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’

Amazon’s Quarterly Earnings

On that FY2019 Q2 earnings by Amazon…

Revenue

In the last 90 days, Amazon recorded $63 billion, meaning that it took the company less than 36 hours to make $1billion. An extraordinary rate. Compared to last year’s Q2, revenue rose by 20% with Services (31%) outperforming Products (12.5%). Nonetheless, gross margin slipped as this quarter’s figure is at 4.8% compared to 5.6% last year.

Source: Amazon

AWS

Among Domestic, International and AWS categories, the latter continues to lead the way in terms of YoY growth. AWS’s revenue in the last 90 days is $8.3 billion, a rough equivalent of about $32 billion annually. It’s pretty impressive for just a segment of a company. Not many standalone companies can generate that much revenue in a quarter. It’s even more telling when we put AWS next to GCP. Google announced last week that GCP’s annual run rate is $8 billion, meaning that AWS is approximately 4 times bigger than its rival from Google.

Despite making up only 13% of Amazon’s revenue, AWS is responsible for about 69% of the company’s operating income.

At 37%, AWS’ YOY growth is the lowest recorded in a long time, but the law of big numbers should be taken in account here as the division is not as small as it used to be. If broken down into more strategic categories, AWS isn’t the segment with the biggest YoY growth (Excluding FX) in the company. It’s Subscriptions. Subscription memberships, especially Prime, play a crucial role in Amazon’s ecosystem. The fact that it notched the biggest growth, ahead of AWS, is very positive for the company.

Advertising

As can be seen above, advertising slowed down significantly after a hot streak just 12-15 months ago. YoY growth decreased noticeably compared to the 3-digit growth just a while ago. Still, it contributed $3 billion to the company’s top line.

Free Cash Flow and Shipping Costs

Amazon’s free cash flow this quarter is truly insane with 65% YoY improvement in Operating Cash Flow and a 3-digit growth in Free Cash Flow.

Source: Amazon

Shipping costs continued to rise with 36% YoY difference compared to previous second quarter’s. It’s worth noting that none of the Online Stores, Physical Stores and 3rd Party Seller Services have the same growth (all grew at a slow pace than shipping costs)

Sometimes, it’s hard to believe that a company founded roughly 25 years ago can be this powerful and big. A segment responsible for only 13% of its revenue is the dream of so many and it continues to deliver at an impressive rate.

Take-away from Amazon’s Financials & Earning Call

Amazon released their quarterly earnings today. I took a stab at trying to derive insights from the numbers. Here is what I learn:

AWS is the driver of their operating margin

AWS’ revenue and operating income grew impressively year over year

Meanwhile, North America operating income grew even more impressively year over year, making up for the International segment

Q1 2019 saw the shipping cost growth slow down and the explosion of growth in free cash flow

Across segments, YoY revenue growth decreased quite a bit, especially in the subscription and advertising. AWS makes up 13% of Amazon’s revenue

Net Income as % of Revenue Increased Sharply

Other take-aways

  • Amazon announced intention to turn a two-day shipping Prime into a one-day shipping Prime, though it admits that the endeavor will take time
  • The company said that they signed up more members for Prime in 2018 than any other year. Except the 100 million figure mentioned in the past, there was no other revelation in the earning call today
  • The company refused to comment on the acceleration or deceleration of advertising business
  • Little was mentioned about groceries. The word appears once in the press release and 4 times in the earning calls