Monday, 8 November 2010

Rumour Mill Yahoo and AOL

Some rumours going on about a merger between Yahoo and AOL or some form of takeover.

Probably spread as someone wants to either offload shares in AOL or Yahoo without tanking the market.

Just look at the spread on Market Cap of each company. It would be like Microsoft  going off to buy Palm - what would be the point ?

Does this deal make sense ? Aside from Blodget who believes the deal makes sense, I doubt management of Yahoo do.

Why would Yahoo want to purchase a stream of dying revenue at a premium price ? If they had the money they may as well go to AIG and purchase an annuity, it would return higher and be less hassle.

AOL's turnover is decreasing rapidly. Current market valuation is way too high and and any premium above this is ridiculous. Consider all the effort to rationalise both organisations and it will detract Yahoo management even longer so the competitors can get even further ahead.

I haven't been a great fan of yahoo, but this merger would be detrimental to Yahoo. The last company that got into bed with AOL incurred a $16billion loss.

So what could Yahoo do ? Well they need to be a bit further on the ball. Yahoo and hotmail have had mail services a lot longer than google...yet google came in and have taken market share. Why ? Yahoo dont even test their email system on linux machines !! How pathetic is that ? Promoting open source OS should be the first thing on their mind when it comes to hurting their competition.

Yahoo's site for feedback is pathetic. There has been some recent improvements but it was an effort to actually send feedback to yahoo. They made it as difficult as possible. Yahoo finance is very good but the lack of quality updates to this destroys the quality and reliability of the data.

If these things I have listed are common across the entire organisation it is no wonder they are experiencing reducing turnover.

An example slow yahoo is ? Where is yahoo's urls shortner ?

Wednesday, 3 November 2010

Quote of the Year - AAPL (Apple)

This has got to be the quote of the year.

RBC Capital analyst Mike Abramsky says he is cutting Apple (AAPL) to underperform from sector perform and his $125 price target to $70 on reduced growth expectations, visibility and near-term leadership uncertainty. He sees a revaluation in the stock toward a market multiple. (15th Jan 2009 - Bloomberg Business Week).

If anyone know where this analyst is now working or whether he has any further tips, let me know. Just do the opposite and you will be sure to make money.

Shorting PLT (Plantronics)

Current Market Capitalisation is $1,800bn. Sales for next quarter estimated to be around $180m. Annual sales say $1,000bn. That is still $800m more than market capitalisation of the company.

Quarterly cash generation "“We generated approximately $25 million in cash flow from operations in the current quarter" from earnings report Plantronics Announces Second Quarter Fiscal 2011 Results.

That is $100m a year. Market Cap is 18x free cash flow. No debt though.

Logitech, Motorola, Jabra all competitors where the items sell for around 50% of the price.

Short Strategy.

40% Shorted now at $37.82 (4000 shares)

Further Positions

20% Shorted at $40.00 (if it gets that far !) So another 2000 shares.
50% Shorted at $42.00 (if it gets that far!) So another 5000 Shares
20% Shorted at $35.00 ( if it falls that far) So another 2000 Shares

Below $34.00 start taking off the short positions at 10% for each 50c below $34.00

So today I have shorted 3000 shares at $37.81.

I have not hedged this against the market, as I feel the market is very high right now. If the market falls another 5% over the next week, I will then go long on the market by the same amount.

Monday, 9 August 2010

Gartner (IT)

IT - Gartner - Share Price 25.28 - Pre Earnings 17th August 2010.

Position : Short Prior to Earnings

Market Cap 2,460m. Revenue last year $1,139m. Net Income last year $83m. Net income prior year $103m. PE of between 24-30. IBM PE is 13. HPQ PE is 12. MSFT PE is 12.

So massive growth ? Well no. 2006 Revenues 1,060m. 2009 Revenues 1,139m. An increase of 7% . Hardly worth a PE of 30.

They have deferred revenue to manage the top and bottom lines. But you cant manage cash flows. Cash flow $162m for 2009 and $184m for 2008. Market cap is still 15x cash flow !!.

Short interest has increased in the last month, though is still low.

Balance sheet - looking not too good. Excluding the deferred revenues and goodwill there is a net deficit of around $67m. The point being there is not a large amount of cash or other assets on the balance sheet.

Operating cash flow for the last quarter was a negative $8m.

Analyst are expecting revenues of $306m for the year with an annual revenues of $1,270m for the current year and $1,410m for the following year. Quarter earnings are expected at 22c.

Estimates of EPS is 1.04c for the current year and 1.26c for the following year.
In reality during the boom times the company has only achieved 1.02c in 2008 and 0.88c in 2009. Last quarter the company acheived 20c.

Even if revenues are fudged, I still cant see how a company that earns $1 in a year is worth $25.3.

Apple is forecast to earn 17.47 for next year. Share price is 260.45. Giving a forward PE of 14.88.

This company is forecast to earn 1.26c giving it a forward PE of 20. Apple at least has a good chance of achieveing this earnings traget.

In terms of options activity there is not much going on to provide any insight.

I am going to short this one on the basis that even if it hits both earnings and revenue targets, unless it is going to compete with the Iphone, the PE ratio is unsustainable, compared to say Accenture, IBM and the like.

Rising Food Prices

On my radar for the next 3-6 months is the increasing cost of food. As the middle classes grow in BRIC countries they will want their share of the food and much more than before. This will have an upward pressure on food prices. This could potentially cause US incomes to drop significantly as a larger proportion of US and European wages are spent on food costs, leaving less around for the discretionary purchases.

Bear in mind though the US wastes a lot of food, so the increasing costs may just cut out the wastage and make people a little slimmer, reducing the economic burden of fat people on the western economies. This will save the US around $117bn a year.

Monday, 19 July 2010

Yahoo Earnings

19th July 2010. Recent upgrade from Thinkequity. Personally I dont believe in upgrades. Looking at the fundamentals.

Market Capitlisation $20.91bn

Sales $6,400 Dec 2009. $6,400 December 2006. So between 2006 and 2009 Yahoo has not increased sales.

Net underlying earnings $724m Dec 2009. $736m Dec 2006.

PE ratio based on underlying earnings 28.9

The only growth in earnings has been in March 2010 of a mere $0.2bn.

Google PE ratio is 19. Sales December 2009 = $23,650. Sales December 2006 $10,640.

Typically I would say that a short on Yahoo would be worth it.

Revenues are expected to be $1,160bn. Earnings per share around 14c.

Expected revenues have already been reduced to take account of Yahoo's loss of market share, so there could be an easy beat, prompting uneducated investors into the share.

However I cant see how the valuation stands up in comparison to its peer group given the lack of growth.

Todays Trading 19 July 2010

19 July 2010. Im looking at the following stocks today. IBM, TXN with earnings to be released AMC today. JPM I am looking to see if there is some sort of bounce after an apparent upgrade and a bashing on Friday. GS gave away gains made on Friday pre market after the agreement with the SEC.

MAT was also bashed on Friday - should be looking for a bounce, it only missed by 1c and Toy Story 3 is a big hit for DIS. Sales of merchandise should help MAT.

EDU - if this misses estimates this will fall big time.

About Me

I try and work a broadly market neutral strategy and based purely on fundamentals and my gut feel.