Category Archives: Equity

Zynga: A Safer Bet Now? [Seeking Alpha]

Zynga (ZNGA), as the world’s leading provider of social game services, continues to expand into the mobile end. By launching Running With Friends on May 9, 2013, Zynga further expands it mobile portfolio. Similar to the previous launch of Draw Something 2 in April, Running With Friends is available on iPhone, iPad, and iPod touch. These new titles should contribute to Zynga’s declining revenues in the coming quarters.

Draw Something 2 ranked No. 60 on the list of top grossing apps and No. 19 on top paid apps as of May 15, 2013. Draw Something 2 is estimated to generate $53,943 daily revenue, as seen from the data below.

(click to enlarge)

Source: Think Gaming

While this revenue estimate for Draw Something 2 may be limited by the publicly available data and Think Gaming’s proprietary models, it indicates a solid start for Draw Something 2. There are two major positive catalysts for Zynga, including the growth on the mobile end and expansion into real-money games, whereas Zynga just launched its first ever real-money games in the UK in April.

Mosaic: Increasing Leverage And Suspending Expansion?

Mosaic Co. (MOS), the largest U.S. fertilizer producer, continues to focus on achieving a more efficient balance sheet. Investors should not be surprised by Mosaic’ target to increase its financial leverage. After the latest Q3 report, the management indicated its intention to reduce the company’s cash and increase the leverage. The management emphasized its targets in the company’s conference call on capital management philosophy.

Higher leverage

Mosaic’s capital becomes flexible after May 26, which is the two year anniversary of the Cargill split-off transaction. The top priority for the management is to maintain an investment grade rating and financial flexibility for Mosaic’s balance sheet. For liquidity, the management set a target of $2.25 billion, with one-third of cash and two-thirds credit line. Management also wants to maintain a targeted leverage ratio (or adjusted debt-to-EBITDA) of 1.5 times, which means the management can issue additional $3 billion of debt on top of current $1.5 billion debt with $3 billion of EBITDA.

Concerns

The final 2 million tons of Mosaic’s Potash expansion strategy is deferred, which will be resumed when market conditions warrants and when risk adjustable returns justify. It may first appear to be correlated to suspend the expansion strategy while increasing the leverage for the balance sheet to repurchase more shares and return more capital to shareholders; however, the management stated that they were two separate decisions.

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Check Point: A Safe Bet To Ride The Rising Cyber-Security Trend [Seeking Alpha]

Check Point Software Technologies Ltd. (CHKP) is the worldwide leader in securing the Internet, providing customers with uncompromised protection against all types of threats to reduce security complexity and lower total cost of ownership. Check Point offers its customers a portfolio of network security, data security and management solutions.

Innovative Security Solutions

Check Point continues to deliver innovative security solutions to protect both enterprises and consumers. With the recent release of new 600 Appliances, Check Point helps the small businesses to implement comprehensive security to ensure employees and data are protected at all times. Earlier in April, Check Point also launched its new 1100 Appliances to provide enterprise-class security in a compact desktop package, which is perfect for branch and remote offices.

Fundamentally, Check Point continues to benefit from the increasing demand to fight cybercrimes. Check Point has higher revenue growth (3 year average) of 13.3 as compared to the industry average of 6.4 for the industry of application software. Check Point has much higher margins as compared to the averages. Check Point also generates solid ROA of 14.0 and ROE of 18.9 as compared to the averages of 8.2 and 15.5. Check Point has a strong cash position with $1.39B total cash and zero total debt. Check Point also generates over $905M of operating cash flow with a levered free cash flow of $660M, ttm.

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VimpelCom: An Undervalued Telecom Star [Seeking Alpha]

VimpelCom (VIP) is one of the world’s largest integrated telecommunications services operators providing voice and data services through a range of traditional and broadband mobile and fixed technologies.

VimpelCom has a smaller market cap of $23.01B as compared to other mega telecom providers, such as AT&T (T) ($205.15B) and Vodafone Group (VOD) ($148.23B), as well as China Mobile (CHL) ($223.96B). However, VimpelCom continues to grow rapidly with a well-executed corporate strategy, consolidating Russian market and expanding into adjacent businesses. VimpelCom covers a wide, diversified market, including Russia, Italy, Ukraine, Kazakhstan, Uzbekistan, Tajikistan, Armenia, Georgia, Kyrgyzstan, Laos, Algeria, Bangladesh, Pakistan, Burundi, Zimbabwe, Central African Republic and Canada.

Dividends and Upcoming Earnings

With strong 2012 results, VimpelCom was paying out $2.0 billion in dividends. The management is committed to paying annual dividends of at least $0.80 per share going forward. VimpelCom is expected to release its Q1, 2012 earnings result on May 15, 2013, where analysts are estimating revenue of $5.64B for the quarter. The company had 1 negative and 3 positive earnings surprises in the past 4 quarters.

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Autodesk: A Solid Bet For 3D Printing [Seeking Alpha]

Autodesk (ADSK), with a market cap of $8.85 billion, is a design software and services company, providing customers productive business solutions mainly in the architecture, engineering, construction, manufacturing, digital media and entertainment industries.

Create 3D Models by Autodesk and iPad

Autodesk is on the right spot for 3D printing as the company is trying to help users create a 3D model via the iPad and a free app called 123D Catch. By taking 50-70 shots around the subject twice at different angles, 2D photos can be processed into a 3D model by using Autodesk’s software. The 3D model can then be uploaded to Autodesk’s 123D site or printed directly with a 3D printer, such as MakerBot.

Imagination and Limitation of 3D Printing

Although there are still limitations for 3D printing, the development for 3D printing technology had been phenomenal in the last few years. Autodesk’s CEO, Carl Bass, stated, “It’s taken it 20 plus years for it to really develop, but the acceleration of the technology in the last few years has been incredible.” 3D printing continues to have scaling problems and be limited by the materials. Still, 3D printer companies, such as 3D Systems Corporation (DDD) and Stratasys, Ltd. (SSYS) continues to enjoy rapid expansion by selling what analysts call a disruptive technology.

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Has ConocoPhillips Reached An Inflection Point? [Seeking Alpha]

Despite mixed Q1 results, ConocoPhillips (COP) could be approaching a very significant inflection point for its operation while it continues to improve its bottom line.

ConocoPhillips, with a market cap of $71.93B, is the largest independent U.S. oil and natural gas producer. COP operates as an integrated energy company, exploring for, producing, transporting and marketing crude oil, natural gas, natural gas liquids and liquefied natural gas, globally. COP is organized into Exploration and Production, Midstream, Refining and Marketing, LUKOIL Investment, Chemicals, and Emerging Businesses segments.

Mixed Results

For Q1, 2012, COP’s net income fell to $2.14B ($1.73 per share) from $2.94B ($2.27 per share). Excluding discontinued operations, COP earned $1.42 per share. After spinning off Phillips 66 (PSX), COP’s downstream business, in Q2, 2012, COP’s income was negatively impacted by $700M. Excluding PSX’s impact, the earnings were about the same a year ago. Total revenues fell 10% to $14.65B, from $16.08B the previous year. According to FactSet, analysts, on average, expected adjusted net income of $1.42 per share on revenue of $12.79B.

Falling Production

Earlier in January, the management indicated that oil and gas production may reach a low point this year as the company completes a multi-year restructuring and asset sale program. Oil and gas output from continuing operations declined to 1.56 million barrels oil equivalent ((boe)) per day from 1.58 million boe per day a year earlier.

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Alcatel-Lucent: A Volatile Stock Requiring Lots Of Patience [Seeking Alpha]

Alcatel-Lucent (ALU), a France-based company with a market cap of $3.13B, is a provider of telecommunications technology and services, which also engages in mobile, fixed, Internet Protocol and optics technologies, applications and services. With disappointing Q1 numbers, it may be still too early to give up ALU.

Disappointing Numbers

For Q1, 2013, ALU reported a net loss from continuing operation of $0.20 per ADS, which is lower than the Zacks Consensus Estimate of -$0.10 per ADS. Sales were nearly flat at $4.21B (€3.23B Euros) with a loss of $461.72M €353M Euros) as compared to a gain of $337.49M (€259M Euros) a year earlier. FactSet had forecast a Q1 loss of $345.31M (€265M Euros) on sales of $4.17B (€3.2B Euros).

As the company continues to be on a $1.63B (€1.25B Euros) restructuring program, cutting 5,000 jobs, new CEO Michel Combes still has a tough road ahead for his plan of “one month of listening, two months of defining a project, and three years of transformation.” Combes just became CEO earlier this month.

Geographic and Segment Breakdowns

Geographically, North America was up 15.1% while Asia Pacific region had a low single-digit decline (5.8%) year-over year. Europe continued to suffer with a decline of 10.1% in revenue. Lastly, revenue from the Rest of World decreased 13.3% due to poor performance in Central and Latin America, the Middle East and Africa.

Corning: Riding Multiple Uptrends, Lifted By Gorilla Glass

Corning Incorporated (GLW) is a global, technology-based corporation, operating in five segments: Display Technologies, Telecommunications, Environmental Technologies, Specialty Materials and Life Sciences. With better-than-expected earnings and strong buyback, Corning is marching up, lifted by Gorilla Glass.

Bottom Formed

On April 25, 2013, Corning’s chairman and CEO Wendell P. Weeks told shareholders in the annual meeting that Corning’s performance over past two quarters is a strong indication that the Corning has successfully formed the bottom and is ready to march up. Despite a tough 2012, Corning is ready for growth in 2013. The growth opportunities mainly come from 1) the proliferation of mobile devices, which increases the demand for thin, tough cover glass; 2) increasing demand for bandwidth, creating needs for fiber optic networks; 3) evolution to higher-resolution display devices, requiring more specialty glass to meet rigorous technical requirements; 4) increasing demand for emissions-control products due to tighter environmental regulations; 5) increasing need for more effective drug therapies due to gaining global population. The company is progressing well and is introducing new glass compositions for high-performance displays and launching new products such as ultra-thin Corning Willow Glass.

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Akamai: Hitting A Home Run With Expanding Margins [Seeking Alpha]

Akamai Technologies, Inc. (AKAM) provides content delivery and cloud infrastructure services for the delivery of content and applications over the Internet. Many companies spend money on web acceleration and content delivery technologies, such as the services provided by market leader Akamai, to avoid lost sales and customers due to slow web pages. Despite the controversial guidance earlier from the management, Akamai delivers with solid numbers.

Surprising Home Run

Akamai reported Q1 revenue of $368M, 15% increase from the year-earlier quarter, beating analysts’ estimate of $357.7M. The management forecasts revenue of $368M to $378M in Q2 compared with a $363M analyst estimate. Q1 profit, including an 8-cent tax benefit, rose to 51 cents a share from 36 cents a year earlier, topping the average estimate of 46 cents, according to data compiled by Bloomberg. AKAM also forecasts Q2 profit excluding some items of 44 cents to 46 cents, compared with a 44 cents estimate.

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Zynga: Dumping Or Buying? A $1.7 Billion Dollar Question [Seeking Alpha]

Zynga (ZNGA) is a leading provider of social game services with 253M average monthly active users over 175 countries. With declining revenue and a disappointing forecast, it may still be too early to dump ZNGA.

The Good and Bad

For Q1, Zynga reported net income of $4.1M (break-even on a per share basis) compared with a net loss of $85.4M (loss of 12 cents per share) for the same period last year. Adjusted net income was $9.1M (1 cent per share) for Q1. However, revenues declined nearly 18% to $263.6M while bookings fell to $229.8M. Analysts were expecting revenue of $264.5M with a loss of 3 cents per share.

ZNGA generated $230M in bookings, exceeding the management’s expectations. FarmVille 2 outperformed with audience engagement and bookings hitting near peak levels in the quarter seven months after launch. The FarmVille 2 team was able to drive multiple days with growth bookings exceeding $1 million per day, including the amount retained by Facebook (FB). Web bookings were down 37% year-over-year and 15% quarter-over-quarter driven primarily by lower web user pay. On the other hand, mobile bookings were up 21% year-over-year, but down 8% quarter-over-quarter driven by a light slate of new game launches over the past two quarters that would normally offset aging live games.

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