Highlights for last week included Twitter TWTR getting closer to Google GOOGL and Yahoo YHOO shares slumping on IRS concerns before regaining some.
Yahoo Shares See-Saw
Yahoo shares went into a tailspin after a Bloomberg report quoting an IRS official said that the IRS intended to review spinoffs where the active business wasn’t significant compared to the value of assets being spun off. This seemed practically targeted at Yahoo’s Spinco, which includes its inconsequential small business and highly valuable Alibaba shares. So it was widely felt that the IRS wouldn’t forego the several billion dollars in revenue that Yahoo expected to save.
But Zimbalist (the IRS official) also said that requests that had already been filed would continue unhindered, so investors finally determined that Yahoo, which has already filed in the first quarter of 2015 and expects a fourth-quarter closure of the transaction (as indicated in the company’s response to the news report) wouldn’t be affected.
So shares regained most of what they had lost. But shareholders are also looking for a Yahoo Japan spinoff, which probably won’t be as advantageous now, since new proposals will be placed on hold and could be subject to new rules by the IRS.
Google-Twitter Deal
The companies announced some time back that tweets would start appearing in search results. But Google has been crawling Twitter since the two fell out back in 2011, so it’s important to understand what’s changed.
Crawling means that tweets are subject to SEO rules so they have to compete with other results for better placement. But now, Twitter is licensing its entire firehose of tweets (6,000 a minute), so Google is finding ways of making them very visible. What’s more, the tweet itself is visible on Google search, meaning closer integration.
While Twitter has a similar deal with Bing, Microsoft’s search engine has just a fraction of Google’s traffic, so it just isn’t doing the job for Twitter. Shareholders are up in arms about the stagnating user growth and appear less inclined to accept positive management commentary about non-member exposure and their relevance to Twitter. But this arrangement could just change their minds.
Since most news and media events break on Twitter first, this adds a nice real-time element to Google’s search results. Still, the placement tweets are getting on Google search seem to indicate a deeper interest on Google’s part (there is apparently no ad revenue-sharing arrangement between the two).
It’s almost as if Google is acquiring Twitter in stages because the last time they were together, it got its fingers burnt. At the time, a lack of trust between the two led Twitter to end the agreement and Google had to close down its Real Time Search Engine service that was based on input from Twitter. The integration is live on mobile at the moment but will also be available on desktops soon.
Google to Simplify Buying with Buy Button
Google Shopping for mobile just got a little easier, according to the WSJ, which quoted unidentified sources saying that the search engine will soon be displaying buy buttons next to the PLAs.
Clicking on the button will take the user to a branded page where they can store payment information and complete the sale. The simplicity will presumably close more sales, but Google is also pacifying retailers fearing loss of direct contact with customers. It promises to collect nothing except click-based revenue and says that advertising campaigns will continue as before, so customer information will be passed on.
Payment information won’t be passed on, which is where dependence on Google could increase and its Wallet could play a bigger role.
|
Company |
Last Week |
Last 6 Months |
|
AAPL |
+2.93% |
+13.80% |
|
FB |
+0.15% |
+8.49% |
|
YHOO |
-2.83% |
-16.96% |
|
GOOGL |
+1.47% |
+1.43% |
|
MSFT |
-2.89% |
-5.17% |
|
INTC |
+1.38% |
-2.31% |
|
CSCO |
-0.98% |
+10.56% |
Other stories you might have missed–
Corporate
Apple Plans to Create Global Command Center: The Arizona-based facility was one of GTAT’s, which Apple AAPL promised to convert to a data center some time back. It appears that the iPhone maker is planning to hire 300 to 500 people to run the center, which will be powered entirely by green energy. Manufacturing starts next year.
Intel HQ Gets Wind Turbines: Intel INTC CEO Brian Krzanich has started a wind power project on the roof of Intel’s headquarters. The company is currently in the process of installing 58 microturbines in its own attempt to generate and consumer green energy.
Intel Haifa Lab: Intel is building IoT labs across the world that will carry out IoT R&D while also partnering with local startups to build IoT products. The latest of these was in Haifa, Israel. Intel already has other such centers in Munich, Stockholm, Istanbul and Swindon (UK).
Alibaba’s Taobao Told to Leave Taiwan: A failure to apply for requisite patents led Taiwanese authorities to ask Taobao to vacate the country. Alibaba BABA has told the Chinese media that it was attempting to communicate with the concerned regulatory body to ensure that there would be no interruption in its business. China has seen to it that Taiwanese businesses operating in Mainland China get tax breaks, but this is not expected to sweeten relations between the two neighbors.
Yahoo Japan Gets Closer to Yahoo: Yahoo Japan has appointed Yahoo Chief Counsel Ronald Bell to its board, where Yahoo CFO Ken Goldman is also a member. Softbank President and former Googler Nikesh Arora is the Chairman of the board. The board was reduced from 11 to 9 members.
Google Interested in Ag Tech: Google Ventures led a fund-raising round for $15 million in Farmers Business Network (FBN). This is a technology company focused on improving farmers’ yields based on data gathered by agricultural equipment and shared between users. FBN could in the future make recommendations based on weather, soil and other data it gathers from on-field activity, which could be very useful for agricultural companies like Monsanto and Deere.
Legal/Regulatory
Samsung to Pay Apple Less: Earlier, the court granted Apple $929 million for Samsung’s patent infringement. Samsung appealed and it now appears that it needs to pay only 60% of that amount. The appeals court held that functional features can’t be protected, and Apple couldn’t show that the iPhone’s design elements such as its screen or shape were not functional features.
Cisco Investigation in Russia: Senator John McCain has taken exception to Cisco’s CSCO selling technical equipment even after U.S. sanctions against Russia following its activities in the Ukraine and its annexation of Crimea. A Buzzfeed report accused Cisco of selling equipment to FSB, the successor to KGB and changing customer names to cover its tracks. But Cisco denied all charges saying that there were just a few name changes, which were mistakes rather than a deliberate attempt to cover up wrongful acts.
Russia Warns Google, Twitter, Facebook: Google, Facebook and Twitter face a ban in Russia for failing t turn over user data to the government in accordance with the country’s Internet rules. The companies have been refusing requests for data and the government has now sent them a warning.
New Technology/Products
15-inch Macbook Pro Update: Enhancements included a new Force Touch trackpad, faster flash storage, longer battery life and faster discrete graphics. The 27-inch iMac also got a 14.7 million pixel display, quad-core processors and AMD graphics.
Microsoft Mobile Collaboration Apps
YouTube Bolsters Live Streaming, Adds Buy Button: YouTube just bolstered its live streaming capabilities to 60 fps that enables a smooth gaming experience and puts it on par with gaming service Twitch that Amazon acquired last year. Separately, it also announced a Buy button within ads that users can click to buy. This could be an effective tool for marketers and therefore greatly increase the revenue potential of YouTube.
Google Brillo for IoT: Brillo is an Android operating system for very low-power systems and will take up very little memory. Google’s plan is to create an operating system that a host of hardware makers can base their products on. With IoT devices spanning various markets from the connected home to wearables, it should become easier for hardware makers to have a common platform to standardize on. This is what Google appears to be aiming for, but further details should be available at its developer conference this week.
Google Working on New Web Photo Service: Google is separating Photos from Google+ and will reportedly allow them to be shared on social networks like Facebook and Twitter. This puts it in direct competition with Yahoo’s Flickr which gives users a TB of free storage, Apple’s recently-launched iCloud Photo Library which can backup photos on iOS devices and startup Lyve which allows users to set up their own photo storing and sharing service. Google is expected to say more about the service at its developer conference.
M&A and Collaborations
Facebook Bolsters Payments Capabilities: Facebook has acquired Tugboat Yards, which specializes in a simple payments service transferring funds to small establishments contributing content to the site. It’s a rather interesting follow-on to the recent content deal with publishers, indicating its growing interest in the area. The deal could indicate Facebook’s intention to step into content creation.
Pandora to Acquire Next Big Sound: Pandora has snapped up analytics company Next Big Sound in an attempt to strengthen its Artist Marketing Platform. The combination brings together Next Big Sound’s analytics and Pandora’s 80 million monthly active users, which could generate the kind of insight that advertisers generally look for. Pandora also has an ad-free service called Pandora One.
Analyst Opinion
UBS Lowers Intel Estimates: Analysts maintained their buy rating while lowering estimates and price target based on beliefs of further tightening in the PC supply chain ahead of Intel’s Skylake to be launched in the third quarter. Second half margins are expected to benefit from the new product launch and 14nm process maturing, which will however be offset by 10nm startup costs.
Bernstein on Microsoft: Bernstein analyst Mark Moerdler reiterated his Outperform rating on Microsoft, saying that the company was moving very rapidly in line with its cloud-first mobile-first strategy and the model transition is largely complete. The next two fiscal years (2016 and 2017 ending in June) would see 11% and 16% growth in revenue with margin expansion and capital returns following.
Morgan Stanley Positive on Amazon: Analyst Brian Nowak has said that Amazon’s shares were punished during the 2014 investment cycle and that sentiments on the stock had just started turning following first quarter results that revealed a much higher-margin business in AWS. Prime was also mentioned as a big driver.
Akamai Downgraded by Oppenheimer: The analyst says that Akamai’s valuation and the increasing competition in content delivery made the shares unattractive. Although the market has high barriers to entry and Akamai has diversified into other high-margin services (infrastructure, security), there are a lot of players with networking assets that can enter the space, for example Amazon, which recently entered the CDN space. Level 3, Verizon and Limelight Networks are other competitors.
Some Numbers
Apple Watch Sales Estimates Vary Widely: Even as MS analyst Katy Huberty raised her annual estimate for Apple Watch sales to 36 million (50 million without supply constraints), online consumer spending tracker Slice Engine says that demand is trailing expectations. The research group, which bases its findings on online marketplace email receipts, says that initial orders were very high and driven by the usual hype that surrounds an Apple launch.
Following the launch, however, lower-than-expected sales were attributed to supply shortage. But U.S. orders of the Watch have remained at under 30,000 a day, and need to be much higher to match Hubberty’s survey numbers. Hubberty says that 50% or 18 million Watches will be sold in the U.S. Notably Ming Chi Quo of KGI also recently lowered Watch estimates.
The Chromebook Impact on Microsoft: Recent reports from IDC and Gartner indicate that Microsoft is being virtually pushed out of the education segment as Chromebooks take over. IDC says that Chromebooks are heading from a zero share of this market at the end of 2012 to around 70% by the end of the current quarter.
Gartner estimates that 7 million Chromebooks shipped to the education market in 2014. The low cost and ease of applying parental controls makes it particularly attractive for the segment. Microsoft has low-end Windows-based Bing notebooks and probably wont get pushed out entirely, but children are getting used to Chromebooks (Google charges for the managing software) and they could also make inroads into some enterprise markets.
Amazon Prime Members Grow: Consumer Intelligence Research Partners (CIRP) estimated that Amazon Prime members grew by a million from the holiday quarter and represented 42% of its total customers. Prime is a big positive because it results in loyalty and repeat purchases, which are good for retailers. The growth is particularly positive because Amazon issued many Prime memberships as offers in the holiday quarter and this means they held on to most of those.
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