WWE Smackdown

What company has 100 million weekly fans, 1.5 billion youtube views, one of the world's top 3 recognised athletes and the no 1 cable program? Maybe you're thinking soccer or the NBA. Not even close the answer is WWE! John Cena is the third most popular "athlete" on Facebook behind NBA superstars Kobe Bryant and Michael Jordan.

Source WWE

The stats are amazing WWE is a combination of both scripted entertainment and sports. (Hang on its not real?). Unlike sport WWE can deliver content 52 weeks a year. WWE makes money from television rights and consumer product licensing, two very high margin businesses. Toy sales for the wrestlers tend to rank in the top 5 for action figures, last year WWE placed no.2 their highest ranking ever.

According to the CFO WWE believe they "may have the ability to double our 2012 EBITDA, double or triple through three key levers. Number one the launch of a pay network that would take our pay per view business and in essence build, use that 100,000 hour library to build out around the pay per views and create a subscription service similar to an HBO." As can be seen below WWE would breakeven at 1 million users and is looking to charge between $9.99-14.99.

More popular than Lassie and The Simpsons?
The next opportunity is contract renewals with four of their largest content agreements up for renegotiation over the next 18 months. WWE point out they have the number one and number two longest running shows in US history before Gunsmoke, Lassie and The Simpsons.

The Smackdown
For some reason they opened a WWE Studio every film so far has proved disappointing only the recently released The Call featuring Halle Berry has knocked it out of the ring. The studio lost $28 million in 2011 and $6m in 2012 in EBITDA.  UFC is also risk and has taken entertainment share, WWE management believe that with a PG rating they target totally different markets and experiences.

They're showing you the money
The stock is also closely controlled by the McMahon family yes that's right Vincent McMahon who is sometimes known to appear as a character on the show. Investors will not get a say in how the company is run but offsetting this is the families need for income. WWE historically has generated $50m in cash typically paying out 70% of earnings leading to a dividend yield of 5%, decent income when compared to the SP500's yield of 2%.

The value of content is rising and the WWE is unique. The upcoming content deals and potential network will be a good gauge for future growth.


Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in WWE stock

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Hertz rent to buy?

Hertz (HTZ) is famous for its car rentals and slogan we're Hertz, they're not. You have to be good to live up to that standard and HTZ has delivered as the world's largest airport car rental service. HTZ operates from 10,460 locations in 150 countries with around 750,000 cars. 

Hertz-Ford=Profits?
Car rental companies like HTZ used to be owned by the auto makers. For example Ford used to own HTZ and used HTZ as a dumping ground for their cars. Since the sale by Ford in 2005 HTZ has purchased less Ford cars from 40% to 13% of overall purchases last year. Imagine how much overcapacity the airline industry would have if plane manufacturers owned airlines like Qantas and kept selling them planes they didn't order!

1+1=3
Amazingly HTZ was recently allowed to buy their fourth largest competitor in the market. The acquisition of the Dollar and Thrifty brands was a prolonged three year affair with competing bids from Avis. Three companies now have 95% market share of the rental market. The industry has not only consolidated but come under more business oriented management. 

HTZ management estimates there to be $300m in revenue synergies and $300m in cost synergies. The acquisition will help HTZ utilise its car fleet more effectively. HTZ is a premium corporate brand its cars tend to be utilisted throughout the week while Dollar and Thrify are leisure focused and tend to peak on the weekend. There will be plenty of revenue opportunities to maximise utlisation and reduce costs. Though this does come at a cost HTZ has taken on quite a bit of corporate debt it plans to use its cash flows to get to an investment grade rating as soon as possible.

Source: HTZ investor day

Technology = The world (ex-airports)
According to IBISWorld HTZ has overall US marketshare of 24%, Enterprise (private) has 39% and Avis 18.5% marketshare. The market in airports is extremely competitive with HTZ being the leader. One area HTZ has somewhat neglected is the market ex-airports where they have 12% share and Enterprise is the dominant leader. Previously off airport had been too costly to manage but with technology HTZ believes they can profitability compete in this segment. Technology such as kiosks and mobile devices have allowed HTZ to offer 24/7 service and the ability to rent by hour for $10-12 with a full tank of gas.

On demand booking in 45 seconds
When you sign up for the program hertzondemand.com will send you a card/FOB. Customers can book on the phone or through their app which lets you know where the car is located. Swipe the card and the keys are inside and swipe when finished. So click, swipe and drive maybe even I can use it!

Source: HTZ investor day

HTZ plans to have cars within a five minute walk of nearly anywhere in the US within 18 months. HTZ has already partnered with retailers to rent trucks, an example being the home hardware operator Lowes where customers can hire a ute/van/truck when making large purchases. The use of kiosks and partnering with retailers increases the market opportunity. HTZ also offers their own version of the ipad Neverlost which will provide GPS and can put you in touch with a real person.

Oligopoly?
The industry has consolidated from 8 to 3 over the past decade. This consolidation of the market has given management the confidence to give earnings guidance to 2015 of up to $3.30 per share or 35% compounded earnings growth over the next few years. Management believes this guidance to be conservative as they did not assume much in the way of price increases and hardly any GDP growth, the forecasts are just based on internal HTZ initiatives. 

Pricing in the industry has fallen over the past three years and there are signs that competitors are beginning to implement increases.

Worldwide rental rate revenue per transaction
2010	2011	2012
$            43.14	$           41.33	$           40.01
	-4.2%	-3.2%

Given the changed market structure of the industry (3 players with 95% share) and the fact prices have retreated while the economy has recovered there seems to be a real possibility that prices will likely increase. Book a rental car while its still cheap! 

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in HTZ stock

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Willy Wonka of the retail industry

Abercrombie and Fitch (ANF) is well known for controversy with their edgy catalogue and stores with half naked models/ greeters out front. In response to these greeters Improv Everywhere a youtube subscriber group recruited 111 random men to go shirtless in the 5th Ave store in NYC see below. Some even got kicked out trying to buy a shirt!

Very ANF dude 

ANF has done well because it has targeted itself as an exclusive brand targeting "cool and popular kids". A recent uproar has the been discovery that they do not stock XL or XXL women's clothing because they do not want overweight women wearing their brands. This uproar has added another controversy to the list. You will be probably right to guess it takes someone who is a little quirky to run such a company. In a 2006 interview with Salon, Michael Jeffries the CEO said

"In every school there are the cool and popular kids and then there are the not so cool kids. Candidly, we go after the cool kids. We go after the attractive all-American kid with a great attitude and a lot of friends. A lot of people don’t belong [in our clothes], and they can’t belong. Are we exclusionary? Absolutely. Those companies that are in trouble are trying to target everybody: young, old, fat, skinny. But then you become totally vanilla. You don’t alienate anybody, but you don’t excite anybody, either."

 http://www.salon.com/2006/01/24/jeffries/

It is an amazing article and probably explains why he keeps a low profile publicly, he will be in trouble every time.  He is either crazy or a genius further searches on the CEO show that he is probably crazy. 

From Bloomberg http://www.bloomberg.com/news/2012-10-18/models-on-abercrombie-jet-had-rules-on-proper-underwear.html

The only way to fly 

The models working on ANF's Gulfstream G550 had rules for serving the CEO Michael Jeffries.

"Clean-shaven males had to wear a uniform of Abercrombie polo shirts, boxer briefs, flip-flops and a “spritz” of the retailer’s cologne, according to an “Aircraft Standards” manual, disclosed in an age-discrimination lawsuit brought by a former pilot. Among the 40-plus pages of detailed instructions: black gloves had to be used when handling silverware and white gloves to lay the table, the song “Take Me Home” had to be played when passengers entered the cabin on return flights and Jeffries’s dogs -- identified in the document as Ruby, Trouble and Sammy -- had different seating arrangements based on which ones were traveling."

My vote for the craziest company around

This is a company that punishes staff who make mistakes with push ups. The ANF CEO really is the Willy Wonka of the retail industry! 

Jason 

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in ANF stock.

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Catching fire

Lionsgate (LGF) is a film studio focused on adapting popular teen novels to the silver screen. LGF is most famous for its Twilight and Hunger Games franchises. In 2012 LGF generated $1.2 billion in US box office the first time a non major studio broke the one billion dollar mark. LGF ended 2012 with 11.6% domestic box office market share ranking among the top 5 major studios. LGF is unique as it is not owned by a media conglomerate. Its competitors are subsidiaries of major companies.

Studio	Owner
Warner Bros	Time Warner
Paramount	Viacom
Universal	NBC Universal unit of Comcast
Sony/Columbia	Sony
Buena Vista	Disney
20th Century Fox	News Corporation
Lionsgate	Lionsgate!

Not just the Hunger Games

Hunger games was a hit but will the sequels do as well? LGF is releasing the next installment Catching Fire this November with plans for the final book Mockingjay to be spread over two movies in 2014 and 2015. Amazingly the Catching Fire trailer uploaded on Youtube on the 15th of April has already had 25 million hits! Jennifer Lawrence the main actor below is getting more popular with the public gaining recently winning the best actress academy award. Feel free to add to the Catching Fire viewing count with the trailer below.

Studios are notorious for hit and miss movies, similar to Disney LGF is looking to franchises to reduce this risk.  LGF minimises this risk by preselling foreign distribution rights leaving LGF with a maximum of $30 million production risk. Future franchise hopes are pinned on Divergent whose book sales are tracking ahead of the Hunger Games at similar stages of their book releases.

Libraries are good?

The major offset to production risk is LGF's backlog of over 15,000 films (increased from 13,000 in the slide). Library revenues are 25% of overall sales and are much higher on a profit basis given their costs have already been expensed. TV production is also doing well led by iconic brands such as Mad Men, Weeds and Anger Management.

Stay tuned

Who knows if the hits will keep coming but the library backlog and LGF's focus on adapting popular teen novels does reduce some of the hit and miss movie risk inherent in the studio business. 


Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a position in LGF.

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.