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I asked in the recent thread how Meituan could possibly be affording to subsidize restaurant meals to be significantly below cost at restaurant as that didn’t m

I asked in the recent thread how Meituan could possibly be affording to subsidize restaurant meals to be significantly below cost at restaurant as that didn’t make any sense. Turns out according to this article that it’s simply that. It doesn’t make sense. They lost $17 Billion in 2018 for a shallow moat around an ugly castle. The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs will get a lot worse if not disappear.

toomuchtodo 8y ago
> a shallow moat around an ugly castle. I hope this ends up in Matt Levine’s Money Stuff segment as part of his Unicorn Enchanted Forest series.
koolba 8y ago
> The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs will get a lot worse if not disappear. It'll be a double whammy hit. As the unsustainable businesses collapse and prices rise back to reality, it'll cause an even larger drop in net sales due to consumer's reluctance to pay the full cost of their poke bowls. Combine that with a bunch of gig economy workers having their only income source dry up and you've got a financial mess at a large scale.
- onlyrealcuzzo 8y ago
  Most of the cost of the poke bowl is fixed, not marginal. The full cost of the poke bowl is a function mostly of rent and wages (which are largely a function of interest rates and rents). If a recession hits, wages and rents will fall, and with them the cost of the poke bowl as well. The marginal cost of poke bowl is like $3 of fish and $0.10 of rice and veggies.
dawhizkid 8y ago
Why would “gig economy jobs” get worse? If anything, during a recession, more people will want(need?) to become gig workers. Uber/Lyft are generally supply constrained today. If there’s a surge of supply because people need money they won’t have to pay new driver incentives, which is one the areas that cause them to bleed cash today. Demand side will fall a little, but people will still need cheap ways to get to/from places, maybe especially if their car gets repossessed.
- tomnipotent 8y ago
  This isn't about supply & demand, it's about profitability and if these companies are viable long-term. There can be no gig economy jobs if there are no gig economy businesses.
  - dawhizkid 8y ago
    Uber and Lyft can be profitable today. They are in their most mature markets like SF and NYC. If they need to get to profitability they scale back and cut certain cities. That’s it.
    - tomnipotent 8y ago
      Which would mean eliminating upwards of 90% of their workforce. Thus not sustainable, and the jobs disappear.
      - dawhizkid 8y ago
        You’re conflating profitability, growth, sustainability etc. you’re also conflating what is bad for Uber vs what is bad for drivers It is sustainable to do that if by sustainable you mean have a profitable long term business that is cash flow positive It would likely massively hurt share prices because you’re trading growth for profitability
        tomnipotent 8y ago
        I'm not conflating anything, you're just mixing subjects. You said that gig jobs would get better or there would be more, and I countered that was not the case since a business cannot sustain that number of people if it's not profitable.
        dawhizkid 8y ago
        I don’t think you understand how Uber/Lyft think about their drivers. They aren’t employees. In fact, drivers are their customers. There’s no “sustaining” drivers because they aren’t paying their drivers anything...they are just making a commission off of the driver’s own earnings. Uber and Lyft can’t and won’t “fire” drivers since, again, they aren’t employees. The best way to think of drivers is that they are customers who are licensing Uber/Lyft software for lead generation for their own business. In a recession a seller of lead generation software (Uber/Lyft) is not going to turn customers (drivers) away. It just might not be profitable for you as a customer of lead generation software to buy it if there aren’t leads, but I don’t think anyone knows what will really happen to rideshare demand if the economy tanks. I think it will go down, but it might not go down as much as one might think.
_hardwaregeek 8y ago
I guess Silicon Valley's Sliceline plot line really was accurate
warent 8y ago
I've never heard the expression "for a shallow moat around an ugly castle" before but it's a wonderful picture to paint for just this kind of situation. I'm excited to start incorporating it into my conversations.
- benjaminblack 8y ago
  I had the exact same thought. Love it. Stealing it.
- b_tterc_p 8y ago
  I was proud of that one so you’re very welcome.
- shafyy 8y ago
  Same.
- fgonzag 8y ago
  I actually pictured it, for some weird reason
JMTQp8lwXL 8y ago
The narrative is that automation will make all of these services cheap, so the "gig economy" jobs get lost regardless to autonomous vehicles and robotic hamburger makers, for example. Only then, do these companies come out on top -- and quite big if they can float until automated solutions exist. At least, that's the story these types of business tell to acquire funding. That's essentially the bet with these companies. You're betting that paying the price to (1) establish and (2) maintain market dominance (by accepting the billions in hemorrhaging today), is worth it once these businesses make a very remarkable turnaround when their operating expenses drop off a cliff, thus yielding massive profits. Like anything, it's a bet. It could pan out, and early investors will be rewarded very well. Or it won't. I don't think it's a done deal either way, or you wouldn't have two camps of thought. Tons of people decreeing ride hailing companies, many others cheering them on. There's valid reasons to both sides.
- dragonwriter 8y ago
  > Only then, do these companies come out on top Only the ones that also own the automated vehicle/robotic hamburger flipper technologies—and if it's not one of the on-demand firms that does that key job automation piece, all the existing on-demand firms are worthless in the face of the firm that owns the technology that erases the big cost in their business, and therefore can partner with the whichever is willing to accept the smallest share (or just start it's own) and own the whole market.
  - JMTQp8lwXL 8y ago
    It is completely valid to question the value of being first to market. Will anybody care about Uber or Lyft if a new player, Company X, has a fleet of hundreds of thousands of autonomous vehicles in all major U.S. cities? Consumers have shown us just how easy it is to switch to a new app. I concur that the branding wouldn't matter-- if the existing rideshare companies couldn't strike a deal with makers of autonomous vehicles, they won't be getting a share of the autonomous profits. Of course, these companies are actually developing their own technology. But that is far from their singular focus today. Quietly, I assume there are folks operating on the thought that market dominance doesn't matter. We don't hear about them today very much, because they don't get much media attention.
celticninja 8y ago
They lost $17 billion in 2018 and I haven't even heard of them.
subjectHarold 8y ago
I am confused. Is Meituan's ticker 3690? This looks like the company referred to and the actual operating loss is 11bn RMB (so about ~$1.5bn)...which is a lot but revenue doubled, and this is kind of a scale-ish business...so? The number quoted by Bloomberg (quoting from Nikkei) is comprehensive income including the conversion of pre-IPO securities...so not really reflective of operations. What is kind of staggering is the cumulative losses to equity ~170bn RMB or $25bn. And presumably, there are options and all sorts. Tbh, I am not even sure how this number is correct given the business isn't even ten years old...I don't look at HK companies very often (and I am aware funny stuff happens in HK)...but how the equity account be wrong?
- b_tterc_p 8y ago
  Are you sure? https://www.bloomberg.com/quote/3690:HK https://www.bloomberg.com/quote/3690:HK This says net income was -137B HKD or about 17b usd
  - subjectHarold 8y ago
    Yeah buddy, that isn't right. That is comprehensive income (most of the financial websites just report the simple line items, which are usually right but very wrong when they are misleading). For HK stocks, you get the press releases/filings from: http://www3.hkexnews.hk/listedco/listconews/advancedsearch/search_active_main.aspx http://www3.hkexnews.hk/listedco/listconews/advancedsearch/s... - and this is the annual report, http://www3.hkexnews.hk/listedco/listconews/SEHK/2019/0311/LTN20190311694.pdf http://www3.hkexnews.hk/listedco/listconews/SEHK/2019/0311/L... As said though, I have no idea if I am looking at the right company (you sometimes find that there is a holding company or a stock with a similar name or something). Pretty sure it is the same Meituan...but maybe not (and if it is, I still don't understand the losses they booked to equity).

toomuchtodo 8y ago

> a shallow moat around an ugly castle. I hope this ends up in Matt Levine’s Money Stuff segment as part of his Unicorn Enchanted Forest series.

koolba 8y ago

> The next recession is going to hit hard, and I’m guessing a lot of the gig economy jobs will get a lot worse if not disappear. It'll be a double whammy hit. As the unsustainable businesses collapse and prices rise back to reality, it'll cause an even larger drop in net sales due to consumer's reluctance to pay the full cost of their poke bowls. Combine that with a bunch of gig economy workers having their only income source dry up and you've got a financial mess at a large scale.

onlyrealcuzzo 8y ago
Most of the cost of the poke bowl is fixed, not marginal. The full cost of the poke bowl is a function mostly of rent and wages (which are largely a function of interest rates and rents). If a recession hits, wages and rents will fall, and with them the cost of the poke bowl as well. The marginal cost of poke bowl is like $3 of fish and $0.10 of rice and veggies.

dawhizkid 8y ago

Why would “gig economy jobs” get worse? If anything, during a recession, more people will want(need?) to become gig workers. Uber/Lyft are generally supply constrained today. If there’s a surge of supply because people need money they won’t have to pay new driver incentives, which is one the areas that cause them to bleed cash today. Demand side will fall a little, but people will still need cheap ways to get to/from places, maybe especially if their car gets repossessed.

tomnipotent 8y ago
This isn't about supply & demand, it's about profitability and if these companies are viable long-term. There can be no gig economy jobs if there are no gig economy businesses.
- dawhizkid 8y ago
  Uber and Lyft can be profitable today. They are in their most mature markets like SF and NYC. If they need to get to profitability they scale back and cut certain cities. That’s it.
  - tomnipotent 8y ago
    Which would mean eliminating upwards of 90% of their workforce. Thus not sustainable, and the jobs disappear.
    - dawhizkid 8y ago
      You’re conflating profitability, growth, sustainability etc. you’re also conflating what is bad for Uber vs what is bad for drivers It is sustainable to do that if by sustainable you mean have a profitable long term business that is cash flow positive It would likely massively hurt share prices because you’re trading growth for profitability
      - tomnipotent 8y ago
        I'm not conflating anything, you're just mixing subjects. You said that gig jobs would get better or there would be more, and I countered that was not the case since a business cannot sustain that number of people if it's not profitable.
        dawhizkid 8y ago
        I don’t think you understand how Uber/Lyft think about their drivers. They aren’t employees. In fact, drivers are their customers. There’s no “sustaining” drivers because they aren’t paying their drivers anything...they are just making a commission off of the driver’s own earnings. Uber and Lyft can’t and won’t “fire” drivers since, again, they aren’t employees. The best way to think of drivers is that they are customers who are licensing Uber/Lyft software for lead generation for their own business. In a recession a seller of lead generation software (Uber/Lyft) is not going to turn customers (drivers) away. It just might not be profitable for you as a customer of lead generation software to buy it if there aren’t leads, but I don’t think anyone knows what will really happen to rideshare demand if the economy tanks. I think it will go down, but it might not go down as much as one might think.

_hardwaregeek 8y ago

I guess Silicon Valley's Sliceline plot line really was accurate

warent 8y ago

I've never heard the expression "for a shallow moat around an ugly castle" before but it's a wonderful picture to paint for just this kind of situation. I'm excited to start incorporating it into my conversations.

benjaminblack 8y ago
I had the exact same thought. Love it. Stealing it.
b_tterc_p 8y ago
I was proud of that one so you’re very welcome.
shafyy 8y ago
Same.
fgonzag 8y ago
I actually pictured it, for some weird reason

JMTQp8lwXL 8y ago

The narrative is that automation will make all of these services cheap, so the "gig economy" jobs get lost regardless to autonomous vehicles and robotic hamburger makers, for example. Only then, do these companies come out on top -- and quite big if they can float until automated solutions exist. At least, that's the story these types of business tell to acquire funding. That's essentially the bet with these companies. You're betting that paying the price to (1) establish and (2) maintain market dominance (by accepting the billions in hemorrhaging today), is worth it once these businesses make a very remarkable turnaround when their operating expenses drop off a cliff, thus yielding massive profits. Like anything, it's a bet. It could pan out, and early investors will be rewarded very well. Or it won't. I don't think it's a done deal either way, or you wouldn't have two camps of thought. Tons of people decreeing ride hailing companies, many others cheering them on. There's valid reasons to both sides.

dragonwriter 8y ago
> Only then, do these companies come out on top Only the ones that also own the automated vehicle/robotic hamburger flipper technologies—and if it's not one of the on-demand firms that does that key job automation piece, all the existing on-demand firms are worthless in the face of the firm that owns the technology that erases the big cost in their business, and therefore can partner with the whichever is willing to accept the smallest share (or just start it's own) and own the whole market.
- JMTQp8lwXL 8y ago
  It is completely valid to question the value of being first to market. Will anybody care about Uber or Lyft if a new player, Company X, has a fleet of hundreds of thousands of autonomous vehicles in all major U.S. cities? Consumers have shown us just how easy it is to switch to a new app. I concur that the branding wouldn't matter-- if the existing rideshare companies couldn't strike a deal with makers of autonomous vehicles, they won't be getting a share of the autonomous profits. Of course, these companies are actually developing their own technology. But that is far from their singular focus today. Quietly, I assume there are folks operating on the thought that market dominance doesn't matter. We don't hear about them today very much, because they don't get much media attention.

celticninja 8y ago

They lost $17 billion in 2018 and I haven't even heard of them.

subjectHarold 8y ago

I am confused. Is Meituan's ticker 3690? This looks like the company referred to and the actual operating loss is 11bn RMB (so about ~$1.5bn)...which is a lot but revenue doubled, and this is kind of a scale-ish business...so? The number quoted by Bloomberg (quoting from Nikkei) is comprehensive income including the conversion of pre-IPO securities...so not really reflective of operations. What is kind of staggering is the cumulative losses to equity ~170bn RMB or $25bn. And presumably, there are options and all sorts. Tbh, I am not even sure how this number is correct given the business isn't even ten years old...I don't look at HK companies very often (and I am aware funny stuff happens in HK)...but how the equity account be wrong?

b_tterc_p 8y ago
Are you sure? https://www.bloomberg.com/quote/3690:HK https://www.bloomberg.com/quote/3690:HK This says net income was -137B HKD or about 17b usd
- subjectHarold 8y ago
  Yeah buddy, that isn't right. That is comprehensive income (most of the financial websites just report the simple line items, which are usually right but very wrong when they are misleading). For HK stocks, you get the press releases/filings from: http://www3.hkexnews.hk/listedco/listconews/advancedsearch/search_active_main.aspx http://www3.hkexnews.hk/listedco/listconews/advancedsearch/s... - and this is the annual report, http://www3.hkexnews.hk/listedco/listconews/SEHK/2019/0311/LTN20190311694.pdf http://www3.hkexnews.hk/listedco/listconews/SEHK/2019/0311/L... As said though, I have no idea if I am looking at the right company (you sometimes find that there is a holding company or a stock with a similar name or something). Pretty sure it is the same Meituan...but maybe not (and if it is, I still don't understand the losses they booked to equity).