Investors buy up shares of prominent social media ISVs despite slowing user growth

2-Color-Design-Hi-Res-100px-widthPerhaps investors are changing their taste in prominent social media ISVs. Could the search for a telltale sign of promise have shifted from substantial growth in users to what may be a meaningful increase in revenue? From the after hours trading experience of LinkedIn and Twitter on February 5, 2015, it would appear to be the case.

Twitter and LinkedIn both reported solid revenue growth in the quarter ending December 31, 2014. But in the case of Twitter this plus was offset by anemic growth in the number of active users. Tiernan Ray wrote in Barrons: “[Twitter] said its monthly average users (MAUs) rose 20%, year over year, to 288 million from 284 million in the prior quarter. That was down from a rate of 23% growth in Q3. Of those MAUs, 80% were on mobile devices, about the same as the prior quarter.”

Hannah Kuchler of the Financial Times also remarked on management’s forward-looking guidance, “that was above the average analyst forecasts”.

Investors looked like they liked what they were hearing and reading. Twitter’s share price was up over 10% after hours.

LinkedIn shares were also up substantially, approximately 6% above the close. The quarterly earnings report included very similar highlights: substantial growth in revenue. But I found a different nugget: Maria Armental wrote in the Wall Street Journal:“The professional social network, which this month launched a localized version in simplified Chinese and traditional Chinese that has nearly doubled its Chinese member base to more than 8 million, said nearly 70% of total members come from outside the U.S.” Eight million users is certainly not a very big number for the country with the biggest population in the world. But LinkedIn is succeeding (as Apple is also succeeding, though in a much bigger way) in a market that continues to elude Microsoft and curiously enough Google (Android).

As a user I must attest to a much more promising experience from my efforts with Twitter than has been the case for how I have worked on my LinkedIn profile. I make a lot of use of Twitter’s Analytics. As my tweets have magnetized more impressions there has been, over time, a substantial increase in the page views of this blog. But perhaps the best result of all has been a growth in our following on Facebook. But I will write more on this point in a later post.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved


Is the response to Intel’s Q4 2014 Results overdone?

2-Color-Design-Hi-Res-100px-widthOn Thursday, January 15, 2015 Intel reported the results of its Q4 2014 business activity. In the aftermath of the report, which included conservative guidance for the coming business quarter below analyst estimates, analysts expressed skepticism.

I should also note the conference included details about the extent of the costs Intel continues to incur to enter the market for CPUs for mobile devices. Finally, rumors circulated about the possibility of Apple changing CPU architecture for its Mac PCs and laptops.

But is the analyst negativity overdone? In my opinion it is. Market entry is never an easy process, especially when the business attempting to enter a market is the largest manufacturer of PC computer CPUs, and the target market is already mature and dominated by other vendors with well received products (the ARM chip architecture and its licensees, including Qualcomm). So there is a cost associated with this entry, which, admittedly, Intel has been paying out for several quarters.

However, the Q4 2014 results included a beat on the profit number and an increase in gross margin. These numbers, of course, include the losses just mentioned. If Intel is not only able to carry the cost of mobile market entry, but to, at the same time, increase its overall profitability and still hit estimated sales targets, then why all the gloom? Perhaps the answer is Q4 2014 is behind us and we are already nearly a third of the way through the next coming quarter.

I am not interested in debating this argument. Nor am I interested in analyzing the Apple rumors. What I am interested in doing is merely pointing to a very positive reception for one of the new Android tablets on the market powered by Intel’s Atom processor and the new Broadwell chip set. The tablet is manufactured by Dell, the Venue 8 7000. No less a fierce Intel naysayer than Joanna Stern of the Wall Street Journal wrote a very positive review of the device, in sharp contrast to reviews she published earlier about Microsoft’s Surface tablets.

The value of positive consumer press about these devices should not be underestimated. Stern’s review may mark a change in sentiment for precisely the right group of critics to influence affluent consumers to think hard about just which tablet they ought to buy next.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved


Perhaps the Uptick in PC Sales Markets are Experiencing Will Last Longer Than Expected

On August 21, 2014, Trish Reagan and Cory Johnson of Bloomberg discussed HP’s latest earnings report during Bloomberg TV’s “In the Loop” daily show. Johnson summed up cautious remarks expressed by Meg Whitman, HP’s CEO, during the webcast of the earnings conference call. Johnson quoted Whitman providing color to the 12%, year-over-year, increase in HP’s sales of PCs as attributable to a burst of buying from companies needing to migrate from Windows XP as the result of Microsoft’s decision to sunset support for this computing platform. Johnson quoted Whitman cautioning her audience the uptick was a unique event, and not to be taken, necessarily, as a signal of a sustainable trend. Johnson called the performance a “one time thing”.

But, perhaps, the uptick in PC sales promises to continue longer than even Whitman has led analysts and investors to expect. After all, during Microsoft’s most recent earnings conference call, Satya Nadella, CEO described the 2014 holiday shopping season as an occasion for shoppers to finally have an opportunity to acquire Windows PCs at price parity with Google Chromebooks.

Nadella based a prediction of lower average sales prices (ASPs) for PCs based, in part, on the lower licensing costs Windows OEMs will likely face as they preload the O/S to their hardware. In turn, these lower licensing costs, Nadella predicted, would be one of the benefits of a new version of the Windows operating system, which he reported to be in the process of being rewritten.

This new version of Windows, in this writer’s opinion, is a “one size fits all” effort for this desktop computing O/S. In other words, Microsoft should be able to distribute the cost of building one O/S, which will run on each of the form factors it targets, across the entire effort, and, thereby, lower costs to its OEM customers. A number of posts have been published, recently, to this blog discussing the likely impact of this new operating system, which Nadella described as capable of supporting the entire range of computing form factors Microsoft presently supports, from the same code.

If a new version of Windows is available for consumers for this year’s holiday season, the increase in unit sales while likely benefit Lenovo and Dell, as well as other so-called “Wintel” OEMs.

At the same time, it is also worth noting Microsoft’s intention to sunset support for Windows Server 2003. Data center sales deliver a bigger revenue contribution for HP, IBM (soon to be Lenovo), and Dell, than consumer PCs. So some segment of the enterprise computing market will likely start migrating out of Windows Server 2003 and up to a platform Microsoft continues to support.

Johnson also remarked cautiously on the decline in profits HP reported for this most recent quarter. In this writer’s opinion it should be easier for HP to return to earlier levels of profitability a quarter or two from now. The real challenge for HP was to return to growing sales. With this most recent quarter they have met the challenge, albeit just barely.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved


NVIDIA Q2 2015 Results Point to a Healthy PC Gaming Market and More

NVIDIA’s reported results for its 2nd quarter, 2015 fiscal period exceeded management and analyst expectations. Based on NVIDIA’s results, the consumer market for PC Gaming hardware looks strong. The results also include a report of substantially larger sales of NVIDIA’s Tegra SoC platform into the automotive market.

The company also guided higher for likely sales for the 3rd quarter of 2015 and pointed to consumer GPUs as its most popular product line. There was no indication of any margin erosion in the near future. Jen-Hsung Huang spoke to very deep strength and health in the global PC Gaming market and likely increases in average sales prices (ASPs).

If one can extrapolate from these results to broader markets, perhaps the global consumer PC market has more depth than would otherwise appear to be the case. These game consumers are an entirely separate segment from business users who, one might argue, have been driving up sales to renovate older sets of Windows XP desktop computers. The NVIDIA results also included mention of the Chromebook PC as one platform likely to experience substantial growth. So-called “Wintel” OEMs (HP, Dell, Lenovo) all have entries to the global Chromebook market. It may make sense to increase expectations for sales volumes for these companies.

A hot PC gaming market may indicate increased consumer appetite for XBOX One and Playstation 4. This assumption looks reasonable given remarks by Jen-Hsun Huang during the earnings conference. He pointed to the release of a number of games, scheduled for later this year, which carry very high levels of consumer anticipation. It is likely these games will be offered not only to PC gaming hardware consumers, but to console owners as well.

Worth Noting: When Matt Ramsey, an analyst from Cannacord Genuity asked Jen-Hsun Huang to speak to the promise of the data center, cloud market for NVIDIA GPUs built on ARM architecture, Huang responded by identifying this market as the most promising emerging market for NVIDIA, going forward, and, further, the market with the best promise of increased ASPs for the business. If they can win here they will achieve an objective AMD has failed to reach.

As we have written earlier to this blog, in our opinion Intel has fortified its position in the Data Center through its support of Hadoop and OpenStack, to the detriment of ARM OEMs.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved


What’s the Significance of an Enterprise Search Feature Capable of ‘Standing’ the Whole Concept ‘On Its Head’?

Sprinkled within Satya Nadella’s remarks during Microsoft’s Q4 2014 Earnings Conference Call were some words about “Delve”. For readers unfamiliar with “Delve”, this new feature, which is only available via an Office 365 subscription, is a further refinement of something called “Code Name: Oslo”. “Code Name: Oslo” was presented at Microsoft’s annual SharePoint Conference, 2014, as something called “Office Graph”. Nadella noted “Delve will turn enterprise search on its head as information that is relevant to you finds you. Think of this as the Facebook suite for productivity.” The remark is a concise summary of the features of the product, with the allusion to Facebook serving as a placeholder for the Enterprise Social features of the product.

How big a market is there for “enterprise search”, and how does this market differ from the public “search” market? In this writer’s opinion there is a promising market for the type of substantial improvement to enterprise search Nadella cites as likely once Delve hits the “virtual shelves”. Almost every highly regulated business will want to at least take a look at the feature, if not purchase an Office 365 subscription to obtain it. FINRA’s 10-06 regulation, which requires financial services firms to archive Social Media conversations, represents yet another burden on smaller banks, brokerage houses, etc. Given the low per user cost of public Office 365 subscriptions, it may be safe to assume lots of these firms will want to at least take a look at Delve, and, therefore, consume some Office 365 subscriptions. Similar requirements exists for heavily regulated businesses in the health care industry. We can wrap up merely a cursory look at likely markets by including law firms in this category.

Another very promising potential inherent to Delve is any possible hooks to Cortana. Once again, for readers otherwise unfamiliar with Cortana, this product, which was recently announced during a debut of the new features to be included in Windows Phone 8.1, is Microsoft’s entry into the market for voice assistants, and can be seen as a direct competitor to Apple’s Siri and “OK Google”. Cortana has been touted as a method of leveraging Microsoft’s Bing Search Service via voice commands. If Cortana can also connect to Delve, then the whole mobile market for the above mentioned heavily regulated businesses may want to consume this new “Enterprise Search” whiz, as well.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved


With One Windows O/S for All Screens PC Consumers Should Enjoy Much Lower Acquisition Costs

During Microsoft’s Q4 2014 Earnings Conference Call, Satya Nadella presented the notion of one version of the Windows O/S for all screens: tablets, pcs, laptops, smart phones, etc. If true, the reduction in duplication of efforts, functionality, etc. should produce PCs, laptops, etc. at dramatically lower costs for the 2014 holiday season.

Nadella framed this announcement within the context of describing an effort to reduce operating costs, which should make sense to anyone following Microsoft: “[the] [s]econd [principle of how we operate amounts to our effort to] consolidate overlapping efforts. This means one OS that covers all screen sizes and consolidated dual-use productivity services that cross life and work.

In turn, one Windows O/S will provide the added benefit of uniform delivery of features to all screens and devices, at the same time. The imbalance between the Windows feature set for RT and Intel platform devices should be removed. Consumer satisfaction should increase, while acquisition costs, as mentioned above, should be reduced. Finally, release of this new version of Windows will likely be welcome news for consumers from enterprise business who seem to remain unconvinced they have a burning need for a touchscreen O/S like Windows 8.1. The new O/S, as has been reported by the media, will have the ability to “autosense” computing hardware and serve up an optimum user computing environment for a mouse and keyboard user, while still serving up the now familiar touchscreen interface for tablet, smart phone, and laptop users with a touchscreen.

The potential impact of dramatically lower acquisition costs on the percentage of the consumer market deciding to use Windows O/S should be positive, particularly at the lower end, which is the predominant segment for emerging markets. Gains for Microsoft in these segments will likely mean market share has been won back from Chromebooks.

All told, if Microsoft is successful in this effort to consolidate versions of the Windows O/S, and the finished product is well received by markets, the impact on the bottom could be positive.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved


Blackberry is Turning Around, But at a Slower Pace Than Previously Expected

Blackberry reported on earnings for the first quarter of fy 2015 on Thursday, June 19, 2014. As reported on the MobileWorldLive web site, John Chen, CEO, mentioned a likely return to profitability in fy 2016. But the pace of improvement is much slower than expected, based on management comments from earlier earnings reports.

Does the gap between the timeline Mr. Chen presented back in December, 2013, as part of his presentation to investors, and his latest pronouncements present a challenge for anyone following the performance of this business? Back then, many proponents of Mr. Chen’s ascendancy to the CEO position at Blackberry spoke positively of his past successful experience turning around Sybase, and seemed to look forward, eagerly to the second phase of his plan — marketing BlackBerry’s Messenger service to the market for enterprise mobile device management (MDM) software.

But, as I wrote earlier to this blog, Gartner has since released its Magic Quadrant for Enterprise MDM. Unfortunately, BlackBerry’s BBM is included, simply, as a “niche solution”, and certainly not one of the market leaders, at least according to Gartner.

So we can only conclude the first phase of Mr. Chen’s December, 2013 plan is still in process. Ken Willard, who wrote this article for MobileWorldLive notes “[t]he remainder of sales was made up by hardware (39 per cent) and software & other revenue (7 per cent).” On the other hand, the services business (not a focus of Mr. Chen’s December, 2013 plan) “represented more than half of Q1 turnover (54 per cent).”

In fact, it looks much more likely Mr. Chen will remain deeply engrossed with the challenge of squeezing profitability out of the hardware business at Blackberry for the next few quarters. Mr. Wieland quotes Mr Chen as using an abstraction to describe the pace of BlackBerry’s progress on this objective, “Chen admitted that BlackBerry had still to hit breakeven point on hardware, but added it was getting ‘very close’.” What may be very close for Mr. Chen maybe very far off for investors. Perhaps it is safe to say simply reporting the numbers, and leaving the task of “connecting the dots” to analysts would have been a better approach.

Disclaimer: I liquidated my entire investment in BBRY back in May, 2014

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved


Has Salesforce Completed Its Transformation Into an Enterprise Sales Organization?

On May 20, 2014, Salesforce.com reported its results for Q1 2015. The speakers included Marc Benioff, CEO, Keith Block, President and Vice Chairman, and Grant Smith, Chief Financial Officer. It should be noted Mr. Block will complete his first year at Salesforce.com in June, 2014. He came to the company from Oracle® Corporation, where he spent 26 years, from 1988 to June, 2013, in a series of sales management roles, which culminated in a tenure of nearly 10 years as EVP North America where he had responsibility over a multi-billion dollar revenue generating effort.

As I wrote earlier in this blog, on April 2, 2014, in a post to this blog titled
Cloud SaaS ISVs Develop Sales Strategies for Enterprise Prospects, Mr Block is, perhaps, one of the strongest examples of a master of the Complex Sale, which is a sales concept championed by Jeff Thull. After all, Mark Murphy, a software analyst for Piper Jaffrey referred to Mr. Block’s tenure as EVP, North America for Oracle as an opportunity “to run, arguably, the largest and most profitable enterprise software business in the world.”

So, given this backdrop, the analyst questions Mr. Block fielded about just how long it will take before the sales teams at Salesforce.com produce a “9 figure deal” make a lot of sense, especially when one considers the ratio between Salesforce’s present market cap of $30.62B and a staggering forward price to earnings ratio, for its CRM public stock, of 149.25 to 1. Mr. Benioff’s reflections on the level of success the business has achieved are certainly admirable. The company sounds like a terrific place to work and a great contributor to its social surroundings. But the forward price to earnings ratio requires a sense of urgency, on the part of management, which was somehow lacking, in my opinion, in Mr. Benioff’s opening remarks.

Mr. Block cited a win at Manulife, an expanded relationship, where they leveraged “[Salesforce] Service Cloud to develop a customer engagement platform, with very personalized service across their life insurance, wealth management and investment products” (transcribed from remarks made by Mr. Block recorded on the audio webcast).

He went on to refer to several other enterprise-wide wins at other larger organizations, across several industries. But Rick Sherlund asked a very big question: “I think we’re all waiting for 9 figure deals. Is that realistic? Are there deals of that magnitude in the pipeline that we can look forward to over the balance of this year?” (transcribed from a recording of Mr. Sherlund’s question, which is included in the quarter’s webcast).

In my opinion, Mr. Block’s reply to the question signaled a much slower pace of change than, perhaps, the analysts in attendance would have wanted to hear. On the notion of whether there are any “9 figure deals” in the works, he merely referred to a “natural evolution” of relationships with important partners, which, over time, he argued, exhibit the potential required to support sales of this magnitude at some future date.

Disclaimer: I have no position in Salesforce.com whatsoever

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved


NVIDIA Provides Scant Detail About Tegra Sales for the Latest Quarter

During NVIDIA®‘s Q1 2015 Earnings Conference Call, Mr. Jen-Hsun Huang, Co-founder and CEO, fielded a question presented by Mr. Mike Burton of Brean Capital about the components of the performance of one of the company’s products. Mr. Burton’s question was on the subject of NVIDIA’s Tegra Processor. He asked about the details of the sales performance, by market segment (smart phones, tablets, and automotive) for this product for Q1 2015.

Mr. Huang did not include a lot of specific detail in his answer, which rolled smart phone and tablet customers for this product into a category named “devices”, while automotive customers were presented as a separate group, with a different profit margin.

If NVIDIA management is unwilling to breakout the specific components of the sales performance for Tegra, how does it make sense, if at all, for analysts to project levels of market penetration for it? One may argue the information can be compiled from customer comments about the product. But for every customer reporting information relative to likely purchases of Tegra processors (for example, Microsoft’s rumored decision to replace Tegra with Qualcomm’s SnapDragon processor for a new model of the Surface tablet), there are many other customers not reporting anything at all, at least not publicly.

So, in my opinion, forecasting the performance of Tegra in the tablet market, at least for the latest reported quarter, and for every quarter, going forward, where management does not provide specific sales detail, will be a very difficult task. The end result, in turn, will not be credible, at least as I see it.

Are sales of Tegra processors to mobile customers in the tablet and smart phone markets an important indicator of NVIDIA’s future performance? Perhaps, if one considers the potential market size represented by these mobile customers to be dynamic, and expansive. In contrast, the same position may consider sales of NVIDIA’s hardware GPUs to the PC gaming market less significant, and less of a reliable forward looking indicator as the result of the comparatively static, and contracting nature of the global market for PCs.

But, in my opinion, NVIDIA’s very strong performance in the latter category for the quarter, when put together with their well attended developer conference for their hardware GPUs, is more of a useful indicator of the health of the business.

Nevertheless, what management does with the revenue, and the rationale behind these actions, is, unfortunately, another subject.

Disclaimer: I recently completely closed a long position in NVIDIA

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved


NVIDIA’s Notebook Gaming Business Grew by more than 50%, CAGR for the past three years

During the first few moments of NVIDIA’s Q1 fy 2015 Earnings Conference Call, Chris Evendon, who heads Investor Relations for NVIDIA reported the company had achieved better than 50% CAGR for “the last 3 years” for NVIDIA’s notebook gaming products. Mr. Evendon also claimed NVIDIA has grown its market share of the PC workstation gaming business to its “highest level since 2010”.

NVIDIA’s performance in the PC Gaming market brings into question their product marketing plans. Does it make sense for the company to maintain activity across a horizontal set of new markets?

  • Tablet Computers via the Tegra® Chips
  • Cloud IaaS via NVIDIA’s GRID product
  • Automobile In-Dash Displays via the Tegra Chips
  • Vehicle Manufacturing (Tesla is the leading example), via NVIDIA’s “GPU-based machine learning” product

Rather than focusing further on the PC Gaming market?

Readers sharing my interest in this question might want to consider each of the following points:

If rumors can be believed, Microsoft® plans on replacing the NVIDIA Tegra chip with Qualcomm’s SnapDragon for the next generation of its Surface tablets. The greater tablet market may produce further substantial challenges for NVIDIA as Intel® enhances Atom to better meet market needs and wins over more OEMs to its architecture. Of course, Intel is only one of NVIDIA’s chip competitors in this market.

The largest market opportunity for GRID seems to be enterprise business’ needs for a desktop virtualization solution for graphics displays. Mr. Evendon reported “a 25% increase in the number of boards sold over the previous quarter.” The big question, of course, is desktop virtualization market size. I am not aware of a definitive answer to this question. In my opinion, Microsoft’s decision to sunset the Windows XP O/S was a big driver for desktop virtualization, and U.S. Government organizations were likely the biggest category of users likely to look for this type of fix. But older PCs powered by Windows XP, in 2014, are not likely to be big consumers of Graphics software. Bottom line: I am not sold this is the kind of big market warranting a lot of product attention from a business with an annual run rate under $8 Billion.

Automobile In-Dash Displays
In contrast, the market for in-dash graphics and multi media displays is, in my opinion, is a substantial opportunity. NVIDIA has scored some big wins at the high end of this market — Audi, Porsche, Lambourghini, etc. But the real volume is at the lower end. So it would be comforting, for investors, to learn about some wins for NVIDIA with high volume automobile manufacturers.

But this quarterly report does not include any mention of a win, or even serious discussions with a mainstream automobile manufacturer.

GPU Machine Learning
NVIDIA’s continued success with Tesla is, once again, good news, but not the big volume sales indicator some investors may be after. The reports of healthy levels of interest from IBM and Google, on the other hand, are encouraging, but some time will be required to see just how these opportunities develop for the business.

One would hope NVIDIA continues to add the kind of features the PC gaming market (across workstations and notebooks) continues to be after to ensure no slow down in the velocity of this business as the company works on new sectors. Perhaps management will opt to reduce the horizontal extent of its new product development efforts to ensure adequate resources are available, as they are required, to add to early evidence of success.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved