Today I learned – 30th Jan 2020

Rise of contactless payment reported by Visa and Mastercard

It is so much faster and easier to just tap your card or phone on a reader than to use the chip or swipe. The frictionlessness of this payment method has clearly wowed users enough that it is on a rise, especially in the US.

In the card-present environment, we continue to see meaningful momentum in tap to pay, what we consider to be the most friction-free way to pay in person. We have reached a point where 1 in every 3 card-present transactions that runs over our network is [tax] versus 1 in 4 a year ago this quarter. This past year, we’ve doubled the number of countries whose face-to-face transactions are at least 2/3 contactless.

Transit continues to be a key user case and an important way to habituate tapping behavior. In New York City, on the NPA, Visa crossed 2 million taps in November from the beginning of the pilot and 3 million in January. The FDA recently announced the tap-to-pay expansion to their entire system by the end of 2020, and we are currently pacing a 350,000 Visa taps a week on the MTA and nearly 1 in every 10 transactions in the New York Metro area is a tap-to-pay on a Visa card.

Source: Visa in its Q1 2020 Earnings Call Transcript, provided by Atom Finance

Echoing the sentiment was Mastercard in its Q4 2019 Earnings Call

..On to contactless, where as I said, we’re making real progress. This quarter, contactless made up over 30% of global card-present purchased (inaudible). Contactless provides a frictionless and fast payment experience, which is opening new categories of spend, including displacing cash on small-ticket purchases. The U.S. point for growth on this front and the New York City MTA is a good example of the potential for rapid adoption by consumers. In fact, they surpassed 5 million taps since the launch in May. And the MTA has planned to roll out contactless acceptance system-wide by the end of 2020.

I’m pretty certain that U.S. contactless will keep growing throughout 2020 quite attractively. Because if you look at the numbers of the number of bank partners that have committed to issue contactless cards for a [minute], let’s even forget Apple Pay and Samsung Pay that enable every card through their archive to be used. If you just look at the number of cards, we are talking about 70% of our total cards in the U.S. market will be reissued over this 12-month to 14-month period. My own personal cards are already contactless from Citi.

On the acceptance side, kind of all new terminals going on are embedded with contactless. So (inaudible) large retailers Target and 7-Eleven and CVS have announced that they will accept contactless payments. And in fact, over half of U.S. card-present transactions are now happening at contactless-enabled merchant locations. And when the MT rolls in on system-wide in New York City, and there are other transit systems beginning to do the same in their cities, I think you will get the impetus.

Source: Atom Finance

Vietnam as an important emerging market for Apple

My country was mentioned repeatedly in the latest earnings call of Apple. In a positive light that makes me think that we are going to be, if we are not already, an important emerging market for the Cupertino-based company

Geographically, we established all-time revenue records in many major developed and emerging markets including, among others, the U.S., Canada, Mexico, Brazil, the UK, Germany, France, Italy, Spain, Poland, Thailand, Malaysia and Vietnam.

Source: Seeking Alpha

For iPad, we saw growth in key emerging markets like Mexico, India, Turkey, Poland, Thailand, Malaysia, the Philippines and Vietnam

Source: Seeking Alpha

Phone revenue of $56 billion grew 8% year-over-year, as we saw a great customer response to the launch of our newest iPhones. We set all-time revenue records in several countries, including the U.S. Mexico, the UK, France, Spain, Poland, Thailand, Malaysia and Vietnam.

Source: Seeking Alpha

Productivity and Business Processes keeps leading the margin game for Microsoft

Microsoft has three main business lines:

  • Productivity & Business Processes that includes Office 365 Commercial and Consumer, LinkedIn and Dynamics
  • Intelligent Cloud that includes server products and cloud services led by Azure, and Enterprise service
  • More Personal Computing that includes Gaming, Search, Windows and Surface

Azure likely receives the most attention, yet it is Productivity & Business Processes (PBP) that consistently took the crown in the margin game at Microsoft. In the latest earnings report, Microsoft reported almost 44% margin for PBP

Source: Microsoft
Source: Microsoft

Even though there have been only 2 quarters so far in 2020, the segment has generated more revenue and operating income than the full year 2019

Source: Microsoft

Weekly readings – 11th January 2020

Commission-free investing with Vanguard. Introduced by a…vanguard like Robinhood and adopted by others like TD-Ameritrade or E-Trade, commission-free trading is now available with Vanguard as well

Analyst, analyze yourself

The environmental impact of today’s transport types

How to lose a monopoly: Microsoft, IBM and anti-trust

Cities Struggle to Boost Ridership With ‘Uber for Transit’ Schemes

How a plant saved a Japanese island

Weekly readings – 28th December 2019

The last Weekly readings episode of 2019. I have had fun doing this because this serves mainly as my notes. I hope you got something out of these notes

Nadella is killing it at Microsoft and won the Person of the Year crown from FT

Walmart’s strategy in the fight against Amazon.

The World’s Oldest Forest Has 385-Million-Year-Old Tree Roots. The sheer number is

Coolest things I learned in 2019

Rural America Turning to Grocers, High-Fee ATMs as Banks Leave. If I tell this to my dad, who idolizes America, he probably will say I am crazy!

Apple’s secretive work on a satellite project as a company priority

Why your brain needs exercise

This seems to be a massive issue in the future for Amazon, especially when its 3rd party business has become increasingly important

The Dubai – Saudi Arabia route is surprisingly lucrative for Emirates

What’s Amazon’s market share? 35% or 5%?

‘Amazon’s Choice’ Isn’t the Endorsement It Appears

India needs new infrastructure

I am surprised at how well Hello Fresh has been doing

Americans are retiring in Vietnam and other Southeast Asian countries

Today I learned – 25th December 2019

Microsoft’s key metrics in graphs

Apparently, there is a page on Microsoft’s Investor Relations page that shows several key metrics in nice graphs. I didn’t know about this until today. It’s a nice resource to look at metrics over periods of time such as Azure growth (see below)

Source: Microsoft’s key metrics

Office Consumer revenue

In the latest annual report, Microsoft wrote

Fiscal Year 2019 Compared with Fiscal Year 2018

Office Consumer revenue increased $286 million or 7%, driven by Office 365 Consumer, due to recurring subscription revenue and transactional strength in Japan.

Source: Microsoft

Let’s do some maths. An increase of $286 million or 7% means that in Fiscal Year 2018, Office Consumer brought in about $4,086 million or a bit more than $4 billion. Add $286 to that sum and we have a revenue of $4,372 million or $4.3 billion in Fiscal Year 2019.

In Q1 2020, Microsoft reported the following:

Three Months Ended September 30, 2019 Compared with Three Months Ended September 30, 2018

Office Consumer revenue increased $51 million or 5%, driven by Office 365 Consumer, due to recurring subscription revenue, and transactional strength in Japan.

Source: Microsoft

Do the same maths as above and we arrive at approximately $1.07 billion for Q1 2020, pretty in line with the sum from Fiscal Year 2019.

Although we have the number of subscribers, due to how revenue is booked, we can’t divide the revenue by the number of subscribers to arrive at Average Revenue Per User

Disclosure: I own Microsoft stocks in my personal portfolio

LinkedIn's life under Microsoft

In December of 2016, Microsoft paid $27 billion in total for LinkedIn and completed the acquisition. According to the latest annual report, the majority of the acquisition price came from goodwill which Microsoft clarified as primarily synergies gained from the integration of the acquired social network.

Source: Microsoft Annual Report 2019

Interestingly, among intangible assets, Microsoft assigned a little more than $2 billion for the trade names. I am not entirely sure whether it means Microsoft valued LinkedIn’s brand as that price. There seems to be a difference between the two concepts: trade names and trademarks, even though in some cases, the two can be interchangeable.

Source: Microsoft Annual Report 2019

Apparently, during the fiscal year when the acquisition took place, LinkedIn generated $2.2 billion in revenue, but registered a negative operating income

Source: Microsoft Annual Report 2019

Fast forward two years later, LinkedIn increased its revenue by almost 200%, from $2.2 billion to $6.7 billion approximately

Source: Microsoft Annual Report 2019

In terms of members, LinkedIn had 500 million members, 575, 645 and 660 in 2017, 2018, 2019 and Q1 2020 respectively. It’s interesting to notice how Microsoft commented on the primary source of revenue from LinkedIn. LinkedIn’s lines of business include Talent Solutions, Marketing Solutions, and Premium Subscriptions. As of the quarter ended December 31, 2017, most of LinkedIn’s revenue came from Talent Solutions

Source: Microsoft’s SEC Filings

Since the quarter ended March 31, 2018, Microsoft didn’t make such a comment any more. Instead, it has been replaced with “strong momentum across all businesses” or something along that line

Source: Microsoft’s SEC Filings
Source: Microsoft’s SEC Filings

It is not clear whether all lines of LinkedIn’s businesses contribute meaningful revenue now. Given the explosive growth in revenue, it won’t be surprising if that’s the case. After all, multiple firing cylinders are better than one.

Disclosure: I own Microsoft stocks in my personal portfolio

Notable statistics from Microsoft Q4 FY19 Earning Calls

Since I am taking notes while reading through Microsoft’s earning call transcript, I thought: why not sharing it here?

  • Microsoft Teams 13 million daily active users and 19 million weekly active users. In March, it was reported that Teams is used by 500,000 organizations
  • GitHub is used by more than 36 million developers
  • 54 data Center regions, more than any other cloud provider and we were the first in Middle East and in Africa
  • More than 90% of Fortune 500 use Power or Dynamics 365
  • LinkedIn has 645 million members
  • Windows 10 is active on more than 800 million devices
  • Xbox Live Monthly Active Users increased to a record 65 million
  • Microsoft Azure’s contracted not realized revenue is $91 billion
  • There are 34.8 million Office 365 consumer subscriptions
  • LinkedIn revenue increased 25% and 28% in constant currency with continued strength across all businesses, highlighted by marketing solutions growth of 42%. LinkedIn sessions grew 22%, with record levels of engagement and job postings again this quarter.
  • Free cash flow increased by 62% YoY to $12 billion in Q4 FY 19. FCF for the fiscal year 2019 is $$38 billion, 18% growth compared to FCF of fiscal year 2018
  • Xbod hardware revenue dropped by 48% while Xbox service and software revenue slipped by 3%
Source: Microsoft