The $19 billion sale of WhatsApp to Facebook (FB) is without doubt the event of the month on Wall Street; perhaps the event of the year, unless there are even more outsize deals along the way. When I see billions being paid so lightly for an application, I'm reminded once more of Texan oil mogul Nelson Hunt. Asked 30 years ago how it felt to lose a billion dollars in a single day on a speculation in silver, Hunt replied, "A billion dollars isn't what it used to be."
Whichever way you look at this deal, and its business logic according to the banks that put it together, it screams "bubble", taking me back to the technology stock bubble of early 2000. Then as now, banks and entrepreneurs played with all kinds of criteria that they invented for the new Internet age, except for one, which is the only relevant criterion in any business deal, and which they didn't talk about: the investment payback period. The good news is that no stock market crash like that of 2000 is in the offing, because the bubble does not extend to the market as a whole, or even to the market in technology stocks, apart from a few. On the contrary, if we can still buy Apple (AAPL) at a p/e ratio of 11 for the coming year, and receive an annual dividend yield of at least 2.3%, secure for many years thanks to the company's cash mountain, then it can be stated categorically that the market is mostly not a bubble.
Furthermore, if the WhatsApp deal is in fact worthwhile, then the shares of Apple and Samsung are the buys of the century. After all, the hundreds of millions of users that the advocates of the deal keep talking about are first and foremost captive customers on these two giants' smartphones. Apple and Samsung host WhatsApp and other applications on the iPhones and Galaxies they sell, without which the applications would not exist. What is certain is that these two giants will continue to make big money from the effervescent mobile industry.
The WhatsApp deal will also undoubtedly be on everyone's lips at the Mobile World Congress in Barcelona this week, where Facebook founder and CEO Mark Zuckerberg is giving the opening speech this evening. Samsung is due to unveil its Galaxy S5 telephone at a special event at the congress. Like the latest iPhone, Samsung's new handset will apparently be launched in two versions, one expensive and the other cheap. According to the rumor websites, one of the models will available in stores by mid-March.
Many Israeli companies, mostly privately held, will be at Barcelona. Among the listed companies in my portfolio, Ceva Inc. (Nasdaq:CEVA); LSE:CVA), Ceragon Networks Ltd. (Nasdaq: CRNT; TASE:CRNT), Radware Ltd. (Nasdaq: RDWR), Mellanox Technologies Ltd. (Nasdaq:MLNX), DSP Group Inc. (Nasdaq: DSPG), ClickSoftware Technologies Ltd. (Nasdaq: CKSW), and AudioCodes Ltd. (Nasdaq: AUDC; TASE: AUDC) will present a variety of mobile solutions. Among the major, half-Israeli companies, SanDisk Corporation (Nasdaq:SNDK) will obviously have a substantial presence there.
Besides the handsets, applications and mobile solutions of various kinds, one of the new topics of discussion at Barcelona will be what is known as "the Internet of things" (IoT). Cisco (CSCO) CEO John Chambers will speak extensively about it, and will probably repeat what he said recently, that he believes that his company will be one of the biggest gainers in a world in which just about everything is connected to the web, a market he estimates to be worth around $19 trillion cumulatively over the next few years.
Among the infrastructure players for the massive IoT market, I recommend watching out for Israeli company Telit Communications plc (AIM:TCM), which is traded in London, and will also be at Barcelona this year. It is in the niche known as M2M, that is, machine to machine communications, and specializes in wireless modules. In the past couple of years, Teli has expanded, through acquisitions, to cloud-based services in collaboration with leading wireless carriers.
Telit, run by Oozi Cats, is very active in Russia, among other places, mainly in security, and last week it revealed that its modules provided the security infrastructure for the 1,300 buses that transported the athletes between the sites of the Sochi Winter Olympics. They facilitated rapid communications for real-time video monitoring of the buses by the Olympics administration's security center.
Telit's share price more than tripled last year, and so far this year it has risen by a further 16%. Last Thursday, about 13% of the company changed hands on the stock exchange.
Telit had all-time high sales of $244 million in 2013, representing year-on-year growth of more than 17%, with fourth quarter sales growing by more than 26%.
The writer serves as a consultant and investor in securities, and advises the Pia Select Nasdaq fund. This column should not be seen as advice or a recommendation to buy or sell securities, including securities mentioned in the column. Anyone who acts in reliance on the column is exclusively responsible for any damage or loss they may incur.
Published by Globes [online], Israel business news - www.globes-online.com - on February 24, 2014
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