iOS vs. Android – Catch-up

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Android is snapping at Apple’s heels.

  • Android is showing signs of catching up with iOS in terms of user spending at the high-end, but further down the pricing tiers and in mobile advertising, I think that iOS remains miles ahead.
  • A recent study of the habits of 1.4m USA based users during the month of June 2017 was carried out by DeltaDNA, an analytics firm.
  • The study only measured gaming but this is already well known to be by far the biggest revenue generator from any Digital Life segment.
  • Almost all games these days are free to play and have in-app purchases for monetisation.
  • It is these that the survey measured and I have expressed these as ARPU $ / month.
    • Samsung Galaxy s8 / s8+: $6.30 / $16.20
    • Google Pixel / XL: $6.30 / $9.60
    • iPhone 7 / 7+: $8.40 / $10.80
    • Other US Android devices: $6.00
  • From this I conclude:
    • First: Screen size and quality is a big determinate in game monetisation.
    • The Samsung Galaxy s8+ which has by far the best screen (and the best audio in my opinion) available on the market today, is clearly making a difference to game play with the observed results.
    • Second: On normal screens, iPhone is still comfortably ahead of both the s8 and the Pixel but the gap is closing.
    • Third: Both the s8 and the Pixel are not meaningfully better than other Android devices implying the that user experience on the s8+ and Pixel XL has nothing to do with their better monetisation.
  • Although these models are clearly closing the gap on the iPhone, when it comes to total revenue generated there still remains a vast chasm in terms of total revenues generated.
  • In Q1 17A, Apple generated $7.04bn in revenues from services while Google other revenues were $3.10bn ($3.09bn in Q2 17A).
  • These figures are not direct comparisons as there are other businesses also included in these figures, but I think it is pretty safe to say that Apple App Store is easily generating double the revenue of Google Play.
  • A large part of this will be because in the high-end segment Apple has much higher share but also because Apple does still clearly offer a higher quality apps and services experience as the data for the regular sized phones indicates.
  • Furthermore, I have not seen a shift in the mobile advertising metrics and so I still believe that an iOS device generates double the advertising revenues of an Android device.
  • This data should send a warning shot across Apple’s bows as the better Android devices are certainly snapping at its heels.
  • Should they finally catch up, Apple may find it starts to feel the dreaded pricing pressure that will hurt profitability.
  • This is why I continue to believe that Apple needs to make its ecosystem sticky in areas other than its App Store which is what I think its strategy around HomeKit, HealthKit and Apple Pay are centred around.
  • However, to date, not a huge amount of sustainable traction has been generated by any of these services and so Apple has to radically improve them or think of something else.
  • This is one reason why the iPhone 8 is so important as once again it has slipped too far behind the hardware curve and needs to catch up.
  • With the rally that we have seen in 2017, the valuation argument for holding Apple has long since evaporated which is why I would prefer to hold Tencent, Baidu or Microsoft for this year.

Amazon & Baidu Q2 17A – Back to basics

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Amazon and Baidu get back to what they do best.

Amazon – Not making money

  • Amazon reported disappointing results and guided weakly as it once again spent everything it could on investing in future revenue growth.
  • Q2 17A revenues / EBIT were $38.0bn / $628m compared to consensus at $37.2bn / $1.0bn.
  • AWS put in another mighty performance with revenues of $4.1bn and margins of 22% but this was gobbled up by the international operation where margins have fallen to -6.3% from -1.4% in Q2 16A.
  • I am pretty sure that is mostly driven by Amazon’s absolute determination not to lose India to Flipkart / Snapdeal the way it lost China to Alibaba.
  • The good news is that Flipkart and Snapdeal are squabbling over their merger and the longer it takes them to get it done, the less chance they have to keep Amazon out of their home market. (see here).
  • This heavy investment looks set to continue with Q3 17E guidance disappointing once again.
  • Q3 17E revenues / EBIT are expected to be $39.25bn – $41.75bn ($40.5bn) / LOSS $400m – $300m (LOSS $50m) compared to consensus at $39.9bn / $1.1bn.
  • There is no sign of this “bumbling around break-even” in sight and consequently the valuation of Amazon looks more stretched than ever.
  • I prefer not to pay now for profitability that very fleetingly materialises.

Baidu – Performing in line with China.

  • Baidu reported good Q2 17A revenues as the regulatory impact on its revenues has past and the company kept a tight lid on expenses.
  • Q2 17A revenues / net income were RMB20.7bn / RMB4.4bn compared to consensus at RMB20.7bn / RMB3.3bn.
  • A large part of this improvement has come from cutting back on investments in its food delivery business but also from a big fall in traffic acquisition cost which fell from 15.9% of sales in Q2 16A to 11.9% in Q2 17A.
  • Despite the cuts, investments in AI and content remain intact and are the two main thrusts for revenue growth beyond search.
  • In AI, I rank Baidu highly, although it is very focused on China, and think that this is its biggest strategic advantage to remain a big player in Chinese Internet.
  • Baidu should be able to make its services more intuitive and useful compared to those of its competitors which should help its services win and keep more users.
  • The outlook for Baidu remains steady, now that the regulatory problem is in the rear-view mirror, and I see an upwards correction as it catches up with its peers.
  • I continue to like Baidu alongside Microsoft and Tencent.

 

Facebook Q2 17A – Cash community

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Community is about cash generation.

  • Facebook reported another set of excellent results and laid out pretty concrete plans of how it aims to put off, for as long as possible, the inevitable slowdown in its growth.
  • Q2 17A revenues / adj-EPS were $9.3bn / $1.32 compared to forecasts of $9.1bn / $1.32.
  • Mobile advertising, and especially video, underpinned most of the growth as mobile now accounts for 87% of total advertising revenues.
  • Facebook now has 2.01bn MaU of which 1.32bn visit everyday
  • Two major themes have emerged over the last 6 months which were further emphasised at these results.
    • First: community. Facebook is moving away from connecting friends (as it has already done this) and towards creating communities.
    • There are already 100m members of groups around particular interests which Facebook aims to push much higher.
    • These groups meet both virtually and physically and I think they represent an incremental monetisation opportunity.
    • This is because they represent the most engaged users where their interests are as clearly defined as they are on Twitter.
    • This means that Facebook should be able to monetise them much more effectively as the advertisements served will be more relevant and therefore can be more highly priced.
    • Furthermore, should Facebook succeed in growing the membership of these groups meaningfully, the average time spent by users on Facebook will also rise.
    • This will give both a price and volume lift to revenues allowing much faster growth.
    • Second: Artificial Intelligence. It is clear that this is Facebook main strategic priority.
    • This is because it is very far behind the curve when it comes to the quality of its AI, and it badly needs to at least be able to understand and categorise the huge amounts of data that it generates every day.
    • Facebook also intends to use AI to understand its users better so that it can suggest content that exists outside of their social circle in which they might be interested.
    • This will also have the convenient side effect of enabling Facebook to target its users more effectively, thereby increasing the price it can charge to marketers.
    • AI still remains a major weakness for Facebook but importantly, it is aware of the problem and is working on fixing it as fast as it can.
  • Behind the desire to connect people and create communities lies a Sheryl Sandberg’s highly efficient cash collection machine.
  • At the end of the day Facebook is a business not a philanthropic organisation and it is doing an excellent job of earning a good return from the data it collects.
  • I still remain concerned with short-term growth due to the maturation of its core businesses and the fact that new areas like messaging and gaming have yet to really generate revenues.
  • So far in 2017, Facebook has been able to defy both its own (and my) forecasts for revenue growth but the comparisons are getting tougher and tougher to keep up this pace.
  • Hence, I doubt that Facebook can keep this up until its new businesses mature and I still see a pause coming in revenue growth over the next 6 to 9 months.
  • It is at that point, that I am looking to get in for the long term as Facebook is showing all the signs of becoming the biggest ecosystem of them all.

Facebook – Empty head

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Another smart speaker that badly needs a brain.

  • It looks like Facebook is joining the ever more crowded smart speaker bandwagon, but without a decent brain inside the box, it may as well be a paperweight.
  • One possibility is for the device to use Cortana as it comes from one of the few companies that doe not compete directly with Facebook: Microsoft.
  • The device looks like it will be using a 15-inch screen from LG and will be manufactured by Pegatron but beyond that there are very few details.
  • I suspect that Facebook may be trying to take a slightly different tack here.
  • This is because:
    • First: the smart speaker market is already very crowded,
    • Second: Facebook has no brain of its own to install in the box,
    • Third: Facebook is more focused on community than smart home.
  • Facebook’s main objective in life is to bring its users closer together using its apps and to give them a sense of community.
  • While this all sounds great for users, the reality is that they will end up spending more time inside Facebook’s fledging ecosystem, generating more traffic and thereby increasing Facebook’s ability to make money from them.
  • Hence, I suspect that this device may be aimed more at making it easier for Facebook friends to spend time with each other by voice, video, messages or even images.
  • However, to earn a place on the increasingly crowded countertop of consumers, it is going to need voice functionality of some description.
  • I think that Facebook M, which is Facebook’s own digital assistant is hopelessly inadequate to fulfil this role, meaning that Facebook will have to get one from somewhere else.
  • Top of my list for this is Cortana which, while not the sharpest tool in the box, it is the only one whose owner is not competing directly with Facebook.
  • In fact, I have seen Microsoft and Facebook creeping closer together (see here) over the last few years and this is a collaboration that could make some sense.
  • With a bit of tinkering on Microsoft’s part, Cortana could be taught how to deal with the majority of the tasks that users ask smart speakers to perform.
  • This work is probably already going as Microsoft may already be working on a smart speaker of its own.
  • Combining this with the screen and Bing would give the device a reasonable shot at doing a decent job of answering queries.
  • This is just another example of how badly Facebook needs to bring its AI up to a level at which it can compete on a level playing field with Google.
  • This would also help Facebook deal with the objectionable content problem that it has on its platform as its current answer to this is to throw more humans at the problem.
  • For me, this has to be Facebook’s number one strategic priority and the progress displayed at F8 on image and video recognition was somewhat encouraging (see here).
  • I am still quite cautious with regards to Facebook’s outlook for this year as I don’t think that either its video offering or its gaming offering are mature enough to bring the company back to high growth in 2017.
  • This combined with requirement to really improve its AI to compete with the other digital ecosystems leads me to still prefer Baidu, Tencent and Microsoft.

Alphabet – Other people’s money

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Core businesses showing signs of maturity.

  • Alphabet reported good Q2 17A results but the fact that it has having to share more of its revenues with third parties is hurting profitability and indicates that growth in its core properties is maturing.
  • Q2 17A revenues-ex TAC / Adj-EPS were $20.9bn / $8.90 below consensus of $21.2bn / $10.34.
  • While I consider the EU fine to be little more than an annoyance (see here), it is the traffic acquisition cost (TAC) where I have concerns.
  • Over the last 12 months, Google has been forced to pay away more of its revenues to its network members and distribution partners.
  • Google network members are now keeping 72% of their turnover compared to 70% a year ago and distribution partners now get 11% of the revenues that Google generates from their devices compared to 9% a year ago.
  • The problem here is that this falls straight to the bottom line and looks to have been entirely responsible for the weakening of margins experienced during the quarter.
  • To a certain degree, what Alphabet is doing is buying growth in revenues and paying for it with lower profitability.
  • This is exactly what Yahoo did much more aggressively prior to its acquisition by Verizon and it was able to mask a decline in its core business by buying in revenues from elsewhere.
  • It implies that monetisation of its own properties and content such as search, mail, maps is starting to hit their capacity ceilings, leaving the company needing to find more growth from third parties.
  • In this regard, the star of the quarter was YouTube which now has 1.5bn MaU with a staggering average engagement time of 60 minutes per day.
  • YouTube is the main home of the alternative media which continues to gain substantial traction across the world as well as the place to go to learn how to do almost anything.
  • YouTube has also seen very high growth of viewing from regular TV screens and is gradually making the move into traditional entertainment.
  • Machine learning and AI are found everywhere in Google’s products and given its lead here, it has the ability to make its services more useful and more intuitive than the competing services of other ecosystems.
  • Hence, I think the outlook remains pretty good for Alphabet but the underlying growth in the core business looks like it is maturing.
  • Hence, profit growth could lag revenue growth as margins come under pressure from increasing TAC leading to more disappointment.
  • I remain pretty cautious on Alphabet overall as the share price has more than kept up with the growth the company has enjoyed over the last 24 months.
  • I still prefer Tencent, Baidu and Microsoft.

Uber vs. everyone – Colonial times

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Uber’s dreams of colonisation are slipping away.

  • First Uber lost China, then Russia and now it looks as if South East Asia may go the same way.
  • I am sure that Brazil and India are taking feverish notes.
  • SoftBank and Didi are investing $2bn investment in Grab, the Singapore-based ride-hailing company that offers its services in 6 countries including Malaysia, Singapore, Indonesia, Thailand, Vietnam and Philippines.
  • The total round is expected to be around $2.5bn with a post money valuation of $6bn.
  • Grab is present on 50m devices with 1.1m drivers and fulfilling 3m rides per day.
  • Grab has two advantages over Uber.
    • First: dominance. According to Grab, it already has 91% market share in taxi hailing and 71% in private vehicle hailing in the markets it serves.
    • This is crucial as RFM’s rule for online marketplaces states that to become to go to place to buy or sell a product or service, the marketplace has to have 60% market share or be double the size of its nearest rival.
    • Assuming these figures are accurate (there was a lot of dispute in China), then Grab has already become to the go to market place although the opportunity is very lowly penetrated.
    • I suspect that this is why it needs such a large fund raising as this position has to be maintained while the ride hailing becomes much more prevalent in the region.
    • Second: GrabPay. One of the problems with ride hailing in emerging markets is the fact that credit card penetration is very low.
    • A large part of the ride-hailing experience is the ease and simplicity of payment and GrabPay is way to bring this experience to those with no credit cards.
    • GrabPay credits can be purchased at ATMs, stores and banks (in a similar way to mobile phone airtime popups) which can then be used to pay for Grab services.
    • I think that this will remove one of the major hurdles to uptake of the service as this issue has made life difficult other offerings like EasyTaxi which operates in Latin America and the Middle East.
  • Uber’s rivals overseas are making the most of its turmoil at home as while management attention is focused in USA, I suspect not much is going on overseas.
  • This gives its rivals more time to establish themselves and none of them appear to be wasting any time.
  • The net result is that Uber’s dreams of colonising the world appear to be slipping away.
  • I suspect that it will remain dominant at home and some key Western markets (like UK) but it will have to do much more than just ride hailing in those markets to justify a $65bn valuation.
  • This is why autonomy may end up being so important as if Uber can capture a large piece of the gigantic $2.7tn transportation market in USA by operating a fleet of autonomous vehicles, then it could conceivably be worth 10x that figure.
  • However, Uber has a very long way to go before it gets to that point as its autonomous offering ranks dead last by RFM’s reckoning (see here) and the car makers could well be fighting in this market for their very existence.
  • I would not be surprised to hear of secondary transactions in Uber stock at well below $65bn and I can’t see much that’s going to push it up anytime soon.
  • One to avoid for now.

Microsoft FQ4 17 – Head in the clouds.

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Not a cloud in the sky.

  • A strong finish to the fiscal year cements Microsoft’s positions as the main alternative to Amazon Web Services and as the preeminent provider of a Digital Work ecosystem.
  • FQ4 17 revenues / Adj-EPS were $24.7bn / $0.75 nicely ahead of consensus at $24.3bn / $0.71.
  • Outperformance was primarily driven by Azure which grew by 97% YoY and Office 365 which showed continued to show healthy progress in both the enterprise and with prosumers.
  • Gross margins improved slightly as favourable product mix was able to offset the impact of the increasing share of revenues coming from the cloud which has much lower gross margin than licence sales.
  • This is entirely normal and RFM research has shown that in Microsoft’s case in the long-run, it is better to have recurring revenues at lower gross margins than one off sales at much higher levels.
  • This is because the one-off sales do not occur frequently enough to generate more profit than subscription revenues at much lower margins.
  • Consequently, gross margins are going to remain under pressure in future albeit at a lower rate as cloud gross margins are rapidly expanding as the businesses continue to scale.
  • Guidance for FQ1 18E was a little light with revenues / EBIT of $24.0bn / $7.1bn forecast compared to consensus at $24.2bn / $7.4bn.
  • Guidance for FY18E remains unchanged with the priorities being placed upon increasing cloud gross margins and cautious growth in OPEX.
  • While the Digital Work ecosystem is going from strength to strength, the consumer ecosystem continues to wither away.
  • The one exception is gaming where the Xbox live community is still growing nicely and Microsoft remains the only real challenger to Sony in console gaming.
  • Despite this, I still think that Xbox Live is a massively under-utilised asset is it has completely failed to get any real traction in mobile gaming.
  • This is why I still think that there may be a party out there that is willing to pay more for Xbox than it is worth to Microsoft.
  • In that instance, Microsoft should sell Xbox in the best interest of its shareholders.
  • Microsoft is not the most exciting company in my universe but it has been one of the steadiest over the last 2 years and there is every sign that this will continue into FQY 18E.
  • Microsoft remains along with Baidu and Tencent, my two top picks.

Qualcomm FQ3 17 – Strong stomach

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Qualcomm has the stomach for a fight.

  • Despite the seemingly challenging situation the company is currently experiencing, I think the company has a better chance of beating Apple than it did of beating Nokia back in 2006.
  • FQ3 17A revenues / Adj-EPS were $5.3bn / $0.83 compared to consensus at $5.3bn / $0.85.
  • This was in line with consensus which has now been adjusted to account for the fact that royalties from the iPhone are no longer forthcoming.
  • Technology licencing revenues (QTL) fell by 42% YoY and 48% QoQ while QTL EBIT fell by 51% YoY and 56% QoQ highlighting just how significant the revenue generated by the iOS ecosystem is to Qualcomm.
  • Guidance for fiscal FQ4 2017 will be similarly impacted with revenues / Adj-EPS of $5.4bn – $6.2bn / $0.75 – $0.85 compared to consensus $5.6bn / $0.95.
  • While, Qualcomm has been transparent for many years about how QTL generates a disproportionately high share of profits, the market appears to have got its spreadsheets in a muddle and misread the impact of the lower revenues on QTL EBT margins.
  • These are expected to be around 66% which is the main reason why the EPS guidance is below consensus.
  • Included in this are the legal expenses that are being incurred to defend its business model, which I think in the long-run will be money well spent.
  • Most of the arguments that Apple is making to explain why it has an issue with Qualcomm’s business model have been made off and on for the last 15 years so the case it is bringing is nothing new.
  • These arguments were made most vocally by Nokia in 2006 and while the companies did come an eventual settlement, this time around the situation is quite different.
  • I think that these differences strengthen Qualcomm’s hand as:
    • First Contract validity: The dispute that arose between Nokia and Qualcomm in 2006 occurred because Nokia’s contract had come to an end and the companies were unable to reach agreement on terms for the renewal.
    • Nokia stopped paying Qualcomm as it had no idea how much to pay and instead accrued an estimate of the cost in its balance sheet.
    • The contracts upon which Apple has ceased payment have not expired and I can’t see any contractual grounds upon which to cease making payments.
    • As a result, I do not think that it will not be difficult to show to a court that Apple is acting in bad faith and to win an enforcement order.
    • Second: Third party suppliers. Apple does not pay Qualcomm directly as the payment is made by its manufacturing partners who make its products.
    • This means that Apple is getting involved in contracts that are in place between entities that have nothing to do with Apple other than it being the end buyer.
    • I do not think it will be difficult to argue that Apple has no real grounds to be involved in these contracts and is acting in bad faith.
    • Third: Non-standard essential patents. As Apple is no longer paying Qualcomm for its IP, it is not unreasonable for Qualcomm to sue Apple and its contract manufacturers for patent infringement.
    • Standard Essential Patents (SEPs) are those patents that have to be used to get a standard (like LTE) to work properly. One cannot design around them.
    • It is easy to prove infringement of a SEP (assuming that its valid) but patent holders are not allowed to be nasty when it comes to licensing terms.
    • When one contributes standard essential IPR, one agrees to license the technology to anyone who wants it.
    • This has to be done at a fair price and one agrees not to seek injunctions.
    • Historically, Qualcomm has tended to assert SEPs but this time it is asserting implementation patents against Apple and its manufacturers.
    • Implementation IPR is another kettle of fish entirely.
    • It is much more difficult to prove infringement as this IPR can be designed around, but when infringement is proved, the holder can pretty much do what it likes.
    • There is no limit to the royalties that can be charged, injunctions can be sought and the holder can force the infringer to redesign his product to get around the innovation.
    • If there is one thing that Qualcomm knows it is patents and I am certain that it has asserted implementation IPR that Apple is most likely to have infringed as well as patents that are fiendishly difficult to design around.
    • However, I am pretty sure that the engineers at Apple are now beavering away to work out how to do just that.
  • The net result is that I think of all the battles that Qualcomm has fought in the past (and there have been many), it has the best chance of winning this one.
  • However, to slug it out is going to take a long time it could easily be 2020 before this issue is fully resolved.
  • I think that this creates an excellent long-term investment opportunity in the stock but timing of entry is difficult to gauge and it is going to be a bumpy ride.

AR – Productivity pays

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AR is alive and well in the enterprise.

  • Amongst a surprising re-launch of Google Glass and a major pivot by Meta, it is increasingly clear that while augmented reality (AR) makes sense in the enterprise, it is years away from the consumer market.
  • Google has quietly relaunched Google Glass as a smaller unit with upgraded electronics that can attach to a range of regular glasses frames as well as safety eye wear.
  • This time around the focus is 100% on productivity as it has been developed with input from companies and is called Glass Enterprise Edition.
  • The use case being targeted is employees that need to fulfil complicated manual tasks where the device provides instructions obviating the need for assembly instructions.
  • The device is being sold through partners that are offering software customisation on top of the base unit in order to provide the functionally needed by various industry verticals.
  • This is exactly what Atheer Labs moved into some years ago, although its unit also provides communication and is somewhat larger.
  • At the same time Meta, an AR start-up, has also pivoted into the enterprise after realising that it was going to struggle with selling devices to consumers.
  • Meta is now on a major publicity drive with a proposition about how its device can be used to replace office monitors.
  • Interestingly it seems to have abandoned collaboration and communication which is an important part of the workplace and was something it was demonstrating for consumers some years ago.
  • These moves echo how the message from other players like Microsoft and OTG has also changed over the last 12 months with silly living room-based shooting games being replaced with productivity applications.
  • All this is happening because in the enterprise, it is productivity that really matters with the user experience being less important.
  • I think that this happening as in consumer, the users pay money for an experience but in the enterprise users are paid to use the technology.
  • Hence, enterprise users’ willingness to put up with a substandard user experience is much greater.
  • The AR user experience is still miles from where it needs to be but critically it does offer productivity improvements that have led to many companies trialling it particularly for employees in the field.
  • These trials are now gradually moving into real world deployment.
  • Hence, I continue to believe that AR in the enterprise should see both unit shipment growth as well as good growth in revenues from software and services in 2017.
  • However, I think the consumer will continue to languish and the only one that is sticking to its consumer guns is Magic Leap.
  • Magic Leap has made incredibly bold promises around a consumer offering in AR, but it is questionable as to how close it really is in terms of having a working, commercial product (see here).
  • From an investment perspective, AR in the enterprise is the only place I would entertain putting money into this year unless it is something aimed at fixing the limitations that keep AR and VR uninteresting to the consumer.

Blue Apron – Size 12s.

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Amazon’s size 12s causes dismay for Blue Apron and Hello Fresh.

  • The saga of Blue Apron is rapidly becoming a horror story that could end in acquisition as I think that rushing to IPO too early has now made it extremely difficult for the company to raise new money.
  • Blue Apron is a food delivery company that sends its members boxes with the exact ingredients required to cook entire meals at home.
  • Members pay a subscription in order to receive a certain number of meals per week.
  • It is exactly the same as Hello Fresh which operates out of Europe and is part of the Rocket Internet group.
  • The proposition is quite simple in that by cutting out wholesalers and distributers it can offer good prices on high quality ingredients making the service inexpensive enough to attract cash rich, time poor customers.
  • The problem is that Amazon’s clearly intends to stomp on these businesses with its acquisition of Whole Foods and its application for a trade mark to enter this line of business.
  • This has decimated the valuation of Blue Apron and, I suspect, sent waves of panic through Hello Fresh.
  • Prior the Whole Foods announcements, Blue Apron was expecting to IPO at $15-17 per share and as of the close of trading on 17th July 2017, the shares were valued at $6.59 some 59% below where it was just a few short weeks ago.
  • The bigger problem is that Blue Apron has massively ramped up both operating and capital spending ahead of its IPO.
  • In Q1 17 Blue Apron lost the same amount of money that it did in the entirety of 2016 and also spent $50m on capex which it finanaced by raising debt.
  • Hence, I reckon that after paying off the debt, Blue Apron has around $250m in the bank which is not going to last very long with losses running at $50m per quarter.
  • Hence, it either has to generate profit soon (unlikely) or raise more money.
  • This is going to be extremely difficult because with the share price 59% below where it was expected to be and Amazon coming head-on, no one is going to want to finance the company.
  • The further problem is that Amazon new found scale in groceries will mean that it will most likley undercut Blue Apron and Hello Fresh and still offer consumers better quality produce with more reliable delivery.
  • The one advantage that Hello Fresh has over Blue Apron is that it operates in Europe where Amazon has yet to arrive with groceries giving it time to react and that it is backed by the much larger and better financed, Rocket Internet.
  • If Blue Apron had remained private, this issue would not be nearly so acute as one would only be able to speculate on the impact on Blue Apron’s valuation rather than see it in the cold light of day.
  • Hence, I can see Blue Apron’ valuation continuing to fall and then being acquired, potentially by the behemoth that has been the architect of its woes.
  • I see no bargain to be had and would steer well clear of this.