BlackBerry vs. the iPhone

So I see this member’s question on TickerHound yesterday:

“BlackBerry or the iPhone?”

In the details of the question he goes on to reference a blog post by the New York based venture capitalist, Fred Wilson, where he openly asks for feedback on what people think of the iPhone versus the BlackBerry. There’s some great insight in Fred’s post (and the comments to it) so I recommend you read it.

But I thought I’d share some of my own thoughts on the iPhone vs. BalckBerry issue here:

The iPhone is unequivocally the most beautifully designed mobile phone I’ve ever seen. The web browsing experience is like nothing I’ve ever used on a handheld device and through the flawless marketing effort on the part of Apple (Nasdaq: AAPL) and AT&T (NYSE: T) it has already become somewhat of a status symbol in the geek-chic crowd.

But for those of you who have used one for any period of time, you’ve obviously noticed some of the flaws in this “flawless” product.

1. Sending a text message or an email becomes an exercise in finger tip precision and dexterity. Basically, you must have the most narrow and most accurate thumbs in the world to try and type a message longer than 2 words on this phone. For business users or active text’rs (read: teenagers), this is certainly NOT the phone to have.
2. I’ve dropped my BrickBerry more times than I can count and it’s still tickin’ – it’s like the little energizer bunny. The same can NOT be said of the iPhone. From what I’ve seen, heard and personally witnessed a strong breeze causes this phone’s screen to shatter.

   In fact if you check out Fred Wilson’s blog post, you’ll see what his daughter’s phone looked like, post-drop.

3. Even though there are “hacks” out there, you’re still locked into using AT&T/Cingular as a carrier. While the service is good, I’m always one for having more options. The fact that I can use my BlackBerry with my T-mobile account, and be able to keep the phone if I decide to switch carriers (or if my company switches carriers) makes me very comfortable.

And I’m obviously not the only one who feels this way – it’s a sentiment I’ve heard from many of my peers for quite some time now. The most reliable text and e-mail friendly phone on the market today is the BlackBerry from RIM (Nasdaq: RIMM)…no contest!

But the story isn’t that quite cut and dry…

There’s a rumor going around that Apple has a new version of the iPhone coming out on June 9th. Apple’s a popular company in tech circles, and therefore the rumor-mill is usually in full effect whenever Mr. Jobs gets up to speak. Most of the time the hype falls far short of the real announcement, but this time I think the rumors are going to turn out to be true.

I think on June 9th we’ll get the announcement that Apple is launching a 3G enabled iPhone. Essentially what that means is that the iPhone will now let its subscribers download data faster than ever before.

However, given the serious flaws the company has with the phone design, I’m not sure what impact (if any) this will have on subscriber numbers. Especially when we take RIM’s announcement into account…

Last week, RIM announced the upcoming BlackBerry Bold phone – the first 3G phone from the CrackBerry maker. I’m personally looking forward to this one and it seems like the rest of the market’s feeling the same – the stock is up 6.35% as I write this article.

But that isn’t to say Apple won’t see some serious benefits via its 3G initiatives. I just don’t think those benefits will be solely in the form of an increase in iPhone subscribers. I think Apple could see a serious increase in iTunes sales as well.

Picture this: when you hear a good song and want it on your iPod immediately, all you’ll have to do is login to iTunes with your 3G phone and you’ll be listening to the song in seconds.

So if Apple’s strategy is to secure more iTunes purchases, I think they’re still executing their marketing efforts flawlessly. If the company really wants to compete with RIM, however, they’ll really need to do something about the phone’s design. Touch screens are “cool”, but certainly not functional.

Regardless of who gets the most subscribers, I think both announcements will be great for RIM’s and Apple’s stock prices.

Posted in Market Commentary | No Comments »

Is Microsoft REALLY Through with Yahoo!?

So by now it’s old news that Microsoft (Nasdaq: MSFT) has completely called off its bid for Yahoo! (Nasdaq: YHOO).  After weeks of public battling between both of their PR departments, Ballmer finally raised the white flag and called it quits this weekend.

Yahoo!’s stock price promptly tanked by 15% on Monday, while Microsoft stock continues to tread water.

So the question becomes, where does Microsoft go from here?

In fact, that’s precisely what a TickerHound member asked this weekend:

“Microsoft withdraws bid for Yahoo - who might they go after next?“

In situations like this it always helps me to list the top realistic options and the pro’s and con’s for each.  So what are Microsoft’s options?

AOL

Time Warner (NYSE: TWX) is likely going to spin this division out at some point in the near future, so they might as well get a bit of a premium for it if they can.

Pro’s:

• Several high trafficked sites – reported a 15% increase in March traffic, reaching 55 million visitors across all of the AOL properties.
• Diverse focus on editorial content and social media – remember, AOL recently acquired Bebo for $850 million not too long ago.  This would give Microsoft a major presence in two large social networks.
• AOL’s Platform A division gives Microsoft some great advertising platforms in the display ad business, which is exactly where Google (Nasdaq: GOOG) just planted its flag with its acquisition of DoubleClick.

Con’s:

• For all of AOL’s traffic, it has yet to effectively monetize much of it.
• Google  is currently serving all of the company’s search ads.  Could that add a layer of complexity to the deal?  Would it make AOL less valuable if they no longer used Google?
• Even with 55 million unique visitors, the company is still about half the size of Yahoo!.  This might not be enough to give Microsoft the boost it’s looking for on the web.

MySpace.com

If you had asked me a few months ago I probably would’ve laughed at the idea of Microsoft buying the News Corp. (NYSE: NWS) owned MySpace.  But after all of the Yahoo! shenanigans combined with the rumors of a joint Microsoft-News Corp. bid to buy Yahoo!, I think this might be a deal worth writing about.

Pro’s:

• Fastest growing and largest social network in the world – it’s almost tied neck-and-neck with Yahoo! for the most highly trafficked site on the web.
• The sector that it operates in is one of the hottest on the web right now and is attracting a ton of positive attention – something Microsoft desperately needs as it becomes an increasingly irrelevant participant in this space.
• The deal would give Microsoft a dominant position in social network advertising as the company has already cemented its arrangement with Facebook via its $250 million investment in the company.

Con’s:

• On the opposite side of the same coin, this deal could conflict with Microsoft’s Facebook investment – I can’t imagine “Zuck” would be too happy seeing one of Facebook’s largest shareholders in bed with its largest competitor.
• Social networks have been proven to be notoriously difficult to monetize.  Does Microsoft need to climb over 9 foot hurdles right now?  Or should it be looking to walk over 1 foot hurdles?
• This company won’t help Microsoft increase its share of the search market…social networks may be great, but search engines capture customer intent and that’s what makes the advertising space around it so valuable.

Facebook

Given that the company already has a major stake in Facebook, it’s not outlandish to think Ballmer wouldn’t pony up some more Microsoft money to buy the rest of it.

Pro’s:

• The company already owns a piece of Facebook and serves its ads.
• Like MySpace, Facebook is playing in an extremely attractive sector right now.  An acquisition will certainly make Microsoft’s presence felt on the web again.
• Facebook’s platform could be very compelling to Microsoft.  Microsoft Windows effectively did the same thing for the desktop as Facebook has been doing for the web – giving developers an open set of API’s to develop, market and monetize applications on top of.

Con’s:

• As with MySpace, Microsoft would run into monetization issues on this social network as well.  Until they figure out a way to capture intent-to-purchase on a social network, it’ll never become as effective of an ad platform as search is.
• Facebook, like MySpace, gives Microsoft no additional traction in the lucrative search engine advertising market.
• Culture shock – even more so than Yahoo!, how would Facebook’s younger, less polished and less corporate employees mesh with the old guard at Redmond?

A Game of “Imagine If”…

Given that none of the options above seem extremely compelling, let’s play a little game of “imagine if”.

Imagine if Microsoft hasn’t really given up its desire to acquire Yahoo!.

Now, imagine if Microsoft were really smart and instead of walking away from the deal or overpaying, they decided to step away temporarily to manipulate the situation in their favor.  Here’s what I mean…

Microsoft had to know that if they withdrew their bid that Yahoo’s stock price would crack – as it did on Monday.  They’d also know that Yahoo! shareholders and executives would throw a fit – as they did on Monday.  This would help Microsoft in a couple of ways:

1. Now the company could scoop up shares on the cheap.
2. They’d also have Yahoo! scrambling to put out any internal fires the whole situation might’ve caused.  A distracted enemy is a weak enemy.
3. It would give Microsoft time to court large Yahoo! shareholders – who are rumored to be less than pleased with their CEO – and build support for another bid.

Now this all might sound a little “conspiracy theory-ish”, but we’ve looked at the alternatives already.  None of the other girls at this dance look quite as pretty as Yahoo! does and everybody knows it.

The Bottom Line

The bottom line is Microsoft wants a bigger presence on the web.  They also need a bigger slice of the search advertising market if the company hopes to remain competitive with Google.

They don’t have many alternatives and Yahoo! is looking pretty desperate at this point as well.  This half-baked “test”/partnership they have going with Google will NEVER make it through anti-trust, so that’s not even something worth considering.

My money is on a Microhoo! deal before the end of the quarter.

Posted in Market Commentary | 1 Comment »

Hershey is Ripe for Pickin’

Well, this was a first for me – a question on TickerHound.com was directed right at yours truly:

“Hey Wayne, what do you think about Hershey now?”

I wrote an article about 2 months ago on Hershey’s Chocolate (NYSE: HSY). In the article I discussed a merger that Hershey had arranged a couple of years ago with Wrigley (NYSE: WWY), which ultimately never went through due to Hershey’s largest shareholder, The Hershey Charitable Trust, deep-sixing the deal at the last minute.

At the time, I felt the door to doing a deal between these two companies was still wide open.

But now, that door has officially been shut and has put Hershey in a very awkward position.

As of Monday morning, Mars, Inc., the largest candy maker in the world, agreed to acquire Wrigley for $23 billion…that’s a 28% premium to last Friday’s closing price. The company had a little help doing this deal too…

A long time admirer and someone who was very vocal about his desire to own Wrigley’s, Warren Buffet, will provide some of the financing for the deal.

So back to the question, where does this leave Hershey now?

Well, it obviously leaves Hershey in a much more vulnerable position than it has ever been before.

Mars-Wrigley is a virtual powerhouse in the candy market with distribution on almost every continent and some of the most valuable brands in the world – I mean, who hasn’t eaten a Snicker’s bar or M&M’s?

At the conclusion of my last article I put forth two scenarios – Hershey would either:

1. Merge with Wrigley – That’s obviously out of the question now.
2. Merge with Cadbury (NYSE: CSG) – a situation that’s looking more and more likely.

The company could also stay independent but as they try to compete on a global level with Mars, I think even the hard-headed Hershey’s Trust will agree that they’ll need a European distribution partner in order to gain traction overseas.

But a few things have changed between now and when Hershey was first engaged in talks with Cadbury in January of 2007:

1. We’re in a bear market and Hershey’s stock has gotten hit hard over the last year. To put it in perspective, Hershey’s is off almost 25% since they began talking to Cadbury and Cadbury’s is up about 8%. That gives Cadbury a lot more leverage in this situation.
2. Due to the fact that Cadbury has a lot more leverage and Hershey’s business is going to increasingly come under assault in the US and abroad by Mars-Wrigley, Cadbury could get Hershey at a much lower valuation and close the deal under much more favorable terms. Originally Cadbury agreed to spin-off its beverage unit in order to get the deal done. That might not be a concession Hershey has the ability to push for this time around.
3. Most of the top dogs at Hershey are no longer there. The company was effectively taken over by the Hershey Charitable Trust; an organization that has very little operational or strategic experience in the candy market. To say that these guys are going to be able to come in and cut the best possible deal for Hershey’s shareholders is wishful thinking.

And if that weren’t enough, Cadbury obviously knows one of the only other possible merger candidates is out of the picture entirely now, thus putting them in a MUCH stronger negotiating position.

But at the end of the day, in this writer’s opinion, this deal has to get done one way or the other. It would just be too difficult for Hershey to remain independent.

So while I might’ve argued that Hershey could’ve been the value play of the year 2 months ago, I’d be a little less optimistic in my profit projections now given how dramatically things have changed for the company.

Posted in Market Commentary | 3 Comments »

Microsoft’s Best Move Yet!

A TickerHound member asked:

“If Microsoft can’t get Yahoo! then what’s next for the company?”

Normally I might’ve shrugged my shoulders, suggested another acquisition candidate and considered the conversation over.  Microsoft (Nasdaq: MSFT), while still a very successful company, hasn’t yet shown me that they really “get” the web.

That is until Tuesday night!

Let me explain…

Now when I first heard that Ray Ozzie was joining Microsoft I was thrilled, to say the least.  Ray Ozzie has been innovating in the tech space for decades and has really been one of the few consistent hitters when it comes to emerging technologies.

But after watching (quite frankly) a series of disappointing product launches come out of Microsoft for the last few years, I began to lose faith in Oz.

Had he lost his touch?

Did being stuck in the confines of Microsoft rob him of his mojo?

Well he must’ve taken some notes from Austin Powers, because as of the other night, the “Great and Powerful Oz” has finally gotten his mojo back!

Lately, much of my focus has revolved around web-based services.  For example, a couple of weeks ago I wrote about Google’s new web application platform (Why Microsoft Should be Shaking in Its Boots): App Engine.

This is was a HUGE move for Google and one that I think will serve the company very well in the future.

At the end of the article I asked if this was “check or check mate?” for Microsoft.  Well, I think Microsoft just answered my question…and it is most certainly NOT the end of the line for the boys in Redmond.

On Tuesday evening Microsoft announced its most ambitious plan since the launch of Windows 95 – Microsoft’s upcoming “Live Mesh” service.

Similar to Google’s application platform, Microsoft hopes developers will make use of its toolset in order to develop robust web-enabled applications.  But Microsoft is taking the vision a bit further.  Instead of giving people a backbone to host their web-centric software on, Microsoft is providing a fully integrated platform that connects web applications directly to a user’s device(s).

Ozzie’s vision is to have a service in place where Microsoft’s products – and anyone else who wants to develop applications for the platform – can be synchronized across all devices (phones, PDA’s, game consoles, etc.)

How About an Example?

Ok, let’s say you have your trusty camera phone out at a ball game and decide to snap a quick photo of your favorite New York Yankee, Derek Jeter.  Instead of just saving the photo to your phone, Microsoft’s Live Mesh will instantly beam it to your PC back home and your online photo album (along with any other connected device).

Then when you get home, you decide you want to edit the photo a bit because it’s a tad blurry (i.e. you can’t see the ball flying over the Red Sox outfielder’s head clearly).  So you touch the photo up on your PC and instantly, the photos on your PC, your phone and your online photo album are all updated at the same time with no other action on your part.

And that’s just a silly example with photos…

Now imagine what that means when it comes to calendars, contracts and other business documents?

The array of services and solutions that can be built on top of a holistic platform like this are endless.

Microsoft’s also launching community features into Live Mesh, which in my opinion, makes it dramatically more powerful than anything else taking shape on the web right now.

Imagine you’re working on a team with several other people and you’re trying to edit a Power Point presentation or a Word document.

The Old Way:

• You make a change to the file
• You email it to everyone and wait for feedback
• Then you realize that somebody else changed a part of the file that doesn’t quite match  yours and now you have to work their changes in on top of your own

The New Way:

• Everybody makes changes in real time, regardless of what type of device they’re using
• Everybody’s copy is synchronized
• There’s a record (visible to everyone in the group) of every change that was made so it’s easy to rollback and clean things up

Think about the productivity gains here!  Think about the types of services that can be built on top of this platform.  Think about the amount of commerce that this will drive – and not just for Microsoft, but for every web, desktop and mobile application developer out there!

Plenty of people would argue that this isn’t a direct competitor to Google’s platform, but I think if we examine the implications of a universal application platform, that bridges the device-to-internet gap in a seamless way, we’ll see that this is definitely Microsoft’s best move yet!

So even if Google’s platform is the foundation that the cities of the web are built upon, then Microsoft’s Live Mesh will be the roads that bind them together.

Posted in Market Commentary | No Comments »

An “Alternative” Way to Profit

As I was taking my daily “stroll” through TickerHound.com, I came across a question on a topic that I’ve been extremely interested in lately: Alternative Energy.

The Big Picture

We all know that we’re at major crossroads both from a political and economic perspective right now.  The United States and our allies abroad have become increasingly dependent on foreign oil – this puts us in an extremely vulnerable position from a geo-political perspective.

How can we continue to exert influence and authority abroad if we’re constantly at the mercy of a market we have very little direct control over?

Combine that with the growing call-to-arms of the Green movement and it’s easy to see why there’s such a big opportunity brewing in alternative forms of energy.

The U.S. and many other countries around the world are (as my grandfather would say), “backing the truck up” and pouring money into this sector right now.  There’s a tremendous opportunity here for the investors who play the sector right.  That’s why I was so happy to see someone ask this fairly straight forward question on TickerHound the other day:

“What are some good alternative energy stocks?”

While this sector is still considered to be in its earlier (read: riskier) stages – meaning, some companies will stick around and others will fold – I feel that if we pay attention to the fundamentals we can still find great companies, trading at reasonable valuations that have a high degree of succeeding and being one of the companies that will “stick around”…and show investors some handsome profits in the interim.

One of my favorites at the time being is, Trina Solar (NYSE: TSL).  This company is based in Changzhou, China and manufactures and sells solar modules to countries around the world.

While we may be going through a tough time in the market here in the US, things aren’t so bad on the other side of the pond.  The fact that Trina sells much of its products into European countries like Spain, Germany and Italy, makes this writer very happy.

Look at the Numbers

So the big picture/macro story is there, now let’s take a look at how this company has been performing from a financial perspective.

2006 revenues were about $114 million – not bad.

2007 revenues more than doubled to $301 million – even better!

And the most recent quarter showed gross revenue of $101 million – which is nearly TRIPLE what the company did in the year-ago period.

So the top line growth is certainly here, but what about the bottom line?

Well, the bottom line numbers are looking even better.  Due to some favorable shifts in the supply of polysilicon (the raw material used to build solar panels) Trina was able to expand their profit margins and returns on equity in the most recent quarter.  The company showed a 40% increase in net profit margins, putting it at about 15% and its Return on Equity jumped to 17.5% - a BIG improvement by anybody’s yardstick.

And the market has been rewarding Trina handsomely for its performance – the stock is up 50% within the last month but it still has a long way to go before it reaches the 52-week high it previously set back in July.

So for me, this is definitely the company to look at further if an investor were looking for a long term play in a market that’s just beginning to take off.  The macro picture is firmly in place, the company is showing some strong signs of growth while continuing to improve its fundamentals and the stock still seems to have some upside in it.

Click here to give your 2 cents on the Alternative Energy sector or to read some of the other answers people left on TickerHound.com

Posted in Market Commentary | 3 Comments »

Do You Have a Monster in Your Portfolio?

Yesterday on TickerHound.com, a member asked: “What do you think about Monster.com?“.

I haven’t thought about this company for a long time.  But once I started to really take stock of our current economic climate and Monster’s business model, I began to see why I needed to tell all my friends to double check their portfolios and make sure they weren’t  holding onto any shares of this one.

Monster Worldwide (Nasdaq: MNST) is one of the world’s largest online job databases.  The company is one of the few successful holdouts of the dot-com era and performed rather well after the market began to make a comeback in 2003.

The stock went from a low of $8.57 per share in March of 2003 to a high of $57.40 in April of 2006 - that’s a 569% return in under 3 years.  Not bad, not bad at all.

But to keep all this in perspective, the stock was at $91 a share in March of 2000.  So over the course of 6 years, the stock was actually down about 37%.  Reason being: the recession of 2001 and the subsequent multi-year bear market that followed.

Monster, being so tightly correlated to the job market, got hit so hard because as unemployment went up and companies stopped hiring, their site provided very little value to employers and employees alike.

So now, we’re at the beginning of 2008, it’s pretty obvious we’re heading into a recession (no one knows how bad this could get) and I feel like I’ve seen this movie before.

Many people would tend to agree - Monster’s already down about 30% since the beginning of 2008.

Some may call that oversold, I call it “the tip of the iceberg“.

If we were simply talking about an equities market “correction”, then I’d say we’ll be coming out of the downturn by the 3rd quarter.  But we’re talking about a crisis in the credit markets here - we haven’t had to deal with this since the 70’s and when you stack inflation on top of it we’re looking at a “perfect storm” scenario.

So this isn’t even a matter of performing deep financial analysis or picking apart the chart to identify a pattern.  Let’s use some common sense (an underused asset in many investors’ tool boxes) here and see if we can figure out what’s going to happen to Monster…I think asking ourselves a few questions will be a good way to proceed:

• Do you think companies are going to be hiring aggressively or laying people off?
• Do you think they’re going to want to pay to list their jobs or will they simply use word of mouth to attract the relatively small number of employees they might hire?
• Is it a good sign or a bad sign when 3 - 4 top executives leave the company over the last 3 months?

I feel like I’m watching a rerun of 2001 here and Monster’s on its way to $10 per share!

Now, I’ve never been one to go short a stock…it’s just not something I’m comfortable doing.

But you should definitely have a look at your portfolio, because if you have “a Monster” lurking in there, it’d be a smart move to rid of it and get rid of it quick!

Posted in Market Commentary | 2 Comments »

Why Microsoft Should be Shaking in its Boots

A TickerHound member asked:

“What do you make of Google’s latest announcement? Is “App Engine” a new business model for Google or is it designed to help them sell more ads?”

I’ve been following this situation since Google made the announcement yesterday and I personally think this was Google’s big “power play”. It was the move that Microsoft was worried about for the last four years – here’s why…

When I first heard about Steve Ballmer throwing a chair across a room and screaming (in his typically high-pitched voice) about how he was going to kill Google (all because an employee was leaving), I was perplexed. Why on earth would Microsoft – the king of the desktop – be so scared of a search company?

I couldn’t see it…it was my own fault for not seeing it, but I just couldn’t comprehend what Microsoft saw in Google. All this company did at the time was search through web sites and serve up emails. Where’s the competition?

But over the last few years it’s become painfully clear what Microsoft was scared of all along. I’m impressed that they even had the foresight to see it coming – however, I’m pretty disappointed that they’ve done nothing to stop it. Microsoft saw that Google was trying to become to the web what Microsoft was to the desktop PC.

Let me explain…

In the early days of the personal computer revolution one of the biggest and most innovative players in the space was Apple Computer. The Macintosh could be found in offices, schools and homes - the company had a real shot at dominating this market. But out of nowhere that all changed. Within a short period of time there were a myriad of hardware makers producing and shipping PC’s all over the world. And the company that made it all possible was none other than Microsoft.

Microsoft did this by building Windows – the first WYSIWYG (What You See Is What You Get) operating system that was NOT “married” to any specific type of hardware (unlike Apple which only let you run Apple operating systems on Apple hardware). By creating an operating system that ran on virtually any machine, Microsoft accomplished two things:

1. They opened up a huge market for hardware makers
2. They opened up a huge market for software makers.

…And ultimately solidified their dominant position in this space for decades to come.

After Windows came to be, independent software vendors could build applications that would work on virtually any hardware platform. This spurred a massive amount of innovation from independent software vendors, which not only helped the other hardware and software companies, but it also helped Microsoft too.

Think about it: if all of the software you use on a day-to-day basis could only run on a Windows machine, then you’d be hard pressed to switch to an Apple, right? And that’s exactly what allowed Microsoft to “win” – they created a positive virtuous cycle:

• If Windows was on more PC’s
• then the greater the likelihood software vendors would build their software to run on Windows
• which meant that more hardware manufacturers would have to support windows

And all of this simply meant more sales for Microsoft.

Now let’s talk about who is going to power the “operating system” of the web.

Powering a simple web site is good and all, and it’s easy enough to do. But in order to maintain a world class web operation, it still requires a certain level of sophistication, time and money. Google recognized this and took a page from Microsoft’s playbook.

Yesterday, at its second annual “Camp Fire” event, Google announced its latest service: Google App Engine.

This service will allow web sites to be hosted right on Google’s servers. Google will provide all of the backend technology – which is usually reserved for the well funded and experienced web sites – such as storage, database management and clustering, failover protection, auto scaling, etc. Basically, anything and everything a world class web application would ever need, Google now provides.

The best way to think of it is by picturing a young athlete who wants to become a world class runner – should he have to build the track and make his own running shoes? No, he should just be able to go to the local track, slip on a pair of Nike’s and hit the ground running. Well, that’s what Google is saying to software developers.

Software developers can now ignore the tedious, time consuming and often expensive task of building out their backend infrastructure and just rely on Google’s.

Google will obviously charge for these services at some point, but the goal for the company is more ambitious than becoming an infrastructure provider:

If these web sites are “married” to Google’s services, then that means more opportunities for Google to display its lucrative advertisements.

In order to sell more copies of Windows, Microsoft knew they’d need all of the hardware and software vendors to be “married” to its platform…Google wants to do the same for the web – have web sites marry themselves to Google’s platform – so it can sell more ads.

In effect, Google is becoming the Operating System of the Web.

Considering Microsoft is willing to pay billions of dollars to acquire Yahoo!, it’s clear that online advertising is the battle ground this war will be fought on. And Google just made its power play…

Is this “check” or “check mate”? Click here to leave your answer.

Posted in Market Commentary | 1 Comment »

Google to buy Expedia? No way!

I saw this question come up on TickerHound the other day and just had to write a post on it.

A member asked, “Expedia’s been up this week on Google acquisition rumors - what do you think?” read more>>

Ok, now I might have to eat my hat on this one but my gut (and plain business logic) makes me think otherwise.  Anybody who is saying different, I won’t mention them by name, is probably doing so out of ignorance, desire for attention or a bit of both.

One has to understand that Google isn’t some “dot com” growth engine that’s looking to build at any cost.  This company is extremely disciplined when it comes to its finances and it shows in the bottom line – but more on that in a moment.

The point I’m trying to make is that Google is not going to swallow up a company simply to add eyeballs, revenue or whatever else to the Google pie.  They’ll only acquire a company when it compliments their core business of search and search advertising.

For example, YouTube.com – Google acquired the company for $1.6 billion last year and hasn’t looked back since.  YouTube serves up roughly hal the videos on the web right now and I really believe Google has the wallet, connections, etc. to deal with the copyright issues the service faces.  The other thing to recognize is that YouTube wasn’t just some online video site.  The service fit within Google’s model of content aggregation, indexing and search – and then monetizing that through advertising.

YouTube doesn’t create content, they aggregate it, index it and make it available to the public…strangely similar to Google’s search engine.  The same applies to many of the acquisitions, albeit smaller, that Google has made over the years…

• Writely.com which formed the foundation of Google’s Office applications: users publish documents and Google hosts and indexes them.
• Blogger.com:  Bloggers post tons of content which Google indexes and monetizes with advertisements.
• And the list goes on…

Now if Google acquired Expedia they would be entering an entirely new business: E-Commerce.

This might make you say, “Well, why does that matter, money is money, right?”.

WRONG!

Money is always money, but the question is, what does it COST to get that money?  In other words, what’s your Return on Capital?

Right now Google has an average Return on Equity of 21%.

Expedia: 5%

Why on earth would Google take on a business that would make its margins worse off?

Answer:  They wouldn’t!

Like I said, this is just my opinion and if Google comes out next week and announces that they’ve taken over Expedia, I’ll issue a public apology on TickerHound.com.  But, as I said before, my gut and business logic are telling me otherwise.

The one travel company I could realistically see Google taking over would be Kayak.com – it’s a privately held travel SEARCH company.  They index and search over 140 travel sites in an effort to find you the cheapest airfares, hotels, etc.

While I “think” this would be a match made in heaven, Kayak is a privately held company and  I have no idea what their financials look like.  But from a synergistic perspective, Google-Kayak makes a lot more sense than the Expedia story.

Posted in Market Commentary | 2 Comments »

XM & Sirius’s Biggest Problem May Not be the FCC

So there was a pretty interesting Q&A exchange that appeared on TickerHound this week.

A member asked, “If Sirius and XM get approval from the FCC is it time to buy?” – click here to read the entire question.

One of the members was leaning towards the Bearish side of the argument…and he makes a good point:

“Think about it - iPod docks come in most cars now, iPods are outselling satellite radios by orders of magnitude and with the proliferation of pod casting, the “talk show/news” aspect of radio is rapidly becoming commoditized.”

This got me thinking – how has satellite been doing relative to HD radio and the iPod?

Where will this industry end up?

Many opponents of the XM/Sirius merger argued that the union of these two companies would create a virtual monopoly in the satellite radio industry.  But what XM and Sirius argued – and ultimately, what the Department of Justice agreed with this week – was that the battle they’re fighting isn’t with other potential satellite rivals, it’s with EVERYBODY ELSE in the personal audio market, namely Apple and traditional broadcast radio.

And I have to admit, I personally don’t listen to the radio in my car anymore. I plug my iPod in and I have my own personalized radio station for an hour.  I know plenty of other folks who can’t stomach the thought of paying to listen to the radio in their car either – even if it is for Howard Stern.  They’ll simply tune into the regular radio stations.

It’s pretty clear that the alternatives are compelling and that’s why I think it made a lot of sense for the DOJ to approve this merger – and ultimately I think it’ll pass the FCC as well.  There’s a lot of competition in this game and the prize is certainly a big one.

So let’s take a quick look at the battlefield and break it down by the numbers:

XM Satellite Radio

Subscribers:  9 million
Revenue: $1.14 billion

Sirius Satellite Radio

Subscribers: 8.3 million
Revenue: $922.1 million

Together these companies will have roughly 17 million subscribers (have to assume very little overlap here).

Broadcast & HD Radio

While it’s still the clear leader in terms of market penetration, traditional broadcast radio has been plagued by sluggish advertising revenues for the last few years.  If this industry has any hope of surviving, its future lies in Digital/HD radio.

iBiquity, the company that invented and sells HD radio technology,  is privately held so accessing credible data is difficult. My best guesstimates are below:

HD Radios sold (FY: 2007):  330,000
Revenue ($180 per unit):  $59.4 million

Apple iPod

I’ve bought roughly 3 iPods over the last few years, so it would be unfair to use the number of total iPods ever sold as an accurate comparison to XM/Sirius.  To be conservative I’ll just use Apple’s Fiscal 2007 numbers instead.

iPods sold (FY: 2007):  51.6 million units
Revenue (FY: 2007):  $8.3 billion

Who’s Gunning For Who?

HD Radios certainly seem like the next logical evolution in the automotive market – people are used to it, more and more radio stations are getting equipped with HD broadcasting technology and the price of the units is bound to come down as manufacturing processes and component costs fall.

But will that deter the growth of satellite or the iPod as a compelling alternative?

HD radio sounds good in theory, but you still can’t fit it into your pocket and carry it to the gym with you.  With satellite radio and the iPod, you can take your music with you wherever you decide to go – with HD radio, you’re still stuck in your car.

And while satellite is certainly growing, it’s far from profitable and it still lacks the penetration rate of the iPod.

Furthermore, Apple is making a concerted effort to penetrate the auto market – the only big car manufacturer that doesn’t have an iPod option is Toyota and I don’t see that lasting much longer.  In any case, with all of the after-market options available, anybody can bring their iPod into their car with ease these days.

This is a direct challenge to both broadcast AND satellite radio, and based on the numbers, Apple’s definitely leading the pack for the moment.

So even if the FCC gives this merger its blessing, I think XM/Sirius have bigger problems ahead.

Posted in Market Commentary | 6 Comments »

The 3 Problems with the Financial Services Industry

Here are the main problems with the financial services industry as I see it:

1. Broker/Client Interests are NEVER Aligned

You may be asking, “Well if I make more money doesn’t my broker make more money? And isn’t that good for the both of us?”

Theoretically, yes. However, as long as an adviser is paid based on the number of trades you make or the amount of money you keep in your account then he or she is NEVER motivated to do well for you.

They are not paid based on how well your stocks perform – whether or not your account goes up or down they still get paid a commission every single time you buy and sell a stock.

That’s like having a car mechanic who gets paid for the number of times he fixes your car – he’ll just make sure it stays broken for as long as possible and will continue to steal your money!

2. It’s Never About Making You Wealthy

The other thing to realize is that the people who work on Wall Street don’t want you to become insanely wealthy. If that happened then there’s a chance you’d leave them.

There’s a chance you’d stop playing the game.

So why would they try to make you wealthy? Answer: they won’t!

Instead they feed you products like Mutual Funds and Index Funds so you’ll just mimic the market and do average! Not good, not bad, just average.

3. They Always Keep Control

And one of the biggest scams that Wall Street has going for them is that they convince the investing public that investing on their own is dangerous. They convince everybody that in order to do well you need an army of analysts and bankers to tell you which stocks are good and which stocks are bad. Then, and only then, can you profit in the market!

If that were the case then why do most Mutual Funds have a tough time beating the market? And on the flipside of that argument, why does the most successful investor in the history of the world have an office of only 8 people?

Bottom line: There’s no good reason why you can’t do just as well investing on your own if you equip yourself with the right information!

Blurring The Line

As you can see there’s a serious problem in this business – there’s always a clear line in the sand: “you” and “them”. It’s never “us”.

We need to change that and we need to change it fast. We need to come up with a way where you and those you take advice from are sitting on the same side of the table.

The only way that gets done is if we change the nature of the client-advisor relationship – it can no longer be a “one way relationship”, it has to become a relationship of reciprocation, a “two way relationship”. Let me explain what I mean…

As of right now what happens when you buy a stock?

Your broker calls you (or vice versa) and rattles off a couple of stocks – you pick the one that sounds best and you buy it. That’s a one directional relationship – your advisor pushes information toward you.

Now, think about it this way – what if you could sit down at the same table as your advisor and have him teach you his process for digging through stocks?

Well, we know that would never happen due to the reasons we talked about before – if they gave away the “secret sauce” then you wouldn’t need them anymore. If they showed you how to invest, then you could go off and do it on your own.

Well, for most established companies in this industry that logic makes a lot of sense – it wouldn’t be in their best interests to make you a great investor. It would be in their interests to make you dependent upon them.

That’s why I’m so excited about what we’re doing at TickerHound - we have a distinct advantage here and that’s why our perspective on the situation is dramatically different from most. Our business isn’t predicated upon keeping you (and other individual investors) under our control.

We want to set the information free and allow you to live up to your fullest investing potential!

There are other companies in this space doing the same thing - Covestor.com, CakeFinancial.com, Wikinvest.com - all great companies and all looking to do the same thing: level the playing field so the individual investors out there have a shot at taking their financial futures into their own hands and making better financial decisions today!

Posted in Market Commentary | 1 Comment »