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Why Any of This Matters

If you don't write down what you're thinking, you're short-selling yourself on some of your best ideas. That's why this is here.

Latest Fool.com Articles

How the Network Effect Applies to Zillow

10/23/2013

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So this should be pretty fun:

http://investors.zillow.com/releasedetail.cfm?ReleaseID=799158

"For the first time, Zillow will partner with The Motley Fool, a multimedia financial services company, to broaden the reach of social media questions and discussion surrounding the earnings announcement. In May 2013, Zillow became the first company to take questions during the earnings call via Twitter, using the hashtag #ZEarnings, and via the company's Facebook page. Through this partnership, Fool.com will carry an exclusive interview with Zillow CEO Spencer Rascoff on the day of earnings, and Motley Fool analysts Jason Moser and Matthew Argersinger will moderate a Twitter conversation with Rascoff immediately following the call using the #ZEarnings hashtag. The call is scheduled to end near 3 p.m. Pacific Time (6 p.m. Eastern Time)."

Like it or not, Zilllow is changing the face of real estate. I remember when the company IPOd and a lot of us (including yours truly) were skeptical of the business and it's future. As time goes on, one thing is for sure and that is that Zillow captures eyeballs and there's value in that. Glance through this company metrics sheet and that will tell you the story. 

How does Zillow make its money? Is it advertising? Subscriptions? Both? Thankfully for investors it's both. And potentially even better, the overwhelming majority of its sales come from subscriptions and marketplace activity versus advertising. In fact about 75% of sales is "marketplace" and 25% is advertising. From the company's 10-K:

"We generate revenue from local real estate professionals, primarily on an individual subscription basis, and from mortgage professionals and brand advertisers. Our revenue has grown significantly since our initial website launch in 2006. For the year ended December 31, 2012, we generated revenue of $116.9 million, as compared to $66.1 million for the year ended December 31, 2011, an increase of 77%." 


One thing you'll hear a lot of when we talk about Zillow is "network effect" and given how powerful it can be, it's important to note exactly how it can play into Zillow's overall success. Again, from the company's 10-K:

"Our home-related marketplaces benefit from network effects. As more consumers come to our mobile applications and websites to use our products and services, more real estate, rental, mortgage and home improvement professionals contribute content to distinguish themselves, thereby making our marketplaces more useful and attracting additional consumers."


The bottom line translation is this: As more consumers check out Zillow, more industry professionals see it as a place to be. They see the value proposition in doing business with Zillow. It can actually be complementary to their businesses. It's just one more market that is being brought to the Internet.



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Buy This Stock Today and Tuck It Away

10/2/2013

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It’s no secret that industrial manufacturing has been in a down cycle. But while activity came to a virtual standstill during the financial crisis, it’s slowly picking back up as conditions improve and a long-term winner from all of this is Lincoln Electric (NYSE: LECO).

Lincoln is a leading provider of arc welding and cutting products and is one of only three companies with a global footprint that offers both welding equipment (the power sources that generate the heat to join the metals together) which makes up about 35% of sales along with the welding consumables which are about 65% of sales. And I love the recurring nature of those consumables.

Given that Lincoln’s major end-user markets include structural  steel construction (think buildings and bridges), automotive and offshore oil and gas exploration and extraction the company’s global market opportunity is tremendous. In 2002 approximately two-thirds of Lincoln’s business came from its North American market with the other third international. Today that split is closer to 50/50 with 15% (and growing) of the company’s business coming from the BRIC (Brazil, Russia, India and China) economies as well as other emerging markets .

Think of this one as a "slow and steady wins the race" kind of holding. No doubt it's cyclical and will be volatile at times. But those times of volatility can present great opportunities for long-term investors. It may not be the most exciting company in the world, but they are great at what they do and have a tremendous market opportunity in front of them. Think about this: The American Society of Civil Engineers estimates that the US will need to invest around $3.6 trillion in its infrastructure through 2020 just to get back to an acceptable level. This includes things like bridges, roads, water infrastructure, energy infrastructure, dams, schools, rail, waste and much more. Is this report just a bit self-serving? Of course it is. The ASCE stands to benefit its members by saying there's much work to be done. But a basic sniff test is all it takes to see that there is plenty to do, so it's not an all-or-nothing deal. This is the market opportunity that exists in the US. Now think about it on a global scale, especially with emerging economies and the work they will require just to get up and running. 

While what it does may sound boring, research and development of new products and methods is high on Lincoln’s list of priorities and has resulted in a meaningful impact  on top line sales which have grown at a CAGR of 18% over the last three years. Investors can expect good things going forward and I believe that between the company’s significant market opportunity along with a rock solid balance sheet and consistently strong cash flow Lincoln is an excellent company and certainly worth a look at 21 times earnings today.


Disclosure: I don't currently hold a position in Lincoln Electric.
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    Author

    My name is Jason A. Moser and I'm lucky enough to have a job doing what I love to do: investing. But my family, golf, music, watercolors, reading, writing, current events...these are all things that matter to me. Consider yourself warned.

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