End of July Market Musings & Microhoo deal

As another month comes to a close, the market's resistance proof rally continues on the strength of strong earnings and more signs of a waning recession. GDP numbers out for the previous quarter showed a decline of 1% in American GDP, this was better than the expected 1.5% decline, which showed economists that slowly but surely the United States is making its way out of the recession.

But the markets knew that in March right?! As the S%P continues to fly from March lows of near 650 to to cusp of 1000 yesterday. Just about a 50% rise for the broad market indicator. The real driver of this continuing rally is the strength in Corporate Earnings this quarterly season, which will be a difficult act to follow for the remainder of the summer as those results fade and current unemployment rears its head again. However, companies now have learned, adapted and retooled their operations and streamlined their businesses during the economic bottom (1st quarter of this year) and are now awaiting the increases in demand that are expected to come in the 2nd half of this calendar year.

On the deal front in recent news, was the Internet Search deal between Microsoft (MSFT) and Yahoo (YHOO). By combining search operations to Microsoft and sales operations to Yahoo the companies hope to put a dent into market leader Google (GOOG). However, the deal has widely been panned for Yahoo, with Investors sending shares down heavily in the few days after the deal was officially announced. The partnership is a revenue sharing one with no payments made upfront and is a far cry from the $40Billion buyout offer Microsoft initiated, nor is it even close to the $1Billion Microsoft most recently offered in cash along with Billions more in stock purchases.

The news media certainly has the right grasp, as the deal, which Yahoo had always held the upper hand on, has gone completely to Microsoft. Yahoo essentially gave away 20% Market Share in search, for cost savings and the chance to deal with all the sales hassles related to Search Advertising between both companies. Microsoft will now control about 28% of search queries through its new Search Engine but it still has a ways to go to get to the monetization levels Google has spent the last few years achieving. And that doesn't even begin to mention the complexities in integration relating to the now-coined "Microhoo" partnership. Executives at both companies expect this to take 2 years to get through fully. That's about half a lifetime on the Internet I'm afraid, so while Google will wave its hands and put pressure on both companies to drag out the legal battles, secretly they've got to be happy, as 2 years of distractions await their newest competitor, now with 8.5% market share, Bing!

Disclosure: Author owns GOOG

Microsoft's Search Strategy: Mo' Money Less Problems

With the Consumer Electronics Show having more of the media's attention than in recent years it was an opportune time for Microsoft (MSFT) to make the kind of splash during their annual speech the company needs. Granted part of the reason of the shifted media was Apple's (AAPL) MacWorld keynote speech, valiantly presented by stand-in Phil Schiller, focused on Apple software updates and lacked the ominous flair that "El Jobso" exudes or the shiny new toys gadget-connoisseurs have come to expect.

While Apple CEO Steve Jobs took a backseat this January it presented Microsoft head Steve Ballmer with a chance to speak at CES and present Microsoft's vision for not only renewed hope on its Operating System and Mobile front, where it's losing share to Apple, but also in Search, where it heavily trails juggernaut Google (GOOG).

While Microsoft has long tried to make inroads into Search, the company's approach has been the Biggie Smalls to Google's Puffy: "Mo' Money Mo' Problems". Year after year of throwing Billions of dollars at the cause hasn't resulted in any significant traction for Microsoft and in fact latest metrics show continued search share erosion. October-November data from comScore puts Google growing from 63.1% to 63.5% while Microsoft remains in 3rd place behind Yahoo (YHOO) falling from 8.5% to 8.3%. With the December holiday season on deck and the increase in search queries to boot it only stands to reason that Google continued to heavily outpace its two rivals.

Someone at Microsoft has been thinking about the late Notorious B.I.G., and finally the company has decided to try to turn the popular song around in its favour. The new strategy involves outbidding Google at every turn in order to put Live Search in front of as many "default" consumers as possible. It's a well known industry practice that companies pay hardware makers to have their products and services installed on default machines. Computers from Dell, Sony and HP all come with software from a variety of vendors beyond the standard Windows operating system, and recently this system has extended beyond hardware into web services as Google is in a deal with Mozilla (the makers of Firefox) to be the default search engine for the popular web browser. Microsoft hopes that by having many more default eyes on Live they can retain a high proportion of those users and turn them into searchers and ad-clickers. In essence: Mo' Money Less Problems.

Microsoft announced a couple of these partnerships during their CES presentation. The first with Dell, to have Windows Live essentials software pre-installed on all computers, which includes various software components including a browser toolbar and default search. The second with Verizon, and this may end up being the bigger of the two, to make Live Search the default search engine on Verizon phones. Microsoft clearly gave Verizon much better terms than Google as both companies were reported to be in the running for this deal. The 5 year exclusive partnership will see Microsoft search be put front and center to customers of now America's largest wireless carrier by subscribers.

Google of course now has its own Andriod operating system for Mobile devices and will look to that for growth, it also is the default search engine on Apple's incredibly popular iPhone and has its own Mobile Search application in the App Store. With an increasing number of web users becoming acclimatized to "google-ing", it will be difficult to say with certainty how many default users Microsoft can expect to keep for these partnerships. And you can certainly expect Google to be front and center in providing users with ways to have Google Search be installed alongside Microsoft's default offering or to replace it altogether. Either way shareholders of Microsoft need some sort of spark from the company, and with Windows 7 getting good press thus far, the Xbox successes and now the possibility of gains in Mobile and Desktop search the company may be finally ready to turn the corner.

Disclosure: Author owns AAPL, GOOG

Global Market Fears Return Friday, Sell-Off Continues

Corporate Earnings results have trended towards the "not too bad" and "above lowered expectations" columns more times than not this quarter, however the expectations game and fears of a drastic 4th quarter slow down have stocks reeling worldwide. From Europe to Japan, the sentiment this morning was profoundly negative, causing a halt in Dow futures trading as contracts dropped significantly in the early-hours.

At the open, American markets led off with a 500 point drop in the Dow, and while some Traders have bought off the bottom the morning is still holding to about a 400 point decline, roughly 4.5%.

Major corporations have been forced to plan layoffs, amongst other cost-cutting ideas, to not only shore up business capital but to provide Wall Street investors with any-type of strategic plan to try to hold down sellers. More recently it was Yahoo (YHOO) and Goldman Sachs (GS) announcing a round of firings.

As all the headlines surrounding the markets paint the gloomiest of pictures, it should be a time to make the sideline Investor think of potential opportunities. But this is one of the types of attitudes that has not worked recently. The Dow continues its slide and has dropped to 10,000....9,500....9,000.. down to its current levels of 8300. As this credit and financial crisis has expanded, it's become abundantly clear that its effects have been and are worse than anyone in the economic field imagined. The fear of the typical market participant and consumer are at all-time highs. A feeling confirmed by action in metrics such as the Volatility Index.

As the US approaches the Federal Election, perhaps the hope of a change in policy will divert the economic fears enough to showcase a plan of action and a call for change. While Barack Obama continues to lead in most polls, running on a platform of change, John McCain still finds himself within striking distance as the race closes in on Election Day. Americans will determine on November 4th who will lead them away from these economic fears and into a future of change and prosperity.

The resolution of some uncertainty and a Call to Action from a newly elected President could be the catalyst the market needs going into the finale of a rough, tumble and volatile trading year.

Tale of Two Cities in Internet Search

As Yahoo (YHOO) prepares another quarter analysts are looking ever more skeptical about the company's turnaround plans. Job cuts and salary cuts are being covered with increased scrutiny around Yahoo by major media outlets signaling the planning stages are well in the works. As the once proud Internet giant continues falling not so gracefully to its current second fiddle role in Internet Search and Advertising, Google's (GOOG) juggernaut keeps growing.

Yahoo has always had success in branded display advertising, which typically is the focus of big, established corporations and in times of economic slow-downs it is those businesses that are likely to soften their budgets. Yahoo's Finance pages have been decimated as trading houses and banks continue to shutter their doors or merge with each other for survival. Google's strength lies in its search advertising which is available not only to the giant corporations, but millions of small enterprises and basement shops around the world. Got a website? Want advertising? Bid on a few keywords and drive traffic, and that's not even mentioning the massive breadth of "Ads by Gooooooooogle", or AdSense in corporate speak.

Yahoo's next generation Panama Ad system hasn't been to glowing success yet that the company had hoped for and as the stock tumbles into the $12 range, how grand does the $31/share offer from Microsoft (MSFT) earlier this year look now?

Granted Yahoo generated almost $7Billion in Revenue in 2007 and had net profits of over $600Million but it still has not found effective ways to turn its huge user base into a profit generating machine. While the rumors of lay-offs, cuts and salary readjustments are making the rounds within the Yahoo mills, it's toughest competitor just finished blowing the doors off of another highly profitable quarter. Google reported earnings (excluding items) of $4.92/share, beating estimates that had earnings pegged in the $4.70s ranges. Income for the period for Google was $1.35Billion ($4.24/share with special items) and executives at the company made certain to claim, several times, during the conference call that those millions of seemingly little ad clicks are considered as "recession-proof" as advertising can be because of the sophisticated performance and accountability metrics that are available as part of Google's AdWords toolbox.

It seems that as Yahoo continues to harp on the economy as the cause of its slowdowns, mostly in the bread and butter display area, the bigger brother at Google finds ways to be more efficient and more effective. Something has to change within the culture and structure of Yahoo to stop the bleeding. Maybe wholesale cuts are the beginning or maybe they are desperate measures in trying times, but if anything is certain Yahoo needs to put focus back on its user base, and it has to draw up interest within that base to use or try out all the tools in the company's arsenal.

Bottom line: The company is not doing an effective job in convincing its huge pool of Mail and Messenger users to search at Yahoo or to use Yahoo Calendars and other services. Luckily for Yahoo, it is not alone in this problem as Microsoft is unable to drum up any significant interest in its Live Search platform either, standing in a distant 3rd place in search queries.

The heralded premium web portal that once was Yahoo needs to show some Internet savvy at a time when individuals all over the country are zipping up their pockets. While analysts estimate earnings of $0.09/share this quarter and $0.53/share for the full year, and the same $0.53/share for next year, Yahoo's growth story is all but over in the eyes of Wall Street. But it doesn't have to be if Yahoo puts its users first and plans for tighter user experience and integration over the next couple of years.

Yang and company need something to pitch to Investors of Yahoo, and growth plans revealed months earlier that are surely for naught now with the latest economic troubles will not stop the bleeding. To convince the traders these days, the company will need a real surprise in results in addition to job cuts across most if not all its divisions. Get back to a core user focus and have a 2 year strategy ready to restore the luster of the once crowned King of the Internet. As a once proud Yahoo shareholder, if only for nostalgia sake, this company needs a turnaround story the Internet public can get behind.

Disclosure: Author owns GOOG, holds no position in YHOO, MSFT

Stocks rise Thursday, Carl Icahn takes on Yahoo board

Technology and Energy sectors made the biggest gains leading the Nasdaq (up 1.5%) and the S&P (up 1%) Thursday as the May Options expiration window winds to a close. Oil prices, still the brightest mark for the Energy sector stayed around $124, although they were unable to reach new peaks much past $126 a barrel.

It's an Oil price era in Stock and Futures trading right now and the commodity folks have been rejoicing the last couple of months virtually non-stop. Concerns over high oil resonate through many facets of the economy, with the biggest being the story of inflation. As high oil funnels itself through each and every sectors of the consumer business the increasing cost of manufacturing, transport and services will all have to be pushed onto the consumer, thus sparking increased inflation. Definitely an issue the Fed doesn't want to have to dive right into after seemingly only months ago steering the US away from a full blown recession by dramatically cutting Interest Rates.

In other news, technology related, Carl Icahn (shareholder activist/corporate wheeler-dealer) took a large stake in Yahoo (YHOO) and is prepared to enter into a proxy battle with current management. It is clear, several large shareholders were unhappy with the way the whole Yahoo-Microsoft (MSFT) situation went that the pressure was applied in order to unseat the current board at Yahoo, which for one will be more open to a buyout. The $33/share offer from Microsoft was substantial, and on the brink of completely overpaying, for the struggling Yahoo Internet outfit. On the one hand, the Internet is the future and Internet advertising is leading that future, but on the other, Yahoo is a struggling horse in the advertising game and can't seem to find any ways of putting together its huge customer base into meaningful and exciting new services. Carl Icahn thinks he can help though, and his track record for displacing management rings throughout Wall Street (see Motorola (MOT) for an example). Icahn is going to nominate his board members that will be more open to deal and hopefully get shareholders a fair price above $30/share. With Yahoo currently trading under $28 there's a potential there for an easy profitable trade, if Icahn is able to do as he wants.

Getting Microsoft back to the table will not be easy, as Microsoft's own shareholders jumped ship sending the stock to drift lower as the weeks to the potential alliance dragged on and on, so it is clear the deal isn't the most favourable from within the Software Giant's rank and file. Microsoft however, is desperate for an Internet presence and it can't seem to find the functionality and scale of web software and web services on its own. Windows Live is frankly unheard of in tech and user circles, Office Live, hasn't made any sort of dent and the Advertising division is losing money hand over fist as Google (GOOG) dominants Internet Search. Microsoft's biggest fear in this space has to be Google Apps (Google's free word processing, spreadsheet and presentation tools hosted on the web), and as such they have got to think that Yahoo's Internet service experience and scale will allow them to have viable online software tools when the game really changes.

Icahn will definitely use these points to re-open dialogue, and this along with Yahoo's profitable advertising initiatives should get Steve Ballmer talking again, which might at the end of the day reward those patient Yahoo shareholders.

Disclosure: Author owns GOOG, does not own MSFT, YHOO

Technology News & Market Notes: May 6th

Techno-Superhero Iron Man delivered almost $100Million at the domestic box office for Marvel (MVL) over the weekend and brought with it a shift in Market News as Technology Stocks have been the focus. Trading started the day lower but drifted towards the green as the day went on, eventually keeping the Dow, Nasdaq & S&P all with gains on the day.

Although Microsoft (MSFT) over the weekend withdrew its bid for Yahoo (YHOO), over a pricing issue, the sentiment across the street is that this deal has may have legs. Microsoft offered to raise its bid to $33/share while Yahoo remained firm at $37. Yahoo shareholders felt the brunt of the pain as Monday the stock lost 15%. A 6% rebound Tuesday, is largely attributed to Yahoo executives reiterating to the press they are still willing to negotiate. Microsoft has a couple choices, and even though they refused to go into a proxy fight to overthrow Yahoo's board of directors once, Traders seem to think a 2nd go-round is likely.

The dance with these two historic tech names will likely continue in the coming weeks and for what its worth, how badly Microsoft needs an effective brand presence in the growing Internet economy makes it pretty certain that the company will continue to pursue Yahoo, hoping this initial backing-away will build shareholder angst at Yahoo and force more favourable negotiations.

Apple (AAPL) made more headlines and extended its recent stock run as it announced partnerships with a couple carriers to expand iPhone distribution. Both deals revolve around the "sometime later this year" time-frame, so the thinking is that the European partners are waiting for the ever-so-coveted 3G iPhone to make its debut at the WorldWide Developer Conference in early June. Apple made deals with Vodafone to distribute the iPhone in 10 counties including India, Australia and Italy. Apple changed its business model for iPhone distribution in Italy by also partnering with Telecom Italia in that region. Other countries on the iPhone slate include Czech Republic, Egypt, Greece, Portugal, New Zealand, South Africa, Turkey and Canada (based on recent announcements by Rogers Communications (RCI.B)).

Disclosure: Author owns AAPL

Google's Q1 Earnings blow past Estimates

Search giant and Internet bell-weather Google (GOOG) reported 1st quarter results after the closing bell Thursday and although Traders were confused and opinions varied wildly the company blew the doors off of another strong 3 months. These strong results came to $4.12/share in earnings versus an estimated $3.96/share. Excluding items Google earned $4.84/share vs an expected $4.55/share.

Profit this quarter rose to $1.3Billion from $1Billion on a year over year basis and perhaps even more impressively, climbed from $1.2Billion over the holiday quarter. With that also comes net cash additions of almost $1Billion into Google's coffers. At the top line, Revenue was also impressive as Google for the first time broke the $5Billion revenue mark for a quarter. Also, for the first time, International Revenue led US Revenue by a 51-49% margin.

So is there anything negative to be said about the quarter? Well, International growth has been very strong, and this is somewhat inflated by the weakening of the US dollar. A nit-pick point for some but Johnson & Johnson (JNJ) reported a majority of its quarterly growth was simply due to currency conversion. Traders weren't too impressed and sent JNJ lower. The response to Google's International growth and quarterly numbers? Overwhelmingly positive, with shares up in After-hours almost $75 to $524, after closing at $449 in regular trading.

Was DoubleClick a factor in the increased numbers? No, in fact management's statement relayed to Investors that DoubleClick's revenue was completely immaterial and income was dilutive to the general numbers. DoubleClick will become a factor in Google's earnings going forward but for the first quarter this part of the company was in the fold for only 20 days. Google is also being adamant about reducing headcount from DoubleClick due to overlap, which should lower DoubleClick's expense footprint going forward.

The margin question? Google maintained the same 30% margins that the company witnessed over the holiday quarter. The good news on this front is the fall of Traffic Acquisition Costs (TAC) to 29.2% from 30.3% in the holiday quarter. Maybe results were boosted by a low tax rate? Google's tax rate this quarter: 24%, comparing to the holiday quarter tax rate of 25%. Seemingly a non-issue when it comes to these quarterly results.

Google seems to be positioning itself to grow even more substantially internationally and as the slowdown in the US, especially in the Financial Sector, continues to put pressure on earnings and advertising Google seems poised to hold their own and continue to deliver top notch results. The recently completed test ad partnership with Yahoo (YHOO) was reported to be a success and Yahoo is reportedly trying to expand the partnership in order to shore up its own bottom-line. Just a testament to how efficient and ahead of the game Google's AdWords and AdSense programs really are.

Due to today's after-hours stock surge, Google will be once again in a P/E range bordering on expensive (trailing P/E of 37, forward P/E about 30) given the overall US economic picture, but when comparing it to its main Internet competitors such as Yahoo, the company is simply executing better and deserves its premium valuation. As CEO Eric Schmidt put it "It's clear to us that we're well positioned for 2008 and beyond, regardless of the business environment that we find ourselves surrounded by".

Google's Ad game is in full stride with AdSense and AdWords, the earnings and revenue speak for themselves, but now with the beginnings of monetization of YouTube and Video Advertising Google is looking beyond search ads towards next generation drivers of explosive growth. This same strategy applies to DoubleClick with banner/display advertising also. Becoming an all-encompassing Ad-Platform is clearly in Google's sights, as is their long term plan/goal of becoming a $100Billion Revenue company.

Google's dominance in search is well know and for yet another quarter, its ability to monetize and deliver outstanding growth has also been confirmed. With its main competitors in Search (Yahoo and Microsoft (MSFT)) dancing away and towards each other with Merger talks and other distractions, the core search advertising business is Google's for the taking.

Disclosure: Author owns GOOG

Microsoft shows $44Billion, eyes Yahoo, to take on Google

On the morning of a rare Google (GOOG) earnings miss, the world's largest software company, Microsoft (MSFT), is taking full advantage of the negativity and swinging its own news story. The Seattle company disclosed to the public that it has offered $31/share ($44Billion) to purchase Yahoo! (YHOO). This combined Microsoft Internet division would be a stronger second place competitor to Google's search and advertising dominance.

Google reportedly owns about 60% of search share and almost 70% of search advertising dollars, with competitors, mainly Yahoo and Microsoft, claiming the remaining scraps. Mind you those scraps, can amount to plenty in a business sector expected to expand from $40Billion to $80Billion in value in the coming years. The scope, breadth and quality of advertising is increasing on the Internet as its ease of use, ease of tracking, and ROI effectiveness become clearler to companies all over the world. While still a small piece of the overall advertising pie, the Internet provides the most complete customer profile available for any form of advertising.

Now this is a point of contention, the whole privacy issue, but the fact remains that most things on the Internet can be tracked, and the more advertisers and advertising platforms know about their users, the more effective the ads can be. Google knows this very well, hence their dominant position! Microsoft and Yahoo know this as well but they've failed to make any strides on their own. Perhaps the combined division can put a dent in Google's cash-hording fortress. (At last check Google as a business is still extremely young and has almost $20Billion in the bank)

Let's hope the deal goes through, for Yahoo investors sake anyway. The stock has been beaten up of late falling to its lowest level in several years at $18 and change per share. Microsoft's offer represents an over 60% premium from Yahoo's closing price yesterday. But before we tout this as the resurrgence of Microsoft's Internet division (A business line that is still bleeding losses year after year), lets expand on thier strategy and ambitions here.

First, its clear Microsoft wants to be in the Internet Advertising space, and be successful at it. It's the future of advertising and its extremely lucrative and high margin. Secondly, Yahoo's the only big player with a decent following and even a shot at dethroning Google. It makes sense right, to just combine 2nd and 3rd place, and eventually maybe they'll cause a stir. Unfortunately the gold medalist here right now is the behemoth known as Google. And unless Google's been mysteriously taking Human Growth Hormone they wont topple themselves off the podium anytime soon.

There's plenty of problems I see with this deal, and not even first on my list is the sheer smell of desperation on Microsoft's part to completely over pay to get this deal done. Yes it's true, they tried to talk to Yahoo a year ago and were told to go home. So they came back, with thicker pockets and the attitude of "No, is unacceptable". Granted this deal would still have to pass through all sorts of regulatory hurdles but that shouldn't cause too much of a delay. The biggest problem is SYNERGY. I would imagine lots of Yahooligans are going to be out of work, unfortunately. Do you think corporate cultures easily come together. Not a chance. It takes long, hard work to make even the simpliest teams fit together, let alone putting a company like Yahoo, with over 11,000 employees, inside of Microsoft.

Interestingly enough, it wasn't too long ago that Microsoft head Steve Balmer was talking up a storm on how Microsoft's strategy will be to make smaller niche acquitions and develope integrated web services and all that jazz. Now it seems this is a complete shift in the opposite direction. The thing you know about Microsoft though, is that when they smell blood, and trust me, Yahoo is bleeding mercilessly, they go for the kill. In the end Yahoo shareholders must be smiling because they have just been bailed out of a 50% decline in their company stock.

Now there's been big time deals that have completely blown up when firms weren't in the same industry. AOL-Time Warner come to mind perhaps? But even within the same industry, it doesn't always work. Diamler-Chrysler? Can you say disaster? Now I'm optimistic that if Yahoo accepts, and it most likely will, there will be better times ahead for both companies in the Internet space. Micrsoft's platform for advertising has failed to excite anyone, and Yahoo's Panama Ad Center was seen to be its saviour once. Perhaps together they can work out the kinks and actually leverage all those millions of unused hotmail and yahoo mail accounts. Yahoo still is a giant Internet portal with lots of user traffic, and with that comes great potential. The key is Clear Focus and Strategy and perhaps that's something that Microsoft can bring to the table for a scrambling Yahoo and its convulated Internet vision. How long this will take to integrate and fulfill? Not even the experts know that, but trust me, it will not be soon.

On the upside, we know Microsoft is loaded and extremely patient when it comes to new initiatives. They can lose money for years to try and make a footprint. Let's just hope for Microsoft shareholders, that this isn't looked back on in history as a major stumble in its quest for the Internet. Microsoft's Ad platform has a long way to go but perhaps with Yahoo's profitable help they can get on track and mount a serious offensive on the next phase of the Internet business.

Disclosure: Author is long GOOG

Internet Giants Falling on Guidance, Eyes Turn to Google

Earnings season for technology, especially growth technology stocks, such as the Internet sector, is typically very volatile as results speak in one language and guidance speaks another. Many companies offer guidance for future results in an effort to be more transparent to investors, but one poster-child of the Internet, Google (GOOG), does not.

The guidance game has hurt the big Internet players over the past weeks as Yahoo (YHOO), Ebay (EBAY) and now Amazon (AMZN) posted decent to good results but cut outlooks, or provided outlooks below Analyst expectations. In fact VMware (VMW) saw its valuation cut by 30% in the aftermath of its results and guidance. The growth game is a volatile one to be sure as with growth comes outsized Price-to-Earnings ratios which can contract quickly and violently when economic factors come to the forefront.

With the Federal Reserve doing all it can with Interest Rates and the Government passing through the House an economic package bill of about $150Billion it seems like the US can find its footing in the 2nd half of the year without slipping into no-growth economics. The big recession that Traders feared for months can be averted. Until then, every executive seems to be taking the cautious approach, which is making things uneasy for Investors.

Eyes will focus on Google next as the Internet giant reports its earnings after the bell today.
Analysts expect another stellar quarter with about 50% year over year growth. Google is notorious for not giving guidance and being very tight lipped about its future expectations and projects. With this company, traders only hear one voice and depending on which ear you're hearing with, that could be a good thing or a bad thing come Friday morning.

Disclosure: Author is long GOOG

Google Opens Up about Mobile Strategy, new Platform called Android shows Promise

Reports trickled in over the weekend that Monday was to be the day that the long awaited "gPhone" announcement would come in some form. Google (GOOG) complied with those rumors and held a conference call announcing an Open Mobile Platform rooted in a Linux based Operating System.

This system, dubbed Android, was announced by Google and several of its partners in the Open Handset Alliance, including Qualcomm, T-Mobile, HTC, Sprint and Motorola. Over 30 partners in all for the Internet search giant, all committed to produce the technology to make a powerful, open Operating System for cell phones a reality. Google will provide the backbone programming for the Linux-based OS and will release an SDK (Software Development Kit) so that developers of all shapes and sizes will be able to create applications for a multitude of devices.

The first of these devices are expected to be available in the 2nd half of next year touting as its main feature a complete full scale Web Browser, much like Apple's Safari on the iPhone or the Opera Mini browser available for certain other smart-phones. Thus far details are scarce and not well known about Android, but next week's sneak peak at the SDK should give several more clues. This open initiative by Google comes right after the announcement of OpenSocial, an open development platform for Social Network sites, with which Google has signed up several partners including MySpace, LinkedIn, Salesforce.com and its own Orkut network.

The power of the mobile Internet is something Google has its sights squarely on, and the advertising platform that that could bring. The world has billions of cell phone users and over a billion handsets are sold each year, which represents a fantastic opportunity for localized and personalized advertising. It just so happens that Google has become a virtual expert at both of those flavors of ad-serving. Analysts and economists are throwing around estimates for growth in the mobile ad space and their particular 'Billions of $$$ by Year X' don't matter just yet, what does, is the resounding emphasis that it is the next great Internet growth sector.

The Android platform will provide Google a foundation to port its Internet software on a multitude of devices, and as CEO Eric Schmidt pointed out during the call:

"This is not an announcement for gPhone, we hope to see thousands of gPhones"

The thinking by Google of course, is that, why make the hardware when so many others already do. Create a platform that will excite partners, can cater to everyone's needs, and everyone succeeds. Google doesn't make the computers that sit at your desk do they? No! But they provide an expansive software platform and a multitude of services that arguably are simpler and better than competitive services. With powerful enough phone hardware and screens that can somewhat do justice to the "Complete Internet" Google can follow the same model with cell phones that they have used to dominate in the Internet space for Personal Computers. Not to mention innovation can foster truly and freely on an open software platform, which Android is touted as being. Google's planning to be there every step of the way and innovate as quickly as they can in this space.

Google shares have risen tremendously since August lows around $500/share, hitting a new all time high of $730 today, closing at $725. The hype built around a mobile push by Google stemmed some profit taking but the potential of this being a major platform and a revamp in mobile industry thinking is too hard to pass up for Investors. The sentiment that phone carriers lock in consumers and halt innovation, both on the hardware and software side, can die a quick and painful death if an open software platform for mobile devices in embraced. Google knows this as do its partners, and most importantly customers are starting to take notice as well.

The mobile space, especially for advertising is still wide open and Google is trying to out innovate its major competitors Yahoo (YHOO) and Microsoft (MSFT). Both companies of course missing from Google's partner list on this project. The simple fact in the mobile industry is that cell phones are turning more and more into little powerful computers capable of doing much more than phone calls and this is no different with the Internet. Consumers will see Internet on their phones much more prominently over the coming months/years and the expectation will be for a complete and encompassing experience.

The quicker that experience becomes reality the quicker Google will be able to grow into a mobile advertising conglomerate. Today's technology consumer is much more mobile than in years past and the thinking is, and I completely agree, that these mobile users will have many more opportunities to use Google products such and Search, Gmail and Maps on the go. With more usage, comes more advertising placement opportunities when it will really matter. Getting advertisements for local restaurants when you're at home is one thing but getting localized and personalized ads for local restaurants when you're hungry and on the town is something completely different. And for this to work well, Android must become the platform of choice.

Disclosure: Author is long GOOG

Market Musings Oct 24, S&P Changes add NYX, and Facebook news

The Markets came back strong to the close on Wednesday after being down fairly significantly mid-day. News of the struggling Housing sector and brokerage house Merrill Lynch (MER) writing down over $8Billion due to the Credit Crunch rattled investors and traders. A not so earth shattering outlook from high flier Amazon (AMZN) didn't help Technology stocks either.

The economic news on Existing Home Sales hurt stocks at the start as sales fell 8% year over year, which was worse than most economists had expected. Lots of talk about this "not yet being the bottom" led to further fears and thus more selling. Stocks seemed to bottom out however mid-day and recovered to be only flat or slightly lower. Technology was hurt by Amazon's perception of next quarter margins, which had investors heading for the profit taking fence.

NYSE Euronext (NYX) was up again today, hitting a recent high of $92, before settling at $90/share at the close, on news that it is about to be inserted into the S&P 500 and S&P 100 indices. This news was confirmed earlier in the week but today marked the last trading day before the company was to be officially recognized. Shares of NYX have rallied almost 9% since the announcement. The sheer number of money managers and funds that now have to own the company will likely continue to drive the shares higher going into its earnings report in early November. The stock is still off of its $112/share 52-week high but with a strong report and continued buying demand it may be sooner rather than later that the stock breaks into that territory.

Facebook, everybody's new favourite uber-growth social network, made more headlines today with a couple major announcements by big technology companies. Research In Motion (RIMM) announced a new application for its popular BlackBerry devices that ties in with Facebook, further promoting Rim's plans to nip at the heels of the consumer market segment. Microsoft (MSFT) threw its name into the social network hat as it agreed to purchase a 1.6% stake in Facebook for $240Million. The transaction gives Microsoft better leverage against its main Internet advertising competitors; Google (GOOG) and Yahoo (YHOO), and values Facebook at a lofty $15Billion.

Disclosure: Author is long NYX, GOOG

Major Tech Earnings Start Q3 with a bang Part 2: Yahoo Shines

Another bell weather in its Technology Sector, Yahoo (YHOO) had modest expectations after quarters of struggles and declining growth. Today's earnings were a pleasant surprise as Yahoo topped expectations, signalling that it in fact may be turning the corner with its Ad platform and new acquisitions strategy.

Income fell slightly at $151Million, $0.11/share, same as a year ago, but revenue on the other hand for its own web businesses came in above expectations at $1.28Billion. Analysts had expected $1.24Billion on the top line number and $0.08/share in profit. Yahoo's guidance for the 4th quarter was within the range expected by analysts and that led to relief, leading shares up in after hours trading.

Although Yahoo is losing search share to Google (GOOG) it is not going down without a fight, in fact Yahoo is actively securing exclusive Internet Ad deals, and highlighted a few new ones at the end of the quarter. The company will now produce ads for WedMD, Forbes.com and Cars.com. A slight coup if you will as WebMD was previously using Google's Ad network. These are the kinds of aggressive moves that will bring Yahoo back into the limelight, as Yahoo notoriously lost out in several high profile bidding wars recently.

New CEO Jerry Yang made it his mandate to do a full review of all business units and he is thus far sticking to his word of trying to turn Yahoo around. This quarter is a start, however Google is still miles ahead of everyone in search. If Jerry and the Yahooligans keep securing more exclusive Ad space and build out their network the fruits of that labor will be seen in quarters and years to come. Yahoo however has to refocus on its core priorities and manage its huge user network. The most visited site on the Internet has to have a clearer plan on how it bring all of its services to all of its users in a cleaner and more efficient manner. This is priority number 1 in order for the company to return to its previously held dominant Web position.

Yahoo's successful quarter signals that Advertising remained healthy even during the credit crisis and housing downturn which is a very good sign for the Major player in the sector Google. In fact Google gained $12 after-hours on Yahoo's news as Investors anticipated even better numbers from the leader in Search Advertising Thursday.

This quarter was a definite sign of relief for Yahoo longs, and as the holiday season approaches its all smiles for the company. If Jerry can continue to tighten operations and secure further Ad deals he'll have a high flier on his hands in the year or 2 to come, but the engineers at Yahoo need to continue to innovate and not let the likes of Google and Facebook keep stealing users away. The results here are promising but Yahoo's valuations are still much higher than Google's on a forward basis and only continuing accelerations in profit growth will keep the company on this perch.

Disclosure: Author is long GOOG

Earnings Week Preview Oct 15 - Oct 19

Busy crop of earnings lie ahead as Major Technology firms and the Financials are set to report quarterly numbers. Citigroup (C) is up first on Monday followed by Bank Of America (BAC) Thursday. The Internet giants lead Technology into the full earnings swing as Yahoo (YHOO), eBay (EBAY) and Google (GOOG) all report on consecutive days.

The Biggest mobile phone maker Nokia (NOK) will have investor eyes squarely on it Thursday and big Bio Techs Pfizer (PFE) and Genentech (DNA) also square off this week. The extended rally since the Fed rate cute has pushed investor confidence higher but it has also made for some weary trading as even slight earnings upside may not be enough to push stocks much higher past record levels.

As Technology has led the rally of late, all eyes seem to be on those uber-growth firms, and whether they can maintain their lofty valuations by trumping street expectations for yet another quarter.

Yahoo's New Search Tool shows how far ahead Google is

Google (GOOG), the dominant player in search and search advertising, is seeing its competitors constantly nipping at its heels and it seemingly ignores them and continues to innovate. While Yahoo (YHOO), Microsoft (MSFT), and Interactive's Ask (IACI) are trying to revamp, recreate and reinvigorate the search experience in the hopes of gaining market share and hence more advertisers, Google is padding its lead and running away with first rate technology innovations.

Ask.com has some neat complete search functions and combines results of all types of media and even includes little previews, but it is still a minor player in the search game. Microsoft's failed MSN unit is still around and kicking and losing ever more money, while the revamped Live platform has yet to gain any traction and Microsoft is continually seeing search share losses. Microsoft even tried to lure searchers by offering them points in exchange for prizes when they did searches and even included games inside MSN Messenger that forced users to search for answers to questions. Sorry Softie, but that's not gonna win over the advertisers and not gonna get people to give up on Google altogether.

Yahoo's newest feature, billed as a Search "Innovation", while positive for the languishing company, signals just how far behind the company is on the technology spectrum. Yahoo was once the poster child for the future of the Internet and these days it seemingly can't catch a break as revenue growth is slowing, share prices are slipping and it loses portions of market share to Google every quarter. The new feature for Yahoo is "Search-Assist", which is a Search Suggestion/Completion tool that slides out when users type in a search keyword. As a user starts typing into the search box a list of common or relevant search terms comes up. Pretty cool huh! It is beneficial but looking behind the scenes I think tells a different story. Let's step back and see just what this says about Yahoo's tactics.

I think it showcases a desperation on Yahoo's part that it simply doesn't have the back end grunt to truly become a personalized search power house. A Power House that Google is slowing but surely building as it releases tools such as Web History, iGoogle and Personalized Search. All those quarters of increasing Capital Expenditures that analysts were frightened about are proving well worth their weight in gold as Google is able to completely change the search game again and again while its competitors struggle to keep up. Yahoo's search box suggestions come off as simply common or popular search terms, while all well and good, that's actually a step sideways and not forwards in the technological sense.

As the Internet expands and the plethora of information becomes exceedingly complex only YOU can determine exactly what YOU'RE looking for, not everybody else. Google's got you covered. A recent post on Google's official blog states (Link) that Yes its concerned about the huge privacy issues and its doing all it can but it also is working tremendously to tailor the Internet to each user.

"search algorithms that are designed to take your personal preferences into account, including the things you search for and the sites you visit, have better odds of delivering useful results for you. So if you’ve been checking out sites about the Louvre and you search for 'Paris', you’re more likely to get results about the French capital than the celebrity heiress" Additionally Google goes on to showcase that a search for Football in Chicago is completely different than a search for Football in London, England.

Google is taking localized and personalized search into realms that its competitors can only dream of getting to. This is all due to that massive technology spending to build out an infrastructure of computing that can handle incredible complexity when it comes to something that should be as simple as search. That is why Google gets a majority of search traffic, has higher click-through rates for its tailored advertisements, continues to grow rapidly and demands a market premium via a lofty valuation.

Yahoo, Microsoft and Ask right now are simply out of their league when it comes to search innovations. Google has the brains, with its thousands of dedicated creative employees, it has the brawn, with its incredible breadth of technology infrastructure, and it has bank roll to keep innovating in ever expanding new areas of not only Search Technology but all aspects of our daily Internet lives.

Disclosure: Author is long GOOG

Earnings Week: July 16-20

Earnings season has gotten underway in full swing in the American markets.

Weekly earnings that are of note:

July 17th
Intel (INTC) : Expected $0.19/share
Merrill Lynch (MER): Expected $2.02/share
Coca-Cola (KO): Expected $0.82/share
Yahoo (YHOO): Expected $0.11/share

July 18th
Altria (MO): Expected $1.13/share
eBay (EBAY): Expected $0.32/share
JP Morgan Chase (JPM): Expected $1.08/share
Pfizer (PFE): Expected $0.50/share

July 19th
Banc Of America (BAC): Expected $1.20/share
Broadcom (BRCM): Expected $0.27/share
Google (GOOG): Expected $ 3.59/share
Microsoft (MSFT): Expected $0.31/share

July 20th
Citigroup (C): Expected $1.13/share
Wachovia (WB): Expected $1.22/share

complete earnings schedule available at Yahoo Finance
http://biz.yahoo.com/research/earncal/20070716.html

It'll be a big week for financials and banking as investors will get to see how munch of an effect the sub-prime meltdown spillover has continued to have. Also a big week for technology, specifically in the Internet space as Google will once again be in a position to overshadow Yahoo and Microsoft in the search earnings space.

Long Term Growth Rates of Nasdaq 100 Companies

Interesting list of companies that make up the Nasdaq 100 and their projected long term growth rates. Link provided below.

http://www.nasd100.com/growth/index.html

Those investors looking for companies with future growth propects, this I believe is a great starting point for additional research.

Of note: Google (GOOG) ranks 6th, Akamai (AKAM) 7th, Yahoo (YHOO) 12th, Apple (AAPL) 22nd

Innovators within Technology

It's really Apple (AAPL) and Google (GOOG) that are the two driving forces of innovation within the Internet/Computer part of the technology sector. When Google's CEO became an Apple board member there was some signs that the companies would work together on many more projects. We're seeing this now with Google Maps integration into the iPhone, YouTube on AppleTV and the iPhone and Google's search being prominent in Safari and Leopard.

Yahoo (YHOO) also is involved with Apple providing push e-mail to the iPhone, the Stock app and a host of other innovative services, however, it's a company very much in limbo, having just ousted long time CEO Terry Semel. Any reaps from their long-awaited ad platform Project Panama have yet to show major dividends and it seems like Yahoo has a long way to go to steer the ship in the right direction.

Microsoft (MSFT) on the other hand seems stuck in the mud, is a company that has far too many silos for its own good and cannot innovate as quickly as the others. While companies like Apple, Google, and Research In Motion (RIMM) are busy combining all of their products and services over a common platform, Microsoft is missing the party by having completely separate divisions trying to integrate separate products into a common themes. However thus far very few have ended in success and nothing but bad press surrounds this "innovative" company of late with Vista issues, charges on Xbox problems and who could forget the almighty Zune.

Disclosure: Author is long AAPL & GOOG