Well, I will claim to have successfully predicted that the proposed airline strike will invoke a sharp reaction from the government. If I got it right, I am sure it was plain obvious to everyone. As it happened, the airlines themselves were not united, and the strike has been called off.
What I like about such failed attempts is that they succeed exceedingly well in making the point. With losses mounting and what not, the last thing airlines need is the hassle of refunding fares to passengers. They just wanted to prick Praful Patel's butt and make him lose sleep on a few nights. Mission superbly accomplished.
What now? Mr. Patel says no bailout for private airlines. And that's fair enough. I am no expert on this industry, but Spice recently posted a profit and thats good enough for me. It indicates, if managed well, there is scope for improvement. On the other hand though, globally the airline industry is a disaster. But still there is a Singapore here and a Southwest there that defies the trend year after year after year. Airline CEOs need to roll up their sleeves and get creative about fixing the issues. Laying off employees and asking for price cuts on jet fuel is lazy management - these are the two biggest expenses, and if u reduce expenses, u make profit right? Wrong! The industry needs some fresh bottom-up thinking. Although not as fresh as Capt Gopinath's I guess, who is blamed by some for the mess we are in:)
Tuesday, August 4, 2009
Sunday, August 2, 2009
Zee Saregama Lil Champs
Of late, I have gotten addicted to this show. The quality of kids is simply amazing. What blows me away is the apparent ease with which the kids perform. Although I am quite sure they must be putting in hours of hard work and preparation behind the scenes. It even makes me wonder if it is fair to make kids work in this manner.
But, there are some irritating aspects of the show, starting with the intros and profiles of children which are downright cheap and tasteless. Even the two kids emceeing the shows get to you after a while.
As far as the quality of the contestants go, this is beyond comparison.
But, there are some irritating aspects of the show, starting with the intros and profiles of children which are downright cheap and tasteless. Even the two kids emceeing the shows get to you after a while.
As far as the quality of the contestants go, this is beyond comparison.
Friday, July 31, 2009
Airline Strike
Private Airlines have decided to suspend operations on August 18 to protest jet fuel prices and surcharges. Their demands may be legitimate but going on a strike hardly feels like the right approach. Jet and Kingfisher have confirmed this, but low-cost airlines havent yet said anything. It is interesting to see if there will be any government intereference in this matter.
One might argue that these are private corporations, and the government should not interfere with their decision. Yet, airlines have become such an integral part of our economy that the 1-day suspension is definitely bound to have an impact on the economy. In addition, the legalities of airline operators getting together to suspend operations is doubtful. In most western countries, such a move would be termed "collusion" and attract the attention of trade regulators.
When calling to privatize PSUs, we must remember that the legal and regulatory system needs to robust enough to ensure that the nation is not at the mercy of capitalists.
One might argue that these are private corporations, and the government should not interfere with their decision. Yet, airlines have become such an integral part of our economy that the 1-day suspension is definitely bound to have an impact on the economy. In addition, the legalities of airline operators getting together to suspend operations is doubtful. In most western countries, such a move would be termed "collusion" and attract the attention of trade regulators.
When calling to privatize PSUs, we must remember that the legal and regulatory system needs to robust enough to ensure that the nation is not at the mercy of capitalists.
Wednesday, July 29, 2009
MS Yahoo deal - Yahoo RIP
MS and Yahoo have entered into a deal to beat Google. While the details are not completely clear to me, it seems like MS will essentially use the Bing architecture to power Yahoo searches. Consequently, the two cos will end up sharing revenues with Yahoo retaining ~90%.
Lets see how this will play out. Everytime you search for something on Yahoo, it is actually Bing that does the search and delivers the results. Now, search-based advertising means that ads will be automatically displayed based on search strings. So that will be done by Bing too. And of the revenues earned, Yahoo pays 10% to MS.
The only thing Yahoo had going for it is the #2 position in search and the resultant reveues from ads. That advantage is now erased 'coz it will depend on Bing to make money. I doubt if the agreement will restrict MS from competing in the ad space. So now MS gets to make its own ad money and also get money thru ads on Yahoo (although only a small %). But thats not the point.
The point is MS gets a much larger canvas to play on. The Bing "search system" will be used at least 4 times more than if Bing remained a standalone search engine. And all this data is available to MS, which means it can make Bing that much better. And once Bing starts getting better, and word spreads that Yahoo is actually "Bing", surfers like you and me will start searching on Bing directly rather than Yahoo (Some will go to Google, but hey, if they are still on Yahoo, they are probably gonna end up with Bing than Google). Consequently, Bing's market share will improve at the cost of Yahoo's, resulting in movement of customers from Yahoo to MS. Once Bing reaches a critical mass in the next 3-4 years, say 25% market share (standalone), it may damn well pull the plug on the deal. In all probability, Yahoo would have stopped work on its search platform and would be left stranded. Meaning all remaining Yahoo customers will drift to MS or Google.
My feeling is MS couldnt have asked for a better deal - it gets to kill Yahoo, although not immediately, but hey, they dont have to pay a penny. Well for Yahoo, it is definitely suicide.
Lets see how this will play out. Everytime you search for something on Yahoo, it is actually Bing that does the search and delivers the results. Now, search-based advertising means that ads will be automatically displayed based on search strings. So that will be done by Bing too. And of the revenues earned, Yahoo pays 10% to MS.
The only thing Yahoo had going for it is the #2 position in search and the resultant reveues from ads. That advantage is now erased 'coz it will depend on Bing to make money. I doubt if the agreement will restrict MS from competing in the ad space. So now MS gets to make its own ad money and also get money thru ads on Yahoo (although only a small %). But thats not the point.
The point is MS gets a much larger canvas to play on. The Bing "search system" will be used at least 4 times more than if Bing remained a standalone search engine. And all this data is available to MS, which means it can make Bing that much better. And once Bing starts getting better, and word spreads that Yahoo is actually "Bing", surfers like you and me will start searching on Bing directly rather than Yahoo (Some will go to Google, but hey, if they are still on Yahoo, they are probably gonna end up with Bing than Google). Consequently, Bing's market share will improve at the cost of Yahoo's, resulting in movement of customers from Yahoo to MS. Once Bing reaches a critical mass in the next 3-4 years, say 25% market share (standalone), it may damn well pull the plug on the deal. In all probability, Yahoo would have stopped work on its search platform and would be left stranded. Meaning all remaining Yahoo customers will drift to MS or Google.
My feeling is MS couldnt have asked for a better deal - it gets to kill Yahoo, although not immediately, but hey, they dont have to pay a penny. Well for Yahoo, it is definitely suicide.
Tuesday, July 28, 2009
Value of a stock - Part II
Before we move forward, lets discuss the time value of money. This concept is at the core of financial valuations. It states that a $100 today is worth more than $100 a year from now. Why? You can put your $100 in a bank it will be $105 next year. That's the time value of money. In other words, there is an opportunity cost involved.
Back to our stock now. We've determined the return that we are expecting from the stock. And we have the price of the stock as it trades in the market. We can use the two to determine what should the price one year from now. If price is $10 and expected return is 10%, then price of stock 1 year from now is 10*(1+10%) = 10*1.1 = $11. In other words, if the stock price is $11, one year from now, you can pay $10 to buy it today.
A little digression to understand where a stock's value comes from. A company makes and sells products and earns revenue. Out of this, go expenses such as raw materials, salaries etc. If the company has any debt, it needs to pay interest on that. And what remains is the profit. Of course profits are taxed, so a portion of that goes to the govt. What remains after all these is called Profit After Tax (PAT) or Net Income (NI) is available for distribution among shareholders. In reality, of course, companies "reinvest" PAT, meaning they will use this money to fund further expansion and generate more revenues etc. For simplicity, lets say a company is "mature", meaning there are no opportunities of growth. It will just keep making and selling the exact # of units year after year. As a result, all PAT will be distributed as dividends to shareholders that is you and me:) In reality though PAT doesnt equal CASH - that's accounting for you, which is way out of the scope of this article. But understand that some adjustments are made to PAT to arrive at "Cash Flows (CF)".
Now it all comes together. Once you know the CFs of a company year after year, you can discount them all by the expected return rate to get today's value. But we only have data to calculate last year's CF. How do you know what the company makes in future years? This is where assumptions and projections come in. You look at the economy, industry etc., and predict that revenues, expenses will grow or shrink at a certain rate leaving you with a CF. This is one reason why analysts may have differing opinions about a stock's value - because they have different growth assumptions. Once you buy a share of a company, you own it forever (or until the co shuts down). So you'd have to project CFs out to infinity. To make it mathematically manageable, you project it out 10 years or so, and use a geometric series formula to find the value at the end of 10 years. Now discount all these values to today and you have the value of the firm.
Now, if the firm has taken any debt, that will need to be repaid eventually. So subtract debt from the value of the firm and you have the "equity value" of the firm, which is what shareholders own. Simply, divide the equity value by the number of shares outstanding, and voila! you get value per share.
If this value is less than market price, the stock is overvalued. If it is greater than price, the stock is undervalued.
Back to our stock now. We've determined the return that we are expecting from the stock. And we have the price of the stock as it trades in the market. We can use the two to determine what should the price one year from now. If price is $10 and expected return is 10%, then price of stock 1 year from now is 10*(1+10%) = 10*1.1 = $11. In other words, if the stock price is $11, one year from now, you can pay $10 to buy it today.
A little digression to understand where a stock's value comes from. A company makes and sells products and earns revenue. Out of this, go expenses such as raw materials, salaries etc. If the company has any debt, it needs to pay interest on that. And what remains is the profit. Of course profits are taxed, so a portion of that goes to the govt. What remains after all these is called Profit After Tax (PAT) or Net Income (NI) is available for distribution among shareholders. In reality, of course, companies "reinvest" PAT, meaning they will use this money to fund further expansion and generate more revenues etc. For simplicity, lets say a company is "mature", meaning there are no opportunities of growth. It will just keep making and selling the exact # of units year after year. As a result, all PAT will be distributed as dividends to shareholders that is you and me:) In reality though PAT doesnt equal CASH - that's accounting for you, which is way out of the scope of this article. But understand that some adjustments are made to PAT to arrive at "Cash Flows (CF)".
Now it all comes together. Once you know the CFs of a company year after year, you can discount them all by the expected return rate to get today's value. But we only have data to calculate last year's CF. How do you know what the company makes in future years? This is where assumptions and projections come in. You look at the economy, industry etc., and predict that revenues, expenses will grow or shrink at a certain rate leaving you with a CF. This is one reason why analysts may have differing opinions about a stock's value - because they have different growth assumptions. Once you buy a share of a company, you own it forever (or until the co shuts down). So you'd have to project CFs out to infinity. To make it mathematically manageable, you project it out 10 years or so, and use a geometric series formula to find the value at the end of 10 years. Now discount all these values to today and you have the value of the firm.
Now, if the firm has taken any debt, that will need to be repaid eventually. So subtract debt from the value of the firm and you have the "equity value" of the firm, which is what shareholders own. Simply, divide the equity value by the number of shares outstanding, and voila! you get value per share.
If this value is less than market price, the stock is overvalued. If it is greater than price, the stock is undervalued.
Subscribe to:
Posts (Atom)