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.

Shipping Giants Work Together To Overcome Slump

apag-Lloyd AG signed a binding agreement to take over most of Chilean rival Cia. Sud Americana de Vapores SA (VAPORES)’s assets and become the fourth-largest container shipping company in the world.

CSAV, controlled by Chile’s billionaire Luksic family, will own a third of the shares in the new company that combines Hapag-Lloyd’s 151 vessels with CSAV’s fleet of about 50, according to a Chilean regulatory filing yesterday. The Luksics, German billionaire Klaus-Michael Kuehne and the City of Hamburg will own 75.5 percent and control the new company.

Kuehne and the Luksics are combining to compete on more equal terms with industry leader A.P. Moeller-Maersk A/S after an oversupply of vessels coincided with slowing demand to produce a prolonged slump in the container shipping business.

Hapag-Lloyd, which had a loss of 97.4 million euros last year ($135 million), will reap annual savings of about $300 million, CSAV Chief Executive Officer Oscar Hasbun said on March 21. The companies signed a memorandum of understanding in January. The combined company, with annual revenues of $12 billion, will strengthen its presence on Europe-Latin America and Latin America-Asia routes.

Hapag-Lloyd CEO Michael Behrendt, who retires at the end of June, has said an IPO may take place in 2015 once conditions in the shipping industry normalize. German tour operator TUI AG (TUI1), which holds a 22 percent stake in Hapag-Lloyd, may use the stock sale as an exit, as the Hanover-based company has repeatedly said it wants to divest the holding.

TUI Strategy

With the deal reducing its stake, TUI is getting closer to an exit from the container shipping business, CEO Fritz Joussen said in an internal statement obtained by Bloomberg News. TUI has a “binding understanding” with the other Hapag-Lloyd shareholders to list the shipping company next year and has the right to sell stock in a private placement in the run-up to the IPO, Joussen said.

CSAV will buy shares worth 259 million euros in a 370 million-euro capital increase that will boost its stake in Hapag-Lloyd to 34 percent from about 30 percent. The German company will carry out a second sale of new stock for 370 million euros coinciding with the IPO on the German exchange.

Shares in CSAV rose 0.5 percent to 27.7 pesos in Santiago.

J&J Update

J&J beats forecasts as new drugs shine, shares jump

1 hour ago – Reuters
J&J beats forecasts as new drugs shine, shares jumpBy Ransdell Pierson

(Reuters) – Johnson & Johnson <JNJ.N> reported quarterly earnings well above expectations, as strong sales of new drugs offset weak demand for consumer products and medical devices, and the company slightly raised its full-year profit view.

Shares were up 2.5 percent in premarket trading.

J&J on Tuesday said it earned $4.73 billion, or $1.64 per share, in the first quarter. That compared with $3.5 billion, or $1.22 per share, in the year-ago quarter, when the diversified healthcare company took a big litigation charge.

“Strong pharmaceuticals results showcased a very strong 2014 start for J&J,” said Morningstar analyst Damien Conover, referring to sales growth of almost 11 percent for prescription medicines in the quarter. He cited especially strong sales of immunology medicines and for the company’s recently approved Olysio treatment for hepatitis C.

The hepatitis drug, known as Sovriad in many countries outside the United States, was approved by U.S. regulators in November and captured global sales of $354 million in the first quarter – putting it on track to become a blockbuster product later this year.

The company handily beat earnings forecasts because newer drugs have very high profit margins, Conover said. “They amplified the affect on the company’s bottom line.”

But J&J’s other business units failed to impress. Sales of medical devices and diagnostics were flat at $7.06 billion, hurt by lower prices associated with competitive bidding in the U.S. Medicare insurance program for the elderly and disabled.

Global sales of consumer products fell 3.2 percent to $3.56 billion, as many over-the-counter medicines remain unavailable due to earlier product recalls in the United States.

J&J says it now expects full-year earnings of $5.80 to $5.90 per share, up from its prior forecast of $5.75 to $5.85 per share given in January.

Excluding special items, J&J earned $1.54 per share. Analysts, on average, were expecting $1.48 per share, according to Thomson Reuters I/B/E/S. Sales rose 3.5 percent to $18.1 billion in the quarter, topping Wall Street forecasts of $18 billion.

Global sales of prescription drugs jumped to $7.5 billion. Sales of Simponi, a drug for rheumatoid arthritis, rose 9.3 percent to $259 million, while sales of psoriasis treatment Stelara soared 32 percent to $456 million.

J&J shares were trading at $99.50 in premarket trading, from their closing price on Monday of $97.14 on the New York Stock Exchange.

Quicksilver Alarm Bells

My  recent column suggested watch and wait . a number of readers replied they were committed and certain .

I am watching and the market has yet to bless KWK .

Here is an extract from a Seeking Alpha article warning that Quicksilver and Forest Oil face such pressures that bankruptcy may be in the future.

  • The high natural gas price has trapped both companies which have loaded their balance sheets with a lot of debt.
  • Both companies have tried to deleverage their balance sheets over the last 12 months.
  • They still have a long way to go in order to strengthen their weak balance sheets.
  • A bankruptcy is not out of the question.

Valuation Results

Both Quicksilver and Forest have a lot of work to do on the debt front. Those investors who ignore the debt hurdle or try to put it aside, are making a huge mistake. In fact, both companies carry scary debt to CF ratios that threaten their survival, considering also the fact that the natural gas price is inflated currently and will not stay at the current levels of $4.5/MMbtu for long.

Q2 Holdings

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

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.


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

Target: US$24.00 

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.


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.

AngioDynamics HOLD

ANGO : NASDAQ : US$15.85

Target: US$16.25

AngioDynamics develops, manufactures, and markets a
broad line of products for minimally invasive surgical
procedures to treat peripheral arterial disease.
AngioDynamics’ devices are used by interventional
radiologists and vascular surgeons to treat non-coronary
disease. Major product lines include angiographic
catheters, hemodialysis catheters, image-guided vascular
access products, as well as varicose vein ablation
products (laser and drug).

All amounts in US$ unless otherwise noted

Life Sciences — Biomedical Devices and Services
Investment recommendation
ANGO reported fiscal Q3 sales that came in better than our/consensus
expectations, but earnings leverage is taking a little longer to catch up to
the top-line performance. Total sales in FQ3 increased 8% Y/Y (vs. our
+6.5%E), and was highlighted by growth in each of the business units –
Peripheral Vascular (+11% Y/Y), Vascular Access (+3% Y/Y), and
Oncology (+15%). However, GM and pro-forma EPS missed our
estimates again, and while the company modestly increased F2014 sales
guidance, it lowered guidance for operating cash, FCF, and EPS.
We are encouraged by ANGO’s performance over the past couple of
quarters but remain cautious about recommending ANGO at these levels.
For us to get more constructive on the name, we want to see at least a
few more quarters of consistent improvement in the business and
evidence of sustained operating leverage. We raise our target to $16.25
but maintain our HOLD rating.
Investment highlights
 FQ3 revenue of $88.2M (+8%) modestly exceeded our/consensus
estimate of $86.9M.
 GM of 51.8% (+80 bps Y/Y) was below our expectation of 52.1%
owing to product mix.
 ANGO modestly raised its guidance range for F2014 revenue and
now expects $351-355M (+3-4%), but FCF guidance range reduced
to $20-$21M (from $25-$28M) based on ERP impact and inventory

Our Mantra For Mondays

If you see me talking to myself, don't be alarmed.  I'm getting expert advice.<br /><br />
Facebook: In5d Esoteric Metaphysical and Spiritual Database<br /><br />
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Trading Losses

The reason we have cash is to take advantage of bargains presented by Mr. Market





Seadrill Fear and Loathing – Barron’s

Shares of Seadrill (SDRL) have dropped despite the Europe-listed shares getting an upgrade atSociété Générale today, as the investment bank still sees better opportunities in Noble (NE),Ensco (ESV) and Rowan (RDC).


Société Générale Guillaume Delaby andEdward Muztafago explain why they raised their rating on Seadrill and why they’re still not fans of the offshore driller:

Our previous Sell rating (report link, 28 October), was partly based on the risk of floaters oversupply post 2013, which has now materialized. Assuming a “normal” and “gentle” scenario, we believe that: 1) 2014, 2015 and 2016 consensus might now be a bit too low and, 2) the current $3.92 annual dividend (11% dividend yield) might also be secure. In that context, and even assuming a slightly more grim 2014 (before a pick-up in 2015), our Sell rating is no longer warranted in our view. But in the event of an unexpected harsher scenario of declining oil prices and/or higher interest rates, we find little reassurance at Seadrill whose net debt, according to our forecasts, could rise to $17.5bn by the end of 2015 (237% gearing), a high level even by Seadrill’s own standards.

Delaby and Muztafago explain why Noble, Rowan and Ensco are better bets:

All in all, and while Seadrill is no longer a “Sell” or our “least preferred stock” (now SBM Offshore), we believe that US competitors like Noble, Rowan and Ensco (covered by SG analyst Edward Muztafago out of the US) are much more attractive given: 1) 6-8% expected dividend yields (2015-2016e), 2) above 15% FCF yields and 3) reasonable 35-50% gearing levels. Put another way, they offer only slightly less expected financial rewards for a much lower degree of financial risk in our opinion.

Still, not everyone’s a fan of even those drillers–yesterday Barclays cut its price targets on Rowan and Ensco, among others.

Shares of Seadrill have fallen 0.7% to $34.74 at 10:20 a.m. today, while Noble has dropped 0.8% to $31.03, Rowan has declined 0.9% to $31.30 and Ensco is off 0.5% at $50.39.


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