What a week

Volatility is back. Stocks corrected for the first time in a number of years. The volatility caused so much concern that the CEO of Starbucks Howard Schultz sent out a memo to employees telling them to be extra nice to customers.

"Our customers are likely to experience an increased level of anxiety and concern. Please recognise this and as you always have remember that our success is not an entitlement but something we need to earn, every day". Howard Schultz.

Starbucks stock itself fell 20% before recovering to end slightly down. Maybe a free cup of coffee to shareholders might have calmed the nerves!

The past week has been interesting with some large moves in stocks but if you hadn't looked you wouldn't have known what happened as they snapped back just as quickly. GE the only original surviving member of the S&P500 plunged over 20% intraday before recovering to end down only 3%. We don't own GE but it's now yielding nearly 4% twice the rate you get from lending to the US government for ten years.

Volatility can be a friend or worst enemy it's really up to you. A lot of of the information in the market is noise, it isn't necessarily helpful or useful. What has changed is the fact that China is slowing more than expected. At Decisive we have added to or bought positions in stocks that have very little to do with China. Facebook for example isn't even allowed to operate there. As the dust settles down we can focus on the positives. Oil at $40 is great for the consumer it's a massive tax cut for the global economy, there is very little inflation keeping interest rates low and the US housing market remains strong.

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in Starbucks (SBUX) and Facebook (FB).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.

What does your favourite restaurant chain make?

GE comes out with a yearly review of restaurant chains. It's a good little update to see how much each store makes. I'm sure you've all dreamed of having your own little franchise somewhere. GE has done the work for you here's how they stack up.

 http://gerestaurantreview.com/top-100/

McDonald's is still the king for all the talk of their demise their market share has stayed pretty even over the last 5 years. For me the big surprise is KFC they have lost a lot of share to Chick-fil-A. Starbucks also continues to dominate too bad they don't franchise.

 http://gerestaurantreview.com/top-100/

Jason

http://www.decisiveassetmanagement.com/

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

Gaming is the new sport?

Gaming as a sport it's a controversial statement. I believe it's more of a competition similar to chess rather than sport. That said the lines are blurring gamers are now being subjected to drug tests similar to sports. Online video channels like Youtube and Twitch have made gaming the world's largest unofficial sports league. Game developers like Activision Blizzard (ATVI) are really pushing sport comparisons and competitions because its good for their business. The amount of time spent on gaming is exploding (see below) with engagement levels even higher than sports.

Source: Activision Blizzard 10K

Gaming is sports in Asia
ATVI's CEO Bobby Kotak believes gaming is the sport of a new generation (see comments above). When you compare time spent its more than sports. Its a great analogy for ATVI as sports leagues make a ton of money. If they can monetise their franchises through tournaments they can generate broadcasting, licensing and merchandising revenue. It's an interesting way to think about the business. In the second quarter the amount of time gamers spent with ATVI grew by 25% year-over-year. Last quarter gamers logged nearly 3.5 billion hours of game play with ATVI's Heroes of the Storm, Hearthstone, World of Warcraft, Diablo, StarCraft, Skylanders, Destiny, and Call of Duty. Note this doesn't include the amount of time spent watching people play games on sites like Youtube.

ATVI is making steps towards its sports goals holding a Grand Final event for their Heroes of the Storm game on ESPN2. It created a lot of controversy at the time. So far it has been a flop with a 0.1 Nielsen rating meaning 0.1% of people watching TV at that time tuned in. While it was a flop for ESPN they are keeping up their commitment as younger generations are sticking with gaming rather than sport as they get older. In Asia gaming is massive Seoul's World Cup Stadium is consistently sold out with 40,000 fans (see below). The winning team took home $1million. Korea is truly the home of gaming with two television channels dedicated to the 'sport'.

Digital direct to the gamer
Digital sales have been a driver of the game developer's out performance of the market. Digital downloads are 46% of ATVI's revenue cutting out the retail middleman and giving ATVI the opportunity to increase the selling cycle of games. The downloadable content like extra maps and weapons increases sales at a high margin. Each game is producing more revenue per player than ever before. 

ATVI's annual report one of the best
ATVI puts together one of the more interesting annual letters to shareholders. Bobby Kotack the CEO models Buffet's annual report as an inspiration mentioning what went well and what could have been done better it's a refreshing read. ATVI operates in a tough industry gaming companies need to keep developing hit games every year ATVI's has had the most consistent track record similar to Disney's track record in films. Since 1991 the book value on their stock has increased from $0.01 to $9.76 a 37% compound annual return. ATVI has built some of the most successful franchises in gaming. Their latest franchise Destiny has active players spending more than 3 hours playing the game each day. Their three largest franchises Call of Duty, World of Warcraft and Skylanders accounted for 67% of revenues. Like Disney ATVI is making the most of their franchises with increasing digital sales and potential merchandising and broadcasting revenue. Gaming is not a sport but they do have in common high fan engagement. As gaming gets more popular on Youtube and Twitch it's likely that gaming revenue might become very similar to sports as we know it.

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Activision Blizzard (ATVI).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.

Digital ordering comes to Starbucks

A lesson that I’ve learnt as an investor and consumer is the power of digital ordering. The restaurant industry has benefited from smart phones allowing us to order on the go. The innovator in Australia has been Domino’s pizza. Their mobile application is a better customer experience compared to ordering over the phone. You can order on the way home, track the progress of your order and driver and once downloaded you were likely to keep reordering with Domino’s.

I see a similar opportunity in Starbucks as they roll out digital ordering this year in their 13,000 US stores. It’s great ordering coffee ahead of time there’s no waiting in line and you save time in the morning rush. The app will ask whether you’re driving or walking to better estimate when your coffee will be ready at the closest store. The introduction of drive thru at Starbucks grew revenue incrementally by 50%.

Digital ordering will have a significant impact decreasing wait lines while increasing sales at peak hour. Like Domino's once Starbucks's app is downloaded you’ve customised and saved your order that will likely be the coffee application on your phone. It’s a win for the customer and the company.

Starbucks is also trialing coffee e-commerce. Testing coffee delivery straight to your desk at the Empire State building. It's likely to be only available in major cities but it really is e-commerce on "caffeine"!

Jason

http://www.decisiveassetmanagement.com/

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.