ImaginativePRO Blog

KAYAK PUTS IPO ON HOLD DUE TO POOR MARKET CONDITIONS, REPORTS Q3 2011 REVENUE AND EARNINGS, THINGS LOOKING GOOD

As AllThingsD reported in September, travel search engine Kayak has put its IPO on hold until market conditions improve. Kayak filed its S-1 for a public offering nearly a year ago. Today, the company just filed a new S-1 with its revenue numbers from the third quarter ended September 30, 2011.

During the most recent quarter, Kayak posted $61.16 million in revenue, up 28 percent from the same quarter in 2010. The company also increased revenue slightly from the second quarter 2011, which came in at $56.7 million.

Net income for the third quarter 2011 was $12.7 million, up 44 percent from the same quarter in 2010, in which net income was $8.7 million. Profits were up from $5.7 million in the second quarter of 2011.

In the nine months ended September 30, 2011, Kayak processed 679 million user queries for travel information, which is up 45% over the nine months ended September 30, 2010.

It’s a good sign for Kayak that revenues and profits are increasing both yearly and quarter over quarter considering the intense competition the site faces in the online travel space. Google just launched its flight bookings and search portal, which is powered by the recent acquisition of ITA Software.

Of course, it’s important to note that in the filing itself Kayak says that the most ‘significant portion’ of its revenues is earned in the second and third quarters, with revenue declining in the fourth quarter.

These positive numbers could bode well for Kayak’s pending IPO. With Yelp, ExactTarget, Zyngaand perhaps even Facebook in the mix, the IPO market for tech companies hasn’t dried up.

COMMENTARY:   Kayak is one of the first IPO startups that I can say without any qualification know what they are doing.  They have experienced consistent revenue and profitability growth for the last five years ending December 31, 2010 and nine months period ending September 30, 2011.

Kayak does have potential exposure with Google, which acquired ITA, the airline reservation service in April 2011.  That acquisition has been approved by regulators and has now become finanalized.  This is what their S-1 (Amendment No 8) says about Google:

On April 8, 2011, Google, Inc., or Google, entered into a consent decree agreeing to conditions on Google’s acquisition of ITA, and Google subsequently completed its acquisition of ITA. The consent decree stated Google’s intent to offer an online travel search product and Google has recently launched hotel and flight search tools and services that directly compete with the tools and services we offer. Google’s flight search offering appears to include significantly increased speed on return of search results and, in the future, may include other enhancements or improvements in performance of the ITA software which may not be made available to us. Although the consent decree will provide us with the right to renew our existing ITA agreement on the same terms for up to five years from the date the court approves the decree, if ITA or Google limit our access to the ITA software or any improvements to the software, separately develop replacement software to which they claim we are not entitled or increase the price we pay for any improvements or replacement software and we are unable to replace ITA’s software with a comparable technology, we may be unable to operate our business effectively and our financial performance may suffer. 

Kayak claims that their top ten travel suppliers and OTAs accounted for approximately 62% of their total revenues. In particular, for the nine months ended September 30, 2011, two customers accounted for 37% of their total revenues:

• Expedia and its affiliates, including its Hotels.com and Hotwire subsidiaries, accounted for 25% of their total revenues. 
• Orbitz and its affiliates, including its CheapTickets, HotelClub and ebookers subsidiaries, accounted for 12% of their total revenues. 

If Kayak's relationship with any of their top travel suppliers or OTAs were to end or otherwise be materially reduced, their revenues and operating results could experience a significant decline.

Business Overview

Kayak is a technology-driven company committed to improving online travel. Co-founders of Expedia, Travelocity and Orbitz started KAYAK in 2004 to take a better approach to online travel. Kayak's websites and mobile applications enable people to easily research and compare accurate and relevant information, including pricing and availability, in one comprehensive, fast and intuitive display.  Kayak's software gathers information from multiple sources, including third party providers, travel suppliers and OTAs, and allows users to compare travel information from hundreds of websites.  Kayak requests information from their data sources based on a user’s travel criteria, and displays query results with the broadest set of websites that are relevant to the users travel criteria.  Once users find their desired flight, hotel or other travel product, Kayak sends them to their preferred travel supplier or OTA website to complete their purchase, and in many cases, users may now complete hotel bookings directly through Kayak's websites and mobile applications. Kayak also provides travel management tools and services such as flight status updates, pricing alerts and itinerary management.

Revenue Model

Kayak’s services are free for travelers.  Kayak earns distribution revenues by sending referrals to travel suppliers and OTAs and by facilitating bookings through their websites and mobile applications, and they earn advertising revenues from advertising placements on its websites and mobile applications.  On the distribution side, travel suppliers and OTAs either pay Kayak at the time of referral on a set cost per click, or CPC, basis or after a user completes a transaction on a supplier or OTA website or through the Kayak booking feature on a fixed cost per acquisition, or CPA, basis or as a percentage of the transaction value.

Advertising revenues primarily come from payments for text-based sponsored links, display advertisements and compare units.   A “compare unit” is an advertising placement that, if selected by a Kayak user, launches the advertiser’s website and initiates a query based on the same travel parameters provided on the Kayak website. The major types of advertisers on its websites consist of OTAs, third party sponsored link providers, hotels, airlines and vacation package providers. Generally, their advertisers pay them on a CPC basis, which means advertisers pay them only when someone clicks on one of their advertisements, or on a cost per thousand impression basis, or CPM. Paying on a CPM basis means that advertisers pays them based on the number of times their advertisements appear on its websites.  Kayak believes that offering advertisers the ability to pay on a CPC or CPM basis provides advertisers the ability to choose the method of payment that best suits their needs and ultimately results in more advertisers choosing to advertise with us.

Kayak generates a significant portion of its revenues from a few large customers. Expedia and its affiliated brands, including Hotels.com and Hotwire, together accounted for 24.9% of its total revenues for the nine months ended September 30, 2011.  Kayak has separate contracts with respect to Expedia and each of its affiliated brands, each of which have varying terms and expiration dates. Orbitz accounted for 12.4% of total revenues for the nine months ended September 30, 2011.  Kayak contract with Orbitz expires on December 31, 2013.

Revenue Growth

Kayak's revenue for the nine months ended September 30, 2011 was $170.6 million, a 33.0% increase over the first nine months of 2010 and its revenue for the year ended December 31, 2010 was $170.7 million, a 51.5% increase over 2009. This increase in revenue is primarily due to increased travel queries on its websites and mobile applications, which increased 44.7% and 38.3% for the first nine months of 2011 and the full year 2010, respectively, over the comparable periods in 2010 and 2009.  Kayak believes that traffic and queries on its websites and mobile applications will continue to increase in 2011 and 2012 as more people learn about its websites and our brand.

Key Operating Metrics

Kayak's operating results are affected by certain key operating metrics. These metrics help them to predict financial results and evaluate our business. These metrics consist of queries and revenue per thousand queries.

• Number of Queries - Queries refer to user queries for travel information we process through our websites and mobile applications.  Kayak counts a separate query each time a user requests travel information through one of it websites or mobile applications. Therefore, a user visit to one of its websites may result in no queries being counted, or in multiple queries being counted, depending on the activity of the user during that visit. On average, approximately 1.1 queries have historically been conducted during a typical user visit to our websites.
• Revenue Per Thousand Queries - Kayak uses revenue per thousand queries, or RPM, to measure how effectively they convert user queries to revenues. RPM is calculated as total revenues divided by total thousand queries.

Kayak uses query metrics to understand historical revenue performance, and to help in forecasting future revenues. In particular, RPM is a key operating statistic that they use in their analysis of past performance and in connection with our evaluation of potential changes to their business model and operating activities.

Revenues for the nine months ended September 30, 2011 increased $42.3 million over the same period in 2010 primarily due to a 44.7% increase in query volume.  Kayak attributes the increase in query volume to a variety of factors including its investment in marketing activities, the acquisition of swoodoo in May 2010 and checkfelix.com in April 2011, and its partnership with Bing Travel which began in March 2011. The increase in query volume was partially offset by a reduction in RPM due to an increase in mobile queries, for which we earn revenue at a lower rate. Mobile queries were 13.2% of total queries in the first nine months of 2011, as compared to 7.0% in the same period in 2010.

Revenues, Queries and RPM - Nine Months Ending September 30, 2010 and 2011

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Revenues, Queries and RPM - Years Ending December 30, 2008, 2009 and 2010

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Shareholders of 5% or More of Total Shares Outstanding

 

Fimancial Statements

Income Statement

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Balance Sheet

Althought they do have a lot of their "eggs in one basket" with ITA, and their top ten accounts represent 62% of their revenues, I like Kayak's IPO.  They have developed a very successful and predictable revenue model and their key operating metrics with the exception of revenue per query are experienced continued growth.  

Kayak will use the proceeds from the IPO for working capital and execute their growth initiatives, especially their international expansion.  Kayak is only now just starting to expand internationally, and recently opened an office in Zurich, Switzerland, and if the exchange rate for the EURO should continue to drop versus the dollar, this will help their revenues, making travel to Europe cheaper.

Kayak's management team is very experienced and are executing their business plan very well, and that experience is reflected in their consistent trackrecord of revenue and earnings growth.

Kayak has not announced their IPO stock price per share, but they have done internal computations and the price will probably range somewhere between $20 and $25 per share.

Courtesy of an article dated November 23, 2011 appearing in TechCrunch

 

BREAKING: FACEBOOK TARGETS HUGE IPO FOR APRIL-JUNE 2012, COULD RAISE $10 BILLION AND VALUE THE SOCIAL GIANT AT $100 BILLION

Facebook Inc. is inching closer to an initial public offering that it hopes will value the company at more than $100 billion, according to people familiar with the matter.

The social networking firm is now targeting a time frame of April 2012 to June 2012 for an initial public offering, said people familiar with the matter. The company is exploring raising $10 billion in its IPO—what would be one of the largest offerings ever—in a deal that might assign Facebook a $100 billion valuation, a number greater than twice that of such stalwarts as Hewlett-Packard Co. and 3M Co.

 

A Facebook IPO has been hotly anticipated for several years, and viewed as a defining moment for the latest Web investing boom. The company has been vague about whether it would even make such an offering and silent on timing of an IPO.  Facebook spokesman Larry Yu said.

"We're not going to participate in speculation about an IPO." 

The company now appears poised to go ahead with a deal. But it will likely come to market at a time when investors are beginning to question the value of some newer Internet businesses.

The most recent IPO, an $805 million float of discount-deal service Groupon Inc. on Nov. 3, has plummeted 42% in price in the past five trading days after surging in its first day of trading. Business-networking service LinkedIn Corp., whose stock more than doubled from its IPO price on its first day of trading May 19, has since fallen 36%, but remains 33% above its IPO.

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Facebook Chief Executive Mark Zuckerberg has in the past publicly expressed reluctance to do an IPO. And he has opted to keep Facebook private longer than many suspected he would.

But he is warming to the idea. Facebook is now in internal discussions over the timing of its filing with the Securities and Exchange Commission, and is considering filing dates as early as this year, said these people. Mr. Zuckerberg hasn't made any final decisions, these people cautioned.

Facebook remains aloof from Wall Street and shows signs of wanting to play by its own rules.

Companies often explore an IPO once they have $100 million in revenue. Facebook is expected to debut with more than $4 billion in revenue, making it bigger than Web veteran Yahoo Inc.

Facebook has gone so far as to craft its own prospectus, said the people familiar with the matter. A prospectus document—which is filed with the SEC outlining the company's business—is typically prepared by bankers and lawyers hired by a company.

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Facebook Chief Financial Officer David Ebersman has been leading the company's talks with Silicon Valley bankers about an IPO, said people familiar with the matter.

Bankers are aggressively pursuing the company, but Facebook remains elusive about a commitment to specific banks, even though an IPO looms. Mr. Ebersman told some bankers that he is skeptical over what contribution investment banks could make to a Facebook IPO, since the company is so highly sought after by major investors, said people familiar with the matter.

The social network, which was started by Mr. Zuckerberg in 2004 out of his Harvard University dorm room, has led the way in reshaping how people share information and interact with others on the Web. It now counts 800 million users, with 500 million users logging into the site daily.

Facebook will be required to make its financial information public by April, because the company will cross the 500-shareholder limit by the end of this year. The SEC requires companies with more than 500 shareholders to publicly disclose its financial information.

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Facebook could publish its financial information come April without an IPO, but board members and top executives have privately acknowledged that it would leave the company at a severe disadvantage, since they would have most of the liability that comes with being a public company, but lose out on the fundraising benefits of a public offering, said these people.

Only 13 IPOs have ever been completed with a value greater than $10 billion, and just three of those have been for U.S. companies, according to Dealogic, which tracks new securities issues. The only U.S. issuers at that size level have been Visa Inc. at $19.7 billion in 2008; General Motors Co. at $18.1 billion in 2010; and AT&T Wireless Services Inc. at $10.6 billion in 2000.

The most valuable company ever to go public was Industrial & Commercial Bank of China, which sold $21.9 billion of stock in October 2006 and finished its first day of trading with a market value of $148 billion, Dealogic said.

A Facebook offering of $10 billion would be the largest IPO by any technology or Internet company. The largest U.S. Internet IPO, the $1.9 billion sale in 2004 by Google Inc. which valued Google at $23 billion, ranks No. 3 among global Internet IPOs.

Facebook's revenue is driven by its online advertising business, as big brands rush to the site to interact with consumers through display ads and fan pages. Facebook's world-wide ad revenue is expected to hit $3.8 billion this year, up from $1.86 billion a year earlier, according to data compiled by eMarketer. Facebook's share of display ad revenue in the US is expected to grow to 16.3% in 2011 and 19.5% in 2012, eMarketer found.

COMMENTARY:   Facebook is finally coming to the realization that they must file for an IPO or have to disclose their financial information.  The IPO may window may also be closing more quickly than everybody thought.  

In a blog post dated November 27, 2011, I wrote that Facebook would have to eventually charge users because of what I considered a flawed ad-supported revenue model, potential loss of Zynga which uses Facebook as a platform for their social games, and the reality that the social giant has reached a critical inflection point when growth in users in no longer exponential, slowing down due to market saturation, and the affect this will have on their advertising revenues.  

Facebook also needs to look in their rear view mirror and contend with Google+, Google's social network launched at the end of June.  

As of late, Facebook has not been all that impressive and committed numerous blunders:

• Facebook reached 800 million in users, but has not been able to fully capitalize on their huge user base and dramatically increase their advertising revenues, which comprises 93% of their total revenues.  In fact, eMarketer, reduced Facebook's year 2011 advertising revenues forecast from $4 billion to $3.7 billion.
• Facebook is still blocked from entering China, a huge potential market that could reach $5 billion in online advertising by 2015.  Facebook is completely locked out.  
• Facebook is facing significant resistance from large national TV advertisers, who don't believe Facebook offers high enough ROI's to justify transfering their advertising dollars to social media.  50% of small businesses don't do any advertising on Facebook.
• Facebook shutdown Facebook Places, their location-based check-in service and surrendering that market to foursquare, the LBSN market leader.
• Facebook shutdown Facebook Deals, their daily deals service and surrendering the daily deals market to market leaders Groupon and LivingSocial.
• Zynga, the social game maker, has plans to build their own game site and is hinting at leaving Facebook. Zynga also filed for an IPO, and their profitability has been severaly impacted by having to pay 30% of their revenues from the sale of Facebook Credits to Facebook.  The handwriting is on the wall.
• Facebook just settled with the Federal Trade Commission over numerous privacy violations. They will now join Google and Twitter to go on 20-year probation and face annual privacy audits. 

Keep in mind that not a single startup that I have covered, from Angie's List-to-Groupon-to-Pandora-to-Yelp-to-Zynga ever came close to their estimated revenue numbers.  Nearly all of them also lost money. Such is the case with many of today's internet startups.    

Groupon was the biggest money loser of them all, yet they had a fairly successful IPO.  I also covered LinkedIn, even wrote a LinkedIn IPO nine-part series criticizing their valuation, but they surprised me with a profit when they filed their S-1, but their profitability has not been what I call stellar.

Incidentally, Groupon and Pandora are all now selling below their IPO price.  Pandora which came out at $12.50, and went to $15.00 has collapsed, and is now trading at $10.52. Groupon, which came out at $17 per share on their IPO day,  ended trading at $31.54, but has also collapsed, and is now trading at $15.25.  

LinkedIn, whose stock sold at $45, then went to $122 and ended their first day of trading at $94.25, has had a series of ups and downs, and at the end of trading day today are now at $60.00, their lowest price since the IPO. That's a loss of one-third their market capitalization since their IPO.

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Look, I'm not saying that the same fate that has hit the above startups will also hit Facebook. Unless the stock market goes to hell-in-a-hand-basket between now and the start of Q2 2012, a distinct possibility given the sovereign debt problems in the Eurozone, slow U.S. recovery, and unsettled budget deficit by Congress and automatic cut of $1.5 trillion over 10 years.  Facebook should have a very successful IPO, but a lot will depend on their "real" numbers and prospects for the future.  

Investors will have lots of questions:  Do they really have 800 million users?  How are their monthly average users trending?  What were their real revenues and earnings?  How many shares are going to be floated?  What are their plans for that $10 billion?   If they expect to raise $10 billion, that translates into about 10% of the total outstanding shares.  Do I think Facebook can go to $100 a share on their IPO date?  Yes, I think that's a distinct possibility.  The Facebook Halo Effect and investor exhuberance at its best.  

But, with that kind of IPO, expectations will always remain very high for the social network giant, and any softening of revenues, loss of Zynga or other screwups, could spell disaster.

In conclusion, Zuck has not impressed me very much with his management skills and their strategy has been nothing short of a failure, in spite of this, Facebook shares are now selling at $30.00, but have shown some evidence of softening in the secondary market.  

Courtesy of an article dated November 28, 2011 appearing in The Wall Street Journal

MOBILE SPEED SELLING AND BUYING SITE ZAARLY RAISES $14 MILLION IN VENTURE CAPITAL, COMPETES AGAINST CRAIGSLIST AND EBAY

EBay transformed the way people sold vintage trinkets online. Craigslist changed the way people bought new sofas and hunted for apartments in their towns. A new start-up called Zaarly hopes to alter the way people outsource simple errands and tasks.

Zaarly Homepage (Click Image To Enlarge)

On October 26, 2011, Zaarly announced that it raised $14.1 million in financing from Kleiner Perkins and Sands Capital Ventures, among others. Previously, the company raised a seed round of $1 million from a notable list of investors, including Ashton Kutcher, Ron Conway, Paul Buchheit and Lightbank, among others. The company says it will use the fresh money to invest in its operations and technical development, as well as to hire employees to zero in on connecting buyers and sellers in each specific market.

Zaarly CEO and founder Bo Fishback

But Bo Fishback, the chief executive and founder of the company, said the most exciting piece of the news was that the company was  also gaining Meg Whitman, the chief executive of Hewlett-Packard and the former chief executive of eBay, as a board member.

He said. 

“She joined eBay when it was almost the exact same size Zaarly was, 30 people.  In the world of building marketplaces, build trust and engage in the community, there’s no one better than her.”

Zaarly, which was beta-tested in Austin, Tex., during South by Southwest last March, was introduced nationally in early May. Since then, the company says the service has attracted more than 100,000 users, with more than $6 million in transactions posted to the site. The site works by letting people post requests for an item or service, and then lets other people, businesses and companies bid to fulfill those needs. Once an agreement is met, Zaarly connects the two parties so they can complete the deal. People can either pay in cash, or through Zaarly’s payment system.

 

Mobile speed selling and buying apps like Zaarly and Task Rabbit are creating a mobile marketplace for peer-to-peer transactions, in real time and in the immediate vicinity of the users. WSJ's Andy Jordan checks out a few, and farms out the bathing of his own cat.

Mr. Fishback said Ms. Whitman’s expertise would come in handy as the company began building momentum in major cities, each which have their own particular quirks and demands. In Los Angeles, for example, the market for second-hand cars is denser than in New York, where Zaarly users are much more interested in hiring people to help them out with service and errand-oriented tasks.

He said.  

“Until now, our main goal was to get it up and running.  Now, we have to figure out how to really nail a hyperlocal technology company.”

COMMENTARY:   Zaarly is an interesting concept, especially when you incorporate mobile technology to bring buyers or sellers together near where you live.  It means you can sell just about anything--anytime and anyplace, and get offers to what you are offering for sale or looking to buy anytime and anyplace.  

Zaarly isn't alone in this mobile, speed selling and buying market.  Task Rabbit, another startup, is a more task-related service site, where individuals offer their services for hire.  With unemployment being what it is, this could become a favorite for those looking to make some cash by selling their services, special skills and knowledges.  

Task Rabbit also allow buyers of services to post reviews for the inidividuals performing the tasks. This is more like eBay, since it reduces the risk of hiring the wrong person to perform the task.   

If you are a SELLER, Zaarly offers the following screen that explains How Selling Works:

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If you are a BUYER, Zaarly offers the following screen that explains How Buying Works:

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I didn't download or use the Zaarly mobile app because I don't own an iPhone or Android phone, so I didn't have an opportunity to try out the app, but you can use Zaarly online using your desktop or laptop without any problems.

I tested Zaarly by first registering and then listing that I wanted to purchase a laptop and would be willing to pay a certain price.  This was at 11:30 a.m. PST.  I received the following email response from a seller at 11:38 a.m. PST, but it didn't match my specific requirements so I turned it down.

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Right after I sent my response to the seller, I received another email from Zaarpy:

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I clicked on the "Click here" link and saw an online record the seller's offer and my response (see below).  Zaarly does a good job of keeping track of all communications between sellers and buyers in the same fashion as eBay does when you place a bid.     

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Both Buyers and sellers must adhere to certain Marketplace Rules.  

Your Zaarly account is FREE, the leads are FREE,  FREE to place offers, FREE to get jobs, and completely FREE to post to buy on the site too.   Users are going to love FREE.  They should promote the FREE more.

The only thing that costs money is if you choose to use Zaarly to accept credit card payments.  We allow you to accept payments incredibly quickly and easily.  The money just shows up in your bank (or Paypal) account within 48 hours of the buyers payment.  The cost is 10% of the transaction, to cover credit card and bank fees.  

I can definitely see where Zaarly could become a potentially huge money maker and give Craigslist and eBay a run for their money. They keep 10% of all sales transactions from sellers using their credit card payment system.  If they do $1 billion in sales, and 5% use the credit card payment method, that's $50 million in transactions x 10% = $5 million profit.  That 10% is a userous if you ask me.

The one potential problem that I see, is that there are no real barriers to entry to overcome.  They already have one competitor in Task Rabbit, and there will probably be more.  The competitive situation could become intense like deal sites Groupon and LivingSocial.  What is Craigslist began doing the same thing.     

Zaarly and Task Rabbit have first-mover advantages, which catapulted Groupon into No 1 in the deal industry space.  I do prefer Zaarly's business model over Groupon any day.

The articlles covering both Zaarly and Task Rabbit refer to their services as "virtual assistants" or "personal assistants", but I much prefer "mobile speed buying and selling" because it's really a classifieds mobile marketplace to sell things (goods and services) anytime, and not just for performing odd jobs or services like "picking up the groceries once a week" or "walking my dogs". I like the fact that buyers can list what they want to buy, which is really, really convenient. Let the sellers come to you.  Great idea.  

I am very impressed with the background and experience of Bo Fishback, Zaarly's founder and CEO.  He has the entrepreneurial experience while working for the Kauffman Foundation and founded several bioscience startups.  He has an MBA from Harvard, too.   He'll need that and more.

Courtesy of an article October 25, 2011 appearing in The New York Times blog and an article dated November 27, 2011 appearing in The Wall Street Journal

NASA LAUNCHES NASA'S MARS SCIENCE LABORATORY 'CURIOSITY' ROVER ON A MISSION TO FIND EVIDENCE OF LIFE ON MARS

CAPE CANAVERAL, Florida – The world's biggest extraterrestrial explorer, NASA's Curiosity rover, rocketed toward Mars on Saturday on a search for evidence that the red planet might once have been home to itsy-bitsy life.

It will take 8½ months for Curiosity to reach Mars following a journey of 354 million miles.

 

NASA's Curiosity rover has begun the journey to Mars after its Atlas V rocket launched successfully from the Cape Canaveral Air Force Station on Nov. 26. Ten instruments aboard MSL will provide new data about whether the area within and around Mars' Gale Crater could ever have supported microbial life. The Mars Science Laboratory is expected to reach Mars next August.     

An unmanned Atlas V rocket hoisted the rover, officially known as Mars Science Laboratory, into a cloudy late morning sky. A Mars frenzy gripped the launch site, with more than 13,000 guests jamming the space center for NASA's first launch to Earth's next-door neighbor in four years, and the first send-off of a Martian rover in eight years.

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NASA astrobiologist Pan Conrad, whose carbon compound-seeking instrument is on the rover, had a shirt custom made for the occasion. Her bright blue, short-sleeve blouse was emblazoned with rockets, planets and the words, "Next stop Mars!"

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Conrad jumped, cheered and snapped pictures as the rocket blasted off a few miles away. So did Los Alamos National Laboratory's Roger Wiens, a planetary scientist in charge of Curiosity's rock-zapping laser machine, called ChemCam.

Wiens shouted "Go, Go, Go!" as the rocket soared. "It was beautiful," he later observed, just as NASA declared the launch a full success.

 

In NASA's video Part I, NASA scientists provide background information on previous missions to the planet Mars, the evolution of Mars including its past history and whether it ever contained habitable life, the complexity of sending the MSL to Mars and safely landing the Curiosity Rover on the surface of Gale Crater its landing site, and the Curiosity Rover's exploration of Gale Crater and collecting rock and soil samples for signs of previous habitable life.  

The 1-ton Curiosity — as large as a car — is a mobile, nuclear-powered laboratory holding 10 science instruments that will sample Martian soil and rocks, and analyze them right on the spot. There's a drill as well as a stone-zapping laser machine.  

 

NASA's video Part II provides a breathtaking animation of the MSL spacecraft as it approaches Mars, cruises into Mars orbit and locates Gale Crater, its landing site; The MSL as it makes its Mars entry approach, begins its descent through the Martian atomosphere and safely lands on the surface of Gale Crater; and a view of the Curiosity Rover as it begins exploring Gale Crater, drilling rock and collecting soil, then using its onboard science lab to analyze the rock and soil samples for evidence of previous habitable life; and how the Curiosity Rover communicates with an orbiting Mars satellite that transmits valuable scientific data and Mars images back to NASA on Earth.

NASA's Colleen Hartman, assistant associate administrator for science said.

"It's really a rover on steroids.  It's an order of magnitude more capable than anything we have ever launched to any planet in the solar system.

The primary goal of the $2.5 billion mission is to see whether cold, dry, barren Mars might have been hospitable for microbial life once upon a time — or might even still be conducive to life now. No actual life detectors are on board; rather, the instruments will hunt for organic compounds.

Curiosity's 7-foot arm has a jackhammer on the end to drill into the Martian red rock, and the 7-foot mast on the rover is topped with high-definition and laser cameras. No previous Martian rover has been so sophisticated or capable.

With Mars the ultimate goal for astronauts, NASA also will use Curiosity to measure radiation at the red planet. The rover also has a weather station on board that will provide temperature, wind and humidity readings; a computer software app with daily weather updates is planned.

The world has launched more than three dozen missions to the ever-alluring Mars, which is more like Earth than the other solar-system planets. Yet fewer than half those quests have succeeded.

Just two weeks ago, a Russian spacecraft ended up stuck in orbit around Earth, rather than en route to the Martian moon Phobos.

Hartman said.  

"Mars really is the Bermuda Triangle of the solar system.  It's the death planet, and the United States of America is the only nation in the world that has ever landed and driven robotic explorers on the surface of Mars, and now we're set to do it again."

Curiosity's arrival next August will be particularly hair-raising.

In a spacecraft first, the rover will be lowered onto the Martian surface via a jet pack and tether system similar to the sky cranes used to lower heavy equipment into remote areas on Earth.

Curiosity is too heavy to use air bags like its much smaller predecessors, Spirit and Opportunity, did in 2004. Besides, this new way should provide for a more accurate landing.

Astronauts will need to make similarly precise landings on Mars one day.

Curiosity will spend a minimum of two years roaming around Gale Crater, chosen as the landing site because it's rich in minerals. Scientists said if there is any place on Mars that might have been ripe for life, it would be there.

 Conrad said with a chuckle earlier in the week.

"I like to say it's extraterrestrial real estate appraisal."

The rover — 10 feet long and 9 feet wide — should be able to go farther and work harder than any previous Mars explorer because of its power source: 10.6 pounds of radioactive plutonium. The nuclear generator was encased in several protective layers in case of a launch accident.

NASA expects to put at least 12 miles on the odometer, once the rover sets down on the Martian surface.

This is the third astronomical mission to be launched from Cape Canaveral by NASA since the retirement of the venerable space shuttle fleet this summer. The Juno probe is en route to Jupiter, and twin spacecraft named Grail will arrive at Earth's moon on New Year's Eve and Day.

NASA hails this as the year of the solar system.

COMMENTARY:   I was very excited to hear that the Atlas V rocket carrying the Mars Science Laboratory and Curiosity Rover were successfuly launched into outer space on Saturday, November 26, 2011.  

MSL embarks on a nine-month trip to the Red Planet, where it will arrive sometime in August 2012. If everything goes well, and we safely land the Curiosity Rover on Gale Crater, we will hopefully know whether there ever was or still exists habitable life on the planet Mars.  It would be an incredible discovery knowing that there is evidence of life outside planet Earth.    

I covered the Mars Science Laboratory and Curiosity Rover  in two previous blog posts dated April 10, 2011 and August 9, 2011 and hope you will take the time to read them and view the array of videos and pictures of the Curiosity Rover as it was being built, if you haven't already done so. 

History of Exploratory Space Probes To Mars

The U.S. is not the first country to send exploratory space probes to the Red Planet.  The Russians were the first, sending three probes:  

• Mars 2 - Launched in 1971, but it malfunctioned and crashed on the surface of Mars. 
• Mars 3 - Landed successfuly on the surface of Mars on December 2, 1971, but ceased radio transmission after 15 seconds. 
• Mars 6 - Launched in 1973, sent data while descending, but failed to land successfully.

The U.S. has successfully landed six exploratory probes or rovers on the surface of Mars since 1975.   All of them took images analyzed data and transmitted the data back to NASA. 

Below is a list of all missions sent to Mars by the U.S. and Russia, including the landing or crash sites since 1970:  

Source SPACE.com (Click Image To Enlarge)

 The Curiosity is the fourth in the series of robotic Mars exploration rovers (MER), and is designed very differently than  first three: Pathfinder, Spirit andOpportunity, which were a lot smaller and equipped with their characteristic solar panel wings on the top.  

• Pathfinder landed on Mars on July 4, 1997.  Communications was lost on September 27, 1997. 
• Spirit landed successfully on Mars on January 4, 2004. Nearly 6 years after the original mission limit, Spirit had covered a total distance of 7.73 km (4.80 miles) but its wheels were trapped in sand. Around January 26, 2010, NASA admitted defeat in its efforts to free the rover and stated that it would now function as a stationary science platform. Since March 22, 2010 there has been no communication from the rover, though there is still hope that it may resume communication because the opportunity for energy generation will increase in its current location until mid-March 2011.
• Opportunity landed successfully on January 25, 2004. Rover was still operating as of January 2011, surpassing the previous record for longevity of a surface mission to Mars on May 20.

Click Image To Enlarge

Mars Science Laboratory 'Curiosity' Rover Specifications

Major dimensions for the previous MER rovers are:

• Height: 1.5m / 4.9 ft (inc. deployed PMA)
• Width: 2.3m / 7.5 ft
• Length: 1.6m / 5,2 ft
• Mass: 174 kg / 384 lb : However, this may not be quite correct. According to Design and Verification of the MER Primary Payload, the total mass of the Mars Exploration Rover is 180.1 kg. Of this, the mass of the Rover WEB is 145.6 kg, and the mass of Rover mobility components (e.g. wheels, rocker-bogie suspension) is 34.5 kg.

Curiosity is comparable in size to a small car – a hull 4 m, weight 930 kg wtih equipment. Previous MER rovers (Pathfinder, Spirit and Opportunity)  had a much more modest dimensions (above). 

Click Image To Enlarge

Mars Science Laboratory 'Curiosity' Rover Mission and Key Elements

The key elements of the Mars Science Laboratory's Curiosity Mars rover are biological and technological:

• Search for evidence of life on Mars.
• Demonstrate the ability to land a very large, heavy rover to the surface of Mars (which could be used for a future Mars Sample Return mission that would collect rocks and soils and send them back to Earth for laboratory analysis)
• Demonstrate the ability to land more precisely in a 20-kilometer (12.4-mile) landing circle
• Demonstrate long-range mobility on the surface of the red planet (5-20 kilometers or about 3 to 12 miles) for the collection of more diverse samples and studies.
• Curiosity, will use a laser that will be used to zap rocks and patches of soil with enough power to generate a flash revealing each target's atomic ingredients.

These are elements that will become increasingly important as we approach sending manned missions the Phobos, and later to Mars itself.   Visit the Mars Science Laboratory website to read press releases, view pictures and videos of NASA scientists during the construction, testing, preparation for launch and launch of the MSL 'Curiosity' Rover.

Mars' Gale Crater: Curiosity Rovers Landing Site

On July 22, 2011, NASA announced that Gale Crater, an ancient, 150-kilometer-wide depression with a large mountain in the middle will be the landing site for the Mars rover Curiosity.  Gale Crater’s central mound is a 5-kilometer-tall stack of sediments that scientists can read like chapters in a history book. The rocky pages will reveal Mars’ geologic and environmental history, including how much water may have drenched the basin once upon a time. The crater also features canyons and fissures that may once have been habitable.

Click Images To Enlarge

11 Amazing Things The Curiosity Rover Can Do

The car-size Curiosity rover is the centerpiece of NASA's $2.5 billion Mars Science Laboratory (MSL) mission, which blasted off Saturday (Nov. 26) from Cape Canaveral Air Force Station in Florida. Curiosity's main goal is to assess whether the Red Planet is, or ever was, capable of supporting microbial life.

The rover will employ 10 different science instruments to help it answer this question once it touches down on the Red Planet in August 2012. Here's a brief rundown of these instruments (and one more on the rover's heat shield):

1. Mast Camera (MastCam) - The MastCam is Curiosity's workhorse imaging tool. It will capture high-resolution color pictures and video of the Martian landscape, which scientists will study and laypeople will gawk at.  It  consists of two camera systems mounted on a mast that rises above Curiosity's main body, so the instrument will have a good view of the Red Planet environment as the rover chugs through it. MastCam images will also help the mission team drive and operate Curiosity. [Photos of NASA's Curiosity Rover]
2. Mars Hand Lens Imager (MAHLI) - MAHLI will function much like a high-powered magnifying glass, allowing Earthbound scientists to get up-close looks at Martian rocks and soil. The instrument will take color pictures of features as tiny as 12.5 microns — smaller than the width of a human hair.   MAHLI sits on the end of Curiosity's five-jointed, 7-foot (2.1-meter) robotic arm, which is itself a marvel of engineering. So mission scientists will be able to point their high-tech hand lens pretty much wherever they want.
3. Mars Descent Imager (MARDI) - MARDI, a small camera located on Curiosity's main body, will record video of the rover's descent to the Martian surface (which will be accomplished with the help of a hovering, rocket-powered sky crane). [Video: Curiosity's Peculiar Landing]   MARDI will click on a mile or two above the ground, as soon as Curiosity jettisons its heat shield. The instrument will then take video at five frames per second until the rover touches down. The footage will help the MSL team plan Curiosity's Red Planet rovings, and it should also provide information about the geological context of the landing site, the 100-mile-wide (160-km) Gale Crater.
4. Sample Analysis at Mars (SAM) -  SAM is the heart of Curiosity; at 83 pounds (38 kilograms), it makes up about half of the rover's science payload.  SAM is actually a suite of three separate instruments — a mass spectrometer, a gas chromatograph and a laser spectrometer. These instruments will search for carbon-containing compounds, the building blocks of life as we know it. They will also look for other elements associated with life on Earth, such as hydrogen, oxygen and nitrogen.  The SAM instrument suite is located in Curiosity's main body. The rover's robotic arm will drop samples into SAM via an inlet on the rover's exterior. Some of these samples will come from the interior of rocks, powder bored out by a 2-inch (5-centimeter) drill situated at the end of the arm.  None of Curiosity's predecessors could get deep into Martian rocks, so scientists are excited about the drill. "For a geologist that studies rocks, there's nothing better than getting inside," said MSL deputy project scientist Joy Crisp, of NASA's Jet Propulsion Laboratory in Pasadena, Calif.
5. Chemistry and Mineralogy (CheMin) - CheMin will identify different types of minerals on Mars and quantify their abundance, which will help scientists better understand past environmental conditions on the Red Planet.  Like SAM, CheMin has an inlet on Curiosity's exterior to accept samples delivered by the rover's robotic arm. The instrument will shine a fine X-ray beam through the sample, identifying minerals' crystalline structures based on how the X-rays diffract.  "This is like magic to us," Crisp told SPACE.com. X-ray diffraction is a leading diagnostic technique for Earthbound geologists, she explained, but it hasn't made it to Mars yet. So CheMin should help Curiosity provide more definitive mineral characterizations than previous Mars rovers such as Spirit and Opportunity have been able to achieve. 
6. Chemistry and Camera (ChemCam) - For sheer coolness, it's tough to beat ChemCam. This instrument will fire a laser at Martian rocks from up to 30 feet (9 meters) away and analyze the composition of the vaporized bits.  ChemCam will thus enable Curiosity to study rocks that are out of reach of its flexible robotic arm. It will also help the mission team determine from afar whether or not they want to send the rover over to investigate a particular landform.  ChemCam is composed of several different parts. The laser sits on Curiosity's mast, along with a camera and a small telescope. Three spectrographs sit in the rover's body, connected to the mast components by fiber optics. The spectrographs will analyze the light emitted by excited electrons in the vaporized rock samples.
7. Alpha Particle X-Ray Spectrometer (APXS) - APXS, which sits at the end of Curiosity's arm, will measure the abundances of various chemicalelements in Martian rocks and dirt.  Curiosity will place the instrument in contact with samples of interest, and APXS will shoot out X-rays and helium nuclei. This barrage will knock electrons in the sample out of their orbits, causing a release of X-rays. Scientists will be able to identify elements based on the characteristic energies of these emitted X-rays.  Spirit and Opportunity were outfitted with a previous version of APXS and used the instrument to help elucidate the prominent role water has played in shaping the Martian landscape. [Latest Mars Photos From Spirit and Opportunity]
8. Dynamic Albedo of Neutrons (DAN) - DAN, located near the back of Curiosity's main body, will help the rover search for ice and water-logged minerals beneath the Martian surface.  The instrument will fire beams of neutrons at the ground, then note the speed at which these particles travel when they bounce back. Hydrogen atoms tend to slow neutrons down, so an abundance of sluggish neutrons would signal underground water or ice.  DAN should be able to map out water concentrations as low as 0.1 percent at depths up to 6 feet (2 m).
9. Radiation Assessment Detector (RAD) - The toaster-size RAD is designed specifically to help prepare for future human exploration of Mars. The instrument will measure and identify high-energy radiation of all types on the Red Planet, from fast-moving protons to gamma rays.  RAD's observations will allow scientists to determine just how much radiation an astronaut would beexposed to on Mars. This information could also help researchers understand how much of a hurdle Mars' radiation environment might have posed to the origin and evolution of life on the Red Planet.
10. Rover Environmental Monitoring Station (REMS) - This tool, which sits partway up Curiosity's mast, is a Martian weather station. REMS will measure atmospheric pressure, humidity, wind speed and direction, air temperature, ground temperature and ultraviolet radiation.  All of this information will be integrated into daily and seasonal reports, allowing scientists to get a detailed look at the Martian environment.
11. MSL Entry, Descent and Landing Instrumentation (MEDLI) - MEDLI isn't one of Curiosity's 10 instruments, since it's built into the heat shield that will protect the rover on its descent through the Martian atmosphere. But it's worth a few words here. MEDLI will measure the temperatures and pressures the heat shield experiences as the MSL spacecraft streaks through the Martian sky. This information will tell engineers how well the heat shield, and their models of the spacecraft's trajectory, performed.  Researchers will use MEDLI data to improve designs for future Mars-bound spacecraft.

I will continue to update my blog fans on the progress of the Mars Science Laboratory 'Curiosity' Rover and its approach and safely landing on Gale Crater on the surface of Mars sometimes in August 2012.  See you then.

Courtesy of an article dated November 28, 2011 appearing in USA Today, an article dated August 27, 2011 appearing in ScienceNews and an article dated November 20, 2011 appearing in Space.com

KILOBOTS, TINY PROGRAMMABLE ROBOTS WITH TOOTHPICK-LIKE LEGS THAT YOU CAN USE IN SWARMS TO PERFORM SIMPLE TASKS

The Kilobot, a little robot that can coordinate with other Kilobots to perform simple tasks, is now available for purchase by anyone, from curious computer programmers to evil geniuses.

Brace yourself for the coming robot invasion. Scientists at Harvard University have developed the Kilobot—a quarter-sized robot with little toothpick-like legs that can swarm with its fellow Kilobots and act as a unit. This isn’t something that will come down the line in a decade; the robots are already on sale. You can buy them online now for all your robot swarm needs.

The following video is an introduction to Kilobot explaining the inerds of Kilobot and what makes it tick:

 

At $14 a pop (in construction costs), the Kilobots are actually cheap enough to create a swarm, if you’re so inclined. Unlike other robot swarm prototypes, they can be programmed en masse with an infrared controller and charged simply by moving in between a pair of conductive surfaces.

The following video shows a Kilobot collective of up to 29 robot demonstrating some popular collective behaviors such as follow-the-leader and foraging.

 

But these swarms won’t be programmed to attack us. The bots are designed to make it easy for researchers to test collective algorithms on hundreds or even thousands of robots—something that was virtually impossible before the ultra-cheap Kilobot came along.

Kilobot Swarm

Michael Mitzenmacher, Area Dean for Computer Science at the Harvard School of Engineering and Applied Sciences, explained in a statement.

"The Kilobot will provide researchers with an important new tool for understanding how to design and build large, distributed, functional systems."

Click Images To Enlarge

So far, scientists have figured out how to program the Kilobots to "forage," synchronize, and get in formation. Eventually, similarly controlled bots could move through disaster situations to find survivors (like these other disaster bots), create support structures in collapsed buildings, and even help the dwindling bee population pollinate crops.

K-Team Mobile Robotics is producing and distributing the Kilobot, which they bill as

"A low-cost, easy-to-use robotic system for advancing development of 'swarms’ of robots that can be programmed to perform useful functions by coordinating interactions among many individuals."

That, or a low-cost, easy-to-use way to learn the basics of constructing evil robot swarms.

COMMENTARY:  In current robotics research there is a vast body of work on algorithms and control methods for groups of decentralized cooperating robots, called a swarm or collective. These algorithms are generally meant to control collectives of hundreds or even thousands of robots; however, for reasons of cost, time, or complexity, they are generally validated in simulation only, or on a group of a few 10s of robots.

To address this issue, Harvard University researchers Michael Rubenstein, Nicholas Hoff and Radhika Nagpal present Kilobot, a low-cost robot designed to make testing collective algorithms on hundreds or thousands of robots accessible to robotics researchers. To enable the possibility of large Kilobot collectives where the number of robots is an order of magnitude larger than the largest that exist today, each robot is made with only $14 worth of parts and takes 5 minutes to assemble. 

Kilobot is a low-cost, easy-to-use robotic system for advancing development of “swarms” of robots that can be programmed to perform useful functions by coordinating interactions among many individuals. These swarms are inspired by social insects, such as ant colonies, that can efficiently search for and find food sources in large complex environments, collectively transport large objects, and coordinate the building of nests and bridges in such environments. 

Following this inspiration from nature, robot swarms might one day tunnel through rubble to find survivors, monitor the environment and remove contaminants, assist dwindling bee populations in pollinating crops, and self-assemble to form support structures in collapsed buildings. The Kilobot is designed to provide scientists with a physical testbed for advancing the understanding of collective behavior and realizing its potential to deliver solutions for a wide range of challenges.

• Low cost
• Small, only 33mm of diameter
• Fine motor controlling (255 differents power levels)
• The Kilobot can communicate with neighbors up to 7 cm.
• Neighbor-to-neighbor distance sensing
• Ambient light sensing
• RGB led
• Rechargable and amovible battery
• Easy to manipulate, with the Kilobot controller you can program and control hundreds of Kilobot at one time.

Kilobot Charger

The Kilobot Charger (below) can charge up to 10 kilobots simultaneously when you place each Kilobot between the contacts of the charger.

Controller Board

The Kilobot controller board with the controller software (see next section) can manage a large amount of robots at one time.

It can communicate with Kilobots below using infrared light allowing a user to:

• Send a new program to all Kilobots at once.
• Control the Kilobots such as pausing and powering on/off

This action can be done for every Kilobot in an one-meter diameter area below the controller.

The Kilobot controller can program an individual Kilobot using the built-in ISP programmer. It can also connect to an individual Kilobot's serial output header so it can be displayed on a windows computer.

Controller Software

The Kilobot Controller software (picture below) is available for controlling the controller board, sending program files to the robots and controlling them. 

Click Image To Enlarge

The open source development software WinAVR combinated with AvrStudio from Amtel gives a C programming enviromnent. An API with basic functions such as motor speed, led control, distance measurement,... is available and some examples are provided.

Kilobot Specifications

If you are a do-it-yourselfer and electronically inclined below are the Kilobot specifications:

Click Image To Enlarge

Kilobot Pricing 

I pulled the following prices from RoadNarrows Robotics, a U.S. distributor of Kilobots located in Loveland, CO.:

• Kilobot 10-Pack - Includes 10 fully-assembled Kilobots - $1,375 SRP,  Special price $1,237.50
• Kilobot Charger - Can charge up to 10 Kilobots simultaneously - $226 SRP, Special price $203.40
• Kilobot Controller - Used to control the Kilobots and to download a new program to all Kilobots simultaneously - $552.60 SRP, Special Price $552.60  

NOTE:  The Special Prices are 10% off the SRP if you place your pre-order before December 14, 2011 only.

I am in the process of obtaining additional information about the Kilobot software and other specific details about the Kilobots.  As soon as I have this information will update this post.

Courtesy of an article dated November 22, 2011 appearing in Fast Company Design

AMAZON MISSES EARNINGS FORECAST FOR Q3 2011, BUT COULD SELL 12 MIL KINDLE FIRES IN 2012 & TAKE A 15% SHARE OF APPLE'S TABLET MARKET

The late Apple CEO Steve Jobs unveils the iPad (left) and the "new kid on the block' Amazon CEO Jeff Bezos unveils the Kindle Fire tablet. Can the lower-priced ($199) and "It's not an iPad, but it's not bad" Kindle Fire win against the premium-priced ($499-$699) and better performing Apple iPad?  A Citi analyst says YES.  

Hot Kindle Fire Sales

How many Kindle Fires will Amazon sell next year?

Enough to claim a decent chunk of the tablet market, says Citi analyst Mark Mahaney.

Mahaney estimates that Amazon will sell 12 million Fires in 2012 to wrest a 15 percent share of the tablet market from Apple. If he’s right, the Fire will end up generating about $3.2 billion in revenue, or about 5 percent of Amazon’s total.

Mahaney says. 

“The path is clear.  With an aggressive pricing strategy, an unmatched content cross-sell opportunity, a market-smart form factor, and probable product improvements — Amazon can own a substantial segment of the tablet market.”

Amazon Misses Q3 2011 Earnings Estimates

After market close Tuesday, November 23, Amazon CFO Thomas J.  Szkutak held a earnings call with analysts and media, and reported that earnings for Q3 2011 were $63 million, or 14 cents a share, compared to $231 million, or 51 cents a share, for the same period the year prior, a drop of 73% in earnings.     

Amazon's revenues rose 44 percent to $10.88 billion, but analysts had been expecting earnings of 24 cents a share on revenue of $10.9 billion, according to consensus estimates from Thomson Reuters.

Most of the decline in earnings was due to higher fulfillment, marketing, technology and content and G&A combined was $2.29 billion or 21.1% of sales, up approximately 290 basis points ( 2.9%) or $335 million from the nine months ending September 30, 2010.   Here are the three expenses responsible for most of the decrease in earnings for the quarter.

• Fulfillment - $1.09 billion or 10% of revenue compared with 8.7% the prior quarter.
• Tech and Content - $694 million or 6.4% of revenue compared with 5.1% the prior quarter.
• Marketing - $360 million or 3.3% of revenue compared with 3.1% the prior quarter.

The above three line items were up a combined $309 million.

Due to the poor Q3 earnings report, Amazon (NASDAQ:AMZN) stock dropped in price from $237.60 on October 24 to $198.40 on October 26.          

Amazon Prospects For Q4 2011

Amazon is looking forward to Q4, which includes the holiday shopping seasing and launch of the Kindle Fire.   Amazon forecasts sales of between $16.45 billion and $18.65 billion for Q4 2011. Operating income is expected to range from between a profit of $250 million or a loss of $200 million. 

COMMENTARY:  I agree with Mr. Mahoney optimistic assessment of Kindle Fire unit sales in 2012.  

Jeff Bezos is competing practically unopposed in the low-end market for tablets which didn't really exist until now.  Amazon's lone competitor in the low-end market is Barnes & Noble's Nook tablet (priced at $249), but the B&N announced their new tablet more than a month after Amazon unveiled the Kindle Fire, and its higher priced may hurt the book retailer's sales.  I think there is a huge opportunity for the Kindle Fire to thrive and dominate the low-end segment of the market, because Apple competes nearly unopposed in the high-end segment of the tablet market with a 90% share of the tablet market.

Apple appeals primarily to early adopters, Apple evangelists, more affluent and older Gen-X and young Boomers (35 to 49 years).   Amazon will be competing in the low-end where consumers are younger and less affluent (GenY or Millennials and high school and college students), Kindle eReader users upgrading to the Kindle Fire, and some of the GenX, young Boomers and retirees who have not purchased a tablet yet.  

Jeff Bezos has demonstrated that there is a demand for a fully-featured tablet priced at $199.  On October 25, 2011, Jeff Bezos said that the company is seeing huge demand for the Kindle eReader and underestimated demand for the Kindle Fire.   Bezos said.  

“In the three weeks since launch, orders for electronic ink Kindles are double the previous launch.  And based on what we’re seeing with Kindle Fire preorders, we’re increasing capacity and building millions more than we’d already planned.”  

Quanta Computer produces the Kindle Fire, but pre-orders were so brisk that Amazon has contracted with Foxconn Electronics, the giant Taiwanese contract manufacturer with plants in China that produces the iPad and iPhone.  Foxconn will begin production beginning in Q1 2012.

According to DigiTimes, Amazon is preparing to release the Kindle Fire in a new 8.9-inch and 10.1-inch screen sizes.  Production of the 8.9-inch Kindle Fire is set for production in Spring 2012, and the first shipments will begin in June 2012. 

DigiTimes said the 8.9 inch displays would be coming from suppliers Chunghwa Picture Tubes and LG Displays.   DigiTimes also names Samsung as an additional supplier of the 8.9-inch screens and say the larger screen sizes are due to the suppliers’ promotion of those 8.9-inch touchscreen panels.

Supply chain sources also said Amazon was trying to sidestep direct competition with tablet manufacturers releasing products in the 9.7-inch to 10.1-inch range.  Such devices would include Samsung’s Galaxy Tab 10.1, HP’s Touchpads, Skytex’s Windows tablets and Apple’s iPad. 

Amazon's Q3 2011 earnings report is cause for concern, but Amazon's revenues are growing so rapidly, that the company has had to make higher than anticipated investment in fulfillment, R&D and content, and marketing expenses to keep pace, and lay the foundation for higher revenues in Q4 due to Kindle Fire sales and for even higher shipments of the Kindle Fire in 2012 as noted above.

The other concern is just how much Amazon will lose on sales of the Kindle Fire.  By some estimates, the Kindle Fire costs $203.00 to produce.  This would mean that it's losing a minimum of $4.00 per unit sold.  Some estimate the number could be $15.00 per unit sold.  If Amazon sells 4 million Kindle Fire's as expected, it will generate an additional $8 billion in revenues in 2011. It could also lose $16 million before shipping costs, which is free unless you ship overnight.

Courtesy of an article dated November 22, 2011 appearing in All Things Digital and an article dated October 25, 2011 appearing in All Things Digital and an article dated October 25, 2011 appearing in Seeking Alpha

 

VENTURE CAPITALIST MARK SUSTER WARNS OF COMING ANGEL INVESTOR CRASH IN 2012 OR 2013 AT THE LATEST

Mark Suster, entrepreneur turned venture capitalist has a warning for angel investors

The entrepreneur turned VC warns that there is too much money chasing too few marketable ideas. The crash, he says, is coming next year.

Outspoken entrepreneur-turned-VC Mark Suster last night put a date on a prediction he has been making for some time in his blog about a coming crash for angel investors: The end will come next year. “And if not 2012,” he said. “Then 2013.”

Suster’s  prediction, made at the VentureShift conference at Le Poisson Rouge in New York’s Greenwich Village, adds to a chorus of warnings that the current surge in angel money into the startup market is going to end badly. Sean Parker made a similar prediction, reported here on Inc.com, earlier this week.

There are a couple key market forces creating the froth in the market, Suster said. Chief among them is what he identifies as a 90% drop in the cost of starting a company over the past 10 years, thanks to the adoption of open source programming and cloud-based business services, among other things. A startup ante that was $5 million in 2000 is now down to $5 thousand.

With the barriers to entry lowered, new players have rushed in.  Founders have grown younger and more tech-focused. Mentorship-led investors, like Y-Combinator and Tech Stars have stepped in to serve their needs and get access to the next Zuckerberg. For fear of missing out—the emotion Suster abbreviates as “FOMO”—VCs that ordinarily would have focused on larger deals have joined the move to early stage investing. The result merits yet another acronym: ENIFA. Or, Everyone Now is an F—g Angel.

The effect on valuations has been predictable.  Suster says.  

“There is too much money chasing too few great ideas.  People are paying too much for early stage funding.”

At some point, angels will realize that there is no way to get their money out at anything like what they paid, and the flow of money will shut down.

If you’re in the market for funding now, Suster says, grab what you can while the money is still flowing. He is making sure that all his portfolio companies at GRP partners have the funding to see themselves through a coming dry spell, and he advises startups to do the same.

Don’t wait until your product is fully featured before seeking funding.  He warns startup entrepreneurs to take the money while its available.  

“Most startups over-optimize. When the hors d’oeurve tray goes by, take two, and stick one in your pocket. Don’t spend everything right away.”

And then brace yourself. No one will ring a bell when the angel investing is ready to collapse.

“Have you ever read Nassim Taleb, author of Black Swan? We’re aren’t going to know until it happens.”

But Suster has no doubt that we are near the end of the great angel investing surge.  

“Are we in a bubble? Of course we are.”

COMMENTARY:   That's a bold prediction by my colleague Mark Suster.   But, it's not out of the realm of possibility for the following reasons:

• Shakeout in the venture capital firm indusry (See my March 14, 2011 blog post).
• Poor venture capital firm returns over a 10-year period (See my February 1, 2011 blog post).
• Venture capital firm fundraising is down (See my October 11, 2011 blog post).   
• Poor quality of IPO candidates (see my November 8, 2011 blog post).

All of the above are dimming the promise of a big exit for many venture capitalists.  Many angel investors seek a quick exit, generally between 3 to 4 years tops.  If the venture capital firms don't see a potential big exit via the IPO or acquisition route, the chances that angels will be able to cashout early are dramatically lessened.  We are already seeing the stock of several 2o11 IPO firms selling below their IPO stock prices.  

Venture capital firms are also having problems replenishing their portofolio funds, and the pipeline to fund new investments could be drying up quicker than many imagined.  

The IPO market is being affected by internal and external forces: Slow turnaround from the Great Recession, slow U.S. GNP growth, high unemployment, soverign debt problems in the Eurozone, Arab Spring Revolt has kept oil prices high, tremendous volatility in the public stock markets. 

There is a "herd" mentality among angels when they invest in a promising startup.  They invest in groups, and this tends to increase overall angel investments, and we are seeing evidence of this as I reported to you in my posts dated 12/9/10, 8/11/11 and 10/12/11.   I attribute this to the proliferation of angel investor groups, an abundance of information via the internet and the "Facebook Halo Effect," a.k.a. investor dellusion  and exhuberance.  They all seem to think they are investing in the next Facebook.  My advice, if there is already a lot of money being invested an industry for more than 6-8 months, it's too late to enter that industry.   

These are turbulent times for any angel, so if you are reading this, you know that I am right.  If you are the founder of a new startup checkout this video from a Funding Post venture capital conference in Sedona, AZ:

 

Courtesy of an article dated November 18, 2011 appearing in Inc

AT&T PROPOSED ACQUISITION OF T-MOBILE USA IN TROUBLE WITH DOJ, SO IT CHARGES-OFF $4 MILLION NO-DEAL PENALTY IN 4TH QTR

NEW YORK—AT&T Inc. said Thursday it would take a $4 billion charge in this year's final quarter, an acknowledgment the company's proposed $39 billion acquisition of Deutsche Telekom AG's T-Mobile USA faces an increasingly uphill battle.

The charge represents $3 billion in cash and $1 billion in spectrum, as AT&T promised Deutsche Telekom in case the deal was unable to secure regulatory approval.

The two companies said that on Wednesday they removed their merger application with the Federal Communications Commission. In Frankfurt Thursday, Deutsche Telekom said it will continue to pursue the sale.

It said.  

"As soon as is practical, Deutsche Telekom and AT&T intend to seek the necessary FCC approval." 

AT&T said the companies would concentrate their efforts on first obtaining antitrust clearance from the Department of Justice, either by prevailing in the federal lawsuit the department has brought to block the deal or by "alternate means"—presumably a settlement. Approval is needed from both the FCC and the Justice Department.

 

On Tuesday, FCC Chairman Julius Genachowski said he would seek a hearing on the AT&T deal, an indication the agency doesn't support the merger. That precipitated the change in course by AT&T, which as recently as last week said it was confident it would receive regulatory approval to buy T-Mobile.

The FCC said Tuesday that a hearing before an administrative law judge would follow the conclusion of the Justice Department trial, slated to begin in February. AT&T has already pushed the expected closing date of the deal back three months to as late as June. The merger agreement requires AT&T to secure all necessary approvals by Sept. 20, though the companies could agree to extend the deadline.

For Germany's Deutsche Telekom, the wrangling means more uncertainty over T-Mobile's future as it struggles to find its own niche in the U.S. market. The company has lost about 850,000 contract customers this year. For AT&T, a protracted battle could strain critical relationships in Washington.

Bernstein analyst Craig Moffett said on Tuesday.

"AT&T still has to do business with these agencies going forward, so there is a political cost to pursuing this to the bitter end." 

Carol Roos, an AT&T spokeswoman, declined to comment. T-Mobile representatives were unavailable for comment.

Obstacles to the merger are mounting. Sprint Nextel Corp., regional carrier C Spire Wireless and seven state attorneys general filed their own lawsuits against the merger, citing the potential for higher prices and diminished competition. And AT&T still faces scrutiny from the California Public Utilities Commission, which could rule the deal anticompetitive.

AT&T has said the merger will create new jobs and help it bring wireless broadband to more Americans faster and at lower cost. The deal would catapult AT&T ahead of Verizon Wireless as the largest U.S. carrier by subscribers.

FCC officials on Tuesday said they believed the combination of AT&T and T-Mobile would significantly diminish competition in the U.S. wireless market. They also questioned AT&T's statements that the merger would benefit consumers and allow the company to expand high-speed fourth-generation wireless service across the country faster.

COMMENTARY:  On March 20, 2011, AT&T agreed to acquire T-Mobile USA from Deutsche Telekom AG (FWB: DTE) for a cash and stock transaction valued at $39 billion.  

Under the terms of the deal, T-Mobile was to receive $25 billion in cash and $14 billion in AT&T stock, equating to 8% share in AT&T upon finalization.   If the deal fails, T-Mobile will receive $3 billion in compensation, surplus AWS spectrum from AT&T, and a reasonable roaming agreement.

The acquisition was supposed to be completed in about 12 months, pending approval of regulators, and both companies were to remain separate entities until then.    

AT&T claimed they will be able to cover 95% of the US with 4G LTE coverage.  If approved by the FCC, the deal will certainly go down as a game changer, as the number of major US wireless carriers will shrink from four to three.  

Below is the March 20, 2011 press release announcing the proposed acquisition of T-Mobile USA by AT&T from Deutsch Telecom AG:

 

AT&T and T-Mobile USA merger press release of March 20, 2011

View more documents from turk5555.

 

To give you some idea of the scale of this acquisition, the following is a summary of the AT&T acquisition of T-Mobile USA from Deutsch Telekom AG showing the scale of the two companies before and the new AT&T post-acquisition:

Click Image To Enlarge

The following maps show AT&T's LTE coverage before and after the acquisitioni of T-Mobile USA by AT&T from Deutsch Telecom AG.

Virginia:

Texas and Michigan:

As you can readily see that AT&T will have a virtual monopoly in Virginia, Texas and Michigan. That's not good for consumers.

AT&T has been trying to sell the idea that there is a radio spectrum shortage for wireless phones. However, Jon Healey of the LA Times wrote an article in April "Spectrum crisis? What spectrum crisis?".   Healey explained AT&T's deal "would eliminate one of the four largest US mobile phone networks and leave just two companies - AT&T and Verizon Wireless - in control of more than 70 percent of the market." Cisco did a projection that shows the "demand for mobile bandwidth will increase at a slower and slower rate in the coming years, as the penetration of smartphones slows."

Feld explains that AT&T originally assumed all the regulatory agencies would roll over and let them buy T-Mobile USA. Things appeared to be moving along in AT&T's favor until early August when AT&T attorneys mistakenly sent an incriminating internal document to the Federal Communications Commission (FCC). The unredacted internal letter says AT&T could spend $3 billion to $5 billion and provide true fourth generation - LTE (Long Term Evolution) coverage to 95 percent of the USA, instead of buying T-Mobile USA and paying $39 billion. This killed AT&T's key talking point with regulators and the press.  AT&T claimed that they need T-Mobile to increase LTE network coverage from 80 percent to 97 percent of the population.

All along AT&T has been applying a lot of lobbying pressure on Congress. On September 20th, 100 House Republicans signed a letter urging the Obama Administration to resolve the anti-trust lawsuit and let AT&T buy T-Mobile USA.  Research shows that 99 of those 100 Republican Congressmen have received political donations from AT&T lobbying efforts since 2009, according to a Bloomberg review of campaign finance records. The article says AT&T lobbying has given $963,275 to those US lawmakers who are urging approval of the T-Mobile USA deal. 

The Republicans are not alone in asking President Barack Obama to direct the Justice Department to settle this antitrust lawsuit. All 15 of the Democratic lawmakers, who signed their letter the same week as the Republicans, have benefited from AT&T’s lobbying money. In the 2010 election cycle, these Democratic lawmakers, were lobbied to the tune of $141,5000. Thus, AT&T has spent at least a million dollars attempting to influence Congress. More specifically to have Congress influence the President to make the US DoJ quickly settle their anti-trust lawsuit against AT&T's buyout of T-Mobile USA.

The DoJ complaint notes that the merger leads to unhealthy levels of concentration in 97 of the top 100 Standard Metropolitan Statistical Area (SMSA) markets. The Yankee Group analyzed the DoJ anti-trust suit assumptions and created a series of charts. 

The audacity of those 100 Republican and Democratic lawmakers to urge President Obama to recommend to the Department of Justice to approve AT&T's acquisition of T-Mobile USA.  I wish I had a list of those U.S. senators and congressmen.  I have just sent an email urging President Obama NOT to approve this acquisition.  This acquisition will not be good for consumers since it effectively gives AT&T penetration into 95% of U.S. households.   I thought we broke up the AT&T back in the 1980's to prevent monopoly power. 

If AT&T is charging off the $4 billion penalty if the acqusition is not approved by the FCC, then they must know with a high degree of certainty that the acqusition is not going to be approved. That stings, but since it's AT&T, that's just fine with me.  I don't trust any of these telecomm's one iota.

Courtesy of an article dated November 24, 2011 appearing in The Wall Street Journal and an article dated March 20, 2011 appearing in Smartkeitai.com and an article dated October 24, 2011 appearing in the Bright Side of News

OWNER OF LONDON'S WORLD FAMOUS 'MILK & HONEY' RAISES $1.5 MILLION THROUGH CROWDFUNDING SITE CROWDCUBE

The owner of some of London’s best loved bars, The Rushmore Group, satisfies its thirst for expansion with record crowdfunding investment.

The Rushmore Group, owner of three members’ clubs in London, today secured £1 million investment from 143 investors to fund the development of an exciting new venue in the heart of London, early next year. The investment, raised in only four weeks through the equity crowdfunding website Crowdcube, sets a new record for the largest amount of money raised using a crowdfunding website.

The Rushmore Group was founded in 2001 and is the well-established owner and operator of three members’ bars and clubs in London – Milk & Honey and The Player in Soho and Danger of Death on Brick Lane. The Group raised the growth finance through the Crowdcube web-based crowdfunding platform in return for 10 per cent equity.

Milk & Honey, SoHo, London (Click Images To Enlarge)

Jonathan Downey, founder and director of The Rushmore Group said:

“We are delighted to have successfully reached our £1 million target on Crowdcube. Crowdcube is a powerful new way to raise business finance and this investment wouldn’t have been possible without its innovative platform. The Group’s immediate aim is now the acquisition, refurbishment and launch of a new site in Soho, London.”

Jonathan Downey, founder Milk & Honey and The Rushmore Group

The investment sets a new record for the largest amount of money raised using a crowdfunding website anywhere in the World. The previous record set by a project on US-based crowdfunding giant Kickstarter, which raised $942,578, was easily beaten by The Rushmore Group’s £1 million ($1,579,550) raise on Crowdcube.

Crowdcube is the first crowdfunding website to enable the general public to invest and receive shares in UK-based companies that register on the site to raise finance. Instead of competing for limited business angel or venture capital funding or hard to get and expensive bank finance, small businesses use Crowdcube as a platform to connect with a nation of Armchair Dragons’ – ordinary people who provide investment in exchange for equity.

The food menu at Milk & Honey is a very simple affair:

Click Image To Enlarge

You can download their Drink Menu by clicking HERE.

 

Bartender Durham Atkinson of Milk & Honey, SoHo, London mixes a new cocktail drink

Darren Westlake, co-founder and CEO of Crowdcube said: “Raising £1 million for a single business on Crowdcube is a fantastic achievement but not a surprise to us. We firmly believe that raising finance using crowdfunding will transform the way businesses raise capital in the future. With over £1.4 million successfully raised on Crowdcube for British businesses since July 2011, we are bucking the trend and proving that there is now an alternative way to raise business finance in the UK.”

The Rushmore Group becomes the sixth deal to be completed on Crowdcube since July 2011 with successful investments now totalling over £1.4 million. The website has approaching 6,000 registered members who are seeking investment opportunities.

Small businesses and investors can sign up to Crowdcube for free. Entrepreneurs can register their business idea or company at www.crowdcube.com and only pay a fee when they successfully hit their investment target.

COMMENTARY:   1.0 million British pounds at the current rate of exchange is $$1,579,550. Damn impressive.   Jolly good ole chap.  However, surely there could've been far better businesses to invest your money into than a members-only speakeasy.   There were 143 individual investors, which averages $15,196 each.  I won't question the wisdom of those individuals, but I suspect this is a business deduction.

The Crowdcube Pitch

Jonathan Downey's pitch for his new speakeasy was very simple:

"The Rushmore Group is the well-established owner and operator of three members' bars and clubs in London and is seeking £1 million to fund future expansion plans."

His Crowdcube pitch for funding ended November 21, 2011.  His goal was to raise 1 million pounds and offer 10% equity in the new establishment.   There a total of 143 investors and the funding was successful.

The House Rules and Food & Drinks

There are some wishy-washy "house rules" (see below) at Milk & Honey, but the jolly ole English can be very formal (and rowdy at times).   

The food at both Milk & Honey's is unspectacular and English, but they do have oysters at 25 pounds for 12. Prices are low-to-mid range.  Check the menu above.   This is a speakeasy and drinks dominate.  Checkout their Drinks menu (see above link).

How To Become A Member

Full International Membership includes access to all of The Rushmore Groups establishments in London and U.S.:

• Milk & Honey, London
• The Player in Soho
• The East Room (Back Soon)
• The Clubhouse in Chamonix
• The Starland Social Club
• Danger of Death
• Milk & Honey, New York 
• Every new club they open

There are several Rushmore membership plans:

• International Membership (every club) /£400 + £50 Registration Fee
• Joint International Membership (every club / must live at same address) /£700 + £50 Registration Fee
• Five Year Membership (every club) /£1500 + £50 Registration Fee
• Joint Five Year Membership (every club / must live at same address) /£2500 + £50 Registration Fee
• Local Soho Membership (Milk & Honey and The Player only) /£250 + £50 Registration Fee
• Generation Y International Membership (every club)* /£250 + £30 Registration Fee
• Generation Y Local Soho Membership* (Milk & Honey and The Player only) /£150 + £30 Registration Fee

Here are the membership dues to join The Starland Social Club and Danger of Death:

• The Starland Social Club Membership only /£150 + £30 Registration Fee
• Danger of Death Membership only /£100 + £30 Registration Fee

Members may bring up to three guests without a reservation and more if you call ahead and we have space.  Membership is by invitation only. Completion of an application form and payment of the registration fee does not guarantee membership.  

House Rules

1. No name-dropping, no star fucking.
2. No hooting, hollering, shouting or other loud behavior.
3. No fighting, play fighting, no talking about fighting.
4. Gentlemen will remove their hats.  Hooks are provided.
5. Gentlemen will not introduce themselves to ladies.  Ladies, feel free to start a conversation or ask the bartender to introduce you.  If a man you don't know speaks to you, please lift your chin slightly and ignore him.
6. Do not linger outside the front door.
7. Do not bring anyone unless you would leave that person alone in your home.  You are responsible for the behavior of your guests.
8. Exit the bar briskly and silently.  People are trying to sleep across the street.  Please make all your travel plans and say all farewells before leaving the bar.

Milk & Honey is considered one of the Top Bars of the World, the bartenders are considered some of the best, and they have excellent reviews in Timeout and Yelp.

Courtesy of an article dated November 22, 2011 appearing in the Crowdcube blog

NETFLIX TO RAISE $200 MIL FROM NOTES CONVERTIBLE INTO NETFLIX STOCK AT $85.00, BUT STOCK HAS PLUNGED TO $69.00, WILL LOSE MONEY IN 2012

Five months ago, Netflix was a $300 stock.

Now it's a ~$69 stock.   Below is Netflix's stock chart since the start of 2011:

It's raising $400 million at its new, clobbered stock price to fund all its new content investments.

And... it's going to lose money next in 2012.

Yes, that's the latest news that Netflix tucked into the prospectus for the stock portion of its stock and convertible bond offerings:

"We expect that consolidated quarterly revenue will be relatively flat until we can achieve positive net subscriber additions. As a result of the relatively flat consolidated revenues and previously announced increased investment in our International segment, we expect to incur consolidated net losses for the year ending December 31, 2012." 

Previously, Netflix said it might lose money for the first few quarters of 2012. So this is a change.

For comparison, Netflix is projected to earn about $4.10 per share this year.

Will Netflix ever recover, or is it toast?

I'm optimistic, though this latest fund-raising and loss news is certainly an unwelcome surprise.

On a positive note, Netflix also says its subscriber cancellations in its hybrid streaming-and-DVD business are slowing, and gross additions for its streaming-only service are still strong...

Consistent with our Q4 guidance, our domestic streaming and DVD gross cancellations continued to steadily decline in October and the first half of November, while gross additions of new streaming subscribers remained strong. As a result, consistent with our prior guidance, we continue to expect our domestic streaming net additions to be about flat for November as a whole and strongly positive for December.

COMMENTARY:   Netflix's problems all began back on July 12, 2011, when it decided to eliminate its $9.99 monthly unlimited DVD-rental and streaming combination plan.  Instead, Netflix separated DVD and streaming services into two separate plans, each priced at $7.99.  A combo plan will still available, but at a new price of $15.98 per month, an increase of roughly 60%. 

Netflix also offered a a standalone DVD rental plan that let users check out two discs at a time for $11.99 per month.  The $7.99 DVD rental plan only let users check out one title at a time.  Netflix executives had no idea the uproar that the new pricing structure would create among its 24.6 million subscribers in the U.S.  

Immediately following the price increase, Netflix's customer service email box became flooded with incoming emails from angry customers complaining about the price increase.  This sparked a subscriber revolt and many of them cancelled their subscriptions, but it wasn't until later that Netflix realized the magnitude of the problem.

On July 13, 2011, Netflix's stock price peaked at $298.73.  Poor U.S. economic data and the sovereign debt problems in the Eurozone hit the stock market hard beginning in mid-July and the market did not begin a recovery until mid-August.  But, as you can see from the chart below, Netflix shares continued to their slide even after the DJIA and NASDAQ began to recover.

Click Image To Enlarge

On September 19, 2011, the Netflix CEO Reed Hastings said he was sorry for mishandling the price increase that caused customers to cancel the service in droves. But the apology was drowned out by a decision that angered subscribers all over again.  Netflix announced that it would split into two services -- the DVD by-mail rental service would be named Qwikster and Netflix would continue offering online streaming of TV shows and movies.  The split-up of the two services caused confusion in the marketplace and complicated what was a simple DVD rental business.  

By the end of September 2011, Netflix stock had dropped to $113. 27 per share, a decline of $185.46 or 62% of its market value since the July 13 peak. 

In its earnings call of October 24, 2011, Netflix announced its third quarter ending September 30, 2011 financial results.  Netflix reported that domestic revenues were $799 million, an increase of 44% over the same nine-month period the prior year.   The company also reported a domestic operating profit of $120 million and a profit margin of 15% for the year.  

Netflix also reported that it ended the third quarter 2011 with 21.4 million streaming subscriptions and 13.9 million DVD rental subscriptions.  It also reported that unique domestic subscribers declined to 23.8 million subscribers, and that the decline was due to a higher than expected level of cancellations and lower number of new subscriptions due to the negative press it had received. Netflix claimed it had 4.7 million new subscriber additions for the third quarter.

Netflix CEO Reed Hastings began the earnings call by saying,  

"What we've seen is a second wave of cancellations from the price increase.The first wave was in July upon announcement, and the second wave has been in September and October as people become more aware of the price increase and then either change the plan or cancel. And that wave has been declining very steadily over the past couple of weeks. And so we have substantially less weekly cancels now than we did just three to four weeks ago. So that's what gives us confidence that it's this wave passing through."   

On  October 25, 2011, Netflix shares plunged to $77.37 from $118.84 the day before, when it revealed that it ended September 2011 with 23.8 million U.S. subscribers--a drop of 800,000 from June 2011 and far worse than anything that the company had hinted at before.   Netflix also warned that it expected more defections in the coming months.

The results prompted a downgrade to "Neutral" from "Buy" from Citi Investment Research analyst Mark Mahaney, who also slashed his target price on the stock to $95 from $220. The analyst called the price increase and the abandoned plan to separate Netflix's DVD business two "major execution errors."  

Netflix's plans to raise an additional $200 million to fund its content production and acquisition activies via notes receivable convertifle into Netflix stock at $85.00, presents a real problem when its stock is currently trading at $69.00.  It also announced in its notes prospectus that it will lose money in 2012.        

 

Netflix could not have timed the sale of that $200 million in notes at a worse time, when its stock price has been downgraded by analysts, its shares have already plunged $229 or 57.5% since the July 13 high, and it is has forecasted losses in 2012.  Technology Crossover Ventures will be the lucky investor buying those notes, and have the right to nominate one person to the board of Netflix.  Netflix shares have dropped another 5 points since the announcement of those notes.  Are those guys having any second thoughts?  Makes you wonder just how low Netflix (NASDAQ:NFLX) will go before the hemorraging finally ends.

In summary, it's absolutely mindboggling how negatively a simple price change can do to your earnings and stock price in a little over four months.  One day you are the darling of Wall Street, and the very next you are being scoffed and shorted.  If you are a public company or small privately-owned company, think before you start increasing prices.        

Courtesy of an article dated November 22, 2011 appearing in Business Insider