“The Death Of Microsoft — And The Dawn Of Its Rapidly Growing Replacement”
by Travis Johnson, Stock Gumshoe | April 23, 2013 2:39 pm
Sniffing out Hilary Kramer's teased "Gamechanger #1"
The Gumshoe faithful have been asking about Hilary Kramer[1] and her latest teaser pitch, so we’re going to ID at least her “#1” idea here — and possibly we’ll get into the rest of ’em if there’s interest.
The basic idea is much like past ads from the Motley Fool[2] and others — that cloud computing[3] and the explosion of mobile devices will kill Microsoft, and that the small and nimble cloud and “software as a service” players will be the beneficiaries. Kramer calls this big theme the “Apple/Android hyper-portability megatrend” and the “Big Data” industry — the “story behind the story” in the tech sector, and the source of much of the strength in tech stocks.
And she pitches this “megatrend” as an “insurance policy” against stocks falling — here’s how she puts it:
“Finally, before the rally runs out of steam, you get The Ultimate ‘Stock-Drop Protection’
“Announcing an ironclad ‘insurance policy’ against the coming market plunge: a megatrend so strong is soars during all market conditions, making double-digit gains”
Sounds like a dangerous promise to make, doesn’t it? That’s why the “insurance policy” and “protection” bit are in quotes — in an ad, quotes mean “not really.”
Here’s some more from the ad:
“Yet with all this fear, I can help put your mind at ease.
“I’ve discovered a new gamechanger — a megatrend so strong it’s unaffected by dips, drops, and corrections.
“This megatrend is like a failsafe insurance policy for your portfolio from bad markets…
“…because it continues to soar upward during all market conditions.
“No matter what direction the S&P goes, this megatrend is always up. It seems to defy gravity, like a profit-rocket.
“This megatrend I’m talking about is inside the tech sector. That’s probably no surprise…
“The biggest, fastest movers are tech companies. They have the shortest journey to selling their products — and the least regulation….
“In fact, three unstoppable tech companies are rising so fast — sitting at the very forefront of this megatrend, they are changing the way we work, shop, and live.
“As I’m about to show you, these gamechangers are so consistently powerful, they have the ability to overcome any market drop… and will even continue to make new market tops”
I promised you that we’d feed at least the first of these “gamechangers” into the gaping maw of the MIghty, Mighty Thinkolator … so lets get ourselves some clues …
“I mean the countless new app programmers, cloud storage providers, and mobility networking companies. These products and services supporting hyper-portability are a major part of what’s called “Big Data.”
“And today, the megatrend toward Big Data is being championed by three gamechanging businesses.
“See for yourself, as I introduce GameChanger #1:
“… now, one company is moving in to deliver the final shot… by making hyper-mobility powerful enough to seriously challenge the PC.
“Now, why wouldn’t Microsoft make the transition to monopolize the mobile world? Simple. It’s because Microsoft is stuck in the PC world….
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just click here...“So Microsoft isn’t about to change from that revenue stream. Like all giant companies, it’s too bureaucratic and sluggish to change. In fact, the very term “change” is a dirty word in the corporate world.
“But one small and swift-to-respond company is about to take advantage of Microsoft’s sluggish nature… by serving the entire mobile market new software to make their devices more powerful….
“The company I’m excited about has a small size, which makes them maneuverable. They can turn direction on a dime. Whereas Microsoft is so big, it’s like turning around an aircraft carrier….
“Ironically, this small company is also making mountains of money from “enterprise” software, just like Microsoft. Yet their small size is enabling them to switch over to bold new software technology that’s optimized for servicing data from smartphones and tablets.
“Using this software, every Fortune 500 company will be able to manage their user’s many devices, giving them common access to software, data sharing, and servers, all on one network….
“So when this new company announced their shift to new software aimed at the web/mobile data arena, they captured the imaginations of corporations — and stock buyers everywhere….
“Already, this company is announcing a 40% customer growth rate through the end of this year alone.”
Now, that’s not a lot of clues — so we had to resort to checking the stock chart she included as a clue — she didn’t include any actual numbers on the chart, of course, that would make it too easy … but we can see the slope and the movements for the last three months or so.
(Stock Chart Copied from GameChangers[4] Ad)
Which is enough for the Mighty, Mighty Thinkolator to give a pretty high degree of certainty to our answer: This is Splunk (SPLK)[5]
Splunk is one of the new crop of data analytics and “big data[6]” companies that went public over the last year or two, with tremendous revenue growth and customer growth and a great story and trend … and no profits. They’ve been reinvesting and hiring at least as fast as they’ve been increasing revenues, so it’s still very much a “future growth” story about planting their flag in the marketplace and building up enough of a sticky customer base and a differentiated product that they can transition, someday, to sustainable profitability. Analysts think they’re in the process of getting to break even this year, with profits — minimal profits, to be sure — to start flowing next year.
And it’s also a stock that has had a wild ride over the last six months or so — Splunk was called out as a short candidate by Zack Buckley[7], a young hedge fund guy, at the Value Investing Congress[8] that I attended back in October (I sent a short note to the Irregulars on that[9] during his talk but never acted on his short recommendation, his full presentation has been put up online here if you’re curious[10]).
Buckley will also be speaking at this next Value Investing Congress in a couple weeks in Las Vegas, and I’ll again be reporting from there for the Irregulars and looking for ideas to share with you, so maybe we’ll see if he’s changed his tune on Splunk or covered that short (his attention helped the shares to crater, from $38 or so down to $26 by November, but after walling for a month or two it started to climb again and is now back above $40 at all-time highs).
And yes, Splunk does forecast that they will increase their customer count by 40% this year [11](their fiscal year ends in January, not December, just FYI), so that’s obviously a good harbinger of potential revenue growth. They also have essentially guided investors to expect a break-even year, so the analysts aren’t just making those numbers up.
As to whether they will build a defensible business in this very competitive industry, I don’t know — they do have both cloud and enterprise applications, and they do provide a variety of IT management products for companies, though their niche seems to be mostly in data analytics — collecting and managing data from a variety of sources and making it accessible and useful, including on mobile devices. Part of Buckley’s criticism of Splunk was based on the fact that they don’t have the “annuity” income stream that many “software as a service” or tech services companies enjoy, much of their revenue comes from up-front license fees.
I think that you’d probably have to get pretty comfortable with the company’s software and understand how it stands out against competitors before buying this stock, but that might just be me erring on the side of caution with an unprofitable growth stock. They have kept the operating expenses growing at almost exactly the same pace as the revenue, so although that means they consistently lose money (basically, they lose whatever the “cost of sales” is — roughly 10%, nice and low since they’re a software company and enjoy high gross margins) — that does indicate that they’re actively adjusting the company’s investments (in people and R&D) to that growth, which I think is a good sign, though they haven’t had a chance to prove to us that they can do so if they have a few bad quarters with much lower growth.
Splunk is only a year or so old as a public company, but so far their only quarter without sequential growth was the first quarter of last year — the April quarter — so if there’s any seasonal weakness to be had, now is probably when we’ll see it (the current quarter’s earnings release will come out in about a month).
And as to whether this trend benefitting “big data” and mobile data access and the cloud is really “insurance” against one of the stocks falling and scaring the pants off of investors, at least for a little while … well, we don’t have to look far to disprove that notion, just check out SPLK’s big drop last Fall, or the several abrupt 10-20% drops for much larger (and abundantly profitable) Tibco Software (TIBX), just a couple examples pulled out of the hat. I expect this trend will continue to have plenty of room to run, with data analytics and mobile access to data becoming ever more important, but that doesn’t mean this one company is guaranteed to not trip over its own shoelaces (or get pushed down, by stronger or more bundled offerings from IBM or Oracle or Cisco or whoever … or even Microsoft).
That’s just my musing, I don’t understand Splunk’s business very well and I’ve never seen their products in action — if you look at the financials you can justify either a very skeptical pose (they have to spend more than a dollar to bring in each dollar of revenue) or an optimistic one (they’re growing revenues at better than 50% a year, and say they can keep doing so, which means they’d eventually have to grow into profitability … right?).
That’s my quick look — and I’m pretty sure the Thinkolator’s right about this being the “Death of Microsoft” stock teased as “The Ultimate ‘Stock-Drop Protection” by Hilary Kramer … beyond that, you’ll have to cogitate on SPLK yourself and make your own call. It is, after all, your money, and if you let me handle it I’m sure I’d spend it all on bubblegum and comic books.
If you’ve a hankering to share your thoughts please do let us know what you think of Hilary Kramer, or Splunk, or “Big Data”, with a comment below.
- Hilary Kramer: https://www.stockgumshoe.com/tag/hilary-kramer/
- Motley Fool: https://www.stockgumshoe.com/tag/motley-fool/
- cloud computing: https://www.stockgumshoe.com/tag/cloud-computing/
- GameChangers: https://www.stockgumshoe.com/tag/gamechangers/
- Splunk (SPLK): https://www.stockgumshoe.com/tag/splk/
- big data: https://www.stockgumshoe.com/tag/big-data/
- Zack Buckley: https://www.stockgumshoe.com/tag/zack-buckley/
- Value Investing Congress: https://www.stockgumshoe.com/tag/value-investing-congress/
- short note to the Irregulars on that: http://stockgumshoe.com/2012/10/going-splunk/
- his full presentation has been put up online here if you’re curious: http://csinvesting.org/wp-content/uploads/2012/10/buckley-valueinvestingcongress-100112.pdf
- Splunk does forecast that they will increase their customer count by 40% this year : http://www.reuters.com/article/2013/04/04/us-splunk-growth-idUSBRE9330ZK20130404
Source URL: https://www.stockgumshoe.com/reviews/gamechangers-2/the-death-of-microsoft-and-the-dawn-of-its-rapidly-growing-replacement/
Wow. That is one complicated software. I ran their video of their new 4.3 version and after it was over I realized I knew nothing of what they were saying. Maybe my 16 year old son does but I don’t. So I don’t invest in anything I don’t understand.
Not a bad policy!
Does this read as a competition to window PC’s?
http://www.4-traders.com/SPLUNK-INC-10454129/news/Splunk-Inc-Splunk-Releases-New-Version-of-Splunk-App-for-Windows-16610317/
Sounds & reads like a partnership to me, but what do I know Travis? 🙂
I would like to hear what the thinkalator thinks are her other two stocks
I think that part’s a stretch — the idea is that if the data is in the cloud and actually useful through an easy interface, then everyone has full data analytics and “business intelligence” on their phone or tablet so they’re not chained to the more powerful processor on their desktop. True as far as it goes, I guess, but not an either/or.
Take a look at http://www.sphere3d.com They have an introductory meeting for their Glassware operating system in the Cloud Monday 9/16 that offers full operating capability for all internet access capable devices. They have JV access to all Corel and Overland subscribers in their rollout in 30 days. Only 8 million shares in the float and 18 million O/S. SPIHF US and ANY VC Exch
That link to Splunk App for Windows describes system performance software. Not what I would consider big data.. I agree that developing for Windows Server hardly describes a company with humongous growth prospects. Hopefully this is a small part of their business.
Sometimes its good to sit back and carefully evaluate what a 40% increase in customer growth means? What is the ROI and net after expenses to grab that increased 40%. Why do we feel this will make PC’s obsolete. Tablet, Smart phones, and the like are doing that already to Dell and Compaq is gone. HP and its really well built machines are going by the wayside as more powerful smart phones become a dominant work horse in the work place. Sales executives spend more time responding to service requests with smart phones than they do to lap tops. Everyone has a smart phone and even the Good
old Blackberry by RIM is an internet work horse for the regional and business traveler. I can do more with my blackberry and not have to drag around a lap top and have the nimble speed necessary to communicate with my clients in the Graphic Arts Business than ever before with 4G speeds. So big deal about SPLK. Not a game changer.. I am sure IBM, and Microsoft are not going to shake in their boots. Sure there will be some market share lost. But who isn’t losing some market share anywhere today in any business. ANYONE HAVE A THOUGHT ABOUT THIS?
The PC seems to be dying in the consumer market. Lot’s of us workers will still need keyboards and monitors for the forseeable future. I’m thinking that before that will change voice recognition has to get a whole lot better AND we have to devise efficient protocols for using it.
Small screens are ideal for the traveler but office and factory floor people would sue for disability if forced to stare all day at a screen smaller than at least 15 inches, preferably 22. There are at least as many of those folks as salesmen and managers. The PC market may have reached replacement status, but the number to be replaced is enormous, so the “death of the PC” argument is bogus except for consumers, who never needed one in the first place.
Big companies can be as nimble as small ones if properly subdivided and closely managed; just look at AAPL. Even MS now has new and smarter management and along with hardware companies has redesigned the notebook into a large tablet with a removable real keyboard.
Besides, the there are two huge risks to any upstart software software publisher: first, software is not that hard to imitate (and perfectly legal per US Supreme Court); lots of brilliant young programmers abound. And second: many of them work for big s.w. publishers and have stock options meant to keep them in their seats so the big guys can produce similar software in a hurry. There is no real copyright or patent protection. The Court ruled years ago that you can produce software with the identical “look and feel” and function of your competitor’s as long as you rewrite (read “reverse engineer”) the code. I even did this myself once years ago; pretty soon there were six more imitators. Needless to say I didn’t pursue the business further.
A perfect example is MONITISE (otc – MONIF), the Brit originator of software to connect banks with smartphones. Their rising star got VISA, IBM, and Leon Cooperman, among others, to sink in tons of money, pushing the stock to $13 in early 2014. Last I looked it was at 8 cents; probably partly because Apple Pay, among others, killed demand for their product in about a year, proving again that good software has a halflife of about that length of time. A small publisher with a limited product line, no matter how good, has a low survival prognosis. Their best bet is to be acquired fast. Even a junior gold miner is a better bet; if there is real gold in the ground at least it can’t evaporate.
Finally, the Cloud is a risky place to store your valuable data. Some of the smartest young programmers, worldwide, are not above stealing your data while you sleep. We haven’t yet heard of major Cloud hacks, but when they come they’ll be spectacular. For some years I have advised my clients to physically disconnect their technical/accounting/marketing networks from the internet as much as possible. It resembles a crowd infested by pickpockets. You might as well post your sales leads on Facebook.
Death of the PC is way over stated. The smartphone may be ok for general communication but all SERIOUS work is going to be done on a PC with a keyboard! No PROFESSIONAL Investment manager would use a smartphone phone to manage an investment portfolio
I really think that there will still be a use for a “home-base” PCs for some time in the future. With the growing capability of hackers of PCs, workstations, smart phones, AND tablets, it seems foolhardy to entrust ALL of your super-sensitive data to “the cloud”. Also, if you happen to want to see a wide expanse of data in a spreadsheet, your smart phone is going to be just too flippin’ small to enable one to see the forest therein, or even the trees! On top of that, how many decent printers can you put in your pocket or briefcase? The occasional hard-copy will still be useful. Methinks the death of the PC is way too far overstated!
Any screen less than 27″ is too small!
I need to be shown what aspect of SPLK is proprietary. What patent protection or copyright protection does it have. How is its cloud superior to other clouds ? How will it fend off the gaggle of competitors ? If it succeeds in triggering a feeding frenzy what would prevent it from being shredded and undercut ? Will it be able to withstand patent infringement lawsuits from deep pocket lawyer-infested mega-corporations ? Did it expand its customer base by 40% by starting off with 10 clients a year ago and expanding to 14 ? Is this just a front-running operation contrived to make a fast buck for Kramer ?
What sort of liabilities are incurred when the cloud crashes and the functioning of a major corporation is paralyzed with no control over fixing the problem ? Even worse suppose SPLK goes bankrupt and suddenly shuts down. OUCH !!!
I’m still waiting for metabolix (one of her highly pumped recommendations) from several years ago to produce their revolutionary new products, as she claimed in that article that looks a lot like the one above…….Once bitten, twice shy, Hillary.
I think the assertion that Microsoft is a dead duck is innane. PC sales are in decline because the average domestic user simply doesn’t need the processing power and storage capabilities they offer. Most are interested in social media such as the fleecebook, checking emails and having a nose around the interweb. Sales of laptops have far outweighed desktop sales in the domestic market for years now, because they are convenient and sexier. Pads are capable of delivering domestic needs at a lower price and are sexier (and less intrusive) still. Any wonder that domestic PC sales are being hammered?
For business users, pads provide a useful data interface and, like Palm-Pilots and their ilk before them, make for another executive toy. Again, it will hit laptop sales, but any sizable company is still going to require the data storage, graphics and processing power of a PC. Find me a pad with a 17″ screen, i7 processor, 32gb of RAM, decent graphics and a battery that can run it all for ten hours at a time and you’d have an argument.
Cloud storage has its uses. We use it to make files accessible to contractors and co-workers. Core files and ammendments are always stored on our server however. No sensitive data is ever stored online for all the reasons the other commentators have stated. Also, here in the UK, we have the Data Protection Act, which carries with it severe penalties for missusing data or failing to ensure confidentiality. noone in their right mind would gamble with thir data in such a way.
Finally, any one noticed that Microsoft have a smartphone OS and pads on the market? Neither have taken the world by storm, but then, they are late-commers to both markets. Also, they are making significant investments in cloud storage solutions.
With the cash they’re sitting on, you’d be nuts not to believe that, in the event of a serious threat to their underlying business appearing out of the ether, they wouldn’t simply buy them out? Let’s be real here, they could make the likes of Splunk disappear with petty cash
“Find me a pad with a 17″ screen, i7 processor, 32gb of RAM, decent graphics and a battery that can run it all for ten hours”
That’s where technology is heading – you’ll be able to hook up your pad to any size display you want. Processors, including graphics, will continue to get faster, memory will increase, battery life will improve, network connectivity will get faster & even more available. Personally, I’d love a mini-pad to carry around that I could hook up to a docking port for using bigger displays, keyboard, mouse, local storage. Actually, forget the docking port – I’d like to just do it all wirelessly with a personal area network. Probably will be there within 2-3 years. Who is best positioned to take us there? Microsoft should have a shot…but Apple/Samsung have the lead.
BTW, cloud storage can be/will be secure via encryption, and if you’re still concerned, cloud storage can be implemented on your own servers behind your firewall… I’ve seen very complicated, graphic intensive software running on a thin client (could be a PAD) over the internet where the main app is running on a server in the cloud somewhere. She’s right – the desktop PC and laptops are done.
Hilary Kramer is a superb hypster. The only probllem is: the majority of her picks have been losers.
Kraft idiot!? Are you Danish by any chance?
“Big Data” is the latest in a long list of hype, or shall we say “hyperterms”. While it is true that statisticians can glean enormous advantages in properly collected data (think of the Obama election circa 2012), there is also the issue of “garbage in…” In my field of medical informatics, the hope to create “personalized medicine” may or may not pan out based on huge genome data sets and patient responses to various drugs. On the other hand, the pharma world can precisely tell you which doctors order which drugs and are worth taking out to lunch!
As a subscriber of Hilary Kramer I can tell you to be wary of any stock she picks or pushes. I am amazed when I get a teaser email about her 30, 40, 50% gains on her stocks, the email never mentions the losers. Not giving away any of her picks I can tell you today on her buy list she has 9 winners and 9 losers, best is up 23.19%, worst is down 28.42%. I wouldn’t say that is much to brag about, certainly not the way the market has been going! I quit following her advice awhile back, I couldn’t afford it!
Want to lose money, suscribe to any of her newsletters. Fastest, safest way. Money back only a small compensation on all the harm she can make. Definitely a service to run away from!!!!