Spansion Q3 Rev Misses, Q4 View Misses

Shares of memory chip maker Spansion (CODE) are up 18 cents, or 1.1%, at $16.71, in late trading, despite the company this afternoon reporting Q3 revenue that missed analysts’ expectations, earnings in line with consensus, and a Q4 view that also came in lower.

Revenue in the three months ended in September rose to $315.9 million, yielding EPS of 27 cents, excluding some costs.

Analysts had been modeling $325 million, and 27 cents.

CEO John Kispert remarked that the company’s gross profit margin, its EPS results, and its cash flow from operations, all beat what the company was expecting. He said acceptance of products from the company by customers “is accelerating, with strong demand in flash, microcontroller, analog, and system-on-chip solutions.”

Added Kispert, “With our robust product development pipeline and design win momentum, we are well positioned for growth across automotive, communications and industrial markets.”

For the current quarter, the company sees revenue in a range of $290 million to $325 million, and EPS, excluding some costs, of 26 cents to 33 cents. That compares to the average Street estimate for $336 million and 35 cents.

Audience Q3 Rev Misses, Q4 View Misses, Citing Smartphone Shortfall

Shares of audio-chip designer Audience (ADNC) are unchanged in late trading after the company this afternoon missed Q3 revenue expectations, beat on the bottom line, but also forecast this quarter’s results well below what analysts have been modeling.

The company blamed results on some failure of certain models of smartphone featuring its chips to sell sufficiently.

Revenue in the three months ended in September fell 34%, year over year, to $22.7 million, yielding a net loss of 35 cents.

Analysts had been modeling $26 million and a 39-cent loss.

For the current quarter, the company forecast revenue of $13 million to $16 million, and a net loss of 47 cents to 53 cents, which is considerably below the consensus for $26.4 million and 26-cent loss per share.

CEO Peter Santos remarked,

In the third quarter we saw continued near-term weakness in our core smartphone market, largely due to less than expected market acceptance of certain smartphone models; however, we expect our market and product diversification efforts to take hold going forward. We specifically expect increased traction with our codec solutions and Multisensory products, as well as progress in new markets including TV remotes and smart watches.

CFO Kevin Palatnik added, “We’ve executed successfully on our operating expense reduction communicated in our last earnings call and will continue to carefully manage our business, focusing on our diversification strategy and long term business model.”

GoPro Jumps 10%: Q4 View of $550M – $580M Crushes Consensus

On a conference call this evening following a better-than-expected Q3 report from adventure camera maker GoPro (GPRO), management, including CEO Nick Woodman, and CFO Jack Lazar, reviewed details with the Street, and offered a forecast substantially above consensus.

Lazar forecast revenue this quarter $550 million to $580 million, which is well above Q4 expectations on the Street of $503 million.

Assuming a gross margin of 44%, plus or minus half a point, operating expenses of $105 million, plus or minus $2.5 million, and a tax rate of 30%, the company projects EPS of EPS of 65 cents to 69 cents, which is well above consensus of 54 cents.

Lazar predicted strength in particular from “big box” retailers during the quarter, and said the company expects sales to rise in all three of the regions in which it operates to rise, though North America is predicted to be the strongest.

GoPro shares are up $5.68, or almost 9%, at $73.93, and were up as much as 10% at one point.

Asked about prior-year issues with meeting demand with adequate supply, Lazar said that the company had “much better information” about patterns at retail than in prior years, leading it to feel relatively confident about meeting demand.

Asked if there would be any “pricing action,” meaning, a model selling at Best Buy and others for as little as $99, the company said that with models as low as $129, it already feels it has the relevant price points covered for the holidays.

Said Woodman, “Hero4 Black has been very eagerly accepted by the consumers,” said Woodman. “We’ve got a pretty nice set of products we’ve put out in the market, and people seem to like ‘em.”

Brightcove Jumps 11%: Q3 Revenue Beats; Q4 Net Loss View Beats

Shares of video publishing service provider Brightcove (BCOV) are up 61 cents, over 11%, at $6, after the company this afternoon reported Q3 results that topped analysts’ expectations, and forecast this quarter’s revenue in line with consensus, and the net loss slightly better than expected.

Revenue in the three months ended in September rose 11%, year over year, to $31.5 million, yielding a net loss of 3 cents per share.

Analysts had been modeling $30.2 million and an 8-cent loss per share.

CEO David Mendels called the results “solid” and said the company “made progress aligning our go-to-market organization to capitalize on the exciting opportunities to help digital media and digital marketing companies increase their ability to monetize their digital assets.”

“We believe we have the right people and products in place and I am confident the changes we have introduced within our organization will drive improved performance and growth over the long term.”

For the current quarter, the company sees revenue in a range of $30.3 million to $30.8 million, which is in line with consensus for $30.5 million. The company foresees a net loss of 8 cents to 9 cents per share, below the consensus for 10 cents.

ON Semi Rising: Q3 Rev Beats, Q4 Rev View Beats

Chip maker ON Semiconductor (ONNN) this afternoon reported Q3 revenue that topped analysts’ expectations, but missed by a penny on the bottom line, and forecast this quarter’s revenue higher as well.

Revenue in the three months ended in September rose 17%, year over year, to $833.5 million, yielding EPS of 21 cents.

Analysts had been modeling $811 million and 22 cents per share.

Average selling prices for the company’s chips fell by 2% from the prior quarter, it said.

Gross margin in the quarter declined to 34.1% from 36% in the prior quarter and 34.8% a year earlier. On a non-GAAP basis, margin was 35.6%, which was up from the year-earlier non-GAAP 34.8%, though it was down from 36.2% in Q2.

CEO Keith Jackson said that “were impacted by a slowdown in orders from certain geographies and end-markets,” but that “during the past few weeks, we have noticed a recovery in orders for shipment in first half of 2015.”

Despite the recent slowdown, our design win momentum in automotive, industrial, and smartphone end-markets remains strong, and we believe that we remain well positioned to benefit from long term secular trends in these markets.

For the current quarter, the company sees revenue in a range $835 million to $875 million, which is comfortably above consensus of $826 million.

ON Semi shares are up 9  cents, or 1%, at $8.10, in late trading.

GoPro Up 5%: Q3 Revenue, EPS Beat

Shares of adventure camera maker GoPro (GPRO) are up $3.33, or 5%, at $71.58, after the company this afternoon reported Q3 revenue and earnings per share that topped analysts’ expectations.

Revenue in the three months ended in September rose to $280 million, yielding EPS of 12 cents.

Analysts had been modeling $266 million and 8 cents.

CEO Nick Woodman cited the recent release of newer models of the company’s devices in the quarter, stating, “The global scale and execution of our HERO4 launch made this the most successful roll out in GoPro’s history, ” adding that the devices, and software improvements to its applications, “positions us well for an exciting holiday season.”

GoPro management will host a conference call with analysts at 5 pm, Eastern time, this evening, and you can catch a webcast of it on the company’s investor relations Web site.

Expedia Rising: Q3 Revenue, EPS Beat; Hotel Nights Up 24%

Online travel broker Expedia (EXPE) this afternoon reported Q3 revenue and earnings per share that topped analysts’ expectations.

Revenue in the three months ended in September rose 22%, year over year, to $1.71 billion, yielding EPS of $1.93, excluding some costs.

Analysts had been modeling $1.68 billion and $1.75 per share.

Expedia said hotel room nights booked by its customers rose 24%, year over year, both from its own properties and those under the Hotels.com umbrella, both domestically and internationally.

Gross bookings rose 29%, to $13.47 billion, it said.

Expedia repurchased 6.5 million of its shares in the quarter, for $492 million.

Expedia shares are up 29 cents, or 0.4%, at $81.02, in late trading.

LinkedIn Drops 5%: Q3 Beats, Q4 View Misses

Social networker and enterprise software vendor LinkedIn (LNKD) this afternoon reported Q3 revenue and earnings per share that beat analysts’ expecations, but missed with its forecast for the current quarter.

Revenue in the three months ended in September rose 45%, year over year, to $568 million, yielding EPS of 52 cents. excluding some costs.

Analysts had been modeling $558 million and 48 cents per share.

CEO Jeff Weiner said the company was focused on investing and expanding the scale of the business:

LinkedIn made significant progress against several long-term strategic investments we began this year. During the third quarter, we took meaningful steps in increasing the scale and relevance of job listings, growing the professional publishing platform, and expanding our member network in new geographies and demographics.

For the current quarter, the company sees revenue in  a range of $600 million to $605 million, and EPS of 49 cents.

That is below the consensus for $612 million and 52 cents.

LinkedIn shares are down $11.91, or over 6%, at $191, in late trading.

Cirrus Logic Drops 12% Despite Beat: Apple Business Offset by Weaker Margins, Say Bears

Shares of chip maker Cirrus Logic (CRUS) are down $2.55, or almost 12%, at $19.34, reversing a 7% jump in late trading last night, after the company yesterday afternoon reported fiscal Q2 revenue and earnings per share that topped analysts’ expectations, and a substantially better-than-expected Q3 revenue view.

The company’s results were boosted both by the acquisition of audio technology maker Wolfson back in August, and by the its inclusion in product from Apple (AAPL) — Cirrus provides an audio codec, for example, for the iPhone 6.

The bullish view today is offered by folks such as Brian Blair with Rosenblatt Securities, who sees promise ahead for Cirrus as Apple’s successes continue into the March quarter of next year:

We remain positive on Cirrus fundamentals, as we expect to see a stronger than seasonal March quarter amid a minimal drop-off in iPhone units as the calendar turns. We expect iPhone 6 global channel fill (through the end of the year) will require follow on units through the opening months of 2015 to meet demand, benefitting Cirrus as well as key suppliers like Broadcom (BRCM), Qualcomm (QCOM), Skyworks (SWKS) and Avago [Technologies] (AVGO). We currently estimate Apple could sell approximately 58 million units for the March quarter, which would represent a roughly 15% drop off from our December quarter unit estimate. We believe street expectations currently sit in the 45–47 million range. 

But numerous bears are sounding the alarm about the direction of profits.

Pacific Crest’s John Vinh reiterates an Underperform rating, writing that it is clear Cirrus has maintained its share in Apple devices:

Despite headwinds from Wolfson and weak Samsung demand, results from Cirrus suggests that the company’s position at Apple remains largely intact, despite some share loss on the audio amplifier in the iPad to Maxim (MXIM, $28.87, Outperform). Additionally, strong guidance into December is consistent with strong demand trends from the launch of the iPhone 6/6 Plus.

However, Vinh questions the logic of the company purchasing Wolfson:

As Wolfson occupies a less favorable position at Samsung, as it is only attached to non-QUALCOMM-based platforms and continues to struggle alongside its largest customer, it remains unclear to us what benefits this acquisition will bring to Cirrus other than tax. We anticipate that as Cirrus is able to drive revenue through its U.K.-based entity, the former Wolfson, the company’s 30% tax rate is likely to come down in F2016.

Jeffrey Schreiner with Feltl & Co. reiterates a Hold rating, writing that the $210 million in revenue was actually below his own estimate because Wolfson didn’t perform as he expected, and he thinks the products there face tough competition from Qualcomm (QCOM):

Our 2QFY15 $218.5m estimate included $26m in WLF contribution compared with the $13m recognized during September, as we expected better WLF performance and slightly higher contribution based on the closing of the acquisition. CRUS stated WLF did $28.8m in total September quarter revenue, which compared negatively with the roughly $44m in 3Q13 […] According to CRUS WLF is currently facing headwinds in leading customer Samsung due to the “QCOM bundle” which negatively impacts WLF as QCOM is the preferred LTE modem provider and bundles additional chips such as audio codecs. CRUS acknowledged WLF is much weaker than it believed 3-6 months prior. We believe opportunities from WLF could be more long-term, until the “QCOM bundle” is broken or other LTE vendors see increasing share gains.

Also, the company’s revenue from Apple is under pressure from lower prices: “AAPL revenue of $153.5m was slightly higher than our prior estimate of $150.5m, up 38% sequentially, but just 1% y-y as ASP headwinds continue to negatively impact CRUS’s AAPL revenue.”

Likewise, Oppenheimer & Co.’s Rick Schafer is worried about pressure on margins from both Wolfson and Apple, and also higher taxes:

GMs are declining ~370bp to 45% in December as lower margin WLF folds into the mix and GMs at AAPL continue to compress. Additionally, CRUS will exhaust its US NOLs by March and is expected to become a 30% tax payer (vs 3% today) in CY15. Despite the strong top-line results and guidance, we continue to see valuation extended at these levels [...] In our opinion, CRUS’ acquisition of WLF does little to diversify its customer base, and we believe the acquisition results in a largely redundant revenue stream. We see MEMS microphones as an attractive growth/content expansion opportunity longer-term; however, we estimate them at ~1% of sales today.

Alibaba, Amazon Started at Buy at Morgan Stanley; Plenty of e-Commerce Growth Left

As one sharp-eyed reader observed, I was remiss yesterday in not picking up on an initiation of coverage of Internet names yesterday by Morgan Stanley’s Katy Huberty, including Amazon.com (AMZN), Alibaba Group Holding (BABA), and eBay (EBAY).

Huberty takes the broad view that it is “early innings” in global e-commerce, with the entire industry rising by 19% in the coming five years. 

E-commerce is one of those tech “megatrends” that will tend to pick up steam rather than peter out, she thinks:

From a high level, we believe the knee of the curve in eCommerce growth is still in front of us. The history of the technology market suggests mega-trends, like mobility, virtualization, and online music, tend to accelerate rather than decelerate at higher penetration rates. This is a function of addressing the hurdles to adoption in the early years – such as fast enough data networks for smartphones, storage and networking bottlenecks for virtualization, or product assortment and shipping costs in eCommerce that only come with scale. Additionally, there is a network effect whereby when 20% of consumers and/or corporations have adopted a technology, peers tend to see that progress and want to follow suit. Twenty percent penetration is the typical knee of the curve, as seen in the global smartphone market in recent years.

Here’s the infographic of the knee in the curve for e-commerce versus other megatrends, using the U.S. as the primary example (click on the picture to see a larger version):

In emerging markets, willingness and ability to go on line is going to catch up in the coming two years: “By 2018, we expect half of the online population in these emerging markets to shop online, not far off from the 63% average penetration in more mature markets.”

Here’s the infographic for emerging markets e-commerce development:

E-commerce, observes Huberty, is pushed by mobile phone usage, which is going to hit half the populariont by 2018:

Using the US as an example, the penetration rate of eCommerce as a percentage of retail sales nearly doubled in the three years after smartphone penetration hit 50% (increased 3.4 points from 2010-13) as compared to the three previous years (increased 1.9 points from 2007-10). In fact, the correlation of eCommerce and smartphone penetration in the US is nearly 100%.This is an important takeaway as we expect global smartphone penetration to hit 50% by early 2018, the same year we expect eCommerce in large markets like the US and China to hit the important 20% penetration rate in large markets like the US and China which tends to be the knee of the curve in technology adoption. The combination of these catalysts could accelerate eCommerce growth in 2018 and beyond – a trend not reflected in consensus estimates.

Moving to her initiations, Huberty starts Alibaba at Overweight, with a $111 price target, she likes the company’s sizable runway in China’s e-commerce market, its immersion in people’s lives, and the lack of dependence on infrastructure such as warehouses:

We see further significant opportunities in China’s US$3trn consumption market. Its asset- light model provides scalability and strong cash flow to fund investment in talent, technology, products, and strategic assets. While e-commerce is its core business, Alibaba’s stated long-term ambition is to be a part of all aspects of a consumer’s daily activities: “Meet, Work and Live at Alibaba.” Alibaba’s data insight is a key competitive advantage, in our view, supporting creativity in moving beyond e-commerce.

Regarding Amazon, she starts it at Overweight as well, with a $420 price target, arguing that profit can beat expectations as it rolls back some investments, and that it may not be getting credit for the $32 billion value of its Amazon Web Services cloud computing business. 

First, we see several areas of sub-par return on investment, including Fire phone and China, and management now appears ready to pullback in one or both of these markets. Second, reduced investment and improved operating income in coming quarters suggests the stock has bottomed post the recent operating income reset. Historically, AMZN shares outperform significantly post a reset in consensus EBIT expectations. Third, metrics that are key to our thesis actually improved in 3Q14 – including record incremental eCommerce gross margin and accelerating North America Electronics & General Merchandise (EGM), 3P and AWS growth. Lastly, ownership among top holders was near lows in June and anecdotally these positions have come down over the past four months.

Notably, Huberty, who has an Overweight rating on Apple (AAPL), thinks the iPad and other tablets will cannibalize sales of e-book readers such as Amazon’s Kindle, and so she thinks the company should curtail future investments in the device:

While eReaders were an important catalyst in kick starting the eBook trend and accelerating Prime adoption, users now spend more time on tablets or larger smartphone screens that can easily provide Kindle-like functionality. Similarly, we are cautious on Kindle Fire Tablet / Phone sell-through, as the tablet market becomes more competitive and growth slows in developed markets. IDC predicts that demand for eReaders is declining at a 27% CAGR between 2012 and 2017. With Kindle eReader holding 80% share in the US and 47% worldwide, Amazon’s revenue is likely to be cannibalized by tablets and larger screen smartphones.

Huberty thinks the company’s lead in established markets is under appreciated:

Amazon’s increasing lead in core markets is underappreciated by investors who view these countries as more mature and slower growth, and therefore as less attractive investment opportunities. However, we’d point out that Amazon’s GMV from its core markets not only grew faster than total eCommerce in each of its core countries, but its 27% CAGR was on par with the 28% CAGR for the global eCommerce market over the same period (2010-2013). According to Euromonitor, Amazon’s core market GMV CAGR was on par with or better than the eCommerce growth in every other country we consider as secondary or emerging, except for China and India where the addressable market grew about 60% over the same period. While investors would like to see Amazon shift focus outside the core, we see lasting and perhaps even accelerating growth opportunities in these markets and view Amazon’s ability to win in non-core markets, like China and India, as limited.

As for eBay, she starts it at Underweight, with a $45 price target, writing that it will need to make “meaningful investments to re-focus” the two parts of the business, the “marketplaces” auction side, and the PayPal unit, leading to lower profit up-front as eBay tries to transform the auction side:

We see the need for incremental investments in two key areas: (1) After investing in the Marketplaces technology platform, eBay must re-focus its branding efforts to help elevate awareness of the company’s fixed-price platform, particularly with millennials where the company underperforms peers. (2) As the high margin (nearly double PayPal average) on eBay Payments business falls below 30% mix, the company must invest aggressively to replace this profit base. With incremental revenue from areas like Braintree and large merchants where margins are lower, revenue growth must actually accelerate to maintain profit growth, in our view. Key areas of incremental opportunity include international, offline, and mobile partnerships. As a result of these investments, we model combined company operating margin falling from 25.6% in 2014 to 23.5% in 2015 and 21.9% in 2016, below consensus forecast of 25% in 2015 and 26% in 2016.