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Slim Shady  

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  • "I think Netflix (NFLX +4.1%) could be this decade's Amazon," says Whitney Tilson in a Yahoo talk (video). Though Tilson admits to "trimming" his position during Netflix's run-up, he still considers it undervalued relative to other media providers - "They're trading at $400 per subscriber in a world of $1,000 per sub" - and argues its scale gives it a big edge - "Who else is going to spend $3 billion a year for streaming content?" Of course, many of the firms valued at $1,000/sub are getting a lot more than $8/month. Netflix investors seem to be betting the company's library and customer loyalty will allow it to raise prices over time. (U.K. deals[View news story]
    Paying $1,000 per sub for a sub that generates $96 per year of revenue would be equivalent to a valuation of 10.4x revenues. If they could earn a net profit margin of 10% on those revenues on a normalized basis (it was less than 2% last quarter), that is a valuation of over 100x "normalized" earnings. Either Whitney Tilson doesn't understand basic math, or he's just pumping the stock (likely both).
    May 13, 2013. 04:12 PM | 1 Like Like |Link to Comment
  • Intel: No Has Been With Haswell [View article]
    Your "married put" strategy is the same thing as simply buying calls.

    Stock = Long Call + Short Put

    Stock + Long Put = Long Call

    Given Put/Call parity, buying the calls will have the same economic result.
    May 12, 2013. 02:13 PM | 3 Likes Like |Link to Comment
  • When The Music Stops, What Does The End Of Fed Policy Look Like? [View article]
    Thanks David for the historical comparison - only time will tell what the outcome is of this great experiment. The Fed has couched this indefinite Quantitative Easing under the guise of increasing employment, yet the real purpose is to have a buyer to finance the massive deficit spending on the fiscal side. QE Infinity will last until the Federal deficit can be financed on its own. Bernanke is taking the place of the Social Security "Trust Fund", which had previously run surpluses and was able to absorb significant amounts of debt supply. Apparently, the Fed believes that when the unemployment rate gets to 6.5%, the deficit will be small enough to be able to be financed. In the 12 months ended March 2013, the deficit was $911 billion, about $76 billion per month. Conveniently, the Fed is purchasing $85 billion a month in debt.
    May 9, 2013. 11:25 AM | Likes Like |Link to Comment
  • Why We Bought Microsoft: Because 2013 Should Determine Whether Ballmer Stays Or Goes [View article]
    From your website:
    "Helix Investment Research was founded in July 2011 by Ivan Deryugin, who is currently attending Vanderbilt University, majoring in economics & political science, with a minor in corporate startegy."

    So how old were you when Ballmer took over Microsoft 13 years ago? After you have 13 years of experience at anything in this lifetime you may have a better perspective to be able to distinguish between those things that you can control (operating results) from those things you cannot (stock price).
    May 9, 2013. 08:03 AM | 3 Likes Like |Link to Comment
  • Why We Bought Microsoft: Because 2013 Should Determine Whether Ballmer Stays Or Goes [View article]
    I'm not going to defend everything Ballmer has done in his tenure or his management style, but there are few companies out there that have had the level of performance of Microsoft since the beginning of 2000. Under Ballmer for the last 11 complete fiscal years, revenues have grown 11% per year, profits 12%, EPS has increased 13%, the share count from FY 2001 to FY 2012 has decreased by 25%, paid over $70 bln of dividends, while net cash is up $14 Bln. This record was achieved including the failings of the Online business and other missteps. You highlight his failures, but fail to mention the XBox business was a zero when he took over (introduced Nov 2001) and in FY '11 was a $9 bln revenue business with over $1.3 bln of operating income. In the end, in spite of these objective performance measurements, you blame him for the one thing that is not in his control...the stock price. Should he have not accepted the role of CEO because the enterprise value when he took over was $560 billion when revenues were only $23 bln and the company was valued at 46x FY 2000 EBITDA?

    Perhaps you would like to post your performance record since the beginning of 2000 for scrutiny?
    May 8, 2013. 07:36 PM | 10 Likes Like |Link to Comment
  • Shame On You, Apple [View article]
    "Don't hate the playa, hate the game." Ice-T.
    May 1, 2013. 01:41 PM | 6 Likes Like |Link to Comment
  • Why Netflix Is Not Overvalued [View article]
    Your math is wrong. If they increase price by 25% ($2 per month on an $8 per month subscription) but lose 20% of their customers doing it, the net effect on revenue is zero.

    25% * ( x *(1-20%)) - 100% * (x * 20%) = (x * 20%) - (x *20%) = 0
    Apr 24, 2013. 07:58 AM | 4 Likes Like |Link to Comment
  • Rentech Announces Share Repurchase - More To Come? [View article]
    "RNF has a float of 15.54 million shares, so the total 2013 distribution should be 15.54 x $260 = $40.4 million. RTK's share should be 0.61 x $40.4 = $24.65"

    The float number excludes the shares of RNF that RTK owns. If you look in the RTK 10-K, they own 59.9% of the limited partners units of RNF. From the RNF 10-K, they have 38.839mm units outstanding. So RTK owns 59.9% x 38.839mm units = 23.26 mm units. At $2.60 of distribution, this is $60.5 mm per year, not $24.65. There could be significantly more buybacks going forward if they decide to not use the cash for acquisitions.

    The value of RNF shares owned by RTK is currently around $900 mm, whereas RTK has an equity cap of around $500mm and has net cash on its balance sheet. RTK can use the cash generated by RNF to essentially purchase shares in RNF by buying back their own stock at practically $0.50 on the dollar.
    Apr 22, 2013. 10:48 AM | 2 Likes Like |Link to Comment
  • Can Microsoft Fix Its Strategic Mistake With The Surface Pro? [View article]
    Surface Pro with Keyboard with 128GB = $999 +$129 = $1,128

    MacBook Air 11.6" with 128GB at Best Buy = $ 1,035
    New iPad with 64GB at Best Buy = $ 699
    Total for comparable Apple Products = $ 1,734

    Try running MS Office on your iPad or connecting to your work environment. Surface Pro is priced $606 less and you end up with one product instead of two.
    Feb 11, 2013. 01:44 PM | 4 Likes Like |Link to Comment
  • Dell LBO Deal Structure - Like Buying A Rental House With Cashback And No Money Down [View article]
    Lucas - Section 5.1 (b) (iv) of the merger agreement indicates they will continue to pay quarterly cash dividends of $0.08 per Share
    Feb 7, 2013. 11:34 AM | 1 Like Like |Link to Comment
  • Dell Is Worth At Least $15.95 [View article]
    Nice analysis. A few comments. They should generate approximately $1.3 billion of cash flow in the 4th quarter ending 1/31/13, which is $0.75 per share of additional value, which would take your price up to $16.70. They have stated that substantially all of the cash is overseas, which if all repatriated and at the highest tax rate of 35% (which is unlikely as I believe they would get a tax break for taxes paid overseas), that would be $5.4 billion on the estimated year end cash balance or $3.11 per share, getting back down to $13.59. Your 5 multiple implies a 20% cash return for the buyers assuming that the cash flows remain constant going forward in the future, which is the big assumption that you have to make in the case of DELL. The fact that Michael Dell is willing to do this type of transaction at this time likely signals that the acquisition spree of the last 5 years is over with or without a deal (and that the head of M&A is now at Blackstone), otherwise they wouldn't want to give up having a currency or financial flexibility to pursue larger acquisitions in the future.
    Jan 23, 2013. 08:34 AM | Likes Like |Link to Comment
  • Intel Q4 A Mixed Bag: Misses Estimates With $0.48 EPS, But Nails Street's Revenue Consensus [View article]
    Bloomberg has an "EPS Adjusted" estimate of $0.49 - which Intel reported $0.51 of non-GAAP EPS excluding the amortization of acquisition related intangibles. The GAAP number was $0.48 per share, beating the "EPS GAAP+" estimate on Bloomberg of $0.45. Either way, they beat on EPS for the quarter.
    Jan 17, 2013. 05:11 PM | 1 Like Like |Link to Comment
  • Morgan Stanley Upgrade Of Amazon Ridiculous At Every Level [View article]
    NIce work Tim in fleshing out the facts that Morgan Stanley conveniently ignores in return for its portion of the $9.5 million total underwriting fees for the group on the debt offering. Given AMZN's strategy of losing more and more money to attempt to bolster it's waning growth, there will be more fees from debt offerings and fees to come in the future. Brace yourself for the nonsense to come from Heather Bellini at Goldman Sachs, who currently has a buy rating and a $280 price target, based on 25x their non-GAAP EBITDA in 2013 of $5.74 bln. My prediction to what she'll say: rolling her valuation to 2014 numbers of $100 bln of revenues (27% growth), magically expanding non-GAAP EBITDA margins (which excludes $1.5 bln of expense for shares given to employees for compensation rather than cash), apply the mystical 25x EV multiple to said non-GAAP EBITDA, assume shares don't increase even though you are giving away 6 million shares a year as compensation, and derive a price target of $450/share. If Heather won't do it, maybe Goldman could hire me to publish it, in return for a percentage of the next deal fees.
    Jan 8, 2013. 06:54 PM | 3 Likes Like |Link to Comment
  • Cisco: Everything Is Priced In [View article]
    Even using 14%, with no growth gets you $74 bln of value plus $28.7 bln of net cash, or a total value of $19.28, not $17.20 (which includes growth). Something is still off.
    Dec 13, 2012. 07:35 PM | Likes Like |Link to Comment
  • Cisco: Everything Is Priced In [View article]
    Shrideep, it seems like there is something amiss in your calculation. Even with no future growth and a 10% discount rate, with $10.365 bln of current free cash flow would provide an enterprise value of $103.65 bln. With net cash of $28.673 bln or $5.38/sh as of 10/31/12, this would yield an equity value of $24.80, well above your "most optimistic" price of $17.20. What am I missing?
    Dec 13, 2012. 02:17 PM | 1 Like Like |Link to Comment