Morningstar's Jeremy Glaser comments on hot valuations in private tech firms, scenarios at St. Joe, more movement in M&A, inflation flags, and more.
Jason Stipp: I am Jason Stipp for Morningstar, and welcome to the Friday Five.
It's still cold here in Chicago, but things are heating up in the market. Joining me with a market forecast is Morningstar's markets editor, Jeremy Glaser.
Jeremy, thanks for joining me.
Jeremy Glaser: Jason, always a pleasure.
Stipp: So what do you have for the Friday Five this week?
Glaser: Well this week we'll see that it's heating up at Twitter, at St. Joe, inflation might be heating up, some mergers in the exchanges, and also at AOL.
Stipp: So we got potentially a value for Twitter. I know Twitter is something that everybody talks about in the corporate world: Who is using Twitter? Are you Twitter? How much is Twitter worth?
Glaser: It is hard to get too excited about some of these valuations, because they represent companies buying little slices. But according to the Wall Street Journal, Twitter is being valued at between $8 billion and $10 billion, which is just astounding, not only in how much money that is, but how much it's grown in just a short couple of months, and it shows that the tech bubble is alive and well, that people are willing to spend plenty of money for a company such as Twitter. We have seen similar numbers bandied about for Groupon and Facebook and other very large tech companies that are growing very quickly that investors really want a piece of.
I think some of them will eventually come to the IPO market. We will see how much they are really worth, but in the meantime it is amazing just to see how fast these valuations are growing.
Stipp: It's maybe more of a better gauge of excitement right now than perhaps actual value.
Glaser: Yeah, exactly.
Stipp: So, on the second company, Jeremy, this is one that's been in the news, a real bone of contention down in Florida: St. Joe. What's heating up there?
Glaser: We have heard a lot about St. Joe over the past couple of months, and management has come out and said that they are exploring strategic options for the company including changing the direction of what they are doing, but also potentially having a sale.
Now, Bruce Berkowitz has taken a very large stake in St. Joe, and he has a history of shareholder activism, of trying to unlock value in companies where he thinks that there is a lot there. I think St Joe is a situation in which as a private company, they may be able to produce more value.
They own a lot of land that potentially is very valuable, but it could be years, if not decades, before that value can really be realized. Under the spotlight of being a public company and having to report quarterly results, it is very difficult for shareholders to get that money, but someone who has a longer time horizon, and isn't on that same treadmill of earnings, might be able to extract more value. So I think that this is a good thing for St. Joe shareholders and something that hopefully will create a lot value for people over time.
Stipp: On the economic front, Jeremy, inflation, it feels like it is heating up to the consumer. Is Bernanke worried about it yet, though?
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Glaser: We have heard a lot about inflation, but Bernanke is not worried at all.
In front of Congress this week he said that inflation is not a worry in the United States, and that he has no intention of backing away from the very loose monetary policies that we have now. Certainly it is something the Federal Reserve is watching very closely, but he says it could really be years before we need to worry about being at full capacity and for the general price level to move very quickly.
A lot of lawmakers disagree. I think there is going to be a lot of pressure on the Fed to try to bring at least food inflation under control, but certainly it is not something that the chairman is worried about at the moment, and there is no sign that we are going to see any monetary tightening anytime soon.
Stipp: M&A is also something that's been heating up broadly. We got some news this week about a possible exchange merger. This is kind of big news for the folks in New York.
Glaser: This is. Certainly the idea of exchanges merging is not a new one. There has been a lot of consolidation in the industry, but this week we heard that both New York Stock Exchange Euronext and the Deutsche Boerse in Germany were planning a potential merger as well as the Toronto Stock Exchange and London were also considering a merger.
I think that in a lot of ways, scale is very, very important for these exchanges. The more people they connect, the more valuable they are. So it is kind of natural that you would see a lot of consolidation in these markets.
I think it also just shows how global trading really has become--that people are not just focused on buying stocks and buying options and other types of instruments that are really native to their country, [but] they are looking globally, they are looking worldwide, and the exchanges are trying to expand to meet that growing global demand that's coming from institutional traders [and] coming from individual traders.
Now what the impact of these mergers will have on the types of prices that people have to pay, the fees, and those sort of issues, I think still remain to be seen, but certainly it is not surprising to see more merger-and-acquisition activity in this space, and I think we could even see more in the future.
Stipp: Speaking of M&A, Jeremy, lastly AOL made a purchase this week, trying to remake themselves and their new direction. Is that purchase going to heat things up for the company?
Glaser: It certainly came as a surprise to me when AOL announced that they are purchasing Huffington Post and bringing on their leader Arianna Huffington to run all the editorial businesses of AOL.
Now AOL has been trying for a while to position itself away from the dial-up Internet legacy company they were into a true media company. I think that this acquisition certainly helps bring someone with a lot of strong editorial voice and vision, but there is still the question if she is really going to be able to take all these disparate properties--from the Huffington Post to blogs like Engadget, to things like MapQuest--bring them together and make logical synergies, and find logical ways that people can use these together.
I think AOL still has a tough road ahead of them to really become that content powerhouse, but they are certainly making those moves and not sitting still, and I think it is something that we are going to be hearing a lot more about in the coming months.
Stipp: Well, Jeremy, it was negative 20 when I woke up here this week in Chicago, but it is nice to know there is some heat somewhere. Thanks for joining me.
Glaser: You are welcome Jason.
Stipp: For Morningstar I am Jason Stipp. Thanks for watching.
