Tag Archives: technology

Square Downgraded Despite Guidance Hike, As Lockup Expiration Looms

Shares of mobile-payments firm Square ( SQ ) were tumbling early Friday as the company was downgraded following a mixed Q1 earnings report issued late the previous day. Square lost 29 cents a share in the quarter, or 14 cents excluding a one-time legal cost. Either way, it was worse than the 9-cent loss analysts had expected, according to Thomson Reuters. Revenue beat expectations, though, rising 51% to $379 million. Square lifted its adjusted-revenue guidance for the year (which excludes the soon-to-be-defunct partnership with Starbucks ( SBUX )) by $15 million, now $615 million to $635 million. It also raised its EBITDA (earnings before interest, taxes, depreciation and amortization) guidance by $2 million, now $8 million to $14 million. However, the May 16 expiration of Square’s post-IPO lockup period was looming on analysts’ minds. Wedbush’s Gil Luria downgraded the stock to underperform from neutral, with a 9 price target, predicting that insider shareholders will use this opening as a chance to get out. “We believe that Square is rapidly growing a business that may never reach peer (or guided) profitability, which will become apparent as growth slows over the next couple of years on competition and saturation,” Luria wrote. Square stock was down more than 17% in early trading on the stock market today , below 11 and sitting at a two-month low. The stock went public at 9 last November and peaked at 15.91 on March 31. BTIG analyst Mark Palmer was more confident about Square’s future but was still concerned about the lockup expiration. “Square arguably needed to post a strong Q1 2016 report to convince the soon-to-be unlocked investors to hold on to their shares,” Palmer wrote in a research note affirming his neutral rating. “While the company posted a headline earnings miss, much more important at this stage in its life cycle was a better-than-expected revenue print and increased fiscal 2016 guidance for both revenue and adjusted EBITDA.”

Dish Stock Pressured By Hedge Fund Amid Spectrum Auction

Dish Network ( DISH ) stock rose Friday after the company responded to reports that hedge fund Kerrisdale Capital Management has taken a short position in the satellite TV broadcaster and views its spectrum assets as overvalued. Bloomberg had reported Thursday that Kerrisdale had raised $100 million in a new fund aimed at shorting a large company that it didn’t identify, but that Bloomberg said was Dish. Dish Network, meanwhile, in an emailed statement to IBD Friday, said: “We understand Kerrisdale is shopping a negative report on DISH and has shorted our stock in an attempt to make a short-term gain while DISH is in an FCC-mandated quiet period. We will continue to manage the business for the long-term benefit of our shareholders as we have done over the last 35 years.” Dish Network has amassed some 77 MHz of radio spectrum, spending some $15 billion in the process, according to Citigroup. Dish, however, lacks a wireless partner to deliver mobile video services. Verizon Communications ( VZ ) has stated it’s not interested in acquiring Dish Network’s spectrum but might be open to a wholesale network deal , analysts say. Dish — along with AT&T ( T ), Verizon and T-Mobile US ( TMUS ) — have filed as bidders in a federal auction of airwaves now owned by local TV broadcasters. The auction, begun in late March, might drag on until Q4. Depending on the auction’s outcome, wireless firms may be more or less interested in partnering with Dish Network or buying its spectrum. According to Bloomberg, Kerrisdale said on Twitter that it is betting against a more-than-$10-billion company that it thinks is worth 60% to 80% less than its current price. Kerrisdale also reportedly tweeted “we’re still weeks — perhaps many weeks — away from actual publication.” Growth has slowed in Dish Network’s core pay-TV business. Dish last year launched its Sling Web-TV service, which has been gaining subscribers. Dish Network stock was up 5% in early trading in the stock market today , above 46. As of Thursday’s close, Dish Network’s stock was down 23% in 2016 and has slumped 33% in the past 12 months. Dish stock has a poor IBD Composite Rating of 23 out of a possible 99, meanings it’s performed among the bottom 23% of all companies on key metrics such as earnings and sales growth.

Google Mobile Search A Moneymaker, But Ad-Cost Hurdles Remain

Google is making more money from mobile search, as Yahoo ( YHOO ) and Microsoft ( MSFT ) ad platforms falter. But it’s not all gravy, as parent Alphabet ’s ( GOOGL ) Q1 earnings attest. The good news is that clicks on Google’s mobile search ads are rising fast. Mobile rose from 44% of all Google clicks in Q2 2015 to 57% in Q1 2016, says digital marketing firm Merkle. But mobile ad clicks continue to pay less than desktop ad clicks because consumers buy less often on smartphones. Google’s average cost of a click on one of its ads fell 9% in Q1 vs. Q1 2015. Lower-priced mobile clicks were a big factor. Google aims to drive mobile cost-per-clicks (CPCs) higher with new ad technology. There’s also the matter of traffic acquisition costs (TAC). That’s where Apple ( AAPL ) may or may not come in. Google’s overall TAC — what it pays partner websites, both desktop and mobile, in fees for carrying its ads — rose 13% in Q1, to $3.8 billion. Higher TAC shrunk Alphabet’s earnings, which missed Wall Street estimates. More alarming to analysts was that TAC paid to “distribution partners” jumped 33% to $1.22 billion. Google’s search engine is the default on most mobile devices, and it’s the default search engine for Apple’s Safari browser. There’s been speculation over whether Apple and Google will renew the Safari contract. To some analysts, the 33% jump in “distribution partner” TAC was a red flag. On the company’s Q1 earnings call last month, Alphabet CFO Ruth Porat attributed the TAC hike to general mobile trends and new advertising technology — and not to any one major contract renewal. Mobile TAC is higher than desktop TAC, Porat said. But analysts wonder. “I certainly can’t rule out a higher Safari TAC rate tied to a renewal,” Mark Ballard, senior research director at Merkle, told IBD. “There are so many moving pieces here, and Google and Apple have been very tight-lipped about their dealings over the years. “It very well could be a combination of higher Safari traffic share and TAC rate. (But) Google has made some moves in the past few quarters to significantly ramp up the monetization of its mobile results. This additional revenue may be coming at a higher TAC.” Google Ad Contracts ‘Have Potentially Changed’ Ballard notes that Google in late 2015 added a third ad atop mobile-search results. Growing use of product listing ads (PLAs) in mobile phone search results may be another factor. Google’s Q2 earnings in July could provide more evidence either way. “We think the terms of (Google’s) contracts have potentially changed and could be another driving factor of the growing TAC,” Evan Wilson, a Pacific Crest analyst, said in a research report. “At this point, we’ve modeled (TAC) increases to be gradual and not a significant new headwind. “We’re going to keep a close eye on news of a potential new Apple deal, as this would be a primary suspect to further fuel this dynamic.” The big picture, though, is that if TAC rises sharply, it would be a problem for Google’s profitability, whether or not Apple is directly involved. At RBC Capital, analyst Mark Mahaney wrote in a research note: “We view the Q1 TAC trends as one of the clear negatives of the quarter. That 8.5% TAC rate for Google Sites is a material step up. We wonder whether a renegotiated Apple contract had anything to do with this. (But) we are modeling modest growth in TAC going forward.” Documents released in January in the ongoing Google- Oracle ( ORCL ) court battle revealed that Google paid Apple $1 billion in 2014 to make its search engine No. 1 on Safari. TAC payments, though, are separate, analysts say. Goldman Sachs, in a 2015 research report, estimated that 75% of Google’s mobile search revenue came from iOS users (iPhone and tablet), and half of that was related to Safari. Goldman Sachs estimated that 65% of ad revenue went to Apple, while Google kept 35%.