We don’t have the scientific tools we need to stop Alzheimer’s. There hasn’t been a new drug for it approved in more than 15 years. That’s in part because it’s so hard to run clinical trials for this disease; the average clinical study for Alzheimer’s takes 4 to 8 years, versus just 1.5 years for a typical study of cardiovascular disease, and is also much more expensive to run.
For one thing, it’s difficult to identify qualified people early enough in the disease’s progression who are willing to participate. People might experience symptoms but not realize they have the disease, and simply not bother to see a doctor. Many doctors have only a limited time with each patient, and they don’t make it a priority to talk about early Alzheimer’s—especially if the person isn’t showing any symptoms.
But suppose the patient makes it to a doctor and the subject of Alzheimer’s does come up. There’s still no cheap, effective way to diagnose the disease. The definitive tests are expensive or invasive—one of them requires a spinal tap, which involves using a needle to puncture your spinal cord—and the doctor may not order them. If she does, her patient might not want to take them. Many people don’t want to find out if they have the disease earlier, because there’s no way to treat it.
As a result, we found that 80 percent of trials don’t meet their recruitment goals on time, which greatly increases the cost of running a trial for pharmaceutical companies. And of all the patients in the healthcare system who could be eligible to participate in a clinical trial on Alzheimer’s, only 1 percent actually do.
I think a good analogy is that Facebook is the Federal Reserve of web publishing. It can turn its dial and blast millions of visitors to numerous publishers, allowing everyone to have more eyeballs to sell to and more rising traffic numbers with which to attract investment. Facebook turning on the traffic fire hose is like loose monetary policy that stimulates the economy for everyone.
Of course, Facebook could tighten policy, pulling traffic (liquidity) and leaving weaker players parched. When the Fed tightens policy, shaky borrowers who depend on ample lending are hit hardest. When Facebook tightens policy, second-tier publishers that totally rely on Facebook are hit hardest.
Over all, Microsoft concluded that 162.8 million people do not use the internet at broadband speeds, while the F.C.C. says broadband is not available to 24.7 million Americans. The discrepancy is particularly stark in rural areas. In Ferry County, for example, Microsoft estimates that only 2 percent of people use broadband service, versus the 100 percent the federal government says have access to the service.
But here’s the catch, this table assumes you get this rate of return year after year after year. The real world is not so accommodating. The table above shows that you can earn 4% a year for 34 years before running out of money, but let’s look at what happens if a nasty bear market were to arrive as soon as you retire. The chart below shows one way in which an investor can arrive at a 4% CAGR over a 30 year period.
The danger of assuming compound annual growth rates when making long term projections can be seen in the chart below. The black line shows that spending a constant $40k annually, using the returns from the previous chart, an investor would run out of money in the 19th year. Spending 4% and assuming a 2% inflation rate, a more realistic assumption, an investor would run out of money in just 15 years. Side note, if the returns above were to happen in reverse, in other words the bear market comes at the end of the period, an investor with the same spending would be left with $1.3 million.
The problem with price regulation is that Google doesn’t charge high prices—at least not to consumers, the traditional victims in monopoly cases. The company initially helped wipe out the profitability of newspapers and magazines, in part, by undercutting the price of print advertising. These days, however, Google can charge hefty prices to advertisers because it controls so much inventory and user data. Advertisers can feel they have no choice but to pay up, while consumers pay precisely zero to do searches or send emails.
Amazon is a “cheetelephant,” said one analyst: an elephant that runs as fast as a cheetah. It’s considerably faster than the regulators and lawmakers who have been caught flat-footed and are now wondering what, if anything, to do about its increasing market power, from books to groceries to moviemaking.
“If you look at the business models of these firms, none of these is a predatory pricing model. These firms are making a lot of money doing what they’re currently doing,” said Penn’s Hovenkamp. Besides, he said, “there are constantly new entrants” that would prevent a company from earning monopolistic profits. For antitrust enforcers, the problem is that by the time you know for sure whether a company predatorily drove rivals out of business, it’s too late to prevent it.
Facebook, in other words, is damned if it does censor and damned if it doesn’t. How is this likely to evolve? One possibility is that Facebook will tire of taking the heat and voluntarily submit to government regulation. A regulated Facebook would still have to employ people and algorithms to scour its website of forbidden materials, as it does today, but at least it could point the finger at lawmakers and regulators if questioned about its choices. The same would go for Google and some companies not covered here, such as Twitter.
It’s a good bet that there will be more such orders in coming years. Governments want money, and the four tech giants have a lot of it. In the meantime, while trying to come up with a better tax system, Europe is toying with the idea of taxing the tech companies’ revenue rather than their profits. The reasoning is that revenue is harder to manipulate. But revenue is a crude measure of a company’s ability to pay taxes. Revenue-based taxation would be too hard on companies with lots of revenue but little profit, and too easy on companies with little revenue but lots of profit.
Under an apportionment system, each country is still permitted to set its corporate tax rate however it chooses. But it will be able to charge its rate only on its little slice of the company’s global profit—a slice that’s determined by an agreed-upon formula. A country can no longer grab a bigger piece of a shrinking corporate-tax pie by cutting its rate below other countries’. In one stroke, the race to the bottom in tax rates is cut short.
Getting low-tax countries to go along with an apportionment system would be tough, though. No country wants to give up what makes it special. So something like the current tax system, albeit with fewer loopholes, is likely to persist for at least awhile. Apple, Google, Facebook and Amazon will keep finding ways to pit countries against one another.
Tencent’s ad revenue could more than double to $11.4 billion by 2019, according to researcher eMarketer. The company is estimated to increase its market share in China’s digital ad space to 15 percent from about 9 percent, eMarketer said.
Social advertising, which relies on information from a user’s network, is still a nascent business in China. The model that drives Facebook only accounts for about 10 percent of mainland digital marketing with e-commerce and search ads still taking the lion’s share. Lau expects that to change. “Social advertising can play a larger role,” said Lau. “In China, we are kind of pioneering the categories” of that.
So Tencent’s chosen to exercise restraint, usually showing just one ad per day on WeChat’s “Moments”, a function similar to Facebook’s news feed, capping inventory by intention. That’s why it earns just $2.10 per daily active user on WeChat, versus Facebook’s $30.10, Morgan Stanley estimates.
To do that, it’s enlisted an army of more than 250 computer scientists to expand in artificial intelligence, focusing on natural language processing, image recognition and user behavior prediction. That investment is showing up in some areas: Tencent worked with BMW to target high-end users based on their friends and location logs, sending them WeChat ads through which they could book test drives. The end game is converting ads into purchases, which is why the company’s exploring also hotels, dining and property, Lau said.
Integrating gaming into Snapchat might be a good idea – not just because it creates more ways to generate revenue, but also because it can enhance user engagement. Globally, more people watch gaming videos and streams than HBO, Netflix, ESPN, and Hulu combined. As Snapchat strives to add users globally, it would be smart to tap into the millions of gamers worldwide who are already spending hours each day playing games, many of which Tencent has invested in.
“There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term. We’re willing to take that risk for what we believe are substantial long-term benefits to our business.”
The industry has turned into a race to provide customers tools and functions to use that data in new ways. Those tools are helping speed the transition to the cloud, since companies that don’t have access to them will be at a competitive disadvantage, Jassy said. “We are in a transition stage right now. Relatively few companies will own their own data centers, and those who do will have significantly smaller footprints. That means all of that data is moving to the cloud.”
The cloud computing market will grow to $89 billion in 2021, up from $35 billion today, according to technology research firm Gartner Inc.
“While Amazon has never discussed any plans for a spin or any HQ2 plans relative to AWS, it is possible that the location of the new headquarters could provide some insight into the way management is thinking about the positioning of AWS.”
Terry’s curiosity is piqued by the fact that Amazon increasingly competes in the same industries that are customers for AWS, including gaming, healthcare and life sciences. Presumably, a separation of AWS might lessen the conflict there. Terry sees AWS being worth $430 billion, on a sum-of-the-parts basis, equaling 60% of Amazon’s enterprise value.
We assume Qualcomm settles its licensing dispute with Apple with Apple paying roughly half of what it previously paid Qualcomm for iPhone royalties. We also assume Qualcomm settles its dispute with Huawei or the other large OEM currently not paying Qualcomm royalties. We believe Broadcom management has solutions for Qualcomm’s disputes as part of its reasoning to make a bid for Qualcomm, but we have used these assumptions based on our Qualcomm scenario analysis used for our Qualcomm price target in our last published Qualcomm note. We also assume $500M in synergies achieved between Qualcomm and NXP in our scenario analysis including NXP. Further, we assume a 4% interest rate on combined debt for an acquisition with NXP and 3.5% for an acquisition without NXP given larger debt levels needed if the acquisition includes NXP. We also assume $1.5B in F2019 synergies between Broadcom in Qualcomm and a combined company tax rate of 15%.
We are currently entering a period of a rapid change in our transportation systems. And as I see it, it’s the innovator’s dilemma playing out in the wild: Incumbents like General Motors are moving too slowly to adapt to an all-electric future—wasting billions of dollars on stock buybacks—while upstarts like Tesla, unencumbered by legacy business models, are forging a path into a clean, fully-electric, fully-autonomous future. (GM has spent almost $17 billion in the last several years buying back its stock, three times what Tesla has spent building Gigafactories.)
One is that the cost of trucking falls by at least 50%, if not more. No driver, double the passive productivity, and in essence, you eliminate most of the safety problems. And by the way, if you apply this [autonomous] technology, many of the concerns we have from a safety standpoint about large trucks go away and you can make the trucks bigger. So, the costs fall at least in half. Transit time falls at half too, because you’re not waiting.
Let’s look at it from a technical standpoint. There are two competencies that keep trucking firms alive. The first one is their ability to match demand and supply; which is very important, and the second is their ability to manage drivers. There’s a modest competency with respect to equipment, but it’s not that important. Well, in the first place, if you if you eliminate the drivers, you eliminate half of the value-added that the trucker provides. And second, if you go to integrated big data, the business of matching capacity to demand becomes much easier. So, what it does is it either eliminates, or dramatically changes the principal competencies of whatever we call this entity which we now call “trucker” provides to the marketplace. So it’s big, big changes.
At the early part of the 2000’s trucks getting 5 mpg were common. Today’s fleet is more like 7 mpg. That two miles per gallon increase means diesel used falls from 20,000 gallons a year down to under 15,000 gallons. Best-in-class trucks today might approach 9-10 miles per gallon. That three mpg increase versus fleet average (presumably what Tesla used in its cost calculator) is another 30% drop in fuel use, down to 10,000 gallons. The SuperTruck programs that get 12 or more mpg, (using many of the same aero techniques that Tesla’s Semi uses) would use around 8,000 gallons of fuel. In other words the opportunity to lower the Tesla cost of ownership with fuel savings is currently 15,000 diesel gallons a year, but will soon enough be only half that, using current line-of-sight technologies. At current fleet average diesel costs the savings opportunity on 100,000 miles per year is $37,500 per truck. At current best-in-class the available pool of offset-able fuel cost is $25,000. On future trucks, perhaps not too far distant from Tesla’s launch, is only $20,000 per year. All this assumes you can run a truck 100,000 miles a year in 300 to 500 mile increments.
The future difference between Tesla’s astonishing 19 mpg equivalent and the SuperTruck 12 mpg is only 3,000 gallons a year of diesel equivalent. Compared with the 7,000 gallons per truck per year already in the diesel improvement pipeline, that 3,000 gallons doesn’t look as compelling.
Inside Etsy, Mr. Silverman’s reorganization has upended parts of the company once considered sacrosanct. Last month, Etsy changed its mission statement. Gone was a verbose commitment “to reimagine commerce in ways that build a more fulfilling and lasting world.” Instead, the mission was reduced to just three words, “Keep commerce human,” accompanied by a spreadsheet outlining its goals for economic, social and ecological impact. And because remaining a B Corp would require the company to change its legal standing in Delaware, where it is incorporated, Etsy will let that certification lapse.
“Digital payments was our entry point, we want to become a vertically-integrated financial services company.”
Payments banks can accept deposits and remittances but cannot lend. Paytm is one of less than a dozen entities that got permits to start payments banks to bring financial services within easy reach of about a fifth of India’s 1.3 billion people who do not have access to organized financial services.
Paytm Payments Bank is majority-owned by Sharma. One97 Communications, which is backed by Alibaba Group Holding, Ant Financial Services and others, holds the remaining 49 percent. The payments bank morphed out of Paytm’s digital wallet which got a huge boost and amassed over a hundred million customers after India took its high currency bills, totaling nearly 90 percent of the value of cash, out of circulation last November.
Sharma may have found a way around the regulatory hurdles that bar lending. One97 Communications will introduce a charge card and offer monthly installment-based loans, he said. “We will launch share trading and insurance products very soon,” said Sharma. “We want to become an Internet-age financial services company.”
“Zero distribution costs. Zero marginal costs. Zero transactions. This is what the Internet enables, and it is completely transforming not just technology companies but companies in every single industry.” “Aggregation Theory is a completely new way to understand business in the Internet age.”
“instead of some companies serving the high end of a market with a superior experience while others serve the low-end with a “good-enough” offering, one company can serve everyone…. it makes sense to start at the high-end with customers who have a greater willingness-to-pay, and from there scale downwards, decreasing your price along with the decrease in your per-customer cost base (because of scale) as you go (and again, without accruing material marginal costs). Many of the most important new companies, including Google, Facebook, Amazon, Netflix, Snapchat, Uber, Airbnb and more are winning not by giving good-enough solutions to over-served low-end customers, but rather by delivering a superior experience that begins at the top of a market and works its way down…”
“Apple and Amazon do have businesses that qualify as aggregators, at least to a degree: for Apple, it is the App Store (as well as the Google Play Store). Apple owns the user relationship, incurs zero marginal costs in serving that user, and has a network of App Developers continually improving supply in response to demand. Amazon, meanwhile, has Amazon Merchant Services, which is a two-sided network where Amazon owns the end user and passes all marginal costs to merchants (i.e. suppliers).”
“Once an aggregator has gained some number of end users, suppliers will come onto the aggregator’s platform on the aggregator’s terms, effectively commoditizing and modularizing themselves. Those additional suppliers then make the aggregator more attractive to more users, which in turn draws more suppliers, in a virtuous cycle. This means that for aggregators, customer acquisition costs decrease over time; marginal customers are attracted to the platform by virtue of the increasing number of suppliers.”
“Breaking up a formerly integrated system — commoditizing and modularizing it — destroys incumbent value while simultaneously allowing a new entrant to integrate a different part of the value chain and thus capture new value.”
“Sectors such as finance, information technology, media, and pharmaceuticals — which have the highest margins — are developing a winner-take-all dynamic, with a wide gap between the most profitable companies and everyone else.”
“I have long described Amazon as a Field of Dreams company, one that goes for higher revenues first and then thinks about ways of converting those revenues into profits; if you build it, they will come. In coining this description, I am not being derisive but arguing that the market’s willingness to be patient with the company is largely a result of the consistency with [which] Jeff Bezos has told the same story for the company, since 1997, and acted in accordance with it.”
“These models have an in-built structure where they are going to tip into winner-take-all areas. The cost of adding a new user gets smaller and smaller the bigger you get. [This starts] creating a competitive advantage that gets harder and harder to bridge.”
It’s not unusual for a few stocks to drive broader market performance in a given year, but we would be foolish to ignore that it has been the same several stocks quite frequently in recent years. Facebook, Apple, Amazon, Netflix, and Google are responsible for roughly 20% of the S&P 500’s performance this year, and generated more than the entire return of the index in 2015.
The advantage is simple physics: When electrons have to travel long distances through copper wires, it takes more power, produces heat and reduces bandwidth. Stacked chips are more efficient, run cooler and communicate across much shorter interconnections at lightning speed.
Chip stacking enables totally new capabilities too. Some phone cameras stack an image sensor directly on top of the chip that processes the image. The extra speed means they can grab multiple exposures of an image and fuse them together, capturing more light for dim scenes.
But Mr. Dixon-Warren says the spread of 3-D chips is rapid and their takeover inevitable. A decade ago, this technology was limited almost exclusively to university labs; five or six years ago, it was still hard to find commercial examples. But now it’s popping up all over, in applications like networking and high-performance computing and in high-end wearables like the Apple Watch.
“Costco has a volume deal with [spirits] companies including Edrington and Diageo. They agree to buy a certain amount of product at a certain price, which is far lower than everyone else is paying. For products like Johnnie Walker Blue or Macallan, it’s virtually impossible to beat Costco on price.”
“If Costco can control the importation of the whisky, get someone to distribute it to them at cost (or at very slim single-digit margins due to high volume) and then sell it at very low margins, then they’re golden.”
Finally, one reason rarely considered for why Costco might be able to offer better pricing is proof. Typically, whisky connoisseurs would want that 25-year-old Scotch to have some decent heft after all those years of concentrating in barrel. Alcohol is a conduit for flavor, after all. But all Kirkland Signature Scotches are sold at 80 proof, meaning that these whiskies are watered down to the absolute lowest legal limit and, thus, Costco is able to empty barrels into way more bottles.
The new lubricants are meant to help auto makers build smaller, turbocharged engines that are still quite powerful, resulting in efficiency gains close to 15% compared with older models. Optimizing internal combustion engines could boost efficiency by an additional 25%—a calculation that might tempt auto makers from spending more on electric-vehicle technology. Other efforts to enhance performance include adding gears to transmissions and making vehicles more aerodynamic.
The gains from engine oil alone are limited, however. Industry experts say the latest lubricants typically boost fuel economy by less than 1%, primarily by reducing the amount of energy needed to pump a piston. Even so, it is a highly cost-effective solution that adds up when spread across millions of vehicles.
Legal experts say investors may be risking more than their capital when using such alternative data since case law hasn’t yet determined what crosses the line into privacy violations or insider trading, but it’s a risk a growing number of financial institutions are willing to take, especially since in Apache’s case, and many others, it has paid off.
“That is the original alpha source, knowing something the market doesn’t know. It’s beautiful,” he said. “If you can come to them with a genuine information advantage, where they can know something their peers in the market do not know that’s tradable, that’s hugely valuable.”
Quandl is particularly interested in companies that produce what it calls “exhaust” data, or data collected as part of a company’s normal operations without intending to turn it into a revenue source. For example, insurance companies keep records of how many new car insurance policies they sell, as well as which vehicle manufacturer’s model is being insured, which happens to be a great predictor of new car sales before the automakers release the data themselves.
But Quandl faces a dilemma after convincing suppliers to sell their data: the more clients the company sells the data to, the less of an investing edge it provides, making it less valuable. To solve that problem, Quandl uses the data to build a predictive model to make an educated guess about how much money could be invested before the data loses its advantage and then sells it to a limited number of clients accordingly.
That’s about 41,000 square kilometers (16,000 square miles), which is equivalent to the size of Japan’s southwestern island of Kyushu, or almost as large as Denmark. By 2040, land equivalent to Japan’s second-largest island of Hokkaido will be unclaimed or abandoned, according to a panel of experts and government representatives. This will cost the nation roughly 6 trillion yen ($54 billion) over the period 2017-2040, including lost development opportunities and uncollected taxes, the panel says.
“Land prices are falling in the depopulating regions,” Yamanome said. “Not only is it impossible to make money by owning some land, but also you can’t get rid of it because regional real estate markets are stale.”
A product is something that solves someone’s problem. A business is a product that works so well that people will pay more than it costs to produce.
But losses come in different flavors. There is a difference between a company that loses money because it’s investing in the infrastructure needed to become a profitable company, and a company that loses money because it can’t charge customers a price that reflects what it costs to run the business. But we often conflate the two, treating all loss-making startups with a sense of, “It’s OK, they’re growing.”
Companies are staying private longer than they used to. So venture investors that specialize in the early phase of big-losses-because-we’re-investing-in-what-it-takes-to-build-a-profitable-business have found themselves holding mature companies that in a different era would have been passed onto investors who demanded a sustainable business model with profits. In any other era, Uber, Airbnb, Pinterest, and others all would have been public companies by now. And public markets almost certainly wouldn’t let losses pile up for as long as they have. We’ve seen this with Blue Apron and Snap, whose shares have fallen between 50% and 70% since going public just months ago. Both make amazing products that attracted armies of users, which VC investors oogled over. But public investors took one look at their business models and said, “What the hell is this?!” Who knows what that means for their future as standalone companies.
The problem with this source of pricing power is that it comes with an off balance sheet liability. A sort of “negative goodwill” that grows every time you increase prices. While the profits might roll in for awhile, one day the customers will revolt. At the very least, the perceived excessive pricing of the well water will create a huge incentive for customers to try any new competitor that comes to town. While the high pricing makes it look like the company has a competitive advantage, in fact the excess returns are being created by a process that increases the likelihood of a successful competitive assault sometime in the future.
“Because I never wanted to get up in the morning hoping that things would be getting worse. All intellectuals I think — and I don’t use that as a particularly flattering term — but all intellectuals tend to have a pessimistic streak.”
“I would forget the shorting. I think it’s over. It’s over for one simple reason: If shorts start working, that is, stocks go down for any sustained period of time, a great many people who are not now shorting will start shorting. There is a limited supply of stocks to borrow to sell short. Those stocks that are good shorts tend to be very obvious. As I’ve often said, I can predict with confidence that you’ll die. I cannot predict that you’ll be born, and so failure is analytically obvious and everybody piles into the same short. . . . I do believe if shorting really becomes profitable again, it’s going to become so crowded that most people won’t be able to borrow stock.”
The familiar metal is key to numerous brain functions, but too much of it is toxic. Researchers in Melbourne showed two years ago that iron levels in the brain can predict when people will get Alzheimer’s disease. Now, the team aims to show how removing excessive amounts with a drug called deferiprone can stave off the memory-robbing disorder.
Laptops distract from learning, both for users and for those around them. It’s not much of a leap to expect that electronics also undermine learning in high school classrooms or that they hurt productivity in meetings in all kinds of workplaces.