Revenue of Hewlett Packard declined on sequential and year-on-year basis. This is alarming for one specific reason. Let's explore. The company generates most of its revenue from stagnant business segments like personal computers and printers. PC growth is under pressure due to smartphones and tablet. Adoption of digital content and digital correspondence is weighing on printing segment. Now, the company should be growing in other areas like infrastructure and storage solutions, which doesn't seem to be the case. Only the industry standard server segment registered 7% Y/Y growth, thanks to Moon Shot servers I believe. Anyhow, the company is not squeezing growth from the segments that are supposed to grow. There are also expected restructuring costs going forward. HPQ is not looking good right now. PC segment was flat but enterprise refresh cycle is almost over. Let’s hope Windows 10 can bring strength to HP’s personal computing. In my view, HP’s stock should be avoided for now.
Groupon Inc. reported operating cash flow of $288.8 million and FCF of around $200.5 million for the year ended 2014. Accrued merchant and supplier payable increased by $115.1 million resulting in quite positive cash flows despite full year reported loss. Groupon will eventually have to settle these payables, and that will pressure cash flows going forward. The point is that cash flows of the company should be relied upon with a degree of caution. In my view, EBITDA is a better metric to gauge the performance of Groupon Inc. Analysts are expecting around 39% earnings growth during the next five years for Groupon, quite a healthy rate. But, the company is already trading at a forward multiple of 34. I think, Investors should not bet on Groupon amid high PE multiple and cash flows that are elevated by deferred payables.
LinkedIn has guided soft for 2015. The company's revenue guidance is below the analyst consensus of $2.97 billion. EPS guidance also fell short of analyst consensus of $3.02. Based on the company's guidance, the stock is trading at a PE of around 91. Internet information industry is currently trading around 62 and even the growth companies like Facebook (FB) has a much lower PE than LinkedIn. The point is that LinkedIn is expensive right now. The stock will trend lower, going forward, due to downward revisions by analysts that will follow the soft guidance. Further, LinkedIn's earnings are not that high to justify its current pricing as depicted by the PE ratio. Therefore, LinkedIn's stock should be avoided for now.
GoPro's EPS improved quite a bit on a year-over-year basis. The company has beaten the Wall Street estimates by $0.29 per share in the fourth quarter of 2014. As the stock lost around 45% of its value during the last three months and earnings are improving, GPRO doesn't seem overpriced anymore. Analysts are expecting earnings of $1.68 during 2016, translating into a forward PE of around 26. A forward PE of 26 seems acceptable for a growth company like GoPro, Inc. Top line growth of the company is relatively higher than the bottom line growth indicating that the company can cut its expenses to improve its EPS. The point is, GRPO is equal weight right now but the stock can outperform if the company manages to reduce expenses.
Amazon's operating profit for the quarter is $591 million, translating into operating margin, or OPM, of 2.01%. This is understandable for two reasons. One, the company is in retail business that entails lower margins. Second, the company is in a growth phase and is spending to fuel the growth. The thing that is not understandable right now is the value that investors put on Amazon. No doubt, Amazon is great company but is a 162X forward PE multiple justified for a company that inherently belongs to a low margin industry? The highest earning analyst estimate for 2016 derives a forward PE of 37,which is expensive by retail industry standards. In my view, Amazon is expensive and the key reason is the low-margin nature of the business.
Intel's gross margin is expected to decline from 63.7% in 2014 to 62% in 2015, thanks to the leading edge process node of the company. 14nm process technology costs more than lagging nodes. Beyond 28nm, double patterning increases the manufacturing costs. Anyhow, Intel will continue to dominate the high-end market share amid its process technology. Margins won't be hurt too much because of Intel's almost monopolistic position and premium pricing in the PC market.
Technology advances and need for more storage enabled the companies to innovate, which resulted in the inception of cloud services like SaaS and PaaS etc. But, the space is clogged up with major players like Google and Microsoft. Specifically speaking about Box Inc., it may not be wise to invest in the entity. Google, Microsoft and Amazon are large-cap established companies and can easily hurt Box in the cloud storage space on pricing. Box's bottom line is already in the red. Therefore, it is very risky to invest in a small company just based on the notion that cloud storage growth will boost Box's business going forward. The company's stock should be avoided.
Commercial other, including Microsoft's cloud services, is witnessing consistent growth. Thanks to Microsoft Azure, CRM and office 365, the company is offsetting the sluggish windows growth. Cloud services will continue to fuel Microsoft's growth going forward while the company may also get a boost from the launch of the latest iteration of Windows. However, cloud services don't make up a large percentage of the company's revenue, and Microsoft is already trading at a forward PE of around 15 indicating that the stock is at best hold for now. Anyhow, Microsoft Office, both native and cloud, will continue to be the money maker for Microsoft.
Current assets of IBM are above its current liabilities of $39.6 billion, translating into current ratio of 1.25. The ratio is slightly worse than the last year's figure of 1.28. Cash-burn is the primary reason behind this decline as cash and cash equivalents decreased by more than $2 billion during the year. Industry average is around 3.02, according to Reuters. This indicates that the company may face short-term liquidity problems. However, IBM will be in the green as long as the ratio stays above one.
Excluding one time benefit, the EPS came around $0.72. Note that, historically, Netflix posts higher earnings in the fourth-quarter. Even if earnings grow in line with subscriber growth, i.e. 6% per quarter, during 2015, annualized EPS for 2015 will be around $3.15. However, analysts are expecting EPS of $4.62 for 2015. This translates to a price of around 87 times forward earnings. All in all, even with growing subscriber base, Netflix is extremely overvalued based on the current price.
$0.12 translates to annualized EPS of $0.48. However, analysts are expecting EPS of $1.24 for 2015. Even with consensus EPS, forward PE comes around 47.5 but five year growth is expected to be around 38%. A PE higher than growth of the company shouldn't be warranted for any company. Therefore, GoPro is still expensive, which is evident from recent retraction of the stock.
$766 million in FCF translates into an annualized cash-flow of around $3.1 billion. The company will probably surpass $3.1 million in FCF during the next year, given the expected earnings growth of the company i.e. around 36% p.a. for the next five years .