Suman Chatterjee's  Instablog

The other day I was reading an article about Steve Jobs made a business of being "cool". Just think about this. If you don't have the latest iPad, you are outdated among your business colleagues. If you don't carry the latest iPhone, you are not cool among your friends.

As Apple (AAPL) strives to bring new features every time, people are always ready to shell out more than a thousand bucks to be at the forefront of the fashion bandwagon. And why blame Apple? Even Google's Android phones sell like hot cakes! Although this is my personal opinion, Google's Android phones are much cheaper and more useful than the overhyped, overpriced Apple's.

The latest news is that Apple is looking for bigger screens for the next generation iPhone 4S to be launched next year! Till now, Apple never attempted to change its iPhone screen sizes. It's working with Korea's LG Display Co. (LPL) and Japan's Sharp Inc. and Display Inc., all collaborated to provide the ultimate screen size for the next generation iPhone.

Why the increase in size? They say, Samsung's Galaxy S III has a 4.8inch screen, larger than the 4.3inch screen size of the company's current flagship model Galaxy S II. Even Taiwan's HTC Corp, also has models with screen size over 4inches.

Is that a way of competing with the rivals in the smartphone market? Perhaps, but what we are looking at is Apple's sales revenue.

Before we check the sales reports, here's something you must know. Apple's stock price shot up by over 40% in the last six months. That's forty percent! People are pretty much optimistic about Apple's future potential.

The company's net sales improved to $108 billion in 2011, over $65 billion in 2010 and $42 billion in 2009. That's a huge rise in sales revenue in just one year! And if we look closely, iPhone and related accessories and services brought over $47 billion in revenue last year, compared to $25.2 billion in 2010. Needless to say, iPhone and related services sales brings in the maximum revenue, among the other operational segments. Things are getting better by the day for Apple.

But, straying away from the topic, does it mean bigger sales for Apple only? No, of course not. Even a small yet fast-growing company such as Teletouch (TLLE.OB) shows rise in sales revenue. As a matter of fact, Teletouch sells iPhone related accessories, even for the latest iPhone 4S. Teletouch's revenue increased to $52 million in 2010 from $45.9 million in 2009. And the cellular segment sales, recorded at $28.2 million, accounted for 54.2% of the total revenue. If Apple benefits from bigger sales, so does smaller companies as well.

To sum it up, being cool is good. Sometimes, it can make you money. Sometimes, it can be otherwise. But still, you can always be the "alpha" one among your friends, right?

On 15th February, Kellogg Company (K) announced its agreement to acquire Proctor & Gamble's (PG) "Pringles" for $2.695 billion. Quite a huge investment, it is supposed to be a great addition to the global snacks business of the company.

Pringles' brand strength and consumer appeal alreadyadd sufficiently to Kellogg's high-quality snacks brands, most notably Keebler, Cheez-It and Special K Cracker Chips, further providing leverage in the international market. Apart from making Kellogg second largest snacks maker after PepsiCo in size, it would also put around 1200 skilled employees at Kellogg's management's disposal.

"We are excited to announce this strategic acquisition," said John Bryant, Kellogg Company's president and chief executive officer. "Pringles has an extensive global footprint that catapults Kellogg to the number two position in the worldwide savory snacks category, helping us achieve our objective of becoming a truly global cereal and snacks company. We are delighted to welcome the employees of the Pringles organization to Kellogg. Their collective passion and commitment has resulted in Pringles' well-deserved acclaim as one of the most recognized brands in the world."

It seems everybody is hopeful about this new deal. The share price of Kellogg Company rose by over 5% on 16th February, and it is the highest since early November, when the company posted disappointing results and curtailed its 2011 financial outlook.

Adding Pringles is expected to increase the global snacks revenue almost equal to that from the cereal department. So adding Pringles will only strengthen the company's sources of revenue.

As Edward Jones analyst, Jack Russo says, it must be noted that the cereal business does face a lot of competition from General Mills and other private label brands.

"It's a win-win," Russo said. "It gets Procter more focused on where they need to be and it's additive to Kellogg's earnings."

And with this new surge of optimism, I would expect that the company will notice some steep rise in its stock price, currently trading at $52.53 on 19 February, 2012, in the future. Good for the investors!

Moreover, in this health-conscious market, with the "100 calorie", "fat free", "multigrain" and many such healthy versions, Pringles definitely has a strong appeal to health watchers as well, which might add few more millions in the revenue.

Who knows if this turn out well, the company might shoot for the world-famous snacks brands of Diamond Foods (DMND) as well? In an interview with Reuters, John Bryant declined to comment on his company's interest in Diamond or any of its brands.

As you already know, due to some accounting glitch, Diamond Foods couldn't take over Pringles and is facing US government litigation at the moment. My common sense says, somebody is going to get Diamond Foods very soon.

And last but not the least, the financial statement matters. How does this "Pringles" deal affect the company's financial statements? Let's look at the company's last quarter financial highlights once.

The company earned total revenue of $3 billion last quarter, up by 6% in the same quarter last year. It's year-over-year sales growth of 4.5% definitely brings a smile to our faces. But what about the operating profit margin? Although its operating profit increased by 20.5% last quarter, the year-over-year graph shows a decrement of (2.9%) in 2011, which is not inspiring at all.

Even gross profit margin seems to have dropped to 41.3% in 2011 from 42.7% in 2010. The gross profit margin in the last quarter, standing at 40.9%, is still lower than 41.6% in the same period of 2010. It can be concluded that although sales are going up, the profit margin is somehow being compromised with. And it seems, the company is mainly hit in the North American and the European region. This new deal just might help to bring back the rhythm in the above mentioned regions once again. After all, Pringles is the fourth-largest brand of snacks in the world, with 2.3 percent of the market. In the United States, it ranks eighth with 2.5 percent.

Moreover, this new deal will fetch the company over $400 million in tax benefits, and might help in increasing the bottom-line of the company. In short, I would say this might turn out to be a nice deal for Kellogg. I am routing for Kellogg this time!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Everyone is talking about Facebook IPO these days. Well, a debut with a market cap of around $100 billion sure captivates attention, compared to Google's (GOOG) debut of $23 billion, which raised just $1.67 billion in 2004. Facebook is aiming straight for $5 billion on the first delivery.

With 845 million active users, 483 daily active users, over 425 mobile active users and 100 billion friends on the social network, Facebook is certainly a big player in the industry. Now, the time has come for Facebook to go ahead and prove itself in front of the whole world.

Here are a few concerns that Facebook probably faces in the future, obstructing its path to success.

• If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed;
• We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business;
• Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results;
• Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks, and standards that we do not control. ;
• We may not be successful in our efforts to grow and further monetize the Facebook Platform;
• Our business is highly competitive, and competition presents an ongoing threat to the success of our business;
• Improper access or disclosure of our users' information could harm our reputation and adversely affect our business;
• Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters. May of these laws and regulation are subject to change and uncertain interpretation, and could harm our business;
• Our CEO has control over key decision making as a result of his control of a majority of our voting stock;
• The loss of Mark Zuckerberg, Sheryl K. Sandberg, or other key personnel could harm our business;
• We anticipate that we will expand substantial funds in connection with tax withholding and remittance obligations related to the initial settlement of our restricted stock units (RSUs) approximately six months following our initial public offering;
• The market price of our Class A common stock may be volatile or may decline, and you may not be able to resell your shares at or above the initial public offering price; and
• Substantial blocks of our total outstanding shares may be sold into the market as "lock-up" periods end, as further described in "Shares Eligible for Future Sale." If there are substantial sales of shares of our common stock, the price of our Class A common stock could decline.

Although economists and analysts doubt Facebook's greatness, I am routing for Mark. After all, I am an avid user of Facebook, with around 3000 friends and 2 FB pages. And just as a sign of respect and support, I write a short letter to Mark below, from a user's view point.

"Dear Mark,

I totally understand your reasons. Don't you worry; we are all there for you…as long as you don't start charging a membership fee for being on Facebook. That could really mean problem for you, if the "next big thing" suddenly pops out of nowhere.

You should also watch out Google and Twitter. I totally like how you have incorporated the "subscribe" option in Facebook, which more or less gives us the same benefit as Twitter does. Moreover, it's definitely not as noisy as Twitter. Regarding Google Plus, you might not have to worry now. But do keep a watch all the time.

Why? Google has a nasty habit of integrating each and every of its products and services, and it does well nonetheless. Talk about Google Offers, and Google is already doing better than Facebook Marketplace. It's highly likely that Google might try to incorporate Google Plus in every Android piece. Sadly, this will eat away from your user base over time. And when we have come to the smart phone and tablet business, you should also lookout for Apple (AAPL). It's definitely going to launch a few goods and services of its own for the iPads it sells.

We all know that mobile advertising is your weak point. Focus on it.

Nevertheless, it's going to be hard. Why? We all see Facebook as a hangout place. It's the only place online where you expect to have "disturbance-free" communication. If you wish to include more ads, it can only hamper the user experience. Again a glitch! Of course, your advertising reach and revenue is over that of Microsoft (MSFT) and Yahoo (YHOO), but still a long way to go.

Moreover, you have around 12% of your annual revenue coming from Zynga (ZNGA). Have you ever thought about the instance if Zynga were to pull out from sharing games and applications on Facebook? Please do give it a thought.

Lastly, your revenue per registered user is around $4.39, compared to Google's $30, Yahoo's $7 and AOL's (AOL) $10. It's seriously something you got to work toward, if you are to survive in the future. The public listing will lead to immense pressure on the profitability ratios of the company. So better buckle up!

And just before ending the letter, I thank you once again for creating such a wonderful online place.

Regards,

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.