Curated Insights 2018.01.21

JD.com’s Richard Liu decodes the Chinese consumer

No one wants to take a bag, and put it on a table when a lot of ladies have the same bag with the same style. They want to find something special. Something you cannot find in your circle…But if you look at China, there are more and more young people, and their income is relatively very small, but they want to spend time to find fashion, maybe not as expensive as luxury brands, but still very fashionable. Maybe not big brands, [but rather] small brands, or niche brands.

Commerce platforms for them are the best way to convert their customers to buying. And at the same time, for JD, we are not just a sales platform; we are a brand-building platform. We spend more and more resources to help build the brand — to strengthen the brand is as important as the sales side.

We will use two different ways to cover the entire globe. The first is our South [East] Asian channel. We will set up [a] subsidiary there and copy the Chinese business model. Build a local team, buyer team, logistics system and last mile delivery team, everything the same as in China. In Indonesia we have been operating for almost two years, and we will go to Thailand very soon.

But for Europe and [the] US we will use a cross-border business model. We have been thinking about this for many years. If you just copy another model or local players do exactly the same thing as them, you cannot find an advantage. So we will cooperate with Chinese local brands and bring them to the US and Europe. They need us, and we also need them, because the brand quality is very good and price is not as high. We will choose them, pick them up and bring [them] to the US and Europe. I think people will love these kinds of Chinese brands.


Alibaba’s AI outguns humans in reading test

“That means objective questions such as ‘what causes rain’ can now be answered with high accuracy by machines,” Luo Si, chief scientist for natural language processing at the Alibaba institute, said in a statement. “The technology underneath can be gradually applied to numerous applications such as customer service, museum tutorials and online responses to medical inquiries from patients, decreasing the need for human input in an unprecedented way.”


Keyence: Leading Japan’s new wave of tech giants

Keyence is a beneficiary of the AI, robotics, and industrial-automation boom. Sales of its factory automation sensors have been particularly strong in China, where labor costs are rising. As manufacturing grows more data intensive, factories require more sensors and vision systems to collect data and become “smarter.” Plus, a large proportion of Internet of Things spending is on sensors and connectivity. “Keyence has the highest exposure to upgrade-and-innovation demand,” says Jay Huang of Sanford C. Bernstein. Keyence, with its diversified customer base, is one of least exposed to cycles of single trends like the iPhone, he says, and has more than half the global market share for 3-D vision systems —a market growing 30% a year—and rising sales in China.


Facebook’s motivations

The key thing to remember about Facebook — and Google’s — dominance in digital ads is that their advantages are multi-faceted. First and foremost are the attractiveness of their products to users; that attractiveness is rooted not only in technology but also in both data and people-based network effects. Second is the depth of information both companies have on their users, allowing advertisers to spend more efficiently on their platforms — particularly on mobile — than elsewhere. The third advantage, though, is perhaps the least appreciated: buying ads on Google and Facebook is just so much easier. They are one-stop shops for reaching anyone, which means competitors need to not have similar targeting capabilities and user engagement, but in fact need to be significantly better to justify the effort.


Adapt or die is Marchionne’s stark farewell message to carmakers

Carmakers have less than a decade to reinvent themselves or risk being commoditized amid a seismic shift in how vehicles are powered, driven and purchased. Auto companies need to quickly separate the stuff that will be swallowed by commodity from the brand stuff.

While the car industry has always been tough — Chrysler and GM both went bankrupt during the financial crisis — in the past the mistakes were self-induced, Marchionne said. Now the tumult is being driven by outside forces, and it’s coming faster than people expect, he said — a surprising view, given that Fiat is perceived to be behind some competitors in adapting. He said the company is positioned well, and rather than pour money into competing with Silicon Valley, the industry should try to identify the best solutions coming from tech companies and reduce its exposure to products that aren’t going to be easily defended.


Ensemble Capital: Prestige Brands update

Owning these strong brands, in small niche markets, results in Prestige generating the highest profit margins in their industry. While Procter & Gamble and Johnson & Johnson might be a lot more well known, Prestige Brands turns every dollar of revenue into 34 cents of profits while P&G and J&J manage to squeeze out just 26 cents of profits.

It is important to recognize that Prestige is a brand management company more than a product producer. They outsource most of the capital-intensive production aspects of the business. This capital light, outsourcing approach means the company only employs 520 people, generating an amazing $1.7 million per employee. In comparison, most health care and consumer staple companies do closer to $500k per employee and Apple, which has the highest revenue per employee in the technology industry does only slightly more at $1.9 million. Until their acquisition of Fleet a year ago, Prestige had only 259 employees and was doing an amazing $3.1 million per employee.


How Roku morphed from a quirky hardware startup to a TV streaming powerhouse

For about two years, Roku considered building its own TV set in-house. “Then we decided: No, that’s a way to lose a lot of money,” remembers Wood. Instead, the company teamed up with Chinese firms looking to enter the U.S. market and willing to undercut the competition with budget-priced TV models — a strategy Sappington calls “a very smart decision.” And with millions of active users and growing brand awareness, Roku was able to talk to TV makers eye-to-eye and demand that they not change a thing about its software. “We had a big enough brand that they were willing to do those kinds of deals,” Wood says.

But to really understand Roku, you have to look beyond the streaming boxes, sticks and even TVs. “People think of Roku as a hardware company,” says Martin. “It is not.” Rather, the firm is leveraging hardware to acquire users, which can then be monetized via advertising and licensing fees. “The goal was always to generate revenue by monetizing the platform,” says Wood. “As our scale started to approach 5 million active accounts, that’s when we said, ‘Now we can start focusing on monetization.’”

Still, his message to Hollywood is clear: Roku is already in the content business, and it wants to be top of mind as studios think about windowing their content. “We are a very viable outlet,” says Holmes. “We should be one of their first calls.”


China’s top movie ticketing app said to plan $1 billion IPO

China’s box-office receipts rose 15 percent last year to 52 billion yuan ($8 billion), making it the world’s second largest movie market after the U.S. Almost 80 percent of movie tickets in the country are sold through mobile apps, and Maoyan Weying is the largest ticketing provider with a 52.5 percent market share as of the third quarter 2017, according to researcher Analysys.


Didi has a brilliant plan to contain the threat of China’s bike-sharing services

Already, Ofo and arch rival Mobike have chipped away at Didi’s share of short journeys and struck deals with local governments with the aim of solving congestion problems. Now, they are looking to expand beyond that. Mobike, for example, has tested ride-sharing services. Mobike and Ofo both claim over 100 million registered users, so action is best taken sooner rather than later. The question is whether Didi’s move is too late.

This devilish strategy works because Ofo and Bluegogo have no choice but to be a part of the platform due to their ties with Didi. Ofo counts Didi as an investor and is already integrated into its app, while Didi swooped in to save Bluegogo after it went broke. It’s no surprise that Mobike, the other bike-sharing unicorn which no Didi connection, didn’t elect to be a part of the program.

Techmate: How AI rewrote the rules of chess

No top chess player would take such a big risk, he says. But this computer seems to have “such control over the board, it’s almost as though it has an intuition something good will happen”. His verdict on its overall game-playing ability: “It’s incredible. It’s hard for me to get my head around it.”

All computers before this, as he describes it, worked by brute force, using the intellectual equivalent of a steamroller to crack a nut. People don’t operate that way: “Humans are flexible because we know that sometimes we have to depart from the rules,” he says. In AlphaZero, he thinks he has seen the first computer in history to learn that very human trick.

Predictions about the imminent rise of the machines have always turned out to be wildly over-optimistic. Herbert Simon, one of the pioneers of AI, forecast in 1965 that computers would be able to do any work a human was capable of within 20 years. When today’s experts in the field were asked when that moment would come, only half picked a time within the next 30 years.


This army of AI robots will feed the world

If robots can prevent herbicides from having any contact with crops, it means that 18 classes of chemicals previously considered too damaging to be widely sprayed suddenly become viable. “We’re both ratcheting down the volume of chemicals that need to be used, but also expanding how many types can be used,” Heraud says. In other words, Blue River’s success might be the worst thing that could happen to the herbicide industry, or it could open up an avenue to sell new products.

His next step, with Deere’s backing, will be to move Blue River’s robots beyond herbicides to fertilizers, the culprits behind toxic algae blooms, which are killing fish and making lakes unswimmable. Farmers typically spend up to 10 times more annually on fertilizers than weed killers—about $150 billion a year. But the shift is a big leap for a robot. It must gather a range of visual signals—the colors, sizes, and textures of a plant’s leaves—and from this data extrapolate the plant’s health and how much nourishment it needs. “It’s a ton more processing power, but it’s doable,” Heraud says.

The next link in this technological chain could be a kind of agricultural Swiss Army knife: a robot that can apply not only herbicides and fertilizers but also insecticides, fungicides, and water all at once, delivering only as needed.

The implication of plant-by-plant—rather than field-by-field—farming is not just the prospect of vast reductions in chemical usage. It could also, in theory, end monocropping, which has become the new normal—cornfields and soybean fields as far as the eye can see—and has given rise to the kind of high-calorie, low-nutrient diets that are causing heart disease, obesity, and Type 2 diabetes. Monocrops also leach soil nutrients and put food supplies at risk, because single-crop fields are more susceptible to blight and catastrophe. Modern farmers have been segregating crops in part because our equipment can’t handle more complexity. Robots that can tend plants individually could support intercropping—planting corn in with complementary crops such as soybeans and other legumes.

Bright outlook for the economy and stocks

But I worry that this tax cut is happening at a time when the U.S. economy doesn’t need fiscal stimulus. And longer term, what will tax cuts do to the federal deficit? The deficit was going to be rising as a percentage of GDP anyway, partly for structural reasons relating to the aging of the baby boomers. A $1.5 trillion tax cut will add an additional $300 billion to $400 billion interest-rate burden in the next few years.

In the past 10 years, American companies made an inordinate effort to think about how to move people or structures outside the U.S. for nonproductive purposes—basically, to increase earnings per share. By moving toward a territorial system of taxation and bringing our corporate tax rate in line with the rest of the world’s, we can get back to having managers focus on productive investments, greater efficiency, and value creation. This will unlock the strength of America and drive GDP growth. Simply, the absence of a major negative is a positive. This is a generational change. While inflation potentially is a fear for the stock market, you have to be positive on the S&P 500, even though we are 102 months into an expansion.

Having covered the auto-parts industry for 50 years, I am seeing more companies announce that they are going to relocate to the U.S. And the U.S. is a magnet not only for American, but also for foreign companies locating here because the U.S. is a big market.

But now the Fed is starting to allow $30 billion of Treasuries, more or less, to mature into the market each month. There is a chance—I’d call it a base case—that the rhetoric and actions of the ECB will have to become more hawkish, given economic growth in Europe. That means the ECB might start to pull back on quantitative easing. Central-bank balance sheets could start to decline, in the aggregate, sometime during 2018. If that happens, the stock market will go down. Quantitative easing, cumulatively, has been highly correlated to the gains in the S&P 500 and global stock markets. Central-bank footings, or assets, went from $6 trillion pre-financial-crisis to $22 trillion subsequently. Bankers are talking about bringing that down to $16 trillion or $17 trillion. Maybe it drops more quickly. It is undeniable that central-bank asset buying has been a prop for the markets.


Some great thoughts on network effects from Anu Hariharan on Twitter:

Often misunderstood – Network Effects is not the same as scale

One simple way to test for that is ask this question – what is the “barrier to exit” for the user?

If the barrier to exit for the user is low, then there is no network effect. This implies it is easy for users to switch from your service

Ride sharing services (Uber, Lyft) don’t have a network effect (in other words demand side economies of scale). Users often switch apps if it takes longer than 5 mins ETA or if there is surge pricing on one

However ride sharing does have supply side economies of scale and therefore opportunity for select players to have monopolistic share in a market

On the other hand apps like Facebook, LinkedIn have very strong network effect – because the barrier to exit for the user is really high!

A user has invested time and effort in building a social graph on these platforms with connections, history of exchanges and in some cases even maintain them. It is not easy for customers/ users to switch easily and therefore the “barrier to exit” for the user is really high

What if everyone got a monthly check from the government?

Kela’s researchers originally envisioned the experiment as the first in a series that would help them understand the implications of expanding basic income nationwide. “With basic income, there will be a lot of winners, but there will be a lot of losers also,” Kangas says. “We have to study the losers.” For one thing, he points out, to provide Finns with the level of financial security they enjoy under their current system, basic income payments would have to be at least twice those of the trial. And to pay everyone, the country would have to change its tax structure.

The wealthiest would be relatively unaffected by such a change because their taxes are already high, but a swath of middle- and upper-middle-class Finns would pay more in taxes than they’d get back in basic income. In national polls, when the possibility of a 55 percent flat tax was raised, the percentage of Finns who supported basic income dropped from 70 to about 30. “We would need to implement another study for the whole population to understand it,” says Miska Simanainen, a tax specialist who was part of Kangas’s team. No such studies are planned.

Trust is perhaps the most radical aspect of basic income. Handing out money requires a government to have faith that people know what’s best for themselves—that, on the whole, they have enough intelligence and foresight to put their financial resources to good use. In almost every basic income study conducted so far, this faith has been borne out. The little money wasted on vices is more than offset by what is spent on groceries or child care. But trusting that this will hold true universally requires an even bigger leap of faith. In 2016, Switzerland’s citizens overwhelmingly voted down a proposal that would’ve given them each the equivalent of $2,555 a month. Surveys showed they didn’t think it was right for people to be given something for free.


Savvy Investor Awards 2017: The Best White Papers

Savvy Investor is the world’s leading research network for institutional investors. Since the site launched in 2015, the Savvy Investor research team has curated over 20,000 investment and pensions papers, placing it in a unique position to judge the best white papers of 2017. The official announcement of winners was made on December 5.

The accolade of “Best Investment Paper 2017” is awarded to the CFA Institute Research Foundation for the paper, “Financial Market History: Reflections on the Past for Investors Today.”


Why dolphins are deep thinkers

One day, when a gull flew into her pool, she grabbed it, waited for the trainers and then gave it to them. It was a large bird and so the trainers gave her lots of fish. This seemed to give Kelly a new idea. The next time she was fed, instead of eating the last fish, she took it to the bottom of the pool and hid it under the rock where she had been hiding the paper. When no trainers were present, she brought the fish to the surface and used it to lure the gulls, which she would catch to get even more fish. After mastering this lucrative strategy, she taught her calf, who taught other calves, and so gull-baiting has become a hot game among the dolphins.

How to guard against moat erosion

A wet moat, called a douve or wet ditch, formed a very efficient obstacle against the assaulting army. However, wet moats could be something of a mixed blessing; they were inconvenient in peacetime, which meant that unofficial bridges were often erected – with subsequent argument and indecision about the right moment to chop them down in an emergency. Besides, water might dangerously erode the base of the wall, and stagnant water might be a year ‘round health hazard for the inhabitants of the castle.

Curated Insights 2017.12.31

Google Maps’s Moat

In other words, Google’s buildings are byproducts of its Satellite/Aerial imagery. And some of Google’s places are byproducts of its Street View imagery…so this makes AOIs a byproduct of byproducts. Google is creating data out of data.

With “Areas of Interest”, Google has a feature that Apple doesn’t have. But it’s unclear if Apple could add this feature to its map in the near future. The challenge for Apple is that AOIs aren’t collected—they’re created. And Apple appears to be missing the ingredients to create AOIs at the same quality, coverage, and scale as Google.

And as we saw with AOIs, Google has gathered so much data, in so many areas, that it’s now crunching it together and creating features that Apple can’t make—surrounding Google Maps with a moat of time.

Google likely knows what’s inside all of the buildings it has extracted. And as Google gets closer and closer to capturing every building in the world, it’s likely that Google will start highlighting / lighting up buildings related to queries and search results.

Apple to hit $1 trillion in market value in 2018

Today, Apple has an estimated 900 million customers. Many are buying services that include music streaming, movie rentals, applications, online storage, extended warranties, and digital payments. Apple’s recent purchase of Shazam, a service for identifying music clips, shows how Apple can add features to subscription services like Apple Music. Growing 23% in the past fiscal year, services account for 13% of Apple sales—and an estimated 20% of gross profit.

IPhone generates 60% of Apple’s revenue; there are an estimated 800 million active devices that provide a vast and growing base for services. A recent UBS survey of smartphone users in five key countries shows that retention rates have been climbing and stand at 85% for iPhone, versus 71% for Samsung and 78% for phones that use Android software. In other words, switching services isn’t common, but when it occurs, Apple generally wins.

Another upside source got less theoretical this past week with the passage of a sweeping corporate tax cut. Apple sits on more than $250 billion in cash and investments held overseas as a tax dodge, about a fifth of the total for all U.S. companies doing likewise. To bring that money home for dividends or stock buybacks, it would have had to pay the top corporate tax rate of 35%. The new law cuts the top rate to 21%; imposes a mandatory, one-time 15.5% tax on overseas cash and equivalents; and switches to a territorial tax system to reduce offshore avoidance.

For shareholders, the cake is the tax savings; the icing is that Apple loses its incentive to hold cash overseas. The second helping of cake with icing is that Apple has already booked enough to cover anticipated tax charges. Epoch’s Pearl reckons Apple could get a mid-single digit boost to ongoing earnings from the lower tax rate, and as much as a 7% increase from bringing home cash and buying back stock.

 

The near future of electric cars: Many models, few buyers

Electric cars—which today comprise only 1 percent of auto sales worldwide, and even less in the U.S.—will account for just 2.4 percent of U.S. demand and less than 10 percent globally by 2025, according to researcher LMC Automotive. But while consumer appetite slogs along, carmakers are still planning a tidal wave of battery-powered models that may find interested buyers few and far between.

Magna International Inc., for example, the largest auto supplier in North America, is having vigorous debates over whether to add capacity to tool up for electric cars when its executives don’t see much demand for them over the next eight years. The company predicts EVs will only grow to between 3 percent and 6 percent of global auto sales by 2025, said Jim Tobin, chief marketing officer at the Canadian company.

Industry executives convinced drivers will abruptly exit their internal combustion engine vehicles in favor of electrics may find themselves too overzealous, with LMC forecasting gasoline-powered engines will still make up about 85 percent of U.S. new car sales in 2025. But that shift could accelerate as electrified vehicles reach price parity with gasoline-powered cars, which Bloomberg New Energy Finance predicts will happen by 2029 or sooner for most models.


Riders in Alphabet’s driverless car will be insured by startup Trov

So-called usage-based insurance, which changes in response to the customer’s needs or actions, has become popular among both traditional insurers and startups like Trov. A common example is car insurers’ use of devices to track a driver’s behavior and then offer discounts for good driving.

Trov CEO Scott Walchek said what appealed to Waymo was Trov’s ability to measure risk in what it calls “micro-durations.” The company asked if Trov’s technology for only assessing risk during periods when its users swiped on their coverage could be repurposed to cover passengers for the length of a ride in a Waymo vehicle. Trov developed a solution, Mr. Walchek said.


Kuka plans for robot domination in China and your garage

China is the world’s largest and fastest-growing automation market. Sales of robots in China, which amount to about one-third of the global demand, grew by 27 percent last year, compared to just 12 percent in Europe and 8 percent in the Americas, according to the International Federation of Robotics. With 68 robots per 10,000 Chinese manufacturing workers, far fewer than the 189 in the U.S. and 631 in South Korea, there’s room for growth and rising factory wages are powering more automation. “We want to become number one in China,” says the Kuka executive, noting that their market share for robots last year was around 14 percent (that puts it among the top three suppliers).

Along with its push into non-auto industrial robots, Kuka aims to leverage Midea’s sales networks and company connections to start producing consumer-focused robots too. The companies are jointly building a large industrial park near Guangzhou that will have R&D, technology development, a robotics training center, and critically, a production facility. “We are increasing capacity. That is the first step,” says Reuter. “For Kuka, the park will be a very, very important step towards becoming number one.”

Driver shortage sends truck haulage rates higher

The shortage of drivers comes as the industry looks to a future with self-driving, autonomous trucks. There are currently more than 3m truck drivers on the road in the US, with the job offering one of the highest levels of pay for non-college graduates. Last year, the median salary for drivers with three years’ experience tipped $57,000, according to the National Transportation Institute.

However, Mr Leathers warned that buzz around the technology could discourage people from working as drivers. “The last thing I can afford, and we can afford, is for our rhetoric on driver-assist or autonomous to get out in front of reality and [for us to] start seeing enrolments and interest in the field drop before the technology is ready to really engage,” he said.

Which nation does the world trust most? (Hint: Follow the Dollar)

America’s current 24 percent share looks much diminished compared with 30 percent in 2000 but about the same as the 26 percent share in 1980. It’s simple to cherry-pick a start date that makes American decline look bad, but the reality is that China is gaining global economic share at the expense mainly of Europe and Japan. America is a tested economic superpower, having survived 21 recessions and a Great Depression since 1900. China remains untested, having suffered not one outright recession since its modern renaissance began around 1980. It has yet to be seen just how well China will weather such a test, which is inevitable for any large economy.

Nearly 90 percent of bank-financed international transactions are conducted in dollars, a share that is close to all-time highs. When individuals and companies borrow from lenders in another country, they increasingly borrow in dollars, which now account for 75 percent of these global flows, up from 60 percent just before the global financial crisis in 2008.

In a dollar world, most countries are happiest when the dominant currency is cheap and plentiful. A strong dollar raises the cost of borrowing, which slows global economic growth and has often triggered debt crises in the emerging world. A weak dollar has the opposite effect, which is why the weakening of the dollar this year offers more evidence of its dominance: Partly as a result, the world is enjoying an unusually broad recovery encompassing every major economy.

Instead, the renminbi has gained no ground as a reserve currency and probably won’t as long as China’s financial markets remain largely closed, underdeveloped and subject to government meddling. History also suggests that economic size alone will not be enough to propel China to financial superpower status. From 1450 through the late 1700s, the leading reserve currency was held by smaller countries — first Portugal, followed by Spain, the Netherlands and France. These nations were all major trading and military powers with credible financial systems, but not one was the world’s largest economy. Throughout those centuries, the leading economy was primarily China. It never gained the advantages of having the leading reserve currency because, then as now, its financial system lacked credibility.


China’s $100 billion smartphone maker

Oppo makes $14 of operating profit apiece, Vivo $13 and Xiaomi a mere $2, Counterpoint reckons. That is of course minimal compared with the $151 per device they estimate Apple Inc. made, and $31 at Samsung Electronics Co.

Oppo and Vivo appear to be much more pure-play hardware businesses. This is risky, because customer loyalty is fickle and any margins they make leave them open to price competition. But at least they’re banking profits today instead of hoping for some future “economies of ecosystem” that may never come.


Chinese populism lives in a video app

According to one analysis, 70 percent of Kuaishou’s users earn less than $460 per month, 88 percent haven’t attended university, and a majority live in less developed parts of China. Kuaishou has managed to attract them by forgoing celebrity videos and promoted content in favor of algorithms that recommend items that other users like. It’s an approach that leaves users with the impression (if not the reality) that their videos have a fighting chance to be viewed. And that attracts users who know they’d be wasting their time posting content to sites focused on fashion, luxury and city life.

Indeed, even as other video platforms see their growth stunted by Chinese government oversight and brutal competition, Kuaishou expands. Today it’s the fourth largest social-media platform in China, behind WeChat, QQ and Sina Weibo. That’s why it’s a smart bet for investors like Tencent Holdings Ltd, which pumped in $350 million in March 2017. China’s smaller cities already produce 59 percent of China’s gross domestic product and retain significant commercial and cultural pull, both for those who still live in them and for the hundreds of millions who’ve migrated away.


Chinese consumers now rule the world. Get used to it

As China’s expansion increasingly depends on consumption, its growth will be not only more internally driven, but also less resource- and credit-intensive. Imports of premium goods and services will increase. This market will be more and more attractive to multinational firms and investors.

One significant byproduct: China’s politically-sensitive trade surplus will continue to shrink and the current account surplus, the broadest measure of capital flows, might contract even more. This, in turn, may exert downward pressure on the yuan.

China to overtake U.S. economy by 2032 as Asian might builds

The report by the Centre for Economics and Business Research in London sees India leapfrogging the U.K. and France next year to become the world’s fifth-biggest economy in dollar terms. It will advance to third place by 2027, moving ahead of Germany.

In 2032, three of the four largest economies will be Asian — China, India and Japan — and, by that time, China will also have overtaken the U.S. to hold the No. 1 spot. India’s advance won’t stop there, according to the CEBR, which sees it taking the top place in the second half of the century.

Also by 2032, South Korea and Indonesia will have entered the top 10, supplanting the Group of Seven nations of Italy and Canada.

Curated Insights 2017.12.24

Why Tesla wants a piece of the commercial trucking industry

But above all, it’s business opportunity—and trucking is the physical embodiment of a thriving economy. Trucks moved more than 70% of all U.S. freight and generated $676 billion in revenue in 2016, according to the American Trucking Associations. Some 33.8 million trucks were registered for business purposes in 2016. Almost 4 million of them were categorized Class 8, denoting the largest freight trucks.

Other autonomous trucking startups are in hot pursuit. TuSimple, a company that has operations in China and San Diego and is backed by Nvidia and Sina Corp., plans to test fleets on two routes: one 120-mile stretch between Tucson and Phoenix and another segment in Shanghai. Meanwhile Nikola Motor is designing and building its own driverless, hydrogen fuel cell–powered Class 8 truck—“the iPhone of trucking,” says CEO Trevor Milton. “In the next eight years, you’re going to see a complete transformation of trucking,” he adds.


In China, a three-digit score could dictate tour place in society

In 2015 Ant Financial was one of eight tech companies granted approval from the People’s Bank of China to develop their own private credit scoring platforms. Zhima Credit appeared in the Alipay app shortly after that. The service tracks your behavior on the app to arrive at a score between 350 and 950, and offers perks and rewards to those with good scores. Zhima Credit’s algorithm considers not only whether you repay your bills but also what you buy, what degrees you hold, and the scores of your friends. Like Fair and Isaac decades earlier, Ant Financial executives talked publicly about how a data-driven approach would open up the financial system to people who had been locked out, like students and rural Chinese. For the more than 200 million Alipay users who have opted in to Zhima Credit, the sell is clear: Your data will magically open doors for you.

Zhima Credit is dedicated to creating trust in a commercial setting and independent of any government-initiated social credit system. Zhima Credit does not share user scores or underlying data with any third party including the government without the user’s prior consent.”

The State Council has signaled that under the national social credit system people will be penalized for the crime of spreading online rumors, among other offenses, and that those deemed “seriously untrustworthy” can expect to receive substandard services. Ant Financial appears to be aiming for a society divided along moral lines as well. As Lucy Peng, the company’s chief executive, was quoted as saying in Ant Financial, Zhima Credit “will ensure that the bad people in society don’t have a place to go, while good people can move freely and without obstruction.”

For those with good behavior, Zhima Credit offers perks through cooperation agreements that Ant Financial has signed with hundreds of companies and institutions. Shenzhou Zuche, a car rental company, allows people with credit scores over 650 to rent a car without a deposit. In exchange for this vetting, Shenzhou Zuche shares data, so that if a Zhima Credit user crashes one of the rental company’s cars and refuses to pay up, that detail is fed back into his or her credit score. For a while people with scores over 750 could even skip the security check line at Beijing Capital Airport.


Tencent and Alibaba go abroad to push for growth and know-how

“[Tencent] are willing to look at anything they think will help them to export what they know in China to other countries,” he says, describing the company’s efforts as a China-inspired “third way” of doing M&A. “The deals they are doing tend to be very strategic, and the size of the deals is typically hundreds of millions of dollars or single-digit billions, whereas those by Anbang, HNA and the rest are tens of billions of dollars and unrelated with nothing strategic about it,” says one banker.

Meituan-Dianping, the biggest company in food delivery, ticketing and other services that was valued at $30bn in its latest fundraising, gives Tencent access to swaths of merchants and customers in physical restaurants and stores. “This capability is not something Tencent has in-house, but it’s something that will be beneficial to help it grow its ecosystem. We can push Tencent payments, and small merchants to work with Tencent platforms. And Tencent can bring their traffic to us, provide infrastructure, mapping, cloud services. So this is very complementary.”


Facebook: The bear case will only gain momentum, says Moffett Nathanson

Bull case is predicated on its massive scale […] 2.1 billion monthly users and 1.4 billion daily active users, representing 58% and 39% of the globe’s Internet users […] the level of scale, reach and gigantic trove of data that comes with it clearly has immense value for targeted marketers […] still growing MAUs at respectable rates […] growth is even more impressive in the developing regions [….] 17% CAGR in the Rest of World over the past three years has and has sourced more than a third of its growth from here over that period […] immense base of advertisers […] staggering 6 million advertisers in November of 2017 […] this diversification is a huge asset […] very different than traditional media where, in areas like Network TV, the top 100 clients generally represent 2/3 of ad dollars […] still has a huge opportunity in international and messaging […] in every country except France, Canada, China, the U.S., and the U.K., WhatsApp is the dominant IM platform with more than 60%+ penetration […] We think that if it can get the formula right, it already has a significant user foothold and runway for ramping revenue quickly […] Street estimates look too conservative [for 2018] Street’s conservatism in forecasting despite years of outperformance is a result of Facebook’s aggressive expectation management […] It’s still really cheap! Facebook currently trades at 19x 2018 EV/Ebitda […] By comparison, Priceline (PCLN) is trading at 18X.

Facebook’s video strategy remains a mystery [….] It hosts this content in its standalone Watch Tab […] We don’t think it has been terribly successful here, and wonder how many users even realize or opt to click the Watch Tab when on Facebook […] Facebook hasn’t been aggressive in approaching studios or smaller video creators for content. It appears that Facebook is slowly trying to tiptoe […] Facebook has really frustrated producers by continually changing what it is looking for […] Engagement amongst younger demos has been waning […] Facebook’s video push is more than simply nice to have, it’s now a must have if it wants to stave off further engagement declines […] Facebook has apparently hit the upper bound of its ad load on core Facebook […] The story has moved from a largely volume driven one to a largely pricing driven one […] businesses that have years of significant double digit volume growth ahead of them certainly look more appealing and greenfield other things being equal than those that have moved into the pricing growth phase of their lifecycle […] Despite the significant traction for Messenger and WhatsApp globally, Facebook’s ability to meaningfully monetize them still remains a major question mark […] [Congressional investigations into Russian advertising, etc.] are just the beginning of a bigger regulatory review of Facebook’s influence on our society and political process. As a result, it could spell years’ worth of incremental investment to help police the problem […] With 82%+ of analysts with a Buy rating on Facebook for the last 3.5 years […] any hiccups in growth or profitability could lead to a downside reaction that is amplified.


Amazon hasn’t figured out drugstores yet. But it will have to

Even so, many shoppers prefer get their medications from a store, which offers peace of mind that their order is correct and the opportunity to speak with a pharmacist. Mail-order prescriptions fell 23 percent from 2012 to 2016, according to Adam Fein, CEO of the Drug Channels Institute, with mail pharmacies dispensing only 10 percent of all 30-day equivalent prescriptions in 2016. And the cash generic-drug market for the uninsured — once eyed by Wal-Mart — is considerably smaller thanks to Medicare Part D and Obamacare. The cash market makes up about 7 percent to 8 percent of all prescriptions, and has been declining slowly along with the number of uninsured people, according to Fein. Revenues from cash-paid prescriptions are about $25 billion a year, he said.The most promising window for Amazon may be the rising out-of-pocket costs shouldered by those with prescription-insurance plans. About half of all insurance plans had deductibles on prescription drugs in 2016, up from 23 percent in 2012, according to Pharmaceutical Research and Manufacturers of America. If insured drug-takers become more cost-conscious, Amazon could attempt to bring convenient online price transparency to a complex industry that makes it difficult for customers to shop around. Amazon could be encouraged to push through the complexities to increase the value of Prime membership. Two-thirds of Prime members would fill prescriptions through Amazon if the company offered them, according to research by Cowen Inc.

The loopholes drug companies use to keep prices high

The expiration date for the main Revlimid patent will be 2019. But Celgene’s business tactics, also used by other drugmakers, could allow the company to put off unrestricted competition from generics until 2026. That would cost Americans an extra $45 billion just for Revlimid, according to I-MAK, a consumer advocate.

Among the shenanigans: Securing new patents that extend old ones. Keeping brand-name drugs under wraps so generic makers can’t copy them. Filing so-called citizen petitions that gum up the FDA approval process for rivals. Negotiating restrictive deals with drug plans that crowd out less expensive drugs.

Citizen petitions are another way brand-name drug companies delay approval of competitors’ products. The petitions were designed to elicit public concerns about the drugs. The FDA is required to divert resources to address each one. From 2011 to 2015, brand-name drugmakers filed 108 citizen petitions during the approval process for cheaper versions, and 91 percent were denied, according to a paper by Rutgers University Law Professor Michael Carrier. The petitions “can play a crucial role in delaying generic entry,” he wrote. The introduction of cheaper generics can be delayed even after a brand-name patent has been invalidated in court.


A hospital giant discovers that collecting debt pays better than curing ills

The amount of past-due medical debt in the U.S. is about $75 billion, spread among 43 million people, according to estimates from economists at MIT, Northwestern University and the University of Chicago.

As Tenet and other hospital companies struggle to make money providing medical care, they are turning to the profitable and growing business of collecting debt. Most hospitals have finance departments or outside companies that try to ensure they get paid by insurers and patients. But Tenet has gone a step further than most, turning its operation into a separate business line called Conifer and contracting its services to other medical providers.

Collecting payment has become more important as hospitals’ traditional revenue streams come under pressure. Looming cuts to Medicare reimbursements may make as many as 60 percent of U.S. hospitals unprofitable, compared with about 25 percent currently, according to a 2016 Congressional Budget Office analysis.


Blow to Uber in Europe as top court rules it’s a transport service

The judgement means Uber must comply with individual Member States’ transportation regulations, and cannot claim its p2p ride-hailing services are only governed by less restrictive EU-wide ecommerce rules.

In its ruling the court writes that Uber’s “intermediation service… must be regarded as being inherently linked to a transport service and, accordingly, must be classified as ‘a service in the field of transport’ within the meaning of EU law. Consequently, such a service must be excluded from the scope of the freedom to provide services in general as well as the directive on services in the internal market and the directive on electronic commerce. It follows that, as EU law currently stands, it is for the Member States to regulate the conditions under which such services are to be provided.”


Asimov: Engineering biology

Not only do such biological circuit design automation tools give bioengineers the ability to debug biological circuits much like we debug software — with complete detail of what the simulated circuit is doing — but Asimov engineers have also developed modular biological circuit components that don’t have adverse reactions to other parts of the cell. Why does this matter? It’s akin to a computer programmer designing code that is then injected into a running program or existing operating system. These biological building blocks can be easily used downstream by circuit designers — the bio advance in turn facilitates the computer science advance, namely the accurate simulation of biological circuits.

With Asimov’s approach, high-accuracy simulation, and circuit building-blocks, we can greatly speed the development of biological circuits — decreasing their cost, and greatly increasing their sophistication and complexity.

Because biology is everywhere, living cells have applications in everything from food and materials to agriculture to healthcare. In fact, 7 of the top 10 drugs today are biologics, i.e., proteins that have therapeutic properties. These proteins are manufactured in cells at the cost of billions of dollars. Asimov’s technology could drive a dramatic reduction in cost to patients — enabling these drugs to be in the hands of more and more people.

Auctions & power

This results in decaying economics to the advertisers, as more advertisers join the auction to bid on keywords and clicks become more expensive. Google hides behind the overall statistic that its cost-per-click has been routinely getting cheaper on the aggregate even though this is a direct result of the mix shifting from desktop to mobile, where clicks are nearly ⅔ lower than on desktop.

Since Google is effectively a toll road on the internet, capturing over 90% of the searches performed in nearly every country it touches, advertisers are forced to play ball. But they’re not happy. Not many bidders to an auction come away saying, “wow, we got such a great deal.” In fact, the entire online travel industry is starting to find television advertising an equally compelling offer for their businesses over time. Even in real estate transactions, even if there are just two parties bidding on the property, the auction is designed to capture the highest value from the buyers.

The worst case scorched-earth scenario is far worse for Priceline. It’s a particularly bad time for booking.com to open up space for hotels to be bidding on clicks in TripAdvisor’s auctions. At the same time, ctrip.com is getting more aggressive in western markets and third party OTA supply on TripAdvisor has been building, with >80% of listings having a third, fourth or fifth OTA option. Because booking.com charges considerably higher commissions than TripAdvisor, hotels are highly incentivized to divert traffic away from Priceline’s channels.


China’s $189 billion giant of finance reveals a huge bet on tech

In the first nine months of 2017, Ping An got more than 70 percent of its earnings from insurance, with banking and asset management each contributing about 15 percent. Profit from its fintech units amounted to 1 percent of the group’s total, a proportion that Bloomberg Intelligence analyst Steven Lam estimates could increase to 3 percent to 5 percent in five years.

One risk for Ping An is that China’s tech companies are building their own financial services ecosystems. Alibaba and Tencent already dominate the online payments industry and are expanding rapidly into areas including asset management, lending and insurance. Ping An’s Tan argues that the company’s massive cache of financial data (it has nine petabytes of the stuff), combined with its offline resources, make the company’s products “fairly difficult” to replicate.


Beijing’s electric-car push could produce a world-class Chinese auto brand

China already leads globally in EV sales, passing the U.S. in 2015. Sales of new-energy vehicles, or NEVs (EVs, plug-in hybrids, and fuel-cell vehicles), may top 700,000 units in 2017 and 1 million in 2018, says Xu Haidong, assistant secretary-general of the China Association of Automobile Manufacturers. Almost all those cars are Chinese brands. The government has set a target of 7 million vehicles by 2025. To reach that goal, it’s doling out subsidies and tightening regulations around fossil-fuel cars.

“With electric cars, the cards are being reshuffled,” says Wolfgang Bernhart, a senior partner at Roland Berger Strategy Consultants in Munich. “We’ll see significantly more competition.” That could happen far from the mainland. “It’s obvious that Chinese carmakers want to sell their cars abroad,” says Klaus Rosenfeld, chief executive officer of German parts maker Schaeffler AG. “China’s manufacturers know that it will be tough for them to compete on combustion engines in our home market. But the shift to more and more electric cars may become an opportunity for them.”


China is building some of the world’s biggest packaged food companies

Having American brands gives WH Group a way to reach upscale consumers in the country that eats about half of the world’s pork, said Kenneth Sullivan, chief executive officer of Smithfield Foods and an executive director of Hong Kong-listed WH Group.

Chinese per-capita consumption is 39.4 kilograms (87 pounds) a year, and domestic hog farms can’t keep up with demand. U.S. pork exports to China and Hong Kong totaled 545,000 metric tons last year, a 61 percent increase from 2015, according to the U.S. Meat Export Federation.

Smithfield can’t export sausage, ham and bacon from its U.S. factories because China prohibits imports of processed meat. So WH Group opened an 800 million-yuan ($116 million) factory in Zhengzhou that will produce 30,000 metric tons of those meats when it reaches full capacity next year.

Truth from zero?

The achievements in Go and Shogi—the Japanese game whose higher depth in relation to Western chess we discussed three years ago—strike us as greater than AlphaZero’s score of 28 wins, 72 draws, and no losses against the champion Stockfish chess program. One measure of greatness comes from the difference in Elo ratings between the machine and the best human players. AlphaGo Zero’s measured rating of 5185 is over 1,500 points higher than the best human players on the scale used in Go. In Shogi, the paper shows AlphaZero zooming toward 4500 whereas the top human rating shown here as of 11/26/17 is 2703, again a difference over 1,500. In chess, however, as shown in the graphs atop page 4 of the paper, AlphaZero stays under 3500, which is less than 700 ahead of human players.

Although AlphaZero’s 64-36 margin over Stockfish looks like a shellacking, it amounts to only 100 points difference on the Elo scale. The scale was built around the idea that a 200-point difference corresponds to about 75% expectation for the stronger player—and this applies to all games. Higher gains become multiplicatively harder to achieve and maintain. This makes the huge margins in Go and Shogi all the more remarkable.

Bitcoin billionaires may have found a way to cash out

The U.S. Securities and Exchange Commission rejected the use of the Gemini exchange to determine bitcoin prices — which Cboe is using for the daily settlement of bitcoin futures — and has expressed doubts about using an index of exchanges — which CME is using. This creates the possibility that a few million dollars of actual bitcoin transactions, assembled in untested ways, will drive hundreds of millions of dollars of derivative settlement payments, which in turn could set the price for potentially tens of billions of dollars of ETFs.

If, say, 1 percent of all bitcoin were taken off the market and held as option collateral, 4 and financial investors put up cash in one-year derivatives, that could do a lot to stabilize the market. That means both reducing price volatility and giving confidence that market prices represent true trading prices for institutional quantities of bitcoin. This, in turn, could make Cboe and CME cash-settled futures more attractive, and thereby represent a solid base for bitcoin ETFs.

On the other hand, if bitcoin billionaires stay out of the market, institutional investment in bitcoin will remain problematic. Individuals will be able to trade small amounts in a fragmented market of loosely regulated exchanges, but futures and ETFs will not be securely backed by physical bitcoin — their prices will be pushed around by betting sentiment of people who own no bitcoin.

What Is Ethereum?

Note that because every single operation on the EVM is executed by every node, computing on the EVM is expensive. Therefore — and according to Ethereum’s development tutorial — the best current use-cases for Ethereum are for running business logic: “if this, then that.” Other use cases might be prohibitively expensive. Due to current issues around scalability and the size of Ethereum’s blockchain, more computationally-intensive programs will find it difficult and expensive to operate on the EVM.

Here’s another way to think about it: where Bitcoin could help users avoid banks, Ethereum could help users bypass platforms like Facebook, Amazon, or any number of more complex middlemen. Once upon a time, developers of a game or a collectible like CryptoKitties might have launched a Farmville-style game on Facebook, or a physical product on Amazon. Today, instead of doing that or building their own blockchains from scratch, developers can use the EVM to create their own decentralized applications – like Cryptokitties.

Can this man build a better bitcoin?

Vitalik Buterin grasped the significance immediately. Prior to creating Ethereum, Buterin covered the San Jose Bitcoin conference as a correspondent for Bitcoin Magazine, a publication he cofounded. The wunderkind programmer interviewed Ben-Sasson about his breakthroughs, and it left an indelible impression. “Personally, I think zk-SNARKs are a hugely important, absolutely game-changing technology,” Buterin tells Fortune. “They are the single most under-hyped thing in cryptography right now.”

In January 2009, Wilcox became perhaps the first person ever to blog about Bitcoin in a post titled “Decentralized Money” on his personal blog, Zooko’s Hack Log. Satoshi Nakamoto returned the favor several weeks later, linking to Wilcox’s write-up in an addendum to a preliminary release of the Bitcoin software on Bitcoin.org, the newly created project’s home page. Wilcox was one of only three people to receive an honorable mention in the “related links” section. (The others were Nick Szabo, inventor of “bit gold,” and Wei Dai, creator of “b-money.”)

Earnings Call Digest 2017.11

Facebook (Q3 2017 Results) – Earnings Call Transcript

Our community continues to grow, now with nearly 2.1 billion people using Facebook every month and nearly 1.4 billion people using it daily. Instagram also hit a big milestone this quarter, now with 500 million daily actives.

The reason I’m talking about this on our earnings call is that I’ve directed our teams to invest so much in security on top of the other investments we’re making that it will significantly impact our profitability going forward, and I wanted our investors to hear that directly from me. I believe this will make our society stronger, and in doing so will be good for all of us over the long term. But I want to be clear about what our priority is. Protecting our community is more important than maximizing our profits.

Over the next three years, the biggest trend in our products will be the growth of video. This goes both for sharing, where we’ve seen Stories in Instagram and Status in WhatsApp grow very quickly, each with more than 300 million daily actives, and also for consuming video content.

In messaging, today already more than 20 million businesses are communicating with customers through Messenger. Now we’re starting to test business features that make it easier for people to make the same kinds of connections with businesses through WhatsApp.

We’re now using machine learning in most of our integrity work to keep our community safe. When Hurricane Maria hit Puerto Rico, we used AI to look at satellite imagery and identify where people might live and need connectivity and other resources. Progress in AI can unlock a lot of opportunities.

Facebook has over 6 million active advertisers, and we recently announced that Instagram has over 2 million advertisers. The vast majority of these are small and medium-sized businesses, which are a major source of innovation and create more than half of all new jobs globally. These businesses often have small ad budgets, so the ability to reach people more effectively is really valuable to them.

Video is exploding, and mobile video advertising is a big opportunity. Until recently, ads were only eligible for Ad Breaks if they also ran in News Feed. But in Q3, we gave advertisers the option to run ads in videos alone. We’re seeing good early results, with more than 70% of Ad Breaks up to 15 seconds in length on Facebook and Audience Network viewed to completion, most with the sound on.

I would say not all time spent is created equal. That’s why I tried to stress up front that time spent is not a goal by itself here. What we really want to go for is time well spent. And what the research that we found shows is that when you’re actually engaging with people and having meaningful connections, that’s time well spent, and that’s the thing that we want to focus on.

I do think your point is right that not all kinds of content can be supported by ads, no matter how effective we make that. That said, the current model that we have for at least getting some of the lighthouse content onto the platform is to pay up front. And what we would like to transition that more to over time and what an increasing amount of the content is, is revenue shares for ads shown in the videos. And as we do better and better on the monetization there, that will support people with higher production costs and doing more premium production and bringing their content to the platform. And we’ve certainly found on the Internet and YouTube and in other places that there are whole industries around creators with different cost structures than traditional Hollywood folks who can produce very informative and engaging content that a lot of people like and enjoy and that builds communities and that helps people connect together in a way that definitely can be supported by this ad model.


Apple (Q4 2017 Results) – Earnings Call Transcript

Turning to Services. Revenue reached an all-time quarterly record of $8.5 billion in the September quarter. A few quarters ago, we established a goal of doubling our fiscal 2016 services revenue of $24 billion by the year 2020, and we are well on our way to meeting that goal. In fiscal 2017, we reached $30 billion, making our Services business already the size of a Fortune 100 company.

The reason I’m so excited about AR is I view that it amplifies human performance instead of isolates humans. And so as you know, it’s the mix of the virtual and the physical world and so it should be a help for humanity, not an isolation kind of thing for humanity…Apple is the only company that could have brought this because it requires both hardware and software integration, and it requires sort of making a lot of – or giving the operating system update to many people at once. And the software team worked really hard to make that go back several versions of iPhone so that we sort of have hundreds of millions of enabled devices overnight.

But in terms of price elasticity, I think it’s important to remember that a large number of people pay for the phone by month. And so if you were to go out on just the U.S., since that tends to be more of the focus of this call, you look at the U.S. carriers, I think you would find you could buy an iPhone X for $33 a month. And so if you think about that, that’s a few coffees a week. It’s let’s say less than a coffee a day at one of these nice coffee places…In terms of the way we price, we price to sort of the value that we’re providing. We’re not trying to charge the highest price we could get or anything like that. We’re just trying to price it for what we’re delivering.


Alibaba Group (Q2 2018 Results) – Earnings Call Transcript

In the 18 years since Alibaba was founded, China’s per capita GDP grew by a compounded annual rate of 14%. By comparison, the per capita GDP of the United States grew 3% during the same period. We all understand the magic of compounding. When you compound at 14% rate over 18 years, which is the life of Alibaba, the average Chinese citizen is 10 times better off today than in 1999 with per capita GDP growing from $870 to $8,100.

Today, China’s per capita GDP is still only 1/7 of the per capita GDP of the United States. Based on the track record of sustained income growth over the past years as well as on the backbone of a modern Internet infrastructure and productivity gains from technology, I’m very optimistic that China will continue to experience real income growth for years to come. This will translate into a rising middle class characterized by ever-increasing and higher-quality consumption. And this long-term secular trend bodes well for Alibaba.

Our cloud computing business continues to defy gravity. Revenue increased by 99% year-over-year. We continue to multiply our product portfolio, including the introduction of a new relational database and a state-of-the-art server developed in-house that serve the needs of large enterprise customers.

Mobile MAUs on our China retail marketplaces reached 549 million in September, an increase of 20 million over June quarter. Annual active consumers on our China retail marketplace reached 488 million, a net add of 22 million from the 12 months period ended June.

And the key thing is that the data-driven logistic network, actually we are – Cainiao is not going to be a logistic company and we are not interested into building another logistics company. Instead, we will work with a lot of logistic companies, delivery companies to build a network across the world.


Live Nation Entertainment (Q3 2017 Results) – Earnings Call Transcript

Our concerts business is our flywheel, attracting over 30 million fans to shows globally in the quarter, which then drove record results in our onsite ticketing and advertising business. Through October, we have sold 80 million tickets for concerts in 2017, up 20% year-on-year. Digging deeper into concerts, strong global demand for concerts through the third quarter drove a 16% increase in attendance to 65 million of fans at our 20,000 shows in 40 countries.

With the success of the concert flywheel, we’re promoting more shows for more fans, more effectively pricing and selling tickets and delivering a better experience than ever. As a result, we will spend over $5 billion producing concerts this year, making Live Nation far and away the largest financial partner to musicians.

With over 1,000 sponsors across our onsite and online platform, Live Nation is a global leader in music sponsorship, providing brands with opportunities to reach our core audience.

There is no artist that’s dying to put tickets on a secondary platform as a solution. That isn’t how they build their brands with their fans. What they want to do is figure out how to price it right and then make sure their fans actually have a shot to buy the ticket, not deliver it to the on-sale, have the scalper buy it, and their fan in Boston ends up paying 3 times the price.

We think Fan Verified and then you add on presence from the digital perspective are a real important combination for these artists of the future, who now believe they have some shot at controlling and delivering to their fans the price point at the exact price they want. And so, we think this is a pivotal product – suite of products that we’ve developed in Ticketmaster. It’s under a new division within Ticketmaster called Artist Master where we have a new leadership team waking up every day, making sure that we can deliver artist products, so the artists can deliver their tickets to their fans at better pricing and at the price they want.


Tesla (Q3 2017 Results) – Earnings Call Transcript

In fact, there’s 10,000 unique parts, so to be more accurate, there’re tens of thousands of processes necessary to produce the car. We will move as fast as the least competent and least lucky elements of that mixture. So while the vast majority are going incredibly well, there are some problem areas.

The primary production constraint really, by far, is in battery module assembly. So a little bit of a deep dive on that. There are four zones to module manufacturing it goes through four major production zones. The zones three and four are in good shape, zones one and two are not. Zone two in particular, we had a subcontractor, a systems integration subcontractor, that unfortunately really dropped the ball, and we did not realize the degree to which the ball was dropped until quite recently, and this is a very complex manufacturing area. We had to rewrite all of the software from scratch, and redo many of the mechanical and electrical elements of zone two of module production.

The ramp curve is a step exponential, so it means like as you alleviate a constraint, the production suddenly jumps to a much higher number. And so, although it looks a little staggered if you sort of zoom out, that production ramp is exponential with week over week increases.

There’s vastly more automation with Model 3. Now the tricky thing is that when one automation doesn’t work, it’s really harder to make up for it with men and labor. So with S or X, because a lot less that was automated, we could scale up labor hours and achieve a high level of production. With Model 3, it tends to be either the machine works or it doesn’t or it’s limping along and we get short quite severely on output.

I think that we will be able to achieve full autonomy with the current hardware. The question is, it’s not just full autonomy, but full autonomy with what level of reliability, and what will be acceptable to regulators. But I feel quite confident that we can achieve human level – approximately human level autonomy with the current computing hardware. Now regulators may require some significant margin above human capability in order for a full autonomy to be engaged. They may say, it needs to be 50% safer, 100% safer, 1000% safer, I don’t know. I’m not sure they know either.



Qualcomm (Q4 2017 Results) – Earnings Call Transcript

We are very excited about the increased momentum in 5G around the world. We are leading the industry and are accelerating the commercial launch of 5G across millimeter wave and sub-6 gigahertz in early 2019. We recently announced the world’s first 5G data connection achieved on the Snapdragon X50 modem chip set, and our leading 5G 3GPP standards development, ongoing prototype efforts and are supporting global 5G new radio trials.

Gigabit LTE is the first step in network operator’s transition to 5G, and there are now 41 operators in 24 countries supporting Gigabit LTE. We have demonstrated download speeds of greater than 1 gigabits using our X20 LTE modem in the U.S. with both Ericsson and Verizon, as well as Nokia and T-Mobile. Most leading device-makers are rapidly adopting Gigabit LTE into their device portfolios.

In the premium tier, our gigabit-enabled Snapdragon 835 now has more than 120 designs launched and in development, including recent flagship devices like the Samsung Galaxy Note 8, Pixel 2 and Pixel 2 XL, LG V30, and the Xiaomi Mi MIX 2. We have also introduced new high-tier and mid-tier Snapdragon products to further expand our competitive position in China across all tiers.


Trupanion (Q3 2017 Results) – Earnings Call Transcript

Lifetime value of a pet grew to $701 in the quarter, reflecting improvements in retention and in optimizing our cost-plus pricing strategy by subcategory. As lifetime value increases, we are able to increase our allowable tax spend and invest more aggressively in testing of new acquisition initiatives, with a goal of understanding whether they can meet our internal rate of return targets over time.

Total enrolled subscription pets increased 15% year-over-year to approximately 359,000 pets as of September 30. Monthly average revenue per pet for the quarter was $52.95, an increase of 9% year-over-year. Average monthly retention was 98.61%, consistent with the prior year period.

We want to be cash flow positive. The other guardrails are internal rate of return. And for any significant investments that we’re making, we are targeting internal rates of return of greater than 30% and hopefully, closer to 40%. When we’re doing some different testing or some long-term initiatives, maybe they’re a little bit lower, but on a blended basis, we want to be over 30%, internal rate of return closer to 40%. So those are probably the guardrails that we’re using. When I talk about how much more we’ve learned, it’s really driven around increasing the velocity of hospitals in our same-store sales initiatives. And order of magnitude may be we’ll invest an additional $2 million or $3 million next year than we otherwise would have anticipated. So definitely inside of our guardrails, but long term and foundational.

Well, the biggest opportunity, this is the overall market. I mean, we’re still in a very low underpenetrated market. And I’ll be saying this for the next 5 years. If you look at the number of pets that have some form of medical insurance, we’re over 1%, but we’re still under 2%. We want to try to grow the category growth. When we think about how to do that, it’s all around veterinarian first and making it normal and key. We have historically been growing the company by adding stores. Over the next few years, we feel it will become important for us to work on the same-store sales.

So as a reminder, our goal is to eliminate a slow cumbersome reimbursement model, where a pet owner fills out a bunch of paperwork and puts it in the mailbox and wait for 2 to 3 weeks to see if they are going to get paid. We think the problem we’re solving for pet owners is making it easier for them to budget for if and when their pet become sick or injured. And part of solving that problem is being able to pay hospitals directly at the time of invoice. Part of that solution is being able to integrate with practice management software in a way that makes the process very quickly. Our goal is to pay these invoices in under 5 minutes from the time those created. We like the results that we’re getting. But we want to speed up the velocity of the – number of places that we’re rolling it out now that we’re better at it. And we’re still in relatively early days to learn how to speed up the velocity, now that we like the results we get on a per hospital basis.


Tucows (Q3 2017 Results) – Earnings Call Transcript

The General Data Protection Regulation, or GDPR is a piece of legislation passed by the European Union to enforce tougher more consistent guidelines on organizations that operate across the region and particularly, global Internet companies and deals with customer data and product deployments. These guidelines impact the millions of domain names that we have registered to European end-users. So, we need to comply along with everyone else by May 25, 2018. This will require a significant investment in engineering. However, its work that needs to be done by everyone across our industry and across many industries and it plays to our engineering strengths. Also, other governments are starting to the EU’s lead and pass their own legislation. So, while the work will cause some pain in the short-term if we do it well better and faster than others, it could create some opportunities in the future.

This deal gives us access to the Otono eSIM platform. eSIM allows mobile users to choose and switch between networks without needing to insert and activate traditional SIM cards. In coming quarters, eSIM should allow Ting to support high-profile smartwatches and other exciting new connected devices. In coming years, eSIM should allow Ting customers to move seamlessly between networks on almost any device imaginable.


Chegg (Q3 2017 Results) – Earnings Call Transcript

In just four years the results have been dramatic, which Chegg now serving nearly ten million visitors in a month according to ComScore and we expect to have around four million paying customers in 2017. Further, we expect to have more Chegg Services subscribers than textbook customers for the first time in our history. Our Chegg Services revenue has grown from just $25 million in 2012 to what we expect will be over $180 million in 2017.

And given our new adjusted EBITDA guidance today, we will go from a company who was losing $16 million in adjusted EBITDA right before our IPO, to a company that is now forecasting nearly $45 million in adjusted EBITDA for 2017. This turnaround has helped us go from a company using over $100 million in cash each year to support a slow growth textbook business to a high growth, high margin learning company that now produces free cash flow. It’s been a successful transition and we feel like we’re just getting started.

As powerful as Chegg Study is already, we believe the service will become even more relevant to an increasing TAM, as we continue to expand its content and capability. To that end, we recently announced the acquisition of Cogeon, developer of the app Math 42, an adaptive A.I.-driven Math application, which has been downloaded over 2 million time. Math is the universal need and unfortunately a universal problem as 64% of U.S. students are not prepared for college level math, and over 40% of U.S. students take at least one remedial math course.

Even though students look to A.I.-driven tools to help augment their learning, we know that one-on-one human help will continue to be critical in the learning process, which is why we continue to invest in Chegg Tutors. In the third quarter, we saw the time students spent on the site increase, with an average student now spending 188 minutes in tutoring sessions throughout the semester in key subjects like computer science, calculus, statistics, finance and accounting.

The magic of what we are building is the ability to have access to millions of millions of millions of students and their records and their history, all the data about them it’s in our proprietary student graph, and then the ability to do matching based on that uniquely done by how we are capable of doing it versus others. So, we met with all the players in the space. Obviously, everybody would like access to this Chegg audience, but we believe what working on is going to be special and unique and has the opportunity to be huge.

So, we don’t see a reason with such high gross profit margins to change the price. But we do know we have significant pricing power, given the fact of not only the test results which you can just look at the usage. We have record usage in terms of how often they use it, how many pages they consume, what they use for the number of questions that they’re asking, the number of the subjects that they’re asking it in. I mean Chegg Study has become a beast, and we just — what we want to do is be able to grow as big as we can and invest in as much as we can and continue to increase the TAM. So we don’t have to think about pricing at this point, but we do know we have pricing power.

We actually believe and we try to say this on the last couple of calls which is the more we invest in the product, the more content, the more formats that we deliver that content, the more subjects, the greater the Q&A that we add. That the TAM is probably two to three times the size just in the U.S. alone about original number we gave out. And that’s because, it will cover the other 50% of subjects that we don’t cover. And it will go deeper in the subjects that we do cover. So we want wide at first now we’re going deeper. So we’re freshmen all the way through the seniors on key majors and that was not a year ago, the plan.


Workiva (Q3 2017 Results) – Earnings Call Transcript

…our ability to integrate Wdesk with more than 100 cloud, SaaS, and on-premise applications including Oracle ERP Cloud has expanded our TAM to $16.2 billion.

We continue to gain market share in the SEC compliance market, where Wdesk is considered a best practice. We’re also seeing more demand for Wdesk from foreign private issues that use IFRS taxonomy because they’ll be required to submit their SEC filings with XBRL tagging starting December 15.

We finished Q3 with 2,991 customers, a net increase of 295 customers from Q3 of 2016, and a net increase of 83 customers from Q2 2017. Our subscription support revenue retention rate excluding add-ons was 96.5% for the month of September 2017, compared with 96.1% in June 2017, and 95% in September 2016. Customers being acquired or ceasing to file SEC reports, accounted for a majority of the revenue attrition, consistent with our experience to date. With add-ons, our subscription support revenue retention rate was 108.6% for the month of September 2017, compared with 106% in June 2017, and 108.7% in September 2016. Increased subscription revenue on non-SEC use cases from existing customers continues to be the primary driver of our add-on revenue retention rate.

 

Curated Insights 2017.11.19

Winners and losers In the patent wars between Amazon, Google, Facebook, Apple, and Microsoft

Google: The full stack AI company

A startup might achieve a breakthrough in an AI vertical, but reaching hundreds of millions of users could take years. The same breakthrough in Google’s hands could be “turned on” for a billion users overnight. Users benefit immediately, while Google’s products become sticker and more valuable.

Google is already seeing a similar benefit. While competitors are using off the shelf processors for deep learning, Google’s TPU provides higher throughout, reduced latency and, perhaps most importantly, reduced power consumption. Because data center construction is Google’s largest capital spending line item and power its highest operating cost, the TPU meaningfully reduces both Google’s capex and opex.

Google’s AI efforts have built a fully integrated company that spans algorithms, data, hardware, and cloud services. This approach helps funnel the world-class AI of Google’s consumer products to its enterprise offerings, providing Google Cloud with a competitive edge. Bringing chip design in-house increases Google’s AI moat by improving performance, lowering latency, and reducing cost. Perhaps most critically, vertical integration enhances its organizational agility: Google can steer all parts of its organization to bring a new product or service to market. Consequently, Google’s AI will be at the forefront of the innovation for years to come.


How Facebook figures out everyone you’ve ever met

Shadow contact information has been a known feature of Facebook for a few years now. But most users remain unaware of its reach and power. Because shadow-profile connections happen inside Facebook’s algorithmic black box, people can’t see how deep the data-mining of their lives truly is, until an uncanny recommendation pops up.

Facebook doesn’t like, and doesn’t use, the term “shadow profiles.” It doesn’t like the term because it sounds like Facebook creates hidden profiles for people who haven’t joined the network, which Facebook says it doesn’t do. The existence of shadow contact information came to light in 2013 after Facebook admitted it had discovered and fixed “a bug.” The bug was that when a user downloaded their Facebook file, it included not just their friends’ visible contact information, but also their friends’ shadow contact information.

It’s what the sociologist danah boyd calls “networked privacy”: All the people who know you and who choose to share their contacts with Facebook are making it easier for Facebook to make connections you may not want it to make. Shadow profile data powers Facebook’s effort to connect as many people as possible, in as many ways as possible. The company’s ability to perceive the threads connecting its billion-plus users around the globe led it to announce last year that it’s not six degrees that separate one person from another—it’s just three and a half.

“Mobile phone numbers are even better than social security numbers for identifying people,” said security technologist Bruce Schneier by email. “People give them out all the time, and they’re strongly linked to identity.”


Will Amazon disrupt healthcare?

Amazon is exceptional at developing formulas to increase efficiency and decrease waste — two vital elements sorely lacking in the current healthcare paradigm.

Baby boomers may be tethered to their in-person interactions with physicians and pharmacists, but millennials are not. They are Amazon’s target audience.

Amazon has several key advantages in a world of personalized medicine — loads of storage space because of its AWS business, sophisticated predictive algorithms, and long-standing, data-rich relationships with millions of “patients”.


How Netflix works: the (hugely simplified) complex stuff that happens every time you hit Play

Netflix estimates that it uses around 700 microservices to control each of the many parts of what makes up the entire Netflix service…And that’s the tip of the iceberg. Netflix engineers can make changes to any part of the application and can introduce new changes rapidly while ensuring that nothing else in the entire service breaks down.

Turns out that Netflix and Amazon’s partnership turned out to be a huge win-win situation for both companies. Netflix turned out to be AWS’s most advanced customers, pushing all of their capabilities to the maximum and constantly innovating upon how they can use the different servers AWS provided for various purposes — to run microservices, to store movies, to handle internet traffic — to their own leverage. AWS in turn improved their systems to allow Netflix to take massive loads on their servers, as well as make their use of different AWS products more flexible, and used the expertise gained to serve the needs of thousands of other corporate customers. AWS proudly touts Netflix as it’s top customer, and Netflix can rapidly improve their services and yet keep it stable because of AWS.


People watch Netflix unabashedly at work (and in public toilets, too)

About 67% of people now watch movies and TV shows in public, according to an online survey it commissioned of 37,000 adults around the world. The most popular public places to stream are on planes, buses, or commuting, the survey found. But 26% of respondents also said they’ve binged shows and movies at work. People in the US were more likely to stream from the office, while users around the world were more likely to stream during their commutes.

For Netflix, mobile still makes up a small chunk of overall viewing. Netflix said it was about 10% as of 2016. But the company also said half of its users stream from a smartphone during any given month. Its audience is now around 110 million subscribers worldwide.


Will traditional auto makers steal the future from Tesla?

Even if electric cars take off in the early to mid-2020s when their cost is likely to be comparable to gas- and diesel-powered vehicles, Garschina thinks the major global auto makers will still dominate the business. Credit Suisse auto analyst Daniel Schwarz recently wrote that auto makers would emerge as winners from simpler, less capital-intensive production of electric vehicles over the next 10 years.

Investors might not be giving the auto industry credit for manufacturing skills honed over decades. As Tesla has found, mass-producing automobiles isn’t easy; the company continues to lose money and grapple with production woes. “The more we learn about new technologies, the clearer it becomes that the key auto makers won’t be disrupted overnight,” says Arndt Ellinghorst, a European auto analyst with Evercore ISI.

Morgan Stanley has estimated that it could take $2.7 trillion of infrastructure investment by 2040 to support a global electric fleet, including 473 million home chargers and seven million super-charging stations. It’s unclear where all that money will come from. The additional need for electricity would be equivalent to current U.S. demand.


These hot restaurants aren’t on maps, only in apps

Virtual restaurants, with their low overhead, are allowing restaurateurs to shift away from the capital-intensive model that kills 60% of new restaurants in their first five years toward something decidedly more techy.

By far the biggest company in the app-driven food-on-demand space is Grubhub. It is so invested in virtual restaurants that two years ago it lent one of its own customers, Green Summit Group, $1 million to expand. Green Summit, which launched in 2013, has kitchens throughout New York City, Todd Millman, its co-founder, says. There might be up to 10 different “restaurants” In a single kitchen. Though they appear on Grubhub as separate establishments, each with a distinct cuisine, all the food might be prepared in the same kitchen by the same staff.

In San Jose, Grubhub competitor DoorDash has built out its own kitchen space. There is one tenant so far, a pizzeria called the Star. (More are on the way, DoorDash says.) To save on rent, DoorDash built the facility in a disused portion of the Santa Clara County Fairgrounds. One month in, the Star’s savings have been notable, says Ben Seabury, chief operating officer of the 1100 Group, which owns the virtual restaurant. Typically, 30 cents of every dollar that comes into one of his restaurants goes to labor, says Mr. Seabury. But without waiters, bartenders and dishwashers, that cost is just 10 cents on the dollar—and even less when demand is high.

Virtual restaurants tap into a larger trend: Americans’ increasing aversion to cooking for themselves. For the first time ever in 2016, Americans spent more at eating and drinking establishments than on groceries, according to U.S. Census data. The food-delivery market is a small slice of that sector: It is only $30 billion in 2017, but Morgan Stanley estimates it could balloon to $220 billion within a few years.

 

Digitizing cash transactions could become quite profitable

Turning financial data into an asset is an early stage opportunity. On a global basis, more than 80% of transactions still occur in cash. Indeed, companies and, at some point, consumers have yet to digitize more than 1.4 trillion transactions per year, roughly equivalent to the number of Google searches per year. Our research indicates that the information associated with digital cash transactions could generate approximately $100 billion of revenue per year.

While we believe that disrupting and digitizing cash transactions represents a large “fintech” opportunity, the benefits are unlikely to accrue to the traditional financial services industry, as it lacks the requisite innovation agility, cost structure, and technical abilities to access and exploit it. Instead, innovative technology companies like Amazon, Google, Facebook, and Tencent that already are transforming big data into big revenue, probably will capitalize on this opportunity.

Companies with the ability to develop deep and dynamic insights into consumer purchasing behavior will be in the best position to capitalize on this $100 billion revenue opportunity. Square, Tencent, Facebook, Amazon, and Alibaba are building the most precise consumer profiles, enabling them to offer value added services like capital loans and insurance either now or in the not-to-distant future. We believe these companies are building significant moats, or barriers to entry, with “value loops” generating more data from their consumers and building products that take increasing share in the marketplace.


Hasbro sets its sights on Mattel

Hasbro has held up relatively well. Chief Executive Brian Goldner has forged close ties to Hollywood, where the company is producing movies and is a favored partner for creating toys tied to films. In recent years, Hasbro won the coveted license for Walt Disney Co.’s Disney Princess characters and has long made toys tied to the media company’s “Star Wars” franchise. Hasbro is also more advanced in telling stories and creating content around its large brands, including a string of feature-length films for its Transformers franchise and more-recent launches like a My Little Pony movie.

Both Hasbro and Mattel were stung by the Toys “R” Us bankruptcy, which threw a major sales channel into turmoil and prompted them to stall deliveries to the retailer, but Mattel’s problems run deeper. The new regime laid out a plan that would keep the company in turnaround mode for a few more years as it tries to fix problems that it blamed on past management. Those included a proliferation of new toys with little staying power that heaped additional costs and complexity onto Mattel’s supply network.

A bigger concern was that a tie-up could trigger change-of-control clauses in the numerous licensing agreements with the likes of Disney, Nickelodeon and others.

Free games fuel $370 billion stock rally – and fears of a crash

In free-to-play games, 2% of players typically generate around 50% of revenue, according to consultancy Yokozuna Data. High-rollers often spend at least $500 per month. Today, the industry generates $100 billion in revenue with about 70 percent coming from in-game goods and services, according to Goldman Sachs Group Inc.

The industry is exploring dark territory. Last month, an Activision Blizzard Inc. patent surfaced which described how machine learning could be used to entice players to spend more. For example, a player could be paired with a teammate who owns a special paid item, and then encourage the player to buy it too.


It’s amazingly cheap to acquire a fleet of Airbus jets

Bill Franke’s airlines are generally fast-growing and profitable, in part because of low expenses and using the latest fuel-efficient jets. All three have exclusively adopted the A320 jet family for cost reasons too, as it makes it easy to swap flight crews and maintenance is less complicated.

Instead of buying jets outright, Frontier, Wizz and Volaris use sale-and-leasebacks. This makes financial sense. One industry observer says the cost of lease finance might be half that of funding an aircraft with equity because of the flood of cheap capital, much of it Chinese. By avoiding ownership, airlines also sidestep residual value risk. If a plane’s value falls, that’s the leasing company’s problem, not Franke’s.


Bob Lutz: Everyone will have 5 years to get their car off the road or sell it for scrap

We don’t need public acceptance of autonomous vehicles at first. All we need is acceptance by the big fleets: Uber, Lyft, FedEx, UPS, the U.S. Postal Service, utility companies, delivery services. Amazon will probably buy a slew of them. These fleet owners will account for several million vehicles a year. Every few months they will order 100,000 low-end modules, 100,000 medium and 100,000 high-end. The low-cost provider that delivers the specification will get the business.

These transportation companies will be able to order modules of various sizes — short ones, medium ones, long ones, even pickup modules. But the performance will be the same for all because nobody will be passing anybody else on the highway. That is the death knell for companies such as BMW, Mercedes-Benz and Audi. That kind of performance is not going to count anymore.

Car dealers will continue to exist as a fringe business for people who want personalized modules or who buy reproduction vintage Ferraris or reproduction Formula 3 cars. Automotive sport — using the cars for fun — will survive, just not on public highways. And like racehorse breeders, there will be manufacturers of race cars and sports cars and off-road vehicles. But it will be a cottage industry. The era of the human-driven automobile, its repair facilities, its dealerships, the media surrounding it — all will be gone in 20 years.


Sean Stannard-Stockton interview: Shifting competitive landscapes

Today, if you log-on to Amazon and type in what you’re looking for – not a brand name, but a type of product – the #1 ranked item, regardless of brand, is likely to have thousands of reviews. If those reviews are say 4 or 4 ½ stars or better – with reviews from thousands of people, most consumers will happily purchase the item, no matter what the brand is. In this case, Amazon has effectively not just become a logistics provider, not just made shipping easy, not just benefitted from network effects, but it has inserted its own brand into the purchasing behavior – and so the consumer says, ”I trust Amazon and Amazon’s reviews so much that I don’t need to spend time searching or depending on a brand name, I can simply purchase the product no matter what its brand is.”

 

U.S. to dominate oil markets after biggest boom in world history

By 2025, the growth in American oil production will equal that achieved by Saudi Arabia at the height of its expansion, and increases in natural gas will surpass those of the former Soviet Union, the agency said in its annual World Energy Outlook. The boom will turn the U.S., still among the biggest oil importers, into a net exporter of fossil fuels.

Reflecting the expected flood of supply, the agency cut its forecasts for oil prices to $83 a barrel for 2025 from $101 previously, and to $111 for 2040 from $125 before.

 

I always used that as a metaphor for businesses. The customers pour in the Tender Vittles and in the U.S., when you had a union, they would fight and spill the whole bowl of Tender Vittles. In the end, no one could eat anymore. I looked at U.A.W. “It’s insane, they’re going to kill their company.” Sure enough, they damn near did. General Motors was almost bankrupt. In Germany, the unions have representatives on the board of the company. Yes, they say, “The first thing” — that this bowl of Tender Vittles — “we have to make sure that the bowl is there. We can fight all we want, but don’t spill the bowl.” You don’t destroy your company. That was not the attitude of Anglo-Saxon unions, either in England or the U.S.


Countries with the most farmland

The USDA now estimates that there is 15%-20% more farmland on earth than we expected. That’s 250 to 350 million more hectacres! With this addition, the USDA estimates there’s 1.87 Billion acres of farmland on earth.

In terms of total net cropland, this new study declares India as number 1.

 

 

Electric cars’ green image blackens beneath the bonnet

The Earth’s ozone hole is shrinking and is the smallest it has been since 1988

Warmer-than-usual weather conditions in the stratosphere are to thank for the shrinkage since 2016, as the warmer air helped fend off chemicals like chlorine and bromine that eat away at the ozone layer, scientists said. But the hole’s overall reduction can be traced to global efforts since the mid-1980s to ban the emission of ozone-depleting chemicals.

In June, scientists identified a possible threat to the recovery, believing dichloromethane — an industrial chemical with the power to destroy ozone — doubled in the atmosphere over the past 10 years. If its concentrations keep growing, it could delay the Antarctic ozone layer’s return to normal by up to 30 years, according to the study published in the journal Nature Communications.


How much is the Great Barrier Reef worth? Economists just figured it out

It came up with a value of A$56 billion ($43 billion) based on an asset supporting tens of thousands of jobs and which contributes A$6.4 billion to the economy. “Valuing nature in monetary terms can effectively inform policy settings and help industry, government, the scientific community and the wider public understand the contribution of the environment, or in this case the Great Barrier Reef, to the economy and society,’’ the Deloitte report said. “The tight and unforgiving deadline the Great Barrier Reef is up against necessitates an understanding of its true value to know what kind of policy action is required in response.’’


Why do we love pets? An expert explains.

In his latest book, Bradshaw argues that our fascination with pets is not because they’re useful, nor even because they’re cute, and certainly not because they’ll make us live longer. Instead, he writes, pet-keeping is an intrinsic part of human nature, one rooted deeply in our own species’ evolution.

People with animals, or as simply described as having a friendly dog with them, instantly become more trustworthy in the eyes of the person who’s encountering that person or having that person described to them.

The idea that simply getting a pet is going to make you happy and de-stress you is not going to work if you don’t do the homework about what the animal needs.

Both dogs and cats are carnivores — the cat is a very strict carnivore. The idea that we can continue to essentially farm the world in a way that provides enough meat for dogs and cats to eat, let alone humans, is probably not sustainable. Whether it will be possible for people to continue to keep these animals, or what kinds of substitutes they find if it does become impossible, I think is going to be fascinating, if somewhat painful for the people involved.

 

Why $450 Million for this painting isn’t crazy

Would 7.5 million people a year pay an average of 9 euros to visit the Louvre if La Gioconda, as the painting is sometimes called, weren’t there? If just a million of them passed on it, the museum would lose the entire amount paid for “Salvator Mundi” over 50 years.

It’s difficult to imagine anyone hoping to make much of a profit on a resale after paying such an outrageous price. But building a museum’s pitch for visitors around it could be a way to make economic sense out of the deal.

Curated Insights 2017.10.22

Tesla’s new car smell

As I watched Tesla’s messy, hiccuping line, with workers dashing in to fix faulty parts in place, my mind travelled back to the Honda plant I had visited years ago in Marysville, Ohio. Clean, calm, everything moved smoothly. I was so shocked by the contrast that I imprudently voiced my concern. That didn’t go over well with my fellow Tesla owners. I was a killjoy, I was calling their choice into question.

“Unknown to analysts, investors and the hundreds of thousands of customers who signed up to buy it, as recently as early September major portions of the Model 3 were still being banged out by hand, away from the automated production line, according to people familiar with the matter.”

Moving from fewer than 100K cars a year to 500K and up isn’t “more of the same”, it can’t be achieved through clever, conventional-wisdom-defying improvisation. That sort of growth is a bold jump in scale that requires a smooth, well-oiled and well-understood manufacturing process.


Millennials are helping Jack Ma’s financing firm become a debt giant

Securitized products that bundle such obligations are meant to spread the risks among different investors. The tech companies can’t take deposits like banks, so the ABS, which are generally sold in private placements to institutional investors, give them a way to raise funds. The latest ABS from Ant Financial that’s backed by loans through its Jiebei service pays a 5.5 percent coupon for the senior tranche, according to data compiled by Bloomberg.

“In the short term, default risks for consumer loan ABS are very low because the underlying assets are composed of a number of loans in small sizes,” said Zuo Fei, an executive director and head of the ABS group in the investment banking division of China Merchants Securities Co. in Shenzhen. “These ABS products will be safe, unless systemic risks emerge in the economy and cause widespread defaults in consumer loans.”

Shell buys NewMotion charging network in first electric vehicle deal

Demand for electric vehicles is expected to rise significantly in coming decades and Morgan Stanley estimates that 1-3 million public charging points could be needed in Western Europe by 2030. Currently, there are fewer than 100,000. Shell expects around a quarter of the world’s car fleet to be electric by 2040.

Oil companies are growing increasingly aware of the potential threat to parts of their downstream business from the electrification of transport.


Solar wants to help fix a power-grid problem it helped create

Solar panels have proliferated in the Golden State, flooding the grid with power supplies in the middle of the day when the sun’s out — and then quickly vanishing after sunset. This has created a sharp curve in California’s net-power demand that’s shaped like a duck. And the so-called duck curve is getting steeper every year, sending wholesale electricity prices plunging into negative territory, forcing generators offline and making it increasingly difficult to maintain the reliability of California’s transmission lines.

…change the way solar farms are paid. If the state’s utilities compensate them for shutting generation when the grid doesn’t need it and providing power later when it does, he said, farms could use increasingly sophisticated inverters and software controls to adjust.


How Amazon’s $13.7B purchase of Whole Foods is a ‘blessing in disguise’ for Instacart

“When Amazon bought Whole Foods, what they did was they sent the signal to the entire grocery/retail landscape that Amazon was coming,” Mehta said. “Now, for every single grocery retailer at this point in time, whether they believed it or not before, now they needed an e-commerce strategy. They needed to have same day delivery. The reality was, for the last five years, that’s what we have done. We have brought hundreds of grocery retailers online, and so we had the track record of being able to do this successfully.”

Instacart has been growing faster than expected this year, and it has expanded to 149, up from only 30 at the beginning of the year. Mehta said the company can now reach 63 million households as potential customers, up from about 11 million a year ago.


This little-known startup just hit a valuation of $30 billion

Travel is becoming the latest competitive ground. With the recent fundraising, Meituan plans to spend hundreds of millions of dollars over the next three to five years to become a leading travel booking site. It’s also exploring opportunities to collaborate with Priceline as part of the investment. That may present a challenge to China’s biggest online travel site, Ctrip.com International Ltd., which is backed by Baidu. Ctrip shares fell 8.2 percent in U.S. trading.

China’s internet crackdown isn’t going anywhere

“Xi Jinping has definitely been a turning point in terms of the degree of censorship that is happening in China,” said Charlie Smith, who founded Greatfire.org, an organization that finds ways around government restrictions. “He is the first Chinese leader to truly understand the power of the internet and hence, we are seeing an unprecedented crackdown on dissenting information,” said Smith, who uses a pseudonym for fear of government reprisals

In June, Weibo Corp., the Chinese equivalent to Twitter, was one of three firms fined and banned by regulators from broadcasting certain types of content without a license. In an August earnings call, its chief financial officer said current rules made it legally impossible to acquire a license without becoming “wholly state-owned or state-controlled”.

The tightening presents unique challenges to foreign firms navigating the legal landscape. Services that rely on free-flowing information, such as Google and Facebook, would struggle to exist in such a regime, though they remain intent on finding a way in given the size of the potential market.


Who has the world’s No. 1 economy? Not the U.S.

Gross domestic product is supposed to measure the amount of real stuff — cars, phones, financial services, back massages, etc. — that a country produces. If the same phone costs $400 in the U.S. but only $200 in China, China’s GDP is getting undercounted by 50 percent when we measure at market exchange rates. In general, less developed countries have lower prices, which means their GDP gets systematically undercounted.

Economists try to correct for this with an adjustment called purchasing power parity (PPP), which controls for relative prices. It’s not perfect, since it has to account for things like product quality, which can be hard to measure. But it probably gives a more accurate picture of how much a country really produces. And here, China has already surpassed the U.S.

China’s modest per-person income simply means that the country has plenty of room to grow. Whereas developed countries can only get richer by inventing new things or making their economies more efficient, poor countries can cheaply copy foreign technology or imitate foreign organizational practices. That doesn’t always happen, of course — many poor countries find themselves trapped by dysfunctional institutions, lack of human capital or other barriers to development.

In other words, not only is China already the world’s largest economy, the gap between it and the U.S. can be expected to grow even wider. This continues to be borne out in the growth statistics — though China has slowed in recent years, its economy continues to expand at a rate of more than 6 percent, while the U.S. is at just over 2 percent. If that disparity persists, China’s economy will be double that of the U.S. in less than two decades.


China to build giant facial recognition database to identify any citizen within seconds

The system can be connected to surveillance camera networks and will use cloud facilities to connect with data storage and processing centres distributed across the country, according to people familiar with the project.

Commercial application using information sourced from the database will not be allowed under current regulations. [But] a policy can change due to the development of the economy and increasing demand from society.”

“To download the whole data set is as difficult as launching a missile with a nuclear warhead. It requires several high-ranking officials to insert and turn their keys at the same time,” the vendor said.

The 1.3 billion-person facial recognition system is being developed by Isvision, a security company based in Shanghai.

They found that the accuracy of the photo that most closely matched the face being searched for was below 60 per cent. With the top 20 matches the accuracy rate remained below 70 per cent, Fan and collaborators reported in a paper published in the domestic journal Electronic Science and Technology in May. “It cannot solve problems with real-life applications,” they added.

The researcher warned that the cost of the convenience facial recognition could bring to everyday life was “sacrificing security”.


Warning signs are mounting for Sweden’s once-hot housing market

SEB AB’s monthly housing-price indicator shows households are becoming less optimistic about the market. The gauge, which measures the difference between those who see rising housing prices and those who believe in a decline, has dropped to its lowest level since August 2016. While 66 percent of Swedes still expect prices to rise, and only 16 percent believe in a decline, the indicator has dropped for four consecutive months.

Regulators have been tightening regulations to cool debt growth. Swedes are now subject to a mortgage cap, limiting loans to 85 percent of a property’s value, and an amortization requirement, which forces borrowers pay off the part of their new loans that exceeds 50 percent of the property’s value. The regulator now wants to introduce an additional amortization requirement for the most indebted households, and has also floated the idea of a cap on loans in relation to incomes.

Developers are taking action to prepare for a slowdown. Wallenstam AB said this month it would convert 90 apartments in a development in the Stockholm neighborhood of Solberga to rentals rather than trying to sell them. The situation is “a bit uncertain,” with the market for ownership apartments having “cooled down,” Wallenstam said on Oct. 9.


Indonesia set for trillion-dollar economy in bittersweet triumph

Size isn’t everything. Even after eight rate cuts since the beginning of last year, the economy is struggling to fire up: loan growth remains muted, while the central bank expects low inflation to linger for some time. The picture is made more complex by a wide divergence in growth across the archipelago of more than 17,000 islands, with rates ranging from negative to more than 7 percent.

Jokowi is ramping up spending on roads, rail and seaports as he targets economic growth of 5.4 percent in 2018, the fastest rate in five years. But a massive infrastructure deficit — estimated by the World Bank at $1.5 trillion — is frustrating his efforts. The global lender says another $500 billion in infrastructure spending is needed over the next five years.

Indonesia’s tax revenue as a portion of GDP remains one of the lowest in the region with the OECD estimating it at around 12 percent two years ago. It has since fallen to 10.3 percent, which Finance Minister Sri Mulyani Indrawati in July described as “low and unacceptable.” She’s aiming to boost that ratio to 16 percent by 2019.


Like Bali? Indonesia wants to create 10 of them to draw Chinese tourists

Jokowi’s plan, according to Yahya, will see the contribution of tourism to the economy climb to 7.5 percent by 2019 from 4.5 percent last year. Tourism receipts are forecast to grow more than 60 percent to $20.7 billion over the same period, with the number of jobs seen rising to 13 million from 11.8 million.

Even with that kind of growth, Indonesia is far behind neighboring countries in developing tourism and targeting Chinese visitors. Thailand’s industry makes up about 18 percent of gross domestic product, with the country’s famed beaches and nightlife attracting 26 million foreign visitors so far this year, 28 percent of them coming from China. Indonesia also trails Singapore and Malaysia in number of tourists.

Funding Jokowi’s 10 New Balis plan will be a big challenge. Yahya estimates the industry needs $20 billion of investment over five years, of which about $10 billion will come from the government. Given its vast infrastructure needs in everything from ports to roads, and a budget deficit cap of 3 percent of GDP, authorities are seeking more private-sector funds.


Silicon Valley Vs. Wall Street: Can the new Long-Term Stock Exchange disrupt capitalism?

If the LTSE succeeds, it could offer a new incentive for privately held tech giants such as Airbnb Inc. and Uber Technologies Inc. to go public, at a time when many market veterans and regulators fear the process of going public has lost its luster. But skeptics wonder whether the LTSE is just another way for tech founders and elite Silicon Valley investors to maintain control at the expense of other shareholders.

For instance, executives’ bonuses couldn’t be tied to financial-performance targets over periods of less than one year. If the executives are paid in company stock, the shares couldn’t fully vest for at least five years. LTSE-listed firms would still publish quarterly results—an SEC requirement—but they would be barred from releasing quarterly earnings guidance, a practice that some critics say fosters short-term thinking. Meanwhile, tenure voting would be available to any shareholder of an LTSE-listed company. If an investor opted into the system, the voting power of his or her shares would grow over time, capped at 10 times the power of ordinary common stock after a decade. If the shares were sold, the voting power would be reset for the new owner.

Mr. Ries disputes the idea that the LTSE is good for founders and bad for everyone else. In his view, tenure voting is better than the solution favored by some Silicon Valley firms: severely limiting the voting power of ordinary shareholders through two or more share classes.

Curated Insights 2017.10.08

Alibaba’s Cainiao fee potential huge, loss ‘negligible’?

Most investors know Cainiao for its data and software business. This has been a critical element behind the success of BABA and eCommerce adoption in China, addressing several friction points in the logistics supply chain. Key issues include China not having a reliable postal code system and the systems dependence on paper weigh bills. Data is scattered, non-standardized and assets are highly fragmented (over 90% of logistics vehicles in China are owned by individuals). Cainiao’s Data Intelligent Network was built to utilize data and technology to coordinate resources across a vast supply chain. In just a three year time frame, adoption of eShipping labels has grown from single digits to +70% and is approaching ubiquity. This is enabling real-time data and tracking across the entire delivery chain…”

“… While Cainiao is seeing tremendous growth providing fulfillment services to merchants, we see potential for an Fulfillment By Amazon (FBA)/Prime-like flywheel with closer alignment of Cainiao and Tmall. We estimate that Amazon.com charges merchants 16% of GMV [gross merchandise value] on average for FBA services, compared to Tmall commissions at 2.2% of reported GMV last year…”


Amazon’s war to the door

Even without mass purchases of jets, trucks and couriers, the package preparation and delivery process is growing more expensive for the company. Amazon’s fulfillment costs — the company’s spending on packaging-and-distribution centers and related expenses – were $8.87 billion in the nine months ended Sept. 30, or 12.4 percent of the company’s net sales in the period. In 2012, they were 10.5 percent of net sales. Amazon’s costs for shipping are also creeping up, from 8.4 percent of revenue in 2012 to 11.7 percent in the three months ended Sept. 30.


Why restaurants hate GrubHub Seamless

Seamless takes a percentage, not a flat fee, of the total food and beverage amount, even though its involvement is the same whether an order is for $10 or $250. When you search for restaurants on Seamless, you may have noticed that, in the default view, the results appear to be random, but they’re actually arranged by who paid what. The more results there are, the harder it is for a restaurant to stand out—which makes restaurants likelier to pay more to increase their exposure.

“Their sales rep makes it perfectly clear that you need to pay a minimum of 20% to exist, and the more you pay, the more you appear in the first pages. Even by paying over 30%, we’re only on the second or third page. So some restaurants pay even more than that! But we could feel the difference when we jumped from 15% to over 30%: We multiplied by 10 our orders from day 1. We don’t make money on Seamless, however. Thirty percent is our break-even point. But it’s helpful for marketing—maybe a customer will try us and then come back in person. I don’t know why anyone would pay anything other than the minimum, because what’s the point of paying 17% to get on the seventh page of results?”

Tech giants play the Game of Thrones

Facebook has pulled off this incredible hat trick with what is arguably the best acquisition in technology in the past 20 years, and that’s Instagram. At the time, people were saying that the child-CEO has really screwed up here and paid $1 billion for a company with only 19 people. By most standards, if you try to value Instagram now, it’s probably worth somewhere between $60 billion and $150 billion. So it has put an afterburner effect on the company, as has likely WhatsApp. They keep finding growth.

If we were to look at everything you have ever put in that search query box, we would probably come to the conclusion that you trust Google more than any priest, rabbi, boss, mentor, coach, professor. If something goes wrong with your kid, your whole world stops. You start praying and you look for some sort of divine intervention that sees everything and then sends you back an answer. Will my kid be all right? So you type “symptoms and treatment of croup” into Google. We trust Google more than any other entity. It is our god.

The way you identify an industry ripe for disruption is you look at whether the price increases are greater than inflation and justified with underlying innovation. The one industry that is most ripe for disruption is education. I think Apple’s roots in education give it unbelievable license to go into that business. I mean, my class generates $160,000 in tuition for each night I teach. They don’t pay me that much. My agent, NYU, takes a 97% commission on that. But when you think about that, it’s ridiculous, and it has some very negative outcomes for our society in the form of debt on young people. So what could Apple do to really change their role and to think different? Start the largest creatively driven low-cost university in the world.

Margrethe Vestager, the commissioner on competition in the European Union, seems to be the only regulator in the world who is levying real fines against these people. You are going to see the first $10 billion-plus fine against one of these four companies in the next 12 months, and it is going to come out of Europe. The real estate isn’t going up in Hamburg. It’s going up in Palo Alto. America gets a lot of the benefits of these four companies, with some of the downside. Europe gets all of the downside and not much upside. The war is going to start, as it has throughout history, on the continent of Europe.

 

Bulldozers can show you where the economy’s going before the official data do

It’s released around the tenth of each month, faster than almost any other economic data. For Japan, the figures have a good correlation with industrial production data, which shows the output and sales of the nation’s industrial giants like Toyota Motor Corp., Mitsubishi Heavy Industries Ltd., and Komatsu itself.

The company collects data from about 140,000 machines in operation in Japan, 110,000 in China, 50,000 in Europe and 70,000 in North America. Rival Caterpillar Inc collects the same kind of data but doesn’t disclose it due to its customer contracts, according to a company spokesperson in Japan.

“It does work as a reference point,” said Yoshikazu Shimada, an analyst at Tachibana Securities Co. in Tokyo who covers Komatsu. “It shows data on public sector works, and data on China especially affects the global economic overview. Komtrax is part of the data that shows you what state the world economy is in.”


Warren Buffett and truck stops are a perfect match

It was No. 15 on the Forbes list of America’s largest private companies, and the chain’s 750 locations across North America generate more than $20 billion of annual revenue.

In fact, gas-station chains are known to have the kind of stable, predictable earnings and business longevity (perhaps even in a self-driving-truck world) that Buffett seeks in takeover targets. Their margins on gas sales go up when oil prices drop. And as fuel margins became more volatile over the past year, the major chains have turned to acquisitions to gain scale and reduce that volatility, as well as spending to upgrade locations.

This is why it makes sense for Pilot Flying J to have the financial backing of Berkshire amid the competitive pressure. Alimentation Couche-Tard Inc., the owner of Circle K, has been scooping up convenience-store businesses in Europe and North America, such as CST Brands for $4.4 billion in a deal that closed in June. Earlier this year, Seven & i Holdings Co., owner of 7-Eleven, bought about 1,100 Sunoco shops and gas retailers to expand its U.S. footprint.

Will new tariffs dim the solar-power boom?

Solar power generates only a pittance of U.S. electricity—about 1%. But it’s growing at a furious rate, accounting for 39% of new electricity generation in the U.S. last year, more than any other source. From 2010 to mid-2017, the total installed solar capacity in the U.S. leaped from 2.3 gigawatts to 47.1 gigawatts, enough to power 9.1 million homes, according to the Solar Energy Industries Association, or SEIA, a trade group. That boom was fueled by government subsidies and a decline in the price of solar cells, which have dropped 40% since the start of 2015.

Petri says tariffs would do more harm than good because they will drive up cell prices. “Will that add jobs? Not likely,” he wrote. “High tariffs will just raise the prices of imported panels and kill installation jobs.” While the industry employs about 260,000 people, 65% of those are in installation or sales, according to a 2016 report issued by the nonprofit Solar Foundation. Only 38,000 work in manufacturing. Because of that imbalance, tariff opponents say it’s much more likely that tariffs will hurt overall U.S. employment than help it.

But couldn’t tariffs persuade Chinese manufacturers to shift production to the U.S., thus boosting employment? Petri is skeptical, particularly because the tariffs are temporary. Foreign manufacturers won’t spend money on building U.S. factories that will become obsolete so fast, he argues.

First Solar’s thin-film technology has always been cheaper than silicon, and the company is launching a new series of panels that will be even more cost-effective. If tariffs raise the price umbrella of competing silicon modules, First Solar can raise its own prices and still go to utility-scale developers and offer to rescue their stranded projects with its thin-film panels. Every penny of these price boosts would fall to its bottom line, and it could demand equity in those projects.


Europe hits Ireland over $15B in unpaid Apple taxes; Luxembourg liable for $294M in Amazon taxes

“Ireland has to recover up to 13 billion euros in illegal State aid from Apple,” she said, referring to this 2016 ruling on the tax issue for the most valuable tech company in the world, which Ireland had appealed. “However, more than one year after the Commission adopted this decision, Ireland has still not recovered the money, also not in part. We of course understand that recovery in certain cases may be more complex than in others, and we are always ready to assist. But Member States need to make sufficient progress to restore competition. That is why we have today decided to refer Ireland to the EU Court for failing to implement our decision.”

“Luxembourg gave illegal tax benefits to Amazon. As a result, almost three-quarters of Amazon’s profits were not taxed. In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules,” she said in a statement. “This is illegal under EU State aid rules. Member States cannot give selective tax benefits to multinational groups that are not available to others.”

Yes, You get wiser with age

Empirical studies have shown that older people are better than younger ones in terms of control over emotion, knowing themselves better, making better decisions that require experience, and having more compassion and empathy towards others.

There are quite a few strategies, and again, these are for successful physical aging, cognitive aging, psychosocial aging. There is strong evidence in favor of them. One is calorie restriction. Second is physical activity, exercise. Very important. Even people in wheelchairs can have some physical activity. Then there is keeping your brain active, do something that is somewhat challenging. Not too stressful, but somewhat challenging. There is socialization, an appropriate degree of socializing. Then comes attitude and behavior, resilience, optimism, compassion, doing things for others, volunteering activities. What they do is they give a purpose to life, and that makes you happier. And there are other strategies like meditation for reducing stress.

Company Notes 2017.10.06

iCapital.biz Q1 FY2018 Results

For top-down/market-timing investors, while Malaysia’s economic growth prospects for the next 12-18 months look bright, there are potential headwinds in the form of an elevated inflation rate, an uncertain political landscape and further US monetary tightening.

Bison ventures into food production

“There is increasing demand for convenient access to retail stores that offer a variety of quality products and services. Therefore, these JVs are in line with Bison’s growth and expansion strategy.”

Dang said some RM50 million worth of investment will be going into building the five-level food processing factory in Rawang, which is targeted to start operations in the first quarter of 2019. “[A selection] of products will be available on a trial and research basis, but the full scale of [offerings] will be rolled out in the first quarter of 2019, which is when the food processing facility will be fully operational.”

“This FY, we have grown our ready-to-eat food business from 8% to 11% of our revenue contribution. Upon the commencement of the first year of production, we expect it to grow to about 15% of our revenue.”


Bison ups the ante

A five-level factory with a built-up area of more than 130,000 sq ft will now be constructed. It is located 500 metres from Bison’s current distribution centre, which augurs well for management and logistics efficiencies. The 100% halal manufacturing facility is targeted to supply 150 stores in 2019, and will have a full supply capacity of up to 600 stores.

GK, a Tokyo Stock Exchange-listed company, is one of the largest in-flight meal caterers in Japan, supplying to 38 airlines, and also owns a restaurant chain operation with more than 400 stores in and out of Japan. On the other hand, Ryoyupan is one of the top-five players in the Japanese bakery industry and the biggest on Kyushu Island.


The rise and rise of JF Technology

“Demand for microchips is not only dependent on consumer spending, which drives the smartphones and computer sales. Now there is emerging demand from the automotive and IoT (internet of things) sectors.”

JF Technology is involved in the design and manufacture of test probes and test sockets for the semiconductor industry. For one, testing equipment such as test probes and sockets are wear-and-tear products that need to be changed frequently. For another, semiconductor giants such as Texas Instruments that designs chips would constantly develop new products regardless of market conditions. As a test socket design and manufacturer, JF Tech provides customised solutions for the chips developer to test their products. Once the chip prototype is acceptable, it will then goes into high volume manufacturing (HVM).

“We believe Zigma product would be a game changer for the company, as well as the testing industry. This is because Zigma product has a different approach, which it avoids wear on the board and make the testing process more efficient.” He says that the law suit has affected the company’s sales in the US and profitability. JF Tech generates about 65% of its sales from the overseas market. Foong says that the company is currently operating at 40% of its capacity, as such JF Tech is unlikely to pump any new capital expenditure for few years.


SunCon, WCT, Gabungan AQRS bag LRT3 contracts

SunCon announced to Bursa Malaysia yesterday that it had been awarded a RM2.18 billion contract, boosting its outstanding order book to RM6.5 billion — the highest ever since its inception. The contract is SunCon’s fourth elevated rail project, its largest single project in 36 years. The scope of work includes 9.2km of viaduct works, construction of six stations, and the design and building of an iconic cable-stayed bridge over the Klang River.


United Malacca confident of finalising Sulawesi land buy

“The first priority is to plant stevia and coconut, followed by cocoa and coffee, which are subject to the land topography and soil type.”

At the same time, Tan also said the development of the Central Sulawesi land is expected to incur higher capital expenditure, which could result in lower dividend payments compared with the previous years.


MAHB: Five new airlines coming to KLIA

“I just come back from the World Routes Forum 2017 in Barcelona, Spain where multiple discussion were had and I am hopeful that at least five more new airlines will join us next year. As you know, we are always actively looking for partners and new airlines to come join us, for 2017 we already saw eight new airlines joining us and since everything in aviation is seasonal, we are not expecting any more new airlines for the rest of the year.”

“Our original (growth) forecast (for passenger volume) was at six per cent this year but we have revised that to eight per cent, and I believe we may end up at some 90 million this year for Malaysia as a whole. For airports, we have the volume but we need more capacity (upgrading) for airports infrastructure and that’s something that the government has to look into.”


KLIA Aeropolis to see RM500m investment in next two years

The 60-acre (24.28ha) Aeropolis, which is part of the Digital Free Trade Zone (DFTZ) launched by the government in March this year, will also house Alibaba Group’s e-commerce hub for Southeast Asia. Malaysia Airports Holdings Bhd and Alibaba’s logistics arm, Cainiao Network, will be jointly establishing the trans-shipment hub there.

Liow said 20 of the world’s top 25 freight forwarders will have operations in the Aeropolis.

“It is estimated that a 20% increase in ICT investment will result in around 1.4% GDP growth for Malaysia,” Liow added.

Fitch expects Malaysian banks to offer higher rates on longer-term FDs

The NSFR metric focuses on a 12-month timeframe and is likely to encourage banks to compete more aggressively for even longer-tenor deposits, and shift towards long-term wholesale debt funding.

The ratings agency noted that Bank Negara Malaysia (BNM) has said that more than three-quarters of Malaysian banks have an NSFR that meets the minimum requirement, which will be set at 100%.

The banking sector’s loan/deposit ratio of 89% and liquidity coverage ratio (LCR) of 133% at end-August 2017 indicate that the system’s aggregate funding and liquidity are reasonably healthy.


KWAP mulls investment in Alibaba Group

“We have an asset allocation and, at the moment, investment in the tech space is still well below the asset allocation limit. We are trying to limit it to no more than 1% of our asset allocation in the tech space. At the moment, it’s just US$70 million (RM296.1 million). Our fund size is over RM100 billion.”

“KWAP has only ventured into the tech space recently. Two years ago, we invested in Uber. We have another two more tech funds that we have invested in. This is part of our familiarisation with the industry. So far, to date, we have put in about US$70 million: US$30 million with Uber and another US$40 million with two tech funds … we can do a bit more and we would like to have more involvement in this space. We have learnt a lot along the way and, with that, I think we can step up and make more productive investments moving forward.”


Property lending rule from 1997 is still relevant

“IBs, in demanding for this guideline to be ‘scrapped’, are taking a short-term view and should consider the long-term systemic implications of an over-exposure to the property sector and not narrowly focus on their own commercial gains. We should not be oblivious to the many lessons learnt from the Asian and global financial crises,” Bank Negara said in the statement.

The guideline, introduced on April 1, 1997, is for all commercial, Islamic and investment banks. In short, it stipulates that a bank’s credit facilities — meaning all forms of lending, including the issue of guarantees, private debt securities and commercial papers — to the BPS should not exceed 20% of its total outstanding loan base. Compliance to this requirement is calculated on a quarterly basis.


World Bank warns M’sia of pockets of risks

The World Bank in its semi-annual review of the region’s developing economies pointed out that the ongoing adjustments to the rising costs of living amid continued fiscal consolidation and elevated household indebtedness could weigh on the strength of private consumption in Malaysia. These deficits are especially worrying in cases where public debt is also high or rising. It is a combination of the two that poses risks to fiscal sustainability as the combination narrows governments’ policy space for responding to shocks.


World Bank sees currency risk in Malaysia

Monetary authorities need to be prepared to tighten their policy stance if capital outflows prompt currency weakness. In the case of depreciation pressures in China, authorities should allow greater adjustment through relative prices and closely monitor financial sector vulnerabilities as monetary policy further tightens.

Curated Insights 2017.10.01

Alibaba takes control of delivery business at center of U.S. probe

China’s largest web marketplace agreed to increase its stake in Cainiao Smart Logistics Network Ltd. to 51 percent. Under the deal, Alibaba plans to consolidate Cainiao’s financials into its own books, eroding Alibaba’s bottom line, and will get an additional seat on Cainiao’s board, taking its representation to four out of seven seats.

It oversees a coterie of more than a dozen shipping partners, orchestrating deliveries carried out by about 2 million people across more than 600 cities. Cainiao’s operation had enabled Alibaba to maintain what it called an asset-light model that eschewed expensive warehouse construction.

“They’re realizing that it’s much more capital-intensive than they expected to build this out. Right now they are essentially obligating themselves to report profit and loss on the income statement every quarter, which they probably should have been doing.”


A small-screen iPod, an Internet Communicator and a Phone

This comparison is apt: the Watch is effectively stealing usage from the iPhone. At first it took alerts, timekeeping, and basic messaging away. Now it’s taking basic phone calls and music and maybe maps.

It’s fitting therefore to remember how the iPhone was launched; as a tentpole troika: A wide-screen iPod, an Internet Communicator and a Phone. Today the new Watch is a small-screen iPod, an Internet Communicator and a Phone.

So not only is the Series 3 Watch more powerful than the original iPhone but it is also poetically capable of the same tentpole jobs. But it’s not just a miniature iPhone. It has a new, completely orthogonal attack on non-consumption and market creation: fitness and health. This is a key point. The iPhone was born a phone but grew up to be something completely unprecedented, unforeseen by its creators and, frankly, undescribable in the language of 2007.


Forget the Swiss, it’s Fossil that Apple is threatening

In the watch world, the Fossil Group is a giant. It has 17 brands: six of its own (Fossil, Skagen, etc.) and 11 licensed brands (Michael Kors, Emporio Armani, Tory Burch, etc.) In 2014, it was on a roll, achieving a fifth consecutive year of record revenues, at $3.51 billion. Watches accounted for 78% of that.

Then along came Apple. Suddenly, Fossil was competing with a monster 67 times bigger than it was (measured by revenues). “Prior to that, we were clearly positioned as the competitively advantaged leader in a growing category,” Fossil CEO Kosta Kartsotis told financial analysts in February. “However, with the introduction of technology into wrist devices, traditional watches came under pressure and we were disadvantaged. We didn’t have the technology capabilities to compete with smartwatches, leading to a decline in our market.”

“I haven’t met with anybody [in Switzerland] yet who sees this [downturn] as anything other than a slump,” he told me in March. “They don’t see the threat from the smartwatch.” Apple will continue to perfect the smartwatch, he says. “By version 3 or 4, everyone will be thinking this is a good thing to have. Forty to 80 million people will want this.”


Siemens to merge rail operations with French rival Alstom

Siemens will transfer its business making train and transit cars and signaling equipment to Alstom in exchange for a 50 percent stake in the enlarged company.

The combination will give the German company control of an icon of French industry that developed the high-speed TGV trains that zip across the countryside at upwards of 300 kilometers an hour (186 miles per hour)…Capping years of speculation in the industry about the need for consolidation, the tie up could mirror the emergence of European planemaker Airbus in the 1970s that went on to become the biggest competitor to Boeing Co.

Now, the companies’ tie up comes after Chinese dominance of the train market has solidified. CRRC controls about half of the rail car and locomotive market, while Siemens and Bombardier each have about 12 percent and Alstom around 11 percent, according to Desjardins Capital Markets. The Chinese company was formed in 2015 in a merger of the country’s two main regional train manufacturers and it has won rail orders in U.S. cities such as Boston, Philadelphia and Los Angeles.

China gives automakers more time in world’s biggest EV plan

Under the so-called cap-and-trade policy, automakers must obtain a new-energy vehicle score — which is linked to the production of various types of zero- and low-emission vehicles — of at least 10 percent starting in 2019, rising to 12 percent in 2020, the Ministry of Industry and Information Technology said on its website. The rule applies to carmakers that manufacture or import more than 30,000 traditional vehicles annually, and those who fail to comply must buy credits or face fines.

The targets look achievable for the industry as a whole, McKerracher said. Considering the credit structure, 12 percent in 2020 would translate to about 4 percent to 5 percent of actual vehicle sales.


Why India will tell us when self-driving cars will hit the US

When will self-driving cars arrive? Depends on who you ask. The VCs believe what they’re told by their portfolio companies. Automakers will say anything to inflate their stock price relative to Tesla. Self-driving evangelists and “keynote speakers” on LinkedIn? Broken clocks not yet right even once. The media? There are still less than ten people writing intelligently on a market expected to hit $7 trillion.

Population density is so high that no current Automatic Emergency Braking system could possibly work in traffic, because no car equipped with it would ever move. What about Blind Spot Monitoring systems? They’d be lighting up and chiming so much, you’d have to disable them.

That Indian roads are more dangerous than America’s is obvious, and beside the point. No government ever eases traffic safety laws. Indian traffic fatalities in 2013 approached 240,000, in a country of 1.3 billion. That’s 16.6 deaths per 100,000 inhabitants per year. For those numbers to go down, people have to have choices that lead to them to safety. In a country where the majority have never owned a car, where two wheelers dominate and road conditions are terrible, getting people into any car will improve overall safety.


Learning effects, network effects, and runaway leaders

Learning effects have the potential to generate enormous economic value, as network effects do, if companies are able to close this loop and make it self-reinforcing: that is, if their products learn more because they have become more valuable.

In order for learning effects to produce runaway leaders, a company must secure a definitive advantage over its competitors in one of the component areas of learning effects – data, intelligence, product innovation or user/customer growth – and leverage this into advantages in the others, such that the company can acquire data, learn, innovate and grow not only more rapidly than its competitors do, but more rapidly than they can.

Certain products – particularly those built on highly dynamic datasets – may have perpetual learning curves such that in a rapidly changing world, they can always be meaningfully improved. It’s around these kinds of products that the most valuable runaway leaders will likely develop. Potential examples include search, semantic engines, adaptive autonomous systems and applications requiring a comprehensive real-time understanding of the world.

How Europe’s changes to copyright law will affect America

The goal of these copyright changes is to adopt new protections for publishers and artists. But if they are put in place, the burdens they would place on internet platforms would curtail the kind of quick uploading, sharing, commenting and responding that makes the Web so useful. Additionally, we have no reason to believe that these new plans would actually benefit the journalists and artists in whose name the measures are being proposed.

Yet a lot more is at stake than the fate of Google or Facebook. Those companies at least can afford the cost of complying with (or avoiding) Europe’s copyright proposals. Smaller businesses can’t. For example, medium-sized internet platforms pay between $10,000 and $25,000 a month in licensing fees for a common tool that conducts a copyright scan of uploaded audio files, an impost that could wipe out a new startup.


India: A $6T GDP By 2027?

The government and the Central Bank are on a mission to rapidly formalize and financialize the Indian economy. India has introduced a universal biometric identification system (Aadhaar), initiated measures to boost financial inclusion, moved to a new fully online value-added goods and services tax system and implemented real-time payment systems. Coupled with rising smartphone penetration, likely doubling from 300 million to nearly 700 million by 2020, these changes are driving India’s digitization. We expect a step change in India’s per capita income, banking system and stock market performance over the coming years. The channels of change include more financial penetration, greater tax compliance and increased credit to micro enterprises and consumers.

The result could be a multi-trillion dollar investment opportunity. Aside from the near-term teething issues involved in execution of such big changes and other cyclical problems faced by the economy, there is scope for visible shifts in economic activity starting in 2018.


We’re going to need more lithium

By 2030, Tianqi Lithium, SQM, Albemarle, and FMC, the companies that dominate the business, will have to supply enough lithium to feed the equivalent of 35 plants the size of the Tesla Gigafactory now being built in Nevada, according to BNEF. The total investment in new mines, including some for other elements used in lithium ion batteries, will likely range from $350 billion to $750 billion, according to analysts at researcher Sanford C. Bernstein & Co.


 

Our hankering for meat is a boon for global antibiotic producers

Food animals will consume 200,235 tons of antimicrobial medicines by 2030, 53 percent more than they were getting in 2013, according to a study published Thursday in the journal Science. China, already the world’s largest consumer of veterinary antimicrobials, is forecast to lead the charge, with a 59 percent jump.

Limiting daily meat intake worldwide to the equivalent of one standard fast-food burger per person could reduce global consumption of antimicrobials in food animals by 66 percent, the researchers said.

37 quotes from big corporate execs who laughed off disruption when it hit

“Amazon.com is a very interesting retail concept, but wait till you see what Wal-Mart is gearing up to do,” he said [IBM Chairman, Louis V. Gerstner Jr.]. Mr. Gerstner noted that last year IBM’s Internet sales were five times greater than Amazon’s. Mr. Gerstner boasted that IBM “is already generating more revenue, and certainly more profit, than all of the top Internet companies combined.”

The Apple watch is an interesting toy, but not a revolution,” said Swatch executive Nick Hayek Jr., speaking to a Swiss newspaper. “I personally don’t want my blood pressure and blood sugar values stored in the cloud, or on servers in Silicon Valley … I cannot accept the responsibility of whether my device warns a customer in time before a heart attack.”

“Apple is like a mutant virus, escaping from the traditional structure of the PC industry, but the industry will still eventually build up immunity, thus further blocking this trend, and we believe the size of the non-Apple camp will exceed Apple’s, because this is how the industry normally evolves.”

“Television won’t be able to hold onto any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.”


So few market winners, so much dead weight

Only 4 percent of all publicly traded stocks account for all of the net wealth earned by investors in the stock market since 1926, he has found. A mere 30 stocks account for 30 percent of the net wealth generated by stocks in that long period, and 50 stocks account for 40 percent of the net wealth.

Once you actually find these rare companies, you have to hold on to them. This too is much more challenging than most realize. The stellar stocks tend to have regular, gut-wrenching price slumps; the big winners above have all suffered retreats of 50, 60 even 90 percent on the way to becoming the biggest winners. Most investors lack the fortitude and discipline to manage the pain of these severe price fluctuations.

Once you get through those two challenges, you have to decide when to jettison these winners since nothing continues forever. As Sommer points out, General Motors Co. was a star from 1926 on — that is, until it went bankrupt in June 2009 and basically wiped out equity investors. AT&T Inc., meanwhile, was broken into many smaller parts, some of which have done very well (Verizon Communications Inc.), while others not so much (Lucent).

As we have observed repeatedly, finding the very best companies to own is very difficult to do.


Some market myths hurt investors

Margin debt at all-time highs mean euphoria in the markets. Margin debt reflects the amount of borrowed money used to purchase securities in the markets. It sounds scary when people point to margin debt at an all-time high because that means investors are borrowing more money than ever to buy stocks. But this indicator doesn’t really tell us anything. As markets rise, margin debt will rise. As markets fall, margin debt will fall. All historical margin debt peaks tell you is that margin debt fell when stocks fell. The following chart is more useful, as it shows margin debt as a percentage of the overall market cap of the stock market. Margin debt is a backward-looking indicator that tells you nothing else beyond how the stock market has performed in the past.

Something’s gotta give between stocks and bonds. Investors often assume stocks or bonds are telling them something. So when both rise at the same time, the assumption is that either the equity or fixed-income market must be wrong. The problem with this line of thinking is that stocks and bonds both go up over time, and most of the time they go up at the same time.

Bonds always lose money when interest rates rise. Out of those 36 rising rate years, 27 had positive returns on five-year Treasuries. So three-quarters of the time when rates rose on a calendar-year basis, bonds still earned positive returns. Rising rates will lead to lower bond prices, but you have to think in terms of total returns to understand the relationship between bond performance and interest rates.

Curated Insights 2017.09.17

Apple’s real advantage is what’s inside the new iPhones and Watch

“If you look at the Android smartwatches that have cellular, they are literally twice the size.”

The iPhone 8 and X have the new A11 Bionic chip, which enables all sorts of clever image processing, augmented reality and artificial intelligence tasks. That gives Apple a big advantage in the AR market, which Morgan Stanley estimates could be worth $404 billion over the next three years.


Steve Jobs’ legacy & the iPhone X

The FaceID is a perfect illustration of Apple’s not so secret “secret sauce” — a perfect symbiosis of silicon, physical hardware, software, and designing for delight. Their abilities to turn complex technologies into a magical moment is predicated on this harmonious marriage of needs.

Controlling your own destiny is a smart business strategy and Apple isn’t the only one doing it. Today Google and Facebook are designing and producing their own highly optimized hardware for networking and data centers, mostly because the industry vendors like Cisco Systems made gear that had to fit the needs of many companies. Google is designing its own chips — especially to conduct resource hungry machine learning and artificial intelligence tasks.

It all starts with Silicon. Unlike software which can be written, discarded and rewritten at a rapid clip, the law of reality makes it hard for a chip to be designed, tried and manufactured at scale. So in a sense, Apple’s chip and hardware teams have to peer almost two-to-four years into the future, predict what could be possible, what they can make possible and then make it work.


Alibaba’s Jack Ma sets his sights on a new target

“Today if you look at the volume of the packages generated from our platform, it is about 55 million a day and we strongly believe that this can go grow to 1 billion, some years later. The size of the retail business in China is about 30 trillion yuan ($4.6 trillion). The question is, how do you redefine smarter package delivery? You don’t have to get the package and fly it from one warehouse to another city for a 200-kilometers delivery. You can deliver from the store nearby. It still creates a lot of new packages shipped, but very conveniently. So, today, all these logistics systems should be integrated into the commerce system.”


Meet the Earth’s largest money-market fund

Fueled by contributions from some 370 million account holders, the fund, known as Yu’e Bao—which means “leftover treasure”—has grown rapidly to manage $211 billion in assets. It is more than twice the size of the next largest money-market fund, a U.S. dollar liquidity fund managed by J.P. Morgan Asset Management, according to data from Morningstar Inc. Yu’e Bao’s assets doubled in the past year alone, and the fund now makes up a quarter of China’s money-market mutual fund industry.

Data reviewed by The Wall Street Journal indicates Tianhong boosted Yu’e Bao’s returns in recent years by increasing its allocation of funds to financial instruments with longer maturities. Such assets, however, tend to be less liquid than bank deposits and lower-yielding investments. About 40% of Yu’e Bao’s investments mature in under 60 days, versus over 60% four years ago, according to Tianhong’s reports.

Tianhong said it has various measures in place to prevent a liquidity crunch and believes the “probability of mass redemption is very low.” It said most of the fund’s customers have fairly small holdings of around $590 on average.


China fossil fuel deadline shifts focus to electric car race

The world’s second-biggest economy, which has vowed to cap its carbon emissions by 2030 and curb worsening air pollution, is the latest to join countries such as the U.K. and France seeking to phase out vehicles using gasoline and diesel. The looming ban on combustion-engine automobiles will goad both local and global automakers to focus on introducing more zero-emission electric cars to help clean up smog-choked major cities.


France drives EU tax blitz on revenues of US tech giants

Currently, US technology groups such as Apple and Facebook are taxed in Europe based on profits rather than total revenues. Many of these companies have angered European tax collectors and voters for years by using EU governments’ disparate tax codes to record profits in jurisdictions with the lowest effective rates, meaning that some companies have been able to pay little or no tax in countries where they have billions in sales.

We still don’t really know what CRISPR does to human embryos

Genome editing works by breaking DNA, and letting a cell’s natural repair mechanisms fix it. This is usually quite haphazard, and precise repairs were thought to be rare.


What machines can tell from your face

Although faces are peculiar to individuals, they are also public, so technology does not, at first sight, intrude on something that is private. And yet the ability to record, store and analyse images of faces cheaply, quickly and on a vast scale promises one day to bring about fundamental changes to notions of privacy, fairness and trust.

China’s government keeps a record of its citizens’ faces; photographs of half of America’s adult population are stored in databases that can be used by the FBI. Law-enforcement agencies now have a powerful weapon in their ability to track criminals, but at enormous potential cost to citizens’ privacy.


I’m not sold on self-driving cars

Even if self-driving cars do become ubiquitous, the benefits aren’t certain — as an overview from the Victoria Transport Policy Institute points out. Consider traffic. Freed from driving, people might demand more luxurious vehicles, in which they can work or even sleep. The added amenities will take up more space on the road, while the comfort will encourage people to take bigger trips and endure longer commutes. They might even prefer to move more slowly, to avoid unexpected accelerations that could wake them up or tip over a wine glass. Empty cars might circle endlessly to avoid parking charges. The potential result: more miles driven, more congestion and increased emissions.


Your next meal depends on 14 choke points in the world’s food supply transport chain

As the share of the world’s population with insufficient food supply has fallen from 52 per cent in 1965 to 3 per cent in 2005, most gains have come not through improved food production at home and self-sufficiency, but through increased trade; nearly 1 billion people worldwide now rely on international trade to meet their food needs.

While China is a key driver of increasing stress on the global food supply system, it is ironically not among the most vulnerable – not just because it has worked hard to diversify its food supply sources, but because it stands alone in investing serious money in improving the food supply chains on which it so heavily depends.

International commentators claiming that China’s US$20 billion investment this year in overseas ports is an expression of military muscle and expansionism miss the point. Investment in ports like Djibouti and Gwadar – along with the other 42 ports worldwide that Chinese companies have invested in – has much more to do with securing stable food and energy supplies than anything more sinister.