Friday Finance Weekly 58TH Edition

Greetings folks and a warm welcome to the 58TH Edition of Friday Finance Weekly. Hopefully you didn’t buy any FaceBook stock…it’s down 16.69% from its IPO. Ouch! Good thing is that Morgan Stanley agreed to reimburse clients for losses that may have occurred due to mispricing. The problem is they can’t afford to do that. This is going to be entertaining to say the least.

Forget collecting all those credit card reward points for around the world vacation. Instead, American Express now lets you redeem rewards for virtual goods. AMEX has been a pioneer in the social media space as they have working relationships with Twitter, Foursquare, FaceBook and as of this week, Zynga. It’s basically a pre-paid AMEX card that rewards users in Farmville rewards. According to Dan Schulman, “It opens up tremendous opportunities to address segments of the market that we weren’t able to address with traditional credit or charge products, including the youth or underserved markets”. Translation, we have your kids! This is pure genius, a virtual cow costs, well, virtually nothing yet AMEX is going to make their 2% – 3% off the transaction. For you accounting geeks, that’s a 100% gross margin! AMEX shares are flat for the week, increasing by a marginal 0.87%; but they’re up 18.47% for the year. Shares are trading at $55.88 and the market cap is $64B. The FaceBook IPO has put a damper on the Zynga stock as it is down 7.79% for the week and down 29.84% for the year. This seems like a great deal for AMEX as they get to target a young demographic and earn real cash from the transactions on their cards. I am sure Zynga earns something for the virtual goods it provides, but it can’t be material. The next step is to get virtual credit for a virtual credit card so that we can spend on virtual goods that we can’t afford. Who cares right, since everything is virtual…wait a minute, isn’t this what the US Government is doing by continuing to print cash? Well at least in the virtual world, if you don’t pay your bills the worst they can do is send a computer virus. (Source: Brand Channel, Google Finance)

Okay, we have PVR (in the US it’s called DVR) and this has been fairly successful in allowing us to skip unwanted ads. But Dish Network in the US is launching a new PVR/DVR called Hopper, which lets you automatically skip ads. ABC, CBS, FOX, and NBC are now suing Dish Network as it threatens to undermine a key source of revenue for the networks. With 14 million subscribers Dish Network is the second largest satellite provider in the US. TV ad spending on a global basis is over $200B so its big business. Analysts however think that this is a negotiating ploy by Dish Network as they are sick of paying high programming fees to the networks. Analyst Brean Murrary states “this is about programming costs, Dish is saying, if you want to charge me up to the wazoo, we will disable commercials. But if you charge us less, we can disable the feature”. I love it when finance people speak English. Dish Network has been fairly flat for the year as its shares had a marginal 0.35% drop. Shares are trading at $28.25/share and the market cap is $12.77B. I think Dish Network is going to win this round and their gross margins will increase. This will translate into higher profits and an appreciation of the share price. The 52 week high for the share is $35.64/share, so there is room for movement. Other TV providers such as Comcast and Time Warner will take the same strategy. Personally I think that companies should focus on ad customization instead of skipping. In fact, I can watch an entire channel dedicated to advertisements as long as they had Victoria’s Secret models, movie trailers, and luxury car adds. Hulu tried to do this, but the Fruit of the Loom guys just don’t work – for me at least. (Source: Reuters, Google Finance)

The hockey predictions as always. LA has already made it to the Stanley Cup finals, so the series is now NJ/NY:

 

Eastern Conference
Team Win %
NY 27.5%
NJ 72.5%
   

Stanley Cup odds are as follows:

Stanley Cup  
Team Wins Odds
NY         1,597 5 : 1
NJ         3,755 2 : 1
LA         4,648 1 : 1
       10,000  

 

LA is still on top. (Source: Mark Harrison – Sports Guru)

Condo developer Larry Hall is already one-quarter sold out of the upscale doomsday units he is building in an abandoned underground Cold War-era Atlas-F missile silo near Salina, Kan. He told an Agence France-Presse reporter in April that his 14-story structure would house seven floors of apartments ($1 million to $2 million each, cash up front), with the rest devoted to dry food storage, filtered-water tanks and an indoor farm, which would raise fish and vegetables to sustain residents for five years. The 9-foot-thick concrete walls (built to protect rockets from a Soviet nuclear attack) would be buttressed by entrance security to ward off the savages who were not wise enough to prepare against zombies, famine, meteors, nuclear war and the like. Hall said he expects to be sold out this year and will begin work on another of the three silos he has options to buy. Vancouver housing is officially overpriced when it is cheaper to buy a self-sustaining doomsday condo than it is to live in a 500sqft loft downtown. (Source:Agence France-Presse)

Have a fantastic weekend and please don’t hesitate to forward this newsletter. Many thanks,

Sam

Friday Finance Weekly 57TH Edition

Greetings folks and a warm welcome to the 57TH Edition of Friday Finance weekly.

Okay, I’ve talked about Facebook a fair bit, but this wouldn’t be a finance blog if I didn’t touch on the topic. Last time for a while I promise. Okay, so I know you are wishing that you could be a part of the IPO, but buyer beware: The stock will probably increase on its first few hours of trading, and the investment bankers are going to make out like bandits. Given that JP Morgan just had trading losses of $2B, its obvious that they need the money.

Okay so let’s put this IPO into context.

Facebook will be trading on the NASDAQ and will have the ticker symbol FB. It will be the third largest US IPO, only behind Visa (in 2008) and GM (in 2010) and will value the company at over $100B raising $16B in cash.

The final price of the IPO was determined to be $38/share (this article is a little dated as it assumed $35/share but it is non-material), it will value FB at 70x projected 2012 earnings and 18x estimated revenues. Google for example trades at 15x projected 2012 revenues and 6x revenues. Even the most valuable company in the world, Apple, trades at 12x earnings. Okay, so you are thinking that we should compare IPO vs IPO. Okay let’s look at FB’s IPO compared with Google’s:

Company Mkt Val (B) Rev (B) Rev Change P/E Ratio No. Employees
Facebook 95 5.2 40% 69 3,539
Google 25 3.2 117% 42 2,292

Note: Google’s figures are as of their 2004 IPO.

Clearly Google was a better deal at the time. Also remember that Google is a company with a much larger user base and multiple sources of revenue. Facebook also has a problem in that they will find it difficult to monetize users that use their services from mobile phones. Let’s face it, on the mobile app there just isn’t enough physical space to put an advert without annoying the user. There are numerous social media sites including Twitter, Pintrest, Google + and Facebook). In my opinion users will find most interest in companies that can integrate different social media platforms.

The biggest winner in this IPO (other than Mark Zuckerberg) is the state of California. Over the course of the next two years, California is expected to have a budget ‘problem’ of around $9B a year. IPO’s have had significant impacts on the state’s finances, with Google for example, the state earned over $7B in tax revenue for three years since its IPO. Guess how much Facebook’s IPO is expected to generate – Just over $2B in tax revenue! That’s just in the first year.

There was a fierce competition in Wall Street as Facebook was such an iconic IPO. As a result they discounted their typical 7% fee to a 1% – 2%. Even at 2%, with a $16B raise that translates to $320M in revenue.

All things considered, the FB IPO is going to be one exciting ride. Bull investors such as Kevin Landis (Chief Investment Officer – Firsthand Capital) said that “the investment thesis is pretty simple. Facebook knows more things about more people than does Google, and those people have stronger emotional connections and loyalty because that’s where their friends are”. Scary, but true! The US Government should print some money buy up all the shares of FB and disband the CIA. (Source: Barron’s, Economist, Reuters)

“It would fit nicely in a small plane, we just have to make sure it doesn’t get lost on the way” Guess who said that? Heidar Gudjonsson, Investment Manager and chairman of Iceland’s Centre of Social and Economic Research. In case you wondering no it wasn’t relating to drugs, instead it pertains to around $300M in Canadian currency that can be flown to Iceland to replace their local currency. Icelandic banks were hit very hard during the banking crisis and the local currency the krona is practically worthless. Iceland now has strict currency controls and even Mr. Gudjonsson was only allowed to withdraw $2,570 for travel related expenses. Other currencies under consideration are the US Dollar and Euro. Given that both Canada and Iceland are resource based economies, adopting the Canadian dollar makes the most sense. Apparently this is a fairly simple process in which the $300M in cash would be given to the banks and ATM’s over a weekend. There is a much more than $300M in the money system, but in terms of cold hard cash it’s limited to $300M. The per capita GDP for Canada is $46,200 and for Iceland it is $39,600, therefore the two countries have similar economic standings. But in terms of the size of the economic Canada has a GDP of $1.48T, while Iceland is $10.6B. Translation: if Iceland adopts the Loonie they will have zero input on monetary policy. Personally I think it’s a good idea for Iceland, and Canada is expected to earn $15M – $20M from the deal. So guess what the capital of Iceland is? About $20… Ouch (Source: National Post)

Stanley cup predictions are as follows:

Eastern Conference

NY

52.8%

NJ

47.2%

 

Western Conference

PHO

5.7%

LA

94.3%

Odds for the cup are as follows:

Team Wins Odds

NY

        3,079

2 : 1

NJ

        2,462

3 : 1

PHO

           248

39 : 1

LA

        4,211

1 : 1

       10,000  

 

Go LA go! Wow, they have amazing odds right now. (Source: Mark Harrison – Sports Guru)

Federal court documents revealed in March that AWOL Army Pvt. Brandon Price, 28, had convinced Citibank in January that he spoke for Microsoft co-founder Paul Allen (one of the world’s richest men) and convinced the bank to issue Allen (i.e., Price) a new debit card and to change Allen’s address from Seattle to Price’s address in Pittsburgh. Price/Allen shopped decidedly downscale, running up charges only at Gamestop and Family Dollar, totaling less than $1,000. I don’t know who’s more incompetent, the bank or the fellow that went through all that trouble to buy just $1,000 worth of video games and party sized bags of Doritos (unless he had the munchies)! (Source: Pittsburgh Post Gazette)

Have a great long weekend and please don’t hesitate to forward this newsletter. Many thanks,

Sam

Friday Finance Weekly 56TH Edition

Greetings folks and a warm welcome to the 56TH Edition of Friday Finance weekly.

 

It’s going to be 25 years since the release of Michael Jackson’s legendary, “Bad” album. To commemorate (they actually mean capitalize), Pepsi is making a limited edition of 1B (not sure how limited edition it is when there are a billion of them) cans with MJ silhouettes. The cans are to be released in 20 countries starting in Chinaon May 4th. This is all part of Pepsi’s new “Live for Now” marketing campaign that is expected to cost over $600M. Markets in general were lukewarm to the new marketing plan and shares were down marginally by 0.71% for the week. Stocks were trading at $65.90/share with a market cap of $103B. In my opinion I think the shares will show a bit of short term growth attributed to the new cans. Even if 50% of the cans are purchased by collectors and assuming that the net profit per can is around $0.20, that’s translates to an extra $100M in profit. Pepsi has to do something as it starting to lose market share and after factoring in foreign currency losses, profits are expected to dip by 5%. I think it’s ironic that the Live for Now marketing campaign is being kicked off by a dead celebrity. Translation, Live for Now, because soon researches are going to conclude that cola products are cancerous and you will die by 50. But MJ did tell everybody ‘Don’t stop till you get enough!’ (Source: Bloomberg, Google Finance)

Facebook is all over the news this week as their IPO is imminent and Wall Street bankers are in high gear facilitating roadshows. The company is expected to be valued at around $96B and will be the largest to go public (UPS was valued at $60.2B right before the IPO). In total around $13.6B is expected to be raised and the target price is $28 – $35/share. Let’s however take a quick step back and play devil’s advocate. Here are 5 things that Facebook has to keep in mind:

  • Back in the day (July 2010 – March 2011) the site attracted 8.39 users per second, this has dropped to around 5 users per second. So what happens when Facebook is no longer cool?
  • Competition is growing quickly and users will one want one portal to access all social media sites. With Pintrest, Facebook, Twitter, LinkedIn and Google + in the market, more and more people are looking for a way to simplify their lives. The future lies in Facebook’s ability to be the portal to access all other sites. This may mean revenue sharing and working with competitors. How is Zuckerberg going to feel about that?
  • It is apparent that Facebook has drastically increased the amount of advertising that the typical user sees. In fact sometimes I get my friends confused with payday loans! In my opinion Facebook should employ a Hulu type advertising program, where they ask for your preferences and deliver customer advertisements.
  • What happens when most Facebook users get jobs? Most users of the sight are high school/university students. Presumably usage will go down once they get jobs. With unemployment at 8%, Facebook doesn’t have to worry about this yet.
  • How are they going to stop employers using Facebook as a way to spy on new recruits? Already 1/5 ofUKapplicants have to disqualify themselves from interviews because of social media content.

Let’s face it; Facebook is going to get a huge bump in its IPO with some analysts thinking that they may hit $60/share within 2 months. I do however believe that Facebook’s best days are behind them and an IPO should have been done about 12 – 18 months ago. This is going to be a great short-term play, but on a long-term basis I am not so sure. In addition more and more people access Facebook from mobile devices and there just isn’t enough physical space to put adds on it. All things being said, I have a feeling that Facebook’s main monetary strategy is blackmail. Think about this, they are going to collect all this personal information and then threaten to give it to future employers unless you pay a monthly fee. Pure genius! If they purchase LinkedIn, the plan will be complete. (Source: Google Finance, Wall Street Journal and Business Insider)

Microsoft looks like it is ready to shake up the gaming console market. Typically gaming consoles have been at the $300 mark, but soon purchasing an XBOX will be like buying a cell phone. Rumors are that Microsoft is planning to sell the XBOX for $99, plus a $15/m subscription plan that will include XBOX Live Gold Subscription. This will certainly increase Microsoft’s dominance in the gaming sector and it already has a 16 month streak of being the best-selling unit in the States. Let’s put this into perspective, Sony was expected to dominate this sector as they invented the Blu-Ray medium and owned several entertainment companies. With a focus on innovation (Kinect is a good example) and retail roll out strategy (basically copying Apple), Microsoft is in a much better position than Sony. Let’s see how the story unfolds. This new strategy is going to be a game changer as gaming companies may opt for a rental/subscription model as well. Microsoft shares are down 3.52% for the week and were trading at $30.98/share with a market cap of $260B. That being said with Windows 8 around the corner and a great retail strategy, Microsoft is due for a few strong quarters. Finally the nerdy dude representing Microsoft on the Apple adds can be replaced by the Old Spice Man (he seems to be out of a job). (Source: Google Finance, Forbes)

Here are the hockey predictions:

Eastern Conference
NY 77.9%
WAS 22.1%
PHI 33.7%
NJ 66.3%
Western Conference
STL 8.5%
LA 91.5%
PHO 65.3%
NAS 34.7%

 

Probability of winning the Stanley Cup is as follows:

 

Team Wins Odds
NY         2,564 3 : 1
PHI            810 11 : 1
NJ         1,488 6 : 1
WAS            355 27 : 1
STL            298 33 : 1
PHO         1,538 6 : 1
NAS            971 9 : 1
LA         1,976 4 : 1
     10,000

Never thought this would happen, but looks like it’s going to be an LA – NY final. Good thing is that it will boost hockey and hopefully increase the salary cap. (Source: Mark Harrison – Sports Guru)

Two lawsuits filed in Los Angelesrecently against the founding family of the religious Trinity Broadcasting Network allege that televangelists Paul and Jan Crouch have spent well over $50 million of worshippers’ donations on “personal” expenses, including 13 “mansions,” his-and-hers private jets, and a $100,000 on a mobile home for Mrs. Crouch’s dogs. The jets are necessary, the Crouches’ lawyer told the Los Angeles Times, because the Crouches receive more death threats than even the president of the United States. Allegedly, the Crouches keep millions of dollars in cash on hand, but according to their lawyer, that is merely out of obedience to the biblical principle of “ow(ing) no man anything.” Oh the Lord does really work in mysterious ways! (Source: LA Times)

Have a great weekend folks and please note that I will be away next week; the Friday Finance Weekly will return on the 18th. Please don’t hesitate to forward this newsletter.

Many thanks,

Sam

Friday Finance Weekly 55TH Edition

Greetings folks and a warm welcome to the 55TH Edition of Friday Finance Weekly. I guess the good thing about the Canucks being eliminated is that I won’t be stressed over the summer. On the other hand wonder how many people will be watching Phoenix versus Nashville?

KKR (yeah I think they need a branding exercise to change their name), one of the world’s largest private equity firms, announced that they had a Q1 net profit increase of 4.6%. They made a net economic profit (common metric used to evaluate private equity firms) of $683.8M, up from $653.8M at the same time last year. Net economic profit is profit that excludes taxes, stock-based employee compensation and other items (per management’s option). The rationale is that knowledge based industries have a high degree of discretionary income and therefore require a normalization mechanism for evaluation purposes. Personally I am not a fan of net economic profit, as employees are the real source of competitive advantage and represent a key value driver. Therefore employee compensation is simply the cost of doing business. The net income for KKR is $190.4M, much lower than net economic profit. On a macro-level KKR is about to enter the real-estate market in a big way as they invested $196M to purchase a shopping mall in Chicago and spent $100M to acquire 1,000 of development land. It seems like Wall St is predicting that the real-estate market is about to recover. Investing in construction companies and heavy equipment providers such as Caterpillar may be a good idea. KKR is presently at $14.46/share with a market cap of $3.35B. Its shares are up 2.2% for the week and 12.24% for the year. Obama better have this Trillion Dollar checkbook handy as we may be getting front row seats into another real estate boon (or is it boom?). Wasn’t private equity only supposed to be for the sophisticated investor? Then why do we have publicly traded, private equity firms? (Source: Bloomberg, Google Finance, Wall St Journal)

A UN expert panel has recommended that all countries measure the happiness of their people to build a new model of humanity. Forget Gross National Product, it’s all about being groovy. Good news for Canadians, we rank 5TH in the world behind Denmark, Finland, Norway and Holland. Well I know why Holland’s on that list, as Happiness is spelt “Cannabis”. This study, should also focus on the financial aspects, as all countries in the top 5 have well-funded health care systems, pensions, thriving economies, above average employment and a diverse population base. These countries are also high on the Maslow scale (yeah I had to Google it too). While this doesn’t really belong in my finance blog I wanted to add some perspective, to highlight the importance of economic factors that impact overall well-being. Perhaps there are other ways to measure happiness such as the percentage of the population that take anti-depressants. That being said after 8 straight months of rain I can sum up my happiness in one word ‘sad’. (Source: BB, National Geographic)

Here are the playoff predictions:

Eastern Conference

Team

Win %

NY

64.7%

WAS

35.3%

 

PHI

54.8%

NJ

45.2%

Western Conference

Team

Win %

STL

61.6%

LA

38.4%

   

PHO

48.1%

NAS

52.0%

 

Stanley Cup odds are as follows:

Team Wins Odds

NY

        1,990

4 : 1

PHI

        1,338

6 : 1

NJ

           967

9 : 1

WAS

           497

19 : 1

STL

        2,091

4 : 1

PHO

        1,001

9 : 1

NAS

        1,309

7 : 1

LA

           807

11 : 1

       10,000  

Looks like it’s going to be a NY – STL final. Wow I can’t wait! (Source: Mark Harrison, Sports Guru)

In assigning a bail of only $20,000, the judge in Ellisville, Miss., seemed torn about whether to believe that Harold Hadley is a terrorist — that is, did Hadley plant a bomb at Jones County Junior College? In February, investigators told WDAM-TV that the evidence against Hadley included a note on toilet paper on which he had written in effect, “I passed a bomb in the library.” However, no bomb was found, and a relative of Hadley’s told the judge that Hadley often speaks of breaking wind as “passing a bomb.” The case is continuing. Al-Qaeda finally found a fool proof defense strategy.  (Source: WDAM-TV)

Have a great weekend and please don’t hesitate to forward this newsletter. Many thanks,

Sam

 

Friday Finance Weekly 54TH Edition

Greetings folks and a warm welcome to the 54TH Edition of Friday Finance Weekly.

While markets have generally had a successful ride on a year to date basis (DOW is up 6.63%, S&P 500 is up 9.61% and NASDAQ is up 15.16%); economists are seeing signs of trouble around the corner. The IMF raised $430B from the G20 and other countries. With the new injection of funds the IMF will have over $1T to bailout out troubled countries. To date Greece, Ireland and Portugal have asked the IMF for assistance, but larger economies such as Spain are now facing trouble. This was especially apparent with Spain’s recent 10 year bond offering that resulted in a yield of just over 6% (think about this for a second, most individuals in US/Canada get better rates on residential mortgages). German Bunds (German for Bonds) in contrast have a 10 year yield of 1.597%. In Canada, unemployment was reported at 7.2% and the natural unemployment rate should be around 6%. According to Statistics Canada, natural unemployment is not expected for another 4 years. That being said, inflation fell to 1.9% in March, compared with 2.6% in February. Finally inflation grew less than wage increases, meaning we were actually getting ahead. Even more cost savings are on the way, as Ikea announced that they are entering the consumer electronics space. The idea is to sell furniture with integrated TV’s and music systems with built in wiring.  You thought setting up a table was complicated, imagine putting a TV together! Maybe this is a secret strategy to get you to enroll in Ikea’s next business, stress management. (Source: Reuters, USA Today, The Star, Google Finance)

Sony used to be a pioneer in the consumer electronics sector; they invented the Walkman, Boom Box, Discman and more recently the Blu Ray format. But alas, they are now stumped for growth and losing market share. How does such an innovative company lose their Mojo? In my opinion they tried to do too much, Sony Entertainment for example isn’t one of their strengths. In addition they took the focus away from constant innovation and companies like Samsung are now leaving Sony in the dust. Shares are down 3.05% for the week and down 6.71% for the year. Presently the shares are trading at $16.83 and the market cap is $16.89B. This is due to the fact that Sony DOUBLED (yes that’s x2) their loss forecast to $6.4B! The company announced that they are cutting 10,000 jobs worldwide (6% of the workforce) in order to improve the bottom line. An equity analyst from Sumitomo Mitsui Trust Bank stated that “We believe the revival of Sony entirely depends on the improvement of profitability in its core manufacturing business.” Okay is this a joke? No No No! Sony has historically been an innovator so let’s move to an area with a real competitive advantage and start spending on R&D. The next generation Playstation is expected to come out next year, in my opinion the future of the company lies there. Guess what Sony’s slogan is: ‘make believe’. As funny as it is, let’s face it their slogan should be: Soon, Only Not Yet. (Source: Sony.com, Wall St Journal, Google Finance)

The hockey predictions are as follows:

Eastern Conference
NY 59.7%
OTT 40.3%
BOS 64.0%
WAS 36.0%
FLA 45.1%
NJ 54.9%
PIT 16.8%
PHI 83.2%
Western Conference
VAN 17.3%
LA 82.7%
STL 92.0%
SJ 8.0%
PHO 88.6%
CHI 11.4%
NAS 87.0%
DET 13.0%

 

Well a 17% chance for a Canucks win still isn’t bad right? Go Canucks Go!

Stanley Cup Odds are as follows:

Team Wins Odds
NY         1,024 9 : 1
BOS         1,332 7 : 1
FLA            170 58 : 1
PIT            308 31 : 1
PHI         1,090 8 : 1
NJ            512 19 : 1
WAS            242 40 : 1
OTT            286 34 : 1
VAN            330 29 : 1
STL         1,777 5 : 1
PHO            831 11 : 1
NAS         1,060 8 : 1
DET            209 47 : 1
CHI               79 126 : 1
SJ               81 122 : 1
LA            669 14 : 1
     10,000

According to the model St. Louis looks like the favourite. (Source: Mark Harrison – Sports Guru)

Internal Revenue Service is battling the estate of art dealer Ileana Sonnabend over the value of a Robert Rauschenberg stuffed bald eagle that is part of his work “Canyon.” IRS has levied taxes as if the work were worth $65 million, but the Sonnabend estate, citing multiple auction-house appraisals, says the correct value is “zero,” since it is impossible to sell the piece because two federal laws prohibit the trafficking of bald eagles, whether dead or alive. Despite the law, IRS says, there is a black market for the work, for example, by a “recluse billionaire in China (who) might want to buy it and hide it.” Wait a minute, since drugs are sold on the black market, shouldn’t the IRS be after them too? (Source: Artinfo)

Have a great weekend folks and please don’t hesitate to forward this newsletter. Go Canucks Go.

Many thanks,

Sam

Friday Finance Weekly 53RD Edition

Greetings folks and a warm welcome to the 53RD Edition of Friday Finance weekly. It’s finally playoff season and with that we have our hockey predictions again.

The most talked about deal in the market is Facebook’s acquisition of Instagram for a cool $1B. This is jaw dropping to say the least, mainly due to the fact that Instagram closed a round of financing 48 hours before the Facebook acquisition that valued the company at $500M. Zuckerberg was actually the brainchild of the deal and he negotiated it within a 48 hour period. While Zuckerberg owns 28.4% of the shares, he actually has 57% control through various shareholder agreements. The ability to make quick decisions is what has made Facebook so successful in the past. I wonder how things will be impacted once the company goes public and there is more accountability. To put the acquisition into perspective, Instagram is only 2 years old and has no revenue at this time. In addition the company only has 13 employees. Since the company is essentially all intellectual property, the Facebook values each employee at $77M! Let’s compare that will Apple who has 60,400 employees and a market cap of $567B. Apple has a per employee value of $9.4M. Note that this isn’t a very scientific valuation technique but given the limited metrics, it’s the best I can do. There is no way this acquisition would be allowed if the company was publically traded, the markets would have a panic attack. One would have to think that the next Instagram is a company called Pinterest. The private market however, has acted positively to the acquisition as Facebook shares are up 2.29% for the week and is presently valued at $95.8B. Let’s face it, Facebook is quickly becoming the ultimate creeper tool. Soon you will be able to snap a picture of cute girl using Instagram, use facial recognition to locate her on Facebook and download her location using Google Latitude. Then you can accidently on purpose bump into her! (Source: NY Times, SharesPost, Google Finance)

The yellow happy face that is the Walmart logo, sure has been busy slashing prices. He/she/it recently announced that due to the pending arrival of Target and to compete with Dollarama, Walmart will be expanding their $1 items. According to Walmart Canada CEO, Shelley Broader, “That’s in direct reaction to what our customers need and want, but it happens to be a nice method of competing against the dollar stores,”. As Walmart is aggressively expanding its Supercenters across Canada, we can expect more US like savings. Existing Canadian retailers such as Loblaws (down 3.32% for the week, with a market cap of $9.18B), Metro (down 0.98% for the week, with a market cap of $5.41B) and Sobey’s (up 1.63% for the week, with a market cap of $4B) will have a tough time competing in a few years. Walmart’s shares are down marginally by 0.99% for the week and they have a market cap of $204.51B. On a side note Walmart has sufficient resources to acquire Loblaws, Metro and Sobey’s! In my opinion a good long-term strategy would be to short the Canadian retailers and go long on Walmart. In terms of a bump, Target will probably see the highest boost as they will be the newest kid on the block. While Walmart will create these savings by paying ultra-low wages and treating their employees to minimal insurance coverage, they can claim to green. With all these savings Canadians no longer have to drive to the US every weekend and this will reduce gas consumption (yeah it’s a stretch). (Source: Canadian Business, Google Finance)

Yes, I made you read all the above before the hockey predictions.

First Round

Eastern Conference

Team

Win %

NY

73.7%

OTT

26.3%

BOS

78.4%

WAS

21.6%

FLA

40.2%

NJ

59.8%

PIT

40.7%

PHI

59.3%

Western Conference

Team

Win %

VAN

43.1%

LA

56.9%

STL

42.2%

SJ

57.8%

PHO

64.4%

CHI

35.6%

NAS

61.6%

DET

38.4%

Yikes, I don’t like the Vancouver predictions. Hope the model is wrong. The Stanley Cup odds are as follows:

Stanley Cup
Team Wins Odds

NY

        1,171

8 : 1

BOS

        1,508

6 : 1

FLA

           148

67 : 1

PIT

           741

12 : 1

PHI

           736

13 : 1

NJ

           506

19 : 1

WAS

           107

92 : 1

OTT

           165

60 : 1

VAN

           856

11 : 1

STL

           763

12 : 1

PHO

           583

16 : 1

NAS

           767

12 : 1

DET

           597

16 : 1

CHI

           338

29 : 1

SJ

           488

19 : 1

LA

           526

18 : 1

     10,000

Don’t worry I still Believe. (Source: Mark Harrison – Sports Guru)

What Christmas gift would be appropriate for the 7-year-old daughter of Britain’s notorious specimen of plastic surgery known as the “Human Barbie”? For little “Poppy” Burge, it was a gift certificate worth the equivalent of about $11,000 for future liposuction (redeemable beginning at age 18). Mom Sarah had already given her a voucher for breast augmentation. (Poppy, developing her early-onset need for attention: “I can’t wait to be like Mummy with big boobs. They’re pretty.”) Mom, who recently turned 51, celebrated with about $80,000 worth of additional plastic surgery to run her lifetime total to the equivalent of (depending on source consulted) $800,000 to $1 million. Okay, this is actually more difficult to comprehend than the Instagram purchase. (Source: Daily Mail)

Have a great weekend and please don’t hesitate to forward this email. Go Canucks Go!

Many thanks,

Sam

Friday Finance Weekly 52ND Edition

Greetings folks and a warm welcome to the 52ND Edition of Friday Finance Weekly. Its been over a year since I started this blog and I hope it continues to be a part of your Friday for the foreseeable future.

RIM is finally doing something BOLD and with a massive shake up in their executive ranks. In addition to the HR changes, RIM is finally changing their business strategy as they are going to stop competing with Apple. The focus is now going to be primarily on the business user. RIM is up 7.02% for the week and is presently trading at $14.63/share. Its market value is still an impressive $7.7B! That being said its 52 week high is $55.50/share. All these changes are overdue to say the least. Company posted a loss of $125M in its most recent quarter. For all its issues RIM is the number one provider of secure communications and is the most economical user to data while roaming. The market estimated that they would sell 11.5M units over the last quarter, but ended by selling 11.1M units. Not sure if this is a sign of things to come, but the Canadian government has said that they won’t interfere with the sale or acquisition of RIM. If Microsoft wants to make a push into this market, they may think about making a run for them. It may upset Microsoft’s relationship with Nokia, but will allow Microsoft to differentiate itself from both Apple and Google. With comments like “RIM has taken a unique path, and why we do things might not be obvious from the outside” coming from Lazardis, forgive me if I am skeptical. Who knows maybe he’s getting advice from Harry Potter. (Source: ZD Net, Ottawa Business Journal, Google Finance)

MasterCard, Visa and Discover have announced that millions of credit card numbers and personal information has been stolen. MasterCard is down marginally by 0.82%, Visa is down marginally by 0.66% and Discover down 1.45% for the week. Global Payments Inc a card processing middle man took the biggest high. Its shares are down 9.73% for the week. While no official announcement has been made, the fact that Global Payments took a massive hit may indicate that they are the source of the issue (note however that the market caps of the above mentioned companies have not been factored). In total over 10 million credit card accounts seem to have been compromised. I wouldn’t bank on Global Payments being down for much longer, it’s a business that that residual transaction base cash with minimal capital expenditures. It should recover in no time, especially given the fact the credit card companies and processors will end up sharing in the losses. It’s your run of the mill credit card scam, where the number and expiry date was stolen and used for online purchases. What exactly gets purchased online? I am assuming that it won’t be something that required delivery (although I would love to see the stats on it), so that leaves website subscriptions. Well at least we know how the adult entertainment industry is being financed. (Source: Reuters)

Iran’s economy is taking a significant beating without access to world financial markets. So they started an innovative new barter systems referred to as the Junk-for-Oil program. Instead of paying for oil, China and India are getting around sanctions by bartering oil for wheat and soybean. Russian and Pakistan are trading wheat for oil. In addition Iran announced that they will trade in any local currency and gold. Using the back channels is only promoting corruption and bribery, what no way? Iran is getting to the point where they have to trade oil for washing machines. The Iranian sanctions don’t seem to have impacted oil prices as they have remained fairly steady at $123/barrel for the last month. The one year forecast is $118/barrel so it appears that Iran has become a non-factor. Only time will tell however. Instead of starving Iran from the global banking system, the US should have traded a few investment bankers for oil. The Iranian government would be bankrupt overnight! (Source: Bloomberg, Oil-Price.net, Google Finance)

U.S. Immigration agents in a $160,000 Chevy Suburban that had been custom-designed and -armored specifically to protect agents from roadside kidnappings became sitting ducks last year when kidnappers forced the vehicle off the road near San Luis Potosi, Mexico, and got the door open briefly, enabling them to fire 100 rounds and kill one of the two agents inside. Wondering how this tragedy occurred? Despite the customization they forgot to change the factory settings that automatically unlocked the door when the SUV was put into park. I now feel better about the bridge to nowhere, at least it didn’t result in death. (Source: Washington Post)

Have a fantastic weekend and please don’t hesitate to forward this newsletter. Many thanks,

Sam

Friday Finance Weekly 51ST Edition

Greetings folks and a warm welcome to the 51ST Edition of Friday Finance Weekly.

A new electronic exchange in the US, withdrew from its IPO today. The BATS exchange (Better Alternative Trading System) was to IPO $16/share. Due to a technical issue however the shares that were listed at $16/share traded between 3.84 cents and 0.02 cents a share. Ouch! In addition the system was further plagued with problems as a trade for 100 Apple shares at 10:57 AM briefly dropped the price by 9%. BATS stated that they had ‘system issues’ for ticker symbols from A to BF. One would think that this exchange was started by a few novice college kids, but in fact its’ owned by Morgan Stanley, Credit Suisse, Citigroup and the Lehman Brothers Estate. Despite its own failed IPO, BATS is fairly successful as it handled 10.9% of all US equity trades last month, sizable to say the least.  The banks aren’t too concerned because the combined loss was only $7.1M…Seems like everything Lehman touches ends in disaster. The fact that Morgan Stanley is up 4.1% for the week and Citigroup is up 1.21% indicates that there was no real consequence by the bad PR. I have however decided to launch my next business venture RATS (Really Awesome Trading System). (Source: Wall Street Journal, Google Finance)

Okay, Apple has Siri, Google as creepy. Confused? Let me explain. Google just filed a patent application to let phones analyze background sounds (no idea how it is going to distinguish voices from other sounds) and deliver adds based on what it hears. For example if it’s raining an add will pop-up on your phone for umbrellas. They will also have the ability to integrate with GPS systems and if you are walking near a bus stop (street sounds will indicate that you are outside), the bus schedule can pop up. Wait a minute, I thought Google were the good guys! That being said this idea is a long way from becoming a reality and given the privacy issues I think its dead on arrival. Google’s innovation and constant focus on generating revenues, in my opinion, makes it a better long term bet than Facebook. The stock is up 2.81% for the week and is trading at $642.59/share with a market cap of $209B. While most people are worried, I am looking forward to this feature. Next time I am on the phone in the washroom, Google will remind me to pick up extra soft toilet paper. In fact it may even give me a coupon for it. Google I thank you! (Source: Boy Genius Report, Google Finance)

My article from the institute B blog:

Apple is always in the news these days, if it’s not releasing a cool new or slightly improved product it is constantly talked about as being the most valuable company on the planet. In addition, there are numerous news articles trying to give some perspective on how big Apple really is. This article is my spin on some of the comparisons out there.

Okay so the most common one is that if Apple (market value in excess of $500B) was a country it would be bigger than Poland (GDP $469B), Belgium (GDP$469B), Sweden (GDP $459B) and Saudi Arabia ($435B). I know what you are thinking…wow, is Apple really that big? Of course not, in fact this comparison is silly. GDP is a measure of the total output of a country in one year (similar to one year revenues in a company) where as the market value of a company is a measure of the total present and future value of a company. If you wanted to compare Apple in terms of GDP we should use their revenues ($108B). In that case we would see that Apple is about a quarter of the size of Sweden. Okay, let’s try something else and take a stab at valuing a country. Take Sweden for example, let’s assume it has an annual growth rate of 2.5% and is an asset that has a risk of 4%. With those assumptions and using the terminal value calculation Sweden would be worth $30.6T (way bigger than Apple). Hope this puts some perspective to the country comparisons. It bugs me that news articles then go to compare revenues of US cities to the market value of Apple. Doesn’t make sense!

There are however some interesting facts floating around. If you took every single US bill with a $1, $2, $5, $20 and $50 value, it wouldn’t be enough to purchase all the shares of Apple. In total there is $252.8B in currency with a face value of less than $100.

The S&P 500 is a fairly accurate representation of the 500 largest companies in the US. If we take the value of the smallest 45 companies, they would be smaller than Apple. Wow! Google for example has a market value of $202B.

Okay, so you thought Apple was big. Let’s put that in comparison with Saudi Oil Production. Most oil production in Saudi is done by state owned Saudi-ARAMCO and the smaller players all pay a royalty to the government. In terms of pure revenues it would take Saudi Arabia just 87 days of full production (10.52 million barrels per day) to generate over $500B in revenues. Of courses there are production and transportation costs, so it’s an unfair comparison. On a net income basis Saudi Arabia will have sufficient cash to purchase Apple in15 months.

With a dividend that was introduced yesterday and a share repurchase strategy; Apple’s share price will continue it’s near term ascent. That being said the new iPad (they didn’t call it the iPad 3 as they want to be unpredictable) and the iPhone 4s aren’t the revolutionary products Apple is known for. The market is expecting a new iPhone in October and if it isn’t close to being a game changer, Apple will get punished. (Source: CNBC, Google Finance, NY Times, Yours Truly).

Ms. Fausat Ogunbayo, 46, filed a federal lawsuit against New York City’s Administration for Children’s Services because they had taken her kids away (aged 13 and 10 at the time) in 2008 for questions about Ogunbayo’s mental stability. The lawsuit, for “recklessly disregard(ing)” her “right to family integrity,” asks the city to pay her $900,000,000,000,000 (trillion). She’s not mentally unstable at all. The world GDP is only $63T, so what’s $900T to her? Heck let’s just add it to the US deficit. (Source: Staten Island Advance)

Have a fantastic weekend and please don’t hesitate to forward this newsletter. Many thanks,

Sam

Friday Finance Weekly 50TH Edition

Greetings folks and a warm welcome to the 50TH Edition of Friday Finance Weekly. Yes its actually coming out on Friday.

Apple is in the news again as the shares crossed the $600 mark on Thursday in anticipation of the new iPad sales. The company refrained from calling it the iPad 3, because they wanted to be unpredictable. Shares are up 7.25% for the week (up 44.48% for the year) and is presently trading at $585/share and market cap is an incredible $545B. Canaccord Genuity raised the target price of Apple’s shares from $665 to $710. With the iPhone 5 rumored to be coming out in October there is plenty of reason for Apple’s stock price to continue is ascent. In terms of Apple’s dominance, cracks are starting to appear but obviously these are only viewable under a microscope. The new Mountain Lion Operating system that is to be released hasn’t received the best reviews as changes are now incremental in nature. I think the new big change to computing is going to come from Microsoft. Their new operating system Windows 8 is due later this year and by all accounts it’s going to knock your socks off. The main issue I have with the iPad is that you can’t run two applications side by side. Well that’s a non-issue with Microsoft products. In addition, the new operating system will build on the XBOX Kinect system and allow users to control their computer with hand gestures and movements. Now that’s revolutionary. The market seems to agree as shares for Microsoft are up 26.08% on a year to date basis. Well Apple wasn’t doing too well on the societal impact front, but now they can put it behind them. The scarcity of Apple products and limited releases has translated to Russian gangs smuggling new iPads from the UK. Ahhh… the beauty of capitalism. (Source: Yahoo Finance, Google Finance).

Seeking Alpha wants to change Nike’s slogan from Just Do It to Just Buy It and they make a compelling argument. In general retailers have had a decent 2012 with stocks rising across the board as consumer spending increases. Nike’s 3Q financial results are coming out next Thursday and there appears to a high level of market optimism. Shares are up 15.46% for the year and presently trade at $111.24/share. Total market cap is around $51B. The diverse product mix is a key success factor as they play in almost every sport on the planet. In fact Nike is known for its ability to create demand. Running is a good example of a revitalized sport. Sporting events for 2012 such as March Madness, 2012 Summer Olympics and the NBA Playoffs are expected to further boost profits. In addition Nike’s Converse brand is launching in China and this is expected to increase profits even more. The top line is being complimented by a decreasing product costs as Nike continually seeks concessions from their producers. New kids on the block in this industry are Lulu (market cap $10B and P/E multiple of 45) and Under Armour (market cap $5B and P/E multiple of 32). There used to be rumors of a merger between the two and this may not be a bad idea. Their combined market cap will be $15B, well below Nike, but the combined entity will be able to further drive down production costs. A good short-term event driven strategy may be to purchase Nike for the next two earning cycles. I personally think that Nike should sell their slogan to the manufactures of Viagra. (Source: Seeking Alpha, Google Finance)

The royal family of Qatar, apparently striving for art-world credibility, purchased a Paul Cezanne painting (“The Card Players”) last year for the equivalent of about $250 million, which is twice as much as the previous most-expensive painting sold for. (Qatar is vying with the United Arab Emirates to become the Middle East’s major intellectual hub.) At the same time that Qatar’s purchase was made public in February, artwork of the probable value of about $200 million became news in reports of the imminent Facebook initial public offering. Graffiti artist (“muralist”) David Choe stood to make about that amount because he took stock instead of money to paint the lewd themes on the walls of Facebook’s first offices. Even though Choe was quoted as saying, originally, that he found the whole idea of Facebook “ridiculous and pointless,” his shares today are reportedly worth up to one quarter of 1 percent of the company. Why did I waste all that time going to grad school? (Source: Vanity Fair, New York Times, Washington Post)

Have a fantastic weekend and please don’t hesitate to forward this newsletter. Many thanks,

Sam

Friday Finance Weekly 49TH Edition

Greetings folks and a warm welcome to the 49TH Edition of Friday Finance Weekly. My apologies for the delay in getting to you.

Beverages are the first topic of discussion, but alas its not the type with a % sign on them. Both Coke and Pepsi had to change their formula pertaining to the caramel flavoring being used. The distinctive brown color is as a result of a chemical called 4-methylimidazole (4-MEI), which is a known animal carcinogen. If a change wasn’t implemented Coke/Pepsi would carry warning signs, similar to cigarettes, in the state of California. You think that the market would have reacted to punish both Coke and Pepsi, but it seems like the news went under the radar. Coke is down marginally, 0.13%, for the week, trading at $69.51/share with a market cap of $157B. Pepsi is up marginally, 0.96%, for the week and is trading at $63.15/share with a market cap of $99B. Canadians should be concerned as there is no roll out date planned for changes to the Canadian, Coke/Pepsi formula. Also, Pepsi has entered the US Dairy Market, by investing $206M in a joint venture with German dairy company Theo Muller. The idea is to enter the yogurt market in the US. This may not be a bad idea as yogurt drinks, particularly pro-biotic drinks are quickly gaining traction. I must admit that both Coke and Pepsi have done a good job of diversifying their business and adapting to changing consumer changes. They now carry numerous health related beverage brands and won’t go down the road of cigarette manufactures. So what’s next? Rum and yogurt (at least its healthy) or my favorite cola flavored pro-biotic carcinogen supplement. (Source: Seeking Alpha, The Guardian, Google Finance)

Canada’s biggest grain handler Viterra is being courted by US based agribusiness giant Cargill. The buyout rumor sent Viterra’s shares up 26.68% over the course of the week. The government of Canada is in the process of stripping the Canadian Wheat Board of its monopoly over the industry and this will allow Viterra to purchase wheat directly from farmers. This will improve Viterra’s profits by $40M – $50M. In addition there are rumors that mining and commodities giant, Glencore International is also interested in the deal. Cargill is a privately held company so there is no way to gauge market perception of the deal. Glencore shares are down marginally, by 3.32% for the week. Viterra has a market cap of $5B so acquiring the company isn’t going to be cheap. Given the historically low interest rates, this is probably going to be leveraged buyout. This is going to be a tough purchase for Glencore to pull off as they will have limited knowledge on Cargill’s cash reserves and debt structure. Glencore on the other hand is an open book. Then again, this may all be much to do about nothing as the not so invisible hand will probably conduct a Canadian net benefit test. I must admit investigating the purchase may not be a bad idea as the other Canadian competitor is privately held, Richardson International. Having Viterra being bought by Cargill will probably make Viterra privately held as well. After that, transparency may be an issue and buying bread may become as much of a dilemma as purchasing gas. Hey at least low carb meals will become fashionable again. (Source: Reuters, Google Finance)

Okay, I must admit that this is the official food edition of Friday Finance weekly. Next up we have Monster Beverage Corporation. The company’s value has doubled over the last year is trading at 20x EBITDA. Its one year return has been 115.13% and has a market cap of $10.3B. Wait, let me get this straight, the company basically bottles caffeine and nitrous oxide (laughing gas) is worth over $10.3B. It has the highest profit margins in the industry at 70%. Goldman Sachs and Credit Agricole estimates carcinogenic friendly Coke is interested in purchasing the company in order to capture part of the growing $32B alternative beverage market. Fun bit of trivia, Monster Beverage has been in operation since the 1930’s but was called Hansen Natural Corp before. Thomas Mullarkey of Morningstar described Monster’s growth by stating that “They are going gangbusters in the growth sector”. In case you are wondering, gangbusters is now included in the glossary section of finance textbooks. 50 Cent will be proud. (Source: Bloomberg, Google Finance)

Like many cities, Taipei, Taiwan, has a dog-litter problem that has proved unsolvable, as citizens continue to ignore pleas to pick up after their dogs and keep sidewalks clean. Finally, city officials designed a successful program (announced in December): a dog-poop lottery. Anyone handing in a bag of dog litter would get a ticket (one ticket per bag) to a drawing with prizes ranging up to pieces of gold worth the equivalent of about $2,000. Citizens would be on the honor system as to whether the “litter” in the bag came from a dog. (Source: Agence France-Presse)

Have a great week folks. Please don’t hesitate to forward this newsletter. Many thanks,

Sam