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Are the Markets Getting Too Heavy for Google to Lift?
Ever since Google’s stock-withering earnings report, I’ve had the Flaming Lips’ “Waiting for a Superman” stuck in my head. Things are indeed getting heavy, and everyone was waiting for Google to lift the sun into the sky. That didn’t happen, and Google’s stock was quickly shoved down 9.5 percent in after-market trading.
Just as it was unrealistic to expect Google to save the tech sector, sentiment is now likely to become unrealistically gloomy. Eric Schmidt swore that Google isn’t hurting from the weak economy, and he’s probably right (for now). That discussion misses the bigger point in Google’s recent numbers: The last of the Internet giants founded in the 90s is finally maturing into slower growth, and signs are the transition could be painful.
We may have seen the last quarter when Google can boast of revenue growth rates above 50 percent. (Five years ago, it was nearly 500 percent). That was inevitable, but it’s come sooner than you might like to think. Revenue growth had been gracefully decelerating until the most recent quarter, when it stumbled.
In particular, paid clicks — clicks on ads on Google’s or its AdSense partners’ sites — grew 30 percent in the latest three-month period. They grew 61 percent a year ago and held between 45 percent and 52 percent in 2007.
Also, traffic acquisition costs took a nasty and unexpected rise, to 30.3 percent of revenue from 29.1 percent a year earlier. Google chalked that up to ads on social networking sites — presumably including MySpace — not monetizing as they should.
Analysts will be parsing for days the few tea leaves Google allows in its teacup. In the end, I suspect we’ll end up with an image of Google as an older, less limber player in a game whose rules are changing as fast as ever.
Investors may have to learn to live without Google lifting the markets. Google hasn’t forgotten them or anything. They’re just too heavy for Google to lift anymore.
4 Reasons to Brace for a Turbulent Earnings Season
Stock markets around the world are tumbling, with the Dow staying firmly in negative territory even in the face of an emergency interest-rate cut. And ready or not, the parade of technology earnings is on its way as well.
A handful of tech bellwethers have already delivered their results for the latest quarter, and if last week was any indication of what’s to come, trading in tech stocks will be volatile. IBM kicked off the season on a happy note; its shares posted their biggest one-day gain in five years after Big Blue pre-announced surprisingly strong numbers. Intel, in contrast, failed to meet already diminished expectations, and saw its stock sink 17 percent last week alone. Intel has lost more than $50 billion in market value in six weeks, or nearly a third of its market cap.
Next up: Apple and Texas Instruments on Tuesday; eBay, Motorola and Netflix on Wednesday; and AT&T, Microsoft and Nokia on Thursday. The questions now is will they produce more IBM-like heroes or Intel-like goats?
I fear it’s the season of the goat. Here are four reasons why:
Stocks are still overrated. Sure, valuations are down — Apple is trading at a mere 25 times its forward earnings; it was above 30 for most of 2007 — but analysts have almost surely overestimated future earnings. On the whole, downgrades have been directed at the last quarter of 2007, not 2008. Most analysts are waiting for new guidance before adjusting their 2008 estimates. And their old estimates were made before the consensus view shifted abruptly toward a looming recession. Besides, the market’s mood has been so dark that any big downgrade triggers a selloff, and companies don’t like it when their banks trigger selloffs.
Earnings for the fourth quarter of 2007 are likely to be worse than those recently lowered expectations. Companies have two big incentives for shifting as many losses as they can to the most recent quarter: First, they can blame the weak economy, the mortgage mess, the credit crunch and the fools who started it all. Second, a bad fourth quarter of 2007 will make year-over-year comparisons in 2008 look that much better. And investors will be focusing on 2008.
Uncertainty, that stock market mood-killer, still rules. Yes, contrarians are starting to look for oversold stocks, and rightly so. But it’s still too early to know if the market at large will recover in the spring, or this summer, or…even later.
IBM shares did rally last week, but IBM has historically been an exception, performing reasonably well when the tech sector tanked. During the swoon in autumn of 1998, when the Nasdaq dropped by 32 percent, IBM stock gained 6 percent. In fact, it was credited with helping to start the recovery in tech stocks. And between March 2000 and December 2001, shares of IBM rose 20 percent while the Nasdaq sank by 60 percent.
So things are looking rocky for the next couple of weeks, but here’s one reason to think that the worst will be over soon: As I write this, dozens of news stories are already terming this a “stock market crash.”
We’re nowhere near crash territory. And the Fed has cut rates by three-quarters of a point, which should give short-term relief at the very least. But the panic in the press is often a signal that the frenzied selling is starting to reach its peak.
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SMG To Spin Off Virgin Radio, Europe’s First Online Broadcaster
SMG To Spin Off Virgin Radio, Europe’s First Online Broadcaster
SMG, the troubled media group that owns two ITV franchises in Scotland, will spin off its otherwise successful Virgin Radio business to reduce debt and concentrate on its core TV assets (Reuters). SMG has endured a torrid couple of years thanks in part to falling ad revenue across the ITV network; in an annual results statement in which it announced the Virgin sale today, SMGreported a 46 percent fall in pre-tax profits to £9.7 million ($20 million).
Virgin Radio, which started out on the AM waveband and was formerly owned by Sir Richard Branson and entertainer Chris Evans, is innovative in delivering to a multitude of platforms. The first European radio station to broadcast online (in 1996), it has held steady market share since 2002 and is available on the UK’s national digital radio network, cable and satellite TV, mobile phones, internet streams in a range of formats and, from this week, even on games consoles. Virgin Radio is unrelated to Branson’s Virgin Media telecoms and TV group (formerly ntl/Telewest plus Virgin Mobile), but might Branson be interested in regaining his radio station?
Related:-
- Virgin Radio Broadcasts To Wii And Playstation 3 Entertainment Hubs
10-K Watch: Audible’s Financial Processes Questioned by Auditor
Audible, the spoken-word digital media company, has filed its annual report with SEC, and some interesting details. A note by its auditor, questions its financial processes: “During our 2006 compliance efforts, we identified material weaknesses involving ineffective execution of non-routine contracts, inadequate financial information and communication, ineffective review of account analyses, and inadequate identification and analysis of international non-income tax related matters...as a result, our independent registered public accounting firm issued an adverse opinion on the effectiveness of internal control over financial reporting.”
Also, some other details:
-- We generated $3.3 million in revenue in the UK during 2006, an increase from $0.5 million in 2005. We believe that revenue from Audible UK will continue to grow provided we are able to obtain additional content that is appealing to more customers.
-- Approximately $3.7 million, $9.5 million, and $19.5 million of our content and services revenue is derived from sales of Audible content at the Apple iTunes Store, in 2004, 2005, and 2006, respectively.
-- Its new contract with Apple for iTunes: Audible “has agreed to certain exclusivity obligations that restrict the Company to varying degrees from integrating Audible content into other internet-based services. The new agreement also provides that the Company’s revenue is formula-driven, based upon the selling price on the iTunes Store and the content cost.
-- Also this clause is interesting: :The new agreement also changes the terms of the revenue share payments due to Apple. Under the terms of the previous agreements, the Company paid Apple a revenue share based on number of customers who used the iTunes software to download digital audio. In the new agreement, the revenue share paid to Apple is a percentage of sales made by customers who are referred directly by Apple to the Company’s Web site. “
Earnings: Ziff Davis 4Q Profits Rise 70 Percent
Crediting its digital businesses, Ziff Davis reported that 4Q earnings before taxes and interest rose 70 percent to $14.3 compared to $8.4 million for the same period a year ago.
Earnings in the digital businesses alone gained 144 percent for the quarter. The company said that the closing of Sync and ExtremeTech magazines saved the company $5 million in production costs. Other highlights:
-- Consolidated 4Q revenues totaled $56.7 million. Excluding revenue from the two closed publications revenue increased nearly 6 percent or $2.8 million year-over-year. With the two former magazines included, however, consolidated revenues were down 2 percent when compared to a year ago.
-- The company’s 4Q digital revenues were up 24 percent, while print revenues, excluding the closed publications, fell 8 percent.
-- For the year, digital revenues increased by 25 percent versus 2005, while print revenues, excluding the closed publications, decreased by 11 percent compared to a year ago.
-- For the full year, earnings before taxes and interest increased to $27.1 million, a 57 percent improvement compared to $17.3 million in 2005.
-- Consolidated revenues for the full year 2006 totaled $181.0 million. Not counting the two shuttered publications, revenue from closed publications, revenues gained 2 percent or $3.7 million compared to the prior year, while 2006 revenue was down 4 percent when those magazines are factored in. Earnings Release
Independent’s Online Revs Up 65 Percent
In UK, online revenues at the Independent newspaper have grown 65 percent in 2006, according to 2006 earnings numbers released by Independent News & Media, reports Guardian. Total revenues rose 1.5 percent to 1.635 bilion Euros in 2006, and operating profits up 5.7 percent to 329.5 million Euros, on the back of strong growth in the Irish and South African economies.
Tons more info in the PDF release here.
Movie Gallery To Offer Online Rentals; Plans Further Digital Investments
Hoping to stanch further revenue slides, video rental chain Movie Gallery plans to start an online DVD rental service later this year after a long stretch of customer defections to Netflix and Blockbuster, according to Reuters. After releasing fairly disappointing earnings results on Friday, Movie Gallery, which also owns rental franchises Hollywood Video and Game Crazy, has initiated a series of moves to regain its footing.
For 4Q, Movie Gallery’s total revenues were $663.3 million, a slight drop of 1.9 percent from $676.4 million in 4Q05. Same-store total revenues for the quarter fell 2.9 percent year-over-year. But the most difficult financial problem Movie Gallery had been wrestling with all year was its $1.1 billion in debt stemming from its purchase of Hollywood Video two years ago. It recently refinanced its senior secured credit facility to save more than $6 million of interest payments annually.
Making a greater attempt to meet customers demand for more digital services, as we reported earlier this month, Movie Gallery paid under $10 million for VOD service Moviebeam, which was spun off from Disney last year. In its earnings release, Movie Gallery touched on the purchase as part of a series of moves it plans to make similar investments to get itself back on track. As if it needed further proof of the need to offer more digital services, Reuters adds that the company learned from a customer survey that about 10 percent of Hollywood Video customers and about 2 percent of Movie Gallery customers were renting new releases from its stores, but finding older films through the online DVD rental services.
Related:
-- Movie Gallery Acquires Heavily Funded MovieBeam For Less Than $10 Million
Earnings: ROO’s Revenues Rise, But So Do Operating Losses
Online video aggregator ROO Group (OTC Bulletin Board: RGRP) reported 4Q revenues of $3.75 million, a 100 percent increase over its 4Q05 revenue of $1.87 million. The company’s results also improved over 3Q06 revenues, gaining 68 percent over that quarter’s $2.23 million. For the year, revenues were $9.77 million, an increase of 45 percent versus 2005’s total $6.61 million.
But, in addition to growing revenue, Roo’s string of operating losses also grew. ROO reported 4Q net operating losses reaching nearly $4.99 million – compared to $2.90 million in 4Q05 – and $14.63 million for the year – compared to 2005’s $8.96 million net loss.
News Corp. took a 10 percent stake in Roo at the end of January. ROO provides video tech for FoxNews.com and many News Corp. newspaper sites in the UK (Times UK and The Sun) and Australia.
Earnings release
Earnings: Jupitermedia Q4 Profit Falls; Online Division To Be Renamed Internet.com
After postponing its earnings release a week due to its financial team being distracted with its aborted sale to Getty Images, Jupitermedia (Nasdaq: JUPM) reported Q4 profit decreases, citing charges and higher operating expenses.
Specifically, net income dropped to $502,000 from $5.4 million a year ago – a 90 percent decrease.
On the revenue side, 4Q revenues were $34.8 million, which represents a $1.6 million or 6 percent increase over results for Q405’s $33.2 million. This increase was due to higher online images revenues of nearly $2.3 million, which was partially offset by a modest decline in online media revenues. Meanwhile. Online images – Jupitermedia’s largest revenue segment – increased to $27.1 million from $24.8 million.
Other highlights included:
-- Total 2006 earnings fell 83.3 percent to $13.1 million, or 36 cents per share, compared with $78.4 million, or $2.15 per share, a year ago.
-- Revenue for the year rose 21 percent to $137.5 million from $113.8 million.
During Thursday morning’s conference call, Alan Meckler, Jupitermedia’s chairman and CEO, sought to focus attention on recent deals and how that would positively impact the company’s future profits.
He expressed high hopes for the integration of royalty-free music site StudioCutz, which the company bought in January. “This deal gave us the critical mass we needed to make our music business meaningful,” Meckler said, according to the SeekingAlpha transcript.
Meckler also told investors that the company had previously neglected its online media division, JupiterWeb, until about three months ago. The division, which will be renamed Internet.com (oh gawd...again), is receiving heightened emphasis, namely increased investment and new hires to its sales team. Earnings release