Curated Insights 2018.11.30

What’s next for marketplace startups? Reinventing the $10 trillion service economy, that’s what.

The service economy lags behind: while services make up 69% of national consumer spending, the Bureau of Economic Analysis estimated that just 7% of services were primarily digital, meaning they utilized internet to conduct transactions.

In the a16z portfolio, Honor is building a managed marketplace for in-home care, and interviews and screens every care professional before they are onboarded and provides new customers with a Care Advisor to design a personalized care plan. Opendoor is a managed marketplace that creates a radically different experience for buying and selling a home. When a customer wants to sell their home, Opendoor actually buys the home, performs maintenance, markets the home, and finds the next buyer. Contrast this with the traditional experience of selling a home, where there is the hassle of repairs, listing, showings, and potentially months of uncertainty.

Managed marketplaces like Honor and Opendoor take on steps of the value chain that platforms traditionally left to customers or providers, such as vetting supply. Customers place their trust in the platform, rather than the counterparty of the transaction. To compensate for heavier operational costs, it’s common for managed marketplaces to actually dictate pricing for services and charge a higher take rate than less-managed marketplace models.

The last twenty years saw the explosion of a number of services coming online, from transportation to food delivery to home services, as well as an evolution of marketplace models from listings to full-stack, managed marketplaces. The next twenty years will be about the harder opportunities that software hasn’t yet infiltrated–those filled with technological, operational, and regulatory hurdles–where there is room to have massive impact on the quality and convenience of consumers’ everyday lives.

The services sector represents two-thirds of US consumer spending and employs 80% of the workforce. The companies that reinvent various service categories can improve both consumers’ and professionals’ lives–by creating more jobs and income, providing more flexible work arrangements, and improving consumer access and lowering cost.

Country stock markets as a percent of world

Keyence’s miraculous margins

The outsourcing reduces capital expenditure costs, and the associated depreciation, as there’s no machinery to purchase. It is also said to help Keyence to retain its valuable intellectual property. Suppliers, according to Morten Paulsen, Head of Research at CLSA Japan, have no visibility on how the respective pieces of the product puzzle fit together.

But Keyence are not the only business to run a “fabless” model. Apple, perhaps the most successful consumer brand of all time, outsources the creation of its iPhone to Taiwanese Foxconn. It reported operating margins of 26 per cent last quarter. Similarly, semiconductor designers such as Nvidia, Broadcom and Qualcomm also outsource to businesses like Taiwan Semiconductor. Their margins tend to range from 20 per cent to 40 per cent.

Keyence is also excellent at leveraging its suppliers, which it does “in a cleverer way than any other company I’ve seen”, he told us. Indeed, Keyence often has multiple suppliers manufacturing the same part, which stops one raising prices in fear of losing orders to competitors. Further to this, Keyence develops some of its manufacturing processes in house, then trains the suppliers, which means it can switch suppliers with greater ease than most if it begins to get strong armed, Paulsen argues.

What about its products? To its credit, Keyence has positioned itself right at the forefront of several key trends in an era of increasing factory automation, such as sensors which detect infinitesimal assembly-line mistakes. Customers, such as automakers — which make up roughly 25 per cent of its sales, according to Paulsen — are happy to pay top dollar for products that pay for themselves in 2 years, giving Keyence some degree of pricing power.

The reason for achieving high profitability is to maximise customer’s evaluation of products with high value added — that is, for customers, “I do not think it is expensive” and “I think it is cheap if it [our problem] can be solved” . . . As we explore the potential needs of our customers and develop them [the products] in advance, about 70 per cent of the new products of Keyence are the industry’s first and world’s first product as a result. Even in terms of management, we concentrate resources on product planning and design . . . we are trained to not only sell goods but also propose ideas that can solve customer’s problems.

Amazon, with little fanfare, emerges as an advertising giant

“The online retailer has ascended to the No. 3 spot in the U.S. digital ad market behind the dominant players, Alphabet Inc.’s Google and Facebook Inc. Though Amazon has just 4% of the market now, the company is expanding its avenues for marketers and hiring aggressively for its ad unit.

Amazon’s ad revenue is on pace to double this year, to $5.83 billion, according to eMarketer. Its ad sales are expected to jump $28.4 billion over the next five years, according to Cowen & Co.—more than the combined increases in ad revenue for all television networks globally, according to figures from media-buyer GroupM.”

Amazon’s ad business now contributes to gross profit and is expected to generate more income than its cloud business—which currently provides the bulk of its profits—as soon as 2021, according to Piper Jaffray analysts.

Amazon is expected to collect 15 cents of each new dollar spent on U.S. digital ads in 2020, up from 5 cents last year, according to an analysis of data from research firm eMarketer.

Why doctors hate their computers

This, I discovered, was the real reason the upgrade cost $1.6 billion. The software costs were under a hundred million dollars. The bulk of the expenses came from lost patient revenues and all the tech-support personnel and other people needed during the implementation phase.

Optimize your programming decisions for the 95%, not the 5%

Without having a deep understanding of what you’re developing and have put in the time to come up with good abstractions based on real experience, you’re just shooting in the dark hoping your generic user system works for all cases when you haven’t even programmed it yet for 1 use case. How is that even possible to do?

When you blindly follow what Google and other massive companies are doing, you’re optimizing for the 5% in a slightly different way. Instead of just getting your app up and running and seeing how it goes, you try to make decisions so that your application can be developed by 100 different teams sprawling across 5,000 developers. Meanwhile it’s just you developing the app by yourself in nearly all cases for new projects.

As soon as you start trying to make it work for a real application, or more specifically, your application, it all falls apart until you spend the time and really learn what it takes to scale an application (which is more than just picking tools). The companies that created these tools have put in the time over the years and have that knowledge, but that knowledge is specific to their application.

Premature optimization is the root of all evil (or at least most of it) in programming.

Optimizing for the 5% is a type of premature optimization. Maybe not so much for your development environment choices, but certainly for the other cases. Base your decisions on optimizing for the 95%, keep it simple and see how it goes. In other words, optimize when you really need to not because of “what if”.

Curated Insights 2018.09.14

Risk, uncertainty and ignorance in investing and business – Lessons from Richard Zeckhauser

People feel that 50% is magical and they don’t like to do things where they don’t have 50% odds. I know that is not a good idea, so I am willing to make some bets where you say it is 20% likely to work but you get a big pay-off if it works, and only has a small cost if it does not. I will take that gamble. Most successful investments in new companies are where the odds are against you but, if you succeed, you will succeed in a big way.” “David Ricardo made a fortune buying bonds from the British government four days in advance of the Battle of Waterloo. He was not a military analyst, and even if he were, he had no basis to compute the odds of Napoleon’s defeat or victory, or hard-to-identify ambiguous outcomes. Thus, he was investing in the unknown and the unknowable. Still, he knew that competition was thin, that the seller was eager, and that his windfall pounds should Napoleon lose would be worth much more than the pounds he’d lose should Napoleon win. Ricardo knew a good bet when he saw it.

…in any probabilistic exercise: the frequency of correctness does not matter; it is the magnitude of correctness that matters…. even though Ruth struck out a lot, he was one of baseball’s greatest hitters…. Internalizing this lesson, on the other hand, is difficult because it runs against human nature in a very fundamental way… The Babe Ruth effect is hard to internalize because people are generally predisposed to avoid losses. …What is interesting and perhaps surprising is that the great funds lose money more often than good funds do. The best VCs funds truly do exemplify the Babe Ruth effect: they swing hard, and either hit big or miss big. You can’t have grand slams without a lot of strikeouts.

Risk, which is a situation where probabilities are well defined, is much less important than uncertainty. Casinos, which rely on dice, cards and mechanical devices, and insurance companies, blessed with vast stockpiles of data, have good reason to think about risk. But most of us have to worry about risk only if we are foolish enough to dally at those casinos or to buy lottery cards….” “Uncertainty, not risk, is the difficulty regularly before us. That is, we can identify the states of the world, but not their probabilities.” “We should now understand that many phenomena that were often defined as involving risk – notably those in the financial sphere before 2008 – actually involve uncertainty.” “Ignorance arises in a situation where some potential states of the world cannot be identified. Ignorance is an important phenomenon, I would argue, ranking alongside uncertainty and above risk. Ignorance achieves its importance, not only by being widespread, but also by involving outcomes of great consequence.” “There is no way that one can sensibly assign probabilities to the unknown states of the world. Just as traditional finance theory hits the wall when it encounters uncertainty, modern decision theory hits the wall when addressing the world of ignorance.


Hank Paulson says the financial crisis could have been ‘much worse’

While Bear Stearns’ failure in normal markets would not hurt the U.S. economy, we believed that the system was too fragile and fear-driven to take a Bear Stearns bankruptcy. To those who argue that Bear Stearns created moral hazard and contributed to the Lehman failure, I believe just the opposite—that it allowed us to dodge a bullet and avoid a devastating chain reaction.

If Bear had failed, the hedge funds would have turned on Lehman with a vengeance. Lehman would have failed almost immediately and the result would have been much worse than Lehman’s September failure, which occurred after we had stabilized Fannie Mae and Freddie Mac and Bank of Americaacquired Merrill Lynch. I would hate to imagine what would have happened if this whole thing started before we’d stabilized Fannie and Freddie.

An interview with Tim Geithner on this topic was done recently at the Yale School of Management and he speaks much more authoritatively on the limits of the Fed powers than I, but here goes. While our responses may have looked inconsistent, Ben, Tim, and I were united in our commitment to prevent the failure of any systemically important financial institution. But we had a balkanized, outdated regulatory system without sufficient oversight or visibility into a large part of the modern financial system and without the necessary emergency powers to inject capital, guarantee liabilities, or wind down a non-banking institution. So we did whatever we could on a case-by-case basis.

For Lehman, we had no buyer and we needed one with the willingness and capacity to guarantee its liabilities. Without one, a permissible Fed loan would not have been sufficient or effective to stop a run. To do that, the Fed would have had to inject capital or guarantee liabilities and they had no power to do so. Now, here’s the point that I think a lot of people miss: In the midst of a panic, market participants make their own judgments and a Fed loan to meet a liquidity shortfall wouldn’t prevent a failure if they believed Lehman wasn’t viable or solvent. And no one believed they were.

AIG is a cautionary tale. We should not have let our financial regulatory system fail to keep up with modern financial markets. No single regulator had oversight visibility or adequate powers to deal with AIG. Its insurance companies were regulated at the state level, its holding company was like a giant hedge fund sitting on top of the insurance companies, and it was regulated by the ineffective Office of Thrift Supervision, which also regulated—get this—Countrywide, WaMu, IndyMac, GE Capital. They all selected their regulator. So you get the picture, it’s regulatory arbitrage.

And I’m concerned that some of the tools we effectively used to stave off disaster have now been eliminated by Congress. These include the ability of Treasury to use its exchange stabilization fund to guarantee the money market funds, the emergency lending authority the Fed used to avoid the failure of Bear and AIG, and the FDIC’s guarantee of bank liabilities on a systemwide basis, which was critical.

The global smartphone supply chain needs an upgrade

At the peak in October 2017, smartphone components accounted for over 33% of exports from Taiwan, 17% of those from Malaysia and 16% from Singapore. Smartphones comprise 6% of Chinese exports. Memory chips flow from South Korea and Vietnam; system chips from Malaysia, Taiwan and elsewhere; and displays from Japan and South Korea. Rich-world firms, such as Qualcomm, sell licences to use their intellectual property (IP). The parts are then assembled, mainly by armies of Chinese workers.

Apple and 13 of its chip suppliers earn over 90% of the total pool of profits from the Apple system. Meanwhile the tail of other firms doing more basic activities must pay for most workers, inventories and fixed assets (see chart). So they have in aggregate a weak return on equity, of 9%, and a net profit margin of just 2%. Their earnings have not risen for five years. They include assemblers such as Taiwan’s Hon Hai and niche component makers, some of which are visibly struggling. On August 22nd AAC Technologies, a specialist in making phones vibrate, said its second-quarter profits fell by 39% compared with the previous year.

Apple, Samsung and most semiconductor makers could ride out such tensions, with their high margins and cash-laden balance-sheets. But the long chain of other suppliers could not, given their razor-thin margins, big working-capital balances and fixed costs. Tariffs could push them into the red. Of the 132 firms, 52% would be loss-making if costs rose by just 5%. And a ZTE-style cessation of trade would be disastrous. If revenues dried up and the 132 firms continued to pay their own suppliers, short-term debts and wages, 28% of them would run out of cash within 100 days.

If you are running a big firm in the smartphone complex, you should be reimagining things in preparation for a less open world. In a decade, on its current trajectory, the industry will be smaller, with suppliers forced to consolidate and to automate production. It may also be organised in national silos, with production, IP, profits and jobs distributed more evenly around the world. Firms will need to adapt—or be swiped away.

The story of Box: A unicorn’s journey to public success

The early days of Box’s selling file sharing and collaboration have largely been replaced by big corporate wins. One measure of Box’s success is its penetration of the Fortune 500—from 52% in the second quarter of 2016 to 69% in the same quarter of fiscal 2019. About 58% of Box’s total revenue comes from enterprises of 2,000 employees or more.

In Box’s recently completed fiscal quarter, it closed 50 deals of more than $100,000, compared with 40 a year ago; 11 deals of more than $500,000, versus eight a year ago; and two deals of more than $1 million, compared with four a year ago. It expects a strong pipeline of seven-figure deals in the back half of this year.

But in encouraging its salespeople to pursue bigger deals, Box increasingly faces competition from deeper-pocketed competitors in a total addressable market pegged at $45 billion, based on market research by Gartner and IDC.

Soccer fans, your team is coming after you

At the time of its 2012 initial public offering, Man United counted 659 million fans worldwide. Analysts estimate the team’s revenue this year will be about 587 million pounds ($763 million) — just $1.16 per supporter. Twitter Inc. has just 338 million active monthly users, yet enjoys revenue of $2.4 billion and a market value of $27 billion.

Digital marketing provides the opportunity for teams to put themselves in the middle of the sale of a service or product. It’s not simply about using a website or an app to sell fans more jerseys or baseball caps. It’s about turning the team into a platform, a way of connecting brands to customers, in the same way as Facebook Inc. and Alphabet Inc. already do.

Much in the way that price-comparison websites charge insurers or credit card companies for connecting them to customers, a sports team could, for example, offer its own exclusive video content with another provider’s mobile phone contract and take a cut of the proceeds. If that meant each fan were to spend just one more dollar a year with the club, it would provide a significant boost to sales.


Alibaba-backed apparel-sharing company YCloset brings sharing economy to a new level

Founded in December 2015, YCloset charges a monthly membership fee of 499 yuan and allows female users to rent unlimited clothes and accessories country-wide. Furthermore, users can choose to buy the apparel if they like to and prices fluctuate according to the rent count. Thus far, 75% of the income comes from membership fees and the remaining comes from sales of clothing. YCloset positions itself as a company that offers affordable luxury, professional and designer brand clothing. The company hopes to have the top famous brand to drive the long-tail brands.

In terms of business model, YCloset gradually shifted from one-time supplier purchase to brand partnerships with clothing companies. Brand partnerships allow revenue sharing between YCloset and their partners. To these clothing companies, YCloset gave them a new revenue, at the same time, they may get consumer insights from the data YCloset collects. In the future, YCloset will have joint marketing campaigns with the brands and assist in incubating new brands.

Autonomous delivery robots could lower the cost of last mile delivery by 20-fold

Last mile delivery – the delivery of goods from distribution hubs to the consumer – is the most expensive leg of logistics because it does not submit to economies of scale. The cost per last mile delivery today is $1.60 via human drivers but could drop precipitously to $0.06 as autonomous delivery robots proliferate.

Autonomous delivery robots are roughly seven times more efficient than electric vehicles on a mile per kilowatt basis. The major costs for autonomous delivery robots are hardware, electricity, and remote operators. Unlike in electric vehicles, the battery is not the largest cost component in slow moving robots. Air resistance is a function of velocity squared, suggesting that a robot traveling at four miles per hour loses much less energy than a car traveling at highway speeds to air resistance. As a result, rolling robots do not require large batteries, lowering both hardware and electricity costs relative to more traditional electric vehicles.

If rolling robots enable last mile delivery for $0.06 per mile, artificial intelligence could be advanced enough to improve their unit economics. A remote operator responsible for controlling robots in difficult or confusing situations probably will oversee roughly 100 robots, accounting for more than half of the cost per mile, as shown below. As autonomous capability improves, remote operators should be able to manage larger fleets of robots, bringing down the costs per robot.


Hospitals are fed up with drug companies, so they’re starting their own

A group of major American hospitals, battered by price spikes on old drugs and long-lasting shortages of critical medicines, has launched a mission-driven, not-for-profit generic drug company, Civica Rx, to take some control over the drug supply. Backed by seven large health systems and three philanthropic groups, the new venture will be led by an industry insider who refuses to draw a salary. The company will focus initially on establishing price transparency and stable supplies for 14 generic drugs used in hospitals, without pressure from shareholders to issue dividends or push a stock price higher.


Harvard Business School professor: Half of American colleges will be bankrupt in 10 to 15 years

There are over 4,000 colleges and universities in the United States, but Harvard Business School professor Clayton Christensen says that half are bound for bankruptcy in the next few decades. Christensen and co-author Henry Eyring analyze the future of traditional universities, and conclude that online education will become a more cost-effective way for students to receive an education, effectively undermining the business models of traditional institutions and running them out of business.

Christensen is not alone in thinking that online educational resources will cause traditional colleges and universities to close. The U.S. Department of Education and Moody’s Investors Service project that in the coming years, closure rates of small colleges and universities will triple, and mergers will double.

More than 90 per cent of Chinese teens access the internet through mobile phones, says report

The proportion of Chinese children under 10 years old who use the internet – which was only 56 per cent in 2010 – reached 68 per cent last year. More than 90 per cent of Chinese minors, those aged up to 18, can now access the internet through mobile phone and over 64 per cent of primary school kids have their own smartphones. Nearly 85 per cent of Chinese minors use WeChat, compared to only 48 per cent five years ago, but Chinese juveniles are still more fond of QQ, while Chinese adults prefer WeChat as a social app.

Curated Insights 2018.05.20

The spectacular power of Big Lens

There is a good chance, meanwhile, that your frames are made by Luxottica, an Italian company with an unparalleled combination of factories, designer labels and retail outlets. Luxottica pioneered the use of luxury brands in the optical business, and one of the many powerful functions of names such as Ray-Ban (which is owned by Luxottica) or Vogue (which is owned by Luxottica) or Prada (whose glasses are made by Luxottica) or Oliver Peoples (which is owned by Luxottica) or high-street outlets such as LensCrafters, the largest optical retailer in the US (which is owned by Luxottica), or John Lewis Opticians in the UK (which is run by Luxottica), or Sunglass Hut (which is owned by Luxottica) is to make the marketplace feel more varied than it actually is.

Now they are becoming one. On 1 March, regulators in the EU and the US gave permission for the world’s largest optical companies to form a single corporation, which will be known as EssilorLuxottica. The new firm will not technically be a monopoly: Essilor currently has around 45% of the prescription lenses market, and Luxottica 25% of the frames. But in seven centuries of spectacles, there has never been anything like it. The new entity will be worth around $50bn (£37bn), sell close to a billion pairs of lenses and frames every year, and have a workforce of more than 140,000 people. EssilorLuxottica intends to dominate what its executives call “the visual experience” for decades to come.

For a long time, scientists thought myopia was primarily determined by our genes. But about 10 years ago, it became clear that the way children were growing up was harming their eyesight, too. The effect is starkest in east Asia, where myopia has always been more common, but the rate of increase has been uniform, more or less, across the world. In the 1950s, between 10% and 20% of Chinese people were shortsighted. Now, among teenagers and young adults, the proportion is more like 90%. In Seoul, 95% of 19-year-old men are myopic, many of them severely, and at risk of blindness later in life.

Del Vecchio paid $645m (£476m) for Ray-Ban. During the negotiations, he promised to protect thousands of jobs at four factories in the US and Ireland. Three months later, he closed the plants and shifted production to China and Italy. Over the next year and a half, Luxottica withdrew Ray-Ban from 13,000 retail outlets, hiked their prices and radically improved the quality: increasing the layers of lacquer on a pair of Wayfarers from two to 31. In 2004, to the disbelief of many of his subordinates, del Vecchio decided that Ray-Ban, which had been invented for American pilots in the 1930s, should branch out from sunglasses into optical lenses, too. “A lot of us were sceptical. Really? Ray. Ban. Banning rays from the sun?” the former manager said. “But he was right.” Ray-Ban is now the most valuable optical brand in the world. It generates more than $2bn (£1.5bn) in sales for Luxottica each year, and is thought to account for as much as 40% of its profits.

The Moat Map

Facebook has completely internalized its network and commoditized its content supplier base, and has no motivation to, for example, share its advertising proceeds. Google similarly has internalized its network effects and commoditized its supplier base; however, given that its supply is from 3rd parties, the company does have more of a motivation to sustain those third parties (this helps explain, for example, why Google’s off-sites advertising products have always been far superior to Facebook’s).

Netflix and Amazon’s network effects are partially internalized and partially externalized, and similarly, both have differentiated suppliers that remain very much subordinate to the Amazon and Netflix customer relationship.

Apple and Microsoft, meanwhile, have the most differentiated suppliers on their platform, which makes sense given that both depend on largely externalized network effects. “Must-have” apps ultimately accrue to the platform’s benefit.

Apple’s developer ecosystem is plenty strong enough to allow the company’s product chops to come to the fore. I continue to believe, though, that Apple’s moat could be even deeper had the company considered the above Moat Map: the network effects of a platform like iOS are mostly externalized, which means that highly differentiated suppliers are the best means to deepen the moat; unfortunately Apple for too long didn’t allow for suitable business models.

Uber’s suppliers are completely commoditized. This might seem like a good thing! The problem, though, is that Uber’s network effects are completely externalized: drivers come on to the platform to serve riders, which in turn makes the network more attractive to riders. This leaves Uber outside the Moat Map. The result is that Uber’s position is very difficult to defend; it is easier to imagine a successful company that has internalized large parts of its network (by owning its own fleet, for example), or done more to differentiate its suppliers. The company may very well succeed thanks to the power from owning the customer relationship, but it will be a slog.

How much would you pay to keep using Google?

Part of the problem is that GDP as a measure only takes into account goods and services that people pay money for. Internet firms like Google and Facebook do not charge consumers for access, which means that national-income statistics will underestimate how much consumers have benefitted from their rise.

Survey respondents said that they would have to be paid $3,600 to give up internet maps for a year, and $8,400 to give up e-mail. Search engines appear to be especially valuable: consumers surveyed said that they would have to be paid $17,500 to forgo their use for a year.


There is another

Spotify has better technology, merchandising (like discovery playlists), and brand. Unlike Apple Music, being a pure-play (as opposed to being owned by a tech giant) gives Spotify more cred among purists, young people, and influencers. The instinct / T Algorithm cocktail has resulted in a firm with 170M users, 75M of whom are premium subscribers. The firm registered €1B this quarter, representing 37% growth. Spotify accounted for 36% of premium music subscribers globally.

What takes Spotify to $300B, and true horseman status? They launch video, and become the most successful streaming entertainment firm, full stop. Netflix’s legacy is on the second most important screen, TV. Spotify was raised on the most important – mobile. Netflix needs to become Spotify before Spotify becomes Netflix. Nobody has cracked social and TV, and as half of young people no longer watch cable TV, if Spotify were to launch video and captured any reasonable share and engagement via unique playlists, then cable and Netflix would begin ceding market cap to Spotify.


Subscriptions for the 1%

The problem with these minuscule conversion rates is that it dramatically raises the cost of acquiring a customer (CAC). When only 1% of people convert, it concentrates all of that sales and marketing spend on a very small sliver of customers. That forces subscription prices to rise so that the CAC:LTV ratios make rational sense. Before you know it, what once might have been $1 a month by 20% of a site’s audience is now $20 a month for the 1%.

There is a class of exceptions around Netflix, Spotify, and Amazon Prime. Spotify, for instance, had 170 million monthly actives in the first quarter this year, and 75 million of those are paid, for an implied conversion of 44%. What’s unique about these products — and why they shouldn’t be used as an example — is that they own the entirety of a content domain. Netflix owns video and Spotify owns music in a way that the New York Times can never hope to own news or your podcast app developer can never hope to own the audio content market.

The Apple Services machine

It is this hardware dependency that makes it impossible to look at Apple Services as a stand-alone business. The Services narrative isn’t compelling if it excludes Apple hardware from the equation. Apple’s future isn’t about selling services. Rather, it’s about developing tools for people. These tools will consist of a combination of hardware, software, and services.

Apple currently has more than 270 million paid subscriptions across its services, up over 100 million year-over-year. Apple is in a good position to benefit from growing momentum for video streaming services including Netflix, HBO, and Hulu. It is not a stretch to claim that Apple will one day have 500 million paid subscriptions across its services. Apple isn’t becoming a services company. Instead, Apple is building a leading paid content distribution platform.

Tencent Holdings Ltd. delivered two major milestones when it reported its earnings Wednesday: record quarterly profits and more than one billion monthly active users on its WeChat platform. The social media and gaming giant, which has been leery of barraging its users with ads, also declared it had raised the maximum number of ads that customers see on WeChat Moments from one a day to two. The app has become China’s most popular messaging service and is integral to driving everything from gaming and payments to advertising for Tencent.

MoviePass: the unicorn that jumped into Wall Street too soon

“The growth-at-all-costs strategy is being funded these days by the venture community, not the public market. The last time we saw the public markets fund a growth-at-all-costs strategy was the 1999 internet bubble, and we all know how that ended.”

The prospect of steep declines in a company’s valuations once it hits the public markets is one reason why U.S. companies are waiting longer to go public. Overall, U.S. companies that have gone public this year have done so at an average market capitalization of $1.1 billion, according to Thomson Reuters data, a 44 percent increase from the average market cap during the height of the dot com craze in 1999. At the same time, companies are now going public 6.5 years after receiving their first venture capital backing on average, more than double the three years between initial funding and going public in 1999.

Cerebras: The AI of cheetahs and hyenas

The specialist starts out with a technology optimized for one specific task. Take the graphics-processing unit. As its name denotes, this was a specialist technology focused on a single task–processing graphics for display. And for the task of graphics, graphics-processing units are phenomenal. Nvidia built a great company on graphics-processing. But over time, the makers of graphics-processing units, AMD and Nvidia, have tried to bring their graphics devices to markets with different requirements, to continue the analogy to hunt things that aren’t gazelle. In these markets, what was once a benefit, finely tuned technology for graphics (or gazelle-hunting), is now a burden. If you hunt up close like a leopard and never have to run fast, having your nose smooshed into your face is not an advantage and may well be a disadvantage. When you hunt things you were no longer designed to hunt, the very things that made you optimized and specialized are no longer assets.

Intel is the classic example of a generalist. For more than 30 years the x86 CPU they pioneered was the answer to every compute problem. And they gobbled up everything and built an amazing company. But then there emerged compute problems that specialists were better at, and were big enough to support specialist companies—such as cell phones, graphics and we believe AI. In each of these domains specialist architectures dominate.

We are specialists, designing technology for a much more focused purpose than the big companies burdened with multiple markets to serve and legacy architectures to carry forward. Specialists are always better at their target task. They do not carry the burden of trying to do many different things well, nor the architectural deadweight of optimizations for other markets. We focus and are dedicated to a single purpose. The question of whether we—and every other specialist– will be successful rests on whether the market is large enough to support that specialist approach. Whether, in other words, there are enough gazelle to pursue. In every market large enough, specialists win. It is in collections of many modest markets, that the generalist wins. We believe that the AI compute market will be one of the largest markets in all of infrastructure. It will be the domain of specialists.


This $2 billion AI startup aims to teach factory robots to think

What sets Preferred Networks apart from the hundreds of other AI startups is its ties to Japan’s manufacturing might. Deep learning algorithms depend on data and the startup is plugging into some of the rarest anywhere. Its deals with Toyota and Fanuc Corp., the world’s biggest maker of industrial robots, give it access to the world’s top factories. While Google used its search engine to become an AI superpower, and Facebook Inc. mined its social network, Preferred Networks has an opportunity to analyze and potentially improve how just about everything is made.

At an expo in Japan a few months later, another demo showed how the tech might one day be used to turn factory robots into something closer to skilled craftsmen. Programming a Fanuc bin-picking robot to grab items out of a tangled mass might take a human engineer several days. Nishikawa and Okanohara showed that machines could teach themselves overnight. Working together, a team of eight could master the task in an hour. If thousands — or millions — were linked together, the learning would be exponentially faster. “It takes 10 years to train a skilled machinist, and that knowledge can’t just be downloaded to another person” Fanuc’s Inaba explained. “But once you have a robot expert, you can multiply it infinitely.”

China buys up flying schools as pilot demand rises

In September Ryanair axed 20,000 flights due to a rostering mess-up made worse by pilot shortages. This forced the low-cost carrier to reverse a longstanding policy and recognise trade unions and agree new pay deals — a move that it said would cost it €100m ($120m) a year from 2019.

China is on course to overtake the US as the world’s largest air travel market by 2022, according to the International Air Transport Association.

US aircraft maker Boeing predicts China will need 110,000 new pilots in the years through to 2035, and its airlines are expected to purchase 7,000 commercial aircraft over the next two decades.

China’s aviation market grew by 13 per cent last year, with 549m passengers taking to the skies, double the number who flew in 2010. Growth is being driven by the rising middle class, an expansion of routes by Chinese airlines and the easing of visa restrictions by foreign governments keen to attract Chinese tourists.

California will require solar power for new homes

Long a leader and trendsetter in its clean-energy goals, California took a giant step on Wednesday, becoming the first state to require all new homes to have solar power.

The new requirement, to take effect in two years, brings solar power into the mainstream in a way it has never been until now. It will add thousands of dollars to the cost of home when a shortage of affordable housing is one of California’s most pressing issues.

Just half a percent

If you save $5,000 a year for 40 years and make only 8% (the “small” mistake), you’ll retire with about $1.46 million. But if you earn 8.5% instead, you’ll retire with nearly $1.7 million. The additional $230,000 or so may not seem like enough to change your life, but that additional portfolio value is worth more than all of the money you invested over the years. Result: You retire with 16% more.

Your gains don’t stop there. Assume you continue earning either 8% or 8.5% while you withdraw 4% of your portfolio each year and that you live for 25 years after retirement. If your lifetime return is 8%, your total retirement withdrawals are just shy of $2.5 million. If your lifetime return is 8.5% instead, you withdraw about $3.1 million. That’s an extra $600,000 for your “golden years,” a bonus of three times the total dollars you originally saved.

Your heirs will also have plenty of reasons to be grateful for your 0.5% boost in return. If your lifetime return was 8%, your estate will be worth about $3.9 million. If you earned 8.5% instead, your estate is worth more than $5.1 million.

Keep your investment costs low.
Slowly increasing your savings rate over time.
Consistently saving while treating investment contributions like a periodic bill payment.
Bettering your career prospects to increase your income over time.
Avoiding behavioral investment mistakes which can act as a counterweight to the benefits of compounding.

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 2017.08.27

Inside Waymo’s secret world for training self-driving cars

Collectively, they now drive 8 million miles per day in the virtual world. In 2016, they logged 2.5 billion virtual miles versus a little over 3 million miles by Google’s IRL self-driving cars that run on public roads. And crucially, the virtual miles focus on what Waymo people invariably call “interesting” miles in which they might learn something new. These are not boring highway commuter miles.

And in both kinds of real-world testing, their cars capture enough data to create full digital recreations at any point in the future. In that virtual space, they can unhitch from the limits of real life and create thousands of variations of any single scenario, and then run a digital car through all of them. As the driving software improves, it’s downloaded back into the physical cars, which can drive more and harder miles, and the loop begins again.

Not surprisingly, the hardest thing to simulate is the behavior of the other people. It’s like the old parental saw: “I’m not worried about you driving. I’m worried about the other people on the road.”

“Right now, you can almost measure the sophistication of an autonomy team—a drone team, a car team—by how seriously they take simulation. And Waymo is at the very top, the most sophisticated.”

And in reality, those 20,000 scenarios only represent a fraction of the total scenarios that Waymo has tested. They’re just what’s been created from structured tests. They have even more scenarios than that derived from public driving and imagination. “They are doing really well,” Peng said. “They are far ahead of everyone else in terms of Level Four,” using the jargon shorthand for full autonomy in a car.


Halliburton and Microsoft do not compute for OPEC

Contrary to conventional wisdom, the oil business is a high-tech one. You don’t map out complex rock formations thousands of feet beneath the ground in three or four dimensions and then drill into them without advanced tools. For example, Total SA, the French oil major, boasts the 19th-most powerful supercomputer in the world, Pangea, which has clocked a speed of more than 5 quadrillion calculations a second (technical note: pretty fast) according to The Top 500 List.

…the average well has less than 10 gigabytes of data associated with it, equivalent to a couple of high-definition movies.

…the company’s teams now have access to more than 80 real-time data streams and sensors embedded in wells, giving them a constantly updated picture of what’s happening beneath the ground. The killer app here, in every sense of the word, is providing crews and their managers with an integrated platform; a suite of sensors and software communicating seamlessly, updating constantly and available to all involved.


Costco is playing a dangerous game with the web

Costco’s reluctance to embrace the web is understandable. Its warehouse club business model is based on selling a limited assortment of bulk-size food and household items at low prices, alongside an ever-changing selection of general merchandise—everything from margarita machines to kayaks. This creates an in-store treasure hunt experience. Both elements are costly and difficult to replicate online.

Potentially more worrisome: Half of Costco’s shoppers are Amazon Prime members, Kantar Retail says, up from 14 percent five years ago. Sharing too many of the same subscribers could be risky, since Planet Retail RNG analyst Graham Hotchkiss says Amazon now offers many bulk-size goods at prices that rival Costco’s. And Amazon’s pending $13.7 billion deal to buy Whole Foods Market Inc. will give it a firm foothold in groceries—the primary reason people shop at Costco, according to Barclays’s Short.


What is Amazon, really?

At last count, Amazon’s delivery infrastructure included more than 180 warehouses, 28 sorting centers, 59 local package delivery stations, and 65 hubs for its two-hour Prime Now deliveries. Investment bank Piper Jaffray estimates that 44% of the US population lives within 20 miles of an Amazon warehouse or delivery station. Amazon’s proposed $13.7 billion acquisition of Whole Foods could add another 431 distribution nodes in bougie neighborhoods to that network.

“Our goal with Amazon Prime, make no mistake, is to make sure that if you are not a Prime member, you are being irresponsible,” Bezos told shareholders in May. The plan is working: 63% of US Amazon users subscribe to Prime, and estimated to reach more than half of American households by the end of the year. Prime doesn’t just lift $99 off of regular Amazon users each year—it’s proven to be a powerful customer loyalty program. The average Prime user spends $1,300 each year on the site, with 78% of Prime users still citing free 2-day shipping as the main reason for coughing up the fee.

The service first reached customers by 2005, and was officially launched in the summer of 2006. Tom Szkutak, Amazon’s CFO at the time, said the business was “exposing the guts of Amazon,” using the knowledge gained from 11 years of building Amazon.com. Today AWS is on a tear. It’s the world’s dominant cloud computing provider, and the nearest competitors aren’t even within shouting distance: Amazon’s servers deliver 34% of the world’s public cloud services, reports Synergy Research Group, while Microsoft, IBM and Google provide 24% combined.


Amazon vs Maersk: The clash of titans shaking the container industry

Manufacturing is new step for Amazon and they won a patent earlier this year to develop a system to rapidly create clothing and other products after a customer order is placed. This forms a cheap and simple method for Chinese exporters as Amazon have effectively wiped out the middle man, acting as a shipbroker for itself and on behalf of smaller companies.

Freight forwarders may find it hard to compete with companies as powerful as Amazon and Maersk, who can afford to develop disruptive technology and prioritize increasing market share over higher profits.

Small independent ship owners will be left behind unless they adapt their business model to seek different shipping routes, for example choosing container lanes that do not feed into deep sea ports where the ultra large container vessels operated by Maersk can only dock.


Great Wall Motor’s better path leads to emerging markets

The Proton purchase not only gives Geely inroads to the Malaysian consumer market but also access to production plants in the region that could be used to manufacture other car brands. Being closer to the end customer would lower production costs. While Proton’s Tanjung Malim plant has the capacity to churn out one million cars annually, it made only 72,000 last year, according to the Malaysian government.

A lean company, analysts estimate Great Wall makes 60 percent of its parts in-house. It spends little on marketing and is the fourth-most-profitable automaker globally by net margin and return on equity. Its return on invested capital ranks number one among 40 manufacturers tracked by Bloomberg Intelligence.


A handful of companies control almost everything we buy — and beer is the latest victim

A whopping 182 beauty brands fall under the massive umbrellas of seven huge manufacturers: Estée Lauder Companies, L’Oréal, Unilever, Procter & Gamble, Shiseido, Johnson and Johnson, and Coty.

A 2015 Morgan Stanley report found that 10 companies controlled 41% of the clothing market. No other retailer had more than 2% of market share. The retailers dominating the market were Walmart, T.J. Maxx, Macy’s, Gap, Kohl’s, Target, Ross Stores, Amazon, Nordstrom, and J.C. Penney.

According to a Bank of America Merrill Lynch chart, in 2014 AB InBev and SABMiller alone controlled about 58% of the beer industry’s $33 billion in global profits.

Winner-takes all effects in autonomous cars

… it seems pretty clear that the hardware and sensors for autonomy will be commodities. There is plenty of science and engineering in these (and a lot more work to do), just as there is in, say, LCD screens, but there is no reason why you have to use one rather than another just because everyone else is. There are strong manufacturing scale effects, but no network effect. So, LIDAR, for example, will go from a ‘spinning KFC bucket’ that costs $50k to a small solid-state widget at a few hundred dollars or less, and there will be winners within that segment, but there’s no network effect, while winning LIDAR doesn’t give leverage at other layers of the stack (unless you get a monopoly), anymore than than making the best image sensors (and selling them to Apple) helps Sony’s smartphone business. In the same way, it’s likely that batteries (and motors and battery/motor control) will be as much of a commodity as RAM is today – again, scale, lots of science and perhaps some winners within each category, but no broader leverage.

Maps have network effects. When any autonomous car drives down a pre-mapped road, it is both comparing the road to the map and updating the map: every AV can also be a survey car. If you have sold 500,000 AVs and someone else has only sold 10,000, your maps will be updated more often and be more accurate, and so your cars will have less chance of encountering something totally new and unexpected and getting confused. The more cars you sell the better all of your cars are – the definition of a network effect.

The more real world driving data that you have, the more accurate you can make your simulation and therefore the better you can make your software. There are also clear scale advantages to simulation, in how much computing resource you can afford to devote to this, how many people you have working on it, and how much institutional expertise you have in large computing projects. Being part of Google clearly gives Waymo an advantage: it reports driving 25,000 ‘real’ autonomous miles each week, but also one billion simulated miles in 2016 (an average of 19 million miles a week).

So, the network effects – the winner-takes-all effects – are in data: in driving data and in maps. This prompts two questions: who gets that data, and how much do you need?

This leads me to the final question: how much data do you really need? Does the system get better more or less indefinitely as you add more data, or is there an S-Curve – is there a point at which adding more data has diminishing returns? That is – how strong is the network effect?


The stereo speaker company giving sight to self-driving cars

Although it will soon face plenty of competition, Velodyne has become the industry’s go-to lidar supplier and is cranking up production to match. Last year, Ford Motor Co. and Chinese Internet giant Baidu pumped $150 million into Velodyne, money the company used to open its “mega-factory” on San Jose’s southern edge.

Lidar works by firing laser beams — thousands per second — at nearby objects and measuring how quickly they bounce back. With the notable exception of Tesla, most companies pursuing autonomous vehicles rely on lidar, along with radar and cameras.

“The prevailing view is that in the near term — at least a decade — you’re not going to be able to execute this safely without lidar,” said Mike Ramsey, research director at Gartner.

“One major automaker told me they had vetted 50 lidar companies,” Ramsey said. “So more than 50 companies exist, but only Velodyne is producing a lidar they can use.”

Now, the race is to cut lidar’s cost. Velodyne’s most popular lidar, about the size of two stacked hockey pucks, sells for $8,000. As it ramps up production, the company hopes to bring prices down to “a few hundred dollars,” Hall said. “We’re in the inventing business, so we’re going to keep working on this thing until we crack that nut.”


The internal combustion engine is not dead yet

Mazda, which now markets no hybrid vehicles, calls the engine Skyactiv-X and says it is scheduled for a 2019 introduction. In simplest terms, the big difference with the new engine is that under certain running conditions, the gasoline is ignited without the use of spark plugs. Instead, combustion is set off by the extreme heat in the cylinder that results from the piston inside the engine traveling upward and compressing air trapped inside, the same method diesel engines use. The efficiency gains come with the ability to operate using a very lean mixture — very little gas for the amount of air — that a typical spark-ignition engine cannot burn cleanly.

…addresses the challenge of gasoline’s future from a somewhat different direction: the practical limitations of battery electric cars. “Holding a gas nozzle, you can transfer 10 megawatts of energy in five minutes,” he said, explaining today’s refueling reality. To recharge a Tesla electric at that rate today, he said, would require “a cable you couldn’t hold.”

By 2050, Dr. Heywood’s studies project, today’s fuel economy could be doubled. “A quarter to a third of that improvement would come from improvements to the vehicle,” he said, in areas like aerodynamics and weight reduction. Other promising areas include variable compression ratios — a technology Nissan plans to introduce next year — and making better use of available fuels.


Wind power is all grown up now

People tend to think of renewable energy companies as the new kids on the block but Vestas Wind Systems A/S, the world’s biggest wind turbine manufacturer, is no pimply teenager. The Danish group entered the turbine business almost 40 years ago and went public in 1998…

The wind industry is consolidating — Siemens merged its wind business with Gamesa in April — and competition is intensifying. This puts pressure on margins and makes it more difficult to lift revenue.

A bigger concern is that more countries are adopting auction-based contract awards. These promote projects that deliver the cheapest electricity as opposed to feed-in tariffs, which guaranteed a fixed electricity price. So life’s getting a little tougher for Vestas.

There are other ways to make money. High-margin maintenance contracts are an increasing share of business. There are opportunities too to upgrade the installed base with those newer, better turbines.


The very symbolic collision of Sotheby’s-Christie’s and Poly-Guardian in China art

If Sotheby’s and Christie’s are purely commercial Giants, then Poly Culture and Guardian are something else. They are certainly Giants, dominating the domestic art auction industry. But Poly in particular is also a direct extensions of the State. Because it turns out, what happens to historic Chinese art is a significant concern to the Chinese government. Part of this sensitivity is about repatriating works that were stolen and misappropriated over the centuries. Many of the works that have been returned can be seen on display at Poly’s headquarters in Beijing.

Poly Auction is now not just one of the top two auction houses in China. It is also the number three art auction house in the world (after Christie’s and Sotheby’s). Their 2013 turnover was over a billion dollars (about one-fourth of Sotheby’s). They sell approximately 10,000 objects each week, with as many as 40 different catalogs per show.

Because at the same time, Poly and Guardian have been expanding internationally. And they are now on Sotheby’s and Christie’s home turf for the first time. Both have moved into Hong Kong. And Poly is now moving aggressively into New York City, where Sotheby’s is headquartered. Thus far, they have focused mostly on finding consignments in the US for sale in China, particularly Chinese collectibles. But Poly’s openly stated ambition is to become the world’s top art auction house. According to CEO Jiang Yingchun, “We are very big in the art auction market in Mainland China but still have a long way to go to become the biggest auction house worldwide”.


It’s hard to keep up with all that lithium demand

Australia is the biggest lithium producer, though Chile and Argentina account for 67 percent of global reserves, according to the U.S. Geological Survey.

Extracting lithium from the salt flats that dot the arid northern regions of the South American countries is a lot easier and cheaper than digging underground for metals like copper. Producers just pump the brine solution into evaporation ponds, harvesting the mineral once the moisture is gone.

With demand expected to keep rising as electric cars gain a bigger share of the global auto fleet, Argentina and Chile are attracting interest from mining companies because it costs about $2,000 to $3,800 a ton to extract lithium from brine, compared with $4,000 to $6,000 a ton in Australia, where lithium is mined from rock.

Of the 39 lithium ventures tracked by CRU, only four have firm commitments, and all of those are in China, adding about 24,000 tons of annual supply. Another 10 projects representing 400,000 tons are rated “probable” — in Canada, Chile, China, Mexico, Argentina and Australia — but probably only about 30 percent will make it into production, CRU said.

“But we have a window of only 25 years to develop these projects because prices can fall again as soon as a replacement to lithium appears.”


Hunt for next electric-car commodity quickens as prices soar

As one of the key components in the new breed of rechargeable batteries and with supply dominated by the Democratic Republic of Congo, prices have surged at four times the pace of major metals in the past year.

The cobalt market is in a 5,500-ton deficit, according to CRU, with global supply contracting 3.9 percent in 2016.

“The mix of iron and cobalt is tricky. Cobalt is already mined as a byproduct of copper and nickel, but iron has the most negative impact on cobalt, which means processing would be more difficult and more expensive.”

Aging Japan wants automation, not immigration

In the absence of large-scale immigration, the only viable solution for many domestic industries is to plow money into robots and information technology more generally.

With unemployment down to 2.8 percent, companies are increasingly realizing they need to pay up to attract and keep qualified personnel. The other option — increased immigration — is politically difficult.

Bank of America Merrill Lynch forecast IT investment in Japan to rise as much as 9 percent annually in coming years, with the difference in software investment per worker versus the U.S. falling to 5 to 1 by 2020 from about 10 to 1 now.


Who really owns American farmland?

Farmland, the Economist announced in 2014, had outperformed most asset classes for the previous 20 years, delivering average U.S. returns of 12 percent a year with low volatility.

Today, the USDA estimates that at least 30 percent of American farmland is owned by non-operators who lease it out to farmers. And with a median age for the American farmer of about 55, it is anticipated that in the next five years, some 92,000,000 acres will change hands, with much of it passing to investors rather than traditional farmers.

It’s a tenuous predicament, growing low-cost food, feed, and fuel (corn-based ethanol) on ever-more-expensive land, and it raises a host of questions. Is this a sustainable situation? What happens to small farmers? And are we looking at a bubble that will burst?

In practice, our best hope of true stewardship of the land will come from enlightened, committed owner-farmers. But the trend toward treating farmland as a financial investment, and the high prices that have come with it, make it harder and harder for new young farmers to enter the field.

By buying land in other countries and farming it, foreign buyers are able to support their domestic food supply and other markets that depend on agriculture without having to compete for essential products on the global market.

The government of China now controls more than 400 American farms consisting of a hundred thousand acres of farmland, with at least 50,000 in Missouri alone, plus CAFOs (concentrated animal feeding operations), 33 processing plants, the distribution system—and one out of every four American hogs.


Yesterday’s “plastics” are today’s crypto tokens

Our ability to profit from our investments relies on two things: having the resources needed to purchase the asset and then having a way to sell it — a concept known as liquidity. Tokenizing real-world assets will allow buyers to access assets never before within their reach, and sellers to move assets that were previously difficult to unload. The secret lies in the possibility of fractionalization.

Imagine unlocking cash from the equity in your home without having to borrow or pay interest. Tokenize your home and sell fractions to the public. Buy the tokens back, or pay the investors their value at the time the property is sold.

In the future, you’ll be able to tokenize the value of unused bedrooms and backyards in your home. You’ll be able to tokenize use of your vehicle for Uber driving while you’re away on travel. You’ll even be able to tokenize access to your phone so marketers have to pay you tokens in order to gain access to your attention. Yes, this will happen.

At 5,4000 pounds, the Tesla is no lightweight, and the Aventador is a good 1,200 pounds lighter. But the Ludicrous + enabled vehicle not only beats the Lambo, it sets a world record for the quickest SUV with a quarter mile time clocking in at 11.418 seconds at nearly 118 miles-per-hour.

Curated Insights 2017.08.13

Misunderstanding Apple Services

Services revenue for the last four quarters reached $27.8B, figuratively placing Apple’s Services 98th on the Fortune 100 List. If Apple Services were a standalone company, its $27.8B in revenue would just squeak past Facebook’s $27.6B.

…It’s the consideration of Apple Services as a self-standing business. Remove “Apple” from “Apple Services”…would this stand-alone “Services” company enjoy the same success were it to service Android phones or Windows PCs?

With Services, Apple enjoys the benefits of a virtuous circle: Hardware sales create Services revenue opportunities; Services makes hardware more attractive and “stickier”. Like Apple Stores, Services are part of the ecosystem. Such is the satisfying simplicity and robustness of Apple’s business model.

Electric vehicle realities

Peer reviewed research suggests the cost of the battery pack is about 50% greater than the cost of the battery cells, however, we note the same article suggests that ratio will remain the same as battery prices drop. This is unlikely as there is no reason to believe the largely mechanical battery pack will decline proportionately any more than the cost of an engine or transmission will decline. Most likely, the battery pack assembly, excluding the cells, will decline only slightly.

For example, about 2 million new passenger cars are registered in France every year. If only half of those were EVs, subsidies would total $7.2B. Money for roads, infrastructure maintenance, policing, and so on have to come from somewhere, and if ICEV sales decline substantially, European governments’ huge gasoline tax revenues would also deteriorate; in such an environment, it is reasonable to assume that EV subsidies would eventually disappear and be replaced by taxes.


Why 5G will transform much more than telecommunications

The transition from 4G to 5G will allow wireless technology to surpass three technical thresholds: 1) wireless internet speeds will surpass cable broadband and potentially also fiber optic cable; 2) the “internet of things” will have mass industrial applications for the first time; and 3) communication lag will fall to one millisecond—faster than the speed at which humans perceive touch response as instantaneous—giving rise to new, “tactile internet” applications such as remote surgery.

As a result of these barriers being broken, the 5G transition will likely have a larger and broader economic impact than shifts between previous wireless generations.

The end of typing: The next billion mobile users will rely on video and voice

…many of America’s most popular apps aren’t in India’s top 100… Mr. Singh’s phone uses Google’s Android operating system, which nearly monopolizes India’s smartphone market… Apple Inc., in contrast, has a 3% smartphone market share in India, in part because its least expensive iPhone costs over $300; in India, more than 90% of smartphones cost less than that.

In the year through June, use of YouTube in India has more than doubled, while Gmail use fell 15%…Facebook says it has just over 200 million active users in India, the largest number outside the U.S…

UC Browser, from Alibaba Group Holding Ltd.’s UCWeb, is optimized to use less data for low-speed connections like those India’s poor use. UC Browser, with a less-than-1% market share in the U.S. and Europe, controls more than 40% of India’s mobile browser market…

Google has also benefited from the dominance of its Android operating system.

Paytm, the biggest mobile money app in India, now has more than 200 million users in India, vastly more the number of credit-card holders in India.

Some poor users say they are willing to pay for data even if it means forgoing consumption of things like cigarettes to afford prepaid cards. Sales of shampoo and some snacks foods have slipped for certain consumers as they put more rupees aside for their phones, say consumer-goods companies such as Nestlé SA.

The evolution of machine learning

Traditional machine learning models — not deep neural networks — are powering most AI applications. Engineers still use traditional software engineering tools for machine learning engineering, and they don’t work: The pipelines that take data to model to result end up built out of scattered, incompatible pieces.

Facebook’s FBLearner Flow and Uber’s Michelangelo are internal machine learning platforms that do just that. They allow engineers to construct training and validation data sets with an intuitive user interface, decreasing time spent on this stage from days to hours. Then, engineers can train models with (more or less) the click of a button. Finally, they can monitor and directly update production models with ease.

Services like Azure Machine Learning and Amazon Machine Learning are publicly available alternatives that provide similar end-to-end platform functionality but only integrate with other Amazon or Microsoft services for the data storage and deployment components of the pipeline.

The market really is different this time

Over the past month, small investors have pulled $17 billion out of U.S. stock mutual funds and exchange-traded funds and added $29 billion to bond funds. That’s the latest leg of a long-term trend: Since the internet-stock bubble burst in 2000, investors have withdrawn half a trillion dollars from U.S. stock mutual funds.

The math is simple: If you had a target of 50% in stocks and they go up 10%, you are suddenly off-target, with more than half your money there. Your financial adviser or target-date fund will automatically sell stock and buy bonds to get you back to 50%.

These automatic adjustments don’t mean stocks can’t crash or soar from here. But such sharp moves are at least somewhat less likely, and less likely to last, in a homeostatic market. So don’t believe anyone who tells you Dow 22000 is driven by euphoric “dumb money.” This is a market in which millions of small investors have been selling, not buying.


When (if ever) has it paid to wait for a stock market correction? Reviewing 115 years of US stock market history

From a given “expensive” starting point, there was a 56% probability that the market had a 10% correction within 3 years, waiting for which would result in about a 10% return benefit versus having invested right away.

In the 44% of cases where the correction doesn’t happen, there’s an average opportunity cost of about 30% – much higher than the average benefit.

Putting these together, the mean expected cost of waiting for a correction was about 8% versus investing right away.

Now shifting focus from the historical record to looking forward, it’s true that the lower one’s expectation of the stock market return, the lower the expected cost of waiting for a correction. If you believe the stock market has a negative expected return to a particular horizon, then waiting for a correction to invest makes sense. However, at least as far as the historical record for the US stock market goes, higher market valuations are consistent with lower prospective long-term returns, but not negative expected returns.

Americans are dying younger, saving corporations billions

In 2015, the American death rate—the age-adjusted share of Americans dying—rose slightly for the first time since 1999. And over the last two years, at least 12 large companies, from Verizon to General Motors, have said recent slips in mortality improvement have led them to reduce their estimates for how much they could owe retirees by upward of a combined $9.7 billion, according to a Bloomberg analysis of company filings. “Revised assumptions indicating a shortened longevity,” for instance, led Lockheed Martin to adjust its estimated retirement obligations downward by a total of about $1.6 billion for 2015 and 2016, it said in its most recent annual report.

The fact that people are dying slightly younger won’t cure corporate America’s pension woes—but the fact that companies are taking it into account shows just how serious the shift in America’s mortality trends is.

Changes to life expectancy in the U.K. could cut 310 billion pounds from British private-sector pension obligations, or 15 percent of the total liability, PwC estimated in May, although other actuaries have called that figure “relatively extreme.”

The question actuaries can’t yet answer is whether the slowdown is a short-term blip or a more permanent shift. If mortality improved by 1 percent a year for most of the past 70 years, might the U.S. revert to that soon? Or, Keener asks, “is this really a new reality that we’re living in?”


Baby boomers who refuse to sell are dominating the housing market

Like much of his generation, Yanoviak is desperate to get a piece of an increasingly scarce commodity: prime American real estate. Millennials are finding themselves out in the cold because building has slowed, and longer-living baby boomers are staying put, setting up a simmering conflict between the two biggest generations in U.S. history.

People 55 and older own 53 percent of U.S. owner-occupied houses, the biggest share since the government started collecting data in 1900, according to real estate website Trulia. That’s up from 43 percent a decade ago. Those ages 18 to 34 possess just 11 percent. When they were that age, baby boomers had homes at almost twice that level.

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.