8000 Will Get Tested Tomorrow

Is 8000 the bottom? The staff at tech:stocker have said all along that 8000 is the bottom and with the market closing three points below that number today, tomorrow will test our prediction once again. For the record, we did say the market could touch 7800 briefly but if we truly are correct, the market should gain some ground in the next day or two. We think 8000 is the bottom for two distinct reasons.

First, the tech companies that were the basis for our last recession are in much better financial condition than they were in 2001. The staff at tech:stocker would have a hard time finding a tech company selling for $200 a share that didn't have positive returns each quarter. Companies like Apple (AAPL:NASDAQ), Cisco (CSCO:NASDAQ), Google (GOOG:NASDAQ), Hewlett Packard (HPQ:NASDAQ), and Intel (INTC:NASDAQ) are just a few examples of companies that have plenty of cash to not only survive this economic downturn, but actually profit from it if they make the right moves.

Second, a lot of the financial advisers we speak with regularly say their clients with cash reserves want to invest each time the market hits 8000. With the government generously doling out TARP money to just about any bank that asks, we hear that this has given many investors some level of confidence in these extraordinary times. Since most investors view financial services companies as the whipping boy for this recession (just as tech stocks were the whipping boy for the last recession), seeing the government answer the call to action has provided a certain amount of faith in these companies. Thus, investors don't think the market should return to low of the 2001 crash (7600).

And speaking of TARP money, where is eTrade's (ETFC:NASDAQ) $800m? With the stock closing just South of $1.00 today, it easily slid past our revised 12-month target price of $1.25. If you've been shorting this stock, you've made some money.

So will eTrade get its TARP money? With the company's now worth at approximately $538m, asking for $800m seems fairly laughable when compared to the $25b Wells Fargo (WFC:NYSE) received and their market cap of $81b. Is Henry Paulson looking to make an example of eTrade?

Considering that American Express (AXP:NYSE), Goldman Sachs (GS:NYSE), and Hartford Financial Group (HIG:NYSE) have also applied for "free cheese" and haven't heard whether or not they will get any, it's easy to think that it's only a matter of time before eTrade gets their cheddar. But as each day passes, investors in the online trader should be getting more nervous.

While eTrade tried to pacify investors with numbers saying their DARTs (Daily Average Revenue Trades) were up and their drop in client assets was inline with the drop in the markets. CEO Donald Layton touted that they had a record number of new accounts opened in October. Unfortunately, this is almost worthless as anyone can open an account without depositing a dime. And with the stock closing under $1 today, the company really needs to tout statistics that show revenue growth, if they are available.

Still, we look at the current share price and envision two scenarios. The first involves eTrade getting their TARP money and the share price climbs to $1.50 as they still have way too many bad loans on their books. The second scenario involves the company not receiving any TARP money and eventually gets seized by the FDIC. We had heard rumors about a third scenario involving a few financial services firms that were kicking the tires on eTrade but those rumors are no longer being floated.

If we had to pick, we think the FDIC is going to take over because Mr. Paulson is going to play the role of "Scrooge" to eTrade's upcoming Christmas Story thus we can't recommend buying eTrade stock. But if you think Mr. Paulson is truly a generous guy who just wants to give everything he can to help a crippled online trader, now is definitely the time to buy eTrade.

- BT (jon.burke@gmail.com)

Can It Get Any Worse? Possibly…

When the market opened this morning and immediately started into a death spiral, the staff at tech:stocker was convinced that the Dow would not be able to pull up. Unfortunately, we were right and our prediction of 8000 being the bottom was incorrect. Unless the market miraculously gains 700 – 800 points tomorrow, the bottom appears to be lower than 8000.

While this day was certainly ugly, two stocks that are regular targets of this column, Salesforce.com (CRM:NASDAQ) and eDiets.com (DIET:NASDAQ) actually had gains today. To the credit of Salesforce.com, they did have a great quarter by increasing their customer base by 36% and their diluted eps by $0.03 compared to the same quarter in the previous year. While we still look at this stock and wonder why people would choose Salesforce.com with its P/E ratio of 81 versus Google and its P/E ratio of 16. It's going to take at least another quarter of improved earnings before we even consider buying Salesforce.com over Google. While eDiets.com was only up $0.01, it was still a gain on a horrible day. Perhaps investors longing for the next episode of the "Biggest Loser" decide to put a few dollars on the stock.

Still, the biggest question is what does today's drop mean to investors? Simply put, we have yet to see the bottom and with the market going under 7600, investors are going to continue to be nervous. While we've started to hear a few so-called experts say the new bottom is 6000, we don't believe the market will go that low unless the government does absolutely nothing to help out the "big three".

And is it so wrong to let Chrysler, Ford (F:NYSE), and GM (GM:NYSE) collapse? After all, some precedent has been set as Washington Mutual was consumed by the FDIC. eTrade is probably emailing Henry Paulson every hour to remind him where he should send the check. Every day that goes by we have to wonder whether or not eTrade will get any of Uncle Sam's money. We think the government will eventually give Detroit's triplets some cash as long as GM pledges to sell Hummers only in Texas and Ford promises to retire the outdated Taurus.

The big problem we see on the horizon is Citigroup (C:NYSE). Like everyone else, we've seen the speculation that Goldman Sachs (GS:NYSE), and State Street (STT:NYSE) might be possible suitors. Why either of these businesses would want to enter the world of commercial banking is beyond our reasoning. There's a reason why you don't see a Goldman Sachs or State Street branch on every other corner. Neither company has the expertise to successfully takeover Citigroup. Aside from possibly making either potential suitor a beneficiary of Mr. Paulson's slush fund, we don't see either company making this move. Without a legitimate savior waiting in the wings, Citigroup better hope they can get their stock price above $5 quickly so mutual funds don't put this company to rest.

Like most investors, we're anxious to see what tomorrow brings. Not because we believe the turnaround could be tomorrow, but because we want to have a better idea as to how much worse it is going to get. If only the market would jump 800 points tomorrow so we could fill-up our tank with $2.38 a gallon super unleaded and not worry about filling the tank before Monday.

- BT (jon.burke@gmail.com)

Brought to You By: - Pheedo

Datacastle Raises $5.3M First For Laptop Theft Tools

Datacastle, a Seattle-based startup that sells PC data protection, has raised $5.3M in Series A funding led by CM Capital Investments. DataCastle's data-protection software targets business laptops in, providing online backup, encryption, and reduction of storage space needed for files.

As part of the deal they hired a new CEO. It seems like he has is work cut out for him, particularly in marketing as Datacastle has almost no presence and doesn't position itself in a compelling fashion.

View - site

- BT (jon.burke@gmail.com)

The tech:stocker Roundup: Mark, Meet Bubba

Did the market's 500-point jump today save the week? Are investors now going to splurge on a bottle of Opus One this weekend instead of the latest Beaujolais Nouveau release? Probably not. But at investors should be slightly comforted by the fact that the market didn't slide further today. The 8.3% drop in the Dow this week has the staff at tech:stocker throwing out our 8000 bottom prediction. Think lower. While there's a good chance investors could honor our Pilgrim forefathers by having some small gains next week (after all, what company with any common sense is going to announce layoffs during Thanksgiving week. Any company who does should fire their PR and IR firms instantly and then cut the people that hired the firms. Preferably the day before Christmas.).

Still, we're not expecting any real positive news until next year. Black Friday is going to be ugly as ten times as many people will be spending the night in line this year to get the four plasma TVs priced $1000. The sad part is that the retail season is going to be so bad this year that everyone will probably have the opportunity to buy that same plasma tv at a price lower than what the people who waited all night in line had to pay.

So if you are going to invest right now, understand that redemptions at hedge funds and mutual funds are going to be fueled by economic uncertainty and they don't have the cash to cover these sales. We expect hedge and mutual funds to continue to dump stocks until the beginning of next year when portfolio managers are fired. When the new managers are hired, expect them to sell a few more stocks before making their first purchases.

Speaking of selling, we weren't surprised that the SEC didn't like one of Mark Cuban's sale of Mamma.com (CNIC:NASDAQ) shares in 2004 (by the way, why was he investing in a company called "Mamma.com – the mother of all search engines". Did he actually think it was going to challenge Google (GOOG:NASDAQ)?). While we could debate whether or not Mr. Cuban did actually receive some insider information, we think it's easier to point to one well-known fact: the SEC doesn't start battles that it can't win. Everyone should remember Martha Steward and her troubles with selling a few shares of ImClone. While Mr. Cuban may have a bigger bank account than Ms. Stewart, he'll be better off using his money to buy cigarettes and other tradable goods in prison versus high-priced attorneys.

We're wondering if Mr. Cuban will employ the "Michael Finley defense" saying that the forward's inability to score his season average in the playoffs led him to make irresponsible move (while a jury would believe, and sympathize with, a "Dirk Nowitzki defense" (or the lack of his Mr. Nowitzki's defense), the reality is that the forward actually topped his season scoring average in the 2004 playoff series against Sacramento). Hopefully Mr. Cuban will stay clear of trying to blame Don Nelson for his troubles.

Unfortunately for Mr. Cuban, his future date with "Bubba" and his cell mates will probably ruin any chance he has of buying the Chicago Cubs. This should have Cubs fans breathing a sigh of relief considering the Dallas Mavericks are probably the biggest disappointment in the NBA this year. Firing Avery Johnson was a mistake and replacing him with Rick Carlisle was an even bigger one. As Dan Snyder is learning with his Washington Redskins, money doesn't buy championships. Until Mr. Cuban hires a quality coach and surrounds him with talent that wants to win (why he thinks the dope smoking Josh Howard is going to help him raise a championship banner is beyond us), his Mavericks will continue to disappoint their fans.

Sticking with quality theme, today's drop should be a reminder that your portfolio with quality companies. We view quality companies as ones that deliver consistent positive earnings and are often seen as leaders in their industry. Often these companies pay a dividend and manage their costs effectively. This being said, we don't see Salesforce.com as a quality company right now. Even though the company knocked the ball out of the park with their recent earnings, we still think their P/E ratio is far too high to even be considered a growth stock. We'll give credit to their investor relations team as they have plenty of people believing that this is a growth stock. In our opinion, this stock has grown too much and needs to deliver some larger profits before we believe the dated PR messages (think 2001 and the "this is the future" messages you heard from every company that had a high P/E ratio) CEO Marc Benioff is selling.

- BT (jon.burke@gmail.com)

Zuberance Takes $4M For Customer Evangalism Plan

Palo Alto's Zuberance raised $4M in Series A funding from Emergence Capital Partners. We like the concept here but it does seem difficult to pull off. What they are looking at are the clients that any company might have who are early adopters or evangelists for that company. We know it is indeed to make the most of that enthusiasm to bring in new clients. The big challenge that we see for Zuberance is that the pain they are looking to heal is minor all things considered. The pain that Salesforce or SAP address for most companies cannot be ignored. Customer testimonials are crucial but for sure its a minor side dish on the corporate table.

The startup is led by CEO Rob Fuggetta, who was CMO of LongBoard and GoRemote (acquired by iPass)
and at Genuity (Verizon spin-out).

View - site

- BT (jon.burke@gmail.com)

Hopefully Uncle Sam Will Offer Free Toasters With New Accounts

While the banks and investors seemed to toast Citigroup's (C:NYSE) good fortune of conning the U.S. Government into lending them a cool $20 billion and guarantee $250 billion of their most toxic assets, the staff at tech:stocker could only shake their heads in disbelief.

First, we're surprised that the government has revised its use of TARP funds to now guarantee risk assets. We're uncertain as to how this move is going to be free-up money so potential homeowners can access credit. Wasn't this part of the original idea behind the TARP? Create stability in the financial institutions so people can buy homes?

Second, we're even more surprised the government let Citigroup's absentee CEO Vikram S. Pandit stay at the helm. Considering how little leadership we've seen from Mr. Pandit during this crisis, we don't understand why the government would trust him to manage $20 billion of taxpayer funds. Citigroup is still hemorrhaging money and needs to restructure its expenses in order to have a future. The Citigroup empire is such a sprawling collection of random outposts that fiscal responsibility is not going to be a part of the corporate culture in the near future.

While we understand that shareholders and potential investors might see the $20 billion as exactly what Citigroup needs to regain investor confidence, ultimately the company has too many challenges to overcome justify even a small increase in the share price. Still, we do hope Uncle Sam's preferred stock (almost 8% of the company) will grow so that it can sell a few shares and diversify their portfolio.

Finally, fellow banks like Bank of America (BAC:NYSE) and JPMorgan Chase (JPM:NYSE) should be excited about the Citigroup deal. Both banks have increased the amount of illiquid assets on their books with the respective acquisitions of Countrywide and Washington Mutual. If they can convince the government to offer them deals similar to Citigroup's, both institutions would have a lot less worries in the near future. And think of the promotion possibilities. Open a new savings account and receive a national parks pass! Open a gold savings account with $250,000 and get a free night at El Torvar. This could be a win for everyone.

Kind of lost in today's news was Hewlett Packard's (HPQ:NASDAQ) stellar earning's release. While many people might look at the numbers and say they were just good, you have to remember that HP's Q4 closed on October 31, not September 30 like most other tech companies. The Q4 net revenue increase of $5.3 billion from a year earlier is outstanding but even more impressive is what happened within the Personal Systems Group (PSG).

While many analysts have been predicting doom and gloom for PC sales, the opposite was occurring within PSG. Revenue in the group grew 10% as Notebook revenue increased by 21% while desktop revenue only decreased by 2%. We have no problem with decrease in desktop sales as new WiFi networks continue to be introduced and businesses try to control costs by allowing employees to work from home, Desktop sales will become more focused on users who need the power of a desktop model or corporations whose employees only need basic functionality on their computers.

The Imaging and Printing Group (IPG) didn't fare so well as consumer hardware revenue dropped 21% while commercial hardware revenue faired a little better dropping 10%. Even with these losses in revenue, the group only saw a 1% decline in revenue.

CEO Mark Hurd prides himself on an experienced management team that knows how to control costs. This is extremely apparent in the IPG division. While we have a lot of respect for Mr. Hurd and his ability to run an efficient business, it will be interesting to see how he attempts to boost sagging sales in the IPG division in the near future.

While HP's earnings announcement may not have had the same impact on the tech industry as Citigroup's bailout did on financial services, companies like Apple (AAPL:NASDAQ), Dell (DELL:NASDAQ), and Intel (INTC:NASDAQ) should feel a little better about the future. While we had a much more optimistic outlook for HP back in September, our revised 12-month of target price of $43 per share is much more of a reflection of the current economy than the company.

- BT (jon.burke@gmail.com)

Brought to You By: - Pheedo

Meta Ticket Search's FanSnap Raises $5.5M

There are some Internet niches that we have to admit we never saw coming. Growing up we were accustomed to the myriad scalpers at sports and concert events. Mike Damone in Fast Times at Ridgmont High even had a brief scene scalping concert tickets at the mall and that felt right.

Another startup that has taken this practice online is FanSnap out of Palo Alto. The live event ticket search engine has raised $5.5M in 2nd-round funding led by return backer General Catalyst Partners. The face-man here is CEO Mike Janes, who was former CMO of StubHub.

Meta search engines have worked well in high end eCommerce territories like travel. A big market for meta search for tickets seems like a stretch but again we have sold this market short in the past.

View - site

- BT (jon.burke@gmail.com)

iPhone Video App Platform LiveRail Raises Funds

We covered then London-based LiveRail back in July 2007 when it launched. Today we catch up the video ad network and learn that it has re-located to San Francisco and has raised $500K in Series A funding led by Pond Venture Partners.

LiveRail launched in a crowded market for video ad services but has more recently focused on a less crowded niche with the launch of LiveRail for the iPhone. This is an ad platform that allows iPhone app developers to embed video advertisements into their apps, which play immediately after launching an apps.

LiveRail is led by Mark Trefgarne as CEO who was Managing Director of London-based internet strategy consultancy firm Cleartide. Seed funding was provided by private investors including Cleartide.