Filed under: Industry, Competitive strategy, Google (GOOG), Time Warner (TWX), Marketing and advertising

It’s hard to make sense of what market analysts do sometimes. The stock prices of companies can swoon and sway based on analysts who can be 1) mostly incorrect about the prospects for covered companies, 2) dismal in their track records of earnings predictions and 3) falling into a pattern of some other weird alternative like market influence. I’m not saying all are that way, but some sure seem like it. When Google, Inc. (NASDAQ: GOOG) has a fantastic quarter but misses over-inflated earnings projections just a tiny amount, the stock price plummets (only to recover shortly thereafter). What is the point? To some, analysts run the market.

The same thing happened to AOL, a division of Time Warner, Inc. (NYSE: TWX). The company that owns this blog performed a fast and well-timed turnaround last year from a subscription-based model to an advertising-based model and the bet paid off from many perspectives. Of course, some analysts thought an immediate gratification of revenue from ad sources would befall AOL the first day this switch started happening. Unless things can be changed ‘on a dime,’ that generally never happens. Nevertheless, I consider AOL’s strategy to morph into an ad-based revenue model to have worked pretty darn well in such a short period of time.

Alas, the double-digit ad revenue growth predictions by AOL execs, which turned into a few quarters of 40% ad revenue growth, set the stage for later disappointment. Although AOL’s advertising revenue was less than expected for the second quarter that was reported on August 1st, it still went up a healthy 16%.

Time Warner executives said AOL’s advertising revenue would grow at a slower pace than the overall industry in the second half of the year. This reinforced the doubts that Wall Street already had about the AOL turnaround. Shares of Time Warner have dropped almost 13 percent since the start of the year.

Is this indicative of anything? Not really, besides the fact that Time Warner brass need to not became too beholdent to analysts and for Wall Street to have realistic expectations for AOL.

Give it time, folks. Changes are happening faster than ever before, and AOL, so far, is doing a superb job changing with the times. It just needs to keep it up.

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Filed under: Google (GOOG), eBay (EBAY), Interviews

Back in 2004, Pascal Rossini founded ADS-click S.A, which is based in Geneva, Switzerland. Basically, the vision was to create a dynamic marketplace for trading online advertising. And yes, it’s a way to get a piece of Google’s (NASDAQ: GOOG) lucrative business.

Today, ADS-click represents more than four billion ad views per month. The firm also recently raised $4 million in venture capital from BayTech Venture Capital.

I had a chance to interview Rossini:

Q: “Background on the company?”

A: “ADS-click was founded in 2004. It is an innovative, disruptive company and pioneer in new advertising technologies. Our technology is used by major Internet players in Europe, Japan and Australia.

“ADS-click employs 30 people from diverse backgrounds and nationalities — all Web 2.0-oriented and positioned at the front-end of Internet innovation.”

Q: “Generally, how does the solution work?”

A: “Our application distributes ads on the web and on mobile phones from a single ad marketplace, giving web and mobile advertisers the convenience of a single access point for managing their advertising campaign and budgets. Unlike others, we offer a choice of different business models, such as pay-per-click or pay-per-impression. On top of the automatic contextual ads display, the solution also lets advertisers target their audience by different criteria, such as location, behavior, vertical categories or keywords.”

Q: “So far, Google has been dominant. How can your approach make inroads?”

A: “Although Google is doubtless a giant in the online advertising market, with its Adsense and Adwords applications, we believe that we can take advertising platforms a step further. Online advertising will be soon traded electronically in all available formats, from mobile to video, and will include more than just the sponsored links that dominate the Web today.

“The online advertising market still suffers from a lack of transparency and low user-centricity, in spite of the Web’s evolution into what pundits like to call ‘Web 2.0. Users are still seeking out advertisements rather than advertisements finding them. Our approach to this problem is ADS-exchange — “The New York Stock Exchange” of online ads, where people can bid for advertising space in all possible formats in real-time. ADS-click developed the ADS-exchange network, which is managed by publishers, advertisers and agencies, rather than by intermediaries such as Google. Think of it like the eBay Inc. (NASDAQ: EBAY) for online ads.”

Q: “Looks like you’ve had funding from a German VC. How was that process?”

A: “ADS-click chose BayTech Venture Capital for their firsthand understanding of strategic objectives and for the company’s potential. Following the funding operation, Jude S. Ngu’Ewodo from BayTech Venture Capital has joined our governing board.”

Q: “What is the tech startup environment like in Switzerland?”

A: “Switzerland, considering its demographic size, is very active in Internet technology and the biotech industry. In terms of Internet start-ups, two Swiss companies have been cited in Business 2.0 among the best Web 2.0 services to watch worldwide (outside of the U.S.) in the last two years (cocomments last year and sky-click in August 2007).”

Also, if you want to check out more venture capital fundings, click here.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

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Filed under: Analyst reports, Google (GOOG), Options, Technical Analysis

CNBC’s Jim Cramer loves tech for the second half of this year, and Google (NASDAQ: GOOG) really impresses him now. Cramer says YouTube’s ad margins are incredible, and there may be another revenue explosion before the year’s end.

If you agree with Cramer, then for a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $460 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just 1 month as long as Google is above $460 at September expiration. Google would have to fall by more than 10% before we would start to lose money.

Google hasn’t been below $460 for more than a day or two since March and has shown support around $481 recently. This trade could be risky if the stock breaks below its 200-day moving average which is currently $485, but the company doesn’t report earnings until October after this position expires/ That should make this trade a little safer.

Brent Archer is an options analyst and writer at Investors Observer.

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Filed under: Industry, Consumer experience, Competitive strategy, Google (GOOG), News Corp’B’ (NWS)

Facebook has the hot hand in social networking. By a number of accounts it is growing more quickly than its larger rival, News Corp (NYSE: NWS) unit MySpace. Some industry estimates put the value of the company at close to $10 billion.

Now, Facebook is taking a real gamble to see if it can increase revenue. The company is working on a system that would allow advertisers to target Facebook members based on the information they give in their profile. Let the privacy advocates chew on that.

The Wall Street Journal writes (subscription required) that marketers will be able to target based on “age, gender and location, but also on details such as favorite activities and preferred music.” As one concerned advertising executive told the paper “Most people don’t realize how targeting works; it becomes so good that even though it’s anonymous, you feel like they know you..”

Facebook’s problem is that it needs the money. Industry estimates say that the company will make $30 million on $150 million in revenue this year. That makes the company tiny by almost any standard, and means that keeping a high valuation is difficult.

The Facebook action could trigger a response from the largest social network, MySpace. It it can set up a similar targeting system, its size might allow it to take more share of the new marketing market than Facebook could accumulate.

But, as leaders in the Web 2.0 space, both companies risk the charges thrown at Google (NYSE: GOOG). Web companies don’t care about privacy if they can make money.

Douglas A. McIntyre is a partner at 24/7 Wall St.

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The market seems to have taken well to the liquidity injection by the Federal Reserve. Since the past two weeks of subprime debacles and stock market woes, the market is slowly gaining a foothold. Investors don’t seem to care that each day a few lending companies are collapsing and firing thousands of people. Growing foreclosure numbers, housing prices depreciating, and consumer spending cut

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Filed under: Earnings reports, Analyst upgrades and downgrades, Technical Analysis, Stocks to Buy

Some firms operate best under a diversified business model, but the practice can lead to a bemusing product list. For example, there is a successful outfit up in Norval, Ontario that would be glad to fill your order for kosher consumables, silica free loose abrasives, and the design of a system that processes non-woody fibers used in making paper.

SunOpta (NASDAQ: STKL) operates in diverse arenas. The firm’s Food group produces a range of natural, organic, kosher and specialty foods, with a focus on soy, corn, sunflower, fruit and oat products. The Opta Minerals group recycles inorganic industrial waste and processes abrasives, roofing granules, industrial minerals and specialty sands. SunOpta BioProcess is responsible for a proprietary steam explosion technology used in the production of pulp and ethanol.

The firm pleased investors earlier in the month, when it announced Q2 EPS of 11 cents and revenues of $208 million. Analysts had been expecting 11 cents and $203 million. Management also guided FY07 EPS to 35-40 cents (36 cent consensus) and FY07 revenues to $775-$800 million ($757.4M consensus). RBC Capital Markets subsequently reiterated its “outperform” recommendation on the issue and boosted its price target to $16. The news popped the shares out of a late July/early August “cup” into the mid-August “handle” of a Cup & Handle formation. Now, the price is showing signs of completing the pattern with a bullish rise from the right-hand side of the “handle.”

Altogether, brokers recommend the stock with one “strong buy,” three “buys” and two “holds.” Analysts see a 37% average annual growth rate through the next five years. The STKL Price to Sales ratio (1.02), Sales Growth rate (33.54%) and EPS Growth rate (37.50%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 66% of the outstanding shares. Over the past 52 weeks, the stock has traded between $8.03 and $14.05. A stop-loss of $10.90 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.

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Filed under: Dell (DELL), Sun Microsystems (SUNW), Options

Sun Microsystems (NASDAQ: SUNW) volatility elevated into 9/5 financial analyst meeting.

SUNW is flat at $4.86. SUNW, which will change its symbol to JAVA on 8/27, will have an analyst meeting in New York on 9/5/07. The company has announced a $3 billion stock buyback on 5/16/07. SUNW recent market cap is $17.3 billion. SUNW over all option implied volatility of 45 is above its 26-week average of 38 according to Track Data, suggesting larger price risk.

Rackable Systems (NASDAQ: RACK) volatility flat on renewed buyout chatter.

RACK, a provider of servers and storage products, is recently up $0.65 to $12.62 on unconfirmed and renewed deal speculation. SUNW & DELL have been frequently chattered as interested in RACK. RACK call option volume of 2,690 contracts compares to put volume of 250 contracts. RACK September option implied volatility is at 47, October is at 51 and December is at 56, above its 26-week average of 55 according to Track Data, suggesting non-directional and less price risk.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

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Filed under: Earnings reports, Analyst upgrades and downgrades, Motorola (MOT), Nokia Corp. (NOK), Nortel Networks (NT), Alcatel-LucentADS (ALU), QUALCOMM Inc (QCOM), Technical Analysis, Stocks to Buy

Until not so long ago, wireless communications was the wave of the future. Today, it is an inescapable necessity. One highly-regarded equipment provider was formed recently by the merger of two rivals. Now it is the largest independent supplier of wireless transmission systems in the world.

Harris Stratex Networks (NASDAQ: HSTX) makes wireless network products for mobile and fixed service providers and private networks. Specialties include microwave radios for access and trunking applications, Ethernet transmission systems and network management software. The firm serves mobile network operators, public safety agencies, utility and transportation companies, government agencies and broadcasters, in more than 135 countries. Harris Stratex was formed in January of this year, when Stratex Networks merged with Harris Corporation’s (NYSE: HRS) Microwave Communication Division. Competitors include Alcatel-Lucent (NYSE: ALU), Motorola (NYSE: MOT), Nokia (NYSE: NOK), Nortel Networks (NYSE: NT) and Qualcomm (NASDAQ: QCOM).

The firm surprised the Street earlier in the month, when it reported Q2 EPS of 18 cents and revenues of $174.1 million. Analysts had been expecting 14 cents and $156 million. Management also guided FY08 EPS to $1.05-1.22 ($1.06 consensus) and FY08 revenues to $670-702 billion ($670.25M consensus). Ferris Baker Watts and Needham subsequently reiterated “buy” ratings on the issue.

Continue reading Harris Stratex Networks (HSTX): Wireless networking specialists

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Filed under: Good news, Products and services, Dell (DELL), Hewlett-Packard (HPQ), International Business Machines (IBM), Sun Microsystems (SUNW)

Dell, Inc. (NASDAQ: DELL) has a desperate need for good news, as sales are not where they need to be for its shiny new products and the internal accounting scandal has the company mired in a mess (still). Well, that hooray sound you hear coming from Round Rock, Texas is probably from Dell’s marketing and sales team for larger server computer systems. The world’s second-largest computer maker managed to take the lead in the second quarter of 2007 in terms of overall large computer server sales growth.

Dell edged out rivals IBM Corp. (NYSE: IBM), Hewlett-Packard Co. (NYSE: HPQ) and Sun Microsystems, Inc. (NASDAQ: SUNW) — no small feat at all. How did Dell manage to grow faster than all these well-placed competitors? It came down to how a new business strategy played out in the brutal market for supplying large servers to midrange businesses and large corporate data centers. Result: Dell’s sales in this segment soared over 20% according to industry analysis firm IDC.

Dell still remained down the chain in fourth place when it came to overall server computer market share. Dell grew faster than its competition by delivering (and marketing) more energy-efficient machines using both Intel Corp. (NYSE: INTC) and AMD, Inc. (NYSE: AMD) chips. Additionally, Dell’s hiring of former Solectron CEO Mike Cannon gave quite a boost to the company’s supply chain and logistics operations in terms of efficiency.

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Filed under: Competitive strategy, General Motors (GM), Options, Technical Analysis

General Motors Corporation (NYSE: GM) announced last night that it is cutting production at six plants in order to cut costs in the face of weaker sales, as noted by Brian White. The company is spinning the cuts, claiming that the lower production levels will allow for less overtime and the market seems to agree this morning. If you agree, it might be a good time to check out a bullish hedged trade on GM.

After hitting a one year-high of $38.66 in June, the stock has seen two sharp drops over the past two months, finding support right around $30. This morning, GM opened at $31.54. So far today the stock has hit a low of $31.37 and a high of $31.85. As of 10:45, GM is trading at $31.43, up $0.10 (0.3%). The chart for GM looks neutral but deteriorating, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $25 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 2 months as long as GM is above $25 at October expiration. General Motors would have to fall by more than 21% before we would start to lose money.

GM hasn’t been below $28 at all in the past year and has shown support around $30.50 recently. This trade could be risky if the auto-making industry takes a big hit from the credit problems, but even if that happens, this trade could be protected by support around $29.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent neither owns nor controls positions in GM.

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