Today’s daily commentary is going to be on technology. Over the past few years, I have been writing here at Credit Writedowns that we are in the midst of a massive platform shift in technology toward a mobile-centric world. As Michael Whalen put it in2010, the future of technology is streaming content to any deviice, anywhere and at any time. This platform shift to mobile is built on the back of cheap and high-powered mobile bandwidth, something that was not ubiquitous just a few years ago. It makes video streaming, cloud storage and all manner of Internet-centric business models possible and it is what is driving the move to a mobile world.
The news flow over the past couple of days makes clear that this is the direction we are headed. Let me give you a few sample data points from just the past couple of days:
- Yahoo is increasingly moving to mobile. They have been discussing how Yahoo services can play a bigger role on the iPhone and the iPad. And Yahoo is now making a lot of mobile-related M&A transactions, the most recent being Astrid.
- Microsoft is releasing a cut-rate phone. This $150 phone will sell at Wal-Mart and work on T-Mobile’s new $30 a month pay as you go pricing plan. Clearly Microsoft is trying to ramp up the pressure in mobile and have been forced down market in order to win share. This makes sense sense the net add in handsets is not from new customers but rather more from upgrades to smartphones from feature phones.
- Facebook now gets more mobile use than desktop use. For me that was the big news story from Facebook’s earnings. Mobile monthly active users are now higher than desktop monthly active users. That means companies like Facebook need to be able to monetize mobile. This is why Google is all over mobile with Android. They saw the trend early and have moved into this space for that reason.
- Print media is sucking wind. The problem with the platform shift is that some legacy business models will get left behind. Newspapers have been caught padding their circulation numbers and Time Inc is shedding revenue. Those are just two of the headlines in the past couple of days pointing out how difficult print media’s transition to the Internet has been. In a mobile centric world it will be that much harder. This is also why I like LinkedIn as a company because they are morphing from a job-centric company to a social media and content company that can leverage mobile. I would expect to see some mergers later whereby net companies end up buying old media a-la AOL Time Warner where this time it is new media which has the better valuation.
- Telecom is fighting more over mobile than fixed line. Telecom operators see more opportunity in mobile. Most of the big telecom stories are mobile these days. The DISH-Sprint merger story is mobile. The T-Mobile- Metro PCS story is mobile. And the Verizon Wireless fight between Vodafone and Verizon is all about mobile.
- Twitter Music is about mobile. The social media company may be looking to IPO soon and they have said in the past that revenue-wise, mobile has been their big challenge. I believe most of their moves are oriented around mobile. All of Twitter’s desktop apps have languished. The recently-updated Twitter for Mac app is a case in point. It hadn’t been touched for months until a recent update. Yet, in that time twitter has iterated again and again on its mobile app. With the music App, Twitter is looking for a mobile revenue stream a-la Spotify or Pandora and using its social aspect to go into the space.
One overarching comment about Apple here since Apple is now about mobile before I post the links. Apple is losing share in tablets as well as handsets. Android now controls more than 50% of tablet market share. Moreover, the move by deep-pocketed Microsoft into the bargain bin on handsets definitely will put downward pressure on handset average selling price. When Amazon enters this market with their low-cost strategy, Apple’s goose is cooked. They will need to cut price or they will lose so much share that the network effects of app development will accrue to Android and Apple will be permanently marginalized.
I think the strategic outlook for Apple is relatively weak. Nevertheless, the massive correction in shares does lead me to believe that Apple is no longer a sell. Apple is probably a hold at these levels and would be a screaming buy in the $300-$350 range. Apple is a mature company in mobile and earnings are starting to contract. But it makes a ton of money and will continue to do so for the next 5 or 6 years. I would easily be willing to pay 7-8x earnings for Apple. I might pay 10x earnings too, which is about where we are. However, at 15-20x earnings, given the strategic outlook, I would consider Apple a sell.
Links below
Time Inc. Revenues, Subscription Dollars Down – Peter Kafka – Media – AllThingsD
“The good news: It’s still a really big publishing company, with 23 percent of the U.S. magazine business. And once it is done firing people, it may make money again.
The bad news: It’s a really big publishing company that’s trending the wrong way.
Overall revenue was down 5 percent, to $737 million. Subscription revenue was down 11 percent, and the main reason advertising revenue was up 2 percent was because Time Inc. now has control of Golf.com and Sports Illustrated’s website, which used to be run by Time Warner’s cable networks. And the additional money Time Inc. makes from those sites is basically wiped out by the absence of licensing fees they used to charge the cable guys for those sites. Magazine ad dollars were down.”
“A trade group says that newspapers like the New York Times have seen large increases in circulation, but that’s partly because they are allowed to count their readers multiple times. The industry needs to do better.”
“Facebook has just posted its earnings for the quarter that ended March 31, 2013. Facebook hit $1.46 billion in revenue up 38% from Q1 2012, beating Wall Street estimates of sales of $1.44 billion. Facebook reported earnings of $1.06 billion for the same quarter a year ago. Earnings per shared missed estimates, staying flat at $0.12 (analysts had expected earnings per share of $0.13.
Net income was up 7% to $219 million, versus $205 million a year ago (GAAP figures).
While revenue only grew slightly, the amount of its 1.11 billion monthly users that returned daily, 665 million, was slightly better than last quarter. For more details on user growth, read our post by Drew Olanoff.”
“In Q4 of last year, Facebook’s mobile MAUs surpassed desktop for the first time in its history. That trend continued in Q1 2013 with 751M MAUs. This is what we learned with today’s release of Facebook’s Q1 results.”
Yahoo Acquires 4M-User ‘To Do’ App Astrid, Is Now In A Holding Pattern For 90 Days | TechCrunch
““Happier, healthier, more productive.” That was the goal of mobile app Astrid, and now Yahoo is taking up the mission as it’s just acquired the social productivity platform. Co-founded by a former Palantir engineer, Tim Su, AngelPad-backed Astrid says that it has four million users, who as of September 2012 logged 30 million plans on the platform.
Astrid, we have heard, had raised well over $1 million from investors that included, in addition to AngelPad, Google Ventures, Nexus Venture Partners, Jack Herrick and TMT Ventures.”
“In the fourth quarter, Yelp missed earnings expectations, with net revenue coming in at $41.2 million in Q4 of 2012, a 65 percent growth in new revenue from 2011, while it saw a net loss of $5.3 million, or $0.08 per share. Today, Yelp turned things around, as it announced net revenue jumped to $46.1 million in Q1, reflecting a 68 percent growth from Q1 2012, while cumulative reviews grew 42 percent year-over-year to more than 39 million, average unique visitors grew 43 percent y/y and local business accounts grew 63 percent.”
Verizon Talks Tough to Vodafone – WSJ.com
“In comments that appear aimed at pressuring Vodafone Group to sell its stake in the companies’ U.S. joint venture, Verizon Chief Executive Lowell McAdam hinted in a meeting with investors this week that Verizon Wireless might not pay a distribution to its two owners this year.
Such a move would deprive Vodafone of a significant source of funds that it could otherwise use to make investments or return cash to its shareholders. “
iPad is top selling tablet, but Android now most common tablet OS, says IDC — Tech News and Analysis
“The overall growth in tablets means Android is now the most popular mobile OS in tablets shipped during the quarter; a year ago it was on 8 million of tablets shipped worldwide, compared to the 11.8 million iPads. This past quarter saw Android shipped on 27.8 million tablets that were shipped and 19.5 million iPads and iPad minis.”
T-Mobile Makes Market Debut After MetroPCS Deal – WSJ.com
“T-Mobile USA Inc. made its debut on the New York Stock Exchange on Wednesday following its merger with MetroPCS Communications Inc., marking a fresh start for the nation’s fourth-largest wireless carrier mired in a slump.
Shares of the company opened on the NYSE at $16.25 before finishing the day up about 2% to $16.52.”
Twitter Music Review – Bonnie Cha – Product Reviews – AllThingsD
“For those who are heavily engaged in Twitter, the app offers a bare-bones way to discover new music. But for everyone else, there’s no compelling reason to use it over existing music services.”
HTC barely ekes out a profit, expects HTC One to turn fortunes around — Tech News and Analysis
“Once the brightest rising stars in this new smartphone era, HTC has been falling from grace for nearly two years. The company’s latest quarterly results reflect the situation. Can the HTC One help a turnaround or is there more HTC needs to do?”
Galaxy S4 Bootloader Unlock Not Available Until Verizon’s Version is Released – Droid Life
“Dan Rosenberg (@djrbliss) posted a teaser photo this morning of his success at cracking the bootloader on the AT&T version of the Samsung Galaxy S4. The initial reaction by most was, “When will the method be released to the public?!?” After a minimal wait, the answer has been given and is quite obvious if you think about it. Dan is waiting for Verizon to release their version of the Galaxy S4 at the end of May. Why would he do that, you ask?
For one, there is no guarantee that his method will work on Big Red’s version of the Galaxy S4. But more importantly, if it does, he doesn’t want Verizon and their security personnel to have a chance to patch his exploit before release.”
Yahoo Acquires Astrid, Hints at Shutdown (But We’ve Got Alternatives)
“Yahoo! has acquired Astrid, your favorite to-do manager, and one of the best for Android. The company didn’t specifically say they’re shutting down as part of the move to the Yahoo! tent, but the language from their blog post definitely sounds like it. If you’re an Astrid user, it’s probably time to look for alternatives.”
LinkedIn second-quarter revenue forecast falls short of targets | Reuters
“LinkedIn said its current-quarter revenue would range from $342 million to $347 million, below the $359.3 million expected on average by analysts.
Although LinkedIn hiked its full-year revenue forecast by $20 million on Thursday, the high end of the forecast range was below the average analyst estimate of $1.49 billion, according to Thomson Reuters I/B/E/S.”
“LinkedIn has just reported Q1 earnings of $324.7 million, up 72% year-on-year, and non-GAAP earnings per share of $0.45, both soundly beating analysts’ estimates (via First Call) of $317 million and EPS of $0.31; as well as LinkedIn’s own guidance from last quarter, when it said it expected between $305 million and $310 million in revenues. Net income for Q1 was $22.6 million a big rise on the $5.0 million in earnings last year. Nevertheless, shares of the work-focused social network, however, are down nearly 11% in after-hours trading on news that next quarter won’t be quite as rosy.”
“Peer-to-peer lending platform Lending Club is announcing a huge new investor today: Google. Google and existing investor Foundation Capital have put $125 million in Lending Club, which was valued at $1.55 billion in the round. As part of this investment Google will take an observer seat on the Lending Club Board alongside existing Board members including Kleiner Perkins’ Mary Meeker, ex-chairman and CEO of Morgan Stanley John Mack and former U.S. Treasury Secretary Larry Summers.”
Twitter fuels IPO talk with hiring of banker – FT.com
“Twitter has fuelled speculation that it is preparing for an initial public offering by naming Cynthia Gaylor, a Morgan Stanley investment banker who has worked on deals for Facebook, LinkedIn and Zynga, as its head of corporate development.
The social media company announced the appointment in a tweet and Ms Gaylor responded in kind, saying that she looked forward to focusing on mergers and acquisitions and strategy at the company.”
Microsoft goes mainstream to win phone share | Reuters
“The Nokia Lumia 521 went on sale on the Home Shopping Network (HSN) last week, where it has already sold out. The 4G phone, sold overseas as the Nokia 520, is essentially a mid-range phone with some high-end features, such as four-inch touch screen, five megapixel camera and high-definition video display.
Next week the phone will go on sale at less than $150 at Walmart, along with T-Mobile US Inc’s $30 per month unlimited data and text plan, which works out much cheaper over the long run than heavily subsidized iPhones and upscale Android devices that generally come with pricy long-term contracts.”