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Tuesday, July 30, 2013

Another knock on the $fb bear thesis

Lack of a Platform. 

Today's news of the game-distribution-for-a-cut pilot.  

Next question: why stop at games?

Sure sounds like a platform to utilize its massive reach.

Monday, July 29, 2013


Looking for ways to try to take advantage of the Natural Gas export boom (the US-r.o.w. arbitrage), I came across PAA. It's a Master Limited Partnership that seems to have the right mix of carbons and focus on LNG or NGL.

PAA seems to be in a unique position to also benefit from domestic increase in hydrocarbon transportation. They have been steadily growing their volumes over the years:

Their revenue has been growing too. But the means of growth is my biggest concern. Their revenue basically mimics their Suppy&Logistics function:

The other two functions, Transportation and Facilities, while growing slowly (Chart corrected. Current chart shows trend including intersegment):

The combo of the three groups provides for a very nice growth in operating income. An income more then capable of handling spike in investor distribution. The income distribution has been consistently rising for a few years, but not as quickly as income.

PAA reports on Aug 5th and if the above is maintained, I would expect continued increase in dividend. (I plan on getting a better feel for management during their conference call.)

In the mean time, the daily chart is not so enticing. But PAA looks to be oversold.

And the weekly shows the stock is sitting on a trend support. (Although the CCI suggest this support can break.)

I like PAA, and current levels merit an initial position. But the wild card with respect to future income is their risk management, and buying/selling/hedging crude and NGL for their Supply&Logistic function. If they can maintain their consistency, great. The stock should continue to perform well. If they get arrogant and jpm-London-whale-crazy, it will affect their bottom line and potentially the yield.

Thursday, July 25, 2013

$fb vs $goog in mobile

FB - elegantly utilizing their properties, user base and data to generate out sized profits in mobile.

GOOG - scorching the earth with subsidized operating system, making enemies on every attempt, to generate some mobile profits. 

More on this later, but Facebook is a case study for all closed system content providers utilizing their users.

Wednesday, July 24, 2013

Bear thesis to $fb not stacking up

The most common themes:

1. Unbundling
2. Lack of mobile platform

Both seem mute right now. 

$aapl - highlights

Or at least what I thought were highlights from the quarter:

1. Buybacks

~23 million shares were removed from the float. Another 11 million will be recognized in the next quarter. They have been busy buying a lot of shares. Seems like the purchases are lopsided, and without consistency, but they are happening.

Apple announced the massive increase in buyback at the end of Q2. Three months later the diluted share count went from 947M to 924M. (And on the conference call the CFO indicated another 11M will be recognized in Q4. The diluted share count in Q4 should be around 913M, excluding additional purchases.)

They are being very aggressive. Judging by the action in the quarter, the repurchases do not seem to be consistent. Or become very aggressive at certain levels. (A case could of been made at 420 and below 400.)

Biggest takeaway, the aggressiveness is a clear message to the institutional players that Apple will support the stock.

2. Better management of the stock

Apple beat the street estimate, and were very clear on certain weaknesses. (ie iPad declines due to channel in inventory declines, Hong Kong declines etc.)

First quarter of firming perception, since Q4 2012, from management after announcing "more realistic guidance".

3. Falling ASP for the iphone

The iPhone has consistently had an average selling price above $600 for about 5 years. Now the mix has shifted. While growing at 20% y/y, more customers chose the iPhone 4 and 4S to bring down the ASP. (Yet overall margins remained fairly robust at 36.9%.)

This new customer mix can be viewed as potential new upgrades, and expect margins to benefit in a year or so. Or these new customers will never care about 'premium' or the-better-phone, and might as well start addressing them.

4. Services

iTunes/Software/Services continues to grow at a better-than-healthy clip of 25% y/y.

Still think this is one of the most under-rated stories of Apple. All this growth without very little credit. But who knows, maybe with the recent purchases of Locationary and HopStop, Apple Maps will gain a new perception, actually cause a decline in Google Maps use, and the street will give Apple some well deserved respect for "web services".  (On a side note, iWork via the web browser: awesome.)


We already knew a slow down in revenue was coming. We already knew margins were coming down from last years +40%. But we are witnessing Apple improve 'perceived' deficiencies while maintaining leadership in their core skill set.

With a better management of the stock, aggressive buyback in place and a relatively high dividend there is no excuse for Apple to trade with a lower multiple to companies with fundamental issues, like MSFT.  

After all the fancy charts and analysis, a stock is simply a function of supply and demand. The more demand, the valuation metrics go up, and vice versa.  Its just a shame the vast majority of institutional money, the guys that control the PEs of stocks, do not understand the differences between MSFT, GOOG and AAPL.  Case in point: Julian Roberston. Really smart guy, but lacks the subtle knowledge that truly differentiates Google, Apple and other tech companies.

Tuesday, July 23, 2013

Funny - Robertson

Robertson, from Tiger Management, recently stated on Bloomberg he prefers Google leadership over Apple's. 

I found humor in this because over the course of the past year Google has been remaking them selves in Apple's image to be better positioned for the future of mobile computing. 

Google's foray into new markets (Google+ design - Andy Hertzfeld and Moto X - Guy Kawasaki) were also spearheaded by former Apple folks.

Google's real talent is their uber aggressive ability to utilize data and compete, but it is not to lead/create into new markets.

Saturday, July 20, 2013

Design falling into its colorful place

Current design of the iPod touch

iOS 7

The new iPhone design falling into its colorful place?

Thursday, July 18, 2013

Questioning the $goog multiple

Not sure if the market is reacting to the the headline miss. Or the horrible real eps miss. The only reason Google was able to produce $9.54 eps (GAAP) was due to a +1.99 eps from Discontinued Operations. 

Continuing Operations produced a horrible miss.  Puts into question their outsized trailing PE (especially in relation to the size of the company).

CPC didn't fair so well either. 

Thursday, July 11, 2013

$goog vs partners

Google is about to go head-to-head with the Galaxy S4, and all its other "partners".

Google will spend $500M (talk about innovation!) for the Moto X.

A big part of Samsung's success, and differentiation, in mobile is its massive ~ $4Billion ad budget for their electronics division. 

Google is about to spend half of what Apple spends on advertising for one product. 

The sheer volume of spending, for one product, is insane. It tells me the phone itself will not be able to differentiate enough, on its own technical merits, compared to other Android devices.

And it's a big bet. A big enough bet where margins will be impacted on the ad budget alone. (That's ignoring all related manufacturing costs.)

Google does not have a good track record at consumer electronics. They can produce interesting hardware products, but their market has only found itself with the techie segment of limited distribution. (And even with the limited distribution of the Nexus 4 had major hiccups.)

Mass-market Consumers don't care about stock android. (Even though it now looks boring compared to iOS 7.) Their premium chrome book, costing $1500 with huge cloud storage does not resonated with mass-market consumers. Google Glass annoys more mass-market folks, barring the uber techies. (No amount of advertising with beautiful people wearing them can change that.)

Maybe this ad campaign changes that. However, their traditional ad campaign for search did not do anything for increasing search share. (Their search share, while dominant, is at peak.)

We were told to expect some crazy technical advantages with the Moto X. But mass market consumers don't really give a shit about Google Now. (They don't give a shit about Siri either. Although while driving, Siri is brilliant for txt and calling.)

Mass market consumers don't give a shit about sensors, unless its practical. 

Maybe Google re-invents the smartphone, and handset sales will allow the stock to fill into its outsized trailing multiple. But history tells a different story. 

The one advantage of Moto will most likely be fluid OS updates. Since OS updates are the responsibility of the OEMs, there should be no excuse for Moto to have an immediate OS update mechanism. Hence the unintended favoritism of the Moto phone via the android ecosystem. Although the $500M ad budget is a very blatant form of favoritism. 

Calling BS on GS - $IBM

Been meaning to write this post since Tuesday, but on Tuesday had one of those life changing events (in a awesome way), and the complete lack of sleep (the kind that makes even an insomniac go nuts), causing the post to go on the back burner

GS' downgrade on IBM is predicated on multiple compression. That's it. 

GS reduced the target price to $200. Original target price was $220. IBM's eps estimate was reduced from 16.71 to 16.61.

A 9% reduction in target price was justified from a 0.5% reduction in trailing PE. Yeah, that's a big WTF!?!

The "wtf" gets worse when we see the price reduction even assumes IBM's financial plan will meet expectations. 

The analyst tried to justify the downgrade due to lower margins. The only way the stock sees a $200 stock price is if the multiple contracts towards 12. 

Obviously anything can happen, but given the consistency of earnings for IBM w/ in the GS downgrade, I am puzzled by the call. (Especially since Oracle and Accenture trade at a higher trailing multiples, and completely botched their numbers.)

Technically, the curious thing about IBM is its weekly 100sma. IBM is currently sitting on it.

In the past couple of years, if the SMA was breached, there would be a sharp move downward. 

In 2009, the move down was obviously exaggerated.

The way the charts are telling the story: if IBM produced a poor quarter, then the sma may very well get breached, and that will cause about a 5-9% decline. But if they produce a decent to good quarter, the current level should be a base.

Seems like Goldman's call is more technical, but attempted to be wrapped in some fundamental justification. 

Will IBM miss, meet or beat? Not sure, but they usually meet. The last two quarters we saw them beat nicely, but we also saw them miss. (However I respected their miss because they owned it, unlike the other guys.)

Sunday, July 7, 2013

timeline to mobile saturation - $aapl

Samsung reported some numbers late last week, and their miss started chatter on smartphone saturation.

A Q1 IDC worldwide mobile phone shipments report (from April) states:

In the worldwide smartphone market, vendors shipped 216.2 million units in 1Q13, which marked the first time more than half (51.6%) the total phone shipments in a quarter were smartphones.
Q1 represents the first time smartphones reached 50% of shipments. This does not sound like saturation. Of course region-to-region differ. Western Europe sure looks like a saturated market, experiencing a large decline in the Q1.

Despite the numbers, Apple's concern is higher-end market saturation.

An interesting assessment of the "Addressable market for high-end phones" was performed by Benedict Evans and estimates the market, at the end of 2012, to be about 1.6 Billion.  Not a bad market size potential, assuming its valid.

Samsung and Apple basically control the high-end market.  A joyful estimate would assume the iPhone to capture between 40-50% of the 1.6 billion. This would assume 640-800 million units. Leaving room for healthy, low double digit, iPhone growth for over two years or so.

A conservative estimate would be to use the Q1 IDC smartphone market share at 17.3%. This would assume Apple's addressable market to be 276.8 million units. (Although I stress, overall-share underestimates high-end-share.) The below graph highlights the time it will take Apple to address the 276 million, starting with Apple's 2013 second quarter, where the addressable market theoretically starts. (Since Apple's Q2 was only a 7% year-over-year growth rate, the growth rate for the graph is basically flat.)

An issue with Samsung (and all Android based hardware OEMs) was highlighted within a Fortune article raising the question about Samsung leading the Android drive.  There has been a clear divergence between the growth of Android within China's white-label market, and the 'brand-name' Android OEMs.  The numbers Samsung posted pretty much answered that question. (Although, to Samsung's benefit, they still reported record numbers.)

The rise of the Chinese white-label phones, and there good-enough status, while being extremely inexpensive, highlights the importance of the high-end market. If de-commoditization does not take place, the once high-end is no more.  Fortunately, Apple is very good at de-commoditization. (Anyone who doubts this can simply look to the PC market.) The role of iOS 7 de-commoditizes the mobile landscape Apple created.  Unfortunately, any OEM relying on a general OS will not be able to say the same.

And the funny thing about commoditized consumer businesses, once people are familiar with the commodity they want more. They want differentiation. They gravitate to the de-commoditized product.

Friday, July 5, 2013

Stop circulating this pic

The more tech blogs circulate this pic:

the more certainty-of-ridiculous becomes Google Glass. 

Kickass jobs data

202k increase in private sector, with average weekly wages increasing. 


Of course, better economy means higher interest rates. That's a healthy rise, not a red-flag economic catastrophe rise in rates. 

Tuesday, July 2, 2013

macro economic fyi

Yesterday a bunch of manufacturing data came out:

China in line
Japan beating
EU beating
USA below expectations, but ISM did better. (Overall in line)

Looks like Japan and Europe are picking up China's slack. (Although, I was expecting China's PMI to do worse.)