(#20) Netflix has a new honey pot; IKEA does what it knows best and TEMU's playbook is a déjà vu

LMVH and ASML might me the only two gold unicorns that Europe might have.

Apr 27, 2023

Strategy

Can Netflix be free?
The company now makes more revenue per user from the ad-tier ($6.99/month) plan than the Standard plan ($15.49/month). There are several takeaways:

1/ Netflix changed the name of the plan from “Basics with ads” (1 device, no full HD) to “Standard with ads.” In this process, they added 2 supported devices with full HD. This makes this product very compelling.

2/ Will they cannibalize other streams? Yes, of course. Because you want to have more people on this tier because you can do a better targeting

3/ Ads open the door to a lot of new staff. They are expanding their addressable market. By the way, 100m heavy users are watching it by sharing passwords (ie. illegally)

4/ More people, more money. So, the ads system on Netflix runs the same as the other Social Media platforms: companies (advertisers) are bidding for the ad space. (4 minutes/hour). So, the more people are on this ad tier, the more expensive becomes the add, and the more revenue per user for Netflix.

So, answering the initial question: Yes, of course! Not only that the company will make more money from ads, but they can decrease the price or even make it zero. LINK

CEO Andy Jassy’s 2022 Letter to Shareholders
Over the years, these shareholders’ letters became a “must-read” to understand how leading companies think and act. Here are some takeaways from this one:

1/ Amazon's guiding principles are customer obsession, passion for invention, a long-term focus, and a commitment to operational excellence.

2/ The company continues the efforts to support small businesses, including investments in digital tools and programs to help sellers reach new customers

3/ Commitment to reaching net-zero carbon emissions by 2040 and its investments in renewable energy

4/ Managing people is the hardest thing to do at any company, especially with several hundred thousand employees. More to be done in this area.

5/ Future plans: healthcare and financial services. LINK

IKEA is on a cost-cutting mission
The price of glass, steel, wood, and plastic increased drastically. So, the company explored ways to cut these costs by redesigning the top-selling pieces:

1/ Lighter products mean smaller shipping costs

2/ Replacing aluminum with zinc for selected products

3/ Replacing wood veneer with paper foil

4/ Replacing the plastic with…lighter, less expensive plastics

5/ Working around a new packaging system (including redesigning some products) LINK

TEMU is still the most downloaded app in the USA
How it feels like working there? Here are some insights:

1/ Temu’s copying Shein’s playbook in terms of operations

2/ Only three executives make all the decisions that 1,500 people implement. Hierarchy matters.

3/Three-level management: CEO, two execs, category managers, and everything below is flat.

3/ No direct communication between the departments. Total isolation.

4/ No PowerPoint or other materials are needed at the end of the year.

5/ The employees (in teams) compete for projects. The company uses the 721 system: 10% of the lowest performers leave, and 20% do not get a bonus. LINK

LVMH’s value
Congrats to $LVMH for reaching a EUR +500 bn valuation. Here are my thoughts on their business model:

1/ Rarity will continue to outperform abundance. That is the power of artisanship.

2/ The group has a balanced ‘egg basket’ that can perform in any business environment: Fashion/Leather Goods, Spirits, Perfumes & Jewelry

3/ Their growth strategy was two-fold: (1) focus on emerging markets and (2) M&As (including building their web 3.0 team)

4/ Some of their iconic brands have a history that started in the 19th or 18th century: Louis Vuitton (1854), Tiffany & Co. (1837), Birkenstock (1774), Hennessey (1765), Moët (1743)

5/ The LMVH group has more than 5500 stores; most in Asia (China) and the USA

6/ Although the shop experience is crucial, the omnichannel strategy is a strong point

7/ Regardless of the inflation, the groups posted a +23% in profit (YoY)

Of course, there are also some challenges, but I will address them in another post.

Source: Leah Grace Capitan / Seeking Alpha

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Artificial Intelligence

“I’ve always thought of A.I. as the most profound technology humanity is working on—more profound than fire or electricity or anything that we’ve done in the past”- Alphabet’s CEO Sundar Pichai. LINK

The AI White Paper - Japan's National Strategy in the New Era of AI. LINK

“There is a high possibility that almost all white-collar jobs could be affected."（Yutaka Matsuo, Professor, University of Tokyo）
“From now on ‘machines’ will be creating an infinite amount of content."（Kazuto Ataka, Professor, Keio University.）
“Something that rivals the invention of the engine, semiconductor, and the Internet is happening at an explosive pace.“（Hiroaki Kitano, President and CEO of Sony Computer Science Lab.

ChatGPT takes Kenya's college essay writing industry by storm:

“Last year at a time like this, I was getting, on average, 50 to 70 assignments, including discussions which are shorter, around 150 words each, and don’t require much research,” Collins told Rest of World.”. LINK

AI Health Coach from Apple
The transformation of the Apple Watch from a fashion item to a healthcare device is one of the greatest case studies of the last decade. Now, Ai is coming to this device.

1/ The service will provide users with personalized guidance and advice on maintaining physical and mental well-being

2/ The coaching service is expected to be integrated into the Health app in the upcoming iPadOS 17 release

3/ The service will be powered by machine learning algorithms and will offer tailored recommendations based on user data

4/ Users will be able to set goals and track progress toward them through the coaching service

5/ The service may also include features for monitoring and managing chronic conditions

China and transparency
Chinese products and services pose security risks, from apps to 5G to industrial cranes.

“A component embedded within Huawei’s network technology could allow the company to remotely take down Germany’s telecoms networks, German security officials told lawmakers in a secret briefing." (Politico)

AI generating songs impersonating celebrities are the new trend
An anonymous creator used simple ML models to produce artificial Drake songs that racked up 10's millions of views in a few days. LINK

Data

European Table of Media Economics. LINK

Tesla has overtaken German carmaker Audi in global sales. LINK

China controlled about 75% of all battery cell manufacturing capacity and 90% of battery anode and electrolyte production in 2022. Tesla and other manufacturers rely on Chines companies, such as CATL. LINK

“Only 10 carmakers will survive global EV battle, says Tesla rival Xpeng”. Well, this is true, because who has those USD +10 billion to invest only in the (giga)factories? Not that many, especially w/o a consistent subsidy from the government. LINK

“One in five cars sold in 2023 will be electric” - IEA. LINK

LVMH H1 FY 2022 results
Main highlights:

1/ Revenue grew +28% Y/Y to EUR 36.7 billion.

Wines & Spirits grew 23% to €3.3 billion.
Fashion & Leather goods grew 31% to €18.1 billion.
Perfumes & Cosmetics grew 20% to €3.6 billion.
Watches & Jewelry grew 22% to €4.9 billion.
Selective retailers & other grew 30% to €6.6 billion.

2/ Operating margin was 28%

🍷 Wines & Spirits 35%
👜 Fashion & Leather goods 41%
💅 Perfumes & Cosmetics 11%
💍 Watches & Jewelry 20%
🛍️ Selective retailers 6% . LINK

The geography of innovation in China. LINK

Religiosity in the USA vs. the EU (red = more religious):

Outside Interest

How to secure your digital life. LINK

The Saudi crown prince wants to build a trillion-dollar utopia in the desert but has some challenges. LINK

Instagram lets you add five links to your profile. LINK

New Amsterdam becomes New York:

“In the 1640s the Dutch inhabitants of New Amsterdam built a 12' wall to protect the city. In 1664 the British bypassed it and took the city by the sea. It's now called New York. They took down the wall and built a street now known as Wall Street”. LINK