September 30, 2006

Barron's Weekend Headlines Summary

posted by MR WAVETHEORY at 9/30/2006 04:16:00 AM


















COVER STORY

Cheap Seats Available
Next year could be the most profitable ever for U.S. airlines, barring a sharp economic downturn. There are good opportunities among major carriers. _____________________________________________________________________
BARRON'S FEATURE
Housing Hangover?
Home builders who used land options and joint ventures to secure land during the housing boom could face substantial writedowns if the downturn is severe. _____________________________________________________________________
BARRON'S FEATURE

A Fetching Stock
PetSmart's aggressive push into pet "hotels" and other popular services is helping the leading U.S. retailer of pet food and supplies win many loyal customers -- and boost profitability. _____________________________________________________________________
BARRON'S INTERVIEW

Samsung's Grand Ambitions
Jong-Yong Yun aims high by aiming low in the handset business. How important are killer apps? _____________________________________________________________________
UP &DOWN WALL STREET
Infestation of Bugs
Tracing the source of the bugging outbreak. A caveat emptor stock market. _____________________________________________________________________
THE TRADER
Riding High
After the markets' grand week, will public investors recommit to stocks? _____________________________________________________________________
INTERNATIONAL TRADER - EUROPE

E.On Offer Spot On
There's strong logic in the German firm's play for Spanish utility Endesa. _____________________________________________________________________
TECH TRADER
Fun With Fiber, Verizon-Style
Verizon's FiOS fiber-optic service will knock down the walls between TV and Internet.

Analyzing ShutterFly, Inc - Post IPO While Checking out Bare Escentuals

posted by MR WAVETHEORY at 9/30/2006 12:34:00 AM
In my previous post on ShutterFly, Inc. (Nasdaq SFLY), I posed the question: "Will the ShutterFly IPO Fly?." Today, the question was answered. Shutterfly debuted at $15, went as high as $16.73 and closed at $15.55. It closed up 3.67%.

By the looks of it, the IPO sold off right after the stock open at 10:30 am and underwriters were understandably trying keep it afloat. You can see that around 2:45 pm, there was a large spike in volume. It looks like somebody was trying to bail - understandable and highly likely that it was a fast money hedge fund that had bought it hoping for a quick flip that never materialized. After all, what venture capitalists hope to be able to accomplish in 7 years (that is the amount of time that it took for ShutterFly investors to get an exit), hedge fund managers hope to do in minutes , hours, and at most months!I think a large part of the reason this deal got done was because Jim Clark sat on the board of the company. Marshall points out that optically the company had 34% net margins on $84 million in revenue. Digging through the numbers shows that the company did earn $28.4 million in 2005, but that included a $24 million benefit for tax provision. That would be a net margin of 5%. Assuming $4.4 million of normalized earnings in 2005 (backing out the $24 million), the trailing P/E is 69 - 80 times trailing. Very expensive!

The ShutterFly IPO tells venture investors and tech entrepreneurs several things:
  • Tech investor and retail investors are back. They want tech in their portfolios and that is why deals like ShutterFly can get done. A portion of the deal was placed with retail investors and you can bet that retail investors will be a renewed force to be reckoned with in future dot com IPOs.
  • Dot com is cool again because they are finally financially viable. Even though ShutterFly produced modest earnings, it was profitable. Costs have been rationalized and entrepreneurs are more appreciative of growing their businesses at a reasonable pace and a reasonable price.
  • The minimum amount of revenues required to take a dot com public has increased to well over $50 million, and the company needs to be profitable. ShutterFly had both things going for it. It had $84 million in revenues last year. Investors no longer want to invest in unprofitable, non-revenue generating companies. Standards are much higher for IPO candidates.
  • Low tech may be more sexy than high tech. ShutterFly barely budged 3% today, while another IPO, Bare Escentuals, Inc. (Nasdaq BARE) gained 22% on its debut. Bare Escentuals not only priced at $22, well above the range of $15-$17, but it tacked on another $5.15 to close the day at $27.15. Tell that to a venture capitalist! You just might find them investing in consumer skincare companies and chasing after the next Body Shop.
















My prediction is that Divx and ShutterFly have whetted investors appetites for tech deals and this is just the start of a new hot IPO market. Be on the lookout for more tech IPOs to get on deck.

September 29, 2006

Research In Motion's Blowout Quarter

posted by MR WAVETHEORY at 9/29/2006 05:59:00 AM















Research in Motion Ltd (NASDAQ RIMM) had a blowout quarter and is up 20% (+15.91) at $101.97. If anything, it indicates that the push email market is still growing very fast. I wrote about Visto's $250 million venture capital financing ( "Google That! $250 million in Venture Capital for Visto!" ) and RIMM proves again that there is an extreme amount of investor enthusiasm for mobile email.
MSN is saying that RIM smashed expectations for the quarter. Bloomberg also thinks the numbers were good. The earnings announcement was positive.
  • The company reported net income of $120.1 million, or 61 cents, on sales of $560.6 million in last year's third quarter.
  • Second-quarter net income increased to $140.8 million, or 74 cents a share, from $111.1 million, or 56 cents, a year earlier.
  • Subscribers increased by 705,000 to 6.2 million.
  • Research in Motion will add 800,000 new subscribers this quarter
  • Earnings are estimated to be 90 to 97 cents this quarter.
I think most of the excitement is around the fact that RIM has a great product that is defending itself very well against the onslaught from Nokia and Motorola. Investors are really betting on the BlackBerry Pearl with music and media player doing well not only with small businesses but also consumers who like the entertainment capabilities.

There is euphoria back in tech land and everyone seems to be writing off the fact that RIM might have to restate earnings due to its options backdating investigations.

Mark Cuban Says Online Video Is Not a StandAlone Business "YouTube is a Waste of Money"

posted by MR WAVETHEORY at 9/29/2006 05:05:00 AM
Mark Cuban who sold Broadcast.com to Yahoo! Inc (Nasdaq YHOO) talked about online video at Advertising Week 2006. You might not always agree with Mark Cuban, because Mark has controversial views. Here is the video of the Mark Cuban interview. Mark thinks:
  • "YouTube is a waste of money"
  • "MySpace is plateauing"
  • "People are getting caught up in the excitement"
Mark's words of advice to advertisers.
  • "Programmers have to be careful diving in always expecting money to be there."
  • "Just like the early days of the internet, people getting caught up in hits, people are measuring streams rather than full views."
  • "What Yahoo and America Online are doing are not really that bad."
  • "The reason YouTube is having all these commercial discussions is that the cost of bandwidth is enormous."

September 28, 2006

Hedge Funds - The New Dot Com?

posted by MR WAVETHEORY at 9/28/2006 08:56:00 PM











Each of these
hedge fund managers paid $3900 so they could pitch potential investors on board an Eos Flight (luxury airline). EOS is a super luxury airline - there are only 48 seats on a plane that can seat 200 passengers.
As Eos Airlines Flight 2 lurched amid heavy turbulence on Saturday night, hedge-fund manager Kurt Hovan tried to stay on course, making his pitch to a prospective investor.

The 25-minute sales job by Mr. Hovan, manager of a $21 million health-care fund, fell flat. The investor didn't bite -- he said the fund was too tiny and its investment team too green.

Mr. Hovan was one of a handful of small-fry hedge-fund managers whose hopes took off with the Eos flight. Each paid $3,900 for a round-trip seat on the New York-London trip. The draw: to mingle with captive big-time investors and make sales pitches over champagne and canapes. Investors rode free of charge.
The last time I heard about this was when dot com CEOs would walk your dog to pitch you their latest dot-com idea.

FaceBook Adding Sponsored Advertising To Your News Feed

posted by MR WAVETHEORY at 9/28/2006 07:37:00 PM
Imagine getting a news feed on FaceBook about a friend breaking up with someone and then one line down, it shows an unwanted marketing message about how to get a hot date. Well, according to MediaWeek, FaceBook plans to launch a Sponsored Story Ad Unit where marketers can pry into your secret life and advertise you based on what's happening to you and your friends around you. Eery? Yes. Lucrative. Potentially so.

Marshall over at TechCrunch thinks its a massive invasion of privacy. Pete over at Mashable thinks FaceBook should really work through its News Feed issues before launching another privacy endangering product. I agree with both of them.

Yet, I have to say that this is a really interesting way of serving advertising. FaceBook would be the first company to merge advertising with the what's actually going on in your social network. Now that's revolutionary. I wonder who the first advertiser will be? Match.com?

ShutterFly, Inc. IPO Prices at $15 per share

posted by MR WAVETHEORY at 9/28/2006 04:37:00 PM
ShutterFly, Inc. (Nasdaq SFLY) has priced its IPO at $15 per share, which is the top of the range of $13-15. ShutterFly will have 23.6 million shares outstanding after the offering giving the company a value of $354 million or roughly 4.2x sales in 2005. ShutterFly is selling 25% of the company in the IPO.

The ShutterFly IPO Deal Fees

Offering Price: $15.00
Underwiters: JP Morgan, Piper Jaffray, Jefferies
IPO Gross Spread: $1.05
Selling concession: 63 cents
Management Fee: 21 cents
Underwriting Fee: 21 cents
Deal Settlement: Wednesday October 4, 2006


NEW YORK, Sept 28 (Reuters) - Internet photo service Shutterfly Inc. on Thursday raised $87 million with an initial public offering that priced at the top of a forecast range, according to an underwriter.


Related Links:
Will the ShutterFly IPO Fly?
Tech IPOs Doing Well - Divx, Inc. Up Again, ShutterFly, Inc On Deck
ShutterFly, Inc. IPO Prices Tonight

Don't Believe the MySpace 100 Million User Hype

posted by MR WAVETHEORY at 9/28/2006 03:54:00 PM

Forever Geek has a great post on how MySpace is really hyping its 100 million user number to the press. It's a great study. The study checked out 303 profiles and found that 50% of users don't even show up in a month. That's a very high attrition rate! I wonder what happened to those 50 million users?

Here's what I think are possible explanations:
  • MySpace users have 2 accounts. Like free email accounts (think Hotmail and Yahoo), many people own more than one account - one for personal email and one for spam. So, if indeed, the average MySpace user has 2 accounts, then it makes sense that 50% of them won't show up after a month.
  • One out of every 2 MySpace user is just checking things out. They hear the hype. They read it in the newspaper. People talk about. Everyone is doing it. It could even be parents checking in on their kids to make sure MySpace is a safe place for them to hang out online.
  • Spammers are opening millions of accounts. This gooses the numbers. Spammers are signing up, spamming, and getting shut down.
I bet there are many reasons why there are so many inactive accounts, but these are the ones that I can think of.

Tags:

HP Used Spyware More Than 1-2 Dozen Times

posted by MR WAVETHEORY at 9/28/2006 03:33:00 PM
I'm following the Hewlett Packard (NYSE HPQ) Congressional Hearing (via) and it is just appalling to me that HP used spyware more than 1-2 dozen times in various "internal investigations." The "She" in the testimony is Patricia Dunn, former Chairwoman of HP,
She keeps saying that she never heard the word spyware used in connection with the faked email sent to a CNET reporter. She repeats a comment earlier from other testimony that tracer technology has been used 1-2 dozen times at HP in various investigations.
If you were an HP employee, how would you feel if you knew your company is potentially sneaking spyware onto your computer to spy on you? The words tracer technology seem to undermine the seriousness of the issue. To know that it was approved by the CEO of the company, Pat Dunn, means this company has some serious issues. If you are an HP employee, maybe it's time to download a firewall to your computer like ZoneAlarm or Ad-Adware and make sure your computer isn't being bugged.

Tech IPOs Doing Well - Divx, Inc. Up Again, ShutterFly, Inc On Deck

posted by MR WAVETHEORY at 9/28/2006 02:54:00 PM

Tech IPOs have been flying off the shelves lately. DivX, Inc. (NASDAQ DIVX), makers of digital video compression software, gained another 8% today (+1.73) to close at $23.36. The post IPO performance has been well received largely due to the MySpace, YouTube, FaceBook craze going on. Since its IPO at a price of $16, DivX has gained close to 50% from its initial offering price.

In my view, retail investors are really the drivers on the huge price gains because they also happen to be most familiar with the product. It is hard to tell when a stock will have had its run, because stock prices usually run in the direction of over optimism and over pessimism. Once something has momentum, it becomes a must own name for everyone - remember Google? It also ran up from under $100 to over $400.

What makes things interesting is the difference of opinions that everyone has on the survivability of Web 2.0 companies. Mark Cuban for instance thinks that "only a moron would buy YouTube." Mark's big bank account proves that clearly there are morons out - apparently somebody bought Broadcast.com from him not so long ago! Mark thinks "There is a reason they haven't yet gone public, they haven't sold. It's because they are going to be toasted." I'll toast to that! He's right about one thing though, "What makes viral so special is it's so hard to do. It's so hard to plan. It's hard to stand out."

With all this hubbub about Internet IPOs, there is now even talks of whether the bull market is back, in of all publications, the Red Herring! If DivX continues to perform well, it may be quite possible to see more Web 2.0 IPOs. I would venture to guess that there are many opportunities out there. ShutterFly, Inc. is pricing tonight and the outperformance of DivX could give the ShutterFly IPO a boost.

ShutterFly, Inc. IPO Prices Tonight

posted by MR WAVETHEORY at 9/28/2006 02:19:00 PM
ShutterFly, Inc. (Nasdaq SFLY) is pricing its IPO tonight. The company is a provider of online photo services. It sells prints online. I blogged about the ShutterFly IPO a few weeks ago and here is the ShutterFly IPO analysis. There are several key points about this deal:

Large Market Opportunity
- The company has sold 370 million prints online since inception in 1999 and ShutterFly's market will grow from $424 million in 2005 to $1.9 billion in 2009 implying a very fast growth rate of 45% annually.
Slowing Growth -
ShutterFly grew revenues from $31 million to $54 million to $84 million in 2003, 2004, and 2005 or roughly 74% between 2003 and 2004, and 55% between 2004 and 2005. Profits grew from $2.1 million to $3.9 million to $4.4 million in 2005 or 85% and 12% sequentially - indicating profits haven't been growing as fast as revenues. This implies declining margins.
Pricing Pressure - Its biggest competitor cut prices by 50% recently bringing down the price of a 4x6 print from $.29 to $.12. ShutterFly has followed with price cuts.

The expected pricing range is $13-15 per share. ShutterFly will have 23.6 million shares outstanding after the offering. At a price of $13-15 per share, the market cap will be $306 to $354 million or roughly 3.6x to 4.2x sales in 2005. The company is offering 5.8 million shares. Here's a profile of the company.

Shutterfly, Inc., formerly Shutterfly.com, Inc., is an Internet-based social expression and personal publishing service that enables consumers to share, print and preserve their memories by leveraging its technology-based platform and manufacturing processes. The Company offers a range of products to customers, including prints, photo-based products and merchandise and an assortment of ancillary products, such as frames, photo albums and scrapbooking accessories. In addition, it provides a number of valuable tools and services, such as the ability to upload and edit photos online, share photos with friends and family and permanently store an unlimited number of photos on the Company's system.

September 27, 2006

Yahoo! Inc. Acquires Jumpcut Video Sharing Mixing Software

posted by MR WAVETHEORY at 9/27/2006 06:10:00 PM
Yahoo! Inc. Search Blog (NASDAQ YHOO) just reported that Yahoo! has acquired Jumpcut. It goes to show that companies with great technology are always going to have a great exit.
Jumpcut just announced they've agreed to join us, which will make Yahoo! Video an even better place for people to create, share, and discover great video online. If you haven't heard of Jumpcut, it's a San Francisco-based startup that has a passionate community of users and a great suite of online video editing capabilities.
JumpCut is very excited to join the team. They are bringing to Yahoo! Video a host of online video technologies:
We have worked hard to pioneer great online video editing technology that can truly enhance the online video world by enabling anyone to become a creator. Joinaing forces with Yahoo! Video will provide the resources to bring Jumpcut users and our partners more great social media experiences. As part of Yahoo! we’ll be working on bringing video editing and remixing to everyone with an Internet connection.
Congratulations!

How to Create $104 million Out of Thin Air - When Your Stock Is Getting Creamed, Start a Buy Back Program

posted by MR WAVETHEORY at 9/27/2006 04:35:00 PM
What is more morally reprehensible and more financially lucrative: backdating stock options or buying back your own stock when your stock is cratering? Apparently, buying back your stock. The management of Cryptologic, Inc. (Nasdaq CRYP) recently announced "CryptoLogic Announces Renewal of Normal Course Issuer Bid"
CryptoLogic's share purchase program authorizes the company to purchase up to 1.35 million shares of the issued common shares, representing approximately 10% of the public float. There are currently 13,604,984 common shares issued and outstanding.
While the stock was tanking recently, the company has been supporting the stock (see the chart price in July). The buyback added about $8 to the stock price from a low of roughly $18 between July and September. The stock reached as high as $26. In other words, the buy back created roughly $104 million in market cap for a company that prior to the buyback was worth $244 million.
Under its 2005/2006 bid, CryptoLogic most recently repurchased and cancelled 239,200 shares at an average price of Cdn$19.44.
Buying back stock can be very lucrative. It looks like the company is manipulating the stock price and fighting short sellers. This follows after negative news that it is moving its headquarters from Toronta to Ireland and that it will have to take charges.
Shareholders continued to punish CryptoLogic Inc. after the company's announcement Monday that it will take a one-time charge of $8-$8.5 million, plus an additional $2.5-$3 million annual expense, to move its corporate headquarters to Ireland.

DivX Inc Gets 20% Boost from TV Mention

posted by MR WAVETHEORY at 9/27/2006 04:27:00 PM
Never overlook the power of TV. One mention from Jim Cramer on Mad Money and DivX is up 20% (+3.50) to close at $21.63. I like Jim's success by association thesis on DivX. You have to love the great sound bites.
Cramer said he's caught an "overlooked IPO" in DivX (DIVX - commentary - Cramer's Take). And he believes that the stock, which has increased almost 17% after its IPO, still has a lot of potential to make people money.

DivX is a company that makes software for video compression and decompression and does 18% of its business with Google (GOOG - commentary - Cramer's Take), Cramer said.

"We love Google and anything connected to Google," he said. "Soon there is going to be a bandwidth shortage, and that's why we believe DivX is sexy."
But that's not the only reason Cramer likes the stock. Sure, DivX may have "hotness potential," but the real reason he likes it is because of its fundamentals.
Soon, business schools all around America will be teaching their students how to evaluate companies on the basis of "hotness potential" and and its ability to be "connected to Google." Sure Jim, the real reason you like it "is because of its fundamentals."

Google That! $250 million in Venture Capital for Visto!

posted by MR WAVETHEORY at 9/27/2006 04:14:00 PM
You know that venture capitalists are back in droves and clamoring for deals again when you read that Visto, a nine year old startup, that still hasn't made any money has just raised another $51 million in funding. Total funding: $250 million - yes, a quarter of a billion! With that type of money, who needs to go public!

Visto rakes in another $51M in funding, adds ex-AOL chief to board Sep 27, 2006 REDWOOD CITY, Calif.—Visto Corp. will have no trouble paying its lawyer fees. The mobile e-mail service provider raked in another $51 million this week in a funding round led by Oak Investment Partners. The haul follows a $70 million round that closed last November; Visto is believed to have raised a staggering $250 million in funding during its nine-year history.

I think it is interesting to compare the two dotcom babbies - Visto and Google. Visto is 9 years old and Google is 8 years old.
  • The former has burned boat loads of cash in an ultra competitive market where there are very few customers - namely carriers and device manufacturers.
  • The latter has developed a great set of technologies serving a wide consumer market.
  • The former has high profile people and lots of PR. The latter uses word of mouth.
On balance, I would say Visto is still living a dotcom lifestyle. What I find interesting is that venture capitalists today still have appetite for Visto type deals! Meanwhile, Visto is stuck in ligitation and the VCs are more than happy to foot the bill. I know who will for sure be making money in this deal - the lawyers!

Comverse Technology CEO Manhunt Ends in Africa

posted by MR WAVETHEORY at 9/27/2006 03:54:00 PM
The Feds are very serious about stock options backdating. The CEO of Comverse Technology (Nasdaq CMVT) took off and left for Namibia before the Feds caught up with him.
After a two-month international manhunt, the indicted former chief executive of leading voicemail-software maker Comverse Technology Inc. was captured on Wednesday in southwest Africa, U.S. officials announced Wednesday.

Authorities in the Republic of Namibia, acting on information from the FBI, arrested Jacob "Kobi" Alexander in the country's capital of Windhoek, where he was living as a fugitive with his family. U.S. officials were expected to ask for his extradition at a hearing on Thursday so he could face charges in Brooklyn alleging he hatched a scheme to pocket millions of dollars by secretly manipulating stock options.
The CEO apparently made over $150 million from stock options.
From 1991 through 2005, Alexander exercised options and sold stocks worth approximately $150 million, making a $138 million profit, according to the complaint. Of that, about $6.4 million was generated by backdating options, it said.

High Tech May Be Sexy But McDonald's Dividend Really Sizzles

posted by MR WAVETHEORY at 9/27/2006 05:23:00 AM
McDonald's Corp (NYSE MCD) Board of Directors today approved an increase of nearly 50% in the Company's dividend, raising the annual dividend from 67 cents to $1.00 per share, totaling about $1.2 billion. This dividend will be payable on December 1, 2006 to shareholders of record as of November 15, 2006.

That's $1.2 billion or $1 per share. McDonald's proves again that high tech companies may be sexy but the burger joints are the real cash cows! McDonald's is paying out roughly a 2.5% yield on its stock - not bad. I'm definitely lovin' it! The fact that old style burger joints can pay out that much cash shows that alot of high tech startups are just media hype. When will Yahoo! Inc or eBay Inc or Google pay out that much in dividends?

Apple Computer Inc CoFounder's New Book - iWoz

posted by MR WAVETHEORY at 9/27/2006 03:54:00 AM

Steve Wozniak's book, iWoz From Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It, is a great tale of the founding of Apple Computer Inc. Wozniak designed the first Apple Computer and recently gave an interview to the Wall Street Journal about his side of the Apple story. I did find it somewhat surprising that Steve Jobs didn't write a foreword to the book.

eBay Inc to Acquire TenCent Holdings

posted by MR WAVETHEORY at 9/27/2006 03:05:00 AM
Sohu is reporting that eBay Inc will acquire Tencent Holdings (0700.HK) which operates the QQ Instant Messenger service, China's #1 instant messenging program. The report says that they are in a fifth round of negotiations. It seems there are many eBay rumors these days. eBay was reported to be in talks to sell its China operations, eBay China and Paypal, to Tom Online (Nasdaq TOMO) by Shanghai Daily.

The Real Reason FaceBook Opened Up : Yahoo! Inc

posted by MR WAVETHEORY at 9/27/2006 02:46:00 AM
The real reason FaceBook opened up was to boost its traffic in anticipation of a deal with Yahoo! Inc. FaceBook has signed a no shop agreement with Yahoo! Inc which means it is in exclusive negotiations with Yahoo! Inc. Of course, no shop agreements have expiration dates. You can just bet that FaceBook, aka Mark Zuckerburg, wants to keep the Yahooligans hot and heavy while the corporate development is pouring over the traffic numbers from FaceBook.

What I think opening up also means is that FaceBook has played the end game move. You can only open up the site once and get a big boost of traffic. FaceBook knows that Yahoo is looking to buy something cool, yet if FaceBook isn't acquired by Yahoo! soon, then it will be the last of FaceBook. My bet is that FaceBook will turn out just like Friendster if it stood alone without Yahoo! So, here you have two juggernauts each trying to get the best of each other - classic deal makers.

It's not easy being a Web 2.0 company. All you have to do is look at the MediaMetrix numbers which show that MySpace video has overtaken YouTube as the most trafficked destination for videos after a few short months. The thing about hypergrowth is leaders rarely stay leaders for long.

Property Streams initiated (mm)Unique streamers (000)Streams per streamer
Total Internet7,182106,53467.4
MySpace 1,45937,42239
Yahoo sites81237,93421.4
YouTube 64930,53821.2
Time Warner Network25825,67510.1
ROO Group186 5,84131.9
Microsoft sites15616,2279.6
Viacom Digital32214,077 22.9
Google sites607,5207.9
Ebaumsworld677,1439.4
MLB306,4424.6


Good luck!

Update: FaceBook is suing copycat FaceBen - which is now renamed FaceRen. FaceBen nka FaceRen is a Chinese FaceBook.

September 26, 2006

Tom.com to Acquire eBay China and Paypal

posted by MR WAVETHEORY at 9/26/2006 07:16:00 PM
Rumor has it that Tom Online (NASDAQ TOMO) will be taking over eBay Inc 's China business which include eBay China and Paypal China. Tom.com is the distributor of Skype, eBay's online telephone service in China. I think there are two drivers behind this move:

1) eBay is obviously losing marketshare in China to Alibaba and Taobao which are both backed by Yahoo! Inc. When eBay bought eachNet, it has 90% of the online auction market. Today, it has 30% which Taobao, which was unknown in 2003, now has 70% of the market. Quite a turn of events!

2) The People's Bank of China is drafting a regulation which stipulates that foreign investment faces a limit for its shares in an enterprise operating online payment systems. eBay is the only owner of its C2C Website in China and the Paypal service. It was looking for Chinese partners in its startup, but ended up selling off its Chinese branch.

Bye bye eBay Inc. Hello Tom Online.

Microsoft Social Networking SIte Wallop Raises $10 Million

posted by MR WAVETHEORY at 9/26/2006 07:11:00 PM
Microsoft's social networking site Wallop has raised $10 million. The investors are Norwest Venture Partners, Bay Partners and Consor Capital. This is just one week following Soapbox's launch. You can bet the Wallop spinoff is a sign of more Microsoft spinoffs to come. Microsoft is a hotbed of innovation trapped inside a big software company waiting to be unleashed. I would bet there is more to come. I can just see a line of VCs waiting to invest in these Microsoft spinoff companies.

Apple Plans to Ship 25 Million iPhones

posted by MR WAVETHEORY at 9/26/2006 07:08:00 PM
Apple Computer Inc is forecasting sales of 25 million iPhones in the first year (via). It has signed a 6 months exclusive with Cingular to sell the phone. Apple Computer Inc believes it can outdo Motorola. The Motorola RAZR has sold 50 million iPhones since 2004.

September 25, 2006

Homework Assignment : Analyze FaceBook.

posted by MR WAVETHEORY at 9/25/2006 03:49:00 AM
I came across what looks like a college class and collaborative blog that analyzes FaceBook. It looks like it is written by 20 students who are posting their studies about FaceBook on a blog!

Top 5 Findings about FaceBook Profiles (via Digital Deception)

1) Not many Facebook users are motivated to misconstrue factual information, but many of them are inclined to exaggerate the information found in the sections open to interpretation.

2) Women are more likely to than men to lie about weight and to select their most attractive photographs.

3) Women are also more likely to lie about weight than height, and men are more likely to lie about height than weight.

4) Women portray themselves as lighten than they really are, and men tend to say they are taller by a few inches.

5) And regarding photographs on FaceBook ...
My friend’s photograph was a photograph taken by a professional photographer for which she had hours of preparation. In fact, this photograph is one of her modeling headshots, and she is wearing intense makeup...To top it off, this photograph was taken more than four years ago when she was a member of the high school track team. Although she still looks basically the same, I would say that there might be some deception involved about her current appearance in terms of weight. It would be difficult for her to maintain her high school weight when she is not running six to ten miles each day, and I estimate that this photograph is at least ten pounds off.

FaceBook Battle - Speculation of Turf War at Yahoo! Inc

posted by MR WAVETHEORY at 9/25/2006 02:09:00 AM


Whenever news of a "potential" acquisition is leaked to the press, expect there to be political forces at work that are for or a against the deal. Yahoo! Inc's rumored acquisition of FaceBook, first broken by the Wall Street Journal, seems to be a such a case. Within one earnings disappointment under its point and another one soon to come, I suspect there are 2 opposing factions within the executive leadership of Yahoo! that are sparring over the precise strategy of how to get Yahoo! out of its current rut.

I'll call the first faction the Web 2.0 Possee. These are the leaders within Yahoo! who are very eager to acquire cool companies - companies that are engaged in social networking, video sharing, viral marketing concepts. The Web 2.0 Possee was responsible for deals like Delicious, FlickR, UpComing. They wanted to make Yahoo! cool again. Their slew of acquisitions have given Yahoo! lots of buzz. But this Possee doesn't care about the numbers. They don't care about the Moolah. With several of these cool (small) deals under their belt, the Web 2.0 Possee wanted to score the big one - FaceBook - ultra-cool, somewhat financially sound, but definitely not a bread and butter type acquisition especially when the return on equity is 3.5%. I believe the Web 2.0 Possee wanted to get FaceBook done really bad. But they got put in the penalty box when Yahoo! disappointed investors last quarter. They lost out to Faction B.

Let's call the opposing faction the Green Shades. The Green Shades are the number crunchers within Yahoo! who wear the green shades. They have largely been responsible for financially sound, and profit-driven acquisitions like Overture and Kelkoo which brought in cold hard cash - revenues and profits. All proteins. No carbs, and definitely no fat! When Yahoo! missed the numbers last quarter, the Green Shades put their foot down and issued an ultimatum to the Web 2.0 Possee, "No more carbs. No more Web 2.0."

With their piece de resistance within their reach, you can bet the Web 2.0 Possee was miffed when Yahoo! blew the quarter. After all, Yahoo! had to be made cool again, and therefore, negotiations proceeded with FaceBook, a price was reached, and ... a bomb was dropped. I suspect the Green Shades leaked rumors of FaceBook deal to the Journal to scuttle the deal - and turn an internal turf war into a media circus and beauty contest. With the Web 2.0 Possee having stuffed their mouths full with pounds and pounds of carbs and non accretive acquisitions, guess who would win in this beauty contest?

So, here we are sitting here today, mere spectators of an internal turf war within Yahoo! - watching the battle between two factions unfold - Web 2.0 versus Green - two factions trying to defend their beliefs and ideals on how to turn around the fallen king of the Internet. Things are not well when you have to force everyone to take the holidays off.

To be honest, whether to acquire or not to acquire FaceBook is a very tough call. FaceBook brings no clear financial benefits immediately and it might undermine investor confidence in the current Yahoo! management team. After all, acquiring FaceBook would signal to the world that Yahoo! is going in the direction of a media conglomerate ala News Corporation rather than a search technology company ala Google. Doing so would immediately hurt the stock as investors lose confidence in Yahoo!'s ability to fight both Microsoft and Google in the search war. It could be seen as a capitulation of the search market.

On the other hand, if the fundamentals of Yahoo deteriorate further as it loses share to MSN and Google, then an acquisition of FaceBook would be very prescient. Yahoo would be able to regrounp and rebuild. Social networking would be a new direction for Yahoo to grow and a fertile field for growth that is unencumbered by entrenched competitors.

If you were Terry Semel, what would you do?

September 24, 2006

How to Invest In China Stocks? How Chinese Companies Like China Development Group Corp & China Energy Savings Are Going Public Without Venture Capital

posted by MR WAVETHEORY at 9/24/2006 02:02:00 AM
Investing in China is a hot topic today because of the unusually high growth rate of Chinese companies. The stock market in China is up around 50% in 2006 alone. You're not alone if you are now asking:
  • How do I invest in China stocks? How do I find China stocks?
  • What types of China stocks are good investments?
  • Why some China stocks are really venture capital investments?
How do I invest in China stocks?
Investing in China stocks has never been easier because many Chinese companies are actually listed in the US. Some of the larger Chinese companies include:

China Mobile Hong Kong (NYSE CHL) - #1 mobile operator in China
Huaneng Power (NYSE HNP) - #1 independent power producer in China
China Petroleum & Chemical (NYSE SNP) - #1 oil and gas company in China

Yahoo has a very nice tool to find China stocks. An easy and quick way to find China names is to go to Yahoo Finance and type in China in the symbol lookup box:

Yahoo Finance Search for China Stocks - 221 China stocks
Yahoo Finance Search for China ETFs - 2 China ETFs
Yahoo Finance Search for China Indices - 24 China Indices
Yahoo Finance Search for China Mutual Funds - 81 China Mutual Funds


It's actually very easy to find China stocks, China ETFs, China Indices, and China Mutual Funds.

What types of China stocks are good investments?
There are many companies which have China in their name but are not really China companies. As Richard Gao from Matthews China Fund points out, Investing in China Demands Being Very Very Careful. Part of the reason is that:
  • Chinese companies have different methods of calculating GAAP income and GAAP earnings
  • Chinese companies go public using reverse mergers which do not have the same financial reporting requirements as a formal IPO
  • Chinese companies often are listed on the bulletin board (OTC BB, Pinksheets)
In order to achieve your investment objectives, you must determine:
  • What is your return objectives? - Are you speculating for a double or are you content earning 10%?
  • What is your liquidity requirement? - Do you have to use the cash immediately or are you able to hold the stock for a while?
  • What is your time horizon? - Are you in a for a few days, weeks, or years?
It is important to answer these questions because there are both large publicly traded Chinese companies which have decent cash flow as well as many small Chinese companies which are what can really be seen as a venture capital stage company.

Take the example of China Mobile Hong Kong (CHL), which is the number one mobile phone company in China. China Mobile has appreciated from around $20 to $35 in the last year alone. That is a greater than 50% return in just 12 months. Any return greater than 50% is fantastic. But wait until you hear about China Development Group Corp (Nasdaq CTDC).

China Development Group Corp has had several instances in which it has more than quintupled in a few days. In fact, on Friday, the stock closed up 47% (+$1.50) at $4.65. That is a 50% return in one day. China Technology Development Group is an small Chinese internet security and software company based in Hong Kong. It is a perfect example of a small Chinese company that offers venture capital type returns to investors.

When there are both large and small China companies to choose from, investing in China stocks can be confusing. That is why investors should answer those 3 questions listed above before venturing into China stocks.


How come China Technology went up so much in one day? Why some China stocks are really venture capital investments?
The reason some China stocks like China Technology Development can gain 47% in one day is that they are really early stage companies that have chosen to go public to seek financing rather than seek venture capital. China has a very underdeveloped venture capital market, so Chinese companies like China Technology Development offer US investors the opportunity to invest in early stage growth companies that would otherwise be unavailable to retail investors. It's possible to make large amounts of money investing in the correct companies. The stock could easily go to $20 because it is a venture type investment. However, there are also risks - as history has shown it could also go below $1.

Companies like China Development offer investors the ability to basically be venture capitalists. The company went public through a reverse merger with Tramford International in late 2005. As a result, the company which was previously private became a public company in the US. Unlike traditional IPOs, reverse mergers are less expensive than IPOs because they demand a different set of accounting requirements. This may be good or bad. In the case of China Development, the company has been very volatile because it failed to file a Form 20-F which is the annual report for foreign issuers earlier this year. As a result, the stock took a dive. A few days ago, China Development regained compliance by filing a Form 20-F. That is why the stock rallied 47% on Friday. It is a perfect example of both the risks and rewards of investing in small, early stage companies.

By investing in small Chinese companies, you are being a venture capitalist. Venture capitalists accept many risks when they invest in early stage companies because often there is alot of potential but very little revenue. Because there is not a well developed venture capital community in China, US investors have an opportunity to be quasi VCs by investing in companeis that have gone public through reverse mergers. For every China Development, that fails to comply with listing rules, and eventually regains compliance, there are 9 or 10 China Energy Savings Technology, Inc (CESV) - a company that was not only non compliant but is now delisted and trading at 25 cents. It is the same in venture capital. For every 1 winner, there are 9 or 10 blowups. That is why the risks and rewards are so abundant in China. If you have the appetite for the risk and the ability to accept it, you too can be a venture capitalist!