Cabelas this retailer has game and a bank

How many retailers do you know have a game named after them? I can think of only one and that is Cabela's (CAB). The game developer Activision licensed CAB's brand name and released a number of hunter games the most well known being Cabela's big game hunter. Activision have also released mobile versions of the game. Don't worry as you'll see below no animals were harmed in this filming.

No animals harmed in this filming

As an investor this is important as it means the brand has authenticity with its customers. It is even more important in a world of show rooming where customers go and try on clothing and then buy it cheaper online. CAB is well protected as 33% of what it sells is its own branding. The percentage as a total of overall is even higher as it does not sell its own branded weapons though it does sell some ammunition.

Like Australia's BCF but with hunting and guns

45% of sales are hunting equipment this includes guns and ammunition. Sales spiked at the end of 2012 due to the re-election of Obama and concerns that he would push through stricter gun laws. This has not yet occurred but it has proven to be a boon for CAB sales. Apparently more than 2.7 million criminal checks on prospective gun buyers was carried out in December for a total of 19 million background checks in 2012. Apparently sales could have been even higher if there was adequate supply. CAB will have tough comps for the next two quarters see chart below as consumers stockpiled weapons.

Amazingly CAB has only 50 stores (4 in Canada) and plans to open their first stores in the South-East this year, see chart of stores below. CAB's estimate that they can grow to 225 stores with 14 new stores opening every year adding around 1 million square feet. These stores will be smaller than current stores but will provide for a better return on investment.

By the way we own a bank
CAB also owns a bank and issues its own general purpose credit card which is amazingly the 13th largest in the US by purchase volume ahead of such names such as Target. 97% is spent outside of CAB but this suggests strong loyalty as the more customers spend on the card the more points they generate to receive free merchandise. CAB awarded their customers nearly $200 million of freebies in 2012. Charge offs are also a lot lower than industry averages at 1.87% in 2012 this compares to AMEX at 2.1%. During the financial crisis credit card charge off rates were only 5.5-6% when peers were reporting 15%. Around 30% of CAB sales come from their credit card.

A retailer with its own computer game and credit card this retailer definitely has game.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not own a position in Cabela's (CAB) 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.

Starbucks a mobile star

Every technology player is chasing the opportunity of mobile payments, Apple with iTunes and its fingerprint login, Google with Google wallet, Ebay with paypal but what about Starbucks (SBUX)? It might seem a strange fit but SBUX is a leader in mobile payments. The upside is enormous as everyone now has a smartphone and of course everyone shops.

Not just free wi-fi
I can't think of many companies let alone a retailer that includes their Chief Digital Officer in on conference calls but SBUX does. For a retail company SBUX seems more focused on the digital opportunity than some other tech companies so much so that the CEO Howard Schultz is stepping back from operations to focus on mobile and all things digital full time. Mobile and loyalty card payments represent over 30% of US revenues. On a recent conference call they also hinted that mobile ordering was in the works.

Mobile payments star
In his words SBUX processes almost 5 million mobile transactions with no other retailer processing even 1 million payments a week this "has garnered the attention of leading tech companies all of whom are chasing with great fervor, who is going to be able to create the standard de facto of mobile payments. So what I will say is that I think that there are things that we can take advantage of and then we can leverage that are outside of the ecosystems of Starbucks. And this new organizational change will free me up to really create and innovate around, not only mobile payment, but the things that we are doing with new channels of distribution in which we can cross promote and cross reward our customers with Stars as currency."

Just like school its all about the gold stars
Each time you order a grande you can earn a digital star. Why is this important? If you can make it to a certain level you will be eligible for freebies such as free drinks, food and refills which is driving loyalty and mobile usage. The top status is the gold card, in the US almost half of the 7.3 million active SBUX reward members have made it to gold status. Collect 30 stars within 12 months and you'll be at the Gold level with a shiny gold card. You get to keep those benefits for another 12 months by earning another 30 stars from then on you will receive free food or drink rewards with every 12 stars. This indicates to SBUX that their star currency can go further in the future. SBUX was also an early investor in Square. Stars or bitcoin which do you prefer!

                                             SBUX is even a great place to play pranks.

SBUX is benefiting from card sales with $1.4 billion loaded up on SBUX cards leading up to Christmas. The app and electronic card also help in marketing. SBUX has always been a savvy marketer this continues in the digital world as the app includes an inbox which allows SBUX to send personalized messages and promotions to its customers when they are nearby.

Like many consumer brands China is a big goal for SBUX, they have plans to open up more stores in China this year than in America. China is interesting because they are smartphone savy. Two years ago SBUX launched their rewards program in China and in a short period of time have reached nearly 4 million members. The US has 7.3 million in a market which has nearly 13,000 stores versus China which has slightly over 1,000 stores suggesting a higher loyalty rate than in America and with plenty more room to grow.

                                                      Source: SBUX investor day

Anything else? Tea, food and juices
While all this is happening SBUX has made acquisitions in three areas that are lacking tea, foods and juices. The beauty about mobile is that it speeds up transactions no fiddling around with change. This frees SBUX to offer other services like food. Good food also has the virtuous effect of driving beverage sales. Food has historically only been around 20% of revenues with 30% attach rates but historically the experience has not been great. The acquisition of La Boulange changes this with an elevated bakery offering that is legendary in San Francisco that will roll out all across America this year. The better quality foods gives customers more excuses to visit and helps SBUX to leverage fixed store costs (see store visits chart above). SBUX also plans to fully roll out Teavana its tea offering and Evolution Fresh its juice offering to help capture the trend to healthy eating. Bon Appetit!

Jason

http://www.decisiveassetmanagement.com/

Disclosure: 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.

Facebook the new love boat

Facebook (FB) is a data machine. They know nearly everything about you and your connections. Since Valentines Day has come and gone FB has decided to analyse their database of relationship status updates from 'single' to 'its complicated' to help you in yours. The worlds largest social network is also the worlds biggest relationship database.

Men tend to be older than women in a relationship
Yep in 67% of relationships the male is older, in 20% the female is older and 13% of couples are the same age. On average the male is 2.4 years older. Australia has the closest age parity with an average gap of only 1.8 years.

What's important?
Religion does play a part. It seems that people are willing to date people with a different religion but are less likely to marry them. In Australia around 77% of relationships are with people of the same religion.

Will we still be together?
The most important aspect is time. The longer you have stayed together the less likely to split up. Most relationships end in only a few months. As the chart below shows if you can make it past 6 months your % chance of staying together dramatically increases.

https://www.facebook.com/data/posts/10152217010993415

How couples interact on FB
Before a relationship starts there is a slow and steady increase in messaging. However as the relationship begins there is less messaging as couples spend more time together in the real world. Less FB can sometimes be a good thing! While users post less in a relationship FB found that they express more positive messages to each other.

Where to look?
No information for Australia but the best places to look if you're an Australian in the US is by going to the towns with the highest % of most single people

1. Detroit, MI

2. Los Angeles, CA

3. New York, NY

4. Miami, FL

5. Memphis, TN

But don't people go to these places to be single? FB suggests that cities where everyone is paired up is actually a better place to find a relationship as the incentive or pressure to pair up is even stronger. Apparently Colorado Springs tops the list due to its strong links to the military and religious communities that promote and encourage traditional values in relationships.

You can always count on your friends
Things do not always work out as planned and if your relationship does go south you can count on your friends. Your support network on FB does seem to work with the amount of interactions increasing when a relationship status is updated on FB. As can be seen below messages increase by 225% on the day of the update versus the average volume of interactions the prior weeks.

                                https://www.facebook.com/data/posts/10152217010993415

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Facebook (FB) 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.

All a Twitter? Your guide to social networking

There are now three listed social networking companies Facebook (FB), Linkedin (LNKD) and Twitter (TWTR). Social networks derive their value from the number of users, the frequency of use and the information that they share. While all three are social networks they do have different purposes, see table below. In a social setting explanation LNKD is like a work party you can have fun but you have to watch what you say and do you can’t totally let your hair down. FB is a party where everyone you know is there, Instagram which is owned by FB is a party that your parents don’t know about yet hence the attraction for teens. Finally TWTR is a like a party where you don’t know anyone, it’s interesting but you don’t stay long because you don’t know anyone too well!

	Facebook	Linkedin	Twitter
Market Capitalisation*	$161.9 billion	$25 billion	$30.2 billion
Monthly active users (MAU)	1.23 billion	187 million	241 million
Market capitalisation/ User	$131.6	$133.69	$125.31
Mobile Friendly	Yes 53% of ad revenue	No	Yes 75% of ad revenue
China	No	Yes, 4 million members	No
How they differ	Largest network of users with the most knowledge of user habits. Everything that is liked is stored only on Facebook’s server Google has no access.	Majority of revenue is not advertising but subscription fees for recruitment and marketing. Only social network that is not banned in China.	Public, realtime news. An open broadcast system not a closed network like Facebook news tends to rebroadcasted to other outlets.

*As of 11/02/2014

Linkedin an end of year work Christmas party

LNKD was actually the first successful original network incorporating in 2003 a year ahead of FB in 2004. LNKD’s mission is to connect the world’s professionals to make them more productive and successful. LNKD estimates there are over 600 million knowledge workers in the world. While LNKD’s addressable market is not every internet user the users that they have tend to be high income professionals. LNKD is different from the other social networks in that it is not just advertising but about creating opportunities in recruiting and marketing.

Advertising drives only 25% of LNKD revenues the majority actually comes from recruiters paying for subscriptions. LNKD’s talent solution products help recruiters find and engage the best talent by accessing LNKD’s database. This access is compelling as it enables them to search and target certain skills from the 85% pool of employees directly that are not actively looking for a job.

While many are aware of the recruitment capability LNKD is also a pioneer of social selling with a product called sales navigator which helps to make introductions. According to LNKD users with sales titles in their database are 5x larger than the number of recruiters and hiring managers. An example being instead of making a cold call the salesperson can check LNKD and find that a colleague he knew went to high school with a lead and could provide an introduction rather than a cold call. This is not only the users contacts but the network of all individuals in the company that can be leveraged to substantially increase the potential to find leads.
  

LNKD’s big leg up against competitors is its recurring subscription revenue for its products. Investor’s value the visibility of a recurring income stream they also value the growth opportunity that is China. Apparently the LNKD service is so valuable to Chinese businesses that unlike other social networks it has not been banned. LNKD has disclosed it has approximately 4 million users in China there is currently no Mandarin language support, the users so far are bilingual professionals. We expect LNKD will announce a joint venture in order to provide Mandarin and localised support.

Facebook a party where everyone including your parents is there

Data and size is what differentiates FB from the other social networks. On its most recent quarterly call FB disclosed that the information they have on its users is larger than the index in any web search engine with more than a trillion connections of people and interests and over a trillion status updates and content. Zuckerberg also mentioned that around 5-10% of posts on FB are questions to friends. It’s a longer term plan but FB is building out its graph search product to answer these questions with a personalised search engine for users with answers and suggestions depending on what you have liked and who your friends are rather than a one size fits all approach.

Users moving to smartphones is a benefit to FB as it is capturing 1 out of every 5 minutes spent on phones compared to 1 in 7 minutes on the desktop. The smartphone has increased usage of FB as everyone constantly carries their phone with them but not their desktop and because users tend to be on the go they are also finding increasingly valuable location data. Mobile is extremely important with 53% of revenue from advertisements in the newsfeeds. Ads in the newsfeed are estimated to make up about 5% or 1 in 20 stories. Pricing for this product has significantly increased as advertisers are finding the returns to be attractive.

While teens leaving FB is a concern they tend to be using Instagram which FB owns. Instagram is a photo sharing social network with over 150 million monthly active users. Founded in 2010 Instagram has grown faster than FB did at a similar age and if this growth rate continues it could take over TWTR by number of users within two years. FB has rolled out 15 second videos for Instagram and has started trial advertising.

Engagement for FB is one if not the highest in the industry with 62% of users logging in daily. It is telling that other social networks do not disclose similar daily/monthly users a sign of how users are engaged with the product. Another disclosure on the latest conference call was the use of its famous like button. On the average day in December, FB saw more than 6 billion likes up 59% from 3.8 billion likes a year ago.

Twitter a party where you don’t know anyone

While FB is about connecting with friends TWTR is about connecting to the world, it is an open public system. News wires and even Bloomberg monitor and incorporate tweets from celebrities as part of their services for the latest breaking news on events. TWTR became famous for breaking news on events like the Hudson plane landing miracle. As a user you might not be able to friend a celebrity on FB but you can follow them on TWTR. Even Warren Buffet has an account which amazed me given his aversion to technology. Though he has only posted three tweets and does not follow anyone. Carl Icahn has also successfully taken to TWTR to publicly rally for AAPL to return cash to shareholders.

TWTR has done a great job in cultivating television advertisers, it is now commonplace for shows to create hashtags to generate real time conversations around shows to generate more traffic. TWTR is even more mobile friendly than FB with higher mobile revenues as a % of overall. What differentiates TWTR from peers is that there is only one class of share. There is no secondary class of share with extra voting rights, unlike other technology companies shareholders will have a say in how TWTR is run. It also opens up potential for TWTR to get taken over.

Apparently nearly a billion users have signed up to TWTR but only 241 million are monthly active users. The downside to TWTR is that for new users the experience is confusing it is hard to connect to and find people you know and even then a lot of interaction is reading rather than tweeting. TWTR admitted on their first conference call that they have plans to make the service easier to use when users first sign up. As the CEO mentioned they need to bridge the gap between awareness of TWTR and engagement on the platform. TWTR is popular for events but usage tends to dwindle afterwards.

As long as its a party

Just like many people have a separate email address and phone number for personal and work its seems social networks have divided along similar lines. FB is used to connect with friends and everyone you know, LNKD is for professional contacts and TWTR for following celebrities and the latest breaking news. Happy social networking!

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Facebook (FB) 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.

Netflix TV on demand

Netflix (NFLX) is the world's leading internet television network. It is not a pay per view but an unlimited viewing service that charges a flat fee of US$7.99 per month. It's 45.8 million users view more than one billion hours of TV and movies per month. According to some statistics NFLX video usage is more than 10x its rivals Amazon and Hulu. The same article states that NFLX represented 31.6% of all downstream traffic September prime time in the US with Youtube second at 18.6%.

Apps replacing channels
The overall industry is benefiting from the tailwinds of increased internet adoption, frustration with linear TV, increasing cable pricing and its advertising. Even NFLX's competitor Hulu which had 3 CEOs in 2013 grew paid subscribers an impressive 65%. The majority of NFLX's viewing is on internet TVs but tablets and phone viewing are growing with many subscribers using Netflix on multiple screens. NFLX started out as a DVD mailing service and began offering its streaming service in 2007. It is now moving towards more exclusive content arrangements which cost more but allow NFLX to offer a differentiated service similar to HBO and its series.

Even quarterly earning calls are semi-exciting
Earning calls tend to be dreary and staid events. NFLX has ramped up the excitement factor by conducting its quarterly earning results over Youtube. NFLX further increased the excitement factor (see video below) by joking that a competitor HBO CEO's password is 'Netflix B*tch' in response to a question that HBO does not mind customers sharing passwords for free viewing. Its classic viewing if you're into watching quarterly company reports.

Fuzzy connections?
The main risk apart from continuing execution against competitors is internet neutrality. In other words all data on the internet is treated equally there has been no discrimination of charging users differently because of the content or site. This has been challenged recently so now a domestic ISP can legally impede the video streams or charge NFLX or its users more otherwise they could slow or limit the streaming experience. NFLX does not believe it is too much of an issue because these same companies are growing their broadband business but it is something investors should keep an eye out for.

The other risk which is also an opportunity are content payment obligations. As of the end of 2012 NFLX had $5.6 billion of off balance sheet obligations, basically payments for content that are fixed. The risk for NFLX is if a large number of subscribers cancel NFLX it still has to pay a fixed amount for its content. Given the recent large increase in subscribers this is looking less and less likely.

Going global
NFLX has 34.3 million subscribers out of nearly 110 million households in the US. The next major growth area is international currently at 11.5 million paying subscribers. The international division is not yet profitable but with planned moves into Germany and France the fourth and sixth largest broadband markets in the world this should quickly change. NFLX has said in the past that Canada broke even within two years.

Generally content is bid for on a country by country basis. The beauty of NFLX's model is that its original pieces such as Orange is the new Black and House of Cards not only attract users to the service but are also multi-territory so they only pay once but monetise around the world. The market is focused on subscribers because NFLX generally pays a fixed fee for a defined time period, obviously adding more subscribers is extremely profitable. NFLX trades on a high 79x earnings multiple and has a large market value of $24 billion but there is upside in subscriber growth and pricing. NFLX have hinted at future price increases at only $7.99 a month it is too low compared to the average cable bill of  US$78.

For consumers the only problem for consumers is choice, you can spend more time searching for something to watch than actual watching!  Unfortunately NFLX is not yet available in Australia consumers here should stay tuned.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in Netflix (NFLX) 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.

On track with Rentrak

The TV measurement industry is not one of the most glamorous in the media world but they tend to produce great monopoly like businesses. Everyone has probably heard of Nielsen and their rating and measurement system. While the credit rating industry has Moody's and S&P as fierce competitors the TV rating system has been dominated by one company Nielsen. We found it strange that Nielsen has not yet made any major changes to its measurement given all the disruption in media ie TV everywhere, on demand and big data trends. Enter Rentrak (RENT) stage left, RENT has basically built up a better mousetrap for measuring TV viewing. What makes them different is precision, RENT is the only one to measure video on demand 100m TVs on a daily basis whereas Nielsen for example samples 20,000 with viewers filling out paper diaries of what they watched that night.

Census vs sample, whats gives you more confidence?
Anyone who has used Netflix or other streaming services knows on demand viewing is the way of the future. RENT collects 100% of this US on demand TV viewing. From the computer to your smartphone and to your tablet RENT tracks your viewing habits. RENT data is more comprehensive as it is a census approach rather than a sample method like competitors. RENT's database is larger because RENT collects data from households subscribing to Dish Network. Dish owns 6% of the stock in return for passing on their data. This precision gives ad buyers confidence.

Source: Rentrak investor presentation

RENT has 235 local station clients up from zero 3 years ago, as can be seen below the total addressable market is 2,000 stations. 50 of these stations have dropped Nielsen since signing up for RENT's products. RENT predicts their TV measurement business to grow 80% over the next several years.

                                                     Source: Rentrak investor presentation

Skip scene, the domino effect
While the stock has had a major rise since the start of the year in our opinion the rise has been justified. The shares rose on the announcement of landing CBS as a customer. CBS is one of the four largest broadcast networks in the US and under the CEO Les Moonves has been an innovator in the space. TV companies love data and with RENT can move beyond just age/sex demographics to combine viewing data with purchase data like cars and other product purchases. With CBS signed up it is a vote of confidence in their measurement system making it much more likely that the other networks will sign on with the service helping to make it the currency of measurement much like Nielsen. RENT has an expensive valuation but it is a very strategic company for the industry with its market capitalisation of $675 million still small given the opportunity.

Fast forward or rewind? Why 20% growth is misleading.
While overall top line growth does not look exciting at 20% this growth is being held back by RENT home entertainment business which basically measures DVD transactions from brick and motor stores. Given the outlook for such businesses like Blockbuster are not great RENT is expected to divest this business which should result in higher overall top line growth of 40%.

As consumer viewing habits change measurement has to change as well. While its not the most exciting business RENT is at the forefront of precisely measuring movies and TV everywhere the consumer is watching.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Rentrak (RENT) 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 two search engines that matter

Happy New Year everyone. Continuing off from the last blog the two major global search engines Google and Baidu (China only) have now released their top ten trending search items over the past year.

Global top trending searches Google	China top trending searches Baidu
1. Nelson Mandela	1. Ya’an Earthquake
2. Paul Walker (Fast & Furious actor)	2. Five Policies of Real Estate Regulation
3. Iphone 5s	3. H7N9 Virus
4. Cory Monteith (Glee actor)	4. Shenzhou 10 (Chinese spacecraft)
5. Harlem shake	5. Hazy Weather
6. Boston Marathon	6. Diaoyu Islands (Island conflict with Japan
7. Royal Baby	7. Inheritance Tax (rumour of introduction has since been denied)
8. Samsung Galaxy S4	8. Two-child Policy (If one parent is an only child they can now have two children)
9. Playstation 4	9. Central Patrol Group (corruption investigation)
10. North Korea	10. Internet Finance

The most popular global searches on Google were for people who had recently passed away, this unfortunately included Nelson Mandela the most searched for trend in the year. Electronics were the next important items with smartphones in particular popular search items.

The desolation of smog!

For all the talk about the Chinese consumer none of their top ten searches involved a product they were more practical. The most disturbing search pattern was the search for hazy weather while the most searched for term in China was weather (not a trend but as a keyword) the number one Chinese keyword in 2013. Baidu capitalised on this trend with any searches on Baidu showing weather forecasts as well as a life quality index for activities such as car washing and sports.

This growing concern over the environment also showed up on Taobao the leading online commerce site in China. One of the most searched for items was dust masks and heating equipment. People in Jiangsu province purchased the most followed by Beijing.

Phones and games

Baidu's top searches help explain some of Apple's problems, it is only the third most popular searched for phone in China. While Apple products as a whole are popular Samsung seems to be selling better due to the larger screen and is the top ranked search item. Apple also faces local competitors like Xiaomi who better understand local needs.

One major discrepancy between Google and Baidu searches is in consoles with no searches in China. Rumours are that the Xbox One will be heading to China in September 2014. Game consoles have been banned in China since 2000 so as to protect Chinese youth from wasting their minds on computer games. However the internet has helped circumvent the ban with online gaming the norm. Rumours are that the bans will soon been fully lifted hopefully producing a big boost to the Xbox One and PlayStation 4.

Global top electronic searches Google	China top electronic searches Baidu
1. iPhone 5s	1. Samsung Galaxy S4
2. Samsung Galaxy S4	2. Xiaomi 3
3. Playstation 4	3. iPhone 5S
4. Xbox One	4. Meizu MX2
5. Nexus 5	5. HTCM7
6. HTC One	6. Xiaomi Hongmi
7. iPad Air	7. Apple Macbook Pro
8. Blackberry 10	8. Apple Mac Air
9. Samsung Galaxy Note 3	9. Lenovo Y470
10. Nokia Lumia 1020	10. Dell 14 R

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in Google (GOOG) and Baidu (BIDU) 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.