Weekly Update: AMZN US Logistics, Ashtead, Snowflake, NOW, Hearing Aids, Confluent
Quality Primary Research on Quality Companies
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Content Published Last Week
1. Amazon Logistics: US Network Buildout & Rationalization
2. IP DIALOGUE: Ashtead, United Rentals, & US Equipment Rental
3. ServiceNow Customer Perspective
4. Snowflake: Investment Trends & Cost Optimization
5. GN Store Nord & Hearing Aids
6. Confluent: Go-to-Market Strategy
Top 10 FREE Interviews from our Backlog on Spotify
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1. The Ferrari Way w/ Former CEO of RACE, China
2. Google & Travel Value Chain Structure w/ Former Director of Google Travel
3. The Early Days of Scaling GFL Environmental with Former right hand man to Patrick Dovigi
4. From WPP to S4 Capital with Sir Martin Sorrell
5. Aldi: Hard Discounter Business Models w/ Former Aldi UK CEO
6. Burford Capital: Pioneering Litigation Finance with the CEO of BUR
8. Online Food Delivery: A Restaurant's Perspective w/ Domino's UK CEO and Burger King UK CEO
9. Tesla, Waymo, & Lyft: Hurdles to Autonomous Driving w/ Former VP, Level 5 VP Autonomous at Lyft
10. The Gym Group: Low Cost Economies of Scale w/ Founder of Gym Group
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Amazon Logistics: US Network Buildout & Rationalization
This interview is a step-by-step walkthrough how AMZN has scaled its US logistics network, the extent of the current spare network capacity, and how AMZN has cut space YTD.
We walk through how a unit flows from a cross-dock inbound facility through fulfilment centers, regional sortation warehouses, to delivery stations, and finally to end customers. This is also the first time we feel confident in estimating the percentage of parcels that run through AMZN own-logistics vs via UPS and USPS and rough cost differences.
In short, there is a clear cost advantage of shipping more parcels through AMZN’s owned-logistics network.
If we look at the UPS, cost per package, we think it's around $8.73 per package...In the world of Amazon Logistics, we think they're spending somewhere around $3.82 to move that package themselves.
We also discuss AMZN vs Fedex and UPS and the Shopify’s strategy:
It's a whole different ballgame. Really, what Shopify need is six to seven fulfilment centers, in order to get two-day delivery capability to 90% of the population, in the US. You'd be somewhere around New Jersey, Pennsylvania, somewhere in the Southeast, like Atlanta, in Dallas, in Chicago, and LA, and then up in the Northwest, in Seattle, and then possibly Denver. If you had seven buildings operating, you could cover the most of the country in two days, but you're reliant 100% on a third party
A final interesting point is how the public lease data on US space provides insight into how AMZN lost discipline during COVID. In some cases, it was purchasing delivery stations literally within a stone’s throw; each station is supposed to serve a 50 square-mile area. Many of these stations are now at half capacity or closed.
I don't know how the approval process worked but some people have said they spent like drunken sailors. They just went too aggressive. Honestly, it's easy for me to be an armchair critic. They did the right thing at that time.
We also explore how much square footage has cut YTD and how they are dealing with build-to-suit buildings. It may be a few years until AMZN grows into its spare capacity!
IP Dialogue: Ashtead
This IP Dialogue explores the investment thesis of Ashtead, the leading US equipment rental company.
Since COVID, supply chain issues have limited new equipment supply and have pushed rental rates higher. In the 9M FY23, AHT’s rental revenue grew 25%, 19% organic and 6% via bolt-ons. Of the 19% organic, ~8% is rate and 11% volume.
One interesting question for AHT is: how will rental rates change as more OEM equipment supply is added to the market? Especially as the residential and commercial real estate market is slowing.
We explored this in our dialogue:
Basically, if you look back over the last 20 years, you had three instances of rate decline. You had the 2001, 2002 where you had single-digit declines; this was what really hurt those companies, more than the volumes. There was a small recession, in the US, at the time. Then you have the great financial crisis and then, thirdly, the 2016, 2017 period where there were 3% to 4% rate declines. In 20 years, only three instances and only one of which was really dramatic, I would say.
And maybe Ashtead is a more resilient company today relative to prior cycles:
I think the big difference, today, is that specialty has a much higher proportion of revenues than in previous cycles. You can see it in the numbers; they are growing at 20%, 30% rates, from very high bases. And they are still growing.
AHT trades for a cyclical multiple yet management continues to guide to structural growth. It will be interesting to see how rates and volume evolve in a real downturn.
ServiceNOW: Customer Angle
A CIO of a large CPG company explains the decision making process of using various NOW products and, more specifically, the role of CMDB within the product suite:
They have a strategic advantage with a presence in many large enterprises who they know how to sell to. They also have the CMDB already setup whereas if you were to buy another tool, you would have to replicate that. It is not 100% replication of CMDB but you at least have all assets and the org setup partially defined, as well as HR integration and the escalation of workflow paths. - CIO of CPG Company, Customer of NOW
While it's possible some of NOW’s products such as IT ops management are less competitive in the cloud, its core system seems to remain important to IT departments:
The physical nature of a server or VM goes away but it still has to be identified as a resource unit in the cloud with an application installed on it which has a user count. The underlying asset becomes more nebulous because you are no longer pointing to a physical server with an IP address, but both the application and systems engineer need to point it back to a cloud infrastructure, action or security configuration to be able to trace that and take action - CIO of CPG Company, Customer of NOW
Snowflake Customer Angle
A CIO of a Fortune 100 company who spends ~$5m on SNOW annually explains how its offering compares to Databricks:
as the focus shifts from just pure descriptive reporting, a lot more on AI, ML and advanced use cases, that could also question, if you compare the two, which one is better. Also it isn't that Databricks has a better ability to leverage data from anywhere, from distributed data sources, versus Snowflake, which is tightly coupled between the infrastructure layer and the application layer. Whereas, with Databricks, you can leverage data much more at a distributed level, so you don't have to replicate and manage data the way you would have to do it in Snowflake. - CIO of Fortune 100 Company
Also, a reminder we are still early in the transition to cloud:
As a CIO, we had a big imperative on business transformation, so I didn't want to tell our executive team that we wanted to transform everything to the cloud, because they would have misunderstood that language. More sophisticated business executives now know the real power of the cloud, but some don't, so given that, we said each time we transform we will move the right platforms with the right capability to the cloud. That includes commercial capabilities, supply chain transformation, manufacturing and analytics. Some manufacturing sits on the edge cloud, but it is still in a cloud construct. S4 HANA is the digital core and all of that is moving into the cloud, some as SaaS but most as PaaS. At the end of this transformation, 30% to 40% so far, we will move the rest wholesale. They are re-looking at it but that is the current situation. - CIO of Fortune 100 Company
GN Store Nord & Hearing Aids
A Former GN Store Nord executive with 40+ years of experience in the industry explores GN’s strategy vs competitors:
Sonova and Demant are buying all those retail shops and are taking a huge margin, and consumers are getting hurt, so could you see a scenario where those retail shops are no longer needed because of the online presence? Wholesalers like GN are protecting their margin and most compression happens within the audiology clinic? That is the big bet, and GN will be seen as either the smartest or dumbest guy in the room. There will not any in between; it has to be one or the other. - Former VP at GN Store Nord
Confluent: Go-to-Market Strategy
A Former CFLT Sales executive explores the challenge in upselling new customers:
If you go back just one step, the bit before customers use Confluent Cloud or OSS Kafka is, in my view, the biggest go-to-market challenge for Confluent. There are tons of organizations or significant parts of organizations where they’re not using Kafka in any great sense, and they don't think about it. They don't think about data streaming, and those are some of the largest insurers or retailers or other such organizations, and of course, they were on our target list, and they are still on the target list of Confluent because converting them is the next wave of growth. They're the laggards; they weren’t using Kafka very much, just playing with it. But to convert those pre-believers, as we call them, into even Kafka-knowledgeable so that they would even start the cycle and go onto Confluent Cloud and even use it for $1,000 a month, that was the hardest cycle. That’s the bit that drives the Confluent next wave of funnel. It’s super hard. - Former Sales Director at Confluent
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