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 In my last post I talked about how I thought eBay was going to be a generational winner, due to its popularity with a younger generation, and their ability to hold onto its user base throughout the rest of those user’s lives.  The kind of company that you look back on and say “I wish I could have gotten in when they were just starting.”  But the customer experience and management have gone sour, so I dropped the stock.  There is another company that I thought went hand in handwith eBay, that year’s from now, when people thought of the internet, they would think of this company.  AOL.

Rewind to 1990 and my first PC with a modem. After discovering local bulletin board services that you could dial on to with local phone numbers, I came across America Online.  I was in awe of how much the service had to offer.  It provided world wide web style navigation of news, movie reviews, etc and on top of it all, chat. AOL’s instant message service allowed for two AOL users to communicate directly just like it does today, but what brought all those users together was AOL’s chat rooms. Users would spend hours online talking to one another about their various interests.  All of which was just fine, because it had the meter running. AOL didn’t offer an “unlimited” usage per month until much later, December 1996 to be exact.

During the 1990’s AOL enjoyed tremendous subscriber growth, and their stock went up and up and up.  Profits and Revenue were growing by leaps and bounds.  AOL was the de facto method for everyone(outside of college students with free internet from their schools) to get onto the internet. But being number one makes you a target, and here is where AOL began to fall apart.  Competition started to grow in AOL’s core dial-up internet service.  Companies like June, Netzero, and Mindspring all began offering lower-costing internet service.  These services didn’t have the value added content that AOL offered, but at the same time the world wide web was developing into its own, and web sites were beginning to offer the same content that AOL had, but without the cost. 

Then came broadband.  Cable and phone companies began offering their DSL and cable modem services that far exceeded the speed of AOL’s dial-up service.  This is where AOL really dropped the ball in my opinion.  They made their bones as a company that exceled at getting their customers on the internet.  Their management team did nothing to protect their business while broadband was developing in the US.  The proof is in their results.  AOL subscriptions today are a far cry from what they were in the late 90s.  But AOL is not dead, far from it.  Their AOL Instant Messenger(AIM) software and platform has millions of users.  The problem is that it is free and that is another way in which AOL has dropped the ball.  They have failed to monetize what is now its most popular service.

You may be wondering why I have talked so much and have not even mentioned their enormous merger with Time-Warner, and how popular opinion rates it as one of the worst mergers in the history of business.  That is because I am trying to explain why the core business of AOL has gone from what should have been a generational winner, to a soon to be spunoff (in all likelihood) asset to any bidder willing to take on all of its baggage.  

Was management asleep at the wheel?  Where was the long term plan?  How could the company have so much marketshare, and let is all dwindle away?  How could it take paying subscribers and convert them to users of its free AIM service?  Instead of looking back and saying “I wish I could have gotten in on that stock”, people will look back and say “I wish I had shorted that stock.”

AOL stock made a lot of people money in the 90’s.  And it lost a lot of people money in the 00’s.   I still have mine, although it now trades under the symbol TWX as Time-Warner had before AOL purchased it.  In its current form, the stock may be worth holding onto as it has come down from such great heights and most of its value is in the Time-Warner side of things, rather than AOL.

It just goes to show you that even companies that look like they can just sit back and ride into the sunset on cruise control, can hit large bumps in the road.  Who knows where AOL/TWX will be in 30 years from now.  Maybe together or maybe separate, but the company that was once AOL will need to either shape up or ship out.  

Edit:  Just a day or two after I published this article, the motley fool site ran this story.  A perfect example of the roller coaster ride of this company.  Read it here.

Back in 2001 or so, I came to a realization about stocks.  If you buy and sell them often, you had better do really well at it, because with all the short-term capital gains and commissions you pay, and the pain in the ass that your tax return becomes, the appeal of it quickly wore off. I was making money, but not enough really to make it worth while.  And so I became a believer in the buy-and-hold strategy.   But I wanted to have my own spin on my portfolio.  I wanted to own stocks that my generation would look back on 25 years from now, and say, that those stocks were no brainers.  The way people look back on GE or AT&T (before the breakup) and say, if you had invested $10,000 back when you would now be a millionaire.  

So I came up with a “generational investor” theory.  The main idea behind the investment strategy was investing in solid companies, that the current younger generation had been raised on, and would have brand loyalty towards once they entered the workforce and became consumers of  their own.  Obviously the companies needed to be successful as well, and have growth models, etc.  

But the two purchases that I made that most closely matched this philosophy, have proven to be duds so far, and one I don’t even own anymore.  That’s the one I want to talk about today, because I feel that my strategy left out a very important characteristic of a company, and that is management.  The company is eBay.

Even with its lackluster past few years, if you got in on eBay’s IPO about 10 years ago, you are sitting pretty.  Your investment would be worth 15 times what it was then, even with it having come down to almost have of its all time high back in December 2004.  The problem I see with eBay is that it no longer seems to have a clear vision, and a clear path to growth.

eBay has made a few larger acquisitions since it went public.  The most important was PayPal.  If you ever used eBay in its early years, you probably remember how difficult it was to complete your transaction.  There was a high level of trust involved, and a delay in receiving your purchase.  PayPal brought an end to that, making it easy for buyers and sellers to make and receive electronic payments, and speed up the process of completing a transaction.  Since its purchase, eBay has done a fantastic job integrating PayPal directly into their web site and making payments and invoicing quick and easy.

But not all of eBay’s acquisitions have worked out as well as PayPal.  Back in September, 2005, eBay agreed to pay $2.6 BILLION dollars for Skype. Skype is an online service that allows people to video/audio conference for free.  They make their money on calls placed from computers to cell phones or land lines, convincing customers with their low rates.  But Skype wasn’t profitable, and eBay has not integrated any of Skype’s services into its core auction business.  So the 2.6 billion dollar question remains, Why did they buy this company again?  The 3 year anniversary of the purchase is coming up, and investors have to wonder what management was thinking when they pulled the trigger on this one.

Then there is eBay’s investment in Craigslist.  In August, 2004, eBay purchased 28.4% of the privately-held craigslist.  Craigslist is the free classified ad service that caters to cities and regions around the country world. Craigslist makes its money charging a small fee for placing job ads in major cities.  All other ads, and in all other locations are free.  eBay’s investment is best viewed as an “if you can’t beat them, join them” strategy.  Many thought that Craigslist would be the end of eBay, since people began listing their for sale items by the thousand for free, and cutting eBay out of the equation.  Now there is a lawsuit between eBay and Craigslist.  Trouble in paradise it would seem.

Well at least eBay has its auctions….

Which brings us to eBay’s latest earnings report. eBay’s auction business isn’t growing.  A quick search on the consumerist.com gives an indication of why.  Both buyers and sellers are having TERRIBLE experiences when they use the site.  As a seller, you might follow all the rules, wait your seven days for the auction to end, and then once it does, eBay might cancel it, leaving you with no buyer, no option to re-list the auction, oh and it will be 7-10 days before they refund your fees. As a buyer, you may send off your payment only to discover that there is no product heading your way.  eBay obviously takes such fraud very seriously, but the sad part is the innocent people suffer.  To make matters worse, eBay has terrible customer service.  You have to navigate through a maze of web pages to fill out a form, and wait 24-48 hours for an email response.  All responses from there are expected within 24 hours.  There is no phone support.  There is no escalation path to customer support management.  There is just suffering.

At the time of purchase I envisioned an eBay that would be the preferred method for people to sell their goods in the future.  It would be second nature for people to list their auctions, or to make purchases.  Now, I fear that eBay may have seen its golden years come and go.  Personally, I have sold both new and used goods throughout the years on eBay.  During college, a friend and I sold posters that we printed on eBay.  Afterwards, I sold records that my label put out on eBay in addition to our web store.  But now I have been soured.  My most recent attempt to sell my laptop on eBay ended as I described above, and like many other potential sellers.  In the end, I found a local buyer on Craigslist.  

Unless eBay’s management team can show some signs that they have a real plan in place, I don’t see how anyone can invest in eBay.  Meg Whitman has left the company, and she may be leaving a hole in their executive team that is just too large to fill.  If you disagree, I’d love to hear why.

In my next post, I’ll talk about the other stock that fit the “generational” theory.  The one that I still own, sort of…

I’ve done it.  I’ve gone and made my next stock investment.  But it didn’t go down like I thought it would.  I had been waiting for the stock to take a dip, and during that time, I learned a bit more about a company that is as close to an identical twin as you can have in 2 publicly traded companies.  And I bought that one instead.  The stock that I had been waiting to get in on was Visa(symbol: V).  I had wanted to get in since the beginning, but just didn’t have any available funds.  I finally made some IRA contributions and had enough in the account to make a worthwhile purchase.  But in the time it took me to get that money saved up, Visa had gone from the mid 60s to the low 80s.  

Many people think that Visa will follow in the footsteps of Mastercard(symbol: MA). Looking at this 1 year chart:

We can see that Mastercard has gone on a hell of a ride. Up $158 bucks, and $125%.  That’s good work if you can get it.  Visa hasn’t been on the market for nearly as long, but its run up to the low $80s in just about a month and a half, it’s earned a market cap of $69B.  Thats billion with a B.   And that is what caught my attention over the past few days,  that and 1 other thing.

The two reasons I decided to buy Mastercard over Visa are Growth and Growth.  Even with its tremendous run, Mastercard has a market cap of $37B.  It can almost double again, and still be just about the size of Visa.  More room to grow, means more room for stock gains.  Secondly, Mastercard has much more international exposure than Visa.  With soon-to-be huge emerging markets, like China and India going digital on their financial transactions, Mastercard stands to benefit.  And when yet-to-emerge emerging markets like Africa and South America get up to speed, Mastercard is already there and waiting.  

Time will only tell if I made the right decision to go with Mastercard instead of Visa, but honestly, I think both stocks will perform well over the next few years, and continuing on through my retirement.

I’m two days behind on this blog post, mostly because I really wanted to make my new stock purchase post first, but the stock I am after has had 3 strong days in a row, and a good earnings report, so I’m hoping for some fast money to get out of it, so I can get in at a few dollars cheaper of a price.

Anyways, the reason for this post is to announce our excitement that Wrigley’s (symbol WWY) is being purchased by Mar’s.  And at a nice premium too.  The price is $80 dollars a share, which is about 28% over what the stock was trading for on Friday.  It’s a nice gain for me, since I bought the stock back in 2005, I paid a split-adjusted price around $50 (I can’t find the transaction in my history right now).  

I’m forced with a decision now because this is an all cash deal. I won’t be owning Wrigley or any portion of Mar’s once the deal closes.  The stock’s trading around $76-77 now, and the deal is expected to close in 6-12 months.  The dividend is 34 cents a share, so lets settle on 3 payments, totaling $1.02.  Is it worth it to hold onto this, collect the dividends, and the $80 in cash when the deal closes, which also saves a commission fee from selling the stock.  Or should I try and sell at 77, pay my commission and put my money where it can earn more of a return in the next 6-12 months?

I’ll let you know what I decide.

Back in October I started using a site called mint.com to start tracking my spending.  Having crossed the country into the land of “higher cost of living.” I wanted to see just how Stacy and I’s budgeting would do in this environment.  Groceries seem to be more expensive, and gas definitely is.  But what would that come to on a monthly basis?  Well Mint is perfect for this.  Mint takes transactions from your debit/credit cards, and categorizes them for you.  If it gets something wrong, you can re-classify it easily, and even make a rule to permanently classify it how you like.  

I thought it was pretty cool off the bat, but now that I have more than 6 months of data into their system, the service really shines.  I can see my trends over time in spending, and work on reducing them.  Does shopping at costco save us money versus shopping at safeway?  It would be hard to measure larger purchases less frequently compared to weekly grocery runs.  But with Mint, I can look at the monthly spending trends and see if its working.

Mint can even give you weekly statements, and warn you when you are spending larger amounts in certain categories than what you usually spend.  Here is a look at a monthly pie chart of my spending:

You can  even compare your spending to other parts of the country:

If you have an interest in tracking your spending, check it out.  Very useful if you have multiple online accounts such as bank accounts and credit cards, etc

In the first or, hopefully, many stock blog posts, I am disclosing the first ever sale from one of my IRA accounts.  Back in August of 2000, I bought shares of Eli Lilly(symbol: LLY) after they had dropped off about 20% when they had lost a fight to keep prozac from being sold as a generic sooner than they had expected. The shares dropped from just over $100 to $80.  Everything I read during my research made it seem like this was a big blow, but that the company had a lot of new products in the pipeline and would be able to offset this loss with new drugs.

Sadly, 8 years later and the stock just hasn’t performed.  The new drugs have had set backs, or have not sold as well as hoped. I am selling at loss, even with reinvested dividends, but I think I can put the money into something must better.  I’ll be posting about that purchase soon.

Here is a chart.  The little black arrow shows the dip where I purchased the shares.  

So I did a narrative podcast of our trip to Fort Funston.  Stacy put it up on a page on her dot mac site.

Stacy and I took Stuart to the beach at Fort Funston yesterday.  The weather was great, and Stuart even got some rough swimming lessons.  His doggy paddle skills are a bit rough, but from what my mother tells me I was the same way when I got started.  Stacy put together a page in iWeb.  We made the drive with the top down, and this morning I kept it down on the way to work.  Can’t say I have ever driven the jeep with the top down in April before.

Stacy and I went out for dinner and drinks last night with two former co-workers of mine from boston.com.  We had a fun night of reminiscing on the past and getting caught up on where we are in our lives now.  It still seems strange to me that two people I used to work with are now out here and also engaged.  Much like Stacy and I, they started dating because they worked together.  Furthermore, one of them got hired there after I referred her resume to the company, and the other one started at the company when I was promoted, and he filled my vacant position.

We also got to see Los Gatos for the first time.  It’s a cute little downtown area.  Also when we were getting gas on the way home, we saw some interestly(read: bondage gear outfit) dressed women getting gas as well.  We wondered where they were headed dressed like that at 10:30 pm on a Wednesday?

Here’s a river otter at the Monterey Aquarium.

I got to take my first trip down there last Friday with work.  I’ve been struggling with the selection of seafood out here, and after perusing a pamphlet, my choices are even more limited based on my new awareness of over-fishing that is taking place.  It seems that the Orange Roughy we tried the other day wasn’t the most environmentally responsible meal we could have eaten.