11/20/10 Midday After Report: Bernanke Lets His Hair Down
Kind of a drab hum drum day in the market yesterday as no new countries were close to defaulting, no new IPOs of shitty companies were being sold (and yeah Harrah’s, Money McBags is looking at you), and no new news on whether Milla Jovovich will be joining her country’s burgeoning Femen movement.
With that said, The Bernanke was the keynote speaker on Friday in Frankfurt at the European Central Bank Conference (because apparently Carrot Top was already booked) where he addressed his fellow witch doctors between the coffee break and a panel discussion titled “The New Wiccan Diet: How to Make More Room on Your Broom. In his speech, Benny B. channeled his inner Gilbert Gottfried and walked through in gory detail how China is manipulating their currency in the old central bankers’ version of The Aristocrats. Benny B. essentially called out China for the current slow global economic recovery (which is a bit like Dick Fuld calling out Veronique De Kock for having a ridiculous name or Spencer Pratt calling out anyone from the Jersey Shore for being a douchebag) by blaming currency undervaluation in emerging markets for creating “persistent imbalances” in trade that “represent a growing financial and economic risk, and shit.”
Benny B also warned that we are in a “two-speed global recovery” (with those speeds of course being “slow as shit” and “backwards”) with the richest countries lagging behind growing emerging markets like Kenny Easterday and a partner lags the field in a three legged race. Finally, Benny B. got his panties all in a bunch and clarified for all of the amateur witch doctors out there that the term “quantitative easing” is an “inappropriate” phrase for the Fed’s policy because the Fed is merely manipulating interest rates and not changing the quantity of bank reserves. Therefore, he suggested instead of “quantitative easing” people use the terms “invisible tax” or simply, “ass raping.”
The big news internationally yesterday was that China decided to fuck with their banks again, this time raising the reserve rate by 50 bps to continue to feign interest in curbing inflation. With housing prices in Hong Kong rising to cockposterous levels as apartments are now almost as expensive per square foot as Japanese apartments in the 1980s or Brooklyn Decker‘s vagina, it is good that China is trying to get ahead of their bubble, but bad they are doing it two years too late.
And it’s not just spiraling real estate prices that are a concern, as Prime Minister Wen Jiabao remains worried that rising consumer prices in staples such as vegetables, monsodium glutamate, and cats will undermine the economy and he has signaled that he will continue to take steps to try to cool lending in the market. The timing of the next increase in rates remains a mystery though as every time reporters ask Mr. Jiabao “When?” he evasively says “Yes?” as part of the Chinese government’s “Hu‘s on first” deception routine. The point is, this was the second reserve increase in two weeks, and if China gets serious about slowing down their growth, that may be good for their bubble but bad for the global economy since they are fueling growth more than Justin Beiber at a NAMBLA convention.
Elsewhere internationally, Ireland is still trying to figure out how much their bail out needs to be with estimates currently between 2.5B and 5B lap dances (and readers of the award winning When Genius Prevailed know that is Money McBags’ preferred reserve currency). While negotiations are rambling on more than James Joyce in Ulysses (and James, it’s called “Bloomsday,” not “Blooms-will-this-ever-be-fucking-over-month”), news came out that Ireland’s second largest bank, Allied Irish Banks, tripled its reliance on funding from central banks since the end of June and that news unfortunately broke Ireland’s version of “Don’t ask, don’t tell.” Of course as wholesale markets dried up for the bank worse than Hillary Clinton’s uterus, they had no choice but to seek central bank funding but the non-disclosure of the size of it should make everyone question just what the fuck is going on in other too big to fail countries like Greece, Portugal, and Kim Kardashian’s ass.
In the market, GM was down 1% after their IPO yesterday showing that the more things don’t change (because GM is still a fucking horrible company), the more they stay the fucking same. As mentioned earlier, Harrah’s postponed their IPO citing market conditions and a hot hand at the craps table making them not want to give up their spot.
As for earnings, Ann Taylor beat estimates and had positive same store sales growth as more women need to update their interviewing wardrobes while Foot Locker ran up thanks to higher sales bizarrely being driven by reduced promotional events as apparently John Meriwether had been running their marketing department. Elsewhere DELL was up on Q3 due to beating margin expectations, positive comments about government spend, and investors forgetting that Dell makes shitty computers. Other big movers of the day included Salesforce.com who sold the force out of some shit and Marvell who had a marvelous quarter (and don’t forget to tip your analyst on that bad pun) thanks to strength in their mobile segment. On the negative side, Autodesk dropped ~7% despite a relatively inline Q and to Intuit investors said “out to it” as the company fell due to more Americans no longer needing to pay taxes and thus not needing Intuit’s software.
In small cap news, KIRK managed to find a way to not just shit the bed, but also the whole fucking house, as it looks like the stuxnet worm ate its way through company financials. Revenue beat analyst guesses but the company missed earnings guesses by a penny and then lowered guidance. Their quarter was so abortionally bad that less good came out of their quarterly call than came out of Charles Manson’s mom’s vagina. Money McBags needs a little time for himself on this one as their performance has been more disappointing than Bobby Brown’s come back as apparently it is their prerogative to suck at selling crappy little trinkets. This company remains cheap, but of course there is a reason for that, and Money McBags will break it all down in more detail next week or this weekend but right now he needs to take some deep breaths and think happy thoughts.
Also in small cap news today KITD raised $96MM ($88MM in net proceeds) by selling 8MM shares at $12 a pop (and remember Money McBags guessed the offering would be done in the low $12s, so not a bad fucking guess). The good news is that the stock closed above the offering price, the bad news is that the offering price was >10% below where the stock was trading before their preannouncement, but it is what it is.
Look, this offering is less of a surprise than Ricky Martin coming out of the closet or the ending of a romantic comedy, but many questions remain:
1. Who the fuck are they going to buy? The rumor Money McBags keeps hearing is The Platform which makes more sense than them buying Brightcove or the rights to Candwiches, but that leads to the question of..
2. How the fuck much are the going to pay for the acquisition? Money McBags thinks The Platform has ~$40MM-$50MM in annual revenues and KITD has been paying a bit more than 1ish times revenue for smaller shittier companies, but A. they didn’t just raise $88MM to spend ~$50MM or $60MM. B. The Platform is not selling out for 2x revenue, especially when Comcast paid a multiple to acquire it a few years ago way the fuck more than that. and C. Amanda Seyfried is sneaky hot, which has nothing to do with KITD, but is very important to remember. So Money McBags is guessing KITD will use at least the full $88MM in cash plus potentially some of the ~$45MM they already have for whatever transformative acquisition they have lined up.
3, So how the fuck do we value KITD given all of the uncertainty? Beats the fuck out of Money McBags. But let’s run through a thought experiment (though nowhere near as exciting as experimenting with thoughts about Alice Eve). Say KITD pays ~2x revenues (we’ll call it $100MM to make the numbers easy) and gets ~$45MM in revenue by acquiring the Platform (and again, this is more speculative than the Sunday morning fare at an all you can eat chinese buffet). Then let’s say they can somehow get a 20% EBITDA margin out of that which is lower than their guidance for their EBITDA margins. So that is ~$9MM of EBITDA and would make the transaction ~11x EBITDA which is actually way too fucking expensive, but again, Money McBags is thinking out loud here.
Anyway, adding those numbers to guidance puts them ~$190MM in revenue and ~$42MM EBITDA for 2011. With ~31MM shares now and ~$33MM cash left over if they spend $100MM, that would give them a current EV ~$340MM and means they are trading at ~8x 2011 EBITDA. Not terribly cheap (though <2x revenue which is pretty cheap), but again, Money McBags assumed EBITDA margins for the acquisition would be lower than core business for no reason other than to be a dick. But shit, if they buy The Platform that means KITD is basically the whole fucking market and the market is growing at ~40% so lets say that slows a bit to 30% (again, just to be a dick), and KITD has no problems with integration, so now we’re at ~$250MM in revenue for 2012 and at 22% EBITDA margins that is $55MM EBITDA which is <6x current EV/EBITDA and that is pretty fucking cheap for that kind of growth.
But that is all speculation and could be more wrong than Art Laffer’s view of the economy, so all we really know is that KITD is going to buy something big and Sofia Vergara remains hot, so we just have to hope KITD doesn’t fuck up the integration or pay too much. Money McBags is holding for now but if the stock slips into the $11s, he will be tempted to buy some more.
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