Posted on April 29, 2008
Filed Under Companies, Markets & Finance, Research, Software, Technology & The Web | 1 Comment
Symantec reports earnings after the close on Wednesday and we have no idea what it will be like. What we do know is that the situation in the field for Symantec is going from bad to worse.
Our most recent report was produced in partnership with TheInfoPro which collects input from enterprise customers to understand fundamental technology shifts within IT. The data for Symantec has been declining steadily for some time and has recently accelerated on the downside. If the current trends continue Symantec spending intentions will suggest an actual YoY decline for the first time since data starting being collected back in 2003.
The root of the problem lies in the lack of execution between management vision and the company acquisitions and the customer. Products haven’t been integrated. The sales teams have suffered from lack of training and high turnover. Customers are relating horror stories regarding technical support and customer service.
Our report details a bit more of the data and delves into valuation using typical approaches along with our own long-term valuation framework and the forensic accounting of New Constructs. The net result is a fair value of about $14/share.
The only good news for shareholders is that the stock is already trading at a level where an acquisition by CA, HP or BMC would work. That’s the only positive scenario we see now given that management hasn’t even acknowledged the depth of the issues, let alone start solving them. (Dell is at least past the acknowledgement stage here and working on solutions.)
Based on what we see one would expect conservative guidance on Wednesday and an interesting Analyst Day on June 12th.
– Kris Tuttle
Tags: Symantec, IBM, HP, TheInfoPro, NewConstructs
Posted on April 25, 2008
Filed Under Software, Technology & The Web, Starting Up | Leave a Comment
It’s a small point but it’s one in a large pattern for Yahoo.
We still used them for domain registration which is a fairly innocuous administrative function. We knew we were overpaying a little at $9.95/year per domain but even with 100 domains it’s small change. But when they increased the renewal price 30% to $12.95/year we decided to take a look around. It turns out that there are services that are much more robust than Yahoo and the best news is that charge less than half the new Yahoo price.
So we get vastly improved administration and control at half the cost of Yahoo (again.) Now it’s true we will be paying some students to move everything over but it’s a wash the first year and we save money after that. More importantly the functionality is improved and every new domain we register is only a third of the Yahoo price.
We know Yahoo can turn their existing traffic into more money using Google which is perhaps the best indicator of their failure. They are lucky to be getting what they are being offered for their deteriorating online assets.
Basically their investment and innovation in building their online services has been been far below the market. So their offerings have deteriorated relative to other firms.
– Kris Tuttle
Posted on April 25, 2008
Filed Under Software, Technology & The Web, Starting Up | Leave a Comment
For the last three years we have been working on leveraging new technologies and methods to create a much more effective model for research and investments in emerging technology investments. As one of our colleagues pointed out, we have an opportunity to stand on the shoulders of giants.
Internet technologies and companies like Google, PayPal and Skype are clearly shifting the strength to weight ratio of what an online business. Companies like FaceBook and YouTube can go from zero to $billions very quickly. But moving from the established methods to the new platform isn’t as simple as pushing a button.
There are several reasons why it’s tricky to do in a real business context. Here are the ones we have run into:
1. Some of the new things are just not ready to scale. We’re using Google Apps and it’s had very mixed results when we try and push it beyond the basic use cases. It will certainly come along but it’s going to take time.
2. Many clients and business partners are slow movers. Even if we were ready to move entirely to new technologies many of our customers are not. At the same time many of the new technologies do a poor job of integrating with the old. There are some gap-filling technologies that help. For example Feedburner and Feedblitz can turn blog posts into email, IM messages or even Twitter posts. However many wouldn’t be able to navigate the simple set up process.
3. A few of the things we thought were core values may not be. We’ve always believed that high production values in terms of published research were important. The downside is that it takes a substantial amount of time and cost to produce output of this caliber. I’m beginning to think that the written report may be of far less value than I realized. So we will be revamping our delivery methods to reflect this.
4. There are a few things we thought would go away that are really core. It turns out that the old fashioned phone conversation or meeting is less replaceable than we thought. In fact this may be the only real high value service left in an increasingly noisy and information crowded online space. Email is getting less and less effective as a medium of distribution.
5. Sometimes you forget to pay attention to Internet effects. We tend to start with an approach of what is "best" when we look at a new technology choice. However any choice that doesn’t keep us 100% on the Internet curve starts to conflict with our business model very quickly. There are been many cases where we have had to back off from a decision to use a piece of software, a service or even a whole approach when it became clear that the choice was not on the Internet productivity and cost curve.
6. Simple things get hard, then you learn. Even a task as easy as keeping your background of online CV up to date starts easy and then gets complicated. So we first wrote a great one for our own site. But then one needs to keep LinkedIn up to date if you are going to use it (which we do.) But then there is FaceBook, Xing and so on. At first it’s all extra work and then conditions become right so you can just use a link to your public profile in LinkedIn and take the brave step of removing it from your website. Then it’s back to easy street. Hopefully we’ll get more of this.
Each one of these may seem easy to avoid but taken together it’s hard to do. It’s easy to forget Internet effects when some of your highest paying clients depend on a phone and a secretary for all their interaction. We’ve not done a count but as we start to plot our "core" technology suppliers the list is much longer than we realized. Considering that we’ve cycled through several in most categories, that’s quite a bit of churn.
Of course some of the providers have changed quite a bit over the years. We started out with Yahoo on Day One for many services and their platform is now years behind what is generally available. So we’ve migrated nearly everything from them over time. Google has a way to go but at least they are moving *forward* to deliver more.
The implications for our business, research and investments in emerging technology, are easy to see and already happening. The first is that we are increasingly making more from the direct investment side of our business than from the published research and advisory side. The second is that there will be a smaller (<100) clients that will really be on the inside and close to what we do. Even the ability to achieve this number depends on the successful deployment of some new technology and dynamic delivery methods we are still developing.
– Kris Tuttle
Tags: technology, web 2.0, starting up
Posted on April 13, 2008
Filed Under Companies, Markets & Finance | Leave a Comment
We see the creative destruction going on in the media space as blogs, iTunes and so on restructure the markets. What about equity capital? The overall structure market today is much like it was a decade ago when we were raising equity for firms in the public markets. However the machine has been gunked up with far more regulation and the threshold for being able to raise money has gone up quite a bit.
For a while we thought that maybe new exchanges like the AIM in London might thrive and become what some might think of as the "new NASDAQ." Despite being reasonably successful it hasn’t really done so and we don’t have any conviction that it will. Part of the reason is that it’s just too UK-centric but it also faces the same hurdles any new market will as we describe below.
Just last week some fresh dust was kicked up by Fred Wilson (a noted NYC VC) on an interesting concept that Goldman Sachs put out there called "GS Tradable Unregistered Equity OTC Market" or GSTrUE for short. (Obviously someone will need to come up with a better name for it at some point.) We first heard about this a year ago via a post over at Information Arbitrage. At the time I really wondered if this would catch on but until Fred’s post I didn’t hear much about it.
There’s a huge gap in the capital markets. In theory there is supposed to be a middle market for companies and capital but there basically isn’t. The big have just gotten bigger - look at Oracle, Microsoft, eBay. Small innovative firms are the source of our technology advances but have no path to remain independent companies once they reach a certain size. You can hear a collective groan from users when these companies get acquired. That said we do find smallish companies that can shoot the gap and become successful public companies. There were actually several last year. Companies like Data Domain (DDUP), Netezza (NZ) and NetSuite (N) made it out and did fairly well.
In theory venture capital/private equity firms might have jumped in to fill this gap. The problem seems to be that they are themselves so large that for them to earn a return that matters to their portfolio the company they invest in has to have the ability to become a very large company. It’s hard to prove that even terrific small companies like Flickr can become $1B businesses. And given the way the VC/PE market works you’d spend months on the road in meetings trying. So when Yahoo comes along with their $400M you just hit the bid and end the story.
So what about this potential new market that could evolve to serve the small to middle tier companies? There are a few critical pieces missing from our perspective. We’re admittedly biased here but we think research coverage and company visibility makes a difference.
As onerous as the traditional IPO process is it provides some things that investors have come to rely on. There is a well-defined due diligence process which goes into creating the prospectus and it’s a valuable discipline. Investors also know that once the deal is done they can count on the company participating in the various investor conferences that our out there, analysts will cover the company and write reports, the underwriters will make markets and trade the stock.
We think this is part of the reason the AIM market only works so well for US companies and investors. Getting analyst research coverage beyond UK brokers is next to impossible. Google Finance may eventually help with basic company information but that’s pretty scarce right now.
Everyone knows that independent research is in short supply these days and the business models to support it are still tenuous. Today the best return on research capital is to invest the money directly to create superior returns rather than offer it for sale. If there were to be a vibrant new market like GSTrUE or something else there were need to be some strong independent research on the companies listed there. For it to really happen people would again need to think outside the box.
Maybe independent analysts would get paid a fixed fee and then be rewarded financially based on the accuracy of their research predictions and estimates. This way they would be leveraged to the success of the *company* rather than the success of the *deal*. (BTW this is the way it was at SoundView Technology back in the old days when we had research-driven investment banking and not the other way around.)
So maybe it’s a question of making old things new again. But in a modern structure maybe we can leverage some new technologies and concepts this time. This is a great topic. We’d encourage everyone to follow the links above and take time to read the comments and the back posts.
– Kris Tuttle