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11:18 am Zoes Kitchen (ZOES)

While Alibaba (BABA) is stealing all of the IPO attention today as it's set to open anytime now, another recent IPO is worth keeping on the radar is Zoe's Kitchen (ZOES), a fast casual restaurant chain serving Mediterranean-inspired food. On April 11, it priced its IPO at $15, it opened at $25.65 and has mostly been trading sideways since then.

Zoe's Kitchen is a fast growing, fast casual restaurant concept serving Mediterranean-inspired dishes delivered with Southern hospitality. It basically is trying to bring Mediterranean cuisine to the masses in a fast casual concept. Management likes to say it serves "real food" -- from hummus, made fresh daily and served with warm pita bread, to flavorful salads and kabobs. By real food, ZOES means food made from simple ingredients, such as raw vegetables, fruits and legumes. There are no microwaves or fryers in its restaurants.

ZOES is growing strongly as it ended 2013 with 102 restaurants and is already up to 125 locations thus far in 2014. In 2014, the company plans to open 29-30 restaurants. The goal is to double its restaurant base in the next four years. ZOES believes it's in the early stages of its growth trajectory as they see a long term total restaurant potential in the US in excess of 1,600 locations.

A metric worth mentioning is average revenue per restaurant. ZOES came in at $1.47 million in 2013. This ranks behind only PNRA ($2.48) and CMG ($2.17) in the fast casual segment and it's ahead of recent high profile IPOs NDLS (1.18) and PBPB (1.00). Another key stat, in our view, is that while ZOES currently ranks behind larger rivals PNRA and CMG in revenue per store, ZOES is much farther along at this point in its growth cycle than PNRA and CMG were back then. At the time of its IPO, ZOES was at $1.47 mln while PNRA and CMG were at $1.27 mln and $1.06 mln, respectively, at the same point in their respective growth stages.

There has not been much news lately although they did report Q2 results in late August. It was slightly above expectations and same store sales came in strongly at +7.5%. BABA is the big name in the IPO space today but there have been some other interesting deals lately, including ZOES.

10:54 am JetBlue Airways (JBLU)

JetBlue Airways (JBLU), the largest airline in Boston and a major carrier in New York, is trading only about 1% higher despite the company's long-awaited announcement that it's replacing its CEO. Robin Hayes, the company's current President, will succeed Dave Barger as CEO, effective February 16, 2015. Mr. Hayes has been with JetBlue for more than 16 years.

This is a bigger deal for JBLU than it would be for other companies because investors have been clamoring for a change in pricing strategy for some time. So why is the stock reaction so muted? Our overall take is that while it's good a new CEO is coming in, some investors may be questioning if a long time insider is the best choice to make the necessary changes. Also, the change will not happen until mid-February which is a long way off.

In case you don't live on the east coast and are not too familiar with JBLU, they are a major carrier with a focus on Boston and New York. Other key cities include Ft Lauderdale, LA, Orlando, and San Juan. JetBlue carries more than 30 mln customers a year to 86 cities in the US, Caribbean, and Latin America with an average of 850 daily flights. JBLU has been popular with passengers because, unlike other carriers, the first checked bag is free, the WiFi is cheap and they have removed seats for more legroom (known as seat pitch in the industry). However, this has led to lower margins relative to other carriers and mediocre financial results.

As such, the stock traded in the $4-7 range from 2008-13. But it has broken out recently, not so much on improving results, but on speculation that management will finally listen to investors and focus more on profits (charge bag fees, cut back on legroom to add more seats, charge more for seat selection and WiFi, curtail unprofitable routes, etc.) Basically, be more like a Spirit Airlines (SAVE) -- this stock has been a monster by the way (+105% over the past year). Spirit probably takes it too far in terms of fees for every little thing and possibly the worst legroom in the industry. JBLU has a loyal fan base who love all the little perks. As such, a Spirit model is probably not doable but even if JBLU would do a Spirit-lite, that would please investors.

Our sense is that the stock is not reacting very much because a change at the top had been expected. Also, some investors may be disappointed that the new CEO is an insider. And not some new person hired a year ago, but a 16-year employee. Is he really going to make the sort of wholesale changes that an outsider would make? Another likely is concern is that the timing of the change is a long way out, in mid-February. Overall, a change at the top is good to see. Some may question if a long time insider was the best choice but time will tell. Maybe he will make the necessary changes. Mark your calendar for the Investor Day on November 19.

9:15 am TIBCO Software Reports Tame Results, Subscription Transition Hinders Q3 Numbers

TIBCO Software (TIBX 20.02, -0.77), which reported worse than expected Q3 (Aug) results last night and guided lower for Q4 (Nov) on the call, is trading down about 3.7% in premarket trading. The company reported $0.14 earnings per share while non-GAAP revenue fell 4.2% YoY to $259.6 million. Then on the call, the company said it expected NovQ revenue of $290-305 mln and non-GAAP EPS of $0.18-0.24, both of which were below expectations.

Trying to make sense of the disappointing results, the company said that the migration of perpetual to subscription-based licensing, together with less-than-expected revenue in Europe, had an impact on overall software revenue results this quarter.

Despite the worse-than-expected results, the company still added to its client base in the quarter with subscription revenues of $13.2 million, up 76% sequentially. So while the company said it's still migrating customers from the perpetual to subscription-based licensing which may impact results in future periods, the subscription numbers were not adversely affected in the quarter.

This morning, following the results, RBC Capital Mkts noted that it's encouraged by the subscription integration, but that the process could have been handled more effectively to avoid disruption. The firm noted that of the subscription integration numbers, approximately $7-8 million of license revenue will be recognized in future quarters, which in the last quarter recurring revenues represented about 47% of total revenues. To that end, the firm sees adoption to subscription-based licensing as significantly important to revenue and EPS, and as such could accelerate the pace of strategic review at the company.

On a final note, this was TIBX's first miss after four beats in a row. As such, it probably took investors off guard. However, the stock has been recovering off its lows last night and it's down only slightly overall despite the sizeable miss and lowered guidance. Our sense is that investors are maybe being more forgiving than they otherwise might be since the miss was more related to the migration of license formats and not so much an operational problem or a lack of demand.

7:28 am SAP Subsidiary to Acquire Concur

You have to love some of the rivalries in the software industry.  Only hours after Oracle (ORCL 41.55) shook things up with its first quarter report and news that Larry Ellison is stepping aside as CEO, SAP (SAP 77.35) stepped up to announce that its subsidiary, SAP America, entered into an agreement to acquire Concur Technologies (CNQR 107.80) for an enterprise value of approximately $8.3 billion.

Bloomberg reported on September 2 that Concur was exploring a sale, approaching the likes of SAP and Oracle to gauge their interest.  Oracle reportedly decided not to pursue a transaction.

This is a cash deal that will be funded from a credit facility agreement of up to EUR7 billion.  It translates to $129 per share for CNQR shareholders, which is a 20% premium to the closing price on September 17 and a 28% premium to the price CNQR was trading at before the Bloomberg report.

Concur is an industry leader in the multi-billion dollar market for travel and expense management software, thereby providing SAP a pathway to expand into the $1.2 trillion corporate travel spectrum and to grow its cloud business.  Another appealing attribute of the deal for SAP is that only 30% of Concur's 23,000+ customers currently run SAP.

Concur's board has unanimously approved the transaction, which is expected to close in the fourth quarter of 2014 or the first quarter of 2015.

7:05 am RedHat shares fall 3% following downside Q3 revenue gudiance

Redhat (RHT $58.80 -1.86) shares are trading lower by 3% pre-market after the company reported second quarter earnings of $0.41 which was higher than expected, while revenues grew 19.1% YoY which is higher than expected.  

The company reported billings of $439.8 million (which is expressed as total revenue less deferred revenue).  

The company reported subscription revenue of $389 mln, which is up 19%% YoY.   For the second quarter, GAAP operating margin was 14.4% and non-GAAP operating margin was 24.4%. Operating cash flow was $108 million for the second quarter, as compared to $119 million in the year ago quarter. At quarter end, the company's total deferred revenue balance was $1.25 billion, an increase of 18% on a year-over-year basis. 

The main reason for the decline may be the company's guidance.  For the third quarter the company sees revenues  of $449-452 million which is below expectations with adjusted EPS of $0.40 which is line with estimates.

The company sees fiscal year 2015 revenues of $1.77-1.85 billion (low end raised from $1.76 bln) which is line with estimates and EPS of $1.53-1.55 (from $1.52-1.54 prior) which is line with estimates.

RHT shares have traded roughly in line with the S&P 500 so far this year.  If today's downward momentum continues look for support near the 58.00-58.25 vicinity.

7:01 am Oracle Reports First Quarter Results; Larry Ellison Steps Aside as CEO

Oracle (ORCL 40.49, -0.65) delivered its fiscal first quarter results after the close on Thursday along with the news that Larry Ellison will be stepping aside from his role as CEO. Neither piece of news provided a blast of confidence for shareholders.

First quarter results overall were pretty pedestrian as they simply didn't show strong growth during the period.  Non-GAAP revenues increased 2.6% to $8.6 billion while non-GAAP diluted EPS rose 5.1% to $0.62, which was below analysts' expectations.

Total Software plus Cloud revenue jumped 6% to $6.6 billion, but Hardware Systems revenue declined 8% to $1.2 billion.

There was some robust growth in Software-as-Service and Platform-as-a Service cloud revenue, which surged 32% to $337 million.  Infrastructure-as-a-Service revenue was up 26% to $138 million.  That is encouraging activity.  Still, at just 5.5% of total sales, it is a small portion of total sales.

New software licenses were a disappointment.  They declined 2% in constant currency to $1.37 billion.  New software licenses are a feeder for the company's license update and product support business, which comprised 55% of sales in the first quarter.

On its conference call, Oracle said it is expecting total revenue growth of 2% to 6% in the second quarter.  Software revenue is expected to grow 5% to 8% while hardware revenue is anticipated to fall in a range of 2% growth to an 8% decline.  Non-GAAP EPS is expected to be between $0.68 and $0.72, which is below analyst's current expectations.

The results themselves, though, have been overshadowed by the management change.  Mr. Ellison, however, isn't leaving the company.  He will hold the positions of Executive Chairman and CTO.

In an interesting twist, Safra Catz was named CEO and Mark Hurd was also named CEO.  That is, they aren't being dubbed co-CEOs.  Manufacturing, legal, and finance functions will report to Safra Catz while all sales, service, and vertical industry global business units will continue to report to Mark Hurd.  All software and hardware engineering functions will be reporting to Larry Ellison.

Oracle investors, therefore, have a lot to consider today about the changing nature of the company's leadership and business.  One thing they can cling to is the understanding that Oracle is in a very strong financial position with over $51 billion in cash and marketable securities and healthy levels of free cash flow.

On that note, Oracle's board approved an additional $13 billion for share repurchases.

Shares of ORCL are indicated to open 1.6% lower.

6:08 am All Aboard for Alibaba IPO

The wait is over, yet the hype probably isn't. Today Alibaba Group (BABA), which is listed at the NYSE, makes its debut as a publicly-traded company after pricing its IPO last night at $68 per share. That is at the high end of its estimated range of $66 to $68, which was raised from an initial range of $60 to $66.

Just over 320.1 million shares will be sold to the public, which will raise $21.77 billion, making Alibaba the largest U.S. IPO ever. It could take the mantel of largest IPO ever if underwriters exercise their right to purchase an additional 48,015,900 ADS shares. 

For some perspective, Alibaba's market cap of $168 billion is higher than the $150 billion market cap sported by (AMZN 325.00) and just shy of Bank of America's (BAC) $179 billion market cap.

Fortunes are going to be monetized on Friday. Founder Jack Ma stands to rake in close to $870 million before taxes with his sale of roughly 12.8 million shares. Not bad for a former English teacher who founded the company with just $60,000.

Yahoo (YHOO 42.09) is going to sell just shy of 122 million shares, grossing about $8.3 billion, or close to 20% of its current market cap, in the process.

The world knows then how Alibaba will open. The intriguing aspect is how it will close.

Bloomberg reports that 18% of the company's shares are not subject to lockup. An effort to monetize those holdings could be a restrictive factor. By all accounts, though, there has been overwhelming demand for BABA shares given the company's industry-leading position in serving the e-commerce interests of China's growing middle class. 

It would be a real surprise if BABA didn't close north of its IPO price.'s IPO Specialist notes there have been ten Chinese IPOs in the U.S. so far in 2014. The average first day pop for those IPOs was 11% and the current average gain for those stocks versus their IPO price is 37%, showing that investor demand for these Chinese issues has been quite strong. 

Stocks like Baidu (BIDU 228.45), Dangdang (DANG 12.78), and (JD 29.55) promise to be actively-traded in and around Alibaba's record-setting wake.


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