Of the leading US stock market indices, only the Nasdaq has yet to surpass record levels 5,132 points, recorded intraday on March 10, 2000. Last Friday, the Nasdaq was back to its level in October 2000.
If the index is back to the levels of the year of the bubble, does that mean that we are again close to a bubble? The stock that was in the headlines on Friday, after mixed results, has reopened the debate. It was a company that starred in the "dot.com" bubble and one of the few that survived that chose not to take the bubble-associated suffix out of its name - priceline.com Inc. (Nasdaq: PCLN).
This is an online travel agency that has reached a market cap of $38 billion and share price of $765, approaching its peak price of $975 (adjusted for a reverse split) in April 1999.
The immense difference between then and now is that back then the company lost a lot of money, and sales were plummeting, while this year revenue will reach more than $6.5 billion and earnings per share will be almost $40. What the analysts dreamed about during the bubble, priceline.com is currently realizing big-time, and en route wiping out the short traders who were sure that the bubble was back.
Apropos wiping out short traders, two companies that I hold in my portfolio here published their results last week , and one of them, Sodastream International Ltd. (Nasdaq: SODA), is in the midst of hitting short traders hard. The second company, EZchip Semiconductor Ltd. (Nasdaq: EZCH; TASE:EZCH), has only begun the wipe-out, and the faster the short players abandon their positions, the better it will be for them. The short position on SodaStream amounts to 35% of its shares, while for EZchip the figure is 12%.
A meeting at the start of the year with SodaStream CFO Daniel Erdreich persuaded me to put the stock into my portfolio, and the return to date has been more than 20%. I realized at the meeting that this is a company with an excellent management and strategy that really can change consumer habits - no less than leading technology companies that launch this or that world order changing gadget.
When a company wants to change the world order among consumers, the big test is always the US market. Indeed, this year SodaStream has enormously stepped up its investment in the US, including an expensive Super Bowl ad, and the results speak for themselves. US revenue has soared 93% compared with last year, and market penetration is still just beginning, with only a little over 1% of US households using SodaStream. On the day that the financial results were published, short traders tried to push down the share on seasonal weakness in the European market. But they were quickly broken, because the huge growth in the US brought major investors to the share, which climbed on Friday to almost $60, the peak it reached in August 2011.
EZchip provided a "clean" report that is to say results and guidance above estimates for sales, and earnings per share in line with estimates. The share price responded with a 7% rise, because, unlike in the previous conference call, during which the share price collapsed after the company's management reported that it might be losing an important customer, Huawei of China, this time the conference call was full of good news from China, the US, Yokne'am, and Kiryat Gat.
In the first quarter, Chinese company ZTE accounted for 14% of sales, and Huawei has started to place orders in the current quarter. The two companies will supply equipment to the tune of billions of dollars to China Mobile (CHL), which is due to start rolling out an LTE network at the end of the year. US company Juniper Networks (JNPR) accounted for 27% of sales, an amazing statistic, since for many years it has only bought second generation products.
Cisco (CSCO) accounted for 32% of sales, but this proportion will rise steeply later this year, and we will hear about the success of its routers in its results on Wednesday. Nest month, in Yokne'am, they will start tests of samples of the fifth generation processors, which will generate sales starting from next year, when sales of the fourth generation processors will also accelerate further, while sales of second generation processors to Juniper will continue.
In my view, the short players should mainly be wary of the news that will come later in the year from Kiryat Gat, where EZchip is developing its NPS processors, designed for future generations of routers for telecommunications providers, as well as for the large data storage centers market. EZchip founder and CEO Eli Fruchter says that potential customers in both markets describe the processor as a "game changer".
Although no significant sales of the NPS processors are expected before 2016, it was stated that the company expects to close agreements with top tier customers this year. I wouldn't want to be holding a short position when these customers are named, particularly if it turns out that among them are some of the sexier names in the data storage market, such as Amazon (AMZN), Facebook (FB), or Google (GOOG).
Published by Globes [online], Israel business news - www.globes-online.com - on May 13, 2013
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