Amazon Priming the Pump for Prime Day

  • Amazon Prime Day — one of Amazon’s greatest inventions — starts on Monday, June 16th at 12 PM PT.
  • Prime Day 2018 will last 36 hours (+6 hours y/y) and will be available in 17 countries (4 more than last year).
  • We expect Amazon to continue ~60% y/y growth in units sold, selling 140M units on Prime Day 2018.
  • The company is also training customers to use new and differentiated shopping methods to tighten its grip on Prime users.

Prime “Day” 2018. The fourth annual Prime Day will begin on Monday, June 16th at noon Pacific Time and will last for 36 hours. This is a six-hour increase from Prime Day 2017, which also saw a six-hour increase from Prime Day 2016. Not only did Amazon invent its own holiday, but the company has expanded its duration and geographic reach since inception.

Amazon’s strategic deals. The company rolled out select deals on July 3rd, with additional exclusives and discounts released each day up to the June 16th event. The marquee deals include a $100 discount off the Echo Show (was $229.99, now $129.99), 50% discount on Prime Video, four months of Amazon Music Unlimited for $.99, and more. In addition to the early start, Amazon announced that Prime Day 2018 will include deals on more than 1 million items worldwide compared to “hundreds of thousands” in 2017 and just over 100,000 deals in 2016. The company is also expanding Prime Day to four additional countries (Australia, Singapore, Netherlands & Luxembourg), bringing the total to 17 countries.

Expect another record Prime Day. The two previous Prime Days both broke Amazon’s single-day sales record, a trend we fully expect to continue. Prime Day 2016 and 2017 each saw 60% y/y growth. This year we expect that number to be between 55-65% given the longer duration, additional geographies, additional deals, and the ongoing Prime Day campaign at Whole Foods. Note, however, that a Prime subscription ($119/year) is now $20 more than it was on Prime Day last year, and eventually, the law of large numbers will catch up to Amazon’s Prime Day growth.

Amazon is training Prime members. Amazon’s Prime Day Guide outlines a few ways customers can access additional deals to push new Amazon offerings. The Amazon app, Alexa, and Whole Foods offer unique ways to shop Prime Day. Using the Amazon Assistant browser plugin, customers get notifications on deals, plus $5 off any Prime Day order of $25 or more. Amazon is also offering a $5 discount on select Prime Day deals when customers use Camera Search on the Amazon app. Prime members shopping at Whole Foods will also receive 10% back on up to $400 when they use an Amazon Prime Rewards Visa card.

With Prime Day, Amazon is doing what it does best — value and convenience — to tighten its grip on the 100 million Prime Members, and counting.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Apple Continues to Signal Importance of AI

  • Yesterday, Techcrunch reported that Apple’s head of AI, John Giannandrea, will take responsibility of Siri from Craig Federighi.
  • This formalizes our April expectation that Apple’s voice program should be moved into its AI group.
  • Voice is currently one of the most tangible AI use cases and, under Giannandrea, will increasingly be added to Apple products.
  • Separately, Giannandrea will be reporting directly to Tim Cook, further evidence of the growing importance of AI at Apple.
  • While these moves are encouraging, we still believe Google has a comfortable lead in the usability of its AI, evidenced by our testing of Google Assistant, Siri, Cortana, and Alexa.
  • Loup will be publishing its biannual review of these digital assistants this month with updated performance numbers and commentary on their progress.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Apple: Street Underestimating Timing & Impact of Net Cash Neutral

  • Apple’s capital return framework is the 3rd of 4 pillars to our Apple as a Service thesis.
  • Getting to net cash neutral is one of Apple’s biggest levers to move shares higher.
  • We expect Apple to be net cash neutral in 3 years, ahead of investor expectations of 5 plus years.
  • To become net cash neutral, Apple will have to reduce its cash balance by $145B. We expect Apple to return $300B to investors in 3 years (cash from operations + cash draw down from balance sheet), with ~85% through buybacks.
  • The mechanics are simple. Buybacks lower share count and raise EPS, which should theoretically move shares of AAPL higher by 24% over the next 3 years.
  • To better illustrate the road to net cash neutral, we’re introducing our Apple cash flow model here.

Apple net cash neutral by FY21. Tim Cook said on the Mar-18 earnings call that Apple will be net cash neutral “over time,” but stopped short of specifying a timeline. Over the next 12 quarters, we expect Apple to return $300B to shareholders and to be net cash neutral by the end of the Mar-21 quarter. This would more than double the current pace of capital returns. Apple has distributed $234B over the previous 6 years. As shown in the table below, we expect Apple to maintain, through the Mar-21 quarter, a capital return pace consistent with the just reported Mar-18 pace of $26.8B per quarter ($23.5B buybacks and $3.3B in dividends). This would be made up of about $21B to $22B in share buybacks and cash paid for dividends of $3.4B to $3.7B quarterly. We’re modeling for dividends to increase by 5% each year, in line with the percentage increase in FY17.

Our 3 year expectation is reasonable. While our timeline to net cash neutral may sound aggressive, we believe it is realistic given the amount of cash the company generates from operations alone, as well as the need to draw down the balance sheet an additional $145B to make good on their net cash neutral goal. As shown in the table below, we are assuming capital returned from balance sheet draw down will remain relatively constant at $12.1B per quarter, while the remaining $12.9B will be generated by cash flow from operations. Even after returning this capital, the company will have an additional $6B to $12B quarterly in cash from operations that will be used for content, M&A, vertical integrations, updating their current 499 retail stores (remodeled roughly once every 5 years), and building out new campuses across the U.S.

The buyback math that inches AAPL higher. We believe the buyback alone could move shares of AAPL higher by 24% over the next 3 years. This is based on 4 assumptions that would reduce share count by 24%, and raise EPS by a similar amount.

  • $300B in capital will be returned from Jun-18 through the end of the Mar-21 quarter.
  • ~85% of capital is returned through buybacks.
  • Average buyback share price increases $8 per quarter (current price $185).
  • Earnings multiple remains unchanged.

The party can continue beyond 3 years. After a 3-year period, capital distribution levels will normalize, going from about $100B a year to about $50B+. We anticipate Apple to maintain it’s net cash neutral approach into perpetuity. To do this, the company will need to return $50B+ each year, with 85% coming in the form of buybacks. This would still leave the company with about $6B in additional cash per quarter to invest in areas of the business outlined above.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Posted in Apple  • 

Investing in Bumblebee Spaces

We’re investing in Bumblebee Spaces as a play on AI and robotics helping to solve the problem of escalating housing costs. The company has a modular ceiling system to address storage needs. Bumblebee users can store a desk, bed, closet, clothes and everyday items in the ceiling, which multiplies the usability of living space. For example, a small room can be a workout room in the morning, office during the day, a living room in the evening, and a bedroom at night.

Today, housing is defined in square feet. In the future, it will be defined in cubic feet.

 

The Bumblebee platform offers three core competencies:

  1. Modular: The hoist robot can be extended to add additional storage modules or furniture. The exterior skin of the robot and lighting can be customized.
  2. Safe: Safety is built in via software, electrical, and mechanical redundancies.
  3. Intelligent: Sensor fusion and AI systems enable users to store, search, and retrieve items contextually and on-demand through an intuitive on-board UX.

Bumblebee is led by CEO Sankarshan Murthy (Tesla, Apple, DeWalt) and co-founders Garrett Rayner (Tesla, Raytheon) and Prahlad Athreya (CVS, AVIS). The team is passionate about getting our stuff out of the way to help us make space for what matters most in life.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make. 

Bioelectronic Medicine: An Introduction

Bioelectronic medicine is like a medical supplies aircraft flying close to the surface of the sea: significant promise, and under the radar.

As a field, bioelectronic medicine (BEM) is a paradigm shift from existing medicine: instead of treating patients by intervening with the bloodstream, patients are treated by intervening with the nervous system. At Loup Ventures, we think the time is ripe and the opportunity large to learn about BEM because it can provide novel therapeutic value, yet according to our research takes 1/3 of the time and 1/10th of the cost to develop as traditional pharmaceutical-based treatments.

The Doctrine of Bioelectronic Medicine

Bioelectronic medicine can be explained most simply by what we might call the “Doctrine of Bioelectronic Medicine.” Our inspiration for the DBM was the explanation offered by Dr. Manfred Franke in his interview with Ladan Jiracek on the Neural Implant Podcast, and the term “Doctrine of Bioelectronic Medicine” itself is something we created at Loup, a tongue-in-cheek reference to the Neuron Doctrine.

Think of your body as a superbly complex system. As a person, or a scientist, or an engineer, or a business operator, or a biotechnology/medical technology investor, you want to know things about this system. What information is in it? What information can we put into it in order to make this system behave how we want it to?

The way this works right now is that we use the bloodstream information pathway. In other words, we think about chemicals traveling through the bloodstream: what kinds of proteins do we see in cell membranes? What kinds of cells? Which genes are expressed? Which molecules can we put into the bloodstream in order to have the desired effect?

Image: anatomywarehouse.com

But, the trouble with intervening with the human body via the bloodstream is that humans (and other species) have evolved to respond to changes in the chemical composition of the bloodstream. Any time we try to intervene, we have unintended side-effects, and getting desired information out of the bloodstream is difficult to do in real-time because we need to record at the molecular scale.

So, as Dr. Franke explains, we could look at the second information pathway: the nervous system information pathway. The activity of organs in the body is, at least partially, orchestrated by the brain and spinal cord, so the nerves in your body contain some kind of signal coming from the brain/spinal cord to control those organs. Likewise, the brain listens to those organs in order to determine how to modulate their function in pursuit of homeostasis, or to change their function for temporary allostasis (i.e., causing temporary change in order to eventually achieve homeostasis). Another term for this nervous system information pathway is a reflex arc (“reflex” because you don’t have conscious control over it, and “arc” because it’s a loop).

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