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  • Is Facebook Really Worth More Than Wal-Mart? A Value-Based Comparison [View article]
    FB's free cash flow in fiscal 2014 appears to be $3.6 bil. because cash flow from operations was $5.4 bil. while capex was $1.8 bil., but because FB also had $1.8 bil. in stock-based compensation, free cash flow was really only $1.8 bil., or only half what it initially appears to be. Thus, FB's multiple is over 100 and extremely, extremely overvalued.
    Jun 29, 2015. 09:11 PM | 3 Likes Like |Link to Comment
  • Why I Wouldn't Own Microsoft [View article]
    MSFT is dead money for the next decade and beyond. All the cloud hype eventually dies, and investors finally realize MSFT is spending billions more on capex than the world's biggest steel companies (I'm not kidding). Historically enjoying fat margins from their extremely capital-light business models (just mail out Windows and Office on very cheap installation CDs at pennies a copy and then wait for the billions to come in), software companies aren't supposed to be so capital-intensive, but costly Azure data centers and Surfaces and Lumia hardware transform MSFT into a very capital-intensive, low-margin commodity hardware and commodity cloud services company with far, far lower margins than MSFT's old Windows/Office business. It's damn obscene how low MSFT's profit margins on Surfaces and Lumia phones are compared to the Windows/Office business. One wonders why they ever even embarked on this path.
    Jun 28, 2015. 07:44 PM | 5 Likes Like |Link to Comment
  • Google Is More Like Christopher Columbus Before He Found The New World [View article]
    Warren Buffett once asked Bill Gates when they met for the first time why IBM couldn't do what MSFT did in the early 1980s since IBM was Goliath and MSFT was David and IBM seemed to have the upper hand. Gates replied IBM was too pre-occupied with protecting its cash cow mainframe hardware business. 20 years later, MSFT itself is like IBM and can't adjust to mobile because it's trying to protect its desktop Windows/Office business. Google rose to prominence during the tail of MSFT's desktop reign, but its desktop search business is as fully beholden for 90% of its financial lifeblood to the old desktop PC paradigm as Windows/Office. Both MSFT's and Google's free cash flows have fallen since their 2012 all-time peaks due to mobile. Apple will make 3x the FCF of MSFT this year and 14x that of Google. In 2009, both MSFT's and Google's FCFs were higher than Apple's. Sell all your desktop-era dinosaurs Ike Google and MSFT and buy Apple.
    Jun 28, 2015. 04:57 PM | Likes Like |Link to Comment
  • Google Is More Like Christopher Columbus Before He Found The New World [View article]
    The odds of two independent events happening is the product of their individual probabilities. So if Google's odds of getting its first monopoly were 1 in a million and its odds of getting another monopoly , say in cloud, are also 1 in a million, the odds of Google ending up with monopolies on both is 1 in one quadrillion. Simple math. History shows monopolists tend not to be able to develop other new monopolies. And thankfully so.
    Jun 28, 2015. 04:41 PM | Likes Like |Link to Comment
  • Google Is More Like Christopher Columbus Before He Found The New World [View article]
    YouTube is unprofitable because of skyrocketing content and data center costs. It's a far cry from the high-margin, low-capex search biz that put Google on the map.
    Jun 28, 2015. 04:32 PM | Likes Like |Link to Comment
  • Google Is More Like Christopher Columbus Before He Found The New World [View article]
    IBM's and MSFT's stock prices have flatlined for the past 15 years. That's my point.
    Jun 28, 2015. 04:30 PM | Likes Like |Link to Comment
  • Google Is More Like Christopher Columbus Before He Found The New World [View article]
    There's a chance a previous lottery winner can win the lottery a second time, but the odds are so infinitesimal as to be effectively nil. And the extremely capital-intensive nature of Google's main moonshots cloud and Fiber make it so that even if these were ever "successful," their returns would be far, far inferior to the core search ad business, which again is blessed with both high margins and low capex needs.

    The entire reason that MSFT's and Google's stocks did well years ago was that they had extremely high-margin AND capital-light business models that resulted in massive free cash flows for years before they both decided to throw that all away and spend as much money on capex as steel companies. Burdened by ongoing capex needs for the rest of time as servers' useful lives are only 3 years, they will buckle under the weight of their continuous ongoing capex burdens. High flyers they are no more. Google is becoming the Internet equivalent of a steel or telecom commodity businesses with low margins and high capex needs in perpetuity.
    Jun 20, 2015. 10:47 PM | 1 Like Like |Link to Comment
  • Google Is More Like Christopher Columbus Before He Found The New World [View article]
    Google's problem is that it doesn't know the difference between an excellent business and a mediocre one in terms of profit margins and capex needs. Google has one good business, search advertising, which is blessed with both monopolistic high margins and low capex needs, but then it has all these other businesses that are cursed with razor-thin margins and extremely high capex needs like cloud and Fiber.

    The test of management competence is how a company allocates its retained earnings, whether invests them back into the high-margin business, wastes them on financially inferior non-core side projects in the name of trying to grow at all costs, or provides dividends/buybacks. Google has chosen the second route, funneling the profits from its high-margin monopoly core business into many low-margin, financially mediocre side businesses.

    When a company funnels its profits from a solid business with double digit margins into mediocre businesses with single digit margins instead of paying out dividends so that investors can seek out higher returns elsewhere, it basically defeats the purpose of having that high-margin solid business in the first place since investors will never see the fruits of those high margins in their investment returns.

    As for the author's Christopher Columbus notion that Google will eventually discover a second goldmine business like search, the odds are against it for the simple reason that lightning never strikes twice. The mathematical odds of getting one monopoly is infinitesimal as it is, so the odds of a monopolist like Google getting a second monopoly in another business area are exponentially more infinitesimal.

    In the history of the stock market, there's never been a case of a leading monopolist from one tech revolution becoming the leading monopolist of the subsequent tech revolution. The leading tech company during the '60s and '70s, IBM, couldn't do it in the '80s and '90s, and MSFT couldn't do it in the '00s and now. Google won't do it either.

    MSFT and Google's claim to fame is high-margin software/services businesses with extremely low capex needs like Windows/Office and Google search, but the new cloud businesses they have embarked upon are low-margin, high capex ventures that don't have a chance of producing the huge profits and thus stock returns of their former capital-light, high margin businesses. Their glory days are over.

    This year, Google's free cash flow will be only $5 bil. ($25 bil. CF from operations - $15 bil. capex - $5 bil. stock-based compensation), which is down from $7 bil. last year and $8 bil. two years ago. Google's capex will actually exceed its GAAP net income this year. Such heavy spending cannot reverse the mathematical reality that Google's best days are behind it.
    Jun 20, 2015. 05:26 PM | 8 Likes Like |Link to Comment
  • The Drunken Sailor That Is Google [View article]
    According to its cash flow statement (http://bit.ly/1K0Vo45), Google had $4.3 bil. of SBC expense in 2014, $3.3 bil. in 2013, and $2.7 bil. in 2012. This year, it'll rise to about $5 bil. Along with capex hitting $15 bil. this year, that's a $20 bil. hit to Google's cash flow from operations of $25 bil. this year. $25 bil. minus $20 bil. leaves only $5 bil. in free cash flow for the year, down from $7 bil. last year and $8 bil. in 2013. Unbelievably, Google is on track to be cash flow negative just two years from now in 2017. Google's insane $367 bil. market cap on rapidly deteriorating FCF is a huge risk that will end in immeasurable pain for many foolish Google investors. At best, Google will flatline over the next decade.
    Jun 18, 2015. 02:36 PM | 10 Likes Like |Link to Comment
  • Intel Becomes An ARM Chip Maker [View article]
    In other words, the PEG is almost 4.0. That's a 200-300% premium to Altera's fair value.
    Jun 2, 2015. 10:56 AM | Likes Like |Link to Comment
  • Intel Becomes An ARM Chip Maker [View article]
    INTC's paying 26x Altera's measly $650 mil. annual FCF growing at just 7% a year is the definition of insanity. Fair value for such a mediocre grower is 10x. Intel has already flatlined for the past 19 years, and this stupid acquisition will keep the trend going, but probably it'll drive INTC under $30 in the near term.
    Jun 2, 2015. 10:49 AM | 5 Likes Like |Link to Comment
  • The Problem At Google Is Larry Page [View article]
    Page told Steve Jobs once it'd be a "sin" not to invest Google's cash pile on many moonshots to try to uplift humanity, so Google's self-destruction through Page's continued reckless spending on negative-ROI projects is assured. Schmidt built up the $60 bil. cash pile through focusing on and building up search over the past decade, but Page is now gambling and losing it all on various high school science fair projects.
    May 29, 2015. 09:30 AM | 12 Likes Like |Link to Comment
  • Jony Ive Was Demoted, Not Promoted, And Other Things Apple [View article]
    Santos:

    From Barron's today:

    "Samsung Electronics: Initial Galaxy S6 Sales Figures Are Disappointing" --
    http://on.barrons.com/...
    May 28, 2015. 09:50 PM | 7 Likes Like |Link to Comment
  • Jony Ive Was Demoted, Not Promoted, And Other Things Apple [View article]
    Santos, Ive's design team has been infused with his quality and design sense for 20 years, and this is the heart of Apple. A sustainable culture is what Jobs instilled in his company, and you will never get this point and continue to lose money.
    May 28, 2015. 02:42 PM | 10 Likes Like |Link to Comment
  • Jony Ive Was Demoted, Not Promoted, And Other Things Apple [View article]
    Santos, as long as iPhone's competitors like Galaxy S6 keep crumbling, iPhone has a bright future. Android profit margins of 1% or lower guarantee mediocrity for years to come and serve as a backdrop for iPhones to continue to shine. Same thing has happened in PCs, where Macs' pricing power keeps getting stronger, not weaker, while Windows PCs are commoditized and junkified literally forever. Same bifurcation in quality and pricing power is happening in smartphones. This situation has persisted for a long time and will continue.
    May 28, 2015. 02:34 PM | 11 Likes Like |Link to Comment
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