Apple earnings report later this afternoon; Twitter, too; Tribune Publishing mulls Gannett bid
Morning Brief: Analysts have been forewarned to expect this next report to show a decline in iPhone sales, resulting in a fall in revenue and possibly earnings
This afternoon Apple will drop its earnings after the bell, likely marking the first time in many years that the company will report a drop in sales. Already analysts are talking about the iPhone 7, looking to say something positive about the company they have covered for years.
Here at TNM, Apple earnings have been about the iPad – the engine that drove tablet publishing apps. Publishers wanted to know that if they built a digital edition app there would be readers on the other end. For 15 quaters the news was good, but for the past two years each earnings story has started in a similar fashion: Apple announces record sales and profits, but a drop in iPad sales. That pattern is set to end today as the company is expected to announce a dip in iPhone sales.
Because Apple warned about this quarter so far in advance, the story will be muted a bit. The bigger story may be what is happening to Apple in China, where recently regulators forced the company to shutdown its iTunes and iBooks stores. Some financial analysts and fans of Apple have downplayed the news, but looking at the sales charts it is hard to see where the growth is if not in China. Last quarter growth in China was 14 percent, in the Americas sales declined 4 percent, and in Japan 14 percent.
My own experience with large US companies doing business in China is that at some point the Chinese want to own the technology, and eventually the brands. Yes, that may apply to heavy construction equipment, but why not consumer electronics, as well?
Also dropping earnings today is Twitter, so watch for more of the same, analysts disappointed in user growth, the company talking about new ways to ruin their product in order to make analysts happy.
Yesterday’s news that Gannett had put in a bid for Tribune Publishing seemed to dominate the day. With its bid of $12.25 per share, a 63 percent premium over the stock price before the bid, some analysts find it hard to see a reason why Tribune Publishing would reject the offer. Let me give you a few reasons why Tribune could, in the end reject the bid.
First, this is Tribune Publishing, a media company owned by Chicago based executives, not a Silicon Valley firm where the owners will, in a heartbeat, sell out and then begin thinking about their next venture. The main shareholder owns his 14 percent stake in the company less for the idea that he will strike it rich (he is already rich) but for what it says about his power in the region. That’s why the Northsiders bought the Sun-Times, not because it was a good investment, but they are playing the Northsider power game.
Next, Tribune Publishing is in debt, and the bid – while definitely representing a premium – is only valued at about half its public number. If TPUB accepts the bid, Michael Ferro’s 16.6 percent stake looks to represent $135 million, not a bad pay day for a $44.4 million investment. But the debt repayment will cut that in half – still a good pay day, but not quite the windfall it first appears.
There is a good reason to delay, too. In June, two members of the board step down, giving Ferro effective control of the company. I think he basically has it now, but it becomes solid in June.
Finally, TPUB stock rose over 50 percent yesterday and now is not that far off of what the bid is. Some investors may look to sell now, on the open market, freeing Tribune to do what it wants without facing investor pressure.
So, what do I predict? I think it is 50-50, and in the end it will only effect those rich executives who really don’t do much to influence the day to day running of the chain’s papers. Ferro doesn’t cover city hall, and CEO Justin Dearborn has never sold a quarter page ad to a local retailer. They aren’t what make the newspapers tick, they only make things better or worse with their business decisions, made usually without regard for their employees or the readers and only for their own self-interest.
(See here for Gannett’s latest response to Tribune Publishing.)