WWE Smackdown

What company has 100 million weekly fans, 1.5 billion youtube views, one of the world's top 3 recognised athletes and the no 1 cable program? Maybe you're thinking soccer or the NBA. Not even close the answer is WWE! John Cena is the third most popular "athlete" on Facebook behind NBA superstars Kobe Bryant and Michael Jordan.

Source WWE

The stats are amazing WWE is a combination of both scripted entertainment and sports. (Hang on its not real?). Unlike sport WWE can deliver content 52 weeks a year. WWE makes money from television rights and consumer product licensing, two very high margin businesses. Toy sales for the wrestlers tend to rank in the top 5 for action figures, last year WWE placed no.2 their highest ranking ever.

According to the CFO WWE believe they "may have the ability to double our 2012 EBITDA, double or triple through three key levers. Number one the launch of a pay network that would take our pay per view business and in essence build, use that 100,000 hour library to build out around the pay per views and create a subscription service similar to an HBO." As can be seen below WWE would breakeven at 1 million users and is looking to charge between $9.99-14.99.

More popular than Lassie and The Simpsons?
The next opportunity is contract renewals with four of their largest content agreements up for renegotiation over the next 18 months. WWE point out they have the number one and number two longest running shows in US history before Gunsmoke, Lassie and The Simpsons.

The Smackdown
For some reason they opened a WWE Studio every film so far has proved disappointing only the recently released The Call featuring Halle Berry has knocked it out of the ring. The studio lost $28 million in 2011 and $6m in 2012 in EBITDA.  UFC is also risk and has taken entertainment share, WWE management believe that with a PG rating they target totally different markets and experiences.

They're showing you the money
The stock is also closely controlled by the McMahon family yes that's right Vincent McMahon who is sometimes known to appear as a character on the show. Investors will not get a say in how the company is run but offsetting this is the families need for income. WWE historically has generated $50m in cash typically paying out 70% of earnings leading to a dividend yield of 5%, decent income when compared to the SP500's yield of 2%.

The value of content is rising and the WWE is unique. The upcoming content deals and potential network will be a good gauge for future growth.


Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in WWE 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.

Hertz rent to buy?

Hertz (HTZ) is famous for its car rentals and slogan we're Hertz, they're not. You have to be good to live up to that standard and HTZ has delivered as the world's largest airport car rental service. HTZ operates from 10,460 locations in 150 countries with around 750,000 cars. 

Hertz-Ford=Profits?
Car rental companies like HTZ used to be owned by the auto makers. For example Ford used to own HTZ and used HTZ as a dumping ground for their cars. Since the sale by Ford in 2005 HTZ has purchased less Ford cars from 40% to 13% of overall purchases last year. Imagine how much overcapacity the airline industry would have if plane manufacturers owned airlines like Qantas and kept selling them planes they didn't order!

1+1=3
Amazingly HTZ was recently allowed to buy their fourth largest competitor in the market. The acquisition of the Dollar and Thrifty brands was a prolonged three year affair with competing bids from Avis. Three companies now have 95% market share of the rental market. The industry has not only consolidated but come under more business oriented management. 

HTZ management estimates there to be $300m in revenue synergies and $300m in cost synergies. The acquisition will help HTZ utilise its car fleet more effectively. HTZ is a premium corporate brand its cars tend to be utilisted throughout the week while Dollar and Thrify are leisure focused and tend to peak on the weekend. There will be plenty of revenue opportunities to maximise utlisation and reduce costs. Though this does come at a cost HTZ has taken on quite a bit of corporate debt it plans to use its cash flows to get to an investment grade rating as soon as possible.

Source: HTZ investor day

Technology = The world (ex-airports)
According to IBISWorld HTZ has overall US marketshare of 24%, Enterprise (private) has 39% and Avis 18.5% marketshare. The market in airports is extremely competitive with HTZ being the leader. One area HTZ has somewhat neglected is the market ex-airports where they have 12% share and Enterprise is the dominant leader. Previously off airport had been too costly to manage but with technology HTZ believes they can profitability compete in this segment. Technology such as kiosks and mobile devices have allowed HTZ to offer 24/7 service and the ability to rent by hour for $10-12 with a full tank of gas.

On demand booking in 45 seconds
When you sign up for the program hertzondemand.com will send you a card/FOB. Customers can book on the phone or through their app which lets you know where the car is located. Swipe the card and the keys are inside and swipe when finished. So click, swipe and drive maybe even I can use it!

Source: HTZ investor day

HTZ plans to have cars within a five minute walk of nearly anywhere in the US within 18 months. HTZ has already partnered with retailers to rent trucks, an example being the home hardware operator Lowes where customers can hire a ute/van/truck when making large purchases. The use of kiosks and partnering with retailers increases the market opportunity. HTZ also offers their own version of the ipad Neverlost which will provide GPS and can put you in touch with a real person.

Oligopoly?
The industry has consolidated from 8 to 3 over the past decade. This consolidation of the market has given management the confidence to give earnings guidance to 2015 of up to $3.30 per share or 35% compounded earnings growth over the next few years. Management believes this guidance to be conservative as they did not assume much in the way of price increases and hardly any GDP growth, the forecasts are just based on internal HTZ initiatives. 

Pricing in the industry has fallen over the past three years and there are signs that competitors are beginning to implement increases.

Worldwide rental rate revenue per transaction
2010	2011	2012
$            43.14	$           41.33	$           40.01
	-4.2%	-3.2%

Given the changed market structure of the industry (3 players with 95% share) and the fact prices have retreated while the economy has recovered there seems to be a real possibility that prices will likely increase. Book a rental car while its still cheap! 

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in HTZ 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.

Willy Wonka of the retail industry

Abercrombie and Fitch (ANF) is well known for controversy with their edgy catalogue and stores with half naked models/ greeters out front. In response to these greeters Improv Everywhere a youtube subscriber group recruited 111 random men to go shirtless in the 5th Ave store in NYC see below. Some even got kicked out trying to buy a shirt!

Very ANF dude 

ANF has done well because it has targeted itself as an exclusive brand targeting "cool and popular kids". A recent uproar has the been discovery that they do not stock XL or XXL women's clothing because they do not want overweight women wearing their brands. This uproar has added another controversy to the list. You will be probably right to guess it takes someone who is a little quirky to run such a company. In a 2006 interview with Salon, Michael Jeffries the CEO said

"In every school there are the cool and popular kids and then there are the not so cool kids. Candidly, we go after the cool kids. We go after the attractive all-American kid with a great attitude and a lot of friends. A lot of people don’t belong [in our clothes], and they can’t belong. Are we exclusionary? Absolutely. Those companies that are in trouble are trying to target everybody: young, old, fat, skinny. But then you become totally vanilla. You don’t alienate anybody, but you don’t excite anybody, either."

 http://www.salon.com/2006/01/24/jeffries/

It is an amazing article and probably explains why he keeps a low profile publicly, he will be in trouble every time.  He is either crazy or a genius further searches on the CEO show that he is probably crazy. 

From Bloomberg http://www.bloomberg.com/news/2012-10-18/models-on-abercrombie-jet-had-rules-on-proper-underwear.html

The only way to fly 

The models working on ANF's Gulfstream G550 had rules for serving the CEO Michael Jeffries.

"Clean-shaven males had to wear a uniform of Abercrombie polo shirts, boxer briefs, flip-flops and a “spritz” of the retailer’s cologne, according to an “Aircraft Standards” manual, disclosed in an age-discrimination lawsuit brought by a former pilot. Among the 40-plus pages of detailed instructions: black gloves had to be used when handling silverware and white gloves to lay the table, the song “Take Me Home” had to be played when passengers entered the cabin on return flights and Jeffries’s dogs -- identified in the document as Ruby, Trouble and Sammy -- had different seating arrangements based on which ones were traveling."

My vote for the craziest company around

This is a company that punishes staff who make mistakes with push ups. The ANF CEO really is the Willy Wonka of the retail industry! 

Jason 

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in ANF 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.

Catching fire

Lionsgate (LGF) is a film studio focused on adapting popular teen novels to the silver screen. LGF is most famous for its Twilight and Hunger Games franchises. In 2012 LGF generated $1.2 billion in US box office the first time a non major studio broke the one billion dollar mark. LGF ended 2012 with 11.6% domestic box office market share ranking among the top 5 major studios. LGF is unique as it is not owned by a media conglomerate. Its competitors are subsidiaries of major companies.

Studio	Owner
Warner Bros	Time Warner
Paramount	Viacom
Universal	NBC Universal unit of Comcast
Sony/Columbia	Sony
Buena Vista	Disney
20th Century Fox	News Corporation
Lionsgate	Lionsgate!

Not just the Hunger Games

Hunger games was a hit but will the sequels do as well? LGF is releasing the next installment Catching Fire this November with plans for the final book Mockingjay to be spread over two movies in 2014 and 2015. Amazingly the Catching Fire trailer uploaded on Youtube on the 15th of April has already had 25 million hits! Jennifer Lawrence the main actor below is getting more popular with the public gaining recently winning the best actress academy award. Feel free to add to the Catching Fire viewing count with the trailer below.

Studios are notorious for hit and miss movies, similar to Disney LGF is looking to franchises to reduce this risk.  LGF minimises this risk by preselling foreign distribution rights leaving LGF with a maximum of $30 million production risk. Future franchise hopes are pinned on Divergent whose book sales are tracking ahead of the Hunger Games at similar stages of their book releases.

Libraries are good?

The major offset to production risk is LGF's backlog of over 15,000 films (increased from 13,000 in the slide). Library revenues are 25% of overall sales and are much higher on a profit basis given their costs have already been expensed. TV production is also doing well led by iconic brands such as Mad Men, Weeds and Anger Management.

Stay tuned

Who knows if the hits will keep coming but the library backlog and LGF's focus on adapting popular teen novels does reduce some of the hit and miss movie risk inherent in the studio business. 


Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a position in LGF.

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.

A health boost for your portfolio

As a consumer you have probably noticed the trend to watching what you eat and calorie counting. Whole Foods (WFM) America's healthiest grocery store is benefiting from this embrace of a healthier lifestyle. At the end of 2012 WFM operated 335 stores with a long term target of 1,000 just in the US. WFM has also  started to open stores in the UK and Canada. Apart from the financial crisis WFM has averaged same store sales of 8% per year.

Source: Whole Foods Annual Report

In 2012 organic sales were 5% of the overall market with growth at 8% (blue line) in 2010 versus 1% for total food sales (black line see chart below). Buying organic is more expensive and as can be seen in the chart below sales were affected during the recent financial crisis. Given high healthcare costs in the US eating healthy food is seen as being preventative, pay a little extra now so don't pay more later. With low market share we believe growth in natural/organic should continue for a few years to come.

Source: Morgan Stanley and the Organic Trade association

Everyone knows each others salary?

WFM is unique in the way it is run. To be fair all staff details including salary are available to everyone. WFM has an open book policy with staff, staff can find out what their co-workers and even management earn. WFM also caps management income to 19x the average wage including bonuses of all team members. This compares to 350-500 times at large publicly traded companies. The co-founder and co-CEO John Mackey has taken it a step further with a wage of $1 with no bonus and stock options.

Giving back
At WFM 40% of employees own some equity in the company and voluntary turnover is less than 10% unheard of in the retail industry. According to the annual report in 2012 more than 14,500 employees exercised 6.7 million options on average $13,600 each. Customers like to shop because they see familiar faces (less than 10% turnover), for its healthy food and they feel better about themselves. Last year WFM cash and product donations to charity exceeded their goal of 5% of after tax profits.

Get what you pay for
All in all WFM is one of a scarce breed of companies that encourages a healthier lifestyle while also giving back to the community. WFM has always traded at a premium to the market given its growth but just like healthy eating what seems expensive in the short term ends up being cheaper and better for you in the longer run.

Jason

http://www.decisiveassetmanagement.com/

Decisive is long WFM 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.

Doctor Walgreens will see you now

Walgreens (WAG) is America's largest drugstore chain. WAG has over 8,000 locations in America with 65% of the population within a 5 kilometre radius. WAG is benefiting from two powerful trends. The aging of the population with more than 10,000 Americans turning 65 every day and the increasing penetration of generic drugs. 2/3 of WAG’s sales are prescription and on average generics generate gross profits of $15 per script compared to branded of $8-$10. Management have plans for WAG to be not just a drugstore but a health and wellness destination.

 

Health and wellness destination?

The CEO believes they can be more than just a store that fulfils prescriptions. "With nearly 70 percent of the U.S. population either without a primary care physician or not utilizing one, and more than 30 million people gaining insurance coverage in 2014 under health care reform, we are well-positioned to fill the void in care,”Greg Wasson, CEO. Having the largest drugstore footprint means convenience for customers and provides an alternative to expensive physician or hospital care. WAG will be the option for customers if they cannot get a doctor's appointment and need after hours help.

WAG believes that they can can lower healthcare costs by delivering health services such as flu shots, health testing, coordinated wellness care and work-site health centers. The work site centres are particularly attractive for companies as instead of employees taking a half day off they can visit the on site clinic run by WAG. It also means enhanced selection such as fresh foods and beauty in addition to health care services.

Health and wellness to the world

WAG is aiming to create the first global pharmacy led health network. WAG has acquired a 45% stake of Alliance Boots in the UK (the largest pharmacy chain in Europe) with plans for full ownership by 2015. Together these two companies are betting that they can create a global drug chain. Consolidating their purchasing power will result in large synergies for the combined company.

Earn reward points by walking?

Last September WAG launched its first ever rewards program. Shoppers can earn points buying items, filling prescriptions, being immunised and joining the company's healthy-lifestyle programs, like Walk With Walgreens. That's right points by walking!

Utilizing technology WAG has made their reward card mobile. Downloading the rewards app customers can scan their phone at checkout no need to carry a card. In just 6 months WAG has enrolled more than 60 million customers. This helps WAG to reduce marketing costs by moving away from print promotions to digital within their rewards loyalty program.

Technology is making WAG even more convenient for customers with mobile apps. This year, the company launched its Pill Reminder mobile app and expanded its mobile prescription refill and transfer capabilities. WAG has also created an in-store map that allows customers to use a digital shopping list to map and locate items in a store and a “find your pharmacist” tool. This tool allows customers to select a pharmacist by matching their health care needs to areas of expertise, like specialties, languages and clinical backgrounds of Walgreens pharmacists. These tools differentiate WAG from independent chains which are estimated to account for 20% of the industry.

Taking the red pill

As with every investment there are risks, ongoing reimbursement pressure from payors like Express Scripts have negatively impacted WAG. Express Scripts is basically the middleman between drug makers and employees, Express pays pharmacies to dispense the drugs to their customers. Hundred of thousands of Express Scripts customers were shut off due to disagreements over payment reimbursement. The dispute last year was estimated to have cost WAG more than $4 billion in revenue. Customers either switched to another pharmacy or paid more for drugs if they stayed with WAG. Both parties have agreed to a new multi-year service agreement however WAG now has to win these customers and their prescriptions back. I suspect that WAGs move to become a health and wellness destination has been motivated to decrease reimbursement pressure.

Reality or wonderland

Just like the Matrix as an investor you have a choice. "You take the blue pill - the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill - you stay in Wonderland, and I show you how deep the rabbit hole goes." Well this is a little less dramatic. In this case no matter what reality you are in WAG is benefiting from longer term trends like the ageing population and the increased usage of generics. There are also shorter term trends like a mobile rewards card and other mobile technology. WAG looks good no matter the choice.

http://www.decisiveassetmanagement.com/

Disclosure: Decisive is long WAG

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.

Zillow.com the realestate.com of America

Zillow.com is America's leading online real estate database similar to realestate.com.au here in Australia. Zillow has estimated market values for all the 110 million homes in the US. The site offers users an estimate of their home and the value over time just like a stockmarket. Zillow has branched out its services to include mortgages, rentals and home improvements.

Mobile 3x more valuable than desktop?
We like mobile centric companies and Zillow is a mobile leader. More traffic comes from mobile than desktop with over 60% of traffic from mobile on the weekends. The problem with a lot of mobile companies is that they monetise less due to smaller screens leading to less advertising. The beauty of Zillow is they monetise more on mobile than desktop. A smartphone user is 3x more likely to contact a realestate agent and generate a lead than on a desktop. Zillow is more dominant on mobile than desktop with mobile unique users 70% greater than than their closer competitor. 75 homes are viewed every second on mobile.

Source Zillow investor day

The interesting thing about Zillow is that it is half the market value of Realestate.com.au but in an economy 10x the size of Australia. See the chart below comparing agent commission to the total value of the respective companies. Zillow was actually founded 11 years after realestate.com.au in 1995. 

                                                        Source Zillow investor day


A good question is how has the US online housing market lagged Australia?

According to Zillow the real estate industry anointed one site to exclusively have all the listings. Sounded good in theory but it was bound by restrictions by the realtors and was not focused on the user leading to a poor consumer experience. This non focus on the consumer lead to the creation of Zillow.com and their own housing database.

Been there, done that

The great thing about the Zillow team is that it is the same team that revolutionised the travel industry when they started Expedia. To management the real estate industry felt much like the travel industry and Expedia in 1996. Zillow built their own real estate database and the popular Zestimate number (estimate of house value) to encourage users to their site and update their own photos and information to increase the accuracy and value of the Zestimate. The focus on the consumer led to an increase in users leading to more real estate agents a virtuous circle.

On a number of metrics Zillows marketshare is still small. 30,000 agents have signed up as Premier Agents while over 400,000 have set up their profiles on Zillow.com. This is out of an overall market of nearly 2 million real estate professionals. As the market leader Zillow is still only at 2.2% of online advertising spend. On many of the metrics below Zillow has a lot of future growth to look forward to. 

                                                         Source Zillow investor day


Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no position in any of the companies mentioned.

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.