Andre Compte-Sponville, the French philosopher, argues that capitalism is neither moral nor immoral, but amoral. As an economic system, capitalism is outside any moral concern. Economic objectivists tend to also support capitalism as an objective existential system. Basically, if the numbers are good, the investment should be good.
Over the next few weeks, this theory will be put to the test on Bay Street.
Showing posts with label online advertising. Show all posts
Showing posts with label online advertising. Show all posts
7/17/09
Trading Idea: GOOG performance foreshadows CX performance?
For 5 of the past 6 quarters, whenever GOOG beatforecasts, so did CX. The common thread between Google and Cyberplex is that they both deliver to marketing managers measureability and performance-based ad budgets.
It is well published that GOOG beat analyst estimates for both sales and earnings for the third quarter in a row. As stated in earlier posts, there are three trends that continue to propel better than expected performance at Google:
There are two downside risks to CX results:
There is more potential forecasting risk with CX, but as a performance-based online ad network, it has similar DNA to Google. For the 5 of the past 6 quarters a GOOG BEAT has foreshadowed a CX beat two weeks later. The only quarter where this did not happen, GOOG missed and CX beat (Q3 2008).
Since CX raised capital in May, the share price has trended sideways on light volume and it is now trading below its 50-day moving average, so good performance for Q2 may result in a potential move up. Google moved up well ahead of its 50 day moving average for two weeks ahead of its Q2 report as investors anticipated results to beat expectations. The stock price is declining on the news. With GOOG as a foreshadow, could CX show a similar pattern?
It is well published that GOOG beat analyst estimates for both sales and earnings for the third quarter in a row. As stated in earlier posts, there are three trends that continue to propel better than expected performance at Google:
- Marketing and advertising budgets are being focused on performance. Cost per Click (CPC) advertising is considered to be one of the most performance-oriented advertising approaches around. It is Google's strength, the source of its dominance, and as more marketers shift budgets, the driver of better-than-expected performance. Paid click- through increased 15% YoY while most other media (including online display advertising) declined.
- Unemployment. People being laid off are spending more time online to network, research, find jobs, or create new businesses. Comments by the CEO of domain vendor Tucows (TCS:TSX) last quarter suggested that domains are being bought at record levels as laid off people start-up their own businesses or blogs.
- Brand Dominance. Most people are finding their way around with Google. The introduction of Bing in June has had little impact on Google. Traffic to Google search in June increased by 12%, while pageviews increased by 31%. The remainder of the sector enjoyed a 2% increase in traffic, and a 1% increase in pageviews. IT managers don't get fired for selecting IBM; Marketing Managers don't get fired for selecting Google.
CX is one of the vendors at the forefront of an even more measureable performance-based online advertising method called Cost-per-Action (CPA). Essentially, marketers only pay Cyberplex if a user actually does something after they click on an ad. It could be a survey fill, a poll, or even a purchase. It has piqued the interest of mainstream advertisers who are beginning to deploy significant prgrams with CX.
Similar to Google, Q2 results for CX may show a sequential decline from Q1 due to seasonality, although the decline may be less than analysts expect. Notwithstanding, the quarter should show significant annual quarterly growth in sales and earnings over Q2 2008.There are two downside risks to CX results:
- The company has category concentration in the Health & Beauty sector. Weakness in this sector could create downside risk. A segment proxy to this performance may be Shoppers Drug Mart (SC.TO). SC reported strong earnings for Q1 2009.
- Users stop engaging. If more people click on CX ads, but do not take action, performance could be impeded. This would show up as worse than expected sales and more than expected declines in gross margin.
- With its recent capital raise, the Company has been in a position to accelerate the development of its affiliate network during Q2, creating more revenue opportunity, and a broader footprint that attracts larger advertisers.
- Unemployed people are putting emphasis on improving fitness and overall health. This trend could benefit the health and beauty category, which is where CX has concentration.
There is more potential forecasting risk with CX, but as a performance-based online ad network, it has similar DNA to Google. For the 5 of the past 6 quarters a GOOG BEAT has foreshadowed a CX beat two weeks later. The only quarter where this did not happen, GOOG missed and CX beat (Q3 2008).
Since CX raised capital in May, the share price has trended sideways on light volume and it is now trading below its 50-day moving average, so good performance for Q2 may result in a potential move up. Google moved up well ahead of its 50 day moving average for two weeks ahead of its Q2 report as investors anticipated results to beat expectations. The stock price is declining on the news. With GOOG as a foreshadow, could CX show a similar pattern?
Disclosure: I own CX.TO. I do not own GOOG or SC.TO
3/18/09
Newspaper = buggy whip?
There has been a spate of recent announcement regarding the disappearance of traditional print newspapers and here is the latest from Hearst. The market is not surprised, and there is little sentimentality towards the demise of the industry.
According to the Newspaper Association of America, (NAA) print advertising revenue has been in decline since 2005. The category has been in free fall since the end of 2007 with Market Research reporting a 16.4% decline in revenues for 2008. Since peeking at $47.4B during 2005, US newspaper advertising expenditures have declined by 40.5% over a three year period to $28.4B. The outlook for 2009 may be even more bleak with JP Morgan predicting a 20% decline in advertising revenues to approximately $23.7B. This prediction infers a 50% decline in revenue for the industry in only 4 years. Put into historical perspective, the last time that the newspaper industry generated less than $24B in revenue was when Ronald Reagan was finishing his first term...1984.
The major media companies are obviously suffering. It was reported on March 9 that McClatchy (MNI) cut 1600 jobs as it struggles to service $2 billion of debt. Gannett (GCI), Hearst and New York Times Co (NYT) are also attempting to sell assets and shed jobs in order to cope with the cratering of the ad business. Some, like Tribune Co., have already declared bankruptcy.
Management at these operations have not been completely blindsided by the sudden emergence of the big bad Internet. Although there has been a lot of hang-wringing, spurious plans, ego-coddling, and various other forms of executional doddling, newspapers have been shifting focus onto the web for the past few years. However, this shift may have come too late to effectively compensate for eye-popping declines in print advertising sales. As late as 2007, online advertising still only represented 7.5% of total revenues according to the NAA, and the industry organization didn't even start calculating online revenue until 2003, a full decade after the commercialization of the Internet. Instead of viewing online publishing as a complimentary source of revenue streams, most newspapers initially viewed the Internet as a threat, or worse, a fad. This lack of initial recognition is the root of the damage being wrought on the industry now. This industry has missed so much opportunity to transform. Here is the laundry list of already missed billion dollar opportunities: search, RSS, ad networks, video, blogsphere, social networking, social broadcasting...uh...the point is made. To be fair to the much maligned buggy whip manufacturers, they only failed to recognize the threat/opportunity of one new innovation.
Just as newspaper publishers have begun to really press forward on the potential of monetizing the Internet, a significant recession has impaired the migration online. The only area of growth remaining appears to be paid search advertising, a category dominated by Google (GOOG). Online display advertising is expected to show a decline in revenues by up to 5% during H1 2009 before recovering. Newspapers were hiding, and now they have nowhere to hide.
They must forge ahead...but with what?
A really valuable data asset that newspapers retain via editorial systems is...context. One could even extend this value to historical narrative. Unlike social networks where history is a mere 3 years at best, and content portals where history is at most 10 years, newspapers have the potential ability to seemlessly link today's breaking events to literally millions of local and historical events, opinions, and commentary that are decades deep. Newspapers could be the gateway to context for online users, however they interact with information, or each other. And the technology is there. Nstein (EIN.V) has some advanced web content management solutions that can help newspapers create context on the fly. It has the ability to extract and index meaning from any article, advertisement, or caption. The system can then connect the meaning of multiple articles to deliver narrative and insight on-the-fly. This is pretty powerful stuff, and could represent some value-add that only a newspaper editorial system could deliver. Hearst became one of Nstein's biggest clients last year as it got serious about re-inventing itself.
In order to be relevant and make money, already leveraged media companies will need to find ways to continue to invest in the federation of proprietary data sources. Clearly, there is a lot of ongoing investment required in infrastructure, storage, middleware, and at the application layer. Besides Nstein, which is a micro-cap with limited liquidity, Open Text (OTC) should still be considered a good bet to benefit from the continued need for advanced content management solutions.
For newspapers, the geographic monopoly is long gone. the primacy of context, the "why" things happen has been deeply eroded. The print production and distribution techniques that were once barriers to empires are largely irrelevant. It took the leadership at once seemingly invincible newspaper empires a decade too long to recognize and then act upon the threats and opportunities posed by digital media. It may have been Mark Twain who said that history does not repeat itself, but it sure does rhyme. Newspaper = buggy whip.
Those media enterprises that are reacting now are investing as aggressively as possible into enabling technologies. Not all of the ideas will work, not all of the transforming media companies will succeed, however the technology companies that provide content management, storage, and data solutions should continue to benefit from this mad scramble for the next 4 to 6 quarters.
I do not own shares in any of the public companies referenced in this post.
According to the Newspaper Association of America, (NAA) print advertising revenue has been in decline since 2005. The category has been in free fall since the end of 2007 with Market Research reporting a 16.4% decline in revenues for 2008. Since peeking at $47.4B during 2005, US newspaper advertising expenditures have declined by 40.5% over a three year period to $28.4B. The outlook for 2009 may be even more bleak with JP Morgan predicting a 20% decline in advertising revenues to approximately $23.7B. This prediction infers a 50% decline in revenue for the industry in only 4 years. Put into historical perspective, the last time that the newspaper industry generated less than $24B in revenue was when Ronald Reagan was finishing his first term...1984.
The major media companies are obviously suffering. It was reported on March 9 that McClatchy (MNI) cut 1600 jobs as it struggles to service $2 billion of debt. Gannett (GCI), Hearst and New York Times Co (NYT) are also attempting to sell assets and shed jobs in order to cope with the cratering of the ad business. Some, like Tribune Co., have already declared bankruptcy.
Management at these operations have not been completely blindsided by the sudden emergence of the big bad Internet. Although there has been a lot of hang-wringing, spurious plans, ego-coddling, and various other forms of executional doddling, newspapers have been shifting focus onto the web for the past few years. However, this shift may have come too late to effectively compensate for eye-popping declines in print advertising sales. As late as 2007, online advertising still only represented 7.5% of total revenues according to the NAA, and the industry organization didn't even start calculating online revenue until 2003, a full decade after the commercialization of the Internet. Instead of viewing online publishing as a complimentary source of revenue streams, most newspapers initially viewed the Internet as a threat, or worse, a fad. This lack of initial recognition is the root of the damage being wrought on the industry now. This industry has missed so much opportunity to transform. Here is the laundry list of already missed billion dollar opportunities: search, RSS, ad networks, video, blogsphere, social networking, social broadcasting...uh...the point is made. To be fair to the much maligned buggy whip manufacturers, they only failed to recognize the threat/opportunity of one new innovation.
Just as newspaper publishers have begun to really press forward on the potential of monetizing the Internet, a significant recession has impaired the migration online. The only area of growth remaining appears to be paid search advertising, a category dominated by Google (GOOG). Online display advertising is expected to show a decline in revenues by up to 5% during H1 2009 before recovering. Newspapers were hiding, and now they have nowhere to hide.
They must forge ahead...but with what?
A really valuable data asset that newspapers retain via editorial systems is...context. One could even extend this value to historical narrative. Unlike social networks where history is a mere 3 years at best, and content portals where history is at most 10 years, newspapers have the potential ability to seemlessly link today's breaking events to literally millions of local and historical events, opinions, and commentary that are decades deep. Newspapers could be the gateway to context for online users, however they interact with information, or each other. And the technology is there. Nstein (EIN.V) has some advanced web content management solutions that can help newspapers create context on the fly. It has the ability to extract and index meaning from any article, advertisement, or caption. The system can then connect the meaning of multiple articles to deliver narrative and insight on-the-fly. This is pretty powerful stuff, and could represent some value-add that only a newspaper editorial system could deliver. Hearst became one of Nstein's biggest clients last year as it got serious about re-inventing itself.
In order to be relevant and make money, already leveraged media companies will need to find ways to continue to invest in the federation of proprietary data sources. Clearly, there is a lot of ongoing investment required in infrastructure, storage, middleware, and at the application layer. Besides Nstein, which is a micro-cap with limited liquidity, Open Text (OTC) should still be considered a good bet to benefit from the continued need for advanced content management solutions.
For newspapers, the geographic monopoly is long gone. the primacy of context, the "why" things happen has been deeply eroded. The print production and distribution techniques that were once barriers to empires are largely irrelevant. It took the leadership at once seemingly invincible newspaper empires a decade too long to recognize and then act upon the threats and opportunities posed by digital media. It may have been Mark Twain who said that history does not repeat itself, but it sure does rhyme. Newspaper = buggy whip.
Those media enterprises that are reacting now are investing as aggressively as possible into enabling technologies. Not all of the ideas will work, not all of the transforming media companies will succeed, however the technology companies that provide content management, storage, and data solutions should continue to benefit from this mad scramble for the next 4 to 6 quarters.
I do not own shares in any of the public companies referenced in this post.
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