Netflix raised prices – Bullish or bearish?

If you live in the U.S and are planning to subscribe to Netflix, get ready to pay more. The company announced a few days ago that all plans for audience in the U.S would see a price bump with immediate effect. The basic plan will increase from $8 to $9 per month. The standard and the 4K package will cost new subscribers $15.5 and $20 per month respectively. The Verge has a handy table showing all the hike prices that Netflix rolled out so far:

Netflix's price hikes in the past
Figure 1 – Netflix’s price hikes in the past. Source: The Verge

After the news broke, I saw a lot of people on Twitter bullish about Netflix’s outlook. The rationale is simple: if your customers are sticking with you AFTER you raise prices, it means you have a great business. The key underlying assumption is that Netflix viewers won’t churn or, in other words, leave. To back up this assumption, these bulls provided a chart from Antenna which allegedly shows Netflix has the lowest churn among premium streamers.

Netflix's alleged churn rate against competitors'
Figure 2: Netflix’s alleged churn rate against competitors’. Source: Antenna

The problem is that when your entire thesis is based on a chart, you have to make sure the data is trustworthy. Unfortunately, I find Antenna’s data confusing and ambiguous for three reasons. The first reason is that there is no methodology or explanation of how they acquired this data. Take the churn chart above as an example. What does weighted average churn rate mean? What is churn weighted against? What does passive churn mean? Did they survey users or did they base this chart on credit card usage data? If it’s survey-based, how big is the survey pool and is it representative of the U.S? Plenty of questions with zero answer.

Furthermore, Antenna’s charts seem to contradict one another. While they indicate that Netflix has the most loyalty among streamers, somehow Netflix’s market share in terms of subscribers has been declining for the past few quarters. How does that happen? If Netflix’s churn was lower than that of its competitors, the company’s market share should stay the same at the very least or go up. Some may argue that Antenna may favor other streamers in a sense that if one person subscribes to both Netflix and another service, the other service will claim this subscription. Well, this argument brings us back to my first issue mentioned above: no methodology! How do we know if this argument is true?

The last issue I have with Antenna is the inconsistency of the reported data. In Q2 2021, Antenna claimed that Netflix has a market share of 29% (Figure 4). However, in their latest report for Q3 2021, Netflix’s share declined to 30% from 32% in Q2 2021 (Figure 5) . The two reports seemingly have the same methodology and feature the same number of streamers as well as the composition. My question is: what changed? How did Netflix’s Q2 2021 share go to 29% in one report to 32% in another?

These issues really call into question the assumption that Netflix’s churn is lower than its competitors.

But for the sake of argument, let’s assume that Antenna data is correct. That also means Netflix’s market share has been declining gradually. The 4-quarter rolling average net adds for US and Canada has gone down significantly since Q4 2020. Yes, Covid-19 pulled forward subscribers, but that also signals as many in the U.S are vaccinated, the macro environment is no longer favorable to Netflix as it was at the onset of the pandemic. When the number of new adds decreased despite all new releases in 2021, why does management think it’s a good idea to raise prices? Do they have any tricks up their sleeve? Or is the new price hike aimed at increasing revenue with the hope that subscribers will stay regardless?

I don’t know at this point whether this is a good strategic move for Netflix. I guess we’ll have more information this Thursday when they hold their earnings call. What I do know is that I don’t share the bullishness that many fans of Netflix stocks quickly showed after the price hike was announced. We just don’t have enough reliable information.

Netflix's 4-quarter rolling average net subscriber adds for U.S and Canada
Figure 3: Netflix’s 4-quarter rolling average net subscriber adds for U.S and Canada
Figure 4: U.S Premium SVOD Share of Subscriptions. Source: Antenna
Figure 4: U.S Premium SVOD Share of Subscriptions. Source: Antenna

Square Online’s on-demand delivery

On Wednesday 1/12/2021, Square announced a new partnership that will enable Square Online orders in Canada to be delivered by DoorDash Drive. The new service in Canada is an extension of what Square launched in the U.S before. This is how it works: after a Square Online merchant receives an order, a DoorDash/Uber Eats courier (depending on whether you live in the U.S or Canada) will come to the merchant’s location, pick up the order and bring it to the customer. The customer can track the order through a link sent in a text message by Square. All orders with on-demand delivery will be commission-free. For every order, merchants will only pay a dispatch fee of $1.5 and a processing fee of $3.6 to Square.

Square on-demand delivery
Square on-demand delivery. Source: Square

At a closer look, the service is interesting to me. The sales pitch merchants will hear is very simple: work with us, become our merchant and you won’t have to waste valuable dollars on delivery staff or those expensive marketplaces with high commissions. A saving of $11 on every $50 order is highly attractive, but it’s not the whole story for merchants. Even though Square Online is free, anyone serious about operating a business will certainly need to upgrade to a higher tier. Who wants to build a brand with a “square.site” in their domain? Even a nobody like myself tries to secure a custom domain. To use a custom URL, merchants need at least a Professional plan at $12/month. Additionally, merchants can only enable PayPal checkout, product reviews or gift options with a Performance plan, which costs $26/month. Want advanced eCommerce stats regarding product performance or sales trend? Pay $72/month for the highest tier then. For Square, this means high-margin & recurring subscription revenue. For merchants, they need to think about what they may get themselves into.

Merchants must also be aware that using this on-demand delivery service with Square is different from being on Uber or DoorDash app. These marketplace apps are household names and likely bring more sales. That’s their primary value proposition. That’s how they can charge a commission of 30% per order. Since orders must be from merchants’ online stores, the task of generating sales and marketing now falls onto merchants who will have to choose between a bigger piece of a smaller pie and a smaller piece of a bigger pie. One thing that I have to say, though, is that by having customers place orders directly online, sellers can establish a precious relationship with customers, instead of ceding it to the likes of Uber or DoorDash.

Square Online pricing tiers
Square Online pricing tiers. Source: Square

What also interest me is the low dispatch fee. For every DoorDash Drive order, merchants normally pay a flat fee of $8. In this case, the dispatch fee is only $1.5. As the market leader in food delivery, DoorDash certainly has the bargaining power that they would not bend over backwards to work with Square at all costs. A drop of 81% in dispatch fees is massive, affecting DoorDash’s top and bottom line. Hence, I believe Square must compensate their partner in this agreement and make up for some of that loss. The question is: do the numbers add up for Square? It’s worth pointing out that a DoorDash Drive flat fee of $8 includes DoorDash’s standard processing fee of 2.9% + $0.3 per order. In other words, a normal $50 DoorDash Drive order will result in a processing fee of $1.75 and a dispatch fee of $6.25. A cut of $1.5 per order from Square on-demand delivery means DoorDash will lose about $4.75 per order in revenue. Let’s assume Square compensates DoorDash $3 on every order with on-demand delivery. 1,000 such orders per month (around 3 per day) for 1,000 merchants would put a dent of $3 million on Square’s financials. Square claimed to have millions of sellers. A wide adoption of this on-demand delivery service wouldn’t be financially tenable. How does Square make this work?

My hunch is that Square’s target audience for this service is small, to begin with. Any merchant wishing to use this on-demand delivery service must have a Square Online store. We can exclude medium and large-sized merchants from this population as they must already handle their online activity. Those that are in need for Square Online should be mom-and-pop or local restaurants that do not have a website or really need an upgrade and a delivery service. This market segment should be small enough for Square to offer this service and make the numbers work. I suspect that the company wants to use this offering as an opening to get these merchants to install Square POS in stores. Once Square successfully has its POS installed, the more orders merchants have, the more revenue Square generates. What intrigues me is what Square would do if merchants had too many on-demand delivery orders? Would Square terminate the service or start charging more?

This service from Square offers great benefits to small merchants and really differentiates the company from its rivals like PayPal. I don’t have access to their financials and breakdown on this specific service, but my guess is that because the target audience is very small to begin with, it won’t move the needle much. Is this a threat to Olo? I don’t think it is. Olo’s bread and butter at the moment is franchises with multiple locations. Their business doesn’t hinge on who powers merchant’s websites. What matters is that Olo offers a centralized system helping merchants deal with the likes of Uber, GrubHub and DoorDash efficiently. Square’s on-demand delivery requires that merchants have to build online presence with Square. It’s a different game.

Weekly readings – 15th January 2021

What I wrote last week

Some tips for data analysts

State of Mobile 2022

Book Review – The Body: A Guide for Occupants

Business

Why Apple’s iMessage Is Winning: Teens Dread the Green Text Bubble. “Among U.S. consumers, 40% use iPhones, but among those aged 18 to 24, more than 70% are iPhone users, according to Consumer Intelligence Research Partners’s most recent survey of consumers.” I think some reading this article may get it backwards: folks use iMessage because they like iPhones first and foremost. They don’t buy iPhones because of iMessage. It’s frivolous that competitors demand Apple to open up iMessage to Android for the sake of open communication. Think about it this way: if you own a restaurant and have a secret recipe that is the appeal of the place, will you want to openly share it with your competitors just so that they become more knowledgeable and the food culture becomes richer?

Is Clubhouse dead? Not if you are in South Asia. To be honest, I didn’t have it in me to imagine that South Asia would be the saving grace for Clubhouse. Would it ever reach the valuation that venture capitalists dreamed of? I don’t know, but if I had to bet, the coin wouldn’t go that way. Being popular is one thing, making money is another. We’ll see

How Shein beat Amazon at its own game — and reinvented fast fashion. “Through its manufacturing partners on the ground in China, Shein churns out and tests thousands of different items simultaneously. Between July and December of 2021, it added anywhere between 2,000 and 10,000 SKUs — stock keeping units, or individual styles — to its app each day, according to data collected by Rest of World. The company confirmed it starts by ordering a small batch of each garment, often a few dozen pieces, and then waits to see how buyers respond. If the cropped sweater vest is a hit, Shein orders more. It calls the system a “large-scale automated test and re-order (LATR) model.” The secret is Shein’s internal software, which connects its entire business from design to delivery. “Everything is optimized with big data,” Lin said. Each of Shein’s suppliers gets their own account on the platform, which spits out information about what styles are selling well and can also quickly identify which might become future hits. “You can see the current sales, and then it will tell you to stock up more if you sell well and what you need to do if you don’t sell well. It’s all there.””

Fintech Startup Checkout.com Scores $40 Billion Valuation in Latest Share Sale. “Checkout.com plans to use much of the new capital to fuel an expansion into the U.S. Last summer, the company hired Céline Dufétel, chief financial officer at money manager T. Rowe Price Group Inc., to do the same job for Checkout.com. Many of the company’s top executives and investors now reside in the U.S. It also plans to enlarge its business catering to cryptocurrency companies. Exchanges such as Coinbase Global Inc. and wallets like Novi from Meta Platforms Inc. use Checkout.com to move customers’ money into and out of digital currencies. Crypto and financial-technology transactions account for more than half of Checkout.com’s payments volume, Ms. Dufétel said”.

Netflix Needs New Subscribers. Its Korean Playbook Is Its Secret Weapon. “Bound by certain social taboos and rules on what could be shown on public broadcast TV, mainstream networks in Korea typically passed on most of what they got pitched. The resulting flow of rejected ideas created an opening for Netflix. Because it is a paid private service, Netflix enjoyed more leeway in terms of what it could show its viewers. Netflix began harvesting ideas considered too edgy for the broadcasters and building a slate of programming that leaned into sex and violence, as well as prickly themes, such as social inequality and politics. In 2020, the company turned its first annual profit in South Korea while reporting sales of $356 million. South Korea is now one of Netflix’s largest markets in Asia, trailing only Australia and Japan. The company has more than 5 million subscribers in South Korea, according to Media Partners Asia. To date, Netflix has spent more than $1 billion on programming in Korean, one of its largest content investments outside the U.S. Along the way, Netflix’s status has flipped. Once shunned by the local creative community, Netflix is now courted.

Other stuff I found interesting

My first impressions of web3. We should accept the premise that people will not run their own servers by designing systems that can distribute trust without having to distribute infrastructure. This means architecture that anticipates and accepts the inevitable outcome of relatively centralized client/server relationships, but uses cryptography (rather than infrastructure) to distribute trust. One of the surprising things to me about web3, despite being built on “crypto,” is how little cryptography seems to be involved!”

The Architecture of Tomorrow Mimics Nature to Cool the Planet. I am at loss for words to describe my support to integrate our civil architecture and planning into nature. A city without trees or nature is lifeless and frankly unappealing to me. Why not integrating nature into our architecture? Well, if you haven’t noticed, nature has been here long before our buildings ever have

This Ad-Free Google Search Alternative Is Actually Worth Using. It’s actually pretty good on iOS. The ad-free experience is refreshing

Another masterful article by Morgan Housel. It’s full of interesting short stories with wonderful punchlines and wisdom in the end

Stats

On average, each owner spent $1,400 and $900 in annual expenses in 2021 for dogs and cats respectively

“An estimated 29.2 million general-purpose credit cards were issued to people with credit scores of 660 and below last year”

Apple Books has 100 million users each month.

“Digital tickets in Wallet helped venues and their guests create safe, contactless experiences, and last year, customers used 30 million NFC tickets in Wallet for events across music, sports, theater, and more across the US and Canada.”

Global mobile ad spend is forecast to reach $350 billion in 2022

“There are now 110 million monthly active Android TV devices in the world”

Book Review – The Body: A Guide For Occupants

I don’t remember how I picked up The Body: A Guide For Occupants, but I am very happy that I did. The book offers a scientific and anatomical look at a human body from top to bottom, from outside to inside. It’s full of details and discoveries that I didn’t know before. We often say that we know our body most, but do we? Of course, we can tell if something is wrong, but many of us, I believe, don’t possess a basic understanding of how our body works. If this is something that you are interested in, pick up this book and give it a try.

There are two things that I really like about this book. The first is that the author managed to tell a compelling story about our body so that even laymen like myself can follow and understand. Every chapter’s content is driven by research and some are more technical than others, but overall, even without background in physiology or anatomy, readers can expect to leave this book knowing more about a human body. I also love some of the historical stories that give spotlight to unsung heroes who contributed massively to science but didn’t get the credit that they fully deserve. For instance, Albert Schatz worked tirelessly to discover streptomycin, one of the great microbiological breakthroughs of the previous century. Nonetheless, he didn’t receive credit as well as financial rewards that a discovery of that magnitude should warrant him. I wouldn’t know about him if I hadn’t read this book and for that, I am grateful to the author.

I took a lot of notes throughout the book and here are some of them:

Composition of our body

“Altogether, according to RSC calculations, fifty-nine elements are needed to construct a human being. Six of these—carbon, oxygen, hydrogen, nitrogen, calcium, and phosphorus—account for 99.1 percent of what makes us, but much of the rest is a bit unexpected. Who would have thought that we would be incomplete without some molybdenum inside us, or vanadium, manganese, tin, and copper? Our requirements for some of these, it must be said, are surpassingly modest and are measured in parts per million or even parts per billion. We need, for instance, just 20 atoms of cobalt and 30 of chromium for every 999,999,999½ atoms of everything else.

Thorium costs over $3,000 per gram but constitutes just 0.0000001 percent of you, so you can buy a body’s worth for thirty-three cents. All the tin you require can be yours for six cents, while zirconium and niobium will cost you just three cents apiece. The 0.000000007 percent of you that is samarium isn’t apparently worth charging for at all. It’s logged in the RSC accounts as costing $0.00

“Cadmium, for instance, is the twenty-third most common element in the body, constituting 0.1 percent of your bulk, but it is seriously toxic. We have it in us not because our body craves it but because it gets into plants from the soil and then into us when we eat the plants. If you are from North America, you probably ingest about eighty micrograms of cadmium a day, and no part of it does you any good at all.”

Microbes and viruses

“Luckily, most microbes have nothing to do with us. Some live benignly inside us and are known as commensals. Only a tiny portion of them make us ill. Of the million or so microbes that have been identified, just 1,415 are known to cause disease in humans—very few, all things considered. On the other hand, that is still a lot of ways to be unwell, and together those 1,415 tiny, mindless entities cause one-third of all the deaths on the planet.”

“More recently, Dana Willner, a biologist at San Diego State University, looked into the number of viruses found in healthy human lungs—somewhere else that viruses were not thought to lurk much. Willner found that the average person harbored 174 species of virus, 90 percent of which had never been seen before. Earth, we now know, is aswarm with viruses to a degree that until recently we barely suspected”

“The common cold is not a single illness but rather a family of symptoms generated by a multiplicity of viruses, of which the most pernicious are the rhinoviruses. These alone come in a hundred varieties. There are, in short, lots of ways to catch a cold, which is why you never develop enough immunity to stop catching them all.”

Penicillin and two unsung heroes

“With Britain preoccupied by World War II and the United States not yet in it, the quest to produce bulk penicillin moved to a U.S. government research facility in Peoria, Illinois. Scientists and other interested parties all over the Allied world were secretly asked to send in soil and mold samples. Hundreds responded, but nothing they sent proved promising. Then, two years after testing had begun, a lab assistant in Peoria named Mary Hunt brought in a cantaloupe from a local grocery store. It had a “pretty golden mold” growing on it, she recalled later. That mold proved to be two hundred times more potent than anything previously tested. The name and location of the store where Mary Hunt shopped are now forgotten, and the historic cantaloupe itself was not preserved: after the mold was scraped off, it was cut into pieces and eaten by the staff. But the mold lived on. Every bit of penicillin made since that day is descended from that single random cantaloupe.”

“In 1945, he shared the Nobel Prize in Physiology or Medicine with Ernst Chain and Howard Florey. Florey and Chain never enjoyed the popular acclaim they deserved, partly because they were much less gregarious than Fleming and partly because his story of accidental discovery made better copy than their story of dogged application. Chain, despite sharing the Nobel Prize, became convinced that Florey had not given him sufficient credit, and their friendship, such as it was, dissolved.”

Pharmaceutical patens include clinical trials. Hence, exclusive patent protection is usually just five years

“Yet as the problem has grown, the pharmaceutical industry has retreated from trying to create new antibiotics. “It’s just too expensive for them,” Kinch says. “In the 1950s, for the equivalent of a billion dollars in today’s money, you could develop about ninety drugs. Today, for the same money, you can develop on average just one-third of a drug. Pharmaceutical patents last only for twenty years, but that includes the period of clinical trials. Manufacturers usually have just five years of exclusive patent protection.” In consequence, all but two of the eighteen largest pharmaceutical companies in the world have given up the search for new antibiotics. People take antibiotics for only a week or two. Much better to focus on drugs like statins or antidepressants that people can take more or less indefinitely. “No sane company will develop the next antibiotic,” Kinch says.”

If teenagers are reckless, it’s likely because of their brains

“The brain takes a long time to form completely. A teenager’s brain is only about 80 percent finished (which may not come as a great surprise to the parents of teenagers). Although most of the growth of the brain occurs in the first two years and is 95 percent completed by the age of ten, the synapses aren’t fully wired until a young person is in his or her mid- to late twenties. That means that the teenage years effectively extend well into adulthood. In the meantime, the person in question will almost certainly have more impulsive, less reflective behavior than his elders and will also be more susceptible to the effects of alcohol. “The teenage brain is not just an adult brain with fewer miles on it,” Frances E. Jensen, a neurology professor, told Harvard Magazine in 2008. It is, rather, a different kind of brain altogether.

“The nucleus accumbens, a region of the forebrain associated with pleasure, grows to its largest size in one’s teenage years. At the same time, the body produces more dopamine, the neurotransmitter that conveys pleasure, than it ever will again. That is why the sensations you feel as a teenager are more intense than at any other time of life. But it also means that seeking pleasure is an occupational hazard for teenagers. The leading cause of deaths among teenagers is accidents—and the leading cause of accidents is simply being with other teenagers. When more than one teenager is in a car, for instance, the risk of an accident multiplies by 400 percent.”

Stigma around Monosodium Glutamate may be exaggerated

“Monosodium Glutamate or MSG has had a hard time of it in the West since 1968 when The New England Journal of Medicine published a letter—not an article or a study, but simply a letter—from a doctor noting that he sometimes felt vaguely unwell after eating in Chinese restaurants and wondered if it was the MSG added to the food that was responsible. The headline on the letter was “Chinese-Restaurant Syndrome,” and from this small beginning it became fixed in many people’s minds that MSG was a kind of toxin. In fact, it isn’t. It appears naturally in lots of foods, like tomatoes, and has never been found to have deleterious effects on anybody when eaten in normal quantities. According to Ole G. Mouritsen and Klavs Styrbaek in their fascinating study, Umami: Unlocking the Secrets of the Fifth Taste, “MSG is the food additive that has been subjected to the most thorough scrutiny of all time,” and no scientist has ever found any reason to condemn it, yet its reputation in the West as a source of headaches and low-grade malaise now appears to be undimmed and permanent.”

Diabetes

“Diabetes comes in two varieties. Indeed, it is really two diseases, with similar complications and management issues but generally different pathologies. In type 1 diabetes, the body stops producing insulin altogether. In type 2 diabetes, insulin is less effective, usually because of a combination of decreased production and because the cells on which it acts don’t respond as they normally would. This is referred to as insulin resistance. Type 1 tends to be inherited; type 2 is usually a consequence of lifestyle. But it’s not quite as simple as that. Although type 2 is unequivocally associated with unhealthy living, it also tends to run in families, suggesting a genetic component. Similarly, although type 1 diabetes is associated with a fault in a person’s HLA (human leukocyte antigen) genes, only some people with the fault get diabetes, indicating that there is some additional, unrecognized trigger. Many researchers suspect a link to levels of exposure to a range of pathogens in early life. Others have suggested an imbalance in the victim’s gut microbes or possibly even a connection to how comfortable and well nourished one was in the womb.”

The liver

“NOT ALL GLANDS are tiny, of course. (For the record, a gland is any organ in the body that secretes chemicals.) The liver is a gland and it is, compared with the rest of our glands, gigantic. When fully grown, it weighs about 3.3 pounds, roughly the same as the brain, and fills much of the central abdomen just below the diaphragm. It is disproportionately large in infants, which is why their bellies are so delightfully rounded.”

“It is also the most multifariously busy organ in the body, with functions so vital that if it shuts down, you will be dead within hours. Among its many jobs, it manufactures hormones, proteins, and the digestive juice known as bile. It filters toxins, disposes of obsolescent red blood cells, stores and absorbs vitamins, converts fats and proteins to carbohydrates, and manages glucose—a process which is so vital for the body that its dilution for even a few minutes can cause organ failure and even brain damage”

Perhaps the most wondrous feature of the liver is its capacity to regenerate. You can remove two-thirds of a liver and it will grow back to its original size in just a few weeks. “It’s not pretty,” the Dutch geneticist Professor Hans Clevers told me. “It looks a bit battered and rough compared with the original liver, but it functions well enough. The process is something of a mystery. We don’t know how a liver knows to grow back to just the right size and then stop growing, but it is lucky for some of us that it does.”

Benefits of exercise and the harm of too much sitting

“Study after study since then has shown that exercise produces extraordinary benefits. Going for regular walks reduces the risk of heart attack or stroke by 31 percent. An analysis of 655,000 people in 2012 found that being active for just eleven minutes a day after the age of forty yielded 1.8 years of added life expectancy. Being active for an hour or more a day improved life expectancy by 4.2 years.”

“And how much exercise should we get? That’s not easy to say. The more or less universal belief that we should all walk ten thousand steps a day—that’s about five miles—is not a bad idea, but it has no special basis in science. Clearly, any ambulation is likely to be beneficial, but the notion that there is a universal magic number of steps that will give us health and longevity is a myth. The ten-thousand-step idea is often attributed to a single study done in Japan in the 1960s, though it appears that also may be a myth. In the same way, the Centers for Disease Control’s recommendations on exercise—namely, 150 minutes per week of moderate activity—are based not on the optimal amount needed for health, because no one can say what that is, but on what the CDC’s advisers think people will perceive as realistic goals.”

“Amazingly, and alarmingly, it doesn’t seem to matter how much you exercise the rest of the time. If you spend an evening on the seductive padding of your gluteus maximus, you may nullify any benefits you gained during an active day. As James Hamblin put it in The Atlantic, “You can’t undo sitting.” In fact, people with sedentary occupations and sedentary lifestyles—which is to say, most of us—can easily sit for fourteen or fifteen hours a day, and thus be completely and unhealthily immobile for all but a tiny part of their existence.”

Sugar – Fruits may not be as healthy as we think

“By one estimate, about half the sugar we consume is lurking in foods where we are not even aware of it—in breads, salad dressings, spaghetti sauces, ketchup, and other processed foods that don’t normally strike us as sugary. Altogether about 80 percent of the processed foods we eat contain added sugars. Heinz ketchup is almost one-quarter sugar. It has more sugar per unit of volume than Coca-Cola.”

Many of our fruits and vegetables are nutritionally less good for us than they were even in the fairly recent past. Donald Davis, a biochemist at the University of Texas, in 2011 compared the nutritive values of various foods in 1950 with those of our own era and found substantial drops in almost every type. Modern fruits, for instance, are almost 50 percent poorer in iron than they were in the early 1950s, and about 12 percent down in calcium and 15 percent in vitamin A. ”

Excerpt From: Bill Bryson. “The Body: A Guide for Occupants.” Apple Books.

State of Mobile 2022

App Annie released a report named State of Mobile 2022, offering a comprehensive view on the app economy around the world. The report is very informative with lots of data and I really recommend you have a look, but there are a couple of things that make me hesitant to draw any lesson:

  • Hours spent on app is only on Android devices; which doesn’t provide a complete picture of app usage as iOS is a huge ecosystem
  • I couldn’t find the definition of breakout downloads anywhere in the report. What does breakout even mean?
  • We need to be careful about the number of downloads. I suspect these downloads needed to be in 2021 to be included in this report. That means some popular apps that are on consumer phones before 2021 aren’t. Hence, the number of downloads in 2021 doesn’t paint a true picture of how popular apps are

With that being said, here are some takeaways in which I have some confidence.

Total App Spend in 2021 was $170 billion, implying iOS’ has a market share of 35-40%

App Annie estimated that the total app spend in 2021 at $170 billion. On Monday, Apple revealed that they paid $60 billion to developers in 2021 which didn’t include Apple’s commissions. If we assume that Apple takes 15% on every dollar, the total app spend on the App Store would be around $70 billion ~ 40% of the figure that App Annie reported.

Though their population isn’t too far off from each other, China had much more app downloads in 2021 than India

China has approximately 1.4 billion people in population, 20 million more than what India has. However, the number of app downloads in China easily dwarfs that in India and the rest of the world. I wonder if it’s because folks in China cycle their phones more often so that the number of downloads was high even though the number of users didn’t necessarily increase. On a side note, shout out to Vietnam with more than 3 billion downloads for a country with 97 million people.

LinkedIn was frequently searched on the App Store, signaling a vibrant job market

Zoom, Teams and LinkedIn are in the top most searched keywords on the App Store. That’s heartening for Zoom and Microsoft investors because this signals their brand awareness among users. The fact that LinkedIn is among this group signals to me that folks want to update their profile and look for job opportunities. Why else would you look for the LinkedIn app?

45% of markets where Disney+ is available have over 1 million downloads in total. The figure for Netflix is 31%

According to App Annie, there are 24 countries where the number of total downloads for Disney+ exceeded 1 million while there are 58 such countries for Netflix. However, it’s really important to remember that Disney+ is only available in 53 markets whereas Netflix can be downloaded in more than 190. Hence, you can see Disney+ tends to be really popular wherever it’s available.

Tips for new data analysts

Having worked with credit card data in the past years, I have to say that it’s a steep learning curve. My manager gave me 6 months to a year to learn what we do in our day job and he wasn’t exaggerating. I actually needed that. Even now, more than 3 years later, I still learn something new every day. The complexity and the sheer amount of data is just staggering. Our warehouse has to store data of an account on a daily basis for as long as the account is active. And an account’s life can consist of numerous interactions from applications, special offers, purchases, fees, payments to calls, mobile logins or complaints. Everything can and should be analyzed so that we can learn actionable insights that can benefit the organization.

After a tough period when I put in the work to survive, I want to share a few things that have helped me tremendously become a better analyst and programmer. My experience is with credit card data. I don’t mean to think that what I do is more complex than others, but I believe the lessons I learned can be helpful in other industries.

Learn to connect the business and the data together

At my company, the better analysts and coders often have a better understanding of the business than others. They don’t take data on face value. They use data to answer business questions and, in turn, use their business knowledge to understand data better. For example, credit cards draw much of its revenue from finance charge. However, issuers tend to appeal to potential users with an intro offer that sets interest rate at 0% for a period of time (6 all the way up to 20 months). Without that understanding, how can one understand the revenue data before and after the grace period?

Likewise, data can help issuers answer business questions. In case you don’t know, credit card companies work with the likes of Experian, TransUnion and Equifax closely for acquisition campaigns. These credit bureaus know a lot about consumers in the U.S and each has a database that can be licensed out to issuers. Issuers go through a bureau’s database and choose a population based on a variety of attributes that they believe will be most responsive to direct mail campaigns. Through post-campaign analyses, issuers learn which attributes are more predictive than others. Hence, they can become more efficient with direct mail campaigns. Let’s say that if a campaign with a 1 million pieces worth $0.5 each yields about 5,000 accounts (0.5% net response rate), each account will cost about $100 in acquisition. By using data and improving the net response rate to 0.6%, an issuer can decrease that acquisition cost to $83. That’s a real financial benefit. That’s the power of analyzing data for actionable insights.

Look at the output

A common mistake I noticed among my coworkers is that those more prone to mistakes don’t often look at the real data output. There are two reasons for it. The first is complacency. After a decent amount of time on the job, a certain level of complacency tends to develop in each analyst. Such complacency creates a false illusion that one knows everything already, while, in fact, that is often far from the truth, particularly when complex data is involved. The second reason why less effective analysts don’t look at real data output is the false assumption that their previous work will continue to deliver forever in the future. Such an assumption ignores the fact that businesses evolve all the time and when that happens, the data evolves too, such as new partners, new products, new regulations or new acquisition channels. Assuming that an old block of code will work one or two years from now is a mistake, yet luckily it’s entirely avoidable!

Find outliers

Banking data is structured most of the time. There are business rules behind the scenes that dictate how values are set. As a result, it’s very helpful to look at outliers because it will reinforce an analyst’s understanding of not only the data, but also such business rules. Let me give you an example. A co-brand portfolio of ours mandates that a customer has to maintain a specific level of spending in a calendar year to keep their Premium status. One time, I noticed that some accounts didn’t meet the threshold, yet still managed to keep their status the following year. I asked around and learned that there was a policy which enabled customers who just missed the cut to qualify for the status only if they called our Customer Care. Without paying attention to outliers, I wouldn’t be able to learn about that policy. And how did I notice those outliers? Indeed, I looked at my data output!

Read about the industry

I always believe that our understanding of the world is a network of dots and how we are able to link them together. The more we read, the more dots we add to our personal network and the better connections we can create. Without reading, there wouldn’t be many dots to connect, to begin with. Plus, the world is full of smart people who are often smarter than us. Why not taking advantage of that? We can learn so much about the trends, best practices as well as mistakes from others and apply appropriately to our business. In fact, we just launched a new credit card and I am proud to say that came from an idea of mine, an idea that was born out of regular studying of the competition and the market. So, if you want to be a better analyst, read. Read about your competition, your customers, your industry and adjacent industries too. Dig as deep as your interest allows you. Read from the basic. For instance, if you want to know about credit card transactions, read this helpful but obscure book: The Anatomy of The Swipe! The more you get to the basics, the better you can grasp more complex concepts!

Stay curious

The overarching theme over the points I make above is curiosity. As long as you stay curious, you are automatically intrigued by the questions like: How does this work? Do I miss something? Is what people told me 100% accurate? Did they miss something themselves? These questions will drive you to dig deeper and constantly ask questions; which will eventually lead you to doing all of the above and becoming an analyst.

If you come across this entry, I hope what I share above is helpful and can prevent you from making the same mistakes that I did. Leave in the comment if you have any thoughts or tips as well!

Weekly reading – 8th January 2022

What I wrote last week

Amazon through charts

Amazon’s impact on U.S sellers during holiday seasons

Business

Inside a Year at Peloton: From Pandemic Winner to HBO Punchline. The fact that Covid pulled forward demand isn’t as concerning to me as the management team’s inability to forecast and assess its business; which seems to be the case at Peloton.

No Permits, No Fabs. “From 1990-2020, the time required to build a new fab in the United States increased 38 percent, rising from an average of 665 days (1.8 years) during the 1990 to 2000 time period to 918 days (2.5 years) during the 2010-2020 time period. At the same time, the total number of new fab projects in the United States was halved, decreasing from 55 greenfield fab projects in the 1990-2000 time period to 22 greenfield fab projects between 2010 and 2020.”

Some great investment insights from Philip Fisher. “There are two approaches to accumulating wealth in the stock market. One is to time the market, buying stocks when they are cheap, and selling when they are expensive. The other is to find outstanding companies and hold them”

Chip Makers Contend for Talent as Industry Faces Labor Shortage. This labor shortage in one of the most critical and influential industries in the next few years makes you wonder why in the world lawmakers don’t open doors to welcome more hungry and talented immigrants. The tribal politics, fear-mongering and myopia are astoundingly disappointing and detrimental to the country

Hawaii Is Rethinking Tourism. Here’s What That Means for You. “For the first time, Hawaii’s tourism authority is majority-run by Hawaiian natives, rather than white mainlanders with hospitality degrees. With the input of locals, who range from farmers to hotel owners, each of Hawaii’s four counties has created a strategic plan that stretches into 2025 and focuses on sustainable destination management rather than marketing. The plan relies heavily on community involvement and visitor education. “In the past, visitors were spoon-fed what outsiders thought they wanted,” says Kainoa Horcajo, founder of the Mo’olelo Group, a Maui-based consultancy that helps hotels to reimagine their cultural experiences. “Now, it’s time to take a risk, challenge the visitor, and give them something real.”

How pioneering deep learning is reducing Amazon’s packaging waste. “Machine learning approaches helped Amazon drive change over the past six years, reducing per-shipment packaging weight by 36% and eliminating more than a million tons of packaging, equivalent to more than 2 billion shipping boxes.”

Turn podcast listeners into customers with CTA cards. Quite a big step by Spotify to improve their advertising platform.

Affirm Debit +: The Great Credit Card Unbuilding Is Underway

Other stuff that I found interesting

The Case Against Crypto. “The real world has fundamental constraints that make the technology unworkable, whenever it has to interact with the outside world the benefits of decentralization disappear and the solutions end up simply recreating slower and worse versions of processes and structures that already exist

A good article on China from an experienced journalist, who has spent a lot of time on the ground there. “Everything that can go wrong in urban design has gone wrong in Beijing. Each region has a different personality. The north is economically dysfunctional. Large parts of it suffer from resource dependency, environmental problems, and the population loss that results from these trends. Cities near Beijing showcase overcapacity in steel and coal, while Tianjin is well-known for having falsified its economic data. The northeast provinces nearby have seen a population decline of around 10% over the last decade, while the north as a whole has seen its share of the country’s GDP shrink from half in 1960 to a third today.

Your attention didn’t collapse. It was stolen. “For example, one study at the Carnegie Mellon University’s human computer interaction lab took 136 students and got them to sit a test. Some of them had to have their phones switched off, and others had their phones on and received intermittent text messages. The students who received messages performed, on average, 20% worse. It seems to me that almost all of us are currently losing that 20% of our brainpower, almost all the time. Miller told me that as a result we now live in “a perfect storm of cognitive degradation”. Individual abstinence is “not the solution, for the same reason that wearing a gas mask for two days a week outside isn’t the answer to pollution. It might, for a short period of time, keep certain effects at bay, but it’s not sustainable, and it doesn’t address the systemic issues.” He said that our attention is being deeply altered by huge invasive forces in wider society. Saying the solution was to just adjust your own habits – to pledge to break up with your phone, say – was just “pushing it back on to the individual” he said, when “it’s really the environmental changes that will really make the difference”.”

The Race to Make Vials for Coronavirus Vaccines. Fascinating

Stats

The average credit card balance in the U.S in 2021 was $5,525, according to Experian

2% of U.S menus feature chicken thighs while 42% list chicken wings

45% of surveyed Americans said they plan to shop 50% or more of their groceries online in the next 12 months

“PYMNTS’ research found that real-time disbursements accounted for 17% of all disbursements made in 2021, up from 5.7% last year”

Amazon through charts

Amazon’s revenue growth slowed down significantly in the last 6 months after being pulled forward by Covid-19; which may explain the timid growth of their stock price

Amazon's revenue growth

AWS is now a $56 billion annual run-rate business. This run-rate is actually based on real figures

Quarterly revenue of Norther America, International and AWS

AWS continues to be the margin machine for Amazon. International went back to the red after 5 quarters in the black

Segment and total operating margin

Advertising is Amazon’s 4th biggest revenue stream

Amazon's business segments' revenue

Advertising, AWS and Subscriptions are the top 3 growing segments of the company

Segments' revenue growth

Amazon has been investing heavily in the last 6 months, hurting their Free Cash Flow

Amazon's free cash flow trailing twelve months

Shipping costs as % of Online Stores & 3rd-party Marketplace have been increasing. The shipping cost can make it difficult for competition to catch up

Amazon's shipping costs

Amazon’s impact on American third party sellers during holiday seasons

Because of its reach and established brand in consumer minds, Amazon is a great channel for American sellers. Today, let’s take a look at the impact that Amazon has on these sellers during holiday seasons. This is by no means an easy task because Amazon offers data on a piecemeal basis and there is no standard definition of a holiday season. The lack of consistent reporting, the changing macro environments, seasonality and the different length of holiday seasons make it almost impossible to have a definitive view on how much American 3rd-party sellers grow their businesses on Amazon year over year. Nonetheless, below is my best estimate. Let’s go!

In 12 months between September 2020 and 2021, American 3rd-party sellers averaged 7,500 products sold per minute on Amazon and there are more than 500,000 of such sellers on the platform. A few days ago, Amazon reported that these sellers sold 11,500 products per minute between Black Friday and Christmas. That’s an increase of more than 50% compared to the non-holiday period. This sort of growth is what makes Amazon an irresistible channel for sellers, especially small ones.

At the end of 2020, Amazon reported that there were nearly 1 billion products sold by U.S-based sellers on its platform during the 2020 holiday season. That year, Amazon started the holiday season early in October right after Prime Day. How did 2021 fare compared to 2020? Let’s do some maths.

As sellers averaged 11,500 products per minute during the 30 day period from 11/26/2021 through 12/25/2021, it means that there were in total 496,800 products sold. From 10/4/2020 through 11/30/2020, which was Cyber Monday that year, U.S-based sellers averaged 9,500 products sold per minute, an equivalent of 793,400,000 items in total. Like 2020, the 2021 holiday season was also kicked off in early October. Assuming that the sales figures from 10/4/2021 through 11/30/2021 were about the same as the same period the year prior, U.S 3rd-party sellers would sell approximately almost 1.3 billion items in total for the whole season. Compared to the 1 billion figure in 2020, that means American sellers sold 30% more items on Amazon in 2021 than the year prior. A tremendous achievement at that scale.

Estimated Amazon 2021 holiday season sales
Estimated Amazon 2021 holiday season sales

In short, Amazon is still a great channel for American sellers, evidenced by a massive number of products sold during the holiday seasons and the estimated growth even at scale. Some critics often say that Amazon is no longer operating with the Day 1 mindset. It is debatable and in some aspects, they may have a point. But in this regard, I don’t see a slowed-down Amazon. I see an Amazon that is still growing impressively.

Disclaimer: I own Amazon stocks in my portfolio.

Weekly reading – 1st January 2022

Happy New Year! No matter where you are in the world, if you come across this little blog of mine, I wish you and yours a great year ahead with lots of health, luck and happiness. Also, with Covid finally behind us! Welcome to my first post in 2022!

What I wrote last week

Review of my 2021

Super Apps

Business

Thanks to podcasts, Spotify is the fastest-growing music service in the US, according to Morgan Stanley survey. “From 2019 to 2021, the streaming giant’s share of the average American’s listening hours increased from 7 per cent to 10 per cent, well behind AM/FM radio and YouTube, but strong among younger consumers who will make up the bulk of listeners over the next decade.”

American Airlines, Saddled With Debt and Growing Pains, Turns to New CEO. “Among airline executives, Mr. Isom is known for drilling down into details. A metric known as d-zero—when flights push back from the gate exactly on time or early—became a rallying cry under Mr. Isom, though it is something American has struggled with at times. Kerry Philipovitch, who worked for Mr. Isom at American until 2019, recalled Mr. Parker and CFO Derek Kerr marveling at how early Mr. Isom arrived at a company event, pointing out his prime parking spot. Ms. Philipovitch said: “That’s Robert. He works really hard. He’s going to get there early.”

Here’s What Happened to Biotech This Year. “Below is the harsh reality laid out in a chart. While the total return of the S&P 500 Index is up 29.4% year-to-date through December 27 (as represented by the SPY ETF that tracks it), the S&P Biotechnology Select Industry Index is down -18.2% over the same period (as represented by the XBI ETF that tracks it). In fact, biotech is the worst performing of any of the 11 S&P 500 sectors this year (note: XBI is equal weighted. Within the biotech community, it is generally believed to represent the performance of typical mid-to-small cap biotech stocks)”

The Super League Debacle Forced Manchester United’s American Owners to Listen to Fans. Football or soccer as it is called in the U.S is a business in which a drought of titles and a period of mediocrity can have major implications. When a club goes without a trophy for a while, great players don’t want to spend precious years at the club. Worse, they go to the competitors to help them win more titles and inflict more pain. The vicious cycle is very hard to break. Manchester United has been in that cycle since 2013, when Sir Alex Ferguson retired. The club hasn’t won a major trophy and it has lost its mojo. Prominent players don’t consider the club in the same breadth as the elite any more. It’s all down to the American club owners who don’t have the right management skill or the football culture in them. Everything is commercial. I am extremely sad to see how the club falls from grace

Apple ditched Intel, and it paid off. Taking control of an important technology stack such as the chips is a strategic masterpiece from Apple. They no longer have to rely on a dinosaur such as Intel while deepening their moat. Who else can compete with Apple in combining one of the most iconic brands in history, hardware expertise, the total control of operating systems, the network of retail stores, the world-class capability in supply chain and now an amazingly efficient chip?

Google and Tech Rivals Tap Cash Reserves to Realize Cloud Ambitions. While Amazon relies on AWS for margin, Google and Microsoft have no shortage of profitable segments to help their cloud departments catch up with a formidable rival. If you are not a first market mover, you gotta use the tools available to you.

Facebook’s Pushback: Stem the Leaks, Spin the Politics, Don’t Say Sorry. Facebook deploying the “divide and conquer” strategy with our lawmakers successfully is just surreal.

A Look Back at Q3 ’21 Public Cloud Software Earnings. A very informative post on public cloud software companies. Have a read if it’s your cup of tea

Other stuff I find interesting

Oscars: ‘Spider-Man: No Way Home’ Team Plans Best Picture Push, Tom Holland Open to Hosting. I am glad that Tom Holland, Kevin Feige and co fought for their work and the work of their colleagues in making these Marvel movies because I find it weird that some don’t consider them “art”. Spider-Man: No Way Home is a great movie. The box office and the online reviews say the same thing. Now that it’s likely a potential for Oscar nominations, would anybody come out and say it’s still not art?

New York City bans natural gas in new buildings. It all sounds well and good on paper for environmentalists as new buildings are banned from using natural gas. However, there are second-order effects as “New York’s move to all-electric buildings could mean a higher price tag for consumers using electricity for heat than those relying on gas. This winter, the average household in the U.S. Northeast is expected to pay $1,538 to heat their home with electricity, compared with gas at about $865. Almost half of the power generated in New York State so far this year came from burning fossil fuels (45% from gas and 4% from oil), with another 24% from nuclear and 22% from hydropower, according to federal energy data.”

In Hamburg, Surviving Climate Change Means Living With Water

Japan’s Paper Culture. “Old, traditional ways of using paper are still prevalent, from the gohei (a paper offering made to gods) in shrines, to the shūgi-bukuro (money envelopes) given at celebrations, and New Year’s cards. In more modern uses, purchases are typically made with cash; important documents are faxed rather than emailed; and nearly everyone uses hanko, a personalized stamp used in lieu of a signature.”

Stats

No new homes in November 2021 were under $200,000

37% of the world’s population have never used the Internet

Holiday spending in the U.S in 2021 increased by 8.5% compared to the same period last year. eCommerce retail spending rose by 11%

54% of adults in the United States have prose literacy below the 6th-grade level“. Prose literacy level refers to the ability to read and comprehend materials such as news stories or manuals.

Walmart drew one in four dollars spent on click and collect — with room to grow in 2022