Our HSBC research report released August of 2016 has proven to be 110% correct as the company reports an 82% drop in year over year earnings.

colorful macro image of human eye picjumbo com1100This is our Q4 analysis of Deutsche Bank. When analyzing and valuing entities such as banks and platform-driven tech companies, perception is always key. You see, what one maverick or true contrarian may see, very few others can perceive. The difference, oft times, is sometimes as simple as... They were looking. 

Published in BoomBustBlog
Tuesday, 12 March 2013 09:14

Art, China and RBS

I am working a very, very big research piece and story that will be released in a few days. It will be of Lehman Brother's proportions. Those of you who have followed me since 2007 know that I mean it when I say it (I called Lehman Brothers and Bear Stearns out months before the fact). Due to the complexity of this undertaking and the time constraints to get it out before the statute of limitations runs its course, posting will be sparse for a day or two.

image001

I will leave this for my readers and subscribers to chew on though. The Chinese have challenged international art auction leaders Christies and Sotheby's in an attempt to take advantage of the boom in faux wealth emanating from the Chinese region. Of course, this is happening as reality catches up with China. As excerpted from the subscriber only report File Icon Sotheby's Intelligence Note (click here to subscribe):

ArtTactic

“Confidence in the Chinese contemporary art market looks increasingly fragile as the ArtTactic Chinese Art Market Confidence Indicator drops 35% from May 2012. The overall Confidence Indicator is now standing at 49, down from 76.

This is the first time the Confidence Indicator has fallen into negative territory since the launch in February 2009. A reading of 49 (Indicator level below 50), means that the current sentiment in the Chinese contemporary art market is now split evenly between experts that remain positive about the market and those that feel increasingly pessimistic about the current market situation.”

ArtTrak Tribal Art

“ArtTactic released a new report on the Chinese art market that contains signs of a significant slowdown in auction sales. China’s four highest-selling auction houses have experienced a 43 percent drop since the same time in 2011

Auction results from 2011 confirmed the Chinese art market as the largest in the world, yet results from spring 2012 sales exhibit signs of a slowing market. The total auction sales (all categories) this spring from the Big Four (Sotheby’s Hong Kong, Christie’s Hong Kong, China Guardian, and Poly Auction) have dropped 32 percent from USD2.2 billion in autumn 2011 to USD1.5 billion this spring. The overall result is 43 percent lower than the peak of the Chinese art market in spring 2011”

The question du jour, "Can the Chinese leverage nationalistic pride to an extent that they can dent the auction powerhouses?" Or better yet, will they get a chance to do it before we continue the 2009 correction (yes, it ain't over)?
Now, many may wonder what this has to do with RBS (Royal Bank of Scotland)? Read BoomBustBlog for the rest of the week to find out.

 

 

Cron Job Starts
Published in BoomBustBlog

Following up on Deconstructing The Most Accurate Apple Analysis Ever, I am offering subscribers an updated valuation of Apple now that it has fallen to EXACTLY where I warned subscribers in October (the week of its all-time high of about $707 it would fall) to. After playing with the iPhone 5 for about a week, I told subscribers to expect the stock to bounce up against the pessimistic band of our valuation analysis. Apple last traded at $420, this is how I put it 5 months ago...

image124

This report is still available for download to paying subscribers:

With this report and Apple's subsequent ~40% or so drop, we have profited from Apple on both the long and short sides (After My Contrarian Calling Apple's 3rd Miss Accurately, I Release My Apple Research Track Record For 2 1/2 Years)

Now it's time to discuss where the stock will go from here. Valuation and specifics are the purview of paying subscribers only. All subscribers may email me for my valuation numbers (a quick summary only) and professional/institutional subscribers may contact me for a 5 minute discussion on this topic. I will have an updated valuation report out with 48 hours, likely by tomorrow midday. In the meantime I'll share a smattering of metrics, facts and trends that the sell side is still refusing to face. Let's dance, shall we?

Apple Is In Trouble – Plain & Simple!

Apple has successfully transformed itself from a portable and desktop computer company to a mobile device company, and managed to do so right at the crux of the mobile computing boom. As such, it has benefited mightily, briefly becoming the largest and most respected company in the world. Alas, what goes up must eventually come down. The largess revenues and margins gleaned by Apple brought massive competition, and in the case of Google’s Android, business models specialized in gutting the fat margins which caused Apple to prosper. As a result, margin compression ensued, but very few actually saw signs of it until it was too late (reference Deconstructing The Most Accurate Apple Analysis Ever).

Take note of the chart below which show Apple’s expenses at the corporate level spike.

image109

The spiking of expenses is corroborated by nearly all fundamental profitability metrics. Before delving into these metrics, let’s review how they margin compression is actually being leveraged. You see, Apple’s margin problem is not emanating from just aggressive competition with smart business models, ubiquitous cloud services (Google) and low cost means of production (Samsung). Apple is now paying the piper for its shift into mobile by having its pipeline effectively saturated with mobile products, thus nullifying the margin expansion that the move into mobile products have brought on. Mobile products had higher margins than their desktop/laptop counterparts. The chart below shows Apple as a nearly completely mobile products company.

 image107

Now, one may say, “but even if they have turned completely into a mobile products company, margins should stabilize, not compress!”. How true, young grasshopper, except for the fact that as Apple has nearly completed its transformation, Google has started compressing margins in the mobile space, which has in turn started to put pressure on the margins of this nearly completely transformed company. Look at the progression of the revenue/product mix over time.

As can be seen from the chart below, Apple is not a phone/tablet company…

image111

From margin perspective, one may see an extra hit to margins as Apple has actually had a relative increase in Mac sales, whose margins are materially lower than iPad and iPhones. This will be compounded by iPhone 5 and iPad mini sales, both of which have lower margins than the products they replaced or are cannibalizing.

Now, follow the trend in entity level margin compression (below) while cross referencing the (the product mix revenue above) and you will see that there is a near saturation of mobile products, with lesser margin tablets and even lower margin notebooks creeping in over the last three quarters…

As a matter of fact, this has been the largest drop in margin (in terms of %) since I’ve followed the company.

image106

Oh, and BTW, you can have shrinking margins AND shrinking market share, re: 4:58 in this CNBC video below (watch the whole clip if you haven't seen it before).


So, exactly how did this all come to be?

google-campus-android-statue

 Stay tuned. Tradable numbers will be forthcoming to subscribers (click here to subscribe) within 48 hours. To all retail investors (pros should know better) who do not subscribe, please do not attempt to read into what's in the subscription material by guessing from my public posts. All of the opinion and analysis that I make public has been of extremely high quality and quite accurate in aggregate, but it was not intended to be used as investment advice. That is what you pay for.

 

Cron Job Starts
Published in BoomBustBlog

image011

It all started in June of 2011, many months before the IPO of one of the biggest scams to cross the US equity exchanges (and that's saying a lot in and of itself). I posted a forensic analysis of Groupon “What Does Groupon and the Matrix Have In Common?". I warned, I valued, the company went public, and... Nov 12, 2012 Multiple Muppet Mashing Leaves Groupon Shareholders Holding The Bag After 89% Off IPO Coupon. In that particular post, I actually offered the full Groupon research to download for free. It's amazing how this obvious Ponzi scheme got so much analyst and investor attention. Any and all BoomBustBlog subscribers saw it for exactly what it was, and hopefully shorted accordingly!

Earlier, I got on the Ponzi Exposure Express once again... Sep 26, 2011 I Suggest Groupon Offer Coupons To It's IPO Investors, They're Going To Need Them. And previous to that, once again...

Here's an abstract from our June subscriber-only analysis - Groupon Forensic Analysis & Valuation (923.04 kB 2011-06-16 10:34:36):

“Groupon’s revenue consists of the gross amount paid by customers for purchased Groupon while gross profit is the amount that the company retains after paying its merchants an agreed upon percentage of the purchase price to the featured merchant. So the comparable number for price-to-sales to use for Groupon is gross profit, or the fees it collects from merchants, which the management has correctly stated as the best proxy for the value created by the company. To put things into perspective, if eBay used the same math as Groupon does, it would have reported revenues of $61bn instead of $9bn. The company reported gross profit of $530m over last 12 months. At $25bn valuation that would put the valuation at 42x “comparable sales”. To put things in perspective, Google trades at Price-to-sales of 5.8x, Apple at 4.7x, Microsoft at 3.3x, Amazon at 2.6x and Yahoo at 3.4x.“

image037image037

In the latest S-1 registration statement, the company has revised its revenue figures by more than half. The company has restated its 2010 revenues from $713m to $313m while Q1-11 revenues were restated to $296m from $645m previously. The company has restated its financial results “to correct for an error” in the way it reported revenue. The revenue accounting change is Groupon’s second since it filed to go public. The company has also changed the presentation of certain expenses to be consistent with reporting revenue. Clearly, such errors and frequent change in the accounting policies clearly puts strain on the credibility of management – and that’s putting it lightly, especially for a company that is contemplating an IPO, not to mention that such changes are top line numbers such as revenues. In another blow to Groupon, the company’s COO Margo Georgiadis is leaving the firm to join back Google.

How about... Muppets Get MASHED Once Again - Groupon Half-off (Share price) Sale, Aug 14, 2012 – CNBC reports that Groupon [GRPN 5.815 -1.735 (-22.98%)] plunged more than 20 percent...

I can go on, but why bother? This company was pumped, dumped and marketed by several big name analysts and banks. One would think independent analyst shops would be one of the biggest shops in all of Wall Street, no?

I have commented ad nauseum on the percieved need to do business with name brands, those who do God's work, and those who simply cannot trade - muppet masters and all - as I clearly articulated on the Max Keiser show.
... and on previous shows. 

Now, all of you Goldman, Morgan Stanley, et. al. lovers, don't get your muppetware in a bunch, you know that I know that you know that It Is Now Common Knowledge That Goldman’s Investment Advice Sucks???, as excerpted:

Cron Job Starts
Published in BoomBustBlog

This is an update to our first three Facebook forensic analyses, two of which released before the actual Facebook IPO  (search the :downloads section for the first two documents). The updated valuation for Facebook (which has actually has an increase in terms of value now that we have more information to deal with) is available to download for all paying subscribers (FB Q4-2012 Analysis & Valuation Note - update with per share valuation). I'm available to discuss this with professional and institutional subscribers via phone or Google+. Click here to subscribe or upgrade.

As of the writing of this addendum, Facebook is trading at $31.10, not even a year after debuting at $38.This utter disappointment and gutting of the Muppets is exactly what our research has anticipated. Facebook has fell as low as $17.xx, and is now on the rebound towards its IPO price. Notwithstanding the massive capital losses suffered by those who bought into the over hyped IPO against my admonitions, or the losses suffered by those who bought in the Sell Side powered private offerings which was actually valued higher than the majority of trading time as a public company, the argument is being made that Facebook has finally got the mobile thing and can’t be valued using conventional metrics due to its status as a high growth company.

Wait a minute! Facebook as a high growth company is actually growing revenue SLOWER than its biggest and better capitalized competitor – Google! Considerably slower!  While it’s perfectly prudent for the management of a high growth company challenged for market share in a fast moving industry undergoing a paradigm shift, results must result from said efforts. Google is out Facebooking Facebook. Reference I Don't Think Facebook Investors Will "Like" This!!! Google Has Already Caught Up In Terms Of Active Users

In my previous warnings of Facebook euphoria, I brought up the topic of growth many times, particularly active user growth. Reference The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1, while remaining cognizant that this was written exactly 1 year ago:

Thus, it is highly unlikely one can legitimately factor in the type of growth needed to justify the current Goldman $50B valuation - particularly when you consider that Facebook's growth is already slowing!

Well, let's see if I had a valid point now that we have clear and convincing historical evidence from which to base our analysis... (click any of these graphics to enlarge to print quality size)c

thumb image008 copy

Uh huh! Facebook is MOVING BACKWARDS! IT'S LOSING USERS! LOOK OUT BELOW!!!

thumb image014 copy

At this point, I can't help myself. I MUST point out the literal rippoff that Goldman Sachs pushed as a once in a life time investment a year and a half ago. As excerpted from Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman's Pricing: Here's What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week! while remaining cognizant that this was written exactly 1 year ago:

Goldman warns, 'We’re probably going to dump this load, but we may also need you to remain behind to hold the bag!'

In its offer for the $1.5bn stock sale of privately held social-networking company Facebook,Goldman Sachs disclosed that it might sell or hedge its own $375m investment without warning clients. Under the deal, private wealth-management clients would be subject to “significant restrictions” limiting their ability to sell stakes while Goldman Sachs own holding can be sold or hedged at any time, and without warning. One would hope that astute clients and investors would be put on guard by such conflicting and restrictive liquidity measures! In addition, it appears as if Goldman Sachs failed to disclose its clients that it had offered Facebook shares to its internal investment group, Goldman Sachs Capital Partners, headed by one of its star fund managers, Richard A. Friedman.

So, this begs the question, "Has the easy money already been made Facebook???" Well, let's take an empirical look now that we have some hard data to steer us throught that sell side fog, that very same fog that people pay me to clear.... (click to enlarge to printer size)

 thumb image005 copy copy

'Nuff Said!

I’m available to discuss this in detail with all professional and institutional subscribers via Google+, or phone.

Is It Now Common Knowledge That Goldman’s Investment Advice Sucks??? Tuesday, 25 January 2011

It's official, the mainstream media has turned on those "doing God's work" and come to the side of BoomBustBlog.

I must admit, I was shocked when I first read this headline and saw the accompanying cover. After all, Bloomberg was the organization that published a story lavishing adulation upon a young Goldman analyst that had a 38% win rate throughout the credit crisis and (faux) recovery. I see those results as mediocre at best, and downright horrible from a realistic perspective. To make matters even worse, I believe I ran circles not only around that analyst, but the entire firm, see Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?

Cron Job Starts
Published in BoomBustBlog

Following up on the post of Tuesday, 14 August 2012, Muppets Get MASHED Once Again - Groupon Half Off Share Price Coupons Selling for 20 Cents On The Dollar!!! Groupon is now trading at $2.61 after its most recent earnings announcement. We warned pre-IPO that this stock was pure trash. Let's see how that warning panned out... (spoiler alert: free BoomBustBlog Anti-sell side research available for download below)...

Groupon charg

An 89% drop since the IPO. For those not paying attention, that's damn near all of the share price... disappeared! You could have made a fortune selling this. You may have even made a dollar or two litigation with the issuers or the company itself. Don't forget,  At least eight brokerages slashed their price targets on the firm. Where were these firms when we were warning pre-IPO? 

Here are some key highlights: Groupon restates revenue, EXACTLY as I warned just three months earlier.

  1. Monday, 26 September 2011 What's The Best Way To Profit From Groupon's IPO?
  2. file iconGroupon Revenue Restated 09/26/2011
Groupon starts trading on the Nasdaq via IPO...
  1. Sunday, 13 November 2011 I Hope You Groupon IPO Investors Got Coupons At The IPO!!! Yeah, That's Right I Was The First To Say It
Favorite hits from said documents...
Groupon revenue restated Page 1
Groupon revenue restated Page 2
Groupon Valuation redacted Page 14
 
Groupon revenue restated Page 1Groupon revenue restated Page 2Groupon revenue restated Page 3Groupon revenue restated Page 4Groupon Valuation Page 01Groupon Valuation Page 02Groupon Valuation Page 03Groupon Valuation Page 03 copyGroupon Valuation redacted Page 11Groupon Valuation redacted Page 12Groupon Valuation redacted Page 14

You know that you really don't have to follow eight brokerages to make money on Groupon. All you really had to do was subscribe to BoomBustBlog, reference For Those That Want To Take A Peek Inside the Professional BoomBustBlog Paywall, Here's All of My Groupon Research - MUPPETS!!!

I have commented ad nauseum on the percieved need to do business with name brands, those who do God's work, and those who simply cannot trade - muppet masters and all - as I clearly articulated on the Max Keiser show last week.
... and on previous shows. 

Now, all of you Goldman, Morgan Stanley, et. al. lovers, don't get your muppetware in a bunch, you know that I know that you know that It Is Now Common Knowledge That Goldman’s Investment Advice Sucks???, as excerpted:

It's official, the mainstream media has turned on those "doing God's work" and come to the side of BoomBustBlog.

In case you still don't get it, the sell side research departments of these banks did not offer BoomBustBlog research to their clients. Oh no, then how in the hell can they dump their stock??? They issued glowing reports from their own analytical cum soft sales staff.

On that note, let's reminisce.... In June of 2011 I release proprietary research to BoomBustBlog Subscribers. You can now download said report absolutely free, here icon Groupon Forensic Analysis & Valuation (923.04 kB 2011-06-16 10:34:36). After reading said report, prepare for some real comedy, as reported by Dailypolitical.com:

Groupon (NASDAQ: GRPN) was downgraded by equities research analysts at Stifel Nicolaus from a “hold” rating to a “sell” rating in a research note issued to investors on Monday.

Other equities research analysts have also recently issued reports about the stock. Analysts at Bank of America (NYSE: BAC) downgraded shares of Groupon from a “buy” rating to a “neutral” rating in a research note to investors on Monday. They now have a $20.00 price target on the stock, down previously from $30.00. Separately, analysts at Benchmark Co. cut their price target on shares of Groupon from $32.00 to $28.00 in a research note to investors on Monday. They now have a “buy” rating on the stock. Finally, analysts at Goldman Sachs (NYSE: GS) reiterated a “buy” rating on shares of Groupon in a research note to investors on Thursday, February 9th.

Groupon traded down 3.20% on Monday, hitting $14.54. Groupon has a 52-week low of $14.85 and a 52-week high of $31.14. The company’s market cap is $9.376 billion.

Whoa!!! Goldman Sachs reiterated their "buy" recommendation just in time for their damn Muppet Clients to lose ~40% by the close of the market today. Go ahead, stuff those damn Muppets, fellas!For the record, in June of 2011, a full ten months ago, I made clear to my subscribers the following (as excerpted from the now free download)...

We value Groupon at $6.6bn using DCF. The current valuation is based on 10 years of revenue projections which are overly optimistic in our view.  We have forecasted revenues of $4.0bn in 2011 and expect revenues to nearly double to $7.5bn in 2012 and reach $35bn by 2020. We have assumed cost of equity of 12% and terminal growth of 3% from 2021 onwards. We have kept gross profit at stable levels and assumed operational gearing to (∆ Operating Profit / ∆ Revenue) to improve considerably. Despite these optimistic projections we were still not able to justify a valuation close to $10bn let alone $20-25bn. We only see downside risks to valuation of $6.6bn and believe that Groupon’s rejection of Google offer of $6.0bn was a mistake in first place. Google’s valuation of $6.0bn most assuredly included a premium for synergies that Google could have achieved with Groupon which would be clearly absent in the standalone entity. We see the fair value of Groupon close to $3.0-4.0bn if we assume a more realistic picture. Given all kinds of questions surrounding Groupon’s business regarding the sustainability of revenue growth, costs control and even the business model itself (i.e., the relationship with merchants) and external competition, we remain deeply concerned even on the sustainability of a successful IPO for Groupon. 

For the record, at about $3 per share, Groupon is market-valued at about $2.2 billion dollars!!!! Here are some key highlights: Groupon restates revenue, EXACTLY as I warned three months before the IPO.There's a WHOLE LOT MORE, but this post is long enough as it is. Simply download the links above, and don't forget to reference the valuation section of original forensic report. There's an early Christmas present in there for the stingy muppets!

Follow me:
  • Follow us on Blogger
  • Follow us on Facebook
  • Follow us on LinkedIn
  • Follow us on Twitter
  • Follow us on Youtube
Cron Job Starts
Published in BoomBustBlog

 In the post After My Contrarian Calling Apple's 3rd Miss Accurately, I Release My Apple Research Track Record For 2 1/2 Years, I came clean with the historical performance of my Apple research. Of course, many a hater had their hearts crushed as math and common sense once again ruled the day. Still, we see herd mentality and brand loyalty effect even those who're really supposed to know what they're doing - to wit: Rochdale Trader Made Unauthorized Purchases Of As Much As $1 Billion In Apple Stock Last Month

... a trader at Rochdale Securities made unauthorized purchases of $750 million to $1 billion in Apple stock last month and now the firm is seeking a lifeline. 

It's unclear when the unauthorized stock purchases took place, but shares of Apple have dropped around 11.5% since Oct. 1.

Stamford, Connecticut-based Rochdale, which employs noted bank analyst Dick Bove, is looking for a possible deal to recapitalize such as a capital injection or a merger, Bloomberg reports citing sources familiar. 

Well, it's obvious the brokerage didn't buy that trader a subscription to BoomBustBlog. I've been following Apple for roughly two years now and have been one of the (if not the) most accurate fundamental pundits on said matter, with my valuations hugging Apple's share price rather tightly for the entire time I have followed it.

aapl research accuracy copy

Reference Apple - Competition and Cost Structure 05/16/2011, which is now available for download to all due to its dated nature - even those who do not subscribe. Please note that this report only includes base case scenarios, while the latter reports included base, optimistic and pessimistic scenarios - which is much more realistic. Although some of the later reports are also stale-dated, they contain valuable knowledge that I'm not prepared to release to the public for free at this time.

On Friday, 12 October 2012 I posted A Review Of The Accuracy Of Last Quarter's Apple Earnings Notes where in I went over the true value of my last quarterly review of Apple's performance. Please note that this was before the Q3 earnings release:

A subscriber convinced me to post the 1st quarter's valuation bands (subscribers, see Apple Margin & Valuation Note 03/15/2012) for Apple to squelch the comments of those who are guessing what's behind the firewall. Our base case scenario was right on target, and  during the target and after the earnings release I realized that we underestimated international (especially Asian) sell though and shifted the weight towards the optimistic band which also proved fairly accurate. As all can notice, the pessimistic band is not shown, and that is where the value lies here. I am now shifting my bias towards (that's towards, not to) the pessimistic band, for I feel Apple has now started to feel the competitive and margin pressures that I warned of, and has done so right at the deadline that I gave in 2010 (this is just as much a factor of luck as it is skill, alas, if it bears fruit it bears fruit). The latest valuation bands can be accessed by paying subscribers below (click here to subscribe):

Apple 4Q2012 update professional & institutional
Apple 4Q2012 update - retail
"iPhone Margin worksheet - blog download

Just to make this perfectly clear, I've been stating that Apple had margin compression stemming from extreme competition coming for two years now. That does not mean that Apple will collapse. As a matter of fact, I've included my stale Apple reports and a graph that shows I've pretty much been on target with Apple's share price the whole while. And for those who are so concerned with timing, I've highlighted in bold font where I've told subscribers to turn pessimistic on Apple's share price. This was October, roughly 12% ago in share price and many tens of billions of dollars in market value.

image005

Keep the following in mind as you peruse this post...

apple product chart growth

I discussed this in detail with Lauren Lyster on Capital Account. The margin discussion started at 7:55.

For those who haven't heard my description of Apple's arch competitor, Google's, business model, look here:

See Right On Time, My Prediction Of Apple Margin Compression 8 Quarters From My CNBC Warning Landed Right On The Money! for more on the mechanics of the margin compression theory for Apple.

The latest Apple valuation bands (including the advanced pessimistic bands) can be accessed by paying subscribers below (click here to subscribe):
Cron Job Starts
Published in BoomBustBlog

Several months ago I posted a mail from a reader's rant on FICO (see Fair  Isaac May Get Treated Unfairly When…), along with our own take on the on the situation (subscribers see FICO Note, click here to subscribe). Here's an excerpt from the said reader's take: 

Short FICO. This company engineered a stock-back program in Nov 2011. The Stock buy-back was equivalent to 20% of its market cap at the time. The three executives left the company and cash in their stock options. The company had 3 CEOs in 4 years. The Company latest quarter was slightly down, without the massive buy-back the share count would have meant that the stock had lower earnings per share YoY. What is staggering is while the company did this massive stock buy-back, some execs (including the 3 execs departing) sold at price sometimes below the price the company was buying back its stock at. If the company was doing such a good deal by buying the stock "cheap" at around 40 USD, why would the execs sell their "cheap" stock at 39 USD?

Now recently the company announced its quarterly earnings, poor data, the stock plunges by 10.5%, next thing you know SECput the Rule 201 alternative uptick rule. The next day the stock is up 10.5%, but of course nothing is done to prevent the stock to move up more than 10% a day. The same happened on the same day with Vulcan Materials which released its earnings, really crappy (a lot more than FICO), Vulcan Materials is a Einhorn short, and yet again you have the rule 201 implemented the next day....

Said BoomBustBlogger returned with some more "unfair" treatment of Fair Isaac, viewable from this link - Fair Isaac May Get Treated Unfairly When The Newest Credit Bubble Bursts. ....And here come's FCO's earnings, as reported at CNBC:

MINNEAPOLIS, Nov. 1, 2012 /PRNewswire via COMTEX/ -- FICO (NYSE: FICO), the leading provider of analytics and decision management technology, today announced financial results for its fourth fiscal quarter ended September 30, 2012. Fourth Quarter Fiscal 2012 Results Net income for the quarter totaled $21.2 million, or $0.60 per share, versus $24.6 million, or $0.64 per share, reported in the prior year period. The current quarter results include $3.3 million, net of tax, or $0.09 per share, in restructuring and acquisition related costs.

Well. guess what happened the following day... NYSE stocks posting largest percentage decreases 02 Nov 2012  -  The Associated Press

 
Cron Job Starts
Published in BoomBustBlog

Since I have released so much opinion and analysis on Apple over the last few weeks, I can keep this post short, sweet and to the point. Apple missed earnings expectations yesterday, exactly as I anticipated and expressed to readers and subscribers. This is the third miss by Apple that I called. What makes the call so interesting is that it's actually quite an obvious call and doesn't deserve much credit. That's the point! Despite the obvious evidence that Apple is following in the footprints of Research in Motion and the Blackberry, Apple is still held (and actively bought) by every hedge fund, arm chair investor, cab driver and his grand aunt's cousin's dog walker!!! Remember Research in Motion, they had very strong static fundamentals and everybody used Blackberriers (even the newly elected President who was addicted to his "Crackberry") when I first suggested my subscribers short them in early 2010 as well, reference the following:

  1. After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
  2. RIM Smart Phone Market Share, RIP?

If you go through all three of the posts above, you will see an iconic example of Apple and the iPhone, declining market share, ever so slight pressure on margins amid tense competition, but bulging fundamental performance and a strong brand following. Just two years later RIMM is a single digit stock. Why? Management refused to do what Microsoft is doing now (reference Microsoft Is Doing What The "Has Been Giants Of Yesteryear" Were Afraid To Do, Make A Radical Change BEFORE ITS TOO LATE!). Pooh pooh MSFT if you wish, they were one of the only recent tech companies to successully remain dominant and relevant through a tech paradigm shift. As this next paradigm shift approaches, you'd be a fool to discount and dismiss that company out of hand! RIM simply refused to accept the fact that the market demanded a larger, touch-centric screen with ample multimedia capabilities. To date, they still don't have a credible offering - THREE years later.

Well, with the advent of the iPhone 5 it appears as if Apple doesn't understand that the market demands bigger, higher res screens either. Despite the fact that the iPhone is responsible for ~70% of Apple's profits, it's offering its flagship with last year's Android tech while its competitors are innovating like bananas, offering 5.5 inch screens and 1080p resolutions with 32 hour battery lives! Both RIMM and Apple are refusing to slash their own margins, and rather would ride those fat margins out along their natural lives. The problem with this mentality - as RIMM investors can attest, is that if you don't cut your margins, your competitors will happily do it for you! Ask Samsung and Google if I'm joking... 

I have been most accurate in tracking Apple over the last couple of years, as I have been with Google and RIMM (and from a tertiary perspective, MSFT) - the only tech companies that I have analyzed since the great crash. I'm more well known as a banking/finance/global macro/real estate guy, but my success in tech is comparable.

aapl research accuracy copy

The latest Apple valuation bands (including the advanced pessimistic bands) can be accessed by paying subscribers below (click here to subscribe):

This most recent miss is more telling than most considering Apple management's extreme earnings expectation management (subscribers see file iconApple Earnings Guidance Analysis 08/12/2010, non-subscribers reference “How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue“).

Below, I drilled down on the date and used a percentage difference view to illustrate the improvement in P/E stemming from the earnings beats.

In our analysis of Apple, we are using real world assumptions of future performance derived from backing in to the low balling this company is prone to. If you look at its history carefully you can gauge what management is comfortable with, hence what they may be capable of on the margin. Using these more realistic numbers, it was quite obvious that Apple would deliver a miss this quarter in its battle with the Android! The following is the reason why - Margin Compression

Key take aways from this quarter:

iPad sales came in low

This is a trend, not an excusable one time event as Tim Cook attempt to assert, blaming it on "expectations". See the excerpts from our subscriber docs below.

apple product chart growth

Apple 2Q2012 results analysis Final - redacted Page 2

Enterprise-wide margins came in lower than expected and lower than last quarter!

I discussed this in detail with Lauren Lyster on Capital Account. The margin discussion started at 7:55.

See how my subscribers read about the situation in detail two quarters ago!

Apple 2Q2012 results analysis Final - redacted Page 1

 

Apple 2Q2012 results analysis Final - redacted Page 3

Apple 2Q2012 results analysis Final Page 4

For those who haven't heard my description of Apple's arch competitor, Google's, business model, look here:

See Right On Time, My Prediction Of Apple Margin Compression 8 Quarters From My CNBC Warning Landed Right On The Money! for more on the mechanics of the margin compression theory for Apple.

In short, nearly 70% of profits concentrated in one, single product - the iPhone 4/5, whcih is so far behind the Samsung Galaxy Note 2 and S3 (roughly two years behind) that the only real sales they will get will come from extreme brand loyalty or from those who have never tried the Samsung and other competing Android products. The earnings diversification route taken was the massively successful iPad, which is already succumbing to massive margin compression AND is losing market share to superior tech at lower prices at the same time. For the first time since the iPod was released, Apple is playing catchup to Google et. al., by releasing a smaller tablet - after the fact. A tablet that, upon launch, will already be obsolesced and under priced by the competition. While these tactics may permit Apple to grow at impressive rates, basically they will start to simply cannibalize their existing user base and many new users will opt for the best and the newest tech. Just ask Research in Motion!!!

Apple may feel "Blackberried" or "RIMM"ed sooner than expected.

Follow me in the tech section of BoomBustBlog or via social media:

  • Follow us on Blogger
  • Follow us on Facebook
  • Follow us on LinkedIn
  • Follow us on Twitter
  • Follow us on Youtube
Cron Job Starts
Published in BoomBustBlog
Page 1 of 36