Scooter Economics
The scooter revolution is isn’t as sexy as autonomous cars, but scooters will be more important to transportation in the near term. That’s because most trips are short and autonomous car technology won’t be implemented for at least a few years.
Specifically, 35% of all personal trips are less than 2 kilometers and 75% are less than 10 kilometers. Whatever micromobility technology gains usage in the next few years will transform 35% of trips at least. Investing in this space is far from a slam dunk though.
As you can see from the slide below, it takes 115 days or 3.8 months for companies to break even on scooters, but they only last 3 months. Prices need to go up or scooters need to be more durable.
Maybe companies can fine users if they are reckless with the scooters.
Scooter - Of the $3.50 made per ride, there are $2.85 in costs. The companies make $3.25 per day because there are 5 rides per day. Unfortunately, scooters cost $375.
There’s a possibility scooter prices will come down as batteries become cheaper. If the companies buy cheaper scooters now, some people might not like them and they might break down even quicker.
This can be a great business model if costs are managed better, but right now it isn’t. Maybe some sort of premium program similar to Uber X will help these firms make money.
The Cloud Still Has Potential
Scooter - Even though the cloud has been driving profit growth for Amazon and Microsoft for a few years now, it is still under-penetrated, meaning there is more growth potential left.
Public cloud adoption is under 10%. AWS (Amazon), Azure (Microsoft), and Google make up more than 80% of incremental sales. Azure has been taking share from AWS.
The chart below shows the cloud industry. Size of the circles is the size of revenues. Y axis also shows last 12 month revenues and the x axis shows last 12 month growth rates.
As you can see, Azure grew at a 78% rate to $11.8 billion in sales and AWS grew 45% with $27.9 billion in sales. Shadows and arrows show the direction growth is going. It’s no surprise Azure is slowing quicker than AWS because such a high growth rate is unsustainable.
April Retail Sales Were Actually Solid After The Revision
Scooters - When the last retail sales report came out for April, investors thought it was probably too low because of the negative seasonal adjustment caused by the Easter holiday shift.
Seasonal adjustment should have pushed growth lower because of the timing of Easter. But personally, I thought it was overkill. Sure enough, the April results were revised much higher which is great news for the economy.
It makes investors more optimistic on stocks and makes me think above 2% GDP growth is probable. This report was a big win for the bulls. It justifies the rally in June. The situation could only turn sour for the bulls if it makes the Fed less dovish. CPI was weak in May, so the Fed might still guide for a cut in late July.
Specifically, April headline retail sales growth went from -0.2% to 0.3%.
Scooter - That’s a massive shift as yearly growth improved from 3.1% to 3.7%. Monthly growth less autos was 0.5% instead of 0.1%. Monthly growth less autos and gas was 0.3% instead of -0.2%.
Finally, monthly control group sales growth was 0.4% instead of 0%. The positive April revisions plus May’s solid growth gave us two great reports in one. This completely changes where Q2 GDP growth will end up. It supports my guess that consumption growth in Q2 will be higher than Q1.
But headline GDP growth will be lower because of less help from trade and inventories. Even if real growth is between 2% and 2.5% it would be better than Q1 if final sales growth is stronger.
May Retail Sales Growth Also Good
Scooter - May results were also solid on a monthly basis which is great since the comps were tough. Headline yearly growth fell though.
Specifically, retail sales, retail sales without autos, retail sales without autos and gas, and the control group all had monthly growth of 0.5%. Headline growth missed estimates for 0.7% and the others beat estimates for 0.4%.
Headline yearly growth fell from 3.7% to 3.2% and control group growth was steady at 3.4% as you can see from the chart below. This report tells Redbook sales growth wasn’t that inaccurate after all.
Scooter - General merchandise sales growth was 0.7% monthly.
That’s on top of 0.8% growth in April and 1.2% growth in March. Yearly growth was 3.3%. Unsurprisingly, online retailers had strong growth as monthly growth in May was 1.7%.
Yearly growth improved from 10% to 11.5%. Another good sign was the monthly growth of 0.7% for restaurants. I remember a couple years ago when those who followed restaurant sales growth thought a recession was coming.
One of the reasons I thought consumption growth would improve from Q1 was auto sales. They didn’t disappoint as growth was 0.7%. Keep in mind, consumption growth was very weak in Q1, so it’s a low bar to beat.
Building materials sales were up 0.1% monthly on a weak comp. Sales at gas stations were up 0.3% which is less than previous growth rates. Yearly sales growth at gas stations was 3.2% which is below April’s growth of 5.6%.
Scooter - Conclusion
GDP estimates increased after this solid retail sales growth reading. The economy isn’t exactly on fire; it’s still in a slowdown.
However, the risk of this slowdown turning into a recession in the next 6 months has diminished. Only worry for the bulls is that this solid report might make the Fed less inclined to cut rates.
Scooter companies aren’t profitable yet and the competitive landscape of the cloud industry. Both industries have potential although the cloud is in another league in terms of profitability as it has very high margins.
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