The Zacks Analyst Blog Highlights: Microsoft, Google, Apple, Wyndham Worldwide and Marriott International
Zacks Equity Research
For Immediate Release
Chicago, IL – January 7, 2013, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog includeMicrosoft Corp. (MSFT), Google (GOOG), Apple (AAPL), Wyndham Worldwide Corporation (WYN) and Marriott International Inc. (MAR).
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Here are highlights from Friday’s Analyst Blog:
Microsoft Buys R2 Studios
Microsoft Corp. (MSFT) recently acquired a home and entertainment technology startup, id8 Group R2 Studios Inc. for an undisclosed sum. The acquisition is an attempt by Microsoft to expand its presence in the home by combining entertainment with other functions.
Silicon Valley entrepreneur, Blake Krikorian started R2 Studios Inc. in 2011. It recently launched an application for controlling heating and lighting systems in the home from smartphones powered by Google’s (GOOG) Android OS. Through this acquisition, Microsoft also acquired some patents related to controlling electronic devices.
Other tech giants such as Google and Apple (AAPL) were also looking to acquire this startup company. The interest shown by key industry players indicates increasing focus on home electronics with a view to create multi-functional hubs.
Microsoft, for the past few years, has been trying to evolve its Xbox 360 units into something more than just a gaming console. As a part of this initiative, it is now offering digital downloads and live TV apart from games. Thus, the acquisition makes sense for Microsoft as it can leverage its position in the home entertainment segment to expand into other areas through the acquired patents.
Technology companies have been eyeing the digital home entertainment market for some time now, not only because of the good growth prospects but also because of several new technologies (including the cloud) that makes this simpler. The introduction of high-definition (HD) technology has increased the popularity of interactive games and video on demand is making this segment more attractive to consumers. However, home entertainment units like audio equipment and video game consoles are being cannibalized by tablets and smartphones. Therefore, it makes sense for companies in the segment to offer combined technologies to market share and also offer growth opportunity.
Whether Microsoft can put the patents to good use to edge past other tech giants in the attractive home entertainment market remains a wait-and-see story.
Microsoft reported revenue, excluding deferrals, of $16.01 billion in the first quarter of fiscal 2013, down 11.4% sequentially and 7.9% from the year-ago period. Revenues also missed the consensus by 2.5%.
Microsoft, Apple and Google have a Zacks #3 Rank (Hold).
Wyndham Continues Acquisition Spree
In order to further strengthen its vacation rental portfolio, Wyndham Worldwide Corporation's (WYN) namesake segment recently sealed three bolt-on acquisitions - two beach resorts in the U.S. and one in United Kingdom. Financial terms of the deals were not disclosed.
Wyndham Vacation Rentals (:WVR), a segment of the company providing rental accommodations, currently offers more than 100,000 properties serving over 500 destinations. The latest deals are in sync with Wyndham’s strategy to grow through geographical diversification.
In the U.S., WVR got hold of the vacation rental assets of Oceana Resorts - a foremost provider with more than 25 years experience in Myrtle Beach, S.C. as well as Kaiser Realty with 30 years of experience and more than 450 condo and beach home accommodations in coastal Alabama.
In United Kingdom, WVR bought Cumbrian Cottages with more than 2,500 vacation homes in preferred destinations across Cumbria and The Lake District, Northumberland, Yorkshire, Derbyshire, Wales and Scotland.
We view the recent deals as strategically positive. While Oceana, Kaiser Realty and Cumbrian Cottages will enjoy the much higher scale of WVR business, Wyndham will benefit from the trio’s strong positioning in the hospitality industry over the decades.
While Oceana and Kaiser Realty’s extremely popular beach positioning makes these lucrative targets for acquisition, presence of Cumbrian Cottage in the portfolio will extend Wyndham’s reach to prime European vacation markets. Further, the two U.S. acquisitions will expand Wyndham’s vacation rental business in the domestic market where its market share is low. However, U.K. always remains the bright spot for Wyndham's vacation properties.
Wyndham is a dominant player in the vacation rental business and seeks further inorganic growth. This fee-for-service business reduces the capital requirement, resulting in a higher free cash flow.
Given the potential, Parsippany, NJ-based Wyndham has been on an acquisition spree over the last several quarters in its rental segment. In August 2011, the company acquired The Resort Company LLC., which has rental offerings across several mountain destinations in Colorado. In February 2010, it acquired a European vacation rental business, Hoseasons Holdings Ltd.
In September 2010, Wyndham purchased ResortQuest, a vacation rental firm in the U.S. On December 1, 2010, Wyndham bought James Villa Holidays, a vacation rental specialist in U.K. The company has acquired about 31 European rental brands since 2000. We believe that Wyndham’s repositioning as a more fee-for-service based business will benefit it over the long term.
Wyndham, which competes with the likes of Marriott International Inc. (MAR), currently carries a Zacks #3 Rank (Hold). We are also maintaining our long-term Neutral recommendation on the stock.
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