But but but….. they were rebounding nicely!
Not any more. US subscribers decreased. The problem is that they fed people at the “free stuff” trough and discovered the modern-day tragedy of the commons — of course the demand for a service at an effective zero price is infinite, and the closer to zero the more people demand it.
Where they were wrong, as were the bulls, is the elasticity of demand — it’s a hell of a lot higher than they figured.
Content costs are also going to continue to go up on both ends — to acquire it, and to deliver it. This one’s not over and while the company isn’t going to zero tomorrow, longer-term I think they’re done. As in
Another “all the recent gains gone” story. The base issue is the same; too much fanboi and too far up the premium chain. Expectations remain unrealistic, even today after earnings. This story is over folks.
Yes, I know, they have a scadload of cash. But you saw earnings and more importantly, margins miss this time around. Margin misses are management misses, not sales misses. When you guide margins you’re guiding management and execution efficiency. When you miss there you’ve blown it — period — and you cannot blame anyone but management.
This story isn’t over; it will be interesting to see how many analysts cut estimates tomorrow. We’ll see how honest they are — when a company misses on margins an honest analyst has to cut targets, since what you’re paying for is earnings, which come from margins. Points off margins hit earnings ratably and if you don’t acknowledge that with a price change you’re not an analyst, you’re a liar.
Cramer, of course, still loves it.
You want winners? You want me to put my Cramer Berkowitz hedge fund hat on and just discuss what my fund is buying today to try to make money tomorrow and the next day and the next? You want my top 10 stocks for who is going to make it in the New World? You know what? I am going to give them to you. Right here. Right now.
OK. Here goes. Write them down — no handouts here!: 724 Solutions (SVNX), Ariba (ARBA_), Digital Island (ISLD), Exodus (EXDS),InfoSpace.com (INSP_), Inktomi (INKT), Mercury Interactive (MERQ), Sonera (SNRA), VeriSign (VRSN_) and Veritas Software(VRTS_).
We are buying some of every one of these this morning as I give this speech. We buy them every day, particularly if they are down, which, no surprise given what they do, is very rare. And we will keep doing so until this period is over — and it is very far from ending. Heck, people are just learning these stories on Wall Street, and the more they come to learn, the more they love and own! Most of these companies don’t even have earnings per share, so we won’t have to be constrained by that methodology for quarters to come.
About a month later the period really got going — it was the bleeding sort of period and utterly trashed these “recommendations.”
Here it comes…….