Investors face up to social media
The sector is still unproven, says Julian Knight, who warns that some analysts advise a cautious approach to the shares
Saturday 01 February 2014
The granddaddy of social media, Facebook, was born 10 years ago this week. That same year, 2004, Google became a public company after the first IPO since the dotcom crash of the late 1990s. Investors in the world's biggest search engine would have been quids in as prices have soared since shares first came to market. Other technology IPOs since have had mixed success – with prospects of future profits and the strength of truly global branding buoying share prices. But often the real-world numbers, such as profit and loss, are not much to write home about.
The bandwagon rolls on, but should small private investors really be putting their hard-earned cash into social media and technology sectors? Jeremy Gleeson, manager of the AXA Framlington Global Technology fund, is one of the leading managers in the sector. He reckons that social media has been a "mixed bag": "If you regard LinkedIn as a social media platform, then it has really been an investable area for some time. However, LinkedIn is more specifically viewed as a business tool, especially in the recruitment area, as it is extensively used by executive search firms and recruitment consultants, who pay to get access to data on the platform. More broadly viewed, social media has been a mixed bag. News International's investment in MySpace and AOL's purchase of Bebo have been widely documented and both were subsequently proven to be poor investments," he said.
Other flops cited by Mr Gleeson include Zynga and Groupon. Facebook's own float was mired in controversy: "Facebook finally went public in May 2012, with a much touted deal, which saw the price range raised and several errors (in my opinion) by the company and advisers to the company on their flotation (such as delivering a profits warning midway through the deal roadshow and aggressively pricing the deal), which removed the potential for near-term upside and [led to them] missing expectations in their first quarter as a public company. The insider selling which took place just 90 days after the IPO was an additional burden to the fragile share price."
However, Mr Gleeson believes Facebook has become "investable": "Several quarters of results [have] demonstrated they were able to monetise their mobile traffic, and at the same time not damage the experience mobile users received. Seeing revenue growth and subscriber growth concurrently provided a good backdrop for investing, which we duly did in May 2013." What's more, Twitter's IPO late last year enjoyed a much smoother passage to market than Facebook's, and this has been reflected in share price growth. Key to social media's success has been advertising. As Colin Moar, technology fund manager at Polar Capital, said: "Social media has become more attractive in the last nine months in terms of advertising. For example, Facebook's cost-per-click growth and ad load increase between quarter two and quarter three last year were huge, and the numbers were the sign bulls had been waiting for to prove the case for social media." In particular, Mr Moar believes that social media through the growth of YouTube and Twitter Vine will take advertising away from television. However, for now Twitter and even Facebook are still only making a fraction of the money made by long-established companies.
Patrick Connolly, an adviser at Chase de Vere, said the sector is still unproven and high risk for private investors: "We remain concerned that some social media stocks could be over-hyped and investors could end up paying a price which cannot be justified by the company fundamentals, just as was the case with many of the dotcom companies. The challenge for social media companies is to demonstrate that they have business models which are able to generate consistent and growing revenues." Mr Connolly concludes that technology shares are high risk but that with social media companies "those risks can be multiplied many times over".
That is why many experts urge caution. Instead of buying into Facebook and Twitter, they advise, investors should consider an investment fund where a manager will buy a basket of company shares, sometimes as many as 70 or 80 individual stocks, to spread the risk.
Darius McDermott, managing director of Chelsea Financial Services, reckons the technology sector does offer value, despite high-profile floats such as Facebook prompting concerns that a bubble is forming. "Perhaps because so many people got caught up in the dotcom boom and bust, the sector is still very much unloved," he said. "Currently, valuations for the sector are looking attractive, both versus their own history and versus other sectors. The US tech sector is as cheap as it has been, compared with the S&P 500 since 1995. And globally it's the cheapest sector versus its own 15-year average."
Not only that, but the sector's size gives managers a wide choice of companies to invest in: "The scope of technology is far-reaching. It's not just about the internet," Mr McDermott added. Google, which most people use as a search engine, has just announced that it is testing a "smart contact lens" that can help measure glucose levels in tears. "The things we can do with technology are forever increasing. This means the sector is highly diverse, and while one area may be struggling as economic woes cause companies to cut IT spending, others will do well because of austerity and the efficiencies they offer," Mr McDermott said.
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
After the election: What will Britain's financial future look like on 8 May?
General Election 2015: How you vote next week could affect your finances
Social tenants locked into energy tariff for 40 years
Five Questions On: GB Energy's new tariff
- 2 General Election 2015: 14-year-old boy asks Nick Clegg – 'can you kill Katie Hopkins?'
- 3 University student in court for allegedly covering housemates' food in window cleaner and spit
- 4 Ryan Gosling posts tribute to 'Ryan Gosling Won't Eat His Cereal' creator Ryan McHenry
In defence of liberal democracy
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
iJobs Money & Business
£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...
£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...
£215 per day: Ashdown Group: Junior Project Manager (website, web application ...
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...
Day In a Page
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings