Disney Earnings, Disney’s Anti-Netflix Strategy, Apple Got It Right With TV+ (Daily Update)
Hello everyone. We will kick things off with Disney earnings. The discussion includes Iger’s strategy for Disney+ and how Disney is following an anti-Netflix strategy. We conclude with the ways Apple got paid video streaming right with Apple TV+. Let's jump right in.
Disney Earnings
It’s been nearly three months since Disney board’s brought Bob Iger back to replace Bob Chapek. Last week’s earnings release represented Iger’s first one back as CEO.
In what has been a recurring earnings theme with Disney, the Parks segment results were stellar (21% revenue growth and $3B of operating income) while Direct-to-Consumer experienced a $1.1B operating loss. Linear networks (U.S.) saw flat revenue and $0.9B of operating income, testaments to how legacy TV continues to hang on.
Here are Disney’s DTC subscription totals (as of December 31st, 2022):
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Selling Non-Pro iPhones, Revisiting iPhone Repairability, Less Frequent Upgrading Can Help Apple's User Monetization (Daily Update)
Hello everyone. Welcome to a new week. In today's update, we will cover a few topics related to the iPhone. The discussion begins with Apple’s strategy for selling non-pro iPhones. This leads us to revisiting the subject of iPhone repairability. We go over three primary implications of improved iPhone repairability. The discussion ends with an example of how Apple can turn less frequent device upgrading into improved user monetization over time. Let's jump right in.
Selling Non-Pro iPhones
Over at The Sydney Morning Herald, here is Tim Biggs:
“The latest line-up of iPhones has arguably the biggest gap ever between the standard models and the Pros. The phones have different displays, different features, different cameras and different processors.
If you ask Apple, it will say the two categories are designed with two different consumers in mind, each model having its own strengths. And if you take a look inside, you’ll see that the standard phone can’t simply be written off as a stripped-down Pro or a repackaged model from last year…
It can be hard to tell just from looking at the specs and exteriors where each ‘standard’ iPhone model sits in a hierarchy amid previous models and Pros, new and old. With Pros, it’s easy to assume they’re the biggest and best iPhones at the time of release, but with the standards there’s always an implicit question of what sacrifices are made to get to the lower price.
Richard Dinh, Apple’s longtime senior director of iPhone design, said the company didn’t really think of it like that.
‘We don’t always follow a recipe, as much as maybe our customers would like to predict what we’re going to go do next, but it always starts with the customer experience,’ he said, noting that a standard phone might have different goals for performance, weight, longevity and photography than the Pro models.
‘Sometimes we do draw from the Pros because they’re just incredible, and we’re bringing some of that hardware to a broader audience, and sometimes we go do something different.’”
In talking to The Sydney Morning Herald, one of Apple's goals was to draw attention to how less expensive flagship iPhone models aren’t just pro models that had features removed. Instead, non-pro iPhone models may in some years contain features that premium models lack. For the iPhone 14 and 14 Plus, such features include superior battery life (found with the Plus) and repairability (found with the 14).
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Apple to Drop “Head of Industrial Design” Role, Jeff Williams and Design, My Updated Apple Earnings Model (Daily Update)
Hello everyone. In today’s update, we will focus on a news item related to Apple design that came out the same day that Apple reported 1Q23 earnings. We conclude with Neil’s updated Apple earnings model and how the model changed following Apple’s 1Q23 results and 2Q23 guidance commentary. Access to Neil’s Apple earnings model is a benefit associated with Above Avalon membership at no additional cost. Let’s jump right in.
Apple to Drop “Head of Industrial Design” Role
Over at Bloomberg, here’s Mark Gurman:
“Apple Inc. has decided against naming a new executive to replace its departing top product designer, marking a stark shift for a company long celebrated for the look and feel of its devices.
The iPhone maker’s vice president of industrial design, Evans Hankey, won’t be replaced when she leaves the company in the coming months, according to people with knowledge of the decision, who asked not to be identified because the deliberations are private. An Apple spokeswoman declined to comment.
Instead, the company’s core group of about 20 industrial designers will report to Jeff Williams, Apple’s chief operating officer. The company will also give larger roles to a group of Apple’s longest-tenured designers. Hankey has reported to Williams since taking the job in 2019, when top designer Jony Ive left to start his own firm.”
Gurman has spent months crafting an off-the-mark narrative that turnover in Apple’s industrial design group (ID group) is hurting Apple’s attempts to find a successor to Hankey. As we will discuss shortly, there is good reason to be skeptical of such a claim.
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Apple 1Q23 10-Q Takeaways, Apple's Share Buyback Update, Revisiting Apple’s Cash Neutral Goal (Daily Update)
Hello everyone. Today’s update will conclude our Apple earnings review as we go over Apple’s 1Q23 10-Q and focus on some balance sheet items (share buyback pace and Apple’s cash neutral goal). The plan is to include an updated version of Neil’s Apple earnings model in tomorrow’s update. Let’s jump right in.
Apple 1Q23 10-Q Takeaways
Published at the end of FY1Q, 2Q, and 3Q, 10-Q filings provide additional commentary and disclosures regarding a company's financial results.
The following items from Apple's 1Q23 10-Q jumped out at me. We will discuss Apple’s share buyback shortly.
Product Details. Apple provided additional commentary behind sales trends for its major product categories.
iPhone. Net sales decreased in 1Q23 due “primarily to lower net sales from the Company’s new iPhone models.” The comment is referring to Apple not being able to report iPhone unit sales growth due to iPhone 14 Pro and Pro Max shortages.
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Apple’s Paid Subscriptions Growth, Apple Gross Margin Hits Decade High, Apple’s Next Marginal Customer (Daily Update)
Hello everyone. In today's update, we will address a few topics carried over from Apple's 1Q23 earnings release: paid subscriptions growth trends and gross margin improvement. We begin with Neil’s estimates for new paid subscriptions added across Apple’s ecosystem on a quarterly basis. The discussion then turns to Apple’s gross margin improvement. We go over the most likely driver of the stronger performance. The update concludes with an underlying story to be told about Apple’s gross margin hitting a 10-year high. Let's jump right in.
Apple’s Paid Subscriptions Growth
It’s been five months since we last examined Apple’s paid subscriptions trends.
In keeping with its usual disclosure, Apple provided an updated total during its 1Q23 earnings call for the number of paid subscriptions across the Apple ecosystem.
Based on Apple’s commentary, here are my estimates for the number of paid subscriptions across Apple’s ecosystem (first party and third party) on a quarterly basis:
1Q20: 482M paid subscriptions
2Q20: 518M
3Q20: 553M
4Q20: 588M
1Q21: 623M
2Q21: 663M
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Reading Between the Lines of Apple’s 1Q23 Earnings Q&A With Analysts (Daily Update)
Hello everyone. Welcome to a new week.
Last Friday, we went over the numbers from Apple’s 1Q23 earnings release. We also looked at two of the major themes from earnings: the significant FX impact on Apple’s results and changing device upgrading trends.
In today’s update, we will focus on Apple’s 1Q23 earnings Q&A session with analysts. Instead of just recapping the question and answer exchanges that occurred on Apple’s call, we will go over Neil’s thoughts / response to each exchange. This will allow Neil to go beyond what was talked about on the call. Let’s jump right in.
Reading Between the Lines of Apple’s 1Q23 Earnings Q&A With Analysts
NOTE: The following earnings call questions (“Q”) and answers (“Cook” or “Luca”) have been cut, summarized, paraphrased, and rearranged for clarity. To read the full question and answer exchanges, The Motley Fool offers a written transcript here.
Supply Chain
Q: What is the state of Apple’s supply chain? Do you expect to increase inventory levels to insulate from supply disruptions?
Cook: Production is now back to “what we need it to be.” We continue to optimize our supply chain. We now have final assembly for iPhone in three countries. Given all that has happened over the past three years, our supply chain has proven to be resilient.
My response: Apple received a variation
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Apple 1Q23: By the Numbers, The FX Factor, My Apple Earnings Theory (Daily Update)
Hello everyone. Today's special Friday edition of the Daily Update will be focused on reviewing Apple's earnings. The idea is to keep things broad and look at the big picture. We also examine how Apple’s results compared to Neil’s expectations. The earnings discussion will continue next week. Let's jump right in.
Apple 1Q23: By the Numbers
We knew 1Q23 was going to be a noisy quarter for Apple. Along those lines, we didn’t get too many surprises. Results were all over the place. iPhone results missed my estimate by $5.0B while iPad beat by $1.5B.
Heading into earnings, the questions were found with Apple’s 2Q23 guidance. This is where management commentary
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Final Thoughts Heading Into Apple Earnings, Spotify Earnings (Daily Update)
Hello everyone. On Monday, we went over my expectations heading into Apple’s earnings tomorrow. We also talked briefly about my thoughts on what Apple may say about FY2Q23. Yesterday’s update included my granular financial estimates and updated Apple earnings model. One item that has been on my mind is that noise found with tomorrow’s earnings may drown out the numbers and topics that should grab attention. In today’s update, we go over those key earnings items to keep an eye on tomorrow. The discussion then turns to Spotify’s 4Q22 earnings.
Final Thoughts Heading Into Apple Earnings
One item that has been on my mind is that noise found with tomorrow’s earnings may drown out the numbers and topics that should grab attention.
iPhone strength. As alluded to in yesterday's update, earnings recap headlines will probably be focused on
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
My Apple 1Q23 Estimates, Expectations by Apple Product Category, Updated Apple Earnings Model (Daily Update)
Hello everyone. Apple reports FY1Q23 earnings (results from October to December) on Thursday. Today’s update contains the second half of Neil’s earnings preview. The first half is available here. The update begins with Neil’s granular financial estimates. The discussion then turns to qualitative explanations for each of Apple’s product categories. We conclude with Neil’s updated Apple earnings model and how the model has changed over the past three months. Access to Neil’s Apple earnings model is a benefit associated with Above Avalon membership at no additional cost.
Let’s jump into today’s update.
My Apple 1Q23 Estimates
Here are my granular estimates for Apple’s 1Q23:
Revenue: $123.0B (consensus: $121.2B)
Overall gross margin: 42.8% (guidance: 42.5% to 43.5%)
Gross margin (HW): 37.0%
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Setting the Stage for Apple 1Q23 Earnings, About AAPL’s Move Higher, Looking Ahead at Apple’s 2Q23 (Daily Update)
Hello everyone. Welcome to a new week.
Apple reports FY1Q23 earnings (results from October to December) on Thursday. We kick off today’s update with Neil’s thoughts and expectations heading into Apple’s earnings. The discussion goes over implications found with AAPL’s recent outperformance to the market. The update concludes with some of Neil’s early thoughts regarding how Apple’s 2Q23 (January to March) is trending.
We will go over Neil’s granular Apple financial estimates tomorrow. His revised Apple earnings model will also be ready.
Let’s jump into today’s update.
Setting the Stage for Apple 1Q23 Earnings
Heading into Apple’s earnings release on Thursday, expectations for what Apple will announce remain muted. Even though Apple shares are up 10% so far in 2023, the move doesn’t necessarily correspond with consensus believing Apple’s results and guidance will surprise to the upside. More on that shortly.
Low or muted expectations for Apple’s results may come as somewhat of a surprise. The company’s 4Q22 results were decent. Here was a very quick summary:
“Despite facing major FX headwinds, Apple’s ecosystem remained on track in 4Q22. The company reported all-around solid 4Q22 results. The few areas of weakness (iPad and Services came in below my expectations) were offset by iPhone, Mac, and Apple Watch sales strength.”
While 1Q23 guidance was a tad weak with revenue growth coming in about 200 basis points lower versus my (adjusted) expectations – check out our 4Q22 earnings review here for the details as to how that number was derived - Tim Cook and CFO Luca Maestri sounded
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Tesla Earnings, Goldman Sachs Pulls Back on Consumer Business, Apple Card’s Future (Daily Update)
Hello everyone.
Apple reports earnings next Thursday (Feb 2nd). We will go over my expectations early next week.
For today's update, we kick things off with Tesla and then switch to Apple Card.
Tesla Earnings
Heading into Tesla’s earnings, there was an increase in anxiety regarding demand for Tesla vehicles. While it was too early to say Tesla faced a demand “problem,” cracks were starting to form in the company's growth story.
Here’s Tesla kicking off its 4Q22 update:
“Q4-2022 was another record-breaking quarter and 2022 was another record-breaking year. In the last quarter, we achieved the highest-ever quarterly revenue, operating income and net income in our history. In 2022, total revenue grew 51% YoY to $81.5B and net income (GAAP) more than doubled YoY to $12.6B.
As we progress into 2023, we know that there are questions about the near-term impact of an uncertain macroeconomic environment, and in particular, with rising interest rates. The Tesla team is used to challenges, given the culture required to get the company to where it is today. In the near term we are accelerating our cost reduction roadmap and driving towards higher production rates, while staying focused on executing against the next phase of our roadmap.”
Thanks to 4Q22 price cuts, some weakness in deliveries, and inflation, core gross margins – excluding ZEV credits and FSD recognition – declined to 22% from 27% the previous year. The concern some have is that
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Microsoft Earnings, Asking the Tough Questions About Surface, Strava Acquires Fatmap (Daily Update)
Hello everyone. Happy Wednesday.
We will kick things off with Microsoft's FY2Q23 earnings. The discussion includes Neil’s thoughts on Microsoft’s Surface business. The update then looks at mapping news with Strava acquiring Fatmap.
Let's jump right in.
Microsoft Earnings
Yesterday, Microsoft reported FY2Q23 (October to December) earnings.
If there were still questions as to why Microsoft was the latest company to announce layoffs, this earnings report provided answers. It was the weakest earnings report for Microsoft in years. Business trends worsened as the quarter progressed. Management commentary suggests little improvement in early 2023.
Here is our earnings recap table looking at the key numbers:
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Apple’s Opportunities in 2023, Apple’s Challenges in 2023 (Daily Update)
Hello everyone. One group of questions that came in from members over holiday break had to do with Apple in 2023.
Instead of going over my predictions for the year, recapping where things stand in terms of opportunities and challenges makes more sense.
Let’s jump right in.
Apple’s Opportunities in 2023
Looking at 2023, Apple has several opportunities to pursue when it comes to the supply chain, mixed reality, and ecosystem growth. We will go over each opportunity in greater detail.
Add Optionality to Supply Chain and Manufacturing Apparatus. Calls for Apple to announce a sudden supply chain or manufacturing shift out of China are misplaced. Even though Apple executives may not possess a changed mindset when it comes to China’s ability to handle Apple’s business
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Netflix Earnings, Reed Hastings Steps Down as co-CEO, Netflix Partners With Nike Training Club (Daily Update)
Hello everyone. One item on the agenda this week is to look ahead at Apple’s 2023 in terms of opportunities and challenges. For today’s update, we will examine Netflix’s earnings published last week. 4Q22 earnings season has arrived. The discussion will include Neil’s thoughts on Reed Hastings stepping down as Netflix co-CEO. Let’s jump right in.
Netflix Earnings
Last Thursday, Netflix reported CY4Q22 results. Paid subscriber results (+7.7M) beat management’s guidance of +4.5M.
Looking through the granular results by operating segments, there were no major changes on the subscriber front. As shown below in the following exhibit which tracks Netflix paid net streaming subscriber additions on a TTM, the trend continues to be down except for a slight bump higher in Latin America. Given Netflix's very weak first half of 2022, management's guidance commentary for modest subscriber growth in 1Q23 would lead to stabilization in new user growth on a TTM basis.
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Smart Speaker Competition, HomePod vs. Sonos, HomePod's Most Formidable Competitor (Daily Update)
Hello everyone. There were a few loose ends found with yesterday's update regarding HomePod and the changing competitive landscape. We will tackle those items today. The discussion goes over HomePod vs. Nest / Echo / Sonos. In addition, we go over what Neil views as the HomePod’s most formidable competitor.
Let's jump right in.
Smart Speaker Competition
The smart speaker landscape has seen quite a bit of change in just a few years. The late-2010s saw a wave of speakers enter the market spanning the price and feature spectrums. Companies that entered the space with cheap speakers introduced better-sounding speakers.
We have since seen something of a shaking out process. More niche speakers went on to be discontinued. Apple went through its share of smart speaker strategy changes.
The two big speaker players (Google and Amazon) currently have the following smart speaker product lines:
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Apple Brings Back HomePod, What Happened?, HomePod Changes (Daily Update)
Hello everyone. Happy Wednesday.
We have surprising news: HomePod is back. Earlier today, Apple unveiled a HomePod 2nd generation.
As a long-time HomePod user with 10 HomePods currently in use around my home (in five pairs), the HomePod has been an intriguing product. An Above Avalon Report from 2022 (available here) was dedicated to the HomePod discontinuation. We have a lot to discuss. Let's jump right in.
Apple Brings Back HomePod
In a surprise twist, Apple unveiled a 7-inch HomePod for the second time in six years. The speaker, which Apple is referring to as HomePod (2nd gen), will sit next to the HomePod mini.
In February 2018, Apple launched a 7-inch HomePod for $349. To avoid confusion, we will refer to that model as the original HomePod. After three years of sales, the original HomePod was discontinued in March 2021. At the time, Apple said they were going to put their focus on the HomePod mini:
“HomePod mini has been a hit since its debut last fall [2020], offering customers amazing sound, an intelligent assistant, and smart home control all for just $99. We are focusing our efforts on HomePod mini.”
The sudden (and surprise) discontinuation rubbed HomePod owners the wrong way.
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Apple Unveils Updated Macs, Mac Mini’s Growing Role, Apple Silicon Optionality (Daily Update)
Hello everyone. This morning, Apple announced three updated Macs via press release. Today’s update will be dedicated to the news including how the Mac mini is being given a bigger role in Apple’s Mac strategy and how Apple Silicon has added optionality to Apple’s Mac line.
Let’s jump right in.
Apple Unveils Updated Macs
Earlier today, Apple issued three press releases related to the Mac. There was an accompanying 18-minute video presentation from Apple Park as well (available here via YouTube).
M2 Pro and M2 Max unveiling. The two SoCs are based on the M2, the second generation of Apple Silicon for the Mac unveiled at WWDC 2022. The M2 is already found in the 13-inch MacBook Pro and MacBook Air.
Updated Mac mini (with M2 and M2 Pro). The last Mac mini update was in November 2020.
Updated 14-inch and 16-inch MacBook Pro (with M2 Pro and M2 Pro Max). The last update for the 14-inch and 16-inch models was in October 2021. Apple updated the 13-inch MacBook Pro at WWDC 2022.
We knew new Macs were in the near-term product pipeline with a likely CY1Q23 introduction, although mid-January is earlier than expected. The absence of new or updated Macs in CY4Q22 (October to December) stood out to some people. In a statistic that will come as a surprise to many, 2022 was the first year to not have any new Macs released in CY4Q in 15 years.
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Apple Introduces Apple Business Connect, Apple’s Play for Small Business, Apple’s Mapping Information Layer (Daily Update)
We kick things off with Neil’s thoughts on Apple Business Connect, a new initiative Apple unveiled yesterday. The discussion then turns to Apple’s broader play for small business. We conclude with a goal Apple has with Apple Maps in terms of creating an information layer.
Hello everyone.
One update to yesterday’s email.
An eagle-eyed member pointed out to me last evening that Eddy Cue’s portion of the Apple Services year in review was changed at some point to include the following (key) paragraph that we talked about yesterday:
“Last week marked my 34th anniversary at Apple, and I’ve never been more excited about what’s ahead. This new year of Apple services will be our most exciting yet — and we can’t wait to share it with you.”
The initial release that Apple put out did not include that paragraph. The Wayback Machine suggests Apple updated the press release roughly ten hours later in the early morning hours of the 11th. My first thought was that this was a simple mistake on Apple's part. An older version of the press release may have been published. There was different paragraph spacing between the two versions as well. Nevertheless, the change may have led to some confusion among members who read the release when it first came out on the 10th and who did not see Cue's hinting of 2023 being a big year.
Apple Introduces Apple Business Connect
In a press release issued yesterday, here’s Apple:
“Apple today introduced Apple Business Connect, a free tool that allows businesses of all sizes to claim their location place cards and customize the way key information appears to more than a billion Apple users across Apple Maps, Messages, Wallet, Siri, and other apps.
‘We created Business Connect to provide Apple users around the world with the most accurate information for places to eat, shop, travel, and more,’ said Eddy Cue, Apple’s senior vice president of Services. “Apple Business Connect gives every business owner the tools they need to connect with customers more directly, and take more control over the way billions of people see and engage with their products and services every day.’"
This is an intriguing initiative that has the potential of being both a value-add service for Apple users as well as a development that competitors like Google and Meta need to monitor closely.
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Eddy Cue Hints at Big 2023 for Apple, App Store Revenue Growth Slows (Daily Update)
Hello everyone. We kick things off with my thoughts on Eddy Cue, Apple’s SVP of Services, looking back at Apple’s Services business in 2022. Cue made an interesting comment about Apple in 2023. We then look at a key financial metric Apple disclosed regarding the App Store. With this data point in hand, we derive estimates for the amount of overall App Store revenue in 2022 and the amount of revenue Apple reports in its quarterly financial statements.
Let’s jump right in.
Eddy Cue Hints at Big 2023 for Apple
Going back to the mid-2010s, Apple has used the new year to publish a recap of how the App Store performed the prior year. As Apple released additional services over the years, the recap has grown into something of an Apple Services year in review.
This year's release contained plenty of statistics, although very few of them could be used for financial modeling purposes. Typically, the releases included a few select quotes from Eddy Cue and Phil Schiller.
Apple did something different this year. Cue, Apple's SVP of Services and part of Tim Cook's inner circle, penned the opening section of the press release.
“2022 was a groundbreaking year for entertainment. At some point over the past year, you probably discovered a new app, a new song, a new TV show or movie, or game. An experience that made you laugh, taught you something new, or helped you see the world in a new way — and moved you to share it with others.
At Apple, we have the privilege of partnering with creators of all kinds, while building products and services that enable even more creativity. Our mission has always been to enrich people’s lives and to leave the world better than we found it, and we know that takes more than technical skill. It requires leading with our values in everything we do. We believe that our products and services should be made for everyone. We believe that privacy is a fundamental human right, and that our highest obligation to our customers is security. We believe that a culture where everybody belongs can drive innovation, and that we must stand up for the change we want to see in the world.”
Cue made the case that Apple Services aren’t just revenue-generating side hustles that Apple is doing to please Wall Street analysts.
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Nikkei Asia Stokes Apple Demand Fears, AAPL Valuation Update, AAPL Stress Test Scenarios (Daily Update)
Hello everyone. In today's update, we will tackle additional questions that came in from members over break. The first topic is related to Nikkei Asia's article on Apple product demand. We will then turn to AAPL volatility. The discussion includes a broader examination of Apple’s current valuation metrics based on both earnings and free cash flow. We also go over various stress test scenarios involving different EPS and forward P/E multiples.
Let's jump right in.
Nikkei Asia Stokes Apple Demand Fears
In an article published on January 2nd, here's Nikkei Asia:
“China's tech supply chain is heading into the new year facing the twin challenges of slumping demand and staffing chaos caused by Beijing's abrupt U-turn on COVID controls.
In a sign of the gloomy outlook for consumer electronics, Apple has notified several suppliers to build fewer components for AirPods, the Apple Watch and MacBooks for the first quarter, citing weakening demand, according to Nikkei Asia's supply chain checks with several component suppliers.
‘Apple has alerted us to lower orders for almost all product lines actually since the quarter ending December, partly because the demand is not that strong,’ a manager at an Apple supplier told Nikkei Asia. ‘The supply chain in China is still trying to cope with the latest abrupt policy turns, which brought a shortage of laborers because of the sharp COVID surges.’”
This article managed to travel quite far last week even though Wall Street was only starting to return to the office following the December break.
My initial impression reading the article was that there may have been something lost in translation. Having an unnamed source claim “demand [for all Apple product lines] is not that strong” isn’t exactly a compelling or convincing rumor.
An Above Avalon membership is required to continue reading this update. Members can read the full update here. An audio version of this update is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here.
(Members: Daily Updates are always accessible by logging into Slack. If you haven’t logged into Slack before, fill out this form to receive an invite.)
Above Avalon Membership
Payment is processed and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special Inside Orchard bundle pricing is available for Above Avalon members.
More information about Above Avalon membership, including the full list of benefits and privileges, is available here.