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Target is scheduled to report earnings on Tuesday. Our pre-earnings note details what to expect from the announcement.

See Complete Analysis for Target
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HPE's share of global server shipments has been steadily declining, mostly due to mounting competition from low-cost players. We expect further declines going forward.

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CMG Logo
Can Shorter Wait Times Benefit An Ailing Chipotle Mexican Grill ?
  • By , 2/24/17
  • tags: CMG MCD DNKN
  • Recently, Chipotle Mexican Grill  (NYSE: CMG) announced that it had completed the roll out of its “Smarter Pickup Times” technology to all its restaurants that offer digital ordering. This technology allows the company to process more digital orders without disrupting service at its restaurants and benefits customers by offering shorter and more accurate pickup times. Customers can also reserve a future pickup time with this technology. While this technology should allow the company to serve its customers better and more efficiently manage high volumes during peak times, Chipotle is struggling to grow traffic at its stores. A better digital ordering platform is one of the company’s key strategies to grow revenues in 2017. While company’s such as Starbucks are facing operational challenges to handle the high traffic created due to mobile ordering, Chipotle appears to be ahead of the curve in building an efficient platform. However whether an efficient service will help the company to rebuild its lost reputation due to the e. coli food virus remains to be seen. See Our Complete Analysis For Chipotle Mexican Grill Mobile Ordering A Key Trend In The Quick Service Restaurants Industry According to Business Insider Intelligence, mobile ordering of fast food is expected to be a  $38 billion  market by 2020. Consumers spend more on fast food when they order via online rather than the phone. Research suggests that the  average pizza order is 18% greater online  than on the phone. Chipotle is looking to capture this trend by making its mobile ordering system efficient and effective. It is also running a marketing campaign to drive digital orders that includes in-store promotions, social media advertising, and digital advertising. Going forward the company is looking to link its digital advertising directly to digital ordering. While faster and more efficient service can attract customers, Chipotle still faces the challenge of assuring customers of its food quality. However, if these digital initiatives can increase the number of people visiting the restaurants there can be an upside to our price estimate. Chipotle is banking on digital initiatives as one of the key pillars to drive revenues this year. While this is promising and companies such as Starbucks are facing problems of congestion due to heavy ordering via the mobile platform (and Chipotle has just released a solution for this), the company’s reputation loss due to the food virus remains a concern to drive growth. Whether this efficient platform will attract customers or not will be visible in the coming quarters. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    F Logo
    Here’s Why Ford Is Investing In Argo AI
  • By , 2/24/17
  • tags: F
  • Recently Ford Motors  (NYSE:F)  announced that it will invest $ 1 billion over the next five years in Argo AI (a start-up founded by former Google and Uber leaders) which has expertise in robotics and artificial intelligence software. Ford believes that this investment will help in  combining Ford’s autonomous vehicle development expertise with Argo AI’s robotics experience, accelerating its efforts to bring a self-driving vehicle to the market in the near term.  With driverless cars being touted as the automobile of the future, Ford is investing heavily to build technology which can support these vehicles and bring its first autonomous car on the road by 2021. The company intends to deliver a high volume, fully autonomous vehicle for ride sharing by 2021. Through its partnership with Argo AI, Ford also expects to build technology which can be licensed to other players in this segment. With several players looking to launch fully autonomous (SAE Level 4) vehicles including fleet taxis in the next few years, this investment will give Ford a competitive edge in this segment. As it transforms into a mobility solutions player, the ability to license this technology to other players can also open additional revenue streams for the company. Boost To Autonomous Fleet For Ride Sharing, But Regulatory Concerns Remain As Ford looks to transform itself into an automobile and mobility solutions company, it is looking to adapt itself to the changing automotive landscape. With car ownerships declining and consumers preferring to opt for ride sharing, Ford Motors is looking to launch a fleet of autonomous cars which can provide mobility through an app without the hassles of ownership and service. The company is focusing on SAE Level 4 technology to achieve this goal and expects Argo AI’s robotics expertise to assist in reaching this milestone.  However, experts believe that level 4 (fully autonomous) cars can face several regulatory hurdles as they eliminate the need of any human intervention, leading to elimination of several jobs.  Given these hurdles several other auto players are investing in level 3 technology for self-driving cars which provides most benefits of fully autonomous cars and are more practical to get regulatory approvals. However, if Ford is able to get the necessary regulatory approvals for its fully autonomous fleet, it will have a huge first mover’s advantage in this segment. While several other players such as Audi and BMW are planning to launch driverless cars in the next few years, Ford is likely to be the first player looking to launch a fleet of autonomous cars for ride sharing. Ford is betting heavily on fully-autonomous vehicles and is also looking to license this technology to other players in the future. While this bet can give the company a competitive advantage and leadership in this space, the risk of not getting necessary regulatory approvals remains. If this company is able to get these approvals, this initiative can boost Ford’s profitability and revenues in the long term.     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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    What To Watch For In Priceline's Q4 2016 Earnings
  • By , 2/24/17
  • Priceline is slated to release its Q4 2016 earnings on February 27th. For the first three quarters of last year, Priceline has grown steadily, overcoming macroeconomic challenges such as the weak foreign exchange rates relative to US dollars and the slowdown in travel in certain international markets due to terrorism related activities and economic slowdown. Priceline’s Booking.com is the market leader in the online accommodation booking arena with over a million accommodations on its platform across 93,000 destinations. The brand’s focus on understanding the pulse of the dynamic travel market, investing in offline advertisements, along with a strong social media presence are some of the factors that might  help it in maintaining its current dominance in the near future as well. Priceline’s other brand, Priceline.com, underwent some improvements in the last year to reposition itself and announced Brett Keller as its new CEO. Priceline’s metasearch arm, Kayak, continued with its healthy growth along with expansions in emerging markets like Asia and Latin America. This month, Priceline acquired the UK and Denmark based metasearch website, Momondo Group with the expectation that it will aid Kayak in building its presence in geographies where it lags behind. However, Priceline’s online restaurant booking platform, OpenTable, seems to be lagging behind and in Q3 2016 it incurred a $941 million non-cash impairment charge against its goodwill and dampened Priceline’s net income. Finally, the Priceline Group had chosen a new CEO effective January 1st, 2017. Glenn Fogel, Priceline Group’s former Executive Vice President and head of worldwide strategy and planning, has assumed the new role. We expect Priceline’s healthy performance to continue over the fourth quarter as well. However, the bottom line might remain dampened due to its investment expenses and impairment related charges. Booking.com’s Prudent Growth Strategies Might Continue Driving Growth Priceline’s Booking.com’s growth story is expected to continue in the fourth quarter and also beyond. The property count in the platform has surpassed one million in the third quarter and its y-o-y growth was close to 30%. The reason behind this success is the brand’s understanding of the ever changing market demands. In a recent podcast, Booking.com’s CEO Gillian Tans expressed the same along with emphasizing the constant offline and online advertising strategies across the globe and the investments on the mobile platform as some of the important factors beyond the brand’s success. The Momondo Group Might Help Kayak With Its Global Expansions Kayak is one of the most important drivers for Priceline’s fastest growing segment, advertising and media (whose revenue has been growing at a CAGR of 60% over the three-year period ending 2016). To put it into perspective, the overall revenue of the company is estimated to have grown at a CAGR of 16% during the same time period. Though Kayak is growing well, Priceline wants to make it stronger and hence it acquired The Momondo Group for a cash sum of $550 million. This was the biggest acquisition for the company since its OpenTable acquisition for $2.6 billion in 2014. Momondo Group’s net revenue reached $102 million in 2016 and its top line is expected to grow at 30% to 40% y-o-y in 2017. It is being said that Priceline’s main reason to acquire The Momondo Group was to help Kayak’s market expansion. Kayak has long struggled in the UK and doesn’t have a significant presence in the Nordics, while Momondo and Cheapflights – the two brands belonging to Momondo Group – have a strong presence in these markets. OpenTable Might Slow Down Priceline’s Q4 Performance The only troubles in the company’s performance seem to be currently coming from its restaurant reservation site, OpenTable. Though OpenTable has over a 50% market share in North America, the expansion to international markets is most probably causing it pains. There might be a possibility of the platform facing tough competition in Europe from entities such as TheFork, TripAdvisor’s online restaurant reservation platform, which is the market leader in the region. In its Q3 2016 earnings call, Priceline’s management announced that OpenTable will pursue its growth opportunities at a slower pace than before, however, it will still continue with the building of inventories, cloud-based services for restaurants, and even a new product catering to casual dining.   Editor’s Note: We care deeply about your inputs, and want to ensure our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly, alternative analyses you want to see. Drop us a line at  content@trefis.com Have more questions on Priceline? See the links below. What Is Priceline’s Fundamental Value On The Basis Of Its Forecasted 2015 Results? How Has Priceline’s Revenue And EBITDA Composition Changed Over 2012-2016E? What Is Priceline’s Revenue And EBITDA Breakdown? Top 3 U.S. OTAs: A Comparison Of Operating Margins How Has Priceline’s Stock Performed In The Last Five Years? What Drove Priceline’s Revenue And EBITDA Growth Over The Last Five Years? Where Can Priceline’s Growth Come From In The Next 5 Years? What Is Priceline’s Fundamental Value Based On 2016 Estimated Numbers? Top 3 U.S. OTAs: A Comparison Of Operating Margins Why Might TripAdvisor Be An Attractive Acquisition Target For Priceline? What Has Been The Immediate Impact Of The Brexit Decision On The Online Travel Companies? Which Will Be The Most Important Segment To Fuel Priceline’s Future Growth? How Fast Are Priceline’s Advertising Revenues Growing? Priceline’s Q2 2016 Earnings Preview Priceline’s Robust Q2 2016 Suggests That The Company’s Growth Story Is Expected To Continue How Is Priceline’s Hotels Division Expected To Trend? How Is Priceline’s Revenue Growth Trending? Why Did Priceline Discontinue Its ‘Name Your Own Price’ Option For Flight Bookings? How Is The U.S. Travel Industry Faring Currently? How Might Booking.com Further Help In Priceline’s Growth In The Vacation Rental Segment? Key Take-Aways From Priceline’s Q3 2016 Earnings Results Why Did Priceline Decide To Acquire The Momondo Group? Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Here’s How eBay Is Looking To Expand Into The Chinese Market
  • By , 2/24/17
  • tags: EBAY BABA AMZN
  • While its first attempt to make a mark in the Chinese e commerce market was not successful, eBay  (NASDAQ:EBAY) is now looking to re-enter the market by tapping into the changing trends in Chinese e-commerce. With an increasing number of Chinese consumers preferring foreign products, the government is incentivizing cross-border trade and encouraging e-commerce platforms to support this initiative. It is promoting zones which give benefits to companies in terms of tax breaks and faster imports, potentially leading to lower costs. eBay recently  entered into an agreement with one such zone – Ningbo, a city in China – to help develop the e-commerce trade in the region. Amazon and Alibaba have already entered into similar arrangements, and this agreement will allow companies in Ningbo to utilize eBay’s platform for cross-border trade. Per the agreement, the two parties will work together on talent training for cross-border trade, collaboration with local government, B2C industry development and logistics. This arrangement can give eBay an entry to the growing Chinese e-commerce market, which is now focused on foreign products. However, Chinese e-commerce giant Alibaba is already actively pursuing the market for foreign products in China through its Tmall platform, where several luxury foreign brands sell their products. While eBay faces strong competition from formidable players in this region, the growing demand for foreign products and government incentives around cross-border trade could give the company a new platform to establish itself in the region. Capturing The Growth In Cross-Border Commerce In China According to eMarketer, by 2020 a quarter of the Chinese population (amounting to more than half of all digital buyers) will be shopping either directly on foreign-based sites or through third parties. In 2016, the estimated purchases by Chinese consumers from foreign nations were pegged at nearly $86 billion according to eMarketer.  Cross-border goods sold by the B2C (business to consumer) channel are likely to grow in the future as consumers prefer platforms that are more professional and organized. We believe eBay is well-poised to capture this growth and consequently increase the number of transactions on its platform. While its earlier foray into China did not succeed, eBay has transformed since then and worked on simplifying its platform to benefit both buyers and sellers. As Chinese consumers look for an organized and reliable platform to purchase foreign goods, eBay can fit this bill well and find favor with these customers. While Alibaba remains a formidable player in the region with a dominant market share, consumers will continue to look for other alternatives for better deals and service. eBay can fill that gap and capture a decent share in the growing Chinese e-commerce market. If the company is able to capture a significant number of active users in the region, it can lead to an upside to our price estimate for the company. As eBay looks to drive revenues, the growing cross-border e commerce in China can prove to a boon to its second innings in the region. Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap
    CME Logo
    CME's Trading Volumes Down In January, Expected To Rise With Oil And Metal Volatility
  • By , 2/24/17
  • tags: CME ICE NDAQ
  • CME Group  (NASDAQ:CME) started the year on a rather dull note, with its daily trading volumes at 16 million contracts in January.  The exchange’s trading volumes were down 12% in comparison to January 2016, though this was primarily because of a tough year-on-year comparison due to the volatility seen in the global economy at the beginning of 2016, driven by uncertainty around oil prices, a slowdown in China and dim GDP growth in the U.S. at the time. However, on a sequential basis, trading volumes were up by 3% from the previous month. Metals have continued to be in demand, with over 30% growth in volumes. This is because of increased volatility in the market from the continuous shift in gold and silver prices due to the strengthening of the U.S. dollar and other economic and political factors in the U.S. We expect the volatility to remain in the near term, driving metal derivative volumes. We expect the oil market to remain volatile as well, as OPEC’s indications on further capping of the oil supply could drive oil prices. This will consequently have a positive influence on the energy derivative volumes. Interest rate derivatives are expected to pick up in pace with the possibility of a series of rate hikes by the Fed in 2017. See  the full Trefis analysis for CME Group. 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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    Target Q4 Earnings Preview: Holiday Season Decline Likely To Drive Mixed Results
  • By , 2/24/17
  • tags: TGT WMT BBY
  • Target  (NYSE: TGT) is scheduled to announce its fourth quarter results on Tuesday, February 28. The company reported better than expected results in the third quarter, as both its revenues and earnings per share came in ahead of expectations. However, the company’s revenue declined 7% year-over-year (y-o-y) to $16.4 billion, primarily due to the sale of its pharmacy business to CVS, investments in promotions and increased digital shipping expenses. It also posted adjusted earnings of $1.04 per share, which was above the high end of the company’s guidance. The retailer’s total sales decreased 4.9% y-o-y during the 2016 holiday season (November and December), driven by early season softness and disappointing traffic, partially offset by continued strength in the company’s signature categories – particularly kids, women’s apparel, home and toys – and strong Black Friday sales. Although Target began the holiday season with solid sales on Black Friday, but slowed going into the Christmas holiday. This slowdown in sales has likely been driven by growing competition from internet retailers, food deflation, a stronger dollar, and continued declining traffic at Target’s stores on the back of transition of its in-store pharmacies to CVS. In addition, the food-at-home (grocery store or supermarket food items) consumer price index (CPI) fell 0.2% from November to December and was also 2% lower than last December. Target’s overall comparable sales declined 1.3% y-o-y during the holiday season period. In fact, comparable sales in Target stores declined more than 3% y-o-y in the 2016 holiday season. Although Target’s digital comparable sales grew more than 30% y-o-y in the same period, the costs associated with the accelerated mix shift between the stores and digital channels and a highly promotional competitive environment could negatively impact the company’s fourth quarter margins and earnings per share (EPS). In addition, comparable sales in the Electronics and Entertainment segment declined in the high single digit range, while comparable sales in Food and Essentials declined in the low single digit range in the November/December period.   Future Outlook Target updated its fourth quarter and full-year 2016 guidance as a result of the company’s softer-than expected sales performance. It now expects its fourth quarter comparable sales to range between (-1.5)% to (-1.0)%, compared with the prior guidance range of -1% and 1%. Altogether, in the fourth quarter, the company expects to generate both GAAP EPS from continuing operations and adjusted EPS in the range of $1.45 to $1.55, compared with prior guidance of $1.55 to $1.75. In addition, Reuters’ compiled analyst estimates forecast revenues of $20.7 billion and earnings of $1.51 per share in Q4. For full year 2016, the company lowered its earnings guidance to $5.00 to $5.10, compared to prior guidance of $5.10 to $5.30. See our complete analysis for Target   See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    HPE Logo
    HPE Earnings: Revenue Decline Continues Amid Currency Headwinds And Challenging Business Environment
  • By , 2/24/17
  • tags: HPE
  • Hewlett-Packard  Enterprise (NYSE:HPE) announced its fiscal Q1 results on Thursday, February 23. The results were in line with our expectation, as the company’s revenues declined by 10% year-on-year (4% decline after adjusting for the effects of divestitures and currency). All its operating segments, with the exception of financial services, reported high single-digit declines in revenues. HPE’s management said that it faced multiple challenges in Q1. First and foremost, the company faced a significant challenge on both the top and bottom lines from foreign exchange rates, particularly the strengthening of the U.S. Dollar versus the Euro and the Yen. Secondly, revenue was impacted by a tough market environment, particularly in core servers and storage business. Thirdly, a challenging industry-wide commodities market, particularly tight NAND supply, impacted sales in storage and compute businesses and elevated DRAM pricing. Below we provide an overview of the key takeaways from the company’s earnings release.
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    Vale's Q4 2016 Earnings Review: Recovery In Commodity Prices Translates Into Improved Results
  • By , 2/24/17
  • tags: VALE RIO CLF MT
  • Vale reported a sharp year-over-year improvement in both revenue and earnings in the fourth quarter of 2016, as a result of the recovery in commodity prices in the last two months of the year. Vale, the world’s largest iron ore producer, registered sharp increases in realized prices for iron ore, copper, and nickel as illustrated by the tables shown below. Commodity prices rose sharply in the fourth quarter of 2016, driven by developments in the U.S. and China. President Trump’s plans for a $1 trillion overhaul of U.S. domestic infrastructure helped raise the demand outlook for metallic commodities post his election. This added to the improved demand outlook from China, where the central government’s fiscal stimulus is expected to counter a decline in demand for metals amid slowing economic growth. China is the world’s largest consumer of most metallic commodities and the demand from the country plays a major role in determining the prices of these commodities. Going forward, the company reiterated its commitment to debt reduction in its earnings conference call. Vale realized $3.8 billion worth of non-core asset sales in 2016, the proceeds of which helped the company pay off some of its outstanding debt. In addition, the commencement of mining from the low-cost S11D iron ore mine towards the end of 2016, will help the company lower unit costs going forward. Given a significantly improved pricing environment, the ramp up of low-cost mining operations will help the company report improved results in the coming quarters. Have more questions about Vale? See the links below. Vale’s Full Year 2015 Pre-Earnings Report Vale’s Q4 2015 Earnings Report: Decline In Iron Ore Prices Negatively Impacts Results How Important Is China To Vale’s Iron Ore Sales? What Is China’s Share Of Vale’s Overall Revenue? What Is Vale’s Revenue & EBITDA Breakdown? What Is Vale’s Fundamental Value Based On 2015 Results? By What Percentage Has Vale’s Revenue & EBITDA Declined Over The Last 5 Years? By What Percentage Can Vale’s Revenue & EBITDA Increase Over The Next 3 Years? How Has Vale’s Revenue Composition Changed Over The Last 5 Years? Notes:
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    Baidu Earnings: Core Revenues Stumble, iQiyi & Transaction Services Shave Off Profits
  • By , 2/24/17
  • Baidu (NASDAQ:BIDU) announced its Q4 and full year earnings on February 23, reporting a 3% year-over-year fall in net revenues to RMB 18.2 billion. However, excluding the impact of the Qunar division which Baidu sold off last year, the company observed roughly flat revenues over the year-ago period. Baidu’s total operating costs were up 6% to RMB 16 billion, with content acquisition costs (for iQiyi online video), traffic acquisition costs and bandwidth acquisition costs driving much of the growth. As a result, Baidu’s operating profit (GAAP) for the quarter was down 38% y-o-y to RMB 2.2 billion. Moreover, the company’s net income was significantly lower than the prior year period and earnings per ADS was 84% down to RMB 11.40 per ADS for the quarter. Smaller Segments Drive Revenue Growth, Compress Margins Baidu has witnessed strong growth in two of its smaller revenue streams over the the last 2-3 years — its online video streaming platform iQiyi, which is similar to  Netflix (NASDAQ:NFLX), and transaction services. Both segments witnessed over 70% revenue growth in 2015, which was slightly lower than the triple digit growth seen in the previous year. The company reported 23% growth in the gross merchandise value (GMV) for its transaction services segment to RMB 18.1 billion in the December quarter. Similarly, the total number of Baidu Wallet user accounts was up to 100 million users by the end of December, up from only about 53 million in the year-ago period. Furthermore, the total number of monthly active users (MAUs) for mobile maps rose to 341 million users, 23% higher than the previous year levels. Similarly, Baidu’s iQiyi online video streaming has also grown at a rapid pace over the last couple of years. However, the company has operated its streaming video business as well as the transaction business at a loss over the past few years. In December 2015, there were reports suggesting that the company could spin off the iQiyi division. Earlier last year, a consortium of investors led by Baidu CEO Robin Li wanted to buy out the iQiyi business for $2.3 billion, but later dropped the bid after investors claimed that the price was too low. More recently, Baidu announced that it has raised funding for the video streaming business, which should help it acquire more content and help the company focus on long-term growth. To fuel growth in the smaller revenue streams, Baidu has invested heavily in content acquisition costs, bandwidth costs for the video business and traffic acquisition costs for the transaction business, in addition to high marketing expenses for both. This has led to operating losses for both divisions over the last few years – a trend which was also observed in the most recent quarter. Baidu reported that the operating profit margin (non-GAAP) for the transaction services business in Q4 was down around 22 percentage points on a y-o-y basis while the operating profit margin for iQiyi compressed by over 9 percentage points through the quarter. These divisions are likely to be operating at a loss over next couple of years as well. As a result, we forecast the operating profits for both these divisions to be be negative over the next few years. Growth In The First Half Of The Year Drives Full Year Results Over the last two quarters, Baidu’s revenue growth for its core search services segment has been hindered by a revision in regulatory policy that drove down marketing revenues through the quarter. According to the latest Chinese laws, online ads and marketing practices for medical, pharmaceutical, and healthcare products and services on online platforms have to go through mandatory regulatory approvals. Net revenues for the full year were around 6% higher on a y-o-y basis to RMB 70.5 billion. Comparatively, higher operating expenses – primarily for content acquisition, bandwidth acquisition and marketing expenses led operating profit to fall by 14% to just over RMB 10 billion. As a result, the company-wide operating profit margin compressed by 360 basis points to 14%. The resulting earnings per ADS was down 67% to just under RMB 32 per ADS, as shown above. See our complete analysis for Baidu View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    DPS Logo
    Mexican Woes For Dr Pepper Snapple: Lower Profit Forecast
  • By , 2/23/17
  • tags: DPS KO PEP
  • Latin America is an important region for Dr Pepper Snapple  (NYSE:DPS), with nearly 5% of its total sales coming from this segment. Mexico accounts for 90% of the company’s beverage sales in Latin America and given that the per capita consumption of carbonated soft drinks (CSD) is the highest in Mexico (compared to any other country in the world), the region holds strong growth potential for Dr Pepper Snapple. According to our estimates, the Latin American beverages segment accounts for nearly 7% of the company’s valuation and given its high dependence on CSDs for revenues, this region is critical for its revenue growth. See Our Complete Analysis For Dr Pepper Snapple Uncertainty Over Mexico Depreciating Currency Given the recent policy decisions by the Trump administration around Mexico, Dr Pepper Snapple is likely to be impacted by the uncertainty prevailing around the region. The company expects its profitability in 2017 to be negatively impacted by the depreciation in the Mexican Peso .  The company expects a 14% depreciation in the Peso for 2017, impacting its earnings per share negatively. We expect the company’s Latin American volumes to grow steadily over our forecast period and reach nearly 600 million by the end of our forecast period. This estimate is based on the fact that the Mexican non-alcoholic beverage market is expected to grow at a CAGR (compounded annual growth rate) of nearly 5.5% throughout 2015-2018, which is much higher than the growth rate in the U.S.  Dr Pepper Snapple has invested significantly in the region with higher marketing spend and investments in the information technology infrastructure and we expect volumes to grow as these investments fructify. However, as the Mexican Peso depreciates a higher devaluation can force the company to increase its beverage prices locally in Mexico, which can negatively impact its volumes in the region. A slower growth of volumes in Mexico can lead to a downside in our price estimate for the company. While several companies fear a negative impact on their revenues and profitability due to the uncertainty prevailing over Mexico, Dr Pepper Snapple has quantified the impact of a depreciating currency on its EPS for 2017. Mexico is a significant region for the company, given the high consumption of CSDs in the region and the declining soda sales in the U.S.  Dr Pepper Snapple depends heavily on CSDs to generate revenues and its sales are concentrated in the U.S. and Latin America. With limited diversification into non-carbonated beverages and no significant presence in emerging markets, uncertainty in Mexico and the depreciating Peso can impact the company’s growth and revenue prospects in the near term. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    HD Logo
    Earnings Review: Home Depot Beats Guidance, Consensus Estimate To Wrap Up A Solid 2016
  • By , 2/23/17
  • tags: HD LOW
  • Have more questions on Home Depot? See the links below. The Year That Was: Home Depot Optimistic Revenue Growth Expectation Through 2021 Will See Home Depot’s Value Rise >10% Why Home Depot Is Doing Better Than Lowe’s In 2016 How Home Depot Will Gain From The Low Inventory Of Homes For Sale Home Depot Has Been Operating Efficiently In The Last Few Years, And Here’s Why Home Depot Or Lowe’s — Which Retailer Is Doing Better In 2016? Home Depot Vs. Lowe’s – Who Is Better At Inventory Management? Home Depot Beats Consensus Estimates And The Trend Of Declining Sales For Retailers In Q1 Where Will Home Depot’s Revenue And EBITDA Growth Come From Over The Next Three Years? How Has Home Depot’s Revenue And EBITDA Composition Changed Over 2012-2016E? What’s Home Depot’s Fundamental Value Based On Expected 2016 Results? What Is Home Depot’s Revenue And EBITDA Breakdown? By What Percentage Have Home Depot’s Revenues And EBITDA Grown Over The Last Five Years? Notes: Get Trefis Technology
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    What Are The Key Takeaways From Ctrip's Q4 2016 Earnings Results?
  • By , 2/23/17
  • In line with its strong performance in the first three quarters of 2016, Ctrip delivered a robust Q4 and ended 2016 on a high note. Ctrip is expanding its services, aggressively pursuing markets with growth opportunities, and catering to Chinese outbound travelers (which are the largest in the world in terms of spending and traffic). In fact, Ctrip’s solid growth path has been so promising that its newly elected CEO Jane Sun recently mentioned that the company will reach its 1 trillion yuan gross merchandise value target by 2018, two years before the earlier predicted timeline of 2020. Ctrip’s revenues grew by 76% y-o-y in Q4 while its non-GAAP operating margin stood at 16%, 600 basis points higher than Q4 2015. For the full year 2016, net revenues grew by 76% y-o-y to RMB 19.2 billion ($2.8 billion ). However, the company’s bottom line remained dampened on account of several strategic investments and its diluted earnings per ADS were RMB-3.02 (US$-0.44) and after excluding share-based compensation charges, Non-GAAP diluted earnings per ADS were RMB4.05 (US$0.58) Ctrip Grew Solidly Over 2016 Ctrip ended last year with over 1.2 million hotels in its network and its revenues from accommodation bookings grew by around 58% y-o-y in 2016 to RMB 7.3 billion ($1.1 billion). The air and train packages by the OTA connected around 225 airports in China and 93 cities without airports. Its transportation ticketing revenues grew by 98% to RMB8.8 billion (US$1.3 billion) in 2016. Ctrip’s package tour revenues for last year rose by 39% y-o-y to RMB2.3 billion (US$333 million). Ctrip’s visual tour and app program has grown so popular that over 10 million travelers signed up for it in 2016. The program brings together individual travelers and local experts at their destination. Its corporate travel business currently caters to 8 million users across 6,000 large enterprises and 16 small and medium-sized enterprises. In 2016, Ctrip’s corporate travel revenues were RMB608 million (US$88 million), a 29% y-o-y increase. Ctrip was recently named as one of the most innovative travel companies and as one of the most innovative companies in China in 2017. Ctrip’s Growth Strategies Are Reaping Benefits The domestic travel market in China reached 4.4 billion trips in 2016 and according to the government, it is expected to reach 6.7 billion by 2020, reflecting an 11% CAGR. Being the market leader with a 40% stake in two of its closest rivals, Qunar and eLong, Ctrip is expected to grow even further due to the secular trends in the Chinese market. Ctrip’s strategic acquisitions and product launches will further help the company on its growth path. In 2016, the company released new services such as an online travel guide, airport parking service, and currency exchange services. Also, despite being the market leader, Ctrip left no stones unturned in attempting to capture a larger share of the competitive low-budget hotel segment in China. Notably, the company has foregone its profits in order to invest more in this segment as well as offer competitive prices and low discount rates to lure more customers. Ctrip wants to eliminate the smaller competitors from the low budget hotel segment. It seems that the company’s investment in this segment has been paying off, with an 80% increase in Ctrip users in second- and third-tier Chinese cities over the last year. Ctrip is focused on growing its outbound Chinese traveler base along with the expansion of its own global presence. Notably, in a recent interview with Skift, Ms. Sun revealed that instead of focusing on established markets such as the U.S., Ctrip might try building its markets in the emerging markets where travel is growing fast. For example, the company has around a 26% stake in India’s leading OTA, MakeMyTrip. Ctrip has been strengthening its hotel and flight booking services and it has also made a few strategic investments and alliances in order to claim a bigger portion of both outbound travelers and the global markets. Ctrip acquired Skyscanner for a whopping $1.74 billion in 2016. It also invested in  Mobike, a smartphone enabled bicycle renting service, and it acquired ground transportation company, TangReng World . It entered into a strategic alliance with Travelling Bestone, a travel agency based in China with over 5,000 outlets, in order to increase its presence in the lower tiered cities. Ctrip also made strategic investments in three tour operators based in the US. The company is not satisfied with typical sightseeing offerings and wants to go beyond that to provide cultural and social experiences to its outbound travelers. It is building its products towards this end, along with the recent launch of a global SOS service to ensure travelers of their safety and well-being. Ctrip’s acquisition of Skyscanner is being hailed as a major step by the company to increase its market share in global air ticketing in the future. Currently, Ctrip has around 10% share of global air ticketing, which is the largest among all leading OTAs. With Skyscanner, the world’s leading metasearch engine for air travel, and Travelfusion (the travel distribution system in which Ctrip has a majority stake), Ctrip’s global air ticketing business has a high probability of growing significantly in the future. See our complete analysis for Ctrip See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Key Takeaways From L Brands' Q4 FY 2016 Earnings Results
  • By , 2/23/17
  • L Brands, the parent company for Victoria’s Secret (VS) and Bath & Body Works (BBW), released its Q4 and full fiscal 2016 (fiscal year ends in January) results on February 22nd . The fourth quarter performance came in below the management’s expectations. Though PINK, the Victoria’s Secret brand aimed for teenagers, and Bath & Body Works displayed healthy growth, the rest of the divisions continued with their weak performance in line with the rest of calendar 2016. The traffic at L Brands’ brick-and-mortar stores witnessed a sharp decline in December and this was coupled by a decline in VS’s merchandise rate due to its current stock clearing process as part of its ongoing restructuring efforts. For the full year, net sales declined by 3% to reach ~$12.6 billion and the comparable sales grew by 2% y-o-y. The shedding off of the swim and apparel sections from VS led to a 2 percentage point erosion in the comparable sales. The gross margin rate fell by 200 basis points to reach 40.8% in fiscal 2016. Adjusted EPS declined by 6% y-o-y to reach $3.74. Net sales for Q4 declined by 2% y-o-y to reach ~$4.5 billion and the comparable store sales were flat. Also, the dampened merchandise margin rate led to a 230 basis point decline resulting in the gross margin rate to reach 43.3%. Investments Will Continue Dampening Near Term Growth L Brands’ investments in both its subsidiaries continue with Barn remodels for Bath & Body Works and its investments in China. In order to improve the efficiency of its core business, L Brands excluded shoes, swimwear, accessories, and apparel from Victoria’s Secret’s business in 2016. These initiatives will continue slowing down the company’s performance in 2017, as well. The Company’s Square Footage Might Increase In 2017 In 2017, the square footage for the Victoria’s Secret stores–that contributes to over 50% of the company’s revenues–will increase by 1% in North America due to 75 remodels and 3 net new store openings. The square footage of BBW in North America will grow by 4% due to 160 remodels and 25 new openings. The total square footage for the company might grow by 3%. Let us take a look at the performance of its different businesses: Victoria’s Secret For the fiscal 2016, VS sales grew by 1% y-o-y to reach ~$7.8 billion and comparable sales were flat. The operating income for this segment declined by 260 basis points to reach $1.2 billion and this was mainly due to the dampening of the merchandise margin rate. The company had sold off almost all of the excess inventory from the exited categories. The exit of several categories will continue putting pressure on the performance in FY 2017 and the comparable sales are expected to be dampened by high-single digits in the first half of 2017. The company excluded shoes, swimwear, accessories, and apparel from Victoria’s Secret’s core business and since these items offered annualized sales of ~$525 million in 2015, hence it had to sacrifice those gains last year. In the Beauty segment, it is trying to shift its focus from the fantasy beauty products to fine fragrance and high-end body care products. The VS business has been recently segregated into 3 segments: Victoria’s Secret Lingerie, PINK, and Victoria’s Secret Beauty, with each segment led by a different executive reporting to the CEO. Bath & Body Works BBW’s sales grew by 7% in FY 2016 and its comparable sales rose by 6% on top of the 7% of FY 2015. The operating income for this segment grew by 6% y-o-y to reach $907 million. Like its VS business, the company might be thinking of making some changes in this segment as well because the personal care products sales seem to be growing at a slower rate than the management’s expectations. The innovativeness of the products might increase in the future like its new “Essentials” line focusing on essential-oil infused bodycare that was launched in this month. International The revenues from this segment increased by 10% y-o-y to reach $422.7 million in FY 2016 while the operating income declined by around 55% to reach $39.9 million due to the company’s ongoing investments in China and the foreign exchange headwinds. L Brands made a lot of important changes in its international business in fiscal 2016. In order to deal with a problems like foreign exchange headwinds and problems in travel retail sales, VS built a business in China. There are currently 627 L Brands stores spread across 74 countries internationally that generated sales to the tune of $1.1 billion in 2016. The international business is comprised of: 46 Victoria’s Secret and PINK full assortment stores, where the company added 10 new VS and 3 new PINK stores last year in countries such as Russia, Mexico, Singapore and China; VS Beauty and Accessories stores in local markets where 30 new stores were added in 2016; VS Beauty and Accessories counters in Travel Retail and military installations, where 19 net new stores were added in 2016; BBW stores where 34 new stores were launched last year. Have more questions on L Brands? See the links below. What Is L Brands’ Revenue And EBITDA Breakdown? How Has L Brands’ Revenue And EBITDA Composition Changed Over 2012-2016E? L Brands Q4 2015 Pre-Earnings Report L Brands 2015 Year In Review How Was L Brand’s Monthly Performance In February 2016? How Was L Brand’s Monthly Performance In March 2016? What Is L Brands’ Fundamental Value Based On 2016 Estimated Numbers? How Did L Brands’ Different Segments Perform Over The Last 5 Years? What Are The Key Takeaways From L Brands Q1 FY2016 Earnings Results? Why Is Victoria’s Secret Undergoing Restructuring Changes? Key Takeaways From L Brands May 16 Performance Report Why Has L Brands’ Stock Price Declined By Around 30% Year-To-Date? Which Is The Most Important Segment For L Brands’ Future Growth? How Was L Brands’ Monthly Performance In June 2016? L Brands Q2 FY16 Earnings Preview L Brands Delivered A Moderate Q2, Restructuring Activities Progressing On Track What To Expect From L Brands’ Q4 FY 2016 Earnings Notes:
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    HPQ Earnings: Growth In PC Sales Boosts Revenues Despite Decline In Printer Division
  • By , 2/23/17
  • tags: HPQ
  • Hewlett Packard  Inc. (NYSE:HPQ) announced its fiscal Q1 results on Wednesday, February 22.  The results were better than expected, buoyed by the Personal Systems division, which reported double-digit growth in revenues and improvement in both market share and product mix. However, the decline in printer revenues continued to negatively impact top line growth. Overall, the company’s revenues grew by 4% (5% in constant currency) to $12.7 billion. Below we provide an overview of the key takeaways from the company’s earnings release. For precise figures, please refer to  our full analysis for Hewlett Packard Incorporated   The Personal Systems Division Reports Growth As Market Share Improves The Personal Systems division is the company’s second largest division and makes up nearly 46% of its value, according to our estimates. While the decline in worldwide PC shipments continues, the company reported that its worldwide share improved to 21.7% on the back of new launches for the premium consumer PC market. The company reported 8% growth in total units shipped during the quarter. While consumer revenues grew by 15%, commercial revenues grew by 7% year over year. And while the company continued to report tepid growth for its desktop sales, its laptop revenues and shipments grew by 16% and 12%, respectively. As a result, the segment saw 10% year-over-year growth in revenues to $8.11 billion, while its operating profit grew by 36.68% to $313 million,  benefiting from scale, operating cost savings, and a favorable product mix. Furthermore, PC average selling prices were up both year-over-year and sequentially, driven by favorable pricing and a shift in product mix to the premium segment of the market. Going forward, HPQ is well positioned in the PC market as it continues to launch premium and mid-tier PCs at competitive prices. This should help the company to report revenue growth in the coming quarters. Despite Improvement in Printer Hardware Revenues, Supplies Dents Top Line Growth   The printer division is HPQ’s largest vertical and makes up 54% of its estimated value. During the quarter, the printer division reported a 3% year-over-year decline (2% in constant currency) in revenues to $4.83 billion in the quarter. While hardware revenue declined by 4.5% despite a 6% increase in hardware units sales, supplies revenues declined by 3% year-on-year (2% in constant currency). Sequential share gains of 3.2 points in laser and 0.2 points in ink hardware helped the company to report 2% year-over-year growth in commercial hardware units and 7% growth in consumer hardware units. HP’s new product Sprocket, a pocket photo printer for smartphones, helped the company to shore up unit sales of printer hardware in the quarter. However, ASPs were down mid-single digits year over year, driven by both mix and pricing. Supplies revenue saw a decline once more, as revenues declined by 3% year over year (2% in constant currency), due to a change in the supply model that continued to impact channel inventory. The company expects supplies revenue growth in constant currency terms by the end of 2017. We are in the process of updating our HP model. At present, we have a $15 price estimate for the stock, which is slightly below the current market price. 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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    Why Facebook Is Focusing On Live Sports
  • By , 2/23/17
  • tags: FB TWTR GOOG
  • Reports suggest that Facebook’ s (NASDAQ:FB) is in talks with Major League Baseball to live stream one game per week on its platform. Both Facebook and Twitter are looking at live sports as a key catalyst to drive user engagement, growth and eventually revenues. Last year, Twitter won the rights to broadcast the NFL’s Thursday Night Football games on its platform, and has been constantly looking for similar deals since. In broadcasting live sports, social media networks are combining viewing, gaming and real-time commentary on one platform . This can help improve engagement beyond the traditional linear experience, and could potentially bring a larger audiences to these events. Facebook is already looking to launch a TV app which will allow its users to watch videos from its platform on a big screen. This would be immensely useful for live sports, as users generally prefer to view these on a larger screen. Live sports could enable Facebook to connect better with younger audiences and improve user engagement significantly, driving advertising revenues. Below we discuss how Facebook could benefit from streaming live sporting events.
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    Newmont Mining's Q4 2016 Earnings Review: Higher Gold Prices And Shipments Drive Earnings Improvement
  • By , 2/23/17
  • tags: NEM ABX FCX SLW
  • Newmont Mining reported a significant improvement in its fourth quarter earnings, driven by higher gold prices and shipment volumes. Gold prices averaged higher in the fourth quarter of 2016 as compared to the corresponding period of the previous year driven by a rally in prices in the third quarter in the wake of the UK’s June 23 EU referendum. Though prices cooled off in the fourth quarter in anticipation of the Fed’s December rate hike, they remained comfortably higher than levels seen in Q4 2015. In addition, Newmont reported a sharp increase in gold production as a result of the ramp up of production from the company’s new Long Canyon and Merian mines. The company’s ongoing cost reduction initiatives, driven by automation and analytics, helped deliver improved cost performance, which helped prop up earnings. Going forward, the company management reaffirmed its commitment to disciplined capital allocation by focusing on a portfolio of low-cost growth projects. The company divested a number of high-cost mining assets over the past years which helped lower operating costs. In addition, the company continued to focus on debt management. Given the downside risks to gold prices from the Fed’s rate hike cycle, a strong balance sheet will stand the company in good stead going forward. Have more questions about Newmont Mining? See the links below. What Is Newmont Mining’s Revenue And EBITDA Breakdown? What Is Newmont Mining’s Fundamental Value Based On Expected 2015 Results? How Has Newmont Mining’s Revenue Composition Changed Over The Last 5 Years? By What Percentage Did Newmont Mining’s Revenue & EBITDA Decline In The Last 5 Years? By What Percentage Can Newmont Mining’s Revenue & EBITDA Grow In The Next 3 Years? How Will Newmont Mining’s Revenue Composition Change by 2020? Newmont Mining: A Look Back At The Year 2015 Why The Commencement Of Production At The Merian Mine Will Boost The Fortunes Of Newmont’s South American Gold Mining Operations Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology  
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    Why Activision Blizzard's Stock Increased By 60% In The Last Year
  • By , 2/23/17
  • tags: ATVI EA
  • Gaming giant  Activision Blizzard ‘s (NYSE:ATVI) stock has rallied by almost 60% in the last year following strong results in all four quarters of the last fiscal year. The company’s performance was particularly impressive in the most recent quarter, in which it posted its highest-ever quarterly revenues of $2.01 billion, significantly higher than its own guidance and almost 52% higher than its prior year quarter results, and adjusted EPS of $0.65 per share, 25 cents higher than its guidance. Following the release of the fourth quarter results, the company’s stock rose almost 20% to an all time high of $47.23. For the full year, Activision reported revenues of $6.61 billion, 42% higher than the prior year, and EPS of $1.28, a 7% increase over 2015. Digital Content, Mobile Drives Growth In 2016, Activision witnessed growth across all major platforms – PC, Mobile and Consoles. The acquisition of King Digital helped the company gain an incremental 20% in revenues and also helped it expand its footprint in Asia. Moreover, the revenues from Digital Content, which almost doubled over the last year, helped the company bolster its revenues for the full year. At the same time, an increase in the digital packages for the company’s offerings helped increase its monthly active user base, which was reported at 36 million for the last year, an increase of 37% over the prior year. Per the company, it kept its gamers engaged for 43 billion hours in the last year, which was almost on par with the engagement levels of Netflix. Last year, Activision completed the acquisition of King Digital, which was aimed at consolidating the company’s position in the mobile gaming space. The acquisition helped the company expand its mobile user base and improve monetization. During the last year, the company’s revenues from the mobile platform rose 4x over last year to $1.7 billion. We expect the company’s mobile revenue, which is a key driver of its valuation, to increase steadily to over $3 billion by the end of our forecast period. An important point to note is that Activision’s growth was not just limited to its top line. The company’s overall financial position improved during the last year, which positively impacted investor sentiment. For the full year, the Activision’s free cash flow increased 76% over the prior year to $2 billion. The increase in the company’s free cash flow was aided by a surge in its cash flows from operations, which increased on the back of higher net income, one-time charges and non-cash items. The company also refinanced a significant portion of its long term debt, which bodes well for its future cash flows. Outlook for the Year Coming off a stellar performance in 2016, Activision released strong guidance for the next quarter and full fiscal year 2017. In the first quarter, the company expects to generate $1.55 billion in revenues and $0.25 in EPS. With fewer new releases in the current year, the company expects digital content to drive its revenues going forward. See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    iQOS- A Product Of Innovation Or Necessity For Philip Morris?
  • By , 2/23/17
  • tags: PM MO
  • Philip Morris International (NYSE:PM) uses the term Reduced Risk Products (RRPs) to refer to products with the “potential to reduce individual risk and population harm, in comparison to smoking cigarettes.” The company has a number of products in various stages of development and commercialization, with numerous scientific studies being carried out to determine whether the claims for reduced risks can be substantiated. The firm’s aim is to garner 10%-15% of its sales from its RRPs portfolio within a decade. The company is betting on one such product, iQOS, a black pen-shaped device that heats sticks containing tobacco, and feels it will become more popular than e-cigarettes sold by other companies. Philip Morris has collaborated with Altria (NYSE:MO) for developing its RRP portfolio, which includes joint research, development, and a technology sharing agreement, wherein the e-vapor products developed would be commercialized in the US by Altria, and in markets outside the US by PMI. The company is also leveraging the popularity of the Marlboro brand by deploying Marlboro heatsticks in iQOS. See Our Complete Analysis For Philip Morris International Game-Changer For Philip Morris iQOS is the result of more than a decade of research on a range of potentially reduced-risk products, which can prove to be an alternative to traditional cigarettes. The research, conducted by over 430 scientists in Philip Morris’ R&D facilities in Switzerland, involved an investment of $3 billion by the company. According to the company’s research, the device yields on average, less than 10% of the harmful constituents found in cigarette smoke. However, despite the growing awareness and publicity with regards to vaporizers and e-cigarettes, this segment still remains an insignificant part of tobacco firms’ income. PMI expects its Reduced Risk Products (RRPs) to approach break-even OCI (Operating Companies Income) in 2017, and to start contributing positively by 2018. The company is targeting 30 to 50 billion units in incremental volume through RRPs, which would add an additional OCI of $0.7 billion to $1.2 billion by 2020, with an increasing confidence of reaching the upper end of the target range. According to a Wells Fargo analysis of the future for the iQOS platform, the product has the potential for expanding the profit pool growth of combustible cigarettes and RRPs in the next decade by 400 basis points, to a 12.5% CAGR for Philip Morris. Further, it was also found that iQOS could displace up to 30% of the cigarette industry in developed markets by 2025, speeding up the premiumization of the market. This lends credence to the fact that iQOS could be a game-changer for Philip Morris in the years to come. Besides the product’s impressive showing in Japan, globally, as well, the product has performed favorably, serving as an indicator of the future potential of iQOS. Conversion rates of iQOS purchasers who have fully or predominantly converted to the product have grown over time, and stood at approximately 70% at the end of 2016. As of year-end 2016, the company estimates that approximately 1.4 million adult consumers have quit cigarettes and converted to iQOS. Moreover, during the fourth quarter, estimated off-take volume in all markets, with launches prior to mid-year, grew at a compound weekly rate of over 6%, comparable to Japan in the initial launch phase. This trend bodes well for the future national expansions, since in Japan, it resulted in an accelerated growth. Till December-end, iQOS had been launched in key cities in 20 markets globally, with aims to expand nationally in many of these markets this year. The company is also targeting additional launches in 10 to 15 markets by year-end, subject to capacity. Currently the company has 15 billion units of installed annual HeatSticks capacity, and expects over 32 billion units in total capacity to be available for commercialization this year. The company anticipates an installed annual capacity of approximately 50 billion units by year-end. Need For Cigarette Alternatives According to WHO estimates, there will still be over a billion smokers by 2025. With such a huge demand for tobacco products in the future, the presence of less harmful alternatives to cigarettes is essential. For this, not only do alternatives need to be developed, but they also must be appealing to consumers. A significant health benefit can only be achieved when a large number of smokers switch from cigarettes to such products. The company’s innovation pipeline includes four product platforms that can meet the varying preferences of adult smokers, aiding them in the switch. Given this situation, Philip Morris, on January 25, reaffirmed its commitment to designing a smoke-free future . The company’s momentum continues to grow behind a full-scale effort to market smoke-free products that can ultimately replace cigarettes, after a successful iQOS launch. According to Tony Snyder, Vice President of Communications, adult smokers are looking for products “that offer the satisfying taste, ritual, and pleasure they get from cigarettes, but with far lower amounts of the harmful compounds found in smoke.” The company also aims to transition its resources from cigarettes to smoke-free alternatives in the future, and has proposed regulatory policies that encourage the replacement of cigarettes with such alternatives. The company has recognized the serious health risks posed by cigarettes and other tobacco products. Hence, accordingly, they feel an obligation to develop and market products responsibly. Success in the cigarette business has given them the resources to pursue this ambitious vision. Have more questions on Philip Morris? See the links below: What Do Falling Oil Prices Have To Do With Cigarette Prices In Saudi Arabia? iQOS’ Impressive Growth Story Continues In The Fourth Quarter For Philip Morris Can iQOS Continue Its Tremendous Momentum For Philip Morris In Its Fourth Quarter? How Is Philip Morris Working Towards A Smoke-Free Future? How Will A Ban On Foreign Tobacco Investment In India Affect Philip Morris? Notes:
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    Sina Earnings: Advertising From SME Customers, Weibo Help Sustain Growth
  • By , 2/23/17
  • Sina  (NASDAQ:SINA) announced its fourth quarter earnings on February 22, reporting a 22% annual increase in net revenues to $313 million. Revenue growth was driven by both the advertising segment, which includes display ads on Sina and Weibo, and non-advertising revenues, which include value added services on weibo.com. Additionally, Sina’s company-wide gross margin (GAAP) for the quarter improved by almost 5 percentage points to 70% for the quarter. A higher proportion of advertising revenue across both portal and Weibo businesses was key to improved margins. Within the advertising segments, the contribution from small and medium enterprise (SME) customers was crucial to growth. (Read more: How Crucial Are Small & Mid-Sized Businesses For Sina’s Advertising Business? ) A similar trend was observed through the year, as Sina generated just over $1 billion in revenues through the year, which was around 17% higher on a y-o-y basis. Top line growth came from both advertising and non-advertising (primarily from Weibo) while the company’s gross margin for the full year stood at 65.6%, almost 4 percentage points higher than previous year levels. This was primarily due to expansion in advertising gross margins, as the gross margin for the non-advertising segment compressed by 170 basis points to 58.4%, as shown below. The company has successfully improved operating efficiency, and its largely fixed operational costs led the company’s cash operating expenses to stay flat over previous year levels. Continuing the trend from previous quarters, Sina reported roughly flat operating expenses for the fourth quarter and the full year as a result. Sina’s non-GAAP operating expenses for 2016 stood at $498 million, only about 3% higher than the previous year. As a result, Sina’s non-GAAP operating income was almost 200% higher than the year-ago levels at $179 million. This resulted in its non-GAAP net income increasing by almost 100% to $109 million for the full year. See our complete analysis for Sina 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 Did Groupon's Gross Billings & Gross Profit Per Customer Vary Across Regions in 2016?
  • By , 2/23/17
  • tags: GRPN EBAY AMZN
  • Groupon  (NASDAQ:GRPN) reported solid financial results in the last three quarters of 2016, improving shareholder sentiment regarding chances of a turnaround in the company’s fortunes. Groupon’s stock price is up over 13% in the last year. In 2016, both the company’s gross billings and gross profits grew year-over-year (y-o-y) in North America and declined in international markets, owing to its strategy to focus on the North American market and move away from certain low-margin goods businesses. However, both Groupon’s gross billings per active customer and gross profit per active customer declined in the same period. Interestingly, the company’s gross profit per gross billings improved in full year 2016. In this note, we focus on how these metrics trended over the last eight quarters and their implications for Groupon. Gross Billings Per Customer In 2016, the number of active customers grew by 20% y-o-y in North America while they declined by about 20% in the Rest of World segment. The number of active customers currently stand at 52.7 million, including over 31 million in North America. Groupon’s gross billings per average active customer declined from $34.90 in Q4 2015 to $32.20 in Q4 2016. In terms of geographical spread, this metric declined in double-digits y-o-y in North America and EMEA but improved in the Rest of World region. The increased marketing efforts and order discounts had more of an impact on Groupon’s customer base than gross billings, leading to a decline in gross billings per customer last year. However, a positive trend witnessed in this period was that even though the active customer growth rate accelerated quarter over quarter in 2016 (in North America and globally), the decline in gross billings per customer remained between 5% and 7.7%. Gross Profit Per Customer Following a trend similar to gross billings per average active customer, Groupon’s gross profit per average active customer declined from $7.60 in Q4 2015 to $7.00 in Q4 2016. In terms of geographical spread, this metric declined in mid single digits y-o-y in North America and EMEA but increased in the Rest of World region.   The impact of increased marketing efforts helped improve Groupon’s customer base as well as gross profits in North America, though its gross profit per customer did decline somewhat in 2016. It will be interesting to see how this metric trends over the next few quarters. We expect the company to continue with its marketing efforts in this quarter to expand its active customer base, which is likely to provide benefits in the form of higher gross billings, gross profit and revenue in 2017. Gross Profit Per Gross Billings In North America, Groupon’s gross profit per gross billings improved in the first two quarters y-o-y but declined in the third quarter before improving drastically in Q4. This helped maintain the company’s overall gross profit per gross billings around 22% levels over the last few quarters in line with the improvement in its take rate (revenues per gross billings). This came despite the decline in Groupon’s overall gross margin (gross profit/revenues) in 2016, which of course can be attributed to the drastic improvement in take rate in the international markets last year. Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research  
    Super Bowl Shock: How This Small-Cap Stole the Show
  • By , 2/23/17
  • tags: CSCO DATA TLT
  • Submitted by Wall St. Daily as part of our contributors program Oh, what a night… Three weeks ago, Tom Brady marched his New England Patriots to perhaps the most thrilling comeback victory in Super Bowl history. At halftime, pop diva Lady Gaga put on a captivating concert for the raucous in-house crowd and millions watching around the world. As you may know, the Super Bowl routinely draws more than 100 million viewers every year. And from an investment standpoint, brand-name companies that get “face time” on the tube — in the game or through commercials — often see a tangible boost in share price after the big game. But this year, the biggest Super Bowl-driven stock pop wasn’t from a well-known brand. Instead, it’s a tiny tech services company that trades for just under $6 a share. Senior analyst Jonathan Rodriguez brings you all the details below. Data: The Backbone of Modern Civilization In the developed world, data play an ever-increasing role in people’s daily lives. Personal computers, cellphones, cars that connect to the internet — you name it. But perhaps the only thing more critical to our data-driven lives than the data are the speed and reliability to access them. This is especially true for businesses that rely on networks to get their job done. So as you can imagine, the providers of today’s network technology are very valuable companies. In fact, the enterprise network equipment market is expected to hit $30.6 billion by 2020, according to a report from Strategyr. Most tech investors are familiar with the big names in the networking tech game: Cisco Systems Inc., Juniper Networks Inc. and Arista Networks Inc . But these mature large caps won’t provide you with the kind of explosive returns on which you can retire early. Instead, here’s a network tech company that could do the trick… Unlock Extreme Profits in a Small-Cap Package Extreme Networks Inc. (EXTR) is a networking solutions provider focused on enterprise clients. Its products include modular ethernet switching systems, high density Wi-Fi equipment and management software. But what really gave the company visibility was Extreme’s multiyear deal with the NFL for Wi-Fi and analytics software. Extreme not only provided the Wi-Fi infrastructure for the Super Bowl in Houston, but also deep analytics on network usage to the NFL. For instance, Extreme reported that a record-breaking 11.7 TB of data were transferred over the network at NRG Stadium during the Super Bowl. The company also managed to handle 27,191 peak concurrent users onto the network — another record. Perhaps the most important record broken was that of speed: Extreme’s network sustained a throughput of 3.5 GB for more than five hours, with spikes up to 5.2 GB and 4.8 GB during the pregame and halftime shows, respectively. Extreme’s successful second year as the NFL’s Super Bowl network services provider has translated into positive results for shareholders. In the last year, shares have gained a whopping 130%. That’s more than four times that gain of the Nasdaq in the same period. And the price action is backed by solid fundamentals, too. The company has generated earnings growth of 45% — well above the 4.7% industry average. Over the last three years, Extreme Networks has averaged 21% revenue growth, nearly double the industry rate. And despite the rapid growth, the stock still trades at just 1.1 times trailing sales — a 35% discount to the peer average. Not bad for a company sporting a market cap of just $622 million. So if you’re after “extreme” network tech profits, think small to earn big. On the hunt, Jonathan Rodriguez Senior Analyst, Wall Street Daily The post Super Bowl Shock: How This Small-Cap Stole the Show appeared first on Wall Street Daily . By Jonathan Rodriguez
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    Why Is L'Oreal Trying To Sell Off Its Natural Beauty Brand, The Body Shop?
  • By , 2/22/17
  • tags: LRLCY EL REV AVP
  • In its Q4 2016 earnings call, L’Oreal has admitted to exploring options to sell off it ownership of The Body Shop . The persistent weak performance of the Sussex-based beauty retailer known for its natural and fair-trade ingredients, has made L’Oreal come to this decision. The Body Shop was once a brand known for its socially conscious products. However, after L’Oreal’s acquisition of the brand and after the demise of its original founder, Anita Roddick, the brand had started to lose its appeal. If L’Oreal is successful in selling off the company, The Body Shop might need to undergo a brand image makeover in order to appeal to its target client base once again. The Body Shop’s Acquisition By L’Oreal And The Present  Scenario The Body Shop was founded in 1976 by Anita Roddick and the beauty company was known for its ethical products, exotic ingredients, environment friendly practices, and social activism. In 2006 L’Oreal acquired the company for  £652m . Though Roddick faced criticisms at that time for selling the company to the corporate beauty giant, she ensured that The Body Shop will steadfastly continue following its own principles and ethics as this was also mentioned under the terms of L’Oreal’s takeover. In fact, Roddick even claimed that she might turn out to be the “Trojan horse” who could influence L’Oreal to adopt some of her ethical ideas into its other businesses. However, Roddick passed away in 2007 and industry experts felt that there wasn’t too much common ground between The Body Shop and L’Oreal’s other brands. Present in over 3,000 stores across 66 countries, The Body Shop’s sales fell by ~5% to reach €920.8m in 2016 while its operating profit declined by 38% during the same period to reach €33.8m. The company’s operating margin fell below 4% in 2016 while that of L’Oreal’s main consumer business stood at 20%. There have been reports that L’Oreal has already appointed bankers to analyze the options for selling off the company to prospective private equity buyers. L’Oreal is aiming to sell the brand for a possible value of €1 billion . What Does The Body Shop’s Lackluster Appeal Indicate? Some of the loyal fans of The Body Shop felt frustrated when the brand, known for its ethical practices, was taken over by a commercial giant. This might have been one of the reasons behind The Body Shop’s declining demand. The Body Shop might be an example of what happens when a brand’s core values are lost due to being absorbed by a larger corporate identity. Recently, both L’Oreal and Estee Lauder have acquired a number of brands that are known for their niche values . These brands click with the target clientele because of the values they promote. It is essential that the authenticity of these brands remains intact post their acquisitions because this is the unique selling point for the brands. The moment that attraction is lost, the brand becomes just another name in a sea of similar brands and hence loses the customer loyalty. Competition Has Grown Stronger The Body Shop is currently under threat by bigger and more powerful competitors in its field, such as premium ethical brands like Dr. Hauschka, Chantecaille, and Lush and Neal’s Yard. Also, the concepts such as not testing on animals is not an uncommon practice for other beauty brands in today’s world. It doesn’t provide The Body Shop an edge over others like before. Additionally, though, L’Oreal is a digitally advanced company, launching its beauty applications on mobile or appointing its beauty influencers in the social media, it has done little to connect this brand with the younger consumers of today through these means. In an age when the brick and mortar stores are losing relevance and the digital sales are rising, The Body Shop continued spending money to build a larger store network. L’Oreal’s plans of opening 3,000 more stores for The Body Shop after it gained ownership was reduced to only 1,000, and its aim of introducing the brand to 40 more countries didn’t achieve fruition. …And The Body Shop’s Brand Positioning Has Grown Weaker Though last year, the brand tried to revive its image with 14 goals for 2020 that included promises like all its natural ingredients would be sustainably sourced (as opposed to just under 50% of its ingredients falling under this category currently) and ensuring that almost 70% of its packaging would not originate from fossil fuels (as opposed to 30% today). However, The Body Shop needs to seriously think about its brand image in order to once again appeal to its consumer base. When The Body Shop was led by Anita Roddick, the brand was known for its mass market and ethical appeal and socially conscious customers leaned toward the brand. However, the ethical essence of the company has eroded since then. Though the company is making new promises to reinvent and reinforce its older image once more under its current CEO, Jeremy Schwartz, however, the brand has a tough challenge ahead of itself. It might have to choose between becoming either a mass market commercial brand (like a Maybelline or a Garnier) or a brand built over social and environment consciousness. It just cannot settle for being a half-ethical brand as that image neither appeals to the buyer of mass beauty products or those looking for environment friendly options. Editor’s Note: We care deeply about your inputs, and want to ensure our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly, alternative analyses you want to see. Drop us a line at  content@trefis.com Have more questions on L’Oreal ? See the links below. What Is L’Oreal’s Fundamental Value On The Basis Of Its Forecasted 2015 Results? How Has L’Oreal’s Revenue And EBITDA Composition Changed Over 2012-2016E? L’Oreal: Year 2015 In Review What Is L’Oreal’s Fundamental Value Based On 2016 Estimated Numbers? L’Oreal’s Q1 2016 Earnings Results How Did The Top Two Beauty Companies Perform In The Fragrance Segment Over The Last Five Years? How Can L’Oreal’s Digital Investments Help The Company? Who Relies More On Debt: L’Oreal Or Estee Lauder? What Are Some Of The Trends Expected To Drive The Future Of The Beauty Market? Why Might L’Oréal Be Acquiring Luxury Perfume Brand Atelier Cologne? How Is L’Oreal’s Revenue Composition Expected To Trend? How Is L’Oreal’s Skincare Business Expected To Trend? Why Does L’Oreal Want To Acquire The Skincare Brand, Société des Thermes de Saint-Gervais-les-Bains? Here’s Why L’Oreal’s Digital Progress Places It Way Ahead Of Its Peers How L’Oreal Stands To Gain From The Growth Of The Global Hair Care Market Here’s How L’Oreal Is Gaining Competitive Advantage With Its ‘Beauty Squad’ L’Oreal Makes Haircare Go Digital With Its Latest Launch Why Did L’Oreal Decide To Acquire Three Active Cosmetics Brands From Valeant For $1.3 Billion? Here’s How L’Oreal And Founders Factory Are Taking Their Partnership Forward What To Watch For In L’Oreal’s Q4 2016 Earnings Key Takeaways From L’Oreal’s 2016 Annual Earnings Notes:
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    Why We Revised Our Netflix Price Estimate to $137
  • By , 2/22/17
  • tags: NFLX
  • Netflix ’s (NASDAQ:NFLX) stock has performed well in the markets in recent months, particularly following its earnings announcement in January. One of the primary reasons for this was growth in international markets – as the company saw over 47% growth in international streaming revenues in 2016 – while the domestic business for the company has largely stabilized. Furthermore, the international business’ margins are improving, which should help boost the company’s overall profitability in 2017. As a result of these developments, as well as other factors, we have revised our price estimate for Netflix upwards to to $137. Below we explain the changes that we have made to our forecast model for the company. Stable Domestic Subscriber Base, Improving Pricing According to Trefis estimates, the U.S. streaming subscription business contributes close to 57% of Netflix’s value. The company’s domestic subscriber base crossed the 49 million mark in 2016 and is growing at a steady pace, having added around 10 million new subscribers during 2016. Netflix faces intense – and growing – competition in the online streaming market, as companies such as  Dish Network  (NASDAQ:DISH),  Apple  (NASDAQ:AAPL) HBO,  CBS  (NYSE:CBS), and  Comcast  (NASDAQ:CMCSA) have launched their own streaming services in recent years. Despite the competition, Netflix has been able to maintain a fairly steady growth rate. With the success of Netflix’s original content, its perceived brand value has improved. The company is no longer considered just an aggregator of popular content from other networks, as it now provides engaging and interesting content of its own. Given the secular trends within the pay-TV industry, as consumers increasingly cut the cord in favor of streaming platforms such as Netflix, we expect Netflix’s domestic user base to improve to over 68 million by 2023. Furthermore, over the past few years, Netflix was able to increase the average fees paid by subscribers without any material impact on subscriber numbers. We expect that the company will be able to increase its monthly streaming subscription fees in the U.S. in the coming years, as its original content continues to grow in popularity. We now project the fee to increase to $12 by the end of our forecast period.   Growth In International Subscribers To Drive Valuation According to Trefis estimates, the International Streaming businesses contributes over 40% of Netflix’s valuation. Trefis estimates that Netflix’s international subscribers will increase from around 44 million in 2016 to nearly 110 million by the end of our forecast period. Apart from Europe and Latin America, Asia-Pacific will be a key driver of this growth. Netflix is planning to license its content in China for now, given the challenges of entering the market directly, but the company has been witnessing strong traction in India and several other Asia-Pacific markets. Despite the aforementioned traction, emerging markets present challenges that the company did not have to deal with in developed markets such as the U.S. For one, many of these markets have inconsistent internet connections and low speeds. Further, some emerging economies are “Mobile First” markets where most video consumption happens on smartphones. High data charges on mobile phone plans can limit video consumption, and as a result these consumers prefer to download videos when a Wi-Fi connection is available and watch them later on the move. To mitigate this, Netflix launched an offline feature in late 2016 to entice mobile users. Additionally, the company is developing a slate of local original content for its international markets to lure customers. These developments, coupled with favorable secular trends, should help the company see strong growth in its international streaming subscriber base going forward. Steady Improvement In International Margins To Boost Profitability Netflix’s international streaming margins have improved steadily over the years, climbing from -127% in 2012 to -7% in 2016. However, the margins have been under pressure of late, largely due to unfavorable currency movements and the additional costs undertaken related to aggressive expansion. The company expects the international streaming contribution margin to be around -1.5% for the next three months. We believe that Netflix’s international segment could start to break even in 2017, and will have a positive – and steadily expanding – contribution margin in the coming years.   Another area in which Netflix has seen rapid improvement is the contribution margin for its domestic streaming segment. This margin has improved from 14.3% in 2011 to 38.2% in 2016. The company had earlier stated that it intends to improve its domestic streaming margin by 200 basis points per year, but now believes that it can improve even further as a larger portion of global and original content costs will now be absorbed by the company’s ever-growing international territories. The company intends to cross the 40% threshold by 2020, and we estimate that domestic streaming margins will exceed 43% by the end of our forecast period. Focus On Content And Expansion To Escalate Costs With so many players in this industry, content is likely to be the key differentiator. Netflix is focusing on original programming to develop a competitive edge, and has a long-term goal of ensuring that  nearly 50%  of the content streamed on its platform is original. The company plans to develop 1600 hours of original content in 2017 and has a budget close to $6 billion  for the programming slate. We estimate that Technology & Development Costs (As % of Revenues) will increase from 8.82% to 10.08% by the end of our forecast period. 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 Outstanding Loans For The U.S. Banking Industry, And How They Have Changed Since 2012
  • By , 2/22/17
  • Residential mortgages, commercial & industrial (C&I) loans and commercial real estate (CRE) loans together form nearly 70% of all outstanding loans for the U.S. banking industry. * Credit card loans include unsecured revolving credit, while retail loans include auto loans, student loans and other secured consumer loans. Other loans comprise of loans to financial institutions as well as the lending of federal funds and reverse repurchase agreements. The U.S. banking industry has seen loans grow at an average rate of 6% each year over 2012-16. While commercial loans have seen the largest growth of over 10% annually over this period, the mortgage industry has largely remained stagnant. The notable rate of growth in commercial & industrial loans stems from the prolonged low interest-rate environment that has been prevalent since the economic downturn of 2008. Easy availability of cheap credit has spurred the demand for loans, while a steady improvement in economic conditions made individuals and companies optimistic about the future – driving loan demand further. As for the mortgage industry, activity levels peaked in mid-2012 thanks to government-led initiatives to clean up loans handed out by banks in the run-up to the economic downturn. But the demand for new mortgages tanked over subsequent years – with mortgage loans being normally paid off at a faster rate than new ones were being handed out. This resulted in the total mortgage loan portfolio falling over 2013-14 before recovering in 2015. Notably, the sizable growth in retail loans over recent years has been fueled by a sharp increase in the volume of auto loans. Auto loans are responsible for nearly 65% of the ~$646 billion in retail loans outstanding across banks in the country. While continued improvement in U.S. economic conditions is expected to drive loan growth across categories over coming years, the rate of growth is likely to be slower as the Fed hikes interest rates at regular intervals. The chart below captures Capital One’s portfolio of outstanding auto loans and includes our forecast for these loans. You can see how changes to these loans affect our estimate for the bank’s shares by modifying this chart. See full Trefis analysis for  U.S. Bancorp  |  Wells Fargo  |  JPMorgan |  Bank of America | Citigroup   | Capital One 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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    Ameritrade Sees Positive Start To 2017 With Sustained Growth Momentum Across Key Metrics
  • By , 2/22/17
  • tags: AMTD ETFC SCHW
  • TD Ameritrade (NASDAQ:AMTD) started the year on a positive note, with significant growth across its key monthly metrics in January. Interest earning assets, which generate about 45% of the company’s revenues, saw 14% year over year growth. The interest rate hike in December 2016, as well as expectations of additional hikes in the year ahead, have largely driven the growth in interest earning assets. The brokerage’s trading volumes remained low in comparison to January 2016, though this was primarily because of a tough year-on-year comparison due to the volatility seen in the global economy at the beginning of 2016, driven by uncertainty around oil prices, a slowdown in China and dim GDP growth in the U.S. at the time. However, on a sequential basis, trading volumes were up by 8% from the previous month. While Ameritrade’s volumes may suffer somewhat in the near term due to intense competition, the acquisition of Scottrade should ultimately boost its trading volumes and help in offsetting price competition. Assets under management have benefited from increasing customer demand for expert financial advice to manage their assets. The digital advisory business, and the company’s focus on newer investment products to meet customer demand, have led to over 15% year over year growth in assets. Please refer to  our complete analysis for  Ameritrade . View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research