AVG: Feb 1st Google Policy Updates Threaten AVG's Growth Engine, Signals Steep Downside [View article]
Interesting article. I don't understand your table though. If hypothetically Yahoo monetized at 100% of Google (no ill effect there) and 95% of users opted in (vs. the assumption that 95% don't opt out today, once again no ill effect there) shouldn't the platform revenue be $195M, or unchanged from the current estimate? The top left corner of your table starts at -31%.
Also, it seems like the company will have to choose between lowering monetization with Yahoo, or adopting Google's new policies, but not both.
Applied Micro: Starting To Look Like A Good Short [View article]
Interesting idea, thanks. One problem with a short like this is that the "put up or shut up time" isn't until probably the 2H of CY 2013 when investors will expect to start seeing actual server revenue. Believe me, AMCC will be talking about design wins, plenty of semi companies do this but it is always hard to tell if they will go into significant production or not.
Do you have any view on when they are likely to disappoint investors with the lack of server revenue?
ServiceNow: Decelerating Growth, Limited Market Size Point To Large Downside [View article]
Good report. It's hard to believe that in these uncertain times when many tech companies are trading at all time lows in valuation NOW built a $4.5B market capitalization on the back of a mere $10M in R&D investment in 2011. This is a software product, it's not like they are doing anything that BMC, HP or any of the other competitors can't match. It's like something out of the dot com bubble.
Amazon Has Discontinued Using Neonode's Technology, Will Others Follow? [View article]
Good article. You'll notice that in NEON's Q1 earnings release, they guided to $15M to $20M in revenue in 2011. This language was no longer in their Q2 earnings release, I'm guessing that since Amazon was a 50% customer losing the Kindle touch means they will come nowhere near the original guidance.
Mellanox Bubble To Burst With Intel Foray Possibly Threatening Existence [View article]
Good analysis. Like APKT and NFLX in their heydays, there is no doubt that at some point MLNX will trade at a lower price in the future, the question is what path it will take. One thing you also might want to pay attention to is also the development of 40G Ethernet. Datacenters would rather use cheap and ubiquitous Ethernet instead of supporting an entirely separate expensive proprietary InfiniBand network, however, current 10G Ethernet does not meet the speed and latency requirements for certain applications. 40G low latency Ethernet, once available, may obviate the need for even 56G and 100G InfiniBand in a lot of applications that are using InfiniBand today. There is a reason that Mellanox has been the only company to aggressively invest in InfiniBand to date, while the datacenter connectivity leaders like Broadcom, Intel, Emulex and Qlogic invest in Ethernet.
Think about it, if the InfiniBand market was really as attractive at MLNX's valuation implies, QLogic would be incredibly stupid to sell their IB business to Intel for $125M, and Emulex and Broadcom would be incredibly stupid to not be developing IB products. MLNX has great engineering but their products could be matched by competitors eventually if they put a mind to it.
VirnetX: Do You Believe In Fairytales? Part 2 [View article]
Most of the comments on here are not worth responding to, but I actually appreciate the one from floydrocks. You contend: "I contend that the only true method of gauging the importance and value of IPRs will be commercial licensing."
Obviously, VHC has a limited history in generating significant commercial licensing revenue. Can you point me to any evidence from a non-interested party (i.e. not a VHC long or an investment bank seeking to trade in VHC) that confirms that their IP position is as significant as you seem to think for 4G wireless? That they have anything resembling a "nuclear warhead"?
Hard Disk Drive Manufacturers Poised To Make A Killing [View article]
Good article. I agree the death of the HDD is greatly exaggerated, what's harder to figure is if we are seeing all-time peak earnings caused by the flood pricing reset or if the industry will act rationally going forward and make sure they are protecting operating margins. I tend to think they will act rationally, but the proof will be in the pudding. STX guided to earning improvements with the upcoming price declines being offset by share repurchases, if they are right shareholders will probably be rewarded.
WWWW: The Case Of The Non-Cash Cash Flow [View article]
Thanks for the feedback. I have spent way too much time thinking about the cash and economic implications of the FVADR, but I more or less agree they are having their cake and eating it too for the deferred revenue they are collecting this year, essentially recognizing the new deferred revenue once up front on a non-GAAP basis and again when they are recognizing it on a GAAP basis.
Speaking of deferred revenue this quarter, it was actually slightly down after the FVADR. Strange if the business is growing 7% organically, but if most of the growth is coming from the month-to-month Web.com side that makes sense.
I always go back to the real free cash flow to equity holders, which I calculate as about $0.48 in the first six months of the year and $1.00 to $1.05 for the whole year if their cash flow improves like the management guided. I understand there will be less restructuring in the back half of the year but it seems like they got a substantial benefit from DR in the first quarter that they will not repeat. But I still think a 6% FCF yield to equity holders does not properly compensate for the risks, especially in light of what else is available in the market.
Maybe if they execute well, keep adding customers and increasing ARPU, cash flow improves in 2013 and there is no recession I lose on this short. If so, more power to them and their shareholders. But a 10 bp increase in the churn from the lows and this thing is no longer gaining customers.
Thanks for the feedback, I honestly appreciate some rational discussion instead of invective. A few points in my defense:
1. As an above poster pointed out, given the relatively small revenue streams of Aastra USA and even Mitel in the United States I think their royalties will be trivial relative to a $2B or even $1B market cap. Aastra's U.S. revenue is roughly $86M and Mitel's is around $380M, so even a 1-2% annual royalty does not mean much relative to VHC's market cap.
2. There are now only 5 defendants after Aastra and Mitel have settled out, and the U.S. enterprise communications businesses of NEC, Siemens and Avaya are quite a bit smaller than Microsoft, Apple and Cisco so I doubt the settlements would approach the same ballpark.
3. I didn't mean to use the Microsoft settlement as a "cap", in my hypothetical example I doubled the settlement for Apple and gave the same settlement to Cisco despite (I believe) having a smaller infringing product revenue base than Microsoft.
4. I am probably guilty of imprecise wording but I was not trying to argue that large jury patent awards are always thrown out because of size, rather I was observing that there was scant precedent for the size of jury awards VHC investors seem to be expecting ($500M+ IMO) being upheld and collected. Indeed, every example I could find other than Polaroid/Eastman Kodak was never collected by the plaintiffs for one reason or another. I would be surprised if Microsoft paid Uniloc anywhere near the original jury award given they had won the most recent court rulings, but you are correct that I am speculating. If you have counter-examples I would be interested to hear them.
WWWW: The Case Of The Non-Cash Cash Flow [View article]
BTW Captain America and crazylikebudfox, I determined that you were correct that the entire deferred revenue change was new cash. However, the $27M did offset the fair value adjustment, so what I should have said (and what I corrected to) is that only $11.2 is cash collections for *new business*. I'm sure the company would argue that it is not fair to compare their free cash flow with all these "non-recurring" expenses, I still think it's inaccurate to essentially recognize your deferred revenue up front and call it earnings.
WWWW: The Case Of The Non-Cash Cash Flow [View article]
I don't think I need any congratulations until a few months to a year from now and only if I am shown to be right, my goal in writing this article was not to affect the stock price but to get investors to take a harder look at the cash flow and non-GAAP reconciliation. I was trying to offer a variant view to the bullish Wall St. consensus, I find it amazing that this company gets a premium valuation when everything else I see with leverage and exposure to the economic cycle is amazingly cheap. I am actually surprised it seems to have affected the stock, but I guess it did come out at the same time that two other stocks I recently wrote about (VHC and SYNC) were selling off hard.
AVG: Feb 1st Google Policy Updates Threaten AVG's Growth Engine, Signals Steep Downside [View article]
Also, it seems like the company will have to choose between lowering monetization with Yahoo, or adopting Google's new policies, but not both.
Applied Micro: Starting To Look Like A Good Short [View article]
Do you have any view on when they are likely to disappoint investors with the lack of server revenue?
ServiceNow: Decelerating Growth, Limited Market Size Point To Large Downside [View article]
The float essentially doubled today.
Amazon Has Discontinued Using Neonode's Technology, Will Others Follow? [View article]
Amazon Has Discontinued Using Neonode's Technology, Will Others Follow? [View article]
ParkerVision: 20-Year Track Record Of Value Destruction [View article]
Mellanox Bubble To Burst With Intel Foray Possibly Threatening Existence [View article]
Think about it, if the InfiniBand market was really as attractive at MLNX's valuation implies, QLogic would be incredibly stupid to sell their IB business to Intel for $125M, and Emulex and Broadcom would be incredibly stupid to not be developing IB products. MLNX has great engineering but their products could be matched by competitors eventually if they put a mind to it.
After The Synacor Pump, Watch Out For The Dump [View article]
VirnetX: Do You Believe In Fairytales? Part 2 [View article]
VirnetX: Do You Believe In Fairytales? Part 2 [View article]
Obviously, VHC has a limited history in generating significant commercial licensing revenue. Can you point me to any evidence from a non-interested party (i.e. not a VHC long or an investment bank seeking to trade in VHC) that confirms that their IP position is as significant as you seem to think for 4G wireless? That they have anything resembling a "nuclear warhead"?
Hard Disk Drive Manufacturers Poised To Make A Killing [View article]
WWWW: The Case Of The Non-Cash Cash Flow [View article]
Speaking of deferred revenue this quarter, it was actually slightly down after the FVADR. Strange if the business is growing 7% organically, but if most of the growth is coming from the month-to-month Web.com side that makes sense.
I always go back to the real free cash flow to equity holders, which I calculate as about $0.48 in the first six months of the year and $1.00 to $1.05 for the whole year if their cash flow improves like the management guided. I understand there will be less restructuring in the back half of the year but it seems like they got a substantial benefit from DR in the first quarter that they will not repeat. But I still think a 6% FCF yield to equity holders does not properly compensate for the risks, especially in light of what else is available in the market.
Maybe if they execute well, keep adding customers and increasing ARPU, cash flow improves in 2013 and there is no recession I lose on this short. If so, more power to them and their shareholders. But a 10 bp increase in the churn from the lows and this thing is no longer gaining customers.
Is VirnetX Really A 'Fairytale'? [View article]
1. As an above poster pointed out, given the relatively small revenue streams of Aastra USA and even Mitel in the United States I think their royalties will be trivial relative to a $2B or even $1B market cap. Aastra's U.S. revenue is roughly $86M and Mitel's is around $380M, so even a 1-2% annual royalty does not mean much relative to VHC's market cap.
2. There are now only 5 defendants after Aastra and Mitel have settled out, and the U.S. enterprise communications businesses of NEC, Siemens and Avaya are quite a bit smaller than Microsoft, Apple and Cisco so I doubt the settlements would approach the same ballpark.
3. I didn't mean to use the Microsoft settlement as a "cap", in my hypothetical example I doubled the settlement for Apple and gave the same settlement to Cisco despite (I believe) having a smaller infringing product revenue base than Microsoft.
4. I am probably guilty of imprecise wording but I was not trying to argue that large jury patent awards are always thrown out because of size, rather I was observing that there was scant precedent for the size of jury awards VHC investors seem to be expecting ($500M+ IMO) being upheld and collected. Indeed, every example I could find other than Polaroid/Eastman Kodak was never collected by the plaintiffs for one reason or another. I would be surprised if Microsoft paid Uniloc anywhere near the original jury award given they had won the most recent court rulings, but you are correct that I am speculating. If you have counter-examples I would be interested to hear them.
WWWW: The Case Of The Non-Cash Cash Flow [View article]
WWWW: The Case Of The Non-Cash Cash Flow [View article]