It was a relatively sleepy week in the world of tech, with the Nasdaq closing up the week slightly with a 0.4% gain. However, while the broader market wasn't very lively, there were plenty of earnings reports and other news to send stocks soaring. Here are three of the week's biggest technology and telecom outperformers and some analysis on what sent them soaring.
Three of this week's biggest winners
|MetroPCS (NYSE: PCS )||16.2%|
|salesforce.com (NYSE: CRM )||11.2%|
|Level 3 Communication (NYSE: LVLT )||11%|
Source: S&P Capital IQ.
MetroPCS was among the market's biggest winners this week, on the back of better-than-expected earnings. The company posted adjusted EBITDA of $362 million, which was better than estimates of $328 million. Yet even with its large post-earnings gains, the most surprising news of the week came after the market closed on Friday.
According to The Wall Street Journal, Sprint Nextel (NYSE: S ) had come extremely close this week to making an offer for MetroPCS that would have been a 30% premium over where the company was trading earlier in the week. What's shocking to consider is that after all of Sprint's recent missteps, this would be more of a merger of equals than you might expect, even though Sprint has nearly 6 times the subscriber base of MetroPCS. Sprint's market value is just $7.4 billion, while its bid would have valued MetroPCS at closer to $5 billion if the WSJ's sources' figures are correct.
As Sprint investors should be well aware of in the wake of the painful Nextel debacle, telecom marriages are always a risky endeavor. While MetroPCS and Sprint's core wireless technology would work well together conceptually, this looked like a risky deal to take on while Sprint is prepping an expensive LTE program that's already stretching the limits of its debt-loaded balance sheet.
MetroPCS shares surged another 7% after hours, but the Sprint deal looks dead, and the next most likely bidder, Verizon (NYSE: VZ ) , is busy dealing with its own legal challenges on spectrum it's trying to acquire and isn't as keen as Sprint to take on PCS's prepaid user base. Long story short, any "takeover" bump could prove short-lived.
Thursday night, salesforce.com reported better-than-expected earnings and sales while also raising its full-year view. The company still expects to lose money this year on an accounting basis, but bullish investors focus on other areas like bookings growth and strong cash flows.
And that's really the crux of deciphering the investing enigma that is salesforce.com. The company does have a strong backlog of orders that come through in its strong cash-flow growth but aren't reflected in its GAAP earnings. Yet even with those other metrics, it's still hard to ignore how richly priced the company is. In the end, investors tend to either fall into a camp of believing salesforce.com has already dispatched Oracle in CRM and will continue expanding its cloud lead and addressable market into new technology areas, or that it's a richly priced bubble waiting to be popped.
Level 3 Communications
Unlike earnings superstars Salesforce and MetroPCS, Level 3 makes the list through the analyst-upgrade route. Morgan Stanley upgraded the Level 3 to a buy based on "accelerating revenue," "margin expansion," and "controlled capital spending." I'll be the most cautious on the first point; it seems the nebulous surge in demand for connectivity is always the driver that's "right around the corner" for the company. However, the final two points could be a bit more interesting. Level 3 acquired Global Crossing and promised huge cost savings. Early results have disappointed somewhat, but if Level 3 can deliver on its cost-saving promises, the case for investing in Level 3 gets a lot more interesting.
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