Tag Archives: apple

Visa Investment-Size Disclosure Sends Square Stock Rising

Square ( SQ ) stock gapped up Friday after an  SEC filing  revealed details of a Visa ( V ) investment in Square dating back to 2011. The news of Visa’s investment was widely reported in 2011, but the size of Visa’s stake was unknown to the public until now. After rising as much as 14%, Square stock was up 4%, near 9, in afternoon trading on the stock market today . In a required SEC disclosure, Visa said it owns about 4.19 million of Square’s Class B shares, which aren’t traded on public markets. Those shares, however, are convertible into about 3.52 million Class A shares, which would give the credit card giant a 9.99% stake in those shares but a 1% stake in the business overall. In 2011, at the time of the Visa investment, the Los Angeles Times reported  that the investment was “in the single-digit millions.” Now, that initial investment is worth about $32 million. In a research note Friday, BTIG analyst Mark Palmer wrote: “We think the announcement should serve as a reminder of Square’s attractiveness as an acquisition target. . . . As facilitators of electronic funds transfers like Visa, as well as technology giants such as Apple ( APPL ), Samsung and Google, continue to build out their payments capabilities, their efforts to grab turf within the space will drive consolidation.” Alphabet ( GOOGL ) is Google’s parent company. Palmer says the recent investor sell-off of Square stock is “overdone” and that he remains confident in the company’s future financial performance. His 12-month price target is 15. Square offers digital cash registers which also process payments to small and midsize businesses. In recent years it has also capitalized on the reams of data that it collects from each transaction and now offers its customers beta-based marketing services. Square also has added short-term cash advances — assessing risk based on the transaction data — and other financial services. On Square’s first day of trading in November, the stock vaulted 45% to nearly 15, which remains by far its all-time high. Initial shares priced at 9. Visa has not changed the size of its stake in Square since its initial investment, the Wall Street Journal reported , citing unnamed sources “familiar with the matter.”

Who’s Courting Pandora Media: Apple, Amazon, Alphabet, Spotify?

Pandora Media ( P ) is in for even tougher competition in the months ahead, Edison Investment Research said Friday, as buyout rumors swirled the day after the leading online music company posted a Q4 earnings miss and reported that its listener base continued to shrink. The streaming music leader is in a heated battle with rivals, including Apple AAPL , Spotify, iHeartRadio, Amazon.com AMZN and Google owner  Alphabet GOOGL . “Competitive pressure is intense and is likely to get worse” for Pandora in 2016, wrote Edison Investment Research analyst Richard Windsor in an industry note Friday. “Pandora reported difficult Q4 2015 results, where bullish commentary by management was undermined by speculation that, behind closed doors, the company is up for sale.” Pandora represents “a big opportunity” for any company that can solve the company’s weaknesses with user growth and better monetization, he said. FBR & Co. analyst Barton Crockett identified Apple, Amazon, Facebook and Spotify as potential suitors. Not long before Pandora released its earnings Thursday, a New York Times report said there had been discussions about selling the company . According to the NYT, Pandora is working with Morgan Stanley to meet with potential buyers.  Pandora stock shot up  on that report. Pandora has declined to comment. Pandora stock was down 15% in afternoon trading in the stock market today , below 8, earlier hitting an all-time low of 7.10. Pandora stock has sunk nearly 50% the past year. Spotify Called Top Pick To Acquire Pandora Windsor said his top pick in the list of possible buyers is privately held Spotify, “but we are not convinced that it has the financial clout to absorb Pandora even after the hefty falls in its share price.” Apple, however, “is quite capable of crushing Pandora organically, Google remains a possibility as (video wing) YouTube is already a major source for free streaming music for millions of listeners. Amazon is another possibility, but its model of subscription only with Amazon Prime does not fit well with what Pandora has developed,” Windsor said. While Pandora registered an all-time high of 10% share of U.S. radio listening in Q4, the company also said its user numbers fell. Pandora reported 81.1 million active listeners in Q4, down from the 81.5 million in Q4 2014. While “Pandora is still arguing that it can rise to 100 million active radio users over time … we are not convinced,” wrote FBR’s Crockett in an industry note Friday. On the bright side, Crockett said, with Apple’s recent decision to start charging for its Apple Music service, “Pandora now has much less competition for free than it did (before),” adding that some smaller free services have also shut down following the higher rates imposed by the Content Royalty Board rate setting group. Apple discontinued free streaming on its service iTunes Radio on Jan. 28. Apple Music costs $10 a month. Pandora has an ad-free premium service for $5 a month. The Apple Music subscription streaming music service launched in June.

What Should You Do In The Next Bear Market Rally?

Bull markets have corrections. Specifically, long-term uptrends often hit roadblocks where stock assets may pull back by 10%, 14%, even 19%. Those who may have been holding some cash typically benefit from buying into weakness at significantly lower prices. Bear markets have bear market rallies . Selling pressure typically abates long enough to allow buyers to push stocks higher by 10%, 14%, even 19%. During long-term downtrends, however, attempts at “bargain purchases” can exacerbate portfolio losses and damage psychological resolve . Consider what transpired in 2008. In the first half of the year between March and May, the Dow rallied 11% off its lows from 11,740 to 13,028. The ten weeks of “good vibes” had convinced many people that the worst was behind them. They were wrong. Now look at the epic one-week period from October 27, 2008 through November 4, 2008. The Dow catapulted from 8175 to 9675 for a monster 18% rally. Surely the worst had to be in the rear-view mirror, right? Unfortunately, many buyers who bought in those early days of November later found themselves with assets worth roughly 70 cents on the dollar. (Again, attempts to eat directly out of a bear’s paw can exacerbate overall portfolio loss as well as kill one’s psychological commitment to market-based investing.) Not surprisingly, there was a third head-fake. The Dow’s late November mark of 7550 jumped all the way back up to 9034 by the first trading day of 2009. That’s a 19.6% bear market rally that, ultimately, failed to inspire investor confidence. “But Gary,” you protest. “The Dow and the S&P 500 are currently trading between 13%-14% off of there all-time highs. How do you know this isn’t just another stock market correction in a longer-term uptrend?” I don’t know for sure. Nobody can. I may have made the case for the strong probability that the market had hit the top in the summertime. (Review August’s Market Top? 15 Warning Signs , or July’s 5 Reasons To Lower Your Allocation To Riskier Assets .) Nevertheless, there are no certainties when it comes to percentage moves for stocks, bonds, currencies or commodities. There’s more. If the Fed came to the rescue on a shining white unicorn with QE4 tomorrow, then a bear market for these two indexes might be stopped in its tracks. That is not an endorsement for quantitative easing; rather, it is an acknowledgement that an open-ended 4th iteration of electronic money creation could indeed inflate asset prices yet again. On the flip side, the evidence for why the bear market likely began in May of 2015 is colossal. For example, in bear markets, impressive rallies fail to recapture former high-water marks. Both the S&P 500 and the Dow failed to eclipse respective highs initially set in May – first in July, then again in October. What’s more, the long-term (200-day) moving averages of the indexes began sloping downward in August-September. The failed rallies as well as the negative slope for the Dow Jones Industrials are shown in the chart below. Failed rallies and downward sloping trendlines are only part of the story. In a bull market, investors embrace a wide variety of different risk assets. People go after growth, momentum, small caps, foreign, high yield, MLPs, REITs, IPOs; there is very little in the way of discrimination. As a bull market matures, many gravitate to the safest and largest stocks, eschewing asset groups that they once owned with reckless abandon; they crowd into fewer and fewer companies in fewer and fewer economic sectors. As a bull market transitions to a bear market, falling prices across an array of individual securities and key economic sectors eventually drag down market-cap weighted benchmarks. An observer of U.S. stocks can see the transition from indiscriminate risk-taking to guarded skepticism via breadth indicators. For example, when the bull market is robust, an equal-weighting of stocks in the S&P 500 usually outperforms the market-cap weighted index. As participation in the bull market wanes, and as fewer and fewer corporate shares succeed, equal-weighted proxies typically under-perform their market-cap weighted benchmarks. Not surprisingly, then, by July of 2015, the Guggenheim S&P Equal Weight ETF (NYSEARCA: RSP ) had struggled to make any progress for eight months, even as the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) was close to an all-time record high. Similarly, RSP outperformed SPY right up to April of 2015. The RSP:SPY price ratio demonstrates that it has been in a downtrend ever since. Another measure of breadth is the New York Stock Exchange (NYSE) Advance/Decline (A/D) Line. It measures the extent to which advancing stocks are outpacing declining stocks, and vice versa. When the Dow and the S&P 500 are near their highs, but the A/D Line is falling, participation in the bull market is becoming increasingly narrow. It follows that narrow participation by stocks listed on the NYSE regularly precedes bearish downturns. In July of 2015, the NYSE A/D Line’s 50-day moving average crossed below its 200-day moving average for the first time since the beginning of the euro-zone crisis in 2011. (See Remember July of 2011? The Stock Market’s Advance Decline Line Remembers .) The Fed launched “Operation Twist” to lower longer-term borrowing costs in late September of 2011 and, in October of 2011, the European Central Bank (ECB) provided a series of bailouts to ailing countries and banks in the European Union. Today, there are no plans for extraordinary U.S. central bank stimulus, only “gradual” stimulus removal. The ongoing deterioration in the A/D Line since July increases the likelihood that the bear will officially come out of hibernation. Unfortunately, the problems are not solely technical in nature. There are precious few bright spots for the U.S. economy. Manufacturing has contracted for 4 consecutive months. The services sector (non-manufacturing) is at a 27-month low. Major financial institutions have raised the odds of a U.S. recession to 40%-50%. Even strength in jobs data ignore the declines in both household income and labor force participation . There’s another way to gauge economic weakness versus economic strength. Specifically, one can examine the spread between 10-year U.S. Treasury bond yields and 2-Year Treasury bond yields. The spread tends to widen during expansion; it typically narrows when there is economic distress. The current spread of less than 1 basis point (.99) is the narrowest since 2009. Meanwhile, going into 2015, nearly every traditional measure of valuation (e.g, price-to-earnings P/E, price-to-sales P/S, CAPE PE10, Tobin’s Q, market-cap-to-GDP, etc.) placed stocks at extremely overvalued levels. Going into 2016, very little had changed because corporate earnings had declined for three consecutive quarters and corporate revenue had declined for four consecutive quarters. The contraction in both top-line sales and bottom-line profits may not mean as much when treasury spreads are widening and/or market breadth is strengthening. However, when these market internals are deteriorating, fundamental valuation suddenly starts to matter again. Many of my moderate growth and income clients at Pacific Park Financial, Inc. remain significantly less exposed to stock risk than they had eighteen months earlier. Then, the reward for a typical allocation of 65%-70% stock (e.g., large-cap, mid-cap, small-cap, foreign, etc.) was worthy of the risk. Since that time, a gradual scaling back toward our current allocation of 45%-50% stock – only large-cap U.S. stock – has been decidedly beneficial. We continue to own lower volatility securities via the iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ), better balance sheet corporations via the iShares MSCI USA Quality Factor ETF (NYSEARCA: QUAL ) and dividend aristocrats via the SPDR Dividend ETF (NYSEARCA: SDY ). Would I make a tactical decision to lower the current allocation to stock even further? If market internals (e.g., breath, credit spreads, etc.) continue to weaken alongside increasing economic strain, I would use the inevitable bear market rallies to lower the allocation from 45%-50% U.S. stock to 35%-40% U.S. stock. Moreover, I might increase exposure to ETFs that track the FTSE Multi-Asset Stock Hedge Index . The “MASH” Index currently boasts a 20% differential with the S&P 500 over the past 3 months. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.