3% cash back at Nike with Apple Pay

Today, I received this email from Apple

Here’s something to cheer about: now you can save 3% at Nike every time you use Apple Card with Apple Pay. This includes all purchases at Nike retail stores, Nike Factory stores, and on nike.com and Nike apps.

It is quite a notable development. Apple Pay is already the number 1 mobile payment application, surpassing even the famous Starbucks application (Source: zdnet). Nike is one of the most popular brands in the world with more than 1,000 stores worldwide. In 2019, revenue from Nike Direct, which comprises of sales from retail stores, mobile applications and websites, reached more than $11.7 billion.

Source: Nike
Source: Nike

I did a quick search on the best cash-back credit cards. 3% cash back is among the most competitive offer for retail stores like Nike. Plus, you can earn 3% through mobile apps and websites. The extra 1% in addition to the standard 2%, and the convenience of using Apple Card through Apple Pay will surely spark consumer behavior.

It’s very interesting to see how many more major partners will join the 3% cash back list. Companies will monitor closely the popularity of Apple Pay among consumers and wonder if it will be beneficial to be left out. Once more partners join, Apple Pay will have a bigger appeal to prospective partners and more leverage. The cycle will keep going from there.

Disclaimer: I do own Apple stocks in my portfolio

Rise of digital subscriptions at The New York Times

Print circulation and print advertising used to the bread and butter of news outlets. The Internet came along and also turned the industry onto its head. Digital subscriptions suddenly became possible. Folks started to pay for online access more and more; which would cannibalize the print business. As fewer readers read the papers, print advertising took a hit. Advertising became annoying to users who were willing to pay for the luxury of reading content in peace.

News outlets have to respond to survive. Names such as New York Times, Wall Street Journals, Washington Post or The Atlantic are leading the charge among outlets to have a strong subscription business. I spent some time digging through the numbers from The Times’ earnings reports to see how its digital subscription transformed over the years. This is how you can understand NYT business

The digital sub count and digital news sub count reach all time high in Q3 2019

The gap between Digital News Subscription Revenue and Print Subscription has been contracting since 2016

In terms of its importance to the subscription segment, digital subscription revenue has been on the rise. In Q3 2019, it made up slightly more than 43% of the total subscription business, the all-time high mark

Hence, digital subscription increasingly became an important part of the total revenue

First look at Disney Plus

Disney+, the biggest initiative and priority in the near future of the iconic company, went live today in the US and Canada. I have been using it for 2-3 hours and below is the summary of my experience so far.

The sign-up is pretty standard and smooth. Nothing major. Even though there was some reported difficulty in finding the app on Apple Store

Fairly expectedly, the app encountered some technical issues which users widely reported here. I have had my fair share as well

That led to Disney+ Help twitter page issued the statement below

In addition to the technical mishaps, I was a bit frustrated by the User Interface. While you can download episodes from the mobile app, I couldn’t find the feature on the browser version. I am not sure if that was intended to limit the downloads, but I was under impression that it was possible.

At the end of a movie, you are presented with a suggestion like the screenshot below, but there is no way to get back to the homepage or the category page

There is an “Extras” tab under the main banner of a movie/episode. They can be never-seen-before clips that viewers will appreciate. However, they could have made the tab more visible or added it to the end, in my opinion

There are some Extras clips on the mobile app that are not available on disneyplus.com.

At the bottom of the website, there is a tab called “Interest-based ads”. On that page, you can choose to opt out of behavioral targeting by ads companies on disneyplus.com

In terms of content, I am excited about National Geographic and Marvel. But to succeed, I do think Disney Plus has quite a long way to go and much to improve if they want to augment user experience

Disclaimer: I own Disney stocks in my personal portfolio

Tool: Atom Finance

I recently came across a finance tool that I have been pretty pleased by so far. Credit to Morning Brew newsletter, which introduced the tool. It’s called Atom Finance. It is essentially very similar to Seeking Alpha. As far as I am concerned, Atom Finance can do pretty much what Seeking Alpha does. Below are a few screenshots for your reference

There are three features I particularly like about the tool so far. The first is that in the Financials segment, I can pick and choose variables to show on the interactive bar chart. All I need to do is to click on the variables in the table below the chart.

The other feature I like is the capability to customize peer group, a feature that I believe is currently at an extra cost on Seeking Alpha

The third feature that I appreciate is that I can view earnings call transcripts smoothly from the beginning.

There are usually a few hours between the end of the earnings calls and the transcripts on Seeking Alpha. I haven’t observed how long it takes on Atom Finance, but I will and once I do, I will update this post accordingly.

For now, the tool is free just like Seeking Alpha. It is a handy tool to do research and I personally prefer the User Interace of Atom Finance to that of Seeking Alpha, which I am deeply grateful to for their transcripts. I am by no means affiliated with Atom Finance in any capacity. I am just being reciprocal of their allowing me to use the tool for free.

I hope you will like the tool and if you do, help spread the word to help a young company.

Amazon return policies

Today, I learned something new about Amazon return policies. As a Prime subscriber, I used to think that regardless of the reason behind the returns, they would always be free. I was wrong.

As I had to return some items that I didn’t like and there was no fault on Amazon or the manufacturers’ part, I was presented with esentiall two options: drive to UPS or Kohl’s store to drop off for free or pay to have the items picked up. Below are the screenshots when I choose the reason as “Bought by Mistake” or “No longer needed”

Had I chosen something that indicated the return wasn’t my fault, the options would be different

I guess it is sensible and smart of Amazon to implement this control. Otherwise, there would be abuses from customers (myself very likely, I have to admit) and the logistics costs would be even higher than what they are nowadays.

On a side note, the return experience I had at Kohl’s was very smooth. You can actually return Amazon items at any Kohl’s nationwide and all that it takes is QA code which can be stored and shown via your phone.

It made me think: how does this partnership benefit Amazon and Kohl’s? I am speculating here, but I guess this option makes sense financially for Amazon as they piggyback on the scale of Kohl’s logistics or business with shipping partners like USPS, UPS or FedEx. Instead of 100,000 items delivered a month, I imagine the deal with Amazon would bump the number up for Kohl’s. The increased volume can give them the leverage to negotiate a lower unite rate and have Amazon share the extra cost. From Amazon side, it would be cheaper to share with Kohl’s than to handle the entire costs alone.

Additionally, customers are given another option. I can imagine in some cases it would be more convenient to drop items off at Kohl’s stores than packaging and labeling the items.

On Kohl’s side, they might be banking on the fact that as customers have to come in their stores to return items, it will increase impulsive purchase in the stores.

Apple Q4 Earnings Report

Apple announced their Q4 earnings today. Below are my notes of the earnings report.

Before we go to the financial analysis that I did, here are some noteworthy remarks from the investor call (Source: Seeking Alpha)

  • This Q4’s revenue is the highest ever. The tailwin in foreign exchange was estimated to be around $1 billion
  • iPhone 11 has been the best selling phone since the launch
  • Services saw record growth in revenue in all five geographic segments
  • “For Apple Pay, revenue and transactions more than doubled year-over-year with over 3 billion transactions in the September quarter exceeding PayPal’s number of transactions and growing four times as fast. Apple Pay is now live in 49 markets around the world with over 6,000 issuers on the platform. We believe that Apple Pay offers the best possible mobile payment experience and the safest, most secure solution on the market. We’re glad that 1000s of banks around the world participate.”
  • Customers will be able to purchase new iPhone and pay for it with Apple Card over 24 months with zero interest
  • Wearables saw record revenue in all tracked markets
  • Record revenue was recorded in the U.S., Canada, Brazil, the UK, Germany, France, Italy, Poland, Korea, Malaysia, the Philippines and Vietnam
  • “Our active installed base of iPhone continues to grow to a new all-time high in each of our geographic segments. And in the U.S., the latest survey of consumers from 451 Research indicates iPhone customer satisfaction of 99% for iPhone XR, XS and XS Max combined. Among business buyers who plan to purchase smartphones in the December quarter 83% plan to purchase iPhones.”
  • 450 million paid subscriptions compared to 330 million over a year ago
  • “We generated an all-time revenue record for Mac in the US and in India and a fourth quarter revenue record in Japan. More than half of the customers purchasing Macs during the quarter were new to Mac, and the active installed base of Macs again reached a new all-time high.”
  • “iPad revenue grew in all five of our geographic segments with a Q4 revenue record in Japan. In total, over half of the customers purchasing iPads during the September quarter were new to iPad, and the iPad active installed base also reached a new all-time high. The most recent surveys from 451 Research measured a 95% customer satisfaction rating for iPad from consumers and 97% from businesses. And among both consumers and businesses who plan to purchase tablets in the December quarter more than 80% plan to purchase iPads.”
  • Cash and marketable securities stand at $260 billion. Net cash stands at $98 billion
  • In terms of hardware as a service or as a bundle, if you will, there are customers today that essentially view the hardware like that because they’re on upgrade plans and so forth. My perspective is that will grow in the future to larger numbers. It will grow disproportionately”

The following financial analyses are what I compiled from 2014 to now. For YoY comparison, there won’t be any figure for 2014. 2014 still appears on the charts, but only because it will take me too much time on my computer to remove it. Please bear with me.

Operating Margin, Top and Bottom Line Observations

Revenue reached all-time Q4 high even though the growth is modest compared to the two previous years.

Operating income actually dropped quite significantly as the cost of sales increased, lowering both margin and the net income growth.

Product Segment

As you can see below, Mac and iPhone declined year over year. The decline was offset by growth in iPad, Services and Wearables.

iPhone still makes up more than half of Apple’s revenue, but its influence has been waning over the past years. Meanwhile, Services and Wearables have been on the rise, with the latter now bigger than iPad. Services in Q4 almost made up 20% of Apple’s total revenue.

Transition to a higher margin Services-focused company

Apple has reported figures for Product and Services for the past two years. Product segment made up 80.5% of Apple’s total revenue, down from 83% from a year ago. It was offset by the rise of Services, up to 64% from 61% a year ago. It’s a good trend if you look at gross margin. Services carries twice as big gross margin as Products.

Regional Segments

Americas is still the dominant geographic segment for Apple. China has been slightly declining, standing at around 17% of Apple’s total revenue. Rest of Pacific has been increasing, even though its size is relatively small compared others’.

However, in terms of gross profit as % of revenue, America ranks last while Japan tops all geographic segments

Operating Expense as % of Revenue

Apple has been spending more as % of Revenue on Research and Development.

Overall, it seems like a good quarter for the company with increase in revenue despite the drop in the iPhone segment. Services is on the rise and so is Wearables. Airpods Pro hit the stores yesterday and I have seen plenty of positive coverage

It’s a bit concerning that cost of sales increased this quarter, which I suspect is due to price cuts. It will be interesting to see how the upcoming quarters will be. The transition to Services and what the company has done have been positively received by Wall Streets

Disclaimer: I own Apple stocks in my personal portfolio

Amazon pays to play

A few days ago, Amazon reported its rare earnings miss, particularly on the bottom line. The primary reasons of the miss were their investments in AWS and especially their one-day delivery.

“We are ramping up to make our 25th holiday season the best ever for Prime customers — with millions of products available for free one-day delivery,” said Jeff Bezos, Amazon founder and CEO. “Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers. And although it’s counterintuitive, the fastest delivery speeds generate the least carbon emissions because these products ship from fulfillment centers very close to the customer — it simply becomes impractical to use air or long ground routes. Huge thanks to all the teams helping deliver for customers this holiday.”

Source: Amazon

A few days later, they announced the removal of groceries delivery fees for Prime members.

While their figures missed expectations, I think they are doing the right thing. Amazon has long been about long term investments and commitment to customer satisfaction. Two-day shipping wasn’t popular until it was introduced by Amazon. It was adopted by other retailers which wanted to compete. Now, Amazon upped their game and took it to another level with one-day shipping and free grocery shipping for Prime members. They are here to play and have the means to. With their AWS making up 62% of the whole company’s operating income and free cash flow up 54% YoY, Amazon has the luxury to make long-term investments to continuously being competitive.

I understand that in some cases, Amazon came across as a bully and deserved some of the backlash. Nonetheless, I think they earned their competitive position. Kobe Bryant spent hours in the gym and took thousands of shots to get to where he was in the record book. Amazon is willing to pay to stay competitive. The question is whether other companies respond accordingly and when.