Decisive Asset Management

Sunday, 27 April 2014

The state of digital media in the US

Comscore (SCOR) a recognised leader in digital measurement and analytics has recently released its digital media report for the US. They are bullish on the digital opportunity as they have found that mobile usage is incremental to desktop use and the migration of television to online video will further increase the time users spend digitally. Desktop usage is slowly increasing but mobile usage has exploded now taking up more time than desktop (see below). As users change the way they consume content advertisers will eventually follow.

Source: https://www.comscore.com/Insights/Presentations_and_Whitepapers/2014/2014_US_Digital_Future_in_Focus

Apps more mobile friendly
Increased mobile usage means that users are spending more time on apps rather than the internet. According to SCOR apps accounted for 85% of time spent on phones in 2013 easily eclipsing usage of mobile browsers. As can be seen below the most popular US app is Facebook followed by a number of Google apps. I was surprised to see Apple maps squeezing into the top ten list after the initial disastrous launch.

Source: https://www.comscore.com/Insights/Presentations_and_Whitepapers/2014/2014_US_Digital_Future_in_Focus

Video (online) killing the radio star
Online video is also a major driver of digital use with 84% of Americans now watching video online. The younger generation known as Millennials spend 48% more time watching online than the average making it hard for advertisers to reach this demographic using traditional media as they all seem to be online. This bodes well for the likes of Youtube as according to SCOR video ads account for 5.7% of total viewing time but is only 1/4 the ad load of TV viewing.

Comscore a good investment?
SCOR itself announced big news in February that Google will embed its tracking technology into Google's entire network ad server including YouTube. Historically Google customers have paid Google and trusted their analytics with no third party verification or checks or balances. Similar to a referee on a sportsfield SCOR will separate the advertising and measurement duties which should help customers feel more comfortable and hopefully spend more in the future. Google customers will gain access to neutral data from SCOR that is directly comparable to TV and other traditional media ratings. Integration is expected to be finalised in the 3Q. Its a big win for SCOR as the second largest company in the world with a $360 billion market value has decided to trust a billion dollar company to act as a referee and measure advertising campaigns on Google's network.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive owns a position in Comscore (SCOR) 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.

Sunday, 20 April 2014

Stop waiting in line Xoom in online

Xoom is a leading digital money transfer business. Its basically like Western Union but online only. Xoom has more than 1 million active customers that last year sent more than $5.5 billion to family and friends overseas. Xoom's goal is to disrupt the world of international money transfers. Users basically send money online from their bank account to Xoom's partnership of banks and retailers overseas who disburse cash at a pick up location or at a local bank. Users no longer have to go to a money transfer store, they don't have to wait in line and don't have to pay large commissions to agents. Xoom provides customers with a convenient, fast and cost effective way to send money abroad on their mobile phone.

Xoom in online
Compared to Western Union John Kunze the CEO believes Xoom can provide the same service today online in less than a minute at 2/3 less cost. Western Union is the big gorilla of the business with 500,000 branches and commissions that have to be paid to agents. Western Union and Money Gram have 20% market share of the remittance market. However their cost structure makes it unlikely that they can ever compete with Xooms pricing. Xoom customers tend to pay a flat fee and a 1-3% mark up on the FX, for Xoom the average revenue per transaction is $12. 90% of their payments are repeat customers who tend to send money abroad in line with receiving their paycheck.

Xoom is also trying to solve the problem of bill payments. In some of these countries payers have to go to a physical location, line up and pay. Xoom have noticed that 30% of money sent through their service is for bills. With the recent acquisition of BlueKite Xoom is building the capability to make payments direct to utilities and other bill payment services on behalf of someone else. Xoom believes that this will make their service even stickier as once you have set up all your payment details for your family overseas it will be unlikely that you will leave the Xoom service.

Smartphones opening up new markets
The smartphone has been great for Xoom's business especially in Latin America as most users do not have access to a desktop. In 2013 42% of transactions were conducted on a mobile device. In Latin America mobile usage is above 50% while India is much lower apparently the majority are IT professionals that are always near a desktop. Xoom's mobile app has incorporated a '2 click quick send' feature which allows users to send money in around a minute 80% of Xoom's transactions are quick send. Competitor app downloads have been negligible with Western Union's online business only 5% of revenues.

Paypal mafia
The Paypal mafia ie the founding members of the Paypal team have created some of the world's most valuable and innovative companies. You probably recognise Elon Musk who co-founded Tesla and Solarcity, Reid Hoffman with Linkedin, Peter Thiel the first investor in Facebook, Max Levchin with Yelp and Steve Chen a co-founder of Youtube etc. Hopefully the picture below conveys how successful as a group they have been.

This leads me to Xoom which has one of the most heavy hitting boards of any small cap stock that I follow. Roelof Botha ex Paypal CFO is the chairman. Kevin Hartz one of the first investors in Paypal and founder of Eventbrite is a director and founder of Xoom, Keith Raboi is a former COO of Square and Matthew Roberts CEO of Open Table. This is a very well connected company. Even Paypal has tried to partner with Xoom but Xoom believes that they can do a better job themselves as Paypal is focused more on merchants rather than solving problems around the remittance market.

According to the World Bank the international remittance market is huge at $549 billion and growing around 8% per year. Xoom's immediate target opportunity is $82 billion so it has around 7% share of the current markets it is in. Given the large opportunity, a mobile friendly product and an ex-Paypal management team the future for Xoom looks bright.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive owns a position in Xoom (XOOM) stock

Sunday, 30 March 2014

Glassdoor telling it how it is

Glassdoor is a website that lets prospective employees know what a company is really like. We have all heard about how great companies are from their recruiters but what do their employees really think? Glassdoor helps answer that question with 6 million company reviews, CEO approval ratings, salary reports, office photos and more. Glassdoor was co-founded by Rich Barton who has a track record for disrupting industries being the co-founder of Expedia the travel bookings site and Zillow a housing research site.

Glassdoor is not listed but when it does list on the stock exchange Rich Barton will likely have the track record of co-founding three billion dollar businesses an unheard of track record in such a small amount of time. As an investor I personally use Glassdoor to help evaluate company management and find their CEO rankings useful in assessing management from an employee point of view. Glassdoor has recently revealed the highest rated CEOs for 2014 as voted by employees (see below).

Source http://www.glassdoor.com/50-Highest-Rated-CEOs-LST_KQ0,21.htm

Linkedin's (LNKD) Jeff Weiner took top honours with an amazing 100% approval rating. Though a quick check of the website now shows a 98% approval rating still amazing given the sample of 680 ratings. LNKD was also voted the 3rd best place to work in a separate survey. Jeff Weiner took the crown from last years winner Facebook's Mark Zuckerberg who was rated 99% in 2013 but dropped off a few points this year. Jeff Weiner was singled out for creating a culture of transparency holding bi-weekly all company meetings and for 'walking the walk'. LNKD is all about recruiting and connecting people to make them productive and successful. It is only fitting that LNKD employees feel the same way giving high approval ratings to their CEO it seems LNKD really does walk the walk.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not own a position in Linkedin (LNKD) stock

Sunday, 23 March 2014

Spam (not the ham)

Spam I'm not talking about the food but something closer to home the dreaded spam email. Spam is one of the worst email experiences only bettered by emails from your boss with a deadline demand of now or better yet yesterday. Bill Gates famously said that spam will be solved in 2 years time unfortunately this was back in 2004. While spam emails seem to target me well (tongue in cheek ie get rich quick, help me get out from debt, earn $10k a week working from home or even Viagra) they are very annoying. We have all personally experienced the rise of information and the overload it creates. As can be seen below the amount of digital information created and shared has multiplied and is expected to double over the next two years.

Email better than search?
There are around 3.3 billion email accounts in the world (source Mashable). Spam still exists as emails are still one of the best ways to get in front of a customer. Apparently for every dollar spent on email marketing in 2011 there was a $40.56 return whereas search engine marketing produced a sold $22.44 return. (source Direct Marketing Association).

Spam straight to junk
People are becoming more savvy and socially aware. Luckily it is getting easier and easier to opt out junk email lists. Spam filters try to target the worst offenders by looking for spammy keywords and phrases such as using ALL CAPS or too many exclamation points!!!

Here’s a sample of criteria from SpamAssassin

Talks about lots of money (.193 points)

Describes some sort of breakthrough (.232 points)
Looks like a mortgage pitch (.297 points)

Contain urgent matter (.288 points)

Money back guarantee (2.051 points) attracts the highest spam score!

Apparently other words are help, percent off and reminders. If the total “spam score” exceeds a certain threshold, then the email goes to junk.

Hard to invest
Even though email is important the world is becoming multi-channel with email, mobile, social, display, search you name it. It is widely expected that the Chief Marketing Officer will spend more on technology than than Chief Information Officer by 2017. In a digital world consumers have high expectations they expect companies to keep track of their purchasing history and communication preferences. Email plays a major part as they might not visit your website or blog everyday but check their email multiple times a day. The only real pure play email/marketing stock listed on the exchange that you can invest in is Marketo (MKTO). Unfortunately MKTO trades on a software as a service multiple which tends to mean it is not yet making money. Maybe I should re-open that money back guarantee email...

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not own a position in Marketo (MKTO) stock

Sunday, 16 March 2014

RetailMeNot a digital age coupon

RetailMeNot (SALE) is the world's largest digital coupon marketplace with 500,000+ coupons covering 50,000 stores. Over the period of Thanksgiving to Cyber Monday SALE helped to process 2.6% of all e-commerce sales in the US. According to the CEO only 2-3% of visits to retail websites are converted to sales, offering coupons and discounts can increase these conversion rates. Apparently the company has not lost a contract with a retailer in the past 4 years.

Your first question might be just how is this different from Groupon? Well Groupon gives big discounts from smaller retailers sporadically while SALE gives small discounts from big companies every day of the week. Similar to Groupon SALE does not charge advertising but a commission on sales it helps to transact typically around 5% of the order value. SALE works with 90 of the top internet 100 retailers.

See SALE's advertisement below helping you cope with deal envy since 2010.

Coupons gone digital
Advertising can be difficult on the smartphone with a smaller screen, but in SALE's favor the coupon is their ad. According to the CEO of Qualcomm we check our phones 150 times a day or about once every 6.5 minutes, it is with us all the time and helps us to discover new deals. With digital coupons you no longer need to carry around paper coupon cut outs for your purchases. As a result redemption rates for digital coupons are much better between 5% and 20% compared to paper coupons around 1%. Even a small increase in conversion is extremely valuable for retailers as industry data note that up to 65% of shopping carts online are abandoned. A coupon with an extra discount might just help you to checkout.

As can be seen below mobile web visits consist of 30% of traffic and 15% of revenue.

Risks? Coupons not exclusive
Most of their content is not exclusive as 1/3 of coupons are contributed by consumers. Only around 5-10% of coupons are exclusive. Gross profits are also high at 93% potentially only room for them to go down. Also a worry are Google and Groupon who could crush the business if they decided to focus more on coupons.

Market expanded no longer just online
Having a mobile app means SALE has more than 6,000 shopping locations that the app can recognize (geofenced) when a user enters a shopping mall and offer discounts based on your location. This increases SALEs addressable market from just ecommerce to physical stores. So far 88 retailers have used their mobile app to offer discounts in store discounts for their 35,000 stores.

While the majority of coupons are American based. SALE does offer great access to Domino's Australia pizza codes coupon on!

http://www.retailmenot.com/view/dominos.com.au

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not own a position in RetailMeNot (SALE) stock

Sunday, 9 March 2014

Mobiles an any time everywhere shopping tool in China

KPMG has put out an interesting report on how the internet is affecting Chinese consumers. They have a few interesting charts I've shared below. The biggest impact is the effect the mobile phone is having on retail. Many Chinese have leapfrogged straight to the mobile phone as a computer in their pocket rather than experiencing a computer just on their desk. KPMG's survey found that 69% of respondents used a desktop computer while 53% said they used a smartphone.

No stores? Shop online
The Chinese consumer is not the least worried about physically trying on shoes. Sales on a % basis are now equal to the US. A reason for this is that some of the lower tier cities do not have the access to brands in physical stores creating a great opportunity for online retailers. The most popular online category is cosmetics.

http://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Documents/China-Connected-Consumers-201402-v2.pdf

No more twiddling thumbs
In the past whenever you used public transport you would see twiddling thumbs now you see those thumbs being put to good use buying goods and growing the economy! Being able to buy whenever and wherever is a major advantage. Social media also plays an important part and was rated as the best way to find information on purchases slightly ahead of word of mouth. With nearly instantaneous feedback consumers can receive immediate advice from friends on purchases through social media.

http://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Documents/China-Connected-Consumers-201402-v2.pdf

It seems mobile payments are connected to eCommerce which gives some credence to eBay's current argument against splitting up their eBay and Paypal businesses. The market in the US is still up for grabs with other companies like Square, Apple, Visa and even Starbucks competing in the mobile payment space. In China apart from Union Pay (a network much like Visa and Mastercard but government owned) the battle for consumers dollars online is between an eCommerce site and a social network. They are AliPay which is owned by Alibaba an eCommerce site and TenPay owned by Tencent a social messaging service. It is amazing to think that nearly half of the internet users in China have made a mobile purchase. Cash is no longer king!

http://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Documents/China-Connected-Consumers-201402-v2.pdf

Jason

http://www.decisiveassetmanagement.com/

Sunday, 2 March 2014

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