Seeking Alpha's one-page summary of this morning's key market-moving and stock-moving stories. Headlines link to the original article. Use Wall Street Breakfast as your starting point, and make sure to check the original before trading.
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MACRO AND HOUSING
AHEAD OF THE TAPE: Slowdown Lowdown [Wall Street Journal]
Summary: "Investors will be served a smorgasbord of economic news today, and it might be hard to swallow." Things seem to have shifted back to "worry mode" after GDP came in at 1.6% last week, the first serious indication of a potentially serious economic slowdown. Reports on manufacturing, car sales, construction spending and housing come out today -- investors are hoping for a bounce. Manufacturing: The Institute for Supply Management's purchasing managers' index of manufacturing -- estimates are for 53.5 for October, up from September's 52.9, which would indicate the sector is still expanding. But a similar index for the Chicago area fell for the month yesterday. Car sales: Auto companies report October sales: Last week AutoNation, the largest U.S. car-dealer, said it expects to cut its orders for cars from the Big Three by 30% this quarter. Housing: September construction spending will show how much builders are scaling back construction; an index of September home sales will show how successfully real-estate agents have been working. Joe Carson, an AllianceBernstein economist: "The more information you get, the more supportive it is of a slowdown that's deeper and longer than what many people are forecasting."
Related links: Seeking Alpha's daily market preview
Potentially impacted stocks and ETFs: streetTRACKS SPDR Homebuilders ETF (XHB), iShares Dow Jones US Home Construction (ITB), AutoNation Inc. (AN)
TECHNOLOGY AND INTERNET
Google's Gone Wiki [Motley Fool]
Summary: Continuing along its steady acquisition trail, Google announced yesterday that it had acquired JotSpot, a company which provides tools through which people can create wikis for collaborative work online (think Wikipedia). According to JotSpot CEO Joe Kraus, "It was pretty apparent that Google shared our vision for how groups of people can create, manage and share information online." JotSpot already has a formidable customer base consisting largely of business customers as well as individual and family users (a good way to coordinate an evolving menu for your family reunion?). And in opposition to some of Google's other acquisitions (YouTube comes to mind), JotSpot is already close to being profitable -- it provides not only free services but for-pay products as well. Financial details of the deal were not available.
Related links: Google Apps: A Long-Term Threat to Microsoft's Packaged Software Business • Google Apps: Free, User Friendly and Ready to Kick Your Butt • Google + YouTube = Natural Monopoly • Paul Kedrosky's Takeaways From the GooTube Acquisition • Sell-Side Reaction to the Google-YouTube Deal • Google Building New 'Features' - Not Products • Google Acquires Web Applications Pioneer JotSpot • Google Buys JotSpot to Expand Online Document-Sharing Service [ WSJ]
Potentially impacted stocks and ETFs: Yahoo (YHOO), Amazon.com (AMZN) • First Tr DJ Internet Index (FDN)
Search Results in Fatter Profits for IAC [Business Week]
Summary: IAC/InterActiveCorp's acquisitions seem to be paying off as Q3 earnings beat analysts' mean estimate by $0.03 at an adjusted EPS of $0.35, which was also 3 cents better than last year. GAAP EPS was $0.24, or a 4 cent increase y-o-y. Revenue rose across all units, growing 11% overall to $1.6 billion. Its media and advertising division led the way with a 62% jump in revenue, driven by Ask.com. IAC also owns Citysearch, Entertainment Publications (publisher of the Entertainment Book), Home Shopping Network "HSN", LendingTree, Match.com, and Ticketmaster. After gaining 3.89% yesterday to close at $30.98, its shares are approaching their 52-week high of $31.50. S&P analyst Scott Kessler has a "strong buy" rating on IAC with a revised price target of $38 (previously $31). In its earnings press release, IAC said its directors authorized a share repurchase of up to an additional 60 million shares on top of the 42.8 million previously authorized, of which 34 million shares have been repurchased year-to-date.
Related links: IAC Q3 2006 Earnings Call Transcript • IAC: Q3 Results • Earnings coverage: AP and Red Herring • ComScore Traffic Data for Sept: [I, II] • Ticketmaster to Take On China, Wins Contract to Supply 2008 Beijing Olympics
Potentially impacted stocks and ETFs: IAC/InterActiveCorp (IACI), Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO) • First Trust Dow Jones Internet Index ETF (FDN)
Vonage 3Q Loss Shrinks, Beating Forecast [Business Week]
Summary: Internet-telephone company Vonage Holdings Corp. posted a disappointing 3Q yesterday. The company, which first went public in May, narrowed its loss compared with last year's 3Q but that was about the only good news the company could provide investors. On the quarter, Vonage posted a loss of 40 cents a share on more than double revenue from the same period last year ($160.7 million vs. $73.9 million). The company's rate of customer turnover rose in the quarter from 2.3% to 2.6%. Average monthly revenue per line also fell in the quarter by 30 cents to $26.33. The company added 205,000 customer lines, for a total of 2.06 million at the end of September - nearly double the year-ago tally of 1.06 million. However, the company was forced to lower its forecast for subscriber growth in FY 2006, saying it expects to end the year with between 2.2 million and 2.3 million after earlier setting an end-of-year target of between 2.3 million and 2.45 million subscribers. The company none-the-less reaffirmed its full-year revenue projection of $600 million to $615 million. Shares of the Holmdel, NJ., company were down 55 cents, or 7.4%, to $6.90 as of 4 p.m. composite trading on the New York Stock Exchange. Vonage shares debuted at $17 in May and have continually declined since then.
Related links: Vonage Earnings Report: Another Loss, Faltering Growth Rate • The Short Case on Vonage: Why No Price is Cheap Enough • Cramer's Take on VG » • Vonage Loss Narrows, But Cancellation Rate Rises Amid Concerns [WSJ]
Potentially impacted stocks and ETFs: Vonage (VG), deltathree (OTCQB:DDDC)
Cingular to Launch Cellphone Music Service [Wall Street Journal]
Summary: People familiar with Cingular's mobile music plans say the carrier jointly owned by AT&T and BellSouth, will announce as early as tomorrow, it's launching of an industry-first service that offers subscription access to Napster, Yahoo! Music and eMusic, and also music transferring between PCs, the capability to rip from CDs, and play MP3 and WMA formats. Next year it plans to introduce a virtual music store, similar to how ringtones are purchased. Rivals Verizon Wireless and Spring Nextel already offer such a service, with the latter saying it sold over 8 million songs in the past 12 months at $2.50 each. The competition in music phones is intensifying as Sony Ericsson says it sold 15 million Walkman phones in the past 14 months. And Nokia is targeting sales of 80 million music phones this year -- to claim the number one spot. Apple seems to recognize the challenge coming from all fronts, and has responded by boosting the capacity of its iPods while lowering prices on some models. Apple's iTunes music store competes with the likes of Napster and Yahoo! Music.
Related links: Earnings conference call transcripts: AT&T Q3 '06, Bell South Q3 '06, Apple F4Q06 • AT&T Reports 74% Profit Surge • AT&T Beats Street; Xerox Profit Jumps • AT&T-BellSouth Merger Still Needs FCC Clearance • Citi: Buy AT&T and Sell Verizon • Nokia to Reclaim High-end Handset Throne • Can the iPod Wannabes Get it Right This Time? • iPods vs. Music-Phones: Apple Still Has a Huge Advantage • Size Matters at AT&T -- Looking Good Post-Acquisition
Potentially impacted stocks and ETFs: AT&T (T), BellSouth (BLS), Apple (AAPL), Ericsson (ERIC), Microsoft (MSFT), Motorola (MOT), Napster (NAPS), Nokia (NOK), Sony (SNE), Sprint Nextel (S), Verizon (VZ), Yahoo! (YHOO) • ETFs: Telecom HOLDRs (TTH), Vanguard Telecom Services ETF (VOX), First Trust Morningstar Div Leaders Idx (FDL)
Facebook's Changing Fortunes [Business Week]
Summary: Word is that where a couple of months ago, college social networking site Facebook could have fetched nearly a billion dollars from companies like Yahoo and Viacom who had expressed serious interest in the company, maverick CEO Mark Zuckerberg may have missed out on the big bucks - at least for now. Zuckerberg (pictured), a 22 year old Harvard dropout insisted on a sales price of $2 billion - a price none of Facebook's suitors were willing to meet. Now, with possibly declining traffic and the always elusive 'cool factor' among the college-age crowd, companies who were interested are holding out and waiting to see if they can grab Facebook at a lower price. Zuckerberg is unperturbed. According to Facebook Marketing Director Melanie Deitch, the company is "focused on building the business. We're doing extremely well and we're having fun."
Related links: Why the Facebook /Yahoo Deal Won't Happen So Soon • Facebook Acquisition Not a Panacea for Yahoo • Value of Facebook vs. YouTube • Why Facebook's Even More Attractive Than YouTube • Yahoo in Talks to Acquire Facebook • Is $1 Billion a Fair Price For Facebook ? • Yahoo's Facebook Talks Hit Snags
Potentially impacted stocks and ETFs: Yahoo (YHOO), Viacom (VIA), Google (GOOG)
Summary: Kodak reported a loss for the eighth consecutive quarter, but the company's cost-cutting measures were responsible for the 5% rise in its shares. The $37 million loss between July and September of 2006 is an improvement upon last year when the Rochester-based company was down $914 million due to an ongoing restructuring plan. Kodak warns that its growth in digital revenue for the year will be nder its 10 percent goal since it is focusing on products which will bring higher profits. "The key to our strategy this year will remain our focus on margin expansion," said CEO, Antonio Perez. Continuing its extensive overhaul, Kodak is planning to cut 27,000 jobs and to trim its manufacturing operations.
Related Links:On a New High and an Old Price: Most Investors Are 6 Years Closer to Death–And None the Richer • A Very Human Index: Few People Realize Just How Arbitrary the Dow Is • Eastman Kodak Q3 2006 Earnings Call Transcript
Potentially impacted stocks and ETFs: Eastman Kodak (EK) • Competitors Canon (CAJ), Sony (SNE)
Summary: Baidu.com's shares took a 9% dive to close at $87.28 yesterday -- on trading volume about 10x higher than average, or about half its ADR share float -- after it reported a weaker-than-expected Q4 revenue forecast. This reversed recent gains in anticipation of a strong Q3 earnings announcement, which it delivered, nonetheless. Its shares fell another 4% in after-hours trading to $83.88, but are up about 2% in pre-market trading today at $89.00, likely on a Goldman Sachs upgrade to "neutral" from "sell." Baidu said it expects Q4 sales between $34.3 million to $35.5 million, which is lower than the $36.25 million median estimate by analysts polled by Thomson Financial. In Q3, Baidu reported its net income grew 10-fold to 85.3 million yuan ($10.8m), or 2.46 yuan ($0.31) per ADR, beating the $0.26/share analysts' estimate in a Thomson survey. Baidu said its number of advertising customers grew 13% to now total 102,000, and its revenue per customer rose 12% to 2,330 yuan, but R&D costs jumped 67% to 24.5 million yuan. Baidu controls about 50% of the Internet search market share in China. Both it and Google's market share are seen growing at Yahoo!'s expense.
Related links: Baidu Q3 2006 Earnings Call Transcript • Baidu: Q3 '06 Results • Goldman Sachs upgrades Baidu • Earnings coverage: AP and BusinessWeek • Chinese Tech Stock Weekly Update • Google's Results Bode Well for Baidu's Earnings • Baidu: The 'Chinese Google' Looks Tempting • Viacom to Provide Content to China's Baidu.com • Baidu: Impressive Growth, But Valuation is Out of Hand
Potentially impacted stocks and ETFs: Baidu (BIDU), Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)
AEROSPACE AND DEFENSE
Summary: On Tuesday, United Airlines reported its second quarterly profit since emerging from bankruptcy in February. The EPS came out to $1.30 per share on $190 million of net earnings which compares favorably to last year's $1.77 billion net loss. Analysts had expected earnings $1.43 per share. 3Q profit, excluding special costs, came out to $335 million, a significant increase from last year's $165 million. UAL stock initially soared almost to a 6 month high as a result of the earnings report. However, it sank later in the day by almost 3.5%, mostly due to analyst concern regarding rising fuel costs. Though crude oil prices, which are directly linked to those of jet fuel, fell in the last month, they still remain at record highs. The industry's intense price wars also make it difficult for airlines to pass fuel costs onto the consumer. UAL is trying to raise overall capacity and cut costs elsewhere in the company in order to offset lower ticket prices. Overall, analysts are still not crazy about long-term investment in airline stocks.
Related links: You Don't Have to be Crazy to Buy Airlines • Lower Oil Helping Airlines • Airlines Vie for Lucrative New China Route • CNN/Money: UAL turns in profit, stock falters
Potentially impacted stocks and ETFs: United Airlines (UAUA), Southwest Airlines Co. (LUV), Continental Airlines Inc. (CAL), British Airways Plc (BAB), AMR Corporation (AMR) • ETFs: iShares Dow Jones Transportation Index (IYT)
Summary: Martha Stewart Living Omnimedia reported impressive third quarter gains on Tuesday. Sales rose to $61 million, up from last year's $41.3 million. Its operating loss also shrank to $25.2 million, down from $26.1 million in 3Q05. On a per share basis, the deficit came out to 13 cents a share, considerably better than Wall Street's estimate of 18 cents a share. MSO executives attribute the improved sales to an increase in magazine advertising revenue. The company appears to be charging ahead, in spite of having to deal with the leftover taint of Ms. Stewart's incarceration. The company set aside $18.2 million to settle a $30 million dollar class action suit against Ms. Stewart and two other company authors, which was connected to her securities fraud imbroglio. The company's namesake is now an employee, having been temporarily barred from maintaining an executive role due to her conviction. The company will soon be celebrating the 15th anniversary of Martha Stewart Living, its flagship magazine. MSO hopes to publish its new magazine, Blueprint, 6 times in the coming year.
Related links: Conference Call Transcript: Martha Stewart Living Omnimedia Q3 2006 • With Martha's Troubles Behind Her, MSO Should Recover • MarketWatch.com: Martha Stewart loss narrows as ad revenues spike • Business Week: The Reinvention Of Martha Stewart
Potentially impacted stocks: Martha Stewart Living Omnimedia (MSO)
NYSE Looks East [TheStreet.com]
Summary: New York Stock Exchange CEO John Thain confirmed yesterday that the NYSE has had preliminary talks with the Tokyo Stock Exchange about an as-yet unspecified joint venture. Speaking at a conference sponsored by the Society of American Business Editors and Writers in New York, Thain was careful to avoid the word "merger" and refrained from commenting on reports that the exchanges might take equity stakes in one another. The Tokyo exchange says it is examining assorted "business alliances" with the NYSE but similarly declined to specify. Although any alliance would be complicated somewhat by the fact that the Tokyo exchange is not public, Thain believes such an alliance makes sense and "over time will occur." In other indications of consolidation in the exchange sector, the Chicago Mercantile Exchange recently purchased its rival the Chicago Board of Trade for nearly $8 billion, and the NYSE agreed in June to purchase Euronext, the European equities and derivatives exchange, for $10 billion. The merger is expected to close next quarter.
Related links: Tokyo Stock Exchange Favors Euronext-NYSE Deal • U.S. Exchanges Continue To Trim Expenses Through Consolidation, M&A Activity • Why I'm Long-term Bullish on the Exchanges • On the CME-CBOT Merger: Is Chicago the World’s New Risk Manager? • NYSE, Tokyo bourse mull possible alliance [MarketWatch]
Potentially impacted stocks and ETFs: NYSE Group, Inc. (NYX), CBOT Holdings, Inc. (BOT), Chicago Mercantile Exchange Holdings (CME) • First Trust IPOX-100 Index (FPX)
Street Clears the Air [TheStreet.com]
Summary: Carbon dioxide, the gas linked to global warming, is fast becoming a hot commodity on Wall Street. Morgan Stanley is committing $3 billion over five years to expand its carbon and emissions trading business, including private equity investments in emissions reduction projects; while Goldman Sachs has bought a 10% stake in the Chicago Climate Exchange, an electronic exchange that trades greenhouse-gas emission allowances in the U.S. Carbon trading is a means by which companies can comply with guidelines for reducing greenhouse gases. These guidelines derive from the Kyoto Protocol, an international treaty combating global warming that President Bush rejected on the dual grounds that it is too hard on polluters and would ultimately hurt the economy by forcing mandates reducing emissions. Carbon trading involves buying and selling "allowances," which are the amounts of carbon dioxide companies are allowed to emit under the terms of Kyoto. Companies that pollute less can sell their excess allowances to companies that have been unable to reduce their emissions to required levels, thereby helping them avoid fines and sanctions. Carbon trading is still in its early days -- about 9.3 million metric tons of carbon dioxide equivalent, or 93,000 contracts, have been traded this year, versus 411,265 energy futures contracts that were traded this month alone on the New York Mercantile -- but the size of Morgan Stanley's investment suggests the Street is viewing carbon trading as an area with great potential. It also suggests that investment banks are looking toward the next administration, which might be friendlier toward Kyoto. Investment banks see opportunities in carbon trading for speculative trading, private equity investment and project financing, but it is also attractive to private investors and funds that want to invest in products that are unlinked to the securities market as a hedge.
Related links: Environmental Emissions Trading: A UK-Traded Stock That Should Profit • Global push to cut greenhouse emissions [Financial Times] • Regional Greenhouse Gas Initiative • Climate change: Member States need to intensify efforts to reach Kyoto emission targets [European Commission press release] • Investing in Solutions to Climate Change [World Resources Institute] • Carbon Market North America 25 October [Point Carbon]
Potentially impacted stocks and ETFs: Morgan Stanley (MS), Goldman Sachs Group Inc. (GS) • iShares Dow Jones US Broker-Dealers (IAI), Vanguard Financials ETF (VFH)
Mixed Results for Pfizer Combo Pill [TheStreet.com]
Summary: Pfizer shares tumbled 2.7% on active trading yesterday after the company reported mixed results for its new combination heart pill. The pill combines Lipitor, which lowers bad cholesterol, and torcetrapib, which raises good cholesterol. It was tested on a population of patients with heterozygous familial hypercholesterolemia, a condition denoted by a high level of bad cholesterol and a high risk of early heart disease. The combo-pill raised good cholesterol by 56% and lowered bad cholesterol by 27% vs. patients taking only Lipitor -- but it also raised patients' blood pressure by an average of about two millimeters vs. patients taking Lipitor alone. This result casts doubt on the drug's ultimate approval by the FDA, which is ominous for Pfizer: the company wants to market drugs that offer extra benefits to Lipitor so it can defend itself against competing good-cholesterol drugs. Analysts are now concerned that Pfizer will have to push back its launch of the combo-pill, which could introduce patent problems: the key patent for Lipitor, which accounted for 27% of Pfizer's corporate revenue in Q3, will expire in 2010, but if the FDA demands more data for the combo-pill, its launch could be delayed until 2011.
Related links: Generic Cholesterol Drugs Pressuring Not Only Merck, But Also Pfizer • Time To Buy Pfizer? • With Pfizer Bigger is Better • Pharmaceuticals Show Higher Profits, But Pfizer Forecasts Flat Revenues Through 2008
Potentially impacted stocks and ETFs: Pfizer Inc. (PFE) • First Trust Morningstar Div Leaders Idx (FDL), iShares Dow Jones US Pharmaceuticals (IHE), WisdomTree High-Yielding Equity (DHS), WisdomTree LargeCap Dividend (DLN), WisdomTree Total Dividend (DTD)
A Sparkling Quarter for Procter & Gamble [Business Week]
Summary: Although Procter & Gamble reported a 33% gain in net income and raised its forecast, shares fell 1%. The world's largest consumer-products company says recent acquisition, Gillette, helped propel sales growth 27% to $18.79 million as earnings per share rose to 79 cents from 77 cents last year. Organic sales grew 6%, at the top end of the company's range, while profit margin increased, more than offsetting the expense of the Gillette acquisition. "Looking forward, we expect earnings per share growth to accelerate driven by strong base business results, the ramp-up of Gillette synergies and an improving cost environment," says President, CEO and Chairman of the Board, A.G. Lafley. The 1% drop in share price to $63.14 was attributed to the rise in price before the earnings report, according to Merrill Lynch analyst, Christopher Ferrera who remains bullish on Procter & Gamble.
Related Links: Procter & Gamble F1Q07 (Qtr End 9/30/06) Earnings Call Transcript
Potentially impacted stocks and ETFs: Procter & Gamble (PG) • Competitors: Johnson & Johnson (JNJ), Kimberly Clark (KMB)
HEARD ON THE STREET: Holders Besiege The Sun-Times [Wall Street Journal]
Summary: Three years ago shareholders at Sun-Times Media Group Inc. launched a successful campaign to oust then CEO Conrad Black; now they've decided they want the company sold. Since selling its prized Telegraph Group (London) in 2004, SVN has delivered a string of weak earnings reports, and expects weak Q3 numbers, causing a prominent shareholder to comment, "The board has not acted with sufficient urgency." Shareholders say the time for selling is ripe: (1) The possible sale of Chicago Tribune has investors focused on the Chicago market. (2) Private equity groups have been showing increased interest in newspapers. (3) Last week Dow Jones & Company Inc. sold 6 community newspapers for $282M, and GateHouse Media Inc. had a well received IPO. Sun Times looks relatively cheap: (1) Most newspapers have a far greater enterprise-value-to-revenues ratio than SVN, whose enterprise value (stock + debt - cash) is a fraction of its revenues. (2) At $5.80, the current price is way below the $18 secretly negotiated between Black and a U.K. buyer in 2003 (the deal was blocked after the board sued). Downside: (1) $500M in potential tax liability, of which it's unclear how much the company will actually have to pay. (2) While Black, who still owns a majority voting stake, agrees the company has underperformed since he left, he doesn't think it currently makes for an attractive purchase target, citing the "legal mess" that surrounds the company (including a lawsuit/counter-suit between him and the company -- shareholders say he looted SVN, he accuses the board of libel). Current CEO Raymond Seitz said in a statement the company has implemented a cost-reduction program to take "into account the realities of the newspaper advertising marketplace, which has continued to decline over the course of this year," but would not comment on shareholder pressure to sell the corporation.
Related links: Sun-Times Publisher Enduring `Tough Year' [Chicago Tribune] • Sun-Times Plunges After Warning of Ad Cutbacks [MarketWatch]
Potentially impacted stocks and ETFs: Sun-Times Media Group Inc. (SVN), Tribune Co. (TRB), Dow Jones & Company Inc. (DJ), The New York Times Co. (NYT)
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Earnings conference call transcripts: Baidu • Keynote Systems • DreamWorks Animation • IAC/InterActive Corp. • Compania de Minas Buenaventura • Eastman Kodak • Entergy • NDS Group • Martha Stewart Living Omnimedia • Procter & Gamble • FTD Group • Agere Systems • Automatic Data Processing • American Electric Power • Biogen • Qwest Communications • Creative Technology • Blue Nile • Advanced Semiconductor Engineering • FPL Group
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