Weekly readings – 31st October 2020

What I wrote last week

Though AWS slowed, Amazon didn’t

My thoughts on Apple after their latest quarter and the last fiscal year

Business

Take-away lessons during the first 6 months of a Shopify employee. I find the read helpful, particularly the importance of understanding decision-makers’ attitude

From McDonald’s to Google: How Kelsey Hightower became one of the most respected people in cloud computing

Expensify CEO emailed his 10 million customers and asked them to vote for Biden. Though there are some who disagreed with him, they appreciated the openness. This is an example of how it should be done

Technology

Google announced Google One, a bundle that includes a VPN service, 2T of storage on Google Gmail & Drive and other benefits. Currently only available to Android devices in the US

Waymo made an unprecedented move to detail their behind-the-scene work on autonomous vehicles, including crashes and near-misses

What I found interesting

A story of a Uighur at a Chinese concentration camp

A study conducted by a Swedish university concluded that the Republican party has moved towards autocracies for the last 20 years

Brazil’s plan to exploit Amazon responsibly is in danger

A very eloquent, balanced and well-written endorsement for Joe Biden from The Economist

Just a hard breaking story from a Covid survivor in Texas

Though AWS slowed in growth, Amazon didn’t

Amazon continues to amaze me with another blow-out quarter in Q3 FY2020. Their total net sales increased by 37% compared to the same period a year ago, reaching $96 billion, while Operating Income increased by 96% from $3.2 billion in Q3 FY2019 to $6.2 billion this quarter. It’s an extraordinary growth for a company that generated more than $1 billion a day in net sales this quarter. Their gross margin in general didn’t change much from a year ago, but their operating margin increased by almost 200 basis points from 4.5% in Q3 2019 to 6.4% in Q3 FY2020. While the high level margin doesn’t look impressive, the devils are in the details if we look closer at their segments.

If we look at Norther America, International and AWS, all three were profitable this quarter with International, traditionally a money loser, being in the black for the second quarter in a row. AWS continues to be responsible for most of Amazon’s operating income as it carries a sweet 30% operating margin, compared to a meagre low single-digit from the other segments. Interestingly, AWS’s growth was the slowest among the three segments, recorded at 29%, compared to 39% of North America and 37% of International.

Source: Amazon

If we look at the results at a deeper level, specifically at the breakdowns into Online Stores, Physical Stores, AWS, 3rd party marketplace, Advertising and Subscriptions, the only area with negative growth in revenue is Physical Stores. 3rd party marketplace, Advertising and Online Stores notched the biggest growth, in that order, followed by Subscriptions and AWS. Regarding Subscriptions, Amazon reported that Prime now has 150 million subscribers with the service coming to its 20th country in Turkey.

Internationally, the number of Prime members who stream Prime Video grew by more than 80% year-over-year in the third quarter, and international customers more than doubled the hours of content they watched on Prime Video compared to last year.

Source: Amazon Q3 FY 2020

Even though Amazon is the master of operating at scale, innovating and squeezing efficiency from every step, I do think the expansion of Prime internationally helps with the increased performance of the International segment which has been profitable in two consecutive quarters. Of course, the decision makers at Amazon have data to see which markets can be improved by launching a high-margin subscription that makes customers stick around longer and shop more. So I wouldn’t surprised if Prime played a role in bolstering the profitability of Amazon’s International segment. So far, there are only 20 countries where Amazon Prime is available. When that number gets bigger, I predict that Amazon will be even bigger and more profitable than it already is; which is both admirable and scary.

When it comes to Amazon, advertising is unlikely the top 3 or 5 services that come to mind. Nonetheless, the segment brought in almost $5.4 billion this quarter, at the growth rate of a whopping 51%. To put that in consideration, neither Pinterest, Twitter nor Snapchat recorded even $1 billion in revenue in the most recent quarter (all of these companies reported results this month). Even Microsoft’s search advertising revenue this quarter was at only $1.8 billion, down from about $2 billion from the year before. As Amazon has an excellent relationship with customers (in general) and customers, when searching, already have intention to buy, this advertising business will not stop here. In fact, I do think it will continue to grow nicely in the future. A short while ago, I wrote about Amazon Shopper Panel, a new initiative by Amazon. The service will compensate shoppers if they send the company 10 eligible non-Amazon at-store receipts every month. This initiative, if done well, will empower Amazon with an unparalleled understanding of consumers, down to even the line items of a receipt. This understanding will bolster their advertising machine even more.

Source: Amazon

Amazon admitted that 2020 has been a big year for capital investments. The company aims to grow its fulfillment and logistics network by 50%, plowing around $12-13 billion in CAPEX this quarter or over $30 billion so far in 2020. That is an extraordinary amount of money allocated in growing assets. Not many companies even have that kind of numbers in revenue, let alone CAPEX. On top of that, Amazon reported that its shipping costs reached $15 billion this quarter. Fulfillment and shipping are hard as they are resource-intensive and require a mastery in operations to achieve the necessary efficiency. Any competitor that wishes to challenge Amazon needs to have a pocket deep enough to absorb these expenses; which constitutes a competitive advantage for the biggest e-Commerce player in the US. In the end, how many companies in the world could claim they generated $55 billion in trailing 12-month (TTM) Operating Cash Flow or $29 billion in trailing 12-month free cash flow?

In short, the business looks to be in a fantastic shape with amazing growth at a massive scale. Plus, there is plenty of room to grow for Amazon in the future with International expansion, Prime in more markets and advertising. Jeff Bezos is now a $200 billion man. I won’t be surprised if he reaches $300 billion in net worth in the future.

Weekly readings – 12th Sep 2020

What I wrote

Three documentaries that I think will intrigue and interest you intellectually

Business

FT’s interview with Reed Hastings that gave some insights into Netflix’s culture

Contactless penetration in the US is around 5-6% while that in non-US markets is around 66%, according to Visa

Bessemer Venture Partners shared their internal memos on several investments, including those in Wix, Shopify or LinkedIn

Although interested viewers need to become a Disney+ subscriber and have to pay $30 for premier access to watch Mulan, the movie reportedly garnered $33 million in its opening weekend

An extensive investigation in Nikola and its CEO

WSJ’ profile of Alphabet CEO – Sundar Pichai

The Athletic says it hits 1 million subscribers after surviving sports shutdown

For a company whose most users are female, Pinterest has a working culture designed to instead favor men

A brief profile of Andy Sassy, the CEO of AWS

Though it has made significant strides in automated driving, owners should not rely on Tesla’s driver assistance features to necessarily add safety or to make driving easier, based on Consumer Reports’ extensive testing and experience. 

Most features within Tesla’s Full Self-Driving Capability suite worked inconsistently, including the Autopark self-parking system that has been around for several years.

Source: Consumer Report on Tesla

Technology

TikTok revealed some details regarding their highly regarded algorithms

A brief overview of the new changes to the App Store guidelines

What I found interesting

The True Story of Lee Kuan Yew’s Singapore

An excellent study on the impact of Covid-19 policies on the economic recovery

US households spent only 40% of the first and only stimulus check so far. Some used up the check while others didn’t use it at all

Amazon – A giant with momentum and growth

On Thursday, Amazon released their Q2 FY 2020 results and it was nothing short of impressive. Below are my notes:

Even during the pandemic, Amazon net sales were $89 billion in Q2, up 40% YoY. In fact, if you look at their net sales in Q2 in the last 5 years, it’s an astounding 31% CAGR.

Figure 1 – Data Source: Amazon. Chart by me

North America still led the way among their three main segments with more than $55 billion in net sales. AWS is now an annualized $43 billion business and responsible for 13% of Amazon’s total net sales. In the last 5 years, CAGR for North America, International and AWS is 33%, 23% and 39%! If you look at a deeper level, online stores were still responsible for the bulk of Amazon’s net sales while 3rd party and AWS were the next two largest segments. Advertising accounted for 5% of Amazon’s net sales. Their shares have stayed largely the same for the past 3 years,

Figure 2- Data Source: Amazon. Chart by me
Figure 3- Data Source: Amazon. Chart by me

AWS continued to account for more than half of Amazon’s operating income. Historically, Amazon lost money on their International front, but in this quarter, the segment recorded $345 million in Operating Income. Total operating income was up to more than $5.8 billion, almost up by 90% YoY. Once again, this was during a pandemic.

Figure 4 – Data Source: Amazon. Chart by me

Shipping costs grew to more than $13.6 billion in Q2 FY 2020, from $4.56 billion in Q2 FY 2017. In the last four years, shipping costs rose at a faster pace (44% CAGR) than the combined net sales of online stores and 3rd party (28%). As share of cost of sales, shipping costs accounted for 26% of total cost of sales (AWS’ cost of sales weren’t recorded here), up from 19.5% in Q2 FY 2017. According to Amazon’s 10Q, here is how they define Cost of Sales

Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music.

Source: Amazon’s Q2 FY 2020 10Q

There are two ways to look at Amazon’s shipping costs in my opinion. First of all, the increase in Q2 FY 2020 is likely due to Covid-19. The rising trend can also come from Amazon’s effort and investment in last-mile delivery which is the most expensive delivery type. Amazon is now the fourth largest delivery service as of May 2020. If other retailers want to compete in terms of delivery, this level of commitment and investment will likely await them. In fact, Figure shows the level of capital expenditure by Amazon over the years. Just. Look. At. The. Growth!

Figure 5- Data Source: Amazon. Chart by me

Figure 6 – Source: Koyfin

In business, cash is king and Amazon is a phenomenal cash-generating machine. As of Q2 FY 2020, their operating cash flow trailing twelve months (TTM) stood at $51+ billion, up 42% YoY. Free Cash Flow TTM was almost $32 billion.

Figure 7- Data Source: Amazon. Chart by me

Additionally, AWS’ momentum is reflected in the remaining performance obligation in the last three years. Performance obligations from contracts whose original terms exceed one year stood at $41 billion as of June 2020, up from $16 billion two years ago. It’s indicative of the revenue in pipeline for AWS.

Figure 8- Data Source: Amazon. Chart by me

Lastly, I think this is the first time Amazon broke out their expenses for digital content, including video and music.

The total capitalized costs of video, which is primarily released content, and music as of December 31, 2019 and June 30, 2020 were $5.8 billion and $6.1 billion. Total video and music expense was $1.8 billion and $2.8 billion in Q2 2019 and Q2 2020, and $3.5 billion and $5.2 billion for the six months ended June 30, 2019 and 2020.

Source: Amazon’s Q2 FY 2020 10Q

In summary, I am in awe of Amazon as a well-oiled company. Even at its size, the company seems to have a lot of good things going in their direction and real competitive advantages. The retail and cloud markets are big enough for Amazon to grow more in the future.

Disclaimer: I own Amazon stocks in my personal portfolio.

Weekly readings – 20th June 2020

What I wrote

I wrote about the new partnership between Walmart and Shopify

Arguably the hottest topic in tech this week is the saga between Apple and Hey

I also talked a bit about Verisign, a company that makes most of the Internet work properly

If you are interested in Quick-Service-Restaurant franchise, I wrote about operating margin that can be expected by a franchisee

A couple of quick tutorials on SQL and rolling average in Power BI

Business

If You Want Hertz, Have Some Hertz

How Robinhood Convinced Millennials to Trade Their Way Through a Pandemic. Robinhood now has 10+ million users and has become a phenomenon lately

The Observer Effect’s interview with Marc Andreessen

Stemming from the interview above, I found Marc’s previous post on productivity hack

A great post on Structured Procrastination

Structured procrastination means shaping the structure of the tasks one has to do in a way that exploits this fact. The list of tasks one has in mind will be ordered by importance. Tasks that seem most urgent and important are on top. But there are also worthwhile tasks to perform lower down on the list. Doing these tasks becomes a way of not doing the things higher up on the list. With this sort of appropriate task structure, the procrastinator becomes a useful citizen. Indeed, the procrastinator can even acquire, as I have, a reputation for getting a lot done.

Source: Structured Procrastination

The Risk of Outsourced Thinking

Google and HTTP

The Case for ARM-Based Macs

Amazon asks court to block former AWS marketing VP from working on Google Cloud Next speeches

How Large Is the Apple App Store Ecosystem?

Other stuff

The Death of Engagement. A good read on America’s foreign policy with China over the last administrations

A collection of free books from Springer

In Japan and France, Riding Transit Looks Surprisingly Safe

Architects have designed a Martian city for the desert outside Dubai

Weekly readings – 30th May 2020

Source: Economist

How Mongolia is one of the most successful countries against Covid-19. Zero deaths result from smart, decisive and swift actions from the government

A Window Onto an American Nightmare

600+ best startup pitches, including that of Facebook, AirBnb, WeWork, Uber, just to name a few

Facebook Executives Shut Down Efforts to Make the Site Less Divisive. More Congressional investigations and hearings?

Bundesliga partners with AWS to provide real-time data analytics. How can you not be impressed by that?

Why super apps are proliferating across emerging markets

Human cost of food delivery services

Trump’s New Intelligence Chief Spells Trouble

Slack CEO’s conversation on competing with Microsoft, notifications and the future of work

Splendid isolation: a surreal sakura season

On Rafael’s never-fulfilled potential as an architect

Behind the Fall of China’s Luckin Coffee: a Network of Fake Buyers and a Fictitious Employee

What Is the Business Model for DuckDuckGo?

Canadians bike more as they leave cars at home

Weekly readings – 16th May 2020

A scathing critique of AWS from this engineer

Related to the link above, this is quite a blog post from someone who used to work at Amazon and was working at Google at the time of the writing

Content, Cars, and Comparisons in the “Streaming Wars”. Matthew Ball’s essays are always great to read

The secrets behind the runaway success of Apple’s AirPods

How Morning Brew grew to $13m in revenue with 33 employees

Vauban Architecture: The Foundation of Central and Northern Vietnam’s Citadels

The latest memo from Howard Marks

How the most prized degree in India became the most worthless

WeChat Surveillance Explained

If Landlords Get Wiped Out, Wall Street Wins, Not Renters

All applications used at GitLab

Chicago Will Now Require Food Delivery Apps to Disclose Itemized Cost Breakdown. You can protect restaurants or you can protect delivery apps. In this case, I don’t think you can do both. I am glad Chicago went with restaurants

Source: Crunchbase

How Khan Academy Successfully Handled 2.5x Traffic in a Week

The faded beauty of abandoned cars across Europe and the US

“Visa saw an 18% rise in U.S. digital commerce spending during the month of April, excluding the travel category, as face-to-face transactions fell 45%”

From Boston to Saigon: A Coronavirus Quarantine Diary

Lessons From Slovakia—Where Leaders Wear Masks

Senate Votes to Allow FBI to Look at Your Web Browsing History Without a Warrant. I’d argue that this is a bridge too far into user privacy

Next time if you want to support local restaurants by ordering on delivery services like Grubhub or DoorDash, you may want to do a bit of research on how those services treat restaurant partners. Here is an example

A few notable graphs from Amazon and Apple earnings

Tech giants reported their earnings this week and proved how resilient their businesses are amid arguably the most challenging environment ever. In this post, I’d like to demonstrate with visuals how important AWS is to Amazon, and how China, Wearables and Services are to Apple while it has become less of an iPhone company.

Amazon

Apple

Weekly readings – 26th October 2019

AWS Customers Rack Up Hefty Bills for Moving Data. Cloud spending isn’t as cheap as some may think.

The Heart of a Swimmer vs. the Heart of a Runner

Source: DuckDuckGo

Craftmanship in 1930 Vietnam as Seen in Paris Specialized Municipal Libraries. If you want to see a little bit of how Vietnam looked almost 100 years ago, here is a great article

Jeff Bezos’s Master Plan

Is Amazon Unstoppable?

News tab on Facebook

A great post with usrprising details on the spectacular fall of WeWork

Weekly readings – 7th September 2019

An interesting Twitter thread on Sahara dessert

Nearly a quarter of rural hospitals are on the brink of closure

The Restaurant of Mistaken Orders: A Tokyo Restaurant Where All the Servers Are People Living with Dementia

Modern applications at AWS

China’s Spies Are on the Offensive

Amazon’s Next-Day Delivery System Has Brought Chaos And Carnage To America’s Streets — But The World’s Biggest Retailer Has A System To Escape The Blame. A very long but worthwhile read on Amazon’s delivery network

The European Series A landscape — actionable benchmarks & the most active lead VCs

The epic, decades-long battle between Ford and a small-time inventor

Apple Watch sleep tracking revealed: sleep quality, battery management, more

The ‘paradox’ of working in the world’s most equal countries

Climate crisis: Greenland’s ice faces melting ‘death sentence’