Interview: San Francisco Based Hedge Fund
>> peter theil co-founded paypal and runs san francisco based hedge fund, clarium capital. suzy assaad spoke with him about investing in technology, beginning with internet companies.
>> i would be careful about investing in a lot of these companies today. i think they’re not going to move much higher through the end of 2005, 2006. there may still be downside risk.
>> why is that?
>> because there are growth challenges at a lost these businesses and the growth has accelerated quite a bit. google is growing quickly but a lot of these companies have been predicated on year-after year compound growth. 45 p.e. or 100 p.e., it works if you’re growing 40% a year or 100% a year but if you’re growing 10% or 15% a year, it’s a lot trickier. i think they’re great businesses but big challenges ahead. one of the interesting dynamics in the internet area this year has been how google has overtaken ebay. if you look at companies by market capitalization and there’s always been one leader. first, netscape in 1997, yahoo overtook netscape, ebay overtook yahoo and now google overtaking ebay.
>> the passing of the baton.
>> it is really an incredible thing and much is linked in with the media because there’s always one company that’s the cool company, the media talks about the most and it really helps them recruit better people, helps them get more customers and it brands them as the leading growth company and it feels like it’s inexorably shifting towards google and that will be the great company for a few years.
>> are you saying, then, that there’s really only one company for investors out there? everybody herds behind one company now in the internet space that they see as the best play as opposed to looking at a range of them?
>> there are many different companies―google, yahoo, amazon, ebay, the four big ones and interactive corporation. >> none of them are doing well except for google.
>> the media can anoint one company as the leading company. there can only be one who’s the king and it’s hard to value these companies, it still is. we have this credible incredible bubble in 1998, 2000, and incredible collapse. really hard to value them as a group.
>> would you buy any of them given how much they’ve come down? do you think these companies have growth to them?
>> i would be careful about buying all of them. if you held a gun to my head and told me i had to buy one, i would probably buy google because the history has been is that when one of these companies becomes a new leader, it has quite a bit of momentum that builds for a number of year, which was true with ebay, yahoo and netscape originally.
>> what do you think of how ebay is using paypal?
>> i think it’s been a great combination, the two companies. there are over 60 million people using paypal service today. more than american express or discover cardholders and they’ve integrated it extraordinarily well and i think there is a decent amount of long-term growth left there so over a number of years, i think the ebay-paypal still has a long way to go.
>> in terms of long-term growth, for the overall industry, where do you think will be the next wave of growth? there was a lot of talk about storage a few years ago. what will be the new it topic for the group?
>> i think we’re going to continue to see―the sector i’m most interested in and know the most about are consumer internet companies and i think we will continue to see that over the next 10, 15, 20 years. it’s a secular shift and there will continue to be great companies started, being started today in silicon valley and elsewhere in the u.s. and around the world and i think that trend will continue for many years to come. i think new online media is an interesting sector that people never quite figured that out and maybe they’ll figure that out at this point. maybe some of the broadband technologies will enable other services that would not have been possible, four, five years ago.
>> that was peter theil of clarium capital. a federal judge today said martha stewart must continue to serve five months in home confinement. the judge refused to modify her prison sentence following her conviction last year of obstructing justice. stewart asked the judge to cut her term of house arrest from five months to roughly 45 days. she’s already served five months in federal prison. the shares at the close down .9%, but up 94% over the past 12 months. after the break, we’ll preview tomorrow’s market action in europe.
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Listen Market briefing --- Ellen (fast)
Nasdaq --- Robert (slow)
Ford --- June (slow)
i’m ellen braitman. recapping the day on wall street, it was the slowest day of trading so far this year. investors waiting to see how first-quarter earnings will come in -- microsoft agreed to pay personal computer maker gateway $150 million over four years. this is to resolve legal claims. gateway will release all antitrust claims against microsoft based on past contact. gateway’s claims arose from the u.s. antitrust case in the mid 1990’s where gateway was specifically identified as having been hurt by microsoft. gateway has posted 12 straight quarters of losses and said it would spend that money that microsoft will pay on advertising, sales training, consulting and developing new products to run microsoft software. a check of the shares at the close shows microsoft up .1%. gateway rising 2%. computer shares led the nasdaq lower. robert gray has details on today’s trading from the nasdaq marketsite in times square.
>> it was the lightest day of trading for volume here at the nasdaq so far in 2005. investors and traders saying they are waiting to get more of an indication of how earnings are shaping up. the fed minutes due out tomorrow and economic data throughout the week. scott rothport with lake view asset management saying the short sellers and long positions are complacent. as far as technology, he says no one wants to own tech except for a few names because it is too volatility. we did see apple computer, the worst performer in the nasdaq 100. an article in the “wall street journal” speaking of increased competition from the likes of sony ericsson, introducing a new walkman cell phone which will play the mp-3, competition for the ipod. we also saw bank stocks on the move today. the nasdaq banking index was lower, as well. forr of the top six banks that trade on the nasdaq are reporting earnings this week including the number one, fifth third bank, largest bank on the nasdaq with a $24 billion market cap. those shares were higher, but a different story at hudson city, popular and compass banc shares. the nasdaq biotech index rising slightly, .2% and stocks leading gains including sepracor, cell therapeutics, northfield laboratories and human genome sciences.
>> ford shares traded at a 52-week low. the chief executive slashed the company’s 2005 profit forecast. june grasso has been following the story and has more on the road ahead for ford.
>> thanks so much, ellen. ford shares fell as much as 8.5% today and the yield for the second biggest u.s. automaker notes, the note that matures in 2013 widened to the highest level since the bond was issued. ford said it expects its auto operations to break even at best, backing off an earlier forecast for pretax auto profit of $1.5 billion and there you see the yield and the spread between the note which matures in 2013 and the treasury. what ford is doing is backing off an earlier forecast for pretax auto profit of $1.5 billion and a corporate target of $7 billion next year.
>> i think what ford is reeling from here is an over reliance on sport utilities and big trucks and with competition increasing and gas prices being what they are, that’s what’s causing their problems today.
>> as recently as mid march, ford reiterated its previous forecast after its rival, general motors, cut its 2005 profit forecast by more than half. in january, ford chief william playclay ford―william clay ford jr. congratulated himself for living up to promises he’s made each year since he took over. the automaker went from a $5.5 billion loss in 2001 to a $3.5 billion profit in 2004 after cutting more than 9% of its work force. the reduction in the forecast means a decline of $1 billion in net income from the midpoint to the previous projection according to an estimate. in addition to falling sales of high profit trucks, new cars have yet to deliver a boost. g.m. and ford u.s. sales have been losing market share to asian competitors and car-based s.u.v.’s. the industry is at near record sales and the analyst says ford’s new products will have to be hits because it’s more likely for sales to slow than to grow. fitch ratings changed its outlook on ford to negative today. standard & poor’s, which rates ford debt one level above junk changed its outlook to negative from stable after ford’s announcement, which means it will be likely downgraded.
>> m.c.i. releasing a statement, reacting to verizon’s purchase of carlos slim’s shares in m.c.i. m.c.i. saying that the verizon-carlos slim deal is a private transaction and m.c.i. saying it’s committed to the deal that is in the best interest of all of its shareholders. we’ll have more details when we return. we’ll also hear from peter theil, chairman and chief executive of paypal, running clarium capital.
