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Richard Windsor CFA
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Radio Free Mobile is a freely available blog that covers the Mobile Handset and handset software space but will also wander into the areas of internet, IPR and the like when relevant. Radio Free Mobile is the land of the one man band. This blog is researched, written, owned, operated and... More
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  • Moto E – Last Of The Line

    Google has deep pockets. Lenovo does not.

    § The Moto E is a triumph for the consumer offering more smartphone than ever for the dollar.

    § However, it is likely to be a financial disaster for Lenovo which, after taking on Motorola, will be just $100m above break-even at the group level.

    § In contrast, Motorola's thumping $200m loss in Q1 14A negatively impacted Google's EBIT by just 4%.

    § Hence, I think that the Moto E and the Moto G it will be the last of these types of devices.

    § I suspect that Google loses money every time a Moto G or a Moto E ships and this is something that Lenovo cannot afford to do.

    § The Moto E and the Moto G are clearly aimed at getting more capable internet devices into the hands of low end users.

    § The objective here is to drive internet use through the Google ecosystem which Google can then monetise.

    § This is how Google can justify losing significant sums on the hardware as it hopes it will more than earn it back through growth in mobile advertising revenues.

    § However, Lenovo has no ecosystem and can only make money on the hardware itself.

    § Hence products that are highly specified, but sell at really cheap prices to drive penetration, are likely to be swiftly killed off once Lenovo takes over.

    § That is unless someone compensates it to make these sorts of devices and here Lenovo could end up a member of Google's Silver program.

    § This is a program where Google pays handset makers to make a device and I can see Google compensating Lenovo if it wants to see the Moto G and E line continuing.

    § This device is bad news for the other Android makers as it will accelerate the race to the bottom and ensure that Android continues to commoditise at a breakneck pace.

    § Consequently, I remain pretty cautious on the handset industry this year as growth is slowing and competition heating up.

    § I prefer to look for growth and profit in the ecosystem where Yahoo!, Google and Microsoft are my favoured plays.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: GOOG
    May 14 2:08 AM | Link | Comment!
  • Snapchat – Reality Check - Snapchat Is Valued At $500m Not $2bn-$3bn

    Snapchat is valued at $500m not $2bn-$3bn

    A look at the regulatory filing strongly suggests that the current valuation of Snapchat is $500m not the $2bn-$3bn that is being thrown around. The event of raising capital at Snapchat has led to an updated certificate of incorporation being filed. Snapchat is affecting a series C round and is issuing 1.6m shares at $34.09.

    Looking through the filing other facts are apparent. Firstly, that the company is authorised to issue 98.07m shares of which 60.0m are common equity. Secondly, that the company has carried out three rounds to date: a series A preferred, series A1 and a series B.

    I am making two assumptions:

    First: That these three rounds represent all of the equity issued to date.

    Second: That there are no options in issue. This is a big one and could lift my estimate of the share count by 20% easily.

    Taking all of these facts together it is easy to see how people get confused. Commentators have taken the series C round price of $34.09 and multiplied it by the total number of shares that the company is authorised to issue. This gives $3bn for all the authorised shares and $2bn for just the common equity. The key here is that authorised shares are not necessarily the number of shares that have been issued. A company must seek permission from the shareholders to issue shares (the authorised share count) before actually issuing them. They are not part of the capital of the company until they have actually been issued and paid for.

    Hence the value of Snapchat is in fact the price per share of series C ($34.09) multiplied by the number of shares that have been issued. When one maps out the four rounds of fund raising, the numbers start to make sense. (see here for more details). By my count shares in issue are 14,696,232 pre series C and 16,296,232 after series C. This gives a pre money valuation of $500m and a post money valuation of $555m. This is a much more reasonable valuation and is much closer to my own valuation of Snapchat of around $300m.

    I suspect that the series C will also put an end to rumours of acquisition as the company should have enough money to begin the critical task of monetisation. By my reckoning Coatue Management will end up with a 9.8% stake in Snapchat. To see a return on this investment Snapchat will need to start showing some revenues as a $300m valuation for a company with 60m users (Q4 13E) and no revenues is pretty generous.

    This is a far more rational valuation and one that throws the valuation of other social names like Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) under a much harsher spotlight.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: FB, TWTR, ipo-analysis
    Dec 12 2:43 PM | Link | Comment!
  • Broadcast TV – Sword Of Damocles

    If broadcast TV is smart, it will do a deal with Netflix.

    Netflix (NASDAQ:NFLX) is on a similar path that Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and others found themselves on some time ago and where they failed, Netflix might just succeed. Netflix is trying to convince the broadcasters to put its application onto their hardware and thereby massively increase its reach. With the right terms this could be beneficial for both the broadcasters and Netflix. Netflix because it would massively accelerate its reach and broadcasters because it will secure them a future as the world moves to over-the-top television. Less than 10% of US households have actually cut the cord meaning that the market for over-the-top TV remains very small in the grand scheme of things.

    I have no doubt whatsoever that over-the-top is the future, but at the moment the broadcasters still hold all the strings. Almost every TV exec I have ever met is in complete denial when it comes to the ending of the broadcast TV bonanza. For this reason I am fearful that the industry will not see the light until it is too late.

    Netflix and its competitors are going to destroy broadcast because they offer a more convenient way to watch content and because the user only has to pay for what he wants. The one exception is sports, where users will not put up with time-shifted television. Some drama and reality TV shows are attracting a strong social media following and these too may also see some resistance to the move to time-shifted TV.

    All of this aside, right now broadcast still has massive power because of its better than 90% reach in the US market and globally. Its most dangerous adversary is currently, cap in hand, wanting to do a deal and it is now that broadcast will get the best terms. In 10 years time when 30%+ of the US has cut the cord and the numbers are rapidly accelerating, the terms will be much worse. Broadcast has the opportunity to give something away now in order to secure its long-term future.

    It would be wise to take it as the sword of Damocles hangs by a thread.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: NFLX
    Oct 16 3:25 AM | Link | Comment!
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