Four Tech Giants Fight the Secret Battle of Web Domination

Talk about high stakes. Four young technology giants are fighting for the most important and valuable commodity in the world. The bigger your slice of this commodity, the closer you get to ultimate web domination.

This man has a dream. A big dream. His dream is to make a ‘vital’ resource available to everyone in the world.

His mission website – internet.org – makes his dream seem philanthropic. His dream is to help farmers, students, patients, everyone on the planet. To help them share knowledge.

His dream is internet access for everyone. The man with the dream is Facebook founder Mark Zuckerberg.

The true intention behind his dream is stated on internet.org’s home page: “Making internet access available to the two thirds of the world not yet connected.”

Facebook (Nasdaq: FB) wants to increase its subscriber base and inch closer towards web domination.

Facebook knows that only 1 billion of the earth’s 7 billion people currently have mobile phones, but 80% of the rest of the population lives within areas covered by 2G or 3G mobile web access.

Every tech company knows that data means power.

Facebook purchased WhatsApp for $19 billion not because of its 55 employees, but because of its 450 million (older or aging) users.

Facebook just celebrated its 10-year anniversary and may feel too old, too old for the future. According to Zuckerberg, WhatsApp will make Facebook more attractive for younger users.

WhatsApp is the biggest acquisition since AOL and Time-Warner in 2001. To put this into perspective, Facebook paid $345 million per WhatsApp employees and $42 per WhatsApp user.

That’s a lot of money, but to add one more perspective, Facebook shareholders currently pay $141 per registered Facebook user.

Facebook sent a clear message: It wants to dominate the internet, but it is not alone.

Google’s Race for Web Domination

Google’s Android is the world’s most popular smart-phone/table OS. Google wants to extend the reach of Android into other areas, like home, auto and healthcare as the acquisitions of Nest and Boston Dynamics (producer of military robots).

No other tech company is as diversified as Google (Nasdaq: GOOG).

Apple’s Race for Web Domination

Apple (Nasdaq: AAPL) used to be known for devices like the Mac and iPad. It briefly dominated the digital market with apps, but that’s no longer enough for web domination.

Apple is looking for the next big hit. Possibly in cooperation with Tesla?

Amazon’s Race for Web Domination

Amazon started in 1995 as an online bookstore. Today Amazon (Nasdaq: AMZN) is a specialist for everything bought and sold digitally.

Like its competitors, Amazon wants to tie users to its platform. Kindle, its own brand of cell phone and packages delivered via drones. Amazon’s founder Jeff Bezos is a visionary without borders.

Facebook, Google, Apple and Amazon make up 27% of the Nasdaq 100 and Nasdaq 100 ETF (Nasdaq: QQQ), so their successes and failures certainly stand to impact the investing masses.

What About Internet for Everybody?

Pre-internet customs such as having dinner with family, talking (actually speaking) to the person standing next to you, and being able to enjoy your favorite pastime without getting interrupted by your boss weren’t such a bad thing either.

But, according to Zuckerberg, “the problem is that those people, who have never accessed the web, don’t know why it might be useful to them.”

Yes, the internet is useful, but it’s not a life-changing force for the better as internet.org would want you to believe.

How will the battle for web-domination effect the stock market in general?

Here is a full 2014 forecast for the S&P 500 NYSEArca: (SPY): S&P 500 2014 Full-year Forecast

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

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ETF SPY: Will XLK Ride Apple’s Coattail?

Apple has broken above resistance courtesy of a post-earnings gap up open. This is a bullish development, but caution is warranted as there’ve been at least 7 dead cat bounces in recent months.

The after hours reaction to Apple’s earnings announcement was positive. Shares were up nearly 5% as AAPL beat earnings and sold more iPhones than expected. The biggest fly in the ointment was that margins are shrinking, a problem all companies face when they ‘grow up.’

Apple accounts for 11.67% of the Nasdaq-100 (Nasdaq: QQQ) and 13.15% of the Technology Select Sector SPDR (NYSEArca: XLK).

Although Apple’s effect on the technology sector is not as suffocating as it was at $700 a share, AAPL is still the single biggest component of QQQ and XLK.

Interestingly, XLK has thus far been unable to beat its May high, but QQQ did. This lag is not due to Apple, as Apple rallied 11.8% from June 24 – July 17, XLK only 7.51%.

XLK Technical Picture

The stock market in general is kind of stuck between a rock and a hard place. A correction is due, but any dip is likely to be bought again. This means the up side is limited, but so is the down side.

The XLK chart below shows basic support and resistance (solid red and green line).

A close below the July 19 low at 31.37 would be a failed percentR low-risk entry, essentially a sell signal.

As long as prices stay above 31.37, the open chart gap (purple bar) should be filled. Even a move to the red trend line is possible.

AAPL Technical Analysis

If you want a shot of nostalgia, you’ll enjoy this article from August 22, 2012:

Apple Bullies the Nasdaaq and S&P 500 But May Soon Disappoint Investors

This article was written at a time when analysts were ‘bidding’ for the highest Apple price targets. Above 1,000 was pretty much the minimum bet.

Apple then dropped from 705 to 385 and has been bouncing aimlessly ever since.

Today AAPL was able to clear short-term resistance at 437. Next trend line resistance is at 448.

There have been many false fits and starts for Apple since the April low at 385 and there’s no telling if this bounce will stick. Similar breakaway gaps (gray circles) were retraced shortly thereafter, so it’s prudent to wait for more confirmation.

Simon Maierhofer is the publisher of the Profit Radar Report.

You can follow him on Twitter @ iSPYETF.

Will Google’s Fumble Take Down the Entire Technology Sector?

Due to a combination of facts, Google shares dropped as much as 11% on Thursday before trading in GOOG was halted by the Nasdaq. What caused this meltdown and will it carry over and drag down the Nasdaq and technology sector?

Google couldn’t wait to share its disappointing Q3 earnings with Wall Street. Although slated for an after-hours earnings report, Google accidentally spilled the beans around 12:30 EST.

At first it looked like a refreshing change to Washington’s modus operandi of extend and pretend or snore and ignore. But as it turns out, R.R. Donnelley (the company that does Google’s financial filings) accidentally filed Google’s 8-K form too early.

Heading for the Exits

Surprise turned into disappointment and distain as investors dumped GOOG as fast as they could. At one point GOOG was down $83.43 or 11%. Nasdaq even suspended trading in GOOG. Why the rush for the exits?

Analysts surveyed by Thomson Reuters expected earnings of $10.65 a share and net revenue of $11.86 billion.

The actual profit was only $9.03 a share on revenue of $11.33 billion. Another  major concern was that the average price that advertisers paid Google per click fell 15% from a year earlier. If Google, the king of monetizing advertising dollars, can’t charge top dollars anymore, how will Facebook and others?

What’s Next for Google?

Google is the third largest component of the Nasdaq-100 Index (corresponding ETF: PowerShares QQQ) after Apple and Microsoft. What does Google’s sell off mean for the Nasdaq QQQ and the technology sector (corresponding ETF: Technology Select Sector SPDR – XLK)?

GOOG trading volume was through the roof as prices tumbled below the 20 and 50-day SMA and a couple of trend lines. Prices generally stabilize somewhat after large sell offs like this before falling a bit further. A new low parallel to a bullish price/RSI divergence would be a near-term positive for Google. Next support for GOOG is around 660 and 630.

Will Google Drag Down the Technology Sector?

The Nasdaq Indexes and the Technology Select Sector SPDR (XLK) has been much weaker than the Dow Jones and S&P 500 as of late. There were no bearish divergences at the recent S&P and Dow highs. This lack of indicators pinpointing a major top limits the down side of the tech sector.

Key support for the Technology Select Sector SPDR (XLK) is at 29.50. A move below 29.50 would be technically bearish although there may not be much more down side. Traders may use 20.50 as trigger point for bullish and bearish trades.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

Apple Becomes Second Most Valuable Brand in the World, But Traders Get Scared

Apple is the most valuable company in the world. Now it is also the second most valuable brand in the world. Nevertheless, traders are concerned about Apple stocks which is reflected in the price of options.

According to brand consultancy firm Interbrand, Apple’s brand value increased 129% to $76.57 billion last year. This makes Apple the new #2 on Interbrand’s list of the top 100 brands.

Apple is followed by IBM ($75.53 b), Google ($69.72 b) and Microsoft ($57.85 b). #1 and the only non-tech company in the top 5 is Coca Cola with a brand value of $77.83 billion. The chart below shows the top 28 brands.

Apple’s growth outpaced even Google’s steep growth trajectory. Apple and Google surpassed Microsoft for the first time ever.

Interbrand’s key valuation aspects are the financial performance of the branded products or services, the role of the band in the purchase decision process and the strength of the brand.

Traders Become Skeptic

As of recent Apple has hit some speed bumps. It didn’t sell as many iPhones as expected and basically had to admit that Apple maps is inferior to Google maps.

More importantly, Apple’s stock (AAPL) became too overbought. Even before the iPhone went live and Apple maps draw criticism, the September 12 Profit Radar Report recommended to: “Short Apple (or buy puts or sell calls) above 700.”

With Apple trading about $35 below its all-time high, option traders have become unusual bearish. Bloomberg reports that bearish Apple options are the most expensive relative to bullish options since late 2011. This seems like an overreaction considering a moderate drop of only 5%.

Newsletter writers that cover major stock market indexes like the S&P 500 saw a similar sentiment movement. The percentage of bullish advisors polled by Investors Intelligence dropped from 54.20% on September 18 to 46.80% on October 2. The SPDR S&P 500 ETF (SPY) lost less than 2% during that time.

The S&P 500 continues to trade within a parallel trend channel and support for Apple is at 660, 650 and around 635. It seems that the immediate down side for stocks and Apple is limited.

Technology Investing for Beginners – You can’t Lose Money with Apple Math

I got this piece of “Apple Hot News” in my inbox yesterday: “Apple today announced that pre-orders of its iPhone 5 topped two million in just 24 hours, more than double the previous record of one million held by iPhone 4S. Demand for iPhone 5 exceeds the initial supply, and while the majority of pre-orders will be delivered to customers on September 21, many are scheduled to be delivered in October.”

What’s the profit margin on 2 million iPhones? Apple doesn’t reveal profit margins, but Reuters got hold of a document filed in Apple’s patent battle against Samsung.

According to this document, Apple’s gross margin for U.S. iPhone sales between April 2010 and March 2012 ranged from 49 – 58%. The iPhone 5 sells for $199 – $399 (depending on built in storage).

Let’s calculate a 58% profit margin on 2 million iPhones sold for $299. The result is $347 million. Since last Thursday’s unveiling of the new iPhone 5, Apple (AAPL) shares have risen 3.5%. This means that Apple’s market cap increased by some $24 billion.

A $24 billion increase based on the news of 2 million pre-orders worth about $347 in gross profit doesn’t make sense.

In fact, common sense and seasonality suggests that Apple is soon due for a reality check (a. k. a. lower prices). Since Apple is the MVP of the technology sector, it’s likely that the Nasdaq QQQ ETF (QQQ) and SPDR Technology ETF (XLK) will follow Apple’s direction.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

Bi-Polar Technology Sector is Torn By Performance of Groupon, Facebook and Apple

About 18 months ago stocks were fueled by the Facebook, Groupon, and the smart phone app frenzy (i.e. Angry Birds). None of the above companies are actually included in the Technology Select Sector SPDR ETF, but the prospect of a new tech boom was enough to lift the entire sector.

And while the technology sector has continued to move higher, it has left Facebook, Groupon and others in the dust. Why? Allow me to republish some research notes previously reserved for subscribers.

Facebook Warning: Published May 11, 2012

“Facebook (FB) is expected to go public on Friday, May 19. The media will gladly spread the frenzy, but I’d like to point out a few nuggets to put Facebook’s insane valuation into perspective:

– Assuming a valuation of $100B, FB will trade at 33x advertising revenues. Google trades at 5.5x.

– At $100B, FB will be worth more than: Caterpillar, American Express, Home Depot, Walt Disney and even McDonalds. In fact, 15 components of the mighty Dow Jones Industrial Average have a market cap of less than $100B.

– The market value of Google at its IPO was “only” $27B

– Apple currently trades around 3.8x sales. The same metric applied to FB would put its valuation at $15B.

To some degree the social media bubble is reminiscent to the 1999 tech boom. Most social media companies are valued based on promises more than established accounting standards. Recent IPO’s of Groupon, Pandora, Yelp, and Zynga created a lot of hope during the first couple of days of the IPO and fizzled thereafter.

Will FB await the same fate? You can’t predict the extent of any frenzy, but the amount of fizzled frenzies dwarfs that of sustainable ones. My bold prediction is that FB will loose at least 30% of its IPO price by sometime in 2013.”

Well, it turns out I was wrong. Since its May 2012 IPO ,Facebook shares have fallen as much as 61% (from a high of $45 to a low of $17.55). Facebook’s market cap is now $44 billion.

Groupon Warning: Published December 17, 2010

It was my belief that the Groupon movement (group coupons) is dangerous for the economy and unsustainable. This was contrary the most of Wall Street‘s outlook. I picked on James Altucher, a popular tech cheerleader, to contrast our difference of opinions.

“Altucher doesn’t believe there’s a new social media/coupon bubble. This time is different because Groupon’s rejection of Google’s $6 billion bid is ‘the dawn of a new and improved internet bubble. Unlike the bubble of the late 90s, though, this one is based on fundamentals, not irrational exuberance’.

It’s ironic that Groupon’s success and refusal of Google’s advance is seen as the dawn of a new era. Groupon has a killer business model, which is a goldmine for Groupon, but poison for healthy economic growth.

This new way of buying nurtures frugality and robs restaurants and other retail stores of their pricing power. Groupon is feasting on a deflationary trend while wizards like Altucher see the company as a gateway to the new and improved economy.

According to Altucher this is ‘not a bubble, it’s a real significant boom.’ It’s a boom all right, we’ll just have to see whether it’s an economic or deflationary boom. My money is on the later.”

Since its November 2011 IPO Groupon shares have fallen from a high of $31.14 to a low of $4. Groupon’s current market cap is $3 billion, half of what Google was willing to pay for the company.

Technology Sector at 11+ Year High. Why?

The Facebook, Groupon, smart phone app boom is deflated, so why has the tech sector moved on to an 11+ year high?

A look at the top holdings of the Technology Select Sector SPDR ETF (XLK) may hold the answer.

Apple, IBM, and Google account for 34% of XLK and trade at or near all-time highs.

Microsoft, AT&T, and Verizon account for 19% of XLK and, like the Nasdaq-100, trade at or near a 10-year high.

Former highflyers like Cisco, EMC, Hewlett Packard, Corning, Yahoo, Broadcom, Dell, Applied Materials, Sandisk, Juniper Networks and others continue to trade near the lower end of their 15-year range.

It appears that a few strong companies mask the performance of many weak companies. That’s not the definition of a strong market or sector.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.