173: Amazon Hiring Everyone, Crowdstrike Q2, TSMC Double-Dipping, Constellation Software, Fastly, RenTech RenTax, Lab Grown Salmon, Chip Shortage, and Card Mechanics

"Could be 2011, could be 2021, who knows"

A false friend and a shadow attend only when the sun shines.

—Ben Franklin

🍝 4-day water-fast is over (technically, 91 hours, and I had electrolytes and vitamins too, not just water).

It went pretty well.

I was low energy around the 2.5-day mark, probably because my body was depleting glucose reserves and switching to ketones, and I’m not super keto-adapted, so the switch takes longer than for, say, Peter Attia who spent years with his metabolism running on beta hydroxybutyrates (BHB).

But it wasn’t too bad, and by the 4th day I felt pretty much back to normal.

I ordered a big plate of Jambalaya pasta from Boston pizza with extra cheese, chicken, meatballs and bacon, and I added parmesan and sriracha. I didn’t go crazy, I ate just one meatball to break the fast, waited a while, then had a small portion, etc.

Ideally I wouldn’t have had any carbs during that meal, but hey, the reward at the end of the journey is a big part of the experience, so there are trade-offs ¯\_(ツ)_/¯

fowci on twitter asked me:

Seriously though. Does good taste a lot better after a fast that long?

My answer:

To tell you the truth, like most things in life, the anticipation is the best part, when you look back.

But it does taste better.

🛀 Most of my investing alpha doesn't come from being directionally contrarian, but from having a different *intensity* than the consensus, even if in the same direction.

Many investors are obsessed with the contrarian bets where the consensus is wrong.

I find that most of my bets are "the market thinks this is a 8.5/10 business, and I think it's a 9.2/10 business" or that “growth will decline at rate X, and I think it’ll be rate 0.9X”, and the delta between those two beliefs is enough to create a very nice return, especially over multi-year periods.

To be clear, the above is looking back and saying what worked, not claiming I have some special ability to know it will work for me in the future.

(I’ve written about something similar: check out the “variant conviction > variant view” section in edition #168)

🏮💡👶 If you have young kids, and they have night lights in their bedrooms, here’s my recommendation:

Get some that produce red light, ideally with movement detection and two intensity levels, so that unless there’s movement nearby, they stay in low mode.

Blue light may look great, and warm white light may allow you to see better, but they can reduce melatonin production and make for poorer quality of sleep for your kids (and thus indirectly worse days & nights for you).

It’s not a binary thing, it’s not “you sleep well or you don’t”, but rather, it may be you sleep a little worse, take a bit longer to fall asleep, sleep a little less deeply, or whatever.

You may not notice anything wrong until you try, and then realize things are even better than before.

Even just from first principle, understanding how blue light during the day triggers our bodies to think it’s daytime (because the big blue sky is the brightest thing around), you don’t want blue light in the evening and at night.

It’s for that reason why I got a pair of cheap blue-blocking glasses on Amazon and wear them when I watch TV in the evening (these are the ones I got — Peter Attia said his favorites are made by Felix Gray, so I expect they’re quite good).

🤔 I can't believe that the domain ‘amazo.com’ doesn't redirect to amazon or some other place, and isn't used as a typo-squatting-traffic-funnel… Seems like an obvious one (after all, I just typo’ed it).

🛀 Follow-up on the “do extroverts ever wish they were introverts” shower-thought from edition #172, here’s something that friend-of-the-show and Extra Deluxe (💚💚💚💚💚 🥃) supporter Byrne Hobart emailed me (reproduced with permission, of course):

My theory on this is that extroverts don't understand the cost of extroversion, since it's perfectly normal to them. So it's not that they wish they were introverts, it's that they wish they'd made X/written Y/learned all about Z. I've tried to cultivate a habit of envying the inputs rather than the outputs to avoid this. 

And the reason for this is that extroverts are less likely to be introspective, not because they're incurious, but because they are, well, outrospective—more in the habit of understanding something by talking to someone about it. And since most of their conversation time will be with other extroverts, it selects against getting to know introverts.

I think that’s very perceptive, though hard to fully confirm for me as an introvert. Does it ring true to the extroverts reading this? I’m trying to better understand your 👽 🧠…

💚 🥃 In the past 2 weeks, I’ve only had 2 new supporters. TWO. 🥲

It’s funny, I’ve gotten so many emails over the past few months from people saying “I’ve been meaning to support for a while, just too lazy to actually do the process… It’s not about the money, that’s immaterial, I just didn’t feel like doing the whole credit card thing”.

I get that! But it’s very easy, on mobile you can even use Apple Pay or Google Pay and it takes 3 seconds:

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Investing & Business

Amazon is Hiring Everyone

Reuters:

Amazon.com Inc is planning to hire 55,000 people for corporate and technology roles globally in the coming months, Chief Executive Andy Jassy told Reuters.

That’s equal to more than a third of Google’s headcount as of June 30, and close to all of Facebook’s.

Jassy, in his first press interview since he ascended to Amazon’s top post in July, said the company needed more firepower to keep up with demand in retail, the cloud and advertising, among other businesses. He said the company's new bet to launch satellites into orbit to widen broadband access, called Project Kuiper, would require a lot of new hires, too.

2035: Everybody works for Amazon

2045: Amazon's sentient robots unionize

2055: Amazon AWS becomes sentient, takes over board of directors, fires everyone, sublimates to another dimension

h/t Space on Twitter for the chart

Amazon Australia to encourages customers to stop using their Visa card

Speaking of amazon..

Amazon has begun informing Australian customers that it would prefer they do not use a Visa card when buying things through its platform.

From November 1, Amazon will apply a 0.5% surcharge to purchases made using Visa credit cards on Amazon.com.au. (Source)

This hardball negotiation reminds me a bit of the stories about John Malone vs content providers back in the TCI days (it’s still going on today, I think Comcast recently did something similar..? Or was it charter?).

Walmart Canada did this with Visa a little while back too, and more recently, Amazon did the same thing in Singapore.

🤔 I think we’re going to need a GIF of Andy Jassy laughing maniacally to replace the GIFs of Bezos in the near future...

h/t @MoatlessCapital

‘Taiwan’s TSMC asking suppliers to reduce prices by 15%’

TSMC recently announced they would be raising their prices on customers by 10-20%, depending on the exact SKU/process. Now they’re double-dipping by turning around and giving the icy stare to suppliers:

TSMC is in discussions with its equipment and material suppliers on having them reduce their prices by 15% for 2022 in a bid to cut costs. [...]

Domestic suppliers have always offered lower prices than foreign companies, while at the same time TSMC, has been committed to increasing its proportion of locally procured materials and equipment. TSMC’s move to lower prices could create more opportunities for Taiwanese suppliers, CNA said.

Last year, TSMC purchased 60% of its materials and 44.8% of its equipment from domestic companies, said CNA, citing TSMC data. The world’s largest contract chipmaker plans to increase local material purchases this year to 60.5%, while domestic equipment acquisitions are expected to rise to 50%. (Source)

🤔 Increasing leverage over time as markets consolidate to fewer players that keep getting bigger in absolute terms too…

Kind of like Apple’s leverage over its suppliers.

h/t Simon Erickson

Crowdstrike Q2 Highlights

Bonker numbers, again.

  • Revenue: +70%

  • Non-GAAP subscription gross margin was 78%

  • Free cash flow $73.6 million, compared to $32.4 million a year ago

  • Subscription customers +81% YoY

  • Customers that have adopted four or more modules, five or more modules and six or more modules increased to 66%, 53%, and 29%, respectively

  • Launched Falcon Complete for GovCloud, a U.S. FedRAMP compliant program

Highlights from the transcript:

nearly every breach you have ever heard of had 2 things in common: the victims had both a firewall and an antivirus solution, which is why we built the Falcon platform from the ground up to stop breaches and not just prevent malware.

According to recent data from our customer base indexed by Threat Graph, more than half of detections analyzed were not malware-based. Attackers are increasingly attempting to accomplish their objectives without using malware. They are exploiting the proliferation of vulnerabilities and abusing systemic weaknesses in identity architecture to get on the system and then moving laterally, thus making it more difficult for legacy and next-gen malware-focused products to be effective because they are not focused on breach prevention.

Targeting Microsoft by name:

I'd like to share a recent customer win with a Fortune 500 company that was using Microsoft's legacy security products that failed to rise to the challenges of today's adversaries and ended up unnecessarily costing them millions of dollars. This company experienced a long and difficult deployment process, particularly in low-bandwidth environments where endpoint performance was critical.

Notably frustrated, this company began to evaluate alternatives when it was unfortunately hit by ransomware that encrypted their primary and backup data, causing weeks of business disruption and a financial impact estimated to be in the tens to hundreds of millions of dollars. This is when they turned to CrowdStrike. First, by bringing in our incident response team to remediate and stabilize their IT operations and followed by deploying Falcon Complete across their environment. [...]

Real-time vulnerability management is becoming a necessity for a proactive security posture, given the continued targeting of core functionality and vulnerabilities in the Microsoft ecosystem and increase in zero-day exploits such as the recent Microsoft PrintNightmare vulnerability. [...]

at the end of the day, Microsoft's Microsoft, they're going to get customers. But I think with the best platform, the best technology, our results speak for themselves

☄️

The Falcon platform processes approximately 1 trillion events per day from millions of agents

You can see why they run one of the largest Kafka deployment in the world… That’s a lot of streaming data.

The heightened threat environment has put a significant strain on cyber resources and has exacerbated the skills gap in the industry. Recent reports indicate that over 3 million cyber [security] jobs are unfulfilled, which is more than double the current number of professionals currently working in the field.

😦

One big reason why outsourcing security to companies with a broad spectrum offering like Crowdstrike rather than just buying tools that need to be operated by in-house security personnel is likely to remain attractive.

Even if you wanted to do it more in-house, you probably can’t hire who you need to do it (or even if you do, competition in the market is strong enough that they may get poached at any time by deeper-pocketed companies).

More and more organizations are waking up to the fact that adversaries do not draw much of a distinction between targeting data on an endpoint versus a cloud environment.

Work protecting cloud workloads is going to play an increasingly large role at the security companies, IMO. I wrote about it in edition #42:

CrowdStrike is focused on protecting more than just endpoints. It's also about protecting workloads. We've done a lot of work in this area over the last couple of years, made tremendous strides in our capabilities and a lot of customers that are using our technology. And we believe this represents a 10x opportunity over the current TAM estimates [...]

for every endpoint we see in the enterprise, we think there's 10 cloud workloads in the future [...]

[back in October:] We've seen a 14x growth in protection for containers since March of 2020.

Q: So since SentinelOne went public, I think the #1 question I still get is, what's happening with market share?

A: We've actually seen an increase in our win rates across the board, legacy and next-gen. [...]

if you look under the covers, we have more automation by far than any other competitor, including SentinelOne. I mean that's how we get the scale. That's why the product is easily deployed.

We're still in the early innings. If you look at the number of customers we have, 13,000-and-change versus some of our legacy competitors that have over 100,000 [...]

if you look at our customer count versus a McAfee or Symantec or a Trend, it's, again, impressive for a younger company, but still pales in comparison to all the customers that they have. So it's an ongoing effort. It's a multiyear effort, lots of tailwinds there for us.

On selling to governments:

we're all processed for IL4 certification. We're just waiting on the government to approve that. And that allows us into other higher classified areas

On pricing in the sector:

on the pricing standpoint, we sell on value, and we routinely win with a higher price point because the product works. It doesn't blow up machines, it's scalable. And people are talking to other customers saying, what are you using? And how is it working? And again, we're focused on stopping breaches, not just dealing with malware.

And I think that serves us well. So low-cost options, I think you get what you pay for. There's a difference between a Fiero and Ferrari. And we happen to be the Ferrari model, and that's what a lot of customers want.

🏎

Kurtz certainly can’t be accused of lacking confidence…

International is a little under 30% of Crowdstrike revenue:

internationally, I think that's -- you always continue to build out your capacity there, your partner network, and that's a key piece. We're just more mature in the U.S. We have more mature partners. So we continue to focus on that. [...]

we're looking to continue to invest aggressively, and international markets is one of those areas. I think we've got opportunity out there to take more share.

👋

Constellation Software’s Stock, Two Eras Edition

Constellation's log chart since IPO so clearly has two eras. Something changed in 2016 — possibly the market realizing that it’ll be hard for them to deploy 100% of FCF in M&A — and since then it's been sticking to the new trajectory pretty closely.

Not that it means anything for the future, but it's an interesting past.

Amazon Using Fastly Again

After dumbing them fast(ly) after their big outage in June, it looks like Amazon is back to using Fastly for some of its CDN usage.

Renaissance Tech to Pay Billions in back Taxes, Interest, Penalties 😬

will pay billions of dollars in back taxes, interest and penalties to resolve one of the biggest tax disputes in U.S. history, under the terms of a deal reached by the firm and the Internal Revenue Service.  

While it doesn’t disclose how much money will be paid, U.S. Senate investigators in 2014 pegged potential unpaid taxes in the case at $6.8 billion, before interest and penalties. (Source)

That’s *before* interest and penalties, which could add a lot to that number.

Ouch. That does tarnish the halo. Good timing getting the book written about your firm published before this, I suppose… So what’s the long-term returns % after-tax now?

Headlines like these are like a time machine…

Or maybe out of time?

Could be 2011, could be 2021, who knows ¯\_(ツ)_/¯

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Science & Technology

Someone has to be first…

Reader illuziun wrote this:

I thought of you last night in the kitchen. My wife opened the sour cream and said, "I wonder how the first person discovered this and thought it would be good to eat?" Rolling on the floor laughingYou immediately came to mind, "This is exactly the kind of shower thought I'd expect in Liberty's newsletter"

This question naturally led to a myriad of other questions like, "How did the first person discover you could get drunk of fermented wheat" and so forth Rolling on the floor laughingIf you're gonna marry someone, make sure they share your weird sense of humor!

It’s funny, my friends and I recently had a similar conversation about cocoa, and making chocolate out of it.

There's a documentary by Michael Pollan called 'Cooked' (2015, Netflix), and in the “Earth” episode, they show cocoa pods before they’re fermented and processed.

They look like alien things with white mucus, pretty gross and nothing like chocolate. Makes me wonder about the first person who played around with this and discovered the recipe.

Also probably explains why all the marketing surrounding chocolate doesn’t show the raw ingredients, unlike, say, coffee ads.

Primer on Chip Shortage (and I don’t mean Doritos)

I enjoyed this interview with Harvard professor Willy Shih. It’s very non-technical, so accessible to pretty much anyone:

h/t friend-of-the-show and supporter (💚 🥃) Jon Bathgate

Lab-Grown Salmon

I still think we need a good name for meat that doesn’t come from animal… Haven’t found anything I really like yet. Clean Meat? Grown Meat? Meh.

The first thing I noticed about Wildtype’s lab-grown salmon was how much it looks like real salmon. I mean, it is real salmon, isn’t it? This is not a Beyond Burger or a vegan nugget made from plants to look and taste similar to animal products. These are cells of the anadromous fish fed a secret algae sauce and grown in a saline environment that mimics the ocean water the fish would typically migrate to in the wild. The only thing this fish doesn’t have—besides eyes, a mouth, and a central nervous system—is scales and a tail. (Source)

“the salmon market is expected to surpass $36 billion by 2026 just in the U.S.”

I can’t wait until this tech matures and becomes cheap, and replace the terrible industrial farming we have now…

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The Arts & History

Card Mechanics

Great card mechanics are fascinating.

I’ve never looked deep into the topic, so there may be some tricks that once you know how they work seem a lot less impressive, but I almost want to remain naive and maintain my level of awe at a really well executed card routine.

Back in edition #88, I wrote about the Hulu live show called “In & Of Itself” (2021, Hulu), and I still recommend watching it knowing as little about it as possible, but I don’t think it spoils anything to say that it features a great card mechanic.

Here’s another one that I discovered on Tiktok. If you enjoy the routine below, check out the rest of his videos for more great stuff: