Cyrillic Partners

Rupert Murdoch, the media mogul extraordinaire, decided to keep the Wall Street Journal behind an online pay-wall, dispelling rumors it would be free after his purchase of the product.

Silicon Alley Insider deconstructs the reasons to keep it a pay-to-read publication:

• Not giving away a growing revenue stream of $75 million + in free money.
• Preserving the brand’s exclusivity.
• Continuing to charge premium CPM rates for a known audience.
• Preserving the value of the print paper for a long as possible (subscribers will be less inclined to drop their subscriptions if they have to pay for the content anyway). Continue Reading »

I got out of my Google stock just before the end of October, at the beginning of what would later be a $100 slide in share price. I just had a feeling that the super returns I had gotten over the last two years were about to evaporate.

Now I don’t pour over the Google earnings announcements, or go stalking the company’s Mountain View HQ, but my hunch about the stock seemed to be right (for once) so I’ve been looking for justification for the move since.

I finally found it at VesTopia, where one writer explains why he too ditched the stock. The takeaway is two-fold: Google was gearing up for a mean-reversion for its performance and inflation of its keyword rates was driving earnings faster than new products.

The mean-reversion argument is of particular interest to an economist. The idea is that any performer that exhibits an above-average return or outcome will eventually end up performing about the same as everyone else.

I’m not sure I totally buy it from a statistical perspective, but my gut surely agrees. The real question is when exactly a company will begin executing its mean-reversion. I wish I knew better!

[Image from SciFi Blog]

From the FT:

Shares in Starbucks slumped after the café chain on Thursday stirred concerns about the health of the US economy when it reported its first quarterly fall in traffic at its US stores and announced plans for its first television advertising campaign.

The planned holiday season advertising comes as Starbucks acknowledged that its supposedly “recession proof” sales of frappuccinos and flavoured latte drinks were feeling the impact of broader slowdown in US consumer spending.

Shares in Starbucks fell 8.6 per cent at $22.02. The company’s shares are now down 38 per cent this year.

There’s no secret in what’s driving the Starbucks slide: the falling dollar. The coffee business is commodity based: it’s major input is coffee beans, which have to be imported. When the dollar weakens against foreign currencies, it’s more expensive to buy commodities such as coffee. Starbucks gets stuck with the bill.

But when the company tries to pass the price along to consumers with a $0.09 increase in its per-cup prices, the law of supply and demand kicks in and people buy fewer frappuccinos.

This isn’t a story about “Recession” or “Inflation.” Nope. It’s all about international trade and currency. The Federal Reserve is willing to crucify companies that are net-importers, at least in the short term, in exchange for domestic growth.

Good bets right now are on companies that are net-exporters, themselves a rare commodity in the U.S. these days.

[Image thanks to Boston.com]

I fly a lot and take particular interest in how well the airlines are doing. An increase in miles traveled by paying customers usually means that there’s a lot of demand for flight. Combine that with an increase of supplying those flights–thanks to increasing fuel costs–and you get a formula for fare hikes.

AirTran’s traffic, as measured in “revenue passenger miles” a metric of how many miles the airline flies per paying passenger, increased by more than a third in October, various sources report. American Eagle, on the other hand, reports a decrease in traffic. Continental Airlines saw a 6% rise in revenue passenger miles for October. American saw a 3.5% increase.

The airlines are getting slammed, despite the increase in traffic, thanks to rising fuel prices. The price of fuel is up 44% this year, according to reports.

The net effect? Shares get slammed and ticket prices go up. This from Dow Jones:

American Airlines on Wednesday evening announced a significant increase of $20 per round-trip ticket on domestic flights, and some other airlines followed suit Thursday. Delta Air Lines Inc. (DAL) Thursday morning matched the increase on business fares. Alaska Airlines, part of Alaska Air Group Inc. (ALK), also raised some fares.

Southwest has been one of the few airlines to do well in the last decade. The reason? Effective hedging of fuel price increases. Still, when the rest of the industry is upping prices, you can up your prices too and still compete.