Internet Stocks Could Suffer If The Buck Strengthens

The weakness of the U.S. dollar in 2007 provided a nice boost to the top-line growth rates for Google (GOOG), Amazon.com (AMZN), eBay (EBAY) and, to a lesser degree, Yahoo (YHOO). So what happens if the buck starts to strengthen?

In an interesting piece this morning, Lehman’s Douglas Anmuth takes a look at what would happen to the financial results of the major Internet companies if the dollar turned around and strengthened against the other major currencies. A 10% appreciation in the greenback, Anmuth calculates, would chop revenue growth by 7% at Google, 6% at eBay and Amazon, and 3% at Yahoo.

In 2007, Anmuth notes, the dollar fell 9% against the Euro and the British pound, while holding steady against the yen. He notes that eBay, which recently has generated about 51% of revenue overseas, reported 29% growth in 2007, but would have grown just 24% on a currency-neutral basis. Amazon, likewise, grew 39%, but would have grown 34.9% in a constant currency world. Google’s growth rate would have dropped to 51%, from 56%; Yahoo would have grown 7%, not 8%.

Anmuth also notes that the Internet companies are building up substantial cash balances overseas that can’t easily be deployed for buying back stock, paying dividends or other capital allocation moves. At the end of 2007, he notes, Amazon had $1.2 billion - 37% of its cash - in foreign denominated marketable securities. And he says eBay at the end of Q3 had $3.7 billion of its $4.4 billion in cash invested overseas.

Anmuth’s conclusion: “While currency movements can clearly be unpredictable, given weakness in the U.S. dollar in 2007 there may be greater risk to the downside on a reported basis for Internet companies - specifically Google, eBay and Amazon - should the U.S. dollar stabilize or recover beyond what is embedded in current estimates.”

Oil $100

Oil prices held near $100 a barrel Thursday after hitting a record overnight as investors poured more cash into crude and other commodities as a hedge against inflation.

Oil futures on Wednesday pushed briefly past $101 a barrel after the U.S. Federal Reserve lowered its forecast for U.S. economic growth this year, convincing energy investors that the central bank will slash interest rates further.

"Investors are going into commodities for a safe haven, because they think commodities may perform better than equities and also may be hedges against inflation," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Lower interest rates can help the economy but tend to weaken the dollar, encouraging investors to shift funds into hard assets like gold or oil as a safeguard against inflation. After oil rallied above $100 a barrel, precious metals such as gold and silver also hit records.

The possible rate cut is also viewed as hopeful of bolstering a flagging U.S. economy, which would assuage fears of weakening crude demand.

"We are expecting the U.S. Federal Reserve will cut interest rates further," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "That will help mitigate against the risks of U.S. recession, and would likely be supportive for the oil price."

The March light, sweet crude oil contract, which expired Wednesday, rose overnight as high as $101.32 a barrel, a new trading record. It settled at a record close of $100.74 a barrel.

On Thursday, light, sweet crude for April delivery added 43 cents to $100.13 a barrel in Asian electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. It was unchanged Wednesday at $99.70 a barrel.

Analysts said the rise this week in oil prices was not based on supply and demand fundamentals and that they expected increasing price volatility.

"We are in the spring season, when worldwide demand is typically lower and inventories are building. Yet we see a strengthening of oil," Shum said. "It's really a divergence."

Prices have surged on geopolitical factors such as the possibility that the Organization of Petroleum Exporting Countries may cut its output at a March 5 meeting.

"What that all means is that investors could move out of oil as quickly as they moved in and so this situation could be unstable and pricing could drop as fast as it has gained," he said.

Weighing on prices Thursday were expectations that the U.S. Department of Energy would report later in the day that U.S. crude inventories rose in the seven days to Feb. 15 for the sixth straight week in a row.

"The general expectation is that you'll see another increase in U.S. crude oil inventories," Moore said. "If there was an increase that would just take a bit of the edge off oil prices."

Crude oil inventories were expected to rise 2.9 million barrels, according to a Dow Jones Newswires survey of analysts' estimates.

Gasoline inventories were seen growing 1 million barrels while stocks of distillates, which include heating oil and diesel fuel, were expected to fall 1.5 million barrels.

Heating oil futures rose 0.33 cent to $2.7579 a gallon while gasoline prices added 0.53 cent to $2.5905 a gallon. Natural gas futures rose 0.5 cent to $8.97 per 1,000 cubic feet.

Brent crude added 36 cents to $98.78 a barrel on the ICE Futures exchange in London.

Associated Press business writer Thomas Hogue contributed to this story from Bangkok, Thailand.

Delta-Northwest Combination Deal

An impasse among pilot negotiators over blending seniority lists put a $20 billion deal to combine Delta Air Lines Inc. and Northwest Airlines Corp. in "serious jeopardy" as the boards of the two companies prepared to meet Wednesday, two people close to talks told The Associated Press.

The people said the pilots unions have agreed on a comprehensive joint contract, but they are unable to agree to how seniority for the 12,000 pilots would work under a combined carrier. The people asked not to be named because of the sensitive stage of the talks.

They said late Tuesday that the pilot talks were expected to continue Wednesday, but if no agreement is reached, a deal on a combination of the two airlines would be in real trouble.

The boards of both companies were expected to vote on a combination agreement Wednesday if a pilot deal is in place by then. Otherwise, they were expected to just get an update on the merger talks, three people close to the talks said.

One of the officials close to the talks said Northwest's board might only meet by teleconference or, if things fall apart, not meet at all.

A Delta spokeswoman declined to comment on consolidation issues involving Delta. Delta has previously said it was considering a possible consolidation transaction, but it has not commented beyond that.

Talk of airline consolidation has heightened in recent months amid persistently high fuel prices, which are eating away at the industry's bottom line.

A combination of Atlanta-based Delta and Eagan, Minn.-based Northwest would create the world's largest airline in terms of traffic. That's before any divestitures regulators might require them to make if they combine.

There also has been speculation about a possible combination of Chicago-based UAL Corp.'s United Airlines and Houston-based Continental Airlines Inc., which would be a bigger airline than Delta-Northwest in terms of traffic.

The clock is ticking to get any deals accomplished quickly, some observers say. That's because industry observers believe a combination has a better chance of surmounting the considerable political and regulatory hurdles under the current administration than under President Bush's successor.

Delta and Northwest don't need a labor agreement between their pilots unions before announcing a combination, but having one in place now could help them speed up the integration of the two carriers down the line.

One of the people close to the talks said Tuesday night that a small group of Northwest seniority list pilot negotiators want thousands of young Delta pilots to go to the bottom of the combined seniority list as part of agreeing to a deal on seniority. The person said that was a major hang-up.
A spokesman for the Northwest pilots union, Greg Rizzuto, did not immediately return a call and a page to his cell phone seeking comment.

The pilots from both companies have agreed to a significant equity stake for the pilots, including raises for some, one of the people close to the talks said. However, a second person close to the talks said it was not clear that the equity issue had been resolved.

Much of the terms of how the combined carriers would operate had been resolved as of Tuesday, two people close to the talks said. The combined carrier would be based in Atlanta, would be called Delta and Delta's chief executive, Richard Anderson, would be head of the new company, the people said.

It remained unclear what role Northwest's CEO, Doug Steenland, would play in the combined carrier, the people said. A combined Delta-Northwest would maintain a substantial presence in Minneapolis and there would be no furloughs for front-line U.S. employees, the people said. The two airlines have roughly 85,000 total employees.

Wal-Mart beats estimates

Stock index futures pointed to a higher market open on Tuesday after Wal-Mart Stores Inc (NYSE:WMT - News) reported quarterly results that topped analysts' expectations.



The airline sector could get a boost on merger talk. The New York Times reported Delta Air Lines (NYSE:DAL - News) moved closer on Monday to a deal to buy Northwest Airlines Corp (NYSE:NWA - News), according to people involved in the talks.



Cost-conscious consumers looking for discounted prices helped Wal-Mart, the world's largest retailer, beat Wall Street forecasts.



"Any time the world's largest retailer shows better-than-expected earnings, it shows the consumer is not completely dead," said Edward Bretschger, director of equity sales and trading at Calyon Securities in New York. "Any signs of life really bode well for the economy and market in general. Wal-Mart is the ultimate litmus test for the consumer."



Another multibillion dollar write-down by a major global investment bank failed to halt the gain in U.S. stock futures. Credit Suisse (VTX:CSGN.VX - News) revealed it has written $2.85 billion off the value of its asset-backed investments and found pricing errors on its books.



U.S.-listed shares of Credit Suisse (NYSE:CS - News) were down 5.9 percent to $47.89.



S&P 500 futures (SPc1) rose 10.70 points, above fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.



Dow Jones industrial average futures (DJc1) rose 111 points, and Nasdaq 100 (NDc1) futures added 20.25 points.



The National Association of Home Builders reports the February reading of its housing market index at 1 p.m. (1 p.m. EST). Economists forecast the gauge held steady at 19 for a second month. In December, the index hit a lifetime low at 18.


On Friday, the Dow Jones industrial average (DJI:^DJI - News) was down 28.77 points, or 0.23 percent, at 12,348.21. The Standard & Poor's 500 Index (^SPX - News) was up 1.13 points, or 0.08 percent, at 1,349.99. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was down 10.74 points, or 0.46 percent, at 2,321.80.

Oil Prices Steady

Oil Is Steady After Talk of OPEC Cuts



Oil price were steady Monday in Asia, rising slightly after further hints that OPEC may cut production if global supplies continue to rise amid forecasts for slower growth in demand.



The Organization of Petroleum Exporting Countries has trimmed its demand forecasts for this year by 100,000 barrels a day, but it has also hinted it may cut production if global supplies of crude continue to rise, according to Dow Jones Newswires.

Several reports in recent days, though, have suggested that global economic conditions may not be deteriorating as quickly as feared. The U.S. Federal Reserve said Friday that industrial production in the world's largest economy rose last month in line with expectations. On the other hand, the Energy Department, the International Energy Agency and now OPEC have all cut demand forecasts.

Light, sweet crude for March delivery rose 23 cents to $95.73 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore.

The Nymex crude contract rose 4 cents Friday to settle at $95.50 a barrel after alternating frequently between positive and negative territory. Oil prices have risen more than $8 in little more than a week.

On Sunday, Venezuelan President Hugo Chavez soothed American motorists, saying that Venezuela is not preparing to cut off oil shipments to the United States.

The socialist leader rattled oil markets when he threatened a week ago to halt shipments to the United States in retaliation for Exxon Mobil Corp.'s success in convincing courts in the U.S. and Europe to freeze Venezuelan assets.

"We don't have plans to stop sending oil to the United States," Chavez said Sunday during a visit to heavy-oil projects in Venezuela's petroleum-rich Orinoco River basin that were nationalized last year.

But he added that Venezuela could cut off supplies to the United States if Washington "attacks Venezuela or tries to harm us." Chavez has repeatedly warned against a possible U.S. invasion to seize control of Venezuela's immense oil reserves. U.S. officials have denied any such plan exists.
The United States relies on Venezuela for about 10 percent of its oil imports.

Chavez's administration is locked in a legal battle with Irving, Texas-based Exxon Mobil over compensation for the nationalization of one of four heavy-oil projects in the Orinoco River basin.
Exxon Mobil, the world's largest publicly traded oil company, is seeking to freeze billions of dollars in Venezuelan assets in the United States and Europe to guarantee a payoff if it wins a decision by an international arbitration panel.

Last month, a British court injunction ordered the temporary freezing of up to $12 billion in assets of state-run Petroleos de Venezuela SA, or PDVSA.

Brent crude for April delivery rose 26 cents to $94.89 a barrel on the ICE Futures exchange in London.

Heating oil futures rose 0.81 cent to $2.655 a gallon while gasoline prices gained 0.59 cent to $2.4997 a gallon. Natural gas futures rose 15.1 cents to $8.811 per 1,000 cubic feet.