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On December 13, 2015, KevinWei commented on SolarCity: Harnessing the Power of the Sun to Drive Customer Value :


One of the biggest things currently in the industry is the reduction of the investment tax credit from 30% to 10% at the end of 2016, which as you correctly noted would significantly effect the company’s profitability as it must sell more of its cash flows to fund the upfront capital investment of the solar energy system. A bigger driver of the cost reduction target for 2017 is driven by this desire to make sure the economics for the business still look attractive if the ITC really does go down to 10%. This comes in the form of not only operational improvements, but also lower the cost of capital for the business through use of securitizations as well as aggregation facilities of cash flows.

The real problem the Company needs to figure out to make the equation work is how to lower the cost of customer acquisition, which is still quite high. The belief is that as solar become more prevalent, it will be easier and easier to sell as people can literally see it in the neighborhood. SolarCity has had an interesting partnership with Tesla (given Elon Musk connection), where they try to sell SolarCity solar energy systems to Tesla purchasers as buying an electric car basically shifts fuel costs to electricity costs and the best way to reduce your electricity costs is with solar energy.

The combination of reductions in cost from process improvements, a lower cost of capital, and lower CAC is really the Company’s strategy to cope with the reduction in the ITC. SolarCity is a great business with a 30% ITC but it is still a very good business with a 10% ITC.

On December 13, 2015, KevinWei commented on Algramo: The Value-add Vending Machine :


Very interesting article. It seems a bit crazy that there is a 40% savings on such basic and generic staples just through the process of bulk breaking; I cannot believe that there has not been a store or some sort of business which previously purchased in bulk and then was able to sell it to people at lower prices than the smaller package vendors. Seems like Algramo found pretty good low-hanging fruit to go after and has really provided value both for itself and for its customers, although given its almost non-profit like mission statement, would be curious to see what the actual unit level economics are on an individual vending machine – I have to imagine that the payback period on these vending machines is pretty long given the profit-sharing structure and the low-cost of the goods the vending machine is dispensing.

The other part of the cost savings strategy seems to be cutting out the distributors in the middle. As we learned, you can cut out people but not functionality in the “place” strategy of the business. Would be curious what they expect to do as the business continues to scale and the machines become more distributed. Part of the original value of the distributors is to be able to distribute these goods to all the small local stores and a lot of different locations. Does Algramo expect to scale its “vending machine fillers” as the business itself scales, especially as locales become more distributed can imagine this becoming expensive and adding a lot incremental cost to the business?

On December 13, 2015, KevinWei commented on Some Go to Church, Others Go to SoulCycle :


Very interesting analysis. Having been to SoulCycle a few times, I do wonder about how sustainable these box economics really are as there is really not much to SoulCycle other than a studio, music and the instructor – all of which are somewhat able to be replicated in other venues relatively easily. I understand that the brand equity of SoulCycle is pretty high, but how much of that is just a “fashion trend” vs. a sustainable brand with real product differentiation. There’s still considerable white space to go, so I think the growth prospects in the near-term future are fine and certainly judging by the Back Bay location, the current boxes are doing fine. Just have to think when there is such great economics in terms of both payback and margin but such low barriers to entry, you really have to be worried a little bit about how much the brand equity can protect the franchise.

On December 13, 2015, KevinWei commented on Tinder’s Business and Operating Models #ItsAMatch! :


Very interesting read. Think Tinder definitely had some counter-intuitive thinking with the matching process of making it super simple rather than using the complex matching and information algorithms that other dating websites use. I think the premise that there is a need for physical attraction and that everything else will come through conversation / actually meeting is a unique approach to figuring out the whole “dating scene”. Would be interested in the actual success rate of Tinder in driving real relationships vs. these other websites that have more fully quantified compatibility. I guess this leads to the existential question of whether complex human emotion can really be quantified and analyzed or whether there is something “special” about love which no amount of math, data or analysis can really fully understand

More on the business model – my key concern is how this is really going to generate a substantial amount of revenue. The application is very thin in its functionality and its only real barrier to entry is the network effect of a lot of people being on Tinder. I think this is probably relatively weak as there is nothing to keep from having multiple dating apps and I feel at some point the allure of Tinder will likely go away. Even if it doesn’t, I’m not sure how much value there is in advertising on Tinder for advertisers nor how much you can really monetize the user base (do you know anybody that pays for a premium Tinder subscription? I certainly don’t).