Trefis Helps You Understand How a Company's Products Impact Its Stock Price

COMPANY OF THE DAY : SANDISK

SanDisk recently announced its iXpand flash drives to transfer data to and from iPhones and iPads as well as laptops and PCs using the lightning connector. In two recent articles, we take a look at the addressable market for iXpand flash drives is, how much SanDisk can expect from iXpand sales and how it will impact the company's removable storage division as a whole.

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FORECAST OF THE DAY : SPRINT'S POSTPAID MARKET SHARE

Sprint continues to struggle in terms of its postpaid subscriber performance, with the carrier posting an especially high churn rate in the last quarter. However, management mentioned that the company's low-cost promotions began seeing traction at the end of the quarter. We expect the company's market share to moderate going forward, and eventually increase as its network upgrades are completed.

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RECENT ACTIVITY ON TREFIS

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  • commented 11/28/14
  • tags: ETFC
  • Business Manager

    Would TREFIS work on OTC/ Penny stock?

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    Maynard [ less... ]
    Business Manager Would TREFIS work on OTC/ Penny stock? Thanks Maynard
    PBR Logo
    Weekly Oil & Gas Notes: OPEC Meeting and Petrobras Investigations
  • By , 11/28/14
  • tags: PBR APC COP XOM CVX EOG CHK BP RDSA
  • Oil and gas stocks continued to decline this week as the members of Organization of Petroleum Exporting Countries (OPEC) decided to maintain their production target for the first half of next year despite the recent decline in crude oil prices. The economic cartel sent out a clear signal of its intentions to decelerate the growth in tight oil production in the U.S. While lower crude oil prices will provide a much needed impetus to the global demand growth, energy sector companies are in for a prolonged period of thinner margins and diminishing returns. The  NYSE Arca Oil & Gas Index (^XOI) has declined by around 9% so far this week. The decline in crude oil prices over the past few months could be attributed to moderating economic growth in emerging markets such as China and India and signs of a slower economic recovery in the Euro-zone. In China, the rate of growth in demand for petroleum products has fallen to almost half of what it was a year ago. The International Energy Agency (IEA) expects the growth in global oil demand this year to hit a 5-year low. It expects demand, which stood at around 91.7 million barrels per day last year, to increase by just around 0.74 million barrels per day this year. This compares to an expected increase in supply of more than 1.5 million barrels per day from the U.S. alone. As a result, the price of front-month Brent crude oil futures contract on the ICE declined by more than 37% since hitting a short-term peak of $115/barrel. Below, we provide an update on some of the key events that occurred last week related to the oil and gas companies we cover. OPEC’s Decision To Hit Independent Producers In The U.S. The Most Global benchmark crude oil prices fell sharply after  OPEC announced its decision to maintain its production target in the short term. The front-month Brent crude oil futures contract on the ICE declined by more than 6%, while the West Texas Intermediate (WTI) slid below $70/barrel for the first time since 2010. Given that the largest swing producer for crude oil in the world and the leader of OPEC, Saudi Arabia, has declined to blink on oil prices for at least the next few months, the chances of a significant upswing in commodity prices in the short term are bleak. We believe that this will hurt the growth prospects of independent tight oil producers in the U.S., such as Anadarko Petroleum (NYSE:APC), EOG Resources (NYSE:EOG), and Chesapeake Energy (NYSE:CHK), the most not only because their marginal cost of production is one of the highest in the world but also because they do not have downstream refining and chemicals businesses, which provide a relatively stable stream of cash flows to the integrated oil and gas companies like Exxon Mobil (NYSE:XOM).  We therefore expect these companies to trim their capital spending plan for the next year. We currently have a  $102/share price estimate for Anadarko, which is around 25% above its current market price. The company’s share price has decreased by around 13% so far this week. We currently estimate Anadarko’s 2014 GAAP diluted EPS to be at $5.54, compared to the consensus estimate of $4.87 reported by Reuters. See Our Complete Analysis For Anadarko U.S. Authorities Investigating Petrobras The U.S. Securities and Exchange Commission (SEC) issued a subpoena (a written order issued by a government agency) to Petrobras (NYSE:PBR) last week requesting documents relating to an investigation of the company. Without divulging any more details on the matter, Petrobras said that it would send the documents required by the SEC after internal investigations by the two law firms hired by the company. It also did not specify if the SEC request was related to the corruption case that is being currently investigated by the Brazilian authorities, in which one of its former executives has alleged that Petrobras systematically overpaid construction companies hired on contract work and that the excess funds were kicked back to politicians from the ruling party and its allies. However, the company did mention that it would cooperate with the U.S. authorities to the same extent as it has with the local authorities. We currently have a  $14/share price estimate for Petrobras, which is around 44% above its current market price. The company’s share price has decreased by around 11% so far this week. We currently estimate Petrobras’ 2014 diluted EPS to be at $1.37, compared to the consensus estimate of $1.45 reported by Reuters. See Our Complete Analysis For Petrobras View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Weekly Review: Microsoft, IBM, HP And Adobe
  • By , 11/28/14
  • tags: ADBE HPQ IBM MSFT
  • The broader stock market rallied during the week posting sixth consecutive weekly gain. Companies in the enterprise technology services space,  e.g.,  International Business Machine (NYSE:IBM) and Microsoft Corporation (NASDAQ:MSFT), underperformed the market, while product company Adobe and hardware manufacturer Hewlett-Packard Company (NYSE:HPQ) outperformed. In this note, we discuss some of the key events from the past week for these companies. HP During the week, Hewlett-Packard declared its results. Even though the topline failed to report growth, the stock rallied due to an improvement in margins.    Our valuation of $31.33 (market cap of $58.5 billion ) for the company is 20% below the current market price of $39.17 (market cap of $73.1 billion). We expect HP to report revenue of around $115 billion and net income of $6.1 billion for calendar year 2014. We forecast non-GAAP diluted EPS of $3.2, which is below the market consensus of $3.6 (Reuters). Microsoft Corporation Microsoft’s stock had a lackluster performance in the week. However, it  intensified its efforts to gain a foothold in the rapidly transforming and growing mobile devices industry in the emerging markets with launch of Lumina 535, which is price at $150. We have a  $44.46 price estimate for Microsft, which translates to a market cap of around $366 billion. Our price estimate represents a 8% discount to the current market price. We estimate the company’s calender Year 2014 EPS at around $2.72 (fiscal years ending in June), compared to a consensus estimate of around $2.69 according to Reuters. IBM IBM’s stock traded in a narrow range of $160-$161 during the week,  deifying with the rally in broader market. However, during the week, IBM unveiled its platform for B2B clients to improve customer engagement. Furthermore, it expended its mobile services portfolio to include mobile application and infrastructure analytics and application virtualisation for mobile platforms.   Our valuation of $227 (market cap of $225 billion ) for the company is 40% above the current market price of $162 (market cap of $160 billion). We expect IBM to report revenue of around $101 billion and net income of $16.87 billion for 2014. We forecast non-GAAP diluted EPS of $16.75, which is below the market consensus of $18.41 (Reuters). Adobe Adobe’s stock continues to defy the broader markets as it rallied at a faster pace compared to the indices. For the week ended 28 th November, the stock traded in the $70-$72 range. During the week, the company rolled new mobile capabilities for its existing portfolio of marketing solutions. Currently,  our valuation of $57.79 (market cap of $28.8 billion ) for the company is 20% below the current market price of $72.98 (market cap of $36.4 billion). We expect Adobe to report revenue of around $4.28 billion and net income of $283 million for calendar year 2014. We forecast non-GAAP diluted EPS of $1.25, which is inline with the market consensus of $1.26 (Reuters). Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Revising NYT Price To $10.85
  • By , 11/28/14
  • tags: NYT AOL YHOO
  • We recently upgraded our price estimate for  The New York Times Company (NYSE:NYT) from $8.33 to $10.85, based on the expected improvement in the company’s financial results stemming from increase in weekly price of its print subscription and growth in the number of digital subscribers. Furthermore, post the sale of New England media group (NEMG) that took place in the third quarter of fiscal year 2013 and completed at the end of Q4, the company has restated its balance sheet that reflects a decline in pension and post retirement benefit obligations. We expect this to positively impact the longterm liabilities of the company, which will augur well for it’s valuation. In this note, we will discuss factors driving our price revision. Click here to see our complete analysis of New York Times Stronger Financial Position after Reduction of Pension Obligation The company, in its 10-k and latest 10-Q, reported a lower dollar amount for its pension and post retirement benefit obligation. While pension benefit obligation declined by 30% sequentially, post retirement benefit liability declined by 15%. As a result, the over liabilities of the company declined by 50% approximately. This has translated into an estimated $1.40 per share increase in our stock price estimate for the company. Growth In Revenues To Impact Stock Valuation NYT’s core business has held on to its market share and its circulation revenue has grown. Furthermore, NYT was able to increase the subscription price for its circulation in 2014, due to the strength of its brand  and reach across different media, i.e., print and digital. However, NEMG’s declining price, market share and revenue was eroding NYT’s revenue growth. With the sale of the NEMG, we expect NYT to post growth in its revenues in the future. Considering the high operating leverage of the company, where in each incremental sale contributes more to the profitability of the company, we anticipate NYT’s cash flow to improve in the future. Impact of SG&A Expense On Valuation The SG&A cost increased in the first nine months of fiscal year 2014 due to higher compensation expense related to new initiatives, and one time pension settlement charge in connection with a one-time lump sum payment offer to certain former employees. While we expect SG&A expense to rise in dollar terms, we expect pension obligation liability to positively impact SG&A expense in the future as the cost associated with servicing higher benefit obligations will decline, and the SG&A Expenses as percent of revenue will remain constant at 44%. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Key Trends Explaining Our $108 Price Valuation For Keurig Green Mountain
  • By , 11/28/14
  • tags: GMCR KEURIG-GREEN-MOUNTAIN KRFT SBUX DNKN KO
  • We have raised our price estimate for Keurig Green Mountain (NASDAQ:GMCR) due to a number of factors affecting our forecast including the number of K-Cups sold being increased, potentially lucrative partnerships with top coffee and retail brands, the company entering the tea segment, the number of brewers increasing due to the Subway deal, the average price of K-Cups increasing because of the Nestle deal, the rising price for coffee which has increased the price for a K-Cup, and strong earnings from the company the past two quarters.  These factors have increased our optimism in the company’s ability to deliver strong results in the future and have led to our increasing our price target for the company. The Vermont-based coffee brewer specialist  Keurig Green Mountain (NASDAQ:GMCR) recently reported its fiscal 2014 annual report on November 19. The company delivered strong numbers in its fourth quarter, with 14% year-over-year (y-o-y) growth in net revenues. On one hand, net portion pack sales grew 22% y-o-y to $950 million in the fourth quarter, primarily driven by a 28% increase in the portion pack volumes, but on the other hand, brewer sales declined 5% y-o-y in the fourth quarter, due to a decline in brewer volumes by 8% and brewer pricing by 11%. The company released its new brewer system Keurig 2.0 in the U.S. in the last week of August. Keurig Green Mountain’s distribution deals and partnership deals with licensed brands have picked up pace in the last 18 months; the company now has nearly 70 licensed coffee and retail brands. The company justifies these decisions as a strategy to increase its market share in the exponentially increasing single-serve coffee market. We have a $108 price estimate for Keurig Green Mountain, which is roughly 20% below the current market price. See our full analysis of GMCR here Over the last 4 years, coffee chains have lost ground to the portion packs coffee trend. Customers have gradually shifted to the single serve method of coffee brewing, which provides them with the convenience of brewing their coffee at home in no time. Nearly 29% of the U.S. coffee drinkers now opt for a single-cup brewer. Owing to its innovative new brewer technology and convenient K-Cup packs, which serve a wide variety of top coffee brands, Keurig Green Mountain has been a dominant player in this segment for a long time. Keurig Green Mountain was the leading single-cup coffee vendor in 2013, with nearly $1.3 billion of sales. In 2014, Keurig Green Mountain has nearly 20% of the total single-cup coffee market share in the U.S., followed by Starbucks (NASDAQ:SBUX). Source: www.statista.com Keurig Looks To Expand Its Customer Base Keurig Green Mountain has always been famous for its innovative brewer technologies and easy to use K-Cups. However, the company’s patents expired in 2012, after which brands such as Folgers, Starbucks, and Maxwell House introduced their own Keurig-compatible versions. As a result, the brewer giant started losing market share to its competitors. To counter the impact, Keurig immediately planned to join hands with high profile coffee brands, such as Caribou Coffee, Folgers, Dunkin’ Donuts, and Starbucks, among others, to boost its K-Cup sales. New Licensed Brands To Cut Down The Competition Although the impact of patent expiration was not too significant, the company focused on increasing its market share by joining hands with some of the top coffee and retail brands in the industry. In May 2014, Coca-Cola (NYSE:KO) raised its stake in Keurig Green Mountain to 16%.  As a result, shares of GMCR jumped 7.5% to $119.07. The two companies entered into  a joint venture, in which they are developing the cold beverage brewer platform, the Keurig Cold. Keurig Cold will be designed to dispense single servings ranging from carbonated drinks to non-carbonated beverages like juice drinks and iced teas, providing its users the convenience of at-home carbonation technology and the ease of carrying compact flavor sachets, rather than the bulky PET bottles from retail stores. (See Coca-Cola-Keurig Green Mountain Deal: A Win-Win Situation for both ) In June, Keurig announced its partnership with the restaurant chain Subway to bring Keurig’s single-serve brewers to almost all of the Subway chains in the U.S. and Canada. This deal might prove to be a blockbuster move for Keurig Green Mountain, as Subway not only provides an additional platform for the company’s revenue growth, but also a huge platform to reach out to more customers, giving a boost to brewer and portion packs’ volume growth, which might subsequently translate into improved revenue growth. This was followed by a multi-year deal with the U.S. division of Nestlé (SIX: NESN), Nestlé USA on July 1, to bring Nestlé’s branded coffee with creamer to its customers. Nestlé became the first brand to offer a 2 in 1 K-Cup pack for hot coffee, combining high quality roast and ground coffee with branded creamer, available in two flavors : Original and French vanilla.  According to the company, the partnership brings new innovation and flavor to the Keurig product line, while offering its customers an easy access to their daily coffee without compromising on the taste. In August, the company announced yet another multi-year licensing, manufacturing and distribution deal with one of the largest consumer packaged food and beverage companies,  Kraft Foods Group (NASDAQ:KRFT), adding to its already long list of licensed brands. Apart from these deals, Keurig entered into distribution agreements with some well known grocery chains, such as SUPERVALU (NYSE: SVU) and Meijer, as well as coffee chains such as Café Bustelo and Harris Teeter. The number of licensed coffee brands offered by Keurig Green Mountain increased from 30 to 70 over the last 18 months, providing almost 500 different varieties of coffee, tea and other beverage options. As a result, coffee drinkers who have Keurig brewers installed at home can now enjoy their favorite branded coffee at home, without going to specific coffee shops. Keurig 2.0 To Revive Keurig Green Mountain’s Dominance In August, Keurig Green Mountain released its next generation brewer system in the U.S.: Keurig 2.0.  The company claims that the new brewer brings more choice to its customers, as it can brew a single cup using a K-Cup pack or four cups using the new K-carafe pack. The product is already in huge demand among coffee lovers who want to upgrade to a more convenient option. According to the data provided by Keurig, nearly 60% of the non-Keurig owners and 72% of the current Keurig owners want a technology that can brew more than one single cup in one go. Keurig can now serve a wider range of customer base, with different coffee tastes, as it now serves more than 50 top coffee brands. This will not only increase the brewer’s sales, but also ensure the company’s dominance in the single-serve market as well. Keurig Enters A New Market In September, Keurig and Coca-Cola expanded their partnership to offer some beverages from the latter’s still brands (non-carbonated) portfolio in the Keurig hot brewing system, in the U.S. and Canada. Honest Tea is the first brand of the Coca-Cola Company that would be available in K-Cup packs. The new Honest Tea K-Cup packs feature two products initially: Unsweetened Just Green iced teas and Just Black iced teas. These will join Keurig’s Brew Over Ice collection. Keurig Green Mountain is planning to tap into a market that has a huge growth potential, especially in the U.S. This might boost its K-Cup sales, as it targets those Coca-Cola customers who are already fond of the company’s Honest Tea product. (See:  Keurig Green Mountain To Expand Its Ready-To-Drink Beverage Segment With The Launch Of Honest Tea ) RTD Tea is a growing beverage segment, with a double-digit sales growth in the U.S.  Moreover, the segment is expected to grow at a CAGR of 6% in the U.S. until 2018, providing ample growth opportunities for tea companies. Due to the consistently strong financial performance by the company, coupled with the potential positive impact of new brewer, Keurig 2.0, and Keurig Cold and a long list of top coffee brands under its arsenal, Trefis estimates the company’s net revenue to cross $10 billion and portion pack volume to double by the end of 2018. Moreover, the increasing coffee prices might drive the company’s margins for the next couple of years. As a result, our price estimate for Keurig Green Mountain has increased to $108. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Adobe Augments Its Marketing Platform With Mobile Enhancements
  • By , 11/28/14
  • tags: ADBE AOL IBM ACN MSFT
  • Adobe (NASDAQ:ADBE) entered the digital marketing industry in 2009 with the acquisition of Omniture. Since then, the company has expanded its services systematically, and currently offers six products under its marketing cloud solution. The Adobe marketing cloud includes a complete set of analytics, social, media optimization, consumer targeting, web experience management and cross-channel campaign management solutions. The digital marketing cloud makes up 20% of Adobe’s estimated value and generated around $1 billion in annual revenues in 2013. Furthermore, the revenue run rate for its marketing solutions has increased to over $1.2 billion for the first nine months of 2014. Having been built from the acquisition, the business has a compounded annual growth rate (CAGR) of 106% over last four years. In order to expand its marketing portfolio of services, the company has launched new data driven marketing capability that delivers personalized mobile experience. In this article, we will explore the latest upgrade to Adobe’s digital marketing platform. Check out our complete analysis of Adobe Mobile Marketing – The Next Frontier Digital marketing is gaining momentum as companies are looking engage users with personalized content across channels and on all devices. As a result, company budgets for online marketing are fast gaining traction. According to IT research firm Gartner, companies spent 3.1% of their revenues on digital marketing in 2013, and the figure is expected to rise to 3.4% this year. First time users in many countries are logging onto the Internet using smart connected devices. According to eMarketer, the amount of time people spend on a mobile device is growing 14 times faster than desktop usage. Additionally, mobile commerce (m-commerce) is becoming a prominent channel for commercial transactions. eMarketer forecasts that retail mobile-commerce sales in the U.S. will reach $57.79 billion this year and climb to well over $132.69 billion by 2018. As a result, mobile-first marketing strategy is gaining traction across the globe. However, since mobile audience is fragmented by devices and platforms, marketers face a difficult task to distribute the content across these devices and screen sizes. We expect that this will drive the innovation cycle for omni-channel marketing tools. Adobe is now targeting this segment by adding new mobile capability to its existing product line. Mobile Capabilities For Adobe’s Marketers Over the past few years, Adobe has built a strong platform that addresses various needs of digital marketing. According to Forrester’s Marketing Cloud Wave report, it leads the digital marketing industry with over two thirds of Fortune 50 companies as clients. We believe that this platform not only provides a cost effective digital marketing solution to companies but also helps them manage marketing campaigns across different channels (online and offline) and devices. Adobe’s marketing cloud is one of the most comprehensive and integrated marketing solution available in the market which includes Adobe Analytics, Adobe Target, Adobe Social, Adobe Experience Manager, Adobe Media Optimizer, and Adobe Campaign, as well as real-time dashboards and a collaborative interface. These tools together handle around 2.5 trillion mobile transactions annually. Some of the capabilities include: In AppMessaging: This facility will enable marketers to trigger messages in an app based on user behaviors, lifecycle metrics, or location data collected from iBeacons. Mobile Campaign Management: Within the Adobe Campaign Manger, the company has the new Digital Content Editor (DCE) which allows marketers to create responsive design emails based on recent store visits or other mobile app experiences. Marketers can also use the location data to refine audience segmentation for future campaigns. Mobile App Management: Adobe Experience Manager now has a mobile app dashboard that allows management and testing of mobile apps performance easier, and keep app content fresh and relevant. Mobile Search Advertising: Adobe Media Optimizer has been tweaked to offer multi-dimensional portfolio modeling that will enable marketers to use automated Mobile Bid Adjustments (MBAs) to place search ads across mobile devices. It will also enable marketers to reliably forecast expected clicks, cost-per-click (CPC) and revenue for search ads by specific devices. Adobe Social App: The new native Adobe Social App allows brands to view and manage their social activities on-the-go. While the app will be available as a beta on iOS for iPhone, support for other mobile platforms will be delivered over the coming months. We expect Adobe’s marketing platform to continue to lead the digital marketing solutions market in the short term, as it enjoys strong brand recognition. Adobe is aiming to increase its revenues from cloud based marketing solutions by expanding in new geographies and verticals where it has a strong presence. Currently, we project revenues from its digital marketing division to reach $3.89 billion by the end of our forecast period in 2021. However, if the revenues grew to $5.5 billion by the end of our forecast period there can be 10% upside to our price estimate. We currently have a  $57.79 price estimate for Adobe, which is around 20% below the current market price. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research    
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    RadioShack Revamps Its Website In Time To Cater To The Upcoming Holiday Season
  • By , 11/28/14
  • tags: RSH BBY WMT
  • Earlier this week,  RadioShack (NYSE:RSH) relaunched its website (www.radioshack.com) with new features that help customers get great prices on all the latest technology. The redesign of RadioShack’s online stores comes just in time for the busy holiday season up ahead and RadioShack’s Cyber Week full of savings on must-have gifts. Being a prominent player in the electronics retail business for over 90 years, RadioShack has been struggling to survive in the industry with rising competition from online retail giants such as  Amazon (NASDAQ:AMZN), online auction sites like  eBay (NASDAQ:EBAY), as well as other physical retailers such as  Best Buy (NYSE:BBY) and  Wal-Mart (NYSE:WMT). In the last few years, RadioShack has been plagued by an eroding top line growth, declining gross margins, high inventory levels, a string of debt maturities and declining cash reserves. The company’s stock price has declined drastically in the last few years, from around $10 in 2010 to less than $1 at present. Showrooming has negatively impacted the sales of traditional brick-and-mortar retailers such as RadioShack. This practice arises when customers use physical stores to check out products and gain hands-on experience with gadgets, but then use online stores to make purchases, often at lower prices.   Declining customer traffic in its stores has resulted in lower sales, which has forced the company to close up to 200 stores per year over the next three years. While e-commerce has exploded in the past decade, RadioShack’s online sales have declined more than 20%. According to the E-commerce news site Internet Retailer, RadioShack had the third-largest decline in Web sales over the past decade. RadioShack outsourced its online business for many years, but has now shifted it in-house. Leveraging online sales is an important factor that can help drive future growth for brick-and-motor stores. RadioShack’s online sale account for less than 1% of its revenue. In comparison, Best Buy’s online sales account for about 7.5% of its total domestic revenue. Some other players generate an even higher proportion of their revenues from online sales. In 2013, Wal-Mart’s online sales amounted to $10 billion. Neiman Marcus and Saks Fifth Avenue online sales have exceeded 20% of their annual revenue. Reinvigorating its online platform can help RadioShack increase the proportion of revenue it earns from its online platform. With the latest update, the company has completely changed the look of RadioShack.com, with a shift to a clean, uncluttered site design that is organized more by interest, category, theme or seasonal topics. The site also features dynamic merchandising capabilities, enabling RadioShack to deliver quicker product and inventory updates. Additionally, the new RadioShack.com features real-time pricing functionality that allows the company to make quick price adjustments to meet and beat pricing comparisons with major online retailers as well as other brick-and-motor stores. If customers find a better price on the front page products, like Beats Solo HD headphones for $69.99, RadioShack prmoises to match the price and take an additional 10% off if the customer brings a competitor’s printed ad into the store. RadioShack has lowered its prices on thousands of online items and hundreds of private-label items and its own AUVIO line of sound products. The company is also providing free shipping during the Black Friday weekend on all online orders. Additionally, they are offering plenty of early bird specials to lure shoppers to its stores for its all day Thanksgiving Day sale that will spill over into the weekend. RadioShack has a long-way to go before its can transition itself to its former glory.  Our price estimate of $0.86 for RadioShack is slightly above the current market price. We maintain a cautious outlook on the company and estimate revenue of around $3.3 billion for fiscal year 2014. Our fiscal 2014 GAAP earnings per share estimate is -$1.74 as compared to the market consensus of -$3.71 (as per Reuters). See our full analysis for RadioShack View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
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    Abercrombie & Fitch To Debut In Mexico Next Year
  • By , 11/28/14
  • tags: ANF ARO AEO UA
  • Specialty apparel retailer   Abercrombie & Fitch (NYSE:ANF), recently announced its entry into Mexico. In a press release earlier this month, the company stated that it has signed a franchise agreement with Grupo AXO to establish a retail network for Abercrombie & Fitch and Hollister brands in the country. Founded in 1994, Grupo AXO has built a great reputation for developing brands in the Mexican apparel market. The first Hollister store is scheduled to open in late spring next year  and Abercrombie & Fitch will make its debut in the summer. The company’s entry into Mexico will mark its debut in the Latin American region, which houses a couple of lucrative apparel markets. Abercrombie already has presence in North America, Europe, Asia, the Middle East and Australia. We believe that the company’s expansion in Mexico will position it better to compete against its domestic counterparts, Aeropostale (NYSE:ARO) and American Eagle Outfitters (NYSE:AEO), and fast-fashion retailers such as Zara, Forever 21 and H&M. Although Aeropostale and American Eagle Outfitters had entered Mexico even before Abercrombie announced its expansion, the retailer might not have to face significant competition, given that it already has a customer base in the country. Moreover, in addition to the country’s growing middle class and rising disposable incomes, it has young buyers that have become extremely conscious of international fashion trends, which bodes well for retailers such as Abercrombie. Even though the overall market size still remains small, it has grown steadily over the past and is likely to continue this way in the future. However, the current economic slump in the country can have a negative impact on the overall market growth. Nevertheless, given that Abercrombie will be starting from scratch, it shouldn’t have much trouble in gaining market share for the initial few years. Our price estimate for Abercrombie & Fitch stands at $39, which is about 35% above the current market price. See our complete analysis for Abercrombie & Fitch Market Holds Good Potential for International Brands The increasing proportion of  the working population in Mexico that is young has led to a surge in demand for apparel from popular international brands. While historically, apparel products have been available in Mexico through a number of channels, lately specialty retailers have become more popular. Aeropostale entered the region in 2012 and American Eagle Outfitters, Under Armour (NYSE:UA), and Victoria’s Secret made their debut in the market in 2013. The market is welcoming foreign retailers, as several major names are continually expanding in big cities such as Guadalajara, Monterrey, Cancun and Queretaro. This can be attributed to the fact that Mexican buyers have shown great interest in fast-fashion apparel, as they are looking to integrate fashion in their professional as well as social attire. This trend is visible in the Children’s segment as well, since the working population is spending more on their kids clothing. Even teenagers are looking to imitate their parent’s dressing style. With 79% of the Mexican’s living in urban areas and 46% under 25 years of age, the addressable market for casual apparel retailers such as Abercrombie is large. Moreover, Ernst & Young predicts that the number of households in Mexico with annual disposable income more than $50,000 will increase to 7.1 million by 2020, reflecting an increase of 50% in the country’s middle class. The Mexican apparel and footwear market currently stands at $29.6 billion, and it is expected to grow at a steady pace going forward. Euromonitor projects $10 billion in incremental sales over the next six to seven years. This should keep retailers such as Abercrombie interested in the market. However, Economic Weakness can have a Negative Impact The economic environment in Mexico has been fairly weak over the past couple of years. This year, the economy has grown at its slowest pace since 2009, and it was reportedly in recession during the first quarter of 2014. Mexico’s GDP grew by just 1.3% last year, which was much slower than what the IMF projected. For 2014, the Mexican Central Bank had initially predicted the growth to be around 4%, but it later revised the guidance to 2.3% to 3.3%. Given that the country’s economic growth has been worse than projected for the past eight quarters, it is possible that 2014′s GDP growth levels fail to meet the Mexican Central Bank’s revised targets. A slump in domestic demand and investments are troubling the country’s economy, and President Peña Nieto’s restructuring plans have supposedly contributed to the economic slowdown. Mexico’s minimum wages remain the lowest in Latin America, and food and gasoline price inflation has severely impacted consumer discretionary spending. Around 50% of the population is below the poverty line and close to 30% have moved to the informal economy. Contributing to this is one of the points in the President’s restructuring plan, which permits the summary firing of even unionized workers. While Mexican apparel market has grown steadily despite the economic troubles, we believe that these problems will have some negative impact on the market growth going forward. However, given that Abercrombie will be targeting the middle class, which is growing, it can ensure strong growth in the market during the initial few years of its operations. Subsequently, competition will become a significant factor. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Carbonated Drinks Giant Coca-Cola To Enter The Milk Market
  • By , 11/28/14
  • tags: KO PEP DPS BUD
  • The world’s largest carbonated soft drinks company,  The Coca-Cola Company (NYSE:KO), is now set to expand its beverage portfolio beyond the liquid refreshment beverage space and enter the fluid milk market. The beverage giant, in partnership with Select Milk Producers, will roll-out its “Fairlife” fluid milk in the U.S. next month, and ramp up distribution and marketing behind this brand by early next year. According to Coca-Cola, Fairlife will contain 50% more protein and calcium, and 30% less sugar than ordinary milk, and contain no lactose. At the same time, this more nutritious fluid milk product will be sold for twice the price of regular milk. The launch of Coca-Cola’s premium milk is coming at a time when milk sales in the U.S. are falling. In fact, fluid milk sales in the country have declined by roughly 8% in the last decade. Entering a new market will add incremental sales to Coca-Cola’s top line, but Fairlife could be more than just another brand in the company’s long list of over 1,000 drink brands sold worldwide. Despite falling levels of milk consumption in the U.S., Coca-Cola, with its strong brand recognition and marketing muscle might be able to draw customers to its premium milk, and even boost overall fluid milk sales in the long run. We estimate a $42 stock price for Coca-Cola, which is around 5% below the current market price. See our full analysis for  Coca-Cola Coca-Cola is known for selling carbonated drinks, which account for almost two-thirds of the company’s value, by our estimates. The company has long been in the firing line of health activists, who discourage consumption of beverages with high amounts of sugars, calories, and artificial substances — all of which are attributes of sodas such as Diet Coke and Coca-Cola. Growing health and wellness concerns are the main reason for the soda slowdown in the last decade or so in the U.S.  On the other hand, the fluid milk market is also in decline in the domestic market, despite the fact that health concerns support milk intake. Traditional milk is faced with growing competition from non-dairy milk alternatives and other healthy foods such as yogurt and energy bars. Consumption of milk is also falling as more and more customers skip breakfast altogether. In fact, half of the U.S. population above 18 years of age doesn’t drink milk. This telling statistic supports why per capita consumption in the country is estimated to drop 6% by 2025 to 86.6 kilograms, down from approximately 92 kilograms currently. Despite low levels of fluid milk consumption in the U.S. at present, Coca-Cola’s Fairlife could be able to derive meaningful growth from this segment, and here’s why: Healthy Product, Strong Branding- Coca-Cola is one of the most valued brands around the world, and strong branding and marketing initiatives could drive sales for Fairlife. Perception is one factor which impacts customers’ decision in choosing foods and beverages. Although studies argue how there is little to no meaningful difference between conventional and organic milk, the latter has seen a steep rise in sales in recent times, despite the overall decline in milk consumption. In 2013, while conventional milk volumes, which formed 95% of the net volumes, decreased 2.6% year-over-year, volumes for organic milk rose over 5%. Words like “organic” and “sustainable” appeal to customers, and Coca-Cola’s Fairlife, which comes from sustainable family farms and is marketed as more nutritious, could also attract much attention, enough for customers to pay double the price of regular milk.  Coca-Cola is looking to shake-up the U.S. fluid milk market through innovative advertising and marketing, and strategic packaging — Fairlife comes in bottles akin to juice bottles. In Denver’s test market, where Fairlife was introduced earlier in the year, the fluid milk brand showed a sales rise of 4%. Given Coca-Cola’s marketing muscle and strong brand appeal, Fairlife could garner meaningful sales following the nation-wide launch next month. Premium Milk Could Boost Profitability If Coca-Cola manages to achieve high volume sales of Fairlife in the future, the product’s high prices and economies of scale could boost the company’s net profitability. Bottled water is another high volume market, but Coca-Cola and other beverage makers such as PepsiCo don’t derive meaningful profits from this category mainly due to competitive pricing. In addition, Coca-Cola has been criticized for selling “bottled tap water,” which forced the company to withdraw its water brand Dasani from the U.K. in 2004.  However, enhancing the quality of regular milk might not meet the same fate. Coca-Cola’s Simply brand of juice and juice drinks grew 7% in North America last year (94% U.S., 6% Canada), despite the 1.9% decline in the overall fruit beverage segment in the domestic market. Even though the high amounts of sugars and calories have dissuaded consumers from juice consumption, especially orange juices, the Simply brand enjoys strong sales as it is marketed as healthier, all-natural, and contains no added sugar or preservatives. Fairlife could be another Simply for Coca-Cola, and in addition to boosting the company’s beverage portfolio and sales, this premium milk could very well shake-up the overall U.S. fluid milk market. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Ralph Lauren Bets On Direct Sales, High Margin Products For Future Growth
  • By , 11/28/14
  • tags: RL COH KORS
  • Luxury lifestyle company Ralph Lauren (NYSE:RL) has seen its stock fluctuate between $150 and $180 over the past year. The volatility can mostly be attributed to the decline in operating margins in the previous quarters.  In the recently concluded quarter, operating margin was 100 basis points below last year’s at 14.4%, due to the timing of payments related to incremental investments in growth initiatives, which was somewhat offset by operational discipline and the favorable impact of currency fluctuations. (( Ralph Lauren Q2 FY15 Earnings Call Transcript, Seeking Alpha, October 2014) The company issued guidance of further decline in margins in the upcoming quarters. Ralph Lauren is facing a challenging market environment as it tries to transition from a wholesale dominated business model to one based on direct sales. Consumers are now showing a preference for shopping at retail stores and online instead of department stores. Ralph Lauren, which used to be a staple of department stores like Bloomingdale’s and Macy’s, has suffered because of this change in consumer preferences. As a result, the company is now trying to derive more of its sales from company owned stores and the e-commerce channel. The other step taken by the company to boost its margins has been to increase the penetration of luxury accessories, like expensive watches and bags, in its stores. See our complete analysis for Ralph Lauren Increasing Contribution Of High Margin Products In Its Sales Mix Ralph Lauren turned footwear from a licensed segment to company-owned in 2006 and re-opened operations in 2008. At the same time, the company gained direct control of its licensed handbags and small leather goods business. Since then, the category has grown at an average of 20% annually. Currently, handbags, footwear, and leather goods represent less than 10% of total consolidated sales. The company has stated that it wants to grow this category to about 20% of the top-line, which should favor margins as it is a higher margin category than apparel. To this end, the company is now changing the look and feel of its stores. Earlier, a visitor to the store was more likely to spot Polo staples on display, but now those have been replaced by luxury goods and luxury accessories. The company is taking serious steps to draw a sharp distinction between its Polo based lineage and its aspirations as a serious competitor in the high-end luxury space. With the launch of the Ricky handbag, which starts at a price of $2,500 and extends to $18,000, the company is entering into direct competition with the likes of Hermes, Dior, Valentino, and Louis Vuitton. Early signs are not entirely positive — the Ricky handbag is being outsold by the cheaper Celine Trapeze, but the shift in strategy is clear. The motivation behind the shift towards the higher reaches of luxury seems to be higher margins, but an alternate explanation is possible. It could be that the company is trying to re-engineer its brand image in anticipation of higher sales from Asia, especially China. Asia only forms about 12% of the company’s current sales but expectations for this market in the future are high. China contributed nearly 47% of the worldwide spending on luxury goods in 2013.  The  majority of this spending was directed towards watches, personal care goods, perfumes, and leather hand bags. The Ralph Lauren brand is new to Chinese consumers and this provides considerable leeway to the company in terms of how it wants to sell its brand image. As a result, the company is using this time frame to gain a firmer foothold in the luxury goods market. Increasing Contribution Of Direct Sales According to figures from the U.S. Department of Commerce, department store sales peaked in the early 2000′s and have been declining ever since. Adjusted to 2013 dollars, department store sales have declined from nearly $27 billion in 1999 to just over $14 billion in 2013. The gap in sales from department stores has been filled by sales from internet retailer and specialized, non-department stores.  In the January 2013-January 2014 period, department store sales fell by 6.5%, while sales from internet retailers increased by 5.7% and sales from specialized, non-department stores rose by 1.2%.  In response to these trends, companies like Ralph Lauren have decided to switch from a majority wholesale model to a majority retail model supported by significant investments in e-commerce. In order to give its retail sales a boost, the company has intensified the development of its Polo brand. Currently, 60% of the sales made by the company are in its men’s business, the reverse of the usual industry trend where sales are skewed towards women. During fiscal 2014, the company created Polo for women, which it expects to replace the existing Blue Label line for women. Therefore, the sales made from this switch will not be completely incremental. However, in the longer term the company expects the Polo brand to address a much broader market than the Blue Label line. Additionally, the retailer is still in the early stages of executing the expansion of its Polo stores worldwide. It operates 13 Polo stores currently, with plans of opening 15 to 20 more in fiscal 2015.  Over the long term, the company believes there is an opportunity to have between 100 and 200 Polo stores worldwide, with significant concentration in international markets. Additionally, the company is working hard on the development of its e-commerce segment.  In fiscal 2014, e-commerce brought in $500 million in revenues. Based on the high growth and the profit creative dynamics of the channel, the retailer will continue investing in this space. At present, the company’s e-commerce operations behave very differently in different geographies. In the U.S., the management pointed out that if a consumer switches from shopping at a brick-and-mortar store to online, it is profitable for the company. However, the company’s e-commerce operations are only starting to achieve scale in Europe.  RL will need to make further investments in its European e-commerce business to reach the same level of profitability as in the U.S.  Meanwhile, it’s only just launched the e-commerce business in Asia. The company currently operates in Japan and Korea, with investments still ongoing to bring operations online in Greater China and Southeast Asia.   These initiatives could lead to different avenues of future growth for the company. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Harley-Davidson's Retail Sales To Rise In The U.S. And Europe
  • By , 11/28/14
  • tags: HOG TM HMC TSLA
  • Harley-Davidson (NYSE:HOG) has been in steady recovery since the collapse of the U.S. heavyweight motorcycle market in the thick of the recession between 2008-2010. But Harley’s growth in the domestic market hit a roadblock in the second quarter this year when retail sales remained flat, while shipments to dealers rose 10%. As a result, the company lowered its full-year outlook on shipments, in order to keep supply in line with demand and protect its luxury brand image. However, following the lower shipment levels in the U.S. in Q3, wholesale shipments are expected to rise in the last quarter and remain strong in the country through the early part of next year, mainly due to new product launches and rejuvenated demand. On the other hand, after declining by 14% in the last couple of years, the European heavyweight motorcycle market (601+ cc) grew by 13.2% in the first nine months of this year, signalling improving economic conditions and strengthening consumer demand. The U.S. forms almost two-thirds of Harley’s annual shipments, and Europe is another 15-20%, highlighting the company’s dependence on these markets. Evolving with changing demographics and customer trends, Harley has looked to launch new products, such as lightweight motorcycles and concept electric bikes, more suited to the current crop of potential motorcycle owners, who prefer cheaper, lighter and economically viable vehicles. These new products could provide the necessary push to Harley’s motorcycle sales in the coming years. In this article, we will discuss why sales in the U.S. and Europe are expected to remain strong for Harley in the near term. Our current price estimate for  Harley-Davidson stands at $65, which is around 5% lower than the current market price. See our full analysis for Harley-Davidson Road Glide And Street Bikes To Boost Domestic Sales As mentioned, the U.S. makes up around two-thirds of the net shipments for Harley, which is why sales in the country play a crucial role in molding the overall results for the company. The two main reasons why volumes were weak in the second quarter for the company were the absence of the touring motorcycle Road Glide from the 2014 model year and low availability of the much anticipated lighter-weight Street motorcycles. Potential Sportster buyers also decided to wait for the Street launch to compare the varying features and make an informed buying decision. However, after retail sales in the U.S. remained essentially flat to slightly positive in the first half of the year, volumes rebounded to a 3.4% growth in Q3 on the back of pent-up demand and new model launches. The launch of Road Glide along with other 2015 model year launches in August is expected to boost Harley’s near-term retail sales in the U.S. The Road Glide was the highest selling bike from the new model year in Q3, but constituted only 4% of the net retail sales in the third quarter, down from 8% in Q3 2013. This was because the model was only available since the latter part of the quarter, and is now expected to spur domestic sales in the next quarter. On the other hand, improved availability of the recently launched Street 500 and 750 should also boost year-end shipments for Harley. The company managed to remove the bottlenecks that limited availability of the Street bikes in the U.S. in Q2, and witnessed stronger sales of these lighter motorcycles in Q3, improving proportionate sales of the Sportster and Street motorcycles by nearly four percentage points compared to the previous year to 25.8% of the net retail sales in Q3. The Street bikes are expected to draw incremental sales for the company as millennial customers might prefer lighter, cheaper, and more “manageable” Harleys. In addition, the Street pair is expanding Harley’s reach to new and outreach customers, which means that the company’s sales in the coming years could remain strong in its biggest sales-base, the U.S., despite the aging core customer base of baby boomers. Europe Sales Could Continue To Remain Strong Harley’s retail sales in Europe picked up by 6.3% over the previous year in the first nine months of the year, reversing the declining trends seen in the last two years. One of the main reasons why we expect Harley’s Europe sales to rise is the launch of the lightweight Street pair in the region.  The company launched the Street 500 and 750 in Italy, Portugal, and Spain this year, and has reported higher than expected sales of these bikes in the countries so far. Now, the company plans to increase shipments of the Street in Europe in the fourth quarter, and enter other markets within this region by next year, which should see volumes rise significantly by this time next year. The Street motorcycles could form around 7-8% of the net shipments in their first full year in 2015, according to our estimates, expanding Harley’s customer base to those who might be inclined to buy cheaper and lighter motorcycles. However, seeing how the euro zone economy hasn’t rebounded as expected, following the double-dip recession, Harley’s sales-growth might be slightly impeded. The euro zone economy continues to stagnate, with falling inflation rates and consumer price rises. Inflation dropped to 0.4% in October, below the European Central Bank’s target of around 2%, giving rise to fears of deflation. The euro has also depreciated around 7% against the U.S. dollar over the last twelve months, and further unfavorable currency translations in the region could drag down Harley’s revenues. With tightening incomes, consumers typically look to cut down on luxury spending, which could see a fall in demand for Harley’s heavyweight motorcycles. However, despite the fact that economic recovery in Europe has been weaker than expected, Harley’s volume growth in the region could be steady. The new Street motorcycles, having relatively lower prices and carrying the strong Harley brand name, could attract the millennial customers.  Going forward, Harley expects to ship 46,500-51,500 motorcycles in the last quarter, flat to 10% above the last year’s fourth quarter shipments of 46,618 motorcycles. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Is Activision's World Of Warcraft Back In the Game?
  • By , 11/28/14
  • tags: ATVI EA GME MSFT
  • Activision Blizzard ’s (NASDAQ: ATVI) stock showed no significant reaction despite the financially strong earnings report released by the company on November 4. The company’s new successful title launches, strong performance by last year’s core titles, as well as high growth in digital domain helped in delivering a 9% year-over-year (y-o-y) increase in GAAP revenues to $753 million. Activision’s results improved in all the geographical regions y-o-y, with 30% growth in Asia-Pacific. One of the major highlights of the quarter was the reported increase in number of subscribers for World of Warcraft (WOW). It is a widely popular Massively Multiplayer Online Role-Playing Game (MMORPG) and has a huge gamer base. The franchise has long been a cash cow for Activision accounting for close to $0.9 billion in annual revenues. But the popularity of the game has waned since it reached a peak of nearly 12 million subscribers in 2010. Our $22 price estimate for Activision Blizzard’s stock is roughly the same as the current market price. See our complete analysis of Activision’s stock here Is The Resurgence Of World Of Warcraft In The Cards? MMORPGs started gathering the attention of gamers in 1997, with ‘ Ultima Online’ credited as the first popular game of this genre. However, the gaming industry witnessed the launch of one of the greatest franchises, when Activision Blizzard released ‘ World of Warcraft ’ in 2004. The franchise attracted 400,000 subscribers within one month of the launch. The excitement among gamers increased, as WoW was the first widely detailed game in a genre with a growing customer base. Within 2 years, the subscriber base crossed 7.5 million, making it the largest MMORPG in history. However, the demand for expansion packs for this game starting cropping up.  Since then, the company has released five expansion packs, including the latest pack — Warlords of Draenor. After the release of the second expansion pack ‘Wrath of The Lich King’ in December 2008, the subscriber base reached its all time high of 12 million. Interestingly, when the company released the third expansion pack ‘Cataclysm’ in December 2010, several free-to-play online MMORPGs like Aion: Ascension, Vindictus and Allods Online entered the fray. The declining interest of gamers in WoW forced the company to release the fourth expansion pack ‘Mists of Pandaria’ in September 2012. However, it failed to revive the interest of gamers and, as a result, WoW started bleeding subscribers, reaching a total of 6.8 million by June 2014, due to strong competition from these free-to-play online MMORPGs. However, by the end of the September quarter, the subscriber base improved to 7.4 million, with more than 1.5 million pre-orders for the fifth expansion pack ‘Warlords of Draenor,’ which was released on November 13, 2014. The fifth expansion pack is priced more than its previous versions; the digital and physical standard edition is available for $50 and the digital deluxe edition is available for $70.  Within 24 hours of its availability, more than 3.3 million copies were sold, and its subscriber base crossed 10 million. However, the jump in subscriber base does not completely ensure the resurgence of the franchise, as the first day sales of all the previous expansion packs witnessed a similar short-term spike. The last pack, Mists of Pandaria, sold 2.7 million copies on the first day of its release last year, taking the subscriber base to roughly 10 million. However, the figure slowly declined 32% over the period of 2 years. Although it is still the biggest subscription based MMORPG, the fee-based model means that it will keep losing out to other free-to-play competitors in the future. Trefis estimates the number of WoW subscribers to decline to 9 million by 2016, as the gamers are shifting from the MMORPG category to first person shooter (FPS) and other role playing categories. Moreover, the online communities for shooter games, such as Call of Duty, have started gaining more popularity every year. The resurgence in the WoW subscriber base might be a one-time spark and if it declines 33% over the next two years, there will be a 4% downside to the Trefis price estimate. However, if the gamers drift back to the MMORPG genre due to a lack of software titles in the market and the subscriber base crosses 12 million by 2016, there will be a 4% upside to the Trefis price estimate. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    China’s Rate Cuts Spur Speculation
  • By , 11/28/14
  • tags: ASHR CAF
  • Submitted by Wall St. Daily as part of our contributors program China’s Rate Cuts Spur Speculation By Alan Gula, Chief Income Analyst   Nowadays, it seems like everyone claims they foresaw the magnitude of the collateral damage that hit after the U.S. housing bubble burst. In reality, most people ignored the major warning signs. In July 2007, Bear Stearns disclosed that two of its credit hedge funds with exposure to subprime mortgages had lost nearly all of their value. Yet the S&P 500 didn’t peak until October 2007, well after problems in the mortgage market had begun to spread. And even then, most economists and strategists were clueless as to what would happen next. Well, what if I told you that an even larger housing bubble is in the process of bursting? Just like before, very few people are paying attention . . .  And once again, everyone will claim they saw the collateral damage coming. On a year-over-year basis, the average new-home price in China declined by 2.5% in October. Home prices fell in 67 of the 70 cities tracked by the government in October from a year earlier. Prices were also down 1.1% in September, the first annual decline in almost two years. With deterioration in the housing market, it’s no wonder China’s central planners blinked. Last Friday, the People’s Bank of China unexpectedly cut benchmark lending and borrowing rates. It was the central bank’s first rate cut in more than two years. But there’s even more to the story . . . As China’s economic growth rate slows, we’re starting to get a glimpse of the ugly details concerning China’s epic credit expansion, which has fueled the housing boom over the past several years. It turns out that loan guarantees, in which companies back loans to other firms, are starting to wreak havoc. These guarantee chains are causing cascading failures and transmitting stresses throughout the banking system. It’s estimated that around a quarter of the $13 trillion in total loans outstanding in China are backed by promises from other companies, individuals, or dedicated guarantee companies. These guarantees remind me of the problems surrounding the monoline insurance companies, which guaranteed U.S. subprime mortgages. Unsurprisingly, it seems as though loan guarantees are a fixture of rapid and unsustainable credit expansions. Nonetheless, fresh Chinese central bank stimulus has a lot of investors bullish on China’s stock market. Speculating on Red Furthering this bullishness is the development of a new pathway for more foreign investment in China’s local shares. The Shanghai-Hong Kong Stock Connect is a pilot program that links the stock markets in Shanghai and Hong Kong. Although mainland Chinese stock purchases are still capped, the hope is that further global integration of China’s equity markets will lead to significant capital inflows. Obviously, everyone wants to be among the first in. Fund assets for the Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF ( ASHR ) are taking off, and the ETF now trades at around a 5% premium to net asset value (NAV), which is unusual for an ETF. Meanwhile, the lesser-known Morgan Stanley China A Share Fund ( CAF ), a closed-end fund, still trades at a 7.8% discount to NAV. I expect CAF to eventually trade at a significant premium to its NAV, just like ASHR. Much like in the United States circa 2007, it will take time for the markets to come to grips with the enormity of the problems in China. Until then, stimulus and hope will trump common sense. Whereas the U.S. mortgage market and banking system was ground zero for the credit crisis in 2008-2009, Asia will be the epicenter of the next credit crisis. Just imagine if the Federal Reserve had been ultra-stimulative throughout 2007. Speculation and leverage would have reached even greater heights before the crisis – with even more disastrous consequences, of course. This is the situation that China finds itself in today. Its housing bubble is trying to correct itself, but the central planners are going to fight it by encouraging even more malinvestment. Safe (and high-yield) investing, Alan Gula, CFA The post China’s Rate Cuts Spur Speculation appeared first on Wall Street Daily . By Alan Gula
    Will DISH Network’s Ascent Continue?
  • By , 11/28/14
  • tags: SPY DISH
  • Submitted by Wall St. Daily as part of our contributors program Will DISH Network’s Ascent Continue?   By Richard Robinson, Ph.D., Equities Analyst   Despite Wednesday’s nearly 27-point decline on the Nasdaq, shares of DISH Network Corp. ( DISH ) rose sharply in heavy trading. DISH Network rose more than 10.04%, or $6.81, to close the day at $74.66 with more than 14.5 million shares trading hands. Shares of DISH Network have risen more than 45.6% in the previous 12 months, and currently trades near the stock’s 52-week high. Now, given the relatively flat quarterly financial performance of DISH, investors are left wondering if the stock can move higher from these levels. Poor Quarterly Results In the latest quarterly release ending September 30, 2014, DISH Network booked revenue of $3.67 billion. This represents a 4.9% increase over the $3.50 billion announced in the same quarter a year ago. Unfortunately, the reported revenue growth remains 72.4% behind the industry average of 11.6%. And despite the revenue increase, it appears that the additional revenue had no impact on DISH’s bottom line. DISH also experienced a sizable decline in earnings per share in its most recent quarter compared to the same quarter a year ago. In its release, the company announced that EPS declined 32.6%, falling from $0.46 per share to $0.31 per share. But wait, there’s more bad news  . . . DISH Network will likely see another decline in earnings in 2015, as expectations are for an earnings contraction of 14.5%, falling from $1.86 in 2014 to $1.59 in 2015. Making matters worse, operating income for the company fell last quarter, too. DISH reported a decrease of 7.6%, with operating income falling from $420 million in Q3 2013 to $388 million in this latest quarter. Furthering the gloom, net income for the most recent quarter was $145.5 million versus $314.9 million last year, a difference of 53.7%! So this all begs the question . . . Why is DISH Network stock rising? Simple . . .  It’s happening because of reasons other than its financial performance . . . You see, the FCC began an auction of wireless spectrum last Thursday, and DISH looks to be a big winner based on results so far. Bids in the FCC spectrum auction rose by $7.5 billion on Tuesday with large markets now priced above $2.50/MHz/POP. How does this impact DISH? DISH Network sits on a lot of spectrum that’s much more valuable than the AWS-3 spectrum now being priced. This means that at today’s closing price of $74.66, DISH stock is currently priced at about $1/MHz/POP if we use a 6x EBITDA as a gauge. Thus, if the prevailing value of spectrum remains above $2/MHz/POP, the stock is trading at a serious discount to its real value. Possible DISH Merger? But the price differential in the spectrum isn’t the only positive effect on the stock . . . You see, the AWS-3 auction could pave the way for a merger between DISH Network and the nation’s fourth-largest telecom operator, T-Mobile US, Inc. ( TMUS ). Back in September, Bloomberg reported that DISH was in talks with Deutsche Telekom, the parent company of T-Mobile, about a possible merger. Upon completion of the auction, both parties may seriously pursue the deal. And a combined company will boast a significant bandwidth portfolio on all AWS-1, 3, 4, as well as H-band spectrums. The combined company’s bandwidth would dwarf competitors Verizon Communications ( VZ ), AT&T ( T ), and Sprint ( S ), while allowing deployment of high-quality LTE services with extremely fast video delivery and enhanced application download and upload speeds. Such a merger would make a combined company the preeminent global telecom provider – and would certainly push DISH significantly higher than the $105 estimate based on current trends. It’s certainly something to think about . . . Good investing, Richard Robinson The post Will DISH Network’s Ascent Continue? appeared first on Wall Street Daily . By Richard Robinson
    Amazon Sabotages Its Own Black Friday Sales?
  • By , 11/28/14
  • tags: SPY TLT
  • Submitted by Wall St. Daily as part of our contributors program Amazon Sabotages Its Own Black Friday Sales? By Floyd Brown, Chief Political Analyst   Amazon ( AMZN ) started Black Friday deals early, but don’t count me in this year. I’ve been a customer of Amazon almost from the beginning, when all they delivered were books. I don’t know how many thousands of dollars of merchandise I’ve ordered over the years, but it’s likely in the tens of thousands. I adopted Amazon because it fit my busy lifestyle. Instead of having to visit Wal-Mart ( WMT ) and hustle from aisle to aisle . . .  just to wait in a long line to pay for my merchandise . . .   Amazon allowed me to buy with a few clicks and find the product at my doorstep just days later. But after making its worst business decision ever, I will forever boycott using the site. And I might not be alone  . . . At first, Amazon’s premium service, Amazon Prime, improved on the customer experience. With no shipping and two-day delivery, there was no way to beat it. My Amazon purchases exploded. In fact, I was so addicted to Amazon last year that I spent most of Black Friday on the site completing my Christmas list. No need to fight the crowds at the mall. No need for rain checks. Heck, they even delivered my out-of-town gifts directly to the intended recipient. All of this joy is over now, however  . . . Serious Lapse in Judgment If you’re a regular Amazon customer, you’ve likely noticed a change. Amazon dropped the United Parcel Service ( UPS ), and it increased shipping with the United States Postal Service (USPS). Amazon made a deal with the Devil, and the customers are now required to pay. Let me explain . . . When the deal was announced, the U.S. Postal Service thought it was the lifeline it needed to survive. Since bills and most correspondence now come via email – and checks are often delivered by Automated Clearing House (ACH) – the USPS has lost its reason to exist. Mail volume has plummeted and most of the mail delivered these days never makes it past the trash can into the house. They’re bleeding financially. Now, Amazon pays huge delivery fees, and it’s looking to build its own fleet of trucks and vehicles to deliver packages. Instead, it thought it had a match made in heaven: Take the excess capacity of the USPS, and make it the delivery system for Amazon. Makes sense, right? But there’s a major problem with the equation. Amazon is going from being the best firm at delivering products . . .  to being one of the worst. From Pick-Up Lines to Picket Lines In the past, the United Parcel Service would leave the parcels at your doorstep. Instead, USPS wants to cram it into your mailbox. But if you miss your mail for a day or the package doesn’t fit into your mailbox, you’re out of luck . . .  the parcels end up back in the dead letter room at your local post office. So instead of delivery, the Amazon customer has to go to pick up the package at the Post Office. That’s a line even more dreaded than Wal-Mart’s. Americans hate standing in the USPS line. And this is what’s happening to thousands of Amazon customers around the nation. Instead of enjoying the delivery of Amazon Prime, you’re now faced with the hell of waiting in the line at the Post Office. What sounded like a good idea on paper is a disaster for the Amazon customer. I wonder if Jeff Bezos and the other leaders of Amazon know what they’re doing to their own customers. If this keeps up, they soon will. Your eyes on the Hill, Floyd Brown The post Amazon Sabotages Its Own Black Friday Sales? appeared first on Wall Street Daily . By Floyd Brown
    Investor Sentiments Remain Low for Copper
  • By , 11/28/14
  • tags: CPR FCX
  • Submitted by Mai Bantog as part of our contributors program . Investor Sentiments Remain Low for Copper The latest economic data from China took its toll on copper futures, as its price fluctuated within a small range last week due to downbeat trading sentiment. The base metal even edged lower on Monday as traders figure out whether a surprise rate cut in China would translate into an increased demand for copper. According to Ecns.cn, The three-month copper contract from the London Metal Exchange (LME) closed at $6,700.50 per ton last Friday, up by 0.64 percent from Thursday. Still, copper prices are relatively lower by 0.08 percent for the whole week. On the other hand, copper did well on the Shanghai Futures Exchange (SHFE) last week with a 0.89 percent price increase on a weekly basis. However, its total trading volume was limited to 1.09 million lots—6.84 percent down compared to the previous week’s 1.17 million lots. The sufficiency of copper supply last Friday was due to the improving LME and SHFE copper price ratio that allowed inflows of imported copper, according to Shanghai Metal Markets . Additionally, warehouse warrants continued to flow to the market, resulting to narrow spot premiums during the afternoon trading session. Cargo holders rushed to sell ahead of the weekend to generate cash, driving spot premiums down. Investor confidence is currently low on copper due to weaker-than-expected HSBC manufacturing and industrial data. According to the HSBC, copper’s purchasing managers’ index—a preliminary indicator of manufacturing activity—fell to a six-month low this month at 50.0, down from 50.4 last October. This was even worse than analysts’ expectation of 50.2. A reading above 50 indicates expansion. The dollar also reached a five-year high against a basket on 10 currencies as investors speculate that the Federal Reserve is going to increase US interest rates. “The Chinese numbers are adding pressure on the base metals complex. The dollar’s strength continues to act against commodities,” said Mike Dragosits from TD Securities to Metal Guru . Furthermore, copper output in China is also expected to reach 6.80 million tons in 2014, Shanghai Metals Market (SMM) predicts. According to SMM’s copper analyst, “Copper production growth is estimated at around 4 percent this year to reach 6.80 million tons.” Reasons behind this include production cuts at Chinese smelters, smaller than scheduled commissioning of new capacities, and limited supply of crude copper and anode copper. Copper output is expected to increase on 2015 by 7.55 million tons, as it is the only base metal forecasted to be in surplus. Despite the expected supply of copper, more copper explorations are underway, including the Kun-Manie Project managed by Amur Minerals Corporation (AIM: AMC) and divided into five drilled deposits. Though the main product of the project is 830,000 tons of nickel sulphide, the site also contains a huge amount of copper measuring around 178,400 tons. According to the company’s interim financial report in June 2014, the average grade per ton for copper is 0.15 percent. The area remains highly prospective with the limits of mineralization not yet established. The shares of Amur Minerals closed at 6.60 last Friday, 0.46 points up from Thursday’s trading day.
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    Here's Why Micron Will Benefit From Higher Mobile Shipments
  • By , 11/26/14
  • tags: MU TXN SSNLF BRCM
  • In 2012, macro weakness, the demand-supply imbalance, intense competition and declining selling prices lowered  Micron Technology’s (NASDAQ:MU) top line growth and impacted its profitability. However, increasing consolidation in the industry, rising demand from non-PC markets, increasingly diversified end markets, and improving memory product prices, returned the company to profitability in fiscal 2013. For fiscal year 2014 (ended August), Micron reported record revenue of $16.4 billion, record net income of over $3 billion and record free cash flow of $2.6 billion. ( Read Our Earnings Article ) The company’s stock price has increased from around $6 two years ago to $35 at present. With a large and diverse memory product portfolio across a number of end-market segments, and the second largest installed manufacturing capacity, Micron is in a strong position to benefit from the improving industry dynamics, in our view. The company intends to be measured and prudent in its capital spending in the future. Beyond ongoing advanced component and technology development, its main operational focus areas for fiscal 2015 are: technology deployment, optimizing manufacturing capacity and focusing on growing the memory systems and subsystem solutions. The rapid expansion of smartphones and tablets is one of the primary factor that has fueled growth in the memory market in the last few years. Micron develops different types of DRAM, including mobile DRAM products, that are specialty DRAM memory devices designed for applications demanding minimal power consumption, such as smartphones and tablets. Additionally, the company also manufactures NAND flash products, which with fast read-write times, high density and low cost per bit, are ideal for mass storage devices, such as mobile phones, solid-state drives, tablets, and computers. Being one of the biggest players in the DRAM and NAND markets places Micron at a distinct advantage in the mobile segment in the long-run. Our price estimate of $32.40 for Micron is just slightly below the current market price.
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    A Look At Barrick Gold's Strategy For Adapting To The Prevailing Subdued Gold Pricing Environment
  • By , 11/26/14
  • tags: ABX NEM SLW RIO FCX
  • Gold prices have fallen considerably over the last year and a half. The Federal Reserve announced its plans to wind down its quantitative easing (QE) program in June of last year. Gold prices have fallen around 13% since then and are currently trading at levels of around $1,200 per ounce. Gold mining companies such as Barrick Gold Corporation (NYSE:ABX) have needed to adapt to an environment of subdued gold prices. Measures taken have included reductions in operating costs and capital expenditures, the disposal of non-core assets and enhancing exposure to other commodities. In this article, we will take a closer look at Barrick’s strategy to operate competitively in a subdued gold pricing environment. See our complete analysis for Barrick Gold Gold Prices Gold prices have fallen over the course of the last year, reacting to cues regarding tapering of the Fed’s QE program. The tapering of QE implied strengthening U.S. economic growth. Gold is often viewed as a hedge against inflation and economic weakness. The strengthening of the U.S. economy reduced the investment demand for gold and led to a fall in prices of the metal. As per the World Gold Council, investment demand for gold fell from 1,623 tons in 2012 to 893 tons in 2013. This led to a fall in overall gold demand and prices. Going forward, the Fed’s outlook on the U.S. economy is important as far as gold prices are concerned. With the economy strengthening, the Fed is expected to raise interest rates sometime in 2015. However, the exact timing of an interest rate hike is contingent upon the pace of economic recovery and jobs growth in the U.S. An interest rate hike is likely to lead to a decline in the price of gold, as investors shift towards higher yielding assets. Portfolio Optimization With gold prices expected to remain subdued in the near-term, Barrick has divested non-core assets in order to lower its average production costs. Since mid-2013, the company has reduced its portfolio of mines from 27 to 19. These include the sales of the Darlot, Granny Smith, Lawlers, Plutonic and Kanowna mines in Australia, the Tulawaka mine in Tanzania, the Marigold mine in Nevada, and the closure of the Pierina mine in Peru. Further, the company recently sold a 10% equity stake in African Barrick Gold.  Lastly, the company also sold off its oil and gas business, namely Barrick Energy in 2013. The combined proceeds of these asset sales total approximately $1 billion. The focus of the company’s portfolio optimization efforts has been getting rid of high-cost mines. This is reflected in the All-in Sustaining Cost (AISC) metric for these mines. The AISC metric includes the total cash cost, sustaining capital expenditures, general and administrative costs, minesite exploration and evaluation costs, mine development expenditures and environmental rehabilitation costs. It provides a comprehensive view of costs required to sustain a company’s current mining operations. In 2013, the AISC figures for the Australia Pacific mines segment, African Barrick Gold, and Pierina stood at $994 per ounce, $1,362 per ounce, and $1,349 per ounce respectively. The reportable segment of North American mines, which included the Marigold mine, reported an AISC of $1,235 per ounce in 2013. All of these figures are higher than the company-wide AISC of $915 per ounce for Barrick’s gold mining operations in 2013. The sales of these assets helped lower Barrick’s AISC for its gold mining operations from $1,014 per ounce in 2012 to $915 per ounce in 2013. Focus on Core Assets The Cortez and Goldstrike mines in Nevada, the Pueblo Viejo mine in the Dominican Republic, the Lagunas Norte mine in Peru, and the Veladero mine in Argentina are Barrick’s core, low-cost mines. These mines collectively had an AISC of $668 per ounce in 2013, as compared to $915 per ounce for all of Barrick’s gold mines. These mines will collectively account for over 60% of Barrick’s gold production in 2014. Apart from the construction of a Carbon In Leach (CIL) plant at its Bulyanhulu mine in Africa, the company’s minesite expansion capital expenditure for 2014 is focused on its core assets. The construction of the Goldstrike Thiosulfate Technology project, and feasibility and development expenditures related to the Cortez Hills Lower Zone expansion, which will extend the life of the Cortez mine by around 7 years, are the major components of its minesite expansion capital expenditure plan in 2014. This indicates that the emphasis for Barrick lies on its core assets going forward. Enhancing Exposure to Copper In addition to the company’s focus on its low-cost, core gold mines, Barrick has also taken steps to increase its exposure to copper. Copper sales accounted for only around 13% of the company’s revenues in 2013. Barrick announced the setting up of a joint venture with Saudi Arabia’s Ma’aden to develop the Jabal Sayid copper project. The mine will commence production in 2015 and will produce between 100-130 million pounds of copper at full capacity. This will significantly boost Barrick’s copper production, which is expected to range between 440-460 million pounds in 2014. An increase in Barrick’s exposure to copper will reduce some of the risks of volatility in gold prices over the short and medium term. Copper is an industrial metal with diverse applications in industry, particularly in the manufacturing, power and infrastructure sectors. The demand for copper is positively correlated with macroeconomic cycles. On the other hand, gold is often used as a hedge against economic uncertainty. Usually, investment demand for gold and gold prices are negatively correlated with macroeconomic cycles. Thus, increasing its exposure to copper may provide some protection to Barrick against volatility in gold prices over the short and medium term. However, over the long term, gold prices will largely be influenced by increasing jewelry demand for gold from emerging economies and will be less prone to fluctuations in investment demand for the commodity. Jewelry demand constitutes the bulk of the overall demand for gold. Reductions in Capital Expenditure The company expects its capital expenditure to range between $2.2-2.5 billion in 2014. This is much lower when compared to its capital expenditure for 2013, which stood at $5.37 billion. The reduction in Barrick’s capital spending resulted from the suspension of the Pascua Lama project due to legal and regulatory issues and reductions in the company’s sustained capital expenditure. The reduction in capital expenditure will significantly boost cash flows. The Road Ahead Going forward, Barrick Gold’s prospects will to a large extent be determined by what trajectory gold prices take. However, after its portfolio optimization, capital expenditure reduction, and business diversification efforts, the company is better prepared to deal with a scenario of lower gold prices. With the U.S. economy strengthening, the upside for gold prices is limited in the near term. Thus, Barrick is well-placed to deal with such a scenario. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research  
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    A Look At Newmont's Response To Low Gold Prices
  • By , 11/26/14
  • tags: NEM ABX FCX SLW
  • Newmont Mining (NYSE:NEM) has announced that it has made a $100 million prepayment towards a five-year term loan which matures in 2019. The prepayment on the term loan was made largely through the proceeds from the Government of Suriname’s decision to exercise its option to participate through an equity stake in the Merian gold mine. This is the latest in a series of steps taken by the company to enhance its flexibility to operate in an environment of subdued gold prices. See our complete analysis for Newmont Mining Gold Prices Newmont’s average realized gold price for the third quarter stood at $1,270 per ounce, down from $1,322 per ounce in the corresponding period last year. The fall in realized prices for Newmont mirrors the decline in spot prices of gold over the same period. Gold prices have fallen over the course of the last year, reacting to cues regarding tapering of the Federal Reserve’s Quantitative Easing (QE) program. The tapering of QE implied strengthening U.S. economic growth. Gold is often viewed as a hedge against inflation and economic weakness. The strengthening of the U.S. economy reduced the investment demand for gold and led to a fall in prices of the metal. As per the World Gold Council, investment demand for gold fell from 1,623 tons in 2012 to 893 tons in 2013. Going forward, the Fed’s outlook on the U.S. economy is important as far as gold prices are concerned. With the economy strengthening, the Fed is expected to raise interest rates some time in 2015. However, the exact timing of an interest rate hike is contingent upon the pace of economic recovery and jobs growth in the U.S. An interest rate hike is likely to lead to a decline in the price of gold, as investors shift towards higher yielding assets. Newmont’s Response to Low Gold Prices In response to the fall in gold prices, Newmont has made efforts to optimize its portfolio of mines through the sale of high-cost and non-core assets over the past year or so. These assets include the Jundee mine in Australia, the Midas underground mine in Nevada, stakes in Paladin Energy Limited, Canadian Oil Sands, and the Penmont joint venture. Newmont has generated $1.4 billion through the sale of non-core assets since 2013. In addition to the sale of non-core assets, the company has tried to reduce costs and improve the efficiency of its operations. The company has saved around $1.7 billion through cost savings and productivity improvements since 2013. These savings were reflected in the company’s all-in sustaining costs (AISC) metric in Q3. The AISC metric provides a comprehensive view of costs required to sustain a company’s current mining operations. The AISC for Newmont’s gold production fell to $995 per ounce in Q3 2014 from $1,018 per ounce in the corresponding period last year.. AISC includes costs applicable to sales, remediation costs, general and administrative costs, advanced projects and exploration expenses, treatment and refining costs, sustaining capital expenditure, and other miscellaneous expenses. All of these steps taken by Newmont over the course of the last year or so have been tailored towards increasing the flexibility of the company to operate in an environment of low gold prices. The company’s latest effort to lower its debt has a similar objective. With the U.S. economy strengthening, the upside for gold prices is limited in the near term. Newmont has placed itself in a good position to deal effectively with such a scenario. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Facebook Through The Lens Of Porter's Five Forces
  • By , 11/26/14
  • tags: FB TWTR GOOGL
  • Social networking giant  Facebook (NASDAQ:FB) has shown tremendous growth in the recent past, resulting in almost doubling of its stock price from the IPO level of $38 per share. The market values the company at more than $200 billion, with a P/E ratio of around 70. Its top-line has risen by over 60% during the last nine months, and this impressive growth is expected to continue in the future. In addition to its core platform, Facebook also has other platforms including Messenger, Instagram, WhatsApp and Search, each of  which have the potential to become multi-billion dollar businesses. In many respects, the company has not even begun scratching the surface of this opportunity. In this article, we analyze how Facebook stacks up along Porter’s Five Forces to understand whether there are factors which could hamper its growth story and cause its market valuation to drop. According to our analysis, the social networking market is highly competitive and is prone to rapid change through the introduction of disruptive technologies. Facebook needs to continuously innovative and adapt to changing user trends to keep the engagement levels stable on the platform. The low barriers to entry in the Internet business further intensifies the competition in this market. Moreover, Internet usage is increasingly shifting to mobile devices, where the landscape is quickly evolving; hence we think investors need to keep an eye out for popular mobile apps as they could impact Facebook’s popularity. The switching costs for users are low and hence they could easily shift to newer apps for sharing information and micro-blogging.  Our $64 price estimate for Facebook’s stock, is around 15% below the current market price.
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    Ctrip Q3 2014 Earnings Show Aggressive Investment and Dampened Margins
  • By , 11/26/14
  • tags: CTRIP PCLN EXPE TZOO TRIP
  • Leading Chinese online travel agency, Ctrip International (NASDAQ: CTRP), announced its Q3 2014 earnings on November 25 th . The company displayed above guidance revenue growth, though margins still remain dampened for Ctrip. The main reason for the weak margin were Ctrip’s expenses in areas related to branding, product promotion, serving lower tier cities, and increasing headcount. At $347 million, net revenues for the third quarter experienced a year-on-year growth of 38%, exceeding the guidance of 30% to 35% growth. The main contributors to this growth were accommodation (contributing to 56% of the revenue) and transportation ticketing (contributing 32%). Ctrip has expanded its hotel coverage to approximately 170,000 domestic hotels and 510,000 international hotels. Air tickets contributed majorly to the booking volume of the transportation ticketing business. Over Q3 2014, Ctrip added more than 160 international airlines. This brought the number of its total international air partners to over 300. The year-on-year growth for accommodation and transportation revenue was 69% and 98% respectively. The revenue boost came at the cost of margin contraction, due to a surge  in spending. There was around 83% year-on-year growth in product development, which amounted to $100 million, and sales and marketing expenses increased by 69% to $97 million. As a result, the margins were adversely impacted. There was a 71% year-on-year decline in operating income, which amounted to $14 million in the third quarter of 2014. The operating margin swooped down to 4% in the Q3 2014, as against a 19% in the same period last year. The net income for third quarter was $35 million representing 42% year-on-year decrease. The company expects the margins to remain weak in the next quarter as well. The Chinese travel website reports that its mobile application has been downloaded more than 350 million times, with more than 150 million of these applications being activated. This strong adoption of the mobile platform has also translated into bookings growth. During the third quarter of fiscal 2014, mobile contributed to 45% and 35% of hotel and air ticket bookings respectively (compared to 30% and 15% in Q3 2013). Around 80% ticket booking in rail, bus and truck segment was done via mobile platform. The company states that over 5 million daily users access the Ctrip application on peak days. Ctrip’s main strategies are to provide the entire universe of travel related products on its platform at the best available price. It follows a two pronged approach to achieve this: Investments in technology and branding efforts to strengthen the flagship brand and gain a greater share of the online travel market Striking strategic partnerships with market leaders in all its product segments to expand its domestic and global presence So far, Ctrip has been able to gain market share across all its segments through its investments and joint ventures. The company expects the Chinese income growth to be higher in 2015 than 2014, which will translate to accelerated travel consumption, especially in the high end of the market such as outbound travels and luxury hotels. Ctrip also predicts that the focus areas for travel business in China are business travelers and the second and third tier cities, where there is immense growth potential. Our price estimate of $54.55 for Ctrip is marginally lower than the current market price. We will update our valuation shortly. See Our Complete Analysis For Ctrip International Strategic Partnerships Will Further Ctrip’s Dominance In China And Also Expand Its Global Footprint On November 21, Ctrip announced a partnership with Royal Caribbean Cruises Ltd., a global cruise vacation company operating 40 ships in over 490 destinations. The joint venture aimed at serving the Chinese cruise market will operate through SkySea Cruises, with each of the two entities owning 35% of the new company. The remaining portion will be owned by SkySea management and a private equity firm. The new cruise line is expected to start service with one vessel from mid-2015 and will and additional ships in the future. Chinese cruise market is expected to be the world’s second largest by 2017. In 2013, around 530,000 Chinese tourists took cruises beyond the mainland, more than double the previous year. The Chinese government is aiming at 4.5 million cruise traffic by 2020. The Ctrip management stated that cruise travel in China is expected to grow by an average of 30% over the next five to ten years. Ctrip’s aim is to create a synergy between international expertise and tailor-made products through SkySea Crusies. Ctrip’s cruise booking business delivered three digit growth in Q3 2014. Ctrip launched a new cruise booking platform in September 2014 with which Ctrip became the world’s largest cruise reservation platform in Chinese language. The partnership with Royal Caribbean and the size and prospect of the cruise market in China, is expected to accelerate Ctrip’s growth in the cruise market even further. Earlier this year,  Priceline (NASDAQ:PCLN) strengthened its commercial partnership (initiated in 2012) with Ctrip, by investing $500 million in the company. Through the investment, both the companies intend to increase the cross-promotion of each other’s hotel inventory and other travel services. This expanded partnership will allow Ctrip to access Priceline’s global hotel network comprising of over 500,000 accommodations. This should contribute to revenue acceleration and market share gains for Ctrip. Focus On Open Platform To Provide Comparative Advantage To Ctrip Ctrip is focusing on the development of an open platform which will enable it to consolidate all its partner operations on a single platform. Consequently, this will lead to more pricing transparency and a greater array of available products. Ctrip’s partners and users alike will benefit from this seamless offering and competitive pricing, thus generating greater sales for Ctrip. Though open platform  is still in its early stage, it generated business worth $163 million (RMB 1 billion) in Q3 2014. Open platform lends an unique comparative advantage to Ctrip over  its competitors, as open platform offers an entire gamut of travel related products, from small hotels to whole sellers, all in a  single platform. The pricing advantage and the market coverage due to this is unparalleled. During Q3 2014, open platform contributed to 60% of air revenues, 5%-10% of hotel revenues, and 15% of packaged tour revenue. Investments In Technology, Branding, and Promotional Activities In Second Tier Cities Will Further Depress Margins Ctrip plans to continue its investment in mobile internet, open platform, technology, brand awareness, and innovation. Hence, it expects further erosion of its bottom line in Q4 2014 with non-GAAP operating margin expected to reach negative 17%. The main contributors to this slowdown would be: Increasing branding campaigns and product promotions Lower seasonality Product development initiatives which include hiring more R&D and business development personnel Increasing headcount to promote products in the lower tier cities New business unit expansion View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    How Big Can Nike's Women's Business Be?
  • By , 11/26/14
  • tags: NKE UA LULU
  • One of the key growth strategies outlined by sports giant  Nike (NYSE:NKE) to achieve its stated target of $36 billion in annual revenues by fiscal 2017 is growing its women’s business. To this end, the company appointed long time company executive Amy Montagne as the head of its women’s business in 2013. Nike’s women’s business grew by nearly 12% to $5 billion in 2013, outpacing the company’s overall 9% top line growth. The company sees enough opportunity in this market to grow revenues from the segment to above $7 billion by fiscal 2017, which would represent ~20% of its overall total revenues. Nike is not alone in seeing women’s athletics as a key source of growth for its business: women’s athletics is seen as an important driver of revenue growth for a number of athletic brands including Adidas, Under Armour, and Lululemon. Nike is taking those businesses head-on by introducing a number of products that compete for the same customers that Under Armour and Lululemon products also target. Nike’s Legend Tights pose a challenge to Lululemon, a company whose core product is tights. Meanwhile, both Nike and Under Armour have pushed their own lines in a bid to capture more of the yoga and training market. See Our Full Analysis For Nike Women’s Sports Market Currently, most sports apparel companies derive most of their revenues from the men’s business. For example, Nike’s women’s business only contributed 18% to the top line in fiscal 2014. Despite this, apparel producers are targeting more revenues from the women’s business, based on the belief that figures for sports participation by women are not accurately reflected in sales figures. This confidence is supported by some studies while others oppose it. Although studies vary in their exact tallies, most agree that boys and girls participate about equally in sports activities while in school. According to one study done by the Women’s Sports Foundation in 2011, more boys participate in sports activities in urban areas than girls. Between 3rd and 5th grade students, 80% of boys in urban areas participated in sports compared to only 59% of girls. In suburban and rural areas, however, the difference is much smaller, with 81% of girls participating compared to 89% of boys, while 69% of girls participate compared to 73% of boys in rural areas. In aggregate, between 3rd grade and 12th grade, 8 million girls participate in sports activities compared to 12 million boys. That sort of split between female and male participants has led Under Armour to believe that it can make equal revenue from its men’s and women’s divisions. Currently, Under Armour brings in about $1 billion annually from the men’s business and $500 million from women’s apparel. Nike’s split is even more tilted towards the men’s business, generating $14 billion in men’s sales last year compared to only $5 billion in women’s. However, there are other studies that, instead of corroborating the above cited evidence, show a wider gap in sports participation between the genders. One such study done by the U.S. Bureau of Labor Statistics concluded that on average men spend twice as much time per day on exercise and sports than women. In addition, more men participate in exercise and sports. If those statistics are more reflective of the population as a whole, then an overzealous push for women’s sales could result in a sales stall-out before any revenue goals are achieved. However, even if the BLS study turns out to be more accurate, there would still be an enormous opportunity in youth sales. Strategy Options Nike has historically based its business by associating itself with a sport chosen specifically for its reach and popularity in specific geographies. For example, the company initially started out as a manufacturer and distributor of basketball apparel and shoes in the U.S., and branched out by capturing incremental segments in other sports. In Europe, Nike based its business around soccer and gradually grew large enough to become the preferred sporting brand in the 10 most important cities for the sports gear business in the continent. The strategy for the women’s business should be the same. Nike can take some notes from Lululemon for successfully spotting yoga as one of the fastest-growing activities in the U.S., with a largely female participant base. The company associated itself with the activity by offering several apps that allowed people to find not only yoga centers but also like-minded people interested in the same activities. It then promoted those activities and sold its products to the target audience created.  In the calendar year 2013, Lululemon made $1.6 billion in revenues. Since, the company derives most of its revenues from the sale of yoga pants to women with an average price of $80, we can assume that the company sold 20 million yoga pants. With the added assumption that each customer bought four yoga pants, we arrive at a figure of 5 million customers, or roughly 9% of the female population aged 18-44. Nike can pursue a similar path and achieve similar revenues by targeting running. Alternatively, the company can look at competitor Adidas’ work in China. Adidas recognized that voluntary participation in sports in China is not comparable to that in Europe and North America. Instead of seeing sports as something serious enough to build a lifestyle around, Chinese consumers mostly see it as a recreational activity. The company used this insight and ran its extremely well-received #allinformygirls campaign centered around women doing fun things in Adidas gear.. Given the nascency of the sports apparel market in China, Nike can catch up with Adidas by forming strategic alliances with distributors and producers, as well as grass root organizations that help promote such activities in the region. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    HP Earnings: Barring PC Sales, Revenues Decline
  • By , 11/26/14
  • tags: HPQ IBM MSFT LXK
  • Hewlett-Packard (NYSE:HPQ) posted its fourth quarter earnings for fiscal year 2014 on 25th November. In line with our expectation, HP’s revenues declined moderately by 2% year over year to $28.4 billion. While the enterprise divisions, which include enterprise group, HP services, software and HP Finance, failed to deliver growth yet again, its computer hardware group posted year-to-year growth. The primary reason for decline in revenue was the lack of the much anticipated growth in the server and storage division, indicating that server demand across the globe remains tepid, and the challenging economic environment across IT services business. The company delivered $0.70 in GAAP diluted earnings per share, marginally down from the year-ago quarter. Except printing and personal systems group, which comprises the personal system division that witnessed growth, the company reported division wide decline across all its reporting segments. Enterprise services revenues declined by 7% year over year to $5.51 billion, the enterprise group revenues declined by 4% to $7.27 billion, and software revenues declined by 1% to $1.08 billion. See our full analysis on HP Outlook for Q1 and 2015 For Q1 FY15, HP estimates non-GAAP diluted net EPS in the range of $0.89 to $0.93, and GAAP diluted net EPS in the range of $0.72 to $0.76. For fiscal 2015, HP estimates non-GAAP diluted net EPS between $3.83 and $4.03 and GAAP diluted net EPS between $3.23 and $3.43. Shipment Sales Spur PC Division HP’s PC and Workstation division is the fourth largest division, contributing nearly 30% to its revenue and 11% of its estimated value. According to Gartner, worldwide PC shipments experienced marginal decline in the third quarter of 2014. However, HP’s personal systems division outperformed the industry as both the number of shipments and revenue grew. The company reported 5% growth in total units shipped during the quarter, buoyed by a 8% increase in notebook shipments. While commercial revenues were up 7%, consumer revenues declined by 8%. As a result, the company reported 4% year-over-year growth in revenues to $8.94 billion against the backdrop of a 0.5% decline in PC units in the third calendar quarter. Operating profit also improved to $355 million or 4% of revenue. The surge in PC sales suggests that HP’s clients are looking to refresh their aging installed base as Microsoft has withdrawn support for Windows XP. We believe that this will augur well for the company in the coming quarters, albeit the release of Windows 10 may postpone the buying decision to later quarters. HP Service Revenues Continue To Suffer The services division makes up 24% of HP’s estimated value. HP’s enterprise services division reported a 7% year-over-year decline in revenue to $5.5 billion, primarily due to key account revenue run off and softness in new signings for the quarter. Within this segment, the infrastructure technology outsourcing division reported a 7% year-over-year decline in revenues to $3.44 billion, due to a revenue run-off of lapsed contracts and pricing pressures. Furthermore, its application and business services revenues declined by 6% year over year to $2.06 billion, primarily due to softness in the applications business. Enterprise Group Stalls As Server Demands Fails To Materialize The Enterprise Group is HP’s second largest business division and makes up 20% of its value. Notably including HP’s Industry Standard Servers (ISS), the division reported 2% year-over-year decline in revenues to $3.37 billion. Additionally, the company continued to experience decline in its business critical systems division as revenues declined by 29% year over year to $669 million. However, ISS revenues were up 9% sequentially and the high end was mildly positive  across the same metric.The storage division revenues declined 8% to $878 million as revenues for traditional systems declined by 14%. However, storage revenues grew 10% quarter to quarter, while converged storage grew by 9% and mid-tier 3PAR storage unit continued to gain traction. In sum, sequential comparisons suggest momentum is increasing, even as the year-to-year counterparts remain negative. Pricing Pressure Drags Printing and Ink Cartridge Division The printer and ink cartridge division is HP’s third largest division and makes up 22% of its value. The printer division reported 5% year-over-year decline in revenues to $5.7 billion in the quarter as supplies revenues declined by 7% to $3.59 billion. The primary reason for decline in supplies revenue was reduction in channel inventory from the consolidation of U.S. retailers, which also suggest some softness in demand in the future. Furthermore, a 1% year-over-year decline in the number of hardware units shipped accentuated the decline in average selling prices and revenues. While the commercial hardware unit sales grew by 5%, consumer hardware unit sales declined by 4% year over year. Software Division Revenues Flat lines The software division makes up 7.8% of HP’s estimated value. The company reported 2% growth in license revenues, 3% decline in service revenues and 1% decline in support. The primary reason for growth in license revenue was good recovery in the IT management category, which was buoyed by demand in software as a service (SaaS). As a result, HP’s software division revenues witnessed marginal 1% year over year decline in revenues to $1.08 billion. Furthermore, HP reported double-digit revenue growth in its cloud, security and big data services. We believe that cloud services are potentially the biggest new revenue source for HP in FY2015. We are in the process of updating our model. We presently have a  $29.70 price estimate for HP, which is 20% below the current market price. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    MMM Logo
    Wide Geographic Presence, Diversified Product Portfolio Will Continue To Drive 3M’s Growth
  • By , 11/26/14
  • tags: MMM
  • 3M (NYSE:MMM) has seen continued growth of late, beating market returns by a large margin. In the past 10 years, 3M’s stock has grown 95.5%, whereas the S&P 500 grew 74.6%. The primary reason behind 3M’s performance is its vast diversification, both in terms of geographies and products. Its vast presence allows it to capture growth in all economies and product segments. We believe that continued growth in the global economy and 3M’s focus on research and development (R&D) will continue to drive growth for the company. 3M’s shareholders are likely to benefit from this growth in the form of higher dividends and share repurchases.
    GM Logo
    Why GM Must Revive Cadillac
  • By , 11/26/14
  • tags: GM F HMC TM VLKAY
  • Profitability in the automobiles market has been falling. The reasons for the shrinking bottom lines are manifold, but chief among them are as follows:  Firstly, used car sales in the U.S., the second largest car market in the world, are on the rise. Since, these cars sell for low prices, automakers are being forced to offer discounts and incentives on new cars to remain competitive. A drop in average transaction price per vehicle sold reduces an auto company’s profitability. ( (Falling U.S. used-car prices will drive up new-car incentives, Reuters, August 2014))  Secondly, in recent years, most of the gains in the U.S. auto market have come from the luxury car segment. However, the trends within the luxury car segment are such that the total segment has been unable to grow faster than industry wide sales. Consumers, benefiting from generous lease programs and incentives, are preferring to buy smaller luxury cars. Even though luxury car sales only contribute about 10-12% of overall sales, they contribute nearly half the sector’s profits. Thirdly, most of the growth in the global auto market is expected to come from the emerging markets.  Sales growth in these markets is driven by smaller cars. The margins on these cars is usually lower than on sedans and SUVs. As a result, car companies are being forced to look at other opportunities for improving their margins.  Some companies, like Volkswagen, Toyota, and Ford, have tried to bring all their global production under one platform. The rationale behind this trend is that using standardized production methods not only allows them to lower the marginal cost of production but also allows them to reduce the difficulty of the recall and repair process, should it need to be carried out. Apart from cost cutting, the other path being followed by companies in  search of higher margins is the increasing weight of luxury cars in their sales mix. Consider Volkswagen for example: the German automaker’s luxury brand Audi contributes nearly 40% to its operating profits and has an EBITDA margin of nearly 22%.  The heavy presence of Audi in its sales mix means that the company is able to post EBITDA margins of nearly 12%. (See our full analysis of Volkswagen AG here ) General Motors (NYSE:GM) has been trying to follow a similar strategy since 2012. The U.S. based auto maker has been working hard to revitalize its premium car brand Cadillac.  Reviving sales of Cadillac can help GM reach a pre-tax margin of 10%, nearly 2 percentage points higher than its current pre-tax margin of just under 8%.  For a while, it looked like GM might achieve its targets. However, Cadillac’s sales growth ran out of momentum towards the end of 2013. In the first ten months of 2014, Cadillac sales fell by more than 9.5% in the U.S.  Even though Cadillac has introduced several new models, sales have failed to pick up. We have a  $40 price estimate for General Motors, which is about 25% higher than the current market price. See full analysis for General Motors New Model Launches In 2012, the Cadillac portfolio was down to just three models — the CTS mid-size car, the SRX crossover, and the Escalade SUV.  Towards the end of the year, the company launched two new models — the XTS full-size sedan, which targeted Cadillac’s pre-existing customer base, and the ATS compact sedan, a car designed to be competitive with the popular German compact luxury cars. The introduction of these two cars worked like a charm for the company, making Cadillac the fastest growing luxury brand in the U.S.  Even though the sales of the CTS, Escalade, and SRX were either falling or stagnant, overall Cadillac sales grew by about 22% in 2013. Cadillac’s sales momentum began flagging towards the end of fiscal 2013 and deliveries have continued to fall ever since. For the month of July, ATS volumes fell by 11% and XTS volumes fell by 34% compared to the previous year.  On a year-to-date basis, ATS sales are down by nearly 21% and XTS sales are down by 24%.  Both these models performed well in their first year but it appears as though demand for both models peaked last year. The decline in sales can be explained by what the models set out to achieve: the XTS was targeted at Cadillac’s pre-existing customer base and it is clear that that market does not have room for continued growth; the ATS was launched to steal market share from German luxury makers and this is proving difficult for GM. So far this year, BMW has sold over three times the number of cars sold by Cadillac and Mercedes has sold nearly twice that number. Outlook Surprisingly, Cadillac’s older models have all posted gains in the number of unit sales in 2014, with the Escalade SUV the biggest gainer at a sales growth rate of 35% on a year-to-date basis. GM launched a re-modeled version of the Escalade late last year. The model refresh has been extremely successful and sales of the model have nearly doubled so far this year. GM now holds 37% market share in the large luxury SUV segment. Another Cadillac model to post a sales increase this year has been the SRX crossover, which is benefiting from the surging popularity of small utility vehicles. However, GM might not be able to cash in on this trend as small utility vehicles will be one of the last segments to be refreshed by the company. Cadillac is expected to offer a redesigned SRX for the 2016 model year. GM also has plans to introduce 2 more Cadillac crossovers around 2017. The luxury crossover market is booming but GM has decided to focus on updating other models before its SUVs and crossovers. Consequently, it is hard to foresee Cadillac posing a credible challenge to the likes of BMW, Mercedes, and Audi. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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