4/11/11 Midnight Report: Will Margin Pressure Make Earnings Season A Bigger Bust Than Christina Hendricks’?
The market was down today as there was little news to keep the momo of the ponzeconomy™ going as investors await earnings reports (which promise to be spanktastic, as long as investors don’t care about silly little things like margins, profits, and expectations more reduced than those of Sbarro’s owners, Alan Greenspan’s parents, or Russell Brand’s agents), Japan got hit with a 6.6 level aftershock continuing to make that country less stable than the price of silver or a hammock for a Candice Huffine/Tara Lynn threesome, and the media continues to ignore spiraling US debt and the diminishing labor force participation rate to focus on important shit like Jenn Sterger’s career struggles (and Dear Ms. Sterger, Money McBags hates to tell you how to manage your career, but perhaps more of this and less of you, know, everything fucking else would be the way to go) and whether there were gay caveman or not (perhaps the archaeologists thought the sediment layers signaled the yet undiscovered peniolithc age). But with the market trading near highs and eventually performance to determine its direction (until the clock strikes QE infinity), a small sell off in front of earnings makes more sense than a Michael Jackson statue being put up in front of soccer stadium (though Money McBags hears the gloved one was quite good at juggling small balls, heyyooooooooooooooooo!).
In macro news, the big story was Democrats and Republicans reaching a budget agreement over the weekend to keep the government functioning (and the government reaching an agreement to keep funding itself was about as suspenseful as a sunrise or a Shannon Tweed movie). In the agreement, the government will cut $38B dollars of spending which is a mere drop in a bucket or a pimple on Coco’s ass, but it is a sign that the government will fake being serious about shit that matters because perception is more important than reality, just ask the dickbags who paid to see Charlie Sheen’s NYC show. With the short term budget issues now fixed (mainly by ignoring them and thinking about baseball), President Obama is set to release his debt cutting plan which will include raising taxes on the rich, cutting military spending, and no longer allowing John Boehner to expense purchases of kleenex.
In other news, Janet Yellen was yelling some BS today (and yes, that was a horrible pun, even worse than asking if the name Pavlov rings a bell, but don’t forget to tip your analyst) about rising commodity prices being irrelevant to inflation since they are merely “attributable to a combination of rising global demand and disruptions in global supply.” Whew, Money McBags is glad to read that and he feels much better knowing that all we need to happen to temper spiking input prices is peace in the fucking Middle East and people to stop using energy, and those seem like perfectly reasonable things to happen. In fact doing some quick back of the envelope calculations, those should occur sometime around “go fuck yourself.” No really, Yellen’s statement is more cockposterous than caring about a Meredith Viera upskirt or cowboy poetry (roses are red, violets are blue, that’s not a lasso in my pants, I’m just happy to see you) and the fact that she holds the number two position at the Fed is scarier than taking your kid to an Applebee’s (and not just because the food sucks).
Finally, oil dropped after the IMF cut growth forecasts for the US and Japan citing something called a global ponzi scheme, nuclear meltdowns, and common sense. The IMF now thinks U.S. growth in 2011 will be 2.8% instead of 3.0% as a result of the job market being more figuratively’ fucked than Traci Lords legitimate acting career (or literally fucked than her non-legitimate one). The fact is that the economy is completely bifurcated and split between the haves and everyone who doesn’t work on the Street and it’s not clear it is getting better with 6.3MM people now having been unemployed for over 6 months (and those 6.3MM people include Money McBags, but with competition this difficult, he clearly needs to step up his game). So while politicians debate $38B in cuts vs. $39B, and while Janet Yellen and the rest of her coven chant melodiously over the economy (bubble bubble, oil isn’t trouble, jobs return, or QE we’ll double) to try to jedi mind trick it back to health (because if they are not trying the jedi mind trick, Money McBags has no idea what the fuck they are doing), the middle class fades further and further in to bolivian.
Internationally, another aftershock hit Japan (or as they now call it, Monday) just as the Japanese government expanded the danger zone (and the highway to it) around the Fukushima Daiichi nuclear power plant. The government warned residents that they need to evacuate as if they stay, they could receive higher doses of radiation over the coming months than Bruce Banner. The point is, Money McBags has absolutely no fucking idea what is going on in Japan as it is way above his pay grade (and see, that is funny because Money McBags gets no pay) but every day seems to bring slightly worse news and that is more troublesome than being Lebron James’ moms’ valet.
The only other international financial news was that a British bank panel concluded that sweeping changes to the banking system do not need to happen because it’s not like the banks almost caused a complete global financial meltdown (and yes that was sarcasm). Other than the panel saying retail units should be “ring fenced” to allow them to survive even if other parts of the banks need to be wound down, the conclusions were less meaningful than foreplay or the lyrics to a Black Eyed Peas song as bank reform is so 2008.
In the market, M&A was the big news as Level 3 Communications is buying Global Crossing for $3B, something called ENDO is buying AMMD for a ~20% premium, and NASDAQ and ICE are still bidding for NYSE even though the NYSE wants to exchange their bid for the one they received from Deutsche (bag) Bourse. The NYSE prefers the lower monetary buy out from Deutsche (bag) Bourse because they want to show they can even manipulate the M&A market.
In small cap news, WGO and ZAGG continue to sell off because, well, that is what happens to shitty companies (actually, WGO isn’t a shitty company, but a 30x earnings multiple for a company selling a discretionary big ticket item that relies on low oil prices in this economy is a worse investment than Air Jordans are for Stephen Hawking). Money McBags remains whatever is the exact opposite of awestruck by WGO’s valuation and thinks there is at least 40% down from here.
But most importantly, Money McBags favorite KITD finally announced their transformative acquisition and it wasn’t The Platform (as Money McBags kept hearing) or some Italian company (as the Sidoti of small caps Northland kept saying), but rather it was a US company called ioko, and Money McBags seems oko with that. Money McBags will wait for the call tomorrow before diving in too deep, but here are his thoughts after just a quick run through with no real deep analysis yet:
1. It was a great fucking price, no really. KITD is paying $91MM for $54MM in revenues but after accounting for the cash on ioko’s balance sheet and earnouts and the like, the price is closer to $80MM. So jizzzzzzzzzzzz.
2. The dilution was minimal for this serial diluter which is absolutely shocking. KITD is only issuing another 1.5MM shares in the deal (and even though they said they would not go back to the public markets to raise equity and this pretty much has the same effect, we’re talking baby steps here) which is well below what Money McBags guessed and should be music to shareholders’ ears. To put the awesomeness of so little dilution in to the modern vernacular, KITD’s pussy be yankin.
3. 2011 guidance is for $212MM in revenues which is right on pace for them to hit Money McBags’ guess of ~$300MM for 2012 and remember, at $300MM and 23% EBITDA margins, they will hit a delicious $69MM of EBITDA.
4. There was news today that some chick named Karina Smirnoff is going to appear nude in Playboy. Now this has nothing to do with KITD, and Money McBags could give a fuck about who is going to be in Playboy since the magazine is more irrelevant than core inflation, but Money McBags is very confused by it because he has no idea who this Karina Smirnoff is and is curious how this can be playboy material? Money McBags isn’t saying she is fugly, but, well, um, she ain’t Crystal Mccahill, heck, she’s barely even Billy Crystal.
5. KITD is moving their executive offices to NYC which means Kaleil will be better able to manage his fantasy baseball team and more likely to invite Money McBags over for tete-a-tete over a scrumptious meal in the executive suite.
Those are very quick thoughts because it is late and Money McBags has other shit he needs to get to, like sleep (where he hopes to have very sweet dreams). At first glance, and not having a fucking clue what ioko does, this seems like a great deal in terms of price, revenue and geography and there are enough shorts in this name that there could be a huge pop on Tuesday. Money McBags hopes to have more after the call either tomorrow or Wednesday but his long-term view that KITD is ridiculously cheap for their earnings potential has only been enhanced.
Writer’s Note: It’s 2:50 AM, the headline is what it is, but it would be a big bust.
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about 4 years ago - 9 comments
Oh shit, Money McBags has been forced to come out of temporary and semi-retirement (though he still tweets, facebooks, and guesses NSFW muffs on a nightly basis) as his inbox (though he would prefer to be in this box) has been overflowing with questions on what the fuck KITD is doing by raising equity once
about 5 years ago - 12 comments
Kind readers, for months Money McBags has promised to bring you a new Q&A with KITD CEO Kaleil Tuzman (Money McBags promised even before he went to the great hedge fund in the sky) and he profusely apologizes for its tardiness. He actually emailed the below questions to Mr. Tuzman (at Mr. Tuzman’s request no
about 5 years ago - 15 comments
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about 5 years ago - 7 comments
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about 5 years ago - 3 comments
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about 5 years ago - No comments
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about 5 years ago - 1 comment
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about 5 years ago - 2 comments
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about 5 years ago - 2 comments
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about 5 years ago - 15 comments
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