Netflix well positioned for digital content transition
2009-05-20 09:57:08
As part of out Digital Media Report we spoke with Ralph Schackart of William Blair. With Netflix already entrenched in the $50 billion dollar DVD market it has begun to position itself into the digital content market;Mr. Schackart: What is attractive about Netflix is that its digital content can go global. And let's say DVD is a $50 billion plus market worldwide. Netflix does not have to go find a $50 billion market; it's right there. It's not going to be a transfer or a change overnight. But our position is that if 2% of the market is digital today, that number will likely go up to 10% or 15% in the next five years. Just too many people know what to do with a shiny disc today. There are 265 million DVD players in the US alone, not including PCs. Hollywood studios have traditionally moved at the speed of an iceberg. They have a lot of different models and you just cannot change consumer behavior that quickly. So as it relates to Netflix, they are going to have a nice core DVD rental business by mail and they are going to attract more consumers, both with their current product and the nice feature on the streaming end. And we will see how quickly the market transitions over time to digital.The DVD is not going to disappear overnight but it will go away and Netflix is getting ready for that eventuality.
Defense Spending Cuts Impact Lockheed, Northrop and Raytheon
2009-05-19 15:50:57
In our recent Aerospace and Defense Report our Roundtable Forum with Alex P. Hamilton of Jesup & Lamont. and Richard Tortoriello of Standard & Poor's U.S. Equity Research focused on the defense budget and how cuts in spending would impact the sector:Mr. Hamilton: My coverage of defense, by design, is to avoid some of the platform names. Those would include Lockheed Martin, Northrop, General Dynamics; those are the names that are historically associated with making platforms. That being said, I think what happens is when the defense budgets start getting cut, if I'm the defense contractor on several of these programs that are being cut and I've come off of record years of cash flow, I'm going to sit there and acquire some of the smaller names.
Mr. Tortoriello: I cover the large defense contractors. I'm neutral on them, on Lockheed, Northrop, Raytheon (RTN), and General Dynamics, but the neutral opinion is primarily just a reflection of the low valuations currently as the stocks have already come down in anticipation of weak defense spending ahead. That being said, I wouldn't recommend getting into these names at this point. I think we're in a long-term environment of constraint in defense spending. I do agree that there will be spending in other areas - cyber security is certainly one of them - but I don't think that that spending will be enough to offset the cuts that I believe we're going to see over the next several years to the defense budget.
Kevin McVeigh of Credit Suisse First Boston Examines Iron Mountain's Growth Opportunities
2009-05-12 09:43:23
In our recent Corporate Software report Kevin McVeigh of Credit Suisse First Boston explores Iron Mountain's Growth Opportunities:Mr. McVeigh: They have both domestic and international growth opportunities. Penetration rates tend to be low in both regions. What is unique about the model is that you get a fair amount of internal growth from its existing customers. Every year existing customers tend to generate higher levels of storage activity. If you layer in new sales opportunities and price increases, you get a model that has been growing 7% to 9% internally on an annual basis for a long time. We don't expect that to change. One caveat is in 2009, the company reduced its internal growth target to 5% to 7%, but the 200 basis point reduction was due to a reduction in commodities in one of the less predictable business lines.Now nothing is recession proof but a predictable business models like Iron Mountain's works well in this macro environment .
Analyst Schappel's Mixed View on Corporate Software M&A
2009-05-11 17:42:00
In our special focus on Corporate Software, analyst Mark Schappel of The Benchmark Company has some good and some bad news to share on the nature of M&A activity in the Corporate Software space: The Good- "On the plus side, several large and mid-sized software vendors have a lot of cashto spend. Most software companies are profitable, have little if any debt and don't pay a dividend. So they have plenty of cash, good cash flow and positive operating margins."
- "Another positive is that smaller vendors and some startups may be motivated sellers, especially if they are having cash troubles. Some of these smaller companies don't have the access to the financing the way they did a few years ago. Also, valuations are low."
- "Some impediments include fewer buyers than in the past. For instance, over the years, Oracle bought PeopleSoft, Siebel, Hyperion and BEA Systems. All those acquired vendors were themselves buyers at one time. Now there just aren't as many buyers in the software space as there used to be. The PLM space or the business intelligence space is another good example. Most of the big business intelligent vendors have been bought Hyperion by Oracle, Cognos by IBM and BusinessObjects by SAP. So the available buyers are fewer."
- "Another M&A impediment in this environment is the lack of available credit that has sidelined some of the financial buyers, such as private equity funds. It's also keeping some of the acquisitive minded software vendors on the sidelines as well, such as Open Text or Infor that have relied on debt to help finance their acquisition sprees."
Pritchard Chooses McAfee in Corporate Software Space
2009-05-05 17:22:06
For our special focus on Corporate Software, analyst Walter Pritchard of Cowen & Co., LLC gives us his pick in this space, McAfee (MFE):Mr. Pritchard: I think investors are going to be shocked at how resilient the consumer security business is...In a market where PC shipments are slower, you fall back on your installed base, and all those companies have done a good job of up-selling the installed base. For McAfee specifically, the number of computers they ship on right now versus a year ago is up significantly, so there's a share gain going on in the PC market for McAfee independent of what's going on with PC shipments.For the complete Corporate Software report, including a full interview with Mr. Pritchard, as well as a wide variety of other analysts in this space, click here.