Wednesday, April 15, 2015

NFLX: What are the bears missing?

First let us look at the quarter that Netflix delivered today.  The company posted first-quarter earnings of 38 cents per share, versus estimates for 69 cents. Revenue totaled $1.57 billion, which was in line with estimates. Netflix said earnings would have been 77 cents a share, excluding a foreign exchange loss.
However subscriber growth beat expectations adding 4.9M subscribers versus the expected 4.1M subscribers. International subscribers growth has been strong. The stock is up 13% after hours.

I for one believe that Netflix value is not in the financials it delivers. It might be in the brand, it’s stickiness and the potential to be a ubiquitous content delivery platform. The bottom line question is “Is Netflix a media company or tech company?”. Can it be a entertainment platform?Netflix is cool among kids and teenagers which is huge.

I think that there are network effects present for Netflix and they are generated through the content on the platform. I have heard seven year olds associating their favorite show and associate it with Netflix, even though that show is not Netflix’s original content. I was part of office break room discussions on House of Cards and Marco Polo. As Netflix produces more original content or delivers other producers original content the stickiness only increases. 

The millennials will cut the chord, there is not doubt about that. But I have hard time imagining they would do it without having Netflix. The strong subscriber growth attests to the fact that Netflix is fast becoming a default subscription a household might have.

If you consider Netflix a platform and if you imagine content chasing the platform then on a relative basis Netflix is worth way more than $30B it is worth even after A/H spike today.

Tuesday, April 14, 2015

4/14/2015 Market Recap and outlook for Wednesday April 15th

Futures were down in pre-market after Retail sales missed the consensus (1.1%) up 0.9% increasing for the first time since November. The S&P 500 however finished the day higher by 0.2% after being down most of the morning. PPI came inline with expectations. 
Energy was the best performing sector as Crude rose today owing to tensions in Yemen and chatter of a possible drop in US shale production. Morning earnings were better than expected.

JPMorgan Chase (JPM) beat expectations on EPS by 5 cents, while revenues were up 4.8% year-over-year. Shares finished up 1.6% today.

Wells Fargo (WFC) also beat on earnings and missed on revenues.

Johnson & Johnson (JNJ) also beat expectations.

Wednesday's Outlook

Intel Corporation (INTC) reported after close today and forecast a 3 percent jump in current-quarter revenue, based on expectations of stronger demand for its personal computer chips and continued strength in its data center business.
The company's net income rose to $1.99 billion, or 41 cents per share, in the first quarter ended March 28 from $1.93 billion, or 38 cents per share, a year earlier. Analysts had expected a profit of 41 cents per share, according to Thomson Reuters. Intel's shares rose 3 percent to $32.42 in after market trading.

Economic News Tomorrow Morning:
Empire Manufacturing, Industrial Production, Capacity Utilization, NAHB Housing Market Index, and Crude Oil Inventories 

Major Earnings Reports: 

Before Open: 

Bank of America (BAC), Charles Schwab (SCHW), Delta Airlines (DAL), PNC (PNC) and U.S. Bancorp (USB). 

After the close: 
Kinder Morgan (KMI), Netflix (NFLX),  and SanDisk (SNDK).

Monday, April 13, 2015

4/13/2015 Market Recap and outlook for Tuesday April 14th

The S&P 500  and NASDAQ rallied early today, before falling as we approached market close. S&P closed at 2092.43, down 0.5%. Nasdaq hit a high of 5024.25 before ending slightly negative.

Biotech were steady ended up 0.22% to 3747.35 Financials were up as investors look forward to major earnings releases from JPMorgan Chase (JPM), and Wells Fargo (WFC) tomorrow, followed by the rest of the big banks throughout the week.

Apple (AAPL) rallied earlier over strong order activity for the Watch over the weekend, but fizzled out with the rest of the market.

Qualcomm (QCOM) was up in the morning over Activist activity (no pun intended) after the announcement that Jana Partners was working with the company for a potential chip business spinoff. 
The stock is one of my shorts and still in a downtrend.

Netflix (NFLX) got an upgrade from UBS with expectations of strong international growth a and rallied over 5%.

Crude oil finished higher after the Energy Information Administration mentioned that crude oil production from key shale regions will decline in May.

Bad news is good news in the Chinese markets as FXI saw another impressive day after the government released unexpectedly weak export data. 

Tuesday's Outlook

> March Retail Sales
> Producer Price Index
> Business Inventories for February
> Britain's CPI Report

Major Earning Releases:

Before the market open, we have: JP Morgan (JPM), JB Hunt (JBHT), Johnson & Johnson (JNJ), and Wells Fargo (WFC). After the close, we'll be seeing earnings from CSX (CSX), Intel  (INTC).

Long Term Trend: Bullish
Medium Term Trend: Bullish
Short Term Momentum: Bearish (based on Monday's market action)

Thursday, February 28, 2013

The Groupon Saga

 Going against group wisdom and making a bet can pay great returns. But the bet should have a solid gut and some analysis that we did on our own to back it up.  Groupon (GRPN) seems like an opportunity for this kind of bet.  One of the reasons I think this is true is GRPN in many ways is like AAPL. Now  don’t start hating me for saying this.
Let me explain. AAPL revolutionized mobile thru the iPhone and brought in innovations like appStore. I am oversimplifying and you might say AAPL did much more. But bear with me here. Now in the mobile communications segment AAPL faces competition from Google, Samsung and others. It started with price and then now even performance. AAPL’s iPhone business is still a cash cow, but has been slowing down. Now what does it have to do with GRPN.

Well Groupon created a whole new market segment of what we call the daily-deals space and grew at a scorching pace until competition showed up with lower price offerings and like AAPL has to contend with Big G (GOOG) and Amazon (AMZN) who have better channels to sell the daily deals. In fact Google just made it far easier for all of its advertisers to do daily-deals and discounts alongside other online ad formats.

There you go, both AAPL and GRPN have to defend their existing cash cows and at the same time come up with products that can create lasting shareholder value in face of competition that has the power to take on them. The scale of the challenge of course is different.

With GRPN, let us start with the conference call yesterday. I have to read their 10Q over the weekend, but for starters let us look at how GRPN performed on the three important areas that are key right now.

Daily Deals business: No turnaround here. Wall St. was looking at a possibility. What we saw is a year-over-year decline, dropping from $478 million in the fourth quarter of 2011 to $413 million in the most recent quarter.

Marketing Costs: dropped by 61 percent to $61 million in the quarter, while Groupon continued to grow its total customers to 41 million, a 22 percent increase.

Groupon Goods: At $225 million in the fourth quarter, they're getting close to $1 billion in annualized sales

I think Groupon Goods’ performance is a huge plus. Though CEO Andrew Mason is under severe pressure, I think they are doing the right things. As for valuation, there are headwinds from AMZN writing off its Living Social investment and how Living Social is currently valued.

While further analysis is to be done, I believe GRPN is a long term high risk buy. We have to average into it and look at charts to determine the right price points.

Any one remember, where Priceline (PCLN) was about 5-6 years ago after it fell from the IPO bubble of ’00?

And hey what does all this have to do with AAPL? Well it appears AAPL carries similar risk (not same) from competition perspective and I am trying to think about what other have been pondering. Will Buffet buy AAPL? Well that is for another post.

Saturday, February 16, 2013

AllThingsMoney: 5 Trends and 5 Market Predictions for 2012

Planning to do some serious blogging in 2013. Let me start with my predictions last year..
AllThingsMoney: 5 Trends and 5 Market Predictions for 2012: Five Trends : Intersection of video and social gaming Explosion of Mobile data traffic Game changing year for cloud computing   Internet...

Tuesday, February 7, 2012

Apple, Google and the 200 day average!

Apple (AAPL) and Google (GOOG) have both tested their 200 moving averages and bounced back. Apple is up more than 25% since pulling  back after Steve Jobs and the supply issues from floods in Thailand. Apple found support at 363 in early Dec '11.


Cutback to mid-January, Google disappointed investors on the fourth quarter earnings and lost 9% next day and continued to slide until it found support at 200-day moving average of 563. The stock as of Feb 7th close is up close to 9%, though it is yet to go past its pre-earnings price.


The playbook idea from these instances is that short term events can create good risk-reward trades or buying opportunities on fundamentally strong stocks. Of course the pull backs have to be seen in the context of broader market conditions.

Saturday, January 14, 2012

Companies in business, but with writing on the wall

The Internet is the most efficient distribution network that was ever created. It has disrupted many businesses and continues to do so.  The WWW today delivers education, content, entertainment and even social relationship dynamics (facebook).  We are at a stage where we are starting to see business models created by the first two versions of the web (web 1.0, web 2.0 in geek speak) being disrupted.
In finding companies that can be shorted to protect long positions, I first started with companies whose proverbial writing is on the wall. Some of these are value traps, who have growing and steady cash flow, but hardly have opportunities to use the cash or have huge barriers to entry when considering their disruptor’s business. A very good example of this is GameStop (GME).

Here is a list:

1. RadioShack (RSH)
2. OfficeMax (OMX)
3. Best Buy (BBY)
4. GameStop (GME)
5. Office Depot (ODP)
6. Staples (SPLS)
7. Barnes and Noble (BKS)
8. Target (TGT)