Yoox Net-a-porter its all about the box

In big news two leaders of the online luxury market have agreed to merge in a market changing transaction. YOOX is known for its operations expertise running the back end technology and logistics for luxury brand sites. While Net-a-porter runs its own luxury branded site. Clued into the fashion world Net-a-Porter even produce their own magazine whose content is becoming even more important for social media and sales. The combination will let each partner lean in on each others strengths. I mean look at Yoox's boxes they could sure use Net-a-Porters fashion sense!

Just like Tiffany it's all about the box

Together the pair would claim about 15% of the online luxury market with 2.1 million customers. It's the perfect transaction creating a market leader and being accretive in the first year there is a reason the stock was up on the news. Even with the rise the combined company trades at a EV/EBITDA discount to Asos and Zalando.

The fashion partner of choice
According to McKinsey online sales represent only 4% of the luxury retail industry but are expected to grow at double digits for the next couple of years. Bain and Co estimates that 40% of luxury brands don't sell their bags online. These online brands are realising that more and more people are buying online and even more researching online before they buy. Most luxury brands just need a partner. As can be seen below there will be three business lines.

Source: Yoox Net-A-Porter presentation 

The two businesses are complementary Yoox is known as an off price brand while Net-a-Porter is in season. They are also successful in different markets Net a Porter is big in the UK while Yoox is big in Italy. I'm normally skeptical of 'revenue synergies' but I think it makes sense in this case with more customers and different offerings they will be able to serve more customers and more importantly brands. The merger will accelerate growth they expect no redundancies in the company. The combined entity is too big for luxury brands too ignore. There is no one else with scale that luxury brands can work with. As can be seen below Amazon and other sites trade on value for money. Their average orders are too low for luxury brands.

Source: Yoox Net-A-Porter presentation 

Opening doors to the world's luxury fashion store
The smart part about the transaction was how it was structured. Richemont (who owned Net-a-Porter) will own 50% of the entity but only have 25% voting rights so that the combined entity will remain independent. This independence is important because of Yoox's relationship with luxury retailers. With increased customers and offerings the combined company should be able to convince other luxury brands to transact online. As the founder of Net-a-Porter says "the best way to predict the future of fashion is to create it." With YOOX's operational savvy and Net-a-Porters fashion sense the future of fashion is here.

 Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Yoox (YOOX).

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.

Amex can't leave home without it?

American Express (AXP) cards are the choice of corporates and affluent individuals. It is the largest integrated payments platform in the world processing over $1 trillion in commerce. Yet AXP is struggling, they are parting ways with their largest customer Costco and have lost a government anti-trust lawsuit. They are operating in a more competitive environment with banks that are happy to earn low single digit returns on their cards business to cross sell other banking products. It seems that investors are leaving home without it.

Source: Amex investor day

Largest integrated processor means they know what you buy
AXP business model is unique in that they are integrated (see above). They own the network and are a card issuer and merchant acquirer. They have a direct relationship with their millions of card members and merchants. While Visa and Mastercard are the middle men (network only) whose direct customers are banks. AXP's advantage is that it knows where we buy, the time, the category of goods and whether it is online or offline. They have a unique data set that could be very valuable. They are already benefiting by having fraud rates half that of Visa and Mastercard because they are able to detect and stop fraud earlier.

When it rains it pours Costco and DOJ
Costco was their largest co-brand customer (see below). The lower returns and constraints on serving competitors of Costco was too much for AXP to reapply. While Costco is a loss (10% of their cards) it allows them to explore relationships with other retail partners. AXP is positive that they can retain the majority of Costco customers as over 70% of their spending on the card occurs outside of Costco warehouses. As a co-branded product the customers are as much theirs as Costco's. They are also appealing the anti-trust ruling that allows retailers to steer customers to payment methods other than AXP. Losing the Costco card exclusivity contract actually reduces the anti-trust risk.

Source: Amex investor day

Don't leave home without it?
Like Visa and Mastercard AXP is benefiting from the move away from cash to card. Yet AXP is a very different business model to the Visa/Mastercard networks. As mentioned before they are integrated taking on the financing risk of mainly credit spend not debit. This integration helps with analytics but it means the banks are a competitor to AXP whereas banks are customers of Visa/Mastercards network. Still AXP is a prestige brand AXP card members spend three to four times more on average than Visa and Mastercard customers.

On a 14x multiple the stock looks good especially compared to the networks multiples but a concern is management keeping their EPS target for 2017. AXP believe they can return to targeted growth of 12-15% by 2017 but competition has stepped up. It seems there should be a number of headwinds. The strong dollar should continue to affect international revenues and net write offs near historic lows of 1.5% should increase going forward. We believe this earnings uncertainty will lead the stock to trade in a range for the next year until investors get confidence in management targets or more likely targets get lowered. For the time being we prefer the networks like Visa but AXP is one to watch.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a long position in American Express (AXP) or Mastercard (MA) stock but is long Visa (V).

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.

Sotheby's a great bubble indicator

Low interest rates have stocked demand for real assets such as property, equities and even arts and collectibles. It has also increased talk of bubbles. It's hard to pick the pricking of a bubble but one of the most reliable indicators has been Sotheby's (BID). As many of you know BID is the auctioneer of fine arts and collectibles. They are highly reliant on a booming/speculative economy.

Looking at a chart of BID its share price has picked the top of many bubbles. Ranging from the Japanese boom in 1989, the tech boom in 1999, housing/oil boom in 2007. While it has threatened to make new highs in 2011 and 2014 it hasn't made a substantially new high since 2007. This suggests that talk of a equity bubble might be premature and we should stay long the market.

Source: Bloomberg

Oldest company listed on the New York Stock Exchange
As an investment itself Sotheby's (BID) is starting to look interesting. For such a cyclical company BID has stood the test of time. It was founded in 1744 in London to auction a couple of hundred valuable books. BID is the oldest company listed on the New York Stock Exchange. It has the characteristics of a great business as there are only two auction houses of substance BID and Christie's. Christie's is privately owned by French billionaire Francois Pinault who purchased the company for $1.2 billion in 1998. It is a great long term duopoly market with no other comparable listed peer. While it might seem like a simple matching making business they add value through performing due diligence to authenticate and determine ownership of the property being sold.

Source: Sotheby's investor day

Some change will do you good
This past week BID announced the appointment of Tad Smith ex Madison Square Garden and Starwood as CEO. Tad replaces the old CEO who has served in his role since 2000. He held very little shares in the company while receiving country club perks and a driver. Though Tad has little art experience he has experience in growing brands.

This change should be welcomed by investors as previous management have not fully taken advantage of the buoyant art market. As seen above sales have rebounded to peak levels but EBIT is nowhere near peak.

Help from activists
Shareholder activists are here to help. Third point and Marcato two well regarded activist funds own 19% of BID. They are pushing management to make better use of their capital. They are arguing for share buybacks and release of capital by selling and leasing back their London and New York headquarters. BID has shown great timing by purchasing their New York headquarters on February the 6th 2009 for $370 million subject to a $235 million mortgage. They are currently reviewing options on whether or not to sell. BID has a board to match its illustrious history including such names as the Duke of Devonshire. Thankfully Dan Loeb has appointed himself and two other members to the board. Interestingly Danny Meyer the Shake shack co-founder is also a board member.

No dummy bids here
During the financial crisis in 2008 BID guaranteed minimum prices for nearly half of their artwork. Obviously this didn't do to well as markets for everything around the world crashed. BID has hedged this risk by entering into contracts with dealers and other third parties to pass on this risk. They are entitled to receive a share of the commission if the property sells. One problem for BID is that the art market just like the equity market is cyclical and we are in the sixth year of what is normally a five to seven year cycle.

Bid on a 271 year old company
You can't marry someone hoping that they will change. Company management and performance is similar, underperformers will continue to under deliver and outperformers will continue to surprise on the upside. The change of CEO should bode well for the future of what is essentially a duopoly business and a scarce asset.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a long 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.

Drinking with Jack

Brown Forman (BFB) is a pure play investment in American whisky. Their main product Jack Daniels needs no introduction. It is one of the best known spirit brands in the world selling 11.5 million cases last year. They have a portfolio of 30 other spirit, wine and cocktail brands such as Finlandia, Southern Comfort and Canadian Mist. Their products resonate with Australians. Australia is the single largest market outside of the US being 12% of overall sales with ready to drink Jack Daniels a big driver.

Whisky keeps on performing
BFB is a consistent long time performer. Not many companies have been around for 35 years let alone growing at 10% over that period. Some of the world's oldest companies are in the alcohol or pub business, no matter what technological change occurs in the future people will still be drinking whisky. As you can see below Whisky is the fastest growing spirits category.

Source: Brown Forman investor day

Source: Brown Forman investor day

Innovation on fire
Modern updates of their core Jack Daniels has introduced more consumers to the brand. Jack Daniels Honey has attracted more females and millennials. Honey is now a top 20 brand with 1 million cases sold above $25 per bottle all within four years. BFB have also released Jack Daniels Tennessee Fire a cinnamon liqueur. It's slogan puts hair on your chest then burns it right off! So far it is tracking ahead of Honey's rollout growing 1.3x Honey's growth rate.

Like most established brands BFB is an emerging market story. Their Jack Daniels brand has a 28 year compound annual growth rate of 20% overseas compared to 4% in developed markets. Another way to look at is Jack Daniels has 13.7% share of value in the US versus 6% in the rest of the world.

A friend of Jack
The Jack Daniel's brand is a rare asset, most growing spirit companies are not listed. Their competitor Jim Beam was taken over by the Japanese company Suntory who paid $16 billion including debt approximately 20 times trailing EBITDA BFB trades at 18x.

Source: Brown Forman investor day

You can see above that everyone is a friend of Jacks. Their combination of a great heritage brand like Jack Daniels and its innovation around honey and cinnamon will likely mean another great 35 years for the brand.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a long position in Brown Forman (BF/B) 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 caffeinating you, your portfolio and your property

Starbucks (SBUX) is world famous for selling coffee they are also famous for their store locations. SBUX spends very little on marketing preferring to spend on an ever expanding number of stores with some of the best prime locations. If you're everywhere you don't need to advertise!

Location Starbucks
This real estate expertise was backed up by Zillow the American real estate research site. They conducted research on key factors that would indicate an increase in property prices. Among the most consistent indicators was proximity to a SBUX store. They found that homes located within a quarter mile of a SBUX's store have gone up by 96% compared to 65% for all US homes. Dunkin donuts was up only 80%. As the distance to store increased the property increase became smaller.

Balanced growth not frothy
Can it still grow stores? Most of SBUX growth will come from overseas in particular Asia where they can grow their 1,500 stores in China to 5,000. Otherwise SBUX is maximising the locations it already has. It has multiple revenue opportunities such as increasing food contribution which is 19% of transactions, evening offers like wine and cheese and the big one this year is digital ordering.

Source: Starbucks William Blair Conference

Espresso express 
SBUX is trialing express order and pay in their Portland stores. The great thing about express ordering is that customers will have to sign up as a rewards member. This should help retain the customer making them even more loyal to SBUX which they can leverage for one to one marketing. So far results are above expectations. They are seeing a lot of curiosity from other customers when others are ordering direct. SBUX also plans to trial order and delivery from mid 2015. Hopefully this can extend the impact of their location premium!

SBUX's is dominant in the US and is replicating this success in Asia. Shanghai has the most SBUX stores 320 of any city in the world. SBUX is trading on a high multiple but they aren't many companies out there that sell an addictive product with long term profit growth targets of 15-20% that can also increase your house price. The next time you're at SBUX make sure you budget some time to look at local property.

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.

Appdate with Comscore

Comscore (SCOR) is the leader in measuring where we go on the internet. They have great insights on how we spend our time. Their most recent app update shows that Facebook and Google owned apps continue to dominate with 8 out of the top 10 apps.

Source: Comscore insights

Apple now has over 1.4 million apps. The bad news is that it's very hard to get your app to stand out as usage is very concentrated (see below). 40% of the time spent on your phone is social networking and games.

Comscore's own update
Getting an app out there is competitive and so is the general battle for eyeballs. Time spent on devices is moving to mobile and more television viewing is shifting online. We think a business that measures these changes is a better way to participate in this growth. SCOR has the opportunity to leverage its online measurement to measure TV viewing across device and as it moves online. The increasing adoption of internet TV and watching on mobile devices means that traditional TV measurement no longer makes sense.

Measurement less exciting but with more potential
Media companies are voicing concern that current measurement systems (mainly Nielsen) are not making enough changes to measurement when viewing habits have changed. Given the measurement limitations they are leaving precious advertising revenue on the table when online viewing is not included. Nearly every media conference call involves some comment or complaint about television measurement in an internet world. This change creates an opportunity for someone to crack the cross media device code.

Source: Comscore 4Q presentation

Doing what your customers want
Customers are asking SCOR for a solution. They believe they can accomplish cross-measurement best in a recently announced strategic alliance with Kantar (see above). Kantar is the leader in TV measurement outside the US and is owned by WPP. This alliance will aid SCOR's expansion overseas combining Kantar's overseas TV assets and SCOR's digital measurement business providing a world class cross media measurement system. Everyone is watching media on TV, phones, tablets and desktops, media companies are asking for it and now we have someone to measure it.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long 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.

Hasbro playing well with Disney

The toymaker Hasbro (HAS) has got game. Their brands reported record earnings last week, raising their dividend and announcing a $500 million stock buyback. Lately they have had plenty of good news to share. Late last year Disney Princess ditched Mattel for HAS. Starting in 2016 Disney Princesses will be hanging out with the team at HAS ending a nearly 20 year partnership with Mattel. HAS has traditionally been strong in boys but with Frozen and Disney princess HAS will have a massive legup against its rival Barbie and Mattel.

Playing with Disney
Disney Princess is a 2016 story but this year the boys will be kept busy with Disney movie releases. In addition to Disney princess HAS has the rights for Marvel and Star Wars. It's a big year for boys toys as Avengers 2 comes out in May, Ant Man, Fantastic Four and the big one Star Wars comes out December 18. The last Star Wars film in 2005 helped sell $494 million of HAS toys. HAS are looking to up their game working on light sabers that kids can customize. It's like lego for light sabers (see below).

Source: http://kotaku.com/star-wars-bladebuilders-let-you-craft-your-own-impracti-1685846217

Monopoly is a monopoly
HAS revenues are split between licensed brands from the likes of Disney and Sesame Street and their fully owned brands. HAS owned brands have seen a renaissance by combining media and play (see below). The main driver has been movies and TV with Transformers benefiting the most. HAS has made sure that their brands are well represented on TV commenting that kids are consuming 12 hours of media within 8 hours. Kids are multi-tasking just like the rest of us doing two things at once, playing and listening to music etc at the same time.

Source: Hasbro investor day 

Entertainment and story telling has been a driver of HAS success. According to NPD entertainment based toys grew at a 7% compound annual growth rate while non-entertainment toys were flat from 2012-2014. Great stories and characters are attracting kids to their toys.

The most interesting thing about HAS is that Disney has given them their vote of confidence. HAS already has the biggest boy brands in Marvel and Star Wars, starting 2016 they will also have Frozen and Disney Princess. HAS toys will greatly benefit from Disney's film schedule. An investment in HAS is a bet on Disney's story telling success.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in Hasbro (HAS) stock but is long Disney (DIS).

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.