[October 16, 2019]
Ring Fit Adventure vs Peloton
or pdf download: Ring_Fit_Comp_20191016
[October 16, 2019]
Ring Fit Adventure vs Peloton
or pdf download: Ring_Fit_Comp_20191016
Evergrande Group (3333.HK)
[August 28, 2019 ]
Interim Result Announcement @ Four Seasons
The first time I looked at this stock was several years ago when I was doing internship in Hong Kong. Someone in the team registered the site visit but figured out the company was “not interesting” so the trip was left to the intern. I spent a day in Shenzhen, made a friend, and concluded the company was not investible. Leverage was the main concern on the long side and shorting on equity and debt were both expensive. It seemed the fund passed the stock when it traded around HKD 5-6/share. You know the price development in next one year.
The reason why I attended the meeting this time was that I feel I have some domain knowledge in real estate since I spent some time in real estate private equity.
The attendance was shocking to me (fellow investors are definitely used to it). It’s a real people mountain people sea. The company has already become so large and complicated that most questions came from the floor surrounded around macro / policy / industry (or the company answered that way).
The stock has been weak since this April. Macro / policy, leverage and new initiative might be the primary drivers.
Topics of Interest to me
The company spent a good amount of time discussing their EV business. I think it’s well known to the market but for someone who is not following the company like me I was a little bit surprised it’s doing EV. I soon realized that real estate developer leading the EV development / penetration actually makes sense to me. I think it’s more likely for a large real estate developer to deploy the infrastructure which leads to natural monopoly eventually. The company also teams up with another two large real estate developer and electricity grid provider to expand the network and gain exclusivity on the power supply side. Without intervention from future regulation, I can envision clear winner-takes-all scenario. Government will definitely regulate but before that how long it can enjoy the excess economic return and how the upfront costs look like.
The company is currently funding the EV initiative from its real estate business. To build up the EV ecosystem, real estate development will be part of plan so the company is thinking about negotiation with government to acquire land at a “cheaper price” to construct residential properties. The company views the profit generated from real estate (primarily selling residential properties and probably operating / leasing commercial / retail properties) as a compensation of helping government build EV industry. The company expect the EV business won’t be profit making in the next five years. With the downward trend of real estate market and increasing loss when scaling up EV business, the shrinking of group level profit might be faster than the market expected and the group might be even loss making. With high leverage and increasing likelihood of group level loss, the stock price might be depressed for short to medium term.
The company even said a strategy of buy a house, get an EV for free. While it sounds funny, it’s actually a bundle that tries to acquire a customer.
[August 21, 2019]
or pdf download: here
Re: Partnership between Tencent & Nintendo to launch Nintendo Switch platform in Mainland China
Note to: Public
Distribution: Direct | @yuinausicaa | Futu Niu Niu | Slideshare
* The Console Business *
Gaming console is a two-sided platform with specific hardware specs and operating system that connects user and game software. Users first buy gaming consoles on which they play game software, a version specifically developed for the platform. Users buy console because they want to play existing game library and expect game developers to release more games on the platform in the future. Concerns for users to purchase a console include upfront cost, existing library, and future support of software developers to the platform. Developers create games, distribute their content on the platform to reach audience, and then benefit from various monetization methods. Concerns for developers to create games for platform include estimated audience base (installed base and its user profile), resources to put into development (upfront development costs, time to market, how easy it is to develop on the environment…), and other incentives provided by platform holder.
Indirect & direct network effect
A key characteristic of this two-sided platform is indirect network effect which creates a classic chicken-and-egg problem at launch and noises in the first one to two years for a platform with non-mainstream hardware specs. Generally, this problem is solved by subsidizing both the demand and supply by pricing the console at or slightly below the cost and reaching exclusive deals with third party developers. However, it’s not enough to only have third party content so platform holders also create first party games to attract users particularly at launch.
With widespread of internet, connectivity creates direct network effect in multiplayer games. Users can play with others around the globe or around the region (Mainland China is more likely to be the case). Since Nintendo Switch is a hybrid gaming console (home x handheld), the portability gives this console a social aspect unseen in other competing consoles in current / next generation.
Physical and digital distribution of hardware and software
Sales of hardware involve physical distribution no matter the transaction is made online or offline. Hardware inventories are either stocked in “warehouses” or “retail stores.” Software might be either distributed physically or digitally. Life cycle of console might last more than 5 years, and customer relationship built might last for decades. Thus, customer service/support and repair are inevitable. When the business involves physical distribution, supply chain / logistics capabilities become imperative.
Legally introducing Nintendo Switch to the new market
Understanding abovementioned fundamentals is key to evaluation of a platform launch. The goal we’re trying to reach now is to legally introduce an established gaming console to a market dominated by other gaming style and regulated differently. The market share of console gaming in China in 2018 was probably less than 3%. To unlock market is very challenging but this is also a once in a generation opportunity for execution team to create a multi-billion dollars business and make history. What I see here is there’s limited downside for responsible individuals as everybody knows the task is tough while the upside is enormous.
* Go-to-Market & Ecosystem Coordination *
Market penetration before official operation
Before Nintendo’s decision to collaborate with any company to enter China market, I think their most efficient way to penetrate the market was localizing the system and games as many as possible and then just let the market mechanism work for them. The limit of strategy above is obvious – the user base probably would not go beyond early adopters. Those hardcore/enthusiastic gamers have figured out how to enjoy the system without official support. With high penetration of social network/media, communities that facilitate information exchange and transactions are built. However, it’s still not enough for the product to take off and diffuse further without the help from platform holder/ecosystem coordinator. Apparently, gaming console is not a product that can sell or scale by itself in Mainland China. For a system without official support, frictions are too large for potential users to adopt, let alone we have country specific challenges for gaming consoles. Looking at numbers of Xbox and PlayStation with official support, it seems they’re still struggling to gain traction. What the team needs to do includes coming up with a sophisticated go-to-market strategy, testing different growth hacking tactics, coordinating previously unmanaged ecosystem, cultivating Nintendo’s IP…
Since Nintendo knows which game is first enjoyed by a new user, I believe the team has the information about how many wild Nintendo Switch there are in Mainland China. By depicting ecosystem and social graph, it is not difficult to find fair number of existing users belong to different communities to conduct user research. Understanding those early adopters adds value to some extent even though their user profile (demographics, user behavior…) and user stories might be significantly different from that of those primary target audience that the team will spend most time and resources on.
It will take longer or much longer compared to other markets where potential mainstream users are familiar with the IPs and value proposition. Current user bases in other markets are more akin to reactivation than acquisition. Cumulative advertising expenses per unit shipped between FY17/3-FY19/3 in other markets was around JPY 5,664. I think even with rigorous budgeting the number in Mainland China probably will be probably three times until the team finds magic formulas on conversion. As potential users are price sensitive, it’s reasonable to expect different subsidies, discounts, bundles to drive demand. Thus, all-in customer acquisition cost (CAC) should be even higher.
Launch of platform
By that time, we will officially know how strong Nintendo as a brand and their IP are in Mainland China beyond early adopters.
Customer engagement & retention / customer lifetime value (CLTV or LTV)
Customer engagement and retention is key in nowadays gaming business (from single game in any device, to gaming console, to digital gaming storefront, to cloud gaming service). Thanks to internet and various monetization methods adopted, on-going revenue streams from specific user after games being installed or services being used become possible. Game operators want to keep their users active (prevent them from churn) to benefit from DLC/season pass or in-game monetization. It’s even more important for massive multiplayer online game and games with strong social aspect as user activity determines whether network can reach critical massive and its sustainability. Key financial metric migrates from contribution profit from one-time software sales to customer lifetime value.
Because of supply aggregation and higher customer acquisition costs on gaming console, loss from customer churn multiplies. In the past, the platform holder would just keep bringing high quality games to the platform (better if they’re exclusive) until it’s time for next generation hardware with limited channels for customer engagement. With widespread of social network/media site/UGC site (adjacent platforms) …, channels to reach players increase while competition for user’s interest and time spent become fierce than ever. Like user behavior in gaming console, users generally multi-home on those adjacent platforms. I expect competitive landscape would be described as market-sharing with clear power law which might impact how the primary platform builds relationship and collaborates with adjacent platforms.
Ecosystem and communities
By visualizing participants in the primary gaming platform, adjacent platforms and sales and marketing, the concept of ecosystem is easy to grasp. By zooming into social network and micro level interaction, online and offline communities (meetup, unofficial tournament…) can be identified.
Ecosystem coordination might benefit not only customer engagement and customer acquisition but future platform business. Coordination involves policy implementation, regulation enforcement, and resource allocation.
* Business Intelligence, Traction & Metrics *
Information to be gathered, shared and monitored, and data to be collected and analyzed are shown below.
User behavior information
Platform performance and unit economics
Social network/media, media site, UGC sites, owned channels
Traction, milestone and target
Up Fintech Holding Limited (TIGR.US)
[March 17, 2019]
* Initial Analysis – Comp *
Or PDF Here