Tesla Motors: Customer Irrationality

When something irrational happens, most try to find a logical reason to explain matters. Sometimes, the reasonable course of action is to simply attribute nonsensical behavior to nonsensical-ness, as Stifel does today on TSLA.

…the reality is, these issues simply do not matter with respect to Tesla’s stock. Tesla sentiment is like a freight train… Tesla has captivated a global audience, some of whom have lost interest in distinguishing horsepower ratings among the dozens of $100k-plus luxury vehicles, others that would have never considered spending six-figures on anything but a house.

Customer sentiment != investor sentiment. When your world is the one of investment, momentum’s physics don’t quite work the way we expect.

 

Microsoft + Nokia

Microsoft has entered into an agreement to purchase Nokia’s devices and services business. Let that sink in for a little bit.

 

 

 

 

Okay, so every tech behemoth seems to have their own vertically integrated software and hardware stack these days, so why not us, right? With all of the ongoing talk of a shift towards devices and services as a company, at Microsoft, the acquisition of Nokia’s business makes sense, comes with a very reasonable price tag (unfortunately, for my Nokia holdings I’m very sad to say), and integrates together what are already two very linked teams. There will no doubt be countless calls of conspiracy, with Stephen Elop rejoining Microsoft, albeit now as part of a devices group, as opposed to the Office team he used to run. I, for one, am very excited about these developments.

There were also a few interesting nuggets of information in the Strategic Rationale, which accompanied the acquisition announcement.

  • As a licensor of the Windows Phone software, Microsoft’s gross margins on each Nokia smartphone is <$10
  • As a manufacturer of Windows Phones, Microsoft’s gross margins would be >$40
  • Operating income breakeven arrives at ~50 million smartphones. Last quarter Nokia sold 7.4 million Windows Phones, up from 5.6 million the previous quarter. Could breakeven come in FY15?
  • The acquisition becomes accretive to earnings only in FY2016. Based on the non-GAAP FY2015 estimate of $0.00 impact, my guess is, as above, we expect to sell ~50 million phones.
  • We expect 1.7 billion smartphones to be sold by 2018 – we also expect to claim 15% of that market
  • That is expected to translate in $45 billion in revenue, or approximately $176 ASP. Nokia’s most recent quarter’s Lumia ASP was $207.
  • Even with 15% market share, the smartphone business will be a very lucrative business
  • Microsoft combines its patent portfolio and deals with those Nokia has signed with competitive ecosystem OEMs into a heck of a licensing powerhouse and protective fortress

More thoughts as things develop.

Silly Money – A Satirical Overview of the Financial Crisis

I was introduced to the comedy of Rory Bremner, a British comedian, this past week at a WIREX talk. In a four-part series, entitled Silly Money, he along with ‘The Two Johns’ take a satirical look at the financial crisis.

The videos are available on Google Video and I’ve linked the search for your enjoyment. Not only are they witty, they also convey some insight to the global financial crisis in a way that can be understood by all.

Dow Jones Feb. 20, 2009 – Near Capitulation

For a few days in the middle of the last week, it looked like the Dow Jones Industrial Average was going to hold on at the retest of its November lows around 7500. Then on Friday, the fears of the nationalization of Citigroup and/or Bank of America pushed the Dow to an 11 year low quite emphatically. By the end of the day, the White House had come out to support the private banking sector, and although stocks rallied (BAC went from -30%+ midday to only -3.5% by the close) we’re still sitting at a new low.

Dow Jones, week of Feb. 13, 09

Around 1:30pm on Friday, I thought this was going to be it. I was looking for capitulation, and when the stampede of investors were jamming the doorway out of both Citi and Bank of America, it looked pretty much like the final capitulation. Stocks were in freefall.

I recently made my RRSP contributions for the 2008 fiscal year and haven’t made the leap into equities yet. There’s something to be said for long term investing, but when the Dow is at a (near) 11 year low, doesn’t that make you sit up and rethink that plan?

The stock markets are supposed to be a leading indicator to the health of the economy, about 4 to 6 months out. With that in mind, the predictions of a second half economic recovery are looking shakier than ever. Over the course of a year, that ‘recovery’ has been pushed out from late ’08 to 1H 09 to 2H ’09. Now I’m reading comments on the ‘recovery in 2010’. Wow.

Unprecendented

One the biggest pieces of business news today was the continuing fall of Citigroup shares, and at their current levels below $5, you’d have to trace the charts back to 1993 to find a similar low. Despite continued reassurances of liquidity, shareholders aren’t listening and are dumping the stock en masse. Volume was well over 700 million today. Failure isn’t much of a danger – the American government/central bank would never allow such a crippling event to occur; however the face of banking will be seriously changed even if a full government bailout were to occur.

Furthermore, I found the advertisement below the Citigroup chart at Yahoo! Finance to be quite shocking.

Citigroup Stock - November 20, 2008

Yes. That’s General Motors advertising its bailout plan.

What has the world come to?