The international market is a different story. Tencent Music Entertainment Group (TME) dominates China. (Spotify has taken a minority stake in the company.) Outside of China, Spotify is the clear global market leader, with an estimated 31% market share, ahead of Apple (AAPL), at 17%; Amazon.com (AMZN), at 12%; and Sirius XM Holdings (SIRI), which now owns Pandora, at 11%, according to Credit Suisse . YouTube’s paid music services are still relatively small, but one survey found that free YouTube videos accounted for nearly half of the time that people in 18 countries spent listening to music.
Most of the world doesn’t pay for streaming music, choosing to listen on the radio or to pirate content, which still accounts for 38% of the market, Credit Suisse says. The bullish case for Spotify implies that many of those people can be persuaded to pay up. Even bearish analysts expect the company to more than double its global paid subscriptions over the next five years.
Most simply, ROIC measures how many incremental dollars of earnings a company earns by reinvesting their earnings. As a simple illustration, a company with an average 10% ROIC needs to invest 50% of their earnings to grow 5% (10%*50%=5%). A company with a 50% ROIC only needs to reinvest 10% of earnings to grow 5% (50%*10%=5%). In the former case, $0.50 of every dollar of earnings is not needed to fund growth, while in the latter case $0.90 is not needed to fund growth. This means that the higher ROIC company will generate 80% more free cash flow than the average ROIC company making the company 80% more valuable. This is why we focus on ROIC in our analysis. High ROIC businesses are significantly more valuable than average ROIC companies even when they produce the same level of growth.
The transfer of ownership for Crackle, however, arrives at a time when ad-free streaming services like this are seeing newfound interest, with Amazon’s launch of IMDb’s FreeDive, Roku’s The Roku Channel, Walmart’s Vudu, Viacom’s new addition Pluto, Tubi and others now making gains.
As part of the deal, Sony will contribute to the new venture its U.S. assets, including the Crackle brand, user base and ad rep business, according to The Hollywood Reporter. It also will license to Crackle Plus movies and TV shows from the Sony Pictures Entertainment library, as well as Crackle’s original programming, like its shows “Start Up” and “The Oath,” for example.
CSS Entertainment will bring six of its ad-supported networks — including Popcornflix, Popcornflix Kids, Popcornflix Comedy, Frightpix, Espanolflix and Truli, plus its subscription service Pivotshare — to Crackle Plus.
The combination will lead Crackle Plus to become one of the largest ad-supported video-on-demand platforms in the U.S., the companies claim, with nearly 10 million monthly active users and 26 million registered users. The new service will also have access to more than 38,000 combined hours of programming, more than 90 content partnerships and more than 100 networks.
So Andreessen Horowitz spent the spring embarking on one of its more disagreeable moves so far: The firm renounced its VC exemptions and registered as a financial advisor, with paperwork completed in March. It’s a costly, painful move that requires hiring compliance officers, audits for each employee and a ban on its investors talking up the portfolio or fund performance in public—even on its own podcast. The benefit: The firm’s partners can share deals freely again, with a real estate expert tag-teaming a deal with a crypto expert on, say, a blockchain startup for home buying, Haun says.
And it’ll come in handy when the firm announces a new growth fund—expected to close in the coming weeks, a source says—that will add a fresh $2 billion to $2.5 billion for its newest partner, David George, to invest across the portfolio and in other larger, high-growth companies. Under the new rules, that fund will be able to buy up shares from founders and early investors—or trade public stocks. Along with a fund announced last year that connects African-American leaders to startups, the new growth fund will give Andreessen Horowitz four specialized funds, with more potentially to follow.
“It’s a crazy deal. It’s an insane deal. We looked at Burlington Northern at $75 and I’ll give you the exact calculation we did. You don’t have a high earnings return. They are paying 18 times earnings, but it’s really much worse than that. They report maintenance cap-ex very carefully. They report depreciation and amortization, and they report only about 70% of the maintenance cap-ex.”
One very important fact of this transaction, was his level of conviction. In November 2009, there were a ton of cheap opportunities. Buffett picked BNSF, and paid a 30% premium to gain full ownership. Also, 40% of the total consideration was paid with arguably deeply undervalued BRK shares. So, safe to say he really wanted BNSF. The $34bn paid for BNSF, represented almost 25% of Berkshire’s equity! It was a huge bet, with significant repercussions.
Applying similar numbers, we get to an Enterprise Value of $125bn and an equity value of $105bn for Berkshire´s railroad. Once again, Buffett paid $34bn, took out $31bn in dividends and is left with +$100bn in value…Good job Warren.
So we know returns for this massive investment have been impressive, but let´s get to a number. And the number is…~18%. That is massive for an investment many thought at the time would produce mediocre returns. Remember many experts thought he was overpaying for a capital-intensive, regulated and cyclical business.
18% is 1.5x the return of the S&P 500 during a bull market. But it gets better…At the time of the acquisition, Berkshire already owned ~20% of BNSF stock…so he didn´t have to pay the takeout premium on 100% of the shares outstanding. In reality, he had to pay ~$26bn for the shares he didn´t own. Also, Berkshire employed a bit of leverage to fund the acquisition. The company issued $8bn in bonds, so we get, leveraged returns. If we take into account the leverage and the shares of BNSF Berkshire already owned, then the return on the equity would go…way up. But I think we get the point.
The market is not correctly conceptualizing normalized profitability. It seems that the market views AMZN’s profitability primarily through a legacy e-commerce lens, viewing AMZN as a single-digit-margin business. Piecing apart the business, I think this is wrong. First, AMZN has not known the meaning of the word “operating leverage” for the past 10 years, but it is showing through recently with beautiful impact. In Q3 18, fulfillment as a percentage of sales actually declined for the first time time in five years (having gone from 8.5% in 2010 to 15% of sales in 2018). This is a nascent signal, but suggests that the fulfillment infrastructure expansion is nearing its final stages. There are supplementary data points to support this notion, including the slowing in new DCs and headcount. As a result of this operating leverage, operating margins went from 0.8% in Q3 17 to 6.6% in Q3 18, with incremental margins of 26%. Second, there is a real mix shift going on at AMZN that benefits GMs and fundamentally changes the OM outlook for the combined business. Core e-commerce (lower margin) grew revenue only 10% in Q3, but third party seller services grew 31% and AWS grew 46%. As a result of this positive mix shift, gross margins went from 37% Q3 17 to 41.7% in Q3 18, with incremental gross margins coming in at 57.5%. Amazon effectively has a powerful combination of mix-driven GM expansion and operating leverage driven OM expansion in play here, and my view is that this dynamic will hold for at least a number of years to come.
In 2013, PayPal bought Braintree Payment Solutions LLC, which processes the credit card transactions on the mobile apps of Uber, Airbnb, StubHub, and thousands of smaller businesses. The acquisition brought in an influx of programmers and designers, as well as Venmo, which Braintree had acquired the year before. Venmo is a way to quickly settle small debts between friends: a dinner check, a get-well present for a colleague. With Venmo, informal financial interactions formerly governed by social norms about reciprocity, forgiveness, and passive-aggressive hinting could be easily recorded and quickly paid. (“I only have a twenty” is no longer a viable excuse.) You could even “bill” your friends. The app—complete with a feed of the payments your friends have made to each other—has proved enormously popular with millennials.
Over the next six months, Schulman negotiated similar partnerships with Mastercard and Citibank, committing to make it as effortless as possible for customers to use Citibank-issued credit cards and Mastercard’s network. “When PayPal first spun out of EBay, there was a lot of competition and a lot of negative sentiment,” says Heath Terry, an analyst who covers the industry for Goldman Sachs Group Inc. “Basically, in 18 months on the job, Dan was able to completely change that narrative.” As with the Visa deal, PayPal was forgoing some profit but placating powerful and formerly antagonistic payments incumbents. Citi and Mastercard—along with Google, Apple, Amazon, and Samsung, each of which has an eponymous “pay” product—began steering customers to link their accounts with PayPal, seeing it not as a competitor but as a driver of transactions and the fees they generate. In short, as a pal.
The result has been a surge in growth. “It took us 14 years to go from 50 million subscribers to 250 million,” Schulman says. “I mean, it’s impressive, but it’s a long time. We went from 200 million to 250 million in about 18 months,” tripling the rate at which the company added users, or what it calls “net new actives.” PayPal’s stock is up more than 100 percent since the start of 2017. However, PayPal’s most impressive statistic may be its conversion rate. People who design online and mobile shopping apps are obsessed with smoothing and shortening the path from idle browsing to purchase—humans are acquisitive and impulsive creatures, but they’re also easily distracted and bad at remembering their credit card numbers. Too many options hurts conversion, and so does having to type out stuff or wait for a page to load. PayPal’s conversion rate is lights-out: Eighty-nine percent of the time a customer gets to its checkout page, he makes the purchase. For other online credit and debit card transactions, that number sits at about 50 percent.
This differential was cited by the hedge fund Third Point in an investor letter last July: “We see parallels between PayPal and other best-in-class internet platforms like Netflix and Amazon,” it read. It applauded PayPal’s $2.2 billion purchase in May of IZettle, a Swedish payments processor known as the “Square of Europe.” The praise was particularly striking coming from Third Point, whose billionaire founder Dan Loeb, like Icahn, is better known for publicly excoriating the leadership of the companies in which he invests. Built into PayPal’s high share price is the expectation that the company will figure out a way to turn Venmo’s popularity into profit. Third Point’s letter predicted that the app will be contributing $1 billion in additional annual revenue within three years. Disagreements over how to do that, or how much to even try, have led to the departures of two Venmo heads in two years. Employees who have left in recent months describe mounting mutual frustration. According to multiple people familiar with the company’s finances, the app is still losing hundreds of millions of dollars annually. In an interview after the announcement of Venmo’s latest leadership change in late September, Schulman’s deputy, PayPal Chief Operating Officer Bill Ready, downplayed any suggestion of turmoil. “Any startup that goes through rapid growth is going to experience this,” he says. “You evolve, and you have to bring in different skill sets for each stage of the journey.”
Deaths from cancer dropped 27% over a quarter century, meaning an estimated 2.6 million fewer people died of the disease during that period, according to a new report from researchers at the American Cancer Society.
For most of the 20th century, overall cancer deaths rose, driven mainly by men dying from lung cancer, researchers noted. But since the peak in 1991, the death rate has steadily dropped 1.5% a year through 2016, primarily because of long-running efforts to reduce smoking, as well as advances in detection and treatment of cancer at earlier stages, when prognosis for recovery is generally better.
The service economy lags behind: while services make up 69% of national consumer spending, the Bureau of Economic Analysis estimated that just 7% of services were primarily digital, meaning they utilized internet to conduct transactions.
In the a16z portfolio, Honor is building a managed marketplace for in-home care, and interviews and screens every care professional before they are onboarded and provides new customers with a Care Advisor to design a personalized care plan. Opendoor is a managed marketplace that creates a radically different experience for buying and selling a home. When a customer wants to sell their home, Opendoor actually buys the home, performs maintenance, markets the home, and finds the next buyer. Contrast this with the traditional experience of selling a home, where there is the hassle of repairs, listing, showings, and potentially months of uncertainty.
Managed marketplaces like Honor and Opendoor take on steps of the value chain that platforms traditionally left to customers or providers, such as vetting supply. Customers place their trust in the platform, rather than the counterparty of the transaction. To compensate for heavier operational costs, it’s common for managed marketplaces to actually dictate pricing for services and charge a higher take rate than less-managed marketplace models.
The last twenty years saw the explosion of a number of services coming online, from transportation to food delivery to home services, as well as an evolution of marketplace models from listings to full-stack, managed marketplaces. The next twenty years will be about the harder opportunities that software hasn’t yet infiltrated–those filled with technological, operational, and regulatory hurdles–where there is room to have massive impact on the quality and convenience of consumers’ everyday lives.
The services sector represents two-thirds of US consumer spending and employs 80% of the workforce. The companies that reinvent various service categories can improve both consumers’ and professionals’ lives–by creating more jobs and income, providing more flexible work arrangements, and improving consumer access and lowering cost.
The outsourcing reduces capital expenditure costs, and the associated depreciation, as there’s no machinery to purchase. It is also said to help Keyence to retain its valuable intellectual property. Suppliers, according to Morten Paulsen, Head of Research at CLSA Japan, have no visibility on how the respective pieces of the product puzzle fit together.
But Keyence are not the only business to run a “fabless” model. Apple, perhaps the most successful consumer brand of all time, outsources the creation of its iPhone to Taiwanese Foxconn. It reported operating margins of 26 per cent last quarter. Similarly, semiconductor designers such as Nvidia, Broadcom and Qualcomm also outsource to businesses like Taiwan Semiconductor. Their margins tend to range from 20 per cent to 40 per cent.
Keyence is also excellent at leveraging its suppliers, which it does “in a cleverer way than any other company I’ve seen”, he told us. Indeed, Keyence often has multiple suppliers manufacturing the same part, which stops one raising prices in fear of losing orders to competitors. Further to this, Keyence develops some of its manufacturing processes in house, then trains the suppliers, which means it can switch suppliers with greater ease than most if it begins to get strong armed, Paulsen argues.
What about its products? To its credit, Keyence has positioned itself right at the forefront of several key trends in an era of increasing factory automation, such as sensors which detect infinitesimal assembly-line mistakes. Customers, such as automakers — which make up roughly 25 per cent of its sales, according to Paulsen — are happy to pay top dollar for products that pay for themselves in 2 years, giving Keyence some degree of pricing power.
The reason for achieving high profitability is to maximise customer’s evaluation of products with high value added — that is, for customers, “I do not think it is expensive” and “I think it is cheap if it [our problem] can be solved” . . . As we explore the potential needs of our customers and develop them [the products] in advance, about 70 per cent of the new products of Keyence are the industry’s first and world’s first product as a result. Even in terms of management, we concentrate resources on product planning and design . . . we are trained to not only sell goods but also propose ideas that can solve customer’s problems.
“The online retailer has ascended to the No. 3 spot in the U.S. digital ad market behind the dominant players, Alphabet Inc.’s Google and Facebook Inc. Though Amazon has just 4% of the market now, the company is expanding its avenues for marketers and hiring aggressively for its ad unit.
Amazon’s ad revenue is on pace to double this year, to $5.83 billion, according to eMarketer. Its ad sales are expected to jump $28.4 billion over the next five years, according to Cowen & Co.—more than the combined increases in ad revenue for all television networks globally, according to figures from media-buyer GroupM.”
Amazon’s ad business now contributes to gross profit and is expected to generate more income than its cloud business—which currently provides the bulk of its profits—as soon as 2021, according to Piper Jaffray analysts.
Amazon is expected to collect 15 cents of each new dollar spent on U.S. digital ads in 2020, up from 5 cents last year, according to an analysis of data from research firm eMarketer.
This, I discovered, was the real reason the upgrade cost $1.6 billion. The software costs were under a hundred million dollars. The bulk of the expenses came from lost patient revenues and all the tech-support personnel and other people needed during the implementation phase.
Without having a deep understanding of what you’re developing and have put in the time to come up with good abstractions based on real experience, you’re just shooting in the dark hoping your generic user system works for all cases when you haven’t even programmed it yet for 1 use case. How is that even possible to do?
When you blindly follow what Google and other massive companies are doing, you’re optimizing for the 5% in a slightly different way. Instead of just getting your app up and running and seeing how it goes, you try to make decisions so that your application can be developed by 100 different teams sprawling across 5,000 developers. Meanwhile it’s just you developing the app by yourself in nearly all cases for new projects.
As soon as you start trying to make it work for a real application, or more specifically, your application, it all falls apart until you spend the time and really learn what it takes to scale an application (which is more than just picking tools). The companies that created these tools have put in the time over the years and have that knowledge, but that knowledge is specific to their application.
Premature optimization is the root of all evil (or at least most of it) in programming.
Optimizing for the 5% is a type of premature optimization. Maybe not so much for your development environment choices, but certainly for the other cases. Base your decisions on optimizing for the 95%, keep it simple and see how it goes. In other words, optimize when you really need to not because of “what if”.
The company is one of the most amazing inventions of humans, this abstract construct that’s incredibly powerful. Even so, for me, it’s about the products. It’s about working together with really fun, smart, creative people and making wonderful things. It’s not about the money. What a company is, then, is a group of people who can make more than just the next big thing. It’s a talent, it’s a capability, it’s a culture, it’s a point of view, and it’s a way of working together to make the next thing, and the next one, and the next one.
That fossil fuels are finite is a red herring. The Atlantic Ocean is finite, but that does not mean that you risk bumping into France if you row out of a harbor in Maine. The buffalo of the American West were infinite, in the sense that they could breed, yet they came close to extinction. It is an ironic truth that no nonrenewable resource has ever run dry, while renewable resources—whales, cod, forests, passenger pigeons—have frequently done so.
My biggest lesson that I’ve learned… I have the same flaw that every human being has and that is: As you’re growing up and getting older, you believe that everybody’s like you. You just extrapolate your personality traits and proclivities on other people. Then you start to realize increasingly, that that’s not true. And I believed, therefore, that everybody was intellectually objective and honest and wanted to figure things out for themselves. And I didn’t understand, for probably as long as 20 years, why I couldn’t convince people of almost mathematically analytical arguments regarding markets. And it was finally after years of this that I realized that people actually want to be told what to think.
It took me a long time to understand that. Not me, see, I don’t want to be told what to think. And so I figured nobody wants to be told what to think. But indeed, I think almost everybody wants to be told what to think. That creates a tremendous advantage in managing money. Because in that window of time between a fact and people being told what the fact means, you have a window if you’re capable of figuring out what it means – and don’t need to be told what it means – where you can actually act before other people and I found I’ve made a lot of money that way.
I remember when Ben Bernanke announced the Fed funds rate was going to stay at 0% for three years, and the markets didn’t move. And I had my traders look for this asset class in the bond market that would be the primary beneficiary of rate staying at zero for three years. And I said, “How much of the prices up?” And they said, “They’re not up at all.”
Dan Scholnick, general partner at Trinity Ventures, whose investments have included New Relic and Docker, was not terribly impressed with the deal, believing it smacked of desperation on IBM’s part. “IBM is a declining business that somehow needs to become relevant in the cloud era. Red Hat is not the answer. Red Hat’s business centers around an operating system, which is a layer of the technology stack that has been completely commoditized by cloud. (If you use AWS, you can get Amazon’s OS for free, so why would you pay Red Hat?) Red Hat has NO story for cloud,” he claimed in a statement.
Forrester analyst Dave Bartoletti sees the cloud native piece as being key here. “The combined company has a leading Kubernetes and container-based cloud-native development platform, and a much broader open source middleware and developer tools portfolio than either company separately. While any acquisition of this size will take time to play out, the combined company will be sure to reshape the open source and cloud platforms market for years to come,” he said.
The best thing going for this strategy is its pragmatism: IBM gave up its potential to compete in the public cloud a decade ago, faked it for the last five years, and now is finally admitting its best option is to build on top of everyone else’s clouds. That, though, gets at the strategy’s weakness: it seems more attuned to IBM’s needs than potential customers. After all, if an enterprise is concerned about lock-in, is IBM really a better option? And if the answer is that “Red Hat is open”, at what point do increasingly sophisticated businesses build it themselves?
The problem for IBM is that they are not building solutions for clueless IT departments bewildered by a dizzying array of open technologies: instead they are building on top of three cloud providers, one of which (Microsoft) is specializing in precisely the sort of hybrid solutions that IBM is targeting. The difference is that because Microsoft has actually spent the money on infrastructure their ability to extract money from the value chain is correspondingly higher; IBM has to pay rent:
Even if content is created by a publisher and merely distributed through the tech platform, the tech company still captures its data; Netflix, for example, doesn’t share ratings data with TV producers, and Amazon doesn’t share Kindle readership data with the publishing industry. Meanwhile, Facebook actually shared false data with brands about their video’s viewership for years.
- Anheuser-Busch InBev acquired a stake in RateBeer, a leading beer review platform, and October, a beer culture website.
- Popular makeup startup Glossier initially launched as a content site; it then used insights gathered from users to develop its own line of cosmetics. Now, it aims to launch a new social commerce platform to encourage user reviews and feedback.
- L’Oreal invested in Beautycon Media, which creates digital beauty content and hosts festivals for influencers
- Mattress startup Casper even launched its own magazine; the current issue includes features like “A skeptic’s guide to crystals” and an adult coloring book.
“The dynamics we’ve entered is, in many ways, creating a dangerous, high stakes Ponzi scheme. Highly marked up valuations, which should be a cost for VCs, have in fact become their key revenue driver. It lets them raise new funds and keep drawing fees.”
“VCs bid up and mark up each other’s portfolio company valuations today, justifying high prices by pointing to today’s user growth and tomorrow’s network effects. Those companies then go spend that money on even more user growth, often in zero-sum competition with one another. Today’s limited partners are fine with the exercise in the short run, as it gives them the markups and projected returns that they need to keep their own bosses happy.”
“Ultimately, the bill gets handed to current and future LPs (many years down the road), and startup employees (who lack the means to do anything about the problem other than leave for a new company, and acquire a ‘portfolio’ of options.)”
AB InBev argued that by taking its leverage down to 2x net debt/EBITDA, it will reduce its cost of capital and “maximize total enterprise value.” All else equal, a lower cost of debt would in theory increase enterprise value, yet AB InBev already has solidly investment-grade credit ratings (e.g., A- from S&P). A ratings upgrade within the investment-grade space would likely only have a marginal impact on lowering cost of debt. Deleveraging could even increase its cost of capital, as more expensive equity takes a greater share of the capital structure.
Ultimately, a company’s dividend should be affordable, reflect the growth in shareholder value creation, and help management more prudently select high-return projects rather than pursue wasteful “empire building” deals. Dividends can be a problem, however, when they become too generous and handcuff management’s ability to invest in high-return projects and defend or widen the firm’s economic moat. When this happens, a dividend “rebasing” or “cut” would benefit long-term shareholders.
Uber received proposals from investment banks that pegged the ride-hailing firm’s IPO valuation at $120B. So, that posits Uber’s value is greater than the value of the US airline industry or the US auto industry (excluding Tesla). I love Uber and think the firm is genius. But that valuation is insane. Uber’s model doesn’t have the moats of an auto firm or even Airbnb, which must create global demand and supply (a local competitor to Airbnb doesn’t work, as visitors from other countries wouldn’t know about it). In contrast, local on-demand taxi services abound, even if without an app. The 120K readers of this newsletter could each put in $250, and boom — we have the number-three ride-hailing firm in Miami. Who’s with me?
In today’s economy, innovation means elegant theft: robbery of your data, privacy, health insurance, or minimum-wage protection. Uber has 16K employees and 3M driver partners. “Driver partner” means some great things. It means you don’t have to show up to an office. And it means you can work whenever you want — this is key. When I speak to Uber drivers, I always ask, “Do you like working for Uber?” The overwhelming majority say yes and reference the flexibility. I’ve been especially struck by how many need the flexibility, as they’re taking care of someone who’s sick. So many people taking care of others. So many people loving other people. And it comes at a huge cost. Many of them used to have jobs with benefits. Many had to move to a strange place to take care of their sister, mother, nephew.
In the near term, around $6.6 trillion of the expected GDP growth will come from productivity gains, such as the continued automation of routine tasks. Over time, increased consumer demand for AI-enhanced offerings will overtake productivity gains and result in an additional $9.1 trillion of GDP growth by 2030.
China is expected to see the greatest economic gains from AI, a $7 trillion or 26% boost in GDP growth. One reason is the high proportion of China’s GDP that is based on manufacturing, where AI is expected to have a particularly big impact between now and 2030. Even more important over the longer term is China’s higher rate of AI investments compared to North America and Europe.
China is expected to see the greatest economic gains from AI, a $7 trillion or 26% boost in GDP growth. One reason is the high proportion of China’s GDP that is based on manufacturing, where AI is expected to have a particularly big impact between now and 2030. Even more important over the longer term is China’s higher rate of AI investments compared to North America and Europe.
In North America, the economic gains from AI are expected to reach $3.7 trillion or 14.5% of GDP growth by 2030. North America will see the fastest growth in the near term, given its current lead in AI technologies, applications, and market readiness. But China will likely begin to catch up by the middle 2020s given its accelerating AI investments.
Some of the world’s most destructive earthquakes — China in 2008, Haiti in 2010 and Japan in 2011, among them — occurred in areas that seismic hazard maps had deemed relatively safe. The last large earthquake to strike Los Angeles, Northridge in 1994, occurred on a fault that did not appear on seismic maps.
Which one of these investments would you want for the next 20 years? Mathematically you should be indifferent, but behaviorally you won’t be.
If you are aged 25-44, asset C will be cheap while you are still in the wealth accumulation stage of your life. This is why Josh Brown says millennials should be stoked for a market crash, and he is right. However, since we don’t know the future, it would be near impossible to stay with asset C while assets A and B also exist. Once again, the deciding factor is perspective.
This is why you should never forget the impact of your perspective, and the perspectives of others, when making investment decisions. You have to consider someone else’s investment umwelt before you make any important financial choices. When you see friends rushing into the hottest asset class, consider what their goals are. When you hear about a new stock tip from a broker, think about why they would be telling you that. When you feel the panic set in as everyone around you is selling, remind yourself of your long term financial plan.
By my calculations, the S&P 500 has had 20 bear markets (down 20% or worse) and 27 corrections (down 10% but less than 20%) since 1928. The average losses saw stocks fall 24% and lasted 228 days from peak-to-trough. Of those 47 double-digit sell-offs, 31 of them occurred outside of a recession and didn’t happen in the lead up to a recession. That means around 66% of the time, the market has experienced a double-digit drawdown with no recession as the main cause. Of those 31 which occurred outside of a recession, the losses were -18% over 154 days, on average.
We’ll have a recession at some point but odds are the stock market won’t tip us off ahead of time. In fact, most of the time people don’t even realize we’re in a recession until after it’s already begun. NBER typically gives the official word for a recession around the time they’re ending or already in the midst of a slowdown. The recession that began in March 2001 wasn’t officially called a recession by NBER until November 2001, the month it ended. The recession that began in the summer of 1990 wasn’t determined until the spring of 1991. And the recession that began in the summer of 1981 wasn’t called a recession until January of 1982.
2017: Build high standards into company culture
2016: Move fast and focus on outcomes
2015: Don’t deliberate over easily reversible decisions
2014: Bet on ideas that have unlimited upside
2013: Decentralize decision-making to generate innovation
2012: Surprise and delight your customers to build long-term trust
2011: Self-service platforms unlock innovation
2010: R&D should pervade every department
2009: Focus on inputs — the outputs will take care of themselves
2008: Work backwards from customer needs to know what to build next
2007: Missionaries build better products
2006: Nurture your seedlings to build big lines of business
2005: Don’t get fixated on short-term numbers
2004: Free cash flow enables more innovation
2003: Long-term thinking is rooted in ownership
2002: Build your business on your fixed costs
2001: Measure your company by your free cash flow
2000: In lean times, build a cash moat
1999: Build on top of infrastructure that’s improving on its own
1998: Stay terrified of your customers
1997: Bring on shareholders who align with your values
Links to Jeff Bezos’s Shareholder Letters (1997-2017)
Calculating the customer acquisition cost for Netflix is easy — take the segmented marketing costs (handily provided by the company), and divide by the number of paid subscribers added.
The lifetime value of a Netflix subscriber. To work this out: 1. take the average revenue of a user in the quarter; 2. multiply it by the gross margin (to figure out how profitable a subscriber is), then
3. divide this figure by the churn rate — the proportion of customers which leave each quarter.
On to stage 2 of our calculation: the profitability per user. So that’s the numbers above, multiplied by the gross margin (revenues, minus the cost of providing the service).
Lower gross margins in the future due to higher content costs might effect the lifetime value assessment, but lets stick with existing numbers for now. So we’ve got the first two parts of our customer lifetime value calculation, leaving just the churn rate.
But that isn’t really what we’re after, what we want to know is the ratio between how much money a paid subscriber is worth — the lifetime value — and how much it costs Netflix to pull one in to its platform — the customer acquisition cost.
“We question the ability for Tesla to actually deliver on their promises to their customers when they’re on the brink of potentially a massive supply-chain disruption,” Quadir said in an interview on Bloomberg Television. “We see very little contingency planning, and we also see executives from the supply chain department departing in recent weeks and months.’’
Part of the short thesis on Trupanion is based on the idea that vet activity may not comply with some state insurance regulations. It represents a bigger risk than consumer complaint investigations, which are commonplace for insurers. If regulatory challenges continue it could further dent investor sentiment about the shares.
“By purchasing more cloud computing capacity then they really need – even as a deliberate strategy to safeguard against crashing key systems – or buying advanced reserves that they will never use, companies across all industries may be overspending on cloud services by an average of 42%, according to data compiled by Densify, a cloud optimization firm that works with big companies worldwide. That can translate into hundreds of thousands or even millions of lost dollars in IT budgets a year, depending on the size of cloud deployments, the firm said. Its estimates are based on input from 200 cloud-industry professionals and 70 global companies over the last year.”
Serverless is based on a very different resource management model. The biggest overhead is in the design of the application. Serverless applications are woven or composed from a collection of loosely coupled, lightweight modules or microservices. Each such module is only given resources when triggered by another application module or invoked by an external function. Serverless modules are expected to run for a relatively short time, and are generally limited in how long each invocation is allowed to run. Once the module finishes running, its resources are returned to the serverless platform and made available to other modules that need them. The modules are stateless, meaning that no information is carried over or remembered between invocations. Any information that needs to be persistent across invocations must be explicitly stored in a separate file or data base.
Given the special nature of serverless applications, developers no longer need to plan, allocate or provision module instances. Once a module is invoked, the serverless platform will figure out the resources it requires and automatically provision them. As other modules are invoked, the platform will automatically allocate the required resources, and take them away once they’ve finished running. Developers are only charged for the resources used during the time their modules actually run. If invoked infrequently, or if invocations are spiky, there’s no need to plan for and pay for just-in-case-resources.
Uninstall tracking exploits a core element of Apple Inc.’s and Google’s mobile operating systems: push notifications. Developers have always been able to use so-called silent push notifications to ping installed apps at regular intervals without alerting the user—to refresh an inbox or social media feed while the app is running in the background, for example. But if the app doesn’t ping the developer back, the app is logged as uninstalled, and the uninstall tracking tools add those changes to the file associated with the given mobile device’s unique advertising ID, details that make it easy to identify just who’s holding the phone and advertise the app to them wherever they go.
A lot of times, people who are insecure about their product will offer it for free as a way to feel more comfortable, as a way to offer the customer something that’s “fair”. I would argue strongly against that. If you’re inclined to do that, don’t. Instead, ask them for money, tell them it’s completely refundable, and then don’t under any circumstance spend that money. Put it in a separate bank account. It’s not revenue until the customer has stayed for six months and says that they are happy with everything—then you can touch the money.
This has the same effect as giving your product away for free—there’s zero risk for the customer—but by doing this you’ll weed out bad customers and you’ll learn how to get customers to pay you. In the enterprise world, if you’re not putting a price tag on your product, it’s not going to be valued. A lot of times people think I’m going to start by not asking for money and then it’ll organically lead to asking for money. That’s not true. You have to charge enterprise customers, no matter how early it is. If you don’t, a lot of people are going to be friendly and give you pleasant feedback. “Oh, new technology, of course I want to see this!” It’s even going to feel like you’re accomplishing things. But you’ll be wasting your time.
Despite steadily increasing the quality of its service for customers, Netflix’s pricing has lagged the growth of that consumer value leading to the build up of a large consumer surplus. That surplus, or the excess consumer value over the price of the service, is an important factor that has driven such a rapid rate of growth for the service. The bigger the surplus, the better the deal for the consumer. But this also results in a sub-optimal return for the shareholder, at least in the short run, which can look like an inferior business model if you don’t look more carefully.
The power of the model is to realize that the consumer surplus represents latent pricing power that can be reallocated via price increases or reinvestment changes towards future profits for shareholders. In Netflix’s case, we believe this is an important lever in managing the rate of its growth and returns. By offering a compelling value proposition to incremental consumers, Netflix drives subscriber growth because it is a fantastic deal at $10/month. The consumer surplus is an investment in Netflix’s rapid growth, an implicit subscriber acquisition expense in the form of foregone revenue and profit, intentionally leveraged to quickly scale so that nearly all traditional media incumbents would be left too far behind when they awoke to the direct to consumer global scale streaming video opportunity. It’s clear at this point that this strategic goal has either been accomplished or nearly has.
Tesla picks up on Apple’s vertical integration strategy but takes it further. In addition to hardware, software, and retail, Tesla also owns and operates manufacturing facilities as well as a global supercharger network. Vertically integrating battery pack production at its Gigafactory is why Tesla is the only high volume EV manufacturer today. Had Tesla waited for the supply chain to catch up, it wouldn’t have been able to launch and scale the Model 3 for years. In our view, this is a key reason why no auto maker has released a viable competitor to the Model 3 thus far and why no company will be able to do so until 2020 at the earliest.
Tesla has spent more than a decade preparing for this moment and, in our view, has the most compelling EV pipeline of any company. The Tesla Model 3 and Model Y (a crossover SUV) have the potential to catapult EVs into the mainstream, much like the one-two punch from the iPhone and iPad in mobile computing. In the U.S. the Model 3 competes in a price category that has three times the addressable market of the Model S, and the price category where the Model Y is likely to compete has an addressable market eight times larger than the Model X. Scaled globally, if the Model 3 and Model Y are as successful as the S and X in their respective segments, Tesla should be able to generate on the order of $65 billion sustainably, even on a distribution footprint that constrains it from selling in 26 states and imposes severe price penalties on its imports into China—the world’s largest EV market. Follow-on products, such as the pickup, the semi-truck, and the Roadster, will pave the way for at least a decade of rapid growth.
While Tesla’s and Apple’s product strategy and business models share many similarities, their financial pictures could not be further apart. Apple had $9 billion in cash in 2007, while Tesla has $12 billion of long-term debt today. Apple’s gross margins were approaching 40%, while Tesla’s are 14%, and Apple spent 6% of its revenues on capital expenditure compared to Tesla’s 26%.4 In other words, Tesla’s business today is less profitable and more capital intensive than was Apple’s in 2007, a seemingly inferior model made more questionable by its substantial debt load and meager cash flows.
Great software companies have more than one act, and Act 2 for Adobe has centered on analytics and digital marketing initiatives, which are currently housed in the digital experience segment. Adobe’s prowess in creative content has allowed it to nab synergies in the digital marketing space, cross-selling to enterprise chief marketing officers already using Adobe’s software. The product, now dubbed Experience Cloud, operates in a nascent and growing industry, but Adobe’s end-to-end functionality, built internally and through acquisitions such as Omniture, TubeMogul, Magento, and Marketo, has meant it is largely regarded as the leader in the space. As companies look to create omnichannel, targeted ad campaigns, Adobe’s marketing software has become a mission-critical offering for major brands and enterprises. Experience Cloud spans marketing, advertising, and analytics, among other features. It competes with the likes of Salesforce.com (CRM) and Oracle (ORCL), which compete in the broader customer relationship management space, but we think a rising tide can lift multiple boats, with optionality for Adobe to cement itself as a digital experience leader.
An important point here is that Trupanion prices its policies based on how much it costs to treat a certain breed of a certain age in a certain zip code. Once Trupanion determines how much it costs to service an average pet based on the previous data points, it adds a 30% margin to calculate the pet’s premium payments.
Each state has its own insurance regulations and Trupanion says its Territory Partners are licensed where they need to be. Technically, Territory Partners do not sell directly to policyholders in the veterinary channel and Trupanion does not pay veterinarians or their staff for referrals. The actual solicitation of the policies is done on Trupanion’s website or over the phone with one of their licensed agents. We also believe Trupanion has increasingly viewed state regulators as partners and it has added to its compliance department in recent years. That said, state insurance regulations are intentionally vague and give regulators a lot of discretion in enforcement. As such, we won’t be surprised if there’s some adverse regulatory news during our investment. But the magnitude of these events and their impact on the long-term success of the business should be kept in context.
We believe that Trupanion customers are by-and-large extremely satisfied with the product – Trupanion consistently produces monthly retention rates above 98.5% and has growing customer referrals. Surveys also show that veterinarians recommend Trupanion more frequently than any other pet insurance offering. We also believe that the company is facilitating a positive ecosystem that creates value for all the parties involved — pet owners, pets, and veterinarians.
Booking has intentionally focused on these areas because hotel reservations are far more profitable than airfare and market fragmentation outside the US makes hotels far more dependent on Booking than those in the US. In the US, the top 10 hotel chains lead the market with many travelers going directly to Hilton.com or Hyatt.com to book a room. While in Europe and Asia, independent hotels dominate, and these hotels need some sort of central “marketplace” on which travelers can find them.
Booking is so dominant that one risk they run is letting their heavy spending on advertising (Google ads or ads on other travel sites such as TripAdvisor) push up the going rate on these auction-based ads. With that in mind, the company strategically reduced their spending on these sorts of ads starting last year in an attempt to reduce market prices and reinvest in driving visitors directly to their website. One casualty of this move was online hotel metasearch site Trivago, which was so dependent on Booking’s ad spend that the company’s strategic shift lead to Trivago’s revenue growth to fall from +70% to a 20% decline over the last year, sending the stock down 80%. Rarely in our memory can we recall a competitive move by one of our holdings so completely debilitating another member of their industry.
Ctrip and Booking have essentially declared a truce with Booking owning a large stake (with the right to buy more) of Ctrip. In essence, their agreement funnels Chinese travelers using Ctrip to travel outside of China to Booking.com while many non-Chinese travelers traveling to China via Booking.com are routed to Ctrip. Why have they made this deal? Well, in the words of Ctrips CEO Jane Sun, “Booking.com is a global brand and in hotels, they are just so far ahead of anybody else. I think it will be very difficult for anybody to come close to them.”
Taken together, the elements of Netflix’s expansion strategy constitute a new approach that I call exponential globalization. It’s a carefully orchestrated cycle of expansion, executed at increasing speed, to an increasing number of countries and customers. The approach has helped the company expand far more quickly than competitors. Going forward, Netflix will face increasing competition not only from other global players such as Amazon Prime but also from new entrants and regional or local players. In that regard, it will have to continue to expand its blending of global and regional content.
Indeed, even if the criminal investigation and the arbitration against Levandowski come to naught, in many ways Waymo and Google have already prevailed. “The people at Google got what they wanted,” one of the lawyers who represented Uber told me. “They got Anthony fired, they distracted Uber and slowed its progress for an entire year, and they let everyone know that if you leave with some of their stuff they can screw with you so bad that everyone will think you’re toxic.”
Porsche is Volkswagen’s crown jewel and closely connected with its history. The companies were separate until Volkswagen acquired the Porsche brand in 2012 in the aftermath of a failed takeover attempt by the the descendants of Ferdinand Porsche. The family, which was forced to sell the maker of the 911 sports car after financing collapsed on the deal, still controls a majority of Volkswagen’s common stock and would need to sign off on any deal to spin off Porsche.
Ferrari’s listing in 2015 not only showed the supercar maker’s own value, but also exposed weaknesses at parent Fiat Chrysler Automobiles NV’s mass-market operations, Meschke said. Fiat was able to address these more specifically after the spin off, he said. While it’s been a windfall for the Italian-American auto maker, the strategy isn’t infallible. Aston Martin, another luxury sports-car maker that is seeking a Ferrari-like multiple, has slumped more than 20 percent since its London debut this month.
PCOM operates in the loyalty industry with an unfair advantage in airline loyalty programs. They work with: 7/10 largest airlines in North America; 2/10 largest airlines in Europe; 2/10 largest airlines in AMEA (Emirates was onboarded this year).
Little/no real competition except internal systems developed by airlines.
PCOM is typically the 2nd largest buyer of loyalty points after the banks. The loyalty industry is a large and growing.
In addition, PCOM has developed a software/technology layer that provides common functionality to all three businesses. This technology layer is what the company calls “Loyalty Commerce Platform”. In the last 5 years PCOM has invested heavily into developing this platform which now enables client onboarding in as little as 3 weeks. It also provides operating leverage as the system manages many of the functions previously managed by people.
It takes years of working with multi-billion-dollar brands to get access to their customer base. This represents a level of stickiness that cannot be built quickly with venture capital money. It is also resistant to disruptive technology.
My view: owning Sears as a property play is a demonstration of the arrogance and breathtaking naivete of much that passes on Wall Street. Sears Holdings has over 300 thousand employees. I don’t know how you successfully liquidate a business integrated with that many lives. I don’t know of anyone who has ever successfully liquidated a business with that many employees.** I am not sure it can be done and it certainly can’t be done by someone with my skill-set (highly analytical, ability to spy value or value traps but no people management skill and not much tact).
The idea that Sears was going to be managed/liquidated by a bunch of hedge fund guys (people like me) well – that was comical.
Just to stress the point for my fund manager friends who read accounts and have my skills (but like me are often disconnected from the businesses they invest in) I will state the obvious. The employees are living breathing people and as you pull the business apart the way you treat those people and how they think about you (and behave towards you) are critical to any value you extract in liquidation. Someone has to look these people in the eye and tell them they don’t have a job. And someone has to pick-and-choose which people to fire and which to retain. And they have to do this without destroying much of the value extracted along the way. They have to liquidate the firm in such a way that the value accrues to the liquidators and not to the people who are being screwed.
“[The whole tech bubble] is very interesting, because the stock is not the company and the company is not the stock. So as I watched the stock fall from $113 to $6 I was also watching all of our internal business metrics: number of customers, profit per unit, defects, everything you can imagine. Every single thing about the business was getting better, and fast. So as the stock price was going the wrong way, everything inside the company was going the right way. We didn’t need to go back to the capital markets because we didn’t need more money. The only reason a financial bust makes it really hard is to raise money. So we just needed to progress.”
“Everything I have ever done has started small. Amazon started with a couple of people. Blue Origin started with five people and the budget was very small. Now the budget approaches a billion dollars. Amazon was literally ten people, today it’s half a million. For me it’s like yesterday I was driving packages to the post office myself and hoping one day we could afford a forklift. For me, I’ve seen small things get big and it’s part of this ‘day one’ mentality. I like treating things as if they’re small; Amazon is a large company but I want it to have the heart and spirit of a small one.”
“I believe in the power of wandering. All of my best decisions in business and in life have been made with heart, intuition and guts. Not analysis. When you can make a decision with analysis you should do so. But it turns out in life your most important decisions are always made with instinct, intuition, taste and heart.”
“AWS completely reinvented the way companies buy computation. Then a business miracle happened. This never happens. This is the greatest piece of business luck in the history of business as far as I know. We faced no like-minded competition for seven years. It’s unbelievable. When you pioneer if you’re lucky you get a two year head start. Nobody gets a seven year head start. We had this incredible runway.”
“We are so inventive that whatever regulations are promulgated or however it works, that will not stop us from serving customers. Under all regulatory frameworks I can imagine, customers are still going to want low prices, they are still going to want fast delivery, they are still going to want big selection. It is really important that politicians and others need to understand the value big companies bring and not demonise or vilify big companies. The reason is simple. There are certain things only big companies can do. Nobody in their garage is going to build an all carbon-fiber fuel efficient Boeing 787. It’s not going to happen. You need Boeing to do that. This world would be really bad without Boeing, Apple, Samsung and so on.”
What business is Amazon most similar to? Definitely not Wal-Mart. Amazon’s model is much, much closer to Costco’s model. How does Costco’s model differ from Wal-Mart’s model?
Costco does not try to be a leading general retailer in specific towns, counties, states, the nation as a whole, etc. What Costco does is focus on getting a very big share of each customer’s wallet. Costco also focuses on achieving low costs for the items it does sell by concentrating its buying power on specific products and therefore being one of the biggest volume purchasers of say “Original” flavor Eggo waffles. It sells these waffles in bulk, offers them in one flavor (Wal-Mart might offer five different flavors of that same product) and thereby gets its customer the lowest price.
There’s two functions that Costco performs where it might be creating value, gaining a competitive advantage, etc. One is supply side. Costco may get lower costs for the limited selection it offers. In some things it does. In others, it doesn’t. The toughest category for Costco to compete in is in fresh food. I shop at Costco and at other supermarkets in the area. The very large format supermarkets built by companies like HEB (here in Texas) can certainly match or beat Costco, Wal-Mart, and Amazon (online and via Whole Foods stores) when it comes to quality, selection, and price for certain fresh items. But, what can Costco do that HEB can’t? It can have greater product breadth (offering lots of non-food items) and it can make far, far, far more profit per customer.
Now, an interesting question to ask is what SHOULD determine the market value per customer. Not what does. But, what should? In other words, if we had to do a really, really long-term discounted cash flow calculation – what variables would matter most? If two companies both have 10 million customers which company should be valued higher and why? Two variables matter. One: Annual profit per customer. Two: Retention rate. Basically, we’re talking about a DCF here. If Company A and Company B both have 10 million customers and both make $150 per customer the company that should have a higher earnings multiple (P/E or P/FCF) should be the one with the higher retention rate.
Tencent Music is no small player: As the music arm of Chinese digital media giant Tencent, its four apps have several hundred million monthly active users, $1.3 billion in revenue for the first half of 2018, and roughly 75 percent market share in China’s rapidly growing music streaming market. Unlike Spotify and Apple Music, however, almost none of its users pay for the service, and those who do are mostly not paying in the form of a streaming subscription.
Its SEC filing shows that 70 percent of revenue is from the 4.2 percent of its overall users who pay to give virtual gifts to other users (and music stars) who sing karaoke or live stream a concert and/or who paid for access to premium tools for karaoke; the other 30 percent is the combination of streaming subscriptions, music downloads, and ad revenue.
Tencent Music has an advantage in creating social music experiences because it is part of the same company that owns the country’s leading social apps and is integrated into them. It has been able to build off the social graph of WeChat and QQ rather than building a siloed social network for music. Even Spotify’s main corporate rivals, Apple Music and Amazon Music, aren’t attached to leading social platforms.
In other words the two companies have an agreement that Apple is paid in proportion to the actual query volume generated. This would extend the relationship from one of granting access for a number of users or devices to revenue sharing based on usage or consumption. Effectively Apple would have “equity” in Google search sharing in the growth as well as decline in search volume.
The idea that Apple receives $1B/month of pure profit from Google may come as a shock. It would amount to 20% of Apple’s net income and be an even bigger transfer of value out of Google. The shock comes from considering the previously antagonistic relationship between the companies.
The remarkable story here is how Apple has come to be such a good partner. Both Microsoft and Google now distribute a significant portion of their products through Apple. Apple is also a partner for enterprises such as Salesforce, IBM, and Cisco. In many ways Apple is the quintessential platform company: providing a collaborative environment for competitors as much as for agnostic third parties.
Much of the Trupanion excitement is based on the low 1% penetration rate and the fact that it’s the only pet-insurance pure play. Bradley Safalow, who runs PAA Research, an independent investment research firm, disputes the lofty expectations. Bulls extrapolate from industry data that say about two million pets out of 184 million in North America are insured now. Safalow says that ignores a key factor—the income levels of pet owners. Because Trupanion’s policies cost about $600 to $1,500 annually and don’t cover wellness visits, he estimates that, in the case of dogs, which represent 85% of the pet market, a more realistic target customer would be owners who earn $85,000 or more a year. Based on that benchmark, Safalow estimates insurance penetration—of those most likely to buy it—at about 6% already for dogs.
The requests for rate increases would indicate that premiums aren’t keeping up with claims; that the policy risks are worse than the company expected; and that the profitability of its book of business is relatively weak. APIC’s ratio of losses and loss-adjustment expense to premiums earned have risen steadily over the past four years to 75.6% in the first quarter of this year from 68.9% for all of 2014, according to state filings. The loss ratio is total losses incurred in claims plus costs to administer the claims (loss adjustment expense) divided by premiums earned.
Iger thinks he knows how to coax consumers who already pay for one streaming service to either add another or switch to Disney’s. “We’re going to do something different,” he says. “We’re going to give audiences choice.” There are thousands of barely watched movies on Netflix, and Iger figures that people don’t like to pay for what they don’t use. So families can buy only a Disney stream, which will offer Pixar, Marvel, Lucas, Disney-branded programming. Sports lovers can opt just for an ESPN stream. Hulu, of which Disney will own a 60% stake after it buys Fox (and perhaps more if it can persuade Comcast to sell its share), will beef up ABC’s content with Fox Searchlight and FX and other Fox assets. “To fight [Amazon and Netflix], you’ve got to put a lot of product on the table,” says Murdoch. “You take what Disney’s got in sports, in family, in general entertainment—they can put together a pretty great offer.”
Having a leader who is willing to insulate key creative people from the vicissitudes of business has helped Disney successfully incorporate its prominent acquisitions. They have not been Disneyfied. Marvel movies are not all of a sudden family friendly (at least not by Disney standards). Pixar movies have not been required to add princesses. Most of the people who ran the companies before Disney bought them still run them (with the exception of John Lasseter, who was ousted in June in the wake of #MeToo). “I’ve been watching him with his people and with Fox people; he’s clearly got great leadership qualities,” says Murdoch.”He listens very carefully and he decides something and it’s done. People respect that.”
Today the Aladdin platform supports more than $18 trillion, making it one of the largest portfolio operating systems in the industry. BlackRock says Aladdin technology has been adopted in some form by 210 institutional clients globally, including asset owners such as CalSTRS and even direct competitors like Vanguard.
“Not only does it provide risk transparency, but it also provides an ability to model trades, to capture trades, to structure portfolios, to manage portfolio compliance — all of the operating components of the workflow,” Goldstein says. “It’s a comprehensive, singular enterprise platform versus a model where you’re piecing together a lot of things and trying to figure out how to interface them.”
In a market that’s traditionally been very fragmented, BlackRock’s ability to offer an integrated, multipurpose platform has proven a strong selling point for prospective clients — even when it’s up against competitors that perform specific functions better.
This is not to say Kroll’s firm, Kroll Bond Rating Agency, hasn’t been successful. It grew gross fees by 49 percent annualized between 2012 and the end of 2017 on the back of growing institutional demand for alternative investments. Since 2011 it has rated 11,920 transactions, representing $785 billion and 1,500 issuers. Still, KBRA and other competitors, including Lisbon-based ARC Ratings and Morningstar Credit Ratings, that have entered the sector in the last decade have barely made a dent in the market share of the big three.
The upstarts are facing more than just deeply entrenched competition, although that is striking: S&P, Moody’s, and Fitch control more than 90 percent of the market combined. A host of other complex factors have combined to make it nearly impossible to dislodge the big three — and to address the central conflict of interest baked into the ratings agency business model.
We think a similar analogy is likely with AV/EV — the most economically well-off people will still care about comfort, features, and identity that the AV/EV they ride and arrive in imparts on them. If Waymo can deliver a premium experience at a better price and higher utility than their current solution (i.e. driving themselves in their own cars or Ubers/taxis) with cost economics that yield a strong profit margin/ROIC at scale (1/2-1/3 the pricing of Uber at 1/10 the cost), it will have built an offering that will be set to be the leading AV service and create tremendous value for shareholders despite the early capital intensity. Estimates of the value of this Transportation as a Service (TaaS) or Mobility as a Service (MaaS) go from hundreds of billions on up based on Morgan Stanley’s estimate of 11 billion miles (3B in the US) driven globally and forecasted to double over the next decade.
Eventually, if Waymo is successful at taking the strong lead via network effects in AV and converting enough consumers to use its premium service (achieving a cultural and regulatory tipping point), it could decide to open up its service’s usage across other auto “hardware” partners as they demonstrate their ability to deliver a certain level of quality experience and scale globally, enabling a broader application of its service to lower tiers of the market with lower capital intensity (akin to Apple’s 2nd hand iPhone market, which broadens its user base for services offerings).
“The 21st-century brand is the direct-to-consumer brand,” said Jeff Weiser, chief marketing officer at Shopify. “A couple of things have enabled the rise of the DTC, which is the ability to outsource the supply chain.” For Weiser, who described himself as “loving” anything to do with DTC, what Shopify does is power all of that ability — from selling to payments to marketing. “We run the gamut of a retail operating system.” The company has admittedly benefited from a DTC boom: Starting with small businesses run from people’s kitchens, then going upmarket to giant Fortune 500 companies, Weiser said that DTC’s “graduation” into giant juggernauts themselves has made a huge difference. Shopify powers hundreds of those companies, from Allbirds to mattress brand Leesa to Chubbies.
Just as Google and Facebook are core to anyone marketing online, Shopify is becoming the same to those who sell directly online. Like any platform, Shopify is building an ecosystem of developers, startups and ad agencies. The company has 2,500 apps through its own app store. The company can, like the Apple App Store, add apps into its ecosystem that merchants can then purchase.
Elastic’s open source products are downloaded voluminously, with over 350M downloads of its open source software to date. As a result, sales engages with customers who are already users and highly familiar with the products. This leads to shorter sales cycles and higher sales conversions. Additionally, awareness and engaged prospects are generated by popular open source projects, such as Elasticsearch and others from Elastic, obviating the need for top-of-funnel and mid-funnel marketing spend. Elastic still spent a healthy 49% of revenue on Sales & Marketing in FY ’18 (year ending Jan ’18) but this was down from 60% the prior year, and the implied efficiency on Elastic’s Sales & Marketing spend is extremely high, enabling the 79% top-line growth the company has enjoyed. Finally, Elastic shows how disruptive an open source model can be to competition. There are already large incumbents in the search, analytics, IT Ops and security markets, but, while the incumbents start with sales people trying to get into accounts, Elastic is rapidly gaining share through adoption of its open source by practitioners.
Elastic controls the code to it open source projects. The committers are all employed by the company. Contributions may come from the community but committers are the last line of defense. This is in contrast to open source projects such as Linux and Hadoop, where non profit foundations made up of many commercial actors with different agendas tend to govern updates to the software. The biggest risk to any open source project is getting forked and losing control of the roadmap, and its difficult for a company to build a sustainable high margin business supporting a community-governed open source project as a result. Elastic, and other companies who more tightly control the open source projects they’ve popularized, have full visibility to roadmaps and are therefore able to build commercial software that complements and extends the open source. This isn’t a guarantee of success. The viability of any open source company rests with the engagement of its open source community, but if Elastic continues to manage this well, their franchise should continue to grow in value for for foreseeable future.
“When you hail a ride home from work with Uber, Elastic helps power the systems that locate nearby riders and drivers. When you shop online at Walgreens, Elastic helps power finding the right products to add to your cart. When you look for a partner on Tinder, Elastic helps power the algorithms that guide you to a match. When you search across Adobe’s millions of assets, Elastic helps power finding the right photo, font, or color palette to complete your project,” the company noted in its IPO prospectus.
“As Sprint operates its nationwide network of mobile subscribers, Elastic helps power the logging of billions of events per day to track and manage website performance issues and network outages. As SoftBank monitors the usage of thousands of servers across its entire IT environment, Elastic helps power the processing of terabytes of daily data in real time. When Indiana University welcomes a new student class, Elastic helps power the cybersecurity operations protecting thousands of devices and critical data across collaborating universities in the BigTen Security Operations Center. All of this is search.”
One government official says China’s goal was long-term access to high-value corporate secrets and sensitive government networks. No consumer data is known to have been stolen.
With more than 900 customers in 100 countries by 2015, Supermicro offered inroads to a bountiful collection of sensitive targets. “Think of Supermicro as the Microsoft of the hardware world,” says a former U.S. intelligence official who’s studied Supermicro and its business model. “Attacking Supermicro motherboards is like attacking Windows. It’s like attacking the whole world.”
Since the implants were small, the amount of code they contained was small as well. But they were capable of doing two very important things: telling the device to communicate with one of several anonymous computers elsewhere on the internet that were loaded with more complex code; and preparing the device’s operating system to accept this new code. The illicit chips could do all this because they were connected to the baseboard management controller, a kind of superchip that administrators use to remotely log in to problematic servers, giving them access to the most sensitive code even on machines that have crashed or are turned off.
Ethane, once converted to ethylene through “cracking” is the principal input into production of polyethylene. Simply put, ethane is turned into plastic. Polyethylene is manufactured in greater quantities than any other compound. U.S. ethane production has more than doubled in the past decade, to 1.5 Million Barrels per Day (MMB/D).
The result is that ethane trade flows are shifting, and the U.S. is becoming a more important supplier of plastics. The Shale Revolution draws attention for the growth in fossil fuels — crude oil and natural gas, where the U.S. leads the world. But we’re even more dominant in NGLs, contributing one-third of global production. The impact of NGLs and consequent growth in America’s petrochemical industry receives far less attention, although it’s another huge success story.
If $15 an hour becomes the new standard for entry-level wages in corporate America, its impact may be felt most broadly among middle-class workers. Average hourly earnings for non-managerial workers in the U.S. were $22.73 an hour in August. The historically low level of jobless claims and unemployment, combined with $15 an hour becoming an anchor in people’s minds, could make someone people earning around that $22 mark feel more secure in their jobs. Instead of worrying about losing their job and being on the unemployment rolls for a while, or only being able to find last-ditch work that pays $9 or $10 an hour, the “floor” may be seen as a $15 an hour job.
That creates a whole new set of options for middle-class households. In 2017, the real median household income in the U.S. was $61,372, which is roughly what two earners with full-time jobs making $15 an hour would make. A $15-an-hour floor might embolden some workers to quit their jobs to move to another city even without a job offer there. It might let some workers switch to part-time to focus more time on education, gaining new skills or child care.
It’s not the size of your circle of competence that matters, but rather how accurate your assessment of it is. There are some investors who are capable of figuring out incredibly complex investments. Others are really good at a wide variety of investments types, allowing them to take advantage of a broad set of opportunities. Don’t try to keep up with the Joneses. Figure out what feels comfortable, and do that. If you are not quite sure whether something is within your circle of competence or not – that in and of itself is an indicator that it’s better to pass. After all, to quote Seth Klarman’s letter to his investors shortly after the Financial Crisis of 2008, “Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return.”
… you can prepare; you can’t predict. The thing that caused the bubble to burst was the insubstantiality of mortgage-backed securities, especially subprime. If you read the memos, you won’t find a word about it. We didn’t predict that. We didn’t even know about it. It was occurring in an odd corner of the securities market. Most of us didn’t know about it, but it is what brought the house down and we had no idea. But we were prepared because we simply knew that we were on dangerous ground, and that required cautious preparation.
People use data to justify market timing. But it’s hindsight bias, right? If you know ahead of time when the biggest peaks and troughs were through history, you can make any strategy look good. So Antti and his co-authors made a more realistic and testable market timing strategy. And here’s the key difference — instead of having all hundred years of history, Antti’s strategy used only the information that was available at the time. So, say for example it’s 1996, early tech bubble. We know after the fact that the U.S. stock market would get even more expensive for a few years before it crashed. But in 1996 you wouldn’t actually know that. So by doing their study this way, Antti could get a more realistic test of value-based market timing.
The interesting and troubling result was when we did this market timing analysis the bottom line was very disappointing. It was not just underwhelming, it basically showed in the last 50-60 years, in our lifetimes, you didn’t make any money using this information.
I invested some of that time meeting with the people making these decisions once a week. I wanted to know what types of decisions they made, how they thought about them, and how the results were going. We tracked old decisions as well, so they could see their judgment improving (or not).
Consequential decisions are a different beast. Reversible and consequential decisions are my favorite. These decisions trick you into thinking they are one big important decision. In reality, reversible and consequential decisions are the perfect decisions to run experiments and gather information. The team or individual would decide experiments we were going to run, the results that would indicate we were on the right path, and who would be responsible for execution. They’d present these findings.
Consequential and irreversible decisions are the ones that you really need to focus on. All of the time I saved from using this matrix didn’t allow me to sip drinks on the beach. Rather, I invested it in the most important decisions, the ones I couldn’t justify delegating. I also had another rule that proved helpful: unless the decision needed to be made on the spot, as some operational decisions do, I would take a 30-minute walk first.
Once you frame risk as avoiding regret, the questions becomes, “Who cares what’s hard but I can recover from? Because that’s not what I’m worried about. I’m worried about, ‘What will I regret?’”
So risk management comes down to serially avoiding decisions that can’t easily be reversed, whose downsides will demolish you and prevent recovery.
Actual risk management is understanding that even if you do everything you can to avoid regrets, you are at best dealing with odds, and all reasonable odds are less than 100. So there is a measurable chance you’ll be disappointed, no matter how hard you’ll try or how smart you are. The biggest risk – the biggest regret – happens when you ignore that reality.
Carl Richards got this right, and it’s a humbling but accurate view of the world: “Risk is what’s left over when you think you’ve thought of everything.”
Even if there is a new job, and even if you get support from the government to kind of retrain yourself, you need a lot of mental flexibility to manage these transitions. Teenagers or 20-somethings, they are quite good with change. But beyond a certain age—when you get to 40, 50—change is stressful. And a weapon you will have [is] the psychological flexibility to go through this transition at age 30, and 40, and 50, and 60. The most important investment that people can make is not to learn a particular skill—”I’ll learn how to code computers,” or “I will learn Chinese,” or something like that. No, the most important investment is really in building this more flexible mind or personality.
The better you know yourself, the more protected you are from all these algorithms trying to manipulate you. If we go back to the example of the YouTube videos. If you know “I have this weakness, I tend to hate this group of people,” or “I have a bit obsession to the way my hair looks,” then you can be a little more protected from these kinds of manipulations. Like with alcoholics or smokers, the first step is to just recognize, “Yes, I have this bad habit and I need to be more careful about it.”
And this is very dangerous because instead of trying to find real solutions to the new problems we face, people are engaged in this nostalgic exercise. If it fails—and it’s bound to fail—they’ll never acknowledge it. They’ll just blame somebody: “We couldn’t realize this dream because of either external enemies or internal traitors.” And then this is a very dangerous mess.
The other danger, the opposite one, is, “Well, the future will basically take care of itself. We just need to develop better technology and it will create a kind of paradise on earth.” Which doesn’t take into account all of the dystopian and problematic ways in which technology can influence our lives.
Marketing will only get you where you’re going faster. If your product isn’t valuable, marketing will help put you out of business, fast. The best way to build trust and generate attention is to be relatively excellent. I say “relatively” because some markets are more efficient/mature than others. The less developed a market, the less valuable you have to be in absolute terms. You just have to be better than everyone else. I don’t want to try to outcompete smart, well-read, and hard working people. I want to find the lowest bar to jump over and then get good at pole vaulting.
Picking your field is arguably more important to your success than your current skill and future capacity. In some segments of business, everyone makes lots of money and the very best do outrageously well. In other areas, even the very best often declare bankruptcy. It’s a base rate analysis. Assume you’re only going to be mediocre, then explore what business and life look like if that’s true. So choose your field wisely and get good at what you’re doing before trying to make noise.
Without a cost incentive to locate in the developing world, corporations will bring many of these functions back to the countries where they’re based. That will leave emerging economies, unable to grasp the bottom rungs of the development ladder, in a dangerous position: the large pool of young and relatively unskilled workers that once formed their greatest comparative advantage will become a liability – a potentially explosive one.
The result will be an unprecedented concentration of productive capacity and wealth in the hands of the elite AI companies, almost all of which are located in the US and China. Of the US$15.7 trillion in wealth that AI is forecast to generate globally by 2030, a full 70 per cent will accrue to those two countries alone, according to a study by consulting firm PwC.
According to a recent report by The NYT, artists working with labels may see much smaller percentages. The report said that Spotify typically pays a record label around 52 percent of the revenue generated by each stream. The label, in turn, then pays the artist a royalty of anywhere from 15% to as high as 50%. If artists are dealing directly with Spotify, they could be making more money.
Labels suggested that they could retaliate against Spotify for overstepping. The NYT had also said. They may do things like withhold licenses Spotify needs for key international expansions, like India, or not agree to new terms after existing contracts expire. They could also offer more exclusives and promos to Spotify’s rivals, like Apple Music, which has surged ahead in the U.S. and is now neck-and-neck here with Spotify for paid subscribers.
A music upload feature also means artists who own their own rights could break out big on Spotify if they catch the attention of playlist editors – something that Spotify now makes it easier for them to do, as well. In addition, having indies upload music directly means Spotify could better compete against Apple Music by attracting more artists and their fans to its platform.
If you have followed many of the posts I’ve written about the challenges facing the broader semiconductor industry, you know that competing with Apple’s silicon team is becoming increasingly difficult. Not just because it is becoming harder for traditional semiconductor companies to spend the kind of R&D budget they need to meaningfully advance their designs but also because most companies don’t have the luxury of designing a chip that only needs to satisfy the needs of Apple’s products. Apple has a luxury as a semiconductor engineering team to develop, tune, and innovate specialized chips that exist solely to bring new experiences to iPhone customers. This is exceptionally difficult to compete with.
However, the area companies can try with cloud software. Good cloud computing companies, like Google, can conceivably keep some pace with Apple as they move more of their processing power to the cloud and off the device. No company will be able to keep up with Apple in client/device side computing but they can if they can utilize the monster computing power in the cloud. This to me is one of the more interesting battles that will come over the next decade. Apple’s client-side computing prowess vs. the cloud computing software prowess of those looking to compete.
China has not experienced the so-called stage of the desktop Internet, but directly embraced the mobile Internet. Therefore, Chinese consumers do not have the burden of the desktop Internet era. This explains to some extent why China’s mobile payment share is so high. In other countries, the mobile payment process is much slower. In fact, they just have no more attempts.”
Perhaps Apple’s delay in advancing Macs and angering the pro community comes from this deep seated attitude that it’s a “burden” holding back the advancement of their iOS agenda.
With no true competitive threats, wide-moat commercial real estate data provider CoStar Group is a borderline monopoly. The other companies in the space are predominately small startups focused on crowdsourcing data. These companies can’t replicate the intangible assets from the vast cost and effort associated with compiling the data the company offers to its customer base.
Given the importance customers place on the underlying data, CoStar also keeps competitors at bay with a switching cost moat source. It’s just too risky to switch sources. Strong platform effects found throughout CoStar’s product offerings earn the company a network effect moat source, too.
The company continues to increase its coverage and boasts that it covers every building in the country, widening the gap between itself and its fragmented competition. The firm recently established itself as a leading provider of rental data with its acquisitions of Apartment Finder and Apartments.com. CoStar is only 30% penetrated in its target market for apartments, so we see room for growth in this area.
Moreover, CoStar is only 15% penetrated in the broker community and 7% penetrated with institutional investors, two groups we can see the firm going after. As several investments are integrated and benefits are realized, we project CoStar’s economic profit to steadily increase over the next several years, reflecting our positive moat trend rating.
“Grubhub is in the early stages of enabling the shift to online of the still offline dominant restaurant takeout businesses and driving the improved consumer experience that comes with it,” they wrote. About “90% of delivery and pickup orders still come from offline, making the phone book, print out menus and walk-ins the number one competitor to Grubhub and its peers.”
How early is the shift? “We estimate Grubhub has about 40% market share of the third-party online delivery/pickup industry which itself we estimate has a 4% penetration of the $250 billion restaurant takeout industry,” they wrote. “Its early mover and scale advantage—about 85,000 restaurants on its platform in 1,600 cities—has allowed Grubhub to offer, in our view, the best consumer value across its competitors.”
If we can introduce ourselves to those advertisers with a good ‘til canceled $300, $400 a month, $10, $20 a day kind of service proposition, what we’re finding is it really opens up our sales funnel. It makes our product more competitive in the marketplace. It allows us to get into third-party sales channels that we haven’t been in before. And we’re now kind of one quarter into it and we had this quarter, the first quarter, about 140% as many new or net customer additions in this quarter as we’ve had in any prior quarter and kind of 2x the run rate that we’ve normally seen when we were selling the term contract. And, now, we move to the non-term contract.
In the long-term, our tests and our analysis all show that the LTV of a cohort of advertisers that we bring in today will be quite a bit higher. And what we’ve seen in our tests is that we continue to sell the sort of long and strong loyal long-term advertisers under the new pricing model just as we always have, but on top of that we’re introducing ourselves to a lot more new customers along the way
Yelp is in the early days of elevating the consumer experience by expanding the number of transactional features such as Request-A-Quote from a home service professional or book a restaurant reservation or spa appointment. Request-A-Quote lead volume grew 27% from the first to the second quarter of 2018 and topped 5.5 million delivered requests in the second quarter. During that same short timeframe, revenue attributable to Request-A-Quote increased by more than 50%, surpassing a $35 million annual run rate at the end of the second quarter. The company is not yet fully monetizing Request-A-Quote, which we believe could accelerate free cash growth even further. We like finding misunderstood, yet promising, and free embedded call options within the companies we invest in and hope Request-A-Quote proves to a second material avenue for free cash per share growth.
Instead of paying for users, Xiaomi actually gets paid at least 5% gross margin through hardware to get users…it’s a very different model from almost any other internet services model out there. So if this is sustainable, and to make sure this is sustainable is to have a lot more hardware products out there that the middle class can buy, and use that portfolio of hardware devices to get paid for acquiring users, so that internet services can scale thereafter…There’s definitely elements of Muji and Uniqlo in a different field for Xiaomi, there’s definitely elements of a Costco model of subscription plus very low cost to make sure more products are affordable by the rising consumer class, there’s definitely elements of Amazon in there as a platform to sell many products and being very focused at delivering a superior experience…
If we look at the number of internet users coming online, the next 1.5bn internet users coming online between now and 2030, most of that growth will come from the 74 countries that Xiaomi is in already. So when people ask me if Xiaomi is coming to the US or not, they completely miss the point, the growth is coming from the existing countries that Xiaomi’s already in…
Xiaomi has over 18 apps, each with monthly active users of over 50mn. It also has 38 apps, each with over 10mn MAUs. In aggregate, it did over 1.5bn RMB in internet services revenue in 2017, which already puts them as a top 25 internet services only company in the world. The most popular [app] that people know is probably Xiaomi Video, which has an interesting way of becoming aggregation services. It doesn’t license content from anyone, what it does is it aggregates content from all the top Chinese video apps, each of which have already licensed the content and whenever a user clicks on a video, it takes you to the content from its partners but within the app itself, so you can have a more integrated experience. It charges advertising revenue and also subscription from the users…and they share that revenue with its partners that provide the original video content. So, it can focus on providing the most comprehensive collection of content to the user, at the same time, so far, they don’t have to spend much money on acquiring the content itself.”
It’s pretty clear that electric disrupts the internal combustion engine, and everything associated with it. It’s not just that you replace the internal combustion engine with electric motors and the fuel tank with batteries – rather, you remove the whole drive train and replace it with sometime with 5 to 10 times fewer moving or breakable parts. You rip the spine out of the car. This is very disruptive to anyone in the engine business – it disrupts machine tools, and many of the suppliers of these components to the OEMs. A lot of the supplier base will change.
We will go from complex cars with simple software to simple cars with complex software. Instead of many stand-alone embedded systems each doing one thing, we’ll have cheap dumb sensors and actuators controlled by software on a single central control board, running some sort of operating system, with many different threads (there are a few candidates). This is partly driven by electric, but becomes essential for autonomy.
Tesla’s first bet is that it will solve the vision-only problem before the other sensors get small and cheap, and that it will solve all the rest of the autonomy problems by then as well. This is strongly counter-consensus. It hopes to do it the harder way before anyone else does it the easier way. That is, it’s entirely possible that Waymo, or someone else, gets autonomy to work in 202x with a $1000 or $2000 LIDAR and vision sensor suite and Tesla still doesn’t have it working with vision alone.
The U.S. corporate-listings business, in which companies pay fees to an exchange for services tied to being the primary venue for the company’s stock trading, has for years been an effective duopoly of the NYSE and Nasdaq. A third big exchange group, Cboe Global Markets Inc., lists exchange-traded funds and its own shares, but hasn’t made a bid to attract other companies. NYSE parent Intercontinental Exchange Inc. and Nasdaq earned a combined $684 million from listings last year, according to the two exchange groups.
“We at Interactive Brokers understand that being the first listing on a new exchange may entail certain risk, but we think that individual and institutional customers who own and trade our stock will receive better execution prices and that advantage will outweigh the risk,” Mr. Peterffy said in a press release announcing the move.
A skilled factory worker earns about 36,000 yuan a year in wages and benefits in China’s poorer provinces and second-tier cities, away from the coast. Total remuneration can exceed 60,000 yuan in cities nearer the coast and along the eastern seaboard, like in the Pearl River and Yangtze River deltas. A 200,000 yuan robot that can do the job of three humans can recoup its capital cost in 22 months in central provinces, or in a little over a year in coastal cities. In the face of rising prices pressures for labour, energy and rents, such a cost advantage would be attractive to many manufacturers.
China’s total spending on research and development is estimated to have risen 14 per cent last year to 1.76 trillion yuan, according to the Ministry of Science and Technology.
“Among the thousands of so-called Chinese robotics companies – including robot and automated equipment producers as well as those who only provide automation integration solutions – only about 100 firms could mass produce the main body and core components of high-end and middle-market industrial robots, such as servo motors, robot controllers and speed reducers,” he said. “We lack original research and have already tried to catch up by copying advanced technology. But neither technology-related mergers and acquisitions nor copycat [production] can close the gap in the short term.”
He said many domestic robotics manufacturers were still developing the traditional core parts of robots, like servo motors, robot controllers and speed reducers. But these parts would not be the core components of the future, he said.
One of the best ways to stay out of trouble with your finances is to focus all of your energy on your own circumstances and ignore what other people say or do with their money. Not only will it likely save you from making a grievous financial error but it will also make you happier. Constantly comparing yourself or your portfolio to others can be exhausting.
Don’t argue the facts. Feelings aren’t logical. You wouldn’t expect the new employee to know how to find the bathroom and you shouldn’t expect a child to know how to handle emotions that, frankly, you still have problems dealing with after decades of experience. Don’t immediately try to fix things. You need to establish you’re a safe ally before you can solve anything. Understanding must precede advice, and, just as with adults, they decide when you understand.
The critical distinction Gottman realized is that it’s important to accept all feelings — but not all behavior. If you skip immediately to problem-solving, the kid never learns the skill of how to deal with those uncomfortable emotions. You want to use “empathetic listening.” Get them to talk. Help them clarify. Validate their feelings (but, again, not necessarily their behavior). They need to feel you really understand and are on their side.
Providing words in this way can help children transform an amorphous, scary, uncomfortable feeling into something definable, something that has boundaries and is a normal part of everyday life. Anger, sadness, and fear become experiences everybody has and everybody can handle. Labeling emotions goes hand in hand with empathy. A parent sees his child in tears and says, “You feel very sad, don’t you?” Now, not only is the child understood, he has a word to describe this intense feeling. Studies indicate that the act of labeling emotions can have a soothing effect on the nervous system, helping children to recover more quickly from upsetting incidents.
As we have discussed earlier, the implications of teaching a child to self-soothe are enormous. Kids who can calm themselves from an early age show several signs of emotional intelligence: They are more likely to concentrate better, have better peer relationships, higher academic achievement, and good health. My advice to parents, then, is to help your kids find words to describe what they are feeling. This doesn’t mean telling kids how they ought to feel. It simply means helping them develop a vocabulary with which to express their emotions.
In an ideal world, we’d always have time to sit and talk with our kids as feelings come up. But for most parents, that’s not always an option. It’s important, therefore, to designate a time—preferably at the same period each day—when you can talk to your child without time pressures or interruptions.
Buffett does it his way while Schloss did it another way. Ichan does it his way while Lynch did it another way. Tepper does it his way while Andreessen does it another. The greatest investors ever have opposing strategies. Learn from all of them & don’t be afraid to be different.— Ian Cassel (@iancassel) September 21, 2018
On decision making—and key reason why startups can beat incumbents— Josh Wolfe (@wolfejosh) September 9, 2018
IF there‘s a chain of command (+ path dependence) requiring serial consent: “Yes” > “yes” > “yes”—
—THEN a single “NO” kills a new idea
BUT if 19 VCs say no, 1 VC saying “yes” launches it.
Bezos nails it here: pic.twitter.com/Fi4cfX9pqu
People feel that 50% is magical and they don’t like to do things where they don’t have 50% odds. I know that is not a good idea, so I am willing to make some bets where you say it is 20% likely to work but you get a big pay-off if it works, and only has a small cost if it does not. I will take that gamble. Most successful investments in new companies are where the odds are against you but, if you succeed, you will succeed in a big way.” “David Ricardo made a fortune buying bonds from the British government four days in advance of the Battle of Waterloo. He was not a military analyst, and even if he were, he had no basis to compute the odds of Napoleon’s defeat or victory, or hard-to-identify ambiguous outcomes. Thus, he was investing in the unknown and the unknowable. Still, he knew that competition was thin, that the seller was eager, and that his windfall pounds should Napoleon lose would be worth much more than the pounds he’d lose should Napoleon win. Ricardo knew a good bet when he saw it.
…in any probabilistic exercise: the frequency of correctness does not matter; it is the magnitude of correctness that matters…. even though Ruth struck out a lot, he was one of baseball’s greatest hitters…. Internalizing this lesson, on the other hand, is difficult because it runs against human nature in a very fundamental way… The Babe Ruth effect is hard to internalize because people are generally predisposed to avoid losses. …What is interesting and perhaps surprising is that the great funds lose money more often than good funds do. The best VCs funds truly do exemplify the Babe Ruth effect: they swing hard, and either hit big or miss big. You can’t have grand slams without a lot of strikeouts.
Risk, which is a situation where probabilities are well defined, is much less important than uncertainty. Casinos, which rely on dice, cards and mechanical devices, and insurance companies, blessed with vast stockpiles of data, have good reason to think about risk. But most of us have to worry about risk only if we are foolish enough to dally at those casinos or to buy lottery cards….” “Uncertainty, not risk, is the difficulty regularly before us. That is, we can identify the states of the world, but not their probabilities.” “We should now understand that many phenomena that were often defined as involving risk – notably those in the financial sphere before 2008 – actually involve uncertainty.” “Ignorance arises in a situation where some potential states of the world cannot be identified. Ignorance is an important phenomenon, I would argue, ranking alongside uncertainty and above risk. Ignorance achieves its importance, not only by being widespread, but also by involving outcomes of great consequence.” “There is no way that one can sensibly assign probabilities to the unknown states of the world. Just as traditional finance theory hits the wall when it encounters uncertainty, modern decision theory hits the wall when addressing the world of ignorance.
While Bear Stearns’ failure in normal markets would not hurt the U.S. economy, we believed that the system was too fragile and fear-driven to take a Bear Stearns bankruptcy. To those who argue that Bear Stearns created moral hazard and contributed to the Lehman failure, I believe just the opposite—that it allowed us to dodge a bullet and avoid a devastating chain reaction.
If Bear had failed, the hedge funds would have turned on Lehman with a vengeance. Lehman would have failed almost immediately and the result would have been much worse than Lehman’s September failure, which occurred after we had stabilized Fannie Mae and Freddie Mac and Bank of Americaacquired Merrill Lynch. I would hate to imagine what would have happened if this whole thing started before we’d stabilized Fannie and Freddie.
An interview with Tim Geithner on this topic was done recently at the Yale School of Management and he speaks much more authoritatively on the limits of the Fed powers than I, but here goes. While our responses may have looked inconsistent, Ben, Tim, and I were united in our commitment to prevent the failure of any systemically important financial institution. But we had a balkanized, outdated regulatory system without sufficient oversight or visibility into a large part of the modern financial system and without the necessary emergency powers to inject capital, guarantee liabilities, or wind down a non-banking institution. So we did whatever we could on a case-by-case basis.
For Lehman, we had no buyer and we needed one with the willingness and capacity to guarantee its liabilities. Without one, a permissible Fed loan would not have been sufficient or effective to stop a run. To do that, the Fed would have had to inject capital or guarantee liabilities and they had no power to do so. Now, here’s the point that I think a lot of people miss: In the midst of a panic, market participants make their own judgments and a Fed loan to meet a liquidity shortfall wouldn’t prevent a failure if they believed Lehman wasn’t viable or solvent. And no one believed they were.
AIG is a cautionary tale. We should not have let our financial regulatory system fail to keep up with modern financial markets. No single regulator had oversight visibility or adequate powers to deal with AIG. Its insurance companies were regulated at the state level, its holding company was like a giant hedge fund sitting on top of the insurance companies, and it was regulated by the ineffective Office of Thrift Supervision, which also regulated—get this—Countrywide, WaMu, IndyMac, GE Capital. They all selected their regulator. So you get the picture, it’s regulatory arbitrage.
And I’m concerned that some of the tools we effectively used to stave off disaster have now been eliminated by Congress. These include the ability of Treasury to use its exchange stabilization fund to guarantee the money market funds, the emergency lending authority the Fed used to avoid the failure of Bear and AIG, and the FDIC’s guarantee of bank liabilities on a systemwide basis, which was critical.
At the peak in October 2017, smartphone components accounted for over 33% of exports from Taiwan, 17% of those from Malaysia and 16% from Singapore. Smartphones comprise 6% of Chinese exports. Memory chips flow from South Korea and Vietnam; system chips from Malaysia, Taiwan and elsewhere; and displays from Japan and South Korea. Rich-world firms, such as Qualcomm, sell licences to use their intellectual property (IP). The parts are then assembled, mainly by armies of Chinese workers.
Apple and 13 of its chip suppliers earn over 90% of the total pool of profits from the Apple system. Meanwhile the tail of other firms doing more basic activities must pay for most workers, inventories and fixed assets (see chart). So they have in aggregate a weak return on equity, of 9%, and a net profit margin of just 2%. Their earnings have not risen for five years. They include assemblers such as Taiwan’s Hon Hai and niche component makers, some of which are visibly struggling. On August 22nd AAC Technologies, a specialist in making phones vibrate, said its second-quarter profits fell by 39% compared with the previous year.
Apple, Samsung and most semiconductor makers could ride out such tensions, with their high margins and cash-laden balance-sheets. But the long chain of other suppliers could not, given their razor-thin margins, big working-capital balances and fixed costs. Tariffs could push them into the red. Of the 132 firms, 52% would be loss-making if costs rose by just 5%. And a ZTE-style cessation of trade would be disastrous. If revenues dried up and the 132 firms continued to pay their own suppliers, short-term debts and wages, 28% of them would run out of cash within 100 days.
If you are running a big firm in the smartphone complex, you should be reimagining things in preparation for a less open world. In a decade, on its current trajectory, the industry will be smaller, with suppliers forced to consolidate and to automate production. It may also be organised in national silos, with production, IP, profits and jobs distributed more evenly around the world. Firms will need to adapt—or be swiped away.
The early days of Box’s selling file sharing and collaboration have largely been replaced by big corporate wins. One measure of Box’s success is its penetration of the Fortune 500—from 52% in the second quarter of 2016 to 69% in the same quarter of fiscal 2019. About 58% of Box’s total revenue comes from enterprises of 2,000 employees or more.
In Box’s recently completed fiscal quarter, it closed 50 deals of more than $100,000, compared with 40 a year ago; 11 deals of more than $500,000, versus eight a year ago; and two deals of more than $1 million, compared with four a year ago. It expects a strong pipeline of seven-figure deals in the back half of this year.
But in encouraging its salespeople to pursue bigger deals, Box increasingly faces competition from deeper-pocketed competitors in a total addressable market pegged at $45 billion, based on market research by Gartner and IDC.
At the time of its 2012 initial public offering, Man United counted 659 million fans worldwide. Analysts estimate the team’s revenue this year will be about 587 million pounds ($763 million) — just $1.16 per supporter. Twitter Inc. has just 338 million active monthly users, yet enjoys revenue of $2.4 billion and a market value of $27 billion.
Digital marketing provides the opportunity for teams to put themselves in the middle of the sale of a service or product. It’s not simply about using a website or an app to sell fans more jerseys or baseball caps. It’s about turning the team into a platform, a way of connecting brands to customers, in the same way as Facebook Inc. and Alphabet Inc. already do.
Much in the way that price-comparison websites charge insurers or credit card companies for connecting them to customers, a sports team could, for example, offer its own exclusive video content with another provider’s mobile phone contract and take a cut of the proceeds. If that meant each fan were to spend just one more dollar a year with the club, it would provide a significant boost to sales.
Founded in December 2015, YCloset charges a monthly membership fee of 499 yuan and allows female users to rent unlimited clothes and accessories country-wide. Furthermore, users can choose to buy the apparel if they like to and prices fluctuate according to the rent count. Thus far, 75% of the income comes from membership fees and the remaining comes from sales of clothing. YCloset positions itself as a company that offers affordable luxury, professional and designer brand clothing. The company hopes to have the top famous brand to drive the long-tail brands.
In terms of business model, YCloset gradually shifted from one-time supplier purchase to brand partnerships with clothing companies. Brand partnerships allow revenue sharing between YCloset and their partners. To these clothing companies, YCloset gave them a new revenue, at the same time, they may get consumer insights from the data YCloset collects. In the future, YCloset will have joint marketing campaigns with the brands and assist in incubating new brands.
I think it is underappreciated how much delivery apps are going to change food production and consumption, specifically via the mechanism of replacing expensive retail footage with relatively cheap industrial kitchens running multiple brands across all the apps.— Patrick McKenzie (@patio11) September 13, 2018
Last mile delivery – the delivery of goods from distribution hubs to the consumer – is the most expensive leg of logistics because it does not submit to economies of scale. The cost per last mile delivery today is $1.60 via human drivers but could drop precipitously to $0.06 as autonomous delivery robots proliferate.
Autonomous delivery robots are roughly seven times more efficient than electric vehicles on a mile per kilowatt basis. The major costs for autonomous delivery robots are hardware, electricity, and remote operators. Unlike in electric vehicles, the battery is not the largest cost component in slow moving robots. Air resistance is a function of velocity squared, suggesting that a robot traveling at four miles per hour loses much less energy than a car traveling at highway speeds to air resistance. As a result, rolling robots do not require large batteries, lowering both hardware and electricity costs relative to more traditional electric vehicles.
If rolling robots enable last mile delivery for $0.06 per mile, artificial intelligence could be advanced enough to improve their unit economics. A remote operator responsible for controlling robots in difficult or confusing situations probably will oversee roughly 100 robots, accounting for more than half of the cost per mile, as shown below. As autonomous capability improves, remote operators should be able to manage larger fleets of robots, bringing down the costs per robot.
A group of major American hospitals, battered by price spikes on old drugs and long-lasting shortages of critical medicines, has launched a mission-driven, not-for-profit generic drug company, Civica Rx, to take some control over the drug supply. Backed by seven large health systems and three philanthropic groups, the new venture will be led by an industry insider who refuses to draw a salary. The company will focus initially on establishing price transparency and stable supplies for 14 generic drugs used in hospitals, without pressure from shareholders to issue dividends or push a stock price higher.
There are over 4,000 colleges and universities in the United States, but Harvard Business School professor Clayton Christensen says that half are bound for bankruptcy in the next few decades. Christensen and co-author Henry Eyring analyze the future of traditional universities, and conclude that online education will become a more cost-effective way for students to receive an education, effectively undermining the business models of traditional institutions and running them out of business.
Christensen is not alone in thinking that online educational resources will cause traditional colleges and universities to close. The U.S. Department of Education and Moody’s Investors Service project that in the coming years, closure rates of small colleges and universities will triple, and mergers will double.
The proportion of Chinese children under 10 years old who use the internet – which was only 56 per cent in 2010 – reached 68 per cent last year. More than 90 per cent of Chinese minors, those aged up to 18, can now access the internet through mobile phone and over 64 per cent of primary school kids have their own smartphones. Nearly 85 per cent of Chinese minors use WeChat, compared to only 48 per cent five years ago, but Chinese juveniles are still more fond of QQ, while Chinese adults prefer WeChat as a social app.
The goal of financial independence is to stop being dependent on others (bosses, clients, a schedule). Wealth is measured in autonomy and flexibility, not money.— Ian Cassel (@iancassel) September 13, 2018