“Facebook for Just $4/Share?” (DeHaemer’s Network Leveraged Entities, part two)

Finishing our look at those "facebook fever" stocks from Christian DeHaemer

I promised yesterday that I’d try to work through the rest of Christian DeHaemer’s “Network Leveraged Entity” teasers that are supposedly better buys than facebook for those looking to speculate on the impact of facebook’s IPO.

So what are they? Well, let’s look at the teaser hints — this is “Number Two:”

(and don’t worry, we get to that “Facebook for $4” bit in number three)

“As computers take over more and more aspects of our daily lives, more and more data storage takes place on computing devices…

“Whether pictures or music, tax information or home movies, online data storage is now the preferred option for both business and personal information storage alike.

“And Facebook is no exception.

“In fact, consumer data is the single biggest source of revenue for Facebook — an expected $5 billion this year alone.

“But with their IPO on the horizon, you can bet investors will want to know how Facebook provides top-notch security for their primary revenue source: the data on 900 million users.

“So get ready for huge gains from this $10 stock that’s revolutionized online storage for the past seven years.

“Consistently ranked in the top 10 online storage providers — and awarded the “Best Personal Service Award 2011” from OnlineStorage.com — their patented technology provides automatic non-stop backup for customer’s most important data.

“When I said they revolutionized online storage, I’m not kidding.

“They’re one of the first companies to allow access to stored data through mobile phones and tablets.

“I’ve had my fair share of forgotten laptops and damaged memory cards while traveling, so I can personally vouch for just how necessary this mobile access is for businessmen of all stripes…

“If Facebook is willing to spend millions back up their data, it’s easy to see why thousands of smaller businesses would follow suit and secure their own data with our #2 company.

“And at just $10/share, you can expect any small pop on Facebook’s IPO to bring this company’s investors an easy double-digit gain.”

And that one, to jump right to the point, is Carbonite (CARB), a relatively new company that offers a consumer-and-small-business focused storage/backup solution. The only reason I’ve heard of them is that they’re very active advertisers on satellite radio and I’m a little sick of their ads.

CARB went public last Summer and has generally trended down since then, it’s quite possible that there’s something unique or fabulous about their storage offering or their security, but from looking at their financials I’m a little skeptical. Given where they are now they’re losing a lot of money on every dollar of sales, and if the analysts are correct in their projections they won’t be profitable for at least a couple years — though they were almost “break even” on cash in the fourth quarter (they lost money, but a fair amount of it was depreciation, etc.). Their revenues have been climbing very fast, at about a 50% clip year over year, and sales are growing faster than expenses, which is good, but I don’t know what the long-term scaleability of the concept is or how much it costs them to add capacity for each new customer.

More importantly, perhaps, I’m wary of online services that have lots of competition, including free competition, since they need to market themselves like crazy to build a customer base … and consumer-focused online storage and backup seems to be that kind of service, at least to me. If you think Carbonite is a great or differentiated service provider, or that they’ll become fabulously profitable and make us as rich as Zuckerberg, well, shout out your reasons why with a comment below — given their current performance, it seems to me like we’ll probably have plenty of time to get on board if they’re going to build themselves into a colossus and not get shut down by backup services offered by one of the other gazillion online backup firms (or the big players like Google or Amazon, who offer or could easily offer similar services). That’s not to say Carbonite doesn’t offer something great, I don’t really know, just that they will really have to be different to build a profitable business, especially when the landscape includes folks like Amazon and Google who are perfectly happy to try out these kinds of offerings without feeling the need to make money from them, and while there are free or cheap consumer backup services everywhere. Again, nothing particular against Carbonite, it’s just a small company in a seemingly very competitive space, and they’re not making money yet. Maybe they will.

This next one sounds a bit more interesting — the $4 facebook?

“Network Leveraged Entity #3:

Facebook for Just $4/Share?

“One of the fastest-growing social networking websites in Latin America just added 50.8 million users this past year.

“That’s a 186% increase — and they’re still growing.

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“More than 570 million people live between the border cities of Mexico and the Antarctic-touching tip of Chile…

“And that doesn’t include the millions of Latin American immigrants spread across the United States, Canada, and Europe.

“At about twice the size of the U.S. population, you’re looking at a social networking gold mine.

“The third company we’re recommending has a red-hot growth rate. It’s the fourth-fastest growing social network in the world — and the second fastest in Latin America.

“With a market cap of just $138 million, this company has Facebook-sized share potential… and you get it for just $4 a share.

“In addition to their hot social networking platform, the company also has profitable branches in:

  • A social media advertising platform used by the likes of both Time Warner and Sony
  • Social games
  • Skill-based games (have 5x to 10x higher revenue per person than social games)
  • Online dating partnership

“This company is on track to dominate the half-billion-strong Latin America market.

“The company also added another 20 million users to its advertising base when it recently acquired a smaller American social discovery site focused on teenagers, one of the biggest consumer segments in the country.”

This one, according to the musings of the Mighty, Mighty Thinkolator, is QuePasa (QPSA)

QuePasa has been around for a while, branded as the “facebook for latinos” — though of course, there are a lot more latinos on facebook than there are on QuePasa. And QuePasa is rebranding itself to try to cover the whole Western Hemisphere of friend-seeking young people, so I don’t know if they’ll keep whatever “latino” branding edge they have now (more on that in a minute).

Facebook has relatively low penetration in South and Central America compared to how established they are in North America, Europe and Asia, but they are growing fast south of the border — they recently took over the lead in social network market share in Brazil, the most important market in South America (the loser? Orkut, Google’s first social network that took off almost nowhere else but was dominant in Brazil until recently).

The “smaller American social discovery” acquisition was of MyYearbook, which is leading them to do a complete rebranding of the company — they will be renamed MeetMe this Summer, and will switch to the ticker MEET. They have undoubtedly realized that being a small general social network is pointless if they’re getting swamped by the massive network effect of facebook (ie, why would you join QuePasa if all your friends are on facebook?), and they’re changing their focus to become not a friend-connecting place but a friend-meeting place. So think dating network, but the goal is apparently also to broaden beyond dating and make connections with new people who you don’t want to see naked.

Will it work? I dunno. The company is small with a market cap around $140 million, but after the huge players like facebook, Google, Tencent and a couple others the dropoff is extremely abrupt and most upstart social media stocks are comparatively quite small both in market size and number of connected users. They do have a decent base of users and a niche that seems to be in “adolescents whose parents don’t allow them to facebook” and “young latinos,” but even some big niches have fallen hard to facebook’s power (think MySpace, etc.) In this disconnected age when young kids are on their iphone a lot more than they’re in social situations where they might make friends, though, I suppose it’s possible that a network focused on finding and making friends (as opposed to sharing baby stories or dog pictures with your existing friends and “friends of friends”) can find a niche. Whether it’s a niche that makes them profitable, I don’t know — as of the last quarter they were losing more each year than they had in cash on hand, but that was before the relatively larger merger of the two entities, and I would expect that the emergence of MEET this Summer will probably be accompanied by some opportunistic fundraising.

Insiders do still own a huge chunk of this one, including the CEO and COO, so that’s good to see, though it’s not as though they paid cash for those holdings (insiders sold more than they bought over the last year, but there has been at least a little buying). Most of the “insider” stock is held by those key executives and a few venture capital firms.

Interesting company, you can see their presentation here if you want to start digging in. Given the focus on rebranding and changing the company dramatically, you’re really betting on an idea here — and there is risk that the rebranding into MeetMe could lose them some of the user base they’ve built at MyYearbook and QuePasa, this is, at least in concept, really a pretty big change and you’ll have to decide for yourself whether or not it will work. They’re pushing some monetization things, like a virtual currency and mobile advertising and social gaming, but I assume there will be a lot of experimentation and change over the next year as they revamp and convert their existing users into the new “friend making” service that they hope to build. I’ve never used any of their products, so if you’ve got a feel for what they’re doing and think it will be great or godawful, please let us know with a comment below.

So there you have it — DeHaemer’s saying instead of FB we should look at OCZ, QPSA, and CARB. Whaddya think?


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