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Oculus founder Palmer Luckey announced a deal at this week’s virtual reality Vision Summit with Unity, a 3D game engine used to create a vast amount of VR content.
Unity has partnerships with Alphabet (GOOGL)-owned Google, Facebook (FB), Sony (SNE) and Microsoft (MSFT) among others. That means the Unity platform is compatible with Google Cardboard, Facebook’s Oculus Rift, Sony’s PlayStation VR and Microsoft’s HoloLens.
IBD sat down with Unity CEO John Riccitiello, former chief executive at Electronic Arts (EA), to learn more about the new pact with Oculus.
Apple (AAPL) Music has 11 million paid subscribers, senior vice president Eddy Cue said Friday, confirming that the streaming music service is showing rapid growth and pressuring rivals.
Apple Music had 10 million paying customers at the beginning of the year, the Financial Times reported last month. SVP Cue, speaking on John Gruber’s “The Talk Show” podcast released Friday, said Apple Music has quickly moved beyond that benchmark.
Apple Music began in June for iOS users with 3-month trial subscriptions, expanding to the Alphabet (GOOGL)-owned Android operating system in November.
Apple’s growth may be coming at the expense of rivals such as Pandora Media (P), Amazon (AMZN), Alphabet’s YouTube and privately held Spotify. Pandora Media late Thursday said that its listener base fell to 81.1 million in Q4 vs. 81.4 million in the prior quarter and 81.5 million a year earlier. Pandora also missed earnings estimates. Pandora stock fell 12% on Friday, nearly undercutting its all-time intraday low set in 2012.
Pandora shares rose 8% on Thursday ahead of results on a New York Times report that the company is mulling whether to put itself up for sale, hiring Morgan Stanley to help hold talks with potential bidders.
Apple, Amazon, Facebook (FB) and Spotify are potential suitors, FBR & Co. analyst Barton Crockett said.
Apple announced Friday that it will stream its first original series starring Beats co-founder Dr. Dre. The semi-autographical 6-episode Vital Signs may be streamed on Apple Music as another way to boost the service.
Apple Music charges $9.99 a month, while Pandora has a $5 ad-free premium service. Spotify has 20 million paying subscribers — $9.99 in the U.S. — and 75 million who listen for free.
Apple makes the bulk of its revenue from the iPhone. But with iPhone sales likely falling in the current quarter, the iPad steadily declining and the Apple Watch not a blockbuster, Apple increasingly is relying on services for growth. Services revenue rose 15% vs. a year earlier to $5.5 billion in Apple’s Q1. That compares to overall revenue growth of 2% to $75.9 billion.
That’s what Verizon CEO Lowell McAdam told CNBC’s Jim Cramer on a Feb. 5 broadcast of “Mad Money.” Then on Monday, reports surfaced that Verizon had put AOL Chief Executive Tim Armstrong in charge of exploring a Yahoo acquisition. Verizon acquired AOL for $4.4 billion, including about $300 million in AOL debt, in June.
Yahoo shareholders may be unimpressed over what Verizon could pony up, some analysts say. Verizon paid about eight times EBITDA (earnings before interest, taxes, depreciation and amortization) for AOL. AOL’s Internet business, however, had been improving, unlike Yahoo’s.
Verizon could be vulture-like and wait for struggling Yahoo to struggle more — Yahoo announced its first round of layoffs on Wednesday amid growing management defections. But analysts say Verizon hopes Armstrong can woo Yahoo on good terms.
(Verizon hasn’t hired bankers and there have been no formal talks, according to reports.)
If Yahoo sells off its core Internet operations, shareholders would expect a special one-time dividend down the road from whatever is left of the company as the result of a possible “reverse spin” involving its stake in China e-commerce leader Alibaba (BABA).
Verizon Balance Sheet May Be Challenge
Could a Verizon-Yahoo deal be do-able, given that Verizon’s balance sheet is somewhat stretched already?
Credit rating agencies Standard and Poor’s and Moody’s have not commented on Verizon’s interest in Yahoo. Verizon debt has an investment-grade Baa1 rating.
Verizon had $4.5 billion in cash on its balance sheet as of Dec. 31. Verizon bought out U.K.-based Vodafone Group’s (VOD) 45% stake in their Verizon Wireless joint venture for $130 billion in 2014, adding a ton of debt. Verizon ended 2015 with $105.7 billion in net debt.
Verizon expects the sale of residential wireline assets in California, Florida and Texas to Frontier Communications (FTR) to close in late March. Verizon stated last year that it expects to garner $6.8 billion in net cash proceeds from the Frontier deal. Paying down debt had been Verizon’s priority.
Verizon is expected to take part in a U.S. auction of TV broadcaster radio spectrum slated to start as soon as next month. In a research report Thursday, JPMorgan estimated that Verizon, despite talking down its interest in the auction, could spend $8 billion. Whatever Verizon does spend, it would not have to pay the government until year-end 2016 or later.
At Barclays, analyst Amir Rozwadowski said the key to a Verizon-Yahoo deal, from a Verizon shareholder’s view, is whether “Verizon would be purchasing an attractive call option or an expensive declining business.”
That depends in part on the valuation of Yahoo’s Internet business, as display advertising growth declines.
UBS analyst John Hodulik said in a research report that “while Yahoo has had a mixed record transferring its success to mobile, the company remains the third-most-visited site for digital video.”
Rozwadowski estimates Yahoo’s core 2016 EBITDA (excluding Yahoo Japan and Alibaba equity interests) at around $710 million. Depending on what EBITDA multiple Verizon were to pay, a deal might wind up costing the phone company in the mid-single-digit billions of dollars.
Rozwadowski’s view: “We would consider a potential Yahoo acquisition as a ‘tuck in,’ with minimal financial impact and of small enough size that it would not derail any of the carriers’ operational or financial initiatives.”
With Valentine’s Day on Sunday, love is in the air, and if you’re single, is probably poisoning it.
But as couples lock down dinner reservations and gift orders, and single men cram for dates with books by Neil Strauss, here are five highly-rated IBD 50 companies that, in one way or another, could make for steamy investor relations: Facebook (FB), Global Payments (GPN), Michael Kors (KORS), Nike (NKE) and PayPal (PYPL).
Nike: Stability With Spark
With oil prices diving and China’s economy slowing, the prospect of a recession and credit-market contagion are on the minds of curious lovers everywhere. Let a strong company like Nike be your rock with its cash flow, solid dividend and share repurchase program, as it unlocks your passion with brand innovation.
Cue the slow music and let the rose petals fall where they may as Jefferies finds the words:
“Nike offers consistent cash flow and also a growth opportunity tied to continued success in China and emerging markets, and share gains for the brand and the sportswear category. While (analyst Edward Plank) likes the strong growth prospects for NKE outside of the core North America base and focus on capital returns to shareholders, he highlights Nike’s already dominant global market share in athletic footwear and competitive separation as contributing to consistent cash flow. Eddie anticipates new product innovation, driven by the 2016 Summer Olympics, will help to drive growth over the next year.”
In that research note, released Friday, Jefferies cited Nike as among its picks with “idiosyncratic growth and some degree of protection from a downturn.”
The company could also become more involved with Apple (AAPL), whose Apple Watch has fitness-tracking capabilities.
Shares of Nike closed down 1.3% for the week. Apple ended virtually flat.
Facebook Buffers Breakups
Nothing is more attractive than confidence, and analysts praised social media giant Facebook after its Q4 results last month soundly topped estimates, and CEO Mark Zuckerberg said the company was “thriving.” Facebook has grown through mobile and video ads and has broken into virtual reality through its Oculus Rift headset, with romantic implications that need not be mentioned here.
But for those who will not be boldly exploring any new boundaries this weekend, Facebook at least has one feature (detailed in this press release) that allows you to reduce your exposure to your exes.
Shares cleared a consolidation in the days following Facebook’s report, but they fizzled afterward and are currently testing support at their 50-day line.
Facebook finished 2% lower for the week.
Michael Kors Has Handbags, So There’s That
Maybe your significant other wants a new handbag. Well, Michael Kors sells lots of handbags. And their stock jumped 23.9% on Feb.2 following the release of view-topping holiday-quarter results, which were boosted luxury offerings and e-commerce.
Jefferies, in a note last month, predicted a rebound in handbags’ appeal, citing new spring trends and slowing shoe sales, leaving shoppers with more money potentially to buy crossbodies, mini-bags or “bag-cessories.”
Michael Kors shares lost 4.4% for the week, finding some love above their 200-day line after a long dry spell below it.
PayPal, Global Payments: True Wingmen
Whatever you buy on Valentine’s Day, payment processor Global Payments could help you seal the deal, indulging customers with robust support for Apple Pay and a product suite of online and brick-and-mortar payment-technology solutions across 29 countries.
But no multibillion-dollar company can drift through this entropic world alone forever, especially as the payments landscape becomes more competitive with the rise of e-commerce. To that end, Global Payments in December announced the $4.3 billion acquisition of Heartland Payment Systems (HPY), allowing it to reach out to smaller and midsize businesses.
Shares gained 1.9% for the week, but the stock has trended below its key 50-day and 200-day moving averages.
Meanwhile, PayPal, which Jefferies also cited as a good growth stock for an uncertain time, has become a globally recognized leader in online payments, partly due to social-payments app Venmo.
“We see PayPal as the best positioned large-cap payments company for the current environment, with a strong hold on its core online market and options on tangential markets remittance, credit and in-store,” Wedbush analyst Gil Luria said in a research note last month.
Shares fell 2.2% for the week, testing support at their 50-day line.
Nevada regulators voted unanimously late Friday to slash net-metering payments without grandfathering existing solar-energy customers, despite opposition from 55,000 Bring Back Solar Alliance supporters.
Within an hour of the 3-0 vote by the Nevada Public Utility Commission, Sunrun (RUN) executives were already planning to file suit, Lauren Randall, the company’s public policy manager, told IBD.
“Even NV Energy recommended grandfathering current solar customers for a period of 20 years, but once again, Governor (Brian) Sandoval’s commission gave the monopoly utility more than it asked for,” she wrote in an email. “This decision is clearly unjust and unacceptable for Nevadans.
“We will sue to overturn the anti-solar rules, and we will win.”
The decision follows a week of testimony, including commentary from Tesla Motors (TSLA) CEO Elon Musk, chairman of No. 1 solar installer SolarCity (SCTY). Both Sunrun and SolarCity criticized the net-metering cut — payments that solar customers get for selling excess energy to utilities — and exited Nevada in December when the PUC first approved the new rates.
Solar advocates’ hope momentarily gleamed last month when Warren Buffett’s Berkshire Hathaway (BRKA)-owned utility, NV Energy, proposed a 20-year grandfathering caveat to the new solar rules. But Friday’s vote puts the final nail in Nevada’s solar coffin, according to Bryan Miller, Sunrun vice president of public policy and power markets. He’s also president of the Alliance for Solar Choice president.
“(PUC Commissioner) Dave Noble was wrong when he predicted his initial order would not kill the industry,” Miller said in an email Thursday. “He has now flip-flopped and argues that the commission can legally kill the industry.”
Nevada incentivized more than 17,000 residents to install solar, BBSA spokesman Bob Greenlee said in a statement Thursday.
Since 1997, net-metering policies have required utilities to purchase excess power fed into the grid from solar customers at a retail rate. Under the new rules, the reimbursement rate will step down five times over 12 years to reach what the Nevada PUC calls a “cost-based structure.”
Although TASC estimates that solar customers will still save about a third on their electric bills, the rate shift doesn’t allow them to recoup the costs of their systems, Greenlee said. Early Friday, he said the BBSA planned to cart “six wheelbarrows full” of signed commitment cards from supporters.
“Fully 89% of Nevadans believe that the Public Utilities Commission made the wrong decision when it ended net-metering, refused to grandfather existing solar customers at their current rates and destroyed one of the fastest-growing solar sectors in the country,” Greenlee told IBD via email following the vote.
Greenlee tallied 55,000 commitment cards — the same number of petition signatures needed to put the matter on a referendum ballot in November.
The PUC, however, argued within its draft order Wednesday that grandfathering existing customers under the old rates would perpetuate the $16 million that utility customers now pay annually to subsidize solar customers.
Proposals to delay the necessary correction in rates to a cost-based structure only serve to kick “the can down the road,” the PUC said. Over 40 years, the subsidy borne by non-solar customers would grow to $640 million.
“These proposals do nothing to address the problem of antiquated rates that were instituted nearly 20 years ago to jump-start an industry,” the commission wrote. “The old net-metering rates are not reflective of accurate price signals or actual costs to serve.”