Archive for February 2nd, 2012

Over the last several decades, the character of international trade has changed dramatically. Drastic advances in communication and information technologies have allowed businesses to slice the production process into pieces which are then located in their most efficient locations. Supply chains are formed that stretch across the globe, and individual parts, components, and even tasks, are traded from one country to another within these chains.
In his State of the Union Address, President Obama condemned this practice, saying, “It’s time to stop rewarding businesses that ship jobs…

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It has been an interesting week in the markets. There are several developments that compete for rightful and careful consideration. The Swiss franc is perilously close to its 1.20 peg to the euro, perhaps inviting more currency intervention (the last time the franc strengthened as much was late July/early August - a time of great turmoil). In addition to money seemingly moving toward the relative safety of the franc, the ECB announced that dollar swap usage with the Federal Reserve Bank of New York (FRBNY) rose to a level not seen since 2009 (higher than even those desperate summer days of…

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Follow Yahoo!’s The Daily Ticker on Facebook here! By now you’ve heard, Facebook filed paperwork to sell shares of the company to the public on Wednesday. The I.P.O. is expected to top Google’s record $1.67 billion 2004 tech offering with a value between $5 billion and $10 billion, making the company worth a hefty $75-to [...]

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If Facebook is going to develop and diversify its revenue streams ? which it must ? Credits is the natural place to begin.




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In a recent Financial Times op-ed (”Charity Needs Capitalism to Solve the World’s Problems”), former President Bill Clinton makes a murky, mealy-mouthed case for capitalism where he basically argues that while we need some capitalism to solve our current socio-economic problems, he questions how much capitalism is a good thing.
Clinton writes:
“While our global economic system has brought benefits to many it has also exacerbated inequalities, both within and among countries. Too much inequality not only hurts the poor and stifles the dreams of the middle-class, it also…

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On Tuesday, Sen. Al Franken tentatively raised his gavel to close a hearing before the Senate Judiciary Subcommittee on Privacy, Technology and the Law, saying, in his gravely voice, “I don’t chair that much.” An aide leaned forward to whisper in his ear. “The record will be held open for a week,” Franken then said triumphantly, and brought down the hammer. He’d gotten the ritualistic words right. He had also opened a fired-up discussion about online privacy that has enormous implications for American companies.




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Follow Yahoo!’s The Daily Ticker on Facebook here! The world’s millionaire club has to make room for a few more hundred people…at least. Facebook filed to go public on Wednesday and many current and former employees are expecting huge paydays. The public offering could value the social media titan between $75 billion to $100 billion [...]

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Follow Yahoo!’s The Daily Ticker on Facebook here! Everyone knows the best part of the Super Bowl - the commercials. One day a year Americans skip the fast-forward button on their DVRs and direct their gaze on the television, assiduously watching every second of these highly-anticipated commercials. The annual ritual of watching Super Bowl ads [...]

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Follow Yahoo!’s The Daily Ticker on Facebook here! Even before the ‘Occupy’ movement gripped America and the rest of the world last fall, The Daily Ticker had been covering the sad, but true reality of our country’s fading middle class: Middle-income families have been hit hard by more than 30 years of stagnating wages and [...]

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When they released fourth quarter earnings data last week Netflix broke out their streaming and DVD businesses for the first time. A quick analysis of the data reveals that in the US the revenue and profit per month for each streaming customer was $21.94 and $2.40, whilst the average DVD subscriber paid $33.04, which yielded a profit of $17.32. Lower revenues are combined with lower margins with the result that the 34% less revenue per streaming sub translates into 86% less profit. Netflix hopes to make up for the lower amounts per sub by growing the digital business fast enough to more than offset the declining physical business, and by increasing margins.

Results out from Amazon yesterday tell a similar story in their books division. The worlds largest retailer provides much less information than Netflix about the performance of its different business units. However, we know that digital books rose to 19% of the US publishing market in the first 11 months of 2011, up from 8% in the same period of 2010, and that at 8% the Q4 growth rate for Amazon’s North American media sales, which include books, music, movies and video games, was below expectations. The explanation for the disappointing growth is most likely digital books, which typically cost less than physical books and on which Amazon only recognises 30% of the cover price as revenue. From the Financial Times:

Analysts said the explanation most probably lay in digital books. The Seattle-based retailer has stimulated the spread of ebooks via its Kindle devices but the shift from print is altering the fundamentals of its business as well as the publishing industry.

It is likely, however, that Amazon makes more profit on e-books than on the physical books, so whilst the trend to digital is shrinking revenues their profits should be ok. In this sense, which is the most important sense, it is better off than Netflix.

Financial analysts worry when there is a decline in any top line or bottom line metric and it is hard for management to keep Wall Street happy through transitions of the kind described above. In Reed Hastings and Jeff Bezos Netflix and Amazon have two of the most respected tech CEOs in the world, but their stock prices have still whipsawed wildly. Amazon was down 11% after their results this week and Netflix had a terrible time last year when Wall Street rejected its attempt to bring absolute clarity to its physical to digital transition by splitting the streaming and DVD businesses. So far Netflix has had the harder time of it, but streaming is now over half their business in the US, so they are over the hump. Amazon is much earlier in the transition, and has music, movies and games to worry about as well as books. That said, Amazon is a much more diversified business and is therefore more resilient to shocks in individual business units.

It will be interesting to see how the next year plays out for both these companies. Digital is the only way to go, but Wall Street may punish them for going there. If it does, then the implication is that the companies are over-valued today, not that they are getting worse.

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