IBM Helps Dow Top Record; Yelp, LinkedIn Lag
Yesterday's market moves:
Dow Jones IndustrialAverage : 15,680,+111 (+0.72%)
S&P 500: 1,772, +10 (+0.56%)
What's the best thing to find in your trick-or-treat bag? Investors will take "stimulus measures" over candy any day (the MarketSnacks team is partial to Snickers). Yesterday, eager anticipation that the Fed will announce continued stimulus after its policy-setting meeting ends this afternoon pumped the Dow up 111 points and the S&P 500 up 10 points, marking record highs for both indexes. Tuesday was also about corporate earnings.
1. IBM biggest Dow winner with $15 billion share buyback
IBM shareholders weren't pleased on Oct. 16 when Big Blue reported sales that dropped for a sixth straight quarter, and the stock fell about 5% in the wake of the troubling news. But the company still ended the quarter with $10 billion on hand and is planning to return that dough to shareholders. That's right, IBM announced a $15 billion share buyback program -- on top of the $5.6 billion remaining from a prior buyback. The company will gradually purchase $15 billion worth of its own shares, and investors cheered, as every stockholder's slice of the profit pie will get a bit bigger.
IBM sees hordes of techies clawing for tickets to Apple events,and it proudly remembers that it helped create tech pandemonium with its computers of the '80s, '90s and 2000s. But those days are gone: IBM sold its PC business to Lenovo in 2005 and hasn't looked back, reaching an all-time market capitalization high of well over $200 billion in early 2013. Now it's about cloud computing and servers for big data.
Share buybacks and dividends are the most direct ways companies can compensate shareholders. But shouldn't IBM spend money on growth? Well, growth for the tech company is challenging in the presence of 800-pound gorilla Google, which seemingly forces unlimited cloud data on users -- for free. IBM is dumping billions of well-earned cash in owners' pockets just like other mature, profitable companies that suffer slowing growth or even face declines (Apple is buying $16 billion back per quarter right now).
2. LinkedIn earnings impress, but outlook depresses
LinkedIn -- or, as they call it in the Bay Area, "The social network for the unemployed" -- reported earnings for the third quarter Tuesday that beat analyst estimates. The $393 million in revenue was up 56% from the same time last year, and the company notched a net loss of $3.4 million compared to positive earnings of $2.3 million last year. Importantly, though, LinkedIn's earnings were $46 million when excluding tax impacts related to share compensation and accounting measures -- well up from last year. The networking website has 259 million users now (up 38% from last year), most looking for jobs and others in an "open relationship" with their current employers.
On Wall Street, "What have you done for me lately?" isn't enough. What will you do for me now and tomorrow? LinkedIn management forecast revenue of $415 million to $420 million for the fourth quarter. From $393 million to $420 million from one quarter to the next is solid, even for a growth company, but LinkedIn isn't just some growth company; it's like Neo from The Matrix -- the one that's supposed to bring billions of future earnings to shareholders. As with Apple's recent report, modest fourth-quarter forecasts have caused the stock to drop in premarket trading.
LinkedIn's current valuation is $27 billion, according to its market capitalization. Are shareholders satisfied with earnings in the single-digit millions? No way. LinkedIn's 150-plus price-to-earnings ratio means the shares are highly valued, and massive profits are expected in the future to keep shareholders happy. If the big profits don't materialize, then the stock price will fall to less bullish, and more realistic, levels. Investors are watching LinkedIn's moves like hawks.
3. Yelp earnings get two stars
Something smell bad? It's those Yelp numbers. Shares of the restaurant-grading website for amateur reviewers (and, even worse, appetizer photographers) have plummeted 10% in premarket trading following its Tuesday afternoon earnings report. Yelp suffered a $2.3 million third-quarter loss when analysts had expected a profit.
The big problems were twofold. First, Yelp dropped $2.8 million cash last quarter to integrate two European websites it bought last year (it's never easy to mix your food). Second, the company announced that it's selling $250 million of its own shares to cash in on its Chipotle-burrito-sized growth in 2013. That's a big enough sale to send the price down hard on the dilution of profits for existing shareholders.
Yelp has gained a tasty 250% so far this year as the company successfully moves into the mobile space (which is the new black, according to tech analysts). On the bright side, the earnings report also showed that revenue beat forecasts, and the company raised its 2013 revenue projections -- but investors can be harsher critics than your friend who hates the nearby deli because "the pickles are too pickled."
At 2 p.m. EDT, the Federal Reserve will release a statement following its policy-setting meeting
Watch reports of the JPMorgan/Department of Justice settlement at risk of falling apart.
Third-quarter earnings: MetLife, Marriott International.
MarketSnacks Fact of the Day: Want to buy stock in an NFL player? A company called Fantex recently bought 20% of Houston Texans' running back Arian Foster's "lifetime football-related income" for $10 million.
Originally published on MarketSnacks.com.
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The article IBM Helps Dow Top Record; Yelp, LinkedIn Lag originally appeared on Fool.com.
Fool contributor Jack Kramer has no position in any stocks mentioned. Fool contributor Nick Martell has no position in any stocks mentioned. The Motley Fool recommends Apple, Chipotle Mexican Grill, Google, and LinkedIn. The Motley Fool owns shares of Apple, Chipotle Mexican Grill, Google, International Business Machines, and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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