SanDisk, Weibo gains pace tech stocks

SAN FRANCISCO (MarketWatch) — Tech stocks ended up putting in a broadly upbeat market performance Thursday, as notable gains from SanDisk Corp, Netflix Inc. and newly public Chinese Internet company Weibo Corp. paced the sector's advance and help withstand losses from bellwethers such as IBM Corp. and Google Inc.

SanDisk (SNDK)  shares climbed more than 9% to close at $82.99 a day after the memory and storage-chipmaker reported upbeat quarterly sales and earnings.

Weibo (WB)  shares rose 19% to end the day at $20.24. The company that is considered the Twitter of China went public Thursday when it sold 16.8 million U.S.-listed shares at $17 each, which was at the low end of an expected range of $17 to $19 a share.

Twitter (TWTR)  shares rose 1.3% to close at $45.01 as the company said it would allow advertisers to offer application-install ads on mobile devices .

Gains also came from Netflix (NFLX) , up 4.3% to close at $345.74; Groupon Inc. (GRPN) , which rose 4.4% to end the day at $7.41 a share, as well as Amazon.com Inc. (AMZN)  and Apple Inc. (AAPL) . 

IBM Corp. stood out among decliners as investors turned against Big Blue following a disappointing quarterly earnings report.

IBM (IBM)  fell by $6.39 a share, or more than 3%, to close at $190.01 after the company said late Wednesday that it earned $2.38 billion, or $2.29 a share, for its first quarter ended in March. During the same period a year ago, IBM earned $3.03 billion, or $2.70 a share. Revenue declined by 4% to $22.5 billion.

Excluding one-time items, IBM would have earned $2.54 a share, which was in line with estimates of analysts surveyed by Thomson Reuters, who had also forecast IBM to report $22.91 billion in revenue.

The results showed IBM's lowest quarterly revenue since it reported $21.71 billion in the first quarter of 2009. The main source of IBM's sales drop was the company's hardware sales, which declined 23% from a year ago to $2.4 billion. The company has been moving more into software and cloud-based services and is in the middle of selling its low-end server business to Lenovo Group.

Still, such moves have yet to spur meaningful sales or earnings improvements at IBM. Analyst Brian Marshall, of ISI Group, said the company "has a long history of proactively discarding unattractive businesses" such as hard-disk drives, printers and PCs, but that Chief Executive Virginia Rometty and Chief Financial Officer Martin Schroeter need to take more dramatic action in order to transform the company.

"Unfortunately, the pace of change in tech has only accelerated and we believe the focus now needs to turn to building attractive new multi-billion dollar business lines rather than shedding old ones," Marshall said.

The Nasdaq Composite Index (COMP)  reversed course from its early losses and rose 9 points to close at 4,095. The Philadelphia Semiconductor Index (SOX)  ended the day with a gain of almost 2%.

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Is Pandora Media Worth Investing In?

Pandora Media (P)'s results for the quarter ending in December were quite impressive, with both profits and revenue increasing. But the forecast for earnings per share for this year lies between $0.13 and $0.17, which is below analysts' expectations of $0.19 per share. The main reason behind this weak forecast for earnings is the aggressive investments that Pandora is making to keep up growth in users and to boost advertisement sales in the face of tough competition from Apple (AAPL) and Google (GOOG).

CEO Brian McAndrews said, "Our bias will continue to be toward revenue growth and capturing additional market share." So Pandora could see some weak earnings figures since it is eyeing a greater share of the market. But is it a good buy at its 52-week high if we look at the various troubles that it is facing.

Increase in Royalties Will Burden Pandora Even More

Pandora pays record companies and publishers in lieu of the songs it plays. Last year, it paid 49% of its revenue to record companies, while 4% of its revenue went to publishers. Due to this large disparity in payments, publishers are struggling to earn money from digital music. Because of the royalty payments, Pandora has to pay for each song it plays, so it is unprofitable as of now. But for every song that Pandora plays, it gets money from ads.

Licensing organization ASCAP is likely to increase the current rate of royalties, according to Business Insider. It is mainly on account of publishers that ASCAP is increasing this rate because, as mentioned already, the publishers are getting less pay as compared to singers and record companies. But this increase will put extra burden on Pandora's balance sheet to the extent that it can lead them to bankruptcy since the company had just $344 million in cash at the end of the last quarter, while it paid $339 million to publishers and record companies in 2013. An increase in royalties can further increase the payout to other parties and handicap Pandora.

Cut-Throat Competition

Also, despite being one of the world's largest online music service companies, having 76 million active users, Pandora faces tough competition from Apple's new iTunes radio service and Google's music subscription service.

When compared to Google and Apple, Pandora lags in technology. Both Google and Apple have their own mobile hardware that enables them to incorporate their service directly into the mobile operating system. Also, if people turn to YouTube, Google has the advantage because of the wealth of data it has on its users.

Google is also pushing its All Access music service to next-generation devices such as the Google Glass. Recently, Google sent VIP invitations to subscribers of its music service to join the Glass Explorer program. Hence, if Google's Glass clicks in the future and becomes a hit with customers, then it might be difficult for Pandora to penetrate this market as well.

Apple is also pushing forth its iTunes radio service in an aggressive manner. It recently launched the service in Australia, making it the first non-U.S. country to get the platform. In the future, Apple aims to launch iTunes Radio in various markets such as the UK, Canada and New Zealand in early 2014. In the long run, Apple is aiming to take the service to more than 100 countries ultimately.

An Overcrowded Industry

To combat these rivals, Pandora is coming up with its own strategies. It is aiming to increase the value of its advertisements by increasing its ad load. In this regard, Pandora is introducing advertising for its in car service this year, and hopes to expand the market for this new service.

However, Google and Apple also have plans to enter this service. With mobile and in-car service already taken into consideration, not much space is left for Pandora's expansion. It will have to venture into new areas like on-demand streaming, which is currently dominated by YouTube. This will increase its advertising avenues without need of increasing the user base. Pandora will have to work hard to know the listening habits of its target audience.

There are other potent competitors as well in the form of Spotify, Rdio, Beats Music and YouTube. This overcrowding of the music industry has caused Pandora to spend heavily on advertising and promotion to attract new customers, and this will ultimately hurt earnings.

The company is increasing its sales force to sell more slots to its advertisers to direct some ad budget to Pandora. Because of this extra selling and marketing costs, margin growth has been offset to some extent.

What Should Investors Do?

Every investor wants to know whether the company could be profitable or not. And Pandora seems to have answered that question with the company expecting to show a profit for the full fiscal year in 2014, even though it had a weak start with losses in the first quarter. Yet, Pandora has to work more to impress investors. The company has covered a lot of ground in the U.S. but it might lose in the wake of competition from Google and Apple. The probable increase in royalties could be another headache, and could even drain its cash reserves and lead to bankruptcy.

So investors should sell Pandora since it is already trading at its 52-week high, and stay away from it till the time the company's strategies start giving results.

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Regeneron Pharmaceuticals: Follow the Bouncing Eylea

Investors are eying big gains in Regeneron Pharmaceuticals (REGN) following its earnings release today, which featured good news on the biotech company’s blockbuster-to-be, Eylea.

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Reuters has the details on Regeneron’s results:

Regeneron Pharmaceuticals Inc forecast U.S. sales of eye drug Eylea to reach $1.7-$1.8 billion in 2014 as it expects the drug to win approval for newer uses, sending its shares up 3 percent before the opening bell.

Regeneron, whose stock has been propelled by the success of Eylea, said U.S. sales of the sight-saving drug rose 46 percent to $402 million in the fourth quarter. The drug’s international sales touched $184 million in the quarter…

The company’s net income fell to $97 million, or 86 cents per share, in the quarter ended December 31, from $470 million, or $4.08 per share, a year earlier. The year-ago quarter included a non-cash tax benefit of $336 million.

Analysts had expected a profit of 98 cents per share, according to Thomson Reuters I/B/E/S.

RBC Capital Market’s Adnan Butt and team note that Eylea sales could be better than management forecasts:

The trend shows growth over 4Q run-rate and is deemed a positive as management is typically viewed as conservative when it comes to guidance. Questions on the call will focus on what is included, i.e., whether it includes DME or not which is not yet approved. We like [Regeneron] for the blockbuster potential of Eylea and the deep pipeline and are buyers, especially on any pullbacks. It is one of our top ideas for 2014.

Brean Capital’s Jonathan Aschoff and Yi Cheng raise their target price on Regeneron to $380 from $367. They explain why:

4Q13, U.S. Eylea sales were hurt by the holiday season but helped by an increase in inventory held by distributors to over two weeks, which should negatively affect sequential Eylea sales in 1Q14. In 4Q13, Eylea had 50% of the U.S. branded [anti-vascular endothelial growth factor, or VEGF] wet [age-related macular degeneration] market and Eylea had 40% of the U.S. branded anti-VEGF [central retinal vein occlusion, or CRVO] market…We look forward to the many Phase 3 alirocumab trials reading out around mid-2014, and view the drug to be the next major value driver. Given our adjusted Eylea projection, we have raised our target price to $380 from $367.

Shares of Regeneron have risen 6.1% to $322.94 at 3:27 p.m., while Amgen (AMGN) has risen 1.1% to $120.96, Biogen Idec (BIIB) has advance 0.3% to $319.02 and Gilead, (GILD) is up 1% to $81.74. The SPDR S&P Biotech ETF (XBI) has gained 1.3% to $155.89.

AbbVie Inc (ABBV): What To Watch In Q4 Results?

AbbVie Inc (NYSE: ABBV) will announce its fourth-quarter and full-year 2013 financial results on Jan. 31, 2014. AbbVie will host a live webcast of the earnings conference call at 8 a.m. Central time (9 a.m. Eastern).

Wall Street expects Abbvie to report earnings of 82 cents a share, according to analysts polled by Thomson Reuters. Abbvie's earnings have topped Street view in all of the past three quarters, with upside surprises ranging between 1.5 percent and 5.1 percent. Two analysts have raised their profit view in the past month.

Quarterly revenue is estimated to fall 2 percent to $5.10 billion from $5.21 billion. Abbvie sees fourth-quarter sales of about $5 billion.

[Related -Can Abbvie Inc (NYSE:ABBV) Trump Gilead Sciences, Inc.'S (NASDAQ:GILD) HCV Lead?]

AbbVie, which was spun off from Abbott Labs (NYSE:ABT) in January 2013, gets more than half of its revenues from Humira, a mega-blockbuster drug with sales of $9.3 billion in 2012 and on track to peak at $13 billion in 2017.

Humira is indicated for a broad range of autoimmune diseases such as rheumatoid arthritis and psoriasis, which collectively make up one of the world's largest biopharma markets worth $30 billion. The consensus view calls for Humira to generate sales of $3.06 billion for the fourth quarter.

For the full year, the Street expects Abbvie to earn $3.14 a share on revenue of $18.75 billion. In 2012, the company earned $3.35 a share on revenue of $18.38 billion. The company expects earnings of $3.11 to $3.13 a share and sees revenue "somewhere above" $18.5 billion.

[Related -Abbvie Inc (NYSE:ABBV): Ready To Shift Gears In 2014?]

Humira's growth should continue as biologics gain deeper penetration in autoimmune markets driven by more aggressive treatment strategies.

Other key products that attract investor attention includes Androgel, Kaletra, Lupron and Synthroid. If the company manages to achieve revenue increases in these products, it bodes well for valuation. On the other hand, the Street could focus on the pipeline and new indications of Humira.

Investors focus will be on 2014 guidance and pipeline updates, particularly for the HCV franchise. AbbVie's HCV regimen includes the next-generation program that could be ribavirin free, once daily and pan-genotypic. BMO Capital Markets analyst Alex Arfae estimates the HCV regimen could reach peak sales of $2.8 billion with only 10-13 percent market share

Moreover, due to the strong launch of Gilead Science's (GILD) Sovaldi, the market is heavily discounting the potential for AbbVie's HCV regimen, which is expected to launch in early 2015.

The HCV market is expected to be sustainable for at least 7-10 years as treatment is rationed for more advanced patients. There are roughly 300,000-350,000 HCV patients are estimated to be on treatment in major markets by 2014-2015.

In December, Abbvie demonstrated that 96 percent sustained virologic response in its late stage study of treatment-experienced patients with genotype 1 Hepatitis C at 12 weeks with three direct-acting-antiviral (3D) regimen plus ribavirin.

Investors should be looking for additional updates on ABT-199, a promising drug for chronic lymphocytic leukemia (CLL) that potently achieves antitumor activity while sparing platelets; but need to manage tumor lysis syndrome. ABT-199 is being developed in collaboration with Roche.

In addition, it started the second Phase 3 pivotal trial to evaluate elagolix for the treatment of endometriosis. Based on the strong phase-2 data, analysts cautiously expect approval and launch in 2016, and forecasted sales of $500 million by 2020.

The market would look for updates on studies evaluating daclizumab in patients with relapsing/remitting multiple sclerosis (MS). Daclizumab High-Yield Process (DAC HYP) is believed to target the activated immune cells that can play a key role in MS without causing general immune cell depletion. A second registrational study, the DECIDE trial, is expected to complete in mid-2014, supporting a potential regulatory submission by year-end 2014.

For the third quarter, AbbVie's net earnings fell to $964 million from $1.59 billion in the previous year. Earnings per share dropped to 60 cents from $1.01 last year. Adjusted earnings per share came in at 82 cents. Net sales increased 3.3 percent to $4.66 billion, with Humira sales rising 19.1 percent to $2.77 billion.

AbbVie shares, which trade 15.1 times its forward earnings, have dropped 3 percent since its last quarterly report. During the past 52-weeks, they traded between $35.01 and $54.78 and gained 29 percent in the past year.  

Google, car makers bring Android to dashboards

Google has kicked off press day here at CES 2014 in Las Vegas by announcing that Audi, GM, Honda, Hyundai, and chip manufacturer Nvidia are creating a partnership aimed at bringing Android to your car.

Called the Open Automotive Alliance (OAA), it promises that automotive infotainment systems may run on the open-source operating system as soon as 2014.

The idea of Audi bringing Android to the automotive scene was long-rumored ahead of CES. While it was expected that Audi and Google would pair up to bring Android into the car, the inclusion of other partners is something that hadn't hit the rumor mill until today.

The alliance uses a platform that's already familiar to drivers and developers alike, giving automakers access to an open ecosystem and allowing programmers to easily create new apps specifically tailored to in-car use.

When Nvidia revealed its latest chip last night, the Tegra K1, it specifically teased the possibility of cars that could employ Android computing not just for infotainment, but for a host of demanding functions such as driverless travel.

Patrick Brady, Android's director of engineering, wrote in a blog post that OAA would create a "driving-optimized experience," customizing Android to make driving "safer, easier and more enjoyable for everyone."

We already saw an Android-powered infotainment system in the 2014 Kia Soul at last year's New York Auto Show, and came away impressed with its speed and customizability. We're hoping to see similar results from the automakers in the Alliance.

Brady said the announcement of OAA was "just the beginning," as other companies are welcome to join. With Apple's promise of iOS in the Car, competition for dashboard real estate may be heating up.

Get more coverage of the 2014 Consumer Electronics Show from Reviewed.com and follow @ReviewedDotCom on Twitter.