Las Vegas Sands entertainment all around

Las Vegas Sands (LVS) is the leading developer of destination casinos. As a pioneer of integrated resorts LVS has put night clubs, shows, gaming, retail shops and award winning restaurants all under one roof. Their sites have become a premier destination for many around the world. The company is called Las Vegas Sands but the majority of LVS revenues now come from Asia (see properties below). In our opinion LVS is the best way to play the rise of the Asian gambler with leading sites not just in Macao but Singapore as well.

Macao entrepreneur

LVS founder Sheldon Adelson was one of the first to realise the potential of Macao. Macao's initial problem was limited space so a major land reclamation project was carried out to join two existing islands. Calling the new area the Cotai Strip LVS had the vision to create a mini Las Vegas with shows and conventions not just gambling. The average length of stay for Chinese in Macao is 2.1 nights compared to 3.7 for Hong Kong. Their goal is to get people to stay longer and spend more money rather than just making day trips from Hong Kong.  The growth outlook would seem to have a long way to go as according to LVS below only 1.3% of Chinese visited  Macao last year. LVS has 38% market share of 4/5 star hotel market.

Another way to think about it is Hong Kong received more than twice as many visitors over the same period.

You're betting with the 8th richest man in the world
The best part about the story is Sheldon Adelson, he must be the most entertaining CEO out there, one of the richest men in the world he can say whatever he wants. Some gems from their recent quarterly call.

On the topic of executing their business plan and generating shareholder returns.

"You know my motto: yay dividends"

Another comment on the topic of shareholder returns and if they would buy back the Sands China stake which is Hong Kong listed.

Now, I'm a pretty large shareholder, but I get a boss too, called Dr. Miriam Adelson (his wife). And so, we all have bosses. But I consider all of our shareholders the boss. So, you guys are the guys that we're reporting to. We're trying hard to satisfy you. And although, I would like to buy back the – what we went public with in 2009 of Sands China and fold it back into LVS 100%. I think I'd rather take that $15 billion or $20 billion and give it out and start buybacks and dividends."

On the growth potential of the Macao market.

"I'll give you validation about this concept for Chinese people. From the time of Confucius, which was 3,000 years to 4,000 years ago, I don't really know. I never met Confucius. Nobody has been able to suggest that Chinese and other Asian peoples don't want to challenge luck. They've been wanting to challenge luck for 3,000 years and nothing, through thick or thin, tall or short, slim or fat, nothing has stopped them. And I don't think anything will. If there is a momentary blip in the road, it's like a speed bump in a private housing development, where people don't want you to drive fast, so any – look at the number that we increased VIP over last year. I mean, that's a number that's more than what the market itself has grown.

I don't understand, where people – I wish somebody could tell me – beliefs that go on for 3,000 years are pretty hard to break. And I don't know if anybody's tried for 3,000 years, but the fact that it's sustained itself for such a long period – I was talking to somebody yesterday about how long – where's the potential for supply and demand to cross? I don't know. And I think I'm a pretty smart guy. I can tell you, I don't think anybody could tell anybody with any degree of certainty where that line is going to cross. In any event, I don't see even during the result of the last great recession that we had. The market essentially – it didn't lose. I think the worst that it got was even from year-to-year in one year, and then it grew up again."

Always bet on Sheldon
There are plenty of risks the Chinese government's anti-corruption campaign has investors worried if casinos will be the next target. There has also been speculation that China will crack down on illegal fund transfers from the mainland to Macao. Other risks include supply with 8 new resorts planned to open over the next 3 years. While the anti corruption campaign is a real risk that has kept us away from the stock the integrated casinos are just as much a play on Chinese tourism. LVS is the leading destination casino developer with a billionaire founder that has the best position in Asia with a great track record. LVS have summed up their optimism in the following slide.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not own a position in Las Vegas Sands (LVS) 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.

Samuel Adams John Paulsons first big win

Boston Beer Company (SAM) is the largest craft brewer in the US selling 3.4 million barrels of beer last year. SAM has nearly 100 distinctive styles of beer for every drinker and has won more awards in beer tasting competitions in the past five years than any other brewer in the world. The winners include such favourites as twisted tea with 5% alcohol and Angry Orchard a hard cider. See some of their limited edition beers below. SAM estimates that the craft beer category grew 15% in the past year while the total beer category was down 1%. The market potential for SAM is massive with just 1.3% market share in a beer industry where Anheuser-Bush and Miller Coors have 75% share. In our opinion SAM is the best way to invest in the growing craft beer market.

For the love of beer
According to SAM craft beers account for almost 8% of the American better beer consumption which includes craft, imports and domestic specialty. Over the past couple of years the industry has seen double digit growth. In the past year SAM has introduced the Sam Can tapping into further growth as according to IBISWorld cans make up roughly half of overall beer sales.

According to the beer institute (yes it does exist) this growth has inspired many new entrants with 3,700 active permitted breweries in 2013 up from 2,751 in 2012. Even the big boys are getting in on the act as SAM's major craft competitor is Craft Brew Alliance with brands such as Redhook, Widmer Brothers and Kona Brewing AnBev owns nearly 32% of the company. Craft Brew has a market value of $211 million versus SAM's $2.9 billion with AnBev's backing it is one to watch.

Always signs off with a beer after an interview
The CEO and founder Jim Koch has had over 21,000 beers according to a CNBC interview, averaging over 2 beers a day. In 1995 Koch famously included coupons in their six packs to let customers take part in their IPO. He wanted investors who were also fans of the products. Koch is a legend of the business with interviews on CNBC always signing off with a beer no matter if the interview is in the afternoon or the morning. A cheap way for free advertising.

How to drink all night without getting drunk
In an interview with Esquire magazine article Jim lets us know one of his best kept secrets. How to drink all night without getting drunk. The secret yeast. Apparently swallowing Fleischmann's dry yeast one teaspoon per beer right before you have a drink. The yeast breaks down the alcohol molecules before it gets in your bloodstream mitigating some of the effects of alcohol. Though some might say whats the point of drinking without getting drunk.

John Paulson and Sam Adams
Jim Koch the founder has a connection with John Paulson the hedge fund titan. The two worked together at Boston Consulting Group with John Paulson investing $25,000 in SAM in its first year which later earned Paulson several million dollars.

Depletion sales growth was an amazing 34% in the last reported quarter as SAM struggled to keep up with demand always a good problem to have. The stock is not cheap but just like craft beers you have to pay up for better quality.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a position in Samuel Adams (SAM) 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.

Alibaba a seller of clicks not products

Alibaba is China's largest online commerce company with overall sales of US$248 billion (gross merchandise volume) it sells more than Ebay and Amazon combined. In a sign of the times Alibaba is basically a China only company with international contributing only 12% of sales yet it is the world's largest online commerce company. 

Operates like Ebay but makes money like Google
Alibaba has been described as a mix of Amazon, Ebay and even Google. It has two main sites Taobao a consumer to consumer site with 8 million sellers and Tmall which sells goods direct from 100,000 brands. The Tmall business model is similar to Amazon with sales commissions ranging between 0.5% to 5% of GMV. Taobao operates like eBay but it monetises similar to Google with sellers using advertising to stand out from competitors. This is great from an investor point of view as unlike Amazon Alibaba does not have to hold or bear inventory reducing the capital required for the business. China's highly competitive online market is also great for Alibaba as more competition means more advertising as sellers try to differentiate themselves. Alibaba is a seller of clicks not products, because of this Alibaba's business has growth attributes of all the best technology companies but with better margins (see below).

* Adjusted net income/revenue from F1 SEC filing

Alibaba is dominant with 83% ecommerce market share of China's $296 billion market so going forward Alibaba will be reliant on overall market growth rather than market share. Luckily only half of China's 1.35 billion population is online and again only half that number are internet shoppers suggesting that there is future growth. This optimism is backed up by the lack of offline retail in China which is not yet built out compared to other developed countries (see below). It is not such great news for the US which has a retail footprint much larger than peers.

                                                                               *Source Alibab F1 SEC filing

Mobile traffic will exceed desktop
Mobile is a big focus for US companies in China its even more important as users in China leapfrog desktop computers for smartphones. For example China's biggest search engine Baidu expects mobile search to surpass PC as the biggest source of search traffic later this year. In the three months ended December 31, 2013, mobile accounted for 19.7% of  gross merchandise sales, up from 7.4% in the prior year, revenue has not been disclosed.

The smartphone has been good news for most technology companies as it now means users have access to the internet on the go. The companies that have struggled with this shift have been companies that rely on advertising. Smaller screens have made it harder to advertise an issue companies like Facebook know all about. Alibaba is facing similar issues in the F1 they disclose that they will not display as many ads on their mobile apps compared to the PC, a transition investors should pay attention to.

Show me the money (Alipay)

78.6% of Alibaba sales were settled through Alipay which is similar to Paypal. Alipay has helped Chinese buyers overcome trust issues over the internet with the ability for customers to escrow payments until they have received their goods. Alipay helped pioneer the market as credit usage was and still is low.

For all the talk about Alipay investors should note that Alipay has not been included in the IPO due to regulatory issues. This is material given the value investors have placed on similar business like Paypal (which is owned by Ebay) as investors value the subsidiary Paypal more than the auction site. This is critical as Alipay enables 78.6% of transactions on the site. The business was controversially separated in 2011 due to restrictions on foreign ownership now Jack Ma (the founder) and management are Alipays major investors. To decrease any conflicts of interest Jack has committed to limit his economic interest in Alipay to a percentage that is not more than Alibaba.

One great trade
The major shareholders are Yahoo and Softbank. In 2005 Yahoo purchased 40% of the company for $1 billion in cash and folded Yahoo China into Alibaba. Yahoo sold 20% of Alibaba shares back to the company in 2012 that valued Alibaba at $35 billion or US$13.5 per share for $7 billion and is obliged to sell 40% of its remaining stake (overall 24% holding) in the IPO. The increase in Alibaba's valuation has driven the performance of Yahoo and Softbank's shares in the past year. 

But how will Alibaba do?

We don't know how the IPO will price but we do know that there is a lot of hype surrounding Alibaba. We actually believe that the initial IPO price could be reasonable as Alibaba will likely not sell many shares the majority of the share selldown will come from Yahoo. We believe Alibaba's motivation for a successful IPO will likely exceed Yahoo's motivation for more money because of this there will likely be expectations for a good first day rise. In our opinion given the likely first day pop investors who don't get allocated shares might just be better of waiting to see if like Facebook Alibaba can successfully transition to a mobile first world.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive owns a position in Yahoo (YHOO) 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.

WWE its way over the top

WWE is the number one wrestling company in the world. It is a media organisation that has the benefit of being both sports and scripted entertainment. Fans want to see results live similar to sport but they also get to watch shows 52 weeks a year with background stories for extra entertainment. There is no off season if you are a wrestler! WWE's television shows Raw and Smackdown reach 15 million viewers in the US. WWE's stock has been on a rollercoaster ride as shareholders attempt to gauge the value of the streaming network it has just launched and its upcoming TV rights negotiations with cable companies.

Inspired by Netflix brought to you by WWE
The company has recently received a lot of attention for the launch of its internet TV channel. WWE has considered launching its own network for years historically planning distribution through cable, however they were only offering around 21 cents a subscriber per month. The success of Netflix with 41 million subscribers inspired WWE to launch a digital channel streamed through the internet.

WWE has noted it needs 1 million subscribers to break even with a target of reaching 1 million by the end of the year. To put these numbers into context the WWE network page on Facebook has attracted 2.3 million likes. WWE's Youtube channel which is free has 3.3 million subscribers. Previous Wrestlemanias have generated around 1 million buys with last year generating 1,048,000. WWE also announced that its WWE app has been downloaded 10 million times in 220 countries since its launch in August 2012. The more important numbers are 500,000 fans use the app alongside the show on Monday nights. On April the 7th WWE announced that they had 667,287 subscribers, this was a disappointment to many as this number was released the night after Wrestlemania 30 their biggest event and likely peak demand for fans to sign up for the product.

Cannibalising itself
It is a big range but it seems between 1-1.5 million subscribers would be a reasonable bet. The WWE network is a no brainer for WWE fans. For $9.99 a month (6 month commitment) users will get access to 12 pay per views that normally cost around $55 a pop half of which is shared with the distributor. What would have previously cost die hard fans $660 a year will now cost just $120 a year plus they also get access to WWE's library of 130,000 hours of programming. WWE is betting that casual fans who may only subscribe to Wrestlemania will take up the network so that WWE will receive $120 a year instead of $55. The network is something WWE has had to launch to stay relevant for its fans.

Streaming its network over the internet makes even more sense for WWE as younger viewers tend to watch more online video (see chart above).


TV is still king
So far WWE has negotiated two contracts one in the UK that was 3x its previous TV right fees and Thailand a 7x increase. WWE's US distributor NBC has the option to match a competing offer. It has been estimated that WWE's rights fee per rating was 29 cents in 2012 significantly below Nascar at $3.90. In 2013 WWE earned $106m in domestic TV rights.

In past deals the TV series were negotiated separately but now the rights for the shows expire all at once giving WWE more negotiating power. While profitability of the network is no sure thing the renegotiation of television rights at a higher price appears more certain. See the chart above the gap between the price WWE receives and the value of the WWE audience compared to alternatives is extremely wide. The negotiation timetable has slipped from early April to late May resulting in a rollercoaster ride as investors including ourselves sold down our position as delayed negotiations are typically never a good thing. Just like fans of the TV show shareholders are on the edge of their seat awaiting the TV negotiation results at least we know there will not be a split decision.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive owns a position in WWE (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.