Sprint (S) at Goldman Sachs Conference 2016 Notes

Every employee has been given equity based incentive, that triggers only if the stock price reaches $8

“Every single employee — over 30,000 employees, we did 30,000 grants. So every single employee has the exact copy of what I — of my incentive package, meaning no equity until the stock hits $8”. Marcelo Claure – President and CEO

 

Prime families are the ideal customer

“Now just putting perspective, a prime customer will stay with you about two and half times more than a subprime customer… And if you could capture that which is what we want, prime families that come more than individuals with a single line, you start seeing the business provide a very different customer life value and profitability changes.” Marcelo Claure – President and CEO

 

Wireless communication industry is aggressively competitive

“I think we’re living in a pretty competitive environment. If you look at Verizon’s advertising, it’s turned a bit aggressive. They hire people to talk about the Sprint network and for also you would be following Verizon, they have not done that I think.” Marcelo Claure – President and CEO

 

iPhone war results in free iPhones

“There is once a year where there is a big launch of iPhones and we all try to basically put up the best offer. I think this year, we are very little creative. I think we all went with a free iPhone. So therefore there is no competitive advantage. So it’s interesting to see Verizon and AT&T react fast” Marcelo Claure – President and CEO

 

Consumers are confused by data plans, and prefer a fixed bill

“And the vast majority say, give me one bill, with a fixed amount that I don’t need to try to figure out how many gigabytes, how many megabyte — maybe you guys are smarter than me, but I don’t know how to use a gigabyte. I don’t know what it really means” Marcelo Claure – President and CEO

 

After years of bashing, PC Magazine gives Sprint some favorable coverage

“I thought the editors of PC Magazine really hated us, they were bashing Sprint for years and if you read PC Magazine today, they have done an awesome piece that basically shows why, yet Sprint is not better than Verizon yet, but we are the story. We’re the comeback story. We’re more reliable than Verizon in certain markets. We’re faster than Verizon in other markets.” Marcelo Claure – President and CEO

 

Sprint believes it has a cost advantage in network structure

“Every single structure comes into a control tower in which we basically figure out what is the most cost efficient and the fastest speed that you can deploy a structure…. We believe that we have a competitive advantage in how we’re deploying our network and what is our cost to basically put a new gear and what’s our cost to operate a network that we feel is not being good but just basically exposing our plan. It’s very different than the way our competitors have deployed networks.” Marcelo Claure – President and CEO

 

Building a network is no longer extremely expensive

“Look at our network today, it’s the lowest CapEx. Now as we densify our network, yes we’re going to increase our CapEx and yes we’re going to increase our OpEx. But never to the tune of the way it’s been done in the past. There is way too many new technologies today. We have way too much spectrum and we’ve been real smart on how we deploy our network.” Marcelo Claure – President and CEO

 

Smaller companies like Sprint favor net neutrality, while its bigger competitors oppose it

“Sprint was the first one that endorsed net neutrality because we believe that when you’re a smaller company, it is not such a bad thing to have the government look over and in many competitive practices that or bigger competitors do.”Marcelo Claure – President and CEO

 

Sprint plans to use its spectrum to get financing

“We have a lot of spectrum and we’re right now — our goal would be that before the end of the year we’re able to potentially basically be able to use spectrum in order to finance the company.” Marcelo Claure – President and CEO

Verizon Communications (VZ) at Bank of America Merril Lynch 2016 Notes

VZ’s plan for AOL and Yahoo is to create a consumer brand company, in contrast to Facebook and Google’s emphasis on social

Yes, I would say just again super high level is, there is two strategies that it won’t work. One is basically anything, but Google and Facebook strategy overall. And the second one is copying Facebook and Google. So, I think, we were successful at AOL, because we chose a very clear gap in the market, where there was opportunity and we invested against it. I believe there’s a gap in the market that’s bigger than we’ve got AOL. And I – with Google search and Facebook is social, I think, we will be the brand company that essentially builds brands, builds consumer brands, but also on the B2B side helps other people build their brands. And the gap in the marketplace are the following two places. Tim Armstrong – Chief Executive Officer, AOL

 

VZ is going to become a brand company by providing a different set of tools, data, and metrics

We’re coming to them with a different set of metrics, different set of data, and different set of targeting criteria around content. And that allows us to have a differentiated place in the marketplace. And then number two is, in a lot of cases, where search and social have gotten tremendous traction, and they’ve done a very good job with that overall.

A lot of the dollars that have lagged behind or in this brand space and that’s where we’re working on a number of things, I think, are super innovative that will be done at the end of this year and into 2017, that will allow us to kind of push new types of metrics and opportunities to those customers overall. So, I – the easiest way to think about us is, if there’s search and social we’re branded. Tim Armstrong – Chief Executive Officer, AOL

 

There is a $90 billion new market coming over the next four to fives years in mobile and mobile video as 3.5 billion more consumers connect

You have a near-term opportunity over the next four to five years of about $90 billion of new market opportunity, just in mobile and mobile video alone. So, if you woke up today and said, hey, the size of this total pie there’s going to be 3.5 billion more consumers that could connect to this network, so there will be 7 billion people connected by the early 2020s. There’s a 90 billion near-term opportunity. Tim Armstrong – Chief Executive Officer, AOL

 

Google and Facebook dominate their market, but there is a clear market space for helping consumers find new customers

“where we come in as we help customers find new customers overall, and we help people measure, how do you find new customers. And that’s a very, very important, I’d say, strategic different lens into the ad marketplace than Facebook and Google are doing.

Again, Facebook and Google are way above us. They’re executing very well. But for the areas that we’re focused on, we think there’s a clear market opportunity for us in the ad technology and marketing space.” Tim Armstrong – Chief Executive Officer, AOL

 

Over a million people watched the Super Bowl on mobile

“But people said, hey, people won’t watch the Super Bowl on their mobile device. the reality is over 1 million people did watch the Super Bowl on their mobile device and it wasn’t everybody gathering around a big screen in a bar or somebody’s house.” Tim Armstrong – Chief Executive Officer, AOL

 

VZ has invested substantially in sports, because sports draw consumers in scale and consistency like a religion

“You look at what the investments that have gone into Yahoo Sports and Verizon put into sports overall through the digital properties. Sports is one of those things that is in a key part of people’s time, many times it’s on the weekend… You’ll see normal human beings during the week put on different clothing and go to a soccer match or a football match for those things. And the same – it’s almost a religion overall… if you went out all the middle schools or high schools in the country and you asked all of the middle schoolers or high schoolers to name every single player on the New England Patriots or name every single player on Manchester United, you would have a 90% percent hit rate” Tim Armstrong – Chief Executive Officer, AOL

Microsoft (MSFT) at Deutsche Bank Notes

Microsoft’s Azure is in a two-horse race with Amazon’s AWS

“I’d like to joke, each of these little blue dots you can kind of see from space and in many cases they are now massive, massive facilities. This is one in our east U.S. region, you can sort of see the scale that little thing in the bottom right is a very large truck. This is another angle of the build out that’s happening, this is ultimately, this facility is now I think actually built out, it’s about two miles long and this one location will ultimately host about a million servers. And this kind of scale at that global level is something we fundamentally believe, really very few companies in the world are going to be able to provide, and for the most part we see ourselves through the two-horse race today with AWS as that provider” Scott Guthrie – EVP, Cloud and Enterprise

 

Three requirements to become a cloud vendor–vast amounts of CapEx, thousands of engineers, and a lot of time–create a big barrier to entry

“I think to be a hyper skilled cloud vendor which I think increasingly is going to be the thing that any enterprise is going to want to adapt, I think you ultimately would have three things which create kind of a motive you will around the market. And one is, you need to be able to spend vast amounts of money in terms of CapEx, so billions and billions of dollars a year, building out data centers, buying private fiber, building servers; I mean that immediately creates a pretty big barrier to the market.

Secondly, you have is thousands of engineers that can write — distribute systems code; you can’t just buy into this market because none of the servers that we use now are off the shelf servers… And then the third thing you need to have is frankly time; a lot of these things that you learn in the cloud in terms of operating at the scale, there is no book you can go to Barnes & Noble, how do I manage million servers, it’s all pretty new, right… And so the combination of those three things creates a pretty big mode, and when I look at other vendors in the market, I think that’s going to be very difficult for folks to break in.” Scott Guthrie – EVP, Cloud and Enterprise

 

Azure has more than 120,000 new subscriptions every month

“Collectively, all these customers are driving huge amounts of adoption. We’ve got more than 120,000 new customer subscriptions being created every month, about 1.6 million production databases are now being hosted in Azure alone, more than 2 trillion IoT messages each week, more than 5 million organizations that have sung through identity server and integrated their user employee security as part of our cloud, 4 million developers, and the thing we always like to emphasize is as much as we are focused on enterprise, having a cloud is great for enterprises, also makes a lot easier for software vendors to build their solutions, hosted on our cloud and reach those enterprises as well, about 40% of our overall revenue for example with Azure comes from startups and software vendors building solutions on top of us.” Scott Guthrie – EVP, Cloud and Enterprise

 

Cyber threats are significantly greater today than they were a decade ago

“Well, I think in general the threat environment that we all live in now is significantly scarier than it was a decade ago versus two decades ago. And I think the adversaries out there are getting more sophisticated, the types of attacks that are happening are happening more frequently, and that’s just going to be the new normal for us going forward. And the important thing when you think about security is you’ve got to be paranoid and you can’t take anything for granted, and your any vendor who says, use my stuff and you will be perfectly secure, run away from because they — don’t get security or they are lying.” Scott Guthrie – EVP, Cloud and Enterprise

How Does Housing Compare to the Tech Cycle?

Even though Bank of America is trading lower, today’s quarterly release capped off what was a surprisingly good quarter for major US Banks.  In general, loans and deposits both showed growth, capital levels are extremely high and credit quality is significantly improved from where it was during the crisis.  Similarly, the housing sector has had some healthy reports as well recently (see previous post).

Seeing as how housing and banking were at the epicenter of the previous crisis, what does the fact that the two sectors are recovering say about where we are in the current economic cycle?  To try to help discern how this cycle compares to previous cycles, below is a chart comparing the performance of housing (ITB) and Financials (XLF) in this cycle to Technology (XLK) in the last one.  The chart shows relative performance of ITB, XLF and XLK compared to the S&P 500.  ITB and XLF are shown from 2006 and 2012 and XLK is shown between 2000 and 2007.

After the sharp collapse of technology stocks relative to the S&P from 2000-2002, XLK languished on a relative basis for the next four years before finally starting to outperform in 2006.  Similarly, both XLF and ITB showed steep drops and have continued to be losers since.  Now, years later, they may finally be starting to show signs of a turn.  XLK continued to steadily outperform the S&P 500 through 2012.  However, by the time XLK turned in 2006, the general economy only had one year left before it began to contract.