Market Update
- U.S Economy added 295000 jobs in Feb, which is well above the 240000 expected by economists
- Unemployment rate dropped to 5.5% from 5.7% due to people dropping out of the workforce
- Job opening in the U.S rose 2.4% in Jan to 5 million, reaching a 14 year high
- U.S dollar recently yet again hit multiyear highs against the euro and also multiyear highs against Japanese Yen
- Sweden’s central bank recently further cut its key policy interest rate from -0.1 to- 0.25 and expanded its bond- buying program
- China shares climbed to near seven- year high
Business
- Tencent’s net profit rose 50% from the same quarter last year. Profit mostly driven by online games and mobile games built on its mobile Wechat and QQ platform
- In the 4th quarter, 82% of Tencent’s revenue was from online games, while advertising revenue only accounted for 13%
Banking Industry
Industry research general steps:
- Business model (product& services model, revenue model)
- Risk factor& macro environment (Top down, Bottom up)
- Case studies on a few companies
- Porter’s Five Forces
Types of Banks
- Commercial banks: deposits and loans: take deposits and make high interest from loans
- Investment Banks: underwrites stock and bond issues, trades, investment management, merger and acquisitions advisory
- Merchant banks: provide capital for equity
- Central banks: regulatory role, lender of last resort
2007-08 Financial& Economic Crises
- Banking Industry Consolidation
- Bail out and moral hazard
Post- Crisis Regulation
- Basel Accords (recommended international standard)
- Volcker Rule: against proprietary trading( Investment banks use their own money to invest instead of clients’ money)
CCAR (Comprehensive Capital Analysis and Review)
- Annul stress test
- Capital requirement
- Cost on risk management and compliance
Trends& Opportunities
- Mobile banking
- Predictive banking& Customer Analytics
- Digital and social selling
- New product development
Shake Shack and the Fast Casual Industry
Shake Shack: a Manhattan-based burger joint
IPO: Jan 2015
- With initial price of $21 per dollar
- Hit &45 on the first day of its debut
- Raised $ 105 million
- Operates 663 restaurants, only 31 company- operated
- Menu choices are very limited
Shake Shack’s successful IPO once again proved investors’ appetite for Fast Casual
the Fast Casual Industry
Characterized by:
- Affordability
- High quality ingredients: fresh
- Convenience: fast service
- Customization: flexible offering
- A full view of how the food is prepared
- Higher price as compared to Fast Food Restaurants
- Fast Casual’s Competitiveness
- Consumers look for best value proposition, not necessarily cheapest price
- Emphasis on offering better product but still at an affordable price
- Caters to a heightened interest in healthy food
Risk Factors for Shake Shack:
Competition from similar burger joints
- The Habit restaurant
- McDonald’s and Wendy’s innovative items and attempts at customization
- Risk of over- expansion
- Goal of opening 450 stores may be ambitious
- Risk of lower profits, higher operating costs
- Over reliance on Manhattan for rev and profit margin
Risk of Beef Cost
- SHAK lost $1.4 million in the fourth quarter due to higher cost in beef
- Meat from producers that adhere to more stringent welfare practices and don’t use antibiotics or hormones.