SNAP, cracking and POP

“The metrics are there, hyperactive and FOMO millennial types making sure that their mates are watching and liking. Who on average check the app 19 times a day, or over once an hour in a normal waking day. Nobody controls the content that people search for, it is the collective that do the searching. Snap is quite simply about visuals, photos and videos. I read yesterday that YouTube has ten times the watched videos over Facebook on a daily basis, we don’t think of Google/Alphabet as a videos/movies company though.”


 

To market to market to buy a fat pig Resources, aka materials, took a bit of a pasting yesterday, the stocks as a collective were down over one and three-quarters of a percent here in Jozi. Kumba, Amplats, Glencore and Anglo, all down three percent and more on the day. Was it the Chinese lack of detail or focus on a lower growth rate that was to blame? Perhaps. South32 was ironically at the other end of the spectrum, the best mover and shaker in the ALSI 40, up nearly two and a half percent. There are many times that something happens that you cannot explain. Vodacom and Shoprite made up the other two “winners”.

There were a few sets of results on the local front, AVI, the owner of the brands like Freshpak Rooibos and Five Roses Tea (and the fifth one is for you, remember that cheesy ad?), Bakers biscuits and I&J, as well as Spitz and Green Cross shoes, reported numbers that looked about spot on. Growth in snacks and less so in shoes, it makes sense in relation to where we are in the economic cycle. The stock is trading at about their all time high, as is competitor and the one we mostly own, Tiger Brands.

Is AVI cheap? No, not screaming cheap. There is a decent dividend underpin there though, that may always keep the stock at a certain level. I am wondering what companies are likely to do in a higher dividend tax environment, would the shareholders encourage them to hold onto more of the cash, look for deals that make sense? We shall see, the only company to mutter anything of that sort I think was Sibanye. In the end the stock fell by around one-third, less than the market which was off by just over four-tenths of a percent.


 

Across the oceans and seas, stocks tried hard to gain back the lost ground, after an iffy start, in the end falling flat and short. The Dow Jones lost one-quarter of a percent by the close, the broader market S&P 500 was down by one-third of a percent and the nerds of the NASDAQ were down a little more than that. I did note a few headlines that suggested that Snap Inc. was a “sell” and it was the first day that the stock was down. Sure, they have only had three trading days so far, give the stockholders and company a break.

Talking break, is the crackle after the snap going to end with a pop? Time will tell, when we compared to relative market caps, profitability and revenues, they looked “light”. In the end, it is not for Evan Spiegel and his team to worry about being worth double Oprah (at the ripe old age of 26), or whether Snap is three times the market cap of Twitter, it is his job to stick the business on an even keel. At this cash burn rate they will be all out in the next few years. So the team needs growth, rapid growth, and they need the advertisers to come flocking.

The metrics are there, hyperactive and FOMO millennial types making sure that their mates are watching and liking. Who on average check the app 19 times a day, or over once an hour in a normal waking day. Nobody controls the content that people search for, it is the collective that do the searching. Snap is quite simply about visuals, photos and videos. I read yesterday that YouTube has ten times the watched videos over Facebook on a daily basis, we don’t think of Google/Alphabet as a videos/movies company though. Snap is a form of entertainment, to get your mates news and gossip (and real news). As well as to post weird and wonderful filters and lenses, vomiting rainbows, flower crowns to friend face swaps. There are risks to this business, for sure, as they say in the prospectus:

“If we do not develop successful new products or improve existing ones, our business will suffer. We also invest in new lines of business that could fail to attract or retain users or generate revenue. Our business is highly competitive. We face significant competition that we anticipate will continue to intensify. If we are not able to maintain or improve our market share, our business could suffer. We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.”

 

I suspect that the share price could come under heavy pressure if the selling started on cue, at this point the naysayers are getting louder. I think you just have to know that you own a business that is an advertising platform, and if the advertisers decide that another platform is better, then your product better evolve. For the time being I can see that Instagram have taken the competition very seriously, their product is evolving to keep pace. The hardware is in some cases making this “next level”. If people get bored with the entertainment platform (user fatigue), that would be a big problem. For now, Facebook and their 1.86 billion users are having a great time sharing pictures, statuses and videos en masse. In this space we continue to own Facebook as a primary investment. Alphabet and Apple are of course beneficiaries of all these platforms.


 

Company corner

Luxottica, the eyewear manufacturer, designer and distributor reported results last week. The business is made up of a few parts, the retail outlets you would know well as a customer, the Sunglass Hut, you would also be familiar with their brands if you bought online or at another outlet, Ray-Ban and Oakley, as well as Persol and a couple of others. You might also have worn one of the many licensed eyewear products that they manufacture for many luxury brands, here is a list of some of the brands you can buy at their outlets: Giorgio Armani, Burberry, Bulgari, Chanel, Dolce&Gabbana, Michael Kors, Prada, Ralph Lauren, Tiffany & Co., Versace and Valentino.

There is also another part to the company, their LensCrafters business where they are a global leader in prescription eyewear. There is always an irony for me, as a previous wearer of spectacles (and no doubt future wearer of spectacles), that someone with prescription eyewear is a “four-eyes and a nerd”, yet someone with sunnies (essentially the same thing), is cool and hip and with it. How does that work? The mysteries of humanity, sheep thinking and what is cool and not. All I know is that the sunnies protect your eyes against the glare and that spectacles help you see better. As simple as that, they are both helpful.

Sales for the 2016 financial year topped 10 billion Dollars, 10.056 to be more precise, an increase of 2.6 percent on the prior financial year. In Euro terms, sales grew a little over 2.8 percent. Basic earnings per share in Dollars (all that we care about) clocked 1.96 Dollars, an increase of 5.6 percent. The dividend is 50 percent of earnings, and as ADR shareholders, one will get the annual dividend on the last day of May, the equivalent of 92 Euro cents per share, less Italian dividend withholding tax. At nearly 52 Dollars a share, the stock trades on over 26 times earnings. And you and I can plainly see that the growth rates have definitely slowed. Added to that, Italian dividend withholding tax is 26 percent, so the yield pre tax at 1.88 percent is hardly a “steal”.

The 2017 outlook is for low to middle single digit sales growth, most of the other metrics “staying the same”. The stock reacted negatively, as you can understand. On what is a pretty demanding multiple, the year forward represents few opportunities for shareholders. There is something very different going on in the background, there is a deal pending with a French competitor of a similar size and scale, we wrote about this – Essilor & Luxottica to merge. We are currently not adding to this stock, we are awaiting the outcome of the deal and will assess post that. For the time being, we see little growth here, yet at the same time this is a growth industry.


 

Linkfest, lap it up

Imitation is the sincerest form of flattery but what happens when the imitator becomes the leader? (China’s Twitter clone will soon have more users than Twitter) If you had invested in Weibo when it listed in 2014, you would be up 145% now, Twitter on the other hand you are down 62%.

As Naspers shareholders, we all know how great the Tencent investment has been. Here is how it stacks up against other Tech investments – The Startup Investments That Really Paid Off

Infographic: The Startup Investments That Really Paid Off | Statista You will find more statistics at Statista

What?! Not checking email daily is why people get inboxes with 300 unread emails, many are just spam but some are important ones. As smartphones become more prevalent that 18% number should decline – How Often Do You Check Your Inbox?

Infographic: How Often Do You Check Your Inbox? | Statista You will find more statistics at Statista


 

Home again, home again, jiggety-jog. Stocks have started mixed here again, it has been tough out there, company cash pots are growing and they are less inclined to invest whilst politically, it looks a little “jaded” and growth rates are very low. Meanwhile, Trump policies are less than clear for the time being, Mr. Market awaits some action. Soon. It may well only be coming in the next few months, although healthcare reforms seem to be coming.


Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

Email us

Follow Sasha, Michael, Byron, Bright and Paul on Twitter

078 533 1063

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s