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Climbing The Financial Wall of Worry

Alibaba.com One Two Punch Putting the Run on Investors $XHKG:0168 #alibaba $YHOO

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Alibaba (Hong Kong XHKG:0168) announced declining results for Q1 claiming they are cleaning up their act or the act of many of their vendors. The drop in recurring cash flow clocks in at a YoY drop of a mind numbing 87%. But later in the earnings release they claim their cash and bank balances improved  with a 24.3 % increase  year-on-year and flat from December 31, 2011.  Which means the spending is being curtailed somewhere or the bank loans are coming in fast and furious. In any event that needs some splaining by management.

The party line is Alibaba.com stepped up its efforts to upgrade the trustworthiness of suppliers and  enhance the user experience. They have increased staff and operating costs as they attempt to rein in some less than satisfactory market behaviours. OK so this is a classic reset of a broken business model. Some will say this is the poster child for wild west style expansion in China’s boom economy where regulators have no clue about how to regulate. Wild eyed and naïve customers had no idea they could have so many unacceptable bad customer experiences. Wondering if the translation of bad customer experience into Chinese has the same connotation or if they are using something very much stronger.

But wait no sooner were the disheartening results released than a new press release was issued by independent board members recommending acceptance of a share buy out that had been made just recently. The buy out seems generous with a 60% premium over the 60 day moving average but somewhat unsatisfactory given the last two or three-year trading range.

The combination of poor earnings results and independent recommendation puts the run on investors. There are no other possible options. But when someone who is clearly the insider is ready to offer 60% premiums you have to think in the back of your head why?

The stock becomes an allegorical tale about investing in foreign jurisdictions with different governance models. Yes the China market is huge. But western investors may not have the mindset for the nuances of Asian stock markets when a publicly traded company runs into significant trouble.

Oh wait a second Yahoo owns a signifiant amount of Alibaba. There was this really strange sale which did not seem to benefit Yahoo (Nasdaq:YHOO)  and now the minority shareholders are being run off.

George Gutowski writes from a caveat emptor persepctive.

 

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April 23, 2012 Posted by | Black Swans, Caveat Emptor Perspective, Disclosure, Due Diligence, Earnings Forecasts & Guidance, Insider Trading, Investments, M & A, Share Buy Back, Stocks, Take Over Targets, Volatility, Wall of Worry | , , , , | Comments Off

Yahoo Throws Itself Into the Volcano-No it’s a Mass Crucifixtion-When do Vultures Swoop? $YHOO $GOOG $FB

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Yahoo (Nasdaq:YHOO) has walked up to the lip of a very live volcano and is preparing to sacrifice some 2,000 individuals or 14% of their workforce. Bad numbers coming in Q2 which is interesting disclosure because Q1 is about to come out and now suddenly no one cares. Ok so whats wrong with a little cost cutting? Lots of big companies take the corporate enema and lighten up; know what I mean? Well hasn’t Yahoo been restructuring already or something like that. Trying to become more relevant and finding more revenue streams.

Yeah they have and it hasn’t worked for some reason. The three crowns of internet advertising are financial services, travel and automotive. Yahoo finance is undisputedly one of the largest and most used financial web sites.  Yahoo travel and Yahoo automotive? Well no dominance there. China and Japan has taken up so much executive head space that the basic nuts and bolts has not been paid attention too. Oh when considering shrinking Yahoo just think of how many people have left voluntarily. Now employees who were thinking of leaving are hoping to snag a lucrative exit package move down the street and come right back at you. Throwing employees into the volcano is very tricky.

The statement leaves out what area’s are particularly targetted. Of course they will claim to make broad cuts and the market may look at management and say why did you wait so long. The key will be in the mix. As the termination notices travel around the corridor we’ll find out anecdotally. Hopefully on the upcoming conference call on April 17, 2012 17:00 ET the sell side analysts will be able to guess at how the axe was swung.

The cut backs officially are to cut costs and goose the bottom line. The hidden agenda will be to create a better fit with potential merger or acquisition partners. Eliminate potential overlapping areas and perhaps keep a few stars that may add some sparkle and lustre. In any event its all about how lovely you look sitting up their at the bar with your legs crossed and a to die for Jimmy Choo dangling off your toe as you gently bounce you leg, while you pretend to look around the bar in a pointedly bored vacuous manner.

Special note to politicans in a presidential election year. If Yahoo crucifies 2,000 good wage earners  and then substantial operations are transferred somewhere outside the US of A. God help you. Because if the working population decides we can’t even hold onto high-tech jobs what change does a regular hard-working guy have.

So Google (Nasdaq:GOOG) or maybe Alibaba (xtra:4AL) check the fit again. You know you need to go to the tailors a few times to ensure the cut and stitch work out.  But here is the very big rub. When can the takeover offers start? Will the predators pony up now that the over heads are coming down. Or will they wait until the amputation cauterised some and assess from there.  I’m thinking the latter so be careful before you load up on this news.

George Gutowski writes from a caveat emptor perspective.

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April 4, 2012 Posted by | Black Swans, Caveat Emptor Perspective, Disclosure, Due Diligence, Earnings Forecasts & Guidance, Financial Engineering, Investments, M & A, Stocks, Take Over Targets, Value Investing, Volatility, Wall of Worry | , , | Comments Off

Groupon Slithers Away Friday Night $GRPN $FB $GOOG

Logo of Groupon

Logo of Groupon (Photo credit: Wikipedia)

 

Groupon Inc (NASDAQ: GRPN) announced a material weakness in its accounting policies. It tried to assuage investors that the real numbers like cash flow and real profits are still the same. Also the critical guidance was going to stay the same so hang on investors stay with the cause. Personally I have to disclose to you that I originally signed up for Groupon deals identifying myself as a solvent white educated male in my very late 50′s interested in fine dining, wines, scotch, cigars and very cool stuff for my grand-daughter. I received a slew of offers for nail extensions and nothing for my grand-daughter. Nothing I tell you. So I have been dubious about the underlying business case as it did not work for me.

 

So when I learn that this high flier has a serious problem with its accounting controls somehow I’m not surprised. What is surprising is managements expectations that this can be shrugged off. They claim to be working with another global accountancy to establish the correct policies. The claim says they have been working on the issue for several months. Ahem investors look at this point. If the new boy accountancy has been hired several months ago it means Reg FD has been violated. Groupon management knew about the problem but did not want to disclose or failed to disclose. Governance Governance Governance.

 

The smoking gun will be the terms and reference of the engagement agreement between Groupon and the third-party accountancy. They must have been hired to fix the problem because that’s what the updated guidance said they were hired to do. Do you think Groupon’s legal department see’s it that way? Why did they sign off on the press release and let them walk into the REG FD buzz saw? Do they understand Reg FD and securities litigation? Many class action lawsuits have been announced so maybe not. At this point  there are seventeen announced actions so maybe the legal side is catching on.

 

I just find it very odd that they chose not to name the third-party accountancy firm that is investigating the material weakness. What could the damage be? Ernst and Young will do the audit. But given the responsibility that auditors now have what are the odds that Ernst and Young are reaching for their pen to sign off on the numbers.

 

We may have an interesting discussion about materiality. It’s only some $35 million that’s nothing for a fast growing company with rapacious shareholders. But to someone like a Google (Nasdaq:GOOG) or a Facebook (FB) who have an end game mentality a $35 million anomaly which depresses the price just might be the best piece of news their boards have heard in a long time.

 

George Gutowski writes from a caveat emptor perspective.

 

 

 

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April 3, 2012 Posted by | Stocks, Investments, Investor Relations, Shareholder Litigation, Disclosure, Earnings Forecasts & Guidance, Volatility, Black Swans, M & A, Take Over Targets, Wall of Worry, Caveat Emptor Perspective, Financial Engineering | , , , | 1 Comment

Research in Motion Turtle Like Moves? $RIMM

Image representing Research In Motion as depic...

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Research in Motion (Nasdaq:RIMM) announced drastically reduced earnings for Q4. Market reaction has taken a page or two from chicken little “the sky is falling” and then again for emphatic emphasis “the sky is falling”. Lets take a rationale look at some of the major issues.

  1. The new CEO just arrived 10 weeks ago. By the way he is looking for a new COO and the good news is he thinks he is close to hiring a new Chief Marketing Officer. Not to mention Jim Balsillie has just resigned from the board. The generals are still changing out. The guys that are leaving probably were not pushing at the wheel. Actually this was a good thing as most would agree they were not the winning team.
  2. Hey they only lost $128 million.  That ain’t nothing but a chicken wing in the technology space. This only begs the question. Big change holds hands with big write-offs. The year-end was just closed off. That means this year will see more pain and financial agony. The new guys will be hired not to protect the status quo. By the way inventories are up clocking in at $1 Billion. Can you see some write-offs coming.
  3. The only good thing is the large increase in their cash position moving some $610 million to $2.1 Billion. This is the necessary set up move for solution. The new whatever will cost big bucks. Watch for continued cash hoarding over the next few quarters. When they start drawing down cash will signal the back field is in motion. The earnings release led with this point. Subliminal advertising designed to encourage the deep value investor.
  4. The cash position is roughly equal to 30% of RIM‘s market cap.
  5. No discussion about the value of patents and intellectual property. Of course if management starts hammering in this point it would confirm they are holding themselves up for sale.

So given the cash position would you pay approximately $4 Billion for the operating assets with substantial cash flow and all the intellectual property.

George Gutowski writes from a caveat emptor perspective

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March 29, 2012 Posted by | Black Swans, Caveat Emptor Perspective, Disclosure, Due Diligence, Earnings Forecasts & Guidance, Investments, M & A, Stocks, Take Over Targets, Value Investing, Volatility, Wall of Worry | , | 1 Comment

Research in Motion stealth take over. It clever, very clever.$RIMM $RY

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Research in Motion (Nasdaq:RIMM) announced the supposed rearrangement of chairs on the Titanic. The two senior guys  Balsillie and Lazaridis announced that they will be stepping down tomorrow. They will still be on the board and they will still continue to hold huge personal investments in Research in Motion.

The key critical chess move is the appointment of former Toronto Stock Exchange chief Barbara Stymiest will become chairman of the board of directors. Ms. Stymiest has been a director since 2007. Royal Bank of Canada (NYSE:RY) had previously hired Ms. Stymiest to a new role of chief operating officer during a management overhaul in 2004 after a slump in the U.S. eroded profit at the bank. She was responsible for “strategic development,” with all corporate areas reporting to her, including finance and risk management.

Fortune magazine named her one of the 50 most powerful women in global business three times from 2006 to 2008, and she was named one of the “25 Most Powerful Women in Banking” in 2008 by American Banker.

Forget about the iPhone consumer battles. Research in Motion is all about security. Many countries want to access Blackberry networks internal systems so they can spy on supposed internal enemies. American and Russian security types have spoken very well of Blackberry security strength.

This strength in security is important to financial institutions and credit card operators. So with Ms Stymiest sitting at the top who is the very best to maximize shareholder wealth including Lazaridis and Balsille.

Hedge fund activists who want a strategy to compete with iPhone and other smart phones do not know what they are asking for.

George Gutowski writes from a caveat emptor perspective.

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January 22, 2012 Posted by | Black Swans, Caveat Emptor Perspective, Disclosure, Due Diligence, Investments, M & A, Shareholder Activist, Stocks, Take Over Targets, Wall of Worry | , , , | Comments Off

Apple Cash becomes a political target or corpgov issue? iCash solution soon or it’s dead money. $AAPL

English: The logo for Apple Computer, now Appl...

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Apple (Nasdaq:AAPL) has an $81 Billion cash hoard. This amounts to 25% of its market cap. The stock does not pay a dividend. Everyone clearly agrees that they have enough for a robust R&D effort. This ensures that they can beat up any direct competitor and/or buy up smart ideas while they are still small.

The cash issue becomes a governance question. This is shareholder money with no clear purpose. Shareholders to date have been delighted with iPhones and iPads. But lets face it, the market is not going to let this dead money stick around on the balance sheet forever.

Apple executives have a big problem. They are good at technology but are they good at investing? Apple does not have a track record investing money. They have bought a few things here and there to augment their technology. But it stops there.

The question also becomes political. Apple is global. The cash most likely is spread out in bank accounts around the world. Uncle Sam has a perverse habit of taxing cash as it comes into the United States. So you will understand the reticence of some executives to repatriate profits. Democrats want and need to tax. Will politicians help hurt Apple.

Investors will be clamouring. IRS will be salivating. Politicians will be hiding. Apple executives will be confused. The public will read about the problem on their iPads thereby creating more profit.

Apple needs to pick a direction with the cash and develop a strategic plan. The problem is much more complex than just a little bit of dividend yield. So far they have no game.

George Gutowski writes from a caveat emptor perspective.

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November 30, 2011 Posted by | Black Swans, Caveat Emptor Perspective, Dividend Income, Earnings Forecasts & Guidance, Investments, M & A, politics, Reg FD, Share Buy Back, Stocks, Take Over Targets, Value Investing, Volatility, Wall of Worry | , , , | Comments Off

#Ralcorp headline word games=poor governance. Anticipated impairments? Come on! $RAH $CAG #corpgov

Ralcorp

Image via Wikipedia

Ralcorp Holdings (NYSE:RAH) recently announced they will delay issuing the all important Q4 and year-end numbers because they have to complete impairment tests on some intangible goodwill assets. Read the headline and see how investors are being manipulated.

“Ralcorp Postpones Announcement of Fourth Quarter and Full Fiscal Year 2011 Earnings Due to Anticipated Non-Cash Goodwill Impairment Charge Related to the Post Cereals Business”

Bold and Italics are mine of course.

OK so let’s think about this for just a minute. Quarterly earnings come out every 90 days and most companies let investors know when they will announce. Ralcorp was subject to a take-over that was pulled. Conagra (NYSE:CAG) changed their mind. Now a week before the numbers are signed off the company says they anticipated non cash goodwill impairment.

Huh!

If you anticipated an impairment charge you would have been working on it long before the deadlines for releasing critical information. Yes it’s a non cash charge. But it does affect the valuation of the firm and reflects the judgement of management. Which right now does not look so good.

They do not have a final announcement date set. Hey buddy listen up that’s not anticipation.  That’s out of control scrambling. Bad very bad. Rub nose in dodo.

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November 7, 2011 Posted by | Black Swans, Disclosure, Due Diligence, Earnings Forecasts & Guidance, Investments, M & A, Reg FD, Shareholder Litigation, Stocks, Take Over Targets | , , , , , | 1 Comment

Visa American Express or MasterCard will buy $RIMM Security the leading edge for smartphone transactions $AXP $V $MA

RFID chip pulled from new credit card

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Who will buy Research in Motion (Nasdaq:RIMM)? The conversation does not want to stop. The real question is “Why buy RIMM?” What would the strategic reasons be?

Look at the camera technology in a smart phone. It’s not really there to take cute pictures of your cat. The business case is in the scanning or optical character recognition. The smart phones will scan bar codes, QR’s and other bits of digital data resulting in products being purchased.

So imagine your charge card as a smartphone or your smartphone as a charge card. Who runs charge cards Visa, MasterCard and American Express (NYSE:AMP) for the most part. RIMM market cap has shrunk enough for the three credit card companies to swallow up RIMM. Credit card companies are a technology play. Who could benefit the most from RIMM. The other two could not catch up for five years or more.

RIMM still has the security card.

This is the only takeover that would be palatable to the two founders and co-chairman. A takeover by another technology giant would be unthinkable to them.

George Gutowski writes from a caveat emptor perspective.

November 3, 2011 Posted by | Black Swans, M & A, Take Over Targets | , , , | Comments Off

Either Visa, American Express or MasterCard will buy $RIMM. Security the leading edge for smartphone transactions. $AXP $V

UPC-A barcode

Image via Wikipedia

Who will buy Research in Motion (Nasdaq:RIMM)? The conversation does not want to stop. The real question is “Why buy RIMM?” What would the strategic reasons be?

Look at the camera technology in a smart phone. It’s not really there to take cute pictures of your cat. The business case is in the scanning or optical character recognition. The smart phones will scan bar codes, QR’s and other bits of digital data resulting in products being purchased.

So imagine your charge card as a smartphone or your smartphone as a charge card. Who runs charge cards Visa, MasterCard and American Express (NYSE:AMP) for the most part. RIMM market cap has shrunk enough for the three credit card companies to swallow up RIMM. Credit card companies are a technology play. Who could benefit the most from RIMM. The other two could not catch up for five years or more.

RIMM still has the security card.

This is the only takeover that would be palatable to the two founders and co-chairman. A takeover by another technology giant would be unthinkable to them.

Disclosure: George Gutowski writes from a caveat emptor perspective.   

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November 3, 2011 Posted by | Black Swans, Earnings Forecasts & Guidance, Investments, M & A, Stocks, Take Over Targets | , , , , , | Comments Off

   

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