Quick Look at IBM and Lenovo

It was reported this week that IBM will sell its x86 division to Lenovo for $2.3 billion. This came after IBM reported its seventh straight quarter of declining revenue, at $27.7 billion for Q4-2013. Details show that Software, Services and Global Financing divisions each grew, but Systems and Technology was the worst-performing division, declining in revenue by 26.1%. The deal with Lenovo allows IBM to offload the low-end server business. The x86 business is "the generic name for Intel processors released after the original 8086 processor."

This isn't the first deal between IBM and Lenovo. In 2005, Lenovo purchased IBM's PC business, and later acquisitions propelled Lenovo to be world's top PC company last year. While IBM had a disappointing 2013, being the only company in Dow Jones to decrease, Lenovo posted record-high revenue and profit in its latest quarterly financials released in November. Notebooks consisted over half of Lenovo's revenue, and its industry outlook cites that "customers no longer see Tablet as PC replacement."

Sources:

• http://www.bloomberg.com/news/2014-01-23/lenovo-to-buy-ibm-server-unit-for-2-3-billion-amid-pc-slump.html
• http://www.bloomberg.com/news/2013-12-31/ibm-s-revenue-slump-turns-stock-into-dow-s-lone-loser-of-2013.html
• http://www.ibm.com/investor/events/4q13.phtml
• http://www.lenovo.com/ww/lenovo/investor_relations.html
• http://www.techterms.com/definition/x86

Microsoft Nokia Deal Summary

Microsoft Corporation and Nokia Corporations announced a deal on September 3, in which Microsoft would pay $7.17 billion USD to purchase Nokia’s Devices & Services business and license Nokia’s patents. Microsoft will utilize its overseas cash reserves to complete the transaction. At the end of Q2-2013, Microsoft’s cash and short-term investments totaled more than $76 billion. Nokia’s mobile business, which Microsoft purchased for 3.79 billion Euros, generated nearly half of Nokia’s 30.2 billion Euro revenue. In all, the purchase was a bargain for Microsoft.

The challenge comes to integrating the businesses. More than 30,000 Nokia employees were brought into Microsoft, including former CEO Stephen Elop. The two companies have been in partnership since 2011, and this deal is the second largest acquisition Microsoft has ever done. The acquisition also marks a remarkable transition in the Windows business model: vertical integration, as Microsoft aims to introduce its Windows Phone software into the hardware units. Microsoft has long touted a separation of software and hardware in the PC era. But as mobile hardware has been less commodity-like than computer hardware, Microsoft expects this deal to be accretive to its adjusted EPS starting in fiscal year 2015. Microsoft had been receiving less than $10 in software licensing fees from Nokia, but now can make more than $40. The challenge becomes selling more Windows phones. Currently it lags behind Android and iOS. And with Apple introducing reduced-cost iPhone models, the challenge becomes even harder for Windows Phone to find its niche.

Two weeks after the Nokia deal, Microsoft announced that it would increase its dividend 22% over the previous quarter, and authorized up to $40 billion in share repurchases.

Sources:

• http://www.microsoft.com/en-us/news/press/2013/sep13/09-02announcementpr.aspx
• http://www.slate.com/articles/technology/technology/2013/09/microsoft_nokia_deal_a_great_idea_that_came_too_late_and_killed_windows.html
• http://online.wsj.com/article/SB10001424127887324432404579052112731349626.html
• http://edition.cnn.com/2013/09/03/business/microsoft-nokia-boulden/index.html
• http://www.microsoft.com/en-us/news/press/2013/sep13/09-17dividendpr.aspx

Growing Sectors From June BLS Data

On the first Friday of every money, Bureau of Labor Statistics publishes employment reports for the previous month in the United States. In the report published on June 7th, total nonfarm payroll increased by 175,000 in May, putting the unemployment rate at 7.6%. The growth is above the 172,000 figure, which has been the monthly average over the past 12 months. The report highlights that professional and business services added 57,000 jobs in May.

A look into Table B-1, which breaks down the nonfarm payrolls by industry sector and selected industry detail, reveals which sectors have shown the highest consecutive monthly growth. At the levels of detail provided by the report, only 4 selected entries illustrated 0.5% monthly growth for both March to April, and April to May: employment services, temporary help services, business support services, and home health care services. Employment services have seen 1.47% increase from seasonally-adjusted payroll of 3.286 million in March to 3.334 million. Compared to last May, it has climbed by 6.44% during the past year. Temporary help services claim the honor of seeing the highest year-over-year payroll growth at 7.46%.

Sources:

• http://www.bls.gov/news.release/archives/empsit_06072013.pdf
• http://www.bls.gov/news.release/empsit.t17.htm

Strengthening Australian Dollar and Ford Shutting Down Production

It was reported this week that after nine decades of operating in Australia, Ford will shut down production in the country due to the strength of the Australia dollar and high costs, particularly wages. Ford reported that production costs in Australia "are twice that of Europe and nearly four times higher than in Asia." The factories are planned to close within 3 years.

Strength of the Australian dollar would make it more costly to operate there. How exactly has the Australian dollar fared against other major currencies? The AUD-USD is currently around 0.97. This is actually on the lower end of the 52-week range, and further down from the peak of around 1.10 reached in mid-2011. However looking at the 5 year chart, AUD-USD was as low as 0.6 in late 2008. Since the start of 2011, it has been steadily strong at above 1. Looking at AUD-JPY, again a similar strengthening trend can be observed. After hovering around 80 for most of mid-2009 to mid-2012, it has surpassed 100 this year and currently is around 97.78. Finally, looking at AUD-EUR, the pattern can be seen as it has strengthened from around 0.5 in late 2008 to currently around 0.75, although it was as high as 0.85 in mid-2012.

Sources:

• http://www.euronews.com/2013/05/23/ford-quits-australia/
• http://www.bloomberg.com/quote/AUDUSD:CUR
• http://www.bloomberg.com/quote/AUDJPY:CUR
• http://www.bloomberg.com/quote/AUDEUR:CUR

Mixed Headlines Regarding Housing Market

There were mixed headlines regarding the house market today. Sales of new homes in the United States climbed to an annualized rate of 454,000 in April. This was the second highest monthly figure since July 2008. Year-over-year, the median selling price increased 14.9% to $271,600, which is the highest on record. Partially fueling the rising demand are the low interest rates. This week the average 30-year fixed mortgage rate was 3.59%.

Despite these news, limitation on home supply is put by the lack of equity to sell homes. In a report released by Zillow (NASDAQ: Z), a real estate information provider with a "database of more than 110 million U.S. homes," keeping the property listing tight are the "about 22 million Americans ... [who] lack enough home equity to move." The report stated that 44% of homeowners with mortgages had less than 20% equity in their home, and 20% is usually required to purchase a new home. This figure includes 13 million Americans, or a quarter of homeowners with mortgages, who were underwater, or owed more than what their homes are worth. Zillow projects that by Q1-2014, only about 1.4 million homeowners will regain positive equity.

Sources:

• http://www.bloomberg.com/news/2013-05-23/sales-of-new-homes-in-u-s-climbed-to-454-000-pace-in-april.html
• http://www.bloomberg.com/news/2013-05-23/home-supply-limited-by-americans-lacking-equity-to-sell.html
• http://www.zillow.com/corp/About.htm

A Look into Venture Capital Firms Behind Tumblr

Yahoo's acquisition of Tumblr was a boon for many, including Union Square Ventures and Spark Capital, the two venture capital firms who made initial investments into Tumblr during its infancy. The combined investments of $10 million translated to 47% ownership of the company, giving them a 50-fold return in the recent deal with Yahoo that valued Tumblr at $1.1 billion. The deal was also a spark for the New York start-up community, as Tumblr represents the "largest venture-backed purchase for a New York company."

Union Square Ventures, based in New York, describes itself on its website as a "small collegial partnership that manages $450,000,000 across three funds" and invests in companies that "create services that have the potential to fundamentally transform important markets." Spark Capital, based in Boston, manages about $1.5 billion. Common across both funds include Twitter.

On Tuesday, the front page of Union Square Ventures highlights the Tumblr acquisition, which characterizes Tumblr as "world's greatest platforms for self expression." Tumblr has 108 million blogs across its network, and generates about $13 million in revenue annually, which is the amount Yahoo generates daily. Nevertheless, it is the younger audience and mobile users whom Yahoo seeks to attract through this acquisition.

Sources:

• http://www.bloomberg.com/news/2013-05-21/nyc-startup-scene-boosted-by-50-fold-return-on-tumblr-deal-tech.html
• http://www.usv.com/
• http://www.sparkcapital.com/

Spurs Fined for a Strategic Move

On Friday, NBA commissioner David Stern announced that the San Antonio Spurs will be fined $250,000 for sending 4 key players home, instead of playing them in a highly-anticipated nationally-televised game against the Miami Heat on Thursday. Stern claimed that the Spurs "did a disservice to the league and [the] fans" by taking its stars out in its only visit to Miami this regular season "without informing the Heat, the media, or the league office in a timely way." Spurs head coach Gregg Popovich's decision called for sending Tim Duncan, Tony Parker, Manu Ginobili, and Danny Green back to San Antonio to get some ahead of Saturday's home game against Memphis.

Heat star LeBron James summarized the collective disapproval of Stern's decision across the sports realm in very simple words: "it's not in the rules to tell you you can't send your guys home." Certainly some audience of the game may have been disappointed at not seeing the superstars from the two teams battle on Thursday night, but the fact of the matter is that Popovich and the Spurs had a broader goals in mind: best prepare for the entire season, not just this one game, and he had very justified reasons to rest his players. Thursday was the team's 6th road game in 9 days, and the 4th game of the week. On the flip side, Miami Heat was playing its first game since Saturday, and only its 5th game in 2 weeks. Given the severity of how lopsided the teams' schedules were coming into the game, the Spurs knew they were at a disadvantage, and it was strategically in their interest to rest their stars. Popovich said he had made this decision "when the schedule came out in July."

Stern didn't buy any of such, calling the action an "unacceptable decision." Yet, this is vastly different from the badminton scandal during the Olympics this summer, during which several badminton players from China, South Korea and Indonesia were accused of intentionally losing matches, so that "they could face easier opponents in future matches." There was little disagreement that such act of deliberately losing games was in the violation of the Olympic and sports spirit, and the players were expelled from their blatant actions.

What the Spurs did though, was drastically different from the actions of those badminton players. Many playoff-bound teams rest their star players in the final games of the regular season to give them rest. Sure, it's still early in the season in November, but the lopsided nature of the schedules of the two teams heading into Thursday's game was beyond the control of the Spurs, and they had to deal with this disadvantage. The Spurs made a strategic move, not a move that demeaned the spirit of the game. If anything, the short-handed Spurs over-delivered on expectations, as its usual bench players fought neck-to-neck with the defending-champions. It wasn't until 22.3 seconds left in the game that Heat delivered what proved to be the game-winning shot. The Spur took a gamble that nearly exceeded all expectations. Even if the game wasn't close, their decision was highly calculated, and NBA's decision to fine them dispirits its own sports of strategic maneuvers.

Sources:

• http://espn.go.com/nba/story/_/id/8695865/nba-fines-san-antonio-spurs-250000-sitting-players
• http://espn.go.com/nba/story/_/id/8692304/san-antonio-spurs-sit-4-top-5-scorers-vs-miami-heat
• http://edition.cnn.com/2012/08/01/sport/olympics-badminton-scandal/index.html

Correlations Among Facebook and Zynga

See previous related post: Facebook: Two Months Since IPO

After the market closed Wednesday, Zynga (NASDAQ: ZNGA) delivered a disappointing Q2 earnings report and outlook. Revenue was $332.5 million, short of the $343.1 million predicted by analysts. Profit was 1 cent a share, short of the 6-cent average estimate. Furthermore, Zynga cites that due to "delays in launching new games, a faster decline in existing web games due in part to a more challenging environment on the Facebook web platform, and reduced expectations for Draw Something," 2012 bookings will be around $1.15 billion to $1.225 billion, short of the projection from April of $1.43 billion to $1.5 billion. In the after hours, shares of Zynga have fallen by over 38%, but it wasn't the only one negatively affected by this news. Facebook saw its shares dip over 7% in the after hours.

The link between Zynga and Facebook (NASDAQ: FB)  is evident in the latter's mention in Zynga's report today. Just how correlated have the stock movements of the two companies been? How about their correlations to LinkedIn (NYSE: LNKD)? Historical prices, since Facebook's IPO in mid-May, were compiled from Google Finance, and the daily changes were documented:

Date	Zynga	Facebook	LinkedIn	Boeing
25-Jul	3.25%	3.13%	-0.78%	2.78%
24-Jul	-3.34%	-1.04%	-1.16%	-1.21%
23-Jul	6.04%	-0.03%	-1.94%	-1.33%
20-Jul	5.26%	-0.83%	-2.20%	-1.30%
19-Jul	-1.08%	-0.38%	3.86%	1.31%
18-Jul	0.66%	3.63%	0.74%	1.07%
17-Jul	-5.18%	-0.53%	0.61%	0.19%
16-Jul	-1.43%	-8.07%	-2.25%	-0.73%
13-Jul	-2.39%	-0.29%	0.91%	2.51%
12-Jul	1.41%	-0.52%	3.52%	0.27%
11-Jul	-1.20%	-1.59%	1.56%	-2.32%
10-Jul	-4.39%	-2.18%	-3.35%	-1.09%
9-Jul	-2.24%	1.39%	-5.40%	0.46%
6-Jul	-1.47%	0.83%	0.57%	-1.01%
5-Jul	0.74%	0.87%	-0.28%	0.23%
3-Jul	-2.88%	1.40%	0.85%	1.49%
2-Jul	2.21%	-1.06%	1.28%	-1.51%
29-Jun	1.12%	-0.83%	3.44%	3.80%
28-Jun	-4.44%	-2.70%	-2.31%	-0.40%
27-Jun	-2.26%	-2.63%	-1.17%	1.33%
26-Jun	-4.95%	3.24%	3.27%	-0.17%
25-Jun	1.00%	-3.00%	-3.56%	-1.26%
22-Jun	4.90%	3.80%	4.56%	0.83%
21-Jun	-2.89%	0.76%	-2.93%	-2.25%
20-Jun	-1.34%	-0.97%	-0.07%	0.12%
19-Jun	3.29%	1.59%	0.17%	1.42%
18-Jun	3.96%	4.67%	3.09%	-0.13%
15-Jun	10.76%	6.08%	3.78%	0.19%
14-Jun	-0.40%	3.74%	2.89%	-0.29%
13-Jun	1.20%	-0.47%	1.13%	-0.72%
12-Jun	-10.27%	1.48%	0.18%	3.52%
11-Jun	-8.26%	-0.37%	-2.05%	0.24%
8-Jun	0.33%	3.00%	2.26%	-0.01%
7-Jun	-2.11%	-1.86%	1.13%	1.35%
6-Jun	7.50%	3.63%	0.09%	2.13%
5-Jun	0.35%	-3.83%	2.10%	0.12%
4-Jun	-4.99%	-2.96%	-0.46%	0.39%
1-Jun	-3.99%	-6.35%	-4.78%	-3.40%
31-May	6.64%	5.00%	-2.07%	0.32%
30-May	-3.61%	-2.25%	-1.81%	-1.43%
29-May	-7.87%	-9.62%	1.44%	0.57%
25-May	-2.79%	-3.39%	-0.28%	-1.95%
24-May	-3.82%	3.22%	-4.60%	-0.25%
23-May	3.97%	3.23%	2.20%	0.13%
22-May	-4.09%	-8.90%	4.64%	-0.42%
21-May	-0.98%	-10.99%	-2.20%	3.80%
18-May	-13.42%	0.61%	-5.65%	-0.83%

As a control group, Boeing (NYSE: BA) was also selected to represent a company from the vastly different sector of industrial. The correlations among these vectors were calculated using the =CORREL() Excel function, as the results are as follows:

• ZNGA / FB: 0.41262114
• ZNGA / LNKD: 0.327412705
• FB / LNKD: 0.187973772
• ZNGA / BA: 0.067813629
• FB / BA: 0.112054524
• LNKD / BA: 0.285873686

Among these results, Facebook and Zynga did have the highest correlation, greater than either one's to LinkedIn. At the same time, Boeing had the highest correlation to LinkedIn, compared to either Zynga or Facebook. Given the high correlation between Zynga and Facebook, the latter of which is due to deliver its first earnings report as a public company on Thursday, it looks like Zynga, right after its disappointing report, has a good immediate chance to rebound back up or dip further.

Sources:

• http://www.bloomberg.com/news/2012-07-25/zynga-misses-estimates-as-users-flee-social-games-for-mobile.html
• http://investor.zynga.com/releasedetail.cfm?ReleaseID=695419
• http://www.nytimes.com/2012/07/26/technology/for-zynga-a-reversal-of-fortune.html
• http://www.google.com/finance?q=NASDAQ:ZNGA
• http://www.google.com/finance?q=NASDAQ:FB
• http://www.google.com/finance?q=NYSE:LNKD
• http://www.google.com/finance?q=NYSE:BA

Facebook: Two Months Since IPO

See previous related post: Facebook Ready for IPO

To truly visualize the disappointment of Facebook (NASDAQ: FB) two months after its initial public offering, compare it with nothing else but LinkedIn (NYSE: LNKD) during the same period. From the IPO price of $38 launched on May 18th, Facebook has closed as low as 25.87. It made modest gains in June, climbing back as high as $33.10 on June 26th, before falling back down to close Tuesday at $28.09. This comes over the news that users in both the United States and Europe had fallen over the past six months. The research by Capstone, reported that US users declined by 1.1%, while 14 of 23 countries in which Facebook had over 50% penetration experienced "fewer users or saw little change." This report comes days after Warren Buffett, who's known to hold onto stocks for the long-term value, stated that "investors frustrated with the stock’s decline since its public offering are paying the price for betting on a short-term rally." Given the closing price of $28.09, that is a 26.08% drop during the period.

LinkedIn, the professional network, in the meantime saw its shares fall from the May 17th closing price of $104.95 to the present $103.84. That is only an 1.06% drop. What may be surprising is that the financial statements of Facebook look much more healthy. While people may claim is overvalued at its P/E ratio approaching 90, LinkedIn still has its ratio soaring above 600. Facebook's Q1 profit margin also trumped that of LinkedIn, 19.38% to 2.65%. But it's the growth that's raising the concern. Facebook's profit margin is actually down from 2011, when it was 26.95%, while LinkedIn has seen it soar from 2.28%. It's not just Wall Street that is punishing Facebook. In the latest American Customer Satisfaction Index E-Business Report, Facebook sank to a record low, falling behind Google+ and LinkedIn. Among the complaints of Facebook included "an excess of ads and privacy concerns."

Tumbling with Facebook over the past two months is Zynga (NASDAQ: ZNGA). From the $8.27 closing price of May 17th, it is currently at $4.58, representing a whopping 44.62% decline. Zynga is heavily reliant on Facebook to launch its social game services, and the Q1 profit margin was a dismal -26.59%.

Sources:

• http://www.reuters.com/article/2012/07/17/us-facebook-shares-idUSBRE86G10G20120717
• http://www.bloomberg.com/news/2012-07-16/facebook-posts-biggest-drop-since-may-on-sales-growth-concern.html
• http://www.bloomberg.com/news/2012-07-17/google-debuts-at-top-spot-in-customer-survey-as-facebook-falls.html
• http://www.google.com/finance?q=fb
• http://www.google.com/finance?q=NYSE%3ALNKD
• http://www.google.com/finance?q=NASDAQ%3AZNGA

Tempur-Pedic International Inc (NYSE: TPX)

It doesn't look like memory foams will not cushion this latest news for Tempur-Pedic (NYSE: TPX). Shares of the company tumbled over 48% on Wednesday, after it was announced that second-quarter profits will drop 50% from last year. Analysts had expected 86 cents per sharing of net income, but the expectation is now only 34 cents. Much of this is due to increased competition from mattress makers. An analyst from Gilford Securities is quoted in saying that Tempur-Pedic "needs to institute a strategy where they drive more brand loyalty, not only from consumers but also retailers."

The history of Tempur-Pedic goes back to the 1970s and NASA, which was "[developing] pressure-absorbing material to help cushion and support astronauts during lift-off." In 1992, the company was formed in Lexington, Kentucky, where it is headquartered now. From 2008 to 2011, profit had climbed over 270% from $58 million to $219 million. However, as CEO Mark Sarvary claims, the environment in North America has seen "unprecedented number of new competitive product introductions which have been supported by aggressive marketing and promotion." Notably competition has come from Sealy Corporation (NYSE: ZZ) and Select Comfort (NASDAQ: SCSS), which also saw losses of over 5% and 20% on Wednesday, respectively.

Sources:

• http://online.wsj.com/article/BT-CO-20120606-714417.html
• http://www.forbes.com/sites/abrambrown/2012/06/06/sleepless-nights-for-tempur-pedic-q2-profit-expected-to-fall-50/
• http://www.tempurpedic.com/our-company/our-history.asp
• http://www.google.com/finance?q=NYSE:TPX

Alcoa Inc (NYSE: AA)

Alcoa, the manufacturer of aluminum products, is the first company in the Dow to announce quarterly results. Late Tuesday, Alcoa announced net income of $94 million for Q1-2012, or 9 cents per share, which is actually down 69% from Q1-2011; but it is up from the $-191 million incurred from Q4-2011. More importantly, the results were ahead of analysts' estimates of 4-cent loss per share. As of now, shares of Alcoa have climbed 7.74% to 10.04. Also notable is the climb in most of the US and European stock indexes. The S&P 500 finally stopped a five-day slide, triggered by lackluster March job reports and high borrowing costs in Spain and Italy, that saw its index fall 4.3%.

During the first quarter this year, Alcoa announced the closure of  plants in the United States, Spain, and Italy, cutting over 500,000 tons of aluminum capacity. This cutback came after aluminum prices are down 23% on the London Metal Exchange in the past 12 months, averaging $2,219 a ton. Meanwhile, Alcoa is engaging in billion-dollar venture in Saudi Arabia, which it says will be the "world’s most efficient integrated aluminum production plant." Finally, Alcoa is boosting 2012 aerospace sales forecast by 3 percentage points, and projecting that the US automobile sales will grow 7 to 12%. Its view on the global market also remains optimistic, as it "reaffirms global aluminum demand growth projection of 7% and a global aluminum supply deficit."

Sources:

• http://www.bloomberg.com/news/2012-04-10/alcoa-posts-surprise-profit-after-aluminum-orders-climb.html
• http://www.alcoa.com/global/en/news/news_detail.asp?pageID=20120410006677en&newsYear=2012
• http://online.wsj.com/article/SB10001424052702304356604577337403066271624.html
• http://www.bloomberg.com/quote/AA:US

Jobs Report and Progress in Relation to Population Growth

Stocks in the United States are falling today, on the first trading day since the Labor Department announced Friday that employers added 120,000 jobs in March. That's only half of the 240,000 added in February, and way below the expected estimate of around 200,000. The unemployment rate did fall to 8.2%, but that's mainly attributed to decreasing labor force. The CNN report states that "job growth of around 120,000 is just about enough to keep up with population growth." Given the average rate of population growth in the United States, what exactly is the amount of job growth over month just to keep the same employment rate?

From the US Census Bureau data from 2000 to 2010, we can calculate the average monthly population growth rate. Then taking the current US population, we can estimate the monthly population increase:

• 308,745,538 = 281,421,906*(1+r)^120
• r = 7.724e-4
• Δpopulation = 313,332,804*7.724e-4 = 242018.258

Now we need figures on the labor force:

• 142,034K employed in March 2012
• 142,034K / 313,332,804 = 45.33% of population employed

At last, Δpopulation * (% of population employed) = 242018.258 * 45.33% = 109,706.876. This means that nearly 110,000 jobs need to be added each month just to accommodate the rising population and keep the unemployment rate steady. Given this number, it's plausible to claim that the jobs added in March barely offset the population increase.

Sources:

• http://online.wsj.com/article/BT-CO-20120409-706801.html
• http://money.cnn.com/2012/04/06/news/economy/jobs-report-unemployment/index.htm
• http://2010.census.gov/2010census/data/apportionment-pop-text.php
• http://www.dlt.ri.gov/lmi/laus/us/usadj.htm
• http://www.census.gov/main/www/popclock.html

Yahoo! Inc (NASDAQ: YHOO)

It was announced Wednesday by the ADP, the payroll processor, that the private sector in the United States added over 200,000 jobs in March. Nearly half of them were added by small businesses. On the same day, Yahoo announced that it would cut its workforce by 2,000, which is 14% of its employees and the largest layoff in the history of the company in its 17-year history.  The cuts will help save about $375 million annually, and this was the first major decision under new CEO Scott Thompson, who was quoted to say that these cuts were needed to make the company “smaller, nimbler, more profitable and better equipped to innovate."

Shares of Yahoo actually climbed 9 cents to close at 15.27 Wednesday. But these figures are way shy of the company's heydays. Shares topped over $100 in early 2000, and even as late as 2005, topped over $40. While the S&P has recovered the losses since 2008, Yahoo's shares have not climbed above $20 since end of 2008. Financials show that total annual revenues have fallen from $7.2 billion in 2008 to just under $5 in 2011. In fact, Yahoo's revenue of $353,000 per employee is far below the $1.2 million mark observed in Google and Facebook, and also less than half of that of Microsoft. Much of these figure underscore the failure of Yahoo to capture social networking and competition it faces in advertisement. In recent months under Thompson, Yahoo has also sought to sue Facebook for patent infringements. Facebook has filed a countersuit against Yahoo.

Sources:

• http://news.yahoo.com/yahoo-ceo-sweeps-2-000-employees-purge-222024880.html
• http://business.time.com/2012/04/04/as-yahoo-cuts-jobs-proxy-battle-facebook-patent-war-heat-up/
• http://www.google.com/finance?q=NASDAQ:YHOO

Groupon Inc (NASDAQ: GRPN)

Shares of Groupon are dropping Monday, after the company announced a revision of fourth quarter revenues. Groupon had reported a loss of $37 million for its fourth quarter, but on Friday the company further reduced the quarterly revenue by $14.3 million and net income by $22.6 million, after discovering that executives had failed to set aside enough money for customer refunds.

Launched in 2008, Groupon "features a daily deal on the best stuff to do, see, eat, and buy" according to its website. It earns revenue by offering discounted deals to its subscriber base and splitting the value of the deal with the merchant that offered the deals. While revenue has been growing, rising from $313 million in 2010 to $1.62 billion in 2011, Groupon still reported a negative income in 2011, as it has for every year in operation and all past four quarters.

The recent announcement was concerning for Groupon, which has been trying to build confidence with investors. The revised numbers correspond to the first quarter as a public company, and on top of reliability issue comes from the more-than-expected refunds. In explaining the revision, Groupon has explained that the company's move to offer more high-price deals has lead to a higher volume of refunds. Shares of Groupon has dropped over 11% today to 16.28 currently.

Sources:

• http://online.wsj.com/article/SB10001424052702303816504577313983768173826.html
• http://www.marketwatch.com/story/groupon-hit-as-analysts-question-model-2012-04-02
• http://www.groupon.com/about
• http://finance.yahoo.com/blogs/breakout/groupon-broken-business-buying-opportunity-141546893.html
• http://www.google.com/finance?q=NASDAQ:GRPN

Apple (NASDAQ: AAPL) Pushes Above $500

Apple has toppled the $500-per-share mark for the first time, but the climb may be far from over. Since the January 24th announcement that Apple posted net income in excess of $13 billion and sales in excess of $46 billion, which is more than double, and up 73% from previous year, respectively, Apple's share has soared from around $420 to climb over $80, nearly 20% gain, in less than 3 weeks. Apple had been in contest with Exxon Mobil as the largest company, but with a market valuation of $465 billion, it is now the conspicuous spearhead.

What's next for Apple? While the release of iPad 3 will be highly anticipated in March, the prospect of dividends has certainly fueled the continual rise. Former CEO Steve Jobs was opposed to dividends, but that could begin to change in the shareholder meeting on February 23rd. A 2.5 dividend yield would translate currently to around $12.50 annual dividend a share. Given the current count of 932.37M stocks and 502.60 closing price, it would cost Apple 932.37M * 0.025 * 502.60 = around $11.7 billion. Even that would only be a fraction of the $17.5 Apple brought in Q4-2011 in cash flow from operations itself. That said, Apple has recently used much of its cash in investments. In the 52 weeks closing at end of Q3-2011, Apple actually saw negative net cash flows. However, with cash and short-term investments totaling over $30 billion as of end of Q4-2011, Apple would still have a solid current ratio of 1.24 if $11.7 billion of short-term investments were removed.

While the shareholder meeting is highly anticipated, analysts believe that the price will continue climbing. Yahoo Finance, through CNBC, quoted Shaw Wu, a Sterne Agee analyst, with a $550 price target on the shares. This meeting and the reception of new iPad 3 will ultimately dictate the direction of the world's most valuable company.

Sources:

• http://finance.yahoo.com/news/apples-hottest-thing-may-dividend-200638519.html
• http://www.usatoday.com/money/industries/technology/story/2012-02-13/apple-tops-500-a-share/53081060/1
• http://www.google.com/finance?q=NASDAQ:AAPL

Facebook Ready for IPO

Facebook is just about ready to file for IPO. Morgan Stanley is said to be hired to structure the offering that could see Facebook raise more than $5 billion and see the company formed in 2004 be valued at as much as $100 billion. Most of Facebook's revenue comes from advertising, and that figure was $3.8 billion in 2011. Research firm eMarketer estimates that revenues in 2012 will increase over 50% to $5.78 billion. In the days leading up to today's public filing, much talk has been centered on this $100 billion figure.

Facebook will be three times more expensive than Google was during its IPO. Given Facebook's $3.8 billion revenue and $100 billion valuation, that is a price-to-sales ratio of around 26. For comparison, a Market Watch article discussed valuations of 76 IPOs from companies with at least $3 billion in sales in the 12 trailing months up to IPO. The results reveal that their average price-to-sales ratio was around 0.7, meaning that Facebook's ratio is nearly 40 times that of comparable companies at the time of IPO. Google, to which Facebook is often compared to, had a price-to-sales ratio of 8.7 during its IPO, or nearly 1/3 that of Facebook. According to the latest financials, Google in 2011 had $37.9 billion in revenue. Its latest market capitalization value is $188.61 billion, or about 5 times its latest annual revenue. For Facebook, even with the 50% growth estimates from eMarketer for 2012 revenues, the $100 billion valuable will be over 17 times the annual revenue.

The high valuation of Facebook may rest on the anticipation of continual fast growth. However, the $3.8 billion revenue in 2011 missed the forecast of $4.3 billion from eMarketer. Zynga, one of the biggest advertiser on Facebook, began trading on NASDAQ last December. Up until this past week, its price was consistently below the initial pricing of $10; the recent spike may be attributed to the imminent IPO of Facebook itself. Finally, eMarketer forecasts that growth rates of Facebook's ad revenue worldwide will drastically decrease from 152% in 2010 to 21.1% in 2013.

In an article written by Business Insider and posted on Yahoo, the $100 billion valuation was defended on the basis of Facebook's control of traffic on Internet, personal identity data, and the biggest social platform. Based on these three criteria, the future cash-flow discounted to today's value makes $100 billion a plausible amount. Facebook's high valuation rests on its continual fast growth. That success will ultimately determine whether the $100 billion valuation is appropriate or not.

Sources:

• http://www.bloomberg.com/news/2012-01-31/facebook-said-to-hire-morgan-stanley-to-lead-social-networking-site-s-ipo.html
• http://www.forbes.com/sites/roberthof/2012/02/01/the-100-billion-ipo-question-can-facebook-keep-growing-fast-enough/
• http://www.emarketer.com/PressRelease.aspx?R=1008601
• http://www.marketwatch.com/story/facebooks-ipo-will-be-way-overvalued-2012-02-01?reflink=MW_news_stmp
• http://money.cnn.com/2012/01/30/technology/facebook_valuation/index.htm?iid=HP_LN&hpt=hp_bn6
• http://finance.yahoo.com/news/think-facebooks-100-billion-valuation-154541942.html

Eurozone Downgrade

On Friday, the financial crisis in Europe took another turn as Standard & Poor, the same rating agency that cut the AAA rating for United States, downgraded the ratings for 9 euro-zone countries, citing that "the policy initiatives taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone." Among the top-notch ratings downgraded were France and Austria, which like the United States, fell to AA+. Italy saw its rating fall to BBB+, dangerously close to the junk bond level. Other countries seeing their ratings fall were Slovenia, Slovakia, Spain, Malta, Cyprus, and Portugal. However, avoiding the downgrade was Germany, which kept its AAA rating and its role as the stronghold in the euro-zone.

Although the downgrade was predicted, stock markets on both sides of the Atlantic fell Friday. London's FTSE 100 and Germany's DAX were both done about 1.5%, while indexes in United States fell about 0.5%. The downgrades will mean that the cost of borrowing will be higher for these European nations, and the impact will be seen in two days when France sells over 8 billion euros in bills. After the S&P announcement of increased European bonds, investors sought the US treasuries, sending the yield on 10-year note to 1.87%. Similarly, yield on Germany's 10-year also decreased to 1.76% as the country maintained its strong rating. Meanwhile, as the collective risk of the euro-zone governments increased, demand for euro decreased as the euro hits a 16-month low against the dollar, at $1.2665.

Sources:

• http://money.cnn.com/2012/01/13/markets/sandp_europe_downgrade/index.htm?hpt=hp_t3
• http://www.bloomberg.com/news/2012-01-13/france-to-lose-aaa-from-s-p-afp-says-citing-state-official.html
• http://www.nytimes.com/interactive/2012/01/13/business/nine-euro-countries-ratings-are-cut.html?ref=global

December Jobs Report

On Friday, the Labor Department announced that 200,000 jobs were added into the economy in December. Beating analysts' estimates of 150,000 gain, this dropped the unemployment rate to 8.5%, the lowest level since February 2009. Overall for 2011, the economy added 1.6 million jobs, the most in five years. However, the US stock markets didn't respond mildly to these news. Dow and S&P 500 posted marginal losses.

Despite the latest signs that the economy is improving, employment still remains 6.1 million below the levels before the recent recession. Even with December's rate of growth, it will still take over two years to recoup such amounts. Moreover, seasonal variability accounted for much of the growth seen in December. Contribution to the growth were construction jobs, boosted by mild weather. Messenger and retail industries also added significant number of jobs for the holiday shopping season. As colder months arrive and the holiday season wanes, growth in these sector may slow down.

Furthermore, European situations continue to worry investors globally. Unemployment in the 17 nations that use the euro is at 10.3%. Italy's 10-year bond yield climbed to 7.09%, above the 7% threshold that impelled bailouts in Portugal and Ireland. The Spanish levels are dangerously resting at over 5.6%. The euro fell to $1.2696, the lowest since September 2010. The yield in US Treasury 10-year note fell to 1.96%. At first, this may contradict the general rule that as interest rates increase in a country, money and investment will flow into that country and appreciate its currency. However, dollar is appreciating against the euro despite decreasing interest rates in US and increasing rates in Europe. In this scenario, it can be explained that higher yield in Italian bonds are due to greater risk. Investors instead choose to put money in the low-risk US Treasury bonds. As the demand for US Treasury bonds increases, the bond yield falls.

Sources:

• http://www.reuters.com/article/2012/01/06/us-usa-economy-idUSTRE7BM0AB20120106
• http://www.latimes.com/business/la-fi-stocks-20120106,0,1764620.story

Eastman Kodak Company (NYSE: EK)

Kodak, as it is commonly known, has been around since 1892, focusing on imaging and photographic materials. Excelling in photographic film for much of the 20th century, the 131-year-old company has struggled in recent years as use of photographic film has slipped. In recent years, Kodak has tried to focus on printers, but ranks fifth globally with a market share of only 2.6%. On Wednesday, it was announced that  Kodak is "preparing to seek bankruptcy protection in the coming weeks," sending its stock below 50 cents, a dramatic decrease from when it was nearly $30 back in 2007. In the meanwhile as it tries to prevent Chapter 11 bankruptcy, Kodak is trying to sell patent portfolio.

A look at the financial statements for Kodak confirms its recent struggles. Net income has been in the negative each year since 2007, and most recently in 2010, it incurred 687 million loss. During that year, while the COGS margin stayed around 73%, sales weren't enough to cover even the operating expense. Looking at the balance sheet, there is negative equity as of 2010, as long-term debt made up most of the liability. It's interesting to note that the current ratio is above 1. It is plausible that Kodak prepares for Chapter 11 now while it still has the temporary liquidity to restructure the firm. Equity has been on a downward spiral from 2007 when it was at over 3 billion, to the latest 2010 figures of -1 billion. Cash flow statements show similar trends, as merely cash flow from operations has been on a downward spiral into the red.

Sources:

• http://www.google.com/finance?q=NYSE:EK
• http://online.wsj.com/article/SB10001424052970203471004577140841495542810.html

Europe at the Brink – A WSJ Documentary

The Wall Street Journal recently published a documentary about the origin of debt crisis in Europe, citing imperfect union as the root cause. After World War II, economic ties were sought to prevent future conflicts. 1957 Treaty of Rome established European Economic Community. In the next decades, the idea of a unifying currency was sought, finally leading to the rise use of euro today. People hoped that this would be the start of a united Europe. However, while there was monetary union, there lacked fiscal union. All countries shared same policies regarding the supply and value of euro, but each country differed in its growth and governmental policies, helping to plants the seeds of current situation. Due to low borrowing costs, counties like Greece took on debt to offset its own weak internal growth.

In October 2009, Greek debt projected to be 3% of its GDP was actually 12%. Foreign investors panicked, and costs of borrowing to Greece increased. Given the abundance of countries and governments in the euro-zone, actions were slow to be implemented. In May 2010, Greece needed a bailout for its debt, but anxiety about Greek fiscal soundness continued. Furthermore, the worry began to spread through the continent. Particularly distressing was Italy, the euro-zone’s third largest economy.

The question looms whether to form a tighter fiscal union or let the countries dissolve further apart. The premise of the euro was for the countries to converge their economies, but such has not been observed. What direction Europe would go also remains a mystery; some even speculate one or more members leaving the zone this year. Disciplined approach to national finance is now crucial. The stake of the entire world economy is contingent on the approaches Europeans take.

Source:

• http://blogs.wsj.com/dealjournalindia/2012/01/04/europe-at-the-brink-%E2%80%93-a-wsj-documentary/