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Friday, January 31, 2014

Market Thought... consolidated

Yen still holding firm.

So the SP500 and Nikkie consolidate. 

The structure is still very much intact. Baring a shock to the system, the markets may have a bit more potential down side, but they may seem ready to continue the push higher. Of course this assumes the US markets decouple from Japan or the BoJ continues it's $1.4trillion stimulus. (Bank of Japan promise of $1.4 in two years.) Guessing the declines in the Yen are 'tells' to when the bank acts. It's about the same level to which the huge stimulus was announced. 

Japan's inflation target is 2%. After last weeks inflation report, the BoJ has room to maneuver. 

Thursday, January 30, 2014

$goog - decent

Report was okay, mayby not +5% after hours good, but decent. (The rise probably has more to do with the stock split than the quality of earnings.)

Paid clicks heading in the right direction, but CPC continues the decline.

Tax rate was still pretty low, and they still missed on earnings.

Revenues are making higher-highs, which is basically what the street cares about.

"Other" is getting to the point to where it should be broken down. Growing very fast, and quickly making for a relevant share of revenue. 

Gross Margins went down, but that should change as Moto gets off the books.

A quick thought for the analog-to-digital ad transformation, Google will definitely benefit, but it will not be a clear correlation. Much of the TV ads will still be handled the same way they are currently being handled. Via content providers own sales channels and their own tech.   

$goog keeps failing at consumer electronics

A ton of chatter as to why the Moto deal is irrelevant or a non-issue. In fact, the chatter is complimenting the stock price and being painted with a positive light. 

The one glaring fact about the Moto deal is that Google went in pretty heavy to make a non-techie, mass market consumer device and failed. 

And they did not approach designing and marketing the Moto X the way they would a Google device. They brought in an Apple alum Guy Kawasaki. In effect Google approached design and marketing the way Apple would have. The project failed. 

Now Google is apparently approaching Nest in the same way. Consumer facing hardware, using Apple people and with Apple marketing tactics. Will it succeed? Maybe, but the history with Moto does not make the prospects too promising. 

Wednesday, January 29, 2014

$fb good quarter

All numbers, all metrics, are higher than the pervious highs. All around good quarter. 

Gross Margins reached an impressive 81%. Wow. Wonder if I'm missing something. 

$goog level of "commitment" 1.5yrs

It's level of commitment is about a year and a half. 

Unloading Motorola for $3b. They bought it for $12b. (Not including cash cause we don't know the details of the deal.)

Even if Google sold Motorola, after raiding the cash, their loss on the deal is $6b. (Not including the spent money on advertising.)

Updated: At least margins will go up for the overall company. But they will still have to take a sizable charge on the deal. The FRAND patents, mostly kept by Google, have proven to not be worth the $4-6b left in their initial purchase of Moto. 

Tuesday, January 28, 2014

$yhoo - blah, but promising

Results still showed declines. Overall revenue has declined since Marissa became CEO.

On the positive side, Gross Margins have steadily improved.

She improved engagement and useage. ComScore suggests it up. Now its time to stem the ad declines. We need to start seeing yr-over-yr ad rate increases, leading to yr-over-yr revenue growth.

Will update if important info is conveyed during the CC.

Looking to at near mid/high 35.

$aapl q1 curiosity

1. In Q1 2011, 37M iPhones were sold. Curious as to how many of those 37M wanted to upgrade but have to wait until Q2 2014 due to the change in carrier upgrades, removing early upgrades. Guess we can infer after the Q2 report. (Cook highlighted the carrier change was significant, so maybe it would have represented a pretty big number.)

2. Service revenue held up pretty well considering the giving away of major software programs. Curious as to how it held up. (Are iAds doing better? Is iTunes Radio producing a solid ad revenue base?)

Maybe I missed these topics during the conference call, but I don't recall anyone touching on them. 

Monday, January 27, 2014

$aapl - okay numbers, dumb selloff

Revenue, gross margins and eps came in better than expected.  Guidance came in below analysts expectations.  On the high side, Apple projected $44B vs $46, which would suggest an eps of $10.35 vs $10.93. (I was expecting a higher gross margin, slightly higher revenue and around mid $11 eps for Q2.) Despite the dissapointment, eps will still be higher this year vs last year Q2.

Margins appear to have stabilized.

Cash continues to grow. Nice little bump.

Revenue and earnings are basically flat, but cash is still growing. Despite the increased cash position, and the aptitude to do big buy backs, the market currently only seems to care about revenue growth. The bottomline be damned. That will come 'later'. (Amazon and Google are good examples of this.)

The big money question rests on the multiple. What multiple will the market allow Apple to have despite the stability of products, ecosystem and services. Google and Amazon allow the markets to fantasize about "trillion dollar" markets, and the idea is backed-up by continued revenue growth. The current market rewards the idea with awesomely high multiples. (Although Amazon has a more comprehensive strategy, and given the poorer quality of revenue growth coming from Google, I would prefer Amazon.)  

Apple has the ability to wet-the-fantasy, but it chooses not to. Instead the market players are left to ponder the next idea. The possabilities include:

1. iBeacon - They already incorporated iBeacon into all their hardware. This gets people excited about internet-of-thing, automated payments, device-to-device interactions that can literally replace a huge number of routine mundane tasks.

2. TouchID - Additional ID security measures adding a layer of protection at a time where there is a heavy mistrust with where certain information resides. Plenty of speculation around a payment system. (Adding fuel to the fire are the multiple patents within the mobile payments space.

3. AppleTV - We were teased with the Jobs book about Apple figuring out TV, but two years later and we are still waiting for Apple to reveal how they figured it out. iTunes Radio gives us a glimpse as to the model.

There is no doubt in my mind that Apple's understanding of consumers, their cohesive ecosystem and thoughtful hardware design (functionally and cosmetic) give them the edge within the internet-of-thing era.

Ever since the iPhone launched, the street has made Apple a show-me story. Apple has sold over 77 million personal computers in one quarter. What will they release in 2014 that will compliment the new personal computer hub? When will they better position for the living room, and AppleTV stops being a hobby? 

With little fantasy, and low revenue growth, the multiple will remain depressed. Despite the fact that the multiple is already depressed, afterhours already suggests mid to low 12 is a given. Not expecting a breach of this level because eps are more stabile right now vs last year.

An 8% decline with decent numbers seems a bit much. (This decline makes more sense if the quarter's numbers were released if aapl had a multiple near 16-17.) Regardless, my task is to take advantage of market action.  Market sentiment may take the stock to weekly and monthly supports near 480. (The 38sma on the weekly and the 10 sma on the monthly.)

Saturday, January 25, 2014

Market Thought... welcome back Fear

Within 12 days the markets went from uber complacent to WTF-level fear. The Vix spiked so much that it suggests the start of a systemic threat. 

But there are few relevant issues left from the 2008 financial crisis. The main threats include:

1. China bad debt coming due. Everyone knows about it, and the warnings have been getting louder and louder. At the end of the day the central government has $4trillion to do what it needs to produce their projected 7.5% GDP growth.

Even though China has the resources to prevent major damage from there debt issues, the last time the debt issue really flared up caused a sizable decline for China in the summer of 2013. Leading to an approx 6% decline in the SP500.  

2. Emerging Markets unprepared for Fed tapering. I have to kinda call bull shit on this one. The Fed gave the rest-of-world arguably an extra 6 month (definitely an extra four month) to prepare, and when the Fed started easing on the purchases, the reaction was mute. Maybe this go around is different. The decline in rates may very well have had something to do with it.  Declining currencies will help their economies, in the longer-term.  In the short-term it causes developing currencies to rise, effecting equity markets, aka, the Yen. (See pervious Market Thought posts.)

3. Backing-off from the elevated trailing multiple. The SP500 has increased, from increased reported earnings, but also increased trailing multiple. If the multiple eases, the market will depend on the reported earning growth.

Considering the low rate environment, with the treasury looking to flatline here, the best play may still be equities. With the demand for equities still present, elevated multiple may persist. 

The increased level on the Vix suggests the markets are nearing a washout. Support exists via the 100sma on the daily, and the 28sma via the weekly. 

Friday, January 24, 2014

Market Thought... da Yen

Fear spiking too.

Update: Not as cautious as I was on Jan 12th. At or nearing support levels. 

Wednesday, January 22, 2014

$ebay - blah numbers, weak guidance

Despite the blahness, the stock is rocketing because of

1. The one and only Carl Icahn. (Don't agree with him on the PayPal spinoff.)

2. $5B buyback announcement.

Still waiting for a re-entry. 

$ibm trade

Looking to start a long position between 172-175.

$yhoo negative chatter

Some high profile tech bloggers are really negative on Yahoo, again. (Techpinions and PandoDaily)

Everything they state is pretty valid, except for the sheer anger of emotion the words express.

The key difference between the Yahoo of Old and Marissa's Yahoo is an established strategy and integration of the acquisitions.

The Yahoo of old simply bought promising startup and let them wither.  The new Yahoo integrates the startup, quickly.

The old Yahoo did not have a mobile / web strategy. The new Yahoo is unbundling their offering and attempting to maintain a level of loose cohesion between the offerings. Its a mobile first mind-set that is also producing desktop viewership gains.

Yahoo has been number one on desktop usage for a few months now, and in December ComScore suggests the gain is INCREASING.

Yahoo also has more mobile users than Twitter. Yahoo has over 400million mobile users. 50million of which were gained over the last 3-4months.

The data suggests they, as a company, are doing something right.

$ibm negative chatter

The chatter on IBM is kind of sad to read. Everyone is simply wrting them off: "Playing to loss." "Doing poorly".

Sometimes I have to wonder if these high profile pundits even realize that IBM is a company with over $100B in annual revenue.  Very few companies make over $100B. AAPL and HPQ are the only other tech companies that make more then IBM. AMZN and GOOG should on the road to $100B, barring some hiccups or missteps. Maintaining revenue growth with $100B is not an easy feat.

The one aspect of this company that rarely gets mentioned is their 'system'. The corporate system of evaluating trends and entering businesses.  The system works, and ensures they are in the right space. But the income statement suggests an execution issue. 

Weak hardware sales aside, the software side should be growing faster. The margins are kickass, and they are seemingly positioned in the right areas, but now they need to execute. Growth needs to be more pronounced. 

When IBM lost the CIA private-cloud contract to AMZN, this gave the perception of weaker execution. The small growth adds to this perception. 

IBM needs to step up execution efforts. They need to step up their differentiation. They need to use their Watson-creating abilities to kick Google and Amazon in the nuts. 

Google's greatest strength is their closely held understanding and use of data. IBM has the ability to normalize the playing field for all Google competitors byunleashing Watson. (I hope this is the intent of the recently announced $1B investment in Watson.)

To battle Amazon, IBM has to be realistic in their bids. They have to move faster, be more reliable and not be as pricey. Offer the Watson layer as differentiation (not necessarily for more money.)

Management is not running away from its disappointment, and they are looking in the mirrar. They now need to fix things, I just hope they are fixing the on-the-ground execution. 

Thursday, January 16, 2014

Sunday, January 12, 2014

Market Thought... cautious

An air of complacency.

Vix near lows while market remains elevated. If the 14sma, on the daily SP500 chart above, is breached, low 1800s is the next level. If the Yen rallies, as indicated below (FXY), the 28 sma on the weekly SP500, highlighted in the chart below, is a possability.

Saturday, January 11, 2014

$GOOG - revenue quality

In a continuation to my "be cautious with Google series"...

Google has a yearly revenue of about $8 billion for "other" and "Motorola".  Thats a lot. The effect:

The multi-billion dollar question is whether Google can convert Moto and "Other" revenue into quality earnings.

As of September 2012, earnings have not been quality, hence the decline in margins. (2013 earnings beats were far from quality.)  In fact one can argue, the increase revenue initiative is merely a mechanism to maintain advertising share. In other words, TAC has spiked. (Although Google is not officially labeling it as such. Only within informal interviews where they clearly state the purpose of Android in relation to their Ad business.)

If viewed in the perspective of TAC, Google has just spent 13% of their 2013 revenue ($8/$59) to gain about 9% in digital ad revenue. (Factoring Q4 estimates. So far for the year, excluding Q4, the digital ad biz has lost 0.2%)

The relevancy to the question is whether or not the market will care.  With the market allowing for an 85% increase in trailing PE since Sep 2012, the market is discounting earnings growth to follow revenue.

First test of the year comes Jan 29th.

Thursday, January 9, 2014

$goog - the black box and weakness

Over the past year Google has shifted from a search engine ad company, where 99% of revenue derived from search ads, to a monolithic "advertisement" company where we really don't know how much revenue is derived from search anymore. (More on this below.)

Despite the lack of clarity, revenues keeps rising. The below chart include Q4 2013 and Q1 2014 consensus estimates.

For the pervious two known quarters, below are the breakdown in revenue:

The only segments that are remotely clear are Motorola, and Google Network (ad sense). The other two are more involved.

Google Sites

Search -, YouTube, Mobile in Andriod tool bar / app / built-in-search widget, Mobile in iPhone tool bar / app, Maps, Product Listing Ads.

Observed trends:

The shift from desktop to mobile is already in play.

These numbers are obviously a moving target, but they give a good baseline of analysis. Since Google controls about 40% of digital ads, they certainly will benefit.  (Although I question whether desktop can mitigate the decline, as eMarketer suggests given tablet usage data.)

Assuming market share remains, Google should do around $47 Billion in digital ad revenue.  (Not sure if PLAs are covered in 'search'.)

Paid search (PLA) doing well, and can be used as leveraged this quarter.

Although, there are short coming too. Google Maps on iOS got hit once Apple maps came up to snuff.

Google Network

Ad Sense / AdMob

Observed trends: More and more sites are closing their doors. Sites are charging for content. There have been declines in Ad Sense growth and revenue. Some attribute it to algorithm change, but there has been a definite shift in how content is being distributed on the web and mobile: pay-wall and in app-purchases. (The trend relies less on advertising.)


(Other is before Motorola because its more important.)

Other seems to include a bunch of smaller initiatives:

-Google Fiber
-Nexus devices
-Google Play (maybe parts of it, but this is included in "mobile")
-Google Apps
-Google Cloud services
-any other initiative they choose to compete with the ENTIRE world

This segment is growing pretty fast, but coming from a very low base, and margins are tight on all services listed above. (Except for the cloud and paid apps.)


Motorola phones have not been selling as anticipated. Price drops quickly followed. Although the media had played the price drop via Google's narrative of "high quality affordable". Instead of "phones not selling so price drop to move units". 

Motorola's CEO claims the best sales days were in December via a CNBC interview.  To which is a "no shit". They offered the phone, contract free, for a low price. (The Palm Touchpad sold really well when HP collapsed its price to move inventory.) Basically, the media allowed Google to put lipstick on a pig.


1. Google has gotten arrogant. Very arrogant.  They are refusing to comply with rules because "they" find them to be antiquated.  Their opinion of a rule is one thing, but to blatantly not comply because they know the fine is lower then their revenue potential or convenience is simply arrogance. If management keeps this line of thinking they will leave themselves open for a world of regulatory hurt. 

Another instance of arrogance was 23 and Me.  A Google sponsored company, who's founder was married to a Google founder. 23 and Me arrogantly ignored the FDA request for years until the agency simply had enough. (No device maker would have been given such leeway as 23 and Me received. Yet the company was so arrogant they disrespected the leeway.)

2.  Mobile Monopoly. While android is horribly fragmented with respect to its developer community, Google's services are not. Google can push their updates to all Android devices via Google Play Services.  A back door Google built into android.

3. A user revolt against unintended consequences.  Google+ is the center piece to Google's version of the future web. (Or rather a means to know your behavior better and provide it with an interest graph to better target you with ads.) The involvement of Google+ has caused privacy issues, "outing" an individual.  Google+ auto notifications may have also put a man in jail. Or the Youtube comment fiasco. (I am sure we will hear how thriving the community is doing during the current CC.)

Oh, and I can not forget that if you actually +1 something on the web, Google can use your profile and profile pic in an advertisement. (You do not get a royalty. That is your cost of using Google.)

4. Earnings quality. Very few big media or analysts are calling this out, but I highlighted it here.


Google has morphed into a semi-closed ambiguous black-box that is now blatantly using its users to sell and target ads. Those ads are growing, and Google should grow with it. But is there enough growth to justify an exponential stock break out?

The street is pricing the stock for a lot of growth.  Google is certainly trying its hardest to expand and justify it. History is still glaring me in the face. Mega Caps DO NOT maintain a trailing PE of +30.

Friday, January 3, 2014

$goog revenue potential

Yesterday one of the best independent analysts, Horace Dediu (highly recommend his Asymco Airshow) posted a few interesting charts regarding Internet population and how it relates to Google revenue.

First, internet population vs non internet users.

Second, internet user growth against Google Revenue

Third, the estimated peak user point

Combining the three data sets above assumes a pretty good picture for Google growth. Like a delphi oracle Horace is pretty good at supplying data, and letting user come up with their own conclusions. Here is mine:

When I first saw the internet user vs non user chart I immidiately thought of poverty levels. As of 2010, the World Bank estmates Global poverty (those making less than $5/day) is around 4billion!

Four billion is an insanely high number, and the regional leaders need to do better. But their efforts are partially limited by Global GDP growth. More economic growth more get lifted from these arbitrary poverty lines.

Middle East region

East Asia

Eastern Europe

Latin America

South Asia

Sub-Sahara Africa

The general thesis for Google is that the more people online, the better for Google's revenue.  But the 4 billion living below $5/day become relevant to Google as they rise from the poverty line. In order for that to happen, the world needs economic growth in the regions. 

As of 2012, the global population stood near 7 Billion people. There are 4 billion living below $5/day, that leave 3billion people. Coincidentally, the number of internet users.

The exponential adoption of the internet, relevant to Google (advertisers who want to target users with disposable income), has already peaked. 

The growth remaining in Google, if subscribing to internet user/Google revenue relationship,  is dependent on Global GDP growth.

Obviously, Google is a bit more complicated, and dependent on Realtime-Bidding, video and their other initiatives. But the breakdown of these are for another post.