Archive for October, 2010

Financial Ramblings

By: ispeculatornew | Date posted: 10.30.2010 (5:00 am)

Good Saturday to all of you! Our retirement website DoNotWait.com still has a couple of days left to enter the contest to win an Ipad or other top prizes! Click here to learn the details.  There were many good readings, you can check out some of them here:

M35 inc explained @ TheFinancialBlogger
Bill Gates: The Miracle seeker @ Rolling Stone
Tobacco stocks – where vice meets dividends @ TheDividendGuyBlog
What would make me invest in the stock market? @ Balance Junkie
Why following the crowd can lead to destruction @ KNSfinancial
Where will your retirement income come from? @ DoNotWait
Why currency hedged funds have large tracking errors @ CanadianCapitalist
Low cost index trackers that will save you money @ Monevator
Is Google a monopoly? @ The Big Picture
12 stock for 10 years update @ Curious Cat

Quick news – October 29 2010

By: ispeculatornew | Date posted: 10.29.2010 (5:03 pm)

Tech news: (concern the stocks we follow)

Expedia (EXPE) was raised to Buy by Caris & Company
Monster Worldwide (MWW) raised to buy by ThinkEquity
Expedia (EXPE) was cut to “Neutral” by Piper Jeffray

Best return:      Monster Worldwide (MWW) +25,50%


Worst return:    Apple (AAPL) -1,40%

Should Yahoo (YHOO) buy the New York Times (NYT) ? AOL (AOL) ? The Huffington Post?

By: ispeculatornew | Date posted: 10.29.2010 (6:02 am)

Recent speculation that Yahoo came fairly close to buying the Huffington Post made me reflect on a few things regarding Yahoo. First off, with a lack of excitement, the company is desperate for some growth, something new and exciting is maybe the only way CEO Carol Bartz could buy a few more months at the head of Yahoo. The company does have plenty of cash and could look into a few options. Since the company has decided to basically outsource its search efforts to Microsoft’s (MSFT) Bing, it will now have its focus on content, entertainment and news. With that in mind, let’s take a quick look at 3 options:

AOL (AOL): Cost Approx $3 billion – AOL has been discussed time and time again. The pros are that AOL has a huge inventory of stocks, has a solid presence in many of the segments that Yahoo has been competing in and is very strong in the local web which has been a major focus of Yahoo as well in recent years. One of big problems that I see is that AOL is already a very large and inefficient organization after years of restructures and changes. It is a vertical company and adding it to Yahoo would probably not make it much more efficient. It is also doubtful that Carol Bertz would press for this one as most rumors regarding a Yahoo-AOL deal speculate that AOL CEO Tim Armstrong would likely be in charge of the new company.

NY Times (NYT) Cost approx: $1.4 billion – The NY Times has been at the center of the news for years. The fact that it is fighting to stay alive gives us a very good idea of how bad things have gotten for “old media”. The Times, generally agreed as the top brand in the industry anywhere in the world has been slowly transitioning into a 21st centure media company and does have the most visited news website in the world. It is clear that the NY Times can get its fair share of revenues in this new era but what isn’t clear is how its cost structure can be modified to remain profitable. Yahoo would clearly benefit from acquiring such a strong brand and a quantity of content that is beyond anything it currently has. The Times has struggled with its revenue model, going back and forth between an ad supported model and a subscription based model. I would think  that Yahoo would be in a very good position to help the Times improve its digital strategy.

Huffington Post (unlisted)Cost approx $200-250 million – The Huffington post is the player that you might never have heard about but is actually the runner up to the New York Times in terms of news traffic. Yahoo actually came close to buying the blog a few months ago but had deemed the cost too expensive. Well guess what, the price has jumped big time since then. The Huffington Post is probably the most efficient structure that you could get and Yahoo could certainly learn a lot by acquiring the private company. It’s not quite clear how well the integration would go but I think that Yahoo could certainly gain a lot from making this purchase. Given the much smaller cost, I think this is the best solution for Yahoo at the moment, it has limited risk, could help increase the efficiency of Yahoo across the company and would add growth to a company that is desperate to find some.

Quick news – October 28 2010

By: ispeculatornew | Date posted: 10.28.2010 (5:56 pm)

Tech news: (concern the stocks we follow)

Expedia (EXPE) reported earnings of $0.66 per share (est $0.59) on revenues of $987.9M (est $943.7M)
Monster Worldwide (MWW) reported a loss of $0.05 per share (adjusted EPS $0.02) (estimate $0) on revenues of $228.8M (est $223.7M)
Microsoft (MSFT) reported profits of $0.62 (estimate $0.55) on revenues of $16.2B (estimate $15.79B)
Research in Motion (RIMM) was downgraded to Perform by Oppenheimer

Best return:    Ebay (EBAY) +1,50%

Worst return:  NetEase (NTES) -2,11%

One of the tricky parts about an online strategy

By: ispeculatornew | Date posted: 10.28.2010 (4:11 am)

Managing an online business has many pros and cons but one of the very interesting aspects of the business is having its users turn against the company. I did mention how it happened to Ebay but that was because of a fee spike which to many of us would not be shocking. The extent would probably be more surprising.

Users can gang up for much “smaller reasons”

TechCrunch first reported on this but following a major design release, Digg.com, one of the older and influential social players saw its users revolt.

How?

They simply managed to get all of the news stories on the Digg frontpage pointing towards pages from Digg’s competitor “Reddit”, you can see the screenshot. It’s fascinating but also scary for any online business. I’m convinced that psychologists could easily find out a lot about users through such actions but what is clear is this can become a major concern for companies that have an online presence.

It is something I consider when investing in internet companies. A company as big as Google or Microsoft is so big and so diversified that it is doubtful that such a problem would occur. But investing in a company like Facebook will always have a certain amount of risk involved because the day that having a Facebook user is no longer seen as “cool” or “in”, things can change very quickly. How quickly? Well, we have discussed MySpace which went from social king to almost extinct in less than 5 years. Yes, it can happen that fast…

Take a look at the effect on traffic:

The Facebook case

Personally, I think Facebook remains the most important company in terms of potential problems. It is has escaped privacy issues and complaints about its ad targetting and remains one of the most analyzed companies. The release of a movie a few weeks ago describing the start of Facebook and giving more info about Mark Zuckerberg will surely surprise many users and as you saw with Digg, it just takes a few influential users to have a major effect on even huge websites. Is it likely? No. I think most users see that Facebook has been constantly improving its product and thus give the company a lot of “slack”.

How to evaluate such a factor?

I think it’s important to follow the news and when problems start arising, you will hear about it. In the case of Ebay, public complaints and users starting to boycott the service made news in the blogs and social networks months before having a noticable impact on the stock.  That did create an opportunity for investors who were aware of the situation to take action in one way or another.

Quick news – October 27 2010

By: ispeculatornew | Date posted: 10.27.2010 (7:56 pm)

Tech news: (concern the stocks we follow)

IAC Interactive (IACI) reported earnings of $0.32 (estimate $0.266) on revenues of $421.65M (estimate ($400M)
Yahoo (YHOO) finally upgraded its email website to include social features
Google (GOOG) is looking into buying an office in New York for $2 billions

Best return:      IAC Interactive (IACI) +4,23%

Worst return:     NetEase (NTES) -1,97%

About Apple (AAPL) buying Netflix (NFLX)

By: ispeculatornew | Date posted: 10.27.2010 (4:42 am)

It’s been a story that we’ve been hearing every other day.. a big tech company looking into buying another one. There have been exceptions to that general rule such as the rumors regarding a takeover of Yahoo (YHOO) by the much smaller AOL (AOL). But in general, the rumored acquirers have been names such as Google (GOOG), Microsoft (MSFT) and Apple (AAPL). In general, the companies that are mentioned as being acquired have mostly been companies that are having trouble such as Yahoo (YHOO), Research in Motion (RIMM), etc. There are valid reasons for these rumors of course because we have bever seen so many big companies have such huge amounts of cash. Apple’s CEO Steve Jobs now has close to $50 billion at his disposal and there is increasing pressure from shareholders to do something more productive with all of this money.

Earlier in the day, I saw a news flash regarding a possible takeover of movie distributor Netflix (NFLX) by Apple. I dismissed it and moved on… but many did not. Netflix’s stock had a great day yesterday gaining over 6%, which certainly seems to indicate that the acquisition is a possibility. A bit surprising on the surface but let’s take a deeper look to see if it would make sense.

Why Apple buying Netflix could happen

Living room

Apple is a success by almost any measure that you could look at. It’s the top technology company in the world and is 2nd to Exxon (XOM) at the the top of the most valuable companies in the world. For all of its successes, Apple is still fighting to get to the next step. For Steve Jobs, that means having access to the living rooms of Americans. It’s a huge battle that other companies such as Microsoft, Google and Sony are also waging. Why? Because Apple already dominates the computer, portable music and tablet markets and has significant market share in the mobile phone business. But Apple TV is having a more difficult time breaking through. There’s incredible competition from huge companies and it’s not clear how Apple will be able to take over this market.

Netflix however is already at the center of the living room. It’s stand alone device is used by millions to access movies either through streaming or through delivery. Also, Netflix has positioned itself with alliances in the gaming market with players such as Nintendo’s WII and Microsoft’s XBox among others. Thus, buying Netflix would be a very quick and efficient way of gaining huge market share and a competitive edge over other players….

Content

Apple is also waging another battle with content providers such as tv stations, etc. It regards the distribution and pricing of content over all of Apple’s devices. It is a difficult battle because content producers are fearful that the same thing that happened to music executives could happen to them. What is that exactly? Music used to be sold through CD’s (you might remember what those look like) but as they went digital, their was basically one seller of the music; Apple through its Itunes program. That gave Apple incredible pricing power over music executives who simply cannot afford to not sell music on Itunes.

Because of that, content providers are very reluctant to give a lot of power to Apple as they move their content online. TV networks have tried using a self-made alternative; Hulu. It has worked well but Apple still controls enough market to make it difficult for producers to ignore it. Buying Netflix and its nearly 20 million customers would be a huge step in forcing content producers to live by Apple’s terms and conditions. For Apple, that is critical. To give you an idea, Netflix has rights to 100,000 movies, that is 10 times as much as Apple currently has.

Why Apple might NOT buy Netflix

Not Apple’s type of acquisition

Apple and Google are two competitors that both have huge amounts of cash but both have been focused mostly on smaller acquisitions. Netflix is everything but a small acquisition with a market cap of around $10 billion. Why are they buying smaller companies? You could speculate on many possible reasons but I think that here are the main ones:

-Apple wants to keep most of its cash at its disposal
-Buying a bigger company is much more difficult to integrate
-The risks of losing a part of Apple’s identity and corporate culture when buying bigger companies is significant
-Apple seems to think it can do almost everything on its own so they focus on small targets that have very very specialized skills

The one thing I would say is that Netflix’s culture is not miles away from Apple’s the way that Research in Motion or Yahoo would be. That being said, I still don’t see a big acquisition as probable for Apple….

Expensive

This is a key point. Just take a look at Netflix’s chart… the company’s stock has gained so much that buying now would come with a very expensive price tag. The P/E ratio of Netflix is also quite high as you can see here, which also screams like an expensive stock.

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Quick news – October 26 2010

By: ispeculatornew | Date posted: 10.27.2010 (4:30 am)

Tech news: (concern the stocks we follow)

Netflix (NFLX) stock gained as speculation grew that a takeover from Apple (AAPL) was possible
Blue Nile (NILE) was cuyt to neutral by MKM Partners

Best return:    Netflix (NFLX) +6,46%


Worst return:    Travelzoo (TZOO) -3,36%

ETF issuer battle heating up

By: ispeculatornew | Date posted: 10.26.2010 (4:13 am)

Earlier this month, TD Ameritrade announced it would be offering commission free trading on over 100 ETF’s for all of its customers. It’s not a new idea as a few other US brokers have offered the same thing. But it’s becoming a tendency that is sure to make customers very happy. Why? Because the battle of ETF’s vs Mutual Funds is entering into a new phase. Some time ago, brokers were still mostly fighting ETF’s by promoting its mutual funds harder and more aggressively.

Broker     Commission Free ETF’s
TD Ameritrade     101
Vanguard     47
Charles Schwab     11
Fidelity     25

There is a catch

TD Ameritrade has set a condition. Only ETF trades that are kept for 30 days or more will be eligible for the free trading. That is different than other brokers but is still interesting for the vast majority of individual investors who use ETF’s in retirement portfolio rather than do day trading.

Reality sets in…

I think most brokers now know that mutual funds are slowly losing the war and the only way they can remain interesting is with much diminished commissions. That takes away power in a big way for almost all of the brokers. Why? Because most brokers had their own offerings of mutual funds to sell to their clients which ensured a steady flow of commissions every year. As customers move from mutual funds to ETF’s, that has been dramatic on many levels for the brokers as the customers were usually not moving towards the equivalent ETF’s. What do I mean? Here is an example…

Customers who held a portfolio composed of TD Mutual funds started moving into ETF’s. But not TD ETF’s…rather ETF’s issued by Vanguard, Ishares, WisdomTree, etc. Why? Because those companies have products with cheaper commissions, and more variety. That of course translates into a loss of commissions for TD in this case…imagine that situation for millions of users… and you see exactly how big of a problem this represents.

Launching competitive ETF’s is much more difficult than similar mutual funds because of the fact that they trade all day long. That requires having liquidity and volume for the ETF’s which is much more complex and costly.

So what can a broker like TD Ameritrade do?

Basically, what TD can do is offer its customers free trades on ETF’s that will generate a steady flow of revenues. That makes it possible for the broker to grow its own offering over time and give solid products to its customers or sign agreements with issuers to get a portion of the management fees. The other side is also that TD Ameritrade customers who were trading these ETF’s will no longer be paying commissions which will impact the broker’s revenues. It will be interesting to see how things will evolve but brokers are in a very difficult position at the moment because of the emergence of ETF’s.

But really, they are in big trouble

It’s a great idea for brokers to give free commissions on these ETF trades but it’s worth noting that they will still be seeing very significant losses. ETF’s charge much much less than mutual funds for investors which translates into much smaller commissions paid out. Another point is that the major ETF issuers have a huge lead, in the technology, the products, methods, etc. Players like Ishares and Vanguard will be very difficult to catch for traditional mutual fund players.

Blackrock’s Ishares could easily launch a platform that would make it free to trade on all of their ETF’s and honestly it’s difficult to imagine most brokers being able to compete with that because of the scale….

Who is your broker?

Any thoughts on all of these tactics?

Quick news – October 25 2010

By: ispeculatornew | Date posted: 10.25.2010 (6:26 pm)

Tech news: (concern the stocks we follow)

Microsoft (MSFT) cut to sector perform by Pacific Crest
Microsoft (MSFT) cut to market perform by FBR Capital markets

Best return:   Sohu (SOHU) +13,94%



Worst return:   Nextflix (NFLX) -0,75%