Wednesday, May 27, 2015
- Speaking at Code Conference, Sprint (NYSE:S) CEO Marcelo Claure had a bold prediction: The carrier will have the best or second-best network in the U.S. in quality terms within the next two years.
- It's an extension of Sprint's recent investments, he said, into a network that has generally lagged in comparisons with its "Big Four" U.S. competitors, particularly on speed.
- Asset investments like network improvement come with heavy cash spending, though, and Sprint will burn billions of dollars in free cash flow this year. Citigroup's Michael Rollins thinks Sprint will run out of money by the 2016 broadcast incentive spectrum auction
- Claure's comments come, however, after recent Tokyo meetings with his bosses at Softbank (OTCPK:SFTBY), suggesting that they'll be behind a quality push.
- Previously: Sprint: Amid network investment, cash burn back in focus (May. 06 2015)
- Previously: Verizon, AT&T top mobile networks, but Sprint and T-Mobile compete in city (Feb. 10 2015)
- As media ratings continue to move into the digital age, Nielsen (NYSE:NLSN) says it's partnering with Tencent Holdings (OTCPK:TCEHY) to launch Digital Ad Ratings, looking to tap a bigger share of a $31B market.
- The move is a push to track unique statistics for an ad across multiple platforms for the first time in China, just as Tencent is pushing to increase mobile ad revenue.
- Nielsen will measure campaigns using surveys of 46,000 Chinese consumers and aggregate data from Tencent's hundreds of millions of users. Tencent's mobile messaging client WeChat boasts 500M monthly active users.
- Nielsen says it worked with publishers and advertisers in developing the system, and it plans to roll it out to other companies in China as well.
- Competitor comScore (NASDAQ:SCOR) says its similar service is already available in China.
- Publisher Vox Media has announced it's acquiring Re/code, the tech news site led by Wall Street Journal veterans Walt Mossberg and Kara Swisher, in an all-stock deal -- though Quartz has reignited speculation from earlier this spring that Comcast (NASDAQ:CMCSA), an investor in both, could end up owning it all.
- Comcast had been in talks to acquire Vox Media (the publisher of sports blog network SB Nation, tech site The Verge, food network Eater and an eponymous news/analysis site, among others), though the sticking point seems to have been Vox's wish for a near-$1B valuation. Vox has raised about $110M in the past six years, and its last funding round valued it around $380M.
- The cable giant gave its blessing to Vox's Re/code acquisition months ago, Quartz reports. But Re/code is smaller and easier to swallow; Vox may need a big buyer like Comcast, or to go the IPO route.
- Elsewhere at Comcast, NBCUniversal is putting together a sports documentary film group -- a move that puts it into the territory of HBO's longer-form sports reporting, as well as ESPN, though NBC will draw more from in-house film talent. It'll lean on its award-winning Olympics unit and, unsurprisingly, feature a strong Olympics focus.
- Though the Nasdaq rose 1.5% today, Sierra Wireless (NASDAQ:SWIR) fell 4% to $29.58, hitting levels last seen in November. The selloff came on volume of 1.2M shares, well above a 3-month daily average of 503K.
- No news that would explain the move has hit the wires. Sierra, which held its annual meeting on May 21, has fallen during its last 9 trading days, and is now down 20% from where its traded before the company provided soft Q2 guidance with its Q1 beat on May 7.
- Earlier today, Sierra announced it had updated its InMotion oMG2000 4G gateway to support the FirstNet LTE band (meant for public safety agencies and other first responders). AT&T, Verizon, and Sprint's 4G networks are already supported.
- Shares now respectively trade for 27x estimated 2015 EPS and 1.3x EV/sales, and 19x estimated 2016 EPS and 1.1x EV/sales.
- Pac Crest's Brad Erickson, discussing his most recent GoPro (NASDAQ:GPRO) channel checks : "Days of inventory declined m/m, and we believe [camera] sales run rates have increased recently, likely driven by incremental bundling with gift cards/memory cards, as well as a strong seasonal rebound associated with dads & grads." GoPro is a month removed from providing strong Q2 guidance.
- Erickson, who also reported positive checks in early April, has hiked his target for video processor supplier Ambarella (NASDAQ:AMBA) by $18 to $96, and his FY16 (ends Jan. '16) and FY17 EPS estimates to $2.39 and $3.29 (above a consensus of $2.24 and $2.77).
- He also speculates Qualcomm (NASDAQ:QCOM) could bid for Ambarella on account of Ambarella's low-power video-processing IP, and even suggests Qualcomm's recent $10B capital raise (will help pay for buybacks) has sparked broader speculation about a deal. "While we hadn't expected such substantive acquisition speculation this soon since going public, we believe such a deal could make both technology and financial sense in line with our views on the stock."
- Erickson does caution Ambarella's big run-up suggests "expectations are very high" going into next Tuesday's FQ1 report. "As such, we'd be opportunistic buyers on any pullback in the name."
- Thanks in part to a big chip stock rally fueled by Broadcom/Avago M&A reports, Ambarella rose 3.1% today, making new highs along the way. GoPro fell 0.2%.
- With the help of higher equity markets in both the U.S. and Europe, Nokia (NYSE:NOK) rose 2.4% today and merger partner Alcatel-Lucent (NYSE:ALU) rose 3.5%. Alcatel is now back above where it traded before Nokia/Alcatel merger speculation first emerged on April 10. Nokia remains down 3%, thanks in part to its Q1 results.
- Separately, Nokia has announced it's buying Eden Rock, a provider of software for creating and managing self-organizing mobile radio networks (SONs). Terms are undisclosed.
- Eden Rock's software consists of a core SON operating system, along with modules for optimizing network quality, responding to outages/failures, automating workflows, and adapting to traffic load changes. Nokia asserts the products are "highly complementary" to its existing SON solutions, and forecasts the global SON market will be worth over €5B ($5.45B) by 2018.
- Slim Souissi, Novatel's (NASDAQ:MIFI) COO and a 15-year company vet, has "notified the Company that he was terminating his employment with the Company effective as of June 11, 2015." (8-K filing)
- Novatel, which is 6 months removed from naming Alex Mashinsky its permanent CEO, doesn't give any indication it plans to look for a replacement. Many companies have eliminated the COO position in recent years.
- After coming off a halt, Semtech (NASDAQ:SMTC) has fallen to $22.00 in AH trading thanks to its FQ1 miss and soft guidance. The analog/mixed-signal chipmaker expects FQ2 revenue of $120M-$130M and EPS of $0.21-$0.26, below a consensus of $141.7M and $0.37.
- The FQ1 miss is blamed on "much lower than anticipated demand" from Semtech's biggest smartphone customer. FQ2 sales guidance appears to imply share loss, given it translates to a 14% Y/Y revenue decline at the midpoint.
- To help soften the blow, Semtech has upped its buyback authorization to $100M; $20M was spent on buybacks in FQ1.
- Shares rose 5.4% in regular trading, aided by the Broadcom/Avago report.
- FQ1 results, PR
- CA Technologies is buying Rally Software (NYSE:RALY), a maker of cloud-based software development tools, for $19.50/share, or $480M net of cash on hand. The price represents a 44% premium to Rally's Wednesday close.
- CA, which is looking to cut its dependence on a slow-growing system management software market (pressured by cloud competition), states Rally's Agile Development tools will "complement and expand CA's strengths in the areas of DevOps and Management Cloud." Rally's clients include over 35 Fortune 100 firms.
- The deal is expected to close in calendar Q3 (CA's FQ2). In spite of the premium, CA's purchase price is well below Rally's 2013 post-IPO high of $33.05.
- Rally is at $19.25 in AH trading. CA is unchanged.
- CenturyLink (CTL +1%) followed the market higher today and bounced off yesterday's 52-week low, despite a Citigroup report that lowered the price target on the shares to $36, from $40, and reiterated a Hold rating amid concerns about cash flow influence on the dividend.
- Shares closed at $33.94.
- Analyst Michael Rollins notes declines in legacy sales are putting pressure on the second half -- and putting the company at risk of missing its full-year guidance. On May 5, the company guided to the light side of Q2 revenue expectations of $4.45B.
- And if cash flow stabilization takes too long, the company will have to increase capital intensity, he says: "The absence of meaningful improvement in the operations could lead to a more elevated payout of free cash flow in more normalized periods in 2017, which could lead to another reduction in the dividend."
- CenturyLink reduced its dividend in March 2013 to the current $0.54, from $0.72. The company starts trading ex-dividend this Friday, before paying its quarterly $0.54 dividend on June 16.
- Along with its FQ3 results, Palo Alto Networks (NYSE:PANW) has announced the acquisition of CirroSecure, a provider of tools for securing enterprise cloud apps from the likes of Microsoft, Google Salesforce, Box, and Dropbox. Terms are undisclosed.
- Palo Alto, whose next-gen firewalls are differentiated in part by their ability to provide better visibility/control for various Web apps and services, asserts CirroSecure provides superior visibility/control for securing cloud apps, including ones that haven't been officially sanctioned by a company. CirroSecure's technology will underpin a new security subscription service expected to launch in 2H15.
- FQ3 top-line performance: Billings +56% Y/Y to $302.2M, well above revenue of $234.2M and a pickup from FQ2's 51% growth. Product revenue (firewalls) +44% to $121.5M; services (boosted by WildFire and other subscription services) +69% to $112.6M. The deferred revenue balance rose 13% Q/Q to $603.9M.
- Financials: Gross margin fell 120 bps Y/Y to 72.5%. Not counting last year's Juniper settlement, GAAP operating expenses rose 53% to $206.5M - sales/marketing spend totaled $131M, R&D $48.5M, and G&A $27M. Palo Alto ended FQ3 with $823M in cash/short-term investments, and $482M in convertible debt.
- PANW -0.2% AH to $160.40. Shares were up 31% YTD going into earnings.
- FQ3 results/FQ4 guidance, PR.
4:07 PM| 9 Comments
- Hulu has another deal to offer its streaming service to a cable customer base, this time with Suddenlink, the country's seventh-largest cableco, with about 1.14M subscribers.
- Suddenlink will offer the service to its subscribers with TiVo set-top boxes later this year.
- Hulu -- co-owned by NBCUniversal, Disney and Fox (CMCSA, DIS, FOXA) -- has about 9M subscribers and has been aggressively expanding its content offerings. It recently reached a reseller deal with Cablevision, as well as with Mediacom, WideOpenWest and three other small cable companies.
- Meanwhile, Suddenlink says it doesn't plan to reinstate Viacom programming after dropping it in a carriage dispute last year. Suddenlink claims Viacom wanted a nearly 50% increase in payment.
- Previously: Altice enters the U.S. with Suddenlink stake (May. 20 2015)
- Previously: AT&T deal to offer its customers Hulu subscriber content (May. 13 2015)
- Previously: Cablevision becomes first pay TV provider to offer Hulu (Apr. 28 2015)
- Heading off the usual channel-blackout drama, Mediacom and Viacom (VIA, VIAB) have renewed their contract with days to spare, keeping Viacom's 19 national networks and premium channel Epix flowing to subscribers.
- Viacom's fee increase last year didn't go over as smoothly with Suddenlink and Cable One, where there were channel drops. Suddenlink doesn't plan to reinstate Viacom programming.
- In the deal, Mediacom -- the country's No. 8 cableco, with about 890K subscribers -- will get more free video-on-demand content and some expanded functionality for TV Everywhere.
- Still ahead for Viacom: Dish Network talks.
- Previously: Citi: Dish could drop Viacom and come out ahead (Jan. 14 2015)
- Chip stocks are posting outsized gains (SOXX +4%) amid a 1.3% increase for the Nasdaq after the WSJ reported Avago and Broadcom are in advanced merger talks, sparking hopes for further M&A.
- A Broadcom/Avago deal would be worth ~$67B at current valuations, easily making it the largest in the chip industry's breathless consolidation wave. It would also touch markets ranging from smartphones to set-tops to servers to switches/routers.
- Notable gainers include Avago RF chip peers Skyworks (SWKS +4.3%), Qorvo (QRVO +3.2%), and Anadigics (ANAD +4.9%). Others include Micron (MU +3.8%), SanDisk (SNDK +4.3%), NXP (NXPI +3.5%), Silicon Motion (SIMO +8.3%), Cirrus Logic (CRUS +4.8%), STMicroelectronics, (STM +3.4%), Synaptics (SYNA +3.4%), Atmel (ATML +2.8%), Cavium (CAVM +4.5%), Intersil (ISIL +4.6%), Semtech (SMTC +3.9%), ON Semi (ON +3.8%), Microsemi (MSCC +4.4%), and IDT (IDTI +4.2%).
- Non-chipmakers tied to the industry are also doing well. Standouts include ARM (ARMH +4.4%), Amkor (AMKR +4.6%), ASML (ASML +3.1%), and Rambus (RMBS +3.3%).
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
- In-flight connectivity provider Gogo (GOGO +0.7%) says it's received the first Supplemental Type Certificate from the FAA to offer its high-speed 2Ku next-gen satellite service for aircraft.
- The move is a big step in getting the service to market; the company can conduct flight tests on a Boeing 737-500 with one antenna (and a second antenna next month).
- Its 2Ku technology is planned to deliver a peak 70 Mbps to an aircraft, more than 20 times the speed of Gogo's first-generation solution.
- The company will need a second STC from the FAA before launching the service later this year.
- Rogers Communications (NYSE:RCI) and Shaw Communications (NYSE:SJR), two of Canada's biggest cablecos, are firing a shot at Netflix (NASDAQ:NFLX) in the country by opening Shomi, their joint streaming-video competitor, to all Canadians.
- The service was previously available just to the companies' subscribers, a la "TV Everywhere." Notably, it's listed at C$8.99/month, the same price as Netflix, and it will launch in the summer with a one-month-free promotion.
- BCE, another of the country's big telecoms, still offers its Crave TV streaming service only to its subscribers.
- Previously: Netflix interview: Focus on international growth and original content (Apr. 15 2015)
- The WSJ reports Broadcom (BRCM +16.6%) is "in advanced talks to be bought" by Avago (AVGO +6.4%). Shares of both companies have shot higher.
- A deal would effectively be a merger rather than an acquisition: Avago is currently worth $35.1B, and Broadcom $32B. The post-merger company would have a massive product line spanning a variety of mobile, networking, home electronics, and telecom equipment chip markets.
- Avago has bought a string of companies over the last 18 months amid a massive chip industry consolidation wave, and has been rumored to be eying several others.
- Update (3:37PM ET): Bloomberg is backing up the WSJ's report, while adding a deal could be announced as soon as tomorrow.
- Update 2 (3:50PM): CNBC reports Avago's board plans to vote on the deal tonight.
- 9to5 Mac reports Apple (AAPL +1.8%) is "readying a major new iOS initiative codenamed 'Proactive,' which will leverage Siri, Contacts, Calendar, Passbook, and third-party apps to create a viable competitor to Google Now (GOOG +1.1%)."
- Proactive will reportedly replace Apple's Spotlight search feature - a dedicated search bar will be included - and be placed to the left of a user's Home screen. Like Now, it will rely on data from various apps to push timely info to a user. The service will also integrate with Apple Maps to "display personally relevant points of interest using an augmented reality interface," and have a UI that "automatically populates with content based around three key parts of iOS: Apps, Contacts, and Maps."
- Also: 1) In addition to an augmented reality view, Maps will be given a "Browse Around Me" button that shows points of interest on an overhead map. 2) A Siri API codenamed Breadcrumbs will be provided to 3rd-party developers; its features will be limited due to privacy concerns.
- The report comes less than a year after Apple replaced Google with Bing as Spotlight's default search provider via iOS 8; Google remains the Safari browser's default provider. Sources tell 9to5 Google's iOS traffic has dropped since the iOS 8 launch.
- Other news: 1) Google announces it's updating its iOS search app (features Now) to integrate with and pull data from 3rd-party apps such as OpenTable; its Android search app already supports this. 2) During a Code Conference talk, Apple operations chief Jeff Williams states Apple Watch developers will soon be able to write native apps (iPhone app pairing is currently required) and have direct sensor access. 3) CBS CEO Les Moonves says he recently met with Apple to do a TV service deal, and that a deal will "probably" happen.
- Update: During his talk, Williams also provided more grist for Apple car rumors by declaring the car to be "the ultimate mobile device."
- Nvidia (NASDAQ:NVDA) is "moving beyond its legacy PC and mobile exposure and is well positioned to capitalize on Gaming and Virtual Reality trends, Enterprise GPU virtualization, HPC and Cloud acceleration, and the evolution towards autonomous driving," declares JMP while reiterating an Outperform and $28 target.
- The firm thinks soft PC demand (responsible for Nvidia's light FQ2 guidance) is largely priced in, and notes Nvidia maintains a dominant position and pricing strength in the high-end gaming GPU market - AMD is hoping to challenge Nvidia's dominance with the pending launch of GPUs supporting High Bandwidth Memory. It also speculates Nvidia could contribute to Apple's rumored car efforts, much as it has landed Tegra design wins with Tesla.
- Also: With the chip industry continuing to consolidate, JMP argues Nvidia is "an under-appreciated M&A target, particularly in the context of the broad range of OEM suitors that could use its IP across new media, next-gen gaming, robotics, and autonomous driving markets."
- Previously: Analysts battle over PCs, growth markets following Nvidia's FQ1 report
1:20 PM| Comment!
- Competitive fears for Broadcom's (BRCM +2.1%) Wi-Fi combo chip ops (largely Qualcomm-related) are overblown, argues BofA/Merrill while reiterating a Buy rating and $54 target.
- Among BofA's arguments: 1) Broadcom's combo chips are still best-in-class, and discrete solutions are preferred on the high-end rather than ones integrated with baseband processors. 2) Broadcom maintains a ~57% combo chip share, and has ~1K dedicated engineers for the business. 3) With combo chips sporting a ~$4 ASP, there's little need for OEMs to get frugal. 4) Broadcom's baseband market exit opens the door to partnerships with former baseband rivals such as Spreadtrum. 5) 802.11ac/dual-band Wi-Fi chips and location hub support (found in Broadcom's Galaxy S6 design) can boost ASPs, and IoT products can increase Broadcom's addressable market.
- The firm also expects Broadcom (aided by its recently-launched Tomahawk switching chip) to benefit from a 25G Ethernet upgrade cycle, and notes the company's set-top chip share gains against STMicroelectronics. It forecasts 2017 EPS of $4 (the 2015 consensus is only at $3.01), and thinks a $61-$75/share valuation is possible on a sum-of-the-parts basis.
- Believing the company's planned breakup can drive shares above $80, Wells Fargo has upgraded Computer Sciences (CSC +2.4%) to Outperform.
- CSC briefly rallied last week after announcing plans to split its commercial IT services and U.S. public sector ops, and providing strong FY16 guidance. JPMorgan and Morgan Stanley upgraded afterwards.
- Ahead of Craig-Hallum and Benchmark conference appearances (respectively occurring today and tomorrow), Orion Energy (NYSEMKT:OESX) says it expects "significant" Y/Y revenue growth and gross margin improvement in FY16 (ends March '16), and to achieve positive full-year adjusted EBITDA and cash flow. Positive GAAP EPS is expected for the second half of FY16.
- The microcap LED lighting provider's shares went into trading today just $0.04 removed from a 52-week low of $2.17. They currently trade for 0.7x an FY16 revenue consensus of $90.2M (implies 25.3% Y/Y growth).
- In a brief 6-K filing, Weibo (WB +1.3%) discloses it has invested $142M in top Chinese ride-sharing platforms Didi Taxi and Kuaidi Taxi through their latest funding round. The companies, reportedly valued at a combined $6B, are set to merge in a deal that's awaiting regulatory approval; the post-merger firm will be known as Didi Kuaidi.
- Tencent, SoftBank, and major Weibo investor/partner Alibaba are among the companies holding stakes in Didi Kuaidi, which is looking to fend off a hungry Uber. As of the end of Q1, Weibo had $452.5M in cash to make investments with.
- Radisys (NASDAQ:RSYS) is trading up 8% on heavy volume after inking an $11M follow-on order for its MediaEngine product from a "large Asian carrier" that will use it in a Voice-Over-LTE deployment.
- The deal is set to be fulfilled by fall.
- The company -- undergoing a shift from a heavy hardware base to a software-focused portfolio -- didn't update guidance but says the deal gives them "further confidence" in hitting 2015 targets (growing Software-Systems revenues 20% Y/Y and delivering $0.20 EPS).
- It has a market cap of just over $100M.
- T-Mobile (NYSE:TMUS) is off 0.6% as Macquarie downgrades shares to Neutral, from Outperform, on concerns that it could get diluted by a share sale from its parent Deutsche Telekom (OTCQX:DTEGY) if timely mergers don't come around.
- One speculated partner is Dish Network (NASDAQ:DISH), which has been gathering wireless spectrum despite offering no mobile services.
- T-Mobile's hit Macquarie's target price of $38, the analysts note, and while a move up from around $32 seems to be based on M&A speculation, "We have been down this road before with TMUS and recommend investors take profits at current levels."
- "We feel the risk/reward is now fairly balanced," says Macquarie's Kevin Smithen, "with a potential DISH bid at $41-$42 fully priced into the stock when adjusting for a lengthy regulatory approval process and potentially adverse reaction to Dish Networks' share price on a merger announcement."
- Smithen also pointed out T-Mobile has done "two dilutive equity-convert financings over the past 18 months at low prices, with Deutsche Telekom not participating in either offering," so if a Dish tie-up doesn't pan out, DT may not wait around for another go with Sprint.
- BOX states the DOJ has "awarded Box a contract to securely manage agency information, increasing productivity and improving mission outcomes." The company will receive an agency Authorization to Operate this week.
- The DOJ will use Box's cloud storage/file-syncing platform to simplify collaboration between its agencies and third parties, to support mobile/offline content access, and to eliminate its "fragmented" content/document management tools.
- The deal acts as a nice reference win for Box, which has argued its security/compliance features act as a differentiator relative to the aggressively-priced offerings of cloud giants. FQ1 results arrive on June 10.
- The judge presiding over Unwired Planet's (NASDAQ:UPIP) infringement suit against Apple has granted Apple's motion for summary judgment of non-infringement on 3 out of 4 asserted patents. UPIP is "exploring all options available to us, including appealing them to the Federal Circuit."
- For the fourth patent, Apple was deemed to be not liable for inducing infringement by iPhone users - this meshes with a 2014 Akamai/Limelight Supreme Court ruling. Though UPIP's direct infringement case for the patent remains, the company says "a trial is not warranted unless and until a successful appeal regarding inducement occurs."
- UPIP adds it thinks the rulings "further exemplify the current uncertain and adverse climate in the U.S. that we perceive exists regarding patent holders’ rights, particularly with respect to narrowing (or even eliminating altogether) the scope of protection for these types of application-layer patents." It declares the decisions "underscores one of the reasons why we moved our primary enforcement focus to Europe in the beginning of 2014."
- Yesterday: Unwired Planet up 33% over last two trading days
- What seemed to set up as a pitched bidding war for Time Warner Cable (TWC -0.6%) -- between John Malone of Charter Communications (CHTR -1.5%) and "France's Malone," Patrick Drahi of Altice (OTC:ATCEY) -- ended relatively quickly, as Drahi told a parliamentary hearing that Altice wasn't prepared to take on such a big deal so fast.
- Instead, Charter assembled a buyout of TWC and Bright House in a deal valued at $78.7B, including debt.
- "I didn't follow up on the exchanges we had on Time Warner Cable that were mentioned in the media because we were not ready," Drahi said of a deal that would have quadrupled Altice's U.S. employees to nearly 120,000 in a market it was just beginning to enter, with a $9.1B Suddenlink purchase.
- But he says that consolidation is far from over in the U.S.: "Time is on our side ... The two leaders Comcast and Charter will not be able to buy anything else because of their size so we will have an open boulevard ahead of us ... If I buy five small operators, I can be as big as Time Warner Cable."
- Would that mean attention turns to possible target Cablevision (CVC; down 1.8% today, but up 24.4% over the M&A frenzy of the past week)? Cablevision's head-to-head competition with Verizon FiOS is no problem: "It's good actually since it means they know how to compete."
- Evercore's Ken Sena: "With less than five percent of the SpinCo value comprised by Yahoo's (YHOO - unchanged) selected ATB (Yahoo Small Business), we suspect the hurdle for establishing a legitimate corporate business purpose will be higher. Moreover, since the Treasury began its rhetoric around inversion, which we believe provides us with some read, we count 10 transaction withdrawals out of 13 with only two new deals since announced."
- Sena, who has downgraded to Hold and cut his target by $7 to $48, adds the 3 transactions approved by the Treasury only produced a small tax benefit, and that the IRS' review of spinoff tax rules could affect Yahoo's ability to monetize both its Alibaba and Yahoo Japan stakes.
- He thinks altering the Alibaba spinoff proposal would "prolong the application process into next year and possibly beyond," possibly distracting management and affecting its enthusiasm for buybacks.
- Yahoo is near breakeven on an up day for equities. Shares plunged last week after news of the IRS review first emerged, but recovered a chunk of their losses the next day after Yahoo issued a response.
- "Current investments likely won't be productive for sometime, which means EPS growth will likely slow in FY15," writes Morgan Stanley, downgrading Check Point (NASDAQ:CHKP) to Underweight. "We continue to look for a high-single digit EPS CAGR through FY17."
- MS thinks a firewall refresh cycle is peaking and believes Check Point has lost some share in the segment - next-gen firewall leader Palo Alto Networks has been seeing huge growth. It also thinks subscription billings growth softened in 2014, and that margins are declining.
- Check Point had risen over 35% from last summer's lows going into today. Shares currently go for 21x 2015E EPS and 19x 2016E EPS.
- Regarding Check Point's "current investments": Earlier this year, the company bought startups Lacoon and Hyperwise to strengthen its threat-prevention software/services offerings. It also launched a malware-protection software tool called Threat Extraction.
- Frontier Communications (NASDAQ:FTR) is up 5.5% out of the open as Morgan Stanley has upgraded the shares to Overweight, from Underweight, a two-notch move.
- The analysts lowered their price target on shares, however, to $6 from $7, saying it's attractively valued at the moment. Shares are trading this morning at $5.19.
- Pressure related to the company's integration of Connecticut lines "should stabilize in coming quarters with improved pricing trends, potential CAF Phase II funding, easing backhaul pressures and potential bonus depreciation extensions," MS said in its report.
- The analysts say the dividend payout is sustainable -- management guided to improving payout ratio 13% from the Verizon deal -- "so there could be further upside to our estimates."
- Fortinet (FTNT -1.4%) is acquiring Meru Networks (MERU +16%), a provider of enterprise Wi-Fi access points, controllers, and management software, for $44M in cash, or $1.63/share. The price represents a 17% premium to Meru's Tuesday close, and is equal to just 0.54x Meru's 2015 sales consensus of $81.3M.
- Fortinet, which already offers Wi-Fi access points and integrated Wi-Fi/security appliances, declares the deal "expands its opportunity to uniquely address the $5B global enterprise Wi-Fi market with integrated and intelligent secure wireless solutions." It also notes Meru's product line includes cloud/virtual Wi-Fi controllers (eliminates the need for dedicated hardware), and SDN-capable management and provisioning software.
- The deal is expected to close in Q3. Meru has been struggling to deal with competition from larger rivals such as Cisco and HP/Aruba Networks. The company announced a strategic review in January.
- Separately, Fortinet has launched FortiGuard Mobile, a subscription service that aims to protect phones/tablets from cyber threats, and which integrates with Fortinet's mainstay ForiGate unified threat management (UTM) appliances. Palo Alto Networks recently partnered with VMware to offer its own mobile security solutions.
- Orange SA (NYSE:ORAN) says it's not looking to acquire more assets in Spain.
- Spanish regulators Tuesday gave their OK to Orange's friendly acquisition of Jazztel (OTCPK:JAZTF), which also got conditional approval from European regulators last week.
- Orange expects to merge its Spanish business with Jazztel's and says it would likely take Jazztel private if it got big demand for the offer.
- It launched its $4.4B offer for Jazztel in the fall and may gain 1.5M broadband subscribers in the tie-up.
- Previously: Europe approves Orange's Jazztel acquisition, with conditions (May. 19 2015)
- VimpelCom (NASDAQ:VIP) and Hutchison Whampoa (OTCPK:HUWHY) -- long in talks to merge their Italy wireless units -- are considering an IPO for the combination, Bloomberg reports.
- A combination of VimpelCom's Wind Telecomunicazioni and Hutchison's Three Italia would have the largest customer base in Italy and become the chief challenger to Telecom Italia (NYSE:TI).
- The two posted about €2B in combined EBITDA for 2014, and at standard 8x multiples, the combination could be valued up to $18B, though Wind is carrying debt of close to €10B.
- They've been in merger discussions for more than a year, though coming to terms on an equal marriage could come this summer before perhaps a year of seeking regulator OKs.
- Hydrogenics (NASDAQ:HYGS) has signed an agreement to supply Alstom (OTCPK:ALSMY) Transport with hydrogen fuel cell systems for regional commuter trains in Europe.
- The €50M contract includes the supply of at least 200 engine systems along with service and maintenance as necessary over a 10 year period.
- HYGS +38% premarket
- As the telecom-network industry consolidates, Ericsson (NASDAQ:ERIC) is now more open to a bigger M&A deal in order to remain competitive in the market, Bloomberg reports.
- "I see no reason why we, given the right preconditions, would exclude a larger deal," Ericsson Chairman Leif Johansson said in an interview this month. "But as you know, there aren't that many left."
- CEO Hans Vestberg plans to gather with his top managers in June to discuss strategy, and a key area is what the company can do to counter Nokia's recent $16.6B acquisition of Alcatel-Lucent.
- Possible targets: Ciena (NYSE:CIEN), Infinera (NASDAQ:INFN) and Juniper (NYSE:JNPR)
- Despite being blocked in China, Twitter (NYSE:TWTR) is courting Chinese companies to buy advertising space on its service - used by more than 300M people elsewhere across the globe.
- "This seems to be a moment in time where Chinese corporations really feel the urge to be global," said Peter Greenberger, director of sales for emerging markets.
- Twitter collected $436M in Q1 revenue from advertisers who paid to inject their ads, known as "promoted tweets", in to users' timelines.
- Several other Internet giants reached out and held early discussions about buying Flipboard in recent weeks, including Yahoo (NASDAQ:YHOO) and Google (GOOG, GOOGL), although those talks involved ideas around how products would be integrated rather than centering around price, sources told WSJ.
- Talks with Twitter (NYSE:TWTR) went further, discussing a $1B+ all-stock deal, but those negotiations have largely stalled since April.
- Previously: Report: Twitter held talks to buy Flipboard for over $1B (May. 25 2015)
- Snapchat CEO Evan Spiegel has revealed plans for an IPO, saying he had no desire to field any acquisitions offers - like Facebook's (NASDAQ:FB) $3B bid for the company nearly two years ago.
- Spiegel’s comments, coming at the Code Conference in California, were the first time he publicly acknowledged the possibility of an IPO. He stopped short of saying when the company, most recently valued at $15B, might try to go public.
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