#$twc

Fundamentals

PREFACE Facebook crushed earnings last night after the close and the stock is riding high, spiking up 16%, which represents one of the single largest one day gains in market cap in the history of financial markets. STORY Facebook beat or met every consensus estimate set by Wall Street from revenue and EPS, to monthly and daily active users. We'll leave the actual results out -- they are available anywhere. This is not a news article, this is a research piece. The top 1% have this information, now it's time everyone else does too. Welcome to CML Pro, here we go: CHINA As of yet, Facebook has no users in China even though it has 1.59 billion monthly average users and growing. But, the company is making inroads to enter the country. Further, in the CML Pro research dossier, we discuss how Facebook will reach another 3 billion people by delivering the Internet through solar powered drones.

Photograph by Reuters

REVENUE per USER Average Revenue per User (ARPU) rose a staggering 26% to $3.73 (re/code). This is a critical measure, because, at some point, user growth will slow, so the growth story turns to increased monetization of the user base. VIDEO Online video advertising is the new battlefield. Spending in the U.S. will hit $9.1 billion in 2016, up from $4.4 billion just two years ago. Facebook and Google are at war, openly. Google has 175 million unique video viewers across all Google Sites in just the U.S. alone. Facebook has 90 million. Here's a chart from Statista:

Mark Zuckerberg disclosed that 100 million hours of video are watched daily on Facebook. That compares to Google's YouTube number that is between 500 million and 650 million. So, unbelievably, there is a lot of room for yet more growth. In our research dossier "Facebook Is Going for The Kill Shot on Twitter Right Now," we discuss in detail the two new tracks Facebook is following for real-time communiques. First, Facebook introduced Live Video and Collages in December of 2015:

Today we're beginning to test the ability for people to share live video on Facebook. While watching a live video, you can tap the Subscribe button to get notified the next time the broadcaster goes live. Source: Facebook

Then, on January 21st, bigger news was released:

Today we're launching the Facebook Sports Stadium, a dedicated place to experience sports in real-time with your friends and the world. Source: Facebook

The company is openly considering giving video its own location on the Facebook platform for people who just want to watch videos and Mark Zuckerberg was pretty clearly pushing the new initiatives. The company revealed that 500 million people are watching video on the platform each day. Do you thrive on understanding what's really going on in a company beyond headlines to find uncovered gems? Get Our (Free) News Alerts Once a Day. WHATS APP The messaging service crossed one billion MAUs. Facebook cut the $1 a year fee but Mark Zuckerberg continued to say that the business is monetizable and that company's are now advertising on it. In the full Facebook CML Pro research dossier, "Our Trip to India and Facebook's Impossible Dream", we discuss how WhatsApp may end up being larger than Facebook proper itself. This a totally different type of social media and has the power to connect the world and to double Facebook's reach and here's how: Get the full research report on CML Pro. FACEBOOK MESSENGER AND PAY Facebook Messenger crossed 800 million MAUs. That portion of the business is focusing on mobile pay. The company did reveal that revenue fro Payments in Messenger actually dropped 21% year-over-year but Facebook has loaded management with former PayPal executives (Source: TechCrunch.) Further, Zuckerberg said:

"We're looking at the stuff Apple is doing with Apple Pay, which is interesting and takes a lot of the friction out of payments. It’s good for everyone."

The idea is that mobile pay will push the amount businesses are willing to spend on Messenger. We have an entire CML Pro dossier dedicated to mobile pay: You can read it on CML Pro. Here's a taste: Here's the chart of global mobile payment transaction volume from Statista, forecasting out to 2017. This is in billions of dollars.

We break news everyday. Discover the Undiscovered. Try CML Pro. No credit Card. No Payment Info. Just the Power. INSTAGRAM The process of monetizing Instagram has already begun. The service has at least 400 million MAUs. In a stunning proclamation, Sheryl Sandberg said that 98 of Facebook's top 100 advertisers also advertised on Instagram in Q4. Sandberg also said that the Sutterfly campaign which spans across Facebook and Instagram and is targeted specifically to women with specific interests saw a 6.4x return on ad spend. OCULUS Mark Zuckerbeg said: "I am happy. I don't show much joy, but I am happy," with respect to the virtual reality (VR) hardware and app. Facebook has its sights set on the way we consume all gaming and media, especially movies and television. But the hardware isn't the crown jewel, its Facebook's app that goes with it. This is why the upside for Oculus is impossible large -- spanning all of humanity per the analysis of Dave Thier at Frobes: You can get the full research dossier on CML Pro (end of this article). WHY THIS MATTERS If any of the information we just covered feels like a surprise, in many ways it is. The mainstream media doesn't have the vocabulary to understand breaking technology and the top analysts that represent the wealthiest 1% of Americans have no interest in sharing the data they are keenly aware of. CML Pro research points to exactly what Facebook is doing. For example, did you know that Facebook spends more in research and development (R&D) per dollar of revenue than all other mega cap technology companies? Here's the chart:

“I’m frustrated with investors’ fascination with activists," says Irene Rosenfeld, CEO of Mondelez International (MDLZ)

Just like you can't pick your family-members, if you're a public company, you can't pick your shareholders. Irene Rosenfeld, CEO of Mondelez International has found a handful of new family members in the form of Nelson Peltz's Trian and Bill Ackman's Pershing Square. According to the Wall Street Journal, both recently took it upon themselves to provide the kind of unsolicited advice one might expect from a distant uncle that mistakes family for familiarity at the Thanksgiving table. Except, rather than telling her how to vote or questioning her choice in friends, they challenged Rosenfeld on the number of Mondelez' brands and, indeed, whether Americans would stop eating sugary snacks altogether. To this, Rosenfeld says, thank you, "I’m successfully running Mondelez for all shareholders—without the activists’ help.”

Mondelez is a Popular Activist Hedge Fund Position

Mondelez is among the most popular positions in the activist hedge fund manager universe. It overlaps with three activist investors -- Pershing Square, Trian and Relational Investors. Unlike Pershing Square and Trian, Relational Investors was not quoted in the Wall Street Journal article, and they have been exiting their position in Mondelez, but as of the last disclosure, their exposure to Mondelez represented a similar percentage of their disclosed portfolio to Pershing Square -- approximately 12% vs 13% for Pershing Square. The top two most overlapped activist hedge fund positions are Allergan PLC (AGN) and Time Warner Cable (TWC).

Pershing Square followed Trian into Mondelez

Pershing Square lagged Trian's position in Mondelez by more than four years. Trian has disclosed holdings in Mondelez ever since its split from Kraft in 2012, obtained a directorship in 2014, and has since grown its position to almost fifty million shares, as of the last disclosure. Pershing Square is relatively late to the story. Ackman disclosed a new, 7.5% position in August, making them the third largest hedge fund owner of Mondelez, according to Symmetric.io.

Is Mondelez already outperforming Trian and Pershing Square Expectations?

Jeff Kleintop puts together the latest on M&A – in both deal volume and deal dollar size – for his latest piece at Charles Schwab. He notes:

Merger and acquisition (M&A) activity of publicly traded companies around the world has hit an eight-year high, according to data from Bloomberg. Both the number of announced global M&A deals and their size in U.S. dollars in April surged to their highest levels since April 2007. March also posted one of the strongest months for M&A announcements in a decade. This surge comes after about a year and a half of rebounding global M&A activity.

Josh here – Between buybacks and buyouts, no one should be surprised that market participants are behaving as though there is a stock shortage. Because there is, as I explained here: Ladies and Gentlemen, the Stock Market is (still) Shrinking.

People are overbidding for quality stocks right now because:

a) they have to buy something with all the money pouring out.

b) there is a perception that what they don’t buy today, they’ll be forced to buy tomorrow at a higher price

c) it feels good, so why not?

d) career risk – can’t fall behind that benchmark for even a second before the redemption requests come rolling in.

e) capital is cheap free.

f) we’re living longer, there’s a sense that we can tolerate more risk because the new endpoint is 90, not 70. And we’ll need equity-like returns to get there, so let’s take risk now – not later.

The M&A boom just gives us one more reason. “If I sell now, chances are the buyer of my shares is either the CFO of the company executing a buyback or an activist who is about to push the stock into a buyer’s embrace.”

There’s a very 2006-2007ish quality to the desperation to participate. For those of you who weren’t there – the gist of every investment thesis was that such-and-such company is a no-brainer candidate for an LBO and that even if the stock went down, the value of the real estate on the company’s books would more than make up for it.

Substitute M&A / Buybacks today for LBOs and Private Equity 8 years ago and the rationales are largely the same.

Source:

...but the tech heavy NASDAQ posts another record close after setting new levels yesterday, helped by earnings from giants MSFT, AMZN and GOOGL (while AAPL reports on Monday). S&P 500 index rises to new all-time closing highs (prior closing all-time high was 2,117.39 on March 2nd of this year).

Still no fear in the market as the VIX at new 2015 lows (12.16 low), and no volume to speak off in markets today…strange times with markets holding at all-time highs despite what has been a very lackluster earnings season so far (more than 40% complete)…there just remain no other place to park your money other than equities.

The market’s recent stress was felt even more dramatically by popular, high conviction hedge fund positions over the past five days. The Symmetric Top Tech, Financials, and Consumer Discretionary indices each underperformed their corresponding benchmarks. Meanwhile, the Healthcare index handily outperformed its benchmark while the Energy index was relatively comparable. The table below illustrates the sector-specific stress and relief signaled by the Symmetric Top Position Indices.

Stock-specific stress drove the underperformance of the STP Index. Meaningful declines in a handful of popular, high-conviction positions that sit within the STP Index underpinned the stress. The positions include: (TWC) Time Warner Cable Inc; (YPF) Ypf S.a. Adr; (GE) General Electric Co; (ESRX) Express Scripts Inc.; (LBTYK) Liberty Global Inc.

Some positions provided relief to the STP Index. These include the following: (APC) Anadarko Petroleum Corp.; (DAL) Delta Air Lines Inc.; (HTZ) Hertz Global Holdings Inc; (CF) Cf Industries Holdings Inc; (JPM) JPMorgan Chase & Co.

The market’s recent decline had an even stronger effect on popular, high conviction hedge fund positions. They went from having outperformed the market, year to date, to underperforming the broader market. The shift led the Symmetric Top Positions to underperform the S&P 500 by 50bps, year to date.

Stock-specific stress drove the underperformance of the STP Index and Consumer and Tech Indices. The top three under-performers were Time Warner Cable, Inc (TWC), Comcast Corp (CMCSA), and Charter Communications Inc (TWC). The table below lists the most stressed positions across the STP indices.

Hedge fund managers did encounter some strength, however, over the past week. Indicators for Financials, Energy & Healthcare showed that popular hedge fund positions in these sectors outperformed their respective benchmarks. The most popular, high conviction positions in Consumer and Tech increased hedge fund stress and detracted from StockAlpha over the past week.

Underperformance or outperformance of the STP Indices’ corresponding benchmarks signals the stress or relief managers feel in the market. The table below illustrates the sector-specific stress and relief signaled by the Symmetric Top Position Indices. All indices and benchmarks declined in the past week, but the relative outperformance of STP Financials helped substantially.