Apple: Q1 Earnings

Apple  (NASDAQ: AAPL), reported Q1 earnings.

Profits were up to $1b ($1.14 share) compared to $565 m ($0.65 share) the prior year.   Revenue was at $7.1b up from $5.7b and well ahead of analysts forecasts of $6.42b
iPod sales accounted for $3.43b of revenue

iPod shipments were up over 50% 5o 21.1m units.   Gross margins for the company beat estimates and hit 31.2%.  Some analysts were estimating that that iPod margins were up more than 400 basis  points to around 30% and Mac margins were up slightly less to around 32%.

Sales guidance for the March quarter estimate sales in the range of $4.8b with profits in the range of $0.54 a share  – both numbers below analysts initial estimates of $5.24b and $0.60 a share.

More detailed press coverage of Apple’s finances can be found at:

Yahoo Finance
Google Finance

Bucks for Brightcove

It’s still very early in the year but today, Cambridge MA based Brightcove announced the closing of the largest venture round of the year.  The two and a half year old Internet TV (and Ad Network) startup closed a $59.5 m series C private placement.  The round added a number of strategic corporate and international investors to Brightcove’s slate of stockholders which now includes:  AOL/Time Warner, General Electric, Accel Partners, Allen & Company, General Catalyst Partners, IAC/Interactive Corp, The New York Times, The Hearst Corporation, Brookside Capital and Transcosmos Investments (Japanese firm which also has money in CinemaNow).

The financing was a private placement in which Morgan Stanley and Allen and Company acted as placement agents. The capital, according to press releases, is earmarked for international expansion.  It may also be used to secure additional partnerships or even efforts toward consolidation in the developing, but crowded Net TV market.  (Brightcove acquired Metastories in March 2006, and could be out to buy up other companies to enhance its offerings).  

Notable to me is not so much the size of the deal (though it’s large) but the involvement from major media companies like the New York Times and Hearst co.  Brightcove has gained the confidence of many traditional media companies and this stands to expand those relationships.

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Everything old is new: resurgence of the single

Dating back to the 1950’s, songs were widely released as singles and sold on 45s.  As technology changed, vinyl was replaced by tape and then, tape by CD.  With the changes, the sale of singles fell off.   Still, tracking of singles remained a major industry metric, and allowed singles to artificially remain a driver in the industry even though their sales were lower. 

Over the past few years, the Internet and the MP3, and subsequent players and download sites have brought back the single.  Now the Single track is the leading, and fastest growing, segment in music sales. This in turn has helped realign product sales into a direct correlation with the old industry metrics.

An updated version of the Billboard Hot 100 chart, which was originally created in 1958 as a consolidated chart to measure sales in stores, play by radio DJ’s, and play on jukeboxes, remains a major metric for music industry sales and now incorporates digital downloads into its calculation. 

The adapting, evolving music industry has come full circle.

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A Legal, historical archive?

In 2003, following on the footsteps of years of dot com success, flashy TV ad campaigns,  and boom time excess, Brobeck, Phleger and Harrison, a major Silicon Valley law firm with a heavy focus on the technology industry and an 80 year history of practice,  imploded and shut down.  The liquidation ended up in Chapter 7 Bankruptcy and what remained of the firm ended up at the disposition of Bankruptcy Court.

In August, 2006, the court authorized the Library of Congress’ National Digital Infrastructure Preservation Program to begin archiving Brobeck’s digital records which contain a significant volume of contracts, drafts, memos and documents crafted by Brobeck staff.  It was argued that material is historically significant.

From the website :  “even if research access to these records is decades away, preservation demands intervention now” and “the artifacts left in the wake of Brobeck – including digital materials documenting the operation of the partnership and the work it’s lawyers did on behalf of more than 10,000 clients – [contain] a wealth of historical information.”


Over the past five months news of the decision has slowly spread and unfavorable reactions have grown from a whisper to a grumble.    In December several articles and blogs referenced the Archive.

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eBay Analysis: part 2 of 2

This is Part 2 of a 2 part report

Yesterday I picked out 3 of the many issues facing eBay as it grows – issues of customer retention, ROI on investment and Staffing.  Today, I am going to focus on 2 more issues that relate explicitly to size. I will also briefly mention a 3rd unrelated area:

monkey ladder

The Rule of the Monkey:

The saying goes that “The higher up the ladder a monkey climbs, the more monkeys there are behind it trying to climb up its butt.” The same logic often applied to ambitious employees, applies to companies too.  The larger a company is (and the broader its focus is) the more competitors, who are often (but not always) smaller and able to move more quickly, try and grab market share.  eBay is as susceptible to this as any other company.  In eBay’s Payment Segment there is increasing competition from Google Checkout which is a threat even with Paypal’s expansion to 103 markets and 10 currencies.  In the Merchandise Segment it faces competition, domestically and internationally, from companies focusing on niche areas of the marketplace .  This competition can come from traditional retailers for new products, or even exist in the secondary markets that auctions suit so well.  The event ticket category is one such example.  Resale of tickets has the potential to do well in auction; scalpers have known the secondary market was lucrative for years.   But eBay has competition from classified listing services (Craigslist etc), or online secondary markets like ticket vendor Stubhub, and even auctions of tickets in the  primary market  sellers like Ticketmaster (which can decrease the likelihood of resale by adjusting their prices or model).  eBay will always face this risk, but the broader its focus gets, and the more it proves the viability of different business areas (categories and segments), the more it will be grabbed from those below.


The Law of the 800lb Gorilla:

This second maxim for large companies is largely a rule of simple math: the bigger your revenue numbers get, the harder it becomes to maintain the same kind of year over year growth you might have had earlier.  Generating 35% year over year growth is one thing when your gross revenues are $20m, but 35% of $100m, or $5b is totally different altogether.  It can be partly attributed to this that eBay’s international growth rate (36% for 9 months ended Sep 2006) is larger than the domestic rate of 28%).  But as the international revenue catches up, maybe even passes, the domestic numbers, its only natural that the year over year growth will slow unless other divisions grow, or other business lines are introduced.   All large companies face these issues; all also face pressure from Wall Street to find a way to maintain growth. Sometimes under the pressure, good people do bad things (and I don’t mean illegal things though that happens too, obviously) – maybe a risky strategy is made, or the company tries to hard to please and loses its focus, or gets stuck in analysis paralysisEBay’s heavy investment in China is suspect. It may pay off (I don’t think it will, personally) but the law of the 800Lb Gorilla should remind investors to be cautious in evaluating growth opportunities for large companies.

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eBay Analysis: part 1 of 2

This is Part 1 of a 2 part report

At 11-plus years old, a lifetime in both dot com and dog years, is Ebay a vigorous and healthy company or are they a pharmaceutically enhanced geriatric patient?

As of September 2006, Ebay had almost 13k employees worldwide, more than 50k categories of merchandise and over a million dollars of goods trading daily.

But how is the company really doing?  Approximately 10 of the 30 odd analysts covering Ebay rate it neutral.  I’m more or less with them (and not because there’s strength in numbers).  This would-be Corporate Geriatrician thinks the company is sound but has some real issues to sort out to truly be healthy. 

A 40 or more page analyst report could be written breaking down the issues.  that is way  too much space for this format, so to hit on just 5 of the issues (3 today, 2 tomorrow):

Heavy Reliance on relatively small number of customers:

Ebay has more than 1.3 million global sellers but various accounts suggest a small percentage of global “Power Sellers” account for a substantial amount  of the revenue in the company’s Merchandise Segment (which itself represents about 75% of net revenue). Click to Read More

Money Follows Money: impact of M&A into 2007?

Yesterday, I commented on the size of the M&A market for 2006 and promised a more detailed analysis of what it might mean for 2007.  I’m still thinking about that and I’m not ready to take the side of the Bulls or Bears nor am I sure how it will impact the entertainment, media and technology crossover companies that are the  focus of Metue.

Instead of making an unfounded prediction, in the spirit of being cautiously optimistic, I’m going to focus on what happens when money follows money because it represents a risk factor for what lies ahead.

Money follows money: taken literally, the statement is an often unstated, but nevertheless, common behavior in investing.    It makes sense in a simple way – if an investment is providing a good return you’d want to put more money in it and derive even more gain.   It’s the nature of riding the wave.  People follow the trends that are successful.  It’s also part of how investment bubbles are built, and how they burst.

Within the Venture Capital world, or more broadly, within Private Equity markets, there is a limited amount of deal flow that can be managed by Fund Managers in a given time period.  A Venture Capital Fund with 4 Partners might not have the capacity to intelligently invest in more than 5 deals per year (these investments, after all, may take several years of ongoing commitment before liquidity or failure).    If demand for the partners’ investment management services increase, however, something has to change.

Imagine a firm called Bubble Limited Investment Partners (BLIP).  BLIP’s first fund, Bubble I, had the leading Internal Rate of Return (IRR) among similar funds over its lifespan.  The performance was so good, in fact, that other investors want a chance to participate.

So, when the partnership pitches a new fund called Bubble II to their investors, the investors, happy with the return on Bubble I, increase their investment with the partnership, through Bubble II, by 50%.  Additionally, a whole new group of investors that didn’t participate in Bubble I want in on Bubble II.   If Bubble I was a $300m fund, Bubble II is now oversubscribed at $700m. 

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