“Every technological revolution takes about 50 years.” – Said Founder and CEO of Alibaba Jack Ma
Mad Hedge Technology Letter
April 4, 2019
Fiat Lux
Featured Trade:
(A LEGACY TECH COMPANY YOU HAVE TO BUY)
(ADSK)
You cannot accuse Autodesk (ADSK) of ignoring the prodigious migration to digital and full-blown automation.
The company gives credence to the tech theory of taking a pretty darn good software product, repackage it as a subscription, then watch revenues and marginal profitability go through the roof.
Autodesk is one of the original pioneers of AutoCAD, a commercial computer-aided design (CAD) and drafting software application.
Before AutoCAD was introduced, most commercial CAD programs ran on mainframe computers or minicomputers, with each CAD operator working at separate graphics terminal.
Autodesk’s AutoCAD and Revit software are mainly applied by architects, engineers, and structural designers to design, draft, and model buildings.
Being one of the flagbearers of the industry has its perks with Autodesk’s AutoCAD software being involved in world-renowned projects from the One World Trade Center to Tesla electric cars.
Once I roll through their 2018 achievements, it will be impossible not to define this company as part of the cloud aristocracy.
Scrolling through the numbers, my eyeballs pinpoint at the all-important Annual Recurring Revenue (ARR) as the starting point for clues to its success.
(ARR) is a crucial metric used by software-as-a-subscription (SaaS) businesses who define the contract length and the (ARR)’s specific dollar value contracted in return for proprietary software.
You’d be chuffed to bits to discover that Autodesk’s (ARR) delivers 95% of total annual revenue which amounted to almost $2.6 billion in fiscal 2018, a record for this company headquartered in San Rafael, California.
On an annualized basis, (ARR) growth amounted to 34% and billings cruised past the $1 billion mark for the first time last quarter.
Autodesk would be lying if they said subscriber growth isn’t the lynchpin to growing revenue, it certainly is, and they are doing their best to take advantage of this opportunity.
When talking about the strengths, we must look at Autodesk’s AutoCAD software which featured among the top 10 fastest growing skills in technology job searches.
According to Upwork’s latest quarterly index, Revit expertise is highlighted among the top 15 hardest skills for freelancers in the U.S. job market.
Building information modeling (BIM) is a process involving the generation, production, and management of digital representations of physical and functional characteristics of places.
Clayco, an ambitious construction design firm based in Chicago, has been an Autodesk customer for years.
They use BIM 360, Assemble, PlanGrid and Building connective as they are single-mindedly focused on fully embracing the digitization of construction.
BIM adoption remains one of the underlying reasons of investments in the infrastructure space.
An industry-wide cry for adopting BIM drove another seven figured enterprise agreement with a large European infrastructure provider last quarter.
Autodesk doubled the contract with the customer as the company hopes the adoption of BIM for building and managing will enhance the quality of infrastructure projects.
Autodesk’s unique portfolio design tools are allowing them to expand from products like AutoCAD and Inventor into Revit the world’s leading BIM design tool.
On the manufacturing side, generative design and investments in Fusion continue to attract global manufacturing leaders to collaborate with Autodesk.
A vivid example is the cloud agreement signed with Korean automobile maker Hyundai Motor Group who plan to leverage Autodesk’s software to generate innovative car designs.
Taking a microscope to the financials, the average revenue per user (ARPS) increased 17% because of the 13% boost in the number of subscriptions.
The subscription plan subs grew by 291,000 organically.
Continued adoption of BIM 360 solutions gave a 51,000 boost to cloud subs.
Autodesk is finishing up migrating the maintenance customers to subscription packages.
In Q4, 110,000 customers moved from maintenance to product subscriptions, meaning Autodesk has switched over nearly 800,000 maintenance customers to subscriptions since the inception of the program.
The maintenance plan was abandoned in the fall of 2016 as a way of driving revenue momentum. Before, Autodesk offered software upgrades and the latest product releases for free.
Dramatically shifting to a subscription model has laid the pathway to monetize their software through a monthly recurring payment system.
The company also offers a discounted three-year subscription that 3rd parties can lock in if they are serious about a long-term relationship with Autodesk.
At the end of this month, Autodesk plans to increase the cost of certain subscription plans by between 2.5% and 10% allowing the company to deliver more value to the engineers that religiously rely on Autodesk.
Even though maintenance plan packages are slowly winding down, after this small group’s special discount expires, they will be recommended to join the new subscription program.
As it stands, less than 20% of revenues is generated from the maintenance agreements as the subscription revenue model has furthered Autodesk’s financial interests, effectively executing Autodesk’s growth strategy.
The shift to a cloud-based subscription setup is one of the crucial ways Autodesk has maximized free cash flow and has been a massive catalyst of a profitability surge.
The company is smack in the middle of growth sweet spot benefitting the top line and combined with gross margin expansion, I trust Autodesk shares to be an outsized winner of the cloud aristocracy.
Buy Autodesk on the dip.
Mad Hedge Technology Letter
April 3, 2019
Fiat Lux
Featured Trade:
()
(GOOGL), (NFLX), (AMZN)
YouTube has to be the online streaming asset of the year even relegating Netflix (NFLX) to the minor leagues – I’ll tell you why.
India is the new China.
Netflix’s growth strategy is intertwined with India and the management has been extraordinarily vocal about their interests there.
The Indian online streaming renaissance isn’t just fueling Netflix’s rise. In fact, YouTube and its free platform are performing miracles along the Ganges River.
How big is YouTube in India?
YouTube already has 245 million monthly active users in India penetrating 85% of the country’s internet population making India one of its best-performing markets.
The company says more than 60% of its streaming hours in India come from outside the six metros, meaning YouTube has captured the hearts and minds of the rural population who cannot afford to pay for online content.
KPMG forecasts India’s online streaming audience to surpass 550 million by 2023 and YouTube will capture 70% of the 550 million audience.
How did YouTube manage to do this?
First, the content is free with ads allowing rural Indians to join in.
Second, local Indians became hooked on Alphabet’s YouTube with Alphabet (GOOGL) taking an already brilliant platform and supercharged it by tailoring it to popular local influencers that are joining in droves inciting a massive network effect.
Effectively, YouTube attracted these influencers with eye-popping audiences to create organic and original content without the $8 billion Netflix planned content budget in 2019.
YouTube was able to do this by borrowing the Instagram format but transferring it to a more effective video platform model.
Take for instance Nisha Madhulika whose channel has blossomed into one of the most popular Hindi language-based online cooking channels on the internet.
To see one of her videos, please click here.
Her channel has over 6.8 subscribers, yet, accumulating subscribers is one thing, and making money is another.
Past videos that were posted around 2-3 weeks ago have views between 200,000 to 400,000.
These influencers build up revenue by displaying 3rd party ads generated by Alphabet.
A general rule of thumb is that for every 1 million view, ad revenue collected is around $2,000.
Therefore, Nisha and fellow YouTubers with massive audiences are incentivized to pump out high-quality content in high volume.
Scrolling through her numbers, Nisha appears to average around $700 of revenue per video.
She sprinkles in the occasional viral video that garners 1.5 million views which would earn her a tidy $3,000 for a single video.
Not bad and that is before any of the possible marketing opportunities are quantified.
As long as she focuses on the quality of the videos, she can consistently earn $700 per video, then she can do more by partnering with affiliates to sell 3rd party products and receive a commission that is trackable through the links she leaves at the bottom of her videos.
Nisha’s video business works like this, her channel entails producing 3-5 short videos per week producing around 9-11 million views per month adding up to between $18,000-$22,000 in revenue per month.
Remember that while she is accumulating views for newly posted videos, there are still viewers rummaging through her older content demonstrating the beauty of the network effect.
Older videos in Nisha’s case usually add an extra $3,000-$5,000 per month to the bottom line in pure profit.
Many influencers curate, edit, design, and film the content themselves, or subcontract these jobs for a cheap fee.
An influencer could run their YouTube channel for less than $100 per month minus the fees for the equipment.
YouTube has created a powerful platform for content creators to monetize their original content and give them incentives to stick around and build a business.
Netflix has more of a mercenary model where they contract highly paid actors to contribute a finite amount of content for a fee.
YouTube’s model penetrates to the heart of the average person with regular people instead of propping up overpaid Hollywood actors like Netflix.
In many cases, YouTube’s influencers offer live, raw, and personal access, and the data suggests that live, unscripted content are one of the most monetizable types of content on the market due to its original nature and unpredictability.
That is why live sports like the NFL and NBA are easy to sell, monetize, and in great demand.
I do believe that Netflix has a great product but overpaying for Hollywood’s best talent is not sustainable because the cost-benefit ratio isn’t worth it, which is why Netflix is raising customer prices to monetize the quality of streaming content better.
With other big tech players coming into the market, it will push up the costs for Hollywood talent putting more short-term pressure on their financial model.
Even if Netflix does get the right actors to provide content, they do have their fair share of bad movies.
YouTube’s performance in India will be hard to compete with, even harder when they avoid expensive mistakes, a bad video is simply glossed over and ignored.
Netflix is in the midst of testing a mobile-only Indian subscription package for around $3.64 per month, or 250 Indian rupees, to respond to YouTube’s godlike presence there.
Remember that most rural Indians do not have access to hardware such as computers, laptops, or tablets, and run their lives with cheap Chinese smartphones from Oppo and Vivo.
If you thought $3.64 was a cheap streaming package, then Amazon (AMZN) takes it one step further by offering Amazon prime video for $1.88 per month or 129 Indian rupees.
I like Netflix’s product and the narrative is still intact, but I adore and love YouTube’s transformation that has caught many of us by surprise.
This massive shift wouldn’t be possible without Google’s army of best of breed ad tech.
Even more poignant, YouTube takes direct to consumers to a rawer entry point enhancing the special experience.
The problem with Hollywood talent is that reformulating them onto Netflix’s platform brings them closer to the audience to a certain degree, but not like Nisha’s cooking channel where she can speak directly to the viewer and even interact with her audience in the comment section.
YouTube has mastered this relationship between content creator and audience, and no matter how many times I watch Will Smith’s Bright, I can’t expect him to reply to my comments.
Well, there’s not even a comment section on Netflix’s platform.
In short, Netflix’s Indian strategy is incomplete and I predict that YouTube will extend its lead there because the scalability is well-suited for the Indian rural audience who have little or no discretionary income.
The freemium model wins out again.
Affixing a Netflix grade streaming asset to Alphabet’s booming digital ad business is a match made in heaven.
Buy Alphabet on the dip – YouTube’s outperformance in 2019 will surpass expectations and carry Alphabet shares to new all-time highs this calendar year.
“Artificial intelligence is the future, not only for Russia but for all humankind. Whoever becomes the leader in this sphere will become the ruler of the world.” – Said President of Russia Vladimir Putin
Mad Hedge Technology Letter
April 2, 2019
Fiat Lux
Featured Trade:
(HOW TO GET CONTROL OF YOUR LIFE)
(GOOGL), (FB), (LYFT)
Don’t get caught up in the cesspool of digital ads inundating your life.
I’ll teach you how to take back control of your life and even mess with these data thieves.
No need to thank me.
One of the most frequented complaints I hear today is the overflowing number of digital ads people are faced with that make you want to pull your hair out.
If you want to play your part in taking back your internet freedom, then read on.
The internet ad business is a world that borders subterfuge.
The high stakes environment is perpetuated by none other than Silicon Valley and specifically the tech heavyweights that wield capital dominating the data sphere.
Even though it sounds remarkably cliché, data is truly the new oil.
You would be surprised how many internet operations are based on the back of you, the user, and the data you generate.
Take Lyft (LYFT).
They are forced to tap the digital marketing world to attract qualified drivers.
Not only does Lyft spend ad dollars on driver recruitment, but they must spend to grow the number of passengers.
The rider base, as a result, synthetically grows which is directly attributable to paid marketing initiatives.
Lyft lays out on a platter the ways they attempt to generate new passengers and drivers, essentially becoming market makers, and it’s a mind-boggling long list including:
“referrals, affiliate programs, free or discount trials, partnerships, display advertising, television, billboards, radio, video, content, direct mail, social media, email, hiring and classified advertisement websites, mobile “push” communications, search engine optimization and keyword search campaigns.”
Even if there is only a 20% chance of breaking even, these unicorns are incentivized to lose others' money translating into poor quality growth or initiate high-risk strategies or carry out a combination of the two.
Sales and marketing costs in the year ending Dec 2018 came in at $296.6 million, meaning that over 37% of overall costs to Lyft were attributed to this one segment.
If that wasn’t bad enough, Alphabet affiliated company CapitalG took in $41.4 million, $74.4 million, and $92.4 million of ad-related services in 2016, 2017, 2018 laughing all the way to the bank.
Not only do Alphabet have a 5% stake in Lyft, but they are incentivized to bump up Lyft’s search engine optimization ranking to the top because they’ll benefit through asset appreciation if the company flourishes.
The process is rigged so what can we do about it?
Seizing control of your life and personal data first centers on installing a different browser other than a Google-based product to diversify the data out of Alphabet’s (GOOGL) iron grip.
I have chosen to use the browser called Brave, based on the Chromium web browser, it comes preinstalled with an ad blocker and disables web trackers, and most importantly, works well.
To visit their website, click here.
Make sure to import your passwords and bookmarks from your prior browser to ensure a smooth transition.
Once you are armed with a browser with a functioning ad-blocker, notice how the ad-less experience enhances your browser experience.
Try out YouTube.com, notice that ads don’t pop up in the beginning or middle of your viewing session and they do not even prompt you to disable them.
To understand which websites are hellbent on grabbing your digital ad dollar, then you will visit the odd website such as CNBC’s live TV feed which forces the user to disable the ad blocker which can be done at the top.
As much as CEO of Facebook (FB) Mark Zuckerberg has been vilified for his ad practices, he does not force users to disable ad blockers to use his platform to his credit which indicates that most users really have no idea about this stuff.
Seeking Alpha, the internet financial new site, is one of the worst eggs in the dozen, full out blocking users from even viewing the main homepage if you are accessing it with a VPN (virtual private network).
If you do access Seeking Alpha with an ad blocker, every page you click prompts an annoying reminder to “white list” the site which is polite verbiage for don’t block us or we will prevent you from using us.
Awareness and actionable methods to take back your internet freedom and personal data are vital to the health and longevity of the internet.
Instead of enriching these few Silicon Valley bullies, change your browser to an independent service, install an ad-blocker, and lastly buy a VPN.
A VPN is a software that circumvents geographical restrictions by connecting to servers in different countries effectively masking your computer’s IP address location.
This can have many different applications such as during my summer vacations in Switzerland, I can access all the US-based internet services that would require my IP address to originate from a domestic American location.
A VPN is also important in minimizing the chances of cyber threats and offers extra layers of security.
Chinese internet users often access international websites that are habitually censored through VPN software getting access to the west’s treasure trove of professional knowledge.
In many cases, a small Chinese company wielding a VPN is the difference between success and failure.
VPN software is the Chinese communist party’s worst enemy which is why they forced Apple to remove them from Apple’s app store recently.
My go-to VPN is Astrill. To visit their website, please click here.
Knowledge is power.
The masking of a computer’s geographical location will stymy digital ad crawlers diluting ad data forcing them to revalue the digital ad tools they use to charge exorbitant amounts to analog companies to digitally advertise destroying ad revenue.
I see this as a positive development as the unintended consequences of these digital ad creatures have toxified the internet for the naive user with many digital companies resorting to perverse tactics that beget even more perverse marketing tactics.
The slew of new tech IPOs is offering us inside knowledge into how enslaved tech companies are to the likes of Alphabet and Facebook digital ad apparatus.
To shake them off our tails, users on mass need to alter how they use the internet to protect from being pickpocketed in broad daylight.
Once revenue begins to suffer, they will have to act more reasonably to the betterment of the internet which we all share as a communal good.
“Move fast and break things. Unless you are breaking stuff, you are not moving fast enough.” – Said Co-Founder and CEO of Facebook Mark Zuckerberg
Mad Hedge Technology Letter
April 1, 2019
Fiat Lux
Featured Trade:
(THE NEXT TECH BUBBLE TOP HAS STARTED)
(LYFT), (PIN), (UBER), (AAPL), (JPM), (FB)
