Bloomberg reports Google’s Android Infringed Oracle’s Java, Jury Says:

Google Inc. (GOOG), the largest Web-search provider, infringed copyrights for Oracle Corp. (ORCL)’s technology in developing Android software running on more than 300 million mobile devices, a federal jury said.

The 12-member panel in San Francisco, however, was unable to come to a unanimous verdict on whether Google had made “fair use” of Oracle’s intellectual property.

The decision prevents Oracle from seeking damages for all but nine lines of computer code on Android, out of 15 million total lines, that the jury found were copied from Oracle, U.S. District Judge William Alsup said today. Oracle is seeking $1 billion in damages.

I'm far from an IP lawyer or anything of the sort, but it appears as if this registers as an epic #FAIL for team Oracle!

There has been zero finding of liability on copyright, the issue of fair use is still in play,” Alsup said after the verdict was read.

Google attorney Robert Van Nest asked Alsup to declare a mistrial, saying the issue of whether it’s liable for infringement is directly linked to the question of whether it was fair use. Alsup said he would consider Google’s request later. He ordered the patent phase of the case to begin.

The decision came in the copyright phase of an eight-week intellectual-property trial that began April 16 and next will shift to Oracle’s claims of patent infringement. A third phase, on damages, will follow the other two.

See also..

Industry Leading, Subscription Based Google Research

All paying subscribers should download the Google Q1-2012 Valuation Summary, wherein we have updated the valuation numbers for Google using a variety of metrics. Click here to subscribe or upgrade

Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.

Subscription research:

file iconGoogle Final Report 10/08/2010

A couple of bits from our archives...


There are currently 7 Google reports available. Select the "Google Final Report" and click the "Download" button. You will receive a 63 page analysis that looks like this on the cover...

The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as  valuation for each business line.

Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.

Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.

 

 

 

Published in BoomBustBlog

I've had a few subscribers who, after reviewing the (subscription only) FaceBook IPO & Valuation Note Update and Facebook Valuation Model, have seriously queried how Facebook is managing to drum up so much froth and interest for its obviously overpriced shares? The apparent answer is the marketing machine known as Goldman, et. al. The less recognized answer is assistance from the MSM, as demonstrted by this CNBC article - Facebook’s Premium Ad Prices Still Rising:

Pricing for Facebook’s premium “social” advertisements continues to rise, two recent studies have found—a positive indicator that could offset concerns about a dip in advertising growth and help sentiment towards the Internet company’s initial public offering.

This is a net positive statement, no?

A report to be released on Monday by Marin Software, a digital marketing platform that processes more than $100 million worth of spending on Facebook, found a 26 percent increase over the last year in the cost per click for “premium” ad formats such as Sponsored Stories, which highlight friends’ “likes”, comments and other endorsements of brands’ activity on the site.

Wow! That's pretty good growth and pricing elasticity, no? Bring on those newly public shares and let 'em rip!!!

However, Marin’s report also found the cost per click for Facebook’s standard ads, which make up an estimated three-quarters of the social network’s advertising revenues, fell 26 percent over the last year.

Wait a minute, if 75% of the companies product dropped in price, doesn't that easily swamp the 26% of the companies premium ads that rose in price? An even more direct questions is, why isn't this being reported as the net negative that is is? Let's walk though this step by step for the more arithmetically challenged amongst us...

   % of revenue  Increase/decrease in Average cost Net Change to Gross Revenue
Facebook Premium Ads 25% 26% 6.500%
Facebook Regular Ads 75% -26% -19.500%
      -13.000%

So, according to this MSM article, reporting a net 13% drop iin revenue somehow amounts to - and let me quote this so as to be as accurate as possible - "a positive indicator that could offset concerns about a dip in advertising growth and help sentiment towards the Internet company’s initial public offering". Please excuse me as I wipe the splattered bullshit from my computer screen - it's hard to type accurately with those opaque, stinking brown stains in the way. Even worse, it goes to show what portions of the MSM actually think in terms of the intellectual capacity of its readership.

Facebook will this week begin a roadshow to convince potential investors that its business is worth up to $96 billion in its initial public offering later this month.

So, slower subscriber growth...

Faster cost growth and lower profits - Facebook First-Quarter Profit Drops; Costs Almost Double, and a 13% drop in gross  ad pricing - virtually the sole source or revenue for Facebook, amount to a valuation for this company that at 99 Times Profit Exceeds 99% of S&P 500 Index. Hey, it gets better...

Marin’s report follows data published last month by TBG Digital, a digital advertising firm that buys Facebook ads on behalf of 235 companies in 190 countries, showing a 23 percent increase in cost per click for the first quarter of 2012 compared with the fourth quarter of 2011.

The cost of delivering an ad to 1,000 people increased 41 percent in the first quarter of 2012 compared with the same quarter last year. However, click-through rates on ads—a key measure of effectiveness—fell an average of 6 percent across Facebook’s top five territories.

Advertisers’ desire to grab the attention of the social network’s 900 million users is still running ahead of their ability to measure the returns from that investment, which is seen as a key long-term challenge for the social network.

 Here's where I broke it down on Capital Account

I also happened to do the same on the Max Kesier show...

Subscribers who haven't refreshed their viewing of our Facebook research should do so now - (subscription only) FaceBook IPO & Valuation Note Update. Pro and instititional subscribers are welcome to peruse the downloadable Facebook Valuation Model, allowing you to input your own assumptions in the very unlikely event you may not agree 180% with me :-)

And from the archives...

 

Reggie_Middleton_Facebooks_Valuation 

Facebook Finally Faces The Fact Of BoomBustBlog Analsysis 

I discussed Facebook on the Peter Schiff radio show, the Facebook excerpt is below...

From my previous Facebook analysis public excerpt:

Yeah, I was on a roll last year, wasn't I? That's not the gist of it either, as we reminisce even more...

Here is an excerpt for those who do subscribe to our research and services, YET!

Even with the fund taking 45%+ losses and the LP (limited partners, ex. Goldman's clients) losing every last single dime, Goldman easily pulls a 33% return. God forbid Facebook share actually do well, Goldman's numbers look... Well... Damn near illegal! Almost as if they can pump up a price without any fundamental justification or public disclosure of financials and still sell it retail to the public. Of course, such a thing could and would never occur - not with the every vigilant SEC to take our backs. Excuse me while a cough a up a lung from laughter...

You see, this is the dirty little secret of private equity funds. They are not in the business of investing money for client's maximum risk adjusted return. They are in the business of collecting fees. Those poor innocent (or not so, particularly when they are investing their clients monies, hence are in the same business) souls that actually believe as the commenter above quoted "Wow!!! If Goldman is putting their money in this, it must be serious!"simply the lamb being led to the private equity/IPO slaughterhouse. You see, there is no loss to GS - no matter how high they bid up the valuation nor how hard it comes crashing down. This gives them the incentive to shoot for the sky with the private equity deal, because when the IPO breaks, its bonuses bigger than nearly any have ever seen. Facebook makes and excellent marketing story as well. Boy Wunderkind CEO, a product nearly everyone uses and loves, and a mysterious dearth  of business model to give it a mystical effect. Don't forget the involvement of the "cream of the crop" of Wall Street banks, whose bankers, traders and analysts are all so much smarter than us guys from Brooklyn. Add this up, and you get "Wow!!! If Goldman is putting their money in this, it must be serious!".

Additional Facebook analysis, valuationa and commentary.

On Max Keiser, go to the 13:55 marker for more on Facebook...

Last month I released an update to our Facebook IPO analysis (subscribers may download it here FaceBook IPO & Valuation Note Update). In its caveats section, I made pains to make very clear that one of the biggest threats to Facebook investors actually emanates from within, to wit:

FB_Corporate_Governance_issues_pt_1

FB_Corporate_Governance_issues_pt_2

Of course Facebook enthusiasm is burning hot. The coals in the "investor" (and I put this lightly) fire are being stoked by none other than the sell side agents doing God's work, among others...

Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012. The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update. It is recommended that subscribers (click here to subscribe) also review the original analyses (file iconFB note final 01/11/2011) as well as the following free blog posts on the topic:

  1. 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!
  2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
  3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
  4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
  5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
  6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
  7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

 

 

 

 

 

Published in BoomBustBlog

 Yesterday I claimed US Cellular Carriers Are At Risk Of Being Marginalized Into Nothingness Unless They Learn To Think Outside The Box... Yesterday. There are some who allege that the US cellular carrier industry is a government protected triopoly, hence they have no true incentive to innovate. I cry bullshit! The faster, more innovative companies such as Apple are scheming on marginalizing the carriers to the utility status they are role playing as. The self-proclaimed shepherds of global data, Google, are looking to eliminate the need for carriers... Period!

I look at these things from a very analytical, very strategic, and longer term perspective than sell side analysts and many investors. See Analyzing Apple's Q2 Earnings for a recent and fresh look at Apple that you won't see anywhere else, and Cloudy Days Ahead For Google for the same on Google. When others may have rose colored glasses on, I took the lenses out of my glasses out of paranioa for fear of the glass denying my raw access to the visual data:-)

Apple Avoideth

One should be expecting soft sim iPhone coming out in iteration 5 or 6. Why? Because the carriers exercise too much control over Apple's distribution system. Yes, Apple has succeeded in virtually benidng AT&T (among other select carriers) over and sodomizing them for what amounts to the right to sell aan expense sinkhole with the hope of stuffing overpriced data plans down said hole after it was dug, but as the competition heats up with Android carriers are actually starting to push back a little. Gone are the days where Apple can get AT&T to overpay for iPhones then take the risk of reselling them, all the while sharing the data/voice revenue. Now, carriers are actually reading the contracts before signing them. Next thing you know a calculator, then spreadsheet may come into play. uh Oh!!! When carrier start to excersise their muscle as the gatekeepers of the average consumer's limited attention span and easily swayed marketing awareness, they can exert undo control over hardware vendors. Apple is a hardware vendor. So, Apple is apparently actively developing and testing soft SIMs (ex. SIMs that are based in the firmware of the phone versus burned into a physical chip).

What does this mean? It means that you can OTA update your iPhone with a new carriers identifying info on the fly. Layman's terms: You buy your iPhone unlocked from Apple and you can swittch between carriers at  whim. This carrier has a cheaper rate or roaming, simply click icon for carrier A. The same goes next month for carrier B, C or D. No more contracts! No more termination fees! And most importantly, at least to Apple, no more carrier ass kissing and lock in! Search the web for yourself...

  1. Apple: Smaller iPhone, Soft SIM Coming, Says Bloomberg - Tech ...

    Feb 10, 2011 – Apple: Smaller iPhone, Soft SIM Coming, Says Bloomberg ... the iPhone 4 — that may help stem the advances of Google's (GOOG) Android, ...
  2. Buying your Soft-Sim mobile. Who's taking control? Who should get ...

    Sep 14, 2011 – This post talks Sim-free or soft-SIM solutions and implications. At one time it ... When will we tire of Apple or Google being our gatekeepers?
  3. Soft and hard SIMs

    Dec 13, 2010 – So the Apple UICC containing soft SIMs and an SE may not be such a bad ... the NFC interfaces that will be built in by GoogleApple and RIM.
  4. Is Apple About to Cut Out the Carriers? — Tech News and Analysis

    Oct 27, 2010 – It's rumored that Apple and Gemalto have created a SIM card, which is ...by putting its own SIM inside the iPhone, it could do what Google with its ..... IC radio chips and radio software stacks – in *addition* to the SIM card.
  5. Apple And The 'Soft Sim': Not On The iPhone, But Maybe On the ...

     Nov 22, 2010 – ... reportedly up in arms over Apple's plans to integrate a "soft Sim" into it… ... Hey, Google, you took advantage of that whole Android/iOS war ...
  6. Light Reading Mobile - Jonestown - Apple's 'Soft-SIM': Not Too ...

    Oct 28, 2010 – Apple's 'Soft-SIM': Not Too Useful in US ... definitely save money over time by paying more upfront for the Samsung Galaxy Nexus from Google...

TECHSEMIGURU: Apple: Smaller iPhone, Soft SIM Coming, Says ...

Feb 10, 2011 – Apple: Smaller iPhone, Soft SIM Coming, Says Bloomberg ... th

Google Destroyeth

I have alledged that Google is MASSIVELY undervalued and grossly misunderstood. This is actually a very good thing for Google, for management has demonstrated that they are in this for the long term and the less resistance they get to their Borg-like initiatives, the better. This is probably a good thing for investors as well, for it the market corrects (as it damn well should) astute financial types can pick up massive parts of the future of computing and data at very, very low prices. All it would take is time and realization of reality to accrue significant value appreciation. Many know of Google's Android, Google's search and ad networks, Google's YouTube and TV initatives and Google's cloud offerings, but most are not aware of Google Fiber! The following is taken directly (with my annotations) from Google's Asheville blog:

“Google fiber” is shorthand for the “Google Fiber for Communities” project.

The goal of the project is... 

... to build a fiber optic network – your connection to the Internet, more or less – right to your door.  This network would be different than what you have now in that it would be a lot better and more stable.  It would be, for example, 100x faster than the maximum speeds you have now and it would be open source (think the opposite of a toll road).  It would also be capable of carrying enough stuff so that TV, phone, web would all fit in one connection.  And it would all be very fast. Google has stated that they are willing to spend up to 500 million dollars (probably split among a few spots) and then charge for Internet access at a “competitive rate.”

Like you, I thought Google was a search company. Why do they want to build an experimental network and sell me broadband services?[tweetmeme source="googleavl" only_single=false]

That's right! Google is looking to directly commoditize the broadband carriers, just as they did the news organizations, the online ad agencies, currently doing the smart phone industry... No, Google is not a search engine company, as I have said so often in the The mobile computing wars series. Google is a data company, and as such, anything that has to do with the movement, storage, organization, manipulation, control and intelligence of said data, Google either has their hand prints on it or are reaching for it. May the ignorant, and the slower moving competiion, beware!!! Again, excerpted directly from the Google AVL blog, which is the blog that is detailing Google's buildout of the high speed fiber network to the doorstep in the city of Asheville as well as Kansas City, both of whom competed against many other cities for this privilege. That's right! This is not a pie in the sky initiative, this is something that is being built right now by a company that is not know for taking its time... I  stronly suggest interested parties visit this site after persuing my thoughts on Google, in order to get a clearer view of the BIG PICTURE...

Google_Ashville_blog

1. Google needs lots of data so they can organize it.

Google doesn’t want to be a broadband provider (my opinion), but they do want to manage and organize the world’s data.

That business mandate puts them in direct conflict with anyone who limits the flow of information that Google seeks to manage. Google needs you to take full advantage of your digital connections to the world so that they have a profitable job – with room to grow – making up clever ways to organize your data. The most basic way they do this now is with search. Another is with maps. And so on.

But what if we stopped making so much data? That is exactly what is happening in the U.S. – only we didn’t stop creating data. We just stopped adding the capacity to transmit it, which, from Google’s point of view is the same thing.

2. Our slow-ish broadband network means there is less for Google to organize, potentially capping Google’s growth.

US Broadband: Slow as a turtleIn the U.S, during the last 10 years, broadband companies have been relatively content with their profits, consumers have had only one choice or two choices for service (cable vs dsl), and no outside software has been desirable enough to make everyone want anything different (in the way that the iPod made everyone ditch CDs).

How slow are we?  In 2007, the average advertised bandwidth speed in Japan was 96 Mbps. My Charter connection at home right now is supposed to be 5 Mbps but rarely exceed 3 Mbps. You can see for yourself by comparing broadband costs and bandwidth among countries or examining this article.

Or better yet, test your current connection and see what your bandwidth number really is.

It looks to me like we are somewhere between 15th and 23rd in the world (and falling) in terms of broadband.

This problem is most acute at the so-called “last mile,” which includes the connection from the pole to your house.  Also during the last 10 years the speed and capacity of the backbone, aka the bigger cables between cities, has increased in speed pretty dramatically.  When you read about “dark fiber,” you are often reading about the unused capacity that lies just beyond your yard, past the pole as you head upstream from your cable or phone jack. Not only has your current broadband provider refused to consider alternate technologies like fiber optics, they’ve gone ahead and planned some upgrades that use their existing cable technology in order to appease a part of their customer base.  Those upgrades are detailed in the just released National Broadband plan.  One of the problems with that plan is that it ignores the best technology – fiber optics – which the rest of the world is increasingly using.

3. Google enters the market with a better plan in order to spur competition among existing broadband companies.

Google fiber: fast and competitiveGoogle  wants to shake things up by building something better than what you are used to.  And not just a little bit, either – they want to build an open network with 1) much better speed and service than you have now AND 2) they want to do it using better technology (that’s the fiber part of the project) AND 3) they want to use a different business model than your current provider.  It is a lot to get your head around, I know.  Those three things, taken together, are what make Google’s fiber project so exciting.

"they want to use a different business model than your current provider..." Put plainly in layman's terms, Google will cost shift, and basically provide the high speed broadband for no out of pocket expense in exchange for access to your behavioral data, advertising consumption activity or subsidize the broadband as your corportate and high use neighbors take advantage of cloud services. To make a long story short (if it ain't too late), you'll get cutting edge broadband access for what you would consider free - much like how you get YouTube HD video for free. Where does this leave the big Telcos???? 

The open network is the hardest of the three ideas to grasp, since most people in the U.S. have never had one.  Normally, it would work like the street in front of your house – tax payers pay for it, anyone can use it, and some of those uses allow us to do profitable things.  The open network model is in use in other parts of the world and open networks are quite successful*.  They are usually built, like roads, with at least partial taxpayer funding. In this case, Google is proposing that they pay for the road on Asheville’s behalf.

4. If they wait, they could lose a lot of money.

If they wait, they have less data to manage. This is because the U.S. just released the national Broadband plan, and the plan is not good enough.  The plan settledand accommodated existing industry at the expense of innovation and competition**.  Our new broadband plan does not require or even suggest open networks, it advocates speed increases that are small in relation to what technology allows, and, generally speaking, it keeps the old way of doing business alive and well for the current broadband companies. Google, who had input into the national Broadband plan, no doubt saw this coming and intends for this experiment to help create an alternate path to a better network.

And that’s why, right now, they are running a competition to build a fiber optic network (speed and reliability fixed), to your door (last mile problem fixed), with an open network (competition problem fixed, control shifted back to the customers).  And they will build it with their own money.

-Clark Mackey

    • * Asheville is already one of the few places in the country with a functioning open fiber network – ERC Broadband. Open networks are opposed by your current broadband provider, but strongly supported by some very smart people. One is Vint Cerf who is widely known as father of the Internet
    • ** In the National Broadband Plan, we settled for slower speeds 10 years in the future than some countries have now. Ch 1 page 2. The plan has a goal of 100 Mbps, much slower than Google’s proposed speed of 1000 Mbps.  We accommodated by obfuscating the decision to go away from open networks, allowing current companies to justify exclusive control of the wires because of the high cost of installing them (Ch 4 page 36 and 37).  Roads are expensive too, but I note that we have found ways to build them without requiring tolls at the end of our driveways.

Industry Leading, Subscription Based Google Research

All paying subscribers should download the Google Q1-2012 Valuation Summary, wherein we have updated the valuation numbers for Google using a variety of metrics. Click here to subscribe or upgrade

Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.

Subscription research:

file iconGoogle Final Report 10/08/2010

A couple of bits from our archives...


There are currently 7 Google reports available. Select the "Google Final Report" and click the "Download" button. You will receive a 63 page analysis that looks like this on the cover...

The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as  valuation for each business line.

Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.

Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.

Fresh and Very Accurate Apple Research

For all of those near fanatics who do not subscribe, I suggest you ask a friend who does subscribe to share with you the difference between last month's valuation note target price (page 10 of File Icon Apple Margin & Valuation Note) and the price of Apple today, the day after earnings (click here to subscribe).

As excerpted: 

It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth *******  in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters. 

Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.

What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, "But wait, the company reported an INCREASE in margins while you said there will be a decrease!". Yes, that's true and both can exist simultaneously.

Apple_2Q2012_results_analysis_Final_Page_2Apple_2Q2012_results_analysis_Final_Page_2

Apple_2Q2012_results_analysis_Final_Page_3Apple_2Q2012_results_analysis_Final_Page_3

Apple_2Q2012_results_analysis_Final_Page_4Apple_2Q2012_results_analysis_Final_Page_4

 I will discuss nearly all of the stocks in the CNBC stockpicking list above in the next few posts on my way to studios via BoomBustBlog and ZeroHedge. Comments are always welcome. Follow me:

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Published in BoomBustBlog

Let's face it: Traditional Cell Phone Usage Is So Old School!!!Observations on AT&T and US cellular business in general, per the CNBC stock picking exercise...

  • The company has been making slow but steady growth in its revenues and profits
  • The US market is nearing saturation, resulting in increased competition with Verizon Wireless and Sprint Nextel Corp. This cannot be over-emphasized, since mobile computing growth is THE place to focus energies and resourced for at least the next 5 years. Google's Android has allowed companies to tranform dead industries by making use of Google's negative margin tech and business model to jumpstart failing business models. A perfect example of this is Barnes & Noble. @paidContent: At $1.7B, Nook's worth more than Barnes & Noble itself - as per GigaOm:

Microsoft and Barnes & Noble have buried the patent hatchet and teamed up to compete against Apple and Amazon in the eBooks business. The new partnership sees Microsoft investing $300 million in a new Barnes & Noble subsidiary. (My colleague Laura Owen has the complete breakdown of the deal over on PaidContent.)

The $300 million investment in the  Nook subsidiary of Barnes & Noble gives Microsoft about 17.6 percent ownership of this  business unit. That values, this business at about about $1.7 billion. Before the markets open this morning, the Nook business was valued about $900 million more than Barnes & Noble itself.

Update: Barnes & Noble stock zoomed at the opening bell – and is now trading at about $9 a share, giving Barnes and Noble a total market cap of $1.3 billion — which is still less than the Nook subsidiary itself.

  • Net attributable income rose to $3.6 billion, or 60 cents per share, from $3.4 billion, or 57 cents per share in the year-ago quarter.
  • Consolidated revenue rose nearly 2 percent to $31.8 billion
  • The company has been witnessing growth in its ARPU and subscribers numbers, although moderate.
    1.  The U.S. mobile provider added 187,000 subscribers in the quarter
    2. Average monthly revenue per AT&T contract subscriber, or ARPU, increased 1.7 percent to $64.46

Stock performance (YTD:  +3%, 6M: 12%)

US carriers need to reinvent themselves, and they need to do it yesterday. Webiste Mobithing.com share with us...

1) There are now 1.2 billion mobile Web users worldwide, based on the latest stats for active mobile-broadband subscriptions worldwide; Asia is top region.

This means there will soon by more business on handset communictions then there will be in the desktop business.

2) South Korea and Japan lead in mobile broadband penetration with 91 and 88 percent respectively.

This means there's plenty of room for the US to grow. The only question is how?

3) Mobile devices account for 8.49 percent of global Website hits.

Here's an opportunity right here, but will the staid management of cellular carriers see it to capitalize on it.

4) Many mobile Web users are mobile-only, i.e. they do not, or very rarely use a desktop, laptop or tablet to access the Web. Even in the US 25 percent of mobile Web users are mobile-only.

BINGO!!! Carriers should not be looking to be the traffic tolls or gatekeepers of mobile content (which is there current mindset). They should be aiming to be THE content, as well as the end to end enablers of such: apps, media, intelligence and all.

5) The drivers of mobile Web and mobile media are:
(i) Web-enabled handsets - by 2011, over 85 percent of new handsets will be able to access the mobile Web. In US and W. Europe, it is already surpassed that. Lots of new handsets support 3G (fast Internet).
• N.B. smartphones are only a fraction of Web-enabled phones.
(ii) High-speed mobile networks - almost one in five global mobile subscribers have access to fast mobile Internet (3G or better).
(iii) Unlimited data plans - Widespread availability of unlimited data plans drove mobile media in Japan, now it’s driving the US; but in W. Europe, lack of availability is holding up progress.

Re: (i) Carriers DO not think outside the box. One of the CNBC stock draft contestants recommended RIMM his top pick. While I don't agree with him, per se, the value in RIMM and Nokia is certainly there for those players who need a massive strategic boost in this mobile computing game, translated as EVERYONE besides Google and Apple. The only one who seemed to have gotten the message was Microsoft when they purchased (synthetically) Nokia, and recently part of the Nook Franchise. Deutsche Telekom should look into TMobile buying the assets out of RIMM and specializing in end to end enterprise solutions as well as consumer prodcuts right outside of the feature phone level. That's where the growth will spurt, as the rest of the world graduates from feature phones to full fledged smartphones.

Re (ii) and (iii) Instead of creating ingenious ways to force people to pay for things they already have been trained against paying for (and therefore may ever pay for), the telcos should look into adopting Google's methodology of cross subsidizing  high demand services with revenue from SMBs and institutions. Basically, Google cost shifts. They take revenue from adSense and use it to fund gmail, etc.

Telcos should create real, attractive, functional and useful apps/cloud systems and bundle them tightly into their services. As the front end, they have an advantage and if they do a good job, not only will most not bother to avoicd said service, but will actually opt for said service while recommending the same to their friends. Why in world didn't AT&T or Verizon create Dropbox before there was a Dropbox? Even if they didn't have the creativity, they could have simply bought Dropbox.

Yes, the business would have driven high bandwidth usage, but isn't that would they would have wanted???? Don't they sell bandwidth? A viral campaign and cost shift strategy of offereing free storage AND a free week of cell service/data plan for every Dropbox referral customer successfully signed up would have made Sprint a number carrier and data service provider.

A web-based office front end would have rounded out the deal, ex. buying web-based company like Think-Free office, you know... Just like Google did. They same viral offers could have applied. Selling a packaged cloud-based voice mail system could have had Sprint profiting from Verizon and AT&T accounts they don't even have to pay the infrastrcuture for. A good example would have been Grand Central, which Google bought and turned into Google Voice. Spint could have done this and sold it not only to its customers but to Verizon, AT&T and T-mobile customers as well. Making money from all angles, again with that viral marketing slant.

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Published in BoomBustBlog

cnbc_draft_pick_collage

Just a day or two after describing the extreme undervaluation of Google shares on CNBC, Google releases its cloud storage platform - Google Drive. For those who may not comprehend the significance of this move, Google has now entered (with both feet planted firmly on the ground) the enterprise, SMB and consumer cloud business in a profound way that it has never done before.

Before Drive, Google was arguably the most prolific cloud computing company for the masses and making inroads towards the enterprise. Now, with 16 TB plans, it plans are literally deadly to the competition and clearly show that this is no mere online ad agency and/or search company. The key to Google's dominance in cloud computing and the SMB/enterprise space is its massively successful mobile initiative. Wait! I'm getting ahead of myself. Let's take this from the beginning...

Google is known as the world's larges and most successful internet search engine. As a result of it's massive search reach, it has enabled automated, DIY web advertising, a business from which it derives most of its revenues and profits. This automated advertising model is low cost, high volume, high margin - a combination made in investor heaven. Of course, nothing lasts forever, and although the business and its margins are still growing at a healthy clip (see Google 1Q 2012 Earnings Update), nothing lasts forever. Google's astute management is well aware of that and branched out into mobile heavily about 5 years ago with its successful, yet oft misunderstood Android buisiness model as referenced by the piece I penned two years ago (yes, this business model and opportunity was obvious and evident two years ago) - Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space:

Many commenters are lamenting on the fact that Google is not making money on Android sales since the OS is given away for close to free while Apple is making $250 per handset sold. Those who are looking at it from this perspective are missing the forest due to that big fat tree that is in their way! Yes, Apple is making a killing on its iPhone sales, and it would be difficult to attempt to catch them with a fat margined product. They have managed to produce both margin and volume and have wrapped it up with extreme customer loyalty. What the armchair pundits are missing is the power of reach. Google is developing massive reach, and developing it ridiculously quickly. A byproduct of this reach is the commoditization of the smart phone platform which will probably cut the fat margined business model off at its knees. That is not to say that Apple will be cut off at the knees, but they will have to alter their business model for the competitor-less margin that they enjoyed for the last three years will no longer be a given. It also means that anyone else reaching for the crown (including Apple) will have to spend more upfront to gain less per unit sold. This actually benefits Google, for they are not in the hardware race, yet they benefit from each and every handset, tablet, desktop and automotive unit sold. Google is trying to become the new Microsoft!

In the meantime, Google ramps up the potential to push software as a cloud service, downloadable software and interactive, activity/context sensitive rich media ads and services to hundreds of millions of new users. This opens up a phenomenal opportunity for Google, and it appears as if many are missing the point because Google (wisely) decided not monetize it immediately, but to let it gestate and grow. Do you remember 15 years ago when many felt the same about search and the fact that Google wasn’t making any money providing search (pre-advertising)? Now this is not to say that Google is going to win the Smart Phone Wars, although at this point Google looks like the number one contender (IMO, Apple, Google and Microsoft are the ones to look out for).

Google now derives approximately $2.5 billion in annual revenue from mobile advertising, and that is from nearly all platforms, not just its market dominating Android platform. Remember, Google is not longer a simple ad company though. Mobile searches have quadrupled in the last year, for many items one in seven searches are now mobile. Approximately 71 percent of smartphone users that see TV, press or online ad, do a mobile search. This puts a significant amount of power in the hands of those companies that can control the mobile platform. 

Paid Subscriber Content 

All paying subscribers should download the Google Q1-2012 Valuation Summary, wherein we have updated the valuation numbers for Google using a variety of metrics. 

 Click here to subscribe or upgrade

Many mobile Web users are mobile-only, i.e. they do not, or very rarely use a desktop, laptop or tablet to access the Web. Even in the US 25 percent of mobile Web users are mobile-only.

Popular media would have one believe that the mobile opportunity is in mobile apps, and indeed, over 300,000 mobile apps have been developed in three years. The site mobithinking.com states apps have been downloaded 10.9 billion times, but demand for download mobile apps is expected to peak in 2013The most used mobile apps in the US are games; news; maps; social networking and music. Facebook, Google Mapsand The Weather Channel (TWC) are the kings here. Mobithinking.com compendium research asserts the average download price of a mobile app is falling rapidly on all vendor app stores, except Android. And 1 in 4 mobile apps once downloaded are never used again.

So where is the opportunity? Commerce and the cloud!!! Again, as sourced from Mobithinking.com:

Mobile payment, NFC, m-commerce, m-ticketing and m-coupons

1) Paying by mobile i.e. m-payments will be worth US$240 billion in 2011 and could be over US$1 trillion by 2015. Purchasing digital goods is the largest segment ahead of physical goods, near-field communications (NFC), m-banking and money transfer. Biggest market today is Japan, but in the future could be China.
2) Japan sets the precedent for m-payment 47 million Japanese have adopted tap-and-go phones, but is expected to take off elsewhere as the world adopts NFC. In China alone, there will be 169 million users of tap-and-go payments in 2013.
3) M-commerce is predicted to reach US$119 billion in 2015, Japan remains king. Top m-commerce retailers globally include: Taobao, Amazon and eBay. The US m-commerce market will be US$31 billion by 2016.
• 1 in 8 mobile subscribers will use m-ticketing in 2015 for airline, rail and bus travel, festivals, cinemas and sports events.

Who is at the forefront of NFC enabled mobile hardware? You guessed it, Google. As a matter of fact, Android handsets are the only handsets sold stateside that feature NFC (near field communication) capabilities needed for this new form of mobile commerce. Now that we're discussing it, whose software/firmware financial transaction platform has the biggest headstart, by far? You guessed it again - Google and their Google Wallet.

This brings us back to reach. Google's Gmail has approximately 350 million active users! Gmail is now tightly integrated with ALL of Google's cloud services. Thus, if you use one of them, chances are you will be, if not already doing so, using much of the rest of them. 350 million is an impressive number, yet even this impressive number looks to be outdone by the juggernaut that is Android. Asymco.com posed the question, When will Android reach one billion users?

The latest data from Google shows that the Android activation rate is increasing at a relatively steady rate (i.e. acceleration is constant). The data provided so far is in the blue circles below. The green line is the interpolation and extrapolation of that data.

As the graph is projected forward we get an activation rate of one million per day by mid August of this year. If it continues then we could see 1.5 million per day by end of 2013.

The corresponding number of cumulative activations is shown on the following log chart (with blue circles showing the actual data and the green estimates.)

The forecast is therefore that Android activations will cross one billion by November 2013.

The following chart compares the growth ramps of the various mobile operating systems indexed from the same starting points (measured in quarters after launch).

If Android does keep accelerating at the same rate then it will reach a billion users in five years....

 These numbers are phenomenal, but what do they mean in the context of Google's share price. Well, this brings us back to Google Drive as an example...

Gogole_drive_pricing

200 GB is consdierably larger than most endusers desktop storage capacity. Assuming in 2013, at a billion users, Google is able to convert 2% to paying consumer retail drive clients (this number is ridiculously conservative as anyone who has used Dropbox can attest) and .03% to SMB/enterprise clients (again, ridiculously conservative).

  Paying Users Annual Price Annual Revenue
Retail          20,000,000  $                  120  $                    2,397,600,000
SMB/Enterprise            3,000,000  $                  600  $                    1,799,640,000
       $                    4,197,240,000

As you can see, Google drive represents an additional $4.2B in revenue alone. This does not in anyway take into consideration the additional network effect revenue knock-ons that will assuredly accrue in Google's favor, ex. Google Docs adoption, Google Voice usage, synergistic Android handset sales, and last but not least higher ad revenue from higher usage as users share files with friends who are not paying subscribers. Add on mobile commerce, and the dozen or so other NEW Google franchises and you can see that valuing this company as a search engine provider is downright foolish. 

All paying subscribers should download the Google Q1-2012 Valuation Summary, wherein we have updated the valuation numbers for Google using a variety of metrics. Click here to subscribe or upgrade

Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.

Subscription research:

file iconGoogle Final Report 10/08/2010

A couple of bits from our archives...


There are currently 7 Google reports available. Select the "Google Final Report" and click the "Download" button. You will receive a 63 page analysis that looks like this on the cover...

The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as  valuation for each business line.

Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.

Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.

Published in BoomBustBlog

For those who didn't see the CNBC Streetsigns show yesterday, I have put together a brief (often not so) fundamental overview of the stocks that were available for drafting in during the airing, along with my comments and opinions. Yesterday I released the analysis of Apples Q2 earnings, and I'm sure it contained content that you didn't read anywhere else.

 cnbc_draft_pick_collage

Here’s the list of stocks:

  • Apple: Reviewed in depth and in detail yesterdayFor those who do not subscribe, I suggest you ask a friend who does to share with you the difference between last month's valuation note target price (page 10 of File Icon Apple Margin & Valuation Note) and the price of Apple today, the day after earnings (just the difference, mind you - no giving away the BoomBustBlog content for free). Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. Subscribers, please download File Icon Apple 2Q2012 results analysis.
  • Starbucks: 
    • The company is expected to benefit from
      • Continued momentum and dollar share gain in the K-Cup segment
      • Ramp up of multiple key revenue drivers
      • Moderation of coffee prices, benefiting future margins. Coffee price have fallen 37% since hitting a 10 year high on 3rd  May 2011
      • The Company is entering into strategic partnership in different location; is seeking expansion in emerging economies including China and India
      • The stock ($59.5) is close to 52- week high ($ 62.0)
      • Starbucks Sales in China Contribute to Earnings Rise: New York Times‎ - 11 hours ago Earnings increased 18 percent to $309.9 million, or 40 cents a share, in the second quarter, propelled by more traffic in its stores and big
      • Starbucks announced that it continues to target approximately 10% revenue growth, driven by mid-single-digit comparable store sales growth in fiscal 2012
  • Priceline.com:
    • S&P upgraded the company to ‘BBB’ from ‘BBB-‘
    • Priceline business model of offering discount travel rates on car rentals, hotels, and flights has helped it stay afloat despite a weak U.S. economy and a slowdown in Europe
    • Company fourth-quarter net profit was $226 million, or $4.41 per share, compared with $136 million, or $2.66 per share, a year ago
      1. Bookings gained more than 50 percent from a year ago.
      2. 80% of operating revenue came from outside US, the company still has room left to run in emerging markets like Asia and Latin America
    • High growth and steady margins are strong positives for the stock
    • The recent launch of its Booking.com Tonight application is getting a lot of attention from travelers who book hotel reservations or car rentals at the last minute
    • The company’s business model is less resilient to the current economic turmoil
    The stock is continuously performing despite negative economic conditions (YTD:  +55%, 6M: +43%)

I will continue snapshots and opinions of all of the other companies (excpt the oil company) in two separate posts. 

Relate Video 

Reggie Middleton on CNBC Stock Challenge... I'm at 5:28 discussing Google.

Additional commentary and footage...

Published in BoomBustBlog

Okay, it's time to review Apple's earnings. It's interesting that so many in the street and off are coming around to my way of thinking regarding Apple. To me that means that fundamental analysis is starting to return. I have had more hedge funds request Apple research than at any time in my site's history.  Before we move on to the Apple analysis, I want to inform all that I will be discussing this on air live today in the “CNBC Stock Draft 2012” live on @StreetSignsCNBC, 2:30 pm ET, hash-tag: #cnbcstockdraft2012

cnbc_draft_pick

Here’s the competition:

  • Josh Brown – SHAOLIN STOCKPICKERS
  • Abigail Doolittle - DOOLITTLE'S DO-A-LOTS
  • James Altucher – THE BOOM TEAM
  • Reggie Middleton – TEAM BOOM BUST
  • Pete Najarian – THE PONY EXPRESS
  • Paul Hickey – B.I.G. MONEY
  • Guy Adami – THE OUTSIDERS

Here’s the list of stocks:

  • Apple
  • Starbucks
  • Priceline.com
  • Mastercard
  • Dollar Tree
  • Facebook (You buy the stock POST IPO .. you don’t get it at the IPO price…must buy at first day closing price)
  • Google
  • AT&T
  • Johnson & Johnson
  • Dell
  • Microsoft
  • Coca Cola
  • Exxon Mobil
  • McDonalds
  • Groupon
  • JC Penney
  • Netflix
  • Best Buy
  • RadioShack
  • RIMM
  • Green Mountain Coffee

On that note, its time to review Apple's Q2 results. Subscribers, please download File Icon Apple 2Q2012 results analysis.

In short, we significantly underestimated the international sell through of the iPhone, as did much of the sell side. We were off, and wrong on that part and although there was significant internal discussion on raising estimates, the work that went out was not what it should have been. I mention this because we are consistently more optimistic than the sell side in terms of units shipped, thus more accurate come earnings time. This quarter was a snafu. I also mention it because I tend to be a perfectionist and the deviance between the actual results and the projection should have been minimized. With that being said, the logic behind the added caution is still quite valid. 

For all of those near fanatics who do not subscribe, I suggest you ask a friend who does subscribe to share with you the difference between last month's valuation note target price (page 10 of File Icon Apple Margin & Valuation Note) and the price of Apple today, the day after earnings (click here to subscribe).

As excerpted: 

It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth *******  in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters. 

Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.

What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, "But wait, the company reported an INCREASE in margins while you said there will be a decrease!". Yes, that's true and both can exist simultaneously.

Apple_2Q2012_results_analysis_Final_Page_2

Apple_2Q2012_results_analysis_Final_Page_3

Apple_2Q2012_results_analysis_Final_Page_4

 I will discuss nearly all of the stocks in the CNBC stockpicking list above in the next few posts on my way to studios via BoomBustBlog and ZeroHedge. Comments are always welcome. Follow me:

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Published in BoomBustBlog

Reggie_Middleton_Facebooks_Valuation

The MSM is echoing BoomBustBlog analysis today, as per Bloomberg: Facebook First-Quarter Profit Drops; Costs Almost Double

Facebook Inc. (FB), the social network planning an initial public offering, said first-quarter profit fell 12 percent as sales growth slowed and marketing costs more than doubled. 

This is exactly as I warned in my initial Facebook analysis to subscribers - The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly... 

Sales had risen 55 percent to $1.13 billion in the fourth quarter, and net income had climbed 20 percent.

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!

 

 

Now, back to the Bloomberg article...

Net income dropped to $205 million in the three months through March, Menlo Park, California-based Facebook said yesterday in a regulatory filing. Sales climbed 45 percent to $1.06 billion, a slowdown from 55 percent in the December period.

Expenses surged to $677 million, reflecting higher costs of helping marketers reach Facebook’s growing user base, which swelled by one-third to 901 million last quarter. The company may struggle to reach EMarketer Inc.’s projection for 2012 sales of $6.1 billion as it awaits the full impact of new tools aimed at wringing more money from advertisers, said Debra Aho Williamson, who helped construct the researcher’s estimate.

“Facebook has a pretty steep hill to climb to meet the expectations that we set out,” Williamson said.

Facebook may seek an IPO valuation of $75 billion to $100 billion, people with knowledge of the matter have said. The upper end of that range would value the company at about 25 times trailing 12-month sales, more than double Google (GOOG) Inc.’s valuation when the search-engine operator went public in 2004.

Before last quarter, Facebook’s sales were already projected to gain at a slower rate this year than Google’s at the time of its IPO, according to data compiled by Bloomberg. At $6.1 billion, 2012 revenue would be 64 percent higher than the $3.71 billion reported in 2011. Google’s revenue more than doubled to $3.19 billion the year it went public.

Zynga Revenue

Facebook said 82 percent of its revenue came from advertising last quarter, down from 83 percent in the preceding period. The company also derived less revenue from gaming companyZynga Inc. (ZNGA), which contributed 11 percent of the total in the quarter, down from 13 percent a year earlier.

The number of daily active users rose to 526 million, an increase of 41 percent from a year earlier. Facebook’s employee base rose 46 percent to 3,539 from a year earlier.

“Our costs are growing quickly, which could harm our business and profitability,” the company said in the filing. “Providing our products to our users is costly and we expect our expenses to continue to increase in the future as we broaden our user base, as users increase the number of connections and amount of data they share with us, as we develop and implement new product features that require more computing infrastructure, and as we hire additional employees.”

The paragraph above, decoded: These expenditures are true expenses, and not actual investments for they are needed to keep the company above water in the competition with Google, et. al., and are the stuff that actually fosters long term growth.

From C|Net:

 Its first-quarter revenue rose 45 percent to $1.06 billion compared with a year ago, but it was down 6 percent compared with the last quarter of 2011.

At the same time, the company's net income for the first quarter fell 12 percent, to $205 million from $233 million a year ago. And it was down from $302 million in the fourth quarter of 2011.

That drop in quarterly revenue and profit comes even as Facebook continues to see big user growth, meaning that it's making less on each user. Facebook said that it now has 500 million daily active users, compared with 372 million a year ago, and that its monthly active user number -- people who use Facebook at least once a month -- has climbed to 901 million from 845 million in December.

Its average revenue per use, called ARPU, fell 12 percent from the fourth quarter of 2011, and Facebook said that was mainly due to "seasonal trends." The company points out that it saw the same seasonal weakness during the fourth quarter of 2010.

Even more telling are the comments from that article...

15% of revenues came from Zynga...and that stock's not looking too hot these days. For those on the fence about whether this is a worthwhile investment, consider the last time you actually clicked on an ad in FB.
Posted by techgeekdude 

I am a once-a-month FB user at most. If FB is making any money off of me they are ripping off the one paying them that money. I may be counted as a visitor, but I am worthless to FB and anything connected to them as I cause no $s to pass their way.
Posted by UnderStress 

I discussed Facebook on the Peter Schiff radio show yesterday. The entire show can be heard via podcast from his site, and the Facebook excerpt is below...

From my previous Facebook analysis public excerpt:

Yeah, I was on a roll last year, wasn't I? That's not the gist of it either, as we reminisce even more...

Here is an excerpt for those who do subscribe to our research and services, YET!

Even with the fund taking 45%+ losses and the LP (limited partners, ex. Goldman's clients) losing every last single dime, Goldman easily pulls a 33% return. God forbid Facebook share actually do well, Goldman's numbers look... Well... Damn near illegal! Almost as if they can pump up a price without any fundamental justification or public disclosure of financials and still sell it retail to the public. Of course, such a thing could and would never occur - not with the every vigilant SEC to take our backs. Excuse me while a cough a up a lung from laughter...

You see, this is the dirty little secret of private equity funds. They are not in the business of investing money for client's maximum risk adjusted return. They are in the business of collecting fees. Those poor innocent (or not so, particularly when they are investing their clients monies, hence are in the same business) souls that actually believe as the commenter above quoted "Wow!!! If Goldman is putting their money in this, it must be serious!"simply the lamb being led to the private equity/IPO slaughterhouse. You see, there is no loss to GS - no matter how high they bid up the valuation nor how hard it comes crashing down. This gives them the incentive to shoot for the sky with the private equity deal, because when the IPO breaks, its bonuses bigger than nearly any have ever seen. Facebook makes and excellent marketing story as well. Boy Wunderkind CEO, a product nearly everyone uses and loves, and a mysterious dearth  of business model to give it a mystical effect. Don't forget the involvement of the "cream of the crop" of Wall Street banks, whose bankers, traders and analysts are all so much smarter than us guys from Brooklyn. Add this up, and you get "Wow!!! If Goldman is putting their money in this, it must be serious!".

Additional Facebook analysis, valuationa and commentary.

On Max Keiser, go to the 13:55 marker for more on Facebook...

Last month I released an update to our Facebook IPO analysis (subscribers may download it here FaceBook IPO & Valuation Note Update). In its caveats section, I made pains to make very clear that one of the biggest threats to Facebook investors actually emanates from within, to wit:

FB_Corporate_Governance_issues_pt_1

FB_Corporate_Governance_issues_pt_2

Of course Facebook enthusiasm is burning hot. The coals in the "investor" (and I put this lightly) fire are being stoked by none other than the sell side agents doing God's work, among others...

Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012. The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update. It is recommended that subscribers (click here to subscribe) also review the original analyses (file iconFB note final 01/11/2011) as well as the following free blog posts on the topic:

  1. 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!
  2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
  3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
  4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
  5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
  6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
  7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

 

Published in BoomBustBlog
Friday, 20 April 2012 10:33

Google 1Q 2012 Earnings Update

Google posted robust 1Q results topping the consensus estimates by a wide margin – revenues increased 24% to US$10.6 billion as against US$8.6 billion in the same period, a year earlier. This was significantly higher than the consensus estimate of US$8.2 billion for the period.Revenues were in line with our estimates – we expect full year revenues to total US$43.1 billion. Revenues from Google websites accounted for around 69% of total advertising revenues while that from the partner websites contributed to around 27% of revenues. The remaining 4% of revenues were accounted for by licensing and other fees. Geographically, the US generated around 46% of total revenues, UK accounted for 11% of total revenues while other markets accounted for the rest 43% of revenues.

All paying subscribers should download the Google Q1-2012 Valuation Summmary, wherein we have updated the valuation numbers for Google using a variety of metrics. 

Click here to subscribe or upgrade.

Growth in revenues was driven by an increase in click volumes, especially in the US market. The number of clicks increased by a significant 39% year-on-year and 7% quarter-on-quarter during 1Q highlighting the increasing popularity of the search engine. However, on the flip side, the cost-per-click or the average cost paid by advertisers declined 12% year-on-year during the period – largely due to the growing business in the emerging markets and mobile space, which usually carry lower margins. Nonetheless, Google's strong position in the mobile space – including both smartphones and tablets – is enabling the company to generate robust revenue growth. The Company also continues to benefit from the success of its DoubleClick ad exchange as well as the overall improving quality of advertisements. Google also witnessed growth in the European and Asian markets. Japan registered strong performance largely on account of higher contribution from SMB segment.

Untitled

Total costs increased 16% year-on-year to US$3.8 billion as against US$2.9 billion in the same period, a year earlier. This was largely due to the fact that the Company made investments in new products, increased its advertising expenses as well as increased wages. Further, higher amortization charges, the data center operations cost as well as content acquisition costs drove the overall cost of sales higher. As a result, higher costs had a negative impact on gross margins which contracted by 136 basis points to 64.4% as against 65.8% in the year earlier quarter.

Operating expenses increased 16% year-on-year to US$7.3 billion as against US$6.3 billion in the same period, a year earlier. A 25% jump in selling and marketing expenses was largely responsible for the spike in operating expenses. The R&D expenses in fact declined as a percentage of sales during 1Q. Higher operating expenses had an adverse affect on margins which contracted 77 basis points to 31.8% during 1Q.

Untitled_copy

From the profitability perspective, Google outshone nearly all its competitors as earnings increased by a significant 61% to US$2.9 billion (or US$8.75 per share) as against US$1.8 billion (or US$5.51 per share). Further, the Company continues to have a strong balance sheet with cash balances at an enormous US$49.3 billion at the end of 1Q.

Untitled_copy_copy

All paying subscribers should download the File Icon Google Q1-2012 Valuation Summmary, wherein we have updated the valuation numbers for Google using a variety of metrics.

Google still exhibits the likelihood that they will control mobile computing for the balance of the decade. A couple of bits from our archives...


There are currently 7 Google reports available. Select the "Google Final Report" and click the "Download" button. You will receive a 63 page analysis that looks like this on the cover...

The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as  valuation for each business line.

Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.

Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.

Published in BoomBustBlog

Apple has started exhibiting the behavior that I have been warning about, dropping four and five percent over the last 24 hours or so, then regaining a third of the same.

NAsdapple_or_Appldaq

This volatility should be of no suprise. If you look at the chart above, you will clearly and unequivocally see Apple (or AppleDAQ or NASDApple - regardless of the nomenclature) is essentially the NASDAQ, as was pointed out in previous posts from BoomBustBlog, ex. When The Most Contrarian Trade Of The Year Is No Longer Contrarian, It's About That Time - Enter The Rotten Apple and that of ZH Apple Responsible For 90% Of Intraday NASDAPPLE Gain - to wit:

Or perhaps the 209 hedgies who rely on this stock for their year will play prisoner's dilemma (and free ride) one too many times and dismiss their recency bias to remember that the first one to migrate wins when prices go vertical.

 

Again, as pointed out in When The Most Contrarian Trade Of The Year Is No Longer Contrarian, It's About That Time,  this process of Apple purging may have already started...


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This interesting observation was brought up up in my Twitter feed, to wit:

# of funds in this order (%) since 12/2010: +1.4%, -4.0%, +8.7%, +4.3%, +5.4%, +3.2%, -25.8% (1st big drop) 

@PierreLeroux28 @ReggieMiddleton I just find it interesting (if the data is accurate) that more than 1,000 funds sold out during rise 

PierreLeroux28 Pierre Leroux So if institutions dump some $AAPL on strenght after that THEY ALSO BUY THE DIPS Like i will rebuy my 10 calls 

Of course the lovefest with Apple dictates the BTD will reign, but suppose the dips are accompanied  - better yet caused - by widespread use of technologies known as calculators, spreadsheets or BoomBustBlog subscriptions?

Correction, courtesy of @cperruna, author of the chart above: 

The MarketSmith chart I uploaded was not correct but I have revised my feed with the correct data. I actually questioned MarketSmith when I saw a large drop in another leader I have been tracking. In any event, the updated data is as follows, as I posted on my twitter feed:

"Although Institutional #'s were incorrect, $AAPL still down 8% from 4/7 chart stks.co/3FrS| sponsorship is now 4,196 from 4,308"

This isn't just about quantitative analytics uber blind hedgefund managers reaching for cap gains. There are very fundamental reasons for Apple owners to expect a pullback or slowing of growth. After all, that margin compression theory is ready to come into its own. We have created a very realistic scenario analysis that shows what could happen, and when, and topped it off with what we feel should happen. Interesting indeed! Subscribers, reference the Apple Margin & Valuation Note. I gave free readers an example of the evidence we uncovered showing Apple already experiencing margin compression and a loss of market share in one of its flagship products (Apple's iPad Is Losing Market Share And …).

If the biz class 101 rules ring true, this could very ugly very fast... The Company had a slam bang quarter last, but much of that is essentially unrepeatable in the near term, reference Anecdotal Observations On Apple's Recent Quarter.

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Published in BoomBustBlog