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EisnerAmper Blog

Technology and Life Sciences Blog

Alibaba – The Right Marketing at the Right Time

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October 29, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcBy now, the success of Alibaba’s marketing to investors is quite clear, as the company raised $21.8 billion in its IPO. But how did a Chinese company that many people hadn’t even heard of in the U.S. make such a splashy debut in the U.S. markets? In part, by organizing an amazing public relations campaign.

The founder, Jack Ma, appears in the news as very ‘down to earth’ with various stories that lend themselves to making Mr. Ma (a former English teacher) a likable, ‘real’ person.  For example, the original IPO was scheduled for 8/8 and the word ‘ba’ means 8 in Chinese so the company stated it seemed fortuitous that BABA (the stock ticker symbol for Alibaba on the NYSE) would have its IPO on 8/8. Even though the Alibaba IPO was delayed to a different date, the engaging stories continued.

Another popular story that circulated in the news was how Alibaba got its name.  Mr. Ma chose the name while in a San Francisco coffee shop. He asked a waitress what she knew about the story of Ali Baba. She replied “Open Sesame” and he decided at that moment that Alibaba was the right name. Then he asked people on the street, of various nationalities, the same question and they all had the same answer. It was an easy name to spell and had a global appeal. In the story Ali Baba and the Forty Thieves, the phrase "open sesame" reveals an enormous treasure hidden within.

This story might appeal to people on various levels, but the one that sticks out the most is that Jack Ma was an average person in a coffee shop who sought outside opinion from perfect strangers of various nationalities. The bottom line is that investors are just people, and at the end of the day everyone loves a good story.

With Alibaba’s strong showing of profits in a market that is open for expansion, the IPO was bound to be successful. But the combination of an excellent public relations and marketing campaigns seems to have made it wildly successful.

Home Depot Security Breach – How Will it Affect Investor Confidence?

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October 27, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcLast February, I wrote a blog that looked at the Target breach – how it was handled and how it affected consumer and investor confidence. Just seven months later, Home Depot is in the news for what is being deemed the largest retail data breach in history, exposing credit card information of 56 million customers.  Here’s a look at the current fall out.

The headline in a recent news article from the New York Times, “Ex-Employees Say Home Depot Left Data Vulnerable,” is really going to be a challenge for Home Depot’s public relations department. The article’s sources are purported to be former members of Home Depot’s cybersecurity team.  They claim that Home Depot did not follow basic compliance requirements and security risk management procedures were not taken seriously.

Home Depot has put out statements to the contrary, stating specifically what they have done this year to mitigate risk, such as encrypting register systems and using a new smart-chip based payment method. But it may have been 'too little, too late' since the breach took place between April and September of this year. That’s five months of fraud that went undetected.

The Target breach occurred last holiday season and Home Depot said that, as a result, they brought in experts in January to evaluate their own risk. By April, they had started the introduction of enhanced encryption at registers. By the time the security enhancements in U.S. stores were fully implemented in early September, their security breach had already occurred.

What’s the take away? Public and private companies should be evaluating their risk exposure on an ongoing basis, not just as a reaction to a breach in their industry. Being proactive, rather than reactive, can help thwart an attack, or at least discover it much sooner so mitigation strategies can be put in place.

For public companies in particular, a data breach can have dramatic effects on investor confidence. The huge outlay of expenses related to a security breach will take some time to surface in the accounting and financial reporting of a public company, so it will also take some time to assess the total financial impact. Currently, for Home Depot, investor confidence has not seemed to change. Home Depot's stock in the last six months has had some small fluctuation, but then saw a sharp increase in August. Only a small dip is noticeable after the September breach announcement, and the stock was back up as of the date this blog was written. This is in contrast to the sharp decline Target experienced after their data breach announcement earlier this year.

Apple Innovates – Will it Keep Investors Interested?

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October 20, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcAs I have mentioned in other blogs, tech companies often need to think of ways to reinvent themselves to keep investors interested. The recent unveiling of the new Apple IOS, iPhone 6 and Watch in the second week of September is no exception.

Despite Apple’s slight stock decline the week before the announcement, it made its way back up shortly thereafter. Fans lined up at Apple stores, much like a new movie, eagerly waiting to experience the new Apple offerings. Investors will keep an eye on preliminary sales but initial indicators are very good. In the opening weekend for sales of the iPhone 6, Apple sold 10 million units, which was record breaking.

Both of the new iPhone models have larger screens, which consumers seem happy about, and Apple has introduced a new electronic payment system called Apple Pay. The Apple Watch, which is the first new product Apple has launched since the iPad in 2010, will integrate with the iPhone and enable health and fitness monitoring as well as response to messages, plus access to Siri, calendar, music and other apps like maps for directions. The hope for the new Apple Watch is that it will have the ease-of-use that Apple products have become known for and competitor products are lacking. 

Despite all the good news, there are a few flies in the ointment. The estimated delivery time for new phone orders is a month plus and the iPhone 6 will not be available yet in the Chinese market. The Apple Watch is not due out until early 2015 and it requires the owner to have an iPhone. Despite the issues regarding supply, there is still a strong demand and this should keep investors happy, at least in the short term.

There were also a few glitches with the new iOS and ‘Bendgate,’ but glitches happen all the time in a mass roll out -- especially one of this magnitude.  The update to new iOS software is a large scale update that happens to virtually everyone at the same time. There is rarely such an event that is similar.  When Microsoft updates to a new operating system or new web browser, those are seldom rolled out to everyone at the same time. 

Also, if there was any doubt about Tim Cook’s effectiveness as Apple’s Chief Executive Officer, following in Mr. Job’s footsteps, the latest plethora of product announcements and seamless integration may appeal to investors. By improving existing products, creating new ones of interest, and tying them all together, Apple still seems to be just one step ahead of competitors.

Alibaba Shows Strong IPO

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October 8, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcThere have been 195 IPOs this year in the U.S., which is an increase of 34% over last year. Alibaba continues to show the IPO market is strong as it historically eclipsed every IPO this year.

After pricing its initial offering at $68 a share, Alibaba closed its first day of trading at $93.89. Alibaba is now one of the largest publicly traded companies in the world as it raised $21.8 billion in its IPO.  Let’s look at what went right with this IPO.

The whole marketing strategy behind this IPO, which took place over many months, may have greatly contributed to its ultimate success. Alibaba’s founder, Jack Ma, was presented as a likeable character and actively participated in the 2 week (so-called) road show where he presented to would-be investors just before the IPO. Alibaba was able to show strong growth and profit reports, and demonstrated a trend in online spending by Chinese shoppers that is predicted to continue to increase. Alibaba’s last fiscal year showed sales which were estimated to be more than eBay and Amazon combined, and Alibaba is showing an enormous profit. 

Some intended IPOs even held back this week to make room for this unprecedented event. Even GoDaddy was reported to be considering waiting until early next year for their IPO. But according to Mr. Ethridge of the New York Stock Exchange, there isn’t a need to wait. The IPO market is still hot and one large stock sale won’t “sap” the appetite for other IPOs. Only time will tell if he’s right. But, for now, it appears that the right combination of proactive marketing, solid profits and a positive future outlook contributed to the success of Alibaba's IPO. 

Alibaba IPO – Where Marketing May Be the Key to Future Trading

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October 6, 2014

 

By Marc Fogarty, CPA, CFE

Fogarty,MarcThe Alibaba IPO, which listed on the NYSE and started trading on September 19, was the largest IPO ever (estimated at $25 billion). How does Alibaba plan to keep their shares on a steady incline, now that they’re trading?

Even though Alibaba is domiciled in China, it is incorporated in the Cayman Islands. This presents issues limiting how and where its shares can be traded. The S&P 500 index follows only U.S. firms, and because Alibaba is not a U.S. company, it may not be eligible for its index, and some funds won’t be able to buy it. Some Chinese and emerging-market stock indexes may also have to exclude it because Alibaba is technically not a Chinese company due to its incorporation in the Cayman Islands.

This means that the management team at Alibaba needs to be especially vigilant in keeping up the marketing hype to court investors, keep them engaged and keep their shares rising. Their marketing efforts, combined with publicity about the massive IPO, will not only help bolster the success of the IPO, but hopefully continue to keep its stock price rising. Alibaba's publicity ‘roadshow’ kicked off on September 8 in New York and continues. Let’s keep an eye on things….

Revenue Recognition and Its Impact

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September 24, 2014
 
By Marc Fogarty, CPA, CFE

Fogarty,MarcThe FASB and IASB recently replaced industry-specific guidance on revenue recognition in favor of a single, comprehensive model.  In response, the AICPA has formed industry-specific task forces in order to develop their new “AICPA Accounting Guide on Revenue Recognition.” The FASB expressed concern over this, since the aim is to create a general revenue guide for all transactions and industries.  

The majority of companies who apply U.S. GAAP or IFRS will be affected by the changes to revenue recognition. It also appears that the new rules will impact some industries more than others, even though the boards have stressed that revenue recognition is now contract-based and not industry-based. The FASB and IASB have created a Revenue Recognition Transition Resource Group to aid in identification and implementation issues.

Regardless, it is likely that changes to how revenue is recognized will have a profound impact on the technology and life sciences industries.

In the technology industry, the following will be of concern:

  • Identifying Performance Obligation
  • Long-Term Contracts for the Customization of Software
  • Licensing of Intellectual Property
  • Allocating Transaction Price
  • Accounting for Contract Costs

In the life sciences industry, the following will be of concern:

  • Identifying the Contract
  • Contract Modification
  • Identifying Performance Obligations
  • Determining the Transaction Price
  • Allocating Transaction Price
  • Satisfying the Performance Obligation
  • Milestone Payments
  • Collaborative Agreements

For more information, please see my summary of these issues in the Accounting Policy & Practice Report, published by Bloomberg in July 2014.

Tech IPOs on the Rise – No Surprise

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September 18, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcIt’s been a banner year for tech IPOs, and the Dow and the NYSE have shown a steady incline in the past 5 years, reaching historic highs this year. This is really no surprise when we look at economics and the evolution of many of this year’s tech IPOs.

The financial crisis of 2008 might actually be where to place some of the credit. During the economic downturn, companies and individuals needed to spend their money more efficiently, and under greater scrutiny. For many companies who were shrinking operating budgets, technology helped accomplish the same goals but with less money. Shifting the budget to less expensive marketing alternatives like social media and website marketing may have influenced the right time for IPOs like Facebook and Twitter and the impending GoDaddy IPO.

Some companies with possible upcoming IPOs may have even risen out of the recession, having been founded on the premise of saving consumers money when costs are tight. For example, Airbnb, an alternative to costly hotels, was founded in late summer of 2008 and Uber, a cost-effective alternative to taxi cabs, was founded in the spring of 2009.

Five years later, companies that offer consumers perceived cost savings are still in favor, and many companies are still maintaining a conservative mindset when it comes to budget. Since technology and the internet are cornerstones of the companies that are profiting from the 2008 market shake up, there doesn’t seem to be a shortage of tech IPOs. As these companies that 'rose from the ashes' go public, it seems fitting that they might just restore and invigorate investor confidence, and pave the way for many more successful tech IPOs in the years ahead.    

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