Arash Christopher Eslami's Blog


Archive for the category “Business”

Uncle Sam Might Be Knocking on Your Door

US debt right now is estimated to be about 16 trillion dollars.  David Walker as guest on Yahoo Finance says yes, US debt is $16 trillion on paper, but the reality is that unfunded Social Security promises and unfunded Medicare promises are unaccounted for, which brings US debt to $70 trillion.  The rate this deficit is compounding, he says, grows at $10 million a minute.  This means it takes 10 minutes to get 100 million more in debt, so in 100 minutes—there’s 1 billion.  If you divide 100 minutes into the amount of minutes in one day—1440—then that equates to 14.4 billion dollars a day America is accruing on its balance sheet.

Taking these numbers a little further gives rise to suspect projections along with a sense of salesmanship on the part of the guest.  His claims, for example, imply the US is procuring $1 trillion in debt every 7 days; well, that means in a year, America will have added $52 trillion to its, now, $70 trillion.  Kind of seems spectacular, maybe some smoke and mirrors here to build the hype.

Whatever the rate is, one thing is certain: America has a serious debt issue.  The pros about America are obvious in that we have the largest GDP in the world.  In 2011, the US GDP was over $15 trillion.  That is, by the way, below the EUs GDP of $17.5 trillion in 2011.  But take into account that comprises 27 members including, Germany, France, Sweden, and others, and some are in serious debt trouble, i.e. Greece, Italy, and Spain.  This is the aftermath of the US selling EU members subprime mortgages bundled in stocks that went south.  And even though the US produces a lot of dough, it cost the US 106% to make that money.  Its debt/GDP ratio is over a 100%.  Greece’s debt/GDP ratio is over 130%.  Beyond the horizon looms there like a tower standing over you jutting out into the clouds.

Now, if you read this article you may discover discrepancies in my numbers versus their’s.  They use CBO (Congressional Budget Office) data, which the CBO claims US GDP may go above 70% this year.  My numbers, and this article, show clearly we have already gone over 50% of CBO projections.  Either someone is sweeping the dirt under the carpet or things got lost in translation.  Either way, it’s not good.

A silver lining here may be, according to the CBO, that if Bush-era tax cuts expire then this could bring down debt to GDP by over 50%.  This is a nice theory, and I will believe it when I see it.


Is Apple on the Ropes?

As I see it, Apple will be succumbing to a bitter fate of being dragged down from its high pedestal by the hands of Google and Samsung.  For many, this may seem a rather melodramatic hyperbole, and I would agree.  But then again Samsung has just taken out another big bite of Apple’s market share.  The latest numbers show Android—Google’s operating system—has gained a bare minimum market share of 20% while Apple has lost at least 4%, as high as 11% in Australia, in the four big Euro-markets: Germany, France, Italy, and Spain.

Apple is the biggest corporation in the world in terms of market cap.  Their $580 billion market cap is bigger than Exxon Mobil’s for at least over a year now.  The company, though, makes hardware: iPhone, iPad, iPod, Apple TV, and Macintosh.  They also make software.  Apple’s lion share of revenue comes from selling their hardware line.  So it’s no surprise that the company averages 40% profit margins as a result of high cost of revenue.  When you compare Apple to its rivals, i.e. Google and Microsoft with 65% and 75% margins respectively, then you see the advantages of being an internet or software based business.

Apple is in trouble because the Android operating system is the purveyor of all competing Google and Samsung hardware.  Android is killing iOS in Europe and they’re about even in the US and UK.  If Android begins selling more smartphones, tablet computers, etc. than Apple in these equal markets, then what recourse does the latter have?  None.  Hardware is their business.  Samsung is in the hardware business, too, whereas Google’s smartphones are simply stepping stones since the majority of their revenues come through the online business.

Mobile operating systems are becoming more important because people are migrating their online activities on the smartphone.  This is why companies like Facebook are scrambling to streamline their mobile app presence as fast as possible.  Smartphone online shopping, for example, is quickly rising with eBay and Amazon leading the way with over 12 million unique visitors in June on their mobile shopping apps.

Ebooks have just surpassed sales over printed books on Amazon in their UK market.  Amazon, already sells more ebooks in the US than paperback.  Assuming this trend continues, it seems as though people will soon tire of paying the iPad premium to the $200 Nexus 7 and, of course, Amazon’s more affordable Kindle Fire.

Apple still represents quality among buyers and businesses.  A prime example is the company Geode, which specifically designed a digital wallet for the iPhone.  If printed books are has beens because of ebooks, then this Geode technology might be the indicative fate of hard cold cash.

It will be interesting to see where Apple is in two years.  They’re a smart company who might benefit from making more endeavors in the online business.  They could buy Twitter, for instance, taking revenues from online ads.  More viable options in this fast changing environment will help Apple keep its rivals at bay.

Is There Light at the End of the Tunnel?

The darkest hour is just before dawn I’m sure is what Facebook executives must be singing under their breath.  The stock dipped below $20 a share for the first time after its not too long May 18th IPO at $38 per share.  Not good.  More bad news heaped up when the company’s filings revealed Facebook has 8.7 million “fake accounts” out of its 955 million active users.  That is about an 8 ½ % dent on its original numbers.  Even though Facebook’s future is grim to many, they still nearly have 1 billion active users.

Linked, the professional networking site, was a whole other story today releasing its 2nd Quarter earnings.  They did $228 million in revenue and $.03 in earnings per share: both numbers beat guidance.  The co-founder, Reid Hoffman, now chairman of LinkedIn is smart and might have better business acumen than some of his rivals.  During this quarter bad news did strike after 6.5 million passwords came up missing.  It seems the company recovered without much harm.

Twitter is, in many eyes, an evolved RSS (really simple syndication) feed where many individuals and businesses forecast the latest and greatest throughout the day.  The site certainly has the fastest feed per 100 followers, friends, connections, etc., relative to the other networking sites.  It’s more real time.  So it makes sense they have a political index called the Twindex that aggregates millions upon millions of tweets and with a formula discerns the overall opinion of Twitter users about the candidates.  The 2012 Olympics may have already foreshadowed how significant this Twitter mechanism will play out during the presidential race.

Is Facebook Sinking!

The numbers are in for Facebook’s first earnings report as a public company.  They were good overall, though, they closed at an all time low today at a meager $23.70.

When you take into account that the company’s IPO was on May 18th of this year at $38 a share, then you might think this is a very serious matter.  The fact is that the company did $1.18 billion in revenue for its 2nd quarter fiscal year with ad sales contributing more than 80%.  Wall Street compares past performance to the current performance as a way to project where the company is headed.  Well in this case Facebook made a 32% improvement in revenues in the same quarter last year.  You would think, well, that seems good, what’s the problem?

What took its toll on the company’s stock today was its net profit, that is, its GAAP versus its non-GAAP.  The non-GAAP (generally accepted accounting principles) showed Facebook netted $295 million—not bad, but its GAAP numbers revealed a loss of $157 million.  So, as usual, panic dominated Wall Street today as investors sold the stock while traders shorted it.

Facebook’s arrogance was demonstrated on its IPO when it upped the ante of selling 25% more shares on its debut.  That raised $16 billion for the company’s coffers while it also set a record as the largest IPO in tech history.  They have almost more shares on the float than Google and Apple combined.

What does the future hold for Facebook?  Promise.  The company is gradually getting more aggressive with its Pages, in particular their Sponsored Stories.

Let’s say you’re on Facebook and you check out Rubber Ducky Company who just put out a new, stellar rubber ducky.  As a sign of your approval, you click “Like,” and then this story is shared with your thousands of friends.  Network marketing 101.

Facebook’s First Earnings Report

Will Facebook eventually live up to the hype and monetize its user base of over 900 million people who spend, on average, 20 minutes a day on the social network website?  Today could be telling since this will be the first time the company has reported its earnings to Wall Street as a public company.  After Facebook’s fiasco of an IPO on May 18th of this year, many investors and analysts alike are questioning how the company can create a viable business model.

One specter looming over the company’s fate is Zynga’s disappointing 2nd quarter earnings released yesterday.  The online social game provider whose IPO in December at $10 a share has precipitously dropped to $3 a share.  Zynga provides games for Facebook users and is one of its largest money makers.

Facebook will likely report earnings below expectations, which are expected anyway, and therefore cause a minor, if any, uproar in Wall Street.  Still, the company has great prospects because of its growing user base although reports show it tapering off.  In the long run, the company should be able to more and more capitalize on its audience.  It will just take time.

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