ITunes Now Number Three Music Retailer in U.S. -- Survey
An NPD Group survey of more than 40,000 people aged 13 and up shows Apple's popular audio and video download platform, iTunes, has clawed its way past competitors Amazon.com and Target to become the 3rd largest music retailer in the U.S. According to the survey, which doesn't include mobile downloads or revenue, iTunes' market share came in at 9.8%, behind Wal-Mart (15.8%) and Best Buy (13.8%), and ahead of Amazon.com (6.7%) and Target (6.6%). Because it is possible to purchase individual music tracks at iTunes, NPD recorded every 12 tracks sold as equivalent to one album for statistical purposes. Counting both digital and hard copy sales, 212 million albums have been purchased so far this year - less than a quarter of them digitaly, according to Nielsen SoundScan. This overall number marks a 16% decline in overall album sales, compared to a year ago.
Sources: Reuters, AP, Wall Street Journal
Commentary: Amazon.com's DRM-Free Music Store May Reshape Market • Free Video Downloads Will Overtake iTunes Soon -- Study • The Long and Short on Amazon, Netflix, Google, Microsoft And Apple
Stocks/ETFs to watch: Apple (AAPL). Competitors: Wal-Mart (WMT), Best Buy (BBY), Amazon.com (AMZN), Target (TGT). ETFs: Internet Architecture HOLDRS (IAH), Internet HOLDRS (HHH), Consumer Discretionary SPDR ETF (XLY), Vanguard Consumer Discretionary VIPERs (VCR)
Conference call transcripts: Apple F2Q07 (Qtr End 3/31/07) Earnings Call Transcript
Yahoo Merges Ad Businesses; Reshuffles Sales Executives
Yahoo has announced it will consolidate the two segments of its ad business -- graphical banner ads and Internet search links -- under a single sales executive, David Karnstedt. Wenda Harris-Millard, Yahoo's longtime head of sales, has left the company and is joining Martha Stewart Living Omnimedia as president of its media business. The reshuffle closely follows the replacement of CEO Terry Semel with Yahoo co-founder Jerry Yang. Both Karnstedt and Millard have been instrumental in gaining credibility for Yahoo among corporate advertisers. Yahoo is expecting revenue for the rest of 2007 to be at the low end of expectations due to a slowdown in display ad growth -- an area that was under Millard's authority. She oversaw display ad growth at the company that boosted revenue to $6.4 billion in 2006 from $717 million in 2001, but it is losing momentum to Google, which controls over 60% of the search-ad market. "Yahoo requires a different set of skills to drive the business forward," said Gregory Coleman, EVP of global sales. "I'm sorry they announced the story this way," said Millard, "because clearly I resigned and I have a great new job."
Sources: Press release, TheStreet.com, Bloomberg, MarketWatch I, II, Wall Street Journal, Search Engine Watch, Reuters
Commentary: Yahoo Shakeout: CEO Semel Out, Co-Founder Yang In • Time For Yahoo To Implement Some Radical Thinking • What's Keeping Yahoo From an Effective Turnaround?
Stocks/ETFs to watch: Yahoo! Inc. (YHOO), Martha Stewart Living Omnimedia, Inc. (MSO). Competitors: Google Inc. (GOOG), Microsoft Corp (MSFT). ETFs: Internet HOLDRs (HHH), First Trust Dow Jones Internet Index (FDN)
Conference call transcripts: Q1 2007
Dow Jones-Murdoch Talks Intensify
Dow Jones & Co. Inc. and Rupert Murdoch's News Corp. are reportedly near agreement on a means to protect the editorial integrity of the Wall Street Journal in the event of a Murdoch takeover. The two sides negotiated intensively over the weekend. Now that GE and Pearson are out of the running, there are no potential bids in the offing other than Murdoch's for the company as a whole. Negotiations had stalled until Friday afternoon, when the Bancroft family -- which controls Dow Jones -- delivered a proposal to News Corp. The proposal envisions a seven-member editorial panel consisting of two Bancrofts, two members selected by News Corp., and three independent directors to be named by the Bancrofts and approved by News Corp. Murdoch called the plan "insulting" and began drafting a letter withdrawing his $5 billion offer. Before the letter was sent, however, the sides agreed to negotiate. Murdoch sent a counterproposal on Sunday for a committee that scales back the family's involvement. He also offered the Bancrofts one seat on the Dow Jones board of directors; the family pushed for two, but are retreating from that demand. If it happens,"[a]n acquisition of Dow Jones could be considered a crowning achievement to a spectacular career,'' said Richard Dorfman, MD at Richard Alan Inc.
Sources: Wall Street Journal, Bloomberg, Reuters, Washington Post, Financial Times
Commentary: GE and Pearson Will Not Pursue Dow Jones • Dow Jones Board Takes Over News Corp. Talks; MySpace Founder Makes an Offer • As The Dow Jones Turns: Board Seizes Rupert Negotiations
Stocks/ETFs to watch: Dow Jones & Company Inc. (DJ), News Corp. (NWS). ETFs: PowerShares Dynamic Media Portfolio ETF (PBS)
Conference call transcripts: Dow Jones Q1 2007, News Corporation F3Q07
Macy's Shares Surge on Buyout Rumors
Shares of Macy's rose 9% Friday -- reaching their highest point in over a year -- before closing up 6.6% at $41.43 amid speculation the company is about to be taken over. Options volume also surged. Speculation centered on a possible $52-per-share offer over the weekend from KKR and Goldman Sachs Group, according to Marc Weinberger, head trader at W. Quillen Securities. That price would value the company at $23.9 billion. Neither Macy's, KKR nor Goldman have commented on the rumor. Macy's, formerly known as Federated Department Stores, changed its name this month, and has had difficulty rebranding its acquired May Department Stores into Macy's stores. The rebranding, combined with weak demand for home items, resulted in a below-forecast 3.3% decline in same-store sales in May. The company is forecasting June same-store sales to be flat to down 2%. Buyout speculation pushed call options volume on the shares to a record 121,312, over 35x the 20-day average. The price of July $42.50 calls, the most actively traded contracts, shot up 16x to $1.70 from $0.10. Put volume also set a record, rising 9x to reach 12,332.
Sources: Yahoo Business, Bloomberg
Commentary: Icahn Management: Notable 13F Changes • Federated Department: No Longer Getting My Shopping or Investment Business • Icahn Covets Federated; The Street's Not Impressed
Stocks/ETFs to watch: Macy's Inc. (M), Goldman Sachs Group Inc. (GS). Competitors: Sears Holdings Corp. (SHLD), Saks Inc. (SKS), Dillard's Inc. (DDS). ETFs: Retail HOLDRs (RTH)
Conference call transcripts: F1Q07
TRANSPORT AND AEROSPACE
Raytheon Formally Protests L-3's Receipt of Military Cargo Contract
Raytheon Co. said it filed a formal protest Friday over the U.S. military's decision to choose competitor L-3 Communications' C-27J short-range cargo aircraft over its own. The contract is currently valued at around $4 billion, and has the potential to be worth upwards of $6 billion according to the Wall Street Journal (it was initially announced as being valued at $2.04 billion but that apparently failed to take into account another 24 planes the Air Force is purchasing). Raytheon executives failed to say what the basis of their protest was, beyond CEO William Swanson saying his company doesn't file protests without good cause. Raytheon shares lost 3.61% in composite trading last week.
Sources: Wall Street Journal, Reuters, AP
Commentary: L-3 Communications Secures $2 Billion Bid To Build Military Transport Planes • Raytheon, Computer Sciences Corp. Ink Deal With Army For Up To $11.2B • Cramer's Take on RTN
Stocks/ETFs to watch: Raytheon Company (RTN), L-3 Communications Holdings (LLL). Competitors: Boeing (BA), Honeywell International Inc. (HON), Lockheed Martin Corp. (LMT), Northrop Grumman Corp. (NOC). ETFs: iShares Dow Jones US Aerospace & Defense (ITA), PowerShares Aerospace & Defense (PPA)
Harley Revs Up on Dubious Buyout Speculation
Shares of Harley Davidson rose as much as 6.4% to $63.99 Friday, closing up 4% at $62.55, on speculation of a buyout by Honda Motor Co. Call options soared, led by out-of-the-money July $70 calls (+600% to $0.35/contract and an intra-day high of $0.50). Despite the bullish reaction, analysts were mostly skeptical. Analyst Tim Conder of A.G. Edwards & Sons discounted the speculation because of expected FTC scrutiny of the combined entity's approx. 60% share of the U.S. large motorcycle market. Conder also said a merger might "alienate U.S. customers." He added the rumor could have been a quarter-end attempt "to squeeze shorts and raise the stock." Options trading volume was 14x its daily average and set a new record. Among options traders, Jon Najarian of optionMONSTER.com was most skeptical, saying the option activity seemed suspicious, "not takeover suspicious, but plant-a-rumor suspicious." A Harley spokesman declined to comment and American Honda Motor Co. didn't return a request for comment.
Sources: Associated Press, Bloomberg, Reuters
Commentary: Motorcycle Stocks: Are They A Good Ride? • Harley Shares Zoom Forward On Earnings and Revenue Beat • Disturbing Trends at Harley-Davidson: Why It's Time to Sell
Stocks/ETFs to watch: Harley-Davidson, Inc. (HOG), Honda Motor Co. (HMC). Competitors: Polaris Industries Inc. (PII)
ENERGY AND MATERIALS
Syntroleum and Tyson to Open Plant
Alternative energy company Syntroleum Corp. and agricultural company Tyson Foods are expected to announce plans for a $150 million plant at which fat provided by Tyson will be converted into fuel, the Wall Street Journal reported Monday. The plant is forecast to produce an annual 75 million gallons of fat-based fuel, or about 5% of the output of an average oil refinery. Syntroleum has spent about twenty years trying to turn natural gas into liquid transportation fuel. It is now turning its sights toward chicken fat, pizza grease and other such renewable resources. In April, Tyson inked a pact with ConocoPhillips by which Tyson fat will be run through Conoco refineries and turned into renewable diesel. The Conoco process requires relatively clean fat, and the product is mixed with regular, oil-based diesel in low concentrations. The Syntroleum process uses "the dirtiest, and thus cheapest, fats" to make petroleum-free fuel. The U.S. government is encouraging oil companies to pursue alternative fuels by providing subsidies, including a $1-a-gallon federal tax break originally intended solely for biodiesel companies (much to the dismay of the biodiesel lobby). A week ago, Syntroleum signed a contract to provide 500 gallons of fat-based jet fuel to the Air Force for testing. "Lord knows," said Air Force official Paul Bollinger, "there's no shortage of chicken or hog fat in this country."
Sources: Wall Street Journal, Reuters
Commentary: ConocoPhillips, Tyson to Manufacture Diesel Fuel from Animal Fat • Syntroleum Corp: Tremendous Technology, Tremendous Risk
Stocks/ETFs to watch: Syntroleum Corp. (SYNM), Tyson Foods, Inc. (TSN). Competitors: Rentech, Inc. (RTK), Sasol Ltd. (SSL), Pilgrim's Pride Corp. (PPC), Smithfield Foods Inc. (SFD). ETFs: PowerShares WilderHill Clean Energy ETF (PBW), PowerShares WilderHill Progressive Energy ETF (PUW), Rydex S&P Equal Weight Consumer Staples (RHS), Rydex S&P 500 Pure Value (RPV)
PowerShares Launches Four Fundamentally Weighted Global ETFs
ETF provider PowerShares says it will launch Monday "the first wave" of PowerShares FTSE RAFI International Portfolios, which make use of fundamental weighting instead of the more traditional cap-weighting. Fundamental weighting means that component companies are weighted not by a single measure (such as market-cap or earnings), but rather by the size of four fundamentals measures: sales, cash flow, book value and dividends. The company says that fundamental weighting "avoids many of the risks associated with market-cap or single-measure weighted indexes, while simultaneously providing the opportunity for higher returns and lower risks when compared with cap-weighted benchmarks." The four indexes anticipated to launch Monday are: PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio, PowerShares FTSE RAFI Asia Pacific ex-Japan Portfolio, PowerShares FTSE RAFI Europe Portfolio and PowerShares FTSE RAFI Japan Portfolio.
Sources: Press release
Commentary: Fundamentalists at the Gates: The Trouble With Cap- Weighted Indexes • Fundamental Indexing: New Idea, or a Repackaging of Value Investing? • Fresh Attack On Fundamental Indexing
Stocks/ETFs to watch: PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio (PXF), PowerShares FTSE RAFI Asia Pacific ex-Japan Portfolio (PAF), PowerShares FTSE RAFI Europe Portfolio (PEF), PowerShares FTSE RAFI Japan Portfolio (PJO)
Related: Fact sheets: PXF Fact Sheet (pdf), PXF Fact Sheet (pdf), PEF Fact Sheet (pdf), PJO Fact Sheet (pdf). Wikipedia on fundamentally based indexes
London-Based Hedge Fund to List on NYSE in Reverse Acquisition
GLG Partners LP, one of the largest hedge funds in Europe, plans to list on the NYSE through a reverse acquisition transaction with Freedom Acquisition Holdings, a special-purpose acquisition company listed on the American Stock Exchange. The transaction, which is expected to close in Q4, involves two steps: (1) a 28% acquisition, valued at approx. $1.08b, of GLG by Freedom and (2) a new listing of the combined entity, 72% owned by GLG's shareholders, on the NYSE under the symbol GLG. It is expected to have a market cap of $3.4 billion. GLG began in 1995 as a division of Lehman Brothers run by three former Goldman wealth managers. It became independent in 2000, but Lehman still holds a 15.3% stake. Three GLG managing directors will own a combined 45% of the new entity. GLG manages around $20b in assets, which have grown at a compounded annual rate of 45% since 1996, with average returns of 17%, according to sources. It had a profit of $360m, on sales of $621m in '06.
Sources: Bloomberg, New York Times, Wall Street Journal
Commentary: Blackstone's Debut Leaves Some Disappointed • Blackstone IPO May Signal Private Equity Top - Barron's • Lehman Brothers: A Risk-Averse Goldman Sachs - Barron's
Stocks/ETFs to watch: Freedom Acquisition Holdings Inc. (FRH), Lehman Brothers Holdings Inc. (LEH). Competitors: Fortress Investment Group LLC (FIG), Blackstone Group LP (BX)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
- Barron's says that despite investor optimism, Blackstone (BX) is not the next Google, and may disappoint investors. Persuasive buyout targets are scarce, forcing Blackstone to pay higher ratios and take on greater debt, even as interest rates rise. Shares trade at 20x rumored 2008e profits of $1.75 -- I-banks trade at about 10x, and asset managers fetch 18x. Blackstone's fees, which account for most of its earnings, may be unsustainably high. A hidden "clawback" condition could force it to refund 20% incentive fees if investments sour. Its perception of its real estate portfolio seems unrealistically rosy. Barron's says the IPO may signal a top for private equity; shares might only be worth mid-20s. [See full summary]
- Intel (INTC) shares are up 27% since April. After attending an Intel research day last week, Tech Trader Eric Savitz is convinced that AMD's (AMD) Barcelona, at most, will be a temporary blip in Intel's dominance. Intel has already begun moving from 65nm to 45nm chips. AMD has not, and it now looks as though it may be forced to begin outsourcing some of its production, losing a degree of autonomy. "Intel is thinking big -- and thinking ahead... Over the next few years, your portfolio really should have Intel inside," Savitz says. [See full summary]
- Bond and debt insurer MBIA's (MBI) $1 trillion AAA portfolio could be endangered by $7.7 billion in subprime mortgage backed securities. Some analysts forecast an industry-wide 10% loss on subprime loans, which could strip 65% off A-rated bonds. If subprime losses mount, MBIA could take a $500m loss or have to dilute stock to raise collateral. [See full summary]
- At a news conference last week, Verizon (VZ) CEO Ivan Seidenberg said of the Apple (AAPL) iPhone, which will be serviced exclusively by competitor AT&T (T): "I am actually hoping that the Apple iPhone will do reasonably well," he said, because its emphasis on music, video and internet could 'energize' the sector. Verizon's V Cast mobile video (based on Qualcomm's (QCOM) MediaFlo) hits 40 cities in July and 120 by year-end. Its Chocolate multimedia phones are scheduled to get a 'refreshed design' next month. Seidenberg says "the burden is on them" to prove they can redefine the market before he considers taking any counter-steps. [See full summary]
- DJ Orthopedics (DJO) makes orthopedic products like knee braces and neoprene sleeves. A second consecutive earnings miss knocked shares from November's $45 to $31. But shares recently traded at over $41 as hedge funds stocked up on the dip. With 60% gross margins and a perennial market in fatter, older Americans, a 25% U.S. market share and overseas revenues practically doubling each year, shares may hit $60 by 2008-9. [See full summary]
- State Street (STT) shares fell 13% after it bucked shareholder opinion and forged ahead with its $4.5 billion acquisition of Investors Financial Services (IFIN), despite diluting 2007 EPS by $0.14. Punk Ziegel's Richard Bove says investors are short-sighted: "Shareholders are furious with the company, believing they don't care about the short term and the dilution. They don't. The acquisition has only enhanced their superb international position. The lower multiple (16x 2008e vs. a typical 20x) certainly creates a buying opportunity." His target is $85, giving shares over 20% upside. [See full summary]
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