BlackBerry: How Can Returns Possibly Exceed Sales [View article]
I laughed when I saw both his article and your headline!
I interpreted his article as the current returns run rate are exceeding current sales run rate. So after a burst of sales, people are now buying fewer and returning more than they are being bought...
The Spell Is Broken For Veeco Instruments [View article]
VECO might be caught in the John Paulson downward vortex. At one point he owned close to $150 million in shares. His fund is likely experiencing redemptions since its performance has been the worse (or nearly) of all tracked hedge funds. It is possible that the market is anticipating a large liquidation of parts of his portfolio. This may be bearish short term but bullish medium term. The long term will always be about fundamentals.
Clearly there are macro headwinds for this company, but the valuation seems to reflect that at this point. They have $14+ a share in cash on their balance sheet - more half of their market cap.
7 Overvalued Luxury Stocks To Sell Or Short [View article]
According to this AP article from April about COH, China accounts for $186 million in revenue per year - less 5% of Coach's revenue. Japan is the number two market, at $700 million per year. So China is nowhere near the size of the US or Japan. I think that China would need to seriously accelerate to make up for a drop off in developed market sales. The reality is that these companies don't need to have sales drop to have their stocks drop. If sales growth only SLOWS these companies stock prices could easily get hammered - just look at Netflix today!
7 Overvalued Luxury Stocks To Sell Or Short [View article]
I agree that these are solidly run, profitable companies. Their profits aren't going to zero. They are not going bankrupt. That does not mean they are great investments right now.
The market has rewarded these stocks for the rebound in luxury goods spending. My contention is that sales at these companies will slow dramatically and perhaps contract as the reverse wealth affect kicks in. The Economist roundup linked in the article does a good job of describing it. Basically, lower stock prices, declining home prices and higher taxes will result in wealthy people "waiting it out" on spending of luxury items.
As for the economy, unemployment, etc. - rich are insulated from some of the broader issues but not all. Banks are laying people off, hedge funds are not killing it this year, small business owners (the middle rich) are struggling... It doesn't take an economic meltdown for these stocks to take a major hit - just a rapid slowing in sales on the margin.
BOFI: 6 Reasons to Buy the Future Costco of Banking [View article]
Hester - It is true that BOFI's deposit base is not as sticky as WFC's but that doesn't mean it can't grow dramatically fast with large profits. BOFI is prudently gathering time deposits to mitigate some of the "unstickiness".
The reality is that the banking sector has been ripe for disruption and we are closer to cheaper banking than ever (online banking, online deposit, online bill pay, fewer checks, debit card use exploding). Comparing BOFI to other online banks is not a bad idea - if we had more data. I can offer you the chart I referenced for ING Direct. They were able to grow their deposits by BILLIONS each year - shouldn't those deposits be equally "unsticky" as BOFI's?
BOFI: 6 Reasons to Buy the Future Costco of Banking [View article]
Thanks for the comments. Apologies that I did not get it published before the earnings release. My fault and then compounded by some editorial snafus.
Regardless, the stock is still a good buy in the 14s and 15s, but watch the volatility since it is a thinly traded stock. It may see 13s again if the market resumes its decline.
I had a couple of charts of BOFI and ING Direct deposit growth that didn't seem to make it through Seeking Alpha's editors. I will post those to my blog and put a link here.
Glad to see you are still bullish! I referenced your valuation (and PCLN's) in my recent Seeking Alpha post. I agree with your assessment of the underlying value of Tripadvisor.
I noticed that you have a higher long term revenue margin for Priceline than you do for Expedia. (2017 for PCLN: 28% vs. 22% for EXPE). I realize that PCLN has a higher margin right now but you would expect that margin to come down (or EXPE's to rise) unless PCLN has some sort of long term structural strategic advantage over Expedia. Using your model, if you reset PCLN's 2017 revenue margin to 22% - the same as EXPE - you get a significantly lower stock valuation for PCLN. Similarly, you have average ADRs rising significantly faster for PCLN than for EXPE - setting PCLN's to $7 higher than EXPE in 2017 (their current gap) would be another substantial hit to PCLN's valuation. I would be curious about your thoughts.
7 Reasons Why Netflix Will Soundly Beat Amazon in Online Video [View article]
Sorry for the late reply.
When I referred to critical mass, I described it as video subscription critical mass. In other words a dedicated base of paying users who are paying Netflix to provide these movies (along with the DVD mailers). In Amazon's case - sure, they have more customers but not customers who are explicitly paying for this service. They won't aggressively invest in content unless they see an economic return on it. The crux of my argument is that Amazon will be a rational actor here and only pay as much as is needed to bolster the Amazon Prime value proposition and goose membership. Once they start to see marginal returns on further video investment - they will stop bidding. Netflix has a much higher threshold of pain on this point - they NEED to content to survive.
As for other players with critical mass - all the critical mass they have now is dedicated to their current products and profits - they will all behave the way Amazon will.
7 Reasons Why Netflix Will Soundly Beat Amazon in Online Video [View article]
Lots of interesting comments. Thanks for the feedback!
Some additional thoughts and clarifications:
* NFLX largest studio customer? Clearly not! - as many have pointed out. On the disc side, Walmart and possibly Best Buy are likely bigger. Cable channels and cable distributors pay gobsmacking amounts for all sorts of content access. Most of the content is "pass through" - meaning that over time the customer determines what Walmart and Cable companies buy - either through what they buy and watch. Netflix happens to be a flexible buyer of library content with growing piles of cash to throw around to studios. Netflix doesn't need all the worlds content, but rather enough to keep its customers from defecting. They will likely cycle through the studios and offer their customers new content every year or so. Their massive streaming growth shows that they have been doing a solid job to date. Sadly for them, they will need to up the ante to procure exclusive or high quality content for their users. The same is true for Amazon however.
* NFLX - is it a buy or sell? I didn't comment too much on profitability or valuation. I may write a second article on that score. My article was focused on whether Amazon would beat or stop Netflix. I concluded that Netflix will continue to grow at a slower rate. Amazon will grow in this area too, but it is purely a loss leader for Prime and the rest of their business. Amazon is likely to do enough to achieve its conversion and profitably goals for Prime and not much more. In summary, Amazon's entry is a net positive for Amazon's stock and a certain negative for Netflix's stock.
* Amazon will improve their service and will take some market share, but this market is growing fast (the death of the video store is helping!) and Netflix will continue to maintain a massive market share. The old adage of needing to be 10x better than then previous solution is an exaggeration, but I don't see Amazon even reaching parity in terms of product quality.
* Netflix's product is much easier to navigate and understand than Amazon. Look at Amazon's page - on free streaming pages, it has three options - Stream for Free, Rent and Buy. Ugh.
* Content costs are rising - this is a given. Netflix and its competitors will have to pay more to get the good stuff.
The Bubble Is Back: Will Demand Media Go Below $10? [View article]
Thanks for the additional details about DMD's business. I agree that they have some good assets and have executed well. I realize the bubble talk may be premature, but I think we are in the process of an inflating one right now (from seed funding to Groupon & Facebook all the way to BIDU, CRM). During the inflation phase, there is always a core truth that everyone points to about how great these companies are.
To respond to some of your comments:
1) First, Ebitda measures for a company like DMD can be quite misleading - they are capitalizing some of their basic costs (like content creation). This is a real expense, without it they would not have a lot of their traffic! In addition, assuming their Ebitda was truly reflective of cash flow -- 38x Ebitda is, IMO, quite bubbly. If you look at some of the other reasonably valued tech leaders - Yahoo is at 12, GOOG at 13.6, EBAY at 12, AAPL at 12.5, HPQ at 6.3, RIMM at 5.4. These are not loser companies. Admittedly, DMD has been growing rapidly but there is tremendous risk to their business that investors are not being compensated for with a lower valuation.
2) NYT may be one of the closer comps around given that they own About.com. About has 20% more traffic than ehow siteanalytics.compete..../ Plus, the NYTimes brand and product are quite enduring - DMD's assets are not the same caliber.
3, 4, 5, 6) Yes, domain ownership, intel, etc are valuable and DMD's valuation takes that into account and then some. DMD is not the only registrar or domain monetization company out there and they do not have that part of the marketplace locked up. MCHX is a great comp in this regard - Marchex was the DMD of its day. Personally I think MCHX is overvalued at these prices too! I don't really see how these assets are really worth anywhere close to DMD's valuation.
BlackBerry: How Can Returns Possibly Exceed Sales [View article]
I interpreted his article as the current returns run rate are exceeding current sales run rate. So after a burst of sales, people are now buying fewer and returning more than they are being bought...
7 Reasons Why Netflix Will Soundly Beat Amazon in Online Video [View article]
http://k.berk.tv/oiHHzP
The Spell Is Broken For Veeco Instruments [View article]
Clearly there are macro headwinds for this company, but the valuation seems to reflect that at this point. They have $14+ a share in cash on their balance sheet - more half of their market cap.
7 Overvalued Luxury Stocks To Sell Or Short [View article]
Recent Amex data supporting a bearish luxury goods position - http://j.mp/o1xZO7
You can follow me at: http://bit.ly/oPo1hx
7 Overvalued Luxury Stocks To Sell Or Short [View article]
Article on Yahoo Finance: k.berk.tv/qnGR4g
7 Overvalued Luxury Stocks To Sell Or Short [View article]
The market has rewarded these stocks for the rebound in luxury goods spending. My contention is that sales at these companies will slow dramatically and perhaps contract as the reverse wealth affect kicks in. The Economist roundup linked in the article does a good job of describing it. Basically, lower stock prices, declining home prices and higher taxes will result in wealthy people "waiting it out" on spending of luxury items.
As for the economy, unemployment, etc. - rich are insulated from some of the broader issues but not all. Banks are laying people off, hedge funds are not killing it this year, small business owners (the middle rich) are struggling... It doesn't take an economic meltdown for these stocks to take a major hit - just a rapid slowing in sales on the margin.
See today's headline on Bloomberg:
www.bloomberg.com/news...
If you made it this far down the article, don't forget to follow me on twitter:
twitter.com/#!/kevinberk
BOFI: 6 Reasons to Buy the Future Costco of Banking [View article]
The reality is that the banking sector has been ripe for disruption and we are closer to cheaper banking than ever (online banking, online deposit, online bill pay, fewer checks, debit card use exploding). Comparing BOFI to other online banks is not a bad idea - if we had more data. I can offer you the chart I referenced for ING Direct. They were able to grow their deposits by BILLIONS each year - shouldn't those deposits be equally "unsticky" as BOFI's?
Chart here: berksurehasaway.com/20.../
BOFI: 6 Reasons to Buy the Future Costco of Banking [View article]
berksurehasaway.com/20.../
BOFI: 6 Reasons to Buy the Future Costco of Banking [View article]
Regardless, the stock is still a good buy in the 14s and 15s, but watch the volatility since it is a thinly traded stock. It may see 13s again if the market resumes its decline.
I had a couple of charts of BOFI and ING Direct deposit growth that didn't seem to make it through Seeking Alpha's editors. I will post those to my blog and put a link here.
Expedia: Still a $29 Stock? [View article]
My post: seekingalpha.com/artic...
I noticed that you have a higher long term revenue margin for Priceline than you do for Expedia. (2017 for PCLN: 28% vs. 22% for EXPE). I realize that PCLN has a higher margin right now but you would expect that margin to come down (or EXPE's to rise) unless PCLN has some sort of long term structural strategic advantage over Expedia. Using your model, if you reset PCLN's 2017 revenue margin to 22% - the same as EXPE - you get a significantly lower stock valuation for PCLN. Similarly, you have average ADRs rising significantly faster for PCLN than for EXPE - setting PCLN's to $7 higher than EXPE in 2017 (their current gap) would be another substantial hit to PCLN's valuation. I would be curious about your thoughts.
7 Reasons Why Netflix Will Soundly Beat Amazon in Online Video [View article]
When I referred to critical mass, I described it as video subscription critical mass. In other words a dedicated base of paying users who are paying Netflix to provide these movies (along with the DVD mailers). In Amazon's case - sure, they have more customers but not customers who are explicitly paying for this service. They won't aggressively invest in content unless they see an economic return on it. The crux of my argument is that Amazon will be a rational actor here and only pay as much as is needed to bolster the Amazon Prime value proposition and goose membership. Once they start to see marginal returns on further video investment - they will stop bidding. Netflix has a much higher threshold of pain on this point - they NEED to content to survive.
As for other players with critical mass - all the critical mass they have now is dedicated to their current products and profits - they will all behave the way Amazon will.
A Contrarian Pair Trade: Priceline and Expedia [View article]
Bulldogazc - It was written on March 1st using March 1st closing prices.
7 Reasons Why Netflix Will Soundly Beat Amazon in Online Video [View article]
Some additional thoughts and clarifications:
* NFLX largest studio customer? Clearly not! - as many have pointed out. On the disc side, Walmart and possibly Best Buy are likely bigger. Cable channels and cable distributors pay gobsmacking amounts for all sorts of content access. Most of the content is "pass through" - meaning that over time the customer determines what Walmart and Cable companies buy - either through what they buy and watch. Netflix happens to be a flexible buyer of library content with growing piles of cash to throw around to studios. Netflix doesn't need all the worlds content, but rather enough to keep its customers from defecting. They will likely cycle through the studios and offer their customers new content every year or so. Their massive streaming growth shows that they have been doing a solid job to date. Sadly for them, they will need to up the ante to procure exclusive or high quality content for their users. The same is true for Amazon however.
* NFLX - is it a buy or sell? I didn't comment too much on profitability or valuation. I may write a second article on that score. My article was focused on whether Amazon would beat or stop Netflix. I concluded that Netflix will continue to grow at a slower rate. Amazon will grow in this area too, but it is purely a loss leader for Prime and the rest of their business. Amazon is likely to do enough to achieve its conversion and profitably goals for Prime and not much more. In summary, Amazon's entry is a net positive for Amazon's stock and a certain negative for Netflix's stock.
* Amazon will improve their service and will take some market share, but this market is growing fast (the death of the video store is helping!) and Netflix will continue to maintain a massive market share. The old adage of needing to be 10x better than then previous solution is an exaggeration, but I don't see Amazon even reaching parity in terms of product quality.
* Netflix's product is much easier to navigate and understand than Amazon. Look at Amazon's page - on free streaming pages, it has three options - Stream for Free, Rent and Buy. Ugh.
* Content costs are rising - this is a given. Netflix and its competitors will have to pay more to get the good stuff.
The Bubble Is Back: Will Demand Media Go Below $10? [View article]
To respond to some of your comments:
1) First, Ebitda measures for a company like DMD can be quite misleading - they are capitalizing some of their basic costs (like content creation). This is a real expense, without it they would not have a lot of their traffic! In addition, assuming their Ebitda was truly reflective of cash flow -- 38x Ebitda is, IMO, quite bubbly. If you look at some of the other reasonably valued tech leaders - Yahoo is at 12, GOOG at 13.6, EBAY at 12, AAPL at 12.5, HPQ at 6.3, RIMM at 5.4. These are not loser companies. Admittedly, DMD has been growing rapidly but there is tremendous risk to their business that investors are not being compensated for with a lower valuation.
2) NYT may be one of the closer comps around given that they own About.com. About has 20% more traffic than ehow siteanalytics.compete..../ Plus, the NYTimes brand and product are quite enduring - DMD's assets are not the same caliber.
3, 4, 5, 6) Yes, domain ownership, intel, etc are valuable and DMD's valuation takes that into account and then some. DMD is not the only registrar or domain monetization company out there and they do not have that part of the marketplace locked up. MCHX is a great comp in this regard - Marchex was the DMD of its day. Personally I think MCHX is overvalued at these prices too! I don't really see how these assets are really worth anywhere close to DMD's valuation.
Cisco: Plotting the Next Big Acquisition [View article]