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Tuesday, January 31, 2006

Google Earnings: Good AH Trade - Long (seriously) (GOOG)

Google earnings scared the sh*t out of the daytraders and hysterics. But they actually beat my expectations, which is great for them. If you look at the numbers, they met revenue targets; wildly hyped, overinflated targets. Yeah, they put up some big, fat revenue numbers.
Q: What does this mean?
A: This means that there is nothing fundamentally wrong with their business.
Google missed earnings because everyone f'd up their tax estimates. That's not anything wrong with Google, that's something wrong with everyone's models.
Additionally, they basically said that they haven't even begun to pull the international revenues lever yet. I assumed that they were already jerkin' this chain pretty hard.
The big funds get this and will use this opportunity to average in. It will close tomorrow over $375. Far enough over for a decent trade in my book...

Saturday, January 28, 2006

Net Tech Turbulence (GOOG, EBAY, YHOO, Etc...)

I've been watching the news roll by lately and I think we're in the beginning of a valuation bleed out. What do I mean by this? Well, I think the last two years have been education for investors regarding the power of Internet-based business models. Clearly, Google's launch has turned a lot of heads in the investing world; maybe too many. Now we have a rush of equity capital into the sector. GOOG, YHOO and EBAY are now well-entrenched in the largest mutual funds and market ETFs; GOOG is 2.67% of the "iShares Morningstar Large Index Fund" (JKE).
This means that they automatically get equity demand regardless of their fundamental peformance or valuation. Inclusion on indexes is not based upon investment decision, it's based upon factors such as how many people hold an issue, market cap and trading volume. And once they're included in indexes, they're stock will experience increasing demand as ETFs and Index funds become more popular. More individual investors are giving up on picking stocks and buying ETFs because its easier and "safer". More advisers are doing the same thing because of all of the literature that demonstrates you can't outperform the market. Hey, I'd do the same thing if I hadn't proven to myself that I outperform the market by a wide margin.
So, now you have stocks with valuations that imply amazing performance for the 20 years. The problem is that we're going to enter into a period where information enters the market and illustrates that these companies will face issues just like every other company that has graced the face of the earth. For instance, here are some major negative themes that I think could impact the Big Nets:
  • Google - "May not walk on water." We've heard that they're a one-trick pony (search). What we haven't heard is how badly they've screwed up some of their initiatives.
  • eBay - "Quasi-governmental agency" Hey, we just make markets, we're not responsible for any of the content. Good theory, ain't gonna work in practice eBayers. Welcome to the world of social responsibility - watch it add to your SG&A expense line item. Wait until the market figures that one out...
  • Yahoo! - "The CFO doesn't know what she's talking about. Don't mind her, it's probably the medication..."
  • Competitive Search Engines Get Funding
    • Check out Kosmix - it's pretty good, better than Google IMHO. (H? Who am I kidding?)
I guess my basic point is that the warts are starting to show and the sexy young teenagers are getting their freshman 15. The laws and fundamentals of business always apply, they just sometimes take time showing up. Unfortunately, the sector is valued as if no one can do any wrong...

Friday, January 27, 2006

Microsoft's Results Good For Symantec (SYMC)

So, I should probably try to rescue my credibility and stop talking about Symantec, but I really think the market could be in for a surprise in the next couple of quarters; a good one. First, I believe that the Storage Refesh(TM) is driving demand for Veritas' solutions. Veritas is all about storage and data infrastructure and we all know that storage is on like Donkey Kong. Second, say what you will about Symantec's exposure to consumer Anti-Virus (AV), but we're in the middle of a huge PC refresh as well.
Check out this tidbit from Microsoft's latest quarter as observed by MicrosoftMonitor.com:

"License sales to Original Equipment Manufacturers (OEMs) again carried the quarter. Windows desktop OEM licenses grew by 15 percent...Microsoft estimates that worldwide PC shipments grew between 14 percent and 15 percent during fiscal second quarter. Consumer sales continue at a brisk pace...Microsoft expects PC growth to be 12 percent to 14 percent for fiscal 2006."

In other words, we could have a 1-2 punch from Veritas and AV outperformance coming up. Accelerating PC sales means accelerating AV sales. Pure and simple.

Tuesday, January 24, 2006

Doncha wish yo secta' was hot like mine! (EMC, STX)

Given Seagate's killer earnings last week and EMC's aggressive guidance this week - Storage is officially off to the races!

Wednesday, January 18, 2006

Giga Om Sees the Light on Google (GOOG)

Om Malik piles on the Google sell train. Of course, now that all of the analysts are jumping ship and everyone is suddenly an expert on the art of selling Google -- I have to ask?

Where was everyone $50 ago?

Hell yeah I toot my own horn... I think a therapist would call it: "Celebrating your victories". Rick James would call it: "It's a celebration! Bitches!"

Tuesday, January 17, 2006

How many times did we see this article in 1999?

TheStreet.com publishes Yahoo!'s earnings disappointment. Notice the comment from Pykkonen (sp?) regarding investor expectations. Is this news or is the journalist just too young to remember 1999/00?

Monday, January 16, 2006

Simon Dumenco has it right. Bloggers = Journalists or Opinion Writers

This article is on point and will be a common theme once the Web 2.0 bubble is deflated.

Sunday, January 15, 2006

Yahoo! Mail Beta is Overrated (YHOO)

I read an interesting post on Om Malik's broadband blog trumpeting the departure of Toni Schneider from Yahoo! for Yet Another Start-Up(TM). It's interesting for a number of reasons. First, I believe that the Oddpost acquisition by Yahoo! actually started the whole Web 2.0 miasma. Oddpost was the first poster-child for "next generation Internet 'service' started by a couple of guys with a server in their room without much VC money because they were laid off dotcommers".
It also spawned the obligatory Business2.0 article which has since begat a slew of other acquisitions by big Internet companies because they can't develop this shit themselves.
Anyways, I found the timing of this executive interesting because I'm pretty sure he's responsible for integrating Oddpost's technology and creating the Yahoo! mail beta. I have the beta operating and all I can tell you is that it is mighty buggy lately. In fact, it's so buggy, I might go back to using the original version. I don't know what a "SetMessageFlag" is, but considering I see so many of them, I might Google it just to find out.
The point of this post is that we're starting to see the same sloppiness that we saw in the first bubble. The big Internet companies (Google, Yahoo!, InteractiveCorp, News Corp, MSN, etc...) are gobbling up simple little sites like del.icio.us because they have stupendous growth. This stupendous growth comes from a bunch of nerdy early adopters that write a bunch of blogs and have time to digg stories all day.
So for the big companies to spend millions of dollars of cash or shareholder equity on these start-ups to buy companies that consist of a rapidly growing user base and bunch of people with resumes that are basically graphic designers on steroids or used record shop owners -- it's stupidity. These decisions are being made on "coolness" factor but the common principles of business are being forgotten.
What does this mean? It means that if you're going to college, forget the business courses and just learn how to host a server in your dorm room and create some sort of site that bloggers around the world will love. Forget about money and profits and all that other stuff, because it won't matter. Yahoo! will buy you for millions of dollars. Then you only have to putz around the company until your options vest.
And we all know how much I love options!

Friday, January 13, 2006

Traditional Media Deathwatch: Musicland Files Ch. 11

Another one bites the dust. Musicland files a pre-packaged Chapter 11 and illustrates the pressures of being a traditional media retailer in the dynamic world of media. One has to wonder about Sun Capital's abilities here. How does a sophisticated PE firm run a company into the ground? Although to be fair, they did get the company for $0. Yep, Best Buy saw the writing on the wall awhile ago and decided to get the hell out of Dodge GIVING the company away. Looks like a smart move...
I wonder if Musicland gets the plot next to Tower Records. Is Hastings (HAST) next?

Overvaluation - A good place to start (MORN)

The overhaul of equity research and the entrance of new 'unbiased' (uninformed?) players is actually generating some thought-provoking pieces. This article put out by Morningstar (MORN) highlights what they believe are "The Market's Most Overvalued Stocks". Wow, we didn't see many people calling it like that back in DotCom 1.0. It makes my little heart patter! (Yes, I do have one.)
For your information their nominations are:
  1. Sirius Satellite Radio (SIRI)
  2. US Airways Group (LCC)
  3. MEMC Electronic Materials (WFR)
  4. LSI Logic (LSI)
  5. Elan (ELN)
I actually like this piece of research, although I do think that Morningstar suffers a similar fate as Standard and Poor's research; namely, they don't really understand who has a strategic advantage in future markets. But hey, few people do.
What they do excel at, however, is the ability to rationally look at valuation against modern valuation paradigms and identify expensive stocks.
Notice that 4 out of the 5 stocks are tech stocks.
I'm just sayin'.

Tech Co Buybacks Only Mask Option Issuance (aka Whatever happened to Caveat Emptor?)

Finally! The financial journalism community clues into shareholder abuse -- sort of. This article in BusinessWeek discusses how many stock buybacks aren't really reducing the number of shares, they're just counteracting the cashing out of options by company employees.
This is one of the great travesties of the public markets. The people who really have insider information, company employees, are selling in droves while the public blithely continues to buy at significant valuations. The article actually gets the perspective wrong in my humble opinion because what they should be doing is looking at massive options issuance. Whether a company decides to buyback shares to counter it is really a red-herring. As I discussed in my post regarding options expensing, most people don't understand the concept that options are about dilution, not expenses. In other words, in managing a business I would keep track of how much cash I push out the door to keep it running (the expenses) and then think about how much of the company I own (dilution).
The problem with public companies today is the classic "agency problem". I learned about this in undergrad business 101. The agency problem refers to the inevitable tension/friction that builds between a company's owners and its managers when they are separate people. Managers may want to do different things with a company than its owners would like, but since managers are running the business on a day-to-day basis, owners can find themselves left out in the cold.
Couple this tension with a rising trend of mutual funds, ETFs and hedge funds and this means that investors don't even think they own shares anymore -- they own an interest in investment vehicles. Therefore the general public is now two steps removed from their control over the assets they own.
And make no mistake, when you buy shares in a company, you own it.
What this means is that public company managers have figured out that as long as they publicly trumpet their share buybacks while doling options out the back door, they know that shareholders won't say a word. At least in an up market. Unfortunately, American investors are a retributional crowd. If share prices begin a period of sustained decline, then they'll start looking at issues like this and howling like mad. They'll say they were never informed of the level of greed, etc... What they don't understand is that their current: "If it ain't broke, don't fix it" policy is what allows the problem to fester and grow in the first place. Kind of like that whole investment banking research scam that didn't become illegal until the market tanked. I hope the public appreciates the free reach back claw option they got on that one.
There is a rising trend of hedge funds and other institutional matters that are starting to exert their influence. See Knight-Ridder for further details. You'll see more of this in the future, but the basic point that I'm working from at the moment is that the tech markets are frothy and tech co employees are cashing their options in like madmen.
That's when it becomes clear to me to start working on developing short ideas. Maybe not today, but soon.

Wednesday, January 11, 2006

DotCom 2.0

Further proof that we're in another hypecycle. This company is being funded by "industry luminaries" including Maurice Marciano...you know, the guy who started the Guess? clothing line. Because he knows so much about startup technology companies.
File this under: "Kibu.com Was A Good Sign". Google Kibu's story if you're not aware.
P.S. Any 20-something old CEO's I can add to the list? They're some of my favorites...

Interesting analysis on shorted Internet stocks at Burnham's Beat

This post at Bill Burnham's blog is interesting. He analyzes the "Top 5" shorted Internet stocks. The first on his list, Overstock (OSTK), always makes me laugh. I'm not involved with this stock, but it smells like a loser to me. Their CEO, Patrick Byrne, seems unstable and may be delusional. His company is nothing more than a third-rate Amazon but yet his hype is pure Google. I'm with the shorts on this one.
I know a little bit about the "#4" stock as well - Digital River (DRIV). DigRiv is a provider of e-commerce hosting solutions. They had great growth over the preceding few years due to the explosion of ecommerce, but it appears the shorts are very skeptical of the future. I think much of their doubt centers around the fact that Symantec is one of their biggest customers. DigRiv hosts Symantec's online store and shorts are betting that Symantec's consumer anti-virus business is going to be decimated by Microsoft's free AV. I think there may be a higher probability that Microsoft's security initiative falls short and consumers' will continue to turn to third-party vendors.
If anyone has more insight regarding DigRiv, I'm all ears. And unlike Jeff Matthews, I'll keep your posts on my comment boards. Hell, I don't have time to delete all the spam comments, much less legitimate ones!

Monday, January 09, 2006

Google (GOOG) and rationality...divergent concepts.

Piper Jaffrey's piling on the Google bandwagon with it's recent Blodgetonian posting of a $600 price target for Google's stock. We're back in familiar stock market hype realms and it's comforting to see this situation set itself up so soon after we learned lessons from the last time it occurred. It's time to start sharpening the pencil on Google.

We all know the analysts won't.

**Update: Unknown firm analyst comes out with $2,000 price target for Google! Mark Stahlman, a former investment banker indicates that Google could grow to $100 billion in revenue. Hell, at this point, Google could do anything - why stop at $100 billion???**

Thursday, January 05, 2006

Linux/Unix Vulnerabilities outnumber MSFT 3:1 (MSFT) and CRM

Interesting post discussing statistics that debunk the commonly argued theme that Linux/Unix is a less vulnerable platform than Microsoft. It references this government 'study' which is more of a summary of vulnerabilities in the various platforms. The article doesn't really discuss the fact that most hackers have a strong anti-Microsoft bias and therefore Microsoft's platform is likely still more risky because more people are trying to break it, but it provides data that will help Microsoft's sales people as they try to crack the enterprise. This article shows one of the first births of Microsoft's recent enterprise app efforts -- their recent CRM offering.
I'm not sure this will play out too well considering Siebel...er...Oracle is being undercut by Salesforce.com who is being undercut by Sugar. And I wouldn't be surprised to see even smaller and cheaper CRM solutions for SOHO show up soon as well.

Tuesday, January 03, 2006

One good turn... www.casinocapitalism.com

I've been monitoring a lot of trading oriented blogs, but I've noticed there are a lack of quality blogs that focus on fundamentals and secular trends. A recent one that I've noticed is Casino Capitalism. Instead of graphs or regurgitated news releases, this blogger actually puts some thought into their work, so I thought I'd give him a shout out.

Well...that and he gave me one. Never underestimate vanity!

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