Category: lenS & thoughtS

With macro uncertainties, it looks like global consumers are focusing more on small items purchases.

In China, happiness starts with $1.

1/ coffee chain Luckin grew 88% in revenue yoy, and has over 10k store now.

For $2 per cup, if people get it every workday, it’s only $40 per month.

There are additional promotions: with $3 membership card/month, coffee can be almost half priced. $1.5 x 20 + $3 => $33 per month.

2/ mobile gaming (mostly micro transactions) market grew most 60% in 2023 summer. See previous post.

for $30-40, you can get a decent new skin on HoK or Justice Mobile. Some skins are as low as $1.

Globally, $20 per month can also buy lot of happiness.

3/ Netflix added 9mn subscribers in 2023q3 and is going to raise price again in the US. After 3 years, 50mn+ more subscribers joined Neflix, vs 2020q3, when the initial covid impact calmed down (2020q3 added 2.2mn vs. 2020H1 added 26mn).

After raising price, it’s only $23 per month.

4/ OpenAI, whose ChaGPT, although a productivity tool, is mostly paid by consumers with $20 per month plan. It has over $100mn revenue per month now, or 4-5mn subscribers, assuming most revenue is from subscriptions.

5/ Midjourney subreddit members grew to almost 1mn. Midjourney entry-level (Basic) plan is $10 per month. It’s reported that its 2023 revenue is over $200mn. Midjourney might have ~2nm subscribers by year end ($24-30mn revenue run rate).

Are they supposed to be growth stocks?

Well, Tesla does have new stories besides FSD -> AI chips (Dojo) + robots (Optimus), which sound to be pretty exciting.

What about CATL’s future strategy?

Is it like Intel? 

Similarities: They are both the supplier for industry-leading products, and has in-house manufacturing (part of the edge is manufacturing. They can expand into other end markets: Intel also serves server market, while CATL serves energy storage market.

Differences: “Wintel” is amazing; however, auto industry hasn’t been winner take all, even for Tesla. Unless auto OEMs are willing to become PC makers and there is one superior EV structure (asset light) and uses CATL exclusively.. << a very unlikely picture. If Tesla had delivered FSD fast enough and good enough, there is a chance to be a layer that takes most market share, but that doesn’t have much to do with the battery layer.

Differences: Although CATL tech is very good and improves every year, it’s not like it created “Moore’s Law” / a long-term road map for the battery industry. It’s not just about visionary or “leadership”, but because the speed of improvements is fast enough – competitors are catching up instead of falling behind.

Is it like Qualcomm?

Similarities: Qualcomm’s SOC enables / provides a platform for smartphones and other IoTs. CATL enables lots of EV brands. Qualcomm faces competition from integrated player like Apple; CATL faces competition from integrated player like BYD.

Differences: similar to Intel, Qualcomm + Android is powerful and ubiquitous. CATL is lack of a powerful OS layer.

Differences: Qualcomm uses foundry for manufacturing and focuses more on design & licensing. CATL produces in-house, but doesn’t do licensing.

Is it like Denso?

Similarities: big player in auto parts.

Differences: Denso’s business lines is more mixed (no synergy), and centered around automakers. CATL focuses on batter-related products, and are supplying to non-auto customers.

Differences: Denso has ~15% gross margin and ~5% net margin. CATL has ~20% gross margin and ~10% net margin.

 

It’s difficult to understand each regulation. But I think there is a better, more fundamental and actually easier way – through the lens of justice.

However, there seems to be a difference between what China focuses on vs. the West when it comes to justice. In short, I feel that China weighs a fair outcome over procedural justice.

This difference could partially be explained by the fact that China doesn’t always operate based on exact rules. It could be hard to develop a robust law system in a short period of time and in an evolving society. In fact, rules can be modified to suit the needs, which is the opposite of mainstream western belief. 

When big global companies may get away with perfectly executed deals, Chinese companies may face the consequences afterwards (even before regulation is in place). After all, trouble may come in various forms.

That being said, justice is important. A company may build goodwill to offset any negative consequences it may create, especially formalized in the future. For example, Tencent’ gaming business is lucrative and from time to time is seen to have negative impacts on teenagers. Although Tencent could be procedurally perfect and compliant, it may not be enough. I believe it’s the WeChat etc. that brings a good amount of positive progresses that provide a cushion. Therefore, as those balanced out, it’s not injustice for Tencent to make such a large sum of money. 

Cells to tissues are like individuals to communities.

All those tissues form different organs and a body – just like communities (corporations, institutions, all sorts of organizations, etc.) fulfilling different functions and creating a society.

Cells age. So do we. Cells can be renewed while performing the same duty. It’s just like human beings reproducing and dying.

Cells evolve, so we are  more capable than the creatures hundreds of millions of years ago. People learn, so civilizations grow and build on their own.

Internet & tech companies are facing increasing pressure from regulators across the globe.

Moat is not even a good word now – as it may imply reduced competition. Lawful practices don’t mean they won’t attract criticism.

What’s a better strategy?

1/ Being socially responsible for the future by investing in R&D seems to be a good choice. Ali Cloud is even more important to Alibaba now than its e-commerce business.

2/ Being socially responsible for the current by providing services for free and improving them overtime, e.g. Tencent’s chat apps. Although sometimes”free” is part of the business model, it does create value for users.

3/ Being socially responsible for the unmet demands. It seems to me that ByteDance’s education business is falling into this category.