Daily Archives: October 18, 2007

“Halo 3″ Takes XBox 360 To The Moon

New video game "Halo 3" was supposed to give sales of Microsoft’s (MSFT) Xbox 360 game console a leg up. But, things got out of hand.

According to MarketWatch, figures "from NPD Group  video game software sales in the U.S. jumped 64% for September compared to the same period last year."

"Most Wall Street analysts covering the sector had predicted sales growth of between 30-40%, according to brokerage reports. Sales of game consoles soared 188% for the month – thanks mostly to a resurgence of sales of the Xbox 360 from Microsoft Corp."
The 360 console moved a total of 527,800 units during the month, nearly double the number of units sold in August, according to NPD data.
And, "Halo 3" was the match that lit the fire.
Sales of the Nintendo Wii continue to amaze. They hit 501,000 last month, up 24% from August. And, there is supposed to be a shortage of the things. Imagine sales if they were readily available.
Sony (SNE), which has just cut the retail price of its PS3 in the US, continued to post appallingly poor sales. In September, the console sold 119,400 units.
The story here is really more the death of Sony in the gaming business than it is the success of "Halo 3".
Sony is no longer a video game driven company. It will have to look to its TV, consumer electronics, and studio operations for any growth over the next several years. Its decade as the leader in gaming is over.
Douglas A. McIntyre

Posted on: October 18, 2007 – 7:18 pm in Consumer Electronics, ,

Intuitive Surgical Earnings Stronger Than The Bionic Man (ISRG)

Intuitive Surgical Inc. (NASDAQ:ISRG) saw shares rise a monster 8.3% to $256.44 in active trading ahead of earnings.  After the earnings report, it appears shares are trading up another 4.9% in after-hours at $269.00 to new highs.  Cramer just covered this one positively in a call-in when he was touting the other medical stocks and this was also one of his fantasy stock picks.

The company posted $1.04 EPS on revenues $156.9 million.  Analysts were looking for $0.80 EPS and $144 million revenues.  This is robotic surgical operations under the da Vinci brand that is kicking you know what.  The company is also raising guidance to 55% to 58% sales growth rather than its prior 45% to 50% projections. 

This stock is now trading above almost all brokerage firm price targets, so analysts are going to have to hike targets to keep up with it if they dont want to do the "downgrade on valuations" calls.  The valuations on this are still astronomical, so its hard to imagine with close to a $10+ Billion market cap that this can run another 200% like it has over the last year. We’ll see.

Jon C. Ogg
October 18, 2007

Posted on: October 18, 2007 – 5:09 pm in Earnings, Medical,

The 52-Week Low Club

IMS Health (RX) Bad numbers and a downgrade. Falls to $21.20 from 52-week high of $33.12.

The PMI Group (PMI) Housing and mortgage markets hurt quarter. Falls to $22.80 from 52-week high of $51.46.

Washington Mutual (WM) Huge mortage company reports bad numbers. Shares drop to $30 from 52-week high of $46.38.

Gannett Co (GCI) Weak numbers at big newspaper company. Down to $41.43 from 52-week high of $63.50.

McClatchy (MNI) Another big newspaper company. Falls to $16.85 from 52-week high of $44.62.

Nektar Therapeutics (NKTR) Pfizer (PFE) quits partnership with this company. Shares drop to $6.66 from 52-week high of $17.47.

Popular (BPOP) Another bank in a bad banking market. Drops to $10.51 from 52-week high of $19.05.

Douglas A. McIntyre

Posted on: October 18, 2007 – 3:56 pm in HI/LOW, , , , , , , ,

PMC-Sierra CEO Retires With Earnings… and Shares Rise (PMCS)

PMC-Sierra, Inc. (NASDAQ:PMCS) posted earnings of $0.09 on non-GAAP EPS on net revenues of $117.5 million, versus estimates of $0.06 EPS and $113.7 million.  On a GAAP basis the company posted -$0.03 EPS.  The company did not offer guidance in the release, so it it does in teh conference call estimates for next quarter are $0.08 EPS and $119.5 million in revenues.

PMC-Sierra simultaneously announced that Bob Bailey will be retiring as president and chief executive officer once a replacement has been named. He will remain chief executive officer in the meantime.

This saw shares rise more than 1% at $9.02 in normal trading.  In after-hours the stock is actually up 2.5% at $9.25.  The 52-week trading range is $6.06 to $9.27, so it is flirting with year highs.  This may be up significantly from the $5.00 lows of 2006, but shares were north of $20.00 at the end of 2003 and earky 2004.

Without guidance and with a retiring CEO (who is only around 50-years old) the verdict is still pending here. 

Jon C. Ogg
October 18, 2007

Posted on: October 18, 2007 – 3:36 pm in Earnings, Management Change,

Sandisk (SNDK): A Modest Quarter

Sandisk (SNDK) the world’s largest supplier of flash storage card products, announced third quarter revenue increased 38% on a year-over-year basis to $1.037 billion and net income increased to $85 million, or $0.36 per diluted share, compard with net income of $28 million, or $0.12 per diluted share, in the second quarter of 2007. Net income was $103 million, or $0.51 per diluted share, in the third quarter of 2006.

The stock traded flat on the news at $50.50.

Douglas A. McIntyre

Posted on: October 18, 2007 – 3:29 pm in Earnings,

AMD (AMD): Nothing Ventured And Nothing Gained

Investors hoped for big thing from AMD (AMD) moving shares up over 3% in the regular session to $14.56. Analysts were looking for AMD to report a loss per share of 62 cents on revenue of $1.5 billion.

AMD reported third quarter 2007 revenue of $1.632 billion a 23 percent improvement compared to the third quarter of 2006.AMD reported an operating loss of $226 million, and a net loss of $396 million, or $0.71 per share.

Third quarter 2007 gross margin was 41 percent, compared to 33 percent in the second quarter of 2007 and 51 percent in the third quarter of 2006.

The company’s guidance barely existed. It said in the seasonally up fourth quarter, AMD expects revenue to increase in line with seasonality.

Please, speak English.

The shares were fairly flat on the news

Douglas A. McIntyre

Posted on: October 18, 2007 – 3:25 pm in Earnings,

Google Earnings Take Stock To $650 (GOOG)

Google’s (NASDAQ:GOOG) earnings are out: $3.91 EPS and Revenues were $3.01 Billion; First Call estimates on last look were $3.78 EPS and $2.94 Billion in revenues. 

The revenue number is on an ex-Traffic Acquisition Cost basis, but were listed as $4.23 Billion before backing out traffic acquisition costs.  TAC as a percentage of advertising revenues was 29% in the third quarter, compared to 30% in the second quarter of 2007.

The company now has 15,916 full time employees, or about 2,100 more than last quarter’s 13,786.  It ended the quarter with $13.1 Billion in cash and equivalents.  International revenues came in flat at 48%.

Google-owned sites generated revenues of $2.73 billion, or 65% of total revenues, in the third quarter of 2007. This represents a 68% increase over third quarter 2006 revenues of $1.63 billion and a 10% increase over second quarter 2007 revenues of $2.49 billion.

Google’s partner sites generated revenues, through AdSense programs, of $1.45 billion, or 34% of total revenues. This represents a 40% increase over network revenues of $1.04 billion generated in the third quarter of 2006 and an 8% increase over second quarter 2007 revenues of $1.35 billion.

Shares closed up almost 1% at $639.62 in normal trading and are actually trading up 1.5% around $650.00 after first trading lower.  Unfortunately prints are all over the place.  Until the analyst notes come out tomorrow, we are treating this as unfinished business.

Jon C. Ogg
October 18, 2007

Posted on: October 18, 2007 – 3:17 pm in Earnings, Internet,

September Financial Websites: Time Spent Per Person

One of the companies mentioned in the 24/7 Wall St. piece on September financial website numbers sent along some additional information. That is time spent per person per month at each site.

For September: MarketWatch             22.57 minutes per person per month

                       Yahoo Finance           21.58

                       MSN Money               17.54

                       WSJ.com                   15.42 

                       AOL Money                15.32

                       CNN Money                10.55

                       Reuters                       5.58

                       Forbes.com                 5.32

                       Google Finance           4.56

                       BusinessWeek            2.57

Douglas A. McIntyre

Posted on: October 18, 2007 – 1:44 pm in Internet

Google’s Earnings, All About Expenses (GOOG, YHOO, MSFT)

Tonight’s headlines are going to be dominated by one event… Google’s (NASDAQ:GOOG) earnings.  First Call estimates on last look were $3.78 EPS and $2.94 Billion in revenues.  The revenue number is on an ex-Traffic Acquisition Cost basis.  We have recently seen many analysts up their targets on the stock, sothis ‘earnings estimate’ is now going to be a mere lower-end benchmarkwhere many are looking for a blowout number.

This stock has been on a rampage with shares up roughly 10% this month alone, and shares are up 20% since the end of August.  But the October 11 highs over $640.00 have been acting as resistance in the recent trading days. 

Options expire tomorrow, but it appears that as of mid-morning that options traders are braced for a move of up to about $20.00 in either direction.  The cost of an at the money $630.00 Straddle would run over $34.50 on last look.  At the end of September there were 6,626,105 shares listed in the short interest according to NASDAQ.  International revenues were 48% last quarter, up from 42% in the June 2006 quarter and up from 47% in the March 2007 quarter. 

As a reminder, last quarter the company had a slight miss on earnings and much of the blame was on the costs of adding personnel.  Its last headcount was 13,786 full-time employees (not counting contractors) at June 30.  The company has already tried to warn traders about expense growth exceeding revenue growth, so if any analysts come out with "we are disappointed with expenses growing fater than revenues" then they aren’t reading the filings and aren’t listening to what the company says.  Last quarter had a $62 million transferable stock option charge and Google has already disclosed that it sees an additional $160 million charge being spread out in the coming four years.  As per the last quarter filing: "As a result of all of the above, the growth rate of our costs and expenses may exceed the growth rate of our revenues in 2007…..  We expect our cost of revenues to continue to increase in dollars and may increase as a percentage of revenues in 2007 and in future periods, primarily as a result of forecasted increases in traffic acquisition costs, data center costs and credit card and other transaction fees, including transaction processing fees related to Google Checkout. In particular, traffic acquisition costs as a percentage of advertising revenues may increase in the future if we are unable to continue to improve the monetization of traffic on our web sites and our Google Network members’ web sites, particularly with those members to whom we have guaranteed minimum revenue share or other payments."

We are releasing the first part of our "Small Cap Internet Watch List" Friday for our subscribers of the "Special Situation Investing Newsletter" from 24/7 Wall St.  We do not believe these are all going to be active takeover candidates, but we feel under the right circumstances that these could be acquired By Google, Microsoft, Yahoo!, AOL, IAC/Interactive, or a dozen other US and international media players.  In this we’ll offer insight, related deals, potential parents, and even potential values down the road.  Companies that have been on this list (and as our BAIT SHOP candidates) that have been acquired are 24/7 Real Media, aQuantive, Web.com, and DoubleClick when they were all public.

As a reminder, Google does not offer guidance in its calls.

Jon C. Ogg
October 18, 2007

Posted on: October 18, 2007 – 10:27 am in Earnings, Internet, , , , ,

An Open Letter To Dr. Eric Schmidt About Google Finance

Dear Dr.Schmidt:

Google Finance currently ranks 18th among all financial websites with 851,000 unique visitors in September. That puts it behind sites like The Motley Fool and Bloomberg. MSN Money had 10.9 million unique visitors last month.

Is there anything wrong with the content at Google Finance? No. The quote sections and charts are excellent. The news is easy to navigate. The P&L and balance sheet data are better than those at Yahoo! Finance. The site could have its own analyst estimate area and SEC data, but those are minor issues.

Google already runs financial text ads at a huge number of affiliate websites. That includes places like Reuters.com.

It is probably not unfair to guess that if Google put the "Finance" button at the top of its homepage next to "Maps" and "Images", the traffic to Google Finance could move up to five million or six million unique visitors each month. With perhaps 60 million page views a month and several display and text ads on each page, the Finance section of Google could bring in $100 million a year. Could the ads get a $10 CPM? Yes, and probably more.

Not a huge amount given the company’s total reveue. But, found money.

Douglas A. McIntyre

Posted on: October 18, 2007 – 10:13 am in Internet,

Nektar Crushed Under Pfizer’s Boot (NKTR, PFE)

Nektar Therapeutics (NASDAQ:NKTR) is seeing shares hitting 52-week lows after its pharmaceutical partner Pfizer Inc. (NYSE:PFE) unexpectedly said it would end its involvement in inhaled diabetes drug Exubera and return the licensing rights to Nektar.  Nektar had been receiving a 15% royalty on sales of Exubera since early 2006.

Shares are trading down almost 15% at $6.90, well under the $7.59 lows of the last year.  This actually takes Nektar back to lows not seen since 2003.  The good news is that Nektar won’t be a biotech zombie and it has a partnered product portfolio comprising of Neulasta for neutropenia, PEGASY for Hepatitis-C, Somavert for Acromegaly, PEG-INTRON for Hepatitis-C, Macugen for age-related macular degeneration, Cimzia for Crohn’s disease, and MIRCERA for renal anemia.  It also has many other products in various trial stages.

The bad news is that this was one of the big hypes and big hopes for the company that at one point was being touted as a potential blockbuster drug (over $1 Billion in annual sales).  When the partnership first launched, Business Week had noted that inhaled insulin products could have worldwide sales of $4.8 Billion annually by 2010.  Even in late 2006 there were calls that Exubera wasn’t living up to expectations and some of the issue was blamed on the fact that physicians and patients had to be trained to use the device.  Another critical issue the cost factor, with Exubera being considered more costly than other diabetes treatments.

Analysts were not expecting Nektar to be profitable this year nor in 2008, but now you’ll likely see some strong downward revisions to forward numbers.  Without Pfizer selling this it looks like those losses are going to be worse.

Jon C. Ogg
October 18, 2007

Posted on: October 18, 2007 – 9:29 am in Biotech, , , , ,

IMS Health (RX) Shares Down 25% On Raw Earnings

Brutal, IMS (RX) shares are selling off 25% to $21.80, a 52-week low

Bad earnings followed by downgrades.

IMS Health which is a provider of market intelligence to the pharmaceutical and healthcare industries, announced third-quarter 2007 revenue of $538.8 million, up 12 percent or 8 percent on a constant-dollar basis, compared with revenue of $482.7 million for the third quarter of 2006.

Operating income in the third quarter of 2007 was $117.1 million, up 1 percent on both a reported and constant-dollar basis, compared with $115.4 million in the year-earlier period.

Third-quarter profit fell 18 percent as earnings were hit by a change in the German tax rate.

Robert W. Baird promptly downgraded the shares.

Douglas A. McIntyre

Posted on: October 18, 2007 – 8:44 am in Earnings,

Southwest’s Fuel Hedges Keep Earnings Up, For Now (LUV)

Southwest Airlines (NYSE:LUV) is managing to keep its earnings going and expects revenues in the coming quarter to exceed year ago levels.  The company posted $0.22 EPS and revenues of $2.59 Billion compared to First Call estimates of $0.21 & $2.58 Billion. Net income after charges was $0.18 EPS, or $133 million.  Southwest’s load factor for the quarter was 76.6%, up from 74.7% for the quarter last year.

It had favorable cash settlements from fuel hedging of $189 million, and economic fuel cost per gallon of $1.69 rose 7.6% from a year ago. It lists its contracts in place for approximately 90% of fourth quarter 2007 estimated fuel consumption, capped at an average crude-equivalent price of approximately $51 per barrel (compared to approximately 85 percent at approximately $43 per barrel for fourth quarter 2006); listed as fuel costs per gallon to be in the $1.80 range.  Unfortunately, Southwest’s fuel hedging advantages are starting to dwindle.

FORWARD HEDGES:
approximately 70% of estimated 2008 fuel at approximately $51 per barrel;
approximately 55% of estimated 2009 fuel at approximately $51 per barrel;
over 25% of estimated 2010 fuel at approximately $63 per barrel;
over 15% of estimated 2011 fuel at approximately $64 per barrel;
over 15% of estimated 2012 fuel at approximately $63 per barrel.

Read More »

Posted on: October 18, 2007 – 8:41 am in Airlines, Earnings, ,

Virgin Mobile’s First Analyst Call…A Sell (VM, S)

Virgin Mobile USA (NYSE:), Richard Branson’s recent pay as you go cellular carrier IPO, managed to pick up its first analyst coverage today.  Stanford Group Company was not in the underwriting syndicate, but the boutique is the first brokerage to initiate coverage.  It issued a "Sell" rating.  A call into Stanford confirmed the coverage, and a director of equity research confirmed that analyst Michael Nelson picked up coverage as a Sell rating with a $10.00 target.

The underwriter quiet period has not yet ended, so the analysts that got a closer look into the company are still a few weeks out from being able to issue their research calls.  We won’t see these notes from underwriters until November.  The book runners in the underwriting were Lehman, Merrill Lynch, and Bear Stearns; and co-managers were Raymond James and Thomas Weisel.

Virgin’s carrier partner Sprint Nextel (NYSE:S) has also been in the soup lately.  Shares are indicated about 1% lower today, but they are down about 10% since the IPO. 

Jon C. Ogg
October 18, 2007

Posted on: October 18, 2007 – 8:09 am in Analyst Calls, Wireless, , , ,

Hershey…. Going The Wrong Direction (HSY)

Hershey (NYSE:HSY) posted a dismal earnings report.  If lower sales didn’t make it bad, higher material costs and higher marketing costs made it worse.  The candy maker posted EPS of $0.27 after items and on a comparable basis posted $0.68 EPS before one-time items.  Unfortunately, Wall Street estimates were $0.71 and the same period last year was $0.78.  Sales were down 1% to $1.4 Billion, short of the $1.44 Billion estimate.

Shares are indicated down almost 3% at $43.00, and that will qualify it for the 52-week lows and well under the high of $56.75 for the year.  This is actually almost 3-year lows.  If you’ll recall, Hershey recently lost its CEO who supposedly had trouble managing the company with a dual-class structure.

Maybe some ‘public company structures’ should be changed.  Or maybe they just shouldn’t be public.  Common stock buyers of Hershey are basically second class citizens.

Jon C. Ogg
October 18, 2007

Posted on: October 18, 2007 – 7:34 am in Earnings, Food,

September Financial Website Analysis

In September, Yahoo! (YHOO) Finance lost almost all of its pageview lead over its closest competitor, AOL Finance. For the month, Yahoo! Finance had 286 million pageviews and AOL Finance had 282 million according to syndicated research data. Yahoo! Finance had more unique visitors with 13.6 million, but AOL had an advantage pages-per-visitor at 27.

MSN Money was a distant third with 10.9 million unique visitors, 150 million pageviews, and 14 average pags per visitor. The pages-per-visitor for MSN are low for the financial website catagory.

Forbes and Dow Jones each had over six million unique visitors in September. Reuters had 3.5 milllion, and TheStreet.com 2.1 million. BusiessWeek Online rounded out the top financial content sites with just over 1.8 million uniques.

Douglas A. McIntyre

Posted on: October 18, 2007 – 7:08 am in Internet, , , , ,

BAC: Another Bank Cash Crash

Bank of America (BAC) put out earnings and the stock started selling off.

BAC reported third quarter net income declined 32 percent to $3.70 billion from $5.42 billion a year earlier. Diluted earnings per share fell 31 percent to $0.82 from $1.18. Revenue net of interest expense on a fully taxable-equivalent basis declined 12 percent to $16.30 billion from $18.49 billion in the third quarter 2006.

Lower net income resulted from a $1.33 billion decline in earnings in Global Corporate and Investment Banking given the significant disruption in the financial markets during the quarter. Provision expense increased $865 million due to consumer and small business credit costs rising from post bankruptcy reform lows, growth and seasoning in various portfolios and stress in several portfolios driven by the weakened U.S. housing market.

Unprecedented market disruptions hurt trading results. As a result, Global Corporate and Investment Banking net income fell 93 percent to $100 million from $1.43 billion a year earlier.

Not a stellar quarter

Douglas A. McIntyre

Posted on: October 18, 2007 – 6:27 am in Uncategorized,

Another Tough One For Pfizer (PFE)

Pfizer (PFE) posted third-quarter 2007 revenues of $12.0 billion, a 2% decline from the same period last year. The Company’s reported net income was $761 million in the third quarter of 2007, a decrease of 77% from the same period last year, primarily reflecting pre-tax charges of $2.8 billion related to the decision to exit Exubera, its inhaled insulin product to treat diabetes.

Frank D’Amelio, Chief Financial Officer, commented, “The Exubera pre-tax charges of $2.8 billion related primarily to the write-off of assets associated with this product, as well as the accrual of other exit costs. More specifically, these charges are comprised of approximately $1.1 billion of intangible assets, $661 million of inventory, $454 million of fixed assets and $584 million of other exit costs."

Pfizre raised the lower end of its 2007 guidance ranges for revenues and adjusted diluted EPS. In addition, as a result of progress in our cost-reduction initiatives, the firm now expects adjusted SI&A expenses to decrease about $100 million more than previous guidance. Pfizer has also changed guidance on adjusted cost of sales as a percent of revenues from 15.0% to 15.5%, largely due to geographic and product mix. Given the charges the company recorded related to Exubera, it decreased its guidance on reported diluted EPS

No good news here

Douglas A. McIntye

Posted on: October 18, 2007 – 6:00 am in Uncategorized,

Nokia (NOK) Big Quarter, No Good News For Motorola (MOT)

There can only be so many handsets sold in any quarter. Samsung and Sony Ericsson had unit increases of over 30% in Q3. And, now cell phone giant Nokia (NOK) as announced that it sold 111.7 million units, up 26% year on year.

Estimates are that total handset sales worldwide may be growing at 15%.

Nokia had a stunning quarter, especially given its size. Revenue rose 28% to 12.9 billion euros. Net profit was up 85% to over 1.5 billion euros. Its shares of the handset market worldwide rose to 29%. Samsung and Sony Ericsson also say that they picked up share.

So, three of the four largest handset companies have announced Q3 earnings and unit sales. Each is growing faster than the market, and each said the average price of handsets is coming down.

Where does that leave Motorol (MOT), which was the No.2 handset company and has slipped to the third spot. Unless there is something very odd about the global calculation of handset sales, Motorola is out in the cold.

Don’t look for a good quarter from MOT.

Anyone calling Mr. Icahn?

Douglas A. McIntyre

Posted on: October 18, 2007 – 5:46 am in Consumer Electronics, ,

Europe Markets 10/18/2007

Markets in Europe were mixed at 6.25 AM New York time.

The FTSE fell .3% to 6,660. HSBC (HBC) was down 1.1% to 953. Northern Rock was down 2.2% to 203

The DAXX rose .1% to 7,994. SAP (SAP) was down 2.9% to 38.47. VW was up 2.6% to 178.69.

The CAC 40 fell .2% to 5,805. Alcatel-Lucent (ALU) fell 1.8% to 6.53. France Telecom (FTE) rose 1% to 24.1.

Data from Reuters.

Douglas A. McIntyre

Posted on: October 18, 2007 – 5:32 am in International Markets, , , ,