Curated Insights 2018.04.08

The most important self-driving car announcement yet

The company’s autonomous vehicles have driven 5 million miles since Alphabet began the program back in 2009. The first million miles took roughly six years. The next million took about a year. The third million took less than eight months. The fourth million took six months. And the fifth million took just under three months. Today, that suggests a rate on the order of 10,000 miles per day. If Waymo hits their marks, they’ll be driving at a rate that’s three orders of magnitude faster in 2020. We’re talking about covering each million miles in hours.

But the qualitative impact will be even bigger. Right now, maybe 10,000 or 20,000 people have ever ridden in a self-driving car, in any context. Far fewer have been in a vehicle that is truly absent a driver. Up to a million people could have that experience every day in 2020.

2020 is not some distant number. It’s hardly even a projection. By laying out this time line yesterday, Waymo is telling the world: Get ready, this is really happening. This is autonomous driving at scale, and not in five years or 10 years or 50 years, but in two years or less.


Facebook, big brother and China

Whether users are OK with this is a personal judgment they make, or at least should be making, when using the services. In open and democratic societies, perhaps users are less worried about what large corporations, who can be secretly compelled to hand over data to the state, know about them. Users are protected by the rule of law, after all. If they are going to see advertising in exchange for content, storage and functionality, then they would rather see relevant than irrelevant advertising alongside their web pages, emails, photos, videos and other files. Most citizens are not criminals and not concerned about what the state knows – they just want to share their holiday photos and chat with each other and in groups via a convenient platform, knowing that Facebook can mine and exploit their data.

But in authoritarian states such as China which control what their citizens can see and which lack a reliable rule of law, such networks pose a bigger threat. Tencent, for example, with its billion active accounts, knows the social graph of China, who your friends and associates are, where you go, what you spend (if you use their payment app) and what you say to each other and in groups on the censored chat platform. Similarly Sina Weibo. The state security apparatus has access to all of this on demand, as well of course as access to data from the mobile phone operators. So even if you stay off the Tencent grid, if you use the phone network then the state will know a lot about anyone you call who is a user of these platforms, as well as being able to profile you based on your repeated common location with other users. All of this data is likely to be accessible to the state in China’s forthcoming Orwellian Social Credit System, a combination of credit rating with mass surveillance. Knowledge is power. No wonder then that China won’t allow Facebook into the game.

Nvidia announces a new chip… But it’s not a GPU

The new chip, NVSwitch, is a communication switch that allows multiple GPUs to work in concert at extremely high speeds. The NVSwitch will enable many GPUs – currently 16 but potentially many more – to work together. The NVSwitch will distance Nvidia from the dozen or so companies developing competing AI (artificial intelligence) chips. While most are focused on their first chips, Nvidia is building out highly scalable AI systems which will be difficult to dislodge.


Nvidia: One analyst thinks it’s decimating rivals in A.I. chips

[Nvidia CEO] Jen-Hsun [Huang] is very clever in that he sets the level of performance that is near impossible for people to keep up with. It’s classic Nvidia — they go to the limits of what they can possibly do in terms of process and systems that integrate memory and clever switch technology and software and they go at a pace that makes it impossible at this stage of the game for anyone to compete.

Everyone has to ask, Where do I need to be in process technology and in performance to be competitive with Nvidia in 2019. And do I have a follow-on product in 2020? That’s tough enough. Add to that the problem of compatibility you will have to have with 10 to 20 frameworks [for machine learning.] The only reason Nvidia has such an advantage is that they made the investment in CUDA [Nvidia’s software tools].

A lot of the announcements at GTC were not about silicon, they were about a platform. It was about things such as taking memory [chips] and putting it on top of Volta [Nvidia’s processor], and adding to that a switch function. They are taking the game to a higher level, and probably hurting some of the system-level guys. Jen-Hsun is making it a bigger game.

Nervana’s first chip didn’t work, they had to go back to the drawing board. It was supposed to go into production one or two quarters ago, and then they [Intel] said, ‘We have decided to just use the Nervana 1 chip for prototyping, and the actual production chip will be a second version.’ People aren’t parsing what that really means. It means it didn’t work! Next year, if Nervana 2 doesn’t happen, they’ll go back and do a Nervana 3.


Apple plans to use its own chips in Macs from 2020, replacing Intel

Apple’s decision to switch away from Intel in PC’s wouldn’t have a major impact on the chipmaker’s earnings because sales to the iPhone maker only constitute a small amount of its total. A bigger concern would be if this represents part of a wider trend of big customers moving to designing their own components, he said.

Apple’s custom processors have been recently manufactured principally by Taiwan Semiconductor Manufacturing Ltd. Its decision may signal confidence that TSMC and other suppliers such as Samsung Electronics Co. have closed the gap on Intel’s manufacturing lead and can produce processors that are just as powerful.

Live Nation rules music ticketing, some say with threats

Ticket prices are at record highs. Service fees are far from reduced. And Ticketmaster, part of the Live Nation empire, still tickets 80 of the top 100 arenas in the country. No other company has more than a handful. No competitor has risen to challenge its pre-eminence. It operates more than 200 venues worldwide. It promoted some 30,000 shows around the world last year and sold 500 million tickets.

Though the price of tickets has soared, that trajectory predates the merger and is driven by many factors, including artists’ reliance on touring income as record sales have plummeted.

Live Nation typically locks up much of the best talent by offering generous advances to artists and giving them a huge percentage of the ticket revenue from the door. Why? Because it can afford to. It has so many other related revenue streams on which to draw: sponsorships for the tour, concessions at venues, and, most of all, ticket fees. The fees supply about half of Live Nation’s earnings, according to company reports.

Critics say enforcement of the consent decree has been complicated by what they call its ambiguous language. Though it forbids Live Nation from forcing a client to buy both its talent and ticketing, the agreement lets the company “bundle” its services “in any combination.” So Live Nation is barred from punishing an arena by, say, steering a star like Drake to appear at a rival stop down the road. But it’s also allowed, under the agreement, to redirect a concert if it can defend the decision as sound business.

Roku’s business is not what you think

That’s far from the only ad inventory Roku has access to. The Roku Channel offers free-to-watch popular movies, which Roku sells ad time against. Many of Roku’s “free” channels are ad supported, with Roku having access to all or some of the ad time on many of those channels (not all of them).

While selling ads is the biggest piece of the company’s Platform business, there are some auxiliary sales as well. See those Netflix, Amazon, Pandora, YouTube, etc. buttons on your Roku remote? The company was paid to put them there. Additionally, some TV brands have licensed the right to include Roku OS right into their television set, another source of revenue.

All told, Platform revenue is 44% of total sales, and growing rapidly. In fact, it more than doubled in 2017, and has increased more than 3-fold over the past 2 years. Even better, Platform revenue carries a gross margin near 75%, meaning that already it makes up 85% of Roku’s gross profitability. Completing the trifecta of good news, Platform sales are far more recurring and reliable in nature than hardware sales, giving the company a firmer footing from which to expand their business. Bottom line here? Roku is not really a commodity hardware maker. It is more of a consumer digital video advertising platform.

There is no shortage of ways to get streaming content. And all of them are fighting tooth-and-nail for users. Google and Amazon practically give away their devices to get users into their ecosystem. Against that lineup, it really has very few competitive advantages. There is no meaningful lock-in to the platform. It is really quite simple and painless for a consumer to switch from a Roku to a competing offering. Getting new customers is even more of a dog fight.

Netflix makes up over 30% of streaming hours through Roku’s platform, but the channel provides essentially no revenue back. Same for Amazon, Hulu, and the most popular ad-supported video network in the world, YouTube. Roku relies on monetizing Roku Channel and other, less prominent content channels. However, there is nothing stopping those other channels from switching to a different ad provider, or (if they are large enough), building out their own.


Alibaba is preparing to invest in Grab

Alibaba leaned heavily on its long-time ally SoftBank — an early backer of Tokopedia and Grab — to get the Tokopedia deal ahead of Tencent. That’s despite Tokopedia’s own founders’ preference for Tencent due to Alibaba’s ownership of Lazada, an e-commerce rival to Tokopedia. SoftBank, however, forced the deal through. “It was literally SoftBank against every other investor,” a separate source with knowledge of negotiations told TechCrunch. Ultimately, Alibaba was successful and it led a $1.1 billion investment in Tokopedia in August which did not include Tencent.

CRISPR recorder

While the Cas9 protein is involved in cutting and correcting DNA, the Cas4 protein is part of the process that creates DNA and genetic memory. CRISPR evolved from a bacterial immune defense system in which bacteria destroy viral invaders. Now we are beginning to understand how bacteria detect the invaders and remember the encounters. With Cas4, bacteria can record these encounters in their DNA, creating a permanent ledger of historical events.

Our understanding of Cas4 is rudimentary, but its potential applications are provocative. Not only will it timestamp key events, but it should be able to monitor how an individual’s body works and how it reacts to different kinds of bacteria. A Cas4 tool should be able to fight antibiotic resistance, an important use case addressing a significant unmet need.

How do wars affect stock prices?

Our research is not alone in reaching this conclusion. A 2013 study of US equity markets found that in the month after the US enters conflict, the Dow Jones has risen, on average, by 4.0 percent—3.2 percent more than the average of all months since 1983. A 2017 study found that volatility also dropped to lower levels immediately following the commencement of hostilities relative to the build-up to conflict. During the four major wars of the last century (World War II, the Korean War, the Vietnam War, and the First Gulf War), for instance, large-cap US equities proved 33 percent less volatile while small-cap stocks proved 26 percent less volatile. Similarly, FTSE All Share and FTSE 100 volatility has historically fallen by 19 and 25 percent over one- and three-month horizons following the outbreak of conflict.

Regression to lumpy returns

Missing a bull can be even more detrimental than taking part in a bear. Following the two huge bear markets we’ve experienced this century, many investors decided it was more important to protect on the downside than take part in the upside. Risk is a two-way street and I’m a huge proponent of risk management, but investors have taken this mindset too far. Missing out on huge bull market gains can set you back years in terms of performance numbers because you basically have to wait for another crash to occur, and then have the fortitude to buy back in at the right time. I have a hard time believing people who missed this bull market because they were sitting in cash will be able to put money to work when the next downturn strikes.


How to talk to people about money

In the last 50 years medical schools subtly shifted teaching away from treating disease and toward treating patients. That meant laying out of the odds of what was likely to work, then letting the patient decide the best path forward. This was partly driven by patient-protection laws, partly by Katz’s influential book, which argued that patients have wildly different views about what’s worth it in medicine, so their beliefs have to be taken into consideration.

There is no “right” treatment plan, even for patients who seem identical in every respect. People have different goals and different tolerance for side effects. So once the patient is fully informed, the only accurate treatment plan is, “Whatever you want to do.” Maximizing for how well they sleep at night, rather than the odds of “winning.”

Everyone giving investing advice – or even just sharing investing opinions – should keep top of mind how emotional money is and how different people are. If the appropriate path of cancer treatments isn’t universal, man, don’t pretend like your bond strategy is appropriate for everyone, even when it aligns with their time horizon and net worth.

The best way to talk to people about money is keeping the phrases, “What do you want to do?” or “Whatever works for you,” loaded and ready to fire. You can explain to other people the history of what works and what hasn’t while acknowledging their preference to sleep well at night over your definition of “winning.”

Curated Insights 2018.03.18

Remember to look up at the stars and not down at your feet. Try to make sense of what you see, and wonder about what makes the universe exist. Be curious. And however difficult life may seem, there is always something you can do, and succeed at. It matters that you don't just give up. -- Steven Hawking (1942-2018)

An Apple R&D bonanza

Much of this focus mantra is driven by the fact that Jony Ive and his Industrial Design group oversee Apple’s product vision and the user experience found with Apple products. With only 20 or so members, Jony and team can only do so much at any given moment. In a way, Apple’s organizational and leadership structure serve as safeguards preventing Apple from spreading itself too thin and doing too much. Instead of trying to expand the design team in order to work on more products, Apple’s strategy appears to be to do the opposite and place bigger bets on a few products.

These bigger bets come in the form of owning the core technologies powering Apple devices. Apple wants to reduce dependency on others. We are quickly moving to the point at which every Apple product will be powered by core technologies developed in-house. Such a reality would have been a pipe dream just a few years ago. Apple believes this strategy will give them an advantage in the marketplace. It’s a new twist to the Alan Kay line about “people who are really serious about software should make their own hardware.” We are moving to the point at which companies serious about software should design their own silicon. Having $285 billion of cash on the balance sheet gives Apple the freedom to pursue this ambitious goal. It is this motivation to control more of the user experience while pursuing new industries to enter that is driving the remarkable increase in Apple R&D expenditures.


Apple goes from villain to coveted client with this Finnish firm

Created through a merger of Sweden’s Stora AB and Finland’s Enso Oyj in 1998, the company has spent billions shifting from the declining paper business — as people increasingly switched to digital from printed newspapers — to focusing on innovative wrappings made from tree and plant fibers. More than a third of its sales now come from consumer board and packaging solutions, up from a fifth two decades ago.

Apple has undergone its own shift, away from plastic packaging. For its recent iPhone 8 launch, Apple used a fiber-alternative instead of the polypropylene wrap around the power adapter. The packaging for the iPhone 7 used 84 percent less plastic than the previous version.


Intel fights for its future

“…Broadcom is already an Apple parts supplier, and it wouldn’t want to jeopardize a good relationship with a negotiation over royalties. The exact percentage that Qualcomm charges in royalties is of the utmost importance to a standalone Qualcomm…But for a merged Broadcom-Qualcomm, the exact amount of the royalty would be less important than a good working relationship with Apple.”

If the dispute is settled, Intel loses its wireless modems deal with Apple. No mobile CPUs + no modems = nothing of substance. Broadcom would be in charge — they would hold all the cards.


Google wants to impose order on India’s street address chaos

Google is tackling the project as part of its own search for the next billion users. Non-standard addresses now increase the costs of running all types of commerce from ride-hailing to online retailing and food delivery. Plus Codes — in a ‘6-character + city’ format — can be generated and shared by anyone on Google Maps, while apps that use location services can incorporate those codes on their own platforms. And a user can enter the Plus Code into searches to call up a location. Google Maps is also adding voice navigation in six more Indian languages, after introducing Hindi three years ago.

WhatsApp could shake up digital payments in India

At stake is an Indian digital payments market that Credit Suisse Group AG estimates could be worth $1 trillion within five years and has homegrown and global players jostling for dominance. WhatsApp joins Google, Alibaba-backed Paytm, a unit of local e-commerce leader Flipkart and dozens of others already vying for customers as smartphone adoption surges. Mobile payments caught fire at the end of 2016 when the government’s demonetization temporarily took 86 percent of all paper currency out of circulation to tackle corruption.

“WhatsApp is likely to change the digital payments scenario by cannibalizing other wallets’ users and adding new converts,” said Satish Meena, an analyst at Forrester Inc. “Its base of 200 million users, a daily active usage that’s about 20 times higher than Paytm’s, and the fact that Indian users spend a lot more time on WhatsApp than even on parent Facebook has huge advantages,” said Meena.


Amazon turbocharged Audible’s domination of audiobooks

Audible accounts for about 41 percent of all audiobooks sold, including digital and physical formats, according to researcher Codex Group LLC. Amazon also sells audiobooks directly through its website and, with Audible, accounts for more than half the market. Audible doesn’t disclose financial information, but says its annual subscriber growth is in double digits. Most customers pay $15 for a monthly subscription that comes with a single audiobook. (A la carte, they often cost more than $20.) The company’s library includes 400,000 titles.


How Amazon’s bottomless appetite became corporate America’s nightmare

For many companies, perhaps what’s scariest is that Amazon has lots of room to grow, even in retail. In the U.S., more than 90 percent of all retail sales still happen in physical stores. In some big categories, including home furnishings, ­personal-care products, toys, and food, the brick-and-­mortar numbers are even higher. As the share of online shopping continues to increase, Amazon seems likely to benefit the most. It’s responsible for roughly 44¢ of every dollar Americans spend online, and it’s now mixing in retail stores.

Amazon is far from invulnerable. All the same old red flags are there—a puny 2.7 percent e-commerce profit in North America, massive outlays to establish delivery routes abroad—but few are paying attention. Anyone buying a share of Amazon stock today is agreeing to pay upfront for the next 180 years of profit. By one measure, it’s generating far less cash than investors believe. And its biggest risk may be the fear of its power in Washington, New York, and Brussels, a possible prelude to regulatory crackdown.


Netflix’s secrets to success: Six cell towers, dubbing and more

Why Netflix almost never goes down. The company’s service achieved an availability rate of 99.97% in 2017, according to Netflix engineering director Katharina Probst. Part of that is due to the fact that Netflix learned from outages early on, and now uses Amazon’s AWS data centers across three regions. When one of those regions does go down, Netflix automatically redirects all of its traffic to the two other regions.

In fact, the company even tests this fall-back regularly by just taking a region offline itself — something the company calls chaos engineering. “We intentionally introduce chaos into our systems,” explained Probst. Up until recently, it took Netflix up to an hour to successfully redirect all requests in case of such a massive failure. More recently, the company was able to bring that time down to less than 10 minutes.

Amex to woo retailers with biggest fee cut in 20 years

At a presentation for investors in New York last week, the company said the global average of the fees it charges merchants — known as its discount rate — would decline five or six basis points this year, to about 2.37 per cent. Each basis point is equivalent to about 11 cents of earnings per share, said Don Fandetti of Wells Fargo Securities.

The fee cuts for 2018, which are about double previous guidance, are the latest sign of competitive and regulatory pressures on the biggest US consumer finance company by market value. American Express is facing questions from Wall Street about competition from US banks, which use the rival payment networks Visa or MasterCard. Big-spending Americans have flocked to premium cards issued by banks.


SoftBank looks to invade Wall Street’s turf

Until recently, SoftBank’s fledgling investment arm was little more than a group of analysts in Tokyo and London sifting through possible deals. Buying Fortress provided the group with a template to use as it moved to becoming an actual institution, with a formal investment committee, compliance department, trading desk and investor relations unit. The new entity is now 1,000 people strong.


How China’s Huawei killed $117 billion Broadcom deal

Huawei uses Broadcom’s chips in networking products such as switches that direct data traffic between connected computers. Qualcomm also works with Huawei. The two said on Feb. 21 they completed testing on technology that advances faster 5G mobile services. Under one envisioned scenario, wireless carriers may be forced to turn to Huawei or other Chinese companies for cutting-edge telecoms gear. That’s unacceptable for a U.S. government that, concerned about the security of Huawei’s gear, has already blocked the sale of the Chinese company’s smartphones on American carriers’ networks.

Government officials and industry executives have long harbored suspicions that the closely held Huawei works primarily for Chinese government interests, especially as it sells increasing amounts of critical telecoms infrastructure to Europe, Africa and the Middle East.

WordPress is now 30 per cent of the web

Public data recorded that WordPress’s share of the top 10 million websites had ticked over from 29.9 per cent to 30 per cent. The firm put some context on that data by noting that 50.2 per cent of the world’s websites don’t run a content management system (CMS) at all. That means WordPress has over 60 per cent share among websites that do run a CMS. That’s a dominance few products in any category can claim. It’s also notable that WordPress has nearly ten times the market share of its nearest competitor, Joomla, which has 3.1 per cent share of all websites and 6.3 per cent of the CMS-using population.

Share buybacks work better in theory than in practice

The top 20 companies in terms of buybacks accounted for almost 50 percent of total expenditures.

The main problem with buybacks is that effects of bad decision-making don’t become clear until much later. To paraphrase Jeff Macke, stock buybacks are an allocation decision that has a hypothetical value to shareholders, but a real explicit value to option-holding executives. These people are supposed to be managing companies for the long term but get compensated over the short term. This misalignment if incentives should be a concern. It does seem like those with a vested short-term interest in stock prices put a thumb on the scale away from investments or dividends and towards buybacks.

Diving into the detail, the top culprit was Biotech companies, with 97% of biotech IPOs in the loss making camp. Second place, no prizes for guessing, was Technology companies at 83%. But interestingly enough that left 'all other companies' at 57% - which is actually a record high.

What’s the biggest trade on the New York Stock Exchange? The last one

Last year, 26% of all trading activity on the NYSE’s flagship exchange took place in the last trade of the day, up from 17% in 2012, exchange data shows. Last year, trades at the close accounted for more than 8% of trading volume in S&P 500 stocks, nearly four times what it was in 2004, according to Credit Suisse .

At least $10 billion worth of shares are traded in the NYSE’s closing auction on an average day, with a final tally of stock prices typically listed by 4:05 p.m.

A fund manager such as Vanguard, for instance, might need to buy millions of shares at a time. Making such a big purchase in the middle of the day could dry up supply, causing the price of the stock to jump—bad for Vanguard. By waiting to trade at a time when there are millions of shares being bought and sold, the risk of moving the price is reduced, saving Vanguard money.

Last year, the NYSE collected $87 million—45% of its net revenue from the exchange’s core stocks-trading business—from trading at the close, according to the research firm Equity Research Desk. The NYSE’s maximum fees for trading at the close have gone up 16% over three years, according to regulatory filings.


Is the US stock market overvalued? Depends on which model you ask

The Fed model was valid during the period from 1958 to 2010. Since after 2010 there has been no relationship between the stock’s earnings yield and the bond yield, the Fed model cannot be used to judge whether the US stock market is overvalued. In other words, the Fed model cannot support the high current CAPE ratio on the grounds of the low-rate environment.

The Shiller model is over-simplistic. It is justified only on the grounds that there is an empirical inverse relationship between the CAPE value and the subsequent stock market return over horizons ranging from 10 to 15 years. What is less known about the validity of the Shiller model is that it has forecasting power only for real returns.

The other serious problem with the Shiller model is that it cannot be successfully used to time the market. If the investor believes in the validity of the Shiller model, this investor should buy the stocks in the early 1970s. However, in this case, the investor would be highly disappointed because the stock prices had been decreasing till the early 1980s. Similarly, if the investor uses the Shiller model, this investor would sell stocks in the early 1990s, missing out on huge net gains over the full bull/bear cycle.

Pozen Priorities

“The common practice we found among the highest-ranked performers in our study wasn’t at all what we expected. It wasn’t a better ability to organize or delegate. Instead, top performers mastered selectivity. Whenever they could, they carefully selected which priorities, tasks, meetings, customers, ideas or steps to undertake and which to let go. They then applied intense, targeted effort on those few priorities in order to excel.”


Ironies of luck

If risk is what happens when you make good decisions but end up with a bad outcome, luck is what happens when you make bad or mediocre decisions but end up with a great outcome. They both happen because the world is too complex to allow 100% of your actions dictate 100% of your outcomes. They are mirrored cousins, driven by the same thing: You are one person in a 7 billion player game, and the accidental impact of other people’s actions can be more consequential than your own.

In investing, a huge amount of effort goes into identifying and managing risk. But so little effort goes into doing the same for luck. Investors hire risk managers; no one wants a luck consultant. Companies are required to disclose risks in their annual reports; they’re not required to disclose lucky breaks that may have led to previous success. There are risk-adjusted returns, never luck-adjusted returns.

Here’s why Stephen Hawking never won the Nobel prize in physics

It takes decades to build the scientific equipment to test theoretical discoveries; to put this into context, Einstein’s theory of gravitational waves in space, which he first proposed in the 1920s, was only recently proven in 2016.

One of Hawking’s most important finds was “Hawkings Radiation,” the theory that black holes are not completely black after all, but emit radiations that ultimately cause them to disappear. The issue is, the technology needed to observe this radiation will take years and cost millions before Hawking’s theory can ever be verified.

Curated Insights 2018.02.04

Ingvar Kamprad, Ikea’s Swedish billionaire founder, dies at 91

Kamprad was known for driving an old Volvo, recycling tea bags and taking home little packets of salt and pepper from restaurant visits. He was known as “Uncle Scrooge” and “The Miser” in the Swiss village of Epalinges, near Lausanne, where he moved in the 1970s before returning to Sweden a few years ago. He also avoided wearing suits and ties and traveled coach when flying.

Ikea’s corporate culture mirrors Kamprad’s celebration of frugality. Executives of the company travel on low-cost airlines and lodge in budget hotels. Its employees follow a basic pamphlet written by Kamprad in 1976, “The Testament of a Furniture Dealer,” which states that “wasting resources is a mortal sin,” and stipulates Ikea’s “duty to expand.”

The name Ikea is made up of the founder’s initials and the first letters of the Elmtaryd farm and Agunnaryd village where he was raised. His flat-pack furniture was invented by Ikea employee Gillis Lundgren in 1956 when he tried to fit a table into the back of a car. Realizing the table was too bulky, Lundgren removed the legs. Storing and selling Billy book shelves or entire kitchens in pieces has let Ikea cut storage space and fill its trucks with more goods. The concept of having customers pick up most of their own furniture in adjacent warehouses and transport it home for self-assembly also helped drive down costs.

How Amazon’s ad business could threaten Google and Facebook

But Amazon has a huge set of data that Facebook and Google can’t access—namely, its own. Already, more than half of all online searches for products start on Amazon, and of those a majority end there, according to various surveys. That figure has grown every year that pollsters have tracked it.

The Amazon Advertising Platform lets advertisers manage ad buys across multiple advertising exchanges, and it has quietly become as familiar to marketers as its equivalent from Google-owned DoubleClick.

Amazon also needs to expand the number of places it can sell advertisements, which is one reason the company bought videogame-streaming behemoth Twitch and is investing so heavily in its own streaming-video offerings.

How Apple built a chip powerhouse to threaten Qualcomm and Intel

…by designing its own chips, Apple cuts component costs, gets an early jump on future features because it controls research and development and keeps secrets away from frenemies such as Samsung…Those ultimately failed or stumbled because chip-making is the sport of kings: It’s brutally expensive and requires massive scale. Apple has wisely focused on designing its silicon (for its system on a chips, Apple uses reference designs from Arm Holdings Plc). Manufacturing is left to others, including Taiwan Semiconductor Manufacturing Co.

An investment pro who’s seen it all still sees upside for stocks

Over 40% of Standard & Poor’s 500 revenues now comes from abroad.

No other country is shrinking its equity base to the extent we are. We’re now in our ninth year of share buybacks equal to 3% of the market value of all S&P 500 stocks, based on Laszlo Birinyi’s work.

For 20 years, the average price/earnings ratio has been 19.3. If you go back 50 years, it’s 15.6 times. In periods where inflation grew 3% or less—which is 22 of the past 50 years—the P/E of the market was 19.7.

AlphaZero and the curse of human knowledge

Using self-play to recursively improve an agent’s ability to play a game isn’t new. Why hasn’t this method yielded a champion chess or Go engine until 2017? Historically, systems that improve via self-play have been very unstable. Previous attempts often ended up in cycles, forgetting and relearning strategies over and over rather than improving to superhuman levels. Or sometimes the agent would get stuck, failing to improve after achieving moderate success.

AlphaZero’s main contribution was solving these problems. After lots of experiments, DeepMind developed a series of new tricks and discovered a value function and tree search that reliably learned through self-play alone. They then leveraged their engineering talent and infrastructure resources to demonstrate that the system could work on the massive scale required to master complicated games such as chess and Go (the version that played Stockfish employed 5,000 custom machine learning chips).


Even if you knew the cards…

One of the (many) reasons I stopped heeding the macro forecasts of others and quit trying to come up with my own is that even if you knew what the future data would be, you’d still not be able to predict how people would react to it. You could certainly try, but markets are set up to confound us, not confirm our hypotheses.

Earnings Call Digest 2017.10

Taiwan Semiconductor Manufacturing Company (Q3 2017 Results) – Earnings Call Transcript

10-nanometer process technology contributed 10% of total wafer revenue during the third quarter, up from only 1% in the second quarter. The combined revenue from 16 and 20-nanometer accounted for 24% and 28-nanometer was 23%. Advanced technologies, defined as 28-nanometer and more advanced, accounted for 57% of total wafer revenue, up from 54% in the second quarter.

New advanced technologies such as voice recognition, on-device AI, AR, VR, 4G to 5G, et cetera, are driving silicon content for smartphone to continue to increase. We also see those high-end features continuously proliferate to mid, low-end smartphones.

The AI will be a fast growth, because in the datacenter it is a closed ecosystem. Once it goes to the client edge, it’s an open system. So innovators will come in easily, so has higher growth potential.


Fiat Chrysler Automobiles (Q3 2017 Results) – Earnings Call Transcript

On the FCA, BMW, Intel, et cetera partnership, we’re contributing both capital, resources. We’re a full participant in the venture. So it’s going to cost us some money, it’s built into our R&D plan. But it’s the safest bet, the safest way for us to get into that market. We’re doing it with a reputable organization and there are reputable suppliers at the table too. So, I think we’ve put that issue to bed.

And there was a big issue. I’ve read a couple of the comments that people continue to make which I think probably reflect a very poor understanding of the state of the industry. But we’re not laggards here, we had just chosen our spots very carefully before we started playing, because I think that you can destroy a lot of value by chasing your tail in autonomous driving. We wanted to make sure that we did it with the right people.

And I don’t want to start chasing rainbows here, because if you chase rainbows, you’re going to fall off the cliff. And I’ve seen enough ridings now, I’ve seen enough sort of accusations of being behind in this rat race. The reality is that this is going to require a lot of discipline and a lot technical knowhow, which will take time and it will take dedication and perfect execution to get to an answer. Don’t believe the fluff, let’s just stick to the knitting and deliver an outcome, there is no shortcut to this.

Certainly in the case of Alfa Romeo the question of getting distribution because we have very little on the ground. So I think there’s a huge amount of work that needs to go on to get coverage, geographical coverage in China. And that started, it’s underway, and I think it is going to require – certainly it’s a multi-year project as it is here in the United States because this thing is starting from nothing. We haven’t had sort of the ability to work ahead of the curve in the U.S. The China is behind in that development, but I think we will – it will quickly catch up.

There is – the question that you’ve asked about whether demand is matching our expectations in China. The answer is fundamentally, yes. We need to be very, very careful that this distribution exercise, that we don’t end up creating either perceived or actual oversupply in the market that will depress pricing. That is something that we cannot afford to do.


Amazon.com (Q3 2017 Results) – Earnings Call Transcript

I think over time, you’ll see more cooperation and working together between AmazonFresh, Prime Now, and Whole Foods as we can explore different ways to serve the customer.

The head count grew 77% year-over-year in the quarter. That includes the impact of the Whole Foods and Souq acquisitions. Without those, without that head count, the base Amazon grew 47%, which is still up from 42% in Q2. So a lot of the additional pickup in Q3 was tied to our ramp for the holidays. We continued to hire a lot of software engineers. We continued to hire a lot of sales reps and it’s tied directly to our major investment areas of AWS, Prime Video and devices.


Alphabet (Q3 2017 Results) – Earnings Call Transcript

YouTube now has over 1.5 billion users. On average, these users spend 60 minutes a day on mobile. But this growth isn’t just happening on desktop and mobile. YouTube now gets over 100 million hours of watch time in the living room every day, and that’s up 70% in the past year alone. YouTube Red, our first foray into the subscription market, is on track to release over 40 original shows this year and YouTube TV, our live TV subscription service, continues to expand into new markets. It now covers two-thirds of U.S. households and is available in 15 metro areas.

While mobile has given rise to an unprecedented amount of data and complexity for advertisers, we think that machine learning will help it make – will help make it easier for advertisers to reach consumers. But even as we give advertisers incredible scale and reach across our ad platforms, we know consumer attention is scarce. That’s why we are pleased YouTube ads continue to deliver the highest viewability rates in the industry. YouTube now has a 95% ad viewability rate, which is significantly higher than the average 66% viewability rate of other video ads. We continue to see the industry shift to six second bumper ads and so greater adoption this quarter.


Intel (Q3 2017 Results) – Earnings Call Transcript

Early in the quarter, we closed the Mobileye transaction a full four months ahead of schedule. So far this year, Mobileye has won 14 ADAS [Advanced Driver Assistance Systems] designs across 14 automakers, a pace well ahead of the 12 wins they recorded all of last year. These designs provide for typical features like automated emergency braking, lane keeping, and adaptive cruise control. But several also include next-step functionality like highway autonomous driving. We’re also winning marquee designs for Level 3 and higher levels of autonomy, including our strategic partnership with BMW and Fiat Chrysler.

Most recently, we announced that Waymo’s newest vehicles, the self-driving Chrysler Pacifica Hybrid minivans, feature Intel-based technologies for sensor processing, general compute, and connectivity. With 3 million miles of real-world driving, Waymo cars with Intel technology inside have already processed more self-driving car miles than any other autonomous fleet on the U.S. roads.

Intel and Mobileye provide the auto industry with unmatched product breadth, the architectural flexibility to support open and closed implementations, and technology leadership. Our progress in just a few short months illustrates the benefits of our combination. And together, we can deliver the promise of autonomous driving in a safer, collision-free future.

In Q3, Microsoft announced that it would use our 14-nanometer Stratix 10 FPGAs for its accelerated deep learning platform that’s code named Project Brainwave. And as part of a broadening engagement between our companies, Alibaba is using Intel FPGAs to power the acceleration of the service of Alibaba Cloud. We’ve made tremendous progress in AI and advanced computing technologies over the last few months. In addition to our FPGAs and autonomous driving wins, we launched the Movidius Myriad X, the world’s first vision processing unit with a dedicated neural compute engine to deliver artificial intelligence capabilities to the edge in a low-power, high-performance package.


Microsoft (Q1 2018 Results) – Earnings Call Transcript

We now have 120 million monthly active users of Office 365 Commercial. We have more than 530 million LinkedIn members. Dynamics 365 customers grew 40% year over year. Azure Compute usage more than doubled this quarter and revenue grew 90%, and Windows 10 Commercial monthly active devices grew 90% year over year.

Microsoft 365 is our core offering to address this $500 billion-plus market. We are bringing together Office 365, Windows 10 and Enterprise Mobility + Security as a complete integrated solution for organizations of all sizes. It represents a profound shift in the way we design, build and deliver our productivity solutions, moving to a people-centered approach, spanning all their devices to unlock creativity and inspire teamwork while simplifying security and management.

We’re seeing record levels of engagement. LinkedIn is on target to surpass 21 billion sessions this calendar year and has seen its fourth consecutive quarter of 20%-plus sessions growth. Engagement across the platform is strong, with 65% year-over-year growth in jobs, visitors across mobile and desktop, 60% growth in feed update views and nearly 40% growth in messages sent, driven by more ubiquitous messaging.

Azure Cosmos DB is the first globally distributed multimodal database that enables developers to write apps for IoT and other event-based serverless applications. We’re accelerating our innovation to help every developer be an AI developer with approachable new tools from Azure Machine Learning Studio for creating simple ML models to powerful Azure Machine Learning Workbench for the most advanced AI modeling and data science.

Our ongoing data center expansion brings Azure to 42 regions globally, more than any other cloud provider and 69 compliance offerings and the most comprehensive compliance coverage in the industry. And new Azure availability zones provide new levels of resiliency for high-availability apps within a region and across regions.


Oaktree Capital (Q3 2017 Results) – Earnings Call Transcript

I think Howard Marks describes it best in his recent cautionary memo There They Go Again, Again, which portrays the current investment environment as excessive and ripe for a correction due to the following reasons. It’s an environment where the uncertainties are unusual in terms of number, scale and insolubility, where prospective returns are just about the lowest they have ever been, where asset prices are high across the board and where pro-risk behavior is commonplace. It’s impossible for us to predict what will catalyze the market’s correction, how severe it might be and when it will occur. We are not however waiting around for fat pitches and we continue to look for attractive investment opportunities in select areas including industries experiencing stress or competitive issues.

Management fees in the third quarter declined by $8 million or 4% from the same period a year ago and were down 6% year-to-date. As was the case in the first two quarters of the year, these declines were driven by our closed-end funds where we have been a net seller of assets given the current investment climate. In this environment, our management fees have been pressured by realizations reducing the cost basis and therefore management fee basis of funds in liquidation, and slower deployment impacting the management fees of funds that charge on drawn capital and delaying the start of the investment period for funds that charge on committed capital. However, this same environment provides an attractive backdrop for growing the value of our net accrued incentives and our balance sheet investments, which bodes well for future distributable earnings.

Curated Insights 2017.10.15

86-year-old billionaire iPhone chipmaker retires just as his industry heats up

“Since we established ourselves, fabless companies began to mushroom worldwide. Most of the innovations in the semiconductor industry in the last 30 years came from those fabless companies. That’s probably my biggest pride, to have caused a lot of innovations in the industry.”

Liu and Wei inherit a company that is about 30 times larger than local rival United Microelectronics Corp. and commands 59 percent of the $50 billion global foundry market.

Growing chipset demand from China spells another opportunity for TSMC: the country spent $227 billion importing integrated circuits in 2016, according to data from Chinese customs authorities, the fourth consecutive year that chip imports have exceeded $200 billion.


Nvidia, Intel, Marvell: Look how they’ve slimmed down! Says Stifel

“The end markets of semiconductors have changed dramatically over the past 10 years,” he observes, given how much automotive and industrial, two industries with longer product cycles, and therefore more predictable revenue, have taken from more volatile industries.

Another reason for rising valuations is simply scarcity: “In 2007 there were roughly 118 publicly traded semiconductor companies. Today there are roughly 55.”


Shopify S-1 analysis – Smiling all the way to $10B

How are they able to sustain more efficient growth as they scale? The first reason is Shopify has been able to grow their contract value by 14% annually. The average subscription payment by merchant has remained flat over the past four years. Instead of growing subscription revenue on a per customer basis, Shopify is capturing more share of GMV. The chart above shows the merchant services revenue generated per billion dollars of gross merchandise value by Shopify. You can see that figure has quite nearly doubled in four years. In other words, as Shopify merchants sell more, Shopify benefits Proportionately from the growth in GMV, but also at an increasing slope because they capture almost twice as much in fees as they have been historically.

Consequently, merchant services now account for greater than 50% of revenue up from just above 20% four years ago. The gross margin on the software business has remained 78% over the past four years, while merchant services gross margin has fallen from 50% to 30%. Overall gross margin has fallen from 80% to 54%. But that is an advantageous trade considering the massive revenue growth.

Citron exposes the dark side of Shopify the FTC will take notice

Out of the claimed 500,000 websites, Shopify has about 2,500 “Plus” clients and maybe another 20,000 “Advanced”. So where are the other 450,000 + websites?

The majority of Shopify’s customers are not SMB merchants; rather, they are people who are buying a system and Shopify goes as far as to supply them a theme and inventory.


Ikea puts Latin America, Southeast Asian markets in its sights

Ikea has more than 400 stores in 49 markets across Europe, North America, the Middle East, Asia and Australia.

According to Ikea’s plans, it will have opened its first store in South America within the next five years, which is the same timeframe it has set for its expansion into Vietnam and the Philippines. As South America is a new region, it’s likely to enter two or three markets there around the same time in order to secure supply and production, Loof said.

Ikea plans to add 22 new stores this year, up from 14 new stores in 2017. In the future, Ikea will probably open some 25 new stores annually, Loof said. Ikea’s website attracted 2.3 billion visitors last year, while its stores got 936 million visits.


Singapore home-sharing quietly grows despite the rules

Airbnb said its travelers to Singapore typically stay 4.1 nights compared with 3.6 for the average tourist, and three-quarters of listings are outside of traditional hotel districts, allowing tourism spending to accrue in areas that don’t usually host outside visitors.

In a February debate in Parliament, Louis Ng Kok Kwang, a lawmaker for the ruling People’s Action Party, urged the government to regulate rather than ban home-sharing services, noting that the approach so far is inconsistent with how Singapore treated car-sharing businesses, such as Uber Technologies Inc. and Grab.


How we’re solving the LIDAR problem

Strobe’s new chip-scale LIDAR technology will significantly enhance the capabilities of our self-driving cars. But perhaps more importantly, by collapsing the entire sensor down to a single chip, we’ll reduce the cost of each LIDAR on our self-driving cars by 99%.

Strobe’s LIDAR sensors provide both accurate distance and velocity information, which can be checked against similar information from a RADAR sensor for redundancy. RADARs typically also provide distance and velocity information and operate under more challenging weather conditions, but they lack the angular resolution needed to make certain critical maneuvers at speed. When used together, cameras, LIDARs, and RADARs can complement each other to create a robust and fault-tolerant sensing suite that operates in a wide range of environmental and lighting conditions.

 


India stock market could triple in a decade

” … The sectors poised to benefit the most are consumer-oriented and financials. Total online shoppers in India are set to skyrocket from 60 million to 475 million in 2027, while online retail as a percentage of total retail will grow even faster, from 2.2% today to 12.1% in a decade. Unsurprisingly, Amazon.com, China’s Alibaba Group Holding and South Africa’s Naspers have been aggressively investing billions of dollars in India. Morgan Stanley figures Softbank alone has invested some $46 billion in local e-commerce and on-line payments, ride-hailing, and real estate platforms.

As for the financials, Morgan Stanley sees total loans increasing 11 percentage points to 78% of GDP by 2027; total mutual fund assets under management jumping more than ten-fold over the same period; and collected life and general insurance premiums spiking, as well. Fin-tech companies should see exponential growth …”


Bitcoin’s academic pedigree

Nakamoto’s genius, then, wasn’t any of the individual components of bitcoin, but rather the intricate way in which they fit together to breathe life into the system. The timestamping and Byzantine agreement researchers didn’t hit upon the idea of incentivizing nodes to be honest, nor, until 2005, of using proof of work to do away with identities. Conversely, the authors of hashcash, b-money, and bit gold didn’t incorporate the idea of a consensus algorithm to prevent double spending. In bitcoin, a secure ledger is necessary to prevent double spending and thus ensure that the currency has value. A valuable currency is necessary to reward miners. In turn, strength of mining power is necessary to secure the ledger. Without it, an adversary could amass more than 50 percent of the global mining power and thereby be able to generate blocks faster than the rest of the network, double-spend transactions, and effectively rewrite history, overrunning the system. Thus, bitcoin is bootstrapped, with a circular dependence among these three components. Nakamoto’s challenge was not just the design, but also convincing the initial community of users and miners to take a leap together into the unknown—back when a pizza cost 10,000 bitcoins and the network’s mining power was less than a trillionth of what it is today.

The history described here offers rich (and complementary) lessons for practitioners and academics. Practitioners should be skeptical of claims of revolutionary technology. As shown here, most of the ideas in bitcoin that have generated excitement in the enterprise, such as distributed ledgers and Byzantine agreement, actually date back 20 years or more. Recognize that your problem may not require any breakthroughs—there may be long-forgotten solutions in research papers.

Academia seems to have the opposite problem, at least in this instance: a resistance to radical, extrinsic ideas. The bitcoin white paper, despite the pedigree of many of its ideas, was more novel than most academic research. Moreover, Nakamoto didn’t care for academic peer review and didn’t fully connect it to its history. As a result, academics essentially ignored bitcoin for several years. Many academic communities informally argued that Bitcoin couldn’t work, based on theoretical models or experiences with past systems, despite the fact that it was working in practice.

The lessons of Leonardo: How to be a creative genius

Be curious about everything. Leonardo’s most distinctive trait was his passionate, playful and occasionally obsessive curiosity. He made lists in his notebooks of hundreds of subjects, both marvelous and mundane, that he wanted to explore…Some of his curiosity involved phenomena so commonplace that we rarely pause to wonder about them. “Why is the fish in the water swifter than the bird in the air when it ought to be the contrary, since the water is heavier and thicker than the air?”

Observe attentively. His curiosity was aided by the sharpness of his eye, which focused on things that the rest of us barely notice. One night he saw lightning flash behind some buildings and for that instant they looked smaller, so he launched a series of experiments to verify that objects look smaller when surrounded by light.

The best reason to learn from Leonardo, however, is not to get a better job but to live a better life. Having immersed myself in his world for several years, I have resolved to be more observant of phenomena that I used to ignore.

Earnings Call Digest 2017.07

Taiwan Semiconductor Manufacturing Company (Q2 2017 Results) – Earnings Call Transcript

AI is indeed getting to smartphone. That’s for sure. And that is — actually, AI is going to every segments in our growth sectors. AI is getting to mobile. AI is getting to high-performance computing like deep learning. AI will go into automotive, which is ADAS and so forth. And AI will go to simple IoT, MCU also. So this AI is a general application driver of momentum — put this way, one of the driver — driving momentum, and it is ubiquitous.

Our top 10 customers account for 64% in 2015. And that number went up to 69%, as you can see from our annual report. This is mainly because there are consolidations among customer base. For this year, we expect the concentration will come down a little bit. But I want to say that people may feel customer concentration is not a good thing. But we feel the other way. It’s not really a bad thing, because when you have a bigger customer, that means the dependency for them to TSMC as the customer and for us to then as the supplier needs to be stronger, the relationship collaboration needs to be stronger, which is in favor of a foundry business model. So we view that as a positive thing.


Netflix (Q2 2017 Results) – Earnings Call Transcript

I think we’re just seeing that the rewards of doing great content focused on the quality of the service are paying off.

You ask about how we prioritize? Generally, when we see success, we try to add on to that until we reach a point of diminishing returns. And so, if we’re going to see success in some markets, we may up the content budget in those markets.

We’re such a small player in our viewing compared to linear TV, compared to YouTube. So we’ve got a long way to go to have more and more content to please more and more members and continue to grow.

…matching the program into local taste is really the key and we’ve seen it in our expansion through Latin America, our expansion into Europe. And as we look to Asia, we have to get better and better matching those tastes. And those tastes are not as easily aligned with Western tastes. So we’ll invest more time and energy in Asia putting some people on the ground in Asia that we haven’t historically, but well within how we’ve looked at the size of the teams generally but locating them more likely outside of the U.S. as we continue to grow for local audiences in Asia and throughout the rest of Europe.

I think Internet television is an enormous space and there’s going to be lots of competition. And as they come in, they’re going to bid up the cost of the best stuff which is great. It’s great for consumers, because more things get made. And it’s great for creators because they’re more buyers at the table. So we expect the content cost to go up on the top premium things, but I think, as I said, I think that’s a good result for everybody.


International Business Machines (Q2 2017 Results) – Earnings Call Transcript

The cognitive opportunity is a global one, it’s not centered in New York or Boston or Silicon Valley; but you can’t just look and listen in those places. In healthcare alone, you’d miss that this quarter the first healthcare provider in Latin America is deploying Watson for oncology, and Baheal Pharmaceutical Group is bringing Watson for genomics to clinicians across China. In fact, 80% of the hospitals who’ve adopted Watson for oncology are outside of the U.S., and that’s just healthcare, we have Watson deployed with other leaders like Berdasco [ph], Honda and Vodafone as well. So across industries and around the world our clients realize that data, in fact their own data is the route of competitive advantage for all companies.

80% of the worlds data is owned by enterprises, it’s not searchable on the worldwide web, it’s customer data, and patient data, clinical data, supply chain data, transaction data and companies want to unlock and exploit that data; and so that’s why enterprises will move to cognitive on the cloud with someone they trust who has leading tools and industry expertise and a data model and business model consistent with their goals, that is the IBM cloud plus Watson.


Qualcomm (Q3 2017 Results) – Earnings Call Transcript

The pending NXP acquisition will provide us greater scale in automotive IoT security and networking with their highly complementary product and world class sales channel, serving the long tale of customers that are driving growth. The combined company will be a technology and semiconductor leader with future annual revenues projected to be more than $30 billion.

ASPs probably a moderating even the ASP declines are moderating even more than we expected meaning the declines are less than we would have expected going into the year. And that’s largely being driven by strength in China as well as increasing ASPs by many of the Chinese OEMs as they build their businesses outside of China, which are couple of the important trends that we highlighted starting 2 or 3 years ago of why we believe we would see long term growth in the market. So again, if you wrap that all up end market will continue to grow, we think it can continue to grow meaningful.


Microsoft (Q4 2017 Results) – Earnings Call Transcript

Azure revenue accelerated this quarter, growing 97% year-over-year. CIOs and Business Decision Makers increasingly prefer Azure as they make decisions about their cloud strategy. They value our hybrid consistency, developer productivity, AI capabilities, and trusted approach. And we keep investing in cloud computing to create broader economic benefit and opportunity, as we’ve done with our South Africa datacenter expansion, bringing Azure to 40 regions globally – more than any other cloud provider.

The core currency of any business going forward will be the ability to convert their data into AI that drives competitive advantage. It all starts with having support for the comprehensive data estate spanning Azure Database, Cosmos DB, Data Warehouse, Data Lake, combined with SQL Server. Azure Cosmos DB is the industry’s first globally distributed database service. It enables customers to securely and reliably power data-intensive applications at unprecedented scale and performance from IoT to AI to mobile and much more.

Retailer Jet.com is using Azure Cosmos DB to process trillions of transactions every day. Customers are infusing AI into their products & services using Azure AI infrastructure and services such as Bot Framework and Cognitive Services. Sabre, a leading technology provider to the global travel industry, is piloting AI-powered solutions for travel agencies to better serve customers. And Dixons Carphone is using Azure and our Cognitive Services to boost customer engagement and provide a more consistent, seamless experience across online and in their stores.

If you look at some of the most exciting things that are happening in the cloud, is cloud applications that actively require an edge Azure IOT, or Azure Stack are becoming the runtimes of the edge where you do need not only the ability to do compute and storage, but to run the AI inference and the edge. So to me that’s what we’re building to. It’s actually a big architectural shift from thinking purely as a migration to some public cloud to really thinking of this as a real future distributed computing infrastructure and applications, but I quite frankly feel very, very good about leading and so in that context our server license revenue will fluctuate based on what the macro is and these transitions and mix shifts, but from a forward-looking perspective, I want us to be very, very clear that we anticipate the edge to be actually one of the more exciting parts of what’s happening with our infrastructure.


Alphabet (Q2 2017 Results) – Earnings Call Transcript

The increase in both Sites TAC as a percentage of Sites revenues, as well as Network TAC as a percentage of Network revenues, continues reflects the fact that our strongest growth areas, namely mobile search and programmatic, carry higher TAC. Total TAC as a percentage of total advertising revenues was up year-over-year as a result of an increase in the Sites TAC rate, driven by the shift to mobile, which was again partially offset by a favorable revenue mix shift from Network to Sites, which carries lower TAC.

One focus area for us this quarter has been enabling our machine learning algorithms to learn and improve our products much faster. One such research initiative auto ML enables us to pursue approaches to automate the design of machine learning models. Our ability to rapidly deploy the best machine learning in all of our products enabled us this quarter to launch all sorts of new smart features, to help moderate comments, suggest smart replies in Gmail and improved translations. We rolled out new machine learning features in Google Maps, YouTube, Gmail and Google Photos, which now has more than 500 million monthly users who backup 1.2 billion photos and videos every day.

YouTube now has 1.5 billion monthly viewers and people watch on average 60 minutes a day on their phones and tablets. That’s incredible and it helps 1000s of passionate video creators make money. The fastest growing stream for YouTube is in the living room. YouTube watch time on TV screens has nearly doubled year-on-year.


Corning (Q2 2017 Results) – Earnings Call Transcript

When announcing Valor at the White House last week, Merck’s CEO, Ken Frazier, said biologic medicines and vaccines remain on the leading edge of scientific innovation, and Valor Glass represents a similar advancement in materials science, a glass that is purpose-built for medicines and vaccines. Merck plans to convert several injectable products to this exceptional new glass packaging solution, pending appropriate regulatory approvals.

And Pfizer’s CEO, Ian Read, stated we believe that our collaboration with Corning is a game-changer. The glass industry represents about $4 billion in expenditures for the pharmaceutical industry. But subsequent issues, potential shards or breakages require strong quality control to ensure that it doesn’t get through to patients. The subsequent costs are multiples of the glass cost, to ensure that we deliver a high-quality product to patients. So Valor is a major innovation, a major way that we can be more competitive.

Valor also provides a powerful example of what happens when our focused and cohesive portfolio meets a customer opportunity. We started out with major customers from our life science vessels platform. We reapplied our expertise in glass science, optical physics, vapor deposition, precision forming and extrusion to develop a breakthrough product that we believe has the potential to power Corning’s growth for the next decade and beyond.


Facebook (Q2 2017 Results) – Earnings Call Transcript

This quarter we reached an important milestone for our community. 2 billion people now use Facebook every month, and more than 1.3 billion people use it daily.

For the past decade, we focused on making the world more open and connected. We have a lot more to do here to give people a voice and help everyone stay connected with their family and friends, but now I believe we have a responsibility to do even more. Our new mission is to bring the world closer together. A big part of this mission is building communities.

…a quick update on what we’re building over our three time horizons: making our existing services more useful now; building new ecosystems over the next five years around our products that a lot of people already use; and creating foundational technologies to achieve our mission over the next ten years.

Instagram Stories now has more than 250 million people using it daily, and WhatsApp Stories also now has more than 250 million people using it daily.

We’re finding AI is both delivering consistent improvements to many of our systems, like News Feed, search, ads, security, and spam filtering and more. But more than just improving these existing experiences, I expect AI to change the way that we do business in some important ways. So for example, today to keep our community safe, we rely on people flagging content that might violate our community standards for us to review. In the future, AI will be able to help flag more of this content faster before people have even seen it.

On the business side, we’re seeing a large shift in the way that marketing works. In the first wave of marketing, people would buy ads and media they thought their customers might watch like a TV show that had similar demographics, but they wouldn’t know who saw their ads. The Internet gave people the power to target their messages to people who actually might be interested and to measure results much more precisely, and that was a big improvement. And now AI is taking this a step further. Now you can put a creative message out there, and AI can help you figure out who will be most interested. A lot of the time you don’t even need to target now because AI can do it more precisely and better than we can manually. This makes the ads that you see more relevant for you and more efficient for businesses.

Messenger and WhatsApp both have large communities, and they’re growing quickly, with 1 billion people now using WhatsApp daily. It is still early on the monetization side here, although we have started showing ads to a small number of people on Messenger.

Given the size and engagement of our audiences, Facebook and Instagram are the best platforms to reach people and drive business results. We have over 70 million businesses on Facebook, and I’m excited to announce today that we now have more than 1 5 million business profiles on Instagram.

People consume content faster on their phones, and marketers are increasingly recognizing that this behavior is different from other media. This means that developing short-form snackable content is a big opportunity on mobile. We’re working hard to help marketers adopt mobile-first video ad strategies for Facebook and Instagram.

We’re focused on growing the user base, first and foremost. And then secondly, it’s about building organic connections between businesses and consumers. And then third, it’s about how do we build monetization around those relationships.

I would really just point to the overall dynamics of the system. And again, what we’re seeing is with slower supply growth, that’s going to play out to higher pricing. And again, are we effective? And we’ve been effective at delivering good return on investment for our advertisers and getting better at converting what we have as inventory into what they care about as outcomes. And that from a systemic point of view is what’s playing through there.


Cimpress (Q4 2017 Results) – Earnings Call Transcript

(July 2017 Letter to Investors)

Well, we really like the team at Albumprinter. Several of the key executives now in Cimpress overall came from Albumprinter. It’s a great business, we believe, with a strong future for the team that’s taking it out with a private equity purchase. As much as I’d like to say, it’s been a great success. We think this is a – it hasn’t been a big failure for us financially, but it hasn’t been a great success. We basically, depending if you’re looking at euros or dollars, are floating around our 8.5% cost of capital. And that’s not a success in terms of deployment of capital.

Now, we wish we could’ve done better. Now, I think, why not continue in that and improve the business? Because obviously with the competitive process and we had multiple people bidding, and the buyer believes that they can create great value going forward. So, I guess, what’s the question you’re bringing up is, why do we believe we shouldn’t have kept that and achieve those returns that the PE firm believes they can make in the future.

I think, the reality is that when we look at our strengths of where we are as a business, I’ll just take in the European market where Albumprinter plays, it is very strong in the Benelux and Nordics market. But there are very strong players in – particularly two large players, one in Germany and other parts of Europe and one more in France and the U.K. So we don’t believe that we would ever become the clear market leader in Europe, and it’s a business where we never found a way to bring it into the United States.

So we think that be it Shutterfly or others as great companies in the U.S. who really own that market. So, it was really a question of the old adage. I think, going back to to be number one or two in a market or not be in the market. And we look at other places in the promotional product space, in the Upload and Print, in the Vistaprint space, in Mall where we’re investing and we believe that we have a stronger chance of really becoming the number one or two player in those markets.

And in a world of constrained capital, we go to where we think the biggest opportunity is, which is, in summary, why we came to the decision it would be best to divest the asset right now.

Now, we also obviously keep central those things which must be done central, this call and other types of things. But everything else we’ve decentralized. Now, does that mean we are going away from the economies of scale? No. Because, what it does mean is that, take the example of National Pen versus Vistaprint. They are both very, very strong in different types of mass customized products. And the scale of National Pen in customized writing instruments is vastly larger than Vistaprint and vice versa for component and products that Vistaprint does.

So, now, through the interface of the mass customization platform, Vistaprint and National Pen, as just two examples of many, can exchange value internally to Cimpress, but (30:50) between each organization. And the benefits of scale that National Pen have in the production, in the supply chain, in the product development, can be a benefit to Vistaprint. Those types of point-to-point connections happen between our Upload and Print businesses, between Vistaprint and Upload and Print, between – in any different direction.

So, we believe that this new structure, at the highest level, will allow us to get the majority or, potentially, the vast majority of the benefit of scale, yet, greatly mitigate or hopefully eliminate the vast majority of the cost of centralization. And by cost, it’s not just the dollars we spend on centralization, but it’s the cost of having to manage across a $2 billion plus revenue business and make decisions which, on average, may be right, but for each of the individual businesses, are not optimal.


Starbucks (Q3 2017 Results) – Earnings Call Transcript

The evidence is clear that the pace of retail transformation is accelerating with a common theme: extending the in-store experiences to include relevant digital scenarios. It is the driving force behind combinations including Walmart’s acquisition of Jet.com, the combination of PetSmart and Chewy.com, and last month’s announcement of Amazon’s intent to acquire Whole Foods. Each of these combinations demonstrate that pursuit of enhancing the physical retail experience with a relevant and complementary digital experience.

We will not shy away from expanding our presence in markets that evidence strong growth opportunities at scale. We entered China almost 18 years ago, and today recognized as among the most respected brands in that country; along the way, establishing relationships, relationships with millions of customers, tens of thousands of partners, and a meaningful presence in 130 communities. Starbucks’ opportunity for growth in China is unparalleled and our purchase of the remaining 50% of our East China JV is a significant milestone, reflecting our long-term commitment to China and our unwavering optimism about our future in that key long-term growth market. And we are just getting started.

Tea is a large fast-growing category and a key addressable market and core focus for us. Since acquiring Teavana, we have built the business into a well-recognized, super-premium global brand. We expect to sell over $1.6 billion of Teavana branded, handcrafted beverages through Starbucks stores around the world this year. Overall, our tea business has grown 40% since we launched Teavana in the U.S. five years ago, and it is up over 60% since launching in China and Japan roughly one year ago.

We continue to open roughly 500 new stores in China every year at a rate of new store growth that will accelerate over time. Our newest class of stores continue to outperform and deliver record AUVs, now nearly 700,000 per unit, and world-leading returns. In fact, given our performance and success in China and the momentum we are seeing across the country in both retail and CPG channels, we now see the opportunity for Starbucks in China being even greater than we originally thought.


Fiat Chrysler Automobiles (Q2 2017 Results) – Earnings Call Transcript

…if the market deteriorates, the market will come down from these peaks. It is not a single downturn, and we’ve seen indications of the market softening in the first half of 2017 and I think you will see softer market conditions…The fundamental difference between us and most of the other people is that we have not built inventory into the pipeline. We’ve been incredibly disciplined and it’s something that we continue to do in managing our position with the U.S. dealers. We have no intention of building excessive inventory that will ultimately translate into pricing pressures. We have shown, I think, a willingness to take that capacity if the market is not there, I think we will continue to do so.

I mean everybody knew that this market was going to come down and so we have made the right strategic choices in terms of exiting the passenger car market. We’re now left with the majority of our productive assets being concentrated on pickups and SUVs. And I think that’s what the market is and I think that we’ll play to our strengths. I think we’ll just write it out, but I think we’re, today, probably in the most enviable position of all U.S. automakers. It took us a while to get here, but I think it’s time for us to reap the benefits of that effort.

…one of the things that we need to come to grips with is whether all the activities that are currently within the FCA world are required to run a proper OEM. And if the answer is not, then I think we have an obligation to purify that portfolio. And if they’re viable enough and large enough and sufficiently capable of carrying on their activities is to give them a space in the sun on their own merits. Because from a valuation standpoint, I can tell you honestly, I’ve been in this business long enough, I have never seen an industry which is as little loved as being an OEM today. For a period of time I thought that banking had reached the bottom but I think we have now surpassed them in terms of dislike.

Let me carve out Ferrari from all this because – and I had this view right throughout my tenure at FCA, I’ve confirmed it now. Ferrari lives and breathes in a different type of atmosphere. And so for it – and there is not – with all due respect to the other alleged contenders to that market, there’s nobody else who lives and breathes the same air. We’re dealing with a completely different concept, level of exclusivity, which is unparalleled, and intimacy with the customer base, which is also unmatched. And it’s a way of life, which I think takes you 70 – I mean we’re celebrating 70 years for Ferrari this year. It will take you 70 years to try and emulate it.

 Ferrari, on the other hand, is a self-sufficient, probably in my view, one of the most technologically advanced manufacturers of a car in the world. It has knowledge which is old, it’s deep and wide. And that knowledge is
something that you don’t acquire overnight. And I think it gives it the legitimacy to make the statement that it makes today. I’m not sure that that’s common to everybody else.


O’Reilly Automotive (Q2 2017 Results) – Earnings Call Transcript

Our focus on maintaining an extremely high standard of customer service when business is soft allows us to build long-term relationships, ultimately reinforcing our industryleading position.

In the second quarter, we successfully opened 46 net new stores, bringing our year-to-date total to 1 05 net new stores. We’re well on our way to achieving our new store growth target of 190 stores for 2017. As we have for several quarters now, our store growth in the second quarter was spread across the country with openings in 23 different states. We remain pleased with the performance of our new stores which continue to open strongly as compared to both our historical averages and our internal expectations. We’re very confident in the strength of the long-term prospects for our business and in our strategy of investing capital in new store growth at a high rate of return for our shareholders. Our success in opening profitable stores in new diverse market areas, as well as continuing to fill out existing markets we’ve operated in a long time, is a confirmation of the success of our business model. Our ability to leverage our extensive distribution network to provide industry-leading inventory availability allows us to replicate our success and capture market share as we expand into new markets.

If a customer walks into our store and they are buying a product and they bring to our attention that Amazon or RockAuto or whoever it may be has it priced for less, obviously, they need the part that day and they want to buy it that day, or they wouldn’t be in our store. We work with them to come up with a price that makes sense for them to walk out of the store with the part. We don’t walk customers over pricing relative to Amazon and online pricing pressure.

75% of it is picked up in store, the remainder is bought online. So, I think we have a pretty seamless process now. When a customer orders a part, buy online, pick up in store, it works pretty slick. There’s not a lot we could do to make it work better unless we knew their license plate number and ran out and gave it to them when the pulled up or something, and we may do that someday. But right now, we’re not doing that. They come into the store. I might mention, the majority of our online business is actually B2B. We have a huge business in B2B where we’re integrated into the shop management systems. We have a great browser product that allows shops to order parts using a browser that we’ve deployed that allows them to see pricing and availability and get information that they might need to work on cars, and so forth. So, omni channel, both on the do-it-for-me side and DIY side, is a significant focus for us right now.


Intel (Q2 2017 Results) – Earnings Call Transcript

We expect to close the acquisition of Mobileye in the third quarter, several months earlier than expected. Autonomous driving is a massive compute workload that will disrupt industries and save lives and we are investing to win in this important segment. I’m excited to welcome the Mobileye team to Intel. Together, we expect to be the global leader in the $70 billion autonomous driving systems, data and services market opportunity by accelerating auto industry innovation and delivering cloud to car solutions faster and at a lower cost.

We’re executing well to our strategy to transform from a PC-centric company to a data-centric company that powers the cloud and billions of smart and connected devices. The PC TAM is down more than 1 5% versus four years ago. Despite that headwind, our revenue is up more than 15% and our operating profit has grown more than 30%. More than 40% of our revenue now comes from our datacentric businesses outside the PC sector. And those businesses together are growing at double-digit rates.


Amazon.com (Q2 2017 Results) – Earnings Call Transcript

…the biggest impact on the margin that you’re seeing in Q2 is really around the 71 % increase in assets acquired under capital leases. Most of that is for the AWS business. So we’ve really stepped up the infrastructure to match the large usage growth and also the geographic expansion. And that is showing up in tech and content.

Prime Now is now available in 50 cities across eight countries. We do learn. It’s something to do in every city and has different – slightly different shapes and sizes of those buildings and different density profiles. And so we are learning as we go, learn as we grow internationally as well. That is a service that customers love. That’s not an inexpensive service, though, and we also have – so we’re constantly working on our cost of delivery and our route densities. And again, we like what we see and we’ll continue to expand that and we’ll be working very hard on making that not only a valuable Prime offering, a Prime benefit, but also a lower-cost operation as well.

Curated Insights 2017.07.09

Massive Chinese Brainpower Is the Next Really Big Thing

The large scale and low cost of Chinese brainpower is another game changer. Suddenly thousands of engineers can be ramped up in a matter of days. And this phenomenon is starting to ripple through industry after industry. What is the impact on the pharmaceutical industry if companies can now access tens of thousands of scientists cheaply? If your competitor is opening a research and development center in China with 10,000 technical specialists, how big of a problem is that for you? Chinese brainpower is starting to impact many industries – often in unexpected ways.”


Could India become the best-performing stock market of the next ten years?

India’s estimated domestic consumption growth of 12 percent y-o-y through 2025 is forecast at more than double the global average of 5 percent — poised to triple to $4 trillion by 2025.

India will have the largest middle class globally by 2027. Currently, only 5% (27 million) of the 519 million strong workforce is classified as “urban middle,” earning more than $11,000 per year.

A structural shift of household savings into equities is helping propel Indian stock markets. A Morgan Stanley analysis concludes that domestic equity savings are on-track to rise by $525 billion over the next decade. The government is also taking steps to increase public-equity exposure.


We are still waiting for the robot revolution

Our chief economic problem right now isn’t that the robots are taking our jobs, it’s that the robots are slacking off. We suffer from slow productivity growth; the symptoms are not lay-offs but slow-growing economies and stagnant wages.

…Imagine an economy that was the exact opposite of one where the robots took over, and it would look very much like ours.

…productivity growth stalled before the financial crisis, not afterwards: the promised benefits of the IT revolution petered out by around 2006.


Could Amazon Spur a CapEx Boom Rather Than Disinflation?

Younger investors haven’t yet seen a Capital Expenditure bubble. What went in the mid-aught’s was a debt and real estate bubble and what’s going on now is a buyback bubble. (Yes, everything is a bubble).

But in the mid- to late 1990’s, we had the CapEx bubble to end all CapEx bubbles (involving computers and wireless telephony), and it was good for the economy (for awhile). The 1950’s featured an infrastructure CapEx bubble (the Interstate Highway System), the 1960’s had its “Space Age” CapEx bubble and the late 1800’s enjoyed a railroad CapEx bubble.

These spending sprees were unlike the debt bubble of the 2003-2007 period in that, when the dust settled, at the very least they had left something useful behind (roads, rails, fiber optics, jets and rocket technologies). The last bubble we had only left behind unpaid loans and financial losses.


Watch Out, Intel. New Types of Chips Are Gaining Ground

“If I look at the latest generation of microprocessors, this year, performance only went up by 3%.”

While Intel’s microprocessor is broadly useful, running everything from scientific computing to spreadsheets, the TPU focuses on a specific problem such as speech recognition so it has power where it counts. It has 3.5 times as much memory as a comparable Intel part in a chip half the size. “We threw out a lot of stuff that was not needed. Instead of the Honda for everyone, we are making these Formula One race cars for some things.”

…the TPU went from sketch to finished chip in just 15 months whereas the latest Intel processors take years to develop. “We are at a paradigm shift in computing architecture. This is a big revolution in terms of the technology approach. Intel is working for two years to squeeze out 10% improvements in performance, and this can get you 10 times the performance, while being less expensive than Intel’s most complex parts.”


Tencent Dominates in China. Next Challenge Is Rest of the World

…the company was also learning how to cut its losses and play to its strengths. In 2013, Tencent gave up on its floundering search business, turned it over to a competitor, Sogou Inc., and invested $448 million in Sogou instead. The following year it sold its equally unsuccessful e-commerce initiative to JD.com Inc. and invested $214 million in JD for a 15 percent stake. Before these deals, Tencent “was involved in everything.” After the deals, “it only focused on what it did best and entrusted other sectors to partners.” Zhang gives much of the credit for these moves to Lau. “Martin is first and foremost a great business analyst. He knows what wars to fight.”

“It’s a little bit like the Godfather Don Corleone saying, ‘I’m going to make you an offer you can’t refuse.’ If you don’t take their money, and they invest in a competitor, it can be deadly.”

Beyond Bitcoin: How Blockchain Is Changing Banking

The government, for its part, hasn’t even settled on what Bitcoin is. The Internal Revenue Service considers it an asset; the Commodity Futures Trading Commission says it’s a commodity; and Treasury Department regulators have described it as a “virtual currency.” Fed Chair Janet Yellen has said the agency has no authority to oversee Bitcoin, but has encouraged central bankers to study it.

“…half of the people in the group are looking for a solution; the other half are there uniquely to obstruct progress.”

Moats & Knights, Part Deux

1. Has management been forthcoming about competitive challenges or do they downplay the threat of new entrants?

2. Does management have the right financial incentives in place or has the board set up low hurdles to make sure large bonuses are realized, regardless of performance?

3. Does management know what the company’s advantages are and have plans in place to extend and strengthen those advantages?

4. Does management have meaningful personal ownership in the business (and thus have skin in the game) or are they akin to mercenaries? 

5. Does management have a track record of sacrificing short-term results for long-term results or do they seem to play the quarterly earnings game?


What I Believe Most

Incentives are the strongest force in the world. They cause otherwise good people to do awful things, and vice versa. They’re also the most misunderstood and counterintuitive force in business. Brent Beshore: “I want to know what motivates people. The problem is not that they won’t tell me, because they will. The problem is that none of us know the truth, even about ourselves. The only thing to do is watch someone over a very long period of time and try to piece it together.”

There are five sources of edge: 1) Learn faster than your competition, 2) empathize with stakeholders more than your competition, 3) communicate more effectively than your competition, 4) be willing to fail more than your competition, and 5) wait longer than your competition.