The Lunar Tetrad and Number Crunching the Apocalypse

Posted: April 18th, 2014 | Author:

This week’s blood moon has created quite the buzz with astronomers, preachers, and media outlets all covering the celestial event breathlessly. What’s interesting is that the hype is just getting started. A lunar tetrad -  four total lunar eclipses in a row, with no partial lunar eclipses in between, each separated from the other by six lunar months – is in the works. This has the end of days people excited.

 

“And I will show wonders in Heaven above and signs in the Earth beneath, the sun shall be turned into darkness and the moon into blood before the coming of the great and awesome day of the Lord.” - Acts 2:19-20

 

The Apocalypse watchers say that the lunar tetrad is a sign that economic calamity and war in Israel is upcoming. They point to events in history which they say line up with the moon’s friskiness.

 

What to watch: A little number crunching shows the odds might not be with the preachers. A rough tally shows wars in Israel since its post-WW2 creation in 1948, 1956, 1967, 1973, 1982, 2000-2005,  2008-2009, and 2012. Significant negative stock market events occurred in 1946-1949, 1956-1957, 1961-1962, 1966, 1968-1970, 1973-1974, 1987, 1989-1991, 2000, 2007-2009, 2010 (flash crash). That covers a lot of numbers on the Apocalypse roulette wheel without the big event happening. No need to prep the bunkers,  just enjoy the lunar tetrad.

 

 


Supreme Court Handicapping: Aereo vs. the TV Broadcasters

Posted: April 18th, 2014 | Author:

Aereo gets its day in the Supreme Court next week as it takes on a powerful group of broadcaster companies (DIS, CMCSA, CBS, FOXA) and the U.S. Solicitor General’s office. The tech company offers customers a service that delivers over-the-air broadcast content through Internet-connected devices. Aereo utilizes individual remote antennas to get around paying retransmission fees – a concept that has broadcast companies just a little hot and bothered.

 

Legal experts are deeply divided on which direction the court will rule in what could be a landmark case for the media industry. Justice Ginsburg is expected to side with the broadcasters and agree that Aereo violates copyright law, while Justice Breyer is tapped to side with Aereo. The other 7 justices are considered a bit of a tossup.

 

What to watch: A win by Aereo could lead to a pricing war in the pay-TV industry (CHTR, CVC, TWC) due to the low monthly fees ($8-$12/month) it charges to customers. A thriving Aereo could also prompt one of the major providers (DTV, DISH) to unbundle its network packages to move to a la carte pricing. Content providers (DISCA, AMCX, VIAB, SNI, TWX, CRWN, MSG) will be watching the developments closely.

 

The Wildcard: On the margins, Netflix (NFLX) doesn’t seem to have a lot of skin in the game with Aereo not a direct competitor. However, a disruption in the pay-TV industry away from the cable/satellite bundled network model could help the company with its scale giving it an edge on the streaming side of the industry.

 

Sources: Seeking Alpha, The Hollywood Reporter

 


The Elusive Chobani IPO

Posted: March 29th, 2014 | Author:

TPG is the lead bidder to win a minority stake in Chobani. An investment from the P-E firm will valuate Chobani at close to $2.5B, according to sources. Chobani has become a dominant force in the greek yogurt category, but took a mild PR hit last fall when Whole Foods Market snubbed it. The company has still carved out a formidable market share lead over brands from General Mills (GIS), Danone (DANOY), and Hain Celestial (HAIN). Retail analysts think a Chobani IPO would attract strong interest from investors due to its powerful brand recognition and loyalty. The yogurt juggernaut denies that any IPO talks are in the works, but the public’s appetite for greek yogurt could make a public offering of at least some shares irresistible.

Leading greek yogurt brands: Chobani, Dannon, Yoplait, Oikos, Fage, Stonyfield, The Greek Gods

Fast fact: Nielsen data indicates Greek now accounts for 54% of dollar sales for yogurt in the U.S. – compared to just 4% in 2008.

What to watch: TPG might get the first bite at Chobani shares, but the public could get their turn later this year or next.

Via Reuters and Seeking Alpha

 


Here Comes the Starbucks Venti Beer

Posted: March 21st, 2014 | Author:

Starbucks (SBUX) plans to sell alcohol in the evening at thousands of its stores. The revelation came from COO Troy Alstead during an interview with Bloomberg. The company says testing of the concept at select stores has gone very well.

What to watch: Starbucks outlets located near movie theaters, restaurants, and areas with an active nightlife are more likely to be tapped for alcohol sales.

The bottom line: The initiative could help Starbucks boost  same-store sales and margins at participating stores. With the company pledging that it won’t raise prices this year,  longer store hours and higher average ticket prices are the easiest route to sales gains. Cutting-edge advances with Starbucks’s mobile payment program could also be a sales driver.

Betting on coffee: Starbucks trades at $77.52 vs. the 52-week range of $56-$82.50. The P/E ratio on SBUX is very high, but so are the firm’s growth opportunities in global markets, consumer products at grocery stores, and mobile payments.

 


HBO preps to go out in the wild

Posted: March 7th, 2014 | Author:

HBO (TWX) could be closer than ever in making the call to offer a standalone service outside of its pay subscription model. The move this week by Dish Network to land online rights to Disney content, along with word that DirecTV is also talking to the House of Mouse, is likely to have HBO execs looking at the pay-TV industry in a different light.

 

“It’s a sin to leave money on the table.”

 

 

- HBO CEO Richard Plepler this week when asked about the issue at the Morgan Stanley Technology, Media and Telecom Conference.

 

The big picture:  The days of +$100 cable/satellite bills could go by the wayside as online TV service options come in with $30-$40 packages which include popular content. It’s a development that could bring cord-cutters and cord-nevers back into the mix as they can pick and choose between the new packages, HBO (online), Netflix, and premium sports offerings.

 

Sources: Deadline.com, Seeking Alpha

 


Media Matrix 2.0: Broadcasters and Movie Studios Can Still Win

Posted: February 27th, 2014 | Author:

matrix

 

There’s a major war brewing in the media industry as consumers reach their upper limit of what they will pay each month for broadband/TV services and the online viewing of content becomes a larger factor than ever with millennials and Generation X maturing. The Pay-TV industry stands in the middle with its bundled network model being held together by juggernauts like ESPN and a wave of consolidation, but can it last?

Upstarts such as Aereo and a host of online video sites threaten the industry by drawing in younger consumers – while Netflix, Hulu, and Amazon Prime Instant Video continue to redefine how content is digested. Advertisers are exploring ways to get around binge-viewing and ad-skipping technology through in-content product placements which gives the sites/services more revenue potential.  Though a few staid entertainment conglomerates are likely to get let behind, the scorecard below shows that some major players have their hands in many pies and are hedged to take advantage of any seismic shifts in the media landscape. Disney, CBS, and Comcast come to mind.

What to watch: Even as the younger generations unplug from the traditional media matrix, their viewing of content will remain intense. On-trend studios such as Lions Gate Entertainment (Hunger Games, Divergent) and AMC Networks (Breaking Bad, The Walking Dead) will still have numerous channels to churn up carriage/distribution fees. The more things change, the more they stay the same. Quality content will win out as the number of global media-enabled devices explodes.

What to bet on: Pick through the companies listed below for potential winners and losers in Media 2.0 or consider a catch-call investment in the PBS Dynamic Media Portfolio (PBS) which has blown past broad market averages over the last year. The ETF looks well-positioned for even more gains with current top holdings including Google, Disney, CBS, Time Warner, and Discovery Communications.

 

Major Pay-TV Operators and Broadband Providers – Holding up the wall as long as they can

 

DirecTV (DTV)

Dish Network (DISH)

Comcast (CMCSA)

Charter Communications (CHTR)

Time Warner Cable (TWC)

Cablevision (CVC)

AT&T (T) through U-Verse

Verizon (VZ) through FiOS

CenturyLink (CTL)

 

 

Broadcasters and Studios – Creating the content for boomers, Generation X, and millenials

 

AMC Networks (AMCX) – AMC, IFC, Sundance TV

Time Warner (TWX) – Warner Bros, TBS, TNT, HBO, New Line Cinema, CNN, Castle Rock Entertainment

Viacom (VIAB) – Paramount, MTV, Nickolodean

21st Century Fox (FOXA) – Fox News, Fox Sports, 20th Century Fox, Big 10 Network, FX

Disney (DIS) – ABC, Disney Channel, Pixar, Marvel, Lucasfilm, A&E, Walt Disney Studios

CBS (CBS) – CBS, CBS Films, Showtime

Lions Gate Entertainment (LGF) – Summitt Entertainment, Epix, Lionsgate Films

AMC Networks (AMC) – Open Road, Relativity Media

Sony (SNE) – Columbia, Sony Pictures, TriStar Pictures, Sony Pictures Television GRoup

MGM Holdings (private) – MGM, United Artists

Discovery Communications (DISCA) – Animal Planet, TLC, Discovery Channel

Comcast (CMCSA) – NBC, USA Network, Universal

 

Streaming and Online Video Sites – The land of cord-cutters and cord-nevers

 

Netflix (NFLX)

Amazon (AMZN)

Hulu – owned by Comcast, Disney, and 21st Century Fox

YouTube  (Google)

Blip (Private-equity owned)

Crackle (Sony)

Dailymotion (Orange S.A.)

Vimeo (IAC/InteractiveCorp)

 

Sources:  The Hollywood Reporter, Mediapost.com

 

 


Die Hard: ESPN Holds Together the Pay-TV Model

Posted: December 31st, 2013 | Author:

 

2014 could be the year that DirecTV, Dish Network, and the cable operators decide to take a stand against higher sports programming costs with their subscriber growth stagnant and consumers rebelling against higher monthly fees. The most contentious battle could be in Los Angeles where Time Warner Cable’s regional sports network, which includes L.A. Dodgers games, is behind in adding distribution channels. The question is if the monthly bills being charged to consumers has reached a tipping point with streaming and cord-cutting proving irresistible or if the need to digest live sports will support the Pay-TV model. At the moment, consumer polling indicates that life without coverage from ESPN and other live sports providers is unappealing to a high percentage of current cable/satellite customers. But how many people know Super Bowl XLVII can be streamed for free from NFL.com? More high-profile sporting events are also slated to be streamed this year for the cord-cutting crowd.

 

In a clash of titans, Disney (DIS) is still in negotiations with Dish Network over an ESPN contract to replace the one that expired in October. The carriage fee for ESPN already averages an industry-high $5.54/subscriber, but Wells Fargo thinks that rate will go to $7.65/subscriber by 2018 with the network’s NFL and college football coverage a must-have. If there is an exec in the sector with the moxie to go toe-to-toe with ESPN, analysts think Dish CEO Charlie Ergen fits the bill – although if he bluffs right past a key blackout deadline the impact on the company could be catastrophic.

 

The deciding battle over sports costs hasn’t been fought yet, and thanks to ESPN’s clout, the Pay-TV model might survive long enough for broadcasting companies to continue to rake in profits.

 

New sports stations from Fox (FOXA) and NBC (CMCSA) don’t have the leverage that ESPN carries around, but are still forecast to command higher rates with more bidders emerging on the scene for content. A rising moat could also help lift CBS (CBS) and Madison Square Garden (MSG).  A catch-all for the whole media sector is the PowerShares Dynamic Media ETF (PBS) which is coming off a 60% return for 2013.

 

Sources:  Deadline.com, Seeking Alpha

 


Google X, Self-Driving Cars, and Winston Churchill

Posted: December 22nd, 2013 | Author:

 

The engineers at Google X are much further along with the self-driving car concept than many people think. Google cars have self-piloted around Silicon Valley and powered by the company’s algorithm beast they are starting to pass some impressive field tests on identifying roadside obstacles and solving driving issues. Eventually, self-driving cars could be part of the delivery industry and a mainstay on college campuses, corporate parks, or large shopping areas.

 

So what’s the downside? An article in The New Yorker brings home the point first demonstrated in the movie 2001 (Open the Car Door HAL) of the unintended consequences of technology. Chaos theory at its most dangerous.

 

“Put too much intelligence into a car and it becomes creative.”

 

That warning from researcher Sebastian Thrun sounds harsh, but take a look at it another way. In 1940, Winston Churchill is believed to have withheld information on a pending attack by the Germans on Coventry, England because the nation couldn’t afford to let the Nazis know the code-breakers at Bletchley Park broke the Enigma code. The action (if true) is one of the best examples of the greater good theory. How would the Google algorithm handle the greater-good question in the inevitable case of an impending accident? What if the Google algorithm pulls a wildcard that results in the death of one driver to potentially save two? That’s a tricky question for Google X engineers. Just ask Churchill.

 


The McDonald’s Matrix

Posted: December 21st, 2013 | Author:

 

What’s up with Mickey D’s? Same-store sales have been unimpressive this year and the company’s profits have been hurt by its heavy reliance on the Dollar Menu. Sure, the economy hasn’t cooperated in full, but execs deserve at least some of the blame. Let’s call it an identity problem.

 

McDonald’s you’re not Buffalo Wild Wings

 

McDonald’s has 10M pounds of unsold chicken wings after misfiring on a fall promotion, according to the WSJ. Consumers found Mighty Wings too expensive and too spicy during the product’s first national run. Due to the large supply of wings that franchisees are stuck with, the company may be forced to drop prices. By most accounts, the great chicken wing experiment has been a fail so far.

 

McDonald’s you’re not Starbucks

 

OK, a tip of the cap to the company for delivering a vastly improved menu of coffee products, but the vision of McDonald’s seriously hurting Starbucks is a reach. The difference in ambience between the two chains is just too great. Many consumers try to find a reason to sit and enjoy their coffee at Starbucks while a trip to the Playland area at McDonald’s is hard time. The latest coffee play from management, selling bagged coffee in grocery stores, seems like a risky gamble as well. The high-end is well-covered by Starbucks and others – while the discount sellers will likely pressure McDonald’s to enter at a price point that will pressure margins. Dunkin Donut’s is the rival that McDonald’s will aim to challenge for market share, but its brand in strong in coffee

 

McDonald’s should just be McDonald’s

 

The recipe is simple: Dominate the burger joints.

The restaurant re-model program from McDonald’s has been impressive. The next step should be to just beat Wendy’s, Hardees, Sonic, and Burger King at their own game and return customer service back to reasonable levels. The modernized restaurants from McDonald’s is a great start, but now the menu and the pricing point matrix need to be adjusted so that restaurant performance improves.

 

Sources: Wall Street Journal, Seeking Alpha

 

 


Ground Zero for Whole Foods Market vs. Trader Joe’s is Boise, Idaho

Posted: December 17th, 2013 | Author:

wholefoodstrader-joes

 

Are things about to get testy in the premium organic grocery store sector? Whole Foods Markets (WFM) plans to ramp up to 1,200 store in the U.S. as execs tip off the company is seeing early success in smaller markets. Trader’s Joes is still in indy mode, but is making some expansion plans of its own – including a store in Boise, Idaho with its population of 212K.  That’s all fine and dandy, and could be another smashing success for the chain, but what’s  will be interesting to watch is which organic food favorite plays better away from larger metropolitan areas. Here’s one bet: The cult of Trader Joe’s wins out as publicly-traded Whole Foods has to walk the tightrope between keeping shareholders happy and staying with its organic roots. Perhaps, a Trader Joe’s IPO could level the playing field. Just let us aficionados in on the ground floor.

 

Sources: The New York Times, Whole Foods Market IR site

 

 


Nirvana Heads to Rock and Roll Hall of Fame

Posted: December 17th, 2013 | Author:

nirvana

 

 

Nirvana was elected to the Rock and Rock Hall of Fame in its first year of eligibility.

 

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Chipotle Game Theory and the 2:00 A.M. Burrito

Posted: December 13th, 2013 | Author:

 

Chipotle (CMG) has a problem. The restaurant chain’s stock price trades at 52X earnings per share as investors continue to bet the sky-high growth track will continue. But the numbers don’t quite add up. It’s an understatment to say that shares look toppy after running up 72% YTD to +$500/share. The complication is in the growth at existing stores. While fast-casual superstars Panera Bread (PNRA) and Noodles (+103% from its IPO price) continue to squeeze more cash out of each visitor on expanded menus – Chipotle’s average transaction ticket has hit a ceiling. Though Chipotle’s same-store sales growth of 6% in Q3 was pretty respectable, saturated markets and a lack of premium menu items could play a factor in the near future as it tries to keep SSS numbers percolating.

 
CMG Chart

CMG data by YCharts

 

The cure is simple. Chase the college crowd with 2:00 a.m. burritos. Dominos Pizza (DPS) and Taco Bell (YUM) have had a field day with the post-10:00 p.m. crowd, but Chipotle stubbornly closes its doors way too early in many markets near colleges or urban nightlife. Execs say the formula doesn’t work for them due to the difficulty in stocking fresh food. They also worry about being a late-night destination for branding reasons. Yada yada yada. The company needs to look at Buffalo Wild Wing (BWLD). The chain isn’t perfect and has had a dizzying stock run of its own, but it’s hard to argue with its striking mantra: Wings. Beer. Sports.

 

Chipotle deserve a lot of credit for putting a healthy food option into the fast-food sector. And who doesn’t want to eat meat that is sourced from a pig that’s had a free-ranging life up until its slaughter date? But perhaps management is taking itself too seriously by trying to lead the eco-friendly sustainable living movement in the food industry all by itself? Restaurant game theory suggests Chipotle should just play to its strength: 1) Buck up and focus on serving burritos and beer to the masses. 2) Crack the doors open for late nights. 3) Then watch investors chase CMG to $600 a share.