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Why didn't I buy shares of Baidu.com (BIDU) when the IPO that priced last night at $27 opened today at $66 per share? Did it really hit $151 this afternoon? Is it 1999 all over again?
Now I know this is the largest search site in China, and only 10% of that country is online today, and people are making a Google (GOOG) comparison, but keep in mind the company is now worth more than $4.3 billion and had first quarter sales of $5.1 million.
After Washington Mutual's (WM) purchase of Providian and Bank of America's (BAC) recent buy of MBNA, it was widely expected that smaller credit card issuer Metris (MXT) would eventually get a similar takeover bid. In fact, readers of this blog were alerted to the potential of Metris even before those deals were announced.
Below is an excerpt from our post "Metris Continues its Turnaround" posted in December 2004:
"With some analysts still bearish on the company's future, combined with a staggering 24% of the float sold short, there are many reasons to think that Metris shares will continue their march higher in 2005. Contrary to popular belief, it's not too late to get in, even at the current $11 price tag."
Today's $15 per share cash bid by HSBC closes the book on the Metris story. Fortunately though, there are still excellent values in the financial services area, making reallocation of that capital a very opportunistic redeployment. Investors who want to stay in the credit card space should turn their attention to long-time Peridot favorite Capital One Financial (COF).
If you have some shares of Amazon.com (AMZN) I can't help but suggest you at least consider selling some up here at $46 per share. The stock is up 20% since the company's solid second quarter earnings report.
Now I know Amazon was supposed to be a superior retailing operation because of its online model, but if you compare it to Barnes and Noble (BKS), they're pretty similar. It's true that BKS isn't going to grow 15% annually long-term, but a 2006 P/E of 48x for Amazon seems too rich to me. After all, that's 3 times its expected growth rate!
As for the thesis of higher profit margins associated with a lack of bricks and mortar stores, Amazon's 2004 operating margins of 6% barely nudge out Barnes and Noble's 5% margin. Turns out that gigantic warehouses across the country cost about the same as actual storefronts.
For those who feel Google (GOOG) shares are expensive at 40x next year's profits, Amazon stock must look even more overvalued, given it trades at 48x forward earnings and is expected to grow its business 18% next year, versus 45% for Google.
I've written here before that if I were running a public company I wouldn't give quarterly financial guidance, but MicroStrategy (MSTR) is taking the focus on long-term business management even further (see below). Could this be a red flag signaling poor financial results in the future that the company would like to avoid having to talk about? There is no way to know, but I would not jump to such a conclusion without other information to back up that assumption. There is no doubt some investors will see this as a negative and bet against the stock because of it, but with 30% short interest already, that seems like a risky bet to make.
From a MicroStrategy press release issued July 21st:
"MicroStrategy Incorporated (MSTR), a leading worldwide provider of business intelligence software, expects to issue a press release on July 28, 2005, to announce its financial results for the second quarter of 2005.
MicroStrategy has recently reviewed its practice of holding a conference call to discuss its quarterly financial results. The Company believes that it is in the best interests of its shareholders to focus on long-term financial performance, which allows the management team to more effectively run operations and build long-term shareholder value. Accordingly, consistent with our decision at the beginning of this year to discontinue providing revenue or earnings guidance, the Company has also decided that it will no longer hold conference calls following the release of its quarterly financial results."
Side note: MicroStrategy's Q1 conference call from April 28th is quite entertaining, and might shed some light as to why that call was the last quarterly call the company hosted. Feel free to draw your own opinions and share them with me, as I think it's an interesting topic of discussion.
Rewind the clock back to March 2000. Do you remember BroadVision (BVSN), that high-flying e-commerce software company that traded at a split-adjusted $840 a share? Maybe you even owned the stock back then. Well, let's hope you don't own it anymore.
In one of the worst examples ever seen of acting in the interest of shareholders, BroadVision agreed Tuesday to be acquired by a private equity firm for 84 cents per share. Nevermind that is 99.9 percent below the stock's all-time high. It's 36 percent below the $1.32 the stock was trading at on Monday!
Somebody seriously should call Martha Stewart and give her a stock tip; tell her to sell her own stock. Martha Stewart Living Omnimedia (MSO) reported 2nd quarter numbers and the results do little to explain why the stock, at $28, is worth $1.43 billion.
Sales for the quarter were $46 million, broken down as follows: publishing (69%), merchandise sales (22%), internet sales (5%), and television programming (4%). Amazingly, MSO lost $33 million in the quarter, hardly a profitable business model. Even if you exclude items like equity compensation, and focus just on product costs as well as selling, general, and administrative expenses, MSO lost $11 million on $46 million sales.
Clearly investors are focused on the upcoming Apprentice show for added profitability. However, given that Martha's current shows are contributing only 4% of sales, investors would be correct in asking how much the new NBC series could possibly materially add to earnings.
Can anyone out there please explain how this company is being valued at more than $1.4 billion? Until I can understand such a justification, I'd be betting against MSO shares.
That table pounding of Delta by JP Morgan back on May 18th looks awfully foolish...
From Reuters:
CHICAGO, July 27 - Shares of Delta Air Lines (DAL) sank more than 20 percent on Wednesday after the struggling No. 3 U.S. carrier's chief executive said the airline's restructuring plan is not enough to save it. The comments from Chief Executive Gerald Grinstein in an internal memo stoked concern of a possible Chapter 11 filing, sending the stock down more than 20 percent, analysts said. "In light of what we have accomplished together so far, there can be no doubt that Delta's transformation plan is delivering results," Grinstein said. "What is also clear is that it is not enough."
Earlier this week I postulated Google (GOOG) would report Q2 EPS of $1.35. Sure enough, tonight the company reported $1.19 in EPS including $0.16 in options expensing, which took the number up to my target. The stock is tanking after-hours as investors are always looking for more than most growth companies can deliver. Shares are down 6 percent or $18 to $296 each.
It will be interesting to see what the always valuable (read with sarcasm) Wall Street analysts say in the morning, especially after Google management warned on the call that Q3 is a seasonally weaker quarter (which we all know already). I have little doubt we will continue to see immense selling tomorrow morning, but I would expect money managers who still like the story to bargain hunt under $300 and help the stock recover some lost ground by the afternoon.
I still believe the stock will ultimately trade to 50x EPS, or $350 a share, in the next 6-9 months and as a result would not recommend panic selling alongside everyone else right now with the stock sub-$300. Google still deserves at least the same multiple as Yahoo! (YHOO) and eBay (EBAY) if not more.
Late Wednesday Capital One Financial (COF) reported 2nd quarter earnings of $2.03 per share, well ahead of analysts' estimates of $1.75. Managed loans increased 13 percent to $83 billion and the company maintained its full year earnings guidance of $6.60 to $7.00 per share.
Capital One continues to be the best performing credit card company in the industry. They expect their pending acquisition of Hibernia Bank (HIB) to close on September 1st of this year, which will enable them to extend their product line into the branch model.
Despite the good news, investors still can pick up COF stock for 10.8 times 2006 earnings. Not a bad price at all for the leading company in the credit card space growing in the 10 to 15 percent range on an annual basis.