Grant Dossetto

Long/short equity, contrarian, bonds, debt
Grant Dossetto
Long/short equity, contrarian, bonds, debt
Contributor since: 2010
Lot of bulls crowing on this thread. Interesting from a sentiment perspective. Ask Disney or Tiffany's shareholders how quickly narrative investing and positive sentiment falls apart.
Pump baby pump. If we haven't corrected, KBH earnings are going to torpedo the whole sector on Friday.
$50 million isn't a horrible opening but it isn't massive for a summer film. This weekend's box office fell 20% compared to the same weekend last year. San Andreas was nearly $15M less than the number one film (Maleficent). It was also less than 2012 (the relatively recent disaster film) by over $10M without adjusting for inflation. I'm not sure there is a good reason to throw a party for that.
The real money for entertainment studios is in TV, particularly carriage fees and syndication. Movies are in serious trouble, down by double digit percentages compared to what we did in 2013. Movies have been dumbed down and kids don't have the money to spend $10 for a ticket and another $10 to $15 for concessions. Adults stopped going to the theater years ago and now wait until the stuff comes out at home, either Netflix or on TV.
It is looking like Jurassic World and Star Wars are the BO's only hopes this year. I don't expect either to live up to financial expectations, much like Avengers didn't.
I tend to agree that the market looks ready for a correction. We have rising margin debt without any price momentum and a negative divergence of the overall market with many leading stocks in this bull market. Social media, transports, etc. are laboring and the fundamental data is screaming that we are already in a recession. That is the ripe condition for a quick draw down that may cause the high debt levels of market participants be forced to sell. High "neutral" sentiment also points to something like a 1998 scenario at the least. Builders have a high beta and a 20% correction will easily be something like 50% for this group, similar to 2011.
Another red flag is the poor earnings report from Toll Brothers. Revenues fell from a year ago and gross margins were down by over 2%. The bottom line was padded by a severe drop in the tax rate. That is incredibly concerning. Other builders also lost margins in Q1 compared to 2014 and, with diminishing traffic, it would be hard to suspend that trend. The consumer is tapped out everywhere, including autos now, but they can lever up to buy record high real estate with little traffic? Hard to see that as anything but fanciful.
Lennar began the explosion in October and ended the rally last month. It seems to be the key for the group. If we get another market moving drag from LEN, there is a host of head and shoulder patterns across the group to be activated that may see a nasty snap down.
You mean where Cushing is located?
Guess low oil has hurt the economy as much as the bears expected.
My point is that we got a news bulletin that told us what we already knew, Whatsapp will be a $20+ billion loss for the company because they are never going to figure out how to make a profit with it. Also, I guess, we are supposed to get excited about crude, Atari level games on Messenger that will end up making FB less than AOL makes from dial up. Why is this breaking news and how can a company valued at nearly 90x GAAP earnings get away with discussing inane trivialities? The company needs to do more than grow mobile advertising because that trend is over with. They seem to not have a lot of ideas to do that.
Maybe Oculus? Good luck with making VR matter. Remember those stories about 3-D movies were finally going mainstream a couple years ago. Yeah, that ended in a hurry.
Is there news here? It sounds from the body of the post that FB doesn't have any idea how to make money on Whatsapp (do not forget it paid $20 billion dollars for it) and the Messenger junk seems awfully small fry, especially in regards to profits that could be made from it.
Naw, no real seasonality to recessions and they often aren't dated for at least a 9 months to a year after they have started. The last two were 2001 which started in March and 2007-2009 which started in December. The market had already peaked when those hit, 2 to 12 months ahead of time. Honestly, what excuse is there here in May for why the economy has missed economist projections nearly unanimously since last December? Given the surging inventory to sales levels, the damage to real Americans is about to be exacerbated when production is cut further and layoffs begin which further reduces demand. Then we figure out how much of the financial engineering of the last few years stands up.
It is hard to think that we can have a situation where a Picasso painting is auctioned for $180 million and Wall Street parties to all time highs while consumer confidence, manufacturing, auto sales, wholesale sales, IP, et al. all scream recession for long without the Fed getting heat.
America isn't Greece. Out of work Texans who were working the oil fields won't grovel to their "betters" like the EU periphery. In the old days we'd get some tar and feathers but that isn't allowed. I also worry that the solution found to replace it could be a particularly nasty one. People don't feel they get ahead by doing things the right way and that the country is slipping away. Add in the fault lines of cultural issues and the powder keg is set for a major pushback from "middle America." It is going to shock some folks.
Yep, for the first time maybe ever, the economy has gone into a recession before the stock market showed any hint of discounting it. Should get interesting. We really are due for a 1987 style event.
Companies hoodwink the investing world all the time. Enron being a perfect example of a non-tech firm that pulled it off.
FB relies on ad revenues from minor Silicon Valley start ups. In a week where TWTR, YELP and LNKD all crashed by 25%, the absurd "dot com 2.0" valuations for these start ups will be questioned as well. The next funding round for Snapchat or Uber will be lower than the last for the first time. They will finally have to operate like a real business rather than a child on their parent's credit card. Discretionary spending will be reined in with ad spending hardest hit. This will blow up FB's business model a la YHOO in 2000. We may never see $86/share on FB's stock ever again.
Margin crunch offset price increase. The lesser loss came solely from a reduction in other expenses (no color provided of course).
The last word I'd use to describe the current housing market is affordable.
The advertising pie is not really growing anymore. They are just fighting harder for market share. See Google, Facebook, and Twitter all missing quite badly with significant earnings declines compared to Q1 2014. The easy spending tech bubble start ups are about to have to tighten as unicorns disappoint (it is already happening) and then we get to see who survives when they have to actually make money rather than raise ever more in the next funding round. That will crush their ad budgets. Twitter's earnings today should be seen as the catalyst for a revaluation of the sector.
There is no fundamental reason a company making 18 cents a quarter should be worth over $80 a share when growth is dramatically slowing and earnings are shrinking. Complacent Twitter investors are getting obliterated today for ignoring those trends. That blood will spill to all social media stocks tomorrow.
The Asian Flu and Russian Crisis of '97-'98, the dollar shock of 2008. This isn't close to a one off, it happens during crises of which there have been at least two affecting dozens of countries in the past twenty years. It is unprecedented because US companies have purposely structured their businesses to attract revenues internationally because they stopped seeing growth opportunities in the US.
Rather than innovate and expand business lines, companies like McDonalds and Procter and Gamble opened new markets. The fact they have both struggled lately shows that there was a limit to this strategy, eventually you sell everywhere. Facebook has done the same for almost three years. There is no growth for the company in North America so they moved overseas and when the dollar was falling they had no interest in hedging those foreign revenues. They took the risk that it could never swing back the other way which, to the surprise of only those in C-Suites, it has. Again.
This is equivalent to saying that Bear Stearns would still be around if not for the unprecedented conditions of 2007/2008. You can't just write that off. We have a strong dollar now and, in regards to the Euro and commodity currencies, I think it is here to stay for a while. Combine that with the global recessions occurring in China, Japan, Latin America, and I believe here in the US now too, it gets hard to justify attaching growth multiples that would be hard to hit in a booming economy to cos. like Facebook.
They could hedge...if they decide not to while increasing international exposure that is a business strategy. Why should the consequences of that strategy be discounted? It seems only the negative consequences of decisions for companies are explained away as being insignificant. There was a time when we warned against such complacency. Now it is so commonplace that it is hard to imagine a sizeable downward correction is not near.
Shouldn't FB, after more than quadrupling in a couple years, require more of it than decent at these valuations?
The thing that really should scare people is how tough the comps get over the summer. You could say that about every company really. We are missing revenue comps against an easy qtr. Q1 last year saw 2.1% contraction in the economy. FB had a massive Q2 that blew expectations out of the water. Just to keep the 40% revenue growth (the worst case scenario of the company's guide in October during their Q3 14 conf. call), we will need to see truly impressive performance. I wouldn't be shocked at all if we get a revenue number under 30% y/y next quarter and if that happens somebody will need to answer for why we are buying shares at a market cap of $240B when the company is earning only $500M on a GAAP basis (30% drop against same quarter 2014)with cratering revenue growth.
I don't think it is possible to justify FB at $55, let alone $80.
I don't like housing at all and, anecdotally, real estate is really hurting where I live. More homes are up for sale this spring than the last couple of years and are taking a long time to sell, if they do at all, compared to several offers being made in the first week of listing like 2013. On the commercial side, things look as bad here as 2009, with empty storefronts, factories, and office space as easy to find as water in a lake. It sure seems that the economy turned last fall and the stock market has missed it. Can't help but think the correction to reality will be swift when it comes.
I'd be terrified to own this stock and think it could need restructuring well before 2018. They have been cash flow negative during the best of this housing cycle. If we get any type of economic recession/bear market this will struggle to survive that.
FB had 3.6 billion in cash flow and has a market cap of 235 billion. How exactly is that valuation not extreme for a company whose growth is slowing and expenses exploding (by their own admission)?
You could write this exact same article about Facebook, Amazon, Google, etc. Momentum tech is vastly overpriced across the board. The correction will stun people when it comes. The Q is when that is.
Gurley is a smart man and is invested heavily in Silicon Valley success. It does not help him profit by warning on current tech exuberance. That fact he is doing so speaks to how acute the danger actually is. It would be wise to heed his warnings.
I thought FB had already perfected targeting ads to customers given the immense amount of data it collects on the people who use it's site. You mean it's ads aren't anything special? I'd be hesitant to buy more then if I was a business paying to do so.
Pump while you're dumping. Same as ever on Wall Street. Funny how RBC can't fall over itself enough to say it is different than everyone else (it isn't) when it comes to the typical bad behavior of sell side analysts. There was a time to buy MCD in 2012 when it fell to the mid-80's. Much of the investment thesis for that call has blown up in the past year with horrific performance operationally with SSS down in most every continent. A perfect turnaround by the new CEO has already been priced in here. Considering we have entered into a global recession, you won't get perfect. This has a lot of room to fall. I wouldn't be shocked to see a 7 handle on this stock by year end.
Eh, sales are down three consecutive months with consumer purchases falling at an even steeper rate. That is long enough to be a trend and considering December (when the current downdraft started) was above average temperature wise it has nothing to do with weather. That's a full quarter of misses on auto sales across brand.
Ford has been much better than GM or Chrysler lately on avoiding sales to marginal customers and overproduction which is why their margins have crushed GM for years. Ford had a YoY decline, and considering their superior track record as far as restraint, that is a pretty good barometer for where the others are. Chrysler has gone from 20% YoY sales gains to 5% (against fairly weak comps) in a quarter. GM is now struggling too because both relied heavily on subprime loans which are going bad at an increasing rate. Without being able to dump cars on those who can't repay the loans, they are now dumping to rental fleets. That can only last so long before those gimmicks are saturated.
Then we get stuck with overproduction and high inventories, a credit squeeze because the old loans are hitting the used car market at a price far below what is still owed (the cost of extending loan term length), and we will finally get to see how much different the new GM really is from the bankrupt predecessor. My guess is not as different as you assume.
They inflate their sales by dumping on commercial fleets, you can't do that forever. Shouldn't you guys be putting a big time asterisk next to 76 days of inventory?
Horrible. BBVA should have it's FDIC Deposit Insurance Fund contribution jacked up several fold to compensate such an obviously reckless business policy.
The gap between non-GAAP and GAAP earnings at Facebook has exploded over the past year. Last quarter it was .54 non-GAAP and .25 GAAP. One is more than double the other. That is a huge red flag. They aren't the only ones (http://on.wsj.com/1xK3MPW). When the market corrects (not if) this will come under question and may even end up in a lawsuit by the time it is all over.
No, I mean net income using generally accepted accounting principles. They made .25 per share in 2013 for Q4 and .25 per share in 2014 for Q4. I'm going to go out on a limb and say there aren't a lot of $80/share companies with that track record.
FB's GAAP profit was exactly the same in Q4 2013 as it was in Q4 2014. That would be the definition of zero profit growth.