MARC ASHTON: Welcome to the Moneyweb Offshore Investing podcast. Today I’m joined in studio by Simon Brown from JustOneLap.com Simon, thanks for joining us.
SIMON BROWN: Thanks, Marc.
MARC ASHTON: Social media: it’s been a big subject over the last two years. We’ve seen some big listings – Twitter, Facebook, LinkedIn – they’ve come to the [market] with a lot of hype and a lot of excitement around them. Shares have been incredibly volatile. For instance, GoPro has moved 40 to
50-odd percent in the last couple of months.
It’s very, very topical at the moment. Is there a way for South African investors to be able to take advantage of some offshore listings and participate in some of the hype here?
SIMON BROWN: Obviously they can do it directly but if they want to go into an ETF space there’s one offered by a company called Global X. They’ve got Social Media Index ETF, code SOCL, that holds those stocks you’ve just been talking about and then some others have got Groupon in there as well, Pandora is in there, Google and Yelp. I remember when the talk was all around Web 2.0 and suddenly social media has just become massively prevalent.
You talk about the volatility, Facebook IPO’d at 40-odd, went to I think 18 and it has roared ahead, but what Facebook is showing us is that they actually can make money. The story was: will they ever make money? What about mobile – they’ve done it, they’ve proved it, they’re making the money. These are not the ‘hope and prayers’; these are proper companies with business models and profits.
MARC ASHTON: Is it a fad or is it a genuine technology revolution though?
SIMON BROWN: I think it’s a genuine technology revolution … [the] internet reduced time and geography, and social media does that spectacularly better.
The internet launched back in the early ‘90s, it was made available to us, we couldn’t find anything, then we got the Yahoo’s and then finally Google as your search engine, and what social media almost does is refine that further down by who you follow. Then, of course, it lets you keep in contact with people from around the world, instead of having to phone granny or send a letter or something like that, it’s boom, it’s there, it’s on Facebook, you can send the photographs. It really has made a global digital village …there are 2 billion people on the internet now or 3 billion. Over 1 billion of them are on Facebook; Twitter is moving on 500 million. It is becoming all-encompassing. I suppose we can say the future going to be Facebook – I can’t see what takes Facebook down – but is social media in our future? Without a shadow of a doubt.
MARC ASHTON: I’m a sceptic; I see that the likes of Twitter has a PE (price/earnings) of 408, Facebook a PE of 44, LinkedIn a PE of 112 – looking at those kinds of numbers they just look ridiculously expensive. I appreciate that we’re still waiting for a lot of the earnings to come through for those businesses and they should be taken with a pinch of salt. What’s the opportunity if I’m looking at the price/earnings multiple of the ETF that we’ve been talking about? Is it a cheaper entry point and possibly a less volatile entry point?
SIMON BROWN: I would say yes to both, the PE earlier in the year was around 22 and-some-change for the ETF, so significantly cheaper in that sense and it’s going to be less volatile. If you go into one of these particular stocks, running my eye down the list, almost all of them at some point have had high levels of volatility – Google less so now but it certainly has been down that road in the past.
What we are seeing here is stocks that are going to be a bit volatile but you’re going to smooth it out in a sense by having a basket of them. That’s just good old-fashioned portfolio diversification. Which is the one that’s going to win over the next five or ten years? It might be hard to say. But if we believe in social media as a concept and as a vital part of the internet as we use it, the worldwide web these days, I think we’ve got to say to ourselves ja, this concept, ‘social media’, is going to be there, it’s going to play out, it’s going to be the future going forward.
So we get the lower volatility and we get a better entry point because some of the cheap stocks in there. Yelp for example, which is a restaurant review site, trades on a very, very low price/earnings because people look at Yelp and say it’s boring but again, they’ve got over 100 million active users.
MARC ASHTON: So I guess the big question for the year is what’s the big play for next year, if you had to pick a single social media stock what are you looking at?
SIMON BROWN: For me it’s absolutely Twitter, because Twitter is my social media of preference, it’s the one I understand, it fits with my ADD personality. But what Twitter hasn’t yet cracked – and they’re working on it – is strong revenue. Facebook has cracked it. Twitter hasn’t yet got that 100% right, the risk is they don’t. I think they will – there are enough clever people out there. When you’ve got a base of 300 million people, you will crack how to revenue it. So for me it will be Twitter if you want an individual.
MARC ASHTON: Remind me of the name of this ETF?
SIMON BROWN: The ETF is published by Global X, they literally just call it the Social Media Index ETF, code SOCL.
MARC ASHTON: And available for trade through Standard Bank’s Webtrader?
SIMON BROWN: Absolutely, trading on the New York Stock Exchange.
MARC ASHTON: Simon, thanks for joining us in studio today.
SIMON BROWN: Always a pleasure, Marc.
** This is a sponsored education series focused on offshore investing. The content is sponsored by Standard Bank Webtrader and Moneyweb are the content creator.