Alvin's Newsletter: No. 26
Weekly newsletter on what I saw interesting in tech, venture capital and business.
📰 News
AirBNB filed for IPO: Things looked dire for AirBNB earlier this year. The company went all out to make sure it could weather the storm. Mid June things started to have picked and now the company is back in full swing as people embrace work-from-anywhere and realise they don’t have to be in the suburbs or close to the city to be working. And of-course all the pent-up demand with no-one going on holidays this year really. Link
And as bonus, an in-depth look into the numbers. Link
While delivery and ridesharing companies place a large share of the unit cost variability on their own profit and loss statements, Airbnb’s biggest out-of-pocket risk is incentives and refunds, which were running at a steady 5-6% of revenue until the pandemic, and were 14% of revenue in the last nine months.
Deep-dive into Alibaba’s Singles Day: Camille is the goto on eCommerce analysis. Here she provides some thematics on what made it tick this year. Link
This Singles Day, $1 billion worth of Australian goods were purchased in the first 24 hours, and Australian brands were the fourth most popular overseas products, following Japan, the United States and South Korea.
For retailers in AU, its a timely reminder of the buying power of a growing Chinese middle class, and increasing importance of this sales event in our calendar.\
Unaoil scandal: The way of doing business with the less developed parts of the world can be a dirty business. Lax controls and corruption that runs deep makes it problematic for Western companies to navigate. On the one hand you have Western anti-bribery laws (which are very clear), and on the other, sometimes the only way to win the business is to pay up. It is the way of business in some parts.
In this series, Fairfax does some excellent journalism and goes deep on the Unaoil scandal that affected Leighton Holdings international arm. How did Leighton navigate the ‘dirty business’ - use a third-party intermediary so it’s at arms length - Unaoil.
Unaoil’s formula is interesting. It established an extensive agent and information network. Both inside the countries it’s looking to win contracts with, and on the other side within the companies it was working with to obtain confidential information so as to put itself in prime position to negotiate and win financially. Part1 Part2 Part3
Sometimes, its sub-agents are genuine lobbyists. But often they are powerful politicians or officials looking for a kickback. Or they may be corrupt executives in Western oil and gas companies who leak Unaoil confidential information, even to the detriment of their own company, in return for personal financial reward.
Amazon entering the pharmacy business: The Bezos juggernaut rolls on. This time - your local pharmacy likely to get steam rolled in the not too distant future. Link
Affirm filed its IPO: Link
Certain sectors provided the company with fertile ground for its loan service. Affirm said that it saw an increase in revenue from merchants focused on home-fitness equipment, office products, and home furnishings during the pandemic. For example, its top merchant partner, Peloton, represented approximately 28% of its total revenue for the 2020 fiscal year, and 30% of its total revenue for the three months ending September 30, 2020.
📚 Reading
Intel disruption complete: Lot’s of chatter this past couple of weeks on what Apple’s new chips mean for Intel. If you have never heard of Clay Christensen and disruption theory - this is a good intro into how it can/does play out within the context of what is happening in the chip industry. Link
The causal mechanism behind disruption that Grove so quickly understood was that even if a disruptive innovation started off as inferior, by virtue of it dramatically expanding the market, it would improve at a far greater rate than the incumbent.
Evolution of tech companies and their business models (and stock price): Ben Thompson waxing lyrical on one of his favourite of topics. Ben gives an idea of what some of the thinking was at different times over the last two decades - illustrating that the current state was far from inevitable. Even though many like to think that way in hindsight. Particularly relevant as he goes into how he is thinking about AirBNB. Link
This is what it takes to succeed in hard mode: Airbnb took a core differentiator of hotels — trust, a differentiator that OTAs depended on — and digitized it. But, critically, that digitization and resultant commoditization happened only on Airbnb, and was thus captured exclusively by the company. This, by extension, is what the comparison to OTAs miss: Airbnb is not riding the same wave that Booking et al did a decade ago, but are instead undertaking something far more ambitious: creating their own wave where none previously existed.
🦖 Entertaining & Interesting things
Bond markets slow move to electronic trading: Bond markets are stuck in the stone ages relative to their equity counter-parts. Why? A look at how electronic trading in bond markets has come to be. Link
Fifteen stocks in the S&P 500 have returned more than 10x over the past ten years. They include Netflix, Amazon and Apple, obviously. Visa and Mastercard are in there as well, together with biotech company Regeneron. Yet one company has outperformed all of these. Like them, it uses technology to change the way we do things. Unlike them, its name is not well known outside Wall Street. The company is MarketAxess; its mission is to disrupt the way bond trading works.
Deconstructing the Spotify codes: Spotify codes are like QR codes and are quite peculiar when you look at it the first time (if you are a nerd like me). Someone went to the effort in reverse engineering them. Interesting. Link
Models for startup idea generation: The genesis for ideas is difficult and varied. A guide on some of the different models to help structure the thinking. Link
Moving a building by walking it: Link
🎧 Podcasts
The best podcast episodes last week according to Bosco Tan:
What happened to Ant Financial (The Journal) - 18 mins: Ant Financial was about to be the biggest and the most fast-tracked IPO in history. However the brakes were suddenly pulled by the Chinese Government. Wall Street Journal profiles why this happened and the intent behind the move from the Chinese Communist Party. Link
Niki Scevak on the leading Australian VC firm Blackbird (Invest Like the Best) - 51 mins: Blackbird is one of the leading VC funds in Australia with successful investments like Canva and Zoox. Niki - its co-founder is one of the best minds in the startup and investment space. The clarity of his thoughts are astoundingly profound. He touches on how he invests, gross margins, customer acquisition and a whole lot more. Link
Genes and IP ownership (Planet Money) - 25 mins: A few years ago, biotech companies had patented as much as 20% of the human genome. This started to limit the ability for others to innovate to find cures for important ailments such as breast cancer. This is the tale of one lawyer, who took it upon himself to challenge this ruling - all the way to the US Supreme Court. Link
Levi’s and the iron curtain (Brought to you by… ) - 34 mins: Once upon a time in world history, American denim was one of the most sought after commodity in the communist east. This is the story of how Levi’s kept finding its way behind the iron curtain, through smuggling to more formal means. Could Levi’s have brought down the wall? Link
📹 TikToks
Fixing an iPhone. Link
First person view (FPV) of flying down a mountain. Link
Flying with the birds. Link
Thongs and pipes. Very Australian. Link
Best. Dancing. Ever. Link