Great accountants understand the power of improving marginal cost, on business growth and overall profitability. Simply, if you cannot improve marginal cost, you will struggle to scale that business profitably over time.
In a perfect market, the marginal cost of a digital (online) product is zero. This means that the price of a digital product tends to zero: welcome freemium and ad-supported business. However, only firms with network effects dominate and benefit. The core reason is that if in a perfect market, and the marginal cost of producing digital product is zero, the price will inevitably go to zero.
And when it comes to telecoms, using the space (like SpaceX Starlink’s satellite broadband) is structurally better than going terrestrial (like Verizon, MTN, Airtel’s GSM or CDMA). The deal is clear: the structural competitiveness of satellite telecom will make it a better product over time, because it has an inherent marginal cost advantage over anything out there. In accounting, marginal cost is your transaction cost and distribution cost; in satellite telecom, the distribution cost component reduces with scaling.
So, it is not a surprise that Starlink has broken even on cash flow, according to Elon Musk: “Excited to announce that @SpaceX @Starlink has achieved breakeven cash flow! Excellent work by a great team. Starlink is also now a majority of all active satellites and will have launched a majority of all satellites cumulatively from Earth by next year”.
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Meanwhile, Starlink’s impressive cash flow might see the company soon become a publicly listed company, after Musk in February 2021, had hinted that the space-based internet service would be listed publicly once the cash flow can be predicted reasonably well. He added that such a move will give investors a window opportunity to own a promising part of his closely held SpaceX.
In a few years, as simple common sense and usable sat phones like the Huawei Mate 60 Pro emerge (wait for Satellite iPhone by 2025, I predict), everything will change. This industry is evolving; watch your portfolios!
Meawhile, that Apple iPhone is undergoing changes also:
Apple confirmed its fourth straight quarter of declining sales Thursday, extending a slump rooted in weaker overall demand for hardware, especially in China. Still, the iPhone maker beat Wall Street’s expectations, notching strong growth in its services segment, which includes the App Store, Apple Music and iCloud. Sales of the iPhone were up 2% compared with last year, and the newly released iPhone 15 is likely to boost that number next quarter. Apple also hopes to spur a rebound in Mac sales — down 34% year over year — after launching new models earlier this week. Revenue from China was $15.1 billion, almost $2 billion less than expected, Bloomberg reports. Apple is seeing increased competition from Huawei, which is challenging Apple’s dominancein the high-end smartphone market there. Executives said they expect overall fourth-quarter sales to mirror last year’s, a lackluster holiday forecast that dragged on shares in after-hours trading. (Linkedin News)
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