Ask The Right Questions

I am pretty sure, the majority of the readers here are using Facebook or Google daily, most probably more than once. I am also convinced, that 99 percent who follow this website have at least visited once a McDonald’s or drinked a Coke.

What this has it to do with investing?

Well, each time you order a Big Mac or pick a 2l coke bottle from a shelf at Carrefour or Mega Image, there is something coming up inevitably – you have to pay for it on the spot and before you consume it.

So money is flying away from your pocket and ultimately landing on a account of Coca Cola in Atlanta or McDonald’s in Chicago. It’s an easy task: the more people consume, the higher the profit which is most likely boosting the share price.

But what happens when you google the weather forecast for ‘’la mare’’ or searching a romantic hotel in Sinaia and then share this info via Messenger or Whatsapp with your girlfriend/wife? Had you ever been asked by Google or Facebook to pay first and then to use their services?

No.

Well, if you are only using Google or Facebook you don’t have to care. But if you are a shareholder or consider to buy the stock, you should ask the question (and demand the answer), how are these companies making money for me? How will Facebook, as an example, refinance the 22 billion dollars they spent on buying whatsapp, when users are getting the service basically for free?

Of course, with advertising, you might think, or they are making a business in selling user-data to other companies. That’s true, but I am still not convinced, this model is working long term in the rapidly changing environment of the web in general and social media in particular.

Google, it seems, is aware of this. And despite owning a quite profitable advertising business with ‘adWords’ and the operating system ‘android’, is expanding big time. Google even changed the name into ‘Alphabet’ to underscore – in the coming years, we intend to make business and profits from a to z, from self driving cars to medical research like life extension. That’s good news for investors.

But Facebook? If you look deep into the financial statement of the company, you’ll discover a huge dependency from earnings out of mobile advertising. And exactly this business has undergone a dramatic change on September 16th, 2015. That’s when Apple opened his ios-operating system of millions of iphones in use around the world to a tiny little app called Ad-blocker.

The next day this app was leading the download-charts in the AppStore and nobody, and I mean nobody, will ever delete this app again, because it offers an ad-free and quicker surfing experience on the mobile internet.

Facebook founder Mark Zuckerberg is an intelligent guy and for the problem that his users are blocking the ads his company depends on, he camed up with an Instant Article solution which is brilliant and statistics allready shows that it brings more revenue. Creativity saves the day this time. But when you’re about to invest allways check for the up’s and down’s of a company by asking the right questions.

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Successful investors not only ask the right questions about the future, they also learn the lessons, financial-history is telling. What you must know from the past to have a future on the markets, is coming up in a two part financial-history knowledge in the next chapter: http://www.theleader.ro/stocks-how-it-all-started/

 

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