Trefis Helps You Understand How a Company's Products Impact Its Stock Price

COMPANY OF THE DAY : TWITTER

Twitter reported strong Q2 earnings that were well ahead of expectations. Revenue was up 124% year-over-year, while the company reported EPS of $0.02, compared to a loss of $0.12 per share in the same quarter last year. Monthly average users increased by around 24% year-over-year, and the company raised its full-year revenue guidance.

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FORECAST OF THE DAY : ACTIVISION'S NUMBER OF WORLD OF WARCRAFT & OTHER MMORPG SUBSCRIBERS

The World of Warcraft was once the world's largest massively multiplayer online role-playing game (MMORPG) franchise.

However, the online gaming landscape has changed considerably as new free-to-play online MMORPGs have entered the fray.

Activision's Call of Duty, Skylanders, Diablo III and other franchises have filled the void.

Read more...
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KRFT Logo
Commodity Cost Pressures Weigh On Kraft's Second Quarter Earnings
  • by , 14 hours ago
  • tags: KFT KRFT HSH
  • Kraft Foods Group’s (NASDAQ:KRFT) second quarter earnings growth was muted by increased commodity costs that more than offset the impact of price increases. The company’s reported earnings per share (EPS) for the quarter declined by over 42% y-o-y to just $0.80. However, EPS adjusted for the one-time benefit realized by the company from market-based adjustments to the post-employment benefit plan last year came out almost flat year-on-year. Kraft’s second quarter organic net revenues increased by around 1.5% y-o-y, primarily due to the shift in the timing of Easter-related shipments, compared to last year when Easter fell during the first quarter. However, if we look at the company’s top-line performance during the first six months of the year, which evens out the impact of Easter timing, organic net revenues were down by around 0.4%, compared to last year, as volume declines more than offset the impact of pricing actions. Kraft has taken pricing actions on a large chunk of its portfolio this year in order to sustain its margins amid rising input costs. However, the company’s second quarter gross margin was down significantly compared to last year as higher dairy, meat and coffee prices more than offset the impact of these pricing actions. On the brighter side, Kraft’s sharp focus on improving its productivity and reducing the overhead costs has helped it largely mitigated the impact of steep commodity inflation on its cash operating margins so far this year. While the company’s gross margin declined by more than 300 basis points during the first six months of this year, its adjusted EBITDA margin has remained almost flat over the same period, by our estimates. Going forward, we expect Kraft’s top-line performance during the next six months of the year to be almost similar to what we have seen in the first half. However, the decline in its gross margin is expected to moderate as the year progresses, primarily due to the impact of pricing actions, which were mostly announced and implemented during the second quarter. Based on the recent earnings announcement, we have revised our price estimate for Kraft Foods Group to $66/share, which is almost 14.7x our 2014 full-year GAAP diluted EPS estimate for the company. Most of the increase in our price estimate for Kraft can be attributed to the fact that we have extended our forecast period for the company and are now discounting its cash flows to the mid of next year. This basically implies that we have adjusted our price estimate for Kraft to reflect what its intrinsic value should be about a year from now. See Our Complete Analysis For Kraft Foods Group Pricing Actions, Cost Savings To Reduce Margin Pressures Food commodity prices in the U.S., mainly dairy products, coffee beans, and meat products have been on fire this year. Raw milk prices have risen sharply over the past few months due to increasing export demand from the fast-growing Asian markets, especially China. On the other hand, coffee prices have also been steep, as one of the worst droughts in the history of Brazil has hit the country’s coffee plantations this year, leading to a downward revision in production forecasts. Furthermore, the prices of meat commodity products such as pork and beef have also been on an uptrend recently due to supply shortages. (See: Higher Commodity Costs To Weigh On Kraft’s Margins This Year ) This does not bode well for Kraft since it uses large quantities of these commodities as raw materials. Therefore, in order to tone down the impact of higher input costs on its gross margins, the company has either announced or implemented price increases across more than 50% of its product portfolio. During the second quarter earnings call, Kraft’s EVP and CFO, Teri List-Stoll mentioned that the company had increased prices of its cheese products by 5-12% in March this year. The company also implemented a 10% price hike across 50% of its Oscar Mayer cold cuts portfolio on May 25. Early last month, Kraft also raised prices for its Maxwell House and Yuban roast and ground coffee brands by around 10% on an average. Since most of these pricing actions were taken by the company during the second quarter, we expect the decline in Kraft’s gross margins to moderate in the coming quarters. We also expect the company’s operating margins to improve over the next few quarter on continued productivity improvements and reduction in overhead costs. Kraft’s productivity drive has enabled it to mitigate the impact of commodity price inflation on its profitability over the last couple of years. The company has been effective in reducing its per unit costs by increasing production capacity through Lean Six Sigma based enhancements of its manufacturing processes. During the recent CAGNY presentation, Kraft CEO, Anthony Vernon, said that 28% of the company’s manufacturing facilities were now operating on four-sigma, which yields 40% increase in productivity. This implies an improvement of over 10% in the company’s production capacity since it launched this program. As a result, Kraft delivered net productivity of around 3.3% of cost of goods sold (COGS) last year, which was ~80 basis points higher than the company’s long term target of 2.5%. Apart from Lean Six Sigma based enhancements, Kraft has also been focusing on a lot of other measures to reduce total operating costs. For example, in the procurement of cashews used for manufacturing  Planters, the company has formed a strategic partnership to create a seamless supply chain from the producer to its plants, which would reduce the breakage of cashews by around 80% and increase the yield of whole cashews. Kraft is working on a number of such cost cutting opportunities to reduce total operating costs. Although the impact of these measures might not reflect in its operating margins this year, due to sharply higher input costs, we believe that these would eventually pay off in the long run as commodity prices cool down. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    GM Logo
    GM's Turn to Aluminum Bodies For Its Pickups Might Come Too Late
  • by , 15 hours ago
  • tags: GM F
  • Earlier this year Ford Motors (NYSE:F) closed down some of its U.S. based factories to allow for the reconfiguration of the manufacturing process of its F-series trucks. The best selling series of trucks were previously made of steel bodies but the new process will allow them to be made with aluminum bodies. The advantages of aluminum bodies are obvious: aluminum is lighter than steel and a lighter vehicle has better acceleration, fuel-economy, handling and towing capacity compared to a heavier vehicle, keeping other things like engineering and design the same. The company is so confident about these new trucks that it sent prototypes to prospective clients, like mining company Barrick Gold, in order to let them test them out in harsh conditions. The trial run with these prospective clients served two purposes: it generated intrigue among the customers thereby functioning as effective advertizing, while also allowing Ford to gather knowledge about potential faults which it could then go back and correct in the production process. All this activity at Ford has caught the eye of competitor General Motors (NYSE:GM), which has now responded by pushing forward the timeline on the launch of its next-generation Chevrolet Silverado and GMC Sierra by about nine months, to the fall of 2018. We have a  $40 price estimate for General Motors, which is about 18% more than the current market price. See full analysis for General Motors Worried by Ford Last year, General Motors released new versions of its full-size pickup trucks Chevy Silverado and GMC Sierra. While none of these new versions was revolutionary, in either engineering or design, they were considerable improvements on the outgoing models. Both these trucks have sold well. For the month of April 2014, Chevrolet Silverado sales were up 9 percent and GMC Sierra sales were up 21 percent compared to the numbers in the previous year. Retail deliveries were up 13 percent and 22 percent, respectively. However, these trucks were supposed to put GM on an equal footing with rival Ford but nothing of the sort happened. In the absence of heavy discounts, buyers were reluctant to purchase the Silverado, instead opting for alternatives like Chrysler’s Dodge Ram, which was being sold at discount rates as high as 24%. Ford’s F-Series pickups have been the best-selling trucks in the U.S. for nearly 40 years now, but GM led the overall market in terms of unit sales not too long ago. Before the recession, the company sold ~827,000 pickups, well ahead of Ford’s F-Series sales of around 691,000. Then GM lost a lot of market share relative to Ford because of the Great Recession and GM’s ensuing bankruptcy. By 2011, Ford F-Series sales had rebounded to ~585,000, while combined Silverado and Sierra sales totaled just ~564,000. Ford widened its lead in 2012 with a 10% sales growth, while GM’s pickup trucks posted low single-digit growth. With the launch of new versions of Silverado and Sierra, GM wanted to achieve two things: 1)increase average transaction prices in order to match Ford’s profit per truck sold, and 2) increase its market share. It was successful on the first front. By cutting down on incentives, the company managed to raise its average transaction prices. GM was making more profit on each truck it sells than a year ago.On the sales front, however, as GM cleared out old 2013 models to introduce new 2014 models, sales growth tapered off. Through the first 8 months of 2013, the combined sales of Silverado and Sierra grew by an impressive 25%. But in the final four months of the year, GM’s sales started dropping, even as Ford continued to post gains. The trend has continued into 2014.
    GME Logo
    Strong Console Sales To Drive Revenues For GameStop & Electronic Arts
  • by , 15 hours ago
  • tags: ERTS GME EA ATVI MSFT
  • According to the research group  NPD, the next generation twin console- the  Microsoft (NASDAQ:MSFT) Xbox One and the Sony PlayStation 4 are still in huge demand, which might benefit video game retailers such as GameStop (NYSE:GME). In its latest June report, NPD reported that gamers spent $736.4 million on new physical video game products at U.S. video game retail shops, up 24% from $593.5 million in June 2013. In the month of May, gamers spent $586 million on new physical gaming products- hardware and software. Considering that consumers spent $ 292.7 million on new hardware alone, gaming industry believes that the twin consoles still have a lot of demand among the core gamers. This might be due to the upcoming new titles to be released in the markets by core game developers such as Electronic Arts (NASDAQ:EA), Activision Blizzard (NASDAQ:ATVI) and Nintendo. With most of the games released on only the new platforms, gamers were forced to buy the next generation consoles. Although the new software sales have picked up the pace, they are still lagging the hardware sales and are much below the last year sales. Gamers spent only $286.8 million on new game titles in the month of June, down 3% year-over-year. After six months of dullness in title sales, the industry finally witnessed acceleration in the software demand in the month of May, but it still lacks luster. GameStop is positive on its outlook for the upcoming quarters, as it expects strong hardware sales in the previous quarters to translate into better software sales. Top game developers such as  Electronic Arts (NASDAQ:EA) and  Activision Blizzard (NASDAQ:ATVI) unveiled their most awaited games of the year at the E3, revealing trailers and prototypes of newer editions of their famous title franchises. With a turnout of around 49,000, E3 also witnessed other video game developers such as  Microsoft (NASDAQ:MSFT), Sony Corporation, Ubisoft and Nintendo disclosing concept visuals and early designs of their title releases. With a significant number of software titles and hardware accessories to be launched over the next 12 months, GameStop expects its pre-owned products segment to benefit from increased sales. Increase in console sales might translate to excellent initial sales for the core game titles such as EA’s FIFA 15, Titanfall, Battlefield Hardline & Madden NFL, Activision’s Call of Duty: Advanced Warfare and Ubisoft’s Watchdog. Our price estimate for GameStop’s stock is $47, implying a premium of 17% to the current market price, whereas that for for  Electronic Arts’ stock is $27, which is 40% below the current market price. See our complete analysis of GameStop and Electronic Arts GameStop New Hardware & Software Sales Might Boost Overall Sales After a positive report from NPD in terms of hardware sales for the month of June, GameStop is optimistic of its sales growth for the hardware segment. New video game hardware sales rose 27% in 2013, contributing around 19% to the company’s overall revenue growth. However, in the first fiscal quarter of 2014, company’s hardware sales increased 81%, stronger than U.S. market’s average of 61% growth. PlayStation 4 retained the #1 spot for the top selling console for the 6 th month in a row, outpacing Microsoft’s Xbox One. Combined total sales of these two consoles are near about 80% higher than the combined sales of Xbox 360 and PlayStation 3. This might boost the segment’s revenue, but since this a low margin segment (gross profit margins were 10.2% for this segment in 2013), this might possibly have no major impact on company’s valuation. Now, since increase in hardware sales might translate to better software sales in the coming months, we might also witness a growth in new video game software segment, which is a high margin segment for the company. New software sales accounted for 39% of the overall company sales and 30% of the total gross profits in 2013. Moreover, with the release of new core game titles in the coming months, company is quite positive with the segment’s revival. Increased software sales coupled with better hardware sales might boost the company’s valuation. Electronic Arts & Activision Blizzard Initial Title Sales To Benefit From Increased Hardware Sales Increased sales of the next generation consoles have raised the expectations of the game developers such as Electronics Arts and Activision. The two gaming giants usually release the annual edition of their franchises in the latter half of the calendar year. With the hardware console sales still strong in the market and outperforming last year’s performance, both the companies might be looking forward to the release of titles such as FIFA 15, Madden NFL and Call of Duty, which would be available initially on PS4 and Xbox One. Currently, EA’s Titanfall is available only on Xbox One & Xbox 360 and FIFA World Cup Brazil is available on PlayStation 3 and Xbox 360. The company might unveil its edition for Xbox One and PlayStation 4, since most of the gamers own the new consoles. Moreover, Activision’s Call of Duty: Advanced Warfare is set to be released in November on all major platforms . FIFA 15 and Madden NFL will be released on all major platforms as well. Both the companies expect the initial sales of these titles to rise, considering hardware sales would translate to better software sales. As these titles are the core profitable franchises, a boost to their sales would drive the overall revenues of the companies. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology  
    CMG Logo
    Key Trends Explaining Our $628 Price Valuation For Chipotle
  • by , 15 hours ago
  • tags: CMG MCD SBUX BKW
  • The leader in the fast-casual segment,  Chipotle Mexican Grill (NYSE:CMG) recently released its second quarter earnings report for the fiscal year 2014. Continuing the momentum of the first quarter, the company delivered impressive results, with net revenue rising to $1.05 billion, up 28.6% year-over-year, primarily driven by an increase of 17.3% in the comparable restaurant sales. Same store sales or comparable restaurant sales saw tremendous improvement due to the increased traffic and increased average spend per visit. Moreover, the net income rose 25.5% to $110.3 million, whereas restaurant level operating margins declined 30 basis points to 27.3% in the second quarter, primarily due to higher food and marketing costs, partially offset comparatively lower labor and occupancy costs. Diluted EPS for this quarter rose to $3.50, up 24% from same period last year. We have a $628 price estimate for Chipotle, which is about 8% lower than the current market price. See Our Complete Analysis For Chipotle Mexican Grill The fast-casual segment is a fresh and rapidly growing concept, positioned somewhere between fast food restaurants and casual dining restaurants. They provide counter service and offer more customized, freshly prepared and high quality food than traditional Quick Service Restaurants (QSR), all in an up-scaled and inviting ambiance with meals ranging from $8 to $15. Brands such as  Chipotle Mexican Grill (NYSE:CMG), Panera Bread, Qdoba Mexican Grill and Baja Fresh are considered as the top restaurants in this category. Increasing Customer Traffic Big QSR brands such as McDonald’s, Subway and Starbucks have been facing a huge threat by the leading fast casual restaurants, as the traffic growth in the latter segment surpassed that of every other segment for the fifth consecutive year. According to the NPD group, the fast casual segment saw an 8% rise in the guest count in the 12 month period ended in November last year, whereas traffic count was flat for quick service restaurants. This consumer shift is primarily due to the fact that people with higher disposable income are inclined more towards quality and hygienic food. The average customer count per company-operated restaurant annually at McDonald’s, the leading brand in QSR segment, has been diminishing by 1.3% for two consecutive years, whereas for a successful fast casual restaurant such as Chipotle, the average guest count has been rising by 5% and 2.3% in the last two years. source: NPD Group Survey Trefis Estimate Trefis estimates the average number of annual visits per restaurant to rise by 4.5% in 2014. Recently, Chipotle introduced new innovative menu items including Sofritas-the new vegan tofu, which gained popularity among vegetarians, as well as non-vegetarians. Moreover, highly efficient service and different discounts & promotions might help in maintaining the customer base. However, after a point, it is really difficult to increase the customer visits as the customers avoid going to a restaurant which has long lines or no seating space. Thus, the only way to increase the footfall is by opening more restaurants. Taking into account that new store openings might slow down in pace in the coming years due to saturation, we have estimated the figure to decline gradually after 2015 and to reach 231,000 by the end of our forecast period. Now, with more competitors entering the market every year and top fast food brands adapting to healthier food options, customers might shift to cheaper options. Moreover, further price hike in the menu might slow down the traffic growth. If the average annual visit per restaurant reaches only 212,000 by the end of our forecast period, we might see a 10% downside to our price estimate. On the other hand, if the company accelerates its store expansion by venturing into international markets and if the customers continue to be unaffected by the price hike, we might see a little more growth in the average visits. If the average annual visit per restaurant reaches 250,000 by the end of our forecast period, we might see a 4% upside to our price estimate. Revenue Growth To Accelerate According to Technomic’s 2014 Top 500 chain restaurant report, sales for fast casual chains  grew by 11% and store count by 8% in 2013. Although Chipotle generated $3.2 billion in revenues in 2013, which in comparison to McDonald’s seems to be a much smaller figure, the revenue growth has been consistently at around 20% for Chipotle for 5 years now. Chipotle’s net revenue has increased by 75% over the last 3 years, with the average spend per customer visit rising 5.5% over the same period. On the other hand, fast food giants such as McDonald’s are finding it difficult to accelerate the revenue growth. McDonald’s revenue rose 17% over the last 3 years and average spend per visit increased 9% over the same period. Even though McDonald’s revenue are 9 times that of the Chipotle, the revenue growth for the fast-casual leader continues at a much faster pace, primarily driven by changing consumer preferences. Changing Dining Preferences Chipotle believes that its extraordinary service and exceptional dining experience in addition to unique food culture hold the key for its improved comparable store sales. Additionally, the rising health concern among the people of the U.S. is one of the major reasons that fast casual restaurants are witnessing more traffic every quarter. The company policy of ‘food with integrity’, where it focuses on serving naturally raised meat and  fresh ingredients, have struck a chord with consumers and is forcing other restaurant chains to remodel their strategy and supply chain in order to respond to this newly created demand. As a result, people with higher disposable income are inclined more towards quality and hygienic food. Menu Price Hike in 2014 Chipotle initially decided to raise its menu prices in 2013, but refrained from doing so and deferred the move to 2014. In the second quarter, the company was forced to raise the prices of its steak burritos by 4%-6%, or 32-48 cents, whereas the overall menu prices went up by 6.5% on average and all this without hurting the customer traffic. Many feared that the price hike would affect the company’s customer traffic, but it had minimal impact on them. People are willing to pay 4-5% extra for hygienic and better quality food. This led to an increase in the average spend per customer visit. Trefis Estimates Trefis has already accounted for the incremental revenue to be generated by the price hike in 2014 and thus estimates the average spend per visit to increase by 3% by the end of 2014, considering customer traffic is unaffected. We also believe that this growth might witness a gradual decline in the following years as the increasing competition would put a pressure on the pricing power of the company and customer traffic might witness a decline as more competitors come into the picture. Chipotle’s prices are already among the highest in the segment. Further price hikes might result in a decline in customer count, which might slow down the revenue growth. In that case, average spend per visit might witness a slower growth of only 2% in 2014 and a gradual decline thereafter. As a result, we might see a 7.5% decline in Trefis’ price estimates. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    MMM Logo
    Sumitomo 3M Acquisition Will Add To 3M's Earnings And Increase Presence In Japan
  • by , 15 hours ago
  • tags: MMM
  • 3M (NYSE:MMM) recently announced that it will acquire Sumitomo Electric Industries’ 25% stake in the joint venture, Sumitomo 3M Ltd. The acquisition, which will cost 3M approximately $885 million, is expected to close by September 1 2014. Sumitomo 3M will be renamed to 3M Japan once the acquisition is complete. The acquisition will have an accretive impact on 3M’s earnings post the third quarter 2014 and will help increase its presence in Japan. Sumitomo Electric will gain around ¥41 billion in net profit due to the impact of the sale to 3M. Sumitomo 3M, based in Japan, was established in 1961 as a joint venture between 3M, Sumitomo Electric and NEC Corp, with 3M owning 50% stake and the remainder equally divided between the other two venture partners. 3M acquired NEC’s 25% stake in 2003 to bring up its stake to 75%. Sumitomo 3M operates in similar businesses as 3M’s Industrial and Electronics & Energy segments. It manufactures adhesives, abrasives, electric and electrical products, reflective materials, tapes and film products. See our complete analysis of 3M here 3M’s benefits from the acquisition Sumitomo 3M, which is largely managed by 3M, is one of 3M’s most successful subsidiaries. Therefore it makes sense for 3M to gain full ownership of the subsidiary, which operates in an industry that 3M knows well. Post acquisition 3M will own 100% stake in Sumitomo 3M, which will enable 3M to gain full control of Sumitomo’s assets and deploy them to generate attractive returns. 3M will benefit from an $0.08 per share addition to its earnings in the 12 months following the completion of Sumitomo 3M’s acquisition. The strategic acquisition will allow 3M to strengthen its presence in Japan, where it generates more than $2 billion in revenues. After China, Japan is the most important market for 3M in the Asia Pacific region. 3M believes that its addressable opportunity in Japan is worth $800 million. Sumitomo 3M offers products that could cater to around 50% of this addressable market and will therefore play a major role in 3M’s growth in Japan. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) |  Get Trefis Technology
    NYT Logo
    NYT Earnings: Revenues Fail To Grow And Costs Drag On Profitability
  • by , 15 hours ago
  • tags: NYT AOL YHOO GOOG
  • The New York Times Company (NYSE:NYT), one of the leading newspapers in the U.S., posted its Q2 results on July 30. Even though the company continues to rollout new digital products (e.g., NYT Now, NYT Opinion and Times Premier) to bolster its content and digital ads  revenues, its print ads revenue continues to decline reflecting the secular downturn in print ads industry. During the quarter, NYT’s revenues declined by 0.6% year over year to $388.7 million from $391.0 million. Circulation revenues increased 1.4% and other revenues increased 7.7%, while advertising revenues declined 4.1%. Furthermore, its operating profit declined to $16.49 million on higher compensation and benefits expense, and marketing costs associated with the strategic growth initiatives, as well as higher retirement costs. Click here to see our complete analysis of New York Times Outlook for Q3 2014 The company expects circulation revenues to be flat in the third quarter of 2014 compared with the third quarter of 2013, as benefits from its digital subscription initiatives and the increase in print subscription prices bear fruit. Total advertising sales in the Q3 FY14 are expected to decrease at a mid-single digits rate compared with the Q3 FY13, primarily due to a challenging business environment in the print ads business. The company also expects Q3 2014 operating costs to increase at a low- to mid-single digits rate on a year-on-year basis as investments related to its strategic growth initiatives accelerate. Furthermore, the company expects to incur  a charge of $9 million in non-operating retirement expense in the third and fourth quarter. In addition, the Company expects the following on a pre-tax basis in 2014: Results from joint ventures: loss of $1 to $3 million, Depreciation and amortization: $75 to $80 million, Interest expense, net: $53 to $57 million, and Capital expenditures: $40 to $50 million. Revised upwards from $35 to $45 million. Advertising Revenue Decline With the advent of the Internet, the print ads business has been on a decline as advertisers are increasingly earmarking more funds for online ads. NYT’s print ads division, which makes up 28% of its estimated value, has not been able to buck the trend and continues to report declines in revenue. NYT reported a 7% year-over-year decline in print ad revenues to $114 million. We currently project NYT’s print ads revenues to continue to decline, in line with U.S. national print ad spending. However, the online advertising division, which is the third largest division of NYT and makes up 25% of its estimated value, posted a 3.5% year-over-year increase  in revenues to $41.5 million in Q2. NYT continues to add content, especially video content, to its websites to increase user engagement and bolster online ads revenues. It now expects video advertising to nearly double in 2014, although it still represents a relatively modest portion of our total digital advertising revenue. Additionally, the company continues to experiment with custom advertising and has increased its product offering on mobile devices. We estimate these initiatives will boost the number of unique visitors to NYT’s website and expect the unique visitor count to grow to 60 million by the end of our forecast period. Digital Subscription Boosts Circulation Revenues According to our estimates, NYT’s print circulation and digital subscription division contribute over 45% to its stock value. During the quarter, circulation revenues were flat at $209.85 million. While NYT’s daily print circulation continues to decline, its digital subscriber base has continued to expand at a fast pace. In Q2, NYT’s paid digital subscriber base grew to 831,000. Digital subscription now accounts for nearly 20% of NYT’s circulation revenues as opposed to 13% in Q2 2012. During the quarter, the company has announced a host of new steps such as mobile apps to bolster its mobile platform and boost its digital subscriber base. We currently estimate that the number of NYT’s online subscribers will increase to around 1.4 million by the end of our forecast period. We are in the process of updating our valuation to incorporate the Q2 2014 earnings. At present, we have a  $8.33 price estimate for New York Times, which is 35% below the current market price. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis)  Get Trefis Technology
    YELP Logo
    Yelp Earnings:Laps Up Profitability As Revenue From Core Local Ads Business Improves
  • by , 15 hours ago
  • tags: YELP YHOO GOOG
  • Yelp ‘s (NYSE:YELP) announced its earnings for Q2 FY14 on July 30 th and the company once again reported a rapid growth of revenues, as it grew by 61% year over year to $88.8 million. However, Yelp reported a substantial improvement in net income that grew to $2.74 million. Yelp’s Adjusted EBITDA also improved significantly to $17.2 million in Q2 FY14 compared to adjusted EBITDA of $7.7 million in prior-year quarter. The company continued to report good growth across all its performance metrics. The company reported 44% growth in cumulative reviews to 61 million, and 27% increase in average unique monthly visitors to 138 million. Additionally, the company also reported high engagement on mobile devices as unique visitor from mobile increased to 68 million from 45 million. While active local business accounts increased by 55% year over year to 80,000, claimed local businesses increased to 1.8 million. Overall, we are encouraged by Yelp’s results and think that the business seems to be on the growth path. Below, we review Yelp’s Q1 FY 14 results by segment. Check out our complete analysis of Yelp Outlook for Q2 and 2014 For Q3 FY14, the company expects revenues to be in $98 – $99 million range, representing growth of approximately 61% compared to the third quarter of 2013. Adjusted EBITDA is expected to be in the range of $18 million to $19 million. For the full year, Yelp has announced an improvement in guidance, and projects net revenue to be in $372 – $375 million range, while adjusted EBITDA should be in $67 – $69 million range. International Expansion Boosts Revenues and Costs The local ads division makes up 80% of Yelp’s estimated value. One of the primary drivers for local ads division is the number of active business accounts on Yelp. During Q2 FY14, active local business accounts grew by 55% year over year to approximately 80,000. The primary reasons for growth in this driver are the international expansion under way and the increase in cumulative reviews on the Yelp site, which increases its appeal to advertisers and users alike. Recently, the company added Japan and Argentina into its folds. As a result, international traffic grew over 80% year over year to approximately 31 million unique visitors on a monthly average basis. Furthermore, revenue from international markets now contributes nearly 30% to Yelp’s top line. We expect this expansion spree to bolster the number of active business accounts on Yelp to over 412,000 by 2020. However, we believe that as the company expands to new territories, its selling, general and administration (SG&A) and marketing costs will increase and lower company’s profitability and cash-flow as a percent of sales. Deals Revenues Improves Yelp’s deal, partnership and other services (DPO) division contributes 5.6% to its value. Currently, Yelp generates revenue from this division through any transaction that might occur on its website. Yelp’s deals platform allows merchants to promote themselves, and offer discounted goods and services on a real-time basis to consumers directly on Yelp’s website and mobile app. Yelp charges a fee on Yelp Deals for acting as an agent in these transactions. In Q2, Yelp reported 27% year-over-year growth in deals revenues to $4 million. We believe that the newly launched services such as call-to-action, which offers discounts and a delivery platform that closes the loop between discovering a business on Yelp are gaining momentum, and will drive revenues at DPO division going ahead. Mobile Search To Bolster Brand Ads Division Brand advertising is currently Yelp’s third largest source of revenue and makes up 4% of our stock price estimate. Yelp generates most of the revenues in this segment from display ads. The unique visitor is the primary driver for this division, and during the quarter monthly unique visitors grew to 138 million. However, 50% of these unique visitors (~68 million monthly users) used mobile devices for accessing Yelp’s services. During the quarter, 40% of new reviews came from mobile devices. Considering the rampant growth in the usage of mobile devices, we expect the mobile platform to become a major revenue driver for Yelp’s brand ads division. The growing number of consumers searching for local businesses online constitutes Yelp’s existing market, and in addition to company’s global expansion plans, we believe adoption of Yelp’s mobile platform will drive this growth in unique visitors on the Yelp site. We are currently in the process of updating our Yelp model. At present we have a  $56.22 price estimate on Yelp, which is 25% below its current market price. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology      
    TWTR Logo
    Twitter's Earnings Were Strong But The Market Price Is Still Steep
  • by , 16 hours ago
  • tags: TWTR FB LNKD
  • Twitter ‘s (NYSE:TWTR) stock jumped significantly after the company announced its Q2 2014 results. It reported an uptick in its monthly active user additions and strong advertising revenue growth. Even though EBITDA margins are still thin, there was a significant year-over-year improvement. Overall, the results indicated growing financial strength which ultimately fueled market optimism. However, we continue to believe that Twitter’s stock is overpriced considering its limited features, its appeal to a niche base (as compared to Facebook’s worldwide reach) and the fact that there is still an oversupply of ad inventory. These factors will limit the extent to which Twitter can grow, and the growth rate is likely to come down notably in coming years. Our price estimate for Twitter stands at $32, implying a discount of about 30% to the market price.
    RHHBY Logo
    Roche's Sales Inch Up Slowly And Steadily
  • by , 16 hours ago
  • tags: RHHBY
  • Roche Holdings (OTC:RHHBY) recently released its Q2 2014 results and re-affirmed its full year outlook. There was no surprise as cancer drugs, especially the newly launched ones, continued to drive its growth. The HER2 franchise grew stronger and there are some promising drugs in the pipeline that can help offset the impact of biosimilar competition to Herceptin in Europe next year. We believe that compared to the other big pharmaceutical firms, Roche faces lower risk given its focus on cancer therapies, which as a disease area offers the promise of strong growth. The company has a strong oncology drug portfolio and and boasts an investigational immunotherapy (anti-pld1, or MPLD3280A) that has been awarded breakthrough status by FDA. Our current price estimate for Roche stands at $40, implying a premium of little less than 10% to the market price.
    VLKAY Logo
    Volkswagen Earnings Review: China Growth And High Luxury Demand Fuel Volume Rises In Q2
  • by , 16 hours ago
  • tags: VOLKSWAGEN-AG VLKAY GM F TM TTM TSLA DAI
  • Volkswagen AG (OTCMKTS:VLKAY) announced its Q2 and half-yearly results on July 31. The German automaker delivered 5.067 million vehicles in the first six months of the year, only 30,000 units shy of the vehicle deliveries reported by the global leader Toyota. Growth for Volkswagen came on the back of strong volume rises in China, and year-over-year unit sales improvement in Europe, as some of the key markets returned to positive growth. Vehicle sales were up 6.8% from 2013 levels to 5.207 million units. However, the company witnessed a 2.2% contraction in revenues in Q2, hurt by unfavorable currency translation, mainly in Russia, Brazil and Turkey. Owing to the weak economic conditions in South America, and due to the large-scale pre-buys of Euro 5 trucks in Europe in 2013, Volkswagen’s commercial vehicle deliveries, representing just over 6% of the overall deliveries, declined 4.8% through June. The company expects around 3% top-line growth in 2014, after revenues remained flat in the first half. Revenue growth might slowdown given the tough conditions in South America and slower sales in North America. Margins expanded 12.5% in the second quarter on the back of higher profits for the luxury brands Audi, Porsche and Bentley, despite a 32.5% fall in operating profits for the namesake passenger cars lineup. Going forward, Volkswagen’s profitability could rise with the increasing implementation of the Modular Transverse Toolkit (MQB) and Modular Production Toolkit (MPB), creating an extremely flexible vehicle architecture capable of bringing down manufacturing costs. We have a  $51.34 price estimate for Volkswagen AG, which is roughly 10% above the current market price. However, we are currently in the process of incorporating the latest quarterly results into our forecasts. See Our Complete Analysis For Volkswagen AG China Fuels Growth In Operating Profits For Volkswagen Volkswagen China & Affiliates are accounted using the equity method and witnessed 10.6% growth in operating profits to around $3.5 million through June. Volkswagen’s passenger vehicle sales in China rose by an impressive 17.5% to over 1.8 million units, owing to the high vehicle demand coupled with the group’s strong brand recognition in the country. In fact, Volkswagen, which leads China’s automotive industry with around 14% volume share, outpaced the overall 8.4% passenger-vehicle-volume-growth in the country through June. This means that the group grabbed further market share, and could continue to leverage its strong positioning in the country to drive growth in the coming future. China leads the global passenger car market, accounting for 28.6% of all passenger car registrations or sales last year, and is expected to form 30% of all global volumes by 2020.  Although China’s economic growth is expected to slowdown in comparison to the double-digit growth rates seen in 2010-2011, it is still the world’s fastest growing major economy and continues to attract large-scale investments in the automotive sector. The country’s auto market is projected to grow by around 8.3%, down from last year’s 13.9% volume rise. Going forward, Volkswagen, in partnership with the SAIC Motor Corporation and the First Automotive Works (FAW) Group, will invest a whopping 18.2 billion euros (nearly $25 billion) in China between 2014-2018, for the purpose of development of green technologies and resource-efficient facilities. Local production helps Volkswagen evade China’s 25% import tariffs, in addition to the value-added and consumption taxes, allowing the company to compete on a pricing front. As part of this expansion, FAW Volkswagen is investing around $2.7 billion to build new manufacturing plants in Qingdao and Tianjin. Vehicle demand in China might be slightly affected by the strict emission standards put in place to control pollution. However, in addition to augmenting production capacity to feed the rising vehicle demand in China, Volkswagen is also on a green-drive in the country, in line with the rise in demand for energy-efficient vehicles. The company will launch ten green vehicles in the country by 2018, including launches of the e-Up! and e-Golf this year. This means that Volkswagen is also well poised to make inroads in the electric vehicle market, which presently represents a negligible proportion of the overall market but is anticipated to rapidly rise. South America Slowdown Impacts Commercial Vehicles Amid weak economic conditions and weak currencies in South America, Volkswagen’s passenger and commercial vehicle volumes declined 20.2% and 32.6% respectively in the region in the first six months. In particular, the economic slowdown in Brazil and Argentina dragged down volumes, owing to the high vehicle prices and an unfavorable financing environment. Scania and MAN contributed roughly 5% and 8% respectively to net revenues for Volkswagen last year. MAN deliveries fell 11% over prior-year levels to nearly 58,000 units. Going forward, poor conditions in South America could continue to hinder growth in Volkswagen’s commercial vehicle volumes. Audi Volumes Boost Overall Growth For Volkswagen Volkswagen’s premium vehicle division Audi, which constitutes about 21% of the company’s valuation by our estimates, posted a strong 11.4% growth in worldwide volumes through June. The German brand is the second largest luxury automaker in the world behind compatriot BMW, and ahead of Mercedes. Audi not only bolstered growth in overall volumes for Volkswagen, but also improved profitability, owing to higher vehicle prices and greater profits on incremental sales. While operating margins for Audi stood at 40% in 2013, the figure for Volkswagen’s own line of passenger cars was 25.5%. With relatively higher growth in Audi volumes, as compared to the namesake passenger cars division, profitability for Volkswagen could further rise this year. The company expects margins to range between 5.5-6.5% in 2014. In addition, Audi is also expanding its production capacity in North America, in a bid to close-in on BMW and Mercedes in the region. U.S. volumes constituted nearly 10% of Audi’s net unit sales in the first six months of the year. Audi volumes rose by 13.6%, less than Lexus’ 17% growth, but more than the volume rises seen by both BMW and Mercedes. Audi plans to ramp-up production in North America by building its first manufacturing facility in the region in Mexico. The new plant at Puebla will open in mid-2016, and will be the exclusive producer of the next-generation Q5 SUV. For this purpose, Audi is investing around $1.3 billion in Mexico for constructing the facility and developing the new model. Year-to-date sales for the mid-size SUV Q5 rose 8.8% in the U.S. and could continue to rise owing to the high demand for luxury crossovers/SUVs in the country. Luxury SUV volumes rose 10.3% in the U.S. through June, constituting 13.3% of the country’s premium vehicle market. Audi will utilize the Mexico plant, which will have an initial production capacity of 170,000 units, to feed the luxury demand in North America, particularly in the U.S. In addition, local production will help evade the high import tariffs and transportation costs, and along with the cost benefits associated with manufacturing in a low-cost country, Audi could further expand its margins in the coming years. See More at Trefis |  View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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