China's new stockmarket investors

China's stockmarket is the best performing in the world. The recent volatility has caught everyone's attention. In the months of April and May 24.9 million new stockmarket accounts were opened. As you can see below this increase is accelerating with over 4 million new accounts being opened each week. 

Source: Bloomberg

According to the China Household Finance Survey around 2/3 of new stockmarket investors left school before the age of 15. There was also a great interview on CNBC titled Chinese farmers hope to harvest bumper stock profits. Farmers in China now plough their savings in the market rather than ploughing the field. Apparently most farmers in the village now farm outside of market hours. Many of these accounts appear to be retail investors. The number of share transactions has increased dramatically over the last few months see below. It's a great time to be a Chinese stockbroker.

Source: Bloomberg

In the west we worry when taxi drivers and shoe shiners give share tips. When Chinese farmers lay down tools during market hours its probably time to worry about the Shanghai market.

Jason

http://www.decisiveassetmanagement.com/

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.

Restoration Hardware stores you can live in

Restoration Hardware (RH) is one of the fastest growing retailers in the market famous for having some of the most beautiful stores in the world. They have the largest collection of luxury furniture in a very fragmented market. Unlike other furniture retailers RH builds stores that customers actually want to live in. Not many customers say they want to live in an Ikea or Harvey Norman!

 Restoration Hardware Boston and Tampa stores.

Most plants die in retail stores
Most retail stores have no natural light and according to the RH CEO Gary Friedman are where plants go to die! While most retailers are introducing smaller store formats and pulling back on mail catalogs, RH is doing the exact opposite. Technology is just another sales channel for them like the catalog business but for RH product presentation is key. They continue to buck the trend of smaller stores by opening large galleries. They believe that the best retailers will have the best physical and virtual experiences, it's not one or the other. Half of their sales are from stores the rest are direct. They recently announced the opening of a new concept RH modern. It will expand RH from just retro-classic looks to a more modern feel. In some cities the concept will have its own stores in others it will occupy current stores.

Earnings presentations are just as impressive. Cue the music!
RH has some beautiful stores but they also have an impressive video presentation. He even quotes Steve Jobs. The videos were introduced to help us analysts understand the company visually. See their Q1 presentation below.

They are also infamous for their large catalogs. 3,300 pages or weighing in 7.7 kilograms of photos across 13 catalogs double last years count. They received a lot of free media coverage some positive and some negative (my favourite deforestation hardware) but it got their brand out there. RH Modern will start out with a 300 page catalog.

Best stores and comps in retail
RH just reported a 15% increase in comparable stores sales on top of 18% last year. Over the past five years comps have averaged 24%. RH are targeting $4-$5 billion in future sales up from $2 billion today just in North America. They also have long term targets of mid to high twenties earnings growth. Range extensions are a big driver of growth including apparel accessories, antiques, art and kitchens. RH has 67 stores they have identified an additional 25 locations for 2016 and beyond. They are also in early discussions with international partners. If you can shop at RH you are doing well the company's target is consumers with an annual income over $200,000.

Jason

http://www.decisiveassetmanagement.com/

Decisive has no position in Restoration Hardware (RH) 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.

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.