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EisnerAmper Blog

Technology and Life Sciences Blog

Apple Innovates – Will it Keep Investors Interested?

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October 20, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcAs I have mentioned in other blogs, tech companies often need to think of ways to reinvent themselves to keep investors interested. The recent unveiling of the new Apple IOS, iPhone 6 and Watch in the second week of September is no exception.

Despite Apple’s slight stock decline the week before the announcement, it made its way back up shortly thereafter. Fans lined up at Apple stores, much like a new movie, eagerly waiting to experience the new Apple offerings. Investors will keep an eye on preliminary sales but initial indicators are very good. In the opening weekend for sales of the iPhone 6, Apple sold 10 million units, which was record breaking.

Both of the new iPhone models have larger screens, which consumers seem happy about, and Apple has introduced a new electronic payment system called Apple Pay. The Apple Watch, which is the first new product Apple has launched since the iPad in 2010, will integrate with the iPhone and enable health and fitness monitoring as well as response to messages, plus access to Siri, calendar, music and other apps like maps for directions. The hope for the new Apple Watch is that it will have the ease-of-use that Apple products have become known for and competitor products are lacking. 

Despite all the good news, there are a few flies in the ointment. The estimated delivery time for new phone orders is a month plus and the iPhone 6 will not be available yet in the Chinese market. The Apple Watch is not due out until early 2015 and it requires the owner to have an iPhone. Despite the issues regarding supply, there is still a strong demand and this should keep investors happy, at least in the short term.

There were also a few glitches with the new iOS and ‘Bendgate,’ but glitches happen all the time in a mass roll out -- especially one of this magnitude.  The update to new iOS software is a large scale update that happens to virtually everyone at the same time. There is rarely such an event that is similar.  When Microsoft updates to a new operating system or new web browser, those are seldom rolled out to everyone at the same time. 

Also, if there was any doubt about Tim Cook’s effectiveness as Apple’s Chief Executive Officer, following in Mr. Job’s footsteps, the latest plethora of product announcements and seamless integration may appeal to investors. By improving existing products, creating new ones of interest, and tying them all together, Apple still seems to be just one step ahead of competitors.

Alibaba Shows Strong IPO

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October 8, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcThere have been 195 IPOs this year in the U.S., which is an increase of 34% over last year. Alibaba continues to show the IPO market is strong as it historically eclipsed every IPO this year.

After pricing its initial offering at $68 a share, Alibaba closed its first day of trading at $93.89. Alibaba is now one of the largest publicly traded companies in the world as it raised $21.8 billion in its IPO.  Let’s look at what went right with this IPO.

The whole marketing strategy behind this IPO, which took place over many months, may have greatly contributed to its ultimate success. Alibaba’s founder, Jack Ma, was presented as a likeable character and actively participated in the 2 week (so-called) road show where he presented to would-be investors just before the IPO. Alibaba was able to show strong growth and profit reports, and demonstrated a trend in online spending by Chinese shoppers that is predicted to continue to increase. Alibaba’s last fiscal year showed sales which were estimated to be more than eBay and Amazon combined, and Alibaba is showing an enormous profit. 

Some intended IPOs even held back this week to make room for this unprecedented event. Even GoDaddy was reported to be considering waiting until early next year for their IPO. But according to Mr. Ethridge of the New York Stock Exchange, there isn’t a need to wait. The IPO market is still hot and one large stock sale won’t “sap” the appetite for other IPOs. Only time will tell if he’s right. But, for now, it appears that the right combination of proactive marketing, solid profits and a positive future outlook contributed to the success of Alibaba's IPO. 

Alibaba IPO – Where Marketing May Be the Key to Future Trading

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October 6, 2014

 

By Marc Fogarty, CPA, CFE

Fogarty,MarcThe Alibaba IPO, which listed on the NYSE and started trading on September 19, was the largest IPO ever (estimated at $25 billion). How does Alibaba plan to keep their shares on a steady incline, now that they’re trading?

Even though Alibaba is domiciled in China, it is incorporated in the Cayman Islands. This presents issues limiting how and where its shares can be traded. The S&P 500 index follows only U.S. firms, and because Alibaba is not a U.S. company, it may not be eligible for its index, and some funds won’t be able to buy it. Some Chinese and emerging-market stock indexes may also have to exclude it because Alibaba is technically not a Chinese company due to its incorporation in the Cayman Islands.

This means that the management team at Alibaba needs to be especially vigilant in keeping up the marketing hype to court investors, keep them engaged and keep their shares rising. Their marketing efforts, combined with publicity about the massive IPO, will not only help bolster the success of the IPO, but hopefully continue to keep its stock price rising. Alibaba's publicity ‘roadshow’ kicked off on September 8 in New York and continues. Let’s keep an eye on things….

Revenue Recognition and Its Impact

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September 24, 2014
 
By Marc Fogarty, CPA, CFE

Fogarty,MarcThe FASB and IASB recently replaced industry-specific guidance on revenue recognition in favor of a single, comprehensive model.  In response, the AICPA has formed industry-specific task forces in order to develop their new “AICPA Accounting Guide on Revenue Recognition.” The FASB expressed concern over this, since the aim is to create a general revenue guide for all transactions and industries.  

The majority of companies who apply U.S. GAAP or IFRS will be affected by the changes to revenue recognition. It also appears that the new rules will impact some industries more than others, even though the boards have stressed that revenue recognition is now contract-based and not industry-based. The FASB and IASB have created a Revenue Recognition Transition Resource Group to aid in identification and implementation issues.

Regardless, it is likely that changes to how revenue is recognized will have a profound impact on the technology and life sciences industries.

In the technology industry, the following will be of concern:

  • Identifying Performance Obligation
  • Long-Term Contracts for the Customization of Software
  • Licensing of Intellectual Property
  • Allocating Transaction Price
  • Accounting for Contract Costs

In the life sciences industry, the following will be of concern:

  • Identifying the Contract
  • Contract Modification
  • Identifying Performance Obligations
  • Determining the Transaction Price
  • Allocating Transaction Price
  • Satisfying the Performance Obligation
  • Milestone Payments
  • Collaborative Agreements

For more information, please see my summary of these issues in the Accounting Policy & Practice Report, published by Bloomberg in July 2014.

Tech IPOs on the Rise – No Surprise

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September 18, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcIt’s been a banner year for tech IPOs, and the Dow and the NYSE have shown a steady incline in the past 5 years, reaching historic highs this year. This is really no surprise when we look at economics and the evolution of many of this year’s tech IPOs.

The financial crisis of 2008 might actually be where to place some of the credit. During the economic downturn, companies and individuals needed to spend their money more efficiently, and under greater scrutiny. For many companies who were shrinking operating budgets, technology helped accomplish the same goals but with less money. Shifting the budget to less expensive marketing alternatives like social media and website marketing may have influenced the right time for IPOs like Facebook and Twitter and the impending GoDaddy IPO.

Some companies with possible upcoming IPOs may have even risen out of the recession, having been founded on the premise of saving consumers money when costs are tight. For example, Airbnb, an alternative to costly hotels, was founded in late summer of 2008 and Uber, a cost-effective alternative to taxi cabs, was founded in the spring of 2009.

Five years later, companies that offer consumers perceived cost savings are still in favor, and many companies are still maintaining a conservative mindset when it comes to budget. Since technology and the internet are cornerstones of the companies that are profiting from the 2008 market shake up, there doesn’t seem to be a shortage of tech IPOs. As these companies that 'rose from the ashes' go public, it seems fitting that they might just restore and invigorate investor confidence, and pave the way for many more successful tech IPOs in the years ahead.    

Lease Expensing Model Likely to Be Different

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September 12, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcThe final version of the anticipated lease accounting overhaul has not been released yet, but it appears that the U.S. Financial Accounting Standards Board (FASB) is leaning toward a dual model for lease expenses, and the International Accounting Standards Board (IASB) is now leaning toward a single model. The IASB said that “In practice, the difference in the IASB and FASB positions is expected to result in little difference.” But some analysts believe there could be vast operational differences when applying the two differing standards.

The FASB’s model would handle some leases like financings and other leases as straight line expenses; whereas the IASB’s model would handle all leases like financings. The IASB model would require all companies to amortize an asset over time.

The major goal of the joint lease accounting overhaul was to address investor complaints that off-balance sheet leases understate a company’s long-term liabilities. Additional calculations are often needed to adjust for these expenses.

A consistent model would seem to be in the best interest of the companies and investors. But, like I said in my recent blog about IFRS initiatives, it seems unlikely that global accounting standards will be adopted in our near future.

2014 Tech IPOs – Where Are They Now?

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September 8, 2014

By Marc Fogarty, CPA, CFE

Fogarty,MarcIn many of my blogs this year, I have been discussing the tech IPO market explosion – and I mean that in a good way. So what has happened to those companies after their IPO, and is the market changing or is it still favorable for future tech IPOs?

So far, both quarters of 2014 have had the some of the highest number of IPOs in the U.S. since 2000. Some of the most notable that we covered were GoPro, JD.com, GrubHub and King Digital Entertainment.

GoPro has made great strides, rising 69% from the IPO price in just a few days. It’s currently holding steady well above its IPO price. JD.com was another stellar IPO with a stock price increase of almost 50% since the offering. GrubHub saw a few peaks and valleys, but stock remains around its original IPO price. King Digital Entertainment did not fare as well out of the gate, dipping well below its IPO price, but at the beginning of August they were trading back at the original offering price.  

That’s just a recap of some of the companies we have followed through the IPO process; but, how is the tech IPO market doing overall? According to Renaissance Capital, at the end of June, of the 33 tech IPOs that raised at least $50 million, 25 were trading above their IPO price. That’s good news for future tech IPOs.

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