Can a TV show make Ancestry.com stock go up?

by Kris_Tuttle on March 5, 2010

Today (Friday, March 5th) a new TV series will air that just might cause more people to wonder about their family history.
Screen shot 2010-03-04 at 1.51.18 PM.png The stock tie in is with a relatively recent IPO named Ancestry.com (NASDAQ: ACOM – $17) which is the leading online source for individuals and families to build their history and discover information about their ancestors.

Although we didn’t publish a research report on the company with their IPO we have done some preliminary work and came away with a few observations:

1. People pay a nice fee for this service, from $20 to $30 per month. (They offer discounts for annual or quarterly payments.) So this is something that people place a fairly high value on considering this can easily amount to a couple hundred dollars a year.

2. Although Ancestry.com is in part a user-driven story they have a whole other aspect which is the fact that they have obtained licenses (in many cases exclusive) to archival and historical content that is then available online to paying subscribers.

3. There’s a definite strong pull at work in driving this phenomenon which is hard to fully appreciate until one experiences it. For example if you dabble enough on it and discover that your great-great-great-great grandfather was awarded a medal for bravery by  a king somewhere and there is a picture of it in one of the archives, tell me you wouldn’t pay to get it!

4. Beyond the documentation and knowledge aspects of the application the ability to discover and link to other living relatives from more diverse branches of your family history can also be profound.

We noted that during the IPO the CEO of the company is a *great* salesman for the story and certainly helped the IPO to be a success.

But as we dug into the story we found more compelling things to like about it. Could Ancestry.com be the “google of the personal and family historical information” segment? It appears that way. Ancestry is actively working to digitize these historical archives and records which are now sitting in boxes and files in small towns all over the world.

The content may not seem “valuable” in aggregate from a business standpoint but from a personal and human angle this is compelling stuff and Ancestry.com clearly has a model to offer investors a way to play it.

[Disclosure: The author has a small position in Ancestry.com]

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If you think the Apple App Store is bad…

by Kris_Tuttle on March 4, 2010

Wait until you see the carriers.

At first I was optimistic that the carriers were going to seize an opportunity for a change and create their own, possibly quite good app stores. Part of the reason for that was when I sat down with some representatives of Orange and explained a new mobile application that one of our clients had developed (3D video ringtones) they were very helpful and seemed to grasp what it was all about and why users would love it. Ringtones and now video ringtones are known quantities already.

During the meeting they were practically apoplectic about me making sure that I got the client to submit the application to them so they could get it into their application catalog. (You can probably see where this is headed.)

Okay it was rejected. But that’s not really the point. Sure it actually took them three months to respond. But that’s not it either.

What really struck me was text of the rejection itself. One doesn’t feel very enlightened after reading it (text below) but fortunately we know that the carriers used Franz Kafka frequently as a consultant and I’ve included his original version below the Orange rejection note.

Hello,

Thank you for submitting your application to Orange.

We have reviewed your submission and, unfortunately, your application is not suitable for inclusion in the Orange Application Shop. We reject application submissions for a variety of reasons, including:

- Duplication with existing content
- It does not match current category requirements
- It is not a client-only mobile application
- The application requires IT integration
- Conflicts with existing Orange services and products or those under development
- It may conflict with Orange’s brand values

Your application has been rejected due to one or more of these reasons.

However, we thank you for your interest in working with Orange and please let us know of any future mobile applications that may be suitable.

Kind regards,

Content Acquisition Team
Orange Application Shop

In the original (paraphrased):

A man comes to the door of the Law, seeking admittance. The guard refuses to allow him to pass the door, but says that if he waits long enough, maybe, someday in the uncertain future, he might gain admittance. The man waits and waits and grows older; he tries to bribe the guard, who takes his money but still refuses to let him through the door; the man sells all his possessions to get money to offer more bribes, which the guard accepts — but still does not allow him to enter. The guard always explains, on taking each new bribe, “I only do this so that you will not abandon hope entirely.”

Eventually, the man becomes old and ill, and knows that he will soon die. In his last few moments he summons the energy to ask a question that has puzzled him over the years. “I have been told,” he says to the guard, “that the Law exists for all. Why the does it happen that, in all the years I have sat here waiting, nobody else has ever come to the door of the Law?”

“This door,” the guard says, “has been made only for you. And now I am going to close it forever.” And he slams the door as the man dies.

There is no way to say it better.

Suggests to me that both Apple and Android will be the two application models that work.

[Disclosure: none]

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Can Palm get out from under the astDroid

by Kris_Tuttle on March 4, 2010

We’ve had ongoing coverage of the turnaround at Palm, first as a “special situation” back in late 2008 and into 2009. (See Nice short squeeze on PALM! which we posted back then.)

Back then we estimated the intrinsic value (IV) for Palm to be about $11. But the nature of computing IV for a turnaround story is tricky because it’s hard to forecast long-term operating margins of the reinvigorated business in the technology industry and that creates a fairly wide variation in probable scenarios. The range we provided at the time was $6 to $16.

The current situation was detailed more completely here last March when we posted PALM: Worries become more tangible and noted that take up rates and ultimately margins were very uncertain given the current landscape.

One point we made in the note was that for Palm to break out we needed to see other companies license the Palm WebOS. So far that hasn’t happened.

Despite our notes of caution the market and many sell-side analysts jumped on the Palm bandwagon and pushed the stock all the way to $15 which factored in what we saw as a best-case scenario. It’s not that Palm didn’t have a good device and a strong software offering, it was that in a massive, highly rivalrous industry, they were not going to be able to generate high margins at their size.

In the past year though the iPhone has only gotten stronger, Android has erupted on the scene and devices like the Motorola Droid have joined the ranks of “must have” that carriers are scrambling to add to their lineups.

Even Research In Motion is reinvigorated and has a slew of new models and OS upgrades coming this year.

So what can Palm do now? It’s actually not too late to change to a more successful plan. It was pretty clear before that Palm simply lacked the scale and resources to go head-to-head with what has become a very high stakes game in the Mobile Internet.

The key for Palm has to be WebOS and the potential for it in alternative mobile devices. Palm needs to be more than “a better iPhone” for carriers to care. The tablet space could be more open for Palm, especially thanks to WiFi and other broadband networks. We think areas like the connected car are going to be big and drive millions of units per year. That’s a space that Palm could compete in.

At the same time Palm needs to do it with parters and stop trying to go it alone. For example what about partnering with a company like Garmin for automobile cockpits that have both navigation, web and entertainment software?

Maybe they should buy Jolicloud? There’s also a huge set of opportunities in web-connected devices in the home, PalmOS could be a good choice for many of them.  We think the user interface on Jolicloud makes it a potential winner for consumer devices.

In short the company needs a total restart. They have quite a few resources and a decent product. Perhaps they got the dose of humility they needed to move to a new level of leadership. We are rooting for them.

Other Related Posts:

Is there any hope for Nokia? October 2009.

[Disclosure: None.]

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Reasons to expect multiple compression on Google

by Kris_Tuttle on February 26, 2010

Google is in the news again in a not-so-favorable light due to continued scrutiny and actions in Europe. We have written about this a few times (see Related Posts) and we have acknowledged it more as a nuisance so far.

However a recent post over at Taylor Frigon discusses the shifts that occur for large industry players over time and suggests that the “topple rate” for the kings of the hill may be increasing.

In the last few week or so I’ve been thinking about some other long-term and big picture technology company shifts and some of the conclusions made me become incrementally worried about Google, at least in terms of what multiple to apply.

The key exploration that started off my line of thinking was IBM versus Sun Microsystems. IBM has faced some very serious shifts in their business and has managed to deal with them quite effectively although in most cases over a multi-year period.

We were at IBM for the shift into professional services. It was a very hard sell at first. Few, if any customers, felt that IBM could be objective. But IBM brought in senior executives that understood the services business and perhaps most importantly they changed all their employee incentives to drive behavior. In the ensuing 10 years IBM built a huge, top quality services business that also helped them add to their software empire as well.

There were many major changes at IBM over the past 20 years including exiting the PC business and becoming an OEM supplier but the point we are left with regarding IBM is that they understand two things as deeply as any player in the market: technology and the enterprise business. (we will come back to this vis a vis Google and Apple)

What about Sun Microsystems? They famously didn’t make it despite their technology acumen and massive business success in the late-1990’s. We know that Sun didn’t understand software or services at all but they took the further step of deciding that they wouldn’t bother to learn about it either. So Sun soldiered on in a battle where the terrain, weapons and methods of fighting all changed but Sun didn’t. That’s why the story ended the way it did in contrast to IBM.

I’d say the critical problem at Sun was that they only understood technology deeply, and even then it was mostly hardware and server technology. Sun didn’t see things from an enterprise perspective. Nor did they have any consumer expertise. So at a very high level Sun was actually a feature and not a company. It sounds glib but I don’t think it is.

Sure but that’s all ancient history now. What does it have to do with Google?

In looking over the landscape of companies we follow and have in our R2 Model Portfolio company management and culture is a key aspect of our investment process. In fact since it factors directly into the multiple investors should apply to future results it’s perhaps the most important one.

Broadly speaking we’d say that Apple is a company that understands technology, both software and hardware, as well as any other company in the world. However they couple it with a design and consumer focus that is allowing them to gain market share in multiple areas all at the same time. Obviously their overall company execution in terms of margins, delivery, their retail operations has also been top-notch. So Apple deserves a higher-than-average multiple.

I’d be willing to say that Google understands the Internet better than any other company. This includes aspects like Cloud Computing, Open Source and Mobile Internet to be sure. They have exploited this so far with search and advertising. Fortunately for Google this is a massive, rapidly growing and high-margin market.

But what else?

Google does not have a deep appreciation for the enterprise or consumers. The success of something like Gmail or Google Apps has more to do with it being good technology offered for free or near-free rather than any great insight, marketing or design on Google’s part.

Results on the consumer side of their business are decidedly mixed at best. Wave was a dud. Buzz was a fiasco. Nexus One is a proof-of-concept more than anything else and we expect companies like Motorola to make Android a success.

Again Android will succeed based on the fact that Google has delivered a high-quality, open technology platform for free.

Many of you may be saying “duh!” at this point. That’s who Google is! But I’m not sure if investors completely understand that the leadership and culture at Google may not serve them well as they move into new markets and start to compete with companies like Apple and IBM.

To me it argues for a some tempering of long-term growth expectations and the multiple applied to future results. We still “like Google” and rank them high in our coverage in many areas including Cloud Computing, Mobile Internet and even RealVR thanks to Google Earth, Maps and SketchUp.

Related Posts:

Worries on Google International Materialize…

Is Google International Growth in Jeopardy?

Also for people who want to read a full report on Google we published Google: Media Moguls or Technology Gurus in February, 2008. It’s available in the research library for members and also online for a small fee. Click here to purchase.

[Disclosure: The R2 Model Portfolio has a long position in Google at the time of this writing.]

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More reasons why Internet TV is inevitable…

by Kris_Tuttle on February 24, 2010

A couple of weeks ago I posted on the coming of Internet TV and even the ability to pre-order them on Amazon.

I received quite a bit of feedback from people that were clearly confused about what Internet TV is.

Many people for some reason think that Internet TV is some kind of an either/or decision. It might help if we called it “Internet-enabled TV” instead. One can still watch the normal cable programming along with Internet-sourced content from YouTube, Hulu, Netflix, and so on.

A feature article today in the New York Times today illustrates how important the Internet feature is to allow interaction and social connectedness.

Another key point made in the article is that by getting mixed in with Internet content viewers actually consumer *more* TV programming because their friends, colleagues or just the social world is commenting on it.

The Olympics are serving as a prime example. There is so much coverage of the Olympics that most people just don’t have the time to figure out what they want to see and remember to watch it when it is on. Media companies create “highlights” which help but they also attenuate the content.

This year people are being alerted to segments that they should see by their friends which creates burning desire where there was only mild or even no interest before.

It looks like another disruptive wave is about to hit TV programming. As we have noted here and elsewhere it’s been too-long in coming.

Related Posts:

Coming next week: Internet TV

Broadband v Cable

[Disclosure: None]

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QuinStreet is getting more interesting

by Kris_Tuttle on February 23, 2010

We published a research report that provided a preview of the QuinStreet (QNST-$13.14) IPO and noted that the main problem we saw was the too-high filing range. The mid-point at the time was $18 and didn’t leave much upside to our intrinsic value (IV) estimate of $21.

Subsequently the investment banks (Credit Suisse, Bank of America and JP Morgan) reduced the price to $15 and got the deal done at a more favorable valuation for investors.

It turned out that one fear outlined in the report regarding a concentration in the paid education space came home to roost thanks to some weakness in the shares of market leader Apollo (APOL-58) last Friday. That plus a little general market malaise has the shares now trading close to $13 which is starting to pique our interest.

Even though this offering wasn’t a great success for the company so far it has paved the way for more companies in this space to test the IPO waters.

Reply.com just filed for an IPO and based on the decent but lukewarm response to QuinStreet it may not be an easy one to get done unless the market improves from here.

We haven’t done the research work yet for an IPO preview report on Reply but given the current trading level in QNST we’d expect investors to be fairly price sensitive.

For anyone that missed our QuinStreet IPO Preview report it’s available free to R2 members (who register and are approved on the website) and for a small fee here for those not interested in registering.

In a tough market a recent IPO like QNST could fall to very attractive levels. Based on our analysis and their high profit margins it’s one to keep an eye on.

References:

QuinStreet IPO Check

[Disclosure: None.]

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Motorola finally starting to get it. Should double from here.

by Kris_Tuttle on February 12, 2010

Yesterday Motorola announced their plans to split the company into two businesses in 1Q2011. Essentially they will create a consumer-focused company with mobile devices and home networking and another company that handles enterprise and government products and services.

We published an analysis of Motorola positioning strategy that we had prepared for the company in advance of their January board meetings to resolve their long term plans for the company. (available via our research library but requires free registration and approval)

In the end the solution that they came up with looks like a it has real potential, especially in the consumer space given what is happening with 1) mobile Internet and 2) Internet TV.

We already can see strong success for MOT in the mobile Internet space thanks to their Android-based strategy and what will be a full stable of winning devices in the smartphone space set to roll out this year. We’ve been talking a bit about Internet TV (see this post from just yesterday) and will soon be rolling out coverage of the “connected car” as it too goes IP.

Motorola will be in a position to do drive some unique innovation in this new set of spaces. Cisco is strong in home networking but is at a disadvantage to Motorola in mobile. Motorola will have a strong and potentially improving position in both which will matter as consumers will expect to be able to do similar things between their mobile and home devices with their myriad content.

The enterprise business will appeal to investors who are looking more for stability rather than growth and should fit well into GARP type portfolios or perhaps value types depending on where it trades as a separate entity post the split. From a coverage standpoint this part of Motorola will not likely be “our cup of tea” so after the split we will focus our efforts on the mobility and home portion of the company.

It’s *way* too early to know enough detail to be precise but based on our very early and rough analysis we have an IV for the mobile/home division of $12.50 and an IV for the enterprise/networks division of $6.25. However even if we are only 1/2 right on the mobile/home division the stock is a double from here.

The gap between the current share price and what we expect exists for two major reasons: 1) Investors are very concerned about the profitability of the new mobile/home networks division based on the history of it at Motorola and the perceived untested nature of Sanjay Jha as the CEO. 2) Motorola has a history of bad management and poor execution during the last ten years or so and some are calling this just more “moving the deck chairs around on the Titanic.”

Our view on the risk reward is favorable due in part to the massive growth in mobile and home Internet which will put a strong wind at the back of Motorola management in this space and the strong net cash position that helps to limit downside from here.

[Disclosure: The R2 Model Portfolio has a long position in MOT as a "special situation."]

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Coming next week: Internet TV

by Kris_Tuttle on February 11, 2010

So far Internet TV has been slow to get started. Part of the reason is that early efforts like Apple TV just didn’t work very well as a main entertainment system in a home.

Next week the space will get a boost as a new price/performance leader in this space, Vizio, will be shipping a new array of very nice Internet-focused TVs. By focusing on general purpose Internet attachment these devices will serve very well as what they are supposed to be (a TV) but also enable a range of new entertainment and gaming services to be delivered seamlessly and easily over IP networks.

Vizio Overall Specs.jpg

Now instead of having to watch Cable VOD on the TV and Amazon or Netflix VOD on your computer, it will be easy to watch everything on your beautiful, large TV with a sound system and comfortable chairs.

Some have noted that the average consumer is not in a condition to buy these iTV units since they only recently went to HDTV. That may well be the case but it will only slow the take up rate, not stop it. In fact I think that we tend to underestimate how powerful the pull of a new entertainment unit like this is for most consumers. It’s not unusual for a home to have multiple TV sets and we see most incremental purchases including these new features to help “future proof” current purchases.

Vizio is also demonstrating that we are starting down the path of wireless connectivity with the TV. Most “media centers” have been put together in part to deal with the mess of connecting cables that swirl and tangle behind the multiple units that comprise the system. A number of companies have been focused on very high speed wireless methods so that the only connections needed will be power cables.

The remote provides an early example of what we expect to see in the space. This one covers the basics but in the future they will be more elaborate and functional.

Vizio Remote.jpg

With bluetooth it will be easy to add better keyboards as well as specialized devices for gaming and device networking applications.

In summary we think 2010 is the start of Internet in the living room from the iTV to the iPad it’s going to be busy. It’s also one step closer to 3D as well which may be another driver that kicks in starting in 2011.

This link can be used to view these at Amazon.com and to pre-order if you want to be the first on your block to step into what will be more entertainment without all the proprietary borders and limits.

This seems like something Dell should be leading the charge in no?

Update: And don’t forget that Google is taking YouTube to new levels with a redesign and more watchable features like live concerts. The rise of Internet TV will be very good for Google.

[Disclosures: None]

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Optimus is another notch in the belt for Nvidia.

by Kris_Tuttle on February 11, 2010

I avoid talking about every technical burp and tweek we review from the major technology firms including Intel, AMD, Nvidia, and the like. (Same goes with every ebb and flow of performance ratings and twists and turns of patent disputes.)

However the recent release of Nvidia Optimus tecnology is another small reason we prefer Nvidia to companies like Intel and AMD in the computing space.

There are several pages of technical description of Optimus available (this is a good one) but we’ll net it out as an elegant way to offer a computer with the power of a discrete GPU engine that is only used when it is needed, thus saving lots of power and helping to lessen the big tradeoff between speed and power consumption which bedevils mobile computing.

The most familiar analogy is the all-wheel drive in cars. In the old days most all cars were 2WD but for a very few 4WD like the Jeep. The drive train was permanent, there was no switching. Then cars started to come with the ability to lock and unlock the 4WD feature when the car was parked and you had the time and willingness to change the hub settings on the wheels. This got better with a simple lever but in most cases you still had to stop the car.

Now 2WD/4WD systems are automatic and unless you do something to prevent it, the car senses and uses whatever drive parameters are needed to maximize performance. The same is true with hybrids that shift between battery and internal combustion engines.

You get the idea.

Similarly it has been possible to manually turn off a GPU inside a laptop but it’s complicated and requires a reboot – so nobody ever does it.

The Nvidia Optimus technology allows a GPU to turn on only when an application that leverages the power of the extra processors is invoked. At the same time it turns off when it’s not needed. So when you are reading email the GPU is off and the power consumption is minimized. When you are done and fire up a video or graphically intensive game the GPU kicks in and delivers the power needed for a great experience.

This sort of “hybrid computing” has been around for some time but what’s important about this is the implementation. An important difference this time is that incorporating the design doesn’t involve extra effort and costs on the part of the device maker. So this will become a standard feature right away. After all any laptop with a GPU and without Optimus is at a major disadvantage in terms of expected battery life which is a big factor in use.

I don’t want to make too much of it but it’s another good datapoint with respect to Nvidia maintaining the leadership in driving the GPU into the fabric of general purpose computing (which BTW is a certainty in our research view, see our other research notes on it.)

Also refer to an earlier post (Nvidia Turns the Crank) for more links.

[Disclosure: The R2 model portfolio has a long position in NVDA.]

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Tech Bits & Pieces

by Kris_Tuttle on February 8, 2010

RIMM too sexy to be single?

We wrote about it back in this January post but now bigger, more connected sources like Kara Swisher are writing about the release of Microsoft Windows Mobile 7 and how they might need to do something big. The scuttlebutt is that Ballmer would love to buy RIM at the same time it sounds like they realize that buying PALM, while it is much cheaper, won’t really get them anywhere. We stick to our guns on RIMM both as a fundamental story and a too-sexy-to-be-left-alone technology player.

Is Adobe FLASH an endangered species?

We’re not going to get into the technology pissing contest of HTML 5 versus FLASH here. There are dozens of sites that will numb your brain going over it all. The point however is that lots of things are popping up that developers are getting excited about – the iPhone, Android, the Cloud, Facebook, Twitter and now the iPad. So much opportunity, so few incremental buyers of CS5?

Part of the problem is there is a simmering resentment out there for how fat Adobe has been getting off of $1500 software “suites” and $500 upgrade fees. It’s all great stuff but while technology pricing always feels like it’s coming down Adobe feels like a high tax and it reminds people how proprietary FLASH.

Even if FLASH continues to dominate and Adobe does “just fine” with CS5 and future releases if investors perceive it more like Microsoft which “does just fine” with Windows and all that jazz they will be trading at a multiple closer to the old guard.

The conventional content model implosion picks up steam.

Again we’ve penned on this topic before but over here on the Creative Destruction blog. Thanks to the Amazon/Apple dust up with Macmillan the crowds are gathering around the content pricing ring to watch the fight.

There were some stories out today that cable companies should simply focus back on the broadband and stop trying to be in the media business by packaging and charging for entertainment content. It’s certainly something to worry about for them but given their culture it’s hard to see how they work around that part of their core business.

The issue of “what’s the right price” for an online book is fascinating. Part of the problem the entire industry faces is the “casual user” factor. The picture of one set of people pounding the table that “it has to be $14.99″ and another saying “it has to be $9.99″ is absurd. What about lending books? Right now whatever I pay online I can’t lend it to anyone. Why shouldn’t an online book be $5? Nobody knows. Maybe it should be priced by the chapter? That could work for non-fiction anyway, I’d like that model.

As usual most of the discussion we see appears to ignore the consumer, the typical or newly possible use cases. Instead it focuses on some futile preservation of the old model in an entirely new era.

[Disclosure: The Research 2.0 model portfolio contains shares of Apple and RIM at the time of this writing.]

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