Yahoo's changing tune

Last week, I came across an article that cited a high profile departure from Yahoo, stating that the new CEO wanted the organization to transform itself from a media company to technology company.

While the original developers would have loved this suggestion, I am not sure if this is the direction the organization should take.

The firm has done a lot of innovations in technology, but to change the primary offering of the firm to me is rather risky. On the other hand, if the CEO sees Yahoo as a developer of a large scale syndication platform then i am all in. I guess time will tell the direction the firm is taking.

Blackberry announces March 2013 earnings

This week Blackberry announced its quarterly earnings for the fiscal year and the quarter ending March 2 2013.

The numbers indicate a return to profitability as well as a decent adoption of the new Blackberry phone - z10. It sold a million units inspite of the numbers being only reported for 5 weeks - from end of January to beginning of March. More importantly, the company made a return to solvency. In my personal view, it is not enough for the company to show growth against its peers, but also important that out can do so efficiently and profitably.

Looking across quarters its clear that the delay in US launch meant lower numbers than what they could have been. North American sales slipped from 647 million in Q3 to 587 million in Q4. In first 2 quarters, the North American sales represented nearly 30% of revenue, while in last two it has dropped to 22%of the revenue. Hopefully, it will stabilize back to 30% in the coming quarters.

In a recent post, on Seeking Alpha, the writer has predicted a gross margin of 60%. With a price to book of 0.8, it is a good buy.

To see the updated valuation based on March report, see my post on latest valuation for Blackberry.

Intelligent perspective on Nokia stock for March 2013

Nokia made the switch to Windows devices last year. Its Lumia smartphone devices have met some success in a market dominated by Apple and Android devices in North America. However, its becoming difficult to decipher the value in the company.

The Metrics

Metric	Nokia Stock	Buy/ Hold/ Sell
Price to Earnings	N/A	Sell
Price to Book	1.23	Hold
Profit Margin	-10.29%	Sell
Dividend Yield	0%	Hold/ Sell
Payout ratio	N/A	N/A
Free Cash Flow	335M	Sell
Graham Index	-8.13	Strong Sell
Total Current Assets	27B

Is there hope?

At this point, all numbers point downwards. I suspect Nokia is still too expensive to buy. However, increasingly, the sales of smartphones in developed markets represent under 10% of the stock price valuation. Hopefully, in the next few quarters the numbers will start looking better specially in terms of profit margins.

Yahoo stock fundamentals in March 2013

Yahoo finally seems to be breaking out of the many years of despair for its investors and well wishers under a new CEO. In this post, we look at the fundamentals of the firm based on metrics I had posted on earlier.

The Metrics

Metric	Yahoo Stock	Buy/ Hold/ Sell
Price to Earnings	7.10	Buy
Price to Book	1.75	Hold
Profit Margin	79.12%	Strong Buy
Dividend Yield	0%	Hold/ Sell
Payout ratio	N/A	N/A
Free Cash Flow	-787M	Sell (See below)
Graham Index	45.14	Strong Buy
Total Current Assets	5.6B

Demystifying the poor FCF

So it seems that the stock has a poor Free Cash Flow that needs to be corrected. The firm does have enough money to sustain the negative FCF. The main influence on the FCF seems to be Adjusted Net Income which was done in September 2012.

Period Ending	Dec 30, 2012	Sep 29, 2012	Jun 29, 2012	Mar 30, 2012
Net Income	$0.00	$0.00	$0.00	$0.00
Operating Activities, Cash Flows Provided By or Used In
Depreciation	$0.00	$0.00	$0.00	$0.00
Adjustments To Net Income	$0.00	-$5,601,529.00	-$59,191.00	-$132,335.00

Based on the above, it seems that the firm will start showing positive FCF soon, which will reveal a more optimistic picture for the firm.

Measuring Architecture for Investment

In order to understand the impact of architecture on the businesses we are trying to study we need to establish which metrics we are trying to measure for making investment decisions.

To start the baseline, we will start with the value driven approach. Value driven approaches look at the following metrics:

1. Price to Earnings: This reflects how much is the market willing to pay for each $1 of earnings. This reflects to me the quality of earnings.

2. Price to Book: This reflects whether the current price exceeds or falls short of current assets of a company. Essentially if the thing fails, what value of assets did I buy for each dollar I paid.

3. Profit Margin: This indicates how much profit did the company make from operations.

4. Dividend Yield: If the company pays a dividend, how much is it.

5. Payout Ratio: How much percentage of the money generated by the company is paid out in dividends, assuming of course the company pays dividends.

6. Free Cash Flow: How much actual cash does the business generate. It can be calculated as following:

EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure

It can also be measured by subtracting Capital Expenditures from Operating Cash Flow.

There may be more that we need to establish as we go along, but so far so good.

Next, we need to understand how Architecture will impact these variables. Firstly, Architecture has to match strategy, but later whether the strategy worked and the architecture met its stated objectives can be measured by coming back to the numbers stated above.

That's it folks.