Tesla's New Product, Google's Web TV Plans, Microsoft's Earnings - Eye On Tech

| About: Alphabet Inc. (GOOG)


Tesla's cars will come pre-loaded with the necessary equipment for self-driving capabilities. But investors seem unimpressed.

Google is negotiating with network providers to broadcast web-based TV.

Microsoft tops earnings, hits new highs in the after-hours. Time to buy?

Tesla Reveals New Product

Above is a video from Tesla (NASDAQ:TSLA), which was part of the company's big announcement on Wednesday. Originally, the company was supposed to make the announcement on Monday, but in order to include the above demo run, the company needed a few more days.

In any regard, CEO Elon Musk revealed that each Tesla vehicle will come with the necessary hardware to enable self-driving capabilities in the future. By pre-loading the vehicles with the necessary equipment, Tesla will then be able to send over-the-air updates to the vehicles with its self-driving software.

I've spent some time reading articles and commentary from various outlets, and it actually seems pretty negative. From an investment standpoint, one has to decipher what's "cool" and what's financially feasible.

Pre-loading the new cars will add to the company's expenses and pressure gross margins. There's also concern about the regulatory rulings that will follow. Will self-driving cars be legal in each state? Will there be limitations?

We don't know those answers. And for someone who has followed the self-driving space for many years, it has been a common belief that the technology would be ready before the public and regulations. That's turning out to be true, especially with Musk saying he expects the technology to be capable of driving to L.A. from New York without the driver touching the wheel by the end of next year.

Bottom line:

There are a lot of "yawns" from people about the new software/hardware announcement. I for one think the technology is great. And seeing a company get this far with this innovative technology is really inspiring.

But for investors, I think they keep seeing obstacles popping up that are bleeding the company and causing them to second guess Tesla. We all know Musk wants to build a state-of-the-art, green-based empire. And really, there's nothing wrong with that. But a lot of people see extra hardware as an extra cost at a time when arguably the company can't afford more expenses.

Then there's the acquisition of SolarCity (NASDAQ:SCTY), which many view as a distraction from Tesla's original goal of building a high quality, sustainable auto company. It doesn't help that it's bleeding too and all of this swirls together the concerns of the company's finances and likely capital raises in the future.

So as it stands, the self-driving update is a show of great technology, but concerns of Tesla's financial situation certainly remain, evident by the stock's 2.2% decline on the day.

Google's Getting Into TV

On Wednesday, it was reported that Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) had reached a deal with CBS for a web-based TV service. But it's not stopping there as Google also is in talks with Disney (NYSE:DIS) and Twenty-First Century Fox (NASDAQ:FOX) (NASDAQ:FOXA) as well. NBC is reportedly involved too.

Not surprisingly, the service - being called "Unplugged" - would be channeled through the company's YouTube property, the premier name in online video.

Google is the go-to name in search and the go-to name in online video. Is it on the cusp of being the go-to name in web TV too? If so, look out. The skinny bundle will supposedly sell for about $25 to $40 per month.

Let's interpret this. On Wednesday we discussed why Facebook (NASDAQ:FB) could be successful in launching online features like food ordering and ticket sales. Simply put, it has scale and a huge user base. Who else does? That's right, Google.

And perhaps this is why the company was considering a purchase of Twitter (NYSE:TWTR) in order to get a more concrete user base. While YouTube certainly has a huge list of users, Google doesn't really have a social media presence. That could help in the company's web TV ambitions, although admittedly it's not a make or break factor.

Still, Google has what it takes to make a web TV service succeed partly because it has access to so many people. Every time someone goes to YouTube, they will be able to see the offering. How valuable is that?

It makes me wonder if or when Facebook will enter the same space. While it doesn't have the video space nailed down in the same manner YouTube does, Facebook does have a strong video presence and a number of platforms with more than a billion active users.

Both companies' mobile efforts make watching TV at home or on the go a breeze as well.

Will it be an instant disruptor? Probably not, because people are slow to change. But it could certainly be something that gains traction, particularly from those looking to cut the cord. It helps that the price is low and Google has some powerhouse names in its corner.

*Thinking Outside the Box

This brings up the question of Netflix (NASDAQ:NFLX) - is Google's plan good or bad for it? If I had to choose, I would say good and here's why. If Google's going to take customers from anyone, it's going to be people who are traditional TV customers, those that pay for hundreds of channels and want to downsize.

Many won't choose between Netflix and a skinny bundle. Instead, it will be a skinny bundle vs. traditional TV and customers looking to cut their expensive cable bill may even consider a skinny bundle paired with something else, perhaps an HBO Now membership from Time Warner (NYSE:TWX) or Netflix.

When customers are pressed to switch, pairing a Netflix or Hulu with a skinny bundle doesn't seem like a stretch. Which brings up another point: Disney.

As mentioned, Disney is reportedly working with Google. It's already in the DISH (NASDAQ:DISH) skinny bundle, it has its own ESPN brand it could stream, it's own movie studio, is a one-third owner in Hulu and has Netflix as one of its biggest content customers.

This company has diversified like none other (although Comcast (NASDAQ:CMCSA) has diversified a ton, too). Sometimes diversification is a bad thing. But in this case - and maybe it's different from TV execs' standpoint - it's hard to see where the content landscape is going in the intermediate term.

Long term, it's headed for more convenience. In the short-term, live-sports and traditional cable are still doing OK. But what about the next 10 years? Who will win and who will lose?

Disney is positioned in each category to see how things unfold. It's flexible and will be able to follow the money. Content consumption is changing, but it's not going to disappear.

Microsoft Tops Q1 Earnings

Microsoft (NASDAQ:MSFT) reported revenues of $22.3 billion for the most recent quarter, topping estimates and generating 3% year-over-year growth. Earnings of 76 cents per share also came in better than expected, at 8 cents per share above consensus.

Impressively, Azure sales climbed a whopping 116%, while management expects its $26.2 billion acquisition of LinkedIn (NYSE:LNKD) to close in the second quarter.

As a result, shares are up roughly 6% in after-hours trading and has the stock almost $2 per share above the prior 52-week and all-time high. Should investors buy now though?

The stock actually hadn't been great this year, up just 3% in 2016 heading into the print. In the past year though, the stock is up 20%.

Microsoft is in a rare position. The mammoth $444 billion company has a ton of cash, pays a dividend yield of roughly 2.75%, buys back stock and is doing a pretty solid job under CEO Satya Nadella at growing, unlike what it was able to do under previous leadership.

While 27x earnings feels a tad pricey, 17x forward earnings isn't all that bad. Maybe it's just a personal preference, but Microsoft has been a great buy and hold stock for the past few years. Earnings are expected to grow at a decent rate and should the market get a decent pullback in the 5% to 10% range, it seems like this ole blue-chipper would be a good scoop up.

The dividend is safe and attractive, and growth is solid but not robust. One could even argue that against other blue-chip, dividend-paying stocks, Microsoft isn't that expensive at current levels.

Disclosure: I am/we are long DIS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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