A tale of two networks

Facebook and Linkedin (not Twitter) are the two largest social networks in the western world. Linkedin is more like your end of work Christmas party you're don't go there too much and it's not that much fun while Facebook is where users can relax and keep in touch with their friends. It's useful to keep these worlds separate. Both sites benefit from user generated content and the positive network effect of everyone being there. However the shares have dramatically diverged year to date.

Both must have
If you don't have a Linkedin profile recruiters worry while Facebook is how people communicate these days. Phones aren't used for calling anymore its used to scroll through Facebook's newsfeed! Mobile and engagement set Facebook apart 65% of users login everyday. Facebook's users click on the like button more than 6 billion times a day more than searches on google. With 70 likes Facebook can understand you better than your friends (helpful when advertising). We don't use Linkedin nearly as often but it has changed the human resources market. Recruiters can now search for candidates that are not actively searching for work. There are not many more important things than your job.

Linkedin a one day fall equal to Twitter's market value
A major difference that has changed is valuation. They make money two different ways. Being a subscription model (recruiters pay to access) Linkedin has always traded at a premium to Facebook the problem with advertising is that it can be moved easily (less predictable). A 40%+ one day fall erasing nearly $11 billion in value has Linkedin trading at a price earnings multiple discount to Facebook for the first time.

Price Earnings multiple

Linkedin's updated profit guidance caused the fall. We feel their guidance is conservative even more so than traditionally (past 4 quarters have  surprised by 20%, 72%, 83% and 1%). Guidance does not incorporate new product rollouts but removes $50M from discontinued products and does not include any benefit from the rollout of their new app launched in December.

Ni Hao Linkedin
We think Linkedin here makes sense (disclosure we bought a position Friday) as unlike other social networks it is allowed in China. This increases their addressable market and is a clue to how valuable their service is. The Chinese government is willing to have them operate as Linkedin helps workers find jobs. It's a connection to the world's companies, universities and professional talent. Their last China disclosure counted more than 13 million members up 3x since the launch of their Chinese language version in 2014. They are currently investing in China but it will eventually be a massive opportunity something the market is conveniently forgetting.


Decisive has a long position in Facebook (FB) and now Linkedin (LNKD). 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.

We still have to spend

This year has been off to a volatile start so I thought it might be interesting to look at how the payment processes (Mastercard, Visa and Paypal) are seeing the world.

Global outlook
As expected Mastercard called out the US as being resilient, Europe is showing stronger growth best since 2011 and China and Brazil are experiencing week and slowing growth.Visa's CEO saw a similar outlook commenting that "U.S. outbound spend is strong, but it is offset by continued weakness from Canada, Brazil, and Russia. And more recently, we're seeing increasing weakness in the Middle East and China. We do see some areas of strength such as Mexico, Japan, and New Zealand, but they're obviously smaller markets for us."

Mastercard also noted that Chinese tourists "earlier they were going to Greater China, Hong Kong, Taiwan. Today they're going more to Japan, as an example. Japan has actually seen a surge of 115% in tourist arrivals from China compared to the prior year".

Soft global economy but e-commerce is strong
More than 25% of all spending on Visa cards in November and December was online up from 20% three years ago. According to Paypal "for the first time ever on black Friday more people shopped online than in-store." Buying online is a much better way to escape the crowds!

The payment processes are very resilient businesses as they benefit from people using less and less cash. You don't get this sort of commentary in many conference calls (Paypal) "margins in our business want to move up, that is kind of the tendency of the margin structure in our business". In a volatile global environment these stocks still make sense.

Decisive has a long position in Paypal (PYPL) and 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.

Dominos delivering cars and apps

What do you do if you're a pizza delivery company near Detroit? You design your own pizza delivery car. Cars were created for people so Domino's has decided to build a car designed for pizza delivery. In the US alone Domino's delivers around 400 million pizzas a year. When your drivers make an equivalent 21 round trips to the moon having your own warming oven that can go to 140 degrees and hold 80 pizzas is crucial! There will be 150 on the road in 2016 costing between $20-$25k. It's going to be more expensive than reimbursing drivers with their own car but its great advertising value and a better service for the customer.

Source: http://www.dominosdxp.com/#home/0

Best App in retail

At their annual investor day Domino's also released data showing the popularity of their mobile ordering app. The orange dots are Apple IOS user reviews and blue are Android reviews the average is the black dot. Domino's is the highest rated app in the restaurant industry and with the largest amount of reviews. Domino's dug deeper and found that they have the highest ranked retail app not just restaurants. Their 85 score is ahead of Groupon and Footlocker.

Source: Dominos investor day 2016

Leading franchise profitability
Their investor day also detailed a good forward looking indicator for Domino's, franchise profitability. Franchises are now making $120,000 per store a 3 year payback on store opening. The more money franchises make the more stores will open. With this profitability and the new car I think its time for me to open up a shop....

Source: Dominos investor day 2016

Decisive has a long position in Domino's (DPZ) 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.

CES 2016

CES was just like last year drones, virtual reality and fitness wearables the only difference was the competition seemed to be twice as fierce. Apple and Microsoft famously don't exhibit at CES but Chinese companies are increasing their presence. Chinese exhibitors took up over 1/3 of the floor space up from 1/4 last year. It's tough for businesses but great for consumers.

My new home theatre
Samsung had one of the largest and most well attended booths. They manufacture so many items that Samsung will be one of the leaders in the internet of things. Smartphones, TVs and internet enabled fridges they do it all. Their internet enabled fridge was a hit with three internal cameras you can access images anytime with your smartphone we can finally see who ate that last bit of chocolate. You can also order groceries direct. They also had some very cool wearables including a smart suit (NFC tag) that unlocks your phone when you take it out of your pocket. Thankfully as we are in Vegas Samsung's Wellness belt came in handy automatically expanding your belt after a big meal.

LG showed off a bendable TV screen. It's not commercial yet but in the future you will be able to take a TV with you and roll it up like a newspaper. Oculus Rift finally announced their Virtual reality pricing at $599 (sold at cost) but you will also need to shell out a total of US$1,499 for the PC bundle which can power 3D visuals.

These are the drones you are looking for
Drones were taken to the next level by EHang where the drone can actually carry you inside. All you need to do is sit there and enter the destination in the app. It seems a little scary to me as the cockpit is empty apart from a smartphone stand. Parrot also released a drone with live streaming first person view. They always put on a good synchronised show.

The future of TV viewing
We also got to witness the birth of a global network with Netflix launching in 130 countries nearly every country bar China. Last quarter Netflix users watched 12 bn hours up from 8.25 bn a year ago. Since Netflix launched in Oz BitTorrent usage dropped 15%. Youtube also presented and for the second year in row the most popular entertainers amongst American high schoolers weren't actors or music celebrities they were Youtube stars.

How to make your booth stand out
With 2.47 million net square feet of exhibitors up from 2.2 mn last year it was hard to stand out. GoPro knew the secret to a popular booth serve free beer! Nick Woodman the founder got the crowd chanting GoPro handing out samples of his products unfortunately it hasn't helped the stock. Anything to do with Star Wars was also popular with the force enabled BB8 droid drawing a crowd.  It was great to see Uber and Lyft finally operating at the show. Looking forward to next year.

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 top searches

As the markets slow down toward Christmas its always interesting to look back to see what topics and people made the news. We have put together a summary of the top searches around the world including Facebook's most talked about topics (US only), Google's top trending searches and Youtube's top trending videos. We considered Yahoo/Bing but most users are probably on those two by mistake....

It's not even an election year (next year 2016) yet politics was the most discussed Facebook topic. When Donald Trump is involved it creates a lot of lively discussions. Facebook  released other data including their most checked in locations which were Disney and Universal Studios, no data but they were probably the most popular selfie/photo location as well. The most discussed show was Game of Thrones.

The top google searches revolved around people and movies personally was surprised that Star Wars did not make the list. It topped December but not throughout the year apparently the most searched Star Wars question was what order should I watch them. There were over 897 million searches for Paris as users followed the latest news about the terrorist tragedy. In finance the top searches revolved around the Greek debt crisis (remember that) and the China stock market crash. Australian users searched for news on the Chinese economy more than any other country.

This year was also Youtube's 10th birthday surprisingly 2 TV commercials and 3 late night clips made the top ten trending Youtube video list. Youtube is no longer just User generated content it's becoming more much professional similar to TV.

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in Alphabet (GOOG) and Facebook (FB). 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.

Star Wars a galaxy not so far away

Unless you have been in a galaxy far far away you would know that Disney releases the new Star Wars film on December 18. It is predicted to rank no.1 or no.2 on the list of highest grossing films ever likely behind or just ahead of Avatar at $2.8 billion. It could very easily be number one especially as the movie is supposed to be more female friendly than previous films. The strength of the Star Wars franchise means Disney will receive 60% or more of each ticket sold up from the usual 50/50 split. As with Disney it is not just about the movies but toys, themeparks and cruises. If you needed more of an excuse to visit Disney Land Disney is planning a Star Wars land in California and Orlando each site will be 14 acres of land the largest single theme expansion ever.

Artisit rendition source Disney blog

The theme park you've been looking for
Great news this is. That galaxy far far away will be just a little closer. I'm sure there will be some interesting rides they have confirmed the Millennium Falcon (see above) and you guessed it galactic space food like in the Cantina on Mos Eisley. There has been no opening date set but it's going to take a while plans are to break ground in 2016.

Star Wars a galaxy not so far away aisle 9
The toys are big business Hasbro has the Star Wars toy licensing rights out to 2020. Most royalty rates range between 10-15% but Hasbro had to pay 20% given the strength of the brand. Disney has released toys months ahead of the film release with more to come once the movie is out (they don't want to reveal too much of the plot). There are toys for both collectors and kids so far the most popular items are the new build your own lightsaber, BB-8 ball droid and lego Star Wars.

Other retailers have already complained about being crowded out of the aisle. This is before the movie has even been released. Disney cannot recognize the Star Wars VII merchandise revenue until the movie is released which should result in a outsized number next result. Disney is very easily going to recoup the $4 billion they paid for Lucasfilm. The momentum will continue with a new film every year (next year Rogue One) over the next six years. In a world with more competition for time Star Wars is helping Disney stand out. Disney has even brought the Star Wars experience to their cruiseship the Disney Dream. May the force sail with you!

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in 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.

Macy's on sale?

This Thursday Macy's 89th annual Thanksgiving Day parade will wind it's way through New York to Macy's Herald Square. In a age where most retailers are being Amazoned (code word for retail destruction) Macy's stands out with its own parade. Macy's is still number one in apparel but Amazon is soon expected to take the lead. Unlike most department stores Macy's is online it is the 7th largest internet retailer (just behind Netflix) offering same day delivery in 17 markets. Macy's Thanksgiving day parade and their iconic locations make Macy's stand out from the brick and motor pack. Macy's don't disclose the cost of the parade but it does requires a lot of hot air. Apparently Macy's is the second largest helium consumer after the government that's one big Kung Fu Panda!

Macy's stock has taken a hit recently with declining mall traffic. They also took a hit from the strong dollar impacting sales as tourists find it more expensive to go on a shopping trip. Given its prominent locations Macy's is highly sensitive to a strong dollar. In total Macy's operates 885 stores in 45 states with 446 owned properties.

Sell stores not dresses
Investors are rightfully questioning the future of department stores but Macy's properties are iconic. Most investors seem more interested in their property as it is irreplaceable so much so that some think Macy's should sell their stores not dresses. Starboard an activist investor in Macy's believe that their flagship Herald Square store is worth $4 billion by itself, including all mall locations around $21 billion a similar level to Macy's market value. They also have a credit card business the situation looks similar to what happened here in Australia with David Jones where valuable property has been monetised.

Buy one get one free?
Understandably management are reluctant to introduce high fixed costs (rent) in the business separating the property in a sale and leaseback in a REIT structure would reduce the flexibility and increase the leverage they have in their business. Macy's is an enduring brand but it is a concern when investors value the property more than the business. Like many retailers the value is their property but Macy's is also their single tenet. Its tricky so they are seeing if they can monetise some of the space through a joint venture with Tishman Speyer they might let space to other stores. Just like many buy one get one free offers you receive something extra but did you really need it in the first place? For the moment Macy's is a property asset and you get the retail business for free.

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Macy's (M). 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.