Christopher & Banks (CBK) Clothing retailer loses CEO. Drops to $11.69 from 52-week high of $31.25.
Cost Plus (CPWM) Home furnishing and entertainment products retailer loses CFO and drops guidance. Shares fall to $3.98 from 52-week high of $14.34.
Coldwater Creek (CWTR) Specialty retailer still falling after bad earnings. Down to $12.43 from 52-week high of $31.25.
Sourceforge (LNUX) Poor earnings fall-out. Still dropping. Down to $2.54 from 52-week high of $5.55.
Douglas A. McIntyre
Apple (AAPL) claims that it kicked NBC’s programming off of its iTune service because NBC would not agree to pricing. NBC claims that: "We never asked to double the wholesale price for our TV shows. In fact, our negotiations were centered on our request for flexibility in wholesale pricing, including the ability to package shows together in ways that could make our content even more attractive for consumers," said Cory Shields, executive vice president of communications for NBC Universal, in a statement.
It hardly matters. What does is that the fighting between AAPL and its content providers has broken into open and public warfare. NBC contributed over 30% of the video programming on iTunes.
The situation also opens the door for other digital download businesses to offer video and music content owners the deals that they want. And, why shouldn’t they? Nokia (NOK), Amazon (AMZN) have nothing to lose by taking the business on terms that get them all the content they want.
Apple has all leverage, all the power. And, they are acting that way.
It is going to cost them big time.
Douglas A. McIntyre
Convio, Inc. has filed to come public via an IPO under the proposed ticker "CNVO" on NASDAQ. This Austin, Texas-based NPO software and service operator has a pretty impressive underwriting group with Goldman Sachs as the lead underwriter and others listed as Thomas Weisel, William Blair, JMP Securities, and Pacific Crest.
The company has on-demand software and services that enable nonprofit organizations to more effectively raise funds, influence public policy and support their missions. It claims it is leveraging the Internet to build strong relationships with constituents for fundraising, advocacy, email marketing and web content management complemented by consulting services. Convio says it developed its solution based on interactions with more than 1,200 active NPO clients; but as of June 30, 2007 its clients include 22 of the 50 largest charities in the United States. This includes the American Red Cross, American Cancer Society, CARE, Catholic Relief Services, Feed the Children, Inc., The Ocean Conservancy, Inc., Paralyzed Veterans of America, Public Broadcasting Service, Shriners Hospitals for Children and Smithsonian Institution.
For fiscal 2006 it posted $30.674 million in revenues, with an operating loss of $11.92 million, and a net loss of just over $12.5 million. In the first 6 months of 2007 here are the stats compared to 2006
YEAR REVENUE OPERATING NET
2007 $18.432M -$6.345M -$7.499m
2006 $13.714m -$6.039m -$6.196m
There are items that can explain this higher operating loss and higher net loss on revenues, but ideally that would look a little better. As of June 30, 2007, it listed 301 employees that are all based in the United States: 114 in sales, marketing, account management and business development; 42 in R&D; 123 in services, support and operations; and 22 in general and administration.
This looks on the surface as though it has many overlaps with Blackbaud, Inc. (NASDAQ:BLKB). Blackbaud can help manage a nonprofit organization’s fundraising activity, address the accounting needs of nonprofit organizations, and organize an independent school’s admissions and registrar processes. There is obviously Not a perfect overlap per se, but in the realm.
Jon C. Ogg
August 31, 2007
George Bush promised to do his best. And, that was the main message in his speech on the troubles in the sub-prime market. The address was not even long on promises. Congress will work on legislation to help home owners. Freddie Mac and Fannie Mae may help. And, anyone who committed fraud while making a home loan will be hunted down like a dog.
The best evidence for the lack of enthusiasm over Mr. Bush’s talk is that mortgage companies and homebuilders are trading at their intraday lows. Beazer (BZH), which was as high as $11.04 today now trades at $11.07, up 1.8%. Countrywide Financial (CFC), which hit $20.95, is now up only .4% at $18.73.
Anyone who bought at these stocks at the open is taking a beating.
Douglas A. McIntyre
Dell (DELL) is not up this morning. Most investors thought it would be. The company reported preliminary results for its second quarter of fiscal year 2008, with revenue of $14.8 billion, operating income of $896 million and earnings per share of $0.32 . Those were better than last year’s numbers which are still subject to some accounting changes.
The first culprit for a poor reaction to Dell’s new is that the company said "near-term results could be adversely impacted by a slower decline in component costs in the second half of the year."
But, the other, perhaps more important reason is that Dell is not doing very well in the portable/laptop business. And, the industry is moving away from the desktop.
Percentage of Total Net Revenue:
————————————————-
Desktop PCs 34%
Mobility 26%
Servers and Networking 11%
Storage 4%
Enhanced Services 9%
Software and Peripherals 16%
Laptops are driving the industry now.
Over at HP, desktop revenue rose modestly last quarter from $3.9 billion from $3.569 billion. Notebook revenue moved from $2.815 billion to from $4.084.
Dell did not show that kind of progress.
Douglas A. McIntyre
A number of home mortgage and home building stocks including Beazer (BZH) and Countrywide (CFC) are up ahead of President Bush’s speech on what he will do to improve the sub-prime mess.
Of course, since no one is sure what he will say, or if any of its will require approval from Congress, putting a new number on the value of these companies is just a guess.
And, guesses can be wrong.
Douglas A. McIntyre
A blog on CNET reports that Yahoo! (YHOO) is pushing into the social network with a product called Kickstart.
The new site wil, among other things, connect college students with people at companies where they would like to have jobs. CNET writes "Yahoo Kickstart connects college students with alumni at the companies that they are interested in."
It sounds like a very small, vertical business that will not draw much of an audience.
Douglas A. McIntyre
According to The New York Post, Apple (AAPL) intends to enter the ringtone business, which has been highly lucrative for cell carriers in Europe and Asia.
It is talking to several music publishers about financial arrangements.
The service will probably be announced next week when AAPL releases it updated iPod products.
According to the paper: "In a new twist, iPhone users will have the ability to choose any part of the song they want as their ringtone."
Douglas A. McIntyre
The huge Japanese cell carrier NTT Docomo (DCM) is investing in a large WiMax deployment in that country. Japanese ADSL provider Acca Networks will be its partner. Docomo has a number of ways to push the new ultra-high-speed wireless format. It has a large customer base and and a number of channels to sell new handsets.
WiMax is the technology that Sprint (S) is in the midst of deploying in the US to offer consumers a fast alternative to the 3G technologies from AT&T (T) Wireless and Verizon Wireless. Sprint is in third place in the US and is gambling the the technology will allow it to leapfrog its rivals.
With Japan’s largest cell company adopting the tech, there must be some smiles at Sprint headquarters.
Douglas A. McIntyre
The New York Post reports that Amazon (AMZN) will launch its online music store in September.
All of the music publishers who hate Apple (AAPL) must be heartened by the news.
Douglas A. McIntyre
The Justice Department seems satisfied that Microsoft (NASD:MSFT) is abiding by its 2002 deal not to act like a huge monopoly laying siege to all of its smaller competitors. Several state attorneys general do not see it that way. They believe that competition has not been flourishing in the desktop software business and that Microsoft is to blame.
It may be that, in this argument, Google (GOOG) has turned out to be Microsoft’s best friend. Other company like Symantec (SYMC) have shown that they can take the lion’s share of revenue for PC security. Windows Media is no longer the preferred format for online video. Adobe (ADBE) and its Flash format enjoy that distinction. If the government had not pressured Microsoft five years back, these things might not be true.
But, it is Google that makes Microsoft’s point in two ways. The search company obviously has at least 50% of that critical market on the PC. And the company is launching desktop applications for word processing, spreadsheets, and power-point. Google is likely to continue to move into these markets with server-based applications, and most press and pundits thing that the company can do a good job of taking a piece of Microsoft’s big revenue pie.
And, of course, there is always Linux, if it can ever get its act together.
Douglas A. McIntyre
Markets in Europe were higher at 6.40 AM New York time.
The FTSE rose .6% to 6,248. BP (BP) was up 1.4% to 558.5. Rio Tinto (RTP) was up 2% to 3372.
The DAXX rose .4% to 7,553. Siemens (SI) rose 1.4% to 91.25.
The CAC 40 was up .8% to 5,638. Alcatel-Lucent (ALU) rose 1% to 8.07. Societe Generale rose 1.2% to 117.95
Data from Reuters
Douglas A. McIntyre.
Almost 300 CEOs are getting letters from the SEC. They include the heads of American Express (AXP), GE (GE) and Coca-Cola (KO). The agency wants more details on how their compensation is determined. This even includes details on specifi work done by pay consultants who work for board comp committees.
According to The Wall Street Journal: "The letters are intended to help issuers better explain why they’ve paid executives what they’ve paid them," said John Nester, an SEC spokesman The paper goes on to write: "Some letters posed highly technical questions, even though SEC officials had previously encouraged companies to simplify their often wordy proxies."
The issues here are not immensely complex, but they could be time consuming. The entire process which goes into setting pay for the senior management at a company may take several months and a number of board members and consultants.
But, there is a way around this. The SEC could ask that the audit firms that verify financials also supply all of the necessary information on management pay. Audit firms have the expertise to examine complex and detailed issues and they are responsible to a company’s audit committee. Thus, the compensation committtee would set pay, and the auditors would report the factors that go into the calculations.
That way, no one can borrow the company plane without the audit firm knowing it.
Douglas A. McIntyre
NBC has told Apple (AAPL) that it will not renew its long-term deal with the iTunes store. The GE (GE) unit is "the No. 1 supplier of digital video to Apple’s online store, accounting for about 40 percent of downloads," according to The New York Times. Univeral Music, the world’s largest music publisher also declined to sign another long term deal with Apple. Several other companies like CBS (CBS) will reach their end of their initial deals with Apple in the next few months.
The Zune could not hurt the iTune model. Neither, it appears, could cell handsets with music capability.
But, that leaves Apple as its own worst enemy. It has pushed so hard on the rates that it gets from content owners, they they are balking at staying on board.
It is easy to argue that the video and music content owners have no where else to go. They cannot do business without Apple. But, it is not entirely clear that this is true. Companies like Wal-Mart (WMT) and Amazon (AMZN) have large download businesses. Sony (SNE) is opening the Walkman plattform to MP3. And, the video content companies are opening their own websites. And, Nokia (NOK) has launched a big initiative to sell digital content thought its own online store
No one can predict who will blink first in the battle over who will set prices for iTunes content. But, for the first time in a couple of years, at least it is a horse race.
Douglas A. McIntyre
The nice thing about the management at Toyota (TM) is that they tell their rivals ahead of time how badly they are going to crush them.
The big Japanese car company says it will sell 10.4 million vehicles in 2009. That would be up 18% from 2006, according to Reuters.
The company is even willing to say how they will get there. First, increased market share in developed markets like the US and Europe. And, then taking big chunks of fast-growing markets like India and China.
Reuters writes that "Toyota said it planned to sell 1 million cars in China in the early part of the next decade. But, so will almost every large car company. Added together, the projections of the world’s major car companies for China sales over the next decade and every man, woman, and child will have a car.
In India, several studies show that weak highway infrastructure will contain car sales, at leas until India’s road builder catch up.
Last year, half of Toyota’s cars were sold in the US and Japan. Those markets are not growing, and, with the amount of competition, Toyota may find that its next one or two percent market share comes much more slowly that the last few. Detroit is fighting for its life in the US and GM is doing particularly well in China.
In Japan, Toyota has to face Nissan and Honda (HMC). Neither is likely to give up the ghost.
India and China also have local car companies. And, the governments there may not let outsiders take damage these companies as has happened in the lassie fair.
The next million car sales are going to be much harder than Toyota may think.
Douglas A. McIntyre
McGraw-Hill (MGP) sacked the head of its S&P unit on the theory that the ratings agency should have seen sub-prime problems coming sooner and downgraded pools of the mortgage-backed securities. It might have saved a lot of investors money and saved the markets for fear and confusion.
According to The Wall Street Journal:"Critics charge S&P and others were too optimistic about the market for too long." That will be a battle for debate, and, perhaps, legal action for years to come. How far ahead does a rating agency have to see? How far ahead can it see?
There is clearly an argument that no one could know how fast sub-prime mortgages would come apart. The economy has been strong. Some mortgages have reset at higher rates. But, it would appear that companies like Countrywide Financial (CFC) were not walking around Wall St. several months ago saying that they had a problems. The hedge fund managers at Bear Stearns (BSC) did not issue any bulletins either.
S&P and Moody’s (MCO) seem to have been lax in monitoring a lot of their ratings. Sub-prime is just part of that problem.
Moody’s shares are down from a 52-week high of $76 to $45. McGraw-Hill shares have fallen from $73 to $50.
But, where was Terry McGraw when all of this went on? CEO and great-grandson of the company founder, he must have paid little attention to the financial services unit which brought in $821 million of the company’s $1.718 billion in revenue in the last quarter. The division also contributed $401 million in operating profit according to the company 10-Q.
When an operation is that much of a company’s revenue, the CEO needs to be nearly as aware of what goes on as the person running the business. McGraw cannot escape the fact that he has some responsibility here if the head of S&P did a poor enough job to be fired.
A scape goat. Almost certainly. McGraw will not get pushed out. But, he should.
Douglas A. McIntyre
Business Week has run a brief feature article on Ariad Pharmaceuticals (NASDAQ:ARIA) in its "Inside Wall Street" magazine section and noted that the company’s partner Merck (NYSE:MRK), has "deep pockets." Unfortunately it only spells out one side of the reality, and saying Merck or any other Big Pharma has deep pockets is like reannouncing the latest officially confirmed developments from the Department of Redundency Department. It just isn’t enough to go on, even with the positive analyst and holder citations you can see in the article.
We previously noted this just back on July 12, 2007 that Ariad Pharmaceuticals and Merck entered into a collaboration to jointly develop and commercialize AP23573 for use in cancer. Oddly enough, shares of Ariad had risen sharply from the sub-$5.00 prices just a couple months before the announcement.
The article from Business Week points out that Merck has paid $75 million up front for the drug; future milestone payments for the phase II and III clinical trials, will fund the remaining development costs. Merck will pay $452 million in all for development, plus $200 million upon Ariad’s hitting sales thresholds, and a further $200 million for global development. Even to 24/7 Wall St,. a company like Ariad with a $333 million market cap would stand to benefit greatly on the surface if this all works out.
A key problem may be that it seems no one has remained in very strong focus after such a long and lackluster history. The options show a fairly quiet picture: 2,151 of the SEP07 $5 CALL contracts are in the open interest, 2,545 of the OCT07 $5 CALL contracts are in the open interest, and only 2,394 of the NOV07 $5 CALL contracts are in the open interest. In the JAN09 $5 and $7.50 Calls there are only just over 2,700 contracts combined in the open interest. None of the premiums indicate a massive price move expected. Visit the JAN09 PUTS & CALLS and you hardly see any big speculation. So options traders aren’t exactly lined up betting the farm on this one to be ‘the next big thing in biotech’ anytime soon.
It would seem that Ariad’s biggest conundrum is that much depends on actual sales down the road. Outside of the milestone payment received, this company has never generated anything to bother mentioning as far as revenues are concerned. That isn’t any easy situation for anyone to just openly accept as not being a risk.
Options trading and the underlying stock volume may increase because of the Business Week exposure. But with the Business Week phenomena usually being short-lived and with this edition being ahead of the Labor Day weekend, there may not even be many people that hear or see the tree in the forest to decide if it stands or falls.
Ariad closed Thursday at $4.82, down some 25% from the $6.40 highs after the Merck deal was announced. Ariad has also been public since the mid-1990’s and shares briefly traded north of $10.00 back in 2004 and north of $20.00 for an even briefer period in 2000. There is promise to this company and that part isn’t being questioned. But it sure has a long way to go and will have a lot to prove when you consider its long past and the long stretch of the actual calendar ahead.
Jon C. Ogg
August 31, 2007
Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.
According to Reuters, Bush will outline a plan to help holders of sub-prime mortgages.
Reuters writes that Dell (DELL) topped Wall St. estimates but sees costs drops slowing.
Reuters writees that Freddie Mac (FRE) profits fell on mortgage defaults.
Reuters reports that state attorneys general found that Microsoft is not living up to its settlement over monopoly powers. The US Justic Department disagreed.
Reuters writes that Toyota (TM) plans to sell 10.4 million cars in 2009, up 18% from last year.
The Wall Street Journal writes that McGraw-Hill (MHP) replaced the head of its S&P unit as ratings agencies are under fire for the analysis of sub-prime and other debt.
The Wall Street Journal sent requests to a number of CEOs asking for more information about their pay packages. Letters are going to Pfizer (PFE), GE (GE), and Coca-Cola (KO).
The New York Times writes that NBC did not renew its deal with Apple (AAPL) to sell its shows for viewing on the iPod.
The FT says that the credit crisis is causing borrowing costs to go up at blue chip companies like GE (GE).
Barron’s writes that Schering-Plough’s shares could move up 20% over the next year.
Douglas A. McIntyre
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