Bird

Look I like markets, but it’s enough to make a guy a socialist when you observe how easy and consequence-free it is for a company to leave plastic-and-electronic shits on the sidewalk all over the place.  There’s always a grotesque euphemism:

Beyond

Beyond Beef ($BYND) IPO’d.  Unlike Uber, it has so far been a huge success.

I will disclose bought some shares of BYND once it was launched.  (I didn’t, like, “get in” on the IPO, like early investor Bill Gates no doubt did, I bought them on day one as soon as I realized it’d happened).

This product is dynamite.  The killer element: there is no gluten, no soy, and no GMO.  Soy-based meat replacements have always seemed pretty limp to me.  Beyond Beef I believe I first tried in burger form: terrific.  The crumbles I’ve used to make very satisfying bolognese-style ragus.  Beyond Beef uses pea protein.  I love peas. Here’s Orson Welles reading an ad for peas.

“Every July, peas grow there.”  I think of that whenever I think of peas.

Tyson and some powerful competitors may get in the alt-meat game.  I’m not certain Beyond’s moat will hold, but I think it’s hard to make an acceptable beef substitute to a beef eater, and they have done so.

A perfect use for this product is in the junk beef realm, the world of frozen ground beef for fast food tacos and burgers, where the beef itself is of probably repulsive quality, raised under obscene conditions, and the taste is really coming from packets of flavor-enhancing additives.

Beyond’s ability to get in on this market impresses me.  When I saw that Del Taco was serving Beyond tacos I tried them as soon as I could.  Here was an area well within my circle of competence (fast food tacos) where I had an advantage over other investors because I live in Del Taco’s range, near their headquarters.

source

Del Taco originated in the Mojave Desert.  The Mojave Desert may represent a possible future for the United States, and thus be on the cutting edge of trends.  There’s something sci-fi about the landscape.   Something prophetic.  Biblical.

When pioneers reached the American desert, they remembered the desert landscapes told of in the Bible.  They marveled anew at the prophetic power of the Bible on what would be faced on the way to the Promised Land.

At the Del Taco in Ontario (CA) where we stopped to try these tacos again, I asked the kid how the Beyond tacos are selling.  He said they were selling ’em out every day.

Del Taco’s stock has the ticker symbol TACO.  Surely Matt Levine or someone has examined how gimmick tickers tend to do.

Del Taco’s stock has never been a great winner.  Last five years:

Here is the last six months:

A pretty narrow range.  The Beyond taco launched April 25.  Possible that ~$1 bump there in late April – May comes from the Beyond release.  Or just from the stock crossing and staying beyond the legendary $10 threshold.

Whether stocks under $10 really are often ignored by big institutions or not, I haven’t investigated, I’ve seen takes on both sides and can offer no informed opinion.  It does seem like, despite Malkiel, there are dumb glitches like that in markets all the time.

Is Del Taco an effective sneak way of riding the BYND wave?  I don’t know. On May 6, Del Taco posted some disappointing earnings results.

source: CNBC

CEO John Cappasola had explanations though, don’t worry:

Although our quarterly results were negatively impacted by unfavorable weather in California and throughout the West as well as the anticipated three-week shift of the Lenten season

And consider his inspiring tone as he discusses the new Beyond campaign:

Last but certainly not least, we are using menu innovation to drive traffic in incremental Del Taco occasions with the exciting recent launch of the Beyond Taco and Beyond Avocado Taco, which are now available in all restaurants. As guest demand for vegan and vegetarian options continues to grow, we took the opportunity to partner with Beyond Meat, an innovative leader in plant-based proteins, to be the first Mexican QSR chain to develop a proprietary blend seasoned 100% plant-based protein.

A key objective as we developed our Beyond Taco strategy was competitive differentiation which we attack on three fronts, flavor, variety and convenient value. The team did a great job developing a proprietary and unique flavor profile that taste incredibly similar to our current ground beef, allowing us to broaden its appeal to not only attract vegans and vegetarians, but also those looking for better for you options or to reduce red meat without sacrificing flavor.

Next is variety. Our Beyond ground protein can be substituted for any other protein or added on any menu item, including burritos, nachos, bowls or salads. This provides best-in-class variety to our guests and endless future product innovation opportunities for our culinary team.

Word about the Beyond tacos is JUST getting out.  I think it’s fair to say I’m close to the front lines when it comes to fast food taco news.  Has the full impact been felt?  Will it matter?  How much of Del Taco’s consumers are recurring customers?  Will they care about this new item?  Will new customers be drawn in by Del Taco’s enticing campaign (advertised on signs outside every location I’ve seen in SoCal?  Who is eating the Beyond taco?  Cappasola:

And as expected, we are seeing some new faces as well as a lot of trial among our existing guests. So great opportunity here from a consumer standpoint. Generally, this is the type of customer that is in QSR today and QSR just is not traditionally providing them great options and we feel like we can.

It’s fun to think of the stock market as a chance to gamble on all these variables.  It will be interesting if TACO stock falls below $10 again.

One problem, I’d say, is that a Beyond taco costs fully a dollar more than a regular taco.

The pendulum seems like it’s swung in the USA national mood from feeling pretty optimistic about the future, as I think we all did in say 2009, to feeling pretty grim.  Maybe that’s just me getting older or my narrow bubble, but it feels like there’s less talk of wonderful possibilities for the near future.  Eliminating or reducing industrial meat-farming, improving our diets, making more and better food options available even in the cheap fast food space seems to me like it could be a great development of a blossoming future.

The future’s so bright I gotta wear shades, or as John Cappasola puts it:

Our operational efforts are paying off with early guest experience measurement survey results showing a high level of guest satisfaction for Beyond Tacos, even higher than the very successful Del Taco following its launch.

For me as a consumer, I will say, when I left Del Taco after trying the Beyonds for a second time, I felt, “now here’s brand that can deliver a value-oriented QSR-Plus position.”  Which, it turns out, is just what Del Taco was aiming for!

(Disclosure: I am nothing more than an enthusiastic amateur and I do not offer investment or financial advice.  I do not own shares of TACO at this time but I’m thinkin’ bout it!

Other Helytimes posts on business

Lionsgate

Lionsgate continues to grow into a vertically integrated global content platform of increasing diversity, reach and scale. The Company’s portfolio of assets includes one of the largest independent television businesses in the world, a 17,000-title film and television library, a world-class film business and an expanding global distribution footprint.

says their investor website.   What is Lionsgate?  How do we value an entertainment company?

I’m interested in Lionsgate, because they have a majority ownership of 3 Arts

The management company where I am represented.  In a way, I work for them?

Here’s a brief history of Lionsgate – which is not very old – from this recent LA Times article by Ryan Faughnder, entitled

Founded in 1997 in Vancouver, Canada, the company became known early on for edgy indie and horror films such as “American Psycho” and “Saw.” Lionsgate grew its firepower and boosted its stock price through acquisitions, catapulting itself into the big leagues with its 2012 purchase of “Twilight Saga” studio Summit Entertainment and the release of the first “Hunger Games.” The four-movie apocalyptic “Hunger Games” series grossed $2.97 billion. It impressed investors with its tactic of offsetting the risk of producing movies by pre-selling foreign distribution rights and bringing in co-financiers.

Then they had some busts:

“Gods of Egypt,” a $140-million mythological epic released in 2016, flopped after it was slammed by critics and accused of whitewashing its cast. A reboot of billionaire Haim Saban’s “Power Rangers” franchise disappointed after Feltheimer said on an earnings call that the company could produce multiple films based on the kids series.The studio’s decision to turn the third book in the “Divergent” series into two movies backfired when “Allegiant” flopped. A planned fourth installment was never produced.

That LA Times article is entitled Lionsgate, the studio behind ‘Hunger Games’ movies, struggles in shifting Hollywood currents.  

The Wall Street Journal had a whack, too, a few days later:

Apparently they are, at the moment, attempting to salvage a huge and expensive turd:

Lions Gate faces a major challenge called “Chaos Walking.” The first of several planned adaptations of a series of young-adult science fiction novels cost around $100 million to produce but turned out so poorly it was deemed unreleasable by executives who watched initial cuts last year, according to current and former employees.

A scalding take:

I’m not sure how much Wall Street has built the disaster here into the stock’s price.

Sir John Templeton taught us to look for points of maximum pessimism.  Is Lionsgate an opportunity? How should we value an entertainment company, which is liable to have big swings and misses?

First, what does Lionsgate own?

Over the course of its life, Lionsgate scooped up a bunch of film companies, in the process acquiring a library.  They swallowed up:

• International Media Group

don’t know what their big movies were

• Sterling Home Entertainment
• Trimark Holdings

Their biggest franchise might be Leprechaun

• Modern Times Group
• Roadside Attractions

They produced, among others, Supersize Me, Manchester By The Sea, Mystery Team, Winter’s Bone, Mud

• Mandate Pictures

Juno, This Is The End

• Summit Entertainment

Hurt Locker, Red, Hellboy, John Wick, American Pie, Ender’s Game

• Artisan Entertainment

Blair Witch Project, Ninth Gate, House of the Dead, Step Into Liquid

From that library I have to imagine Lionsgate will continue to make some kind of money.  Some of these films are things people will want to see and resee or rediscover, and it’s a good business to keep selling something that’s already made.  All told, according to their 2018 investor letter, Lionsgate has something like 17,000 films in its library.

I was surprised by this fact:

In fiscal 2018, we shipped approximately 65 million DVD/Blu-ray finished units.

The Lionsgate investor page highlights some of their big ones:

The big engine at Lionsgate in Media Networks is Starz, the premium network.

Home to Outlander, Power, Ash vs Evil Dead, a bunch of costume-y looking shows.  Starz produces a lot of the profits:

Starz has performed well financially, with revenue increasing 4% to $366.8 million and profits up nearly 10% to $134.1 million in the fiscal third quarter ended Dec. 31. It added just over one million subscribers in 2018.

There was a writeup of Lionsgate in a recent issue of Graham and Doddsville, “an investment newsletter from the students at Columbia Business School.”  You can read it free, here.  Amit Bushan, Bruce Kim, and Stephanie Moroney won 1st place at the CSIMA Stock Pick Challenge with their case.

Above-consensus subs projection results in a 12% above-consensus NTM adj. EBITDA. Given the FCF stability of the subscriptionbased business, we are applying a premium over movie studios (~10x). Note that 12x multiple is 12% lower than Starz’s recent average (13.7x).  Catalysts: 1) higherthan-consensus OTT subs growth in the next few quarters; 2) increased visibility on the impact of the international expansion; 3) M&A.

Not sure I agree with this assessment.  But there are a couple points I think are interesting about Lionsgate.

• Starz is easy to add on to your Amazon Prime.  In addition to being its own channel, it’s like an add-on to your Amazon.  To me as a customer, that makes it very accessible.
• 3 Arts is cool, and represents a lot of top tier talent.  It’s kind of hard to find a list of their clients if you don’t have IMDb pro, but here’s the top ranked by “Star Meter”

Chris Evans	7
Jessica Alba	60	Michael Rotenberg – Manager
Patricia Arquette	78	Molly Madden – Manager
Rebecca Romijn	256	Molly Madden – Manager
Jeffrey Donovan	357	Michael Rotenberg – Manager Troy Zien – Manager
Natasha Lyonne	379	Dave Becky – Manager Cara Masline – Manager
Haley Lu Richardson	604	Molly Madden – Manager
Robert Pattinson	721	Nick Frenkel – Manager
Kevin Hart	786	Dave Becky – Manager
Jessica Paré	820	Nick Frenkel – Manager
Erin Moriarty	1,025	Sarah Shyn – Manager
Logan Marshall-Green	1,043	Nick Frenkel – Manager
Tyler Posey	1,047	Sarah Shyn – Manager
Rachel Bloom	1,081	Greg Walter – Manager
Peter Serafinowicz	1,128	Michael Rotenberg – Manager Nick Frenkel – Manager
Willa Holland	1,270	Nick Frenkel – Manager Sarah Shyn – Manager
Jeanine Mason	1,311	Sarah Shyn – Manager
Jamie Chung	1,319	Sarah Shyn – Manager
Aimee Carrero	1,347	Sarah Shyn – Manager
Patrick Warburton	1,353	Troy Zien – Manager
Amy Poehler	1,464	Dave Becky – Manager
Matt LeBlanc	1,481	Michael Rotenberg – Manager Troy Zien – Manager
Adam Pally	1,483	David Miner – Manager Greg Walter – Manager Josh Lieberman – Manager
Virginia Gardner	1,550	Troy Zien – Manager Sarah Shyn – Manager
Glenn Howerton	1,620
Chris O’Dowd	1,682	Nick Frenkel – Manager
Olivia Thirlby	1,816	Sarah Shyn – Manager
Dacre Montgomery	1,823	Lital Spitzer – Manager Nick Frenkel – Manager
Mindy Kaling	1,881	Howard Klein – Manager
Matthew Gray Gubler	1,882	Dave Becky – Manager
Terry Crews	1,903	Troy Zien – Manager
Debra Messing	1,961	Molly Madden – Manager
Maya Rudolph	1,966	Dave Becky – Manager
Charlie Day	2,136	Nick Frenkel – Manager
Tina Fey	2,157	Richard Abate – Manager David Miner – Manager
Kristin Chenoweth

What impact that will really have on 3 Arts’ bottom line, I’m not sure.  But they do have access and potential synergies with some pretty explosive entertainers and creators.

• The company has been profitable over the last four years:

As always around here, we like to look at a picture of the company’s CEO:

Here is John Feltheimer.  He gets paid a lot of money.

Is this company worth $2.8 billion dollars?

I’ll be interested to hear their fourth quarter earnings report on May 23.

Thank you for joining us on a continued journey to learn about business and entertainment.