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THE INVESTOR
ANALYSIS
TECHNOLOGY REVOLUTION
are not where our data lives.There has been a
sea change – we have moved from a hardware
world to a cloud-based software world.’
Big data is a more amorphous concept, but
it refers to the fact that we now have the
computing power to mine huge amounts of
unstructured data – historical climatological
data, for instance, or every transaction record
of a large company.Analysis can then reveal
useful patterns and more ammunition for
data-driven marketing.
One of the most signi cant developments
in this newworld is targeted advertising, which
is where big data meets social media like
Facebook. Branded advertising used to take
a more carpet-bombing approach, relying on
channels like print media and terrestrialTV.
Advertisers had a rough idea who was
watching a particular programme but,
while the cost was based on the number
of viewers, they were paying for a large
proportion of people who weren’t interested
in their product.
Amedium like Facebook now o ers them
the ability to reach a very speci c, targeted
demographic. Facebook has developed‘social
graphs’ of its users based on all the details they
can garner – age, gender, address, friends,
activities, postings, holiday destinations. If users
log in to other sites via Facebook (which means
they don’t have to waste time registering), that
information, too, is added to the social graph.
So, hypothetically speaking, if you log in to
music site Spotify using Facebook, Facebook
can tell if you are a big Bruce Springsteen fan.
It also knows if you live in She eld.
It can actually put an ad for an upcoming
Bruce Springsteen concert in She eld right in
front of you.That may be a bit scary but it’s a
marketeer’s dream.
Social media allows businesses to interact
directly with their customers in other ways.As
consultants McKinsey & Company put it in
The
social economy:Unlocking value and productivity
through social technologies
:‘Companies that
depend very heavily on in uencing consumers
can derive considerable value by interacting
with them in social media and by monitoring
PAUSE FOR BREATH
Technology stocks have taken a beating this year, as
investors took fright at what they saw as bubble
valuations. Does this mean the end of the technology
boom, or is it merely pausing for breath?
Since 2011, as few other sectors have been
growing, tech stocks have been market darlings.
Money continued to flow into the sector in 2012 and
2013, and investors were enraptured by the
technology IPOs such as those of social media
businesses Facebook and Twitter.
Then, in March this year, they began to have
second thoughts. High-growth companies went out
of fashion and value stocks came in – undervalued
companies that pay good dividends in safe sectors
like utilities and healthcare. Some tech shares plunged
by as much as 70%.Twitter fell by nearly 60% from
its December high and even Amazon, one of the
sector’s blue bloods, shed 30%.
The stretched valuations were typically the result
of market overexuberance, particularly for any
association with cloud computing and big data.When
investors suddenly switch the basis for valuing such
companies from long-term earnings potential to
current earnings, some have a long way to fall.
So it’s not entirely clear that the general sell-off
has ended.Valuations may have come down, but
many stocks remain expensive.Twitter is no longer
selling at more than 1,000 times forecast earnings,
but in May it was still on a price/earnings ratio of well
over 200 times.
Sunil Thakor (below) of Sands Capital, one of the
satellite managers for the St. James’s Place Global
Equity fund, is sanguine about the state of the sector.
He points out that markets are emotional creatures
that overdo the downside as well as the excitement,
and says one shouldn’t confuse a market bust with a
bust in businesses themselves.
‘The dotcom boom created a lot of good
businesses, like Amazon, eBay and Google,’ Thakor
points out. ‘The businesses that folded in the dotcom
bust were bad in the first place.’
Sands’ approach is to stand back and invest for
the long term. ‘We figure out what a technology
business will look like when it’s more mature, work
out whether we will earn a sufficient return
between now and then, and don’t get too caught
up in any volatility in the middle,’ Thakor says.
‘Because, when you invest in tech stocks, market
volatility comes with the territory.’
