We hope that all NIA members enjoyed their Holiday weekend and we would like to wish you a late Merry Christmas and Happy Hanukkah!
On New Years Day, NIA will be releasing a report about the upcoming 2012 boom in social network stocks. Most people thought Microsoft was crazy for investing $240 million into Facebook in 2007 for just 1.6% of the company, valuing Facebook at $15 billion. Facebook is expected to have its IPO as soon as this April and will likely debut with a market cap of $100 billion, making Microsoft's investment of $240 million worth $800 million.
Facebook's IPO is the most eagerly anticipated in history and could be a boom for the entire stock market and asset prices in general. The stock market has been dead for the past year. It is unbelievable how undervalued many stocks are today, especially the stocks of gold and silver miners. The price of gold is up 22% from its low this past January, but the average gold stock is trading for slightly below its January low. Investors are afraid to buy stocks believing that another market crash could come if the economy continues to weaken. Despite weak demand for stocks, share prices are not crashing because interest rates remain at 0% and the world is becoming more flooded with U.S. dollars on a daily basis.
There are trillions of dollars currently being hoarded on the sidelines because Americans are unaware of the massive inflation that is ahead. Americans are content to stay sitting on their dollar-denominated assets, which they consider to be safe during these uncertain times. If it wasn't for the European debt crisis, the U.S. dollar would have been collapsing in recent months. There is now a record short position in the Euro that NIA believes will need to be covered in early-2012. As investors cover the Euro, many will then go short the dollar, causing the European debt crisis to replay itself in the U.S. on a much larger scale.
Almost nobody in Washington is educated about our need to cut spending and reduce our deficit before U.S. bond yields rise from their unsustainable record low levels. The deficit supercommittee was a complete failure and was only able to reach consensus on once again changing the way inflation is calculated for Social Security COLA increases. Our elected representatives don't have the courage to propose necessary spending cuts including cuts to entitlement programs, but they have no problem deceiving Americans by underreporting inflation.
At some point, there will be a catalyst that causes a rush out of dollar-denominated assets and into stocks, precious metals, and commodities. The Facebook IPO could very well be this catalyst as it will finally give investors something positive to be excited about. Investors will finally have an opportunity to invest some of the trillions they are hoarding into a company that has been growing revenues by over 100% year after year with huge profit margins.
Facebook currently has revenues of about $4 billion. A $100 billion market cap will value the company at an insane 25 times sales. NIA's concern with Facebook is that their 100% revenue growth is coming to an end. Almost 1/2 of all Americans already use Facebook. There is no more room for growth in the U.S. The reality is, Facebook needs strong market penetration in China to be able to continue its rapid growth, but the Chinese government has blocked access to the site.
Most large corporations in the U.S. now have social media divisions and many medium sized businesses in the U.S. now have at least one full time employee dedicated to social media. Up until now, these workers have been focused on expanding their company's presence on consumer social networks like Facebook and Twitter. The reality is, Facebook and Twitter were never meant for businesses and businesses have almost no control over their presence on these sites. Disney would never build a theme park on rented land that they don't control.
NIA considers B2B social networking to be the biggest business opportunity of the decade and it is currently at the ground-floor and in its infancy. The current market leader is Jive Software (JIVE), which just had its IPO on December 13th at $12 per share. JIVE finished Friday at a new record close of $16.38 per share and now trades with a market cap of $967.5 million despite only having $69.44 million in revenues and a net loss of $44.9 million. JIVE is now trading with a price/sales ratio of 14 and as we get closer to the Facebook IPO, it will be interesting to see if JIVE's valuation reaches 25 times sales like we expect Facebook to trade at.
NIA's New Years Day social networking report will provide our research and analysis on Facebook and all of their B2C social networking competitors. NIA's report will also provide our research and analysis on JIVE and all of their B2B social networking competitors. NIA is planning to feature Broadvision Inc (BVSN) in its social networking report as the #1 most undervalued B2B social networking play with the largest upside potential for 2012.
BVSN at its current price of $9.95 with 4.515 million shares outstanding is trading with a market cap of $44.92 million. BVSN currently has a cash position of $56.79 million and no debt. BVSN needs to rise to $12.58 per share for its market cap to just equal its cash position. When BVSN hits $12.58 per share, NIA will still consider BVSN to be a steal because the market will still be valuing BVSN's business at zero. BVSN currently has $18.45 million in revenues and only burned $5.4 million in the trailing twelve months. BVSN has enough cash to last for over 10 years at its current burn rate.
BVSN's Clearvale B2B social networking platform has some very important unique features that we believe makes BVSN's B2B social solution a lot better than what JIVE is currently offering. If you subtract JIVE's net cash position including the cash they just raised in their IPO from JIVE's market cap of $967.5 million, JIVE has an enterprise value of $766.51 million. It is insane that Wall Street is valuing JIVE's business this high so soon, but it shows you just how much the B2B social networking industry is expected to grow over these next few years.
BVSN has developed their business social networking platform Clearvale from scratch over the last three years and has been rapidly improving it by adding many new features since its initial launch. NIA believes that almost nobody on Wall Street is aware that BVSN has totally reinvented itself as a B2B social networking play. BVSN was one of the largest and most well-known stocks with a market cap at one point over $13 billion during the original dot-com boom 12 years ago. NIA believes that BVSN could become the only company that was a big winner during the original dot-com boom to now become a huge play once again in the new social networking boom.
JIVE raised $161.3 million in its December 13th IPO, up from the $117 million they expected to raise a few days before their IPO. Just the last minute increase in JIVE's shares sold to the public of $44.3 million is worth about the same as BVSN's whole entire market cap of $44.92 million. There is no sane way to justify JIVE's enterprise value of $766.51 million when BVSN's business is being valued with an enterprise value below zero.
We see very little downside risk for BVSN compared to its huge upside potential. Over the next two years as the B2B social networking industry sees enormous growth, even if BVSN's Clearvale is a failure it is likely that BVSN will still have more than $9.95 per share in cash based on its current burn rate. If BVSN's Clearvale receives positive press coverage in early 2012 with a major publication reviewing BVSN's B2B social networking solution as a better solution than JIVE, Clearvale could quickly gain traction and BVSN's share price could explode faster than we can imagine with only 2.54 million shares in BVSN's float.
If BVSN becomes once again discovered by Wall Street in 2012 at the same time that their Clearvale platform picks up steam as an alternative to JIVE, NIA believes that BVSN will trade at an enterprise value that is much higher than its current value of zero. Imagine if BVSN traded with an enterprise value that is just 10% to 20% of JIVE's enterprise value of $766.51 million. An enterprise value for BVSN that is just 10% to 20% of JIVE's enterprise value would give BVSN a share price between $29.56 to $46.53.
Disclaimer: NIA owns 128,000 shares of BVSN that it purchased at an average price of $8.7313 per share. NIA agreed to a 60 day holding period on its initial position of 122,000 shares starting from the date that NIA first suggested the company, but NIA intends to sell these 122,000 shares at some point in the future after the date of February 12th, 2012. NIA intends to sell its additional 6,000 shares of BVSN in the future and can sell them at any time. NIA's co-founders have also been referred business in the past from somebody who has filed as a large BVSN shareholder. NIA also reserves the right to accumulate additional shares of BVSN at any time. Past performance is not an indicator of future returns.
NIA is not an investment advisor. This email is not a solicitation or recommendation to buy, sell, or hold securities. Never make investment decisions based on anything NIA says. This email is meant for informational and educational purposes only and does not provide investment advice. NIA's co-founders have previously disseminated information about BVSN in other media outlets.
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