Monday, February 07, 2005


This morning I continued my aggressive pursuit of profits. I followed through on my comments of the past few days. I purchased high beta securities. In a few cases, I switched from losing positions to similar securities to maintain positions within industries while booking short-term tax deductible losses. (It is nice to make money even when you lose money.)

The "giant SIRI" threw the seeds and RNWK is climbing the bean stalk. SIRI is a huge company with a market capitalization of about 8 Billion Dollars. Real Networks (RNWK) is only one seventh as large with a market value of 1.15 Billion Dollars. In terms of sales, RNWK is the larger company with about 3.6 times as much total revenue. The combination of higher price and lower sales means an SIRI buyer pays 25 times as much for $1 of sales as an RNWK buyer!

SIRI sales will grow quickly as more vehicles are sold with radios installed. However, a Barrons article (which I have not yet read) says that RNWK is a cheap way to "play" the online music business. I am currently on an RNWK 14 day free trial that allows me to listen to hundreds of music stations and to watch any of 100 movies. I am thinking seriously about subscribing to the service for my second home at the beach.

We own our beach home jointly with other couples. Since it is used often by people with time to relax, movies and music are nice amenities. The cost of advertisement free radio is only $5 per month versus $12.95 per month for SIRI. SIRI has the advantage of offering sports, business and talk radio programming. When set top boxes are common that allow music and movies to be transfered from the internet to the home entertainment center, RNWK service will be in high demand.

December 15, 2004, SIRI was trading at $7.65 (I sold most of my shares around this price) and RNWK was selling for $6.92 (I paid about this price for my shares). Since then, SIRI went as low as $5.28 and RNWK went as low as $5.45. This morning, after the Barrons article has boosted RNWK, SIRI is selling for $6.30 and RNWK is selling for $6.89.

Big deal, RNWK has declined only 1% while SIRI has declined 17%. This is not the way I see it. It appears to me that the giant has planted the seeds and it is up to Jack to climb the bean stalk. I am climbing as fast as I can.

Other News

Corning glass received an analyst upgrade this morning. It and many other high tech stocks are up a little this morning in a slow market. LVLT that has a large installed base of Corning high speed fibers is also up a little.

Airlines are trading up on the back of weak oil prices.

EBAY has had to back track on the increase in fees for small items. It will return the fee on small priced items to 25 cents from 30 cents. EBAY will also give a one month credit of $15.95 to EBAY store owners. However, the company will not back track on the 60% fee increase to operate an EBAY store!

EBAY can provide the space for next to nothing. However, EBAY wants to drive higher sales. EBAY is willing to lose the small dealer if the high volume dealers can be found more easily. The more high volume dealers EBAY attracks the higher the total volume and the higher the total profits. After stalling for a few months, EBAY revenues will rise again. If you don't own the stock, now is a buying opportunity. (Not a recommendation because I am just an ametuer writting for fun.)

No one was willing to take on my GOOG questions; I will ask again. If businesses are able to run advertisements to carefully targeted audiences and only pay if an ad is successful how big will the supply of ads be? If consumers are offered free services such as unlimited email, unlimited web site posting, unlimited phone calls, unlimited search of entire libraries and much more and if each usage results in the delivery of one of the no cost advertisements how much of the free service will be used? Finally, where do the supply and demand curves cross for the "free" advertisments and the free services?

I think my previous article about Google was more clear. Take a look and comment if you please.

Put it another way, what if Google increased earnings two more years at an incredible rate and if that incredible rate was only one sixth as incredible as this years rate, then the fourth quarter earnings two years from now would be $3.80 per share. Annualized the rate would be $15.20 per share and the price to earnings would be only 13 at todays stock price. Under the above incredible circumstances, the current stock price would look incredibly cheap in two years.