Iconix the second largest licensing company in the world (after Disney)

Very few public companies derive 90% of revenues from licensing a portfolio of brands. Iconix Brand Group (ICON) is unique in that ICON wholly or partially owns 33 consumer brands. In the latest top 150 global licensors awards ICON's brands reported sales of $13 billion 2nd behind Disney and just ahead of PVH corp which owns Tommy Hilfiger and Calvin Klein in number 3.

Importantly ICON does not have fashion risk as it receives guaranteed royalties. ICON does not take inventory risk and receives minimum royalties from its licensees which average around 3% of sales. Licensees must also make minimum payments for marketing the brands. As of June 2013 ICON had the right to receive over $800 million in minimum royalty revenue from their current licensees this compares to revenue of $430 million this financial year. Impressively ICON does this all with little infrastructure with only 148 employees, in 2012 each employee generated $2.4 million in sales.

ICON already does business with every retailer in America, to grow further ICON must tap into other areas like retailers such as Home Depot and Petsmart. The acquisition of Peanuts, Snoopy and Dilbert (a hero to cynical office workers) helps move the company from just fashion to media, theme parks and financial institutions.

Peanuts the movie!
ICON formed a partnership with the Schulz family and bought into 80% of the business with the Schulz's owning the rest. No new Peanut comics have been drawn for a decade and as a brand Peanuts and Snoopy have stalled. The brand was acquired in 2010 and sales have flattened out at $80 million for the past two years ICON hopes to reboot the franchise with an upcoming movie in 2015. If all goes to plan ICON believes that sales of Peanuts products including box office could double to $160 million.

The movie in conjunction with Twentieth Century Fox is slated for release November 2015. While the contract details have not been disclosed ICON has hinted that it is similar to goods licenses in that they receive a royalty piece from every movie ticket sold. ICON is hopeful that the movie will create new licensing opportunities and box office sales that will drive new revenue streams. ICON is not putting any money down which is fortunate given the last Peanuts movie in 1980 earned just $2 million.

Snoopy the credit card?
Metlife has used Snoopy as their company ambassador since 1985. In 2006 Metlife acquired exclusive international rights to use Snoopy in financial services including credit and debit cards. These contracts are up for renewal in 2014. According to Forbes magazine the licensing deal brings in $12 million annually.

Growth getting harder to come by?
International is a key driver for growth at just 33% of business it can still grow. Whereas in America ICON's brands already take up a lot of shelf space with around 14% of Walmart soft goods, 15% of Target and 10% of Kmart. Their top 5 customers contribute 36% of revenue. ICON has always been able to renew contracts above $10m in value but due to the sliding scale royalty structure the % earned decreases as the brand grows.

ICON is a unique company given the licensing structure. However ICON is reliant on Peanuts to be a success as they are fully distributed within US fashion retail. Let's hope that Snoopy stays on top and does not end up inside the doghouse!

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no long position in Iconix Brand Group (ICON) 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.

Its a Sony

Consumers know Sony (SNE) for its electronics business, movies, music and through Playstation its games. In the stockmarket SNE trades mostly as an electronics business yet the majority of profits come from its financial, movies and music divisions.

As everyone knows SNE used to be the dominant electronics company but in the past decade SNE has been left behind by Apple and newer Korean competitors like Samsung. There are signs of change with a new CEO Kaz Hirai, Kaz has set about on an aggressive turnaround with a focus on one Sony with products that incorporate both hardware and software. However after two straight profitable quarters SNE recently announced a second quarter loss dealing a massive setback to SNE's turnaround ambitions. The downgrade was so bad that Moody's warned SNE credit rating could be cut to junk.

Why SNE? Thriller content
SNE owns some of the best music content in the world, it is the second largest global music company and has full or partial rights to the catalogs of Michael Jackson and the Beatles. Michael Jackson and the Beatles alone are a gold mine but SNE also owns Usher, Eminem and even rights to One Direction. The company has over 2 million songs in its catalogue. Part of Kaz's plan is to shed more light on the music and picture segments and finally give investors access to SNE's entertainment management team on meetings and conference calls.

SNE also owns many notable movie franchises including Spider-man, the Karate kid and Men in Black. Their TV catalogue includes I Dream of Jeannie, Bewitched, All in the Family and rights to the Seinfeld library. SNE owns 124 channels in more than 159 countries the majority in Latin America and Asia. SNE monetises their film library content through iPad apps on Crackle an online ad supported viewing service and through Vevo a collaboration with Universal and Google where users can watch the latest in music videos.

Seinfeld no soup for you! Sony owns the rights

SNE is also the creator of the Playstation with the fourth version out next month. This will be SNE's first release of a console in eight years. The pricing is expected to be priced less than Microsofts XBox and include more cloud based services and sharing such as making it possible to view ingame action streamed live to friends.

Why not SNE? Electronics not so thrilling
Kaz's goals are to return the electronics business to profitability. However they are structurally challenged industries with the television business unprofitable for the last number of years. PC, TV and camera sales are all struggling from the move to tablets and smartphones. My original thought was to value these divisions at a zero valuation but some sort of negative value needs to be attributed given the large capital requirements and relatively tough workplace restructuring rules in Japan.

SNE bought out Ericsson's stake in their mobile joint venture after ten years. This made sense as SNE can now integrate its software and all devices and they could finally focus on smartphones! The agreement also gives SNE ownership of some interesting patents whose coverage and worth is hard to determine. Even though smartphone sales are off a small base they are heading in the right direction.

Abenomics
Shinzo Abe the new Japanese prime ministers attempt to revive Japan's economy should help SNE as a depreciating Yen makes SNE goods more competitive overseas. SNE also has a financial services business made up of mainly life and auto insurance SNE will benefit from the rising stockmarket with the Nikkei 225 being one of the best performers in the world.

On the downside the consumer electronics business will keep detracting from the picture, movie and gaming assets. Dan Loeb the activist hedge fund manager is a shareholder and has pushed for a partial listing of its entertainment assets. Personally we would like SNE to keep their best assets and see a spin off of their consumer electronics business as investors (including ourselves) seem to attribute a negative value to the assets.

It seems all technology companies are following Apples path of integrating hardware and software. SNE and Microsoft have always had the ability to do the same but both seem more determined this time around. There is definitely value in SNE it just needs to be unlocked, we will stay tuned!

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no long position in Sony (SNE) 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.

The Kentucky Derby

Its Melbourne Cup week and as thoughts turn to betting and horse racing we thought its time to take a closer look at Churchill Downs (CHDN). CHDN owns the race course for the most exciting two minutes in sport the Kentucky Derby. The track is 2 kilometers long and is the longest running annual sporting event in the US run over 139 consecutive years. The race is also known as the run for the roses with a blanket of 564 red roses awarded to the winner each year.

The big board
Ever been that fan who spent the day at the races but never saw a horse? CHDN understands so they have installed what they call the Big Board for the 2014 race. In partnership with Panasonic CHDN has installed a 15,224 square foot high definition LED video board, the board will be 171 feet long and the structure 170 foot tall. The board and structure will weight over 1,000,000 pounds and is bigger than 3 NBA basketball courts or 2,200 46 inch flat screen TVs.

Sports not gambling

CHDN makes the majority of its revenue through premium ticket sales the largest contributor at 50% of revenue with the rest split between sponsorships, wagering and TV licensing. Unfortunately the rest of racing is not profitable CHDN typically makes a profit in the second quarter when the Derby is run the rest of the year is relatively quiet and unprofitable.

The TV rights (with NBC) and sponsorship (Yum Brands) are up for grabs following the 2015 race and given the increased focus on live sports for advertising we believe CHDN is well positioned for improved terms. Both deals were renewed in 2011 and the Derby's popularity has increased since with 16.2m viewers this year up from 9% in 2012 and up 12% in 2011. The race is unique as it is the only annual sporting event that draws more female viewers than male at 52%. CHDN believes that the Derby is worth a lot more if it was valued as a sports rather than betting asset.

Regional casinos but some online

The problem is CHDN has been buying regional casinos with racing now only contributing 34% of revenue compared to 69% in 2009. Because of these diversification efforts CHDN has been valued more as a regional gaming asset than a unique sporting event. CHDN also has an interesting online wagering business which is 20% of revenue the site TwinSpire.com is a leader in the market with 42% US marketshare. While online growth is slow, the recent quarter showed 7.3% growth this compared favourably to overall industry growth of 1.3%. Wagering was already declining and the financial crisis has added to industry woes with wagers down 20% from the peak in 2008.

CHDN will conduct the 140th running of the Kentucky Derby on the 3rd of May 2014. Giddy up!

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no long position in Churchhill Downs (CHDN) 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.

Callaway Golf Fore!

Callaway (ELY) is one of the best known golf brands in the world selling its products in more than 70 countries worldwide. However since the passing of its founder in 2001 ELY has struggled as the brand became less focused on drivers and clubs and its core golf users.

The golf industry as a whole has suffered from the financial crisis with industry golf sales down 13% from the 2007 peak. Within this decrease ELY has consistently lost market share as competitors such as TaylorMade (owned by Adidas) and Titleist (owned by Fila) stepped up marketing and innovation. However there are signs of a turn around with ELY's marketshare of 15.1% year to date up 1.1% on last year (See ELY marketshare below). Importantly their latest results are showing signs of profitability with expectations for a 2013 pre tax income.

In the CEO's words "with that said, our turnaround is proceeding at or above our original expectations, particularly given the headwinds we experienced this year from unfavorable changes in foreign currency rates, adverse weather conditions, a very late start to the 2013 golf season, and higher than normal promotional activity in both North America and Europe."

The turnaround
New management, a change in marketing, product execution and a reduction in cost structure have helped. The new CEO brought in last year Oliver Brewer has streamlined their business by selling the Ben Hogan and Top Flite brands. 

He also licensed the apparel operations to third parties so that ELY could focus on its core club and ball business. ELY's cost structure was reduced to $340 million down from last years run rate of $380 million in expenses reducing the number of employees from 1,800 to 1,500 as of December 2012.

ELY beefed up marketing signing endorsement deals with Phil Mickelson, Ernie Ells and Ryo Ishikawa. Though Phil Mickelson was recently spotted using a TaylorMade driver. Apparently Phil has one of the most flexible equipment contracts of any top player and can play with other brands from time to time.

Phil at Callaway HQ thanking the staff for their support after British Open win.

The back nine
Golf becomes an Olympic sport at the 2016 Rio games with the 2020 games awarded to Tokyo. Japan is the largest international market for ELY. There is also the Chinese golfing opportunity, with gold medals now on offer and China's historic dominance in sports involving  mental focus golf in China will surely be a driver of growth.

After years in the rough ELY now looks to be finishing under par.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no long position in Callaway (ELY) 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.

A Chinese Gumtree

58.com is China's largest online marketplace. Similar to GumTree here in Australia and Craigslist in the US 58.com enables local merchants and consumers to share information and conduct business.

58.com had approximately 4.3 million active local merchants out of an estimated 53 million small medium businesses in China. 58.com is the leader in online classifieds with 38% market share by revenue and 86 million monthly unique visitors. Its rivals include Ganji and Baixing though 58.com has 2x and 9x more revenue respectively than these competitors (see chart below).

Big partners

58.com introduced Alipay (owned by Alibaba) services earlier in the year. Alipay is similar to Paypal but differs in that is more like an escrow service. So just like Taobao customers 58.com consumers can decide to release payment after having enjoyed a service or bought a second hand item. This was the first time that Alipay had developed a custom solution for a third party and helps overcome the lack of trust in buying online in China. A survey conducted by 58.com shows that 90% of its users trust Alipay and 75% have Alipay accounts.

58.com has also begun to use Baidu (Google of China) new light app feature. So users will be able to search through the app without having to physically download the application on the mobile. Around 40% of 58.com page views were on mobile applications.

Show me the money!

Like most internet companies 58.com earns its revenue through advertising. Though the majority 60% is subscription based. A membership gets merchants an online storefront, preferential listing benefits and a higher quota for daily listings. These contracts typically last from one month to a year. Approximately 273,000 merchants subscribe to the service. Renting, jobs and their yellow pages services are the most popular.

58.com has begun focusing on advertising to drive more growth. Only 18% of 58.com's paying merchant members used online marketing services. 58.com have also rolled out realtime bidding similar to Google adwords this allows merchants to bid real time on certain keywords to improve the chances of their listings being seen and sold.

China has 45 cities with a population greater than 2 million this compares to only 4 cities in the US. Given the low monetisation compared to peers the stock is one to watch. 58.com's IPO will price at the end of the month.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no long position in 58.com (WUBA) 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.

Nike just doing it

Nike (NKE) last week hosted their 2013 investor meeting. As the CEO Mark Parker stated "Nike is designed to win". For such a large company NKE's long term goals are impressive, they plan to grow revenues at a high single digit % and grow earnings per share at a mid teens rate. NKE already has the majority of marketshare in their main categories of running and basketball. Fortunately the overall market is growing because of globalisation.

Over the next decade, we will see the world's middle class population grow by 1 billion consumers. NKE seems positioned to be the shoe for athletes and weekend warriors around the world. NKE is dominant in two categories with running the “heart” of the NKE brand and Basketball the “soul”. In fact in the United States NKE basketball holds upwards of 90% market share.

Jordan more popular today than in his playing days

Michael Jordan is its own brand. Amazingly when the first Air Jordan was released back in 1985 the shoes were banned by the NBA because they did not have any white on them. Jordan wore the shoes anyway and every time he stepped on the court he was fined $5,000. Nike of course used this as a marketing tool hinting that the shoes had a certain edginess to them. Brand Jordan is now selling 3x more today than when Michael Jordan was playing.

Custom made shoes are coming

NikeId has customised shoes that lets customers choose colours and styles. Hope not many choose this option below but glow in the dark elephant print is available to help you stand out at night and be somewhat subtle during the day. NKE believes in over two years time they will be able to scan your foot and have a shoe created specifically for you.

All about innovation
NKE is at the forefront of innovation using digital technology with Nike+ and the ability to customise shoes. Their latest invention the Flyknit shoe is meant to feel like a sock not a shoe. When customers/athletes first wear the shoe they start looking down at their feet because they forget they are wearing shoes! It might be strange at first but apparently its hard to go back to a normal shoe.

NKE also leads digitally with NIKE+ which lets 20 million members track activities like running and helps you to set and achieve fitness goals. They have run over 1 billion miles. This is important for NKE as they receive information on runners activities so they customise their NKE experience based on their habits.

Finally for NIKE women is a huge opportunity. Today, in North America NKE's Women's business makes up less than 25% of overall business.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no long position in Nike (NKE) 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.

Twitter

Twitter has announced details for its upcoming public listing. It is being compared to Facebook already but what makes it different is its focus on public real time news. Twitter is a broadcast system anyone can follow anyone, Twitter has become the way to find out what is happening here and now. To me it sits in between Facebook which is personal news and Linkedin which is business news. Twitter is general news and I think advertising is seen as more acceptable if it relates to news you are following versus advertisements next to personal pictures on Facebook.

There are no concerns over mobile as 75% of Twitter users accessed the service from a mobile device in the second quarter with 65% of advertising revenue generated from mobile. That's more than the 71 percent and the 41 percent, respectively, for Facebook in the same period. Twitter is a more mobile friendly product as both companies began displaying mobile advertisements last year but Twitter has seen more mobile penetration.

Key stats

Twitter Facebook Employees 2000 5300 Risk pages in S1 32 22 Stock structure One class  Two class super voting Monthly users 218 million 1.15 billion International revenue 25% 55% Mobile usage 75% 71%

In a refreshing change there will only be one class of stock unlike most technology companies a founder does not have absolute control over the company. This is more shareholder friendly as it gives everyone a say in how the company can be run and gives other investors the opportunity to take it over. Twitter has also disclosed more risks than Facebook running at 32 pages versus Facebook's 22.

Risks
Twitter is not making money. As can be seen above Twitters revenue per user is much smaller.
Another key risk is the fact that a lot of Twitter content is accessed elsewhere. This is a risk as if Twitters news is accessed elsewhere they will not receive advertising revenue. Twitter has not disclosed the number of users who access their content through other applications that do not contain their ads.

News
One of Twitters key attractions is the ability to follow well known personalities. It is a broadcast platform to find out directly what key people are saying. A number of corporates like Tim Cook and Carl Icahn have just come on board but most surprising to me is Warren Buffet joined a few months ago. Buffet signing up is fascinating considering his aversion to technology. Apparently he resisted his friend Bill Gates (founder of Microsofts) attempts to set up a computer in his home. As more celebrities join the service Twitter should get more and more popular.

There has not been much talk about Vine which is a 6 second looping video. The service was launched by Twitter at the start of the year and their most recent announcement suggested they had 40 million users in August. They are facing more competition from Instagram which has released a 15 second video system but it was interesting that Vine was not mentioned more in the S1.

Revenue
Twitter only began advertising and focusing on revenue in 2010. They recently launched self serve advertising in the US with intentions to launch in a platform in international markets. Self serving advertising is key for most businesses as it allows advertisers to purchase on Twitter through an online platform (much like Google adwords) rather than than through their direct sales force or resellers.

There is no news on the valuation yet but whatever you do please don't buy TWTRQ. Twitter has not listed yet. The TWTRQ ticker is for Tweeter Home Entertainment! Investors seemed to have a case of mistaken identity they are a retailer of home entertainment systems. Shares jumped from 2 cents to 12 cents before trading was halted unfortunately for those investors the company is bankrupt!

Luckily for Twitter there has been no movie made about the founding of the company like Facebook which had a movie (the social network) released ahead of listing. But Twitter has received some attention on Saturday Night Live, see below. # Hashtag!

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no long position in Twitter (TWTR) 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.