Tuesday, April 30, 2013

IACI, FB, & BCOR Earnings Preview ...

IAC/InterActive (IACI) will be reporting Q1 numbers on Tuesday after the close.  The Street expects revenues of $757.3MM and EPS of $0.69.  From a revenue standpoint, we are pretty confident the Company will meet expectations.  Seasonality may have impacted search revenues negatively from Q4, but on a Y/Y basis we expect 8% - 10% growth.  Google's (GOOG) Q1 results were encouraging as its traffic acquisition cost (TAC) was up approx. 18% Y/Y.  Based on the relationship between GOOG's TAC and IACI's search revenues historically, again, we expect high single-digit to low double-digit growth in search revenues.  Given the New Year resolutions and Valentine's Day in Q1, we think Match.com related revenues will be pretty healthy.  Although we expect the Company to meet expectations on the bottom-line, we could see that 35% Y/Y EPS growth to increase a bit further in Q2 - Q4, as approx. 40% of the media segment's operating loss was likely in Q1.  Going into the quarterly earnings call, IACI has increased 13.1% since we discussed it on 1/29.  Since that time, S&P 500 has gone up 5.7%.

Regarding Facebook (FB), we must say that given many questions surrounding potential growth of their mobile ad revenues, along with what appears to be the beginning of stagnation in user growth within the developed regions such as US and the UK, we do not have a clear idea about whether or not the Company will impress the Street with its Q1 numbers.  What we will likely analyze further is not only growth of mobile ad revenues and users in emerging markets, but also growth in revenues generated from those emerging market users.  In addition, we think Q2 and Q3 results will be very important as they will indicate whether FB's 'Home' strategy will pay off going forward or whether the positive things we have heard about it are merely new product launch hype and will be short-term lived.  FB will post its Q1 numbers on Wednesday (5/1) after the close.  Shorting FB since we first discussed it on 5/21/12 would have generated a 21% return, pretty much in line with how much S&P 500 has increased since then.

Blucora (BCOR) will post its Q1 results on Thursday (5/2) after the close.  We're looking for around 22% growth in search revenues, which, as was the case with IACI, we believe is confirmed by GOOG's Q1 numbers.  Q1 is the seasonally strongest quarter for BCOR's tax services segment. Based on guidance, what is expected from INTU and HRB, and likely more individuals and families filing taxes due to slight improvement in employment last year, we think tax service revenues will meet expectations.  Given the likelihood of more e-filers, we expect margins to be slightly better than expected which may help BCOR beat the Street's $0.50 EPS estimate.  On the top-line, the consensus is $158.8MM.  Going into the quarterly earnings call, BCOR has declined 2.4% since we discussed it on 1/29. 

Lastly, we will post our NFP projection later this week.  NFP numbers and overall state of employment report will be released by BLS this Friday.

Friday, April 5, 2013

Disappointing March Employment Report

Well, this one was a miss for us.  March NFP change came in at a very disappointing +88K, far below the +193K consensus and even further lower than our +200K estimate.  We certainly will be reviewing our NFP model this month in order to hopefully increase accuracy.  In the meantime, we are fortunate that the less risky sectors which we recommended a year ago have done well, and are not getting hit as much as the other sectors today.  Overall, S&P 500 is down nearly 0.9%.  Going back to the employment report, some details are provided below.
  • Biggest decline in jobs was on the retail side which dipped 24.1K from the previous month.  Combined with an unexpected decline in wholesale trade (-1K), this could indicate that employers in the retail sector are not expecting very exciting spring and summer seasons.  In fact, the largest decline in wholesale trade jobs was in non-durable goods (-3.9K), while on the retail trade side, jobs in building materials and garden supply stores, and in clothing and clothing accessories stores declined 10.1K and 15.3K, respectively. 
  • Biggest gains were in education and health services, up 44K.  Temporary help service jobs also increased, up 20.3K.  Continuing increase in temporary jobs during this recovery period, combined with overall moderate gains in jobs, further indicates how uncertain many employers continue to be. 
  • Jobs in construction also increased, up 18K, driven mainly by 23.3K gain in specialty trade contractors (site preparation, pouring concrete, etc.). 
  • Average weekly hours increased to 34.6 from 34.5 in Feb. and last year. 
  • Monthly change in average hourly earnings was a mere increase of a penny, compared to the 3c increase we saw in Feb.  Hourly earnings were up only 1.8% Y/Y, slightly below the latest change in headline CPI, which was 2%.  This data provides further support for our belief that wages are not growing as fast as they should.  Then again, it also shows that the threat of too much inflation is not close by, which means the Fed can continue its monetary easing policies for a long time. 
  • Labor force participation rate stands at 63.3%, down 20bps from Feb. In terms of duration of unemployment, 27+ weeks declined by 186K, which is somewhat positive given the increase we had seen in the prior month.  In addition, those unemployed less than five weeks declined by 203K.  However, the numbers for 5-14 weeks and 15-26 weeks increased by 56K and 42K, respectively.

Thursday, April 4, 2013

March NFP Projection ...

Based on some of the latest economic indicators, it appears that although the economy is growing, it is not as much as many have been expecting.  ISM services employment sub-index and the ADP report have also created some doubts as whether or not Friday's BLS employment report will meet/exceed expectations.  Although we view economic growth as moderate at best, our model indicates that Friday's NFP count will slightly beat the lowered expectations.  Our brief summary of some of the main economic indicators released this week is followed by our NFP estimate.   
ISM manufacturing index for March, released on Monday, disappointed as we had assumed it would.  But we did not expect such a significant miss.  The index came in at 51.3 versus our 53.8 estimate and the Street's 54.0.  The ADP employment report released on Wednesday morning was also not as encouraging as many economists expected, coming in 47K below consensus.  However, we note that the Feb. number was revised higher by 39K, partially offsetting the miss.  ISM services index also missed expectations, 54.4 versus 56.0.
Regarding Friday's upcoming BLS employment report, we expect an increase of approx. 200K in the NFP count.  The Street's number is 193K.  Yes, the ADP report was a miss, but we did see a downward trend in initial jobless claims from the last week of Feb. until the third week of March.  In addition, while the ISM non-manufacturing employment sub-index declined, the same sub-index for manufacturing did increase for the month of March; and both indicated growth (above 50.0).  We are not suggesting that the state of employment is surging in terms of NFP growth.  In fact, our estimate indicates a slower growth than the previous month which saw an increase of 236K, but again, it is slightly higher than the consensus. 

Monday, April 1, 2013

March ISM Projection, Notes, & Performance Update for Week of 3/25 - 3/28

With regards to some of the names that we have discussed, AVID continued its downfall.  Although not very liquid, the strangle position we suggested last week got off to a good start.  We note that while daily volume of the May options increased, open interest did not.  However, open interest spiked for both the $7.50 Jun13 call and the $5.00 Jun13 put.  But again, the long call on the stock that we made has turned out to be a bad one.

The long call on BCOR has been ok, although its performance is below that of the S&P 500.  IACI has done well as it has more than doubled S&P 500’s positive gain since we made the suggestion.  As a reminder, IACI has a dividend yield of 2%+.  We do not include the dividend yield in our calculation.  On the short side, FB has done well, also outperforming the S&P 500.  As usual more detail is provided in the tables and chart at the end of this post.

This upcoming week will be a busy one as many market-moving economic indicators are released.  They include the manufacturing ISM (March) tomorrow morning at 10am (ET).  The latest consensus is 54.0 compared to 54.2 in Feb.  Our estimate is slightly lower, 53.8.  Although we have not been very accurate lately, some of the indicators we track show that March's manufacturing activity may have declined slightly, but a bit more than what the Street is expecting.  Unless the results are significantly below or much higher than the Street's estimate, reaction by the market may be limited due to the employment report scheduled to be released later this week.

ISM services, along with the ADP employment report will be released on Wednesday (4/3).  Those are followed by initial jobless claims on Thursday and the ever-important but always questionable BLS employment report on Friday.  Regarding the employment report, we will post our NFP projection on Thursday.