Tag: Business

McDonald’s China menu price / China CPI

There was this “oh麦” membership offered by McDonald’s China.

If you buy the membership, you can purchase several “4件套” for a bigger discount.

It was rmb 29 for [Big Mac combo meal + 5 Chicken Nuggets] back in 2021.

The price increased by 1 rmb generally in July 2022, when the membership was upgraded to “O麦金” membership. [https://www.zhihu.com/question/543192349]

[Big Mac combo meal + 4 Chicken Nuggets] -> 30 rmb, or 3.4% increase

The cheaper grilled chicken combo + 4 chicken nuggets also increased by 1 rmb to 26 rmb, or 4%; considering the number chicken nuggets decreased by 1, price hike here is more than 4%.

In Dec 2023, “4件套” price hiked by another 1 rmb.

[Big Mac combo meal + 4 Chicken Nuggets] -> 31, or 3.3% increase

The cheaper grilled chicken combo + 4 chicken nuggets also increased by 1 rmb to 27 rmb.

Another interesting thing is the price before discount.

Here is the table to summarize the modest price increase in China.

 

Nio real net cash position (21q4 – 23q4)

Interest charting…

if we exclude restricted cash, and cash borrowed from WC, and recent equity injection, here is Nio’s quarterly end net cash position.

What’s the problem?

  • declining/pressure gross profit level (GP per car x volume) due to fierce competition & macro backdrop doesn’t support strong demand
  • increasing opex & capex (autonomous driving, chips, international expansion, new sub-brand, battery swap stations etc.) with a limited gross profit level.

Meta’s growth potential?

Meta’s bottom-line looks amazing – diluted EPS almost tripled from a year ago (+168% yoy).

How?

  • Headcount shrunk 25%
  • Revenue grew 25%
  • $20bn+ buyback in the past 4 quarters

Cheers to Susan Li, the new CFO announced back in 2022q2 earnings. Delivering numbers that investors needed.

Efficiency has improved dramatically – quarterly operating income per full-time employee more than tripled from $65k to $208k.

AI story is impressive; and Metaverse is not dead.

What are the concerns?

1) two-year cagr not impressive: at the midpoint of 2023q4 guidance, two year revenue cagr (vs 2021q4) is <7%.

Two year ads revenue carg for US, Canada and Europe is 6.7% in 2023q3.

Remember, most of Meta’s revenue is ads in US, Canada and Europe (2/3 in 2023q3). User growth obviously is not meaningful. It needs ARPU to grow. While ads pricing won’t be strong given macro uncertainties, it will then rely on showing more ads to users, which won’t be something people would enjoy.

2) operating cost would be higher: infrastructure cost would rise due to AI investments. Reality Lab operating cost would be higher. Two large layoffs were done; hard to cut further. More importantly, new revenue streams are less lucrative than ads (which has over 80% gross margin).

2) regulation, fine: Meta was sued – that has hit the headline. Meanwhile, EU’s DMA would take effect next year. Plus, AI is very data-driven. However, can companies easily get data this time around?

Will EPS continue to grow at 15% or above for 2024, 2025 and beyond? I think doable, but is AI an easily profitable business? Let’s see.

Perfect Diary or YSG? The dilemma for brand advertising

Following up on the previous blog, Perfect Diary seems to be at the perfect stage to do more brand advertising.

Two problems tho –

1/ what is the core message? Compared with 花西子, perfect diary seems to be less special in terms of message it sends.

2/ YSG wants to be the pipe or the platform. To do so, it needs resources to diversify, which inherently means the lower importance of perfect diary.

It seems to me that the conflict is also due to the short time frame the management has. To go for the ultimate J-curve of perfect diary and to become the holding group with successful tiered brands in a few years = a extremely tough goal.

If we draw a matrix – categories on the x-axis and premium level on the y axis, plus female/male on the z-axis.. long way to go.

Brand advertising in 新国货时代

Many new consumer brands in China are at the inflection point now. While they are often good at initial traffic generation and use of KOLs, brand advertising seems still an effective and a necessary step to go mainstream. It’s also the ultimate battle that can build brand equity into a long-term competitive advantage.

Three takeaways:

1/ buying traffic is cost-effective and useful in early stage to test and improve the product. But it seems to have a decreasing marginal return after certain level – this is also where brand advertising should kick in.

2/ brand advertising may take time to be “effective” when non-linear growth can be observed. Three key factors to determine whether it will work / how long it’s gonna take: 产品完成度，种草基础，渠道渗透

3/ for new segments, first mover or the current market share leader doesn’t effectively mean it’s the winner – as long as there is no clear leadership in consumers’ mind. The first to establish a strong association or become the cognitive referent is the key.

Second-hand e-commerce boom (hype)?

Poshmark (POSH) had a great run at the beginning of 2021 – closed at $101.5 per share on its first day (Jan 14), or 142% higher than its IPO price of $42.

On March 29, ThredUp (TDUP) went IPO with $14 listing price, closing its first day at $31.4 per share, or 124% higher.

Capital reacts fast in China as Zhuanzhuan raised $390 million on Apr 1. Zhuanzhuan was from Wuba and raise $300 in Sep 2019. In May 2020, Zhuanzhuan merged with Zhaoliangji, with post-merger valution of $1.8 billion.

However, valuations seem to be rich.

A long RealReal (REAL) short Poshmark (POSH) trade would return more than 13% in four week (March 4 – April 1).

Poshmark was trading at 10x forward rev while RealReals is below 5x.

If short was implemented right before Poshmark’s earnings on Mar 11, which disappoints, return would be 29%.

2020 revenue

Poshmark: $262.1mn

RealReal: $299.9mn

ThredUp: $186.0mn

Btw, these companies are not growing crazy at 50% or above – CAGR for the next 3 years is like 30%.

DoorDash Beyond Pandemic

Back in January, I wrote about how DoorDash could be valued at $60bn, with solid earnings (in the future).

While I question the near-term growth beyond $60bn, today’s earnings obviously doesn’t help.

Its stock drops more than 10% after-market.

Two things that the market seems to be too optimistic about:

1/ GOV and revenue growth – won’t be amazing

While it’s amazing that DoorDash GOV grew more than 200% in 2020, its forecast for 2021 is conservative: $30bn to $33bn, or 28% growth at the middle point.

Given Q4 GOV is ~$8.2bn, it’s basically forecasting minimal sequential growth. (lower in Q3/Q3 and higher in Q1/Q4, considering seasonality)

Our outlook anticipates the successful rollout of COVID-19 vaccines, among other things. Though we cannot predict the short or long-term effects this will have on consumer behavior, our guidance assumes it creates headwinds to growth in total orders and average order values. We caution investors that the outlook for 2021 remains highly uncertain, and consumer behavior could deviate from the expectations included in our guidance. Our guidance also assumes that the timing of scaled vaccinations will coincide with our seasonally softer Q2 and Q3 periods. Consequently, our forecast assumes increasing consumer churn, reduced order frequency at the cohort level, and slightly smaller average order values beginning in Q2. Because of this, our full year 2021 guidance assumes Marketplace GOV in Q2 and Q3 will be below the levels we expect in Q1.

2/ Profits – won’t be amazing

While DoorDash posted ~10% adj. EBITDA margin for the past three quarters, it may not be able to do so in 2021.

Considering $86 million adj. EBITDA in 2020 Q3, the forecast of $0-200 million for FY2021 seems lower than what investors were expecting.

That being said, to maintain a healthy ecosystem and to withstand the normalization of life, DoorDash needs to put extra efforts in retaining users and Dashers, and business partners. And it can and will invest more in acquiring talents.

Even 2021 GOV is $30-33bn, it will diversify (more heathy/stable demand), growing outside of the food delivery business. In 2023, this number can still go to $50 billion (say 2 billion orders x $25 per order), growing at over 25%.

And on the subscription front,

While DashPass orders carry a below-average Take Rate, the average DashPass subscriber orders more frequently and stays on the platform longer than the average non-subscriber.

DoorDash is playing the long game and the business is here to stay.

Be patient.

Unit Economics For Streaming on Kuaishou

As of Feb 2021,

For independent individuals – 40% of gross value of virtual gifts, when tax withheld is 20%

Streamers = 40%

Streamer’s tax withheld by Kuaishou = 10%

Kuaishou = 50%

For streamers under a “family/union” – varies.

Unions can set the sharing ratio to between 35% and 50%.

For example, if the ratio is set at 40%, and tax withheld is 0 (to simplify)

Streamers = 40% (certain tax should be withheld)

Union = 10%

Kuaishou = 50%

In addition, Kuaishou gives back additional revenue-sharing (“bonus”) as incentive if certain growth/active targets are achieved, up to 12% of gross value (after-tax I assume).

The larger the union, the higher basic bonus (up to 2%) it can get. Active bonus (1%) requirement is a bit higher for larger union. Growth target is lower for large unions. Growth bonus is tiered and every union can potentially get the full 9% growth bonus.

Therefore, if a union get say 5% bonus, following the previous example, then

Streamers = 40%

Union = 15%

Kuaishou = 45%

Unions can set certain bonus internally for streamers, and often provide a base pay + % commission model for streamers.

We could see from Kuaishou’s reported financials that after deducting “revenue sharing to streamers and related taxes”, Kuaishou retains a bit over 40% of its live-streaming revenue.

Aphria: Latest Numbers (Good!) Describe The Current State Of Cannabis

Aphria (NASDAQ: APHA), the company to be merged into Tilray (NASDAQ: TLRY),  with 62% post-merger ownership, just released its earnings for the quarter ended on Nov 30, 2020.

And the numbers are good – net cannabis revenue doubled yoy; adj. EBITDA margin continues to improve.

The stocks in the cannabis industry are cheering it up. In the past 3 month, those stocks are up more than 100%.

More legalization and Cannabis 2.0 products helped the sales.

More impressively, cannabis companies are growing their revenue while controlling the costs.

In the latest quarter (FY21Q2), Aphria grew net revenue by 33% yoy while G&A+sales+marketing+R&D grew by only 17%. Its LTM net revenue grew by 34% yoy (amid covid-19, at least two quarters’ sales impacted) while LTM costs (G&A+sales+marketing+R&D) grew only by 26%.

Canopy Growth (NASDAQ: CGC) is more aggressive in cutting costs. Its costs (G&A+sales+marketing+R&D) in decreased by 24% in 2020 Q3, while the revenue increased by 77% yoy.

Tilray (NASDAQ: TLRY) also cut 40% in those costs in 2020 Q3.

Pinduoduo Tragedies & Involution

The first 10 days of 2021 is not usual for Pinduoduo (NASDAQ: PDD): a female employee’s sudden death on her way back to home midnight, widely reported in China + a suicide by jumping from an employee’s home on the 27th floor + firing of a Shanghai-based employee due to posting unwanted messages on Maimai. (see details below)

Pinduoduo is not alone. The three cases, although all about Pinduoduo (NASDAQ: PDD), are the latest extreme illustration of “involution” (内卷), a very popular word in China right now.

To explain it in one sentence, involution = excessive competition with no real growth. It’s mostly used with China’s urban working class and popular in the case of internet companies.

How did involution happen? For internet companies in China:

1/ no more demographic dividend. No easy growth from new handset shipment, MAUs. Growth from lower-tier cities has been explored for the past 2-3 years.

2/ major business models are occupied by established companies. It’s the same across US and China. Rarely a new thing could pop up and sustain (Pinduoduo and ByteDance are years old and becoming “established”). Established companies are disproportionately more powerful. And internet companies are usually more innovative than others.

3/ too big to grow domestically and hard to grow overseas. When those $200bn+ companies want to grow fast, they require more energy and space. China has a big market, but US big techs not only have a large domestic market but can easily participate other markets globally. Southeast Asia is important for China’s tech/internet sector but cannot provide enough TAM.

On a side note, investors globally should start to focus on ESG measures in China.

Leading investors in China should take a lead, be more responsible on values (not just value), and care more about all stakeholders (not just as shareholders).

Three Pinduoduo cases attached:

1. The girl’s death on her way home after working until midnight

The tragedy is well reported in medias (Bloomberg, Reuters, etc.). The girl, born in 1998 (22 years old) and joined Pinduoduo (NASDAQ: PDD) in July 2019, collapsed while walking home with colleagues at 1:30 am. She died in the early hours of Dec 29, 2020 in local time – didn’t make it through the new year.

In China, the death quickly get massive public attention and criticism over the internet, as well as the regulator’s probe according to the news.

2. The suicide on Jan 9 by jumping from the 27th floor

The male developer joined Pinduoduo (NASDAQ: PDD) in July 2020. His suicide on Jan 9 (Jan 8, Friday in local time) in Changsha has been confirmed by Pinduoduo and is well-reported in China. It hasn’t been reported much in english so far but here is one from EqualOcean. The details are still unclear.

3. An employee in Shanghai fired on Jan 9 for posting photo

The story is still developing. The fired employee posted a video detailing his experience on social medias, including Bilibili, Weibo and Zhihu. The video is only in Chinese, but here are the major facts he provided:

  • The fired employee joined Pinduoduo (NASDAQ: PDD) as a front-end developer in July 2019, right after graduating from college.
  • On Jan 7 (local time) morning, when he entered the Pinduoduo office building, he saw a male being put on an ambulance in front of the building. He then posted a photo of the ambulance on Maimai, a career social platform in China known for anonymous forum.
  • Somehow, Pinduoduo found out it was him to post the photo anonymously and asked for a “talk” on Jan 8 (local time) afternoon.
  • He was told that he was making Pinduoduo look bad and was asked to sign an agreement that says he will voluntarily quit, confirm that he made certain comments, and not to talk about it after quitting.
  • He refused to sign the agreement and was fired immediately afterwards.

He also confirms some “rumors” about how Pinduoduo treats its employees and the unpleasant working environment, e.g.

  • Employees in Shanghai are implicitly asked to work 300 hours per month; some departments are asked to work up to 380 hours per month
    • It’s much more than the so-called “996” culture; employees mostly get off work around 11pm/12am
  • For any legal holiday that is longer than 3 days, employees are required to get back to work early
  • Employees are asked to move into newly renovated buildings/offices when there is unpleasant/unusual smell in the air