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Back-to-Back Losses, the First in a Month

July 24, 2013 by Leave a Comment

A gloomy earnings report and outlook on Wednesday from Caterpillar, the world’s largest construction equipment company, helped to pull two of the three major American indexes lower.

The drop for the Dow and the Standard Poor’s 500-stock index gave the stock market two consecutive days of losses, for the first time in a month.

Caterpillar’s earnings fell 43 percent in the second quarter as China’s economy slowed and commodity prices sank. The company also warned of slowing revenue and profit, and its stock dropped $2.08, or 2 percent, to $83.44.

Nine of 10 industry groups in the S. P. 500 ended lower.

The holdouts were technology companies, which got a lift from Apple’s surging stock. Apple shares jumped $21.52, or 5 percent, to $440.51. The Nasdaq composite index, which lists many technology companies, edged up 0.33 of a point, or less than 0.1 percent, to 3,579.60.

The Dow Jones industrial average fell 25.50 points, or 0.2 percent, at 15,542.24.

The S. P. 500-stock index fell 6.45 points, or 0.4 percent, to 1,685.94. Although far from a blockbuster earnings season, the larger trend for corporate profits appears strong. Analysts forecast that second-quarter earnings for companies in the S. P. 500 increased 4.2 percent over the same period last year, according to SP Capital IQ. At the start of the month, those analysts were looking for earnings to rise 2.8 percent. More than six out of every 10 companies have surpassed Wall Street’s profit targets.

“Yes, they’re beating expectations, but expectations are so low,” said Brad McMillan, chief investment officer at Commonwealth Financial.

But financial firms, like Goldman Sachs and Capital One, have posted the highest rate of earnings growth of any industry. Ignore their results, however, and earnings are on track to slump 3.5 percent, according to FactSet.

“You can’t call this a blowout quarter so far,” Mr. McMillan said.

In the market for government bonds, the benchmark 10-year Treasury note fell 21/32 to 92 26/32, to yield 2.58 percent, up from 2.51 percent late Tuesday.

Article source: http://www.nytimes.com/2013/07/25/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: Citigroup Profit Climbs 42%

July 15, 2013 by Leave a Comment

Citibank's earnings report said that the bank was helped by bond and stock trading revenue.Mario Tama/Getty ImagesCitibank’s earnings report said that the bank was helped by bond and stock trading revenue.

Citigroup posted a 42 percent rise in second-quarter earnings on Monday, handily beating expectations, as the sprawling bank worked to cut costs and expand its international lending operations.

The bank, which has hitched much of its hopes for growth to emerging markets, reported a profit of $4.18 billion, or $1.34 a share, compared with $2.94 billion, or $1 a share, in the period a year earlier. Citigroup, the nation’s third-largest bank by assets, reported revenue of $20.5 billion, up 12 percent from the period a year earlier.

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Excluding a $477 million gain from a valuation adjustment on Citigroup’s debt, the bank reported earnings of $1.25 a share. The results were bolstered by strong gains in trading revenue.

The performance exceeded analysts’ profit expectations of $3.55 billion, or $1.19 a share. Citibank was expected to report revenue of $19.76 billion, up from $18.64 billion in the period a year earlier.

“Our businesses performed well during the quarter and these results are well balanced through our products and geographies, especially in the emerging markets, where growth is being challenged,” Michael L. Corbat, the chief executive of Citigroup, said in the bank’s earnings release on Monday.

Under Mr. Corbat’s leadership, Citigroup is continuing to refocus on businesses that fit within its core strategy. As part of that push, the bank has shed $18 billion worth of assets. Citigroup also sold the remainder of its stake in the Morgan Stanley Smith Barney brokerage joint venture. Mr. Corbat also reached deals during the second quarter to sell the bank’s consumer lending units in Turkey and Uruguay.

With international lending operations that dwarf those of many of its United States rivals, Citigroup’s opportunities for growth rise and fall with the fate of emerging markets. Any sluggishness overseas, particularly in Mexico where the bank has a large presence, always lurks as an issue that could undercut earnings.

More than 50 percent of Citigroup’s revenue comes from outside of North America. While the growth in emerging markets has certainly exceeded that in the the United States, it is still producing a dispirited response from Citigroup’s top banking executives. In Mexico, for example, economic growth was not as robust as expected, Citigroup said on Monday. “Mexico shocked everyone,” John Gerspach, the bank’s chief financial officer, said on a conference call on Monday.

As growth cools in China — it reported a slowdown in second-quarter gross domestic product on Monday — other Asian economies could be damped as well.

Emerging markets were hit, as well, when Ben Bernanke, the chairman of the Federal Reserve, said in Congressional testimony in May that the government was considering whether to scale back its bond-buying program if the American economy shows signs of improvement.

During a conference call on Friday, Jamie Dimon, the brash chairman and chief executive of JPMorgan Chase, commented on the strength of emerging markets when the bank reported its earnings, suggesting that some banks capitalized on the ensuing volatility while others missed out. “Our folks in emerging markets did a particularly good job, which might not be the same for some others reporting,” he said.

On Monday, Mr. Gerspach said that the bank “did a very good job of managing our business in the emerging market this quarter.”

And despite mercurial emerging markets, Citigroup registered gains abroad. Revenue from consumer banking abroad rose 6 percent, to $4.7 billion, compared with figures in the period a year earlier. Adding to the uncertainty for Citigroup is the mercurial regulatory challenges abroad. Profits from those units grew by 4 percent, to $826 million.

Still, Citigroup’s quarterly earnings point to broader challenges facing the United States banking industry. On Friday, JPMorgan Chase and Wells Fargo reported declines in mortgage banking revenue, eroded in part by refinancing machines that were beginning to slow. A sharp uptick in interest rates has caused the refinancing boom to sputter.

Continually rising rates could damp borrowers’ appetite for refinancing existing mortgages or buying a house. Within Citigroup’s consumer banking unit, profit fell slightly by 1 percent, to $1.95 billion. As fewer consumers fall behind on their bills, Citigroup was able to empty some of the reserves — approximately $228 million — for the losses. While it receives a boost from an improvement in credit quality, Citigroup is still grappling, like many of its large peers, with skittish American consumers who remain skeptical of taking on new debt.

The wariness was clear in Citigroup’s American lending operations. “The U.S. consumer is still going through a period of deleveraging,” Mr. Gerspach said on Monday.

Adding to the uncertainty in the United States are fresh capital rules introduced by regulators last week. Since the financial crisis of 2008, regulators have been steadily introducing new requirements aimed at bolstering capital levels that could help Wall Street withstand market turbulence.

Under the new rules, regulators are pushing for banks to hold more capital as a percentage of their assets. Banks have two months to comment on the rules. On Monday, Mr. Gerspach cautioned that the requirements could undercut the bank’s ability to compete with its international rivals.

“We would all be better if there was a level playing field around the world,” he said on Monday. Like its large peers, Citigroup is wrestling with how to offset income siphoned by new financial regulation and the lackluster American economy.

A bright spot for Citigroup was its securities and investment banking business. Within fixed income, revenue swelled by 18 percent, to $3.37 billion. Revenue from stock trading rose 68 percent, to $942 million, in the second quarter.

Investors are closely watching the bank’s quarterly reports during the first year under the leadership of Mr. Corbat, who took the reins after the ouster of Vikram S. Pandit. In October, Michael E. O’Neill, the bank’s forceful chairman, pushed Mr. Pandit out in favor of Mr. Corbat.

Building on the path outlined by Mr. Pandit, Mr. Corbat has promised to continue cutting costs. Toward that goal, Citigroup reduced assets in its Citi Holdings unit by 31 percent in second quarter, to $131 billion. In an encouraging sign for Citigroup, losses within the unit that houses a glut of unwanted assets fell to $570 million from $910 million in the period a year earlier. In the aftermath of the financial crisis, Citigroup created the unit in 2009 to house a morass of soured assets. Losses on that unit were the lowest since its creation.

Even as Mr. Corbat has aggressively moved to reduce the bank’s costs, operating expenses rose 1 percent, to $12.1 billion, from the period a year earlier. Last year, as one of his first initiatives after taking over as chief executive, Mr. Corbat announced plans to eliminate 11,000 jobs.

As the bank seeks to move beyond the specter of its mortgage woes, Citigroup agreed in June to pay $968 million to settle claims that it had sold shaky mortgage loans to Fannie Mae. Before the bank empties its reserves to cushion against mortgage losses, Citibank has said it will be conservative, waiting for substantial improvement in the housing market and overall economy.

Article source: http://dealbook.nytimes.com/2013/07/15/citigroup-profit-climbs-42-percent/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Tested by Mobile, Zynga Aims to Rebuild Its Network

February 6, 2013 by Leave a Comment

SAN FRANCISCO — Zynga has been on a monumental losing streak. Hits have been rare, profits nonexistent and crucial employees are fleeing.

The story of the company, which developed the notion of social gaming and persuaded tens of millions of people to try it out on Facebook, illustrates how suddenly the fortunes of hot Internet companies can shift. Two years ago, as Zynga was first being talked about for a public offering, it was said to be worth $20 billion.

By the time the offering took place, a little over a year ago, it was for about $7 billion. And Zynga has spent most of the time since then sliding downhill. The value of the company Tuesday, as it released mediocre but nevertheless better-than-expected fourth-quarter results, was about $2 billion.

In the next few months, Zynga faces a critical test that will determine if even that sum is excessive: can it successfully put its most popular Web games, starting with Farmville, on mobile devices?

“Do I wish that we would have gone all-in on mobile and made a bigger commitment to it earlier?” Mark Pincus, Zynga’s founder and chief executive, said in an interview after the earnings release. “Yes.”

Mr. Pincus called 2013 “a year of investment and transition.”

“While we are excited about the long-term growth opportunity on mobile, and the opportunity to make games even more accessible to people in more parts of their day, we need to build a compelling network around it,” he said.

That is because social gaming on mobile is not necessarily social.

“It’s kind of ironic, isn’t it?” Mr. Pincus said. “You’re holding a phone, an inherently social device. Yet the experience we have is a more fragmented one.”

The pain accompanying Zynga’s transition to mobile was evident in the earnings report. Revenue was $311 million, flat with the year before. Daily users of the games were down 6 percent from the third quarter, a clear measure of flagging interest. More casual users dropped as well.

Earnings per share were a penny, better than the 3-cent loss that analysts had been expecting on an adjusted basis. And Zynga’s cash hoard of $1.65 billion was untouched from the third quarter.

For the full year, revenue was $1.28 billion, up 12 percent from 2011. Not exactly what you would expect from a growth company.

Nor were its immediate prospects cheerful. Zynga warned that it would release few new games in the first quarter and that its revenue would drop from 2012.

Weak as the results were, however, they were not as bad as some feared. Zynga shares immediately rose in after-hours trading by 7 percent. In regular trading they were also up 7 percent to $2.74. That jump was fueled by an analyst upgrade from Merrill Lynch, which said the stock was so beaten down that it now accurately reflected the company’s prospects.

Many online stock sites, by contrast, have been portraying the company as going the way of Pets.com or Myspace. “Zynga’s Earnings May Reveal Its Impending Demise” read the headline at one.

Michael Pachter, a managing director of Wedbush Securities, wrote in an e-mail that Zynga management was “definitely saying the right things, now all they have to do is execute.”

Aside from Mr. Pincus, it has been a team in flux. Just last week, Zynga suffered another defection when its chief game designer, Brian Reynolds, quit, saying he wanted to experiment “more than might be appropriate for a publicly traded company.”

As recently as two years ago, Zynga had only 20 people working on mobile issues. Then the team ballooned into the hundreds. In the last few months, the team members have integrated into each game. Zynga has 298 million monthly active users, 72 million of them using mobile devices to play games like Words With Friends and Zynga Poker.

The central issue overshadowing even the mobile transition is whether Zynga became successful only because it was in the right place at the right time, a condition also known as dumb luck. Zynga’s rise was inseparable from Facebook’s, which gave it preferential treatment. That era is over. In March, Facebook will be free to develop its own games.

There are other perils for Zynga, plenty of them. Analysts have been pointing to the rise of King.com’s games, including Candy Crush, which makes the latest version of FarmVille look as complicated as advanced physics.

“Who thought crushing candy would have been popular?” said Brian Blau, a Gartner analyst.

King.com is promoting itself as a new, improved Zynga, which underscores the volatile nature of the business. “This is a hits-driven industry, and Zynga could not sustain their hits,” Mr. Blau said. “Game players are fickle.”

Zynga learned that lesson with Draw Something, which it acquired last March for $180 million at the height of its popularity.

Draw Something had about 15 million daily users. Before the ink on the purchase was dry, nearly a third of them had departed for a newer craze.

Zynga wrote down over half the purchase price even as Draw Something’s audience continued to dwindle. A Zynga spokeswoman declined to say Tuesday how many players it now had.

“The one thing that hasn’t changed is our focus on social,” Mr. Pincus said. “With every platform change over the years, we’ve bet the company on social and accessible.”

Article source: http://www.nytimes.com/2013/02/06/technology/weak-earnings-report-for-zynga-but-stock-rises.html?partner=rss&emc=rss

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Media Decoder Blog: A Resurgent Netflix Beats Projections, Even Its Own

January 24, 2013 by Leave a Comment

Streaming movies on an iPad. Netflix gained two million American subscribers to its streaming service in the fourth quarter.J. Emilio Flores for The New York Times Streaming movies on an iPad. Netflix gained two million American subscribers to its streaming service in the fourth quarter.

9:12 p.m. | Updated For all those who have doubted its business acumen, Netflix had a resounding answer on Wednesday: 27.15 million.

That’s the number of American homes that were subscribers to the streaming service by the end of 2012, beating the company’s own projections for the fourth quarter after a couple of quarters of underwhelming results.

Netflix’s growth spurt in streaming — up by 2.05 million customers in the United States, from 25.1 million in the third quarter — was its biggest in nearly three years, and helped the company report net income of $7.9 million, surprising many analysts who had predicted a loss.

The results reflected just how far Netflix has come since the turbulence of mid-2011, when its botched execution of a new pricing plan for its services — streaming and DVDs by mail — resulted in an online flogging by angry customers. Investors battered its stock price, sending it from a high of around $300 in 2011 to as low as $53 last year.

“It’s risen from the ashes,” said Barton Crockett, a senior analyst at Lazard Capital Markets. “A lot of investors have been very skeptical that Netflix will work. With this earnings report, they’re making a strong argument that the business is real, that it will work.”

Investors, cheered by the results, sent Netflix shares soaring more than 35 percent in after-hours trading Wednesday. The stock had ended regular trading at $103.26.

Netflix’s fourth-quarter success was a convenient reminder to the entertainment and technology industries that consumers increasingly want on-demand access to television shows and movies. Streaming services by Amazon, Hulu and Redbox are all competing on the same playing field, but for now Netflix remains the biggest such service, and thus a pioneer for all the others.

“Our growth and our competitors’ growth shows just how large the opportunity is for Internet TV, where people get to control their viewing experience,” Netflix’s chief executive, Reed Hastings, said in a telephone interview Wednesday evening.

Questions persist, though, about whether Netflix will be able to attract enough subscribers to keep paying its ever-rising bills to content providers, which total billions of dollars in the years to come. The company said on Wednesday that it might take on more debt to finance more original programs, the first of which, the political thriller “House of Cards,” will have its premiere on the service on Feb. 1. Netflix committed about $100 million to make two seasons of “House of Cards,” one of five original programs scheduled to come out on the service this year.

“The virtuous cycle for us is to gain more subscribers, get more content, gain more subscribers, get more content,” Mr. Hastings said in an earnings conference call.

The company’s $7.9 million profit for the quarter represented 13 cents a share, surprising analysts who had expected a loss of 12 cents a share. The company said revenue of $945 million, up from $875 million in the quarter in 2011, was driven in part by holiday sales of new tablets and television sets.

Netflix added nearly two million new subscribers in other countries, though it continued to lose money overseas, as expected, and said it would slow its international expansion plans in the first part of this year.

The “flix” in Netflix, its largely forgotten DVD-by-mail business, fared a bit better than the company had projected, posting a loss of just 380,000 subscribers in the quarter, to 8.22 million. The losses have slowed for four consecutive quarters, indicating that the homes that still want DVDs really want DVDs.

On the streaming side, Netflix’s retention rate improved in the fourth quarter, suggesting growing customer satisfaction.

Asked whether the company’s reputation had fully recovered after its missteps in 2011, Mr. Hastings said, “We’re on probation at this point, but we’re not out of jail.”

He has emphasized subscriber happiness, even going so far as to say on Wednesday that “we really want to make it easy to quit” Netflix. If the exit door is well marked, he asserted, subscribers will be more likely to come back.

The hope is that original programs like “House of Cards” and “Arrested Development” will lure both old and new subscribers to the service. Those programs, plus the film output deal with the Walt Disney Company announced in December, affirm that Netflix cares more and more about being a gallery — with showy pieces that cannot be seen anywhere else — and less about being a library of every film and TV show ever made.

“They’re morphing into something that people understand,” said Mr. Crockett of Lazard Capital.

Mr. Hastings said this had been happening for years, but that it was becoming more apparent now to consumers and investors.

Mr. Hastings’s letter to investors brought up the elephant in the room, the activist investor Carl C. Icahn, who acquired nearly 10 percent of the company’s stock last October. Mr. Icahn, known for his campaigns for corporate sales and revampings, stated then that Netflix “may hold significant strategic value for a variety of significantly larger companies.”

Netflix subsequently put into place a shareholder rights plan, known as a poison pill, to protect itself against a forced sale by Mr. Icahn.

The company said on Wednesday, “We have no further news about his intentions, but have had constructive conversations with him about building a more valuable company.”

Factoring in the stock’s 30 percent rise since November and the after-hours action on Wednesday, Mr. Icahn’s stake has now more than doubled in value, to more than $700 million from roughly $320 million.

Article source: http://mediadecoder.blogs.nytimes.com/2013/01/23/netflix-adds-subscribers-posts-quarterly-profit/?partner=rss&emc=rss

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A Comeback Trail Runs Uphill

May 9, 2011 by Leave a Comment

PALO ALTO, Calif. — Tim Armstrong, AOL’s chief executive, will tell just about anyone who will listen that AOL is not some washed-up tech company from another era.

He says AOL will “disrupt” the online industry this year. He says that after nearly a decade of stumbles, AOL is poised for a comeback.

When hundreds of employees crammed into the company cafeteria here heard that, they applauded.

But many had heard it before, from an ever-changing string of leaders when AOL was owned by Time Warner.

AOL split from Time Warner in December of 2009.

It is different this time for the now independent AOL, says Mr. Armstrong. “We’ve made a tremendous amount of difficult changes and reshaped what the company is doing and where it’s going,” Mr. Armstrong said later in an interview. “But I’m excited now about what the next phase is.”

Never mind that AOL’s business is steadily shrinking or that its rivals are bigger, healthier and have deeper pockets. Mr. Armstrong says he has not lost faith that his overhaul, now two years in the making, will eventually reverse AOL’s steady decline and turn the company into a global digital media company with high quality content.

His biggest step was acquiring the Huffington Post, the news, aggregation and commentary site co-founded by Arianna Huffington. He put Ms. Huffington, the political pundit turned blogger, in charge of all AOL’s content business.

He also replaced AOL’s management team, expanded the local news site Patch, retired a myriad of products and redesigned AOL’s home page to display advertising more effectively.

Last week, AOL said that quarterly revenue from online display advertising grew 4 percent after more than three years of declines, a bright spot in an otherwise lackluster earnings report that showed continued deterioration in its business.

(In January of 2010, AOL stock sat at $25.68. It closed on Friday at $19.58.)

Mr. Armstrong said that was evidence that the emergency surgery on AOL was starting to pay off. But he acknowledged that it would probably take another two years before AOL’s overall business turned the corner.

The problem is, as it has been for nearly a decade, AOL’s dial-up Internet access business. The number of online subscribers has fallen to 3.6 million, from around 22 million at the time of the company’s disastrous mega-merger with Time Warner in 2000. AOL is losing 19,000 paying customers a week. Many of those who remain are either stuck in the habit of paying, do not need a faster connection or live beyond the reach of broadband.

In an effort to offset the lost dial-up revenue, Mr. Armstrong has vastly expanded AOL’s editorial operations by buying the Huffington Post along with the technology news blog TechCrunch and the video site 5min Media. He also pushed ahead with Patch, the local news start-up that he co-founded and AOL later acquired. It now has journalists covering city council meetings and charity fund-raisers in more than 800 towns.

However, those initiatives are either still in their investment phase or too small to make much of a difference financially. Patch’s spending — $80 million in the last six months alone — far exceeds its revenue, for instance. The Huffington Post, however, is expected to turn a modest profit on revenue of $60 million this year.

Ross Sandler, an analyst for RBC Capital Markets, likened AOL to an oil well that was running out of crude. It remains profitable, but has a difficult future — even in the hands of Mr. Armstrong, who Mr. Sandler said was doing a credible job.

If anything, Mr. Armstrong has been too optimistic about AOL’s resurrection, he said, suggesting that Mr. Armstrong spent too much on acquisitions with little short-term payoff while his turnaround will probably take longer than promised.

“The right decision would have been to low-ball the expectations,” Mr. Sandler said.

Mr. Armstrong, 40, joined AOL two years ago and was well aware of its trajectory. He said it was an opportunity, albeit a risky one, to lead a well-known company with big resources and a focus on online content. According to comScore, a site that tracks online data, AOL, with 118 million unique monthly visitors, has the fifth-largest online audience in the United States, behind Yahoo, Google, Microsoft and Facebook.

Article source: http://feeds.nytimes.com/click.phdo?i=78e7ae82054907ebe20f1da6524cef31

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