Social Media vs Sensors and Robotics

I found the following post on the LNKD board, posted by redsox2005. I thought it was incredibly insightful and helps explain why I’m not in the wildly overpriced social media stocks.


"I have been a LinkedIn member since it was in beta. There are a couple of wonderful things about its services from a consumer perspective: if one is looking for a job, certainly helps to know who knows who within an organization. That’s pretty sticky in my mind - but how often is someone looking for a job?

Professional perspective - I am work for a tech company in Enterprise sales. LinkedIn is very useful for introductions to high level individuals versus cold calling. Again - this is relatively sticky.

However - I don’t pay for any type of subscription premiums.

Headhunters Perspective - they use it constantly. What seems to be great for them is a nightmare for some of the professionals. I, for one, am very tired of getting notices from recruiters on some next big thing since they probably sent it out to hundreds of individuals based on a specific query of attributes.

Another key on LinkedIn - most people don’t limit their contacts. Me? I know everyone of my little less than 500 contacts. I can reach out to them and get answers. I do disregard many requests though, and this is not, I believe the typical norm.

I have a FB user ID. I thought it was a cool concept at first years ago and a great way to connect up with old friends. Couple of things on FB though:

  1. Started getting friend invites that weren’t my friends. People I knew absolutely, but people who were pretty much jackasses back in high school wanting to connect. Interesting that those same people do not reach out to my LinkedIn.

  2. Do I really need to know that someone is cooking something at 5 and or that it is snowing out? Really - the information is sometimes so trivial.

  3. Asked my 13 year old if he wanted FB - said no way - no one using it in his class. this might change but they all use Instagram and I think that is what might save FB.

  4. Twitter - same thing. Do I need to know that someone is tweeting about hooking up at the Olympics? Interesting yes but did I really need to know that, or that someone has tweeted another irrelevant detail on their or someone elses life?

So when I look at all three of the social investments I come to the same conclusion:

  1. Of the most critical to me, a 40 something mind you, is LinkedIn but I don’t pay for it and sometimes it is annoying.

  2. Are these fads? Maybe/maybe not - not sure. In 15 years? It could be that none of them have the same valuation as they do today. Or just take FB and multiply a 20% compounded annual growth for 15 years. FB is at $2.6 Trillion market cap, LinkedIn - $354 Billion, TWTR $314 Billion. Will social be the rage in 15 years? Good question and great debate.

But let’s flip it over - what about Robots or Sensors - what will that look like in 15 years? Apply 20% to IRBT, get $18.5 Billion, AMBA, $12.8 Billion, SWIR, $9 Billion.

The above has no analysis really whatsoever - just maybe some common sense. If you had to make a bet; is social going to take over the world or a robot, new manufacturing like 3D, etc? My bet is that social will not grow to those expectations.

Hope this ramble was interesting on a day in the Northeast where it is snowing but didn’t want to tweet it, FB it, update it on Linked In, send it to your work and home e-mail, etc. b/c I think everyone already knows it is snowing.

Sox Nation


Hi Saul,

That’s an interesting post.

The argument that FB and co are over valued and that they would need to have insane market caps to support 15-20% growth is not new. It’s been raging for a while. There are some intangibles to consider though. Successful businesses successfully evolve their business models. Amazon and Google are good examples. In its early days, Amazon was just an online retailer selling books. Did anyone think it was going to grow into a 150B market cap business selling web services, video-on-demand, groceries, and pretty much anything that one can buy in the local store?

Similarly, in its early days Google was just another search engine. There were others like Alta Vista and Yahoo, but today those competitors are gone. And Google has evolved to providing web services, video streaming, Andriod/mobile systems, Google Glass, and working on a host of new technologies to meet future challenges.

My point is that good companies with good leadership will be able to adapt and do things we can’t possibly think of right now. I think David G has a saying about lead Huskies taking us places where we wouldn’t have envisioned going.



Hi Anirban,

But even if I grant all that, can I see FB with a $2.6 TRILLION market cap?

It’s a lot easier (and way more realistic) to imagine AMBA (or UBNT or SWIR) with a $12 billion cap, or SWIR with $9 billion, in 15 years, which is what he’s saying.

I was one of the people who laughed when they said a couple of years ago that AAPL was too big to keep growing so fast. Boy, was I wrong!




Hi Saul,

Okay, I grant you that a $2.6 trillion market cap for FB seems outlandish. However, let me offer you my perspective on FB. I think FB is special in that it has 1 Billion captive users. Right now, its earning mostly through advertisements, but there’s nothing to stop them from finding innovative ways of earning monies from these 1 billion captive users.

I can at least think of two ways in which FB could expands its scope. One, potentially big play would be to offer search services that leverage upon the social networking data it has been collecting. If done and executed properly, this could be a big threat to Google. Note that Google has been trying to grow Google+ but hasn’t been successful and my guess is that they do think FB has the power to disrupt Google’s bread & butter. The other thing to consider is that some of the most talented engineers are now working for FB - apparently its the place to be much like Google was (and I suspect still is) the place to be.

Another, small step towards disrupting Google’s hegemony would be to offer email services like Gmail. That would bring in additional data, which when correlated with the social network data would be highly valuable for advertisers. Note that FB has the ability to target demographics based on its social network data, which I consider to be very valuable for the advertiser.

Okay, now back to the market cap argument. Here, though, I sort of agree with you. I could see FB may be doubling over the next 5 years, and may be going 4x in about 10-15 years. As its size becomes larger, getting those large multiples is going to be harder. With the social networking companies, I keep a close eye on their quarter performance, and I would sell if I perceive a meaningful slow down in growth. I would also sell if I see my wife and her friends spending less time on FB! (Note - my wife and most of her friends are hardcore professionals - so these are women with less time and disposable income - a very nice segment to target with adverts.)

I also agree that good companies with smaller market caps offer the best opportunity for market trouncing returns. For those reasons, I sort of follow an equal-weight approach, where I invest nearly equal amounts on each company I hold. This is unlike what a lot of portfolio managers do, which is to allocate more to larger cap (stable) companies. So, yes, I agree with you. I 'm invested in AMBA, INVN, SWIR, CAMP, UBNT, and PSIX, to name a few that are more on the mid to small-cap range.

That said, I also think that there’s a lot more that can go wrong for companies like SWIR. SWIR I have followed closely, and I don’t think it has a moat that would prevent others from jumping in and crushing them. The same would hold for CAMP. Commoditisation of this space is a possibly with larger players jumping in. I know CAMP and SWIR are trying to add value by providing cloud services etc. BTW - have a look at CAMP if SWIR is something you invest in or are considering investing. Recalibration of expectations may happen if some of the predictions regarding the Internet of Things may not come true. Here I 'm talking about the 15-20% CAGR in M2M devices predicted by CISCO and Machina Research. After all, the Internet of Things was a big idea some 20 years back as well, but that didn’t lead to anything … I suppose the main driver this time is going to be the much wider availability of cellular data networks.

Thanks for the interesting discussion, Saul! One of the many reasons why I like hanging out here.



Okay, I grant you that a $2.6 trillion market cap for FB seems outlandish.

…well, it’s not like it’s happening tomorrow, but like the 4 minute mile the trillion dollar market cap will be pierced, and all the talking heads on CNBC will collectively roll, and then another company will follow, then another…

…I thought it might be AAPL to do the honors, and it may still be, or perhaps GOOG, but my point remains, in 15 years time, when 20 companies have market caps of a trillion dollars it may not seem so improbable that a FB could grow there…

…not likely, but perhaps more “understandable”…


…well, it’s not like it’s happening tomorrow, but like the 4 minute mile the trillion dollar market cap will be pierced, and all the talking heads on CNBC will collectively roll, and then another company will follow, then another…

So true … someone will cut through the trillion dollar barrier in the future. If we rewind some 20 years back, the 500B mark was probably unthinkable.


HI Saul,

Thanks for the great re-post about the social media stocks. I’m sort of deep into them due to following recommendations but as I hone my investment philosophy, I would expect they would be some early evacuees.

Also, big thanks for starting this log. I spent most of last night reading from the beginning and now I’m as hooked as several others appear to be.

You are quite generous with your knowledge and time and I appreciate you for it. That doesn’t cover my appreciation but it’s all I could think to type right now.

Hope to be able to contribute some but to tell the truth, I am a weak sister when it comes to research but I’ll try to offer up other words of value and generally be a good guest.

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