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.

05 April, 2010

Loaded post-Holiday Monday for Media and Markets.

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.

29 March, 2010

Final Four ready for Indianapolis

For CBS (CBS), this year's NCAA Men's Basketball Tournament has been a resounding success. March Madness proved to be just that in the early rounds of the tournament, with several high profile upsets, Overtimes and nail-biting finishes.

CBS television ratings have generally been the victor, beating American Idol on the first night of the tournament and hardly looking back. Another success story for the College Basketball brand and network, it's online free-for-all. Each year, March Madness on Demand has exhibited exceptional growth. The completely free ad-supported streaming model had 30% growth over 2009, which is nothing to sneeze at. That equates to 3 Million unique viewers who watched 3.4 Million hours on the first day of the tournament alone. Consider also the streaming iPhone app was a top seller and this online thing is starting to really make a bit of money for the old network.

With the Final Four this year being a balance of known and unknown -Michigan State, Duke, Butler and West Virginia- CBS is hopeful tournament momentum carries it throughout the weekend games and National Championship for another successful and exciting College Basketball Championship.

Also on tap for this weekend, Apple's (AAPL) highly anticipated launch of the iPad, the table computer based on iPhone software that has been selling out pre-orders all over America. Analysts are increasingly bullish on sales prospects for the iPad with initial first year shipment targets moving from 3-5 Million into the 8-10 Million range.

According to one analyst, Katy Huberty of Morgan Stanley, who has been written about here before and let's face it hasn't had the best of records when it comes to Apple picking (Link), Apple's suppliers are on pace to build 8-10 Million units this year and each Million sold will represent an additional $0.25/share in earnings. It has been this bullish tone lately with the iPad that has pushed Apple shares to all time highs in the $230s.

Disclosure: Author owns AAPL.

24 March, 2010

Markets hold court post Democratic Health Care Victory

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.

24 February, 2010

Olympic Hockey Rules The Day for Canadians and Ratings

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.

08 February, 2010

New Orleans Saints are Superbowl Champs but what of the Commercials?

A football team embraced by a city as escapism; and for the excitement it provided the residents of New Orleans following the disastrous aftermath of Hurricane Katrina, has now come full circle to offer its hometown the celebration it deserves and desires. The New Orleans Saints defeated the Indianapolis Colts in Superbowl XLIV, the 44th such contest of football's conference champions, and sent the French Quarter and the surrounding and still rebuilding areas into a frenzy that's likely the continue well into Mardi Gras.

As much as the spectacle of the Superbowl is remembered for what happens on the field, it gets almost as much attention for what happens in between the action. Commercials, are always a hot ticket and with price tags in the $2.5Million to $3Million range for a spot this year it was up to corporations to deliver catchy, memorable and likable ads. A game that featured two of the league's top Quarterbacks was sure to be a windfall for CBS Corp. (CBS), and early ratings would suggest that's the case. A report this morning puts viewership of the game at a 23 year high. That's a lot of eyeballs watching the players on the field and all those commercials.

Alcohol always seems to go after the comedic bone with Anheuser-Busch InBev (BUD) and its legendary stable of Superbowl spots. The Clydesdale's, the Wassup guys, the Frogs and more have all pushed Budweiser Beer onto the masses for years with recent Bud Light ads becoming the "lighter" touch. This year's game featured the musical technique known as Auto-tune with several men crooning to each other over the phone after getting some Bud Light. The ad also featured Auto-tunes foremost proponent Mr. "I'm In Love With A Stripper" T-Pain, or as he's known amongst the younger hipster crowd, the dude on the [expletive] boat with Andy Samberg.

Motorola (MOT) went for comedy and sex appeal as it showed off its new Android powered smartphone the Devour. Using Google's (GOOG) Android operating system and its own MOTOBLUR interface, Motorola looks to continue the successful smartphone push it has enjoyed on Verizon (VZ) with the Droid. The ad featured a bubble bathing Megan Fox pondering what if any consequences would arise from her sending a photo of herself in the bath. Subsequently men all over the country are instantly distracted and much chaos ensues. The company has even put several out-takes from the ad on its website.

Staying with Google for a moment, the company for the first time has decided to advertise on this big a stage. The results, one part sappy, one part romantic, one part technology and all parts effective for portraying the message of Google being THE destination to find anything. The ad features the main Google search screen as a story unfolds of Boy meets French Girl, Boy searches for ways to impress French Girl, Boy Searches for flights to France, Boy searches for work in France, Boy searches for chapels in France, Boy searches for help building a crib.

Discount Brokerage and Superbowl mainstay E*Trade (ETFC) brought back its popular baby investors with a little twist, female companions and a new catch-phrase "milk-a-holic".

Taken together, the ads this year have according to early reviews been lacking the punch of previous incarnations, but sifting through the mass of advertisements, which are all featured on a special YouTube channel one can still find some that will undoubtedly be talked about over the water-cooler for the week to come.

Disclosure: Author owns GOOG, VZ

26 January, 2010

Digesting Apple's Pie... and Tablet

A certain Cupertino company, best known for selling a few computers, music players and telephones, had all of Wall St. in a frenzy yesterday as it announced quarterly earnings for the December quarter. A Christmas quarter that was wildly expected to be the most profitable in history for Cupertino based Apple Inc. (AAPL).

Expectations were inching up until analysts had settled on Income of around $2.10/share and Revenue of about $12Billion. Apple's reported numbers came in at Income of $3.67/share and Revenue of $15.7Billion, and that's where the confusion began. Just at a glance it seems something isn't right or analysts had spent too much time in the sun. Exchanges halted the stock in after-hours trading yesterday as Apple officially changed its accounting presentation to remove the controversial "subscription model" for iPhone and AppleTV sales.

With subscription accounting, due to the nature of free software upgrades, Apple has had to account for iPhone and AppleTV sales over a two year time frame, breaking up all related Revenue and Costs and lumped the rest in a deferred item on the balance sheet that caused analysts headaches and long hours at the calculators. When Wall St. still struggled to properly value this cash-generating machine Apple provided non-deferred numbers alongside the official GAAP figures. It also petitioned the standards boards to get rid of the subscription requirement.

In September 2009, the company got its wish and is now able to report Revenue and Earnings with minimal "subscription" effects (A nominal estimate representing the value of future software upgrades, which for Apple represents $25/iPhone and $10/AppleTV). The company decided that starting its new fiscal year was the prudent time to put this practice into place and the Wall Streeters were certainly caught off guard. When Apple stock resumed trading the price activity was very mixed until finally settling into a minimal after hours gain.

So that's the logistics of accounting, but what about the quarter? Apple certainly had its pie and is enjoying every bite. A record quarter in terms of profitability and Revenue starts off another successful year for the electronics maker.

Revenue: $15.68Billion vs $11.88Billion year over year.
Earnings: $3.38Billion or $3.67/share vs $2.26Billion or $2.50/share year over year

Mac Computer sales were a record at 3.36 Million units, besting the previous mark by 300,000, highlighted by the recent introduction of the new iMac desktop line.

iPod sales came in at 21 Million units, down slightly but well expected by the company as this market matures. The silver lining in the iPod numbers is the 55% growth rate in iPod Touch sales, bringing up the Average Selling Price of the business unit.

iPhone (which by definition is also an iPod) sales grew by 100% to 8.7 Million units, a quarterly shipment record, which should be noted was below the 9 Million unit consensus estimates. Some iPhone sales targets were even higher but increased competition in the space and a muted start in China is likely to blame for the shortfall. Another point to consider is the inventory channel, of which Apple is said to be one of the most efficient in the space. The company addressed this on the their conference call by re-iterating that its inventory channel is counted in a more conservative manner than competitors. The real kicker, the Average Selling Price of iPhone is $620!

It's usually the guidance game that is important to analysts and investors when Apple issues quarterly reports, however, during this announcement all eyes were and are awaiting what the company will showcase at its media event on Wednesday. Apple executives throughout much of the conference call almost gave the impression of toying with analysts, while likely secretly passing notes back and forth along the lines of "wait till they get a look at iPad"; or whatever the Tablet eventually is crowned.

The usual Apple hype machine is reaching fever pitch again and is strikingly reminiscent of the time just prior to the MacWorld keynote speech in 2007 when Steve Jobs unveiled the first iPhone to the world. News tidbits are flying out from several sources that Mr. Jobs claims the Tablet is the most important thing he's ever done, and in his customary quote on the quarterly press release he re-iterates that this week includes a new product release the company is very excited about. COO Tim Cook stoked the fires further on the conference call when asked about new product opportunities: "I don't want to take away your joy and surprise", referring to the planned Wednesday event. When Tim Cook, Apple's guru of manufacturing, retail and supply chain managment says "joy and surprise" there must be something special about this new device.

For one thing, Apple certainly have mastered the art of getting people interested and getting them in the room to have the conversation. Will the tablet be the be-all end-all of casual computing? A device to be left on the coffee table, used by anyone to control just about any media and anything electronic in their homes? Lots of questions remain and should be answered by the time Steve relents his magic wand by walking off that stage Wednesday. One thing is clear as day, and that's Apple's ability to cash in on their design prowess and excitement generation. The company took in a tidy sum last quarter, generating only about $5.8Billion in cash!

Disclosure: Author is long AAPL

21 January, 2010

Goldman Sachs: Profiteers abound!

13.4Billion! A staggering number when counting just about anything, but especially so when one is counting all of the dollars of profit made by investment banking titan Goldman Sachs (GS) in 2009. Revenue for the year topped out at $45Billion, another massive figure.

$4.79Billion in profits in the latest quarter sees Goldman once again having the eyes of the banking industry squared directly on itself. This time however, more than just the envious glares of rivals await Goldman, as the banking sector has been in the political cross-hairs for almost 2 years. Since spawning the credit crisis, which has been largely to blame for the prolonged recession Americans found themselves in, banks haven't had the easiest time with things like profits and bonuses as taxpayers ended up footing the bill for financial bailouts.

Having set a compensation record in 2007 with over $20Billion in bonuses, Goldman's bonus pool for '09 shot back up to $16.2Billion after falling substantially as the bank suffered credit losses and took government aid in 2008. Repaying TARP money and allowing the government to make a profit on its aid package to Goldman has alleviated some political pressure but the company surely still faces a substantial uphill battle. The next step for the company, why charity of course! Taking $500Million out of the bonus pool and putting it into the company's Goldman Sachs Gives foundation. Certainly a worthy deed by the company, however even this sizable donation will likely receive minimal press when compared to the overall pay practices of the nation's largest banks.

Comparatively in the year, Goldman will actually spend a much lower percentage of Revenue on compensation than its rivals, but one thing remains crystal clear; it's become business as usual on Wall Street, even though these firms are only one year removed from bringing global financial markets to the brink of collapse.

While shareholders are certainly happy with continued banking excellence at Goldman Sachs, investors are increasingly wary that 'business as usual' might not be an option in the near future. The financial sector is down today as a renewed push from the White House and President Barack Obama make it clear that going forward lawmakers will look to create legislation to restrict risk-taking, banking activities and the size and scope of certain financial institutions.

Most major firms are seeing red to the tune of 5% in today's trading session on the front page legislative news. The position that Goldman finds itself in, should give shareholders little reason to fear restrictive legislation as history has shown the firm to be a presence in all major financial law-making, nimble enough to avoid competitors pit falls, and sharp enough to continue profiteering like the stereotypical banker! And that, in the end, will be great for shareholders.

Disclosure: Author owns GS

13 January, 2010

Google China to be no more?

Google's (GOOG) foray into China had never gone swimmingly, the "Don't Be Evil" chants turned to scoffs as the company told the world its better to have a censored presence in China than no presence at all. The pitchforks subsided and its been business as usual for the company as it slowly built a base of business, taking on the dominant local Baidu (BIDU).

Having now built a business, that according to analysts represents about 20-25% of the market, Google is becoming entrenched into China's business culture and livelihood. The Chinese Google portal succumbed to Government pressure in the beginning but as new reports have surfaced of cyber-attacks on the search giant, the company is taking a stand for the individual. Gmail accounts of human rights activists, the exact opposite of persona embraced by the Chinese Government, were targeted in a set of complex hacks. Google has taken this breach as an opportunity to exert maximum political pressure in China. By issuing threats that it will completely pull all operations in China, Google is looking to foster a groundswell of individual support to force the Chinese Government into change, most important of which is the curtailing of Internet censorship.

Will it work? History would say no, as China is looked upon as the most vigilant of Governments when it comes to control, censorship and human rights. Google's timing could help shift the needle, but by how much? With a presence now built in China, Google has more influence than it ever had in the region, and perhaps just maybe, a compromise does exist and can be reached.

But what if it can't and Google leaves China for good? Well, that's the worst case scenario for the company as the business opportunity in China is only getting bigger. Analyst reports have pegged Google's China sales at about $600Million, but have highlighted the incredible opportunity that awaits Western companies in this region over the next decade and beyond. Not something that Google could seriously walk away from just like that if it indeed is balancing the needs of Consumers, Shareholders, Employees and its Don't Be Evil mantra.

Right now Investors are trying to figure out the seriousness of Google's threat. Company shares are down about 1%, which is a muted move to a potentially landscape changing decision. Baidu shares on the other hand, are up 11% as the potential to dominate the Chinese search market, without a looming competitor like Google is just too large to ignore.

Something will have to give and at the end of the day the opportunity of capitalism is too great and the pressures from shareholders will force Google's hand to have a presence in China. In the interim, Google's step will be to ensure complete security in its online services to try and isolate and prevent these types of attacks, even if the source may be a Foreign Government, but the smart money has to assume Google and China will be back at the table constantly, working to compromise, making it possible for the Chinese people to see and click on Google Ads for the next decade and beyond.

Disclosure: Author is long GOOG

04 January, 2010

James Cameron: News Corp's Billion Dollar Man

Hollywood is on fire these days at the box office, having just set records for cinema receipt revenue in 2009 of more than $10.5Billion the trend looked to continue into 2010, and at the center of box office success now stands a single filmmaker: James Cameron.

The latest film from the man behind Terminator, Aliens and Titanic is called Avatar, and it seems like quite a few people have seen it already. $1.0Billion in ticket sales worldwide in only 17 days makes Cameron the only Director with 2 films crossing the lucrative billion dollar mark. His last directorial feature Titanic just happens to be the biggest movie of all time with a box office gross of $1.8Billion.

All good news for News Corp (NWS), as its 20th Century Fox movie division has hit a home run here with the marketing and technical logistics of Avatar, a 3D adventure film based on a far away world showcasing next generation computer generated characters. By no means was this film a sure thing and with reports of ballooning budgets and muted anticipation the execs at Fox certainly had reason to worry. Cameron's eye for visuals and his general audiences flair for story-telling went on to rule the day and 3 weekends into its box office run Avatar remains at number 1, at a time when blockbusters generally open to huge crowds and dramatically fall-off at a clip of nearly 50% each weekend. For Avatar, buoyed by the holiday season, each weekend's drop has been nothing short of remarkable, under 10% in both cases, signaling continued word-of-mouth and repeat business.

News Corp. over the last month, in the lead up to Avatar and its continued success has seen its stock rise 14%, this compares for a 2% rise in the Dow and a 5% rise in the Nasdaq. But there's another success story to come from the Avatar-verse, and that's the pioneers of the biggest movie experience around, IMAX (IMAX). With the stock gaining 23% over the last month, Avatar is to be the biggest IMAX movie to date besting the performances of Transformers: Revenge Of The Fallen and The Dark Knight.

IMAX is being promoted heavily in the media as the best way to fully experience the world of Avatar and this comes as no surprise since the screen and sound systems are amongst the biggest and most powerful in the world. In a technological age in which Hollywood tries every gimmick to get the movie-goer to pay up for the experience it is these event films, these Concorde moments in cinema, the Avatars of film-dom that make the proposition worthwhile. Avatar in this sense is the real deal for Fox and News Corp. and from a business sense, with IMAX 3D commanding between 2-3x the admission price for a regular cinema screen, IMAX is the real deal as well.

Disclosure: Author holds no position in NWS, IMAX