Saturday, January 29, 2011
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Thursday, January 27, 2011
R&D Tax Credit Could Boost Companies EPS
Netflix's EPS benefited by 3 cents due to the R&D tax credit as a result of the passage of the tax bill in December. Most companies are likely to take the credit in the fourth quarter leading to upside to EPS estimates. Most Street estimates do not reflect that credit.
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Microsoft Earnings Preview
Microsoft is scheduled to report earnings this evening. The Street is expecting revenues of $19.17 billion and EPS of $0.68
The March quarter is estimated to produce $16.06 billion in revenues and EPS of $0.56. This suggest a cautious tone as the historical revenue decline have averaged 10% versus the 16% decline implied by the Street guidance. Street sentiment is positive on the stock with several analysts believing that estimates are too low and need to come up.
The stock's valuation is attractive, free cash flow trends are favorable, and the balance sheet is bullet proof. However, the shares have largely underperformed the market over the past year. Investors will be looking for signs within the quarter and the call that would cause multiples to expand.
Key for the call would be:
1. Tablet cannibalization
2. Cloud offerings and traction
3. Kinect sales
4. Usage of the balance sheet
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The March quarter is estimated to produce $16.06 billion in revenues and EPS of $0.56. This suggest a cautious tone as the historical revenue decline have averaged 10% versus the 16% decline implied by the Street guidance. Street sentiment is positive on the stock with several analysts believing that estimates are too low and need to come up.
The stock's valuation is attractive, free cash flow trends are favorable, and the balance sheet is bullet proof. However, the shares have largely underperformed the market over the past year. Investors will be looking for signs within the quarter and the call that would cause multiples to expand.
Key for the call would be:
1. Tablet cannibalization
2. Cloud offerings and traction
3. Kinect sales
4. Usage of the balance sheet
Read More!
Friday, January 21, 2011
Google CEO to Step Down in 2009
We hate to brag but we did see this coming and wrote about it in Google CEO to Step Down in 2009, except that we were a bit early. It was clear to us then that Schmidt had political aspirations and we continue to believe that he does. The spat with the founders over China may have been the tipping point.
Page: From Nerd to Jack Welch? Probably not. In the times we have been near him, he did not appear to be CEO material. But that could change and people do evolve and grow so we are willing to give him the benefit of the doubt. Read More!
Page: From Nerd to Jack Welch? Probably not. In the times we have been near him, he did not appear to be CEO material. But that could change and people do evolve and grow so we are willing to give him the benefit of the doubt. Read More!
Tuesday, January 18, 2011
Doughtery and Co. Defends VVTV, ups price target
The firm does so after VVTV shares declined 6% and following a series of management meetings.
• VVTV’s strategy is to deliver great content across multiple categories to drive customer growth. Improved sourcing and merchandising decisions are driving higher margins and distribution costs are deflating. Gross margin dollar growth is leveraging VVTV’s fixed operating expenses, producing an EBITDA inflection point.
• The “going concern” trade in VVTV shares has occurred. The company’s previously fragile balance sheet has been strengthened with a term note and equity offering. Positive EBITDA in the October quarter further mitigated going concern risks.
• With breakeven EBITDA just recently achieved, investors are evaluating VVTV shares based on the company’s long-term potential to significantly expand its customer base and leverage EBITDA margins to the 8%+ range. While EBITDA margins of this magnitude are several years away, January results will be a critical measuring stick along the path and we believe fundamentals have accelerated.
.. Our revenue estimates for 2011-2013 reflect annual growth of 11.0%, which is based on 3% growth in households and 8% growth in revenue per household. EBITDA margins of 2.1% in 2011, 4.3% in 2012, and 6.0% in 2013 are based on gross margins of 35.5% and leverage in fixed cable distribution costs from ~18% of revenues in 2010 to ~13% of revenues in 2013.
• We are raising our price target from $5 to $8. As VVTV is in the early stages of a turnaround, we must look out to 2013 to assess the value of the business based on its potential to produce EBITDA upon successful turnaround execution. Our $8 price target reflects 8.5x EV to 2013E EBITDA, versus 5.7x for HSNI and 6.4x for LINTA. We believe VVTV can earn a premium multiple due to our projected EBITDA CAGR from 2011-2013 of 89% versus the 3-year EBITDA CAGR of 9.5% at HSNI and 8.7% at LINTA.
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• VVTV’s strategy is to deliver great content across multiple categories to drive customer growth. Improved sourcing and merchandising decisions are driving higher margins and distribution costs are deflating. Gross margin dollar growth is leveraging VVTV’s fixed operating expenses, producing an EBITDA inflection point.
• The “going concern” trade in VVTV shares has occurred. The company’s previously fragile balance sheet has been strengthened with a term note and equity offering. Positive EBITDA in the October quarter further mitigated going concern risks.
• With breakeven EBITDA just recently achieved, investors are evaluating VVTV shares based on the company’s long-term potential to significantly expand its customer base and leverage EBITDA margins to the 8%+ range. While EBITDA margins of this magnitude are several years away, January results will be a critical measuring stick along the path and we believe fundamentals have accelerated.
.. Our revenue estimates for 2011-2013 reflect annual growth of 11.0%, which is based on 3% growth in households and 8% growth in revenue per household. EBITDA margins of 2.1% in 2011, 4.3% in 2012, and 6.0% in 2013 are based on gross margins of 35.5% and leverage in fixed cable distribution costs from ~18% of revenues in 2010 to ~13% of revenues in 2013.
• We are raising our price target from $5 to $8. As VVTV is in the early stages of a turnaround, we must look out to 2013 to assess the value of the business based on its potential to produce EBITDA upon successful turnaround execution. Our $8 price target reflects 8.5x EV to 2013E EBITDA, versus 5.7x for HSNI and 6.4x for LINTA. We believe VVTV can earn a premium multiple due to our projected EBITDA CAGR from 2011-2013 of 89% versus the 3-year EBITDA CAGR of 9.5% at HSNI and 8.7% at LINTA.
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Bernstein sees Apple weakness as buying opportunity
The firm believes that the 6% decline in the stock in reaction to the news from Steve jobs is a buying opportunity. We agree. Plus earnings must be stellar for them to make this announcement in front of it. We are hoping he makes a speedy recovery.
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Monday, January 17, 2011
Our Mosaic Theory on our VVTV Acquisition Thesis
We have been getting lots of push back about our ValueVision Media (VVTV) acquisition thesis with some stating that we are being sensational, see that write-up here. [Our other analysis on the company was never questioned.] Thus, we decided to expand on our thinking. So here goes and note that our thesis is based purely on mosaic theory.
Reasons why we believe VVTV is a take-out candidate:
1. Management guidance that the business will double. Management believes that revenues can double to $1 billion in five years and EBITDA margins can reach upwards of 12% from near 1% today, matching that of the second largest TV shopping company in the industry. This is textbook and we have seen this before. Not to suggest that management is being disingenuous; in fact, we believe that the management team is very strong, with a 10% ownership stake to boot, but most companies dressing themselves up for an acquisition tend to provide “bold longer-term” guidance rather than short-term guidance. It is anyone’s guess what happens to the world in five years but management must see something in their business trajectory that leads them to believe that their business can double. Nonetheless, for them to come forth with this guidance they must want the company to look good to potential acquirers.
2. The number 1 and 2 players in the industry could merge. There are three major TV Shopping companies in the U.S. (a few smaller category niche channels exists) and the no.1 and no.2 companies have indicated that they could merge in the future, after the spin-off is completed. VVTV knows that they will need a stronger partner to compete effectively when those companies merge and could be open to an acquisition.
3. Word is that VVTV management won’t oppose the merger on anti-trust grounds. Why that would be confused us at first even though an opposition won’t pass muster because TV Shopping is not a broadly defined sector but falls under general retail. Nevertheless, an opposition can force the government to impose concessions that could benefit VVTV. Hence, the thought management won’t oppose must mean that they see themselves as part of another bigger retail platform like Amazon.com in the future and decided it is not worth the effort.
4. They have been down this road before. 39 companies looked at VVTV’s books during the height of the recession but walked away. VVTV was on the verge of bankruptcy and its stock price at 20 cents reflected that scenario. We believe they walked away primarily due to the economic climate at that time. In fact, we cannot recall an acquisition taking place in media and tech during 2008. Now that the economy has improved and VVTV has regained its mojo we think several of those companies, including Amazon.com, will return to take another look at VVTV’s books.
A note on valuation. On 2013 consensus numbers, VVTV is trading at 5.1x EBITDA vs. HSNI trading at 5.5x and LINTA trading at 5.8x. So the stock is trading at a discount to its peers and continues to do so more meaningfully for the following years. We chose 2013 because at that point VVTV should fully realize the fruits of its turnaround strategy from a margin perspective.
Near-term catalysts to watch:
1. Approval of the Comcast-NBCU merger - in about two weeks according to the Wall Street Journal.
2. Results from HSNI and LINTA - within the next few weeks.
There you have it. Comments welcomed at mediatechanalyst@gmail.com
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Reasons why we believe VVTV is a take-out candidate:
1. Management guidance that the business will double. Management believes that revenues can double to $1 billion in five years and EBITDA margins can reach upwards of 12% from near 1% today, matching that of the second largest TV shopping company in the industry. This is textbook and we have seen this before. Not to suggest that management is being disingenuous; in fact, we believe that the management team is very strong, with a 10% ownership stake to boot, but most companies dressing themselves up for an acquisition tend to provide “bold longer-term” guidance rather than short-term guidance. It is anyone’s guess what happens to the world in five years but management must see something in their business trajectory that leads them to believe that their business can double. Nonetheless, for them to come forth with this guidance they must want the company to look good to potential acquirers.
2. The number 1 and 2 players in the industry could merge. There are three major TV Shopping companies in the U.S. (a few smaller category niche channels exists) and the no.1 and no.2 companies have indicated that they could merge in the future, after the spin-off is completed. VVTV knows that they will need a stronger partner to compete effectively when those companies merge and could be open to an acquisition.
3. Word is that VVTV management won’t oppose the merger on anti-trust grounds. Why that would be confused us at first even though an opposition won’t pass muster because TV Shopping is not a broadly defined sector but falls under general retail. Nevertheless, an opposition can force the government to impose concessions that could benefit VVTV. Hence, the thought management won’t oppose must mean that they see themselves as part of another bigger retail platform like Amazon.com in the future and decided it is not worth the effort.
4. They have been down this road before. 39 companies looked at VVTV’s books during the height of the recession but walked away. VVTV was on the verge of bankruptcy and its stock price at 20 cents reflected that scenario. We believe they walked away primarily due to the economic climate at that time. In fact, we cannot recall an acquisition taking place in media and tech during 2008. Now that the economy has improved and VVTV has regained its mojo we think several of those companies, including Amazon.com, will return to take another look at VVTV’s books.
A note on valuation. On 2013 consensus numbers, VVTV is trading at 5.1x EBITDA vs. HSNI trading at 5.5x and LINTA trading at 5.8x. So the stock is trading at a discount to its peers and continues to do so more meaningfully for the following years. We chose 2013 because at that point VVTV should fully realize the fruits of its turnaround strategy from a margin perspective.
Near-term catalysts to watch:
1. Approval of the Comcast-NBCU merger - in about two weeks according to the Wall Street Journal.
2. Results from HSNI and LINTA - within the next few weeks.
There you have it. Comments welcomed at mediatechanalyst@gmail.com
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Sunday, January 16, 2011
NewsCorp to Sell MySpace
NewsCorp finally admitted today that it is seeking to sell MySpace becoming the second major media company after AOL to admit that they cannot effectively manage new media companies. We stated in a previous write-up that Google should look to buy MySpace, seen here, but we now think maybe FaceBook should look to buy MySpace. Both companies make good suitors to us.
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