There have been a number of noteworthy developments in the technology space recently. They will likely have a material impact on the companies in the sector and the markets they serve.
Yahoo! Buyout Rumors Persist
Shares of Yahoo! (YHOO) have continued to be buoyed by buyout rumors. A recent report indicated that an investor consortium led by Blackstone Group (BX) and Bain Capital were looking to make the company an offer. Another report has said that Yahoo! was considering selling a minority stake to a private equity firm and an investor group. Alibaba also remains a possible suitor. Readers are reminded that nothing substantive has been announced by any of the parties involved. Speculation on a potential deal is just that.
Google’s New Venture?
Google (GOOG) is reportedly planning to create an Internet service that will allow users to shop online and avail themselves of same-day delivery. The company is looking to establish deals with several major retailers and shippers. Rather than sell directly to customers, Google would instead work with retailers’ Web sites. It would combine an existing product-search feature that directs shoppers to those sites with a new shipping service which would determine if a nearby physical store has a specific product in stock. The company would then offer users the opportunity to receive their products within a couple of days, for an added fee. This new offering may help Google to regain some Web traffic which had been lost to Amazon.com (AMZN), given the popularity of Amazon’s Prime service.
Apple vs. Samsung
Apple (AAPL) and Samsung Electronics are engaged in an important legal battle in federal court. Apple originally filed a lawsuit against Samsung in April, accusing it of copying the designs for the iPad and iPhone. Apple is looking to prevent Samsung from selling its Galaxy phones and tablets in the United States. Samsung contends that Apple’s designs are obvious. Indeed, similarities between Apple’s iPad design and a 1994 tablet prototype produced by Knight Ridder may well invalidate Apple’s patent, but this remains to be seen. The outcome of the trial could prove very important, as Samsung’s smartphone sales could be hurt considerably, if the court grant’s Apple’s motion to stop sales of the Galaxy in the United States. The patent war rages elsewhere, as well. An Australian court has recently lifted an earlier injunction on the sale of Galaxy products. Following this, the High Court of Australia extended the ban on the Samsung Galaxy Tab 10.1 by one week to December 9th. At that time, the High Court will consider Apple’s request to appeal the lower court’s order to lift the ban on Galaxy products.
Zynga’s Upcoming IPO
Zynga is planning to complete an initial public offering (IPO) in mid-December. The company, which was founded in January of 2007, is a provider of social network games. Its games on Facebook had over 200 million monthly active users by November of 2011. This includes such titles as CityVille, FarmVille, and Empires & Allies. Zynga is looking to raise roughly $900 million in stock at around $8 to $10 per share. The company will sell 10% or less of its outstanding shares. The deal would value the total company at around $10 billion. The stock will trade on the Nasdaq market under the ticker ZNGA.
Zynga will look to further benefit from the popularity of social networks and virtual goods. The global market for virtual goods is expected to exceed $20 billion by mid-decade, up from just over $9 billion last year. The company has increased spending on research and marketing, and is looking to reduce its dependence on Facebook. (Over 90% of its revenue has been generated from Facebook in recent quarters.) Moreover, Zynga is diversifying into mobile games. The number of daily active users on mobile devices has increased dramatically over the past year.
Potential investors are advised to tread carefully here, as stocks without much trading history are difficult to value. With an implied valuation of nearly $10 billion, Zynga would rank among the largest video game companies in the United States. The upcoming IPO could value the company at over 10 times 2010 sales, much greater than some of its more-established competitors such as Activision Blizzard (ATVI) and Electronic Arts (ERTS). Impressive growth prospects may well be baked in to the share price. The stock prices of such companies can decline significantly should unforeseen obstacles emerge or if growth prospects dim.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.