Short Gilead: Sentiment Is Too Positive Ahead Of Q2 Earnings

gileadI recently wrote an article about RadioShack (NYSE:RSH), where my main argument for buying was that literally everybody is negative. While this trade is in is still in its infancy, I will illustrate another recent example of a public fade that cashed big profits for those resisted obvious opinion and went against the grain. That is, knowing absolutely nothing about livestock, I wrote about shorting lean hog futures in the face of a virus that everybody said would wipe out the pig population overnight. Of course the fears were overstated as I suspected and I made out like a bandit the next day as prices gapped down.

As a contrarian, I do trade potential popularity for simply being right and making money. It is a tough gig, as I’m sure I will be ripped to shreds by the public commentators for daring to go short Gilead Sciences (NASDAQ:GILD). But nevertheless I am making a small bet that no matter what Gilead’s Q2 results will be on July 23, the stock will likely sell off.

CLICK HERE to read the entire article at TheStreet and join the lively discussion of this controversial trade!

Avoid RealNetworks – Despite all the hype it is NOT the next Apple

realnetworksThis stock is being pumped by different newsletters. The story is dead and there is very little chance of a successful turnaround. Earnings are on July 30, so be sure to tune in to see the latest carnage first hand.

Summary

  • Trades at about 70% of market cap in cash, but every core business segment is experiencing declining growth and significant recurring losses.
  • RealNetworks owns 45% of music service Rhapsody, which is growing rapidly but is seriously troubled and it is not certain if it will ever be profitable.
  • Company future is heavily dependent on new RealPlayer Cloud offering which has yet to be monetized and may not have a viable market as a paid platform.

I’ve received a number of inquiries from value investors looking at RealNetworks (NASDAQ:RNWK). The stock spiked as high as 15% at the open on July 17. Rumors on Twitter suggest that the cause of the move is a Stansberry Research newsletter release. The only actual news that I have found is some obscure Chinese CODEC deal with Xiaomi. So I find this move puzzling and it also makes the stock even less attractive in terms of value as it traded up.

CLICK HERE to read the full article at Seeking Alpha

TUBE lowers IPO target price range, so short trade from open now is called off

TubeMogul_logo_color-copy

So I wrote an article a few days ago over at Seeking Alpha talking about how TUBE is overvalued at its proposed IPO range and how YUME in comparison is extremely undervalued. Obviously everybody listened because the TUBE IPO was astronomically undersubscribed and the target price as a result has been cut 38%. I still believe it is overvalued even at the reduced price, but am not advocating a short at the open. If the price goes to that $11-$13 original offering price, then by all means get short. This does not change my long YUME thesis as it is my top play of 2014 with a $15 price target.

Summary

  • TubeMogul reduces IPO target to $57.5M from $94M and cuts target price range to $7-$8 from the original anticipated range of $11-$13.
  • A short on TubeMogul stock is only recommended at the original $11-$13 range.
  • An undersubscribed offering was anticipated due to extremely lofty original valuation, so this is not surprising.

CLICK HERE to read my full update at Seeking Alpha

TubeMogul IPO on Deck for Friday. We are Playing it SHORT

According to our sources, TubeMogul will begin trading Friday on Nasdaq with the ticker symbol TUBE. I’ve outlined my reasons why we are going to be SHORT this offering, as a counter to our very LONG position in YUME. CLICK HERE  to read my entire reasoning in a feature article at Seeking Alpha.

Summary

  • TubeMogul files an updated S-1 with a $372M valuation that implies a $13 IPO price.
  • YuMe trades at a $192M valuation as of July 10, down 33% from its $9 IPO price.
  • In an increasingly multi-screen and global market, TubeMogul is a desktop-only web-based platform.
  • YuMe reported 2013 sales of $151M. TubeMogul reported only $57M for the same period.
  • TubeMogul has lost $11M since 2012 compared to a net profit of $6.5M for YuMe.

Huge Upside in YuMe as the Next Major Ad Tech Acquisition?

consolidationThere has been flurry of ad tech takeovers in the past couple weeks (and months), so I just published my theory on what I believe is the next to go.

UPDATE: TubeMogul just filed for its long awaited IPO, so we can now officially cross it off the list of acquisition prospects. The valuation solidifies my YuMe thesis, as the pre-IPO price is 4 times richer than YuMe on a price/sales basis, plus it loses money. YuMe is profitable and has a more mature 9 year business. I didn’t realize how small TubeMogul was until I read the S-1 that was just released today. It is literally a bit player with a goliath valuation. Short TUBE and long YUME will be an interesting pair trade once it starts trading.

  • Amidst a rapidly consolidating ad tech market, YuMe files an amended Annual Report on June 23 that contains “change in control” provisions” regarding YuMe named executive compensation.
  • Two of the named executives are YuMe Co-Founders CEO Jayant Kadambi and CTO Ayyappan Sankaran who founded and sold StarNet to Netopia in 1999, which was later sold to Motorola.
  • YuMe management has meeting with underwriter Deutsche Bank in New York, but not with company analyst.
  • Recent CFO departure mirrors another ad tech acquisition that has close connection to YuMe.
  • Following his firm’s distribution of YuMe shares to the partners, Vinod Khosla locks just under 7% of the company away in trusts.

It is no secret that the ad tech industry is rapidly consolidating, particularly with companies like YuMe (YUME) that focus on online video advertising. At a recent presentation, the CFO of Tremor Video (TRMR) stated that he expects consolidation to cut the number of its competitors effectively in half. This premonition is quickly becoming the reality.

CLICK HERE to read the entire article at Seeking Alpha

Higher One is a Speculative Buy at Historic Lows

Higher OneToday I published my thoughts on Higher One Holdings (NYSE:ONE) at Seeking Alpha. This company is very lightly covered by the major analysts and is thinly traded. Here is an excerpt from my article:

In my ongoing quest to find Wall Street’s most hated companies, my research led me to Higher One (ONE). It is a financial services and data analytics company that serves over 1900 universities and colleges. Higher One sold shares through an IPO at $12 per share in 2010. It priced below the original $15-$17 expected range, but quickly ran up to over $20 just 5 months later. It now trades in the mid-to-high $3 range which is a historic low. Stocks like these are right in my wheelhouse.

CLICK HERE to read the entire article at Seeking Alpha.

Long RadioShack… Have I lost my mind?

RadioShackI took a speculative long position in shares of RadioShack (RSH) at $0.85 on the asymmetrical chance of a successful turnaround making this a 10 bagger. This is like taking an outside jump shot to win a championship. The odds are really good for what you have to risk to make the bet. You can read all of my thoughts at SeekingAlpha HERE in my feature article:

  • Recent analyst price target of $0 signals extreme pessimism.
  • A worst-case scenario is already mostly baked into the share price.
  • Stock trades at book value with no goodwill or intangibles.
  • Realistic potential for 1000% or higher share price appreciation.
  • Unique partnerships signal potential future growth opportunity.

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Needham Analyst Kerry Rice Raises Q2 and FY2014 Estimates for YUME

OneNeedham of the big problems with tracking YuMe’s (YUME) reach throughout the quarter is that it is not trackable by Comscore. This is because they employ a very sophisticated SDK-based advertising solution, unlike competitors who use cookies and a web-based system. So as a result, I tend to rely more on analyst channel checks throughout the quarter for an idea of how the company is performing.

Last quarter, internet analyst Kerry Rice from Needham stated that his channel checks show that YuMe was on track to exceed revenue expectations, and they most certainly did. On June 16th, Rice reiterated his Buy rating and $13 PT on the stock and stated that after talking to various ad agencies, not only is online video advertising spending increasing rapidly, but that YuMe is receiving a consistently increased spending. He revised his FY2014 earnings estimates to a GAAP net profit of $0.01, up from a loss and Q2 revenues to $42.2M which is above the upper band of the guidance. Furthermore Rice upped his FY2014 revenue projection to $195.3M, which is above the mid-point in the guidance provided by management during the Q1 call.

Anybody investing in the ad tech space right now is certainly aware of the massive secular shift of TV advertising spending online. The only question is, how to best capitalize on this fundamental trend. I continue to see YuMe as the best pure play in the space because of their technological advantages with their platform not being web-based and relying on cookies like most competitors. Another advantage of this is the ability to minimize network fraud. Because YuMe controls the SDK, they can effectively control fraud. This is a big topic right now at Cannes Lions, and I suspect a reason why YuMe is becoming so favored by agencies this quarter.

I have confirmed with YuMe VP Gary Fuges, that there will be an investor webcast released this month that will highlight the recent roadshow. YuMe is doing a great job in my opinion of helping investors understand the complexities of not only the ad tech industry, but its own competitive technological advantages. With 20 years of online advertising experience, I “get it”, but based on the sheer volume of questions that I receive daily I am sure that most investors are still trying to piece it all together. This webcast should help explain things, and that is a good thing for the stock price.

 

Differences in Tremor Video and YuMe Technology

apples-and-orangesI’m always being asked to explain the differences in technology between Tremor Video (TRMR) and YuMe (YUME), two pure-play ad tech companies that target what I feel is the best opportunity in the space right now – TV brand dollars moving to online video. Simply put, Tremor Video is web-based and uses cookies for everything. Cookies have limited usability with mobile, connected TV and tablets. This is why Tremor Video has tepid growth outside of desktop, where they are very strong. In fact they aren’t breaking out mobile growth numbers going forward as stated in the Q1 call.

YuMe on the other hand has only a small reliance on cookies and is experiencing triple digit growth in mobile, connected TV and tablets. YuMe is also very involved in the monetization of apps, a market that even exceeds mobile in terms of growth. This is done through their proprietary SDK. The higher YuMe margins can be attributed to the PQI, which results from all the first party data they collect (think of the Crowd Science acquisition for one), compared to third party cookie based data for Tremor Video. So really from a tech standpoint it is night and day comparing the two companies, however Tremor Video is still growing rapidly as they seem to dominate desktop and control a ton of exclusive tier-1 inventory through exclusive publisher contracts that are high in demand.

As I mentioned last week, Google (GOOG) is gunning for these relationships but have not been successful so far according to sources referenced in the Wall Street Journal. On the downside Tremor Video pays alot for that exclusive inventory which pressures margins and pretty much at the mercy of industry eCPM rates, which were down in Q1 and pressured margins. I think that eCPM rates for video have bottomed however in Q1 and Q2 and I expect Tremor Video margins to improve in to the back half of the year. YuMe, who makes their money off a percentage of revenue spend by the advertiser, won’t see the same margin pressure as a result of secular pricing. 

Google Moves in on Tremor Video’s “Premium Publisher” Inventory

Google - 900 lb GorillaI am still long Tremor Video (TRMR) but own considerably more YuMe (YUME). What I am down to now is a small speculative stake in Tremor Video on chance of a acquisition, which I believe is a real possibility. A very interesting article just came out and it has serious negative implications on Tremor Video. This is the third day in a row that the Wall St. Journal has published a negative article on Tremor Video and YuMe, which is very unusual considering the media hardly talks about these companies. However, a legitimate concern is raised here.

Even if Google (GOOG) isn’t successful in snagging away the exclusive premium publishers away from Tremor Video, as suggested in the article, at best it will pressure Tremor Video margins further by forcing them to pay more for this exclusive content. As a result, I believe that YuMe is much better positioned in this sort of scenario, same with Brightroll and Tube Mogul. YuMe has extreme competitive advantages over Tremor Video with their system being built entirely from the ground up for online video. As a result their margins are significantly higher as their algorithms are more efficient. Tremor Video on the other hand survives on these exclusive publisher relationships which comprise of mostly 1 year contracts. I am not sure how sticky these contracts actually are, but Tremor Video has shown proficiency in retaining these publishers.

So far, according to this article, Google is not offering the premium publishers (like Viacom, Meredith and A&E for instance) enough money to have them switch to the Google platform but this is a real scenario of the 900 lb. gorilla in the room. Although the article says that if Google is successful that it will have a “destabilizing” effect on both YuMe and Tremor Video, I believe that the effect on YuMe will be minimal and the effect on Tremor Video on the other hand has to already have an impact on margins. Tremor Video will simply have to pay more for this exclusive content as they are now competing with Google, as of this second. YuMe on the other hand, who aims to be the proverbial “cable TV” in this space, relies on their data science to sell publishers on the simple fact that they will make more money with YuMe as they share the revenues.

The bottom line is, this fear of Google wiping out YuMe has driven an extreme selloff, meanwhile analysts are expecting nearly $10M in net profit next year. If they hit these profit expectations, they will be trading at a PE of only 10 net cash, with 25-30% YOY sales growth. This valuation is simply absurd and logic will eventually take over and YuMe will have to be collectively re-rated by the market and double or triple in value in a flash. All of this is ignoring the fact that the chance of an acquisition is very real and that insiders are continuing to buy YuMe heavily, notably ad tech veteran Daniel Springer who has been here before as CEO of once beaten down Responsys (MKTG) which ultimately sold to Oracle for $27 only a year after it was trading in the $5s and a couple months after their CFO resigned.

For more thoughts and analysis of the ad tech world including up to date trading signals, be sure to join my FREE NEWSLETTER.