Curated Insights 2019.08.16

The arc of collaboration

As the ecosystem of specialized SaaS apps and workflows continues to mature, messaging becomes a place of last resort. When things are running smoothly, work happens in the apps built to produce them. And collaboration happens within them. Going to slack is increasingly a channel of last resort, for when there’s no established workflow of what to do. And as these functional apps evolve, there are fewer and fewer exceptions that need Slack. In fact, a sign of a maturing company is one that progressively removes the need to use Slack for more and more situations.

And core Dropbox is not a solution to this. People store their documents in it. But they had to use email and other messaging apps to tell their co-workers which document to check out and what they needed help with. Dropbox understands this concern. It’s what’s driven their numerous forays into owning the workflows and communication channels themselves. With Carousel, Mailbox, and their new desktop apps all working to own that. However, there are constraints to owning the workflow when your fundamental atomic unit is documents. And they never quite owned the communication channels.

Slack is not air traffic control that coordinates everything. It’s 911 for when everything falls apart. Every slack message about a new document your feedback is wanted on or coordinating about what a design should look like is a failing of process or tools. Slack is exception handling. When there’s no other way to make sure someone sees and update, or knows context, Slack is the 911 that can be used.

And as Figma expands into plugins, the ecosystem will continue to solve for more and more of the needs and exceptions. Over time, our workflows align with our functional flows. And collaboration is no exception. And Figma is not alone. More and more apps in all categories understand that collaboration should and must be built in as a first party if they want to best serve their customers. Notion, Airtable, etc all understand this. The feedback loops of collaboration get so short that they become part of the productivity loop.

Disruption: Finding the right balance in confinement care

Unlike 28 Days, Pantang Plus has 150 confinement therapists (aged between 25 and 60) working directly with the start-up. The company had to recruit a workforce of that size after they were challenged to do so. “During MaGIC’s accelerator programme in 2016, we could only handle four therapists at a time. But after that, we were tasked to take in 100 of them. So by word of mouth, we managed to recruit 102 therapists,” says Zamzana, adding that Pantang Plus also received a RM30,000 grant to kick off its business.

When orders started pouring in, the company needed to process the transactions quickly. It was difficult as it had to accommodate massage bookings, process quotations, confirm orders and send out therapists. After enlisting Hisamudin, a former systems engineer who had sold his media start-up, she managed to expedite the processes. The duo were coached to focus on a certain segment and they chose the affluent and urban market.

According to Hisamudin, by tapping this particular segment, they get fewer customers but each of them is more lucrative. The company managed to grow its business from 20 bookings in 2016 (which work out to about RM43,347 in sales) to 156 bookings (RM418,540) last year. Since its debut, the company has paid out about RM280,000 to therapists.

Before the online platform was set up, there was a lot of back and forth with the customers and building trust was not difficult, says Zamzana. But now that a lot of the processes are automated, she has noticed that customers are more hesitant and apprehensive about the services it offers. “So, I created a standard operating procedure (SOP) where we meet with customers for personalised consultation sessions so we can manage their expectations,” she says.

There is also an SOP for customers to protect the therapists. “There have been cases where they were mistreated, paid unfairly or were told to do all sorts of things beyond their job scope. The SOP lays out the conditions that govern the packages that are subscribed to. So, I take full responsibility if the customer is not satisfied or if the therapist is mistreated,” says Zamzana.

Hisamudin says the company is constantly improving the platform to automate the back-end process for both the customer and therapist. “We also plan to automate the payment gateway so we don’t have to check whether we have received payments from customers, which can be tedious,” he adds.

WeWork’s S-1: some quick observations

In connection with this offering, Rebekah and Adam are dedicating additional resources to amplify the positive global impact of our organisation. This effort is designed to enable us to scale our social and global impact as the Company grows. Rebekah and Adam Neumann have pledged $1 billion to fund charitable causes. To fulfil this pledge, Rebekah and Adam will contribute cash and equity to charitable causes within the 10 years following this offering. Their first contribution aids in the conservation of over 20 million acres of intact tropical forest, including the region pictured on the final page of this prospectus. To evidence their commitment to charitable causes and to ensure this commitment is meaningful, if Adam and Rebekah have not contributed at least $1 billion to charitable causes as of the ten-year anniversary of the closing date of this offering, holders of all of the Company’s high-vote stock will only be entitled to ten votes per share instead of twenty votes per share.

Adam currently has a line of credit of up to $500 million with UBS AG, Stamford Branch, JPMorgan Chase Bank, N.A. and Credit Suisse AG, New York Branch, of which approximately $380 million principal amount was outstanding as of July 31, 2019. The line of credit is secured by a pledge of approximately [blank] shares of our Class B common stock beneficially owned by Adam. In addition, JPMorgan Chase Bank, N.A. has made loans and extended credit to Adam totalling $97.5 million across a variety of lending products, including mortgages secured by personal property. None of these other lending products are secured by a pledge of any of Adam’s shares of capital stock in the Company.

Asset managers with $74 trillion on brink of historic shakeout

In this new environment, the beneficiaries have been the world’s largest asset managers, who are wielding far more influence and increasingly attracting a larger share of investor money. They’ve been able to take advantage of their size to keep overall expenses down and help make up for lower fees. Crucially, they’re also the most likely to be offering both passive investments as well as actively managed funds. That means the biggest firms are just getting bigger: The two largest U.S. indexing titans—BlackRock Inc. and Vanguard—oversee combined assets of around $12 trillion this year, up from less than $8 trillion just five years ago.

Fidelity Investments once boasted the world’s largest mutual fund. But the Fidelity Magellan Fund that stock-picking star Lynch propelled from a $20 million offering into a multibillion-dollar behemoth is not even in the world’s top 25 mutual funds today, according to Morningstar. In a sign of the times, only three of the top 10 funds worldwide are actively managed funds, Morningstar data show.

Europe’s fund industry has remained fragmented, in part, because it’s dominated by divisions of banks and the link hasn’t been an advantage as the financial firms focused less on building their fund units and more on averting crisis after crisis.

The booming, ethically dubious business of food delivery

In 2020, more than half of restaurant spending is projected to be “off premise”—not inside a restaurant. In other words, spending on deliveries, drive-throughs, and takeaway meals will soon overtake dining inside restaurants, for the first time on record. According to the investment group Cowen and Company, off-premise spending will account for as much as 80 percent of the industry’s growth in the next five years.


How the supermarket helped America win the Cold War

Between 1946 and 1954 in the U.S., the share of food bought in supermarkets rose from 28 percent to 48 percent. By 1963, that number had risen to nearly 70 percent. A&P had so much market power that the Department of Justice went after it for anticompetitive practices. This was an interesting development, considering that the U.S. Government played such a significant role in the creation of supermarkets in the first place.

RV Capital’s view on Variable Interest Entities

The VIE structure is incredibly favourable from a Chinese perspective. Control of the companies remains in China. The contractual right to cashflow is mainly theoretical as most companies reinvest most of their earnings (which makes sense given the opportunities for growth). Finally, it aligns with the government’s legitimate aim to foster a competitive and vigorous economy that the costs of said competition are borne in part by foreign capital whilst the benefits accrue exclusively to its citizens. Why would China ever do anything to risk the VIE structure when anything that superseded it could only possibly be less favourable?


Tenure voting and rethinking what’s fair in corporate governance

Tenure-based voting would allow all shareholders to have an equal opportunity to earn a greater say in a company’s governance. All longer-term investors — with the definition of “longer term” agreed upon by the company and its shareholders — would earn more rights to weigh in on strategy and management, while shorter-term investors would simply vote with their feet by selling their shares if they aren’t aligned with that strategy. In adopting a tenure-based voting system, a company and its shareholders would need to determine the time periods associated with higher-vote stock. For example, all shares could start with one vote per share as of the acquisition date of the shares, and after, say, a two-year hold period, accrete to 1.5 votes per share, with perhaps additional votes per share for each additional holding period. If an investor were to sell her shares, the new holder of the shares would start at one vote/one share and begin a new holding period. The rules could be tailored to achieve whatever goals the shareholders have in mind, probably requiring a majority of shareholders to approve the initial plan (or any substantive modifications).

Curated Insights 2019.08.09

Good for Google, bad for America

A.I.’s military power is the simple reason that the recent behavior of America’s leading software company, Google — starting an A.I. lab in China while ending an A.I. contract with the Pentagon — is shocking. As President Barack Obama’s defense secretary Ash Carter pointed out last month, “If you’re working in China, you don’t know whether you’re working on a project for the military or not.”

Netflix is not a tech company

Hence, Netflix isn’t using TV to leverage some other business – TV is the business. It’s a TV company. Amazon is using content as a way to leverage its subscription service, Prime, in much the same way to telcos buying cable companies or doing IPTV – it’s a way to stop churn. Amazon is using Lord of the Rings as leverage to get you to buy toilet paper through Prime. But Facebook and Google are not device businesses or subscription businesses. Facebook or Google won’t say ‘don’t cancel your subscription because you’ll lose this TV show’ – there is no subscription. That means the strategic value of TV or music is marginal – it’s marketing, not a lock-in.

Apple’s position in TV today is ambivalent. You can argue that the iPhone is a subscription business (spend $30 a month and get a phone every two years), and it certainly thinks about retention and renewals. The service subscriptions that it’s created recently (news, music, games) are all both incremental revenue leveraging a base of 1bn users and ways to lock those users in. But the only important question for the upcoming ‘TV Plus’ is whether Apple plans to spend $1bn a year buying content from people in LA, and produce another nice incremental service with some marketing and retention value, or spend $15bn buying content from people in LA, to take on Netflix. But of course, that’s a TV question, not a tech question.

Why we sold Trupanion

Why is Trupanion not outpacing the industry when it is the first name many pet owners hear? It could be that pet owners hear about pet insurance from their vet, go home, compare prices, and choose a more affordable option. It’s not an impossible problem for Trupanion to solve, but again, consumers don’t typically understand insurance value until they file a claim.

But at an investor event we attended a few months ago, Darryl said that he was making plans to switch to an executive chairman role in 2025. While we understood Darryl’s choice on a personal level, it also sharply increased our uncertainty around whether company management will be able to successfully build a moat and transform pet insurance as we had hoped. In our opinion, Trupanion will continue to need a visionary leader in the CEO role and finding another visionary to replace Rawlings will be a massive challenge.

Given the industry’s rapid growth, we think it’s perfectly normal for both regulators and pet insurance companies to have some growing pains. While Trupanion has been fined, faces more state investigations, and admits it should have paid more attention to regulators as a stakeholder, we considered these matters minor to our thesis. Regulators may require Trupanion’s Territory Partners to be licensed in all states, but this is more like a speed bump rather than a roadblock.


TGV Intrinsic on MercadoLibre

Network effects are among the highest entry barriers for competitors to build and leverage business. As market leader, MercadoLibre has been able to permanently focus on strengthening the network effects of the marketplace and eliminate points of conflict in transaction processing between buyer and seller. The most important point of conflict between seller and buyer in the past were the payment arrangements. To simplify this process, MercadoLibre launched its own payment service “MercadoPago” in 2004 (comparable to PayPal). MercadoPago provides a secure way to pay for goods and simplified the coordination between buyers and sellers in terms of payment. Today, over 90% of the value god goods sold on MercadoLibre is paid with MercadoPago, which equates to a payment volume of 11 billion US dollars.

Apart from that, logistics costs in many Latin American countries pose a major hurdle for buyers and sellers. The investments required to setup one’s own logistics system are high, delivery times in Latin America are relatively long, and service is rather mediocre. With the founding of MercadoEnvios in 2013, MercadoLibre took over an ever more extensive control over the logistics of goods in several steps. Today, MercadoEnvios operates its own logistics centres, takes over the first mile from the seller or organises the last mile to the end customer with selected partners. In 2018, at least part of the logistics was taken over by MercadoEnvious for 66% of the goods sold through the marketplace. Thanks to the sizeable investments in a proprietary payment system and the continuous expansion of its own logistics, MercadoLibre has massively expanded its marketplace and the network effect that has been set in motion over the past two decades. The value of these investments is reflected in the growth in the number of transactions amounting to 28% per annum over the past decade.

The value of this ecosystem lies in the ever-growing economy of scale. MercadoLibre has more touch points with its customers than its competitors, be it specialised online retailers, payment service providers, or logistics companies. At each of these points of contact, MercadoLibre can distribute its costs in customer acquisition to more services than its competitors. As a result, the costs for new customers per product are lower than for competitors. Second, MercadoLibre can freely decide which areas of a customer relationship to monetise and which not. For example, MercadoLibre may offer MercadoPago payment service to new brick-and-mortar retailers for free but would require a marketplace transaction fee for this merchant’s online product sales. A specialised payment provider does not have this flexibility. As a result, MercadoLibre has created a flexible and cost-effective customer acquisition engine that only very few companies have.


Zebras can change their stripes

Since 2012, JUVE has gone on to secure many other high profile “free” transfers with established winners such as Dani Alves and Sami Khediera, but then also find those that have significant upside potential like Adrien Rabiot, Kingsley Coman, and Emre Can. By far, the most impactful and value-accretive “free” transfer was Paul Pogba. In 2012, Juventus signed 19 year-old Pogba from Manchester United, and only four seasons later (and after winning four league titles) sold him back to Manchester United for a world-record fee of $116 million. In total, since 2011, the top 10 free transfer signings by Juventus have created $204m of value (i.e. market value of the players at time of signing) and over $135 million of cash from transfer sales proceeds. Yes, Pogba was an outlier, but JUVE has utilized the free transfer market better than any other club over the past decade.

Let us not forget this is a business, and Ronaldo prints money. Before the ink dried on the contract, the Ronaldo effect took Juventus, and Italy, by storm. His name generated over $60 million in jersey sales in one day – that is the best global branding a club can ask for. JUVE’s Twitter account showed a 10% increase in followers on the day he was signed. Then ESPN acquired the U.S. Serie A TV rights at a massive step-change in the fee ($55 million per year, versus $28 million previously) only one month later. And to no one’s surprise, the first game aired on August 18th showcasing Ronaldo in his new black and white jersey. Your author duly signed up for ESPN+ exclusively to live stream I Bianconeri. The acquisition led to a nice bump in GreenWood’s performance, and most importantly, Ronaldo helped his team win another Serie A title.

The periodic table of investments

Winner-take-all phenomenon rules the stock market, too

Just 1.3% of the world’s public companies account for all the market gains during the past three decades. Outside the U.S., the gains are even more concentrated, with less than 1% of all equities driving all of the net appreciation in share prices.

Just five companies — Apple Inc., Microsoft Corp., Amazon.Com Inc., Alphabet Inc. (Google) and Exxon Mobil Corp. — accounted for 8.3% of global net wealth creation. It is hard to imagine a greater example of the winner-take-all distribution — these five companies account for just 0.008% of the total sample set of 62,000 publicly traded companies. Expand that to the top 0.5%, or 306 companies, and they account for 73% of global net wealth creation. The best performing 811 companies (1.33% of the total) accounted for all net global wealth creation.


Negative rates could happen in America, too

What’s behind negative interest rates? Many observers blame central banks like the European Central Bank (ECB) and the Bank of Japan (BOJ) that are taxing banks’ excess reserves with negative deposit rates and have made bonds scarcer by removing them from the market through their purchase programs. The BOJ now owns about half and the ECB about 30% of the bonds issued by their respective governments, according to Bloomberg.

However, we believe central banks are not the villains but rather the victims of deeper fundamental drivers behind low and negative interest rates. The two most important secular drivers are demographics and technology. Rising life expectancy increases desired saving while new technologies are capital-saving and are becoming cheaper – and thus reduce ex ante demand for investment. The resulting savings glut tends to push the “natural” rate of interest lower and lower.

LBOs make (more) companies go bankrupt, research shows

According to researchers at California Polytechnic State University, roughly 20 percent of large companies acquired through leveraged buyouts go bankrupt within ten years, as compared to a control group’s bankruptcy rate of 2 percent during the same time period.


Is great information good enough? Evidence from physicians as patients

We compare the care received by a group of patients that should have the best possible information on health care service efficacy—i.e., physicians as patients—with a comparable group of non-physician patients, taking various steps to account for unobservable differences between the two groups. Our results suggest that physicians do only slightly better in adhering to both low- and high-value care guidelines than non-physicians – but not by much and not always.


Health facts aren’t enough. Should persuasion become a priority?

Those who were most opposed to genetically modified foods believed they were the most knowledgeable about this issue, yet scored the lowest on actual tests of scientific knowledge. In other words, those with the least understanding of science had the most science-opposed views, but thought they knew the most.

Curated Insights 2019.08.02

Notre-Dame came far closer to collapsing than people knew. This is how it was saved.

The fire warning system at Notre-Dame took dozens of experts six years to put together, and in the end involved thousands of pages of diagrams, maps, spreadsheets and contracts, according to archival documents found in a suburban Paris library by The Times.

The result was a system so arcane that when it was called upon to do the one thing that mattered — warn “fire!” and say where — it produced instead a nearly indecipherable message.

Hidden networks: Network effects that don’t look like network effects

There are a host of companies that build the tool or product before they build the network. Delicious (with bookmarks) or Instagram (with filters) are the classic examples of a “come for the tool, stay for the network” company. But there are also companies building the network before they build the actual product or tool. Think of this as “Come for the network, stay for the tool.”

These companies can be especially formidable because no one understands the power of what they’re doing until it’s too late to compete. The concept is that you start by building a community that acts like a network, with users interacting, engaging, and generally creating value for each other. Eventually, a product is introduced that catalyzes or amplifies the way the network engages. Before the product arrives, there isn’t anything measuring or monetizing the network, so it can be difficult to really see the strength and potential of these networks.

These latent networks are the hardest “hidden network effects” to both predict and execute. Often times these communities are actually an audience rather than a latent network, meaning users derive value from the central node, not the network. When it’s just an audience, the tool or product ends up scaling more like a linear business (e.g., a DTC product) than a network. Differentiating a product-less network from an audience is very difficult. Many a celebrity entrepreneur has believed they had a network that wanted to engage with each other, before realizing that what they actually had was an audience that just wanted a piece of their celebrity heroes.

So what’s the test to tell whether there is a latent network waiting to be activated? A network engages, an audience consumes. Look to see if the network’s users are engaged with each other or just the central node. Ask yourself who is getting additional value when someone new enters this community. If it’s all (or at least some) of the community members, then it’s a network. If it’s just the central node, then it’s probably an audience.

How Etsy crafted an e-commerce comeback

The company is plowing some of its revenue into better online tools for sellers, such as a dashboard to track orders and streamline payments. To grow, “Etsy really needs to offer vendors that support,” says Oweise Khazi, research director at Gartner. And some of Etsy’s most important plans involve its search engine. Fisher, the technology chief, says improved search results added tens of millions of dollars to GMS last year, but there’s room for improvement. Etsy’s search algorithm has long favored lower-priced items, since they tend to sell more frequently. The site now intends to give higher-priced and better-quality goods more weight in search rankings—­making Etsy’s brand more upscale and encouraging shoppers to also consider buying a desk when they’re searching for a desk lamp.

Search tweaks will also help Etsy attack another sore point: shipping. Sellers currently have great leeway to set shipping fees, something that the company believes can turn off buyers. Some 30% of items are eligible for free shipping; Silverman wants to push that figure toward 100%, even at the risk of upsetting sellers. In July, Etsy announced a push to make free shipping standard for orders of $35 or more. Sellers won’t be required to waive shipping fees—but Etsy’s algorithms will give ranking priority to products and sellers that comply, effectively forcing their hand.

Choice Equities on PAR Technology

Par’s third and most interesting business segment is Brink. This unit started in 2014 when PAR acquired Brink Software, a small entrepreneurial operation out of San Diego. The Brink offering accomplishes many of the same POS functions as the legacy hardware business, but the software component is delivered via the cloud and accordingly offers a few critical advantages. For one thing, updating software is seamless with an off-premise offering as it can be initiated from the cloud and updated onsite without any further physical software or hardware add-ons. Additionally, customers get to convert their large and lumpy and sometimes difficult to forecast hardware capex spend to small ongoing monthly payments that are highly forecastable. This business has already turned into a fantastic acquisition, with sales up 25-fold since it was acquired. But we think Brink may be just hitting its stride.

Today Brink has around 8,000 installed restaurants and an impressive customer list. This list includes new customer wins in growing concepts like Sweetgreen, Mod Pizza and Cava but also established concepts like Arby’s and Five Guys. Focusing on the U.S. market first, there are a little over 300,000 quick serve and fast casual restaurants. Brink is currently focused on the Tier 1 and Tier 2 segments, which total ~170,000 locations as their core competency and differentiation comes from not only their ability to serve these multi-location customers successfully, but also their ability to handle these large-scale integrations seamlessly. We note our research indicates Brink is the only cloud POS provider who has successfully completed a 1,000+ store rollout, of which Brink has two to its claim. Given existing relationships with customers with a total restaurant count near 35,000 restaurants today, they appear well positioned to continue to convert both existing and new customers alike to the Brink solution.

Looking out over the next year or two, we think it’s conceivable that Brink could sign up at least 20,000 restaurants. Beyond this, we see upside potential to this number from wins in the tier three category, and looking further out, international expansion. In addition to restaurant growth, we also think Brink could grow their monthly recurring revenue (MRR) per customer. Currently they earn just under ~$200/month from their cloud customers, or around $2,000 in average revenue per user (ARPU). Given the POS offering is typically regarded by restauranteurs as the brain or control center of the restaurant, we believe other add-on functions like food temperature monitoring, delivery optimization or inventory management features could be added into the Brink software package driving MRR higher. And the company is currently planning on introducing a payments solution which would be further additive to MRR.

A review essay of Thomas Piketty’s Capital in the Twenty-First Century

Admittedly, such pessimism sells. For reasons I have never understood, people like to hear that the world is going to hell, and become huffy and scornful when some idiotic optimist intrudes on their pleasure. Yet pessimism has consistently been a poor guide to the modern economic world. We are gigantically richer in body and spirit than we were two centuries ago. In the next half century—if we do not kill the goose that laid the golden eggs by implementing leftwing schemes of planning and redistribution or rightwing schemes of imperialism and warfare, as we did on all counts 1914-1989, following the advice of the the clerisy that markets and democracy are terribly faulted—we can expect the entire world to match Sweden or France.


When the safety net pays for itself

Adults use benefits that end up costing additional money—an extra 60 cents or so on top of the $1 you spent. But health care and education for kids often reduces dependence on aid and lifts earnings. Over time, you get back your $1—plus about 47 cents.

Universal laws of the world

In law, the reason the burden of proof lies with the prosecution is that it’s often impossible to prove something didn’t happen. Outside of the courtroom the opposite rule prevails, and the commentator is allowed to give an opinion but the critic must debunk him with evidence.

There is a thriving market for bad commentary because they give readers intellectual cover against their own biases, prejudices, and incentives. When many people want bad commentary to be right it becomes harder to convince them that it’s wrong.

Curated Insights 2019.07.26

The amazing story of Guidewire Software

Let’s find something that’s unglamorous. Let’s find something that’s substantial and vertically specific. Let’s find an area where really quality software engineering can create deep definitive economic value. That led us more or less like a beeline straight to property and casualty insurance. It’s about a $2 trillion industry in terms of total revenues and they pay out about 60 or 70% of that every year in claims. That’s what they do. They intermediate risk and then they pay out to claimants. There’s an asymmetry between the fact that the average claims worker is paid maybe $40,000 a year, but is writing out checks for $2 or $3 million a year and doing it in 1980s COBOL mainframe systems and buried in paper with all kinds of manual processes, et cetera. Our thesis was that these individuals, as hardworking as they may be, were making systematic errors that were causing dead weight economic loss. It’s not just the better software would make their lives more ergonomic and productive, that they would actually prevent errors that were dead weight lost to their own companies. That there would be a very compelling economic value proposition there.

He says, “When I was in college, there was a guy who managed somehow to date every beautiful woman who went to our school, and he was very ordinary looking and very average in every sense. When I asked him what his secret was, he said, I’m just the guy that asks the most. I’m going to be the guy that asked the most, and I have no problem being rejected.” He says, “I’m going to be that guy and we’re going to be that company. We’re going to be the company that asks the most.”

There are other businesses that people don’t imagine that have enormous economic value to them, but they’re standing behind a huge barrier to entry. There’s nothing particularly technologically innovative of what we’re doing, but we’re going to climb this huge barrier to entry and get to the other side. The reason that you don’t see other companies doing this is because that barrier is so high. If you believe in competitive markets, there’s no such thing as a fantastic market with no competitors. The reason that this market is not populated with others is that this barrier to entry is so damn high and we’re going to be climbing it for a long while and we’re 10% up the mountain.” Some version of that message was what we used. That’s also how we comforted ourselves when it felt like we had no shot.

How deal for SABMiller left AB InBev with lasting hangover

Nevertheless the numbers are undisputed: to get the deal approved by regulators and then to manage debt, AB InBev has sold off parts of SABMiller worth nearly one-third of the target’s one-time enterprise value of $122.5bn. In doing so, AB InBev lost just under half of the $7.1bn in earnings before interest, tax, depreciation and amortisation that it acquired through the SABMiller, according to Jefferies analyst Ed Mundy. The average multiple fetched by the disposals was 10.2 times ebitda, against the 17.3 times that AB InBev paid for the brewer.

One bright spot from SABMiller is that AB InBev is now among the top four brewers in Africa, where the population is largely young and expected to drink more beer as economic growth gathers pace. It acquired a 20 per cent stake in the Africa business of privately held Castel, which is widely seen as a potential takeover target if the 92-year-old French billionaire owner ever wants to sell. In Colombia, it commands a near monopoly position.

Part I: A history of VisaPart II: An overview of Visa

The beauty of Visa’s business model is that they get paid every time one of their cards are used—a flat fee of $.07, plus 0.11% of the transaction amount (and more for international transactions). So the more dollars that flow through Visa’s network, and the more transactions that they process, the more money they make. Visa makes money three ways: service fees, data processing fees, and—if the transaction involves banks in two different countries—cross-border fees.

Curated Insights 2019.07.19

Disneyland makes surveillance palatable—and profitable

Despite these familial concerns, Disney’s data mining never faced the sort of scrutiny that Silicon Valley has. The reason is fairly simple: Disney World is the real-world manifestation of a walled garden, a family-friendly environment without a perceived risk of children being exposed to inappropriate content like on YouTube or Twitch. Wired once called this data-driven customer relationship “exactly the type of thing Apple, Facebook and Google are trying to build. Except Disney World isn’t just an app or a phone—it’s both, wrapped in an idealized vision of life that’s as safely self-contained as a snow globe.”


Ray-Ban owner in talks for GrandVision at $8 billion value

By adding GrandVision, which sells prescription glasses, contact lenses and other eyecare products, EssilorLuxottica would gain more than 7,000 stores in more than 40 countries. GrandVision operates under retail brands including Brilleland and For Eyes. In addition to its well-known sunglass labels, including Oakley, EssilorLuxottica owns store chains like LensCrafters and Pearle Vision.

EssilorLuxottica’s interest in GrandVision comes only two months after the company defused a leadership dispute that weighed on its shares. The eyecare maker, the result of a merger of France’s Essilor and Italy’s Luxottica, said in May that it would seek a new chief executive officer — an effort to find a compromise between Chairman Leonardo Del Vecchio and Vice Chairman Hubert Sagnieres. The dispute flared up after the companies sealed their $53 billion merger last year, with Del Vecchio saying he wanted to appoint his deputy as CEO and Sagnieres countering that the Italian was making false statements in an effort to seize control of the group.


Shopify and the power of platforms

This is how Shopify can both in the long run be the biggest competitor to Amazon even as it is a company that Amazon can’t compete with: Amazon is pursuing customers and bringing suppliers and merchants onto its platform on its own terms; Shopify is giving merchants an opportunity to differentiate themselves while bearing no risk if they fail.

Curated Insights 2019.07.12

Spotify’s moats, management, and unit economics

Podcasting is a relatively nascent industry that is booming. As the #2 podcast player in the world, Spotify should benefit greatly from this trend. While Apple continues to dominate podcasting, their share has quickly fallen from 80% to 63% the past few years. Meanwhile, Spotify has been gaining share every year.

Around 85% of Spotify’s content is controlled by the three big record labels, plus MERLIN (a digital rights agency that represents thousands of independent labels). It’s great when a company has captive customers that results in pricing power. It’s not great when a company is a captive customer of their suppliers and thus has less control over their costs. With that being said, Spotify has a lot of power over the record labels as well.

In 2018, streaming accounted for 47% of global recorded music revenue—and Spotify has almost 70% market share of global streaming revenue. Look at the below chart showing industry revenues over time (purple is streaming revenue). If the major record labels want to continue enjoying the growth they’ve experienced the past few years, they have to work with Spotify.

China’s total number of births dropped over 10% last year

The total number of births in China last year dropped by 2 million from 2017, the National Bureau of Statistics announced at a news conference on Monday. The massive drop — from 17.23 million to 15.23 million — indicates that China’s birth rate last year was the lowest the country has seen since famine-stricken 1961.

Curated Insights 2019.07.05

How Honda survived a trade war with the US and won over Americans

Today, Honda, Nissan (NSANF), Toyota (TM) and Subaru (FUJHF) all operate manufacturing plants across the United States, with Toyota and Mazda planning a new $1.6 billion auto assembly plant in Alabama that will employ around 4,000 people when it opens in 2021. Last year, Japanese car makers created 1.6 million jobs in the US, according to the Japan Automobile Manufacturers Association.

While Japanese car makers claim to build one third of all vehicles in the United States, and purchased $61.2 billion in US auto parts in 2018, many of those cars use imported Japanese parts, which were worth $16 billion last year.

Air conditioning is the world’s next big threat

Because of the combination of population growth, rising incomes, falling equipment prices and urbanization, the number of air-conditioning units installed globally is set to jump from about 1.6 billion today to 5.6 billion by the middle of the century, according to the International Energy Agency.

BNEF expects electricity demand from residential and commercial air conditioning to increase by more than 140% by 2050 – an increase that’s comparable to adding the European Union’s entire electricity consumption. Air conditioning will represent 12.7% of electricity demand by the middle of the century, compared to almost 9% now, it thinks.

Curated Insights 2019.06.28

Facebook, Libra, and the long game

And this is when this bet would pay off for Facebook (and the second point I missed in my earlier analysis): the implication that digital currencies will do for money what the Internet did for information is that the very long-term trend will be towards centralization around Aggregators. When there is no friction, control shifts from gatekeepers controlling supply to Aggregators controlling demand. To that end, by pioneering Libra, building what will almost certainly be the first wallet for the currency, and bringing to bear its unmatched network for facilitating payments, Facebook is betting it will offer the best experience for digital currency flows, giving it power not by controlling Libra but rather by controlling the most users of Libra.

Forget the mall, shoppers are buying Gucci at airports

For the first time last year, Estée Lauder Co. generated more revenue at airports globally than at U.S. department stores, which for decades had been beauty companies’ biggest sales driver … “Very few channels have almost guaranteed traffic,” said Olivier Bottrie, who heads Estée Lauder’s global travel-retail business. “When a department store goes away, it’s not a major catastrophe. But if a major airport went away, it would be a major catastrophe.”

Employees who stay in companies longer than two years get paid 50% less

Staying employed at the same company for over two years on average is going to make you earn less over your lifetime by about 50% or more …

In 2014, the average employee is going to earn less than a 1% raise and there is very little that we can do to change management’s decision. But, we can decide whether we want to stay at a company that is going to give us a raise for less than 1%. The average raise an employee receives for leaving is between a 10% to 20% increase in salary.

Curated Insights 2019.06.14

A conversation with Scott Kupor of Andreessen Horowitz, author and speaker at Lean Startup Conference 2019

I’m pretty sure this is not a fundable idea, but here goes! I’ve long been interested in health and, in particular, the role of food choices in determining health. I also believe that if people understood what was in fact healthy – not an easy task given the difficulty in producing scientifically rigorous studies on nutrition – and if they had the luxury of time to prepare healthy meals, they would in fact do so. We’ve certainly made progress over the last twenty or so years in addressing some of these challenges – there are more restaurants that do more to cater to the health-informed and of course we have the plethora of ingredient and meal home delivery services.

But what I think is missing is the perfect substitute for a home cooked meal that caters precisely to the ingredients/nutritional needs of the individual. I’d love to be able to order a meal that incorporates the precise ingredients I want and is made from the precise recipe I provide – just as I would do if I had the time (and patience) to do it on my own. This of course is probably why this will never work as a business – I’m not sure mass customization works economically. But, I am fascinated by the new “cloud kitchens” type models that are being formed and am hopeful that maybe they will crack the code on this.

Meatless future or vegan delusions? The Beyond Meat valuation

In 2018, the meatless meat market had sales of $1-$5 billion, depending on how broadly you define meatless markets and the geographies that you look at. Defined as meatless meats, i.e., the products that Beyond Meat and Impossible Foods offer, it is closer to the lower end of the range, but inclusive of other meat alternatives (tofu, tempeh etc.) is at the upper end. No matter which end of the range you go with, it is small relative to the overall meat market that is in excess of $250 billion, just in the US, and closer to a trillion, if you expand it globally, in 2018. In fact, while the meat market has seen slow growth in the US and Europe, with a shift from beef to chicken, the global meat market has been growing, as increasing affluence in Asia, in general, and China, in particular, has increased meat consumption, Depending on your perspective on Beyond Meats, that can be bad news or good news, since it can be taken by detractors as a sign that the overall market for meatless meats is not very big and by optimists that there is plenty of room to grow.

The big question that we face is in estimating how much the shift towards vegan and vegetarian diets will continue, driven by health reasons or environmental concern (or guilt). There is also a question of whether some governments may accelerate the shift away from meat-based diets, with policies and subsidies. Given this uncertainty, it is not surprising that the forecasts for the size of the meatless meat market vary widely across forecasters. While they all agree that the market will grow, they disagree about the end number, with forecasts for 2023 ranging from $5 billion at the low end to $8 billion at the other extreme. Beyond Meat, in its prospectus, uses the expansion of non-dairy milk(soy, flax, almond mild) in the milk market as its basis, to estimate the market for meatless meat to be $35 billion in the long term.

The wealth detective who finds the hidden money of the super rich

The top 0.1% of taxpayers (170,000 families) control 20% of American wealth, the highest share since 1929.

The top 1% control 39% of U.S. wealth, and the bottom 90% have only 26%.

The bottom half of Americans combined have a negative net worth.

Curated Insights 2019.05.31

China, leverage, and values

This is the true war when it comes to technology: censorship versus openness, control versus creativity, and centralization versus competition. These are, of course, connected: China’s censorship is about control facilitated by centralization. That, though, should not only give Western tech companies and investors pause about China generally, but should also lead to serious introspection about the appropriate policies towards our own tech industry. Openness, creativity, and competition are just as related as their counterparts, and infringement on any one of them should be taken as a threat to all three.

Long Zillow. Short real estate agents?

Return on homes sold before interest expense (4-5% target):
$255,000 x 4% = $10,200 per house x 60,000 houses = $612 million.

Adjusted EBITDA before adjacent opportunities (2-3% target):
$255,000 x 2% = $5,100 per house x 60,000 houses = $306 million.

Their email says something like this:

Mr. Prescott,

We noticed you have looked at this house on 523 Elm St. seven times over the past month. Great news! This house just became part of our inventory😁

We are prepared to offer you $275,000 for you current house.

We will sell you 523 Elm St. for $315,000.

Since you have $100,000 of equity in your current house (they know this because they financed it), we are prepared to offer you a 15-year mortgage for $215,000 at a 3.5% interest rate.

Your TOTAL out-of-pocket expenses for this transaction will be $4,300 (people like certainty; moving will $100 dollar you to death).

In addition, here are three dates we can move you out of your current house, and into your new house.

Attached are some repairs we think this house will need and what they will cost. If you choose to go forward with any of them, we will proceed with the repairs, and the costs will be rolled into your mortgage at no additional out-of-pocket cash for you.

This offer will expire in 72 hours.

Again, your total OUT-OF-POCKET cash, should you accept this offer, will be $4,300 dollars. And not a penny more.

If you would like proceed, just click “Accept this Offer” and one of our agents will be in touch with you shortly…

Cordially,
Future Zillow

The inside story of why Amazon bought PillPack in its effort to crack the $500 billion prescription market

Spending on U.S. prescription medications is approaching $500 billion a year and growing up to 7% annually, according to IQVIA, a provider of health data. Roughly 60% of American adults have at least one chronic illness, such as heart disease, cancer or diabetes, and 40% have two or more, according to the Centers for Disease Control and Prevention.

The retail drug market for prescriptions has been dominated by large pharmacy chains, including CVS and Walgreens, and independent pharmacies, which all count on a few middlemen known as pharmacy benefit managers (PBMs) to negotiate prices, as well as a handful of large drug distributors.

Field notes: Highlights from Huawei

Huawei has about 700 mathematicians, 800 physicists, 120 chemists, six or seven thousand basic research experts, and more than 60,000 engineers. We have compiled more than 15,000 research experts to turn capital investment into knowledge. We have more than 60,000 practical personnel to develop products and turn that same knowledge back into capital [into revenue]. We have always supported scientists outside the company to conduct research.