Category: lenS & thoughtS

Disney+ Is Coming

When all the fellow streaming platforms are adding their original content capacities, on April 11, the biggest original content provider Disney Group finalized the pricing ($6.99/month) of its own streaming platform, Disney+. And the official US launch date is later this year on November 12.

Disney+ pricing | Source: Disney investor day presentation

Disney’s preparation and acquisition of BAMTech

Disney’s plan to launch its own streaming service has been around for quite some time. Its first official announcement was in August 2017 with Disney’s acquisition of an additional 42% of BAMTech for $1.58 billion, which gave Disney a controlling stake of 75%.

Source: disney.fandom.com

Before that, in August 2016, Disney acquired 33% of BAMTech (a spin-off from MLB’s broader digital business, MLB Advanced Media) for $1 billion.

BAMTech is the streaming technology provider for services including HBO NOW (launched in March 2015 with Apple being the exclusive launch partner; and Apple was promoting its Apple TV), National Hockey League (NHL), Major League Baseball (MLB), etc.

Disney Chairman and Chief Executive Officer Bob Iger talked about the streaming service on the BAML conference in September 2017.

What we’re going to do with the Disney direct-to-consumer app or platform is, first of all, we’re going to launch it in late 2019. We’re doing that for 2 reasons. First of all, as we exit the Netflix output deal, we don’t get access to our theatrical release movies until the beginning of ’19. Secondly, we wanted time to actually develop and build up original programming for the platform.

Following the 2016 transaction, Disney made plans to test BAMTech’s delivery and support of streaming video and other digital products from Disney|ABC Television Group and ESPN.

ESPN+ as a test-out

Following the 2017 transaction, Disney said it would launch its ESPN-branded multi-sport video streaming service in early 2018.

The new ESPN app and the ESPN+ service were launched in April 2018, provided by BAMTech. ESPN+ is priced at $4.99 a month or $49.99 a year.

What is different though, is that the content on ESPN+ is not a replacement of cable subscriptions (at least for now). ESPN Plus will not provide live access to ESPN’s main channels like ESPN and ESPN2 – you’ll still need a cable subscription to authenticate and watch. [TechCrunch]

new ESPN app and ESPN+ | Source: theverge.com

After all, ESPN is originally a cable business and sports are heavily rely on ads. ESPN+ is an ad-embedded streaming service (video ads).

In 10 month, the number of ESPN+ subscribers has reached 2 million.

On the other hand, ESPN itself (cable) lost 2 million subscribers in fiscal year 2018, with total subscribers of 86 million as of September 2018.

ESPN+ is expected to have 8-12 million subscribers by the end of FY 2024.

So Disney+ and its expectation

It will be one of (the most important one) the three pillars of Disney’s streaming services, alongside with ESPN+ and Hulu (will discuss separately).

Source: nscreenmedia.com

Its direct competitors are Netflix and HBO Now. Bob Iger has specifically said it would be priced lower than Netflix years ago.

Priced at $6.99 a month or $69.99 per year, Disney+ is $2 lower than Netflix’ new basic monthly plan. Netflix announced the new pricing for United States in January 2019 to replace it original $7.99/10.99/13.99 lineup, effective May 2019.

Netflix new pricing 2019 | Source: netflix.com

The contents are powerful, including Disney, Pixar, Marvel, Star Wars, and National Geographic, etc.

Disney+ contents | Source: variety.com & Bob Iger Twitter

It is targeting 60-90 million subscribers in five years, by the end of FY 2024 (September 2014) and 1/3 would be in the US.

Meanwhile, the Disney Channel has seen its subscribers ebb to 89 million, down from 92 million in fiscal 2017. [Variety]

And Netflix now has 148.8 million subscribers globally, 60.2 million from the US, as of 2019 Q1.

 

 

Zoom, How Not To Underestimate Its Usefulness And Influence

Zoom went on Nasdaq with the IPO price of $36 (target range of $33 to $35 per share), opened at ~$65 and closed at $62 (up 72%), making it in par with Lyft.

Several things to note here:

    • Zoom is relatively young. It maintained high growth (2018 revenue of $331 million, 2017 revenue of $151 million) and is expected to grow fast.
    • Zoom is making a net profit in 2018 (~2.3% profit margin) and has maintained a high gross margin (~80%).
Source: Zoom SEC Filing. Author
    • Growth in customers – “As of January 31, 2017, 2018 and 2019, we had approximately 10,900, 25,800 and 50,800 customers with more than 10 employees.” they “represented 69%, 75% and 78% of revenue“
    • Market Size – In the US, business with
      • 10-19 employees: 46,635
      • 20-49 employees: 37,495
      • 50-249 employees: 23,065
      • 250 or more: 5,672
      • ~113k in total, so Zoom has another 50% room to grow (will be harder and more costly)

    • market penetration and growth opportunity in large enterprise customers – “greater than 50% of the Fortune 500 had at least one paid Zoom host, compared to only 4% that contributed more than $100,000 of revenue. We believe this demonstrates that our product has already gained a foothold in many of the largest enterprises in the United States, and there is a large opportunity to expand within these large enterprise customers”
    • Revenue per large enterprise customer will grow, easily – “Some of our larger enterprise customers start with a single deployment of Zoom Meetings with one team, location or geography, before rolling out our platform throughout their organization.” “As of January 31, 2017, 2018 and 2019, we had 54, 143 and 344 customers that contributed more than $100,000 of revenue in each of their respective fiscal years”
    • Zoom’s future depends on its business outside video conferencing; it could grow into an essential infrastructure for business operations; it could do more than video conferencing, but also scheduling, internal messaging and other management tools.

Zoom, Slack, Alibaba’s Dingding (DingTalk), WeChat for Enterprise will meetup in the future, in the battle of office app/platform.

Read More on Zoom’s IPO

Inevitable Inflation: Yet Another Example From Starbucks Rewards

Having lived for 3 years, the current Starbucks Rewards program will end on April 15, 2019. The most direct comparison with the new program is the cost of “a free drink” – raised from 125 stars to 150 stars, a 20% inflation.

Starbucks Rewards April 2019 | Source: starbucks.com

Taking the previous revamp into account, from pre-April-2016 to post-April-2019, the program has been through 2 major changes with “points inflation” being the unchanged theme.

Let’s go back and do some calculation.

Program Redesign In April 2016

Starbucks Rewards has been through a redesign in April 2016, which transformed the transaction-based system into a value-based one.

Basically, before 2016, a $1.95 purchase is equivalent to a $5+ purchase in terms of stars earned (1 star; 12 starts = 1 free drink).

Starbucks Rewards revamp in April 2016 | Source: starbucks.com

Assuming a customer would use his/her stars for a free item with an average value of $5:

    • For a customer normally purchase an item of $2.5 to earn stars, the reward yield is approximately halved:
      • previously – 5/(12*2.5) = 16.67%
      • 2016 program – 5/(125/2/2.5*2.5) = 8%
    • For a customer normally purchase an item of $3.5 to earn stars, the reward yield is cut by 1/3:
      • previously – 5/(12*3.5) = 12%
      • 2016 program – 5/(125/2/3.5*3.5) = 8%

This change was resonating with a broader trend in “rewards” offered by consumer-facing industries such as airlines.

American Airlines is the latest major airlines that changed its rewards calculation from distance-based to money-based (announced in November 2015, effective August 2016)

United award miles redesign | Source: thepointsguy.com

Program Redesign In April 2019

As I mentioned at the beginning, the new program features a 20% inflation in terms of redeeming free drinks.

For dollar values, in the 2016-version, a Starbucks star is approximately worth 4 cents ($5/125); now, it is approximately 3.33 cents ($5/150). [to enhance the utility, one could order a venti drink and add a shot, making free drink ~$9 so a star is worth ~7 cents before and ~6 cents in the new program]

However, better yields could be found in hot coffee/tea.

    • hot tea usually has a price of $2.25/2.45/2.65 for tall/grande/venti size; simply taking it as a $2.5 value, a star = $2.5/50 = 5 cents
    • hot coffee (in brewed coffee category) usually has a price of $2.15/2.45/2.75 for tall/grande/venti size; in a venti size coffee, a star = $2.75/50 = 5.5 cents
      • there is a brewed product called Caffe Misto, which has a value of $3.35 for venti size, then a star = 6.67 cents
    • for lunch items, to make a star’s value above 4 cents, items needs to have a value of $8; and a $10 item for 5 cents value. Those items could be easily found in Starbucks’ new Mercato lunch category

The items above will maintain the value of stars and provide the valuable revenue diversification for Starbucks (especially for lunch items).

Plus, those items usually involve less manual work from baristas. They could enhance the overall productivity for Starbucks stores and increase the profit margin on average.

Drone Delivery: A Real Thing

Future is closer than most will believe. Drone delivery is yet another example.

Imagined Reality

A few days ago (around April Fools’ Day), a FAKE video (by rendering) populated on Twitter, presenting an Amazon mothership equipped with drones.

However, this may not be far away from what the future will look like, especially for the drone part.

Amazon’s Plan

The idea could be seen in an Amazon patent US000009305280B120160405 filed in December 2014 and issued by the USPTO in April 2016.

Amazon patent for massive flying warehouses equipped with fleets of drones that deliver goods to key locations | Source: BBC

This is part of Amazon Prime Air program first announced in 2013. It looks more viable on the drone-only side, the first delivery made in December 2016 in Cambridge, UK.

Source: Amazon

And in 2017, an Amazon Prime Air drone dropped off some bottles of sunscreen for attendees at the company’s invite-only MARS conference in California. [The Verge]

US Pilot Programs Granted

In the US, FAA has selected 10 state, local and tribal governments for pilot programs in drone testing in May 2018. [More about the program]

    • Choctaw Nation of Oklahoma, Durant, OK
    • City of San Diego, CA
    • Innovation and Entrepreneurship Investment Authority, Herndon, VA
    • Kansas Department of Transportation, Topeka, KS
    • Memphis-Shelby County Airport Authority, Memphis, TN
    • North Carolina Department of Transportation, Raleigh, NC
    • North Dakota Department of Transportation, Bismarck, ND
    • The City of Reno, NV
    • University of Alaska-Fairbanks, Fairbanks, AK

Alphabet’s Wing in Australia – First to Commercial

Another exciting move is made by Alphabet’s Wing on Tuesday, which was granted approval in Canberra by Australian aviation authority CASA. Wing officially becomes world’s first drone delivery business according to The Guardian.

The deliveries will start with roughly 100 homes in the Canberra area. The drones are required to operate during daylight hours, banned from crossing over major roads and there’s a minimum distance they have to maintain from people on the ground.

Source: wing.com

Meanwhile, according to Wing’s website, they are going to launch the drone delivery service in Finland in spring of 2019, which will be their first operations in Europe.

Before this approval, in September 2016 at Virginia Tech, Wing (a Google X project then) has tested food delivery (Chipotle burritos) in the US for a tenth of a mile, maintaining the kind of line-of-sight flights that the FAA prefers (before any pilot programs). Virginia Tech is home to a U.S. FAA test site.

Wing made its first test in 2014 in Queensland, Australia, delivering a first aid kit, candy bars, dog treats and water to farmers.

Wing graduated from Google X in July 2018.

JD’s Drone in Asia

Earlier this year, JD.com announced that it has completed the first government approved drone flight in Indonesia, delivering backpacks and books to students in a local elementary school.

In China, JD has been approved for drone delivery services in provinces including Shanxi, Jiangsu, Qinghai, Guangdong, Hainan and Guangxi.

Single-use Plastic Bags Ban And More

Following California’s ban in November 2016, New York State will begin a similar ban of single use plastic bags in March 2020, according to its FY2020 budget agreement.

While California also imposed a minimum & mandatory 10 cents fee if a recycled paper bag is provided to the customers, New York State makes it an optional 5-cent charge.

According to the New York State Department of Environmental Conservation, an estimated 23 billion plastic bags are used by residents across the state annually. New York City alone uses more than 10 billion single-use plastic bags a year. [National Geographic]

If 5 billion recycled paper bags are used in the new program with a 5-cent fee, New York City will generate an additional $250 million. [40 percent will be supporting local programs to buy reusable bags for low and fixed income consumers, and 60 percent will be supporting programs in the State’s Environmental Protection Fund]

In China, nation-wide restrictions on certain plastic bags started in 2008 and a mandatory fee is imposed. More recently, with services including food deliveries growing increasingly popular, the use of single-use plastic bags becomes harder to regulate.

On province level, Jilin Province is the first in China to ban sing-use plastic bags overall in 2015. Shoppers can bring their own reusable grocery bags or they can use biodegradable bags. In Hainan, the province will begin by banning non-biodegradable plastic bags and eating utensils by the end of 2020 and ban the material completely before 2025.

EU member states will have until 2021 to implement a ban on plastic straws, cutlery, cups, drink stirrers, and sticks for balloons. [Quartz]

A worldwide map

On the other hand, more efforts are needed than an executive/legislative order. Less expansive and environmental-friendly alternatives are needed.

A recent study from Denmark’s ministry of environment and food (agreeing with other studies) has found that no all seemingly “good” bags are ultimately good enough. A conventional cotton bag might need to be used more than 7,000 times before making a smaller cumulative environmental impact (water use, energy use, etc.) than a classic plastic bag does.

There is no easy answer. Problems not solved by a few regulatory decisions.

Snap’s Comeback Strategy With Partners

Snap (Before 2019 Q1)

Once characterized as the challenger for Facebook, Snap Inc. has faced fierce competitions from FB’s Instagram, which introduced a similar story feature in August 2016.

Snapchat vs. Instagram users comparison | Source: statista

Snap went IPO in March 2017 onto NYSE, valued at more  than $33 billion on the first day of trading, surpassing the previous $3 billion acquisition offer from Facebook in 2013 and a $30 billion acquisition offer from Google in 2016 (not verified, reported in August 2017, when Snap’s stock price had been declining to around $14).

Its road after IPO was not an easy one.

DAU growth peaked right before Instagram’s story launch. Other problems included the questionable change of Snapchat’s interface, departure of CFO (twice, first CFO departed in May 2018, second CFO departed in Jan 2019), etc.

Snap Partner Summit 2019 And Going Forward

The summit was held on April 4, on which new strategies and partnerships were detailed/projected.

By and large, Snap is learning from Facebook and is pivoting to becoming an “infrastructure”.

Broadly speaking, many firms are pursuing the infrastructure play: AWS wants to be the infrastructure for internet services (servers); Facebook & Google want to be the infrastructure of ads; Twitter & Youtube contents can be embedded in various ways, etc.

Snap now has updated its Snap Kit, to include a new Story Kit enabling other apps/sites to implant Snapchat Stories. Namely, users will be able to show/embed/insert their Snapchat Story in Tinder and Houseparty, two initial partners announced.

Snap Kit April 2019 | Source: kit.snapchat.com

Snapchat Audience Network is also being built to help other apps to monetize – a revenue-sharing practise to expand the audience/utility of Snap Ads, so that people who are not on Snapchat will be broadcasted the ads created by advertisers through Snap. [Read more about Facebook Audience Network]

Additionallly (besides ads), Snap announced the partnership with Fitbit to integrate Bitmoji avatars to Fitbit’s devices (Fitbit Ionic™ and Fitbit Versa™), a clock face that dynamically updates throughout the day based on your personal health and fitness data, activity, time of day, and weather. Also, Bitmoji will be seen on Venmo.

Snap’s Bitmoji on Fitbit | Source: theverge.com

 

Money Flows: Raise By Bonds And Invest In Growth

Corporate bonds are popular, especially those sold by companies that have strong cash flows like Tencent and Saudi Aramco.

For investors, investments in those bonds are not as volatile as equities.

For corporates, there is no dilution in earnings and they could benefit from growth investments with low cost of capital.

Two recent examples (this week): Tencent and Saudi Aramco.

Tencent has been a very active investor in Chinese and global markets. It is one of the two modern “empires” rooted in China (the other being Alibaba). Some of its global investment include:

Tencent just announced that it has raised $6 billion in a bond sale, including $2 billion in fixed and floating rate five-year notes, $500 million in seven-year notes, $3 billion in 10-year notes and $500 million in 30-year notes, carrying coupons of 3.280 percent, 3.575 percent, 3.975 percent and 4.525 percent on the fixed rate five-year notes, seven-year notes, 10-year notes and 30-year notes.

Tencent has now caught up with Alibaba, who sold $7 billion bond in November 2017. (2018 is a year of turmoil that no big bond sales are possible)

Saudi Aramco, the world’s biggest oil producer, was the world’s most profitable company in 2018 (almost three times as much as Apple).

And Aramco has planned bond sale would raise around $10+ billion and is meeting investors this week around the globe.

Aramco has a crucial role to play in Saudi Arabia’s diversification from oil production. And an important part of the strategy is to invest in technology and other high-growth sectors around the world through Saudi Arabia’s Public Investment Fund (PIF), a major backer ($45 billion over 5 years) of Softbank Vision Fund since 2016.

Essentially, Saudi (and PIF) and Tencent are getting low-cost capital from bond sales and invest in tech. And the risks for bond investors are low, given Aramco’s core assets/cash flows and Tencent’s ubiquitous presence in Chinese economy.

It’s gonna be a good time for startup companies that fit Tencent’s or Saudi’s appetite…

Current State of Cannabis Companies And The Market (3)

Part III … [see the previous post for Part I and Part II]

Oversupply and Drop in Average Selling Price (ASP)

Compiled from companies’ SEC filings.

TLRY is the only company that didn’t double its sales from Q3 to Q4. The driver here should be the channel discount. CGC’s Q4 sales in kilograms is almost five times the same figure in Q3 (2,197kg -> 10,102kg), while TLRY is only modestly growing comparatively (1,613kg -> 2,053kg, but still very impressive compared with other industries).

Apple March Event, Officially Marching Into Broader Services Categories

Apple announced 3 new (subscription) services today: Apple News+, Apple TV+, Apple Arcade. [they are actually very similar to a previous post Apple’s Service Bundle]

Apple News+ is a $10 per month subscription bundle. Essentially, it is a product of “securitization” of reading magazines & newspapers – just like Spotify as a securitization of listening to musics.

Apple News | Source: apple.com

Apple TV+ will be offered through new Apple TV app. This is important as it might be the first major service/software by Apple that doesn’t require an Apple device.

Apple TV app | Source: apple.com

It doesn’t have a price tag yet. And it is reported that Apple will partner with brands like HBO to offer an add-on option (i.e. additional $10 per month), just like what Hulu, DirectTV and many other streaming plans are providing.

Another question tho, is how the Apple TV app (and the Apple TV+ service) will impact the sales of Apple TV as it will be available on many smart TVs such as Roku, Fire TV (Amazon), Samsung, etc.

Apple TV app availability | Source: apple.com
Apple TV 4K | Source: apple.com

Apple Arcade is coming sooner that I thought. And it will be a cross-platform product working across iPhone, iPad, Mac, and Apple TV.

Apple Arcade | Source: apple.com

It is a very good showcase/test of how Apple is merging or making it compatible between iOS and MacOS (and tvOS).

What’s next?

A master membership from Apple is possible – something like $98 per month that includes Apple TV+, Apple News+, Apple Music, Apple Arcade, iCloud storage, AppleCare, etc.

Or a modular membership system.

At the core could be the financing of Apple devices’ purchases – maybe around $30-50 per month – and each subscription will be an add-on. This may provide an extra synergy with the new credit card service by Apple and Goldman Sachs.

Apple Card | Source: apple.com

Apple has those great plans to translate sales and customers into cash flows.

But for consumers, there will be some psychological differences between purchasing a device (as an asset) and paying an indefinite monthly fee (as an expenditure). And services are not as showable as devices. Apple (and Apple investors) might need to prepare and think carefully about those subtle changes.

AWS And Its Appearance In Other Companies’ (IPO) Filings

Following upon a previous post about all those tech companies’ rush to Nasdaq, a group of companies have filed S-1 the past weeks, including Lyft, Pinterest and Zoom.

Plus the previous filings from companies such as Snap, we could get a glimpse into the empire of AWS… as the infrastructure of the current tech industry and all these companies’ commitments to pay Amazon.

Several examples. Starting with Pinterest:

    • 2018 revenue $775.9 million
    • 2018 cost fo revenue $241.6 million
    • Total commitment: at least $750 million in 7 years, from July 2017 to June 2023, first year of $125 million
    • Remaining $441.1 million as of Dec.31 2018
    • On average used: $206 million/yr [estimation: (750-441.1)/1.5=206]

Lyft

    • 2018 revenue $2,157 million
    • 2018 cost of revenue $1,243 million
    • Total commitment: at least $300 million in 3 years, from Jan 2019 to Dec 2021, each year at least $80 million
    • On average used: $60 million/yr [estimation: (144-24)/2=60]

Snap

    • 2018 revenue $ 1,180 million
    • 2018 cost of revenue $799 million
    • Total commitment: at least $1.1 billion in 6 years, from Jan 2017 to Dec 2022, ($90.0 million in 2018, $150.0 million in 2019, $215.0 million in 2020, $280.0 million in 2021, and $349.0 million in 2022)
    • On average used: $60 million/yr
    • Snap relies more on Google Cloud: at least $2 billion in 5 years, Jan 2017 to Dec 2021, at least $400 million/yr
    • estimated usage: at least $530 million/yr in 2018

AWS achieved a revenue of $25,655 million in 2018, equivalent to the usage of ~48 Snap combined.

It will be interesting to see how AWS is going to renew/grow those contracts (should be easy, considering the friction to change a cloud provider) and how those companies will negotiate those terms, as more providers are as legit.

And when tech companies are using a blend of private cloud and those services, how AWS and others are going to fill the revenue “hole/gap”.

After all, the Cost of Revenues (partially due to AWS) will be limited by the Revenues (of internet companies); the growth heavily rely on new usages and the overall revenue of all internet companies.