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EisnerAmper Blog

Technology and Life Sciences Blog

LinkedIn Shows a Plan for Long-Term Growth

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May 19, 2015


By Marc Fogarty, CPA, CFE

Fogarty,MarcLinkedIn’s revenue is not driven by advertising but by sales of premium subscriptions and sales to employment recruiters. LinkedIn posted a first quarter 35% increase in sales which exceeded estimates. But recently they took a tumble in the market of about 25% after the company's forecasted second quarter sales did not meet Wall Street's expectations. So how can LinkedIn experience revenue growth without using advertising as a revenue stream?

In keeping with the theme of past blogs that touch upon the Synergies in the Tech Acquisition Market, LinkedIn is joining the ranks of tech companies who are acquiring businesses with “complimentary” services. LinkedIn recently announced the acquisition of Lynda.com for $1.5 Billion. Lynda.com is an online training resource that teaches business, technology, and creative skills. As a subscription-based service, they also serve corporate, government, and educational organizations. In the press release, LinkedIn’s CEO commented, “The mission of LinkedIn and the mission of lynda.com are highly aligned. Both companies seek to help professionals be better at what they do.” The deal is expected to take place during the second quarter.

Even though LinkedIn still has advertising as an optional revenue stream, LinkedIn’s “synergistic” acquisition could affect their longevity and long-term profitability in a more palatable way to LinkedIn users.   

Etsy IPO Follows a Different Path

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May 14, 2015

Katz_DavidBy David Katz, CPA

Etsy, a company that enables the craft and entrepreneur community to sell handmade and vintage products online, took a unique path to their IPO. Unlike Facebook's IPO, which was virtually inaccessible to individual investors, Etsy decided that their IPO should retain their sense of “community.” They made provisions for their customers to have access to their initial stock offering and limited the number of investment bank houses that could purchase stock before their public debut.

Etsy’s IPO was priced at $16 a share and the pre-IPO amount of stock was capped for retail investors at $2,500. The possible goal was to end up with more individual shareholders in the IPO, which would help stabilize their stock price. In theory, individual investors who are Etsy buyers and sellers may hold onto the investment rather than sell it for a quick profit. It was also rumored that when Etsy met with big institutional investors before the IPO, they focused on investors that were interested in owning the stock as a medium- or long-term investment.

 
Why would Etsy possibly make their IPO accessible to more individuals and court long-term institutional investors? Etsy reported on its 2014 form S-1 a $4.9 million net loss on $108.7 million in revenue. In fact, they posted net losses for the past three years. With the injection of cashflow from the IPO, Etsy might be able to accomplish goals which would increase their profitability. A strategy like this could take some time to bear fruit and a dedicated individual who believes in the company, or a long-term institutional investor, would give Etsy the time needed to follow through with a plan.

Regardless of the logic behind the decision, one thing is clear about this IPO. As a viable alternative to “big box“ retailers, Etsy has succeded in becoming a “big“ company while also maintaining their image of “accessibility“ to the average small-time vendor and consumer.

The Hunger Games at Work

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April 30, 2015

Fogarty,MarcBy Marc Fogarty, CPA, CFE

How would you feel if work became an open competition where your achievements and your failures were known by all company employees? There is definitely an upside and a downside to such a system; but BetterWorks, a two-year-old company headquartered in Palo Alto, CA, is betting it is a good idea.

BetterWorks makes software that encourages employees to publically post their goals so their coworkers can give encouragement or 'nudges' to help them achieve those goals. All employee achievement profiles are publicly displayed, and everyone can see everyone else’s progress. By turning the workplace into a competitive game-type setting, businesses hope to engage today's electronic game-playing generation in a way that's fun while improving company-wide performance.

This could go two ways. Some employees might enjoy the competition and accolades for their accomplishments, whereas others might be made anxious and consider it bullying. For shy or modest people, having a system show their accomplishments rather than personally bragging is an acceptable way to reward their efforts.

BetterWorks originally sold their product to nearby tech companies and then expanded to a broader range of customers. They recently raised $15.5 million in venture capital. As I said in a recent article on tech innovation, technology companies are often built around innovative “new” ideas, or at least creatively re-imagined ones. Time and patience will be needed to see if this idea takes off.

The New York Mets Held Back and It Paid Off

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April 23, 2015

Fogarty,MarcBy Marc Fogarty CPA, CFE

 

As some of you may know, I am a New York Mets fan and the season opener is a bit of a tradition for me and a friend from grade school. So even though I usually write about technology or IPOs in this space, bear with me while I indulge a different passion.

I was surprised this year when the Mets decided not to play their newly returning pitcher Matt Harvey in the opening game. He had not pitched since August of 2013 due to an arm injury that required surgery; but based on his prior track record, lots of fans were excited to see him back on the field.  Instead of playing him in the opener, the Mets announced that Harvey would pitch in the second game of the season. The decision to save their returning star pitcher for the second home game turned out to be a huge 'win' in more ways than one!

When you look at the past three years' attendance stats below, there is generally a steady decrease in attendance from opening day to the second game.

2013    
Opening day = 41,053
Game 2 = 22,239

 2014
Opening day = 42,442
Game 2 = 29,146

 2015
Opening day = 43,947
Game 2 = 39,489

This year's attendance is the highest with nearly 44,000 fans and that is without having Harvey on the mound. It’s highly probable that there was a dramatic increase in attendance for the second game, over 10,000 fans (a 26% increase), because they started Matt Harvey in that game.  That strategic shift proved to be best for the team and best for business.  From ticket sales to parking fees to concession sales, the increase in fans for game two had a compounding effect.   

Each year I've gone to the opening day game and it has always been a sellout. Ironically, the stadium finds a way to somehow pack more and more fans in each year (note the increase from 41K to 42K to 44K). I’m not sure how they are getting more seats in the stadium, but there's one thing I am sure of… From the play on the field to the revenue generation, this is a great start to the season!

What Is “Net Neutrality” and Why Should You Be Concerned About It?

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April 21, 2015

Fogarty,MarcBy:  Marc Fogarty, CPA, CFE

Net neutrality is a term that was coined by a Columbia law professor for the concept that internet service providers (“ISPs”) should treat all internet traffic equally and there should be no discrimination to the individuals or companies that use it.

People in support of net neutrality see the potential for ISPs to make alliances with big corporations who can pay for higher priced, faster connections. This would discriminate against startup companies who might not be able to pay more to be on the World Wide Web. ISPs have challenged net neutrality rules, saying that government regulation will reduce their ability to make a profit, and that they should be able to reap the benefits of the money they have invested (and will continue to invest) in technology to speed up the internet.

Here is an example of how net neutrality might protect the average consumer. Without net neutrality, big companies, like Netflix, will have to pay more to ensure that they have the internet speed needed so your movies play faster.  While at first you may dismiss this as Netflix' problem, eventually you are going to see that cost passed along to you, the consumer. Let's then say that a competing new company wants to enter the field. They have a better technology, great customer service, better cost, etc. But without net neutrality, they can't be guaranteed internet connectivity as fast as Netflix. If the ISPs wanted to, they could make it harder for startups to enter the market, and an era of favoritism and 'pay to play' politics could undermine our country's entrepreneurial spirit.

In February 2015, after over a decade of debate, the FCC approved rules that prohibit ISPs from speeding up internet connections for select company websites, or from slowing access to or entirely blocking consumer's access to websites who have not paid a premium.  Lawsuits have already been filed by several opponents of the new rules which reclassify ISPs as telecommunications providers, rather than information services, therefore making them answer to government regulation like public utility companies. The issue of net neutrality is far from over but the supporters seem to have won the first battle.

What Is the Value of Virtual Currency?

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April 15, 2015

Fogarty,MarcBy Marc Fogarty, CPA, CFE

I went to my local gas station and did something I never do – I paid cash. It made me think of two things:  one, how many dollar bills it took to pay for a tank of gas, and two, how rarely I carry cash these days. It’s easy and convenient to use “virtual currency” but will this technological trend change the perceived value of money?

My generation grew up in an era where people still paid for things with cash, but that won’t be true for my children’s generation.  Let’s look at a real world example of how virtual currency can be a mainstream part of our day. Jenny has each paycheck automatically deposited in her bank account so she never sees a paper check or has to go to the bank. While at work she signs into her Amazon account and buys a Mother's Day gift easily by just selecting the credit card they have on file for her. She orders her groceries online through Peapod and picks them up at the end of the work day. Even her credit card statement, which is how she is paying for everything, is automatically paid by her bank account because she set up auto pay. Jenny has never had to pay cash nor has she had to bother with figuring out the correct change for a transaction. Everything just ‘magically’ gets to where it’s supposed to go.

When grownups say to their children that they can’t afford something, it’s no wonder the child says something to the effect, “Can’t you just use your credit card?”  Teaching the value of money to a child in this digital age can be quite challenging. Our children are growing up in a world of virtual transactions, and this is before virtual payment systems like Bitcoin, ApplePay and the new Facebook Messenger App payment system have even gained widespread acceptance. Without seeing a tangible exchange of currency for goods, will this generation "feel" the value of an exchange?

I recently read an article where a parent brought home their monthly salary all in one-dollar bills to show their children the value of money. They printed their monthly bills and laid them in different places on the table. Piles of money were then applocated to each of those bills. Besides the mortgage payment and utility bills, they also allocated dollar bills for groceries, gas and other incidentals like a treat at Rita’s Water Ice. The children quickly discovered that they needed to sacrifice some of the incidentals in order to pay for grocery bills and gas, so the treat at Rita’s was out. 

The experience of tangibly exchanging currency for items each month can have a profound effect in helping children and even adults understand the value of money.  I'm not saying virtual currency is a bad thing, but it definitely provides a different perspective of value that will certainly affect the next generation.

Synergies in the Tech Acquisition Market

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April 6, 2015

Fogarty,MarcBy Marc Fogarty, CPA, CFE

Some business owners know from the start that they want to grow a company for the sole purpose of selling it. Others start a business because they enjoy what they are doing and it’s a bonus when the company blossoms into something larger than expected. An acquisition for the latter type of business owner can be a challenge. Unlike a business that is simply sold and handed over, These owners might wish to stay with the company. They might also wish to maintain the corporate culture and original intent of the business they created.

There have been a lot of tech acquisitions in the past year and a few have something in common that answers the need of this type of entrepreneur – business synergy.  About a year ago, I wrote about WhatsApp Waiting for the Right Buyer and how some tech business owners want to hold out for ‘something more than money.’  This trend seems to be continuing and the Amazon acquisition of Twitch this past fall is no exception.

Twitch is a video service that allows users to stream live video game sessions and e-sports competitions to a world-wide audience. The company launched in June 2011 and just three years later was being courted by Google. Google, with its YouTube video streaming service, might have seemed like a good fit. But, possibly due to antitrust concerns, the deal did not go through. This paved the way for Amazon to ‘make its move’ with a Twitch purchase of approximately $970 million in cash.

Whereas Google might have absorbed Twitch in an acquisition, Amazon is a more complimentary fit. Amazon sells video games and has started creating their own original entertainment media that competes with Netflix, HBO and others. There appears to be a natural synergy between the two companies that Twitch’s CEO, Emmett Shear, sums up nicely in a letter to his Twitch community:  “We’re keeping most everything the same: our office, our employees, our brand, and most importantly our independence. But with Amazon’s support we’ll have the resources to bring you an even better Twitch.”   

It might be tempting to take the first offer, but waiting could bring the right opportunity that’s an even better fit. If you’re a business owner who’s as lucky as WhatsApp and Twitch, maybe you really can wait to have your cake and eat it too.

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