$yhoo is confident

Good info coming out of Yahoo this evening:

1. 800million monthly users

2. 390million mobile users

3. A pretty clear signal that they are under promising, to over deliver, in Q4. (Highly recommend viewing the CFO answer JPM's question on low guidance. Love the fact that I can see managent as they answer the questions. Adds a whole new level of psychology to a call.)

Yahoo looks to be managing the street's expectations, while increasing user engagement on core products. 

A beautiful set up is brewing. The arbitrage will continue. Looking to add as yhoo is becoming one of my favorite plays. 

$fb into earnings

As fb approaches earnings, here is an assessment. 

Facebook is a high-flyer that has to show a few things:

1. Revenue growth accelerates

2. Earnings grow into valuation

3. Key metrics suggesting the above two will take place

Over the past couple of years, during the September Quarter, Facebook had quarter-over-quarter grow of 7.5% (2010), 6.2% (2011) and 6.2% (2012).

High-flyers need to show accelerated revenues. This is what sparked fb recent rally. (As such, I'm not as concerned about an earnings miss.) 

Can fb produce revenue growth above last years 6.2%?

Analyst estimates are for revenue of $1,900. To produce a 6.2% growth rate from Q2 revenue needs to be $1,9250.

Few obvious scenarios to playout:

1. Beat analyst expectations, but don't show an acceleration of revenue. (Stock could see an initial pop, but i would expect a consolidation around $50.)

2. Beat expectations and show an acceleration. (Obviously the stock should keep rallying.)

3. Misses analysts expectations. (Depending on what key metrics are saying, assuming they are relatively positive, the stock may take a hit and see near $40. Or the 14sma on the weekly. As this sma has historically acted as resistance, it may act as support.)

Facebook has made great progress in their mobile ad model, but a lot was due to App Ads via mobile. Also, the PC ad pricing held as mobile ad placements accelerated. 

As mobile takes on more views, PC rates should decline and mobile rates rise. The transition could be a bumpy one. There could be a nice off-set as mobile ads become more than just App references, and Instagram ads enter the mix. But these things were not seen this quarter.

Not sure FB will produce an acceleration in revenue this quarter, but they may very well beat or meet expectations.

tweet tweet @twitter

A few thoughts on Twitter as the ipo nears:

Quarter-to-quarter revenue growth is pretty good. March 2013 quarter was a bit of an outlier.

Gross Margins doing well. 

Despite the lack of profits, Gross Margins have been increasing while operating losses (as a % of revenue) have been decreasing. (2013 is an estimate from the current 6 months of data provided.)

This is good for profitability. (My estimates suggest profitability in 2014.)

The above numbers have me very interested in Twitter, as a company. As a stock, the amount of shares issued will obviously be the make-or-break. As of April 2013, twitter's second market price was over $20, per the S-1.

The stronger the trends, the better the stock price.

Market's message:

Everyone gets along, everyone makes money. 

Market Thought... First political slap!

Hear that? That's the sound of the market giving Boehner, Ried and Obama the political-slap across the face. (Although, the s&m-liking president asked for it a few days ago.)

The bond market is seeing it with spike in the 1- month bills yields. And now with the SP500.

Here we go. This game is tiresome, but here we are, dealing with childern in Washington. 

How many more slaps do they want?

$yhoo arbitrage

In late August I wrote Yahoo was at a turning point.

In that post I highlighted that Yahoo has established value for Yahoo Japan and the remaining shares of Alibaba of about $17 Billion.

-Yahoo Japan estimated to be $10B
-Alibaba estimated to be $7B

Yahoo's current market capitalization is near $35 Billion.

This mean the market is currently valuing Yahoo web and mobile properties at $18 Billion (excluding cash and assets). (Since the 'turning point' post, the properties saw an increase value of $7 billion.)

Yahoo consistently ranks among the top web properties and high on the list of mobile properties. As per comScore:

The mobile race for applications is of three horses: Google, Facebook and Yahoo.

For web properties, Yahoo has regained the top spot from Google.

As per comScore, Yahoo is racing against two companies.  Google and Facebook have market capitalizations of $290 Billion and $124 Billion, respectively.

There is a huge Gap in valuation here.

GOOG: $290B
FB:        $124B
YHOO: $35B

I would argue Yahoo's real valuation to web and mobile properties is only $18B, which brings the gap strikingly wider.

When Yahoo decided to bring Marissa Mayer as CEO, they were making the conscious decision to bridge this gap.  In the most simplest of terms, the great arbitrage had begun.

To ensure the arbitrage continues we need to see Marissa's initiative continue.  IMO, they include:

1. Yahoo needs to maintain a culture of high-pace productivity. Pumping out quality mobile apps and web improvements quickly. (As quickly as Facebook and Google.)  So far Yahoo has shown to sprint pretty well, they simply have to keep it up.

2. Tie in a social element to all their properties.  Leverage the data from web, mobile and social sharing (via tumblr and Facebook logins) to produce better ad targets. Thereby increasing its value proposition.

If Marissa can keep these initiatives going, the valuation gap between their online ad competitor will shrink. (Albeit, Google's valuation does not belong near $290. Inefficient multiple expansion will eventually correct itself.)

The Yahoo arbitrage could see YHOO increase 3-5x current market valuation.  Now, if only the chart can see another proper consolidation. (Looking for the 10sma on the weekly.)

Market Thought... President rarely addresses market dynamics, listen

The last time the President specifically addressed market dynamics just prior to the start of the multi-year rally which started in March 2009.

Profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal - March 3, 2009 President Obama.

The President directly addressed wall street again the other day. He told the players to be concerned, very concerned.

There maybe legitimacy within his concern. His political machine knows how many votes are needed. They see the day-to-day interaction. Whether you like President Obama or not, his reputation as a straight shooter is firmly intact, and he just warned each and every investor of a shit-storm potentially brewing.

The market is in no way discounting for a debt disruption via the treasuries. Not by a mile.

If the debt ceiling is not passed, and the US has a default on its debt (the only risk-free modeled debt still in existence) the markets will collapse. They will collapse hard. Let me repeat that:

Treasury default = collapse of equity markets.

It will create so much havoc on the markets equity investors do not see, that everything will get fucked up.

There is no such thing as a "technical" default either. The US already experienced an inadvertent "technical" default in the late 70s. The mistake was quickly fixed, but rates remained elevated for a long time.  Given that a default would not be fixed very quickly, and the economy (especially the emerging market economies) are currently relying on low rates, a "technical" default will be very bad.

Expect a 15-20% drop in equities if the US defaults, a persistently discounted market thanks to elevated rates, and a global economy that may actually contract.