NFLX Rises On AMZN Takeover Speculation
Netflix (NFLX) shares are up 6.6% today on speculation that Amazon (AMZN) could buy the movie rental service.
Bloomberg
: “There’s heavy call buying and the stock is up on renewed takeover talk, with Amazon being mentioned specifically,” said Fred Ruffy, the senior options strategist at WhatsTrading.com, a New York-based provider of options market analysis. “It’s pretty typical of speculative call buying.”
This isn’t as strange a deal as it sounds: While Amazon and Netflix both operate in the DVD and digital movie businesses, their pricing models don’t really overlap. Amazon sells DVDs and offers digital movie rentals and purchases on an a la carte basis, while Netflix sells DVD and digital rental subscriptions.
Netflix has also been more successful than Amazon getting its digital movies distributed on more consumer electronics devices, though it’s still too early to call a winner there.
Netflix shares peaked around $50 in April and have since dropped about 20%.
CIT Finds A Open Man Hole Cover After Being Kicked Down the Stairs
NEW YORK (Reuters) – CIT Group Inc stock and bond prices tumbled Monday as the company sought to bolster liquidity and U.S. Treasury Secretary Tim Geithner said he was keeping close watch on the lender to small and mid-sized businesses.
CIT said it was talking to regulators about how to boost its finances if it fails to win access to the government’s Temporary Liquidity Guarantee Program.
The delay in getting approval to enter the federal program has driven New York-based CIT into a liquidity crunch. The two-year financial crisis has restricted CIT’s access to capital markets, the company’s main source of financing.
CIT, which became a bank holding company last year in order to qualify for $2.33 billion in government bailout funds, has lost close to $3.3 billion since the end of 2007 and says it faces a $10 billion funding gap in the year to March 31, 2010.
CIT shares tumbled as much as 29 percent to a low of $1.08 in morning trade, and its 5 percent notes due in 2014 fell to 48 cents on the dollar from 57 cents on Friday. Analysts warned that the company could face a rush from borrowers to draw down on credit lines.
“The likelihood of borrowers drawing down on their lines has definitely increased,” said David Chiaverini, analyst with BMO Capital Markets in New York…..
Digital Sky Ups it Value on Facebook to $14.77 per share
SAN FRANCISCO (Reuters) – Russia’s Digital Sky Technologies said it will pay $14.77 a share for Facebook common stock, boosting its stake to as much as 3.5 percent and valuing the world’s largest online social network at about $6.5 billion.
While that is below the $10 billion valuation set by Digital Sky’s May investment in Facebook, which was for preferred shares, investors have been valuing the social network’s common stock at less than $5 billion in secondary markets in recent weeks.
Digital Sky, a Russian investment firm, bought $200 million worth of preferred shares in Facebook in May and said it would buy another $100 million worth of common shares from Facebook employees and ex-employees.
A source familiar with the matter told Reuters that Digital Sky will pay $14.77 per common share. A representative for Digital Sky confirmed the terms, and said the tender offer begins on Monday and runs through August…..
By Vincent Del Giudice
July 13 (Bloomberg) — The U.S. budget deficit topped $1 trillion for the first nine months of the fiscal year and broke a monthly record for June as the recession subtracted from revenue and the government spent to rejuvenate the economy.
The shortfall for the fiscal year that began Oct. 1 totaled a record $1.1 trillion, the Treasury said in Washington. The excess of spending over revenue for June was $94.3 billion, the first deficit for that month since 1991, according to data compiled by Bloomberg.
Individual and corporate tax receipts are sliding even as the worst recession in five decades shows signs of easing because the jobless rate continues to rise — reaching a 26-year high in June — and companies have yet to see a sustained increase in demand. The shortfall is also widening as the government ramps up spending from the $787 billion stimulus program President Barack Obama signed into law in February.
“This is a difficult pill to have to swallow,” said Richard Yamarone, director of economic research at Argus Research Corp. in New York. “The economy and banking system need these funds to recover, yet it will ultimately hit Americans’ wallets hard. It’s a necessary evil.”
Economists surveyed by Bloomberg News forecast a June deficit of $97 billion, according to the median of 30 estimates. Projections ranged from deficits of $109.3 billion to $70 billion.
Spending, Revenue….
CIT Warns Of Dire Risk Upon Its Default
By Pierre Paulden and Caroline Salas
July 13 (Bloomberg) — CIT Group Inc., the century-old lender that hasn’t been able to persuade the government to back its debt sales, says its demise would put 760 manufacturing clients at risk of failure and “precipitate a crisis” for as many as 300,000 retailers.
A collapse would ripple across the “small and medium-sized businesses who rely on CIT to operate — to pay their vendors, ship goods to their customers and make their payroll,” the New York-based lender said in internal documents obtained by Bloomberg News that make the case for its importance to the U.S. economy. CIT spokesman Curt Ritter declined to comment on the documents.
CIT executives spoke with regulators during the past two days, according to a person familiar with the talks, after its bonds and shares tumbled on concern that the Federal Deposit Insurance Corp. won’t allow the lender into its bond-guarantee program created last year to unfreeze debt markets. CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings.
“A CIT default would create liquidity issues for the corporate sector,” Ed Grebeck, chief executive officer of debt consulting firm Tempus Advisors in Stamford, Connecticut. “If CIT isn’t doing trade finance and lending, its customers will look to other banks for replacement and from what I’ve seen, they aren’t willing to step up.”
Law Firm Hired…
WTO Chief Warns Financial Crisis Is Not Over Yet
GENEVA (Reuters) – The global economic downturn is far from over, and few countries have dismantled the dangerous protectionist barriers they imposed in response to it, World Trade Organization Director-General Pascal Lamy said on Monday.
In remarks to the WTO’s 153 members, Lamy said that import penalties and other border restrictions are closing off markets and causing more difficulty in a time of depressed demand.
“There is no indication yet of governments more generally unwinding or removing trade-restricting or distorting measures that they imposed early on in the crisis,” he said.
While saying there was no “outbreak of high-intensity protectionism” to date, Lamy raised the possibility of an amplification of trade disputes, retaliatory restrictions, and sanctions if unfair barriers are kept in place.
The WTO is analyzing economic stimulus measures to prop up banks, insurers, carmakers and other key sectors in developed markets, where the credit crisis began.
So far, Lamy said, it has not been possible to tell whether the subsidies and bailouts have violated international law by crowding out competition.
“This continues to be a particularly challenging part of the exercise because of the difficulties of collecting hard data in these areas,” he said of WTO efforts to assess the stimulus moves. “Without that data, it is not possible to asses the impact they are having on trade flows.”…
NEW YORK (Reuters) – Microsoft Corp (MSFT.O) is pitching to five of the world’s biggest advertising companies a deal to buy Razorfish, its digital ad agency, The Wall Street Journal reported on Sunday, citing executives familiar with the situation.
Microsoft’s pitch also includes a proposal to use the software company’s advertising technologies and potentially buy hundreds of millions of dollars of ad space across its Web properties, the Journal reported on its website.
Omnicom Group (OMC.N), WPP (WPP.L), Publicis (PUBP.PA) are among the companies Microsoft has contacted, and which have expressed interest in Razorfish and are considering a more extensive commercial relationship with Microsoft, the paper reported, quoting unidentified sources.
Microsoft, which has hired investment bank Morgan Stanley (MS.N) to shop the agency, has also been in touch with Interpublic Group (IPG.N) and Dentsu (4324.T), according to the Journal.
A Microsoft spokesman declined to comment on the Journal report, saying the company does not comment on rumors. WPP, Omnicom, Publicis, Interpublic and Dentsu did not immediately return phone calls or e-mails seeking comment on the Journal report….
Q2 Earnings Outlook FGrom The Pragmatic Capitalist
Earnings season is about the pick-up momentum and will certainly dominate the market direction over the coming 6 weeks. Preliminary results have been much better than expected. Analysts have backloaded their 2009 earnings estimates due to their expectations for a second half recovery. This pits us at an odd juncture in the market. The current quarter’s estimates appear to be relatively low, but the second half estimates appear a bit optimistic. Analysts currently expect a 14% decline in EPS versus Q2 of 2008. Third quarter is expected to decline 22% and full year results are expected to be down 14%. Full year expectations are for $59 in EPS while 2010 estimates are calling for $75. Both appear a bit optimistic. Thus far, there have been 6 positive surprises for every negative in Q2 earnings. Although there haven’t been many reports this quarter this likely bodes well for more of what we saw last quarter when the overwhelming majority of companies beat expectations.
My proprietary expectation ratio continues to show near-term deterioration. The data of late has been relatively light, but the change in trend is a certain sign that analysts are getting more aggressive with their earnings expectations. It’s important to note that the ER is an intuitive forward looking indicator.
So, what do I expect to see in Q2? Expect a huge amount of bottom line beats and in-line or worse than expected revenue figures. The economy is still incredibly weak so the top line growth has been about in-line with analyst’s expectations, however, companies are cutting costs much more efficiently than expected. This has created a huge divergence between the analysts revenue estimates and their top-line estimates. Our recent analysis of ths situation highlighted this phenomenon:
Cost cuts are no recipe for organic growth. That can only be achieved through top line growth. The implications here are that we are likely to see another quarter of “better than expected” bottom line earnings as analysts have adjusted their EPS estimates very little over the prior quarter. This could further juice the stock market. The more important factor to keep in mind, however, is that this is no recipe for long-term growth. We will need to see a sharp expansion in the economy before revenue growth returns to the earnings picture. For now, the positive results are nothing more than defensive posturing by corporations. If the economy doesn’t turn up sharply heading into Q3 and Q4 it’s likely that investors will turn fearful of this false bottom line growth.
So we’re likely to see better than expected earnings, but a look under the hood will show much less earnings power than the EPS figures display. The weak revenue trend should overshadow the EPS beats as the earnings season progresses. Guidance will be equally important. Q3 and Q4 expectations look far too optimistic to me and are pricing in a relatively strong economic rebound. As recent economic data has shown, that’s an unlikely scenario, however, we could get more of what we saw last quarter due to bank earnings. We’re almost certain to see a number of better than expected earnings results and tepid guidance due to analysts high expectations, but it’s very important to note that banks don’t give guidance. Banks are also front loaded in the earnings season so they could set the tone early. If they report better than expected numbers and don’t provide the outlooks that other big sectors will provide we could just be off to the races in the early weeks of earnings season, but don’t expect any gains to last. The true profit picture will be much more apparent when energy, materials, and retailers report later in the earnings season and expect the quality of their earnings to be very poor.
“Full Speed Growth Increasing Month by Month” on China’s Expansion
Some say you could have too much of a good thing and some asses the same about the Chinese economy. On July 18, China’s National Bureau of Statistics reported their economy grew 10.9 percent for the first half of the year. Fixed assets investments increased 29.8 percent and construction shot up 22.2 percent. June’s monthly trade surplus accounted for $14.5 billion. China’s foreign reserves total more than $941 billion making them the world’s largest holders of reserves.
Many economists prognosticate China’s economic growth will not slow down. Fan Jianping, deputy director of economic prediction department of the state information center, told reporters, “For the first half of the year, the characteristics of economic performance can be summarized in two phases: full speed growth, increasing month by month.”
His figures don’t lie. For 2006, first quarter growth was 10.3 percent but grew 11.3 percent in the second quarter. But, inflation hasn’t put a damper on this robust economy. Stephen Green, economist at Standard Chartered Bank, remarked, “Maybe this is a new economy…Maybe China can grow fast without inflation.”
Many Chinese officials appreciate the fast economic growth which reduces poverty levels; pays for governmental reforms, and creates millions of jobs for laid-off workers, migrant laborers and new university graduates.
But other Chinese officials expressed concern that danger lurks ahead. Fan Jianping explained, “The illusion of bubbling demand resulting from over-relaxed monetary liquidity is expanding. Consumption factor continues to be marginalized. This growing pattern in the short term, can be sustain ably maintained, but will bring about problems in the long run.”
Yuan Gangming, institute of economic research fellow Chinese academy of Social Sciences, worries, “Except for the monetary credit, all other various indicators increased in the second quarter by exceeding the security margin. In terms of these figures, the economy may have overheated.”
Economic fundamentals describe China’s overheated market. These problems are; 1. production oversupply in about two to three years, 2. low efficiency and low level enterprises won’t last – will weaken macro-economic efficiency, 3. delay in improving in China’s economic growth pattern.
Chinese exporters fear reprisals by the U.S. and EU governments. The manufacturing industry in the U.S. and EU suffered from trade deficits with China. They’re clamoring for China to resolve the disparity by increasing the value of the Chinese Yuan currency. When the Yuan appreciates Chinese exports get more expensive while imports are cheaper…..
GS Expected To Post Record Trading Results
Goldman Sachs is expected to report strong trading results — which may, in turn, herald the return of bumper pay packets across the banking industry — when it begins American banks’ second-quarter reporting season tomorrow.
Consensus estimates put Goldman Sachs’s revenue for the three months to June 30 at $10.7 billion (£6.6 billion) and net income at $1.7 billion, against $9.4 billion and $2 billion in the three months to May 30 last year, the reporting period having been changed.
Banks reported record trading revenues in the first quarter, particularly in fixed income, as the few players with capital to put to work reaped rewards in areas such as corporate bonds, treasuries and agency mortgage debt.
Guy Moszkowski, an analyst for Bank of America-Merrill Lynch, said that he expected Goldman Sachs to reveal that it was on track to make $26.4 billion from trading this year, up on its record-breaking $25.3 billion trading haul in 2007. He estimated that the bank would put aside 44.2 per cent of this year’s revenue for remuneration and benefits, putting its pay pool at $17.9 billion, up from $10.9 billion last year…..
Philips Reports a 94% Drop in Profits
AMSTERDAM (AP) – Royal Philips Electronics NV, the world’s biggest lighting maker, reported Monday a 94 percent fall in net profit for the second quarter, due to weak sales amid the global economic downturn and asset divestments in the same period a year ago.
Net profit was euro44 million ($61.4 million), down from euro732 million. Sales fell 19 percent to euro5.23 billion.
Philips booked net gains of euro533 million in the second quarter of 2008 after selling shares of Taiwan computer chip maker TSMC Ltd.
“We did not see a material improvement in consumer or professional markets in the past three months,” Chief Executive Gerard Kleisterlee said in a statement. He said the company remains “cautious about the overall economy and the markets we’re operating in.” However, its performance would be better in the second half than the first half due to cost-cutting programs and – possibly – some recovery in sales.
The company has cut 11,800 jobs since the second quarter of 2008 and now employs 116,000.
Among Philips’ major operations, its health care division showed profit of euro93 million, while lighting showed a loss of euro57 million and consumer products lost euro9 million.
Philips had debt of euro800 million at the end of the quarter but held euro3.6 billion in cash.
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