Doctor Walgreens will see you now

Walgreens (WAG) is America's largest drugstore chain. WAG has over 8,000 locations in America with 65% of the population within a 5 kilometre radius. WAG is benefiting from two powerful trends. The aging of the population with more than 10,000 Americans turning 65 every day and the increasing penetration of generic drugs. 2/3 of WAG’s sales are prescription and on average generics generate gross profits of $15 per script compared to branded of $8-$10. Management have plans for WAG to be not just a drugstore but a health and wellness destination.

 

Health and wellness destination?

The CEO believes they can be more than just a store that fulfils prescriptions. "With nearly 70 percent of the U.S. population either without a primary care physician or not utilizing one, and more than 30 million people gaining insurance coverage in 2014 under health care reform, we are well-positioned to fill the void in care,”Greg Wasson, CEO. Having the largest drugstore footprint means convenience for customers and provides an alternative to expensive physician or hospital care. WAG will be the option for customers if they cannot get a doctor's appointment and need after hours help.

WAG believes that they can can lower healthcare costs by delivering health services such as flu shots, health testing, coordinated wellness care and work-site health centers. The work site centres are particularly attractive for companies as instead of employees taking a half day off they can visit the on site clinic run by WAG. It also means enhanced selection such as fresh foods and beauty in addition to health care services.

Health and wellness to the world

WAG is aiming to create the first global pharmacy led health network. WAG has acquired a 45% stake of Alliance Boots in the UK (the largest pharmacy chain in Europe) with plans for full ownership by 2015. Together these two companies are betting that they can create a global drug chain. Consolidating their purchasing power will result in large synergies for the combined company.

Earn reward points by walking?

Last September WAG launched its first ever rewards program. Shoppers can earn points buying items, filling prescriptions, being immunised and joining the company's healthy-lifestyle programs, like Walk With Walgreens. That's right points by walking!

Utilizing technology WAG has made their reward card mobile. Downloading the rewards app customers can scan their phone at checkout no need to carry a card. In just 6 months WAG has enrolled more than 60 million customers. This helps WAG to reduce marketing costs by moving away from print promotions to digital within their rewards loyalty program.

Technology is making WAG even more convenient for customers with mobile apps. This year, the company launched its Pill Reminder mobile app and expanded its mobile prescription refill and transfer capabilities. WAG has also created an in-store map that allows customers to use a digital shopping list to map and locate items in a store and a “find your pharmacist” tool. This tool allows customers to select a pharmacist by matching their health care needs to areas of expertise, like specialties, languages and clinical backgrounds of Walgreens pharmacists. These tools differentiate WAG from independent chains which are estimated to account for 20% of the industry.

Taking the red pill

As with every investment there are risks, ongoing reimbursement pressure from payors like Express Scripts have negatively impacted WAG. Express Scripts is basically the middleman between drug makers and employees, Express pays pharmacies to dispense the drugs to their customers. Hundred of thousands of Express Scripts customers were shut off due to disagreements over payment reimbursement. The dispute last year was estimated to have cost WAG more than $4 billion in revenue. Customers either switched to another pharmacy or paid more for drugs if they stayed with WAG. Both parties have agreed to a new multi-year service agreement however WAG now has to win these customers and their prescriptions back. I suspect that WAGs move to become a health and wellness destination has been motivated to decrease reimbursement pressure.

Reality or wonderland

Just like the Matrix as an investor you have a choice. "You take the blue pill - the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill - you stay in Wonderland, and I show you how deep the rabbit hole goes." Well this is a little less dramatic. In this case no matter what reality you are in WAG is benefiting from longer term trends like the ageing population and the increased usage of generics. There are also shorter term trends like a mobile rewards card and other mobile technology. WAG looks good no matter the choice.

http://www.decisiveassetmanagement.com/

Disclosure: Decisive is long WAG

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.

Zillow.com the realestate.com of America

Zillow.com is America's leading online real estate database similar to realestate.com.au here in Australia. Zillow has estimated market values for all the 110 million homes in the US. The site offers users an estimate of their home and the value over time just like a stockmarket. Zillow has branched out its services to include mortgages, rentals and home improvements.

Mobile 3x more valuable than desktop?
We like mobile centric companies and Zillow is a mobile leader. More traffic comes from mobile than desktop with over 60% of traffic from mobile on the weekends. The problem with a lot of mobile companies is that they monetise less due to smaller screens leading to less advertising. The beauty of Zillow is they monetise more on mobile than desktop. A smartphone user is 3x more likely to contact a realestate agent and generate a lead than on a desktop. Zillow is more dominant on mobile than desktop with mobile unique users 70% greater than than their closer competitor. 75 homes are viewed every second on mobile.

Source Zillow investor day

The interesting thing about Zillow is that it is half the market value of Realestate.com.au but in an economy 10x the size of Australia. See the chart below comparing agent commission to the total value of the respective companies. Zillow was actually founded 11 years after realestate.com.au in 1995. 

                                                        Source Zillow investor day


A good question is how has the US online housing market lagged Australia?

According to Zillow the real estate industry anointed one site to exclusively have all the listings. Sounded good in theory but it was bound by restrictions by the realtors and was not focused on the user leading to a poor consumer experience. This non focus on the consumer lead to the creation of Zillow.com and their own housing database.

Been there, done that

The great thing about the Zillow team is that it is the same team that revolutionised the travel industry when they started Expedia. To management the real estate industry felt much like the travel industry and Expedia in 1996. Zillow built their own real estate database and the popular Zestimate number (estimate of house value) to encourage users to their site and update their own photos and information to increase the accuracy and value of the Zestimate. The focus on the consumer led to an increase in users leading to more real estate agents a virtuous circle.

On a number of metrics Zillows marketshare is still small. 30,000 agents have signed up as Premier Agents while over 400,000 have set up their profiles on Zillow.com. This is out of an overall market of nearly 2 million real estate professionals. As the market leader Zillow is still only at 2.2% of online advertising spend. On many of the metrics below Zillow has a lot of future growth to look forward to. 

                                                         Source Zillow investor day


Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in any of the companies mentioned.

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 cloud pioneer

Salesforce.com is the cloud trendsetter. CRM was founded in 1999 on the simple idea that a company could deliver software over the internet. No need to setup hardware and install software in each PC all you need is an internet connection. The cloud makes even more sense in today's mobile world. The introduction of smartphones and tablets mean software is needed on multiple devices and the cloud is a perfect access point. Social has also been a driver with social media increasing the amount of data available to companies about customer product experiences. CRM has adopted its sales software to incorporate this social data giving more insight into customer behavior. CRM is a beneficiary of three powerful trends the cloud, mobile and social. 

Has anyone grown faster than Microsoft and Oracle?
Amazingly CRM has grown faster than Microsoft, Oracle and SAP in the race to $2 billion at the respective stages of their corporate life. As can be seen below it took CRM 12 years to get to $2 billion compared to Microsoft which took 16 years. During this fiscal year CRM have a $4 billion revenue run rate target on the way to their long term $10 billion dream.

Source: CRM investor day

Cloud advantages 
The cloud has the advantage of being lower cost. No extra hardware is required to be bought and no need to employ IT staff to manage the systems. Accessing software through the cloud also means everyone has the access to the same version and support. Another benefit is the ability to pay by subscription, a pay as you go model rather than an upfront perpetual license. This is much more attractive for smaller businesses and has increased the market opportunity for software.

A platform in the cloud?
CRM is the leader in sales software. Potential upside for CRM is in growth as a platform. As the pioneer in cloud computing they are allowing third parties to build applications on their platform force.com utilizing CRM's database, security and user interface expertise. CRM have more than 1 million developers on this platform, and over 3 million apps have already been developed. CRM is pioneering platform as a service.


Valuation in the cloud
Great story but isn't this in the shareprice with a price multiple of 84x next years earnings? Well it is not as expensive if you look at the cash. The great thing with software as a service is that it provides investors with high visibility as revenue is recognised over the term of the subscription rather than lumpy upfront sales. However the issue is in the accounting. Billing software as a service means CRM can only recognise revenue when the software has been used for the month. As result there is a timing mismatch expenses are fully expensed now but the future revenue from the subscription is not recognised as revenue.

CRM's customer churn is in the low teens assuming this means 13% customers tend to subscribe for nearly 8 years this is not recognised in revenue. Luckily for CRM when a customer signs up for a year they pay upfront given the model we think cash is a better indicator than profits. For example Free cash flow per share in FY 2012 was $440 million or $3.25 per share vs Diluted EPS of $(0.09) per share. I have a preference for cash over accounting profits, businesses run on cash not profits.

A pioneer and settler

Revenue rose 37 percent in the past year making CRM the fastest growing company among the top 20 software companies in the world. Cloud, mobile and social are the key ideals CRM was built on. Typically pioneers get the arrows and the settlers get the land but in this case CRM gets the cash upfront a great pioneering model!

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive is long CRM

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 Youtube generation

Those wacky IT consultants have come up with a new generation, gen C otherwise known as the "Youtube" generation". Gen C is not an age group but the mindset of constantly being connected to the internet. One of Gen 's major habits is connecting to Youtube for entertainment. 80% of Gen C watch Youtube on a smartphone.

This is a big shift in consumer behaviour, these shifts create new opportunities and the leader in this case is Youtube. Last week on their official blog Youtube announced that they have hit one billion monthly users. Thats a lot of people, nearly one out of every two people on the internet visit Youtube every month. If you dig in further some of the most searched items on Youtube are music videos Call me maybe and Gangnam style being the no1 and no2 songs and video that you could not get out of your head in 2012. 

Source: http://www.google.com/think/infographics/gen-c-connects-on-youtube.html


Flashback to 2006 at the time Google bought Youtube the acquisition was seen as controversial but now with one billion users later, it works out that Google paid $1.65 a user a low acquisition cost in hindsight. 

When you sell Youtube how do you celebrate, upload a video to Youtube! The founders of Youtube below seem just a little bit excited. In their words the two kings in search and video have teamed up to create a better service for users together. 

Source: Youtube of course


Google paid $1.65 billion in 2006 for Youtube this acquisition is now one of Google's top growth drivers. Amazingly 40% of advertising is still spent on TV this spend should shift to Youtube over time. As devices like phones and tablets become more and more internet connected Youtube should also benefit. Stay tuned to Google.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive is long GOOG

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.

Mariott time for a late stay?

With Easter coming up its time to think about a vacation and where you are staying is just as important as to where you are going. It can really make or break a holiday. A favorite hotel for many is Mariott (MAR). No matter where you travel around the world you know you will receive consistent world class service and importantly a proper nights sleep!

As a company MAR is quite different to what you might expect, they don't actually own their hotels. MAR makes the majority of their money from franchise and management fees. They typically team up with property developers and offload the property to investors while MAR manage and run the hotel. It is a capital light model which has allowed MAR to grow faster than they would have otherwise.

Source: MAR hotel in Kuala Lumpur Malaysia

The model works because of MAR's brand and distribution. MAR owns 14 different hotel brands ranging from the high end Ritz Carlton to the flagship Mariott Hotels to Fairfield Inn & Suites by Mariott. MAR is so successful with property developers because their rooms are always nearly full. 20% of bookings are made online through Hilton.com and 50% of room nights are made from MAR reward members. These rooms would be hard to sell without MAR's loyal audience and distribution. 

 Source: Mariott investor day

Booked out?

Supply growth from the industry has been muted since the crisis. One of MAR's main peers Hilton was taken private by Blackstone group near the top of the market in 2007, due to overleveraged competitors MAR has grown to around 9% room marketshare. MAR is dominant in North America but is set to become even more so with around 20% of hotels in construction.

Check in to Chinese tourism

MAR is pushing hard into China. MAR received an unexpected marketing boost when Xi Jinping the President of China traveled to the US and stayed exclusively at MAR hotels. MAR market share in China is growing with 15% of room supply but 23% of room revenue due to their premium brand. MAR also believe that they will benefit from Chinese tourists visiting the US, according to MAR the US has a supply of only 5 million rooms. They estimate over the course of the next decade there is the potential for an extra 40 million inbound visits from China, often staying for a week that is 280 million nights a major shock to the system!

The bad news is that the US government is 5% of overall MAR travel so the budget issues have and will impact MAR profitability. We think this focus is too short term with the Chinese opportunity MAR is one way to check in to growth in the Chinese travel industry.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in MAR

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.

Great business cards

Really enjoyed this site below with pictures of business cards from some of the most famous people in the world.

Had to wear sunglasses to read Bill Gates card, so bright!

 Kids these days!

Only Steve Martin could carry this card off

Source: http://www.flavorwire.com/364847/the-fascinating-business-cards-of-20-famous-people/view-all

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a position in Facebook

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 world's most famous arena?

The world’s most famous arena is the Garden in New York City. Madison Square Garden (MSG) no surprise is the owner. What is surprising about MSG is that they do not just own the venue. MSG owns the content, the New York teams Knicks and Rangers (basketball and hockey) and the distribution rights. Management likes to think of themselves as a content company not as a sports team. MSG owns two media networks that distribute the content, one focused on sports and Fuse which is focused on music and entertainment. These two networks generate nearly all of the operating profit for the company.

If you can make it here you can make it anywhere

Madison Square Garden has been estimated to have cost to build $1.1 bn in todays dollars and this number does not include the recent transformation underway which costs another $1 bn.  According to totalprosports.com it is one the most expensive stadiums in the world. The Garden is arguably a lot more valuable than its cost given MSG has ownership of the air rights an extremely valuable asset for a skyscraper given its central location.


Knicks worth one bilion dollar$

They also own the New York Knicks, the New York Rangers and the New York Liberty. According to Forbes the New York Knicks alone are worth $1.1 billion alone topping the National Basketball Association as the most valuable team.

 

Doing the math just for the Knicks and the venue equals about $3bn (not including the media networks) below the enterprise valuation of the entire business of $4.1 billion.
At the moment the Garden is undergoing a transformation, the final phase to be completed in 2013. The upside to all this is that the Garden has been shut for up to 5 months of the year in order to complete renovations. Also with the NBA’s new collective bargaining agreement running costs will decrease with players now receiving 50% of revenue down from 57% previously.

Sports here there and everywhere

The value of sports rights are increasing dramatically due to smartphones and the need for cable companies to differentiate their content. Having a smartphone in your pocket means subscribers have the ability to watch sport live no matter where you are. Personally taping games to watch later never seems to work, with all the media around today its too hard to escape the result.

Some of this value has been illustrated through recent purchases by cable companies, it is the main way that they can differentiate content from competitors. Late last year NewsCorp bought 49% of the New York Yankees baseball channel valuing the network at $3 billion. This follows Time Warner Cables deal for the Los Angeles Lakers paying $3 billion for 20 year of rights. These transactions showcase the inherent value in teams are the media rights. Buyers are not buying the team but the regional sports networks. The networks make the money the teams spend it (though both are needed)!

 Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in MSG

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.