JS Earnings Call Notes 2.9.2016 – Oaktree, Yelp, and Linkedin

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Oaktree (OAK) Co-Chairman Howard Marks expects increasing defaults in high yield energy bonds
 
We expect a meaningful uptick in the U.S. high-yield bond default rates over the next 12 months with distressed energy sector contributing most significantly. As I believe you know, over the last five years, the average default rate has been just about the lowest in history for such a period.”
With more bond downgrades to come
 
Additionally, billions of dollars in investment grade energy and metals and mining debt could be downgraded to high yield status if commodity prices remain depressed. With the record amount of dry powder and our ability to add value in distressed assets across multiple strategies, including control investing, real estate, strategic credit and of course most prominently the Opps Funds, we are more optimistic about the ability to find attractive investments than we have been for several years.”
Oaktree (OAK) Co-Chairman Howard Marks thinks fear is creeping back into the market
 
Risk aversion is back after a five-year hiatus and a burgeoning supply of distressed opportunities is on the horizon. What started as a largely oil and gas focused dislocation has generalized into weakness across nearly every commodity sub-segment. And weakness is starting to bleed into other segments of the bond market, including media and retail.”
Oaktree (OAK) Co-Chairman Howard Marks doesn’t see a recession this year
 
“First of all, Michael, we fired our economist. So – actually that’s not true, we never had one. My general feeling is, I just don’t think that we’re in for a recession this year. And my feeling is that we’ve been limping along for several years now with an anemic recovery, and it even seems to be losing energy from that low level. But having said that, the consumption side is pretty good. I think that the gas savings are allowing people to improve their financial pictures, and the services businesses are resilient. Eventually, we’re going to have a recession, we always do, but I just don’t think it’s imminent and I don’t think it’s going to be a strong one in large part because we didn’t have a strong boom. We didn’t have an overexpansion of facilities or payrolls.”  
Relative to the rest of the world, they are reasonably optimistic on the Eurozone region 
 
One area we are selectively adding to at the present, however, is Europe. The reasons for our optimism about Europe include Europe’s evolving economy and the ECB’s quantitative easing, which is supporting credit fundamentals. It’s also worth reemphasizing Europe’s lower exposure to known troubled sectors such as commodities and its structurally lower sensitivity to interest rate movements.”
And they are putting their dry powder to work
 
We currently have a very robust pipeline of potential acquisition opportunities and our deal funnel is about as strong as it has been in some time. The bottom line is that this is a good time to have capital to spend.”
Oaktree (OAK) CEO Jay Wintrob said sovereign wealth funds represent 8% of the company’s assets under management
 
So sovereign wealth funds are an important part of our client base, but not really a vital part I guess you’d say. They represent about 8% of our AUM and that number has been consistent for several years. In terms of growth just in the last year, I think sovereign wealth funds represented about 18% of the growth, so a faster growth rate in our AUM from sovereigns than from our clients in the aggregate. We’ve been fortunate. We’ve added sovereign wealth clients in the last 18 months and, in fact, one of our largest sovereign wealth fund clients helped seed one of our step-out strategies.”

Yelp (YELP) CEO Jeremy Stoppelman said the company is seeing increased engagement from their mobile app 

 
Consumers are increasingly moving their online activity to mobile devices and we have evolved to a mobile-centric company. We will continue our focus in the mobile app since app users are more than 10x as engaged as web users based on the number of pages viewed and our shift towards the app will enable us to establish a direct relationship with consumers.”
And he believes there remains a large opportunity to capture a significant portion of online marking dollar ad spend
 
The vast majority of local business owners continue to advertise in traditional offline channels. Even though according to a 2015 BrightLocal study, more than 90% of consumers read online reviews when looking for a great local business. Migrating these offline marketing budgets online continues to represent a huge market opportunity for us.”
They’re spending more marketing dollars to increase brand awareness
 
We also see a significant opportunity to increase awareness in usage of Yelp. ComScore indicates that Yelp has only about 30% reach on U.S. smartphones. So in 2015, we expanded our marketing efforts to include our first TV advertising campaign to increase awareness. Based on a survey we conducted with Nielsen in the fourth quarter, unaided brand awareness increased from 26% to 41% over the last year among U.S. adults online.  We plan to invest approximately $50 million in marketing in 2016, which represents an incremental $20 million compared to 2015.”
Yelp (YELP) CFO Rob Krolik thinks they can steal market share from Yellow Pages offline directories
 
We think there is a huge opportunity in the market if you look at the fact that there is $7 billion in 2016 that’s being spent on Yellow Pages alone. I mean, most of that money is going to move online and we think we are the perfect place to grab that, given our high ROI.”
Yelp (YELP) COO Geoff Donaker addressed how they compete with tech heavyweights Google & Facebook for online marketing dollars
 
I think what I hear from our sales team is that Google and Facebook do come up, but in general, when they hear Google and Facebook from a local advertiser, that’s a really good sign. That means that the local advertisers who has already started to shift online and it’s a great opportunity for us to talk with them about Yelp advertising as well and we are very confident with the ROI that we offer the typical advertiser. More often frankly, we are dealing with prospects who don’t advertise online at all yet and that’s a more difficult conversation, because you are trying to get somebody effectively out of print and online, which is happening over time, but is a more gradual process.”

Linkedin (LNKD) CEO Jeff Weiner said their professional social network surpassed 400 million members

“In the quarter, cumulative members grew 19% to 414 million, unique visiting members grew 7% to an average of 100 million per month, and member page views grew 26%.”

And that mobile continues to gain traction 

“Mobile in particular grew three times faster than overall member activity, and now represents 57% of all traffic to LinkedIn.”

Linkedin (LNKD) CEO Jeff Weiner wants the company to become the de facto job listing site 

Another key member investment throughout 2015 has been to help members advance their careers. As of January, we’ve more than doubled the number of jobs on LinkedIn versus last year, to more than 6 million open listings.  Through improved discovery in our flagship and Job Seeker apps, as well as better relevance, we’ve seen a material increase in jobs engagement on LinkedIn, from approximately 30% year-over-year growth last January to over 80% growth today. In addition, our jobs app has seen traffic increase approximately six times from a year ago. And most importantly, we’re driving a greater volume of hiring by our customers.”

Sponsored content is their fastest growing product

“Sponsored Updates continues to be our fastest growing product at scale as well as our most profitable ad product.  Sponsored Updates continues to exceed our expectations given how quickly it has scaled. With the launch of the new flagship Feed, we are increasingly focused on driving even greater alignment between engagement and Sponsored Content growth.  Sponsored Updates grew approximately 85%.  And growth has been driven largely by a combination of engagement and customer adoption.”

Linkedin (LNKD) CEO Jeff Weiner called it a competitive hiring environment in Silicon Valley for top talent

We remain very competitive, especially with regard to technical hires, which has been a challenging hiring environment, I think, for a couple of years, especially here in the valley. And I think our team has done excellent work in terms of continuing to add to the world-class folks that we already have here.”

Linkedin (LNKD) CEO Jeff Weiner said trust is at the core of their business

With regard to plans to leverage data off of LinkedIn.com, that comes back to Members First. And we’ve talked about this in the past, but trust is the foundation, it’s the bedrock upon which our entire ecosystem exists. And we talked about Members First as a value, it’s a first principle. And so to the extent we can be leveraging data to create more value for members and more value for customers in a way that’s consistent with that first principle, then we’ll explore those opportunities.”

China is their fastest growing market for new members

With regard to China, China continues to be our fastest-growing market in terms of new users. And growth was very much a part of the strategy there, it was priority number one. At this point, given the initial success we’ve had in terms of penetrating the marketplace – not dissimilar from where we are elsewhere in the world – we want to begin to invest increasingly in engaging those members.”