Uber, Lyft Driver Strike & The Role of Regulators

Yesterday, there were reports on the upcoming strike by Uber and Lyft drivers ahead of the former’s IPO in order to demand minimum or at least higher wages for drivers. Despite claiming that drivers are an indispensable part of their business and having programs such as Lyft Direct or Lyft Driver Centers to support drivers, the ride-sharing companies employ the ones behind the wheels on a contractor basis, not a permanent basis. Hence, drivers are less protected by the laws regarding their benefits.

The thing is that these strikes, in my opinion, are unlikely to change the status quo. First of all, Lyft and Uber lose millions of dollars every quarter. Even if they wanted to help out drivers, I don’t think they would prioritize it over keeping the expenses down. Secondly, I don’t think they want to. Lyft and Juno sued NYC to block the minimum wage bill. Though they may argue the bill will tip the advantage towards a larger business such as Uber, it is clear that they care more about their survival than the drivers, as most of us would if we ran a business like that.

It brings me to the role of regulators. NYC successfully enforced the minimum wage bill. The likes of Uber, Lyft or Juno have no choice but to comply if they want to continue to operate in the Big Apple. It is something that other cities can emulate. Pass an official bill to raise the minimum wage. I don’t think these share-riding companies can afford to exit markets in America, especially bigger and more expensive ones like LA, SF or NYC. If driver minimum wages are raised, it will likely be more expensive for riders. Nonetheless, there will be opportunity for other businesses to come in and offer more affordable transportation alternatives.

While the strikes will bring more publicity and exposure to the issue, I don’t think it can be solved without the lawmakers.

Liverpool delivered a sensational comeback. Football is so amazing

I am referring to the sport watched and loved by billions of people on Earth, the one in which Ronaldo and Messi are gods, not Tom Brady.

The second leg of a Champions League semi-final took place today between Liverpool and Barcelona. Barcelona, a Spanish 7-time world champion, beat Liverpool at home in the first-leg 3-0. They came to the game today as an overwhelmingly strong favorite. One goal at Anfield, Liverpool’s stadium, would require the home team to score at least 5 to advance. And if you follow football a bit, you’ll know that stopping Barcelona from scoring is exceedingly challenging, especially when they have arguably the best player in the history of the sport, Lionel Messi.

But Liverpool did it anyway. They delivered a magnificent upset for the ages today by winning 4-0. I am not a Liverpool fan, but it was epic.

Liverpool vs Barcelona (Semi-final 2nd leg)

This season’s Champions League has featured some of the most dramatic games I have seen for a while such as Manchester United vs PSG, in which the deciding penalty was awarded in the dying minutes

Or Tottenham’s unlikely win against Manchester City, in which the fans’ emotions went on a roller coaster in the last seconds.

I heard some in America say that they don’t like the real football because it’s not as unpredictable as American football. The three games above, only three out of so many, proved that it wasn’t the case. Yes, admittedly, there is a sense of boring predictability in some cases such as Bayern’s dominance in Germany, PSG’s reign in France or Juventus winning year after year in Italy for the past 7 years. But do watch Champions League. It will take your emotions to the new heights or sink them down to the new lows that you didn’t know before.

I love football. It’s amazing. I have been watching it for over 20 years and I don’t imagine I’ll stop doing so for the rest of my life.

I’d like to finish the post with an inspiring photo of Mo Salah, a Liverpool player who couldn’t play today because of injury. Indeed, never give up!

Image result for salah never give up

Unsplash’s infrastructure cost and companies’ practice of sharing information

I came across a very interesting post on the infrastructure cost of Unsplash, a site that offers Internet users high quality images that can be used for commercial purposes for free. It’s a nice read to learn about the costs of hosting thousands of images that are accessed by millions of folks. However, what I want to talk about is the practice of (not) sharing information by companies.

Unsplash isn’t required to disclose this information. Yet, they did and I appreciate that a lot. Data and information shared in the post can act as useful reference in the future. The more information you know, the less likely you are on the undesirable end of asymmetric information. For that, thanks a lot Luke and Unsplash.

Nonetheless, you see publicly traded companies try hard to shield away information on important business segments. Take Google for an example. The company’s revenue still grew according to the last earning call, yet failure to provide sufficient insights on their YouTube business caused the stocks to drop significantly. They didn’t disclose information on Google Cloud Platform either. The Mountain View based company isn’t alone. Microsoft doesn’t separate out financial data of Azure and Office 365. Facebook aggregates data of their apps rather than individually report on each of them.

Obviously, I can’t speak for the companies on why they aren’t more transparent. On the other hand, the lack of disclosure comes with the lack of confidence and of the benefit of the doubt. It wouldn’t be surprising to see folks start to wonder: if things weren’t bad, what would they try to hide?

Comparing Enterprise SaaS Companies’ Metrics

Interested in how enterprise SaaS companies whose some or all of their revenue come from subscriptions, I set out to collect data from the companies that I know offer subscriptions to enterprise customers. Please be aware that this is my personal research stemming from intellectual curiosity only. They are not meant to be anything more than that.

  • Data is collected from the latest year in the companies’ latest annual reports to ensure that seasonality factor is removed
  • The metrics include subscription gross margin (subscription gross profit/subscription revenue), overall gross margin, Sales & Marketing expense as % of revenue, R&D as % of revenue, SG&A as % of revenue and net dollar expansion rate (or retention rate)
  • If there is a difference between subscription gross margin and overall gross margin, it’s because those companies also generate revenue from other sources such as hardware or professional services
  • Much as I tried to keep the figures accurate, do use them at your discretion

Subscription Gross Margin

Median: 82%/ Mean: 80%

Gross Margin

Median: 72%/ Mean: 71%

Sales & Marketing Expense as % of Revenue

Median: 44%/ Mean: 42%

R&D as % of Revenue

Median: 22% / Mean: 22%

SG&A as % of Revenue

Median: 15% / Mean: 15%

Operating Income (Loss) as % of Revenue

Median: -14%/ Mean: -10%

Dollar Expansion Rate

Median: 115% / Mean: 115%

Unsubscribe feature in the subscription world

We are living in the subscription world. Everything from enterprise technology to movies, clothes, food and news is offered on a subscription basis. A prominent feature in the model is that the suppliers allow users a short free trial (usually 7-30 days) before the first payment kicks in. As a consequence, offering an easy “unsubscribe” process is part of the customer experience. Unfortunately, different companies take different paths in this regard.

Take Netflix as an example. The video streaming service is so confident of its offering and obsessed with customer service that it has a feature reminding trial users of when to cancel. It’s smart of Netflix to do so. If users want to cancel trials, they’ll remember to do so. The number of those who forgot is not that many. Plus, being an honest and good company scores a lot of points in the users’ eyes, a far more important benefit in the industry in which there are a lot of alternatives. Technology can be copied, but good will from customers and a beloved brand are much more difficult to replicate.

Credit to Matthew Ball

On the contrary, take Wall Street Journals. If you are a subscriber, you have to call their Customer Center in order to unsubscribe. There is no online feature that allows you to cancel your account. A call to any customer center in the US, as you may know pretty well, isn’t a pleasant experience. They make it much harder for subscribers to leave. Though I subscribe to their service, I don’t appreciate the hurdles I will have to go through to unsubscribe. If there is any alternative coming along in the future with a feature like Netflix’s, a time-consuming call won’t stop me.

My 3rd Berkshire Hathaway Shareholder Meeting

Since I came to Omaha in 2016, going to the Shareholder Meeting has been an annual activity for me. At first, it was an experience as the meeting is something that if you never saw before, you should whenever you could. Last year and this year’s meetings are more like appreciating the two legendary guys who are still very active despite their old age.

The Berkshire Hathaway weekend includes a lot of activities from Friday to Sunday, but I only go to the Q&A session on Saturday morning. To participate in any activity, it is mandatory to have a pass. If you hold Berkshire shares, you are allowed up to 4 passes. Otherwise, find a person who does and ask for a pass

The Q&A session starts around 8:30 at the Century Link stadium in Omaha, but the gates are open around 7, I believe. There are a lot of people attending, so if you prefer a closer look at the two main speakers and the stage, be early.

Above is the seat I got for arriving at 7:30! So if you want a better view of the stage, you better start very early.

As usual, the meeting starts at 8:30am with the exclusive video that is only displayed at the meeting. No filming, no taking photos, no streaming. The video introduces the companies in Berkshire Hathaway portfolio and some funny segments that feature Warren Buffett and sometimes celebrities who reportedly contribute their time for free. The videos in 2017 and 2018 were much better than the one this year, in my opinion. The segment that stood out in this year’s video for me is the clip about Warren’s mobile application shot at Apple’s headquarter with Tim Cook. Geico is prominently featured as its ads are shown at least 3 times.

The video is about an hour long or so. After that, the Q&A session starts, breaks at 12 for an hour and ends at 3pm. The questions must be related to Berkshire and the companies in its portfolio such as Wells Fargo, BNSF, Oriental Trading, Geico or Apple, just to name a few. Personally, I think if you want to know their opinions on the portfolio companies, attending the meeting once or twice should be enough as the opinions shouldn’t change that much or that quickly. If a major development happens such as the scandal at Wells Fargo or his love for Apple stocks, Warren Buffett does interviews frequently enough that you won’t get new insights from the meeting.

In this Q&A session, Warren does most of the talking and Charlie only speaks once in a while. When he does, it is often very short and, as I find, funny. His famous line is “I have nothing to add”. Otherwise, he is just there on the stage, chilling, eating snacks and drinking coke. What I really appreciate is that the two guys are willing to make jokes, at times on themselves.

Besides the meeting in the stadium, there are exhibitions of the companies in the portfolio throughout the stadium. You can see the products and make purchases on the spot. It’s like a marketing event and from what I have seen, folks do make purchases at these exhibitions.

Berkshire Hathaway Exhibitions
If you haven’t read this book, I highly recommend it!

Weekly readings 4th May 2019

The Airbnb Invasion of Barcelona. A look at how tourism-related problems got out of hand at one of the hottest destinations in the world, Barcelona.

Netflix Fights to Keep Its Most Watched Shows: ‘Friends’ and ‘The Office’. It’s amazing that “Friends” and “The Office” make up of 5% of the total watching minutes on Netflix and yet the streaming service doesn’t own the rights to those IPs.

The bitter truth behind the Nutella economy. If you care about the ethical aspect of business, you may want to read about this. I understand that there are a lot of products or services that we use everyday come from organizations with a record of questionable ethical practices. However, given that Nutella is pretty popular around the world and in America, you may want to know a bit more about it. And it’s not good for your health!

IHG Sees Room for Improvement in Hotel Revenue Management. The article discusses mainly the attribute-based booking trend in the hospitality industry. Attribute-based booking refers to the model that allows guests to choose from a room level such as number of beds, view and room type to amenities inside the room. Everything is a la carte. It can create the maximum personalization and excitement for guests, but it will require a totally different operations from inventory, marketing to housekeeping and revenue management.

The Most Valuable Company (for Now) Is Having a Nadellaissance. A great coverage on how Nadella revived Microsoft. I really like his no-nonsense style that was shown when he refused to celebrate the $1 trillion valuation.

The fight for the bundle is the war for the future of TV. A nice piece on the state of TV

The making of Amazon Prime, the internet’s most successful and devastating membership program. I found it interesting to read stories on how Prime came into beings. The stories show how great Bezos’ business acumen is

With GDP per capita 25 times smaller than that of America, Vietnam still pays more for gas

On 2nd May, 2019, an increase in gas price in Vietnam was announced, an 8th time such a development took place in 2019. Here is a chart that illustrates the gas price in 2019 so far. The number is in VND, our national currency. The exchange rate is at 23,314 VND for $1

Source: Le Nguyen Huong Tra

Those are the two types of gas we use in Vietnam with the green one as the more popular choice and we measure it in liter, not gallon. With the exchange rate of 23,314 VND for $1, Vietnamese pay approximately $0.95 for a liter (22,190 divided by 23,314).

According to gasprices.aaa, the national average gas price in the US is $2.888 per gallon. As a gallon is worth 3.785 liters, on average Americans pay $0.76 per liter for gas. Given that GDP per capita in the US and Vietnam in 2017 is $59,532 and $2,343 respectively, according to WorldBank, it’s extraordinary that we pay more per liter in the poorer country.

I am not a chemical expert and the gas used in each country may be different in essence, but it serves the same function and the living costs in both countries are affected by gas prices.

The difference is even worse when you compare the gas price in Vietnam to affluent states in America. Keep in mind that different in America, where gas price varies from one state to another, Vietnam has universal gas price regardless of where you live in the country. Take Massachusetts as an example. GDP per capita in the state in 2017 is $64,507, but the gas price in the state is just $0.75 liter, compared to $0.95 in Vietnam.

Unless I am missing something terribly important in my assumptions, the expensive gas price that we have to pay in Vietnam is ridiculous and ludicrous. And how many companies would give employees a raise 8 times in a span of 5 months to keep up with the increasing living costs? Exactly!

Product: Simplify Chrome Extension

I came across Simplify a few days ago upon reading an article on Fast Company. It is a Chrome extension that helps clean up your Gmail interface. Instead of looking at unnecessary features, buttons and logos, Simplify helps clean up the interface to make it look better. Here is what Gmail normally looks

Source: TheNextWeb

Here is how it looks on mine

If you click on the icon on the top left, the interface will be even more minimalist

My experience with the extension has been very pleasant so far. The mailbox looks a lot less busy with the removal of features that I haven’t used much or at all. Plus, whenever you have inbound emails, the layout won’t look to command attention as much as the original ordinary Gmail outlook, as you can see below

Source: Fast Company

Another nice thing about Simplify is that it is not serving ads or collecting any analytics, in addition to being free.

If you like a minimalist design and a cool free product, give it a try and show the creator some appreciation by endorsing him like I am doing now.

iPhone sale slowed down, iPad and Services impressed

Highlights from the press release and earning call

  • iPhone sale down by 17% YoY. Mac had a great quarter with a YoY increase of 21%. Mac had a 5% revenue decline compared to last year
  • Half of the Mac customers during the quarter were new to Mac and the active installed base of Macs reached a new all-time high
  • 75% of the Watch customers never owned a Watch before
  • Apple Pay transaction volume more than doubled year-over-year and on track to reach 10 billion transactions this calendar year. Apple Pay is now available in 30 markets and will be live in 40 markets by the end of the year. New York’s MTA system will begin their rollout in early summer.
  • 390 million paid subscriptions at the end of March, an increase of 30 million in the last quarter alone.
  • “As we mentioned in January, we’ve been working on an initiative to make it simple to trade in our — trade in a phone in our store, finance the purchase over time and get help transferring data from the old phone to the new phone. As part of this initiative, we rolled out new trade-in and financing programs in the U.S., China, the U.K., Spain, Italy and Australia. The results had been striking. Across our stores, we had an all-time record response to our trade-in programs and with more than 4 times the trade-in volume of our March quarter a year ago.”
  • All-time services revenue records in four of our five geographic segments. Services accounted for 20% of March quarter revenue and about one-third of gross profit dollars.
  • “In fact, the number of paid third-party subscriptions increased by over 40% compared to last year in each of our geographic segments. And across all third-party subscription apps, the largest accounted for only 0.3% of our total Services revenue.”
  • Wearables business grew close to 50%
  • Total cash, plus marketable securities: $225 billion. Total Debt: $113 billion
  • App Store search ad business: up around 70% over the previous year and expanding into new geographies
  • An additional $75 billion for share repurchases is authorized

Note: In the following chart, Other Products refers to Wearables, Home and Accessories . I tried to update the historical figures as much as possible, but there might be some discrepancies to the latest ones.

Revenue in Q2 2019 is down by 5% YoY

iPhones and Mac disappoint while the other segments impress year over year

iPhone and Mac’s makeup of Apple’s total revenue continued to decline. Services and Wearables/Home/Accessories become increasingly more significant

Revenue from Greater China as % of the total revenue continues to slide while Americas’ share went up this quarter

Both Gross and Net Margin decline year over year

QuarterGrossMarginNetMarginR&D/RevSG&A/Rev
Q2 201439.32%22.40%3.12%6.42%
Q2 201540.78%23.39%3.31%5.96%
Q2 201639.40%20.80%4.97%6.77%
Q2 201738.93%20.85%5.25%7.03%
Q2 201838.31%22.61%5.53%6.79%
Q2 201937.61%19.93%6.81%7.68%

Dividend growth decreased compared to last year

My thoughts

Though revenue went down compared to last year, it’s not that bad in my opinion. It is almost on the same level as Q2 2015 when iPhones made up 70% of the total revenue. Services, iPad and Wearables seem to be able to make up, at least for now, some of the lost revenue from iPhones. The continued drop of Gross Margin is concerning and so is the almost 3% decline in net margin.

As customers prefer keeping and using their phones longer and Apple is losing ground in China, a major market for the iPhones, I think the iPhone share in the revenue pie will become smaller while Services will be more important to the company’s health. Tim Cook wasted no time on emphasizing that this is the best quarter for Services as it made up 20% of the total revenue and 1/3 of the total gross profit. Much time was spent on a whole range of services. I look forward to seeing the remaining two quarters of the year and the first of the next year after many services announced last month debut.

I actually prefer the trade-in initiative to lowering the prices as the initiative will likely not dilute the brand value as much as price cuts, especially for a luxury brand such as Apple. It’s promising to see the response to the new trade-in program.

While it’s interesting to see a significant growth in the App Store search ad, I am concerned about what it would do the image of a privacy-focused brand such as Apple. Ads and privacy don’t actually go hand-in-hand.

Disclaimer: I owned Apple stocks. This post is a practice exercise and stems from my curiosity. It’s not intended to be investment advice or anything of the sort. I am not that good lol.

Sources:

https://www.apple.com/newsroom/pdfs/Q2%20FY19%20Consolidated%20Financial%20Statements.pdf

https://investor.apple.com/investor-relations/financial-information/dividend-history/default.aspx

https://seekingalpha.com/article/4258275-apple-inc-aapl-ceo-tim-cook-q2-2019-results-earnings-call-transcript?part=single