Weekly reading – 8th January 2022

What I wrote last week

Amazon through charts

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

Business

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

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

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

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

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

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

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

Affirm Debit +: The Great Credit Card Unbuilding Is Underway

Other stuff that I found interesting

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

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

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

The Race to Make Vials for Coronavirus Vaccines. Fascinating

Stats

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

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

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

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

Amazon through charts

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

Amazon's revenue growth

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

Quarterly revenue of Norther America, International and AWS

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

Segment and total operating margin

Advertising is Amazon’s 4th biggest revenue stream

Amazon's business segments' revenue

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

Segments' revenue growth

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

Amazon's free cash flow trailing twelve months

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

Amazon's shipping costs

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

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

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

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

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

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

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

Disclaimer: I own Amazon stocks in my portfolio.

Weekly reading – 25th December 2021

This is the last post of the Weekly reading series in 2021. Hope you have enjoyed it!

What I wrote last week

I wrote about VRIO, a business strategy framework that can help analyze a company’s competitive advantages

Get to know Affirm

Business

Spider-Man: No Way Home’ Swoops In With a Pandemic-Record Opening. The global gross of $257 million during opening weekend is the 3rd highest of all time. Remember that this is the 27th movie in the Marvel Universe Cinematic and it’s achieved during a global pandemic. Disney’s ability to draw viewers and make great content consistently is just extraordinary. However, it creates a conundrum for the company. Putting content in theaters will haul in a truckload of money and boost the top and bottom line. That also means Disney+, the flagship streamer, will have to wait for at least a certain amount of time to feature the hottest movies, diminishing its power to attract subscribers. Unfortunately for the iconic company, Wall Streets cares a lot about Disney+ subscriber count. Hence, the management team will have their hands full in the next year or two finding the right balance in terms of content distribution

Amazon’s grocery battle isn’t what you think. As an Amazon shareholder, I’d prefer the company owning the software powering stores to operating physical grocery shops. The reason is simple. Grocery is a low-margin business and the competition is fierce. Even if Amazon manages to operate cashier-less stores, chances are that they won’t reach the scale of Costco or Walmart to compete in unit economics. Owning the software powering other stores; however, is profitable. A few retailers already tested out Amazon Go technology. Now, Amazon just needs to prove their worth and scale it to make this another great and profitable business

Bob Iger Makes His Disney Exit as a Titan of Transformation. Bob Iger will go down in history as one of the best CEOs ever. His work transformed Disney and put it in the position that it is now. I like his book The Ride of a Lifetime too.

How Shopify Outfoxed Amazon to Become the Everywhere Store. “In late 2015, in one of Bezos’ periodic purges of underachieving businesses, he agreed to close Webstore. Then, in a rare strategic mistake that’s likely to go down in the annals of corporate blunders, Amazon sent its customers to Shopify and proclaimed publicly that the Canadian company was its preferred partner for the Webstore diaspora. In exchange, Shopify agreed to offer Amazon Pay to its merchants and let them easily list their products on Amazon’s marketplace. Shopify also paid Amazon $1 million—a financial arrangement that’s never been previously reported. Bezos and his colleagues believed that supporting small retailers and their online shops was never going to be a large, profitable business. They were wrong—small online retailers generated about $153 billion in sales in 2020, according to AMI Partners. “Shopify made us look like fools,” says the former Amazon executive.”

6th Annual Grocery Tech Trends Study. “74% of grocers report that the tight labor market is a major obstacle that will drive their retail technology investment over the next 18 months. More than half (54%) of grocers are increasing their year-over-year tech spend, with a focus on advancing digital and mobile capabilities, analytics-driven decision-making, personalized marketing, and click-and-collect.”

A great profile of the CEO of Automattic, the company that runs WordPress.com. “After we hung up our first Zoom call, Mullenweg sent me an email with the subject line “Freedom is central.” The body was a quote from Albert Camus, which worked as an explanation for just about everything Mullenweg believes in, fights for and plans to spend the rest of his life working on: “The only way to deal with an unfree world is to become so absolutely free that your very existence is an act of rebellion.”

The global semiconductor value chain. Today, I started my research into the world of semi-conductor and this is an excellent resource.

Stuff that I found interesting

Himalayan Glaciers Are Melting at Furious Rate, New Study Shows. “Glaciers across the Himalayas are melting at an extraordinary rate, with new research showing that the vast ice sheets there shrank 10 times faster in the past 40 years than during the previous seven centuries.”

Hospital Prices Are Unpredictable. One Type of Health Coverage Often Gets the Worst Rates. I said it before and I’ll say it again, the way that we have to live in fear of getting healthcare in this country is a disgrace

TikTok is the most visited domain in 2021, even more than Google.com. That’s impressive

Stats

YouTube TV is alleged to have more than 4 million subscribers

0.01% of bitcoin holders controls 27% of the currency in circulation

ACH made up 20% of non-cash payments in the U.S in 2020

Image
Source: Michael Batnick

Weekly reading – 11th December 2021

Good reads on Business

What the Tech? The Apple Watch’s Straps Are More Than Just a Finishing Touch. “For us, the band is not at all about technology — each band expresses our love for materials, craft, and the process of making.” When we look at the Apple Watch, we may wonder how obvious the band looks. But I believe that a lot of research and technology went into bringing the band and Watch together into beings. We are used to having the tail of the band stick out on normal watches. On the other hand, the Apple Watch tucks the tail under the band itself. Even that little detail is worth commanding.

A couple of good posts on Visa here and here. If you aren’t familiar with what the company whose logo is on your debit or credit card does, have a read.

Web3 is Bullshit. The article is as provocative as the headline. I do; however, agree with some of the points the author made, regarding cryptocurrencies.

Ride-Hailing: Is It Sustainable? A good essay arguing that ride-hailing is a sustainable business and the likes of Uber and Lyft have untapped pricing power. I wrote quite a couple of pieces on Uber, you can check out here: Uber acquired Drizly and Postmates, Uber Q3 FY2021 earnings

Amazon is making its own containers and bypassing supply chain chaos with chartered ships and long-haul planes. “Who else would think of putting something going into an obscure port in Washington, and then trucking it down to L.A.? Most people are thinking, well, just bring the ship into L.A. But then you’re experiencing those two-week and three-weeks delay. So Amazon’s really taken advantage of some of the niche strategies I believe that the market needs to employ”

Kohl’s Urged to Consider Sale by Activist Investor. Engine Capital estimated that Kohl’s eCommerce business can be worth around $13 billion. My question concerns whether that estimate factors in the value of the physical stores. Walmart, Target and Best Buy know the importance of using stores to enhance customer experience and fulfill online orders. If Engine Capital or other activist investors want to separate the online business from physical stores, how do they think the online business alone would fare against the likes of Amazon?

Scaling to $100 Million. ARR and Margin. ARR and Margin.

Stuff that I found interesting

Flutter allows developers to build apps for mobile, web and desktop from a single code base

Climate change: Is ‘blue hydrogen’ Japan’s answer to coal? Any disaster that costs lives is tragic, but I can’t help thinking that the switch back from nuclear to coal is massively disappointing

Grapefruit Is One of the Weirdest Fruits on the Planet. An interesting article on grapefruit. “Because those base fruits are all native to Asia, the vast majority of hybrid citrus fruits are also from Asia. Grapefruit, however, is not. In fact, the grapefruit was first found a world away, in Barbados, probably in the mid-1600s. In 1664, a Dutch physician named Wouter Schouden visited Barbados and described the citrus he sampled there as “tasting like unripe grapes.” In 1814, John Lunan, a British plantation and slave owner from Jamaica, reported that this fruit was named “on account of its resemblance in flavour to the grape. A Frenchman named Odet Philippe is generally credited with bringing the grapefruit to the American mainland, in the 1820s. He was the first permanent European settler in Pinellas County, Florida, where modern-day St. Petersburg* lies.”

The Many Worlds of Enough. “Ambition is largely driven by self-actualization, or the desire to become a more capable person. And when this happens, it’s only natural that good outcomes arise. You’ll witness bumps in your reputation, be offered higher salaries, and so on. But these things happen as a byproduct of your ambition, and not because these outcomes were your primary desires. Greed, however, is when those outcomes become your primary desires. When prestige, praise, and power are the reasons why you are ambitious, that’s no longer driven by self-actualization. That’s when you lust for everything that is external to you. It’s rather difficult to know where this point is, as the boundary between ambition and greed can be blurry. But for the most part, you’ve entered the domain of greed when you no longer pursue an endeavor because you’re curious about it. It’s when the coldness of utility replaces the warmth of curiosity.”

The $11-billion Webb telescope aims to probe the early Universe. If everything goes as planned, the Webb telescope will be 1.5 million kilometers away from Earth. 1.5 MILLION kilometers. Science and technology are just amazing.

Why U.S. Infrastructure Costs So Much. “Mile for mile, studies show the U.S. spends more than all but five other countries in the world on public transit, and more on roads than any other country that discloses spending data. In 2013, Portland’s 7-mile Milwaukie light rail extension cost more than $200 million per mile, as much as a full subway system would cost in many European cities. The first phase of the Second Avenue Subway in Manhattan, the most expensive subway project in the world, cost $2.5 billion per mile, nearly five times the cost of a similar extension in Paris. Spending swelled across three problem areas: over-design, inefficient project management and misaligned politics”

Stats

Global Logistics and Supply Chain is a $11 trillion market

Lieferando has…99% of Germany’s food delivery market

YouTube removed 2.2 million videos that violated copyrights between January and June 2021

Consumers are expected to spend $133 billion on apps in 2021. The App Store continues to dominate Google Play

Remittances to Vietnam in 2021 are projected to hit $18.1 billion

Weekly reading – 4th December 2021

What I wrote last week

I shared my research on real-time payments

Good reads on Business

Glass bottle shortage leaves US distillers high and dry. The supply chain challenges still persist. While the demand for spirits and wines in the U.S continues to be strong, the task of finding glass bottles becomes more challenging and expensive. One glass supplier considers more than quadrupled the price of a container. That kind of price increase will make your next bottle fairly more pricey.

The new memo by Howard Marks: The Winds of Change. Howard touches on many topics from politics, regulations to macro economics. Have a read and if you have time, read his other memos too.

The Rising Tide of Semiconductor Cost. The technological advances we made in chip design and production are not going to make chips cheaper any time soon.

Amazon Builds Out Network to Speed Delivery, Handle Holiday Crunch. “As of mid-November, more than 98% of parcels that arrived at Amazon’s delivery centers, which typically are in close proximity to packages’ final destinations, were being delivered the next day, according to estimates from research firm ShipMatrix Inc. At the same time, some items like household products and sporting goods were showing delivery windows of a few days, ShipMatrix said, emphasizing Amazon’s message to shop early.” As Amazon continues to invest aggressively in its warehouse and delivery network, it’s more likely that the company will raise the bar, making the next day or same day delivery a norm. When that happens, other retailers will have a hard time catching up. Replicating the same recipe requires a lot of capital, time and expertise. I think the more Amazon succeeds in raising the bar, the better the market will be for delivery services like Instacart, Uber or DoorDash

Ghost Kitchens Are Proving to Be a Messy Business, as Reef Global Shows. “Since the summer, local officials in New York City, Houston, Detroit and Chicago have suspended operations at some or all of Reef’s fleets of trailers for violating regulations, totaling more than 25 closures. Many of the suspensions were for kitchens that were operating without permits, while others were for failing to tow the trailers to a central commissary every day, a requirement for food trucks in many cities. Utility hookups routinely take months longer than expected, requiring expensive generators and water deliveries, according to former Reef managers. Food waste is a consistent problem, as is a broader labor shortage in the food-service sector that has sent its cooks’ wages soaring.

Payments are eating the world. A very interesting report by JPMorgan Chase on the state of payments

Oct 2021: U.S. Online Grocery Sales Stabilize at $8.1 Billion. This study of online grocery sales in the U.S is interesting. It claims that 50% of U.S households bought groceries online. The average order placed by an active customer is 2.6 per month and the average value for order is $70. That’s almost $200 in online groceries, more than what I expected.

Amazon charges sellers fees that are high enough to offset losses from Prime, a new report says. Amazon can exert this much control over sellers because it can bring consumers to the table. Sellers may not be pleased with how Amazon squeezes them, but if they want to rely on the eCommerce platform for reach and sales, they have to deal with its shenanigans too.

Stuff that I found interesting

How the Ancient Romans Went to the Bathroom. “Despite the lack of toilet paper, toilet-goers did wipe. That’s what the mysterious shallow gutter was for. The Romans cleaned their behinds with sea sponges attached to a stick, and the gutter supplied clean flowing water to dip the sponges in. This soft, gentle tool was called a tersorium, which literally meant “a wiping thing.”

Stats

A new paper estimates that 67% – 76% of new Covid infections in Germany in October 2021 came from the unvaccinated

Shopify merchants around the world recorded $2.9 billion in Black Friday sales

Black Friday 2021 sales in the U.S dropped from $9 billion in 2020 to $8.9 billion this year

Cyber Monday online sales in the U.S hit $7.1 billion in 2021, down from $10.8 billion last year

More than 17 million UK customers have now used a buy now pay later 

The U.S generates 42 million metric ton in trash a year, more than all EU nations combined

Weekly reading – 27th November 2021

What I wrote last week

A helpful post on the new Covid-19 variant, Omicron

Good reads on Business

Uber introduced the new membership plan called Uber One. Perks include unlimited $0 delivery fees for qualified orders ($30+ for groceries and $15+ for other stuff), 5% off on eligible rides & deliveries, $5 refund if a delivery arrives after the Latest Estimate Time and other perks. It’s the same as DoorDash’s Dash Pass or Instacart’s subscription. The difference is that Uber’s plan also includes rides.

Incentives – How will Visa Amazon Play Out? If you are interested in fintech or payments, subscribe to Tom’s newsletter. It’s good.

More than Joe Rogan: Inside Spotify’s audio revolution. “The same could be said for Spotify, which over the last three years has transitioned from a groundbreaking music streaming service to one that also now offers 3.2 million podcasts on its platform. The expansion has been nothing short of meteoric when you consider that Apple, which has been offering podcasts since 2005, has just over 2 million audio shows. Spotify’s gains were highlighted in its third-quarter earnings report in late October, when it revealed that 3.2 million figure, as well as the fact that advertising revenue from podcasts helped drive total ad revenue up 75% year over year. Stockholm-based Spotify is now on track to pass 1 billion euros (more than $1 billion) in ad revenue for the first time this year.”

Apple taps TSMC to build custom iPhone 5G modem in 2023. A competitive advantage is what you do so much more efficiently and better than your competitors. In the case of Apple, it’s the integration of hardware and software. Within hardware, it’s a combination of so many things, including chip, industrial design and supply chain. Reliant on Qualcomm for the modem chip in the iPhone, Apple decided to be more independent and bring deeper integration by designing its own chip and outsourcing the production to TSMC. Think about it this way. Apple became the most valuable firm in the world while relying on others for parts of their products. Now they gained the capability to own most of the production process. What a company.

Starbucks has opened a store with Amazon Go.At this store, customers that have ordered ahead of time via the Starbucks app can walk in, look to see if their order is ready via the large digital Order Status sign, pick up their drink and walk out. They can also use their Amazon app or credit card to scan into the store and pick up a Dominique Ansel pastry (or a number of other New York City-specific items Ess-a-Bagel), Amazon Kitchen sandwich or sushi roll from the marketplace and just walk out. Once they exit the store with the item, they’ll be charged via their Amazon account via the Amazon Just Walk Out Technology as seen in the Amazon Go stores.” The more Amazon tests this technology, the better it will become. A few years from now, they’ll be miles ahead of others in reimagining the retail experience

AmEx Pitched Business Customers a Tax Break That Doesn’t Add Up. Another shady exercise by a major financial institution.

An interesting write-up on Visa from Greenskeeper Asset Management

Other stuff I found interesting

The ER charged him $6,589.77 for 6 stitches, a cost that led his wife to avoid the ER. The healthcare system in the U.S is really broken and quite frankly just disgraceful.

Workers in Vietnam lived inside factories to keep Samsung’s products on shelves during the pandemic. Poorer countries should band together to pressure tech companies and their suppliers into increasing workers’ pay. Divided, they will be taken advantage of. The economic output is reflected on the paper, but the price that workers have to pay and the longer term sustainability is also damaged

The Humble Brilliance of Italy’s Moka Coffee Pot. “The various species of Coffea, the seeds of which are dried, roasted, and ground to make coffee, are native to east Africa, particularly Ethiopia. Coffee as a beverage first shows up in the historical record—which is not necessarily to say that it wasn’t consumed in its native Ethiopia first—in what is now Yemen. It spread quickly throughout the Middle East, North Africa, and firmly established itself as part of the culture in what are now Turkey and Iran. Italians began coming up with their own gadgets for brewing coffee in the 19th century, but the biggest by far was the idea of applying pressure to coffee in order to create a strong, and more importantly fast, drink. This is the age of steam, a miraculous source of power that can unlock the world, and though it’s not entirely clear who originated the idea of using steam to brew coffee, certainly it was in Italy that it was popularized. The first known patent for a machine we might now recognize as an espresso machine was registered by Angelo Moriondo, who created a giant complicated steam-driven machine in 1884, but who never bothered to manufacture it. Luigi Bezzera, from Milan, modified the Moriondo patent, and hisdesign was further modified (though less so than Bezzera’s) by Desidiero Pavoni, whose La Pavoni introduced the world to espresso in 1906, at a world’s fair held in Milan.”

Stats

JP Morgan estimates that a Prime Membership of $120/year brings more than $1,000 in value to subscribers

63% of U.S Gen Z used TikTok in the last two years

Weekly reading 13th November 2021

What I wrote last week

PayPal’s Q3 FY2021 results

Good reads on Business

A very good Business Breakdown episode on MongoDB. Database can be very abstract and tricky to grab your head around. Hence. I appreciate folks taking the time to share knowledge and translate a tricky subject into laymen’s terms. Check it out!

2021 Retailer of the Year: Dollar General. “Food and consumables accounted for 77% of Dollar General’s annual sales last year of $33.7 billion. The expansion of cooler and freezer capacity at new and remodeled stores has for several years been described as the Goodlettsville, Tenn.-based company’s most impactful merchandising initiative. Dollar General began selling fresh produce at select stores last year, expanded the program to 2,000 locations this year, and its current plan is to add produce in up to 10,000 stores.” The refusal to call itself a grocer, in my opinion, is spot on. The name of the store is Dollar General, not Dollar Grocery. To change it to grocery would be a mistake as consumers would wonder: what kind of grocery am I getting for $1? Plus, the brand is about getting daily items for at a low price (may not necessarily be cheaper than at Costco, if you talk about unit economics). Hence, it doesn’t make sense to limit themselves to just being a grocer.

Why charging phones is a complex business. An interview with Anker CEO. A really interesting one in my opinion. They plan to avoid going into the phone business and stick to what they do best: accessories. Smart. Strategic.

Experts From A World That No Longer Exists. “Expertise is great, but it has a bad side effect. It tends to create an inability to accept new ideas.”

Facebook launches Shops in Groups and Live Shopping for Creators. The investments and focus on eCommerce, in my opinion, are strategically helpful to Facebook. Its giant cash cow has always been advertising powered by surveillance tracking which falls out of favor of many stakeholders. Politicians, lawmakers, more privacy-conscious consumers, powerful companies like Apple. Facebook has literally millions of people and thousands of brands using its platforms every day. It’s in a prime spot to be an eCommerce powerhouse.

Meta CTO thinks bad metaverse moderation could pose an ‘existential threat’. Boz wasn’t wrong there. What is interesting is that Facebook’s biggest challenge right now, before metaverse, is….moderation. In spite of billions of dollars and an army of technology plus human beings, Facebook still can’t crack the moderation code at scale, without pissing off a whole lot of people. Moreover, because its cash cow is advertising, Facebook has an inherent incentive to encourage engagement, whether it’s toxic engagement or not. I am not saying that moderation is easy. It’s super difficult and, like Boz said, almost impossible. But if your existential threat is impossible to solve, then it should give investors some pause.

Debit cards are hidden financial infrastructure. If you are interested in the U.S financial system, subscribe to this newsletter. I think the write-ups are helpful.

Stuff I found interesting

Hundreds of Ancient Maya Sites Hidden Under Mexico Reveal a Mysterious Blueprint. “In a new study, an international team of researchers led by anthropologist Takeshi Inomata from the University of Arizona reports the identification of almost 500 ceremonial complexes tracing back not just to the Maya, but also to another Mesoamerican civilization who made their mark on the land even earlier, the Olmecs.”

Brazilian Farmers Who Protect the Amazon Rainforest Would Like to Be Paid. “Governments, corporations and business executives are calling for a world-wide market to trade carbon credits so Brazilian farmers like Mr. Weis can be paid to help protect forests on their lands rather than cut them down to make way for more crops and cattle. Existing regional markets for carbon credits, from Europe to California to South Korea, show that the interest—and capital—is there for a global market. The value of carbon markets in Europe and elsewhere grew 23% last year to $274 billion, according to data provider Refinitiv Holdings Ltd. In a global market, carbon credits generated anywhere would be easily tradable anywhere else, just as a security issued by a Brazilian company can be bought and sold on the Nasdaq. Landholding farmers, indigenous groups, state governments and environmentalists could all sell credits.”

Spiders are much smarter than you think. ““There is this general idea that probably spiders are too small, that you need some kind of a critical mass of brain tissue to be able to perform complex behaviors,” says arachnologist and evolutionary biologist Dimitar Dimitrov of the University Museum of Bergen in Norway. “But I think spiders are one case where this general idea is challenged. Some small things are actually capable of doing very complex stuff.””

The nation’s last uranium mill plans to import Estonia’s radioactive waste. The tribes that live close to the U.S’ last uranium mill protest unambiguously and loudly the mill’s owner’s plant o import radioactive waste from Estonia since the water that feeds the tribes is ALREADY contaminated enough. Yet it seems that their concerns fall on deaf ears.

Perfecting the New York Street. “An achievable, replicable plan for a city that’s embracing public space as never before.” Yes, please. Fewer cars, less space for parking and more space for pedestrians

Stats

Cloud Computing Spend is expected to reach $848bn in 2025, according to Battery Venture

Vietnam is forecast to have 53 million online consumers by the end of 2021. The country has a population of 96 million people

“65% of U.S. consumers say they watch free, ad-supported video services”

PayPal Q3 FY2021 Results

The last quarter featured some great developments, acceptable numbers and a couple of concerns for PayPal, from my point of view.

The earning call started with the news that Amazon would let U.S customers check out on their website with Venmo. It’s a great win for the payment company as Amazon is the biggest eCommerce in the U.S, which is PayPal’s main market. The management team didn’t reveal much about the terms of the partnership, but given that Amazon has more bargaining power here, my guess is that PayPal has to offer some sweet economic incentives like a lower rate. In the 9 months ending September 2021, Amazon’s U.S sale was $197 billion, including hardware, physical stores, subscriptions etc. The company doesn’t break down the sale volume for its eCommerce, but for the sake of simplicity, let’s assume that Amazon.com generates around $200 billion in sales ever year. Even if Pay with Venmo processes 1% of that, it will still give PayPal a boost of $2 billion in Total Payment Volume (TPV). Not bad. You may ask given that Venmo TPV for this quarter is $60 billion alone, why is $2 billion lift a year not bad? Well, that’s because Venmo would actually generates money on this $2 billion lift in TPV while the reported $60 billion includes person-to-person (P2P) payments that earn Venmo almost absolutely nothing.

This kind of partnership is possible in the first place because PayPal is no longer constrained by legal obligations with eBay. Hence, we should see the company strike more similar deals in the future. Speaking of deals, PayPal also announced collaboration with Walmart, Booking.com, Fanatic, Phillips 66, GoFundMe and Everlane. At first glance, some of these deals make a lot of sense to me. Walmart is the biggest grocer in the country and a major retailer. Adding PayPal as a checkout option is huge and can help elevate PayPal’s TPV in the same way as Amazon would. 2/3 of Booking.com reservations are online. Since PayPal is already a checkout option, adding Venmo is a logical step to capture more of that payment share. Meanwhile, Everlane, as a fashion retailer, serves as a good case study for Happy Returns, which will be important to PayPal in acquiring and retaining merchants. Last but not least, offering QR codes at gas stations such as Phillips 66 and Valero facilitates seamless payments in a very familiar use case for all consumers.

PayPal Q3 2021 wins
Source: PayPal

BNPL has been an astounding success for PayPal. Launched in August 2020, the service already amassed $5.4 billion in transaction volume, $2 billion of which came in the last quarter alone, 9.5+ million users and 950,000 participating merchants. That’s about 2.5% of PayPal’s consumer base and 3% of its merchant base in only 6 markets so far. The potential growth is enormous. The company is introducing PayPal in 4 in Spain and Italy in Q4 2021 and planning new different flavors of its BNPL in the first half of 2022. I won’t be surprised if PayPal has $8-$10 billion in BNPL volume in the next 12 months (60% or 100% growth).

One of the biggest initiatives for PayPal is the launch of its new mobile app. It’s a major milestone towards being THE Super App for consumer financial needs. The early results, as reported by the company, were great. I don’t take much stock in them, though, because 1/ it’s still early and 2/ I don’t fully understand what all of the reported lifts mean. I’d rather wait for a couple of more quarters to see how the new app fares and hopefully the management team can give more color.

Early results of the new revamped PayPal app

On to the numbers. The last quarter’s TPV stood at $310 billion, a 26% YoY growth. Excluding $10 billion in eBay TPV, which is 3% of the total figure and trending down, the YoY growth is 31%. While eBay is gradually becoming the past for PayPal, Venmo is increasingly looking like the future. Its TPV last quarter was $60 billion, up 35% YoY, faster than the main app itself. Even though it’s only available in the U.S so far, Venmo managed to grow its TPV by more than three folds since 2018. In terms of active accounts, as of Q3 FY2021, PayPal had 413 million active accounts, including 80 million Venmo accounts and 33 million active merchants. Transactions per active account came in at 44.2. Transaction and total take-rates continued to trend down, standing at 1.88.% and 1.99% respectively in Q3 FY2021. As the reliance on eBay tapers off and the product mix is unfavorable (more bill volume or more volume from partners like Amazon that have lower rates), I expect this trend to continue for the foreseeable future.

The decrease in take rates will continue to heap pressure on revenue. Q3 FY2021 revenue growth already slowed down to 13%, much lower than what was reported in the previous four quarters. If we isolate the revenue from value added services which have little to do with the core business of PayPal, revenue growth is clocked at 10%. International revenue only grew by 2% YoY. This is particularly concerning if the management team wants to meet the goal set on Investor Day. To reach $50 billion in annual revenue at the end of 2025 starting with $25 billion in revenue this year, PayPal would have to grow the top line by at least 25%. Growth at the current clip is not going to cut it. On the Q3 Investor Update presentation, PayPal mentioned that the acquisition of Paidy would add 3 million new net accounts in 2021, but said nothing about revenue lift. I suspect that the company will continue to use M&A to aid with the growth numbers in the future. Is it a good approach? It could be, though every M&A carries a certain level of risks and you can’t fault people for doubting your own organic growth if you rely on M&A.

PayPal revenue and growth

Back in Q2 FY2021, PayPal made a major change to their pricing that went into effect on the 2nd of August 2021. Essentially, merchants will have to pay PayPal more in commission when consumers use the company’s branded mobile wallets such as PayPal, Pay with Venmo, PayPal in 4. On the other hand, when consumers key in card information without using PayPal’s wallet options, merchants will incur slightly lower rates. The assumption behind this move is that PayPal is confident in the attractiveness of its own mobile wallets. According to the latest 10-Q, the company claimed that the pricing changes didn’t meaningfully affect revenue. While it sounds encouraging, it has been only two full months. So we’ll have to wait a bit before rendering any verdict.

In summary, I’d give the quarter around 7 out of 10. The numbers aren’t catastrophic. We may just see the effect from a tough comparison from last year and the rule of big numbers. What concerns me more is that I don’t have enough information as of now to believe that they can hit the aggressive goal set for FY2025.

PayPal Total Payment Volume (TPV)
PayPal TPV YoY Growth
PayPal Active Accounts

Weekly reading – 30th October 2021

What I wrote last week

My own thoughts and commentary from several companies on App Tracking Transparency

Good reads on business

Intel slipped—and its future now depends on making everyone else’s chips. If the future of Intel depends on making chips for everybody else, then it’s a bleak future. They fall so far behind others, especially TSMC, in this game.

L1 Capital International Fund Q3 Shareholder Letter. It discusses Texas Instruments. So if you are looking for a new idea for your portfolio, it may be an interesting read

Buy Now, Pay Later & Payment Ramifications. If you are looking for a primer on BNPL, this one should do. Follow the author too for payments and fintech content

China is pushing to develop its own chips — but the country can’t do without foreign tech. One thing that I have learned so far is: never underestimate the Chinese. They may be behind in chip design and production, but they have every intention of integrating Taiwan, the hometown of TSMC, into the mainland and they have the will and resources to catch up and surpass the Western world

Mastercard Partners With Bakkt to Bring Cryptocurrency Payments to the Masses. This will definitely increase the usability of Bitcoin in ordinary circumstances. The problem, I think, is who will convince the masses that it’s ok to pay in Bitcoin. The cryptocurrency’s price has gone up by $20,000 in the last 30 days. This fluctuation makes me wonder why I should pay with something that can be 50% more valuable in 30 days.

Image
Source: Simon Moores

Stuff I find interesting

The Unlikely Outsiders Who Won the Race for a Covid-19 Vaccine. The two companies that helped the world get out of the once-in-a-lifetime pandemic were close to financial ruins. Just think about that for a second. On a side note, while I appreciate the dedication of BionTech’s founder, I wouldn’t want to be as extreme as he is.

Lewis Hamilton’s Plan to Revolutionize Formula 1. “The final report, published in July, confirmed what Hamilton had felt in his bones: Less than 1 percent of people working in Formula 1 are Black. The reasons, laid out across 184 pages, ranged from teams’ hiring practices (which tap the same universities year after year) to major fault lines within British education, as Black students are funneled into the lowest-achieving tracks and expelled at much higher rates. That began to change inside his own garage. Mercedes committed to making sure that 25 percent of new hires come from underrepresented backgrounds. The team, which has raced cars under the nickname Silver Arrows since the 1930s, also made a radical statement in paint. For the first time in its F1 history, the team changed its livery from silver to black last summer. The cars haven’t returned to the old colors. Not only did Hamilton’s latest contract, signed during the 2021 season, include stipulations for increasing diversity within the team—Hamilton also spoke directly with the team’s sponsors asking them to do the same. “Where are you guys at?” he remembers asking the CEO of the Monster energy drink company, which has backed him since 2013. “How are you guys holding yourself accountable? How can we work together?”

Female African Elephants Are Evolving Without Tusks Due to Ivory Poaching. The thing about this trophy hunting that bugs me a lot is that it’s not critical to our survival. We just do it for fun, for ego and because we can. These elephants do us no harm. They just mind their own business and we are the thugs that come in, hurt and kill them for what doesn’t belong to us. Some people say that outrage for trophy hunting is hypocritical because we kill chickens and fish and other animals too. Well, there is a big distinction here. We and our societies have evolved in a way that we look to these animals for protein and survival. I mean we could have been eating grass for dinner too if our ancestors had done it millions of years ago. But here we are through no fault of our own. Why do we commit more sins for absolutely no necessary reasons?

The $3.50 go-anywhere ticket to fight climate change. I am no expert, but I really believe that the U.S has to significantly upgrade its public transportation infrastructure to catch up with other countries and contribute to the climate change fight.

Stats

There were more than 500,000 U.S sellers on Amazon between 1st September 2020 and 31 August 2021. Almost 4,000 sellers surpassed $1 million in sales for the first time

There were 203.7 billion cigarettes sold in the U.S in 2020. A mind-blowing figure

Source: Fox