Consumer Electronics
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AAPL
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For more Apple (AAPL) news, see Technology Hardware, Storage, & Peripherals
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VZIO $11
WMT $176 22 Feb 2024 |
Walmart to buy Vizio for $2.3 billion
To be honest, not only didn't we realize Vizio (VZIO $11) was a publicly traded company, we never would have guessed the firm is based in America (Irvine, CA). We discovered these facts after learning that Walmart (WMT $176) plans to buy the smart TV maker for $2.3 billion in cash. Anyone who has been a regular customer of Walmart recognizes the name, having to walk by the giant Vizio boxes as they pass the electronics section which divides the grocery and consumer products sections of most supercenters. But why would the retailer buy this particular name? First off, it should be noted that Vizio's books look great. The company holds zero debt on its balance sheet and sits on $335 million of cash and equivalents. But the real catalyst for the deal seems to revolve around advertising. You see, making and selling devices is only one side of the company's business. The other side is known as Platform+, which includes SmartCast, the TV operating system that enables owners to instantly access built-in apps and hundreds of free channels from their device. Consider it an integrated Roku, of sorts. The reason SmartCast is important to Walmart has everything to do with controlled advertising. Three years ago, Walmart rebranded its media group as Walmart Connect, the conduit for advertisers to reach the company's customer base. SmartCast will greatly enhance this reach, allowing the firm to rake in advertising dollars while also gleaning incredible amounts of consumer data in the process—as they own the network. With around 18 million current SmartCast users—a 400% increase from five years ago—paying $2.3 billion for this infrastructure seems like a steal. If the comical FTC tries to shoot this one down, they will lose. Just as Target (TGT $149) is making missteps, Walmart appears to be in all-out growth mode once again. Nearing their all-time high, WMT shares aren't exactly cheap, but we still wouldn't hesitate to buy the company at this price. Walmart is one of the 40 companies in the Penn Global Leaders Club. |
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IRBT $15
AMZN $150 29 Jan 2024 |
Thanks, Europe: Amazon's purchase of iRobot is axed
Shares of consumer robotics company iRobot (IRBT $15) plunged double digits on Monday following the announcement that Amazon (AMZN $150) would be terminating its agreement to buy the firm for $1.7 billion. Shareholders can thank the European Union. As deficient as American regulatory agencies have become over the past three years, notably the FTC, the European apparatchik is far worse. The notion that Amazon buying a small-cap electronics firm would stifle competition on the continent was laughable. But, after company representatives met with European Commission officials, it became clear that the deal would be dead on arrival. This doesn't have much of an impact on the $1.65 trillion online retailer but it is a body blow to the Mass-based iRobot. Founder and Chief Executive Colin Angle will step down, with Chief Legal Officer Glen Weinstein stepping in as interim CEO. The company also announced a restructuring plan which includes letting nearly one-third of its workforce go by the end of the year. For years, iRobot operated virtually debt free; they now have $204 million in debt and will pay a $94 million termination fee, eating up half of the company's cash on hand. Chairman Andrew Miller said the company's focus now turns to the future, but we don't see it looking very bright. It is a shame that a company which pioneered such unique robotic devices—devices which were quickly copied by other companies—and operated in the black for years now faces an uncertain future. Before agreeing to be acquired, smaller firms must rewrite the risk management script on what a government agency shoot-down would mean to the firm's finances and operations. It is a tough time to be in the M&A business. |
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IRBT $37
AMZN $147 04 Dec 2023 |
The EU cast doubt on Amazon’s purchase of iRobot; time to buy?
In August of 2022 we wrote of Amazon’s (AMZN $147) plan to purchase one of our favorite little stock plays over the past few decades: consumer robot company iRobot (IRBT $37) for $1.7 billion in an all-cash deal—or about $61 per share. IRBT shares spiked from $37 to $60 in short order. Investors were trying to cash in on something known as merger arbitrage, which involves buying an M&A target at a price below the offer and riding the gravy train through completion of the deal. It now appears that one of the world’s great party poopers, the EU, has derailed that train. A few weeks ago, just days after it appeared the deal was set to win “unconditional EU antitrust approval,” the European Commission issued a “statement of objections” which outlined why the merger would restrict competition in the European market. Shares plunged 17% at the open. Really? Amazon’s purchase of a small-cap robotic vacuum cleaner company was a threat to the continent? Every time the US government does something completely idiotic (hello, FTC Chair Lena Khan), it is quickly outdone by the dolts in the EU. Shares have rebounded a bit, but they still sit 40% below the revised buyout price of $51.75 per share. So, is it time to put a little aggressive money to work by hopping on the arbitrage train once more? We do still like the company, but its global market share in the robotic vacuum space has dropped from around 65% a decade ago to 45% today. Furthermore, after the pandemic hit, the company postponed its plans to launch Terra, the lawn mowing robot. Several other companies have now jumped successfully into that space. (We recently witnessed a few of the little guys scurrying around near the green on a golf course.) We don’t believe iRobot will ever rejuvenate the Terra program. Founded in 1990 by a team of MIT roboticists, iRobot was certainly ahead of its time. But consumer electronics is a business rife with IP theft and lower-cost overseas competition. Through the first three quarters of 2023, in fact, units shipped dropped by a third and revenues by a similar amount. After operating in the black for years, iRobot began losing money in 2022. While these factors make the EU claims ludicrous, and we do believe the deal will ultimately go through, we wouldn’t be playing the risk arb game right now with the shares. We last purchased shares of iRobot in the New Frontier Fund back in 2019 for $48.80, selling them in early 2022 when a stop loss hit at $64.95 per share. We do believe Amazon could breathe some life back into the firm, but we will watch from a distance as the legal drama plays out. Plus, Amazon is one of our top holdings in the Global Leaders Club. |
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IRBT $59
AMZN $138 10 Aug 2022 |
Amazon is buying iRobot for $1.7 billion
We were early investors in consumer robot company iRobot (IRBT $59), initially buying shares of the company shortly after they went public. It has been a wild, seventeen-year ride for those shares, coming out of the gate around $24, rising all the way to $197.40 in the spring of 2021, and then falling back to $35.41 a few months ago. We actually took our profits around $65 per share (we owned the company in the Penn New Frontier Fund) when a stop loss hit. Now, the maker of those cute little Roomba autonomous vacuums, Braava robot mops, and (coming soon to a backyard near you) Terra robot mowers is being acquired by Penn member Amazon (AMZN $138) for $1.7 billion in cash—around $61 per share. We love the deal. Amazon’s Alexa already supports iRobot devices (“Alexa, ask Roomba to start vacuuming”), and now the enormous, $1.4 trillion e-commerce company can provide the needed cash inflow for the development of new devices. iRobot has faced a number of headwinds lately, to include tariffs (it is now moving a large portion of its manufacturing operations from China to Malaysia), rising input costs, supply chain issues, and an unanticipated drop in demand due to deteriorating global economic conditions. While the firm has generally operated in the black over the past decade, Amazon’s deep pockets will assure the company is able to weather a recession and come out stronger during the next recovery phase. The deal is expected to be completed by the end of the year. Talk about a great marketing platform for iRobot: being highlighted by the world’s largest e-commerce company should provide a great catalyst for future sales. As for Amazon, it remains one of our highest-conviction holdings. We added to the position following the stock split (when shares were trading around $100) and have a price target of $200 on the shares. Amazon is one of the 40 holdings within the Penn Global Leaders Club. |
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AAPL $168
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A shot in the arm to a battered market: Apple delivers a blowout quarter
(28 Jan 2022) It has certainly been an ugly month for stocks, especially the formerly high-flying NASDAQ. That benchmark suddenly finds itself in correction territory and just three percentage points away from a bear market—down 17% from its November, 2021 highs. Fortunately, the index's top holding, Apple (AAPL $168), just came riding to the rescue. Despite facing severe parts shortages which have hampered production, the company shattered its old record by generating $123.9 billion in revenue in the last quarter of 2021, with $34.6 billion of that flowing down as pure profit. Analysts had lofty goals for the company's quarter; those estimates were easily surpassed. Apple's leading revenue generator, the iPhone, accounted for $71.6 billion of revenue—up 9.2% from the same period last year, while services revenue rose 23.8%, to $19.5 billion. Perhaps the biggest surprise came from Mac sales, which grew 25% from a year ago. While Mac accounts for just 10% of revenue, the move to an internally-produced M1 chip (dumping Intel's products) seems to have been a brilliant move. Geographically, sales grew robustly in every region. Despite America's ongoing trade disputes with China, Apple's $25.8 billion in sales from that country represented a 21% jump from last year. Morningstar analysts must have been impressed, as they raised their fair value on AAPL shares from $124 to $130 (insert eye rolling emoji here). There are very few remaining "buy and hold" companies out there, as lackluster "managers" have taken over many of the offices where visionaries once sat. (Boeing, McDonald's, and Disney immediately come to mind.) Granted, were Steve Jobs still around we might have a few more super-cool gadgets to play with right now, but Tim Cook has been masterful at the helm. While Jobs wouldn't be happy with the Apple TV in its current form (he claimed to have "broken the TV code" shortly before his demise), the company is working on a number of exciting projects—like AR/VR hardware—which will help fuel future growth. A recurring stream of revenue from the company's 785 million subscribers (up 165 million from a year ago) doesn't hurt, either. Don't listen to the vacillating analysts—hold your Apple shares. |
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AAPL $120
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Sorry Apple haters, the iPhone 12 will indeed launch a new super-cycle for the company
(14 Oct 20) It is a bizarre state of affairs. Rarely do you hear any of the 100 million Apple (AAPL $120) iPhone users in the US take to social media to bash the device's main competition—the Samsung Galaxy, but an odd number of Galaxy users seem to be preoccupied with hating on the iPhone. One petulant Galaxy-phile took to Twitter following the iPhone 12 event to proclaim, "We're like on Galaxy 24 now." It would probably take a clinical psychologist to explain their hatred for Apple, but the only thing that matters to us is this: Apple continues to innovate, and the launch of the iPhone 12 5G device lineup will bring about a new super-cycle for the company. Forget all of the talk about limited 5G coverage. To be sure, it will take years to put up the millions of little devices throughout the country needed to bring this hyper-speed technology to everyone, but the train has left the station—and soon enough, everyone will be clamoring for it. Furthermore, millions of Americans have held off on upgrading their iPhones until 5G devices became available. Finally, many countries around the world, especially in Asia, have built out a larger 5G infrastructure than the US. This makes sense when we consider the state and local government impediments in the US versus the lack of such challenges in "less free" countries. Trade wars and anti-American sentiment aside, Apple will sell hundreds of millions of iPhone 12s globally. So, let the Apple haters continue to throw their tantrums; we remain focused on what the $2 trillion Cupertino-based company has in store for us next. Remember, it will require new devices to take advantage of 5G technology, and that holds true for the iPad and Mac lineups as well as the iPhone. Stay tuned. At $120 per share, Apple remains a buy. It currently holds the distinction of being our largest portfolio position, and we don't see that changing anytime soon. |
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AAPL
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Apple sold nearly 50% more watches last year than the entire Swiss watch industry. (06 Feb 2020) According to industry research firm Strategy Analytics, Apple (AAPL $168-$321-$328) shipped 31 million units of its Apple Watch in 2019. That is a staggering number, especially when compared to the fact that the entire Swiss watch industry, which includes the likes of Rolex, Swatch, Breitling, TAG Heuer, and Cartier, sold only 21 million units. That means one American company sold roughly 50% more watches than the country historically known for making timepieces. Considering that the Apple Watch was just launched five years ago, this should serve as a reminder—especially for investors—of just how quickly an industry can be disrupted by new technologies, products, and services. While the Swiss watchmakers are trying to catch up by introducing their own "smart" watches, that effort has been floundering. What they fail to understand is that the buyers of connected devices are buying into the ecosystem story, and nobody can come close to Apple's iOS ecosystem. We used to trade Swatch (SWGAY) on a regular basis. In the five years since the Apple Watch launch, that company has lost 40% of its market cap. There is no such thing as autopilot when it comes to investing; diligence is, and must always remain, the key theme when it comes to making money and protecting portfolios.
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IRBT
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With iRobot shares down 65% in six months, is the consumer electronics firm a screaming buy? (23 Oct 2019) As a kid, my favorite Saturday morning cartoon was The Jetsons. I fully expected that, by the time I turned my current age, we would have little robotic devices autonomously scurrying around the house, performing mundane tasks like sweeping up crumbs and bringing us our coffee. While Rosie the maid hasn't come to fruition yet, iRobot (IRBT $51-$48-$133) is sort of like the Spacely Sprockets of our era. The company makes the Roomba® robot vacuum, the Braava® robot mop, and—coming soon to a yard near you—the Terra™ robot mower. If that's not cool enough, it is also getting into the entertainment and education arena with its new Root® coding robot for students and educators. How about the financials? Well, the company has a tiny P/E ratio of 15, has turned a profit every year for the past decade, and just notched its thirteenth-straight quarter of year-over-year growth. So, how are investors rewarding this stellar company? Shares of IRBT have fallen 65% in precisely the past six months. Where is the disconnect? That's an excellent question, considering this week's earnings release shows yet another beat on top line revenues and bottom line earnings. Investors got hung up on the lowered guidance. Management said it had to roll back recent price increases due to tariffs placed on the company's products, and also scaled back expectations for the Christmas shopping season. While the firm is based out of Bedford, Mass., it builds most of its devices in China, and they have been a direct target of the 25% tariffs which went into effect this past May. Perhaps it is skittishness due to the economic environment, but we have seen investors turn too bearish—in our opinion— on too many strong companies recently. iRobot's founder and CEO, Colin Angle (image courtesy of iRobot), is a brilliant industry pioneer, with degrees in computer science and electrical engineering from MIT. He was also recently named CEO of the Year by the Mass Technology Leadership Council, one of Fortune Small Business Magazine's Best Bosses, and Ernst and Young's New England Entrepreneur of the Year. We wouldn't be surprised to see the stock at $100 per share in the not-too-distant future.
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FIT
2019.03.01 |
Fitbit is profitable again, but shares drop 14% after management's downbeat guidance. The last time—before the most recent quarter—that smartwatch device maker Fitbit (FIT $4-$6-$8) turned a quarterly profit was the third quarter of 2016. While the $1.5 billion small-cap did manage to earn $15 million on its $571 million in sales during the fourth quarter of 2018, management quickly threw cold water on that modest success by projecting a loss of $0.22 per share on revenues of $250 million to $268 million for Q1 of 2019. Trying to get investors excited for the future, CEO James Park pointed to a new subscription software service for its devices coming in the second half of the year. Yawn. FIT had a $50 share price just three and a half years ago. We're not saying the company is in a death spiral, but if management is pointing to a subscription software plan for its future success, there could be serious trouble ahead.
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SONO
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Sonos had to have a perfectly stellar quarter; it didn't. Any time we are reviewing a specific company, one of the paramount questions we ask is, "what is this organization's unique value proposition?" To survive and thrive in a competitive business environment, a company must offer a solution that consumers strongly desire, and a solution that is difficult to replicate by others. That is why we were skeptical when wireless speaker company Sonos (SONO $16-$18-$24) went public last month at $15 per share. The company makes cool wireless speakers for in-home use, but what's to stop larger companies (think Apple, for example) from making similar products? Under that backdrop, all eyes were on Sonos Inc's first quarterly report as a publicly-traded entity. Wall Street expectations were met—the company brought in $208 million in revenue—but sales were down 7% from the same timeframe last year. Further down the income statement, the company accumulated $27 million in net losses—nearly double the $15 million lost in Q3 of 2017. Shares plunged 16% in after-hours trading on the earnings report. Keep in mind that investors drove SONO shares up to $23.60 within days of the IPO.
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SNE
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Sony ignores the Friday market bloodbath, climbs 6%
(02 Feb 2018) Mid-day Friday, while the Dow was busy plummeting 600 points, Japanese electronics retailer Sony (SNE $31-$53-$52) was punching through its 52-week high of $51.94. Why the 6% jump? In what could be called a replay of our October, 2017 comments, the company announced another surprise quarter to the upside. Sales rose 11.5% year-over-year—to $23.6 billion— and net income blew away expectations, coming in at $2.79 billion. As we reported last October, currency exchange tailwinds helped spur the growth, but the company's gaming division recorded a 26% jump in sales over the same quarter in the previous year. Sony has now sold over 76 million PlayStation 4 consoles, on pace to easily out-sell its popular PS3 model. Microsoft (MSFT) is supposedly working on a new generation console, codenamed Scorpion, to eat into PlayStation's dominant position, but we'll believe that when we see it. |
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GPRO
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GoPro to cut workforce by 20%; investors reward the company with a 20% hit to share price
(08 Jan 2018) Nearly a year ago, action camera-maker GoPro (GPRO $7-$6-$12) announced that it would cut about 18% of its workforce as it tried to increase efficiency. Investors responded by sending shares up 11%. The company tried it again this week, announcing a 20% job force reduction, but the response was quite different—GPRO plummeted 20% at the open. Once a $98 dollar stock, the company appears to be dropping ballast over both sides of the ship in an effort to stay afloat. Not only is the company reducing its staff to below 1,000, it is also exiting the drone market and reducing the price of its newest HERO6 model by $100. (Update: the loss was cut in half after it was reported that the company hired JPM to begin the process of selling the company in a move to go private.) |
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SNE
EWJ |
Sony jumps 9% on surprise profit thanks to semiconductor unit (and the yen)
(31 Oct 2017) Japan is beginning to look better and better as a country-specific investment, despite the threat posed by its neighboring country, North Korea. One of Japan's largest and most recognizable names, Sony (SNE $28-$42-$42), punched through its 52-week high Tuesday morning as earnings easily beat expectations. In addition to getting a boost from currency exchange rates, the company's semiconductor division boosted revenue by 18%, and the gaming unit also had a stellar quarter. Look for Japanese companies to continue getting nice tailwinds from the yen, especially since so much of the country's aggregate corporate revenue comes from outside the country. For the record, our go-to Japan investment is EWJ, the iShares MSCI Japan ETF. |
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GPRO
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(16 Mar 2017) GoPro pops 11% on job cuts, earnings. Action camera maker GoPro (GPRO $7-$8-$18) jumped 11% at Thursday's open as the company announced it would cut 270 jobs (out of 1,500 total employees), and as its earnings were coming in at the higher end of expectations. The company also said it would cut operating expenses by over $200 million, and predicted a return to profitability in 2017. If revenue does, indeed, come in near the expected $210 million mark, that would represent a jump from the $184 million it made in the first quarter of 2016. Here's the problem: over the course of the Q4 holiday season, the company had sales of $541 million, but reported a net loss of $116 million. It had better make that $200 million cut in expenses. Shares are trading $1 above their 52-week low.
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