The international market is a different story. Tencent Music Entertainment Group (TME) dominates China. (Spotify has taken a minority stake in the company.) Outside of China, Spotify is the clear global market leader, with an estimated 31% market share, ahead of Apple (AAPL), at 17%; Amazon.com (AMZN), at 12%; and Sirius XM Holdings (SIRI), which now owns Pandora, at 11%, according to Credit Suisse . YouTube’s paid music services are still relatively small, but one survey found that free YouTube videos accounted for nearly half of the time that people in 18 countries spent listening to music.
Most of the world doesn’t pay for streaming music, choosing to listen on the radio or to pirate content, which still accounts for 38% of the market, Credit Suisse says. The bullish case for Spotify implies that many of those people can be persuaded to pay up. Even bearish analysts expect the company to more than double its global paid subscriptions over the next five years.
Most simply, ROIC measures how many incremental dollars of earnings a company earns by reinvesting their earnings. As a simple illustration, a company with an average 10% ROIC needs to invest 50% of their earnings to grow 5% (10%*50%=5%). A company with a 50% ROIC only needs to reinvest 10% of earnings to grow 5% (50%*10%=5%). In the former case, $0.50 of every dollar of earnings is not needed to fund growth, while in the latter case $0.90 is not needed to fund growth. This means that the higher ROIC company will generate 80% more free cash flow than the average ROIC company making the company 80% more valuable. This is why we focus on ROIC in our analysis. High ROIC businesses are significantly more valuable than average ROIC companies even when they produce the same level of growth.
The transfer of ownership for Crackle, however, arrives at a time when ad-free streaming services like this are seeing newfound interest, with Amazon’s launch of IMDb’s FreeDive, Roku’s The Roku Channel, Walmart’s Vudu, Viacom’s new addition Pluto, Tubi and others now making gains.
As part of the deal, Sony will contribute to the new venture its U.S. assets, including the Crackle brand, user base and ad rep business, according to The Hollywood Reporter. It also will license to Crackle Plus movies and TV shows from the Sony Pictures Entertainment library, as well as Crackle’s original programming, like its shows “Start Up” and “The Oath,” for example.
CSS Entertainment will bring six of its ad-supported networks — including Popcornflix, Popcornflix Kids, Popcornflix Comedy, Frightpix, Espanolflix and Truli, plus its subscription service Pivotshare — to Crackle Plus.
The combination will lead Crackle Plus to become one of the largest ad-supported video-on-demand platforms in the U.S., the companies claim, with nearly 10 million monthly active users and 26 million registered users. The new service will also have access to more than 38,000 combined hours of programming, more than 90 content partnerships and more than 100 networks.
So Andreessen Horowitz spent the spring embarking on one of its more disagreeable moves so far: The firm renounced its VC exemptions and registered as a financial advisor, with paperwork completed in March. It’s a costly, painful move that requires hiring compliance officers, audits for each employee and a ban on its investors talking up the portfolio or fund performance in public—even on its own podcast. The benefit: The firm’s partners can share deals freely again, with a real estate expert tag-teaming a deal with a crypto expert on, say, a blockchain startup for home buying, Haun says.
And it’ll come in handy when the firm announces a new growth fund—expected to close in the coming weeks, a source says—that will add a fresh $2 billion to $2.5 billion for its newest partner, David George, to invest across the portfolio and in other larger, high-growth companies. Under the new rules, that fund will be able to buy up shares from founders and early investors—or trade public stocks. Along with a fund announced last year that connects African-American leaders to startups, the new growth fund will give Andreessen Horowitz four specialized funds, with more potentially to follow.
My point in all of this is that Buy the Dip, even with perfect information, typically underperforms DCA. So if you attempt to build up cash and buy at the next bottom, you will likely be worse off than if you had bought every month. Why? Because while you wait for the next dip, the market is likely to keep rising and leave you behind.
What makes the Buy the Dip strategy even more problematic is that we have always assumed that you would know when you were at every bottom (you won’t). I ran a variation of Buy the Dip where the strategy misses the bottom by 2 months, and guess what? Missing the bottom by just 2 months leads to underperforming DCA 97% of the time! So, even if you are somewhat decent at calling bottoms, you would still lose in the long run.
I wrote this post because sometimes I hear about friends who save up cash to “buy the dip” when they would be far better off if they just kept buying. My friends do not realize that their beloved dip may never come. And while they wait, they can miss out on months (or more) of continued compound growth. Because if God can’t beat dollar cost averaging, what chance do you have?
If you missed just the 25 strongest days in the stock market since 1990, you might as well have been in five year treasury notes. This remarkable data point is almost always followed by “time in the market beats timing the market.”
If by some miracle you managed to miss the 25 best days, you likely would have missed at least some of the worst days as well. You’ll notice a few things. The best days often follow the worst days, and the worst days occur in periods of above average volatility (red dotted line). These volatility spikes happen in lousy markets, so, if you can avoid the very best days, you will probably also avoid the very worst days, thereby avoiding lousy markets.
The chart below shows what happens if you were able to successfully avoid the 25 best and 25 worst days. This would have put you well ahead of the index. Of course this assumes perfect end of day execution, no transaction costs, and most importantly, no taxes.
When earnings compound but changes in valuation multiples don’t, the importance of the latter to your lifetime returns diminishes over time. Which is great, because changes in valuation multiples are the most unpredictable part of investing. Assuming earnings compound over time – an assumption, but a reasonable one – here’s what happens when valuation multiples go up or down by, say, 20% in a given year.
Valuation changes have a majority impact on your overall returns early on because company earnings are likely the same or marginally higher than when you made the investment. But as earnings compound over time, changes in any given year’s valuation multiples have less impact on the returns earned since you began investing. So as time goes on you have less reliance on unpredictable things (voting) and more on things you’re confident in (weighing).
Anchor provides a way to capture new podcasters, leading them either to Spotify advertising or, in the case of rising stars, to Spotify exclusives. Critically, because Spotify has access to all of the data, they can likely bring those suppliers on board at a far lower rate than they have to pay for established creators like Gimlet Media.
Spotify Advertising, as I just suggested, makes a strong play to be the dominant provider for the entire podcasting industry. Spotify Advertising is already operating at a far larger scale than Midroll, the incumbent player, and Spotify has access to the data of the second largest podcast player in the market.
Gimlet Media becomes an umbrella brand for a growing stable of Spotify exclusive podcasts. Critically, as I noted above, the majority of these podcasts come to Spotify not because Spotify pays them millions of dollars but simply because Spotify is better at monetizing than anyone else.
Spotify doubles down on podcasts by acquiring Gimlet and Anchor
Spotify has acquired Gimlet Media and Anchor as it doubles down on its audio-first strategy. Gimlet is the podcast production house behind popular shows such as Reply All and The Cut. With Gimlet, Spotify has acquired a team with a proven record in original content production which should enhance its competitive position relative to Apple. Anchor provides easy-to-use software for podcast creation, ad insertion, and distribution, with more than 40% share of new podcasts produced. Anchor’s wealth of data should help Spotify identify and target original content, attracting more users to its ecosystem.
Podcasts should enable Spotify to differentiate its service and reduce its dependence on the music labels. Ever since Spotify’s initial public offering, the bear case has been that it never will deliver attractive returns because the labels will demand an ever-increasing share of its revenues. If its foray into original podcasts is successful, Spotify will convert some of its variable costs into fixed costs, improving its profit margins.
The ad-supported podcast business also is attractive. As shown above, podcast listener hours are roughly 12% those of radio but only 3% of the ad dollars. That gap should close with time. More important, as is the case with TV, traditional radio is in secular decline. A generation from now, podcasts could be the default format for spoken audio. If able to secure a leadership position, Spotify could enjoy a recurring revenue model with much higher margins in the years to come.
“In the very beginning, we had different competitors but they were small,” said Wang in a 2015 interview with Chinese-language news site of Guangzhou-based NetEase. “We made a lot of the right decisions to stand out in the industry … I think it is DJI’s success that made the drone industry attractive to investors and users.”
Chris Anderson, the chief executive of DJI’s major rival 3D Robotics, was quoted by US media as saying that the Chinese company has been “executing flawlessly” and “we just got beaten fair and square”.
“I do not see any strong competitor for DJI so far,” said Cao Zhongxiong, executive director of new technology studies at Shenzhen-based think tank China Development Institute. “The company can dominate the drone industry for some years to come.”
“We found success on the consumer side and are now leveraging the things we do very well into other industries. We are also expanding to serve different companies, operations and industries globally,” said Bill Chen, DJI’s enterprise partnership manager. He said the use of drones in agriculture will be a particular focus for the company.
DJI has rolled out a development kit so software developers can write applications for specific tasks, signalling the company’s shift from a hardware manufacturer to platform operator. “We aim to build a versatile platform that can be addressed by third-party developers as well,” Chen said.
The global video surveillance equipment market is expected to grow 10.2 per cent to US$18.5 billion in 2018 thanks to increasing demand for security cameras, according to a report by London-based market research firm IHS Markit in July. China’s professional video surveillance equipment market, which accounts for 44 per cent of all global revenue, grew by 14.7 per cent in 2017, outpacing the rest of the world, which grew by only 5.5 per cent, the report showed.
Around 42 per cent of the company is controlled by state-owned enterprises, with China Electronics Technology HIK Group owning 39.6 per cent of the company as the biggest shareholder. Hikvision had a leading share of 21.4 per cent for the global closed-circuit television and video surveillance equipment market in 2017, according to IHS Markit.
IHS Markit estimated that China had 176 million surveillance cameras in public and private areas in 2017, compared to only 50 million cameras in the US. The researcher expects China to install about 450 million new cameras by 2020. The researcher expects about 450 million new cameras to be shipped to the Chinese market by the end of 2020.
You can be great investor and still spend yourself broke. Ego is easier to develop and maintain than alpha, so good returns without the psychology necessary to hold onto those returns where money can continue compounding can be defeating. The math of compounding ensures that neither those who earn big returns but spend them quickly, or power savers who settle for low returns, will build meaningful wealth. There are many good investors. There are many good savers. It’s the intersection of both that compounding rules wild and big leaps are made.
The same mindset that allows visionaries to see things normal people can’t blinds them to realities normal people understand. If you’re staggeringly good at one thing, your mind probably has little bandwidth for other vital things necessary to make your skill work. Look around. There are a lot of people with crazy good ideas. But many people with crazy good ideas are crazy, and their idea is an outgrowth of a mind that has little patience for things like employee culture and appeasing investors, so their idea never stands a chance. A big leap happens when a visionary mixes with a sober operator who can tame the worst impulses of an otherwise great idea.
Intangible assets now make up 84 percent of the market value of the S&P 500. That’s up from just 17 percent in 1975. We investors clearly value things like investment in brands, new business processes, skills development for employees, R&D, etc., as drivers of future value. In other words, we believe these investments will create revenues in the future. But accounting can’t figure out how to value those non-tangible assets, so it treats those investments as expenses. That just doesn’t make sense.
“[The whole tech bubble] is very interesting, because the stock is not the company and the company is not the stock. So as I watched the stock fall from $113 to $6 I was also watching all of our internal business metrics: number of customers, profit per unit, defects, everything you can imagine. Every single thing about the business was getting better, and fast. So as the stock price was going the wrong way, everything inside the company was going the right way. We didn’t need to go back to the capital markets because we didn’t need more money. The only reason a financial bust makes it really hard is to raise money. So we just needed to progress.”
“Everything I have ever done has started small. Amazon started with a couple of people. Blue Origin started with five people and the budget was very small. Now the budget approaches a billion dollars. Amazon was literally ten people, today it’s half a million. For me it’s like yesterday I was driving packages to the post office myself and hoping one day we could afford a forklift. For me, I’ve seen small things get big and it’s part of this ‘day one’ mentality. I like treating things as if they’re small; Amazon is a large company but I want it to have the heart and spirit of a small one.”
“I believe in the power of wandering. All of my best decisions in business and in life have been made with heart, intuition and guts. Not analysis. When you can make a decision with analysis you should do so. But it turns out in life your most important decisions are always made with instinct, intuition, taste and heart.”
“AWS completely reinvented the way companies buy computation. Then a business miracle happened. This never happens. This is the greatest piece of business luck in the history of business as far as I know. We faced no like-minded competition for seven years. It’s unbelievable. When you pioneer if you’re lucky you get a two year head start. Nobody gets a seven year head start. We had this incredible runway.”
“We are so inventive that whatever regulations are promulgated or however it works, that will not stop us from serving customers. Under all regulatory frameworks I can imagine, customers are still going to want low prices, they are still going to want fast delivery, they are still going to want big selection. It is really important that politicians and others need to understand the value big companies bring and not demonise or vilify big companies. The reason is simple. There are certain things only big companies can do. Nobody in their garage is going to build an all carbon-fiber fuel efficient Boeing 787. It’s not going to happen. You need Boeing to do that. This world would be really bad without Boeing, Apple, Samsung and so on.”
What business is Amazon most similar to? Definitely not Wal-Mart. Amazon’s model is much, much closer to Costco’s model. How does Costco’s model differ from Wal-Mart’s model?
Costco does not try to be a leading general retailer in specific towns, counties, states, the nation as a whole, etc. What Costco does is focus on getting a very big share of each customer’s wallet. Costco also focuses on achieving low costs for the items it does sell by concentrating its buying power on specific products and therefore being one of the biggest volume purchasers of say “Original” flavor Eggo waffles. It sells these waffles in bulk, offers them in one flavor (Wal-Mart might offer five different flavors of that same product) and thereby gets its customer the lowest price.
There’s two functions that Costco performs where it might be creating value, gaining a competitive advantage, etc. One is supply side. Costco may get lower costs for the limited selection it offers. In some things it does. In others, it doesn’t. The toughest category for Costco to compete in is in fresh food. I shop at Costco and at other supermarkets in the area. The very large format supermarkets built by companies like HEB (here in Texas) can certainly match or beat Costco, Wal-Mart, and Amazon (online and via Whole Foods stores) when it comes to quality, selection, and price for certain fresh items. But, what can Costco do that HEB can’t? It can have greater product breadth (offering lots of non-food items) and it can make far, far, far more profit per customer.
Now, an interesting question to ask is what SHOULD determine the market value per customer. Not what does. But, what should? In other words, if we had to do a really, really long-term discounted cash flow calculation – what variables would matter most? If two companies both have 10 million customers which company should be valued higher and why? Two variables matter. One: Annual profit per customer. Two: Retention rate. Basically, we’re talking about a DCF here. If Company A and Company B both have 10 million customers and both make $150 per customer the company that should have a higher earnings multiple (P/E or P/FCF) should be the one with the higher retention rate.
Tencent Music is no small player: As the music arm of Chinese digital media giant Tencent, its four apps have several hundred million monthly active users, $1.3 billion in revenue for the first half of 2018, and roughly 75 percent market share in China’s rapidly growing music streaming market. Unlike Spotify and Apple Music, however, almost none of its users pay for the service, and those who do are mostly not paying in the form of a streaming subscription.
Its SEC filing shows that 70 percent of revenue is from the 4.2 percent of its overall users who pay to give virtual gifts to other users (and music stars) who sing karaoke or live stream a concert and/or who paid for access to premium tools for karaoke; the other 30 percent is the combination of streaming subscriptions, music downloads, and ad revenue.
Tencent Music has an advantage in creating social music experiences because it is part of the same company that owns the country’s leading social apps and is integrated into them. It has been able to build off the social graph of WeChat and QQ rather than building a siloed social network for music. Even Spotify’s main corporate rivals, Apple Music and Amazon Music, aren’t attached to leading social platforms.
In other words the two companies have an agreement that Apple is paid in proportion to the actual query volume generated. This would extend the relationship from one of granting access for a number of users or devices to revenue sharing based on usage or consumption. Effectively Apple would have “equity” in Google search sharing in the growth as well as decline in search volume.
The idea that Apple receives $1B/month of pure profit from Google may come as a shock. It would amount to 20% of Apple’s net income and be an even bigger transfer of value out of Google. The shock comes from considering the previously antagonistic relationship between the companies.
The remarkable story here is how Apple has come to be such a good partner. Both Microsoft and Google now distribute a significant portion of their products through Apple. Apple is also a partner for enterprises such as Salesforce, IBM, and Cisco. In many ways Apple is the quintessential platform company: providing a collaborative environment for competitors as much as for agnostic third parties.
Much of the Trupanion excitement is based on the low 1% penetration rate and the fact that it’s the only pet-insurance pure play. Bradley Safalow, who runs PAA Research, an independent investment research firm, disputes the lofty expectations. Bulls extrapolate from industry data that say about two million pets out of 184 million in North America are insured now. Safalow says that ignores a key factor—the income levels of pet owners. Because Trupanion’s policies cost about $600 to $1,500 annually and don’t cover wellness visits, he estimates that, in the case of dogs, which represent 85% of the pet market, a more realistic target customer would be owners who earn $85,000 or more a year. Based on that benchmark, Safalow estimates insurance penetration—of those most likely to buy it—at about 6% already for dogs.
The requests for rate increases would indicate that premiums aren’t keeping up with claims; that the policy risks are worse than the company expected; and that the profitability of its book of business is relatively weak. APIC’s ratio of losses and loss-adjustment expense to premiums earned have risen steadily over the past four years to 75.6% in the first quarter of this year from 68.9% for all of 2014, according to state filings. The loss ratio is total losses incurred in claims plus costs to administer the claims (loss adjustment expense) divided by premiums earned.
Iger thinks he knows how to coax consumers who already pay for one streaming service to either add another or switch to Disney’s. “We’re going to do something different,” he says. “We’re going to give audiences choice.” There are thousands of barely watched movies on Netflix, and Iger figures that people don’t like to pay for what they don’t use. So families can buy only a Disney stream, which will offer Pixar, Marvel, Lucas, Disney-branded programming. Sports lovers can opt just for an ESPN stream. Hulu, of which Disney will own a 60% stake after it buys Fox (and perhaps more if it can persuade Comcast to sell its share), will beef up ABC’s content with Fox Searchlight and FX and other Fox assets. “To fight [Amazon and Netflix], you’ve got to put a lot of product on the table,” says Murdoch. “You take what Disney’s got in sports, in family, in general entertainment—they can put together a pretty great offer.”
Having a leader who is willing to insulate key creative people from the vicissitudes of business has helped Disney successfully incorporate its prominent acquisitions. They have not been Disneyfied. Marvel movies are not all of a sudden family friendly (at least not by Disney standards). Pixar movies have not been required to add princesses. Most of the people who ran the companies before Disney bought them still run them (with the exception of John Lasseter, who was ousted in June in the wake of #MeToo). “I’ve been watching him with his people and with Fox people; he’s clearly got great leadership qualities,” says Murdoch.”He listens very carefully and he decides something and it’s done. People respect that.”
Today the Aladdin platform supports more than $18 trillion, making it one of the largest portfolio operating systems in the industry. BlackRock says Aladdin technology has been adopted in some form by 210 institutional clients globally, including asset owners such as CalSTRS and even direct competitors like Vanguard.
“Not only does it provide risk transparency, but it also provides an ability to model trades, to capture trades, to structure portfolios, to manage portfolio compliance — all of the operating components of the workflow,” Goldstein says. “It’s a comprehensive, singular enterprise platform versus a model where you’re piecing together a lot of things and trying to figure out how to interface them.”
In a market that’s traditionally been very fragmented, BlackRock’s ability to offer an integrated, multipurpose platform has proven a strong selling point for prospective clients — even when it’s up against competitors that perform specific functions better.
This is not to say Kroll’s firm, Kroll Bond Rating Agency, hasn’t been successful. It grew gross fees by 49 percent annualized between 2012 and the end of 2017 on the back of growing institutional demand for alternative investments. Since 2011 it has rated 11,920 transactions, representing $785 billion and 1,500 issuers. Still, KBRA and other competitors, including Lisbon-based ARC Ratings and Morningstar Credit Ratings, that have entered the sector in the last decade have barely made a dent in the market share of the big three.
The upstarts are facing more than just deeply entrenched competition, although that is striking: S&P, Moody’s, and Fitch control more than 90 percent of the market combined. A host of other complex factors have combined to make it nearly impossible to dislodge the big three — and to address the central conflict of interest baked into the ratings agency business model.
We think a similar analogy is likely with AV/EV — the most economically well-off people will still care about comfort, features, and identity that the AV/EV they ride and arrive in imparts on them. If Waymo can deliver a premium experience at a better price and higher utility than their current solution (i.e. driving themselves in their own cars or Ubers/taxis) with cost economics that yield a strong profit margin/ROIC at scale (1/2-1/3 the pricing of Uber at 1/10 the cost), it will have built an offering that will be set to be the leading AV service and create tremendous value for shareholders despite the early capital intensity. Estimates of the value of this Transportation as a Service (TaaS) or Mobility as a Service (MaaS) go from hundreds of billions on up based on Morgan Stanley’s estimate of 11 billion miles (3B in the US) driven globally and forecasted to double over the next decade.
Eventually, if Waymo is successful at taking the strong lead via network effects in AV and converting enough consumers to use its premium service (achieving a cultural and regulatory tipping point), it could decide to open up its service’s usage across other auto “hardware” partners as they demonstrate their ability to deliver a certain level of quality experience and scale globally, enabling a broader application of its service to lower tiers of the market with lower capital intensity (akin to Apple’s 2nd hand iPhone market, which broadens its user base for services offerings).
“The 21st-century brand is the direct-to-consumer brand,” said Jeff Weiser, chief marketing officer at Shopify. “A couple of things have enabled the rise of the DTC, which is the ability to outsource the supply chain.” For Weiser, who described himself as “loving” anything to do with DTC, what Shopify does is power all of that ability — from selling to payments to marketing. “We run the gamut of a retail operating system.” The company has admittedly benefited from a DTC boom: Starting with small businesses run from people’s kitchens, then going upmarket to giant Fortune 500 companies, Weiser said that DTC’s “graduation” into giant juggernauts themselves has made a huge difference. Shopify powers hundreds of those companies, from Allbirds to mattress brand Leesa to Chubbies.
Just as Google and Facebook are core to anyone marketing online, Shopify is becoming the same to those who sell directly online. Like any platform, Shopify is building an ecosystem of developers, startups and ad agencies. The company has 2,500 apps through its own app store. The company can, like the Apple App Store, add apps into its ecosystem that merchants can then purchase.
Elastic’s open source products are downloaded voluminously, with over 350M downloads of its open source software to date. As a result, sales engages with customers who are already users and highly familiar with the products. This leads to shorter sales cycles and higher sales conversions. Additionally, awareness and engaged prospects are generated by popular open source projects, such as Elasticsearch and others from Elastic, obviating the need for top-of-funnel and mid-funnel marketing spend. Elastic still spent a healthy 49% of revenue on Sales & Marketing in FY ’18 (year ending Jan ’18) but this was down from 60% the prior year, and the implied efficiency on Elastic’s Sales & Marketing spend is extremely high, enabling the 79% top-line growth the company has enjoyed. Finally, Elastic shows how disruptive an open source model can be to competition. There are already large incumbents in the search, analytics, IT Ops and security markets, but, while the incumbents start with sales people trying to get into accounts, Elastic is rapidly gaining share through adoption of its open source by practitioners.
Elastic controls the code to it open source projects. The committers are all employed by the company. Contributions may come from the community but committers are the last line of defense. This is in contrast to open source projects such as Linux and Hadoop, where non profit foundations made up of many commercial actors with different agendas tend to govern updates to the software. The biggest risk to any open source project is getting forked and losing control of the roadmap, and its difficult for a company to build a sustainable high margin business supporting a community-governed open source project as a result. Elastic, and other companies who more tightly control the open source projects they’ve popularized, have full visibility to roadmaps and are therefore able to build commercial software that complements and extends the open source. This isn’t a guarantee of success. The viability of any open source company rests with the engagement of its open source community, but if Elastic continues to manage this well, their franchise should continue to grow in value for for foreseeable future.
“When you hail a ride home from work with Uber, Elastic helps power the systems that locate nearby riders and drivers. When you shop online at Walgreens, Elastic helps power finding the right products to add to your cart. When you look for a partner on Tinder, Elastic helps power the algorithms that guide you to a match. When you search across Adobe’s millions of assets, Elastic helps power finding the right photo, font, or color palette to complete your project,” the company noted in its IPO prospectus.
“As Sprint operates its nationwide network of mobile subscribers, Elastic helps power the logging of billions of events per day to track and manage website performance issues and network outages. As SoftBank monitors the usage of thousands of servers across its entire IT environment, Elastic helps power the processing of terabytes of daily data in real time. When Indiana University welcomes a new student class, Elastic helps power the cybersecurity operations protecting thousands of devices and critical data across collaborating universities in the BigTen Security Operations Center. All of this is search.”
One government official says China’s goal was long-term access to high-value corporate secrets and sensitive government networks. No consumer data is known to have been stolen.
With more than 900 customers in 100 countries by 2015, Supermicro offered inroads to a bountiful collection of sensitive targets. “Think of Supermicro as the Microsoft of the hardware world,” says a former U.S. intelligence official who’s studied Supermicro and its business model. “Attacking Supermicro motherboards is like attacking Windows. It’s like attacking the whole world.”
Since the implants were small, the amount of code they contained was small as well. But they were capable of doing two very important things: telling the device to communicate with one of several anonymous computers elsewhere on the internet that were loaded with more complex code; and preparing the device’s operating system to accept this new code. The illicit chips could do all this because they were connected to the baseboard management controller, a kind of superchip that administrators use to remotely log in to problematic servers, giving them access to the most sensitive code even on machines that have crashed or are turned off.
Ethane, once converted to ethylene through “cracking” is the principal input into production of polyethylene. Simply put, ethane is turned into plastic. Polyethylene is manufactured in greater quantities than any other compound. U.S. ethane production has more than doubled in the past decade, to 1.5 Million Barrels per Day (MMB/D).
The result is that ethane trade flows are shifting, and the U.S. is becoming a more important supplier of plastics. The Shale Revolution draws attention for the growth in fossil fuels — crude oil and natural gas, where the U.S. leads the world. But we’re even more dominant in NGLs, contributing one-third of global production. The impact of NGLs and consequent growth in America’s petrochemical industry receives far less attention, although it’s another huge success story.
If $15 an hour becomes the new standard for entry-level wages in corporate America, its impact may be felt most broadly among middle-class workers. Average hourly earnings for non-managerial workers in the U.S. were $22.73 an hour in August. The historically low level of jobless claims and unemployment, combined with $15 an hour becoming an anchor in people’s minds, could make someone people earning around that $22 mark feel more secure in their jobs. Instead of worrying about losing their job and being on the unemployment rolls for a while, or only being able to find last-ditch work that pays $9 or $10 an hour, the “floor” may be seen as a $15 an hour job.
That creates a whole new set of options for middle-class households. In 2017, the real median household income in the U.S. was $61,372, which is roughly what two earners with full-time jobs making $15 an hour would make. A $15-an-hour floor might embolden some workers to quit their jobs to move to another city even without a job offer there. It might let some workers switch to part-time to focus more time on education, gaining new skills or child care.
It’s not the size of your circle of competence that matters, but rather how accurate your assessment of it is. There are some investors who are capable of figuring out incredibly complex investments. Others are really good at a wide variety of investments types, allowing them to take advantage of a broad set of opportunities. Don’t try to keep up with the Joneses. Figure out what feels comfortable, and do that. If you are not quite sure whether something is within your circle of competence or not – that in and of itself is an indicator that it’s better to pass. After all, to quote Seth Klarman’s letter to his investors shortly after the Financial Crisis of 2008, “Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return.”
… you can prepare; you can’t predict. The thing that caused the bubble to burst was the insubstantiality of mortgage-backed securities, especially subprime. If you read the memos, you won’t find a word about it. We didn’t predict that. We didn’t even know about it. It was occurring in an odd corner of the securities market. Most of us didn’t know about it, but it is what brought the house down and we had no idea. But we were prepared because we simply knew that we were on dangerous ground, and that required cautious preparation.
People use data to justify market timing. But it’s hindsight bias, right? If you know ahead of time when the biggest peaks and troughs were through history, you can make any strategy look good. So Antti and his co-authors made a more realistic and testable market timing strategy. And here’s the key difference — instead of having all hundred years of history, Antti’s strategy used only the information that was available at the time. So, say for example it’s 1996, early tech bubble. We know after the fact that the U.S. stock market would get even more expensive for a few years before it crashed. But in 1996 you wouldn’t actually know that. So by doing their study this way, Antti could get a more realistic test of value-based market timing.
The interesting and troubling result was when we did this market timing analysis the bottom line was very disappointing. It was not just underwhelming, it basically showed in the last 50-60 years, in our lifetimes, you didn’t make any money using this information.
I invested some of that time meeting with the people making these decisions once a week. I wanted to know what types of decisions they made, how they thought about them, and how the results were going. We tracked old decisions as well, so they could see their judgment improving (or not).
Consequential decisions are a different beast. Reversible and consequential decisions are my favorite. These decisions trick you into thinking they are one big important decision. In reality, reversible and consequential decisions are the perfect decisions to run experiments and gather information. The team or individual would decide experiments we were going to run, the results that would indicate we were on the right path, and who would be responsible for execution. They’d present these findings.
Consequential and irreversible decisions are the ones that you really need to focus on. All of the time I saved from using this matrix didn’t allow me to sip drinks on the beach. Rather, I invested it in the most important decisions, the ones I couldn’t justify delegating. I also had another rule that proved helpful: unless the decision needed to be made on the spot, as some operational decisions do, I would take a 30-minute walk first.
Once you frame risk as avoiding regret, the questions becomes, “Who cares what’s hard but I can recover from? Because that’s not what I’m worried about. I’m worried about, ‘What will I regret?’”
So risk management comes down to serially avoiding decisions that can’t easily be reversed, whose downsides will demolish you and prevent recovery.
Actual risk management is understanding that even if you do everything you can to avoid regrets, you are at best dealing with odds, and all reasonable odds are less than 100. So there is a measurable chance you’ll be disappointed, no matter how hard you’ll try or how smart you are. The biggest risk – the biggest regret – happens when you ignore that reality.
Carl Richards got this right, and it’s a humbling but accurate view of the world: “Risk is what’s left over when you think you’ve thought of everything.”
Even if there is a new job, and even if you get support from the government to kind of retrain yourself, you need a lot of mental flexibility to manage these transitions. Teenagers or 20-somethings, they are quite good with change. But beyond a certain age—when you get to 40, 50—change is stressful. And a weapon you will have [is] the psychological flexibility to go through this transition at age 30, and 40, and 50, and 60. The most important investment that people can make is not to learn a particular skill—”I’ll learn how to code computers,” or “I will learn Chinese,” or something like that. No, the most important investment is really in building this more flexible mind or personality.
The better you know yourself, the more protected you are from all these algorithms trying to manipulate you. If we go back to the example of the YouTube videos. If you know “I have this weakness, I tend to hate this group of people,” or “I have a bit obsession to the way my hair looks,” then you can be a little more protected from these kinds of manipulations. Like with alcoholics or smokers, the first step is to just recognize, “Yes, I have this bad habit and I need to be more careful about it.”
And this is very dangerous because instead of trying to find real solutions to the new problems we face, people are engaged in this nostalgic exercise. If it fails—and it’s bound to fail—they’ll never acknowledge it. They’ll just blame somebody: “We couldn’t realize this dream because of either external enemies or internal traitors.” And then this is a very dangerous mess.
The other danger, the opposite one, is, “Well, the future will basically take care of itself. We just need to develop better technology and it will create a kind of paradise on earth.” Which doesn’t take into account all of the dystopian and problematic ways in which technology can influence our lives.
What is most important is you find a business with the correct business model that can grow sales. The sales engine of the company is the most important aspect, and also the one most overlooked by investors and analysts. Sure, cost structure matters, and business model matters as does “capital allocation”, which is what they do with the tiny bit of leftover money, but what matters most is sales.
Herein lies a problem. How do you determine that a small company with the correct business model will grow sales at a high rate? The only way to do that is to visit the company and talk to management. But talking to management isn’t enough. You need to sit down and discuss their sales strategy, understand who their employees are and evaluate the ability to execute on their plan.
This is clearly a dark spot for most analysts and investors. How do you determine if the sales manager is selling you, or knows what they’re talking about? Especially if there isn’t much in the way of results to look at? I believe it’s possible, but instead of having a solid background in financial analysis you need to have sales experience and understand the sales process. Instead of reading the newest book on investing strategies your bookshelf should be full of books on pricing, call strategies, how to approach demos, and prospecting. It’s also worth remembering that enterprise sales is a different beast from consumer sales, or small business sales.
When you start to put all the pieces of this puzzle together it starts to become more apparent why everyone didn’t invest in Starbucks, or Microsoft, or Oracle when they were tiny companies. To truly catch a compounder when they’re in infancy you need a set of skills that few investors possess. It’s not impossible to build out that skill set. Understanding this paradox also helps to expose the myth that buying high growth companies is a surefire way to success. Buying high growth companies IS a surefire way to success if you can buy them when they’re small enough and their market is large enough.
Everyone knows the famous marshmallow test, where kids who could delay eating one marshmallow in exchange for two later on ended up better off in life. But the most important part of the test is often overlooked. The kids exercising patience often didn’t do it through sheer will. Most kids will take the first marshmallow if If they sit there and stare at it. The patient ones delayed gratification by distracting themselves. They hid under a desk. Or sang a song. Or played with their shoes. Walter Mischel, the psychologist behind the famous test, later wrote:
The single most important correlate of delay time with youngsters was attention deployment, where the children focused their attention during the delay period: Those who attended to the rewards, thus activating the hot system more, tended to delay for a shorter time than those who focused their attention elsewhere, thus activating the cool system by distracting themselves from the hot spots.
Delayed gratification isn’t about surrounding yourself with temptations and hoping to say no to them. No one is good at that. The smart way to handle long-term thinking is enjoying what you’re doing day to day enough that the terminal rewards don’t constantly cross your mind.
Seventy-seven percent of asset managers thought their messages were differentiated from peers, but only 21 percent of consultants believed that managers’ messages varied, according to Chestnut’s research. In addition, 75 percent of consultants who participated in the study, said their number one search criteria was investment process and portfolio construction. Manager narratives in the eVestment database, for example, get 3,000 views each month. Chestnut had 122 institutional investors and consultants participate in the study.
Going forward, Amazon will need fewer people to manage its retail operations, a decided advantage over rivals like Walmart Inc. and Target Corp., which are both spending heavily just to catch up. “This is why Amazon is the 800-pound gorilla,” says Joel Sutherland, a supply-chain management professor at the University of San Diego. “Nobody else has the resources and expertise to pull all of these emerging technologies together to remove humans from the process as much as possible while making things more reliable and accurate.”
Faith in the technology grew as it improved. Workers were happy to see tedious tasks like managing inventory spreadsheets delegated to machines that did the work more quickly and accurately. “The numbers don’t lie,” Kwon says. “It’s a better model.”
A key turning point came in 2015 when the value of goods sold through the marketplace exceeded those sold by the retail team, the people say. The retail team, which had far more employees, watched its importance fade and money funneled into projects like Amazon Web Services and Alexa. It didn’t help that the marketplace generated twice the operating profit margin of the retail business—10 percent versus 5 percent, according to a person familiar with the company’s finances. In many international markets, the retail team has never turned a profit, the person says.
In annual sales meetings, a team of 15 people overseeing a retail category would see their growth outperformed by one person from the marketplace team, the people say. The lines between the teams began blurring. Amazon retail vendors had once enjoyed such advantages as video and banner advertising and access to daily deals that get millions of hits a day; now marketplace merchants got the same perks. Many brands became more interested in selling on the marketplace, where they—not the Amazon retail team—controlled prices, images and product descriptions.
“Computers know what to buy and when to buy, when to offer a deal and when not to,” says Neil Ackerman, a former Amazon executive who manages the supply chain at Johnson & Johnson. “These algorithms that take in thousands of inputs and are always running smarter than any human.”
This dynamic, by the way, was very much apparent when Snap IPO’d a year-and-a-half ago; indeed, Snap CEO Evan Spiegel, often cast as the anti-Systrom — the CEO that said “No” to Facebook — arguably had the same flaw. Systrom offloaded the building of a business to Zuckerberg; Spiegel didn’t bother until it was much too late.
Controlling one’s own destiny, though, takes more than product or popularity. It takes money, which is to say it takes building a company, working business model and all. That is why I mark April 9, 2012, as the day yesterday became inevitable. Letting Facebook build the business may have made Systrom and Krieger rich and freed them to focus on product, but it made Zuckerberg the true CEO, and always, inevitably, CEOs call the shots.
Tech companies with non-compete agreements for employees of up to one year rarely enforce them in full—especially in California, where courts have routinely thrown them out or severely restricted the scope of such agreements, Ted Moskovitz, a former SEC lawyer-turned-tech-entrepreneur, tells Barron’s. “California courts are extremely hostile to non-competes, and typically only enforce them where there is some other concern, like theft of trade secrets involved,” Moskovitz says. “California’s economy is highly reliant on innovation and the bringing to market of new ideas.”
The greater issue, he says, is whether Systrom and Krieger are taking proprietary and/or patented intellectual property with them.
Imagine 100 years from today. My great great grandkids will have the ability to see who I was, what I was like, who I spent time with (if I give permission to Facebook to share my account prior to my death…?). This is a wonderful service for future generations. How could a company replicate such a wonderful service? All the photos, memories, comments, stories, and effort that we’ve put into the platform for the last 14 years has created a network and a legacy that I don’t believe will be easy to move or replace. We believe the moat around Facebook is getting wider everyday.
That being said, short-term data shows declines in user numbers for the youngest cohorts. This should be expected. Facebook becomes more interesting for people as they get older. As you age a mature you are posting pictures of your wedding day, your first child, your parents holding grandchildren, etc. You spend time staying in touch and looking at the lives of people that use to be very important in your life, like your brothers or friends from college, old work colleuges, etc. When you’re in high school you live with your family, you don’t have many friends that are scattered across the world, and you’re too cool to stay in touch with Mom and Dad. SnapChat makes way more sense for this young cohort. You can send inappropriate and temporary images as you discover who you are. I wouldn’t expect Facebook to ever really dominate the youngest cohorts, but I do expect that as this cohort matures many of them will spend less time and SnapChat and more time on Facebook. Priorities change overtime and Facebook definitely plays a critical and positive role in the world today.
Two years ago the pitch on RACE was it was a luxury company being valued as an auto maker. Now Morgan Stanley comes back from the well received analyst day with their eyes opened to the idea that luxury peers may not be sufficient comps. -Sean pic.twitter.com/r8wMuJjOQn— Ensemble Capital (@IntrinsicInv) September 27, 2018
It turns out that costly physical infrastructure and traditional linear programming don’t always doom media companies in their battle against digital upstarts. That’s a particularly relevant point today as Comcast bulks up to continue its battle against Netflix.
Sirius has a sticky business model, in which car buyers predictably turn on the Sirius XM radios that come pre-installed in new cars. We’re at the point where a growing number of used cars are being re-purchased with those same Sirius radios still installed, making used-car buyers a growing market for Sirius. But a satellite radio subscription still can’t match the ease of use or cost of Pandora’s smartphone app, which ranges from free to $10 a month for unlimited music.
In an investor presentation on Monday, Sirius noted that Pandora expands the company’s presence “beyond the vehicle,” while diversifying Sirius’ revenue stream by adding the country’s “largest ad-supported digital audio offering.” Sirius sees opportunity for cross-promotion between its 36 million paying subscribers and Pandora’s 70 million active listeners. The bulk of Pandora’s users are non-paying customers, but the company does have about six million paying subscribers. Sirius can now try to sell its subscription package into Pandora’s large user base.
Blackstone has grown five-fold since its initial public offering in 2007, reaching nearly $440 billion in assets, largely on the back of private equity, real estate, hedge funds, and credit. Over the last 12 months, Blackstone has brought in a record $120 billion in investor capital.
Speaking at Blackstone’s Investor Day on September 21, president and COO Jon Gray stressed that Blackstone’s business requires very little capital. Of the $439 billion it manages, only $2 billion represents balance-sheet investments. Instead, it invests the assets of its clients, largely pension funds, endowments, and other institutions. Some of the firm’s future and early-stage initiatives, such as private wealth, involve tapping more mainstream investors.
Insurers are facing increasing regulatory capital requirements and continue to be squeezed by low interest rates. “They have no choice but to move into alternatives and private credit,” said James. Insurance companies, which hold a majority of their assets in fixed income are a natural fit with Blackstone, which is one of the largest originators of credit assets. Blackstone will both manage the assets for insurers like it does for any institution, and buy mature books of business where it takes on the entire balance sheet and manages both liabilities and assets. “This is a larger and more profitable business than simply having accounts to manage. There are hundreds of billions of insurance assets being sold as we speak,” he said.
There are early signs the bet is paying off. While in secret talks to sign Ronaldo, Juventus increased average season ticket prices by 30 per cent. All 29,300 have been sold. On match day the Juventus stadium superstore is doing a brisk trade in Ronaldo replica shirts, costing up to €154.95 — among the highest prices in Europe. For his home debut, fans travelled from all over the world while television networks spent days trailing his arrival in Turin.
To sign the striker Juventus agreed to pay Real Madrid a €100m fee over two years, a further €5m in payments that will ultimately be paid to clubs that trained him as a young player, and about €12m in fees to his agent, Jorge Mendes. Ronaldo’s four-year contract provides a salary worth more than €50m a year after tax, according to reports. The remuneration package will also allow Juventus to use his “image rights”, so that the player — who earns an estimated $47m a year in personal endorsements — can also be used in Juventus promotional campaigns. Financial services firm KPMG estimates that, including the transfer fee, amortised over the duration of his contract, Juventus will pay around €340m, or €85m a year for Ronaldo’s services.
Oyo employs hundreds of staffers in the field who evaluate properties on 200 factors, from the quality of mattresses and linens to water temperature. To get a listing, along with a bright red Oyo sign to hang street-side like a seal of good-housekeeping approval, most hoteliers must agree to a makeover that typically takes about a month. Oyo then gets 25 percent of every booking. Rooms usually run between $25 and $85.
Agarwal wouldn’t give sales numbers, but he said the number of transactions has tripled in the last year, with 90 percent coming from repeat travelers — and no money spent on advertising. There are now 10,000 hotels in 160 Indian cities, with more than 125,000 rooms, listed on the site, he said. That’s about 5 percent of India’s total room inventory, according to RedSeer estimates.
As of last year, more than 91 percent of design patents granted in 2013 had been discarded because people stopped paying to maintain them, according to JZMC Patent and Trademark data compiled for a Bloomberg query. Things aren’t much better for utility models with 61 percent lapsing during the same five-year period, while invention patents had a disposal rate of 37 percent. In comparison, maintenance fees were paid on 85.6 percent of U.S. patents issued in 2013, according to the United States Patent and Trademark Office.
Bio-security routines that require sanitizing hands and dipping shoes in disinfectant bins minimize the risk of disease and the need for antibiotics that other forms of aquaculture heavily rely on, says Peterson, who has advised Nordic Aquafarms regarding best practices. However, just one employee who fails to complete the process correctly or neglects other basic protocol could contaminate the operation—with pathogens potentially looping through the recirculating system and killing an entire tank of fish. Large-scale companies could guard against this with monitoring equipment that lets them respond quickly to any issues, Peterson says, adding that strict government permits require routine monitoring that would also detect unusual levels of discharge in wastewater.
The real environmental toll of big indoor systems will depend on the capacity of local infrastructure, including the water supply, Timmons says. Recirculating systems can recycle more than 90 percent of tank water but some of it does get lost to evaporation or absorbed in solid waste each day. He calculates that a farm the size of the Belfast facility would (after the initial tank fill) consume about 1.65 billion liters of freshwater per year—roughly equivalent to the water use of about 12,000 people. But he notes even in a town of fewer than 7,000 people, like Belfast, this is within the capacity of the local aquifer—and is dwarfed by the volume of water the farm would recycle each year. In more drought-prone regions indoor aquaculture facilities could release wastewater for irrigating agricultural fields, reducing the water burden, Timmons adds.
This is already happening. Using the completed genome, the team identified a long-elusive gene (with the super-catchy name of TraesCS3B01G608800) that affects the inner structure of wheat stems. If plants have more copies of the gene, their stems are solid instead of hollow, which makes them resistant to drought and insect pests. By using a diagnostic test that counts the gene, breeders can now efficiently select for solid stems.
Nearly half of all cellphone calls next year will come from scammers, according to First Orion, a company that provides phone carriers and their customers caller ID and call blocking technology.
The Arkansas-based firm projects an explosion of incoming spam calls, marking a leap from 3.7 percent of total calls in 2017 to more than 29 percent this year, to a projected 45 percent by early 2019.
According to the Centers for Disease Control and Prevention, nearly 80 percent of adults and about one-third of children now meet the clinical definition of overweight or obese. More Americans live with “extreme obesity“ than with breast cancer, Parkinson’s, Alzheimer’s and HIV put together.
Petrov did not report the incoming strike. He and others on his staff concluded that what they were seeing was a false alarm. And it was; the system mistook the sun’s reflection off clouds for a missile. Petrov prevented a nuclear war between the Soviets, who had 35,804 nuclear warheads in 1983, and the US, which had 23,305.
A 1979 report by Congress’s Office of Technology Assessment estimated that a full-scale Soviet assault on the US would kill 35 to 77 percent of the US population — or between 82 million and 180 million people in 1983. The inevitable US counterstrike would kill 20 to 40 percent of the Soviet population, or between 54 million and 108 million people.
If you ask a question as close as possible to the claim you want to make, and ensure you survey a representative national sample of category users, any national chain in any category will beat competitors that are superior but only regionally available.
As a result of this research and ad campaign, one of Jimmy Dean’s regional competitors actually did its own research, but only in its regional area. The company found that it could beat Jimmy Dean in its region, and made its own ads that said in effect, “Did you really want to eat a breakfast sausage that people in both New York and San Francisco ate? No, you want (our) brand that tastes better to people like you and me here in (their local region).”
And because Taco Bell is pretty much ubiquitous, and enough people everywhere will vote for it because they haven’t found good, authentic Mexican food in their areas, it wins this title. There is no way that local restaurants, or even good regional chains, could compete with the sheer numbers of a national chain.
Marketing will only get you where you’re going faster. If your product isn’t valuable, marketing will help put you out of business, fast. The best way to build trust and generate attention is to be relatively excellent. I say “relatively” because some markets are more efficient/mature than others. The less developed a market, the less valuable you have to be in absolute terms. You just have to be better than everyone else. I don’t want to try to outcompete smart, well-read, and hard working people. I want to find the lowest bar to jump over and then get good at pole vaulting.
Picking your field is arguably more important to your success than your current skill and future capacity. In some segments of business, everyone makes lots of money and the very best do outrageously well. In other areas, even the very best often declare bankruptcy. It’s a base rate analysis. Assume you’re only going to be mediocre, then explore what business and life look like if that’s true. So choose your field wisely and get good at what you’re doing before trying to make noise.
Without a cost incentive to locate in the developing world, corporations will bring many of these functions back to the countries where they’re based. That will leave emerging economies, unable to grasp the bottom rungs of the development ladder, in a dangerous position: the large pool of young and relatively unskilled workers that once formed their greatest comparative advantage will become a liability – a potentially explosive one.
The result will be an unprecedented concentration of productive capacity and wealth in the hands of the elite AI companies, almost all of which are located in the US and China. Of the US$15.7 trillion in wealth that AI is forecast to generate globally by 2030, a full 70 per cent will accrue to those two countries alone, according to a study by consulting firm PwC.
According to a recent report by The NYT, artists working with labels may see much smaller percentages. The report said that Spotify typically pays a record label around 52 percent of the revenue generated by each stream. The label, in turn, then pays the artist a royalty of anywhere from 15% to as high as 50%. If artists are dealing directly with Spotify, they could be making more money.
Labels suggested that they could retaliate against Spotify for overstepping. The NYT had also said. They may do things like withhold licenses Spotify needs for key international expansions, like India, or not agree to new terms after existing contracts expire. They could also offer more exclusives and promos to Spotify’s rivals, like Apple Music, which has surged ahead in the U.S. and is now neck-and-neck here with Spotify for paid subscribers.
A music upload feature also means artists who own their own rights could break out big on Spotify if they catch the attention of playlist editors – something that Spotify now makes it easier for them to do, as well. In addition, having indies upload music directly means Spotify could better compete against Apple Music by attracting more artists and their fans to its platform.
If you have followed many of the posts I’ve written about the challenges facing the broader semiconductor industry, you know that competing with Apple’s silicon team is becoming increasingly difficult. Not just because it is becoming harder for traditional semiconductor companies to spend the kind of R&D budget they need to meaningfully advance their designs but also because most companies don’t have the luxury of designing a chip that only needs to satisfy the needs of Apple’s products. Apple has a luxury as a semiconductor engineering team to develop, tune, and innovate specialized chips that exist solely to bring new experiences to iPhone customers. This is exceptionally difficult to compete with.
However, the area companies can try with cloud software. Good cloud computing companies, like Google, can conceivably keep some pace with Apple as they move more of their processing power to the cloud and off the device. No company will be able to keep up with Apple in client/device side computing but they can if they can utilize the monster computing power in the cloud. This to me is one of the more interesting battles that will come over the next decade. Apple’s client-side computing prowess vs. the cloud computing software prowess of those looking to compete.
China has not experienced the so-called stage of the desktop Internet, but directly embraced the mobile Internet. Therefore, Chinese consumers do not have the burden of the desktop Internet era. This explains to some extent why China’s mobile payment share is so high. In other countries, the mobile payment process is much slower. In fact, they just have no more attempts.”
Perhaps Apple’s delay in advancing Macs and angering the pro community comes from this deep seated attitude that it’s a “burden” holding back the advancement of their iOS agenda.
With no true competitive threats, wide-moat commercial real estate data provider CoStar Group is a borderline monopoly. The other companies in the space are predominately small startups focused on crowdsourcing data. These companies can’t replicate the intangible assets from the vast cost and effort associated with compiling the data the company offers to its customer base.
Given the importance customers place on the underlying data, CoStar also keeps competitors at bay with a switching cost moat source. It’s just too risky to switch sources. Strong platform effects found throughout CoStar’s product offerings earn the company a network effect moat source, too.
The company continues to increase its coverage and boasts that it covers every building in the country, widening the gap between itself and its fragmented competition. The firm recently established itself as a leading provider of rental data with its acquisitions of Apartment Finder and Apartments.com. CoStar is only 30% penetrated in its target market for apartments, so we see room for growth in this area.
Moreover, CoStar is only 15% penetrated in the broker community and 7% penetrated with institutional investors, two groups we can see the firm going after. As several investments are integrated and benefits are realized, we project CoStar’s economic profit to steadily increase over the next several years, reflecting our positive moat trend rating.
“Grubhub is in the early stages of enabling the shift to online of the still offline dominant restaurant takeout businesses and driving the improved consumer experience that comes with it,” they wrote. About “90% of delivery and pickup orders still come from offline, making the phone book, print out menus and walk-ins the number one competitor to Grubhub and its peers.”
How early is the shift? “We estimate Grubhub has about 40% market share of the third-party online delivery/pickup industry which itself we estimate has a 4% penetration of the $250 billion restaurant takeout industry,” they wrote. “Its early mover and scale advantage—about 85,000 restaurants on its platform in 1,600 cities—has allowed Grubhub to offer, in our view, the best consumer value across its competitors.”
If we can introduce ourselves to those advertisers with a good ‘til canceled $300, $400 a month, $10, $20 a day kind of service proposition, what we’re finding is it really opens up our sales funnel. It makes our product more competitive in the marketplace. It allows us to get into third-party sales channels that we haven’t been in before. And we’re now kind of one quarter into it and we had this quarter, the first quarter, about 140% as many new or net customer additions in this quarter as we’ve had in any prior quarter and kind of 2x the run rate that we’ve normally seen when we were selling the term contract. And, now, we move to the non-term contract.
In the long-term, our tests and our analysis all show that the LTV of a cohort of advertisers that we bring in today will be quite a bit higher. And what we’ve seen in our tests is that we continue to sell the sort of long and strong loyal long-term advertisers under the new pricing model just as we always have, but on top of that we’re introducing ourselves to a lot more new customers along the way
Yelp is in the early days of elevating the consumer experience by expanding the number of transactional features such as Request-A-Quote from a home service professional or book a restaurant reservation or spa appointment. Request-A-Quote lead volume grew 27% from the first to the second quarter of 2018 and topped 5.5 million delivered requests in the second quarter. During that same short timeframe, revenue attributable to Request-A-Quote increased by more than 50%, surpassing a $35 million annual run rate at the end of the second quarter. The company is not yet fully monetizing Request-A-Quote, which we believe could accelerate free cash growth even further. We like finding misunderstood, yet promising, and free embedded call options within the companies we invest in and hope Request-A-Quote proves to a second material avenue for free cash per share growth.
Instead of paying for users, Xiaomi actually gets paid at least 5% gross margin through hardware to get users…it’s a very different model from almost any other internet services model out there. So if this is sustainable, and to make sure this is sustainable is to have a lot more hardware products out there that the middle class can buy, and use that portfolio of hardware devices to get paid for acquiring users, so that internet services can scale thereafter…There’s definitely elements of Muji and Uniqlo in a different field for Xiaomi, there’s definitely elements of a Costco model of subscription plus very low cost to make sure more products are affordable by the rising consumer class, there’s definitely elements of Amazon in there as a platform to sell many products and being very focused at delivering a superior experience…
If we look at the number of internet users coming online, the next 1.5bn internet users coming online between now and 2030, most of that growth will come from the 74 countries that Xiaomi is in already. So when people ask me if Xiaomi is coming to the US or not, they completely miss the point, the growth is coming from the existing countries that Xiaomi’s already in…
Xiaomi has over 18 apps, each with monthly active users of over 50mn. It also has 38 apps, each with over 10mn MAUs. In aggregate, it did over 1.5bn RMB in internet services revenue in 2017, which already puts them as a top 25 internet services only company in the world. The most popular [app] that people know is probably Xiaomi Video, which has an interesting way of becoming aggregation services. It doesn’t license content from anyone, what it does is it aggregates content from all the top Chinese video apps, each of which have already licensed the content and whenever a user clicks on a video, it takes you to the content from its partners but within the app itself, so you can have a more integrated experience. It charges advertising revenue and also subscription from the users…and they share that revenue with its partners that provide the original video content. So, it can focus on providing the most comprehensive collection of content to the user, at the same time, so far, they don’t have to spend much money on acquiring the content itself.”
It’s pretty clear that electric disrupts the internal combustion engine, and everything associated with it. It’s not just that you replace the internal combustion engine with electric motors and the fuel tank with batteries – rather, you remove the whole drive train and replace it with sometime with 5 to 10 times fewer moving or breakable parts. You rip the spine out of the car. This is very disruptive to anyone in the engine business – it disrupts machine tools, and many of the suppliers of these components to the OEMs. A lot of the supplier base will change.
We will go from complex cars with simple software to simple cars with complex software. Instead of many stand-alone embedded systems each doing one thing, we’ll have cheap dumb sensors and actuators controlled by software on a single central control board, running some sort of operating system, with many different threads (there are a few candidates). This is partly driven by electric, but becomes essential for autonomy.
Tesla’s first bet is that it will solve the vision-only problem before the other sensors get small and cheap, and that it will solve all the rest of the autonomy problems by then as well. This is strongly counter-consensus. It hopes to do it the harder way before anyone else does it the easier way. That is, it’s entirely possible that Waymo, or someone else, gets autonomy to work in 202x with a $1000 or $2000 LIDAR and vision sensor suite and Tesla still doesn’t have it working with vision alone.
The U.S. corporate-listings business, in which companies pay fees to an exchange for services tied to being the primary venue for the company’s stock trading, has for years been an effective duopoly of the NYSE and Nasdaq. A third big exchange group, Cboe Global Markets Inc., lists exchange-traded funds and its own shares, but hasn’t made a bid to attract other companies. NYSE parent Intercontinental Exchange Inc. and Nasdaq earned a combined $684 million from listings last year, according to the two exchange groups.
“We at Interactive Brokers understand that being the first listing on a new exchange may entail certain risk, but we think that individual and institutional customers who own and trade our stock will receive better execution prices and that advantage will outweigh the risk,” Mr. Peterffy said in a press release announcing the move.
A skilled factory worker earns about 36,000 yuan a year in wages and benefits in China’s poorer provinces and second-tier cities, away from the coast. Total remuneration can exceed 60,000 yuan in cities nearer the coast and along the eastern seaboard, like in the Pearl River and Yangtze River deltas. A 200,000 yuan robot that can do the job of three humans can recoup its capital cost in 22 months in central provinces, or in a little over a year in coastal cities. In the face of rising prices pressures for labour, energy and rents, such a cost advantage would be attractive to many manufacturers.
China’s total spending on research and development is estimated to have risen 14 per cent last year to 1.76 trillion yuan, according to the Ministry of Science and Technology.
“Among the thousands of so-called Chinese robotics companies – including robot and automated equipment producers as well as those who only provide automation integration solutions – only about 100 firms could mass produce the main body and core components of high-end and middle-market industrial robots, such as servo motors, robot controllers and speed reducers,” he said. “We lack original research and have already tried to catch up by copying advanced technology. But neither technology-related mergers and acquisitions nor copycat [production] can close the gap in the short term.”
He said many domestic robotics manufacturers were still developing the traditional core parts of robots, like servo motors, robot controllers and speed reducers. But these parts would not be the core components of the future, he said.
One of the best ways to stay out of trouble with your finances is to focus all of your energy on your own circumstances and ignore what other people say or do with their money. Not only will it likely save you from making a grievous financial error but it will also make you happier. Constantly comparing yourself or your portfolio to others can be exhausting.
Don’t argue the facts. Feelings aren’t logical. You wouldn’t expect the new employee to know how to find the bathroom and you shouldn’t expect a child to know how to handle emotions that, frankly, you still have problems dealing with after decades of experience. Don’t immediately try to fix things. You need to establish you’re a safe ally before you can solve anything. Understanding must precede advice, and, just as with adults, they decide when you understand.
The critical distinction Gottman realized is that it’s important to accept all feelings — but not all behavior. If you skip immediately to problem-solving, the kid never learns the skill of how to deal with those uncomfortable emotions. You want to use “empathetic listening.” Get them to talk. Help them clarify. Validate their feelings (but, again, not necessarily their behavior). They need to feel you really understand and are on their side.
Providing words in this way can help children transform an amorphous, scary, uncomfortable feeling into something definable, something that has boundaries and is a normal part of everyday life. Anger, sadness, and fear become experiences everybody has and everybody can handle. Labeling emotions goes hand in hand with empathy. A parent sees his child in tears and says, “You feel very sad, don’t you?” Now, not only is the child understood, he has a word to describe this intense feeling. Studies indicate that the act of labeling emotions can have a soothing effect on the nervous system, helping children to recover more quickly from upsetting incidents.
As we have discussed earlier, the implications of teaching a child to self-soothe are enormous. Kids who can calm themselves from an early age show several signs of emotional intelligence: They are more likely to concentrate better, have better peer relationships, higher academic achievement, and good health. My advice to parents, then, is to help your kids find words to describe what they are feeling. This doesn’t mean telling kids how they ought to feel. It simply means helping them develop a vocabulary with which to express their emotions.
In an ideal world, we’d always have time to sit and talk with our kids as feelings come up. But for most parents, that’s not always an option. It’s important, therefore, to designate a time—preferably at the same period each day—when you can talk to your child without time pressures or interruptions.
Buffett does it his way while Schloss did it another way. Ichan does it his way while Lynch did it another way. Tepper does it his way while Andreessen does it another. The greatest investors ever have opposing strategies. Learn from all of them & don’t be afraid to be different.— Ian Cassel (@iancassel) September 21, 2018
One of the biggest impacts will be on tech—a sector that has grown so big, at 26.5% of the S&P 500, it has produced more than half of the market’s gain this year, according to Bespoke Investment Group. Tech is being cut down to size, though, as several of its biggest stocks head over to the new communication sector. The losses will chop about 23% off the tech sector’s market value. It will be more oriented to chip makers, hardware, and software.
Thankfully, S&P and MSCI don’t make such changes often. The GICS taxonomy goes back to 1999. It has grown to 11 sectors, the latest being real estate, carved out of financials in 2016. But that was minor compared with the new musical chairs—affecting more than 1,100 companies globally.
Redrawing the GICS boundaries was necessary to reflect the changing tech and media landscapes. When the old sector lines were drawn, people made calls with flip phones, used MySpace for social media, and paid AT&T for cellular service and landlines. But mergers and tech developments have jumbled things up: Netflix is threatening Hollywood, Comcast has turned into a media giant, and Alphabet is in everyone’s business. Sure, technology remains the heart of these businesses. But so what? Facebook and Alphabet aren’t like Apple and Microsoft, which develop hardware and software, says Blitzer. It makes more sense to group Facebook and Alphabet with firms making money off advertising, content delivery, and other types of “communications,” he says.
Recorded music: $18 billion. Cars: $1 trillion. Retail: $20 trillion.— Benedict Evans (@BenedictEvans) September 6, 2018
In turn, brands are increasingly recognizing Amazon’s vast customer reach, particularly to its more than 100 million Prime subscribers. In a study conducted last summer by Catalyst, the search and social media marketing company, only 15 percent of the 250 brands marketers polled felt they were making the most out of advertising on Amazon’s platform, and 63 percent of the companies already advertising there said they planned to increase their budget in the coming year.
Some statistics: Only 28% of India's population is online. In China, that ratio is 53% (and 88% in the US). India's ecommerce market is $33 billion, which has tripled in the past couple years, but is only 3% of India's retail market. https://t.co/ofI2XI1V4t— John Huber (@JohnHuber72) September 6, 2018
Facebook ads, compared with those on Google search or YouTube, tend to transcend language barriers more easily because they rely more on visual elements. Pinpointing younger consumers and rural populations is easier with Facebook and its Instagram app.
Facebook and Google between them took 68 percent of India’s digital ad market last year, according to advertising buyer Magna. Media agency GroupM estimates digital advertising spending will grow 30 percent in India this year.
The easiest way for Spotify to save money would be to cut labels out of the process entirely. While the company has said time and time again that it doesn’t want to operate a label or own copyrights, it has been taking on functions of a record label. The company has developed tools to help artists plan tours and collect royalties, funded music videos and recording sessions, and held workshops with songwriters.
Record companies know Spotify can’t cut them out completely. They control too much music and offer resources artists need. But Spotify’s growth poses a threat. Successful independent artists, like Chance the Rapper, have created the perception that musicians may not need labels at all. “The music industry hates that Spotify, YouTube and Apple Music reduce the relevance of the traditional music business,’’ Masuch said. “Distribution is controlled by companies that aren’t part of the traditional ecosystem.’’
The only thing more shocking than Netflix's willingness to publicly explain everything it's doing is that no competitors seemed to have benefited from this fact.— Matthew Ball (@ballmatthew) September 4, 2018
Now live: a brand new Netflix portal that categorizes and indexes all of their research https://t.co/rO7uvTw1hS
Jonas estimates that Tesla has a 13% discount rate, versus Waymo’s 10%. “Tesla likely has a higher cost of capital vs. Alphabet/Waymo,” he writes.
Tesla will have to make money on the rides themselves, while big tech companies like Alphabet can also make money off the time spent in the car as well as what it learns from drivers. “Tesla’s business model offers potentially less room for adjacent revenue monetization,” he explains.
Tesla has offered very little information on what Tesla Mobility’s business model will look like, while Waymo and General Motors (GM) have “become increasingly conspicuous with their efforts to grow the business with specific targets for commercialization and deployment,” he explains.
More than half the value assigned to Waymo by Morgan Stanley’s internet team came from logistics, by which they apparently mean moving people and stuff around. That’s an opportunity Jonas doesn’t include for Tesla. “Logistics accounts for $89bn of the total $175bn value in our internet team’s Waymo DCF,” he writes. “We have not specifically ascribed any logistics based revenue to Tesla Mobility at this time.”
“There is what’s called a master and a publishing portion of the record. So the master is the recording of it, so if I sign a record deal or a recording deal, I sign away my masters, which means the label owns the recording of that music. On the publishing side, if I write a record, and I sign away my publishing in a publishing deal, they own the composition of work… so the idea of it, you know what I’m saying? So if I play a song on piano that you wrote, I have to pay you publishing money, because it comes from that idea. Or if I sing a line from that song, it’s from the publishing portion. If I sample the action record, if I take a piece of the actual recorded music, that’s from the master. None of that shit makes any sense right, that shit didn’t make any sense to you? ‘Cause that shit is goofy as hell.”
This 2013 interview with Murray Stahl is worth a read. I enjoyed learning about his "predictive characteristics" of successful investments. This passage on businesses run by owner-operators reflects our own approach. - Todd https://t.co/ruPRh2CSPt pic.twitter.com/oTQanhkJlX— Ensemble Capital (@IntrinsicInv) September 6, 2018
Gosh, I love blue-collar small biz:— Brent Beshore (@BrentBeshore) September 1, 2018
"When a stretch of I-80 collapsed in Oakland, a competing firm came in with a bid of $6.4 million. C.C.’s bid? $800,000. As usual, he zipped through the project and finished in a breezy 17 days." h/t @Henocki https://t.co/kRVMzzgoa6 pic.twitter.com/ITqvHdB8Az
Silicon Valley has always had one important advantage over other regions when it comes to the tech sector. There is a much higher density of talent, capital, employment opportunity, and basic research in Silicon Valley versus other locations. When I say density, I mean physical density. If you walked a mile, how many tech companies would you pass along the way? That metric in Silicon Valley has always been higher than elsewhere and still is. So even though the return on capital (human and invested) has significant headwinds in today’s Silicon Valley, it is still a lot easier to deploy that capital there. And I think that will continue to be the case for a long time to come.
That could make it easier to design new materials, or find better ways for handling existing processes. Microsoft, for instance, predicts that it could lead to a more efficient way of capturing nitrogen from the atmosphere for use in fertilisers — a process known as nitrogen fixation, which currently eats up huge quantities of power.
We were doing something different. And anytime you’re doing something different the only people who can participate are people who don’t have career risk. Anytime you introduce the factor of career risk into the decision-making process, you have to do the norm. It’s a divergent system: If you invest in a divergent system and it goes wrong, you have massive downside for your career personally, separate from the organization. It could be the right decision – it was probabilistically a great bet. But if it goes wrong and it looks different, you could get fired. And if it goes right, you still may not have enough upside career-wise.
Deciding whether to do something isn’t just about whether or not it’ll work. It’s not even about the probability of whether it might work. It’s whether it might work within the context of a reference point – some gauge of what others consider “normal” to measure performance against. Thinking probabilistically is hard, but people do it. And when judging the outcomes of decisions, a win isn’t just a win; it’s “You won, but that was an easy bet and you should have won.” Or, “You won, but that was a gamble and you got lucky.”
The information technology sector – which contains the bulk of superstar firms – accounts for 60% of the increase in S&P 500 profit margins over the past 20 years, while the “adjacent tech” sector, comprising the health care (including biotech firms) and consumer discretionary sectors (incl. firms such as Booking Holdings and Expedia) accounts for 40% of the rise. It also means the bulk of the market – i.e., all firms ex. tech, healthcare and consumer discretionary – have seen no margin growth at all since 1998.
First, as a private company, Tesla will be unable to capitalize on its competitive advantages as rapidly and dramatically as it would as a public company, an important consideration given the network effects and natural geographic monopolies to which autonomous taxi and truck networks will submit. Second, in the private market, Tesla would lose the free publicity associated with your role as the CEO of the public company not only with the bestselling mid-sized premium sedan in the US, but also arguably in the best position to launch a completely autonomous taxi network nationwide in the next few years. Just ask Michael Dell: he wants to lead a public company once again for a reason. Third, you will deprive most of your individual investors of a security to bet on you and your strategy, ceding that opportunity to high net worth and institutional investors. Finally, if you do not take Tesla private, you will be surprised and gratified at investor reaction once they realize and understand the scope and ramifications of your long-term vision and strategies.
As of March 2018, Xiaomi already had 38 apps with more than 10 million monthly active users, and 18 apps with more than 50 million monthly active users, including the Mi App Store, Mi Browser, Mi Music, and Mi Video apps. Rather than paying search engines to acquire users, Xiaomi is essentially getting paid for acquiring users through selling its smartphones. This allows Xiaomi to have a negative CAC (customer acquisition cost) for its Internet services.
Another under-appreciated pillar of Xiaomi’s growth is its “ecosystem strategy.” Xiaomi strategically invests in many startups as well as the many Internet services providers they work with, both in China and outside of China. Companies in the Xiaomi ecosystem include SmartMi (air purifiers), Zimi (power banks), Huami (Mi bands), Chun Mi (rice cookers), and 80-plus more. Thanks to these prolific investments, you can find a wide variety of products in any Xiaomi store, from scooters to ukeleles (see below). As a result, every time consumers visit a Xiaomi store, they can find something new, and the frequency of store visits is a lot higher than typical smartphone brands, even Apple.
Ensure the price of the hardware is as low as possible so the company can grow market share and users. Sell the phones online, direct-to-consumer, bypass the middlemen, and past the enormous cost savings to consumers. Overtime, the company will monetize on Internet services.
When Yahoo! Invested in Alibaba (another GGV portfolio company) in 2005, the world had 1 billion Internet users. Now, the world has 3.5 billion Internet users. Over the last 13 years, Alibaba’s valuation increased 100 times from $5 billion to $500 billion. The fact that China was the fastest growing market for Internet users during this period, coupled with Alibaba’s amazing ability to execute, turned the company into a growth miracle. In the next 12-13 years, the world will most likely grow to 5 billion Internet users. The world’s next 1 billion Internet users that will come online in the next decade – via affordable but high-quality smartphones – are outside of the US. They are in the 74 countries that Xiaomi is already in today. Going forward, Xiaomi is very well-positioned to take advantage of the next phase of growth through selling hardware, software, and bundled Internet services, as well as by investing in partner companies in those countries.
Tencent Music this year could generate revenue less than half of Spotify’s projected $6 billion. Tencent Music is profitable, which is rare in music-streaming. The firm pulled in roughly two billion yuan ($290 million) in net income last year. Spotify, in contrast, reported a net loss of about $1.4 billion last year, although nearly $1 billion of that was due to a one-time financing charge.
The secret of Tencent Music’s profitability is virtual goods and cheap music rights. Most of its revenue comes from non-subscription services including karaoke and live-streaming services, where users can pay to send virtual gifts to performers.
Polen Capital: “While FAANG companies have gone from 1% of the U.S. equity market cap to nearly 10% over the past 13 years... these companies have also increased their contribution to the economic profits of the U.S. from that same 1% 13 years ago to roughly 12% today.”— Ensemble Capital (@IntrinsicInv) August 19, 2018
As the economic weight of a small number of highly profitable and innovative “superstar” companies has increased, workers’ slice of the pie has fallen in their industries. This may have contributed to a broader fall in labour’s share of income that has been particularly noticeable in the US since the beginning of the 2000s. At the same time, corporate profitability has surged to record highs.
Goldman Sachs analysts say rising product and labour market concentration has imposed a drag of 0.25 percentage points on annual wage growth since the early 2000s. They also stress, however, that America’s dreary productivity growth is a bigger problem.
Turing will be able to perform graphics, deep learning, and ray tracing operations simultaneously, a first for any processor. The Turing GPU can perform 10 billion operations per second, enabling ray tracing in real time. In addition, it is capable of 125 trillion deep learning operations and 16 trillion graphics operations per second. Nvidia and other chip companies rarely dedicate hardware to a specific algorithm in the absence of a large market opportunity. Nvidia posits that the $2,000 Turing ray tracing GPU will target 50 million artists and designers globally. A 10% hit rate would create a $10 billion market, nearly matching Nvidia’s annual revenue today.
Because 98% of all genetic diseases are polygenic, that is involving more than one gene, the clinical utility of whole genome sequencing (WGS) is taking on new importance. To date, roughly two million whole human genomes have been sequenced. If DNA sequencing costs continue to drop by 40% per year, the number of whole human genomes sequenced should increase at 150% rate per year. As a result, genome-wide association studies should power poly-epigenetic models of disease and result in molecular diagnostic tests which introduce more science into health care decision-making.
Preventing pest infestations—or mitigating them after the fact—is particularly important for restaurants, hotels, and hospitals. Not only can regulators impose heavy fines or shut down businesses that violate health ordinances, customers who encounter a bug-infested business may shame them on social media. “In the age of customer review apps such as Yelp, businesses are well-aware that a customer report or, worse, photo of a pest infestation can be shared around the internet within minutes and potentially damage their brand,” says Zhu. With reputations at stake, businesses in the food and beverage, hospitality, and health care sectors are especially inclined to hire a pest control company promptly when faced with an infestation. In fact, many commercial customers schedule routine treatments to prevent potential infestations, providing pest control companies with a recurring revenue stream.
The companies best positioned to thrive in this environment are those with access to sufficient capital to acquire or open new locations. Operating an extensive branch network confers a number of competitive advantages, including the opportunity to generate greater brand recognition through cost-effective advertising and the ability to operate with lower average costs due to economies of scale. In recent years, consolidation has been intense in North America, which is still home to about half the world’s pest control companies. In fact, four of the 100 largest pest control companies in the US were acquired in May 2018 alone, two of them by US-based Terminix, and one each by European firms Rentokil and Anticimex.
Despite modern pesticides and the efforts of tens of thousands of companies, pest control remains a Sisyphean task. “It’s easy to kill bugs, but it’s much harder to keep them from coming back,” Zhu says. For the foreseeable future, the bedbugs will continue to bite—and demand for professional pest control services should continue to grow.
Funds that invest in litigation are on the rise. In the past 18 months some 30 have launched; over $2bn has been raised. Last year Burford Capital, an industry heavyweight, put $1.3bn into cases—more than triple the amount it deployed in 2016. Lee Drucker of Lake Whillans, a firm that funds lawsuits, says he gets calls weekly from institutional investors seeking an asset uncorrelated with the rest of the market—payouts from lawsuits bear no relation to interest-rate rises or stockmarket swings.
Returns are usually a multiple of the investment or a percentage of the settlement, or some combination of the two. Funders of a winning suit can expect to double, triple or quadruple their money. Cases that are up for appeal, where the timespan is short—usually 18-24 months—and the chance of a loss slimmer, offer lower returns. New cases that are expected to take years offer higher potential payouts.
As funders compete for high-quality investments, opportunities in new markets arise. Bentham IMF, a litigation funder based in New York, has joined Kobre & Kim, a law firm, to set up a $30m fund for Israeli startups to pursue claims against multinationals—for example, over trade-secret violations. A burgeoning secondary market is likely to develop further, allowing investors to cash out before long-running suits are closed. Burford recently sold its stake in an arbitration case concerning two Argentine airlines for a return of 736%. Such mouth-watering profits should keep luring capital into the courtroom.
Networks are even more powerful because their foundations are even stronger. Large corporations leveraged mass production, mass distribution, and economies of scale. Networks leverage mass computation, mass connectivity, and network effects. Because computation and connectivity improve at exponential rates, the owner of a network has insurmountable advantages over the owner of a traditional corporation.
Corporations believe that bits enhance atoms. Networks recognize that bits are the new capital and atoms are the new labor.
China now has over 100 cities with populations topping one million, compared to the entire continent of Europe which has a paltry 34. Ever heard of Zhengzhou? Don’t worry if not, it’s a tier two city in Henan province that only just makes it into China’s top 20, yet it has a bigger population than the whole of Denmark. Expressed another way, China already has more millennials than the US has people.
China is of course the world’s second biggest economy and poised one day to reach the top, but consider this: if its per capita wealth were to catch up with that of Hong Kong’s, then its resulting GDP would not just surpass the United States’ today, but triple it. This is more simply reflected in the fact that each year approximately 35 million Chinese enter the middle and affluent classes. No wonder multinationals around the world are flinging everything they have at the country.
The U.S is estimated to have around 300 million internet users. The number of internet users in China is now more than the combined populations of Japan, Russia, Mexico and the U.S., as Bloomberg noted. The new statistic takes internet adoption in the country to 57.7 percent, with 788 million people reportedly mobile internet users. That’s a staggering 98 percent and it underlines just how crucial mobile is in the country.
It sits on swampy land, the Java Sea lapping against it, and 13 rivers running through it. So it shouldn’t be a surprise that flooding is frequent in Jakarta and, according to experts, it is getting worse. But it’s not just about freak floods, this massive city is literally disappearing into the ground.
“If we look at our models, by 2050 about 95% of North Jakarta will be submerged.”
It’s already happening – North Jakarta has sunk 2.5m in 10 years and is continuing to sink by as much as 25cm a year in some parts, which is more than double the global average for coastal megacities. Jakarta is sinking by an average of 1-15cm a year and almost half the city now sits below sea level. The impact is immediately apparent in North Jakarta.
There is technology to replace groundwater deep at its source but it’s extremely expensive. Tokyo used this method, known as artificial recharge, when it faced severe land subsidence 50 years ago. The government also restricted groundwater extraction and businesses were required to use reclaimed water. Land subsidence subsequently halted. But Jakarta needs alternative water sources for that to work. Heri Andreas, from Bandung Institute of Technology, says it could take up to 10 years to clean up the rivers, dams and lakes to allow water to be piped anywhere or used as a replacement for the aquifers deep underground.
Think about that. It took 7 months for the biggest volcanic explosion in the last 10,000 years, one that affected the global climate and killed twice as many people as any other volcanic explosion in recorded history, to become news. If the same event were to happen today, we could have someone tweeting it within minutes and we would probably have video footage online within the hour. This is possible because of the democratization of information. We all have it now. Historically, having an informational edge was worth something. Being faster or having better access meant making more money. Not anymore.
This is where we are. Only those using advanced quantitative techniques have any chance of exploiting anomalies in the data. The rest of us will need to do something else. We went from a world of privileged access to information to a world where a single tweet can change everything. A world where anyone can break the story, anyone can get the data, and anyone can be a media company. If, as Brendan Mullooly points out, today’s edges are tomorrow’s table stakes, what does that leave the typical investor to do? The answer lies in a maxim from Jim O’Shaughnessy: you must arbitrage human nature.
Investors generally do not spend the money paid out in buybacks on champagne bubble baths or other forms of consumption. Rather, they reinvest it in other stocks and bonds. Buybacks thus facilitate a movement of capital from companies that don’t need it to those that do. That’s how markets are supposed to work.
Yet another claim is that much of the market rise over the last few years has been from buybacks. The numbers don’t bear this out. The direction is plausible, as researchers have found that share prices do tend to increase—by around 1%—when buybacks are announced. Several explanations have been offered for this positive reaction including that investors see repurchases as a signal that management thinks shares are undervalued, and that investors cheer when management returns cash to shareholders rather than, perhaps, wasting it on “empire building.” These explanations are behavioral effects at the margin.
The only way this is the longest bull market on record is if you 1) call the 19% decline in 1990 a bear market, 2) don't call the 19% decline in 1998 a bear market, and 3) don't call the 19% decline in 2011 a bear market. Nonsensical. $SPY $$ pic.twitter.com/EYvsQNfx4e— Bespoke (@bespokeinvest) August 22, 2018
My Bloomberg colleague Eric Balchunas points out that during the 2008 credit crunch, the money flows were into index funds and exchange-traded funds; more than $205 billion was put into these funds while active funds experienced $259 billion in outflows. In other words, the 57 percent sell-off of U.S. equity markets during the financial crisis gives us a good idea how passive indexers will behave when markets crash: they become net buyers while active funds become net sellers.
Beyond the 2008 crash, we have seen several market corrections since 2009. As my colleague, Michael Batnick observed, from May to October 2011, the Standard & Poor’s 500 Index fell about 20 percent. Again, between May 2015 and mid-February 2016 the S&P 500 fell about 14 percent. Other indexes, such as the Russell 2000 fell even more. And what happened? Passive index funds continued to gain market share at the expense of actively managed funds.
Which raises the question: Just who was “cruelly exposed” in those corrections? By all lights, it looks like it was the actively managed funds.
This explanation of the flattening yield curve seemingly suggests that “this time is different,” but this time is not different in the context of disruptive innovation. During the 50 years ended 1929, the last time that three or more general purpose technology platforms were evolving simultaneously, the yield curve was inverted more than half of the time.1 The disruptive innovations of that time – the internal combustion engine, telephone, and electricity – stimulated rapid real growth at low rates of inflation. Through booms and busts in an era without the Federal Reserve and with minimal government intervention, US real GDP growth averaged 3.7% and inflation 1.1%, while short rates averaged roughly 4.8% and long rates roughly 3.8%.2 The yield curve was inverted. So, this time is not different, but investors do have to extend their time horizons to understand the impact of profound technological breakthroughs on the economy.
$1 invested in Disney in 1970 is now worth $197. $1 invested in the S&P 500 is worth $125, for comparison. The 19,500% return in Disney had plenty of bumps in the road. The stock lost 10% on a single day 11 times, including a 29% loss on October 19, 1987. Disney gained 11.5% for 48 years. But of course, there is a huge difference between 11.5% for 48 years and 11.5% every year for 48 years.
These returns were earned only by those able to withstand a massive amount of pain. Disney experienced 13 separate bear markets over the last 48 years, including an 86% crash during the 1973-74 bear market. The S&P 500 experienced just four over the same time.
Nobody could have known in real-time what the future held for this company, or whether its best days were behind it, but these would have been very real questions during every decline along the way. Disney hit an all-time high in January 1973, and wouldn’t see those levels again until 1986. It made a high in April 2000 and then didn’t get back there until February 2011.
This has been Ek’s plan all along: to get the music industry so dependent on Spotify that even the doubters can’t live without it. “We need this company to be robust,” Borchetta says of Spotify. “It’s important to the ecosystem of the whole business that they are successful.”
The Spotify team realized that they needed a mobile product that could be accessed by everyone, not just paying subscribers. And they needed it quickly. They had already been negotiating with labels about licensing rights for a free mobile version, but the deals weren’t done. Nor were engineers ready with a product. The sudden crisis sparked company-wide urgency. When the licensing deals were finally signed, in December 2013, “we literally just pushed the button on the same day to get it out there,” says Soderstrom of the new app. There was no time for rigorous testing. “If it had taken another six months, it might have been too late to recover.” The strategy worked: At the end of 2013, Spotify had 36 million users and 8 million paying subscribers; by January 2015, it announced 60 million and 15 million, respectively. Forty-two percent of time spent on Spotify was now via phones and 10% on tablets, the first time mobile listening surpassed desktop.
The new free tier has been a top priority for more than a year. It reflects how important it is for the company to keep acquiring new customers (and turn them into paying ones), but it also has its own commercial element. “Billions of people listen to radio, and most of that today isn’t monetized very efficiently,” Ek says as we chat on the couch in his Stockholm office. “Commercial radio, that’s conservatively a $50 billion industry globally. The U.S. radio industry is $17 billion, close to the size of the whole global recorded music industry, which is $23 billion. And what do people listen to? Primarily music.” Ninety percent of Spotify’s current revenues come from subscriptions, but if the free product expands, so can Spotify’s radiolike advertising business. As Ek notes, with typical understatement, “We still have a lot of room to grow.”
Ek didn’t see the value at first—”Oh, this is going to be a disaster,” he recalls thinking about one playlist innovation—but playlisting did more than increase Spotify’s consumer appeal. It turned Spotify into a user’s personal DJ. The company told investors in its prospectus, filed last February, that “we now program approximately 31% of all listening on Spotify” via playlists, which has created powerful new brands within Spotify such as Rap Caviar and ¡Viva Latino!. There are now Rap Caviar and ¡Viva Latino! concert series, pointing the way toward an even broader role for the company within the music business, where it’s generating live event and merchandising revenue without having to pay record labels.
He’s succeeded in the [music] business because he’s extremely patient and not high on his own supply, meaning he has not been susceptible to the vices that ruin people in entertainment. Ek’s personality has opened the door to a different kind of relationship with musical artists from what prevailed in the era of cocaine-snorting, thieving record execs. So far, Ek has been focused on changing how creators get paid; in streaming, an artist is compensated every time a song is played, creating lifetime revenue (albeit a fraction of a penny at a time), whereas in the old model they got paid (sometimes) after selling a CD or download. But that’s only the beginning. “Spotify’s first eight to 10 years were focused on consumers,” says R&D chief Soderstrom. “The next eight to 10 will be focused on artists.”
Spotify for Artists is the most visible example of this new directive. The service, which launched in its current form in 2016, allows musicians to access data on who is listening to their work on the platform and to personalize their presence to enhance engagement. Iconic rock band Metallica, which once helped sue Napster out of existence, used this data on tour to customize its setlists based on what local fans listen to most. Smaller artists have used it to identify where to tour, and to activate their superfans. “Whatever your genre is, you can find an audience,” says Spotify chief marketing officer Seth Farbman.
Ek has been talking a lot this year about Spotify’s mission to get 1 million artists to make a living off the platform, but he doesn’t mean there will be 1 million Lady Gagas or Bruno Marses. Financial analysts often compare Spotify to Netflix—a comparison Ek pushes back against—but Ek’s vision of the future looks more like YouTube: a meeting spot for creators and fans, in groups both large and small, and Spotify benefits when transactions happen in this “marketplace.” Ek says: “In that model, it’s almost like you’re managing an economy.”
“The major-label system was built out for the 5,000 biggest artists in the world,” Carter notes. “If we’re going to [enable] a million artists to make a living, that’s going to require an entirely different ecosystem.” In this world, “an artist might be happy making $50,000 a year, supplementing income from other work to help pay their mortgage, raise their kids, by doing what they love. I’m just as committed to that kind of artist. How do we make it so there are a lot more winners,” Carter says, “to redefine what it means to be a winner?”
May 2013: Spotify makes its first acquisition: Tunigo, which already helped users find, create and share new music and playlists on Spotify. Turned out to be a good one! It still underpins the company’s editorial playlist strategy to this day.
March 2014: Spotify acquires The Echo Nest, a startup that specializes in using machine learning to make recommendations and predict the type of music users will want to listen to, generating playlists from that data as well as helping advertisers reach those music fans. This also was a great acquisition! It underpins the algorithmically generated playlists such as Discover Weekly.
Last year, according to the IFPI, global revenues for recorded music (as opposed to live performance) grew 8.1 per cent to $17.3bn, driven by digital revenue’s 19.1-per-cent increase to $9.4bn. Of this digital revenue, streaming did the heavy lifting, as the $6.6bn from subscriptions and advertising constituted a 41-per-cent increase from the previous year. In what perhaps will be seen as a watershed moment, digital revenues accounted for the highest proportion of total recorded revenues for the first time ever, at 54 per cent. In nominal terms, music-industry revenues are still 32 per cent below its 1999 peak. Convert the dollars from Prince’s favourite year to today’s, and you’ll find artists, labels, publishers and the like are earning 54 per cent less than they used to.
Despite the launch of advertising channel Vevo, which Mr Morris led, musicians are still getting nickel-and-dimed by Alphabet’s platform and its competitors. Last year, video streaming accounted for a mammoth 55 per cent of all music listened to online, according to the IFPI. In turn, it only contributed 15 per cent of the revenues that Spotify and friends did.
The five biggest stocks in the S&P 500 have accounted for an average of 12.3 percent of the index since 1990, the earliest year for which numbers available. By comparison, the index’s allocation to the five FAANGs is 12.8 percent.
There are lots of surprises. First, not all FAANGs are growth stocks, as measured by historical earnings and revenue growth and predicted earnings growth. Apple, for example, scores a negative 0.1 for growth. Google’s growth score is a modest 0.4.
Second, they’re not all wildly expensive, based on stock price relative to book value, earnings, cash flow and other measures. Apple is slightly more expensive than average, with a value score of 0.05. Google and Facebook score a negative 0.45 and 0.39 for value, respectively — not cheap but far from the richest.
Third, some are higher quality than others, as measured by profitability, leverage and stability of operating results, and not in the order investors might think. Apple has a reputation for sky-high profits and reliable revenue, and yet it scores 0.15 for quality. Meanwhile, Netflix spends lavishly on programming and has negative cash flow, and its quality score is 0.63 — second only to Google’s score of 0.68.
Nor is it likely that the FAANGs will ever have much in common because their attributes are constantly changing. Apple, for example, was a much different bet five years ago, scoring high for growth and low for quality and momentum. The probability that all five stocks will be similarly situated at any given time is exceedingly low.
Now Tesla does have debt: It has three different convertible bonds, but it also has $1.8 billion of straight bonds that it issued last August to quite receptive investors. Those bonds have sold off since issuance and are rated Caa1 at Moody’s, which, again, are not auspicious signs for adding like 20 times as much debt. And my general assumption about Tesla bonds is that they operate on sort of a Netflix theory, in which bondholders get their security not from the company’s cash flows but from the knowledge that there’s a whole lot of equity value beneath them. If you issue billions more dollars of bonds to get rid of that equity, then why would anyone buy the bonds? FT Alphaville notes that the pressure of public markets, for Tesla, “surely pales in comparison to the pressure to maintain bank/ bond covenants and make interest payments.” “Even if say $40 billion could be financed in the high yield market,” note analysts at Barclays, “the annual interest bill would consume $2.7 billion in cash.”
• The Philosophical Economics blog’s indicator is based on the percentage of household financial assets—stocks, bonds and cash—that is allocated to stocks. This proportion tends to be highest at market tops and lowest at market bottoms. According to data collected by Ned Davis Research from the Federal Reserve, this percentage currently looks to be at 56.3%, more than 10 percentage points higher than its historical average of 45.3%. At the top of the bull market in 2007, it stood at 56.8%. This metric has an R-square of 0.61.
• The Q ratio, with an R-squared of 46%. This ratio—which is calculated by dividing market value by the replacement cost of assets—was the outgrowth of research conducted by the late James Tobin, the 1981 Nobel laureate in economics.
• The price/sales ratio, with an R-squared of 44%, is calculated by dividing the S&P 500’s price by total per-share sales of its 500 component companies.
• The Buffett indicator was the next-highest, with an R-squared of 39%. This indicator, which is the ratio of the total value of equities in the U.S. to gross domestic product, is so named because Berkshire Hathaway Inc.’s Warren Buffett suggested in 2001 that is it “probably the best single measure of where valuations stand at any given moment.”
• CAPE, the cyclically adjusted price/earnings ratio, came next in the ranking, with an R-squared of 35%. This is also known as the Shiller P/E, after Robert Shiller, the Yale finance professor and 2012 Nobel laureate in economics, who made it famous in his 1990s book “Irrational Exuberance.” The CAPE is similar to the traditional P/E except the denominator is based on 10-year average inflation-adjusted earnings instead of focusing on trailing one-year earnings.
• Dividend yield, the percentage that dividends represent of the S&P 500 index, sports an R-squared of 26%.
• Traditional price/earnings ratio has an R-squared of 24%.
• Price/book ratio—calculated by dividing the S&P 500’s price by total per-share book value of its 500 component companies—has an R-squared of 21%.
It’s not terribly hard to find a measure that shows an overvalued market. Then, use a long time period to show the market has performed below average during your defined overvalued period. That’s easy. The difficulty is timing the market. For example, during the housing bubble, what I found interesting was how many people were right, that housing was indeed in a bubble. Lots of people realized it. Also, lots of people thought it would burst in 2004. Then in 2005. Then in 2006. They were right, but their timing was way off. Even if you know the market is overpriced, that doesn’t tell you much about how to invest today.
You have two options as an investor: you could listen to the media or you could listen to the market. They’ve been pushing the notion lately that only a handful of Tech stocks are leading the way for the market, suggesting a weakening breadth environment. In the real world, however, we are participating in a united rally among Tech stocks as a group.
In fact, the Equally-Weighted Technology Index went out just 0.4% away from another all-time weekly closing high, just shy of it’s record high set last month. This is the Equally-Weighted Index, not the Cap-weighted index that the bears are suggesting is pointing to weakening breadth because the big names are such a large portion. If it was true that only a handful of names are going up and market breadth is deteriorating, the Equally-weighted index, which takes the extra-large market capitalization stocks completely out of the equation, would not be behaving this way.
So when someone tells you that breadth is weakening and only a handful of names are driving the market’s gains, you know they haven’t done the work themselves. They’re just regurgitating what they read or overhead somewhere, which happens a lot.
A problem happens when you think someone is brilliantly different but not well-behaved, when in fact they’re not well-behaved because they’re brilliantly different. That’s not an excuse to be a jerk, or worse, because you’re smart. But no one should be shocked when people who think about the world in unique ways you like also think about the world in unique ways you don’t like.
There is a thin line between bold and reckless, and you only know which is which with hindsight. And the reason there’s a difference between getting rich and staying rich is because the same traits needed to become rich, like swinging for the fences and optimism, are different from the traits needed to stay rich, like room for error and paranoia. Same thing with personalities and management styles.
“You gotta challenge all assumptions. If you don’t, what is doctrine on day one becomes dogma forever after,” John Boyd once said.
In 1962, Warren Buffett began buying stock in Berkshire Hathaway after noticing a pattern in the price direction of its stock whenever the company closed a mill. Eventually, Buffett acknowledged that the textile business was waning and the company’s financial situation was not going to improve. In 1964, Stanton made an oral tender offer of $111⁄2 per share for the company to buy back Buffett’s shares. Buffett agreed to the deal. A few weeks later, Warren Buffett received the tender offer in writing, but the tender offer was for only $113⁄8. Buffett later admitted that this lower, undercutting offer made him angry. Instead of selling at the slightly lower price, Buffett decided to buy more of the stock to take control of the company and fire Stanton (which he did). However, this put Buffett in a situation where he was now majority owner of a textile business that was failing.
Being stubborn can cost you money. Buffett has talked about that at length over the years. But what is interesting is Buffett operated Berkshire from 1962 to 1985 and made millions of dollars without doing any publicity. No mass media. No hype. Can you imagine that today?
You know what gets you more customers? Execution. Delighting them. Focusing on them.
Lloyds, the London-based insurance market, estimates that as much as $123bn in global gross domestic product in cities could be at risk from the impact of a warming planet, including windstorms and floods.
Meanwhile a 2015 study by the journal Nature found that due to climate change, global incomes were likely to be one-fifth lower in 2100 than they would be with a stable climate. And later this year the UN will issue a landmark report that quantifies the impact of 1.5C of warming, compared with 2C. Leaked copies suggest that the world will pass the 1.5-degree warming target by about 2040.
The most egregious valuation mistake that I see investment professionals make is mistaking pricing for valuation. Most investment professionals don’t do valuation, they do pricing. What I mean by that is that you price a number to a stock based on what other people are paying for similar stocks. Any time you use a multiple comparable you’re not valuing the company, you’re pricing a company. Ninety percent of the time, when someone says “I’ve valued a company at X”, I always have to stop and ask them, “What do you mean value the company?”. Most of the time when I extract the answer, the answer is that they’ve really priced the company. There’s nothing wrong with pricing. But it’s not valuation. Valuation is about digging through a business, understanding the business, understanding its cash flows, growth, and risk, and then trying to attach a number to a business based on its value as a business. Most people don’t do that. It’s not their job. They price companies. So the biggest mistake in valuation is mistaking pricing for valuation.
The biggest mistake is that VCs don’t value users, they price them. What I mean by that is that if there’s a line of VCs and you go up to a VC and say “I have a million users”, the VC says “Amazing, I’ll pay you $1 Billion”. Most VC’s are still pricing users, with the assumption that all users have value, and that all their data is going to be useful. And I think that’s a dangerous thing. The reason I wrote that paper is to illustrate that users can be valuable, but users can be useless. Moviepass users are useless – there are a lot of them, but I don’t think the marginal Moviepass user adds any value. In fact, I think that they destroy value, because you’re giving them a service for way below cost. Netflix users, are clearly much more valuable as a commodity. I think that we have to differentiate between users, and to do that we have to start asking serious questions about what separates good users from bad users, what separates valuable users from useless users.
Well it’s massively impacted prices. It’s going to mean that there’s going to be a lot more splitting up of the market, like with Uber and Didi in China, and with Uber and Grab’s agreement in Southeast Asia. I think increasingly that the ridesharing companies think that the future lies in each of them carving out markets for themselves where they don’t face competition. Softbank incentivizes that by being invested in all of these companies. Uber, Lyft, and Grab fares will start to go up, and you can thank Softbank for that. They’re the ones in the background impacting how this business is evolving.
It’s a feature not a bug. It’s the nature of young companies and young markets, that you will overvalue them, because you’re looking at clusters of what I call overoptimism. Each cluster, be it the VCs and employees of a company think that they have the answers to the big questions. It’s how markets evolve, and I think that it’s a healthy process. I think that bubbles are not always bad, because they’re what allow us to change and move on. So I think that you can look at bubbles as a bad thing and try to make them go away, but I think that they’re a good feature of markets and allow us to shift from one business to another, from one technology to another.
While digital direct response advertising took share from print in the first leg of internet, digital video advertising could take share from TV in the second leg. What would be the impact on budgets of sustained strong growth in internet advertising? If you assume compounded growth rates of 15% for Google, 20% for Facebook, 20% for China, and 12% for everyone else, internet advertising would reach $620 billion by 2023—a figure that’s larger than the entire global advertising market today.
One might say that that is sufficient proof that internet advertising must slow down less it exceeds its total addressable market. But it’s just as dangerous to assume that the size of advertising market is a static number or a fixed percent of global GDP.
Amazon in particular has potential to contribute out-sized growth. Already roughly half of US consumers start their product search on Amazon, bypassing Google’s most important search ads. These shoppers see Amazon’s sponsored product ads which are highly valuable and result in direct measurement of sales. Amazon’s $3 billion ad business is growing quickly and could dampen Google’s search business in the coming years.
Analysts and investors have historically underestimated the size of the internet advertising market and continue to do so based on a static set of assumptions. Yet, more than any other medium, internet advertising has evolved and re-invented itself constantly. The drivers of growth today – mobile, video, and programmatic – barely existed ten years ago. There’s no telling what the next ten years might bring.
Texas is pumping so much oil that it will surpass OPEC members Iran and Iraq next year, HSBC predicted in a recent report. If it were a country, Texas would be the world’s No. 3 oil producer, behind only Russia and Saudi Arabia, the investment bank said.
The combined output of the Permian and Eagle Ford is expected to rise from just 2.5 million barrels per day in 2014 to 5.6 million barrels per day in 2019, according to HSBC. That means Texas will account for more than half of America’s total oil production. By comparison, Iraq’s daily production is seen at about 4.8 million barrels, while Iran is projected to pump 3 million. Oil supplies from Iran are likely to plunge due to tough sanctions from the United States.
The ministry questioned the companies about 130 “core components and materials”, finding them reliant on imports for 95 per cent of central processing unit and CPU-related chips for their computers and servers. The companies also depended on foreign suppliers for 95 per cent of the advanced manufacturing and testing components on production lines for various sectors, including rockets, large aircraft and even cars, according to the report published on Friday. About a third of the “key materials” covered by the survey were not available in China, the state news agency reported, without detailing the items covered or when the survey was conducted.
While many had expected Google to face its own “Microsoft moment,” the EU doesn’t seem to be forcing any strong future oversight on Android or asking Google to modify its software to include a ballot for alternative browsers or search engines.
This decision seems to be more about preventing Google from bundling its services to Android, than forcing the company to change Android significantly. Phone manufacturers will still be free to bundle Chrome and Google search apps if they wish, but they won’t be forced to do so, and they’ll be free to offer devices with forked versions of Android.
The figures are also remarkable not because of their size, but because of Amazon’s pace has not slowed down. Its sales are up 29.2 percent versus a year ago, when it commanded 43 percent of all e-commerce retail sales.
The rocket ship for Amazon’s growth at the moment is its Marketplace — the platform where Amazon allows third-party sellers to use its retail and (if they choose) logistics infrastructure to sell and deliver items to Amazon shoppers. It’s currently accounting for 68 percent of all retail sales, working out to nearly $176 billion, versus 32 percent for Amazon’s direct sales, and eMarketer projects that by the end of this year, Marketplace’s share will be more than double that of Amazon’s own sales (it’s already about double).
The need to advertise to cut through the crowd on Prime Day underscores the growing contribution of advertising to Amazon’s business. While its Amazon’s core retail operations generate the majority of its revenue, executives and analysts see advertising as a promising growth area. Its “other” revenue segment, mostly derived from advertising, more than doubled to $2bn in the first quarter and the company flagged the high-margin business as “a strong contributor to profitability”.
Amazon’s slice of the $100bn US digital ad market is still very small: 2.7 per cent, or fifth place, this year compared with Google’s 37.2 per cent and Facebook’s 19.6 per cent, according to eMarketer. Its share is expected to reach 4.5 per cent by 2020, passing Microsoft and Verizon’s Oath to climb to third place, while Google and Facebook are predicted to lose ground.
Mark Mahaney, analyst at RBC Capital Markets, estimates that by 2022 Amazon’s ad revenues will top $25bn and generate more than $8bn in incremental operating profit, making the business “as impactful” to the company as Amazon Web Services, its cloud computing business, is today.
Besides Booking.com and Agoda, Booking also operates Kayak, Priceline.com, Rentacars.com and OpenTable, all of which makes it a powerful ally for Didi. That’s particularly important since the Chinese firm is in global expansion mode, having launched services in Mexico, Australia and Taiwan this year. Beyond those three, it acquired local ride-hailing company 99 in Brazil and announced plans to roll into Japan.
Beyond boosting a brand and consumer touchpoints, linking up with travel companies makes sense as ride-hailing goes from simply ride-hailing to become a de facto platform for travel between both longer haul (flights) and short distance (public transport) trips. That explains why Didi has doubled down on dock-less bikes and other transportation modes.
Reuters reports that the unit, which was formed in April and consists of Didi’s car rental, sales, maintenance, sharing and gas services businesses, could be spun out in a deal worth $1.5 billion. The thinking is apparently that Didi’s IPO, which is said to be in the planning stages, would run smoother without these asset-heavy businesses involved.
The company says that, today, more than 75,000 artists are featured on its editorial playlists every week, plus another 150,000 on its flagship playlist, Discover Weekly.
These days, artists and labels ask for intros to playlists editors, believing that getting to the right person will give them an edge in having their tracks selected for a playlist. The new submissions feature aims to change this process, while also driving artists and labels to use Spotify’s own software for managing profiles and tracking their stats on the service.
We want to make something crystal clear: no one can pay to be added to one of Spotify’s editorial playlists. Our editors pick tracks with listeners in mind. They make these decisions using data about what’s resonating most with their community of listeners.
Now, incumbents are playing catch-up against Teradyne’s cobot division Universal Robots (UR), which currently claims around 60% of the cobot marketshare. Big names like ABB, Fanuc, Yaskawa, KUKA, and Robert Bosch, which are all better known for their low-tech robots, have followed UR into the cobot market. (It’s estimated that Fanuc has between 6% and 10% of cobot market share, and Yaskawa’s is even smaller.) And partnerships are springing up: Kawasaki is now working with its Swiss rival ABB to standardize robotic programming.
One big reason could be labor costs rising worldwide. Because of economic growth, wages in industrialized countries have soared. In China, for example, average wages have more than doubled since 2006, and the country is no longer considered a destination for low-cost outsourcing. In fact, China is now so expensive that it’s losing consumer electronics jobs to lower-cost neighbors like Vietnam, pushing its robot demand to grow more than 20% just last year.
Expensive labor is also tilting the scale for more localized manufacturing, and robotics are enabling a new wave of re-shoring (the return of manufacturing to the United States). In a 2015 survey by BCG, 20% of US-based manufacturers surveyed said they were actively shifting production back to the US from China, or were planning to do so over the next two years. The majority said lower automation costs have made the US more competitive.
Subsequently, firms are increasingly turning to cobots, which these days are easily programmable, cheaper than traditional labor, and even inexpensive compared to “dumb” robots. For all of these reasons, cobot makers are selling more units at lower prices than ever before.
Over the past 95 years, average [residential home] floor area has increased from 1048 square feet to 2657 square feet, which equates to a 2.5x increase. Furthermore, the average floor area per person has more than quadrupled, from 242 square feet to 1046! Essentially, it’s likely that one person nowadays has the same amount of space as a family back in the 1920s.