An Interesting Take on Conference Calls

I’ve written here before that if I were running a public company I wouldn’t give quarterly financial guidance, but MicroStrategy (MSTR) is taking the focus on long-term business management even further (see below). Could this be a red flag signaling poor financial results in the future that the company would like to avoid having to talk about? There is no way to know, but I would not jump to such a conclusion without other information to back up that assumption. There is no doubt some investors will see this as a negative and bet against the stock because of it, but with 30% short interest already, that seems like a risky bet to make.

From a MicroStrategy press release issued July 21st:

“MicroStrategy Incorporated (MSTR), a leading worldwide provider of business intelligence software, expects to issue a press release on July 28, 2005, to announce its financial results for the second quarter of 2005.

MicroStrategy has recently reviewed its practice of holding a conference call to discuss its quarterly financial results. The Company believes that it is in the best interests of its shareholders to focus on long-term financial performance, which allows the management team to more effectively run operations and build long-term shareholder value. Accordingly, consistent with our decision at the beginning of this year to discontinue providing revenue or earnings guidance, the Company has also decided that it will no longer hold conference calls following the release of its quarterly financial results.”

Side note: MicroStrategy’s Q1 conference call from April 28th is quite entertaining, and might shed some light as to why that call was the last quarterly call the company hosted. Feel free to draw your own opinions and share them with me, as I think it’s an interesting topic of discussion.

Goodbye Takeovers, Hello Takeunders

Rewind the clock back to March 2000. Do you remember BroadVision (BVSN), that high-flying e-commerce software company that traded at a split-adjusted $840 a share? Maybe you even owned the stock back then. Well, let’s hope you don’t own it anymore.

In one of the worst examples ever seen of acting in the interest of shareholders, BroadVision agreed Tuesday to be acquired by a private equity firm for 84 cents per share. Nevermind that is 99.9 percent below the stock’s all-time high. It’s 36 percent below the $1.32 the stock was trading at on Monday!

Martha’s Rich Share Price

Somebody seriously should call Martha Stewart and give her a stock tip; tell her to sell her own stock. Martha Stewart Living Omnimedia (MSO) reported 2nd quarter numbers and the results do little to explain why the stock, at $28, is worth $1.43 billion.

Sales for the quarter were $46 million, broken down as follows: publishing (69%), merchandise sales (22%), internet sales (5%), and television programming (4%). Amazingly, MSO lost $33 million in the quarter, hardly a profitable business model. Even if you exclude items like equity compensation, and focus just on product costs as well as selling, general, and administrative expenses, MSO lost $11 million on $46 million sales.

Clearly investors are focused on the upcoming Apprentice show for added profitability. However, given that Martha’s current shows are contributing only 4% of sales, investors would be correct in asking how much the new NBC series could possibly materially add to earnings.

Can anyone out there please explain how this company is being valued at more than $1.4 billion? Until I can understand such a justification, I’d be betting against MSO shares.

Bye Bye Delta?

That table pounding of Delta by JP Morgan back on May 18th looks awfully foolish…

From Reuters:

CHICAGO, July 27 – Shares of Delta Air Lines (DAL) sank more than 20 percent on Wednesday after the struggling No. 3 U.S. carrier’s chief executive said the airline’s restructuring plan is not enough to save it. The comments from Chief Executive Gerald Grinstein in an internal memo stoked concern of a possible Chapter 11 filing, sending the stock down more than 20 percent, analysts said. “In light of what we have accomplished together so far, there can be no doubt that Delta’s transformation plan is delivering results,” Grinstein said. “What is also clear is that it is not enough.”

Google Hits My $1.35 Estimate

Earlier this week I postulated Google (GOOG) would report Q2 EPS of $1.35. Sure enough, tonight the company reported $1.19 in EPS including $0.16 in options expensing, which took the number up to my target. The stock is tanking after-hours as investors are always looking for more than most growth companies can deliver. Shares are down 6 percent or $18 to $296 each.

It will be interesting to see what the always valuable (read with sarcasm) Wall Street analysts say in the morning, especially after Google management warned on the call that Q3 is a seasonally weaker quarter (which we all know already). I have little doubt we will continue to see immense selling tomorrow morning, but I would expect money managers who still like the story to bargain hunt under $300 and help the stock recover some lost ground by the afternoon.

I still believe the stock will ultimately trade to 50x EPS, or $350 a share, in the next 6-9 months and as a result would not recommend panic selling alongside everyone else right now with the stock sub-$300. Google still deserves at least the same multiple as Yahoo! (YHOO) and eBay (EBAY) if not more.

Capital One Reports Another Excellent Quarter

Late Wednesday Capital One Financial (COF) reported 2nd quarter earnings of $2.03 per share, well ahead of analysts’ estimates of $1.75. Managed loans increased 13 percent to $83 billion and the company maintained its full year earnings guidance of $6.60 to $7.00 per share.

Capital One continues to be the best performing credit card company in the industry. They expect their pending acquisition of Hibernia Bank (HIB) to close on September 1st of this year, which will enable them to extend their product line into the branch model.

Despite the good news, investors still can pick up COF stock for 10.8 times 2006 earnings. Not a bad price at all for the leading company in the credit card space growing in the 10 to 15 percent range on an annual basis.

Amgen Report Could Prompt Closing of Genentech Gap

The 2nd quarter earnings report from biotech giant Amgen (AMGN) issued Tuesday night was a blowout, no question about it. With much of the biotech acclaim going to Genentech (DNA) in recent years, AMGN has flown under the radar and now investors are clammering to catch up. In fact, the stock is up $10 today to $80 per share. However, even with today’s run-up does Amgen still represent relative value in the biotechnology sector?

I would have to answer “yes” to that question, even though I would wait for a dip before buying any shares. Genentech trades at 52 times 2006 earnings against just 22 times for Amgen. Not to say that these multiples should be identical, but such a discepency most likely reflects an overly optimistic view on DNA and fairly lackluster sentiment surrounding Amgen. I see no reason why Amgen should garner less than 25 times earnings given its strong drug pipeline and 15% growth rate.

Yahoo Carnage Scaring Google Bulls

Shares of Yahoo! (YHOO) are getting slammed after the company met earnings numbers for Q2 but fell short in revenue both for the most recent quarter as well as full year 2005 guidance. Given that YHOO was trading at 65 times 2005 numbers before the report, making the stock priced for perfection, such a collapse isn’t surprising and shows us what happens when the market’s most expensive stocks don’t knock the cover off the ball.

On to Google (GOOG). Google is weak also as investors surmise that Yahoo’s shortfall could hamper Google’s ability to beat estimates when it reports on Thursday. While this is entirely possible, I would not be surprised at all to see Google beat bottom line numbers. Why? Well, YHOO reported 13 cents for Q2, same as the prior quarter. Google reported $1.29 per share in Q1, but the estimate for Q2 is only $1.20 per share.

Google’s higher growth rate, compared with Yahoo, also might allow it to show sequential growth in EPS for Q2. The highest estimate on the Street is $1.34. I think GOOG could very well report $1.35+ on Thursday, despite the weak YHOO report. Maybe they are taking share from Yahoo.

Would that even be enough to boost the stock price meaningfully? Maybe, maybe not, but I would rather be long Google than Yahoo and I doubt we’ll see as much disappointment in the GOOG report as we have with YHOO. Hopefully we can see GOOG maintain the $310 level throughout the week. Given what we know right now, that might be a better case scenario than we thought as early as this morning when people were positioning for a Yahoo beat.

The Misleading Consumer Price Index

Investors are trying to figure out why the Fed continues to raise interest rates. The most important job of the Fed is to contain inflation. That is what they target their actions to. Why then, with the most recent CPI index coming in flat year-over-year, does Greenspan and Co. continue to boost short-term rates?

This contradiction could very well be explained by many folks’ distrust of the government’s reporting of the CPI statistics. A flat CPI index seems strange given that prices for many goods and services are rising at a very fast rate, squeezing lower and middle class workers.

Let’s take a closer look at the components of the CPI index. The largest are housing (42%), transportation (17%), food (15%), and medical care (6%). These four categories of goods and services account for 80% of the consumer price index, which is showing flat to slight increases in recent months.

Does anyone see anything suspicious about this? Real estate is seeing its biggest boom ever. Oil prices are at 20-year highs on an inflation-adjusted basis. Commodity prices are rising substantially, impacting food costs. Healthcare costs have been rising at double digit rates for years now.

Are these facts being accurately recognized in the government’s CPI data? I, along with many others, would argue no. And perhaps Chairman Greenspan and the FOMC feel the same way, causing them to raise the Fed Funds rate higher than some think is warranted.