Google Update

Shares in Google have dropped 5% despite the technology giant reporting a first-quarter profit rise of 3%.

Profits were $3.45bn (£2.05bn), but investors are preoccupied by Google’s inability to maintain advertising prices.

A widely watched measure, the average “cost per click”, was down 9% from a year earlier.

Another weak spot highlighted in the report was the firm’s discounted sale of Motorola Mobility to Lenovo.

Google sold the smartphone maker to Lenovo in January for close to $3bn, after paying $12.5bn for the firm less than two years ago.

Despite investors’ reaction, Google’s chief executive, Larry Page, was upbeat: “We completed another great quarter,” he said in a statement.

“We got lots of product improvements done, especially on mobile. I’m also excited with progress on our emerging businesses.”

However, Google continues to struggle with its ability to charge advertisers higher prices for mobile ads, which are increasingly important with more and more consumers accessing Google’s browser through their smartphones.

Advertisers have proven reluctant to pay as much for ads on mobile screens compared to Google’s bread-and-butter desktop ads, which have been the main revenue generator at the firm.

Rates for mobile ads can be half as much as on personal computers, according to Needham & Co analyst Kerry Rice.

However, Google expects mobile ad prices to catch up with PCs eventually as it becomes easier for consumers to buy products using mobile devices, Google chief business officer Nikesh Arora said.

‘A little bit dodgy’

Google has greatly diversified its portfolio of products in recent years, speculatively branching out into phonesdronesGoogle Glass, and even thermostats and fire alarms, CNet technology analyst Larry Magid said.

“Some of these crazy ideas need to become less crazy and more profitable,” he told the BBC. “Their core business, what really brings in the money, that’s beginning to get a little bit dodgy for them.”

Google’s results were not the only ones to disappoint investors on Wednesday.

Technology giant IBM reported its lowest quarterly revenue in five years.

IBM attributed the drop in revenue, which went down 4% to $22.5bn, to weak hardware sales.

Enterprise technology spending has shifted away from traditional computing giants as governments and corporations move towards online services, large-scale data analysis and IT security, FBR analyst Dan Ives said.

Q2 Holdings

QTWO : NYSE : US$13.68
BUY 
Target: US$17.00

COMPANY DESCRIPTION:
Q2 Holdings provides a cloud-based platform for
customer facing web and mobile banking solutions for
regional and community financial institutions. The
platform enables users to pay bills, check balances,
transfer funds, and deposit checks through a unified
online platform or mobile device. Q2 was founded in
2004 and is headquartered in Austin, TX.

All amounts in US$ unless otherwise noted.

 

GROWTH; INITIATE WITH BUY, $17 PT
Investment thesis
In our opinion, Q2 Holdings could be one of the quiet winners of the recent IPO
class. The firm sells customer-facing banking applications, competing largely
with legacy software vendors and aging custom code. Q2 signs 5+ year
subscriptions (excellent visibility), is growing revenues ~30%, but won’t likely
break even until sometime in 2017. If Q2 can articulate and demonstrate a
clear and consistent path to profitability, the stock could get re-valued into the
25%+ growth SMID cap cloud cohort, which implies a 7-9x forward revenue
multiple. As is our custom, our price target is more conservative and assumes a
modest deterioration in the EV/revenue multiple, but a 20% appreciation in the
face of 30% revenue growth. We are initiating coverage of QTWO with a BUY.
Investment highlights
 An upgrade cycle is underway. Regional and community financial
institutions (RCFIs) are increasingly becoming viable competitors to the
national mega-banks – this means that they too need online and mobile
banking functions and sleek, next-generation user interfaces. Enter Q2.
 Legacy competition. Being founded in the mid-2000s, Q2 has the
advantage of being constructed on a unified, cloud-based platform with a
mobile-first development mentality. The firm competes either with vendors
like Digital Insight (NCR) and First Data, who are attempting to morph
timeworn applications, or oftentimes in-house, custom-built code.
 Attractive micro-economics. Q2 signs 5+ year initial deals, dollar-based
retention including upsell tops 125%, and the firm crosses into profitability
after 1.8 years of a new customer relationship. This means that in the near
term at least, the faster Q2 adds clients, the more money they will lose.
 What it means for the numbers. From the firm’s roughly $65M run rate,
we expect Q2 to be a ~30% revenue grower for the next several years.
Gross margins should scale from ~40% this year to 60%+ with scale, and
Q2 should become cash flow and EBITDA profitable sometime in 2017.

magicJack VocalTec Ltd.

CALL : NASDAQ : US$18.86

BUY 
Target: US$24.00 

COMPANY DESCRIPTION:
The company is the inventor of lightweight, VoIP-based
magicJack devices that allow customers to make phone
calls by plugging into the USB port on a computer or into
a power adapter and high-speed Internet source. The
company is headquartered in Netanya, Israel.

All amounts in US$ unless otherwise noted.

 

Telecommunications
MANAGEMENT ROADSHOW INSPIRES
CONFIDENCE – SLIGHTLY ADJUSTED ESTIMATES
Investment recommendation
On the road with the management of CALL as they continue to outline how they are repositioning the company.

Management discussed initiatives enacted to improve
customer care and ease the customer renewal process since last year.
They are also considering a return to the former pricing plan (12
months). Soon we expect to see the launch of a new device with a
revised advertising campaign that could return the company to strong
top-line growth. Over the next five years we continue to expect industry
voice telephony pricing will continue to compress and for the company
to continue to gain market share.
Investment highlights
 Less advertising drives Q1/14 higher EBITDA (EPS) – We now
believe the company spent significantly less on advertising than we
initially expected as we await the product refresh. As a result, Q1/14
profitability will likely be greater than we expected but on lower
revenues. We have adjusted estimates accordingly.
 Product refresh should better integrate App – With the refresh,
which could be launched in weeks, we expect a full refresh of the
App. In fact, the company just unveiled an updated, rebranded
version for Android. The refresh aims to improve integration with
the device, lowering churn and driving higher revenue growth.
 Transition continues, 2014 inflection – It’s increasingly clear the
direct competitor (Vonage) is not significantly impacting the market.
With the product refresh that should come in early May, we believe
it is likely that the company returns to double-digit revenue growth
this year.

Verizon Communications

VZ : NYSE : US$48.04

BUY 
Target: US$55.00

COMPANY DESCRIPTION:
Verizon Communications is a leading provider of
communications, information and entertainment
products and services to consumers, businesses and
governmental agencies. Formerly known as Bell Atlantic
Corporation, the company offers both wireless and
wireline products and services. The company is
headquartered in New York, New York.
All amounts in US$ unless otherwise noted.

Telecommunications
ADJUSTING ESTIMATES FOR VZW CLOSE
Investment recommendation
We are adjusting our estimates to account for the closing of the
Vodafone/Verizon Wireless transaction earlier than we had
assumed in our initial model. We maintain our BUY rating and
$55 price target which implies 7.0x 2015 adjusted EBITDA (pro
forma for VOD buyout of VZW ownership) and 14.7x pro forma
2015 EPS.
Investment highlights
 Deal closed 2/21/14 – With the consolidation now complete,
we update our estimates to reflect full pro forma adjustments
in Q1/14. We previously assumed the deal would close at
quarter-end.
 No change to above-the-line estimates – As the consolidation
only affects items below, our revenue and EBITDA estimates
are unchanged. Our new estimates reflect materially lower
minority interest, higher interest expense due to increased
gross debt, and a higher pro forma tax rate.
 Continue to favor over others in space – As the continued
market leader in the US wireless industry, we continue to
favor Verizon over others in the sector. We believe a solid
Q1/14 report from its now wholly-owned wireless business
will continue to differentiate Verizon from the others in the
sector.

 

Google – Adjusting for Stock Splits

GOOG : NASDAQ : US$543.14
BUY 
Target: US$700.00

Technology — Internet
ADJUSTING MODEL AND PRICE TARGET FOR STOCK SPLIT
Key points
 We are adjusting our estimates and price target purely to reflect
Google’s previously announced 2-for-1 stock split.
 Class A shares will trade under the new ticker GOOGL, while Class C
shares will assume the GOOG ticker. Newly issued shares going
forward will be Class C shares. Class A shares will have one vote
each, while the non-traded Class B (management) shares will have
10 votes each.
 Given that Class C GOOG shares should be more liquid than Class A
GOOGL shares and that there is a “make-good” provision in place to
close any potential value spread arising from the voting
discrepancy, we do not expect a significant spread to materialize
between the Class A and Class C shares.
Estimate changes
We are adjusting the number of shares to incorporate the stock
dividend. As a result, our share count goes to 685m, 689m and 693m
from 342m, 344m, and 346m in 2014, 2015 and 2016. As a result, our
non-GAAP EPS estimates go to $28.52, $33.61 and $39.01 from $57.04,
$67.22, and $78.02 in 2014, 2015 and 2016.
Valuation
We maintain our BUY recommendation and cut our price target from
$1,400 to $700 to adjust for the stock split. Our new target is based on
21x (unchanged) our 2015 non-GAAP EPS estimate of $33.61 (adjusted
from $67.22).

Qualcomm

QCOM : NASDAQ : US$80.14
BUY 
Target: US$90.00

Technology — Communications Technology — Semiconductors
WELL POSITIONED TO BENEFIT FROM CHINA TD LTE
OPPORTUNITY, UPCOMING HIGH-TIER ANDROID
LAUNCHES AND IPHONE UPGRADE IN H2/C2014
Investment recommendation:

Based on our monthly survey work and
recent smartphone product introductions, we believe Qualcomm is
maintaining its dominant market share and strong content share in
leading Android smartphones. We have also increased our forecasts for
TD-LTE smartphones sold in China during 2014 and 2015, resulting in our increased Qualcomm estimates and price target.

We believe continued growth of smartphones; connected devices such as tablets; the upgrade to new air interface technologies such as LTE, LTE Advanced, and TDD-LTE;
and continued strong share for integrated Snapdragon solutions should
drive solid F2014 and F2015 sales and earnings growth. We reiterate our
BUY rating and increase our price target to $90 from $86.
Investment highlights
 We believe QCT operating margins remain well positioned to
improve during H2/F2014 due to an increasing mix of the new LTE
chipsets, growing TD-LTE opportunities in China, and improved
leverage from Qualcomm’s cost optimization programs. We believe
TD-LTE smartphones sold in China should exceed 120M units in
2014 for the three Chinese carriers, leading us to increase our
global 3G/4G device shipment and ASP calculations.
 We anticipate a greater high-end TD-LTE smartphone mix in China
should benefit QCT margins and drive QTL growth and could provide
upside to consensus H2/F2014 and more likely F2015 estimates. Due
to our increased TD-LTE unit assumptions, we have increased our
F2014 pro forma EPS estimate from $5.12 to $5.14 and F2015 from
$5.76 to $5.95 versus consensus of $5.11 and $5.70, respectively.
 Given our increased TD-LTE expectations combined with Qualcomm’s
strong content in the Galaxy S5 and HTC One M8, we believe revenue

magicJack VocalTec Ltd.

As seen on TV !

CALL : NASDAQ : US$17.53
 
BUY 
Target: US$24.00

COMPANY DESCRIPTION:
The company is the inventor of lightweight, VoIP-based
magicJack devices that allow customers to make phone
calls by plugging into the USB port on a computer or into
a power adapter and high-speed Internet source. The
company is headquartered in Netanya, Israel.

STRONG 2014 GUIDANCE;
RAISING PRICE TARGET TO $24
Investment recommendation
magicJack reported solid results while providing more detailed 2014
guidance that was significantly higher than ours and Street expectations.
With solid activations in the quarter, still early in the renewed
advertising campaign, we expect they will continue to scale through the
year and could offer upside to even these more optimistic estimates.
Although the company has not fully articulated its plans to monetize the
app which now has 6.9mm registered users, we continue to believe that
upside exists above our base-case valuation of 6.0x adjusted EBITDA.
We are increasing our price target to $24 on higher 2014 and 2015
estimates and a higher EBITDA multiple as the company continues to
demonstrate a turn-around in the business.
Investment highlights
 Solid results for Q4/13 – The company reported revenues and
EBITDA that exceeded our and Street expectations as the company
continues to attempt to restructure the business and modernize the
product offering in the market.
 Very solid outlook for 2014 – With the results, management also
updated its outlook for 2014that includes more detail beyond double
digit topline growth. We now expect the company is capable of
$162mm of revenue and $52mm of EBITDA.
 New device on the way – The company announced that it will deploy
a redesigned device that is more tightly integrated with the app in
Q2/14 (April), only one year after the latest device launch. Combined
with an extensive list of changes to the way the company
approaches the market, including the complete rebranding effort,
we believe the change will drive higher active users and cause the
app user base to grow at a strong rate while improving effective
ARPU.

Workday BUY

WDAY : NYSE : US$100.28 
BUY  Target:  $ 115

UCOMPANY DESCRIPTION:

Workday provides enterprise-scale, cloud applications that deliver the core functions for global customers to manage the human capital and financial resources of an organization. Solutions include: HCM, Financial Management, Payroll, Time Tracking, Procurement, Employee Expense Management, etc. Workday was founded by the former founders of PeopleSoft in 2005 and is headquartered in Pleasanton, CA.S$115.00

Technology — Enterprise Software — Software as a Service STRONG QUARTER AND CONTINUED INVESTMENT. BUY, TARGET TO $115.
Workday’s continued business momentum and upwardly revised outlook were strong enough to keep investors’ “eyes on the prize” – which in this case, is about becoming a multi-billion revenue cloud-based replacement of incumbent applications from Oracle, SAP and the high end accounts of the largely PE funded firms like Infor, etc. It would be too aggressive to forecast that WDAY’s share price will generate 2x the return of the stock market, but it seems reasonable that 56% compound revenue growth from C2013 to C2015E will more than offset a nearly certain degradation of the firm’s 22x forward EV/revenue multiple. We would own at least a small position in this stock. BUY.
 The track record remains perfect: another big upside. Workday reported revenues, calculated billings, and FCF of $141.9M (+74%), $203.7M (+78%) and $7.5M, which were respectively $3.9M, $29.5M, and $31.2M ahead of our estimates. Subscription revenues grew 86% in the quarter, and non- GAAP EPS loss of ($0.13) was $0.02 better than we expected.
 Color from the call. Customer momentum continues as the firm added roughly 50 customers in the quarter (bringing the total to ~600), including the second straight quarter of “double digit” Financials additions. WDAY also recently acquired Identified, a small technology tuck-in that will add predictive analytics and machine learning capabilities to the firm’s apps.
Outlook: revenues move higher on bookings strength, F2015 operating losses in the mid-teens as WDAY continues to invest for growth. We have increased our F2015 and F2016 revenue estimates by $35M and $60M respectively, which now implies 56% and 42% growth in the next two years. F2015 calculated billings growth is expect to come in at ~45%, which is up from our previous 43% estimate. We have slightly increased our assumed operating losses in F2016 and expect WDAY to be FCF positive in F2017.

Autodesk : Hold

ADSK : NASDAQ : US$54.72 
HOLD  Target: US$52.00 
 COMPANY DESCRIPTION

Autodesk is a global design software company that sells high- function, low-cost 2D and 3D computer-aided design (CAD) applications. The firm also provides visualization and simulation tools, which in conjunction with the company’s design apps, enable customers to experience their ideas early in the design process through the development and analysis of virtual prototypes. All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Applications BUSINESS MODEL CHANGE BEGINS. MAINTAIN HOLD FOR NOW. 
Investment thesis Autodesk generated normalized revenue growth of about 2%, and as reported revenues declined 3%, due in large part to a transition to subscription. If investors react to this transition as they have with Adobe, the stock will work. However, if the underlying fundamentals of the business do not change, Autodesk shares will eventually behave like EDA stocks, which similarly went to subscription, but underlying growth remained sluggish. We lean toward the former scenario, but for the time being, with not quite enough conviction to upgrade the stock. HOLD.
 An OK quarter: a bit of upside versus conservative forecasts. ADSK reported Q4/14 revenue and non-GAAP EPS of $587M and $0.40, which compared to our estimates of $573M and $0.35. Reported revenues were down 3% y-o-y, but when normalized for the model transition, grew 2%. Billings, which will become an increasingly important metric to watch during the transition, grew 3% in the quarter – overall, management was “pleased” with what the firm saw in its first full quarter with subscription licensing options. During Q4, ADSK signed its largest deal ever, worth more than $20M, and noted continued momentum with Suites, which were up 15% y-o-y.
 Outlook: a lot of moving parts, but 5-8% billings growth and fairly meaningful margin compression. Autodesk provided some new guidance metrics to add benchmarks against which investors will be able to measure progress while reported revenues are in flux. 5-8% billings growth is a step towards the firm’s 12% CAGR target and the addition of 150-200k net new subscribers would be roughly 9% growth. However, taking consideration for the dilution associated with Delcam as well the financial impact of ratable revenue recognition on an unchanged cost structure, near term margins will be negatively impacted. ADSK guided for non-GAAP operating margins in the range of 14-16%, which is down from the 22.5% reported in F2014. In the interim, investors will need to focus on cash flow growth, which we believe will be close to 10% in F2015.

OPK Insiders Buying – following Jack A. Bass

Yesterday, Feb. 24, 2014, 153 U.S. common stocks issued filings of shares being bought or sold by insiders. The transactions ranged in value from $614.00 to $8,867,579,754,879.72.

Highlighted Stocks Traded by Insiders:

Opko Health (OPK) – ( research report available from The Street.com )

Frost Phillip Md Et Al who is CEO & Chairman at Opko Health bought 17,200 shares at $9.00 on Feb. 24, 2014. Following this transaction, the CEO & Chairman owned 139.3 million shares meaning that the stake was reduced by 0.01% with the 17,200-share transaction.

The shares most recently traded at $9.07, up $0.07, or 0.73% since the insider transaction.  Historical insider transactions for Opko Health go as follows:

  • 4-Week # shares bought: 20,000
  • 4-Week # shares sold: 46,730
  • 12-Week # shares bought: 30,000
  • 12-Week # shares sold: 46,730
  • 24-Week # shares bought: 30,000
  • 24-Week # shares sold: 46,730

The average volume for Opko Health has been 4.0 million shares per day over the past 30 days. Opko Health has a market cap of $3.6 billion and is part of the health care sector and health services industry. Shares are up 5.92% year-to-date as of the close of trading on Monday.

Opko Health, Inc., a pharmaceutical and diagnostics company, engages in the discovery, development, and commercialization of novel and proprietary technologies. It operates in two segments, Pharmaceuticals and Diagnostics. Currently there are 3 analysts that rate Opko Health a buy, no analysts rate it a sell, and none rate it a hold.

OPKO Health Inc(OPK:NYSE, US)

BuySell

9.06USDIncrease0.12(1.34%)Volume:

Below Average
As of market close 25 Feb 2014.

Quote Details

Open 8.92 P/E Ratio (TTM)
Last Bid/Size 8.96 / 10 EPS (TTM) -0.29
Last Ask/Size 9.10 / 5 Next Earnings 17 Mar 2014
Previous Close 8.94 Beta 0.85
Volume 2,861,359 Last Dividend
Average Volume 3,354,194 Dividend Yield 0.00%
Day High 9.15 Ex-Dividend Date
Day Low 8.84 Shares Outstanding 408.0M
52 Week High 12.95 # of Floating Shares 216.217M
52 Week Low 6.14 Short Interest as % of Float 21.13%
chart
Jack a. Bass Managed Accounts – Performance Based Fees – to obtain your portfolio profits email Jack at 604-858-3202 or call Jack direct at 604 -858 -3202 ( same time zone as Los Angeles)
On Feb 18 ( one week ago ) we highlighted GT Advanced Technologies – then at  $ 11.80
GT Advanced Technologies Inc(GTAT:NASDAQ, US)

BuySell
13.86USDDecrease0.28(-1.98%)Volume:
Above Average
As of market close 25 Feb 2014.

Quote Details

Open 14.46 P/E Ratio (TTM)
Last Bid/Size 13.75 / 3 EPS (TTM) -1.71
Last Ask/Size 13.89 / 50 Next Earnings 28 Apr 2014
Previous Close 14.14 Beta 1.88
Volume 11,364,056 Last Dividend
Average Volume 9,444,935 Dividend Yield 0.00%
Day High 14.52 Ex-Dividend Date
Day Low 13.71 Shares Outstanding 134.2M
52 Week High 14.52 # of Floating Shares 133.8332M
52 Week Low 2.61 Short Interest as % of Float 22.93%
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