JMBA earnings: lots to drink to after the announcement

Jamba Inc. (NASDAQ: JMBA) reported record fiscal first quarter net earnings of $11.9 million, or 20 cents a share, versus a year ago net loss of $81.5 million, or $3.88 a share. The fiscal first quarter ended May 1 included a pre-tax gain of $15.2 million, or 26 cents a share, related to the change in the fair value of derivative liabilities.

Revenue increased 22% to $89.4 million from a pro-forma $73.5 million in the prior-year period, while comparable store sales rose 4.2% for company-owned stores (compared to -3.5% in the prior year period) and 2.9% for franchise stores (compared to 1.4% in the prior year period). Continuing their strong store growth, 26 new stores were opened during the first quarter, 17 of which were company owned. During the quarter, the Company also acquired 10 franchise stores in California. The company ended 1Q 2007 with $66.6 million in cash and equivalents.

Analysts were expecting, on average, a per share loss of 9 cents on revenue of $68 million. After the announcement, JMBA shares were up 10% in after hours trading.

Also worth highlighting is the addition of Jamba Juice to the Russell 3000 after the market close. Companies added to the list on June 11 will officially join the index at the close of market on June 22. For the full list, please click on the following link: Russell 3000 additions.

Limelight Networks: shedding light on the CDN business

I have long been a fan of internet infrastructure plays such as AKAM, and today I wanted to briefly look at NASDAQ's newest member, Limelight Networks, trading under symbol of LLNW. It is opening with a lot of positive press, raising the pricing range throughout the roadshow, and upsizing the deal by close to 2 million shares. Given the success of the roadshow, I can't help but wonder, have investors forgotten that there already is a much larger, more profitable company, that does the same thing, and trades on the NASDAQ? Many people saw the LLNW IPO as a potential threat to AKAM. Others view it as hopefully shedding more light into a relatively unknown business segment of the internet. Whatever the case may be, I believe it will be a positive for AKAM shares.

LLNW is nowhere near the size of AKAM, nor does it even rival AKAM’s strong market position. In fact, this IPO is intended to help the company grow, given that the use of proceeds is to fund capital expenditures. According to the S-1 filing, the company expects to make capital expenditures of approximately US$35 million to US$45 million in each of 2007 and 2008. The remainder of the proceeds will be intended to make complementary acquisitions. By comparison AKAM spent close to US$70 million in 2006 capex alone.

What else is of significance in LLNW’s filing? Under the risks section and throughout most of the document, Limelight mentions “the possibility that [they] could be permanently enjoined from offering CDN services as a result of the patent infringement lawsuit filed against [them] by Akamai and the Massachusetts Institute of Technology, which is similar to other lawsuits in which the same plaintiffs have been at least partially successful in the past.” Apparently, in June of last year, AKAM and MIT filed a lawsuit in the U.S. District Court for the District of Massachusetts alleging that LLNW is infringing two patents assigned to MIT and exclusively licensed by MIT to Akamai. In September 2006, Akamai and MIT expanded their claims to assert infringement of a third, recently issued patent. In addition to monetary relief, the consolidated complaint seeks an order permanently enjoining Limelight from conducting business in a manner that infringes the relevant patents. Needless to say, it’s a significant concern that is both costly and time consuming for LLNW’s management. The case is expected to go to trial in 2008.

Glancing at both companies, AKAM is clearly the blue chip in the sector; it has the infrastructure, the sales network, the customers, the relationships, the financial position, and it seems it even has the patents. Even if LLNW has a nice run in the near term, I believe that the smart money is and will continue to be with Akamai.

For your review, this is how both companies stack up against each other:

DLIA: Not in fashion to continue posting weak numbers

Continued strength in denim, strong sales in dresses, and impressive sq. ft growth is no longer enough to keep me focused on the Delia’s story. The company posted results for the first quarter 2007 on May 30, and they were just unimpressive (much like 4Q 2006).

Based on the filing, revenue increased 11% to US$57.8 million from US$51.9 million last year, while same store sales were 9% for the quarter. Gross margin decreased to 36% of sales, SG&A expense was 42.1% vs 40.9%, for a net loss in the quarter of US$3.3 million versus US$1.2 million or a loss of US$0.11 versus US$0.05 for last year. The street was expecting a loss of US$0.07.

A decrease in margin from the retail segment reflects markdowns required to clear excess inventory. Also margins were hurt by what several one time items: CCS girl catalog test charge, and charges related to the moving of headquarters, relocations, severance, and recruiting.

In all honesty, after the call I was left with not much to look forward to. This is the second quarter in a row that I am disappointed by management and what I believe is their inability to execute. Sure, they say that they see strength in denim, dresses and the back to school assortment. But the reality is that denim is not as strong as it was 2 years back, and that their competitors seem to have lower prices. They spent a significant amount of money this quarter testing the CCS catalog when most of their direct segment sales are now coming from the internet (and are growing at a much faster pace). In short, their competitors are winning (significant in a sector where there are many substitutes), and they are banking on fashion trends that are losing steam.

The retail segment is starting to see some weakness in consumer spending, and no matter the prospects, Delia’s is too much of an immature company to weather any kind of downturn. There are better names in the space, and I would stay clear of DLIA until management proves they can for once and for all meet Wall Street’s, and their customers’ expectations.

DLIA vs. S&P 500 performance over the last 3 months

Case in point: ValueClick is next

I do not want to overplay / overhype the issue, I just wanted to highlight some of the comments from a research piece published yesterday by ThinkEquity Partners saying that VCLK "should be next."

It is no secret that ValueClick is one of the last remaining public companies in the business. Stewart Barry (ThinkEquity analyst) pointed out that even Microsoft could show interest since ValueClick would be complementary to the aQuantive acquisition. Time Warner could also be in the fray, if anything, to prevent Microsoft from buying it.

How have some of the publicly listed companies traded over the last week and since the announcement of AQNT?

Redefining how we think about media and the internet (Part III)

Continuing with some of the themes I lay forth in this blog, I wanted to highlight Microsoft’s latest move. Today it announced that it is purchasing aQuantive (NASDAQ: AQNT) for US$6 billion in cash, which represents an 85% premium. For those of you not familiar with the company, AQNT focuses on online advertising, and it operates in three segments: digital marketing services, digital marketing technologies, and digital performance media. Microsoft declared that the rationale for the acquisition was to expand the software company’s push into internet advertising.

The following are some of the latest acquisitions to make news:

Question is who will be the next target. These are some names that I believe are worth a look or could be of interest to the likes of Microsoft, Google, or Yahoo:

In the end they might never be bought, but one thing is for sure, the latest string of acquisitions is going to raise their profile and their value.

Not losing faith in AKAM

I have spent the better part of my time lately trying to understand what exactly is wrong with Akamai (NASDAQ: AKAM). The fundamentals have not changed at all, in fact, management continues to reiterate their expectations of 400 bps of EBITDA margin expansion in 2007. The company also seems to be very active in signing costumers and differentiating themselves from the competition, as exemplified in their live streaming of Adobe Flash Player video format (AKAM has broadcast events like Nickelodeon’s Kid Choice Awards in this format). And on an industry basis, content owners are becoming more concerned than ever with the need to deliver their content to broader audiences faster, a trend that favors CDN vendors. In short, it just seems like investors have lost faith.

But, from everything I have read, AKAM is doing just fine. Strong market share, strong market fundamentals. Only a weak share price. Since their 1Q announcement on April 25, shares have fallen close to 22%, while the S&P 500 has gained approximately 1.4% in the same period. On a 2008 P/E basis, the shares went from trading close to 32.0x (prior to earnings) to 25.0x (today). How much cheaper will the shares get? Companies with comparable 2008 growth (for example Google) trade at approximately 25.0x 2008 EPS estimates. Will investors regain faith if shares trade any lower?

As a strong believer in AKAM and their business model, I continue to wait for a catalyst, or for a sign that 2Q will bring the surprise that 1Q did not. In the end, that is what everyone was looking for, to be surprised (unfortunately, growing revenues by 57% q-o-q, proved to not be enough). I have not lost faith though. I remain positive, and I believe that at current levels (25x 08 P/E), it is tough to find a similar low price / growth story that has the potential to deliver in the long term the way Akamai can.


AKAM indexed price since 1Q '07 earnings release

Redefining how we think about media and the internet (Part II)

Looking at one of my favorite sources of information (SeekingAlpha), I stumbled upon two very interesting pieces that seem to support some of the arguments I made in Part I. I have included a link for your reading pleasure. Enjoy.

• Another blow to newspapers: Facebook classifieds http://media.seekingalpha.com/article/35302
• Do newspapers and public ownership not mix? http://media.seekingalpha.com/article/35215