Some interesting numbers for technology investors interested in companies that participate in the connectivity ecosystem. Worldwide recession notwithstanding, there are some areas of significant growth which should bode well for companies in several sectors. The NASDAQ has outperformed the Dow index significantly this year, and some of the statistics below may reveal some of the reasons why. During earnings season AAPL, IBM, NOK, INTC, GOOG all beat consensus estimates and all but GOOG (which does not provide guidance) have indicated positive outlooks entering H2 2009. In fact, IBM has increased its guidance for the last half of the year. Investors should expect positive outlooks for both CSCO and RIMM when they report next, although positive outlook may have been priced into these stocks.
Notwithstanding a pause in growth in some areas during H2 2008 and H1 2009, the global march towards greater connectivity continues.
Internet Usage:
Total worldwide: 1.5 billion or 23.6% of total world population.
Most users: China with 288 million or 22.4% of population.
Regions with greatest penetration: N.A. 62.7%, EU 60.7%
For China to obtain similar levels of connectivity as North America or the European Union, another 500 million or so Chinese users would need to come online over the coming years, requiring massive investments in base infrastructure.
Emerging economies continue to drive internet connectivity growth, but are more likely to leverage fixed wireless broadband infrastructure to compensate for under-built wireline infrastructure. Even still, BRIC countries are likely to represent the vast majority of backbone investment as mega-operators in countries such as China and India continue to lay down the fundamental capacities to support growth in internet traffic.
Mobile subscriptions:
Total worldwide: 4.1 billion
Fastest growing regions: Middle East 32% CAGR and Africa 24% CAGR over past 5 years.
Basic mobile subscriptions in emerging economic regions are being used as a means by people to get access to basic services including banking. EEFT and First Data, among others, are likely to be vendors providing access to low-cost financial services options.
Mobile data services:
Total worldwide: 225 million
2009 growth rate: 93%
The most compelling growth rates that exist, even in the depths of a major recession, continue to be related to the mobile data services channel. Hence, investors continue to see better than expected results from companies associated with this niche. As stated many times in previous posts, the scale and complexity of the emerging infrastructure should benefit technology companies that supply solutions to this niche. Eventually, all current mobile subscribers worldwide are likely to adopt mobile data services at some point. The current penetration of data services into the mobile subscriber market is still very modest at 5.4%.
As the world continues to become more connected, capacity, capability, energy consumption and security should remain key issues. Worldwide, there should be more investment and innovation in these areas.
The top basket of Canadian stocks to think about in the connectivity ecosystem include: RIM, CGI, BWC, DWI, RCM, WIN, RKN, and TUN. Most of these companies have demonstrated excellent recent earnings performance, sustained and sometime expanding gross margins, with solid balance sheets and low debt ratios. These could represent a pretty good "connectivity" portfolio. Others to possibly consider include ABS, SVC, PIX, Q, and AXX.
I have probably overlooked a few key favorite stocks, feel free to add.
Disclosure: I own CSCO and BWC. I do not own any of the other stocks mentioned.
Showing posts with label IBM. Show all posts
Showing posts with label IBM. Show all posts
2/3/09
Web 1.0 Redux?
Recent positive earnings and outlooks from Amazon (AMZN-Q), Netflix (NFLX-Q), and Digital River (DRIV-Q) seems to have caught the market a little by surprise. Why has the old Web 1.0 e-commerce model experienced such a relative resurgence? And should investors buy, hold or sell in the sector?
The overall upward trend in online usage benefits from both demand-side and supply-side drivers. This alone should be seen as positive.
Demand Side
During the Holiday Season, it appears that consumers were less about shopping experience and more about buying utility. As well, higher unemployment and economic insecurity means fewer commuting trips and less destination travel, both of which typically generate more in-store shopping. Its a lot less fun trudging to the local Wal-Mart than it is to shop at Sak Fifth Avenue on the cancelled trip to New York. Furthermore, "deals" can be repeated online with less consumer hassle associated with parking and crowds.
As the economy worsens, we should see this trend strengthen because, well, it's happened before. In the early 1990s, Faith Popcorn rose to fame in part because she coined the term "cocooning", which described the trend of people staying at home more. In retrospect, this trend was due primarily to the recession, and once the economy returned to health, the niteclubs began to fill again. It's reasonable to suggest that 17 years later, people are likely to behave similarly. Netflix appears to be a clear beneficiary of this trend. During the early 1990s, the clear beneficiary was...Blockbuster (BBI-NYSE). Same trend, different delivery.
E-commerce is benefitting from maturity. In these uncertain times, e-commerce has been around for nearly 15 years, and most consumers have online buying experience. As well, the technology has greatly evolved to offer better perceived security, privacy and choice. Unlike in the past, there is consumer pull, which is far more cost effective.
Brand matters. Just like marketing budgets flow to Google (GOOG-Q), and IT services contracts flow to IBM (IBM-NYSE), e-commerce flows to "safe" dominant brands. This benefits Amazon directly. On the other hand, eBay (EBAY-Q) has experienced lingering service issues that has eroded some of its brand equity recently, which could be partially reflected in its poor Q4 performance.
Supply Side
Based on the transcripts of the various conference calls, it appears that retailers and manufacturers are rationalizing distribution channels, and moving towards highest efficiency, highest measureability. Increasingly, transactions are being moved online.
Benefiting Digital River directly, manufacturers and retailers are cutting more costs by outsourcing the online retail infrastructure. The Company has reported some impressive contract wins. Amazon has taken it further by outsourcing its excess infrastructure through its Elastic Cloud Computing (ECC) business, which grew year-over-year by over 30%.
During 2009, we should see more retailers rationalizing physical networks, while attempting to hold onto consumers via online marketing programs and more e-commerce activity. Multi-channel retailers with the most advanced online retailing capabilities should benefit most.
An area of increased investment is likely to be in the area of transaction efficiency. How can the discovery/decision/buy process be shortened? We should see more attempts at integrating transactions into marketing with more mobility. Look for more integration between affiliate marketing and e-commerce, possibly in the form of increased M&A during the year.
So are the stocks buy, hold or sell? It depends on the investment time horizon, but stocks like Amazon, and Digitial River, with clear hooks into the infrastructure are likely more appealing long-term than category plays such as Netflix where competition could become fierce fast. The stock has had a nice run since the fall and I would be taking profits. It may be a good time for Netflix to think about strategic acquisitions. eBay may find itself in the wilderness during this recession as it struggles to evolve its business model, mitigate some of the potential channel conflicts associated with its Power Sellers, regain consumer confidence, and figure out what to do with Skype. eBay may sit this one out.
I do not own any of the stocks mentioned above.
The overall upward trend in online usage benefits from both demand-side and supply-side drivers. This alone should be seen as positive.
Demand Side
During the Holiday Season, it appears that consumers were less about shopping experience and more about buying utility. As well, higher unemployment and economic insecurity means fewer commuting trips and less destination travel, both of which typically generate more in-store shopping. Its a lot less fun trudging to the local Wal-Mart than it is to shop at Sak Fifth Avenue on the cancelled trip to New York. Furthermore, "deals" can be repeated online with less consumer hassle associated with parking and crowds.
As the economy worsens, we should see this trend strengthen because, well, it's happened before. In the early 1990s, Faith Popcorn rose to fame in part because she coined the term "cocooning", which described the trend of people staying at home more. In retrospect, this trend was due primarily to the recession, and once the economy returned to health, the niteclubs began to fill again. It's reasonable to suggest that 17 years later, people are likely to behave similarly. Netflix appears to be a clear beneficiary of this trend. During the early 1990s, the clear beneficiary was...Blockbuster (BBI-NYSE). Same trend, different delivery.
E-commerce is benefitting from maturity. In these uncertain times, e-commerce has been around for nearly 15 years, and most consumers have online buying experience. As well, the technology has greatly evolved to offer better perceived security, privacy and choice. Unlike in the past, there is consumer pull, which is far more cost effective.
Brand matters. Just like marketing budgets flow to Google (GOOG-Q), and IT services contracts flow to IBM (IBM-NYSE), e-commerce flows to "safe" dominant brands. This benefits Amazon directly. On the other hand, eBay (EBAY-Q) has experienced lingering service issues that has eroded some of its brand equity recently, which could be partially reflected in its poor Q4 performance.
Supply Side
Based on the transcripts of the various conference calls, it appears that retailers and manufacturers are rationalizing distribution channels, and moving towards highest efficiency, highest measureability. Increasingly, transactions are being moved online.
Benefiting Digital River directly, manufacturers and retailers are cutting more costs by outsourcing the online retail infrastructure. The Company has reported some impressive contract wins. Amazon has taken it further by outsourcing its excess infrastructure through its Elastic Cloud Computing (ECC) business, which grew year-over-year by over 30%.
During 2009, we should see more retailers rationalizing physical networks, while attempting to hold onto consumers via online marketing programs and more e-commerce activity. Multi-channel retailers with the most advanced online retailing capabilities should benefit most.
An area of increased investment is likely to be in the area of transaction efficiency. How can the discovery/decision/buy process be shortened? We should see more attempts at integrating transactions into marketing with more mobility. Look for more integration between affiliate marketing and e-commerce, possibly in the form of increased M&A during the year.
So are the stocks buy, hold or sell? It depends on the investment time horizon, but stocks like Amazon, and Digitial River, with clear hooks into the infrastructure are likely more appealing long-term than category plays such as Netflix where competition could become fierce fast. The stock has had a nice run since the fall and I would be taking profits. It may be a good time for Netflix to think about strategic acquisitions. eBay may find itself in the wilderness during this recession as it struggles to evolve its business model, mitigate some of the potential channel conflicts associated with its Power Sellers, regain consumer confidence, and figure out what to do with Skype. eBay may sit this one out.
I do not own any of the stocks mentioned above.
1/20/09
IBM Beats Analysts Expectations...yet again.
Today, IBM reported Q4 2008 earnings of $3.28 per fully diluted share, 17% ahead of Q4 2007 and generally ahead of analysts expectations. On a currency adjusted basis, the Company reported $27.0 billion in sales, a 1% decline from Q4 2007. Software sales grew by 9% on a currency adjusted basis, technology services up 3% and and business services were reported as flat.
For the full year, IBM reported record sales of $103.6 billion, record pre-tax income of $16.7 billion and free cashflow of $14.3 billion (excluding Global Financing receivables). Earnings were reported at $8.93 per share for the full year.
Not a bad year.
The Company is guiding for a minimum of $9.20 in EPS for 2009, which is a 3% forecasted increase. With its expansive international footprint and the potential to benefit from President Obama's "digital infrastructure" stimulus package, one could anticipate that IBM could potentially beat that minimum. This should be considered a rosy outlook considering the world economic situation for 2009. With $12.9 billion in cash, it has the ability to continue to make strategic acquisitions in software and infrastructure during 2009 while the shares of strategic targets may be depressed.
IBM has been transforming itself for over a decade now into the preeminent technology services company in the world. With little fanfare. While Google (GOOG-Q), Microsoft (MSFT-Q) capture the imaginations and mindshare of the public, IBM has been performing.
With respect to performance, there is greater chance than not that Google could beat analysts expectations when it reports later this week. During economic recessions, marketers look for measureability for their reduced budgets. Google's CPC model and its dominance are likely to attract more dollars than expected because budgets tend to flow to "safety" during bad economic periods. Google is generally perceived to be a safe spot for marketers because of the reach and measureability of its offerings.
I do not own any shares of the Companies discussed above.
For the full year, IBM reported record sales of $103.6 billion, record pre-tax income of $16.7 billion and free cashflow of $14.3 billion (excluding Global Financing receivables). Earnings were reported at $8.93 per share for the full year.
Not a bad year.
The Company is guiding for a minimum of $9.20 in EPS for 2009, which is a 3% forecasted increase. With its expansive international footprint and the potential to benefit from President Obama's "digital infrastructure" stimulus package, one could anticipate that IBM could potentially beat that minimum. This should be considered a rosy outlook considering the world economic situation for 2009. With $12.9 billion in cash, it has the ability to continue to make strategic acquisitions in software and infrastructure during 2009 while the shares of strategic targets may be depressed.
IBM has been transforming itself for over a decade now into the preeminent technology services company in the world. With little fanfare. While Google (GOOG-Q), Microsoft (MSFT-Q) capture the imaginations and mindshare of the public, IBM has been performing.
With respect to performance, there is greater chance than not that Google could beat analysts expectations when it reports later this week. During economic recessions, marketers look for measureability for their reduced budgets. Google's CPC model and its dominance are likely to attract more dollars than expected because budgets tend to flow to "safety" during bad economic periods. Google is generally perceived to be a safe spot for marketers because of the reach and measureability of its offerings.
I do not own any shares of the Companies discussed above.
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