If you thought Black Friday was just for brick-and-mortar retail, think again. The official start of the online shopping rush is the Monday after the Thanksgiving holiday (Cyber Monday is its name), but don't think that companies like Amazon (NASDAQ: AMZN) and Blue Nile (NASDAQ: NILE) are going to wait that long. They're in the game now. And they want your attention. More importantly, they want you to use the virtual shopping carts at their respective sites early and often. It's really crucial this year, because the economy stinks, and growth in spending isn't going to be great.
According to CNBC, Amazon's strategy is to use very low prices as a way of stopping competitors like eBay (NASDAQ: EBAY) dead in their electronic tracks. This Christmas season, retailers, whether online or not, may find themselves in a no-win situation. They have to lower prices to encourage people to shop. But quality growth in top-line sales is questionable. When managements see the bad news flow about the global recession, they become scared and want to become even more aggressive in terms of pricing. The strategy may work and it may not. It's a vicious circle. Don't get me wrong, the retail industry faces this problem every year at this time, but you have to agree that the current economic cycle is particularly noxious. It's times like these, however, when retailers should want to offer more than just a value proposition. They should want to offer a differentiated shopping experience, a better selection of items. They should strive to offer up a brand image that makes you want to hit their inventories first. They need to step away from trying to undercut all their competitors and instead figure out how to stock the right merchandise in the right amounts. And when it comes to a business like Amazon, I think there's great opportunity to go beyond low-pricing strategies. Quite frankly, I don't care whether Amazon has the lowest prices or not. I find it easier to do some of my holiday shopping on the site. It saves me time during this busy season, I trust the security of the platform, and I know that the supply chain is efficient and reliable. And I definitely think of Amazon first when looking to do online shopping because of its valuable brand equity.
I saw some interesting Nielsen data posted at Silicon Alley Insider the other day about traffic levels at eBay (NASDAQ: EBAY). They seem to be on the decline. I don't want to spend time repeating a bunch of the numbers here, but suffice to say that trends in unique visitors and page views on a year-over-year basis have not been favorable to the online-auction entity. One quick example would be the 33% drop for the page-view category seen in October.
What the heck is going on? Man, I remember when eBay was loved unconditionally and considered to be the best yard sale on the block. Heck, it wasn't just for closet-cleaning exercises; a person infused with even a modicum of an entrepreneurial spirit could easily start a business on the site. And its brand was second-to-none in this space. Well, eBay's brand equity remains high, but the bloom has definitely come off the rose, at least from my perspective.
On an anecdotal basis, I've heard many complaints about eBay, especially from the point of view of the sellers. But there's no question that eBay has to do something about the declining stats. People are spending less time at the site, and that surely won't do much in terms of appeasing the sellers.
Warner Music Group (NYSE: WMG) released its Q4 earnings on Tuesday. Did the numbers have all the makings of a hit? To start off, revenues declined over 1%. That's not hit material, to be certain. Here's something that might get your toes tapping, however: income from continuing operations came in at $0.04 per share, a pretty musical achievement considering that analysts thought that a loss of $0.02 per share would be recorded. And I have to note that the company did pretty good on the free-cash-flow front (I also noted this in a previous piece).
But here's the deal with Warner Music Group: like the music industry in general, it's still trying to adjust to the digital age. Buying music recorded on physical media just isn't where it's at these days, thanks to Apple (NASDAQ: AAPL) and others. The music industry would really love to get more money for their content, but because of the popularity of the low-pricing scheme at iTunes and other download sites, I don't think that's going to happen anytime soon. Indeed, when I purchase songs at Amazon (NASDAQ: AMZN), I really appreciate that $0.99 price point, and I probably would loathe paying $1.29, $1.39, etc., per tune.
In the end, even with the earnings beat, I'm not sure I could seriously consider Warner Music Group as a great investment idea. Forget that the company's release schedule is reportedly being affected by the recession and that this may shift potential earnings excitement to the latter part of the year -- you've got to remember that this is a low-priced stock in a difficult market environment. As of Tuesday's close, Warner Music Group was trading for less than $3 per share. The stock has been very weak lately, a falling knife, in fact. Best not to attempt a catch of this particular blade.
Disclosure: I don't own any company mentioned; positions can change at any time.
Barnes & Noble (NYSE: BKS), a bookseller that competes with Borders Group (NYSE: BGP), Amazon (NASDAQ: AMZN), and retailers that stock books such as Wal-Mart (NYSE: WMT), did not do well during the third quarter. Total sales decreased over 4%. A GAAP loss of $0.34 per share was reported versus a GAAP profit of $0.07 per share in the year-ago period. On an adjusted basis, the loss of $0.21 per share missed the call by $0.05, according to this source.
Okay, is it me, or do these numbers basically broadcast loud and clear that Barnes & Noble is not worth one penny of your investment capital? Besides the above, same-store sales took a big dive of 7.4%. That should be the last nail in the coffin of the current Barnes & Noble story, one that reads like a Stephen King novel. Actually, though, it isn't. Another nail to add would be the fact that guidance has been adjusted lower by management. Now, according to CEO Steve Riggio, gross margins are doing okay. I'll skip that chapter, though, as there isn't much substance to it. Who cares about the gross margin at this point. With traffic down and probably due to get worse, a positive tale of the gross margin isn't going to make me want to buy Barnes & Noble as a value play.
So, how will booksellers such as Barnes & Noble (NYSE: BKS), Borders Group (NYSE: BGP), and Amazon (NASDAQ: AMZN) fare during the holiday season? It's an interesting question, one which is examined in an article at The New York Times. The piece talks about how the current recession seems to be affecting consumers and their desire to buy books. At the beginning of the article, two shoppers are browsing in a bookstore -- one buys, the other doesn't. Both have been affected by the bad economy. What are we to make of this?
I'll give you my take on things. Books, unfortunately, are simply not so glamorous these days. And I do think that booksellers are going to have a hard time this holiday season. With all the competition from video games and other media, the printed page just isn't that exciting to a lot of consumers. I don't think that books will be a top priority as the wallet continues to get squeezed and while job security remains an issue. Our attention spans have been cut so short these days, and they're only getting shorter. In an era of MTV quick-edits and PowerPoint presentations, 100,000-word diversions don't feel so diverting anymore.
Books are probably even less exciting to young people. Seriously, how many kids have books on their Christmas lists this year? They may want the latest Blu-ray cartoon from Disney (NYSE: DIS), or the latest Call of Duty game from Activision Blizzard (NASDAQ: ATVI), but I'm not so sure they want the latest Stephen King novel (as for me, I picked up King's latest short-story collection Just After Sunset at my local Barnes & Noble). Many kids have been introduced to the joys of reading through the Harry Potter series, but I don't think Potter will be working his magic this season. If parents do cut back this year on presents, I figure they're going to err on the side of making sure that all the non-book gifts are acquired.
Is there anything the booksellers can do about this?
When Oprah speaks, America listens, and when she reads (God bless her!), Americans read, too. Thus her gush about Amazon's (NASDAQ:AMZN) electronic reader the Kindle has come as a blockbuster for the online merchant.
According to Advertising Age, as soon as Oprah mentioned the Kindle on her October 24th Oprah's Book Club, Google searches on the term went up fivefold. Traffic directed to Amazon from Oprah.com went through the roof (15,000%) and the aggregate of all visits to Amazon were bumped up 6%, an enormous spike in a mature site. Given these numbers, her Kindle endorsement is a home run for the platform, and should drive huge Christmas sales.
Since Amazon spiffs referring sites 10% of the sale price, Oprah.com stands to rake in over $35 per Kindle sale. And, of course, this establishes the platform as a fulfillment alternative for each subsequent Oprah's book recommendation. Ka-ching!
According to Wikipedia, publishers believe Oprah has 20 to 100 times the sway of any other public figure in driving book sales. For example, a recent announcement that she selected The Story of Edgar Sawtelle by David Wroblewski inspired the publisher to order a run of 750,000 copies. Each one carrying the Oprah selection tag was given its own ISBN to track her impact.
Amazon (NASDAQ: AMZN), which competes with the e-commerce segments of companies such as Yahoo! (NASDAQ: YHOO), eBay (NASDAQ: EBAY), Time Warner's (NYSE: TWX) AOL, and Apple (NASDAQ: AAPL), closed on Wednesday at $49.99. After hours, it plunged to $42.98, a drop of 14%, following its earnings report. Actually, I didn't think the numbers were that bad. Sales increased 31%, and earnings per share came in at 27 cents per share on a diluted basis. That performance represented a growth rate of 42%, and it was 2 cents ahead of Wall Street expectations.
As you can imagine, though, it's the fear of what lies ahead that's put pressure on Amazon's stock. Management has stated it intends to carefully assess its investment priorities. The economy is getting worse, and all retailers, online or brick-and-mortar, from Wal-Mart (NYSE: WMT) to Target (NYSE: TGT), are going to feel the sting of the careful-spending consumer.
Amazon is going to continue doing what it does best: namely, keep its corporate head to the ground and process those holiday orders. But I have to wonder if there is an opportunity here. If the economy is headed for further disaster, perhaps precipitated by the negative wealth effect (i.e., people becoming less inclined to spend due to their shrinking net worths), then Amazon might be able to persuade them that online shopping at its website is the way to go. Not only will it save on fuel costs, but the company offers free shipping on orders that meet a certain price threshold. That might beat a trip to the mall.
Wall Street's optimism in last week's preview about the earnings of tech stocks wasn't misplaced, as there were many more positive surprises than negative ones among the stocks we looked at. This week will bring plenty more data for investors in and watchers of the sector to mull over. Apple Inc. (NASDAQ: AAPL), AT&T Inc. (NYSE: T), and Microsoft Corp. (NASDAQ: MSFT), for example, are expected by analysts surveyed by Thomson Financial to post modest earnings gains from a year ago, to $1.11 per share (on $8.1 billion in sales), $0.72 per share (on $31.3 billion in sales), and $0.47 per share (on $14.8 billion in sales) respectively. All three of these companies ended the week closer to their 52-week lows than highs, and analysts on average consider them each a buy.
Here's a look at some of the week's biggest expected earnings gainers and decliners in the sector:
Baidu.com Inc. (NASDAQ: BIDU): $1.25 per share (+44.0%) on revenues of $134.7 million (+103.2%)
Broadcom Corp. (NASDAQ: BRCM): $0.44 per share (+38.6%) on revenues of $1.3 billion (+33.8%)
QLogic Corp. (NASDAQ: QLGC): $0.31 per share (+29.0%) on revenues of $170.0 million (+21.2%)
FLIR Systems Inc. (NASDAQ: FLIR): $0.32 per share (+28.1%) on revenues of $275.2 million (+44.0%)
Juniper Networks Inc. (NASDAQ: JNPR): $0.30 per share (+26.7%) on revenues of $927.4 million (+26.2%)
Waters Corp. (NYSE: WAT): $0.75 per share (+17.3%) on revenues of $391.6 million (+11.1%)
eBay, Inc. (NASDAQ: EBAY), which competes with Amazon.com, Inc. (NASDAQ: AMZN), Yahoo!, Inc. (NASDAQ: YHOO), and Google, Inc. (NASDAQ: GOOG), reported earnings for the third quarter on Wednesday. Net revenue increased 12% to $2.1 billion. Earnings on an adjusted basis were $0.46 per diluted share versus $0.41 per diluted share in the similar quarter one year ago. That was good for an 11% growth rate.
As I pointed out in my earnings preview, the call was for $0.41 per share. So eBay easily beat Wall Street's analytical wizards. But, in this market, it's all about the forward guidance. It just doesn't matter anymore, the economy is tanking, and traders are selling things off left and right. According to this source, management has lowered the full-year outlook for earnings to a range between $1.69 and $1.71 per share as opposed to a previous expectation of achieving earnings between $1.72 and $1.77. This is bad news, of course, but eBay did manage to increase its operational cash flow. Net cash from operations went up by 10%, coming in at $693 million. So there's that, at least.
It isn't enough, though. eBay looks like it's going to have a rough time along with the economy. Its stock may be cheap, and management may be repurchasing shares (eBay took back 25 million shares during the Q3), but it isn't a buy unless you're a very long-term investor. eBay closed down over 13% during regular trading hours on Wednesday, and was down another 3.5% during the after-hours session. I can't see why the stock won't be heading lower. Again, if you've always wanted to be in eBay, this is probably a decent enough price on a valuation basis for those with a long-term horizon, but I would imagine that any guidance is at risk now considering recent economic data. That means even better valuations may be ahead.
Disclosure: I don't own any company mentioned; positions can change at any time.
Famed online auction platform eBay (NASDAQ: EBAY), whose Internet colleagues include Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOG), and Yahoo! (NASDAQ: YHOO), will be reporting earnings for the third quarter on Wednesday after the market closes up shop. What should shareholders expect from the company?
Well, according to data posted by Trey Thoelcke, shareholders shouldn't expect much. While the top line is expected to rise by double digits (around 13%) to $2.1 billion, nothing is really cooking in terms of the bottom line. The call is for $0.41 per share. eBay booked $0.41 per share in the year earlier period. As you can see, that's a 0% growth rate, and that's never good (well, unless you're a financial company, in which case that's actually great). However, there is one silver lining to the earnings story for shareholders. If you take a look at past earnings data, you'll notice that eBay has a snazzy reputation for beating estimates issued by analysts. So, I'd be willing to bet we'll see an easy beat this week.
As to whether or not this particular stock will rally upon such news, that's difficult to say. If Monday's rallying sentiment makes another visit on Wednesday, then I'd say eBay could be an interesting earnings trade, mostly because it isn't far from its 52-week low. Unfortunately, I think any rally that we get in the market right now is not to be trusted. It just can't be. Profit-taking is always going to be waiting to sap the power out of any rally, simply because we know the economy isn't going to be great for many months to come. So, even though I like the technical set-up to some degree vis a vis eBay's earnings-beating history, I personally wouldn't be buying. For me to trust any rally, I'd need to see some confirmations and additional up days.
Give Amazon.com (NASDAQ: AMZN) credit for drumming up publicity. Today's Wall Street Journalreports (subscription required) that biographies of Michelle Obama and Cindy McCain will be available exclusively on Kindle, the company's hand-held reading device (because turning pages manually is clearly too much effort).
The publisher is Pequot Press imprint Lyons Press, and as you can tell from the titles, this is pretty hard-hitting stuff: "Cindy McCain: Elegance, Good Will and Hope for a New America" and "Michelle Obama: Grace and Intelligence in a Time of Change."
I recommend waiting until the biography of the winner comes out in paperback, because at least then you'll be able to use it as a pillow for the well-deserved nap you take after reading the first five pages.
If this is the best Kindle can do for exclusives, it doesn't speak well for Amazon's ability to convince publishers that digital distribution is the future for books.
eBay (NASDAQ: EBAY) closed at $23.48 Monday. EBAY is expected to announce Q3 EPS in mid-October. Goldman Sachs has a Neutral rating on EBAY. EBAY October option implied volatility of 44 is above its 26-week average of 39 according to Track Data, suggesting larger price movement.
Amazon.com (NASDAQ: AMZN) closed at $81.16 Monday. AMZN September and October option implied volatility of 48 is near its 26-week average of 50 according to Track Data, suggesting non-directional price movement.
NASDAQ 100-QQQQ overall implied volatility at 27; 26-week average is 27.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
It's cool fun sometimes to look at under-$10 stocks and see if there are any worth investing in. TiVo (NASDAQ: TIVO), famous maker of digital-video-recorder technology, is currently trading under $10 a share, and it reported its Q2 numbers on Wednesday. I can't say, though, that I'm ready to buy just yet, even though some of the stats presented in the release described a nice improvement in year-over-year comparisons.
The bottom line, in fact, improved substantially. Earnings per diluted share came in at 3 cents. Last year, TiVo saw a loss of 18 cents per diluted share. According to Earnings.com, analysts were looking for a loss of 2 cents per share during the quarter, so estimates were certainly beat.
Cash flow from operations also jumped in a very nice way. The company generated over $10 million over the last six months. During the similar time period in 2007, TiVo needed to use almost three times that amount to keep operations going. Cash flow is an important metric for investors to look at, so that was good to see.
Amazon.com (NASDAQ: AMZN) has told investors that it may soon start offering textbooks on the Kindle, its $400 e-book reading device. Portfolio'sTech Observer is bullish on the idea:
This may be the move that flings Kindle into the mainstream. If nearly all textbooks wind up on Kindle, then paying $400 for a Kindle would turn into almost a no-brainer decision for college students [...] A single textbook can cost $150 new -- and still maybe $100 or more used [...] If e-book versions cost even 25% less, that's a huge savings ...
I'm less excited: given that most college students don't buy a lot of books for pleasure, this $400 device would be used almost exclusively for textbooks: so you'd have to save a lot of money to make up for that $400 expense. Then there's the fact that the Kindle might not be so convenient for classes that involve flipping back and forth between chapters, appendixes and glossaries.
But the real downfall of the Kindle for textbooks is the fact that a lot of college students sell their books back to the store at the end of the semester, recouping as much as 50% of the cost.
A foray into textbooks will not take Kindle to the next level. It probably won't require a significant enough investment by Amazon to hurt shareholder value but it's definitely not something to get excited about.
If you thought Black Friday was just for brick-and-mortar retail, think again. The official start of the online shopping rush is the Monday after the Thanksgiving holiday (Cyber Monday is its name), but don't think that companies like Amazon (NASDAQ: AMZN) and Blue Nile (NASDAQ: NILE) are going to wait that long. They're in the game now. And they want your attention. More importantly, they want you to use the virtual shopping carts at their respective sites early and often. It's really crucial this year, because the economy stinks, and growth in spending isn't going to be great.
So, how will booksellers such as 
When Oprah speaks, America listens, and when she reads (God bless her!), Americans read, too. Thus her gush about 
Wall Street's optimism in 
Famed online auction platform 
Give 
eBay
It's cool fun sometimes to look at under-$10 stocks and see if there are any worth investing in. 
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