 |
The US technology sector has a problem. Not a bad problem, but a problem nonetheless. Apple shares continue to reach dizzying new heights, Google is sitting on a cash-pile larger than the total market capitalisation of Telstra and Facebook is preparing to launch its blockbuster Initial Public Offering, which is certain to be the largest and most publicised company event of 2012.
Apple: (NASD: AAPL)
click to enlarge
Google: (NASD: GOOG)
click to enlarge
The problem all these tech-savvy entrepreneurs are facing is what to do with these mountains of cash! Apple is rewarding shareholders for their loyalty and paying a quarterly dividend of $2.56 and announcing a share-buyback plan to absorb some of the excess cash. Google investors would no doubt like a similar decision.
In today’s environment, having too much cash is a nice (and rare) problem. While industrial producers struggle with the rising cost of oil, mining stocks face the threat of falling Chinese demand and banks flail under increasing funding costs, tech stocks continue to flourish in a dynamic tech-hungry environment. Consumers can’t wait to splurge on the next tablet, Smartphone or any application from Apple. Google has changed the world of online marketing and Facebook is bolstering its product offering ahead of the IPO. In fact, just this week Facebook announced the purchase of the popular iPhone app Instagram for a cool $1 billion, making the company an even larger force in online marketing with a subscriber base of more than 700 million, on the way to a billion. As the dominant world force in digital marketing, they are likely to attract an astronomical IPO premium. Last month’s Yelp IPO surged well above its asking price, putting that company’s market cap at around $1.5 billion. All things being equal, Facebook could follow a similar path.
Investors should get involved. The tech industry boom is here to stay. We’ve all heard the words ‘too big to fail’ but with the whole online marketing and technology world dominated by these major players, the Googles, Apples and even Amazons of this world still have plenty of room to grow. Last week we discussed the advantage the high Aussie dollar presents to Australian investors, yet very few Australians are exposed to the US technology sector. Your money, your call...
Stay Ahead of The Game,
Lachlan McPherson
|