Weekly reading – 14th May 2022

What I wrote last week

Uber Q1 FY2022 Results

Book Review – After Steve: How Apple Became A Trillion-Dollar Company And Lost Its Soul

Business

Newest trend in delivery apps: move from cars to e-bikes. Micromobility is great for short-distance deliveries in a busy city like San Francisco. This is how Grab Food, Shopee Food and others manage deliveries in Ho Chi Minh City. Consumers order food within 3-4 kms most of the time. Traffic jam is a feature of the city. If couriers used cars for deliveries, there wouldn’t be any food delivery business! eBikes are also environmentally friendly. I hope to see more innovation and governmental subsidies in this space

John Gruber on the European Commission’s calling Apple Pay an illegal monopoly. I like John’s takes on Apple-related things. He is experienced and more importantly nuanced and fair. “This passage, as well as much of the rest of the E.C.’s “statement of objections”, seeks to dismiss the hard work Apple has done to make Apple Pay successful. Yes, NFC is an industry standard, and Apple Pay is, in part, built on top of that. But before Apple Pay, NFC was hardly used, even though Android had supported it since 2011. When Apple Pay launched in late 2014, its support for the existing NFC infrastructure was so good, it worked with many credit card terminals that had no explicit support for “Apple Pay” specifically. Apple Pay was so easy to use people were using it at retailers who weren’t even Apple Pay partners. That’s not a credit to NFC, which had been in place for years. That’s a credit to Apple. I honestly don’t understand where the E.C. sees anticompetitive behavior with Apple Pay. What I see is market share dominance stemming from the hard work of designing better integration into iOS and iPhones and educating users about the feature. How else could the iPhone’s share of NFC payments so far exceed the iPhone’s share of mobile phone sales? I’m not saying Samsung and Google suck at this, per se, but Jennifer Bailey’s team at Apple is really good, and perhaps just as importantly, really diligent about this sort of thing.”

Congress is ‘moving too slowly’ on semiconductor supply crunch, Commerce Secretary says. The dysfunction and ineffectiveness of Congress, especially in this matter, will cost America a lot both in the short and long term.

Buy Now, Pain Later? An interesting read on BNPL and specifically Affirm

Don’t forget Microsoft. Business schools around the world should teach students about Microsoft and its revival by Satya Nadella.

Business Travel Rebounds as Execs Choose (Real) Face Time Over Zoom. I, for one, am curious about whether business travel will come back to the pre-pandemic levels and how it will come back. During the pandemic, articles were written on how business travel would never be the same. Anecdotally, my colleagues at work traveled to Omaha, Nebraska for monthly meetings and quarterly department reviews as if nothing had happened in the past two years. China remains a question mark. Because they remain persistent on the zero-Covid strategy, they are not a viable destination at the moment. And I hope that the prolonged fight with Covid does not give other variants a chance to spring up. I think we have enough of a pandemic for, let’s say, the next few decades.

Inside the Collapse of CNN+, the News Channel’s ‘Apollo Mission’. The launch of CNN+ seems rushed and more like a political move by some executives than a savvy business initiative

How Gillette Embraced the Beard to Win Over Scruffy Millennials. Gillette went from demonizing beards to embracing them. After years of fruitless resistance and declining sales, they finally realized that their bread and butter product is no longer what men want. More than half of the men in the world don beard, including two-thirds of millennial men. Sensing that the tide they were going against was too strong, Gillette launched new beard-friendly products rolled into a line named King C. Gillette. A deviation from what the company is always known for, but a good strategic shift, I think.

Other stuff I found interesting

Could solar power solve Puerto Rico’s energy nightmare? I can’t imagine living in this day and age without electricity. Especially when that happens in a U.S territory.

Moon soil used to grow plants for first time in breakthrough test. This discovery inspires a lot of questions, possibilities and dreams

Cat Litter Could Be Antidote for Climate Change. I don’t know about you, but I don’t have “cat litter could absorb methane before it goes up in the air” in my 2022 bingo card. But it’s a nice surprise and discovery.

Stats

NYC subway ridership as of March 2022 is 60% of the pre-pandemic levels

Germany has 9% of all bitcoin nodes

“In 2021, U.S. podcast advertising revenues rose to $1.4 billion”

Only 50% of the time when a PayPayer user goes to a site that has PayPal does that user use PayPal

Uber Q1 FY2022 Results

Last week, Uber announced the earnings results of Q1 FY2022 and the numbers show that its operation continues to recover well after Covid-19 disruptions. Here are the highlights:

  • Gross Bookings: Gross Bookings increased by 35% to $26.5 billion
  • Mobility & Delivery Gross Bookings: Mobility saw 58% in Gross Bookings while Delivery had a 12% YoY growth
  • Revenue: Revenue rose by 136% to $6.8 billion. Total revenue was boosted by the acquisition of Transplace. Nonetheless, Mobility and Delivery revenue grew by 195% and 44% respectively
  • Net loss: While net loss was an astounding $5.9 billion, $5.6 of which came from the loss in value of equity investments in other companies. Loss from operation stood at $482 million, down from $1.5 billion a year ago
  • Free Cash Flow: FCF for the quarter was -$47 million, up from -$682 million a year ago. Uber’s operation cash flow was $15 million, up from -$611 million in Q1 FY2021

For Q2 FY2022, forecast Gross Bookings is between $28.5 to $29.5 billion, resulting in growth of 30% to 35%, on top of the 114% growth booked in Q2 last year. The company also expects to generate positive free cash flow for the full year of 2022. Investors and analysts must love the forecast by Uber as the drop in its stock price last week was much less severe than Lyft’s. And they should like what they see from Uber, especially when we dig into the numbers a bit more.

As mentioned above, revenue growth outpaced gross bookings growth in both Mobility and Delivery. Mobility take-rate hit 23.5% in Q1, back to the pre-pandemic levels, and it’s still short of the long-term target of 25% set on Investor Day 2022. Delivery has seen a steadily increasing take-rate for the past 3 years, reaching 18% in Q1 FY2022, which is already higher than the target of 15%. Delivery is a highly competitive space with the presence of heavyweights such as DoorDash or Instacart. I wonder if this heightened take-rate will remain stable or if Uber will reduce its cut to attract and retain merchants.

Uber's take rates

The good news for Uber is that such an increase in revenue didn’t come at the expense of profitability. Mobility’s adjusted EBITDA margin came back to the 2019 levels while Delivery’s was positive for two consecutive quarters in a row. Last quarter saw Freight become adjusted EBITDA profitable for the first time in the company’s history. Since the management team forecast to have positive FCF for the whole year, this trend seems to become a norm moving forward, rather than a fluke. Furthermore, the Fed plans to have more rate hikes in the coming months to curb inflation. At a time like this, companies will do well to demonstrate to investors that they can generate profits. To that end, Uber is in the pole position to reach profitability in an industry whose unit economics have long been questioned.

Uber Delivery adjusted EBITDA
Uber Mobility Adjusted EBITDA Margin

There are a few levers that can help Uber grow both the top and bottom lines. First, airport rides. Rides to and from airports used to account for 15% of Mobility Gross Bookings. From the low during 2020, share of airport gross bookings have grown to 13% of Mobility. There is still room to get back and probably exceed the pre-pandemic levels. Additionally, the same goes for Mobility as a segment. Its Gross Bookings is still down by compared to the 2019 levels. Total GBs for Mobility in 2021 trailed that in 2019 by $14 billion. Once that gap is closed, the higher take rate from this segment can only help with the bottom line. Additionally, the next lever is ads. The ads business is growing healthily as annualized run rate rose to $225 million in Q1 FY2022, more than double what was reported a year ago. Almost one out of four Delivery merchants is an active advertiser on the platform. As Sponsored Video Ads is available on a pilot basis, we should see more merchants advertise and more ads revenue. Last but not least, new verticals. These verticals have been doing about $4 billion in annualized run rate every quarter in the last few months. That’s less than 10% for all Delivery GBs in 2021. Given the latest developments such as the deepened partnership with Albertson, the expansion of Eats in Germany, the new deal with BP, the collaboration with Rakuten and Amazon Prime in Japan, and the introduction of group ordering, I expect new verticals to grow substantially soon.

In summary, I find the earnings report positive. Uber stock has been battered for months as its price dropped by 44% in the last year. Folks are concerned about the business model and they have reasons to be. Uber functions as a middleman working with a lot of important stakeholders: consumers, drivers, merchants and lawmakers. Maintaining those relationships on a global scale in different cultures and political agendas is extremely difficult. For good measure, competition is fierce with deep pockets as well. To invest in the company means that one believes in flawless strategy AND execution. One down quarter wouldn’t do as much damage to Apple as it would to Uber because the former has a dominant market share and is in a much better position than the latter. With that being said, Uber management navigated a pandemic by pivoting to Delivery, which changed the business forever. Could another management team have done better? Possibly, but we never know. The fact that Uber now has a friendlier image than it did, that its Delivery business is an equal of Mobility and that it has other levers to pull is a testament to the work of the management. Just look at Lyft. Even though its revenue is smaller than Uber Americas, its revenue growth rate hasn’t recovered as quickly. That’s due to Delivery, because as mentioned above, Uber Mobility’s business is still down compared to the 2019 levels. That goes to show how important it was for Uber to react and execute effectively during the pandemic. While it’s highly challenging to stay competitive and create profit in this industry for factors mentioned above, it’s precisely such factors that can make Uber’s moat robust if they can get execution right. A big if, indeed. I get where the skeptics come from, but personally, I am still on the believer side, for now.

Uber US & Canada revenue growth vs Lyft revenue growth

Disclaimer: I own Uber stocks in my portfolio.

Weekly readings – 12th February 2022

What I wrote last week

Thoughts on PayPal’s latest earnings

Apple’s next growth opportunity. Disney’s streamers showed resilience. ESPN+ achieved its FY2024 target

Business

Stream big: how Netflix changed the TV landscape in 10 years. I don’t deny that Netflix revolutionized the streaming industry or that it has the scale advantages. What I disagree with Netflix bulls or fans on is the alleged invincibility. The latest earnings call was a disappointment, sending the stock down by 20%. For the first time, the management team vaguely admitted competition which includes rivals with deep pockets and additional services that can help “subsidize” these rivals’ streamers. So far, Netflix has been successful, but it’s not a lock that they will continue to be the market leader in the near future.

‘Spider-Man: No Way Home’ could have hit $2 billion at the global box office if it were released in China. Movies without a release date in the most populous country in the world leave a lot of dollars on the table. It will be interesting to see producers strike a balance between freedom to cast whoever they want or craft whatever story they want to tell and the need to appease China. A big payday from a release in the country is something worth thinking about.

New Airline Bets You’ll Stop in Alaska for a Cheaper Flight to Asia. Personally, I look forward to the launch of Northern Pacific and flights to Asia through Alaska. I have never been there and tickets can be cheaper. So why not?

Deep Dive: Xiaomi. More than just cheap phones

How Alexandre Arnault Is Shaking Things Up at Tiffany & Co. An interesting profile of one of the Arnault children. He seems to have more than just the right last name

A $6 Billion Wipeout Was an Omen for Food Delivery Stocks. At this point, I feel like it’s irresponsible to invest in food delivery startups or publicly traded firms that do not have the scale. While it’s already tough for the established incumbents to run their business in the black, it’s an order of magnitude harder for those without scale. And if you haven’t noticed, the market isn’t looking kindly on unprofitable companies in a cut-throat market like food delivery.

Stuff I found interesting

Where Is There More Lithium to Power Cars and Phones? Beneath a California Lake. “In the U.S. hunt for lithium, an essential component of the batteries that power electric vehicles and cellphones, one big untapped source might be bubbling under a giant lake in Southern California. The U.S. currently imports almost all of its lithium, but research shows large reserves in underground geothermal brines—a scalding hot soup of minerals, metals and saltwater. The catch: Extracting lithium from such a source at commercial scale is untested.”

House Passes $350 Billion Competitiveness Bill, but Senate Fight Looms. Read this article and you’ll see how broken Washington is. The country really needs leadership, assistance and regulation to compete on strategic fronts. Yet, these lawmakers are prioritizing tribal politics instead of putting the country first.

EV Charging Network Will Target Interstate Highways. “Dotting the interstate-highway corridors with charging stations is considered a priority because it will give EV motorists confidence that they can take long-distance trips without trouble recharging. Stations will have to be installed every 50 miles, no more than one mile off the interstate, according to a guidance memo by the Federal Highway Administration. And stations will have to have at least 600 kilowatts of total capacity, with ports for at least four cars that can simultaneously deliver at least 150 kilowatts each. The stations also have to be accessible to the general public, or to fleet operators from more than one company. The locations can include privately owned parking lots if they are open to the general public.”

Germany’s Covid Boomtown Stumbles Over Its Newfound Riches. Progressive politicians want companies to pay more taxes; which companies do not want to do. Folks just want stable jobs and to be taken care of by the tax money they pay. Marburg is another example of how hard it is to strike a balance and keep everyone happy

Stats

International students earned nearly half of the master’s and PhD STEM degrees in the US in 2019

90% of Uber’s earners work fewer than 40 hours per week and 60% work fewer than 20 hours per week (Investor Day 2022)

46% of Uber’s gross bookings in Q4 2021 came from customers engaged both with Mobility and Delivery. These customers made up only 17% of Uber’s customers base (Investor Day 2022)

10% of all first time riders to Uber in 2021 came to a 2-wheeler or a 3-wheeler trip (Investor Day 2022)

Uber lags behind DoorDash in the U.S. Uber advertisers made up 18% of its merchants

Uber Eats in the U.S accounts for 23% of its total Gross Bookings. Still far behind DoorDash

To prove that it’s a valuable partner for merchants, Uber commissioned what they call Uber Merchant Impact Report. This report is based on internal data between October 2020 and September 2021, as well as an online survey of 727 U.S merchants whose response is anonymous. According to Uber, there are 400,000 active Eats merchants in the U.S alone. Hence, the number of surveyed responders (727) doesn’t seem very representative to me. Nonetheless, the report does have some useful nuggets.

In the last twelve months, Uber Eats facilitated $11 billion in “sales” for merchants in the U.S. The word “sales” here is tricky as I don’t know for sure whether it is Gross Bookings or what merchants actually receive after Uber gets its cut. The difference can be in the region of 25%. In this case, if we assume that the figure is Gross Bookings, it means that Uber Eats in the U.S was responsible for 23% of the company’s total Delivery Gross Bookings (approximately $48 billion) in the last year. Quite a significant piece of the business. However, it still lags quite far behind almost $40 billion in Gross Bookings that DoorDash recorded in the U.S in the same time frame.

Additionally, Delivery has 400,000 active merchants and 2 million active drivers in the U.S at the end of September 2021. In the past year, these merchants and drivers helped facilitate more than 500 million Eats orders. In contrast, DoorDash, if we assume all their Operating metrics are U.S alone, has 500,00 active merchants, 3 million active riders and almost 1.3 billion orders.

Uber Eats/DeliveryDoorDash
Gross Bookings between Oct 2020 and Sep 2021 (in $ billion)11 – 13.7540
Orders between Oct 2020 and Sep 2021 (in millions)5001,300
Active merchants as of end of Sep 2021 (in thousands)400500
Active drivers as of end of Sep 2021 (in thousands)2,0003,000
Comparison of operating metrics for the U.S market

Uber advertising is growing

Uber advertising was first launched in the U.S in Q3 2020, has since expanded to all Eats markets, exceptGermany, and has been seemingly well-received by merchants. The number of active advertising merchants grew from 30,000 in Q3 2020 to 140,000 a year later. As share of total active merchants, advertisers made up 5% and 18% in Q3 2020 and Q3 2021 respectively.

While the growth figures look good, I have a couple of concerns over this advertising business. The first is its outlook. We obviously can’t expect 100% of merchants to become advertisers. If 18% is the adoption rate right now, how much higher can it go? 25% or 50%? In that case, what would be the ramifications of having too many advertisers and too many sponsored listings on an app? We all feel annoyed with Google searched result pages littered with ads. If Uber is not careful, it will risk losing valuable consumers because of inferior customer experience. That’d be too high a price to pay, I’d say.

The second concern I have is whether this segment can actually move the needle. Uber revealed that advertising reached an annualized run-rate of $100 million in Q3 2021. Whether this number was annualized on a weekly or daily basis is unclear; which makes it impossible to really gauge how much revenue Uber actually generated from advertising. Additionally, even the annualized run-rate of $100 million is a drop in a bucket as Uber’s last 12 months’ revenue was almost $15 billion. Is advertising dollars helpful? Yes. Will it be a needle mover soon? I doubt it.

Super Apps

In this post, I’ll touch upon briefly the definition of a Super App, give a few examples and talk about the business implications of these apps.

The term Super Apps is generally credited to Mike Lazaridi, the founder of Blackberry, who defined it as “a closed ecosystem of many apps that people would use every day because they offer such a seamless, integrated, contextualized and efficient experience”. In laymen’s terms, a Super App is an application that offers various services on one interface. While the mix of services offered by Super Apps varies from one to another, the common denominators of these apps are 1/ they are all two-sided networks popular with both merchants and consumers and 2/ they all began their journey by being excellent in one function before branching out to others. Merchants need to have access to a lot of consumers to join a network while consumers only find the network useful when there is a lot of utility, namely plenty of merchants. The chicken and egg problem of a two-sided network is hard. Therefore, the singular focus on a vertical in the beginning makes sense as start-ups can’t afford to solve this issue in multiple verticals. No-one can build a Super App right from the get-go. Once an app excels and makes a name for itself in a vertical, why not leveraging existing traffic and offering users more reasons to stick around longer?

Examples of Super Apps

WeChat

WeChat started out as a messenger app. An engineer named Allen Zhang alerted his employer Tencent on a threat of other competitors taking away its market share and app engagement. To stay competitive, WeChat transformed itself into an app on which users could do everyday things on a single interface including payments, social media, e-commerce, doctor appointments, hotel reservation or ride-hailing. The pivot was a hit as the new services surpassed even the apps that inspired WeChat in the first place. 

Facebook

Facebook and its founding story need little introduction. Over the years, Facebook has added several services to make itself stickier as a platform. Nowadays, users can shop on a marketplace or Facebook-native stores; create new connections with Facebook’s own Tinder version; make payments with Facebook Pay or consume exclusive content from creators. With its ambition and virtually limitless resources, it won’t be a surprise that Facebook or Meta will expand its offerings in the future.  

Grab

The title of grab.com reads “Grab: The Everyday Everything App”. Its status as one of the biggest Super Apps in Southeast Asia is so different from its humble beginning. Grab was founded as a taxi-hailing business in Malaysia in 2012 by two Harvard graduates. The company gradually expanded into other areas, such as other modes of ride-hailing, food delivery & nonfood delivery, travel bookings, bill payment and financial services. In Vietnam, almost everyone in big cities uses Grab for daily tasks from food delivery, ride-sharing or bill payments.

What Grab mobile app looks like in Vietnam
Figure 1 – What Grab mobile app looks like in Vietnam

Uber

Uber was founded in 2009 by Travis Kalanick and Garrett Camp as a ride-hailing alternative to taxies. The company’s meteoric rise saw it become a global phenomenon, but the company today is more than just a ride-hailing app. In 2014, Uber launched a food delivery service called Uber Eats, which was later rebranded under Delivery. While Covid-19 decimated the Mobility segment (ride-sharing) as riders were restricted by stay-at-home orders, the pandemic was a catalyst for the transformation of Uber as a whole. Delivery has been growing substantially due to consumers ordering food and grocery deliveries. Its gross bookings have repeatedly surpassed Mobility’s and now reaches Mobility’s pre-pandemic level. Second, the company has made strategic acquisitions to expand beyond food delivery. In June 2020, Uber acquired Cornership, a popular grocery delivery service in Latin America. A few months after, it added Postmates, which is very competitive in coastal cities and offers delivery-as-a-service for non-food items. In October 2021, Uber took over an alcohol delivery startup called Drizly. The company has been tinkering with marijuana delivery in Canada and waiting for the green light from the federal government before launching it in the U.S. Powered by the new capabilities, nonfood categories make up around 5-6% of Uber’s overall gross bookings and are expected to grow more in the future. Uber’s ambition is very simple: be the go-to app when consumers have a transportation need. 

PayPal

PayPal first made a name for itself by being a secure digital wallet and online payment system, especially as the primary checkout option on eBay. Since its spin-off from eBay in 2014, the company has added plenty of services to its mobile app and become a formidable two-sided network, due to relentless acquisitions and product development. End users can access various services on the current PayPal app, including paycheck deposit, high-interest savings, bill payment, remittance, credit cards, debit cards, in-store & online payment, BNPL, PayPal Credit, P2P payment, shopping deals and investing. PayPal’s end goal is to be the go-to Financial app for its users.

PayPal's offerings to consumers and merchants
Figure 2 – PayPal’s offerings to consumers and merchants. Source: PayPal

Cash App

Cash App started out as a P2P payment app in which users could transfer funds to anybody in the U.S. Nowadays, users can pay for purchases in stores and online with Cash App debit card and Cash App Pay; invest in stocks and cryptocurrency; or make deposits into checking accounts. In November 2020, Square bought the tax filing division of Credit Karma and subsequently added to its flagship app the ability to file taxes and receive tax refunds. In August 2021, Square paid $29 billion for Afterpay, one of the major BNPL players in Australia and in the U.S. It’s just a matter of time before Cash App turns on BNPL for its users and merchants. Cash App’s ambition is similar to PayPal’s; which makes it interesting to see how the two compete in the future.

Pros and Cons of partnering with Super Apps

Merchants stand to gain an additional payment option as well as more sales from Super Apps, but the story isn’t all rosy. Too much reliance on Super Apps means that merchants’d risk ceding the control of direct customer relationships. In business, few things are more valuable than that. Take Apple and Amazon for instance. Apple’s customer base is so loyal and attached to their brand that almost all developers or other brands take the back seat in negotiations . Amazon’s scale and iron grip on the valuable Prime base allows them to dictate terms over merchants. When you buy from a merchant on Amazon, do you feel more related to the former or the latter?

For banks, Super Apps can have adverse impact in a couple of ways. First, services such as PayPal in 4, Afterpay, PayPal Credit or PayPal/Venmo credit cards can reduce issuers’ credit card spend and subsequently balance as well as revenue. Secondly, it’s in their interest to have users maintain an in-app balance and keep funds away from banks’ checking accounts. Think about it this way: would you feel more poised to use PayPal when your PayPal balance was $20 or $0? That’s why Venmo credits dormant users $10 for downloading and logging into the app again or why Square wants users to keep tax refunds in Cash App balance. The reduction in deposits can raise banks’ cost of funds as well as threaten to cut off the most fundamental relationship with customers. 

On the other hand, Super Apps present a battleground for financial institutions vying for wallet share. Once the connection between checking accounts or debit/credit cards and these Super Apps is established, users often don’t want to go through the inconvenience of updating their default payment method. Hence, every financial institution wants to be the primary source of funds for consumers on these Super Apps to have a leg up over the competition. In this sense, Super Apps offer a business opportunity.

In summary, as you can see above, there are multiple paths towards the Super App status, whether an app’s starting point is to be in messaging, digital wallets or ride-sharing. I think all successful consumer-facing apps have ambition to gain the Super App status. If not, they’d do something wrong. It’ll be interesting to see how these Super Apps compete for mindshare as feature parity is established (meaning they all offer similar features). For merchants, working with Super Apps can be a double-edged sword. While the benefits these apps bring are very tempting, merchants need to keep in mind the risk of losing customer relationships. Like people usually say: don’t miss the forest for the trees.

Weekly reading 6th November 2021

What I wrote last week

I gave two examples from Financial Times on why you should be vigilant about what’s on the Net

Uber’s Q3 FY2021 results

Good reads on Business

Why acquisitions lead DTC exits. “An acquisition, especially from a larger firm in the space, can provide brands with the resources needed for sustained growth, like marketing expertise, a stronger supply chain, access to new customers or a wider distribution network. At the same time, an acquisition — as opposed to alternative exit methods like a public listing — keeps many aspects of the business, namely its financial reports, private. Acquiring a brand gives larger companies access to the brand’s data, e-commerce expertise and its customers. Through an acquisition, a larger company may also be looking for expertise, resources and sometimes real estate it doesn’t have yet, in addition to talent and customers”

The Facebook name was such a drag that employees referred to it as a ‘brand tax’. What it’s interesting yet has been so obvious to me for a while is that while Facebook is supposed to be an entity making decisions based on mountains of data, the call to add “from Facebook” to Instagram and Whatsapp was made unilaterally by Mark Zuckerberg based solely on his preference and against studies with concrete data from his staff. I am sure this isn’t the only instance that this sort of things happen in Facebook or quite frankly any organization

The economics of pumpkin patches. If you haven’t subscribed to The Hustle, you may consider doing so as their weekend write-ups are usually a joy to read.

A New Market Emerges for Online Delivery: 10-Minute Groceries. The idea of 10-minute deliveries is straightforward, but requires gigantic investments and great execution. In other words, it’s exceedingly difficult. On top of the operational challenges, consumers can switch to another provider at any time, making the cost of acquisition and retention expensive. My guess is that these providers use initial investments to generate demand and popularize the concept of 10-minute deliveries. Once consumers are used to the concept and demand it from retailers, these retailers have no choice but to offer it, either by building the capacity themselves or working with the delivery services. The likelihood of retailers building the capacity themselves is low, especially for small and medium-sized retailers. Hence, these delivery services can improve economies of scale by signing up more and more retailers. Oh and don’t forget the ads dollars that will definitely grow once the delivery apps become popular enough.

Is Facebook Bad for You? 360 Million Users Say Yes, Company Documents Show. “Facebook researchers have found that 1 in 8 of its users report engaging in compulsive use of social media that impacts their sleep, work, parenting or relationships, according to documents reviewed by The Wall Street Journal. A Facebook team focused on user well-being suggested a range of fixes, and the company implemented some, building in optional features to encourage breaks from social media and to dial back the notifications that can serve as a lure to bring people back to the platform. Facebook shut down the team in late 2019.

Rene Ritchie talked to two Apple executives about Apple’s switch to their own chip M1. Two things stood out to me from this interview: 1/ the minimalistic style that Apple follows is reflected on the principle that no transistor is wasted on the chip. If a transistor is on the chip, then it has a job to do and it really needs to be there; 2/ the construction of the M1 chip is a collaborative effort between multiple different teams that starts from the vision for better customer experiences. Other chips are designed to maximize benchmarks and meaningless stats and then hardware and software follow to accommodate the chips.

Stuff I found interesting

The untold story of the world’s biggest nuclear bomb. The deaths that stem directly from these nuclear bombs are tragic. What’s even worse is the long-lasting radioactive effect that can linger for hundreds of years. The next generations didn’t do anything to deserve that

‘Father of tiramisu’ Ado Campeol dies aged 93. “Campeol was the owner of Le Beccherie, a restaurant in Treviso in northern Italy where the famous dessert was invented by his wife and a chef. The dish, featuring coffee-soaked biscuits and mascarpone, was added to their menu in 1972 but never patented by the family. According to the dessert’s co-inventor, Chef Roberto Linguanotto, the dish was the result of an accident while making vanilla ice cream. The pair then perfected the dessert by adding ladyfinger sponges soaked in coffee, and sprinkling it with cocoa – calling it “Tiramisù”, which translates into English as “pick me up”.

A very good M1 Max Macbook Pro by MKBHD

Stats

Chile, Australia and Argentina have 75% of the world’s Lithium reserve with Chile making up 45%, according to World Economic Forum

Source: World Economic Forum

Uber Q3 FY2021 Earnings

In this post, I’ll share my notes on Uber Q3 FY2021 earnings and the business in general.

The last quarter saw Uber’s business continue to recover from the recent challenges, including driver shortages and lockdowns in various parts of the world. The number of Monthly Active Platform Consumers (MAPC) reached 109 million, an increase of 40% year over year. This is the highest number that Uber has seen in the last 12 months. The number of trips rose 39% as the average monthly trips per consumer was flat at 5 each. As usage increased, the company saw Gross Bookings (GB) and Revenue grow by 57% and 72% respectively (Figure 1). Adjusted EBITA, which Uber uses to measure profitability, was positive for the first time.

Specific segments (Mobility, Delivery and Freight) showed great progress in both GB and Revenue. Mobility led the way in GB growth at 67%, followed by Delivery at 50%, mainly because of the law of big numbers. In revenue growth, Mobility trailed Delivery (62% and 97% respectively), because the latter managed to raise its take rate by 410 basis points (Figure 2) while the former’s take rate took a modest hit. As the revenue continued to climb and operational optimization kicked in, Uber’s Delivery was inches away from profitability on Adjusted EBITA basis.

There is an argument to be made that Covid-19 created a golden opportunity for Uber to transform itself. The pandemic impacted its Mobility segment to great extent as lockdowns were imposed and consumers stayed at home. Not only did the company persevered, but it also pivoted successfully to grow its Delivery service. Since December 2020, the company’s total GB every month already exceeded that of February 2020. The key was in how Uber did it. While Mobility’s GB still hasn’t recovered to the pre-Covid level, Delivery has grown leaps and bounds by several folds (Figure 3). Furthermore, the two segments start to complement and support each other as one becomes a key acquisition tool for the other. Here is what Dara, the CEO, had to say on the earnings call:

So about 50% of, for example, U.S. and U.K.gross bookings come from cross-platform users. That number is closer to 45% globally and generally increasing. In the U.S. now, mobility continues to be a very significant customer acquisition tool for Eats. So now 1/4 of U.S.first-time eaters are coming from our Ride’s business, which is pretty extraordinary. For perspective, that’s more new users than we get from Google, Apple, Facebook, Instagram from all of these paid entities combined.So it’s free. We have tested that because consumers actually like this super asset that we’re building and the numbers are significant and increasing. And then on the other side, what’s interesting is that 20% of U.S. mobility first trips are coming from eaters. So now that we have a very, very big delivery business, we’re able to now cross platform into whether it’s offers or on the app or off app, we’re able to promote into our Mobility business. That number for the U.K., for example, is 40%. I’ll repeat it. 40% of U.K. first trip mobility users actually came from Eats — were Eats users, which is pretty extraordinary.

Source: Uber Q3 FY2021 Earnings Call

This synergy and ability to cross-sell is a competitive advantage over other Delivery rivals like DoorDash or Mobility nemesis (Lyft). None have this capability, especially on a global scale, like Uber does. From a consumer perspective, the extra utilities that Uber offers create a compelling reason to be a member and use the Uber app more often. According to the management team, there are 6 million members globally who already make up 1/5 of the total GB. On average on the Eat side, members’ basket size is 10% bigger than that of non-members. In Taiwan, Eat members made up more than 50% of the market’s GB and placed 3x more orders than non-members.

The increased utilization is also reflected on the driver side. A few months ago, in an article on the acquisition of Postmates and Drizly, I wrote: “Drivers have limited resources in their vehicles and time, as even the most dedicated drivers can’t drive for more than 24 hours a day. Nobody wants to drive around needlessly all day without getting paid while having to pay for vehicle expenses and gas. As a result, the more business opportunity Uber can bring to drivers, helping them better leverage their time and resources, the more drivers will sign up. When it comes to making more trips and money, do drivers care if it’s a parcel or a person that needs transporting?”. The sentiment was confirmed yesterday by Dara on the earnings call:

On the driver side, one thing that’s pretty cool is that about 1/3 of our new driver sign-ups now are driving both people and food, so to speak. And that is a higher number than our overall number. So about 25% of our drivers in the U.S. drive both people and food. That number was in the teens pre-pandemic.So it’s going up from the teens to 25% overall. And new drivers, 1/3 of them are electing to do both. So that, again, is like the iteration of our product getting better and better in terms of kind of pushing both services or offering both services, both on the demand and supply side.

So I think we’re going to see more earners on our platform for years and years to come. And we are finally getting the right muscle in terms of promoting cross-platform usage, which is going to lead to higher utilization on our platform in terms of time of day and in terms of driver utilization, structurally, it will be an advantage over the other players. So we want to be that platform that is kind of the one-stop shop for earners that they keep coming back to for a long period of time.

Source: Uber Q3 FY2021 Earnings Call

The investment in drivers that Uber made earlier in the year, plus the recovery from Covid and the increased driver utilization, helped the company tackle the driver supply issue. Compared to January 2021, Uber has seen 75% more active drivers in Q3. The wait time dropped from 7. 5 min on average in the U.S in March 2021 down to 4.5 min in October 2021.

In addition to the true ride-hailing and food delivery services that people come to know Uber for, there are a few other developments that are very promising and potentially beneficial to Uber. First is advertising. Having a marketplace (app) that is used by millions of users enables the company to monetize that traffic. Merchants wishing to broadcast their name and generate more business ought to pay advertising dollars to Uber. From Uber side, advertising revenue which Uber reported to amount to $100 million on an annualized basis in Q3 2021 and feature 140k merchants is high margin that allows the company to “fund” other emerging verticals. Which brings me to non-food deliveries. The new verticals make up about 6-7% of Delivery’s total GB and are expected to reach double digits next year. The investments that Uber has made to scale these verticals actually dragged down the profitability of the whole Delivery segment as the core verticals are now already in the black.

Additionally, the company is expanding alcohol delivery to more states in the U.S after the acquisition of Drizly. Drizly has a business model that is already profitable. It acts as a marketplace to connect merchants and consumers, but leaves the delivery duty to merchants. That way, Drizly can simply earn revenue from monthly subscriptions and a small fee every order without having to deal with drivers and all the expenses that come with delivery. Other ventures include rapid delivery, dark grocery (tiny warehouses that hold a limited selection of grocery to facilitate rapid delivery) and Baby + Kids vertical.

One stripe that people have against Uber is the tendency to burn money every quarter. The criticism is legit as that’s been the company’s model. This quarter saw net loss balloon to $2.4 billion, $2 billion of which came from a “net headwind (pre-tax) from revaluation of Uber’s equity investments in Q3 2021”. According to Uber’s CFO – Nelson Chai, the write-down resulted mainly from the loss of value of Uber’s stakes in DidiChung and this fluctuation can continue from one quarter to the next. I have quite mixed feelings about this issue. While I appreciate that Uber has valuable assets such as this equity, the fluctuation and complication don’t provide the simplicity and certainty to investors.

Lastly, Uber revamped its pricing tiers for merchants. The new pricing system mirrors very well what DoorDash offers with two distinct differences. One is that while DoorDash includes in its take rates the credit card processing fees, it’s unclear if Uber does the same. This can be an important point as 2.5% in credit card fees can mean the world to merchants. The other difference is that Uber guarantees 5 more orders every month with its Premier tier than DoorDash’s highest tier. As these table stakes are level-set, the difference between these two impressive companies will come down to: who executes better, who can bring more business & drivers to merchants?

Overall, this, to me, is a good quarter for Uber. The company took steps to address the driver supply issue and they worked. There is a great synergy between Delivery and Mobility that seems to go from strength to strength over time. Delivery doesn’t seem to show signs of slowing down and is actually profitable at the core while still in the red with the new verticals. Once Mobility gets back to the pre-Covid level and the new investments become more mature, the outlook will be even brighter for this company.

Disclosure: I have a position on Uber.

Appendix

Figure 1 – Uber’s Q3 FY2021 Financial & Operational Highlights
Figure 2 – Uber’s Revenue and Take Rate in Q3 FY2021
Figure 3 – Uber’s Monthly GB
Figure 4 – Uber’s platform supply growth efforts showing results in the U.S

Weekly reading – 23rd October 2021

What I wrote last week

PayPal in talks to buy Pinterest

Book review: Richer, Wiser Happier: How The World’s Greatest Investors Win In Markets & Life

Good reads on Business

Jokr and Personalized Instant Commerce. The article lays out useful data and information on Instant Commerce, especially Jokr. However, I am still a bit unsure about the unit economics of these delivery services. Last-mile delivery is hard and expensive, especially at scale. The consumer stickiness is naturally low and requires constant incentives to nurture. Competitors are everywhere. Plus, the good-old brick-and-mortar alternatives generally offer sufficient value and people, like myself, like to go out once in a while for some fresh air.

Netflix Loses Its Glow as Critics Target Chappelle Special. Netflix has started to encounter what the likes of Facebook and Twitter have for years: content moderation. The company can’t please everyone; so in this case, it’s natural that one or two stakeholders are disappointed with the Dave Chappelle show. The management team believes that the show brings net benefits to Netflix and acted accordingly. Agree with them or not, you should see where they are coming from. On the other hand, some employees reserve their right to disagree with that decision and be disappointed. That happens to even within families, let alone strangers that merely work at the same place. What remains to be seen to me are 1/ how would this affect staff turnover and talent management at Netflix; 2/ how would Netflix users think about the show?

Inside TSMC, the Taiwanese chipmaking giant that’s building a new plant in Phoenix. “TSMC makes key components for everything from cellphones to F-35 fighter jets to NASA’s Perseverance Rover mission to Mars. Earlier this month, it announced plans for a new factory in Japan, where it will produce chips with older technologies, for things like household devices and certain car components. TSMC is also Apple’s exclusive provider of the most advanced chips inside every iPhone currently on the market and most Mac computers. TSMC alone was responsible for 24% of the world’s semiconductor output in 2020, up from 21% in 2019, according to the company. When it comes to the most advanced chips used in the latest iPhones, supercomputers and automotive AI, TSMC is responsible for 92% of production while Samsung is responsible for the other 8%, according to research group Capital Economics. ”

How YouTube Makes Sure Its Hitmakers Don’t Stumble. YouTube spends tens of thousands of dollars on the top YouTubers to grow their content and ecosystem. Their in-house digital agency also offers guidance and consulting services to these personalities so that they can sustain attractive videos and high viewership. This kind of support, along with YouTube or its parent company’s resources, makes it difficult for other competitors to match.

Squid Game’ success shines a light on how cheap it is to make TV shows outside the U.S. “The total cost of making “Squid Game” was just $21.4 million. Episodes of Disney+’s Marvel shows, such as “WandaVision” or “The Falcon,” cost Disney $25 million per episode — more than all nine episodes of “Squid Game”“. I’d also prefer local characters being played by true locals to by Americans.

Is Best Buy undermining its storybook turnaround? I don’t think it’s a good idea to mess with a formula that works. Especially, that formula is around customer services and satisfaction. If I were a Best Buy shareholder, I’d send the CEO and the Management Team this article with a lot of questions.

Business Breakdown episode on Uber. If you are interested in gig economy and especially Uber as a business, have a listen. Whether you are a bull or a bear, I think it’ll be worth your time

How Many Users Does Facebook Have? The Company Struggles to Figure It Out. “A separate memo from May said that the number of U.S. Facebook users who are in their 20s and active at least once a month often exceeds the total population of Americans their age. “This brings out an elephant in the room: SUMA,” the memo’s author wrote, using an internal abbreviation for “Single User Multiple Accounts.” The author added that the issue could render Facebook’s ratio of users active each day “less trustable. Facebook said in its most recent quarterly securities filings that it estimates 11% of its monthly active users world-wide—which totaled 2.9 billion for its flagship platform in the second quarter—are duplicate accounts, with developing markets accounting for a higher proportion of them than developed ones.”

Other interesting stuff

Your Guide to the Third-Party Cookie. A very useful primer on the key factor in the digital advertising world. I have been on both sides of this issue. As a marketer, I can see why companies want to get as much data as possible to hone their targeting and make the best use of their ads dollars. On the other hand, as a consumer, I absolutely hate the feeling that somebody follows me everywhere across the Web. Privacy has been on the rise and will continue to be. iOS users now have a choice to voice their opinion on the matter with ATT. I don’t know how this all will shake out, but I would think that marketers would do well if they pivoted from 3rd party tracking.

Belgium’s shift from nuclear under fire as gas price surge strains Europe. It is baffling to me that countries are moving away from nuclear energy for gas-based power.

The Greek region too remote for maps

New Viking artifacts may mean that Christopher Columbus might not be the first one to discover the America continent. I guess it’s time to keep the holiday yet change the freaking name

Stats

Gas bills this winter can be at least 30% higher than last year

Weekly reading – 25th September 2021

What I wrote last week

Is BNPL replacing credit cards?

My thoughts on Visa’s new benefits for U.S Signature/Infinite cardholders

Articles on Business

When to Buy Now, Pay Later, and When to Just Pay Now. “Affirm doesn’t report payments on its four biweekly payment zero-interest loans, it said, or when consumers are offered a three-month payment option with no interest. Afterpay doesn’t work with credit bureaus at all. Sezzle Up explicitly informs users that it will report on-time payments to Equifax and TransUnion. Affirm doesn’t charge late fees, but late or partial payments can hurt your credit score, and may prevent you from using the service in the future. Sezzle Up also reports delinquencies. Klarna and Afterpay revoke access to their platform until payment is made. Both companies also charge late fees, tacked onto your next payment. Afterpay charges $8, or 25%, of the purchase, whichever is less, while Klarna charges a maximum $7, or no more than 25%, of the past due amount. Klarna said it will contact users to collect payment before charging a late fee.

This delivery app went above and beyond for its workers. Then Uber took over. Cornershop’s original operating model was more beneficial and friendly towards workers. After the acquisition, life became more challenging for drivers. It remains to be seen whether the regulation in Chile will allow workers to unionize and force Uber to recognize drivers as full-time employees. This is a classic case of conflicting interests between gig companies and drivers as well as of the important role that governments play in this conversation.

Why the University of Florida gets a ~$20m cut of Gatorade profits every year. A fascinating story on a wildly popular drink.

The Most Important iPhone Ever. “What makes the iPhone and perhaps Apple special is that it seems to deliver things that nobody asks for but then everybody wants while eschewing overshooting a performance dimension that a few demand but most won’t use. The tragedy of overservice and disruption is that if you don’t shift the definition of performance eventually you run out of demand at the top of the performance curve. That opens you up to “good enough” competition from below. Instead you need to re-define the notion of performance: compete on a new basis, reset expectations. That the iPhone can find new dimensions of performance and hence demand is effectively a solution to the innovator’s dilemma.”

PayPal Introduces Customers to the Next Digital Payments Era with the New PayPal App. “The new PayPal app will introduce new features including PayPal Savings, a new high yield savings account provided by Synchrony Bank, alongside new in-app shopping tools that will enable customers to earn rewards redeemable for cash back or PayPal shopping credit and uncover deals with hundreds of merchants. Additionally, the new app offers PayPal customers a single place to manage their bill payments, get paid up to two days earlier with the new Direct Deposit feature provided through one of our bank partners, earn rewards and manage gift cards, send and receive money to friends, family and businesses, pay with QR codes for purchases and redeem rewards in-store, access and manage credit, Buy Now, Pay Later services, buy, hold and sell crypto, as well as support causes and charities they care about.”

Other stuff

The tangled history of mRNA vaccines

Stats that may interest you

“One in five consumers made a purchase using a “buy now, pay later” service within the last 12 months.

One in six consumers who made a buy now, pay later service purchase regret doing so, commonly citing high interest rates, a lack of options to build credit, or making unnecessary or unaffordable purchases.”

There have been 47 startup venture deals in Africa in 2021 so far with the average deal size of $21 million

CPC on Amazon ads is $1.27 in August 2021, up from 86 cents from a year ago, according to a survey

31% of online grocery shoppers use PayPal, according to a new study by ACI Worldwide and PYMNTS

Fuel Wasted Due to U.S. Traffic Congestion in 2020 Cut in Half from 2019 to 2020

14% of U.S consumers said they switched to an iPhone from another operating system in the last two years, a report said

Weekly reading – 8th May 2021

What I wrote last week

Amazon continues to impress with another blow-out quarter

Uber & Gopuff. Amazon Prime Video streams NFL games in 2022

Uber’s Delivery is on fire despite $600 million expense set aside for the driver dispute in the UK

Business

How Apple does M&A: Small and quiet, with no bankers. Information is extremely valuable in business. Apple’s known culture of secrecy is meant to keep competitors from knowing what it has in the pipeline. We don’t often see Apple make huge purchases. Instead of buying companies to grow the top line, they focus on the people, especially technical engineers. That’s a smart move.

A great Business Breakdown episode on Twilio. If you don’t know about the business, have a listen.

What Is a Business Model? 54 Successful Types of Business Models You Need to Know. This type of content renders expensive MBAs obsolete.

Clubhouse’s downloads plummeted in April. I have been on Clubhouse for 2 months, and yet I haven’t made it to the end of one single chat. Plus, it’s not appealing to the end users that there is no recording. Not everyone has enough time in a day to wait for talks to come and listen to everything. Not so surprising to see the app’s popularity take a huge blow. I just wonder what a16z saw in it.

Amazon Expanding Garage Grocery Delivery to more than 5,000 cities

A great podcast episode on Visa. This company probably has one of the strongest moats out there. Its market cap is higher than those of big banks.

How Shopify’s network of sellers can take on Amazon

What Is an Entertainment Company in 2021 and Why Does the Answer Matter?

What I found interesting

Green gold: Avocado farming on the rise in Africa

Playlists and podcasts? Netflix is exploring developing ‘N-Plus’

Stats that may interest you

60% of Instagram users eligible to link up with their Messenger account did use the feature

20% of electric vehicle owners in California switched back to gas because charging is a hassle. This is indeed not great news for EV as well as hydrogen cells. But I believe that the great potential of green energy cars is here to stay and we’ll overcome this challenge somehow.

Facebook Workplace reaches 7 million paid subscribers. I do wonder how far Facebook’s push into the corporate world will go. I don’t see how they can overcome the disconnect between their own brand and the seriousness that the 9-5 world carries

95% of iOS 14.5 users disabled App Tracking. There are two sides of this debate. Proponents of privacy applaud this move by Apple because it aids consumer privacy and stops cross-app tracking. Critics say that Apple’s motive isn’t altruistic. Instead, they argue that Apple wants to harm the advertising industry, to inadvertently strengthen the position of Google & Facebook and to boost Apple’s own advertising business. Well, when two parties have conflicting interests (advertisers and consumers), Apple must choose one to side with and in this case, whatever their motive is, they side with consumers.

Social commerce made up 40% of Southeast Asia’s $109 billion e-Commerce in 2020