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Investors Club: Profitability vs. Potential

Investors Club: Profitability vs. Potential. Dot Com Bubble. Took place from 1997 to 2000 Climax on March 10, 2000 NASDAQ peaked at 5408.60 Stock markets saw large rises in equity values from growth in Internet sector. How It Began.

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Investors Club: Profitability vs. Potential

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  1. Investors Club:Profitability vs. Potential

  2. Dot Com Bubble Took place from 1997 to 2000 Climax on March 10, 2000 NASDAQ peaked at 5408.60 Stock markets saw large rises in equity values from growth in Internet sector
  3. How It Began Rise of new Internet-based companies referred to at the time as “dot-coms” Prefix investing Companies could increase stock prices simply by adding an e to their name Birth of the stupid outdated acronym that plagues us to this day Causes: Rapidly increasing, marginally inflated stock prices Market confidence in future profitability Widely available venture capital Led to: Investors overlooking many traditional analytics and metrics such as the Price-earnings ratio (market price per share divided by annual earnings per share)in favour of confidence in technological advances
  4. Failures of the Dot Com Bubble Pets.com Began in August 1998, closed November 2000 Sold pet supplies High profile marketing campaign gave it a public presence Sales grew dramatically Company was weak on fundamentals Lost money on most sales Total Losses: $300 million of investment capital Fate: self-liquidated
  5. Failures of the Dot Com Bubble Webvan Online credit-and-delivery grocery business Founded in 1999, closed 2001 Delivered groceries to customers’ homes within 30 minutes Money spent on infrastructure exceeded sales growth, ran out of money Total Losses: at least $1 billion Placed $1 billion order with Bechtel, an engineering company, to build warehouses Bought a fleet of delivery trucks Fate: bankruptcy
  6. Profitability vs. Potential Lessons from Dot Com Bubble Too much confidence in the potential for these firms to generate a profit
  7. Case: Snapchat Founded September, 2011 Developed by Stanford students Users send pictures and videos with text and drawings to other Snapchat users, which are deleted after the specified number of seconds Now a staple for modern sexting
  8. History May 2012: 25 snaps sent per second November 28, 2012: 1 billion snaps sent Raised $475,000 in seed round of funding, with undisclosed amount of bridge funding (short loan pending longer-term/larger financing) June 2013: Raised $60 million in funding round
  9. Business October 2012: Had not made any revenue, one developer Evan Spiegel said the team was unwilling to be acquired February 2013: Acquired $13.5 million in Series A funding round, valued company at $60-70 million Mid July 2013: Media report valued Snapchat at $860 million November 14, 2013: Denied cash offer of $3 billion from Facebook November 15, 2013: Offered $4 billion but Evan Spiegel declined
  10. What the hell? YouTube Bought by Google for $1.65 billion Instagram Bought by Microsoft for approximately $1 billion in stock and cash Tumblr Bought by Yahoo! for $1.1 billion Nokia Bought by Microsoft for $7.2 billion NeXT Bought by Apple for $404 million Android Bought by Google for $50 million Waze Bought by Google for $966 million Hotmail Bought by Microsoft for $500 million
  11. What is a fad? A fad is any form of behaviour that develops amongst a large population and is collectively followed enthusiastically for a period of time, generally as a result of the behaviour being perceived as popular by one's peers or being deemed "cool" by social media. A fad is said to "catch on" when the number of people adopting it begins to increase rapidly. The behavior will normally fade quickly once the perception of novelty is gone.
  12. Is Snapchat a fad? Develops among large population ✓ Followed/used enthusiastically for a period of time ✓ Used by some to be perceived as cool / popular ✓ Catch on rapidly ✓ Fades away once perception of novelty is gone: not yet
  13. Do you think Snapchat is a fad? Yes No
  14. $3 - $4b acquisition Snapchat has not yet earned any money. Snapchat may very well fade soon. The technologies behind Snapchat are fairly simple. What could Facebook/Google be after? User base Pew study from October 2013 says user base may be 26 million people, compared to 1.11 billion active users for Facebook in March 2013 and 540 million active users for Google+ on October 29, 2013 Potential for profit
  15. Potential for Profit and User Base Once a fad starts fading, its user base starts waning. Snapchat has no current model for monetization. How could Snapchat monetize?
  16. Would you invest in Snapchat?
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