From Mogujie (NYSE: MOGU) to Ruhan (NASDAQ: RUHN) to Yunji (NASDAQ: YJ), a series of second-tier (in terms of size at least) Chinese e-commerce companies has filed with SEC and raised $66.5 million, $125 million, $121 million respectively (excluding any over-allotment option).
The interests were stirred by (at least) the capital market success of Pinduoduo.
In its IPO, Pinduoduo was valued at $23.8 billion including all outstanding share options, compared with a valuation of $15 billion following a funding round in April, 2018. (Reuters)
users comparison at PDD’s IPO vs. Taobao, JD | Source: Bloomberg, Jiguang
Mogu Inc. ended its New York debut at the same price as its initial public offering $14, after dipping as much as 15% during the day. [Caixing]
As of May 17, 2019, Mogu closed at $5.4 per ADS, down more than 61% from the IPO price of $14.
Ruhan, or Ruhhn, slipped 37% below its IPO price on the first day of trading following a $125 million NASDAQ offering. [AVCJ]
As of May 17, 2019, it closed at $4.25 per ADS, down more than 66% from the IPO price of $12.5.
Yunji, debuted this month, has maintained $0.01 above its IPO price of $11 as of May 17, 2019. Yunji’s valuation is more supported by its revenue (EV/revenue multiple is close to 1).
And a roundup of multiples at IPO, using an exchange ratio of 6.8
While Starbucks is probably the No.1 coffee brand in China, its position has constantly been challenged. Luckin Coffee, (briefly covered in a previous post) is cutting into the mass market with lower pricing.
Many people are eyeing on China’s growing coffee market, which will be huge and many are betting on the growth in average coffee consumption.
On the global capital market, Starbucks’ China push and Blue Bottle’s exciting/interesting movements (Jun 2015 $70 million series C; Sep 2017 acquired by Nestle, $425 million for ~68%) may as well push Chinese counter-parties to think about aggressive expansion or building boutique brands.
Listed here are 3 shops I visited recently. Will add more during the summer.
Costa is in direct competition with Starbucks, pricing its coffee at exactly the same level – grande latte @ ¥32.
% arabica, from Japan
% arabica @ the bund, Shanghai | Source: arabica.coffee
Started in 2014 in Kyoto, Japan, % arabica is a young brand. It opened the first store in China in Shanghai in Feb 2018 in a trendy (网红) way. It already has opened 4 store in Shanghai alone, including a roastery at the Bund (7 in mainland China and 4 in Hong Kong as of May 2019).
% arabica is a premium brand with latte price starting @ ¥35 (but in short size), @ ¥45 for a tall size (or a little bigger than tall.. cant’ tell exactly), @ ¥40 for tall ice latte.
Pricing is in line with (or a little lower than) boutique coffee shops. Americano @ ¥28 and latte @ ¥36 (¥38 for ice latte). There is only one size (tall); a fair amount of cups are served in reusable cups.
When Tesla said “Deliveries were approximately 63,000 vehicles, which was 110% more than the same quarter last year, but 31% less than last quarter”, NIO wanted to say something similar.
The 2019 Q1 deliveries number was approximately half of that in 2018 Q4. (Still a good job in ramping up production fast)
To compare in numbers:
Tesla deliveries is ~15.8x NIO’s in 2019 Q1, ~11.4x in 2018 Q4
Tesla’s automotive revenue in 2018 Q4 was $6.3 billion vs. NIO $0.5 billion: ~12.6x
Current valuation 8x ($40bn vs. $5bn)
NIO said ES6 (to start deliveries in June) should have more than 10,000 pre-orders before deliveries.
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.
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.
In a previous post about Starbucks, we talked about its potential in China.
China’s coffee consumption will explode, even considering major cities alone. Younger generations will consume more coffee and they will represent an increasing proportion of the overall urban population.
China coffee consumption potential | Source: Starbucks 6/19 Presentation
The expansion in terms of coverage & number of stores is very impressive: 9 stores by the end of 2017 and 2,370 stores by the end of 2019Q1, although most (91.3 %) of them are pick-up stores (see above).
By comparison, in May 2018, Starbucks announced that it is planning to build nearly 3,000 new stores in mainland China over the next few years (from 3,300 in 2018Q1 to 6,000 before the end of 2022).
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
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.
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).
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.
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.
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.
That is also the reason that Lyft’s valuation is under pressure these days. It all makes that Lyft and Morgan Stanley have something to argue about… Lyft’s high valuation at IPO makes it difficult for Morgan Stanley and other banks to sell Uber. (and the pressure is much higher in such a big deal – $10 billion)
So relatively speaking, how much “higher” is Lyft valued?
Uber adjusted ebitda -1.85 billion vs. Lyft -944 million, ~2x
Uber revenue 11.27 billion vs. Lyft 2.16 billion, ~5x
Uber total trips 5.2 billion vs. Lyft 619 million, ~8x
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.
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]
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.
