Link: https://www.acquired.fm/episodes/visa
Three major pieces of technology
1/ authorization network letting banks talk to banks
2/ automated clearing house
3/ digitized point of the transaction
Very interesting timing of the IPO (2008) that gives selling banks an important lifeline.
A fair problem raised – this “regressive tax” on transactions as merchants raise price for all customers but rewards are higher for premium customers.
Electric vehicle tariff sounds preventative. No Chinese car companies are selling mainstream in the US. 100% tariff is more political and sounds tough to voters maybe.
Batteries tariff is around 25%, which is about the gross profit margin of CATL. So it makes CATL export (if at the same price) 0% gross margin.
Equinix capex for 2024 is ~$3bn
Digital Reality capex for 2024 is close to $3bn
The largest independent data center GDS operator only has rmb 6.5bn (less than $1bn) capex for 2024, of which rmb 4bn is outside of mainland China.
GPU shortage is the key, which limits the development and usage of AI.
Overall weak demand in China is also the key, as main internet companies need a surge in net income or cash flow first to support a surge in capex.
2025/26 could be interesting. If US feels the lead in AI is firm, and the H800 etc. is more of a legacy chip, and Huawei develops better AI chips, it doesn’t hurt to sell some Nvidia chips to Chinese customers.
$EQIX capex guide
$DLR capex guide
MSFT capex saw 41% increase in CY2023 and 79% increase in the first quarter of 2024. And MSFT expects material sequential increase in capex, which could mean 50-60% increase yoy.
Alphabet capex saw 2% increase in 2023 and 91% increase in the first quarter of 2024. The company expects similar amounts in the following quarters, which points to 50% yoy increase in 2024 capex.
Meta capex saw 12% decline in 2023 and 5% decline in 2024q1, but the company upgrades capex guidance for 2024 to be $35-40bn, which indicates a 33% yoy increase at midpoint.
Adding the 3 above would be $150bn combined capex already, up from ~$100bn in 2023 for those three.
See previous
Chinese companies share-based compensation (1)
Chinese companies share-based compensation (2)
Tencent (HK.700)
2023
FCF: 167 bn rmb (company defined)
SBC: 21 bn rmb, or 12.6% of FCF
Note: FCF significantly improved, while buyback is doubling SBC
Meituan (HK.3690)
2023
FCF: 33.6 bn rmb (op. cf minus purchases of pp&E)
SBC: 8.4 bn rmb, or 25% of FCF
Note: FCF significantly improved; buyback starting in 2024
What did US homebuilders do in 2008? Residential property market was really bad.
D.R. Horton revenue dropped by 41% yoy in 2008; loss of $2.6bn (more than 2x of 2006 net income) was incurred. Book value was only $2.8bn at 2008 YE.
But D.R. Horton maintained positive cash flows, scaling back expansion and selling inventories.
D.R. Horton started to pay down some debt in 2007 and did so in 2008 as well. It continued to do so until 2011. In 2012, it started to take on more debt.
Similarly for Lennar – revenue dropped 55% yoy in 2008 and incurred loss of $1.1bn. Book value was $2.6bn at 2008 YE.
It maintained positive operating cash flow, reducing supply (deliveries dropped 68% from 2006), pausing expansion and selling inventories.
It didn’t take new debts, but focusing on paying back.
Many brands exited the market, but total vehicles registered bounced back a bit to 1.1mn in 2023, up 58% yoy. Local brand LADA had over 30% market share in 2023.
Back in 2020, there were 1.6mn vehicles sold. And 1.76mn for 2019. So still 1/3 lower than 2019 level.
This article is pretty good at summarizing the importance of microplastic to health (downside), including in cardiovascular disease etc..
Global companies are trying to address this issue for a long time. The most recent development is Starbucks’ announcement of redesigned single-use cups with 10-20% less plastic.
EU’s objective: aims to reduce microplastic releases by 30% by 2030.
See a previous article for fast-fashion and microplastic.
See previous Chinese companies share-based compensation (1)
Baidu ($BIDU)
2023
FCF: 25,424 mn rmb
SBC: 6,345 mn rmb, or 25% of FCF
Note: FCF improved over the last two years
iQiyi ($IQ), a subsidiary of Baidu
2023
FCF: 3,315 mn rmb
SBC: 637 mn rmb, or 19% of FCF
Note: 1) FCF turned positive in 2023. 2) Capex defined by mgmt is narrow – only “fixed assets”; note that acquisition of intangible assets is higher than acquisition of fixed assets.
iQiyi does say that “Capital expenditures are incurred primarily in connection with construction in process, computers and servers.”
It’s important to calculate FCF ex-SBC.
SBC is a real cost of business and equity holders should be aware of the dilution.
Sometimes, buyback is smaller of SBC so shouldn’t be touted too much. Net buyback is more important.
This is a series of posts. Starting with Kuaishou and Bilibili.
Side note: FCF/Capex is defined by companies if they present, which could be subject.
Kuaishou (HK.1024)
2023
FCF: 15,881 mn rmb
SBC: 3,570 mn rmb, or 22% of FCF
Note: SBC has down as stock prices are down. FCF improved; was negative in 2022
Bilibili ($BILI)
2023
FCF: -1,033 mn rmb (negative FCF)
SBC: 1,133mn rmb (as FCF is negative, SBC is making it more negative)
Note: SBC is flattish over past 3 years. FCF improved over 2022 (-6,611 mn rmb), but still negative in 2023.
