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Wednesday, June 30, 2010
Economic Reset, True Growth Begins in 2011
In a post titled Economic Reset, Not a Recession on February 26, 2009, we stated the "lifestyle and economic prosperity that we all enjoyed over the past half a century peaked with the collapse of Bear Stearns in March 2008. Further, we are currently going through a reset, which history will show, hastened with the Bankruptcy of Lehman Brothers." Importantly, we argued that the reset will run its course at the end of 2010, at which point true growth begins. Given the current state of affairs, our assessment was brilliant.
Get Cell Phones, satellite TV, broadband Internet service, VOIP, video phones, ID theft prevention, home alarm systems. Read More!
Get Cell Phones, satellite TV, broadband Internet service, VOIP, video phones, ID theft prevention, home alarm systems. Read More!
Yahoo! to buy back $3bn worth of stock
Yahoo decided to buy back $3 billion worth of stock over three years or 15% of it's equity. In my write-up With the Share Price Lagging Peers, Time to Lever up and Shrink Equity we argued that Yahoo should do just that. In fact we stated:
"Furthermore, it is time to lever the balance sheet. According to our calculations, the P&L can comfortably sustain interest expense from about $3 billion of debt or leverage of under 2x, to which management can use to shrink the equity cap by 15%."
Glad to know management is reading our writing :-) Read More!
"Furthermore, it is time to lever the balance sheet. According to our calculations, the P&L can comfortably sustain interest expense from about $3 billion of debt or leverage of under 2x, to which management can use to shrink the equity cap by 15%."
Glad to know management is reading our writing :-) Read More!
Monday, June 28, 2010
For Business Minded Entreprenuers a Serious Opportunity: 5LINX
You will love the 5LINX opportunity to make money through Telecommunication and Technology services.
What if you could have been on the ground floor of companies like Microsoft, Dell, MCI and other pioneering businesses in the Telecom and Technology industries. WHERE WOULD YOU BE TODAY? THE NEXT MAJOR TREND JUST HIT THE U.S MARKET.
Email me at mediatechanalyst@gmail.com with questions on how to proceed. Read More!
What if you could have been on the ground floor of companies like Microsoft, Dell, MCI and other pioneering businesses in the Telecom and Technology industries. WHERE WOULD YOU BE TODAY? THE NEXT MAJOR TREND JUST HIT THE U.S MARKET.
- Learn how to reduce home phone service cost to $24.95 per month
- See and talk to distant family and friends anywhere in the world using affordable VOIP technology
- Develop a business plan which creates massive residual income
- Start your own business that can replace or supplement your current income
Email me at mediatechanalyst@gmail.com with questions on how to proceed. Read More!
Cell phones, Satellite TV, Internet service, Video Phones, VOIP, home alarm systems
Get Cell Phones, satellite TV, broadband Internet service, VOIP, video phones, ID theft prevention, home alarm systems.
http://www.5linx.net/TMTADVISORS/products.asp Read More!
http://www.5linx.net/TMTADVISORS/products.asp Read More!
Interview with CFO of Sprint Pre-Paid John Feehan Suggest Optimism
We recently sat down with John Feehan, the CFO of Sprint's growing pre-paid business to discuss current business trends and the future of Sprint's pre-paid business. The Q&A was enlightening and provided to us an upbeat assessment of Sprint's multi-brand strategy to address the burgeoning pre-paid market. A few key points: 1) Sprint expects to draw customers from other postpaid carriers; 2) retention programs are likely to have a positive impact on churn; 3) cost synergies in following a multi-brand strategy should help reduce CPGA; 4) there are no longer inventory issues at Boost; 5) their multi-brand strategy allows the flexibility to focus on added features rather than price: and 6) Sprint anticipates having a 4G prepaid offering as a result of thier relationship with Clearwire. He would not comment on whether it makes sense to spin-off the pre-paid business as a way to provide additional value to shareholders. If you are a Sprint investor or an investor in the Telecom space, then we believe you will find this interview to be informative.
Get Cell Phones, satellite TV, broadband Internet service, VOIP, video phones, ID theft prevention, home alarm systems.
TMT Analyst: Sprint’s prepaid business currently has a multi-brand strategy in place to attract all consumer segments. With that, what percent of the industry market share for pre-paid subscribers do you expect Sprint to achieve over the next year? Can you briefly explain each brand and the target segments?
John Feehan. Sprint’s prepaid multi-brand strategy focuses on some core value propositions specifically designed to appeal to the different ways in which consumers use their phones: from those who primarily talk to heavy texters to those who communicate mainly through the web and social networking. Sprint’s market research suggests that 60% of subscribers have a clear predilection for prepaid. Prepaid also accounts for about 55% of gross adds across the industry, while accounting for only 20% of the current wireless sub base.
Sprint’s prepaid brands are:
* Assurance Wireless is a special government-subsidized program giving eligible customers a free cell phone and 200 free minutes per month
* Boost Mobile is focused on those who talk and text a lot, where unlimited service for $50 a month makes the most sense. It also offers our prepaid push-to-talk service on the Nextel iDEN network.
* Common Cents Mobile is perfect for people who use their phones a bit less, and mainly to make calls. These are customers who don’t need bells and whistles and for whom a “smartphone” is one that provides the most basic communication needs – a way to call someone when needed.
* Virgin Mobile offers the richest and most comprehensive lineup of handsets and features, with plans that provide unlimited messaging, email, data and web access – in some cases, with less focus on minutes and more on social connecting…for people who tweet and post more than talk.
* Virgin Mobile also offers a prepaid broadband portfolio including its Broadband2Go USB device and [launching next week] the only prepaid MiFi device, from Novatel, allowing customers to connect up to 5 wireless devices at once.
You can find more detail on the plans at the end of this interview.
TMT Analyst: Can you discuss uptake of the new Beyond Talk plan? Any cannibalization to Boost?
John Feehan. The Beyond Talk plans just rolled out in late May so it’s too early to draw any concrete conclusions.
The Virgin Mobile plans, including Beyond Talk, are designed for people who email, IM, post and tweet more than they talk and text. We don’t expect to see migrations from Boost to VMU of any significance; they attract different demos. We do expect to draw customers from the postpaid companies – that’s the direct competition for Virgin Mobile which also has its first Blackberry and touch screen handsets as well as a prepaid broadband portfolio.
TMT Analyst: How are you marketing the brand differences between Virgin and Boost and have you seen cannibalization between the two brands? How is the Virgin business performing in terms of subscriber growth?
John Feehan. The brands’ personalities are different – Virgin Mobile is morphing into a tech-savvy product line and will continue to feature the best handsets available for prepaid. Advertising for the new plans starts next month and is aimed at consumers who live a “crazy life, beyond talk.”
Boost continues its award-winning Unwronged campaign, focusing on the “wrongness” of paying for more than you need or use. Boost has an urban/ethnic audience and our media buys reflect that.
Virgin Mobile has a strong music DNA with its annual rock festival and sponsorship of Lady Gaga’s tour, integrating our youth homelessness initiative and providing people with tickets in exchange for volunteer work. Boost works with racecar driver Danica Patrick and sponsors community soccer events with a strong Hispanic focus.
Again, we’re pleased with the progress that Beyond Talk plans and our new more sophisticated handsets like the Blackberry and Rumor Touch are making. It’s too early to see any trends.
TMT Analyst: What are your expectations for churn levels over the next year? Do you expect it trend down and what customer retention programs do you have in place that will ensure that?
John Feehan. We have designed several initiatives with the goal of retaining customers of both Boost and Virgin Mobile with these relaunches. We recognize that offering the best value in plans and handsets can make the difference, along with exemplary customer service especially without a contract when customers can leave anytime. We prefer not to share our retention program ideas – we do have incentives in place for customers.
Sprint’s Q1 results included prepaid churn of 5.74%, compared to 6.86% in the year-ago period and 5.56% in the fourth quarter of 2009. The year-over-year improvement in churn was due to the inclusion of Virgin Mobile customers and improving retention efforts across the Boost and Virgin Mobile base that reduced deactivations. Sequentially, prepaid churn increased as a result of deactivations of Boost customers at the expiration of holiday retention offers.
TMT Analyst: What are your expectations for cost per gross adds over the next year and what strategies do you have in place to bring CPGA down?
John Feehan. We won’t speculate on key metrics. Cost synergies are a key element of the multi-brand strategy and Sprint’s overall focus on the prepaid market allows us to adjust spending for one brand or another as needed. We now have the financial resources and freedom to tailor brands for different kinds of customers and how they use their mobile devices.
As an MVNO, low capex was our guiding principle. That continues but now we also have a better economic structure by having owner economics. It allows us to look at pricing levers but also to go beyond price in differentiating the products with compelling offers.
Prior to the Sprint acquisition, Virgin Mobile had reduced its CPGA from $111 to $107 [Q1-Q3 09 vs. 08] reflecting cost efficiencies in sales and marketing, as well as improvement in handset subsidies partially offset by increased sales of higher end devices and lower gross additions consistent with the strategy to focus on adding higher lifetime value subscribers.
CPGA for two of the brands, Assurance Wireless and Common Cents, are lower in general which we expect will contribute to savings as well.
TMT Analyst: The market for prepaid is intensely competitive with T-Mobile expected to get more competitive in the market. How do you plan to stay relevant in the face of rising competition and is there a threat of pricing pressure due to that level of competition? How do you view MetroPCS and Leap as competitors?
John Feehan. We created the different brands to razor-focus offers against specific competitors. Creating a variety of brands under one roof has been a successful strategy for many consumer products. If you’re able to build strong stand-alone brands that each resonate to clearly identified segments of your target audience, you’ll be able to win in the marketplace.
Both Boost and Virgin Mobile have a history of moving the market with innovative pricing and features. Boost was the first to introduce a $50 unlimited package; Virgin Mobile now has the lowest price for unlimited data and text. Common Cents has the industry’s lowest per-minute rate at 7 cents per minute and per text, and with the unique Round Down feature. This was more innovation than mere price-changing.
VM looks to draw customers from postpaid, Boost looks to combat the regional unlimited players like Cricket and Metro, Common Cents will fight against Net10.
Virgin Mobile is focusing on customers who use text and data services to power constant connection with social networks. We are capitalizing on the mass evolution in wireless behavior and increased usage of mobile email, social networking and web services particularly by the 18-34 year olds. These are the people who tweet and text, post and update on Facebook, share photos with friends on Flickr and catch streaming video on YouTube. As talk drops, we’re providing customers with enough minutes to satisfy their needs without overserving them.
Boost is serving a somewhat older audience with its highly popular $50 unlimited offer who tend to talk and text more. Consumers 25-49, with an ethnic concentration, are attracted to these simple unlimited talk, text and wireless web plans. And Boost’s addition of CDMA handsets this past January has expanded its audience while still offering the popular push to talk technology. Consumers can choose the ideal handset by determining which features they prefer.
TMT Analyst: When do you expect the Boost inventory issues to be resolved?
John Feehan. We did have inventory issues on Boost at the beginning of the year, driven by two things: much higher demand for our CDMA devices than originally forecasted, and a much larger base of customers upgrading their devices following Boost’s explosive growth. It took several weeks for device production to catch up with the new demand levels; they have, and we no longer have inventory constraints.
TMT Analyst: Can you discuss traction for plans Assurance and Common Cents Mobile? How are these plans growing? Are you seeing movements from Sprint plans or are sub growth coming for competitors. Are you concerned that such low pricing for these plans will erode the economics of the entire prepaid industry?
John Feehan. The introduction of Assurance Wireless and Common Cents Mobile extends the multi-brand strategy to provide offers tailored for specific customers, exactly the opposite effect of eroding the market.
Assurance is available now in 7 states [NY, NC,VA, MI, MD, TX, NC], specifically for a cash-constrained, eligible audience. We are very excited about its progress and expect to expand into additional states throughout the summer and the year.
We may likely draw from Tracfone’s SafeLink, given that we provide customers with almost three times the number of free minutes. If you understand this audience, you’ll understand why almost 50% of these customers are new to wireless. For most of us, cell phones are a luxury, one that most of these low-income customers would not be able to afford with these programs.
TMT Analyst: Price reductions from Sprint have induced competitive responses that are likely to further deteriorate the economics of the prepaid business. How would you characterize the pricing pressures in the prepaid business and when do you see stabilization on pricing?
John Feehand. The multi-brand strategy gives us a number of benefits, and one is not necessarily having to react to competitor pricing. Price is important but we now have the ability to leverage a wider bag of tools to address unique needs of different segments of customers throughout the marketplace
The Beyond Talk plans are also beyond just pricing. We have introduced innovative and attractive offers for specific groups of customers based on usage and habits – from those who are on limited budgets and use their phones infrequently to those who want high-end devices to use for all their communications, entertainment and social networking.
TMT Analyst: Do you expect the competitive pressures to result in the forced exit of industry participants?
The telecom business has evolved and grown so much over the past 7 years, it’s impossible to predict where it will all shake out. In the MVNO business, we watched companies come and go. Virgin Mobile acquired Helio in another consolidation and clearly recognized that navigating the competitive landscape would be much more effective as part of an industry leader like Sprint.
TMT Analyst: How would a full acquisition of Clearwire impact the prepaid business?
John Feehan. We do not comment on speculation or rumor. With that said, we have indicated that we do anticipate having a 4G prepaid offering as a result of our relationship with Clearwire.
TMT Analyst: Do you believe it makes sense for Sprint to spin-off the prepaid business as a means to provide additional value to shareholders and have a currency that competes more directly with LEAP Wireless and MetroPCS.
John Feehan. Again here, won’t comment on that type of speculation. We have the strongest portfolio of prepaid brands in the marketplace and believe we are positioned well to be successful.
*******************************
Additional Background Info on the Brands
Boost Mobile
· Boost Mobile offers wireless phones and services with no long-term contracts, credit checks or activation fees, and redefines value for wireless consumers with its ‘Monthly Unlimited’ service, offering unlimited anytime calling, text messaging and wireless Web with a national calling area for $50 a month.
· “Strivers and Talkers” These subscribers are heavy talk and text users who consume minimal data. In this segment, Sprint competes against Leap, MetroPCS, Page Plus and StraightTalk. This demographic is 18-34, African American and Hispanic. The Boost Unlimited offering and Boost Unlimited on iDEN are aimed at this demographic.
· Boost Mobile’s Monthly Unlimited plan, available on both the iDEN and CDMA networks, offers even greater choice and flexibility especially for those who talk and text a lot and who enjoy push-to-talk walkie-talkie service Sprint’s Nextel Nationwide Network.
· Earlier this year, Boost introduced its first smartphone, The BlackBerry Curve 8330 smartphone for $249.99. The BlackBerry Monthly Unlimited plan at $60/month provides the same nationwide voice and text messaging of the popular Monthly Unlimited offer, with 3G Web access and unlimited email as well.
· Boost Mobile also just launched the Moto Opus i1, the first prepaid Android in the U.S. and first walkie-talkie enabled touchscreen phone powered by Android™
· Unlike regional carriers like Cricket and Metro, Boost Mobile offers nationwide 3G EVDO coverage
Virgin Mobile
Virgin Mobile is an iconic brand that delivers a robust combination of technology and value for prepaid customers. “Young Savvy Connectors” Customers are young, interested in “tweeting” / posting, staying in touch. Text use has increased 5x over the last several years; data 10x; while voice usage is down 22%. This group of subscribers is targeted by both Boost and Virgin Mobile.
· Unlimited high speed data and messaging on the new $25 Beyond Talk Plan - the lowest price point in the industry that includes unlimited text and mobile web.
· Affordable prepaid plans with premium phones loaded with the best web, email and social networking applications.
· "Beyond Talk” is the richest mobile experience for customers who need the ultimate connecting experience with texting, IM, email, web access, social networking.
$25: 300 voice minutes plus unlimited messaging, email, web and data
$40: 1200 voice minutes plus unlimited messaging, email, web and data
$60: Unlimited voice plus unlimited messaging, email, web and data
Make it a Blackberry Plan: add $10 to any Beyond Talk Plan
* Devices on Beyond Talk plans
Kyocera Loft: $69.99, QWERTY camera, Ultimate Inbox, threaded messaging, Connect social networking app. Pre-loaded with Opera Mini Browser, MyPix app for photo uploads directly to social networks like Facebook, and Virgin Mobile Navigator with turn by turn directions and maps.
Rumor 2: $89.99, popular LG QWERTY phone only available on prepaid through Virgin Mobile, same apps as Loft
Rumor Touch: Virgin Mobile’s first touch screen device, $149.99, only available without a contract with Virgin Mobile.
Blackberry Curve 8530: First smartphone for Virgin Mobile, only available on prepaid from VMU, $249.99
Assurance Wireless
Assurance Wireless is a free wireless service developed especially for low-income households who need it most. Qualifying customers can receive a free cell phone and 200 free minutes of airtime for local and long-distance calling every month.
Customers may qualify based on household income or if they are eligible for assistance programs such as Medicare or Food Stamps.
§ Provides more free wireless minutes per month than other similar prepaid program.
§ “Cash Constrained” Cash constrained and on government assistance these are typical Assurance Wireless subscribers. There are 37MM Americans on food stamps that have limited funds for mobile phone service, but require service to search for a job, emergency calls, etc. This customer typically uses 150-200 minutes / month. Approved customers receive a free Kyocera Jax handset. It is a slim candy-bar phone with a 1.8” full color screen, speakerphone and MP3 player.
· Additional air time can be purchased at a rate of .10 cents per minute.
· Domestic text/IM/email messages can be both sent and received at a rate of 10-cents each
· Messaging packs are available for as low as $5 per month for 200 messages.
· Assurance is currently available in Maryland, Michigan, New York, North Carolina, Tennessee, Texas and Virginia. We expect to launch in more states each month throughout the year.
· Assurance Wireless is supported by the Lifeline Assistance program, part of the Low Income Program of the federal Universal Service Fund (USF), which is administered by the Universal Service Administrative Company (USAC), and designed to ensure that quality telecommunications services are available to low-income customers at reasonable and affordable rates.
Common Cents
* “Basic Communicators These customers prefer pay-as-you go. The demographic characteristics are: generally 45 years old, 53% male, shops at Wal-Mart. This person eats at Dairy Queen, media preferences include Field and Stream, Parade Magazine; these consumers do not use smartphones. Closest competitor is Net10 (TracFone). This type of consumer uses 15-20 minutes-per-day, <5 text messages-per-day. Handset prices are low (phones are basic), * Innovative new prepaid brand launched in May exclusive to Wal-Mart * Designed specifically for the “basic communicator” – customer who only uses phone to make calls, maybe text; for those “no-frills” customers including older demo…the Wal-Mart customer. * Has unique feature of Round DownTM minutes -- other carriers round up minutes so if you talk 1 min 30 seconds, you pay for 2 minutes. We’ll round down – in that case, or even 1 min, 59 seconds, you’d only pay for 1 minute. * Lowest in the industry - 7 cent minutes with $20 Refill card * Also available on commoncentsmobile.com and walmart.com Read More!
Get Cell Phones, satellite TV, broadband Internet service, VOIP, video phones, ID theft prevention, home alarm systems.
TMT Analyst: Sprint’s prepaid business currently has a multi-brand strategy in place to attract all consumer segments. With that, what percent of the industry market share for pre-paid subscribers do you expect Sprint to achieve over the next year? Can you briefly explain each brand and the target segments?
John Feehan. Sprint’s prepaid multi-brand strategy focuses on some core value propositions specifically designed to appeal to the different ways in which consumers use their phones: from those who primarily talk to heavy texters to those who communicate mainly through the web and social networking. Sprint’s market research suggests that 60% of subscribers have a clear predilection for prepaid. Prepaid also accounts for about 55% of gross adds across the industry, while accounting for only 20% of the current wireless sub base.
Sprint’s prepaid brands are:
* Assurance Wireless is a special government-subsidized program giving eligible customers a free cell phone and 200 free minutes per month
* Boost Mobile is focused on those who talk and text a lot, where unlimited service for $50 a month makes the most sense. It also offers our prepaid push-to-talk service on the Nextel iDEN network.
* Common Cents Mobile is perfect for people who use their phones a bit less, and mainly to make calls. These are customers who don’t need bells and whistles and for whom a “smartphone” is one that provides the most basic communication needs – a way to call someone when needed.
* Virgin Mobile offers the richest and most comprehensive lineup of handsets and features, with plans that provide unlimited messaging, email, data and web access – in some cases, with less focus on minutes and more on social connecting…for people who tweet and post more than talk.
* Virgin Mobile also offers a prepaid broadband portfolio including its Broadband2Go USB device and [launching next week] the only prepaid MiFi device, from Novatel, allowing customers to connect up to 5 wireless devices at once.
You can find more detail on the plans at the end of this interview.
TMT Analyst: Can you discuss uptake of the new Beyond Talk plan? Any cannibalization to Boost?
John Feehan. The Beyond Talk plans just rolled out in late May so it’s too early to draw any concrete conclusions.
The Virgin Mobile plans, including Beyond Talk, are designed for people who email, IM, post and tweet more than they talk and text. We don’t expect to see migrations from Boost to VMU of any significance; they attract different demos. We do expect to draw customers from the postpaid companies – that’s the direct competition for Virgin Mobile which also has its first Blackberry and touch screen handsets as well as a prepaid broadband portfolio.
TMT Analyst: How are you marketing the brand differences between Virgin and Boost and have you seen cannibalization between the two brands? How is the Virgin business performing in terms of subscriber growth?
John Feehan. The brands’ personalities are different – Virgin Mobile is morphing into a tech-savvy product line and will continue to feature the best handsets available for prepaid. Advertising for the new plans starts next month and is aimed at consumers who live a “crazy life, beyond talk.”
Boost continues its award-winning Unwronged campaign, focusing on the “wrongness” of paying for more than you need or use. Boost has an urban/ethnic audience and our media buys reflect that.
Virgin Mobile has a strong music DNA with its annual rock festival and sponsorship of Lady Gaga’s tour, integrating our youth homelessness initiative and providing people with tickets in exchange for volunteer work. Boost works with racecar driver Danica Patrick and sponsors community soccer events with a strong Hispanic focus.
Again, we’re pleased with the progress that Beyond Talk plans and our new more sophisticated handsets like the Blackberry and Rumor Touch are making. It’s too early to see any trends.
TMT Analyst: What are your expectations for churn levels over the next year? Do you expect it trend down and what customer retention programs do you have in place that will ensure that?
John Feehan. We have designed several initiatives with the goal of retaining customers of both Boost and Virgin Mobile with these relaunches. We recognize that offering the best value in plans and handsets can make the difference, along with exemplary customer service especially without a contract when customers can leave anytime. We prefer not to share our retention program ideas – we do have incentives in place for customers.
Sprint’s Q1 results included prepaid churn of 5.74%, compared to 6.86% in the year-ago period and 5.56% in the fourth quarter of 2009. The year-over-year improvement in churn was due to the inclusion of Virgin Mobile customers and improving retention efforts across the Boost and Virgin Mobile base that reduced deactivations. Sequentially, prepaid churn increased as a result of deactivations of Boost customers at the expiration of holiday retention offers.
TMT Analyst: What are your expectations for cost per gross adds over the next year and what strategies do you have in place to bring CPGA down?
John Feehan. We won’t speculate on key metrics. Cost synergies are a key element of the multi-brand strategy and Sprint’s overall focus on the prepaid market allows us to adjust spending for one brand or another as needed. We now have the financial resources and freedom to tailor brands for different kinds of customers and how they use their mobile devices.
As an MVNO, low capex was our guiding principle. That continues but now we also have a better economic structure by having owner economics. It allows us to look at pricing levers but also to go beyond price in differentiating the products with compelling offers.
Prior to the Sprint acquisition, Virgin Mobile had reduced its CPGA from $111 to $107 [Q1-Q3 09 vs. 08] reflecting cost efficiencies in sales and marketing, as well as improvement in handset subsidies partially offset by increased sales of higher end devices and lower gross additions consistent with the strategy to focus on adding higher lifetime value subscribers.
CPGA for two of the brands, Assurance Wireless and Common Cents, are lower in general which we expect will contribute to savings as well.
TMT Analyst: The market for prepaid is intensely competitive with T-Mobile expected to get more competitive in the market. How do you plan to stay relevant in the face of rising competition and is there a threat of pricing pressure due to that level of competition? How do you view MetroPCS and Leap as competitors?
John Feehan. We created the different brands to razor-focus offers against specific competitors. Creating a variety of brands under one roof has been a successful strategy for many consumer products. If you’re able to build strong stand-alone brands that each resonate to clearly identified segments of your target audience, you’ll be able to win in the marketplace.
Both Boost and Virgin Mobile have a history of moving the market with innovative pricing and features. Boost was the first to introduce a $50 unlimited package; Virgin Mobile now has the lowest price for unlimited data and text. Common Cents has the industry’s lowest per-minute rate at 7 cents per minute and per text, and with the unique Round Down feature. This was more innovation than mere price-changing.
VM looks to draw customers from postpaid, Boost looks to combat the regional unlimited players like Cricket and Metro, Common Cents will fight against Net10.
Virgin Mobile is focusing on customers who use text and data services to power constant connection with social networks. We are capitalizing on the mass evolution in wireless behavior and increased usage of mobile email, social networking and web services particularly by the 18-34 year olds. These are the people who tweet and text, post and update on Facebook, share photos with friends on Flickr and catch streaming video on YouTube. As talk drops, we’re providing customers with enough minutes to satisfy their needs without overserving them.
Boost is serving a somewhat older audience with its highly popular $50 unlimited offer who tend to talk and text more. Consumers 25-49, with an ethnic concentration, are attracted to these simple unlimited talk, text and wireless web plans. And Boost’s addition of CDMA handsets this past January has expanded its audience while still offering the popular push to talk technology. Consumers can choose the ideal handset by determining which features they prefer.
TMT Analyst: When do you expect the Boost inventory issues to be resolved?
John Feehan. We did have inventory issues on Boost at the beginning of the year, driven by two things: much higher demand for our CDMA devices than originally forecasted, and a much larger base of customers upgrading their devices following Boost’s explosive growth. It took several weeks for device production to catch up with the new demand levels; they have, and we no longer have inventory constraints.
TMT Analyst: Can you discuss traction for plans Assurance and Common Cents Mobile? How are these plans growing? Are you seeing movements from Sprint plans or are sub growth coming for competitors. Are you concerned that such low pricing for these plans will erode the economics of the entire prepaid industry?
John Feehan. The introduction of Assurance Wireless and Common Cents Mobile extends the multi-brand strategy to provide offers tailored for specific customers, exactly the opposite effect of eroding the market.
Assurance is available now in 7 states [NY, NC,VA, MI, MD, TX, NC], specifically for a cash-constrained, eligible audience. We are very excited about its progress and expect to expand into additional states throughout the summer and the year.
We may likely draw from Tracfone’s SafeLink, given that we provide customers with almost three times the number of free minutes. If you understand this audience, you’ll understand why almost 50% of these customers are new to wireless. For most of us, cell phones are a luxury, one that most of these low-income customers would not be able to afford with these programs.
TMT Analyst: Price reductions from Sprint have induced competitive responses that are likely to further deteriorate the economics of the prepaid business. How would you characterize the pricing pressures in the prepaid business and when do you see stabilization on pricing?
John Feehand. The multi-brand strategy gives us a number of benefits, and one is not necessarily having to react to competitor pricing. Price is important but we now have the ability to leverage a wider bag of tools to address unique needs of different segments of customers throughout the marketplace
The Beyond Talk plans are also beyond just pricing. We have introduced innovative and attractive offers for specific groups of customers based on usage and habits – from those who are on limited budgets and use their phones infrequently to those who want high-end devices to use for all their communications, entertainment and social networking.
TMT Analyst: Do you expect the competitive pressures to result in the forced exit of industry participants?
The telecom business has evolved and grown so much over the past 7 years, it’s impossible to predict where it will all shake out. In the MVNO business, we watched companies come and go. Virgin Mobile acquired Helio in another consolidation and clearly recognized that navigating the competitive landscape would be much more effective as part of an industry leader like Sprint.
TMT Analyst: How would a full acquisition of Clearwire impact the prepaid business?
John Feehan. We do not comment on speculation or rumor. With that said, we have indicated that we do anticipate having a 4G prepaid offering as a result of our relationship with Clearwire.
TMT Analyst: Do you believe it makes sense for Sprint to spin-off the prepaid business as a means to provide additional value to shareholders and have a currency that competes more directly with LEAP Wireless and MetroPCS.
John Feehan. Again here, won’t comment on that type of speculation. We have the strongest portfolio of prepaid brands in the marketplace and believe we are positioned well to be successful.
*******************************
Additional Background Info on the Brands
Boost Mobile
· Boost Mobile offers wireless phones and services with no long-term contracts, credit checks or activation fees, and redefines value for wireless consumers with its ‘Monthly Unlimited’ service, offering unlimited anytime calling, text messaging and wireless Web with a national calling area for $50 a month.
· “Strivers and Talkers” These subscribers are heavy talk and text users who consume minimal data. In this segment, Sprint competes against Leap, MetroPCS, Page Plus and StraightTalk. This demographic is 18-34, African American and Hispanic. The Boost Unlimited offering and Boost Unlimited on iDEN are aimed at this demographic.
· Boost Mobile’s Monthly Unlimited plan, available on both the iDEN and CDMA networks, offers even greater choice and flexibility especially for those who talk and text a lot and who enjoy push-to-talk walkie-talkie service Sprint’s Nextel Nationwide Network.
· Earlier this year, Boost introduced its first smartphone, The BlackBerry Curve 8330 smartphone for $249.99. The BlackBerry Monthly Unlimited plan at $60/month provides the same nationwide voice and text messaging of the popular Monthly Unlimited offer, with 3G Web access and unlimited email as well.
· Boost Mobile also just launched the Moto Opus i1, the first prepaid Android in the U.S. and first walkie-talkie enabled touchscreen phone powered by Android™
· Unlike regional carriers like Cricket and Metro, Boost Mobile offers nationwide 3G EVDO coverage
Virgin Mobile
Virgin Mobile is an iconic brand that delivers a robust combination of technology and value for prepaid customers. “Young Savvy Connectors” Customers are young, interested in “tweeting” / posting, staying in touch. Text use has increased 5x over the last several years; data 10x; while voice usage is down 22%. This group of subscribers is targeted by both Boost and Virgin Mobile.
· Unlimited high speed data and messaging on the new $25 Beyond Talk Plan - the lowest price point in the industry that includes unlimited text and mobile web.
· Affordable prepaid plans with premium phones loaded with the best web, email and social networking applications.
· "Beyond Talk” is the richest mobile experience for customers who need the ultimate connecting experience with texting, IM, email, web access, social networking.
$25: 300 voice minutes plus unlimited messaging, email, web and data
$40: 1200 voice minutes plus unlimited messaging, email, web and data
$60: Unlimited voice plus unlimited messaging, email, web and data
Make it a Blackberry Plan: add $10 to any Beyond Talk Plan
* Devices on Beyond Talk plans
Kyocera Loft: $69.99, QWERTY camera, Ultimate Inbox, threaded messaging, Connect social networking app. Pre-loaded with Opera Mini Browser, MyPix app for photo uploads directly to social networks like Facebook, and Virgin Mobile Navigator with turn by turn directions and maps.
Rumor 2: $89.99, popular LG QWERTY phone only available on prepaid through Virgin Mobile, same apps as Loft
Rumor Touch: Virgin Mobile’s first touch screen device, $149.99, only available without a contract with Virgin Mobile.
Blackberry Curve 8530: First smartphone for Virgin Mobile, only available on prepaid from VMU, $249.99
Assurance Wireless
Assurance Wireless is a free wireless service developed especially for low-income households who need it most. Qualifying customers can receive a free cell phone and 200 free minutes of airtime for local and long-distance calling every month.
Customers may qualify based on household income or if they are eligible for assistance programs such as Medicare or Food Stamps.
§ Provides more free wireless minutes per month than other similar prepaid program.
§ “Cash Constrained” Cash constrained and on government assistance these are typical Assurance Wireless subscribers. There are 37MM Americans on food stamps that have limited funds for mobile phone service, but require service to search for a job, emergency calls, etc. This customer typically uses 150-200 minutes / month. Approved customers receive a free Kyocera Jax handset. It is a slim candy-bar phone with a 1.8” full color screen, speakerphone and MP3 player.
· Additional air time can be purchased at a rate of .10 cents per minute.
· Domestic text/IM/email messages can be both sent and received at a rate of 10-cents each
· Messaging packs are available for as low as $5 per month for 200 messages.
· Assurance is currently available in Maryland, Michigan, New York, North Carolina, Tennessee, Texas and Virginia. We expect to launch in more states each month throughout the year.
· Assurance Wireless is supported by the Lifeline Assistance program, part of the Low Income Program of the federal Universal Service Fund (USF), which is administered by the Universal Service Administrative Company (USAC), and designed to ensure that quality telecommunications services are available to low-income customers at reasonable and affordable rates.
Common Cents
* “Basic Communicators These customers prefer pay-as-you go. The demographic characteristics are: generally 45 years old, 53% male, shops at Wal-Mart. This person eats at Dairy Queen, media preferences include Field and Stream, Parade Magazine; these consumers do not use smartphones. Closest competitor is Net10 (TracFone). This type of consumer uses 15-20 minutes-per-day, <5 text messages-per-day. Handset prices are low (phones are basic), * Innovative new prepaid brand launched in May exclusive to Wal-Mart * Designed specifically for the “basic communicator” – customer who only uses phone to make calls, maybe text; for those “no-frills” customers including older demo…the Wal-Mart customer. * Has unique feature of Round DownTM minutes -- other carriers round up minutes so if you talk 1 min 30 seconds, you pay for 2 minutes. We’ll round down – in that case, or even 1 min, 59 seconds, you’d only pay for 1 minute. * Lowest in the industry - 7 cent minutes with $20 Refill card * Also available on commoncentsmobile.com and walmart.com Read More!
Sunday, June 27, 2010
Our Two As Short Thesis on RIMM is Working
Our short thesis on Research in Motion (RIMM) has played out nicely with the shares down 11% the day after reporting another quarter that highlighted the intense competition RIMM faces from Apple and Andriod based phones, the Two A's that we coined spelled trouble for RIMM.
While EPS for the reported quarter was above expectations all other metrics that point to a deterioration in the business was weaker than expected.
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Device shipments of 11.2mn was below consensus of 11.4 and at the low end of company guidance of 11.2-11.8mn. Net subscriber additions of 4.9mn was below the 5mn consensus and at the low end of company guidance of 4.9-5.2mn. ASPs were not provided this time but most analysts believe it fell below $300 vs. the $305-$310 guidance. The company noted on the call that APSs were around $300 and was dragged down to some extent due to product mix and delays in shipments of higher ASP products. I do not believe them. ASPs are likely to continue to trend down from here. Reported revenue of $4.24bn was below the consensus of $4.35bn.
RIMM announced a $31mn share repurchase program and issued guidance for the second quarter as follows: EPS of $1.33-$1.40. Consensus was $1.32. Revenues of $4.4-$4.6bn. Consensus was $4.51bn. Net subscriber additions of 4.9-5.2mn.
We believe there is more downside for the shares from here. The Street remains bullish on the shares with about 35 buy ratings. One analyst, from RW Baird, was both wise and brave enough to reduce his rating to hold from buy after the earnings report. All others continue to support. He cited the Two As – Apple and Andriod as the reason.
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While EPS for the reported quarter was above expectations all other metrics that point to a deterioration in the business was weaker than expected.
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Device shipments of 11.2mn was below consensus of 11.4 and at the low end of company guidance of 11.2-11.8mn. Net subscriber additions of 4.9mn was below the 5mn consensus and at the low end of company guidance of 4.9-5.2mn. ASPs were not provided this time but most analysts believe it fell below $300 vs. the $305-$310 guidance. The company noted on the call that APSs were around $300 and was dragged down to some extent due to product mix and delays in shipments of higher ASP products. I do not believe them. ASPs are likely to continue to trend down from here. Reported revenue of $4.24bn was below the consensus of $4.35bn.
RIMM announced a $31mn share repurchase program and issued guidance for the second quarter as follows: EPS of $1.33-$1.40. Consensus was $1.32. Revenues of $4.4-$4.6bn. Consensus was $4.51bn. Net subscriber additions of 4.9-5.2mn.
We believe there is more downside for the shares from here. The Street remains bullish on the shares with about 35 buy ratings. One analyst, from RW Baird, was both wise and brave enough to reduce his rating to hold from buy after the earnings report. All others continue to support. He cited the Two As – Apple and Andriod as the reason.
Read More!
Wednesday, June 23, 2010
Research in Motion 1Q Preview
Research in Motion is scheduled to release 1Q earnings Thursday June 24 after the market close. Consensus calls for revenues of $4.35bn and EPS of $1.34. The company guided for revenues in the range of $4.25-$4.45bn and EPS in the range of $1.31-$1.38. Device shipments for the quarter was guided to 11.2-11.8mn, ASP to $305-$310, and net sub adds to 4.9-5.2mn. Consensus expects 11.4mn, $305, and 5mn, respectively. Gross margins are expected to come in at 44.3%. Second quarter consensus is for $4.5bn in revenues and EPS of $1.30 with device shipments, ASP, and sub adds of 11.9mn, $303, and 5mn, respectively.
Given the intense level of competition RIMM faces, particularly in the North American market, all key metrics such as revenues, shipments, ASPs, and sub adds are likely to be pressured with the impact mitigated on the bottom line due to cost cuts. Hence, earnings should likely come within guidance.
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I previously wrote about RIMM in a post titled "Two A's Spell Trouble for RIMM. Another Palm in the Making", seen here. I stated that competition from Apple and Andriod based phones are likely to have a significant negative impact on RIMM's sales and pricing pressures should continue to negatively impact ASPs.
The shares are down 20% since the disappointing 4Q earnings report in which revenues, EPS and unit shipments came in lower than consensus expectations, while guidance for revenues was at the low end of consensus. Street sentiment is still positive on the shares with many believing the smart-phone market is growing fast enough and is big enough for several participants, including RIMM, to continue to prosper. Many are seeing a 40-50% upside in the share price from these levels and some analysts believe that RIMM's upcoming operating system will allow the company to capture share - I noted in the previous post that RIMM's architecture prevents it from functioning like a true smart-phone so I am not convinced.
The bright spot for the company is international where competition is less fierce. However, that light is likely to fade in the coming years.
Until I see signs that competitive pressures have abated I would continue to stay on the sidelines with RIMM.
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Given the intense level of competition RIMM faces, particularly in the North American market, all key metrics such as revenues, shipments, ASPs, and sub adds are likely to be pressured with the impact mitigated on the bottom line due to cost cuts. Hence, earnings should likely come within guidance.
Get Cell Phones, satellite TV, broadband Internet service, VOIP, video phones, ID theft prevention, home alarm systems.
I previously wrote about RIMM in a post titled "Two A's Spell Trouble for RIMM. Another Palm in the Making", seen here. I stated that competition from Apple and Andriod based phones are likely to have a significant negative impact on RIMM's sales and pricing pressures should continue to negatively impact ASPs.
The shares are down 20% since the disappointing 4Q earnings report in which revenues, EPS and unit shipments came in lower than consensus expectations, while guidance for revenues was at the low end of consensus. Street sentiment is still positive on the shares with many believing the smart-phone market is growing fast enough and is big enough for several participants, including RIMM, to continue to prosper. Many are seeing a 40-50% upside in the share price from these levels and some analysts believe that RIMM's upcoming operating system will allow the company to capture share - I noted in the previous post that RIMM's architecture prevents it from functioning like a true smart-phone so I am not convinced.
The bright spot for the company is international where competition is less fierce. However, that light is likely to fade in the coming years.
Until I see signs that competitive pressures have abated I would continue to stay on the sidelines with RIMM.
Read More!
Sunday, June 20, 2010
CBS is our Top Media Pick
Barring a double dip recession, which in our view is a real possibility, CBS is our top Media pick for the next six months.
The media conglomerate is more widely known for its TV Network and TV Stations, which together only comprise slightly above a third of company revenues. CBS actually has a diverse collection of businesses including Radio stations, an outdoor advertising business, a film studio, a publishing business - Simon & Schuster, a thriving Internet business through CNET , CBSSports, and Lastfm, TV production and the resulting syndication business, and pay TV networks Showtime and CBS College Sports.
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CBS is becoming more diversified with the 60% of total revenues from advertising dropping overtime due to an increasing mix of affiliate and licensing fees. In addition, the company is likely to see a dramatic improvement in EBITDA margins, currently 15%, over the next two years owing to $500 million in annual 100% margin retransmission fees and reverse compensation and improvements in margins at the Radio, Outdoor, and TV Station businesses. Margins at those businesses deteriorated over the past two years due to the recession. To top it off, free cash flow is growing and should top $1.5 billion in 2010 leading management to most likely increase the dividend, which was cut during the height of the recent economic collapse. CBS is unlikely to return value to shareholders through resumption of the share repurchase program at this time.
The shares trade 7.2x 2010 consensus EBITDA and should increase 20% over the next six months to $18 or at a 8.0x multiple. Our DCF value points to a $19 fair value.
The risks are a double dip recession which could impact the advertising businesses and selling of shares by National Amusements, which is controlled by CBS Chairman Sumner Redstone.
I had previously highlighted CBS as a top pick in the cyclical ad recovery in a previous write-up in September 2009 seen here.
We also like NewsCorp for some of the same reasons as CBS but the attempted acquisition of BSkyB is likely to consume management’s time and the shares could remain range bound until a resolution is reached. Sister company Viacom is too exposed to advertising. Time Warner is still in a show me mode, in our view, and Disney has too many economically sensitive businesses. We also like the cable stock’s positioning within the media ecosystem and will report on them at a later date.
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The media conglomerate is more widely known for its TV Network and TV Stations, which together only comprise slightly above a third of company revenues. CBS actually has a diverse collection of businesses including Radio stations, an outdoor advertising business, a film studio, a publishing business - Simon & Schuster, a thriving Internet business through CNET , CBSSports, and Lastfm, TV production and the resulting syndication business, and pay TV networks Showtime and CBS College Sports.
Get Cell Phones, satellite TV, broadband Internet service, VOIP, video phones, ID theft prevention, home alarm systems.
CBS is becoming more diversified with the 60% of total revenues from advertising dropping overtime due to an increasing mix of affiliate and licensing fees. In addition, the company is likely to see a dramatic improvement in EBITDA margins, currently 15%, over the next two years owing to $500 million in annual 100% margin retransmission fees and reverse compensation and improvements in margins at the Radio, Outdoor, and TV Station businesses. Margins at those businesses deteriorated over the past two years due to the recession. To top it off, free cash flow is growing and should top $1.5 billion in 2010 leading management to most likely increase the dividend, which was cut during the height of the recent economic collapse. CBS is unlikely to return value to shareholders through resumption of the share repurchase program at this time.
The shares trade 7.2x 2010 consensus EBITDA and should increase 20% over the next six months to $18 or at a 8.0x multiple. Our DCF value points to a $19 fair value.
The risks are a double dip recession which could impact the advertising businesses and selling of shares by National Amusements, which is controlled by CBS Chairman Sumner Redstone.
I had previously highlighted CBS as a top pick in the cyclical ad recovery in a previous write-up in September 2009 seen here.
We also like NewsCorp for some of the same reasons as CBS but the attempted acquisition of BSkyB is likely to consume management’s time and the shares could remain range bound until a resolution is reached. Sister company Viacom is too exposed to advertising. Time Warner is still in a show me mode, in our view, and Disney has too many economically sensitive businesses. We also like the cable stock’s positioning within the media ecosystem and will report on them at a later date.
Read More!
Thursday, June 17, 2010
Baidu: Analyst Confident in Estimates after Channel Checks
PiperJaffray analyst Gene Munster comes away confident in his Baidu (BIDU) 2Q10 revenue and EPS estimates of $273 million and $0.28, respectively, after meeting in China with seven public and private companies.
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From his checks he believes that advertisers have returned to planning campaigns farther in advance rather than the shorter term spot buying from 2009. While CPC growth appeared to have slowed in China, search advertisers noted that they are increasing the number of clicks purchased and that is more than likely to offset the slowdown in CPC growth.
Only caution is that his checks revealed that management is investing for growth which means that margins are likely to come under pressure. He expects operating margins to decline to 39.5% in 2Q10 from 41% in 1Q10. However, that is already reflected in Street estimates.
We have selected Baidu as our top Internet pick over the next six months. See the write-up here.
He noted that some companies suggested the quality in terms of results of Google's service in China had decreased since the strategy change.
We continue to see a 50% upside move in the share price of Baidu over the next six months.
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From his checks he believes that advertisers have returned to planning campaigns farther in advance rather than the shorter term spot buying from 2009. While CPC growth appeared to have slowed in China, search advertisers noted that they are increasing the number of clicks purchased and that is more than likely to offset the slowdown in CPC growth.
Only caution is that his checks revealed that management is investing for growth which means that margins are likely to come under pressure. He expects operating margins to decline to 39.5% in 2Q10 from 41% in 1Q10. However, that is already reflected in Street estimates.
We have selected Baidu as our top Internet pick over the next six months. See the write-up here.
He noted that some companies suggested the quality in terms of results of Google's service in China had decreased since the strategy change.
We continue to see a 50% upside move in the share price of Baidu over the next six months.
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Fun Media Fact: Cable and Satellite Carriage of Television Broadcast Stations.
Every three years, each station must elect, with respect to cable systems within its DMA, either "must carry" status, pursuant to which the cable system's carriage of the station is mandatory, or "retransmission consent," pursuant to which the station gives up its right to mandatory carriage and secures instead the right to negotiate consideration in return for consenting to carriage.
DBS operators are required to carry the signals of all local television broadcast stations requesting carriage in local markets in which the DBS operator carries at least one signal pursuant to the statutory local-to-local compulsory copyright license. Every three years, each television station in such markets must elect "must carry" or "retransmission consent" status, in a manner similar to that described above with respect to cable systems. CBS 2009 10K
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DBS operators are required to carry the signals of all local television broadcast stations requesting carriage in local markets in which the DBS operator carries at least one signal pursuant to the statutory local-to-local compulsory copyright license. Every three years, each television station in such markets must elect "must carry" or "retransmission consent" status, in a manner similar to that described above with respect to cable systems. CBS 2009 10K
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Fun Media Fact: Dual Network Rule.
The dual network rule prohibits any of the four major networks, ABC, CBS, FOX and NBC, from combining. CBS 2009 10K
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Fun Media Fact: Local Radio Ownership
One party may own up to eight radio stations in the largest markets, no more than five of which may be either AM or FM. With a few exceptions, the rule permits the common ownership of 8 radio stations in the top 50 markets. CBS 2009 10K
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Fun Media Fact: Local Television Ownership
Under the FCC's local television ownership rule, one party may own up to two television stations in the same DMA, so long as at least one of the two stations is not among the top four-ranked stations in the market based on audience share as of the date an application for approval of an acquisition is filed with the FCC, and at least eight independently owned and operating full-power television stations remain in the market following the acquisition. Further, without regard to the number of remaining independently owned television stations, the rule permits the ownership of more than one television station within the same DMA so long as certain signal contours of the stations involved do not overlap. Satellite television stations that simply rebroadcast the programming of a "parent" television station are exempt from the local television ownership rule if located in the same DMA as the "parent" station. CBS 2009 10K
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Fun Media Fact:: License Renewals
Radio and television broadcast licenses are typically granted for standard terms of eight years. The Communications Act requires the FCC to renew a broadcast license if the FCC finds that the station has served the public interest, convenience and necessity and, with respect to the station, there have been no serious violations by the licensee of either the Communications Act or the FCC's rules and regulations and there have been no other violations by the licensee of the Communications Act or the FCC's rules and regulations that, taken together, constitute a pattern of abuse. CBS 2009 10K
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Fun Media Fact: Analog to Digital Transition
As of June 12, 2009, all full-power broadcast television stations were required to cease broadcasting analog programming and convert to all digital broadcasts. Digital broadcasting permits stations to offer digital channels for a wide variety of services such as high definition video programming, multiple channels of standard definition video programming, audio, data, and other types of communications, subject to the requirement that each broadcaster provide at least one free over-the-air video program signal at least comparable in resolution to the station's former analog programming transmissions. CBS 2009 10K
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Fun Media Fact: Copyright Law and Content
In the U.S., the copyright term for authored works is the life of the author plus 70 years. For works made-for-hire, the copyright term is the shorter of 95 years from the first publication or 120 years from creation. CBS 2009 10K.
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Fun Media Fact: Indecency and Profanity Regulation
The FCC's rules prohibit the broadcast of obscene material at any time and indecent or profane material between the hours of 6 a.m. and 10 p.m. Broadcasters risk The FCC's maximum forfeiture penalty for broadcasting indecent or profane programming is $325,000 per indecent or profane utterance with a maximum forfeiture exposure of $3.0 million for any continuing violation arising from a single act or failure to act. CBS 2009 10K.
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Sunday, June 13, 2010
Get your Sprint 4G HTC EVO Phone - $190
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Calculating Yahoo!’s Enterprise Value and EV/EBITDA Multiple
Surprisingly, there is still confusion amongst investors about Yahoo!’s EBITDA multiple with some analysts quoting high single digit multiples while others cite mid-to-low single digit multiples. With this post I will hopefully put to bed that confusion.
We will start with a definition of enterprise value: Market Capitalization plus Debt plus Preferreds plus Minority Interest minus Cash minus non-consolidated investments.
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The confusion with Yahoo! lies with the value of its Asian assets, which are investments in Yahoo! Japan and investments in Alibaba in China, whose values must be subtracted as in the above calculation. But first let’s start with the basic calculation detailed in the following table. The EV/EBITDA multiple without factoring the Asian assets is 9.6x.
Now we value the Asian assets – Yahoo!’s 34% interest In Yahoo! Japan, Yahoo!’s 30% interest in Alibaba.com, and Yahoo!’s 40% interest in Alibaba Group. All stakes are taxed at the standard 40% corporate tax rate consistent with Yahoo!’s CFO’s comments at the recent Analyst Day that the tax basis on those assets are low. In total, we arrive at $8.7 billion in after-tax value for those assets or $6.16 per Yahoo! share.
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Subtracting that value from the unadjusted enterprise value from the first exhibit yields a correct enterprise value for Yahoo! of $7.8 billion. Dividing by the consensus 2010 EBITDA of $1.8 billion yields a 2010 EV/EBITDA multiple of 4.5x.
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We will start with a definition of enterprise value: Market Capitalization plus Debt plus Preferreds plus Minority Interest minus Cash minus non-consolidated investments.
Get the new Sprint 4G HTC EVO Phone here for $190.
The confusion with Yahoo! lies with the value of its Asian assets, which are investments in Yahoo! Japan and investments in Alibaba in China, whose values must be subtracted as in the above calculation. But first let’s start with the basic calculation detailed in the following table. The EV/EBITDA multiple without factoring the Asian assets is 9.6x.
Now we value the Asian assets – Yahoo!’s 34% interest In Yahoo! Japan, Yahoo!’s 30% interest in Alibaba.com, and Yahoo!’s 40% interest in Alibaba Group. All stakes are taxed at the standard 40% corporate tax rate consistent with Yahoo!’s CFO’s comments at the recent Analyst Day that the tax basis on those assets are low. In total, we arrive at $8.7 billion in after-tax value for those assets or $6.16 per Yahoo! share.
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Subtracting that value from the unadjusted enterprise value from the first exhibit yields a correct enterprise value for Yahoo! of $7.8 billion. Dividing by the consensus 2010 EBITDA of $1.8 billion yields a 2010 EV/EBITDA multiple of 4.5x.
Read More!
How To Invest in Gold
With all the media attention devoted to gold as the price has reached record highs, several readers have inquired about ways to invest in gold without having to buy the physical good and thereby incur storage and other costs.
The safest bet in my view are SPDR Gold Shares ETF (GLD) and Physical Swiss Gold Shares (SGOL). Other ETFs include Market Vectors ETF (GDX) and Market Vectors Junior Gold Minors ETF (GDXJ).
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For the stocks, consider Newmont Mining (NEM), Agnico-Eagle Mines (AEM), Goldcorp (GG), Yamana Gold (AUY), and Golden Star Resources (GSS). These companies recently reported results free of major negatives. Newmont's 1Q 2010 results were strong with GAAP earnings of $1.11 almost doubling from the prior year.
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I am not making a recommendation for either of the above ETFs or stocks.
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The safest bet in my view are SPDR Gold Shares ETF (GLD) and Physical Swiss Gold Shares (SGOL). Other ETFs include Market Vectors ETF (GDX) and Market Vectors Junior Gold Minors ETF (GDXJ).
Get the new Sprint 4G HTC EVO Phone here for $190.
For the stocks, consider Newmont Mining (NEM), Agnico-Eagle Mines (AEM), Goldcorp (GG), Yamana Gold (AUY), and Golden Star Resources (GSS). These companies recently reported results free of major negatives. Newmont's 1Q 2010 results were strong with GAAP earnings of $1.11 almost doubling from the prior year.
Buy Cell phones, Satellite TV, ID Theft Services, Video Phones here.
I am not making a recommendation for either of the above ETFs or stocks.
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Saturday, June 5, 2010
Baidu is our top pick for the next six months.
Baidu enjoys a near monopoly position in online search in China due to Google's de facto exit. Couple that with its success in transitioning advertisers to its new platform named Phoenix Nest, the company is positioned to capture upside to current growth expectations. BIDU shares could rally by 50% over the next 6 months as Street estimates for the company increase.
The shares have risen 85% year-to-date on the back of Google's decision to exit the Chinese market, and a strong 1Q10 earnings print that offered a beat and raise. The shares trade at what look like a seemingly rich multiples of 60x 2010 EPS and 34x 2010 EBITDA, but with a more defensible PEG of 1.2x. Those valuations are likely to come down as estimates increase. Compare Baidu's valuation to Google’s which trades at 18x 2010 EPS and 11x 2010 EBITDA, and with a PEG of 1.0x. The two companies currently derive over 90% of their revenues from online search. Shares of Google are down 20% year-to-date.
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Consensus sees 2Q10 revenues for Baidu of $266.2mn, up 66% y/y and 40% q/q and GAAP EPS of $0.28. Both the topline and the bottom line consensus estimates are beatable but I suspect estimates will come up ahead of the 2Q10 print.
Full year 2010 EPS is slated to grow near 100%, according to consensus, while 2011 is slated to grow 56%. Compare that to Google which consensus sees 2010 EPS growing 20% in 2010 and 15% in 2011.
Consider the market cap and revenue difference: Google’s market cap is $160bn and Baidu is $25bn, while Google is expected to generate $21bn in net revenues in 2010 compared to Baidu at $1bn.
However, consider that Baidu has essentially zero competition in the Chinese market while Google is facing steep competition from the combination of MicroHoo. Also consider that Internet penetration rates have reached critical mass in almost all countries in which Google operates while Internet penetration rates in China stand at just under 30%. That's 385 million Internet users out of a possible 1.3 billion users. To put that in perspective, the U.S. has a 76% Internet penetration rate with 234 million Internet users. If China were to double its Internet penetration rate, they would have nearly 800 million Internet users. This is a very favorable secular trend for Baidu as the only major online search engine in China and is one clear cut reason to buy the stock.
Over 30% of Google's sales come from European countries where several economies are under distress. Baidu has zero European exposure. Don’t get us wrong, we are still buyers of Google.
Consensus has GAAP EPS of $1.90 in 2011. Applying the current trading multiple to the estimate gets us to a price target of $114, up 50% from current trading levels. If you believe that this multiple is rich then an analytically honest multiple of 50x, in-line with the 3 year EPS growth rate, gets you to a price target of $95, up 25%. A DCF points to a value of $105-$110.
The business should benefit from increased spending from the Phoenix Nest transition and increased customer acquisition. Margins are expanding due to operating leverage. Traffic to the site continues to increase owing to Google's exit, leaving Baidu with more bargaining power over smaller advertises.
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Where we could be wrong:
1. Other online search providers could strengthen their competitive position
2. Given the recent success of Bing in the U.S., Microsoft could decide to aggressively enter the online search market in China.
3. Management could fail to capitalize on their near monopoly position
4. Management could miss gaining traction in mobile and ecommerce
5. Government policies that curtails China's rapid growth rate.
6. Although Baidu has no exposure to Europe, further headlines like the one from Hungary on debt issues are likely to continue to spark a sell-off in the overall markets and in particular for high multiple stocks.
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The shares have risen 85% year-to-date on the back of Google's decision to exit the Chinese market, and a strong 1Q10 earnings print that offered a beat and raise. The shares trade at what look like a seemingly rich multiples of 60x 2010 EPS and 34x 2010 EBITDA, but with a more defensible PEG of 1.2x. Those valuations are likely to come down as estimates increase. Compare Baidu's valuation to Google’s which trades at 18x 2010 EPS and 11x 2010 EBITDA, and with a PEG of 1.0x. The two companies currently derive over 90% of their revenues from online search. Shares of Google are down 20% year-to-date.
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Consensus sees 2Q10 revenues for Baidu of $266.2mn, up 66% y/y and 40% q/q and GAAP EPS of $0.28. Both the topline and the bottom line consensus estimates are beatable but I suspect estimates will come up ahead of the 2Q10 print.
Full year 2010 EPS is slated to grow near 100%, according to consensus, while 2011 is slated to grow 56%. Compare that to Google which consensus sees 2010 EPS growing 20% in 2010 and 15% in 2011.
Consider the market cap and revenue difference: Google’s market cap is $160bn and Baidu is $25bn, while Google is expected to generate $21bn in net revenues in 2010 compared to Baidu at $1bn.
However, consider that Baidu has essentially zero competition in the Chinese market while Google is facing steep competition from the combination of MicroHoo. Also consider that Internet penetration rates have reached critical mass in almost all countries in which Google operates while Internet penetration rates in China stand at just under 30%. That's 385 million Internet users out of a possible 1.3 billion users. To put that in perspective, the U.S. has a 76% Internet penetration rate with 234 million Internet users. If China were to double its Internet penetration rate, they would have nearly 800 million Internet users. This is a very favorable secular trend for Baidu as the only major online search engine in China and is one clear cut reason to buy the stock.
Over 30% of Google's sales come from European countries where several economies are under distress. Baidu has zero European exposure. Don’t get us wrong, we are still buyers of Google.
Consensus has GAAP EPS of $1.90 in 2011. Applying the current trading multiple to the estimate gets us to a price target of $114, up 50% from current trading levels. If you believe that this multiple is rich then an analytically honest multiple of 50x, in-line with the 3 year EPS growth rate, gets you to a price target of $95, up 25%. A DCF points to a value of $105-$110.
The business should benefit from increased spending from the Phoenix Nest transition and increased customer acquisition. Margins are expanding due to operating leverage. Traffic to the site continues to increase owing to Google's exit, leaving Baidu with more bargaining power over smaller advertises.
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Where we could be wrong:
1. Other online search providers could strengthen their competitive position
2. Given the recent success of Bing in the U.S., Microsoft could decide to aggressively enter the online search market in China.
3. Management could fail to capitalize on their near monopoly position
4. Management could miss gaining traction in mobile and ecommerce
5. Government policies that curtails China's rapid growth rate.
6. Although Baidu has no exposure to Europe, further headlines like the one from Hungary on debt issues are likely to continue to spark a sell-off in the overall markets and in particular for high multiple stocks.
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Wednesday, June 2, 2010
Hulu Subcription Model goes to Xbox
Gear Live cites a source that says Hulu will kick off a subscription-based model on Xbox, and not the iPad. Plans will be unveiled at E3 on June 14, 2010
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AT&T Introduces new pricing plans
AT&T will offer a $15/month entry plan or a $25/month plan with 10x more data. Each plan includes unlimited access at no additional charge. The plans will be available June 7th for new AT&T customers and will include tethering options. Current customers can chose to remain on their current plans indefinitely.
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Verizon Wireless Testing iPad
Boy Genius blog, citing a highly placed source, states that Verizon is currently testing the iPad. The model said to be tested is a CDMA compatible version. Recall a previous post, here, where I cited a source that Verizon plans to launch a dual mode CDMA and GSM world iPhone. This could be an offshoot of those plans.
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Upgrades, Downgrades
AOL upgraded to Buy from Hold at Benchmark Company with a $25 price target
Sprint Nextel initiated at Sell at BTIG with a $3 price target
Apple estimates and target raised at UBS. Target increased to $320 from $315 citing favorable iPad sales.
Priceline upgraded to Buy from Hold at KeyBanc with a $260 price target. Read More!
Sprint Nextel initiated at Sell at BTIG with a $3 price target
Apple estimates and target raised at UBS. Target increased to $320 from $315 citing favorable iPad sales.
Priceline upgraded to Buy from Hold at KeyBanc with a $260 price target. Read More!
Apple News at D8
Steve Jobs stated that Apple will not remove Google services from the iPhone. Jobs also stated that there might be advantages to having two iPhone carriers in the U.S. but declined to discuss timing.
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Fox is closing deals in the upfront
AdAge is reporting that Fox is selling ads at high single-digit percent increases on a y/y basis over last year's CPM rates.
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