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FB: 3 Quick Takeaways

Takeaway: We're not actively covering FB at this time, but these are the main points we are taking away from the release

 

  1. 1Q14 Was Solid: FB beat revenues by 6%, producing its strongest y/y advertising growth in ~3 years. Mobile now represents the majority of Ad revenue (~58%) vs. 30% in 1Q13. Growth in Monthly Active Users (MAUs) & Daily Active Users (DAUs) continued at a double-digit pace; with engagement (DAUs as % of MAUs) hitting a new high of 63%, continuing an upward trend that has persisted since at least 1Q10.  
  2. 2014 to Revenue Growth to Slow "meaningfully": Management suggested that the timing of the ramp in News Feed Ads last year will lead to tougher comps through the rest of the year, and ad revenue growth rates will be meaningfully lower by 4Q14.  Further, the user shift to mobile will pressure its Payments & Other Fees segment since the games that drive this segment are desktop only. Consensus is already assuming decelerating growth; we're not deep enough on the name to take a stance once way or the other.
  3. Trading at Massive Premium to the Group: We value the social media players by discounting their P/S Ratios by consensus growth expectations.  In this respect, the street is paying a much higher premium for FB's growth than the rest of the group, which suggests FB has less room for error moving forward.

FB: 3 Quick Takeaways - FB DAU MAU

 

FB: 3 Quick Takeaways - FB revenues

 

FB: 3 Quick Takeaways - Social Media Valuations

 

Hesham Shaaban, CFA

@HedgeyeInternet

 


HOT Q2 2014 CONF CALL NOTES

Strong secular tailwinds, but one major headwind...

 

 

CONF CALL

Q1 2014 Results:

  • Global economy "bouncing along" and slightly improving
  • Worldwide presence makes HOT more susceptible to global gyrations
  • Watching Thailand, Egypt, Russia, and Emerging Markets carefully...

North America

  • RevPAR >7%
  • Occupancy at record highs
  • Late cycle: RevPAR should be rate driven, but several years away from new supply in most markets - especially at the high end
  • Momentum continuing into Q2, RevPAR expected in 6-7%

Europe

  • RevPAR 2.5% but Q1 is slow season

Africa/Middle East

  • Outlook doesn't include a dramatic improvement
  • 11 hotels pulled results lower
  • Saudi Arabia stronger

Latin AM

  • Mixed, emerging two-tier region
  • Mexico & central:  combined revpar +14%
  • 2nd Tier: Venezuela, Brazil, Argentia - struggling, f(x) issues

China

  • Expect Q2 slightly slower following strong Q1 results
  • RevPAR +12% driven by Sheraton Macau with 90% occupancy
  • ex Sheraton Macau (Mainland China) 6% RevPAR growth
  • performance stronger than expected
  • inbound travel to china dropped and Central Gov't austerity
  • promoting the company across all segments, markets, and channels
  • >70% occupancy PRC nationals
  • Fewer large customers, few long lead time clients, booking window short/close in
  • Results driven by increasing occupancy and not rates

Other Asia

  • Bangkok: riots hurt results
  • Thailand: much stronger
  • Asia ex China continue growth trends

Bal Harbour:

  • only two condo remain unsold

Secular Growth in Cities:

  • Top 100 Cities = 40% of global GDP
  • Next 500 Cities = almost 40% of global GDP
  • these 500 Cities = new development opportunity (Sheraton, Westin, St. Regis)
  • 200 cities global that could support at least one Sheraton and not have a Sheraton today

Q&A - 5 of the 12 questions focused on share repurchase strategy or capital plans.  The natives are getting restless...

  • Share repurchase vs. special dividends:
    • constantly recalibrating how to return to shareholders will use dividend, special dividend and share repurchase avenues
    • special dividends: not adverse to one-time, like flexibility of quarterly
  • Asset sales:
    • now have more asset for sale since the global financial crisis
    • North American portfolio, as well as assets in Europe and Asia
  • Asset buyer profile
    • Europe/Large one-offs:  UHNW family or person, sovereign wealth
    • US: portfolio sales to PE, funds, or private buyer
    • Geographic:  Middle East and ethic Chinese around the world
  • Stock under performance due to lack of share repurchase vs. Emerging Market issues...
  • NA system wide vs. owned RevPAR differential:  less than 20 NA owned, skewed to NYC and Canada = Q1 under performance, purely geographic
  • Corp Negotiated:  mid single digits rates
  • Corp Group:  stronger and healthiest of all group
  • Corp Group F&B:  still focused on keeping costs down
  • US:  1/3 group with long lead time vs. 2/3 non-group
    • Non-US: 1/4 group with short lead time
  • Airbnb:  real phenomenon, disruptive, concern is similar to OTA onset 10 year ago.
  • Termination Fees:  anticipated for Q1 2014, 8%-10% growth for Q2 and FY 2014
  • Underlevered Balance Sheet indicate interest in reinvesting through a brand acquisition?
  • Europe:  70-75% business traveler world-wide, but destination hotels in Italy, France, Spain so summer mix is skewed to leisure - summer will tell if Europe bounces strongly higher. 

RCL Q1 2014 REPORT CARD

In-line with trends seen from our pricing survey

 

 

OVERALL

  • MIXED:  As expected, the Caribbean continues to be the major risk that faces RCL and its competitors over the near-term.  Expectations were high heading into the print and while RCL underwhelmed on the yield side, particularly in 2Q as we warned, it was offset by better cost controls and a strengthening recovery in Europe.  

Bookings:

  • BETTER:  Post-Wave bookings in March/April have exceeded seasonal expectations
  • PREVIOUSLY:  Entered 2014 in a very strong book position with 5% more revenue on the book YoY

Caribbean:

  • WORSE:  Despite efforts by management to touch this topic from different angles, the truth is Caribbean has underperformed their expectations since the beginning of the year and continue to be pressured by the promotions from NCLH and CCL. 
  • PREVIOUSLY:  
    • Booked load factors and rates for the Caribbean are lower than the same time last year, and expect yields for 2014 to be down for the Caribbean by low single digits.
    • The Caribbean is weaker due to two factors: firstly, it's the areas hardest hit by the media storm of 2013; and secondly, a large capacity increase here, for both the company and the industry of 13%.
    • Longer-dated itineraries holding better than shorter-dated ones

Europe:

  • SAME:  RCL continues to display pricing power in this market.  The recovery of the Southern Europe pricing is reassuring.  RCL expects double digit yield growth for 2014.
  • PREVIOUSLY:  Booked load factors and APDs are significantly higher YoY.  Expecting another year of significant yield improvement in Europe and expect yields to surpass pre-recessionary levels.

Asia-Pacific:

  • SAME:  Expects double digit yield growth in 2014
  • PREVIOUSLY:  Booked load factors and APDs remain ahead YoY despite a 12% increase in capacity. Expect yields to be up nicely for our Asia-Pacific itinerary.

Alaska:

  • SAME:  Expects low-mid single digit yield growth in 2014
  • PREVIOUSLY:  Feel fairly confident on how Alaska shapes up 

Pullmantur:

  • SLIGHTLY BETTER:  There was no mention of further deterioration in this brand.  The strength of the Spanish market should also provided a boost to Pullmantur.
  • PREVIOUSLY:  Expect the greatest relative benefit
    • Most visible changes involve the shift to having a Latin American headquarters and the recent sale of Pullmantur's non-cruise businesses
    • Immediate growth in Latin America should be significant. Expect this transformation to take some time, and for 2014, the year will be a transitional year.  Expect the biggest benefits of Pullmantur's changes to occur in 2015 and beyond.

Onboard revenue:

  • SAME:  Gaming and beverages led the 3.4% growth in Q1 onboard yields
  • PREVIOUSLY:  
    • Benefits from ship revitalization program, packaging initiatives, as well as shore excursion enhancements, drove onboard revenue
    • Seeing strength across every single revenue stream and from every single market. So the entire story is positive. There's just a general uplift across all brands.

Promotional environment:

  • WORSE:  Ever after normal Wave promotions, the Caribbean continues to discount.
  • PREVIOUSLY:   Regular, nothing unusual

Ship incidents:

  • WORSE:  6 ship incidents in Q1 (oil spill in Gulf, damaged propeller in Tokyo affected 2 sailing, norovirus, etc.) impacted Q1 earnings by 5 cents and yields by 0.5%
  • PREVIOUSLY:  Don't expect that the impact of this event (norovirus) will be significant or meaningful to the company or its result.

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RCL Q1 2014 CONFERENCE CALL NOTES

RCL is fortunate to have more cost cuts in the bag and a stronger Europe/Asia business.  But there is no question that the Caribbean has gotten weaker. 

 

 

CONF CALL

  • TUI JV:  Mein Sciff 3 will take delivery one month from today
    • Will have scrubbers
  • Installing new O3B internet systems to increase internet bandwidth for Oasis of the Seas.  Could roll out to more ships as well.
  • 1Q:  oil spill in Gulf, damaged propeller in Tokyo affected 2 sailings  
  • 1Q 2013:  record yields
  • 1Q Caribbean:  2/3 of capacity
  • Settled maturity of 1BN euro bond in 1Q
  • 2014:  will recognize $23MM in restructuring expenses and $11MM loss associated with Pullmantur tour business.  $19.6MM was included in 1Q and rest will be recognized later this year.
  • Bookings volume:  have been accelerating, bookings up 20% YoY, driven partly by Caribbean discounting.  APDs are high.
  • More bullish on Europe and China and incorporated more conservative outlook in Caribbean.
  • Pricing pressure on Caribbean (3-7 night itineraries)
  • Caribbean capacity is higher in Q2 than in all other quarters; expect largest yield decline there.
  • European sailngs are at higher prices and volume.  US source market particularly strong.  Finally seeing pricing recovery in Southern Europe
  • Asia:  continue to exceed pricing and volume expectations.
  • Costs:  Inflation pressures, rising insurance premiums, and nominal capacity growth
  • Caribbean:  
    • Continuing to experience significant promotional activity
    • Yields to be down slightly 
    • Guidance assumes continued promotional activity for rest of year
    • Oasis continue to command highest premiums 
  • Bookings in March/April up double digits
  • Quantum of the Seas:  Dynamic Dining exceptionally well-received
  • Marnier and Voyager of the Seas doing well in Asia
  • Strong onboard revenue in Asia will improve further
    • Expect double digit yield improvement in 2014
  • Europe:  capacity-adjusted bookings up 25% YoY; load factors highest since 2007
    • Demand from NA particularly strong
    • 80% NA bookings on the books for 2014, considerably higher than that of last year
    • Northern Europe/Med: doing well
    • 2014:  Yields up double digits
  • Alaska:  solid performer; anticipate highest yielding product in 2Q/3Q
    • Low-mid single yield growth for 2014
  • Expect more marketing for Asia later this year

 

Q & A

  • 1Q incidents:  all were small e.g. Explorer norovirus
  • Caribbean:  booking trends lower but normal since it's post-Wave but more volume than normally in March/April.  
  • Surprised post-Wave volumes were stronger than historically been
  • Caribbean:  weaker yields today than in January;  have been weaker than what mgmt expected
  • Caribbean capacity in 2015:  very slightly up
  • Quantum pricing in China vs Caribbean:  very confident the ship will do well in Caribbean and Asia (ticket/onboard)
  • China is more expensive to operate in
  • 1Q Caribbean capacity deployment was higher before Quantum move.  After move, it is basically flat
  • China is in a profitable position today
  • Still sees opportunity in Latin America and South America e.g. Pullmantur
  • High costs in Brazil
  • Canyon Ranch:  finished transition to Celebrity in less than 4 wks; not much disruption
  • 1Q Onboard strength:  gaming and beverage
  • Strength in Spain, UK, and Ireland markets
  • Med: less capacity YoY, more strength from Southern Europe, better distribution channels
  • Pullmantur tour business:  +/- zero for a couple of years; sold in late January
    • Not included in previous and current guidance 
  • Revitalizations have helped onboard revenue
  • 3 Asian source market developments:  Quantum in Shanghai; Tianjin/Bejing region; Pearl River Delta/Hong Kong region

FDA Finally Proposes E-Cigarette Regulations - They’re Surprisingly Mild!

This morning the FDA proposed a new rule that would extend the agency’s tobacco authority to cover additional tobacco products not previously regulated – e-cigarettes, cigars, pipe tobacco, nicotine gels, waterpipe (or hookah) tobacco, and other dissolvables. 

 

Our focus is the e-cigarette impact, which we’ll go through below, however of note upfront is how surprisingly mild the proposed rules are – our work with most major e-cigarette manufacturers suggested they were expecting even more “deeming” regulations. 

 

We view today’s proposed regulations as having no negative impact on Lorillard (LO), our preferred tobacco stock, and in some cases may benefit the larger e-cigarette manufacturers.

 

What’s in the Proposed Regulation?

  • Manufacturers must register with the FDA and report product and ingredient listings. Producers would also be subject to FDA inspections
  • Manufacturers may only market new tobacco products after FDA review, but would have two years after the new rules are finalized to do so -- in the meantime companies can keep their products on the market
  • Ban on the sale of e-cigarettes, cigars and pipe tobacco to anyone under 18 (requiring people buying them to show photo identification to prove their age, measures already mandated in a number of states)
  • Manufacturers would no longer be able to offer free samples
  •  E-cigarettes would have to come with warning labels saying that they contain nicotine, which is addictive
  • Companies would not be able to assert that e-cigarettes are less harmful than real cigarettes unless they got approval from the F.D.A. to do so by submitting scientific information
  • No sales of e-cigarettes in vending machines in public places where minors are allowed

What Wasn’t Touched in the Proposed Regulation?

  • No proposal to ban flavors in e-cigarettes and cigars
  • No move to restrict the marketing of e-cigarettes
  • No proposal to ban online sales, only age verification

The proposed regulation is likely step 1 as the FDA tries to better understand the science of e-cigarettes, user trends, and to get the ball rolling on regulation after dragging its feet on a proposal for many months.  This proposal is now open to a public comment for 75 days, and then the agency will make final changes, a process that will likely be counted in months.

 

We view today’s proposals, even if they all become final, as positive for our bullish call on Lorillard and its e-cigarette blu:

  • The regulations could serve to consolidate the industry given the FDA registration and ingredient requirements
  • blu can maintain selling its flavored e-cigarettes
  • No ban on marketing will serve Big Tobacco’s deeper marketing spend pockets

Call or email with questions,

Matt

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst


PENN Q2 2014 CONF CALL NOTES

Regional headwinds continue.  April soft.  Guidance also hurt by the removal of Sioux City from guidance - finally.

 

CONF CALL

Q1 2014 Results:

  • Difficult weather first 6-7 week = soft revenue
  • Consumer environment, esp low end <$100 losing trips and customers
  • Competition more intense at Charlestown, L'Burg and entire Illinois
  • Property level margins unchanged, despite lower GGR
  • +5% YoY data base customer spend
  • Visitation trends "very concerning" esp. Charlestown & L'Burg
  • Lower EBITDA guidance:  50% is Charlestown & L'Burg
  • Easter Weekend: visitation and GGR trends DOWN 20% YoY!
  • March soft, April continuing with March trends

Remainder of 2014:

Expected a transitional year due to new supply but more challenging year than expected due to persistent customer softness

  • Forecasting constant margins
  • Revised pre-opening expenses
  • Removed Argosy Sioux City from forecast
  • Maintenance CapEx $80M total for the year

2015/2016 - positive outlook based on development pipeline

  • Mahoney on target for early fall opening
  • Plainville expect to open 2Q15
  • Jamul Village expected to open "early 2016"
  • NY Catskills, partner with Cordish $750m Orange County development, filed $1m app w/ NYS, final app due June 30th

Q&A:

  • Ohio Track Expectations:  Dayton & Mahoney Valley no changes to pro forma plan & expectations
  • EBITDAR: rent credit adjustment under master lease in remainder of the year
  • NY Outlook:
    • Catskills: managed 50/50 JV with Cordis, very excited
    • Capital Region: looking, not sure of capital commitment, more difficult due to protection on purse supplement to race tracks.
  • MA Gaming Act recall:  continuing construction, full steam ahead, believe voters will understand 10,000 jobs and revenues to state. 
  • WPD per slot $500 for 1st 2 years until new competition opens
  • Jumal: $200-$250 win/unit/day target
  • IL VLT:  27% of all IL GGR and cannibalizing casino GGR
  • FCF 7% or better on all new development opportunities and expect NY Orange County to hit or exceed target
  • Promoting less in St. Louis than last year - GGR is reported by the state gross not net so net growth will be higher
  • Demand picked up from mid-Feb to mid-March
  • Guidance: toward the end of March to current, demand has softened resulting in lower guidance
  • Project Capex:  budget for full year $72m in Ma, $70m in each of Dayton and Youngstown, Jamul $84m
  • 25% more weather impacted days in 2014 vs 2013 - can't really quantify the impact
  • Weakness is across the demographic spectrum at the <$100 segment
  • No change in enthusiasm for gambling - weakness is purely economic - especially for households <$75k in income
  • Harrah's Tunica:  demand for Tunica hurt by Arkansas. PENN doesn't see a repurposing of the asset.
  • Optimistic on Toledo - one of the worst winters ever in Q1
  • Cosmopolitan - $2b is too high.  PENN has not actively engaged but if they did they would need a partner
  • PENN still looking at a Strip property

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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