Archive Page 2

Modern Warfare 2 has Continued Holiday Success (ATVI)

As the title says, Modern Warfare 2 continues to hold up through the holiday season. The article alludes to the fact that the success of MW2 is partially offset by the fatigue in the rhythm music sector, but the core logic behind the support of ATVI as a stock to buy still looks to be in place: well-recognized, well-produced games will continue to make money in this economy.

As I stated in my original ATVI writeup (Parts I, II, and III), I anticipate this will be a continuing trend well into 2010. Once we get firm numbers on MW2 sales in ATVI’s earnings, we might start to see the market come to the same conclusion.

So What Just Happened? (GOOG)

If you have some time to peruse a great summary of the new features that Android 2.1 and the Nexus One are bringing to the world, head on over to the Lifehacker summary found here.

It doesn’t discuss any of the implications of these moves, but it does go over some very neat features that we’ll start seeing immediately. Most notably…

  • Voice to text programming for all aspects of the phone
  • Continued great GPS
  • Absurd customizability

Couple this with the news that GOOG’s main smartphone competitors saw their stocks take an immediate tumble, and you can start to see that investors are recognizing at least part of the appeal of a Google-approved Android device.

Happy Nexus One day 🙂

More on the Nexus One Launch

CNN Money has a solid piece which seeks to explain reasons why GOOG might be getting involved in the hardware business. Block quote below:

It’s simple: Google is seizing an opportunity to speed up innovation. “No one is going to be able to innovate as quickly as Google can with all these fantastic engineering resources they have plus lots of cash in the bank,” says Forrester Research’s Charles Golvin. “They’re doing this to light the way—to say, ‘here is everything Android can do.”

If GOOG can hasten society’s adoption of the smartphone while providing world-class hardware to run the Android platform, it’s a win/win for them regardless of the bottom line implications of the Nexus One itself.

Apple to Buy Quattro Wireless (APPL, GOOG)

For those of you who think that mobile advertising is a niche market, read here to see how seriously Apple is taking the sector. This comes on the heels of GOOG’s purchase of AdMob for $750 million.

All I can offer in addition to what the article covered is that if GOOG and APPL are both competing for the same prize (mobile advertising), then something must be more exciting than Wall Street analysts are estimating in their 2010 outlooks.

New Idea: Google (GOOG) Part II

Market Sentiment

As I alluded to in Part I of the GOOG write-up, Google is a company that the market has responded very favorably towards. It has a historical P/E Ratio of 40 at the moment, with a forward looking P/E Ratio (using consensus analyst estimates found on ETRADE) of 24.44. What this means is that, unsurprisingly, the market sees GOOG as a high growth company with a lot of potential. However, when you look at analyst projections, you can’t help but notice a trend in their forward looking earnings estimates:

Q4 2009: 6.42

Q1 2010: 6.36

Q2 2010: 6.25

Q3 2010: 6.61

GOOG earnings projections are relatively static for the coming year. This is coming despite some legitimate new revenue sources that GOOG has been extremely optimistic about. One reason for the static nature of forward looking revenues can be found in an earlier post on the blog. Please refer here for the full text of our analysis, and here for the link demonstrating analyst skepticism of GOOG’s ability to penetrate the hardware market. Essentially, analysts have examined the Nexus One and its potential impact and found themselves unimpressed so far.

But all is not lost when it comes to alternative revenue streams! Taken from their Q3  2009 earnings transcript is the following quote from Google CFO Patrick Pichette (full transcript of the earnings call can be found here) in regards to whether or not mobile search might cannibalize their core desktop/laptop search:

“I think that the most exciting thing about mobile is that even though there may be on the margin some stuff that is kind of overlap, it’s essentially a new space. And because it’s a new space and there has been a lot of research done on this, and there was one, for example, there was one research that I read not long ago where by the end of 2011 or the end of 2012 that the research talks about smart phones surpassing the global PC in sales.

So you end up in a world where like it’s an “and” world rather than an “or” world where you live very differently with your mobile device than the PC.”

An additional useful comment came from Jonathan Rosenberg, Google’s Senior VP of Product Management regarding the difference in mobile advertising versus desktop/laptop advertising:

“I think the other thing we’re seeing is that display seems to work very well on some of these devices and I think that’s because of the level of engagement that a user has when they’re staring at a cell phone and actually seeing a display ad. They tend to notice it more, and unlike when they’re on a desk top machine, they’re less like to click away from it. So there’s much more of a dynamic of forced engagement with display. So I think we’re quite optimistic there about AdSense on the high-end mobile devices.”

Now perhaps I am jumping the gun on Part III of the analysis here, but we can start to see some of the divergence between GOOG executives and analysts. Google is clearly seeing fantastic growth opportunities in the mobile sector in fiscal year 2010, in addition to the core growth they have demonstrated every quarter as they have mastered internet advertising. Now, as stated above, the market is clearly seeing fantastic growth opportunities with their forward looking P/E Ratio over 20, but this profit growth seems tied to GOOG’s ability to continue to perform well with search advertising. In Part III of the analysis, I’ll examine why it is my fundamental belief that GOOG is poised to not only continue the growth they’ve demonstrated with Adsense, but find new markets for Adsense that have the ability to increase GOOG’s profit drastically.

Analysts Reserved Heading into Nexus One Launch (GOOG)

As expected, analysts are remaining cautious regarding GOOG even as the tech world is abuzz regarding the potential of Google’s new phone, the Nexus One. Key quote from the blurb on GOOG:

“Despite the excitement, we wonder how more aggressive pursuit of the hardware side of the mobile market will affect GOOG’s business model,” wrote Kessler.

Analysts are correct to remain hesitant – GOOG is a company with practically no hardware experience getting involved in the smartphone industry well after Apple has achieved total dominance. Additionally, the Nexus One is looking less like THE SMARTPHONE and more like a smartphone. I remain very optimistic about GOOG and their plans for telephony. I think all signs point to an eventual transition to the internet as phone provider, which is a domain where GOOG is holding all the cards. Could the Nexus One launch be a disappointment? Of course. But this is a plan that really only has upside for GOOG, and for every percentage increase in market share Android gains versus the iPhone, GOOG will find additional revenue.

Google Chrome Passes Safari in Web Browser Market Share

Article can be found here. It isn’t surprising that Google Chrome passed Safari, but it is surprising how quickly Google Chrome passed Safari. Block quote below for your convenience:

“It doesn’t look like a lot when you’re talking about a fraction of a percent, but when you consider thatlast month Chrome only had 3.93% you can see just how quickly it’s being adopted. Last month was actually Chrome‘s biggest leap since its launch, which probably has something to do with Google‘s current large-scale advertising campaign. PC World speculates that the large surge could also be due to the Mac and Linux Chrome Beta releases last month.”

Expect market share to grow for GOOG, with a big surge coming once the Google Netbook is released in Q4 2010. Google Chrome is streamlined to work with Google Apps, so it stands to reason that increase in market share can/will result in an absolute return in their bottom line. The market sentiment portion of the GOOG writeup will be available later today.