Friday, April 20, 2007

AMEX Profits Do you Believe?

American Express (NYSE:AMP) reported excellent numbers. 10% increase in revenues with a 21% increase in net income. Just the type of leverage that you want to see from a company who has invested heavily in re-engineering. Amex is still reporting some residual expenses attributable to the re-engineering process.

Bershire Hathaway (NYSE:Brk.A), Warren Buffets vehicle for wealth creation, has long held substantial ownership. Now that the business plan seems to have sparked properly the question becomes how to value the stock? In particular the dividend needs to be addressed.

The current dividend yield is approximately 1% which is roughly half the S&P dividend yield. Value investors will want to be rewarded. A dividend rate consistently stuck at half the market bench mark yield is not acceptable for value investing.

Either the dividend goes up or management is telling you something.

Thursday, April 19, 2007

EBay Needs More

Ebay (NASDAQGS:EBAY) released a pretty good spin on their numbers. Not a bad start but the skeptical hairs on the back of my neck were quivering somewhat. Much of the good results are attributable to improved tax rates (a decrease of 5%) and favorable FX rates. You take it anyway you can get it but these two factors can turn on a dime and bite your financial backside without notice.

Ebay announced they had spent approximately $331 million on stock repurchases and are standing with another $2 billion. Big statement but it just amounts to short term tricks. The $331 million repurchase represents 59% of net cash flow from operations. This ratio cannot stand without long term negative consequences.

The $2 billion threat represents some 60% of their current cash and marketable securities. This threat also cannot stand.

Management needs to continue fixing the problems and taking the stock upwards. These statements are showing a lack of focus on operations and a fixation on financial tricks.

Wednesday, April 18, 2007

Netflix Twists on the Scaffold

Netflix (NasdaqGS:NFLX) released results which were at the lower end of guidance. The press release header would have you believe substantial progress is being made. Read the press release carefully. 2007 Q1 free cash flow is now negative $18 million compared to positive $11.6 million for the comparable Q1 in 2006. Also Q4 2006 was previously positive. How long will the cash reserves last?

Netflix is riding two headstrong horses hoping that one will save them. They are working on developing technology for on-line down loads. In this regard Tech and Development spending is up 40%. Sounds good but the overall dollar amount is still small compared to other competing and disrupting budgets.

The other horse is clients. They are adding somewhat but the costs of marketing are up 36% when comparing comparable quarters. The cost of DVD libraries is up a meagre 9% which means they do not feel the need to invest in product as the client is not showing up fast enough.

To top it off G&A spending is up 47%. That's not good and indicates problems keep biting this company in the worst way.

Netflix your best asset are the clients. Make a deal with someone who has the technology soon. Other wise both horses will burn themselves out and you will be run over as another also ran.

Tuesday, April 17, 2007

Jefferies Poor Disclosure

Jefferies (NYSE:JEF) released their quarterly financials this morning and claimed to have achieved records in everything. They made particular note of a record EPS number. Investors, they beat their previous high by one penny a share. The result is not worthy of banging the big drum but Jefferies needs some positive headlines so they ginned up their own. The last major news they had was a downgrade by Goldman Sachs (NYSE:GS) on April 2.

The press release is Reg FD challenged. Other than announcing records and providing basic numbers they have really not said anything about the business. They have referred one and all to the conference call which will be live one hour after the press release. If the conference call contains significant substance and the press release is an empty document Jefferies will have some regulatory scrutiny to deal with.

Jefferies is playing a dangerous game. They know most investors and financial media will not listen to and or read the conference call transcript. The press release has such poor disclosure that it will be ignored and viewed as useless by investors. Jefferies knows they have a less than stellar story and they are attempting to place a cone of silence over the proceedings. This way investors will have a dim memory of the negative. When Jefferies starts to come out with good news which they need the story will not have to overcome as much skepticism.

This is a management group that is in crisis and showing signs of desparation. This is not where a reasonable investor wants to put their money.

Monday, April 16, 2007

Google Busts a Move Microsoft Still OK

Google (NasdaqGS:GOOG) buys DoubleClick. Microsoft (NasdaqGS:MSFT) is seriously disadvantaged because the Bill Gates team cannot catch up with internal growth, or so pundits and assorted doomsayers content. It boils down to this “In God we Trust all others pay Cash”. Microsoft has a 1.4% dividend yield which seems fairly solid and represents about 28% of net earnings. Google (who is not God) is not even close to contemplating paying a dividend.

Once you cut through the sound and fury of the financial battlefield investors are realizing that for all its vaunted might Google could not currently pay a similar dividend yield of 1.4%. At a share price of say $465 and outstanding shares of 311 million Google net earnings would need to be approximately $7.2 Billion to match the 28% payout.

Google’s net earnings growth has been stupendous but we are talking billions here. Investors will require the billions to be consistent and repetitive. Google has placed two very big bets with youTube and now Double Click. The roulette wheel is still turning and we are far away from consistent and repetitive. Google needs to achieve enormous earnings growth just to match Microsoft’s ability to pay a simple dividend.