A Little Tech M&A Activity Anyone?

We are seeing the NASDAQ make new highs day after day even when the Dow Jones Industrial Average is down. Is there really that much opportunity in technology stocks? Can they keep moving higher? I would say “Yes” on both points.

The future of the world is in the hands of technology. There is no way around that. With data mining and Artificial Intelligence (AI) becoming the norm, it seems like the world will eventually revolve around one big algorithm. Companies like Facebook (FB:NASDAQ), Apple (AAPL:NASDAQ), Google (GOOG:NASDAQ) and Amazon (AMZN:NASDAQ) have changed the way that we live. They haven’t just produced a cycle of successful products, they have changed the way that we view technology. Now, these companies that have changed our daily habits are focused on diabetes management, self driving cars, on demand groceries and space travel. Who is to say that they wont achieve all of these things? Therein lies the opportunity.

Some companies continue to evolve and adapt to changing consumer tastes and others grow by  acquisition. It is the latter – acquisition – that I believe will take the technology laden NASDAQ to higher highs. Let’s take a look at some deals that have gone down and then some that I think make sense.

Late in 2016, Microsoft (MSFT) bought LinkedIn (LNKD). The powers that be at Microsoft readily admit that they missed out on the great technology boom that is the cell phone industry. The next big wave is this idea of using artificial intelligence and data mining to be more productive in sales. That is where LinkedIn comes in. LinkedIn is a treasure trove of data on people, companies and industries. Combine that with Microsoft Office , which will always be the dominant office productivity software and you have a match. Microsoft also has their own Customer Relationship Management software called Microsoft Dynamics. Dynamics is starting to gain traction. Why is that important? It is important because Microsoft had a competitor in it’s bid for LinkedIn: Salesforce.com (CRM: NASDAQ). Salesforce is the dominant player in the customer relationship management software arena, for now. It is just my opinion but I think Salesforce needs a partner. Who could it be? Maybe Google? That could work. Google has their own suite of productivity tools similar to office. Perhaps, Salesforce makes an acquisition. They were so scorned by LinkedIn that they considered buying Twitter (TWTR:NASDAQ). Cooler heads prevailed there. Salesforce needs partner.

Twitter is a company that is a quandary to most. I don’t understand the point of it, quite candidly. I have a Twitter account but I don’t use it. President Trump seems to enjoy Twitter but that hasn’t really moved the needle for them. Like LinkedIn, Twitter contains a great deal of information about their users preferences. That is valuable to someone, but at what price? I don’t know what becomes of Twitter. Maybe if they had a full time CEO, they would be better off. I don’t think they make it alone.

Apple, Amazon and Netflix (NFLX:NASDAQ) are in this race to become the best provider of entertainment content, specifically original produced content. Do these companies fit together at all? Not really, but I think that they can all exit together. The pie is big enough for all. Amazon just won the streaming rights for the Thursday Night NFL games, which Twitter had last year and dropped the ball, ala the Eagles Nelson Agholor. Google has YouTube, which they are starting to use properly, so I don’t think they would be involved here. Maybe the guys at Google can figure out what to do with Twitter. Maybe not.

There is this what I call “mid-range” level of content providers, that are just sort of “there”. Almost like they are waiting to be bought. Here we have Pandora (P:NYSE), Spotify, Sirius (SIRI:NADAQ), Slacker, Tidal. I think that several, if not all of these, need to disappear into a bigger company via acquisition. Or may they just die on the vine. Save for Sirius, they cant compete.

How about Yelp (YELP:NYSE)? The company offers local business review sites. But, doesn’t Google do that as well? And also Facebook? Yelp cant survive on its own.

Here is my playbook: Watch the NASDAQ continue to go higher on the backs of the more established companies. Then we will get a pullback and I think a wave of mergers, acquisitions and consolidations will move the index even higher.

 

DISCLOSURE: This article was written for informational purposes only. It is not intended as investment advice and should not be relied upon as such. Consult with a qualified financial advisor or tax professional to determine the proper investment plan for you and your circumstances. I do not personally own or plan to purchase any investments spoken of here.