Loaded post-Holiday Monday for Media and Markets.
Submitted by WC Power Tech Fund
Traders are back in their seats Monday with an upbeat jobs report behind them and Treasuries pushing the magical 4% yield number. All this on a day where the Duke Blue Devils face off against the Butler Bulldogs for College Basketball’s biggest prize, Tiger Woods has his first real press conference as Master’s week begins and the Baseball Season begins with with the fiercest rivalry in the MLB, last night’s opener of Yankees-Red Sox.
Gains in payrolls for the month of March of 162,000 signaled the biggest job increase in multiple years and certainly the most optimistic look for an economy devastated by millions of job losses in the 2 years. Yes, the Government sponsored Census had a part to play, as by some reports, the number of temporary workers hired has been reported near 48,000, but the underlying trend is much improved. The numbers from January and February were revised much higher also, with January turning a 26,000 job loss into a 14,000 job gain and February reducing its loss to only 14,000 from a previous estimate of 36,000.
On this positive data US Treasury yields for the 10-year flirted with the 4% mark. The first time in 10 months that this has happened. Another area creating highs was Energy, as Crude Oil prices pushed to 18-month highs of $86 a barrel.
Investors have a lot to look forward to today not market related, as sports and news take center stage. Opening day of the baseball season is sure to grab some attention away from Bloomberg terminals this afternoon as is Tiger’s first full press conference since announcing he returns to play in the Masters. His first Golf Tournament since the infamous car accident and continued fall-out from his grandiose sex scandal. All the while, sports fans across the United States prepare for this year’s College Basketball National Championship game tonight between the Blue Devils of Duke and the Bulldogs of Butler in Indianapolis, IN.
Markets hold court post Democratic Health Care Victory
Submitted by WC Power Tech Fund
Many are calling it the most significant legislation since Medicare and Civil Rights. What had been a tumultuous, and at many-a-time vicious battle for longer than a calendar year has now peaked with Democratic jubilation after a symbolic victory for the people when it comes to Health Care and Health Insurance.
The bill, President Barack Obama has signed into law, while not perfect, is the biggest sweeping change to the nation’s broken system of Health Care in generations. Much has been written about the bill’s content, what’s good, what’s missing, but market’s have seemed to take it in stride.
Many of the legislation’s mandates will not come for several years, such as the requirement for health care and the Insurance Exchanges for increased competition, but many “bad practices” of insurance are being eliminated right now. Dropping of children for pre-existing conditions, dropping health care altogether when a person becomes ill or loses their employment, the ending of lifetime caps and several more.
So, how will Insurance companies cope? As business in America typically does, fight for each extra dollar of profit. The Aetnas (AET) and WellPoints (WLP) and United Healths (UNH) of the country have held up rather well over the last couple of days since the bill was passed. After-all, in a few years time, there will be a mandate on individual health care, and that’s a large batch of new customers for these providers to go after.
An interesting editorial was written in the New York Times outlining the re-distribution of wealth this Health Care bill will encompass, a scolding look at a country moving away from the “age of Reagan”. A slanted, but worthwhile read. (Link)
The S&P 500, riding a month of continuous winning ways, is up almost 6% over the last 30 days. All this in the wake of the “death” and resurrection of the health care debate. The president’s memorable Q&A with opposition Republicans, the Health Care summit, and now the bill’s passage and signing into Law. With health care reform signed, sealed and delivered, and the promise of additional work to be done to improve the bill through Reconciliation, stocks are more focused now on housing numbers, employment figures and other economic factors.
New home sales fell 2.2%, representing an annual pace of 308,000, which is the lowest mark since data was tracked in the 1960s. Not a great sign for a housing recovery just yet. Economists were expecting a number to come in at 318,000. The shortfall is being blamed mainly on the high unemployment (9.7% in the United States) and a timid banking sector being strategic in its lending practices, less than 2 years shy of the Great Financial Crisis. The economic impacts here are clearly on the home builders, one of the big ones in this space being Pulte Homes (PHM) and makers of construction equipment and suppliers, which provide materials.
Another economic number that came in weaker than expected was Durable Goods. While goods orders rose 0.5%, this was less than the 1% rise forecast by economists. The silver lining here was the revised uptick for January with a rise of nearly 4%. The continued rise in these orders, provides a definitive baseline for continued economic recovery.
On the heels of Health Care reform, the administration is looking for public sentiment to continue to carry the day and continue to be the backbone of a recovery economy. Because an America that is getting things done is perceived as a winning America, and is as such an enthused populous. Not only will the Health Care victory bring much political capital to the party, it’s not out of the realm of possibility that it’ll bring economic capital and economic growth with it. And that will bode very well in November.
Disclosure: Author holds no position in above mentioned companies.
Olympic Hockey Rules The Day for Canadians and Ratings
Submitted by WC Power Tech Fund
As the 2010 Winter Olympics roll on in brilliant and beautiful Vancouver on Canada’s west coast the event most prized in the eyes of the host nation is the Men’s Ice Hockey competition. The Games of these Olympiad have moved through tragedy and difficulty towards triumph and as the competition settles in for its 2nd half there is plenty of more excitement in store.
CTV, owned by CTVglobemedia, the television network in Canada with the rights to televise the Olympics, much like NBC in the US, has several programming partners helping to deliver a full slate of live events to Canadians across the country. This standing in stark contrast to the much maligned and debated NBC approach of tape-delaying full events so they can be shown in prime time.
So back to Canadians and the love for ice. The Men’s Hockey competition, featuring a who’s who of the National Hockey League was the spotlight event of these games, and viewership certainly hasn’t disappointed so far. In the preliminary round a marquee match-up between the host Canadians and strong American team became the most watched television event in the history of Canada, with an Average viewership of over 11Million and a peak of 13Million.
To put this in perspective, 33Million people live in Canada, meaning 40% of the country was watching a preliminary round game. America’s yearly spectacle that is the Superbowl just attracted the largest audience in history at over 100Million, a slightly lower percentage. Is hockey a new marketing power? In the US the game was shown live on cable network MSNBC and it drew almost a record in terms of viewership, only bested by election night coverage of now US President Barack Obama. The Olympics have been a ratings win for NBC and its affiliates and for the company, despite the swelling online-community grumbling over tape-delays, viewers are coming out to watch the network’s coverage.
Average ratings are sitting in the US at about a 14.5, meaning about 26Million viewers, which is up 20% for the last Olympics Games in Turin, but expectantly down from home-hosted Olympics in Salt Lake City in 2002. NBC had even beaten American Idol and have become the most dominant Olympics in terms of ratings wins. A good breakdown of the numbers can be found at The Crowe’s Nest (Link).
While the numbers are very good, they still pale in terms of coverage that the Canadian networks have been receiving for their hockey broadcasts and analysis. For the Canadian Men to go for Gold they have to play and win 4 games in 6 nights and if they get there, CTV can expect home run after home run in their coverage and with their advertisers. One down for the Canadians yesterday and today’s Match-up with the Russians in the Quarterfinals looks to break even more records in the domestic market. How much would a network rake in if it could broadcast a Superbowl 4 times in 6 days? This is why in this country, in the end, hockey rules the day.
Happy Holidays!
Submitted by WC Power Tech Fund
From the WC Power Tech Fund to all the investors and traders in the marketplace.
Have a safe and happy holidays!
Research In Motion Regains Footing
Submitted by WC Power Tech Fund
Some difference 3 months can make. Research In Motion (RIMM) stock 3 months ago was bearing the brunt of sell-off at the behest of disappointing performance and guidance, dipping from the mid $80s to the high $60s per share. The stock had mostly held water of late, sliding slightly to the low $60s but was in a position to change all that with another earnings report.
With the increasing competition from Apple’s (AAPL) iPhone, Palm’s (PALM) Pre and heightened marketing given to several smart-phones running Google’s (GOOG) Android software RIM had to deliver, on all fronts, and it has. Blowing past all expected metrics is leading shares of RIM higher by 11% early in after hours trade.
The lines: Revenue of $3.92Billion vs $3.78Billion estimated; Income of $1.10/share vs $1.04/share estimated; Subscribers at 4.4Million vs 4.1Million estimated. RIM also shipped 10.1Million units during the quarter, including a milestone generating 75Millionth.
Seems the analyst talk of RIM’s mighty fall via the dual-pronged iPhone/Android sword will have to wait for the time being as the folks from Waterloo can pop the bubbly for at least another quarter as going into the Christmas season the guidance RIM provided was very strong. Revenue of $4.3Billion vs $4.11Billion and EPS of $1.27/share vs $1.12.
So, with RIM so firmly positioned, what’s wrong with the company and why isn’t it a must own in the growing smart-phone industry? Two main reasons: Interfacing and Extensibility.
In interface design RIM is not even close to the same league as Apple, let alone the various flavours of Android that are appearing in the market-place. The company has such a culture entrenched in the corporate world that functionality for the consumer has always seemed like an after-thought with the current incarnations of the BlackBerry OS. This was most evident in both versions of the touch screen device Storm that the company debuted to scolding and muted critical response.
In regards to extensibility its hard to call RIM’s platform a leader in any sense of the world. Its BlackBerry App World platform is another after-thought and in the days of the highly successful iPhone/iPod Touch AppStore, being an afterthought is just about being dead in the water. While Android is still nowhere near Apple’s 100,000 applications catalog, it is getting there with over 16,000 available for various handsets. In this race RIM is already well-behind.
But there is a silver lining, the company makes very good looking hardware, for the most part, and is a staple in the corporate world, which is a business that isn’t going anywhere and will grow with the rise of smart-phones world wise. Prospects continue to look good, and if the engineers can get their software act together for a new version of the BlackBerry OS, it really can be a 3 pronged fight in the mobile space for the decade to come, and that kind of potential will have analysts and investors eager to jump on board.
Disclosure: Author does not hold any position in RIMM, is long AAPL, GOOG
Job Market healing, albeit very slowly
Submitted by WC Power Tech Fund
Employment in this economic environment has been a very sensitive subject for both politicians, investors and most importantly job-seekers. The economic issue is first and foremost on the mind on many Americans, but it is also causing political upheaval in Washington as the slowing of job losses can be used as an argument only so many times before political capital and goodwill is eroded completely.
Jobless claims data out today showcased that first-time claims came in at just over 500,000, which is the fewest since January of this year. The four-week average for first time claims, about 520,000, is off 20% from peak claims levels. For October, job losses numbered in the 190,000 range, well off peaks of 700,000 during this recession. Accumulation is a big issue, as jobs lost since the recession began number more than 7.3Million, and despite government figures that point to job creation/savings of about 600,000 from the stimulus package it still is a difficult data point to swallow, for those trapped without employment, making the march for continuing jobless benefits.
The market’s have reacted bearishly to the jobless claims, but overall losses today have been muted, with the major market trackers off about half a percentage point. Materials and Energy sectors are leading the decline today, with Financials barely trailing for the prize of day’s worst performers. With the S&P holding levels around 1100 points, the market has been pricing in recovery during its recently extended rally. Investors, to keep this rally going, are going to need to see tangible upticks in demand and that means some tried and true job growth going into 2010. If anyone is to keep this market going next year the need will be to have jobs creation to build on the economic recovery GDP figures have already suggested is here.
GPS Investors flee from Google’s Shadow
Submitted by WC Power Tech Fund
Google Navigator, a seemingly natural extension of existing Google Maps technology that’s found on smart-phone platforms like the iPhone and Android, has GPS company investors running from the hills.
The issue isn’t that the technology from Google (GOOG) is significantly better, it does look very good and would be a formidable competitor, the issue is Google’s affinity to price all-things-Internet at $0. Considering Navigation subscriptions run in the $100s of dollars/year, not to mention the cost of the units themselves, how many GPS users would turn to something else from, for now, trusted Google at zero cost that works on their existing cellular phone? I’d bet many, and the market is betting that way too. Gizmodo (Link), the technology blog, has an informed quick review of Google’s entry into the Navigation business.
The sell-off in the market has certainly contributed to some of the downfall in GPS stocks, however major players Garmin (GRMN) and TomTom (TOM2) are down 16% and 20%, respectively.
The age of convergence in technology is certainly upon us, better cameras are coming to cellular phones, better media players are already there, and now GPS navigation capabilities are becoming mainstream. The stand-alone technology gadget/device is becoming a niche rather quickly.
Android, the free open-source cellular operating system developed by Google, is taking off by leaps and bounds this year, with several high profile phones on tap on high profile networks, such as Verizon (VZ), AT&T (T) and T-Mobile in the US. The platform, which recent research has predicted, could overtake the popular Apple (AAPL) iPhone in market-share over the next few years, needs applications like Google Navigator to be exclusive on enticing handsets in the months to come. The Momentum is building for Android and Google is keeping the fire lit with its Navigation application.
The only problem for investors, Google doesn’t want to charge for anything but advertising! In all likelihood however, this is the next step in Navigator’s life cycle, and Google can continue its march into dominance of the mobile ad industry, just as it has trounced the competition in search.
Disclosure: Author owns GOOG
Apple’s Earnings Aftermath
Submitted by WC Power Tech Fund
By now the news media has digested the rock-solid quarter from the Steve Jobs-led-innovative bunch in Cupertino, so now its time for the experts to weigh in. First, here’s a simple recap of Apple’s (AAPL) quarter.
$1.67Billion in profits ($1.82/share) on $9.87Billion in revenue, which compares to $7.9Billion in revenue and $1.14Billion in profits ($1.26/share) a year ago. Considering the street was anticipating $1.42/share, with a whisper number in the $1.60s/share, this is quite the professional thrashing. Even the highest estimate on the street was left in the cold in the $1.70s.
The real kicker here however is when Apple accounts for iPhone sales right away and not under the subscription method. In that instance the company earned $2.85Billion on sales of $12.25Billion. Clearly this company can not be priced based on P/E valuations.
Now for the sales figures.
3.05Million Macs (A new quarterly record)
10.2Million iPods
7.4Million iPhones
All impressive in their own right, considering iPods are by all accounts supposed to be dying off, and iPhone 3GS supply was limited most of the quarter. I’d speculate Apple wants to stock up for the Christmas season now as it steps into its newest market, China. The 3Million Mac number is most impressive, as the company beat its previous quarterly record by 400,000 units, and its not even the Christmas season yet.
Apple has just also announced 2 new iMac desktops, starting at $1200 a newly redesigned entry-level MacBook at $1000, and 3 models of the Mac Mini, setting one of the up to be a home media server type device. This refresh of the desktop line is sure to spur holiday sales into a segment that has been stagnant for sometime as laptops dominate computer sales. In what’s still considered a recessionary environment, Apple stands out as a testament to quality, design, innovation and marketing power. The quarterly performance definitely can’t be argued with.
The pros had their say before the quarter and the market had its say boosting shares to all time highs over the $202 mark. What do the pros say now? Higher price targets and upgrades galore!
A who’s who list of tech analysts that includes firms such as Piper Jaffray, Oppenheimer, RBC, Carris & Co., UBS, Needham & Co. have reiterated, upgraded or raised targets on Apple with UBS being the highest at $280. The love-fest with the electronics maker didn’t stop there as targets came in at $277, $275, $260, $235 and so on. Although the numbers the pros give vary, one thing was common-place. Apple is a must-own tech bell-weather.
Just think when they change their accounting! Over the last 4 quarters, non-adjusted profits total $9.77/share vs $6.11/share under GAAP. Roughly a P/E of 20 (now that this calculation makes sense)!
Oh, and the company now keeps 19% of its market cap, about $34Billion in cash in its bank vaults.
Disclosure: Author owns AAPL
Apple’s Gunning for Records with September Quarter
Submitted by WC Power Tech Fund
As analysts line up their predictions for Apple’s (AAPL) upcoming quarterly earnings report, one thing stands very clear. Records are made to be broken. In the quarter that saw the continued success of iPhone 3GS, price cuts on Mac Computers and a slew of upgraded or new iPods, the company is firmly poised to deliver its best back to school season ever. Apple’s typically conservative guidance for this quarter called for earnings in the range of $1.18 to $1.23 in profit/share on sales of $8.7 to $8.9Billion.
Standing in stark contrast are analysts with Revenue figures at $9.2Billion and profits of $1.42/share on average. Apple over the last few years has beaten earnings expectations by a staggering 39% and Revenue by 7%. Perhaps the analysts have caught up this time? Not yet. 90 days ago the average estimates stood at $1.27 and have climbed since to $1.38 and where it currently stands at $1.42.
But, since when do analysts really have a handle on the hot trends of the day. The Apple generation of the 2000s have grown up with iPods being a must-have, the Mac as a must-have College tool and now the iPhone as the it mind-share capturing device. But analysts, like most things come in all shapes and sizes and estimates, certainly for Apple, can vary wildly.
On the Computer front, expectations have risen for Apple to sell upwards of 2.8Million machines, a new record for the company. In the year ago period, that number was 2.6Million. While iPods are slowly an eroding business, another 10Million units are expected to cross hands, and the stunning growth of the iPhone business will continue with estimated sales of about 7Million units.
While Apple’s been dropping prices on Macs and iPods to maintain sales and grow share, it has plenty of room to keep margins steady as the iPhone is by all accounts a profitable monster, and the launch of Snow Leopard software adds to the margin story. Taken altogether and the pros are calling for continued sales success at Apple.
Whether the market believes it too is the next test.
Disclosure: Author owns AAPL
Banks are Gold, according to Goldman
Submitted by WC Power Tech Fund
Goldman Sachs (GS), long the darling (and jealously-driven scorn) of Wall St. just gave an emphatic gift to all its rivals by declaring the American financial system is a worthwhile investment. With its own shares more than doubling year-to-date Goldman gave its investing clientele the go-ahead to purchase other large banks, sending financial shares higher today and leading the market to gains or just about 1%.
By claiming large banks will outperform regional banks, Goldman spawned gains of between 2 and 6% for the major financial institutions. Despite the shot of love Goldman has thrown the financial companies, it finds itself battling one hell of a PR campaign on the topic of excessive bonuses. The company was looked at with balking eyes as it reported near record profits and bonus levels in the first half of this year, a year only one removed from the biggest financial and market failure since the Great Depression.
Perhaps Goldman wants to set the mood, favourable for all banks and it turn for itself. Since there’s no shortage of politics now in finance, by giving an agreeable nod to the upcoming performances of the major banks, it’ll soften the political blow when Goldman reports another record quarterly profit and annual bonus numbers that draft everyone else on the street.
The company is known for its shredding and fleecing of most it does business with, and a recent report showcased that Goldman receives $1Billion if the institution CIT fails, and price tag that would cost taxpayers $2.3Billion will do nothing to change that reputation. The well publicized bailout of AIG during the meat of the financial crisis, of which Goldman Sachs was one counter-party reportedly receiving billions of then federal dollars is just another such example.
But isn’t that exactly what you want from an Investment Bank? To be the smartest group of guys in the room? I’d say so, and despite any public or political backlash over bonuses, Goldman is on tap to report another golden quarter. And that’s something worth owning.
Disclosure: Author owns GS
Toyota’s Attractive Prospects and Global Positioning
Submitted by WC Power Tech Fund
The car maker from Japan, the country’s largest, suffered a drop in August output, but the pride of Toyota City remains primed to continue its automotive leadership worldwide. Global output from Toyota (TM) fell around 9% year over year, but conditions economically are more stable and the additions of government programs, such as the US Cash for Clunkers and Japan’s subsidy program, are helping efficient automakers move more units.
In fact, Toyota has reaped the biggest benefit of the majors from such programs and has raised its 2009 calendar year production run. The rise of 8% means the manufacture of 6.45Million vehicles total for this year. It was widely reported that Toyota owned the largest percentage of new vehicle sales under the Cash for Clunkers program in the United States, with the brand owning 3 of the top 5 new car spots, a testament to the message of Toyota as a fuel-efficient, safe and reliable car maker. Moreover, in Japan, Toyota enjoyed a 9% sales rise in August due to the Japanese subsidy program, that similar to the US, offered nearly $3000 towards the purchase of a fuel-efficient vehicle.
Toyota has rallied from lows in the mid 50s with the market since March and had hit a new high in the mid-high 80s as recently as a month ago, however, with the stock sliding below the $80 mark, down 2% Tuesday, it’s time to look at Toyota again as the stable play in the automotive sector and the one with the best chance for production growth in its near future as the global economy recovers in 2010.
Disclosure: Author does not own TM
Drop In Jobless Claims Fails To Ignite Market
Submitted by WC Power Tech Fund
In what by most is seen as good news the job market showcased another data point in its long march towards stability. Jobless claims fell by about 20,000 to 530,000, which was slightly better than the 550,000 expected by economists and analysts.
Another rather important metric, continuous jobless claims (people making claims for longer than a week) fell by 123,000 to 6.14Million. These data points are giving economists positive signals that the job market is getting better, but cautious optimism aside, it also shows how much further there is to go.
The major benchmarks in the US opened slightly positive on the news but have since turned negative with the Nasdaq leading with a 1% decline.
In other news, some technology companies might to ready to appear more attractive to investors as what some call the “Apple rule” has been reversed. The required method of subscription accounting when dealing with hardware and software sales, most notably put into practice by Apple (AAPL) with its iPhone, will no longer be so as part of Generally Accepted Accounting Principles. This change allows Apple to record Revenue and Profit from iPhone sales in real-time as opposed to being force to account for each unit sold over a 2 year period. Amazon (AMZN) uses the same method of accounting for its Kindle e-book reading device and Palm (PALM) had adopted the method for its flagship Pre smartphone.
Why Apple is most noted for this change is relatively simple, it moves a staggering amount of iPhone units, at high margins, fueling renewed growth rates. Under the new standards, Apple is expected to report profitability that is 35-40% higher than it is currently allowed to. Fundamentally, there should be no change to the value of the company, simply a change in the accounting books, but for many P/E based traders and quantitative computer P/E based models, Apple will appear more attractive under these ratios. Amazon, Palm and other companies dealing with this change will not have their metrics altered nearly as much as Apple is expected to.
Disclosure: Author owns AAPL
Technology leading market’s rally, a pause ahead?
Submitted by WC Power Tech Fund
The 52 week high list looks like a who’s who of dynamic companies, with the list being dominated by some of the best and brightest in Technology. The Nasdaq has outperformed its peers on a year to date basis and as several analysts predicted, it is the tech sector that is leading the rally.
In Remembrance of 8 years to the date. 9/11
Submitted by WC Power Tech Fund
On the Anniversary of one of the most infamous dates in history we all should take a moment and reflect on just how much was lost for so many on Sept 11, 2001.
8 years have since passed, may the victims of the tragedy be remembered forever.
Can Motorola follow the Palm path?
Submitted by WC Power Tech Fund
In a bit of Deja Vu, the conscious feeling not the forgettable Denzel suspense film, Motorola (MOT) is attempting to pick its phone company off of the balance sheet floor with an attractive new handset. Investors have just seen this same story with PDA legend Palm (PALM), as it used hype from its Pre handset unveiled in January of this year to move the stock from $4 to $14 and save a business that was clearly heading in the wrong direction.
The battle in the smart phone marketplace is very heated, with entrenched competitors Apple (AAPL) and Research In Motion (RIMM) slowly gaining market share but gathering much of the mind share, and more importantly most of the profit margins. Recent stats show those two juggernauts grabbing just 3% of the overall cellphone market but an astounding 35% of all industry profits. And for good reason, the companies sell very expensive but heavily subsidized attractive smart phones.
Motorola, which has been in dire financial shape quarter after quarter for what can only be described as forever, hasn’t had a hit in the cell phone space since its popular RAZR handset, and is desperately trying to compete in the profitable smart phone segment. By gutting through a lot of the company, and doing away with historically bad Motorola interfaces the company turned to Google’s (GOOG) upstart Android platform for its resurgence.
Android, by all accounts is gaining significant traction since the first HTC handset launched nearly a near ago. The platform has been featured in 3 additional phones headed in the US thus far and rumors peg the number of Android handsets at 20 into 2010. This contrasts with the handful of RIM models available and the 2 current selling versions of Apple’s iPhone. Motorola is betting with a lot of the industry that the free Android platform can eventually be as compelling and competitive in an industry feeling the need for consolidation in what is becoming an age of mobile applications. If your phone doesn’t have applications available its simply not as good, and the beauty of Android, as far at Moto is concerned, is that it doesn’t need to worry about pumping resources to create an application hub. The reach of Google is already doing just that, granted it is nowhere near the size of Apple’s AppStore, but Android does boast the 2nd biggest mobile application catalogue. Nothing to scoff at.
Enter the Motorola Cliq, the world’s first social phone, as the company claims. The phone is built on Android, but Moto’s designers have layered an interface that directly ties in a user’s Facebook, MySpace and Twitter contacts and status information. The social aspects of the phone are sure to resonate with a younger smart phone buying public and Motorola has shown it can indeed build something of higher quality. Will the phone be able to compete in the space? Sure, but will it gain any significant market share? At least one analyst seems to think so, as a note was published putting 4th quarter Cliq sales at about 750,000 or an estimated 5% of Moto cell sales. 5% may not seem that significant, but with a hefty subsidy, Motorola could start to see some real revenue from its new headlining handset. And after all, Moto essentially bet the company on Android less than a year ago, so we’re guaranteed to see several handsets leveraging the new interface.
While specs are impressive, price will be a key differentiator for consumers. In the age of the $99 iPhone 3G and the higher capacity $199 iPhone 3GS, it is sheer lunacy for other players to think they can charge more and gain any sort of traction with consumers. Thus far though, Investors are jumping in and believing in the robot that will eventually have come to save Motorola from the brink. Shares are up 7% today and gained more than 10% since the device was officially announced. Here we go again?
Disclosure: Author owns AAPL, GOOG
As more go back to school, less are out of work
Submitted by WC Power Tech Fund
The Labour Day weekend in North America was met with a Friday stock rally based on encouraging employment figures that saw 216,000 jobs lost in the month of August. Although 216,000 is still a significant number out of work this trend of a decline in job slashing, a figure that was upwards of 700,000/month at the peak of the recession, led investors into confident buying to start the long weekend. Furthermore, Canada’s job picture actually showed job growth in the tens of thousands signalling a shift out of the recession and leading the TSX Composite Index to new highs for the year.
Tuesday’s morning action continued the trend, as market’s saw green in the early going, this time fueled by commodities, especially gold, with prices around $1000/ounce. Major market benchmarks were all higher between .5 and 1% with the S&P leading the way.
America’s battle for Health Care is taking a more dramatic turn this week as President Barack Obama issued a strong pro health care reform speech to the labor force and is set to speak again to Congress on Wednesday as the health debate enters its final stretches.
Kraft Foods (KFT) is taking a bit of a beating today as it issued, and was quickly rejected in a $16Billion bid for Cadbury (CBY). It’s clear investors want more out of a takeover bid, with analysts already speculating the Chocolate maker could fetch near $21Billion if another suitor was found to compete. Shares of CBY are up nearly 40% giving a market cap well over $17Billion, so it seems traders are sharing the investor sentiment for now. Shares of Kraft slid 5% on the news.
Also on tap tomorrow is an annual iPod-related event from Apple (AAPL) as it brings the media over to showcase new iPods and possibly a new version of its iTunes software. Rumors have been rampant as usual for an Apple event, and although the fabled tablet computer is unlikely to appear, new iPod Touch and iPod Nanos are expected to the sporting cameras for easy on the go pictures and videos. Shares of Apple are up almost 1.5% today but are expected to fall following the event unless Apple can surprise with a new announcement of some kind.
Disney’s Marvelous Bet on Superheroes
Submitted by WC Power Tech Fund
The Walt Disney Company (DIS) set its mouse ears on the biggest name in comic books in a purchase agreement that will bring all of Marvel Entertainment’s (MVL) characters into the Disney fold. The $4Billion purchase agreement with Marvel is similar to Disney’s previous $8Billion buy of animation powerhouse Pixar, which has already reaped dividends with film, toy and video sales of features Wall-E and this summer’s hit Up.
Marvel, a newcomer in the movie production business, but with two self-financed films under its belt and another four in development is riding a high after the blockbuster success of Iron Man and the subsequent revenue tail that film has provided. With the eagerly anticipated sequel set to be an even bigger box-office draw, the opportunity was ripe and Disney went after it. Marvel’s upcoming film slate looks like this:
=> Self-Financed films including 2010’s Iron Man 2, 2011’s Thor and Captain America films, and the 2012 team-up Avengers. But that’s just the beginning, as a possible Incredible Hulk sequel, a S.H.I.E.L.D. or Nick Fury film and potential franchises from the core Avengers characters all lie in wait for initial movie-goer reaction.
=> Licensed films include Sony’s 2011 Spiderman 4, upcoming Fox films Wolverine 2, Deadpool, X-Men First Class, and Origins Magneto, and there’s talk in Hollywood circles about reboots to the Daredevil, Fantastic Four and Blade franchises.
The film slate at Marvel looks incredibly promising, so why sell out at $50/share? That’s a question Marvel shareholders will get to ask as although both company boardrooms have approved the deal, the MVL shareholders must also give their permission. Given the profitability of the Iron Man movie franchise and the chance of a second hit with either Thor or Captain America, all moving towards the much-anticipated Avengers film, begs the question whether Marvel needed a big brother. Marvel finds itself in a very positive business cycle as its films generate interest in its comic books, which generate interest in more films and toys and videos, but I believe Marvel’s thinking is growing ever-more global and it needs a partner to showcase its characters further around the world.
Disney theme parks with various Marvel characters and tailored rides, bigger opportunities in television for Marvel’s growing animation team and the increased presence at the negotiating table for localized global expansion of movie, television and print properties give Marvel a cushion it didn’t have before when it ventured on its own. But, most importantly, I think Marvel have watched and learned from the Pixar model, and as Pixar was embraced into the Disney fold, it has been allowed to run and create as it had before and even more so. Critically, the last two Pixar films have been labelled as the least commercial and least accessible, and still among its best to date. In the end creativity prevailed, and just as the Pixar model has taught Disney, Marvel knows that its love for its own characters and creative process will be left with the creators and not a corporate conglomerate.
Prior writings at WC Power Tech Fund about Marvel, here (Link), here (Link) and here (Link), with the premier of Iron Man and beyond, talked about how the strategy was very sound and the stock could easily double from its $2-3Billion market cap within the next few years as it pressed on with its film strategy. That was around the $30/share range and Marvel admirably was able to withstand the market’s recession wrath better than most, eventually faltered with the market but was quickly embraced again by investors at close around $38 at the end of last week. Now while this deal makes a lot of sense in many ways, Marvel should’ve been worth significantly more than $50/share on its own as its Avengers assembled.
Disclosure: Author owns MVL, DIS
Apple-China deal struck: iPhones official
Submitted by WC Power Tech Fund
China Unicom (CHU) and Apple (AAPL), after months of negotiations and several false starts, have completed a deal that will flood the Chinese market with legitimate iPhones before the year is out. China Unicom is building out its 3G network that will be ready by the end of the September for most of its 140Million plus subscribers, which is the biggest cell market that Apple has ever rolled the iPhone out into.
The uncomfortable love triangle that Apple found itself within in China was one that it had to complete for the continued dominance of its ubiquitous handset. China Mobile (CHL), the biggest carrier in the country with almost 500Million subscribers, was also in the running but several public disagreements with Apple over revenue sharing and control of the AppStore, made a deal impossible for the Cupertino electronics & design company.
Apple had to make a phone specific to the marketplace in China, with a mandate that wi-fi be removed from the iPhone, but for a market that size the company was willing to make concessions. The deal with the second largest carrier, Unicom, will allow Apple a foothold into the vast, electronic friendly marketplace, where several estimates have placed “grey-market” iPhones already in the country at more than a million units. With the country getting an official retail and distribution channel for the popular device, it will be interesting to see how the consumer in China responds to pricing and rate plans.
Like most “exclusive” deals that Apple strikes, there are certainly levels of buying the carrier of choice will have to make. That part of Apple’s iPhone deals have been reported in several other markets like Russia for example. Apple did not get any revenue sharing in this agreement and the phones will simply be sold by China Unicom with subsidies. Reports have been denied that already 5Million units were ordered, but speculators have suggested that this number is quite reasonable, and in some cases underwhelming as it accounts for less than 1% cellular market penetration.
Playing with shipment volumes aside, the iPhone coming to China is a huge deal for Apple and its earnings going forward. The market in China of cellphone users will bump Apple’s global addressable market significantly and even if sell-through rates do not meet expectations due to the rampant “grey-market” the channel fill will certainly help Apple’s unit shipments and Revenues substantially. In the last quarter, the iPhone 3GS was launched, selling 1Million units in a weekend, leading to 5Million units sold in the quarter, a quarter that was largely applauded by Wall St. So how many will Apple sell in this quarter and the next as iPhones get bought and paid for by the company’s Chinese partner? The answer I would think is at least 5Million on top that had previously been reported and debunked, if not significantly more.
Disclosure: Author is long AAPL
Government owned General Motors bails out Dealers stalled by Government [Update]
Submitted by WC Power Tech Fund
This little gem of a news story is making the rounds recently as General Motors dealerships across America are on the verge of closing shop due to cash flow issues relating to the Cash For Clunkers program.
The program itself has been a huge success for the Automotive Industry, specifically the car makers, with not only General Motors, but American rival Ford (F) announcing increases in production to keep up with demand. So far reports indicate that about 450,000 vehicles have been sold in the US qualifying for the program, with recent statistics showing Toyota (TM) vehicles holding 3 of the top 5 spots. Nearly half a million vehicles is not an insignificant number in the fight to increase average American fuel economy but herein lies the rub. The wildly successful program has already run out of money once, gotten an infusion of cash to extend it, and still is so far behind the 8-ball on the administration side of things that dealers around the country may have to shut their doors. While this program is expected to bump vehicles sales past the 1 Million mark for the first time in longer than a year, the under-pinnings of and bureaucratic red-tape within this program still have a ways to go.
Cash For Clunkers, which gives up to $4500 in rebates to car purchasers, provided they buy fuel efficient vehicles and trade in gas guzzlers or old piles of road junk, is leaving dealers holding the bag when it comes to running operations. It is now reported just how far behind the Government is in issuing rebates to dealers, with 37% of rebates having been processed, but the percentage of payouts still unknown. The articles flying across the news wires lately have been full of quotable frustrations from dealers. One company is apparently looking out and stepping in to help.
General Motors is that company, 60% Government-owned General Motors following the structured bankruptcy that is. The company, err Government, is lending money to dealerships in an attempt to keep them operating until the Government can process their sales and send the appropriate rebate dollars. GM will take the money back from dealers within a month’s time if the Department Of Transportation has issued funds to that specific dealer, so this plan is wildly considered an operational stop-gap measure. General Motors is on the right track here as in the market share game, it can’t afford to have its dealership network crippled during the busiest car buying spree in over a year. The irony of it all, especially for Uncle Sam is something else entirely!
Update: Press updates regarding 37% of rebates process with unknown % having been paid out.
Disclosure: Author owns TM, holds no position in any other companies mentioned
Home Reno Sector still facing Economic Headwinds
Submitted by WC Power Tech Fund
Lowe’s (LOW), the smaller competitor to housing renovation giant Home Depot (HD) found its stock slipping nearly 10% today on disappointing revenue and earnings numbers for its 2nd quarter. As money has been flowing this year into the more established names in anticipation of recovery, Lowe’s had an opportunity to showcase its smaller and leaner business model, however the difficult economics have proved to be increasingly challenging. Year To Date now Lowe’s sits 4% in the red, while Home Depot has been a 14% gainer, despite a nearly 4% tumble today.
Lowe’s profit fell 19% year over year to $759Million or $0.51/share, which fell short of expectations of $0.54/share and on the top line Revenue fell to $13.8Billion, down from $14.5Billion a year ago.
But housing data is getting better right? Not everywhere and not consistently is the message from these numbers, while housing prices and housing starts are beginning to improve on a year over year basis, they are against comparisons coming from drastic lows that were reached during the meat of the global recession. With the jobs numbers being what they are, it’s difficult to imagine the current economic environment being a hotbed for home renovations or substantial new developments. As North America begins to slowly drive itself out of the recession, Lowe’s sees some leveling out of demand as it experienced growth in foot traffic in its stores throughout the quarter, however talk from management is mostly about expectations resetting and difficult consumer conditions, and with big ticket purchases (those over $500) falling 16% year over year it is easy to see why management would speak conservatively.
Top line profit forecasts were also trimmed at Lowe’s for the year by $0.04, and the company is slowing its store building. It planned about 66 stores this year and now only has plans for 45 next year. But even with an American consumer getting more confident towards the end of the year, is there going to be enough bite for the big ticket items Lowe’s and Home Depot rely on for profitability. If Cash For Clunkers showed anything, its that the consumer can be tempted with a good deal, albeit one sponsored by the government. However with hundreds of thousands of Americans having now just spent copious amounts of money on new cars, will they have anything left for their homes before the end of the year?
Disclosure: Author holds no position in the companies mentioned
GM makes Marketing Splash with Chevy Volt
Submitted by WC Power Tech Fund
The plug-in Electric Vehicle that’s supposed to usher in a General Motors of the future has had a tumultuous lifespan thus far, but to its credit the company continues to plow ahead with the Chevrolet Volt the best way it can. By winning the marketing war early!
The Volt has been the focus of numerous stories since its unveiling and subsequent planned 2010 debut, but today’s might just be the most fascinating. GM has come out to say that the Volt will be rated an astonishing 230MPG. Now if that number seems quite extraordinary, you’d be part of the perceptive crowd, because clearly there is more to the story.
There is no comparative standardized measure for electric-gasoline hybrid vehicles like the Volt and standard highway and city mpg fuel economy tests are 10 mile continuous drives. The Volt, on the other hand has a range of 40 Miles on a single charge, so technically the MPG figure would be infinite as for the first 40 Miles, as the car would be using no fuel at all.
That’s where it gets a little bit complicated as the engine on the Volt provides an additional 260 Miles of range on a single tank and thus on a 100 mile cruise, 60 of which are powered by petrol, the MPG figure would drop to about 80 MPG, and continue to decline as the drive gets longer. The engine also provides power to charge internal systems, but a recharge of the battery is said to take about 10 kilowatt hours, which CEO Fritz Henderson has said would cost about 40 cents. There was no subsequent mention of just where in these American cities will there be public infrastructure to support these vehicles, but if there’s one thing the Stimulus package should have money for, it ought to be this.
While the 230MPG claim may be just that, it does have some merit, and more importantly it puts GM ahead of the competition and in the driver’s seat when it comes to America’s automotive future. Advertising sells just about everything in this world, and seeing a number like that splashed across automotive publications and the Internet while swing the ball of goodwill into GM’s corner.
And goodwill is one thing the company will need in spades if it continues with plans to launch an IPO on the year anniversary of its dealings with bankruptcy.
Jobs jobs jobs spark continued rally
Submitted by WC Power Tech Fund
American payroll numbers came in this morning and the results were as good as they could be given current economics. Predicted job losses averaged around 325,000 but initial numbers for July put losses at 247,000. Employers have certainly slowed their layoffs in June and July. Additionally the June number was revised downward from 467,000 to 443,000.
Now, that’s a lot of numbers in one paragraph but the underlying message is this. Things are slowly moving forward in the job market, and stemming job losses, which in turn will turn into job creation is the only way towards full economic recovery. Now, some will say that the country is still losing jobs, and that the continuing number of losses in this recession stands at near 7Million, a record for post WWII. Both those facts are true, however an important metric, the unemployment rate, fell from 9.5% to 9.4%, despite expectations that it would rise another 10 basis points.
The jobs report, along with the first profitable quarter from AIG (AIG), up 9%, in almost 2 years sent stocks higher in morning trade, with the DOW climbing about 100 points.
End of July Market Musings & Microhoo deal
Submitted by WC Power Tech Fund
As another month comes to a close, the market’s resistance proof rally continues on the strength of strong earnings and more signs of a waning recession. GDP numbers out for the previous quarter showed a decline of 1% in American GDP, this was better than the expected 1.5% decline, which showed economists that slowly but surely the United States is making its way out of the recession.
But the markets knew that in March right?! As the S%P continues to fly from March lows of near 650 to to cusp of 1000 yesterday. Just about a 50% rise for the broad market indicator. The real driver of this continuing rally is the strength in Corporate Earnings this quarterly season, which will be a difficult act to follow for the remainder of the summer as those results fade and current unemployment rears its head again. However, companies now have learned, adapted and retooled their operations and streamlined their businesses during the economic bottom (1st quarter of this year) and are now awaiting the increases in demand that are expected to come in the 2nd half of this calendar year.
On the deal front in recent news, was the Internet Search deal between Microsoft (MSFT) and Yahoo (YHOO). By combining search operations to Microsoft and sales operations to Yahoo the companies hope to put a dent into market leader Google (GOOG). However, the deal has widely been panned for Yahoo, with Investors sending shares down heavily in the few days after the deal was officially announced. The partnership is a revenue sharing one with no payments made upfront and is a far cry from the $40Billion buyout offer Microsoft initiated, nor is it even close to the $1Billion Microsoft most recently offered in cash along with Billions more in stock purchases.
The news media certainly has the right grasp, as the deal, which Yahoo had always held the upper hand on, has gone completely to Microsoft. Yahoo essentially gave away 20% Market Share in search, for cost savings and the chance to deal with all the sales hassles related to Search Advertising between both companies. Microsoft will now control about 28% of search queries through its new Search Engine but it still has a ways to go to get to the monetization levels Google has spent the last few years achieving. And that doesn’t even begin to mention the complexities in integration relating to the now-coined “Microhoo” partnership. Executives at both companies expect this to take 2 years to get through fully. That’s about half a lifetime on the Internet I’m afraid, so while Google will wave its hands and put pressure on both companies to drag out the legal battles, secretly they’ve got to be happy, as 2 years of distractions await their newest competitor, now with 8.5% market share, Bing!
That’s why they call him the Oracle of Omaha…
Submitted by WC Power Tech Fund
Recommended Reading (Link): Interesting take from Bloomberg today on Berkshire Hathaway and its iconic Investment Mind Warren Buffett.
In short, in the midst of the financial crisis the “Oracle of Omaha” pledged support for Goldman Sachs in the form of a $5Billion investment of preferred shares and warrants to purchase $5Billion in Goldman common stock.
Mr. Buffett, for his company Berkshire Hathaway, has since made $2Billion in profits on paper on these warrants, since Goldman’s earnings blowout and subsequent climb to the mid $160s. The warrants give Berkshire the opportunity to purchase Goldman shares at $115 anytime within 4 years. Not to mention the preferred shares are paying out $500Million in annual dividends.
Disclosure: Author owns Goldman Sachs
Apple earnings on tap after Tuesday’s close. [Update]
Submitted by WC Power Tech Fund
Update: Apple’s reported earnings included.
What can Apple Investors and traders expect after the bell today as one of tech’s giants reports its June quarter? Well if one thing is certain with Apple, each line of business will be speculated on ad nauseum starting at about 4:30PM Eastern Time.
Likely much of the focus will be on the Mac and iPhone businesses. New price cuts for Mac Computers were implemented recently and according to shipment data and analyst reports, this could be a driver for higher unit sales and perhaps, less than hopelessly conservative guidance for September. The launch of the iPhone 3GS was a great success in the middle of June, which will likely prop unit sales significantly above previous expectations, however comparisons against the iPhone 3G launch are far more difficult as its launch window fell at the beginning of the July-September quarter of last year.
Of course, analysts will ask the company about Steve Jobs, who returned to work towards the tail end of June, after a 6 month medical leave. The company has come under intense scrutiny for not commenting on the health of its CEO, however, it goes without saying everyone in the extended Apple community hopes for good news for a long time to come on that front.
So, to the quarter. The average analyst estimates paint a picture of Profits at about $1.17/share on Revenue of $8.2Billion. Slowly as the quarter has come along, analyst numbers for Apple’s unit sales have crept up and with that too went the Revenue target.
Year over year comparisons vs estimates for the quarter are as follows:
- 2008 Macs: 2.496Million Units vs 2009 Macs: 2.5Million Units
- 2008 iPods: 11.011Million Units vs 2009 iPods: 9.5Million Units
- 2008 iPhones: 717,000 Units vs 2009 iPhones: 5Million Units
Actual June quarter 2009 Unit Sales:
- Macs: 2.6Million Units
- iPods: 10.2Million Units
- iPhones: 5.2Million Units
Now, with Macs expected to be roughly the same in terms of units and iPods down year over year, the real growth story is the iPhone. A year ago, there was incredible pent-up demand for the iPhone 3G, which led to the units sales figures in 2008 for the quarter. This year, analysts are far more optimistic with the iPhone, and have already had some help as Apple announced first weekend sales figures of the iPhone 3GS at over 1Million units.
While those 3 major product lines represent the bulk of Apple’s cash creation business, not to be overlooked are the percentage of revenue that is derived by iTunes, the AppStore, Software and other accessories. Last year the Music, Software and Other categories of Apple’s business represented $1.76Billion in Revenue.
Revenue Breakdown for June quarter 2008
- Macs: $3.60Billion
- iPods: $1.68Billion
- iPhones: $419Million
- Music, Software and Other: $1.76Billion
iTunes continues to grow as the online music destination and the AppStore which had no presence a year ago has gone on to become the biggest software platform in the world today with over 1.5Billion applications downloaded. Yes, most applications sold are “free” and Apple makes very little profit from this even with its 30% share of Revenue, but this drives adoption of iPhone and the more expensive iPod Touch units which drive margins higher.
While it will be hard to maintain gross margins of 34.8% given price cuts on the Mac line and the back to school iPod Touch promotion, it is possible for Apple to maintain these levels given the increased presence of the iPhone in terms of Revenue and Profits.
Total iPhone units sold to date represent 21.17Million Units and with another 5Million units estimated in this quarter it’ll bring the total to about 26Million units sold to date and given Apple’s deferred Revenue accounting this running total is very important as all iPhones are still contributing 1/8th of their sale price to this quarterly report.
WC Power Tech Fund Investment Blog Revenue estimates for Apple’s Quarter:
- Macs: $3.3Billion in Revenue vs. Actual Mac Revenue of $3.329Billion
- iPhone: $2.1Billion in Revenue vs. Actual iPhone Revenue of $1.689Billion
- iPods: $1.25Billion in Revenue vs. Actual iPod Revenue of $1.492Billion
- Music, Software and Other: $2.1Billion in Revenue vs. Actual Other Revenue of $1.827Billion
All told, $8.75Billion in Revenue, given similar margin treatment as a year-ago, which brings profits on 890Million shares outstanding to the $1.40/share level. If this is similar to what Apple officially brings to the table today after the close, the bulls on the stock, will have something to continue to cheer about, despite the increasingly hollow guidance-chasing game.
Apple’s results:
- $8.34Billion in Revenue
- $1.38 Basic EPS (890Million Shares) & $1.35 Diluted EPS (909Million Shares)
Disclosure: Author owns AAPL.