Below is the replay from today's edition of RTA Live.
Please note that we are removing Deere from Investing Ideas today (bear side) and replacing it with Foot Locker (also bear side). Please see brief explanation below from Hedgeye CEO Keith McCullough.
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Like we did with Shake Shack (SHAK), we’re trying to give you a look-inside our Institutional Research #process where NOT buying the all-time highs in names is an important risk management decision for long-term investors.
We’ll keep the SELL ideas list fresh for you so that there’s a flow of new research information. Especially at #LateCycle market tops (they are processes, not points), timing matters.
Now that DE has backed off its highs, we’ll exchange it with FL (at its highs).
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Takeaway: P's new plan to ramp 2H15 marketing expense is an odd pivot this late in the year. Mgmt may be getting more nervous about Web IV.
- GOOD PRINT: P produced upside to 2Q estimates on a reacceleration in ad revenue growth, and also guided high 3Q15 revenues (we expected soft 3Q guidance). The biggest surprise from 2Q15 was a sharp acceleration in Advertising RPMs growth (up 25% vs. 15% in 1Q15), which on a stand-alone basis would be very encouraging, but was largely fueled by a sharp deceleration in listener hour growth from fewer skipped tracks (enhanced user customization). The one blemish was the consensus miss on Active Listeners, which we continue to expect will decline y/y by 4Q15. Regardless, a better print than we expected.
- ODD PIVOT: P softened its tone a bit regarding Web IV, suggesting that it’s planning for a range of potential outcomes, which is naturally the prudent move, and not a concern. But what caught us by surprise was P's new plan to ramp 2H15 marketing expenses. P left 2015 EBITDA guidance in tact despite net 1H15 upside ~$12M, which is supposedly going toward incremental 2H15 marketing. For context, marketing spend was $17.6M in 1H15, and $16.4M for all of 2014. We suspect this marketing ramp is either a sign that P is increasingly concerned with its attrition OR that P is trying to make a late push into its higher-ARPU subscription product ahead of a potentially crippling Web IV decision for ad-focused model. Either way, it’s an odd pivot this late in year, especially following closing arguments for Web IV this past Tuesday.
- WEB IV IS ALL THAT MATTERS: We have been writing about this ad nauseam, so we'll keep this brief, and refer you to the links below. We expect P is going to lose the one debate that it can't (bifurcated royalty), and our take from Web IV final arguments is that P will be the odd man out from the tacit horse trading between SX and NAB/IHRT. For more detail, see links below.
Let us know if you have any questions, or would like to discuss in more detail.
Hesham Shaaban, CFA
WEBCASTER IV NOTES
P: Notes from WebIV Closing Arguments
07/22/15 01:26 PM EDT
P: Losing the Critical Debate?
04/08/15 08:53 AM EDT
P: Worst-Case Scenario? (Web IV)
03/23/15 09:30 AM EDT
P: Webcaster IV = Powder Keg
01/13/15 02:49 PM EST
TICKERS: MPEL, MGM
July 24 11am-2pm: PENN Plainridge tour and investor day
July 28 8:30am: WYN 2Q CC ; PW: WYNDHAM
July 29 10:00am: HLT 2Q CC ; PW: 74328196
July 30 9:00am: HST 2Q CC
July 30 10:00am: MAR 2Q CC ; PW: 66506287
July 30 1:00pm: HOT 2Q CC ; PW: 69941686
July 31 10:00am: RCL 2Q CC
- Wild Rose Jefferson opens
- St Regis Macau opens
August 4: 11:00am: MGM 2Q CC ; PW: 0575269
August 4: 5:00pm: AWAY 2Q CC
August 6: 8:30-1pm: RCL INVESTOR DAY (NYSE)
MPEL - Declining GGR risks need for austerity from Macau gaming operators, according to Lawrence Ho, CEO of MPEL
- “As the [Macau] Secretary for Finance said, this [GGR monthly tally] is kind of right at the level where the [Macau] government might need to look at austerity measures, which would be less than ideal,” Ho said.
- “If the government is looking at austerity measures, maybe a lot of other businesses – including gaming operators – will have to look at it as well,” he added. He did not say what those cost-cutting measures could be, according to media reports
- Ho also said they will soon announce the opening date for Studio City, which is 95% complete.
MGM - A 15% to 25% loss in gaming revenue was possible if a blanket smoking ban would be imposed on casinos, as had been the case in other gaming jurisdictions, MGM China CEO Grant Bowie said Thursday. Bowie insisted that smoking lounges were a “very good compromise” vis-à-vis the government’s proposal to impose a full smoking ban on all gaming premises, comprising mass gaming floors and VIP rooms.
McCarran Passenger Traffic - Las Vegas Intl. Airport reported the following traffic numbers for June:
- Total passenger traffic was 3,911,813 vs. 3,698,373 in June of 2014, good for a 5.8% YoY increase.
- June's numbers bring the YTD total to 22.1 million vs 21.2 million in 2014, a 3.8% YoY increase.
- Domestic passengers made up 3,533,752 of the total, a 5.7% YoY increase.
- International made up 291,011 of the total, a 3.8% YoY increase.
- Helicopter passengers made up 87,050 of the total, a 15.3% YoY increase.
Takeaway: McCarran continues to exhibit strong visitation numbers.
Louisiana GGR June - SSS: (8.25%) YoY
Takeaway: Smoking ban taking its toll. June overall was a little softer than expectations but we are projecting a strong July comeback, potentially up 5% in same store regional gaming revenue.
South Korea Visitation- The number of foreign tourists visiting South Korea fell 41% YoY in June, due to fears about an outbreak of Middle East Respiratory Syndrome (MERS) in that country, statistics showed and officials confirmed. South Korean casino operator Paradise Co Ltd – which runs venues catering only for foreign players – saw a 50.2% YoY decline in casino sales in June, the firm had said in a filing to the Korea Exchange on July 6. The June 2015 inbound tourism numbers showed approximately 750,900 arrivals, compared to 1.27 million in the year-prior period, said the Korea Tourism Organization.
Malta Cruise Traffic - Cruise passenger statistics published for the second quarter of 2015 show a 66.4% YoY increase for Malta. The number of cruise ships calling in the Maltese Islands grew from 89 calls in April to June 2014 to 108 calls this year. For the first six months of the year, traffic is up 39.9% YoY. Malta’s cruise sector is on a growth curve particularly as a result of a number of positive initiatives, said the tourism authority, ranging from strong performance by MSC and Costa, along with TUI homeporting.
UBER in Las Vegas - Cab company owners attending Thursday's Nevada Taxicab Authority session called it the most important meeting in the board's history. An industry proposal that deregulates several aspects of cab licensing won approval, setting the stage for a more competitive environment between cabbies and contracted Uber and Lyft drivers.
Owners applauded after the board's 4-0 vote that will eliminate time and geographic restrictions on cab medallions and convert them to around-the-clock use in any location in the county. The board also approved the addition of 20 new medallions per company, 10 immediately and 10 more effective Nov. 1. That's 320 more cabs between the 16 companies.
The move effectively allows cab companies to convert 791 time-restricted medallions and 433 geographically restricted medallions to unlimited use.
The end result is that there will be nearly twice as many unrestricted cabs, 2,730 compared with 1,443, on the road once every restriction is lifted.
Takeaway: Taxis trying to remain competitive with Uber.
Hedgeye Macro Team is incrementally bearish on U.S. consumption growth, based on the consumer's continued efforts to deleverage their household balance sheet combined with the peaking of consumer confidence and stagnating labor productivity.
Takeaway: For now, US regional gaming slowed in June but North American cruise pricing still doing well.
Editor's Note: The chart and excerpt below are from today's Early Look written by Hedgeye CEO Keith McCullough. If you would like to stay a step ahead of consensus we invite you to learn more and subscribe.
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...For your “value” friends who don’t do macro cycle work, please send them my way. I have a very basic lesson I learned a long time ago about thinking a cyclical that is tied to commodity #deflation is “cheap”: it’s going to get cheaper.
As Darius Dale shows in today’s Chart of The Day, the Russell “Value” index is underperforming the Russell “Growth” index by almost 1,100 basis points (that’s the most since, well, global growth really slowed in the summer last time = 2011).
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