Today is looking like it will be a down day as China has continued to pump out disappointing data and Europe saw economic data, which trailed expectations this morning, although the results did indicate continued improvement. Sadly, the world is not getting enough growth from any one region that can help boost results elsewhere. The one good thing that the rest of the world has is that the U.S. dollar is strong, although it is near one-month lows, and thus helping their export sectors.
Our focus today is on technology and all of the news we have had recently. Some of it has been good while some of it has been pretty abysmal. The bottom line is that for the most part the mobile web continues to power growth in the industry and has seen some major advances in the past 3-6 months.
We have jobless numbers out today, which could reverse the current losses projected by the futures, but we are of the opinion that we are going to tread water at these levels a bit more before hiring picks back up in the fall.
Chart of the Day:
Focus will soon need to shift from continuing claims towards the actual unemployment rate as the sample data from continuing claims will hardly represent the true story. The reported unemployment rate hardly tells the story either, but it will be a transition needed to move from relying on bad data to decent data when looking at the big picture. Just look at this chart to see how close we are to what is typically normal and where our current economy is in relation to where the economy was during periods with like numbers on the chart. Obviously, there is an untold story, which needs to be found in some other data point to better explain the general economy.
We have economic news due out today and it is as follows:
- Initial Claims (8:30 a.m. EST): 340k
- Continuing Claims (8:30 a.m. EST): 2993k
- Durable Orders (8:30 a.m. EST): 1.8%
- Durable Goods - Ex Transportation (8:30 a.m. EST): 0.3%
- Natural Gas Inventories (10:30 a.m. EST): N/A
Asian markets finished lower today:
- All Ordinaries -- down 0.07%
- Shanghai Composite -- down 0.60%
- Nikkei 225 -- down 1.14%
- NZSE 50 -- down 0.49%
- Seoul Composite -- down 0.13%
In Europe, markets are trading lower this morning:
- CAC 40 -- down 0.94%
- DAX -- down 1.24%
- FTSE 100 -- down 1.18%
- OSE -- down 0.73%
Last night we were impressed with Facebook's (FB) results although we were expecting to see improvements in their mobile figures due to reports that mobile traffic and utilization was continuing to increase. The company's actual results outpaced our expectations though and highlights just how plugged in the company is to both advertisers' needs as well as functionality demands by users. Mobile advertising revenues now make up 41% of the company's total revenues and they are growing at a solid rate, which should move them above the 50% threshold of total revenues before the year is over. There were about ten analysts who came out and had positive things to say about the company after the $0.05 EPS beat and ~$200 million revenue beat. In case anyone was wondering, maybe the weakness seen in other online advertisers' rates is due to the success here.
In pre-market trading the shares are above $33/share, so the company will show up on the new 52-week high list today. It is a big move off of mobile, but just imagine what the shares will do when Facebook shifts its focus to monetizing Pinterest, its recent purchase.
Source: Yahoo Finance
The good news from Facebook might also be good news for others who offer sites heavy on content, such as Yahoo (YHOO). The stock has been one of our favorite names as we saw value in the shares upon the arrival of Mrs. Mayer in the Chief Executive Officer role and the possibility of higher valuations being applied to the company's Asian assets as a portion of those assets went public. We still think there is a good chance that the company is able to monetize these large holdings and redeploy the capital to something, which improves returns for shareholders, but we do not expect anything soon. Our focus right now is less upon the monetization of the balance sheet assets and more so on the monetization of their premier web assets via mobile. If Facebook can do it, Mayer can get Yahoo to do it as well.
A question we have received from a few readers is our perception of the purchase of roughly 2/3 of the Third Point position. We like it. Yes it does show one of the large shareholders in the company cashing out, but he has a healthy gain and did keep a position, which represents roughly 2% of Yahoo's outstanding shares. At the end of the day Yahoo was able to keep a large chunk of shares from hitting the market while continuing their successful stock buyback program. As the company uses its cash position to retire shares EPS results shall improve and so too shall operating metrics.
After VMware's disappointment in January it has been better to own EMC shares, but with this quarter's results maybe we shall see a rotation out of the 'parent' company and into the 'child' as growth concerns have been addressed.
Source: Yahoo Finance
Storage is a good place to be these days as more and more businesses switch from paper to paperless systems. Yes many larger companies have already made this transition, but the real growth now is going to come from the small businesses, which can now make this switch at reasonable costs and via systems that have been refined over the years to make the transition seamless. Although closely related, VMware (VMW) and EMC (EMC) showed us through their results that the growth in this market is still strong and that even with certain capital expenditures being closely watched and trimmed at companies both large and small that physical storage and the software that makes systems operate at a higher efficiency are still seeing strength.
VMware was up almost 17% yesterday after reporting earnings and receiving upgrades from Nomura Securities and Raymond James Financial. Yes the company's primary product has seen slowing growth but the add-ons and other support programs are gaining traction among the company's customers and shall power future growth. Virtualization may be slowing but the cloud is offering a new opportunity that the company should be able to capitalize on.
Looking to EMC, we think the highlight is that although their main business is facing tougher prospects due to the cloud and new technologies, the company did see nearly 40% growth in its offerings of those same technologies. That is most certainly bullish.
Wow. The company not only broke through support to set a new 52-week low on their quarterly results, they traded to a new multi-year low. You would need to go all the way back to 2010 to see this level on the chart.
Source: Yahoo Finance
What is most certainly not bullish is the recent price action and news surrounding Broadcom (BRCM), which has seen shares come under serious pressure recently following rumors and the latest quarterly report. The latest quarter was so bad we cannot even call it an earnings report as nothing was earned! Both analysts and investors were caught off guard by the loss and took it out on the company via downgrades and shaving over 15% off of Broadcom's share price, which triggered circuit breakers at the Nasdaq yesterday.
So what happened? Well first the company took a write down associated with its purchase of NetLogic while reporting a loss of $0.43/share, or over $250 million. Further complicating matters, Broadcom reported guidance on revenues, which had the high end $50 million short of the consensus from analysts. With acquisitions not working out and rumors that the company may be set to lose business from the likes of Apple (although we doubt this happens in the short term, especially after the guidance given by the company and not disclosing anything along these lines), investors are correct in being worried.