Tag: Business

Two vs. Three

Two is much better Three in terms of market competition / dynamics.

Visa and Mastercard is are two giants in payment network.

WeChat and AliPay are two leading mobile payment providers in China.

Global PD-1 market has two leading drugs – Keytruda and Opdivo

Differentiated “two” is also good.

Android and iOS are two mobile operating systems with differentiated business models.

CATL and BYD are two leading Chinese battery makers with differentiated business models.

 

Three is a different picture.

US has three big automakers, Stellantis, GM, and Ford.

China has three SOE automakers, 一汽, 上汽 and 广汽. There were three private automakers, Great Wall, Geely and BYD. Three are three US-listed new energy vehicle startups, Nio, Li Auto and XPEV. [3 x 3…]

Three are three major airlines with alliances, Star Alliance (United), Oneworld (American), SkyTeam (Delta). There are three low-cost carriers (although nowadays the line is blurry) SouthWest, Alaska, and JetBlue. There are three ULCC, Allegiant, Frontier and Spirit. [3 x 3…]

China has three SOE airlines, 国航, 东航 and 南航. Each joined one of the three alliances.

 

One is rare.

Two is good; differentiated two is even better.

Three is hard; three times three is very hard.

 

Growing out of three is amazing.

BYD is an example.

China data center left behind?

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

 

 

Starbucks China positioning

Personal experience:

It was cool to hold a Starbucks drink in hand, but less so in recent years.

The cool factor is diluted with %Arabica (82 stores), Blue Bottle (5 stores), and Peet’s (over 200 stores).

Blue Bottle can drive me to a shopping mall that wasn’t on my plan. Starbucks has less effect these days.

I rarely buy Luckin coffee, unless it’s a hit product like Moutai coffee. Mostm Luckin items don’t taste like coffee but more like sugar drinks to me.

I have tried other domestic brands like M Stand (350 stores). I think that tastes more on par with Starbucks.

Manner (1000 stores) is not on par with Starbucks, but the minimalist style looks appealing than Luckin for certain customers.

Other international brands like Tim’s (912 stores) is not a bad choice. But the store is less sophisticated than Starbucks (lack of charging).

In terms of drinks, I think Starbucks is less differentiated among premium brands like %arabica, Blue Bottle, Peet’s.

In terms of services, Starbucks is differentiated with charging outlets. And I like the option of ordering without a phone, although I mostly order on phone.

In terms of branding, it’s less “cool” compared with %Arabica and Blue Bottle, unless it’s a Starbucks Reserve coffee.

I think Starbucks’ problem in China is more of a positioning problem. How it can target different segments with a single brand? Different customers want different things and they are just too different in China.

  • too mainstream to be premium / high-end
  • too expensive for routine customers in the real mass market (incl. lower tier cities) in the long run

I am sure in some cities, Starbucks shall still enjoy a “cool” factor for some time, but can fade over the years if other foreign brands enter.

%Arabica Shanghai

 

Blue Bottle Shanghai

Growing capital expenditure for AI firms (MSFT + GOOGL + META => $150bn)

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.

US homebuilders in 2008

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.

 

 

Is Chipotle a robot company that happens to make chipotle?

Not to say these systems are fantastic; but at least you need to experiment first. Investors love stories.

Robots could do fries Chippy robot (by Miso Robotics)

Robots could peel and cut avocados Autocado (by Vebu)

Robots could prepare the bowl/salad (by Hyphen)

 

Problems?

  • cleaning
  • items prepared may not be as good as humans for now
  • lack of customer relationship (I still like it when your local coffee shop people can remember your name)
  • if broke down, hard to replace? unless you have a spare machine nearby… but in every city?
  • less job growth for society
  • etc.

Zillow’s problem?

1/ the $1.8bn lawsuit became the catalyst to lower commission revenues for each home transaction.

Some real estate agents may exit the industry as the pie is smaller; and spending on Zillow per transaction will likely decrease.

Therefore, Zillow’s revenue from home sales shall decrease under the current model.

2/ competition from CoStar is very real while Zillow is not growing

CoStar combined traffic from 23q4 earnings presentation

Home.com (owned by CoStar) had 149 million unique visitors in Feb 2024, with 567% yoy growth.

Zillow’s 2023q4 reported average monthly unique users was 194 million, down 2% year over year. Visits during Q4 were 2.2 billion, up 1% year over year.

Zillow’s DAU trend from Investor Deck February 2024 – not looking amazing.

Their business models are different. CoStar is more SaaS like. And Zillow is more e-commerce.

(above from ChatGPT 4)

3/ of course the current interest environment is not helping.

While it’s not new and Fed may cut this year, marginal benefits of lowering from 6.5% to 6% won’t move the needle.

 

Take turns: Japan and China

Japan largely missed the PC/mobile/internet wave decades ago.

In retrospect, Japan was in “competition” with the US in memory chips etc.

Microsoft chose Beijing as its APAC research center back in 1998.

Now in 2024, Microsoft chose Japan to invest billion of dollars for AI and cloud.

And China is in “competition” with the US in AI and other tech.

China risks losing behind in AI, mostly as the most powerful chips are not allowed to be sold to China.

 

 

The year after Abbott exited China’s infant formula market

At the end of 2022, Abbott Laboratories announced the gradual exit of mainland China’s infant formula market throughout 2023.

Abbott had ~3% market share.

How other international brands were doing in 2023?

Nestle’s Greater China business overall saw 4.2% organic growth in 2023, citing positive growth in Infant Nutrition.

Danone (Aptamil brand) saw market share gain in 2023, with 8.3% yoy like-for-like growth in specialized nutrition in China, North Asia & Oceania.

A2 grew 10.4% yoy in 23H2 (FY24H1) for its China label products, and 16% yoy in 23H1 (FY23H2).