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  • Discounting Follow The Insider Selling And Clip This Coupon Before The Coming Crash [View article]
    Timing of the ramp in digital promotions revenue second time around (Q3-Q4 '14) lines up pretty well with Google's Panda algorithm change (and RetailMeNot's subsequent drop in search results). Correlation doesn't equal causation but it's a rather curious coincidence at the least. Will be a tough comp.
    Jan 27, 2015. 09:20 PM | 1 Like Like |Link to Comment
  • What Jelli Means to Pandora, Sirius and Terrestrial Radio [View article]
    I think you guys are seriously missing the point here on Pandora. First things first: SIRI has 20mm subs, compared to 100mm (and growing) on Pandora. Sub based versus ad-supported, so not apples to apples here, but let's not pretend like a partnership with SIRI is the holy grail for Jelli.

    The reason to get excited about Pandora's IPO is because it's the best way to play the mobile ad market as a public investor. Plain and simple. It's a nascent market and Pandora is best way to play it in the public markets. The reason that users and advertisers love Pandora is that it's personalized! Jelli isn't user controlled, it's controlled by the masses (aggregate voting system). How is an ad served on Jelli different from an ad served on terrestrial radio? Seems like the same (crappy) business model to me.

    The value add for Pandora to users is that it's personalized music discovery--the whole point is to find songs that you wouldn't have otherwise listened to, or to reconnect with songs that you haven't heard in a long time, based on personal preferences. The algorithm get's refined over time, and the feedback (thumbs) make the product interactive / engaging (which is key for an ad-supported model).

    So to advertisers, Pandora represents an opportunity for targeted advertising (based on the wealth of data Pandora has on it's users) that is only shown when the user is engaged (after hitting thumbs up / down) with product. If I'm an advertiser, I would imagine that ad dollars spent on Pandora will be higher ROI than Jelli because I can target users based on more data points than traditional radio. Jelli doesn't add any value for advertisers--it looks like a great product for consumers, but in reality it's a service enhancement to terrestrial radio. Social is a great aspect to add to it, and it might get them more users, but the ad dollars will flow to the highest ROI project and facebook has taught us that the holy grail of advertising is personalized, user-specific, and engaging (Pandora is 3 for 3).
    May 6, 2011. 01:00 PM | 1 Like Like |Link to Comment
  • Loose Lips at CBS Could Sink Netflix's Ship [View article]
    I think you hit the nail on the head--the question is: can they grow subs faster than costs? Plain and simple. I would argue that the demand side of the argument is extremely bullish (consumer trend is to consume digital content on the cloud, proliferation of mobile digital devices, etc.).

    Regarding sub growth slowing down: they talk about where they are on the S curve in every earnings release and they've already mentioned that domestic sub. growth will slow in the next quarter, so this should be baked into the current price.
    May 4, 2011. 01:01 PM | Likes Like |Link to Comment
  • Loose Lips at CBS Could Sink Netflix's Ship [View article]
    Interesting piece. Your points here almost make the bull case for me:

    1) To me, the fact that content owners like CBS see deals with Netflix as highly lucrative signals that the only upward pressure on content acq. costs going forward will be due to competitive pressures (if they're making a lot of money off of their deals right now, there is little leverage to negotiate for a higher price). In fact, if I were a content owner in LatAm (or wherever NFLX is going next), I'd be picking up the phone to call Reed's content acq. team.

    2) Yes, well capitalized competitors like GOOG and AMZN have tons of ammunition to acquire content but the question is: will they go out there and really bid for it? How does a streaming service fit in with their core strategy? Think about it--how would the street react if AMZN spent $1bn next year on acquiring content? It's not happening. Streaming is an ancillary revenue stream for these guys and they won't devote a large portion of their attention or balance sheet to building that business.

    3) NFLX has openly stated multiple times that they will not target new release content--this is key, because by targeting older titles NFLX doesn't have to pay for exclusivity. Much more likely that bidding wars for content will arise in the new release window, not for non-exclusive, older content.

    I wouldn't bet against this management team--they're smart and nimble. You have a fair gripe about the conference call format but you can't argue with their business model. It works and the proof is in the pudding. I don't have a position right now, but my gut tells me they will issue some equity in the next 12 months to add some dry powder to the balance sheet and I'll use that as an opp to get in cheap.
    May 4, 2011. 11:53 AM | 5 Likes Like |Link to Comment
  • 3 Out of Favor Large Caps With Excellent 'CROIC' [View article]
    Are you making any adjustments to the invested capital calculation? If not then these numbers are completely meaningless (e.g. if you're adding back non-cash costs to the numerator, such as D&A, then you need to make appropriate adjustments to the denominator to reflect these changes. In this case you would need to add back accumulated D&A).

    I also don't think this CROIC is a great measure of returns for a technology or pharma company. You would need to capitalize R&D expenses and make some assumptions on amortizable life of R&D assets, which muddy the waters when comparing companies in the sector (not to mention the other appropriate adjustments to the numerator in this scenario).

    CROIC does however seem to be a good measure of performance for a capital intensive business like offshore drilling. The trend in the fall in CROIC doesn't surprise me when you see that invested capital is growing (companies are investing now, and returns take time to materialize--especially in tech and pharma).

    However, I think you miss the entire point of this measure of returns with regards to the value of a company: it needs to be compared to the company's cost of capital. If management is earning returns above their cost of capital they are adding to enterprise value (and the theory is that the market will eventually realize this value).
    Apr 30, 2011. 05:47 PM | 1 Like Like |Link to Comment