AOL Shares off 15%. Buy on Weakness.

While Google is having a rough year, AOL had a rough day after reporting 1Q10 earnings that missed consensus expectations. The shares declined 15% on the day of the report.

Display down 13% y/y vs. the 20% y/y growth at Yahoo, blamed on a salesforece reorganization disruption and a reduction of ads on the web pages to improve the user experience.

Domestic display down 10% y/y.

International display down 29% y/y - weakness at social networking site Bebo, which they intend to sell or shut down, and winding down of operations in France and Germany were to blame. Said can start to see growth in display in 1Q 2011.

Search down 27% - blamed it on a 26% decline in AOL paid subsribers, which tend to search more than non-paying visitors. Says search and contextual advertising revenue declines through rest of year will be higher than in Q1. Said working with others, I think Microsoft Bing, on a new search deal. Current deal with Google expires end of year. Should know by end of summer.

Like Google, I would buy on the weakness there. AOL has great asset value and I believe that Tim Armstrong can successfully turn this business around.

Citigroup Internet analyst Mark Mahaney is less enthused and maintains his hold rating and $29 price target but list several positives to the AOL story:

1) AOL still remains a top 5 U.S. Internet property; 2) Solid balance sheet with $262MM in cash, approx. $100MM in FCF per qtr, and asset sales on the horizon (ICQ being sold for $188MM); & 3) At 3X ’10 EV/EBITDA, valuation is the lowest of any ‘Net Stock.

His negatives, while partially legitimate near-term, overlooks the longer-term asset value enhancement:

1) Clearly deteriorating fundamentals; 2) Broad and significant market share losses – basic Internet usage, Display Advertising revenue & Search queries; 3) A significant profit hole from the structural decline of its Subs biz; 4) Substantial competitive risk; and 5) An unproven (@ AOL) management team.

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Google Hits A Wall. Time to Buy?

Google is having a rough time. Earlier this week Goldman Sachs removed it from the conviction Buy list. The Wall Street Journal writer Martin Peers wrote off Google's cell phone plans as a failure after Google stated it would not offer the Nexus One to Verizon's more than 90 million customers. Research firm Analysys International stated that Google's market share in China dropped to 30.9% in 1Q10 from 35.6% while Baidu's share increased to 64% from 58.4%. Both Yahoo and Microsoft's Bing's search engines are taking share from Google in the U.S. according to data from comScore and Hitwise. A weekend Barron's article listed Google stock as overvalued. Microsoft and Facebook have partnered to create Docs for Facebook, a competitor to Google Docs. Yahoo's display business grew 20% y/y, while Google's nascent display business outside of DoubleClick is struggling to gain traction. Microsoft filed a patent infringement case against Google's Android operating system and tops it off by signing a patent agreement with HTC Corp that provides broad coverage under Microsoft's patent portfolio for HTC's mobile phones running the Android mobile platform. Talk about hitting him where it hurts. And one more to the chin, Apple's acquisition of Siri begs the question that Apple enters the mobile search business to directly compete with Google.


In all my years trading in and out of this stock, I have never seen this onslaught on Google.

The above concerns have been reflected in Google's share price which have underperformed its peer group. The shares are down 15% since the start of the year vs. a 7% move in the S&P 500, a 0.1% move for Yahoo, a 2% move for AOL, and a whopping 51% move up for Baidu, with Baidu's run tied to Google's decision to exit China. Baidu is likely to move further ahead after the spectacular earnings, guidance ahead of Street, and 10 for 1 stock split.

The shares now trade at 19x 2010 earnings versus the Internet peer group at 30x and Google's five year historical average of 35x. The core business continues to perform well and the runway is wide and long there. I am therefore convinced that the bevy of concerns above have been appropriately valued in the shares and I am buying the shares.

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Yahoo Shares Outperforming Google

Here is something interesting. Yahoo's share price has improved 15% since March 1, 2010 while Google's shares have improved 10%. Yahoo's outperformance can be attributed to a surprising improvement in search share in March and general positive commentary about the cyclical rebound in display advertising, where Yahoo has the strongest presence.

Google, on the other hand, saw its search share fall in March. In addition, the company is facing a bevy of challenges and headline risks including issues in China, U.S. and European regulators, clashes with Apple in mobile, and stronger competition from Microsoft in search and Facebook in brand advertising. Read More!

Apple provides update on iPad demand; delays international launch

Apple issues a statement saying that although it delivered more than 500,000 iPads during its first week, demand is far higher than it predicted and will likely continue to exceed its supply over the next several weeks. AAPL has taken a large number of pre-orders for iPad 3G models for delivery by the end of April. Faced with this strong US demand, the company is postponing the international launch of iPad by one month, until the end of May. Read More!

Bernstein Says Back Away From Apple In Front of Quarter

The firm sees Q2 EPS of $2.59 on $12.6B in revenue (vs. Reuters $2.43 and $11.96B). Higher than expected iPod ASPs and likely conservative gross margin estimates are noted. Shares remain outperform rated with the target raised to $275. GIven the recent run in the shares and high expectations for Q2, the firm would not add to positions prior to the quarter. Read More!

Oppenheimer comments on impact of Intel results on Microsoft

Firm says INTC's strong results and better than expected outlook bode well for MSFT's PC and server-related business this calendar year. However, Oppenheimer cautions investors against over-analyzing the tea leaves, given the lag effect between INTC selling its chips into OEMs and MSFT recognizing revenue from the sale of its operating system and related software into OEM vendors. Firm does believe INTC's 1Q results are a very encouraging indicator that the corporate and PC refresh cycle are under way ahead of historical trends. MSFT remains Oppenheimer's top large-cap pick. Streetevents. Read More!

Intel 1Q10 Preview

From Streetevents: Overview: Company is scheduled to report first quarter results on Tuesday after the close. The Street is widely expecting a strong quarter, with nearly every preview noting the potential for upside on the top and bottom lines. In the broadly positive round of previews seen over the past two weeks, estimates have been bumped several times as analysts consistently point to better than expected PC and server trends as well as a relatively benign pricing environment that should continue to support margins. Inventories will also be a focus as Q4 came in higher than expected and management pointed to another increase in Q1. Company's target is for an increase less than the $450M seen in Q4; any build approaching that level is unlikely to be well-received. Consensus metrics:

Reuters
EPS $0.38
Revenue $9.82B
StreetAccount (16 estimates)
Gross margin
Q1 61.4%
Q2 60.4%
2010 61.9%

Guidance: as is often the case, management's outlook will likely dominate interest on the call and dictate near-term trading for the stock. Expectations here are likewise high but are certainly a bit more varied. Most of the language was for top line growth close to the seasonal decline usually labeled at down 2-3%. However, there were several calls for flat and even a couple of mentions of modest growth. Current consensus of $9.68B implies a 1.4% decline from Q1. Note that most analysts believe the printed consensus will be an easy hurdle off a higher base. Gross margin outlook will also be a focus as the Street continues to debate whether Q4's 64.7% represented the peak. Several previews indicate that the company should be able to again approach this level in Q4. Any comment that throws doubt on this view could overshadow strong revenue guidance and weigh heavily on the shares.

Conference call at 17:30 ET

Stock sentiment: the shares have modestly outperformed the broader market and semi peers thus far in 2010, though much of the difference was seen in the first couple of weeks of the year. Stock is up 5% since the Q4 release, slightly below the Nasdaq and matching the SOXX. Views on the Street are solidly positive with buy-equivalent ratings outnumbering hold and sell-equivalents by roughly 2.5 to 1; average price target is $26. Those in the bullish camp are usually more positive on the ecnomic outlook and how that will impact PC growth in 2010, with margins the beneficiaries and believed to outpace the full year target. More cautious firms tend to believe the 2H offers some potential for disappointment, both on the top line and with margins, often viewing Q409 as the peak on the latter and noting that the stock has historically not traded well after gross margin tops out. More specifically for Q1, there did not seem to be much conviction that the release would be a catalyst in either direction: on the pro side, analysts believe near term operating momentum will continue and estimates will move higher; on the con side, expectations are believed to be pretty high and last quarter saw a post-release pullback despite upside results and guidance. Recent performance versus the Nasdaq and SOXX:
Since end of March: INTC +1% vs Nasdaq +2% and SOXX +3%
Since Q4 earnings on 14-Jan: INTC +5% vs Nasdaq +6% and SOXX +5%
Year-to-date: INTC +11% vs Nasdaq +4% and SOXX +8%
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Follow up to Expedia - Two Upgrades to BUY

Goldman Sachs and Piper Jaffrey have upgraded Expedia (EXPE) to Buy with price targets in the low $30s. In one post, Flying High with Expedia and another, Memo to Karl Icahn, Talk to Expedia Management, I shinned the spotlight on Expedia arguing that it is undervalued, but no one was listening. Now the major brokerages are seeing the upside potential in the stock. However, I believe that their price targets are way to low and Expedia's shares are valued in the high $30s. Read More!

Palm is looking for $7 to $8 per share

Reports are that Palm has put itself up for sale with bids coming in this week. Goldman Sachs and Qatalyst Partners are charged with the task of finding a buyer according to reports. Most say HTC Corp (2498.TT) and Lenova Group (992.HK) are likely to make offers but Dell has opted out of the bidding. Whispers are that Palm is looking for bids in the range of $7 to $8 per share. Read More!

Alibaba Group To Invest CNY5 Bln In Online Payment Platform

Chinese e-commerce site Alibaba Group said Monday it will invest CNY5 billion (US$732 million) to upgrade its online payment platform, Alipay, over the next five years.

The investment, part of Alibaba Group's effort to expand its presence in the global online trading business, is aimed at making online payments more secure and developing new services and technology such as mobile payments. The company said it will also use the funds to attract and retain talented employees. Yahoo Inc. owns 39% of Alibaba Group, the parent of Hong Kong-listed business-to-business online trading platform operator Alibaba.com (1688.HK). Alibaba Group also operates Taobao.com, an online shopping Web site and China Yahoo, a Chinese-language portal service. Alipay's registered user base totaled more than 300 million as of March, the company said. Dow Jones Newswires
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ValueClick CEO Suprisingly Resigns

ValueClick announced after the market close on Friday that its CEO Tom Vadnais will resign and retire effective immediately and will be replaced by its Executive Chairman and former CEO Jim Zarley. Mr. Vadnais had succeeded Mr. Zarley in 2007, promoted from his role as President of US operations.

ValueClick provided preliminary first quarter 2010 revenue and adj. EBITDA results with revenue expected to be at the mid-point of guidance at $95m, and adj. EBITDA expected to be to be at or “slightly” above the high end of the company’s $24m-$26m guidance.

The company will hold a conference call on Monday at 8am.

Mr. Vadnais improved profitability at ValueClick during his tenure as CEO but has struggled with an FTC investigation into the lead generation business, which was divested, and pressures at the comparison shopping business, which has seen several client withdrawals, notably Yahoo in the third quarter of 2009.

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Hewlett-Packard designing competitor to iPad

A leaked internal memo shows a 32-GB "Slate" will cost $550 and a 64-MB model will cost $600. A 32-MB iPad sells for $600. The Slate will have a shorter battery life than the iPad. The article gives no details on the timing of the release, and notes that hardware concerns are probably secondary to software ones for tablet computers. Recall that there was also a report earlier that Research In Motion (RIMM) will launch a tablet later this year. Wired Magazine Read More!

RealD files $200M IPO

RealD is a licensor of stereoscopic, or 3D, technologies. The company's intellectual property portfolio enables a premium 3D viewing experience in the theater, the home and elsewhere. Primary competitors include Dolby (DLB), Xpand, MasterImage, and IMAX (IMAX). Proposed symbol is RLD. Read More!

Apple to launch smaller iPad that may launch in Q1

Citing talks with upstream component sources, a Digitimes Research analyst says a 5- to7-inch version of the machine will retail for less than $400. The analyst says the Hewlett-Packard (HPQ) Slate is unlikely to threaten the iPad because it uses an Intel processor that consumes more power. TMTAnalyst Read More!

Two A's Spell Trouble for RIMM. Another Palm in the making.

Research in Motion's (RIMM) shares are up 3% year-to-date vs a 6.4% move up in the S&P500. The shares trade at 13.4x 2010 EPS, not entirely egregious, and below Apple's (AAPL) 2010 PE of 19.5x.

The investor base has bifurcated into those who love the stock and believe in its longer-term prospects and those who loathe the very mention of RIMM.

The shares are broadly covered with 36 buys, 14 holds, and 5 sells, according to data from Bloomberg. Thus, the sentiment is positive.

Last week, RIMM reported disappointing results with revenues, EPS, and unit shipments coming in lower than consensus, mainly due to its North American operations where it is in a heated battle with Apple and Android based phones, the two As. Revenue guidance for 1Q was at the low end of consensus while EPS came in ahead of consensus.

The shares are down 6% since the report and could decline another 50% if RIMM does not find a means, via a super hot new smart phone, to combat these secular threats.

RIMM is presently the leader in the Smart Phone market with 42% share in the U.S. Apple is second with 25% share, Microsoft with 15%, Google with 9%, and Palm with 5%, according to a February report from comScore.

However, according to a survey from Crowd Science, 90% of iPhone and Andriod phone users will stay with their brands, while 40% of Blackberry users continue to prefer Apple's iPhone as their next smartphone purchase, and 32% of them would also switch to the Android operating system.

If this survey proves accurate, RIMM is, to put it not so lightly, royally screwed and will likely suffer the same fate as Palm. RIMM's architecture essentially prevents them from functioning like a true smart phone and their OS limits their ability to support app development. While RIMM continues to work on addressing this shortfall, their competition continues to power ahead. This reminds me of Yahoo's Panama vs Google. Google continued to race forward while Panama tried to play catch-up. It never worked. In addition, pricing pressures will likely continue to impact RIMM as well and ASPs will continue to suffer.

Until RIMM develops a competitive smart phone I would stay clear of the stock. TMT Analyst.
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Google acquires Episodic

On its company blog, Episodic announced that it has been acquired by Google, but does not disclose terms. Episodic describes itself as "a comprehensive platform for broadcasting live and on-demand video to the web or any web-enabled device." Streetevents. Read More!

Dell denies reports that it is scaling back investment in the 10-inch netbook market

DigiTimes had reported that HP and Dell were cutting back on investment in the 10-inch netbook market and were setting their sights on the 11.6 inch class of machines. There were also reports that profits were too small using Intel's Pine Trail line and so the makers were considering AMD alternatives. Dell replied by saying the reporting has no basis in fact. Streetevents Read More!

Beceem Communications files for $100M IPO

The proposed symbol is BECM.

Beceem is a supplier of highly-integrated semiconductor solutions for mobile broadband communications devices. Beceem believes that it is the leading supplier of 4G semiconductor solutions globally based on volume shipped to date.

In the 4G-WiMAX market, Beceem competes with Intel (INTC), MediaTek (2454.TT), and Samsung Semiconductor (005930.KS).

In the 4G-LTE market, competitors include existing 3G semiconductor providers such as Broadcom (BRCM), Icera, Infineon (IFX.GR), Marvell (MRVL), Qualcomm (QCOM) and ST-Ericsson. Read More!

iSuppli predicts 7M Apple iPad sales in 2010 and triple that by 2012

The market intelligence group sees 7.1M units sold in 2010, 14.4M in 2011 and 20.1M in 2012. The firm believes its iPad sales figures to be conservative. Read More!