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COMPANY OF THE DAY : ALPHABET INC.

Alphabet recently agreed to buy part of HTC's mobile phone business for over $1 billion.

See Complete Analysis for Alphabet Inc.
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FORECAST OF THE DAY : BLACKBERRY'S SOFTWARE REVENUES

BlackBerry has seen strong growth in its software revenues as it has transformed itself into primarily a software company. We expect rapid growth going forward.

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Is India The Place To Be For Apparel Retail Companies?
  • By , 9/22/17
  • tags: AEO ANF GPS URBN
  • American Eagle Outfitters  (NYSE:AEO) has announced its plans to launch its stores in the Indian market through a licensing deal in 2018. The company has entered into a multi-year agreement with the Aditya Birla Group, a conglomerate headquartered in Mumbai that has 900 retail stores and strong digital and omnichannel capabilities. The first of the company’s stores are set to open in Mumbai and Delhi in the spring. AEO currently operates over 1,000 stores in the US, Canada, Mexico, China, and Puerto Rico. Its plan to enter India follows its long-term growth strategy of revenue increase through international expansion. The company has stated its intentions to open roughly 50 new franchise locations through the course of this financial year, and the number of its new stores located outside the US is set to grow further in the coming years given the weakness in its domestic operations. See our complete analysis for American Eagle Outfitters The Lure Of The Indian Market According to Andrew McLean, EVP-Global Commercial Operations, “India’s rapidly growing and vibrant economy” provides immense potential for apparel retail companies, including American Eagle, spurred on by the presence of the world’s largest youth population. Furthermore, as per UNFPA projections, the nation will continue to have one of the youngest populations in the world till 2030 . On the back of a strong economy, which is expected to grow 7.4% and 7.6% in 2017 and 2018, and a growing middle class, the region is also a top destination for retail investment, a fact that may come as a surprise given the presence of China; the latter came in at the number two spot. A growing interest in foreign brands, as well as the relaxing of some regulatory requirements, are other factors driving the investment growth in the country, where the organized retail industry is expected to double in size by 2020. Online shopping in the country is booming and is projected to grow at 30% annually, to reach $48 billion by 2020. Furthermore, mobile shopping seems to be the preferred way in developing economies and is set to account for a majority of the online retail sales. Given this fact, it is imperative that AEO enters the market armed with a good mobile app and mobile commerce strategy. AEO is not the first store looking to boost its sales through expansion into the country. 2016 saw a spate of brands entering the market, including Armani Exchange, Cole Haan, Muji, Massimo Dutti, and Kate Spade. Another retail giant, H&M, has already opened 15 stores in the country, within two years of its entry. Meanwhile, IKEA, the largest furniture retailer in the world, has plans to invest $1.56 billion in the country to open roughly 25 stores. Amazon has had a presence in the country for many years, and has made enormous headway in its fight against local e-commerce leader Flipkart. Walmart is another brand that has aggressive growth plans, and is aiming to open 50 cash-and-carry stores over the next two to four years.   Have more questions about American Eagle Outfitters? See the links below: Is A Wave Of Consolidation About To Hit The Fashion Retail Industry? Increased Online Sales Boost Top Line But Pressure The Bottom Line For American Eagle Investors Overlooking American Eagle’s Growth Potential Notes: Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research
    AVP Logo
    Are Avon Products' Persistent Weaknesses Ever Going to End?
  • By , 9/22/17
  • tags: AVP EL LRLCY REV
  • Avon Products is currently trading at around $2.50, its lowest level in the last one year, reflecting around 55% y-o-y erosion in its stock price. The company’s strategic initiatives to revive sales, the infusion of funds by Cerberus Capital and other equity investors to the tune of $650 million, the selling-off of its North America business, none of these seem to be helping the company in recovering from its continuous and seemingly never ending slump. During its Q2 2017 earnings call, the company announced the stepping down of its chief executive, Sheri McCoy. Since Ms. McCoy took her position as the CEO five years ago, Avon is yet to see a turnaround in its performance. The 130 year-old company, witnessed its last revenue growth way back in 2011. With its continuous weak performance in its major regions of sales, problems with representative retention, and the failure to make a significant turnaround, Avon Products doesn’t offer much hope for the future. Avon Is Not Being Able To Overcome The Persistent Challenges In Its Way Avon was almost on the verge of a bankruptcy in 2015 when Cerberus Capital and some other equity firms came to its rescue.  Avon’s sell-off of its North American business, receiving a $650 million funding, and subsequently undertaking a few major restructuring plans seemed to indicate that the company had finally embarked on the road to recovery. However, for the whole of last year, and so far this year, though Avon had shown some signs of recovery, yet no sustainable growth has been visible so far. Even its focus on the top ten markets and its top 40 brands for growth, doesn’t seem to have brought about a significant turnaround in the company’s performance. It seems some challenge or the other keeps forming roadblocks on Avon’s way. Even while Avon is trying to make positive changes, those seem to be backfiring in some cases. For example, in Q2 2017, some of Avon’s transformation plans brought a halt to the product delivery system which, in turn, made the representatives face challenges with getting a steady supply of products to sell. This was coupled with Avon’s continuous problems in its most important market, Brazil, where it continued facing bad debt, challenges with representative retention, as well as stiff competition from other players. Also, the new categorization of its color segment product is yet to receive a positive customer response. Avon’s net sales declined by 1% y-o-y in the first half of 2017 to $2.65 billion. It incurred a net loss of around $82 million during the same time period. As a result of this disappointing performance, Avon’s management now expects the revenue in the second half of this year to remain flat or increase by a mere 1%. The lack of demand, economic slowdown, coupled with stronger competition, in some of its important regions is the main reason for Avon’s continuous poor performance. Along with this, its continuous problems with active representatives’ retention is a major problem for the company. Avon’s Challenges With Representative Retention One of the most important drivers for a direct selling company like Avon is the retention and growth of its active representative base. Avon has been constantly struggling with growing its representative base and its retention. While it is struggling to retain and hire younger representatives and has also done campaigns such as the Beauty Boss Campaign to attract them, its own glitches such as not being able to keep up with the demand in Mexico or having delivery issues in the U.K. are further disrupting its supply chain thereby leaving representatives frustrated and prone to leave. Can Avon Recover Soon? While it was initially expected that Avon will indeed make a turnaround after Cerberus Capital and other investors infused funds into the company and Avon itself chalked out a transformation plan, but things look bleak even after close to two years of these changes. Avon doesn’t have the wealth to buy companies like the bigger beauty players to expand its portfolio, neither does its direct selling model have much appeal in this era of online shopping. Things do not look hopeful for the company going forward, we can only wait and see whether its new CEO, who is about to take their position in March 2018, brings forth some miracle cure. 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 Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    GOOG Logo
    Google Bets On Mobile Hardware Again With HTC Deal
  • By , 9/22/17
  • tags: GOOG
  • Google  (NASDAQ: GOOG) recently announced that it was acquiring  part of HTC’s mobile phone business for $1.1 billion . This is the second time Google has made an acquisition in the handset space. While the first acquisition of Motorola was primarily for the patent portfolio, the HTC deal appears to be more for the hardware and design team than intellectual property. Through this acquisition, Alphabet will once again try to challenge incumbents Apple and Samsung for the premium segment of the hardware smartphone market. This time, the company could pose a credible challenge to these companies, as Google’s Pixel handsets have been positively received. Below we explore why this acquisition makes sense. Click here to see our complete analysis of Alphabet Alphabet Once Again Trying To Gain A Foothold In Premium Smartphone Market Much of the profitability in the smartphone market comes from the high end. Apple’s iPhone generated an estimated 91% of the industry’s profits, despite accounting for 14% of the market as of Q1 2017. Given its premium price points, a new smartphone could prove profitable for Google, if it sells in sufficient volumes. Moreover, with the smartphone market saturating, a greater portion of sales are likely to come from customers upgrading to newer and more capable devices, providing opportunities for growth in the high end of the market. A successful smartphone offering could also be key for Google as it tries to defend its mobile search ad business. A recent report from Bernstein estimated that Google will pay Apple $3 billion to remain the default search engine on the iPhone, despite the fact the iOS accounts for less than 15% of the smartphone market. This is because Apple users are typically more affluent, and advertisers consequently pay more per ad impression on iOS devices versus Android devices. Earning a bulk of revenues from a key rival’s platform poses a significant threat to Google, and Apple has recently been making moves that could hinder Google’s business on iOS devices. For instance, in the past, Apple removed Alphabet apps like Google Maps from the iOS home screen while promoting its own apps. With the introduction of a successful smartphone, Google is looking to create a solid Android alternative to the iPhone, potentially allowing it to win over affluent customers. More importantly, it could introduce a new device to improve the overall quality of the Android experience. Having a better overall experience on its mobile OS would also be beneficial to its core advertising business. 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
    SBUX Logo
    Can Starbucks Be Threatened By Nestle’s Acquisition Of A Majority Stake In Blue Bottle?
  • By , 9/22/17
  • tags: SBUX DNKN MCD
  • Recently, Nestle announced that it had “acquired a majority stake in high end specialty coffee roaster and retailer Blue Bottle.” Blue Bottle is a boutique premium coffee chain with around 50 stores across the U.S. and Japan which aims to serve “fresh coffee” to its guests using the finest coffee beans. The company started 15 years back and is extremely particular about the freshness and flavor of its coffee making – thus a go-to destination for gourmet coffee lovers. Blue Bottle also sells ready to drink and roast and ground coffee products in the retail market. While currently the stores operated by Blue Bottle are insignificant compared to Starbucks’ (NYSE:SBUX) store network, acquisition of a significant stake by Nestle can lead to faster expansion. Further Nestle can provide Blue Bottle with a higher marketing budget which can make it a better known brand, creating a strong competitor for Starbucks in the long term. Gourmet Coffee: The New Battlefield Starbucks is focusing on high end coffee to adapt to the preferences of millennials who prefer gourmet beverages and this is likely to drive the next wave of growth for the company. According to Technavio, the market for specialty coffee shops is likely to reach around $121 billion by 2021, as urbanization leads to increase in overall consumption of coffee and consumers prefer gourmet coffee.  Starbucks is investing heavily to capture this trend by building premium Starbucks Reserve Roastaries. Currently one such concept store is functional and the company plans to add three more stores  – in different geographical locations (New York, Shanghai and Italy) next year. The company is also innovating with “iced gourmet coffee” to adapt to changing preferences of the younger generation. While Starbucks is expanding aggressively, especially in China, the company has been unable to increase average customers per store over the past few years. We expect this number to decline further in the next two years and then increase slowly over our forecast period: See the Trefis Forecast For Starbucks Average Number of Customers Per Store Here The company is focusing on increasing the average spend per customer at its stores to drive revenues in the coming years. While it is looking to increase the food spend, gourmet beverages which come at a premium price are also aimed towards meeting this goal. We expect a steady increase in the beverage spend per customer visit at a Starbucks store over our forecast period. See the Trefis Forecast For Average Beverage Spend Per Customer Visit At A Starbucks Store Here However, competition from other strong players can impact Starbucks’ revenues if its customers find other premium coffee stores better. Blue Bottle has been a boutique chain with limited presence and hence has not impacted Starbucks significantly so far. However, with Nestlé’s backing it can expand geographically and increase focus on its retail products such as the ready to drink beverages, which can impact Starbucks. The specialty coffee segment is growing rapidly and this is likely to be the next key growth driver for Starbucks. While Blue Bottle is still a small brand with less than 50 stores, it had a strong growth potential with Nestlé’s backing. We do not expect this boutique chain to be an immediate threat to Starbucks, but the company would have to be on its toes to ensure that its customers are not lured away by upcoming specialty cafes which offer fresh coffee.   View Interactive Institutional Research (Powered by Trefis):
    ERIC Logo
    What's The Outlook For The Wireless Infrastructure Market?
  • By , 9/22/17
  • tags: ERICSSON NOK ERIC
  • The mobile infrastructure market has been facing headwinds in recent years, amid a slowdown in capital expenditures by wireless carriers and a more intense competitive landscape. The wireless equipment market declined by around 10% last year, and it’s likely that it could shrink by high-single digits over this year as well, impacting the revenue and profitability of major players such as Ericsson  (NASDAQ:ERIC) and Nokia (NYSE:NOK). In this note, we take a look at some of the factors impacting the wireless market and what lies ahead. See our complete analysis for  Ericsson  and Nokia Saturation In 4G LTE Space, Higher Competition  The market for wireless network equipment is cyclical, as industry revenues are dependent not only on wireless carriers upgrading from one generation of wireless technology to the next, but also on the boom and bust cycles of the global economy. At present, wireless players in most developed parts of the world have completed their transition from 3G technologies to 4G LTE. While there remains some scope for transition in emerging markets, economic and competitive pressures have resulted in a slowdown in investments. For instance, the new entrants in the Indian telecom market have driven down ARPUs and overall service revenues for telecom carriers, potentially impacting their ability to fund CapEx outlays in the medium-term. Russia and the Middle East, on the other hand, have been facing economic pressures amid weaker commodity prices.  IHS projects that the LTE market will decline at a CAGR of (12.4%) from 2016 to 2021, with LTE-based revenues declining from a peak of around $26 billion in 2015 to just about $12 billion by 2021. The industry is undergoing changes on the supply side as well. The networking equipment market is becoming increasingly commoditized, amid increasing standardization of core network components, and players are turning to software for product differentiation. This is making it harder for companies such as Ericsson and Nokia to distinguish their equipment from Chinese players such as ZTE and Huawei, who have been gaining market share by leveraging their low-cost hardware and attractive credit terms. The Chinese companies also have access to low-cost loans from state-backed banks. Opportunities: Small Cells, 5G That said, there are pockets of growth in the market. For instance, the concept of small cells is gaining traction, as carriers look to improve their network coverage and capacity in densely populated areas where traffic is high, without having to significantly increase capital expenditures. These cells typically offer coverage of several hundred meters, unlike macro cells which cover several miles. The growing consumer demand for higher Internet bandwidth, driven by the popularity of high-definition video streaming could also prove to be a driver for networking companies, as they roll out faster versions of LTE, such as LTE-Advanced via hardware and software updates. The next generation 5G technology standard – which could provide Internet speeds that are potentially as much as 40x higher than 4G –  is touted to drive the next big investment cycle for telecom carriers. The standard will operate on the so-called millimeter spectrum, which requires more base stations to provide the same level of coverage as 4G, implying that capital expenditures could be comparatively higher.  That said, the ramp-up in revenues could take some time. For instance, Ericsson has indicated that its 5G revenue opportunities could increase from 2019 onwards and IHS predicts that the global 5G infrastructure market will become a $20 billion-plus market by 2020. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap
    GE Logo
    Why We Remain Bullish On GE
  • By , 9/22/17
  • tags: GE
  • General Electric ’s (NYSE: GE) stock price fell nearly 20% in the last three months due to management changes and concerns over profitability. The Baker Hughes acquisition also played a role in the decline, as many investors had issues with the idea of increasing the company’s exposure to the oil industry given the volatility in oil prices. Additionally, downgrades by JP Morgan and Deutsche Bank also influenced investors to some extent. However, we believe that GE is currently udervalued and should bounce back despite the concerns we discussed above. The strong growth in GE’s aviation, power, and renewable energy businesses is likely to continue due to growing demand and international expansion. GE’s margins are also generally higher than its peers, and the company continues to work on cost-cutting measures. Additionally, GE will benefit from its investments in the industrial internet of things. Why GE’s Stock Price Fell GE’s stock price fell from nearly $31 to $24 in around three months. The stock started to decline after GE’s CEO Jeff Immelt announced that he was stepping down effective August 1 after nearly 16 years as the company’s CEO. GE agreed to buy Baker Hughes last year, and investors had hoped that oil prices would bounce back after the OPEC deal to cap production. However, crude oil prices did not increase even 6 months after the OPEC deal. As GE’s dependence on the oil industry has increased with the completion of the Baker Hughes deal, investors have expressed concern due to the continued weakness in the oil industry. Additionally, analysts from  JP Morgan and Deutsche Bank lowered their ratings on GE’s stock recently, stating that the company’s fundamentals are worse than they expected and that GE could cut its dividends going forward. So Why Are We Bullish? We believe that GE’s stock is unlikely to tank much further, as the market has already priced in the abovementioned factors. Here’s why we are bullish on GE: Strong growth in the aviation industry will drive growth : Aviation accounts for nearly 33% of GE’s industrial sales, and the revenues for the segment have grown by nearly 8% annually in the last 10 years. The number of commercial flights is expected to increase by nearly 5% in 2017 and sustain this rate due to improving macroeconomic conditions and growth in global trade. Given the $33 billion backlog of GE Aviation and GE’s fuel-efficient engines such as LEAP, we believe that GE aviation is likely to maintain its high growth rate going forward. Strong organic growth at GE Power and GE Renewables : GE Power and Renewables have grown immensely in the last few years, primarily because of the acquisition of Alstom’s energy business. However, the margins and revenues at these segments grew organically in the first half of 2017 due to GE’s expansion in emerging economies. The most notable recent example is  Bangladesh, where GE won a contract for a major gas power plant. We expect these segments to continue to expand internationally due to GE’s vast international presence as well as acquisitions in these segments. GE’s margins are better than industry average : Barring Renewable Energy and Healthcare, GE’s margins are generally much higher than its peers due to its vast supply chain and international exposure. Additionally, GE is considering restructuring and cost cutting programs in the coming months to reduce costs by about $2 billion by the end of 2018. The cost cutting program may include corporate job cuts and shutting down underperforming plants. We believe that in the long run, GE will be able to increase its profits and help its stock bounce back. Digital investments likely to pay off : Currently, GE’s Digital revenues primarily come from its Power and Healthcare segments, but we expect other segments to contribute significantly going forward once its investments start to pay off. GE should also be able to gain a first-mover advantage over its peers as it is investing enormously in its Platform as a Service (PaaS) Predix platform and applying the solutions to its industrial segments on a pilot basis. The industrial internet of things market is expected to grow at a CAGR of about 8% and reach $196 billion by 2022. Thus, we remain optimistic about this business as GE has built its own digital infrastructure instead of outsourcing it. Other factors : GE derives a significant portion of its income from its international operations, and the strength in the U.S. dollar relative to other relevant currencies in recent years has suppressed GE’s profits. Starting in 2017, the dollar has shown some weakness which might help GE boost its near-term profits from currency translations. For our model and valuation, please refer to  our complete analysis of General Electric View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    CMG Logo
    Here’s How The Negative Response To Its Queso Launch Can Impact Chipotle
  • By , 9/22/17
  • tags: CMG MCD DNKN
  • Chipotle Mexican Grill  (NYSE: CMG) is struggling to grow customer traffic after the E. coli virus hit its restaurants in 2015. While the company took several measures to assure customers about its strong food safety measures post the event, another recent isolated incident of norovirus shook its fragile reputation further. The company has been banking on menu innovation and the much in demand queso to bring customers back to its stores. Chipotle took a while to introduce queso in its menu since this dip is difficult to prepare with only natural ingredients. The company does not use any artificial ingredients in its products, which is one of its strengths. It finally introduced a “natural queso” which does not seem to have gone well with its customers. Consumers are used to a smooth creamy queso and Chipotle’s natural version, which is chunky since it does not use any artificial ingredients, has not gone down well with several customers . The company is in dire need of a boost — a menu item or add-on which attracts customers to its stores despite the virus concerns — and queso was expected to be that menu item. If this product does not meet customer expectations, it could impact customer traffic at its stores negatively, leading to a negative impact on the company’s valuation. According to our estimates, the average number of visits per Chipotle restaurant per year will increase from around 187,000 in 2017 to nearly 212,000 by the end of our forecast period: See Trefis Forecast For Average Number Of Customer Visits Per Chipotle Restaurant Here   Queso is one of the key menu items which is expected to boost Chipotle’s revenues by attracting customers and leading to repeat customer visits. However, if this “natural version” does not meet customer preferences, the company might face declining traffic impacting its valuation negatively. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
    LB Logo
    L Brands' Continued Slump Might Be Cause For Worry For The Company
  • By , 9/21/17
  • tags: L-BRANDS LB ANN GPS GES
  • It seems that L Brands, the parent company of Victoria’s Secret (VS) and Bath & Body Works (BBW), is taking more than the expected time to recover from its ongoing slump. Analysts are constantly downgrading its share price on account of the declining prices of its bras and a weak store traffic footfall. The poor performance is likely to continue in the near future and currently companies such as American Eagle owned Aerie (in lingerie and bras segment) and Nike and Under Armour (in the sports bra category) are significantly outperforming Victoria’s Secret’s performance. L Brands’ Q2 fiscal 2017 results, in line with its previous few quarters, have been disappointing. Though the teenage lingerie brand, PINK, and the personal care brand, BBW, grew steadily, the most important segment for the company, VS’s lingerie, as well as the Beauty segment, are still lagging behind in their performances. This is dragging down the overall results for the company. It seems that the decision to exit from the swimwear and apparels category is not working out too well for the company. The situation is being aggravated by the constant decline in footfalls in Victoria’s Secret’s brick-and-mortar stores. The VS Stores and VS Direct together make up for almost 80% of our valuation of L Brands. Hence, the brand not performing well is the main driver behind L Brands’ poor performance over the last few quarters. In its Q2 earnings call, Ms. Singer, the company’s lingerie CEO, spoke about a few strategies through which the company is trying to revive the demands for VS’s lingerie. However, these need to work in the favor of the company very soon for it to revive from its current slump. The company’s stock price has fallen by around 50% in the last one year. 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 Notes:
    KMB Logo
    Where Is Kimberly-Clark's Growth Going To Come From?
  • By , 9/21/17
  • tags: KMB UL CL PG
  • Kimberly-Clark  (NYSE:KMB) has struggled to generate meaningful revenue growth of late, with revenue declining in 2016, and the company cutting its guidance for 2017 following mixed fiscal Q2 earnings. However, we forecast the company’s total revenue to return to growth in 2018 and grow thereafter to reach nearly $21 billion in 2020, up from an $18.3 billion forecast for 2017. Below we discuss why we expect the company to turn things around despite some near-term headwinds, which are  discussed in this note . Personal Care Division: Important Growth Driver Kimberly-Clark’s personal care segment is responsible for half of the company’s sales. This segment is home to a wide variety of products such as disposable diapers, youth pants, swim pants, baby wipes and feminine care products, sold under brand names such as Huggies, Pull-Ups, GoodNites, Kotex and Depend, to name a few. In fact, Kimberly-Clark gets a lot of value from its prime positioning in the baby care market, where its biggest franchise – Huggies – generated 56% ($1.8 Billion) of the total operating profit in 2016. Kimberly-Clark’s personal care segment has been successful in maintaining its market share in Eastern Europe and China, primarily as a result of price cuts. However, the segment’s saw volume declines in North America, due to higher competitive activity and lower category demand. Going forward, the company plans to launch new innovations in Huggies Snug and Dry diapers, Goodnites Youth Pants and Depend underwear, which could increase its market share in the global baby and feminine care market going forward. Kimberly-Clark accounts for 14% of the U.S. market in the personal care segment (as of 2016). Growth Outside North American Market In the first six months of fiscal 2017, Kimberly-Clark’s net sales in markets outside North America grew 2% year-over-year (y-o-y), as compared to a 2% y-o-y decline in the North American market. Additionally, emerging markets remained an area of strength for the company, which registered 2% y-o-y organic sales growth in Q2 2017 (compared to a 1% decline overall). The company is looking at developing and emerging markets to drive growth, as it struggles to grow revenues in the North American market. The company has strong growth prospects in markets such as China and Brazil, primarily due to low penetration of its category products in these regions, and the likely increase in the consumption of these products with economic development. We expect this to be a key driver for the company’s long-term growth. Cost Saving Initiatives Kimberly Clark’s diluted EPS has grown from $3.99 in 2011 to $5.99 in 2016, despite the company’s revenue plummeting by over $1 billion during this period. In fact, a similar trend has been observed this year as well, so far. The company has been able to sustain its EPS growth due to its successful cost-saving initiative, dubbed FORCE (Focused on Reducing Costs Everywhere). In 2016 alone, the company saved $450 million under its FORCE initiative, which exceeded its own guidance of $400 million, and led to a 70 basis point increase in its gross margin. Going forward, the company plans to deliver $425 million to $450 million of cost savings in this fiscal year. This initiative has led to significant margin expansion for the company, and we expect it to bank on the continued benefits of cost savings in the near term as well.
    PCLN Logo
    This Is How Airbnb Is Gradually Becoming A Direct Competitor For The Leading OTAs
  • By , 9/21/17
  • tags: EXPE PCLN TRIP TZOO CTRP
  • Priceline’s restaurant booking website, OpenTable, will now face a new competitor. Airbnb, in its endeavors to eventually become a full service travel-booking company, is now set to launch its own restaurant booking platform . The Airbnb website and mobile application will now allow users to reserve tables in around 650 restaurants in the U.S. It is noteworthy to mention that OpenTable is the biggest player in this segment in North America, enjoying around 50% of the total market share. While Airbnb is gradually expanding its offerings, leading OTAs are also expanding their alternative lodging offerings, the segment that is Airbnb’s main revenue generator. Another Direct Competitor For The Existing OTAs
    NVDA Logo
    What Is The Market Saying About Nvidia?
  • By , 9/21/17
  • tags: NVDA AMD INTC
  • Nvidia’s  (NASDAQ:NVDA) stock has been steadily climbing. The company’s market value recently reached a record high, with more Wall Street analysts becoming increasingly bullish on the stock. Almost all of this sentiment is hinged on the expectation that Nvidia will become a dominant player in the Artificial Intelligence chip market, which is forecast to reach $30 billion by Bank of America Merrill Lynch. So what does the current market price indicate? We ran scenarios on our base Nvidia model using our interactive technology, and estimate that in order to justify the current market price, Nvidia’s GPU margins will have to hit 50% and its data center revenue will have to breach $10 billion in revenue in the next five to seven years. See our interactive model for Nvidia and run your own scenarios to see the impact they have on the company’s EPS, revenue and valuation. So why investors are going crazy over AI? With the recent advancements in neural networks and machine learning, companies are increasingly automating tasks or using artificial intelligence to identify patterns and behavior. This data-intensive computation is being supported by the expansion of data centers by cloud service providers, and these data centers need microprocessors. Intel has generally dominated this market, but lately Nvidia has been making inroads. Its GPUs have an advantage over CPUs when it comes to parallel processing to speed up computations. Nvidia has seen strong demand from cloud service providers and enterprises building training clusters for web services. A lot of purchases are coming from high-performance computing, GRID graphics virtualization, and the DGX-1 AI super-computer. Tesla GPUs are gaining traction among supercomputing centers globally. The possibility that Nvidia could make a significant dent in what has been traditionally Intel’s stronghold is an exciting prospect for Nvidia’s investors, and one that has partly fueled its recent stock rally. See our complete analysis for Nvidia See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    KO Logo
    Coca-Cola Has Big Plans For India
  • By , 9/21/17
  • tags: KO PEP DPS
  • The Coca-Cola Company  (NYSE:KO) is planning to tap into the immense growth potential of India, and intends to make the country among its top three global markets, up from its sixth position currently. One factor identified by the company that has been holding back their growth in the region is the lack of the right product at the right price point. This dearth of a sufficient number of products has prompted the company to expand its portfolio across categories, and in this regard, it is testing 20 new products made locally. Moreover, it has made a $5 billion investment commitment in the region in the past, and as a part of this, Coca-Cola is setting up its 20th manufacturing unit in the country. This first phase of this greenfield initiative is expected to start in the first quarter of 2018. The company has also set a target of sourcing 40% of its energy requirements from renewable and clean energy fuel before the end of 2018. See our complete analysis for The Coca-Cola Company Focus On Non-Carbonated Beverages As is the case in the developing countries, Coca-Cola expects a strong performance in the non-carbonated beverages to drive growth in India in the future. As the beverage industry undergoes a transformation with carbonated soft drinks losing their position and consumer’s preferring “healthier” beverages, it appears that Coca-Cola is now looking to focus on innovation to introduce new/modified beverages which will attract consumers. It is focusing on flavored water, bottled water, and dairy beverages to diversify its portfolio. In the past 15 years, the contribution of carbonated beverages to the company’s revenue has come down from 90% to 70%. By 2025-2030, this percentage is expected to fall further to about 50%. A decade ago, the company had only one brand – Maaza – outside its carbonated drinks portfolio in India. It is now focusing on other beverages such as milk-based product Vio and packaged coconut water brand Zico, and is now the largest juice and water player in the country. While Coca-Cola’s carbonated drinks segment is still growing in India, at a rate of about 5%, its non-carbonated drinks categories are growing at a much faster rate. In a bid to revive its double-digit growth in the region, the company is focusing on locally-made products, such as Nagpur orange juice for the state of Maharashtra. The company also has a pilot project running in Bengaluru called Perfect Fruit, a concept which has been sourced from Australia. This involves storing local fruits in an ice dispenser, freezing it, and offering it to customers as a sorbet, without any artificial sweeteners or flavors. If this concept works, the company intends to roll it out in other markets, using a combination of local fruits. Significant Growth Potential In The Country While the environment seems to be soft in the region with the uncertainty surrounding the Goods and Service Tax (GST), which was launched in July, and other policies such as demonetization, such moves should result in the long-term improvement in the health of the economy, according to CEO James Quincey. Hence, despite a few quarters of weakness in the market, the company is still focused on India. The aforementioned steps taken by the company will go a long way towards curbing the market share loss that it has been facing in India. According to Euromonitor, the beverage giant’s market share in the region fell from 35.5% to 33.5% between 2014 and 2016 . On the other hand, while the company’s profits in the region have increased in this time period, on the back of a solid 22% revenue growth, the country accounts for a mere 1% of the total sales posted by Coca-Cola in 2016. Although the Indian fruit-based beverage market has been dominated by the unpackaged fresh fruit juice segment, there has been a surge in the popularity of packaged juices in recent years. India’s packaged juices market is led by local brand Dabur, which has captured over 50% of the market, followed by PepsiCo’s Tropicana. Coca-Cola plans to invest $800 million over the next five years to procure processed fruit pulp and fruit concentrate for its portfolio of juice and juice drinks. The main driver for the explosive growth expected in this segment is the increased health awareness among consumers. India’s non-alcoholic beverages market is worth about $5 billion, according to Indian Beverages Association. The health beverages market in this is a $300 million strong segment and is the fastest growing. Between 2010-2015 the CSD (Carbonated Soft Drinks) segment in India grew at a CAGR (compounded annual growth rate) of around 13% compared to the nearly 28% number for juices . This strong growth is expected to continue, at a CAGR of 17% between 2016 and 2021. Given the high growth predictions, Coca-Cola’s future in the market depends largely on tapping the potential of this segment. Have more questions on Coca-Cola? See the links below. How Is Coca-Cola Turning Around Its Business? (Part 1) Coca-Cola’s Revenue Declines, But Core Business Remains Solid Could Monster’s Takeover Be On The Cards For Coca-Cola? Coca-Cola Set To Enter The Coffee Market In Brazil Notes: See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    Chinese Wireless Carriers Had A Good August, Led By China Unicom
  • By , 9/21/17
  • tags: CHL CHA CHU
  • August turned out to be a solid month for Chinese wireless carriers, with the three major players posting a cumulative 8.9 million new subscriber adds and about 23 million 4G additions/migrations. While China Mobile   (NYSE:CHL) continued to lead the industry, adding around 4 million new subscribers, Chin a  Unicom  (NYSE:CHU), the second largest carrier, had a particularly strong month, adding 2.3 million new subscribers, up from a monthly average of just about 1 million in the prior seven months of the year. The carrier’s 4G adds also rose to 7.5 million, up from an average of about 6 million in prior months. While China Unicom didn’t discuss the reasons for the uptick in its growth, it is likely that the company’s move to expand 4G coverage and transform its sales and marketing model using big data and analytics helped with customer acquisition.   China Telecom’s  (NYSE:CHA) growth slowed down slightly compared to previous months, with the carrier adding about 2.7 million subscribers in August. See our complete analysis for  China Mobile   |  China Unicom   |   China Telecom 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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    BNY Mellon Shrinks Real Estate Investment Portfolio With Sale Of CenterSquare
  • By , 9/21/17
  • tags: BK STT JPM BLK
  • Bank of New York Mellon (NYSE:BK) recently announced its decision to sell its boutique real estate unit CenterSquare Investment Management to the latter’s management team and private equity player Lovell Minnick Partners . CenterSquare has about $9.3 billion in total assets under management – making it a very small part of BNY Mellon’s $1.77 trillion portfolio of assets under management. However, the sale is a step by BNY Mellon towards streamlining its asset management business, as it will continue to offer real estate investment options to its institutional clients through its other investment boutiques like Amherst Capital Management. The deal, financial details of which have not been disclosed, is expected to close by the end of 2017.
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    Why Are We Bullish On Coach Inc.?
  • By , 9/20/17
  • tags: COH RL
  • Shares in  Coach  (NYSE:COH) took a nosedive once the company released its fourth quarter and full year (year ended June 2017) earnings. Mixed fourth quarter results, coupled with a disappointing FY 2018 guidance can be said to be the cause for the stock declining 15%. In a bid to boost its luxury image, the company has pulled back its level of merchandise from department stores and cut back on its discounting. This factor pressured the sales of the company, but improved comparable sales and increased e-commerce revenues in the US helped to offset it. However, excluding the additional week in Q4 2016, the revenues for the company would have actually increased by 6% as reported, and 7% at constant currency. Below we’ll highlight some factors that we feel provide an upside to Coach Inc. Acquisition Of Kate Spade The acquisition of Kate Spade is expected to give a nice bump to Coach’s revenues in FY 2018, with a modest organic growth of low single digits to be boosted by $1.2 billion of revenues from the newly acquired company. Kate Spade has had great success with the millennial customers, who have been the driving force behind the high growth rates the company has achieved. Approximately 60% of Kate Spade’s clientele are millennials, compared to just over 30% for Coach. Hence, this acquisition would give Coach access to a younger clientele. Furthermore, the brand has significant potential to grow internationally, where it does not have much of a presence. One key market identified has been Japan, where the brand is present currently but is underpenetrated. Growth opportunities also exist in markets such as China and Europe, and consequently, Coach expects 20 to 25 net openings for Kate Spade in FY 2018. Coach will be curtailing the number of surprise sales and pulling back on its wholesale channel for the Kate Spade brand, similar to the steps it has taken for its eponymous brand. However, this good news is accompanied by the fact that operating margins of Coach are expected to be pressured as the company carries on with the integration in the short term. Looking ahead, the acquisition of this brand should be accretive to Coach’s earnings. Coach Brand Elevation Coach has been working hard to transform its brand in recent years, in the wake of market share loss to Michael Kors and other rivals, who also employed Coach’s strategy of selling luxury products at affordable prices. The company hired a new designer, Stuart Vevers, who introduced higher-end products and undertook to remodel the stores into a new luxury format, ending the year with just over 720 store renovations. The retailer has also recruited Selena Gomez to be their new face, in order to appeal to younger shoppers. Coach’s decision to pull the company’s handbags and leather goods out of 25% of department stores, or by over 250 locations, has also been a positive step, as the heavy discounting in this channel has hurt its luxury brand image. Furthermore, the company intends to reduce the markdown allowances to the channel, citing a highly promotional environment embraced by such stores. The heavy discounts offered in this channel makes it harder for consumers to spend more on a similar bag at the company’s own stores or its e-commerce websites. All these steps undertaken have helped to drive brand elevation. This is reflected in the penetration of the above-$400 price bracket products, which increased to 45% of the handbag sales in the June quarter, up from about 40% in the prior year period. Growth Opportunities For Coach Despite the sluggish macroeconomic environment affecting the handbag industry and consumer spending in general, Coach has delivered positive sales growth in North America. Looking ahead, however, we expect a bulk of the growth for the company to come through its international operations. One of the positive highlights of the fourth quarter (ended July 2017) was the solid international sales, particularly in China and Europe. Greater China sales increased 3% versus the prior year in dollars and 7% in constant currency on a 13-week basis, driven by double-digit growth and positive comparable store sales on the Mainland.  This was offset, in part, by softness in Hong Kong and Macau.  Europe was also very strong on a 13-week basis, driven by double-digit growth in the directly operated channels and benefiting from the planned shift in wholesale shipment timing. Another avenue of growth for Coach is its men’s line, which in FY 2016 and FY 2017 (year ended June) grew at a faster rate than the women’s in North America. In the fourth quarter of FY 2017, the men’s segment accounted for almost one-fifth of the Coach brand sales, and for the full year, the sales from this segment reached $840 million at POS (point of sale). Given this impressive growth trend, the company believes the men’s segment is an over $1 billion opportunity for the Coach brand. Seeing the strong momentum in the men’s segment, Coach intends to continue its expansion across all categories. Furthermore, with the addition of Kate Spade’s men’s line, Jack Spade, there can be an additional boost to the company’s sales. See our complete analysis for Coach here Have more questions on Coach? See the links below: Consolidation Continues In The Luxury Retail Industry Cutback On Discounts Results In Bottom Line Improvement For Coach Inc. Coach Among M&A Speculation Yet Again Could Coach Inc. Be A Takeover Target? See our complete analysis for Coach
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    Can India Become A Key Market For Electric Vehicles?
  • By , 9/20/17
  • tags: DAI F TM TTM
  • According to IHS Markit, “India will become the world’s fourth largest market in domestic car sales in 2017,” with an estimated sales of 3.8 million passenger vehicles — higher than the 3.64 million figure for Germany. The country now has nearly 35 car manufacturers/sellers and this number is likely to increase to 55 by 2020. Increasing population and economic development are the key factors driving car sales in the region. The country is also focusing on electric vehicles to tackle the pollution problem in its urban areas and has committed to have only electric cars by 2030 . This makes the region a very lucrative electric car market, after China, given the growth potential of passenger cars and two wheelers. Several automakers are looking to introduce electric versions of their models in the region and recently Daimler AG announced that it could introduce electric trucks in the country . However, the company was skeptical that India did not have the necessary infrastructure to support electric vehicles. Given the government’s ambitious plan to go “all-electric” for cars by 2030, the infrastructure is likely to be put in place in the next decade and this could make the region a strong market for other electric vehicles. Infrastructure, Value For Money Likely To Be Key Drivers While the Indian government is working on a policy for electric vehicles which is likely to be announced by the end of this year, the country does not have the necessary infrastructure in place to support a large volume of electric cars. India has only 100 charging stations currently, most of which are in Bangalore, one of the key cities in the country.  A much larger network of charging stations, spread out geographically, is crucial for the success of the government’s goal to achieve 100% electric cars by 2030.  Further, Indian consumers are value conscious and there might not be takers for electric cars if they are more expensive compared to petrol and diesel versions. The market for budget cars is likely to grow in the region, forcing foreign players to build cheaper versions of their models. India’s largest auto manufacturer Maruti-Suzuki, recently announced that it would be setting up a lithium-ion battery manufacturing unit in India to support production of its electric vehicles.  The company is expected to launch electric versions of its models by 2020, however it is not very optimistic about the government’s target. Maruti Suzuki offers “value models” for Indian consumers and the company believes that cost will be an important factor in adoption of electric vehicles in the region.  Another local player – Mahindra and Mahindra (which recently tied up with Ford Motor Company (NYSE: F)) — has been manufacturing electric vehicles in the country for more than a decade, however does not generate significant revenues from this segment. For foreign auto manufacturers to succeed in India, a focus on building budget electric cars will be crucial. India’s growing economy and increased government focus on electric vehicles can make it a key market for this segment. However, the necessary infrastructure needs to be in place and auto makers need to adapt to the unique customer preferences in the region to capture this growth potential. Get Trefis Technology
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    McDonald’s Vs. Burger King: A Closer Look At Two Burger Giants
  • By , 9/20/17
  • tags: MCD QSR DNKN SBUX
  • McDonald’s  (NYSE:MCD) and Burger King (which is operated by Restaurant Brands International  (RBI) (NYSE: QSR)), compete closely with each other in the fast food segment. However with its much bigger size and larger market share ( 19% vs. 5% according to 2015 estimates ), McDonald’s is clearly the leader. A couple of years ago, it appeared that Burger King was threatening McDonald’s after it was taken over by Restaurant Brands International (RBI) which pursued an aggressive expansion strategy and focused on cutting down costs. However, with its All Day Breakfast and focus on healthier food items along with a renewed focus on McCafe, it now appears that McDonald’s is better positioned to compete with Burger King (BK) and Tim Hortons – the coffee chain run by RBI. In the past two years, McDonald’s has been aggressively refranchising its restaurants and as both burger giants move towards a nearly 100% franchised model we expect a similar rate of growth in the franchised restaurants of both players.  However, since McDonald’s has a larger base, its restaurant growth in absolute terms would be higher in the next few years: *Numbers from 2017 onward are Trefis estimates. The average royalty revenue per McDonald’s franchisee restaurant is significantly higher compared to Burger King, since the former serves more customers per restaurant, given its higher market share. *Numbers from 2017 onward are Trefis estimates. While the royalty rate of the franchisee offered by both burger giants is similar (around 4.5%), Restaurant Brands International is offering remodel incentives to its Burger King U.S. franchisees in 2017. These limited period incentives are likely to negatively impact the company’s royalties until 2024. We expect McDonald’s royalty revenues to increase at a faster rate compared to Burger King, as the company is driving higher traffic on the back of its menu innovation, technology initiatives, and better branding.  A comparison between the comparable sales growth numbers for the past six quarters of both burger giants indicates that McDonald’s is currently in the lead: McDonald’s is also piloting its “Experience Of The Future” stores where orders can be placed via kiosks, saving time and making it easier for customers to personalize their orders. While both Burger King and McDonald’s are likely to launch their mobile ordering platforms this year, Restaurant Brands International faced several issues with its franchises to launch this platform for its Tim Hortons segment. Further, as Burger King is managed by RBI which also has Tim Hortons and Popeyes Louisiana Kitchen under its umbrella, it might not get complete management focus for growth, which is not an issue with McDonald’s. The latter is aggressively experimenting with several initiatives such as gourmet burgers, fresh patties, and technology initiatives which are key to attract the millennial population. The company also has an aggressive expansion plan in China which can be a key long term growth driver. Restaurant Brands International, on the other hand, appears to be lagging behind in menu innovation, introduction of healthier menu options, and technology initiatives. Burger King is much smaller in size compared to McDonald’s (the latter has nearly double the number of restaurants compared to the former) and thus has a greater growth and expansion potential. However, it appears that the company is not able to keep pace with McDonald’s menu and technology innovations and hence is unlikely to gain market share and grow at a faster pace in the next few years. See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    Where Is The DRAM Market Headed?
  • By , 9/20/17
  • tags: SSNLF MU
  • The DRAM market is booming, with prices more than doubling over the last 12 months, allowing major memory manufacturers like Samsung Electronics  (OTC:SSNLF) to post record quarterly profits. The near-term outlook also remains positive, amid growing demand and relatively tepid supply growth. In this note, we take a look at some near-term factors that could impact the DRAM markets. See our complete analysis for  Samsung  and  Micron Strong Demand From Mobile, Cloud Vendors Demand for DRAM has been strong, with smartphone manufacturers increasing DRAM content on their high end devices. For instance, Android vendors now offer as much as 8 GB of DRAM on devices (as much as mid-range laptops) and both of Apple’s premium iPhones offer 3 GB of DRAM. Demand from the cloud computing market is also growing, as major Internet players such as Amazon and Google build big data centers. Trends such as machine learning, AI (artificial intelligence) and self-driving cars are also likely to boost memory demand over the medium term. DRAM Demand Is Relatively Inelastic DRAM is a commodity product, and its prices are largely governed by demand and supply factors. Unlike NAND chips, which see some price elasticity of demand, meaning that customers scale back on NAND memory content on their devices when prices rise, DRAM chips are relatively inelastic. This is because device manufacturers need a certain amount of DRAM to meet performance requirements for systems that they may have worked on developing several quarters ago. This forces companies to buy DRAM irrespective of higher prices, without being able to meaningfully scale back. Consolidation In The DRAM Market Has Improved Pricing Power The DRAM market has essentially become a three player game with Samsung, Micron and SK Hynix controlling much of the industry supply. The three players grew their combined market share from just under  60% in 2007 to 95% in Q2’2017 on account of multiple acquisitions and some bankruptcies in the industry. This has significantly improved the pricing dynamics of the industry, and has also moderated the extent of the DRAM cycles, with the peak-to-trough declines in the memory market moderating. DRAM Players Are Being Circumspect About Scaling Up Production  Major players have also been more disciplined with their capital investments . Per Goldman Sachs, estimated DRAM capital expenditures for 2017 will grow by 24% year-over-year, well below their 2015 peak, despite the fact that prices have been trending up significantly.  Moreover, companies are focusing their investments on technology transitions rather than outright capacity expansions. This could keep DRAM supply in check in the near term, potentially boding well for pricing. For instance, Micron expects DRAM supply growth to remain around 15% to 20%, with DRAM demand growth ranging from between 20% to 25%. Will China Double Down On Memory Production? That said, there are longer-term risks. Two years ago, the Chinese government announced plans to invest about $160 billion over the next decade to bolster the country’s semiconductor industry – a key area in which it has lagged behind its Asian peers. This has raised concerns that China could flood the market with cheaper memory chips, much like it has done in industries such as LED lights and solar panels. That said, China currently lacks the intellectual property required to produce chips at scale in a cost-efficient manner. 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 Earnings: Cloud Services Boost Revenues Across Divisions Yet Again
  • By , 9/20/17
  • tags: ADBE
  • Adobe  (NASDAQ:ADBE) posted its fiscal Q3 results on Tuesday after market close, and its revenues increased by 26% to $1.84, once again above its guidance range. As a result, the stock price rose by close to 5% in after-market trading. The company continued to report growth in its cloud revenues with Creative Cloud (CC), registering 35% growth in revenues during the quarter. Furthermore, Adobe’s annualized recurring revenue (ARR) reached nearly $4.87 billion for its digital media business, which includes creative and document cloud products. The net ARR increase in Q3 was $308 million and was driven by continued strength in its Creative Cloud and Document Cloud businesses. Digital Cloud Marketing revenue also grew by 26% year over year. Its waning LiveCycle software revenues declined by 15% to $21.7 million, while the revenues for print and publishing business declined by 7% to $41.4 million. In this note, we examine some of Adobe’s key drivers and its outlook for fiscal Q4. Outlook For Q4 2017 Adobe has guided for revenues of $1.95 billion for the fourth quarter of fiscal 2017. It expects that GAAP EPS to be around $0.86, and non-GAAP EPS to be around $1.15. The company expects to achieve approximately $330 million of net new Digital Media ARR. It expects digital media and digital marketing cloud revenues to grow by 25% and 17%, respectively. Strong CC Subscriptions Boost Revenues In Q3 According to our estimates, the Creative Cloud division is the biggest of Adobe’s operating segments and contributes approximately 55% of its value. The company reported that it added a record number of new subscribers for CC during the quarter. The company also stated that it was witnessing a strong uptick in the video category with strong     adoption for its Creative Cloud video solutions. With the rise of Augmented Reality (AR) and Virtual Reality (VR), Adobe is deploying its resources to fill the gap in its video solutions portfolio. Recently, it acquired 360-degree and virtual reality software from Mettle to supplement Adobe Creative Cloud’s existing 360/VR cinematic production technology. We believe that this will bode well for the company in the future. The growth in CC subscriptions continued, as licensing revenues from all three segments (i.e. individual, team and enterprise term licensing agreements (ETLA) grew. Growth was also fueled by strong performance in the SMB segment and international growth. Furthermore, a continued migration of the Creative Suite installed base bolstered subscription numbers. As a result, Adobe achieved record Creative revenue of $1.79 billion in Q3, which represents 59% of overall revenues. The company also reported that Creative Cloud ARPU grew quarter-over-quarter across all its product offerings in Q3. Revenue For Marketing Platform Grows, Booking Disappoints The Experience Cloud platform, which is encompasses Adobe Marketing Cloud, Adobe Analytics Cloud and Adobe Advertising Cloud, is the company’s second-biggest division and makes up 30% of its value. The company has scaled up the functionality and product offering of its marketing platform through organic and inorganic growth. While the company continues to integrate TubeMogul into its Marketing Cloud offering, it is adding Artificial Intelligence and Machine Learning functionality of its Sensei platform to the Marketing Cloud and analytics platform. In Q3, this division reported a 26% year-over-year increase in revenue to $508 million. The company said that in the trailing four quarters, data transactions for its Marketing Cloud solutions exceeded 150 trillion. Furthermore, the company is driving larger, multi-year and multi- solution customer contracts. As a result of larger engagements and longer implementation cycles, it is witnessing strong growth in deferred revenue and unbilled backlog for its Cloud divisions, which has lowered the booking amount in the current quarter. Deferred revenue grew to a record $2.20 billion, up 9% year-over-year. As such, this division will likely report incremental growth in revenues going forward. Document Cloud Services Buoys Revenues At Acrobat Family Division The Adobe Acrobat family is the third largest division for Adobe, and makes up around 10% of its value. In the past few quarters, revenues from this division have grown, primarily due to the adoption of Document Cloud services that have subscription fees spread over the period of usage. Q3 Document Cloud services revenue grew by 10% to $206 million and the Document Cloud ARR grew to $556 million in the quarter. We expect Document Services’ ARR to drive revenue growth in the Acrobat family division in the future as it continues to add new functionality in Adobe Sign. We are in the process of updating our Adobe Model. At present, we have a  $141 price estimate for Adobe, which is marginally lower than 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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    iPhone 8 Could Be More Lucrative For Apple Than The iPhone X
  • By , 9/20/17
  • tags: AAPL aapl GOOG
  • Last week, Apple  (NASDAQ:AAPL) launched a trio of new iPhones called iPhone 8 and 8 Plus – essentially upgraded versions of last year’s iPhone 7, priced starting at $700 and $800 respectively – as well as an all-new smartphone called the iPhone X, priced from $1,000 onwards. While it might appear to be in Apple’s best interest to maximize sales of the iPhone X, given its higher price points, the iPhone 8 could actually be the most lucrative phone in the company’s lineup currently. Below we take a look at some reasons why Apple could look to steer customers towards the iPhone 8. Trefis has a $164 price estimate for Apple, which is slightly ahead of the current market price. See our complete analysis for Apple here Gross Margins On iPhone 8 Should Be Thicker There is a strong possibility that margins on the iPhone 8 will be significantly higher than margins on iPhone X, despite the fact that the X is priced at a premium of about $300. Apple is utilizing the iPhone 6’s basic design for the fourth consecutive year on the iPhone 8 (albeit with a glass back) implying that manufacturing yields on the device should be good, with casing related costs kept to a minimum. Moreover, Apple has actually bumped up base pricing by about $50, despite the fact that the upgrades over the iPhone 7 are fairly incremental (more storage, better display, camera enhancements). If we assume that the components cost for iPhone 8 is about the same as the iPhone 7, which cost about $248, the bill of materials cost as a percentage of retail price would stand at ~35%.  The costs of manufacturing the iPhone X, on the other hand, are expected to be significantly higher, as Apple is using many new and high-end components such as OLED displays and depth-sensing cameras. Per Susquehanna International Group, the components on the device could cost Apple about $581 .  This implies that components costs as a percentage of the devices price would come in at 58%, translating into thinner margins versus prior iPhones. Apple Will Have Much Better Supply Of The iPhone 8 Apple also appears to have much better supply, relative to demand, of the iPhone 8 compared to previous iterations of the iPhone. It typically takes multiple weeks to ship new iPhone models after they are made available for pre-order, as demand outstrips supply. However, waiting times for the new iPhone 8 are significantly shorter, with most models shipping in under a week. The iPhone X, on the other hand, is likely to remain significantly undersupplied, even after its delayed launch date (November 3), as Apple’s contract manufacturers iron out early manufacturing issues and improve yields. KGI Securities estimates that Apple’s suppliers are currently only able to  build about 10k  units of the iPhone X per day. View Interactive Institutional Research (Powered by Trefis):
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    Bed Bath & Beyond Misses Estimates in Q2, Lowers Full-Year Guidance
  • By , 9/20/17
  • tags: BBBY WMT AMZN
  • Bed Bath & Beyond  (NASDAQ: BBBY) reported weak fiscal second-quarter results on Tuesday, September 19, as both its revenues and earnings fell short of consensus estimates, and as a result, the company’s stock fell slightly after reaching a 52-week intraday low. In the second quarter, the company’s revenue declined 2% year-over-year (y-o-y) to $2.93 billion, primarily due to an increase of 0.9% in non-comparable sales including PMall, One Kings Lane, and new stores, largely offset by a 2.6% decrease in comparable sales. This decline in comparable sales reflected a decrease in the number of transactions in stores, partially offset by an increase in the average transaction amount. Additionally, comparable sales from the company’s customer-facing digital channel continued to have strong growth in excess of 20%, while comparable sales from its stores declined in the mid-single digit percentage range. Online sales represented roughly 15% of the company’s total sales in this quarter. On the cost side, Bed Bath & Beyond’s selling, general and administrative (SG&A) expenses increased 8% year-over-year (y-o-y) to around $900 million due to payroll and payroll-related items, advertising expenses, restructuring charges, technology-related expenses, and other costs. In terms of capital expenditures, the company spent $96 million in the quarter, of which more than 40% was spent on technology projects including investments in digital capabilities and the development and deployment of new systems and equipment in the stores. The retailer also posted diluted earnings of 67 cents per share, which declined 40% y-o-y. Bed Bath & Beyond’s gross margins continued to face pressure in the quarter. The company’s gross margin declined by approximately 100 basis points (bps) from 37.4% in Q2 2016 to 36.4% in Q2 2017. The company identified an increase in net direct-to-customer shipping expenses as the primary reason for this decline, which resulted from more promotional shipping activity. In addition, a decrease in merchandise margin and an increase in coupon expense also reduced the company’s gross margins in the quarter. Bed Bath & Beyond revised its full-year guidance after the weaker-than-expected fiscal first half of 2017. Accordingly, it now expects net sales to be relatively flat, as it plans to spend on organizational changes and transformational initiatives going forward. The company also expects comparable sales to decline compared to the slightly positive previous guidance. In addition, the company expects net earnings per diluted share for the full-year to be around $3. The company did not publish guidance for the current quarter, but consensus estimates for the company’s fiscal third quarter call for earnings of 71 cents per share and revenues of $3 billion, implying growth of about (-16)% and 1%, respectively. Have more questions about Bed Bath And Beyond? Please refer to  our complete analysis for Bed Bath & Beyond   See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    F Logo
    Here’s Why Ford Motors Is Entering Into A Strategic Partnership With Mahindra Group In India
  • By , 9/19/17
  • tags: F GM TM
  • As foreign automakers look to navigate the fast growing Indian automotive market, collaborations with local players are becoming increasingly popular to develop a competitive edge. Recently, Ford Motor Company (NYSE: F) announced that it is exploring a strategic alliance with the Mahindra group in India in the areas of mobility, electrification, and product development. Under this agreement the two companies would leverage their strengths collaborating and working together for a period of three years. This will give Ford a better handle over the Indian market and help the Mahindra group to expand into other emerging global markets. This announcement comes after Volkswagen was exploring a partnership with Tata Motors in India and General Motors announced that it won’t be selling any vehicles in the region. While the Indian automotive industry is expanding rapidly, demand for budget cars from first time buyers is increasing. Ford is looking to capture the demand for affordable electric vehicles and the growth potential in the sports utility segment and a partnership with the Mahindra group, which is the leading utility vehicles manufacturer in the region, can help in achieving this goal.  See our complete analysis for Ford Motor Collaboration To Build A Competitive Edge Ford Motors and the Mahindra Group have entered into partnerships earlier, too, however the changing landscape of the automotive industry makes this collaboration more critical. Ford has a 3% market share in India and a partnership with Mahindra can help the company expand its distribution network and lower its distribution costs. Further, fast growing markets such as India and China are looking for cheaper and clean energy vehicles, where Mahindra’s designs can benefit Ford. With its mobility initiatives, Ford can extend its technology expertise to Mahindra and both companies can work on products which are useful for emerging economies. Ford is also setting up production units in China and India and the collaboration can help the companies build manufacturing synergies. With technology disrupting the automotive landscape, companies are looking at ways to build a competitive edge with players such as Apple and Google looking to enter the autonomous car segment. Partnerships and collaborations can ensure that companies bring their expertise together to navigate this changing landscape better. See More at Trefis  |  View Interactive Institutional Research  (Powered by Trefis) Get Trefis Technology
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    Why Cliffs’ U.S.-Centric Strategy Makes Sense
  • By , 9/19/17
  • tags: CLF RIO VALE MT
  • Cleveland Cliffs Inc.  (NYSE:CLF) was historically a U.S.-centric company before its expansion into the Asia Pacific region, which largely enabled the company to cater to customers in Asia through the seaborne iron ore market. However, the APAC operations experienced an extended period of declining revenue from 2012-2015 as a result of declining prices amid a supply glut on the seaborne market. As a result of a change in management in 2014 amid the period of declining prices, the company decided to focus on the more predictable US market going forward.   The recent change of the company’s name from Cliffs Natural Resources to its historical name of Cleveland-Cliffs Inc. is indicative of the change in the company’s priorities geographically. Favorable business prospects in the U.S. Cliffs APAC operations face heavy competition from iron ore giants such as Rio Tinto, Vale, and BHP which have access to low-cost iron ore deposits and operate at large economies of scale. The supply side of the iron ore market in the APAC region is dominated by the production decisions of these mining giants, in contrast to Cliffs which is a relatively small producer in the APAC region. Large production increases by these companies adversely affected international iron ore prices between 2012 and 2015, with Cliffs’ Asia Pacific operations reporting losses over this period as a result of subdued pricing. Thus, Cliffs is largely at the mercy of its competitors in the seaborne iron ore market, particularly as concerns its ability to influence supply and pricing in the market. In contrast to Cliffs’ position in the APAC region, the company has established a dominant position in the US market accounting for roughly 54% of the total U.S Iron Ore Pellet production capacity. The company derives close to 72% of its revenue from its U.S Iron Ore operations. Further, in contrast to the pricing situation in the APAC region, Cliffs’ U.S. operations are characterized by pricing contracts that are more closely linked to demand-supply dynamics in the U.S. and are less influenced by international seaborne prices. These contracts are of longer duration which provides the company more stability in terms of pricing, in contrast to the APAC region where pricing is closely linked to spot prices. Cliffs’ recent announcement of a planned $700 million investment in a Hot Briquetted Iron plant (HBI) plant, which is expected to make the company the dominant supplier to the 3 million metric ton Electric Arc Furnace (EAF) steel market in the Great Lakes region by 2020, is further evidence of the company’s commitment to the US market. The EBITDA margins and cash flows generated by this planned capacity addition would most likely match the EBITDA margins and cash flows of the company’s Australian operations. Greater Upside Probability of Iron Ore Prices in the U.S. Steady recovery in the U.S. economy coupled with the possibility of the legislative enactment of $1 trillion infrastructure plan by President Trump could give a significant boost to the demand for steel. This would also translate into an improved demand and pricing outlook for iron ore in the region since iron ore is used as a raw material for steel production. In addition, the outcome of the investigation pertaining to steel imports under Section 232 of Trade Expansion Act of 1962 initiated by the Trump administration could further boost the prospects of the domestic iron and steel industry. Given the favorable business environment in the U.S., focusing on the company’s U.S. operations is a sensible decision made by the company management. Since Cliffs has decided against developing its APAC reserves any further, the company’s APAC operations are most likely to cease operations by 2020 with the depletion of the company’s existing reserves, as illustrated by the chart shown below. Revenue share by segment ($ million) Thus, Cliffs is well on its way to becoming a pure-play U.S. iron ore producer. Have more questions about Cliffs Natural Resources? See the links below. Cliffs Natural Resources’ Q2 2017 Earnings Review: Favorable Business Conditions In The U.S. Drive Earnings Growth Price Taker Versus Price Maker: The Perils Of Being An Iron Ore Producer Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    PepsiCo: Focusing On The Healthy Snacks Business
  • By , 9/19/17
  • tags: PEP KO DPS
  • Giving a huge push to its “health” initiatives, recently  PepsiCo (NYSE:PEP) announced its new targets to reduce calories and sugar in its beverages, and salt and fat in its snacks, by 2025. As it adapts to changing consumer preferences, PepsiCo believes that healthier products will be key for long-term growth and the company is looking at several ways to make its portfolio of products healthier. From organic Gatorade to offering probiotic health drinks and lowering sugar in its beverages and salt in its snacks, all these initiatives are aimed at driving sales amid a growing base of health-conscious consumers. According to the company, its “everyday nutrition” products will witness the fastest rate of sales growth by 2025. See Our Complete Analysis For PepsiCo Here Key Driver Of Growth A key driver of PepsiCo’s revenues in Q2 2017 was its portfolio of healthy snacks and beverages. As PepsiCo works towards transforming itself to adapt to the changing customer preferences of healthier lifestyles and aims to limit its environmental footprint, the company has adopted a motto of “Performance with Purpose.”  In order to meet the evolving needs of customers globally, the company is shifting its portfolio to a wider range termed as “Everyday Nutrition Products.”  These products contain nutrients such as grains, fruits, vegetables, or protein. This portfolio falls under a broader category of “Guilt Free Products”. The company now derives approximately 45% of its revenues from these “Guilt Free Products” indicating that it has transformed its portfolio towards healthier products according to the new customer preferences. These products include “diet and other beverages that contain 70 calories or less from added sugar per 12-ounce serving and snacks with low levels of sodium and saturated fat,” as well as “everyday nutrition products” – products with nutrients like grains, fruits and vegetables, protein, unsweetened tea, and water. These latter products constitute 28 points of the 45.  LIFEWTR, a product in its water portfolio, performed particularly well. In just five months since its launch in the first quarter, the product has already generated sales to the tune of $70 million and is on track to reach $200 million in sales on an annualized basis. With the growth of its beverage business slowing down, as a result of sluggish soda sales, this segment will be a focus for the company in the future to drive its sales. Frito-Lay is also pushing towards a premiumization of its products to fuel its revenue and margin growth. Consumers have been moving away from eating unhealthy products, which has put pressure on the volumes. Hence, by concentrating on premium brands, there can be a shift from low-priced, high-volume products to the high-priced, low-volume range, which may result in top and bottom line growth. Expansion Into Whole Foods According to a report by Bloomberg, Frito-Lay, PepsiCo’s snacks division, is aiming to break into organic stores, such as Whole Foods, with its new line of products without artificial ingredients, marketed under the name ‘Simply.’ These include organic versions of 11 core chip brands, including Doritos, Lay’s, Cheetos, and Tostitos. According to PepsiCo executive Jonathan McIntyre, these products meet the stringent requirements needed to be sold in Whole Foods. Such a move is part of a concerted effort taken by the company to improve its unhealthy image, given the shift in consumer preference towards natural and organic products. The acquisition of Whole Foods by Amazon could not have come at a better time for PepsiCo, as the former would have never accepted the presence of brands such as Doritos into its stores in the past. This is not only due to the junk food image of Doritos, but also due to Whole Foods’ aversion to products sold by big consumer packaged goods companies. However, the acquisition may change things in the future. The Simply line of products is already sold on Amazon’s website. Moreover, Amazon may be more comfortable cozying up to CPG behemoths, as it is only such companies that are capable of meeting the high volumes demanded. Smaller brands, which are more easily found in Whole Foods, may actually face a tough time keeping up with Amazon’s requirements. While the packaging of Simply products such as Doritos and Lay’s is different from its traditional counterparts, most consumers would still have reservations regarding its organic image. Hence, for PepsiCo, a presence in Whole Foods would go a long way towards convincing health-conscious customers to consume its products. The company’s other health-conscious brands such as Stacy’s and Naked Juice are already available in Whole Foods, but making greater inroads into Whole Foods would do PepsiCo’s business a whole lot of good. Have more questions on PepsiCo? See the links below. Price Increases Help PepsiCo. Beat Consensus Estimates Here’s How PepsiCo Can Benefit From Acquiring Vita Coco Home Market And Healthier Options Boost PepsiCo’s Q1 Results Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Imbruvica And Darzalex Are of Key Importance For J&J's Future Growth
  • By , 9/19/17
  • tags: JNJ PFE BMY
  • Johnson & Johnson  (NYSE:JNJ) derives around 55% of its value from its Pharmaceuticals business, according to our estimates. Within pharma, the oncology segment is of key importance and we expect that it will continue to drive growth for the company in the coming years. The company’s key oncology drugs include Darzalex, Imbruvica, Valcade and Zytiga. J&J collaborations with AbbVie for Imbruvica and with GenMab for Darzalex are paying off well.  The chart below shows the oncology drug revenue growth over the last 6 years.