Posts Tagged ‘MSFT’

Google looking to revamp another industry? (GOOG, AAPL, T, CMCSA, MSFT, ADBE, TWX, SNE, VIA, CBS)

February 10, 2010 Leave a comment

MarketWatch is reporting that Google will be testing a new direct-to-home fiber-optic internet connection service that will reach speeds of up to 1 gigabit per second.  The company is currently looking for interested communities, and hopes to test their new system with up to 500,000 people.

This service has the potential to be a game changer.  Google is interested in much faster internet connections because of their belief in “cloud-computing,” where very little information is stored on a user’s local machine because the actual computing is done by a remote server.  They have pushed this technology into the mainstream with services like Docs, Picasa photo editing, Calendar, and hope to take the technology further with the Chrome OS.

The current issue concerns the speed of the user’s connection to these services.  Even with the fastest available connection speeds, which in my area is 50 mbps, these services are not as fast as a desktop client due to latency.  Picasa only offers minimal photo editing due to bandwidth limitations, and video manipulation is impossible.  Thus, desktop programs like Photoshop, Office, iPhoto and iMovie are still necessarily stored on a local machine.

Google knows that companies like Apple (AAPL), Microsoft (MSFT) and Adobe (ADBE) are too entrenched on the desktops of consumers, so they are not trying to fight the battle there.  Instead they are staying on the relatively uninhabited world of web-based applications.  And they are winning, chiefly because they are a high-profile company and that no one else does free, ad-supported products quite as well as Google.

If this service from Google becomes widely available, and at a reasonable cost (admittedly a big ask), it would destroy the business models of many companies.  Software providers like Apple, Microsoft and Adobe would find themselves competing against a free, cloud-based product that acts in the same way that their desktop software does but available anywhere.  Content providers like Time Warner (TWX), Sony (SNE),  Viacom (VIA), CBS (CBS) etc be selling their media via streaming services, as people move their entertainment libraries off their shelves and hard drives and onto remote servers.  And current internet providers like Comcast (CMCSA), AT&T (T) and Verizon (VZ) will be competing against a service which runs at 10x their current maximum bandwidth.  That is why this could very well be a game changing moment for Google.


Disclosure: Long GOOG, MSFT, T and the market in general.  No positions in any other stocks mentioned.

The Half-Way Point: Earnings Season Observations (SPY, QQQQ, DIA)

October 21, 2009 Leave a comment

stocksSo far this earnings season, 77% of companies have posted EPS numbers in excess of their estimates.  This is extremely high from a historical perspective, and shows just how much the street analysts have underestimated the recovery in the market.

As we have said before, however, this earnings season is all about revenue.  It is much easier for a company to post good EPS numbers as they slash costs by cutting staff and capital expenditure.  Much harder to manufacture is revenue numbers, and this earnings season is separating the former from the latter. This helps explain why, despite the high percentage of EPS beats, the average stock has actually declined 0.72% on its reporting day (Source: The Bespoke Investment Group, found here).

I noticed this trend during last quarters reporting season.  The companies that reported first all benefited from EPS expectations that had not been adjusted up enough to match the cost cutting that was being implemented.  During first few weeks, the majority of companies beat expectations, and their stocks took large leaps on those days that they posted.  The euphoria spread to their respective industry peers, and by the midway point the market was feeling pretty good.  However, while formal expectations didn’t increase drastically, whisper numbers for the later-reporting companies did until finally they were too high.  So when those companies actually reported, they fell short and the stock dropped.

I have no insight as to whether this will happen this earnings season, but I would say it is a definite possibility, especially in industries like health care and technology where the vast majority of companies have seen large jumps in share price as they handily beat expectations.


Disclosure: Long T and MSFT.

S AAPL @189.59-190.00

October 14, 2009 6 comments

green_appleThis is somewhat of a joint post between the two of us, as we have both sold Apple (AAPL) in the last week (AH, all shares@$189.59 and MB, 66% shares@$190.00) after having some discussions about the stock.

Our thought process was fairly simple and it revolved around the question: What is priced into the stock?  There is no bad news surrounding Apple right now.  Any thoughts that they, being a manufacturer of premium products, would be struck down by the recession have been quelled as they rolled out earnings numbers that almost defied belief.  The myth that without Steve Jobs the company would be a body with no head has been squashed, as they performed admirably during the health-related absence of their CEO. They continue to excite and amaze the population with relatively minor and incremental upgrades to their products, due to the strength of their existing market position and their incredible marketing abilities. The ever-persistent rumors about a tablet or touchscreen notepad-like product have reached the pinnacle as analysts expect a product arriving early next year that will energize that dormant segment like they did the music and mobile phone industries. Even beyond this, this is the belief that Apple’s innovative power will continue at the speed of Moore’s Law and that everything they do will work so well in the future as to cause network effects that will cause limitless profits.

As stated before, there seems to be no bad news priced in, but I see a few dark clouds on the horizon. Windows 7 is arriving soon, and is supposed to be the first product from Microsoft (MSFT) that can truly compete with OS X.  Apple may no longer stand to benefit from having a unworthy competitor. Additionally, Apple’s impeccable track record with nearly everything they touch means that if the much hyped tablet concept turns out to be anything other than astounding, investors could be disappointed.

At the time of this writing, Apple is within 5% below its all time, intra-day high of approximately 202.98.  That price was reached in December 2007, just before the financial crisis really took hold of the markets.  At that point, there were equally no reservations among analysts that AAPL was going to the moon. It was after that point that doubts began materializing.

Given the abundance of good news and the lack of bad catalysts, we are not calling a top on AAPL. However, until the good expectations baked into Apple’s price begin to materialize in a meaningful way we think there are other investment opportunities with better potential rates of return after considering Apple’s 100%+ run from the bottom on March 9th, 2009.

Disclosure: Michael is long AAPL, Andrew is long MSFT. Both love Apple products.