EisnerAmper Blog

Technology and Life Sciences Blog

Alibaba Chooses the New York Stock Exchange

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July 24, 2104

By Marc Fogarty, CPA, CFE

Fogarty,MarcWhen the Chinese internet retail giant Alibaba enters the public U.S. stock market later this year, they plan to use the stock ticker name BABA. The word ‘ba’ means 8 in Chinese, and using 8 twice -- BABA -- coincides with their requested first day of trading, 8/8 (subsequently pushed back to September). While there's no historic evidence that proves such symbolism is a guarantee for a successful IPO, the investing public's emotional support, enthusiasm and confidence are clearly at play on the days leading up to and following a company's entry to the market.   

The technology boom of the 1990s had a similar enthusiasm, with investors gossiping and lining up for the NASDAQ’s latest tech offerings. But along with the fanfare and exponential growth, there was also a higher degree of risk looming below the surface. When the public technology market collapsed in 2000, NASDAQ had the vast majority of tech companies while the NYSE had more of the larger, more stable companies. On Jan 14, 2000, the NYSE was at 6870 and it closed for the year at 6785, which is very little change when compared to the NASDAQ, which had declined by more than half during the same period.  

As we approach the 15-year anniversary of what we now refer to as "the technology bubble," it appears that the NASDAQ has lost its ‘swagger’ with technology companies, especially those entering the public market. In line with recent trends, Alibaba Group has chosen the New York Stock Exchange for its upcoming IPO.  As such, Alibaba would be the third largest tech company listed with the NYSE.

While there has been continued talk that market might be in for a "correction" someday soon, the NYSE might still be perceived as providing a more stable market with more promising returns. Alibaba's decision regarding what date to launch their IPO may be based upon symbolism, but their decision where to list their IPO seems to be based on history, reputation and changing trends. 

Dow Above 17,000

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July 17, 2014

Fogarty,MarcBy Marc Fogarty, CPA, CFE

Even though the economy shrank in the first quarter, the stock market continued to rise. This seems contradictory, until we take a look at some of the facts.

For the first time, the Dow broke the 17,000 mark shortly after a better-than-expected jobs report indicated that the economy might be picking up.  If you look at the stats from the period after the financial crisis of 2009, the market has been consistently bullish with a slow and steady rise. As reported by the S&P Dow Jones Indices, it’s the fourth longest bull market since the 1929 market crash.

Interest appears to be running high, with investors betting on continued advances in the technology and life sciences sectors. Most of the recent IPOs in those sectors have been considered successful. Even slightly older public technology companies like Netflix and Facebook are continuing to generate interest and revenue in the market.   For example, in the last twelve months, Facebook stock rose approximately 170% and Netflix approximately 114%.

So how long will it last? Before the technology bubble in 2000, there had been a rapidly growing economy. What makes this current market unusual is that, while the overall economy might seem sluggish, the equities markets are making a steady climb. Some believe that the stability of the stock market will make for a stronger economic recovery overall.

No one knows how long the current bull market will last; but for right now, tech IPOs are on the rise and many companies are contemplating entering the market. Even if the overall economy isn’t doing well, now might be a great opportunity to raise capital with an IPO.

Kaltix, Sep Kamvar: A Silicon Valley Story

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July 8, 2014
By Marc Fogarty, CPA

Fogarty,MarcTech sector entrepreneurs gathered in EisnerAmper’s office on Thursday, June 19, to hear Silicon Valley entrepreneur Sep Kamvar share his unique experiences and insights; ultimately causing one enthusiastic attendee to remark “This is one of the very best entrepreneurial discussions I’ve participated in.”

As a backdrop: in 2003, Sep and several other Stanford PhD students dropped out of their Stanford program to found Kaltix.  Their early focus on personalized and localized searches was revolutionary and ultimately led to a 2004 acquisition by Google.  Funded by the founders’ life savings and a remarkably lean organization, the company only needed $100,000 in convertible debt to fund the business through acquisition.

Among the insights Sep Kamvar offered:

  • The East Coast could be more competitive if it adapted more of the Silicon Valley mindset of encouraging and nurturing entrepreneurs. 
  • Good businesses start by solving a problem or meeting a need.  
  • In the early stages, it is helpful to “play with ideas” and not “trying to make it work.”
  • New Jersey might benefit from having a city “specialize” in a certain niche or technology -- for instance, health care digitalization.  Having a critical mass fosters communication, support systems and idea creation.
  • Tech entrepreneurship in the future should focus on being more open about communication and less focused on private idea ownership.
  • Today’s global scale means a technology company can gift most of its services yet still yield substantial profits. 

Sep ultimately returned to earn his PhD at Stanford and is now Professor of Media Arts and Sciences at MIT and the Director of the Social Computing Group at the MIT Media Lab. He is also an advisor to companies.  A renaissance man, Sep’s artwork has been exhibited to the Museum of Modern Art in New York, the Victoria and Albert Museum in London, and the National Museum of Contemporary Art in Athens.

What Happened to IFRS Initiatives? Are Global Accounting Standards Just Too Far out of Reach?

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July 2, 2014 

Fogarty,MarcBy Marc Fogarty, CPA, CFE

As you may recall from my earlier blog, Support for IFRS Noticeably Absent from the SEC Strategic Plan for Fiscal Years 2014-2018, IFRS initiatives have lost steam over the years. The former chairman of the SEC., Chris Cox, had tried to bring international accounting rules to the U.S. while he was in office; however, now he says it is unlikely that the U.S. will replace GAAP with IFRS. What has changed?

In 2008, a proposed IFRS roadmap was published by the SEC while Mr. Cox was chairman. The financial crisis that followed seemed to put IFRS out of the limelight. The 2012 SEC staff report said that adopting international rules was “not supported by the vast majority of participants in the U.S. capital markets.” This was partially due to the cost of making changes.

But, six years later, there are still IFRS supporters and it is thought that the current SEC chairwoman, Mary Jo White, might be open to adopting international rules. There is still a chance that U.S. multinational companies will be allowed to change to International Financial Reporting Standards if they want to. This would enable U.S. companies to use the same rules as their foreign competitors, which would provide the benefit of making comparisons easier for investors.

Our country's unwillingness to change, perhaps from the belief that there is nothing broken with our system or doing so will create unnecessary costs, will affect other countries as well. A possible end result may be a global decision that companies can choose the rules they want to follow. For instance, Japanese companies can choose from Japanese GAAP, U.S. GAAP and IFRS.

It appears that globally we are heading farther from IFRS.  With prominent people, like Mr. Cox, discussing the measure pessimistically, it seems less likely global accounting standards will be in our future.

GoPro’s IPO Filing - Another Tech Company Showing Profit

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June 16, 2014

By: Marc Fogarty, CPA, CFE 

Fogarty,MarcGoPro, the maker of rugged and waterproof devices to video tape extreme sports action, announced it will join the recent boom in the tech IPO market.  The technology aspect of GoPro is not new, but they created a new and unique way to use it. The product is appealing to the daredevil/extreme sports market who wants to video tape a sports activity, like skydiving or kayaking, without putting their more fragile iPhone at risk.

This tech company may be attractive to investors because there is real inventory and true gross margins.  Investors will like that they can see growth in sales, users, pricing and they can measure inventory turnover and margins.

GoPro is currently showing a substantial profit but has stated that its profit margin may change if the makers of smartphones and tablets change the durability of their product offering. As I have mentioned in my previous blog, After the IPO, Twitter Can’t Rest on its Laurels, tech companies need to adapt to changing technology to stay viable.

JD.com IPO on the NASDAQ - Good News for Tech IPO's

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June 10, 2014

Fogarty,MarcBy Marc Fogarty, CPA, CFE

JD.com, also known as Jingdong Mall, is a China-based company that sells inventory to consumers much like the U.S. company Amazon.com. Many people didn’t even know who JD.com was before the IPO was announced and yet, in its NASDAQ stock market debut, it raised $1.8 billion. 

Why are Chinese companies coming to the U.S. stock market? Because Americans want to tap into the Chinese market place, as the country is rumored to have only 50% of its population currently online and internet shopping is projected to grow approximately 27% per year. If the percent of the online population continues to grow and internet shopping does increase, JD.com will be well positioned to use its newfound NASDAQ-generated capital to better serve its customer base and grow the company.

That’s great for potential business, but is JD.com currently showing a profit? A big part of JD.com’s business model is reliance on delivery services. By putting money back into its operations, partially to deal with delivery issues, the company has reported net losses over the last five years. Despite not showing a profit, JD.com was valued at over $28 billion--which is higher than Twitter and LinkedIn, but lower than the $130 billion valuation of the Chinese company The Alibaba Group.

What I find most interesting about this IPO is that the founder, Richard Qiangdong Liu, holds about 84% of JD.com’s voting power. This is a very high percentage. Most closely held companies have founders that hold 30%. With Mr. Liu holding 84%, investors have zero say in what the company does. On the positive side, this gives a visionary CEO the ability to move quickly in a rapidly changing industry. On the negative side, the investors will never have the majority voice in how the company is managed and it’s hard to vote Mr. Liu out of power if investors feel he is making bad decisions.

In this market, it is possible for a company to have their cake and eat it too. The JD.com IPO is a great example of a public company that is not giving up control of its business.

Despite JD.com’s lack of profit and the possible negative consequences of the CEO’s high percentage stake, this IPO was highly successful.  Despite many people’s lack of knowledge of who JD.com was until the IPO was announced, it’s clear that the right marketing strategy, a niche consumer base and a high business valuation can shape a successful IPO. 

Does the Apple Stock Split Indicate Another Tech Bubble?

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June 4, 2014

Fogarty,MarcBy Marc Fogarty, CPA, CFE 

Some are touting that this is the second coming – the second coming of the Internet tech bubble, that is. There are the hallmark signs of high company valuations, low profits and the most recent news of stock splits like the one recently announced from Apple.   
Stock splits were very popular in the late 1990s because it made stock affordable to the average investor. But today, splits are rare and many stocks like Apple, Priceline, Google and Amazon are upwards of several hundred dollars per share.   With a stock split, there is anticipation that cheaper per-share prices will appeal to more buyers, thereby increasing the stock price.  

And why wouldn’t a company decide to split its stock? A company’s value does not change with a stock split and the media buzz has already driven Apple stock higher. Yes, there are negatives. Investors may look at the lower priced stock as a short-term rather than long-term investment, which could lead to a large pull out if investors get skittish.   

Apple’s stock split news might be reminiscent of the period before the bubble burst but it’s important to note some key differences between then and now. In the late 1990s, Internet technology was still fairly new and companies were still figuring out how to use the new medium. Now, the Internet is firmly entrenched in our daily lives with smartphones and tablets (thank you Apple).

Investors are now better able to differentiate the technology market segments that have evolved. For example, King Digital Entertainment, the makers of Candy Crush, may not have done well in its IPO, but that did not affect the rest of the market.  Twitter, a social media company, might have a bad day in the market but other tech companies, like Apple, could see increases. Even though all of these companies are in tech, they all provide a substantially different product.

We’ll continue to follow the Apple stock split when it comes to fruition in June; but, for now, there are enough differences between then and now that it’s not clear we are in another bubble.

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