Edison Investment Research

Tencent takes a 12% stake in Snap

Tencent is embarking on a circumnavigation of the Digital Life pie in order to build an ecosystem to challenge the established Google, Apple, Amazon, Facebook dominance of consumer digital services

Tokyo Motor Show

The star of the Tokyo Motor Show is an electric sports vehicle designed by Toyota which has at its heart an assistant which neither Honda nor any other automaker has any chance of ever creating themselves.

Essential Products is clearly struggling with its Essential Phone which will lead to it focusing on

Essential Products is clearly struggling with its Essential Phone which we think will probably lead to it ending up focusing on the smart home only. Essential Products Inc. has used the only competitive weapon it ever really had and has cut the price of its flagship Essential smartphone by 29% from $699 to $499. Those that have already purchased the device will get a $200 credit towards purchasing other devices within the Essential ecosystem such as the 360 camera. The issue with this is it will really annoy fans of the device who paid full price and it is also an admission that there is nothing particularly special about this device leaving Essential Products in the same boat as everyone else in terms of competing on price. This is a real climb down for the company because competing directly with the Chinese and LG directly on price, it means that the user experience and ecosystem that it spent so much time creating is getting no traction with users. This fits exactly with our previous observation that Essential Products has created a great Google phone and nothing more.

It is difficult to see how Dyson will compete effectively in this market

Vacuum cleaner maker Dyson has announced that it will be producing an electric vehicle that has more hallmarks of the Sinclair C5 than the Model S.  Dyson intends to produce a fully electric vehicle by 2020 which will feature solid state batteries, which is one of the holy grails for battery technology as lithium batteries can be extremely dangerous when exposed to physical trauma, overcharging or excess heat, and has been a focus of Dyson for some time (but whether it has cracked this thorny problem remains to be seen); electric motors, which given Dyson’s history with household products, would seem a natural progression into electric vehicles and a premium price - Dyson is sticking to what it knows in positioning its vehicle at the high end but in this segment, it will face fearsome competition.

Indian E-Commerce: Amazon is the only real winner from the strategic choices being made by Flipkart

Amazon goes for the jugular. Amazon is not content just to let its rivals gift it the Indian market through their own bad decisions but is going for the jugular by opening up a second front in bricks and mortar retail. Amazon is buying a 5% stake in Shoppers Stop for $28m which will enable Shoppers Stop to increase the number of stores it has by 25% thereby expanding its reach into smaller towns. Currently only 5% of retail sales are made online in China meaning that for at least some time to come it will be an advantage to have an offline presence. This is exactly the strategy that Alibaba is pursuing in China and is looking to improve the poor offline experience by adding in technology and know-how garnered through its growth online.

Troublesome hardware. Snap Inc. is admitting that it made a wrong turn with its spectacles

With the reorganisation of its hardware division, Snap Inc. is admitting that it made a wrong turn with its spectacles which despite being cool, no one bought. Steve Horowitz will now become president of technology and report to the chief strategy officer rather than the CEO in what can only be a significant demotion, while a large part of the marketing effort has also been terminated with the COO of hardware, Mark Randall presiding over the vestigial remains.

If Google is prepared to be as aggressive on price as Xiaomi, it might just get somewhere

Google – Thrice bitten, never shy. Fourth time unlikely to be the charm. Google has announced a partnership with HTC that sees some key engineering talent join Google but it remains a complete mystery as to what Google is paying money for.
This will represent the fourth major hardware related transaction that started with Motorola Mobility and continued with Nest and Dropcam.

Amazon still has the upper hand which it is showing no sign of losing

Amazon increases its aggressive land grab.  Not content to sit on 70% market share, Amazon is aggressively compensating for the lack of Alexa on smartphones by effectively giving the devices away and pushing e-commerce as hard as it can. A land grab strategy makes complete sense because the more Amazon can drive Alexa usage, the more data it will generate and the better it can become. Usage is the key to making all digital assistants better and this is the one area where Amazon has huge ground to make up compared to Google.

Samsung Q2 17 – Just chipper

A truly mighty performance from Samsung puts it well on track to promoted to being the largest semiconductor company in the world by revenues this year

Tencent - Feathering the nest

If it was to effectively monetise its ecosystem at home and aggressively push into developed markets, it could become one of the biggest digital ecosystems globally.

The strategy around the smart home is bang on and it has created the right product

Home is where the heart is. Whilst not fans of Essential Products’ phone, the strategy around the smart home is bang on and it has created the right product. The phone simply does not do anything particularly special in a brutal commodity market and given the company’s overall strategy, we see no real need why it can’t make use of the phones of others. However, the Home product is something else, and although it may not succeed, it has a good chance. This is because, has been designed to explicitly address the two biggest problems with home automation that exist today.

Android Project Treble – Yellow brick road that leads to a fully proprietary Android OS

The launch of Project Treble sees Google finally moving to address the Android updating problem but it also quietly paves the way for Google to take full control of the Android software.

Google Auto - Tinkering with Android for cars is a dangerous game

Ahead of its developer conference, Google i/o, Google has demonstrated another version of Android that will be able of running many more aspects of the car beyond infotainment.

Microsoft BUILD – Enterprise remains the focus.

At Microsoft’s developer conference, it continued to emphasise its move away from being a platform for the consumption of content to one that is primarily for the creation of content. At the same time it cemented its move away from mobile with the migration of its strategy from cloud first, mobile first to intelligent cloud, intelligent edge.

Google vs Amazon - The time for Google to move is now

Amazon is far from standing still in its battle to win the smart home meaning that Google really needs to pull its finger out before it suffers a defeat not unlike that suffered by Betamax at the hands of VHS.

Amazon is already miles ahead of Google when it comes to devices, with over 10m in the hands of users (compared to Google Home at we estimate, 1m), but it is not stopping there. Last week, Amazon and Conexant announced the availability of the AudioSmart 4-mic development kit. This is a piece of hardware that allows third parties to integrate both the far-field microphone technology that the Echo products use to hear the user as well as the assistant itself.

Microsoft - Windows 10 S great for schools but not for the Surface Laptop.

For the education of children, Windows 10 S makes perfect sense but for college and everything else, we can’t see why anyone would want it. Microsoft held an education event this week where it launched a new version of Windows 10 called Windows 10 S and a stunningly beautiful laptop called Surface Laptop.

Apple FQ2 17– New normal

Apple reported reasonable results and in increasing both the dividend and the share buy-back program, ushered itself squarely into a new normal of pedestrian growth.

FQ2 17A revenues / EPS were $52.9bn / $2.10 broadly in line with consensus at $52.9bn / $2.02. Gross margins were 38.9% at the high end of the guided range and slightly above consensus at 38.7% as the iPhone 7+ was a stronger contributor to the mix than anticipated, lifting profitability.

Android’s success shows up Google’s deficiencies

Android has surpassed Windows as the No.1 platform for accessing the Internet globally, highlighting just how bad Google is at monetising Android as it remains only a small percentage of total revenues.

Didi – Jam today

It’s time Didi started trying to make money.

With the ride hailing market in China now wide open for it, Didi has no reason to go on burning billions of dollars for the sake of growth. Consequently, we cannot see a good reason for Didi to raise $6bn as it should be looking to internal cash flow to fund its investments. The one exception is to have a war chest for acquisitions in order to go global, but we think that it is better to buy expensive paper with equally expensive paper rather than cash.

Digital assistants – Man and dog

Google Assistant and Baidu Duer are miles ahead of everything else that is being offered including Alexa, Siri and Cortana… Google has a vastly superior product but Alexa is much better at controlling the smart home, albeit with an awful user experience.

MWC Day 1 – The time machine

The taxonomy of MWC is changing. Nokia has through nostalgia created some excitement in the mobile phone industry but elsewhere the signs of maturity are everywhere.

India e-commerce, Edison View: “Flipkart likely to buy Snapdeal

“India e-commerce – Flipkart likely to buy Snapdeal.  The latest in a series of woes that has hit the Indian e-commerce market reinforces our view that in network based businesses, there really is only space for one player to do well. This time around it is Snapdeal which is cutting costs by laying of 800 people, cutting the salaries of its founders to zero and exploring the sale of its mobile wallet FreeCharge at a big discount to what it paid for it in 2015 ($400m). The founders of Snapdeal admit to spreading themselves too thin and not executing optimally, but the real issue here is much more fundamental.

Snap Inc – pain, not gain

$20bn – $25bn is at least 32% too much to pay for investors who will also have no say whatsoever in how the company is run despite having significant skin in the game.

Facebook Q4 16 – In focus

In the next 3 years, the priority is clearly video and we can see Facebook evolving to become more like YouTube or Netflix.

Facebook reported good results and highlighted that while 2017 would be much slower, video is the current priority to drive the next leg of growth.

Apple FQ1 16 – A one-way street – iPhone benefits where Google could not

These were good results but they do not herald the return to growth that the shares badly need if they are to see any real upward momentum.

Fitbit – boredom bites. User indifference likely to drive further estimate cuts in 2017.

Fitbit issued a horrible profit warning as users appear to be becoming bored with fitness tracking despite Fitbit’s efforts to drive engagement through the ecosystem.

Google Enterprise – No G man - Radio Free Mobile

One area where Google has a chance with the enterprise is in the cloud, but there it is already very far behind both Amazon and Microsoft

Cloud and mobile drive 3 for 3

Cloud and mobile drive 3 for 3

Twitter – Event horizon

Sale of Fabric collapses Twitter’s horizons.

LeEco – Le life line

Small war chest means laser sharp strategy and execution needed.

RFM 2017 – Top 5.

Artificial Intelligence.
  AI is likely to be the most important theme in the technology sector this year.
  This is because AI could become a major differentiator in determining which Digital Life services are the best and therefore preferred and paid for by consumers.

Twitter – Exit strategy.

Bid frenzy offers a great exit point.

Without big success in media consumption, Twitter offers very poor value to potential acquirers at $23 per share (EV $14bn) giving holders every excuse to get out.

BlackBerry – Cold Turkey

BlackBerry finally breaks its addiction to hardware. BlackBerry reported poor Q2 17A results, but the decision to stop internal handset development buoyed sentiment allowing the shares to rise 5%.

GoPro vs. DJI – Autonomous gambit

DJI is making a big gamble with the Mavic Pro. Hot on the heels of GoPro’s Karma launch, DJI has launched a similar drone but Edison see it taking a big risk by using autonomous features as a major selling point.

Car makers sharing data is the real story

HERE has begun its strategy to increasingly automate and improve transport but the most impressive feature so far is the fact that the 3 owners of HERE are sharing their data with each other. Far more data than has been historically available is being used to create four new services that should be deeper, richer and more useful than any that have gone before. These are: