Thursday, April 21, 2016

Starbucks: Second Quarter Earnings after the Bell

Starbucks earnings are out after the bell today. I believe if earnings come in below expectations, this will be a great buying opportunity for long term investors. One concern for potential investors right now may be the high p/e multiple, currently around 37 times earnings.

However, long term, the strong growth from Starbucks will continue to impress. The company is pushing hard into China and Greater Asia with the market in China now the second largest for Starbucks, behind only the USA. CEO Howard Schultz has said the company plans to open 500 stores in China, every year for the next five years. Clearly, management is looking to take advantage of the growing incomes there. For those investors who may be doubting coffee culture in China or the rise of the consumer would be mistaken. This past March, when I was in China, every Starbucks I passed was jam packed. Now, before you dismiss an empirical observation, the numbers confirm what I saw, fourth quarter revenues in Asia doubled year over year for the company. Rising incomes in the region and the growing emergence of a middle class will only continue to drive top and bottom line growth for Starbucks.

With further expansion plans into South Africa and Italy, Starbucks growth is not tapped out and will continue for the company. This is without mentioning the loyalty program, increased mobile app usage, and the continued innovation in the stores with wireless charging and free wi-fi in stores. 

Starbucks is currently valued at $90 Billion and I wouldn't be surprised to see news headlines in the future highlighting how Starbucks has passed McDonalds (valued at $110 Billion) in terms of market cap. The arches are parting way for the green apron. 

Wednesday, April 13, 2016

Fitbit: The True Oppurtunity

On news that a Fitbit has helped save a man's life and with the stock being up over 10%... Today I want to talk about the true potential of Fitbit.

Right now, Fitbit is a fitness company. The company has a focus on helping people get in better shape. The social platform allows users to interact and compete against each other. However, the great opportunity for the company lies beyond fitness, it is in overall healthcare and corporate wellness programs. 

A Fitbit may help insurance companies save money. If people wearing Fitbit devices lead healthier lifestyles, insurers may pay out less in health care costs in the long run. Health insurers may begin subsidizing Fitbit devices to their customers. After all, just a few days ago it was reported that a Fitbit saved a man's life. The doctor was able to utilize data from the Fitbit to administer medical treatment properly.

I see three points of focus for Fitbit to transition further into being an overall healthcare company.

1. Greater analytics & appealing visual dashboard

2. Statistically proven health benefits of the device

3. Increasingly accurate sensors

Fitbit is doubling R&D spending for this year. CEO James Park has mentioned they view themselves as a "digital health and wellness company" and 2016 will be a year for increased
"software improvements, more algorithms, and coaching". This speaks beyond getting people up and running more, he is looking beyond the hardware and seeing what these devices can tell us. 

Analytics provided to healthcare insurers can help them understand how a Fitbit leads to a healthier lifestyle, what level of activity or heart rate can lower the chance of heart disease. Actionable insights from Fitbit will force the hand of insurance companies. It will become clear that they must find a way to get these devices into the hands of their customers. At that point, not only will sales from the physical devices soar but also Fitbit will begin to monetize additional aspects of the business. The data and analytics they provide can be monetized. 

Of course, for all of this to occur, the sensors on the devices must improve. It's a safe bet that Fitbit engineers are working hard to do just that. If you believe that this is a possibility, it may a worthwhile investment while the company is valued at just over $3 Billion. After all, the healthcare sector is a $1 Trillion plus business per year.

Tuesday, April 12, 2016

Book Spotlight #6: The Organized Mind


"The Organized Mind"

By: Daniel Levitin

Quote Highlight: "The global economy means we are exposed to large amount of information that our grandparents weren't. We hear about revolutions and economic problems in countries halfway around the world right as they're happening; we see images of places we've never visited and hear languages spoken we've never heard before. Our brains are hungrily soaking all this in because that is what they're designed to do, but at the same time, all this stuff is competing for neuroattentional resource with the things we need to know to live our lives."          - Daniel Levitin

Do you ever feel as if the world is spinning faster and faster? This feeling that your life is increasingly flying past your eyes and you can't seem to put a finger on why. If you find yourself thinking “this must be new, it’s only just yesterday that everything seemed to move slower,” you may be correct. Daniel Levitin, a neuroscientist at McGill University, uses his knowledge of human cognition to explain why this now common phenomenon may be taking place.

This feeling that time is moving faster, of us humans being tired and forgetful is not ephemeral. It is real and it hinges on the new information age we have recently created. As Levitin explains, our brains were hardwired thousands of years ago, to focus on tasks that required concentration. Where to locate food, where to find shelter, these were important things for our brain to remember. Today, our brains are much more likely to remember driving directions than your Facebook password. He goes on to explain that our brains are becoming overwhelmed by all the information that is insistently pushed into our laps. Levitin brings in stories and humorous examples to take the complexities or neuroscience and simplify it so the reader can better understand what is happening.
Everything from old times to the rate at which our brain can process information. Speaking to one person, our brain processes 60 bits out of a possible 120. Trying to talk to two people at once, is barely doable. Once a third enters the mix, our brains become overwhelmed, and the only possible way to conversate is to switch between tasks, in this case, between speakers. Levitin goes on to explain that if we think we are multi-tasking well, think again. What we are actually doing is switching between different tasks extremely quickly. An example that shows this to be true occurs when you are driving down the highway. As you drive, you chat with friends in the car, but as your exit approaches, you quiet down and you may tell your friends in the car to quiet down as well, or you instinctively turn down the radio volume. This is your brain attempting to focus on taking the exit. It cannot multi-task effectively enough to find the exit while driving 70 mph, talking to your friends, and listening to the radio all at once. You need to concentrate on one task. Once you are formally on the exit ramp, you turn the radio back on and begin chatting again.

This cognitive phenomenon, that our brains are hardwired to concentrate and not to multi-task, may be why we feel so tired at the end of the day. Today, society is built around multi-tasking. People are texting, watching TV, talking, surfing the web, and playing a mobile game all at the same time. Let’s imagine a common scenario, you get home from work and sit down to watch the latest Netflix original series. As you begin to watch, your smartphone buzzes, it's an email notification. You ignore it but then it quickly buzzes again, this time a text, you write back and glance back at the TV. All the while Netflix is playing. Then another alert pops up on your phone, Lebron James just finished the game with 40 points, thank you ESPN app, now back to Netflix. And this loop continues throughout the waking day in some form or another. As much as you think that in this scenario you are multi-tasking, it isn't. This is ultimately what is making us feel tired and overwhelmed by ordinary everyday life. Your brain is being overly taxed. There are millions of distractions and notifications every minute of the day.

If all this is bad, what is driving our incessant need to check our smartphone or social media apps? Levitin explains how our brain gets a hit of dopamine each time we look at the phone. Thus, we are actually rewarding ourselves for becoming easily distracted. This becomes a sort of negative feedback cycle. The more distracted you become, the more your brain craves dopamine and ever more distractions ensue. At the very end of the day, you find yourself exhausted at all the work your brain has been doing at switching between tasks all day. This proves to be invaluable insight into the effects of the modern communication age. The future of new technologies remains uncertain, but this book allows us to at least understand what is happening to our brain and attention at a scientific level.

This book was very enlightening to read and I personally took to heart the idea that less is more. Technology is great, so long as you can harness it for good. Levitin offers all types of advice to stay organized and stay on task in today’s world. Some of his ideas I will definitely look to implement into my own life such as setting aside certain times of the day for different activities. At a certain set time, leave all distractions behind and focus on that task. Whether it is to clean your room, answer emails, workout, read a book… whatever. Only that task should occupy you. Turn off the television, put away the phone. If you’ve heard this advice before, Daniel Levitin proves with neuroscience that it is good advice. Find the book on Amazon here.

Friday, April 1, 2016

Tesla Model 3: 115,000 pre-orders within 2 hours

Last night, Tesla finally unveiled its planned electric car for the masses, the Model 3. The presentation was reminiscent of early Apple launches, with people lining up outside the company stores just for the right to put a $1,000 deposit down on a car that they had not even seen yet. 

The most striking aspect of the presentation was how Elon Musk began by talking about climate change. Before even mentioning the car or showing it off, he put up two graphics on the screen. One, showed carbon emissions from the beginning of time to present day. The other, showed how global temperatures are rising over time. He then spoke about how this car is important to the future of humanity; that it is important for the world to switch away from the internal combustible engine and to clean electric transport.

The take away from it all... this company is about more than just a car. Tesla is selling a powerful idea, an idea that they are the ones that will stop climate change. They are going to bring clean transportation to the masses, and on top of that, it will be done with a great car. A car that has the ability to run software updates wirelessly and plugs in to charge just like your phone. Buying a Tesla means you will never visit a gas station again. Musk finished off by thanking the 650+ Model S and Model X owners in the audience for their purchase, telling them they helped to fund the Model 3. Again, the belief that a purchase of a Tesla is about something greater than just a car. Your purchase of a Model S helped save the planet by funding the low cost Model 3. Now, your purchase of the Model 3 will help stave off climate change. 

Whether right or wrong, this belief has already helped Tesla build a tremendous cult following. It is this fervent belief in Elon Musk's dream that may help propel the company to the top in the years to come.