286: Stripe Financials, Constellation Software CFO Interview, SONY EVs, Cloudflare on Multi-Cloud, Amazon's Worldwide Warehouses, and Heat Pumps
"An amazing edifice of engineering"
Education is a progressive discovery of our own ignorance.
🎧 I have a treat for you!
In the coming days, as soon as I’m done editing it, I’ll be releasing a 2h convo with one of my very favorite podcasters (and you know I listen to *a lot* of podcasts!) David Senra (🎙📚) of Founders Podcast.
I bet no other single podcast in the history of the world will have covered Ed Thorpe, Michael Jordan, Mark Leonard, Rick Rubin, Edwin Land, Steve Jobs, John D. Rockefeller, and Jim Simmons… in a single episode.
It’ll first be released to paid supporters of this steamboat (🚢) as a “thank you”, and later it’ll go out to everyone. Because of rapid growth in free subs, the ratio is now down to 3.9% of paid supporters to 96.1% of free readers.
It would mean the world to me to see this move back towards 5%+ to make it long-term sustainable for me to keep writing full-time.
💻 💾 🤯 It still kind of blows my mind that modern computers can read, write, transfer, and copy endlessly these *gigantic* files, trillions of 0010101010010010101, while making so few errors.
As a kid, while I was playing around with my dad’s 386 DX/25mhz with 4 megabytes of RAM, it impressed me that we could have a hard-drive with 200 million bytes of capacity where any flipped bit (from 1 to 0 or vice versa) in these executable files that were tens or hundreds of kilobytes could render a program unusable.
Yet stuff worked pretty reliably, even at the time!
But today, RAM is measured in gigabytes, hard drives in terabytes, and the monthly amount of data transferred via wires and fibers that are hundreds of miles long and usually end up over the air via wifi (which is a whole other miracle!) is measured in hundreds of gigabytes, if not terabytes for a large family with multiple people watching 4k streaming video at the same time.
Yet none of us have to think too much about corrupted data or errors!
That’s a marvel of engineering that we take for granted, and probably deserves a moment of recognition here.
Error correction mechanisms at all levels of the stack, hardware and software do the heavy lifting here. Servers with ECC RAM, built-in checksum in hard-drive controllers and internet protocols, etc.
An amazing edifice of engineering without which the modern world couldn’t operate, yet totally under-the-radar and unglamorous.
💚 🥃 For the price of one alcoholic drink, you get 12 emails per month (plus 𝕤𝕡𝕖𝕔𝕚𝕒𝕝 𝕖𝕕𝕚𝕥𝕚𝕠𝕟𝕤 and podcasts!) full of eclectic ideas and investing/tech analysis.
That’s pennies per edition for the Serendipity Engine!
If you make just one good decision per year because of something you learn here (or avoid one bad decision — don’t forget preventing negatives!), it'll pay for multiple years of subscriptions (or multiple lifetimes).
You can even sign up in single digits seconds on your phone with Apple/Google Pay by clicking the button below (if you don’t see paid options, it’s because you’re not logged into your Substack account):
Liberty’s Highlights is reader-supported. To support my work, consider becoming a paid supporter. 🚢
A Word From Our Sponsor: 📈 Revealera 📊
Revealera provides data and insights for investors into hiring trends for 3,500+ public/private companies + technology popularity trends for 500+ SaaS/Cloud Products.
We give investors insights into:
Job Openings trends: Insights into a company’s growth prospects.
Technology Popularity Trends: Insights into how widely products like Datadog, AWS, Splunk, etc, are gaining adoption.
Vendor Sign-ups (Currently Alpha) tracks the # of companies, as well as the specific companies, that have signed up for SaaS products such as Zoom in near real-time.
Visit Revealera.com for a ✨free✨ trial/demo.
Investing & Business
Stripe profile with some financials 💳
The company processed $640 billion in payments last year across 50 countries.
Its gross revenue, still mostly the 2% to 3% it collects on such volume, reached nearly $12 billion in 2021, according to sources with knowledge of its financials, up about 60% year over year.
Net revenue, which excludes the cut Stripe passes along to partners like Visa and Chase, reached nearly $2.5 billion. [...] Stripe finished the year with hundreds of millions in profit on an Ebitda basis, two sources add [...]
investors including Fidelity and Ireland’s sovereign development fund poured an additional $600 million into Stripe in March 2021, raising its total funding to date to $2.4 billion and valuing it at $95 billion. [...]
Forbes estimates Patrick and John Collison each own about 10% of Stripe, making them worth $9.5 billion each
On the potential for an IPO (and likely postponement of it in the current market):
Stripe’s closest publicly traded peers, such as Adyen, PayPal and Square, are all down more than 40% year to date. The Collisons are in no rush to join this crowd. But if any tech darling could stage a listing in this market, Stripe would be the obvious candidate
✨ Constellation Software CFO Tegus Interview (Part 1)
This is part 1. Part 2 should come out on Wednesday.
It’s a nice overview of the business, its model, and evolution over time, and he goes over the VMS venture fund, deploying capital outside of the VMS space, the capital structure, etc.
The corporate structure has evolved and scaled over time. For the first 10 years of Constellation, most of the activity around M&A was done from the head office [...]
During the first 10 years, the team made 6 larger platform acquisitions and these individuals reported directly into head office. We soon realized that we couldn't manage the portfolio of businesses from head office and that the universe of VMS software companies was much, much greater that we had originally anticipated.
So the firm pushed down some of the responsibility of M&A sourcing to the individuals that we refer to as operating group heads [...]
Today almost everything that we're buying can be approved by the operating group heads. The 6 operating groups have become conglomerates of vertical market software companies, or essentially mini-CSI’s.
These groups are now getting to a size where they can't do all of the M&A from their respective head offices so they are pushing down that responsibility to the portfolio managers that are reporting to the operating group managers.
The same way that head office originally retained the authority to approve acquisitions, the operating group heads retain the authority to approve most of these acquisitions. Over time that will likely change and you will have something like 50 mini-CSI’s. That is how we have scaled and are able to continue to deploy more and more capital.
They love tracking metrics for each business unit, and they never stop, so over time and over hundreds of acquisitions, they have more data and better base rates than pretty much anyone else in the space:
We are a very metric-driven organization. There are core metrics around the core departments of the organization as well as other metrics, like growth rates and how different cohorts are doing versus other cohorts.
We have base rates around all the businesses that we have acquired. When a team is putting together a forecast for a potential acquisition and modeling out cash flows from the business, we can overlay those forecasts against a subset of CSIowned companies that may have similar characteristics to the target business.
On organic growth:
We have always had a focus on organic growth. Our maintenance organic growth number has been pretty stable at 4% for years and, prior to that, was around 5%.
It declined when we made a large investment in the U.S. health care space. And we knew that those businesses would have negative organic growth. And they continue to have about 100 basis point negative impact on CSI.
Maintenance organic growth has been very stable. We'd like it to be higher but I don't know what the maximum long-term organic growth rate could be considering how diversified we are. There are always going to be verticals that are negatively impacted by the environment like the housing crisis or COVID. I would expect organic growth to sort of stay around that 4%, 5% on the maintenance side, while on the license and professional services side organic growth could be quite lumpy.
Jamal explains the goal of the VMS Venture fund:
We have started a vertical market software venture capital fund. I think some people misunderstand its objective. We are hoping that it will catalyse some larger organic growth initiative investments at CSI. VMS Ventures will only invest if it foresees funding a business with at least a $10 million per annum revenue potential. The majority of the business units within Constellation are smaller than this [...]
The entrepreneurs and the sponsoring business unit receive equity in the initiative and, if the business takes off and is successful, their equity investment could be very valuable. It's a different compensation model than the current CSI bonus plan.
To be continued… 👋
SONY is expanding into… electric vehicles?!
Sony expects to supply imaging sensors to 15 of the world’s top 20 global automakers by 2025, underscoring the company’s ambitions for electric vehicles and autonomous driving
Ok, I can see that.
SONY makes great sensors for digital cameras, and so using some of that expertise for auto sensors makes sense…
The Japanese conglomerate flagged its intention to accelerate a push into the auto industry in 2020 when it unveiled a prototype EV called the Vision-S. This year, it has launched an EV division and announced a joint venture with Honda to make cars. (Source)
But this goes much further than being a supplier of sensors!
This is the SONY Vision-S:
And I gotta say, it looks pretty good! You can see the interior here.
Better than a lot of the eye-pokers coming out of the legacy carmakers.
Whether SONY ever gets to the point where some of its cars are actually being made is a whole other question. Still, I’m glad that the EV transition is shaking things up in the industry and increasing competition and innovation!
Where Multi-Cloud is Going According to Matthew Prince (Cloudflare CEO) ⛅️
Multi-cloud is one of those often-misunderstood buzzwords these days.
How I've thought about this problem has changed and I think evolved. When I thought multi-cloud in the past, what I imagined was you write an application and you run the exact same application on AWS as you do on Azure, as you do on Google Cloud, and you play them off each other and drive the cost down [...]
But it's really hard to make that work. And that's not when people -- and big enterprises talk about multi-cloud, that's not really what they mean.
When they talk about multi-cloud, what they mean is 1 of 2 things. Either one, because of M&A or just different teams or whatever, they've got a bunch of stuff across a bunch of different clouds and they need one consistent control plane across it to make sure it's secure, it's not going to expose secret, not going to do those things. [...]
what customers really want -- and the thing that AWS's egress fees is stopping them from doing is they want to be able to pick and choose from all of the different vendors and use best of cloud. And so Google, great machine learning tools, right? But you may not think that some of their other cloud services are as robust. And so maybe you want to use AWS, but you want to use Google machine learning to do one particular thing.
What keeps people from doing that today is the egress fees, it's not the APIs, you can figure out the APIs. It's you can't get the data back and forth efficiently.
And so where, again, I think our long-term value is how do we push that interconnectivity down as much as possible? How can we be that fabric that connects the various clouds together technically, but also then makes it financially attractive?
That’s why they’ve been attacking Amazon directly on those egress fees, creating a kind of Catch 22 where if Amazon doesn’t respond, Cloudflare’s cloud can attract customers because of this lower cost, and if Amazon further reduces (they’ve already started) or eliminates egress fees, then Cloudflare is well-positioned to be the glue between larger clouds.
Details of Amazon’s Global Supply Chain and Fulfillment Center Network 🚚 📦📦📦📦📦
That’s just two countries, the site has plenty more, and you can even drill down by states in the US and see when each facility was opened around the world.
You can even see maps here.
🎧 Interview: Sean Stannard Stockton, Ensemble Capital
I enjoyed this interview of Sean by friend-of-the-show and supporter Bill Brewster (💚 🥃):
As I said back in edition #76 (that’s the Cenozoic Era):
I mean, the man has 'Stock' in his name!
In fact, everything I wrote then applies to this redux:
Sean’s the kind of guy where almost everything he says makes me go “yeah, that makes sense, that’s smart, he seems pretty well-calibrated”. So let’s all be more like Sean, I guess.
The interview is less personal and more straightforward about investing than some of Bill’s other episodes, but that’s not a bad thing (I only care that it’s good, not about the specific format).
🎧 Interview: Alex Morris, The Science of Hitting ⚾️
This one goes mostly over big media, Disney, Netflix, some Warner-Discovery:
The link above has a full transcript if that’s your thing.
Science & Technology
🥶↔🥵 The 🪄Magic 🧙♂️ of Heat Pumps (101, 102, and 103)
Intro primer thingie: First, what’s a heat pump? Your fridge is one, but the heat only flows in one direction. The ones that can heat buildings are basically air conditioners that can also run in reverse, so instead of cooling your house, they heat it. They don’t ‘generate’ heat, they move it from the outside to the inside. How can they find heat outside during a cold winter night? Because while to our fleshy bodies the winter feels very cold, from a physics point-of-view, we’re still very far from the absolute zero (0 Kelvin) and there’s still plenty of heat in the air (though below a certain temp you lose a lot of efficiency).
Whatever anyone says, HVAC is a sexy topic. Or at least, it’s an important one, because so much of the energy generated by our civilization goes directly there. Improving HVAC has huge leverage to improve the world.
Here’s a great series of 3 videos about heat pumps. Above is the introductory one, and below are the next two so you can go neck deep down that 🐇🕳:
I would really love to see modern, super-efficient heat pumps rapidly become much more popular around the world.
In fact, the argument that every AC unit should be sold with a reverse valve that allowed it to heat too makes a lot of sense.
Even if you need another heat source for the coldest days of the year, most buildings would use a lot less energy overall, and since the extra cost vs a one-way AC is minor, the energy savings over time would easily make up for it.
All else equal, it’s always going to be more efficient to move heat around than generate it. As I wrote in edition #260:
On average, the installation of a heat pump will lead to reductions in fossil gas consumption, even in cases where the power used by a heat pump is fully generated by a fossil gas power plant.
So even when 100% powered by electricity that comes from a gas plant, the heat pump is still leading to less gas burned than if the home was heated by a gas furnace.
But that’s not all!
In many places, the grid isn’t 100% powered by natural gas, and over time, it’ll be increasingly powered by clean sources, so the heat pump’s advantage is likely to become even bigger over time, while a gas furnace doesn’t improve with age.
Another way to frame it is that heat pumps, like electric vehicles, are omnivores.
You can ‘feed’ them from multiple sources of power and they’ll evolve with the grid, while furnaces are stuck always eating the same ‘meal’.
The Arts & History
A Dark Quiet Death (Again)
It’s been long enough. I increasingly feel the urge to re-watch this.
I used to think that re-watching films or TV shows was a waste of time because “there’s so much good stuff out there I haven’t seen yet!”, but I don’t believe that anymore.
I wouldn’t listen to my favorite album just once, and anything that has enough depth to reveal different aspects with closer scrutiny and be enjoyed multiple times should be. I don’t watch these just for the plot, so “knowing what’s going to happen” isn’t some fatal flaw…
Statistically speaking, you probably haven’t seen this one, so I’m re-upping an updated version of what I originally wrote about it about a year ago:
A Dark Quiet Death is an episode of Mythic Quest (S1E5), a TV show on Apple TV+, and I think it’s a masterpiece (not the show as a whole, just that episode).
It’s basically a stand-alone and can be watched without seeing the rest of the show, but it still elevates the rest. It’s a bit like the Teddy Perkins episode of ‘Atlanta’ (FX). It’s analogous to a short film.
Beyond the laughs, it’s a pretty deep allegory on creativity, integrity, and the slippery slopes and pitfalls that come with success.
Such good writing.
And perfect casting with ‘Sarah’ from the also excellent Palm Springs (2021, I wrote my review of the movie in edition 73) and Jake Johnson from Safety Not Guaranteed (2012), another film that I need to re-watch.