According to its earnings conference call, it looks like NetSuite Inc. (NYSE: N) isn't being harmed by the slow economic environment. Then again, the company provides a cost-effective enterprise resource planning (ERP) solution. Plus, the competition -- including SAP (NYSE: SAP) and Microsoft Corp. (Nasdaq: MSFT) -- has been lackluster.
In Q2, NetSuite's revenues surged 43% to $36.6 million, a 7% sequential increase. In fact, NetSuite added more than 400 customers in the quarter. Although there was a net loss of $3.1 million, or $0.05 per share, SAP has made recent moves to increase its pricing.
Essentially, NetSuite focuses on the mid-market customer. Keep in mind that there are more than five million of them in the U.S. And, for the most part, the market is fragmented and unpenetrated.
After a day that saw U.S. equity markets decline in the neighborhood of 2%, U.S. stock futures earlier this morning pointed to a rough start Tuesday as well. News late Monday the Merrill Lynch said it's selling a big slice of its asset-backed securities and $8.5 billion in stock, renewed concerns over the financial sector health. But futures have started creeping upward, ahead of the latest readings on house prices with the Case-Shiller home price index for May and Conference Board reading of consumer confidence for July.
Meanwhile, we're still in the middle of earnings season and today
Northrop Grumman (NYSE: NOC), Viacom (NYSE: VIA), Valero Energy Corp. (NYSE: VLO), United States Steel Corp. (NYSE: X)
Electronic Arts (NASDAQ: ERTS) will report after the close of tradin
The big story making headlines since late Monday is the bombshell Merrill Lynch (NYSE: MER) that it is taking an enormous $5.7 billion write-down on losses from mortgage-backed securities (MBSs) and plans to raise $8.5 billion. MER shares already dropped 11.6% Monday before the news was out, and while they're rebounding 2.75% this morning, many are very uncomfortable with Merrill's current situation and actions.
Alcatel-Lucent (NYSE: ALU), the French telecommunications giant, is finally getting rid of its CEO Patricia Russo and Chairman Serge Tchuruk who will both resign later this year. It's no surprise shares are rebounding over 6% in premarket trading. ALU also reported its sixth consecutive quarter of losses. Alcatel-Lucent reported a net loss of 1.1 billion euros ($1.73 billion) for the second quarter including an euro810 million ($1.3 billion) goodwill writedown.
According to independent tech research firm 451 Group, SAP (NYSE: SAP) has been trying to sell off its TomorrowNow division since January. Unfortunately, there were no bidders. As a result, SAP has decided to shut down the business.
SAP purchased TomorrowNow in 2005. It looked like a smart deal. After all, the company developed systems to make it easier to use alternatives to Oracle (NASDAQ: ORCL)'s maintenance customers (known as the Safe Passage Program).
So why the dearth of interest for TomorrowNow? Well, Oracle filed a lawsuit against the company in March 2007. The allegation was that TomorrowNow made improper downloads from Oracle's servers.
No doubt, such a thing can be scary for any possible suitor.
The irony is that TomorrowNow customers – which amount to about 225 – will probably have no choice but to return to Oracle.
SAP AG (NYSE: SAP) shares trading lower today after the company posted a first-quarter profit of 242 million euros ($376.82 million), below analysts' estimates of 296 million euros ($460.9 million). The weaker US dollar has been holding SAP back. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on SAP.
After hitting a one-year high of $59.86 in October, the stock hit a one-year low of $43.00 in January. This morning, SAP opened at $49.50. So far today the stock has hit a low of $43.00 and a high of $59.86. As of 12:10, SAP is trading at $51.02, down $1.43 (-2.7%). The chart for SAP looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $55 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in seven weeks as long as SAP is below $55 at June expiration. SAP would have to rise by more than 7% before we would start to lose money. Learn more about this type of trade here.
MOST NOTEWORTHY: Goldman Sachs, Alexza Pharma and SAP AG were today's noteworthy upgrades:
Wachovia upgraded Goldman Sachs (NYSE: GS) to Outperform from Market Perform, as they believe Goldman has a superior capital position relative to competitors and will likely benefit more than any firm from Bear Stearns' (NYSE: BSC) collapse. They have a $180-$185 target range for the stock.
Following Alexza Pharma's (NASDAQ: ALXA) Q4 report, JMP Securities said they have reduced concerns regarding Loxapine timelines and risks. The firm raised Alexza to Outperform from Market Perform.
SAP AG (NYSE: SAP) was upgraded to Outperform from Market Perform at Bernstein on valuation and a positive view on fundamentals.
OTHER UPGRADES:
Tyson Foods (NYSE: TSN) was raised to Overweight from Equal Weight at Stephens.
Citigroup upgraded Teekay Shipping (NYSE: TK) and General Maritime (GMR) to Buy from Hold.
RiskMetrics (NYSE: RMG) was upgraded to Buy from Neutral at Banc of America.
Michael A Cusumano, a professor at the Sloan School of Management at the Massachusetts Institute of Technology, said in the New York Times on February 24, 2008 that Microsoft (NASDAQ: MSFT), "rather than acquire Yahoo (NASDAQ: YHOO), should pursue SAP." SAP is a German software company has more than 46,100 customers in more than 120 countries running applications from SAP.
SAP overall option implied volatility of 31 is near its 26-week average according to Track Data, suggesting non-directional risk.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Last year, VMware Inc (NYSE: VMW) was a darling for growth investors. But as of this year, things are not so stellar. The stock fell 26% in after-hours trading because of the jarring news from its quarterly report.
Revenues increased 80% to $412 million, which was below the Street's consensus forecasts of $417 million. Net income came to $78 million, or $0.19 per share
VMware -- which is 85% owned by EMC Corp. (NYSE: EMC) -- develops so-called virtualization software. Basically, the technology helps to reduce the costs of servers and other information technology (IT) resources.
To push growth, VMware has been aggressive in global markets, such as Eastern Europe, Japan, and China. There are also some marquee agreements, such as with SAP (NYSE: SAP).
While it looks like the momentum will continue for the first half of 2008, things are not so hopeful for the remainder of the year. In fact, the company projects a revenue growth rate of 50% for the full-year.
True, a slowdown is inevitable as it gets difficult for a billion-dollar company to keep churning large-size growth rates.
Although, the competitive environment is intensifying. Companies like Citrix (NASDAQ: CTXS), Microsoft (NASDAQ: MSFT), Oracle (NASDAQ: ORCL) and Virtual Iron are getting serious about virtualization. And no doubt, this is likely to put pressure on pricing.
Executives at big tech companies say that they see no recession, at least in their businesses. They seem to have at least some support for their thinking. According to the FT, "Tech executives also point to their broader diversification. While emerging markets represent 10-15 percent of the revenues of most big tech companies, they have come to account for a far larger part of their growth."
IBM (NYSE: IBM) turned in strong results. So did enterprise software company SAP (NYSE: SAP). But a quarter does not a trend make, even if forecasts for next year are good. A forecast is only as good as the next quarter.
Business in Asia is not immune from a slowdown. It may not be evident today, but there are already some signs. After tremendous increases last year, stock markets in China are not rising much now. Investors in that market are sending signals that their outlook may not be rosy.
A sharp slowdown in the US and Europe is bound to hit Asia because exports from those countries into the developed world will drop. China's economy is built to "hyper-growth" so a step down in expansion could bring financial, real estate, and economic markets there down with a crash.
Asia will grow until its doesn't. That may come sooner that many tech executives believe and would leave their growth plans in the mud.
Douglas A. McIntyre is an editor at 247wallst.com.
For investors, the hardest question often faced is when to sell a stock. Even when a stock issues a profit warning, if you are a long-term investor, that doesn't always justify one to pull the trigger.
There is no question it's easier to buy a stock than to sell. With that being said, today I was faced with an easy call. I call it the "three strikes and you are out" policy. If a company disappoints me three times in the span of six months, you're out (How long until pitchers and catchers report to spring training?).
Retalix (NASDAQ: RTLX) the Israeli provider of software solutions to retailers and distributors, today announced that it was going to miss its earnings estimates for the quarter. This is not the first time this has happened -- last quarter the same thing happened.
Over the past couple years, I've met with Zach Nelson several times. He's a veteran of the software world and is currently the CEO of NetSuite (which starts trading tomorrow as NYSE: N). The company develops on-demand software for the small-to-mid size business (SMB) segment, essentially allowing for sophisticated enterprise resource planning (ERP) functionality at affordable pricing.
Despite the success of NetSuite, it has been in the shadows of mega player, Salesforce.com (NYSE: CRM).
But this may change; that is, today NetSuite had a successful IPO, raising $161 million. At first, the company had a $13-$16 price range on the offering, but was able to price the deal at $26. NetSuite used an online Dutch auction system for its IPO, which allows any investor to participate.
The ERP market for large businesses is mostly dominated by SAP (NYSE: SAP) and Oracle (Nasdaq: ORCL). However, the SMB market is fairly under penetrated (Nelson calls it the "Fortune Five Million").
Oracle (NASDAQ: ORCL) posted much stronger than expected earnings. The company announced that fiscal 2008 Q2 GAAP earnings per share were up 36% to $0.25, compared to the same quarter last year. Second quarter total GAAP revenues were up 28% to $5.3 billion, while quarterly GAAP net income was up 35% to $1.3 billion.
The company also took a punch at rival SAP (NYSE: SAP) by pointing out that in Q2 Oracle's applications new license sales grew 63% compared to SAP's new license sales growth rate of 15% in its most recently completed quarter.
A great deal of Oracle's revenue was driven by upgrades to its software, and this is a strength that is likely to continue.
The most obvious take-away from the Oracle numbers is that there is still a great deal of strength left in enterprise technology sales. The company is big enough so that its results are a reasonable proxy for the extent to which large companies are willing to spend on tech. The news is good.
The other, less obvious lesson the Oracle's earnings bring, is that large technology companies can successfully grow through major acquisitions. Oracle has been a master at buying and integrating new companies. The only other tech company that has comparable strengths in the arena is Cisco (NASDAQ: CSCO).
In an industry where scale matters, Oracle has proved that it can build its business through both organic growth and M&A.
ORCL shares are up nearly 7% in premarket trading.
Douglas A. McIntyre is an editor at 247wallst.com.
With stock markets continuing to spiral downward and valuations getting cheaper and cheaper, I wouldn't be surprised to start seeing a big pickup in mergers and acquisitions (M&A). Yesterday came news of the Israeli company NetManage, Inc. (NASDAQ: NETM) being acquired by Rocket Software for approximately $69 million, a 95% premium over the previous days closing price. That is also coming on the heals of Hewlett-Packard Company (NYSE: HPQ)'s purchase of Nur Macroprinters Ltd. (OTC: NURMF.pk) earlier in the week. Israeli M&A is back with a vengeance. A very slow year up until now has suddenly turned hotter than the New England Patriots.
With the focus squarely back on foreign firms picking up Israeli publicly traded firms for cheap, here are 3 M&A picks for to keep an eye on.
MOST NOTEWORTHY: The airline sector, Boeing and UBS were today's noteworthy downgrades:
Morgan Stanley downgraded the airlines sector to Cautious from Attractive citing higher fuel prices and the weakening economy. The firm lowered AMR Corp (NYSE: AMR) to Underweight from Equal Weight and Northwest Airlines (NYSE: NWA) and US Airways Group (NYSE: LCC) to Equal Weight from Overweight.
Morgan Stanley also downgraded Boeing (NYSE: BA) to Equal Weight from Overweight and has concerns that the 787 will not be retired as early as they previous believed.
Lehman downgraded shares of UBS (NYSE: UBS) to Underweight from Equal Weight following the company's $10B write-down and capital injection from Singapore, which they point out will dilute existing shareholders.
OTHER DOWNGRADES:
Credit Suisse lowered SAP AG (NYSE: SAP) to Underperform from Outperform.
According to its earnings conference call, it looks like NetSuite Inc. (NYSE: N) isn't being harmed by the slow economic environment. Then again, the company provides a cost-effective enterprise resource planning (ERP) solution. Plus, the competition -- including SAP (NYSE: SAP) and Microsoft Corp. (Nasdaq: MSFT) -- has been lackluster.
After a day that saw U.S. equity markets decline in the neighborhood of 2%, U.S. stock futures earlier this morning pointed to a rough start Tuesday as well. News late Monday the Merrill Lynch said it's selling a big slice of its asset-backed securities and $8.5 billion in stock, renewed concerns over the financial sector health. But futures have started creeping upward, ahead of the latest readings on house prices with the Case-Shiller home price index for May and Conference Board reading of consumer confidence for July.
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Here are some highlights from this past week's 
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SAP AG
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Cramer on BloggingStocks: The SEC's waffling will be deadly
How Fannie and Freddie will fail
Stupid question: Can the U.S. handle more housing stress?
