Friday, February 29, 2008

Scripps Disclosure Challenged

EW Scripps (SSP) announced a net loss for the fourth quarter of $256 million, or $1.56 per share, The company's net loss for the full year, including the effects of the non-cash charge, was $1.6 million, or 1 cent per share, vs. net income of $353 million, or $2.14 per share, in 2006. The charge reduced net income for 2007 by $382 million or $2.32 per share.

The press release which was issued after market close on Friday Feb 29 was very light on any management discussion about what is going on. They did refer to a preliminary release where they claim to have come out with the necessary information. The only item that I can find is a release dated Jan 31,2008.

In this release they announced preliminary operating results for the fourth quarter 2007, reflecting strong revenue and segment profit growth at Scripps Networks, the operating division that includes HGTV, Food Network and the company's other national lifestyle television networks. The preliminary fourth-quarter operating results do not include an anticipated non-cash charge against earnings for impairment of goodwill and other intangible assets related to losses and challenging business conditions at the company's uSwitch subsidiary in the United Kingdom.

They then laid this one out “Operating income in the fourth quarter was $205 million vs. $214 million in the fourth quarter 2006. Operating income during the fourth quarter 2007 included $3.5 million in transition costs related to the proposed separation of the company that was announced in October. Consolidated fourth-quarter revenue was $679 million compared with $683 million during the same period a year ago.”

We jump from this happy type of commentary to an end of day sneak it out after the market closes release. Management is not standing up and facing the music. One may conclude that they are not even listening to the music.

Thursday, February 28, 2008

Salesforce Blast Off

Salesforce (CRM) announced profitability and at the time of writing was up around 16%over yesterdays close. Given a PE ratio that is north of 600 that’s pretty gutsy. While there are obvious improvements in this enterprise why did the stock rocket up on this press release. Market expectations were not blown away by that much if at all. A PE north of 600 and some guys still want to pile into this one. OK lets take a look at what the executives said.

The hyperbole starts right at the beginning. The press release headlines this statement “First Ever On-Demand Software Company to Exceed $850 Million Annual Revenue Run Rate”

The press release starts with a quote from the chief honcho which follows “"Our fourth quarter and full-year results show that businesses are selecting the Platform-as-a-Service and cloud computing over failed client-server alternatives," said Marc Benioff, chairman and CEO, "There's only one way to describe both the consolidation of the industry and the growing number of companies choosing innovation, not infrastructure: The End of Software."
FY 09 EPS guidance is now $0.32 to $0.33. Given a 600 PE that means a share value of around $200.

Yes revenues are increasing. But management is very quiet about what is happening with the cost structure. One would assume that costs could be leveraged and margins would improve. Year over year revenues are up some 50%. Total expenses are up 46%. The synergies of scale are not becoming apparent.

Check out the insider sales during Feb. I am always suspicious when senior officer unload so close to earnings announcements.

Management needs to explain this problem. They have been around for nine years and should be farther ahead in leveraging costs.

Wednesday, February 27, 2008

Google Is The Algorithm OK?

Google (GOOG) may have hit a wall based on comments from ComScore, is it? The comments are based on one month’s data. Head for the hills we have confirmation that the sky is falling. What some investors have found surprising is that the sky may be falling on Google. If it is, the corporation will have to demonstrate maturity with its first major set back. Watch and see what they do? Can they manage a business and fix problems or are they just riding their surf boards on the most perfect wave that is maybe over?

From my position as a very small blogger I have watched with interest as perfectly targeted ads appear supposedly tailored to the interests of my readers. Regular readers will note that my comments are almost exclusively skeptical. As a matter of fact I call myself “Financial Skeptic” The idea is to write from a caveat emptor perspective and urge caution when considering investments. Lots of corporate executives, investment relations professionals and PR flacks do not like me. That’s very good.

The majority of ads served on my blog while they are financial and investment focused are all oriented to the buy side. Lists of stocks which will enable you to become the next Buffet abound. So how good is this Algorithm anyway?

Just recently I wrote about Lz-E-Boy. Shortly ads appeared to sell you Lz-E-Boy furniture. I do not believe I made any money on that ad. People searching for furniture probably do not read my blog. Several years ago I chastised Sprint about a press release they issued regarding hurricane preparedness. Ads appeared to sell survival tents and surplus outdoor gear.

Hence pardon my sketicism about the Google Algorithm which targets perfectly. Is it really a pipe dream? Can you target perfectly when the consumer is changing or are desperate advertisers being sold snake oil.

I am waiting for asymmetrical targeting. If you are an investor maybe you should see ads for golf equipment or fine wines. The demographic may be applicable. After all take a look at what the Wall Street Journal is doing with their Personal Journal. All the ads are not financially oriented. You have real estate and automotive as well as other major consumer categories. Last I heard it seems to be working for them. Let’s see what the search engine industry comes up with.

One final point about targeted ads. Anyone who writes daily knows some pieces are stronger than others. It is impossible to be consistent daily. Sometimes the information is not available. Sometimes the clock beats you and something has to go out. On days when I know in my heart of hearts that the piece was weaker than I wanted the click rate is much higher than days when I wrote a good strong piece.

My conclusion is that the investment community is information seeking. If they are happy with the piece they move on to other activities on or offline. If they sense something more was needed they will click on an ad. Unfortunately the conclusion is strong satisfies and weak sells.

Google and search engines have a long way to go to figure out the bi-polar manic depressive psychology that constitutes the stock market and financial advertising.

Tuesday, February 26, 2008

IBM Thinking?

IBM (IBM) excited the markets by announcing a $15 Billion share buy back. Trading near its 52 week high the timing seems right to drive the valuation higher. (Read executive stock option) As we all get excited about what is most likely a fundamentally good story lets ask a few questions.

The $15 Billion is somewhat in excess of one years annual profits. Although the dividend has been increasing, it currently trades around 1.39% dividend yield. Income investors are probably not rushing to tie this one up. If you believe share prices go up because more people want to buy than sell why not increase the dividend and attract long term buy and holds.

The most telling metric in my view: The $15 billion buy back is more than double last years R&D budget. IBM a technology company that leveraged the concept of “THINK” is now spending more money on financial engineering than on R&D.

Enjoy the ride but how far can this strategy take you?

Monday, February 25, 2008

MDC Hype No Substance

MDC Partners Inc (MDCA) announced that Bratskeir & Company, LLC, (an MDC Partners Inc. Agency), and Clifford Public Relations, LLC, will merge operations, effective immediately. Listen to the hype and hyperbole in the press release. The quote that struck me is

“The new agency’s unique point of difference will be guided by a shared vision – one that puts a premium on understanding clients’ businesses and creating strategic programs that utilize an extensive arsenal of capabilities that deliver meaningful results.”

Well if that’s not a winner I do not know what is. But hey lets ask a few questions. MDC is a publicly traded company. What are the financial terms to the transaction. How will this shared vision translate into tangible results for investors? Other than that why would investors care about an immediate merger that has no financial information publicly announced.

When the press release headlines

“MDC Partners' Acquisition of Clifford PR Establishes Bi-Coastal Agency, Delivering Full-Spectrum Service to Best-In-Class Clients”

You should be able to expect a measurable increase in value. But maybe that’s the problem with this company. It’s all hype and no numbers to take to the bank.