Aaron Rodriguez

Dr. Rascher

Sports Economics and Finance

March 24,2020

The companies that an unsophisticated investor should invest in are Activision (ACTVI), Disney (DIS) and Skechers (SKX). The most I invested in was Activision, with 8,253 shares. I decided to invest in them the most because they seemed to have the most potential for growth since they are in the Esports space. They are a major player with established games which they can capitalize on through streaming licensing and branding opportunities. I invested 5,038 shares in Disney. Disney has potential for growth because they are looking to expand their Disney+ platform as well as the content which they provide. In the efforts leading up to their release of Disney+ they bought 21^st Century Fox. This is a major move as it adds more content to Disney’s; Disney Originals, Lucasfilm productions and Marvel Studios productions as well as studios that reach a broader audience with ABC and ESPN. While they transition all their content over to be exclusively on Disney+, ESPN+ and ABC app. This gives them more control over the profits of the content and the direction of the stories they wish to tell in the future by giving them the ability to expand their stories with new characters acquired by 21^st Century Fox. The third company that I invested in was Skechers. Skechers was the company that I invested the least amount of money because although they are looking to expand their business by opening new locations domestic as well as overseas. Compared to the other businesses that I have invested in they seem to have the least potential for growth that is why I invested the least into them. However, their moves towards expanding their business has me excited as an investor as it shows that the company will look at new avenues of increasing profits.

 

Disney:

Disney has been a longstanding company who continually has been pushing the entertainment field. Disney has always pushed entertainment technologies from the company’s inception. Their use of color animation in the beginning to their use of combining live action with animated film. Now they look to push the way that media is consumed today with their use of streaming platforms. As an investor it would be beneficial to invest in a company such as this because they have established brands but are looking for new ways for those brands to be consumed. Whether it be from new theme park attractions, streaming services or new production releases.

The first thing that an investor should look at is a company’s beta. This allows someone to understand what the stocks tendency will be in relation to the rest of the stock market. Disney’s beta is 1.04, this means that the company will have very little difference to the overall stock market. This signifies to an investor that it has long term growth potential because in general the U.S. economy tends to grow at a steady pace. Currently Disney has a dividend yield of 1.6% this is quite low because as an investor you would want between 4-6%. However, this is ok in the case of Disney because they are looking at expansion and their stock price continues to climb at a consistent rate. This continued growth could lead to a company to increase their dividend yield over the years. Before the Corona Virus Pandemic, the stock price was at $139.54 at the begging of the year the stock price was at $109.61. This means that there was 26.8% increase in the stock price over one year. This drastic increase in price proves that the company is retaining value despite not paying a high dividend yield and an investor can remain excited about the stock.

In the past quarter Disney has grown in their P/E ratio 33.2% and in the previous quarter they grew 10.6%. This means that the company is on an upward trend when it comes to the price of their stock in comparison to their earnings which is good for an investor because it shows a trend of an increase in the value of their stock. Disney is a good stock to invest in because they have established brands and are always looking to expand their sources of revenue through technology and branding opportunities. Branding opportunities can be capitalized through merchandizing and licensing. With an increase in revenue streams Disney will continue to grow their profits while diversifying their income with the new brands that they can profit from. With all of these ne streams of revenue good things to look at are return on equity and return on assets this will show how efficient the company is at using its resources the ROA is 4.72% while the ROE is 12.93%. These two ratios show that the company has a lot of room to grow which show to an investor that their investment has room to grow as well. With healthy numbers of ROA and ROE and a growing P/E ratio Disney proves to be a great stock to invest in.

 

Skechers:

Skechers has a beta of 0.9, this means that the company performs slightly worse than the overall market. This is ok, as a company because it will still have the general benefit of an economy such as the U.S. but it offers the company the ability to improve to closer align with the rest of the economy. Currently, Skechers does not pay out dividends. However, as they are looking to expand their business domestically as well as overseas, they may look to offer dividends to entice foreign investors as well as incline domestic investors to buy more stocks.

Skechers total revenue has increased 12.4% in the previous quarter and 11.5% in the quarter before that. This shows their ability to bring in money, this is important because it is an important factor when determining how a stock will fluctuate and what earnings will look like as an investor. The next thing to look for is the net income to see the relationship between the revenue and expenses. In the previous quarter net income increased 15.1% and the quarter before that they grew 68%. This relationship shows their recent news in investing in opening new stores.

Two quarters ago they increased their amount of money to spend on the opening of the new stores which was reflected in the next quarters net income. This is also important because even while they are spending their money, they are still brining more money than they are spending. One of the ratios that is important is price to earnings ratio. Price to earnings has increased by 10.9% in the previous quarter and 7.7% in the quarter before that. This shows that there is faster growth in the value of the stock for investors to profit off. This is also backed up by their profit margin of 6.61% which is a great profit margin since it is under 10%. Their operating margin is at 9.89% which is slightly lower than Nike but is above Under Armour. This puts them in the upper echelon of their industry which is important because this will show that their operations have room for flexibility as they use other resources for expansion.

 

Activision:

Activision is another stock that is great to invest in. The world of Esports is expanding and one of the top developers in the industry is Activision They produce games such as Hearthstone, Call of Duty and World of Warcraft, which combined have hundreds of millions of players. These strong brands could prove beneficial in the future as they learn to capitalize on their large audience base and start to break into mainstream culture. Activision has a beta of 0.5 which means that it has half the amount of movement that the rest of the economy does. This is good for a stock because it shows that it will have steady growth no matter what the economy status is. Currently, Activision has a dividend yield of 0.41 which is very low. However, as the industry begins to grow their dividend yield will increase. This should be exciting as an investor because the industry of Esports is expected to grow. According to Business Insider, the Esports industry is expected to grow in viewership at a 9% annual compounded growth. In 2019 Esports had a viewership of 454 million viewers and in 2023 the industry is expected to have 646 million viewers. This is an increase of almost 200 million viewers over a 4-year period.

With an increase in viewership this means that there will also be an increase in demand for products. This allows a company like Activision to position themselves as having the top games and this will allow them to profit off character merchandising, licensing as well as streaming their content to more platforms in the future. Over the past 3 quarters the price to earnings ratio has continuously increased. Last quarter they increased at a rate of 15.4% while the quarter before that they increased their price to earnings at a rate of 16.7%. Although the rate is slowing the company continues to improve which is a good sign to an investor. This shows that the company is continuing to improve and as more people become interested in Esports there will be more money made for investors. Activision has recently struck a deal with Disney to broadcast professional Overwatch matches on ESPN, ABC and Disney Channel. This will position Activision as a pillar of Esports as they expand their audience by streaming on these platforms.

Currently their profit margin is at 23.16% which is good since it is above 20% while their operating margin is 26.88% meaning that for every dollar in revenue almost 27 cents in profit is made. This is higher than their main competitors Electronic Arts Inc. (23.31%) and Take Two Interactive Software at (15.29%). This means that for an investor in the Esports industry, Activision would be the best company to invest in because they are operating at the highest level and have a multitude of expansion opportunities ahead which they will increase profits more for investors since they are already the most efficient in the industry.

Conclusion:

In conclusion; Disney, Skechers and Activision are great stocks to invest in because of their increasing financial gains as well as their ventures into expanding their streams of revenue. In the case of Disney and Activision they are looking to expand the way that people watch their content. While in the case of Skechers they are looking to expand the number of locations they have as well as expand their consumer base overseas. These developments should excite investors because it will drive up the value of a stock which can lead to higher dividend payouts or in the future, they can profit off selling their stock to other buyers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charts

5-year stock price outlook

Bibliography

Activision Blizzard, Inc (ATVI) Valuation Measures & Financial Statistics. (2020, March 24). Retrieved March 23, 2020, from https://finance.yahoo.com/quote/ATVI/key-statistics?p=ATVI

Electronic Arts Inc. (EA) Valuation Measures & Financial Statistics. (2020, March 24). Retrieved March 23, 2020, from https://finance.yahoo.com/quote/EA/key-statistics?p=EA

Nike, Inc. (NKE) Valuation Measures & Financial Statistics. (2020, March 24). Retrieved March 23, 2020, from https://finance.yahoo.com/quote/NKE/key-statistics?p=NKE

Noonan, K. (2019, August 3). Top Esports Stocks to Buy in 2019. Retrieved March 23, 2020, from https://www.fool.com/investing/top-esports-stocks-to-buy-in-2019.aspx

Reyes, M. S. (2019, December 18). Esports Ecosystem Report 2020: The key industry players and trends growing the esports market which is on track to surpass $1.5B by 2023. Retrieved March 24, 2020, from https://www.businessinsider.com/esports-ecosystem-market-report

Skechers U.S.A., Inc. (SKX) Valuation Measures & Financial Statistics. (2020, March 24). Retrieved March 23, 2020, from https://finance.yahoo.com/quote/SKX/key-statistics?p=SKX

Sun, L. (2019, February 13). 5 Reasons Skechers Stock Could Keep Soaring. Retrieved March 23, 2020, from https://www.fool.com/investing/2019/02/12/5-reasons-skechers-stock-could-keep-soaring.aspx

Take-Two Interactive Software, (TTWO) Valuation Measures & Financial Statistics. (2020, March 24). Retrieved March 23, 2020, from https://finance.yahoo.com/quote/TTWO/key-statistics?p=TTWO

Under Armour, Inc. (UA) Valuation Measures & Financial Statistics. (2020, March 24). Retrieved March 23, 2020, from https://finance.yahoo.com/quote/UA/key-statistics?p=UA

Universal Corporation (UVV) Stock Price, Quote, History & News. (2020, March 24). Retrieved March 23, 2020, from https://finance.yahoo.com/quote/UVV?p=UVV&.tsrc=fin-srch

Walt Disney Company (The) (DIS) Valuation Measures & Financial Statistics. (2020, March 24). Retrieved March 23, 2020, from https://finance.yahoo.com/quote/DIS/key-statistics?p=DIS

 

Each student must defend their choices as if they were a mutual

 fund manager presenting the information to an unsophisticated

investor by

writing a 4+ page paper (text is

4+ pages, relevant tables are

expected and are addition

al pages, 1.5 spacing)

analyzing their decision using f

inancial analysi

s to be turned

in on Lecture 3

.  We will discuss the areas

 to cover in class.  All

papers must contain the names of the

three publicly traded stocks chosen

, their ticker symbol, and t

he amount of th

e $1 million

to be invested in total for all 3 stocks.

 

 

 Introduction: My sales team at a brand-new venue is looking to sell personal seat licenses to consumers and to do that we are searching for a demographic who will buy seat licenses that will give our team the most profit. Our objective is to find which demographics are most important and then figuring out a strategy to target those individuals as well as how to make the most profit off them which means we will need to know how many tickets to sell these people as well as how much to sell the tickets for.

 

Methods: The first step in identifying the target group was to get rid of useless data. Any individuals who did not fill out all demographics were considered not useful. Considering that there were thousands of data points, results could not be skewed because the data was still large enough to make an accurate conclusion. Now that the data had only useful data points, I could now run descriptive statistic models in order to get a general idea about what the data will be when it comes to demographics. The next step was to run a correlation model to help identity which demographics influenced the highest sales. I overlaid a heat map to easier identify which demographic correlated most with ticket sale. The highest was personal seat license but I dismissed it because they are both dependent variables. After running the correlation model a regression model was run to see how much change total sales would have on other key statistical data previously identified with the correlation model. Those would be home value and totals sales as well as price per seat license. This allowed me to see if there was a significant change between a change in home value would there be a significant change in price per seat license and total sales. Once that was finished the final step was to create pivot tables to understand which groups within the key performance indicators were contributing to the most sales. Out of those groups I also needed to know how much people were buying tickets to find the optimal price and how many they were buying at that price.

 

 

 

 

 

 

Results: Once all the different models and pivot table analysis was completed, it was revealed that home value was the most closely related to total sale and price per seat license (21.95% and 24.25%) and then it was followed by income (11.30% and 10.72%). Once that was identified the regression model was run which identified that there was a positive correlation between total sales and price per seat license with home value as well as income. The R squared shows that as income and home value changes it will contribute to the change in total sales by 4.8% and the change in price per seat license by 5.9%. This means that as individuals’ income and home value go up so does their total sale numbers and their price per seat license value, but only slightly. This allows me to speculate that as people gain more money, they buy more expensive tickets. This would be later confirmed by the pivot tables. From the pivot tables, I found that 40% of total sales are to those who make between $141,000 to over $500,000 a year. While 20.68% of sales were to people with homes over $1 million. This shows that income is the most important determinant to increase sales. Most of that bracket of income were males between 42-65 which accounted for 24.42% and 40.70% of that income bracket owned homes over $1million. From the 42-65 age group I found that 50.8% of those people were married. Once knowing who bought the most tickets, I wanted to know at what price people were buying tickets at and I found that the most sold tickets were at $6,000 accounting for 13.99% of tickets. More interestingly about the statistic is that out of the 13.99% the pink division accounted for 12.79% of sales. The next thing to find out was how many tickets people were buying and I found that 55.09% of all ticket sales were bought as a pack of two. This confirms that as people increase income, they are not buying more tickets they are just buying more expensive tickets. In the income bracket of $141,000 to over $500,000 the most tickets were sold at a price per seat license of $3000 covering 9.45% out of those tickets 5.05% of those tickets bought were as packs of 2 that groups ticket sales followed by $15,000 at 6.29% with 4.43% of that being bought as packs of two. This can lead us to believe that there is no increase in the amount of tickets bought as income goes up rather that there is only an increase in the value of tickets that are being bought. 

 

Discussion: In conclusion, most of the ticket sales efforts should go towards males between the ages of 42-65 that make between $141,000-$500,000 who own homes over $1 million. This would target male-dominated high paying industries such as software developers, financial analysts, aerospace engineers, and architects that are senior managers or above in high luxury communities. For these people we would be looking to target them to buy for the pink division since it is in higher demand then we can charge more. For these tickets we can either make deals in packs of two to entice more buying or target married couples with no kids since most people in that bracket buy tickets in two and are married. With these strategies, we can increase profits that provide value to these high-income males because they are the largest contributor to sales currently and in the future, I predict they will continue to do so.