May 27, 2024

Ad Revenue From Mobile for Pandora Increases

Pandora said it had $157.4 million in revenue for the quarter ending in July, up 55 percent from the same period a year ago.

The ad revenue Pandora collects from mobile devices, where the majority of its 71.2 million active users do their listening, has also shot up quickly. It made $116 million from these ads in the quarter, up 92 percent from a year ago. At that time the company was charging $22.17 for every 1,000 listening hours served to mobile devices, but last quarter that rose to a high of $33.90.

“Ninety-two percent growth on mobile growth to $116 million is pretty much crushing it,” Joseph J. Kennedy, the company’s chief, said in an interview after Pandora announced its earnings.

Pandora also reported a success in another closely watched figure: its “content acquisition” costs, which include royalties to music companies. For the quarter, it paid $81.9 million, or 52 percent of its revenue, on these costs, its lowest ratio in almost two years.

Since bottoming out in November, the company’s stock price has increased more than 200 percent, and some analysts have recently given Pandora optimistic reviews. But the imminent arrival of Apple’s own radio feature and Pandora’s growing expenses continue to worry investors.

Pandora’s stock closed at $21.71 on Thursday, up 1 percent for the day, but it fell more than 6 percent in after-hours trading.

In a conference call with journalists and investors, Pandora announced that it had recently spent $8 million on “a broad patent portfolio” from Yahoo.

Pandora also announced a policy change that may encourage more use of the service. On Sept. 1, it will drop the 40-hour monthly limit for free listening on mobile devices, which it instituted in March as part of an effort to reduce royalty expenses.

This article has been revised to reflect the following correction:

Correction: August 22, 2013

An earlier version of this article misstated the unit for which Pandora charged $22.17. It is every 1,000 listening hours, not every 1,000 ads.

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Amazon Reports Small Loss as It Focuses on Investments

But with revenue up 22 percent, Amazon showed that it could still deliver the sales growth demanded by investors, who have lifted the company’s stock 21 percent this year. So far, those demands do not include an insistence on big profits.

Until it does, Amazon seems content to pour money into initiatives aimed at gobbling up an increasing share of spending by consumers.

For the quarter that ended June 30, Amazon said it had a net loss of $7 million, or 2 cents a share, compared with net income of $7 million, or a penny a share, in the same period a year earlier. Amazon’s revenue was $15.7 billion, up from $12.83 billion the year before.

The results were slightly below the estimates of analysts surveyed by Thomson Reuters, who expected Amazon to report earnings of 5 cents a share and revenue of $15.73 billion.

The miss did not seem to trouble investors too much. The company’s stock dropped less than 2 percent in after-hours trading after the release of its earnings report.

A good illustration of Amazon’s long-term bets is online video. The company is spending hundreds of millions of dollars on licensing rights to build a large library of video that its customers can watch through their Kindle tablets and other devices. These agreements are critical as movies, music and other media — which account for 28 percent of Amazon’s total sales — shift from physical to digital form.

The company recently cut its biggest such deal ever, with a multiyear agreement to license television shows from Viacom, including children’s shows like “Dora the Explorer” and “SpongeBob SquarePants.”

As a result, Amazon spent almost 47 percent more on technology and content in the quarter, for a total of $1.59 billion — roughly 10 percent of its total revenue. Included in that spending is the company’s investment in Amazon Web Services, a lucrative business through which Amazon rents capacity in its data centers to independent companies.

“We’re investing for the large opportunities we have in front of us,” Tom Szkutak, the company’s chief financial officer, said in a conference call.

While Amazon is feared as a seller of physical goods, it faces several formidable rivals in the digital content business, including Netflix, Apple, Hulu, Microsoft and Google.

Still, Amazon is also spending aggressively on the warehouses it needs to deliver physical goods, building them in locations that have been inching ever closer to big cities with the goal of offering next-day, or even same-day, deliveries to shoppers. This year, Amazon began selling groceries in the Los Angeles area, using its own trucks to shuttle fruit, meat and boxes of cereal from a new warehouse in the city to customers’ doorsteps.

The effort is expensive and risky, though Amazon would not say whether or how much money it was losing on it. The grocery business has killed Internet retailers before — Webvan was the most notable casualty — so Amazon chose not to expand the service beyond a test in Seattle until recently.

“The challenge we’ve had over the past several years is how to make it economically viable,” Mr. Szkutak said.

All the spending on warehouses and other projects has led to a surge in hiring at the company. Its head count swelled to 97,000, up more than 40 percent from 69,000 a year ago. The hiring earned the company a plum position as the backdrop for a speech on middle-class jobs that President Obama is expected to deliver on Tuesday at an Amazon warehouse in Chattanooga, Tenn.

A big part of Amazon’s allure for investors remains its pre-eminent position in e-commerce, which is expected to rise 14.8 percent to $248 billion in American sales this year, according to eMarketer. That is far better growth than the single-digit growth expected for retail sales over all in the United States this year.

Kerry Rice, an analyst at Needham Company, said investors believed that Amazon could keep stealing market share from Walmart and other physical retailers, and that eventually its profits would improve.

“On some level, I think some people are buying the stock because they’re hoping for that investment cycle to begin to reduce,” Mr. Rice said. “If they pull back on spending, you’re going to see that operating margin tick up.”

Mr. Rice added: “I don’t think that’s going to happen for a long time.”

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Economix Blog: Understating Job Growth



Dollars to doughnuts.

One of the many bright spots in the June jobs report was that April and May had their employment gains revised upward by a combined 70,000 jobs. In other words, job growth in those months was actually better than originally reported.

Which brings me to a peculiar trend, first brought to my attention in May by Justin Wolfers: Most months during the recovery — 37 of the 47 months for which we now have a third estimate of employment — the Labor Department initially understated job gains. And most months during the recession — 13 of the 18 months — the bureau initially understated job losses.

Source: Bureau of Labor Statistics, via Haver Analytics. Source: Bureau of Labor Statistics, via Haver Analytics.

That is to say, the revisions have been largely pro-cyclical. Job changes were better than we originally thought when they were good, and they were worse than we originally thought when they were bad.

I’m not sure what explains these patterns. Revisions in previous cycles do not seem to have been as heavily pro-cyclical; there was more of a balance between upward revisions and downward ones in both recessions and expansions. (If you have any potential explanations for the change — other than pure chance — please share your thoughts in the comments.)

I also wonder what effect the repeated understating of monthly job growth might be having on the recovery.

Would consumers, employers and investors be more optimistic (and willing to spend more money) if the original jobs estimate each month (which gets the most press) reflected the stronger hiring that later became evident? Or am I overestimating how much the official numbers affect behavior?

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DealBook: Activist Investor Calls for Breakup of Smithfield Foods


An activist hedge fund took aim at Smithfield Foods on Monday, arguing that the pork producer should consider splitting itself up despite its proposed $4.7 billion sale to a major Chinese meat processor.

The fund, Starboard Value, wrote in a letter to Smithfield’s board that it believed the company was worth much more separately. Starboard says it owns a 5.7 percent stake, making it one of the largest shareholders in the company.

Shares of Smithfield were up more than 2 percent in premarket trading on Monday, although they remained below the offer price from Shuanghui International.

The letter signals a potential fight over Smithfield, one of the country’s biggest producers of hogs. Last month, it agreed to sell itself to Shuanghui for $34 a share, in a bid to increase sales of American pork in China.

But Starboard has picked up an argument advanced against Smithfield over the years: that its vertically integrated operations, from raising hogs to slaughtering and processing them into bacon and ham and then selling the products, are worth more separate than combined.

“We believe there are numerous interested parties for each of the company’s operating divisions, and that a piece-by-piece sale of the company’s businesses could result in greater value to the company’s shareholders than the proposed merger,” the hedge fund wrote.

Starboard may be in for a tough fight. Smithfield’s management team, led by C. Larry Pope, has defended the logic of keeping the company whole, as have Shuanghui executives. Before announcing the deal with Shuanghui, Smithfield had been in talks with two other buyers as well.

One of Smithfield’s former biggest investors, the Continental Grain Company, had also called for a breakup of the company, but instead sold off virtually its entire stake this month, taking advantage of the higher share price since the Shuanghui deal was announced.

Starboard acknowledged that Smithfield’s deal with Shuanghui prevented it from seeking rival takeover bids. Instead, the hedge fund offered to look for and bring in potential bidders for Smithfield’s divisions.

In taking aim at Smithfield, Starboard is choosing one of its biggest targets yet. The activist hedge fund has made its name agitating against the likes of AOL.

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Sears Reduces Losses, and Gap Has Banner Quarter

But investors were not pleased, sending shares down $2.47 a share, or 5.2 percent, to close at $45.

The results came after the company, which operates Sears and Kmart stores, announced last month that its chairman, the hedge fund billionaire Edward Lampert, would become chief executive as well. Investors had been queasy about the move as they worried whether Mr. Lampert would continue the investment that his predecessor, Louis D’Ambrosio, made to improve the shopping experience.

In his annual letter to investors, Mr. Lampert sought to ease worries on Wall Street by promising that the company would continue to invest in technology, bolster its online operations and make other changes. But he also blamed Sears’s difficulties on the seismic changes in buying behavior in the digital era.

“We are living in a hyper-connected world,” he wrote. Customers “want to get what they want when they want it and where they want it — on their own terms,”‘ he said. “To win the game, we have to change the game.”

Mr. Lampert engineered the combination of Sears and Kmart in 2005, about two years after he helped bring Kmart out of bankruptcy.

Sears Holdings has posted six straight years of declines in revenue at stores opened at least a year.

The company reported it lost $489 million, or $4.61 a share, for the quarter ended Feb. 2. That compares with a loss of $2.4 billion, or $22.47 a share, a year earlier.

Excluding onetime items, earnings from continuing operations were $1.12 a share. That was below the company’s forecast made last month for a profit of $1.25 to $2 a share.

Revenue fell 2 percent to $12.26 billion from $12.48 billion. Sears said this was mostly a result of the separation of its Sears Hometown and Outlet businesses, the impact of having fewer Kmart and Sears stores in operation and lower revenue from stores open at least a year. This was somewhat offset by having an extra week in the period.

Revenue at stores open at least a year dropped 1.6 percent in the quarter.

Separately, Gap Inc., which operates stores under its namesake, Banana Republic and Old Navy brands, reported a 61 percent increase in fourth-quarter profits, capping a strong year in which the company’s turnaround took hold.

Gap said late Thursday that it earned $351 million, or 73 cents a share, in the quarter ended Feb. 2. That compares with $218 million, or 44 cents a share, a year earlier. Revenue rose 11 percent to $4.73 billion in the period.

Analysts had expected 71 cents a share on revenue of $4.69 billion, on average.

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Fourth Quarter


A Diageo plant in Glasgow, Scotland. The companies' stock valuations are among many that surged in 2012.

Investing Abroad This Year? Remember a Good Map

Stock investors have already picked much of the low-hanging fruit in foreign markets, leaving some of the stocks overpriced, advisers say.

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High and Low Finance: Reading Pessimism in the Bond Market

Three decades ago, that was what some people said bonds really were. The interest the bond paid would not be enough, they said, to offset the declining value of dollars as inflation added up. The “real” — after-inflation — bond yield would be negative.

That was just as the great bull market in bonds began. Bonds were great investments, and the bond bears turned out to have been dead wrong.

Now we have come full circle. The government is selling bonds that are absolutely, positively guaranteed to not pay enough to offset inflation over the coming years. It is even possible that someone who bought a new Treasury security that will be issued on Monday will end up getting fewer dollars back than he or she invested — interest and principal combined — between now and when the bond matures in 2017.

The securities are inflation-protected Treasury notes. If inflation ticks up significantly over the coming years, investors will get back more dollars than originally invested. But not enough to come close to keeping up with inflation. If there is no inflation, they will get back less than they invested.

When those securities were auctioned last week, buyers agreed to accept a real yield of negative 1.496 percent. It takes a lot of pessimism — about the economy and the future of the United States — to think an investment certain to lose money is an investment worth making.

The great bear market in bonds, both corporates and governments, lasted 35 years, from 1946 to 1981. The bull market lasted about 30 years. A new bear market almost certainly has begun.

If that is true, those seeking a little income now by going out the yield curve will come to rue the decision. They will get the promised interest, but as market interest rates rise, the price of those bonds will decline and decline and decline.

On Oct. 26, 1981, which can be dated as the bottom of the great bond bear market, the yield on 30-year Treasury bonds rose to 15.21 percent. On that date, a Treasury bond issued in 1970 and scheduled to mature in 2000 was quoted at less than 56 percent of face value. It had a coupon of 7.875 percent, but that was not deemed enough to compensate investors for the risk.

At market extremes, it is often worth analyzing what has to be true for a given investment to be a good, or bad, value. Back in 1981, you had to assume that inflation would not only remain in double digits for decades, but that it would also continue to rise, for a newly issued Treasury bond to turn out to be a bad investment. Yet many investors assumed it would be. After all, a lot of people on Wall Street in 1981 could not remember a time when bonds were good investments.

A few weeks before rates peaked, Seth Glickenhaus, an experienced bond trader and head of Glickenhaus Company, an investment advisory firm, spoke the conventional wisdom when he said, “Anyone who buys a bond today to hold for more than five years is out of his mind.”

Michael Gavin, the head of United States asset allocation for Barclays, pointed out this month that over the past 30 years an investor who stayed invested in American, or British, 10-year government bonds would have earned more than 5 percent a year over inflation.

“It does not require advanced market math to understand that returns like these are no longer remotely plausible,” he wrote. “But they say that fish don’t know that they live in water — until they are removed from it — and we wonder if some of the many market participants whose entire professional experience has been conditioned by the financial backdrop created by the bond market rally might underestimate some consequences of its termination.”

Even if rates stay where they are for the next five years, and investors collect the interest coupons, he said, “bonds will be transformed from wealth creators into wealth destroyers.”

Or at least they will be unless there is severe deflation. For that is the only situation that will allow today’s new long-term bonds to turn into good investments.

Is that possible? To think it is likely, you pretty much have to assume that economic growth is a thing of the past in both the United States and Europe. It is not an optimistic outlook.

Floyd Norris comments on

finance and the economy at

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JPMorgan and Credit Suisse to Pay $417 Million in Mortgage Settlement

The banks did not admit or deny guilt. JPMorgan agreed to pay $296.9 million to settle the charges and Credit Suisse agreed to pay $120 million.

Robert Khuzami, director of the S.E.C.’s Division of Enforcement, in a statement called mortgage products like those sold by the banks “ground zero in the financial crisis.”

Friday’s settlement ends the agency’s investigation into how JPMorgan dealt with its mortgage securities acquired through Bear Stearns, the troubled unit it purchased in the depths of the 2008-9 financial crisis.

Several other Wall Street firms also packaged and sold subprime mortgages, which resulted in billions of dollars in losses for investors.

The S.E.C. has brought more than 100 cases related to the financial crisis, but has struggled to secure a big victory against individuals responsible for some of the reckless behavior that nearly felled the American economy.


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DealBook: Regulators Extend Deadline for Xstrata’s Answer to Glencore

Simon Murray, Glencore's chairman.Michael Buholzer/ReutersSimon Murray, Glencore’s chairman.

British regulators have granted Xstrata extra time to respond to Glencore’s merger offer, as the mining giant weighs the sweetened bid.

Xstrata’s board will now have until Oct. 1 to make a decision, according to a regulatory disclosure on Friday. The previous deadline was Monday.

The two companies have faced a difficult path to a deal.

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Earlier this year, Glencore, which owns 34 percent of Xstrata, offered to buy the remaining stake. As part of the deal, Glencore agreed to exchange 2.8 of its shares for each Xstrata shares.

But Qatar Holding, the sovereign wealth fund of the Persian Gulf nation, as well as other major investors, balked at the price. The investors threatened to block the deal unless Glencore raised its bid.

While Glencore was initially resistant to adjusting the terms, the commodities trading company increased the price just hours before shareholders were set to vote. Glencore is now offering 3.05 of its shares for each Xstrata share.

Although Xstrata agreed to the previous deal, the board has been more reticent this time. After the new proposal was annouced, Xstrata indicated the price might be too low. It also raised concerns about the revised management structure, which gave Glencore executives more power.

Xstrata shares were down 3 percent in late London trading. Glencore was off 1.5 percent.

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DealBook: Big Step in Selling A.I.G. Stake, but Other Bailouts Remain

The Treasury Department announced on Sunday the biggest sale of its holdings in the American International Group yet, taking its stake below 50 percent for the first time since 2008.

It’s a big step in unwinding one of the most controversial bailouts of the financial crisis. But there are still plenty of other rescue programs to dismantle.

The Treasury Department is planning to sell about $18 billion worth of its shares, an amount that could grow to $20.7 billion if there’s strong enough demand. That means that the government’s stake would fall anywhere from 23 percent to 15 percent.

Of course, that’s dependent on the stock market holding up and investors becoming enthusiastic about buying up an enormous amount of stock, though A.I.G. itself is buying about $5 billion. Neither the Treasury Department nor the company gave a proposed price for the shares, though by the government’s own reckoning, they must be sold at above $28.73 to break even on the bailout.

Still, there’s plenty more of selling that the government must do apart from the A.I.G. stock. The federal government still owns about 32 percent of General Motors, down from an initial 60.8 percent. And thus far, the Treasury Department has recovered about 50 percent of its initial investment in the auto maker.

But it’s not clear whether that will go down in the short term, given G.M.’s tepid profit reports of late. People close to the car maker said this summer that they did not expect the administration to sell off significant portions of its holdings this year.

On the other hand, the government has divested its stake in Chrysler, leaving control of the smaller car manufacturer with Fiat of Italy.

And the Treasury Department still owns 74 percent of Ally Financial, the bank formerly known as GMAC, as well as $5.9 billion worth of mandatory convertible preferred stock. To date, the department has earned back about one-third of its initial $17 billion investment.

Again, however, it isn’t clear when the government will be able to sell its stake in the lender. Ally’s mortgage unit, Residential Capital, filed for bankruptcy in May, removing one of the biggest thorns in its parent’s side. The lender can now contemplate either going public or selling itself to private equity firms, but a timeline for such a move hasn’t been set.

The Treasury Department also owns stakes in many small banks as part of the Troubled Asset Relief Program, and specifically the Capital Purchase Program in which it essentially bought equity in many lenders. So far, the government has made a $19 billion return on its initial investments. But as of early May, about 343 institutions remained in the program, though many continue to repay their rescues.

And, lest we forget, the administration is still heavily involved in Fannie Mae and Freddie Mac, having put the mortgage giants into conservatorship four years ago. That rescue plan so far remains deeply in the red, though both institutions posted a profit in their most recent quarter.

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