12 July, 2010

The Month that was Espana's

The World Cup in South Africa has now come and gone with the Spanish armada being crowned World Cup Champions. After a month long spectacle that saw Europe descend and then resurrect into the new football--um soccer, power the Oranje of the Dutch can only reminisce at what could of been after a hard fought, often literally, 1-0 World Cup Final Match.

Sports it seems has taken center stage of late, to the delight of BP (BP) which has seen it's stock drop 40% in the last three months as the Oil Spill, caused by the explosion of the Deepwater Horizon rig in the Gulf of Mexico continues to rage on. A $20 Billion expense net already set up by the company for damages and clean up, is a big chuck of change, even to big oil! But the biggest news coming to the state of Florida may not be the drifting oil slick but LeBron James.

The biggest name in Basketball decided to take his talents from Cleveland to Miami to play for the Heat franchise with fellow free-agents Chris Bosh and Dwyane Wade. A move that makes Miami the center of the basketball universe and puts the triumvirate within earshot of a sports dynasty.

But this time of year isn't just for Soccer tournaments and sports free agency, with the June quarter ending, earnings announcements will be gearing into full swing, especially in the technology space, with some of the biggest names like Google (GOOG), Microsoft (MSFT), Intel (INTC) and Apple (AAPL) expected this week and next.

With the economy and employment picture still at the forefront of a shaky market, there's a lot of questions about where the earning's growth will come from. Microsoft and Intel are set to benefit from a upgrade cycle of computers and software in the corporate space, especially the software giant from Seattle as it bangs the Windows 7 drum, to distance further and further from the previous and ultimately drastic under-achiever that was Windows Vista. Where as Google and Apple are capturing the mind-space of the consumer with highly successful smart-phone platforms Android and iOS respectively.

Apple's iPhone 4 launch was the most successful yet, selling 1.7 Million units in the first 3 days and adding to that 3 Million iPad tablets sold, in just under 3 months, and Apple investors continue to move towards higher and higher expectations. While Google's Android software is being pushed hard by phone carriers around the world, Google by giving its software away for free isn't exactly lining its pockets. What the company is banking on, is the ubiquitous nature of its search brand and mobile applications. An Android world means Google at the front and center of that many more mobile screens and quests for information.

The start of this summer and past the holiday weekends in North America have been dominated by the Sports pages, but now as the stadium lights dim on South Africa and the LeBron nuptials are signed, the focus shifts back to the markets and a slew of earnings releases and conference call transcripts to pour over and discover the next investment opportunity.

Disclosure: Author owns AAPL, GOOG

20 May, 2010

Money for Nothing (I want my Google TV)

No, the Internet Giant is not changing the vibe of the Dire Straits rock classic, but it is intent on being a new force in Television. At Google's (GOOG) I/O Conference today, the company announced its foray into the small screen world with Google TV. An eco-system of Internet enabled Television and Set-top boxes running the Android operating system and Chrome web browser.

Now, unlike previous Google announcements or releases, which many times reduce themselves to the happy-go-lucky whims and musings of the techie elite, i.e. lack any foundations in the business realm, this one is different.

With Android taking a strong position in the smartphone race, adding handsets and carriers every calendar quarter, and Chrome becoming the fastest growing browser on the Internet today, Google's in a position to bring partners on board with compelling offerings. Add to that, Google's ability to target advertising, and its willingness to share the honey pot, it's no wonder some big names jumped into Google TV. Sharing the stage with Google today were Sony (SNE), Intel (INTC), Adobe (ADBE), Logitech (LOGI), Dish Network (DISH) & Best Buy (BBY).

What Google TV is trying to be, is a solution to a problem that has plagued the Television world since the invention of the TV Guide. Program interfaces are and have always been atrocious, to a point where some cable system guides are almost unusable. When guides were only in print, hard to ask for much from a little magazine, but in the digital age to still be having this software problem is a black eye for the technology staples that make up the Cable & Satellite Industry.

Cell Phone interfaces had much the same problem, because there never was a need to innovate, and customers just accepted that using a phone was awful. It took Apple's (AAPL) iPhone to showcase what couple be possible when something is designed with the user in mind. And from that Phoenix, have risen many clones and competitors, the best of which arguably is Google's Android. By porting Android into Integrated Televisions from Sony and set top boxes from Dish and Logitech, all running on Intel's Atom line of processors, the goal is to move TV forward for the new Internet & Application age of today. Apple's iTunes-linking set top product AppleTV has been largely overshadowed at the company by the innovation and successes within the iPhone and iPad businesses, which has opened up a first-mover advantage and opportunity here for Google.

With Android being the platform for Google TV, the App Marketplace is also available and its library of 50,000 applications. Granted going from tiny cell screen to HDTV will likely require a majority of those apps to be re-written, but that base of developers is a key for the platform to gain traction, it'll also help if Sony sells a boat load of TVs.

A few key tidbits of the Google TV system include:
-> Ability to search across television guides and the Internet for television shows and films. This includes PVR functionality for future programming.

-> Ability to have television and the web in picture in picture mode, allowing Sports fans to look up box scores as the game is in progress.

-> Inclusion of popular social networking applications like Twitter or Facebook streams for currently watched programming.

-> Android devices can be used as remote controls.

-> On the fly Closed Caption Translation using Google's Translate engines.

Gizmodo has had coverage of the entire presentation here. (Link)

All in all an announcement is plenty of potential, a reasonable time line to market and a step in the right direction for the future of Television technology. Oh, and for Google investors, an advertising opportunity in that tiny sliver of the market, Television.

Disclosure: Author is long GOOG, AAPL

06 May, 2010

Well that's a Chart! [Update]

The major Stock trackers in the United States had an interesting day, a blip of seismic proportions as the Dow Jones tumbled 1,000 points within an hour and managed to regain 2/3rds those losses by the end of the session.

The focus was squarely on Greece, as worries surrounding the bailout, and the next European Countries who are to be "victims" grew as Traders watched the protests taking place in Athens. Computer trading limits did the rest of the damage as stop-loss after stop-loss was blown through. In a period of major regulatory, financial and market uncertainty today became one of the most volatile and memorable.

Update: CNBC is now reporting that a trader error involving an order on Procter & Gamble (PG) could be responsible for the drastic plunge in the market. Reports indicate an order was marked mistakenly as billion instead of million.

21 April, 2010

Sales Momentum ramps for Apple as iPhone powers earnings

Apple (AAPL) sells a couple products that it labels with the term 'magic', its multi-touch mouse and new iPad Tablet, but after the company's March quarterly earnings, reported Tuesday after the market close, sales of Apples seem out of a fairy tale.

Analysts Wednesday morning have been pushing over themselves digesting the news and raising price targets further. RBC now joins the highest estimate on Wall Street with its brand new price target of $350 for the Cupertino electronics company. Several other firms including Piper Jaffray, Oppenheimer and J.P. Morgan pushed through or moved higher than $300 as well. And after dissecting Apple's report there are many compelling reasons why.

First though, what about the quarter? Well let's recap expectations coming in and see just how handily Apple beat them.

Financial Metrics
exp. $12.06 Billion in Revenue <-> $13.5 Billion in Revenue
exp. $2.45/share in Earnings <-> $3.33/share in Earnings ($3.07 Billion in Profits)

Unit Metrics
exp. 2.7 Million Macs <-> 2.94 Million Macs
exp. 6.8 Million iPhones <-> 8.75 Million iPhones
exp. 9.0 Million iPods <-> 10.89 Million iPods

An astounding financial performance by any measure expected by Wall Street professionals. Apple's sales momentum is at an all time high and the product mix the company has to offer is striking the right chord with consumers even during a time when retail spending hasn't fully begun its recovery, due to continued high unemployment and the global economy's sputtering into growth.

The real story here is the strength of the iPhone. With the AppStore under its wing, the massively popular platform continues to grow in International and Domestic markets. Growth numbers are almost double overseas for Apple as it continues to add more carrier partners and branches into business models that include multiple-carriers in the same country, something it has yet to do in its home market, the United States. The upside surprise on iPhone sales, given its $600 Average Selling Price accounted for the vast majority of the $1.5 Billion in Revenue that Apple over-achieved this quarter.

But just to get back to the numbers, beating the street is one thing, but crushing expectations to this magnitude is quite another. Apple's own guidance is always conservative to the point where one wonders when they will stop giving any at all. For the concluded quarter Apple brass presented the street with ranges of $11 to $11.4 Billion in Revenue and $2.06 to $2.18 in EPS. The street's expectations were
5-9% higher on Revenue and 12-19% higher on EPS, so it's not as if Wall Street is just marching to Apple's expectations drum. The company however, does very well in controlling and managing expectations, it does well in controlling just about everything it can, well except for the massive leak of the next generation iPhone that was widely reported on gadget blogs and Apple faithful websites.

The fact that Apple beat the street's already higher estimates by 12% on Revenue and 36% on EPS is the kind of operational performance that makes the company among the most admired in the world, and leads to the collective fawning markets are seeing this morning with Upgrades and Price Target hikes. Of course Long Investors are just as thrilled about the 6% move in the stock to an all time high near $260.

The first 6 months of a new year are typically seen as 'seasonal' by the industry but the only thing seasonal now is the collective scrambling of Wall Street's major analysts in their re-writing of the rules of the road for Apple future estimates and valuations. In the press release, CEO Steve Jobs touted having several more extraordinary products in the pipeline for this year and so far the smart money's on the cats-out-of-the-bag 4th Generation iPhone. The company also has previewed its next iPhone Operating System, improved its high selling MacBook Pro line of laptops and is likely nearing the 1 Million in sales mark for its iPad device after just going on sale mere weeks ago. The upcoming quarter includes the launch of the iPad with 3G networking, the International launch of the iPad and likely invitations for the next iPhone announcement, expected in June.

Apple continues to be a must own Technology stock and one that is running with a Sales and Product tailwind unlike any in its history. But with all the love, who's left to buy it? With quarterly performances like this one, somehow, somewhere, investors will continue to be found.

Disclosure: Author is long AAPL

15 April, 2010

Google beats, but drops after-hours.

Mighty Internet and search Titan Google (GOOG) posted quarterly earnings for Q1 2010 and the stock was met with a 3% sell off in after hours trading. Google has been moving higher with the Technology Sector throughout the last week, moving 5% higher in 5 trading sessions to close today at $595/share. With options traders glaring at tomorrow's expiry date, Google's typically high expectations during earnings, and its typically low-brow approach to reporting them, lead traders to some volatile and erratic activity.

So what was in store for Google's Q1? The US is starting to create jobs again, the economy is back growing, and even retail numbers have been looking good, smells like recovery to this writer, and most recently, even to Jim Cramer! Google was expected to earn $6.56/share on a Non-GAAP basis, which would've represented a 27% growth rate on a year over year basis ($5.16 in Q1 2009). As for total numbers, Revenue expectations were for $4.93 Billion and Income went for $2.7Billion according to analysts on the street.

Google's Non-GAAP earnings came in at $6.76/share, $0.20 higher than expectations, representing 31% growth year over year. Revenue and Income were marginally ahead as well at $5.06 Billion and $2.78 Billion. Representing estimate beats of 3% on EPS, 2.6% on Revenue and 3% on Income. Not exactly setting the barn on fire! Or is it that analysts are starting to get the steady climb of Google's one stop shop money printing business? It's a bit of both you see, Google has yet to find another product or service that generates enough meaningful Revenue and Income to truly surprise analysts now and with the background checking done by Wall Street at Search Engine Marketing firms and a wealth of advertisers things are proving easier to predict and a good barometer of quarterly performance.

In the past, estimates would creep up over the 60 days period to something reasonable and then Google would have a chance to show case its money making prowess, but this quarter estimates 60 days ago were already at $6.50 according to Yahoo Finance. Until Google hits another Revenue home run, and maybe YouTube will be it someday, Analysts wont have too hard a time charting the growth trajectory. Which is why Google's stock has been hit 3% on this modest earnings beat.

Investors should spend some time looking at the cash generation abilities of this company and its grand scale future plans, moreso than a quarterly statement. Generating $2.5 Billion in Cash Flow over the Christmas quarter, Google has followed that up by generating $2.3 Billion in Cash Flow for its Q1 of this year. The fact that this Advertising behemoth is on pace to generate $10 Billion in cash this year through simple text links (mostly) is a remarkable business study, and one the next generation of web properties are trying to get in on quickly (read: Facebook & Twitter). And with a cash horde of $27 Billion, Google has plenty in the bank for any sort of Thor type thunder that might near it--Marvel fans.

Google's forays into other businesses thus far have paid little fruit comparatively but the growth rate in Revenue tells an interesting story. Total Revenue has grown 30% in the last two years at Google, while the category of "Other", which includes Google Apps, Licensing and all the various side projects that aren't advertising have grown from $100 Million to $300 Million (a rate of 200%). It is this kind of growth trajectory that will get Analyst attention in the coming quarters if Google continues to push products and services in other genres than Search.

Google investors were fine before this quarter and they'll be just fine after it. Google is absolutely a company with long term vision, that is now settled in a mature (but rapidly evolving) multimedia advertising business. The ubiquitous nature of the Internet and its availability on phones, pads and all else under the sun, puts the Google brand front and center in people's lives. With that placement and clout, comes the assumption that the cloud is the future of computing, complete privacy is a long gone myth, advertising means the same as subsidy and the fact that the ad becomes a necessity for the convenience and convergence of a connected world. If that's believed, Google's one of the best future-proof investments to have.

Disclosure: Author owns GOOG.