Category: lenS & thoughtS

Diversification From Smartphones: Services For Apple, IoTs For Xiaomi

It has been a well-known fact that the global smartphone market is maturing and the shipment volume has found its turn.

The decline is real and accelerating.

 …first quarter of 2019 (1Q19) with shipment volumes down 6.6% year over year…

Smartphone vendors shipped a total of 310.8 million units in 1Q19, which marked the sixth consecutive quarter of decline. In 2018, smartphone shipments dropped 4.1% over 2017, which was inclusive of a first quarter that was down 3.5% – just half of what the market experienced in 1Q19.

– International Data Corporation (IDC) April 30, 2019

Image result for global smartphone shipment

While top performers are still trying to grab market shares (some go for higher ASP targeting market shares in terms of revenue; others go for value targeting market shares in terms of shipments), they have designed their way to grow upon/out of smartphones.

Apple will go for services. [Read more from a previous post]

Meanwhile, Xiaomi, long being tagged as “the Apple of China”, is aiming the IoTs.

I would like to say the IoT focus is making Xiaomi more unique than its phone business.

As of March 2018, we (Xiaomi) had over 100 million connected devices (excluding smartphones and laptops)

…the largest consumer IoT platform globally according to iResearch

– Xiaomi Corporation prospectus

And the segment grows fast in throughout 2018, and still maintained 56.5% growth rate in 2019 Q1.

Source: Xiaomi filings

Some of its items have risen fast into the go-to choice in those categories, such as Mi Air Purifier, Mi Band, etc.

Source: venturebeat.com

In November 2018, Xiaomi announced a strategic partnership with IKEA. IKEA’s full range of smart lighting products will be connected to Xiaomi’s IoT platform starting this December in China.

In January 2019, Xiaomi announced taking a 0.48% stake in TV manufacturer TCL, deepening an existing alliance that saw the two work together to integrate Xiaomi’s operating system into TCL products. [Techcrunch]

Another number – MIUI MAU is constantly adding ~17-19 million each quarter.

17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 18Q4 19Q1
MIUI MAU (millions) 138.3 146.0 156.5 170.8 190.0 206.9 224.4 242.1 260.9
incremental (millions) 7.7 10.5 14.3 19.2 16.9 17.5 17.7 18.8

Overall speaking, I think the IoT revenue should be around 30% for 2019 and may stay between 35-40% in the future.

At the same time, geographically speaking, Xiaomi is one of those companies that are benefitted the most from India’s growth.

China’s “Dual Pricing” System

Just landed in China last week.

So “dual pricing” sounds a little bit bizarre.. It’s not something like two menus, but it does exist in some way.

One example is the prices in restaurants/dining rooms affiliated with state-owned-enterprises (SOEs) or established traditional corporations. The price in restaurants in the same/nearby block would be 4-10 times more expansive (food quality and others things adjusted).

This is actually similar to what US tech companies provide – free lunch. The difference is that US tech companies actually pay a lot for those food as an employee benefit, while the cost for established/connected Chinese companies are very low.

Essentially, there are some places in China that are not affected by as much inflation as other parts are. And throughout the pat 10-20 years, the “dual pricing” has become increasingly evident. (US tech companies’ free lunch is actually on par with the inflation I think)

Another example is “friendship-based” transactions. It is more like the world in the “exchange economy” so that goods/services are not priced in numbers. Due to the nature of exchange, there will be no/little markup in “prices”.

Say Service A costs $100 and is usually priced for $1,000; good B costs $50 and is usually priced for $500. Then exchange based transaction would probably involve one A and two B (the value of which depends on people’s perceptions, say $300 but no money exchanged), while money-based normal business would involve two $1,000 transactions.

Friendship-based economy exists everywhere I believe and is a very natural/common development in history. Since China’s friendship-based transactions are more pervasive and maybe represents a higher percentage of the “economy”, it does create another “dual pricing” in China.

 

 

 

 

Hong Kong Biotech IPOs – How Are They Doing

Filing Date Prospectus Date
HKG:1672 Ascletis Pharma Inc 歌礼制药 05/07/2018 7/20/2018
HKG:2552 Hua Medicine 華領醫藥 06/06/2018 8/31/2018
HKG:1801 Innovent Biologics Inc 信達生物 06/28/2018 10/18/2018
HKG:6185 Cansino Biologics Inc 康希諾生物 7/17/2018 3/18/2019
HKG:6160 Beigene Ltd 百濟神州 7/24/2018 7/30/2018
HKG:1877 Shanghai Junshi Biosciences Co Ltd 君實生物 08/06/2018 12/11/2018
HKG:2616 CStone Pharmaceuticals 基石藥業 11/11/2018 2/14/2019

An Update on Tesla

In the previous post on Tesla’s productions & deliveries (2018 Q4), a not-so-good Q1 is somehow foreseeable, when Model 3 has little QoQ growth from Q3 to Q4 despite the holiday season and a fade in US tax credit at year-end.

Tesla has more concerning issues.

Depressed Margins

The mass production of Model 3 in 2018 H2 helped to improve the automotive sales gross margin in Q3 and Q4.

However, due to the price reduction in 2019 Q1, less absorption of fixed cost and more international deliveries, the automotive sales gross margin went back to the 18-19% region in 2019 Q1.

While production in China is expected to reach a rate of 2,000 vehicles a week by the end of 2019 (according to Elon Musk), the gross margin of automotive sales will remain <20% for 2019 I think (with model 3 basic)

Tesla said the capital spend (CapEx) per unit of capacity for Shanghai factory is expected to be less than half of that of the Model 3 line in Fremont. Not 50% COGS though.

Model S & X Halved

Number of produced is at ~56% of 2018 Q4.

Number of delivered is at ~44% of 2018 Q4.

Though, Tesla reaffirmed its prior guidance of 360,000 to 400,000 vehicle deliveries in 2019, thanks to the confidence in Model 3.

China Sales

Although China (China and Europe mainly) sales in 2018 decreased compared to 2017, Tesla’s March performance in China is exceptional, with 9,273 in total (Model 3: 7515; Model X: 1490; Model S: 268)

Tesla Vehicles Sold in China 2019 Q1 | Source: Che Jing She, sohu.com

Many attributed the jump in sales to the “one time” price adjustment in China, including a ¥341 drop in the most expansive Model X (P100D), which then corrected by a general 3% increase.

Source: sohu.com

But the ongoing sales numbers is still in question.

China’s EV market has been increasingly competitive. And in April, a video of a parked Model S emitting smoke and bursting into flames seconds later was spreading across China’s Weibo, which doesn’t do any help.

 

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