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Facebook makes Amazon look cheap
Amazon (AMZN) is often cited as the most expensive mega-cap stock. It started 2013 at $250 per share, when many people were already calling Amazon a bubble. The stock price then advanced another 55% during the year, passing the $400 level, and now sports a 1440 P/E ratio.
AMZN data by YCharts
Facebook (FB) had an even better 2013, as its stock nearly doubled in price. With a P/E ratio of a "mere" 147, Facebook looks a bargain in comparison with Amazon, but is it?
Let's examine Facebook and Amazon from the point of view of other valuation metrics.
Metric
Facebook
Amazon
Market Cap
$142 billion
$182 billion
Enterprise Value
$133 billion
$177 billion
Forward P/E ratio
51.1
151
PEG ratio (5 year expected)
2.11
14.9
P/S ratio
20.0
2.55
P/B ratio
10.5
19.7
Enterprise Value/Revenue
19.5
2.53
Enterprise Value/EBITDA
40.9
55.9
Qtrly Revenue Growth YoY
59.7
23.8
Source: Yahoo Finance
Based on this list of expanded valuation metrics, Amazon still looks more expensive than Facebook, right? Amazon is growing its top line at less than half the rate of Facebook but is given a forward P/E ratio three times that of Facebook, and a PEG ratio 7 times that of Facebook. What is going on?
The crucial missing concept here is operating margins: Amazon's are razor thin and artificially low whereas Facebook's are already approaching their maximum level.
One can see this by comparing Amazon to eBay (EBAY). eBay does around $65 billion (excluding automobiles, which don't generate much in the way of transaction fees) in gross merchandise volume through its marketplace. From this, eBay manages to generate $2.1 billion in net income from its marketplace or around 3.3% of total gross merchandise value - eBay also earns another $600 million from PayPal's transactions, outside of eBay's marketplace.
Now Amazon has direct sales of around $65 billion but also does another $70 billion worth of transactions on its third party selling platform. So Amazon does over twice the turnover of eBay and is actually growing turnover at a 25-30% annual rate - twice as fast as eBay's marketplace is. eBay, excluding PayPal, is considered to be worth around $35 billion, so Amazon could reasonably be assumed to be worth 4 times that amount, and that's before considering AWS and Kindle.
Facebook is priced for perfection
Facebook is the complete opposite of Amazon: it has operating margins of 33% percent, which is even higher than Google's (GOOG) at 25% (Google's operating margins are 30%, excluding Motorola). Therefore I can't envisage any further increase in Facebook's operating margins beyond its current level. Without any operating leverage, Facebook will have to depend on revenue growth to bolster its bottom line.
But Facebook's underlying growth rate isn't any better than Amazon's. Monthly active users are only growing by around 18% per year.
(click to enlarge)
Note how growth in North America and Europe has now fallen to less than 10%, year on year. And given that teen usage in these geographies is either flat-lining or actually declining, that growth is coming from older users, who are less valued by advertisers.
The only real growth in users is occurring in Asia and elsewhere and this adds very little in additional revenue.
(click to enlarge)
One North American user generates 7 times the revenue of someone from Africa and South America.
Facebook bulls have seemingly taken for granted the high revenue growth rates Facebook has been reporting in recent quarters. But this has entirely been down to Facebook finally getting around to monetizing mobile.
(click to enlarge)
In another words, Facebook these last few years has been carrying around a snack that it has only now got around to eating.
Advert overload
Now can't Facebook just run more ads? Increase the ad load to 10% from the current 5% and bingo, double the revenue!
There are two basic problems with that strategy:
First of all too many adverts will threaten to push users away from Facebook. Already, teens are starting to leave for other sites. Some of that has nothing to do with ads - teens just don't want to share their personal lives with their parents and grandparents. However, it is likely advertising does play some role. One of the reasons cited behind Facebook's rise and MySpace's fall was that MySpace was covered in advertising, while Facebook for many years had no adverts at all.
Ultimately the number of adverts Facebook can show is limited by the ROI of the companies advertising on Facebook. Doubling the inventory will lead to a massive drop off of in that ROI.
Facebook valuation
Facebook is expected to triple net income next year. This is actually mostly the result of a lower expected tax rate, which this year was over 50%. Yet even with that massive boost to net income next year, Facebook still has a forward P/E ratio of 50. Google in contrast has a forward P/E of only 22. Since Facebook doesn't have any superior form of advertising to Google, and I would argue, actually an inferior one, Facebook won't be able to take market share away from Google. Instead its revenue growth over the next few years will be limited to the overall growth of the online advertising market, which is approximately the same rate as Google is expected to achieve. Consequently, I don't think Facebook should be given a forward P/E ratio any higher than 20. That implies a share price of $22.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
I got some $3.67 as well. Looking to make some nice profit on that.
Great day to accumulate some shares
During a recent interview, Facebook (FB) game partnership director Sean Ryan asserts Facebook is still seeing growing PC gaming activity, in spite of the mobile shift. That's a positive for Zynga (ZNGA), provided the company can stabilize its share. Ryan also claims the development of cross-platform games (e.g. Zynga Poker, Candy Crush Saga) yields higher engagement on both mobile and PCs.
AMD (AMD), which manufactures and markets microprocessors and graphics processors used in PCs and servers, will report its Q4 2014 and full year results on January 21.The consensus revenue estimate for the quarter is $1.54 billion, a robust 33% over the prior year level. Having incurred losses for several quarters, the company returned to profitability and positive cash flow in Q3 2013, as it reported its highest sequential growth (26%) in the last five years. We indeed believe that AMD will close fiscal 2013 on a strong note. Renewed demand in its traditional PC segment, and growth opportunities in new markets, are allowing for improvement to its financial and operational performance.
Having restructured its operations in the last few quarters, AMD intends to now focus on executing its new product plan to accelerate growth and expand its new businesses to improve profits. Though PCs remain an important part of its overall portfolio, AMD aims to derive 40%-50% of its revenue from other high growth businesses in the next two to three years, including semi-custom and ultra-low power processors, professional graphics processors, as well as processors for dense server and embedded solutions. Expanding its footprint in alternate growth markets insulates AMD, to some extent, from declining PC shipments. It also increases its focus on differentiated products. It is a credible strategy.
Our price estimate of $3.55 for AMD is at a discount of approximately 10% to the current market price. We will update our valuation after the Q4 2013 earnings release.
PC Shipments To Decline For The Second Consecutive Year In 2013
The main factors leading to the slump in the PC market include: 1) the cannibalization by tablets and smartphones; 2) the weak reception for Microsoft's Windows 8 OS; 3) the slowing enterprise market; 4) consumer softness in mature markets (the U.S. and Western Europe); and, 5) the slowing demand from emerging markets. PC sales declined marginally in 2012, and research firm IDC estimates shipments to decline by 10.1% in 2013, slightly above its initial forecast of a 9.7% decline. [1]
However, while overall PC shipments are expected to decline for the next few years, IDC estimates the portable PC segment to grow at 8.7% between 2013 - 2017.
AMD believes that its updated product portfolio better positions it to gain share in the traditional PC market as well as generate higher revenues from new growth markets. In its last earnings call, the company declared that it is seeing improving demand for its products in the traditional PC market. It has a robust pipeline of upcoming products and platforms which we believe could fuel demand for its products in 2014. [2]
Strong Game Consoles Sale To Aid Revenue Growth
AMD devised a unified gaming strategy in March 2013 that addresses its plan to drive the gaming market across consoles, cloud platforms, tablets and PCs. It believes that it is effectively positioned to drive the next revolution in gaming and now powers all major next generation consoles including Sony's (SNE) PlayStation 4, Nintendo's Wii U and Microsoft's (MSFT) Xbox One.
AMD believes that gaming is one of the key pillars of its semi-custom chip business. It shipped millions of units to support the next-generation Sony and Microsoft game consoles in Q3 2013, which utilize AMD's system-on-chip Jaguar core and Radeon HD graphics chips. Going by the rate at which these game consoles are being sold, we expect they were an important factor driving AMD's revenue growth in Q4 2014, and will continue to be going forward. While Sony's PS 4 sold 2.1 million in the first two weeks, the Microsoft Xbox achieved 2 million in 18 days. [3] [4]
In Q3 2013, AMD generated over 30% of its revenue from its semi-custom and embedded business, exceeding its target of earning 20% of its revenue from these markets by Q4 2013. AMD believes that the two segments will be important revenue drivers in subsequent quarters as well.
The Mac Pro Deal To Increase AMD's Share In Professional Graphics
Apple (AAPL) has used AMD's dual FirePro professional graphics solutions in its recently launched Mac Pro desktop. With AMD's FirePro D300, D500 and D700 GPUs, Mac Pro users will have the ability to seamlessly edit full-resolution 4K video and simultaneously render effects in the background, and still have enough performance to power up to three high-resolution 4K displays.
AMD currently accounts for 21% of the professional GPU market, which is dominated by Nvidia (NVDA). However, the Mac Pro deal can considerably elevate AMD's standing in the professional GPU market. Digitimes reports the deal could increase AMD's professional GPU market share to 30% by the end of 2014. [5]
Strong performance in professional graphics was an important factor that drove AMD's growth last quarter. The company marked its fifth consecutive quarter of revenue and share growth in the professional graphics business segment, which accounts for approximately 7% of its valuation (as per our estimate). We expect the Apple Mac Pro deal accelerated AMD's revenue growth in the segment in Q4 2013 and will continue to drive graphics revenue going forward.
Earnings announcement* for GM: Feb 06, 2014
General Motors Company is expected* to report earnings on 02/06/2014. The report will be for the fiscal Quarter ending Dec 2013. According to Zacks Investment Research, based on 11 analysts' forecasts, the consensus EPS forecast for the quarter is $0.88. The reported EPS for the same quarter last year was $0.48.
Read more: http://www.nasdaq.com/earnings/report/gm#ixzz2qUXtVTFw
Today's dip was a gift to accumulate more shares. We will see some green days ahead.
GM is done with the government and now they are ready to make some huge money in 2014.
GM Expects Modest Earnings Improvement in 2014 -- Update
By Jeff Bennett
General Motors Co. said its earnings would "modestly" improve this year, as the auto maker uses an anticipated stronger financial performance in the U.S. and China to offset restructuring costs.
"We're taking advantage of strength to really take aggressive and assertive steps to fix other parts of the business," GM President Dan Ammann said Wednesday during a presentation to auto industry analysts in Detroit. "We're committing a large amount of cash and resources to restructure Europe and we are spending money, real money to restructure some of the international operations that will pay off substantially for us in the future."
GM said it would spend about $1.1 billion on cost-cutting measures such as closing a plant in Germany, winding down operations in Australia and pulling the Chevrolet brand from the European market.
The tepid outlook could dampen investors' enthusiasm stirred Tuesday night, when the company reinstated a quarterly dividend after a six-year absence.
GM will begin paying 30 cents a share quarterly dividend on its common shares in March after posting a 4% increase in world-wide sale volume and as big investors pushed for a resumption of cash payouts. The proposed payout will cost GM nearly $1.67 billion a year.
Shares of GM dropped 60 cents, or 1.4%, to $39.45 in recent trading.
The forecast follows rival Ford Motor Co.'s similarly lackluster forecast for 2014.
GM's outlook combined with Ford's forecast underscores the internal pressures the two companies are still wrestling with despite booming sales in the U.S. and an expected 2% increase in the number of cars and trucks sold globally. More than 85 million vehicles are expected to be purchased this year.
Mr. Ammann was quick to point out that GM's core operations remain intact and that the money being spent this year was to position the company for a healthy 2015.
"We have a big opportunity to really be smarter and more thoughtful and more strategic about our resource allocations," Mr. Ammann said.
In a breakdown of the regions, the North America unit is expected to see retail share growth, a modest market share increase and higher prices for the vehicles sold.
"Overall, 2014 will be another important step on our path to 10% pre-tax profit margins," GM's newly named Chief Financial Officer Chuck Stevens said.
In Europe, GM is "starting to get some traction" for the first time in 14 years, as it moves its marketing muscle behind its German Opel brand and pulls Chevrolet from the region. But vehicle pricing will remain an issue as auto makers offer incentives to drive sales, Mr. Stevens said.
"We're expecting moderate industry recovery, very moderate industry recovery," Mr. Stevens said. "But at least we're sensing that we've bottomed out and we're starting to go on an upward trajectory."
The company's international operations will be the biggest challenge as the company begins to exit Australia and deal with an overall underperformance.
"There's a number of repair jobs that we need to start working on," Mr. Stevens said. "We need to regain momentum in 2014 and execute the restructuring actions so that we get the full benefit of that in 2015 and 2016."
South America is expected to report relatively flat performance during the year, as strength in Brazil is offset by currency fluctuations in Venezuela and Argentina.
"The risk profile in South America has increased significantly in the past several months," Mr. Stevens said. "We think that's going to continue in 2014. A lot of volatility risk in Venezuela and Argentina. It's very, very difficult to do business in Venezuela right now. And we're going to have to manage through that as we go through the year."
Write to Jeff Bennett at jeff.bennett@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
Big money is starting to poor in. :)
With the growing automobile industry just beginning to take hold once again, it appears that General Motors (GM) will soon get away from the unflattering name it had been given of "Government Motors". While it is obvious that the US government (aka: tax payers) bailed the manufacturing giant out, it is also obvious that the company is a vital part of the US economy, and needed help to survive.
Not only do they employ hundreds of thousands of Americans, but they also enable thousands of small businesses to survive and thrive, and it is not just here in the USA. Take a look at this article.
General Motors Co. dealers delivered 9,714,652 vehicles around the world in the 2013, up 4 percent compared with 2012. Among GM's top five global markets by volume, China and the United Kingdom posted the largest year-over-year sales increases on a percentage basis, with each up 11 percent. GM's China sales set a new full-year record. Sales in the United States increased 7 percent.
This is more than impressive, it is wonderful. Every single person knows that the automobile industry is vital to the US economy, and with the recent sales figures looking good for both Ford (F) and General Motors, investors should be watching them very closely to add to any type of portfolio.
Now General Motors Is Paying Shareholders To Own Shares
Not that this announcement came as a shock, nor was it very surprising, but it still is a pleasure to see that GM is once again among the ranks of huge mega cap blue stocks to pay shareholders a very compelling dividend.
"Today's General Motors is designing high-quality, world-class vehicles for our customers and delivering consistently solid financial results," said Dan Akerson, GM chairman and CEO. "The board understands that our investors should share in this success and is pleased to announce a quarterly dividend for our common stockholders."
Dan Ammann, executive VP and CFO (Ammann will become GM President effective January 15th 2014) had this to say:
"Our fortress balance sheet, substantial liquidity, consistent earnings and strong cash flow provide the foundation for an ongoing payout. This return to shareholders is consistent with our capital priorities and is an important signal of confidence in our plans for a continuing profitable future."
The company has announced a $.30/share dividend payable on March 28th, to shareholders of record as of March 18th. on an annual basis, $1.20 per share works out to a current yield on cost of 3.00% based on today's closing price of $40.02/share.
Speaking from a dividend income seeking investor point of view, I am thrilled!
The Balance Sheet And Fundamentals Are Very Strong
Some may argue that a slowdown in China could hurt GM (they are the largest supplier of US cars there), I suppose anyone could say that the sky is falling anywhere at anytime. The facts simply justify the reasons for me, that GM is back and stronger than ever.
Compared to 2012, here are some highlights in 2013:
Chevrolet sold a record 4,984,126 vehicles in 2013, an increase of 19,304 from the previous record set in 2012. Key product launches included the Silverado, named the 2014 North American Truck of the Year, and the Corvette Stingray, named the 2014 North American Car of the Year.
Cadillac's global sales were up 28 percent. The brand ended 2013 as the fastest-growing full-line luxury brand in the United States, with sales up 22 percent following the introductions of the all-new XTS and ATS. In China, Cadillac's sales grew 67 percent to a record 50,005 vehicles. Cadillac broke ground on a new assembly plant in China last year and plans to add one new model per year in the country through 2016.
Buick's global sales were up 15 percent as it introduced redesigns of the LaCrosse and Regal in all of its major markets and added new models in North America, including the Encore crossover. Dealers delivered 1,032,331 vehicles for the best year in the brand's 110-year history. The previous record of 1,003,345 vehicles sold was set in 1984, before the brand entered the China market.
Opel/Vauxhall sold more than 1 million vehicles globally and delivered a slight increase in European market share to the mid-5 percent range, its first in 14 years, following the successful launches of the Mokka and ADAM.
Here are the key fundamentals:
A low forward PE ratio of just 8.70.
A price to book of only 1.97.
A tiny price to sales ratio of .36.
$27 billion in cash and equivalents on hand.
Beta of just 1.70
The auto industry dividend payout ratio average is about 27%, I am assuming that it will be less or about average for GM, meaning increases are likely.
The analysts are weighing in favorably as well:
(click to enlarge)
Keeping all of this simple, I believe GM is now a great addition to a dividend income portfolio, and the company has all the earmarks of becoming a dividend champ as well.
Of course if an investor would have bought shares when I wrote this article, their yield on cost coming out of the gate right now, would be 5.75%!
I had this to say:
Back in January of 2011 GM shares hit $38.98/share and now it is hovering around $22.00/share. I believe this stock is ultra cheap now and even at $39 bucks it was cheap.
I will say it again; the stock is cheap, and now it pays shareholders to own it!
The Bottom Line
Now that General Motors has announced a 3.00% annualized dividend yield, the price seems right for any dividend investor to get in from the start.
Baseball, apple pie, and Chevrolet!
Disclaimer: The opinions of the author are not recommendations to either buy or sell any security. Please do your own research prior to making any investment decision.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: We could add shares of GM to our retirement portfolios at any time.
After hours Gainers / Losers
05:39 PM ET · GM
Top gainers, as of 5:15 p.m.: DTLK +25.9%. RT +3.5%. PBPB +3.4%. AMCC +3.2%. GM +3.0%.
Top losers, as of 5:15 p.m.: XONE -14.9%. HTWR -9.9%. ATU -8.8%. VJET -7.4%. MBI -5.6%.
AH looking good with the .30 dividend announced today.
General Motors Company declares $0.30 dividend
04:49 PM ET · GM
General Motors Company (GM) declares $0.30/share quarterly dividend.
Forward yield 3.00%
Payable March 28; for shareholders of record March 18; ex-div March 14.
One of the best ways to uncover investment ideas is to pay attention to the smart money---investors with proven track records and outsized returns. Even Warren Buffet, arguably the world's most celebrated investor, welcomes ideas from other smart investors knowing that it's impossible for one person to cover the entire universe of investment opportunities. In fact, when John Paulson made billions for himself and his partners shorting subprime mortgage bonds in what would be called "the greatest trade ever," it was an idea he learned about from another fellow investor.
About a month ago, Kyle Bass of Hayman Capital, announced a significant stake in General Motors (GM) claiming, "GM equity represents one of the most compelling risk/reward situations of any large cap in the world today." Incidentally, Mr. Bass was also a beneficiary of the short subprime trade and he too learned of the idea from another investor.
Warren Buffett and Kyle Bass are both great investors but their styles aren't very similar. Yet, Warren Buffett is also a large GM shareholder with around 40,000,000 shares. Additionally, a couple of really smart billionaires both named David---Mr. Einhorn and Mr. Tepper, also like what they see at GM. Even banks have joined the bandwagon -- Goldman Sachs has added GM to its high conviction list.
So why is it that the smart money seems to love GM? Because it's a cheap transformer. Let us explain.
Buffet likes companies that are not only cheap, but he also needs a margin of safety and a strong brand. Since exiting the crisis GM's balance sheet has improved drastically. With a cash position well over $20B, and increasing FCF, this margin of safety is only getting stronger. The screenshot below shows a quick summary.
(click to enlarge)
Regarding valuation, GM is cheap on many levels, as the charts below make clear.
(click to enlarge)
In terms of brand strength, it would be difficult to find many companies with stronger brands.
General Motors was once said to be synonymous with the American economy, there's not a man, woman, or child that isn't aware of the brand. But many are not aware of the transformations around the corner.
Say Goodbye to Government Motors...Say Hello to the New Heartbeat of America
"Like us, there's more to them than meets the eye." -Optimus Prime, Transformers (2007)
(click to enlarge)
With Uncle Sam no longer with its foot on the brake pedal, and cash mounting on the balance sheet, look for a new a growing dividend to commence. In addition, the fact that GM is pulling the plug on failed projects shows that they are learning from mistakes and not throwing good money after bad ideas.
GM is still the leading car company in the world's two largest markets; China (which became number one in 2009) and the US. The increasing purchasing power of Chinese consumers and the need to replace the aging cars on US roads will both continue to drive demand in the next several years. As this recent article from business insider points out, GM is selling more cars in China than ever before and sales are growing at over 11% annually.
Those most familiar with the transformations taking place are the insiders. And it certainly seems they like what they're seeing -- notice the recent insider purchases below.
(click to enlarge)
It's no wonder then that the smart money is throwing more and more good money at GM.
FB is making so much profit that when they do decide to give out dividend than we will be at $100 per share.
"We ran as if to meet the moon." - Robert Frost, "Going For Water" (1915)
Generally speaking, the moon is about 225-250k miles from Earth. Landing on the moon in 1969 culminated a great American odyssey and was a colossal harbinger to the new technology era. Now well past Y2K, technology is our advanced way of life and Facebook, Inc. (FB) has become relevant as the largest and most important human social network via the World Wide Web.
It wasn't always this way however. When I was in college in the mid-2000s, Facebook was only big on the east coast and very rare in California. I met a girl named Kim on the plane ride back from Hawaii in 2005 who was studying at New York University. Instead of offering her number, she asked "Do you have a Facebook?"
I became curious however at that time, nobody I knew in San Diego had Facebook and everyone was using another network called MySpace. I ended up making a Facebook account later with my college email address but never found Kim and used it sparingly. MySpace was still trending hard.
By 2008 everyone my age and younger started gravitating towards Facebook, however the pack still held on to their MySpace accounts. Soon it became clear that more and more people were deleting their MySpace account, as there was no need for two separate networks with a remarkably identical purpose.
In looking back, I remember Facebook wasn't as cool for music, which was the one area that MySpace dominated. That was not enough to keep me enrolled, even though the account was free. Once my sister and a hoard of my friends deleted MySpace, I decided it was time for me to go as well.
Lessons Learned From Facebook Vs. MySpace
The whole concept and birth of the online social network was really cool. I can attest to it as a college student right in the heyday of it. MySpace was huge, everyone I knew in college and high school was on it and the company even sold to News Corp. (NWS) (NWSA) in 2005 for $580 million. Then Facebook came along, took over and became the "it" thing for everyone from middle-school kids to baby boomers.
The most important lesson learned in the Facebook/MySpace debacle was the lack of need for two networks with the same purpose. It was a natural monopoly, kind of like an electric utility but without the government's blessing. MySpace lost for me because "everyone else" moved to Facebook.
MySpace was destroyed by Facebook and has never been able to come back as a network, although Justin Timberlake did participate in the purchase of the site in 2012 for $35 million.
Why Instagram Is Facebook's Ticket To The Moon
While Facebook has been a success and is earning advertising revenues, my empirical research as an advertising executive dictates another story. While the user targeting method is very efficient and does cost a pretty penny, users generally do not participate and engage in the ads.
My thesis is that with Instagram, Facebook finally holds the key to effective advertising as their home site, facebook.com, in currently inefficient and a poor choice of advertising dollars. On the contrary, Instagram is perhaps one of the best advertising platforms I've ever seen.
Facebook Ads Are Weak, Consumers Do Not Read Them
Have you ever opened a website and had music come on? Or had a pop-up screen asking for your info within a few seconds of opening a new page?
Strategies that used to be cool online are now annoying and inefficient. Viewers close websites with auto-play music as it conflicts with their harmony. Pop-up ads upon site entry are immediately closed when a customer sees them upon first linking to the site.
In essence, users are trained to avoid Facebook's online advertising. Like TV viewers fast-forwarding through advertisements on DVR-recorded content, online users avoid ads at all costs. They learn where the ads are in comparison to desired content and once that happens, unless the ads are very catchy the effectiveness is gone.
As a Facebook user, how often do you read the ads? Your mind is probably so swift at avoiding them that you may not realize how many ads are blared your way each time you are on the site.
I'm not saying digital advertising is ineffective. Google Inc. (GOOG) is perhaps the best advertising resource in the history of mankind and it's 100% digital. My thesis dictates that with Facebook, users are trained to avoid ads under current conditions. Here is a basic (blurred for privacy) home feed on Facebook from January 2014.
(click to enlarge)
I highlighted the ad section with a yellow box. As you can see, the ads each have a small photo and a catchy phrase. In the past 2 years, I have only noticed these ads a handful of times. I've only clicked on them two years ago when looking into the Facebook's advertising efficiency for publishing-related research.
After I was done with my research, I've naturally avoided that section of ads. Perhaps if it was only one fashion ad, rather than a plethora of smaller, spam-looking ads, I would stray to that area of my feed. Facebook hasn't figured that out yet and in my opinion, most other users avoid this section as well.
In addition to sponsored ads on the right sidebar between the "timeline" feed and the "chat" window, advertisers also can buy placement in the timeline feed itself (page blurred again for privacy).
(click to enlarge)
The timeline ads are usually the second story in the feed. Once again, site users know this is sponsored and then scroll quickly to the next "real" story in their feed. Humans are quite capable of ignoring content here, however on the bright side for Facebook, these ads are more likely to be seen whereas the sidebar sponsored ads more easily and naturally avoidable.
Criticism Of Facebook Ads
The marketplace is rife with companies that have spent money with Facebook only too see a negative return. The largest U.S. advertising group is the auto industry and is the most-highlighted, high-profile domestic marketing faction to publicly denounce Facebook.
General Motors Company (GM) questioned spending money with Facebook in 2012, just before the IPO, stating that the ads were ineffective. With an upcoming IPO and coverage with The Wall Street Journal, this story gained a lot of traction.
Other poor reviews include a mock campaign with poor response conducted by the BBC, as well as a Reuters poll that also deemed Facebook advertising as ineffective.
Another criticism of Facebook advertising is the lack of common ground between users and businesses. Users elect to follow a business, yet they do not see the business feed. Facebook now charges businesses to reach not only targeted users but also the very audience that already has "liked" the brand. Users will not see many pages they like, if ever, unless the business pays for it.
In this regard, Facebook for businesses has become more of a "social homepage" that users can look up instead of leaving Facebook for Google or another search engine, rather than a conducive, interactive platform for their registered base.
Facebook Promoters Are Profiting Here, Not Facebook
Instead of Facebook making money here, businesses are keen to pay popular local personalities with a high degree of online social clout. By hiring a promoter, businesses get huge engagement as an added bonus through their employment roster and thus bypassing the appeal of paid social media advertising.
This has changed the landscape in trendy industries, such as nightlife and entertainment, as popular personalities are hired to work in addition to reaching others though their own social networks. For example, a nightclub would prefer to hire a bartender or manager who has thousands of Facebook fans, rather than pay to reach a similar base with a paid reach. In this regard, emphasis is placed on "who you know," rather than "what you know."
Instagram Will Be The New Vogue Of Mobile Advertising
In 2012 Instagram really took off. I noticed it because my younger, college-aged coworkers told me I had to get on it. Soon after I created an account and then noticed my entire network was migrating to it. Just like Kim from NYU who asked me if I had a Facebook, one of our interns said "Morgan, we need to get Instagram. Everyone has it. Do you have one?"
Keeping in touch with the college group, our business achieved an immediate Instagram base of several hundred college-aged users before our competition even registered a free account. Many top bars and nightclub accounts we worked with didn't have Instagram yet, which earned us "kudos" as a bonus presentation during advertising meetings.
Unlike MySpace, which was (rest in peace) the same type of service as Facebook, Instagram is completely different. It's primarily mobile and users must upload a photo as their message, which can be accompanied by words, symbols and hashtags. It's sort of an immature Twitter, Inc. service (TWTR) that requires a photo to accompany a message, however it has no length restrictions and does not hyperlink URLs.
Instagram has growing pains, however, which Facebook is perhaps looking to fix before going full force on paid marketing. Like MySpace, Instagram is rife with fake users, imposter brand/celebrity accounts and a difficult search environment for brands and celebrities (try looking up Ryan Seacrest for example).
On the positive side, Instagram is a very attractive personal network of friends, brands and celebrities/heroes. I think of Instagram as the mobile, social network magazine.
On Instagram, users only see one status/photo at a time in the feed, which will make ads stand out. Users are trained to look at each photo, notice the author and text, then either continue scrolling or engage with a like, comment or participation with a hashtag or profile link.
Cellphone Screenshot Example Of Instagram's User Feed
As ads here will be stand-alone, like a magazine but with one page, advertisers will be guaranteed that users will witness the ad. Unlike Facebook, where users have an option to engage and are naturally trained to avoid ads, Instagram users will have no choice.
In this respect, users will be more likely to engage the ad through a follow, like, comment or hyperlinked URL. Higher engagement rates makes each placement worth more to the advertiser, which in turn will lift costs higher as demand increases.
In addition, targeted ads that are guaranteed to reach a specific audience are worth more. While Facebook ads are largely social "junk mail" that users are trained to avoid, Instagram ads may be defined as high-quality, engageable magazine-style content.
When content algorithms are figured out, I imagine an incredible amount of revenue is possible. For example, women who hashtag fashion or engage in #fashion, are within a target location (such as the U.S.) and are within a certain age group (such as 18-24) would be susceptible to all types of fashion ads similar to ones that readers would see in the pages of Vogue.
The digital prowess here is incredible as Instagram ads would be fine-tuned and immediately engageable, thus leading to personal feelings transmuted via likes, comments and new followers.
Instagram ads with URLs will lead to purchases via mobile devices, which aims to be the hottest new medium of purchasing this century.
According to Internet Retailer, a portal to e-commerce intelligence in the U.S. alone 196 million people are expected to shop online by 2016, with average annual per-capita spending of $1,738 that totals $327 million.
According to IBM, in 2013 mobile browsing represented 39.7% of all online traffic on Black Friday. IBM noted that online customers referred through Facebook and Pinterest spent an average of 77% more per order and that mobile sales accounted for 25.8% of all online sales, up from 21.8% on Black Friday in 2012.
QVC, the third-largest online retailer in terms of sales in 2013 behind only Apple Inc. (AAPL) and Amazon.com (AMZN) also showcased tremendous online and mobile growth in Q3 2013 versus Q3 2012. A few statistics include:
Web sales up 11.7% to $535 million
Domestic Web sales 41.2% of total sales of $1.3 billion
Global mobile sales up 39.4% to 636.7 million
With these trends showcasing strong online growth, higher mobile sales as a percentage of total online sales and higher per-order sales routed through social networks, investors can be certain that Facebook is looking to capitalize with mobile marketing on Instagram in 2014.
Threats To Instagram
Of course, threats include a new Instagram competitor and other social networks, such as Vine, Twitter, FourSquare and Snapchat.
Vine
Vine is the 2013 video-only social network upstart sponsored from Twitter. The company made a big splash last year but failed to catch on. In response, Instagram added video content and Vine popularity immediately declined.
Vine Screenshot On Mobile Phone
Unfortunately Vine limits users to video clips and as such, users cannot upload photos alone. After one year, the empirical evidence shows that in the U.S., the demand for stand-alone video proved insufficient to compete with Instagram or catch on in a major fashion among mobile users.
Twitter
Twitter is a much different type of service and although it is popular, the service does not really compete with Instagram. Also, it seems that the younger, trend-setting mobile users are very much engaged in Instagram and are less swayed by Twitter's limited social service. although Twitter does offer cropped, filtered photo uploads, it just does not compete with Instagram. With multiple status updates available at once, marketing is also easier to avoid versus Instagram.
Twitter Screenshot On Mobile Phone
Foursquare
Foursquare is a location-based check-in service, is practically obsolete and does not interest many users these days. Users can upload a photo, however the incentive to download the application is not very large.
Foursquare Screenshot On Mobile Phone
Besides Twitter and Foursquare, there is no other large-scale photo-sharing/editing engageable social networks in the U.S.
Snapchat
Privately-owned Snapchat may be seen as the biggest threat to Instagram. The company could deal a huge blow to Instagram's engageable photo-sharing, social network leadership position with a modification to include a permanent photo/video feed with editing tools and social media interaction capabilities.
Two Screenshots Of Snapchat's Application On Mobile Phone
A move from Snapchat's cloaked, private social network to a public, engageable one may be a challenge worth entertaining. As of October 2013, Nielsen estimated that 13 million people were sharing content on Snapchat, versus 6 million on Vine.
Conclusion
Due to the poor nature of FB ads and the incredible prospects of Instagram ads, as well as Instagram's rising popularity and the high-value advertisers will pay for targeted, mobile social marketing, the Instagram division at Facebook may be worth more than the Facebook brand itself in terms of revenue and profitability.
While Snapchat remains a huge, credible threat, Instagram is the market leader and once the move to advertising is complete, revenues may pour in, exceeding investor's wildest expectations and thus transforming Facebook's stock into a Virgin Galactic spaceship headed straight for the moon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
1 week till earnings are release. Let see how high this will go before next week.
Facebook buys social sharing startup to create new "Conversations" unit
11:40 AM ET · FB
Facebook (FB -0.9%) has acquired Branch Media, a startup that provides an app (Potluck) that pushes news snippets to users with the goal of enabling conversations with friends, as well as a link-sharing site (Branch) meant to host private discussions on news topics. Sources tell The Verge the price tag is around $15M.
Though Branch's products will (for now) remain in place, its team will now focus on developing products for Facebook (via a new Conversations group) that "[help] people connect with others around their interests." CEO Josh Miller says Facebook wants his company to "build Branch at Facebook scale."
Facebook has its eyes set on becoming a primary source for sharing and discussing news stories; the company recently tweaked its news feed algorithm to show more "high-quality" stories, and Mark Zuckerberg has said he wants Facebook to be "the best personalized newspaper in the world."
But (as noted in a December AllThingsD report) a disconnect currently exists between Facebook's goal and actual user activity. "Low-quality" viral content posted on Facebook often receives far more clicks and comments than "high-quality" news content.
GM close to reinstating dividend
02:21 AM ET · GM
General Motors (GM) is "the closest it has been" to issuing its first dividend since the financial crisis in mid-2008, CFO Dan Ammann said yesterday, ahead of the Detroit Auto Show.
"It's clear to us that investors are anticipating a dividend," said Ammann, who was speaking at the unveiling of the GMC Canyon mid-sized pick-up truck.
Chevrolet a quick hit at Detroit Auto Show
07:59 AM ET · GM
General Motors (GM) starts the Detroit Auto Show off in fine fashion, sweeping the Car and Truck of the Year awards this morning.
The Chevrolet Corvette Stingray was named North America Car of the Year, while the Chevrolet Silverado took down the honor for trucks.
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Advanced Micro Devices, Inc. (AMD) is a global semiconductor company with facilities around the world. Recently, the company has been receiving a tailwind from design wins in the PS 4 and Xbox One. My initial estimate is for a $700 million revenues benefit to AMD, thus far. I think the company's financial performance should continue to benefit from the ramp of the new gaming consoles during the first half of 2014.
On the other hand, PC sales are expected to continue to slump during 2014. Declining CPU and GPU ASPs exacerbates the slump in PC sales. While I expect a 5% sequential increase in net revenue during the fourth quarter, I think net revenue could decline 5% in 2014. I think a smaller restructuring could be announced during the fourth quarter results. I would like to see operating expenses at about $400 million per quarter during fiscal 2014.
But an increase in revenues during 2014 on a stronger than expected PC market and/or stronger than expected semi-custom ramp could leave management with sufficient cash flow from operations to decrease the net debt footprint and unlock equity value. For the time being, I continue to think of AMD as a $6 billion to $10 billion company, which is trading at $3 billion.
Recent Developments
The organization announced the AMD Radeon R7 and R9 Series graphics cards, which also include AMD TrueAudio Technology.
AMD's SeaMicro SM15000 servers power Verizon's high-performance public cloud.
AMD detailed its plans to offer both 64-bit ARM and x86 embedded solutions starting in 2014.
Combined Xbox One and PS 4 sales topped 7M; I estimate $700 million of revenues for AMD.
Today is a very good day to accumulate shares before earnings is released. I know I am adding more shares to my bucket.
The 4th qtr will blow that .21 out of the water. We will definitely see a great earnings due to the ads during the holiday season.
AMD will be showing a profit this quarter. 2014 will be a great rebound for AMD.
Earnings announcement* for FB: Jan 29, 2014
Facebook, Inc. is expected* to report earnings on 01/29/2014. The report will be for the fiscal Quarter ending Dec 2013. According to Zacks Investment Research, based on 12 analysts' forecasts, the consensus EPS forecast for the quarter is $0.21. The reported EPS for the same quarter last year was $0.09.
Read more: http://www.nasdaq.com/earnings/report/fb#ixzz2pvSDcMND
Earnings announcement* for AMD: Jan 21, 2014
Advanced Micro Devices, Inc. is expected* to report earnings on 01/21/2014. The report will be for the fiscal Quarter ending Dec 2013. According to Zacks Investment Research, based on 16 analysts' forecasts, the consensus EPS forecast for the quarter is $0.06. The reported EPS for the same quarter last year was $-0.14.
Read more: http://www.nasdaq.com/earnings/report/amd#ixzz2pvRE9fPZ
Time to move back up. :)
Fresh after its success in supplying chips for Sony's PlayStation 4 and Microsoft's XBOX One, and refreshing its graphics cards for PCs, Advanced Micro Devices (AMD) may now add another milestone to its list of achievements. The graphics chip maker powers Apple's (AAPL) professional level workstation, the Mac Pro. Now sold out, the shipment date is February 2014 at the earliest. Investors are already expecting a number of positive catalysts supporting AMD shares. Another one may come their way, when AMD has a news conference on January 6, 2014 at CES. In the immediate term, the market is not recognizing AMD as the graphics supplier for the Mac as a positive catalyst. Shares are still below the $4 level. AMD first reached this level this year in May. AMD closed recently at $3.78. Weighing on AMD is heavy shorting activity, with short float at 18.22%.
Graphics innovation in new Mac Pro
The design of Apple's Mac Pro is impressive. It is very small, measuring 9.9 inches tall by 6.6 inches in diameter. The previous Mac Pro was 12 inches by 12 inches and 8 inches across. Apple achieved the diminutive size by separating mass data storage externally. 20 GB/s data transferring is possible though, thanks to 2 Thunderbolt ports. The inclusion of AMD's chips in the small space is equally impressive, because the system is configured with two graphics chips in a tiny cylindrical enclosure of the Mac Pro. Graphics enthusiasts will appreciate that heat buildup and dissipation is a big challenge, especially in computers with small form factors. Intel's (INTC) quad-core Xeon processor would generate moderate amounts of heat, but AMDs dual graphics cards could generate even more. Dual AMD FirePro D500 GPUs power the Mac Pro. AMD generates an extra $400 in revenue if buyers choose 3GB GDDR5 VRAM in the configuration. The price tag for the AMD FirePro card jumps by $1000 for a 6GB VRAM configuration:
(click to enlarge)
Source: Apple Store
Heat dissipates from the GPU (graphics processing unit) by sandwiching a triangular heat sink between them. The heat-pipes, along with the fan, run more effectively because they are not upside down. The case is a cylinder, but functions like a tunnel.
The Mac Pro's target user base is for 4K video editing, and the AMD graphics set-up works very well. A recent review reports that apps like Final Cut Pro X run faster than older Mac systems.
Apple is helping build a positive awareness for AMD, but it opens more opportunities for the chip maker in supporting video processing applications on Apple. While x86-based PCs use AMD's crossfire, Apple uses the dual graphics chips through OpenCL on the OS X. FCP X is an example of an application capable of playing 16 4K streams simultaneously. Applying 18 effects in real-time does not result in any performance lag.
Revenue impact
If Apple sells 1.1 million Mac Pros in 2014, based on Gene Munster's estimates, AMD could around $1 billion in extra revenue next year. This is assuming an average sale price of $1,000 for the FirePro chips. AMDs transformation program, which cut operational costs in the last few quarters, could mean significant margins for the GPUs.
Bottom Line
AMD was left out of the rally that benefited other Apple suppliers. Granted, investors are more interested in growth in sales for Apple's iPhone. Investors focused on Apple's contract to supply phones to China Mobile (CHL). Suppliers like OmniVision (OVTI) and Cirrus Logic (CRUS) rallied.
AMD data by YCharts
In the near term, investors should recognize AMD's accomplishment as a graphics chip supplier for Apple's Mac. For AMD, it sets the stage for further graphics chip developments ahead. AMD already has positive revenue momentum heading into the new year. A refresh in its PC graphics chips, growing sales in new consoles, and the release of Kaveri on January 14, 2014 are all positive catalysts for AMD.
Disclosure: I am long AMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Introduction
Advanced Micro Devices (AMD) is a semiconductor company that develops computer processors (CPU), graphics processors (GPU) and other products for servers, workstations and personal computers. Their stock price has produced a volatile history with prices as high as $40 in 2006 down to a low of $1.81 in November of 2012. Many believe in AMD's turnaround as it is backed by many recent design wins along with their success in reducing spending while increasing revenues. Should AMD succeed, they are bound to beat expectations eventually and in this article I will discuss three reasons that show a strong potential for greater than projected earnings for the fourth quarter and fiscal year of 2013.
(click to enlarge)
AMD has been on a winning streak lately with a strong launch of new gaming consoles from Microsoft (MSFT) and Sony (SNE), a successful refresh of consumer graphics cards and two slots in the new release of Apple's (AAPL) Mac Pro featuring two of AMD's professional Radeon graphics cards per unit. In the long run this is just the tip of the iceberg but these recent advantages are three factors that will be included in their next earnings conference call on January 21st and strongly support the idea of a strong beat on estimates and projections.
1. Extreme Demand For New Consoles
The affordable and efficient performance offered by AMD's unique Accelerated Processor Unit (APU) gave them the opportunity to be both the CPU and GPU for the new Playstation 4 and Xbox One consoles. The custom "Jaguar" named APU includes an 8-core x86-64 bit processor by AMD plus their Radeon graphics on the same die. This design is cheaper and allowed Sony and Microsoft to release their consoles at a very attractive $399 and $499 which was ideal for their success.
Both consoles are selling at remarkable speeds with online and retail store appearances lasting only minutes. Within 24 hours of their launch, both the PS4 and Xbox sold one million units and in two weeks the PS4 sold 2.1 million with Microsoft achieving 2 million in 18 days. Amazon (AMZN) reported that each console was selling at 1,000 units per minute during its peak for the holiday season and Sony disclosed that a large shipment of 12,000 units to Amazon lasted less than 30 minutes. With heavily inflated prices still present on Ebay and Craigslist, it is obvious that an extreme demand is present and those figures were limited by supply. In spite of the war between Sony and Microsoft, each sale is a win for AMD and with a greater than expected popularity, it can be suggested that the high ongoing demand will contribute to strong earnings and potentially a beat in their upcoming earnings announcement.
2. Unforeseen demand for new graphics cards
Next we have the recent release of the "Hawaii" named GPU consumer graphics cards that have been extremely popular from both gamers and crypto-currency miners. Most of these graphics cards are sold out to a point that have caused inflated prices. AMD released these new cards over a two-month period and had everyone on their toes when they promised a new graphics card king for gaming at an affordable price. This meant defeating Nvidia's (NVDA) leading GTX Titan graphics card that was priced at $1000. AMD was successful by releasing the R9 290X and shocked the industry by offering an equal performance while being priced at $549, nearly half of Nvidia's Titan.
Nvidia was forced to drop prices on their entire lineup to compete in the price war but also added the GTX 780Ti, their new performance king. While the GTX 780Ti reclaimed the throne by offering the best performance, it came at a hefty $700. AMD unexpectedly struck one last time and did what they do best by offering the best performance per dollar on the market. This was the R9 290 (non-"x"). It is a more affordable version of the "x" with nearly 90% the performance but priced at an astonishing $399. Below is a benchmark by Tech of Tomorrow showing the performance of these graphics cards using Crisis 3. Performances do vary by game but according to this graph, the GTX 780Ti only offers 6.9 frames per second more on Crisis 3 (1080p) than the R9 290 for an unpleasant $300 more. This made AMD's R9 290 the best value on the market, giving it the nod from gamers.
(click to enlarge)
Although these new cards performed well in gaming, crypto currency miners discovered that AMD's new Radeon graphics cards could mine the new rapid-growing digital currencies, BitCoin and LiteCoin, at incredible efficiency. This meant real money profits for miners and led to individuals buying AMD graphics cards at literally truckloads causing major shortages. With such a heavy demand from both gamers and crypto currency miners, AMD's new graphics cards experienced an unforeseen surge in sales. This kind of demand causes ramps in productions and will certainly reflect positively in their upcoming earnings release.
3. Apple's New Mac Pro Sells Out
Finally, for this quarter we have the addition of AMD producing two professional Radeon graphics cards for each new Mac Pro by Apple. This Mac Pro features an all new innovative design that is unique, compact, powerful, and thanks to AMD also good value. AMD's spot in the Mac Pro was a win for Apple, AMD, and consumers. Purchasing workstation graphics cards separately by AMD would costs thousands of dollars more and with the new Mac Pro, consumers are getting these graphics cards for approximately $750 each. This is expected to add an estimated average of $500 in revenue per card, or $1000 per Mac Pro for AMD. Although AMD may have bent over a bit to get this deal, it was necessary due to their tiny market share in professional graphics compared to Nvidia.
The new Mac Pro has been very popular with all pre-orders for the first shipment sold out after just two days. The next available shipment isn't until February and we can expect its popularity to continue throughout 2014. Analyst Gene Munster predicts that Apple will sell 1.1 million Mac Pros for 2014 and although this may only contribute to less than 1% of Apple's sales for the year, this could be a significant boost of $1.1 billion in revenue for AMD. With the Mac Pro being included into AMD's earnings for Q4 2013, we can easily expect good news for their conference call later this month.
Conclusion
In spite of falling CPU revenues from a suffering PC market, these new additions to AMD's revenue will not only make up for these losses but also bring growth to their future. We have already witnessed last quarter that AMD can be profitable in a falling PC market thanks to the next gen consoles and now we have an even broader source of income that will contribute to their success in both the near and distant future. Many AMD longs have been playing the waiting game and have battled losses from recent earnings but I believe that these three developments will give AMD a very high probability of beating estimates for the fourth quarter and fiscal year of 2013.
Disclosure: I am long AMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
I think we will be at 4.30 by end of day Friday.
With the imminent release of its next generation APU, code-named Kaveri, and its upcoming Q4 earnings report Advanced Micro Devices' (AMD) stock is likely to be the focus of a lot of traders' attention.
Kaveri, based on the new Steamroller x86 core, sits at the center of AMD's 2014 business model and success today bodes well for the next few years as the technology it incorporates could have disruptive effects on computing as we perceive it.
Coming back to discussing this stock that I identified last year as a potential turn-around play for investors is a little like pulling on a favorite jacket.
Fellow AMD long Justin Jaynes, has done an excellent job collecting and aggregating all of the information we have about Kaveri, now less than a week before the NDA is lifted and the release is official. You can read his recent work here, here, and here to get up to speed on the particulars.
I, however, want to focus on the bigger picture and then take a look at the current stock performance and give investors a few ideas of how to play the upcoming events.
The Parallel's the Thing
Kaveri is the culmination of a long-term strategy that AMD undertook to flatten the architecture of a modern CPU. With each successive generation AMD has added to the resources the GPU could access directly without having to get a command from the CPU first. So that today, AMD is promoting Kaveri as having compute units rather than a quad-core CPU with an eight core GPU. This is a subtle distinction that could not be made with previous generations. HSA makes this possible.
This same kind of massive parallelism is on display with both Microsoft's (MSFT) Xbox One and Sony's (SNE) Playstation 4 and AMD's Jaguar and GCN-based APU's.
When we compare this to the solution being offered by Intel (INTC) and Haswell's Iris Pro iGPU we see a completely different design philosophy. It is, in my opinion, typical of Intel's approach which is that of brute power not elegant design. The inclusion of eDRAM on-die to boost performance via caching is one that has allowed Intel to close the gap between their GPUs and AMD's but it can't scale with the future except through die shrinks.
And at this point even Intel is having problems moving to lower process nodes. We are running up against the limit of physics in this sense.
The computing world is moving away from large single-core do-it-all computing units to multiple smaller units capable of doing a few tasks well. This is the design philosophy behind Kaveri and Jaguar/Puma - AMD's small, low-power CPU cores - as well as their GCN architecture for graphics.
Gestalt Computing
Being both a tech-geek and a financial analyst it is easy to get seduced by technology that's "cool." But when evaluating a product there is so much more to it than whether the tech is any good. It has to fit what the market wants or needs. When I look at Kaveri I don't see individual bits of the product, the laundry list of specs, I see the whole unit and at its expected price points leaving aside the new technology I see tremendous value in a market where AMD is gaining market share, the desktop.
Leaked performance numbers for Kaveri are more than good enough for its target market. It may annoy enthusiasts that AMD is not challenging Intel at Intel's game and they may be willing to pay the extra premium for a graphics card, more expensive motherboard and CPU. But most people are not.
Smaller form-factors - all-in-ones, laptops, etc. - are what are dominating sales. Driving overall system performance and simplicity of design in those forms is not a trend that is going away.
By bringing these things - audio, parallel compute - on die it is innovating to solve existing technology bottlenecks while also shortening the bill of materials. OEM's love that.
These are the wild cards for Kaveri, and the initial round of benchmarks will not address them. It incorporates a handful of new technologies that have no presence in the current market but that are desperately desired by it. As they unveiled these technologies over H2 2013 the extent of the company's strategy became much clearer.
HSA architecture - simplifying design through shared memory access and creating low-latency access to powerful GPU cores for computational work. It has powerful industry support.
TrueAudio - a DSP and API that offloads positional audio data from the CPU to it to directly process sound, vastly improving overall system performance and improving gaming immersion.
Mantle - a programming API that gets graphics engine programmers much closer to the 'metal' than Microsoft's Direct X, potentially bringing console-like performance to PC's.
Integrated Crossfire controller - further improving the use of a discrete card in conjunction with the integrated GPU.
Value is created when the whole is truly greater than the sum of the parts. All of these are offer potentially disruptive levels of improved performance. The first three are in early development and adoption via partnerships while the last one is still a technology that has yet to mature as a selling point.
The Technical Outlook
Kaveri is only part of AMD's larger strategy. The upcoming Beema and Mullins small-core replacements for Jaguar will have to prove themselves in the ultraportable space and find design wins that Kabini and Temash did not. China opening up its market to the Xbox and PS/4 is a huge positive for them.
For now, though, Kaveri is the focus of the stock price and how investors will view the company in early 2014. The initial response has been positive with the stock breaking through the October high of $4.13 and is looking to fill the gap (not shown on the weekly chart) back to $4.65 before options expiration on the 19th.
(click to enlarge)
I'm looking for a close this week above $4.13 to confirm this possibility. It would be significant as the $4.05 to $4.10 area proved to be strong resistance back in May and June. The earnings call is on the 21st, the next trading day after options expiration.
Looking at the statistics on average AMD moves $0.27 close to close each week and $0.23 above the opening price ($4.01) so I wouldn't expect much more price action this week, with the high of $4.26 having been achieved. Holding current gains is what bulls should be looking for. But momentum is bullish in the wake of the Kaveri press conference so this short squeeze may have room to run.
As a long I would be lightening my position or buying cheap, short-term protection - February puts -- coming into earnings after a rally like this. There will be a strong probability of a short-term pullback and any dip will be a buying opportunity. The last two earnings reports saw short-covering rallies reverse violently. Until that pattern changes I would be cautious around that time.
I'm holding a few OTM calls and will be rolling them forward on the first sign of weakness. Until we get a monthly close above $4.13 per share, however, I see AMD as range bound below $4.42 per share, the highest daily close of 2013.
Disclosure: I am long AMD, . I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
2 more weeks till earnings is release. Can't wait till 1/21/14. Got my ticket for the ride up.
Advanced Micro Devices (AMD) is in the process of executing a strategic shift away from the sluggish PC market. As we mentioned in an earlier piece, the company's graphics division is expected to surpass its PC computing segment in terms of revenue in 2014 and the recent news of Apple's (AAPL) Mac Pro featuring AMD graphics solutions puts the company on the right track to match these expectations.
The much awaited Mac Pro from Apple is powered by AMD's FirePro™ D300, D500 and D700. The fact that Apple preferred AMD for the graphics solutions for MacPro is in itself an indication of AMD's highly differentiated graphics capabilities. FirePro will provide around 6GB of VRAM, 2048 processing streams per GPU and 7 teraflops of computing capabilities; twice the performance of previous Mac Pro.
(click to enlarge)
The AMD FirePro™ D300, D500 and D700 professional GPUs offer exceptional computing power and reliability for creativity and productivity in a wide range of applications. With industry-adopted OpenCL (Open Computing Language) support, Mac Pro users will have the ability to seamlessly edit full-resolution 4K video and simultaneously render effects in the background, and still have enough performance to power up to three high-resolution 4K displays.
The distinguishing feature of this graphics card is the GCN architecture and OpenCL support. The performance, image quality and efficiency improvements are a result of the GCN architecture."We really enjoyed working with AMD to maximize MARI's performance on the new Mac Pro. We've seen some of the best performance out of the box from MARI with the dual FirePro GPUs in the Mac Pro" said Jack Greasley, MARI Product Manager at The Foundry. AMD's increasing competitive strength in graphics will drive the future growth of the company.
The deal with Apple is expected to boost AMD's share in the professional graphics segment. Digitimes estimates that the market share of the company in professional graphics, currently at around 21%, will increase to 30%. This expected increase is because of the favorable demand conditions of Apple Mac Pro. "Demand for the all new Mac Pro is great and it will take time before supply catches up with demand" an Apple spokesman said. The postponement of shipment dates to February is an indication that the demand for Mac Pro is fairly high. Hence, the demand for Mac Pro will supplement AMD's revenue as well.
Estimates
Following are the estimates of the market that can be captured by AMD as a result of this development.
Assumptions
Growth rate of professional graphics is in line with the growth rate of work stations.
The estimated CAGR is an accurate predictor of the future demand over a 3 year horizon.
The model estimates that the company will achieve an additional $183 million in revenues from the Apple deal. The profit margin will also increase as professional graphics margins are higher than those of consumer graphics. The growth of professional graphics is estimated by using the CAGR of work stations, discounted by 25% to reflect the sluggish growth of servers in 2012. Overall, the Apple deal is expected to bring higher margins and revenue growth towards the company.
Conclusion
AMD is proving to be successful in the graphics business. The success is derived from consoles, differentiated server graphics and now the Mac Pro. Furthermore, AMD's computing and graphics solutions will also be featured in the Steam Machine by iBuyPower. The identifiable causes for this success are the GCN architecture and HSA technology. The bottom line is that AMD will continue to grow in the graphics segment thanks to GCN, which resulted in the contract wins with Apple and console developers.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Equity Flux is a team of analysts. This article was written by our Technology analyst. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.
We might close at $3+ today. :)
Sony (SNE +0.1%) announces at CES PlayStation 4 end-user sales (i.e. sell-through) reached 4.2M as of Dec. 28. That figure suggests the PS4 soundly outsold the Xbox One (MSFT - 3M+ sales in 2013) last year, and has a good chance of surpassing Sony's target of 5M FY14 (ends March '14) sales.
Wider distribution - the PS4 is on sale in 53 countries, the One is only available in 13 - has helped Sony's next-gen console outsell Microsoft's. But so has a lower price tag ($399 vs. $499) and the backlash to the used game restriction and Internet access requirements initially planned for the One (before Microsoft backtracked).
Sony has also announced the launch of PlayStation Now, its anticipated cloud gaming service. The service, which leverages Gaikai's cloud gaming platform, will provide access to PS2/PS3 titles, and (since it's cloud-based) run on everything from home consoles to TV sets to handheld/mobile devices.
Also announced: a Web-based TV service that will include VOD content and a cloud-based DVR. However, Sony is short on details for now. Intel and others have taken stab at offering such a service, only to be thwarted by content owners and incumbent pay-TV providers.
PS4 and Xbox One CPU/GPU supplier AMD (AMD +1.6%) is rallying for the second straight day. Game developers are also higher: EA +3.2%. TTWO +3.2%. ATVI +1.6%.
What will happen to GM shares if they buy buy squire Tesla? Will this be over $100 a share?
Fiscal year 2013 was significant for Advanced Micro Devices' (AMD) bulls. Its much-hyped design wins, Sony (SNE) Playstation 4 and Microsoft (MSFT) Xbox One (both contain AMD's custom chip that integrates Jaguar CPU and AMD Radeon graphics in one chip), are already beating all sales records. Both gaming consoles have crossed the 2 million sales mark since the launch in November.
Taking a $100 average selling price, or ASP, that AMD gets from each chip used in both gaming consoles, there is a multi-billion opportunity to add to the top line on the expected consolidated sales of 66 million by 2018 (36 million PS4 and 30 million Xbox One saless). Though the semi-custom segment (gaming console chip) will be central to top-line growth, long-term growth will come from other markets such as servers and tablets. As the enthusiasm for buying these gaming console (PS4, and Xbox One) fades, demand will eventually decrease annually.
AMD is currently restructuring. In reaching its goals of profitability, positive free cash flow and operational expenditures below $450 million by the third quarter of 2013, AMD is almost through with phase two of its restructuring plan.
(click to enlarge)
Source: Company Presentation
Phase three (2014) will diversify revenue mix with the aim of generating 50% of its revenue with five growth pillars - ultra-low-power devices, embedded, professional graphics, semi-custom, and dense server. Therefore, 2014 will be an inflection point for AMD, with these growth areas (especially gaming consoles and servers) delivering robust growth.
(click to enlarge)
Source: Company Presentation
These five pillars are key to AMD, and looking at the product launches lined up for 2014 the company is certainly making progress towards its goal.
How will AMD sustain its revenue growth?
In ultra-low-power mobile devices, the company will launch an updated accelerated processor unit, or APU, for existing Temash and Kabini chips. Unlike its competitors, AMD has targeted entry-level mobile devices and provided high-performance and low-power consumption with its Temash chip (a quad-core x86 SoC for tablets low-end convertible mobile device), and Kabini (world's first quad-core x86 processor for entry-level touch notebooks). AMD will launch Mullins, which will be an updated version of Temash, while Beema will follow the Kabini chip. Mullins is a lower-power consumer version of Temash with 2 watts scenario design power, or SDP, compared to Temash's 3W-4W. Beema also provides similar power savings and promises 10- to 15-watt power usage over Kabini's 15 to 25 watts. Launch of these chips will further enhance AMD's market presence in ultra-low-power mobile devices.
The ultra-low-power mobile devices market may be important for AMD's growth, but small share for x86 favored Window OS in the overall mobile device market may affect the company's growth in the long run. Therefore, the main contributor to AMD's top-line growth long-term would be the server market (both dense and micro server). The company developed a strong base in x86 servers with launch of its AMD Opteron processors in 2003, but since has been losing its market share to Intel (INTC), which dominates the x86 server base. AMD's market share is now just 4.4% in 2012, down from 15% in 2007.
AMD is trying to revive its lost fortunes with the launch in 2014 of an ARM-based 64 bit server chip code named "Seattle." ARM technology has been widely adopted in mobile devices due to availability of low power consumption and high-performance features, but use of ARM in servers is still at nascent stage and x86 still dominates the server market. The share of ARM CPU in the overall server market will be close to 20% by 2016 or 2017. Therefore, it will be an opportunity for AMD to establish a strong foothold in the ARM-based server market and capitalize on the new market opportunity.
This will be for the first time that a processor provider will bridge the x86 and 64-bit ARM ecosystems for servers. AMD's "Seattle" processors will support integrated 10 GB per second of Ethernet connectivity with Freedom Fabric technology acquired in the buyout of SeaMicro last year. This acquisition gave AMD a strong presence in the micro server market and access to SeaMicro's fabric technology, which enables large data centers and cloud service providers to connect thousands of processor cores, memory, storage and input/output traffic. The micro server market is growing at a robust rate with 2013 micro servers shipments expected to reach 291,000 units, up 230% year over year.
Source: IHS isuppli
Micro servers' low power consumption and low-cost features provide an extra advantage to cloud computing and data centers, and thus are becoming increasingly popular. SeaMicro's high-density Freedom Fabric technology is popular in the industry for providing low-power-consuming server racks, without affecting the performance. The processor maker and hardware manufacturer (SeaMicro) relationship gives AMD an extra edge over competitors.
The introduction of ARM-based servers will further benefit AMD in terms of power consumption, supported by Freedom fabric. AMD's upcoming "Seattle" will be targeted for single socket and dense servers, such as one provided by SeaMicro itself. AMD's ambidextrous strategy of having both x86 and ARM in its arsenal is a bold move toward the server market opportunity.
How Intel and Nvidia can spoil AMD's party?
AMD's growth plans may be affected by stiff competition in both processor and graphics segments. The company's biggest rival in processors (for both PC and server), Intel, has a strong foothold and an extensive lead over AMD. Intel has sustained its market dominance, with AMD providing no real threat to Intel's presence.
Therefore, unlike Intel, which has focused on high-performance processors, AMD is targeting the entry-level low-power-consuming performance mobile device segment with the launch of Kabini and Temash chips. This gave AMD an early lead in this end of the market, but Intel has hit back with the launch of its Bay Trail, Intel's latest 64-bit low-power SoC targeted at 2 in 1 convertible, tablets and ultra-book.
Bay Trail provides higher performance with lower power consumption than its previous processor. In addition, Intel's Bay Trail processor supports Android-based devices, with tablet configuring Android OS with Bay Trail processor pegged for 2014. This will help target the most widely used ARM processor and thus increase x86 share in the mobile device market. Intel's Bay Trail is a real threat to AMD's Kabini and Temash chips with top tier OEMs already announcing use of Bay Trail in their upcoming product launch. In the server market, too, Intel has a clear monopoly in its x86 base, with AMD having a small presence. However, AMD's plans for an ARM-based processor for servers will help it regain market share in the server market.
In the graphics segment AMD's professional graphics are one of the five growth pillars in which the company plans to increase its presence. Like the processor market, the company has lagged behind Nvidia (NVDA) in the graphics market, though the market is positive with AMD gradually increasing its market share. AMD recently won Apple's New Mac Pro design, which will feature the company's professional graphics solutions. AMD's market share in professional graphics is expected to increase to 30% in 2014, up from the current 20%. Apple's New Mac Pro is a big design win that will boost AMD's professional graphics business, thus closing the gap with market leader Nvidia.
Conclusion
Successful execution of 2013's restructuring targets increases confidence about AMD achieving its 2014 goals. The company is ending 2013 on a high note by winning Apple's new Mac Pro design and should report a strong next-quarter result. Though the gaming console will remain key to its growth in 2014, its server market will be the real game-changer for AMD in the long-term with the launch of the ARM chip.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Fusion Research is a team of equity analysts. This article was written by Rohit Gupta, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article
I can't believe this can go this high. It is what it is. Great for people who bought some. I didn't get the chance to though. ;)
To Be Held on January 22, 2014
The Special Meeting of Stockholders (the “Meeting”) of Mass Megawatts Wind Power, Inc. (the “Company”) will be held January 22, 2014 at 9 a.m. (EST) at Best Western Royal Plaza Hotel 181 Boston Post Road West Marlborough, MA 01752, for the following purpose:
To approve an amendment to our Articles of Incorporation to increase our authorized number of shares of common stock from 35,000,000 to 67,000,000.
The Board of Directors has fixed the close of business on December 6, 2013 as the record date (the “Record Date”) for the determination of stockholders entitled to notice of, and to vote and act at, the Meeting and only stockholders of record at the close of business on that date are entitled to notice of, and to vote and act at, the Meeting.
For a period of ten (10) days prior to the Meeting, a stockholders list will be kept at the Company’s office and shall be available for inspection by stockholders during usual business hours. A stockholders list will also be available for inspection at the Meeting.
Stockholders are cordially invited to attend the Meeting in person. However, please complete and sign the enclosed proxy card and return it promptly to assure your representation at the Meeting. If you choose, you may still vote in person at the Meeting even though you previously voted by submitting a proxy card, by telephone or internet.