JS Notes: BAC, CSX, ICE, JPM, NFLX, WFC

We’re excited to announce that Jeremy S., an investment analyst here in Southern California, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.

 

Netflix CEO Reed Hastings believes the business is significantly under penetrated in international markets

“For most global Internet firms, the U.S. is 20%-35% of usage and revenue; we’re not anywhere close to that yet but we’re continuing to invest in international.” 

Netflix Chief Content Officer Ted Sarandos says the company is seeing the highest returns of its capital in its own original content 

“What we’re seeing is that dollars invested in our original programming are more efficient in that for every dollar spent, we get more bang for the buck in terms of hours viewed. and hours viewed leads to higher retention, more word of mouth, and more brand halo.”

 

 

Bank of America CEO Brian Moynihan says the bank has been laying off employees in various departments to drive efficiencies but the bank has also been adding headcount in sales and relationship-focused bankers

“We continued to reinvest in sales capacity. So just in our consumer business, headcount is down year-over-year but we have a thousand more sales people roughly out there selling. And so the idea is to continue to drive sales people into the businesses.”

 

 

Intercontinental Exchange CEO Jeff Sprecher on how they’ve grown different verticals of the business over the years

“Well, we have our historical data business that we grew organically, which was all commodities data set. And when we acquired the New York Stock Exchange, we acquired along with it obviously the data from trading U.S. equities and equity options. And then we acquired the Liffe Exchange, which gave us really an interest rate data footprint. We’ve built a new company called ICE Benchmark Administration, which is the company that took over the LIBOR administration, the Gold Fix and the ISDAFIX.  So we’ve got this new footprint of what are really regulated benchmarks going forward, very global, very important regulated benchmarks.  But what you’ve seen is the evolution of my company from trading into clearing and now increasingly into data and indices.”

Intercontinental Exchange CEO Jeff Sprecher sees growth in the derivatives business coming from Asia 

“We’re betting that Singapore is that nexus for all of Asia, which would include China, Japan and these growth areas of Malaysia, Indonesia and, Vietnam.”

Intercontinental Exchange CEO Jeff Sprecher sees significant operating leverage inherent in the data intensive business model of the stock listings and benchmark listings business

“There is also a very big footprint in our business that’s no longer volumetric.  Things like over-the-counter clearing where daily volumes are not reported but are growing tremendously, and then we’ve ended up with a very large data and listings business. But basically recurring revenue business that is growing against a relatively fixed cost. So, similar model to when the business went from analog to digital on trading, which the allure of that was this fixed technology cost against growing volumes.”

Intercontinental Exchange CEO Jeff Sprecher on the recurring nature of the NYSE listings business model=

“The listings franchise on the New York Stock Exchanges is a business that has been growing. There’s been a lot of IPOs in the last year or so.  And that is a massively recurring business with at least 2,500 listed companies, lots of ETFs and other things that are providing annuity revenue against a very fixed cost base.  So, you take all that together and about 40% of our business is in a form that is much more recurring than it used to be in the past.”

 

 

Wells Fargo CEO John Stumpf said that physical banking branches will remain a key part of how they intend on serving customers even though consumers are adopting mobile banking on a massive scale

“We’re in the information business as much as on the retail we’re in the financial services business, so this is really about connecting all the channels, not about trying to drive customers into what’s cheaper for us. That’s not how we think about that. We think about what’s best for the customers, and branches still remain an enormously important part in that.”

Wells Fargo CEO on John Stump discussed the firm’s recent bolstering of its investment banking unit

“The way we think about business here is around relationships, relationships with team members. My 11 direct reports have an average of 28 years with the company. We think of relationships with our customers, our communities, our shareholders. Buffett’s been an owner of ours for 25 years. We love long-term things, so as it gets to investment banking activities, we think of that as another solution, another product, another service.  Most of the revenue that comes from that business is from existing customers who have been doing business for a long, long time.  I only care that we do the right thing for customers.”

 

 

JP Morgan CFO Marianne Lake said a number of macroeconomic events occurred which helped JP Morgan’s transactional revenue

“A number of macro events occurred in the quarter including central bank actions, the Swiss Bank decoupling, stronger dollar and oil price volatility which supported market performance broadly and currencies, emerging markets, rates, commodities and equity.”

JP Morgan CFO Marianne Lake said loan performance in the bank’s energy exposure weakened during the quarter as a result of lower oil prices

“This quarter’s reserve build was at downgrade in the E&P portfolio and if the current price environment continues, it’s reasonable to expect some further reserve builds during 2015 but relatively modest.”

 

 

CSX CEO Michael Ward sees a robust pricing environment for transportation companies who are moving large physical goods

“We still see capacity as been very tight.  If you notice our minerals business was I think around 11% or so based on a lot of highway infrastructure, projects going on particularly in the region and country that we serve, so we’re seeing truck capacity staying relatively tight. Coast wise barges have been very strong and strong demand, so we still see capacity fairly tight and we still see a strong need for transportation, pricing does seem to be very robust if you look at the spot truck load market it is remaining fairly strong. So we see that it’s still a very strong, robust pricing environment.”