Wednesday, July 28, 2010

“I’m Not Dead Yet”: Name This Company!


It’s earnings season on Wall Street, and that means plenty of conference calls for we here at NotMakingThisUp.

And while plenty of calls have focused on the fact that business seems to be 'not dead yet'—despite the stock market’s recent attempt to send the economy off to the undertaker—the most remarkable piece of news came from the place the average investor would least expect to hear it.

Now, we all know the news from FedEx, UPS, railroads and truckers—anyone who moves, to use the technical term, stuff, around the country—has been gangbusters.

Closer to the consumer, it gets a little more variable, depending on whether the company sells something everybody seems to want (Apple) or not (Gap).

But there is a sector of the economy long left for dead that seems to be reviving, and quickly. Last night one of the larger traffickers in this particular sector reported strong earnings and delivered the kind of commentary lately reserved for iPads:

“Our financial performance continued to strengthen across most business lines globally, and we have good momentum entering the year’s second half,” said -----, chief executive officer of -----. “In the U.S., we saw a very strong pick up in ----- and -----, reflecting recovering market conditions. Europe produced robust growth, fueled by the recovery of the ----- market in the larger economies, such as the U.K., Germany and France. Asia Pacific also sustained the strong top-line growth that first became evident there late last year.”

Name the company and the line of business: you’ll win nothing more than your name in virtual lights here at NotMakingThisUp.


Jeff Matthews
I Am Not Making This Up


© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Friday, July 23, 2010

The Least Helpful Call You Will Get All Month


When identifying which particularly silly opinion offered by one of Wall Street’s Finest that might qualify as the “Least Helpful Call You Will Get,” we here at NotMakingThisUp usually confine the timeframe to the current 24-hour day.

After all, Wall Street’s Finest offer so many silly opinions every Monday through Friday that declaring any single “Least Helpful Call” as encompassing more than one day would be impossible.

Or so we thought, until this week when a loyal, sharp-eyed reader identified a particularly silly call that qualifies as being, if not one for the ages—and it is right up there—then certainly the Least Helpful Call You Will Get All Month.

What makes this call especially stand out is that we are in the middle of quarterly earnings season, which means that Wall Street’s Finest are issuing silly commentary, calls and conclusions on so many different companies that it resembles a sketch from Monty Python.

Specifically, the “Election Night Special” sketch, which featured political candidates from the Silly Party, the Slightly Silly Party, and the Very Silly Party—candidates bearing names such as Kevin Phillips-Bong, Jethro Q. Walrustitty and, our favorite, “Tarquin Lim Fin-tim-lin-bin-whin-bim-lim-bus-stop-Ptang-Ptang-Olé-Biscuitbarrel.”

Indeed, when we first read the “Least Helpful Call” under discussion, it seemed to us the author might very well have been named “Tarquin Lim Fin-tim-lin-bin-whin-bim-lim-bus-stop-Ptang-Ptang-Olé-Biscuitbarrel.”

Alas, it was not. In fact it comes from a firm with the not-at-all silly name 'Credit Suisse,' and it concerns Netflix.

Netflix, for those who haven’t kept track, is the purveyor of DVDs-by-mail that cleverly moved into DVDs-by-WiFi, thus becoming one of the iPad’s most popular—and profitable—applications, and one of Wall Street’s most popular stocks.

Now we have no opinion on Netflix’s stock price. But a glance at our Bloomberg shows that Netflix shares (ticker NFLX) have been on a tear for the last year, tripling from the $40 area last September (when the company began reporting double-digit earnings upsides), to $120 just a few days ago, before a less-than-satisfactory earnings reports whacked the stock back down to $103.

Perhaps Credit Suisse has been stingy on paying for Bloomberg terminals, or for real-time quote information. Or it could be that their analyst on the Netflix case hasn’t been paying attention to the business. Or it could be all-the-above.

Whatever it is, Credit Suisse has carried an “Underperform” rating on Netflix since well before the stock began outperforming in a meaningful way last summer, with a “Target Price” that was, as it turned out, a little conservative.

And by that we mean that until three days ago, the “Target Price” carried by Credit Suisse on Netflix’s shares stood at $31 a share.

So what better time to change that stale “Target Price” than a setback in the stock after disappointing earnings?

And so it was that Credit Suisse this week took the opportunity to raise its “Target Price” (but not its “Underperform” rating), in what is surely the Least Helpful Call of July 2010.

Noting that Netflix “reported solid 2Q10 results” and was experiencing “rising sales of NFLX streaming-enabled devices couple with increasing uptake” of its service, the analyst wrote the following:

“NFLX has done an excellent job of late in ramping subscriber growth (above expectations), as well as growing revenue and earnings faster than expected, which has been reflected in share price levels. Boosting our longer-term operating estimates, namely subscriber growth, yielded higher long-term topline and cash flow growth, as well as a higher DCF value.”

How much “higher” was this “DCF value”? Three-times higher.

That’s right:

“As a result, we are boosting our target price to $90 (from $31).”

And that, we are fairly certain, will be the Least Helpful Call You Will Get This Month.



Jeff Matthews
I Am Not Making This Up


© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Tuesday, July 20, 2010

IBM’s New Math: 6.5 is Greater Than 8


“Let's get back. On the signings basis, as we analyzed it, we had on -- in the GBS business we had good revenue growth. We had positive signings performance. So then when you look at Global Technology Services the issue that we wrestled with was really in our Outsourcing business.
The point I was making on the Outsourcing business is that if you look at the complexion of those signings by analyzing the larger deals, we actually did very well on a year-to-year basis on the new business signings content. It was not only a year-to-year basis, but it was also quarter-to-quarter.

“So if you look at deals greater than $50 million in Outsourcing, the new business content was up 33% year-to-year. It was up 36% on a quarter-to- quarter basis. That, frankly, generates a better near-term characteristics than we see in extensions, obviously. And it gives us confidence as you look at the $6.5 billion of signings in Outsourcing this quarter, we will frankly get much better characteristics on a revenue line from those signings than we did last year at $8 billion….”

—Mark Loughridge, IBM CFO, July 19, 2010


So it is that IBM, which always seems to “beat-and-raise”—even if, as in the case of last night’s earnings, the raise is a mere 5c a share—declared a type of new math…to whit: 6.5 is now greater than 8.

Of course, technically speaking, IBM is simply saying that the disappointingly small $6.5 billion of bookings recorded last quarter in its outsourcing business will contribute a more pleasing revenue quality than the $8 billion in bookings signed in the same quarter last year.

Nevertheless, we here at NotMakingThisUp must note that last year, as any jaded observer of IBM’s relentlessly upbeat earnings-call-management style might expect, the company made no such distinction when announcing the $8 billion in outsourcing signings.

In fact, last year the same CFO strongly encouraged Wall Street’s Finest to “be impressed” with that quarter’s booking figure:

“Our outsourcing signings are up 12% globally…. I mean you can’t look at that and not be impressed with that level of signing performance.”

—Mark Loughridge, IBM CFO, July 16, 2009



We here at NotMakingThisUp have no beef with IBM: a company left for dead 20 years ago is today generating double-digit returns on assets and consistently generating more cash than it can reasonably deploy elsewhere, so much so that it has returned excess cash to shareholders at reasonable valuations—exactly what the whole “returning value to shareholders” thing is about.

But a little upbeat spin-control for the benefit of Wall Street’s Finest goes a long way…and turning 6.5 into something greater than 8 is the kind of nonsense we can live without.



Jeff Matthews
I Am Not Making This Up


© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Friday, July 16, 2010

14 Days of Profit


Yet Goldman walked away with several victories that raise questions about the strength of the SEC's case. The company wasn't forced to sacrifice any top executives, including Chief Executive Lloyd C. Blankfein, as some executives had feared. The changes it agreed to won't weaken its profits or standing as Wall Street's mightiest firm. The record-setting penalty is equivalent to just 14 days of profits at Goldman in the first quarter...

Analysts had expected Goldman to pay at least $1 billion as part of the deal.

—The Wall Street Journal


We were right. Barry was wrong.

Barry, of course, is Barry Ritholtz, a friend of these pages whose fiery mix of intelligent economic commentary and populist outrage at chicanery both on Wall Street and Washington is chronicled in The Big Picture.

And Barry was convinced the SEC’s case against Goldman was so air-tight the firm would have to “settle or lose in court.”

As detailed in “From BACCUS to ABACUS: Exhibit A in Defense of Goldman Sachs” (April 19, 2010), we here at NotMakingThisUp weren’t convinced Goldman would lose anything but a few bucks.

Settle Goldman did: lose in court they did not. And what Goldman settled for, as the Wall Street Journal notes, was a mere 14 days’ worth of profits.

What Goldman admitted to was nothing—not a thing except 'incomplete information.'

Now, Barry, in taking a victory lap on The Big Picture this morning, maintains that “GS conceded misleading disclosures,” but in fact Goldman conceded no such thing.

Here’s how it’s worded in the actual consent filed by Goldman Sachs:

Goldman acknowledges that the marketing materials for the ABACUS 2007-AC1 transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was “selected by” ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson’s economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure.

And that’s it. Goldman admitted to a 'mistake,' not a crime.

Now, Barry calls this “misleading,” and that’s his prerogative.

But the proof of the strength or weakness in the SEC’s case lies, we think, in what Goldman gave up to settle. And, money aside, Goldman didn’t give up much at all.

Here’s an incomplete list of the non-monetary terms Goldman agreed to in the consent:

Goldman agrees it will not seek reimbursement for the fine from insurance policies;

Goldman agrees to “expand the role of its Firmwide Capital Committee”;

Goldman will have its legal department review “all marketing materials…used in connection with mortgage securities offerings”;

Goldman will have mortgage employees “participate in a training program” covering “among other matters, disclosure requirements”;

Goldman will “provide for appropriate record keeping to track compliance with these requirements”;

Goldman will wave “any claim of Double Jeopardy based upon the settlement of this proceeding”...

And other such stuff which, all in all, doesn’t do much to the financial machine known as Goldman Sachs.

So for all the arm-waving, at a price of 14 days’ worth of profits and some extra admin costs, Goldman Sachs, we think, once again, comes out on top.



Jeff Matthews
I Am Not Making This Up


© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Thursday, July 08, 2010

Listening to RIMM Lose Market Share


We were in our local Verizon “store” yesterday—and by “store” we mean “place where dreamy customers move like driftwood among bright, bold Microsoft displays of soon-to-be-obsolete-attempts-to-cram-Windows-software-into-something-Apple-did-better-five-years-ago-anyway, with vacant stares and nervous eye-ticks while they wait for what Verizon calls ‘service’ to help them even though it’s been so long since they typed their name into that stupid welcome screen for a place in line that they no longer remember what they came in for”—getting our trusty, old, cell phone replaced for the simple reason that it got wet and died and wouldn’t recover even after drying it outside in the bright sun of this record-setting heat wave which the global-warming-deniers are conspicuously silent about even though every time it snows somewhere they blog about how it snowed somewhere and SO MUCH FOR GLOBAL WARMING ANYWAY AND AL GORE CAN GO YOU-KNOW-WHERE.

But mind-numbing as a trip to Verizon inevitably must be, it turned out to be an interesting experience because as we were waiting for our much-delayed but eventually quite helpful salesperson to transfer our contacts from the old phone to the new, we listened to something that must be happening in Verizon “stores” around the country, if RIMM’s recent earnings report, which disappointed Wall Street’s Finest even though Apple and Google have become the standards in smart-phones, is any indication.


It was the sound of RIMM losing market share, and it came in the form of a customer inquiring of a Verizon salesperson about buying a Blackberry.

The conversation went something like this:

Customer: “I want to get a Blackberry. What’s the difference between the Bold and the Storm?”


Verizon Helpful Salesperson: “Well the Bold has more Megafractals and a higher Quark Factor, but the Storm is easier to use.” [Editor’s Note: the VHS did not actually say this—that’s just how it sounded to us.]

Customer, after much back-and-forth on the Bold versus the Storm: “What’s the Droid? Is that like a Blackberry?”

VHS: “The Droid has more apps, you can do a lot more with it. Great screen, really bright.”

Customer: “Can I get my email on a Droid?”


VHS: “Sure. Of course.”

Customer: “So what’s the difference between Blackberry and Droid?”


VHS: “Well you get all kinds of apps you can use on the Droid, a lot of apps—“

Customer: “Can I look at a Droid?”…


And, sure enough, by the time we walked out the door into the steamy, record-setting heat, there was one less Blackberry customer in the world.



Jeff Matthews
I Am Not Making This Up


© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.