Digital River (DRIV) to Announce Earnings After the Bell Today

Digital River, Inc (DRIV) will announce its Q1 2005 financial results after market close today.

The company boosted its Q1 outlook on March 17, resulting in a >10% gap up. The gains were temporary, however; the stock has hovered near $30 ever since. As I write DRIV is currently trading at ~$29.

Q1 Earnings in Review: JCOM, SSNC, GOOG

In this post I'd like to touch on the earnings results of J2 Global Communications (JCOM), SS&C Technologies (SSNC), and Google (GOOG).

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On Monday (4/18/2005) J2 Global Communications (JCOM) announced its Q1 earnings results. Revenue rose 40% YoY to $32.2M and net income ~60% YoY to $10.2M, beating guidance and analyst estimates. Its gross margin improved slightly YoY to 79.8% from 79%.

Management also reiterated FY 2005 guidance as follows:

Revenues $145 -- $148 million
Net Earnings Per Share (1) $1.70 -- $1.75

...giving JCOM a forward P/E of ~19.5.

The stock still looks like a great value to me and remains one of my largest personal holdings. I strongly encourage due diligence here. For more information on JCOM reference my previous posts about the company here and here.

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On Wednesday (4/20/2005) SS&C Technologies (SSNC) announced record numbers for Q1. Revenues increased 43% YoY to $27.4M and net income increased 58% YoY to $6M. The company's outsourcing revenues saw the largest gains, expanding more than 100% YoY to $10.457M.

In a nutshell, SS&C provides business services to the financial services industry. For more information on what they do reference SS&C's Reuters Business Summary.

I like the company because of its focus on recurring cash flows and the broad scope of its product offerings, a distinct competitive advantage. Its rapidly-growing outsourcing business is an added bonus - the outsourcing trend will only gain in strength as time goes by.

Fundamentally speaking, SS&C has a solid balance sheet with more than $100M in cash and investments and a current ratio of ~3.5. Plus, despite the stock rallying nearly 20% over Thursday and Friday, the company's EV/FCF ratio still stands at a relatively modest ~16 (~$31M TTM FCF).

I like SSNC at current levels, but, as always, conduct your own due diligence.

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On Thursday (4/21/2005) Google (GOOG) announced suberb results for Q1. The company reported $1.29 of net income per diluted share, completely blowing away analyst estimates.

I don't own any shares of Google, but this faster-than-expected growth and all of the recent talk about the company (like the Gates vs. Google article from the latest issue of Fortune) are starting to make me wonder about buying a small stake in Google. I plan on writing an article specifically about Google in the near future.

Full disclosure: I am long JCOM and I am long SSNC. I do not own shares of GOOG.

The opinions expressed in this blog are my personal opinions. I am in no way responsible for trades made or not made because of something read here. One should always do his or her own due diligence before buying a stock.

Nasdaq to Buy Instinet for $1.8B

According to Britain's Financial Times, Nasdaq (NDAQ) is set to buy Instinet (INGP) for $1.8 billion. Read the story here.

LEDs: a Disruptive Technology

According to this recent AP article, LEDs could eventually replace light-bulbs as our primary source of lighting. Among the more interesting points of the article:

• The Department of Energy has estimated that LED lighting could cut national energy consumption for lighting by 29 percent by 2025. The total savings on U.S. household electric bills until then would be $125 billion.


• Current white LEDs will last up to 50,000 hours, about 50 times as long as a 60-watt bulb. That's almost six years if they're on constantly.


• The feature of LEDs likely to propel them into homes is aesthetic, not practical. Arrays that mix red, green and blue LEDs can produce any color of the rainbow. Instead of a dimmer, you might have three sliding knobs that let you mix color.

Another great article about LEDs can be found here. It is also worth mentioning that there are numerous exciting applications for LEDs outside of lighting, including use in televisions, computer displays, cars, and camera flashes.

A word from myself:

I was inspired to mention this topic after the stock of LED maker Cree (CREE) rose 11.84% yesterday, on a 25% percent rise in revenue and a 37% rise in net income. (The stock is still down ~35% for the year despite this jump, a drop which occurred primarily because of gross margin concerns.)

Personally, I rarely invest in companies that make semiconducters, computer hardware, electronics, and the like - Cree included. While such companies may enjoy high margins at first, it is always just a matter of time before learning curves flatten, patents expire, and margins become razor-thin. Technology by itself is not a competitive advantage that is sustainable over the long-term.

With that said, I look forward to watching Cree and other companies from the sidelines should this "LED revolution" take place.

Full disclosure: I do not own shares of CREE.

On "Eyeing China's Alibaba" 4/5/05 Marketwatch Article

I was browsing Yahoo! Finance today and found this Marketwatch article, entitled "Eyeing China's Alibaba." While its main point, that U.S. internet companies are pouring large sums of money to buy into China, is valid, the article was scattered and, in places, made misleading generalizations. For example, the article states that "there are 1.3 billion people in China, and for better or for worse -- they're on the cusp of becoming the next me-too, want-it-all, consuming society." While this may hold true for parts of China (which, granted, means hundreds of millions of people), the majority of Chinese live in rural areas and earn extremely little.

The article goes on to state that "yet[,] for all that opportunity[,] the combined market cap of Chinese Internet companies is a fraction of the U.S. Internet companies. The big three -- Yahoo, Google, eBay - have a combined market cap of $150 billion. The current big three in China -- Shanda, Sina and NetEase -- are worth a combined total of $5 billion, with Shanda accounting for $2.2 billion of that."

This statement disregards YHOO, GOOG, and EBAY's sizeable global operations (which includes their respective Chinese operations), and more generally pushes aside the fact that YHOO, GOOG, and EBAY dwarf SNDA, SINA, and NTES in very real terms.

Maybe I'm being picky, but I think media outlets should be more complete than this.

YHOO:
Total 2004 Revenues (000's): $3,574,517
US Revenues: $2,653,437 (74.23%)
International Revenues: $921,080 (25.77%)
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Market Capitalization (4/8/2005): $48.22B
P/S (4/8/2005): 13.49
Trailing P/E (4/8/2005, according to Y!): 60.35
Forward P/E (4/8/2005, according to Y!): 51.12

GOOG:
Total 2004 Revenues (000's): $3,189,223
US Revenues: ~$2,104,887(66%)
International Revenues: ~$1,084,336(34%)
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Market Capitalization (4/8/2005): $52.72B
P/S (4/8/2005): 16.53
Trailing P/E (4/8/2005, according to Y!): 133.18
Forward P/E (4/8/2005, according to Y!): 37.58

EBAY:
Total 2004 Revenues (000's): $3,271,309
US Marketplace Revenues: $1,399,848 (42.79%)
Intl. Marketplace Revenues: $1,173,759 (35.88%)
Payment Revenues: $697,702 (21.33%)
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Market Capitalization (4/8/2005): $47.28B
P/S (4/8/2005): 14.45
Trailing P/E (4/8/2005, according to Y!): 61.68
Forward P/E (4/8/2005, according to Y!): 34.81

SNDA:
Total 2004 Revenues (000's): $165,189
Online Game Revenues: $154,197
Others Revenues: $10,992
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Market Capitalization (4/8/2005): $2.11B
P/S (4/8/2005): 12.78
Trailing P/E (4/8/2005, according to Y!): 28.99
Forward P/E (4/8/2005, according to Y!): 17.39

SINA:
Total 2004 Revenues (000's): $199,987
Advertising Revenues: $65,417
Non-Advertising Revenues: $134,570
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Market Capitalization (4/8/2005): $1.54B
P/S (4/8/2005): 7.73
Trailing P/E (4/8/2005, according to Y!): 26.28
Forward P/E (4/8/2005, according to Y!): 22.37

NTES:
Total 2004 Revenues (000's): $115,786
Online Gaming Revenues: $75,991
Advertising Revenues: $20,667
WVAS Revenues: $19,128
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Market Capitalization (4/8/2005): $1.55B
P/S (4/8/2005): 13.47
Trailing P/E (4/8/2005, according to Y!): 30.61
Forward P/E (4/8/2005, according to Y!): 16.49

Reader Stock Ideas

To my readers:

If there is a stock that you find particularly attractive and/or interesting at current levels, I encourage you to share your thoughts and analysis as a comment to this post. I think it would be neat to get a thread going. As I wrote, JCOM is my top idea at the moment.

cheers,
Charles Z.T.

J2 Global's International Expansion

J2 Global Communications (JCOM) released a statement this morning "[announcing] the continuation of [the company's] international expansion, including new service in Asia, additional cities in France, and an additional 1.2 million European telephone numbers." (The entire release can be found here on the company website.) Today's release makes us three-for-three thus far this week for JCOM-related press releases: on Monday J2 announced it would hold its Q1 earnings call on Monday, April 18th, and on Tuesday Kaufman Bros. initiated coverage on JCOM with a "buy" rating.

J2's international expansion is yet another reason why last week's downgrade was short-sighted, if the stated reason for the downgrade was in fact the true reason for the downgrade. (Though I suppose the downgrade wasn't all bad, as it allowed me to pick up a few more JCOM shares at a discount.) J2 should see tremendous organic growth, particularly over the next several years, as it expands internationally.

It will be interesting to see JCOM's Q1 numbers. I expect excellent results. For those who don't follow JCOM, for Q4 2004 revenues jumped 46% YoY and net income jumped 54% YoY. Gross margins increased slightly, from 86.6% in Q4 2003 to 87.3% in Q4 2004. And, most impressively, free cash flow for 2004 stood at $44.3 million, putting j2's current trailing EV/FCF multiple at 18.

Bottom line: I recommend that all take a serious look at JCOM at this price level. Read through the SEC filings. With the company's scalable platform, recurring cash flow, strong competitive position, enormous potential, blue-sky market, and of couse, undervalued stock (EV/FCF of ~18, trailing PEG of ~0.5, even less for trailing EV/FCF/G), I cannot think of a stock that I currently find more compelling than this one.

Full disclosure: I am long JCOM.

The opinions expressed in this blog are my personal opinions. I am in no way responsible for trades made or not made because of something read here. One should always do his or her own due diligence before buying a stock.

Gmail Storage Capacity Bumped Up to 2 Gigabytes

In what has become a familiar story of one-upsmanship in the battle for the loyalty (and eyeballs) of internet users, Google has bumped the storage capacity of its Gmail email service to 2 gigabytes. Just one-and-a-half weeks ago Yahoo! announced that it would bump up its email storage capacity to 1 gigabyte.

This means that Yahoo! can wave goodbye to all of its Yahoo! Mail Plus customers...or, at least, to those who haven't already switched to Gmail. (Yahoo! Mail Plus is the company's $20/year email service whose primary selling point is that it offers 2 gigs of storage.)

To be frank, I don't see Yahoo! emerging as the victor here, barring a major overhaul of its email service. Gmail is simply better: it boasts a better search function, no graphical ads whatsoever, a preview of an email before it is even opened, and overall, a more streamlined, functional interface. Google has also been successful in building the Gmail brand, cultivating a certain air of exclusivity by way of the service's "invite only" status.

Full disclosure: I do not own shares of Google or Yahoo.

U.S. News & World Report 2006 Graduate School Rankings

The 2006 edition of US New and World Report's "America's Best Graduate Schools" goes on sale Monday. Its business school rankings can be found online here. The publication's top ten b-schools for 2006, in order, are Harvard, Stanford, Wharton, MIT, Northwestern, Dartmouth, Berkeley, Chicago, Columbia, and UMich.