The 'App' Economy

The last time the Nasdaq 100 (NDX) traded at the levels we see today was 11 years ago when both Worldcom and Global Crossing carried nearly three times the weighting of Apple Computer (AAPL) within that index! As you may remember, neither Worldcom nor Global Crossing survived…

Back in 2001 Apple carried a 0.5% weighting in the Nasdaq 100, the weighting has gradually grown and is currently at 15%. Additionally, since the last time NDX traded at its current level of 2,500, there have been 125 component changes within this index. This is to say that the entire index has "turned over" in that 11 year period ... and then some.

Speaking of APPL, a revolution is taking place in the way we access and utilize technology. Users of most mobile devices access the ‘net, check email and play games through mobile applications or 'apps'. What's interesting about this phenomenon is that although it appears that these apps are just virtual, faceless programs; actual jobs are being created by this industry. Recently, I read an interesting article titled: AppEconomy is 'job leader' into the future by Mike Mandel. The article speaks to the significance of this industry and even its importance in leading the economy out of the 'recession'. A recent study by TechNet found that the:
“App Economy now is responsible for roughly 466,000 jobs in the United States, up from zero in 2007 when the iPhone was introduced. This total includes jobs at ‘pure’ app firms such as Zynga, a San Francisco-based maker of Facebook game apps that went public in December 2011. App Economy employment also includes app-related jobs at large companies such as Electronic Arts, Amazon, and AT&T, as well as app ‘infrastructure’ jobs at core firms such as Google, Apple, and Facebook. In additional, the App Economy total includes employment spillovers to the rest of the economy.”

Lastly, a word of caution regarding an up & coming tech company: Current tech giants Google & Apple have trailing price/earnings multiples of around 16. Assuming Facebook IPOs at $40, it will sport a multiple of 93 times trailing earnings. Google trades at a forward P/E of 14 and Apple at 10 times, Facebook at $40 would trade at 25 times forward earnings. As someone once said, “the best business can be a poor investment, if you pay the wrong price”.

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