Question: Who will be the biggest gainers and losers in the tech sector for 2013?
This past year has been an average one for technology businesses - at least in terms of performance on the markets. Information technology and telecom services are the two technology-related sectors of the S&P 500. The information technology sector through December 14 was up 11.2% versus 12.4% for the S&P 500. The telecom services sector on the other hand was up 13.7%, 130 basis points (BPS) higher than the index. What will 2013 bring? Here are my five biggest tech gainers of 2013.
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In the upcoming year Mark Zuckerberg's baby will test its IPO price of $38 per share. Facebook will continue to make progress monetizing its mobile advertising. In its third quarter earnings report, it indicated that in the first six months getting its mobile product up to speed, it still managed to generate 14% of its ad revenue from mobile. Given its mobile product is considered far more engaging than the desktop combined with the fact that smartphone use continues to rise, you can expect good things to come from Facebook's mobile business in 2013. The social network's weak link was its mobile business or lack thereof. Expect that thought to fully disappear in the coming year.
Three things have me really excited about the upcoming year for the search giant. The first is YouTube, the video site it acquired for $1.65 billion in 2006. Bank of America (NYSE:BAC) analyst, Justin Post, estimates that YouTube could generate as much as $3.7 billion in revenue in 2013. Video advertising is a $200 billion market; with the videos appearing to be getting more professional every day, businesses are going to jump on board with this useful marketing tool. The second thing that excites me is its hardware business whether it is the Nexus 7 tablet or the Nexus Chromebook, which is expected to be released in the first or second quarter in 2013. Google's vertical integration is all about the Android user experience and delivering its own hardware will certainly help it do so. My third reason for being excited about Google is its ongoing Fiber experiment in Kansas City. Executive Chairman Eric Schmidt has said its ultra-fast broadband service is expanding beyond Kansas City. The more pieces of the Internet puzzle that Google controls, the better off investors will be.
As recently as June I had written Netflix off as a business model with no hope of success. At the time, I reasoned that its spending on content would keep going up as it added more subscribers making it virtually impossible to generate any economies of scale. Therefore, if it couldn't profitably grow it business, its valuation couldn't support a $100-plus stock price. Ever! Well, we're less than two weeks from the end of the year, and Netflix is within striking distance of triple digits. The difference maker appears to be its December announcement that it would become the first place for Disney (NYSE:DIS) content to appear after a movie's first run in the theater. Beating Pay TV to the punch, it appears as though Netflix is developing a selection of content that customers will be happy about in terms of newness. Netflix might now be able to charge extra for a premium subscription with newer content. Regardless of what it does, the Netflix and Disney deal gives it leverage over the other studios. This helps put a floor on its stock price. I'd look for it to cross the $100 mark sometime in the first quarter of 2013.
Research In Motion (Nasdaq:RIMM)
In the past three months the Blackberry maker has seen its stock bounce off its 52-week low of $6.22, a price it hadn't seen since September 2003, rising 126% to its December 14 closing price of $14.04. Developers and telecom carriers appear to like what little they've seen of Blackberry's newest operating system. Analysts believe if it can maintain its cash position until it releases the Blackberry 10 at the end of January, it should be able to support the global rollout of its last best chance at survival. Good news arrived December 13 with the news the Immigration and Customs Enforcement (ICE) division of the United States Department of Homeland Security is going to test the BlackBerry 10 early in the New Year. Originally, it had said it was phasing out all Blackberry's in favor of the iPhone. Although the stock has more than doubled in the past three months, if the new operating system works smoothly, another double in 2013 is very realistic. Only six weeks until we find out.
SEE: A Primer On Investing In The Tech Industry
File this under the Hail Mary category. Trading at less than five bucks there's very little downside left in its stock. Where Groupon's future lies is in its ability to provide a group of merchant tools to small- and medium-sized businesses as well as an ecommerce marketplace that allows companies of all sizes to sell excess merchandise quickly. Groupon Goods is its future. Deals are great but they have to provide a win-win situation. That means its deals have to be better for consumers while providing merchants with new customers willing to become repeat buyers. Without those two ingredients, the deal business is far too commoditized to provide profitable growth. CEO Andrew Mason needs to push ahead with a diversified business model. This is more about helping businesses succeed than it is about saving consumers money.
The Bottom Line
The upcoming 2013 year is sure to be an exciting one, and the tech sector will be no exception. Keep your eyes on the stocks mentioned above for some serious growth potential.
At the time of writing, Will Ashworth did not own any shares in any company mentioned in this article.
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