Archive for April 2005

June 2005 Photoblog

Opposites AttractOpposites Attract

Reflection on the EmbarcaderoReflection on the Embarcadero

St. Peters and Paul ChuchSt. Peters and Paul Church

USS HornetUSS Hornet

Come and Find MeCome and Find Me

Ferry Building PerspectiveFerry Building Perspective

Montgomery and SacramentoMontgomery and Sacramento

Random LettersRandom Letters

Prarie Dog Love, #2Prarie Dog Love, #2


Street Sheet

She's ElectricShe’s Electric

Vodka and SodaVodka and Soda


Presidio Cemetery and Golden Gate Bridge

William's GogglesWilliam’s Goggles

Prarie Dog LovePrarie Dog Love

The Bartender and the ModelThe Bartender and the Model

Cold Steel AmericaCold Steel America


You’ve Got the Life of a Star


Stairs


Hey Bartender


Ghosts and Flames


Where’s Waldo?


Well Stocked Bar


The Beat


The Warmth of Wood


Stuck in That Crowd


Overcast Bay Bridge


Exit


Conversation


Body Language


The Honorable Willie Brown, Jr.


Stairs and Escalator


You’ve Got the Eyes of a Child


Silouette, Reflection and Escalator


Silouette, Reflection and Escalator, #2


The Bravery of Being Out of Range


16th Street


Roxie


Mubby Waters


Reflections of Albion


Limon


Nope


Learn to Salsa Dance


Infinite Midnight


Eyes of a Stranger


Madeline’s Cafe


Drinking is Always in Fashion


Coblentz


Reservations


Song and Dance Man


Staples


The Girl With the Far Away Eyes


The Life and Times of Allen Ginsberg


When Are Words Not Enough


Wine Bar


Golden Gate Meat Company Afternoon


Poetry Semicolon


Bicycle Shadow< br />

Community, Click on the photo to open a high res version and see the whole story.


Afternoon Ferry


Stonehouse


Blue Sky Patriotism


Marin Commuters


Selfish


Hummingbird


Mendocino Morning Fog 2


Mendocino Morning Fog


Skaterboy


Strip Club Bouncer


Opus One Reflections, Napa, 2004


American Bandstand


San Francisco Mural


Seth’s New Car


Bay Bridge Taxi


Bay Bridge Motion


Toy Houses


Feeding the Penguins


Egyptian Spiny-Tailed Lizard


Bush and Van Ness


Pacific Union Club

Copper and PaintCopper and Paint

Fingerprints on a Wine GlassFingerprints on a Wine Glass

If you click on any photo it will open a high resolution copy for your enjoyment. “Right Click,” “Save Picture As,” and now you have a nice copy of the image for yourself. Click back to return to the photoblog. Enjoy.

Add my Photoblog as a Photoblog.orgs favorite

Thomas Hawk’s Digital Photoblog May 2005
Thomas Hawk’s Digital Photoblog April 2005
Thomas Hawk’s Digital Photoblog March 2005
Thomas Hawk’s Digital Photoblog February 2005
Thomas Hawk’s Digital Photoblog January 2005
Thomas Hawk’s Digital Photoblog December 2004
Thomas Hawk’s Digital Photoblog November 2004
Thomas Hawk’s Digital Photoblog October 2004
Thomas Hawk’s Digital Photoblog September 2004
Thomas Hawk’s Digital Photoblog August 2004
Thomas Hawk’s Digital Photoblog July 2004


http://thomashawk.com/2005/04/remixing-warhol-ron-english-son-of-pop.html”>Remixing Warhol, Ron English, Son of Pop photographed June 2, 2005

Photoblogging Disneyland, 99 Interpretations of the Happiest Place on Earth photographed May 28 and 29, 2005
Citizen Media Party photographed May 13, 2005
A Night on the Town, photographed May 13, 2005
Flowers of the City, photographed April 30, 2005
I Am Robot, Hear Me Roar, photographed March 26, 2005
Reflections on Manhattan, photographed October 15th – 17th, 2004

See my photos at Flickr here.

Remixing Warhol, Ron English, Son of Pop


Circles


Son of Pop, Artist Ron English


Son of Pop, Ron English Show Opening at Varnish (1)


Son of Pop, Ron English Show Opening at Varnish (2)


Son of Pop, Ron English Show Opening at Varnish (3)


Son of Pop, Ron English Show Opening at Varnish (4)


Son of Pop, Ron English Show Opening at Varnish (5)


Son of Pop, Ron English Show Opening at Varnish (6)


Son of Pop, Ron English Show Opening at Varnish (7)


Son of Pop, Ron English Show Opening at Varnish (8)


Son of Pop, Ron English Show Opening at Varnish (9)


Son of Pop, Ron English Show Opening at Varnish (10)


Son of Pop, Ron English Show Opening at Varnish (11)


Son of Pop, Ron English Show Opening at Varnish (12)


Son of Pop, Ron English Show Opening at Varnish (13)


Son of Pop, Ron English Show Opening at Varnish (14)


Son of Pop, Ron English Show Opening at Varnish (15)


Son of Pop, Ron English Show Opening at Varnish (16)


Son of Pop, Ron English Show Opening at Varnish (17)


Son of Pop, Ron English Show Opening at Varnish (18)


Son of Pop, Ron English Show Opening at Varnish (19)


Son of Pop, Ron English Show Opening at Varnish (20)


Son of Pop, Ron English Show Opening at Varnish (21)


Son of Pop, Ron English Show Opening at Varnish (22)


Son of Pop, Ron English Show Opening at Varnish (23)


Son of Pop, Ron English Show Opening at Varnish (24)


Son of Pop, Ron English Show Opening at Varnish (25)


Son of Pop, Ron English Show Opening at Varnish (26)


Son of Pop, Ron English Show Opening at Varnish (27)


Son of Pop, Ron English Show Opening at Varnish (28)


Son of Pop, Ron English Show Opening at Varnish (29)


The Beautiful One


Voyeur

Saturday Morning at Silver Terrace


If you live near San Francisco and have never visited the Flower Mart, a wholesale flower market at 640 Brannan, you are missing one of the real treasures of life.

When you walk into the Flower Mart for the first time you are overwhelmed with such an unworldly mixture of fragrence. I had the opportunity to visit the Flower Mart for the first time this morning and shot a short photographic series entitled, The Flowers of the City. Click through the link to see the entire series and if you ever get a chance to stop by yourself you won’t regret it.

All of these photos were taken at Silver Terrace Nursery in the Flower Mart.

Saturday Morning Taxi Line

The Lights of the St. Francis

The Winemaker and the Wife

Self Portrait, Elevator Series, #114

Big Alma

Wedbush Morgan’s Michael Pachter – Sell Netflix, Buy Blockbuster

Update: We revisited this issue one year later. Click here to see an update on this debate.

Editor’s note: It should be disclosed that Davis Freeberg is both a current customer and shareholder of Netflix. This post should not be construed as providing financial advice.

by Davis Freeberg

If you want to get one analyst’s opinion on the current two horse DVD race between Blockbuster and Netflix you need to look no further than Wedbush Morgan’s Michael Pachter. Pachter has been pretty negative on Netflix for a while now and is about the most negative guy on the street with regards to the company. Pachter initiated coverage of Netflix after they lowered their pricing on 9-28-04 with a sell. Subsequently he has reitered this sale five times and presently has a 12 month price target on the stock of $3 per share. The stock closed today at $11.20.

What I find interesting is Pachter’s view on Blockbuster by contrast. At the end of March Pachter reaffirmed earlier guidance that he believes that Blockbuster should hit $13.00 per share over the next year. Blockbuster closed today at $9.96. If he’s correct, this would represent a return of over 45% based upon Blockbuster’s closing price of $8.92 on 03/28/05, the date Pachter made his call.

Irrespective of what Pachter thinks about the overall DVD rental business, Pachter’s seemingly obvious prediction would appear pretty dire for Netflix. Pacther updated his price target for Netflix On 4/22/05 with the new $3 price. If Pachter is right, then we should expect to see Netflix’s stock fall by approximately 75% over the next 12 months.

I think he’s wrong.

7.5% of Netflix is currently owned by Netflix Co-Founder and CEO Reed Hastings. Given that Netflix stock has already fallen by 60% over the last 12 month and that their stock is currently one of the largest short postions on Wall Street, a $3 price target seems a little aggressive.

Based upon current earnings, if Netflix dropped to $3 a share, it would mean that the company would be valued at a market cap of $152 Million with $175 Million in cash on hand, very little debt and revenue of approximately $600 Million per year.

Now, compare this to another of Pachter’s picks. Yesterday Prachter upgraded Movie Gallery’s rating to Buy from Hold and assigned a 12 month price target of $35 to their stock. If Pachter is correct, then this would represent an approximate return of 24% over the next year.

Movie Gallery presently has about $25 Million in cash and $50 million in debt and Blockbuster has about $330 Million in cash and a staggering $1.35 Billion in debt. In addition to the debt servicing and online promotions, both companies must also pay leases and salaries for their physical locations.

Over the last year, Pachter has been a strong proponent of Blockbuster. Last January, he suggested that Blockbuster would be a better fit for Amazon then Netflix. This contrasts to Lehman Brother’s analyst Anthony DiClemente view that a partnership with Blockbuster would be “less likely” due to shareholder unrest. Diclemente currently rates Netflix as neutral with a 12 month price target of $14.00. Pachter also came to the defense of the $52 Million pay package of Blockbuster’s CEO, John Antioco, by calling it fair and “comparable to pay for CEOs of other large retailers.” While this may help Antioco sleep better at night, it probably doesn’t help the 200 employees who were laid off at the same time that the compensation package was negotiated.

And here’s some more. If you know someone who is using Netflix right now ask them about the service? Do they like it? Now go into your local Blockbuster Video store and ask the clerk there how he feels about his employer. Netflix’s customers are huge evangelists for the service and they view the service as fun, innovative and exciting — not bad for a growing company with very little debt. Blockbuster on the other hand is a bloated company, with tons of debt, who is laying off it’s employees, cutting back their hours, fending off a shareholder proxy fight with Carl Icahn, who has had their CEO recently announce that if he was not re-elected he would resign from the company.

Oh and by the way, earlier today ratings company Fitch revised Blockbuster’s credit rating outlook to negative from stable — something that is not typically helpful to a company with a lot of debt.

In the long run, all three companies, Netflix, Movie Gallery and Blockbuster will face a tremendous battle to stay alive when Video on Demand becomes widely available, but in the short run, if you agree with Pachter, then you should short Netflix and use the proceeds to buy Blockbuster and Movie Gallery. But I suspect if you do, you may want to go get your head checked first.

Update: Editor’s Note: Wedbush Morgan Analyst Michael Pachter responded to Davis Freeberg’s article with the note below.

Happy to respond. First of all, thanks for the compliment on my video game coverage. I am hopeful that my coverage of other companies is an indication of my thoughtfulness and thoroughness.

I don’t hate Netflix at all. I think that they had an innovative and brilliant idea, but unfortunately chose to compete in an area where the dominant company has a lot to lose. Blockbuster loses whenever Netflix gains customers. My guess is that 1.5 million of Netflix’s customers are former Blockbuster customers. That means that if these people paid $20 per month to Blockbuster before they shifted to Netflix, Blockbuster is losing $360 million per year. It is easy to see why Blockbuster had to respond.

The amount of Blockbuster’s debt is irrelevant. They have over $6 billion in revenue, and will be able to service their debt, so long as they can maintain revenue. If Netflix continues to erode their business, they will have a serious problem.

Once Blockbuster decided to compete with Netflix head on, I decided to initiate on Netflix with a sell rating. I think that although Netflix has a fine service, and is best in class, its future growth will depend upon adding customers who don’t appreciate that it has more satisfied employees than does Blockbuster. People unfamiliar with both services are likely to choose based upon price, and Blockbuster’s service is cheaper by $3 per month.

Also, Blockbuster has a huge cost advantage over Netflix. Once Blockbuster migrates fulfillment to the store level, it will save approximately $5 per customer per month in inventory costs. That is because it is cheaper to fulfill online rental requests from a large inventory of brick and mortar movies than it is with dedicated DCs used by Netflix.

In terms of Amazon, they want the best deal that they can strike, and have a history of partnering with the best in class brick and mortar stores (Toys R Us and Target?). My understanding is that they spoke several months ago with Netflix, and couldn’t work anything out.

I have never said that Antioco’s compensation is comparable to other retail CEOs. Instead, I said that it works out to $10 million or so per year over a multi-year period, and is reasonable given that if h
e succeeds, his shareholders will benefit by $180 million for every dollar in share appreciation. The comp package was disclosed in SEC filings in September at the time of the split off. The layoffs have not yet occurred, but were announced by Blockbuster back in February or March.

My overall thesis on Netflix is that it will have difficulty competing with Blockbuster because it doesn’t make money at its current level of subscribers. Blockbuster does make money. Netflix has $140 million of cash, but if it chooses to compete with Blockbuster on price, it will see that cash erode at a rate of $9 million per month once it cuts price by $3. I’m betting that it will cut price.

IF Netflix maintains pricing and continues to grow, I will rethink my thesis.

By the way, please note that Blockbuster stock didn’t react at all to the Fitch downgrade.

Update: Slashdot picked up the story today.

Interesting Nuggets From Microsoft’s Earnings Conference Call This Afternoon

Today after their earnings release, Microsoft’s Curt Anderson, General Manager, Investor Relations, and Scott Di Valerio, Microsoft’s Corporate Controller held an analysts conference call where they discussed Microsoft’s latest earnings, future guidance and took questions from equity analysts.

Much of the call was pretty dry and boring but these were the nuggets I picked out.

1. Microsoft’s venture with Verizon is expected to be available later this year. They also mentioned their relationship with Alcatel but didn’t provide any details.

2. Microsoft is optimistic on the Comcast relationship. Expect the trial of Microsoft TV Foundation currently being tested by Comcast in Washington State to continue to move forward. According to Microsoft all Comcast customers in Washington State should be migrated to TV Foundation by the end of the quarter.

One thing that I will be interested in down the road will be the number of TV Foundation users that switch to TiVo’s Comcast service once it arrives. My suspicion would be that as TV Foundation is most likely a much better UI for Comcast’s cable box than their regular old UI, that you get less people on TV Foundation migrating to Comcast TiVo.

I will also be interested in Comcast’s churn rates on the new TV Foundation boxes vs. Comcast’s non TV Foundation boxes, although again it’s probably too early to know any of this yet. If the churn rate were much lower though I’d expect to continue to see this relationship move forward beyond Washington State.

3. It looks like you will see less ads at MSN.com as they have already started moving more of the real estate to content and less to advertising for a cleaner less cluttered look.

4. Very little on Media Center beyond, “it has good traction,” and a reiteration of Bill Gate’s previous announcement that they passed the 2 million user mark. The analysts asking the questions were much more interested about the sever world and things driving hard revenues and earnings here and now today than they were on future product development.

5. Microsoft is expecting big things from their new version of the Xbox and expect that it will drive revenues and make up for lighter demand for Windows XP. Microsoft mentioned that the majority of it’s software units are sold through OEMs when people make the jump to upgrade their PC while upgrading their OS at the same time. My guess is that to a certain degree all this hype and attention about Longhorn could diminish consumer demand to upgrade to a new PC with a version of XP. I know that when Longhorn is out I will definitely upgrade my machines. I think they are expecting big things out of Xbox to pick up the slack. Hey guys, tell me it can stream HDTV as an extender unit and you can count me in for three of them!

6. As the Q&A; time on these analyst calls is somewhat limited, I thought it was particularly lame that Mary Meeker of MorganStanley used her only question to ask about Longhorn’s timeline and implementation when this is widely known everywhere. Of course Microsoft reiterated beta next year followed by pre-Holiday release. Duh, Mary.