Google CFO George Reyes today said advertising revenue growth is bound to slow, sparking a sell-off in their stock. Google shares dropped as much 13%, or more than $50 in heavy trading, before recovering to close down $27.76 at around $362.62, a decline of 7.1%.
Wait a second. Google points out the obvious fact that a $6 billion dollar company is not going to grow 90% this year, and this causes a 7% plunge in the stock price. Sounds like a case of inflated expectations to me.
Tuesday, February 28, 2006
Thursday, February 16, 2006
Burger King IPO
Number-two fast-food chain Burger King filed documents for an initial public offering. Its stock-market debut is likely within six months. Shooting for maximum proceeds of $400 million, the IPO - which touts the fast-food chain's turnaround tale - would top the $391 million raised by Domino's Pizza in 2004. Burger King, which owns or franchises 11,141 restaurants in 67 countries, holds a 12% share of the fast-food-restaurant category, which is expected to grow by 4.2% over the next five years. Burger King's share is less than half of #1 McDonald's and just microscopically ahead of #3 Wendy's, which has been making steady progress to overtake Burger King in the last few years.
Founded in 1954, Burger King has amazingly enough never been a public company. It was sold by its founders to Pillsbury in 1967. Pillsbury was then acquired by Grand Met PLC in 1988, which in turn merged with Guiness in 1991 to form Diageo. "As a result, Burger King Corporation became a small, non-core subsidiary of a large conglomerate, making it difficult for the brand to prosper," the company said in an IPO document.
From 1989 to 2002, the company ran through eight CEOs before being acquired by private-equity firms Texas Pacific and Bain Capital Partners for about $1.5 billion. Since then, the company says, it's been "focused on turning a great brand into a great business." It boasts of its seven consecutive quarters of same-store-sales growth and a rise of 11% in average per-restaurant sales over the past two fiscal years. In the six months ended December 31, Burger King reported net income of $49 million on revenue of $1.02 billion(*).
In its third fiscal quarter, now underway, Burger King said it'll record an expense of $367 million for a cash dividend paid to shareholders, prominently including Texas Pacific and Bain. The company also agreed to pay a one-time $30 million fee to terminate its management agreement with the private-equity firms upon completion of the IPO. Meanwhile, the strong stock-market debut of Chipotle - a spinoff of Burger King archrival McDonald's - and the hefty $2.43 billion price fetched by the private sale of Dunkin' Donuts provide evidence of strong investor interest in fast-food-chain operators.
Source: CBS MarketWatch, Chicago Tribune
(*) Note: I have seen many websites (including WikiPedia) that advertise Burger King's revenue as $11 billion a year. That figure is not correct. That is the total sales at Burger King restaurants whether company owned or franchised, not the revenues of Burger King Corporation.
Founded in 1954, Burger King has amazingly enough never been a public company. It was sold by its founders to Pillsbury in 1967. Pillsbury was then acquired by Grand Met PLC in 1988, which in turn merged with Guiness in 1991 to form Diageo. "As a result, Burger King Corporation became a small, non-core subsidiary of a large conglomerate, making it difficult for the brand to prosper," the company said in an IPO document.
From 1989 to 2002, the company ran through eight CEOs before being acquired by private-equity firms Texas Pacific and Bain Capital Partners for about $1.5 billion. Since then, the company says, it's been "focused on turning a great brand into a great business." It boasts of its seven consecutive quarters of same-store-sales growth and a rise of 11% in average per-restaurant sales over the past two fiscal years. In the six months ended December 31, Burger King reported net income of $49 million on revenue of $1.02 billion(*).
In its third fiscal quarter, now underway, Burger King said it'll record an expense of $367 million for a cash dividend paid to shareholders, prominently including Texas Pacific and Bain. The company also agreed to pay a one-time $30 million fee to terminate its management agreement with the private-equity firms upon completion of the IPO. Meanwhile, the strong stock-market debut of Chipotle - a spinoff of Burger King archrival McDonald's - and the hefty $2.43 billion price fetched by the private sale of Dunkin' Donuts provide evidence of strong investor interest in fast-food-chain operators.
Source: CBS MarketWatch, Chicago Tribune
(*) Note: I have seen many websites (including WikiPedia) that advertise Burger King's revenue as $11 billion a year. That figure is not correct. That is the total sales at Burger King restaurants whether company owned or franchised, not the revenues of Burger King Corporation.
Wednesday, February 15, 2006
More Trouble at the AFL-CIO
Two of the nation's biggest construction unions - the Laborers International Union of North America and the International Union of Operating Engineers - announced they are leaving the Building and Construction Trades Department of the AFL-CIO and may soon leave the AFL-CIO altogether. The two unions plan to create a rival building trades group, the National Construction Alliance. Joining the alliance will be the bricklayers, iron workers, and the Teamsters. Together, the alliance will have 1.5 million members. Leaders of the Laborers and Operating Engineers called the AFL-CIO Building Trade Department bureaucratic and out of touch with the new realities of the labor market.
Source: The Wall Street Journal
Source: The Wall Street Journal
Friday, February 03, 2006
More on Google
A follow-up on my previous post...
Google has a superb balance sheet:
Google has a superb balance sheet:
- $10.3 billion in assets, with an incredible $8 billion of that in cash and marketable securities, and very little in bogus goodwill
- almost no debt, resulting in stockholder equity of $9.4 billion
They also had a very good income statement in 2005:
- Revenue of $6.14 billion, an increase of 92.5% over last year's $3.19 billion
- Net income of $1.47 billion even with coming in under expectations
However, it is trading at $381.50 (down a further 3.7% from yesterday's price as of the time I'm posting this). That's 76x earnings. Does anyone really expect that Google is going to double in revenue and income again next year as it did from 03 to 04 to 05? Price seems a little bit high to me, although let me stress that I am NOT expecting a dotcom-like meltdown since this is a company with a clearly proven business model.
Google's Problems not all tax-related
Taxes were a problem for Google's fourth-quarter earnings, but not as much as investors may have been led to believe. Google's fourth-quarter net income of $1.54 a share, excluding items, missed expectations by 22 cents. (In response, Google shares dropped 12% in after-hours trading Tuesday, 7% Wednesday and 1.4% yesterday.) Google executives stressed that most of the earnings shortfall was attributable to the company having a higher U.S. tax bill than anticipated.
But a closer look at Google's results show that only half of the earnings shortfall - 11 cents a share - may be related to taxes. Google had to record more taxes than expected in the fourth quarter because more of its expenses were allocated to its international operations than it had expected, compared with its U.S. operations. That, in turn, raised U.S. pretax profit as a proportion of Google's total, and a greater percentage of Google's profit was taxed at a higher domestic tax rate. The company's effective tax rate for the fourth quarter was 41.8%; the rate for the full year was 31.6%, compared with Google's projection of about 30%.
Google recorded about $2.14 billion in pretax profit for the year. Applying Google's prior estimate of a 30% effective tax rate to that gets a tax bill of $642.6 million. Google had an actual tax of $676.3 million, the upshot being that the company paid $33.7 million more in taxes than it expected, a figure all attributable to the fourth quarter. However, this equates to only 11 cents a share, using Google's diluted share count of about 304 million. Scott Devitt, an analyst with Stifel Nicolaus, uses different numbers to arrive at a similar conclusion and says the company is off base in blaming most or all of its shortfall on the tax issue. The analyst, who has a "sell" rating on Google shares, stresses that whatever the particular reason for the shortfall, the stock is vulnerable to the market's ever-rising expectations.
Source: Wall Street Journal
But a closer look at Google's results show that only half of the earnings shortfall - 11 cents a share - may be related to taxes. Google had to record more taxes than expected in the fourth quarter because more of its expenses were allocated to its international operations than it had expected, compared with its U.S. operations. That, in turn, raised U.S. pretax profit as a proportion of Google's total, and a greater percentage of Google's profit was taxed at a higher domestic tax rate. The company's effective tax rate for the fourth quarter was 41.8%; the rate for the full year was 31.6%, compared with Google's projection of about 30%.
Google recorded about $2.14 billion in pretax profit for the year. Applying Google's prior estimate of a 30% effective tax rate to that gets a tax bill of $642.6 million. Google had an actual tax of $676.3 million, the upshot being that the company paid $33.7 million more in taxes than it expected, a figure all attributable to the fourth quarter. However, this equates to only 11 cents a share, using Google's diluted share count of about 304 million. Scott Devitt, an analyst with Stifel Nicolaus, uses different numbers to arrive at a similar conclusion and says the company is off base in blaming most or all of its shortfall on the tax issue. The analyst, who has a "sell" rating on Google shares, stresses that whatever the particular reason for the shortfall, the stock is vulnerable to the market's ever-rising expectations.
Source: Wall Street Journal
Wednesday, February 01, 2006
Response to Comment
The problem is, that everyone has been saying the end of real estate boom is near for 3 or so years from now. Eventually the predictors of doom will be proven right.
Yes, but there's one additional thing to consider. In 1996 the "predictors of doom" were saying that the market was overvalued and prices would crash. They were not proven correct until 2000, but when the market did hit bottom in 2002 prices were in fact lower than in 1996. So it's not just a matter of time, but an actual price consideration.
Note that the real-estate bubble will not burst a-la the dot com stock bubble.
I agree it will never be as bad as the dot com stock bubble. The reason for the difference is clear - unlike stocks, homes are physical assets.
I think prices will only stagnate or wane slowly over the years...
Here I disagree. Current prices are sustainable only because of very low interest rates and absurdly generous financing options. I see prices dropping as much as 20% in a relatively short period.
Yes, but there's one additional thing to consider. In 1996 the "predictors of doom" were saying that the market was overvalued and prices would crash. They were not proven correct until 2000, but when the market did hit bottom in 2002 prices were in fact lower than in 1996. So it's not just a matter of time, but an actual price consideration.
Note that the real-estate bubble will not burst a-la the dot com stock bubble.
I agree it will never be as bad as the dot com stock bubble. The reason for the difference is clear - unlike stocks, homes are physical assets.
I think prices will only stagnate or wane slowly over the years...
Here I disagree. Current prices are sustainable only because of very low interest rates and absurdly generous financing options. I see prices dropping as much as 20% in a relatively short period.
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