Stocks ended higher for the third consecutive week as protests throughout the Middle East continue to spread like misinformation during a political campaign or herpes in the Kardashian householdYemen had its 8th day of protests (and for those of you unfamiliar with Yemen, it has a 65% unemployment rate, a 59% literacy rate, and on average women give birth to 6 children each, so in short, it is the Detroit of the Arab world, only without the Robocop statue), Bahrain made it bah-rain bullets as security forces opened fire on protesters in the capital of Manama, Libya decided to get in to the mix (and how the fuck that Qaddafi guy is still in power is more bizarre to Money McBags than the Huffington Post trying to trademark the letter H, though note to readers, Money McBags is currently in the process of trying to trademark the letters T and A), Algeria and Iran continue to have more rumblings than in Oprah Winfrey’s gunt right before second breakfast (though how Iran has time to put down protesters when they are busy restarting their nuclear weapons program, sending ships through the Suez Canal, and continuing to keep the lovely Ayker Lie out of the country is beyond Money McBags), and now even Wisconsin is getting their panties in a bunch over the dictatorial rule of the teachers union in the “you’ve got to be fucking kidding me” move of the week (though if it is Wisconsin native Heather Graham whose panties are bunching, then please, bunch away, and yes Money McBags knows Wisconsin is in the Midwest and not the Mideast, but as most of you came to the award winning When Genius Prevailed simply looking for pics of Claire Henry, odds are you don’t).

But despite the international landscape falling to more entropy than Sylvester Stallone’s face (because once shit gets worse, you really can’t put it back together), despite commodity prices spiking to all time highs and thus threatening to change the actual definition of the word “commodity,” and despite living in a world that puts such little value in fiat currency that people actually supported the making of three Big Momma movies, the market continues to rip because Brian P. Sacks trigger finger says so.

Anyway, there wasn’t any US macro news out on Friday except Ben Bernanke got his Fed on at a central bank meeting before this weekend’s G20 boondoggle in Paris where the 20 finance ministers and central bankers will hit all the spots in Europe.  At the meeting, Benny B tried to place the blame for the current economic unbalance squarely on the shoulders of those evil currency manipulators in the Federal Reserve’s Office China.  Bernanke said  “capital flows are once again posing challenges for international macroeconomic and financial stability,” and then added “in fact they are causing almost as many challenges as the inflation I created by quantitatively easing my nuts into the global middle classes’ mouths in what I like to call a Central Bank Angry Dragon.”  Bernanke then said the capital flows, “reflect the two-speed nature of the global recovery as emerging market growth far outstrips growth in advanced economies, but hey, just buy the fucking rip.

And Bernanke continued to drive home this theme by saying countries that have been maintaining undervalued currencies have “contributed to spending that’s unbalanced and unsustainable,” are fueling a worrisome rise in commodity prices, are penalizing countries that have allowed market forces to determine the level of their money by seeing their competitiveness erode (and yes, Bennie was talking his own book more than the inconceivable Lloyd Blankfein on an Abacus sales call), and need to stop being such asshats.

He then reminded policy makers that they have plenty of tools to fuck with their economies to create fight inflation and bubbles and some of those tools might not lead to a global clusterfuck and if anyone knows what any of those tools might be, to email him at pervymcperv@buythedip.com.

In global macro news, China raised lender reserve rates again by 50 bps as they are in more denial about inflation than Tommy Morrison is about HIV.  With Chinese savings rates so high, small moves in the reserve rate do less to slow lending than teaching abstinence in High schools does to slow teenage pregnancy (because note to tightasses, it feels so good) and the government sees the raises simply as a signal to banks to slow lending (though a better signal would probably be to pull them close and give them a titty twister while yelling to SLOW THE FUCK DOWN).

Elsewhere, Spain is giving savings banks 6 more months to raise equity or else they will be forced to go back to their rooms without dinner or even worse, be forced to listen to Spain’s own Enrique Iglesias sing Rhythm Devine without a sound engineer.  If banks don’t raise equity in six months, the government will either increase the now stricter core capital requirements they just put in to place or they will likely just extend the deadline once again, because that is much easier than having to make anyone accountable.  Finance Minister Elena Salgado said at a news conference on Friday that stricter capital rules were required because “there is still mistrust among investors about the solvency of the financial entities,” to which the investment world answered with a resounding “no fucking shit.”

The Spanish government also approved a slightly broader definition than initially debated of what banks could include in their core capital, such as any bonds that are due to be converted into shares by 2014 and anything made out of paper.  To be honest Money McBags has no idea what any of this means because the Spanish banking system has to be more full of shit than the American banking system which is so full of shit that it makes a coprophiliac’s mouth water, but it was a slow fucking news day so it was either this or 200 words on proper household etiquette.

As for the market, Campbell’s Soup cut earnings on weak soup sales as their cock soup with a side of Jussipussi dinner promotional campaign failed to resonate with consumers.  It’s the second time in three months, they have lowered guidance which is confusing to Money McBags because a dying middle class and a stormy winter (at least according to analysts when trying to justify bad economic data) should be a perfect environment for cheap soup.  CEO Douglas Conant, whose name is an anagram for “gonadal counts” if you’re keeping score at home (though if you are keeping score at home, don’t forget to put down 10 points for this), said “The overall competitive environment remains challenging throughout the food industry, particularly in the U.S.” and to combat their shitty performance, they will focus on advertising to strengthen brands while easing up on promotions such as “just take some” Fridays and “buy one and no one gets laid off” Wednesdays.   Conant then jumped on his baby unicorn, blew in to his whale tusk, and rode off in to the sunset on his $10MM a year salary for a job well fucking done.

In other earnings news, JWM beat guesses of $1.00 by $.04 as rich people are still fucking rich and the company also announced that they are spending $180MM to buy flash seller Hautelook which is the the most expensive flash sold since Janet Jackson at the Super BowlIntuit rose 7% as their Quickbooks online segment continues to grow despite the protests of Wesley Snipes and that caused shareholder to say “tax you very much.”  And CAT rose after reporting that machinery sales rose 49% in three months driven by North American sales as the Federal Reserve ordered a fuck load of new tractors to scoop up all of the shit they have been spewing.  Finally, JDSU fell ~5% fell after a Citi analyst cut the company to “hold” from “buy,” while a Miller Tabak analyst did the opposite and raised JDSU’s price target to $38 from $35, begging the question, “who the fuck is Miller Tabak?”

In small cap news, Money McBags wanted to break down DTLK’s Q which they had previously pre-announced (and yes that was redundant) but finally released as you all know Money McBags has been banging this company on the award winning When Genius Prevailed as if it were Michelle Marsh.  While it has been a great trade (and remember, Money McBags pointed it out when it was nearly 50% below today’s price in October), DTLK has never been what Money McBags would call a high quality company and they showed why with their slightly confusing and craptacular guidance.  Before Money McBags gets to the disappointment, lets just bask in the glow of their Q4 for a second as it was more jizztastic than Monika Pietrasinska.

DTLK had revenue of ~$91MM which was up 32% sequentially and 76% y/y which is hella fucking good and it was driven by product sales hitting $60MM for 91% y/y growth.  As DTLK’s operating costs are relatively flat ~$16MM and their gross margin was down ~200bps to 22% as they win larger deals, GAAP eps was $.19 and non-GAAP eps was $.24 which was 125% above last year.  So everything was more hunky dory than a taint tickle from Marisa Miller, especially as an accounting change which is now standard for all computer hardware resellers caused them to push $8MM of revenue out to Q1 2011 as they now have to recognize revenue at shipment rather than installation.  So they would have had a nearly $100MM revenue quarter after basically being between $62MM and $70MM for the other three quarters this year, wow, talk about blowing out a quarter (and Money McBags has a “quarter” Breanne Ashley can blow out).

So great, since DTLK has had over a year of sequential quarterly growth, we can pretty much consider this $.24 GAAP eps a new run rate and then say earnings should be ~$1 for next year and thus this company is as cheap as an Art Schlichter autograph as it is trading at ~7.5x that (which would be for 22% growth, though flat sequentially from Q4).  But wait, what’s that?  They guided to only $77MM to $82MM in revenue for next Q which is down 13% sequentially and includes an extra $8MM due to the accounting change, so on an apples to apples basis (and Money McBags always compares apples because if you don’t, you may wind up with this), only ~10% to 18% y/y growth for the Q?  Ugh, and yes that sound you just heard was Money McBags punching himself in the balls.

As the CEO explained, the Q4 spike was because they closed some large deals and took advantage of the seasonal end of year budget flush where IT departments need to spend their cash or lose it for the year in a less rewarding version of Brewster’s Millions.   Now this would all make sense if last year revenue between Q4 and Q1 did not rise sequentially from  ~$52MM to ~$62MM, but they did see the seasonality in the two prior years, so Money McBags guesses Q1 2010 looked funky because companies were building back up from zero inventory.  The point is, the guidance was way fucking below what Money McBags was expecting as next Q they will be lucky to earn $.04 per share and that isn’t going to get anyone excited about buying a basically undifferentiated value added reseller (even if they are in a growing market) unless they like buying things that suck.

So the question is, was Q4 2010 more of an aberration than a Taylor Rain movie without anal or can they get that kind of revenue again?  If we grow earnings every Q by 15%, hold gross margins flat at 22% (which may be too positive of an outlook since they are cutting prices to win bigger deals), grow operating costs by 5% (which may be too high as they have been mostly flat in 2010), and tax them at 40%, we get to ~$.42 of GAAP eps for 2010 which is ~$.60 of Non-GAAP eps, so the company is now trading at ~13x that after the 8% sell off on Friday.  For a company growing 15% with no real competitive advantage that burned ~$2MM cash from operations in 2010, that actually seems like a pretty fair price, but are those numbers too aggressive?

See, to get to that growth, we have to assume that Q4 2011 will be up ~15% from this Q’s ridonkulous number that is so far above any other Q that it seems more nonsensical than trickle down economics (or any economics) or Carrot Top’s career.  So to own this stock, you need to believe Q2 and Q3 continue their momentum, but Q4 next year can also have the bizarre spike that Q4 did this year.

The CFO even addressed this on the call by saying “I think we had a very large fourth quarter where we had a couple of large deals that we’ve talked about previously. So I guess that would be the thing that would make it so you couldn’t continue an 18% growth rate off of last year’s fourth quarter. But other things would be the economy or acquisitions within the industry. But I don’t see anything right now out there that would affect it.“  Hmmmmm,  Money McBags is not quite sure what to make of that.

So look, management said a lot of positive shit on the call such as customer buying patterns have improved, their data centers are getting momentum, and the market is strong and demand is strong, but unless they pull a ~$100MM+ revenue quarter out of their asses next Q4, the earnings likely won’t be there to justify further stock price appreciation.  Shit, what a fucking bitch.  Money McBags loved the stock when he thought Q4 wasn’t a result of so much seasonality (because Q4 last year wasn’t) and when they had $17MM in cash on the balance sheet which was ~1/4 of their market cap (and now they are somehow down to only $9MM of cash, so um, hmmmm), but now he’s lost that loving feeling (though he will never lose this loving feeling) because we are basically betting on the unknown here.

After their pre-release last month Money McBags said:

“their backlog was only $47MM and while that is a record for them, it is only ~1/2 of this Q’s sales, so they are going to need to close a shitload more deals to keep this kind of revenue run rate.  And that is why this company will never be a core holding of Money McBags as they simply rely on big deals every Q and eventually those dry up or one gets pushed in to the next Q or some dumb shit like that because that is how non-subscription based sales work”

and


“Hopefully we get more detail on the drivers of growth on their call next month (and this is a driver of Money McBags’ growth) but the technicals are good and the numbers are good, so enjoy the ride.”

So now that we got our update on drivers of growth and the drivers were the classic “we had our positive lumpy Q,” feel free to take your winnings here and go home (especially if this is home).  The stock is not terribly expensive, so there isn’t a ton of downside, but the easy money has been made and it could be worth sitting on the sidelines for a Q since the growth thesis did not play out as we had hoped.  But hey, that’s why you listen to the fucking Qs.

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