On January 24,
Cisco revealed they were buying a private company called AppDynamics for $3.7 billion. The funny thing is that the little guy already had a stock symbol picked out, APPD, for its scheduled IPO this week. Talk about a buzzer-beater. CSCO But Cisco is also viewed as paying a hefty premium for a software firm specializing in a niche called application performance management (APM). Why would they do that? According to Pacific Crest Securities, "AppDynamics is a natural fit for Cisco's portfolio, in our view, given its ability to monitor legacy applications and infrastructure and its growing presence in next-generation application deployments. "AppDynamics' software stack now allows Cisco's product portfolio to extend its insight across the network, security and application layers. The acquisition broadens Cisco's software portfolio as Cisco attempts to diversify its revenue base with more subscription and recurring revenue." Tech Titans Clash With War Chests of Cash This was precisely a theme that I discussed on the Zacks Ultimate webinar January 12: tech titans like Amazon AMZN, Microsoft MSFT, IBM, Facebook ( FB Quick Quote FB - Free Report) and Alphabet (GOOGL) "battling for innovation" with war chests of cash to scoop up "off-the-shelf" technology before the other guy. And MarketWatch reported in a story on January 25 that there is a trend of the smaller companies gladly accepting these buyouts to avoid the market volatility of the public markets. Think Twilio there. Here were a couple of interesting lines from the story by Caitlin Huston... TWLO "Just last week, SimpliVity, a software company, took a big valuation cut after it agreed to be bought by Hewlett Packard Enterprise (HPE) for $650 million in cash, compared with a $1 billion private valuation. "Cisco and HPE show that large legacy tech companies are willing to swoop in to acquire startups, but the wide range of potential outcomes could lead to startups trying to stay private another year," said Max Wolff, market strategist at 55 Capital Partners. The top-tier of unicorn companies, such as SnapChat and Airbnb are not as affected, he added. Stifel: Potential Takeout Candidates After APPD Deal Courtesy of TheFly.com... Cisco's acquisition of AppDynamics is a sign that the wave of Software deal activity in 2016 has carried over into the new year, Stifel analyst Brad Reback tells investors in a research note. He believes the deal bodes well for the small- and mid-cap names across his firm's coverage list, including potential consolidation candidates such as Barracuda (CUDA), ChannelAdvisor (ECOM), FireEye (FEYE), HubSpot (HUBS), Paycom (PAYC), Paylocity (PCTY), Proofpoint (PFPT), SecureWorks (SCWX), Splunk (SPLK), Tableau (DATA), Ultimate Software (ULTI), Veeva (VEEV) and Zendesk (ZEN). He notes that AppDynamics most directly competes against other application performance management vendors such as New Relic (NEWR) and privately-held Dynatrace. Death By Amazon This was my theme for the Zacks Ultimate webinar earlier this month. You can watch all or part of it below in the player, and there's no sales pitch. This was premium content for our ZU members that we wanted to share with a wider audience because we thought it was so good. While I've been furiously researching the "Amazon Effect" on mobile commerce, entrepreneurship, and public companies like Macy's for the past 2 years, I can't take credit for the "Death By Amazon" tag. That comes from Bespoke Investment Group who actually created an index to follow the public company impact of Amazon's disruptive model as it has grown at exponential scale. I show their chart in the webinar. And my latest research project is focused on Facebook advertising which grew 55% to $26.5 billion last year and will add another $10 billion this year. Facebook Ads are truly an economic phenomenon because they are actually expanding the pie that Google Adwords created with PPC (pay per click).
In other words, just like the "Gig Economy" creates jobs the government doesn't know about, the "GAF (Google-Amazon-Facebook) Economy" is creating thousands of small businesses that you maybe didn't know about.
Exploring the GAF Economy Check out the webinar below where I also had a great discussion with my colleague Eric Dutram, Zacks ETF Strategist, as his topic -- the Internet of Things -- fit in perfectly with mine. And I highlight 4 areas of disruption after I studied the investment approach of VC Chris Sacca of lowercase capital who hit grand slams with Twitter, Uber, Instagram and Twilio. VIDEO Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the TAZR Trader service.