254: ARM After Nvidia, Adyen 101, Google Cloud Pricing, Discord IPO, EV CAGR, Apple M2, Intel in Europe, Annual Probabilities, and Defiant Ones

"hug the bearer of bad news?"

I'm not interested in whether the glass is half empty or half full.

I'm interested in figuring out how to fill the glass.

–Donald Kaberuka

🏆 You know how certain leaders — CEOs, politicians, random middle-managers, etc — will bite the head off of anyone who comes to them with bad news, points out the flaws in their logic, or questions them..?

This creates a dynamic where these people end up surrounded by ‘yes men’, and over time they make increasingly worse decisions as they stop getting vital information about the world and feedback that would help them catch mistakes and fix them early.

Well, I witnessed the exact opposite from a friend of mine, and I want to share it here to amplify it, because it’s important to be reminded of this periodically. Here’s the context:

Last week, I disagreed with something my friend said. He disagreed with my point, so we went back and forth a bit, and ended up just moving on. No big deal, just a little thing we didn’t see eye-to-eye on.

I saw the same friend again two days ago, and he made a point to tell me that he had thought some more about what we had said, and he realized he was wrong, figured out there might have been other emotional issues tangled up with the topic that made it harder for him to see things clearly, etc. And he said all this in front of another one of our friends.

I think it was *great*.

He could easily have updated internally and never mentioned it again, and I would have forgotten about it.

But instead, his action modeled a certain behavior for us and fostered the kind of environment where it is encouraged to disagree with him, where it is encouraged to point it out publicly when we realize we’re wrong, and people who question us or bring bad news are thanked rather than scorned.

This leading by example isn’t just for us — it spreads to others, who when they witness it become more likely to do the same. In other words, it’s the opposite of ‘shoot the messenger’ (hug the bearer of bad news? 🤔).

🌅 🕚 🌄 Dreams do come true:

The Senate unanimously approved a measure Tuesday that would make daylight saving time permanent across the United States next year.

The bipartisan bill, named the Sunshine Protection Act, would ensure Americans would no longer have to change their clocks twice a year. But the bill still needs approval from the House, and the signature of President Joe Biden, to become law.

I wish this had happened before I had kids, which makes DST *exponentially* worse¹… but better late than never. I hope it passes the house too, because if the US does it, Canada will too.

🎙 I haven’t forgotten about the ‘Ask Me Anything’ podcast that I promised if we hit a ratio of 5% supporters.

I apologize it’s taking so long — I was about ready to record it when this terrible war broke out, and that threw me off-axis for a while and made it hard to focus on my own little projects.

But I’m trying to stay in the saddle because it’s good for me, so I’m re-stoking that fire and will try to get it recorded soon.

It’ll likely be the first podcast that I record on Descript, which should be an adventure in itself. I’ll share how that went when it’s over.

💚 🥃 If you are not a paid supporter yet, hopefully this is the edition that makes you go:

“Hey, I think I want to support what he’s doing here.”

Thank you for that!

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Investing & Business

ARM Cuts 1,000 employees (15.6% of total) after Nvidia deal fails

Congrats regulators 🥳 I’m sure this will make ARM more competitive in the data-center:

British chip designer Arm is planning to cut up to 1,000 jobs, or 15% of its workforce, just weeks after its $40 billion deal with Nvidia collapsed.

Widely regarded as the jewel in the crown of the U.K. tech sector, Arm employs employs around 6,400 people worldwide and roughly half of those are in the U.K. (Source)

Looks like Softbank is trying to juice margins ahead of an IPO.

The kind of short-term thinking that will hurt the company longer-term (burning the furniture for heat), since there’s a ginormous opportunity in the data-center right now and they should be investing and adding more engineers, not cutting back to make roadshow powerpoints look nicer.

It’s impossible to know, but if the Nvidia NVDA 0.00%↑ deal had gone through, I wonder how many “employees equivalent” Nvidia would have added to ARM’s R&D efforts, especially in the data-center. Probably the equivalent of thousands…

💶 💴 💵 💷 Adyen 101 🇳🇱🌷

I’m not a payment geek the way my friend Jerry is, but I know Adyen a bit, and thought this was a very good overview of the Dutch wonder by Michael Willar (and other players in the industry, including Stripe).

• Michael Willar - Adyen: A First Principles Payment Platform

Here’s a good highlight:

The profitability of Adyen is what makes them extremely rare, given the rate of growth, as you alluded to. Today, Adyen has a 64% EBITDA margin business and converts 90% of that into free cash flow. 64% EBITDA margins puts them in the top 5% globally.

If you use MSCI World Index as a proxy which has close to 1600 constituents, and they are only a few points lower than Visa, which is, conservatively, one of the greatest businesses ever created. The struggle to find more than a handful of businesses globally with high 60% EBITDA margins, growing revenue 40% plus, it just doesn't normally work like that.

I still remember when Adyen announced they had made a mistake and had to restate some filings. Usually when companies do this, they had inflated things to make them look better.

In Adyen’s case, they had understated both revenue and margins. EBITDA margins were actually almost 400bps higher than the market thought at the time! I wrote about it in edition #45.

The rest is things like office rent, travel expenses, and a bit on sales and marketing. Now, they are a large and scaled business with over half a trillion euros in TPV, and growing that 70%, and have, as I said, 2,200 or so full-time employees. And they don't really spend much in the way of sales and marketing.

So you might be thinking, what is the catch? The catch is that 80% of their growth comes from their existing merchant base. So when your growth is weighted towards the organic growth of the underlying merchants, plus getting more wallet share, you don't need that many employees.

Worldpay, today, has something like eight or eight and a half thousand employees. Even Stripe now has over 6,000 employees. So Adyen is significantly more efficient than their competitors. So this has resulted in a fair amount of operating leverage where margins have increased close to 20% in four years. And I think they could be north of 70% in a few years.

The other reason why Adyen is so lean, is what I mentioned before. They built everything in-house and from scratch. And when I say everything, I mean everything. Their entire payment stack on a single code base to all their products. So their omnichannel product issuing, Adyen for Platforms. They even built up their own data centers around the world, instead of building on third party cloud infrastructure. This is completely different to the rest of the industry, which buys instead of building. So they do not outsource anything. So they want to control everything. And this naturally takes out a lot of their operational running costs.

They even design and produce their own earnings videos, all in-house, which, if you haven't seen, they are simply a work of art.

I mentioned the animated earning videos before! Great stuff. Really a unique company.

Annual probabilities 🗓

Like with exponential growth, we don’t have much intuition for how annual probabilities compound (for various things, though the chart above is about the grimmest).

ie. a 5% annual probability has99.4% chances of happening over 100 years.

h/t Max Rosner via my friend MBI (💎🐕)

Google Cloud Lowering Increasing Prices (🤨)

It’s one of those neatly packaged stories that anyone paying attention to cloud computing has stored somewhere in their brain: AWS has cut prices a ton of time — “As of April [2021], AWS has reduced prices 107 times since it was launched in 2006.” — and the competition has to follow suit.

In the early days of AWS AMZN 0.00%↑, back when there was very little transparency about the business, casual observers assumed that this was because it was a commodity business with no pricing power and lots of competition, having to pass on any gains from Moore’s Law (or the equivalent laws for storage, networking, RAM, etc) to customers.

Over time it became clear that this was largely a strategy designed to improve competitive position vs the sub-scale players and a way to re-invest in growth during this land-grab era of cloud computing.

All this to say: We’re used to hearing about price cuts, even though they’ve kind of slowed down in recent times (if I’m not mistaken).

But we’re not used to this:

Google Cloud is bucking this trend today with significant price increases across a number of core services. [...]

It’s not all bad news, with some archive storage at rest in Google’s U.S., Europe and Asia regions decreasing in price, and there’s a new lower-cost Persistent Disk archive snapshot option, too. The company is also raising its “Always Free Internet” egress from 1 GB per month to 100 GB per month.

But a number of core storage features, like multi-region Nearline storage, will see increases of 50%. Operations pricing for Google Cloud’s Coldline Storage Class A will double from $0.10 per 10,000 operations to $0.20. And while reading data in a Cloud Storage bucket located in a multi-region from a service in a region on the same continent was previously free, it’ll now be priced just like any other data movement between Google Cloud locations on the same continent.

Load balancing, too, will see a price increase now that Google applies an “outbound data processing charge” of $0.008 to $0.012, depending on the region.

These price changes are going into effect on October 1st, 2022.

It’s not entirely clear why GCP GOOG 0.00%↑ is doing this.

They’re very smart and know what they’re doing, so I’m sure there’s a good reason.

Could be that they were underpricing some things as a way to gain market share and are now normalizing pricing, could be that they’ll be focusing on other ways to attract customers, I don’t know.

But I think this is a move worth highlighting and thinking about.

Discord considering a direct listing..?

Because Discord is well-capitalized and has the brand recognition needed to bypass traditional investment pitches, it’s considering a direct listing [...] The company hasn’t made a final decision, though, and could still pick an initial public offering [...]

Discord, last valued by private investors at about $15 billion, is especially popular with gamers and young people. Its success caught the attention of potential suitors, including Microsoft Corp., which was rebuffed after offering $12 billion for it last year. [...]

Discord said last year that it had more than 150 million users each month, and brought in more than $100 million in revenue in 2020. (Source)

Non-Fungible Trading

The average selling price of an NFT has dropped more than 48 per cent since a November peak to around $2,500 over the past two weeks, according to data from the website NonFungible.

Daily trading volumes on OpenSea, the biggest marketplace for NFTs, have plummeted 80 per cent to roughly $50mn in March, just a month after they reached a record peak of $248mn in February.

Even ‘blue chip’ NFT indexes are having it rough (the most amazing thing is probably that NFT ‘blue chips’ indexes exist in the first place):

One “blue-chip” NFT index offered by Bitwise has fallen 25 per cent in the past month, leaving it down 17.1 per cent for the year. Bored Apes and CryptoPunks, two of the most popular and richly valued collections, made up more than 60 per cent of the index as of this week.

Could be just temporary volatility, correlating with crypto prices in general, could be the end of one phase of speculative mania, who knows, time will tell ¯\_(ツ)_/¯

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Science & Technology

Global EV sales 2013-2021: 57% CAGR

This chart by Tsung Xu only shows fully electric BEVs.

If you add plug-in hybrids you get:

2012: 125,000
2013: 208,000
2014: 321,000
2015: 543,000
2016: 792,000
2017: 1,263,000
2018: 2,082,000
2019: 2,264,000
2020: 3,240,000
2021 est: 6,400,00

Another way to look at it from Zak: “Of all the EVs on the road, 37% were sold THIS year. 32% were sold in 2019 or 2020. And only 31% were sold in 2018 or earlier.”

Apple M2 Speculatin’ Update 🤔

Back in edition #253, I shared my theory that the M2 may be based on the A16 core rather than the A15 (which would be the next logical step after the A14-based M1).

But after discussing it with two of my favorite Apple analysts, René Ritchie (🍏 🇨🇦) and John Gruber (🍎), I’m updating my view and now think what is mos likely is a hybrid of A15/A16.

Here’s what they wrote:

René: “Sure. Or some hybrid like how M1 Pro/Max have ProRes engines like A15, not A14. That’s the great thing about pre-announcement, anything is possible!”

John: “Like Rene says, it seems like the entire M1 family is a hybrid of tech from A14 and A15 (like ProRes coprocessor). So at this point I think it’s inevitable that A16 and M2 family will share some tech, especially down the line into the M2 Pro/Max/Ultra.”

This makes a lot of sense. We nerds tend to focus a lot on CPU cores, so it’s easy to think of the M1 as “A14-based”, but it also shares a bunch of silicon with the A15.

Mr. Intel Goes to Europe 🇪🇺

plans to invest an initial 17 billion euros into a leading-edge semiconductor fab mega-site in Germany, to create a new R&D and design hub in France, and to invest in R&D, manufacturing and foundry services in Ireland, Italy, Poland and Spain [...]

Six countries. Really spreading it around! Probably a strategy to optimize subsidies and tax breaks. INTC 0.00%↑

In the initial phase, Intel plans to develop two first-of-their-kind semiconductor fabs in Magdeburg, Germany, the capital of Saxony-Anhalt. Planning will start immediately, with construction expected to begin in the first half of 2023 and production planned to come online in 2027 (Source)

🇭🇰 People with 2 vaccine doses by age in Hong Kong

What a sad graph this is, how much unnecessary suffering is represented by a few lines:

It’s backwards, with the most vulnerable people (70+ and 80+) being the least vaccinated.

I get that many of us have moved on from the pandemic, and there’s nothing I want more than to forget about it, but people are still dying unnecessarily when great vaccines have been available for a loooong time. This is also going to screw up with the economy some more, with the most vulnerable people eating the brunt of it, like always.

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The Arts & History

🎤 The Defiant Ones (2017) 🎸 💿

Those of you who listened to my recent podcast conversation with friend-of-the-show Jimmy Soni (💚 🥃 ✍️) heard that he’s a huge fan of the HBO mini-series ‘The Defiant Ones’ and saw it multiple times — that was enough for me, I had to watch it, and I did.

"The Defiant Ones" examines the partnership between Jimmy Iovine and Dr. Dre - one the son of a Brooklyn longshoreman, the other straight out of Compton - and their leading roles in a chain of transformative events in contemporary culture.

First, I have to say it’s a very well-made documentary. It’s well-paced, the B-roll is used effectively, they interview a bunch of the people who were there, and they craft it all into a satisfying, mostly chronological narrative.

But it’s about a lot more than Jimmy and Dre.

It’s a ride through the music history of the past few decades, from Springsteen and Patti Smith to U2 and Gwen Stefani, N.W.A. and Snoop Dogg, Reznor and Manson, Lady Gaga and Eminem… They even throw some Primus in there (I had a ‘Tales of the Punchbowl’ t-shirt in high school)!

As a kid of the 90s, I was into some of these Interscope artists — I listened countless times to the ‘Broken’ EP by NIN — but being very young at the time, and without the modern internet to feel “close” to these artists as people, they all seemed larger-than-life. Like they were a totally different species, and to a teen, their angst and raw emotions really struck a chord.

Defiant Ones not only helped me take a trip down memory lane, but also to see that lane from a totally different angle: These were just people, trying to make it, trying to express their own unique thing, slaving away in the studio and touring and trying to get traction after endless rejections…

It made me appreciate the craft of music a bit more, as well as the business side of it.

I recommend it, I think you’ll like it.

1. Before I had kids, I used to think that there was a “good” and a “bad” time change during the year. The good one was the one where you sleep later in the morning. But with kids, both of them are bad, and you have grumpy, tired kids for a week each time.