Charles Z.T.'s Investing Blog

Been a While

2005-09-24T09:12:00.000-04:00

It's taken a couple months longer than expected, but I'm back! I'm going to resume posting, albeit perhaps less frequently than I did previously.

A lot has happened since I last posted here. First, M&A: On July 28th SSNC Technologies (SSNC) made an agreement to be acquired by the Carlyle Group for $982 MM. Though I would've liked to have held this one longer, I'm not going to turn down a 40% gain in six months!

Then in August PetroKazakhstan (PKZ) agreed to be acquired by the Chinese state-owned China National Petroleum Corp (CNPC) for $4.18 B, or $55 per share. More acquisitions will surely come as China continues to seek oil to fuel its burgeoning demand.

In other news, eBay agreed to purchase Skype for "up to $4.1 B" (a bit much?) on September 15th. The purchase fits eBay's pattern of acquiring/creating services (rent.com, paypal, et al) that use community as a means of achieving user lock-in. However, despite Skype's purported 54 million members, I have doubts about the potential benefit/monetization of the service. eBay can cross-market the eBay marketplace and Skype, of course, but what else? Sell sponsored ads? Could someone help me out here?

As far as stocks to purchase, I remain a big proponent of Digital River (DRIV) and J2 Global Communications (JCOM) at current price levels. DR closed at $35.38 on Friday, down more than 10% from the high it reached after reporting stellar Q2 numbers, and J2 is trading at around $37.50. While both stocks may continue to experience near-term volatility due to the market, their fundamentals remain extremely compelling, in this author's opinion.

Full disclosure: I own shares of Digital River and J2 Global Communications. I do not own shares of eBay.

The opinions expressed in this blog are my personal opinions. I am in no way responsible for trades made or not made because of something read here. One should always do his or her own due diligence before buying a stock.

Back in July

2005-06-09T15:20:00.000-04:00

Dear readers,

I will resume posting this July.

regards,
Charles Z.T.

Who Owns What?

2005-05-11T22:26:00.000-04:00

The following is a list of investment vehicles I find interesting to observe with links to their respective SEC filings. I welcome suggestions of others to add to the list.

Billionaires
Paul Allen: Vulcan Corp

Warren Buffett: Berkshire Hathaway

Michael Dell: MSD Capital, L.P.

Lawrence Ellison: Tako Ventures

Bill Gates: Cascade Investment, LLC

Kirk Kirkorian: Tracinda Corp

Eddie Lambert: ESL Investments Inc

George Soros: Soros Fund Management LLC
028-06437 Atlantic Investment Management, Inc.
028-05875 Blavin & Company, Inc.
028-05444 Brahman Capital Corp.
028-11106 EAC Management LP
028-06301 Origin Capital Management LLC
028-10804 RR Partners LP
028-04503 Ridgecrest Investment Management LLC
028-05395 Select Equity Group, Inc.
028-06099 Seminole Management Company, Inc. (Paul C. Shiverick)
028-05369 Sirios Capital Management, L.P.
028-10036 Vantis Capital Management LLC
028-04945 Wyper Partners LLC

Mutual Funds
Bridgeway Capital Management

Canyon Capital Advisors

Clipper Fund

Dodge & Cox

Evergreen Capital Management

Fairholme Funds

Legg Mason Value Trust (Bill Miller)

Longleaf Partners Funds

Muhlenkamp & Co

Oakmark Funds

Perritt Microcap Opportunities Fund

Royce Microcap Trust

Schneider Capital Management

Sterling Johnston Capital Management

Tweedy Browne Co

Weitz Funds

Non-Profit Organizations
Gates Foundation: Bill & Melinda Gates Foundation

Harvard University: Harvard Management Co Inc

Digital River's Q1 2005 Results

2005-05-04T18:40:00.000-04:00

Last Wednesday (4/27) Digital River (DRIV) posted excellent results for Q1: revenue increased 70.8% YoY from $31.9M to $54.5M and net income increased 84.2% YoY from $7.6M to $14M ($0.35 per diluted share). For Q2 2005 management sees $49M in revenues and earnings of $0.19 per diluted share, reflecting the company's first fully-taxed quarter. For FY 2005 management sees $209M in revenues and $1.02 in diluted net income per share.

Despite this stellar earnings announcement the stock slid more than 10% over the ensuing few days, presumably in anticipation of the impact taxes will have on the company's bottom line. Though the stock has since partially recovered from this slide it is still down 37% from its 52-week high as of today's close.

In my opinion DRIV should be looked at at current levels. I like the company because it has high margins, a scalable business model with relatively strong barriers to entry (barriers to entry include switching costs, product differentiation, and economies of scale), and a leadership position in e-commerce outsourcing, a rapidly growing sector. Fundamentally, Digital River's balance sheet is strong with $315M of cash and investments. The company is trading at a forward enterprise value/earnings multiple of ~23 for FY 2005 and sports a trailing PEG of ~0.3.

Full disclosure: I own shares of Digital River.

The opinions expressed in this blog are my personal opinions. I am in no way responsible for trades made or not made because of something read here. One should always do his or her own due diligence before buying a stock.

Digital River (DRIV) to Announce Earnings After the Bell Today

2005-04-27T15:09:00.000-04:00

Digital River, Inc (DRIV) will announce its Q1 2005 financial results after market close today.

The company boosted its Q1 outlook on March 17, resulting in a >10% gap up. The gains were temporary, however; the stock has hovered near $30 ever since. As I write DRIV is currently trading at ~$29.

Q1 Earnings in Review: JCOM, SSNC, GOOG

2005-04-24T21:15:00.000-04:00

In this post I'd like to touch on the earnings results of J2 Global Communications (JCOM), SS&C Technologies (SSNC), and Google (GOOG).

On Monday (4/18/2005) J2 Global Communications (JCOM) announced its Q1 earnings results. Revenue rose 40% YoY to $32.2M and net income ~60% YoY to $10.2M, beating guidance and analyst estimates. Its gross margin improved slightly YoY to 79.8% from 79%.

Management also reiterated FY 2005 guidance as follows:

Revenues $145 -- $148 million
Net Earnings Per Share (1) $1.70 -- $1.75

...giving JCOM a forward P/E of ~19.5.

The stock still looks like a great value to me and remains one of my largest personal holdings. I strongly encourage due diligence here. For more information on JCOM reference my previous posts about the company here and here.

On Wednesday (4/20/2005) SS&C Technologies (SSNC) announced record numbers for Q1. Revenues increased 43% YoY to $27.4M and net income increased 58% YoY to $6M. The company's outsourcing revenues saw the largest gains, expanding more than 100% YoY to $10.457M.

In a nutshell, SS&C provides business services to the financial services industry. For more information on what they do reference SS&C's Reuters Business Summary.

I like the company because of its focus on recurring cash flows and the broad scope of its product offerings, a distinct competitive advantage. Its rapidly-growing outsourcing business is an added bonus - the outsourcing trend will only gain in strength as time goes by.

Fundamentally speaking, SS&C has a solid balance sheet with more than $100M in cash and investments and a current ratio of ~3.5. Plus, despite the stock rallying nearly 20% over Thursday and Friday, the company's EV/FCF ratio still stands at a relatively modest ~16 (~$31M TTM FCF).

I like SSNC at current levels, but, as always, conduct your own due diligence.

On Thursday (4/21/2005) Google (GOOG) announced suberb results for Q1. The company reported $1.29 of net income per diluted share, completely blowing away analyst estimates.

I don't own any shares of Google, but this faster-than-expected growth and all of the recent talk about the company (like the Gates vs. Google article from the latest issue of Fortune) are starting to make me wonder about buying a small stake in Google. I plan on writing an article specifically about Google in the near future.

Full disclosure: I am long JCOM and I am long SSNC. I do not own shares of GOOG.

The opinions expressed in this blog are my personal opinions. I am in no way responsible for trades made or not made because of something read here. One should always do his or her own due diligence before buying a stock.

Nasdaq to Buy Instinet for $1.8B

2005-04-17T22:53:00.000-04:00

According to Britain's Financial Times, Nasdaq (NDAQ) is set to buy Instinet (INGP) for $1.8 billion. Read the story here.

LEDs: a Disruptive Technology

2005-04-16T14:05:00.000-04:00

According to this recent AP article, LEDs could eventually replace light-bulbs as our primary source of lighting. Among the more interesting points of the article:

The Department of Energy has estimated that LED lighting could cut national energy consumption for lighting by 29 percent by 2025. The total savings on U.S. household electric bills until then would be $125 billion.

Current white LEDs will last up to 50,000 hours, about 50 times as long as a 60-watt bulb. That's almost six years if they're on constantly.

The feature of LEDs likely to propel them into homes is aesthetic, not practical. Arrays that mix red, green and blue LEDs can produce any color of the rainbow. Instead of a dimmer, you might have three sliding knobs that let you mix color.

Another great article about LEDs can be found here. It is also worth mentioning that there are numerous exciting applications for LEDs outside of lighting, including use in televisions, computer displays, cars, and camera flashes.

A word from myself:

I was inspired to mention this topic after the stock of LED maker Cree (CREE) rose 11.84% yesterday, on a 25% percent rise in revenue and a 37% rise in net income. (The stock is still down ~35% for the year despite this jump, a drop which occurred primarily because of gross margin concerns.)

Personally, I rarely invest in companies that make semiconducters, computer hardware, electronics, and the like - Cree included. While such companies may enjoy high margins at first, it is always just a matter of time before learning curves flatten, patents expire, and margins become razor-thin. Technology by itself is not a competitive advantage that is sustainable over the long-term.

With that said, I look forward to watching Cree and other companies from the sidelines should this "LED revolution" take place.

Full disclosure: I do not own shares of CREE.

On "Eyeing China's Alibaba" 4/5/05 Marketwatch Article

2005-04-09T12:26:00.000-04:00

I was browsing Yahoo! Finance today and found this Marketwatch article, entitled "Eyeing China's Alibaba." While its main point, that U.S. internet companies are pouring large sums of money to buy into China, is valid, the article was scattered and, in places, made misleading generalizations. For example, the article states that "there are 1.3 billion people in China, and for better or for worse -- they're on the cusp of becoming the next me-too, want-it-all, consuming society." While this may hold true for parts of China (which, granted, means hundreds of millions of people), the majority of Chinese live in rural areas and earn extremely little.

The article goes on to state that "yet[,] for all that opportunity[,] the combined market cap of Chinese Internet companies is a fraction of the U.S. Internet companies. The big three -- Yahoo, Google, eBay - have a combined market cap of $150 billion. The current big three in China -- Shanda, Sina and NetEase -- are worth a combined total of $5 billion, with Shanda accounting for $2.2 billion of that."

This statement disregards YHOO, GOOG, and EBAY's sizeable global operations (which includes their respective Chinese operations), and more generally pushes aside the fact that YHOO, GOOG, and EBAY dwarf SNDA, SINA, and NTES in very real terms.

Maybe I'm being picky, but I think media outlets should be more complete than this.

YHOO:
Total 2004 Revenues (000's): $3,574,517
US Revenues: $2,653,437 (74.23%)
International Revenues: $921,080 (25.77%)
-----
Market Capitalization (4/8/2005): $48.22B
P/S (4/8/2005): 13.49
Trailing P/E (4/8/2005, according to Y!): 60.35
Forward P/E (4/8/2005, according to Y!): 51.12

GOOG:
Total 2004 Revenues (000's): $3,189,223
US Revenues: ~$2,104,887(66%)
International Revenues: ~$1,084,336(34%)
-----
Market Capitalization (4/8/2005): $52.72B
P/S (4/8/2005): 16.53
Trailing P/E (4/8/2005, according to Y!): 133.18
Forward P/E (4/8/2005, according to Y!): 37.58

EBAY:
Total 2004 Revenues (000's): $3,271,309
US Marketplace Revenues: $1,399,848 (42.79%)
Intl. Marketplace Revenues: $1,173,759 (35.88%)
Payment Revenues: $697,702 (21.33%)
-----
Market Capitalization (4/8/2005): $47.28B
P/S (4/8/2005): 14.45
Trailing P/E (4/8/2005, according to Y!): 61.68
Forward P/E (4/8/2005, according to Y!): 34.81

SNDA:
Total 2004 Revenues (000's): $165,189
Online Game Revenues: $154,197
Others Revenues: $10,992
-----
Market Capitalization (4/8/2005): $2.11B
P/S (4/8/2005): 12.78
Trailing P/E (4/8/2005, according to Y!): 28.99
Forward P/E (4/8/2005, according to Y!): 17.39

SINA:
Total 2004 Revenues (000's): $199,987
Advertising Revenues: $65,417
Non-Advertising Revenues: $134,570
-----
Market Capitalization (4/8/2005): $1.54B
P/S (4/8/2005): 7.73
Trailing P/E (4/8/2005, according to Y!): 26.28
Forward P/E (4/8/2005, according to Y!): 22.37

NTES:
Total 2004 Revenues (000's): $115,786
Online Gaming Revenues: $75,991
Advertising Revenues: $20,667
WVAS Revenues: $19,128
-----
Market Capitalization (4/8/2005): $1.55B
P/S (4/8/2005): 13.47
Trailing P/E (4/8/2005, according to Y!): 30.61
Forward P/E (4/8/2005, according to Y!): 16.49

Reader Stock Ideas

2005-04-06T19:14:00.000-04:00

To my readers:

If there is a stock that you find particularly attractive and/or interesting at current levels, I encourage you to share your thoughts and analysis as a comment to this post. I think it would be neat to get a thread going. As I wrote, JCOM is my top idea at the moment.

cheers,
Charles Z.T.

J2 Global's International Expansion

2005-04-06T17:16:00.000-04:00

J2 Global Communications (JCOM) released a statement this morning "[announcing] the continuation of [the company's] international expansion, including new service in Asia, additional cities in France, and an additional 1.2 million European telephone numbers." (The entire release can be found here on the company website.) Today's release makes us three-for-three thus far this week for JCOM-related press releases: on Monday J2 announced it would hold its Q1 earnings call on Monday, April 18th, and on Tuesday Kaufman Bros. initiated coverage on JCOM with a "buy" rating.

J2's international expansion is yet another reason why last week's downgrade was short-sighted, if the stated reason for the downgrade was in fact the true reason for the downgrade. (Though I suppose the downgrade wasn't all bad, as it allowed me to pick up a few more JCOM shares at a discount.) J2 should see tremendous organic growth, particularly over the next several years, as it expands internationally.

It will be interesting to see JCOM's Q1 numbers. I expect excellent results. For those who don't follow JCOM, for Q4 2004 revenues jumped 46% YoY and net income jumped 54% YoY. Gross margins increased slightly, from 86.6% in Q4 2003 to 87.3% in Q4 2004. And, most impressively, free cash flow for 2004 stood at $44.3 million, putting j2's current trailing EV/FCF multiple at 18.

Bottom line: I recommend that all take a serious look at JCOM at this price level. Read through the SEC filings. With the company's scalable platform, recurring cash flow, strong competitive position, enormous potential, blue-sky market, and of couse, undervalued stock (EV/FCF of ~18, trailing PEG of ~0.5, even less for trailing EV/FCF/G), I cannot think of a stock that I currently find more compelling than this one.

Full disclosure: I am long JCOM.

The opinions expressed in this blog are my personal opinions. I am in no way responsible for trades made or not made because of something read here. One should always do his or her own due diligence before buying a stock.

Gmail Storage Capacity Bumped Up to 2 Gigabytes

2005-04-01T19:21:00.000-05:00

In what has become a familiar story of one-upsmanship in the battle for the loyalty (and eyeballs) of internet users, Google has bumped the storage capacity of its Gmail email service to 2 gigabytes. Just one-and-a-half weeks ago Yahoo! announced that it would bump up its email storage capacity to 1 gigabyte.

This means that Yahoo! can wave goodbye to all of its Yahoo! Mail Plus customers...or, at least, to those who haven't already switched to Gmail. (Yahoo! Mail Plus is the company's $20/year email service whose primary selling point is that it offers 2 gigs of storage.)

To be frank, I don't see Yahoo! emerging as the victor here, barring a major overhaul of its email service. Gmail is simply better: it boasts a better search function, no graphical ads whatsoever, a preview of an email before it is even opened, and overall, a more streamlined, functional interface. Google has also been successful in building the Gmail brand, cultivating a certain air of exclusivity by way of the service's "invite only" status.

Full disclosure: I do not own shares of Google or Yahoo.

U.S. News & World Report 2006 Graduate School Rankings

2005-04-01T18:56:00.000-05:00

The 2006 edition of US New and World Report's "America's Best Graduate Schools" goes on sale Monday. Its business school rankings can be found online here. The publication's top ten b-schools for 2006, in order, are Harvard, Stanford, Wharton, MIT, Northwestern, Dartmouth, Berkeley, Chicago, Columbia, and UMich.

JCOM Punished Following Downgrade

2005-03-29T20:16:00.000-05:00

JCOM was punished by the market today after being downgraded by Pacific Growth Equities at 1:00 pm, falling 16.6% to end the day at $33.57. (Prior to 1:00 pm the stock was up slightly.) The Reuters summary of the downgrade is as follows:

BANGALORE, March 29 (Reuters) - Pacific Growth Equities on Tuesday downgraded j2 Global Communications Inc. (JCOM.O: Quote, Profile, Research) to "equal weight" from "over weight," citing concerns that a tax on assigned telephone numbers might be introduced, hurting the company's profitability.

What is the commotion about? The government is currently looking for ways to generate more revenue for the Universal Service Fund, some of which could potentially affect JCOM's bottom line. (The Reuters article Universal Service Charges May Boost U.S. Phone Fees, published yesterday, provides the general story.)

Scott Jarus' (President) and Scott Turicchi's (CFO) take on these developments can be found here on the shareholder created JCOM website JCOMtalk.

An excerpt from this letter from top JCOM management (bold my own):

"We do not believe that such a tax will have a material financial impact on the future prospects of j2 Global. We will continue to monitor the progress of the USF funding alternatives and will lobby vigorously against any proposal that would impose a regressive tax on the consumers of our service and cause us to alter a portion of our business strategy. Again, please keep in mind, this is only one of only four proposals which may be considered by Congress, it has not yet been debated and it certainly has not been enacted."

My personal opinion of the situation:

I smell bs here on the part of PGE. Long-term holders of JCOM don't need to be reminded of the stock's history of manipulation, manipulation which occurred despite the company's outstanding performance and fundamentals. JCOM remains heavily shorted with a short interest of 4,161,805 as of mid-March 2005, comprising roughly 20% of the float.

My long-term outlook for JCOM remains the same. In my opinion this dip is an opportunity to double-down. We'll see where this company stands and how much money its short sellers have made in a few years.

Full disclosure: I am long JCOM.

Yahoo! to Boost Free Email Storage Capacity

2005-03-23T15:16:00.000-05:00

Yahoo! announced today that it will boost the storage capacity of its free email service to 1 gigabyte, starting in Mid-April. This matches the storage capacity of Gmail, Google's free email service.

The Texas Hold'em Fad & Online Gambling

2005-03-19T12:55:00.000-05:00

I don't understand this country's recent obsession with Texas Hold'em poker, and more generally, gambling. I hadn't even heard the phrase "Texas Hold'em" until a year and a half ago. Now, you see World Poker Tour (WPTE) poker tournaments all over ESPN, and every other show on the Travel Channel is about Las Vegas.

Part of this fad, of course, is online gambling. Online gambling is a great business, with low overhead, recurring cash flows, and easy scalability. I've owned stock in the two main publicly-traded online poker plays myself: Cryptologic (CRYP) and World Gaming (WGMGY.OB). I bought CRYP @ ~$21.00 and WGMGY.OB at $0.66 in late December. I sold both recently, after serious run-ups occurred in February. (I may repurchase CRYP in the future and I will probably not own WGMGY.OB ever again.)

I am still bullish about the overall long-term potential of most aspects of the online gambling business, but I have nagging doubts about these two gambling software companies, which don't actually run the online gambling sites themselves.

First, what does their pricing power look like in the long run? I suppose it depends on the extent to which customers are loyal to the website than to the software, but let's face, it isn't difficult to write gambling software and license it out. I would feel much more comfortable buying stock in a company that runs online gaming sites than one that provides software to them. (FYI, CasinoCity.com maintains a list of the largest suppliers of online gambling software here.)

Second, online poker (not online gambling -- just online poker) has one possibly fatal flaw: its anonymity. What if I and nine of my friends were to join a texas hold'em game and communicate by phone or instant messaging while the game is occurring? Knowing the cards held by the other nine would make the group almost unbeatable. You would have a money machine. Even if only two people were in on the scam, you would greatly improve your odds. (Online poker comprised 20% of CRYP's 2004 revenue.)

@Road (ARDI) Looks Interesting

2005-03-15T16:23:00.000-05:00

I was perusing Forbes' list of the 25 Fastest Growing Tech Companies today (which is old news, it was released 2/14), and some of the stocks on the list seem like decent values right now. Particularly, @Road (ARDI), the top company on the list, looks like a good value at first glance. If anyone else is following this company I would be interested in hearing your thoughts.

The lowdown:

@Road provides IT services for mobile workers. Here is a short description of the services they provide at the IR section of their website.

Why this stock looks like an interesting investment:

The company has nominal liabilities and ~$118M of cash, amounting to ~$2.15 per share. At today's closing price of $4.33, giving it a market capitalization of ~$237M, the company has ~50% of its market capitalization in CASH.

Our enterprise value is ~$111M, or $2.03 per share. The company had $8.56M of FCF in 2004, amounting to an EV/FCF ratio of ~13. Most of this FCF is of a recurring nature. This, mind you, from one of the fastest growing tech companies out there, at least according to Forbes. The situation obviously seems compelling, but requires more due diligence.

Among the points I want to research more extensively:

+ @Road's stock price has been all over the place, and has a record of short manipulation. I don't yet if that happened for a company specific reason, or if things just got out of hand (it happens to the best of them, like JCOM).

+ Who are their customers, and how many are there? On the "Reuters Abridged summary," from Yahoo! Finance, During the year ended December 31, 2003, Verizon Communications represented 17% of the Company's total revenue.

The 10K was just released today, so I'm going to start there.

Again, comments about the company are welcome.

KONG Buying Opportunity

2005-03-13T21:15:00.000-05:00

In my opinion, now is a good time to initiate a small position in KongZhong (KONG). The stock closed at $8.66 Friday, giving it an enterprise value of ~$200 M. I feel the stock may go down a bit further from here in order to fill the gap up that happened after Q4 earnings, but I would be suprised if it went below $8.00, barring any news.

With a TTM FCF of $13.6M, KONG is currently sporting a EV/TTM FCF multiple of ~14.75, and a TTM P/S multiple ~4. Not too bad.

And then there's KONG's growth. Q4 saw sequential revenue growth of 33% and YoY revenue growth of 329%, with sequential and YoY net income growth of 24% and 323%, respectively. Gross margin improved slightly to 65.8%, as compared to 65% for Q3. For more information, the KONG Q4 presentation can be found here, and the SEC filing here. The SEC filing includes management's 1Q05 business outlook.

By all accounts KONG is currently the number one mobile services provider in China. It stands to benefit (1) as the overall WVAS market size grows, (2) as the market consolidates, and (3) as customers migrate from 2G to 2.5G, from which ~93.5% of KONG's Q4 revenues came.

Of course, keep in mind the risks associated with KONG and the other WVAS companies.

Full disclosure: I am long KONG

The opinions expressed in this blog are my personal opinions. I am in no way responsible for trades made or not made because of something read here. One should always do his or her own due diligence before buying a stock.

Next Week: JOBS and TOMO Report Earnings

2005-03-13T19:33:00.000-05:00

Earnings: 51Job (JOBS) reports earnings pre-market tomorrow 3/14, and Tom Online (TOMO) reports earnings pre-market Tuesday 3/15. Two in a row.

I don't know what to expect with JOBS, other than volatility. The traders will be out tomorrow. Either way, I think JOBS is a good longer-term play at this level. 51Job has the same general story as the WVAS stocks: it is a big fish in a rapidly growing, fragmented market, with a huge potential market size.

I personally expect TOMO to get a bump after earnings, as the stock's valuation is already so low, and I expect a WVAS stock rally if TOMO performs well.

Full disclosure: I am long JOBS and TOMO

eBay Launches Intl. Classified Ads Site

2005-03-09T15:53:00.000-05:00

According to this article, eBay just launched an international classified ads site called Kijiji.com. ("Kijiji" means "village" in Swahili.) This, of course, comes off of the heels of eBay's purchase of a 25% stake in Craiglist.com last August.

If there is one good thing I can say about eBay it is that they recognize the value of community on the internet as a means of achieving user lock-in - the oft-referenced "network effect." eBay, PayPal, and Craigslist all currently enjoy de facto monopolies in their respective sectors due to this phenomenon.

Full disclosure: I do not own shares of eBay.

What Will Be Next From Google?

2005-03-05T18:42:00.000-05:00

Yesterday Google announced that web users can now get current weather conditions and a forecast by typing, for example, [weather Chicago]. This is the latest Google feature released this year, the others being Google Maps, Google Movies, and Google Video.

So what other new services will we see from Google this year and beyond? I'm going to play the role of Nostradamus here and make some predictions:

1) Google Travel: I have no doubt in my mind that Google will release its own travel service, to the detriment of Expedia, Orbitz, and Travelocity. I envision a Google version of Kayak.com - a one-stop, search-based aggregator of flight, hotel, and car rental information. Like Froogle, Google Travel will directly link users to provider websites, allowing consumers to bypass the fees charged by the current leading travel websites.

2) G-Bay: I predict that Google will one day release a service which will allow one to search through auction postings from all of the various auction sites - eBay, Overstock Auctions, Amazon Auctions, Yahoo! Auctions, and so on - from one central site. A central order book, of sorts.

The implications of such a website would be far-reaching. Most importantly, it would weaken eBay's network effect, and hence weaken the de facto monopoly eBay has on the online auction business. This would open the door for new competition, thus reducing eBay's pricing power and lowering transaction costs for internet auction services across the board.

3) Google Jobs: I predict that Google will unveil a job search service at some point in the future. This service will make worldwide job listings searchable through one central site.

Ultimately, I believe that Google has the potential to weaken and even usurp the roles of many of the most successful internet websites because it can offer users (1) better accessibility to pertinent information, due to Google's core competency in search and knack for innovation and design, (2) at a lower cost, because Google cuts out the middle man by making its services entirely ad-supported.

Full disclosure: I do not own shares of Google.

Jefferies First Annual Internet Conference

2005-03-03T18:13:00.000-05:00

Jefferies hosted their first annual internet conference today in NYC. Presenting were a host of mid-cap internet companies, including Monster (MNST), J2 Global Communications (JCOM), Bankrate (RATE), KongZhong (KONG), iVillage (IVIL), aQuantive (AQNT), ValueClick (VLCK), and Digital River (DRIV).

Archived audio of the event can be found here.

JCOM Touches $40

2005-03-03T18:04:00.000-05:00

JCOM touched $40 today for the first time since late 2003, marking a new 52 week high for the stock. Congratulations to all JCOM longs.

The company presented at the Jefferies conference today. Access J2's presentation here.

Spotlight On Closed End Funds: ETO

2005-03-02T18:23:00.000-05:00

If anyone here hasn't yet checked out ETF Connect, do yourself a favor and look around the site. It is a great resource for investors interested in closed-end funds and ETFs. I particularly find it interesting to look through its list of closed end funds ordered by discount for deals.

The extent to which many of these closed-end funds trade below their net asset value astounds me. For some funds it is understandable; many real estate and fixed income funds, for example, are trading at discounts greater than 10% due to the current interest rate environment. For other funds, however, it doesn't make much sense. (Not that I am angry about this phenomenon, of course!)

One such wrongly-discounted fund is the Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund, which trades on the NYSE under the ticker symbol ETO. It is closed today at $21.47, a price that represents a roughly 12% discount to the fund's Net Asset Value. What is there to like about ETO apart from this hefty discount? First, it has an expense ratio of 1.06%, which is relatively low compared to similar funds. Second, it has a dividend yield somewhere in the neighborhood of 6%. Third, it has a global focus, with more than 50% of the fund invested internationally. Last, and most importantly, the fund has savvy management. Eaton Vance is one of a handful of fund companies that I respect.

ETO's quarterly portfolio holdings, just released on Monday, can be viewed here. ETO's largest positions are in banking, utilities, and energy. Additionally, the fund owns 150,000 shares of May Department Stores (MAY), which have done well in recent days, of course, after Federated announced it would purchase the company for nearly $11B.

Full disclosure: I am long ETO.

LTON Q4, Pure-Play Chinese WVAS Stocks

2005-03-01T12:09:00.000-05:00

Linktone did very well in Q4, with sequential revenue growth of 17%. The stock popped 5% this morning. As I write it is trading at $7.37.

This stock, as well as the other Chinese WVAS stocks, trades at a low multiple because of uncertainties about (1) the power dynamic between China Mobile and Linktone, i.e. China Mobile's ability to fine and its ability to adjust the revenue sharing structure, and (2) taxation uncertainties. Also, to a lesser extent there is the concern of commoditization, though factors such as proprietary content and branding mitigate that.

Apart from all of this, it is clear that Linktone and KongZhong are trading at serious discounts to where they would be trading if they operated in the United States. So while it would not be prudent to own large positions in these stocks due to the aforementioned uncertainties, small positions make a lot of sense to me at these levels. As Peter Lynch wrote in Beating the Street, "Here's the key question to ask about a risky yet promising stock: if things go right, how much can I earn? What's the reward side of the equation?" Clearly, if the status quo persists for these stocks, the reward side of the equation is sizeable.

Full disclosure: I am long KONG as of mid January, and will initiate a position in LTON within the next week. I do not yet know know enough about HRAY to make an educated judgement.

As always, the opinions expressed above reflect my personal opinion. I am in no way responsible for any trades made or not made because of something read here.