Zuckerberg's Instamonetization

[2012-04-13]   One has to be mad to pay a cool ONE BILLION DOLLARS for a company of a dozen employees that does not have any revenues… Or very clever… News that Facebook will pay that much for Instagram are nothing less but shocking. With such amount of money, thousands of engineers at its disposal and its user base, Facebook could have built from scratch literally hundreds of similar popular applications. Why did they do it, then? The answer is very simple: the vast majority of the money and stock paid for the acquisition will come back to the very few at Facebook's helm...  READ MORE

Discount Groupon

[2012-04-09]   Do you own shares of Groupon, Inc. (GRPN)? I hope you don't. Why? My answer is very simple and this time has nothing to do with intrinsic valuation of the company. When it comes to investing or, in general, giving money to someone in whatever form, the most fundamental question you should be asking is whether you trust the people you are giving it to. Groupon's management has shown repeatedly that they are looking for ways to trick investors into believing that the company's performance is much better that it is in reality. The latest disclosed example of this:...  READ MORE

Misleading Return-on-Equity Metrics

[2012-03-27]   When screening stocks, investors usually prefer companies with high return on equity (ROE). This makes perfect sense, as companies with higher ROE are more efficient in using equity capital. This works in theory and in practice. However, the usual ROE metrics takes into account the book value of equity (i.e. the cost of equity to the company) and is useful only from the company's point of view. Investors, when calculating ROE, should use the market value of equity instead – this would be the true measure of a return the company makes on investor's money. When...  READ MORE