How not to downgrade earnings

There is a certain art to profit downgrades. Some CEO's try to sneak them in on Friday afternoon others like Gary Friedman from Restoration Hardware sign off with Carpe Diem. No need for yours sincerely investors seized the day selling the stock off 26% last night (it's down 51% YTD). In what may be a first the word destroy was used twice in an earnings report. Investors took the hint and destroyed the stock.

Currency, oil and stock market fluctuations were reasons for under perfomance. Being a domestic retail company it was a bit of a strech to use currency as an excuse. I have to give it to the CEO (see below) he produces an excellent video every quarter. He's a fantastic communicator I'm looking forward to his next video release.

Decisive has no position in (RH). 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.

Macau betting with the billionaires

Ask casino owners if they gamble and the answer is no. They know the odds! It's much better owning a casino then gambling. In a down market many casino shares are up. After a tough 2015 caused by the anti-corruption crackdown in China it seems that lady luck is on their side. Some billionaires are doubling down. Steve Wynn of Wynn resorts has gone on one of the biggest insider buying sprees I have ever seen. Buying 1 million shares for $63.8m in December (real money even for a billionaire.) He then spent another $32m in January for 572,850 shares and $15m for 258,523 shares in February. It seems that Macao is making a bottom he's put his money where his mouth is.

Wynn's conference call "management is great"

Commentary from casino magnates is always entertaining. The question on why he bought so much stock. "My view is that I like Wynn Resorts especially because I think the management is great." He also mentioned that " January in Macao was the "best month in a long time." Other random comments on the call "only an Irishman would call a $1.5 billion hotel a joint. See how relaxed everybody is in this company? He might be a little biased but putting in nearly $100m to back himself is working out the stock is up 15% year to date.

Must see attractions in  Macao
Las Vegas Sands, Melco Crown and Wynn are exposed to Macao. Las Vegas Sand's Venetian is the highest grossing Macao property exceeding $1 billion plus in EBITDA in 2015. The only property that exceeded it globally was one of LVS's other properties Marina Bay Sands in Singapore. The founder Sheldon Adelson is also calling a bottom based on "well if you look it's just 70 years of experience that I have in business."

Downtown versus the strip
These companies will benefit as Macao shifts from the Pennisula to the Cotai Strip. Sheldon quoted that visitation in Cotai is now 60% whereas it used to be 100% to the Peninsula. It's a bit like downtown and the strip in Vegas. The strip is where all the non-gaming facilities are its the place to be.

Lady luck on Macao's side
Signs are improving for diversified casino operators. Melco Crown's Studio City was initially allocated 200 tables a disappointment to some but they received an additional 50 tables in January in recognition of their non-gaming attractions. It's a big deal as each table can be expected to bring in around $10,000 a day. 4 new casinos will open up in Macao this year (Macao had nearly 3 years without a new resort). The increase in supply creates more competition but it also helps to increase the Cotai's appeal over the pennisula. Las Vegas Sands and Melco Crown properties are well positioned on the strip.

For all the doom and gloom in Macao it is still the only region in China where gambling is legal. It is a market oligopoly only 6 gaming operators have access to this market. A scare market with billionaires betting on themselves sounds like better odds than gambling at a casino.

Decisive is long Las Vegas Sands (LVS) and has no position in Wynn Resorts (WYNN) or Melco Crown (MPEL). 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.

Media a horror show

Media stocks have put on quite a show over the past week. Unfortunately its been a horror show Viacom fell 24% just last week! Traditional media (cable content providers) are suffering. The internet has caused pain for department stores its now turning its eye to media. On demand media delivered through the internet like Netflix, Youtube and even social networks like Facebook are displacing traditional cable viewing. They're cheaper and on demand is a much better experience for customers. Analysts have been concerned about ratings/views and advertising but there are now genuine concerns that users will drop the cable bundle completely. These concerns are even hitting the mighty Disney (they own ESPN.) Even the success of Star Wars the Force Awakens didn't help. These concerns have led to a massive decline in media stocks (see below).

Media share prices

Canary in the coal mine
Viacom owner of MTV, Nickelodeon and Paramount had another disastrous quarter. They have been the canary in the coal mine teenagers these days have never even heard of MTV. These days kids are watching Youtube and Netflix. Some small cable companies have ditched Viacom with minimal impact on subscribers and importantly no regrets. Unfortunately Viacom's channels are no longer must have.

Time Warner
Time Warner the owner of HBO received 43 Primetime Emmys 12 for Game of Thrones they have some of the most must have content. They released HBO Now direct online like Netflix a year ago but even they have seen disappointing subscribers with 800,000 paying customers most expected 1-2 million subscribers. The rest of their networks like Turner are also facing ratings challenges.

Disney think nothing but happy thoughts
That leaves us with Disney. They reported the biggest profit in history thanks to Star Wars but investors shrugged. Now that Star Wars is out the way investors are focused on cable cord cutting. The CEO Bob Iger gave an impassioned defense of the bundle. ESPN is still the must have part of the cable network, 81% of cable subscribers watch ESPN. The situation is bad enough that an analyst asked if Disney would split the network from the theme park business. That isn't going to happen but the CEO replied that media networks have grown 8% a year while the rest of the company grew 23% reducing reliance on this division. We believe Disney is the most interesting media stock because of its brands and diversification of revenues. Unlike MTV their brands still mean something to customers. They have some of the best known characters in the world that will likely be around forever much like consumer staple brands. Concerns around cable cutting will remain but when Procter and Gamble trades at 20x and Disney 15x earnings it's hard to get too negative against the House of Mouse.


Decisive has no position in these stocks. 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.

A tale of two networks

Facebook and Linkedin (not Twitter) are the two largest social networks in the western world. Linkedin is more like your end of work Christmas party you're don't go there too much and it's not that much fun while Facebook is where users can relax and keep in touch with their friends. It's useful to keep these worlds separate. Both sites benefit from user generated content and the positive network effect of everyone being there. However the shares have dramatically diverged year to date.

Both must have
If you don't have a Linkedin profile recruiters worry while Facebook is how people communicate these days. Phones aren't used for calling anymore its used to scroll through Facebook's newsfeed! Mobile and engagement set Facebook apart 65% of users login everyday. Facebook's users click on the like button more than 6 billion times a day more than searches on google. With 70 likes Facebook can understand you better than your friends (helpful when advertising). We don't use Linkedin nearly as often but it has changed the human resources market. Recruiters can now search for candidates that are not actively searching for work. There are not many more important things than your job.

Linkedin a one day fall equal to Twitter's market value
A major difference that has changed is valuation. They make money two different ways. Being a subscription model (recruiters pay to access) Linkedin has always traded at a premium to Facebook the problem with advertising is that it can be moved easily (less predictable). A 40%+ one day fall erasing nearly $11 billion in value has Linkedin trading at a price earnings multiple discount to Facebook for the first time.

Price Earnings multiple

Linkedin's updated profit guidance caused the fall. We feel their guidance is conservative even more so than traditionally (past 4 quarters have  surprised by 20%, 72%, 83% and 1%). Guidance does not incorporate new product rollouts but removes $50M from discontinued products and does not include any benefit from the rollout of their new app launched in December.

Ni Hao Linkedin
We think Linkedin here makes sense (disclosure we bought a position Friday) as unlike other social networks it is allowed in China. This increases their addressable market and is a clue to how valuable their service is. The Chinese government is willing to have them operate as Linkedin helps workers find jobs. It's a connection to the world's companies, universities and professional talent. Their last China disclosure counted more than 13 million members up 3x since the launch of their Chinese language version in 2014. They are currently investing in China but it will eventually be a massive opportunity something the market is conveniently forgetting.


Decisive has a long position in Facebook (FB) and now Linkedin (LNKD). 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.

We still have to spend

This year has been off to a volatile start so I thought it might be interesting to look at how the payment processes (Mastercard, Visa and Paypal) are seeing the world.

Global outlook
As expected Mastercard called out the US as being resilient, Europe is showing stronger growth best since 2011 and China and Brazil are experiencing week and slowing growth.Visa's CEO saw a similar outlook commenting that "U.S. outbound spend is strong, but it is offset by continued weakness from Canada, Brazil, and Russia. And more recently, we're seeing increasing weakness in the Middle East and China. We do see some areas of strength such as Mexico, Japan, and New Zealand, but they're obviously smaller markets for us."

Mastercard also noted that Chinese tourists "earlier they were going to Greater China, Hong Kong, Taiwan. Today they're going more to Japan, as an example. Japan has actually seen a surge of 115% in tourist arrivals from China compared to the prior year".

Soft global economy but e-commerce is strong
More than 25% of all spending on Visa cards in November and December was online up from 20% three years ago. According to Paypal "for the first time ever on black Friday more people shopped online than in-store." Buying online is a much better way to escape the crowds!

The payment processes are very resilient businesses as they benefit from people using less and less cash. You don't get this sort of commentary in many conference calls (Paypal) "margins in our business want to move up, that is kind of the tendency of the margin structure in our business". In a volatile global environment these stocks still make sense.

Decisive has a long position in Paypal (PYPL) and Visa (V). 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.