Curated Insights 2018.04.15

Mark Zuckerberg: “We do not sell data to advertisers”

There is a very common misconception that we sell data to advertisers, and we do not sell data to advertisers. What we allow is for advertisers to tell us who they want to reach and then we do the placement. So, if an advertiser comes to us and says, ‘Alright, I’m a ski shop and I want to sell skis to women,’ then we might have some sense because people shared skiing related content or said they were interested in that. They shared whether they’re a woman. And then we can show the ads to the right people without that data ever changing hands and going to the advertiser. That’s a very fundamental part of how our model works and something that is often misunderstood.


Sen. Harris puts Zuckerberg between a rock and a hard place for not disclosing data misuse

So to sum up: in 2015, it became clear to Facebook and certainly to senior leadership that the data of 87 million people had been sold against the company’s terms. Whether or not to inform those users seems like a fundamental question, yet Zuckerberg claimed to have no recollection of any discussion thereof. That hardly seems possible — especially since he later said that they had in fact had that discussion, and that the decision was made on bad information. But he doesn’t remember when this discussion, which he does or doesn’t remember, did or didn’t take place!


Google and Facebook can’t help publishers because they’re built to defeat publishers

Here’s the problem: No matter how hard Google and Facebook try to help publishers, they will do more to hurt them, because that’s the way they’re supposed to work. They’re built to eviscerate publishers.

Publishers create and aggregate information and present it to users in return for their attention, which they sell to advertisers. And that’s exactly what Google and Facebook do, too: Except they do a much better job of that. That’s why the two companies own the majority of digital ad dollars, and an even bigger chunk of digital advertising growth. (Yes, those numbers can change — but if anyone displaces Google or Facebook, it will be another tech company.)

Amazon’s next mission: Using Alexa to help you pay friends

Mr. Bezos gave employees a mandate last year to push financial services as a key initiative, according to a person briefed on the matter. The company also restructured internally to add its digital wallet, Amazon Pay, to its team that focuses on Alexa as part of plans to make voice commands the next wave of commerce, according to other people familiar with the company’s plans.

If Amazon can move more transactions to its own rails or get better deals from card companies, it could save more than an estimated $250 million in interchange fees each year, Bain & Co. consultants say.


Is Amazon bad for the Postal Service? Or its savior?

An independent body, the Postal Regulatory Commission, oversees the rates that the Postal Service charges for its products. By law, the agreements it cuts with corporate customers like Amazon must cover their “attributable costs” that directly result from their use of the postal network.

While the Postal Service is subject to Freedom of Information Act requests, there is an exemption in the federal law that allows it to avoid releasing particulars of its deals with private businesses like Amazon.


Amazon is not a bubble

Thanks to its significant time-lag between selling an item and paying a supplier (estimated at 80 days by Morningstar) Amazon has been able to self-fund its growth almost entirely from cash from operations over its 25-year corporate history. In fact they last tapped the equity markets for funding in 2003, and in the last quarter of 2017 reported $6.5bn of free cash flow.

Ensemble Capital Q1 2018: Netflix

In the US, it has more subscribers than all of the cable TV companies combined, and it has a penetration rate of about 40% of all US households. And it’s still growing. Based on its massive global subscriber base, Netflix is now the 2nd largest pay TV service in the world behind just China Radio & TV. Yet Netflix is still growing subscribers at a 20% clip.

None other than the “Cable Cowboy”, John Malone, the business genius who pioneered the development of cable TV, shares our view on this topic. Talking to CNBC last year, Malone said that the most important question in the TV industry is “Can Netflix get enough scale that nobody really can challenge them?” and then went on to say that in his opinion the traditional pay TV companies no longer have any chance of overtaking Netflix. When the interviewer asked if the pay TV industry could band together to create their own Netflix-like service as Malone had been urging for years, he simply replied “It’s way too late.”


Apple now runs on 100% green energy, and here’s how it got there

At the moment, this conversation involves a healthy dose of education. “What we say is that we’ll be there with you,” Jackson recounts. “We’ll help you scout deals, we’ll help you evaluate whether they’re real, we’ll help you know what to negotiate for, because most of these folks, they’re trying to make a part, and so what we can do for them is be sort of their in-house consulting firm.” But she adds that there will likely come a time where Apple will require suppliers to run their businesses on clean energy as a condition of a business relationship.


[Invest Like the Best] Pat Dorsey Return – The Moat Portfolio

Chegg is a company we own right now where the historical data looks awful and it’s because they just sold a business, and the performance of this asset intensive textbook rental, that’s what’s in the historical data. The performance of the asset light, super high incremental margin study business is buried in the segment results…

The legacy business for Chegg is textbook rental…of course, this is a business that’s fairly easily replicable, there are very low barriers to entry and so Amazon and Barnes and Noble essentially crushed them in the textbook rental business. The founders were fired by the venture capitalists who poured $220mn into the business, a new CEO was brought in, and he realized that the only asset Chegg had at that point was a brand. They had 60%, maybe 70% unaided name recognition on college campuses…so, they invested in a bunch of other businesses and the one that’s worked out really well for them is essentially building a digital library of step-by-step answers to end of chapter study questions. So, if you took engineering or math or organic chemistry, there’s going to be a series of questions at the end of the chapter, so did you understand what you just read, and if you didn’t you probably won’t do so well on the test. What they’ve done is gotten exclusive licenses for 27,000 ISBNs and answered every single question and indexed it on Google, that being pretty important because the college student today copies and pastes. They copy the question and they put it in Google and search on it. Chegg comes up as the first organic result, which is how their user base has gone up 2.5x in 3 years with marketing costs being the same as they were 3 years ago…

Now Chegg has to pay money, big money, for those licenses to get that content, and so to some extent the publishers – Pearson and McGraw Hill – do have a lever over Chegg in that respect. We think those relationships are good, they recently renewed one of their licenses at similar cost to what it was a few years ago, largely because the publishers themselves are struggling and this is a very high margin source of income for them. And most college students, they’ve never heard of Pearson, that name means nothing to them. So if Pearson were to take all their textbooks and try to do this themselves, we think the marketing costs would be enormous…you do have some crowd sourced competitors to Chegg, where students basically post their own answers but here’s the thing. When you think about the value to a student of getting a 3.5 instead of a 3.0 GPA or passing a certain class that’s required of their major, the marginal benefit of paying $14.95/month for Chegg and knowing it’s the right answer…vs. just crowd-sourcing it on reddit, it’s a good cost-benefit.

So Workiva, they have 96% client retention, 106% revenue retention because they keep upselling clients. And what they did is create a product that lets companies do SEC filings much more efficiently than the old way, which was mark up a pdf and send it to RR Donnelley and the Donnelley sends it back to you and then you mark it up and send it back to them…so needless to say, [Workiva] went from 0% to 50% share in 6 years. In fact, the people who do external reporting – they’ve got 80% share of the Fortune 500 right now – people actually won’t go to work for another firm that doesn’t use Workiva…

It’s not an easy product to create because essentially what they had to do was replicate Excel in the cloud and enable it for scores of simultaneous users. There’s no check-in/check-out the worksheet. And then also the data points get linked inside your enterprise and so you might way we need to report this EBIT line, well that’s the function of Bob here and Jane over there, and their numbers roll up into mine and I link that inside my enterprise, so if you had a new product you’d have to break all those links and re-integrate it. So, not impossible but external reporting teams, even Wal-Mart, a huge company, their external reporting team’s like 20 people, so it’s feasible to do a rip-and-replace. But where things get interesting for this business and where the TAM gets much larger is internal reporting, where you’re rolling up data across the entire enterprise and then putting it together for the CFO/CEO or whatever, because then the linkages get much greater and the number of users becomes much bigger and the more users you have within an entity whose workflow would be disrupted if you got a new product, the stickier the product becomes…

In Workiva’s example, their customer acquisition costs really spiked about a year and half, two years ago because instead of going after the broader internal reporting market, they tried to pivot going from the SEC market to the Sarbanes Oxley market, SOX reporting, which didn’t work very well because with external reporting you were just saying ‘hey, you should just use Wdesk instead of Donnelley or Merrill…our product is superior’. Customer goes ‘why, yes it is.’ There is no SOX product, there is no product for SOX reporting, it’s a whole bunch of cludged together internal processes, so that’s a much harder sale, going in and saying ‘pay money for a product that is replacing an internal process that you’re not actually paying money for, it’s just sort of wasting people’s time’. That’s harder to put a number on if you’re a CFO or CEO, so that really spiked up their customer acquisition costs. Once they pivoted back to enterprise sales and frankly just reorganized their sales force geographically instead of functionally – which means less travel – customer acquisition costs came back down.

The U.S. states most vulnerable to a trade war

How to understand the financial levers in your business

Whatever your business, build a business model that includes all of your assumptions — and build the model so you can pressure-test variables and find your levers. Once you’ve identified them, build MVPs to test those assumptions in more detail. It’s really important to experiment early and get some good data on what works (and what doesn’t), before you start ramping up and pouring lots of money into marketing and execution. Some changes can have exponential effects — for better or for worse.

Want to keep your wine collection safe? Store it in a bomb shelter

Shipping wine in the country is tightly controlled by a web of state laws, and it is illegal for individuals to ship wine themselves across state lines. Having wine storage in different states can ensure that collectors get the wine they want regardless of where they live.

Storage fees can be as low as $1.25 a month per case of wine, which holds 12 regular bottles or six magnums. Of course, wine collectors rarely store just one box, and they are not putting it there for just a month.


What it takes to out-sleuth wine fraud

Ms. Downey offered advice and provided counterfeit-detection tools for seminar participants, including a jeweler’s loupe, a measuring tape, a UV light and UV-visible pens. She outlined her authentication process, which begins with careful scrutiny of the wine bottle—the loupe proved handy here—notably the label, the paper it’s printed on and the printing method and ink, as well as other components such as the capsule and the cork. Ultra-white paper, detectable under UV light, wasn’t in commercial use until the 1960s. With the aid of a microscope, one could detect if the paper was recycled, which would mean the wine couldn’t have been produced before the 1980s, when recycled paper was introduced for labels.

Above all, she emphasized that wine fraud isn’t a victimless crime. “It affects people who work very hard to make good wine, who are proud of their wines and their appellation,” she said. “It ruins their reputation and it destroys all their hard work.” With the right tools and a gimlet eye, she believes, we can all play a part in protecting that work.

Curated Insights 2018.03.11

Warren Buffett is even better than you think

What makes Buffett special, however, is that he has outpaced the market by a huge margin, even after accounting for those profitability and value premiums. The per-share market value of Berkshire has returned 20.9 percent annually from October 1964 through 2017, according to the company. That’s an astounding 9 percentage points a year better than a 50/50 portfolio of the Fama/French profitability and value indexes for more than five decades.

It’s a feat that can’t be dismissed as mere luck. For one thing, Buffett has been shockingly consistent, beating the 50/50 profitability/value portfolio during 40 of 44 rolling 10-year periods since 1974, or 91 percent of the time. Also, Buffett’s margin of victory is “statistically significant,” as finance aficionados would say, with a t-statistic of 3.1. That’s a fancy way of saying that there’s an exceedingly low likelihood that his outperformance is a result of chance.

How Amazon can blow up asset management

In addition to its home page, Amazon is rich with the most important resource in asset management: trust.

Amazon’s hidden advantage is its ruthless commitment to per customer profitability. I’m willing to bet that the firm has our number. It knows our lifetime value as customers and how we stack up against our cohorts by age, zip code, film preference, etc. Similarly, Amazon has shown that it doesn’t hesitate to fire unprofitable customers who abuse the return privilege. If it exercises the same discernment in avoiding the worst clients, incumbent asset managers stand to lose. Amazon has no legacy costs and no legacy relationships in asset management. Furthermore, it will not plead for such relationships. If you’re a 3rd party fund manager, for instance, getting on Amazon’s platform will be like the Godfather’s offer you can’t refuse. To me, asset management is the type of utility business that Amazon could easily disintermediate, for both its own benefit and the benefit of average investors worldwide. If you thought the overbuilt status of bricks and mortar retailing provided the kindling to the Amazon explosion in retail, the abundance of asset managers (especially active asset managers) provides the uranium for an apocalypse that could be much worse.


Lloyd Blankfein’s big, tricky, game-changing bet

Blankfein insists such pessimism is unwarranted in the long run. Within five years, he thinks, Marcus has the potential to dominate the refinancing of credit card debt by offering clients interest rates that are half of the penalties charged by card issuers. “The big banks have no incentive to do this — to offer a product that competes directly with their credit cards,” he says.

Blankfein insists investors will once again favor Goldman because the market forces behind its model are timeless. “We buy things from people who want to sell and sell things to people who want to buy, when in the real world, those buyers and sellers don’t usually match up,” he says. “Those things have been going on since the Phoenicians.”

Why Spotify won’t be the Netflix of music

Licensing deals are negotiated every couple of years, so investors will have to wait for the next chance to strike a new bargain. Growing bigger should help Spotify cut incrementally better deals, but won’t resolve the basic problem that ownership of must-have content is concentrated in so few hands. The big three plus Merlin accounted for 87% of songs streamed on Spotify last year.

But music is different: Apart from the concentration of rights ownership, new albums don’t have the same marketing pull as a new TV series. Spotify’s prospectus argues that “personalization, not exclusivity, is key to our continued success.” Competing with the record labels to get a better deal just doesn’t seem a viable option.

Why software is the ultimate business model (and the data to prove it)

The Demand for Software is very strong and stable — Spend on software has grown at ~9% for about a decade. Looking forward Gartner estimates show that the Software category is expected to grow 8–11% versus the U.S. economy at 2–3% and broader technology spending at 3–4%. Software is a GOOD neighborhood to live in.

Signals from the Stock Market: “In the short term the market is a popularity contest; in the long term it is a weighing machine.” — Warren Buffett. Over many years, the market reflects the true substance of a business — here you can see that over the last 15 years, a broad basket of software companies has created meaningfully more value than a broad basket of businesses.


Analysing software businesses

Business models are increasingly moving to SaaS business models because it benefits the customer. Even though the total cost of ownership of the software between the two is similar, the cash flow profile for the customer is different. SaaS shifts laying out cash for a license (capex) to an ongoing pay-as-you-go model (opex).

Investors also prefer SaaS models for two main reasons: 1. Higher predictability of future cash flow – SaaS has higher recurring revenue than license model. This provides a more consistent stream of cash flow with less ‘renewal’ risk at the end of every license. 2. Cost structure – the larger the upfront license cost, the larger the sales team required. SaaS models usually have a lower sales and distribution expense than license models.

Another reason SaaS businesses are popular with PE is because software economics match the return profile of of both VC and PE investors. Firstly, the original product with a fixed cost base plus increasing returns to scale earns a high ROIC and can scale with little capital. This matches the low-hit / high multiple return rate VC crave as they can pick the correct product and then sale with little marginal cost. PE then acquires from VC and provide the capital to acquire new products to bundle with the original offering. This strategy also matches the return profile of PE as they can acquire and add various products to the platform over the 5-7 average holding period of PE portfolio companies. Although the economics are not as good as VC stage due to the capital required, the risk is relatively lower as you have product-market fit and sticky customers.

‘Success’ on YouTube still means a life of poverty

Breaking into the top 3 percent of most-viewed [YouTube] channels could bring in advertising revenue of about $16,800 a year. That’s a bit more than the U.S. federal poverty line of $12,140 for a single person. (The guideline for a two-person household is $16,460.) The top 3 percent of video creators of all time attracted more than 1.4 million views per month.

Ideas that changed my life

Room for error is underappreciated and misunderstood. It’s usually viewed as a conservative hedge, used by those who don’t want to take much risk. But when used appropriately it’s the opposite. Room for error lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor. Since the biggest gains occur the most infrequently – either because they don’t happen often or because they take time to compound – the person with enough room for error in part of their strategy to let them endure hardship in the other part of their strategy has an edge over the person who gets wiped out, game over, insert more tokens, at the first hiccup.

Your personal experiences make up maybe 0.00000001% of what’s happened in the world but maybe 80% of how you think the world works. People believe what they’ve seen happen exponentially more than what they read about has happened to other people, if they read about other people at all. We’re all biased to our own personal history. Everyone. If you’ve lived through hyperinflation, or a 50% bear market, or were born to rich parents, or have been discriminated against, you both understand something that people who haven’t experienced those things never will, but you’ll also likely overestimate the prevalence of those things happening again, or happening to other people.

Curated Insights 2018.02.18

Amazon’s latest ambition: To be a major hospital supplier

The pilot is customized for the hospital system’s catalog of supplies, the official said, allowing employees to compare prices the system negotiates with its distributors against those in the Amazon Business marketplace. In response to questions about these efforts, Amazon said it is building technology to serve health-care customers, and seeking to sell hospitals on a “marketplace concept” that differs from typical hospital purchasing, which is conducted through contracts with distributors and manufacturers.

So far, some hospitals have been reluctant to buy supplies from Amazon Business, for reasons including lack of options and lack of control over purchases and shipping, which hospitals closely safeguard to ensure prompt arrival of goods.

Hospitals typically contract for assurances that products will be available and delivered securely, she said. “It’s a little different than being out of a size 6 dress. I can’t be out of a six French catheter,” said Ms. McCready, who oversees the hospital system’s $3 billion annual budget for supplies, contract services and pharmaceuticals. Ensuring continuity of product supply is also crucial, said Donna Drummond, Northwell’s senior vice president of consolidated business services. When doctors and nurses reach for a familiar product, they know its specifications. Jumping online to look for the best deal could disrupt that continuity, she said. Northwell is “not ready to move from our current model,” Ms. Drummond said, but added: “We are open to a competitive market.”

Fees and administration, marketing and shipping costs account for an estimated 20% to 30% of health-care supply costs, according to a November research report by Citigroup Global Markets Inc. “There’s a lot of people with fingers in the pie,” said Rob Austin, an associate director with Navigant Consulting Inc. and former hospital supply-chain executive. “There is a huge opportunity.”


Amazon threat has Maersk racing to stop clients becoming rivals

It’s not just a question of a smooth delivery, said Skou. Giant retailers like Amazon also want better information about shipments to manage supply chains as effectively as possible. Maersk is rolling out a new digitization strategy to modernize an industry in which bookings often still take place by phone. Last month, it formed a joint venture with IBM to develop the use of blockchain technology to manage and track cross-border trade.

“The ability of Maersk to understand the market and integrate with a big company like Amazon is very clever,” Benito said. “They realize that Amazon can be a disruptor, so it’s better to try and work together.”

How delivery apps like Seamless and Uber Eats may put your favorite restaurant out of business

In 2016, delivery transactions made up about seven per cent of total U.S. restaurant sales. In a research report published last June, analysts at Morgan Stanley predicted that that number could eventually reach forty per cent of all restaurant sales, and an even higher percentage in urban areas and among casual restaurants, where delivery is concentrated. Companies like GrubHub maintain that the revenue they bring restaurants is “incremental”—the cherry on top, so to speak, of whatever sales the place would have done on its own. They also argue that delivery orders are a form of marketing, exposing potential new customers who might convert to lucrative in-restaurant patrons. The problem is that as consumers use services like Uber Eats and Seamless for a greater share of their meals, delivery orders are beginning to replace some restaurants’ core business instead of complementing it. (In the Morgan Stanley survey, forty-three per cent of delivery patrons said that a meal they ordered in was replacing one they would have otherwise eaten at a restaurant.) And, as delivery orders replace profitable takeout or sit-down sales with less profitable ones—ostensibly giving restaurants business but effectively taking it away—the “incremental” argument no longer holds. “It’s total bullshit, and you can quote me on that,” Justin Rosenberg, the C.E.O. of the Philadelphia-based fast-casual chain Honeygrow, told me. “I’ve spoken to C.F.O.s of bigger fast-casuals, and they’ve said the same thing.”

It’s worth noting that, even while charging restaurants steep rates, most delivery platforms are not yet profitable, either. Their hope is that order volumes will one day become high enough—and couriers will deliver enough orders per hour—to push them into the black.


Airbnb reportedly built an internal hedge fund that makes $5 million per month

According to Bloomberg, Tosi “quietly built a hedge fund within the company’s finance department. He used a portion of capital from the balance sheet to buy stocks, currencies, and fixed-income securities, mimicking the treasury fund he ran at Blackstone. The side project represented 30 percent of the company’s cash flow last year and made about $5 million a month for Airbnb, the people said.”

New DNA nanorobots successfully target and kill off cancerous tumors

“Using tumor-bearing mouse models, we demonstrate that intravenously injected DNA nanorobots deliver thrombin specifically to tumor-associated blood vessels and induce intravascular thrombosis, resulting in tumor necrosis and inhibition of tumor growth,” the paper explains.

DNA nanorobots are a somewhat new concept for drug delivery. They work by getting programmed DNA to fold into itself like origami and then deploying it like a tiny machine, ready for action.

Saving for old age: the global story (part II)

This country for old men and women would have had 222m people in it, assuming it was launched at the end of 2015. Assume all Chinese move there on their 60th birthday, and by 2025 you would expect the population of Oldland to be 300m.

It is well known that savings rates in China are already high. If greater portions of these savings are shifted into a funded pensions infrastructure which looks anything like that of the US, this would boost demand for the kinds of assets pension funds usually buy: stocks and bonds.

It may already be happening. The Willis Towers Watson report states that China has the fastest compound annual growth rate of pension assets over the past five years, at 18 per cent. The second highest, at 13 per cent, is South Korea. The third is Hong Kong, at 10 per cent (HK also has the fastest 10 year growth rate — there is no such figure for China).

Audio boom: how podcasters make a living

The defining year for podcasting was perhaps 2014, when NPR launched Serial, a true-crime series that became a global phenomenon and the fastest podcast to reach 5m downloads on iTunes. It triggered a wave of wannabes. That year, Apple installed the podcast app into its operating system — suddenly iPhones had podcasts on the home screen. Today there are more than 500,000 active shows on iTunes, including content in more than 100 languages.

In 2006, only 22 per cent of Americans had heard the term “podcasting”, according to Edison Research and Triton Digital. Last year it was 60 per cent. Thirty-one per cent of 25- to 54-year-olds said they had listened to a podcast in the past month compared with 16 per cent four years earlier. Networks such as Gimlet, or the crowdfunded Radiotopia, have helped to professionalise podcasts by attracting large audiences and advertising revenues.


An ‘iceberg’ of unseen crimes: Many cyber offenses go unreported

To many criminologists, academics and law enforcement leaders, crimes like car theft are anachronisms in a modern era in which the internet’s virtual superhighways have supplanted brick-and-mortar streets as the scenes for muggings, prostitution rings or commercial burglaries. They see dips in traditional violence and larceny as offset by a twin phenomenon: A surge in the evolving crimes of the digital era, and the fact that they are not fully captured in law enforcement’s reporting systems.

The wealth of Sapiens

True wealth is not money. It’s the option to buy what you truly need. If money can’t buy what you need, you’re on even footing with the poorest person out there. Wealth is a society where you can trust complete strangers with your child’s life. Wealth is having friends, colleagues and family who support you. Who take care of the things you can’t, without hesitation. Wealthy is when strangers rent you cars for 1-way trips at 3am over the internet.

Curated Insights 2018.02.04

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

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

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

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

How Amazon’s ad business could threaten Google and Facebook

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

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

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

How Apple built a chip powerhouse to threaten Qualcomm and Intel

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

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

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

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

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

AlphaZero and the curse of human knowledge

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

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


Even if you knew the cards…

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

Company Notes 2017.6.16

On earnings calls

Malaysia segment recorded higher profit before tax mainly due to higher sales orders from key customers, including the new box built orders from key customers. The new production lines that were commissioned earlier are now running at optimal capacity. – V.S. Industry in a filing with Bursa Malaysia

“Our clients are experiencing brisk sales growth with their new products, effective marketing campaigns and enhanced distribution channels. We will ride on our clients’ growth, supporting them in every step of the way with our integrated manufacturing capability to produce quality products in the quantity required by them on a timely basis.” – V.S. Industry MD SY Gan


Local competition was more intense with some distributors offering enormous cash incentives at an unprecedented level, thus putting further pressure on our strategy to sell at the full price offered with value added packages.

The contraction in profit margin was also partly caused by the Mazda CX-5 run-out programme as more sales incentives were given in anticipation of the arrival of the all-new model.

Demand for passenger cars is expected to be soft as the weak job market and uncertainty will likely cause customers to defer their purchases…will continue to focus on driving sales at full selling prices with value offerings as this will in the longer term augur well for the Mazda brand image and popularity.” – Bermaz Auto in a filing with Bursa Malaysia


Management undertook measures to curtail further losses in future such as the closure of non-performing restaurants and outlets. These measures led to impairment of fixed assets and intangible assets.

…expects Starbucks to maintain its revenue growth momentum, and the price adjustment in the previous quarter is expected to mitigate the negative impact from the fluctuating Ringgit Malaysia and poor results of KRR operations in Malaysia. – Berjaya Food in a filing with Bursa Malaysia


The decrease in licensing revenue was due to loss of content recovery for a sports channel. The decrease in subscription revenue was mainly due to lower package take-up.

…re-positioning its business with emphasis towards personalization, mobility and interactivity with customers, focusing on executing its key strategies on: (1) digitalising our legacy business; (2) rapidly scaling our digital ventures; (3) deepening strength in verticals and building a robust innovation pipeline… – Astro Malaysia in a filing with Bursa Malaysia


Shipment of furniture from our Malaysian factories increased substantially as a result of the coming on-stream of new products, including panel based bedroom models. Contribution from the panel based bedroom models for the US market increased to 20% from 5% previously.

Shipment of furniture from our Vietnamese operations was also higher in line with the improvement in the US economy and its efforts to ship higher value orders to the US. – Poh Huat Resources in a filing with Bursa Malaysia


…the increased business volume and the aggressive stance to invest more to upkeep its outlets and getting more talents to join its workforce for the expansion plan.

…is confident that Bison can maintain its competitive edge and position in the Convenience Store segment. Bison is in progress with its action plans. However, there is a delay in the commissioning of its distribution center in Johor Bahru due to the plan to enlarge and install a better-equipped facility. – Bison Consolidated in a filing with Bursa Malaysia


The strong engagement achieved brought in a fresh new wave of customers and additional referrals which were successfully converted into sales by many projects in the Klang Valley, Iskandar Malaysia and Penang. – Eco World Development in a filing with Bursa Malaysia

Interest in all three projects in the UK remain healthy bolstered by good construction progress on site and positive developments in the surrounding areas where the projects are located.

…will continue to seek out well-located development sites in London, Sydney and Melbourne where it has established a strong track-record and customer following to replenish its land bank. – Eco World International in a filing with Bursa Malaysia

“We will see profit recognition beginning in FY18 as handover commences in phases starting with London City Island and Embassy Gardens…Our plans for the second half of 2017 include the completion of the proposed acquisition of 80% of the issued capital in Eco World-Salcon Y1 Pty Ltd and the launch of the Yarra One development in Melbourne.” – Eco World International CEO Teow Leong Seng


The increase in revenue was due to higher ASP as a result of the increase in raw material costs although business volume was lower. – A-Rank in a filing with Bursa Malaysia


…has been incurring losses for the past 5 years as a result of softening demand for the fixed wing pilot training market in Malaysia mainly due to local major airlines cutting back on their training program for new pilots. Due to lack of business in the fixed wing pilot training, the mechanical engineering division which specializes in oil, gas and petrochemical has become the significant contributor in terms of revenue.” – APFT in a filing with Bursa Malaysia


By December 2018, Top Glove is projected to have 31 glove factories, 628 production lines and a production capacity of 59.7 billion gloves per annum. It will also continue to explore synergistic M&A and JV, as well as new set-ups, particularly in closely related industries such as nitrile latex factory, packaging materials (glove inner boxes) and condom factory, towards enhancing shareholder value.” – Top Glove in a filing with Bursa Malaysia


On corporate development

…is considering the pursuit of a separate listing of its automated solution business on the Main Board of the Stock Exchange of Hong Kong Limited…will undertake a reorganization of its subsidiaries involved in the automated solution business and these subsidiaries will continue to remain as subsidiaries of Pentamaster upon completion of the proposed listing. – Pentamaster in a filing with Bursa Malaysia


“It has to be [listed] eventually as we need funds and a listing will be a way to marshal funds from the market. We want to expand overseas as well, but we need a strong brand first…We won an award that puts us on par with Mount Elizabeth Hospitals in Singapore, which has helped with our branding.

“It will take a couple of years, although we could list now if we wanted to, because we have the track record. But it might not give us the value that we want so we’d rather wait for a few years.” – Sunway chairman Jeffrey Cheah during AGM


…despite management’s efforts to reorganise Anzpac’s remaining lithography printing business in its non-tobacco customers, the Board is of the view that Anzpac’s business is no longer viable or sustainable. – Tien Wah Press in a filing with Bursa Malaysia


On regional properties & construction

“We look forward to working with our partner Hongkong Land on this exciting new development, which will bring office space of the highest quality to Singapore’s premier Central Business District.” – IOI Properties CEO Lee Yeow Seng

“Our new joint venture allows Hongkong Land to expand its portfolio of prime commercial properties in Marina Bay and demonstrates our long-term confidence in the Singapore property market. We are delighted to partner with IOI Properties to deliver the exceptional levels of design, construction and management that our tenants expect.” – Hongkong Land CEO Robert Wong


“We are open to opportunities overseas. If there is a good point to go abroad, then why not? But we are not in a hurry as we have enough land bank in Malaysia to keep us busy.

“You need to have deep pockets and really understand the market well. At the moment, the outlook for foreign [property] markets may not be very bullish than it was before although I would say it is healthy.

“Seeing the current slowdown in the property market, it’s a good opportunity for us to lock in more land as there is less competition among developers, which means we have more choices in terms of location.

“We have enough [cash] to readily acquire more land so it does not make sense for us to merge with anybody. When you merge with another developer, you must have a good rationale, whether it’s to improve cash flow, increase land bank or leverage on others’ expertise.

“It is not easy to manage a construction arm. So what we do is we have qualified contractors come back [to us] with better terms and costing, while we manage our own staff. If you have your own construction division and it doesn’t perform well, you will end up with higher costs than what you would incur if you subcontract work instead.” – Mah Sing MD Leong Hoy Kum


“…venturing outside the Klang Valley because the yields are better. Also, it is a tough market to find a property that meets our criteria. The Klang Valley has become a saturated location [in terms of the retail market].

“…that the asset must have opportunities for further value creation in the future through the creation of an additional lettable area in the long term.” – Hektar REIT asset manager Hisham Othman


“For Singapore’s manufacturing segment, we don’t foresee it to be very material because the deep tunnel sewerage system — the megaproject in Singapore — the award will likely be at the beginning of next year. For this year, I think Malaysia is going to overshadow Singapore in terms of order replenishment.” – Kimlun CEO Sim Tian Liang


On staying competitive with better efficiency

“Yes, there are short-term benefits from a weak ringgit, but it also leads to a situation where customers would ask for a reduction in prices and the competition from the market [becomes more intense]. Volatile movements in the ringgit are therefore not good for business.

“I would say being more efficient in production to stay ahead of the competition is a better driver for glove makers, rather than a weak ringgit.” – Careplus CEO Lim Kwee Shyan


“We want to be more efficient with our operations. Our working culture is to be more efficient, [to be able to] understand the market and expand our business…I think it’s a better way than waiting for a problem to arise as problems are always there. We need to make sure that we run faster than our competitors.” – Luxchem CEO Tang Ying See


On Malaysia tourism tax

“Local hotel operators are dealing with an environment of low occupancy rate for the past two years [and] hotel operations would be [further] affected if Malaysians cut down traveling frequency.

“Those who are registered may represent only 15% of all the hotels, so the tax would create an uneven level playing field.” – Deloitte Malaysia partner Senthuran Elalingam


“…traveling to Sarawak was already expensive as compared to Bali, Hong Kong and Taiwan, with travelers having to fork out RM1,145 for one way or RM2,000 for a return flight ticket from KL to Sibu…But one can fly from KL to Bangkok return at only RM409, making it difficult to promote Sarawak due to such a high fare.” – Malaysian Association Hotels (Sarawak chapter) honorary secretary-general John Teo Peng Yew