Venture capitalists are still investing in flashy Internet start-ups, but the “Next Big Thing” is more likely to be a maker of humdrum Internet plumbing for businesses.
The Wall Street Journal’s third annual ranking of the top 50 venture-capital-backed companies shows a crop of contenders that overall are focused less on online consumers than in years past.
With less than a week to go before Hewlett-Packard CEO Meg Whitman sits financial analysts down for an update on her efforts to turn the company around, another analyst has chimed in with a negative “sell” rating on HP shares.
HP shares are traded lower by more than 2 percent in pre-market action in partial reaction to the downgrade note by Peter Misek of Jeffries and Co. Misek lowered his target price for HP shares to $14 from $17 and maintained his already-low estimate on its per-share earnings for fiscal year 2013 of $3.58, which is far below the consensus estimate of $4.22.
He’s got lots of reasons: For one thing Misek is worried about HP’s intentions in the tablet and smart phone arena. After failing to capitalize on the acquisition of Palm and shutting down the WebOS hardware business after sales of the TouchPad tablet failed to gain traction and subsequent $3.3 billion write-off for goodwill and inventory, Whitman has promised to try again with another smart phone. Misek sees that “makes sense strategically,” but which also carries with it a lot of risk: “On top of adding costs and working capital burdens to an already stressed balance sheet, there could be additional write-offs.”
Meanwhile HP’s already got significant trouble with its bread-and-butter PC business. Overall demand in the PC market is slowing, while Microsoft’s Windows 8 doesn’t yet appear to be much of a catalyst, at least if you look at the slow demand for PC microprocessors from Intel.
On top of that the transition to a renewed emphasis on higher-value IT hardware and services is sputtering. Documents revealed in the lawsuit with Oracle over the Itanium chip — HP won the first round but Oracle has promised to appeal — laid bare the fact that HP has long been relying heavily on revenue derived service and support contracts with customers who buy Itanium-based servers. Referring to the Business Critical Server unit that sells the servers, Misek writes that his conversations with its customers don’t bode well for HP: “Our conversations with BCS customers indicate a lack of confidence in the longevity of the product platform. While migration off of BCS is not lightly undertaken, we expect continued weakness in BCS hardware and related Services revenues.”
Then there’s the printer business: Inventories of printer ink have built up because they’re selling more slowly than before. The correction, Misek argues, will take several quarters to resolve. He thinks tablets are cutting into demand for printed pages.
Finally there’s software: The one, still unfinished bit of messy business left over from the 11-month service of former CEO Léo Apotheker is the $11.7 billion acquisition of the British software firm Autonomy, announced 13 months ago. Misek says he expects HP to write off some of the value of Autonomy. This would follow the massive $8 billion write-off announced Aug. 22 related to the EDS acquisition from 2008. After that first big write-off, HP hinted strongly that more goodwill writeoff are in the offing, probably in Software, Misek says. “After Autonomy’s poor performance the last couple quarters, we think HP will write off half of the $6 billion goodwill from the Autonomy acquisition, which will put further pressure on its debt to equity ratio.”
Which brings us to HP’s debt situation. Misek notes that HP has $1 billion in debt payments due in the fourth quarter of this year and another $5.5 billion due in fiscal 2013. While not unusually high for HP historically, it doesn’t exactly help the already-strained balance sheet. Investors in debt markets have certainly noticed as credit default swaps on HP bonds experienced a textbook case of “blowing out” over the summer, though in fairness it wasn’t the only PC maker they worried about.
Misek isn’t the first to place a “sell” rating on HP shares. Chris Whitmore of Deutsche Bank Securities was notable for placing a sell on HP in August of 2011, and has remained bearish on the shares since then. The bearish case is strong indeed, and many investors are working it: Short interest in HP shares — an indication of sentiment that the share will fall further — has increased substantially in the last year.
As markets opened for trading in New York, HP shares fell by 15 cents or a little less than 1 percent to $16.96 on the New York Stock Exchange after closing yesterday at $17.11. If HP shares fall to the $14 price target that Misek has set, it would constitute their lowest price since April of 2003.
In 2005, concerned that its lucrative help-wanted ads business was being destroyed by the Internet, the New York Times placed a hedge: It put less than $5 million into Indeed.com, an online jobs service.
Seven years later, that turned out to be a lottery ticket. Japan’s Recruit Co. is buying Indeed for something like $1 billion, and the Times ended up netting more than $100 million on its investment. That’s a huge return — the kind that venture capitalists pray for, and that big media companies almost never get.
That’s the good news.
The bad news is that even that return won’t plug the hole left by the Times’ vaporized jobs ads.
In 2005, the Times was generating $189 million from help-wanted classifieds. By last year, that business had shrunk to $34 million.
Nearly every newspaper in the U.S. has a similar story to tell — Google, eBay, Craigslist and the rest of the Web destroyed the high-margin classifieds business. But sometimes it’s a good reminder to see it in chart form, anyway:
(Data: Company reports.)
Confession: When Samsung first released its Galaxy Note smartphone last February, I thought the company was crazy.
Part smartphone, part tablet — or “phablet,” as some like to call it — the Galaxy Note is ginormous, and I just couldn’t imagine anyone wanting to use such a big device as their phone. But a sequel is on the way, and competitors are following suit.
One of those competitors is the LG Intuition, which is available now from Verizon Wireless for $200 with a two-year contract. I spent the past week with this phablet, and though it offers a spacious five-inch display and speedy performance, I would not buy this device. It has an unwieldy design, and the screen’s odd aspect ratio has trouble displaying some apps. And use of 4G takes a big toll on battery life. Also, the included stylus and note-taking apps should be highlights of this device, but feel like afterthoughts.
[ See post to watch video ]
One thing’s for sure: The Intuition will turn some heads. It almost makes the Galaxy Note look svelte, even though the Note is a quarter of an inch taller.
What makes this thing so cumbersome? It’s super-wide. The device measures 3.56 inches across, and I had a really hard time wrapping my hand around it. When Apple unveiled the iPhone 5, the company noted that a phone should fit beautifully in your hand, and I agree. I don’t mind a slightly larger phone, but if I can’t even comfortably hold it, then there’s a problem.
Admittedly, I have small hands, but even when I passed it around to friends, they also mentioned how awkward it was to hold. You can pretty much forget about one-handed operation.
When I used it to make voice calls, I almost felt like I was part of a “Saturday Night Live” sketch. It felt ridiculous holding such a huge phone up to my ear; I kept waiting for Will Ferrell to show up with an equally comical prop, but, sadly, he never did.
And the large design wasn’t just cosmetic; it also led to difficulties with phone calls. I initially thought the handset’s volume was too low when I couldn’t hear my friends on the other line, but I later realized that the problem was that the earpiece wasn’t lined up directly with my ear because the Intuition is so wide. Once I lined the phone up the right way, I enjoyed clear audio.
The Intuition’s colossal design isn’t all for naught, as it allows for a five-inch touchscreen. Most smartphones today have displays that range between 3.5 inches and 4.3 inches, so the extra real estate made it easier to read emails, Web articles and e-books. Text and images looked crisp and sharp, and the display’s 4:3 aspect ratio allows for an extra column of icons in the Apps menu.
Unfortunately, it also creates some problems with third-party apps and videos, since a majority of them are designed to work with today’s 16:9 devices. When I was watching videos using the Netflix or Google Play Music and TV apps, there were black bars above and below the picture, so I didn’t think it offered a better viewing experience than a regular-size smartphone.
Most major apps, like Facebook, OpenTable and the Weather Channel, worked fine with the display, but it wasn’t all smooth sailing. For example, I downloaded Fitness Buddy, and the exercise descriptions didn’t fit properly in the window, and there was a lot of extraneous white space. You can change the aspect ratio of any app to 16:9 by holding down the Home button, but you shouldn’t have to do that.
Like the Samsung Galaxy Note, the Intuition comes with a stylus — which LG calls the Rubberdium pen — so you can jot down notes and draw sketches. I still take handwritten notes during meetings, so this part of the phablet revolution really appeals to me.
The device, which runs Android 4.0 Ice Cream Sandwich, comes preloaded with a note-taking app called Notebook, which includes options to add pictures, voice memos and stickers to notes. There’s also a dedicated QuickMemo button on top of the device that will capture an image of your current screen so you can mark it up with comments.
I found this easy to use, but it is rather limited in functionality compared to Samsung’s S Note app, which comes on the Galaxy Note. For example, S Note converts handwriting into text, smooths drawn-out shapes and even solves handwritten math problems using the Wolfram Alpha search engine.
With the Galaxy Note II, Samsung’s S Pen even gains more features. It’s pressure-sensitive, so you can draw fine and thick lines, and it adds the ability to hover the stylus over the display to preview email and video frames. Meanwhile, LG’s Rubberdium pen is a one-trick pony, and to make things worse, there’s nowhere to store the stylus on the device itself.
One cool feature of the Intuition is its near field communication (NFC) technology, which allows you to wirelessly exchange data between two NFC-enabled devices simply by tapping them together.
The Intuition comes with two programmable NFC stickers that you can use to switch to office or car mode simply by touching the back of the phone to the sticker. Office and car mode turns certain features of your phone on or off, such as Wi-Fi or Navigation, depending on whether you’re working or driving, so you don’t have to fumble through the settings menu. Setup for using NFC was a breeze, and I found it to be quite useful.
LG has an estimated talk-time battery life of 15 hours, and in my battery tests, I got 10 hours of continuous talk time. With moderate use, during which I checked email and Facebook, visited some Web sites and watched a couple of YouTube videos, the Intuition lasted almost a full day.
But with heavier usage of Verizon’s 4G LTE network, the battery drained about 50 percent by mid-morning, and there’s no way to toggle between 4G and 3G. The smartphone’s general performance was smooth with little lag.
Sadly, the highlights of the LG Intuition are few and far between. For those looking for a smartphone-tablet hybrid, I’d recommend waiting for the Samsung Galaxy Note II. Or, if you’re on a budget, T-Mobile and AT&T have both cut the contract price on the original Galaxy Note to $200.
Of the 110 million current smartphone owners in the United States, users visited Instagram from their smartphones on a daily basis more frequently than they visited Twitter during the month of August, AllThingsDigital has learned, marking the first time that the massively popular photo sharing service has passed Twitter in the mobile app daily engagement ranks.
The data — published in a comScore mobile audience measurement report that has not been made public — says that throughout August, Instagram had an average of 7.3 million daily active users — or DAUs, in Facebook parlance. That tops of Twitter’s 6.868 million DAUs over the same period of time, according to the report.
What’s more, the average Instagram user spent 257.0 minutes accessing the photo-sharing site via mobile device in August, the data claims, while the average Twitter user over the same period spent 169.9 minutes viewing.
This is the case despite the fact that Twitter had approximately 29 million unique U.S. smartphone-based visitors in August, while Instagram had just under 22 million. (comScore measured usage across iOS, Android and BlackBerry OS devices that accessed both sites via native application as well as through the mobile Web browser.)
So let’s parse this: While Twitter may have had a greater number of smartphone users visiting its site (via the mobile web and via Twitter apps), Instagram’s users appear to be returning to the site on a more frequent basis, and spending more time on the site each time they return.
Facebook declined to comment on the data. A Twitter spokesperson did not respond to a request for comment.
For a number of reasons, this is a pretty big deal. That the barely two-year-old Instagram could rocket up in user engagement and retention in such a short amount of time, eventually surpassing Twitter in the process, speaks to the sheer momentum of the photo-sharing product.
Above all else, it speaks to the ongoing mobile issues of Facebook, now the parent company of Instagram; the massive shift in user traffic to mobile devices is a real thing, and Facebook seems to now hold an asset in the highly popular Instagram. The trick now, however, is to figure out a way to effectively monetize Instagram and the Facebook mobile experience.
Twitter, with its own ad product suite of promoted and paid tweets, seems to have cracked this. The company trumpets its ad business as already lucrative in the two years since its inception, though has not provided any hard revenue projections to back this up. Current eMarketer projections for Twitter’s 2012 mobile ad revenue, however, put the start-up’s ad products near the top of the heap; eMarketer projects that Twitter will rake in close to $130 million in mobile ad revenues in 2012, nearly doubling that of projections for Facebook, which sit around $72 million.
And Twitter ascribes most of this success to the mobile nature of the company’s core product. As of June 7th, 60 percent of Twitter’s active users access the service via a mobile device. Twitter says the inherently mobile nature of Twitter increases overall engagement between users and tweets, making it more likely for users to click through on its ad products.
Now the pressure is on Facebook to create mobile advertising products that effectively utilize what seems to be Instagram’s key strengths, according to comScore: Bringing users back more often on a daily basis and keeping them engaged for a longer period of time compared to Twitter.
We should note that until as recently as this summer, comScore did not provide detailed information report on mobile metrics. Only in May did comScore first launch its Mobile Metrix 2.0 measurement product. It is not clear whether comScore’s numbers will continue to reflect these trends in Instagram and Twitter use. Also of note is that comScore’s data only measured activity from users age 18 and older, which no doubt cuts out a broad swath of minors who use both services.
To some degree as well, it makes sense that users spend more minutes engaged with Instagram than Twitter. Instagram’s never-ending flow of content is composed entirely of photos, with each picture requiring some degree of pause to take in. Twitter’s stream, on the other hand, is primarily composed of text-based messages, interspersed with some embedded photos, videos and links out to other Web sites. In a way, Twitter is designed to make it easier for users to move speedily through the stream, stopping on text or pictures as often or as little as they like.
Twitter has been trying to change this in recent months, however, with the introduction of products like Twitter Cards, a proprietary technology that allows outside content publishers to preview off-site content within tweets themselves, making Twitter as a whole more visually stimulating and, above all else, engaging.
An aside: It’s likely that Twitter could have achieved this richer, more visually oriented look if it had tried to buy Instagram instead of Facebook. And indeed Twitter did try, yet failed to beat Mark Zuckerberg’s billion-dollar offer. Must sting a bit to see the app that got away now flourish in the hands of your greatest competitor. (I know it smarts for Jack Dorsey, who hasn’t used the service since.)
But that battle is over. Now it’s up to Facebook to turn its darling new mobile engagement asset into a moneymaker. And as shareholders wait for a return on their Facebook investment, the clock is ticking.
With its existing business in decline, RIM has been scrambling to reinvent itself by developing an entirely new mobile operating system and portfolio of smartphones to run it. But it has been hampered by repeated delays that have caused it to fall further behind nimbler rivals like Google and Apple. And while BlackBerry 10 is clearly moving closer to launch, with the company driving hard to actually meet its deadline this time — “We’re not sleeping much,” CEO Thorsten Heins said earlier this week — skepticism over its prospects for a turnaround abounds.
RIM’s struggle, which was already pretty dire, has become even more so in the months since it last reported earnings. Some formidable new marquee smartphones have hit the market — Samsung’s Galaxy S III and Apple’s next-generation iPhone 5, and they will almost certainly continue to impact BlackBerry sales ahead of the launch of BB10. Meanwhile fear is growing that the OS, RIM’s last ditch effort to right its foundering business, is too late. As Jefferies analyst Peter Misek wryly observed to AllThingsD. “It’s tough to see anything good when we haven’t seen a new phone in what seems like years.”
And while RIM’s share price enjoyed a nice lift the past few days thanks to an unexpected increase in subscribers to its BlackBerry service in its most recent quarter, analysts say the optimism that news inspired will likely be short lived. As Wedbush analyst Scott Sutherland said in a recent note to clients. “We remain cautious on RIM, and expect FQ2 results to be below expectations, and we expect reduced guidance. While we see some value in RIM, given the lack of content and device ecosystems, we believe RIM’s integrated strategy will continue to face significant challenges.”
So what sort of numbers is the Street expecting from the company? Consensus is a net loss of 47 cents per share — down from 63 cents a share in the same period last year — and revenue that has fallen 40 percent to $2.49 billion.
Investors will also be paying keen attention to the BlackBerry’s average selling price to get a sense of just how much it is reducing prices to gain market share. Another key metric: Cash on hand. RIM reported total cash and equivalents of $2.2 billion in June. What’s it got now and how quickly is it burning it as it scrambles to launch BB10? All these things will help investors determine how much faith to put into the claim Heins made earlier this week at BlackBerry Jam Americas: “I think we have a clear shot at being the No. 3 mobile ecosystem in the world.”
Zumper, an apartment rental listing Web site that matches landlords with prospective tenants, announced the closing of its seed funding round on Thursday morning, raising $1 million. The group of initial investors includes Kleiner Perkins Caulfield & Byers, Andreessen Horowitz, Greylock Partners, NEA and CrunchFund, among others. The team plans to use the capital to expand its engineering resources and continue expanding its rental platform.
I can’t imagine what it was like before Facebook when you could just spend the morning after a big night out recovering. Now you have to spend, like, an hour untagging photos. And then you read your texts and you’re like, “Oh, so that’s what I did last night.”
– Tracy O’Hara, 21, a Cornell senior, in a New York Times article by Courtney Rubin, entitled “Last Call for College Bars”