Fitbit step by step

Fitbit is the leading wearables fitness band helping users sleep, eat and exercise better. It has grown massively over the past 3 years dominating the market with 85% market share by dollars in the first quarter of 2015 (NPD Group). It's a great consumer brand showing tremendous growth (see below) in a rapidly expanding market.

Source: Fitbit roadshow and S1

I've always wondered how long users last with a Fitbit band. As of the end of March Fitbit have sold 20.8 million devices since inception. 19 million have registered with 9.5 million active users. So around 46% of buyers are still using it that's pretty good considering many Fitbit's are gifts. It's starting price range of $59.99 is very giftable.

The only concern is Apple. The Apple watch officially went on sale online in late April. Its sport watch is very likely to impact Fitbit sales. The IPO has been well timed for the Fitbit sellers right before we have any idea how Apple's watch is affecting sales. Even with these concerns I was surprised to see that Fitbit is growing faster than I thought and that it is very profitable.

One good angle for Fitbit has been their partnerships with corporate wellness programs. Fitbit can help companies reduce premiums and keep their employees fit and healthy a worthy corporate expense. The success of Lululemon has shown that we all have to look good when we exercise. Don't worry Fitbit has you covered with a collaboration with Tory Burch for Fitbit accessories.

Source: http://www.fitbit.com/toryburch

The hardware bands drive sales but Fitbit has plans to monetise its user base. It can upsell services to their 9.5 million active users with offers like a 24/7 virtual trainer at $49.99 per year. These services are only small 1% of sales but future growth will depend on subscriptions and software. While it is a hardware company it does have attributes of software companies in Fitbit's network effect. When users sign up they can find and engage friends and family keeping users committed to exercising and staying with Fitbit. Exercising is always easier with friends. We don't know the final IPO price (an important detail) but the outlook for fitness wearables is looking strong. As they say commit to be fit(bit).

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Fitbit 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.

Kicking goals with Manchester United

This past week English Premier League champions Chelsea played Sydney FC in front of a crowd of nearly 84,000 at ANZ stadium. It was a a big event the Premier league is the biggest football league in the world and its teams are global. It felt like more of a home ground for Chelsea than Sydney! Even though Chelsea are the current champions the most watched Premier league team is Manchester United (MANU) commanding 51% of the League's global TV audience.

Source: http://ir.manutd.com/company-information/about-manchester-united.aspx

Sport is the most valuable media content as we watch events live. There is no watching on demand afterwards you have to watch it live in case someone else spoils the result. Fans will pay nearly anything to watch their favourite team and advertisers love the fact that people will be watching it live and not skipping their ads.

Over 100+ years old

MANU estimate that they have 659 million followers worldwide. It is one of the most popular and recognisable teams in the world. As a company MANU has durability. It was founded in 1878 acquiring the name Manchester United in 1902. There won't be any university drop outs in a garage planning to disrupt and create a company to compete against MANU.

Always sold out

MANU has three businesses all high margin and highly visable. Their commercial division (branding), broadcasting (TV) and matchday. Matchday revenues have the lowest growth potential but they are highly predictable. Their 75,615 Old Trafford stadium has had 99% occupancy since 1998/1999. Another winning streak alongside its 62 trophies that most teams can't compete with.

For shareholders the big growth areas are broadcasting and commercial. On the broadcasting front the English Premier League signed a deal earlier this year with Sky and BT. Resulting in 5.1 billion pounds over 3 years a 70% increase from the previous deal (see below) and this was just a domestic deal. Football is also gaining popularity overseas particularly in Asia and the US. MANU opened an office in Hong Kong and is opening a New York office to pursue future brand deals. Globally they have an official airline, beer, noodle and even marine diesel engine partner. 

Source: http://ir.manutd.com/company-information/about-manchester-united.aspx

Its not just a sports team its a brand
On the commercial front MANU have signed a new kit deal with Adidas for a minimum 75 million pounds per year over 10 years. The previous relationship with Nike was for 23.5 million pounds a year. Adidas will provide training and playing kits and have the exclusive right to distribute dual branded merchandising. The deal is better than it sounds as MANU will also bring retail, e-commerce and mono brand products in house rather than share these revenues as they did with Nike. MANU sold approximately 5 million items of branded licensing including 2 million jerseys.

Source: http://ir.manutd.com/company-information/about-manchester-united.aspx

These increased revenues have allowed MANU to spend more on players creating a virtuous cycle of success. As a team MANU has performed poorly since the retirement of Alex Ferguson but their recent top four finish suggests they are back on track qualifying for the Champions League. The UEFA fair play regulations also reduce the risks of clubs overspending. While players need to take their fair share MANU does a good job of keeping expenses in check with a great training program and a club that everyone wants to play for. Approximately one third of their first team comes from their academy.

Manchester United jerseys are a global phenomenon

MANU broadcasts are must have content for fans. Unlike most teams they are global you see people wearing their jerseys all around the world. As a company MANU has high predictability of future revenues and a durability that most companies can't match making MANU a fan favourite on and off the pitch.

 Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in Manchester United (MANU) 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.

2015 Internet trends report

I always look forward to Mary Meeker's Internet Trends presentation. This year's 197 slide blockbuster did not disappoint. I have included some of my favorite slides below.

It shocks me but we now spend 2.8 hours a day on our mobile phones!

Consumer behaviour has changed yet advertisers are still spending on print and under spending on mobile.

Facebook (Whatsapp, Instagram) is dominating the mobile market by usage and time spent.

Even though Facebook is dominant among teens it is becoming less popular. Thankfully they also own Instagram.

Your mobile is officially the remote control of your life.

Chinese e-commerce is showing exponential growth. Alibaba is dominant in the market.

 What's next? Investors are looking at India for next great technology company.

Click through here for the full presentation.

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in Ebay (EBAY) and Alibaba (BABA) 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.

Disney it's all about movies and no selfie sticks

No selfie sticks. That was the message Disney sent to consumers lining up for rides last week. The signs make it official guests must stow their selfie sticks on rides. A number of rides mainly Space Mountain and Big Thunder Mountain have had to be stopped due to selfie-stick use. Apparently other theme parks have installed metal detectors in lines! Disney is a forward thinking technology company with Sheryl Sandberg of Facebook and Jack Dorsey of Twitter on the board but even Disney have had enough.  All we need to worry about is visitors using drones to take photos!

https://twitter.com/Jaunted/status/565181794467581952/photo/1

When you see the behavior above it all makes sense and comes ahead of the opening of Shanghai Disney Resort scheduled to open sometime next year. There are 330 million income qualified residents within a three hour travel radius of the park hopefully they will have the selfie-stick ban from the get go.

Source: http://mashable.com/2015/05/19/selfie-sticks-disney-world/

For all the talk of selfie sticks the studio performance of Disney is key. A hit movie creates a waterfall effect for the business. A hit movie creates high box office revenues for Disney, it creates demand for toys, Disney can open new rides getting consumers to stay at the park (remember no selfie-sticks on rides) and finally re-monetise shows on Disney TV. If you're a parent they will get your money somewhere! With the new park in Shanghai Disney and the opening of its first Chinese store Disney has the potential to replicate this success in China.

Source: Disney investor presentation

Its interesting to look at Disney's upcoming movie lineup. Their acquisitions of Pixar, Marvel and Lucasfilms (Star Wars) have set them up to dominate the box office for the next few years. The recently released trailer for the upcoming Star Wars movie has already been viewed 52 million times. The releases above are a great leading indicator for the future success of their business. Disney haven't been specific but they will be opening Star Wars themed attractions at Disney. These new rides and the banning of selfie-sticks give families even more reasons to go to Disneyland.

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in Disney (DIS) 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.

Investing tips from Jeff Bezos and Larry Page

Everyone is always looking for the next great stock tip from hedge fund gurus. But no one seems to bother to analyse the performance of corporate CEOs and how they invest. Warren Buffet's Berkshire Hathaway is the exception but companies like Google and Amazon have been also widely successful investors. How do they allocate capital?

Jeff Bezos mentioned his ideal investment in his latest shareholder letter. No surprise but the ideal investment sounded like Amazon! (See below). An ideal investment has four characteristics. Customers love it, it can grow to a very large size, it has strong returns on capital and its durable in time.

Source: https://www.sec.gov/Archives/edgar/data/1018724/000119312515144741/d895323dex991.htm

When investing Jeff is famous for asking what won't change in the future. For example what won't change in the future is that customers will always love low prices. So Amazon focuses their investments to improve things that won't change ie customers will always love greater selection, faster shipping and lowest prices on their site. In a fast moving world focusing on the fundamentals that won't change has paid off for Amazon and their shareholders.

Google's Larry Page has a simpler approach. Each investment has to pass the toothbrush test. They will invest in a product or company when it has the potential to be used by hundreds of millions of people hopefully twice a day. That sounds like Google to me. I use it much more than my toothbrush! Instead of worrying about capital returns and free cash flows Page takes the long term view and cares about how useful it will be not how much money it is making. Something to think about next time you're brushing your teeth.

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Amazon (AMZN) but is long Google (GOOG) 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.

Time Warner the cheapest way to play TV streaming?

Internet television has taken off with Netflix, Amazon and Hulu leading the way. Investors have had less choice with Netflix being the only pure investment choice Hulu is not listed and Amazon streaming comes along with a retail and cloud business (not too bad a problem to have). Netflix has been the default it is bigger than every other cable network in the US with the average user consuming nearly 2 hours of content a day. The release of HBO Now from Time Warner (TWX) gives consumers and investors new options. HBO is the premium TV service but until recently it was only available on cable.

HBO Now will target the 10 million homes with broadband who don't have a cable subscription. There are also 70 million households in the US that pay for cable but do not have HBO. It's an experience you've probably had but as a premium service HBO has been promoted as an add on to the basic cable bundle. According to Fast Magazine the average HBO pay TV bill added up was $130, HBO Now at $15 is a much more compelling offer. It is also a much cheaper option for investors. TWX is a not a pure play internet streaming investment but they are media content owners having Warner Brothers and the Turner network on their team. Both these services have the potential to be integrated into HBO now or in their own app.

 Note Netflix subscribers as of 31st March 2015, HBO December 2014 numbers include Cinemax subscribers.
HBO has around 30 million domestic subscribers  not including Cinemax.

Source: Netflix 10Q and TWX 10K

In the Game of Thrones you win or you die
HBO Now has 2,800 hours of library and output deals with 4 Hollywood movie studios. Including the most popular TV show of all time Game of Thrones. Management have mentioned that their Turner, Cartoon Network and Warner Brothers content could expand online. I'm expecting TWX to integrate all services or at least release separate apps. Warner Brothers has over 80,000 hours of programming include Harry Potter, Lego and Lord of the Rings and releasing Batman versus Superman next year.

http://time.com/3825376/best-movie-streaming-service-netflix-hbo-hulu-amazon/

Netflix wins on range and pricing with a large list of all time classics though I would argue HBO's originals are better quality. Netflix will pick up the slack on movies next year with an agreement with Disney which will include output like the Avengers and Star Wars. While there is a focus on originals approximately 40% of HBO subscribers only watch movies it is the number one reason for subscribing. Last year 14 of the top 25 films were on HBO (see other stats above). They have long term agreements with Warner Brothers (which they own), Fox, Universal and Summit which comes up for renewal in 2017. There is concern over HBO cannibilising themselves but I believe a lot of households are not subscribers because it is marketed as a premium extra service. As a standalone offer I believe it provides great value.

Netflix or HBO? Both
I believe that both services complement each other. It is a case of both rather than either/or currently 85% of Netflix subscribers are also cable subscribers.TV is not a winner take all market there will be plenty of users who subscribe to both. Netflix stands out for its large selection and HBO for its quality original series and movies. The battle will be interesting as Netflix tries to become HBO faster than HBO can become like Netflix. HBO has priced their service at $15 a premium to Netflix's $9.

The risk with TWX and other media companies are declining advertising revenues. Netflix's on demand add free business model is impacting TV advertising and ratings. Advertising is 17% of revenues TWX has the lowest advertising exposure compared to peers.


Investors have a new streaming option

Source: TWX investor day

TWX should see a re-rating of its stock. In the past year it has spun off its publishing business and with the release of HBO Now is giving consumers more access to their content. TWX trades at a 16.5x forward multiple a slight discount to the market. It's earnings have grown in the high teens % over the past 6 years and as above is expected to earn more than $8 a share in 2018 a near doubling of earnings from 2014. We also believe the stock could see a decent re-rating of the multiple as investors look for another way to get exposure to TV internet streaming.

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Time Warner (TWX) or Netlfix (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.

R&D It's not the size that counts but what you do with it

Innovation is the key to business. It's an old technology saying if you can't predict the future then you have to invent it! The only constant is change and we need to change just to keep up. I always thought research and development would be the best way to measure innovation. Yet looking at research and development spend as a % of sales Apple the most innovative company over the past ten years spends very little (see below). Apple's $6 billion R&D pales in comparison to Microsoft's $11.4 billion. Facebook spends just under half Apple's but as % of sales are reinvesting heavily in messaging and virtual reality applications.

Research and Development spend as % of sales

Source: Bloomberg

Surprisingly Apple does not even make the top 20 list on an absolute basis, click
below to enlarge. I never would have though of Volkswagen being the most innovative company.

Source: http://www.strategyand.pwc.com/global/home/what-we-think/innovation1000/top-20-rd-spenders-2014

Thankfully Bernstein released a report last year asking "Do high R&D spenders in tech generate stock outperformance". They found that companies with the lowest spending on R&D tended to out perform the best. Companies that spent up to 17% of sales on R&D outperformed higher spending companies over 1,3,5-10 year periods. Their research showed that stocks in the lowest third of spend have outperformed since 1977 with a 5 year average out performance of nearly 8%. It's a little counter intuitive but large R&D spend does not equate to better stock performance. It's all about scale and productivity. Productivity is harder to measure so we can only judge based on products. Luckily we can look around us to get a better feel on product innovation. How many people do you see with Microsoft phones and tablets compared to Apple products. Don't worry about R&D spend the customer votes on innovation with his wallet.

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in Apple and Google 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.