Business – Page 9 – shiqiv.com

「What’s News In China」

On Feb 14, Oaktree Capital Management, a Los Angeles-based distressed debt manager, became the first foreign company to set up a wholly owned unit in China under a trade accord with the U.S. The Beijing-based subsidiary has a registered capital of $4.55 million. // Caixin

On Feb 17, OYO reported a $951 million revenue globally for the financial year ending March 31, 2019, growing 350% yoy. In 16 month, OYO China has grown into an annual revenue of $307 million (~1/3 of total revenue). While facing more pressure, OYO China now has expanded into 3 brands and signed up 19,000 hotels. // TechCrunch | FT

Coronavirus has pushed many industries in China to go digital. In the past few weeks, there are booms in enterprise remote working apps 远程办公 (DingTalk surpasses WeChat to rank first in the App Store in China on Feb 5), online house tours 云看房 (of the top 100 residential real estate developers, 92 have launched the online selling services), online grocery shopping 生鲜电商 (Miss Fresh GMV grew by 321% yoy during the Chinese New Year), etc.

Tesla (NASDAQ: TSLA) is in advanced stages of talks to use batteries from Contemporary Amperex 宁德时代 (SHE: 300750) that contain no cobalt – one of the most expensive metals in electric vehicle (EV) batteries – in cars made at its Gigafactory 3 in China. Tesla started to deliver cars from that factory in December 2019. // reuters

Industries For Reducing Greenhouse Gas

Greenhouse gases trap heat and make the planet warmer.

Several of the major greenhouse gases occur naturally but increases in their atmospheric concentrations over the last 250 years are due largely to human activities. Other greenhouse gases are entirely the result of human activities. [IPCC’s Fourth Assessment Report]

Carbon dioxide (CO₂) is the primary greenhouse gas emitted through human activities.

Global GHG emissions by gas: 65% is from carbon dioxide fossil fuel use and industrial processes. 11% is from carbon dioxide deforestation, decay of biomass, etc. 16% is from methane. 6% is from nitrous oxide and 2% is from fluorinated gases. — Based on global emissions from 2010 | Source: IPCC, EPA

In 2017, CO₂ accounted for about 81.6 percent of all U.S. greenhouse gas emissions from human activities.

Emissions of CO2 from fossil fuel use and from the effects of land use change on plant and soil carbon are the primary sources of increased atmospheric CO2.

For total U.S. CO2 emissions, which mainly come from the combustion of fossil fuels (coal, natural gas, and oil), by economic activity types, transportation accounts for about 34.2 percent, electricity accounts for about 32.9 percent, industrial processes accounted for about 15.4 percent.

Pie chart of U.S. carbon dioxide emissions by source. 33% is from electricity, 34% is from transportation, 15% is from industry, 10% is from residential and commercial, and 7% is from other sources (non-fossil fuel combustion). — Source: EPA

1. Passenger Vehicles Going Electric

An analysis by the International Council for Clean Transportation (ICCT), shows an estimate of lifecycle emissions for a typical European conventional (internal combustion engine) car, the hybrid conventional car with the best available fuel economy (a 2019 Toyota Prius Eco), and a Nissan Leaf electric vehicle (best-selling EV overall in Europe for 2018) for various countries, as well as the EU average.

An electric car using average European electricity is almost 30% cleaner over its life cycle compared to even the most efficient internal combustion engine vehicle on the market today

In most countries, the majority of emissions over the lifetime of both electric and conventional vehicles come from vehicle operation – tailpipe and fuel cycle – rather than vehicle manufacture. The exception is in countries – Norway or France, for example – where nearly all electricity comes from near-zero carbon sources, such as hydroelectric or nuclear power. Lifecycle emissions for electric vehicles are much smaller in countries such as France (which gets most of its electricity from nuclear) or Norway (from renewables). [carbonbrief]

There is an important variable here – how the batteries of EVs are produced, as the largest part of the emissions, around 50%, is currently from battery (including cell) manufacturing.

Producing batteries in a plant powered by renewable energy – as will be the case for the Tesla factory – substantially reduces lifetime emissions. The IVL researchers estimate that battery manufacturing emissions are between 61 and 106 kg CO2-equivalent per kWh.

With the technology advancements and cleaner energy sources for plants, the marginal and average cost of producing batteries will continue to go down.

Casper’s IPO And Valuation

DTC is a buzzword that attracts capital in the private market.

However, public market usually doesn’t have much patience or appetite for future stories.

Casper, the magical mattress unicorn, which raised $100 million in March 2019, marketing itself as a “Sleep Economy” company, is receiving a market cap of $400 million (EV ~$300 million).

The main problem though, is not about the DTC model.

Brands such as Canada Goose and Lululemon are counting on DTC to grow.

The slowing revenue growth rate is also okay. Public market is not relentlessly looking for 100% or 50% growth.

Indeed, Canada Goose and Lululemon, which grew at sub-25% in the last 12 month, are valued at over 4x and 8x sales respectively.

Casper, which is expected to grow at 23% for 2019, has EV/Revenue below 1x.

The cost structure is where things are different.

From 2019 April to December (FY20Q1-Q3), Canada Goose‘s SG&A expenses are 31.2% of revenue.

From 2019 February to October (FY19Q1-Q3), Lululemon‘s SG&A expenses are 36.4% of revenue.

That ratio is 70.5% for Casper from Jan to Sep 2019.

Plus the differences in gross margin, the unprofitable DTC brand growing at sub-25% still needs additional efforts to prove its business is viable/sustainable.

「News of the Week」Tesla, $968.99/share

Financial Times – Tesla shares surge again despite Saudi Arabian exit

Tesla made the company the world’s second-largest carmaker by market value.
The stock rose as much as 24.2 per cent to $968.99 about 12 minutes out from the closing bell, closing at $887.06.
The stock has more than doubled since the start of the year.
The stock notched their most actively traded day on Feb 4, with ~61 million volume.
Tesla reported a $105 million profit for 19Q4 the week before
Short squeeze – On top of the record dollar loss of $5.8bn in January, short-sellers lost a further $3.2bn as the extraordinary share price rally accelerated on the first day’s trading of the new month.
Tesla’s recent delivery from its Shanghai factory to the China market added to the enthusiasm. It is the first fully foreign-owned car plant in the country.

Youtube’s First Official Financial Result

It has been more than 13 years since Youtube was acquired for $1.65 billion by Google back in October 2006.

Founded in February 2005, with $11.5 million total venture funding and 65 employees at that time, Youtube commanded 46% of visits to U.S. online-video sites in September. That compared with a 21% share for the video activities of News Corp.’s MySpace site and 11% for Google Video. Youtube had close to 20 million monthly visitors in August 2006.

A year and half before Youtube’s acquisition, MySpace’s parent company Intermix Media Inc. was acquired by News Corp. for $580 million.

Back then, Google reported total revenues of $6.14 billion in 2005 and $10.60 billion in 2006, and had a market value of $132 billion. Its net income was $3 billion in 2006 with $3.6 billion cash flow from operations and more than $11 billion cash balance.

On Monday Feb 3, 2020, Alphabet first provided the breakdown for some of its non-Google-search businesses, including Youtube.

Year Ended December 31,
	2017		2018		2019
Google Search & other	$	69,811	$	85,296	$	98,115
YouTube ads⁽¹⁾	8,150		11,155		15,149

(1) YouTube non-advertising revenues are included in Google other revenues.

Youtube ads generated $4,717 million revenue in 2019 Q4 – a ~$19 billion run rate.

Using a multiple of 5.0x, Youtube could be valued at ~$100 billion – a 60 times return for google acquisition or an IRR of 37% for 13 years.

I guess the success formula is: with the right synergies, acquire early & provide support to grow it.

Alphabet 2019 10-K

2019 Q4 Earnings Call Transcript

Online Higher Education (5) – Education Company Stocks

A Python Generated Graph On Airlines’ Load Factors

Major airlines usually would post their monthly operation results on IR websites. While United Airlines and Southwest Airlines among other stopped reporting in 2019, Alaska and Delta are still doing so.

Load factor is a measure of the use of aircraft capacity that compares Revenue Passenger-Miles as a proportion of Available Seat-Miles.

Below is a three-part project that automatically downloads, summarizes and creates chart for 4 airlines’ load factor.

Download

Given certain years, the program will go through pre-defined links to search for monthly report urls and scrap relevant data based on the page structure. BeautifulSoup is used here.

Summary

The program uses file reading and writing to put four airlines’ data together while adjusting for missing data (aligning based on month)

Charting

The program converts csv to excel and draws the chart based on data. pandas and xlsxwriter are used here.

With some adjustments, the program should be able to scrape and virtualize other web-based standard reports.

Drugstore Chains In China Adding More Franchised Locations

Two leading national drugstore chains keeps adding more franchised stores than directly operated stores.

Franchised model is more efficient in

1. leveraging existing distribution network -> improving its utilization
2. aggregating demand & volume -> better pricing terms from manufacturers
3. distributing store management (inventory + O2O sales + payment + CRM) software -> higher margin fees

Online Higher Education (4) – Online Degrees

Online Degrees Before MOOCs

While the previous posts (2) (3) summarized the birth and development (especially the model of fee-for-certificates) of MOOCs, online degrees, as a more “formal” segment of online higher educations, was actually born before 2011.

The boom can be attributed to the 1. advancement in technology infrastructure (higher internet speed, 4G, streaming, etc.) 2. people’s behavior changes such as the growing adoption of smart personal devices (smartphones, etc.) 3. increasingly burdensome higher education costs in the US and associated student debts 4. the incentives provided by the regulatory environment such as the re-authorized Higher Education (Opportunity) Act in 2008.

Distance education: US Department of Education shall not require an accreditor to have separate standards, procedures or policies for evaluation of distance education. Accreditors must, however, require institutions that offer distance education to establish that a student registered for a distance education course is the same student who completes and receives credit for it.

Then, there emerged a group of companies called Online Program Management (OPM) providers, with 2U being the current leader.

2U

The first of its kind was launched in 2008 – MAT@USC, Master of Arts in Teaching Program, developed by the USC Rossier School of Education in partnership with 2tor Inc. (the company later its changed name into 2U Inc. in 2012)

The basic idea is to replicate the degree offerings in the online format as much as possible. Private companies like 2tor will invest upfront and share the majority of future tuitions. The programs costs were a little cheaper (but at the similar level) than the traditional on-campus version.

The agreement of MAT@USC program provides a glimpse into the structure. As mentioned in the announcement, “tuition for MAT@USC is the same as the USC on-campus program at approximately $1,300 per credit.”

In 2012, when MOOCs were getting more attentions, 2tor also raised more capital and expanded the partnerships. It raised $26 million Series D in April and had 5 programs in agreement: USC’s Rossier School of Education for the MAT@USC mentioned before, USC’s Masters of Social Work Program (MSW@USC) added in 2010, Georgetown’s nursing program (Nursing@Georgetown) launched in Spring 2011, UNC’s MBA program (MBA@UNC) starting in July 2011, and announced the addition of UNC’s Master of Public Administration (MPA@UNC) right before this financing round. (See appendix for the current tuition of these five programs)

As we shall see in the next post that, as OPMs grew, at the same time, MOOCs were expanding into OPM’s fields, partnering with universities to offer degrees related programs.

At the same time, they are also trying to provide non-university based higher education, usually for/with companies in industries.

Born with different origins and offerings, MOOCs and OPMs are now coming to fight similar battles and creating full-service online higher education platforms:

1. fee-for-certificates
2. degrees-based programs
3. career-oriented continuing education

To be continued

Other more recent highly watched events for 2U included:

May 2017 2U to acquire GetSmarter for approximately $103 million, which provides online short courses in partnership with universities – just like what MOOCs did.

August 2017 HBS, SEAS and FAS partner with 2U, Inc., to offer the Harvard Business Analytics Program. The first cohort of students is expected start classes in March 2018. The total cost of the program—not including travel and lodging expenses—to be $51,500 based on current program fee rates.

January 2018 2U and WeWork announced a broad partnership: e.g. WeWork spaces are available to 2U students enrolled in graduate degree programs; WeWork members and employees can access $5 million in scholarships to enroll in 2U programs, etc.

April 2019 2U to Trilogy for $750 million in cash and shares, a large boot camp provider that partners with continuing education divisions at dozens of universities.

Appendix

MAT@USC current rate of tuition for the 2019–2020 academic year is $1,928 per credit.
MSW@USC 2019-2020 Unit Charges: $1,928 is the per-unit rate for students enrolled in 1-14 units. $28,628 is the flat rate for students enrolled in 15-18 units.
Nursing@Georgetown’s tuition is $2,139.00 per credit hour as of Academic Year 2019-2020.
MBA@UNC in 2011 said “tuition will be $89,000 for the two-year program and will include books, texts, student fees and lodging and food costs for four weekend immersions.” For students beginning in the July 2019 term, the tuition for the 2019-2020 academic year (July – June) is $125,589.06.
For MPA@UNC students enrolled in the program in academic year 2019–2020, tuition will be $1,209 per credit hour. Students who start the online MPA program in academic year 2019–2020 can expect to pay at least $54,405 for the entire program.

End of Decade Thoughts (1): An Increasingly Divided United States

This is a series about what we have seen in the past decade.

An Increasingly Divided United States

Three aspects:

1. The 2008 financial crisis provided a great opportunity for those who had equity while made many others in debt work years to recover. And the tax reform exacerbated the process.

– When we entered the past decade, prices were cheap for a lot of equities, but only for those who can buy.

– Differences were then created when the economy recovered – those who held equities enjoyed it.

– On the other hand, those who can’t buy didn’t share the growth (in any bull markets like stock, housing, etc.)

– Thus, more wealth inequalities were created. Supporting evidences could be found for a graph