Posts Tagged 'TECHNOLOGY'

YHOO – Machiavellian or Failed Negotiation

YHOO – the hiring of the new CEO is either a brilliant negotiating ploy or the end of the auction process.  As to the former, first assume that the BOD and potential acquirers were far apart in price – perhaps $0.50 – 1.00/share which would equate to $600 mm to $1.2 billion.   At EBAY, Scott Thompson received $960,000 in cash compensation in 2010 with stock and option awards bringing his total compensation to $10,436,593, making him the 2nd highest compensated employee and providing a nice jump in comp from his average of $2.9 mm in 2008 and 2009.  Now, YHOO’s BOD sends a message to potential acquirers “your price is way too low, we’re moving ahead with the company as a standalone entity and have just hired a kick-ass CEO.”   Not many candidates in a strong current position would switch to a company in the midst of a potential takeover, abetted by an activist shareholder base.  But Thompson is 53 and assuming he receives a monster pay package with a boatload of options that vest upon a change of control or sale of substantial assets, he would be a great stalking horse for YHOO.  Whether they paid him $50 or 100mm, a substantial closing of the price gap in negotiations would still net YHOO shareholders a much better price  Thompson then does what every other former tech CEO does, becomes a VC investor.

I have no position in YHOO.

A Google acquisition of Akamai makes sense to me, not only because I own AKAM, but because there is tremendous synergy between the two companies.  It also makes sense, perhaps even more so, for AT&T or Verizon to make a bid.   while Akamai is one of those companies destined to be acquired some day, it is all too frequently the subject of unfounded rumors which may be the situation now.  Regardless, the question of acquisition is only one of timing.

 

Disclosure: Long AKAM

Netflix: Another Negative Datapoint – HULU/DISH

If the CNBC report is accurate and DISH has won the bidding war for HULU, then this is another negative data point for Netflix. Let’s recap recent news flow: 1) changing subscription terms alienating investors; 2) higher content costs; 3) STARZ termination; 4) missing subscriber targets; 5) DISH offering streaming from Blockbuster; and 6) DISH reported acquisition of HULU.
NFLX has had a virtual monopoly on subscription television and movie programming. This has ended with DISH stepping into the market from a position of strength. Now there is a competitor to drive up content costs in addition to the content providers potentially offering their own services. Furthermore, as I look at the disparity between the $1.4 billion offered by DISH and the reported $4 billion offered by Google, the difference tied to contract extensions on content, it tells me that content is worth more than the technology. Content always drives subscriber growth and the providers now intend to take advantage of their positioning versus arguably cut rate pricing during NFLX’s earlier years of existence. Not all that much is known about the deal Netflix cut with Dreamworks but the number that sticks in my mind is $30 million a picture. The question is whether or not each film will be worth $30 million to them or if the price of the content is adjustable. Besides, this does not kick in for 2 years so it won’t help them now. I am not short NFLX but am considering buying puts. i have tremendous respect for Reed Hastings but he is in a tough spot. Keep in mind that the information in this article is based on news reports and not a press release or 8-K from either company.

HPQ: Confessions of a First Time Buyer/Compelling Risk/Reward

Hewlett Packard is one of the most compelling stocks that I see on my monitor right now. I initiated a position on Friday and have added to it since. With all the talk about beaten down stocks, the fact is that most of these equities, including coal, steel, rails, etc., have retained their buy ratings, hardly the hallmark of complete capitulation of sentiment. With HPQ, however, I believe there are as many sell recommendations from the Street as Buy opinions, the rest being neutral (a rough observation). At approximately 5X EPS, even if I haircut the earnings forecast by 20%, a significant cut, I’m still looking at an inexpensive equity that is as unloved as Ahmadinejad would be if he joined my local synagogue. HPQ is a great way to participate in a market rally since the downside is limited and as those with cash look for easy entry into the market and potential value, HPQ has to pop up on their buy list. I don’t remember the last time I owned HPQ, if ever, so I have the advantage of a clear mind, not biased by buying into the prior value propositions that didn’t pan out. In fact, I don’t remember a stock ever being as hated as this one, not even RIMM (which I also recently bought), a great buy signal, particularly for contrarians.

Ray Lane did not acquit himself particularly well in the Faber interview on CNBC on Friday which only served to increase the negative sentiment, mine included, and I took that opportunity, after my knee jerk reaction, to enter a position believing that if I could feel that way toward an equity that I don’t even own, the bottom was reached. The most intriguing point coming out of the interview was Meg Whitman’s statement that her focus right now is on making the quarter, a bold statement given that the quarter is fairly far along. Hopefully she carefully though that comment through, otherwise she is wasting the first quarter of her tenure which is usually a kitchen sink, set expectations low event. If the quarter does now disappoint, I may have made a mistake, with no solace that it will be a lesser error in judgment than she made. But I’m willing to give the well-respected Whitman the benefit of the doubt; she deserves it.

I still believe the Board of Directors has to go en masse and that Whitman is not the optimum choice; that the BOD should have taken their time to search for someone with more experience in this sector of technology. At the very least it would have given the market more confidence in them and Whitman. Retailing is a different business than hardware and when Whitman left EBAY, the growth had already started to ebb, although she should be commended for her timing because the story may have in fact seen its best days.

HPQ is a compelling trade from a risk/reward standpoint. The tell is that most who read this article will shake their heads and quietly utter “been there, done that.”


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