Showing posts with label RIMM. Show all posts
Showing posts with label RIMM. Show all posts
10/5/10
Consensus earnings growth does not justify share price for AAPL, AMZN, NOK, VMW, or CRM
9/21/10
Why MSFT ORCL RIMM VMW and HP will continue to post solid results.
We have been building a thesis that, regardless of the recent deceleration of economic growth in the US economy, the enterprise IT sector is on a bit of a roll that should persist for the next several quarters. Investors may want to look at business/enterprise IT technology for overweighted returns. Please note that 26% of the aggregate market cap of the sector is in cash and/or equivalents.
RIMM, MSFT, ORCL, VMW, and HP all reported better than expected results, and all presented fairly positive outlooks. Although CSCO met expectations, its outlook was positive. Our channel sources confirm that American business is investing in productivity at the desktop, in the pocket, and in the back office.
RIMM, MSFT, ORCL, VMW, and HP all reported better than expected results, and all presented fairly positive outlooks. Although CSCO met expectations, its outlook was positive. Our channel sources confirm that American business is investing in productivity at the desktop, in the pocket, and in the back office.
11/26/09
CEO Series: Interview with Andrew Osis, CEO Multiplied Media - developers of the Poynt Mobile App
This is the first in a series of interviews conducted with CEOs of interesting Canadian technology companies. The intent of this project is to provide investors with a unique understanding of what various companies are doing - directly from the top dog. Hopefully, the interviews conducted over the next few weeks will help investors to gain insight into the fundamentals of the companies to which they may not otherwise have access.
The first interview conducted is with Andrew Osis, Chief Executive Officer, Multiplied Media (MMC.V). The company is headquartered in Calgary, Alberta and has developed the wildly successful and award-winning mobile search application for Blackberry called Poynt.
The first interview conducted is with Andrew Osis, Chief Executive Officer, Multiplied Media (MMC.V). The company is headquartered in Calgary, Alberta and has developed the wildly successful and award-winning mobile search application for Blackberry called Poynt.
9/18/09
Check out Poynt: An award winning mobile search app for BBerry...iPhone next?
This application won the grand prize for RIM's Blackberry Developer Challenge at the end of 2008. It is well designed. Not only can you find stuff nearby, but you can actually do something after you find what you are looking for - like buy movie tickets. Spend a couple of minutes checking it out.
Multiplied Media (MMC.V) has taken longer than expected to perfect the app, and the company is still at the early stages of commercialization, but the app seems like it should be a grand prize winner. Look for an iPhone version of Poynt to follow soon.
Earlier this week, the Company announced that it has reached the 1 million user milestone, which suggests that it has the potential to go viral. Investors are taking note. In August, the Company was able to raise $2.9 million in growth financing. Over the past couple of weeks, the penny stock has doubled in value.
Disclosure: I do not own shares of MMC.V
Multiplied Media (MMC.V) has taken longer than expected to perfect the app, and the company is still at the early stages of commercialization, but the app seems like it should be a grand prize winner. Look for an iPhone version of Poynt to follow soon.
Earlier this week, the Company announced that it has reached the 1 million user milestone, which suggests that it has the potential to go viral. Investors are taking note. In August, the Company was able to raise $2.9 million in growth financing. Over the past couple of weeks, the penny stock has doubled in value.
Disclosure: I do not own shares of MMC.V
8/18/09
Zoompass is destined to succeed: So what is the potential fallout in the Canadian market?
This is a follow-up commentary to a previous post "Enstream: A Mobile Moneris or Dexit Revisited?" published on June 15, 2009. The article was an attempt to contextualize the beta launch of Zoompass within the current Canadian and international mobile billing and payments ecosystem. The fundamental question posed was "Does this venture have a chance to succeed, or is it doomed to fail like so many other attempts in the past?" And if it does succeed, what are the implications for the market?
Two months later, and after spending some time interviewing Enstream management, along with management from other companies within the Canadian mobile ecosystem, I will call an early verdict:
Zoompass is destined to succeed and here is why:
1. The carrier coalition (T.TO, BCE.TO, RCI.TO) funding the Enstream venture is more committed than ever after initial feedback. So far, it has refrained from the typical eye gouging that makes these types of ventures implode early. Most of its competition would come from chronically underfunded start-ups - so it has a definite capital advantage (and apparently patience).
2. The bench strength is deep. Most of the management team and the 35 or so developers iterating through the beta have been poached from companies like Verisign (VRSN.Q) (Mqube), which suggests deep experience in mobile SMS-based billing gateways, and mobile transactions.
3. There is pent-up demand. Canada is behind countries like Kenya in getting mobile micro-payments launched. In a study conducted by Gartner, Inc, it forecasts that 190 million people worldwide will be making mobile payment by 2012, and that the current annual growth rate is 70%. To put this into perspective, as of 2009, there are 250 million smart phones in the market. Recent North American surveys conclude that between 26% and 32% of mobile users would immediately adopt mobile payments if they were offered. These surveys, regardless of variances in methodologies, appear to point to mass adoption potential. The tweetsphere appears to indicate some consumer impatience for access to such services.
4. Target market is trained and willing. Zoompass is targeted at the 18 - 30 age cohort. There is almost 100% intersection among this group of previous experience downloading paid mobile content and applications thanks to iTunes, PayPal, and a myriad of on-portal and off-portal mobile content malls. There is little education required, and mobile micro-payments are a simple extension of what they are already accustomed to doing.
5. A vast majority of the capital risk is willingly borne by the consumer. Unlike previous failed electronic payment solutions, there is little financial risk at the endpoint assumed by the provider or merchants. Consumers have already invested in the wallet for other reasons. As a result, Zoompass can be tweaked relatively efficiently, with limited capital consequence, as it gets feedback from consumers. With limited capital risk, there is more flexibility in the design of potential offerings. More importantly, there is limited scaling friction caused by capital constraints. In this regard Zoompass is more like Twitter, less like Interac.
6. Zoompass is being developed collaboratively with its target market. Unlike many previous attempts at new electronic payment systems, Enstream is fully engaged in a collaborative design process with its potential consumers. In the end, this approach is most likely to result in success because it is not pushed into the market. The consumer is pulling it. Enstream has ripped a page from the US-based handbook of "how to launch a successful digital application". It is being very un-Canadian in its aggressive interaction via social media, ensuring better buy-in from a highly educated, elusive, and often cynical target market.
Where can this go?
Ultimately, Zoompass has its sights set on about 20 million subscribers with a factory installed application that includes active RFID and NFC components. The carriers have a little pull with handset manufacturers, so the ultimate factory install objective is obtainable. As well, Zoompass is not interested just in the cash that resides in your wallet, it is interested in the whole wallet. Think about what is in your wallet right now: Credit cards galore, various gift cards, a coffee card, loyalty cards, a phone card, your license, your health card, maybe a transit pass.
What does this mean to the mobile ecosystem and to Canadian consumers?
First, the Canadian consumer...
1. A potential carrier oligopoly in mobile payments is a risk to consumers. Already, Canadian mobile subscribers pay some of the highest mobile bills in the world due to market distortions caused by the CRTC and to a related lack of competitive choice. The Enstream Joint Venture represents a potential to perpetuate oligopoly risk. The extent of the oligopoly depends upon how successful Enstream is in co-opting the financial services industry into its offerings.
2. A potential meta-oligopoly only perpetuates risk to consumers. Canadian financial institutions could band together as in the past (e.g. Interac) in order to offer an alternative mobile payments solution. Already there are whispers of Big 5 summit meetings on the topic of a competitive offering. Before consumers begin to cheer, this only represents two choices operated by a total of 8 very large institutions. It doesn't necessarily create a fully baked competitive environment that gives consumers adequate choice. As an aside, Canadian financial institutions are simply not wired to build out consumer services iteratively like Enstream is doing, so the chances of success are more limited, which means that consumers could be more likely than not saddled with a mere oligopoly.
3. But what about the new broadband spectrum wireless carriers? The future entry of new carriers such as Globalive (Wind Mobile), Publix Mobile, and DAVE Mobile could present a viable alternative in mobile payments for consumers by creating its own JV/coalition. Possibly. However, these folks have a lot on their plates just to get services launched by 2010. In the meantime, Zoompass could deliver to the Enstream JV an insurmountable lead before new players could respond. Independent developers are mostly ignored by capital markets, so there is not likely to be any effectively funded, meaningful competitive "white knights" appearing out of the woodwork any time soon.
4. RIM to the rescue? New Nortel (RIM) may have a couple of things cooking but probably at an earlier stage of development than Enstream. It could leverage its balance sheet to acquire (similar to Nokia buying Obopay) but it has been mostly dabbling. As stated in June, RIM is likely to try to leverage its new PayPal relationship before it hunts for another Obopay. Even still, what if you are an iPhone user?
In the not-to-distant future, it is feasible for someone at the Canadian Competition Bureau to have another file dropped on their desk. Ironically, the near certain success of Zoompass may create some market uncertainty for investors as consumer protection raises the specter of government intervention.
Now the Canadian mobile ecosystem...
1. There are probably some small exploitable market niches around the edges of the possible Zoompass juggernaut. Enstream is not targeting what I would coin the "Money Mart Cohort". These are people with limited traditional banking access, and no credit. A vast majority are the working poor and recent immigrants who tend to be "cash-oriented". Depending on sources, this group represents between 10% and 12% of the population depending upon the year. For over a decade now, these people have already been engaged in card-based micro-payments by buying billions of long-distance minutes and pre-paid mobile time. The carriers have been making hay with this group for a while. An independent mobile payments offering could sprout up for these people. However, the size of the market limits the amount of potential competitors in this niche. And there will be a lot of microcaps scrapping over this business. Even with considerable consolidation, there are likely to be a couple of winners and a lot of losers in this market.
Other interesting potential mobile payment market niches could include payroll, government stipend, and international remittance. The common thread among these solutions, is that they are not necessarily micro-payments, and they do not have person-2-person elements to them.
2. Start-ups could take their cookies and simply leave the room. Enstream would certainly be happy. Micro-payments are a worldwide phenomenon with much larger opportunities outside of Canada. Enstream management states that it is (for now) a Canadian-only venture. Vendors with current international footprint may choose to apply their limited capital resources to exploit those markets more aggressively. Investor may also see Canadian companies with good IP and weak balance sheets snapped up by foreign interests over the next few quarters. This is a good thing for shareholder of such companies.
3. Complimentary and indirect competitors may find opportunities to hitch their fortunes to Zoompass. This could be a good way for a diverse group of vendors to maximize shareholder value. Enstream has been fairly vocal that it would like Zoompass to be an open platform for other developers and that it has (as alluded to earlier in this post) designs on getting a piece of the entire wallet. This is the exciting stuff for the mobile ecosystem based on feedback that I am receiving. However, I am skeptical that it will truly be an open development platform. Is Apple's Safari really an open platform? Enstream will pick its partners regardless of its current public postering. Notwithstanding, opportunities abound for partnerships in gift and re-loadable cards, loyalty management, EMR/health services, government services, RFID, POS, and NFC. There are potential technical and infrastructure partnerships related to billing systems, and provisioning along with cloud services related to transaction processing, ecommerce, identity and security. Although most of these solutions are likely to be provided by large cap vendors, there is likely room for Canadian small-cap, micro-caps and start-ups to participate (and a spot for investors to potentially benefit from considerable gains). As the solution matures, there are likely to be as of yet unimagined consumer applications that can be developed for commercial benefit.
In summary
Zoompass is here to stay. There is demand for mobile payments, success elsewhere in the world is well documented, and Zoompass appears to be destined for a successful launch in 2010. It may experience some bumps along the way, but it will likely be a market force within the next 24 months.
With its success will come uncertainty related to consumer choice, even if there is a direct competitive response from the financial services industry. Will there be a consumer outcry that compels government regulators to force the Enstream JV to open its platform to future competitors? If so, the ultimate benefit to shareholders of the main JV participants could be muted.
Investors should expect a lot of angst among the myriad of smaller under-capitalized players that have been developing solutions in this space so far. How does a management team respond to this competitive cluster bomb? Those that underestimate or ignore the potential for Zoompass do so at their peril. Shareholders should expect, and even encourage, increased M&A activity and strategic recalibration. Some companies may even attract new investment.
The impending Zoompass launch, and its likely success, should make thing very interesting for some time in the Canadian mobile market. Some investors could make some nice returns, others not so much. It will all depend on the reaction of management teams and subsequent execution. As always.
Please feel free to comment.
Disclosure: I do not own shares of any of the companies mentioned in this post.
Two months later, and after spending some time interviewing Enstream management, along with management from other companies within the Canadian mobile ecosystem, I will call an early verdict:
Zoompass is destined to succeed and here is why:
1. The carrier coalition (T.TO, BCE.TO, RCI.TO) funding the Enstream venture is more committed than ever after initial feedback. So far, it has refrained from the typical eye gouging that makes these types of ventures implode early. Most of its competition would come from chronically underfunded start-ups - so it has a definite capital advantage (and apparently patience).
2. The bench strength is deep. Most of the management team and the 35 or so developers iterating through the beta have been poached from companies like Verisign (VRSN.Q) (Mqube), which suggests deep experience in mobile SMS-based billing gateways, and mobile transactions.
3. There is pent-up demand. Canada is behind countries like Kenya in getting mobile micro-payments launched. In a study conducted by Gartner, Inc, it forecasts that 190 million people worldwide will be making mobile payment by 2012, and that the current annual growth rate is 70%. To put this into perspective, as of 2009, there are 250 million smart phones in the market. Recent North American surveys conclude that between 26% and 32% of mobile users would immediately adopt mobile payments if they were offered. These surveys, regardless of variances in methodologies, appear to point to mass adoption potential. The tweetsphere appears to indicate some consumer impatience for access to such services.
4. Target market is trained and willing. Zoompass is targeted at the 18 - 30 age cohort. There is almost 100% intersection among this group of previous experience downloading paid mobile content and applications thanks to iTunes, PayPal, and a myriad of on-portal and off-portal mobile content malls. There is little education required, and mobile micro-payments are a simple extension of what they are already accustomed to doing.
5. A vast majority of the capital risk is willingly borne by the consumer. Unlike previous failed electronic payment solutions, there is little financial risk at the endpoint assumed by the provider or merchants. Consumers have already invested in the wallet for other reasons. As a result, Zoompass can be tweaked relatively efficiently, with limited capital consequence, as it gets feedback from consumers. With limited capital risk, there is more flexibility in the design of potential offerings. More importantly, there is limited scaling friction caused by capital constraints. In this regard Zoompass is more like Twitter, less like Interac.
6. Zoompass is being developed collaboratively with its target market. Unlike many previous attempts at new electronic payment systems, Enstream is fully engaged in a collaborative design process with its potential consumers. In the end, this approach is most likely to result in success because it is not pushed into the market. The consumer is pulling it. Enstream has ripped a page from the US-based handbook of "how to launch a successful digital application". It is being very un-Canadian in its aggressive interaction via social media, ensuring better buy-in from a highly educated, elusive, and often cynical target market.
Where can this go?
Ultimately, Zoompass has its sights set on about 20 million subscribers with a factory installed application that includes active RFID and NFC components. The carriers have a little pull with handset manufacturers, so the ultimate factory install objective is obtainable. As well, Zoompass is not interested just in the cash that resides in your wallet, it is interested in the whole wallet. Think about what is in your wallet right now: Credit cards galore, various gift cards, a coffee card, loyalty cards, a phone card, your license, your health card, maybe a transit pass.
What does this mean to the mobile ecosystem and to Canadian consumers?
First, the Canadian consumer...
1. A potential carrier oligopoly in mobile payments is a risk to consumers. Already, Canadian mobile subscribers pay some of the highest mobile bills in the world due to market distortions caused by the CRTC and to a related lack of competitive choice. The Enstream Joint Venture represents a potential to perpetuate oligopoly risk. The extent of the oligopoly depends upon how successful Enstream is in co-opting the financial services industry into its offerings.
2. A potential meta-oligopoly only perpetuates risk to consumers. Canadian financial institutions could band together as in the past (e.g. Interac) in order to offer an alternative mobile payments solution. Already there are whispers of Big 5 summit meetings on the topic of a competitive offering. Before consumers begin to cheer, this only represents two choices operated by a total of 8 very large institutions. It doesn't necessarily create a fully baked competitive environment that gives consumers adequate choice. As an aside, Canadian financial institutions are simply not wired to build out consumer services iteratively like Enstream is doing, so the chances of success are more limited, which means that consumers could be more likely than not saddled with a mere oligopoly.
3. But what about the new broadband spectrum wireless carriers? The future entry of new carriers such as Globalive (Wind Mobile), Publix Mobile, and DAVE Mobile could present a viable alternative in mobile payments for consumers by creating its own JV/coalition. Possibly. However, these folks have a lot on their plates just to get services launched by 2010. In the meantime, Zoompass could deliver to the Enstream JV an insurmountable lead before new players could respond. Independent developers are mostly ignored by capital markets, so there is not likely to be any effectively funded, meaningful competitive "white knights" appearing out of the woodwork any time soon.
4. RIM to the rescue? New Nortel (RIM) may have a couple of things cooking but probably at an earlier stage of development than Enstream. It could leverage its balance sheet to acquire (similar to Nokia buying Obopay) but it has been mostly dabbling. As stated in June, RIM is likely to try to leverage its new PayPal relationship before it hunts for another Obopay. Even still, what if you are an iPhone user?
In the not-to-distant future, it is feasible for someone at the Canadian Competition Bureau to have another file dropped on their desk. Ironically, the near certain success of Zoompass may create some market uncertainty for investors as consumer protection raises the specter of government intervention.
Now the Canadian mobile ecosystem...
1. There are probably some small exploitable market niches around the edges of the possible Zoompass juggernaut. Enstream is not targeting what I would coin the "Money Mart Cohort". These are people with limited traditional banking access, and no credit. A vast majority are the working poor and recent immigrants who tend to be "cash-oriented". Depending on sources, this group represents between 10% and 12% of the population depending upon the year. For over a decade now, these people have already been engaged in card-based micro-payments by buying billions of long-distance minutes and pre-paid mobile time. The carriers have been making hay with this group for a while. An independent mobile payments offering could sprout up for these people. However, the size of the market limits the amount of potential competitors in this niche. And there will be a lot of microcaps scrapping over this business. Even with considerable consolidation, there are likely to be a couple of winners and a lot of losers in this market.
Other interesting potential mobile payment market niches could include payroll, government stipend, and international remittance. The common thread among these solutions, is that they are not necessarily micro-payments, and they do not have person-2-person elements to them.
2. Start-ups could take their cookies and simply leave the room. Enstream would certainly be happy. Micro-payments are a worldwide phenomenon with much larger opportunities outside of Canada. Enstream management states that it is (for now) a Canadian-only venture. Vendors with current international footprint may choose to apply their limited capital resources to exploit those markets more aggressively. Investor may also see Canadian companies with good IP and weak balance sheets snapped up by foreign interests over the next few quarters. This is a good thing for shareholder of such companies.
3. Complimentary and indirect competitors may find opportunities to hitch their fortunes to Zoompass. This could be a good way for a diverse group of vendors to maximize shareholder value. Enstream has been fairly vocal that it would like Zoompass to be an open platform for other developers and that it has (as alluded to earlier in this post) designs on getting a piece of the entire wallet. This is the exciting stuff for the mobile ecosystem based on feedback that I am receiving. However, I am skeptical that it will truly be an open development platform. Is Apple's Safari really an open platform? Enstream will pick its partners regardless of its current public postering. Notwithstanding, opportunities abound for partnerships in gift and re-loadable cards, loyalty management, EMR/health services, government services, RFID, POS, and NFC. There are potential technical and infrastructure partnerships related to billing systems, and provisioning along with cloud services related to transaction processing, ecommerce, identity and security. Although most of these solutions are likely to be provided by large cap vendors, there is likely room for Canadian small-cap, micro-caps and start-ups to participate (and a spot for investors to potentially benefit from considerable gains). As the solution matures, there are likely to be as of yet unimagined consumer applications that can be developed for commercial benefit.
In summary
Zoompass is here to stay. There is demand for mobile payments, success elsewhere in the world is well documented, and Zoompass appears to be destined for a successful launch in 2010. It may experience some bumps along the way, but it will likely be a market force within the next 24 months.
With its success will come uncertainty related to consumer choice, even if there is a direct competitive response from the financial services industry. Will there be a consumer outcry that compels government regulators to force the Enstream JV to open its platform to future competitors? If so, the ultimate benefit to shareholders of the main JV participants could be muted.
Investors should expect a lot of angst among the myriad of smaller under-capitalized players that have been developing solutions in this space so far. How does a management team respond to this competitive cluster bomb? Those that underestimate or ignore the potential for Zoompass do so at their peril. Shareholders should expect, and even encourage, increased M&A activity and strategic recalibration. Some companies may even attract new investment.
The impending Zoompass launch, and its likely success, should make thing very interesting for some time in the Canadian mobile market. Some investors could make some nice returns, others not so much. It will all depend on the reaction of management teams and subsequent execution. As always.
Please feel free to comment.
Disclosure: I do not own shares of any of the companies mentioned in this post.
7/23/09
Worldwide Connectivity Statistics.
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.
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.
4/3/09
Billing Systems May Determine App Store Success
Earlier this week Research in Motion (RIMM) launched its proprietary mobile applications store, branded App World, presumably as a direct competitive response to the success of Apple's (AAPL) iPhone application store. RIM enters an emerging ecosystem that is both chaotic and complex and already worth approximately US$60 billion worldwide according to IDC projections. By the end of this year, Nokia (NOK), Google (GOOG), and Microsoft (MSFT) are all expected to launch mobile app stores. Some estimate that by 2013, the market size could more than quadruple from where it is now. Today, even with the introduction of iPhone applications, 99% of downloads are still games, ringtones, and music. More interestingly, only about 20% of subscribers have ever downloaded content or applications, although market research suggests that intentions are strong towards downloadable apps. Clearly, there is a huge potential, but there are a lot of intricate dynamics at play as the market emerges.
mobile application storefronts tend to fall into 3 primary categories.
The most entrenched retailing group continues to be the carriers (or operators in Europe), that have, for several years, been involved in ringtone, games, music, video and, more recently, application downloading . In North America, there are a handful of carriers, while in Europe there are between 40 and 50 operators plus dozens more MVNOs (mobile virtual network operators) that have helped to pioneer the market. Downloads are considered a core business for most carriers.
Soon after the market began, another group of vendors emerged, which are often called "off-portal" retailers. These Companies have similar offerings as the carriers, but with independent storefronts and provisioning systems, albiet hooked directly into the carriers' billing systems. Typically, off-portal retailers such as Jamster, Playphone, Zed, and dozens of others like them generate high margin revenue for the carriers through revenue-sharing models and they are tolerated, if not embraced, by the carriers.
More recently, beginning with the iPhone application store in 2008, leading smartphone and mobile OS manufacturers have begun to launch applications storefronts. Both Apple and RIM operate completely independent of the carriers, including billing, while Microsoft has chosen to integrate with carrier billing systems. All three vendors plus Nokia (which recently acquired the Symbian OS) and Google are attempting to foster active developer communities. Famously, the iPhone store already boasts over 30,000 independently created applications offered through its storefront. The Symbian OS had nearly 10,000 applications developed on it as of Q2 2008.
Who will be the ultimate winners and losers as the market takes off? In the end, the common denominator for success may not be at the customer interface, and there are likely few new killer apps that could drive traffic. If the storefront is not important, and the applications are neutral, what is the potential silver bullet for success?
Billing systems may determine winners and losers.
Experienced marketers agree that it is easier and more profitable to sell new services to current customers than it is to attract new customers. Carriers have a long billing history with millions of subscribers, and experience in exploiting the data channel. Content and application downloads are a simple extension of current carrier subscriber billing. A game, song or ringtone is simply added to a subscriber's monthly or prepaid bill with minimal effort by the consumer. More interestingly, carriers are masters at service bundling. As the market evolves, carriers are in a favourable position to offer service bundles for consumers that include mobile applications with household services packages. Such bundling may be difficult to counter by independent application stores.
Notwithstanding the recent entry by handset manufacturers and the future entry by OS vendors, the vast majority of the $60 billion in annual revenue to date has been realized by carriers. Mobile content and applications are core revenue stream that will grow in importance to carriers as voice becomes increasingly commoditized. Once the euphoria of the current development rush is over, and developers actually want to make money, applications will need to reside and operate equally on all enabled devices and networks. At some point in the future, as the market matures, the easiest way for consumers to discover, buy, and use the most popular and widest selection of applications may still be via carriers and their off-portal partners.
Over the next few years, major carriers are likely to accelerate investment in appropriate infrastructure to exploit their billing advantage in an effort to maintain or grow share of the application market. Third party infrastructure players such as Denmark's End2End, Canada's Wmode, Italy's Bournjourno (BNG.MI), and Seattle's struggling Motricity (which merged with InfoSpace (INSP) last year) may benefit from an upsurge in carrier, off-portal and MVNO investment.
Many could predict that off-portal retailers, especially ones that rely on the the fading ringtone market, may be at the beginning of an extinction cycle. This may be true with one goliath exception...Microsoft. Microsoft has been lost in the background to the iPhone/Blackberry hype. However, it is currently forming relationships and is building out infrastructure to become a primary off-portal partner to most carriers in North America, Europe and Asia. Although Microsoft may give up some margin to its carrier partners in return for easy billing, carrier alignment may help to accelerate Microsoft's land grab of the apps market. This marketing approach is in Microsoft's DNA and is a variant of earlier channel marketing that helped to drive MS-Dos and Windows success. Microsoft has proven to be a master product bundler, which should align well with carrier bundling.
mobile application storefronts tend to fall into 3 primary categories.
The most entrenched retailing group continues to be the carriers (or operators in Europe), that have, for several years, been involved in ringtone, games, music, video and, more recently, application downloading . In North America, there are a handful of carriers, while in Europe there are between 40 and 50 operators plus dozens more MVNOs (mobile virtual network operators) that have helped to pioneer the market. Downloads are considered a core business for most carriers.
Soon after the market began, another group of vendors emerged, which are often called "off-portal" retailers. These Companies have similar offerings as the carriers, but with independent storefronts and provisioning systems, albiet hooked directly into the carriers' billing systems. Typically, off-portal retailers such as Jamster, Playphone, Zed, and dozens of others like them generate high margin revenue for the carriers through revenue-sharing models and they are tolerated, if not embraced, by the carriers.
More recently, beginning with the iPhone application store in 2008, leading smartphone and mobile OS manufacturers have begun to launch applications storefronts. Both Apple and RIM operate completely independent of the carriers, including billing, while Microsoft has chosen to integrate with carrier billing systems. All three vendors plus Nokia (which recently acquired the Symbian OS) and Google are attempting to foster active developer communities. Famously, the iPhone store already boasts over 30,000 independently created applications offered through its storefront. The Symbian OS had nearly 10,000 applications developed on it as of Q2 2008.
Who will be the ultimate winners and losers as the market takes off? In the end, the common denominator for success may not be at the customer interface, and there are likely few new killer apps that could drive traffic. If the storefront is not important, and the applications are neutral, what is the potential silver bullet for success?
Billing systems may determine winners and losers.
Experienced marketers agree that it is easier and more profitable to sell new services to current customers than it is to attract new customers. Carriers have a long billing history with millions of subscribers, and experience in exploiting the data channel. Content and application downloads are a simple extension of current carrier subscriber billing. A game, song or ringtone is simply added to a subscriber's monthly or prepaid bill with minimal effort by the consumer. More interestingly, carriers are masters at service bundling. As the market evolves, carriers are in a favourable position to offer service bundles for consumers that include mobile applications with household services packages. Such bundling may be difficult to counter by independent application stores.
Notwithstanding the recent entry by handset manufacturers and the future entry by OS vendors, the vast majority of the $60 billion in annual revenue to date has been realized by carriers. Mobile content and applications are core revenue stream that will grow in importance to carriers as voice becomes increasingly commoditized. Once the euphoria of the current development rush is over, and developers actually want to make money, applications will need to reside and operate equally on all enabled devices and networks. At some point in the future, as the market matures, the easiest way for consumers to discover, buy, and use the most popular and widest selection of applications may still be via carriers and their off-portal partners.
Over the next few years, major carriers are likely to accelerate investment in appropriate infrastructure to exploit their billing advantage in an effort to maintain or grow share of the application market. Third party infrastructure players such as Denmark's End2End, Canada's Wmode, Italy's Bournjourno (BNG.MI), and Seattle's struggling Motricity (which merged with InfoSpace (INSP) last year) may benefit from an upsurge in carrier, off-portal and MVNO investment.
Many could predict that off-portal retailers, especially ones that rely on the the fading ringtone market, may be at the beginning of an extinction cycle. This may be true with one goliath exception...Microsoft. Microsoft has been lost in the background to the iPhone/Blackberry hype. However, it is currently forming relationships and is building out infrastructure to become a primary off-portal partner to most carriers in North America, Europe and Asia. Although Microsoft may give up some margin to its carrier partners in return for easy billing, carrier alignment may help to accelerate Microsoft's land grab of the apps market. This marketing approach is in Microsoft's DNA and is a variant of earlier channel marketing that helped to drive MS-Dos and Windows success. Microsoft has proven to be a master product bundler, which should align well with carrier bundling.
Despite its exclusive deal with AT&T, and its "walled-in" billing system, the App Store from Apple should maintain the momentum of its early success. It owes much of its future to the past. Without the success of the iPod and the iTunes media sales platform before it, the App Store would be challenged as an independent app retailer. As it stands now, the App Store is a simple extension of one of the largest billing account bases around...iTunes. Apple and the carriers are utilizing similar product line extension strategies.
With RIM's launch of App World, it introduced a completely new account base which is fundamentally unaligned with carriers. or with media. Paypal requires a new account commitment by mobile subscribers, which may be a barrier to uptake. With no "killer app" such as iTunes, consumers may find it too much trouble to download the App Store and set up a new billing account (if it does not overlap with a current paypal account). Are eBay (EBAY) buyers/sellers likely to download Blackberry apps? How much alignment is there between Paypal account holders, Blackberry users, and a desire to download an application? Whatever the number is at that intersection, the potential account base is probably a small fraction of any of the major US carriers, or of the Apple iTunes account base.
During its launch year, RIM may find difficulty gaining market traction. It is a smart company, and it is possible that the Management could find a way to integrate into the carrier billing systems at some future date in a similar way as Microsoft is preparing. However, based on conversations with industry insiders, there has been some resistance by RIM to integrate with carrier billing systems.
Within a broader strategic framework, RIM may simply be biding its time until an effective mobile payment system begins to proliferate, which could remove the need for intermediaries such as Paypal, and change the future dynamics of the entire market once again.
There is speculation that Google Android may come to market with Google Checkout as its billing backbone. The size of the Google Checkout account base does not register among the largest account bases among research sources at this point. If the speculation is true, there would need to be some heavy lifting on the billing side if Google were to compete head-to-head with the carriers.
Billing Systems for the Mobile App market ranked by scale.
- Cingular: 82 million mobile accounts
- Verizon: 78 million mobile accounts
- AT&T: 75 million mobile accounts
- Paypal: 70 million payment accounts (active)
- iTunes: 65 million media accounts (active)
- Sprint: 40 million mobile accounts
Sources: IE Market Research, Piper Jaffrey, Wikipedia,
Based the data above, although Microsoft would give up margin through carrier billing agreements, it could have nearly 5 times the reach as Apple would with iTunes in the United States alone. However, Apple is likely pleased with the scale of its iTunes account base because branding strength and focus should generate more revenue and margin per account then any other competitor. It does not need as much scale to be really successful. By introducing a non-aligned payment system into the mix, albeit a large one in the form of Paypal, RIM may be limiting its initial scaling capability. Although it is likely that the Company will adjust tactics as it gains more experience. A go-it-alone billing strategy may impede Google's future launch because Checkout does not appear to have the acceptance and scale of other billing systems. It is more likely that Nokia would follow Microsoft and align with carriers, especially since there are so many players in the European market where it is strongest.
The carriers and MVNOs will defend what they already consider to be a core business. Investment in infrastructure and marketing should increase. In the end, those entities with the largest and most advanced billing systems should prevail, which may suggest that the carriers could end up being major players in the space despite the hype surrounding the market entry by handset manufacturers. The ongoing decoupling of applications from hardware may also help to strengthen the future position of carriers and OS vendors like Microsoft and Nokia.
The mobile applications market is not well-formed yet, and there is a potential for some really interesting developments over the next 6 quarters as the mobile apps market goes through an adoption phase.
2/11/09
HotThoughts: GXI-TSXV; RIM-TSX
GXI
Yesterday, the Company announced that American Airlines (AMR-NYSE) has adopted cashless in-flight retailing using the GXI Virtual Store Platform. This is important for Guestlogix for three reasons:
> Entrenches the platform for possible future transaction growth in areas beyond food and beverages including entertainment and destination-based services.
> This defacto standardization on its platform by American Airlines helps Guestlogix' negotiating position as AMR (its oldest client) renews its contract sometime later this year.
> Increases referenceability as a major client appears make the GXI system more integral to its core services.
The elimination of cash handling could reduce costs for GXI in providing the service. With most of the major airlines in North America adopting the GXI solution, and with the impending AMR renewal more likely, GXI has a lock on the North American airline industry. With the recently announced contract with an unnamed major airline, the Company has penetration in the North American industry possibly over 80%. It still has some short-term deployment challenges as the Company attempts to clean up a backlog of over 300 million passenger trips, however heading out of this recession, GXI is well positioned for strong growth in sales and earnings. Prior to this recession, an announcement like this would result in upgrades by analysts. There are already big targets on the stock relative to most other micro-caps, so this announcement may make analysts more comfortable that the Company could hit performance forecasts, with consensus forecasts more than a double over 2008 performance. Currently, liquidity is an issue with this stock, but investors should be pleased with progress.
RIM
No investor should be surprised by the lacklustre data coming from RIM this morning. As stated in previous posts, and supported by weak mobile device numbers from Nokia (NOK-NYSE) and Apple (APPL-NASDAQ) among others, RIM is not immune to the marked decline in mobile device upgrades during the 4th quarter. Consumers are simply delaying device upgrades as the economic situation deteriorates. As mentioned in the same previous posts, mobile subscriptions should be considered an essential consumer service. However, many could be converting subscriptions to lower cost pre-paid plans over the next few months as household budgets become tighter. The stock should take a hit today, although it likely remains a very good long-term stock to own.
I do not own shares in the Companies mentioned in this post.
Yesterday, the Company announced that American Airlines (AMR-NYSE) has adopted cashless in-flight retailing using the GXI Virtual Store Platform. This is important for Guestlogix for three reasons:
> Entrenches the platform for possible future transaction growth in areas beyond food and beverages including entertainment and destination-based services.
> This defacto standardization on its platform by American Airlines helps Guestlogix' negotiating position as AMR (its oldest client) renews its contract sometime later this year.
> Increases referenceability as a major client appears make the GXI system more integral to its core services.
The elimination of cash handling could reduce costs for GXI in providing the service. With most of the major airlines in North America adopting the GXI solution, and with the impending AMR renewal more likely, GXI has a lock on the North American airline industry. With the recently announced contract with an unnamed major airline, the Company has penetration in the North American industry possibly over 80%. It still has some short-term deployment challenges as the Company attempts to clean up a backlog of over 300 million passenger trips, however heading out of this recession, GXI is well positioned for strong growth in sales and earnings. Prior to this recession, an announcement like this would result in upgrades by analysts. There are already big targets on the stock relative to most other micro-caps, so this announcement may make analysts more comfortable that the Company could hit performance forecasts, with consensus forecasts more than a double over 2008 performance. Currently, liquidity is an issue with this stock, but investors should be pleased with progress.
RIM
No investor should be surprised by the lacklustre data coming from RIM this morning. As stated in previous posts, and supported by weak mobile device numbers from Nokia (NOK-NYSE) and Apple (APPL-NASDAQ) among others, RIM is not immune to the marked decline in mobile device upgrades during the 4th quarter. Consumers are simply delaying device upgrades as the economic situation deteriorates. As mentioned in the same previous posts, mobile subscriptions should be considered an essential consumer service. However, many could be converting subscriptions to lower cost pre-paid plans over the next few months as household budgets become tighter. The stock should take a hit today, although it likely remains a very good long-term stock to own.
I do not own shares in the Companies mentioned in this post.
12/3/08
RIM miss should not surprise.
This morning RIM (RIM-TSE) reported that it sold 300,000 units less than analyst expectations of 3 million.
Its a pretty big miss, but it should not surprise investors for the following reasons:
1. RIM and Apple (APPL-Q) are relying subscriber upgrades from regular cellphones to smartphones. In uncertain times, people are slower to make those decisions. The mobile subscription is essential; the latest and greatest handset is not.
2. RIM has lost a significant buying group. The financial services sector has been one of RIM's major customer segments. With the loss of hundreds of thousands of jobs, mergers and consolidations, this previously lucrative market cannot be relied upon to drive device sales, or BES server sales.
3. For similar economic reasons, RIM's entry into Europe and Asia should not be as explosive as originally expected. Although everyone seems to have a mobile device, fewer businesses or consumers are likely willing to spend the money to switch from their cheap and cheerful (mostly Nokia) devices to the more feature-laden RIM smartphones.
I expect to see dissapointing unit sale results from RIM along with Apple and Nokia (NOK-NYSE) for the next couple of quarters. Until US consumers feel confident enough to buy bling again, sales of the latest smartphones are likely to disappoint. For long-term investors, it should be noted that, despite reduced short-term performance, these three vendors are likely to consolidate their market dominance coming out of the recession. I suspect that the share price for RIM could be at multi-year lows for the next few weeks, which would be a good entry point for those who like the story, but couldn't swallow an $85.00 shareprice earlier this year.
As per my last blog entry, look for carriers to:
1. Maintain subscriber bases with lower churn rates.
2. Disappoint on growth in data services (related to lower smartphone growth)
3. Disappoint on migration from 2G to 3G networks.
4. Slow down investment into FTTH and FTTC initiatives.
5. Begin consolidating wideband and broadband wireless infrastructure.
Bottom line, unlike device manufacturers, many consumers are tied to long-term subscriber contracts, and those that are not, are prepaid and, due to economic conditions, are not likely to switch. Downchurning is the biggest risk, where post-paid consumers are no longer able to manage subscriptions, and need to move to prepaid services. One can anticipate that this is the major churn risk for carriers.
Due to credit constraints, and balance sheet caution, we should see a decline in the big capital intensive upgrades to the carrier networks in the short-term. The future of network upgrades is likely linked to President-Elect Obama's stimulus packages. If Internet is included (as it should be) in infrastructure related stimulus packages, then carriers are likely to go forward with plans.
See my previous post.
I do not own shares in any of the Companies that have been mentioned in this post, nor do I receive any compensation from these Companies.
Its a pretty big miss, but it should not surprise investors for the following reasons:
1. RIM and Apple (APPL-Q) are relying subscriber upgrades from regular cellphones to smartphones. In uncertain times, people are slower to make those decisions. The mobile subscription is essential; the latest and greatest handset is not.
2. RIM has lost a significant buying group. The financial services sector has been one of RIM's major customer segments. With the loss of hundreds of thousands of jobs, mergers and consolidations, this previously lucrative market cannot be relied upon to drive device sales, or BES server sales.
3. For similar economic reasons, RIM's entry into Europe and Asia should not be as explosive as originally expected. Although everyone seems to have a mobile device, fewer businesses or consumers are likely willing to spend the money to switch from their cheap and cheerful (mostly Nokia) devices to the more feature-laden RIM smartphones.
I expect to see dissapointing unit sale results from RIM along with Apple and Nokia (NOK-NYSE) for the next couple of quarters. Until US consumers feel confident enough to buy bling again, sales of the latest smartphones are likely to disappoint. For long-term investors, it should be noted that, despite reduced short-term performance, these three vendors are likely to consolidate their market dominance coming out of the recession. I suspect that the share price for RIM could be at multi-year lows for the next few weeks, which would be a good entry point for those who like the story, but couldn't swallow an $85.00 shareprice earlier this year.
As per my last blog entry, look for carriers to:
1. Maintain subscriber bases with lower churn rates.
2. Disappoint on growth in data services (related to lower smartphone growth)
3. Disappoint on migration from 2G to 3G networks.
4. Slow down investment into FTTH and FTTC initiatives.
5. Begin consolidating wideband and broadband wireless infrastructure.
Bottom line, unlike device manufacturers, many consumers are tied to long-term subscriber contracts, and those that are not, are prepaid and, due to economic conditions, are not likely to switch. Downchurning is the biggest risk, where post-paid consumers are no longer able to manage subscriptions, and need to move to prepaid services. One can anticipate that this is the major churn risk for carriers.
Due to credit constraints, and balance sheet caution, we should see a decline in the big capital intensive upgrades to the carrier networks in the short-term. The future of network upgrades is likely linked to President-Elect Obama's stimulus packages. If Internet is included (as it should be) in infrastructure related stimulus packages, then carriers are likely to go forward with plans.
See my previous post.
I do not own shares in any of the Companies that have been mentioned in this post, nor do I receive any compensation from these Companies.
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