A one-page summary of this morning's key market- and stock-moving stories. Headlines link to the original article. Use Wall Street Breakfast as a starting point, and check the original before trading.
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TECHNOLOGY AND INTERNET
Summary: Yesterday's AT&T quarterly earnings report indicates the company's many acquisitions are starting to pay off: Profits increased a whopping 74% on strong growth at Cingular Wireless and savings from the merger of the old AT&T with SBC Communications (the company subsequently adopted the old AT&T's name and ticker, "T"). The dominant local phone provider in the Midwest and Southwest reported EPS of $0.56 compared vs. $0.38 during the same period last year. But while AT&T exceeded analyst expectations, the company had less-than-stellar news mixed into its report: Rollout of its new high-end cable television and internet service has continued to face delays and setbacks. The service has managed only 3,000 subscribers in the San Antonio area, and it is not clear when the service, which relays on a variety of new technologies, will be ready for widespread release.
Related links: AT&T Q3 2006 Earnings Call Transcript • AT&T Beats Street; Xerox Profit Jumps • Citi: Buy AT&T and Sell Verizon • AT&T-BellSouth Merger Still Needs FCC Clearance • Annals of Accounting: A Look at AT&T and Verizon's Methods • AT&T Posts 74% Increase in Profit [WSJ] • AT&T Profit Rises 74% on Wireless Growth [NYT]
Potentially impacted stocks and ETFs: Verizon (VZ), Sprint Nextel (S), Comcast (CMCSA), BellSouth (BLS) • First Tr Morningstar Div Leader (FDL)
Good News for Netflix [Business Week]
Summary: Netflix shares had a doubly good day yesterday. First, rival Blockbuster announced it was scrapping a plan that allowed customers to rent two videos a month for $5.99 a month meaning Netflix's equivalently priced plan is now the cheapest in the rental business. Shares rose 84 cents, or nearly 4%, to close at $23.08 a share; investors cheered the news as another sign Netflix would continue to steal market-share from its rival. Then, after the close, Netflix shares continued to rally in after hours trading, climbing 12+% on a quarterly earnings report that handily beat analyst expectations. The company reported earnings of 18 cents per share - an 84% improvement on the year earlier with revenue up 48% from the year ago quarter. Analysts were expecting just 12 cents a share. In addition, Netflix said it finished the quarter with 5.66 million subscribers, compared to 3.6 million a year earlier. The company is expecting to close out the year with 6.3 million subscribers and again beat analyst revenue expectations for Q4. Disagreeing with the Street's reaction to the earlier news, analyst Frank Gristina at Avondale Partners in Nashville doesn't believe Blockbuster's announcement that it is ending its $5.99 monthly service is really all that positive for Netflix. "Once you get that low, you run into diminishing returns." Furthermore, analysts wonder whether Netflix can keep its positive momentum going into 2007 and beyond without an online digital movie portal capable of challenging new players like Apple.
Related links: Netflix Q3 2006 Earnings Call Transcript • Earnings Spin, Netflix Style • Netflix Manages Blowout Earnings Despite Huge Marketing Spend • Blockbuster Challenges Netflix With In-Store Drop-Offs For Online Customers • Is Netflix Fairly Valued? • Apple, Netflix, Amazon, Comcast or Microsoft: Who's the Digital Movie Winner? • CRAMER'S TAKE ON NFLX » • Disney and Apple's Movie Success Means Competitors Must Get With the Program • Downloadable Video: Will Anyone Actually Buy It? • Amazon Unbox Could Unbundle Too • Netflix Q3 Profit Soars 84% - Quick Facts1 [Trading Markets]
Potentially impacted stocks and ETFs: Netflix (NFLX), Blockbuster (BBI), Apple (AAPL), Comcast (CMCSA), Amazon (AMZN) • PowerShares Dynamic Sm. Cap Growth (PWT)
Like Yahoo, Google Adds Customized Search Engine [New York Times]
Summary: Yesterday, Google presented a solution to websites that want to offer more specific search results: Google Custom Search Engine. The service is free and is merely a matter of signing up online and adding the code for the search box. Marissa Mayer, Google's VP for search products and user experience, claims it has some unique features compared to Yahoo!'s offering, Search Builder. She comments, "We allow people to restrict or prioritize search results based on the sites they’ve chosen." A research director at market research firm Gartner, comments, "This definitely helps improve the relevance and skip the noise." Revenue from text ads placed with search results will be split with web site publishers using Google's AdSense program.
Related links: Earnings call transcripts: Google Q3 2006, Yahoo! Q3 2006 • Google/YouTube Acquisition CC Transcript • Google Building New 'Features' - Not Products • Even Google's Not Immune To the Slowing Online Ad Boom • Google's Recent Quarter Impressive In Nearly Every Way • ComScore: Google, Ask Gain Search Share; Yahoo, Microsoft Lose Ground
Potentially impacted stocks and ETFs: Google (GOOG), Yahoo! (YHOO), Microsoft (MSFT), IAC/InterActiveCorp (IACI), ETFs: First Trust IPOX-100 Index (FPX), First Trust Dow Jones Internet Index (FDN), iShares S&P Global Technology (IXN), Vanguard Information Technology ETF (VGT)
Summary: Online publisher CNet Networks Inc. (CNET) met Street estimates with a 13% revenue gain ($93M vs. $82M). It issued Q4 guidance of $108-$115M, also in line with analyst estimates. CNet is one of at least 93 companies being investigated by the SEC for options grants irregularities, and has already said it found discrepancies between recorded and actual valuation dates for options issued which will require restatement of previous financial statements. CNet did not file Q3 results, and will not until it has completed its restatement process. Site hits were up 13% from last year (124.5M unique visitors per month). Shares were up 5% to $8.89 in after-hours trading; they are down from $16 January highs.
Related links: Earnings conference call transcript: CNET Networks Q306 • Analysis: Not Everyone's Bearish On CNET • CNET, Traffic and the Blogosphere • CNET's Traffic Drop: An Alternative, Bull's Explanation • CNET: Any Suitors Out There? • Should CNET Be Sold - And To Whom? • CNET's Traffic Collapse and TheStreet.com • More Trouble at CNET: CEO Axed, Revenue Below Guidance, Traffic Way Down • S&P Lowers Rating on CNET to Junk [Houston Chronicle] • CNET's Stumble [Red Herring]
Potentially impacted stocks and ETFs: CNet Networks Inc. (CNET) • Internet content providers: Yahoo! Inc. (YHOO), Google Inc. (GOOG), Time Warner Inc. (TWX), Dow Jones & Company Inc. (DJ), News Corp. (NWS) • ETFs: Internet HOLDRS (HHH)
I.B.M. Sues Amazon.com Over Patents [New York Times]
Summary: In a move IBM Senior VP for technology and intellectual property John E. Kelly III called "extremely rare" for his company, IBM filled suit in two eastern Texas courts against e-commerce portal Amazon.com. IBM contends Amazon has built its online retail business on technology developed by them without ever giving IBM its due. Since 2002, IBM has tried privately to get Amazon to compensate it for the use of its patented technology, but to no avail. The suits were filed in two federal courts in the Eastern District of Texas, in Tyler and Lufkin - courts known for handling patent suits quickly and for often awarding large settlements to plaintiffs according to Gregory P. Silberman, a patent lawyer at the firm of Kaye Scholer. The patent infringement claims apply to a wide range of e-commerce applications including software-based techniques for storing, retrieving and displaying information, for making buying recommendations and for handling online transactions. While the terms of the suits are undisclosed, it is believed Amazon's payout could be for hundreds of millions of dollars should they be found guilty of the charges. Amazon declined to comment.
Related links: Analysis of Amazon's 10-K • IBM's Newest Chess Match [Motley Fool] • IBM Takes On Amazon [Business Week]
Potentially impacted stocks and ETFs: International Business Machines Corp. (IBM), Amazon (AMZN)
Big Worries for Big Oil [Wall Street Journal]
Summary: BP, ExxonMobil, and Royal Dutch/Shell are watching as the heady days of $80 a barrel oil seem to be on the wane. This summer's sky-high oil prices boosted earnings and quarterly profits for all of the oil companies. Q2 combined earnings for all three companies were $25 billion; Q305 profits were $25.4 billion. But with West Texas crude down to $58 a barrel, the oil majors are starting to shift gears and hunker down for leaner days. Analysts expect that skyrocketing oil-field costs and recent disruptions (Prudhoe Bay, violence in Nigeria) will affect this week's earnings reports; forecasts are for earnings +10% over last year, but -10% over last quarter. More consolidation among the oil companies could be one response to dropping oil prices, such as Royal Dutch Shell's plans to buy up the remainder of Shell Canada. Shell CEO Jeroen van der Veer says that oil price is, "is probably one component of a total mix" of variables affecting the decision to buy out Shell Canada.
Related links: The Rise and Fall of Oil: Roach Motel Theory • S&P 500 Sector Tracker: Consumer Discretionary, Tech and Industrials Best Since Oil Peaked • Oil Prices Headed Back Up After the Midterm Election • Reuters: Shell says oil price drop won't cut energy projects • Bloomberg: European Stocks Decline, Led by Shell, Total as Oil Prices Drop •
Potentially impacted stocks and ETFs: Stocks: BP (BP), ExxonMobil (XOM), ConocoPhillips (COP), Chevron (CVX), Royal Dutch/Shell (RDS.A) • ETFs: Vanguard Energy ETF (VDE), Energy Select SPDR (XLE), BLDRS EUR 100 FD (ADRU)
Summary: BP PLC reported a 3.6% drop in Q3 profits ($6.23B vs. $6.46B); production was down 5% from last quarter. BP's woes: (1) Alaskan Prudhoe Bay field: Severe pipeline corruption and a leak; production fell as low as 200k barrels/day, and is presently back to 400k, still below the previous 450k average production. (2) Gulf of Mexico Thunder Horse platform: hurricane delays last year, and equipment failures; it won't open until mid-2008. (3) Rising taxes in U.K.; its effective tax rate is up 4% to 40%. (4) Falling crude prices (down to $59 from $78 in July). BP shares were up 1% this morning in London trading; shares have fallen 20% since April.
Related links: Oil Prices Headed Back Up After Midterms • Down in the Dumps with BP • Oil Price Manipulation • Oil: Prices and Producers -- Where They're Headed • Wall Street's Least Respected Companies • Oil Field Shutdown Should Cause Only Short Term Losses • British Petroleum: Know Your Stocks • BP's Rosneft Investment Should Pay Off Handsomely • Price Fixing Scandal Plagues BP • BP Continues to Leak on Latest Scandal
Potentially impacted stocks and ETFs: BP PLC (BP) • Oil Producers: Royal Dutch Shell (RDS.A), Total S.A. (TOT), Chevron Corp. (CVX), ExxonMobil Corp. (XOM), BHP Billiton Limited (BHP) • ETFs: United States Oil Fund ETF (USO), Oil Service HOLDRs ETF (OIH), BLDRS Europe 100 ADR Index (ADRU)
Exxon's Sakhalin-1 Signs China Gas Deal [Reuters]
Summary: Interfax reported yesterday that Exxon Mobil reached a preliminary deal with China National Petroleum Corp., to export natural gas from the former's 30% stake in the Russian Sakhalin-1 project. An Exxon representative was quoted saying, "The deal is a logical result of a memorandum of understanding which the companies agreed on in November 2004. It is expected that it will lead to signing an official agreement." Gas exports by the Sakhalin-1 consortium are set to begin in 2008. Exxon has stated that it could export up to 10 billion cubic meters of gas by pipeline over 20 years to China. There has been opposition to the deal from Russia state gas monopoly Gazprom, which has a rival project, and controls the entire gas export market aside from Sakhalin-1.
Related links: Forbes.com AFX and IHT.com AP coverage • Royal Dutch Shell Resolves Environmental Snag at Sakhalin-2 • Natural Gas is Running Out of Steam • Gambling on Natural Gas • Seeking Alpha's Natural Gas Sector
Potentially impacted stocks and ETFs: Exxon (XOM), Royal Dutch Shell (RDS.A), ETFs: Vanguard Energy ETF (VDE), Rydex Russell Top 50 (XLG), iShares S&P 100 Index (OEF), iShares NYSE 100 Index (NY), Vanguard Value ETF (VTV), SPDR Oil & Gas Exploration & Production (XOP), WisdomTree LargeCap Dividend (DLN)
TRANSPORTATION AND AEROSPACE
Ford Posts Loss of $5.8 Billion, Worst Since ’92 [New York Times]
Summary: Ford reported its biggest quarterly loss since 1992 yesterday, a staggering $5.8 billion. Despite the optimism and gung-ho attitude of new CEO Alan R. Mulally, the company has warned of even grimmer days ahead. The company is on track to beat Chrysler's $10.6 billion lost last year. Ford revised its expected profitability to 2009, rather than 2008. To reach this goal, the company has devised a restructuring plan called The Way Forward, which calls for upwards of 40,000 layoffs and twelve or more plant closings. The company is also selling off its British brand name Aston Martin, and might also be putting up Land Rover and Jaguar for sale. Many in the industry pin Ford's and Chrysler's financial freefall to overdependence on SUV and truck sales, which have become unpopular due to their poor fuel economy, a major concern in the current age of energy uncertainty. They have also failed to come out with cars that can actively compete with foreign competitors like Toyota, Honda and Hyundai. A major reason for Ford's massive quarterly bleeding was its drop to 15.5% market share, a loss of two percentage points as compared to 3Q05. The company also announced that they will have to restate earnings from 2001 through 2006 as a result of a change in accounting for derivative contracts.
Related links: Conference Call Transcript: Q3 2006 • Why Japanese Cars Earn $2400 More Profit Each • Detroit Gets it Right This Time • Forbes: Ford Motor Co. unsecured debt on CreditWatch negative - S&P • Detroit News: More Ford losses loom • Reuters: RESEARCH ALERT-Goldman upgrades Ford to "neutral"
Potentially impacted stocks and ETFs: Ford (F), General Motors (GM), DaimlerChrysler (DCX), Toyota (TM), Honda (HMC), Nissan (OTCPK:NSANY)
AmEx Reports 3Q Profit Above Estimates [Business Week]
Summary: Although American Express' earnings were below last year's level, the credit card company beat estimates and saw growth in the number of cardholders worldwide. The $967 million total for the third quarter was slightly down from $1.03 billion a year ago; the latter figure includes results from Ameriprise Financial Inc., which was spun off last fall. Excluding Amerprise bring American Express to 78 cents per share, exceeding last year's figure of 69 cents and the 76 cents projected by analysts for this year. The company gained 2 million cardholders in Q3, and was bolstered by new regulations allowing banks and other finance companies to issue American Express in addition to Visa and Mastercard. American Express saw success internationally with a 50% rise in its global network and merchant services and a $33 million profit in Malaysia and Indonesia.
Related Link: Some look to Amex's success or lack thereof as the market's own consumer confidence index.
Potentially impacted stocks and ETFs: American Express (AXP) • Competitors: Mastercard (MA), Capital One Financial Corp. (COF)
AHEAD OF THE TAPE: Miller's Crossing [Wall Street Journal]
Summary: Legg Mason announced two weeks ago that this quarter's earnings, which will be announced today, will be below analyst estimates. This is the third consecutive quarter of such results. The stock dropped 17% as a result of the bad news. Many on the Street suspect that Bill Miller, a top hedge fund manager, could be part of the company's problem. Though he has beaten the S&P 500 for 15 years in a row, his Value Trust fund has fallen a almost one percenage point this year through Monday, in contrast to the S&P which has already yielded 12% in returns. The Value Trust fund underperformance has been pinned on bad calls on stocks such as Amazon.com, Verizon and Nextel. Massive investor pull-out could be a response to the dismal performance.
Related links: Legg Mason: Recent Drop Invites a Look • TheStreet.com: Legg Mason Woes Its Own • BusinessWeek Online: A Legg Up Soon?
Potentially impacted stocks and ETFs: Stocks: Legg Mason (LM), Citigroup (C), Lehman Brothers Holdings (LEH), Piper Jaffray Companies (PJC) • ETFs: iShares Dow Jones US Broker-Dealers (IAI)
Food Revives Starbucks Japan [Wall Street Journal]
Summary: Starbucks Japan's fiscal Q1 pretax profit (quarter ended June 30) rose 9.4% to 1.32 billion yen ($11.1 million), driven mostly by expanded food sales. Its food menu was updated to match local tastes better, and also to capitalize on the fact that 80% of customers consume in-store, whereas the same percentage of customers take-out in the U.S. Despite its continued improvement this year, analysts such as Sho Kawano of Goldman Sachs Japan, say upside could be limited even though its Osaka-listed shares are still trading 19% below their February multi-year highs. The main reason for Starbucks Japan's difficulties is due to intense competition coming not only from rival coffee shops, but also from convenience stores and vending machines. Japan is Starbuck's second largest market with 630 stores and plans for 1,000 by 2010.
Related links: Starbucks Q3 2006 Earnings Conference Call Transcript • Reuters: Starbucks obtains majority stake in Beijing stores • Starbucks' Same Store Sales Resume Strong Growth • Starbucks To No Longer Release Monthly Sales Figures Due To Share Price Volatility • Starbucks' Overly Ambitious Plan in Japan • Starbucks Japan Percolating Profits as "Local" Strategy Pays Off • Note: Starbucks reports Q4 earnings on Nov. 16th.
Potentially impacted stocks and ETFs: Starbucks (SBUX)
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