The wrong kind of Kodak moment

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I wrote Wednesday’s Buzz column over on Big Daddy CNNMoney (I refer to this as our humblr Tumblr) about Eastman Kodak. And in just a day, a lot more has happened to justify this update.

Kodak’s stock has been in a free fall (out into nothing, to quote Tom Petty) for several years now. But up until recently, Kodak was still viewed as a once great company that’s now undergoing a difficult and painful transition. Its future may not have looked so bright that it needed to wear shades. (not Tom Petty) But there was a future.

Now it seems that Kodak is actually in a fight for its corporate life.

Ratings agency Fitch joined Moody’s late Wednesday and downgraded Kodak’s debt. That is raising fears that Kodak could default on its obligations. Fitch, like Moody’s, is skeptical that licensing deals and the sale of digital photography patents will be enough to reverse Kodak’s fortunes.

As if all that weren’t enough, a Kodak shareholder issued an ultimatum to the company. Sell or else! Investment Partners Asset Management, a Metuchen, N.J.-based firm that owns Kodak stock and convertible bonds, sent a letter to Kodak’s board, urging Kodak to find a buyer that “has resources to commercialize the company’s intellectual property more efficiently.”

In the letter, IPAM co-principal Gregg Abella wrote that “Kodak’s long-term performance is simply unacceptable, and as such it has not earned the right to remain an independent company.”

He went on to write that “Kodak’s management has been given more than enough time, and still has been unsuccessful in unlocking value for stockholders or bondholders” and appealed to larger institutional owners of Kodak to “immediately exert their rights, and take a leadership role in effecting change.”

Will that happen? Only time can tell. For what it’s worth, IPAM owned a little more than 50,000 common shares of Kodak as of mid-year, according to FactSet Research.

Unless firms like Legg Mason, BlackRock, State Street and Fidelity (to name a few that are still somewhat astonishingly long Kodak) put pressure on Kodak to sell, IPAM’s call may go on deaf ears.

But as I wrote in Wednesday’s column, it’s clear that Kodak still has some attractive assets. And even though they may be patents as opposed to products, someone should try their best to “develop” them into cash. And if the management team in Rochester can’t do it, then perhaps Abella is right. Another company should. — Paul

No room for two ‘China YouTubes’

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Chart: CNNMoney

What’s that they say about first mover advantage? Chinese online video site Tudou learned that the hard way today. The company had a disappointing debut as a public company. Shares priced at $29 (the midpoint of its range) and were down about 6% in late trading. The stock dipped as much as 19% at one point. IPOuch!

So why did investors shun Tudou? After all, it’s a social media company in the world’s largest market. What’s not to love? You could call it China’s YouTube! But oh wait. We already had another Chinese YouTube go public late last year.

Yup, it seems that Tudou is suffering from the fact that it may be too similar to Youku, a Chinese online video site that went public in the U.S. last December and enjoyed a much better reception. Youku’s stock more than doubled on its first day of trading.

Adding insult to injury, Youku shares rose 9% today. Some of it may be due to the fact that investors unimpressed with the me-too-ism of Tudou decided to buy Youku instead. But there were also rumors flying around that Chinese Internet titan Tencent was considering an investment in Youku.

Whatever the reason for Youku’s stock rise and Tudou’s tepid coming out party, one thing is clear though. Investors may have been overly excited about Youku and overly bearish on Tudou. China, in case you forgot, is big. There is room for more than one online video service just like there is room for YouTube, Netflix, Hulu and others in the U.S.

I spoke with Tudou CEO Gary Wang about his company and the IPO. Wang said that he is not worried about the stock’s initial slide. He argued that Tudou is just as big of a household name in China as Youku and that his company is on its way toward becoming profitable.

Wang also said that he didn’t consider shelving the offering despite the fact that the global financial markets have been a bit volatile as of late.

"The way I look at it, I can’t time the market. I don’t know what will happen tomorrow. It’s like climbing a mountain. I just want to make sure we have sure footing," he said.

So give Wang credit for being brave. He took his company public just one week after stocks rose Wall Street’s version of the Great American Scream Machine. It was also a brazen bet that investors would forget Youku existed and treat Tudou as if it were a novelty.

And Tudou still raised a decent chunk of change ($174 million) in the offering. And one day does not a failure of success make. China’s online video market will still bear watching. Heck, one day maybe a profitable Chinese online video company will decide to go public. But that’s probably just silly talk. — Paul

Woof woof! Cisco and HP are still dogs of the Dow

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It’s been a rocky start to the year for stocks. But the Dow is still up 7% as the first half of 2011 comes to a close. Alas, Cisco and HP are not taking part in the fun. Cisco is the Dow’s worst performer and HP is the third-worst.

The two companies are obviously quite different but many investors are frustrated about the lack of direction at both firms. I’ve written about those frustrations recently over on CNNMoney proper. Check out "HP is still trying to be the next IBM" and "Everybody hates Cisco." Even Ralph Nader is peeved at Cisco.

In an eerie bit of coincidence, each company is about to release a tablet that has been met with tepid reviews by the gadget cognoscenti. I seriously doubt Apple’s worried about HP’s TouchPad or Cisco’s enterprise-geared Cius.

But to be fair, some investors are probably being a bit harsh in their criticism of HP CEO Leo Apotheker, who’s only been on the job for a few months. Ditto for long-time Cisco CEO John Chambers, who’s not to be confused with the S&P managing director. (Amusingly, Politico was confused.)

To suggest that HP has lost its way or that Chambers has outstayed his welcome is short-sighted. After all, it’s not as if Cisco and HP have been in a funk for that long, right? Stocks often pull back after enjoying solid gains a year earlier. Just look at the chart for HP and Cisco in 2010.

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Oops. — Paul

Every picture tells a story, don’t it?

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Chart: CNNMoney

Do you think Carol Bartz regrets moving to the Purple Profit Eater? I submit for your amusement (unless you are a Yahoo long) the above chart. It shows the stock performance of Autodesk — Bartz’ old company — versus Yahoo since the day Yahoo announced it had named Bartz as its fourth CEO since 2001. Autodesk reported solid earnings after the bell Thursday and its stock was up after hours. — Paul

It’s DELL-ightful. It’s DELL-icious. It’s DELL-ovely.

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Chart: CNNMoney

Forgive my show tune-inspired headline. But I love me some Cole Porter. And “Anything Goes” is currently in revival on Broadway. Plus (band geek alert!) I did play the baritone horn in the pit orchestra for my high school’s version of “Anything Goes” many many many many moons ago. (Either 1989 or 1990) But enough of that. This post is about Dell and HP!

Dell finds itself in an unusual position as of late. It, and not Hewlett-Packard, is the PC stock with momentum. That rarely happened while Mark Hurd was calling the shots at HP. But he’s not doing that anymore, having moved on (some might say he was nudged given that little sex/expense report scandal thing) to become the possible heir apparent to Larry Ellison at Oracle.

HP has been a dog of a stock since Hurd left and new CEO Leo Apotheker has failed to inspire much confidence as of yet. It’s interesting since both Dell and HP are due to report their latest results this week.

Dell’s out first, with its quarterly numbers set for Tuesday after the bell. Analysts aren’t expecting much on the top line. Sales are forecast to be up just 3.5% from a year ago.

Profits are a different story. The consensus estimate calls for a 43% surge in earnings per share. Dell also has made it a habit lately to beat Wall Street’s targets. Earnings have topped forecasts by an average of 24% over the past four quarters. Pinch Mike Dell. He must think he’s back in the mid 1990s when he could do no wrong.

HP is slated to release its numbers after the bell on Wednesday. It too isn’t expected to do much from a sales standpoint. Analysts are predicting revenues will be up only 2%.

But here’s the big difference between HP and Dell. Earnings growth is also sluggish. Wall Street is only forecasting an increase of 11%. And while HP has also done a decent job of surpassing analysts’ expectations as of late, it has only done so by an average of 3.5% for the past four quarters.

Based on their stock price performance this year, it’s clear that investors expect Dell to continue outshining HP on the profit surprise front. But the bigger question for investors in both companies might be this: Do either Dell or HP have what it takes to keep up with Apple in the dynamic mobile computing world?

Tablets are eating into PC (particularly notebook) sales and it’s not clear if either Dell or HP has what it takes to compete with the iPad. Mobile is a bigger focus for both companies. HP, under Hurd, did buy Palm after all.

But Dell may have more to lose if Apple and other tablets gain even more ground. It is still largely a company that’s trying to make a comeback in a low-margin, highly competitive (and possibly dying) business.

HP may have fallen out of favor recently but it is still a far more diversified company that can rely on its cash cow printer business, high-margin software unit and growing services division. In other words, HP is a poor man’s IBM.

Of course, any investor that likes all those qualities could just buy shares of the real Big Blue instead. — Paul

NetQin doesn’t cash in on China craze

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Chart: CNNMoney

Many China tech companies have enjoyed stellar debuts in their public offerings in the United States. NetQin is not one of them.

NetQin, a maker of mobile security software, priced its offering at $11.50 a share, the high end of its range on Thursday. But the stock fell nearly 20% Thursday and dropped another 8% on Friday. 

But the company’s management team doesn’t appear too worried. I met with chief executive officer Henry Yu Lin and chief financial officer Suhai Ji at CNNMoney’s offices. Ji said the company was a bit surprised by the tepid response to the IPO, especially since it did price at the upper end of its offering range.

It does seem a bit odd. While NetQin may suffered from poor timing, going public on a day when the broader stock market plunged as commodities got dumped, it does appear to have what it takes to succeed for the long haul.

Qulacomm and HTC are strategic investors. VC firm Sequoia is a backer as well. Revenues are up big, but the company (like most tech IPos) is losing money.

It could be a simple case of China IPO fatigue. Renren, aka China’s Facebook, also debuted this week and didn’t live up to the hype. Another Chinese Web security firm, Qihoo 360, also recently went public.

But Ji pointed out that there are so many smartphone users that still aren’t protected from viruses and other bugs. The market opportunity is enormous and entrenched security companies like Symantec, Trend Micro and McAfee (now owned by Intel) still are more focused on the PC market as opposed to mobile.

"The more apps you have, the more potential threats there are," he said.

Ji added that the company’s software is “platform agnostic.” NetQin, despite backing from Android beneficiaries Qualcomm and HTC, are not betting the ranch on Google.

Even though many people assume the mobile race is all about Google vs. Apple,  said he expects the smartphone market to remain fairly fragmented.

Lin said there should still be room for Research in Motion (BlackBerry and QNX) and Nokia. He pointed out that while many in the U.S. are treating Nokia’s Symbian as if it’s dead because of Nokia’a alliance with Microsoft and Windows Phone 7, Symbian still has a significant chunk of the mobile market in Asia.

Of course, there are risks. And it’s somewhat refreshing to see that investors aren’t bidding up every China IPO just because it happens to be located in China.

Ji conceded that the company needs to do more to make its brand known with consumers and enterprise customers. Li said that expansion in the U.S. and Europe will be key.

Still, NetQin shouldn’t be written off just yet. I wrote not too long ago about a little company called BroadSoft. It too had a poor debut but shares have surged in the months since then thanks to strong earnings growth.

It just goes to show that it’s not the first day or two that counts most for a newly public company. Too many IPOs burn out after big first-day pops. There’s nothing wrong with being the proverbial tortoise. You can still win the race.  — Paul

Good — but not great — day for Renren

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Chart: CNNMoney

So much for Renren being the next China dot.com double. The social networking company (often dubbed China’s Facebook) had a good but not otherworldly debut on the NYSE Wednesday.

Shares rose nearly 30%. To put that in perspective, Youku and Qihoo 360 both more than doubled. Renren also lost ground as the day wore on. It was up more than 70% shortly after it began trading.

Still, it seems that China remains a hot market for Internet stocks. David Chao, general partner with Silicon Valley venture capital firm DCM, which took a big stake in Renren before its IPO, talked to me Wednesday afternoon.

While he could not comment directly on Renren, he said that industry leaders in China should do well in the long run. His firm is looking for companies that are among the biggest in their respective market.

That’s why DCM has also invested in companies like e-commerce leader Dangdang, career site 51job and Bitauto, which provides online marketing services for car companies as well as pricing information for consumers.

Renren, despite all the hype of it being both Chinese and big in social media, may have been tripped up a bit due to some concerns about the head of its audit committee stepping down as well as the fact that Renren revised a figure about how many unique users it had in its latest regulatory filing.

But let’s be honest, if you price your IPO at the high end of your range (after bumping up said price range to begin with) and still close about 30% higher, that’s a sign of strong demand. China dot-coms may or may not be absurdly overvalued. But the bubble didn’t pop Wednesday just because Renren didn’t have a triple-digit percentage gain.

And if investors are hungering for more China tech, they’ll get another chance soon. NetQin, a mobile security firm, is tentatively set to debut on Thursday.I

I’m meeting with NetQin CEO Dr. Henry Lin, on Friday afternoon. So I’ll post something on Tumblr after that interview.

As an aside, it was great that CNNI put up a screen shot of a Tumblr post I did last week on Renren during my TV hit on Renren this morning. Nice to get some broadcast love for our humblr Tumblr! — Paul

Everything You Always Wanted to Know About Netflix* (*But were afraid to ask analysts)

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Chart: CNNMoney

"Take the Money and Run." "Hollywood Ending." "Everyone Says I Love You." "Sleeper." "Bananas." "Shadows and Fog." "Whatever Works." 

If you have all those movies in your Netflix queue, you are obviously a huge Woody Allen fan. Bordering on obsessive, actually. “Whatever Works?” Really?

But those film titles also are an apt description of the highly divergent views that Wall Street has about Netflix following Monday’s earnings report.

Netflix reported a fantastic quarter. Sales and profits surged. The little red envelope that could now has more than 23 million subscribers worldwide. And the streaming business is really catching on.

But the stock plunged 9% Tuesday as investors worried about the earnings outlook for the second quarter, and the fact that subscriber growth — while still robust — is slowing.

So what’s next for the stock? If you look at some of the analyst reports that came out Tuesday, you’ll have more questions than answers. This stock is polarizing with a capital P.

Janney Capital Markets analyst Tony Wible downgraded Netflix to a “sell.” The headline of his report was “Headwinds Trump Momentum.” Wible cut his earnings targets for 2012 and lowered his fair value price target to $170. That’s 26% lower than where Netflix was trading Tuesday afternoon.

He’s not the only one who’s nervous about Netflix. Stifel Nicolaus analyst George Askew wrote in a report that he’s reiterating his “hold” rating on Netflix. He argued that the stock price “fully discounts any further acceleration of
continued subscriber growth, as well as an increasing competition, and further streaming content investment.” 

On the competitive front, Amazon and Hulu are obviously top concerns. But satellite TV firm DISH may also be edging in on Netflix’s turf thanks to DISH’s purchase of the assets of bankrupt Blockbuster.

Askew said he’s concerned that Netflix “may be spreading itself too thin with international initiatives at a time when domestic competition is heating up.” That’s why Askew used a famous saying from former Intel CEO in the headline of his report: “Only the Paranoid Survive.”

But it’s not all doom and gloom. ThinkEquity analyst Atul Bagga reiterated a “buy” rating and raised the price target on Netflix to $280. That’s more than 20% higher than current prices. Bagga wrote that Netflix has even more opportunities to expand internationally. 

Bagga also thinks Netflix has a chance to do a better job on the social front, citing chats with industry contacts who suggested that Netflix is “currently working on a tighter Facebook integration.” 

But Cannacord Genuity analyst Heath Terry wins the award for biggest Netflix bull. Terry upped his price target to a perfect bowling score: $300. Terry wrote that “Netflix is in the sweet spot between declining physical competition and rising digital competition.”

You’re probably more confused than ever. But if you ask me (not that you did, but I’m going to tell you anyway) I agree with bits and pieces of all four analysts here.

Netflix is still a great company. It’s growing like a weed. But it’s priced for perfection. Reed Hastings is a fantastic CEO, but he’s not a deity. (Sorry, Reed.) The stock, even after Tuesday’s pullback, trades for more than 50 times 2011 earnings forecasts. That’s expensive.

For anyone who thinks Netflix is now a bargain, I leave you with this Woody Allen-ism. That argument is “a travesty of a mockery of a sham of a mockery of a travesty of two mockeries of a sham.” — Paul 

Travelzoo: Don’t call us the Groupon of travel

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Chart: CNNMoney

This local, daily deal online thang has really taken off. Groupon is probably going to go public at a value of about a gajillion — and LivingSocial will probably offer us shares of Groupon stock for only half a gajillion the day of Groupon’s IPO.

So it’s no surprise that one of the granddaddies (relatively speaking) of online deals, Travelzoo, is also trying to cash in on the local craze.

Travelzoo, which was founded in 1998 (kind of like the Mesozoic era in the dot-com world), as a publisher of hotel and airfare deals, announced ridiculously strong first-quarter numbers Thursday morning. Overall sales were up 30% and revenue from Europe surged 53%. So much for the PIIGS and that sovereign debt crisis hurting travel demand.

Helping to lead the charge? The company’s new-ish Local Deals segment, which offers discounts on meals, sporting events and the like in major U.S. and international cities. The stock surged more than 27.5% on the news Thursday.

Julianne Pepitone and I sat down Thursday afternoon with Travelzoo CEO Chris Loughlin for a chat. Loughlin explained that the company does not want to be the next Groupon. Travelzoo will not be offering daily deals per se. He said the company will focus more on quality over quantity.

"The amount of deals we don’t publish is quite surprising," he said.

Still, Loughlin felt that the local market was a natural extension of what the company has been doing for more than a decade. Interestingly, he said that Travelzoo functions very much like a newsroom. The goal is to find the best deals and publish them only, not blast out every deal under the sun to its subscribers.

Loughlin even said his team has editorial meetings and is used to promoting deals with 60-character headlines. Naturally, I had to ask him what his headline for Travelzoo’s earnings story would be. His response: Travelzoo announces stellar results as local deals in Europe boom.

That’s 65 characters, but I’ll let it slide.

Travelzoo has a lot of momentum behind it, and it’s admirable that a company doing what it does has survived both the original dot-com bust (it waited until 2002 to go public) and the Great Recession.

Whether or not Travelzoo can effectively compete with the hot privately held upstarts over the long haul remains to be seen. But investors are clearly pleased. The stock’s up more than 125% this year alone and has soared nearly 500% in the past year.

Of course, that type of run-up may sound eerily like the late 1990s. And Travelzoo’s stock is no bargain at 80 times 2011 earnings estimates. If Travelzoo had missed forecasts instead of beating them Thursday, momentum traders probably would have fled the stock in a heartbeat.

But Loughlin said none of that worries him. He points out the company has no debt and continues to be wildly profitable. And he said he is focusing more on investors that want to buy and hold the stock — not speculators who may view Travelzoo as a proxy for Groupon until Groupon goes public. A company that doesn’t want to be compared to Groupon? Now that’s a great headline for a story. — Paul

Cisco competitor to John Chambers: You’re too big!

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Chart: CNNMoney

By now, you’ve probably heard about (if not read) the e-mail that Cisco CEO John Chambers sent to the company earlier this week. It was a stunning admission of the company’s failings in the past few years, with the biggest takeaway being that Chambers believes Cisco has “disappointed” investors and “confused” employees.

Much has been made about what Cisco needs to do to get back on track. I wrote about this just a few weeks ago over on CNNMoney proper. But one of Cisco’s smaller competitors has an interesting take: Cisco is simply now just too big.

Dominic Orr, the CEO of Aruba Networks, is going head-to-head with Cisco in the wireless networking market. Smaller companies like Aruba, as well as Juniper Networks, F5 Networks and Riverbed Technology (to name a few) have been able to nip at Cisco’s heels, taking away market share thanks to a more narrow focus.

Aruba is benefiting from the explosion in demand for wireless connectivity. And that’s because Orr has kept the company concentrated on just that: wireless.

Orr explained how Aruba was founded at the time that Intel was unveiling its Centrino chip designed specifically for laptops. That was a key moment in tech as it validated the notion that people would want to access the Internet on the go. And that helped begat the era notebooks, smartphones and now, of course, tablets.

Cisco is in wireless networking as well. But Cisco also owns disparate businesses ranging from cable-set top boxes and the Flip video camera to Web conferencing and security. That’s on top of the bread-and-butter business of selling routers and switches. Some investors are pressuring Cisco to cut some of the non-core businesses loose.

Orr, the subject of a fascinating profile by my Fortune colleague Stephanie Mehta in 2007, said that Cisco isn’t guilty of missing too many key tech trends. But it’s hard to be dominant in everything. And investors tend to punish companies for the jack of all trades and master of none approach to a market.

"It’s not a matter of Cisco missing it in terms of vision. The issue is just that Cisco is confronted with so many tasks," Orr said. "They always have been big. But they were alone. Now they are big in a crowded market."

The proof is in the pudding. And in case that tortured metaphor isn’t clear, that particular pudding of which I speak is stock price performance. Cisco is down 13% this year and 33% in the past 12 months. Aruba’s stock is up 44% this year and has more than doubled since last April.

"Cisco is a big company that may have been promising too much growth while its core business is under attack," said Orr.

Steve Blank, the author of “The Four Steps to the Epiphany” and an expert on start-ups, said that he thinks Cisco has taken the necessary step of admitting that it has to do things differently. But now Chambers has to execute if Cisco hopes to regain momentum from smaller rivals like Aruba.

"The world has changed. What’s old is new and what’s new is old. Even Google is becoming the new Microsoft," said Blank. "There is no guarantee that a company will live forever." — Paul