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Pop! Pop! Pop! The Social Media Bubble (As Seen From Stamford, Connecticut)

Takeaway: CEO Keith McCullough and the team of analysts at Hedgeye have been out front proactively warning people of the social media bubble.

Pop! Pop! Pop! The Social Media Bubble (As Seen From Stamford, Connecticut) - bubblespopping1

 

On March 27th, when Wall Street consensus was still goo-goo-ga-ga about all things Social Media (Twitter, Yelp, Facebook, etc) and the bubble was hitting hew highs, Hedgeye CEO Keith McCullough wrote the following in his Morning Newsletter.

 

I know no one wants to call it a bubble. There’s career risk in calling something what it is...Boom! Crush. This stuff gets real in a hurry doesn’t it?"

 

Indeed.

 

(Click here to read the full "Morning Newsletter" from March 27.)

 

Pop! Pop! Pop! The Social Media Bubble (As Seen From Stamford, Connecticut) - km1

 

Despite being shrugged off by many a bubble-blinded pundit, he continued to question consensus' conviction that "It's different this time." He's been doing it on television, Twitter, and most importantly, with our customers.

 

Here he is on Fox Business with Maria Bartiromo advising investors to tread carefully in the market, particularly the Nasdaq.

 

Here he is again with Bartiromo, questioning an analyst's bullishness on Amazon and saying that AMZN was more likely to have a 2-handle on it than a 4-handle.

 

Shares of Amazon are down 11% since McCullough made his call.

 

In another Morning Newsletter entitled, "Accepting Little Bubbles," McCullough had this to say:

 

Accepting that little bubbles are going to start to pop bigger ones (like, say, the US stock market’s all-time high price) is a process, not a point.

 

...Having survived (made $ at a hedge fund in down tapes - 2000, 2001, 2002) the Tech Bubble, The LBO and Oil Bubbles (2008), and The Gold and Bond Bubbles (2011-2012), what I have learned about risk managing these suckers is quite simple:

 

First, they start to make lower-highs. Then the volume on down days eclipses the volume on the bounces (up days to lower-highs)… then bearish catalysts start to pile up… then what was happening slowly starts to happen more than a little – it happens all at once.

 

Pop! Pop! Pop! The Social Media Bubble (As Seen From Stamford, Connecticut) - km2

Finally, take a look at this brief HedgeyeTV video below from April 4th, where McCullough spells out his concerns about the bubble. Pay close attention to his bearish comments on YELP and note the date the video was shot. (Hat tip to Hedgeye Internet & Media analyst Hesham Shaaban.)

 

Pop! Pop! Pop! The Social Media Bubble (As Seen From Stamford, Connecticut) - yelp

 

 

Do you want to learn more about Morning Newsletter and other Hedgeye offerings? Click here.


Did You See Panera Bread? You Could've Made Money Listening to Howard Penney | $PNRA

Takeaway: It (literally) pays to listen to Howard Penney.

Fast-casual food chain Panera Bread reported earnings and lowered 2014 guidance which sent its shares tumbling 4.4% in after-hours trading Tuesday evening.

 

Did You See Panera Bread? You Could've Made Money Listening to Howard Penney | $PNRA - pnra

 

Talk about nailing it.

 

Yesterday, Hedgeye Managing Director and Restaurants Analyst Howard Penney shot a 3-minute video on HedgeyeTV outlining his bearish case on PNRA and why he added the stock as a "Best Idea" on the short side.

 

As you can see below, it pays to listen to Penney.

 


Poll of the Day Recap: 80% Would Invest in $AMZN Over $TWTR

Takeaway: 80% AMAZON; 20% TWITTER

Ahead of Twitter’s Q1 2014 earnings report and after Amazon’s earning disaster last week, we put this question to you in today’s poll: You have $1,000,000 to invest in Amazon or Twitter and hold for 5 years. Where do you put it?

 

Poll of the Day Recap: 80% Would Invest in $AMZN Over $TWTR - amazon


At the time of this post, an overwhelming 80% of voters said AMAZON; 20% TWITTER.


As this AMAZON voter explained, “Twitter can be displaced.  Amazon is the new Wal-mart.” Another echoed that sentiment, “Follow the money. A lot of mine goes to Amazon. None goes to Twitter.”

 

One AMAZON voter said they really wouldn't buy either, “but if forced to choose, AMZN remains a name that – at some point – could account for over 5% of US Retail Sales. Much easier for some new technology that we haven't heard of yet to disintermediate TWTR than AMZN.”

 

Conversely, one TWITTER voter said, “Twitter will be bought out; Amazon will have its multiple severely divided someday soon.”

 

And to put it a different way, as this TWITTER voter noted, “I'd pick Twitter over Amazon, but I'd pick Pinterest over both.”

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VIDEO | Real Conversations: Front-Running Front-Runners and Managing Your Emotions

Takeaway: Here are the final two parts of a four part interview between private investor Buddy Carter and Hedgeye CEO Keith McCullough.

In the third of four parts of a wide-ranging interview with Buddy Carter, a private investor and former proprietary trader at Goldman Sachs, Carter and CEO Keith McCullough discuss order flow and high frequency trading.

 

In this fourth and final part of a wide-ranging interview, Buddy Carter and Keith McCullough walk through why it’s crucial for investors to have a repeatable process.


Eurozone Confidence Wanes; UK Shines

Takeaway: We maintain our marginally bullish stance on European equities over U.S. equities. We like the GBP and EUR against the USD.

This morning we received Eurozone confidence figures for the month of April.  As the charts below show, the data took a step down versus the prior month, and matches confidence figures from the major Eurozone countries that mostly slowed and fell in the April/May period. 

 

We think this inflection lower is but one data point, but indicative of what could play out as a slower growth environment for the remainder of 2014 as the overhangs of high unemployment rates, anti-Euro sentiment, and a sluggish global economy persist.  We saw moves higher in confidence figures over the last 12-16 months reflecting improved economic and political outlook, which may now be fully priced in.

 

  • Germany GfK Consumer Confidence 8.5 MAY (8.5 est.) vs. 8.5 prior
  • Germany ZEW Economic Expectations 43.2 APR (45 est.) vs 46.6 prior
  • Germany IFO Business Expectations 107.3 APR (105.8) vs 106.4 prior
  • France INSEE Consumer Confidence 85 APR (88 est.) vs. 88 prior
  • Italy ISAT Economic Sentiment 88.8 APR vs. 89.5 prior
  • Italy ISAT Business Confidence 99.9 APR (99.5 est.) vs. 99.3 prior
  • Italy ISAT Consumer Confidence 105.4 APR (101.2 est.) vs 101.9 prior

Eurozone Confidence Wanes; UK Shines - x. consumer conf

Eurozone Confidence Wanes; UK Shines - x. business conf

Eurozone Confidence Wanes; UK Shines - x. manufacturing conf

 

From a quantitative perspective, we maintain our marginally bullish stance on European equities over U.S. equities, and signaled early this week that the German DAX broke its TREND level of support. Below we offer up its new levels (see chart below).

Eurozone Confidence Wanes; UK Shines - x. dax

 

From a policy perspective, we continue to expect ECB President Mario Draghi and the Eurocrats to manage expectations over the medium to long term. On Monday Draghi was reported to have said to a German lawmakers that a QE program is relatively unlikely now. We’ll take the comment at face value and believe that opportunistically Draghi will continue to have QE in his back pocket, which should encourage European equities higher.  We also underline that Draghi is managing his inflation target of 2.0% over the longer term, and already there are encouraging signs that inflation is percolating:

  • Germany Preliminary CPI rose 1.3% in April Y/Y (1.4% est.) and 1.0% prior

 

We expect interest rates to remain “accommodative” = at the present rate or lower, as the bank works on schemes to better unlock lending to the real economy (especially SMEs).

 

On the currency front, the EUR/USD is trading in a bullish formation, above its TRADE, TREND, and TAIL levels of support, as outlined in the chart below. We expect the cross to trade higher as Eurozone QE remains on hold and as Fed Head Janet Yellen continues her dovish policy stance.


Eurozone Confidence Wanes; UK Shines - x. eur usd

 

 

 

UK Bulls


The UK economy is following our playbook:  tighter monetary policy = stronger currency = stronger purchasing power, home price appreciation, and confidence.  UK GDP ramped to +3.1% Y/Y in Q1 (double what we’ve forecast in the USA). 

 

BOE Governor Mark Carney recently said that he’s optimistic about the economy’s recovery, comfortable with the current level of interest rates, and reiterated that when it does see increases in interest rates they will be gradual and limited. This week Lloyd’s Business Barometer showed a meaningful move higher, to 66 in April vs. 44 in the prior reading.  

 

We remain bullish on the equity market (despite being essential flat YTD) and the GBP/USD.

 

Our bullish levels on the GBP/USD are outlined below:

Eurozone Confidence Wanes; UK Shines - x. pound

 

Matthew Hedrick

Associate


H Q1 2014 - EARNINGS PREP

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.

 

1Q14 CONSENSUS ESTIMATES

• Total revenues:  $1,059 million

o Owned & Leased Hotels:  $536 million

o Other Revs from Managed Hotels:  $417 million

o Managed & Franchised Fees:  $86 million

• Adjusted EBITDA:  $153 million

• EPS:  $0.12/share

 

MANAGEMENT GUIDANCE

Q1 2014

  • No specific guidance

FY 2014

  • Adjusted SG&A of approx $325 million.
  • Capital expenditures of approx $350 million, including about $175 million for investment in new properties.
  • The Company intends to continue a strong level of investment spending including: acquisitions, equity investments in joint ventures, debt investments, contract acquisition costs or other investments.
  • D&A of approx $375 million.
  • Interest expense of approx $80 million.
  • Open approximately 40 hotels

 

QUESTIONS FOR MANAGEMENT

  1. Views on assets sales given strength in transaction market as well as hotel REIT share performance - one off vs portfolio transactions
  2. Where are inflation pressures negatively impacting margins?
  3. ROI on renovations from last 2 years?
  4. Discuss investment spending plans for the remainder of 2014.
  5. Recent commentary from Delta Air Lines indicated strong price taking in April, May and June of this year, how does that compare with what the company is seeing for advance bookings?
  6. What is your goal in terms of fees vs owned EBITDA?
  7. What is the right leverage?  Current thoughts on share repurchases?
  8. Rate vs occupancy gains this year and where are we in the cycle?

 

RECENT MANAGEMENT COMMENTARY

Group

  • the pace heading into 2014 has remained steady, up in the low-single-digit range.
  • trends and the profile are improving.
  • Demand remains relatively robust
  • total production and activity has been quite positive and has been positive now for the last several quarters running
  • increased demand in corporate and association business, we see healthy levels of businesses into 2015 and 2016 
  • in-the-quarter-for-the-quarter bookings have been a bit more volatile quarter-over-quarter if you look back over the last four quarters, but overall production levels will remain high
  • not seeing a shortening of booking curve in a definitive way
  • group is approximately 40% to 45% of our U.S. managed full service room revenue
  • group on a Worldwide basis is in the high 30% for full service hotels
  • 70% to 75% of group business is in the books going into the year, and that's about where we are entering 2014
  • the in-the-quarter-for-the-quarter business it's been consistently positive over the last few quarters

Margins

  • flow through on the mix of RevPAR that is mostly rate would be north of 60%

China

  • China RevPAR growth in the 2014 could be in the single-digit percentage range based on stabilization and an easier comparable prior-year results.

Preferred Acquisition Markets

  • focused and actively looking gateway city opportunities in Europe, in the U.S., and Miami and Los Angles remain high priorities

Park Hyatt New York

  • Commitment to purchase the hotel upon completion at a fixed price of $375 million
  • 210 keys, so about $1.8 million a key
  • Hyatt is a two-thirds joint venture partner in the JV that has a commitment to buy the hotel
  • No depreciation included in 2014 outlook
  • don't expect to consolidate this hotel in 2014 financial results
  • Scheduled opening is targeted for mid-year
  • Seeking property-level debt probably in the range of 50% of the total purchase price.

Modeling (EBITDA) Adjustments

  • the acquisition in Orlando, will be a net $45 million of incremental
  • Playa will be an incremental about $10 million
  • San Antonio would be in the $15 million range as a positive
  • deduct some of the sales for 2013, particularly the full service sales, and that would be in the $20 million range

Acquisitions & Dispositions

  • Closed on the previously announced purchase and sale of 10 Hyatt, Hyatt Place and Hyatt House hotels, totaling 1,560 rooms to RLJ Lodging Trust for approx $313 million. Hyatt affiliates will manage the hotels under new management agreements.

  • Openings:
    • Hyatt Regency Phuket, 199 rooms
    • Hyatt Place Houston/The Woodlands, 146 rooms
    • Hyatt Place Fredericksburg-Mary Washington, 93 rooms
    • Hyatt Place Amsterdam Airport, 330 rooms
    • Hyatt Place Lincoln/Downtown, 111 rooms
    • Hyatt Place Manati/Puerto Rico, 104 rooms

Balance Sheet

  • On January 6, 2014, the Company entered into a second amended and restated credit agreement with a syndicate of lenders that provides for a $1.5 billion senior unsecured revolving credit facility that matures in January 2019. This restates its existing $1.5 billion facility which had been scheduled to mature in September 2016
  • From January 1 through February 11, 2014, the Company repurchased 329,823 shares of common stock at a weighted average price of $48.79 per share, for an aggregate purchase price of approximately $16 million
  • As of February 11, 2014, the Company had approximately $173 million remaining under its share repurchase authorization

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