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All those streaming services can add up to serious $$

All those streaming services can add up to serious $$

We continue to hear more and more about chord cutting as consumers increasingly to over the top and streaming vidoe services and they shift how, where and when they consume that content. Given the Content is King perspective that we have, it comes as little surprise to see that consumers are utilizing multiple platforms because they want the content they want – plain and simple.

While it’s one thing to have one or two streaming services, as companies like Apple and Disney/ESPN follow Netflix, Amazon, Hulu and others  the content game,  it means consumers could very well see their montly content bill soon rival the monthly cable bill they were looking to avoid. If we game it out, it means either consumers will swallow and pay those bills or as we have seen with in other industries market share will consolidate around less than a handful of providors. In many ways this will be the same evolution the internet went through over the last decade plus, the only difference is it will be unfolding not on the PC but across all of our other connected devices.

No matter what type of media consumer you are, there’s a difference between paying $13.99 per month for Netflix and the thousands of dollars you will be paying per year when you add up all the streaming services you will probably want to subscribe to. And that doesn’t even include the $40 to $300+ per month you will have to spend on broadband access. Let’s have a look at the various ways you might spend your streaming media dollars.

Movies, TV, and Video Streaming Services … Oh, My!

The rise of video streaming services has given us a world of alternatives to traditional cable and satellite video providers. Whether you’re a cord-cutter (ditching cable in favor of streaming services), a cord never (someone who’s never paid a cable provider for monthly services), or a cord plus (someone who pays for cable plus services like Netflix or Hulu), you’re likely paying for at least some of these services:

  • Netflix – $13.99/month ($10.99/month without 4K)
  • Hulu – $11.99/month ($9.99/month with ads)
  • Amazon Prime Video – $13/month (includes free shipping on Amazon purchases)
  • CBS All-Access – $9.99/month ($5.99/month with ads)
  • HBO Now – $14.99/month
  • Showtime Anytime – $10.99/month
  • Starz Play – $8.99/month
  • YouTube Premium – $11.99/month

What started out as an inexpensive way to replace trips to Blockbuster (or to keep you from buying DVDs) has turned into a battleground for your eyes and your wallet. And if you’ve got TV FOMO? Forget about it. Almost every service offers at least some awesome original content. We are lucky to be living in the Platinum Age of video storytelling.

I paid $99 for the first year of CBS All-Access, just to watch Star Trek: Discovery. Is that a smart financial decision? No! Is it worth it? For me it is, because I am a die-hard Star Trek fan and Discovery is awesome!

What further complicates the issue is the ever-changing landscape of rights ownership. Want to binge Parks and Recreation? Better sign up for Netflix. Oh, it’s on Hulu now? Better pay for that, too. Sure, you could buy the complete series on DVD for less than $50, but are you really going to get up from the couch and walk over to the DVD player 21 times to swap out the discs?

Source: Streaming Sticker Shock – Shelly Palmer

Special Alert: Adding this digital advertising platform company to the Select List

Special Alert: Adding this digital advertising platform company to the Select List

  • We are adding shares of Trade Desk (TTD), a company that straddles our Connected Society and Content is King investing themes, with an $80 price target and a Buy rating.
  • Trade Desk will report its 3Q 2017 earnings after Thursday’s market close; while we don’t expect any post-earnings weakness, our strategy will be to any such development to improve our cost basis as advertising increasingly accelerates toward digital platforms.
  • This is a new addition to the Select List, and at this time there is no stop loss recommendation.

The Tematica Investing Select List has been and in our mind should continue to benefit from the accelerating shift toward digital advertising that is captured in the Facebook (FB), Alphabet (GOOGL) positions. This past earnings season was a robust one for both with advertising facing businesses growing leaps and bounds compared to year-ago levels. Let’s keep in mind, that’s before either one has put a meaningful dent in broadcast TV, the holy grail of advertising spend. The thing is both companies are focused on that with Watch at Facebook and several properties at Alphabet’s YouTube.

From the “platform to be shifted to” space, we have that pretty well covered with FB and GOOGL shares. But what about from the ad spending perspective? What tools and services are they using to help choose and optimize their advertising spend?

This brings us to Trade Desk, (TTD), a technology company that provides a self-service, cloud-based platform for ad buyers. Through this platform, which puts Trade Desk in the high-margin software as a service camp, ad buyers can create, manage, and optimize more expressive data-driven digital advertising campaigns across 500 billion digital ad opportunities per day across a variety of formats. These include display, video, audio, native and social, on a multitude of devices, including computers, mobile devices, and connected TV.

We’ve heard the cord cutting stories, the shift to mobile video consumption and how traditional cable companies are losing subscribers to streaming and other over the top services, especially with Millennials according to brand Intelligence firm Morning Consult. It’s not just the Millennials, however, given the steep costs associated with cable. The average cable bill in America is over $100 a month, which is almost 50% more than 10 years ago, and as we’ve pointed out previously debt-ridden consumers that have seen modest wage growth are looking for ways to cut back their spending. In some cases, it’s a choice between cable vs. the combination of streaming and mobile services.

What this means is Trade Desk is in the running not just for the $50 billion display advertising market or the $235 billion TV advertising market, but the $650 billion total global ad spending market. As more of that market shifts to digital platforms, which we are seeing per Facebook and Alphabet, it expands Trade Desks available market. Currently it’s estimated that only 2% of the $650 billion total global ad spending market has embraced programmatic advertising like that offered by Trade Desk. While we don’t expect programmatic advertising to become 100% of the global ad spending market any time soon, modest better growth to 4%-5% or better paves the way for significant growth ahead at Trade Desk.

We have often said that shifts like this take time to materialize, but much like a turning tanker when they pick up momentum the shift accelerates significantly. We are starting to see that in programmatic advertising and we will watch for confirmation among broadcast TV and agency advertising spend in the coming quarters.

As this occurs, Trade Desk is one of the preferred partners. Recently, the company again earned the top Net Promoter Score for Demand Side Platforms (DSP) in the latest Programmatic Intelligence Report from Advertiser Perceptions. The ranking was based on survey findings of more than 360 ad buyers at both brands and agencies. As grand as that is, we find even more solace in Trade Desk’s customer base, which coming into 2016 measured more than 560 with the top three customers being among the who’s who in advertising — Omnicom Group Inc. (OMC), WPP plc and Publicis Groupe (PUBGY) – each of which represented more than 10% of gross billings in 2016.

In reviewing 3Q 2017 results from Trade Desk’s top customers, Omnicom reported overall advertising up more than 4% on an organic basis. By comparison WPP reported its 3Q 2017 was up 1.1% year over year, with stronger growth of more than 4% for its Advertising, Media Investment Management business. Even Interpublic Group (IPG), which is not a top three Trade Desk customer, reported “advertising business had solid U.S. growth in both our larger networks and our domestic independence.”

This tells us the overall advertising market continues to grow, which is a positive for Trade Desk. What we find even more confirming for adding TTD shares is that on its earnings call, Interpublic cited significant new digital assignments during the quarter, including a new U.S. digital project from McDonald’s (MCD). Interpublic’s Chairman and CEO, Mike Roth, also shared that clients bringing their digital advertising spend in-house, which in our view bodes well for Trade Desk and its programmatic platform.

Our strategy with Trade Desk will mimic that of Apple (AAPL) – we’re adding TTD shares ahead of earnings this Thursday after the market close, and should the report disappoint we’ll look to scale into the shares given the ongoing shift toward digital advertising. Consensus expectations have it serving up EPS of $0.27 on revenue just shy of $77 million.

We’d note the favorable results at Facebook and Alphabet as well as the track record at Trade Desk for handily beating analyst expectations over the last year. That same track record has led to 2018 EPS expectations climbing to $1.70 from $1.34 a few months ago and that compares to 2017 EPS forecasts that now call for $1.43, up from $1.08 previously. To really put this into context, Trade Desk delivered EPS of $0.89 in 2016, which means its compound annual growth rate over the 2016-2018 period is significant at 38%.

Aside from actual revenue and EPS results, we’ll be assessing the mix of advertising spend, particularly between new and existing customers, as well as customer retention metrics. In the June quarter, Trade Desk had customer retention of 95% with roughly 87% of its 2Q 2917 gross spend from existing customers, which are customers that have been with Trade Desk for over a year.

In terms of the company’s balance sheet, it exited the June quarter with $27 million in debt vs. cash and short-term investments of just over $115 million. Over the past trailing 12 months ending in June, the company generated $40.4 million and $25.8 million of operating cash flow, and free cash flow respectively.

Our $80 price target on TTD shares equates to a PEG ratio of just over 1.2x when applied to the consensus 2018 EPS view of $1.70 per share. As the company continues to benefit from the accelerating shift to digital advertising, odds are we will see that PEG multiple expand as well, just like we’ve seen with Alphabet and Universal Display (OLED). That likely means we could be boosting our TTD price target several times over the coming quarters.

  • We are adding shares of Trade Desk (TTD), a company that straddles our Connected Society and Content is King investing themes, with an $80 price target and a Buy rating.
  • Trade Desk will report its 3Q 2017 earnings after Thursday’s market close; while we don’t expect any post earnings weakness, our strategy will be to any such development to improve our cost basis as advertising increasingly accelerates toward digital platforms.
  • This is a new addition to the Select List, and at this time there is no stop loss recommendation.

 

Facebook’s Content is King effort Watch goes live… will you watch it? 

Facebook’s Content is King effort Watch goes live… will you watch it? 

 

We’ve seen a number of companies, like Netflix (NFLX) and Amazon (AMZN) look to position themselves within our Content is King investing theme. It’s a smart strategy as that proprietary content is a competitive moat that helps reduce customer churn. With Watch, Facebook (FB) is looking to push into streaming video and vie with Alphabet’s (GOOGL) YouTube as a home for longer-form video. And Facebook is hoping to grab a bigger chunk of money from advertisers’ TV budgets, by steering users toward content with more 15-second ad-break opportunities.

It’s worth noting that in addition to smartphones and desktops, Watch is available on several connected-TV platforms: Apple TV, Amazon Fire TV, Android TV and Samsung Smart TV. We like the multi-platform approach, especially since Apple TV has yet to get Amazon’s Prime Video… perhaps we’ll hear more on that on Sept. 12 at Apple’s next big event?

Starting Thursday, Facebook’s Watch feature — essentially a programming guide to episodic shows hosted on the social platform — will become broadly available to users in the U.S., after a three-week limited beta run.

The Watch guide is stocked with several hundred shows, a mélange of scripted, reality, documentary and sports content of varying lengths from both traditional media companies and individual digital creators. (Here’s a select list of shows currently in Watch or coming soon.) The new Watch tab isn’t the only way to access the series: They’re also available through Facebook’s new “Show Pages,” which provide features specifically for episodic video content.

 

Source: Facebook Launches Watch Feature, Shows in U.S.: Will Viewers Tune In? | Variety

Tencent set to Stream 2017, 2018 and 2019 NFL games in China

Tencent set to Stream 2017, 2018 and 2019 NFL games in China

We’re not only seeing a blurring of our Content is King and Connected Society investing themes here in the U.S., we’re seeing in China as well in a deal between Tencent and the NFL. Live news and sports were two of the holdouts in streaming content, but with Google (GOOGL) adding streaming news to YouTube;  Amazon (AMZN), and Facebook (FB) streaming live sporting events this fall, and Disney (DIS) bringing a streaming ESPN service to market next year we think the TV broadcast only business is resembling the newspaper industry around 2001-2002.

 

Tencent is to become the exclusive live streaming partner in China for the National Football League’s American football games. The social media, games and streaming giant will air live and on-demand selected preseason games, all Thursday Night Football, Sunday Night Football and Monday Night Football games, as well as selected Sunday afternoon games, the playoffs, the Pro Bowl and the Super Bowl for the 2017, 2018 and 2019 seasons. The deal also includes non-game NFL content.

NFL live games and content will be available through Tencent’s NFL sections on both mobile and desktop terminals including Tencent Sports, QQ.com, Tencent Video, Kuai Bao, Penguin Live, the Tencent Sports app, the Tencent Video app, the Tencent News app, as well as its social networking services, QQ and WeChat. At the end of June, the combined monthly active users of Tencent’s social communications platforms, Weixin and WeChat, was over 960 million.

Source: Tencent to Stream NFL in China | Variety

YouTube’s  ‘breaking news’ addition further complicates things for broadcast TV

 

Whether it’s on the go, at work or at home, streaming content continues to account for a growing portion of consumer content consumption. It’s, therefore, no surprise that Apple (AAPL), Facebook (FB) and others are looking to join Netflix (NFLX) and Amazon (AMZN) in delivering proprietary content. On the flip side, Disney (DIS) is angling to bring its content directly to consumers rather than through Netflix or broadcast mechanisms.

We see these moves signaling more competition ahead that will force companies to up the ante. Already Amazon and Facebook are looking to bring live sporting events to consumers, and now Google’s YouTube is planning on adding a streaming news section for users to digest “Breaking News.”  This adds to its growing deployment of YouTube TV and raises more questions as to the speed of the demise of broadcasted content. As we see it, the intersection of our Connected Society and Content is King investing themes are poised to deliver more creative destruction that will radically alter the existing playing field much the way the internet skewered the newspaper industry.

YouTube has started rolling out a “Breaking News” section in people’s feeds today across platforms as Alphabet continues to tailor custom content playlists to users logged into Google Accounts, Android Police reports.For most, YouTube is a place to hop from one video to the next and descend down rabbit holes, but browsing anything like a feed has become less straightforward than other platforms, which makes the breaking news section an interesting addition.

As the video sharing site has grown older, the content has grown more produced with YouTube personalities mounting “celebrity” careers, while commentary-heavy videos grow in popularity over the raw video that is more common on Facebook and Twitter.For YouTube’s part this has grown to be a very valuable distinction.

While Facebook’s has seen its video views increase heavily by way of quick-and-dirty videos, YouTube seems to be somewhere where people invest major time browsing, even if there seems to be just as much noise. In June, YouTube CEO Susan Wojcicki announced that the site had 1.5 billion watching an hour of video each on mobile alone.

Source: YouTube starts delivering ‘breaking news’ on its homepage across platforms – TechCrunch

Alphabet Continues to Ride the Connected Society Tailwind

Alphabet Continues to Ride the Connected Society Tailwind

Last night Alphabet (GOOGL) reported June quarter earnings that bested expectations; however, the shares traded off last night in aftermarket trading following managements comments that costs are slated to rise faster than revenue near-term as mobile becomes a greater portion of its traffic and searches.

That tradeoff is continuing today, with the shares down almost 3 percent, as investors and analysts rejigger their EPS expectations. Making it somewhat murky was the fact that Alphabet management was tight-lipped about margin prospects in the coming quarters, and we suspect that means Wall Street could cut deeper than needed.

From our perspective, Alphabet’s core businesses – search, advertising, YouTube, and shopping – all stand to benefit from the ongoing if not accelerating shift toward a digital world, which as you know, is the thesis behind our Connected Society investment theme. ( Click here to download a full thematic glossary we recently put together detailing all 17 of our themes)

As we have said previously, GOOGL shares are ones to own, not trade, even as this pullback occurs.

  • Therefore GOOGL shares, which benefit from tailwinds from our Asset-Lite Business Model and the Connected Society investing themes, remain on the Tematica Select List with a $1,050 price target.

 

Let’s Look Beneath the Headlines of GOOGL Earnings

Looking deeper at Alphabet’s 2Q 2017 EPS, it reported $5.01 per share, $0.58 better than the consensus of $4.43. Excluding the $2.7 billion antitrust fine, EPS would have destroyed expectations and been $8.90 per share. Stepping back, during the quarter the company continued to deliver double-digit growth at its core businesses and despite the $2.7 billion fine to the European Union, still managed to crush earnings expectations.

Quarterly revenue at Alphabet, rose 21 percent to $26.01 billion, beating analysts’ average estimate of $25.65 billion with aggregate paid clicks up 52 percent year over year and 12 percent vs. the prior quarter. Paid clicks, where an advertiser pays only if a user clicks on ads, handily beat the expected 35 percent increase among the Wall Street analyst community for 2Q 2017. Google’s ad revenue, which accounts for a lion’s share of its business, rose 18.4 percent to $22.67 billion benefitting from advertising on both mobile and You Tube. With advertisers still shifting toward digital vs. other advertising modalities, research firm eMarketer sees Alphabets’ digital ad revenue jumping nearly 18 percent for full year 2017 to $73.5 billion. We’d note given the launch of YouTube TV that is expanding its available markets, plus the overall shift from TV advertising to digital platforms not only could eMarketer’s forecast be conservative, we expect share gains to continue past 2017.

 

Now for what has the shares trading off today

Even though the average cost per click fell 23 percent year over year and the company continues to make progress on reducing costs associated with its “Other Bets” segment, its costs for the quarter grew faster than revenue. This led to a modest decline in margins compared to expectations for the quarter. One-quarter does not make a trend, and we’ll continue to watch these line item as we head into the back half of 2017.

The reaction to all of this has led to a variety of price target changes across Wall Street, some up and some down. Looking at the situation through our thematic investment lends:

  • We continue to have a $1,050 price target on GOOGL shares, which offers just under 10 percent upside from current levels.
  • Should the shares retreat further, it will be tempting to scale into the position, but we’d suggest subscribers look for an even more compelling risk-to-reward trade-off near or below $900, given the potential for other EU fines and potential changes to be made to the company’s business to comply with the EU’s recent ruling. We expect more clarity on both in the coming months.

 

 

An NFL ‘Thursday Night Football’ Games Win Cements Amazon’s Content Plans

An NFL ‘Thursday Night Football’ Games Win Cements Amazon’s Content Plans

If there is one company that blurs the lines across several of our investment themes and their tailwinds it is Amazon (AMZN). From the accelerating shift to digital commerce and cloud that is a part of our Connected Society investing theme to Cashless Consumption and increasingly our Content is King investing themes, Amazon continues to make strides as it expands the scale and scope of its Prime offering.  The latest includes beating out Twitter (TWTR), Facebook (FB) and Google’s (GOOGL) YouTube to stream the NFL’s Thursday Night Football. We’ll see how many viewers stream these games across Amazon’s Prime Video footprint across its various TV, tablet and smartphone apps, but in our view, this goes a long way to cementing Amazon’s position in content.  

 The only thing better than one thematic tailwind pushing on a company’s business is two… so you can imagine how powerful three of them must be! Our only question is how long until Amazon expands into our Guilty Pleasure investing theme?

The NFL has a new streaming host for part of its Thursday Night Football package.Amazon will stream the 10 games broadcast by NBC and CBS next season as part of a one-year, $50 million deal, according to The Wall Street Journal and The Sports Business Journal.

The games will be available exclusively to Amazon Prime subscribers, per The Sports Business Journal.

Amazon beat out Twitter, Facebook and YouTube for the rights, according to the report. Twitter paid $10 million last season to provide live streaming services for the same number of games.

Link to Story: Reports: Amazon lands $50M deal to stream NFL ‘Thursday Night Football’ games

 

Details of this story are featured on this week’s Cocktail Investing podcast. Click below to listen:

 

Quick Thoughts on Alphabet and McCormick Shares

Quick Thoughts on Alphabet and McCormick Shares

Alphabet Gets Dinged, But Is Already Responding to Advertiser Concerns

The last few days have seen a rating downgrade on Asset-lite Business Model company Alphabet (GOOGL) and its shares to Market Perform from Outperform by Bank of Montreal and a new Hold rating at Loop Capital. Despite the accelerating shift toward digital commerce and streaming content that is benefitting several of Alphabet’s businesses, the shares are caught in a push-pull over the recent snafu that placed ads next to what have been described as “offensive and extremist content on YouTube.”

We certainly understand that reputation is a key element at consumer branded companies — from restaurants to personal care products and all those in between. As we said previously, we expect there will be some blowback on Alphabet’s advertising revenue stream, and some estimates put that figure between $750 million – $1.5 billion, but the fact of the matter is that it all comes down how much time elapses before those consumer branded companies return —they will come back, they always come back to Google.

The good news is Alphabet has improved its ability to flag offending videos on YouTube and has the ability to disable ads. The company is going one step further and is introducing a new system that, “lets outside firms verify ad quality standards on its video service, while expanding its definitions of offensive content.”  These new decisions, as well as Alphabet’s stepped up action come at a crucial time, given that Newfronts (which is the time when digital ad platforms pitch their tools and inventory) starts May 1. In our view, Alphabet needs to win back advertisers’ trust and we’re hearing some advertisers that recently pulled their spending, like Johnson & Johnson (JNJ), are already reversing their decision.

The bottom line is while the recent advertising boycott is likely to cause some short-term revenue pain that is likely to be a positive for our Connected Society position in Facebook (FB) shares, the longer-term implications are likely to be positive for Alphabet as these new measures win back companies and provide assurances that their brands are safe on YouTube and other Alphabet properties.

  • While we see potential upside to our $900 price target, we would caution subscribers to wait for the advertising boycott news to be priced into the shares, something that is not likely to happen fully until Alphabet reports its quarterly earnings on April 27. 

 

 

As expected, McCormick Reaffirms Long-Term Guidance, But Its 2H 2017 That Matters

Earlier this morning, ahead of today’s investor day, Rise & Fall of the Middle-Class investment theme company McCormick & Co. (MKC) reiterated its long-term constant currency objectives calling for both annual sales growth of 4 to 6 percent and EPS growth of 9 to 11 percent. Coming off of the company’s recent quarterly earnings, this reiteration comes as little surprise. What will be far more insightful will be management laying out its agenda to cut $400 million in costs between 2016 and 2019, not to mention more details on how it aims to deliver double digits earnings growth year over year in the back half of this year following its recent quarterly earnings cadence reset.

We continue to like the company’s business, which is benefitting from shifting consumer preferences for eating at home and eating food that is good for you as well as rising disposable incomes in the emerging economy. There is little question the company is a shrewd operator that is able to drive costs savings and other synergies from acquired companies. We also like the company’s increasing dividend policy, which tends to result in a step up function in the share price.

  • With just over 12 percent upside to our $110 price target, we need greater comfort the company can deliver on earnings expectations for the second half of the year or see the shares retreat to the $95 level before rounding out the position size in the portfolio. 
  • For now, we continue to rate MKC shares a Hold.