No bank branch, no problem

No bank branch, no problem

Several of us here at Tematica have been waiting for the day when banks would recognize that if they embraced our Digital Lifestyle investing theme, the bank branch would one day go the way of the cassette tape – a fond memory of a bygone era. While banks have made strides over the years between direct deposit and ACH payments that have shrunk the need to visit a bank branch, the debut of online-only banks, such as Chase’s Finn, and mobile payment platforms such as Apple Pay and PayPal’s Venmo have eliminated a number of reasons people used to go to the physical bank. We’ve even seen Capital One partner with Peet’s Coffee & Tea as well as other coffee shops and other non-branch locations.

To us, the long-term question is what will these banks and related institutions do with all of the existing bank branches? You may want to see what kinds of properties your REIT investments are holding.

While Bank of America Corp. and JPMorgan Chase & Co. were gobbling up cheap deposits at their thousands of branches around the U.S., Citigroup was shrinking its footprint, focusing on a handful of big cities to right itself after its near-collapse.

Now the bank’s executives are convinced that many U.S. consumers are finally ready to leave the branch behind and fully embrace digital banking. Citigroup added roughly $1 billion in digital deposits in the first quarter, more than all of last year. About two-thirds of that total came from new customers, and a little more than half came from people who don’t live near any of the bank’s roughly 700 branches.

In recent months, the bank has reorganized its consumer unit, knocking down walls between banking and cards. It rolled out a new account through its mobile app aimed at credit-card customers. And it is targeting potential customers with mobile-banking offers tied to the rewards they get for cards.

“For the 21st century, we are glad we never got the ballast of an extra 4,000 branches,” said Stephen Bird, the bank’s chief executive of global consumer banking. “I’m certain it’s going to turn out to be a very fortuitous thing.”

Other big banks are ramping up their digital offerings too, but they are doing it alongside their giant branch networks. Citigroup is wagering that many of those locations—more than 4,000 each for JPMorgan and Bank of America—will become burdensome.

Source: No Branch, No Problem. Citigroup Bets Big on Digital Banking. – WSJ

Cash is less and less of a king

Cash is less and less of a king

Several new findings confirm what we have been observing over the last several quarters – the continued whittling down for the usage of cash. There is little question given the data that a key driver of this is the accelerating shift toward digital shopping be it delivered or picked up by the buyer at a locker or store location. The most revealing aspect of this shift to cashless consumption is that is it occurring across all demographic ages, which confirms this is a structural shift. Interestingly is how people are now using the Apple Pay Cash Card and Venmo, which is owned by PayPal, to flip people digital cash instead of handing them a physical bill.

Given the ballooning of consumer debt outstanding, some of this shift in how consumers are paying also reflects aspects of our Middle-Class Squeeze investing theme as well. But I’d point out that those shoppers are hunting online as much for bargains and savings as they are for quick delivery. Odds are as our Digital LIfestyle and Middle-class Squeeze theme intersect, the use of cash will continue to fall by the wayside in the coming quarters. Helping move that along are businesses, including Starbucks and Shake Shack that are becoming completely cashless establishments. 

Fewer and fewer adults are using printed or minted U.S. currency at all any more. About 3 in 10 Americans said they make no purchases with cash in a typical week, up from a quarter in 2015, according to the Pew Research Center. At the same time, the share who said that all or nearly all of their purchases are made using cash fell to 18 percent from 24 percent in 2015.

In a survey of more than 2,000 Americans, U.S. Bank found that 50 percent of respondents said they carry cash with them less than half of the time they are out. When they do carry the green, 76 percent said they keep less than $50 on hand and nearly half have less than $20.

Not surprisingly, millennials are paving the way among people ditching bills and coins in favor of credit, debit and digital payments, through apps like Apple Pay, Venmo and Zelle. In fact, more than 1 in 10 millennials use their digital wallet for every purchase, according to a separate report by Experian — especially on food, rent and Uber rides.

Overall, about one-third, or 34 percent, of adults under the age of 50 make no purchases in a typical week using cash, compared with 23 percent of those ages 50 and older, Pew found. The Pew Research Center surveyed more than 13,000 adults in September and October of last year.

Source: More Americans say they don’t carry cash

Apple Pay now at Costco 

Apple Pay now at Costco 

The chicken or the egg problem that has been facing mobile payment adoption in the US continues to ease with Costco Wholesale joining the ranks of 7-11 and CVS Health to accept Apple Pay. It’s all about reducing transaction friction but I’d also add it’s a relief for someone like me that sometimes forgets his wallet, but not his iPhone. With Consumer Reports recently crowning Apple Pay the winner in a head to head showdown of mobile peer-to-peer payment platforms, beating out the likes of Venmo and Square, and greater retail acceptance we are likely to see greater usage in the coming quarters- a positive for Apple’s growing Services business.

 

Costco has announced that it now accepts Apple Pay at all of its US warehouse stores, and says that the payment method will be coming soon to its gas stations …

The company told CNET that contactless terminals have been installed at both store checkouts and gas stations, but the latter are not yet in use.

Costco was a notable Apple Pay holdout after 7-11 and CVS finally announced their own rollouts last month.

.A recent analyst report suggested that Apple Pay now has more than 250M users worldwide, led by international adoption. Use of the service for online payments is lagging significantly behind offline use, though a recent survey suggested that demand is there.

Source: Apple Pay now accepted at all US Costco warehouses, coming soon to gas stations | 9to5Mac

Apple playing the long-game with Apple Pay

The current headlines are rumor mongering over iPhone X production cuts for the first half of 2018, but Apple continues to improve the stickiness of iPhone by tapping into the exploding world of mobile payments with Apple Pay. Initially off to a slow start, Apple Pay is now reportedly accepted in 50% of US retail locations… of course, accepted at doesn’t necessarily equate to “used at.” That said, with smartphones and tablets account for 25% of e-commerce transactions in the U.S. it looks like Apple is continuing to play the long game as smartphones and tablets become a greater portion of digital commerce. Now to see more loyalty programs built into Apple Pay and its iOS Wallet…

Addressing conference attendees in a speech entitled “The Modern Shopping Experience,” Bailey presented a few interesting tidbits relating to Apple Pay growth and adoption, as well as insight into Apple’s current and future ambitions for mobile payments services, reports CNET Japan.

Purchases made on smartphones and tablets account for 25 percent of e-commerce transactions in the U.S. The rate of growth for mobile transactions is four times that of desktop, and 10 times that of traditional brick and mortar retail. The same phenomenon is occurring outside the U.S. China, for example, sees 80 percent of its e-commerce transactions performed on mobile devices.

According to Bailey, Apple Pay availability was limited to about 3 percent of stores in the U.S. when it launched in 2014, but is now accepted in 50 percent of stores. Beyond reasonably wide acceptance, the platform plays an integral role in the mobile e-commerce boom. The company provides retailer support in four distinct areas: apps, transaction settlement, loyalty programs and integration between store and mobile.

Source: Apple Pay accepted at 1 out of 2 U.S. stores, says Apple VP Jennifer Bailey

Apple doubles down on Cashless Consumption with Apple Pay Cash

Apple doubles down on Cashless Consumption with Apple Pay Cash

Leveraging its smartphone install base and the popularity of messaging Apple is bringing its Apple Pay Cash feature to market with its iOS 11.2. Currently available to those in the iOS beta program, Apple Pay Cash will offer stiff competition to Venmo, owned by PayPal (PYPL) as well as other “send cash” apps like Zelle used by JPMorgan Chase (JPM), PopMoney at Citi (C) and others that allow you to send-and-receive money virtually between you and  friends. While fees associated with this will be akin to collecting cookie crumbs, given Apple’s install base this has the potential to be positive contributor to Apple’s burgeoning Service business.

Apple is soft-launching direct, person-to-person payments in an iMessage today with the Apple Pay Cash beta. The feature, which was announced earlier this year, allows you to send and receive cash inside the Messages app on iPhones.

The program is launching in public beta today on iOS 11.2 beta 2, and you can opt in using the iOS Public Beta program here. Once you’ve updated, you’ll see an Apple Pay button in the apps section of Messages that allows you to initiate a payment. Payments can also be triggered by simply asking for money in a message or tapping on a message sent by someone else asking for money.

The source of funding is any debit or credit card you have currently added to Apple Pay. Apple will charge no fees for money that is funded via debit cards and an ‘industry standard’ fee for credit cards, likely in the few percent.

This card can only be used to send money or pay for things via Apple Pay, so it’s not a completely discrete “credit/cash card”, but it functions as one as long as you’re within Apple Pay. The reason for the card is multi-faceted, but one big one is that this allows Apple to fund payments to the card immediately. This means that when you get paid via Apple Cash, you’re going to be able to spend that money right away as long as it’s via Apple Cash to someone else or via Apple Pay at a retailer or website that accepts it.

Apple is working with Green Dot to power the financial mechanics of Apple Cash.

Source: Apple Pay Cash launches in beta today, letting you send and receive cash in Messages | TechCrunch

Here’s what we’ll be watching for at today’s Apple special event

Here’s what we’ll be watching for at today’s Apple special event

Several of the Disruptive Technologies investment theme companies currently on the Tematica Select List will play a key role in the Apple Special Event scheduled for Tuesday, September 12th. In all likelihood the companies themselves will never be mentioned during the event, but with expectations once again running high ahead the next generation iPhone, here’s what we’ll be watching for as it pertains to the Tematica Select List.


 

Early this afternoon, Connected Society and smartphone reliant Apple (AAPL) will hold its next special event that is widely expected to unveil a bevy of new products, including its latest iPhone models. Much has been made over the last few days of “leaked information” over these new models as well as new iterations for Apple TV and Apple Watch, but as exciting as those other new products may be because the iPhone is the majority of Apple’s revenue and profits odds are investors will focus their attention on those new models.

While we don’t own Apple shares, and we touched on at least one of those reasons yesterday, there are several companies on the Tematica Select List that will be affected by today’s special event – Universal Display (OLED), Applied Materials (AMAT), and AXT Inc. (AXTI) as well as USA Technologies (USAT) and Nuance Communications (NUAN).

 

Universal Display (OLED) 

As subscribers should be aware, Universal Display is a Disruptive Technology investment theme company that supplies needed chemicals and intellectual property utilized in the manufacturing of organic liquid crystal displays (OLEDs). Over the last few months, there has been much talk of ramping demand in an industry that is capacity constrained as Apple begins to adopt the technology in the iPhone while other applications (other smartphone vendors, TVs, wearables and automotive interior lighting) continue to replace existing lighting and displays with OLEDs. There are now indications that Apple is likely to introduce OLEDs in its new premium iPhone, purportedly the iPhone X.

The issue, however, is that it is being reported that the manufacturing of iPhone X device is currently capped at around 10,000 units per day and may not begin shipping until next month. This could be due OLEDs supply constraints, but if this speculation over the iPhone X turns out to be true, we could see a pullback in our OLED shares, especially following the more than 18% move in the last month alone that has the shares bumping up against our $135 price target. We continue to think that as the adoption of OLEDs continues to ramp up, we will see a step-function higher in our price target for Universal Display shares, but in the near-term, our concern is that rapid climb in the share price could hit a “buy the rumor, sell the news” wall following Apple’s event. If such an outcome occurs, our view is subscribers should continue to hold OLED shares for the long-term. If the shares retreated to the $110-$115 level, which would be a sharp pullback, we would view that as another bite at the apple for subscribers that have so far held off buying OLED shares.

  • Our price target on Universal Display (OLED) shares remains $135
  • For now, subscribers that have missed out on OLED shares should look to scoop them up between $110-$115.

 

Applied Materials (OLED) 

If the supposition that Apple’s iPhone X production is capped because of capacity constraints for OLEDs, we see that being a resounding positive for shares of Disruptive Technology company Applied Materials (AMAT). As a reminder, Applied not only manufactures semiconductor capital equipment (the machines that make chips) it does the same for displays, including OLEDs. Applied has been rather frank about the robust demand for OLEDs, and it remains one of the reasons we are bullish on AMAT shares. Others include rising memory demand as well as ramping in-country semiconductor capacity in China.

  • Our price target on Applied Materials (AMAT) shares remains $55.

 

AXT Inc. (AXTI)

We would be surprised to hear Apple talk about 5G wireless technology, which would require several additional layers of RF semiconductors, largely because most wireless carriers like AT&T (T), Verizon (VZ) and T-Mobile USA (TMUS) are still testing the technology. If, however, the Apple Watch is updated to include LTE wireless technology, that would be a source of new demand for RF semiconductors, like those from Skyworks Solutions (SWKS) and Qorvo (QRVO). In turn, that means those companies, as well as other RF semiconductor suppliers of Apple’s, would require additional compound semiconductor substrates from AXT Inc. (AXTI). While we still see the eventual deployment of 5G networks that will drive incremental RF semiconductor demand as the key driver longer-term for AXT’s business, incremental demand from devices like Apple Watch is certainly welcome.

  • Our price target on AXT Inc. (AXTI) shares remains $10.50

 

USA Technologies (USAT) & Nuance Comm. (NUAN)

Finally, during today’s presentations, we’ll also be watching and listening for incremental news on USA Technologies (USAT), an Apple Pay partner, as well as Nuance Communications (NUAN). In iOS 11, Apple will continue to expand the services offered through Apple Pay, and we expect to hear at least some usage statistics from Apple CEO Tim Cook today. With Nuance, voice continues to become the new interface of choice across new applications from smart speakers to chat-bots, like those being rolled out by Google (GOOGL), Facebook (FB) and yes, Apple, and that keeps us bullish on NUAN shares.

  • Our price target on USA Technologies (USAT) shares remains $6
  • Our price target on Nuance Communications (NUAN) remains $21.

 

 

 

Visa & Mastercard mandating contactless payment terminals

Visa & Mastercard mandating contactless payment terminals

New technology adoption can be driven, primarily, by two forces – bubbling up based on consumer demand or pushed down due to a mandate from companies or the government. With contactless payments, we’ve seen consumer uptake grow as mobile payments, like Apple Pay, have come to smartphones and wearables. Now Mastercard  (MA) and Visa (V) are mandating payment terminals to include contactless payments by 2020. This should deliver a pronounced step up in contactless payments, but it also means an upgrade wave coming to payment terminals from Verifone (PAY), First Data (FDC), Ingenico and others.

Apple Pay should get a major lift within the next five years from a pair of factors, according to new research, most notably contactless support demanded by credit card giants Visa and Mastercard.

By 2020, both companies will require payment terminals in many markets to offer the technology, Juniper Research noted. The lack of compatible sales terminals has been a consistent obstacle in U.S. Apple Pay adoption, such that some retailers —like Anthropologie —have promised support for years without delivering.

Growth may also be aided by shoppers wanting to avoid the slower speeds of chip card transactions, which are presently replacing magnetic swipes.

U.S. contactless payments at retail are forecast to rise from 2 percent this year to 34 percent by 2022, Juniper said. Globally, figures are predicted to rise from 15 percent to 53 percent, reflecting the technology’s greater popularity in countries like Poland, Japan, and the U.K.

Source: Apple Pay likely to get boost from Visa & Mastercard mandating contactless payment terminals

Musings on Apple’s “Record” December Quarter

Musings on Apple’s “Record” December Quarter

Last night Tematica Research Chief Investment Officer Chris Versace appeared on CGTN America’s Global Business program to talk about Apple’s (AAPL) December quarter earnings and several other topics. As CEO Tim Cook put it, “We sold more iPhones than ever before and set all-time revenue records for iPhone, Services, Mac and Apple Watch…” which enabled the company to deliver better than expected revenue and earnings per share relative to Wall Street consensus expectations.

While Cook boasted of strong Apple Watch growth, iPhone shipments were up 5 percent year over year, hardly the robust growth levels we’ve seen in the past. Meanwhile, the Mac business — the next largest one next to the iPhone at just over 9 percent of total revenue — saw volumes rise 1 percent year over year, while iPad units fell 19 percent compared to the year-ago quarter. One bright spot in the company’s December quarter was Apple’s Services business, which rose 18 percent year over year and boasts more than 150 million paid customer subscriptions.

Circling back to that better than expected December quarter EPS, we’d be remiss if we didn’t point out Apple’s net income actually shrank year over year. If it weren’t for the company flexing its cash-rich balance sheet, which clocked in at $246.1 billion, to shrink the share count during 2017 Apple’s reported EPS would have been flat to down year over year instead of being reported up just under 10 percent. Coming into 2017, Apple has nearly $50 billion remaining on its current capital return program, which means more share repurchase activity is possible in the coming quarters.

One other sour point in the earnings report was Apple’s guidance for the current quarter, which fell shy of expectations. One particular call out was the impact of foreign currency, which is expected to be a ‘major negative’ as the company moves from the December to the March quarter.

The long and short of it is that while Apple CEO Tim Cook called it a record quarter, the reality is Apple’s financial performance remains closely linked to the iPhone, which still accounts for 70 percent of Apple’s overall business. To us here at Tematica this means until Apple can bring to market an exciting new product, or reenergize an existing one that can jumpstart growth, the company will be tied to the iPhone upgrade cycle. Expectations for the next iteration, the presumed iPhone 8, call for a new body, new display — hence  Disruptive Technology company Universal Display (OLED) being on the Tematica Select List — and a greater use of capacitive touch that should eliminate the current home button and bezel. But we’ll have to see if this new model on the 10th anniversary of the transformative device’s launch will capture the hearts of customers, as the last couple of models have only had a meh response.

Despite its current reliance on the iPhone, there are hopeful signs at Apple, such as the new AirPods that echo past design glory, an Apple TV business that has 150 million active subscriptions and a growing Services business. The issue is even if Apple doubled its service business in the coming year, it would still account for 15-20 percent of Apple’s overall revenue. Moreover, if that happened in the coming year it would likely mean the next iteration of the iPhone underwhelmed, something Apple is not likely to shoot for on the devices 10-year anniversary. Near-term, Apple is likely to remain a victim of its own success in creating one of the most loved and most used devices on the plant.

We’ll continue to keep tabs on this poster child company for our Connected Society investment theme company, but with no evident catalyst over the coming months, we’re inclined to be patient and pick off the AAPL shares at better prices.

 

Additional Thematic Data Points from Apple’s Earnings Announcement

While we are not quite buyers of Apple shares just yet, there was a number of confirming thematic data points shared during the company’s earnings conference call last night:

  • Rise & Fall of the Middle Class — “The middle class is growing in places like China, India, Brazil, but certainly, the strong dollar doesn’t help us.”
  • Cashless Consumption — “Transaction volume was up over 500% year over year as we expanded to four new countries, including Japan, Russia, New Zealand, and Spain, bringing us into a total of 13 markets. Apple Pay on the Web is delivering our partners great results. Nearly 2 million small businesses are accepting invoice payments with Apply Pay through Intuit QuickBooks Online, FreshBooks, and other billing partners. And beginning this quarter, Comcast customers can pay their monthly bill in a single touch with Apple Pay.”
  • Content is King — “In terms of original content, we have put our toe in the water with doing some original content for Apple Music, and that will be rolling out through the year. We are learning from that, and we’ll go from there. The way that we participate in the changes that are going on in the media industry that I fully expect to accelerate from the cable bundle beginning to break down is, one, we started the new Apple TV a year ago, and we’re pleased with how that platform has come along. We have more things planned for it but it’s come a long way in a year, and it gives us a clear platform to build off of… with our toe in the water, we’re learning a lot about the original content business and thinking about ways that we could play at that.”
  • Connected Society — “every major automaker is committed to supporting CarPlay with over 200 different models announced, including five of the top 10 selling models in the United States.

We’ll continue to look analyze management commentary for more thematic data points as more companies report their December-quarter earnings over the next few weeks.

 

 

Apple to get into the Content is King theme

Apple to get into the Content is King theme

Apple and the iPhone have been at the forefront of our Connected Society investment theme and Apple Pay lands the company in our Cashless Consumption theme as well. For a long time, Apple has held off creating original content preferring instead to be a platform via iTunes and its app ecosystem for others to distribute their content (Netflix on iPads, iPhones and Apple TV as an example). With the battle for the device consumer heating up, Apple is taking a page out of Content is King companies Disney (DIS) and Comcast (CMCSA) and moving into content to shore up its competitive position. We’ve seen Netflix do this and Amazon (AMZN) is charging ahead as well. From a thematic sense, if Apple can get the programming right, three thematic tailwinds are better than one or two.

Apple Inc. is planning to build a significant new business in original television shows and movies, according to people familiar with the matter, a move that could make it a bigger player in Hollywood and offset slowing sales of iPhones and iPads.These people said the programming would be available to subscribers of Apple’s $10-a-month streaming-music service, which has struggled to catch up to the larger Spotify AB. Apple Music already includes a limited number of documentary-style segments on musicians, but nothing like the premium programming it is now seeking.

Source: Apple Sets Its Sights on Hollywood With Plans for Original Content – WSJ

Facebook Messenger Brings PayPal Payments Home To Roost

Facebook Messenger Brings PayPal Payments Home To Roost

The payments landscape continues to evolve with partnerships being inked that bring payment capabilities to platforms that consumers are favoring be it for entertainment (smartphones) or communication (like Facebook’s Messenger). With Apple expanding its iMessage capabilities, we suspect it is only  a matter of time before its filling the Apple Pay love.

PayPal is deepening its relationship with Facebook, and will now become one of the payment options within Messenger, among other integrations. That means customers who shop via the growing number of chatbots from online merchants will be able to transact on Messenger using PayPal’s payment service. In addition, as part of this deal, PayPal says it will make it easier to link your PayPal account to Facebook and Messenger, and it will roll out support for receiving notifications about PayPal transactions to Messenger users in the U.S.

Source: Facebook Messenger now supports PayPal payments in bots, will track your PayPal receipts | TechCrunch