Seeking Alpha

Suman Chatterjee's  Instablog

Suman Chatterjee
Send Message
Financial analyst-writer for the last 3 years. Writes for a number of financial publications including The Street, Motley Fool and Seeking Alpha. Completed his Bachelors in Business Administration (Finance) with GPA 3.0, currently pursuing Chartered Accountancy from ICAI, India. Specializes in... More
My blog:
View Suman Chatterjee's Instablogs on:
  • Facebook - I'm With Mark Zuckerberg, Are You?

    If you ask me, I probably spend over a few hours on that website, but survey statistics say, an average user spends around twenty minutes daily per visit on Facebook (NASDAQ:FB). That counts for something for a social networking company, don't you think?

    Since Facebook's filing for IPO on February 1, 2012, the company has been through a lot of speculation and needless to say, the stock price has seen some severe ups and downs in these last few months. On May 18, the stock's first day close was at $38.23. It dropped to a low of $17.73 by September, a fall of whopping 53.34%! Since then, the price has recovered by over 57.5% and it is currently trading at $26.81 (at the time of writing this article). Don't go by the percentage numbers since they can be deceiving, but looking at the upward momentum, one has to wonder whether this is a strong trend or not.

    Let's look at the technical aspects of the stock first.

    (click to enlarge)

    Looking at the chart above, the RSI signal is still under 70, which means the stock is not yet overbought but it doesn't have much room to go up as well.

    But let's look at it from another point of view. Facebook's price-to-book ratio is 13.76, in comparison with SINA Corp's (NASDAQ:SINA) 2.81, LinkedIn's (NYSE:LNKD) 18.29 and MeetMe's (NASDAQ:MEET) 1.32.

    However, it is noteworthy that SINA Corp primarily serves Chinese communities, mostly based in China, where Facebook is blocked by the government. 50% of MeetMe visitors are from mobile phones' games and apps. What about the people who use laptops or PCs? In short, although these two companies serve the same purpose as Facebook does, Mr.Zuckerberg plays in a far wider and much deeper field than these two companies. Nevertheless the sheer scale of operation might restrict competition from growing further, and justify further increase in the price-to-book ratio.

    Although LinkedIn has a separate niche of visitors, what if Facebook slowly grabs a share of that over time? That will definitely see a certain points shifting from LinkedIn to Facebook, ultimately showing in the stock price premium.

    Since November, the Japanese candlesticks show longer upper shadows, indicating strong buying pressure (even when the close is lower than open). Otherwise, the closes are mostly higher than the opens, along with long bodies (long body = difference between open and close), which conveys even stronger buying pressure.

    The MACD signals are also pretty much aiming at a strong upward trend, with three signal crossovers in the last three months. Seems like people are taking more and more interest in Facebook by the day!

    To sum it up, Facebook's price can certainly go up, depending on the future business of the company. Remember, with one billion registered users and 845 million monthly active users, Facebook possesses a LOT of potential for making sweet money.

    Let's look at the fundamental aspects of Facebook

    Facebook's steady rise to one billion members by October this year had already been apprehended much before. Looking at the graph below, you can say that the one-billion mark was expected to be reached by August this year, if the growth line had followed the linear progression pattern.

    (click to enlarge)

    Now, the question is whether the growth rate will sustain in the future or not. Many analysts think that it might not be possible for Facebook to keep on adding users at the present rate. Yet others think that growth rate is immaterial unless the conversion rate is focused upon.

    If you are worried about the user growth rate, here's something you need to see.

    Last six months

    Country

    % Change of User Nos.

    United States

    5.99%

    India

    21.19%

    Brazil

    21.38%

    Indonesia

    15.64%

    Mexico

    14.81%

    Thailand

    18.30%

    Japan

    41.02%

    Vietnam

    49.47%

    South Korea

    25.29%

    Nigeria

    28.77%

    South Africa

    25.50%

    Ecuador

    13.10%

    Morocco

    14.41%

    Bangladesh

    13.55%

    While the craze about Facebook has mellowed in the United States, things are really picking up in eastern Asia and Africa. We must remember that China with its 1.34 billion population is still blocked to Facebook. Once it opens up, it can get really interesting for Mark Zuckerberg who is already aiming at achieving the 2-billion users mark.

    Another interesting thing to note is that the penetration rate is around or below 5% in India, Pakistan, Bangladesh, Nigeria and many more countries, which says that there is still a lot more business potential yet to be achieved in these regions.

    Now, the question is whether the company is being able to utilize the huge user list into money or not. Here's a graph that might interest you.

    (click to enlarge)

    Referring the image above, it can be said that Mark Zuckerberg definitely knows what he is doing. It seems not only does he know how to increase the number of registered users but also how to extract money from that list. And with the current upward momentum in Africa and Asia, I don't think this is going to slow down soon.

    Now, let's take a look at the comparative stats about the company.

    Company

    Metrics Used

     

    Price-to-Book Ratio

    Return on Average Assets

    Operating Margin

    Facebook

    14.09

    21.46%

    47.32%

     

    Renren Inc. (NYSE:RENN)

    1

    4.58%

    -25.66%

     

    MeetMe

    1.31

    -20.71%

    -102.68%

     

    LinkedIn

    18.18

    2.14%

    4.95%

     

    SINA Corp

    2.79

    -19.98%

    -6.97%

     

    Google (NASDAQ:GOOG)

    3.93

    14.93%

    30.69%

     

    It needs no clarification that Facebook does seem to be in a stronger position than most of the companies who do business in more or less the same niche.

    About Zynga and Facebook Partnership Breakup

    Let's talk about the recent severance of Facebook-Zynga partnership. In all honesty, I am not worried about it. Although 12% of Facebook's 2011 annual income depended on Zynga, it is Facebook that brought Zynga (NASDAQ:ZNGA) into the business and yes, although the 20-year olds spend a whole lot of time gaming on Facebook, that's not what Facebook is meant for. It's basically a social networking site and it will remain so, without Zynga as well. Remember, if people just wanted to play games on Facebook, they could do the same on any gaming site for that matter.

    Moreover, Facebook is already zooming in on the online gambling segment in UK. As my Alpha colleague, Chris Katje says:

    "Online gambling is a great opportunity for Facebook. The social giant currently offers thousands of games on its network. By offering gambling, it will take a certain percentage of revenue earned by British gambling companies. The revenue diversifies Facebook away from advertising and revenue from Zynga's popular games. Facebook will also be watching the Zynga request with the Nevada Board closely to decide if it should venture into the United States."

    Remember, we are talking about a website (or company) that "has seen:

    1. 1.13 trillion "likes"
    2. 140.3 billion friend connections
    3. 219 billion photos uploaded (265 billion in all if deleted photos are counted)
    4. 17 billion location check-ins
    5. 62.6 million songs played 22 billion times since September 2011" (as noted by Facebook)

    Facebook is one such company that has huge potential to grow, but then again, it operates in one of the most volatile sectors, the IT sector, more specifically the online marketing sector. Let's just wait and watch a bit, shall we?

    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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: Please consult your personal financial adviser before investing in the equity market.

    Dec 17 3:04 PM | Link | Comment!
  • Another Alpha Take On Research In Motion

    One of my fellow Alpha colleagues, Karl Denninger, says:

    "The mantra of the last few days is that Research In Motion's (RIMM) stock is un-investable.

    Well, it may be, but it is certainly tradable -- and the usual Wall Street "mavens" are up to their old tricks. If you pay attention and are quick, you can make some nice Christmas money playing along with them."

    He has gone so far as to use Fibonacci retracement levels to prove his point. But unfortunately, there is a problem with what he said. He used just this month's period as his graph.

    Here's a table that might be interesting to the technical analysts:

    Period: Last six months

    Period: Last one year

    Date

    Price

    Change

    %Change

      

    Price Movement

    Fibonacci Levels

    8 June, 2012

    10.88

      

    High

    18.58

    4.68

    38.20%

    24 Sept., 2012

    6.305

    -4.575

    42.05

    18.58 - 6.305 = 12.275

    6.14

    50%

    26 Nov., 2012

    11.98

    5.675

    90

    Low

    6.305

    7.6

    61.80%

    From June to September, the stock increased to $11.98 on 26th November, 2012 (currently trading at 11.60 at the time of writing this article) from $10.88 on 8th June, 2012. Reaching the lowest peak, being at $6.305 on 24th September, 2012, the stock price crossed all 38.2%, 50.0% and 61.8% to trade around $11.60 now. That was what happened in the last six months.

    Now, let's take a look at the previous one year period.

    The highest peak was at $18.58 on 1st December, 2011, and the lowest was at $6.305, as mentioned above. If we look at the current price movement and the right hand side of the table, we can say that the stock price has already crossed the 38.2% and is already reaching the 50% resistance limit.

    In accordance with that, here's an excerpt from an article:

    "Goldman Sachs analysts improved their rating from Neutral to Buy because they said they see a positive risk / reward as we get closer to the launch of the BB10 at the end of January. They said this is the first time in three years that they think Wall Street is too low on its out-year estimates for the stock. Analysts at the firm are estimating a 30 percent chance of success for the BB10 because of attractive features, positive reviews, broad-based carrier support, and consumer interest in looking at phones other than the Android handsets and the iPhone. Goldman Sachs is lifting its 12-month price target to $16 from $9."

    There are two concerns here.

    1. Will the price reach the $16 target and/or go beyond?
    2. Will the price sustain at that level?

    When it comes to stock prices, it is mostly about market sentiment. And what do you think would the sentiment be like when you hear Blackberry sets blowing up causing fire? That pretty much affects the prospects of Blackberry 10, right?

    Yet Goldman Sachs tells you that price is going to go up, people will believe so, and that sets the market momentum already. Not only Goldman Sachs, there are a handful of others that think the same way.

    For example, with quarterly earnings looming on the horizon, RIM's target price was raised to $12, upfrom $9.50 at TD Securities as well. As per news, the price has gone down by about 32% during the past year, but that hasn't fazed short-term bulls. The stock's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.60, with calls nearly doubling puts among options scheduled to expire in the next 3 months. This ratio hovers just seven percentage points from an annual low, confirming near-term traders have rarely been more call-heavy (or read it, interested to buy) toward RIM during the last 12 months.

    Let's take a look at the following stock chart.

    (click to enlarge)

    For the last six months, the RSI signal is already confirming the "oversold" status of the stock and interestingly, it is still oversold. Needless to say, with passage of time and some good news here and there, the stock price will probably move up a few notches.

    This is already confirmed by RIM's price-to-book ratio of 0.59, compared to Apple's (NASDAQ:AAPL) 4.68, Nokia's (NYSE:NOK) 0.81 and Ericsson's (NASDAQ:ERIC) 1.41. Why did I take price-to-book ratio? It is "the" ratio that has the strongest chances of recovering to at least 1, even in times of liquidation. P/E ratio can be manipulated and gives only a brief snapshot of the present market value of the company.

    In the last month of November, if you look at the candlesticks, you will see "mostly higher closes", and even when there's too much selling pressure, it is being followed with dojis. This leads me to believe that when it comes to negative view about the stock, the market is still not decided.

    With this in mind, we still have to note that the smartphone has lot of room in it, though Apple seems to dominate it with the upcoming iPhone 5 at the moment.

    According to trailing figures, Strategy Analytics said there were over 700 million smartphones on the global market during the third quarter of 2011, but noticed a massive rise to 959 million in the second quarter of 2012. In the current quarter, the research firm believes that number could rise to 1 billion (or 1.038 billion, to be exact). And it would probably be "achieved in less than three years, by 2015."

    But if we are to topple Apple from the top spot, we have to have what the champion has, and what makes Apple "app-le"? You got it. The apps.

    And here's the good news. Research in Motion has been working hard to get around 70,000 ultra-cool and new-age consumer and enterprise apps ready on the launch date of the device in the end of January or beginning of February next year.

    "We have done almost a 180 with the developer community. Historically, we weren't the easiest platform to develop for. Our tools were proprietary, not easy to learn, and we weren't very upfront with developers in terms of the support they needed and the things they needed to look out for," Vishal Bhardwaj, RIM software head, admitted to FierceMobileIT.

    "With BlackBerry 10, we have given them hardware upfront. The developer environment is open ... and there are common tools that are not created in any way that would prohibit developers from learning them quickly," Bhardwaj said.

    It must also be remembered that BB is what professionals depend on. This is from personal experience that many companies still provide employees with Blackberry's since email and instant messaging is what is required the most, not to mention about the solid battery backup. Not to mention the fact that in a Checkpoint study in January this year, Blackberry ranked second choice of professionals in some of the busiest industrial nations in the world.

    (click to enlarge)

    You can probably say that BB is currently the LinkedIn of the smartphone market while iPhones or Android phones are the likes of Facebook (NASDAQ:FB).

    As my fellow Alpha colleague says:

    "RIM has a loyal base of over 80 million subscribers, with a large chunk of those patiently awaiting an upgrade to the new BB10 OS. This is a point that cannot be discounted. A player like Microsoft (NASDAQ:MSFT)/Nokia entering the segment with the new WP8 has an uphill battle in that it has to steal market share in order to be a relevant player. RIM is already in third position and just needs to build up from there. Remember that RIM was able to add users quarter after quarter without having a competitive phone on the market for the last two years."

    And with the upcoming BB10 to enter the market by the end of January, 2013, things can unravel very fast, with BB picking up a few percentages of the smartphone market. Remember, it is only in the third position according to a recent survey.

    As Piper Jaffray analyst Gene Munster told CNN Money, "Android is still losing 33 per cent of current users to the iPhone." What if that number starts trickling toward BB?

    As per MKM revenue model of RIM, the effect of BB10 will start showing around 4QF13, when a target of 8.3 million unit sales at $239 is expected. That alone takes expected revenue to $1.98 billion, without even factoring in the other items in the product mix. The calculated projection of over 33 million unit sales (8.3 million unit sales per quarter) sure makes for an interesting FY2014.

    (click to enlarge)

    To sum it up, I think it is much better to wait and watch till the 4QFY13 at the moment. Don't discount as long as it counts.

    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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: Investing is subject to market risks. Please consult your personal financial adviser before taking any decision.

    Dec 14 2:20 PM | Link | Comment!
  • Will The New CEO Bring Sunshine To Best Buy?

    Best Buy Co., Inc. (NYSE:BBY), one of the most reputed multinational retailer when it comes to consumer electronics, computing and mobile phone products, entertainment products, appliances and related services, has been going through tough time lately.

    In March, Brian Dunn, CEO and a 26 year old veteran with the company, resigned due to sexual scandal with a younger employee. Though it might have already been time, and this might have just been the right reason to severe the relationship, Brian Dunn still knew the business.

    In June, Best Buy founder Robert Schulze resigned from the Board and Chairmanship. Although it would nice to know that the person who took charge, Hatim A. Tyabji, has superior experience in the online marketing niche. And that's what Best Buy needs right now, guidance through the online world.

    Things are not really going well with Best Buy.

    …And it just announced the hiring of the French business turnaround expert, Hubert Joly, the former head of hospitality and travel company Carlson, as the new CEO on last Monday.

    Is this a smart move for the company?

    "He is a little bit older, a little bit more seasoned," said BB&T Capital Markets analyst Anthony Chukumba. "I think this is a home run for Best Buy."

    Joly, 53 years old, may not have any prior experience with retail, but he definitely has shown mettle in kick starting sagging businesses in the media, technology and services sector.

    He drove the turnaround of EDS - now part of Hewlett Packard Co (NYSE:HPQ) - in France from 1996 to 1999. He also led the restructuring and growth of Vivendi's video game business - now part of Activision Blizzard Inc. (NASDAQ:ATVI) - from 1999 to 2001. Vivendi's business at the time faced pressure from a changing marketplace, just as Best Buy's business is currently experiencing. In Vivendi's case, it overcame some obstacles by successfully tapping into the growth of online gaming. Joly's experience with Vivendi "potentially provides him with the necessary tool set to begin a turnaround at Best Buy," RBC Capital Markets analyst Scot Ciccarelli said. Moreover, his four years stint at the Ralph Lauren might be of help at this time.

    Joly said in a statement that he planned to pursue growth opportunities for Best Buy, both online and offline, through "competitive prices, superior service, new growth engines and innovations." The company said it had a new focus on services, highlighted by newly established relationships with Target (NYSE:TGT), Verizon (NYSE:VZ) and AARP.

    Will he be able to turn the business? Well, the investors certainly don't think so, with the price fall just after the decision.

    And sure they shouldn't be. If the company couldn't improve its operations under the charge of the 26-year veteran in the industry, Brian Dunn, then can it make any improvement with Joly?

    What about Brian Dunn?

    Mr. Dunn began his career with Best Buy as a store associate in 1985 when it operated only a handful of stores. From 2006 until being named to his current position, Mr. Dunn served as President and Chief Operating Officer. From 2004 to 2006, Mr. Dunn was President - Retail, North America. From 2002 to 2004, he served as Executive Vice President - Best Buy U.S. Retail. Prior to that, he served as Senior Vice President, Regional Vice President, Regional Manager, District Manager and Store Manager. During his time with Best Buy, Mr. Dunn has made significant contributions to our market share growth, employee retention, vendor relationships and customer satisfaction scores. Mr. Dunn also serves on the board of The Best Buy Children's Foundation. He previously served on the boards of Dick's Sporting Goods, a full-line sporting goods retailer, and the Greater Twin Cities United Way.

    Needless to say, Brian Dunn had superior experience in the retail industry. So did he do any justice to his experience and push the company through the cloud computing age against the Amazon "underdog"?

    The image below shows your investment of $100 in the company for a full consecutive 5-year financial period.

    So, if you were to invest $100 in Best Buy in 2007, you would get a return of $56.75 in 2012. The stock price fell 58.42% in the last 5 years. Dismal performance, I would say!

    But is it all-bad-no-good under Brian Dunn?

    • Fiscal 2012 included a net loss of $1.2 billion from total operations (including both continuing and discontinued operations), compared to net earnings of $1.3 billion in fiscal 2011. The net loss in fiscal 2012 was primarily due to our decision to buy out of the Best Buy Mobile profit share agreement for $1.3 billion (the "Mobile buy-out"), as well as the resulting $1.2 billion goodwill impairment in our Best Buy Europe reporting unit. Loss per diluted share from total operations was $3.36 in fiscal 2012, compared to earnings per diluted share of $3.08 in fiscal 2011.

    Note by me: So Brian Dunn had "mobile" plans in his mind, I guess. What if the mobile phone companies start their own stores? Best Buy needs to be wiser when taking decisions.

    • Revenue increased 1.9% to $50.7 billion. The increase was driven primarily by the net addition of 235 new stores during fiscal 2012, an extra week of revenue from stores in our Domestic segment and Canada, and the favorable impact of foreign currency exchange rate fluctuations, partially offset by a comparable store sales decline of 1.7%.

    Note by me: More number of stores just means better brand exposure, for any brick-and-mortar retailer. But will the consumer still visit a store when he can shop it online?

    • Our gross profit rate decreased by 0.4% of revenue to 24.8% of revenue. The decrease was driven by a decline in the domestic segment's gross profit rate primarily due to increased promotional activity, an increased sales mix of lower margin products, an increased sales mix of promotional items and horizontal shift from one-time service to ongoing contracts.

    Note by me: And this is due to stiff competition from the other online retailers, primarily Amazon.

    • The company repurchased and retired 54.6 million shares of our common stock at a cost of $1.5 billion during fiscal 2012, even after the $1.3mn buyout.

    Note by me: Analysts thought that share repurchase program might be retracted for the time being after the buyout.

    • We ended fiscal 2012 with $1.2 billion of cash and cash equivalents, compared to $1.1 billion at the end of fiscal 2011. Operating cash flow increased to $3.3 billion in fiscal 2012 compared to fiscal 2011 operating cash flow of $1.2 billion due primarily to changes in working capital, as capital expenditures remained relatively consistent at $766 million in fiscal 2012.

    Note by me: No capital expenditures? What are you doing with the investors' money, apart from sitting on it?

    To be honest, I don't see any good in there. If we look at the amount of cash in hand, the addition and subtraction of stores, the confused and haphazard product mixes, and the mergers, buyouts and acquisitions, it is pretty obvious that the company might be struggling at the moment. The question is when a retail veteran like Brian Dunn seemed to be clueless with Best Buy, can the company get its engine restarted under the leadership of Joly?

    Forbes contributor, Larry Downes writes, "Despite the disappearance of competitors including Circuit City, the company is losing market share. Its last earnings announcement disappointed investors. In 2011, the company's stock has lost 40% of its value. Forward P/E is a mere 6.23 (industry average is 10.20). Its market cap is down to less than $9 billion. Its average analyst rating, according to The Street.com, is a B-."

    But to change all that, you might just need one BIG decision, one big move, that's all. And I am still optimistic about it.

    One of the biggest challenges that stay ahead now is how to cope with the increased online commerce activity. People seem to browse at the Best Buy showrooms and then buy later at a much lower price at Amazon's online store.

    Not only is Amazon's customer service much, much superior to that of Best Buy's, Best Buy needs to understand one most important thing. The world is going online, and people will not even set foot outside the house to shop very soon. You can go on to adding stores here and there, but it should be in conjunction with your online presence.

    Joly said in a statement that he planned to pursue growth opportunities for Best Buy, both online and offline, through "competitive prices, superior service, new growth engines and innovations."

    Nice indeed! Can Joly do it? Let's wait and watch.

    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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: ATVI, HPQ, TGT, VZ, BBY, long-ideas
    Aug 22 8:56 AM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.