Weekly reading – 21st May 2022

What I wrote last week

Want to do something? Do it right away!

Business

What Happened When a Wall Street Investment Giant Moved to Nashville. AllianceBerstein uprooted its headquarters from New York to Nashville, Tennessee to save $80 million a year. The move has been smooth so far, but the interesting thing here is how some large corporations, once exclusive to mega cities on the coasts, are open to moving to smaller towns. My colleague mentioned his college mates got great job offers from an investment firm in Arkansas. Boise in Idaho attracts interest from tech workers too. Snowflake already moved its headquarters to Montana. It’ll be interesting to watch what this trend will do to real estate.

A great podcast with Ted Weschler, a lieutenant of Warren Buffett. Listening to him bolsters my belief that to even have a chance at being good in investing, you need to read a lot, especially what other folks don’t, to create and connect the dots.

Marriott Rolls Out Media Network That Lets Brands Reach Travelers on Its Apps and TV Screens. I really wonder how this will actually work. The first requirement is that Marriott needs to profile and segment customers such as travel enthusiasts, cooking lovers or pet owners, so that their ads can be targeted. Then, it’s a matter of scale. In a 500-room hotel or resort, how many are actually pet owners at the same time? This makes me think that at least in the beginning, the ads won’t be targeted. Also, how would Marriott measure the effectiveness of the ads? Guests will likely just look at the screens and…move on. This service will aid brand awareness, but tracking conversion will be tricky.

Mastercard launches tech that lets you pay with your face or hand in stores. We’re still a long way from having this sort of technology ubiquitous. What intrigues me when I think about this is when governments around the world can have a unified database that recognizes folks based on biometrics. The amount of red tape and administrative work can be reduced significantly.

There’s a New Media Mogul Tearing Up Hollywood: ‘Zas Is Not Particularly Patient’. The new boss at Warner Media is bringing discipline, work ethic and a new culture to the company. A pretty interesting read on Zas.

The Algorithm is a Lie. A very smart take on Netflix and the long-standing assumption that Netflix is great at mining data for actionable insights.

Other stuff I find interesting

Innovative Fish Farms Aim to Feed the Planet, Save Jobs and Clean Up an Industry’s Dirty Reputation. A super interesting read on what is being done to protect the fishing industry in Maine.

Germany Declares Crypto Gains Tax-Free After 1 Year — Even if Used for Staking, Lending. Other securities can still be taxed after one year of holding, but crypto currencies aren’t in Germany. I wonder how Germans think about this since I assume stock holders outnumber crypto investors.

Take a look inside the Finnish bunkers capable of withstanding a nuclear attack. Today, the Finnish Parliament approved the application to join NATO. Putin threatened to retaliate, but seriously, what did he expect the people of Finland to do after watching what he did to Ukraine?

An interesting read on MOBI and EPUB book format. I love Kindle, but their previous requirement that users must use MOBI format was super annoying. So I am glad that they accept Epub now.

Stats

“The median pay package for chief executives of the biggest U.S. companies reached $14.7 million in 2021”

Pollutions accounted for one out of every six deaths globally in 2019

11.3 million guns were manufactured in the US in 2020. I had to look at the figure one more time to actually believe it. 11.3 million, I mean why do you need that many?

Grab has 30.9 million monthly users as of May 2022

65% of Disney+ subscribers said Movies were the top reason to subscribe

Have something to do in mind? Just do it as soon as possible!

Here are a few anecdotes that lead me to believe that when you have a task in mind, it’s better to just get it over with as soon as possible.

Last month, a colleague opened a work ticket. The request was not easy, but I knew if I could sit down with full focus for a few hours, I would be able to finish it. I didn’t. I let it sit there and marinate for over a month while having different projects pull my attention in various directions. Two days ago on Monday, the person sent an email asking for an update and said he needed the data in the middle of this week. I freaked out because I was going to fly out fo a conference on Tuesday, taking the rest of the week off. I had to scramble, asking multiple people for information, and work late on Monday night to complete the ticket that I should have dealt with a while ago.

Knowing full well that I would need shirts to don casual business outfits for the conference, I planned to have several professionally cleaned for the occasion. The thing is: I procrastinated on it. I thought that washing and cleaning shirts would be quick and I could delay till the last minute . The day before I flew, I took my shirts to a cleaning store in town. I received a rude wake-up call when they said they needed more time than just 12 hours for these shirts. Such a poor decision on my part led to my washing the shirts by myself and unnecessary anxiety.

This trip didn’t come at the right time. I was cat-sitting for a friend who lived 20 minutes from my apartment. Because one of the cats has to take medicines at 8am and 8pm every day, I had to live there instead of shuttling back and forth. My flight yesterday was scheduled to be at 1pm. Hence, I planned to pack in the morning, go to work for a scheduled presentation, return home and head to the airport. Well, life threw me a curveball. While I was enjoying my coffee at 6:30am, I got a text from my fellow conference attendee that our flight out of Omaha was delayed and we would not make the connection flight in Salt Lake. He said there was another flight leaving in about 1.5 hours, but of course I couldn’t make it since I had to drive home, shower, pack and leave for the airport. Had I packed before, I would have probably made that flight. The result? A lot of anxiety to arrange a replacement flight and frustration because of the delays. I finally got to my final destination at 9pm, 4 hours later than expected.

The thing is that I reaped the profits of acting right away before.

When I was in Vietnam, the first thing my wife and I did out of quarantine was to prepare for the visa application and submit it. It took a couple of days, but we finished the task without delay. It was good that we did because the Consulate took longer than we expected to renew my visa. During those 3 weeks, we were anxious, not knowing when I could book the return flight or whether I could return to the US at all. My wife admitted that it felt good that we didn’t waste time on that crucial task.

Another example is my marriage certificate. My father-in-law asked us to only get the certificate a few days before the wedding and before my departure for the US. We refused. We wanted to become married legally beforehand. It turned out that we were right. Here is what happened. To get such a certificate in Vietnam, one person has to be certified single in their district before register as married together in the other person’s district. It took me three days to receive a piece of paper confirming that I was single. It’s just ridiculous red tape in Vietnam. Then, my wife and I went to her district’s People’s Committee for the registration. First, they turned us away because there was a small omission on my paper mentioned above. So we had to spend 2 hours sorting it out. When we came back, it took a couple of more tries to finally get the paperwork in order. But trouble didn’t stop there. The person called us at 4pm later that day to inform us that since my wife moved residence once after she turned 18 years old, she had to go back to her previous place to get a document certifying that she was legally single as well. Long story short, thanks to my mother-in-law hoarding old and outdated documents, after 4 days or so, we could finally have a marriage certificate in our hands. The tricky part is that we both had to be present when they gave us the certificate. So you see, had we listened to my father-in-law, either I would have had to delay my trip to the US or we would not have had the marriage certificate we need.

Life has a funny way to punish the unprepared. There are just a lot of unforeseen curveballs and these curveballs, unfortunately, tend to happen too often and at the wrong time. Procrastination and stupidity punished me a few times and I saw the rewards of prompt actions. But I was too comfortable in the warmth of procrastination. I need to work on myself to leave that comfort zone once there are tasks to be done. If you had similar experiences, I hope this will give you some necessary push.

Weekly reading – 14th May 2022

What I wrote last week

Uber Q1 FY2022 Results

Book Review – After Steve: How Apple Became A Trillion-Dollar Company And Lost Its Soul

Business

Newest trend in delivery apps: move from cars to e-bikes. Micromobility is great for short-distance deliveries in a busy city like San Francisco. This is how Grab Food, Shopee Food and others manage deliveries in Ho Chi Minh City. Consumers order food within 3-4 kms most of the time. Traffic jam is a feature of the city. If couriers used cars for deliveries, there wouldn’t be any food delivery business! eBikes are also environmentally friendly. I hope to see more innovation and governmental subsidies in this space

John Gruber on the European Commission’s calling Apple Pay an illegal monopoly. I like John’s takes on Apple-related things. He is experienced and more importantly nuanced and fair. “This passage, as well as much of the rest of the E.C.’s “statement of objections”, seeks to dismiss the hard work Apple has done to make Apple Pay successful. Yes, NFC is an industry standard, and Apple Pay is, in part, built on top of that. But before Apple Pay, NFC was hardly used, even though Android had supported it since 2011. When Apple Pay launched in late 2014, its support for the existing NFC infrastructure was so good, it worked with many credit card terminals that had no explicit support for “Apple Pay” specifically. Apple Pay was so easy to use people were using it at retailers who weren’t even Apple Pay partners. That’s not a credit to NFC, which had been in place for years. That’s a credit to Apple. I honestly don’t understand where the E.C. sees anticompetitive behavior with Apple Pay. What I see is market share dominance stemming from the hard work of designing better integration into iOS and iPhones and educating users about the feature. How else could the iPhone’s share of NFC payments so far exceed the iPhone’s share of mobile phone sales? I’m not saying Samsung and Google suck at this, per se, but Jennifer Bailey’s team at Apple is really good, and perhaps just as importantly, really diligent about this sort of thing.”

Congress is ‘moving too slowly’ on semiconductor supply crunch, Commerce Secretary says. The dysfunction and ineffectiveness of Congress, especially in this matter, will cost America a lot both in the short and long term.

Buy Now, Pain Later? An interesting read on BNPL and specifically Affirm

Don’t forget Microsoft. Business schools around the world should teach students about Microsoft and its revival by Satya Nadella.

Business Travel Rebounds as Execs Choose (Real) Face Time Over Zoom. I, for one, am curious about whether business travel will come back to the pre-pandemic levels and how it will come back. During the pandemic, articles were written on how business travel would never be the same. Anecdotally, my colleagues at work traveled to Omaha, Nebraska for monthly meetings and quarterly department reviews as if nothing had happened in the past two years. China remains a question mark. Because they remain persistent on the zero-Covid strategy, they are not a viable destination at the moment. And I hope that the prolonged fight with Covid does not give other variants a chance to spring up. I think we have enough of a pandemic for, let’s say, the next few decades.

Inside the Collapse of CNN+, the News Channel’s ‘Apollo Mission’. The launch of CNN+ seems rushed and more like a political move by some executives than a savvy business initiative

How Gillette Embraced the Beard to Win Over Scruffy Millennials. Gillette went from demonizing beards to embracing them. After years of fruitless resistance and declining sales, they finally realized that their bread and butter product is no longer what men want. More than half of the men in the world don beard, including two-thirds of millennial men. Sensing that the tide they were going against was too strong, Gillette launched new beard-friendly products rolled into a line named King C. Gillette. A deviation from what the company is always known for, but a good strategic shift, I think.

Other stuff I found interesting

Could solar power solve Puerto Rico’s energy nightmare? I can’t imagine living in this day and age without electricity. Especially when that happens in a U.S territory.

Moon soil used to grow plants for first time in breakthrough test. This discovery inspires a lot of questions, possibilities and dreams

Cat Litter Could Be Antidote for Climate Change. I don’t know about you, but I don’t have “cat litter could absorb methane before it goes up in the air” in my 2022 bingo card. But it’s a nice surprise and discovery.

Stats

NYC subway ridership as of March 2022 is 60% of the pre-pandemic levels

Germany has 9% of all bitcoin nodes

“In 2021, U.S. podcast advertising revenues rose to $1.4 billion”

Only 50% of the time when a PayPayer user goes to a site that has PayPal does that user use PayPal

Book Review: After Steve: How Apple Became A Trillion-Dollar Company and Lost Its Soul

“After Steve” by Tripp Mickle is about Apple and how it transformed after the death of Steve Jobs. The book shed light on what went on behind the scenes at arguably the most valuable company in the world through two main characters: Tim Cook and Jony Ive. With Cook, we see a then-lieutenant become the ultimate force and voice at Apple. Early in his tenure, Cook had to face investor doubt on whether he could fill the giant void that Jobs’ death left behind. How could he avoid that when his former boss was larger than life? He also had to deal with the precarious political storms both at home in the US and in China. The contrast in how he handled delicate political engagements and how Steve did before showed the difference between two men. There is also a challenge of managing Ive and the growing workforce which meant that the previous culture was no longer a fit. The once-influential Design team which colleagues jokingly referred to as Gods had to see their influence wane and give way for the Finance and Ops teams. Such a transition could only happen under Tim Cook’s watch. The financial results and market valuation of Apple is testament to the excellent job that Cook and his teams have done in the past 12 years. His appointment to CEO was the right call for Apple.

Regarding Jony, the talented artist craves creativity. However, even though he wanted to retain control over all things creative at Apple while not fully mourning Steve’s death, he felt suffocated by the corporate responsibilities, a barrage of meetings and internal fights with other teams. After Apple Watch and Apple Campus, Jony felt burned out and needed to turn a new chapter. Hence, he left the company where he spent most of his adult life. The author reported that after the departure of Jony, the Design team became liberated by not relying on Jony, who wasn’t fully present and committed in the last months of his time there. I do think it worked out for both Apple and Jony that he left. Jony is immensely talented and has world-class taste, but his lack of focus and commitment was detrimental to his teams and colleagues.

If you don’t follow Apple closely but are interested in the company, I think “After Steve” will be a good read. In addition to the evolution of the two characters and Apple itself, there are business lessons that one can take away. First, attention to detail.

Tim Cook is maniacal on details. Becoming a CEO doesn’t mean that he cares only about strategy. At work, I often see executives talk high-level without drilling into details. For me, details matter. They require careful investigation which leads to deep understanding and better decision-making. Here are a few examples:

“The operations team, hollowed out by departures after Jobs’s return, detailed the headway they had made as Cook peppered them with questions: “Why is that? What do you mean?”

“I saw grown men cry,” said Joe O’Sullivan, who was the acting head of operations when Cook arrived. “He went into a level of detail that was phenomenal.”

“Joe, how many units did we produce today?” Cook would ask. “It was ten thousand,” O’Sullivan would answer.

“What was the yield?” he asked, referring to the percentage of units that passed quality assurance before shipment. “Ninety-eight percent.” Unimpressed by the efficiency, Cook would probe deeper. “So how did the two percent fail?”

Excerpt From: Tripp Mickle. “After Steve.”

“He continued waking up each morning before 4:00 A.M. and reviewing sales data. He drilled down into small details, discovering through questions that one model of iPhone was outselling another in a small city in Georgia because the AT&T stores there were running different promotions from those being run in the rest of the state. He held a Friday meeting with operations and finance staff, which team members called “date night with Tim” because it would stretch for hours into the evening, when Cook seemed to have nowhere else to be.”

Excerpt From: Tripp Mickle. “After Steve.”

Another lesson is that a different business life stage cultivates changes in culture and culture fit is important. Under Steve, secrecy and “need-to-know” basis were prevalent. Steve made decisions based on his instinct and was the final voice on many things. Tim Cook, on the other hand, encouraged collaboration and deferred to his reports in areas where he is not strong at, such as creativity. If you work for Cook, you are expected to be able to think strategically and be detail-oriented. Angela Ahrendts, the former CEO of Burberry, left Apple after 5 years because she was reportedly not a fit in Cook’s executive team. Others who are detail-oriented like Cook rose through the ranks like Deirdre O’Brien or Jeff Williams.

I was under impression that Apple’s leaders were excellent at thinking way ahead of time in terms of products or services. This book kinda changed my mind. There are several examples in which the company changed direction when they realized the initial strategy didn’t work. For example, Jony Ive insisted on positioning Apple Watch as a fashion accessory and making it exclusive to cultivate the luxury position. But it only took off when it was sold through normal sales channels and positioned as a fitness product. There was also the drama involving Apple Music and Taylor Swift. Taylor’s criticism forced Apple to change the compensation formula to artists. Otherwise, who knows what would have happened to the service? Last but definitely not least, nobody thought of Apple Watch or Airpods as significant sources of revenue for Apple. One look at the Wearables line item on Apple’s financial reports will tell you that they indeed are.

Overall, I enjoyed the book.

“Jobs had had a designer’s eye. He had once walked past a prototype of a forthcoming iPhone and barked, “What is this shit?” The curvature and polish of the prototype had been changed only slightly during manufacturing, but he had caught the differences with a glance and been repulsed. He had demanded that it be fixed. Without him, the team lost the feedback that fueled their work.”

“When the first prototype was finished, Ive exited his glass office and strolled to the table to review it. He twisted the shimmering silver camera in his hands and brushed his fingers across a toggle button on the rear of the unit that looked like a Nintendo controller. It was there to enable users to scroll through digital photographs on the camera’s display. But he didn’t like the buttons. They protruded too much. He told the team that he wanted the knobs to be as flush and smooth as the aluminum case itself.

It was a challenging ask. Keats spent days inserting 100-millimeter sheets of plastic film called Mylar on each side of the rear toggle, trying to raise the buttons the minimal amount necessary to make them discernible while keeping them practically flush with the exterior of the case.

The camera design took more than nine months and required 561 different models before Ive was satisfied. Apple estimated that fifty-five engineers had spent a combined 2,100 hours on it. The company reused some of the manufacturing techniques in future Apple products, including the laser-etching process for MacBook speakers. Keats did the final assembly by hand and traveled to Germany to have Leica’s engineers ensure that the camera worked”

“At various points over the years, the company’s leadership team had discussed the possibility of buying Disney, Netflix, or Time Warner, which owned HBO. But the rocky integration of Beats showed how difficult it could be to import companies into Apple’s rigid culture. Cook favored proceeding alone. His preference led to what became known inside Apple as Project North Star, a $1 billion bet that Apple could make its own Netflix.”

Uber Q1 FY2022 Results

Last week, Uber announced the earnings results of Q1 FY2022 and the numbers show that its operation continues to recover well after Covid-19 disruptions. Here are the highlights:

  • Gross Bookings: Gross Bookings increased by 35% to $26.5 billion
  • Mobility & Delivery Gross Bookings: Mobility saw 58% in Gross Bookings while Delivery had a 12% YoY growth
  • Revenue: Revenue rose by 136% to $6.8 billion. Total revenue was boosted by the acquisition of Transplace. Nonetheless, Mobility and Delivery revenue grew by 195% and 44% respectively
  • Net loss: While net loss was an astounding $5.9 billion, $5.6 of which came from the loss in value of equity investments in other companies. Loss from operation stood at $482 million, down from $1.5 billion a year ago
  • Free Cash Flow: FCF for the quarter was -$47 million, up from -$682 million a year ago. Uber’s operation cash flow was $15 million, up from -$611 million in Q1 FY2021

For Q2 FY2022, forecast Gross Bookings is between $28.5 to $29.5 billion, resulting in growth of 30% to 35%, on top of the 114% growth booked in Q2 last year. The company also expects to generate positive free cash flow for the full year of 2022. Investors and analysts must love the forecast by Uber as the drop in its stock price last week was much less severe than Lyft’s. And they should like what they see from Uber, especially when we dig into the numbers a bit more.

As mentioned above, revenue growth outpaced gross bookings growth in both Mobility and Delivery. Mobility take-rate hit 23.5% in Q1, back to the pre-pandemic levels, and it’s still short of the long-term target of 25% set on Investor Day 2022. Delivery has seen a steadily increasing take-rate for the past 3 years, reaching 18% in Q1 FY2022, which is already higher than the target of 15%. Delivery is a highly competitive space with the presence of heavyweights such as DoorDash or Instacart. I wonder if this heightened take-rate will remain stable or if Uber will reduce its cut to attract and retain merchants.

Uber's take rates

The good news for Uber is that such an increase in revenue didn’t come at the expense of profitability. Mobility’s adjusted EBITDA margin came back to the 2019 levels while Delivery’s was positive for two consecutive quarters in a row. Last quarter saw Freight become adjusted EBITDA profitable for the first time in the company’s history. Since the management team forecast to have positive FCF for the whole year, this trend seems to become a norm moving forward, rather than a fluke. Furthermore, the Fed plans to have more rate hikes in the coming months to curb inflation. At a time like this, companies will do well to demonstrate to investors that they can generate profits. To that end, Uber is in the pole position to reach profitability in an industry whose unit economics have long been questioned.

Uber Delivery adjusted EBITDA
Uber Mobility Adjusted EBITDA Margin

There are a few levers that can help Uber grow both the top and bottom lines. First, airport rides. Rides to and from airports used to account for 15% of Mobility Gross Bookings. From the low during 2020, share of airport gross bookings have grown to 13% of Mobility. There is still room to get back and probably exceed the pre-pandemic levels. Additionally, the same goes for Mobility as a segment. Its Gross Bookings is still down by compared to the 2019 levels. Total GBs for Mobility in 2021 trailed that in 2019 by $14 billion. Once that gap is closed, the higher take rate from this segment can only help with the bottom line. Additionally, the next lever is ads. The ads business is growing healthily as annualized run rate rose to $225 million in Q1 FY2022, more than double what was reported a year ago. Almost one out of four Delivery merchants is an active advertiser on the platform. As Sponsored Video Ads is available on a pilot basis, we should see more merchants advertise and more ads revenue. Last but not least, new verticals. These verticals have been doing about $4 billion in annualized run rate every quarter in the last few months. That’s less than 10% for all Delivery GBs in 2021. Given the latest developments such as the deepened partnership with Albertson, the expansion of Eats in Germany, the new deal with BP, the collaboration with Rakuten and Amazon Prime in Japan, and the introduction of group ordering, I expect new verticals to grow substantially soon.

In summary, I find the earnings report positive. Uber stock has been battered for months as its price dropped by 44% in the last year. Folks are concerned about the business model and they have reasons to be. Uber functions as a middleman working with a lot of important stakeholders: consumers, drivers, merchants and lawmakers. Maintaining those relationships on a global scale in different cultures and political agendas is extremely difficult. For good measure, competition is fierce with deep pockets as well. To invest in the company means that one believes in flawless strategy AND execution. One down quarter wouldn’t do as much damage to Apple as it would to Uber because the former has a dominant market share and is in a much better position than the latter. With that being said, Uber management navigated a pandemic by pivoting to Delivery, which changed the business forever. Could another management team have done better? Possibly, but we never know. The fact that Uber now has a friendlier image than it did, that its Delivery business is an equal of Mobility and that it has other levers to pull is a testament to the work of the management. Just look at Lyft. Even though its revenue is smaller than Uber Americas, its revenue growth rate hasn’t recovered as quickly. That’s due to Delivery, because as mentioned above, Uber Mobility’s business is still down compared to the 2019 levels. That goes to show how important it was for Uber to react and execute effectively during the pandemic. While it’s highly challenging to stay competitive and create profit in this industry for factors mentioned above, it’s precisely such factors that can make Uber’s moat robust if they can get execution right. A big if, indeed. I get where the skeptics come from, but personally, I am still on the believer side, for now.

Uber US & Canada revenue growth vs Lyft revenue growth

Disclaimer: I own Uber stocks in my portfolio.

Weekly reading – 7th May 2022

What I wrote last week

Apple’s Q2 FY2022 results

Book Review: Just Keep Buying

Business

DTC brands are slowly warming up to Amazon. The ability to tell stories and appear authentic to shoppers on Amazon is hugely important. The commission may cut deep into margin, but Amazon commands the kind of online traffic that few others can rival. Some retailers now use Amazon as an acquisition tool. Sell part of the catalogue on the site, lure shoppers to their own native page and hopefully convince them to buy what is not on Amazon. It’s not as straightforward as it should be, but if you can’t win every battle, you may as well pick the ones that can help you win the war

Amazon Will Close Six Whole Foods Stores in Four States. I look forward to seeing how Amazon’s physical store strategy unfolds. Will it transition all Whole Foods to the cashierless version that Amazon Go pioneers? Will it keep both brands at the same time? Or will it designate Amazon Go as the flagship store brand moving forward?

Snapchat’s flying camera Pixy. Kudos to Snapchat for making a portable, small and allegedly easy-to-use drone. There is certainly a niche market for Pixy: consumers who want to film drone footage but can’t afford a drone or do not want to carry a heavy one around. I am certain that Snapchat will iterate furiously to improve Pixy: longer lasting batteries, higher quality cameras, better integration into the Memories section and more AR effects. Snapchat is already great at software. Hardware is hard, but if it can be great at it too, it’ll be formidable (ask Apple).

Formula One Finally Found a Way to Get Americans to Care. Cracking the America code is fantastic for Formula 1 as a sport and a business. A long-time fan of Formula 1, I noticed the difference after Liberty took over. Prior to the take-over, clips in which experts explain aerodynamics, rear wings or floor of F1 cars didn’t exist. Beautiful charts that discuss where one driver is slower than another in a lap were the stuff of imagination. For a global sport such as F1, it was unfathomable to think that it didn’t even have a subscription app to watch races. The Americanization of the sport is not perfect. I am not a fan of how much Drive To Survive excessively dramatizes F1. Just ask Max Verstappen or a few other drivers about it. Having more than one race in the US is…nice, but the final verdict should wait till we get a feel of how the new tracks are. Austin is a great spectacle that provides awesome racing. Miami and Vegas should offer a gigantic boost in popularity, but I am not sure about the racing. We’ll see. For now, I am happy for the sport that I have loved for the past 17 years.

Mercedes-Benz Says Self-Driving Option Ready to Roll. Mercedes is the first car manufacturer that achieves an internationally valid certification for self-driving level 3. This looks a big progress in this space. From the technology perspective, I am excited about self-driving cars. From a practical perspective, I still don’t grasp the actual benefits of driving a driverless vehicle on busy urban streets. Accidents happen all the time. Reliance on computers just makes careless drivers more careless. Plus, if you are in a car and don’t have to drive it, what could you do in the meantime? It’s not like you can go to the back seat and have a nap…

TikTok’s Work Culture: Anxiety, Secrecy and Relentless Pressure. The older I am, the more put off I become of a workplace like TikTok. Imagine needing marriage therapy because you spend your dinner time with your husband on the phone discussing work.

American Consumers Are Shopping, Traveling and Working Out Like It’s 2019. Among a slew of bad news such as high inflation, supply chain constraints and stock market crashes, this is probably the best silver lining for companies. The question is: how long can this strong consumer spending last?

Other stuff I found interesting

103 Bits of Advice I Wish I Had Known. A lot of goof stuff that I wish I had known 10 years earlier

The Arc of the Practical Creator. “A Practical Creator doesn’t view a boring job as a dead-end endeavor, but as an active patron of their creativity. When you’re in this first stage, you must rigorously work on your creative endeavors after your day job responsibilities. This is an absolute must “. I love this website.

Stats

Zenly, a subsidiary of Snapschat that is very popular in Russia, has 35 million monthly active users

Internet companies in China raised $3.51 billion in Q1 2022, down from $15 billion in Q1 2021

The average price for ground beef in America grocery stores has jumped 18% from a year ago

Dr Strange 2 minted $36 million in preview performance, the 8th largest of all time. For comparison, Avenger’s Infinity War notched $39 million and Spiderman: No Way Home did $50 million

US reaches 1 million Covid deaths

Airbnb said more than 800,000 people flocked to its careers page after it announced that employees could live and work anywhere

Book Review: Just Keep Buying

If you are a normal Joe like me and want to learn about investing as well as personal finance, do yourself a favor and get “Just Keep Buying“. The lessons contained in the book are popular and well-covered by many other authors. So don’t expect any earth-shattering discoveries there. But great lessons remain great and it’s always delightful to regularly re-acquaint with them.

Just Keep Buying covers essential issues from rent vs buying a house, focusing on income instead of expense control to dollar-cost-averaging vs buying the dip, traditional IRA vs Roth IRA, individual stocks vs ETFs, REITS vs stocks vs bonds etc…The book doesn’t give a deep dive into each of these issues. Instead, it analyzes the pros and cons or when an investment option makes and when it doesn’t. The arguments are supported by recent data and written in a way that each a dummie like me could understand. If you are new to investing or personal finance, great. Take it as a great inspiring starting point. If you are relatively experienced in some investment areas, there may still be some valuable learnings to gain from the book.

What I also like about “Just Keep Buying” is that Nick offered some great personal perspectives with refreshing honesty. He talked about missing his saving goal by the time he was 30. He mentioned that he didn’t feel rich years ago because unlike his classmates, he never visited Europe. These admissions, if you will, make the book more relatable and credible. It’s a rare quality in books, I find.

All in all, I highly recommend this book, along with The Psychology of Money, to anyone who is interested in money, investing and personal finance. Below are a few highlights from the book

“The first tip is what I call The 2x Rule. The 2x Rule works like this: Anytime I want to splurge on something, I have to take the same amount of money and invest it as well.

So, if I wanted to buy a $400 pair of dress shoes, I would also have to buy $400 worth of stocks (or other income-producing assets).” This makes me re-evaluate how much I really want something because if I am not willing to save 2x for it, then I don’t buy it.

“When it comes to housing as an investment, unfortunately, the data isn’t that promising. Robert Shiller, the Nobel Prize-winning economist, calculated the inflation-adjusted return on U.S. housing was “only 0.6% a year” from 1915–2015. More importantly, most of that return came after the year 2000. Anytime you look at U.S. housing as an investment, you have to compare it to what an investment in another asset would have done over the same time period. This is known as the opportunity cost of the investment.”

“For example, my grandparents bought their $28,000 home and paid a $280 monthly mortgage from 1972 to 2001. Around 2001, their home was valued at around $230,000. If they had put $280 a month into the S&P 500 from 1972 to 2001, they would have had over $950,000 by 2001, after reinvested dividends. And this doesn’t even include their down payment! Had they invested their down payment as well, they would have had over $1 million by 2001.”

“Given that the transaction costs of buying a home are 2%–11% of the home’s value, you will want to ensure that you stay in the home long enough to make up for these costs. For practical purposes let’s choose the middle of this range and assume that the transaction cost of buying a home is 6%. Using Shiller’s estimate for real U.S. housing returns of 0.6% per year, this means it would take ten years for the typical U.S. home to appreciate enough to offset this 6% transaction cost.”

“Just 4% of stocks from 1926–2016 created all the excess return for stocks above U.S. Treasury bills. In fact, “just five firms (ExxonMobil, Apple, Microsoft, General Electric, and IBM) account for 10% of the total wealth creation.”

“As Geoffrey West calculated, “Of the 28,853 companies that traded on U.S. markets since 1950, 22,469 (78 percent) died by 2009.” In fact, “half of all companies in any given cohort of U.S. publicly traded companies disappear within 10 years.”

“The main purpose of this chapter is to reiterate that saving up cash to buy the dip is futile. You would be far better off if you Just Keep Buying.”

“For example, if you had picked a random month since 1926 to start buying a broad basket of U.S. stocks and kept buying them for the rest of the following decade, there is a 98% chance that you would have beaten sitting in cash and an 83% chance that you would have beaten 5-Year Treasury notes as well. More importantly, you would have typically earned about 10.5% on your money while doing so.”

“And if your net worth exceeds $93,170, which is similar to the median net worth in the U.S., that puts you in the top 10% globally. I don’t know about you, but I would consider someone in the top 10% to be rich”

“There is no right answer, because being rich is a relative concept. Always has been and always will be. And that relativity will be present throughout your life.”

“I would be willing to bet that not one of you, if you were offered every dollar of Warren Buffett’s fortune, would trade places with him right now… And I would also bet, by the way, that Buffett would be willing to be 20 years old again if he was broke.” Consider Attia’s trade for a moment. Imagine having Buffett’s wealth, fame, and status as the greatest investor on earth. You can go anywhere you please, meet anyone you want, and buy anything that can be sold. However, you’re now 87 years old (Buffett’s age at the time). Would you make the trade?”

Apple Q2 FY2022 Results

On Thursday, Apple announced the results of their Q2 FY 2022. Overall, the company recorded almost $97.3 billion in revenue the last 90 days, a record for Q2 in Apple’s history. That means they generated more than $1 billion a day. The 9% YoY growth is already on top of the 54% growth last year. To put it a bit more in perspective, only 26 companies in the S&P 500 had more revenue in the whole year of 2021 than what Apple made in this quarter. It’s also worth noting that these numbers were affected by the supply chain constraints. Just really spectacular! While YoY growth rates have been declining, it’s not a surprise given the rule of big numbers. Plus, this year will see some hardware upgrades that can catapult Apple’s revenue to new heights.

Product, Service and Overall Margin
Figure 2 – Product, Service and Overall Margin
Apple 4-quarter rolling average revenue
Figure 1 – Apple’s YoY Revenue Growth & Rolling Average Revenue

While Services still only makes up 20% of the company’s revenue, its gross margin is a spectacular 73% due to higher sales from advertising, the App Store and cloud services. I suspect this trend will continue in the future. It costs Apple little to offer cloud storage and how many Apple device owners who love taking photos and videos yet are limited by the free storage don’t have an iCloud subscription? Apple Care is a warranty program that gives a bit more assurances to device owners. Given that Apple products last a very long time and most customers are careful with their devices, Apple Care is a very profitable service for the company. The iconic tech giant recently launched Apple Business Essentials, which is similar to Apple Care, but for small businesses. The new service has a lot of potential and will be a great contributor to the company’s margin. Last but not least, advertising. It’s not a coincidence that every popular platform wants to have an ads solution. The demand is always there and the margin is high. Apple is still in the early stage of monetizing traffic to the App Store; therefore, will undoubtedly fine-tune its ads operations so that it will keep raking in profitable dollars.

Apple Paid Subscriptions
Figure 3 – Apple Paid Subscriptions

In the last quarter, supply chain constraints still badly affected iPad, making it the only major business segment of Apple without a YoY growth. Wearables and Services haven’t had a down quarter in the last three years. In fact, growth has been in double digits. Mac showed an impressive 15% growth on top of a 70% increase last year. According to Apple’s CFO, “we had a March quarter record for upgraders, while at the same time, nearly half of the customers purchasing a Mac were new to the product”. iPhone, led by the iPhone 13 line-up, grew by 5% after recording 66% increase last year. The company estimated that the lockdown in Shanghai will impact revenue by $4-8 billion in Q3. Hence, the winning streaks of some segments may likely come to a halt in 90 days, but since demand is very strong for Apple products, the company has reasons to be confident in the long-term health.

Apple's Business Segments' YoY Revenue Growth
Figure 4 – Apple’s Business Segments’ YoY Revenue Growth

Regarding geographic segments, Americas is a bright spot with YoY growth of 19%, better than management’s expectations. Europe was adversely impacted by the pause in Russia for a month. China is still Apple’s 3rd biggest segment, but the company warned that Covid-related restrictions would affect demand, at least for Q3 FY2022. Japan and Rest of Asia Pacific felt the impact of unfavorable foreign exchange rates.

Apple Geographic Segments' 4-Quarter Rolling Average Revenue
Figure 5 – Apple Geographic Segments’ 4-Quarter Rolling Average Revenue

Overall, it is another great quarter from Apple despite all the macro challenges. It is proof that the underlying strengths of the business are still intact and goes to show the calm and competent leadership of the management. Zoom out and you will see that there is no other company that can rival Apple in terms of product and service portfolio, the global scale and the customer loyalty. There are challenges and uncertainty ahead, including the war between Russia and Ukraine, Covid-related restrictions in China, the supply constraints, especially silicon shortages, and unfavorable exchange rates. Nonetheless, I am confident Apple will navigate through such challenges deftly and come out stronger.

Disclaimer: I own Apple stocks in my portfolio

Weekly reading – 30th April 2022

What I wrote last week

Thoughts on Buy With Prime

Business

Starbucks Is Having an Identity Crisis. Can Howard Schultz Fix It? 70% of Starbuck’s orders are to-go. The popularity of their mobile app is magnificent, yet it goes against the identity that Howard Schultz envisioned when he bought the brand. He wanted Starbucks to be the 3rd place that people frequent in addition to work and home. Starbucks needs to decide on its future identity and positioning. Because if most orders are picked up at drive-through, what the hell are the stores for?

Will Ford’s new truck finally make Americans buy electric? “Surveys, both by the company and independent analysts, have found that customers for the F-150 are typically younger, richer, more urban than the truck’s traditional mainstream buyer – and in many cases have never owned a truck before. Like the rest of the industry, the company is contending with shortages of key computer processing chips, batteries and other materials that have held back production – and challenged the company’s effort to keep the starting price at about $40,000 (£31,500)”. It doesn’t sound very easy, does it?

Netflix’s Battle for Asian Subscribers Pits It Against Rich Rivals, Hundreds of Local Upstarts. The challenge for Netflix in Asia is multiple-fold. First, it has to keep the subscription prices low while needing to spend millions of dollars on local original content. Second, its competition is nothing but fierce and they are willing to keep the prices low to retain customers. Some such as Disney or Amazon are willing to splash a big sum on sports such as IPL to woo local viewers in India. Netflix hasn’t shown interest in following suit so far. The company once thought invincible at least in the streaming world doesn’t look invincible, does it?

Kard, a fintech that helps credit card issuers build custom reward programs by brands. “The company works with roughly 30 issuers today, representing 10 million consumers, Mackinnon said. It helps process about 60 million transactions per month, and has seen revenue grow 10x over the past year, according to Mackinnon, though he declined to share a specific revenue figure. He describes the business as a two-sided marketplace for rewards, with merchant partnerships on the supply side and card issuers on the demand side. For issuers, the API is powerful because it “connects them to merchants, brands, retailers that essentially are the funding vehicle for any of their rewards,”

Netflix’s Big Wake-Up Call: The Power Clash Behind the Crash. Cindy Holland seems to be the one person who wants to steer Netflix to adopt Apple TV+’s strategy. Nobody can guarantee that if Cindy hadn’t left, Netflix wouldn’t be in where they are today. She could have stayed and Netflix could have been just as bad or worse. But it’s baffling to let go the relationship-building wizard that forged a bond with the studios and not find a replacement. I have to say, though, that when Netflix was dominating the streaming market and a darling of Wall Street, you didn’t get to read these pieces. You were served with articles on how great Netflix and its culture were. As soon as the company’s fortune plummeted, critical reporting show up like mushrooms after rain.

Vietnam’s VinFast takes the EV battle to Tesla with U.S. push. The pace of development at Vinfast fits the culture of quick results and brand ambition at Vingroup. That’s how they always do things. That approach doesn’t necessarily come with the best quality of products or services. Hence, the question becomes: do they think up a thorough plan to penetrate and dominate the EV market in the US? Every car maker in the world wants to succeed in the US. It’s home to Tesla, which has an enormous scale advantage. It’s home to Ford, which is always a familiar brand in the mind of Americans. There are always Volswagen, Hyundai, Kia, Subaru, Toyota, Mazda etc…Such a list of world-famous brands indicate nothing but fierce competition. The first movers also have great scale advantage. List cars at too high a price and Vinfast won’t make enough sale. List them too low and the company wont have any profit. Whether Vinfast can weather the initial storm to reach critical mass remains a giant question mark.

Inside the first suburban Amazon Go store. I have a nagging feeling that Amazon is playing a really long game here and soon enough in the future they will become a major grocery chain

Other stuff I find interesting

Why didn’t our ancient ancestors get cavities? It is a very interesting theory that our transition to agriculture is the likely cause of our cavities

Women and girls have to pay for water with their body and dignity. The struggle people in poor countries around the world has to face makes it even more incredulous whenever folks in the US complain about trivial problems. I don’t know like having to wear a mask during Covid or taking life-saving vaccines.

Stats

According to the founder of TSMC, it costs 50% more to produce the same chips in the US than in Taiwan

80% of US consumers use BNPL to avoid credit cards, according to Experian

According to Mastercard, global first-party fraud which refers to a legitimate online purchase being disputed after the fact amounts to $50 billion

Online retail sales in India is estimated to reach $85.5 billion in 2025

Banks and credit unions pulled in more than $15 billion in overdraft and related fees in 2019 and $12 billion in late credit card fees in 2020

Google Pay has 150 million users across 40 countries, as of April 2022

Thoughts on Buy With Prime

A few days ago, Amazon made a big announcement on Buy With Prime (BWP). Prime benefits loved by thousands of shoppers, including free & fast delivery, easy return and quick checkout, have been restricted to Amazon.com. That’s how Amazon persuades millions of shoppers to pay $10/month for the privileges. Now, imagine you can enjoy all of those benefits on other websites, not just Amazon. That’s what the new service is all about.

For Prime shoppers, there is virtually nothing that needs to be done beforehand. Once you come across eligible products from merchants that participate in BWP, you just need to repeat the usual checkout process on Amazon.com. There is no additional sign-up. At first glance, everything about BWP looks good, except that here are two things that concern me. The first is return. The language from Amazon reads that only some BWP orders, not all, are eligible for return. To me, the name Buy With Prime insinuates that all products enlisted in the program can be returned hassle-free. As a result, what does it mean that only some are qualified? What about the rest? How do I know which products are returnable and which aren’t? The other thing that gives me pause is that if there is an issue with my BWP orders, I have to contact the sellers. My experience with Amazon Prime so far has been great. I don’t have much to complain about. On one or two occasions when I needed to inquire about my orders, the Customer Service from Amazon was helpful and great. However, I wonder if the same level of excellence can be expected from BWP merchants. In case there are unresolved issues, will Amazon help me? What kind of purchase protection can I expect?

Buy With Prime. Source: Amazon

For Amazon, this is a hit-multiple-birds-with-one-stone move. First, expanding Prime to other online stores brings more selection to shoppers, enhancing the value of Prime. The more valuable shoppers find Prime, the stickier the membership will be and the more grip Amazon has on these coveted shoppers. Such influence will translate into bargaining power in negotiations with merchants and suppliers. Second, this service will help Amazon get the most out of their fulfillment capability. Any merchant wishing to participate in BWP does not need to sell on Amazon.com but must have their orders fulfilled by Amazon. The giant retailer has spent a fortune on building out their fulfillment capacity. In the 2021 shareholder letter, the CEO Andy Jassy wrote:

We spent Amazon’s first 25 years building a very large fulfillment network, and then had to double it in the last 24 months to meet customer demand. We’d been innovating in our fulfillment network for 20 years, constantly trying to shorten the time to get items to customers. In the early 2000s, it took us an average of 18 hours to get an item through our fulfillment centers and on the right truck for shipment. Now, it takes us two. 

Given the level of investments, it’s understandable that Amazon wants to maximize the utility of these fulfillment centers. The more orders the centers process, the higher their utilization and the higher the ROI. If you were Amazon, would you want the same thing? Third, off-Amazon purchase data! Amazon knows the behavior of Prime customers, based on their purchase history on Amazon.com. Nonetheless, they don’t know what these customers buy outside of its online store. The company tried to remedy this issue through initiatives such as Amazon Shopper Panel. With BWP, they can capture purchase data on other online stores and use it for their benefits such as private label launches, targeted ads or fine-tuning product recommendation.

For merchants, there are pros and cons from using BWP. Obviously, the Amazon Pay checkout option can help reduce cart abandonment. That’s the sales pitch that we often see the likes of PayPal or Apple Pay sing. Having Amazon take care of fulfillment is attractive to merchants that do not have the means to set up their own logistics. It’s also great for merchants to own the relationship with shoppers, instead of relinquishing it to Amazon entirely like before. While such benefits carry a great deal of appeal, merchants need to be aware of the risks related to BWP. Firstly, the fees paid to Amazon will cut deep into the margin of these merchants. Secondly, they may open the gate to the henhouse for the fox by letting Amazon know what Prime shoppers order on their website. It’s widely reported that some sellers thrived at first on Amazon.com, only to falter and disappear later when Amazon introduced similar products. Who is to say that it’s not a possibility in this case? In addition, BWP merchants have to be responsible for marketing. The greatest perk of being on Amazon.com is that sellers are almost guaranteed traffic. BWP just takes care of checkout and fulfillment. It doesn’t bring valuable traffic. With the reduced margin, due to Fulfillment by Amazon fees, can merchants afford the marketing expenses too?

The introduction of BWP can be a threat for the likes of PayPal, Shop Pay or Apple Pay. Apple Pay and Shop Pay don’t have a fulfillment solution attached to the checkout button. PayPal does with Happy Returns, even though its scale can’t be compared to Amazon’s. Merchants, especially small ones, will consider BWP because they don’t want to be distracted by all the shipping headaches. The adoption of BWP will certainly decrease the amount of transaction volume processed by PayPal, whose revenue is transaction-based. As a consequence, BWP is not welcoming news for PayPal. To remain competitive, PayPal needs to continue offering more values to merchants and simplify the checkout process as much as possible. In this game, having one more click than your rivals is like being slower by one second in F1. Moreover, they should be wise to point out the threats that Amazon can pose with BWP and hope that they can scare merchants into avoiding BWP. After all, few things are as persuasive as fear.