Tag - Dfs

Small-cap stocks edged higher Friday, waffling between support from commodity and industrial stocks and weakness from the financial arena (and curiously enough, restaurant stocks). The Russell 2000 (NYSE:IWM) closed up 1.27, or 0.18%, at 720.26. After what seemed like a frantic week of manic price swings, small caps finished out the entire week of trading with a miniscule gain of 0.18%. It was the kind of week that only a day trader with superlative entry and exit points could love.

The Dow closed out today’s action down 0.10% and is off 13.9% for 2008. Meanwhile, the S&P 500 was up 0.21% today and is down 14.7% for the year. Small caps so far in 2008 have been a relative refuge in a difficult year for the bulls, with the Russell off only 5.9% this year.

The combination of ongoing worries about the health of the financial system, weak retail sales, a profit warning by Chipotle Mexican Grill Inc. (NYSE:CMG) and cautious analyst comments on Apple Inc. (Nasdaq:AAPL) sparked worries about profit growth, Nick Kalivas, vice president of financial research with MF Global, said in an email interview.

Those concerns were offset, however, by strength in raw material stocks — a sector that was oversold after hedge funds aggressively liquidated holdings in the group recently, Kalivas said. In addition, a weak dollar provided some relief to commodity prices, as the euro currency surged 1.6% against the greenback, sparking a bounce in the Commodity Research Bureau Index, which jumped 1.4% to reverse steep recent declines. “Energy stocks are being helped by the fact that they were oversold. Moreover, there are worries about energy infrastructure right now, especially refining,” Kalivas said.

Crude oil prices rose just $0.31 a barrel today, closing U.S. trading at $101.18. The market was underpinned by concerns over Hurricane Ike, which is rapidly approaching the Texas Gulf Coast. There is some thought that the storm won’t wreak as much havoc on Gulf production as originally feared. However, gains in crude oil . . .

www.visa.com
NYSE: V
Scheduled for week of Mar. 17
$16 billion proceeds
$30.8 billion post-money valuation

Finally, there’s a hot IPO. Visa, the king of the credit cards, is going public in the king of all IPOs, the biggest ever in the United States. The company, which operates the world’s largest electronic payments network used for credit and debit transactions, is currently held by a consortium of banks, and they are not selling their Class B and Class C shares. However, they may as well be, as $10 billion of the proceeds (structured as Class A shares) will be used to redeem some of their stock upon the offering. Another $3 billion of the proceeds will be put in escrow for litigation, and the rest will go to general corporate purposes.

The litigation allowance is a bit scary. Visa has four main suits against it, all of which allege different forms of antitrust. The suits have been filed separately by Discover Financial Services (NYSE: DFS), American Express Company (NYSE: AXP), a large group of merchants, and the fourth by a class of consumers. MasterCard Incorporated (NYSE: MA), which went public in 2006, had a similar list of litigation in its prospectus, but it hasn’t held the stock back. It was offered at $39 on May 24, 2006, and currently trades at $191.50. Visa’s betting that investors will see the MasterCard profits and want a chance at the same, lawyers be damned.

Lawsuits aside, Visa is nicely profitable. Pro-forma for the effects of post-IPO share redemptions, the company lost $861 million on $5.2 billion of revenue, although expenses include a $2.7 billion charge for settling litigation with American Express. Revenue was up 33% in 2007 to over the $3.9 billion posted in 2006, thanks in part to a 13% increase in the number of payments processed and a 22% increase in the cash value of these payments.

The Russell 2000 (NYSE: IWM) and the Dow Jones Industrial Average (INDU) are losing ground after the University of Michigan’s Surveys of Consumers hit its lowest level since 1992. December sentiment hit 74.5, below last month’s 76.1. Wall Street economists had predicted December sentiment to hit 75.0.

The Labor Department’s jobs report for November contributed to positive news. For the month of November, non-farm payrolls grew by a better-than-expected 94,000 fueled by growth in the areas of  professional and technical services, health-care and food services, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Economists were projecting jobs to grow by 70,000 from 166,000 jobs created in the month of October. Employment continues to languish in manufacturing and in several housing-related industries, including construction, credit intermediation and real estate.

The unemployment rate held at 4.7% percent, while the average hourly earnings rose by $0.08 over the month, the Labor Department reported as well.

At 10:46 a.m. ET, the small-cap index dropped 3 points, or 0.83%, to 783.95. The Dow dropped 10.48 points, or 0.08%, to 13,609.41.

In these days of 16-letter domain names, you know that a company with a name as simple as Web.com is an original dot-commer. The problem has been that Web.com, which offers software to help small companies create their own websites, has rarely managed to eke out a profit.

On the other hand, much younger competitor Website Pros, Inc. (Nasdaq: WSPI), of Jacksonville, Fla., has managed to produce good growth and decent, if not spectacular, profitability. Both companies are focused on small- to medium-sized businesses (SMB), the markets where there is still substantial growth as more of them eschew Yellow Pages and go online.

So what happens when the newer company acquires the older one? A boost in stock price and hopes of a much more exciting company in 2008.

Website Pros completed its $129 million stock-and-cash acquisition of Web.com last quarter. As a wholly-owned subsidiary of Website Pros, Web.com keeps its domain name and business. Website Pros announced mixed results for its first quarter as a combined company on Nov. 6. Revenues were in line with Wall Street expectations at $17.8 million, up by about 48% from a year ago, and pro forma EPS, at $0.15, up from $0.11 a year ago, exceeded estimates by a penny or two.

On the downside, Website Pros added just 1,300 net subscribers in the quarter, for a total of 82,000 compared to an increase of 4,000 subscribers in the previous quarter. Web.com, however, increased its subscriber base by 7,300 (compared to 7,200 in the second quarter and 3,500 in the first) for a total of 173,000 subscribers.

That’s where investors see the synergy between the companies. Web.com’s customer base provides lower profit margins but is growing faster. That creates the hope that Website Pro will be able to sell more expensive services to the new customers, and keep some of its own subscribers from dropping out by offering them cheaper, do-it-yourself services from Web.com.