Tag: Adobe

Weekly readings

Weekly reading – 12th November 2022

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What I wrote last week

My review of the US Bank Shopper Cash Rewards Visa Signature Credit Card

Business

($) What If Apple Made an E-Bike? On paper, the idea that Apple would change the e-bike/micromobility industry forever with its own product makes sense. The question is: how would an e-bike connect with the rest of the ecosystem? How would all devices complement one another? Apart from transporting a person from A to B, what utility would an e-bike provide?

The Russo Brothers Assemble: Inside AGBO, Their $1 Billion Studio, and When They Might Return to Marvel. Some insights into the entertainment industry

Why we’re leaving the cloud. I am not a fan of DHH, to say the least, but I appreciate his and his company’s perspective on this issue. Indeed, one of the biggest selling points of cloud providers is that you can save time and money renting their infrastructure. I am not saying that it’s impossible. But every buyer needs to do their homework and run a trial to see if that’s the case. My first-hand experience with our company’s transition to AWS is that we have a net positive, but you need to remember that most banks run on mainframes which are expensive to service in the first place.

($) Adobe Is Trying to Spend $20 Billion to Buy Back Its Swagger. I honestly don’t understand why people compared this to Facebook’s acquisition of Instagram. To me, because of the price tag, this deal looks similar to the $19 billion purchase of WhatsApp by Facebook. Nonetheless, I think there is a real chance that regulators would block this deal given the recent developments.

Stack Overflow CEO on how it became the world’s most popular programming site. A few stats on Stack Overflow: 50 million questions & answers, 100 million monthly visitors worldwide, 50 billion visits in the last 14 years, 15,000 organizations that use StackOverflow-for-Teams

Emergency SOS via satellite on iPhone 14 and iPhone 14 Pro lineups made possible by $450 million Apple investment in US infrastructure. There is innovation that doesn’t make headlines, yet improves lives. There is also innovation that grabs all sorts of attention, yet seems to be based on imagination than reality. Meterverse and this Emergency SOS, guess which one improves lives?

The global shipping industry is facing a new problem — too many containers. The demand for shipping dropped significantly, to the point that there are idle containers. I wonder if this is a sign that a recession is coming upon all of us.

Number One in Formula One. As much as I disliked Mercedes’ dominance in F1 the past decade, I have nothing but respect for their achievements because they were earned honestly. Toto Wolff is a magnificent team principal and his leadership lessons shared in this article are invaluable

Other stuff I find interesting

TSMC approaching 1 nm with 2D materials breakthrough. Any company or country still on chips bigger than 20nm is essentially years behind

US Traffic Safety Is Getting Worse, While Other Countries Improve. “The US underperformance in road safety is especially dramatical: 11.4 Americans per 100,000 died in crashes in 2020, a number that dwarfs countries including Spain (2.9), Israel (3.3) and New Zealand (6.3). And unlike most developed nations, US roadways have grown more deadly during the last two decades (including during the pandemic), especially for those outside of cars. Last year saw the most pedestrians killed in the US in 40 years, and deaths among those biking rose 44% from 2010 to 2020. That narrative is hogwash. For proof, look no further than Canada, an equally spacious and car-centric neighbor where the likelihood of dying in a crash is 60% lower.“

The Car Safety Feature That Kills the Other Guy. Owning a truck is a waste of space & fuel and it increases risks of collision. For the lift of me, I never get used to sitting in my car next to a truck that is twice as big. “After decades of decline, U.S. road deaths flattened and then began rising about 20 years ago. Some 42,915 people died in crashes during 2021, a 16-year high. Notably, it was also 20 years ago that the American flirtation with SUVs and trucks became an all-out obsession. These vehicles first outsold cars in the U.S. in 2002; they have been gobbling up the market share ever since. SUVs and trucks may leave their occupants feeling safer, but they create grave dangers for everyone else on the street. A 2015 federal study found that an SUV is two to three times more likely to kill a pedestrian than a car is, and economist Justin Tyndall has tied the ascent of SUVs to an increase in pedestrian deaths, which hit a 40-year high in 2021. Cyclist deaths, meanwhile, rose 44 percent from 2010 to 2020.”

India has lost 70 million hectares of farmland since 2015. Climate irregularities which are likely caused by our carbon emissions severely impact India’s agriculture and food security. It could be a global theme one day in the near future

Stats

In highly polluted areas, or if plastic pollution continues to rise in the future, the whales could be eating 150m pieces a day

SEC obtained record $6.4b in monetary sanctions in past fiscal year

90% of electric vehicles sold in France in 2021 were two-wheelers

90% of new vehicles sold in Norway in 2021 were either electric or hybrid

Weekly readings

Weekly reading – 5th November 2022

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What I wrote last week

Apple Earnings

Small but important things

Business

How Google’s Ad Business Funds Disinformation Around the World. A large scale investigation into how Google’s Ads benefit sites that distribute misinformation in non-English speaking countries. I understand that this problem is not easy, but Google is known for engineering prowess and this is an engineering problem. If ads still shows up on sites flagged as misinformers, it’s because someone decides to turn a blind eye on them. “ProPublica also scanned close to 10,000 active articles that fact checkers in the three Balkan countries flagged for false claims since 2019. Just over 60% were earning money with Google. The articles included a range of falsehoods about national politics, the pandemic, vaccines, the war in Ukraine and other topics. Dejan Petar Zlatanovic operates Srbin.info, a Serbian website that publishes pro-Kremlin propaganda copied from Russian state media, election conspiracies about the U.S. and anti-LGBTQ content. Its homepage features a prominent hyperlink directly to the official Kremlin website. Google ads abound there and on article pages. Zlatanovic said in an email that Srbin.info earns between $5,000 and $7,000 per month, with Google ads providing a key portion of the revenue.“

The Hype Cycles of Venture Capital. Our society praises monumental wins of venture capitalists passionately and holds those men and women in high regard. But I don’t see the same vigor in criticisms when they fumble millions of capital on new, exciting and…useless ideas. Anyone remember Clubhouse? Or Bird?

Inflation – Stealing From Savers. The headline is that inflation is not going away any time soon and investors will have a hard time to earn sizable returns

After leading $20 billion Figma deal, Adobe’s David Wadhwani is in prime spot to be next CEO. As an Adobe shareholder, I feel good reading this article. Who’s better to succeed the current CEO than the guy championing the subscription business model and having the credentials of leading AppDynamics to be acquired by Cisco.

($) Big Tech’s Dirty Supply Chains Undercut Climate Promises From HQ. “Amazon.com Inc., Microsoft Corp. and Alphabet Inc. have pledged to run their own operations on 100% clean power. But their suppliers — the lesser known companies that make the key components of hit products like the Kindle, the Xbox or Pixel mobiles — remain deeply reliant on fossil fuels. Twelve of the 14 top suppliers get on average 5.4% of their energy from renewable sources or don’t disclose, data from a Greenpeace report released Friday showed. Taiwan’s TSMC is sucking up as much electricity as Sri Lanka’s 21-million population and is expected to use up 12.5% of the island’s annual power consumption by 2025. More than half of Taiwan’s energy is generated from coal and fossil fuels. In South Korea, home to another critical chip-supplier, SK Hynix, the story is similar. The company’s chip factories consume power equivalent to 1.6 million South Korean households and more than 60% of the country’s power comes from burning coal and natural gas.”

JPMorgan Chase wants to disrupt the rent check with its payments platform for landlords and tenants. This is an exciting new product from JP Morgan. It’s so frustrating that tenants have to pay by checks every month because landlords refuse to upgrade their infrastructure. I myself was asked to provide a check as collateral the last two times I tried to book a facility in my apartment building. I abandoned the booking simply because I refused to go to a branch just for a check. For JPMorgan Chase, this can be a strategically great move. At $500 billion in rent payment volume annually, even 0.2% of interchange and/or processing fee can bring in an extra $1 billion in revenue. Landlords that park their rent payments in a Chase account can help the bank get more deposits to fund their more lucrative loan-originating business. Last but not least, even if JPMorgan Chase doesn’t require landlords or tenants to be a customer of the bank, this new platform can serve as a tool to scout new prospects. Think about it this way. If the bank knows the address and rent-paying behavior of a prospect, it can leverage that data to craft a profile and run a marketing campaign toward that profile accordingly. That information is first party, reliably accurate and NOT easy to have.

This is how much more Apple Music pays artists than Spotify [Video]. I wonder what non-disclosure agreements these streaming services have with artists. But this is damning to Spotify. If a few more artists come out to back up this revelation, they will be under pressure to increase payout and that would mean higher expenses and less margin. Investors will not like that

Apple CFO talked about the small scale of his Finance team and how efficient they are

Other stuff I find interesting

How the New York City steam system works. “The story of steam actually begins in Ancient Rome, where enterprising Romans were already building steam pipe systems for heating buildings and baths. The technology spread to the rest of Europe, but it was in the United States during the late 19th century. Inventors and businessmen turned it into a commercially viable heating option for towns and cities. New York was the first major city in the U.S. to have a steam system and still has the largest one to this day. In fact, if you add up the next five largest steam systems in America, it’s still smaller than New York City’s.“

In Greece’s largest port of Piraeus, China is the boss. Europe must be mindful of these investments in key infrastructure by China. If there is opposition to China getting semiconductor technologies from the US, why shouldn’t there be caution when it comes to key infrastructure?

Why Switzerland built a 2-kilometer-long train. I am marveled by the fact that there is a 2km-long train out there. I wouldn’t get on board if the train was operated in many countries, including Vietnam. But since this is the Swiss we are talking about, I’d give it a shot.

The enduring sexism of India’s tech industry. With 1.3 billion people in population and a big portion of that as women, India would be even more competitive if they could foster a culture more liberating and friendly towards women

Vietnam is luring tech giants out of China with flashy infrastructure projects. If our country just provides lands and labor, there will be little transfer of technological, commercial or scientific knowledge. Don’t get me wrong. It’s good to increase the GDP and all that for Vietnam, but I’d prefer us taking a page out of Singapore’s playbook.

($) The Metals for Your EV Are Stuck in a 30-Mile Traffic Jam. This is an eye-opening account on how copper is transferred from mines to ports in Africa. My gosh, what a tough gig it is. The whole continent is hungry for infrastructure investments that will make thousands of lives easier and improve commerce. Rich countries wishing to establish influence should pay attention and act before China does, if they haven’t already

Stats

Meta’s Reality Labs is projected to cost as much as the Apollo Program, the very one that landed humans on the Moon

37% of small business owners in the U.S. were unable to pay their rent in full and on time in October

Weekly readings

Weekly reading – 18th September 2021

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What I wrote last week

The importance of reading footnotes

Interesting articles on Business

Facebook Says Its Rules Apply to All. Company Documents Reveal a Secret Elite That’s Exempt. The sentence “we’re not going what we say publicly we are” can be applied to any company to some extent. The problem for Facebook is that the trust-eroding incidents happen way too often for a company with grandiose ambitions. Facebook wants us to trust them and use some of the new services for Facebook Pay, but how can trust be formed when stuff like this happens? I am sure this won’t be the last time that Facebook got a PR black eye.

Intuit Agrees to Buy Mailchimp for About $12 Billion. “Mailchimp, established in 2001, is based in Atlanta and is still owned by founders Ben Chestnut and Dan Kurzius, according to its website. The company, which hasn’t taken any outside funding, began as a web-design agency and ran an email-marketing service on the side that later became its focus. Today it also offers other digital-ad services and customer-relationship- management tools. Already popular among small businesses, Mailchimp became something of a household name in 2014, when it advertised on the first season of the hit podcast “Serial.” The company now serves 2.4 million monthly active users, including 800,000 paying customers. Half of its customers are outside the U.S. It had about $800 million in annual revenue last year, a 20% rise from the year earlier.”

Square Offers Sellers and Consumers a New Checkout Experience with Cash App Pay. It’s a natural progression in my opinion. Square is competing with PayPal to be the Super App for consumer financial needs as well as the go-to partner for commerce. PayPal has enabled payments by QR Code and mobile wallet for a while. Now, Square and Cash App have it too.

Facebook Knows Instagram Is Toxic for Teen Girls, Company Documents Show. “For the past three years, Facebook has been conducting studies into how its photo-sharing app affects its millions of young users. Repeatedly, the company’s researchers found that Instagram is harmful for a sizable percentage of them, most notably teenage girls. Expanding its base of young users is vital to the company’s more than $100 billion in annual revenue, and it doesn’t want to jeopardize their engagement with the platform. The features that Instagram identifies as most harmful to teens appear to be at the platform’s core. The research has been reviewed by top Facebook executives, and was cited in a 2020 presentation given to Mr. Zuckerberg, according to the documents.” Guess what Facebook chose to do? Nothing. Absolutely nothing.

Adobe jumps into e-commerce payments business in challenge to Shopify. The race to be the force that powers eCommerce features some of the biggest firms in the world: Amazon, Walmart, Shopify, PayPal, Adobe and Square. If you notice, the first three have fulfillment capabilities. PayPal bought Happy Returns. So it’s only a matter of time the latter three build out their own fulfillment muscle.

Amazon Is Doing It. So Is Walmart. Why Retail Loves ‘Buy Now, Pay Later.’ “Shoppers spend more at Macy’s when they use installment plans offered through Klarna Bank AB, Macy’s CEO Jeff Gennette said on a recent earnings call. Klarna also is helping the retailer attract younger customers, he said. A desire to boost loan approvals was among the reasons Walmart in 2018 decided to end its decadeslong credit-card partnership with Synchrony Financial. Citigroup Inc. saw a sevenfold increase in the dollar amount of credit-card purchases converted to installment loans in July, compared with the same month a year prior, said Gonzalo Luchetti, head of Citigroup’s U.S. consumer bank.”

Other stuff I find interesting

One Woman’s Mission to Rewrite Nazi History on Wikipedia. I hope down the line, years from now, there will be folks who come across what Ksenia Coffman did and be thankful that she did. Same way as I do today.

What Makes Work Meaningful — Or Meaningless

Stats

“Close to half of all new U.S. gun buyers since the beginning of 2019 have been women”

55% of shoppers start their 2021 holiday season shopping before Thanksgiving

Source: JungleScout
Weekly readings

Weekly reading – 20th February 2020

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What I wrote last week

I reviewed the book Working Backwards. If you are interested in the culture at Amazon, have a read!

Business

Robinhood revealed it has 13 million customers, 13% of which traded options, 9% of which were African Americans, 16% of which were Hispanic.

The highest court in UK ruled that Uber drivers have to be classified as employees. Uber cannot appeal further in the UK; as a result, unless it wishes to exit the UK market, especially London, operating expenses will likely increase from now on. Another interesting detail from the ruling is that workers should get paid whenever they are logged into Uber’s system and poised to accept rides. On the other hand, Uber argued that the ruling would only apply to Uber’s Mobility, not Uber’s Delivery. I don’t know if that’s factually true, but I don’t like their chances.

Facebook practically lied to marketers about their potential reach

Scott Belsky is one of my favorite follows on Twitter. As the founder of Behance and Chief Product Offier at Adobe, he had a fascinating take on several issues related to startups and products. Here is an interesting interview between him and Patrick O’Shaughnessy

US video streaming giants face tough second act in India

WSJ’s piece on Walt Disney CEO Bob Chapek. He seems to be more ruthless on the bottom line, less burdened by creativity and the nostalgia of the Disney brand than his predecessor

What I found interesting

Jacquard by Google. The product category may be interesting, but I am not sure that folks are ready for it. It’s bad enough that we carry around our phone with us every single waking moment in this digital life. Whether consumers agree to carry another device, no matter how small, remains to be seen, especially when the device comes from a company like Google, which is notorious for tracking users.

How to be more productive, more easily

Why did I leave Google or, why did I stay so long?

Have a look at the beauty of Vietnam, from above

Interesting stats that may interest you

35 of Amazon’s sellers in India made up more than two thirds of its online sales

Source: Chartr

Weekly readings

Weekly reading – 13th February 2021

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What I wrote last week

I reviewed Exercised: Why Something We Never Evolved To Do Is Healthy And Rewarding, a book that talks about how important exercise is from a Human Evolution and Anthropology perspective

The importance of owning a relationship with your customers

I talked about Uber as a business and its acquisition of Drizly

Business

An interesting piece on the CEO of Adobe and his relationship with fellow CEOs

An interview with the richest man in Japan

A very interesting piece on the threat that Canva and Fima pose to Adobe

An interesting post on the culture of writing memos at Amazon

Bloomberg has a piece on how Tim Cook built his own version of Apple. Tim Cook’s version isn’t bad at all as the company is now worth $2.3 trillion

How Facebook is doubling down on Marketplace

What I found interesting

A story on Yuta Watanabe, a Japanese basketball player who is having a season in the NBA

According to a new study, Apple Watch can help identify Covid-19 symptoms

Interesting stats

Contactless payments are expected to grow by 6-8% after Covid

40% of consumers in the US that used a “Buy Now, Pay Later” service missed at least one payment

The App Store saw more than $10 billion in consumer spending in 2020

Apple Watch is reportedly worn on 100 million wrists

Weekly readings

Weekly reading – 19th December 2020

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What I wrote last week

Adobe’s impressive performance and Disney’s true unveiling of Disney+

My thought on Apple vs Facebook and some data on iOS14 adoption

Business

Reviews of Apple Fitness+

Amazon is planning to offer a telehealth service to companies

A very interesting interview with the founder and CEO of Shopify on how to manage time.

A great letter from Brian Chesky on Ron Conway and his impact on AirBnb

Technology

This founder dodged a huge bullet after unintentionally racking up a Google Cloud Platform bill worth more than $70k+. Something to watch out for.

An interesting post that compares the new and old versions of Apple Map in Canada

What I found interesting

A new species of whales was discovered in Mexico. I kinda had mixed feelings after reading this. On one hand, I was glad we made this discovery. On the other, there may be some ignorant and greedy people trying to hunt them down for food or just an ego booster.

Reuters ran a piece on how the Coronavirus has evolved

A piece of good news. The Amazon seems to grow back

An inside story on how Pfizer achieved a miraculous feat in the race to produce a Covid-19 vaccine.

Business

Adobe’s impressive performance and Disney flexing its streaming muscles

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Disney’s enormous potential in the streaming area

On its 2020 Investor Day, Disney showed everybody that it was going to be a force to be seriously reckoned with in the streaming business in the years to come. The four hour presentation was packed with announcements on upcoming titles, business updates and impressive revised projections. Netflix fans always point to the fact that the streamer won the streaming war by having a much bigger subscriber base than any other competitors. The big subscriber base allows Netflix to operate at a much lower cost advantage. For the same investment of $1 billion in content, a base of 100 million subscribers will lead to a cost of $10 per subscriber while a base of 10 million will result in a cost of $100/user. As each user brings in monthly revenue, a lower cost structure enables a higher profitability which, in turn, enables more money in content creation which, in turn, leads to more appeal to consumers.

Netflix, with 195 million subscribers, enjoys a cost advantage to other competitors. It already got over the peak operating losses and has seen positive free cash flow for the past three quarters, despite spending a massive amount of money on content. I believe none of the other streamers achieved that feat yet. In short, Netflix has an invaluable head start.

Enter Disney Plus. Last year, Disney forecast to have around 60 to 90 million subscribers by the end of FY 2024. They just announced that the number of Disney+ subscribers was 86.8 million as of December 2, 2020. Critics say that Disney reached this number due to a huge subsidy in the Indian market which constitutes 30% of the base now. Well, that’s true, but it’s hard to reach the mass market in a short period of time and keep the price high. You have to take a multi-step approach. Expand the base first, add more value and increase the price.

That’s what Disney is doing now. With more than 86 million subscribers in the pocket, the company is planning 100+ titles per year for the next few years, coming from established brands such as Marvel, Disney, Pixar, Star Wars and National Geographic. At the same time, Disney is addressing the Average Revenue Per User (ARPU) issue with a price hike of $1/subscriber/month in the US and €2/subscriber/month in EU starting March 2021 and with a Premier Access model. The Premier Access model lets subscribers gain first access to select titles before everyone else for an additional fee. A few months ago, Mulan cost Disney+ subscribers an additional fee of $30 in exchange for first exclusive access.

As a result, Disney expects to have around 230-260 million Disney+ subscribers by the end of FY2024. Within one year, they revised the forecast from 60-90 to 230-260 million subscribers for the same time frame. There must have been some sandbagging, but I believe that even the folks at Disney didn’t expect to have such a big leap. The new figure should put Disney+ in the same conversation as Netflix by the end of FY2024 and well ahead of the other streamers. The profitability expectation remains at the end of FY2024, unchanged from the Investor Day last year, even though the legendary company expects to at least double its content cost by FY2024. The same upgrade in expectation is similar for ESPN+ and Hulu

Investor Day 2019Investor Day 2020
Disney Plus
Subscriber60-90 million by FY 2024230-260 million by FY 2024
ProfitabilityFY 2024FY 2024
Hulu
Subscriber40-60 million by FY 202450-60 million by FY 2024
ProfitabilityFY 2023 or 2024FY 2023
ESPN+
Subscriber8-12 million by FY 202420-30 by FY 2024
ProfitabilityFY 2023FY 2023
Source: Disney

Those are impressive revisions, particularly given Disney’s distinct advantages. First, streaming services aren’t the only way they generate revenue and profits. Their Media and Parks segments generate considerable revenue and profit as well, especially Parks. Parks has been hit particularly hard by the pandemic, but once we go back to normal and vaccine is delivered to the public, Disney should have no problem attracting guests back to their hotels, parks and resorts. Even though the other segments don’t directly subsidize the streaming services, having them around definitely helps the company as a whole in terms of profits, revenue and cash flow. Netflix, rightfully worth every accolade for their laser focus, has only one line of business. As long as that line of business thrives, they will enjoy the full benefits of not having to spread resources like Disney. However, on the other hand, a crisis would hit them harder than Disney without any cushion.

Moreover, Disney has so many ways to appeal to consumers. First, they have an extraordinary library of content and brands, ranging from series, films, documentaries and sports. Second, they can always create value out of a bundle such as what they are doing now with a bundle of Disney+, Hulu (ads and no ads) and ESPN+. Another model that can be deployed is Premier Access as I describe above or a theatrical release in which a movie will be available first in theaters and then on Disney+. An example is Black Widow. This takes me to another strength that Disney has. A portfolio of household brands that need no introduction. When somebody mentions Avengers characters or Star Wars, there is little introduction needed. That kind of brand power helps draw viewers regardless of the medium. When Disney releases Black Widow in theaters first, they likely won’t need to persuade Marvel fans to pay to watch. What they may need to persuade them on is whether it’s worth getting into theaters when the pandemic may still be around. This brand power isn’t just limited to consumers with kids. On the 2020 Investor Day, Disney CFO revealed that more families without kids are subscribers than families with kids; which is a very interesting revelation since it was assumed that Disney would appeal parents through content for kids.

In short, I believe the future is bright for Disney’s streamers and the company as a whole. That doesn’t mean that I think Netflix is doomed. The sizeof the market and the consumer behavior should allow these two behemoths to co-exist. As long as other streamers have the financial ammunition to compete, they should have a seat at the table, but this should be a two-race non-zero-sum market. The winners should be consumers who will get more choices and talents, including actors, directors, creators, storytellers and so on, who will be sought after as streamers strive to create quality content.

Adobe’s extraordinary story continues

Adobe may not be as popular as some of its products. It’s the creator of Photoshop, Illustrator, InDesign and PDF. It also owns Behance, the LinkedIn of creative folks. Its less known products include Marketing Solutions, such as Email Marketing, eCommerce and Customer Analytics, and Document Solutions such as eSignatures or Document Intelligence Services. Besides its famous products, Adobe is also known for being the trailblazer in transitioning to a Software-as-a-Service model. The transformation started in about 2011 or 2012, and it has been the case study as well as the envy of established software makers all over. Adobe’s revenue grew at a CAGR of 18% from 2013 to 2020, reaching almost $13 billion in 2020. More impressively, its FY 2020 Operating Income was even higher than its revenue in FY 2014. Additionally, its Operating Margin in FY 2020 was 32%, the highest in the last 6 years.

The transformation was best reflected in Adobe’s subscription. In 2013, only 28% of the company’s top line came from subscriptions which have higher margin and stickiness. In FY 2020, the figure stood at 90%. In terms of CAGR of subscriptions’ absolute dollars, it is an extraordinary 39%.

Among the main business segments, Digital Media is the biggest and certainly the driver of growth at Adobe. Since 2013, Digital Media’s revenue grew by almost 300%. Within Digital Media, Creative and Document Cloud Annual Recurring Revenue more or less doubled in the last 4 years.

While Digital Experience, which includes B2B solutions, faces stiff competition from the likes of Salesforce, Adobe is clearly the market leader with their Digital Media offerings. How many designers or creators in the world don’t have an Adobe product? Which document format can replace the de factor PDF when it comes to official documents? Their Digital Media products, whether it’s Creative Cloud or Document Cloud, are popular among subscribers. According to Adobe’s 2020 Investor Day

  • 75% individual subscribers in 2020 were completely new to Creative Cloud
  • Individual subscribers made up more than half of the Creative Cloud’s revenue
  • 2 billion mobile + desktop devices were installed with Acrobat Reader
  • 75%+ individual subscribers in 2020 were new to Acrobat
  • Mobile IDs were more than 300 million in total as of Q4 FY 2020, with more than 175 million created
  • More than 60% of Creative Cloud ARR is based on All Apps subscribers. An All-App subscription costs $53/month, much more expensive than individual app subscriptions.
Source: Adobe

All these data points show how much customers love Adobe products. As more and more people use Adobe products, it helps the company establish an invaluable network effect. If you are a designer collaborating with other designers and businesses that are used to working with Illustrator and Photoshop, it’s difficult not to use those applications. That’s perhaps the strongest moat Adobe has. There may be better alternatives than their products on the market, but those products don’t have the brand names, the popularity, the established sales channel and the network effect that Adobe has. Once a company can establish this kind of relationship and network effect, its priority should be to continue add values to subscriptions to keep the churn low. In other words, as long as the existing subscriber base doesn’t shrink, Adobe’s revenue will only grow. Any new subscribers acquired will only add to their fortune.

Disclaimer: I own both Disney and Adobe in my personal portfolio.

Weekly readings

Weekly readings – 24th October 2020

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What I wrote last week

How Apple Card’s balance grew by 50% in 3 months and the implications

Amazon Shopper Panel

Business

EU is shooting for an ambitious “industrial cloud” plan to rival the US

DOJ filed an antitrust lawsuit against Google and the tech giant had a strong rebuke

Will you exchange privacy for some money every month? If yes, Amazon will pay you $10/month for 10 receipts of non-Amazon purchases through a service called Amazon Shopper Panel

Doordash is still the market leader in the meal delivery space with 49% market share in September 2020, according to SecondMeasure

A fascinating story on a guy who learned, worked and blogged his way to be an authority in the podcast space

DOJ’s lawsuit against Google, a very interesting read with a lot of great information

Boosted by better-than-expected consumer spending and write-offs, card companies are eyeing more customer acquisitions

How Apple is organized for success

Technology

Emerging Architectures for Modern Data Infrastructure

Adobe released a new feature to help creative folks get credit for their honest work and fight misinformation

a16z released an interesting blog post on the promise of Payroll API

What I found interesting

Japanese Butter Tableware. Ain’t they beautiful and interesting?

How Egypt is growing forests in middle of the desert

A damning account of the failed project between Foxconn, Trump and Wisconsin. The red flags have been there for a long time, yet I fear this isn’t the last time we hear something about it

Weekly readings

Weekly readings – 29th August 2020

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What I wrote

A quick thought on Uber/Lyft potentially leaving California and Apple’s fight with Epic

I applauded the NBA for taking a stand

My breakdown of Snowflake’s S-1

I also wrote about Wix, a popular website creation tool, with more than 180 million users

Business

A 3-part series on Microsoft’s acquisition of Forethought, the company that invented PowerPoint

A short story on Goodreads

In its lawsuit against the Trump Administration, TikTok reported 50 million daily active users in the US, 20.3 billion views on posts related to #BlackLivesMatter

This should sound ominous for Amazon’s rivals and the likes of UPS

Faster Than Fast: SMB Retailers Move to Shopify

A study on Gen Z’s attitude towards brands in 2020

Apple Pay can be a multi-billion dollar business

A great Twitter thread on the bull case fo Fiserv

How Roku Built Itself Into a Major Gatekeeper in Premium Streaming

A piece on Adobe’s bull case

In Defense of the IPO, and How to Improve It

Technology

India, Israel and Kyrgyzstan have the cheapest plan for every GB of mobile data in the world

A primer on Apple’s new security and privacy features in the upcoming iOS

Amazon Halo

Stuff that I found interesting

The inside story fo the $8 million heist from the Carnegie Library

New Swing State Georgia Could Decide Control of the Senate

How cute is this?

Business

This sleeping software giant has a lot of room for growth

by MQDuongLeave a Comment on This sleeping software giant has a lot of room for growth

What does Autodesk do? What were the significant events in the past 5 years?

Founded in 1982 and headquartered in California, Autodesk creates software for professionals in engineering, architecture, construction, manufacturing, media and entertainment industries. Some of you may know Autodesk by its notable product AutoCAD. Basically, what Autodesk is to architects, engineers, manufacturing professionals is what Adobe is to creative folks. See below for a few examples of what Autodesk software can do.

Figure 1 – Some of what you can do with Autodesk software. Photo source: Autodesk

The company’s main business segments include AEC (Architecture, Engineering & Construction), AutoCAD & AutoCAD LT, Manufacturing (MFG) and Media & Entertainment (M&E). Below is a summary of some of the main products offered in each business segment:

Figure 2 – Autodesk Products. Information source: Annual Report FY 2020

In FY 2020, revenue share of these segments was 42% for AEC, 29% for AutoCAD, 22% for MFG and 6% for M&E. Compared to FY2019, share of AEC and AutoCAD increased by 200 and 100 basis points respectively, while that of MFG and M&E decreased.

Regarding distribution, Autodesk employs three different distribution options. Firstly, the company sells products through its online store to end users and through dedicated internal salesforce. Secondly, Autodesk sells directly to resellers who, in turn, sells to end users. The last option is a two-tiered distribution in which Autodesk sells to tier-1 distributors who sells to resellers before products get to end users. Combined, the two largest distributors (Tech Data and Ingram Micro) were responsible for 45% of the company’s revenue in FY2020. Given that indirect sale was 70% of total revenue, those two distributors occupied 64% of the indirect sale.

Geographically, EMEA and the US were Autodesk’s two biggest markets with 40% and 34% share of revenue in fY 2020 respectively, followed by APAC (19%) and other Americas (7%). Emerging economies such as Brazil, China, Russia and India made up 12% of the total revenue. These figures have stayed largely consistent in the last 3 years for the most part.

Just like most software companies, Autodesk traditionally sold their products through perpetual licenses and earned additional revenue through maintenance plans which allowed customers to receive future upgrades. Perpetually-licensed users could use the software forever, but without new features. Companies could buy a multi-user license or a network license.

The transition was first signaled by the current CEO Andrew Anagnost, who was then the Senior VP of Strategy & Marketing. Later, in February 2016, Autodesk announced that it would stop selling standalone licenses. The only way that customers could use its software individually is through a subscription. The announcement was made in advance to smooth out the transitions in the near future. But why did Autodesk move to subscriptions? There are several reasons:

  • Subscriptions allow management to make reliable forecast on the business in terms of revenue and cash flow; which is important to any executives.
  • By continuously delivering new updates and features frequently, Autodesk can increase customer satisfaction. Additionally, Autodesk can also receive customer feedback through data analytics and incorporate such feedback into product development faster.
  • Frequent updates also bring more security .
  • Instead of a hefty sum upfront, a smaller subscription fee makes it easier to convince potential customers to buy in.
  • Plus, customers can easily scale up and down investments on a monthly/yearly basis, if necessary.
  • The longer a customer stays subscribed, the more profitable he or she is. Hence, Autodesk is incentivized to deliver on products and services to keep customers happy & locked in.
  • The company probably took notice of the success of the trailblazer Adobe, which also switched to subscriptions in 2012.

In June 2017, Autodesk revealed a Maintenance-to-Subscription (M2S) which enabled customers on maintenance plans to trade in their seats and credit for subscriptions. At the same time, Autodesk increased the price of maintenance plans to make them financially unattractive to nudge customers towards subscriptions. The company later said that it would retire maintenance plans by 7th August 2021. On the 2020 Analyst Day, Autodesk declared that their transition to subscriptions was complete and the company is now onto the next targets.

Financials and fruits of the switch to subscriptions

In FY 2020, Autodesk recorded its highest revenue ever at almost $3.3 billion, up 27% from FY 2019 which in turn was up 24% from FY 2018. Recurring revenue rose from 46% in 2015 to an astonishing 96% in 2020. Remaining Performance Obligation (RPO), which refers to revenue that is contractually stated, yet realized, in FY 2020 was more than $3.5 billion. Subscription Annual Run Rate, a key performance metric in subscription model, went up to $3.1 billion in FY 2020 from $1.2 billion in FY 2018. Subscription revenue in 2020 stood at $2.7 billion, up 53% YoY, offsetting the decrease in maintenance revenue.

This is the power of subscriptions. The management team can forecast future revenue very reliably. As a result, they can plan ahead for strategic moves and allocate resources accordingly.

In FY 2020, Autodesk delivered $1.36 billion in Free Cash Flow (FCF), meaning that their Fresh Cash Flow Margin (over revenue) was 41%. To put the figures in perspective, in fiscal 2019, Autodesk’s FCF was $310 million. The outstanding growth in FCF showed that the company became much more efficient in generating cash from its operations.

For the first time since 2016, Autodesk was profitable operationally with $343 million in operating income (a tad over 10% operating margin). It was due to the economies of scale when revenue grew substantially and marginal cost was minimal. Furthermore, Autodesk’s operational leverage was higher in 2020.

Expenses as % of revenue rose from 2016 to 2018 and gradually declined in 2019 and 2020. Marketing expense as % of revenue in 2020 was actually a bit lower than that in 2016, and so were other expenses. This proves that even though expenses in absolute dollars increased, the company became more efficient and grew the top line as a faster pace than expenses’ growth.

What is next for Autodesk?

Guidelines till FY2023

On 2020 Analyst Day, Autodesk announced targets for FY2023 that include 16% – 18% Revenue CAGR, $2.4 billion in FCF and 55% – 65% of FCF Margin + Revenue Growth. In the SaaS world, there is a rule of 40 which states that if your FCF and revenue margin combined is 40%, your company’s efficiency is pretty awesome. Hence, Autodesk’s target of 55-65% is pretty incredible.

Noncompliant and legacy users

One of the main initiatives is to convert legacy users who are on perpetual plans and noncompliant users that refer to those who are using Autodesk’s software illegally. According to Autodesk, in addition to the existing 5 million paying subscriptions, there are 12 million noncompliant users and 2 million legacy users. Out of the 12 million noncompliant users, they estimate to have 7 million users that opened their software at least 11 times in the last 90 days and are using a version released in the last 5 years, a population considered to be highly convertible.

There are several initiatives aimed at converting these noncompliant and legacy users, including:

  • Stop offering maintenance plans in 2021
  • Harden student verification process
  • Ban offline activation
  • Switch from serial numbers to named users, a change that can allow corporate IT teams to avoid leaks and control usage
  • Apply concurrent user limits
  • Message target users with in-app messages and emails

Untapped market

Autodesk has a lot of tailwind behind them. Lisa Campbell, Chief Marketing Officer, estimated that in FY2025, the total addressable market (TAM) for Autodesk would be $69 billion. Given that the company’s FY2020 revenue was around $3.3 billion, the estimate implies a lot of room for growth for Autodesk. The confidence stems from favorable trends such as 1) collaboration between professionals from different backgrounds on increasingly complex projects in architecture, manufacturing and construction; 2) digitization in industries that use Autodesk’s products; 3) suburbanization; 4) Building Information Model (BIM) mandates in countries.

Source: Autodesk

In addition, Autodesk can also grow horizontally by expanding its footprint in overseas markets. In some areas, its penetration is still low, signaling that there is a lot of opportunity at play. Take BIM penetration as an example. Building Information Modeling (BIM) is a process that essentially enables Architecture, Engineering and Construction professionals to collaborate effectively and efficiently during the entire construction project. In some countries, there are BIM mandates in construction projects while a growing number of other countries are planning to introduce their own mandates. Below is Autodesk’s map of BIM footprint. Almost all countries where Autodesk’s presence is low are developing countries whose need for building new infrastructure will undoubtedly grow in the future.

Source: Autodesk

Summary

The decision to switch to subscriptions is massive for Autodesk. It enables the company to be more agile and unlock more value for both customers and shareholders. From what I have seen, the future is bright for the company. There are a lot of tailwinds behind Autodesk and the fact that its revenue has grown since the switch to subscriptions signals a positive acceptance from customers. One look at Adobe can offer a bit more perspective. Adobe started its journey to subscription-based model in 2012. Below is how much the company has grown since then

The trend looks familiar. If Adobe’s 2012 is Autodesk’s 2016, the former’s 2016, when its growth really kicked into high gear, can really be Autodesk’s 2020. Hence, Autodesk can likely follow the trajectory of Adobe and grow its top & bottom line further in the years to come.

Disclaimer: This post took me a few days to write. When I first started, I was looking into it as a potential investment. By now, I own the stock in my personal portfolio