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Technology Stock Roundup: Apple, Google and Yahoo Rally

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Tech stocks rallied nicely last week after a bad spell and companies like Apple (AAPL - Free Report) , Google (GOOGL - Free Report) and Yahoo all beat the market. So let’s see what the excitement was all about.

Yahoo Sans Alibaba?

CEO Marissa Mayer has promised to tell us what she plans to do with Yahoo’s roughly 15% stake in Chinese ecommerce giant Alibaba (BABA - Free Report) , when she announces fourth-quarter results on Jan 27. Yahoo could either sell off the stake in the most tax-efficient manner after the lock-in period (September 2015), or hang on to it in anticipation of further value accretion.

Mayer is likely to the do latter unless she’s having a change of heart (she reduced the amount to be sold compulsorily at the IPO, revamped the search business with Gemini, made investments in key areas to boost core capabilities, all of which are indications that she’s working for the long haul).  

But in case she does sell off, shareholders could make some money from the distribution. Moreover, the core Yahoo business, with its billions of dollars of cash could become attractive as a takeover target for Softbank, Microsoft (MSFT - Free Report) or Alibaba itself. So investors could make some more money.

Virtual Reality in 2015

Three of the top technology companies are now in the market for virtual reality (VR).

Microsoft is the latest to enter the fray with its HoloLens device announced last week. This is a gesture and voice controlled headset with a screen that has the capability of merging reality with virtual objects to develop designs etc. The product is not available yet, nor are any related specs, and Microsoft’s event was mainly used to whet our appetites. Microsoft usually launches its OS in the second half of the year, so that’s when we will know more. 

Facebook’s (FB - Free Report) Oculus acquisition brought on board a VR headset called Rift that is mostly targeted at the gaming segment. It still doesn’t have a consumer product on the market and when it comes it could cost as much as $200-$400. Samsung, which uses Oculus technology in its Gear VR, sells the device for $200 even though it can only be used with Galaxy Note 4, which costs more than $700 ex-contract.

Google made some initial headway although its more-publicized Glass proved less successful than its quietly-developed Cardboard device. Anyone with an Android phone can hook it to Cardboard (made with cardboard, lenses, magnet, rubber band, Velcro) to enjoy a VR experience.

Google has released specs and an SDK for a headset, and its partners have reportedly sold over 500,000 pieces at under $30 each in less than six months. Its Magic Leap investment is also yielding patents for a display system with a kind of super-VR it’s calling “cinematic reality.” VR apps on Google Play are mostly free or available at a nominal cost and HBO, Volvo and Red Bull are already advertising on Cardboard.

Microsoft Windows 10 Event Was A Big Deal


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GOOGL = Class A shares (old, 1 vote per share)

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Google, Viacom Win Case: Lawyers fighting for the privacy of kids under 13 lost another round to Google and Viacom as the judge for a second time found that the companies hadn’t done anything “highly offensive,” a prerequisite to proceedings against them. The judge said the companies were not guilty under the Video Privacy Protection Act and the new Jersey Computer Related Offenses Act but hinted that they could be charged under other acts.

President Obama is pushing for a new law for the protection of children under 13. Separately, Google has now signed an Obama-endorsed student privacy pledge.

New Technology/Products

Amazon to Produce/Acquire Original Movies: Amazon (AMZN - Free Report) intends to bring original movies to Prime subscribers in 4-8 weeks, something that has so far taken anywhere from 39 to 52 weeks. Led by independent film visionary Ted Hope Amazon Original Movies will develop and acquire original content using both popular and fresh talent, as well as interesting story lines. Amazon Studios entered the spotlight with its recent Golden Globe awards.

Amazon Trashes Mobile Wallet, Launches Textbook Creator: Amazon decided to withdraw the current version of its Wallet, which is an Android app allowing users to store reward points and gift cards but not credit and debit card information. Its doubtful that Amazon will withdraw from the payments business altogether. It could come back later with something better, or acquire the capability (PayPal for example could soon be free for the taking).

Meanwhile, Kindle Direct Publishing (KDP) has started a new segment for educators that will help them to quickly prepare, publish and promote educational content to students on a large number of devices including Fire tablets, iPads, iPhones, Android smartphones and tablets, Macs and PCs. PDFs can also be converted to textbooks.

Analyst Opinion

Intel Downgraded by JMP, RBC Canaccord Positive: JMP Securities downgraded Intel following its fourth quarter earnings report, citing concerns of a slowdown in the server market. Canaccord was generally positive, especially about prospects of the server market and Intel’s Grantley platform, but remained neutral because of slowdown in PCs and continued losses in mobile. RBC on the other hand came back with a rejoinder to JMP, saying that demand remains strong, but there could be issues on the supply side, which could lead to shipment delays only.

M&A and Collaborations

Google Buys Stake in SpaceX: Google has made many separate attempts to connect the world. That’s because, like Facebook, it has a direct interest in growing Internet real estate. Both these giants are therefore exploring different ways to get faster Internet access and to more people. Facebook has its own project and drones for connecting emerging countries, while Google has O3b, balloons, fiber-optic network for high-speed Internet to some U.S. locations and also satellites.

The company’s internal satellite staff have been departing over time and it has been quiet on that front for a while. But Google (along with Fidelity) is back with a billion dollars of cash to pick up a 10% stake in Space X, which is intent on connecting the world through a number of orbiting satellites. 

Intel Partners with iQIYI/Baidu:  Baidu’s video making arm iQIYI has teamed up with Intel to boost its storage, transcoding distribution, cloud computing and big data analysis. Intel’s hardware (Intel Xeon processor, Intel PCIe/NVMe Solid State Drives (SSDs), and ten Gigabit Ethernet Adapters) and virtualization technology will be used to increase the efficiency and stability of iQIYI’s high performance operations. This is a neat way for Intel to strengthen its position in China’s booming online video segment.  

Twitter Buying Indian Startup

Google, Sprint and T-Mobile in Wireless Service Deal:  Google is soon to become a mobile virtual network operator (MVNO) according to its agreements with the two wireless carriers, from which it will buy capacity and resell to end customers. MVNOs have been around for a while, but this one is likely to be different. It could be very important for Google if it is able to bundle its wireless plans with the wireline plans (through its own fiber-optic network) it is now offering in a number of areas. This could allow it to shrink costs and pick up some market share.

But Google already has strong relationships with market leaders AT&T and Verizon, so it would need a very compelling reason to get competitive with them. Google could be eyeing the ongoing development on Sprint’s network, but the move still remains a bit of a mystery.  The FCC and California Public Utilities Commission are yet to approve.

Google Takeover Rumor Boosts Twitter: Twitter shares rose last week on a rumor that Google was interested in buying it. Google didn’t confirm the claim and so far no “people familiar with the matter” have provided additional information. Twitter continues to make losses and most people expect prices to fall back quite a bit, at which time it might make a better target.

Some Numbers

IBM Lowers Forecast: Big Blue is having a hard time convincing investors about its cloud business, which hasn’t been able to make up for its hardware losses. In its earnings call last week the company set its full-year earnings target at $15.75-16.50, a far cry from the $20 it promised earlier.

Facebook Gaining in India: A recent report from eMarketer says that India will have the largest number of Facebook users by 2017. It is currently behind only the U.S. The report says that by 2017, India will have 145.9 million Facebook users, while the U.S. has 138.8 million.

Apple Gaining Share in Asian Countries: Fresh data from Counterpoint Research (for November) suggests that Apple’s iPhone 6 and iPhone 6 Plus has a 12% share in China and is now behind only Lenovo and market leader Xiaomi. Apple is already the leader in Japan with over 50% share and has come up from behind in the smaller Korean market to take a 33% share.

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