ASEAN (Indo) & China-focused. Ex-Deputy HoR UBS.

Johannes Salim, CFA

Equity Bottom-Up

<ul>
<li>Our analysis of how <a href="https://www.smartkarma.com/entities/26772" target="_blank" data-smartkarma-citation="entities:26772:1">Spotify Technology Sa (SPOT US)</a> turned profitable in 4Q18 reveals three key ingredients: critical mass in sales, GM progression, and core business diversification.</li>
<li>With sales reaching critical mass, this would allow fixed costs to be spread out in such a way that opex/unit is lower than GP/unit.</li>
<li>Progression in GM and core business diversification strategy are worth monitoring.</li>
<li>Implication: <a href="https://www.smartkarma.com/entities/26970" target="_blank" data-smartkarma-citation="entities:26970:1">Meituan Dianping's (3690 HK)</a> core business is ahead of <a href="https://www.smartkarma.com/entities/26755" target="_blank" data-smartkarma-citation="entities:26755:1">iQIYI Inc (IQ US)</a> in terms of profitability inflection point timeline.</li>
</ul>


Our analysis of how Spotify Technology Sa (SPOT US) turned profitable in 4Q18 reveals three key ingredients: critical mass in sales, GM progression, and core business diversification.
With sales reaching critical mass, this would allow fixed costs to be spread out in such a way that opex/unit is lower than GP/unit.
Progression in GM and core business diversification strategy are worth monitoring.
Implication: Meituan Dianping's (3690 HK) core business is ahead of iQIYI Inc (IQ US) in terms of profitability inflection point timeline.


Spotify: Playbook for Online Platforms to Turn Profitable - Implications for Meituan Dianping