The past several weeks has seen a continuing convergence between hardware and software and a ratcheting up of the competitive fires between tech giants Amazon (Nasdaq: AMZN), Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT) with the unveiling of new devices from both Google and Microsoft.
In actuality, the latest product unveilings indicate that companies like Google and Microsoft seem to be adopting Apple's corporate strategy. That approach involves integrated hardware and content. And it is a successful one...Apple dominates the tablet market with a two-thirds market share.
Google launched two new products – a new 7-inch tablet computer and a living-room media streaming device (Nexus Q) which runs on the latest version of its Android software, Jelly Bean. This version of Android, by the way, will offer voice search capabilities similar to Apple's Siri virtual assistant.
The Nexus 7 tablet is priced at only $199, undercutting the $399 price of Apple's entry-level iPad by a good margin. And on the content side, where Google trails Apple and Amazon, the company announced new TV and movie deals with content providers such as Disney and NBCUniversal and publishers like Hearst. Both devices also integrate the company's social network, Google+ while the Google Now feature offers live sports and traffic information based on users location.
The week prior to the launch of Google's tablet Microsoft showed off its entry into the tablet market, the Surface, which has a 10.6 inch screen. It also has a stand, two cameras and a built-in touch keyboard. The main difference between the Surface and other tablet offerings is that it will offer users an experience more akin to a laptop PC.
Microsoft will offer two versions of Surface. The more expensive version will run on Windows 8 (due out in the fall) and uses a new Intel Core processor. A lower priced version features Windows RT and runs on an ARM processor that is found in most tablets. The company has yet to reveal at what price the two versions of Surface will sell for.
Of course, Amazon is not standing idly by. The company also offers a $199 tablet based on the Android operating system. And it recently announced that, for the first time ever, it is recruiting app developers as the company prepares to roll out its smartphone and tablet (including the Kindle Fire) platforms later this year in Europe.
So can any of the new devices challenge Apple's supremacy in tablets? Of course, they can. The tech world is constantly in a state of flux. But there is one key to doing that.....
That key has to be the thousands of independent software applications developers. Without content and apps, rivals to Apple (the iPad offers more than 225,000 apps) have little chance to compete. Can Microsoft and others entice app developers into writing apps to be downloaded to their devices? Google has a decent job so far with thousands of apps available and with 20 billion downloads. Now it remains to be seen if Microsoft can get developers to come up with apps for the Surface.
This article was originally written for the Motley Fool Blog Network. make sure to read my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.
Tuesday, July 10, 2012
Thursday, July 5, 2012
Lower Oil Prices and the Global Economy
Stock market investors are betting on central banks like the Federal Reserve sparking the global economy back to robust health through monetary policy. However, with interest rates already at zero for all practical purposes, the main weapon remaining in the Fed's arsenal is money printing through quantitative easing and other measures. And the effects of that medicine seems be less and less with every dose given.
But investors should not despair...right now, there is another force at work stimulating economic growth around the globe. What is it? Lower oil prices!
Since March alone, oil prices have declined by more than 30 percent, leaving consumers more spending power. The global benchmark for oil, Brent crude, has tumbled to its lowest level in over 18 months and is now trading below $90 a barrel. Quite a drop from its peak earlier this year at $128.40 per barrel. And that is thanks largely to Saudi Arabia boosting production earlier this year to a 30-year high in effort to help the global economy.
The drop in crude oil prices is a definite negative for investors in the oil patch though. Take a look at three of the large international oil companies – ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX) and BP PLC ADR (NYSE: BP). The stock prices of both Exxon and Chevron have fallen by about 5 percent while BP has tumbled by a double-digit percentage so far in 2012. And their share price is unlikely to rebound strongly in the near future.
The reason? Lower oil and gas prices means lower earnings for these companies. According to FactSet, ExxonMobil is expected to earn $8.09 a share in 2012 versus $8.37 in 2011, Chevron is forecast to earn $12.98 per share in 2012 against $13.28 in 2011, and BP is predicted to earn $6.26 per share in 2012 compared to $6.89 in 2011.
So oil companies look to be losers in 2012 thanks to low oil prices. But there will be winners too. These are the big oil consuming industries such as airline and trucking companies. There is some evidence already that, for example, airlines are benefiting. The airline industry trade group IATA (International Air Transport Association) has hinted that the drop in jet fuel costs has already saved airlines nearly $20 billion (out of a forecast annual $207 billion price tag) in their costs. More evidence of lower oil prices being a boost to earnings in these sectors may become apparent when these firms start reporting results from the April-June quarter in the weeks ahead.
The interesting thing occurring right now in the oil market, which is both good but scary, is the lack of hedging by large oil users like airlines despite the 30 percent drop in oil prices. One would think major users would want to lock in these lower prices. But they are not at the moment.
The chief financial officer at Southwest Airlines (NYSE: LUV) said earlier this year that the company's hedge protection for the second quarter of 2012 was “minimal”. And according to the Financial Times, an executive vice-president at FedEx. Michael Glenn, stated last week that “lower fuel prices will help [his company]”.
But the scary part is that this lack of hedging is eerily reminiscent of 2008 when these companies did not hedge their fuel costs in anticipation of even lower oil prices thanks to growing economic weakness around the globe. They are apparently betting on further economic weakness coming out of Europe and China, the main engine of oil demand.
But the oil price weakness scenario could change rather quickly. Current oil prices are now below what could be called the comfort threshold for most OPEC countries including Saudi Arabia. These countries' budgets have ballooned in the past few years as they have spent on improving their citizens' daily lives because of the fear of widespread unrest as the Arab Spring moves from country to country in that part of the world. It is believed that Saudi Arabia, for example, now needs Brent crude oil to be at around $90 a barrel in order to pay for all the domestic programs they have initiated.
So investors and hedgers should not be surprised if it soon throttles back on oil production. Hopefully, airlines and other big oil consumers will have hedged their exposure to higher prices by then.
This article was originally written for the Motley Fool Blog Network. make sure read all of my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.
But investors should not despair...right now, there is another force at work stimulating economic growth around the globe. What is it? Lower oil prices!
Since March alone, oil prices have declined by more than 30 percent, leaving consumers more spending power. The global benchmark for oil, Brent crude, has tumbled to its lowest level in over 18 months and is now trading below $90 a barrel. Quite a drop from its peak earlier this year at $128.40 per barrel. And that is thanks largely to Saudi Arabia boosting production earlier this year to a 30-year high in effort to help the global economy.
The drop in crude oil prices is a definite negative for investors in the oil patch though. Take a look at three of the large international oil companies – ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX) and BP PLC ADR (NYSE: BP). The stock prices of both Exxon and Chevron have fallen by about 5 percent while BP has tumbled by a double-digit percentage so far in 2012. And their share price is unlikely to rebound strongly in the near future.
The reason? Lower oil and gas prices means lower earnings for these companies. According to FactSet, ExxonMobil is expected to earn $8.09 a share in 2012 versus $8.37 in 2011, Chevron is forecast to earn $12.98 per share in 2012 against $13.28 in 2011, and BP is predicted to earn $6.26 per share in 2012 compared to $6.89 in 2011.
So oil companies look to be losers in 2012 thanks to low oil prices. But there will be winners too. These are the big oil consuming industries such as airline and trucking companies. There is some evidence already that, for example, airlines are benefiting. The airline industry trade group IATA (International Air Transport Association) has hinted that the drop in jet fuel costs has already saved airlines nearly $20 billion (out of a forecast annual $207 billion price tag) in their costs. More evidence of lower oil prices being a boost to earnings in these sectors may become apparent when these firms start reporting results from the April-June quarter in the weeks ahead.
The interesting thing occurring right now in the oil market, which is both good but scary, is the lack of hedging by large oil users like airlines despite the 30 percent drop in oil prices. One would think major users would want to lock in these lower prices. But they are not at the moment.
The chief financial officer at Southwest Airlines (NYSE: LUV) said earlier this year that the company's hedge protection for the second quarter of 2012 was “minimal”. And according to the Financial Times, an executive vice-president at FedEx. Michael Glenn, stated last week that “lower fuel prices will help [his company]”.
But the scary part is that this lack of hedging is eerily reminiscent of 2008 when these companies did not hedge their fuel costs in anticipation of even lower oil prices thanks to growing economic weakness around the globe. They are apparently betting on further economic weakness coming out of Europe and China, the main engine of oil demand.
But the oil price weakness scenario could change rather quickly. Current oil prices are now below what could be called the comfort threshold for most OPEC countries including Saudi Arabia. These countries' budgets have ballooned in the past few years as they have spent on improving their citizens' daily lives because of the fear of widespread unrest as the Arab Spring moves from country to country in that part of the world. It is believed that Saudi Arabia, for example, now needs Brent crude oil to be at around $90 a barrel in order to pay for all the domestic programs they have initiated.
So investors and hedgers should not be surprised if it soon throttles back on oil production. Hopefully, airlines and other big oil consumers will have hedged their exposure to higher prices by then.
This article was originally written for the Motley Fool Blog Network. make sure read all of my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.
Monday, July 2, 2012
Facebook's Future Lies in Mobile
Traders buying Facebook (Nasdaq: FB) looking for a quick pop have certainly been disappointed. But what about longer-term investors? Is Facebook a company worth owning? The answer to that may lie in whether the company is able to come up with a mobile strategy.
On the surface, Facebook looks like a web powerhouse, with hundreds of thousands of apps and sites building on its social network site. But in the mobile world, it looks like just another applications developer. And one that, like others, is dependent on platforms owned by Apple or Google for distribution. Facebook management has recognized this and has made some moves including a series of acquisitions and a new app store as part of its attempt to adapt to the mobile device world we live in.
Data from research firm Gartner reinforces the idea that Facebook had better adapt and quickly if it is to be a profitable company. It estimates that revenue from non-mobile social media will climb to $10.2 billion in 2015 from the $1.3 billion level in 2010. But mobile social media revenue is forecast to rise to $29.1 billion in 2015 from $7.3 billion in 2010.
Clearly mobile social media is a sector in which Facebook has to become a major player. Facebook itself admitted before the IPO that growth in advertising sales isn't keeping pace with the gains in the number of users, many of which are logging on via mobile devices. Facebook sent more than 160 million visitors to mobile apps in April 2012 alone! This is a colossal opportunity for the company and it has to simply find a way to monetize those visitors.
One way Facebook can try to catch up fast in the mobile world is through acquisitions of companies rooted in mobile technology. It has already acquired mobile tech companies Tagtile and Glancee, not to mention Facebook's $1 billion offer for Instagram.
But of course, Facebook has to acquire the 'right' type of mobile technology companies from the myriad of choices out there. Many of these companies use the old-fashioned method of throwing a bunch of stuff against the wall and seeing what sticks. Mobile gaming companies, like Zynga (Nasdaq: ZNGA) and Glu Mobile (Nasdaq: GLUU) use that strategy. Zynga, with more than 290 million active users, spent over $56 million in the first quarter acquiring new users.
Glu Mobile is a leading global developer and publisher of “freemium” games for smartphones and tablets. Some of its most popular games are available now at the new Facebook App Center. It is well positioned in a market forecast to grow to $16 billion by 2015. But it still follows the strategy of building and hoping. Also think of the creator of the highly successful Angry Birds game, Rovio Entertainment. It was another 'build it and they will come' company that had a lot of losers before hitting upon Angry Birds.
It should be mentioned though that Zynga to date has been successful, providing Facebook with many of its most popular games including Farmville and CityVille. In fact, Zynga supplied Facebook with 12 percent of its revenues in 2011, its largest source of income.
Perhaps Facebook could look at mobile technology companies that are approaching the sector from a different angle using predictive analytics. That is finding a particular target audience, such as fans of a particular sports team, and building apps specifically for them.
One company doing that is a small company called Bitzio (BTZO.OB) which has already surpassed the 40 million app download mark. Its entire strategy is centered around licensing media rights of sports and entertainment properties with millions of existing fans and then creating apps and web experiences for these fans. To execute its strategy, Bitzio recently acquired an award-winning animation studio and a mobile games developer. A caveat here...this is a small company, trading below $1 a share, so investors are urged to do their due diligence.
Getting back to Facebook, making Facebook-friendly mobile apps could become even easier if the company decides to develop its own operating system as Apple and Google have done. Rumors of a “Facebook Phone” have been circulating for two years with even more recent rumors of Facebook buying Research in Motion. But obviously such undertakings would be risky for Facebook, especially considering its loss-making mobile business.
Or perhaps Facebook could look at payments as a solution to its mobile revenue problem. Some app developers have already told Facebook they would like to use its Credits virtual currency on mobile also. But Apple's App Store expressly forbids developers from using any other payment system than its own. And Google is not likely to be happy if Facebook moves to oust its payment system from Android applications.
So Facebook is left with a dilemma as to how to prosper in an increasingly mobile world. It's a problem the management needs to solve if the company is to survive and grow profitably in the years ahead.
This aericle was originally written for the Motley Fool Blog Network. Check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.
On the surface, Facebook looks like a web powerhouse, with hundreds of thousands of apps and sites building on its social network site. But in the mobile world, it looks like just another applications developer. And one that, like others, is dependent on platforms owned by Apple or Google for distribution. Facebook management has recognized this and has made some moves including a series of acquisitions and a new app store as part of its attempt to adapt to the mobile device world we live in.
Data from research firm Gartner reinforces the idea that Facebook had better adapt and quickly if it is to be a profitable company. It estimates that revenue from non-mobile social media will climb to $10.2 billion in 2015 from the $1.3 billion level in 2010. But mobile social media revenue is forecast to rise to $29.1 billion in 2015 from $7.3 billion in 2010.
Clearly mobile social media is a sector in which Facebook has to become a major player. Facebook itself admitted before the IPO that growth in advertising sales isn't keeping pace with the gains in the number of users, many of which are logging on via mobile devices. Facebook sent more than 160 million visitors to mobile apps in April 2012 alone! This is a colossal opportunity for the company and it has to simply find a way to monetize those visitors.
One way Facebook can try to catch up fast in the mobile world is through acquisitions of companies rooted in mobile technology. It has already acquired mobile tech companies Tagtile and Glancee, not to mention Facebook's $1 billion offer for Instagram.
But of course, Facebook has to acquire the 'right' type of mobile technology companies from the myriad of choices out there. Many of these companies use the old-fashioned method of throwing a bunch of stuff against the wall and seeing what sticks. Mobile gaming companies, like Zynga (Nasdaq: ZNGA) and Glu Mobile (Nasdaq: GLUU) use that strategy. Zynga, with more than 290 million active users, spent over $56 million in the first quarter acquiring new users.
Glu Mobile is a leading global developer and publisher of “freemium” games for smartphones and tablets. Some of its most popular games are available now at the new Facebook App Center. It is well positioned in a market forecast to grow to $16 billion by 2015. But it still follows the strategy of building and hoping. Also think of the creator of the highly successful Angry Birds game, Rovio Entertainment. It was another 'build it and they will come' company that had a lot of losers before hitting upon Angry Birds.
It should be mentioned though that Zynga to date has been successful, providing Facebook with many of its most popular games including Farmville and CityVille. In fact, Zynga supplied Facebook with 12 percent of its revenues in 2011, its largest source of income.
Perhaps Facebook could look at mobile technology companies that are approaching the sector from a different angle using predictive analytics. That is finding a particular target audience, such as fans of a particular sports team, and building apps specifically for them.
One company doing that is a small company called Bitzio (BTZO.OB) which has already surpassed the 40 million app download mark. Its entire strategy is centered around licensing media rights of sports and entertainment properties with millions of existing fans and then creating apps and web experiences for these fans. To execute its strategy, Bitzio recently acquired an award-winning animation studio and a mobile games developer. A caveat here...this is a small company, trading below $1 a share, so investors are urged to do their due diligence.
Getting back to Facebook, making Facebook-friendly mobile apps could become even easier if the company decides to develop its own operating system as Apple and Google have done. Rumors of a “Facebook Phone” have been circulating for two years with even more recent rumors of Facebook buying Research in Motion. But obviously such undertakings would be risky for Facebook, especially considering its loss-making mobile business.
Or perhaps Facebook could look at payments as a solution to its mobile revenue problem. Some app developers have already told Facebook they would like to use its Credits virtual currency on mobile also. But Apple's App Store expressly forbids developers from using any other payment system than its own. And Google is not likely to be happy if Facebook moves to oust its payment system from Android applications.
So Facebook is left with a dilemma as to how to prosper in an increasingly mobile world. It's a problem the management needs to solve if the company is to survive and grow profitably in the years ahead.
This aericle was originally written for the Motley Fool Blog Network. Check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.
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