worldaccordingtoGARP

The premium segment analogy is seriously flawed. The problem is that Nike and Porsche are not platforms. The road is the platform. Roads are the same everywhere, regardless if you buy a Porsche or a Kia. This is not true of iOS and Android. They are incompatible platforms that divine network effects independent of one another. This is relevant because of the lollapalooza effect that winning platforms generate. Developers will prefer the platform that offers the highest bang for the buck. If the number of Android devices makes up 90%+ of the market, if "spenders" move to the Android platform, if the overall UI gets better, if the dev tools are better... then the iPhone will likely become de-prioritized in app development. Customers go where the greatest bang for the buck is, too.. Lower price, best experience, most/newest apps, etc. The higher volume on both sides leads to lower prices on both sides. All these good things occur inside the walls of the leading platform. The benefits don't cross over like better highways or cheaper gasoline improve both BMW and Hyundai's position. I prefer the analogy of VHS vs. Beta. Incompatible platforms. Beta was better but more expensive. VHS was lower quality but cheaper. One company made the Beta player. Multiple companies could make a VHS player. Seems like a relevant analogy today. Nicely said, completely agree, though not sure the need is as absolute for all-or-nothing in the OS. It certainly helps to have dominant share and it is a waterfall effect of sorts. 1 more point worth making is that almost everyone who uses an iOS device also uses many Google products, from search to gmail to YouTube (ah that pesky damn site that disproves all these negatives slung at Google). People who use Android devices use no Google whatsoever. These are both Trojan horses and levers.

GOOG doesn`t need to make profits from the smartphone business as long as they grow the advertising market that way. This: This was true; it no longer is. There's also good reason to think spending on Google will accelerate in 2014: "User spending on Google Play catching up with Apple’s App Store" http://www.ft.com/intl/cms/s/0/b3023dda-66be-11e3-aa10-00144feabdc0.html#axzz2pMSqabEZ

Glad to hear, nice bullet to dodge.

"Myriad Genetics Drops After U.S. Cuts Rate for Gene Test" http://www.bloomberg.com/news/2013-12-30/myriad-genetics-drops-after-u-s-cuts-rate-for-gene-test.html?cmpid=yhoo I feel like Myriad has communicated this horribly to the market. The meme about "government incompetence" was a grasp at straws that is a particularly egregious example of trying to play into an ideological sentiment.

I'm not sure about MyRisk, it's something that should be in demand in the future, though I don't know enough to judge whether Myriad would have an advantage over anyone else who is trying to accomplish the same goal. It's going to be competitive. I'm not sure "expensive to test" is the right terminology there, b/c some providers are willing to accept a much lower margin than Myriad, and thus can make the test much cheaper for the patient. It is time consuming, though much of that problem can and will be solved by advances in sequencing technology. Myriad will be using Illumina's next generation system and so too is GHDX. Quest has far more cash at their disposal than Myriad. Quest has 4x the CFFO/year and 4x the market cap, as does LabCorp. Being first-mover, as Myriad is, is an advantage for many reasons though it's hard to quantify exactly how much. I also would not underestimate the negative sentiment associated with Myriad's aggressive litigation to preserve their patent(s). They are accused of "trying to patent nature" and a lot of rhetoric has to be damaging to the company's reputation. I would also guess that people are far more sensitive to price than speed with such testing, considering this is a preemptive diagnostic rather than a diagnosis. I have no clue about the so-called "clerical errors." It is a huge leap of faith to assume government incompetence, when it is well known that the gov't is pushing aggressively for lower costs in medicine, particularly w/r/t diagnostic testing. The response from Myriad reeks of trying to play into a popular meme. As you say, it is "really strange" and I would be more inclined to think skeptically about the company's motives than the government's competence (or lack thereof). It's certainly possible that things end up going alright for Myriad from here. I don't know. I just don't feel very confident that this is an investment with manageable downside risk. Just my humble opinion. I also find that in areas of technology like this, the suppliers selling the pickaxes (like the sequencers, reagents, dyes and proteins) end up the winners at the end of the day. The tests themselves almost always become commoditized sans patent protection.

I've spent some time to Myriad and though I haven't read the VIC writeup, I cannot help but think it's incomplete. First a little background that intrigued me. One of the founders of Myriad is a guy named Walter Gilbert. He also was a founder at Biogen-Idec and is a Nobel prize winner in Chemistry. He was the CEO of Biogen in the early days, and the leading researcher. Biogen had some great technological promise, but was miserable on the business side. B/c of these business failures, Gilbert got pushed out, and I get the sense that in his eyes, his "baby" was taken from him before he ever got the chance to see it to maturity. Biogen's success was a huge dagger in Gilbert's side. In founding Myriad, Gilbert was trying to both advance science and also prove his mettle as an actual businessman. I went into researching Myriad intrigued by the area its working in, and its founder's DNA so-to-speak. Myriad's case went to the Supreme Court already, where they had what at best can be called a "split decision" though in reality, they lost the key part of the case. Here is a link that has a summary of major news coverage of the Supreme Court's opinion http://www.scotusblog.com/2013/06/evening-round-up-myriad-genetics/#more-165016 which includes a link to the opinion itself. It was written by Clarence Thomas (which for you non-Court watchers out there, is a rarity, as even when he agrees with the opinion, he usually writes a concurring opinion). Here is one of the powerful quotes from Thomas that effectively summarizes the decision: Where Myriad won was in the upholding of their patents on cDNA, which is important, though not necessarily pivotal. Within hours of the ruling, Myriad's competition grew to some heavy hitters, far more capitalized and with much larger networks than Ambry. Quest Diagnostics was the first big hitter to enter the fray, offering the test for $2,500 or 40% less than Myriad http://www.questdiagnostics.com/home/physicians/testing-services/by-test-name/BRCAvantage . This test specifically cuts at what accounts for 1/3rd of Myriad's revenue. It will be very hard for this to be a growth stock in light of that (http://www.forbes.com/sites/matthewherper/2013/10/15/quest-diagnostics-to-offer-cheaper-version-of-myriads-breast-cancer-gene-tests/). There is a corollary problem for Myriad in that I think it's safe to assume they were able to sell more than just BRCA in each testing instance considering they a) had the monopoly on the more important BRCA test and b) many operate under assumption of "if I'm going to do one test, I might as well do them all at once." It's impossible to know exactly how much of the other $1.2 billion in revenues won't take a hit b/c Myriad now will not be the go-to for BRCA. But, even assuming none of that $1.2 billion is touched and Myriad then matches Quest's price on BRCA, it would lead to an 18% shortfall in revenues to last year and would require the remainder of the business to grow at 20% just to break even. Quest is one of the two largest diagnostic testing companies in the US, has a national presence and is the trusted, reliable go-to for many doctors. The other major diagnostic co is LabCorp, who earlier this month announced their own BRCA test http://www.marketwatch.com/story/labcorp-to-offer-brcassuresmbreast-cancer-mutation-tests-2013-12-02. In September 2010, LabCorp bought Genzyme's genetic testing unit which was highly regarded, and earned ~$370 million at the time of sale. I point this out b/c LabCorp can use the proceeds of their already profitable genetic testing business in order to invest in ramping up their offerings. These are just two of the competitors who have entered the fray already. Some well-regarded analysts expect the already reduced $2,500 pricepoint to drop even further to $500. This makes sense considering nearly every test that Quest and LabCorp do becomes commoditized and this is especially so as Medicare/Medicaid have ramped up pressure on the duopoly to further reduce pricing across the board. With lower pricing and scale, LabCorp and Quest can quickly render Myriad's already built database a moot point. While it's hard to know for sure how much residual value and how much of a draw this database would be to Myriad, it seems like the bulls overstate this point. As far as future possible revenue streams, the area of genetic testing has seen a rise in competition and is undergoing rapid technological change. There are companies in the process of putting together all-in-one cancer screenings (test for all known cancer genes at once), which use next generation sequencing technologies. Here is one highly regarded initiative that combines both all-in-one and next generation tech http://core-genomics.blogspot.com/2012/10/foundation-medicines-cancer-genomics.html. So this sums up a good chunk of what I've uncovered and concluded about Myriad. Curious to hear any responses...I am also interested in Genomic Health, Inc (GHDX) which has been massively accumulated by Baker Brothers, the best biotech investors in the world as far as I'm concerned.

There's another source of downside protection and that is in the form of Exor, the holding company of the Agnelli family. Exor is majorly owned by the Agnellis and is operated by the family. Exor is also the largest owner of Fiat equity and they are very well capitalized today. Their equity ownership and capitalization are a source of protection to Fiat, for they recognize the immense value in Fiat's equity. There is the implication that leverage is dangerous because of the increased risk of bankruptcy, though I would argue that even if something were to happen such that the leverage cuts Fiat the wrong way, Exor would be there for the company with capital in order to prevent a bankruptcy (I am thinking above and beyond the slice and dice the company could do given how each piece of debt is unsecured and limited to each relevant subcomponent of Fiat). It would be in their own best interest to do so, for it would protect their existing equity holdings and enable the company to realize the upside it intends to capture in the stock. This backing by Exor is also important in providing flexibility for the inevitable complete acquisition of Chrysler.

Bloomberg had an article today about the possible paths for TEVA from here. It's mostly speculation, but some worthwhile points: http://www.businessweek.com/news/2013-11-19/leaderless-teva-seen-beckoning-mylan-merger-real-m-and-a

Hi xtreeq, thanks for the thoughtful history and analysis of where things stand in Israel today. I do get this sense as well. I have spoken to many Israelis about perception of TEVA (my mother and dad's wife are both Israelis and shared their networks of Israelis in the business community for me to talk to). There is a cynicism around Teva, no doubt, but I get the sense that a lot of that is due to the stock's performance. A lot of Israelis got very wealthy in Teva, only to see the stock stagnate, disappoint, and create some losers in recent years. In many respects, I see this more as the classic case of a stock price's performance changing perception more so than any fundamental change. You are absolutely correct that the company horribly managed its cash cow in Copaxone with several mistaken acquisitions, but I don't think all is for naught. The company does need to streamline its operations, and while this has caused some collateral damage in domestic public opinion in Israel, it's a necessary step to improving the company's future. As I said before, I really did like Levin and am a bit miffed by his dismissal even still. I'm not sure what happens next in terms of leadership, but there are several possible paths to improve the company's financial performance and value proposition to shareholders, and in the meantime, sentiment towards the pharma industry continues to improve for the first time in a decade. IMO this is a situation that calls for patience and a longer-term perspective.

Indy, thanks for linking to my blog! Didn't even realize this was linked to on here. I just did an interview with Michael Mauboussin that I published today. He is one of the most informative people in finance. Figured some on the board would like it, covering the Santa Fe Institute and topics like complex adaptive systems, mental models and feedback loops: http://compoundingmyinterests.com/compounding-the-blog/2013/11/7/michael-mauboussin-on-the-santa-fe-institute-and-complex-ada.html

That was over lunch with a Canadian economist. Immediately upon learning he was Canadian, I asked "so...is Canadian housing a bubble?" He laughed, smiled, nodded and said "of course." He felt Carney was aware of this, had said words to the effect that it was happening, and warned people to cool it in housing, but no one wanted to listen. He felt people are entirely delusional about housing right now and responded to talk that it was a bubble with hostility while shrugging it off. (very much in tune with Shiller's definition of a bubble from my write-up) He wasn't quite sure what the catalyst would be that makes it go pop, but believed downward pressure on commodity prices could have ripples through the Canadian economy that finally does in housing.

I typed up some of my notes from the Economist's Buttonwood gather. These cover a wide array of topics on the macro landscape around the world: http://compoundingmyinterests.com/compounding-the-blog/2013/11/5/navigating-the-global-economy-buttonwood-gathering-2013.html

I have a decently sized position in TEVA and really like Levin. I was rather surprised by the news. Levin's track record at Novartis and Bristol was always judged as phenomenal and actually has been proven even better over time. I think this article in Globes, called "Teva's Identity Crisis" perfectly captures the problem Frost had with Levin (http://www.globes.co.il/serveen/globes/docview.asp?did=1000890701): Teva has been in a difficult position to "please" markets considering all headlines continue to focus just on Copaxone. In the timeframe afforded Levin, this was a no-win situation. It frustrates me that Frost clearly did not see things this way.

1, How do you know that it is not search but Youtube that is generating site revenues? 2, We know other revenues is up 85%, where did you find the earnings for Android and Chrome? 1. We can never know for sure whether it's search or YouTube driving the revenue growth, but like I said, it's a "signal." As has been discussed in this thread, Search revenue growth has not been what it used to be, and the 22% yoy number of Owned Sites is nicely ahead of the 15-18% annualized growth it had been demonstrating for most of the past 2 years. This Q GOOG offered the following info on YouTube which sheds some light on how monetization is progressing: YouTube is no longer a small business. Since Google doesn't segment it out, it's impossible to say exactly how big. Mark Mahaney at Citi projects that YouTube alone should pass $4B in revenues this year (it is estimated to have crossed $1b annual run-rate some time between 2011/12). 2. For several quarters now, the company has explained "Other" revenue growth, as it has been huge on an annualized basis, though from a small base. That small base is getting bigger, and growth isn't slowing much. Here is a quote from last quarter about "other" which clues us as to what resides there: I say "Android" because the Play Store is one of the most important paths to monetizing Android, and I say "Chrome" alongside Android because aside from some Nexus phones, this is the other type of hardware Google sells that would be situated in this segment. On 1, Are you sure? http://venturebeat.com/2013/10/16/a-full-third-of-googles-paid-clicks-now-coming-from-mobile-report/ On 2, Where are revenues from the Nexus devices included? Is there any Chromebook revenue included? How are gross margins, operating margins and FCF comparing on the YoY basis for this quarter and for the first 9 months? 1. What's the point of responding to a line that beings with "We can never know for sure" by asking the question "are you sure?" It's a smart, reasonable assumptions, yes assumption, not firm fact, that YouTube is growing as indicated above based on reading the company's filings and listening to their CCs over several years. 2. Nexus and Chromebook are included and I did say that above, not sure why you're asking... Gross margins dropped 100 BPS (ex Mot), operating margins for the co were up 130 BPS, CFFO up 25% though FCF down due to higher CAPEX. But we know that you know this, so why are you asking? Enlighten us...it's unnecessarily patronizing to ask such leading questions without offering thoughts of your own. I must say ValueInv, from what I see on this thread you have responded to every single point on Google (whether positive or negative), with your own negative spin. Is there a reason for this? Seems like some evident bias to me.

1, How do you know that it is not search but Youtube that is generating site revenues? 2, We know other revenues is up 85%, where did you find the earnings for Android and Chrome? 1. We can never know for sure whether it's search or YouTube driving the revenue growth, but like I said, it's a "signal." As has been discussed in this thread, Search revenue growth has not been what it used to be, and the 22% yoy number of Owned Sites is nicely ahead of the 15-18% annualized growth it had been demonstrating for most of the past 2 years. This Q GOOG offered the following info on YouTube which sheds some light on how monetization is progressing: YouTube is no longer a small business. Since Google doesn't segment it out, it's impossible to say exactly how big. Mark Mahaney at Citi projects that YouTube alone should pass $4B in revenues this year (it is estimated to have crossed $1b annual run-rate some time between 2011/12). 2. For several quarters now, the company has explained "Other" revenue growth, as it has been huge on an annualized basis, though from a small base. That small base is getting bigger, and growth isn't slowing much. Here is a quote from last quarter about "other" which clues us as to what resides there: I say "Android" because the Play Store is one of the most important paths to monetizing Android, and I say "Chrome" alongside Android because aside from some Nexus phones, this is the other type of hardware Google sells that would be situated in this segment.