Small Company Update: Surely You Can’t Like CRUS. Money McBags Does Like CRUS, and Don’t Call Him Shirley.
Money McBags did a quick analysis of CRUS yesterday and today he was able to go through their transcript and he has to say, he was actually pretty fucking surprised by how positive management sounded so perhaps there is still nice upside here. Below are Money McBags’ takeaways from the call.
1. This company is still driven by AAPL, but shit, if you’re going to be driven by something other than Malene Espensen, then why the fuck not AAPL? 54% of revenues came from AAPL and they “are engaged with them on multiple new developments” their relationship continues to be “outstanding,” visibility “remains excellent” and they expect to grow revenue with AAPL “substantially this year.” And yes, for any CRUS shareholder that should have made their dicks hard (or for female shareholders, their pedicures dry quickly). As the AAPL relationship goes, so goes this company and while AAPL has a reputation for not letting suppliers get any kind of bargaining power over them, CRUS is still just one little fucking socket in what AAPL does, like a tick on a whale, or a mole on Gabourey Sidibe. In theory, AAPL likes CRUS because their audio chips kick the shit out of the competition and there is supposedly a pretty wide gap between CRUS and their competition (though not as wide as the gap between the hotness of Mark Sanford’s mistress and his cheated on wife, which explains why he eschewed his BS family values schtick like all good politicians). So as long as AAPL is concerned about quality, there is no reason for this relationship to end any time soon, that said, Money McBags does worry about pricing power even if guidance is for that to be steady.
2. There is now a tablet opportunity for their chip and this could be really exciting, like an invitation to Charlie Sheen’s new house. Management was kind of coy about this on the call saying: “It is one of the ones you would want to be in. I’m not going — we’re not in all of the ones I would like to see us in the long-term but at the same time, it is definitely in one of the better names. It has got a pretty good channel. A customer we’ve currently got a reasonable amount of business with as well.” So, umm, it certainly could be the iPad and if so, that could be a fucking huge boost to earnings because iPads continue to sell faster than money or tickets to an Alice Eve taint tickling booth. This bears keeping an eye on (while this bears keeping two eyes on).
3. There could be some upside in the energy business, but who the fuck really knows. This Q was hurt by their seismic business which they said on the call is always hard to forecast but picked back up at the end of the Q. They also seem to remain bullish on their power meter business, that said, they talked about a really fucking interesting potential opportunity with their LED business. Now look, Money McBags is no engineer (though he is always happy to be first in line to run a train if need be), and he’s not 100% sure of what this LED market opportunity really is, but on the call management said about the LED potential: “if you look at the landscape in the market place, sometime between now and 2015, you go from a $40 million unit kind of a market, $40 millionish to $1 or $2 billion, and so you know, we’re probably not going to get 100% of that market but I don’t mind splitting a billion units.” So um, who doesn’t like a market that is going to grow from nothing to fucking something really interesting in four to five years. Money McBags wouldn’t forecast anything from this in his numbers, but it is definitely something that could provide upside.
4. Management is kind of a bit douchey. Ok, Money McBags is sure this sounded better than it read, but CRUS’ CEO said “Our biggest problems are that our largest customer is the best company in the world” and “It will be a challenge to hire enough engineers that meet our standards in order to staff everything we want to do going forward.” First of all, Vivid Video is not their largest customer, so the first statement is false, but secondly, hey good for them that they are all up in AAPL’s dilznik right now (and that may be an overly technical term, but whatever), but that statement reeks of the beginning of hubris and this company has nothing about which to be cocky since they have almost no control over their sales. Yeah, it was a meaningless and kind of flippant comment, but Money McBags knows the second you start getting cocky about shit like that and take your eye off the ball, you figuratively and literally get a dick in the face. This is what Money McBags would have liked to have heard “our biggest problem is that even though out largest customer is the best company in the world, it means we have to try even harder to diversify our revenue base and continue to raise our standards to meet that large customer’s needs. Finding the talent to keep doing that will be challenging, but our goal is to continue to find success for the long-term.” Was that so fucking hard? And trust Money McBags, if he is the one coaching you on CEO-speak, you may want to take that extra management class.
5. NOLs are coming (and not just because they recently found the work of Riley Steele). This isn’t that big of a deal, but it should make their GAAP financials look a bit different from now on. They are going to take a $100MM non-cash income benefit in Q4 in order to properly value their deferred tax asset and then use a 35% non-cash tax rate for 2011. It doesn’t effect their cash, and Money McBags will continue to use non-gaap earnings, but it is worth noting.
6. WTF is this? It has nothing to due with CRUS, but really WTF?
7. Revenue should continue to grow above market, but what that means exactly, well, it’s harder to guess for Money McBags than Joan Rivers‘ real age or the reasons why the Fed is being run by the same dicknuggets who missed the crash of the ponzeconomy™. Management said two things about growth on the call. They said their topline growth target is 15% annual growth which is well above semiconductor industry growth of 6% to 9%, but then they also said that they had a strategic plan a few years ago to get to $500MM in revenue in 5 years, and well, they could hit that $500MM this year if they can get 37% growth. It just seemed odd to Money McBags that they would throw out that $500MM number seeing as how it is actually achievable this year.
So what the fuck do we do with this company as verbal guidance was cockriffic (though unspecific), and yet they still remain levered to one fucking customer (though growth from that customer could hit another leg up if the tablet they mentioned starting to sell chips to is the iPad). If we take their 15% annual growth target, hold gross margins at 55%, juice up operating costs by 5%, and say beetlejuice 3 times, we get ~$1.50 per share next year and the company is trading ~14x that, which seems very fair. But what if they get the iPad and what if the iPhone continues to sell as it has been? Audio grew by $108MM last year, so lets say they can grow that much again and then lets say energy is flat (which gets them to near the $500MM revenue they subtly dropped on the call), but operating costs grow 10%. That gets them to $1.95 in eps and they are only trading at ~10x that with real upside potential if they are going in the iPad.
So Money McBags is definitely more positive on them after reading the transcript than he was before he did so. They generated ~$200MM in revenue from the iPhone last year so if they can add the iPad to that, that is fucking ginormous. As always, the problem remains that portfolio managers hate buying companies that are so levered to one company. For instance, Money McBags pitched this CRUS to some dickbag small cap manager about 7 months ago in a phone interview and all the guy kept saying was “Apple is notorious for cutting off suppliers” and then named the last 3 times that had happened. While Money McBags explained that 1. This was still a small relationship and just really starting. 2. CRUS has a big lead in terms of the technology and 3. He expected the energy business to rebound and start helping profits (which it did), this assbag PM just didn’t care. And that’s the way PMs are, once burned, they never fucking go back which is a terrible way to manage money.
Anyway, Money McBags would trim a bit here and take some profits in to a potentially shitty upcoming tape, but hold on to some and buy more if it drops down to the $16s (~10.5x their low end growth target) because owning a company that sells shit to the fastest selling technology device since the fleshlight is huge.
And after management reads this (and Money McBags knows they, will because what the fuck else is there to do in Austin, TX other than eat beef and try to make kids stupider?), he would love if they could answer these questions for him (and as always, he can be reached at firstname.lastname@example.org):
1. Can you provide more color on the tablet opportunity? How about coughing once if it rhymes with iSnad.
2. How can we forecast growth going forward? Yeah, you say 15% is your target but if you only grow 15% this year, that will be a big disappointment especially when you say about AAPL “we expect to grow our revenue with them substantially this year”
3. WTF is this LED business and when should Money McBags care?
4. How close do you think competition is to you and what gives you the competitive advantage? Along those lines, can you charge a premium price for your chip outside of AAPL?
5. Why haven’t you been able to win other smart phones?
6. Do you agree with Tracy Morgan about Sarah Palin? And this has nothing to do with CRUS, but Money McBags likes to know with whom he is dealing.
7. Can the non-portable audio business grow?
Money McBags actually speaks with a bunch of CEOs (no joke), so hit him up on email and we can chat.
And quick side note here, in the phone interview Money McBags mentioned above, he also pitched this small cap portfolio manager TMRK and the guy’s comments were “yeah I like TMRK but it never moves, so I don’t really want to own it.” Umm, hey dickbag, Money McBags thinks it moved. And the best part is this guy told the recruiter that he thought Money McBags had good ideas, but he didn’t want to pursue it further because he thought Money McBags talked too much on the 30 minute phone call and didn’t listen enough. Really? You try cramming 10 years of work experience, a BA, an MBA, and two ideas in 30 fucking minutes and we’ll see how much you listen, But yeah, perhaps Money McBags should have listened more to this dickbag’s reasons for not wanting to buy CRUS or TMRK, worked out great for him.
How the fuck are guys like that running money while Money McBags is stuck in no mans land dropping 2k words of dick jokes a day and giving away money making ideas for free (unless you count your dignity)? Yeah, Money McBags is coming from a failed hedge fund, but the fund didn’t fail because of Money McBags’ performance or the fund’s performance, it failed because the rich asshole who was funding it treated it as a hobby and decided fucking hookers off of Craigslist (and Money McBags will never get tired of saying that) was more important than marketing and raising assets (and this dickbag is only rich through marriage, so good on him). It makes no fucking sense because Money McBags believes he is one of the top small cap analysts on the street (just look at his picks over the last year, only one or two duds and a shitload of CRUS’, TMRKs, QCORs, EPAYs, CTGXs, etc.) and will go head to head with anyone (a stock-off if you will), but no one seems interested. It is more bizarre than Meg Ryan‘s face or cockaroni, but it is what it is.
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