Weekly reading – 3rd September 2022

What I wrote last week

Two tips on personal finance

Business

($) Disney’s New Pricing Magic: More Profit From Fewer Park Visitors. As a shareholder, I am more concerned than happy after reading this article. Annual pass-holders are loyal customers and should be valued. Instead, the recent changes signal to them that money is more important than the long-standing relationship forged with the company. Disney’s theme parks are unique and hold precious memories in a lot of folks, but there is a price for everything. At some point, customers will realize that however fond some memories are, it’s just too expensive to bring the whole family there. I hope Disney executives wake up today, read this piece and take some actions before any revolting can happen.

Where Amazon is heading in health after the Amazon Care failure. Amazon is known for running lots of experiments and tinkering till they find a solution that actually works. Amazon Care is an example of that. They realized that they were not able to venture into healthcare by themselves. Hence, a string of acquisitions ensued, namely Signify Health and One Medical. There are risks still with this strategy, though. Cultural conflict between acquired companies, and even between them and Amazon. Difference in data infrastructure. Market cannibalization. It’s just the start of a multi-year and likely very expensive project.

Cash is king for EV makers as soaring battery prices drive up vehicle production costs. A good round-up of EV makers

($) Starbucks Is Rethinking Almost Everything, Including How to Make Frappuccinos. What seems to be a straightforward operation at a Starbucks store may be more complex than you think. Read this piece to learn more how Starbucks is adjusting to changing tastes and responding to complaints from baristas

Be good-argument-driven, not data-driven. Data is your prisoner. If you are motivated enough and if you torture the prisoner enough, it will say whatever you want it to say. Whether it’s intentional misrepresentation of data or incapability to analyze data properly (no apples-to-apples comparison, for example), it’s easier to preach “data-driven” than implement it. Too much of anything can’t be a good thing. There must always be balance. There is indeed a place for data, but since it’s just a tool, its effectiveness hinges a lot on how we use that tool.

Medium’s new CEO on the company’s journalism mistakes, bundle economics, and life after Ev Williams. I used to like Medium a lot. So I can’t help but feel like the company missed a gigantic opportunity to strengthen its advantages and grab market share. Now, it’s too late for Medium to rectify its mistakes.

Zenly is still hugely popular, so why’s Snap shutting it down? It’s sensible to reduce headcount when Snap already gets its hands on Zenly’s technology. It’s also difficult to argue against avoiding cannibalization between the potential Snap Map and Zenly. What should be questioned is whether this plan will come to fruition or will be a massive write-down. Why do I say so? Snap introduced a mini drone not long ago only for it to abandon the plan completely later to be more focused. In case you haven’t noticed, Snap’s latest forecast is disappointing and what investors don’t know is how this $250 million acquisition can help the company move forward

Going Private: How to Succeed in Store-Brand Sector.In the past, retailers could rely more on the in-store environment to promote their store brands. Today, in our omnichannel world, consumers can find a product anywhere, so retailers must have an online presence for their brands. FMI’s report notes that there’s an opportunity for more retailers to tie their loyalty programs to their private brands — particularly when it comes to the online side of the business. Only a third of shoppers using their grocery store’s loyalty program said that they receive extra points for purchasing store brands. This is a way for retailers to promote more online private-brand purchases including the use of digital coupons.

Other stuff I find interesting

The Godfather of South Korea’s Chip Industry. “His experience at Fairchild solidified his belief, first inspired by his father, that a true “engineer’s mind” requires practical skill as much as theoretical knowledge. In addition to performing experiments, he made a habit of reading internal technical reports and memos that he found at the company library, some of which he later brought to KAIST and used as teaching material.

Live cheap or live expensive: The choice is yours in Ho Chi Minh City. As a Vietnamese, it’s interesting to me read about expat life in Vietnam. I have my reservation on the $10 daily budget on food for him and his wife (and a beer). Having lived in the US since 2016, I am not too familiar with electricity bills in different areas of Saigon (a local name of Ho Chi Minh City) either. But he made a good point that it’s important to live close to where you work. The traffic in the city is egregious. Even a 5km commute which is like peanuts in the US can take a lot of time and cause so much frustration that a little bit more rent to help you avoid that is worth it.

The Midwit Trap. “An intelligent person will know that there is no correlation between the simplicity of a solution and the sophistication of the reasoning that led to it”

Why A4? – The Mathematical Beauty of Paper Size

Stats

July U.S. eGrocery sales climb 17% versus year ago to $7.8 billion

According to Edison Research, 35% of adults in America own a smart speaker (their sample size of about 1,200 subjects gives me a little concern)

Average transaction price of new vehicles in the U.S. was up 11.8% year-over-year in July 2022

Roads that need repairing in Nebraska cost each driver $461 per year

iOS US market share hits all-time high and exceeds 50% for the first time

Two tips that will help your financial planning

Plan future expenses

To ensure that your financial planning is set up properly, it’s NOT enough to consider only current expenses. It’s very important to take into account for future expenses, particularly those that you know will appear.

Let’s run a simple scenario as an example. For simplicity sake, imagine your after-tax take-home income, from both you and your spouse, is $100,000 a year. You expect to get two promotions in 2025 and 2028, which will increase your income by 15% and 10% from the year before respectively. Except those two years, your income will grow on average by 3% every year till you retire. Regarding current and future expenses, here are the big items:

  • Your current monthly expense is $4,000. The natural increase in this expense line item is 2% a year, unless specified otherwise.
  • You plan to have two children. One born in 2025 and the other in 2028. It will cost approximately $20,000 to deliver each kid.
  • The first kid will see the monthly expense grow to $5,500 and the second will push it to $7,000.
  • The estimated amount that you want to give them for college tuition fee is $100,000 each by 2043, when they are 18 years old. Hence, the combined college fund will total $200,000 by 2043.
  • You and your spouse understand that unfortunate events can happen to anyone. As a result, you both want to set aside 10% of your annual take-home income for emergencies.
  • For investments, you budget it at 20% of your annual income.
  • Life is short. You want to see the world and travel. Hence, travel will take 5%, if possible.
  • Whatever left will go to the disposable fund that can be used for any purposes.

Using the information above, here is what the numbers look like every year between 2023 and 2035

If you notice, I am pretty conservative with the income estimate. Growing the top line, as long as other expenses don’t grow proportionately, will bring more flexibility, freedom and choice. This is why folks want a higher salary or have a side gig. One source of income isn’t sufficient to sustain various financial needs. Also, I don’t include the fund for retirement which can be $2 million for person. The exclusion is driven by the fact that our 401K already comes out of our paycheck prior to the scenario and that the Emergency, Investment, Travel and Disposable Fund, if unused, can all be funneled into retirement.

Regardless, it’s obvious that the paycheck now doesn’t seem very big any more, does it? If it’s not possible to grow income sustainably, then there must be restrictions on the number of financial needs and there must be also compromises. That fancy car that you dream about, that new TV and furniture set that you crave or that yearly trip to Europe that you brag about, they need to be either axed or paid for by money slated either for emergencies or investments. It all comes down to preferences and willingness to compromise. But without an exercise like this, a normal person with little adequate personal finance awareness would get themselves deep into debt or make decisions that would not leave much margin for accidents.

Nobody knows what their future holds. Hence, the point of this exercise is not to be 100% accurate. Rather, it’s about putting more thoughts on one’s financial status and life priorities, which is ultimately what all this boils down to.

The 2x Rule

I “stole” this tip from a book called Just Keep Buying: Proven Ways To Save Money And Build Your Wealth. Essentially, this rule dictates that anytime I want to splash money on something, I must put the same amount of money on investing (most likely an index). This simple tip is a brilliant way to tamp down my urge to spend impulsively or too discretionally. It creates a moment of doubt in your mind and makes you wonder how much you want the item at hand and whether you are willing to pay double for it. For example,I have told my wife numerous times in the past year that I wanted to buy new Apple gadgets, but the thought of having to put the same amount in investing deterred me and made me realize that I didn’t need those new toys that much. The end result is that I am still using a 10-year-old Mac and a 3-year-old iPhone.

Personal finance, as the name may already give it away, is very personal. What works for me may not work for you. These tools are helpful, but their usefulness depends on how you use them, whether you do so religiously and what your life circumstances are. Mike Tyson said it best: everyone has a plan till they get punched in the face. Nonetheless, it’s better to be prepared to some extent than to be caught completely off guard.

Weekly reading – 27th August 2022

What I wrote last week

Do as I do

Should you stay at a job for more than 2 years, no matter what?

Business

($) Amazon Adds Revenue Streams as Holiday Season Approaches. I wrote a bit about Amazon’s influence on US-based merchants. Let’s say if these merchants manage to sell 10,000 items per minute on Amazon, the increase in fees will result in an extra $5 million per day for Amazon or approximately around $375 million for the quarter. It’s not insignificant, even for a firm that big. I am curious to see the reaction from sellers. On one hand, nobody likes to see costs rise. On the other hand, can these sellers afford to leave Amazon?

How Amazon’s DSP program has created $26 billion in revenue for owners. Amazon has more than 3,000 delivery partners around the world. It may not sound like a lot, but I don’t imagine it’s easy to figure out the kinks of running a complex delivery system involving the internal operation and that of external partners. VRIO is about finding and cultivating Valuable, Rare, Inimitable and Organized capabilities or resources. This can be Amazon’s one of many such capabilities.

($) Instacart Revenue Growth Accelerates Ahead of Planned IPO. Now is not a great IPO environment for Instacart. Growth yet unprofitable companies have seen their stocks plummet in the past 10 months. It’s very likely that Instacart will be another name in that group. A quick comparison of the quarter ending 30th June 2022 between DoorDash’s publicly reported numbers and Instacart’s numbers reported in this piece – Booking volume: $13 billion for DoorDash vs $7.1 billion for Instacart; Revenue: $1.6 billion for DoorDash vs $621 million for Instacart.

Consumers Are 19% More Likely to Complete a Purchase with Venmo Over Traditional Payment Methods. Venmo is incredibly popular among end users, especially the younger crowds. To merchants, Venmo can be a value add as well. “In another study of more than 300 thousand U.S. consumers and an analysis of more than 3.4 million transactions,1 we found that Venmo users shop over 2 times more frequently than the average shopper and are 19% more likely to make repeat purchases. ” How PayPal monetizes Venmo will play a crucial role in the company’s future.

Secret ‘Batgirl’ Screenings Hit the Warner Bros Lot. Putting away content that took hours and millions of dollars to create just for tax write-down purposes seems a bit extreme.

Amazon bought Whole Foods five years ago for $13.7 billion. Here’s what’s changed at the high-end grocer. One frustrating aspect of following Amazon is that the company doesn’t break out Whole Foods’ financials. It’s almost impossible to gauge the success of this expensive acquisition. Nonetheless, it’s good to read through the operational changes since then.

Microsoft employees love Figma, and it’s testing the company’s cozy relationship with Adobe. Usually, an upcoming challenger is more popular among small companies while the incumbents are favored by big corporations. In the case of Figma, it’s widely popular at a giant shop like Microsoft. It’s good for them, but a warning for Adobe

WhatsApp grocery shopping is already huge in Brazil. One startup wants to take it over. An intriguing concept to use Whatsapp groups for e-Commerce. Trela manages multiple Whatsapp groups, posts weekly deals in the groups so that users can place orders as well as manages orders and deliveries. Merchants save time. Users get informed of the deals and can buy goods conveniently. What concerns me are the management of groups and scalability. First, Whatsapp groups are limited to 256 users. A medium-sized city will require like more than 100 groups. What about a big city then? How does Trela manage the groups, the communication and the orders? Second, people move from one city to another. How does Trela manage the changes? What if somebody leaves the old group but can’t find a spot in any new group?

Other stuff I find interesting

Deep Time Sickness. An interesting long read on Mexico, its history of earthquakes and the consequences.

Fleeing Putin, Russian tech workers find a home in Armenia. Reading this article, I cannot help but feel that Russia is living off only its natural resources and former glory. The brain drain will deplete the country of valuable human capital and innovation; something that is not easily reversed.

France is now offering a €4,000 e-bike subsidy to people who trade in their car. The initiative sounds great on paper: stimulate exercise, encourage folks to ditch cars for e-bikes. The 2nd-order effect will be more space for cities and outdoor activities for everybody. I am sure there will be scientific research into how much this initiative benefits the country and cities and I really look forward to reading such research.

The utterly delightful site dedicated to classifying plastic bread tags. Such a quirky hobby

For Japanese Uber delivery drivers, gig work is working. “The word “freedom” crops up when talking to Tokyo’s delivery drivers. Their full-time employment alternative, after all, is likely an all-consuming office job, involving long, draining hours and a demanding work culture; part-time at a bar or convenience store, they’d face fixed shifts and constant supervision. While the gig worker industry has come under fire around the world for years of shrinking wages and poor conditions, Japan’s experience, so far, is different; in stark contrast to global lawsuits, protests, and strike action, Japan’s workers, by and large, appear content with the rare flexibility their jobs provide. A recent Japanese study, the first of its kind, surveyed roughly 14,000 delivery drivers from major companies across the country. While most of the workers were new entrants — around 60% have been working less than a year, and the vast majority worked 40 hours or less — 63% said they were “satisfied” with their work; 82% reported that they would like to stay in their jobs “for a while” or “forever.”

Stats

35% of Venmo customers are between 18 and 29 years old, versus 23% across the US

‘House of the Dragon’ draws nearly 10 million viewers

Bank of America Clients’ 1 Billion Digital Logins in July 2022

Should you stay at a job for more than 2 years regardless?

Job hopping is a common topic among white-collar worker communities. How long should a person stay at a company to avoid being negatively judged? Somebody started that conversation on Twitter a few days ago and the originator’s position was that job hopping, which in this case means that no previous tenure lasted more than two years, was terrible. Kelsey Hightower, the principal engineer at Google Cloud, chimed in with his opinion and own experience: he never worked at a place for more than 2 years before Google!

Some of my coworkers have been working here for more than 25 years, but most of them are on the same organizational level as I am, despite the massive difference in tenure. Does that make them less respectable? No! I respect them a whole lot for their knowledge and especially their personality. But I won’t be surprised if head-hunters raise questions on why they made so little progress career-wise over the years.

Kelsey Hightower became the Principal Engineer for Google Cloud, even though he didn’t comply with the conventional wisdom that you need to spend more than two years at one job. Bozoma Saint John was the top Marketing Executive at two different companies (Uber and Endeavor) in three years before being appointed as Chief Marketing Officer at Netflix in August 2020. Her reign at Netflix ended 8 short months later, in March 2021. If even widely successful professionals hop from one job to another, why should younger workers be judged harshly for doing the same?

There are literally countless reasons why relationship between employees and employers can sour. For instance, you may get a good-paying job that promises great career growths yet demands long hours. You have no choice but to quit because you have a newborn and you need to spend more time at home with him or her. You love a company, but the organizational structure doesn’t enable career advancements anytime soon in the next 3 years. Or the work is great, but your manager exhibits grueling micro-management and doesn’t advocate for you.

Finding a job where you can stick around for years is like finding love. You need dumb luck. A lot of things can go wrong and they often go wrong. Plenty of factors need to be aligned for a professional relationship between a company and an employee to last long. But if luck plays a big role in this matter, we should all take that into consideration whenever assessing someone’s working history. Extend more empathy. Ask questions. Give the person a chance to explain the short tenure, why they left the very previous job and what they did despite staying for a short time.

Let’s say a normal person’s career is 45 years long. Staying for two years at a company means you commit 4.5% of that career time, not an insignificant amount. We only live one life. Our time on Earth is so valuable that we shouldn’t waste it to stat-pad a resume. If it’s a pain to go to work or there is no prospect for career advancements and there is nothing that you can do more about it, then leave. Nobody knows what will happen in the future. Perhaps, the new job will lead to disappointment and you will have to jump ships again. But leaving may also give you a chance to find a better employment where you feel content and happy. There is only one way to find out.

To close, I’d like share a famous drawing of Tim Urban.

Source: Tim Urban

Do as I do

When I started working 10 years ago, I joined a local advertising agency in Vietnam. I was an Account Executive, the lowest rung of the ladder. I worked under an Account Director named Quang. I didn’t know much about her. In fact, I never got a chance to get to know her better at the time since she left two weeks after I joined. But she taught me an important lesson. One time, we were preparing a pitch deck for a potential client. I was tasked with doing some market research and putting together a few slides. Upon review, she told me that my slides didn’t have smooth transition because images were off by a few pixels from one slide to another. What she wanted was that when the audience moved from one slide to the next, everything would stay in the same position and there would be no movement, no changes in size of the images. Only the content of the images would change. I was shocked at the attention to detail and more when I saw the final product and other pitch decks from her. She did what she asked of me, even though I didn’t know her credentials at the time.

Almost two years ago, my company recruited a new person. This guy didn’t have any experience managing a credit card portfolio at an issuer before. Somehow, he was trusted by the leadership team to manage the acquisition side of a portfolio worth millions of dollars. The first few months on the job, he kept preaching about data-driven decision-making. Whenever somebody proposed something, he challenged by asking what data supported this. To me, that was a legitimate question. You need to back up your hypothesis with concrete numbers. The thing is that the standard doesn’t seem applicable to him. He repeatedly makes suggestions and decisions by starting with “my guts say” or “my hunch is”. A case of “do as I say, not as I do when the track record is non-existent”.

Amazon is known for putting a lot of thoughts to ideas before execution, even if such ideas might be crazy and far-fetched. The objective is to make the initiator think through the idea as much as possible. In “Amazon Unbound”, Brad Stone described two stories that were contrary to that reputation. In one instance, Jeff Bezos, the founder and legendary former CEO of Amazon, proposed off the cuff that the company should launch food trucks that roll into neighborhood and sell steaks to residents. Internal teams were tasked to develop a plan for that idea and execute. After more than one year and numerous days and nights worth of efforts, the service went live. But it was unsuccessful and abandoned shortly.

In another example, Jeff Bezos wanted his team to create a “single cow” burger that can only be bought from Amazon. The idea is that this Amazon burger would have meat from only one cow whereas commercial burgers on the market sourced the meat from several. It was even designated as one of the high-priority goals, directly tracked by Bezos himself and his direct reports. After almost one year, the product launched with great customer feedback initially. But the unit economics of this product didn’t make sense, as feared. Consequently, it eventually fizzled out.

You see, the one common theme of the three stories above is that a person in power asks somebody down the food chain to do something. The difference lies in whether the authority has credentials and whether such authority sets examples. My first manager showed leadership by setting examples, even though I had no idea about her credentials. The guy at my company didn’t adhere to the standard he set despite non-existent track record. Jeff Bezos didn’t demand of him what he demanded of others, but he had a monumental track record of great decisions.

The lesson here to me is that leaders should lead by examples. Show the troop that the standard is applicable to everybody, not selectively only when the situation suits those in authority. That’s especially important when a previous track record doesn’t exist. An established successful credential will earn a leader some leeway, but he or she should not use up the rope and act like they are THE culture and the expectations don’t apply to them. Aldi wouldn’t be what it is today if executives drove fancy cars and splurged the company’s money on themselves while forcing employees to find ways to cut expenses. Warren Buffett wouldn’t command respect and following if he showed up on newspapers with a scandal every 6 months, would he?

The longer leaders lead by examples, the stronger a culture becomes.

Weekly reading – 20th August 2022

What I wrote last week

Did App Tracking Transparency Really Ruin Small Businesses?

Business

The HBO Max Rumor Mill Was Wrong — But There’s Still Pain to Come. The streaming business gets increasingly interesting yet complicated for me to wrap my head around. There are so many factors that go into the decision making and unfortunately, companies don’t divulge enough to investors. Anyway, it’s a good piece on HBO Max and the rumor that the new parent company will merge it and Discovery+.

Personalized coffees and prestige skincare: Consumers snap up premium products despite cost-of-living crisis. Who would have thought that consumers would prefer private label grocery brands to national names but be willing to spend on expensive coffee and pricey skincare products?

($) U.S. Approves Nearly All Tech Exports to China, Data Shows. Reading this article, I think the heart of this issue is communication failure. Other agencies don’t give effective input to the Commerce Department. Their objective is to facilitate trade between the US and other countries. China is rich enough that if the US restricts exports, other countries are willing to fill the void, especially when such exports are not 100% exclusive and rare. Also, there is no consensus on what should be the balance between not arming a worthy adversary and protecting the trade interests.

Dr Drew’s podcast episode with Morgan Housel. There are a lot of gems in this episode. One of them is the definition of rich vs wealthy. According to Morgan Housel, rich means that you are able to pay monthly bills on your own. Wealthy means that you set aside some capital for investments that you don’t have to use to pay for expenses. Once we are wealthy based on such a definition, what brings us misery is our greed and jealousy. I have to agree with him.

($) Should Disney Get Rid of ESPN? The Debate Returns. ESPN is an important asset of Disney as it holds broadcast rights to popular sports leagues such as NBA. ESPN+ is a crucial piece in the Disney+ puzzle and the bundle that Disney wants to sell to consumers. Therefore, I don’t see any reason why Disney should get rid of ESPN

Here’s why HBO Max is pulling dozens of films and TV series from the streaming platform. “While HBO Max already paid for the production of these shows, it’s still on the hook for residuals, including so-called back-end payments to cast, crew and writers, based on long-term viewership metrics. By removing these films and shows, especially the ones HBO Max created rather than licensed, executives can cut expenses immediately. Warner Bros. Discovery has promised at least $3 billion in synergies stemming from the merger of WarnerMedia and Discovery, announced in May. The content eliminations in total will save “tens of millions of dollars,” according to two people familiar with the matter, who asked not to be named because the finances are private.”

Other stuff I find interesting

Is dark chocolate really good for you? For those that are interested in the health benefits or potential risks of dark chocolate

The Day You Decided to Take the Leap. Building this blog was a leap to me several years ago. I was not a writer. I did not feel comfortable talking about myself or my thoughts. But I felt the urge. The urge of finding a medium through which I can improve myself while satisfying all the other requirements (school, work). I took that leap. Even though I haven’t had any financial returns (in fact it is an expense to maintain this blog), I find joy from this habit. It’s a sanctuary where I can be myself creatively and escape mentally at times. Those weren’t on the benefit list when I contemplated taking the leap.

We need to try harder to prevent the next pandemic. What do they always say? Failing to plan means planning to fail. As a country, it seems like we are planning to get hit again with another crushing pandemic. Our pandemic prevention budget went from an ambitious $65 billion to less than $3 billion, half of which will be dedicated to the modernization of CDC’s labs. You know how much we spend on military? $725 billion in 2020. It’s well documented that our generals didn’t think we need that much money on defense. Plus, an insider like the author of the book Kill Chain outlined all the monumental wasteful investments in defense. That we budget less than $3 billion on the prevention of pandemics, the latest of which took 1 million lives in America is baffling to me. Well, I mean pathetic.

Fresh Herbs & Spices in Vietnamese Food. Some of the herbs are not popular around here in the US or many countries. I am happy whenever I can introduce my country and culture to others

Ultimate list of Japanese Vegetable Cutting Techniques

Stats

In 2020, 16% of Blockbuster’s revenue ($ 800 million) came from fine fees

“38% of white adults say their parents or older relatives have given them or their family gifts or loans worth $10,000 or more over the course of their adult lives.”

Retail expenses make up 78% of a cup of coffee’s price

July 2022 was the world’s sixth-hottest July on record

One solar Watt in the US costs $2.77, about 4 times more expensive than in Australia

There were 43,000 traffic deaths in the US in 2021

5-10 hours of moderate physical activity or 2.5 to 5 hours of vigorous exercise will help lower the risk of premature mortality

Source: Supermarketnews

Did App Tracking Transparency Really Ruin Small Businesses?

Patrick McGee from Financial Times penned an article named “Small businesses count cost of Apple’s privacy changes“. The piece, as the title may already suggest, focuses on the premise that privacy changes from Apple, namely App Tracking Transparency (ATT), increase marketing expenses for small businesses. To make his case, the author cited a few companies that had to scale back, fire staff or even close shops due to rising marketing costs.

The alleged impact on SMBs’ customer acquisition expense has been one of the primary talking points of ATT critics. Make no mistakes here, I do think that ATT did make acquisitions more expensive, but it’s not right to say that Apple wrecks the advertising world or every company regardless of size. First of all, privacy and personal data belong to users. Facebook’s business model hinges on selling access to such data even though there was never explicit consent. There is no prohibitive policy on what Facebook does to user data captured on Facebook platforms. What Apple did is to simply give users an ability to allow or disallow Facebook to track them off-platforms. If it were wrong to let the end users have a voice in the use of their own data, then we would have a bigger problem at hands, wouldn’t we? In a world where personal freedom is considered sacred, why can’t we have a say in how our own data should be used or in whether we should be tracked on our own phone?

Facebook and other ads platforms were quick to use ATT as an excuse for their disappointing financial performance. However, as Nick Heer deftly pointed out, the timing of ATT and the reported numbers in the subsequent quarters indicate that there are other forces at play.

The actual figures tell a much murkier story. I do not think it is fair to suggest ATT does nothing, but its effect does not seem as pronounced as either its biggest supporters or its biggest naysayers suggest. Snap, for example, is a company that has no major revenue stream outside of ad placements in its smartphone apps. But in Q3 2021, a full quarter after ATT’s public debut, Snap posted year-over-year revenue growth of 57% overall. In North America, it reported 60% growth — higher than in any other region.

The following quarters all show overall revenue gains in North America just one percentage point below the company’s total growth. It is a pattern that more closely mimics the number of daily active users. Snap has only posted modest, single-digit year-over-year gains in North American users, but decent double-digit growth elsewhere. Meanwhile, its growth in the average revenue per user has been stronger in North America since ATT’s debut than anywhere else.

Meta’s business is the one everyone appears to be watching because two quarters this year have been rough. In its most recent, it reported its first ever year-over-year revenue decline, which dropped by about a billion dollars in Europe and about $600 million in the U.S. and Canada. That is alarming for the company, to be sure, but it still does not track with ATT causality for two reasons:

  • iOS is far more popular in the U.S. and Canada than it is in Europe, but Meta incurred a greater revenue decline — in absolute terms and, especially, in percentage terms — in Europe.
  • Meta was still posting year-over-year gains in both those regions until this most recent quarter, even though ATT rolled out over a year ago.

In the case of Facebook, this is a tough environment for their business. TikTok is insanely popular among younger users and shows no signs of abating. A few days ago, Pew Research reported that only 32% of teenagers aged 13 to 17 in the US used Facebook, a massive drop from 71% reported in 2015. Additionally, supply chain, inflation and the threat of an economic downturn are red-hot concerns for every business and they all prompt businesses to take a hard look at expenses, among which advertising is the easiest and most obvious choice. When there are such headwinds, it’s a little bit dishonest and misleading to say that ATT is the primary reason for financial mishaps.

Think about it this way. If regulators cracked down on the sales of dubious cryptocurrency or increased the scrutiny on this business, the issuers would say: well, your actions would affect companies that sold accessories like cold storage. How do you think about that argument? For me, it’s pretty similar to what we have regarding ATT. Businesses that directly or indirectly benefit from shady practices should know that eventually there will come a time when somebody refuses to look the other way.

I’ll let the CEO of one of the companies cited in the article reflect on how ATT impacted his business

Shelly Cove’s Schroeder has cut his digital ads budget to one-third what it was a month ago, hoping that returning customers will keep the business afloat. “It’s irresponsible to say ‘Apple killed my business’,” he said. “I’m self reflecting — I realised I was way too reliant on Facebook.”

I don’t believe that as a society, we need surveillance tracking which Facebook is engaged into, in order for small businesses to survive. As the owner of the biggest social media apps in the world with millions of daily active users, Facebook has enough at their disposal to compete. They can afford expensive PR campaigns to repair their image and generate goodwill. These will lead to more trust from users and ultimately permission to track the them across apps. Moreover, the executives already thought about changing their business models. They just decided not to, out of concern that it would hurt the bottom line. Well, perhaps the recent onslaught on the stock may change their minds.

In this debate, I support Apple, but I am under no illusion that the company is an angel. The company is driven by the top and bottom line too. Though Apple has their own reasons why they do certain things and I believe them in many cases, I also believe that if they could curtail their greed a bit and do things a little bit differently, there wouldn’t be as many criticisms leveled at them as what we see now. Examples are:

  • Invest more in app reviews. Some developers complain about the time-consuming aspect of the review process and how it can be used to coerce developers into paying the company more
  • Be more discreet about the ads business. The launch of ATT and the ads business were pitifully close to each other. It’s no surprise that folks lament that Apple cares more about its financials, than users
  • Stop pushing their own services at every chance. Even I am annoyed that Apple advertises their own services on the Settings or Profile page on my iPhone. As the most followed brand in the world, with the financial resources at disposal, I am sure Apple won’t have to worry too much about consumers not knowing their services

In short, I am in favor of ATT and giving consumers more say in how they are tracked. Having said that, I do understand why some folks are frustrated with Apple and doubt their motive. I am sorry that some small businesses got caught up in this whole situation. But I have no empathy for Facebook, even the slightest.

Weekly reading – 13th August 2022

What I wrote last week

PayPal Q2 FY2022 Results

Business

Monzo growth. A fascinating story on the early days of Monzo, a successful fintech company from the UK

The Wolf in Cashmere’s Conglomerate. A fantastic podcast episode on LVMH and the empire that they have built

($) How One Grocery Chain in Pennsylvania Is Preparing for a Downturn. An interesting case study of how a low-margin business in a cut-throat industry is responding to the macroeconomic challenges. I wonder if these companies will keep lessons learned during this period long in the future. You know what they say, never let a crisis go to waste

Deckers Brands: “The Ugliest Shoes of All Time”

Multicultural Grocers Drive Sales by Catering to Increasingly Diverse America. It’s imperative for grocers to closely understand the social fabric of the areas where they operate. Folks from different backgrounds have different preferences. Grocers who make the best use of their footprint, aka maximize revenue per square foot, must appeal to as many customers and sell as many goods as possible. This will require efforts, focus and investments in infrastructure and tools. But there is no other choice in the ever highly fragmented and competitive world of grocery

Ad Tech Revenue Statements Indicate Unclear Effects of App Tracking Transparency. A very balanced and reasonable take on ATT. If you are interested, here is my take on ATT

Landmark “Self-Dealing” Arbitration Found Netflix In “Violation” Of WGA Contracts. It’s interesting to learn about contracts and compensation schemes in Hollywood

Other stuff I find interesting

China’s southern tech hub Shenzhen becomes first city on mainland to regulate fully autonomous, driverless cars on some roads. The Chinese may have autonomous vehicles on the streets before we do. I am not talking about a few vehicles or test drives. This is about a large scale adoption of autonomous vehicles. Technology alone is not enough. There are important questions that must be answered. For instance, who will be liable for damages in accidents? Are there regulations for that? Shenzhen’s regulations already took place; something that is not yet available here in the US, to my best knowledge. For me, that’s an encouraging sign and a big step towards the future that many envision.

Prison Money Diaries: What People Really Make (and Spend) Behind Bars. I felt angry after reading this piece. Even though violators of the laws should pay for their transgressions, as one of the most developed and richest countries in the world, we should build prisons that offer sufficient living environments to inmates. According to inmates, everything in prisons is pricey and they get increasingly more expensive over time. To buy goods, inmates have to work, although the pay is embarrassingly low. One receives $7 for 8 hours of work. And he said this: “If I work two sessions, that’s $6.68 per day. Almost nothing else in the Department of Corrections pays like this. Plus, during Covid, they gave us hazard pay — $2 extra per day. Last July, I made $334. The two primary things I spend on are: my phone credit account and commissary store purchases. The food at the chow hall is terrible and of poor quality — it’s not fit for a dog, seriously.” Google the prisons in Finland or Norway and see how badly we treat our fellow citizens.

Global Supply Chains of EV Batteries. A long yet excellent primer on the global supply chain of EV batteries. As everything around us requires batteries, those who hold power in this supply chain have tremendous advantages in the future

iOS Privacy: Instagram and Facebook can track anything you do on any website in their in-app browser. This is exactly why I support Apple in disabling cross-app tracking. Facebook and other advertisers have all the motivation in the world to collect data on us. They are financially incentivized to do so. It’s up to us and companies like Apple to tell them NO

No Great Stagnation in Guinness. Guinness is one of my go-to beers at a pub. It’s great to read a bit about how unique and quirky the business is

Europe’s remote, lost-in-time villages. “Life in Târnava Mare has barely changed in centuries, offering a precious insight into the age-old traditions that are still going strong in its Saxon villages.”

Stats

35% of Gen Z adults in the US don’t trust colleges and universities in the country. Wow!

Adobe’s Digital Price Index found that online prices dipped down 1% year over year in July

Organic fresh produce tends to be twice as expensive as conventional produce. However, conventional fresh produce had a bigger price hike recently

Source: Supermarketnews

Source: IEA

PayPal Q2 FY2022 Results

Last week, PayPal announced its Q2 FY2022 results, its forecasts and some important personnel changes. Here are the headlines:

  • Net revenue hit $6.8 billion, a 9% YoY growth
  • International revenue declined by 1.7%, to $2.9 billion, while US revenue was $3.8 billion, a 19% growth YoY
  • Operating cash flow and free cash flow grew to $1.5 billion and $1.3 billion respectively, meaning that FCF margin is 19%
  • Total Payment Volume increased by 9% to $340 billion
  • Total payment transactions of 5.5 billion
  • US TPV grew 16%, to $219 billion, while International TPV and Cross Border TPV decreased by 1.6% and 11.8% respectively
  • Venmo recorded $61 billion in TPV, an increase of 5.2%, and 90 million active accounts
  • Total active accounts went flat sequentially at 429 million with 35 million active merchants
  • While the company welcomed a new CFO, it’s now looking for a replacement for their CPO, who is retiring at the end of the year
  • Cost-saving initiatives are expected to save the company $900 million by the end of 2022 and $1.3 billion next year
  • $15 billion in share buybacks was authorized, $4 billion of which will be realized by the end of 2022
  • PayPal expects operating margin expansion in FY2023

Despite the tough macro challenges and fierce competition, PayPal’s TPV increased by 9%, on top of the 30% and 40% YoY growth in the last two years. That’s pretty solid because Visa grew payment volume in the same quarter by 12%, even with its duopoly market power. The divorce from eBay is entering the final stages as the famed marketplace now makes up only 3% of PayPal’s TPV and is projected to have negligible impact in the future. Losing a household name like eBay isn’t great, but because the partnership was exclusive, PayPal couldn’t work with any other retailers or marketplaces. Hence, the separation paved the way for deals like the one with Shopify or Amazon, and would benefit PayPal more in the long term.

Another bright spot is the US market. PayPal’s home soil saw a 16% increase in TPV and a 19% expansion in revenue. Considering that the US is home to other payment alternatives, including some fierce direct competitors, those US numbers showed resilience and a formidable market presence of PayPal. Because the company barely added new active accounts, given the lack of full disclosures, my guess is that PayPal managed to increase usage among existing users.

Venmo TPV
Figure 1 – Venmo TPV

Among the factors that contribute to the domestic success, I want to call out Venmo. Popular among young consumers, Venmo boasts 90 million active users, double from what it had three years ago. In the same time frame (from Q2 2019 to Q2 2022), Venmo TPV grew by 150% from $24 billion to $61 billion. Despite this growth, Venmo still has a lot of grow to monetize. The three main levers are debit card, credit card and the partnership with Amazon. While I suspect that PayPal will have to make some financial concessions to be on Amazon’s marketplace, this will undoubtedly help grow both revenue and margin. Meanwhile, the management team has high hopes for what the Venmo debit and credit card can bring onto the table. If PayPal can monetize Venmo more, the company will become so much more secure and attractive in the eyes of investors. In case you forgot, despite the massive scale of adoption, Venmo is still only available in the US.

Gabrielle Rabinovitch

I’d also point out the card strategies for Venmo are important, as well. The debit and credit cards continue to grow their volumes and those are really important for habituation. They reinforce all the in-wallet spend with offline spend, as well.

Dan Schulman

Yes, I totally agree with that. If you look at Cash App, their big growth is off of their debit card. We have a lot of room in our debit card and credit card to grow too.

Source: PayPal’s Sell-Side Analyst Conference

Moreover, I am very pleased with the switch of focus onto increasing efficiency. I used to receive a bunch of promotional offers from PayPal. $5 here, $10 there for low-impact activities. Now, the company is willing to let go low-engagement customers and focus marketing dollars on driving usage from active users. Efficiency is also apparent in the product development side as well. Although stock trading was on the plan last year, PayPal decided to put a halt on its development. The push for in-store QR code is now replaced by efforts to promote card usage. These decisions obviously led to surplus in headcount and dismissals, where necessary. Due to its enormous scale, PayPal managed to negotiate more favorable contract terms with suppliers. The management team believes that these efforts will drive ROI and yield higher results for the organization. Concretely, they are estimated to bring $900 million in cost savings for the rest of FY2022 and $1.3 billion next year.

These cost savings are likely the main reason why the management forecasts operating margin expansion next year. Low-margin businesses such as BNPL, Venmo and Braintree are expected to grow in the near future. It’s unclear to me, reading their reports, where the margin will come from the revenue side of things. Hence, the gains must come from being a leaner organization with reduced expenses.

On the other hand, it’s not all smooth and rosy with PayPal. I am concerned about the uncertainty that changes at the top level will bring. They have a brand new CFO, who was chosen among at least 14 candidates. By next year, they will have a new Chief Product Officer. These changes may bring about new ideas and positive results, but they may also delay the progress as new hires need time to acclimate themselves to the new work settings.

PayPal's Revenue Growth
Figure 2 – PayPal’s Revenue Growth

While it’s good that a business wants to be laser-focused and mindful of expenses, it remains to be seen whether PayPal is doing too much. After riding to new heights amidst Covid, PayPal’s stock got clobbered, down from more than $300 to $90, due to abandoned forecasts and slowed growth. Then, the narrative switched to higher efficiency and more focus. I get it. The leadership wanted to present a nice story to investors to stop the bleeding. They may even genuinely want to set the company on a better course for the future. But they also have a history of botched plans and forecasts. Who is to say that they are not being too aggressive at the moment? What if the cost cuts hurt the business in the process? We already have three consecutive quarters of decline in International. PayPal competes on multiple fronts and their competitors are fierce. Can they right-size their capital allocation to avoid disasters?

Overall, this is not a disastrous quarter. There are some bright spots, including Venmo, solid growth overall, the US market, the cost-cutting initiatives (at least for now) and the buybacks. However, there are also things that give me pause for concern. As bullish as I want to be on the company’s outlook, I’ll wait for another quarter or two so that by then some of my concerns will be hopefully eased.

Appendix

PayPal's Active Accounts & Active Merchant Accounts
Figure 3 – PayPal’s Active Accounts & Active Merchant Accounts
PayPal's Transactions Per Active Account
Figure 4 – PayPal’s Transactions Per Active Account
PayPal's P2P TPV
Figure 5 – PayPal’s P2P TPV

Weekly reading – 6th August 2022

What I wrote last week

Apple Q3 FY2022 Earnings

AWS, what a business!

Even with a loss of $2.6 billion, Uber had a great quarter

Business

($) America’s New Energy Crisis. A worrying report on the state of the energy supply in the US. Demand continues rise and unfortunately, so do oil prices. Projects to produce green alternatives take a long time to be completed and integrated into the national grid. “As U.S. power supplies tighten, developers are struggling to build these projects quickly enough to offset closures of older plants, in part because of supply-chain snarls. Another reason: It takes longer to approve their connections to the existing electricity grid. Such new requests neared 3,500 last year compared with roughly 1,000 in 2015, according to research from the Lawrence Berkeley National Laboratory. Typical time needed to complete technical studies needed for that grid approval is now more than three years, up from less than two in 2015. One renewable-energy developer, Recurrent Energy, filed more than 20 of these grid-connection requests last year in California, a state that needs more clean power to replace several gas-fired power plants as well as a nuclear plant slated for retirement in the coming years. It took the company seven years to get approval and construct a separate battery storage project in that state.”

($) JPMorgan Is Building a Giant Travel Agency. “It bought a booking system, a restaurant review company and a luxury travel agent. It is building its own airport lounges and a force of thousands of travel agents. A new website will launch in the coming months. JPMorgan estimates that its customers account for one of every three dollars spent on leisure travel in the U.S., though those customers book only a tiny amount on the Ultimate Rewards website. With the new offerings, JPMorgan executives believe the bank could capture $15 billion in bookings in 2025, five times what it handled before the recent buildup. That would make it the third-biggest travel agent in the country, based on 2021 volumes, according to industry publication Travel Weekly. The plan has risks. Travel-rewards giveaways have proved expensive for JPMorgan and other banks, and they haven’t always led to the lasting relationships the banks hoped for. JPMorgan also has important corporate partnerships with airlines and hotels that expect the bank to send customers their way. Some of those partners have already complained about the success of Sapphire taking away customers from their cards. The bank is already seeing early signs of that luxury demand. The average price Chase customers are paying for hotels is more than double the industry average, the bank said.”

From legroom to airfare: How JetBlue’s takeover of Spirit could change air travel. If you don’t know how expensive it is to travel domestically in the US, take a trip to Europe and try to fly within the continent. I was really shocked the first time I booked a domestic flight here. I am still shocked sometimes nowadays. There is competition between major airlines, but prices are still high because there is no regulatory pressure on a handful of airlines that fly customers. I don’t know if this merger will help anything. Having another major may drive air fares down. But it could as well join the fun and charge a lot.

US, Japan reaching for a 2-nm chip breakthrough. The race to secure semiconductor supply for the future amidst the political threat from China is more intense than ever. I don’t think China, regardless of whether Xi will be in charge, will give up Taiwan, home to TSMC. It’s not only because TSMC is THE fab of the most advanced chips in the world, but it’s also because China believes Taiwan belongs to them and has no rights to independence. Any nation’s leader will not fulfill their duty if they don’t think about hedging this risk. US and Japan are doing the right thing here. Better late than never.

Ad tracking rules could become much stricter in Europe; Apple’s ATT vindicated. Companies that rely on ads dollars should really pay attention. “This is the single, most important, unambiguous interpretation of GDPR so far. It backs up the approach of Apple.

($) Netflix Is Scrambling to Learn the Ad Business It Long Disdained. “One of Netflix’s goals was to secure a big “minimum guarantee”—a promise that it would get a large influx of ad revenue to limit its financial risk, say people familiar with the discussions. Netflix also hunted for a senior leader with advertising expertise, mindful that it knew little about the business of selling ads. The company approached at least two top Comcast executives for a senior role while the partnership negotiations were continuing with their employer, angering the top brass at the cable giant, some of the people said. Mr. Hastings has set lofty financial ambitions for the ad business. He and other company executives have told investors and ad industry executives privately in recent months that Netflix will eventually be able to charge advertisers about $80 for every 1,000 views of an ad by helping them target specific audience segments, people familiar with the discussions said. That would put Netflix among the most expensive destinations for ads, alongside top NFL television programming. Creating an advertising-supported tier isn’t the only about-face the company is making in its quest to revive growth. After years of treating password-sharing by customers as a marginal problem—Mr. Hastings said in 2016 he loved the practice—Netflix plans to begin charging households a sharing fee sometime in 2023.

Chip Makers Have a Message for Car Makers: Your Turn to Pay. The ever-growing demand for chips turns the negotiation tables around. Chip manufacturers now command more bargaining power than they ever have. Car producers have no choice but either put up or shut up. As every car company is now racing to bring electric vehicles and trucks to the market, they won’t shut up.

Other stuff I find interesting

Some wonderful photos of my country taken by an award-winning photographer

US regulators will certify first small nuclear reactor design. I understand that there are concerns over safety and nuclear waste, but nuclear is perhaps the best tool at our disposal to generate clean energy at scale to accommodate the ever increasing demand. I wonder how and/or if this step would help increase the use of nuclear power

Who Is Collecting Data from Your Car? An eye-opening read on the vehicle data world

Tails, You Win. Now that I think about it. Love is just pure dumb luck. The person that you fall in love with happen to love you back. If you manage to fall in love and spend the rest of your life with the same person, creating happy moments and sharing wonderful children and grandchildren, that’s as taily as tails get.

Biden wants an industrial renaissance. He can’t do it without immigration reform. As an immigrant myself, I can tell you that if I had known what I do now, I would not have come to the US. The immigration process here is very talent-unfriendly. The country pours billions of investments into technology, yet the immigration system is antiquated and undoes all the good that such investments bring. To secure the future of the US, the government needs to massively and quickly reform its immigration

Hidden menace: Massive methane leaks speed up climate change. It’s horrifying to learn that we are pumping an incredible amount of this polluter into the air while knowing that it can speed up climate change significantly.

The U.S. made a breakthrough battery discovery — then gave the technology to China. I could hardly believe what I read. A promising battery technology took a dozen US scientists, 6 years and millions of taxpayers’ money to be developed. Then, the Department of Energy transferred the technology to a company based in China where it is currently further developed and produced

Stats

HALF of the nation’s clean power is generated by nuclear energy

Gen Z has led all generations in terms of 30-59 day credit card delinquency this year, according to Vantage Score

OnlyFans has 200 million registered users

Globally, only 9% of plastic waste is recycled while 22% is mismanaged