Seeking Alpha
  • Friday, April 17, 2015

  • 9:13 PM
    • A spokesperson for ESPN (NYSE:DIS) has weighed in on reports that Verizon (NYSE:VZ) will offer unbundled or "skinny" packages to give customers choice about what they receive -- and ESPN says that's not allowed.
    • “Media reports about Verizon’s new contemplated bundles describe packages that would not be authorized by our existing agreements," says the company's statement. "Among other issues, our contracts clearly provide that neither ESPN nor ESPN2 may be distributed in a separate sports package.”
    • The move's unsurprising coming from ESPN, which charges the highest prices per subscriber by far among national cable peers, reportedly now more than $6/month. That compares with TNT at around $1.48/subscriber month.
    • ESPN has made defending bundles a policy priority in Washington, and companies with powerful bundles of channels like Disney (with the various flavors of ESPN as well as the Disney Channel and Soapnet) can force channels with low or no consumer interest into bundles with the desired flagship stations to build their audience.
    • The statement suggests Verizon didn't get a sign-off from Disney before talking about unbundling, though Peter Kafka reports that Verizon's Alberto Canal said the company had gotten authorization from all programmers in its new bundle.
  • 8:36 PM
    • After pressure from Canada's privacy commission, BCE now faces a $750M class-action lawsuit over its ad targeting.
    • The suit, filed against its Bell Canada and Bell Mobility units, says that the divisions breached laws and user contracts by sharing personal info with a third party without consent.
    • Plaintiff lawyer Ted Charney estimates up to 5M of Bell Mobility's 7.9M customers had been tracked through the company's targeted "Relevant Advertising Program," which began in November 2013.
    • Criticism of the program includes that the information collected wasn't detailed at the start, and that customers had to opt out rather than opt in.
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  • 7:54 PM
    • Mobile phone consumers might be happy, but the industry's price war is showing up as average revenue per account is dropping, according to Cowen's quarterly wireless survey.
    • Bills fell for a second straight quarter, to an average of $136/month, down from Q4's $141. The biggest drop came to Sprint (NYSE:S), whose "Cut Your Bill in Half" promotion is taking hold by reducing its average bill 14% Q/Q to $132/month.
    • Verizon (NYSE:VZ) is below $150 for the first time in the survey, slipping 5% to $143.
    • On the other hand, AT&T (NYSE:T) was essentially flat at $143/month and T-Mobile (NYSE:TMUS) actually increased ARPA 4% to $121.
    • Sprint may face a churn problem: 24% of subscribers whose contracts are up in the next six months say they'll leave, above the industry average of 13%.
    • Subscribers without contracts are up to 34.5% from Q4's 30.5%, spurred by T-Mobile's huge contract-less base.
  • 7:14 PM
    • "We believe ServiceNow (NYSE:NOW) saw increased seasonality in Q1, which is in part the result of the company's shift to Services Automation beyond IT, where the company will be focusing on larger cross-enterprise deals," writes Brean (Buy) after ServiceNow (NOW) provided light Q2 guidance and a smaller top-line beat than has been seen in recent quarters amid heavy forex pressures.
    • On the CC (transcript), CEO Frank Slootman stated ServiceNow "had quite a bit of deal slip" in Q1, and was also dealing with a drained deal pipeline (as of January) and a salesforce reorg. Brean isn't worried. "This is a common occurrence for enterprise software companies, but appears to have unfortunately caught many by surprise (ourselves included). However, we believe the after-market reaction reflects strong outperformance into the print, as well as overall anxiety in the market, as opposed to deteriorating fundamentals."
    • "When you trade at 9x 2016 revenues you don't get a pass...on anything," admits Canaccord (Buy). It's not thrilled with the Q1 numbers, but also thinks there was nothing to change its belief ServiceNow will grow to $3.5B-$4B/year business with 20%+ free cash flow margins by 2020. The firm still sees shares reaching $200 in 4 years.
    • TechStockRadar's Rob DeFrancesco: "[T]he longer-term outlook remains bright because the company continues to benefit from the broad enterprise transition to the cloud (it faces little legacy vendor competition) and gain traction in IT operations management (ITOM), a $10-billion market that is significantly larger than its core [IT service management] market. In the latest quarter, ServiceNow generated about 10% of its business from ITOM, indicating plenty of room for expansion."
    • Shares fell 11.5% in regular trading to $73.29. They're still up 38% from where they traded a year ago.
    • Yesterday: ServiceNow's Q1 results, guidance/details
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  • 7:06 PM
    • As reports spread that Justice Dept. attorneys were likely to recommend blocking Comcast's (CMCSA -2.1%) $45B buyout of Time Warner Cable (TWC -5.4%), the cable companies both argued there was no basis to block the deal.
    • It'll mean "faster broadband speeds, access to a superior video experience, and more competition in business services resulting in billions of dollars of cost savings," according to a Comcast statement. "These benefits have been essentially unchallenged in the record."
    • Meanwhile, over at the FCC, 37 groups opposed to the deal wrote Tom Wheeler, the agency's chairman, saying that even conditional application of net neutrality regulation wouldn't soften their opposition. Signatories included Dish, Consumers Union, the Writers Guild of America, West, and Free Press; "they don't make any new arguments," Comcast responds.
    • Some volume came into competitive stocks and gave them a (relative) lift after the news: Charter Communications (NASDAQ:CHTR) came off lows to finish down 1.9%; Cablevision Systems (NYSE:CVC) rebounded to finish just -0.3%.
    • In February, BTIG analyst Rich Greenfield laid out why he thought the deal would ultimately get rejected.
    • Then shortly after the Justice Dept. news broke, Comcast noted it was bringing its top-speed 2-Gbps Gigabit Pro service to the California Bay Area. The company previously said it would launch the service in Atlanta (where Google Fiber and AT&T plan 1-Gbps service); it's setting June for the California launch, but still no word on possible pricing.
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  • 6:51 PM
    • "AMD’s model appears to be breaking, as we now have them burning substantial amounts of cash," writes Bernstein's Stacy Rasgon, reiterating an Underperform following the CPU/GPU vendor's Q1 miss and soft Q2 guidance. "Frankly, this call is getting depressing. But, we see little reason to step off of it."
    • Rasgon doesn't see AMD going bankrupt (no major debt payments are due before 2019), and likes its improved inventory management. But he also thinks the company will be in "serious trouble" if PC demand doesn't stabilize later this year thanks to improved inventories and Windows 10.
    • He also notes AMD's 20% Q/Q and 38% Y/Y PC CPU/GPU division sales drops compare with 16% Q/Q and 8% Y/Y drops for Intel's PC/mobile CPU unit. "This continues to suggest continued share losses by the company (though this should hardly be shocking at this point)."
    • Ascendiant's Cody Acree, who downgraded to Hold: "In addition to a relatively weak macro computing environment, we believe AMD’s gross and operating margin leverage will likely also be constrained. We believe CPU and GPU pricing from both INTC and NVDA will continue to be aggressive and that AMD’s semi-custom business will only support modestly higher margins as pricing declines meet console volume increases."
    • Though maintaining an Outperform for now, Wells Fargo's David Wong now forecasts losses for the rest of 2015, and also through 2016. He sees profits eventually returning on account of AMD's engineering expertise. Oppenheimer notes gross margin (down in Q1) is expected to be flat Q/Q in Q2, and thinks new semi-custom wins are unlikely to ramp before 2H16.
    • Jefferies' Mark Lipacis (Buy) is hoping improved PC/console demand and the launch of AMD's anticipated Fiji GPUs provide a 2H15 lift. He also expects AMD to use its May 6 analyst day to "articulate its first long-term strategy and business model in years."
    • Shares fell 10.3% in regular trading to $2.58. The 52-week low is $2.14.
    • Yesterday: AMD's Q1 results, guidance/details
  • 5:59 PM
    • With Google's Android Wear platform handicapped in China by the blocking of many Google services, Baidu (NASDAQ:BIDU) has launched DuWear, an Android-based smartwatch OS that comes with versions of Baidu's voice search and mapping apps.
    • Much like Android Wear and Apple Watch, mobile payments support, motion tracking, and heart rate monitoring are also included. Baidu promises a "major manufacturer" will launch a DuWear watch in June. In the meantime, it's releasing a ROM that lets users (if they're interested) install the OS on Android Wear devices such as the Moto 360, LG's G Watch, and Sony's SmartWatch 3.
    • Baidu also claims DuWear supports some 3rd-party Android Wear apps that don't use Google's mobile services framework. The OS launch comes a month after Baidu ended support for its Cloud OS Android smartphone ROM (had seen limited uptake).
    • Separately, Baidu has acquired Anquanbao, a provider of cloud-based software that protects sites against malware and DDoS attacks. The startup's clients include Tencent and major Chinese domain name service providers.
    • Baidu plans to use Anquanbao's software to improve load times for its sites and protect them from security threats. Anquanbao founder/CEO Ma Jie will head Baidu's cloud security ops.
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  • 5:39 PM
    • A new version of popular series Battlefield wasn't enough to boost video game sales in March, as software sales slipped 3% Y/Y to $395.4M. But software was positively solid compared to game hardware sales that slipped 21% Y/Y to $311.1M, according to NPD Group.
    • In new retail games, Battlefield: Hardline (NASDAQ:EA), a cops-and-robbers version of the war-game series, led sales charts followed by another new entry, action role-player Bloodborne (NYSE:SNE) which was strong despite being a PS4 exclusive.
    • The top five was rounded out by Grand Theft Auto V (NASDAQ:TTWO), Mario Party 10 (OTCPK:NTDOY), and Call of Duty: Advanced Warfare (NASDAQ:ATVI).
    • Physical software sales showed sharp declines for previous-generation consoles, which points to the health of the new generation (PS4, Xbox One, Wii U), whose software sales increased 58% Y/Y.
    • In hardware, Sony says PS4 again topped the charts, but everyone's doing well in the new generation: “This is the 17th month of sales for the Xbox One and PS4, whose combined cumulative hardware sales are over 50% higher than the combined 17-month cumulative sales totals for the Xbox 360 and PS3,” said NPD's Liam Callahan.
    • In a market down more than 1% today, GameStop (NYSE:GME) did worse, down 3.1%.
    • And in other EA news, at the ongoing "Star Wars Celebration" event going on in Anaheim, Calif., today's news included the reveal trailer for Star Wars: Battlefront wowing fans. Launching Nov. 17, the game showcases high-definition visuals but takes a somewhat risky move of dropping single-player missions entirely for cooperative and multiplayer.
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  • 4:57 PM
    • After initially soaring on news it's buying Atmel's XSense touch sensor ops and taking out a related patent license, UniPixel (NASDAQ:UNXL) gradually sold off today. 1.01M shares were traded, far above a 3-month daily average of 133K.
    • In an 8-K filing, UniPixel discloses it paid $450K to Atmel for XSense equipment and inventories, using a promissory note. It also detailed the licensing agreement. "[UniPixel] agreed to pay an annual royalty fee ... of the greater of $3.25 million or 3.33% of the total net sales (as defined in the Patent License Agreement) of the Touch Sensors during the Initial Term. [UniPixel] has the right to renew the license for a term of 10 years. If [UniPixel] exercises this right, the annual royalty fee will consist of 2.5% of the total net sales of the Touch Sensors until it reaches a total of $16.75 million ... [UniPixel] paid a non-refundable, non-returnable prepayment of minimum annual royalty fees of $9.33 million."
    • In an SA PRO column under embargo until 10:06AM ET Saturday, Paulo Santos argues the deal will "enable Uni-Pixel to finally deliver product to the market and register revenues." However, he remains far from positive about UniPixel's long-term outlook.
  • 4:33 PM
    • FARO Technologies expects to report Q1 revenue of $70M, -5% Y/Y and well below an $85.4M consensus. The company blames a $7M forex hit, weak Japanese macro conditions, and soft Brazilian industrial demand (also blamed on macro). In addition, $1.3M in forex losses are expected for intercompany account balances, primarily involving the Swiss franc.
    • CEO Jay Freeland: "Our expected sales growth of approximately 5%, excluding the $7 million of negative foreign exchange impacts, is below our long term mid-teens sales growth goal primarily due to lower metrology unit sales.  On a positive note, we are very pleased that the FARO Focus3D laser scanner is expected to report greater than 20% year-over-year unit sales growth, and that our new hand-held Freestyle 3D laser scanner has received a strong market reception."
    • In response to the shortfall, FARO is "implementing efficiencies and cost reduction measures." Full Q1 results arrive on April 28.
    • Shares have fallen to $56.30 AH. They fell 1.8% in regular trading thanks to a market selloff.
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  • 4:26 PM
    • MakerBot has laid off ~20% of its staff, Vice's Motherboard site reports after speaking with an employee. The news comes two months after MakerBot got a new CEO (Stratasys Asia-Pac GM Jonathan Jaglom), and 10 weeks after Stratasys (NASDAQ:SSYS) partly blamed the business for a weak Q4. Motherboard observes (given a 2014 headcount of ~500) about 100 employees might be affected.
    • MakerBot, still considered the top player in the SMB/enthusiast segment of the 3D printing market, saw revenue rise only 7% Y/Y in Q4, a much slower rate than Q3's 80%; Jefferies noted extruder issues with MakerBot's latest printers (and the customer backlash they spawned) took a toll. In December, Stratasys took a $102M impairment charge on the unit, which was acquired in 2013 for over $400M.
    • In spite of the recent woes, a MakerBot rep suggests the layoffs are due to integration efforts. "It’s consolidating with Stratasys, so it’s economies of scale and looking at duplicate positions and consolidating ... We have a new CEO, so he has a different plan in mind."
    • Update: MakerBot has confirmed the layoffs. "We at MakerBot are reorganizing our business in order to focus on what matters most to our customers. As part of this, we have implemented expense reductions, downsized our staff and closed our three MakerBot retail locations." The Register reports 80 employees at MakerBot's Brooklyn HQ have been laid off.
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  • 3:40 PM
    • AT&T (NYSE:T) is a dividend stalwart, yielding 5.7%, but Morningstar DividendInvestor Editor Josh Peters dropped it from his model portfolio in favor of lower-yielding Verizon (NYSE:VZ).
    • He's willing to swap for Verizon's 4.5% yield because the "quality, the safety of the dividend, and the growth of the dividend and the total return it will drive are superior."
    • He lost some patience with AT&T's wandering outside of core business rather than sticking to its knitting and growing the dividend faster than 2%. Verizon is focused on U.S. wireless with better capital allocation, he says.
    • Coverage plays a part as well: "Verizon is covering its dividend 1.5 times with free cash flow. AT&T is just barely covering its dividend now with free cash."
    • Josh Peters video interview
  • 3:07 PM
    • With the Nasdaq off 1.7% amid a broader market selloff, many tech companies are posting outsized losses, and only a few (excluding microcaps) are posting 2%+ gains.
    • Notable decliners include Russian online payments leader Qiwi (QIWI -7.8%), Chinese solar firms JinkoSolar (JKS -5.3%), ReneSola (SOL -8.4%), Trina (TSL -5.1%), and Yingli (YGE -5.2%), Chinese online real estate play Leju (LEJU -7.8%), analog/mixed-signal chipmakers ON Semi (ONNN -5.3%) and InPhi (IPHI -4.7%), enterprise flash storage vendor Violin Memory (VMEM -5.2%), online travel deals platform Travelzoo (TZOO -6.4%), and smart grid hardware/software vendor Silver Spring (SSNI -4.6%).
    • Profit-taking appears to be a big culprit in many instances. Qiwi (like other Russian firms) had rallied strongly in recent weeks thanks to the ruble and oil's rallies. Chinese solars have also been early-2015 standouts, and so have ON Semi and Silver Spring; the latter has recently announced deals (I, II) with Paris' street light/traffic control operator and Australian energy firm AusNet. Travelzoo is returning a chunk of yesterday's big post-earnings gains.
    • Previously covered: AMD, ServiceNow, cloud/analytics stocks, Etsy, Wayfair
    • Notable gainers: Seagate,, ZBB Energy
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  • 2:16 PM
    • GM's Shanghai General Motors unit will sell cars and offer financing to Chinese consumers via Alibaba's (BABA -2.7%) Tmall site; Buick, Chevy, and Cadillac cars are currently offered.
    • In addition, Alibaba will use its analytics platform to serve ads to prospective GM car buyers, as well as pitch them on loans and aftermarket services. The Chinese e-commerce giant says it has partnerships with nearly 50 car brands and 10K dealerships. In March, it formed a $160M JV with Chinese automaker SAIC to develop Web-connected cars.
    • Separately, Alibaba's Aliyun cloud services arm (estimated 23% local share) has added top Asian oil refiner Sinopec to its client list. Sinopec will rely on Aliyun to both provide a cloud infrastructure (IaaS) platform and provide analytics services for its petrochemical manufacturing ops. The companies are also exploring cooperation in payments, e-commerce, and other fields.
    • Alibaba has sold off on a rough day for equities. Shares are less than $2 above a post-IPO low of $80.03.
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  • 2:09 PM
    • The Justice Department's staff attorneys looking into Comcast's (NASDAQ:CMCSA) $45B bid to purchase Time Warner Cable (NYSE:TWC) are close to urging the deal be blocked, Bloomberg reports -- and they're also not working with Comcast to secure changes that would satisfy them.
    • Already lower with the market today, TWC took a cliff dive, now -7%. Comcast shares are still down 2.8%.
    • The lawyers could submit their review as soon as next week to deputy assistant AG Renata Hesse. Officials will then decide on whether to sue to stop the deal.
    • Hesse is running the review since antitrust chief Bill Baer recused himself, as a previous representative of NBCUniversal in its takeover by Comcast.
  • 2:02 PM
    • GrubHub (GRUB -1.3%) is down with the rest of the market despite an initiation at Buy from Sterne Agee, which called the company the "dominant platform focused on takeout at independent restaurants in the U.S."
    • The firm's Arvind Bhatia noted that there are 350K independent restaurants in the U.S. making up a $70B takeout market that's local, highly fragmented -- and not very digital, 95% offline.
    • "We are in the very early innings of this transition, but as this shift proliferates, GrubHub will benefit," Bhatia writes, "as they are the dominant player in the industry and have a network of restaurants that covers most of the major cities across the U.S."
    • He set a price target of 56; GrubHub was trading last at $44.76, not far off an all-time high of $47.95.
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  • 1:46 PM
    • Cloud IT service management software leader ServiceNow is down 14.5% after providing soft guidance (thanks in part to forex) to go with a Q1 beat. Many high-beta enterprise tech names are off sharply amid a 1.5% drop for the Nasdaq.
    • In addition to Salesforce and Workday (previous), cloud software firms posting big losses include NetSuite (N -4.8%), Constant Contact (CTCT -3.3%), InContact (SAAS -3.9%), Paycom (PAYC -3.6%), Ultimate Software (ULTI -3.6%), and Textura (TXTR -3.7%). NetSuite reports on April 23, Ultimate Software on April 28, Constant Contact on April 30, and Paycom on May 6.
    • Big data/analytics software plays have also been hit hard. Tableau (DATA -6.3%), Splunk (SPLK -5.2%), Hortonworks (HDP -6%), and Varonis (VRNS -4.3%) are all off sharply. Though its growth rates and multiples are similar to those of many analytics software firms, ServiceNow generally isn't seen as an analytics play. This morning, D.A. Davidson launched coverage on Tableau and Splunk at Buy, and Hortonworks at Neutral.
    • Tableau, which surged yesterday following bullish Stifel and William Blair coverage launches, reports on May 7. Stifel praised Tableau's "superior product performance and simplified user experience," data discovery market lead, international growth potential (less than 25% of license revenue is from outside of North America), and ability to capitalize on "free demo downloads by front-line information workers evangelizing [Tableau's] product."  William Blair stated its survey work "indicates that the perceived value of Tableau exceeds that of other self-service [business intelligence] vendors."
    • Pac Crest hiked its Splunk target to $82 yesterday after attending a user conference. "[T]he economic value derived from expanding Splunk implementations ... into new areas like security intelligence, compliance and real-time capacity planning results in cost avoidance that can far overshadow the historical pricing objections to Splunk. This is a significant change in customer behavior and pricing perception ... It was clear that the appetite of existing Splunk users to find new use cases remains fierce..."
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  • 1:13 PM
    • ETSY is now down 10% from a post-IPO opening trade of $31.00, and 22% from a Thursday high of $35.74. Shares remain up 74% from their $16 IPO price.
    • With the craft/vintage goods marketplace still trading for nearly 16x 2014 sales, valuation concerns have been easy to find. Wedbush, which launched coverage with a Neutral rating before the IPO, notes Etsy traded as high as 84x 2015E EBITDA, a level declared to be "well beyond the high end of any comparable group."
    • Wedbush's $14 target is equal to 23x 2016E EBITDA (in-line with Alibaba). Aside from valuation, the firm is worried about seller practices drawing more scrutiny. "We have identified several examples of sellers sourcing from Alibaba (contrary to Etsy guidelines and sometimes at markups exceeding 30,000%) and possible trademark infringement."
    • It's also concerned about Etsy's long-term market size. "We believe Etsy benefits from the difference in what individuals expect to receive for their work time versus their free time, as well as the lack of overhead, resulting in lower prices ... However, we believe this arbitrage is only possible in limited categories of goods, thus capping Etsy's ultimate growth."
    • Bulls have focused on Etsy's strong top-line growth (56% in 2014), cult following, and healthy mobile exposure (36% of 2014 GMS and 53% of visits). SA author M Nunez, after going through the S-1: "I feel the key word for this company is uniqueness, it has done a phenomenal job creating a true ecosystem of buyers and sellers of unique products and has been able to capitalize on that in a significant way."
  • 12:39 PM
    • Believing the company's core privileged account management (PAM) software could be a multi-billion dollar market in time, JMP's Erik Suppiger has launched coverage on CyberArk (CYBR - unchanged) with an Outperform rating and Street-high $72 target.
    • Suppiger, echoing some recent sell-side notes: "The cyber-security landscape is undergoing a paradigm shift, with more investments directed at internal security and we believe PAM is becoming a core component of internal security infrastructure. We also feel the adoption of cloud computing represents a significant long-term catalyst that is in the very early stages of development."
    • Citing channel checks, Suppiger asserts CyberArk is "emerging as the premier [PAM] brand leader, with key competitive advantages that include differentiated features, product breadth, and integration with ecosystem partners." He sees the company respectively posting 35% and 34% 2015 and 2016 sales growth, above consensus estimates of 29% and 25%. His target implies a steep 12x 2016E EV/sales ratio.
    • Shares are close to breakeven in spite of a 1.4% drop for the Nasdaq. Many security tech peers are down over 2%.
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  • 12:20 PM
    • With shares having risen 74% in 2015 going into today (bringing them back above their $29 IPO price), Goldman has downgraded Wayfair (NYSE:W) to Neutral. Its target is at $36.
    • The online furniture giant currently trades for 1.6x 2015E sales; the 2015 revenue growth consensus is at 31.8%. Q1 results arrive on May 11.
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