Part III … [see the previous post for Part I and Part II]
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 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 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.
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 Arcade is coming sooner that I thought. And it will be a cross-platform product working across iPhone, iPad, Mac, and Apple TV.
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 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.
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:
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.
Part II … [see the previous post for Part I]
To keep up the revenue growth, global partners and their distributions networks are important while expanding supplies is as essential.
Building their own facilities is a must (especially for GMP capacities medical uses) but slow. Acquisitions are needed and done frequently.
These acquisitions are also helping with global distributions and footprints/presence (entry by acquisition). If they produce/manufacture/supply, they must also have sales channels.
ACB:
acquisition of ICC Labs, a leading cannabis company with over 70% market share in Uruguay and medical cannabis licenses in Colombia.
Other supply agreements are also crucial to expand capacity. For example, TLRY and LiveWell Canada entered into a supply agreement in December 2018 (finalized in March 2019) that LiveWell will supply TLRY with a monthly quantity of up to 300 kilograms of hemp-derived CBD isolate, or an equivalent amount of full-spectrum CBD extract, with an option to increase to 500 kilograms per month.
Already, these companies find assets are rising in price, making their acquisitions’ returns lower.
TLRY:
We will not purchase or invest in what we believe to be overpriced supply assets in Canada, which we believe will erode in value in the medium to long term, as the market normalizes.
TLRY:
…while Canada will continue to be an important market for us, we expect to focus the majority of future investments on the U.S. and Europe.
In the next year, we anticipate distributing medical cannabis to at least a half a dozen more countries globally through this partnership with Sandoz.
Our seven production facilities around the world are significantly increasing our global production output compared to 2018.
So, the UK, Australia, New Zealand, we continue to see growth there. Really Chile, Argentina, Peru, Brazil are really early on in their growth curve. And then, in Europe, Czech Republic, Croatia, Cyprus are all countries that we already ship to.
CGC:
So Europe as a region we have a strategy of investment that covers four countries, South America, four countries, Australia and each of those will have a yield that goes out over anywhere from 1.5 to 3 years.
We expect to see Denmark beginning to supply European markets this coming September and also to contribute to the margin.
ACB:
Our ability to execute on this objective is strengthened by our substantial hemp assets gained through our ownership of Agropro, Europe’s largest organic hemp producer as well through Hempco in Canada and ICC in South America.
Aurora’s presence now spans 22 countries on five continents. A look into two regions Europe and Latin America with a combined population in excess of a billion people. In Europe, we continue to capitalize on the strong central presence we established in Germany. In early October, we became the first private company to be granted an import permit for medical cannabis into Poland.
There are total of 8 EU GMP certified production facilities in the world and we have two of them, plus we have our EU GMP certified distributor Aurora Deutschland.
[Update 3/26] CRON:
Cronos Israel, with the Israeli agricultural collective Kibbutz Gan Shmuel. Cronos Israel is focused on the production, manufacturing and distribution of medical cannabis and is in full construction. We anticipate the construction of the 45,000 square-foot greenhouse will be complete in the first half of 2019, and construction of the manufacturing facility will be complete in the second half of 2019. Cronos holds an effective 90% economic equity ownership across the entities Cronos Israel.
In 2018, we also brought our production model to Latin America. Cronos announced a JV with a leading Colombian agricultural services provider with over 30 years of research and expertise, managing industrial scale horticultural operations. This partnership establishes a newly formed entity, NatuEra in Colombia that will develop, cultivate, manufacture and export cannabis-based medical and consumer products for the Latin American and global markets. NatuEra was granted a license to cultivate non-psychoactive cannabis plants to produce seeds for planting and the manufacture of derivative products.
We see Europe and Asia Pacific to be extremely important markets for the future, but in the near term, it is our belief that the development of pharmaceutical form factors and delivery systems for medical cannabis will play a crucial role in growing the prescription and patient base in these markets.
The Company owns a 50% equity interest in Cronos Australia and believes that Cronos Australia will serve as its hub for Australia, New Zealand and South East Asia, bolstering the Company’s supply capabilities and distribution network in the Australasia region.
Three companies’ earnings calls are included: Tilray, Inc. (TLRY), Canopy Growth Corporation (CGC), Aurora Cannabis Inc. (ACB).
Cronos Group Inc. (CRON) is expected to release 18Q4 earnings next week.
It is a newly opened (legalized) industry that has already attracted some big names’ attention. Its recreational uses, plus its potentials in medical settings and beverages, are supporting some huge market estimates and (partially) their sky-high valuations.
Net Revenue and yoy growth for the quarter ended on December 31, 2018
CGC – $83 million / 282%
ACB – $54 million / 363%
TLRY – $15.5 million / 204% (revenue includes excise tax of ~$2 million, so $13.5 million net)
[Update 3/26] CRON – $5.6 million / 248%
As the revenue multiple is incredibly high, companies need to ramp up its revenue very fast (to catch up with capital market’s expectations). As the actual cannabis markets usually need more time to educate/develop/open up, it is extremely important to rely on top-tier partners (and their distribution networks) to expand globally to keep the 200%+ growth.
So starting with a roundup of…
January 15, 2019: TLRY + Authentic Brands Group – $350 million payments to ABG and revenue sharing of 49%
December 19, 2018: TLRY + AB InBev – up to $100 million JV in non-alcohol cannabis beverages
December 18, 2018: TLRY + Novartis (Sandoz) – medical cannabis
December 7, 2018: CRON + Altria – USD $1.8 Billion (CAD $2.4 Billion) investment
August 15, 2018: CGC + Constellation Brands – $5 billion CAD ($4 billion USD) investment and beverages
September 17, 2018: Rumor but no agreement: ACB + Coca-Cola
March 13, 2019: ACB got a strategic advisor Nelson Peltz
When e-commerce breaks the limits of physical location and moves everything online, some will say restaurant businesses are safe, since people need to dine locally.
But that’s not entirely true. If there are companies eager to learn consumers’ purchasing behavior (via all the data generated from browsers), they won’t let go the valuable data on people’s dining behavior. And of course, wherever there is an opportunity for recommendations, there is an opportunity for ads.
So first step: collecting data.
There are several formats.
Just a few days ago, the dining data issue escalated as companies are fighting for its “ownership” or “commercial/economic potentials”.
At the spotlight: OpenTable (format 4) and SevenRooms (format 5), reported in WSJ: Who Controls Diners’ Data? OpenTable Moves to Assert Control.
Background:
OpenTable is a restaurant reservation service that allows patrons to book tables from the Web. Restaurants pay OpenTable $1.50 for every seated diner who reserves a table through its service. OpenTable also operates a guest-services platform to help restaurants run more smoothly.
SevenRooms charges restaurants $500 per month for its offering, takes the guest information from OpenTable and assists restaurants with table management. Under the new policy, some restaurateurs had featured, that practice would be banned.
Essentially, OpenTable will now require a fee if the restaurants are giving other companies access to diners’ data. OpenTable will now charge restaurant operators $250 if they use both systems.
Both companies are resourceful; OpenTable is more established and mature. OpenTable is acquired by Priceline (Booking Holdings) in 2014 for $2.6 billion and behind SevenRooms is Amazon (Alexa Fund invested in October 2018).
While I believe in the improved management efficiency and dining experiences, I am also concerned with personalization. It is possible that personalized menu will include personalized bundle of foods and different mark-ups. And dining information could be more personal than most people understand. It includes timing, location, frequency, spending… Think about a database of how much drinks you ordered with different group of friends.. When combined with other datasets, powerful predictions and precise understandings of the diners could be built. [A similar comment on this: users being programmed on social medias]
Again, the privacy issue and the access/user/process of data should be paid more attention to before bad things could happen…
Boeing produces 52 aircraft per month and its newest version, the MAX, represents the lion’s share of production, although Boeing declined to break out exact numbers. [oann.com]
As of January 2019, Boeing had 5,011 firm orders from 78 identified customers for the 737 MAX. The top three identified airline customers for the 737 MAX are Southwest Airlines with 280 orders, Flydubai with 251 orders, and Lion Air with 201 orders. [Wikipedia]
The order book for its 737 Max is worth more than $600 billion according to Bloomberg.
Boeing’s stock closed at $422.54 per share before the accident and closed at $377.14 per share on March 11. ( -10.74%, after 3 days and all major markets grounded the plane)
With its 564.99M shares outstanding, the market value decreased by ~$25.8 billion. It seems that investors are more optimistic than I thought. With immediate delivery delayed/cancelled, the order value should shrink by a lot (50% discount * 10% profit * $600 billion = $30 billion; 2018 total net income ~$10 billion), plus the future loss of revenue on maintenance, loss of orders/bargain power due to the trust/brand damage.
Airlines may just switch to Boeing’s other aircrafts tho.
E-sport is a very hot growing industry with the future format of living embedded in. It is the intersection between gaming, technology, social, media and entertainment.
There are some related concepts, e.g. streaming gaming, and they share some similar fundamental building blocks.
Future of gaming will be mostly based on cloud. Just like Office Suite and Adobe Suite is moving to the subscription model, the computer gaming industry is making that transition as well and this might be the next growth opportunity for Microsoft (with its cloud computing services, Hololens and Xbox, etc.) and other companies. In fact, most of the mobile games today have already relied on continuous connections, instead of a publisher model like movie/music (buy, download and play).
As certain games (now and in the future) would be considered as “sports”, they inherently include related business opportunities – worldwide competitions, leagues, sale of tickets, game watching and ads, etc. It is very similar to today’s sports and is able to provide a more authentic experience as games are born to be digital (unlike traditional sports that are recorded and digitalized for TV/videos). The concerns here include: 1. the watchableness of players playing games is hard to improve. Players are just sitting in front of the PC or even holding phones. (It is the characters they are playing are watchable) 2. Compared to traditional sports, games usually need a certain level of understanding to enjoy, while sports are commonly understandable and may have some natural beauty to watch.
The leading games that are run like “sports” include LOL (League of Legends), Dota2, Overwatch, etc. The Dota2 international competition in 2018 (TI8) has $25.5 million prize pool. Another major company to “sportify” gaming it Amazon, with its Twitch platform, on which there are 140 million monthly active users. [Netflix has 139 million subscribers globally]
From the technology perspective, the increasing power of cloud is definitely the driver here. Additionally, the coming 5G (low latency, faster transmission of larger data) and AR/VR (actually bringing sports alive; and to solve the watchableness issue maybe) will revolutionize our view on gaming and e-sports. That will even redefine what is “living” and “socializing” in the future (say 25-50 years).
The concept of “playing video games with friends” will be barely used. The line may be so blur that the following concepts are true “life is a real game” and “living on the net”.
And then virtual goods will be huge market. It’s not only buying on the internet (which is e-commerce) but also using on the internet. The virtue clothing on a virtual character we control would have value. Many people are buying or will buy virtual luxury goods. It doesn’t matter if a product’s actually cost is $100 or $0 – they can be sold at $3000. Clothings have already gone far beyond keeping us warm anyway.
E-sports is part of the test field or connection between our current world and the future living.
Tencent and others have tried to challenge Alibaba’s dominance in e-commerce for years. From its investment in JD.com to Meilishuo and Pinduoduo, Tencent has helped an array of companies, giving them “special entrances” on its most powerful app WeChat, while blocking links from Alibaba (e.g. Taobao links).
Tencent’s series of efforts also represents shifts or new forms for e-commerce, at least in China.
Although they have different business models (record commissions as revenues, record products as inventories and therefore net prices as revenues), they all trying to be the first website that consumers will think of when they want to buy something.
Tencent investments in and supports to JD.com is the direct competition with Alibaba, with some differentiating factors such as specialization in appliances (more quality control, logistics, procurement focus, not just a marketplace to connect buyers and sellers)
When these existing platform is good enough, where are the new opportunities?
The idea behind Tencent’s backing for Meilishuo. Mogujie and Meilishuo joined forces together in early 2016, giving them a bigger presence. Mogujie went IPO in December 2018, raising $66.5 million.
But that was only the idea. Selling & buying products is still the main format of user interactions. The difference with the Core/Basic Form is that they list products with prettier models & pics, and with videos/live streaming.
Meanwhile, Xiaohongshu is better at letting users generate authentic experiences and become influencers.
After all, Mogu is where consumers could buy fashion & skincare products with fancy demonstration (my understanding). And Xiaohongshu’s position is where users could share their life/day.
Alibaba led the $300m Series D in Xiaohongshu last May, at ~$3 billion valuation.
With Xiaohongshu’s emphasis on user’s journal/blog (e.g. travel and others, not directly relevant to selling products), it is also more like a social app, for users to build their reputation/followers (and social is where Alibaba is trying to compete with Tencent).
You can’t find an “influencer” on Mogu that is not trying to sell a thing; but many users on Xiaohongshu are not selling anything, while writing their stories, commenting and interacting with other bloggers/influencers.
Tencent’s WeChat has tried to push for the use cases of its Mini-program within WeChat. Pinduoduo might be the most successful one.
By incentivizing users to share with their friends and buy together (at extremely low product prices), Pinduoduo has grown its sales rapidly, currently having a $30+ billion market cap.
Making users as their marketing tools sounds a brilliant idea and is indeed very unique to Tencent. No one else could help to build such a big enterprise within a short period of time. (Alibaba has similarly powerful app such as Alipay but not social – can’t make users part of its marketing)
Plus, through this social marketing strategy, plus the low pricing, Pinduoduo could reach out to the rest of Chinese consumers who use smartphones but not served by existing platforms.
It might be the first time that Tencent could generate revenue on many of its WeChat users.
This is more like what Facebook is doing. Tencent is adding new features and more ads to the Moment feature in WeChat, and also in the Public Accounts’ Feed feature.
While WeChat not directly doing e-commerce, it is leveraging the time users spend on the app to be part of the overall e-commerce economy.
In the time of rising consumer acquisition costs (see a previous post/podcast by a16z on consumer goods), it is becoming a vital part of the overall e-commerce.
Taobao is powerful but probably should not be the first word to describe Chinese retailing and consumers’ choices.
T-mall and JD might be considered as the second generation e-commerce in China, where branded goods are sold.
With the rise of Chinese middle class and their disposable incomes, retailers found that they are willing to pay a little extra to get a sense of some kinds of “premium”.
So there arises a wave of e-commerce efforts that are selective about their offerings, in terms of quality and design. Meanwhile, some marketplace will emphasize on their own brand (website/marketplace), instead of the brands of the products – somewhat similar to “AmazonBasics” but more correctly “AmazonPremium”.
Yanxuan (网易严选), by NetEase (NASDAQ: NTES), might be the most successful one.
It started with products made by original manufacturers who supply to top international brands, hitting consumers’ sweet spot in price and quality.
Xiaomi has a similar strategy but featuring more of its own products or affiliated products. on Xiaomi Youpin (小米有品), independent of its core Mi Store (小米商城).
Alibaba has its response under Taobao’s name called Taobao Xinxuan (淘宝心选), making Xinxuan its own brand.
Updated
