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

Uber’s Delivery is on fire. Driver dispute cost $600 million, but may be a blessing for the business

Uber is well on track to a full recovery. Delivery continues to be the bright spot

Yesterday, Uber released their financial results for Q1 FY2021. In general, the overall business mostly recovered from the impact of the pandemic. Even though it made fewer trips and less revenue than last year, gross bookings rose by 24%. Mobility Gross Bookings continued to be down year over year as countries are still battling Covid-19. On the other hand, Delivery Gross Bookings increased by 166%, up to $12.5 billion from $4.7 billion a year ago, due to strong demand. To put it in perspective, Uber generated almost as much Gross Bookings in Delivery in Q1 2021 as it did in the entire year of 2019.

Uber's Mobility and Delivery Gross Bookings
Figure 1 – Uber’s Mobility & Delivery Gross Bookings

In Q1 2021, the company’s adjusted EBITDA was -$360 million, but it was up from the loss of $612 million a year ago. Mobility was still profitable, albeit down 49% YoY. Delivery and Freight remained loss-makers, but the loss narrowed compared to Q1 2020. According to Uber, Delivery was profitable on the adjusted EBITDA basis in 12 markets in Q1 2021. Take rates for Mobility and Delivery were 12.6% and 14%, respectively. Mobility’s take-rate dropped from their usual 20% range because Uber took a draw-down of $600 million for driver expenses following the High Court’s verdict in the UK that would force Uber to classify drivers as employees. Without the draw-down, Mobility take rate would be 21.5%. Delivery’s take rate has been steadily increasing since Q4 2019. As the platform continues to grow in scale and fine-tune its operations for higher efficiency, I expect to see Delivery take rate to hover around the 14-15% range.

Uber's Mobility & Delivery Take Rates
Figure 12- Uber’s Mobility & Delivery Take Rates

Driver-friendly regulations can be both a threat and a blessing for Uber

This is the first time that investors could, to some extent, quantify the impact of regulatory threats on Uber’s business. Yesterday, the Biden administration rescinded the previous administration’s rule which would have made it more difficult for drivers to be considered employees. The Secretary of Labor also mentioned that drivers should be treated as employees with benefits instead of just contractors, but stopped short of announcing a concrete policy change. That’s why Uber’s executives repeatedly emphasized that they would engage in dialogues with the federal government moving forward to find an agreeable solution and that it’s not doom and gloom yet for their business.

Some are justified in their pessimism for Uber. A driver-friendly regulation would definitely hurt Uber’s bottom line in the short term. In the long run, I am not so sure. Any new regulation regarding gig workers would affect not only Uber, but also and more importantly its smaller rivals. Every company from Lyft, Instacart, Doordash to Gopuff will have to pay more personnel expenses. But few of them have the scale and resources that Uber does. Take Lyft as an example. It operates in Canada and the US only and doesn’t have a Delivery service like Uber, at least not yet. As a result, it would have a higher driver expense per order than Uber because the latter could stretch the fixed expense over many more Ride/Order. That’s a unit economics advantage that comes with operating in more markets, more verticals and at a higher scale.

Figure 3 – Uber’s Outside Equity

Plus, if Uber decided to pay drivers more than others, it could lock in drivers exclusively on its platform and create a driver supply problem for its smaller rivals. Fewer drivers mean slower services. Slower services lead to less satisfied customers. Less satisfied customers result in less business. That’s the vicious cycle that Uber could inflict on its smaller rivals. Plus, Uber has about $13 billion in equity in the likes of Grab, Aurora or Didi. If push comes to shove, it can sell off all of it to finance its operations, something that I doubt other delivery services can do.

Other positive developments

Uber mentioned that its Delivery would debut soon in Germany. Germany is arguably the biggest consumer market in Europe and it doesn’t make sense to not have one of its main business lines in the country. As a new market, Uber may have to take a loss in the short run to establish its presence, among local competitors. Since the CEO took over, Uber has scaled back operations in areas where it didn’t believe it had competitive advantages. If they decide to launch in Germany, there may be a good reason.

This may be the first time I remember that Uber specifically called out its advertising business. While it’s not really surprising, it has plenty of potential. As a household name that has millions of users on its platform, Uber is an attractive partner to merchants. Hence, it makes sense Uber wants to monetize its valuable real estate on its app. Advertising is a higher margin business and should help Uber with its profitability goal.

Additionally, the company also mentioned that its New Verticals (grocery, alcohol and convenient items) reached an annualized Gross Bookings of $3 billion in March. The revelation contained some caveats such as: what does “annualized” mean? What is the distribution of such Gross Bookings between grocery, alcohol and convenient items? Nonetheless, with the acquisitions of Drizly, Postmates and the partnership with Gopuff, it’s a vertical to watch out for in the future.

Uber & GoPuff. Amazon streams NFL games on Prime Video in 2022

Uber boosts its grocery delivery with GoPuff

Per Bloomberg:

Uber Technologies Inc. will vastly expand grocery delivery in the U.S. this summer through a partnership with GoPuff, a fast-growing delivery startup and the owner of the liquor store chain BevMo!, the companies plan to announce Tuesday.

GoPuff will make inventory of convenience store and grocery items available to Uber customers in 95 cities starting next month and nationwide by the end of the summer, the companies said. GoPuff will handle logistics and delivery for the orders, and Uber will take a percentage of each transaction made through its app.

GoPuff, which was founded in 2013, is a delivery startup that focuses on “essential items” such as snacks, pet products, beauty products or liquor. The model on which GoPuff operates is a bit different from other delivery services. Instead of having their drivers pick up items from the stores, GoPuff distributes orders from their micro-fulfillment centers strategically located in markets across the US. According to the startup, it is now operating 250+ fulfillment centers and serving more than 650 cities.

In terms of unit economics, every order on GoPuff has to be at least $10.95. The company charges users a flat delivery fee of $1.95 for every order and claims that there is no surge price. For orders that contain alcohol, there is an additional $2 to cover extra efforts to verify identifications and meet legal compliance. To avoid the flat delivery fee, users can enroll in their rewards program called GoPuff Fam for $5.95/month.

By partnering with Uber, GoPuff is hoping to use Uber’s popularity to drive more traffic and business. Once orders and revenue increase, it will make other aspects of the business easier to manage such as acquiring drivers or pleasing investors. The risk here is that the startup is sharing the customer relationship to Uber. Handling the delivery of every order from this partnership, GoPuff still interacts with the end customers. Nonetheless, at the top of the funnel, customers will still place orders within Uber. Plus, a portion of the sales goes to Uber for the privilege to be in their app. I really hope that GoPuff will structure the deal that enables them to have a marketing communication customers at the end of every order such as a coupon or discount for direct orders.

For Uber, this partnership will boost their Delivery service. While Covid-19 has (still) greatly damaged Uber’s Mobility business, it has been a game changer for the company’s Delivery business (UberEats). In Q4 FY2020, Delivery generated more than $10 billion in Gross Bookings, up from $4.7 billion just a year before. The acquisition of Drizly and Postmates highlights the importance of Delivery to Uber and the company’s ambition to be a Superapp.

The partnership with GoPuff gives Uber extra bodies. Even with drivers under the startup’s brand, Uber can still satisfy their customers with properly filled orders. But I think this partnership may be an audition or a test for what may come next. I won’t be surprised if Uber makes an offer to acquire GoPuff. There will be a lot of synergies in case of an acquisition: similarity in services, savings in marketing and personnel. More importantly, in GoPuff, Uber would acquire a network of micro-fulfillment centers and a new delivery model.

Excited to see what comes next from this partnership and space.

With 15 NFL games a year starting 2022, Amazon is making Prime Video a strategic advantage

Per WSJ

Amazon will take over exclusive video rights for “Thursday Night Football” starting in the 2022-23 season, a year earlier than anticipated, the company and the National Football League said Monday. Initially, Amazon’s deal with the NFL called for the tech giant to begin streaming games in the 2023-24 season. Current rights holder Fox Corp. agreed to exit its existing deal for the package a season early.

Terms, including the cost of acquiring the additional year of rights, weren’t disclosed. In March, Amazon signed a 10-year deal with the NFL to stream 15 games per season on its Prime Video platform. The average annual rights fee is around $1.2 billion and that is the price tag for the additional season, people familiar with the matter said.

At $1.2 billion for 15 games a year, that works out to $80 million per game. A significant price tag. But Amazon can afford to pay it. Not because of their financial strength, but also because of their Prime base. In the latest earnings call, Amazon revealed that there were 200 million Prime members, 170 million of which watched Prime Video in the past year. American football is very popular in the US, but is not everyone’s cup of tea. Let’s say if only about 20 million US subscribers watch NFL games on Prime Video, the content cost will sit around $4 per member per game. If 40 million US subscribers (12.5% of US population, not a wild guess), the content cost will go down to $2 per member per game. The more people Amazon can get to watch games, the lower that number will be. The scale of their Prime base makes Amazon one of a handful of companies in the US that can afford to invest that much in NFL games. Also, this benefit doesn’t include additional new Prime members that are on the fence and decide to subscribe to the service because of the NFL games.

Yes. Just in terms of strategy, I think there’s probably nothing new or surprising, but just to reiterate it, we look at Prime Video as a component of the broader Prime membership and making sure it’s driving adoption and retention as it is. It’s a significant acquisition channel in Prime countries. And that we look at it and see that members who watch video have higher free trial conversion rates, higher renewal rates, higher overall engagement. And there’s great examples of places like Brazil, where you launch a video-only subscription, for example, that preceded the broader Prime membership with shipping components, and that was, as an example, a great way to expose people to Amazon.

By Dave Fildes, Amazon’s Director of Investor Relations in Q1 FY2021 Earnings Call

As an end user myself since 2017, Prime Video has gotten so much better over the last few years with a bigger content library and more originals that I actually enjoy such as Jack Ryan or sports documentaries. My friends, both in the US and Germany, also have good things to say about the service. It’s no longer a peripheral service. As Dave Fildes said, it is an important component of the Prime membership to acquire and retain customers. In the fight against Walmart and their membership program Walmart+, Prime Video will prove a key advantage for Amazon. Walmart may be able to match Amazon in a lot of things, but it doesn’t have yet an equivalent to Prime Video. Plus, it’s not cheap for Walmart to catch up with its rival. Amazon spent $3 billion in video and music content alone in Q1 FY2021, up from $2.4 billion a year ago. That’s an annualized $12 billion in content, putting it up there among the biggest spenders. If Walmart wants to enrich Walmart+ and offers an equivalent to Prime Video, they are looking at a very expensive game. Even with an increase in content and shipping costs, Amazon has still generated more than $25 billion in Free Cash Flow Trailing Twelve Months in the last four quarters. As their other businesses grow and continue to pump cash into their coffer, we may see Amazon spend $20 billion a year in video and music very soon.

Amazon's Free Cash Flow Trailing Twelve Months
Amazon’s FCF TTM

Disclaimer: I have a position on Amazon, Walmart and Uber

Weekly reading – 17th April 2021

What I wrote last week

Hydrogen fuel cells vs Batteries

Uber may deliver marijuana in the future. Update on Credit Karma and Square

Business

Business Insider has a story on Larry Page, especially when he was determined to fire all Project Managers. Even a genius like him made a mistake, it seems. Don’t be too hard on yourself.

Why Delaware is the sexiest place in America to incorporate a company

Vimeo CEO talks about how the company reinvented itself from a video platform, another Youtube competitor to a B2B SaaS company. To be honest, as a consumer, I didn’t know that Vimeo transformed itself into a B2B SaaS player.

TikTok says that it has 100 million monthly active users in the US and is planning to bring new eCommerce-focused ads products

How the pandemic helped Walmart battle Amazon Marketplace for sellers. It’s exciting to see these two behemoths go at it in the near future. While Walmart has the luxury of stores scattered across the country, Amazon is a bigger and more experienced marketplace player.

Why It’s Misleading to Say ‘Apple Music Pays Twice as Much Per Stream as Spotify’. The best article on this particular subject that I have seen this week.

Amazon Plans Furniture Assembly Service to Catch Wayfair. I look forward to reading more about this initiative. While it sounds great as first, the reality may offer some questions that Amazon has to answer. For instance, Amazon is known for pushing its drivers to complete deliveries as quickly as possible. Asking drivers to take time to assemble products goes against that mantra. Hence, how much would Amazon be willing to slow down deliveries? How much would the premium fee offset the cost of such slowed deliveries?

What I found interesting

French lawmakers approve a ban on short domestic flights. If there is a great network of trains; which I believe there is in France, this is a totally sensible decision.

Cloudflare Pages is now Generally Available

How to Create an Interactive AR Business Card Without Code

The vanishing billionaire: how Jack Ma fell foul of Xi Jinping. Jack Ma is one of the richest people on Earth and among the most influential business people. Yet, he has fallen from grace after what he said angered Xi Jinping. Another billionaire tried to lower his net worth to avoid trouble with the Chinese government. I am from that part of the world. I can tell you that no matter how rich a person or how big a Western corporation is, you don’t take your disagreement with the ruling party public. That’s one mistake you usually don’t come back from

Stats that you may find interesting

According to a new survey by National Restaurant Association, only 18% of delivery customers preferred to order from a 3rd-party app

Amazon Prime has 200 million members. 28% of purchases on Amazon were made in 3 minutes or less while 50% were made in 15 minutes or less.

Almost 20% of retailers’ sales in 2020 came from private labels

Uber may deliver marijuana in the future. Update on Credit Karma and Square

Uber’s business reportedly hit a stride in March. CEO hinted at the prospect of delivering marijuana

In a filing today, Uber revealed that it had an astonishing month in March 2021, when its Gross Bookings hit the highest level in the company’s history. Uber said that its annualized bookings for Mobility and Delivery hit $30 and $52 billion, respectively, last month. I have mixed feelings about this. At the first glance, the filing seems like a trove of good news for Uber as the figures imply that its two main business segments are firing on all cylinders. Uber’s total bookings in 2018 and 2019 were $50 and $65 billion, respectively. If the annualized numbers above are realized in 10 months’ time, that will be an impressive achievement for a company of this size, given that our societies spent more than one year in a historic pandemic.

But IF is the important word here. To be honest, I don’t really know how the annualization is calculated. Did they multiply the bookings in March by 12? Or did they multiply the bookings in the best week in March by 52? I may be ignorant not to understand the nuances in these languages, but if you invest your hard-earned cash into a company, it’s healthy to be a bit paranoid.

Another news that came from Uber is that its CEO hinted at the prospect of delivering marijuana.

“When federal laws come into play, we’re absolutely going to take a look at it,” 

Source: The Verge

Two months ago, I wrote about Uber’s acquisition of Drizly, the market leader in liquor delivery in the US. Chief among the benefits of acquiring Drizly for Uber are the proprietary technology that can verify IDs and the team that knows how to navigate the complex legal systems at the state and county levels. These capabilities will be tremendously helpful to Uber if they decide to delivery marijuana. Even in the states that allow the cannabis delivery, consumers still have to show that they are old enough; which is the perfect use case scenario for what Uber gets from Drizly. Right now, marijuana for recreational purposes is only legalized in a handful of states and is still illegal at the federal level. Some Democrats are pushing to change that and I think that it’s just a matter of time before the change takes place. Even if marijuana for fun is legal on the federal level, there will still be a lot of work to be done on the local level as each state will have a different mandate. In that case, having a team that knows how to deal with regulations from county to county on liquor delivery like Drizly will come in handy. The recreational legal cannabis market in the US is estimated to reach $27 billion by 2024. Estimates like this are usually optimistic, but even if half of that estimate checks out, it will increase Uber’s Total Addressable Market significantly.

Update on Credit Karma and Square

Last month, I wrote about Square’s acquisition of Credit Karma’s tax unit and potential benefits that the former can take from the latter

In essence, it benefits Square when customers have balance in their Cash App. The more balance there is, the more useful Cash App is to customers and the more revenue & profit Square can potentially earn. I imagine that once Credit Karma’s tax tool is integrated into Cash App, there will be a function that directs tax returns to customers’ Cash App. When the tax returns are deposited into Cash App, customers can either spend them; which either increases the ecosystem’s value (P2P), or deposit the fund back to their bank accounts. But if customers already direct the tax returns to Cash App in the first place, it’s unlikely the money will be redirected again back to a checking account. As Cash App users become more engaged and active, Square will look more attractive to prospect sellers whose business yield Square a much much higher gross margin than the company’s famous Cash App. 

Today, a user on Twitter noticed the new integration between Credit Karma and Square that would enable users to direct tax refunds straight to their Cash App account. Even though this is a logical move, how it will actually benefit Cash App remains to be seen as there hasn’t been any reporting on the overlap between Cash App and Credit Karma’s tax unit in terms of active users. Nonetheless, I look forward to seeing what Square brings to the market that stems from this acquisition.

Weekly reading – 27th February 2021

What I wrote last week

I reviewed The Spotify Play

Business

Profile of Bumble CEO

Interview with Spotify CEO, Daniel Elk

Frozen food sales have been boosted by Covid-19

When Did Generic Grocery Brands Get So Good Looking?

CBS and Showtime have a combined 30 million subscribers. Paramount+ with ads will go live with ads at $5/month in March and $10/month without ads in June

AT&T and TPG: There is No Why

What I found interesting

A COVID-19 vaccine life cycle: from DNA to doses

A look into Zuck and Kaplan’s influence on content moderation policies

Massive experiment shows why ticket sellers hit you with last-second fees

Sheryl Sandberg and Top Facebook Execs Silenced an Enemy of Turkey to Prevent a Hit to the Company’s Business

Abandoned houses in Japan can be bought for cheap as a get-away destination, but upgrading them can be very expensive

How Uber Deals with Large iOS App Size

Stats you may find interesting

Electric vehicles in the US reached 1.8% market share in 2020

This one stat is more horrifying than interesting. US exceeded 500,000 lives lost due to Covid-19

40% of Disney+ subscriber base are in the US. Because India is responsible for another 30% of the streamer’s subscriber count, the other markets such as Latin America and Europe combined make up 30% of its subscribers

86% of iPhones introduced in the last 4 years are on iOS14