“Signs, signs everywhere there’s signs….”
It turns out, after all, a company can’t trade at 1,000x earnings indefinitely. Who knew? Momentum investors who looked the other way, focused on trend lines and “opportunity” have found this out and had a rough go of it lately. This, apparently, means the bull market run is over.
It’s pretty obvious isn’t it? In the last month or so social, biotech, anything that has made people 4x their money in the last 12-18 months has had the audacity to pull back, severely, in many cases. The nerve.
Can I suggest there were plenty of reasons to sidestep these moves as of late? You could call them signs, that even the most casual observer of the stock market could have pointed to as a reason to run. Things that might make you say “Gee, I’m not sure that’s great news for that company.” Or, “Shouldn’t the stock react positively to this?” Or, “Why in the hell did they do that?”
Let’s take a look at just a few of the more popular names and how they’ve acted on recent news that, let’s just say, could have been construed as less than bullish.
On Feb. 24 Netflix (NFLX) struck a deal with Comcast (CMSCA) to pay for bandwidth. It turns out their customers don’t like paying a monthly fee to watch “buffering.” Now Netflix must pay for content AND for the bandwidth on which it is transferred to us, the customer base. This seems somewhat problematic doesn’t it? Netflix closed Feb. 24 at $447 a share. It closed Friday just north of $337 a share.
Had it occurred to bulls that a cost that couldn’t have been in any earnings models (we still don’t know what they’re paying Comcast BTW) may hurt the share price, they could have side stepped a 110-point drop (25%). That would have been nice.
Around this same time Facebook (FB) made a deal of its own, except they decided to pay $19 billion (mostly in stock) for a text-messaging app called WhatsApp on Feb. 19. At first investors shrugged this off, Facebook closed that day at 68.06 and didn’t make its all-time high until March 10, closing at 72.10 that day. Think of all the users we were told! Umm, they have one billion users already, why not just monetize the hell out of them?
Even if investors could justify paying $19 billion (even if it’s stock) for a text messaging service that Facebook could have duplicated for half that cost, or less, the next acquisition signaled something else. When CEO Mark Zuckerberg purchased Oculus VR for $2 billion, again mostly in stock, people started to get the idea that maybe their out of ideas. Facebook closed Friday at 56.75 or just over 21% off its all-time high. The cost or “value” of these acquisitions represents over 15% of their current market cap. Hmmmmmm.
On Feb. 24, I’m sensing a theme here. LinkedIn (LNKD) announced they were expanding into China, hoping to attract at least 140 million new users. Forget that the majority of Chinese workers can’t relocate for a new job or even have an internet connection.
Many that may try LinkedIn already use Facebook and probably don’t need a new form of social stalking since they wouldn’t use it as a jobs site like we do here in the United States. Nevertheless China AND social, where do i sign up?
That would have been a fairly good time to sign off, actually. LinkedIn closed on that day just above $199 a share on what some were saying was a phony catalyst. This idea was also floated with the stock around $215 earlier this year, but was official on Feb.24. It closed Friday just above 165 or 17% lower than the Feb.24 closing price.
To be fair, LinkedIn had already begun the process of rolling over, technically speaking of course. Last year it conducted a secondary stock offering at $223, when the stock was $240… That would have been a good time to get out too in retrospect.
Also in February, reports started to surface of slowing user growth at Twitter (TWTR), like this one. February closed with Twitter at $54.91, well off its all-time high around $73, but still nicely above $43.14 where it closed Friday. Live by the user, die by the user.
How about Amazon (AMZN), a stock that has traded on momentum for 15 years? Remember when CEO Jeff Bezos appeared on 60 minutes in early December, debuting his drone delivery system that is apparently in the early phases of design?
Amazon closed December 2 (a day after the show aired) at $392 a share. I don’t want to question Bezos, if anyone can pull off drone delivery in the next 10 years, it’s probably him, but that’s LITERALLY A PIE IN THE SKY idea. Maybe folks were out of reasons to go long Amazon? It closed Friday at $323 a share, off nearly 24% since that spot aired.
How about momentum star FireEye (FEYE), any recent news? Well, on March 14 we learned that their software actually detected the Target (TGT) credit breach, though the folks in Minneapolis seemed not to care or notice. You would think this would be bullish right?
FireEye closed that day at $79.93 a share, already off its highs, but when it fell over $4 the next day on what should have been positive news, you know, their service works and all, that might have been a sign indicating the honeymoon was over for investors. FireEye closed Friday at $50.36 or 37% lower.
There are other examples, but I think you get the idea. If you simply pay attention, you can avoid steep declines. Take your rose-colored glasses off and examine news for what it is good or bad. Every pull back is not necessarily a buying opportunity and don’t be afraid to miss the last 5% of upside when 20% of downside appears to be around the corner.
While these stocks, and others like then have been in a death spiral for a month, or longer, the overall market did make a fresh all-time high on Friday. This was led by companies that actually make money and have been around since before there was a “2” in front of the year.
Could we have made a top on Friday? Of course, there’s a 20% correction on average every three years so we’re overdue. But if you own any of the above mentioned stocks, you’ve already seen a 20% correction…and then some. You’re in bear market territory already.
Companies using their stock as currency and the flood of recent IPOs that are, let’s say less than desirable, could indicate people are trying to cash out while the getting is good and the peak is near in the entire market. But it could mean that rational investing has returned, at least for the time being. Time will tell.
Do this, don’t do that, can’t you read the sign?
Currently, no position in any stock mentioned.
Apple (AAPL) TV can change the world. It doesn’t need Netflix (NFLX), it doesn’t need original programming, the answer is al-la-carte pricing. Everything else is just noise.
Some in the industry may see this coming.The latest hint that service providers are in a consolidate or be killed mode is the rumored deal between DirectTV (DTV) and DISH (DISH) Network. A pairing of these two clearly would not lower prices for consumers. Assuming you don’t negotiate monthly, most DirectTV packages cost over $100 monthly. For their part cable companies bundle packages with Internet and other services, but television service is typically around $80 without premium upgrades. Consumer frustration of creeping prices is already evident. What if someone only offered the networks we wanted and had the inside track on the crown jewel? The diamond in the middle of the broadcasting fairway is of course ESPN, owned by Disney (DIS) and run by Bob Iger. Hmmm, it seems as if Apple might be able to strike a deal with Iger, who sits on their board, and who has been inking deals left and right lately for original content. Seems like he’s in a dealmaking mood doesn’t it? Iger is squeezing every last penny out of the laundry list of Disney franchises. Would he be willing to sell the rights to broadcast his channel lineup to Apple for $6 a month on a new Apple TV offering? Seems pricey when compared to all of NFLX and their monthly rate but they do offer LIVE sports, the only programming left that can reliably offer eyeballs to advertisers. Disney currently collects between $4.50 and $5.00 a subscriber from cable and satellite providers. In comparison, TNT is second on the list, charging around $1.25 a sub depending on who you believe. It’s notable that TNT and TBS are also home to live sporting events. With many networks offering programs for free on their website and the combination of a “season pass” to many desirable shows available on iTunes, it doesn’t take a rocket scientist to figure out Apple could beat current pricing while making the overall television experience much better. It seems like a decent lineup, managed from your fingertips could easily be attained for less than $50 a month. Imagine if you could opt in and out of networks monthly? Maybe you only want to pay for Disney’s lineup during football season. Check the box for six straight months, save $6 a month the other half of the year. The idea of a-la-carte pricing is not new, but it seems possible here as Apple would have the resources and infrastructure to pull such a service off. Why do they keep expanding their vast data centers anyway, just for iCloud? That seems unlikely. There would certainly be holes in programming, but a patchwork of offerings from Sunday Ticket and others of the same ilk could come in line in the years ahead as exclusive contracts with other providers run their course. Imagine if Apple had spent $11 billion in 2010…on the NCAA tournament for broadcasting rights over 14 years. (That’s what CBS and Turner paid) It seems to me that might offer a better ROI than a text messaging service bought for $19 billion. Apple has the technology, software and most importantly, an ample cash hoard to compete for content rights. What are they waiting for? |
AuthorThe expanded thoughts of Cramer's Shirt...micro blogger, contributor, average Joe....or Jim in this case. Archives
January 2016
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