: investors have lost faith in Microsoft’s future ability to control its core markets.  What Microsoft could do can be answered fairly simply: Take a page out of Facebook’s apparent strategy and buy best of breed next generation companies.

Optimizing the Cost of Customer Acquisition: Modeling Metrics to Drive Startup Success

Ecommerce, Metrics, Posts

I admit it, I’m a weird guy. How many others have a PhD in financial modeling combined with an MBA in finance and accounting?  I’ve never put any of this on my business card (not even my CPA) because degrees are not necessarily the indicators of who will succeed in business. After all, the one thing Bill Gates, Mark Zuckerberg, Michael Dell, Ted Waitt and Larry Ellison have in common, besides 4 of the 5 being billionaires before turning 30, was they never graduated from college. Don’t get me wrong: I’m notadvocating dropping out of school. In fact, in this post, I will leverage my finance and modeling background to discuss further how to better predict the future success of companies. When we evaluate companies, we like to see that:

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Why Google should acquire Tesla

Posts

When Facebook acquired WhatsApp last week, it set itself apart from earlier generation technology leaders like Apple and Microsoft. Facebook has decided that it wants to own the social space now, as well as in the future, and is willing to pay an ostensibly high price to ensure owning rising players who may one day challenge them. By contrast, Apple and Microsoft believed they could catch up and surpass new entrants (and were both often, but not always, correct) and therefore rarely paid a premium for acquisitions. We will return to this theme in a future blog by speculating who Microsoft could buy to help ensure more control over its domain going forward.