MSFT

Best Buy’s Comps Are Soft; Risk/Reward Not Compelling

by

After shares nearly flirted with $10 in December, electronics retailer Best Buy (click ticker for report: ) has seen its stock more than double thanks to moderating sales declines and a store revamping strategy that displayed great promise. However, Best Buy’s first quarter fell short of consensus expectations as the Street got a bit ahead of itself in gauging the velocity of the turnaround. Revenue declined 10% year-over-year to $9.3 billion, which was well below consensus estimates. Adjusted earnings per share fell 58% compared to the prior year to $0.32 per share, which was a touch better than consensus expectations. Free cash flow swung to negative $179 million for the quarter, reflecting the firm’s inability to earn net income more … Read more

Netflix’s Subscriber Growth Remains Fantastic

by

Content distributor Netflix (click ticker for report: ) kicked off 2013 with strong growth in revenue, subscribers, and earnings per share. Revenue jumped 18% year-over-year to $1 billion, roughly in-line with consensus estimates. On the other hand, earnings per share generously exceeded estimates, moving from break-even to $0.31 per share. Further, the company added 3.05 million new streaming subscribers while losing only 3% of domestic DVD subscribers. Both domestic streaming and international streaming posted strong improvements in profitability and revenue. Domestic streaming revenue increased 26% year-over-year, with lower content costs driving a 630 basis point increase in operating margins to 20.6%. This resulted in an 82% increase in operating profit. In his candid letter to investors, CEO Reed Hastings cited strong … Read more

Yahoo: The Turnaround

by

Internet search and content provider Yahoo (click ticker for report: ) reported first-quarter results that were mediocre. Revenue ex-TAC (excluding traffic acquisition costs) was flat year-over-year, falling short of consensus estimates. Earnings per share easily exceeded consensus expectations, rising 52% year-over-year to $0.35. Yahoo provided non-GAAP earnings per share of $0.38 that excluded stock-based compensation expense. Unfortunately for shareholders, the EPS increase was mostly the result of a 10% reduction in share count, a reversal of one-time charges, and a significantly lower tax rate. Non-GAAP operating income fell $7 million year-over-year to $224 million. Operating cash flow also declined to the magnitude of 26%, while free cash flow also declined 20%. In our view, the quarter was not nearly as strong … Read more

Adobe Kicks Off 2013 With a Solid First Quarter

by

Software developer Adobe (click ticker for reported: ) kicked off its 2013 fiscal year with solid first quarter results driven by strong Creative Cloud membership growth. Revenue declined 4% year-over-year to $1 billion, which was expected as the company transitions to a subscription model. Revenue marginally exceeded consensus estimates. Earnings per share fell nearly 40% to $0.35 on a non-GAAP basis, a few cents above consensus expectations. Like revenue, net income was expected to fall, but we are a bit disappointed by $0.17 per share in stock-based compensation. More important for tech companies like Adobe is free cash flow, which was strong at $261 million and essentially equal to the year-ago period. We remain impressed by the company’s ability to … Read more

Why GameStop Looks Like a Value Trap

by

At Valuentum, we pride ourselves on a multi-faceted investment methodology, acknowledging that several market-movers view any given investment from different perspectives. That is precisely why we’re staying away from shares of GameStop (click ticker for report: ), which scores poorly on the Valuentum Buying Index (our stock-selection methodology). Let’s take a look at why we don’t like the company. Changing Dynamics of Gaming Culture One of the unique features of the video game market has been the relatively liquid buying and selling of games. Since the days of FuncoLand (which was eventually acquired by GameStop), consumers could purchase and sell games new or used, and the game shops would help facilitate this market. Have a copy of Nintendo’s Super Mario that … Read more

Microsoft Remains a Terrific Company

by

Dividend Growth Newsletter portfolio holding Microsoft (click ticker for report: ) reported solid second-quarter fiscal 2013 results Thursday afternoon. Revenue jumped 3% year-over-year (5% non-GAAP) to $21.5 billion, roughly in line with consensus figures. Earnings per share declined 3% year-over-year (+4% non-GAAP) to $0.76 per share, a penny better than the consensus estimate. The performance from the Windows Division was relatively strong, in our view. 60 million Windows 8 licenses sold is a pretty solid number (as the image below shows), though we think the company (and the industry) would have liked to see the new operating system perform better (Image Source: Microsoft 2Q Earnings Presentation). We place a lot of the blame on the OEMs such as Dell (click ticker for … Read more

Intel Punished for Investing in the Future

by

Thursday afternoon, semiconductor giant Intel (click ticker for report: ) reported better than expected fourth quarter results. Revenue declined 3% year-over-year to $13.5 billion, roughly in-line with consensus expectations. Earnings easily exceeded modest estimates, falling 25% year-over-year to $0.48 per share. Due to the weak PC market and the firm’s desire to clear inventories, gross margins were down significantly in the fourth quarter, falling 650 basis points year-over-year to 58%. Gross margin declines were the primary driver behind the lapse in profitability, but research & development costs increased $300 million compared to the same period of 2011 to 19.5% of sales (up 290 bps Y/Y). On a segment basis, the PC Client Group, not surprisingly, drove the majority of revenue … Read more

2013 International CES Trade Show Bodes Well for Intel

by

After bottoming in mid-December, shares of Intel (click ticker for report: ) have recovered and are exhibiting some near-term technical strength. Fears of margin compression and a lack of a mobile offering have been putting heavy downward pressure on the share price over the past year. But we don’t think this is justified. The fundamental outlook, which we have always found sound, has improved following announcements at CES. Intel will work on improving its mobile offerings, which is easily the best news, in our view. Though Intel hasn’t yet achieved much market share in the premium smartphone or tablet markets, the company announced a new generation known as Bay Trail that will power Android and Windows-based tablets with far better efficiency than … Read more

Fiscal Cliff Averted; Aerospace Rallying

by

After a volatile December, two of our favorite aerospace names, Astronics (click ticker for report: ) and EDAC Technologies (click ticker for report: ), are rallying significantly after a deal was finally reached to avert the fiscal cliff. Precision Castparts (click ticker for report: ), which had steadily moved higher during the fiscal-cliff ordeal thanks to optimism surrounding its planned acquisition of Titanium Metals (TIE), is also seeing strength today. We assumed both profit taking and overblown fears of defense cuts were the culprit behind the increased volatility, and it seems as though that could be the case. We continue to see substantial upside at these firms thanks to the massive, multi-year commercial aerospace backlogs of the large airframe makers. Our Best Ideas portfolio … Read more