Thursday, February 28, 2013

The Groupon Saga



 Going against group wisdom and making a bet can pay great returns. But the bet should have a solid gut and some analysis that we did on our own to back it up.  Groupon (GRPN) seems like an opportunity for this kind of bet.  One of the reasons I think this is true is GRPN in many ways is like AAPL. Now  don’t start hating me for saying this.
Let me explain. AAPL revolutionized mobile thru the iPhone and brought in innovations like appStore. I am oversimplifying and you might say AAPL did much more. But bear with me here. Now in the mobile communications segment AAPL faces competition from Google, Samsung and others. It started with price and then now even performance. AAPL’s iPhone business is still a cash cow, but has been slowing down. Now what does it have to do with GRPN.

Well Groupon created a whole new market segment of what we call the daily-deals space and grew at a scorching pace until competition showed up with lower price offerings and like AAPL has to contend with Big G (GOOG) and Amazon (AMZN) who have better channels to sell the daily deals. In fact Google just made it far easier for all of its advertisers to do daily-deals and discounts alongside other online ad formats.

There you go, both AAPL and GRPN have to defend their existing cash cows and at the same time come up with products that can create lasting shareholder value in face of competition that has the power to take on them. The scale of the challenge of course is different.

With GRPN, let us start with the conference call yesterday. I have to read their 10Q over the weekend, but for starters let us look at how GRPN performed on the three important areas that are key right now.

Daily Deals business: No turnaround here. Wall St. was looking at a possibility. What we saw is a year-over-year decline, dropping from $478 million in the fourth quarter of 2011 to $413 million in the most recent quarter.

Marketing Costs: dropped by 61 percent to $61 million in the quarter, while Groupon continued to grow its total customers to 41 million, a 22 percent increase.

Groupon Goods: At $225 million in the fourth quarter, they're getting close to $1 billion in annualized sales


I think Groupon Goods’ performance is a huge plus. Though CEO Andrew Mason is under severe pressure, I think they are doing the right things. As for valuation, there are headwinds from AMZN writing off its Living Social investment and how Living Social is currently valued.

While further analysis is to be done, I believe GRPN is a long term high risk buy. We have to average into it and look at charts to determine the right price points.

Any one remember, where Priceline (PCLN) was about 5-6 years ago after it fell from the IPO bubble of ’00?

And hey what does all this have to do with AAPL? Well it appears AAPL carries similar risk (not same) from competition perspective and I am trying to think about what other have been pondering. Will Buffet buy AAPL? Well that is for another post.




Saturday, February 16, 2013

AllThingsMoney: 5 Trends and 5 Market Predictions for 2012

Planning to do some serious blogging in 2013. Let me start with my predictions last year..
AllThingsMoney: 5 Trends and 5 Market Predictions for 2012: Five Trends : Intersection of video and social gaming Explosion of Mobile data traffic Game changing year for cloud computing   Internet...

Tuesday, February 7, 2012

Apple, Google and the 200 day average!


Apple (AAPL) and Google (GOOG) have both tested their 200 moving averages and bounced back. Apple is up more than 25% since pulling  back after Steve Jobs and the supply issues from floods in Thailand. Apple found support at 363 in early Dec '11.



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Cutback to mid-January, Google disappointed investors on the fourth quarter earnings and lost 9% next day and continued to slide until it found support at 200-day moving average of 563. The stock as of Feb 7th close is up close to 9%, though it is yet to go past its pre-earnings price.



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The playbook idea from these instances is that short term events can create good risk-reward trades or buying opportunities on fundamentally strong stocks. Of course the pull backs have to be seen in the context of broader market conditions.

Saturday, January 14, 2012

Companies in business, but with writing on the wall

The Internet is the most efficient distribution network that was ever created. It has disrupted many businesses and continues to do so.  The WWW today delivers education, content, entertainment and even social relationship dynamics (facebook).  We are at a stage where we are starting to see business models created by the first two versions of the web (web 1.0, web 2.0 in geek speak) being disrupted.
In finding companies that can be shorted to protect long positions, I first started with companies whose proverbial writing is on the wall. Some of these are value traps, who have growing and steady cash flow, but hardly have opportunities to use the cash or have huge barriers to entry when considering their disruptor’s business. A very good example of this is GameStop (GME).

Here is a list:

1. RadioShack (RSH)
2. OfficeMax (OMX)
3. Best Buy (BBY)
4. GameStop (GME)
5. Office Depot (ODP)
6. Staples (SPLS)
7. Barnes and Noble (BKS)
8. Target (TGT)

5 Trends and 5 Market Predictions for 2012

Five Trends:
  1. Intersection of video and social gaming
  2. Explosion of Mobile data traffic
  3. Game changing year for cloud computing 
  4. Internet will start taking on banking. Serious disruption trends in payment systems, investment banking, crowd funding (VC finance) etc.
  5. Applications that use geo-checkin



Five Market Predictions:

  1. Stocks will return 10-15% in 2012
  2. Gold will start its descent to planet earth
  3. Bonds bubble will start unwinding
  4. Housing will bottom in 2012
  5. The greenback (US Dollar index) will make new highs 

Tuesday, November 29, 2011

The long and short of the market...

Why I don't trust Monday's (Nov 28) bounce to provide even a relief rally:  

  • Market moved higher at low volume, especially from large cap techs 
  • Treasury yield did not move enough for actual cash to be available to be deployed. Equity buying is more of short-covering 
  • No true follow-thru on Tuesday (Nov 29) > S&P 500 tested the 50-day and failed to move past the resistance The most telling feature was that Monday's move upward was accomplished in the futures market, Sunday night (usually smart money covering), the cash market was merely reflecting that move. In a real upward thrust, the cash market provides a follow-thru to the futures move.  

Of course all the above are feeding to my bearish bias, I might be seeing what I want to see, but this is what I am seeing.

Three Musketeers: IBM, AAPL and AMZN

And finally a look at where Apple (AAPL) is at:

AAPL has kept NDX weak for sometime. AAPL made a double top at around 420, but held its 200 day average at 364-365, where I reckon it has institutional support. But at a high market-capitalization and headwinds of competition it is hard to imagine (for me) that AAPL can provide leadership needed to take the overall market higher.