New York state gets about a third of its electricity from nuclear power plants. That's a big slice of the power pie, but there have been rumblings from nuclear opponents that these plants should be closed. And as the plants have aged, the push for closure has gained steam. Not only would that pose a problem for the state's power reliability, but it would also be a huge setback on the environmental front.

Too much of a good thing
The Northeast, including New York, has been increasingly reliant on natural gas. That fuel is still trading hands at historically cheap levels and is cleaner than coal. However, there are some unique issues that make an over reliance on natural gas worrisome for New York, and other eastern neighbors. The biggest being a lack of pipelines into the region, which led to supply issues and gas prices as much as 875% above the 12-month average last winter.

According to a report from Consolidated Edison , which serves New York City and other areas in the region, "Any proposed project to provide relief by reducing pipeline constraints will likely take years to complete, so consumers exposed to energy markets over the next few winters should expect higher-than-average prices during those months."

Source: Daniel Case, via Wikimedia Commons

But what happens if you close nuclear power plants? The easy answer is that other sources have to step up to the plate and make up for the lost power. The hard answer is that natural gas will become even more important than it already is to the northeast's grid. Although that shouldn't be a problem most of the time, the lack of diversity causes notable problems during peak demand periods -- like last winter's so-called polar vortex. Taking nuclear plants offline would reduce New York's power diversity, which would have notable consequences.

Carbon problems
The other reason why New York might not want to close its nuclear power plants is carbon dioxide. Whether you believe in global warming or not, there's a huge push to limit greenhouse gas emissions like CO2. And the Environmental Protection Agency's (EPA) proposed carbon limits, though years away from implementation, clearly show that ignoring the issue isn't an option.

Unlike power plants burning coal and natural gas, nuclear power plants don't emit greenhouse gases. That's a big plus for nuclear, even though it has an image problem on the safety front. But how big is the CO2 problem?

According to UBS estimates, closing Indian Point, owned by Entergy , would increase the state's carbon emissions by over 25%. Closing three smaller plants (Ginna, Fitzpatrick, and Nine Mile) would increase carbon dioxide emissions by nearly 40%. Why? Because the lost power has to come from somewhere and that would most likely include carbon-based fuels.

Source: WPPilot, via Wikimedia Commons

If you're wondering if these estimates are realistic, they are. According to the California Air Resources Board, California's carbon emissions increased by 35% when the state's San Onofre nuclear power plant, which at the time was partially owned by Edison International , was shuttered in January 2012. Even if UBS's estimates are on the high end for New York, shutting clean power down will have a detrimental environmental impact at the same time that the EPA is looking for states to reduce carbon emissions.

Overreaction?
The nuclear meltdown in Fukushima, Japan, refocused the world on the dangers of nuclear power. At a time when clean power sources like solar and wind are surging, that's left nuclear lumped in with other out-of-favor fuel options. That's a problem on the environmental front because, like wind and solar, nuclear is a clean power source. And in some regions, like New York, it plays a vital role in ensuring the reliability of the power grid.

And this issue isn't actually unique to New York. For example, nuclear supplies over 60% of the United States' carbon free power. Wind and solar clock in at roughly 15%. Moreover, nuclear provided nearly 20% of total U.S. power last year, wind and solar was something on the order of 5%. So, image problem or not, New York, and the country, need to think long and hard before closing nuclear power plants.

Grains and bread form the foundation of the government's food pyramid, recommending anywhere from five to 12 servings daily, and Panera Bread , whose name drips with redundancy -- panera, after all, is Italian for "bread" -- would heartily agree.

Will bread soon fade to become a grainy image? Greater health consciousness by consumers is working against seeing bread rise.

But with the growth of gluten-free diets that seem to continuously increasing in number, the risk to the fast-casual restaurant's business model would appear to be at risk.

A crusty leader leads the charge
Panera seems to recognize the threat and recently called on bakers "to stand strong on bread." At the annual meeting of the American Association of Cereal Chemists International, the restaurateur said it would be "taking back bread" over the coming year from those who were spreading a bad message about the key food group.

As well it might. Last quarter comparable net bakery-cafe sales at company owned restaurants rose an anemic 0.1% while franchised locations fell 0.2% leading to flat companywide comps. After peaking in 2012, bakery sales have fallen through the floor.

Sales are only rising because Panera's adding more stores. Getting customers to make return trips is an increasingly difficult task. Data: Panera Bread quarterly SEC filings

The numbers are actually even worse than what the chart shows because of the 1,818 systemwide restaurants it operates, slightly more than half (51%) are franchised, and comps at those stores have turned negative for the first time.

It doesn't matter who's minding the store, seas are only heading in one direction. Data: Panera Bread quarterly SEC filings

It's no surprise the decline has come about at the same time there's been a rise in awareness of celiac disease and of gluten intolerance, topics Panera assiduously avoids in its conference calls with Wall Street analysts.

Fast-casual is hot, Panera Bread is not
It perhaps also explains why other fast-casual chains like Chipotle Mexican Grill  continue to do well while Panera lags. While storewide sales at the bread maker have gone flat after a long downward spiral, the healthier burritos and taco maker are seeing comps soar.

Consider it a contest between breads that rise and those that are flat, but the gulf between the two is growing wider. Data: Company quarterly SEC filings

Gluten is a punch to the gut
Celiac disease is a chronic, inherited, autoimmune digestive disease that damages the small intestine and interferes with absorption of minerals nutrients from food. Brought on by an intolerance to gluten, or a protein that is found in wheat, rye, barley, and sometimes oats, it causes inflammation that can lead to malnourishment as nutrients are prohibited from being absorbed through the intestinal tract into the blood.

It's estimated 2 million people in the U.S. have celiac disease, and according to the National Institutes of Health the only known cure for it is complete avoidance of gluten-containing products.

The market analysts at Datamonitor says some 20% of consumers globally regularly avoid certain foods due to allergies or intolerance and 22% more do it occasionally. Sales of gluten-free foods are expected to hit $5.5 billion by 2015 though Mintel, with a broad definition of what defines "gluten-free," believes it already surpassed $10 billion and could reach $15.6 billion by 2016.

Others, with a narrower field of view, put the opportunity at $4.2 billion back in 2012 but still anticipated massive, double-digit growth rates for the niche.

Indeed, gluten-free bread products are the biggest category (naturally) and are witnessing the biggest surge. Sales of such items grew from $1.43 billion in 2011 to $2.52 billion last year, a 76% increase, outpacing the 58% rise witnessed in the dairy and dairy-alternatives category.

Gluten-free is more than just the diet du jour
From Atkins to paleo and the books Wheat Belly to Grain Brain, diets promoting wheat and grain avoidance are all the rage, but doctors too are increasingly coming to the conclusion grains are a leading cause of what's making us fat. Yet the USDA continues to recommend we eat two to three times more servings of bread than healthier items like fruits and vegetables.

Grain-free meals like this paleo diet offering eschew the USDA's recommended dietary intake and opt instead to bulk up on various proteins and carbs realized from fruits and vegetables. Photo: Flickr user Katherine Lim

Panera Bread, as a result, is facing a difficult task then, even if it is trying to rally the troops around the cause of "taking back bread," though it does given a nod to those avoiding grains by offering what many refer to as its "secret" or "hidden" menu, a selection of grain-free soups and salads (so long as you hold the croutons).

To counteract the larger threat to its business, Panera says bakers need to target what it calls "engaged food influencers," or EFI's, who are women aged 25 to 44 who, while representing just 18% of the company's traffic, account for 40% of its revenue.

Targeting its strengths
The trade site Bakery and Snacks reports Panera told the bakers at AAACCI's meeting that nearly three-quarters of EFI's didn't realize the fast-casual chain baked its own bread on premises so it plans to be baking throughout the day now.

Because EFI's also tend to view the food group as a valuable part of a healthy diet, there was no need to be apologetic about bread being central to its mission, though it needed to show it was a quality product in which one could indulge.

Inspiring words, perhaps, for an industry that's been under the gun, but as more is learned about the effects of gluten on the gut and the overall health of the individual, it can only mean that Panera Bread will face an ever higher wall of worry that it will become even more difficult to surmount.

I'm sure there are better investing one-liners than, "Invest in what you know," but it's still near the top of the list. If you're a walking, breathing adult, you probably know about Starbucks .

Investing in Starbucks probably also seems like a good idea. The company's stock has risen 250% in the last five years, beating out the rest of the market by 175 percentage points.

Starbucks is everywhere -- like this place. Photo source: Starbucks.com.

Does that mean the stock is overcooked? Is it all downhill from here? Potential Starbucks investors have a lot of questions, so here are a lot of answers.

Free cash flow at Starbucks
Let's talk about raw numbers to get things started. When looking at any business, the one thing we ultimately want to know is, "Did you make money?" We often start up at the top and work our way down to discover that the $17 trillion in sales somehow ended up squandered along the way, and the company is only recording $2 million in earnings. To cut to the chase, let's look at free cash flow.

Free cash flow is the actual cash that a company generates. If we look at Starbucks, for instance, we can see that, during the first nine months of its fiscal year, it actually lost $133 million in cash just running itself. That seems odd, though, because in the year before, it generated $2 billion in cash through its continuing operations.

The trick is that, in 2014, the company finished a long running bit of legal trouble with Kraft -- and Kraft won. That resulted in a $2.8 billion fine for Starbucks, which came out of its bottom line. Because that's not a recurring issue, we can add that back in to determine what Starbucks would have made, if 2014 was a normal year.

Through its ongoing operations, Starbucks would have made $2.6 billion. We then subtract out the cash that the company spent on property and equipment, as that's cash that the company would presumably continue to spend to keep itself growing at its current rate. During the first nine months of fiscal 2014, the business invested $811 million in property and equipment, giving us $1.8 billion in free cash flow. That's cash that Starbucks can use to reinvest, buyback shares, payout as a dividend, or even pay off a legal settlement.

Sales and growth
Looking beyond Starbucks' cash flow, let's talk about growth. During the first nine months of this fiscal year, Starbucks has grown same-store sales by 6%. That means that the company is attracting more customers to its locations, and it's selling them more things. That's a recipe for strong fundamental growth, and one that Starbucks has been perfecting for years.

Now that coffee is locked in, Starbucks is setting its sights on other growth opportunities. Food and tea offer the biggest chance at new success, and the company is working on each one. For food, Starbucks is expanding its baked goods and prepared foods offerings. That's to help it focus on bringing in more customers during the evenings and afternoons.

Tea is Starbucks' other focus, with its Teavana acquisition and expansion. The company believes that it can "reinvent the way the world enjoys tea, just as Starbucks did, decades ago, for coffee." That means building the Teavana brand, expanding its physical presence, and getting more visibility in Starbucks' locations for the tea brand.

Concerns about the future
The growth that Starbucks is pushing for in food and tea isn't without expense. Starbucks puts a lot of work into the products and lines it promotes, and those have taken a toll on short-term earnings. The company's catch-all "other segments" business reported a $19 million operating loss due to investments in its emerging businesses.

If those investments don't turn into revenue, Starbucks is left holding the bill. For a company that is constantly developing new items and trying to squeeze more out of each location, that can quickly add up.

Tied to the investment cost concern is the cost of commodities. Coffee and milk are the backbone of Starbucks' business model, and rising rates of leaf rust along with climate change concerns mean that coffee's future price is still unclear. Starbucks has been able to pass on some price increases in the past year, but consumers have a limit. If Starbucks just has to keep prices down to keep customers, its margins could be in serious jeopardy.

Howard Schultz is the name, face, and mind behind Starbucks.

On top of cost issues are management concerns. Starbucks has always been the byproduct of CEO Howard Schultz's coffee-focused mind. At some point, Schultz is going to step down, and Starbucks could be left in the lurch. While leaders aren't synonymous with their businesses, Schultz is the force behind much of the business, and it seems unlikely that there's another Schultz waiting in the wings.

Finally, Starbucks isn't cheap. The company trades at 3.4 times its total sales, which is higher than many established brands, and more in line with growth businesses in the industry. With many concerns about future costs and growth, Starbucks is far from a sure bet.

Investors looking for a strong brand and the potential for greatness could certainly find success with Starbucks. If you're in the market for a value proposition, however, Starbucks is the wrong place to look. This is a company priced for bigger things. If they fail to materialize, Starbucks shareholders will have a long way to fall.

Source: Kinder Morgan.

Kinder Morgan Inc. announced solid third-quarter results after the closing bell today. The company reported cash available to pay dividends of $435 million. That's up from $424 million in the third quarter of last year, and it allowed the company to increase its quarterly dividend to $0.44 per share, which is a penny higher than last quarter and up 7% since last year's third quarter. Thanks in part to its strong showing this quarter, the company expects to exceed its 2014 budgeted dividend per share of $1.72 for the full year.

Drilling down into the results
A bulk of Kinder Morgan's revenue in the quarter came from its ownership interest in Kinder Morgan Energy Partners LP . In the third quarter, the MLP poured $551 million into Kinder Morgan's coffers, or about 75% of its revenue. The rest of its income came from its ownership interests in El Paso Pipeline Partners LP and its other assets. While the company is in the process of acquiring these affiliates, we need to drill a little deeper into these results to better understand Kinder Morgan's results, with Kinder Morgan Energy Partners in particular being what really fuels Kinder Morgan's results. Let's take a close look at its results, since it does most of the heavy lifting.

Here we see that all five of Kinder Morgan Energy Partners' segments delivered earnings growth over the prior quarter:

Source: Kinder Morgan Energy Partners LP press releases. Results in millions.

The highlight this quarter, as it has been all year, is the company's natural gas pipelines business. Not only are segment earnings higher than last quarter, but results are also up 9% over the third quarter of last year thanks in part to a 10% increase in natural gas volumes. Overall, the company's natural gas pipelines continue to be in strong demand because of production growth from U.S. shale plays, which is fueling demand for new pipeline capacity from Kinder Morgan. 

It's a similar story of solid results across the company's other segments. The carbon dioxide business delivered strong oil production along with solid carbon dioxide production. The products pipeline segment benefited from the strong growth in petroleum product volumes flowing through its pipelines, while the terminals business benefited from new projects coming online. Even the Canadian segment's results improved, though in this case that improvement had a lot to do with the exchange rate. Overall, the company's operating segments all delivered solid results, which helped fuel strong results and a growing dividend at Kinder Morgan.

Looking ahead
Despite the plunge in oil prices over the past few months, Kinder Morgan expects its businesses to deliver results that exceeded its original expectations. Even its carbon dioxide segment, which has some exposure to oil prices, is still expecting results that are only moderately below the company's expectations. The company expects to more than overcome that weakness on the strength of the natural gas pipelines business.

The last area worth noting is the overall project backlog for Kinder Morgan. That backlog grew by a net $900 million in the quarter to a total of $17.9 billion, as the company added nearly twice as many new projects to its backlog as it placed into service in the quarter. Considering that future projects are what will fuel the company's continued growth over the next few years, it's critical that it continues to maintain a strong backlog of projects that have a high certainty of being completed.

Investor takeaway
Overall, it was another solid quarter for Kinder Morgan. The company is on pace to exceed its own guidance for the full year and continues to increase its project backlog to fuel future growth. The company also remains on track to consolidate its vast empire as its merger with its MLPs still looks to close before the end of the year. This really is everything investors could realistically hope to see from the company this quarter.

Activision Blizzard's  stock has taken a beating since the release of its much-hyped video game, Destiny. The title was positioned as the beginning of the company's next major franchise, but early sales and player feedback were not strong enough to sustain the record-high valuation Activision enjoyed prior to release. Making matters worse, the company's Blizzard wing recently announced that it had canceled a project that had been in development for seven years. These disappointments have contributed to a roughly 21% decline in the company's share price from September highs.

Have recent events revealed fundamental weaknesses in an over-hyped company? Or is Activision Blizzard's stock a buy after suffering a substantial dip? Let's take a look.

Putting things in context
Prior to the release of Destiny, Activision CEO Bobby Kotick promised that the game would go on to become the most successful new property in gaming history. The fact that the title achieved this feat, selling more than 5 million copies in its first five days on the market, may make the steep decline in the company's valuation somewhat confusing, but given the expectations surrounding the release and the cyclical nature of the industry, the drop is understandable.

Activision's consistent ability to introduce new properties to replace those in decline has been one of the company's defining strengths, and any sign that the company may not be able to keep its streak going is cause for concern. Call of Duty and World of Warcraft, two of Activision's most important series, are still doing big numbers, but both series are currently in a state of commercial decline. Last year's Call of Duty was the series' weakest performer in several years, and preorder tracking suggests that this year's sequel will do even worse. Meanwhile, Warcraft's subscriber base has declined to roughly 7 million, down from peak levels of approximately 12 million subscribers.

What Destiny and the cancellation of Titan say about Activision 
There's no denying that the launch of Destiny was an important test for Activision Blizzard, and that the results have, thus far, come up below expectations. The game may receive updates that will help to sustain and grow its player base, but the prospects for paid expansions and sequels now appear dimmer than they did pre-launch. This new uncertainty is made even more troubling by the cancellation of Blizzard's Titan. It's worrying enough that the project spent seven years in development, only to be scrapped, but it now looks like Activison Blizzard's hold on the online gaming market could be slipping. With subscription-based models, used in games like World of Warcraft, appearing increasingly unsustainable, Destiny and Titan were key projects for testing and establishing new revenue structures. The Destiny series may still go on to accomplish many of the company's goals, but the cancellation of Titan casts doubt on whether or not Blizzard can deliver another hit MMO within the next five years.

Are Activision Blizzard and other gaming companies in trouble?
Activision Blizzard isn't the only gaming company to see downward pressure on its stock since September. In fact, Electronic Arts, Take Two Interactive, and Ubisoft have all seen notable dips in pricing over the stretch.

ATVI data by YCharts

After last year's record-breaking revenue and the successful introduction of new consoles from Sony and Microsoft, the outlook for this year's performance has dipped due to a weaker than expected software slate. Destiny falling short of the bar established by pre-release hype is a factor here, as are big delays from other publishers and a shortage of games that take full advantage of the new-generation hardware.

Reasons for optimism
In May 2012, Activision released Diablo 3 to strong critical reviews and vocally dissatisfied consumers. While the title initially appeared like it would disappoint and be unable to sustain a healthy player base, Blizzard's post-launch handling steered the game to ongoing success, and it now stands as one of the company's stronger performers.

It's not unreasonable to think that similarly efficient management of Destiny could improve the outlook of the franchise. It's also possible that Blizzard has been working on another MMO project in addition to the canceled Titan. If the developer has something big to show at its early November Blizzcon conference, Activision stock could see a signficant rebound. Blizzard has also been making progress with the free-to-play model. Its game Hearthstone has accumulated roughly 20 million players, and the upcoming Heroes of the Storm has the potential to build a large audience which could drive digital revenue through microtransactions.

Final thoughts
The most recent declines in Activision Blizzard's share price represent the biggest drop the stock has seen since the 2008 financial crisis. Destiny's performance relative to expectations and the cancellation of Blizzard's Titan have raised important questions about whether the company has lost its knack for franchise management, but the increased skepticism may also provide an attractive entry point. Given the secretive nature of game development, there's a significant amount of guess work as to what the future holds for the company. As such, whether or not the stock is an advisable buy depends on if you think the company's recent stumbles will continue, or if Activision Blizzard is capable of righting the ship.

For decades, Microsoft was synonymous with Bill Gates. After his childhood friend and Microsoft co-founder Paul Allen retired in 1983 after being diagnosed with Hodgkin's disease, Gates was Microsoft, and vice versa. As former Microsoft CEO Steve Ballmer learned after being named chief executive in 2000, following in the footsteps of a world technology leader isn't an easy proposition. Some would argue Ballmer brought on much of the ill-will from investors and industry pundits alike by holding on to the past much too long, rather than looking to the future.

Based on Microsoft's recent successes in cloud-related solutions and its new emphasis on becoming a significant player in mobile technologies, Ballmer's replacement, Satya Nadella, has been a breath of fresh air. And shareholders have reaped the benefits, enjoying Microsoft's 24% jump in share price so far this year. Turns out, however, there's a bit more to the Nadella-Microsoft turnaround story, and it involves a familiar face.

Heee's, back!
An article was published in Vanity Fair recently discussing Microsoft's transition to Nadella, only the third CEO in company history, dating back to its inception nearly 40 years ago. Both Gates and Nadella were included in the discussion, and it became apparent the two are very much on the same page in terms how to ensure Microsoft remains, "relevant."

Nadella said a key objective for Microsoft is to ensure software and services help people accomplish more, in less time. As he put it, the winner's in the tech industry will be those that do, "the best job of building the right software experiences to give both organizations and individuals time back so that they can get more out of their time, that's the core of this company—that's the soul."

Gates was quick to piggy-back Nadella's comments, adding "We're not even a third of the way toward empowering workers even to the dream that goes back to the start of the company." Clearly, the two like-minded tech gurus share a common vision for the future of technology, and Microsoft's place in it. Which is a good thing, since it appears Gates himself is spending a great deal more time helping to define Microsoft's future than most of thought.

As intriguing as the insights the two provided were, what may catch some by surprise was Gates' admission that he now devotes, "30 percent" of his time to Microsoft, a decision he made when Nadella was given the top job in early Feb. It's not shocking that Gates was working with Microsoft; his input is invaluable, but 30%? When a tech giant with the status of Gates come back into the fold, how long will it be before questions arise about who's really running the show at Microsoft?

There's also the question of where Ballmer fits in the Microsoft picture, if at all? It's a valid question because as Microsoft fans may know, by spring of this year , Ballmer became the largest single owner of Microsoft stock, with approximately 4% of its outstanding shares. Of course Ballmer has already resigned from Microsoft's board, and has plenty on his plate already, including becoming the new owner of the NBA's Los Angeles Clippers.

Challenges remain

Developing solutions to free up time, as Nadella suggested, or technologies that are "pervasive," virtually surrounding us, as Gates alluded to, aren't novel ideas: one look at the growth in the Internet of Things makes that clear. And that puts Microsoft in the mix with a cast of familiar foes, including Google and IBM , among others. IBM's super computer Watson, and its emphasis on cloud big data solutions, dominate CEO Ginni Rometty's focus as she attempts to right the IBM ship. It's been slow going, but IBM is beginning to make some headway.

If there was any doubt that Google saw the future of the industry as "pervasive," ala Gates, its recent $3.2 billion acquisition of "smart" home solution provider Nest Labs answered that. You can add its line-up of wearables, an industry leading mobile OS, and a full suite of cloud solutions to Google's pervasive arsenal. Microsoft certainly has some challenges ahead, with or without Gates.

Final Foolish thoughts
So, who's running things up in Microsoft's headquarters in Redmond, WA? Gates would be the first to say Nadella's CEO, and the buck stops with him. As for Ballmer, he may own the most stock, but he has no intention of muddying the Microsoft waters, he's got an NBA title to focus on. Which leaves Microsoft in the enviable position of having the best of both worlds: A new leader that has quickly changed Microsoft's culture, for the better, along with access to one of the technology industry's all-time leading innovators.

Source: Orbital Sciences Corporation. 

Orbital Sciences announced third-quarter results before the opening bell this morning. The company reported revenue of $338.2 million and adjusted net income of $23.3 million, or $0.38 per share. While revenue missed analysts estimates by $27.7 million, earnings soared past estimates by $0.11 per share. Thanks to Orbital's strong earnings, the company was able to increase its full-year guidance.

A closer look at the numbers that matter
While revenue came in a little lighter than analysts expected, the company still delivered strong year-over-year growth as revenue increased by $16.2 million or about 5%. More important, the company was able deliver really strong earnings growth as adjusted net income increased from $15.6 million or $0.26 per share in last year's third quarter to $23.3 million or $0.38 per share in this year's third quarter. This earnings growth was due to stronger margins at the company's Launch Vehicles and Advanced Space Program segments in the quarter.

Orbital's Launch Vehicles segment saw just a $2 million, or 2%, increase in revenue in the quarter. However, the company's operating income surged 49% as operating margins increased from 8.8% to 12.9%. The improved profitability on the Antares launch vehicle was largely responsible for the segment's strong results this quarter.

The other highlight this quarter was the company's Advanced Space Program segment. Revenue in this segment actually decreased by $15.1 million, or 12%, over the third quarter of last year. However, operating income jumped 129%, which improved the segment's operating margin from 5.1% to 13.4%. This was due to the improved profitability on the Commercial Resupply Services contract.

The improved margins in the Launch Vehicles and Advanced Space Program segments helped to offset lower margins in the Satellite and Space Systems segment. While the segment's revenue soared 20% over the third quarter of last year, operating income fell 32% and operating margins slipped to 5.2% from 9.2%. The culprit was a reduction in communication satellite operating profits.

A look ahead
In addition to solid results this quarter, Orbital also announced that it recorded $405 million in new firm and option contract bookings. Furthermore, the company received $265 million in option exercises under its existing contracts. This pushes the company's firm contract backlog to $2.3 billion and its total backlog up to $4.7 billion.

The combination of solid profitability and strong bookings is giving Orbital the confidence to increase its full-year financial guidance. While the company is cutting its revenue outlook, it is increasing its outlook for earnings and cash flow. The company now expects full-year revenue of $1.35 billion-$1.375 billion, adjusted earnings per share of $1.20-$1.25 and free cash flow of $165 million-$175 million. This is against its previous guidance for revenue of $1.4 billion-$1.425 billion, adjusted earnings per share of $1.10-$1.25 and free cash flow of $130 million-$150 million.

Overall, this was a very solid quarter for Orbital Sciences. The company was able to deliver strong earnings growth even as revenue was a bit weaker than expectations. Looking ahead, the company expects its strong earnings to continue as it's raising its full-year guidance.

Carnival Corp is the world's preeminent cruise operator. Its market share is twice that of Royal Caribbean , its closest competitor.

Carnival's size gives it an advantage in an industry where the lowest-cost operator has the upper hand. Even so, Carnival is not satisfied to maintain its current market position; it is upgrading its current ships, and expanding its fleet to widen its lead in the cruise industry. Let's break down how Carnival is investing capital to grow shareholder value.

Making the necessary investments
The cruise industry is one of the most capital-intensive industries that still turns an economic profit. A single ship costs hundreds of millions of dollars to build and furnish, and many millions each year to maintain. Although it's difficult for investors to judge the adequacy of maintenance spending, it's crucial that Carnival makes the necessary investments to maintain a working fleet.

The company came under a barrage of bad publicity in 2013 after three of its ships experienced mechanical failures. In February 2013, passengers were stranded for five days as one of its ships remained helplessly adrift in the Gulf of Mexico following a fire that caused a total power failure, according to Time magazine. One month later, CNN reported that a second ship lost power, and a third suffered mechanical failure.

The ships' problems may have been caused by inadequate maintenance spending. Carnival's capital expenditures as a percentage of revenue are at a decade low.

Source: Morningstar.

Capital spending fluctuates widely depending on how many new ships the company is building; but low capital spending could also be an indication that the company is skipping out on necessary maintenance costs. The company responded to the 2013 incidents by announcing a $600 to $700 million capital spending program to shore up fire protection systems and backup power generators across its entire fleet.

The program is as much about marketing as it is about making necessary upgrades. Chief Operating Officer Howard Frank said, "We think it's important to do that and to demonstrate to the 10 million people that cruise with us every year that our ships are safe and that safety is our highest priority." As the Time article noted, the ship that lost power in February was sold out just four months after the incident - showing that consumers trust Carnival to adequately maintain its ships.

Princess will add a new $800 million ship to its fleet in 2017. Photo credit: Royal Princess.

Growing capacity
In addition to maintaining the quality of its existing ships, Carnival plans to grow its fleet in the coming years. At the start of the year, Carnival had 101 cruise ships compared to Royal Caribbean's 41 ships. However, the world's largest cruise ship operator isn't content to sit on its lead. The company recently announced plans to build an $800 million ship for its Princess line that is scheduled for delivery in 2017. The new ship is one of several slated to be added to Carnival's fleet during the coming years.

Carnival's newbuilds should add shareholder value as long as total industry capacity does not exceed demand. Carnival's total passenger capacity is expected to grow at an average of 3.2% per year through 2017. Royal Caribbean expects its capacity to grow 1.7% in 2014, with more ships planned for delivery in the next few years -- including the $1.1 billion Quantum of the Seas. Cruising.org reports that cruise industry passenger growth grew by 5.9% per year during the last 10 years. If demand continues to grow at a similar pace, then Carnival and Royal Caribbean's expansion plans should not drive down industry pricing. As a result, Carnival's newbuild spending is likely money well spent.

Takeaway
Carnival operates in a capital-intensive industry, and it's vital that it spends the necessary capital to maintain and expand its fleet. The company's spending program to upgrade fire and power systems on every ship in its fleet should reassure passengers that the company's ships are safe and reliable. Moreover, Carnival's capacity growth will likely allow it to maintain market share without putting downward pressure on pricing. As a result, Carnival's capital spending initiatives should create value for shareholders.

Source: Chesapeake Energy.

Chesapeake Energy  announced today that it is selling acreage in the Marcellus and Utica shale plays to Southwestern Energy  for $5.375 billion. The sale covers 413,000 net acres and about 1,500 wells in West Virginia and southern Pennsylvania. More important, it unlocks the value of acreage that wasn't core to Chesapeake Energy's future growth plans.

What the deal means for Chesapeake Energy
As the following slide from a recent investor presentation illustrates, Chesapeake thought its acreage in the southern Marcellus shale and the Utica shale plays was worth $4 billion to $8 billion based on the market valuation of some of its peers.

Source: Chesapeake Energy Investor Presentation.

While the company talked about spinning off the asset to unlock this value, a straight sale to Southwestern Energy is a much quicker way to realize the value of this acreage. It provides the company with a boatload of cash that it can use to fuel even more shareholder value. The deal also dramatically improves a balance sheet that was already heading in the right direction. It will be interesting to see how Chesapeake Energy uses its new cash hoard, as it now has the capacity to make a large acquisition, buy back shares, or accelerate growth.

The company expects the sale will have no impact on its growth because these assets were not a core part of its growth plans. This is why the company still expects to deliver a 7%-10% production increase next year even as it maintains a disciplined capital program.

What the deal means for Southwestern Energy
While Chesapeake Energy didn't expect the asset to be a big growth driver, the same can't be said for the buyer. Southwestern Energy expects to steadily grow its rig count from four to six rigs next year up to 11 rigs by 2017. It expects it can sustain that 11-rig pace for the next two decades. That will enable the company to continue to rapidly boost natural gas production.

As the following slide shows, Southwestern Energy has quietly become the fourth-largest natural gas producer in the lower 48 states.

Source: Southwestern Energy Investor Presentation.

The addition of the southern Marcellus and the Utica shales to its portfolio gives Southwestern Energy another growth pillar to build upon as it seeks to continue ascending the natural gas leadership ranks. While the rest of the industry has turned its attention to oil, Southwestern hasn't backed away from natural gas. This focus could enable the company to one day grow into the nation's top producer.

This is an interesting deal for a number of reasons, including its transformative value for both companies. It fills Chesapeake Energy's coffers with more cash than the company has had in years, along with added financial flexibility. Meanwhile, it gives Southwestern Energy another major growth asset that will keep the company busy for the next two decades. 

Technology giant International Business Machines has made great strides in its huge business transition. During the past few years, IBM has spent a lot more money on software and services, particularly when it comes to the cloud. At the same time, the company has pulled back on its exposure to hardware. This is a painful transition, but a necessary one, because IBM revenue has been stagnant for several quarters in a row.

Specifically, IBM's total revenue is down 3% during the first six months of 2014, year over year. The key culprit is hardware; but this stands to change. IBM is investing a lot of money in new strategic initiatives, and real progress is starting to materialize.

However, how much progress IBM makes in these initiatives may be limited, because the company spends a lot more money on returning cash to shareholders through dividends and share buybacks than it spends on capital expenditures. Through the first half of 2014, dividends and share buybacks made up 89% of IBM's capital allocation program, with the remainder being sourced to capital expenditures. 

IBM ventures into the cloud
IBM is investing in cloud-based services, with the goal of branching out away from hardware. This makes sense, because hardware has been weighing on IBM for some time. Hardware has been the company's worst-performing segment since the start of the year. Revenue from IBM's systems and technology business declined 16% through the first six months, year over year.

By contrast, IBM has experienced very good results in its businesses outside of hardware. Cloud revenue soared more than 50% during the first half of the year. Cloud-as-a-service revenue more than doubled to a $2.8 billion annual run rate.

These results are the product of greater investment in new, high-growth areas. In the first quarter of 2014, IBM launched Bluemix, its cloud platform-as-a-service for the enterprise. IBM invested $1.2 billion to expand its SoftLayer cloud hubs. IBM also invested $1 billion at that time to bring Watson to the enterprise.

IBM made progress implementing these initiatives last quarter. Bluemix became available in June, new SoftLayer data centers were opened, and IBM divested its customer care business. Going forward, IBM will invest $3 billion during the next five years in research and development in next-generation chips, which will be critical for cloud and big data systems.

There's room for greater capital spending
For many years, IBM has undergone a transition away from hardware and into other areas, such as software and services. This was done to improve profitability. Hardware is a much lower-margin business than software and services. The results have been clear to see.

From 2000-2013, IBM's operating pre-tax margin more than doubled, from 10% to 21%. Not surprisingly, this has required a great deal of internal investment -- IBM's capital expenditures have totaled $59 billion just since 2000.

As huge a number as that is, the money IBM has spent on capital expenditures has actually paled in comparison to how much the company spends on returning cash to shareholders. Since 2000, IBM has spent $108 billion on share repurchases and an additional $30 billion on dividends. If anything, IBM has underallocated its capital spending.

IBM stated in its most recent conference call with analysts that the overarching strategy for the expansion of its cloud platforms and offerings in big data is to get a strong foothold in the emerging businesses of IT. IBM believes that these investments will set up the company for better growth during the long term.

If this is indeed true, then it makes sense for IBM to maximize its investment in these areas. As it stands, IBM has spent $13.9 billion on dividends and share repurchases during the first half of the year, and just $1.7 billion on capital expenditures in the same period. But even if IBM didn't want to cut back on dividends or share repurchases, it has $9.7 billion in cash sitting on the balance sheet it could draw from. This makes sense, because that cash is earning almost nothing, and simply sitting on the books for IBM right now.

In light of this, it's reasonable to question whether IBM is investing enough in development. 

The financial markets have been roiled in recent weeks by the continued spread of the deadly Ebola virus and a steep drop in oil prices. For a while, though, shares of Apple resisted the selling pressure thanks to excitement about the iPhone 6 global rollout.

More recently, Apple stock has started to lose altitude. On Wednesday, the stock fell as low as $95.18, more than 8% below the all-time high it hit last month. An increasing number of people on Wall Street have become fatalistic about the stock's prospects and are now predicting that it will fall further.

Apple shares are falling despite strong early sales of the iPhone 6. (Photo: Apple.)

Investors shouldn't give in to this fear. While there's no way to be sure where Apple stock will go in the short term, its long-term earnings prospects look better than ever -- and that's all that really matters in the long run. In fact, a strong earnings report on Monday October 20, 2014 could put a quick end to these worries.

Headed for a crash?

In a recent blog post publicized by MarketWatch, J.C. Parets -- who runs a hedge fund called Eagle Bay Capital -- suggested that a declining appetite for risk in the bond markets was likely to spill over into the stock market. Parets called out Apple stock in particular as a candidate for a correction.

That statement followed up on an Oct. 7 blog post in which Parets argued that, based on Apple's recent share performance, the stock had run out of momentum. He concluded that Apple stock was "probably in a lot of trouble" and claimed there was "at least 10%-15% downside" for investors.

Since those blog posts, Apple shares have fallen below the recent trading range of approximately $97.50-$102.50.

Apple 6-Month Stock Chart; data by YCharts.

For technical analysts, this is a worrisome sign of a downside "breakout." If the stock continues falling on Thursday and Friday, the hand-wringing about Apple stock will intensify. This obsession with stock market momentum is extremely short-sighted, though.

Looking in the rearview mirror

While stock charts are useful for seeing how a stock has been doing, here at the Fool we don't look at charts to try to determine whether to buy or sell. We don't put any faith in "technical analysis," either.

That's not to say that momentum doesn't exist in the stock market. However, it's not a reliable indicator of future stock performance. In the long run, what really matters is a company's earnings trajectory.

Indeed, stock charts can only tell you about the past. Trying to predict Apple stock's future performance based on its chart is like trying to drive while looking only in the rearview mirror. If the road is straight, you may get good results for a while -- but at the first curve you are destined to crash and burn.

A curve is coming up

Translating this notion into investing terms, the "curves" are major pieces of news. In the absence of significant news, momentum can drive stock performance. However, when new information on a company's earnings trajectory becomes available, it overrides momentum -- and usually doesn't take long to do so.

In the case of Apple stock, the last big news items came last month. On Sept. 22, Apple announced that it sold more than 10 million iPhones on launch weekend, and on Sept. 30 it announced that the new iPhones will go on sale in China on Oct. 17. Another big piece of news will come out in less than a week -- Apple is reporting its quarterly earnings on Oct. 20.

The iPhone 6 Plus has a long backlog because of strong demand. (Photo: Apple/)

So far, all the signs look positive. Adoption rates of the new phones appear to be significantly better than what Apple achieved last year, even though China wasn't included in the iPhone 6 launch. Pre-order demand in China also appears to be very robust.

However, Apple knows better than any outsider how iPhone supply and demand are holding up. If it projects stronger December quarter results than what analysts and investors are anticipating, Apple stock's negative momentum will soon be forgotten.

Foolish final thoughts

Investors should be suspicious of reports that predict stock price moves based on momentum and technical signals and make no mention of revenue growth, earnings growth, or other financial indicators.

In the absence of any relevant new information about a company's prospects, momentum may rule the day. But beyond the very short term, a company's earnings trajectory determines the fate of its stock.

If Apple reports that iPhone 6 demand isn't as strong as it appears or that high production costs will cut into its profit margin, then Apple stock may really be in trouble. On the flip side, if iPhone demand is as strong as ever and earnings growth is about to accelerate, long-term Apple investors don't have a thing to worry about.

The funniest thing about markets is that all past crashes are viewed as an opportunity, but all current and future crashes are viewed as a risk.

For months, investors have been saying a pullback is inevitable, healthy, and should be welcomed. Now, it's here, with the S&P 500 down about 10% from last month's highs.

Enter the maniacs.

"Carnage."

"Slaughter."

"Chaos."

Those are words I read in finance blogs this morning.

By my count, this is the 90th 10% correction the market has experienced since 1928. That's about once every 11 months, on average. It's been three years since the last 10% correction, but you would think something so normal wouldn't be so shocking.

But losing money hurts more than it should, and more than you think it will. In his book Where Are the Customers' Yachts?, Fred Schwed wrote:

There are certain things that cannot be adequately explained to a virgin either by words or pictures. Not can any description I might offer here ever approximate what it feels like to lose a chunk of money that you used to own.

That's fair. One lesson I learned after 2008 is that it's much easier to say you'll be greedy when others are fearful than it is to actually do it.

Regardless, this is a critical time to pay attention as an investor. One of my favorite quotes is Napoleon's definition of a military genius: "The man who can do the average thing when all those around him are going crazy." It's the same in investing. You don't have to be a genius to do well in investing. You just have to not go crazy when everyone else is, like they are now. 

Here are a few things to keep in mind to help you along.

Unless you're impatient, innumerate, or an idiot, lower prices are your friend
You're supposed to like market plunges because you can buy good companies at lower prices. Before long, those prices rise and you'll be rewarded.

But you've heard that a thousand times.

There's a more compelling reason to like market plunges even if stocks never recover.

The psuedoanonymous blogger Jesse Livermore asked a smart question this year: Would you rather stocks soared 200%, or fell 66% and stayed there forever? Literally, never recovering.

If you're a long-term investor, the second option is actually more lucrative.

That's because so much of the market's long-term returns come from reinvesting dividends. When share prices fall, dividend yields rise, and the compounding effect of reinvesting dividends becomes more powerful. After 30 years, the plunge-and-no-recovery scenario beats out boom-and-normal-growth market by a quarter of a percentage point per year.

On that note, the S&P 500's dividend yield rose from 1.71% in September to 1.82% this week. Whohoo!

Plunges are why stocks return more than other assets
Imagine if stocks weren't volatile. Imagine they went up 8% a year, every year, with no volatility. Nice and stable.

What would happen in this world?

Nobody would own bonds or cash, which return about zero percent. Why would you if you could earn a steady, stable 8% return in stocks?

In this world, stock prices would surge until they offered a return closer to bonds and cash. If stocks really had no volatility, prices would rise until they yielded the same amount as FDIC-insured savings accounts.

But then -- priced for perfection with no room for error -- the first whiff of real-world realities like disappointing earnings, rising interest rates, recessions, terrorism, ebola, and political theater sends them plunging.

So, if stocks never crashed, prices would rise so high that a new crash was pretty much guaranteed. That's why the whole history of the stock market is boom to bust, rinse, repeat. Volatility is the price you have to be willing to pay to earn higher returns than other assets.

They're not indicative of the crowd
It's easy to watch the market fall 500 points and think, "Wow, everyone is panicking. Everyone is selling. They know something I don't."

That's not true at all.

Market prices reflect the last trade made. It shows the views of marginal buyers and marginal sellers -- whoever was willing to buy at highest price and sell at the lowest price. The most recent price can represent one share traded, or 100,000 shares traded. Whatever it is, it doesn't reflect the views of the vast majority of shareholders, who just sit there doing nothing.

Consider: The S&P fell almost 20% in the summer of 2011. That's a big fall. But at Vanguard -- one of the largest money managers, with more than $3 trillion -- 98% of investors didn't make a single change to their portfolios. "Ninety-eight percent took the long-term view," wrote Vanguard's Steve Utkus. "Those trading are a very small subset of investors."

A lot of what moves day-to-day prices are computers playing pat-a-cake with themselves. You shouldn't read into it for meaning.

They don't tell you anything about the economy
It's easy to look at plunging markets and think it's foretelling something bad in the economy, like a recession.

But that's not always the case.

As my friend Ben Carlson showed yesterday, there have been 13 corrections of 10% or more since World War II that were not followed by a recession. Stocks fell 35% in 1987 with no subsequent recession.

There is a huge disconnect between stocks and the economy. The correlation between GDP growth and subsequent five-year market returns is -0.06 -- as in no correlation whatsoever, basically.

Vanguard once showed that rainfall -- yes, rainfall -- is a better predictor of future market returns than trend GDP growth, earnings growth, interest rates, or analyst forecasts. They all tell you effectively nothing about what stocks might do next.

So, breathe. Go to the beach. Hang out with your friends. Stop checking your portfolio. Life will go on.

For more on this topic:

• What I plan to do when the market crashes
• 99% of long-term investing is doing nothing
• How I think about cash

Check back every Tuesday and Friday for Morgan Housel's columns. 

More from The Motley Fool: Warren Buffett Tells You How to Turn $40 into $10 Million

Source: Solazyme.

Shares of Solazyme , the renewable oil manufacturer powered by synthetic biology, have been absolutely crushed in recent weeks. The broader indices haven't been doing very well, either, but there's more to the company's slide than an adjusting stock market.

Yes, Solazyme is one of the most shorted stocks on the market. Yes, crude oil prices are diving (but that doesn't have much to do with Solazyme's fall). However, delays at the company's 100,000-MT facility in Moema, Brazil, are beginning to test the patience of investors and the market. And no, these aren't delays that lead to downtime already scheduled into the ramp-up period for a new facility. Unfortunately, by this point, it's quite obvious something larger is amiss.

Have bigger problems really occurred?
The answer appears to be a resounding "yes" for many compounding reasons. In fact, I believe the writing has been on the wall for some time now. Could small and untimely delays really have occurred exactly as management described and immediately before every quarterly conference call in the last year? Sure, it's certainly possible, but very unlikely, especially given the language used during disclosures. The timeline of events -- and foot-in-mouth quotes from management -- might say it all.

Source: SEC filings, Seeking Alpha transcripts, author.

The first hint of a substantial setback (or setbacks) at Moema dates back to November 2013. Although investors were told that the 100,000-MT facility was expected to produce its first batch of commercial oils in 4Q13, CEO Jonathan Wolfson stated that the installation of additional equipment would push production into 1Q14. It was probably the right move, as the new equipment would increase the flexibility of the facility when switching production between food and chemical products -- a capability that few, if any, other manufacturing facilities have ever had.

As Wolfson said on the 3Q13 conference call, "Up until a few days ago we expected to stay on our previously committed production timeline." You could chalk that up to some unfortunate timing, but while additional equipment could very well have been added, a continuous stream of delays since has forced investors to revisit the original statement. It seems apparent that production was never going to begin a few days before the call.

On the next quarterly conference call, which took place at the end of February 2014, management once again left investors unsatisfied. Rather than announcing the start of production, Wolfson simply stated, "the clock will start soon at Moema, with initial fermentation operations just getting under way." Investors could have given the benefit of the doubt once again, since 1Q14 (the new deadline) didn't end for another month.

Yet, the only announcement at the end of March was a $202.8 million capital raise, underwritten by Goldman Sachs. The next conference call took place in May 2014, but management had more bad news. Production couldn't start because the facility was suffering from intermittent power and steam issues:

Our facility has been experiencing intermittent power and steam availability resulting from the start-up of a new co-gen facility at the adjoining Moema sugar mill... It's a big disappointment, not to be able to report from our first commercial product for Moema today. We were really hoping to do that right up to the wire.

Most investors may not be aware, but it isn't uncommon for companies to screen questions by analysts or participants and for the queue to be set by the reporting company. No surprise, then, that Goldman Sachs asked the first question -- and that it was about production delays. Analyst Brian Lee opened the question and answer session by asking Solazyme management if the delays had anything to do with the process or technology, to which Wolfson replied:

The answer is no, not at all. In fact, unlike other technologies that are bringing up the first of their kind commercial plant, Solazyme is actually running at very large scale, our technology today at Clinton/Galva we've already produced four completely distinct and unique products and sold them and are shipping every day. The delays have nothing to do with the process.

When Wolfson said that the issues had nothing to do with the process, he was speaking about the fermentation process. Investors could once again have given the benefit of the doubt, but when I visited company headquarters the day after that call, top management officials could not meet with me because of a last minute trip to Brazil. Now, I'd certainly want management to take an active role in putting out fires that arise when leading a company, but if something as simple and uncontrollable as intermittent steam and power were the culprits, then what's the value of dragging a good chunk of your team to Brazil?

The next conference call took place at the end of July and followed the new precedent of disclosures by failing to provide the monster news investors were waiting to hear. David Cole, then-president who worked very closely with the team at Moema, told investors that all unit operations were "installed and aligned." Additionally, Cole said Solazyme expected to expand production beyond the three large-scale fermentation tanks that were being used at the time and producing two different products, though at a limited capacity.

There may be no issues with fermentation or big setbacks, as management maintains, but a few key disclosures may not add up quite as investors would like. In the recent press release announcing that Cole was transitioning out of his role as president and resigning from the Board of Directors to return to his former role as strategic advisor, Solazyme buried the following business update:

Solazyme's core fermentation technology is performing well at Moema, with ongoing successful large-scale fermentations of two different products in multiple full-scale production vessels. Although the key downstream unit operations are functional all the way to oil production, and modest quantities of finished product continue to be produced and shipped, downstream processes at Moema require further optimization and are not yet operating on a fully integrated basis. This is an area of significant focus and ongoing improvement.

Aside from being suspiciously hidden from view, this tells investors a few things. First, in the 75 days since the last conference call, Solazyme did not add any additional products to the mix at Moema. That could be because of an unrelated issue with attaining permits in Brazil, longer than expected market development timelines, or bigger issues with the process. It should be noted that other diversified industrial biotechs are ramping slowly not because of technical issues, but because they're waiting for markets to develop. Solazyme has announced that its customer base has expanded mightily this year, but investors don't know how many are purchasing low-margin fuel blends, which Solazyme has stated, through SEC filings, comprise a good chunk of current production -- something that surprised even me.

Second, downstream recovery equipment -- the most standard part of the entire manufacturing process at Moema, used by oil seed crushing companies for decades -- would conceivably be the least likely part of the process to encounter problems. It's awfully convenient to use confusing engineering language (something I attempted to overcome in a recent series) and encourage investors that any and all delays are not related to fermentation processes, which have set back many next-generation industrial biotech companies and removed the privilege of having Mr. Market's benefit of the doubt. Solazyme can't have it both ways.

The drilling lubricant Encapso doesn't need much downstream processing, so it could help Solazyme through any delays. It's being produced in small quantities on two continents. Source: Solazyme.

Third, and perhaps most worrisome, is that the company has yet to announce that all fermentation tanks are operating, so far only stating that "multiple full-scale" bioreactors have been used. Investors will want to keep an eye and ear open for any updates on the next quarterly conference call next month. Of course, it is possible that process scheduling has played at least some role in the delays. Remember, Moema is a very large facility with a very complex process.

Shady business
Given the lack of transparency by Solazyme, investors may also want to pay close attention to the resignation of Ann Mather as Audit Committee Chair. Teams get shaken up quite often, especially as companies grow, and former DuPont CFO Gary Pfeiffer is an excellent replacement and addition, but this is the kind of move that could signal bigger problems on the horizon. Consider that the press release (and two others) hit the wires after markets closed on October 9 -- and after Solazyme fell 8.5% on very heavy volume. Individual investors apparently didn't have access to the same information as some heavyweight funds.

Source: Google Finance.

It's also a bit worrisome that current CTO Peter Licari unloaded one-third of his total holdings on September 9. Yes, the trade occurred in a 105-B trading plan, but the trade included more shares than the total shares involved in all transactions by Licari dating back to July 2013. There were no major option exercises to stem the massive trade, either.

What continued delays mean for investors
It's not the end of the world (tough to believe with the recent cliff-diving share price). If your investing time horizon is very long and extends well past the end of this decade, then the impacts could be quite small when the technology is proven in the long run. The problem is, while many investors define their time horizons as long term, it's much easier to say than to practice. For now, continued delays likely mean a complete lack of trust between investors and management, delayed revenue ramp-up, continued misunderstanding by Wall Street, and a volatile share price.

What continued delays don't mean
For many people who think next-generation industrial biotech platforms are a pipe dream, my critique of Solazyme's management team may solidify your position. However, management missteps -- and even the bigger than expected manufacturing obstacles that aren't fully disclosed -- don't imply that the company's renewable oil technology will never work. At this point, I have no reason to believe the platform won't work if given enough time. My message continues to be about patience by reminding investors that Solazyme will take much longer to realize its growth potential and, now, encouraging management to keep an open dialogue with investors.

Management teams are comprised of humans, which have been known to make mistakes from time to time. Sweeping problems under the rug in hopes of saving the public image of your company, vision, or passion is somewhat understandable, though in no way justifiable. When problems cannot be contained or solved behind closed doors -- something that may be happening right now -- news inevitably leaks out, and management risks losing credibility.

Solazyme needs transparency
Depending on the severity of the problems at Moema, investors could be reeling in volatility or lackluster growth for more than a few quarters or years. If moderate problems are at hand, then Solazyme is difficult to pass up at a market valuation under $500 million. At this point, however, I would wait for the conference call -- and likely longer -- to gauge exactly what is going on behind closed doors. The company's cash pile will burn up more quickly than most realize, an additional dilutive capital raise is all but certain before any facilities reach a steady state, and the way I've pieced together management's track record doesn't exactly make me want to load up on shares. The price looks incredibly low, relatively speaking, but don't make the mistake of thinking it cannot go lower.

The continuous string of delays and untimely setbacks can be connected to hint that bigger problems have occurred or are occurring at Moema. The lack of transparency has damaged the strong and trustful relationship between investors and Solazyme management, which opens many dangerous avenues for CEO Jonathan Wolfson not just with investors, but employees, too. When management provides an update on November 5, it needs to capitalize on the opportunity to regain investor trust.

Tim Cook speaking at the October event. Source: Apple.

Apple has just wrapped up its October media event, just a month after its September iPhone event. As usual, everything came in as expected. At this point, Apple has completed all of its 2014 product unveilings, finalizing its overall product lineup as we head into the fourth quarter.

The Mac maker is ready for the holidays.

Apple Pay launches on Monday
Tim Cook started things off with various business updates, which was welcome because he skipped them at the September event. The iPhone 6 and 6 Plus launch has garnered the "most first month orders ever," according to Cook. Sadly, he did not disclose specific figures.

He also confirmed that preorders in China have hit a new record, again declining to give any solid data. Solid data would be useful, as some headlines have suggested as many as 20 million preorders.

Apple Pay was unveiled last month for an October launch, and Cook confirmed it would launch on Monday alongside iOS 8.1. Even in the month since Apple Pay was announced, Apple has added even more banks and merchants to its list of partners.

The company also demonstrated the new features of OS X Yosemite -- which is being released today as a free download. Apple also took the usual jabs at Android, highlighting version fragmentation, while noting iOS 8 adoption is already at 48%.

That's actually low relative to Apple's historical standards. Apple had a rare botch of the iOS 8.0.1 update last month that neutered cellular service and Touch ID, and some users complained about the hefty storage requirements to update over the air. These factors could have held back adoption rates.

Apple is also releasing its WatchKit SDK in November, so developers will have time to create apps ahead of the early 2015 launch. Having app availability will be critical to the Apple Watch's success or failure at launch.

The iPad family gets bigger
Cook pointed out that Apple has sold more iPads in the first four years than any other product in the company's history. With Apple just closing out its fiscal fourth quarter, all of the figures he gave were as of the fiscal third quarter, as to not give anything away ahead of earnings (which will also be released on Monday). Through the fiscal third quarter, Apple has sold 225 million iPads, including 70 million in the past year.

The iPad Air 2 follows Apple's never-ending pursuit of thinness, with this model coming in 18% thinner, at 6.1 mm. The display is now optically bonded and laminated, eliminating a small air gap and reducing internal reflection. There's also a new anti-reflective coating on top.

iPad Air 2's laminated display. Source: Apple.

The new flagship tablet is powered by an A8X chip, offering 2.5 times faster graphics performance. Last year's model had an A7, without the extra GPU power found in "X" chip variants. Apple is also upgrading the camera, and adding various new photography modes like panoramas, burst mode, time lapse, and slo-mo. Touch ID is also included on the new model, as is faster Wi-Fi and cellular connectivity, including LTE carrier aggregation.

Marketing chief Phil Schiller hardly spent any time at all discussing the iPad Mini 3 -- at most, 30 seconds. The smaller tablet's upgrades are easily the most inconsequential of the announcements today. The only new addition to the third-generation model is Touch ID -- if you don't consider the new gold option an "upgrade." That means the $100 price difference between the iPad Mini 2 and iPad Mini 3 only gets Touch ID, which is a pretty steep premium for a single feature.

Apple is expanding the iPad lineup in a big way overall. The new models adopt the same storage configuration pricing that Apple implemented with the iPhone last month. Entry-level models will come with 16 GB, and the next $100 bump boosts that to 64 GB. The same positive implications to average selling prices will apply here, too. Last year's models drop by $100, and Apple is even keeping around the first iPad Mini at an even lower price point. This is the new lineup.

Source: Apple.

You can't help but wonder why Apple isn't being even more aggressive with the iPad Mini. The device debuted in 2012, and could sell well at $199 while putting pressure on rivals -- and the margin dilution would likely be minimal.

Back to the Mac
The transition to Retina displays has now made its way to the iMac, with a new 27-inch model that sports a 5,120 x 2,880 display. That puts it into 5K territory, and Apple is jumping on that branding as such. The new iMac with Retina 5K display has the same overall design, with most of the improvements on the inside.

Apple says it needed to custom design a new timing controller, while using a process called organic passivation and adopting an oxide TFT panel. Apple continues its dance with graphics vendors, switching back to Advanced Micro Devices for this round. The new high-resolution desktops will cost quite a bit though, starting at $2,499. That's a whole $700 more than the non-Retina version.

When Apple first brought Retina displays to the MacBook Pro family, it started with a $400 premium, and dropped prices within a matter of months. A $700 premium may be a bit much, but at the same time, Apple knows that this computer will appeal to video and photo professionals who are more willing to pay up to get the job done. That's likely truer for a 27-inch desktop than a 13-inch or 15-inch laptop.

The Mac Mini also received some long overdue spec bumps, mostly in the form of faster Intel processors with significantly improved iris integrated graphics performance. Apple is dropping the entry-level price of the Mac Mini by $100 -- it now starts at $499.

With nearly its entire product lineup upgraded heading into the fourth quarter, investors can expect the Mac maker to set even more records.

At the end of September, media giant News Corp agreed to purchase Realtor.com's parent company Move for a price of $950 million. News Corp has trailing 12-month trailing revenue of more than $8.5 billion. With Move's revenue in the same period being less than $250 million, investors shouldn't expect the acquisition to have an immediate impact on News Corp's top and bottom lines. That said, taking the long-term approach there are three reasons why News Corp made this move.

Worldwide digital real-estate presence
Not many people think of News Corp as a leader in digital real-estate platforms, as the company is best known for cable programming and its ownership of the Wall Street Journal. However, the diversified media giant actually has a solid footprint in digital real-estate, and the acquisition of Move makes that print even larger.

News Corp owns more than 60% of the digital advertising business REA Group, which owns and operates realestate.com.au and realcommercial.com.au. These two sites are Australia's largest residential and commercial property websites, respectively. In addition to a controlling interest in REA Group, News Corp also has a 17% stake in iProperty Group, who operates similar sites in Hong Kong, India, and Singapore among others.

In News Corp's most recent fiscal year it generated $374 million in revenue from digital real-estate assets. Therefore, Move fits nicely into New Corp's portfolio, and gives it a U.S. platform. Realtor.com had more than 31 million average monthly users during the second quarter.

In other words, the acquisition of Move makes News Corp one step closer to having a worldwide presence in digital real estate, an approach that Priceline has implemented in the online travel site via acquisitions, which has been largely successful.

Using News Corp as a marketing platform for Move
That said, investors can't deny that in the U.S., Move is a distant third to Zillow and its recent acquisition, Trulia. Combined, Zillow and Trulia had nearly 70 million active users as of June, and represented 71% of ComScore's real-estate market estimates. Move faces an uphill battle to become a market leader in the U.S.

But it does have two things going in its favor. First, Move has an agreement with the National Association of Realtors, giving it access to 800 property listing services to provide up-to-date information. Second, thanks to News Corp's acquisition, Move now joins a highly reputable digital network that creates about half a billion page views each month, according to News Corp executive Robert Thompson.

Thompson went on to say, "every single one of these pages will be a marketing opportunity for Move." In other words, News Corp plans to grow Move's online presence by leveraging its network of digital customers. This means that Move has upside revenue potential, or that News Corp will try and grow Move significantly larger with this approach.

Exceptional opportunity in online real estate
All things considered, one of the biggest reasons that News Corp may have purchased Move is because it has barely scratched the surface of its revenue potential. As of now, Move's biggest site, Realtor.com, creates the majority of its revenue with advertisements. However, News Corp's Australian assets create revenue by providing real estate agents with advertising solutions to sell or rent their properties, much like Zillow and Trulia.

As a result, News Corp might very well try a similar approach with Move, selling advertisements to real estate agents like Zillow. If so, the revenue growth potential could be enormous. For example, research firm Canaccord estimates that only 53,000 of the 675,000 plus real estate agents who have profiles on Zillow pay for advertisements on the site. Canaccord also estimates that Zillow and Trulia combined capture just 2% of advertising budgets within the real-estate market.

Given the fact that Zillow and Trulia have generated a combined $464 million in trailing 12-month revenue, and have grown revenue in excess of 50% year over year, investors can conclude that the revenue potential for digital real-estate platforms is huge and that agents are gravitating toward such platforms. It's no wonder that News Corp saw the opportunity and was willing to pay nearly a billion dollars for Move.

Foolish Thoughts
With all things considered, News Corp's acquisition of Move makes sense. News Corp already has a leading portfolio of worldwide digital real-estate assets. The company clearly believes it can grow Move's business through its large distribution channels, and the revenue market for digital real-estate platforms is still very much in its infancy. As a result, Move may not contribute a meaningful slice of News Corp's overall business in the next year or two, but long-term Move might prove to be a very important acquisition to News Corp's future revenue.

In perhaps the most costly prenup in history, AbbVie looks like it will have to pay Shire $1.635 billion to break their engagement. After previously agreeing to the deal, AbbVie's board of directors recommended that shareholders not approve the transaction. The board can't actually break the agreement with Shire, but assuming shareholders follow the board's advice, the deal won't go through, and AbbVie will have to pay the breakup fee.

Why the change of heart? Blame it on the duo's third wheel, the U.S. Treasury Department. Last month, the agency issued new rules that tightened the restrictions on how companies could perform tax inversions, and puts restrictions on how their off-shore cash can be used without paying taxes.

One of the attractions to Shire was that AbbVie could move its headquarters to Ireland to take advantage of the lower tax rate -- a so-called tax inversion. After the transaction, AbbVie would eventually be able to lower its tax rate to 13%, half of what it is now.

Shire is based in Ireland after moving from the U.K. a few years ago to take advantage of the lower tax rate. U.S. companies can't just up and move to take advantage of a lower tax rate; they have to buy a company that already resides there that's large enough that at least 20% of the combined company is owned by the foreign shareholders.

Changing valuation
The lower tax rate wasn't the only thing that attracted AbbVie to Shire. In fact, during a call with analysts, Rick Gonzalez, AbbVie's Chairman and CEO, claimed the tax benefit wasn't even the primary reason: "What I would tell you is that this transaction has a significant, both strategic and financial, rationale. Tax is clearly a benefit, but it's not the primary rationale for this."

Shire has a nice portfolio of products, many for orphan indications that can fetch high price tags. Product sales were up 22% year over year in the second quarter, boosted by its acquisition of ViroPharma, and increased sales of top-selling Vyvnase to treat ADHD.

AbbVie desperately needs to add products because it's so dependent on sales of its anti-inflammatory drug Humira, which made up 67% of sales in the second quarter. The patents on Humira start expiring in late 2016, and Amgen already has a copycat in the works that it's planning to launch shortly thereafter.

If it's still a good strategic fit, why isn't AbbVie going through with the deal? Part of the $55 billion price that AbbVie was willing to pay was based on it saving money on taxes. If the government won't let AbbVie take advantage of the tax breaks, Shire isn't worth as much. Apparently, those tax breaks are worth more than the $1.635 billion breakup fee.

Shire and AbbVie could renegotiate a lower price -- after the news of AbbVie getting cold feet, the company sank, and is now worth about $40 billion. Surely the tax break is worth less than $15 billion, providing some wiggle room to make a deal.

More likely, though, Shire will just take the breakup fee, and run like a bride from the altar. It can add the $1.6 billion to its piggybank, and use the dowry to make an acquisition of its own.

Advanced Micro Devices reported its third-quarter earnings and issued its guidance for its fourth quarter. For the third quarter, AMD reported revenue of $1.43 billion, missing consensus estimates of $1.48 billion, and non-GAAP earnings per share of $0.03, missing consensus estimates by $0.01.

While the above results are more-or-less in line with what AMD expected, the company's guidance for the fourth quarter could be described as "horrific." The company is calling for a drop of 13% from the third quarter, implying revenue of about $1.24 billion. This is a significant miss relative to sell-side consensus, which called for $1.48 billion in revenue.

Interestingly enough, AMD will be taking a restructuring charge -- the company is laying off about 7% of its workforce -- to the tune of $57 million, and plans to lower its fourth-quarter non-GAAP operating expenses to $385 million. This represents a decline from AMD's previously issued quarterly operating expense guidance of $420 million.

With the headline facts out of the way, let's dig deeper into what's actually going on here.

A cringe-worthy core business
AMD recently changed up its reporting structure; now, PC processors and graphics chips are all lumped into one reportable segment. AMD reported that revenue in this operating segment, driven by "lower chipset and GPU sales," was down from $925 million last year to $781 million this year, a 15.5% drop. Further, the newly formed operating segment went from $9 million in operating income this time last year to a loss of $17 million in the most recently reported quarter.

What's happening here is not a new story to anybody following this space: Intel is likely continuing its share gains in the PC processor market, and it would not come as a surprise if NVIDIA were gaining share overall in graphics. Further, given how ferocious and well-capitalized both Intel and NVIDIA are, and how strong their respective product offerings are relative to AMD's, it's not clear how AMD can reverse this trend.

The "growth" businesses look better, but it's a "wait and see"
The second-reportable segment that AMD breaks out is its "Enterprise, Embedded, and Semi-Custom" division. AMD reported revenue growth of 6%, to $648 million for the quarter, and saw operating income here of $108 million. AMD attributed the growth to "higher sales of [its] semi-custom SoCs."

It doesn't seem like the "embedded" and "enterprise" portions of this operating segment are contributing much to revenue, although they may prove to be more important during 2015 and beyond. AMD alleges that the "server" and "embedded" opportunities represent a $17.5 billion total addressable market; it remains to be seen just how much of that opportunity AMD can actually realize.

Indeed, a large total addressable market in no way implies that AMD can actually capture a meaningful portion of it. Intel is known to generate more than $30 billion per year in PC platform sales, and yet AMD continues to lose what small fraction of the market it has.

Foolish bottom line
While the view seems to be that the market "priced in" a bad quarter and/or guidance, it seems to me that the problems that have plagued AMD continue. AMD can lay off engineers and cut its operating expense structure all it likes; but if it can't ultimately stabilize its revenue base and, in the words of AMD's new CEO Dr. Lisa Su, "drive and sustain profitable growth," then AMD is just putting off its eventual demise.

I was about to apprise Westport Innovations investors about highlights from the company's last conference call when management unexpectedly revised its full-year revenue guidance downward two weeks earlier.The market couldn't take the shock: Westport stock is now down around 55% over the past month.

WPRT data by YCharts

But with Westport's story taking such an interesting turn now, investors have even better reasons to dig up key points from the company's last earnings call and weigh them against its latest outlook to understand how things might have changed over the past couple of months. I'm going to do that for you: I'll detail five such points and pit each against where things currently stand. 

#1: Path to profitability

Westport's last earnings release was all about how its business units turned adjusted EBITDA positive for the first time, and how it expects its consolidated business to turn positive EBITDA by the end of 2015. The company's conference call gave deeper insights into how it plans to achieve that. CEO David Demers outlined one of the goals as: 

Careful management of our investment programs to ensure that operational cash flow from Westport direct sales, as well as our joint venture dividends, will cover investment by the end of 2015 and allow Westport to achieve overall consolidated positive adjusted EBITDA.

In other words, Westport is not relying on a growing top line alone to break even. Having already established a market for its technology, the company is now aggressively streamlining its operations to cut costs. The results are already visible: Westport reduced its second-quarter and first-half operating expenses by a significant 22% and 12%, respectively, year over year.

Furthermore, Westport plans to manage its future research and development spending in a way that it falls within the income the company generates from its business units and joint ventures. If you're wondering what that has to do with Westport's profitability, it's important to understand that aside from three operating business units -- Applied Technologies, On-Road Systems, and Off-Road Systems - Westport runs a fourth unit primarily for research and development programs. Since that R&D spending is included in the company's full numbers, its consolidated business is still in the red even as its operating units combined turned EBITDA positive last quarter. That is why Westport counts managing its R&D investments better as a step toward profitability.

Where things stand now

There's good news, and there's terrible news.

The terrible news is that Westport now expects to generate  between $130 million-$140 million in revenue for the full year. That translates into 15% to 21% lower revenue over 2013 - a sharp downgrade from Westport's earlier projection of 7% higher revenue for the year. That leaves no scope for the company's business units combined to make it through the year with positive EBITDA. This was perhaps the last thing Westport investors wanted to hear at a time when they were hoping to see the first signs of profitability. More importantly, when a loss-making company's top line starts trending lower, it's bound to trigger panic. 

The good news is that Westport still expects to hit consolidated adjusted EBITDA by next year, backed by prudent cost and R&D management. But for that, the company will have to grow its revenue at a faster rate to make up for this year's shortfall. That looks difficult, considering that demand from key markets like Europe, China, and Russia is sluggish, and one of Westport's big orders for its iCE PACK LNG Tank Systems - a high-potential product for the company - has hit a hurdle.

Long story short, investors will probably have to wait longer to see Westport turn a corner.

#2: ISX12 G is hitting it right

Investors and analysts alike have been scouting around for every little update about the ISX12 G engine ever since it was launched jointly by Westport and Cummins  last year. The attention isn't unwarranted -- The 12-liter natural engine is, after all, the only one serving heavy-duty trucks currently .

While Cummins didn't mention ISX12 G in its last earnings release, Westport management provided the much-needed update. Westport credited "strong demand for the ISX12 G" for the 22% year-over-year jump in its Q2 North American CWI (Cummins-Westport joint venture) shipments.During Westport's earnings call, CFO Ashoka Achuthan further elaborated: 

The reaction to the ISX12 G has been positive, and there have been no surprises there as far as we are concerned.

Cummins-Westport ISX12 G natural-gas engine

We have evidence that the engine is catching truckers' attention -- PACCAR and Freightliner are extending it to their vocational trucks, Volvo displayed an ISX12 G-powered daycab tractor at ACT Expo earlier this year, and Oshkosh has chosen ISX12 G engine to test natural-gas for its concrete mixer trucks.

Good response to the 12-liter engine is also one of the reasons why Westport projects natural gas to penetrate 3%-5% of the North American heavy-duty truck market this year, up from just about 1.7% in 2013.

Where things stand now

While updating its outlook, Westport also provided some background about its second-generation high pressure direct injection, or HPDI 2.0 technology, which is a lot more advanced than HPDI, especially in terms of cost benefits.

HPDI 2.0 will have an upgraded LNG storage system, which will also go into the ISX12 G engines. The system will reportedly bring with it "significant  reduction in costs", which could propel demand for the 12-liter engines. According to Westport, the ISX12 G engine has already "established itself as a strong performer in regional trucking applications", with the CWI currently supplying "virtually all natural gas engines in the U.S. commercial vehicle space." 

So Westport's lower revenue guidance has nothing to with the ISX12 G, and it continues to be a promising product for the company.

#3: Railways may take a decade to switch to natural gas

Yes, you read that right. In Demers words: "I'd say the rail industry is certainly longer term. For a truck fleet, it might be a few years. For the rail industry, it might be a decade." 

While the locomotives industry is warming up to the idea of natural gas, Westport believes dual fuel (diesel/natural gas) will need to fill in until adequate LNG infrastructure helps natural gas find its niche as a stand-alone fuel. That may explain why stalwarts like General Electric and Caterpillar are testing dual-fuel engines for their locomotives. Demers further explained how dual fuel may not be a long-term technology, but "it certainly can let people get used to the idea of running on natural gas." That also tells us how vital adequate infrastructure is to promote the cause of natural gas.

For now, it looks like trucking will be the key to Westport's growth over the next few years. 

Where things stand now

Westport's guidance update reflects near-term woes, and doesn't really change its views about railroads. While Westport focused entirely on the trucking industry while providing updates about HPDI 2.0 system, I found it interesting when it said how the ISX12 G engine is "encouraging the development of both LNG and CNG infrastructure."

As I mentioned earlier, how fast natural gas picks up steam as a fuel will depend a lot on infrastructure. If the ISX12 G can push more truckers toward natural gas, it could encourage companies like Clean Energy Fuels that are at the forefront in building refueling stations to invest more in infrastructure. That will mean a greater number of easily accessible refueling stations, which could help attract vehicle operators that are currently shying away from natural-gas technology. 

#4: China is slow, but still a priority

Westport's joint venture with China-based Weichai is one of its key sources of revenue. After growing 71% in 2013, revenue from the venture has hit a roadblock this year - It fell 5% year over year during the first half. While Westport blamed "softer macroeconomic conditions, credit tightening, and higher natural gas prices in China" for the slow down, it continues to be bullish about the market.

During Westport's last earnings call, Achuthan mentioned how the company "continues to invest in China to capture the significant market opportunity there." An example is the launch of its first -ever HPDI engine in China earlier this year. Weichai-Westport plans to test the waters by releasing 30 HPDI-engine powered trucks in China this year, and start commercial production by next year.

Where things stand now

Weakness in China is one reason why Westport lowered its guidance. The market is clearly under pressure, which doesn't bode well considering that it's also among the company's primary markets.

That said, the latest update is that the Weichai-Westport HPDI 12-litre engine has received the China V emissions standards certification, which gives the company the go-ahead to deliver its 30 test trucks.

In any case, despite current headwinds, China remains a big opportunity. As highlighted in a recent Westport presentation, Navigant Research projects annual sales of light-duty natural-gas vehicles in China to nearly triple by 2023 (as shown in the first graph below), backed by 40% compounded average growth in the number of refueling stations over the period (as can be seen in second graph below).

              

Source: Westport Innovations Corporate Update. Data source for first graph: Navigant Research. Data source for second graph: NGVA Europe and the GVR (2013).  

With Westport's President, Nancy Gougarty even calling China one of the company's "growth engines", investors should pay close attention to any development in the market.

#5: A growth year

Westport's revised outlook aside, 2014 has been a significant year for the company so far. As Demers summed up during Westport's last conference call: 

2014 is the beginning of our phase in the development of our long term vision of high-performance Westport natural gas vehicles in markets around the world.

Of course, steering its operating business units toward positive EBITDA last quarter remains Westport's biggest achievement so far. But the company hit several other milestones this year, including 

• Launch of its first HPDI engine in China and delivery of its first HPDI locomotive to Canadian National Railway.
• Consolidation of its Ford WiNG Power System assembly plants into one location at Dallas, Texas to curb costs. Westport also added Ford's hot-selling F-150 pickup to its product line this year.
• A deal with Delphi Automotive to co-develop high-pressure fuel injectors that will be a part of the HPDI 2.0 system.

Where things stand now

Westport has, undoubtedly, made huge headway this year in terms of product advancements, with HPDI 2.0 even touted to be a game-changer for the company. Westport's technology remains as promising now as it was a month ago, especially with the trucking industry's growing interest in the alternative fuel.

Unfortunately, Westport's weak outlook was a big blow to investors who waited so long. That's understandable, because it requires great deal of risk tolerance and patience to put your money in a company that's earning nothing. Whether you're still holding on or not, make sure you tune into Westport's next conference call, which should be up in a couple of weeks, as that could help you decide your next course of action. 

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Google's third-quarter earnings  are in, and the market doesn't seem impressed, as both classes of its public shares have fallen by about 3% in after-hours trading. The search-engine giant and all-around technology titan reported consolidated revenue of $16.52 billion, and $6.35 in adjusted earnings per share, good for year-over-year revenue growth of 20% and EPS growth of 13%. On a GAAP basis, Google's EPS were $4.09, down from the $4.38 in GAAP EPS reported a year ago.

Despite solid growth on top and bottom lines, Google fell quite a bit short  of Wall Street's expectations, which had called for $16.57 billion in consolidated revenue and $6.53 in adjusted EPS. A big reason why Google fell short this quarter was because its paid clicks -- a metric that tracks the number of ads served up to everyone using Google sites or Google's many partner sites -- grew at the slowest rate since the third quarter of 2010.

It's all about clicks
At growth of 17% year-over-year, paid clicks failed to grow by at least 20% for the first time since the second quarter of 2011. A small silver lining exists in the fact that costs-per-click, a measure of how much Google actually makes per ad, declined at the slowest rate since such declines began in late 2011:

Sources: Google earnings reports.

When I previewed Google's earnings earlier this week, I warned that a slowdown in paid clicks would prove damaging if the company's costs-per-click fell at faster-than-usual rates. The minuscule drop in costs-per-click certainly prevented a worse showing today, and a 20% year-over-year growth in revenue is nothing to sneeze at.

However, 20% growth might seem confusing to anyone who's been calculating Google's growth rates based on Motorola's contributions during the time it was part of the company. Google apparently excludes Motorola revenue entirely from its unaudited financial history -- with Motorola sources included, Google's revenue is only up by roughly 11% over the third quarter of 2011:

Sources: Google earnings reports.

Cash flow stability
Google's EPS growth also looks a bit wobbly, as it keeps bouncing from highs of 20%-plus growth year-over-year to barely any growth at all over the past three years. However, an extended stretch of negative free cash flow growth ended in a big way this quarter -- with a year-over-year growth rate of 28%, Google's third quarter free cash flow improved at a faster rate than it has since mid-2012:

Sources: Google earnings reports.

After years of surging capital expenditures, Google barely spent more on capex this quarter than it did a year ago -- capex spending is up only 5.6% from the year-ago quarter. At $2.42 billion for the quarter, Google's still pouring a lot of money into capex, but it seems to have finally found a level at which it can comfortably remain while still addressing its insatiable hardware and real estate demands. This could easily change going forward, but it's nice to see Google finding a level at which it can grow this important metric without sacrificing its future.

Ad revenue share
Google remains very much an advertising company, as ad revenues accounted for 88.9% of all revenue during the third quarter. However, advertising is now at its lowest share of consolidated revenue this decade, and this is also the first time that Google's ad revenue has been less than 89% of all revenues, down from a consistent 95% share just a few years ago.

To reduce its reliance on ad spending, Google keeps investing heavily into R&D, which accounted for 15.5% of revenue during the third quarter -- by far its highest level in this decade. This diversification effort has had the effect of hurting Google's net margin, which (barring one Motorola-damaged quarter in 2012) is at its lowest level this decade:

Sources: Google earnings reports.

All in all, today's earnings report paints a picture of a maturing Google in mid-pivot toward a more diverse range of revenue sources. It's still an incredibly strong company, but the data now indicate that Google may no longer be able to sustain its supercharged margins as it seeks out new ways to leverage its dominance over the world's Internet data.