Living the dream at Dreamworks animation

Dreamworks Animation (DWA) is best known by families for its movies Shrek, Kung Fu Panda and Madagascar. DWA has historically released two films a year which on average take three years to five years to produce. This compares to live action/drama content which can be put together in months and not years. Because of the work required DWA does not have the large backlog with recurring revenues like other studios which help pay the rent if one of the two films is a bomb.

All this is beginning to change thanks to an acquisition and a new agreement.

The acquisition of Classic media which owns 3,600 hours of programming.

The agreement with Netflix to produce 300 hours of Dreamworks television shows.

What this means is a more steady revenue generating business. For studios backlog is extremely important as it is high margin revenue, production has already been expensed so any new sales are large contributors to the bottom line. With the two deals above DWA creates a larger backlog and with the television shows the potential to build its own network like the Disney channel.

Dreamworks greeter at the front door, reception this way!

Classic Media

The acquisition of Classic Media is a game changer for $155million DWA is now the proud owner of one of the world’s largest comic book archives in addition to media rights to the golden books library. The characters include Casper, Richie Rich, Postman Pat, Where’s Waldo, Rocky & Bullwinkle, Lassie, He-man, Voltron and more. See below.

Netflix deal

TV is a great business for studios as the revenues are more consistent as shows are multi-year agreements which can be extended further if successful. Owning a backlog of TV shows can also help DWA to build their own children’s television network channel in the future. Over a four year period DWA will produce nearly a billion dollars worth of programming. The slate has been pre-agreed without any performance requirements. In general the deal has an extensive period of exclusivity after which DWA can sell the content in later distribution deals.

China
The Chinese media market is heavily regulated and restricted. Fortunately DWA has teamed up with Shanghai Media Group to create Oriental Dreamworks a Chinese themed animated and live action film company including theme parks, games and consumer products. The studio's first animated film will be Kung Fu Panda 3. Because of Kung Fu Panda DWA is immensely popular in China with four of China's top five animated films produced by DWA. Oriental Dreamworks has the potential to become the Disney/Pixar of China as the no.1 animated player.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no long position in Dreamworks (DWA) 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.

Visa and the tooth fairy

Its the news we have all been waiting for the tooth fairy and Visa have joined together to produce an application that finally sheds light on what the tooth fairy pays. The app will finally answer the age old question of what is the going rate for a tooth in America! The results are based on 2,000 phone interviews conducted as recently as July.

According to the application $3.70 is the average per lost tooth children received this year from the tooth fairy.

Tooth fairy inflation

That's up 23 percent from the $US3.00 per tooth that the Tooth Fairy paid out last year and $2.60 in 2011. Who said there is no inflation! This means that the tooth fairy pays out $74 per child for a full set of 20 baby teeth enough to buy a couple of months supplies of sweets.

Now to business

Unfortunately as adults we cannot rely on the tooth fairy we have to rely on the other partner Visa to make money. Visa recently held its investor day, it is a triennial event and its first with the new CEO Charles Scharf. Investor days are useful as companies release more information than usual to investors and tend to give a three year outlook for their business.

The big driver for Visa is the movement from cash and cheque to card and debit. These are powerful trends (see chart below) as Visa volumes grow even through recessions. Another driver is eCommerce when buying on the internet you cannot pay pay cash you tend to use cards or Paypal. Visa has 47% marketshare of the eCommerce market in the US. Ecommerce is estimated to be between 8-10% of the US market while other developed markets have further to go at 2-5% online penetration.

Visa has 22% market share in the developed world with Mastercard second at 15% of overall personal consumption expenses. Importantly the level of acceptance below in most developed countries still has a ways to go when compared to US levels ten years ago.

The developing world is an even greater opportunity with 62% of personal transactions cash and cheque compared to 41% in the developed world. This trend from cash and cheque to card has a long way to play out. Either way I can't imagine a day when the tooth fairy pays electronic that's one expense that even Visa can't shift!

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Visa (V) 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.

Sothebys

Sotheby's has one of the best tickers in the market (BID) appropriate given Sotheby's is one of the world's largest brokers of fine art, jewelry, collectibles and other high end items. Sotheby's has effectively a duopoly on the market alongside Christie's. Sotheby's conducted 233 auctions primarily in New York, London (77% of sales) and Hong Kong.

The 4 D's reasons for selling
Why do rich clients sell their collectibles? Clients typically sell because of death, divorce, discretion and debt. Clients include 68 of the Forbes 100 richest people. 164 of the Forbes Top 500 CEOs and 169 of the Art News' Top 200 collectors. Basically if you have to sell through Sotheby's it means you're doing pretty well!

The 4 D's are now extending their reach to China. In late 2012 Sotheby's received approval from the Chinese government to operate a joint venture in the mainland.

Show me the money (or debt)!
Hedge funds like Sotheby's for the headquarters (they would like to sell it) and the financial services business. Sotheby's made the brilliant purchase of their New York headquarters near the bottom of the market in 2009 for $370 million and the assumption of its mortgage for $235 million. Sotheby's has informed the market that they are looking at all options to see what would be best for shareholders. Given the market capitalisation of $3.2 billion any sale of the property would be material to shareholders.

Financing began in 1998 to drive auction business but financing has become a profit driver for the company. Since inception Sotheby's have lent $3.5 billion and have only suffered $11.5 million (0.3%) of total loans lost. Financing art is surprisingly an art and banks tend not to get involved in the business. Sotheby's can also offer discretion in lending. The portfolio has increased by 30% in the past year to total $430 million at June. Many funds believe that there are more effective alternative financing structures available to Sotheby's than using their own balance sheet which could free up more cash.

Hedge funds are bidding
Dan Loeb's Third Point disclosed a 5.7% stake just a month after Marcato Capital Management reveled their 6.6% stake. Dan Loeb and his wife are noted art collectors both funds seek to engage with management to increase shareholder value.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in Sotheby's (BID) 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.

Don't tase me bro

Taser International is famous for its electroshock weapon. Taser (TASR) became a Youtube hit in the famous don't tase me bro video below. Importantly for investors Taser has become a verb. In the public's mind Taser is the term used for being shocked much like Google is known for searching the internet. Achieving the goal of becoming a verb is normally very valuable for investors. Apparently the Taser weapon has been used 1.6 million times.

Growth shock drivers

Taser has three main growth drivers. The weapons upgrade cycle, international expansion and on officer video opportunity.

There are around 330,000 weapons that are beyond their five year useful life. Budgets were cut during the great recession so there is plenty of pent up equipment demand.

There is also room for international expansion with 1 in 2 sworn officers in the US users of the product vs. 1 in 50 internationally

The third factor on officer video is the companies most recent growth opportunity. US Law enforcement spends $2.5 billion on annual legal expenses around $2,555 per office per year. On officer video has significantly reduced complaints and incidents saving time and money. An International Association of Chiefs of Police study found that incident videos can reduce litigation by 93%. Police believe that once incidents are viewed from their perspective it gives third parties a better understanding of what has happened rather than a he said she said argument. Also since civilians and police know they are being recorded they tend not to do things they might have thought they could get away with. 

Source Taser International investor day

The recently released Axon products can be seen in the picture above. To management's knowledge Axon flex has not lost a tender to a competitor in the US. Axon flex includes one year of EVIDENCE.COM which is the storage site for digital evidence. When the devices are charged the evidence data is automatically uploaded to the internet. EVIDENCE.COM is an extremely interesting value add for law agencies and moves Taser from just hardware to software. 

EVIDENCE.COM

As can be seen below EVIDENCE.COM plans to be the one stop shop for digital evidence. This is important for police departments as they tend to work in small decentralised teams and tend not to have resident IT experts deployed at their stations. Multiple devices and hundreds of thousands of officers means the amount of information and time spent on evidence data is exploding. It is a software as a service model no hardware is needed, officers are also able to easily retrieve evidence no CD's needed.

Razor blade model

Individual cartridges which have unique numbers for tracking purposes accounted for 29% of sales. 17 cartridges are used on average over the life of every Taser gun. Tasers tend to be shot twice for training purposes every year and used once a year in the field.

With the introduction of off camera and EVIDENCE.COM Taser becomes more of a software rather than a hardware company. Investors appreciate the recurring revenue streams and stickiness of software companies just please don't tase me bro!

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in Taser (TASR) 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.

Travel plans

With Christmas holidays only four months away it is time to start thinking about planning a holiday. Visa has helpfully published their recent global travel intentions study for 2013. Given how far away Australia is, I guess it is no surprise that we are the one top 5 spenders in the world just behind Saudi Arabia. We are making the most of a strong Australian dollar! The UK is surprising in the bottom 5 though future intentions to spend will nearly double suggesting that the UK economy is finally recovering.

Best travel sites
Since we Australians spend so much we better plan ahead. Unsurprisingly Tripadvisor is the most popular destination for planning a trip with Expedia the most popular booking site. Though Expedia has recently taken a hit with Booking.com moving aggressively into the US market. The US is the most visited destination at 17%. Tourism is extremely important for the economy contributing 9% to global GDP. In 2012 the number of international trips taken surpassed the one billion mark for the first time.

What to bring?
The most common gadget brought on the trip is a phone and the reason being is internet connectivity. The camera was second at 70%. The digital habit has taken off more in Asia with 79% of travellers uploading posts while European travellers tend to disconnect from daily life when travelling. On average global travellers take 11 days to plan a trip. Time to visit Tripadvisor, it's never too early to get organised!

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Visa (V) stock and Priceline (PCLN) owner of Booking.com

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.

Botox

As a company Allergan (AGN) is best known for its Botox product. As a cure for wrinkles AGN has become a celebrities best friend but in fact ophthalmology (eye care) is the largest division of the business. AGN is classified as a pharmaceutical company but consumer beauty is the major driver for the company. Botox is growing much like the magic pudding it is delivering new solutions for different problems with a current focus on reducing migraines.

AGN is positioned in three attractive sectors ophthalmology (eye care), obesity and cosmetics. All three sectors target the aging and increasing weight of populations around the world. As an investor a company that benefits from the ageing of the population and obesity are two attractive investment areas.

No patent cliff for Botox
Apparently Botox is a naturally occurring substance so AGN cannot patent it. But what they do have a patent on is the process of making and harvesting the Botox itself. Some have described it as valuable as the Coca-Cola recipe.

AGN targets EPS growth in the mid-teens and management do have a good track record. The stock has sold off recently because of reduced expectations regarding its future drug pipeline. There are concerns that competition in eye care will increase with the US Food and Drug Administration seeming to pave the way for competitors to start making generic forms of Restasis (chronic dry solution their second best selling product around 14% sales) much earlier than investors expected. The stock now trades at the closest premium to its peers in years. Even with a reduced pipeline exposure just to Botox suggests it is still a stock to watch.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in Allergan (AGN) 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.

Hello Moto

Motorola has officially unveiled their first phone under the ownership of Google (GOOG). Google paid $12.5 billion for Motorola Mobility in May 2012 which was Google's first push into making phone hardware. The phone is the first since Google bought the company over a year ago because it has taken time before new management could impact the company's product timeline and roll out their own designs.

Whats different? Choice and Voice
The power of choice (design your own phone) and the ability to control your phone by voice not just your hands. With your voice you can check the weather and get directions no more juggling with your phone voice commands begin with OK, Google Now. The phone also makes it easier to take photos with a flick of your wrist the camera activates, no more missed photo opportunities!

The smartphone has finally moved on with colour choice unlike Henry Ford famous 1930's Model T comment that a customer can have a car painted any colour that he wants so long as it is black! Potential customers can choose from 18 colours other than black and white with an overall 2,000 possible combinations for the front, back and buttons. We have progressed even further with the humble headphone that has colours available which can be matched to the phone. Another difference from competitors is that the phone will be designed and made in the US.

Moto X compared to the two most popular competing phones.

Comparison thanks to http://www.digitaltrends.com/mobile/moto-x-vs-iphone-5-vs-galaxy-s4/

The specs do not look great for those who want the fastest hardware and best screen resolution available. A visit to Motorola's blog explains their strategy of ease of use and not necessarily the best hardware. This might disappoint some users especially given some of the hype.

Google has kept both operating companies separate to overcome concerns of favorable treatment to an internal company over others like Samsung. This has lead to criticism from some Motorola employees that they have actually been disadvantaged and treated worse because Google does not want to show an inch of favoritism as the priority is to keep the Android mobile operating system open to all. This could be seen as making excuses already but Google has had a great track record in software and Motorola used to be great at devices. We will see the results late August, early September when the the phone will become available in the US.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Google (GOOG) stock which owns Motorola

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.