02/12/14 - 11:22 AM EST
A recurrent theme of Reality Check is keeping an eye on seemingly high-growth acquisitive companies whose growth, in reality, appears to be slowing.Which is why, when apartment-management software company RealPage reports fourth-quarter financial results, perhaps as soon as Thursday, the quality of the numbers will be front and center.For good reason: Quality, or lack thereof, appears to be getting messy.To understand why, you first need to understand what RealPage does. Its cloud software helps rental housing managers, mostly multi-family, determine pricing so they can maximize revenue -- not much different than the airlines price seats. Or as the company says in its 10-K:"Our solutions enable property owners and managers to increase revenues and reduce operating costs through higher occupancy, improved pricing methodologies, new sources of revenue from ancillary services, improved collections and more integrated and centralized processes."READ FULL POST
02/11/14 - 10:58 AM EST
I have no idea what the short interest was in Ralcorp when it was bought last year by ConAgra, but I'm beginning to think it might have been higher than average. When ConAgra bought Ralcorp a year ago, it was a big deal. Ralcorp was the largest U.S. maker of private label foods and, on the deal, its stock jumped 26%. It was also one of those activist plays, with hedge fund Corvex's Keith Meister (the guy from ADT) on the board -- pushing for the company to sell itself. Fast-forward to today: ConAgra doesn't mince words in its earnings release, with a not-so-subtle confession that Ralcorp is giving it indigestion. It starts with the first words of the headline: "ConAgra Foods Lowers Near-Term EPS Outlook" CEO Gary Rodkin then says, "We are intensely focused on improving our business. It is taking longer than expected to stabilize the performance of the Private Brands segment, which has been below plan because of pricing, sales force coverage..."READ FULL POST
02/10/14 - 09:22 AM EST
When we launch the Reality Check newsletter soon, it will have a Watch List of stocks I pay attention to. Each will have a flag -- red, yellow and, yes, if I feel so inclined, green. Green Mountain was on the mock-up list, but I have to take it off for a simple reason: After its latest 1-day jaw-dropping run, which makes me look like the ultimate chump, I believe it is currently uninvestable. It could as well go to $150 -- at least one analyst's target -- as it could go to $50. It is now a story stock, which means it will be traded up, down and sideways from here to there, wherever there is. Trouble is, as I argue with myself, the risk is as high and perhaps higher than it has ever been. Even with Coca-Cola taking a 10% stake, every key metric for Green Mountain is going in the wrong direction. Reality: Recent quarters for the existing company have been awful. For all but traders and speculators, as is often with cult stocks, the risk of owning Green Mountain is as high as the risk of not owning..READ FULL POST
02/07/14 - 10:29 AM EST
After this week's wildly disappointing user-growth stats for Twitter, it appears the company hasn't figured out or recognized its most obvious challenge: Convincing people they never have to tweet.I first raised this issue in a piece here in my blog last October, and again last night in a piece on LinkedIn headlined, "What Ails Twitter." In the LinkedIn piece, I make it very clear: The one ad campaign Twitter should run should be: "You never have to Tweet. Not once. Not never." I'm convinced most people who have not yet joined Twitter, after all the hoopla, are either intimidated by it (believe it or not: seems too techie, and a lot of people are technophobes) or wired in a way that they couldn't care less about access to the immediacy of information. These are serious, but not necessarily insurmountable, hurdles. When I mentioned Twitter to people who aren't on it, the reaction often is along the lines of two things: "I don't want to tweet" or "I have no interest." Reality: Unlike those of us who live and even thrive in a real-time world, there are a lot (and I do mean lot) of people who don't....READ FULL POST
02/06/14 - 11:10 AM EST
This is a follow-up to my earlier piece on Green Mountain GMCR: Big discussion this morning on CNBC about whether a Keurig machine that dispenses soda is a game changer.Well, we already know how that will likely play out: Just look at Sodastream (SODA), which so far has cornered that market. As the first mover, it had a burst of growth, took households by storm and has since seen its growth slide. Notably, last quarter flavor growth virtually stalled, as soda sales in general have been declining -- a big issue for the likes of Coke (KO), which is scrambling to jump-start growth.As Coke CEO Muhtar Kent said in announcing the Green Mountain deal, Coke is looking for "creative partnerships" and Green Mountain certainly falls into that category.READ FULL POST
02/06/14 - 07:28 AM EST
News that Coca-Cola is taking a $1.25 billion, 10% stake in Green Mountain Coffee Roasters came in the nick of time. While details remains sketchy, almost as if the deal was signed so it could be announced as a cover for earnings, this much is clear: Had this deal not been announced, rather than fly after the close, Green Mountain's stock would've likely been pummeled. Its core business is in sharp decline. Sales growth for the quarter was a mere 4%, down from 10% the quarter before and nearly 16% a year earlier. Every key metric is just as bad: K-cup sales growth skidded to 8% from 21% a year earlier; brewer sales growth was a negative 1% versus a positive 14%. And that's after last year's stock-boosting announcement that it had extended a relationship with Starbucks. But, wait, there's more: Accounts receivable were up 21%, or more than 5-times sales -- almost always a red flag. Free cash flow tumbled 42%. Had it not been for lower coffee costs, which have since evaporated, margins would've looked weak, too....READ FULL POST
02/05/14 - 09:26 AM EST
Say what you will about Amazon.com the stock, but you can't take this away from the online retailer: At least it tells you, right up front -- in the third paragraph of its earnings releases -- what its true share count is. From its most recent earnings report, Amazon says: 'Common shares outstanding plus shares underlying stock-based awards totaled 475 million on September 30, 2013, compared with 469 million one year ago.' The key phrase is 'plus shares underlying stock-based awards.' Spelling it out, like Amazon does, gives analysts and investors an easy way to calculate the company's true market value and (if the company is making money) fully diluted earnings (or loss) per share. The difference between diluted and the 'basic' share count, as it's called, is often not that great. Until, that is, you start looking at some of the newer tech companies, like Yelp, Pandora, Twitter, Zillow and LinkedIn. The difference is beyond startling.READ FULL POST
02/03/14 - 08:46 AM EST
Last week I wrote a piece headlined, "Why ADT is Appalling." What's more appalling is the company's response, which was inserted at the end of the story after it was published -- almost immediately after I heard from the company.Here's the question I asked, via email:"I'm working on a piece about how ADT's stock has fallen in the wake of its earnings miss -- and its comments that it has "implemented actions" to "regain subscriber traction.""But this is the same company spent money buying back billions of dollars in stock at prices well above its current price in a share repurchase program that was instituted after Corvex disclosed a 5% stake."Corvex then went on the board -- and then got bought out at a high price just before this bad news hit."The obvious question: Why was Corvex given special treatment, and as a board member what did they know prior to selling?"READ FULL POST
01/30/14 - 04:27 PM EST
(This story has been updated from 1:09 PM EST with ADT's response to my media inquiry) Earnings disappointments come a dime-a-dozen, but ADT's ADT is a standout. The company said its customer growth in its fiscal first quarter, ended Dec. 27, didn't meet its expectations and that it has "implemented actions, including improvements in our dealer channel and lead generation process, to regain subscriber traction in the future."Here's the problem: Over the past year, rather than investing more cash in its business than it otherwise might have, ADT has spent billions buying back shares at prices well above where the stock now trades -- with the distortion even greater in the wake of today's earnings miss.That highlights a problem with buybacks, in general: They're often designed to give a short-term pop in the stock to assuage antsy investors. They're also often the tool of first resort when activists land on a company's doorstep, which was the case with ADT. And, as is the case with ADT, the result can often be short-term gain for long-term pain.READ FULL POST
01/30/14 - 08:56 AM EST
The post-close plunge in Neustar's shares is the result of a bidding process gone awry. As I pointed out in my October piece headlined, 'Why Neustar Could Fall,' the company is in the process of a bidding battle for the database that makes it possible for you take your phone number with you if you move or change carriers. For the first time since Neustar started managing the database in 1997, the portability contract, as it's called, is up for grabs. Originally, a decision was expected last September. It was then, without explanation, pushed off until around Jan. 20. Then, as I mentioned in a piece last week, rival in the bidding process, Telcordia Telecommunications, cried foul....READ FULL POST
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