Sports Finance Report: Adidas Invests in Facebook for Soccer
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Lululemon Counting on Growth of Men’s Line to Reach $4 Billion by ‘20
Lululemon (LULU) introduced its first ever marketing campaign targeting male clientele in fiscal Q3; growing annual men’s sales 21% YOY, during the quarter. The athleisure company has publicly stated it is targeting $4 billion in annual revenue by 2020; projecting $1 billion in sales from the men’s division. During the Q3 earnings call, CEO Laurent Potdevin said the company currently sits “almost halfway there”; remaining on track to accomplish both goals, on time.
Howie Long-Short: LULU reported Q3 revenue grew 14% YOY (its 2nd straight quarter of growth) to $619 million; with gross profit rising 16% to $322 million. E-Commerce (+25% YOY) and international (i.e. China) growth helped drive the increases. It’s worth noting that the company set records for sales on both Black Friday and Cyber Monday, boding well for Q4 financials. Company shares are up 6% since the earnings release and 11% YTD.
Fan Marino: Kevin Watley, a consultant with GlobalData Retail, said that LULU’s ability to resist excessive discounting has strengthened the company bottom line (52% profit margin). Profit margins may be strong, but it’s corporate policy that is preventing discounted sales; not the company’s ability to restrain itself in a promotional market. The LULU website currently has 160 items on sale, but all are final sale; meaning no returns or exchanges. Who is buying a $69 t-shirt that can’t be exchanged if it doesn’t fit properly?
Adidas Invests in Facebook for Soccer
Onefootball, a German mobile application with 25 million users across 200 countries, announced it has closed on Series B and Series C funding rounds; the company previously acknowledged raising $20 million in investment capital. Described as “Facebook for football without the social element”, the app offers news, live scores and stats for over 140 leagues in 16 languages. Focused on building a premier user experience that results in higher conversions for advertisers, founder Lucas von Cranach said that despite the captive audience (90% opt-in to receive push notifications), the company “won’t build a betting business, won’t build a merchandise business, and we won’t build a ticketing business”.
Howie Long-Short: Onefootball remains privately held, but Adidas (ADDYY) participated in the most recent round; finding value in the captive mobile fan base mentioned. Information pertaining to the amount of capital invested and valuation were not disclosed. There are several publicly-traded soccer teams. Manchester United is traded on the NYSE under the symbol MANU. You can buy A.S. Roma (ASRAF), Juventus (JVTSF) and Borussia Dortmund (BORUF) over-the- counter. Lazio is traded on the Borsa Italiana under the symbol BIT: SSL.
Fan Marino: As recently noted, more teams at the 2018 World Cup will wear uniforms made by Adidas (11) than Nike (10); but that won’t be the case when it comes to cleats. It’s expected that for the 2nd World Cup in a row, more than half of all players will be wearing NKE footwear; 52% wore the brand at the ’14 WC. For comparison purposes, just 36% of players wore Adidas footwear in 2014.
Consolidation Trending in Gaming Industry
Consolidation is trending in the global gaming industry. In the U.K., tighter regulations that could result in dramatic revenue declines for gaming and sportsbook operators are driving the movement. Both Paddy Power Betfair (PDYPY) and William Hill (WIMHY) are exploring potential mergers with CrownBet; though no deal is imminent. In North America, fierce competition between regional companies has crippled profitability growth; as a result, operators are considering potential mergers. Penn National Gaming (PENN) is in discussions with Pinnacle Entertainment (PNK), to form an entity that would control 45 gaming properties within 12 states and Canada; it would not own any real estate on the Las Vegas Strip.
Howie Long-Short: PENN and PNK and are ostensibly already partners; Gaming and Leisure Properties (GLPI), a REIT owned by PENN, owns most of the land where PNK operates its casinos. Creating a larger “network” of casinos would in theory keep regional players from competing properties, but that seems like wishful thinking to me. Legalized sports gambling is a potential $150 billion market. The big players (MGM, CZR) are coming to town armed with megaresorts; how can smaller operators without the resources compete? I should point out that the Australian entertainment group Crown Resorts, owns a 62% stake in CrownBet (OTC: CWLDY).
Fan Marino: After Michael Flynn agreed to cooperate in the Russia investigation, odds of President Trump’s impeachment soared. Betfair was quoted saying, “Trump has hit his shortest price yet to leave office before the end of his term”; the company has impeachment currently sitting at 4/6 (59% probability). Paddy has the odds at 4/7 (63% probability); the company’s Head of Trump Betting (yes, that’s a title) said that prior to news of Flynn’s cooperation, odds sat at 11/10 (47% probability).
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While we won’t be publishing “hot takes” on LeBron’s relative greatness to Jordan, we will be offering up the most relevant sports related finance news, in easily digestible bites, with commentary from both the equities analyst and sports fanatic perspectives.
We’ll cover publicly traded professional teams & stadiums, television networks, apparel & footwear companies, equipment companies, ticketing companies, content and facilities providers. If it trades on Wall Street, and has a sports angle, it’s in our wheel house.
Howie Long-Short and Fan Marino will be providing their expert opinions on each story. They have slightly different areas of expertise. Fan Marino is a firm believer that the SEC is the premier football conference. Howie Long-Short knows it as the Securities & Exchange Commission. Fan Marino lives and dies with the college selection of 5 star, blue chip recruits. Howie Long-Short spends his days analyzing blue chip stocks. Howie Long-Short knows that Black Monday occurred on October 19th, 1987. Fan Marino swears it happens every January after Week 17. You get the point.