It's all about momentum ....
Excite announces lower than expected loss. But takes a
one-time charge for the Netcenter deal. This is non GAAP.
CNET announces positive earnings, but only notes in fine
print, its gain from sale of securities. Another b.s.
Amazon announces less than expected loss, but fails to
amortize costs properly according to GAAP. Again, another
b.s.
AOL has had the most aggressive accounting method of
booking revenues, has gotten away for almost 10 years,
and one-time giants Prodigy, and Compuserv are now midgets.
Netscape uses a clever change of calendar years to announce
earnings. This is allowed by GAAP, but is obviously B.S.
Three COM uses differing calendar years between U.S. Robotics
and Three COM merger to double-count one-month of income.
Another thing allowed by GAAP, but is another B.S.
These companies' accounting methods can be criticized
much worse than what Pink is saying about MRV. But since
momentum is on the internet companies side, it's not
smart to short them. Sooner or later, upside momentum will
come this way too.
BTW, if you are a company thinking about growth, you try
to do everything that is possible -- even if it is maximizing
your income tax. That's one of the things about clever
acquisitions -- aside from synergies, you can make the
tax laws work for your credit.
Estimates are just figures. What pink is trying to say is that
without these special provisions, MRV would not meet earnings
estimates, so and so. And then he projects that going forward,
there won't be the luxury of this special provisions, and MRV would tank because estimates would be cut, etcetera.
But estimates are kind of funny. They are figures that come
from the guidance of the company anyway. The very nature of the
source makes it a shaky foundation to base your investments
on. You have to take them with a grain of salt. (That is
why some successful investors plainly ignore them, and look for
the ones that have beaten-down estimates because a little surprise
on the upside will work wonders ). What is important
is that there is a lot of networking stuff that need to be done
out there if Yahoo, AOL are to deserve the valuations they get,
and MRV is one company poised to grab these opportunities and grow
rapidly. Incidentally, I've notice yahoo finance having
many problems lately. I mean, this is one thing that a
so-called terrabit carrier (that was just mentioned in
the conference call) can be a good solution for.
Any technical engineer knows they are superior in fiber optic
technology that no 10-K/10-Q/8-K statement can prove. Of course,
one has to be careful when dealing with technology, but all I
am saying is that armed with only a 10-K, you won't be able
to come up with a very clear conclusion with MRV, and many
high-tech companies for that matter. (The question of whether
you should be high-tech companies is another matter. But if
you decide to buy a high-tech company, be sure to realize that
your accounting skills will not be enough to gauge the technology
that will do well.)
Whenever there are acquisition charges, etcetera, outsiders
will have a hard time figuring what is inside the box..
In a Bear Stearns conference, Noam said this: In networking
you have to grow through innovation. This is internal innovation,
or growth by acquisition of interesting innovation. Then he
uses Cisco as an example that has used acquisitions to get big.
On the other hand, he names Cabletron and Xyplex that did not
grow.
Now, Cisco has used acquisitions, and "acquired technology in
progress" almost every year. So has Lucent, since it was spun
off. As an investor in a growing networking company, you have to get comfortable with acquisitions and give them some benefit of the
doubt with regard to acquisition accounting. Cisco investors
are not only giving them this benefit of the doubt but they are
holding the company with valuations that are double that of
MRV. (Incidentally, people don't say negative things as much
about Cisco, because it is a favorite, big and well-established.) If you don't want any extraordinary charges, then you can buy Cabletron five years ago. That company did'nt make acquisitions, so there are no restructuring charges and "purchased technology" entities. All the 10Q's will look squeaky clean to the bean counter.
Cash flows are all positive. Unfortunately, five years later,
Cabletron would be trading at 11 times earnings (after several years
of trading at 35 times earnings) and would announce
huge loss because its products did not catch with the times.
With Cabletron, an accountant will not be blind-sided by
aggressive accounting; he will be blind-sided by not knowing
the technology. Xyplex has a similar story with Cabletron. It
then got bought out by Raytheon, then Whittaker, and so the story became not so visible because it was operating as a subsidiary.
Again, I am not saying you should buy MRV. All I am saying
is that using 10-Q alone might not be sufficient to make a
decision in buying MRV. But if you are not comfortable with
what I just said, then you should not be buying MRV or else
you might get scared away and shaken out by the stock market,
and by the accountants. Interestingly enough, if you want
to wait for the cash flow statements to be positive, MRV might
be already trading at 25-30 times PE, versus a current PE
of 18.
BTW, this is just the second quarter after the Xyplex acquisition.
Edge guardian and Edge blaster products have not yet contributed
materially to the earnings. When 4th quarter comes, I think,
that 30 million dollar "technology in progress" will start paying
off handsomely. |
