Reggie_Middleton_Facebooks_Valuation

With Facebook slated to start trading in a few days, I feel it is appropriate to brush off some of the BoomBustBlog research and opinion that can help subscribers wade through the sell side waters. To wit, CNBC reports Facebook Faces User Distrust, Advertising Apathy: Poll:

More than half (57 percent) of Facebook users polled said they never click on ads or other sponsored content when they use the site, according to a new AP-CNBC poll. Another 26 percent said they hardly ever engage in such activity. Only 4 percent of users say they often click on ads — results that are only slightly better than the 2-3 percent clickthrough rate some experts consider the benchmark for effective banner ads.

This doesn't sound too good does it. Well, you can't say I didn't warn you last year: 

1. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
2. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1

Facebook users have consistently cast a wary and suspicious eye on the platform: 59 percent of respondents said that they had little to no trust in Facebook to keep their information private.

That doesn't sound very good either, does it?

Yet despite those ongoing concerns, the number of users (and their engagement) continues to increase. Facebook has grown to 901 million monthly active users worldwide, with personal computer users spending six to seven hours per month on the site (compared to just 3 minutes for Google+ users), according to recent data from ComScore.

Now, this sounds very, very good. Of course, it doesn't sound as good when you look at it in context...

Slower subscriber growth...

As for Mark Zuckerberg, the wunderkind CEO who turned 28 on Monday inspires somewhat tepid confidence as a leader, with only 18 percent of respondents saying they were extremely or very confident in his ability to run a large publicly traded company like Facebook. Yet pinning down a specific reason was difficult for respondents, who neither cited his age, temperament, nor reputation as significantly affecting those abilities.

Now if one were to ask me why I would be tepid in my confidence in Zuckerberg as a leader, I would say that its not his leadership abilities that are the biggest concern, it is the fact that he can single handedly wreck the company and the weak ass board of directors and the shareholders would be powerless to do anything about it. Instead of referring to him as the leader you can refer to him as the 28 year old potential tyrant and dictator. Reference Facebook CEO Running From Investors 'Cause He IS The Only Investor Whose Opinion Actually Counts?

CNBC also included this following chart...

Hmmm. That doesn't sound too promising, does it? Well, despite all of this, Facebook is finding absolutely no shortage of suckers asses for which to place in the Facebook IPO seat.... 

• Facebook increases IPO range to raise $12.1 billion
  3:37pm EDT
• Facebook's Zuckerberg says mobile first priority
  Sat, May 12 2012
• Facebook's IPO already oversubscribed: source
  Fri, May 11 2012

Hey, it gets worse. WSJ.com and Reuters report GM plans to stop advertising on Facebook:

General Motors Co will stop advertising on Facebook, a move that comes during the same week the social networking website is due to go public.

The U.S. automaker confirmed a report by the Wall Street Journal. A source familiar with the automaker's plans said GM's marketing executives decided Facebook's ads had little impact on consumers.

GM said it will still have Facebook pages marketing its vehicles, but it will drop use of paid ads. Anyone can create a Facebook page at no cost. GM pays no fee to Facebook for its pages, which allow the automaker to reach consumers directly.

... "In terms of Facebook specifically, while we currently do not plan to continue with advertising, we remain committed to an aggressive content strategy through all of our products and brands, as it continues to be a very effective tool for engaging with our customers," GM said.

GM spends about $40 million on its Facebook presence, but only about $10 million of that is paid to Facebook for advertising. The rest covers the creation of content and the agencies involved, The Journal said.

GM, the country's third largest advertiser behind Procter & Gamble Co and AT&T Inc, spent $1.11 billion on U.S. ads last year, according to Kantar Media, an ad-tracking firm owned by WPP PLC. About $271 million of GM's total ad spend last year was for online display and search ads excluding Facebook advertising.

Hmmm... It appears as if the MSM has it out for Facebook today, in direct contravention of its historical actions pushing this company. I wonder if its because I wrote How Does Facebook Drum Up So Much Frothy Interest For Its Overpriced Shares? Help From The Media, Goldman, et. al.

I've had a few subscribers who, after reviewing the (subscription only) FaceBook IPO & Valuation Note Update and Facebook Valuation Model, have seriously queried how Facebook is managing to drum up so much froth and interest for its obviously overpriced shares? The apparent answer is the marketing machine known as Goldman, et. al. The less recognized answer is assistance from the MSM, as demonstrted by this CNBC article - Facebook’s Premium Ad Prices Still Rising:

Pricing for Facebook’s premium “social” advertisements continues to rise, two recent studies have found—a positive indicator that could offset concerns about a dip in advertising growth and help sentiment towards the Internet company’s initial public offering.

This is a net positive statement, no?

A report to be released on Monday by Marin Software, a digital marketing platform that processes more than $100 million worth of spending on Facebook, found a 26 percent increase over the last year in the cost per click for “premium” ad formats such as Sponsored Stories, which highlight friends’ “likes”, comments and other endorsements of brands’ activity on the site.

Wow! That's pretty good growth and pricing elasticity, no? Bring on those newly public shares and let 'em rip!!! 

However, Marin’s report also found the cost per click for Facebook’s standard ads, which make up an estimated three-quarters of the social network’s advertising revenues, fell 26 percent over the last year.

Wait a minute, if 75% of the companies product dropped in price, doesn't that easily swamp the 26% of the companies premium ads that rose in price? An even more direct questions is, why isn't this being reported as the net negative that is is? Let's walk though this step by step for the more arithmetically challenged amongst us...

So, according to this MSM article, reporting a net 13% drop in revenue somehow amounts to - and let me quote this so as to be as accurate as possible - "a positive indicator that could offset concerns about a dip in advertising growth and help sentiment towards the Internet company’s initial public offering". Please excuse me as I wipe the splattered bullshit from my computer screen - it's hard to type accurately with those opaque, stinking brown stains in the way. Even worse, it goes to show what portions of the MSM actually think in terms of the intellectual capacity of its readership. 

It would seem that Facebook Finally Faces The Fact Of BoomBustBlog Analsysis. 

Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012.

It is strongly recommended that said subscribers download and input their own assumptions into said model in order for confident preparation before the IPO launch! I just nominally input some very generous numbers and the best case scenario chart (see the chart tab after your own individual inputs) is quite revealing, indeed! The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update. It is recommended that subscribers (click here to subscribe) also review the original analyses (FB note final 01/11/2011).

 Here's where I broke it down on Capital Account

I also happened to do the same on the Max Kesier show...

I discussed Facebook on the Peter Schiff radio show, the Facebook excerpt is below...

Additional Facebook analysis, valuationa and commentary.

On Max Keiser, go to the 13:55 marker for more on Facebook...

Here are the free blog posts on the topic:

1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

Okay, it's time to review Apple's earnings. It's interesting that so many in the street and off are coming around to my way of thinking regarding Apple. To me that means that fundamental analysis is starting to return. I have had more hedge funds request Apple research than at any time in my site's history.  Before we move on to the Apple analysis, I want to inform all that I will be discussing this on air live today in the “CNBC Stock Draft 2012” live on @StreetSignsCNBC, 2:30 pm ET, hash-tag: #cnbcstockdraft2012

cnbc_draft_pick

Here’s the competition:

• Josh Brown – SHAOLIN STOCKPICKERS
• Abigail Doolittle - DOOLITTLE'S DO-A-LOTS
• James Altucher – THE BOOM TEAM
• Reggie Middleton – TEAM BOOM BUST
• Pete Najarian – THE PONY EXPRESS
• Paul Hickey – B.I.G. MONEY
• Guy Adami – THE OUTSIDERS

Here’s the list of stocks:

• Apple
• Starbucks
• Priceline.com
• Mastercard
• Dollar Tree
• Facebook (You buy the stock POST IPO .. you don’t get it at the IPO price…must buy at first day closing price)
• Google
• AT&T
• Johnson & Johnson
• Dell
• Microsoft
• Coca Cola
• Exxon Mobil
• McDonalds
• Groupon
• JC Penney
• Netflix
• Best Buy
• RadioShack
• RIMM
• Green Mountain Coffee

On that note, its time to review Apple's Q2 results. Subscribers, please download  Apple 2Q2012 results analysis.

In short, we significantly underestimated the international sell through of the iPhone, as did much of the sell side. We were off, and wrong on that part and although there was significant internal discussion on raising estimates, the work that went out was not what it should have been. I mention this because we are consistently more optimistic than the sell side in terms of units shipped, thus more accurate come earnings time. This quarter was a snafu. I also mention it because I tend to be a perfectionist and the deviance between the actual results and the projection should have been minimized. With that being said, the logic behind the added caution is still quite valid. 

For all of those near fanatics who do not subscribe, I suggest you ask a friend who does subscribe to share with you the difference between last month's valuation note target price (page 10 of  Apple Margin & Valuation Note) and the price of Apple today, the day after earnings (click here to subscribe).

As excerpted: 

It is worth noting that the key assumptions that underline the above valuations – (1) iPhone continuing to witness stupendous growth *******  in 2012 and ****** 2013 over a larger base and (2) iPhone margins continue to remain healthy off stable prices and despite increase in material cost – should be keenly watched over the next couple of quarters. 

Then ask them bout the logical argument behind the concern with Apple and the extremely volatile price action of the last few weeks. As stated many times in the past, The BoomBustBlog argument and analysis is solid.

What else is there to the earnings announcement? Well we were absolutely correct in terms of the oncoming margin compression of the the product lines, something that was actually easy to see coming but many refused to admit. Of course, there will be those select few that say, "But wait, the company reported an INCREASE in margins while you said there will be a decrease!". Yes, that's true and both can exist simultaneously.

Apple_2Q2012_results_analysis_Final_Page_2

Apple_2Q2012_results_analysis_Final_Page_3

Apple_2Q2012_results_analysis_Final_Page_4

 I will discuss nearly all of the stocks in the CNBC stockpicking list above in the next few posts on my way to studios via BoomBustBlog and ZeroHedge. Comments are always welcome. Follow me:

Reggie_Middleton_Facebooks_Valuation

The MSM is echoing BoomBustBlog analysis today, as per Bloomberg: Facebook First-Quarter Profit Drops; Costs Almost Double

Facebook Inc. (FB), the social network planning an initial public offering, said first-quarter profit fell 12 percent as sales growth slowed and marketing costs more than doubled. 

This is exactly as I warned in my initial Facebook analysis to subscribers - The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly... 

Sales had risen 55 percent to $1.13 billion in the fourth quarter, and net income had climbed 20 percent.

Thus, it is highly unlikely one can legitimately factor in the type of growth needed to justify the current Goldman $50B valuation - particularly when you consider that Facebook's growth is already slowing!

Now, back to the Bloomberg article...

Net income dropped to $205 million in the three months through March, Menlo Park, California-based Facebook said yesterday in a regulatory filing. Sales climbed 45 percent to $1.06 billion, a slowdown from 55 percent in the December period.

“Facebook has a pretty steep hill to climb to meet the expectations that we set out,” Williamson said.

Facebook may seek an IPO valuation of $75 billion to $100 billion, people with knowledge of the matter have said. The upper end of that range would value the company at about 25 times trailing 12-month sales, more than double Google (GOOG) Inc.’s valuation when the search-engine operator went public in 2004.

Before last quarter, Facebook’s sales were already projected to gain at a slower rate this year than Google’s at the time of its IPO, according to data compiled by Bloomberg. At $6.1 billion, 2012 revenue would be 64 percent higher than the $3.71 billion reported in 2011. Google’s revenue more than doubled to $3.19 billion the year it went public.

Zynga Revenue

Facebook said 82 percent of its revenue came from advertising last quarter, down from 83 percent in the preceding period. The company also derived less revenue from gaming companyZynga Inc. (ZNGA), which contributed 11 percent of the total in the quarter, down from 13 percent a year earlier.

The number of daily active users rose to 526 million, an increase of 41 percent from a year earlier. Facebook’s employee base rose 46 percent to 3,539 from a year earlier.

“Our costs are growing quickly, which could harm our business and profitability,” the company said in the filing. “Providing our products to our users is costly and we expect our expenses to continue to increase in the future as we broaden our user base, as users increase the number of connections and amount of data they share with us, as we develop and implement new product features that require more computing infrastructure, and as we hire additional employees.”

The paragraph above, decoded: These expenditures are true expenses, and not actual investments for they are needed to keep the company above water in the competition with Google, et. al., and are the stuff that actually fosters long term growth.

From C|Net:

 Its first-quarter revenue rose 45 percent to $1.06 billion compared with a year ago, but it was down 6 percent compared with the last quarter of 2011.

At the same time, the company's net income for the first quarter fell 12 percent, to $205 million from $233 million a year ago. And it was down from $302 million in the fourth quarter of 2011.

That drop in quarterly revenue and profit comes even as Facebook continues to see big user growth, meaning that it's making less on each user. Facebook said that it now has 500 million daily active users, compared with 372 million a year ago, and that its monthly active user number -- people who use Facebook at least once a month -- has climbed to 901 million from 845 million in December.

Its average revenue per use, called ARPU, fell 12 percent from the fourth quarter of 2011, and Facebook said that was mainly due to "seasonal trends." The company points out that it saw the same seasonal weakness during the fourth quarter of 2010.

Even more telling are the comments from that article...

15% of revenues came from Zynga...and that stock's not looking too hot these days. For those on the fence about whether this is a worthwhile investment, consider the last time you actually clicked on an ad in FB.

Posted by techgeekdude 

I am a once-a-month FB user at most. If FB is making any money off of me they are ripping off the one paying them that money. I may be counted as a visitor, but I am worthless to FB and anything connected to them as I cause no $s to pass their way.

Posted by UnderStress 

I discussed Facebook on the Peter Schiff radio show yesterday. The entire show can be heard via podcast from his site, and the Facebook excerpt is below...

From my previous Facebook analysis public excerpt:

Yeah, I was on a roll last year, wasn't I? That's not the gist of it either, as we reminisce even more...

Additional Facebook analysis, valuationa and commentary.

On Max Keiser, go to the 13:55 marker for more on Facebook...

Of course Facebook enthusiasm is burning hot. The coals in the "investor" (and I put this lightly) fire are being stoked by none other than the sell side agents doing God's work, among others...

Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for this report, available for immediate download - Facebook Valuation Model 08Feb2012. The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update. It is recommended that subscribers (click here to subscribe) also review the original analyses (FB note final 01/11/2011) as well as the following free blog posts on the topic:

1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly

Google posted robust 1Q results topping the consensus estimates by a wide margin – revenues increased 24% to US$10.6 billion as against US$8.6 billion in the same period, a year earlier. This was significantly higher than the consensus estimate of US$8.2 billion for the period.Revenues were in line with our estimates – we expect full year revenues to total US$43.1 billion. Revenues from Google websites accounted for around 69% of total advertising revenues while that from the partner websites contributed to around 27% of revenues. The remaining 4% of revenues were accounted for by licensing and other fees. Geographically, the US generated around 46% of total revenues, UK accounted for 11% of total revenues while other markets accounted for the rest 43% of revenues.

Growth in revenues was driven by an increase in click volumes, especially in the US market. The number of clicks increased by a significant 39% year-on-year and 7% quarter-on-quarter during 1Q highlighting the increasing popularity of the search engine. However, on the flip side, the cost-per-click or the average cost paid by advertisers declined 12% year-on-year during the period – largely due to the growing business in the emerging markets and mobile space, which usually carry lower margins. Nonetheless, Google's strong position in the mobile space – including both smartphones and tablets – is enabling the company to generate robust revenue growth. The Company also continues to benefit from the success of its DoubleClick ad exchange as well as the overall improving quality of advertisements. Google also witnessed growth in the European and Asian markets. Japan registered strong performance largely on account of higher contribution from SMB segment.

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Total costs increased 16% year-on-year to US$3.8 billion as against US$2.9 billion in the same period, a year earlier. This was largely due to the fact that the Company made investments in new products, increased its advertising expenses as well as increased wages. Further, higher amortization charges, the data center operations cost as well as content acquisition costs drove the overall cost of sales higher. As a result, higher costs had a negative impact on gross margins which contracted by 136 basis points to 64.4% as against 65.8% in the year earlier quarter.

Operating expenses increased 16% year-on-year to US$7.3 billion as against US$6.3 billion in the same period, a year earlier. A 25% jump in selling and marketing expenses was largely responsible for the spike in operating expenses. The R&D expenses in fact declined as a percentage of sales during 1Q. Higher operating expenses had an adverse affect on margins which contracted 77 basis points to 31.8% during 1Q.

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From the profitability perspective, Google outshone nearly all its competitors as earnings increased by a significant 61% to US$2.9 billion (or US$8.75 per share) as against US$1.8 billion (or US$5.51 per share). Further, the Company continues to have a strong balance sheet with cash balances at an enormous US$49.3 billion at the end of 1Q.

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Every now and then, there's a company that I simply find as having an unsustainable business model. It's not so much an issue of not respecting the company, it's just that the business (as it is currently operating) cannot be seen as an ongoing concern. The Street.com reports: Groupon Plunges on Revised Results

Groupon shares plunged in extended trading on Friday after revising its reported fourth-quarter and full-year results, its first as a public company. The daily deals site reduced its fourth-quarter revenue by $14.3 million after initially reporting sales of $506.5 million. The revision also resulted in an increase to fourth-quarter operating expenses that reduced the company's operating income by $30 million, net income by $22.6 million and earnings by 4 cents a share. Groupon blamed the change on a shift in the company's fourth-quarter deal mix and higher price offers, which have higher refund rates. Investors baulked at the revision, pushing Groupon's shares down $1.68, or 9.14%, $16.70 in extended trading.

 Groupon_Crash

Of course paying subscribers, and even casual blog readers, cannot say that I didn't thoroughly warn you! Early shorts on this stock as per our research notes valuation matrices would have given pleasant Christmas presents and would have also stuffed one hell of an Easter basket as well!!!

On that note, let's reminisce....

1. Thursday, 16 June 2011 What Does Groupon and The Matrix Have in Common?
2. Monday, 26 September 2011 I Suggest Groupon Offer Coupons To It's IPO Investors, They're Going To Need Them
3. Monday, 26 September 2011 What's The Best Way To Profit From Groupon's IPO?
4. Sunday, 13 November 2011 I Hope You Groupon IPO Investors Got Coupons At The IPO!!! Yeah, That's Right I Was The First To Say It

It's 2011(2), Groupon, LinkedIn, Facebook, Banks, Brokers & REITs are all partying like its 1999! Subscribers, feel free to download  Groupon Forensic Analysis & Valuation (923.04 kB 2011-06-16 10:34:36)

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CNBC's Herb Greenberg brought this article to my attention: The checkered past of Groupon's chairman

FORTUNE -- "Lets start having fun... lets get funky... let's announce everything... let's be WILDLY positive in our forecasts... lets take this thing to the extreme... if we get wacked [sic] on the ride down-who gives a shit... THE TIME TO GET RADICAL IS NOW... WE HAVE NOTHING TO LOSE..."

Eric Lefkofsky

Eric Lefkofsky, serial entrepreneur

This is a quote from the dot-com era. It's pretty much what you'd expect a novice executive to say back then, when it was all about money and not at all about creating something good. It was written in an email by the co-founder of a company called Starbelly.com, which labeled itself a B2B provider -- back when people greeted that phrase with a straight face.

In early 2000, Starbelly sold itself to another company called Ha-Lo Industries for $240 million, much of which went to the author of those words, a man named Eric Lefkofsky. Not long after that transaction, Ha-Lo declared bankruptcy. Shareholders and others blamed the Starbelly deal, and a series of lawsuits ensued.

Eric Lefkofsky is the co-founder and chairman of Groupon, which filed last week for an IPO valuing the company at $30 billion, as well as its largest shareholder, with a pre-IPO 22% stake in the company.

Archived articles of interest...

1. A Realistic Forensic Valuation of LinkedIn – There Ain’t No Surprises Here…
2. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
3. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!

In the early spring of 2010, while trading at over $60 per share and still a darling of the street and corporate users, I warned that RIMM not only would not be able to compete with Android and iOS, but will be a phenomenal short. Well, two years later, while trading in the low teens the RIMM research is still pushing out profits. Research in Motion reported a minutes ago and...

• RESEARCH IN MOTION 4Q REV. $4.19B, EST. $4.51B
• RESEARCH IN MOTION 4Q ADJ. EPS 80C, EST. 81C

• RESEARCH IN MOTION SAYS BALSILLIE RESIGNS FROM BOARD
• RESEARCH IN MOTION SAYS JIM ROWAN TO LEAVE

• RIMM WONT' GIVE QUANTIVE VIEWS DUE TO LONG TERM FOCUS

• RESEARCH IN MOTION REVIEWING STRATEGIC OPPORTUNITIES 

image015As most who follow Apple know by now, management has decided to return approximately $45 billion of cash to shareholders over three years. Of course, given Apple's recent historical free cash flow generating performance, this is not a very big sacrifice assuming Apple can continue its meteoric growth (which we actually doubt).

Observations and opinions of interest:

1. Cook et. al. have made it abundantly clear that they plan to run Apple differently than that of Steve Jobs Company. This can be gleaned from Jobs insisting that Apple accumulate cash for a rainy investment fund as a growth company. This would have actually have been my preference as a shareholder, assuming I believe management had both the clarity and the vision to foresee new revenue streams as well as the managerial execution to see said revenue streams through. Under Steve Jobs' reign, Apple excelled in such. Under Cook's helm, I fear less so. Contrary to popular opinion, I don't necessarily believe that this is due to Jobs being materially superior to Cook in execution and/or vision, but due to the fact that Apple's primary revenue driving product lines are maturing and competition has increased immensely (read as Google, Samsung, HTC, etc.) in the very short period since Steve Jobs incapacitation.
2. Apple's management as openly and obviously declared their days as a "high growth" company are most likely numbered. This is evident because Apple has made the managerial decision that best interest of the shareholders would be better served in returning a substantial portion of its cash horde than attempting to invest it directly in ongoing (or new) operations or M&A. In other words, they believe that investors could make more or better use of the money than Apple management can. This is typical behavior for maturing companies, those that are leaving the high growth stage and entering the mature corporate phase. What is not so typical is to have a company that has been growing at the rate of Apple make such a decision, unless of course I was correct in my assumption that Apple's growth will see material growth headwinds in the near to medium term. If that is truly the case, then Apple's management is doing (by far) the best thing as per the interests of the shareholders.
3. If one has to return cash to shareholders, then the actual and explicit "return" of cash is the way to do it, ex. pay a dividend. Share buybacks, although hugley popular amongst the Fortune 500 crowd, is an ineffecient and in my opinion unproven method increasing shareholder value over the long term.

Yes, its a little late but I had a few pressing matters that took priority. Apple had a remarkable blow out quarter in Q4 2011, basically knocking almost everything out of the park. Those who follow me and study my research realize that this was not necessarily unexpected. Those who pay attention realize that Apple has made a lot of money, but the theory behind the margin compression still stands. As a matter of fact, it stands stronger now than ever before. Let's peruse a few anecdotal points, but before we do I want to reveal that I've had more institutional interest in my Apple/Google research (primarily asset management and hedge funds) than ever in the history of my writings. It appears as if some of the thoughtful money sees the writing on the wall as well.

$46 billion in revenue

Yes, that's a big number. That's very big for annual revenues, but Apple hit it in just one quarter. The problem is that many believe Apple simply hit this number out of organic growth, the quarter after it missed analysts expectations, expectations which have been historically heavily managed. I'm sorry, but this business is just not that volatile, as can be seen below.

Below, I drilled down on the date and used a percentage difference view to illustrate the improvement in P/E stemming from the earnings beats.

Taken from BoomBustBlog Subscription material -  Apple Earnings Guidance Analysis

So, what was behind this surge in fundamental performance? 

Quite a few factors, namely....

Apple's primary profit machine sales were off the charts. Apple is, from a revenue and profit perspective, essentially a smartphone company (subscribers reference  Apple – Competition and Cost Structure)

Of course there's more to the story.

The iPhone Debuted On Three Major Carriers vs One in the Past

Apple, for the first time, had the iPhone offered on EVERY major US carrier - Verizon, Sprint, and AT&T. This is in comparison with just an AT&T exclusive, and then an offering on Verizon that just capture part of a quarter. When the iPhone (or any extremely popular product ) debuts on a a carrier, there is pent up demand from people waiting for the product availability in order to purchase it. This pent up demand on a product debut through a carrier is unrepeatable. It is a one-time event. Apple had this phenomena... X3!!!

The Delayed iPhone Update Occured in Q1 of the following year and happened to land in the biggest retail holiday (Christmas) quarter vs Q4 normally

This contributed to the miss in Q4 and substantially contributed to the surge in Q1

The iPhone 4S is a maringally minimal improvement over its predecessor, hence costs were kept to a minimal

The iPhone 4S was basically the same phone with a chip, camera and OS upgrade. As a matter of fact, this upgrade is still at least a generation behind Samsung's Galaxy SII series, which is already a year old. Thus, Apple was able to sell deprecated product like gangbusters to those who do not purchase on quality, but rather seek brand, vendor lock-in or simply purchase what's in. This contributed greatly to the margin boost to 44.7 percent. This is a temporary spike though. As I said, Apple has sold a shitload of antiquated product for top dollar that is still materially inferior to its year old competition. There's but so much that even Apple's vaunted marketing machine can get away with before driving away customers. Next quarter, you will probably see:

• a much more expensive camera,
• a much more expensive screen,
• a much more powerful quad core CPU and related GPU (graphics chip)
• much more expensive memory (RAM and ROM)
• and a much more expensive battery...

Why, you ask? Well, the tech in the Samsung Galaxy (or even the Motorola Razr thin 24 hour phone - that's a real battery, soon owned by Google) is simply no joke - and has significantly pulled away from what is available from Apple. Apple's management is too smart to allow themselves to be Nokia'd, RIMMed or Microsofted so early in the game - so they will pony up the investments and expenditures. For those silly people that believe Apple can buy Samsungs and LGs components cheaper than Samsung and LG can supply themselves - you are simply delusional. Apple broiled in litigation with its two largest vendors, who supply the most important parts to its most profitable products, with said vendor being the number one competitor to said most profitable product. Exactly how is this a positive thing for anybody other than the consumer (which is a very good thing BTW)?

How much will Apple have to ding margins by investing to improve product? Well, let's look at the phone Samsung has on tap, the phone that is easily the number one competitor to the iPhone...

Samsung's Galaxy S range of devices have come to symbolise the strength in competition faced by Apple's iPhone. They are highly powerful devices and offer the modern user everything they could want from a top-level smartphone. Anybody who doubts the quality of these devices is a) ignoring that they are the top revenue driver in Samsung's history, b) ignoring that they are the best selling phone in Korea and surrounding areas (besting the iPhone which benefited from a new launch) and c) have probably never even played with the phone because the difference is strikingly obvious.

In order for Apple to remain competitive with products such as these, they will have to spend money on R&D, components and software. That means lower margins, particularly lower than the margin spike they just experienced from selling all of those antiquated products last quarter. 

samsung galaxy s III

The leaked specifications of the Samsung Galaxy S3 are -

• 1.5 to 2 GB of RAM
• 1.5 to 1.8 ghz Exynos Quad Core ARM Cortex processor, extended energy management
• 32-64 GB Internal storage memory
• SD Card slot to expand memory
• 4.65″ “Super AMOLED III” curved and contoured display, 1,280×720-pixel resolution, extreme contrast and brightness
• 10 - 16 megapixel camera, most likely a 12 mp camera. The camera on the current Galaxy is the best in the industry save the 12 - 14 megapixel fringe phones from Nokia and Sony, which no one is even aware of.
• 1080p video recording at 60fps - outstanding, this is pro-sumer camcorder territory
• 2250mAh battery - nearly twice the capacity of today's average smartphone, at half the thickness and weight
• NFC Chip - Google Wallet credit card on the phone
• Ice Cream Sandwich OS with Touchwiz 5.0

Source

These specs are all literally twice that of the current generation iPhone, and unlike many previous iterations of the iPhone, Apple has real competition in the market for components now (HTC, Samsung, LG, Motorola, etc.) so it can't buy everything for pennies. As a matter of fact, its biggest competitor IS ITS MAIN VENDOR, whom they are suing in 7 countries (or more)! How's that for a stroke of genius business plan from Google.

Apple's losing tablet market share faster than it lost smartphone market share

Android has moved to over 40% marketshare in tablets from less than 9% in less than a year. That's amazing and much faster growth than it exhibited in smartphones - which it literally took over the world in smartphone growth in just a few short years. Apple dropped from just over 90% to just under 60% in the same time frame. Again, as with the smartphones, the tablet tech blows iOS products out of the water and there are enough consumers who actually pay attention to features and capabilities to cause this market shift. My current tablet (I have iPads, Windows tablets and several Androids) is the Transformer Prime. It literally competes head to head with ultrabooks, MacBook Airs, and iPad 2s and does so quite favorably - running circles around ALL of its Apple competition. You can actually do productive work with it. Believe it, because I'm actually creating this post with on right now. Am I the only one that feels this way? The Prime is sold out everywhere, except for scalpers successfully selling them at 30% premiums on eBay.

With an 18 hour battery, full keyboard and all necessary ports and plugs, 1080P graphics and the slimmest form factor of any tablet and nearly any netbook, this is a fabulous productivity product and will need real R&D and component sourcing to prevent it from rising even faster than it already is. I can actually do a commercial for this, because unlike practically all other tablets you can really get work done on it.

Transformer_prime_availability

Ask almost anybody who has used one if it is worth it. Go to BestBuy where they sell both Apple and Android and ask three or four salespersons which is the better tablet, by far! Ask them which is the hardest one to keep in stock. After that, ask them which phone is better, the Galaxy or the iPhone 4S, then ask them which their next personal phone will likely be. Go ahead, do some field work. The Apple thesis is based on what will happen in the near to medium term, not what happened last quarter.

Remember, I never said Apple will go out of business, I said they will have to spend more to remain competitive against Google's less than free business model, see Looking at the Results of Google's "Negative Cost" Business Model Employed Through Android.

Cook has even said himself that one shouldn't expect the margins Apple exhibited last quarter again, and the reason he said it wasn't because he was reading BoomBustBlog that morning - How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue or Sliced Apple Margins For Dinner? or Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet – Including The Pretty iPad, With Proof! 

Apple Had An Extra Week Of Sales In Its Most Recent Quarter 

The Q1 of Apple had an extra week of retail and channel sales in it as compared to the previous quarter, and when moving product at the pace that Apple does, that week makes a difference... A big difference. These nuances need to be noticed and taken into consideration (ex. the revenue miss from Google stemming from FX fluctuations, yet attributed to fundamentals). 

The Steve Jobs Effect

Last but not least, the unfortunate passing of Steve Jobs did create a boost in mindshare for Apple and Apple products. This is (fortunately) not repeatable unless another superstar CEO passes away - which is highly unlikely. The margin boost from selling decamillions of antiquated product will not be produced in the near term either. The simultaneous launch on multiple large carriers and the pent-up demand will not be repeatable as well. The holiday season quarter lag, probably not. 

Now A Question To Get The FanBois Riled Up

Which CEO had the greatest effect on the world to date, Steve Jobs or Bill Gates? I welcome all opinions and answers, just stay polite and professional.

Other links of interest...

Notes of interest as I browse through the Goldman Q4-2011 earnings release...

1. Many analysts dropped their estimates for Goldman (considerably after I warned on the firm), setting up the old Wall Street bait and switch move... Yet, despite this setup on reduced earnings, Goldman STILL MISSED on the top line! This is the most important number and has trended downward sharply.
2. Goldman has padded earnings by slashing its compensation. For this I query my hyperintelligent BoomBustBloggers (and anyone else who has a synapse or two to spark), exactly what is that Goldman makes again? What's their prized formula? Their secret sauce? Their patented product? Oh yeah, they really don't have any thing of the sorts outside of their human capital - their employees. Those very same employees in which Goldman is not making a negative investment in order to make numbers (on earnings, they can't do anything about missing the top line). As a result, Goldman's only true product - their only real inventory, is heading for the hills. What does this bode for the future? Well, you guys are smart. You know its bullish when companies invest heavily for the future. What is it when they pare investment back significantly???
   1. The earnings pad is not even as optimistic as it seems. Revenues have decreased more than the effective reduction in compensation, thus it can be argued that effective comp as a % of revenues has increased. Should shareholders be excited about the proportion of their revenues increasing to compensate those who have underperformed so drastically???
3. The net gain attributable to the impact of changes in the firm’s own credit spreads on borrowings for which the fair value option was elected was approximately $600 million for 2011.
   1. So, the firm's actual cash earnings decrease was materially higher than appears on the surface...

4. During the year, the firm repurchased 47.0 million shares of its common stock at an average cost per share of $128.33, for a total cost of $6.04 billion, including 9.2 million shares during the fourth quarter at an average cost of $98.54, for a total cost of $908 million. The remaining share authorization under the firm’s existing repurchase program is 63.5 million shares.

   1. Goldman has taken a $1.3B loss on its share buybacks for 2011! Keep that in mind when taking their investment recommendations to heart! I've Told You Before, And I'll Tell You Again - Goldman Sachs Investment Advice Sucks!!! Even when they are advising themselves on share buybacks though???
5. The MSM news organizations forgot to mention that althought Goldman's asset base is shrinking, it is shifting ever more of those shrinking (read devaluing) assets into the level three category.

image006_copy_copy

I will extend this note for subscribers if I find anything of interest in subsequent filings or the conference call notes.

Here are some links that you are unlikely to find anywhere else...

Just As I Predicted Last Quarter, The World's First FDIC Insured Hedge Fund Takes A Fat Trading Loss

I'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & IntroductionI'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & IntroductionI'm Hunting Big Game Today:The Squid On The Spear Tip, Part 1 & Introduction	I'm Hunting Big Game Today: The Squid On A Spear Tip Summary: This is the first in a series of articles to be released this weekend concerning Goldman Sachs, the Squid! In this introduction (for those who do not regularly follow me) I demonstrate how the market, the sell side, and most investors are missing one of the biggest bastions of risk in the US investment banking industry. I will also...
Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?	Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored? Welcome to part two of my series on Hunting the Squid, the overvaluation and under-appreciation of the risks that is Goldman Sachs. Since this highly analytical, but poignant diatribe covers a lot of material, it's imperative that those who have not done so review part 1 of this series, I'm Hunting Big Game Today:The Squid On The Spear Tip, Part...
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Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!Hunting the Squid, part 4: So, What Else Can Go Wrong With The Squid? Plenty!!!	Hunting the Squid, part 4: So, What Else Can Go Wrong With Goldman Sachs? Plenty! Yes, this more of the hardest hitting investment banking research available focusing on Goldman Sachs (the Squid), but before you go on, be sure you have read parts 1.2. and 3:  I'm Hunting Big Game Today:The Squid On A Spear Tip, Part 1 & Introduction Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To...

Hunting the Squid, Part 5: Sometimes Your Local Superhero Doesn't Look Like What They Show You In The Movies 

What Was That I Heard About Squids Raising Capital Because They Can't Trade?

Reggie Middleton vs the Squid That Can't Trade!

On Friday, the 9th of December 2011 I published What Is More Valuable, The Opinion Of A Major Rating Agency Or The Opinion Of A Blog? Go Ahead, I DARE You To Answer! wherein I made clear that rating agencies are STILL moving in slow motion and using kids gloves, as was articulated in the piece Where Are The Ratings Agencies Before UK & German Banks Go Boom? How About Those Euro REITs? Agencies Anybody? Remember, I warned of a European bank runs early on and even warned the public (after my subscribers had an opportunity to take positions) of the impending fall of BNP Paribas. See "BoomBust BNP Paribas?" (it is strongly recommended that you review this article if you haven't read it already) I started releasing snippets and tidbits of the proprietary research that led to the BNP short, namely "Bank Run Liquidity Candidate Forensic Opinion" - A full forensic note for professional and institutional subscribers.

I then went on to throroughly analyze the risks and potential downfalls of Goldman, Morgan Stanley and Bank of America - all while the sell side had strong buys on both these banks and the industry. Well, it appears as Fitch has either caught an attitude, caught religion or both. As reported through the MSM, Fitch Downgrades Several Big US and European Banks

Fitch downgraded its credit ratings on several big banks, including Bank of America and Goldman Sachs, citing "increased challenges" in the financial markets.

I also went so far as to declare celebrity bank analyst Dick Bove to be wrong on his stance on banks - perennially wrong - and despite his long track record that has been both in direct contravention to my outlook and to that which actually happens (aka reality) he is CONSTANTLY featured in the MSM. To wit, look who arrives late to the party, touted and showcased by the mainstream media saying the same thing that I screamed from BoomBustBlog 6 months ago while he was saying BUY! BUY! BUY!  Bove Slashes Price Targets on Goldman Sachs, Morgan Stanley

Bank analyst Dick Bove cut price targets and earnings estimates on financial giants Goldman Sachs (GS), Morgan Stanley (MS) and Credit Suisse (CS) on ...

 Here's my rant on the man known as Dick...

CNBC Favorite Dick Bove Admits To Being Wrong On Banks, But For The Right Reasons, But Those Reasons Are Still Wrong!!!

As excerpted...

Now that we've established a small base of potential credibility when it comes to bank failure, back to today and Dick's proclamations on CNBC, let's start with Bank of America, who Dick says won't be affected by European malaise. This is Reggie's take...

• • On Challenges To The Mainstream Financial Channels, BofA's (In)Solvency and Long-Only Pundits Dominating the MSM

Then there's Goldman Sachs, the bank where Reggie is just so loved...

After all, I'm sure there'll be no volatility in the markets if Europe blows up. Then again, even if there is volatility in the markets, Goldman's prop desk can handle it, right? I sure hope you guys don't think I'm being a Dick, do you?

What Was That I Heard About Squids Raising Capital Because They Can't Trade? Well, you guys know where I stand on this, and I have warned you ad nauseum...the Squid Can't Trade!

Reggie_Middleton_hunting_the_Squid_Known_As_Goldman_Sachs_GS

After all, eventually someone must query, So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't?

On to the next Banque de Dick... You'd think with Dexia in the news, one would know to either stay clear of JP Morgan or at least subscribe to the BoomBust, eh? CNBC reports today (as highlighted in the introductory graphic) France, Belgium Wrangle About Dexia Deal: Reports. Why is this important? Well, look at why Dexia's in trouble in the first place. In the (must read) post Dexia Sets A $5.1bn Provision For Loss On Trying To Sell The Same Residential Real Estate Assets Upon Which JP Morgan Has Slashed Provisions 83% to $1.2bn from $7.0bn you will find..

...Similarly, many sell-side researchers award stocks “buy” or “overweight” ratings even as their internal asset-management units unload shares, presenting a conflict of interest and ethical dilemma. Goldman’s most famous front-runs to date were the Abacus transactions, through which the bank allegedly postured for high ratings for its mortgage-backed CDOs, sold them to clients and then shorted them.

According to research from the Street.com, Goldman put a Conviction Buy Recommendation on JP Morgan Chase shares and issued it to their clients, and then sold 4,200,009 shares of JPMorgan Chase. At an average of $45/share,  that means that Goldman had a lack of conviction in its own "Conviction Buy" recommendation to the tune of $189,000,405. I'd hate to see what the company would do if they recommended clients sell, or worst yet short sell, stock. Oh yeah! We already know, don't we.

Bloomberg reports: Dexia Takes 3.6 Billion-Euro Charge on Asset Sales

That charge taken by Dexia was more than necessary, and most likely not nearly enough. But wait a minute, why did JP Morgan do the exact opposite regarding the exact same asset class?

Do you remember my recent missive "There’s Something Fishy at the House of Morgan"? Well, in it I queried how it was that JP Morgan can continuously pull risk provisions and reserves to pad quarterly accounting earnings at time when I not only made clear that we are in a real estate depression but the facts actually played out the same. As excerpted from the aforementioned article:

I invite all to peruse the mainstream financial media and sell side Wall Street's take on JP Morgan's Q1 earnings before reading through my take. Pray thee tell me, why is there such a distinct difference? Below are excerpts from the our review of JP Morgan's Q1 results, available to paying subscribers (including valuation and scenario analysis): JPM Q1 2011 Review & Analysis.

'Nuff said! Let's move over to Morgan Stanley... The Truth Is Revealed About The Riskiest Bank On The Street - What Does That Say About The Newest Bank To Carry That Title? You know, I'm still quite bearish on Asian, European and American banks. Just look at the facts as they're laid before you...

1. Squids, Morgans & Counterparty Risk: Blowing Up The World One Tentacle At A Time

2. Is The Entire Global Banking Industry Carrying Naked, Unhedged "Risk Free" Sovereign Debt Yielding 100-200%? Quick Answer: Probably!

3. Goldman, et. al. Suffer From The Same Malady That Collapsed Lehman and MF Global, Worlds 1st and 8th Largest Bankruptcies!

4. What Is More Valuable, The Opinion Of A Major Rating Agency Or The Opinion Of A Blog? Go Ahead, I DARE You To Answer!

On Friday, the 9th of December 2011 I published What Is More Valuable, The Opinion Of A Major Rating Agency Or The Opinion Of A Blog? Go Ahead, I DARE You To Answer! wherein I made clear that rating agencies are STILL moving in slow motion and using kids gloves, as was articulated in the piece Where Are The Ratings Agencies Before UK & German Banks Go Boom? How About Those Euro REITs? Agencies Anybody? Remember, I warned of a European bank runs early on and even warned the public (after my subscribers had an opportunity to take positions) of the impending fall of BNP Paribas. See "BoomBust BNP Paribas?" (it is strongly recommended that you review this article if you haven't read it already) I started releasing snippets and tidbits of the proprietary research that led to the BNP short, namely  Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers.

I then went on to throroughly analyze the risks and potential downfalls of Goldman, Morgan Stanley and Bank of America - all while the sell side had strong buys on both these banks and the industry. Well, it appears as Fitch has either caught an attitude, caught religion or both. As reported through the MSM, Fitch Downgrades Several Big US and European Banks

Fitch downgraded its credit ratings on several big banks, including Bank of America and Goldman Sachs, citing "increased challenges" in the financial markets.

I also went so far as to declare celebrity bank analyst Dick Bove to be wrong on his stance on banks - perenially wrong - and despite his long track record that has been both in direct contravention to my outlook and to that which actually happens (aka reality) he is CONSTANTLY featured in the MSM. To wit, look who arrives late to the party, touted and showcased by the mainstream media saying the same thing that I screamed from BoomBustBlog 6 months ago while he was saying BUY! BUY! BUY!  Bove Slashes Price Targets on Goldman Sachs, Morgan Stanley

Bank analyst Dick Bove cut price targets and earnings estimates on financial giants Goldman Sachs (GS), Morgan Stanley (MS) and Credit Suisse (CS) on ...

 Here's my rant on the man known as Dick...

CNBC Favorite Dick Bove Admits To Being Wrong On Banks, But For The Right Reasons, But Those Reasons Are Still Wrong!!!

As excerpted...

Now that we've established a small base of potential credibility when it comes to bank failure, back to today and Dick's proclamations on CNBC, let's start with Bank of America, who Dick says won't be affected by European malaise. This is Reggie's take...

• • On Challenges To The Mainstream Financial Channels, BofA's (In)Solvency and Long-Only Pundits Dominating the MSM

Then there's Goldman Sachs, the bank where Reggie is just so loved...

After all, I'm sure there'll be no volatility in the markets if Europe blows up. Then again, even if there is volatility in the markets, Goldman's prop desk can handle it, right? I sure hope you guys don't think I'm being a Dick, do you?

What Was That I Heard About Squids Raising Capital Because They Can't Trade? Well, you guys know where I stand on this, and I have warned you ad nauseum...the Squid Can't Trade!

Reggie_Middleton_hunting_the_Squid_Known_As_Goldman_Sachs_GS

After all, eventually someone must query, So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't?

On to the next Banque de Dick... You'd think with Dexia in the news, one would know to either stay clear of JP Morgan or at least subscribe to the BoomBust, eh? CNBC reports today (as highlighted in the introductory graphic) France, Belgium Wrangle About Dexia Deal: Reports. Why is this important? Well, look at why Dexia's in trouble in the first place. In the (must read) post Dexia Sets A $5.1bn Provision For Loss On Trying To Sell The Same Residential Real Estate Assets Upon Which JP Morgan Has Slashed Provisions 83% to $1.2bn from $7.0bn you will find..

...Similarly, many sell-side researchers award stocks “buy” or “overweight” ratings even as their internal asset-management units unload shares, presenting a conflict of interest and ethical dilemma. Goldman’s most famous front-runs to date were the Abacus transactions, through which the bank allegedly postured for high ratings for its mortgage-backed CDOs, sold them to clients and then shorted them.

According to research from the Street.com, Goldman put a Conviction Buy Recommendation on JP Morgan Chase shares and issued it to their clients, and then sold 4,200,009 shares of JPMorgan Chase. At an average of $45/share,  that means that Goldman had a lack of conviction in its own "Conviction Buy" recommendation to the tune of $189,000,405. I'd hate to see what the company would do if they recommended clients sell, or worst yet short sell, stock. Oh yeah! We already know, don't we.

Bloomberg reports: Dexia Takes 3.6 Billion-Euro Charge on Asset Sales

That charge taken by Dexia was more than necessary, and most likely not nearly enough. But wait a minute, why did JP Morgan do the exact opposite regarding the exact same asset class?

Do you remember my recent missive "There’s Something Fishy at the House of Morgan"? Well, in it I queried how it was that JP Morgan can continuously pull risk provisions and reserves to pad quarterly accounting earnings at time when I not only made clear that we are in a real estate depression but the facts actually played out the same. As excerpted from the aforementioned article:

I invite all to peruse the mainstream financial media and sell side Wall Street's take on JP Morgan's Q1 earnings before reading through my take. Pray thee tell me, why is there such a distinct difference? Below are excerpts from the our review of JP Morgan's Q1 results, available to paying subscribers (including valuation and scenario analysis): JPM Q1 2011 Review & Analysis.

'Nuff said! Let's move over to Morgan Stanley... The Truth Is Revealed About The Riskiest Bank On The Street - What Does That Say About The Newest Bank To Carry That Title? You know, I'm still quite bearish on Asian, European and American banks. Just look at the facts as they're laid before you...

1. Squids, Morgans & Counterparty Risk: Blowing Up The World One Tentacle At A Time

2. Is The Entire Global Banking Industry Carrying Naked, Unhedged "Risk Free" Sovereign Debt Yielding 100-200%? Quick Answer: Probably!

3. Goldman, et. al. Suffer From The Same Malady That Collapsed Lehman and MF Global, Worlds 1st and 8th Largest Bankruptcies!

4. What Is More Valuable, The Opinion Of A Major Rating Agency Or The Opinion Of A Blog? Go Ahead, I DARE You To Answer!