Zebec Research

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BLK: An Earnings Season Like No Other

BlackRock sees the asset management business as an information processing business. BlackRock’s strategy of diversifying revenues beyond asset management and focusing on providing advice & solutions is paying off. Strong flows in a difficult quarter. About 40% of net inflows were due to iShares, i.e., passive investments. Investors have rotated out of fixed income into other asset classes. BlackRock expect its sustainable investing strategies to attract $1 trillion by the end of the decade. The company is convinced that fixed income ETFs will be a $2 trillion market over the next 4 years and a significant growth opportunity for BlackRock. BlackRock had a call with 750 of its institutional clients in April. About 75% of institutional clients expressed that they plan on taking on more risk, buying the dips. Only 5% want to take risk off the table. Link to full report.

LNC: 1Q20 in a Nutshell

Producers can take comfort in knowing that Lincoln Financial will be able to meet its policyholder obligations. The management team at Lincoln Financial spent a considerable time talking about its strong capital position and going over all sorts of stress tests that are being conducted to ensure that the firm’s financial strength rating remains strong. In fact, the company’s risk-based capital ratio, which stands at 466% as of the March quarter, would not decline below 325% under a harsh economic scenario, which we describe on the following pages - this would be consistent with an AA rating. Our View: Producers can continue selling Lincoln Financial’s products with good conscience knowing that the company will be able to meet its obligations. Cash is king and Lincoln Financial seems to have sufficient of it. While there were some concerning news that companies in various sectors, such as gaming, retail or hospitality could not meet their rent obligation or had to furlough employees

Well Positioned for the Post-COVID World, GOOG Remains a Core Holding

1Q20 results: Alphabet posted solid 1Q20 results, all things considered. Advertising results sounded strong in January and February but saw an abrupt drop off in March. Search increased 9% for 1Q but ended March down at a mid-teens rate. While search activity increased, the searches were focused on less commercial topics. And advertisers reduced spending. YouTube ad revenues grew 33% but declines accelerated to a high-single digit rate by the end of March. Brand advertising accelerated in the first two months of the quarter but saw headwinds beginning in mid-March, while direct response advertising was strong across the quarter. Google Network ads grew 4% in the quarter. Growth was solid during the first two months but ended March with a low-double digit decline. Non-ad related revenue remained strong throughout driven by Google Cloud. Overall, the ad declines were not as bad as we expected. Google, especially Search, is highly exposed to small and medium sized busine

Movie Industry: Trolls 2 on PVOD - A New Industry Paradigm?

In this report ( link ), we build an analytical approach to frame the key questions around the Trolls 2 PVOD release: 1) will Universal make more money under a PVOD release for Trolls 2 than it would have under a traditional theatrical release and 2) if so, is it replicable? To answer the first question, we build a simple film model to evaluate Trolls 2 profitability under both a traditional theatrical and PVOD release. Model suggests profit of $54mm under theatrical release: Our film model suggests that Trolls 2 could have generated $267mm in lifetime revenues under a traditional theatrical release and adjusted profit (excluding the Universal distribution fee) of $54mm. The analysis is driven by the assumption of a $130mm domestic box office, which may be too bullish as some industry sources saw weaker tracking. Conservative PVOD model suggests profit 9% higher than theatrical: Forecasting results for a PVOD-only release is tricky as several key assumptions are exceedingly difficul

TSQ: Initiate Hold Trade Rating

We are initiating a Hold Trade rating on Townsquare as our more positive near-term fundamental views are offset in the near-term by the potential impact of the coronavirus. ( Report link and model link ). The terrestrial radio business has been facing secular challenges with likely LSD declines in core advertising in recent years driven by listenership declines. However, we think Townsquare is differentiated from peers because of the markets that it serves and its high-quality digital solutions. We believe Townsquare offers a strong portfolio of digital products to small advertisers that typically don’t have access to the services of an ad agency. And, because it is in smaller markets, it is generally competing with smaller media operators that don’t have the resources to build out these offerings. The structural attractiveness of Townsquare’s portfolio is reflected its relatively strong revenue growth outlook. Our current estimates – which do not include the impact of the

ETFC: MS to acquire ETFC

A couple of weeks ago, we initiated a Sell trade rating on E-Trade saying that the competitive environment was only going to get worse following the closure of the Ameritrade/Schwab deal and that we struggled to see a buyer for the company. That was the wrong call as Morgan Stanley announced this morning that it would acquire E-Trade in a stock deal worth $58.74/share. We continue to believe that the fundamentals would have gotten worse, which is why we think E-Trade chose to sell. However, we underestimated its attractiveness to a traditional Wall Street investment bank that was looking to move downstream into the more stable consumer market. In retrospect, when Goldman Sachs focused on its recent analyst day on the consumer markets, we should have realized that E-Trade would be in play. The deal will help MS build out its brokerage as well as its stock administration business. MS acquired Solium, a competitor to E-Trade's stock administration business last year for what looks t