Can Zuckerberg Run an Opera House?
Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the 1800s, opera houses didint' fetch the types of donations they attract today. To make it work, opera houses had to color outside the lines. According to an account on the PBS website, famous Italian composer Gioachino Antonio Rossini, an 18th century composer who orchestrated dozens of operas, turned to the most unlikely places to generate enough profits to keep a floundering opera house afloat -- casinos.
Rossini operated an underground casino inside the opera house, facilitating gambling activity during live performances (in another room, of course.) It kept the patrons (more) entertained and more importantly, kept the profits rolling in. This was before classical music and opera houses had the funding that they've attracted in more recent times.
Funding figures are hard to come by, but in the fiscal year ending July 2011, donations to the Metropolitan Opera House surpassed $180 million, according to The New York Times. Incidentally, Toll Brothers (NYSE: TOL), which was named as a $1 million donor, is sponsoring the Met broadcasts for the fiscal 2012 and 2013 periods.
Another time, another place
In another time and place, would Mark Zuckerberg have the chutzpah to do what Rossini did to keep his dream alive? It’s not that much of a stretch.
Zuckerberg has always been tech savvy, and one of his earliest creations was to develop a messaging system for his father’s dentist office from an Atari console. Zuckerberg was the brains behind Synapse, an online music website comparable to Pandora, and turned away offers from Microsoft and AOL to bring the product in-house.
So, if anyone could be a modern-day Rossini, I'd bet on Zuckerberg.
Facebook's (NASDAQ: FB) focus is now on mobile. On IOS and Android platforms, more than half of the hottest 400 apps use Facebook's platform and that number is rising. In the most recent quarter, some 30% of overall revenue was generated by mobile, up from zero last year. In the coming year, investors can expect that mobile is where Facebook will invest.
Zuckerberg and Rossini may be more alike than you think. Facebook is building out a mobile gaming platform into publishing to broaden its mobile revenue base, according to Tech Crunch, which it hopes to monetize as it's already done with its social gaming desktop platform where it generates some $800 million annually.
The rub is that Apple and Google have already found a way to profit from mobile publishing and the question remains -- is there room for Facebook to generate revenue directly from mobile gaming and not just ads? Like Rossini, Zuckerberg will have to pull a rabbit out of his hat here.
Facebook is in talks with game developers, but there's one that might have passed the company by. South Korean developer Sundaytoz is behind the country's wildly popular AniPang, and the game developer is looking for international success. Sundaytoz has attempted launching AniPang on Facebook's platform already, but after failing to capture the type of penetration it had hoped for, it turned to the local market.
It's a lost opportunity for Facebook because now Sundaytoz is eyeing both an IPO, according to The Wall Street Journal, and wider deployment of its games on other platforms.
Pick of the litter
Opera donor and luxury home builder Toll Brothers has seen some strength in its shares of late amid good news on the foreclosure front. Shares climbed more than 6% on July 9 in response to a report indicating that U.S. foreclosures have dropped some 27% in the past 12 months. Nonetheless, shares of Toll Brothers have under-performed peers.
And yet, it's one of the more attractively positioned companies.
Pent-up demand from the housing crisis combined with rising home prices and improved consumer sentiment are driving the home-builder's performance. It's benefiting from rising home prices in regions such as Southern and Northern California, Texas, Houston, and Dallas, as well as in Colorado and Michigan.
It's the company's strategic positioning, coupled with the fact that it focuses on the luxury home-building market that makes the stock attractive. According to a recent Goldman Sachs analyst report on housing and construction in the Americas: "Buy the higher end given greater wealth creation and access to mortgage credit." Now many of Toll Brothers' buyers use cash, but nonetheless Goldman sees 24% upside in the stock.
Toll closed its fiscal second quarter with $936 million in cash and marketable securities up from $927.5 million in the year-ago period. Its net-debt-to-capital ratio at the end of 2012 was 23.6%. The company also has $800-million plus available in credit facilities that mature in October 2014, according to the annual report.
If you invest, you've got to put up with some volatility, however. Volatile margins are the norm for Toll Brothers because performance is tied to where its deliveries occur in each quarter. The home builder expects that in its fiscal third quarter, it will see a dramatic 350 basis point margin improvement over the fiscal first quarter largely due to deliveries for a building on 65th and Lexington in New York that has 21 high-margin condominium units. Toll Brothers has some catalysts ahead in 2013 and it's too cheap of an opportunity to pass up at these levels.
In a nod to Rossini, let's look at a casino company. Caesars Entertainment (NASDAQ: CZR) has experienced five straight years of revenue declines in its Atlantic City, New Jersey casino market. Something that could turn things around is the opportunity in online gambling, something Rossini could have never predicted and which -- according to Ceasars' chief finance officer Donald Colvin -- is about a $5 billion to $6 billion market (estimates vary).
While Internet gambling is sure to be a competitive market, Caesars already has an advantage of sorts with its social-gaming division, where the company says revenue climbed in the first quarter over last year's period (Caesars owns much of Buffalo Studios, the developers of Bingo Blitz.) Caesars' social games use the Facebook platform but also "other mobile platforms," according to the company.
There's no way to know if Rossini would have gambled on Facebook or casino stocks, for that matter. And considering the disappointment that Facebook has caused its shareholders trading 32% below its IPO price more than a year later, Zuckerberg needs to pull off a 'casino in an opera house' type of move to turn things around. Time will tell whether Facebook could solidify itself in mobile and gaming, and until then I'm on the sidelines with the stock.