Is Google’s management out of touch with how Google makes money?

I’ve never been blown away by the way Google’s management communicates with shareholders.

  1. The 10-K presents “Cost-per-click” and “aggregate paid clicks”, both of which are terrible metrics.
  2. The shareholder letters largely gloss over Google’s cash cows: its search advertising and display advertising businesses.

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Aeropostale (ARO): Teen titan or turnaround trap?

*Disclosure:  No position in ARO.  I’m not interested in buying at current levels.  This post may be a waste of your time.

After Julian Geiger left Aeropostale, his successor (Thomas Johnson) has managed to run the retailer into the ground.  On August 18, Aeropostale announced that Geiger is returning.  During Geiger’s previous reign, Aeropostale’s revenues went from $123.8M in 1997 to $1,886M in 2009.

Suppose that Geiger returns Aeropostale to its former glory several years from now.  Geiger’s last full fiscal year at the company was 2009 (Geiger officially left in Jan 2010).  In that fiscal year, Aeropostale posted GAAP net income for $149M.  Suppose that Aeropostale makes $149M, achieves a P/E multiple of 15, and has 82M shares outstanding.  The share price would be $27, roughly seven times the current share price of $3.87.  Of course, there are risks and other possible outcomes.  It is likely that Aeropostale will face the same secular headwinds affecting its peers ANF and AEO.  The profitability of all three ‘teen titans’ may be significantly lower several years from now.

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Liberty Ventures is currently in the process of spinning off Liberty TripAdvisor Holdings.

  • TripAdvisor shares (normal shares and supervoting shares) will go from Ventures to TripAdvisor Holdings.
  • Holdings will take out a $400M margin loan.
  • Holdings will pay Interactive $350M for BuySeasons.  (EDIT:  This may be wrong.  See the bottom of this post.)  It will hang onto $50M.

I don’t think that Interactive, Ventures, or TripAdvisor will be that attractive.  TripAdvisor has extremely high growth and seems to be a wonderful business.  However, its multiple is very high (a P/E ratio of 66).  I think that Malone may sell his personal stake in TripAdvisor for something cheaper.

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Sold my KMI warrants

The warrants may still be slightly undervalued.  However, my instinct is to sell stocks/securities on rallies and to reinvest the proceeds into stocks that have dipped (e.g. ASPS).

I sold slightly below $4 (which is terrible trading on my part because I sold near the day low).  I still have a few call options which I plan on riding out to maturity.  This trade worked out well.

My thoughts on the KMI merger

I may be completely wrong about Kinder’s reasons for merger KMI with KMP/KMR/EPB.  Here’s my guess.

Things have gotten to the point where the GP/LP structure is becoming unwieldy.  Any investments that the LPs make must be accretive to the LP unitholders.  Because of this, the hurdle for new investments is extremely high (?somewhere around 18% EBITDA yield?).  Because KMP and EPB are so large, there is a limited universe of investments that make sense for the unitholders after paying the onerous Incentive Distribution Rights (IDRs) to the GP.  (In the past, this problem has been avoided by the GP waiving its incentive fees.)  By getting rid of the GP/LP structure, the resulting company has more flexibility to pursue opportunities with lower returns that are still attractive.

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