Christmas stocks and perks for the kids

Its nearly Christmas and we're all out and about searching for that perfect gift. This year it's a little bit easier shopping for the kids due to the popularity of Disney's Frozen and the continued interest in Star Wars toys. I've always thought that Disney shares are one of the best presents parents can give to kids. It can help them understand shares and investing though at the time they probably won't appreciate it! A great way to get kids involved are with companies that they can understand and perks that they can benefit from. Unfortunately Disney have closed their shareholder theme park discounts but there are some local shares that offer great perks.

Stocks with benefits
Here in Australia Amalgamated Holdings (AHD) provides some of the best discounts. Offering shareholders with at least 500 shares 15% discount at all Rydges, QT and Atura hotels including 25% discount for food and beverage. 10% discounts on lift tickets and clothing at Thredbo and also cheap movie tickets at Event Cinemas, Greater Union and Birch Carroll and Coyle. It also comes with a 5.5% dividend yield which can help you pay for all the entertainment.

For the bigger kids Echo entertainment shareholder benefits might fit the bill. The owner of the Star in Sydney, Jupiters Casino on the Gold Coast and the Treasury casino in Brisbane gives you 10% off accommodation and food. Unfortunately the trend of companies offering benefits has declined, for most companies it is not worth the cost of running the program.

2015 Ford Mustang on my Christmas wishlist for next year

In the US Ford is bucking the trend with the most interesting shareholder discount. While the kids probably appreciate model cars holders of Ford shares can apply for discounted car purchases. Known as the Xplan if you own at least 100 shares for over 6 months you can receive effectively the factory invoice price or 4% higher than what employees pay saving hundreds or thousands of dollars. It's pretty compelling when 100 shares will only set you back $1,570.

Stocks kids can appreciate
Kids always grow out their toys or clothes but a well chosen stock will increase in value and provide them an appreciation (am sure the kids won't realise it at the time) of investing. As mentioned above my favourite is Disney followed by Hasbro. Disney's recent movie hit Frozen is still a top seller a year on. Starting next year the new Star Wars saga will keep the momentum building with Star War toys for a new generation.

Disney shares are a great gift for kids because they are a monopoly on kids entertainment. Last year Disney controlled 80% of the entertainment category with 6 of the top 10 licensed franchises. Number one being Disney Princess, No.2 Star Wars, No.3 Winnie the Pooh, No.4 Cars, no. 6 Mickey, No.8 Toy Story. We can also add Frozen to the top ten character list, its now the highest grossing animated film of all time. The outlook for the studio also looks strong with the Avengers 2 and the first of the new Star Wars saga beginning next year (see below). Disney will also give the kids exposure to the leading sports network ESPN, the main reason why we pay for cable.

Source: Disney Bank of American presentation 2014

In a digital world Hasbro is navigating the physical toy industry a lot better than its main competitor Mattel. Disney has been so impressed with Hasbro that they are transferring the license for Disney princess (Cinderella, Snow White etc) and Frozen dolls from Mattel to Hasbro starting 2016. These licenses will join other Disney licensed properties such as Marvel and Star Wars. Hasbro has its own brands such as GI Joe, My Little Pony, Play Doh, Nerf and Transformers which has benefited from recent movie releases. Hasbro also has the license to Sesame Street. They have outperformed their competitors by getting their characters back on TV. TV shows and movies keep their characters top of mind with brand recognition and give kids stories which they can play to. Hasbro is also outperforming in the emerging markets growing 25% per annum versus industry growth of 12%. You can see their key brands below. Even in a digital world physical toys like Monopoly, Nerf and Play-Doh are priceless still growing years after they were introduced.

Source: Hasbro 2013 investor day

Hopefully you've got some good Christmas present/share ideas. Wishing you all a great Christmas and all the best in the New Year!

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Disney (DIS) 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.

Starbucks venti growth

Starbucks (SBUX) just held their biannual investor day setting out their goals for the next 5 years. Management reiterated that they are not just in the coffee serving business but in the experience and people serving business. This ambition could be seen a few years ago when they ditched Starbucks Coffee on the logo. SBUX's founder Howard Schultz wants to build a company that endures just like Disney.

Source: Starbucks, logo changes over the years

Their growth plans can be summed up in the slide below. SBUX plans to increase stores from 21,000 to 30,000 by 2019. Growth will also be driven by food and lunch leveraging their La Boulange acquisition. Currently 46% of SBUX's business is in the morning but the rest of the day is where customers spend 85% of their money. The biggest news was SBUX's plan for mobile ordering and delivery.

Source: Starbucks 2014 investor day presentation

Mobile order ahead or a coffee to your desk.
SBUX has 70 million unique US customers per month, 8 million of these are a part of My Starbucks Rewards their loyalty program. Starting in Portland SBUX will offer these customers mobile ordering. Mobile ordering will use geolocation to show users the closest cafe. It's expected to take around 5 minutes for the drinks and food to be ready after placing an order. They are also testing in select markets dedicated green apron delivery services which will be integrated in SBUX's app. Imagine being able to create a standing order of coffee delivered to your desk daily!

This is much more convenient than anything out there for customers who are typically in a rush during the mornings. This should lead to increased frequency of use. While for SBUX this will increase efficiency getting rid of ordering and payment bottlenecks while also increasing use of their reward programs. What Domino's did for pizza delivery SBUX is trying to do the same for coffee.

Source: Starbucks 2014 investor day presentation

Mobile app payments are 15% of US transactions. While this is impressive 33% of tender in stores is prepaid mostly SBUX gift cards. $4 billion was loaded onto prepaid SBUX cards in the past year in the US. Gift card holders are able to convert their gift cards to their app making it a virtual gift card suggesting much more mobile growth. Also these rewards customers tend to spend 3x more than non rewards customers. As customers join their loyalty program SBUX gets more information about their habits and can better tailor marketing messages.

Source: Starbucks 2014 investor day presentation

Not like other retailers
Most retailers are struggling with declining mall traffic as more consumers buy online (see below). Unlike other retailers SBUX is in the fortunate position of selling experiences that can't be found online. (It's hard to buy coffee online from Amazon.)

Source: Starbucks 2014 investor day presentation

SBUX is a company that has become a daily habit for many. In a fast paced world (especially the morning) the addition of mobile orders and delivery of an already addictive product means SBUX will likely keep up its habit as a daily habit for it's customers.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Starbucks (SBUX) 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.

Netflix changing HR not just TV

Netflix (NFLX) has changed the way we watch TV. Their on demand TV internet service makes much more sense than traditional TV viewing. Its no surprise that they are also innovating in their own company changing the Human Resources (HR) relationship. Unlike other companies NFLX does not have a fixed amount of vacation days, if you do the work you can holiday as much as you would like. NFLX is bringing both HR and TV to the modern age.

Creative versus industrial firms
A little while ago NFLX released a slideshow talking about their values and culture, largely as a recruiting tool for the company. Its what the founder Reed Hastings wishes he knew when he started his company. It has become NFLX's constitution. You can find the full 124 page presentation at slideshare currently at 9.8 million views. Its a memo for today's businesses as the majority of human resource processes are based around managing industrial firms but not creative firms. A manufacturing company is all about efficiency and not making errors. While in a creative world small errors are okay if you are able innovate quickly and get to the desired result. In a creative firm one really great employee could be worth ten average employees so you can afford to pay up.

As they say below NFLX is run like a team not a family. But unlike a team there are no fixed positions. The numbers of superstars needed is not limited. Great people create growth which attracts more talent which lets them accomplish even more.

Source: Netflix Culture: Freedom & Responsibility

Rewarding performance not effort
At NFLX great work is rewarded even if it required minimal effort. The focus is on output not effort. This focus on performance trickles down to holidays. NFLX does not track hours worked per day so they also do not track vacation time. If you get your work done you can vacation as much as you want though if you want 30 days off in a row you need to get a sign off from HR.

Source: Netflix Culture: Freedom & Responsibility

Flexibility more important than efficiency
NFLX believes that most companies curtail freedom and become bureaucratic as they grow. Processes get introduced as companies become bigger and more complex. It is a preferred outcome to undisciplined and chaotic growth. As companies grow they tend to dilute the talent pool as the bureaucracy drives high performing employees out. The growing size means the focus becomes on being more efficient but at the cost of being less flexible. NFLX's solution is to keep the bar high by growing the amount of high performance employees faster than business complexity. This means attracting great people and giving them the freedom to make a big impact. It also means concentrating the business on a few big products versus small ones so complexity does not increase too fast.

How to get the best team?
By awarding top of the market compensation and giving them freedom to make decisions. NFLX believes that hiring and working with the best is a better perk than free lunches.

Source: Netflix Culture: Freedom & Responsibility

When paying staff NFLX management use the keeper test. They consistently look to pay the amount it would take to keep you if you were leaving. Staff can choose how much of their compensation they receive in shares or cash. No matter how well NFLX is doing they will pay top market prices for the best staff. Just like a sports team NFLX pays their top prices whether they are winning or losing. Unlike Goldmans or other high performance firms NFLX avoids top or bottom rankings. They don't want employees to compete with each other they want all their employees to be in the top 10% relative to their global peers. No annual reviews just regular talk about your performance.

They actually encourage their staff to take a recruiters call, ask them how much and send this number back to HR. Where can I apply!

 Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a position in Netflix (NFLX) 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.

Streaming into Netflix

Netflix (NFLX) is the world's leading internet television network. Its 50 million customers are able to stream what they want to watch, anytime, anywhere on any internet connected device. It's a much better experience than linear TV as it gives you the power of choice with no advertising. NFLX can recommend shows for you based on what you have watched and you can watch as many episodes of a particular series as you want. There is no need to wait for next Sunday 7:30pm to catch up on your favourite show.

Its here March 2015
NFLX has announced that it is finally coming down under. It charges $8.99 a month in the US but there has been no announcement of the pricing here. NFLX can charge cheaper prices as it cuts out the middle man it doesn't need to pay a cable operator half their revenues. NFLX has a relationship direct with the consumer, there is no need for a commitment users can come and go as they please. It is likely that Australians will get less choice than US viewers as NFLX has to separately license shows for each region. But this should change over time, this year NFLX plans to spend $3 billion on content.

30% of all internet traffic
NFLX is a big success in America with more subscribers than HBO. The picture below is over a year old but the data is still the same NFLX basically takes over the internet during prime time. Traditional TV viewing is dropping because of increasing internet television. Since this chart was released a year ago Youtube has actually dropped to around 13% of usage.

http://www.statista.com/chart/1620/top-10-traffic-hogs/

Originally original
NFLX is all about TV series and movies. It does not stream news, sports or music videos. It is beginning to differentiate itself with exclusive content like HBO that you cannot find elsewhere. NFLX has produced House of Cards, Hemlock Grove and Orange is the New Black which have all been hits. While it did not win any Emmy's 31 nominations is a great start for a company that has just started to produce their own shows. The next big series to be released will be Marco Polo on December 12 a ten part series. Developed by the Weinstein brothers they are talking it up as their Game of Thrones. The series is estimated to have cost $90 million see preview below. To put this spend into context the first Mission Impossible movie cost $80 million.

Getting the best talent
NFLX has an advantage in launching new shows as they don't have limited viewing spots like traditional TV. NFLX is much more flexible with programming and can attract some of the best creative talent because they know NFLX will stick with their show and not pull it after two weeks.
NFLX is also looking to upend the movie release schedule. NFLX has announced a sequel to Crouching Tiger Hidden Dragon and will give subscribers instant access to the movie at the same time its shown at the cinema. It will be released on the same day as it appears in Imax theatres most other movie chains are refusing to show the film.

The power to binge
The great thing about NFLX is choice and many viewers choose to binge watch. Binge watching has been defined as watching 2-6 episodes of one TV series in a sitting. NFLX conducted a survey last year and found that 61% of members binge watch regularly. The majority of NFLX's most popular shows are Breaking Bad, Mad Men and the Walking Dead that are perfect for binge viewing. Starting Jan 1 they will stream the entire series of Friends. There were also rumours that they were in talks for the Seinfeld series, fingers crossed.

Just in case you get too carried away apparently the best way to stop the binge cycle is to watch the first couple of minutes of the next episode. If you can stop yourself early all your problems/concerns will be resolved and you won't be engrossed enough yet in the current episodes issue or drama! The current record for binge watching is 87 hours straight.

Watching the investment
I personally like to invest in companies that I love as a consumer. NFLX is a killer consumer product disrupting the industry but as an investment it is trickier. Their last result was a little concerning it hiked prices by $1 to $8.99 which resulted in new subscriber sign ups which were less than the prior year. This was worrisome as they should still be in the early innings of growth. They have guided to an addressable market of between 60-90 million just in their domestic market the US. This subscriber number is the most important as NFLX has fixed content costs. A new subscriber is more profitable as fixed costs are covered the extra revenue drops to the bottom line. Its a virtuous circle the more subscribers they have the more content they can spend on which creates more subscribers.

Free cash flow was also an issue. Funding new shows is expensive with costs created up front before the benefits come in. NFLX have hinted that free cash flow will suffer as they spend more on original content. I personally think these are short term issues but given the stocks high valuation we will watch the subscriber numbers very closely.

TV or Netflix
NFLX has given users the power of choice. It hasn't even entered Australia yet but it is already bringing benefits to Australian consumers. Forcing Foxtel to finally compete by dropping the price of its basic package in half from $50 to $25. The conversation is no longer which channel to watch but whether to put on TV or NFLX. Traditional TV is great for news or sports but for everything else there's NFLX.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a position in Netflix (NFLX) 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.

Twitter analyst day

Big events around the world happen on Twitter (TWTR). It is the only public, conversational and real time social network. But unlike other social networks it is confusing to use. Everyone has figured out that Facebook is for keeping in touch with friends and Linkedin for work colleagues but TWTR is less clear. Its sort of like walking into a bar or party where there are lots of interesting people but you don't stay too long because you don't really know anyone or who to talk to. It hasn't been clear to investors either. Even TWTR admits most users don't know why or how to use it hence the analyst day and a promise of new features.

Twitter is public and real time

TWTR is different from other social networks by being public and real time. It is the best way to share news/updates with the world. A tweet from Ellen DeGeneres received 3.4 million retweets but it went viral on other sites around the world that picked up on the tweet (see below.) This ability to go viral has made it very valuable for advertisers and users. It increases the effectiveness of events and TV advertising as users tweet and use their mobile while watching key shows/events encouraging other users to engage and tune in. This is also the problem as everyone is aware of TWTR but users tend to engage with events and then drop off.

Source: Twitter analyst day

Analyst day promises and changes
TWTR announced a lot of upcoming product changes mostly centered around making it easier to use when you first sign up. Apparently 125 million visitors go to TWTR's home page each month and decide not to sign up or login. TWTR will provide new users with an instant timeline to show users whats happening on the site so they don't have to search and figure out who to follow. Provide updates that show important tweets that you may have missed since you last logged in. TWTR will also introduce the ability to share and discuss tweets privately through direct messages. For advertisers they will make the process simpler by adding the ability to turn tweets into ads with just a few clicks.

Source: Twitter analyst day

They also shared lots of good stats

• Mobile user growth 3x internet user growth.
• 500 million tweets per day, no surprise that the majority are tech related with 554 million technology related tweets a month.
• The most concerning information (see below) is the number of tweets per day has plateaued over the past 13 months. Its too early to see this happening.
• 83% of the Fortune 500, 75% of NFL and NBA players have TWTR accounts.
• Ad load of 1.3% was interesting given Facebook shows ads around 5% of the time. If they increased ad loads to similar rates they could increase revenues from $1.4 billion to $5 billion.
• TWTRs annualised average revenue per user is $5.09

Source: Twitter analyst day

TWTR also shared a hypothetical chart of potential revenue if everything went well. They point out it is only hypothetical but it is big target for them if they can produce similar revenue as Google, Amazon and Ebay.

Source: Twitter analyst day

Tweeting a verb
TWTR has a few things going for it as it has 90% global brand awareness. Tweeting has become a verb just like Kleenex or Xerox brands are valuable to consumers. Social networks are also typically great businesses because it is user generated content. The content is exclusive, unique and it's free. When your users work for you for free its a great business.

TWTR said all the right things with a roadmap for product changes and a hypothetical goal for producing as much revenue as Google, Ebay and Amazon but the hard part is executing. With the number of tweets flat over the last 13 months this presentation creates a risk of over promising and under delivering. I personally think these changes will improve their service but trying to follow in the footsteps of Google, Amazon and Ebay with revenue targets will only set themselves up for future disappointment.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a position in Twitter (TWTR) 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.

Open Sesame with Alibaba

Alibaba (BABA) just reported its first result post IPO and their results were outstanding. The key revenue, mobile and user metrics showed accelerating growth. This wasn't the Facebook IPO BABA showed how an IPO should be run. $95 billion was transacted on a mobile device in the past 12 months. 35.8% of sales are mobile related with BABA having 86% market share of mobile e-commerce. User growth also accelerated to 52% growth see below. Its amazing to see all these numbers accelerate given they are growing off a larger base.

Source: Alibaba 10Q presentation

BABA has been described as the Ebay of China except BABA has 80% of Chinese ecommerce marketshare. Its actually twice as dominant as a combined Ebay and Amazon around 35-40% of the US ecommerce market. The average user buys from BABA 52 times a year, whereas the average Amazon user buys 16 times a year. This dominance has meant that brands like Tesla and Costco have setup stores on BABA's Tmall to sell direct to consumers. Costco will sell their usual products including baby goods and beauty items, mailing from the US to the customers door in China. If you're shopping in China you start on one of BABA's sites. Like most internet sites BABA benefits from the network effort. More buyers attracts more sellers which attract more buyers its a virtuous circle see below.

Source: Alibaba IPO roadshow

A mix of Google and Ebay
BABA actually monetizes more like Google with advertising. In fact it is the second largest search advertising engine in China. BABA's retail revenues are driven by Taobao and Tmall. Taobao is a consumer to consumer stie similar to Ebay while Tmall is similar to Amazon where big brands open stores. Alibaba does not hold inventory but sells clicks. Its a great business model in a competitive market like China where sellers bid to position themselves higher on the site. According to Merrill Lynch estimates Tmall's take rate is around 6%. Tmall charges commissions and advertising whereas Taobao's rate is lower around 2% because there are no commissions for selling on the site.

Growth and monetisation potential

BABA has 307 million customers while this is a big number its less than a quarter of China's population. 34% of urban Chinese use e-commerce but only 9% of rural Chinese use e-commerce. They plan to help these farmers sell their goods to the city while also buying products in the city from BABA. The longer a customer has been with BABA the more comfortable they are on spending. It really is a weekly habit. Average spending levels for a year old customer is RMB1,000, 5 years is RMB15,000 and 10 years is RMB30,000.

BABA is not looking to maximise their monetization rate of sales but if you compare their rates versus the global averages there is plenty of upside. Ebay and Mercadolibre (Latin American e-commerce) site typically monetise around 9% of their sales. If BABA wanted to maximise its rates it could nearly triple its revenue, with no change in expenses this would drop to the bottom line. A dominant Chinese e-commerce site also has a good chance to go global because China is the manufacturer to the world its 42 million small to medium enterprises are more than the US, India and Japan combined.

                                                    Source: Alibaba 10Q presentation

Corporate Governance risk
The risk is corporate governance. Like most tech companies BABA will be controlled by a select few. We feel the Variable Interest Entity (VIE) structure is the main risk. Foreigners are not allowed to have majority control of certain businesses in China. Many Chinese companies create a domestic vehicle that contains the restricted business and licenses which are owned by a local Chinese. Through legal agreements the economic interest is transferred to a foreign listed company. Alibaba has tried to minimize this risk by holding their licenses in the VIE while conducting as little business as possible in the VIE. 11.9% of BABA's revenue is conducted in its VIE.

Optionality on growth
BABA also has some great emerging businesses. They own the largest cloud computing business in China which can leverage BABAs IT infrastructure to lease to other businesses at competitive prices. It also has a stake in logistics and delivers around 50% of packages in China. The amount of data they have on customers is also compelling. Knowledge of a users buying pattern means they can personalise pages for different buyers improving conversion rates. They also receive 37.5% of profits from Alipay (online escrow payment) which has 300 million users twice the number of Paypal.

BABA has unprecedented growth and monetisation potential. It takes quite a business to make Amazon and Ebay look mediocre. In its first result BABA has done just that.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Alibaba (BABA) 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.

Snacking on Mondelez

Mondelez (MDLZ) is the king of snacks with iconic brands in biscuits and chocolate. You might not have heard of MDLZ but you will be familiar with its Oreo cookies and Cadbury chocolate bars. MDLZ was spun-off from Kraft Foods in 2012. The idea was to unshackle the high growth global snack brands from the slower growing supermarket staples at Kraft. MDLZ has the brands that make customers smile and kids cry when they don't get what they want.

MDLZ's top 15 power brands are expected to drive 70% of their growth. These brands include Oreo, Chips Ahoy, Belvita, Cadbury, Toblerone, Trident and Stride. Over 45% of sales are in the fast growing emerging markets where snacking habits are increasing with growing wealth.

One smart cookie
Oreo is milk's favourite cookie. It is also one of the most liked brands on Facebook with 38 million likes. It is the number one food brand on Facebook. They have had plenty of social media success their Super bowl tweet you can still dunk in the dark received great coverage with 16,000 retweets. Their facebook page has taken off with Oreo commemorating key events/weeks like Gay Pride and Elvis week with their biscuits see below. This digital savvy has helped Oreo grow double digit for two years in a row in North America. Oreo is so popular that if we stacked each Oreo ever made the pile would reach the moon and back six times. Over 25 million Oreo's are eaten in the US it has also been a hit in China. Growth took off when they reduced the sweetness of the cream, introduced a wafer version and banana, peach and grape flavors.

Developing developing markets
MDLZ should benefit from the rising emerging middle class. While these markets are volatile they are growing at above industry rates which should grow for years to come. For example in India MDLZ cover only one million out of the 7 million outlets that sell confectionery. Oreo is the number one biscuit in China. Snacking is a late adoption category its a treat used to relax and enjoy. As consumers move into the middle class they increase their chocolate consumption by three times.

Can't touch these brands
MDLZ brands have such a great emotional connection to their consumers that they tend to be more immune from private label. MDLZ owns Vegemite which has proven to be too strong for private label clones. Apparently it is still consumed in 80% of Australian households. Even Aldi's fake version has not dented sales. Even with these great brands MDLZ is still innovative. Last year 17% of sales came from innovation of existing products nearly twice their historic average.

More snacks less coffee
Results since the spin off have disappointed investors but there are increasing signs of management focus. MDLZ recently spun off their coffee business to DE Master Blenders receiving $5 billion after tax and a 49% share in the combined company. The combination of the second and third largest coffee companies by sales will create an entity with 16% share of the coffee market.The market leader Nestle has 23% share. MDLZ will use the proceeds to pay down debt and buy back shares. This focus means revenues from snacking will increase from 75 to 85% of company revenues.

MDLZ should grow profits at a low double digit growth rate. It trades at a discount to its peers like Hershey but has better margin expansion potential. Its 12% margins are expected to expand to the 15-19% average enjoyed by peers. MDLZ also has Nelson Peltz's Trian Fund Management on board as an activist shareholder which should help management focus on execution. While its not something we expect MDLZ has also been seen as a takeover target for Pepsi. A merger between Pepsi's dominant chips business Lays and MDLZ's biscuits and chocolate would provide a good match and add even more scale. Nelson Peltz's Trian Fund Management has stakes in both.

Its way too hard to write a blog about this company without getting hungry that's a good sign for an investor!

 Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Mondelez (MDLZ) 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.

Time for Time Warner

Time Warner (TWX) was a media conglomerate that has slimmed itself down to a video content owner (see below). Its library of hits include Friends, ER, Harry Potter and Lord of the Rings. The slimmed down TWX was attractive enough for Rupert Murdoch's Fox to offer around $80 billion for the company. TWX successfully rebuffed Fox but in response management have hosted an investor day to showcase the growth potential of the business. Management now believe they can deliver close to $6 per share in adjusted EPS by 2016, and over $8 a share by 2018 versus previous analyst estimates of $7.

Source: TWX investor day

HBO the king of content
The biggest driver of that growth will be HBO. HBO will go direct to the consumer. According to TWX there are 10 million households with broadband who have cut the cable cord that could become potential customers. Information on pricing has not been released but it is rumoured to be priced similar to cable around $15 a month for access to over 2,200 titles. Its a massive change for TWX who has previously relied on cable companies to distribute, market and bill customers. This announcement surprised some of their cable partners including giant Comcast who are concerned it might cannibalize their lucrative pay TV business. It's a great move for HBO but it will compete even more closely with Netflix. HBO have trialed internet streaming services overseas and according to businessweek HBO's standalone streaming service in the Nordics has attracted less than 10% of the audience of Netflix. But when you are the king of content including Game of Thrones you have a good chance against the competition.

Source: HBO

Game of Thrones is the biggest show in the history of HBO with 19 million viewers in the US. Australians set off piracy records leading the world for illegal downloads of the show. Daenerys the Dragon Queen played by Emilia Clarke is so popular that 146 baby girls were named Khaleesi in 2013!

The industry trend from physical DVD's to digital has been great for TWX. The growth in digital sales has offset the decline in physical sales with the benefit of 85-95% contribution margins versus 55%-65% physical. HBO is also making money by licensing their older content to Amazon but have kept some of their most iconic series including Thrones and Entourage.

Comic books are back
The success of Marvel and Disney has seen TWX double down on its DC Entertainment unit. TWX is the largest comic book publisher with the some of the best known superheros like Superman, Batman and Wonder women. They are bringing out out a Batman v Superman movie in 2016 (see schedule below).

                                                             Source: TWX investor day

TWX also owns Turner with TNT and TBS two of the top-five cable networks in the US. They recently extended their NBA rights for 9 years. Even though costs have increased sports has become the must have content. Advertising is an issue for media companies as with DVR's and streaming ads are either skipped or not watched live. Sports seems to be immune to this trend. TWX have disclosed that sports represents only 4% of their programming but 25% of advertising as advertisers are willing to pay up for the live exposure making it more likely their ad will be watched. Overall TWX's ad exposure is the lowest among their media peers at 17% of total revenue.

TWX upgraded growth targets should be well received by investors. Especially as it will be driven by subscription growth which is more stable recurring income than advertising which could lead to a higher P/E multiple. Importantly TWX's content is king, a slimmed down TWX was attractive enough for Rupert which should be attractive enough for everyone else.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in Time Warner (TWX) 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.

Not so Yummy

Yum brands (YUM) is the owner of KFC, Pizza Hut and Taco Bell. Its has over 40,000 restaurants in more than 125 countries with 70% of sales outside the US. For most investors YUM has become a way to invest in the growth of the Chinese consumer. Of its 40,618 global stores 6,419 are in China. This China exposure has provided great returns for shareholders.

KFC finger licking good
YUMs most important brand in China is KFC with over 4,600 restaurants in nearly 1,000 cities across the country. YUM is opening 700 new stores in China this year the aggressive roll out of stores has made KFC one of the most well known foreign brands in China. 90% of KFC's profits come from overseas.

Source: YUM brands investor presentation

China causing indigestion
YUM brands is dominant in China with 39% market share. The growth story is that YUM will have well over 20,000 restaurants across all their concepts in China. YUM has five restaurants per 1 million people in China compared to 60 restaurants per 1 million people in the United States. But recently YUM has struggled. Customers dine at YUM and pay a premium to local prices because they believe the food is clean and the brand can be trusted. With two supply issues in the past two years customers are already looking elsewhere (see above for 2013 figures). KFC will eventually bounce back but it may not be to the same sale levels given recurring supply issues and increasing local competition.

There is another but its struggling too
YUM's other power brand is Pizza Hut but its growth is slowing in the US. Long known for dine in pizza, Pizza Hut is struggling with the move to online. Pizza Hut recently reported a (2%) same store sales decline in the US. Compared to a reinvigorated Domino's which reported a 7.7% increase in US same store sales. Domino's smaller store format and leadership in technology with one of the most downloaded apps means Pizza Hut has a lot of work to do just to catchup.  Pizza Hut in China is also suffering from similar supply issues as KFC. Amazingly only 30% of sales at Pizza Hut is pizza the majority is past, rice, soups and salads! See below.

                                                Source: YUM brands investor presentation


Their other major brand Taco Bell operates only in the US. It grew a respectable 3% in same store sales though these numbers were inflated with the introduction of breakfast earlier this year. Given these results YUM is trying to tap into the general move to higher quality, fresh ingredients with meals that are better for you. Following in the footsteps of Chipotle YUM are trialing a Vietnamese street food chain Banh Shop and a more upscale Taco Bell called Taco Co.

Change is not always good
David Novak has been a great leader at YUM with a great track record of growth. But he is stepping down as CEO transitioning to the chairman role. He has been one of the major reasons for success since the spin off from Pepsico being CEO from 2000 onwards. As an investor its never a good sign when a long term leader leaves.

No tip for you
While China will likely bounce back the fact that this is the second time there has been a supply issue means that there will be a perception problem for longer. Especially as locals trial other chains that are at lower price points. While YUM has bounced back from China issues before one difference this time is weak performance in the US from Pizza Hut and Taco Bell. Flat to negative growth for KFC and Pizza Hut in the US is not a great sign as the West moves away from fast food to more healthier fare developing markets are sure to follow. YUM has a great position in China but with two supply issues and struggles in the US we believe the stock will continue to provide short term indigestion for investors.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in Yum Brands (YUM) stock but is long Dominos (DPZ) 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.

The secret behind Victoria Secret

Leslie Wexner knows what women want. He is responsible for founding The Limited, Abercrombie and Fitch, Express and L Brands (LB). L Brands is the owner of Bath & Body Works and the greatest brand known to man Victoria's Secret. It's surprising to learn that the owner is a 77 year old from Ohio. He is the longest serving CEO of a Fortune 500 company and is one of the few CEOs to make you an annual return of 20% over 20 years. He has bought and sold many retail businesses but has kept Victoria's Secret because they are so dominant. As a brand they have no real competitor.

Ads so good they get paid for them
The Victoria Secret fashion show is famous all around the world, its basically a one hour advertisement for the company. According to forbes CBS pays Victoria Secret $1m a year to televise the event. Its the only one hour show dedicated to a single brand that plays all around the world in 192 countries. The showpiece of the show is the diamond studded fantasy bra. The showpiece bra has never been sold. Last years asking price was $10 million see Candice Swanepoel below with the 2013 piece. This exposure is invaluable to the brand and investors. The models also benefit, 16 out of the 21 models on Forbes highest paid model list have been or are Victoria Secret angels. As an ex-angel Australia's Miranda Kerr makes the top ten.

Source: Victoria Secret

International runway
Its amazing that such a global brand has only 17 Victoria Secret stores internationally. The global push is accelerating this year as the show will be run in London and not New York. The show will air December 9th. LB plans to grow overseas through a small number of franchisees. LB will receive a royalty retaining control over assortment, pricing and store design. One problem with overseas growth is that LB does not sell handbags one size does not fit all in lingerie products which will have to be tailored to each region.

Source: L Brands investor relations

The beauty of this business is literally beauty
Victoria secret is not just lingerie but also personal care. LB have opened 230 stand alone beauty and accessory stores on target for 300 at the end of the year. 60% of sales from these stores are beauty products with a focus on fragrance which are great gifts and travel easily internationally. There is the potential for 1,000 of these stores. LB also owns Bath and Body Works which they can leverage from. It is an important part of the business with the majority of stores (1,638 stores see below) yet Victoria Secrets contributes 62% of revenue. Importantly beauty, fragrance and lingerie are all high margin, high loyalty categories. The demand is so great that nearly all of their stores turn a profit.

Source: L Brands investor relations

Capital management has also been fantastic LB has returned $15.4 billion since 2000 more than half its current enterprise value of $23.5 billion. The 2% dividend is great when you have LB's international runway. Unfortunately the P/E multiple at 19x is quite high for the low double digit growth but it does have great long term potential. Just like the Victoria Secret show LB stock is one to watch.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in Limited Brands (LB) 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.

Oculus Rift the matrix is finally here

Facebook's (FB) mission is to make the world more open and connected whether its on PC's or mobile phones. But the question is what communication platform will be next? FB has bet $2 billion that Oculus rift the virtual reality leader will be a new communications platform. The majority of time spent on mobile phones is gaming 40% and communications 40% with FB having half the market share in communications. Virtual reality should be able to combine these two activities.

The matrix is here just plug in
Virtual reality is about tricking your brain. You are no longer looking at a screen instead you get a 110 degree view which gives you a feel that you are in the environment. Just like other platforms virtual reality needs software or apps to showcase what it can do. Oculus has focused first on gaming but down the track they plan to extend into other fields like training and travel. See the reaction of first time users below, it really tricks your body into thinking that you are actually there.

A holiday in your room
But its not only FB even Marriott is making a bet on the future. Marriott's hotels are a great place to stay on vacation. But if you can't afford a trip to Hawaii Marriott have produced a holiday experience. Users are transported to the destination for 100 seconds. This experience took 3 months to create. Pumps in the floor create the sensation of sand under your feet. Marriott is also adding other elements such as mist, heat and wind. The technology called the Teleporter (see below) will help guests to virtually explore locations such as Hawaii and London.

The transporters will be available for a couple of days at 8 key MAR hotel sites in the US. The software development comes from the same company that produced Ascend the Wall for the recent Game of Thrones tour that came to Sydney. Marriott hopes that consumers can use the Teleporter to experience different locations before booking a trip and of course a Marriott hotel. Oculus is still tinkering with a development kit that will cost you $350. Its been rumoured that a product will be available for the general public next year. The matrix has finally arrived.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Facebook (FB) 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.