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6 Reasons to Bet Against Motorola

Michael Comeau — Tue, 20 Apr 2010 13:49:41 +0000

I rarely make unhedged options trades, but yesterday I bought a chunk of Motorola (MOT) July $6 puts. This is a bet that Motorola’s stock price will drop by more than 20% by July – preferably by April 29th when the company reports Q1 earnings.

Here are 5 reasons I’m betting against Motorola.

1) Last Quarter Stunk

Despite having a very hot product in its Droid smartphone, Motorola reported a pretty lousy fourth-quarter earnings report, complete with a lousy outlook for Q1.

2) Android Competition at Verizon is Heating Up
The Droid has been the hot Google (GOOG) Android phone at Verizon Wireless, but that’s about to change. Two superior Android devices, the HTC Droid Incredible and the Google Nexus One will soon be sold at Verizon, and that’s going to cut into Droid sales.

3) Apple (AAPL) is Likely to Release a New iPhone This Summer

Apple has released a new iPhone model every summer for the past three years, and that my friend is a pattern. Plus, Gizmodo just released a report unveiling what is almost definitely a prototype for a new iPhone. This phone will definitely rule at AT&T (T). And if it makes it way to Verizon – issue $#2 is an even bigger problem for Motorola.

4) The Stock is Up In the Face of Bad News

Motorola’s stock price has jumped about over 25% off the January lows despite the fact that there has been nothing but lousy news since then. Competition in the smartphone market has gotten so bad that Palm (PALM) is hanging on for dear life despite having quality products, and the Android-phone market is quickly becoming oversaturated, with even Lenovo throwing its hat into the mix.

5) Motorola Has a Big Legacy Dumb Phone Business

The smartphone market is showing pretty decent growth, but the non-smartphone portion of the mobile-phone market is quickly stagnating. MOT’s dumb phone weakness has been enough to offset the strength of the Droid, and there’s no reason to think that will change soon.

6) Smartphone Pricing is in the Crapper

With the exception of the iPhone, smartphones have become so commodottized that you can pretty get a decent one for a penny on Amazon. Consumers do not value commodity phones, thus we should not value the stocks of commodity-phone producers.

Disclosure: short MOT through put options, long AAPL stock, long RIMM stock

P.S. Are you by any chance a fan of mixed martial arts? If so – read my review of BJ Penn’s new book Why I Fight

My Top Mobile Phone Stock Picks

Michael Comeau — Mon, 29 Mar 2010 14:08:18 +0000

A reader asked for my opinions on mobile-phone stocks, so I thought I’d give everyone a quick run-down of my opinions on the big names in the space:

Apple (AAPL) – BUY

What can I say? I’m an Apple shareholder and a huge fan of their products. I fully expect the iPhone to resume taking market share, particularly if the company releases a new model this summer as they have every year since 2007. Plus, the company is still taking market share in PC’s with no sign of a slowdown. I’m not particularly bullish on the iPad, but even I can’t complain about potential icing on this cake.

Motorola (MOT) – SELL

Yes, the Droid is awesome, but the market is now being flooded with Google (GOOG) Android powered phones and that means too much competition. Verizon (VZ) is now offering two-for-one deals on the Droid and Devour, and Motorola doesn’t have any other strong models that can pick up the slack.

Nokia (NOK) – HOLD

I was tempted to slap a sell on Nokia, but the fact remains that they just had a decent quarter and that means it could scrape back some market share from the likes of Apple and the Android lot.

Microsoft (MSFT) – SELL

Microsoft has made some positive strides in their mobile-phone unit, but it’s just not enough to make any kind of meaningful financial impact on the company. Apple’s market-share gains in PC’s won’t be reversed, and we’re also moving towards a world of cheap, or even free software, and that aint good for Mister Softeee.

Research-In-Motion (RIMM) – HOLD

RIM still has a stranglehold on corporate IT departments for mobile email, but I worry that its position in consumer smartphones will be eroded by the iPhone, and flood of Android and Windows Phone 7 models that are going to hit the market later this year. So color me as on-the-fence.

———–

disclosure: long Apple (AAPL)

Is Bing Killing Google?

Michael Comeau — Fri, 12 Feb 2010 18:00:25 +0000

Okay, okay. That title was a bit theatrical.

But Microsoft’s (MSFT) Bing engine did squeeze out a market share gain from December to January, moving up to 11.3% from 10.7%. The almighty Google (GOOG) had a slight decline to 65.4%.

So is this latest Comscore (SCOR) data something to jump up and down about?

No. Here’s why.

Bing is great for searching images, videos, and most of all shopping. Image and video searches don’t convert well in terms of advertising. The important searches are for products and services, which do fall under the shopping category and which do benefit from holiday seasonality.

Bing’s shopping category strength can’t go on forever. Bing attracts shoppers because of Bing Cash Back, which rebates money back to shoppers to connect to shopping sites via Bing. And Bing gets some damn good deals. You’ll see leading web retailers like Sears (SHLD) and Dell (DELL) offering 10% or 15% or even 20% cash back on certain items, which make for a hell of a deal.

This buying of market share just can’t go on forever because it’s just plain expensive, even if retailers share some of the kickbacks to consumers. For example, I’d like to buy this one particularly $1,400 camera lens. Most likely, I’ll pull the trigger on it when the right Bing cash back deal is offered so I can save $100 or even $200 on it. That doesn’t make me a loyal customer – just a temporary opportunist.

So there’s no reason to get excited about Microsoft making some small gains over the holiday time period. If Bing gets up to 15% or 20% by 2011 – then Google will have some very legitimate worries.

Don’t get me wrong, Bing has brought some much-needed competition to the search game, but they’ve got to find organic ways to take market share away from Google if they want to reach new heights in the search game.

Kindle vs. Tablet! One Will Stand. One Will Fall…

Michael Comeau — Tue, 26 Jan 2010 15:40:59 +0000

Now this is an interesting piece of news from our buddies at TechCrunch:

We believe there is a good chance there will be a Barnes & Noble bookstore built into the Apple Tablet, either as one of the showcase apps which launches with the device, powering a new book section in iTunes, or integrated directly into the Tablet’s e-reader. The two companies are thought to be working closely together, increasing the likelihood that Barnes & Noble will be part of the announcement on Wednesday. While Apple can run around cutting deals with the larger publishers, a built-in Barnes & Noble bookstore could include up to a million titles in one fell swoop, just like on B&N’s own Nook reader. Barnes & Noble already offers an eReader app for the iPhone (iTunes link) which lets you download and read electronic books on the smaller device. That app could be paving the way for an eReader or book store on the Tablet.

I definitely think there will be some rivalry between the Amazon (AMZN) Kindle and Apple’s Tablet. The Kindle does have a few advantages like its $259 price tag ($489 for the fancy one), but the Apple Tablet should kill it in terms of sheer sexiness.

And it would be smart of Barnes & Noble to jump on board. The Nook is cool but it doesn’t have the buzz of the Kindle and will be overshadowed by the Tablet. Not to mention that there are an awful lot of e-book readers, or e-book capable devices, coming in to crowd the market.

Amazon does make a Kindle app for the iPhone, and they should do the same for the Tablet. I’m skill a bit skeptical about the Tablet’s success, but a Kindle app’s not going to affect that. Therefore, Amazon should just jump on board, because the Tablet just might take off. They could even throw in some free e-books to those who order the Apple Tablet from Amazon.comAmazon.com.

We’re living in a funny world. I’d rate Microsoft (MSFT), Apple (AAPL), Google (GOOG), and Amazon.com (AMZN) as the four big tech giants of this age. They’re four completely different companies that have found bizarre ways to compete with each other in certain business areas, and cooperate in others.

It’s the foggiest fog of war in business today.

Check Out My Podcast With Frank Curzio!

Michael Comeau — Fri, 22 Jan 2010 01:50:10 +0000

I just wanted to give you folks a heads-up:

I appeared on Frank Curzio’s podcast yesterday. Frank was a great friend of mine at TheStreet.com (TSCM) and is simply the best in the business when it comes to low-dollar stocks. He’s now with Stansberry and Associates Investment Research, where he’s launching what should be the best penny stock/low-dollar/under $10 stock newsletter out there. Tim Sykes may have a new rival!

We hit all the fun topics: Apple (AAPL), Google (GOOG), video games – and what’s it’s like to work for Jim Cramer!

Click here to listen!

Google Beats in Q4 With AdSense Revenues Up 21%

Michael Comeau — Fri, 22 Jan 2010 01:14:29 +0000

Google (GOOG) reported fourth-quarter earnings after the close, beating analysts’ expectations by a nice margin. However, the stock was off by 5% in after-hours trading as Q4 sales figures didn’t blow anybody away.

EPS came in at $6.79 a share, beating the consensus forecast of $6.50 a share. Revenues rose 17 percent to $6.7 billion.

Two thirds of Google’s revenue from its own sites, with 31 percent coming from AdSense revenues across its advertising network. And good news for bloggers: AdSense revenues grew 21% – much faster than the company’s overall rate.

Other highlights from the conference call:

finance not as strong as other verticals
CEO Eric Schmidt – “next huge business is display”
nothing new on China
advertisng on YouTube home page was sold out in Q4
relationship with Apple (AAPL) is very stable

YouTube Disco Review – It’s Awesome!

Michael Comeau — Thu, 21 Jan 2010 14:39:47 +0000

Wow, I nearly missed this story!

Google’s (GOOG) YouTube has a new function called the Music Discovery Project and Playlist Creation tool.

You type a band or artist’s name in, and up pops a list with that artist’s music videos. It has it all. Al Green, LCD Soundsystem, and even the 80’s metal band Autograph!

There’s no doubt that YouTube Disco adds yet another angle to the emerging Google vs. Apple (AAPL) rivalry.

The sound quality of a YouTube video isn’t exactly fit for an audiophile, but it doesn’t have to be… …it’s free! Besides, after a few songs, most people will get used to the lousy audio quality.

Using YouTube as a music-listening tool is nothing new, but the Disco tool is Google’s first effort as marketing it as such. If you don’t need all your music to be portable, it makes sense to get it on YouTube for free rather than buying it on iTunes.

YouTube Disco is most definitely cool. It’s easy to manage playlists and mix-and-match artists. I just wish I had this when I was a teenager and actually cared about new music. I was usually too broke to buy all the CD’s I wanted and I’d have been in heaven with what is basically a free jukebox with unlimited capacity.

There are just a few more features I’d like to see:

An option for high-quality video when it’s available
A sharing feature so you can send playlists to friends
Some type of visualizer so your computers looks cool at a party

Beyond those very minor oversights, YouTube Disco is pretty awesome, and I have my Queen playlist going right now.

“All we hear is iTunes gaga…”

Morning News: Instant Reactions

Michael Comeau — Thu, 21 Jan 2010 14:13:29 +0000

1) Google’s (GOOG) YouTube announces movie rental service:

Crazy. If you thought Apple (AAPL) was ticked off at the explosion of Android-powered phones, this will take that increasing rivalry to the next level. Yes, it’s only a test and may never be fully rolled out, but Google needs new revenue streams. Internet advertising is still a secular growth business, but it will eventually flatten out. They have to try everything.

2) Nokia (NOK) offers free GPS app:

I’m short Nokia so take this with a grain of salt: Nokia paid $8 billion for Navteq, but now they’re giving away GPS for free? That doesn’t sound like good business – they’d be much better off concentrating on making enough new phones to fight the Android onslaught.

3) Amazon (AMZN) positions Kindle as app machine:

Now this I like. I’ll probably never (though I once said I’d never have an iPod…) have an ebook reader. I like the $1 section at Strand way too much. But Amazon is inviting developers to write programs that take advantage of the Kindle’s 3G Internet capabilities, big display, and long battery life. Electronic Arts (ERTS) is an early addition to the roster.

4) PC World says the Apple (AAPL) Tablet needs a better name:

Damn right!

5) EU approves Oracle/Sun deal:

Well thank you Jesus…

Google’s Ultimate Sin

Michael Comeau — Wed, 20 Jan 2010 16:50:31 +0000

You have to do something pretty crazy to inspire a techno-bromance between the head Steve’s at Apple (AAPL) and Microsoft (MSFT).

Bloomberg is reporting that the tech heavyweights are in talks to have Microsoft’s Bing replace Google (GOOG) as the default search engine on the iPhone, and I believe it. There had to be a reason Microsoft released a Bing app for the iPhone, and with the benefit of 20/20 hindsight, it looks like it was a test drive.

So I thought long and hard this morning about what Google may have done to tick everybody off, and there’s only one conclusion:

They give away too much stuff for free.

This wasn’t a problem in the past because Google’s best free applications – like Search, Analytics, and Docs – didn’t step directly on the toes of Microsoft’s and Apple’s core businesses.

The success of the Android smartphone operating system changed that. As of this past November, Android-powered smartphones had 27% U.S. market share, according to AdMob. That number that will surely go higher with the release of Nexus One, as well as the countless other Android phones being planned by mobile-phone makers.

The ramifications are simple. Microsoft’s Windows Mobile is dead in the water. Android is the new ‘commodity’ smartphone OS. And it’s pretty damn good. And oh yeah, it’s free! What phone company wants to pay Microsoft for a lousy product, with the word Windows in it no less, when they can get a better one for free?

Google’s Chrome OS, which is coming to a netbook near you, is another problem for Microsoft. PC sales skyrocketed in the fourth quarter of 2009, with netbooks contributing a sizeable portion of the growth. Microsoft surely can’t be happy about Chrome-powered netbooks, which will take share in the booming low-end market.

On the Apple side, the best Android-powered phones are finally providing the iPhone with some competition. Yes, the iPhone is still the best phone on the market. Forget nonsense like screen resolution, LED flashes, and processor speeds – the iPhone touchscreen and user interface are the most user-friendly to regular people, and that’s what puts dollars in the cash register.

However, the equation shifts when you factor in AT&T’s (T) cruddy network. For many people, a Motorola (MOT) Droid running on Verizon’s (VZ) more-reliable network may offer a better user experience, just because of the reliability factor.

Thus, Google is dangerously close to damaging the iPhone franchise. And that’s a major problem when you consider that iPod revenues fell 12% last year. The iPhone was the perfect cannibal for the iPod because of carrier subsidies. It’s great business for Apple to get $500 or $600 for a phone that the public pays a couple hundred bucks for.

I’m still ranking Apple as King of the Hill in smartphones, but it’s paranoid for good reason.