Author Archive

Quick Thoughts: AMZN and MSFT – Seattle Takes its Turn Beating Consensus

Written April 24th, 2014 by

Follow SecSovTMT on Twitter

-          AMZN beat on the top line with 23%+ sales growth, with in line EPS muted by increased technology and content expenses. Investors were spooked by guidance for a 2Q loss.

-          As usual, AMZN divulged little detail, but Bezos has been busy recently, increasing the price for Prime, launching Fire TV, signing a big content deal with HBO, and announcing Prime Pantry.

-          MSFT delivered modest beats on both top and bottom lines – without a one-time sales recognition issue last year, growth would have been a healthy 8%+.

-          Cloud revenues (Azure, Office 365, Dynamics) more than doubled, commercial Windows grew double digits on the XP sunset, and Consumer and Devices rose a healthy 12%.

After Silicon Valley stalwarts Apple and Facebook delivered big blow outs last night, the Pacific Northwest division of the tech league took its turn today, with both Amazon and Microsoft delivering better than expected results. Amazon’s strong revenues were delivered with typically spare detail and a bitter bit of guidance on June quarter margins that spooked investors who had initially bid the stock up after hours. Seattle neighbor Microsoft was also a bit shy on detailed operational data, frustrating analysts already coping with the comprehensive reorganization of the previous reporting segments. However, despite their shared secretive approach to reporting, both companies are doing the right things to stay at the forefront of the ongoing TMT paradigm shift, with strong results to show for it.

Read the rest of this entry »

Quick Thoughts: AAPL Quiets its Critics, FB Revs Up Growth, and QCOM Stumbles a Bit

Written April 23rd, 2014 by

Follow SecSovTMT on Twitter

-          AAPL’s 4.6% YoY sales growth came as a shock, as Chinese demand for the iPhone blew past even the most optimistic forecasts, and drove an unexpected GM pop to 39.3%.

-          FB delivered 71% sales growth to crush consensus EPS by 42%. Users and engagement are up nicely, but ad monetization is the big story – we see a lot more runway ahead.

-          QCOM missed the top line but beat EPS on opex controls and a better tax rate. Decelerating sales of 3G/4G devices in the quarter will fuel fears that saturation may limit future growth.

-          This is a sigh of relief for AAPL bulls, more good news for FB, and new fuel for QCOM haters. We are not convinced that AAPL is back on the growth train nor that QCOM must stumble further.

The Apple bulls must be feeling their mojo. For weeks the story has been that the company would report sales down YoY for the first time in eons. Analysts were somber, downplaying the importance of the seasonally weak March quarter and beating the drums for the big screen iPhone 6 that everyone is expecting for the fall. China Mobile, originally held out as Apple’s ace-in-the-hole in its first quarter supporting the iPhone, seemed a bleak hope after the world’s largest carrier reported just 1.3M 4G phones sold in February. It turns out that all of the sturm und drang was entirely unnecessary.

Read the rest of this entry »

Quick Thoughts: Netflix Fiddles while Traditional TV Begins to Burn

Written April 21st, 2014 by

Follow SecSovTMT on Twitter

-          NFLX beat on EPS ($0.86 vs. $0.81 consensus) and new subs (4M net adds vs. 3.85M guidance), as its original content strategy is beating on-line and traditional rivals alike.

-          With the rapid expansion NFLX subs and streaming hours, the contention that traditional TV viewing remains unaffected is not credible, an omen of future pressure on TV advertising.

-          Investors cheered the decision to raise prices for new subs, one of many unused monetization levers available NFLX – the $ will fund more original programs, new markets and higher margins

-          Despite cutting a well-publicized deal with Comcast for better interconnection, NFLX was explicit in its criticism of the proposed merger with TWC and of the market power of ISPs in general.

Netflix handily delivered another great quarter, maintaining momentum and delivering strong subscriber growth globally. US streaming subscriber additions were 2.25M, in line with management guidance, while international net adds beat the 1.6M guidance by nearly 10%, bringing total subscribers to more than 48M worldwide, up more than 25% YoY. The user growth drove sales in line with consensus expectations, while EPS of $0.86 easily topped the $0.81 forecast. While the results were unequivocally strong, the nearly 7% after hours pop came from CEO Reed Hastings’ abrupt about face on raising prices. After delivering upside to margins in this quarter, perhaps Netflix is starting to care about its profitability.

Read the rest of this entry »

Quick Thoughts: Another Annoying Google Quarter

Written April 17th, 2014 by

Follow SecSovTMT on Twitter

-          While GOOG’s 1Q14 miss is disappointing, it is not particularly unusual in its history of focusing on the long term. To that end, 19% sales growth is a healthy indicator for the future.

-          Network ad sales grew just 4% as GOOG is capturing more ad dollars on its own sites through programmatic ad buying. TAC is now at a record 3 year low of 23.3%

-          The bottom line miss was exacerbated by a 400bp boost to OPEX, mostly due to unusual legal expenses and costs associated with integrating Nest that will be resolved by next quarter.

-          The miss had GOOG off over 3% after hours. We do not see the results as alarming, and would use weakness as an opportunity to add what we see as the best positioned player in the sector.

Earnings happen. Google, like its archrivals Amazon and Facebook, maintains a blasé attitude toward its short term results. This long-term approach, while ostensibly to be applauded, has an annoying tendency to periodically bite investors in the portfolio. Google’s first quarter report is an example of this habit. The numbers were short on both the top and bottom lines, and the stock tumbled after hours, eventually recovering to just 3.15% down. In its past 4 misses, Motorola’s hardware business was the prime culprit, but this time it seems to be a bit of over exuberance in sales estimates combined unusual items that drove OPEX up 400bp. Legal fees likely stemming from the recent stock split drove G&A up, while Nest’s heavy R&D flowed through the P&L taking the company from a historic R&D rate of 12% of revenue to 14%. Despite this little speed bump, things look more than alright in Mountain View.

Read the rest of this entry »

April 15, 2014 – TMT: Don’t Rain on My IPO

Written April 15th, 2014 by

Follow SecSovTMT on Twitter

TMT: Don’t Rain on My IPO

2013 was the biggest year for TMT IPOs since 2007, with 54 companies hitting the market, led by TWTR, but otherwise dominated by enterprise cloud software. 2014 began with a big backlog of 590 venture funded companies in the pipeline, up from 426 a year ago, representative of years of public market angst. 19 IPOs have issued YTD, with several high profile acquisitions as well. This year, the mix includes more consumer names, including 50%+of the IPOs YTD, and with Chinese e-commerce giant Alibaba expected to top FB’s 2012 offering as the biggest debut in history. For investors, we see 2014’s likely IPOs as a mixed bag. To date, intriguing plays like GRUB and OPWR have had strong launches, while riskier issues like KING have foundered. Looking ahead, we are more optimistic for enterprise cloud application plays like Palantir, New Relic and AppDynamics, than for the sub-scale infrastructure plays like Box and platform vulnerable consumer businesses like Dropbox and Evernote. Overall, we are bullish that paradigm shifts in advertising, retail, enterprise IT, entertainment, and telecom are opening huge new addressable markets to new paradigm TMT players, and that most valuations remain reasonable given this growth potential. Given this, strong cash flows and balance sheet liquidity, we believe talk of a new tech bubble is misplaced. On a side note, the IPO market may raise prices and slow the pace of sector M&A. We are adjusting our model portfolio – over the past 4 months, the large cap underperformed by 3200bp, driven by the recent pull back, while the small cap outperformed by 4600bp. FB and DATA are joining the large cap list, replacing CRM and CTXS, while OPWR and GRUB are added to the small cap portfolio, replacing GTAT and TYPE.

Read the rest of this entry »

Quick Thoughts: Amazon lights a Fire under Apple and Google

Written April 2nd, 2014 by

Follow SecSovTMT on Twitter

-          AMZN’s $99 Fire TV is quite differentiated vs. rivals at similar price points (AAPL TV, Roku, etc), slotting in between the bare bones $35 GOOG Chromecast and $400+ Xbox One and PS4.

-          Fire TV is well designed to promote AMZN’s content and e-commerce, leveraging the company’s extraordinary retail clout, and the platform’s best in class performance to drive sales.

-          AMZN notably excludes GOOG’s YouTube from its platform, just as AAPL TV and GOOG Chromecast exclude AMZN Prime Video, evidence of the rivalry developing in the category

-          Rumors of an AAPL/CMCSA tie up are not credible – AMZN should play very well at $99, with the cheap Chromecast and expensive Xbox One and PS4 leading at their respective price points.

Earlier today, Amazon joined the ranks of Apple, Roku, and Google in offering a dedicated TV streaming device. The device boasts impressive specs, though it enters a crowded market of existing streaming devices that include set top boxes, internet enabled TVs and Blu-Ray players, as well as a second generation of internet connected game consoles. All are clamoring to be the primary access point for streaming content in the living room. Moreover, streaming apps and content providers are striking deals to have their content shown on these devices. Netflix and Hulu have made ubiquity across devices a business priority, while TV and cable providers are more cautious in selecting platforms for their apps. Comcast and Apple were rumored to have been in talks recently about enabling cable TV and apps on Apple TV, but negotiations appear to have fallen apart to an impasse over customer control. Today’s announcement also underscores a growing rift between the major consumer platforms: Apple, Google and Amazon.

Read the rest of this entry »

March 26, 2014 – Facebook: Dream Until Your Dreams Come True

Written March 26th, 2014 by

Follow SecSovTMT on Twitter

In its first year of trading, FB struggled to transition to mobile, delivering lackluster growth and failing to get back to its $38 IPO price. However, with its 2Q13, the company demonstrated a new ability to monetize its increasingly mobile user base, benefitting from a turning point in the acceptance of mobile, social and online video within the ad community. Moreover, we applaud FB’s strategic shift toward a suite of focused but interrelated apps, all leveraging the company’s powerful social graph. Separating previously bundled functions into distinct apps will deliver cleaner experiences for users and better context for advertisers, while co-opting a larger share of smartphone home screen real estate. WhatsApp can further FB’s ambitions, adding new users, particularly in markets where FB is weak, ideally drawing engagement to its more easily monetized services, but the deals for WhatsApp and Oculus are risky and expensive. Within this period of extraordinary growth, we believe that FB can absorb the considerable dilution from both acquisitions without risk disappointing vs. extremely conservative consensus expectations. While FB’s valuation is a significant hurdle for many investors and greatly sensitive to assumptions about longer term growth, we believe continued performance will keep investor dreams alive for quarters to come.

Read the rest of this entry »

Mach 2, 2014 – SaaS: After the Levee Breaks – Competition in Software

Written March 2nd, 2014 by

Follow SecSovTMT on Twitter

Web-scale cloud platforms, leveraging massive consumer applications, have dramatic cost and performance advantages over private data centers, stemming from their scale, scope, superior design, and world-class computer science skills. These advantages, which already allow the top cloud operators to deliver 50-75% lower costs to customers vs. the all-in costs of in-house solutions, are growing wider with time and are rapidly separating AMZN, GOOG and MSFT from smaller would-be rivals. As we have often noted, these dynamics are troubling for traditional data center technology vendors, and are likely to be deflationary for IT budgets in general. Low cost, high performance cloud hosting also greatly lowers the barriers to entry for SaaS application developers – opening the door to innovation and competition in enterprise applications, pressuring SaaS pioneers with older architectures, and posing an existential threat to traditional application vendors. Success in SaaS will come from innovation, execution, and scale economies rather than customer lock-in, and product life-cycles will be shorter than in the last 30 years of the software market.

Read the rest of this entry »

Quick Thoughts: Facebook Buys More Users and Usage

Written February 19th, 2014 by

Follow SecSovTMT on Twitter

-          At $19B in cash, stock and future stock grants, FB is paying more than 10% of its enterprise value for WhatsApp, its 450M monthly active users and 55 employees.

-          Strategically, WhatsApp is a great fit, with extremely strong penetration and engagement in markets where FB is relatively weak, like India and Latin America and a clear monetization path

-          The strategy of separate focused mobile apps is spot on – WhatsApp for messaging, Instagram for photos, Paper for news dissemination – controlling footprint and usage on others’ platforms.

-          This is a VERY bold move, but WhatsApp will deliver real long-term growth and FB may have enough short term business momentum to cover for the almost certain and substantial dilution.

Wow! Mark Zuckerberg is not playing it safe. WhatsApp has been on fire, going from 0 to 450M users in less than 5 years, now serving more messages than all of the Earth’s wireless carrier SMS systems combined. The service is particularly strong in emerging markets – According to The Information, 55% of Indians, 63% of Brazilians, 72% of South Africans and 76% of Mexicans surveyed by Jana Research reported WhatsApp as their most used messaging application, while Facebook didn’t top 6% in any of those markets. No mystery that Facebook would be interested in buying the company, but after seeing Twitter’s big move out of its IPO and having had Snapchat turn down a rumored $3B offer, the real question was whether it was too late to get WhatsApp at a price that Zuckerberg was willing to pay.

Read the rest of this entry »

Quick Thoughts: Kabletown Gets Serious

Written February 13th, 2014 by

Follow SecSovTMT on Twitter

-          CMCSA is SERIOUSLY understating the approval challenges for its TWC deal –DOJ and FCC are philosophically opposed, Hollywood and Silicon Valley can offset its political clout

-          Combined, CMCSA/TWC passes 60% of US households, and has 37%+ of broadband and 32% of video subs. Divesting subs to get under 30% share of video isn’t enough of a concession

-          Net neutrality will become the BIG deal hold up – FCC could require common carriage regulation, open the door to real open web TV competition on cable pipes

-          Meanwhile, the deal announcement throws a major monkey wrench into AAPL’s rumored plans to offer TWC access via AppleTV – all industry over-the-top TV plans now go on hold

Comcast definitely has swagger. In the wake of John Malone’s ill-fated $130/share bid for Time Warner Cable, Brian Roberts swoops in with a friendly $158 offer, just a tick below the $160 number TWC had floated as a fair price for its sloppily managed cable TV dominion in slapping down the Malone/Charter Cable bid. Anticipating the inevitable regulatory scrutiny, Comcast immediately offered to peel off roughly 3 million subs to get under the 30% share Maginot line previously established by the FCC as unacceptable concentration in the cable industry, and published a powerpoint document outlining its argument as to why a combination of the country’s number one and number two cable providers would be a boon to consumers and to competition in general.

Read the rest of this entry »

© 2013 - SSR LLC
Wordpress Themes
Scroll to Top