Slim Cable Bundle Illusions, Live Sports Stickiness, Amazon Announces More Layoffs (Daily Update)
Hello everyone.
Yesterday, we discussed how YouTube is increasing TV pricing by $8/month (to $73/month). In today’s update, we will continue the discussion by going over a few things that have been on Neil’s mind. The update then turns to Amazon announcing another 9,000 layoffs. The company’s explanation for why it didn’t announce all of the layoffs at the same time raises more questions than answers.
Slim Cable Bundle Illusions
For much of the 2010s, the tech industry dedicated resources and attention to rethinking the TV experience. Frustrations with the big cable bundle had reached unsustainable levels.
Some people thought Netflix, HBO, and Hulu would cause the cable bundle to implode. Others expected sports leagues to go direct to fans, removing oxygen from cable bundles. À la carte became a popular phrase for describing how the cable bundle could potentially be unbundled into individual channels or even shows. In addition to positioning apps as the future of TV, Apple looked at a few ideas such as offering a bundle consisting of a few dozen existing cable channels.
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YouTube TV's Price Hike, FTC Finalizes Epic Games Fine, Foxconn's 2023 Outlook (Daily Update)
Hello everyone. Happy Monday. Let's jump into a new week of updates.
We begin with Neil’s thoughts on YouTube announcing another price hike for YouTube TV. There are two broader debates surrounding the price increase. The discussion then turns to the FTC finalizing its (second) fine against Epic Games for deceptive business practices. We conclude with Foxconn’s latest comments on 1Q23 and 2023 business trends.
YouTube TV's Price Hike
In a series of tweets published last Thursday, here’s YouTube TV:
“An update for our members. As content costs have risen and we continue to invest in our quality of service, we’ll be adjusting our monthly cost, after 3 years, from $64.99/mo to $72.99/mo, in order to bring you the best possible TV service.
New members will see this new price today, while existing members will see this pricing change beginning 4/18. Additionally, we are lowering the price of our 4K Plus add-on from $19.99/mo to $9.99/mo.
We are committed to offering a premium way for you to stream TV, but understand this new price may not work for you. We do hope YouTube TV continues to be your service of choice, but we want to give you the flexibility to cancel at any time.”
The $8/month hike is the latest price change in what has been a somewhat consistent trend of periodic increases.
2017: $35 launch
2018: $40 (+14%)
2019: $50 (+25%)
2020: $65 (+30%)
2023: $73 (+12%)
13% CAGR (compound annual growth rate) from 2017 to 2023)
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Q&A About Apple’s Investment Portfolio, Apple Unveils Apple Music Classical, Apple’s Music Focus
In Monday’s update, we talked about Apple’s fixed income investment portfolio. The discussion led to a few incoming questions from members, which we will address in today’s update. We then turn to Neil’s thought on Apple Music Classical and Apple’s broader strategy for Apple Music. There are key differences between how Apple is approaching music streaming and the strategy at play with iTunes. We also compare the strategies of Apple Music and Spotify.
Hello everyone.
One clarification regarding Meta’s new round of layoffs. The 10,000 layoffs that Zuckerberg just announced don’t include 5,000 open positions that will be left open. Accordingly, Zuckerberg is on track to cut 25% of Meta’s workforce. In yesterday’s update, a 20% percentage was referenced. It’s an even more startling figure that reflects Meta has become bloated and is now trying to resize itself to respond more quickly to market developments. My expectation is that once Zuckerberg has concluded his efficiently reset, Meta will again look to add to its ranks.
Let’s jump into today’s update.
Q&A About Apple’s Investment Portfolio
In Monday’s update, we talked about Apple’s fixed income investment portfolio. The discussion led to a few incoming questions from members, which we will address below.
Given how rates have risen over the past year or so, do you see Apple returning to the bond market to raise funds to pay off maturing bonds or do you think they would use cash for these payouts? or a mix of both?
My expectation is for Apple to slow the pace of debt issuance. As existing debt rolls off – Apple has about $11B that comes due in FY2023 – management won’t look to replenish the debt with new debt 1 for 1. With that being said,
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Meta Announces Another Massive Round of Layoffs, Zuckerberg Discovers Efficiency, How Apple Avoided Significant Layoffs
We kick things off with Neil’s thoughts on Mark Zuckerberg announcing another massive round of Meta layoffs. The discussion goes over Zuckerberg’s efficiency plans. We conclude with an examination of how Apple has been able to avoid significant layoffs.
Happy Wednesday.
One quick follow-up to yesterday’s discussion about Tim Cook and mixed reality headsets. The expectation that Cook will say yes to a product that goes against Apple’s user-first ideals is misplaced. Recall comments that Cook made last year about the importance of keeping humanity at the center of AR headsets. Cook was answering a question about AR headsets succeeding in the consumer market. Here's Cook:
"I am incredibly excited about AR as you may know. And the critical thing in any technology, including AR, is putting humanity at the center of it. And that is what we focus on every day."
The "humanity at the center" wording was a subtle reference to Apple addressing long-held concerns found with a face headset.
Let's jump into today's update.
Meta Announces Another Massive Round of Layoffs
“Meta Platforms Inc. said it would cut roughly 10,000 over the coming months, the Facebook parent’s second wave of mass layoffs in what it says is an effort to be more efficient in a difficult economy.
Meta Chief Executive Mark Zuckerberg said in an email to staff on Tuesday that the company would in the coming months conduct multiple rounds of job cuts, as well as cancel some projects and reduce hiring rates as part of what he has dubbed the ‘year of efficiency.’
Company recruitment teams will be cut first, followed by restructuring and layoffs in its technology groups in late April, Mr. Zuckerberg said. Business teams will face layoffs in May, he added. The company will also stop hiring for about 5,000 open positions.
Mr. Zuckerberg said his company must cope with a longer term change in the economy, marked by the end of low interest rates, growing geopolitical tensions and costly new regulations.
‘At this point, I think we should prepare ourselves for the possibility that this new economic reality will continue for many years,’ Mr. Zuckerberg wrote. ‘Given this outlook, we’ll need to operate more efficiently than our previous headcount reduction to ensure success.’
Meta said in a securities filing Tuesday that it expects to lower its annual expenses by roughly $3 billion from an estimated range it gave on Feb. 1. It now expects to spend a total of $86 billion to $92 billion this year, including the costs of its layoffs and restructuring, which it said could total $3 billion to $5 billion.”
The 10,000 layoffs are in addition to the 11,000 layoffs that Meta announced in late 2022. This would mean Zuckerberg will have cut Meta’s workforce by 20% within just a few months (the job postings being kept open are excluded from the 20%). While it is true that Meta added significantly to its ranks from 2020 to 2022, to cut 20% of staff is a staggering percentage that should draw into question a number of key assumptions that have been found with Meta and Big Tech.
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The Financial Times on Tim Cook's Mixed Reality Bet, My Issues With FT’s Report (Daily Update)
Hello everyone. There were a few incoming questions about Apple’s investment portfolio objectives and actions. If there are any additional questions regarding yesterday’s update, send them my way, and all will be addressed at the same time.
For today’s update (Tuesday, March 14th), we will focus on a Financial Times article published on Sunday about Tim Cook and Apple’s upcoming mixed realty headset. As we approach WWDC, the chatter and rumors regarding Apple's headset will grow. We will soon take a much more in-depth look at Apple’s upcoming headset.
The Financial Times on Tim Cook's Mixed Reality Bet
Over at the Financial Times, here are Patrick McGee and Tim Bradshaw:
“When Tim Cook unveils Apple’s new ‘mixed-reality’ headset later this year, he won’t just be showing off the tech giant’s latest shiny gadget.
The Apple chief will also be guaranteeing his legacy includes the launch of a next-generation hardware product that some inside the company believe might one day rival the iPhone.
After seven years in development — twice as long as the iPhone — the tech giant is widely expected to unveil a headset featuring both virtual and augmented reality as soon as June.
The stakes are high for Cook. The headset will be Apple’s first new computing platform to have been developed entirely under his leadership. The iPhone, iPad and even Watch were all originally conceived under Apple’s co-founder Steve Jobs, who died in 2011.”
This isn’t the first time that the FT has published an article looking at Tim Cook’s legacy. Back in January, the FT ran two articles about Apple and China, a relationship that Cook played a very big role in creating. The thinking put forth by the FT was that Apple finds itself “beholden” to China with Cook having no good alternative.
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Silicon Valley Bank Collapses, Apple and the Big Banks, Apple’s Interest Rate Risk (Daily Update)
Hello everyone. Welcome to a new week.
The Silicon Valley Bank saga deserves its own daily update. Accordingly, we will dedicate today’s discussion to the topic. While we will quickly go over what happened, the broader points will deal with Apple.
Silicon Valley Bank Collapses
Last week, Silicon Valley Bank (SVB), known for its long-term relationships with tech VCs and start-ups, imploded. The FDIC (Federal Deposit Insurance Corporation) took over the bank on Friday.
Yesterday, the Treasury, Federal Reserve, and FDIC announced various actions to avoid financial contagion.
“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.
After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.
We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.
Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors."
Unfortunately, the term “bailout” has become a subjective one. What the U.S. government is doing with SVB, Signature, and the entire banking sector for that matter, is a far cry from the drastic steps taken during the subprime mortgage crisis of the late 2000s. With that said, there are questions that politicians
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Spotify’s Stream On Event, Humane Raises Another $100M, What Is Humane Working On? (Daily Update)
Today’s update kicks off with Neil’s thoughts on Spotify’’s Steam On event in LA. We go over why Neil thinks there is an opening for Apple Music to win share against Spotify in countries where the two services go head-to-head. The update then turns to Humane. We go over why the company is grabbing so much buzz and what the company is likely working on.
Hello everyone. Happy Thursday. Apple announced it will launch its standalone classical music app on March 28th. We will likely talk about the app next week.
Spotify’s Stream On Event
Yesterday, Spotify held an event in LA aimed at creators (music and podcasts). The company had various content creators, including some YouTubers, go on stage to talk about why Spotify is the place to be. The main message was that Spotify cares about creators and the company wants musicians and podcasters to call Spotify home.
Spotify founder and CEO Daniel Ek kicked off the hour-and-a-half presentation by saying how the music industry is doing great with streaming. He's right when it comes to music rights holders. However, music artists? Not so much.
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Apple’s Spring Product Refresh, The Best-Selling Smartphone Models of 2022, Dark Sky Anger Builds (Daily Update)
Hello everyone. Today’s update kicks off with Neil’s thoughts on Apple’s spring product refresh announced yesterday. The discussions then turns to new estimates from Counterpoint regarding the best-selling smartphones in 2022. We conclude with a look at the controversy surrounding Apple’s decision to sunset the Dark Sky weather app.
Let's jump right into today's update.
Apple’s Spring Product Refresh
Yesterday, Apple unveiled a number of new products / SKUs. In addition to a new yellow color finish for the iPhone 14 and 14 Plus, Apple unveiled four new Silicon Case colors, nearly two dozen new Apple Watch bands, and a handful of AirTag accessories.
As for the yellow iPhone, one can say Apple has had some experience with the color yellow.
These updates are minor when compared to Apple launching entirely new iPhones or product categories. However, we should not underestimate the impact that refreshed color options and accessories can have on both product sales and Apple’s overall business.
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Number of ATMs Decline, Apple Pay’s Long Game, Roku 4Q22 Earnings (Daily Update)
Hello everyone. Today’s update (Tuesday, March 7th) kicks off with Neil’s thoughts on the number of ATMs declining in the U.S. The discussion goes over cash usage trends and includes some of Neil’s personal observations and behavior change regarding cash use. There are takeaways involving Apple Pay and long-term payment trends. The update concludes with a look at Roku’s 4Q22 earnings.
Number of ATMs Decline
With an article that grabbed my interest yesterday, here is the WSJ:
“The slow move toward a cashless society is helping to send the ubiquitous ATM into decline around the U.S., presenting challenges for those who still largely rely on cash.
After peaking at 470,000 ATMs in the U.S. in 2019, the number of machines has declined annually over the past few years to 451,500 at the end of 2022, according to data tracked by research firm Euromonitor International. The reason: Many people quit using cash during the pandemic and haven’t gone back, said Kendrick Sands, consumer finance research manager for the London-based firm.
‘There was that scare that the virus was transmitted by paper, plus the trend of just buying everything online,’ said Mr. Sands, who is based in Chicago. ‘That dealt almost a death blow to cash, especially for younger people.’
Cash and checks are forecast to fall to 14% of total payments this year from 42% in 2010, with the most precipitous drop coming just after the pandemic started in 2020, according to Euromonitor estimates.”
In what was news to me, the number of ATMs in use is something that firms need to estimate and project. While the Federal Reserve publishes various statistics and data points regarding currency use, there does not appear to be a central database for the number of ATMs in use.
Accordingly, it shouldn’t have been much surprise that the ATM trade association is questioning Euromonitor International’s figures showing a decline in both the number of ATMs and cash usage saying that cash “is still the payment method of choice for in-person transactions of $25 or less.” That statement doesn’t take anything away from the assertions found in the WSJ’s article.
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Apple Invests Another $1B in Germany, The Factors Behind iPhone’s Increasing Sales Share, Competing With Cool (Daily Update)
Hello everyone. Welcome to a new week. Today’s update (Monday, March 6th) kicks off with Neil’s thoughts on Apple investing another $1B in Germany. The update then turns to the iPhone, which continues to see higher sales share around the world. We look at the factors behind the iPhone’s momentum. In particular, we address the idea of the iPhone seeing inroads with younger demographics outside the U.S. and the role Apple’s brand has with giving the company an advantage over its competitors.
Let's jump right with a news item from Apple.
Apple Invests Another $1B in Germany
In a press release issued late Thursday, here’s Apple:
“Apple today announced it will invest an additional 1 billion euros in German engineering over the next six years as part of its Silicon Design Centre expansion in central Munich. This is on top of the company’s previous 1 billion euro investment commitment from 2021, when Apple established Munich as the headquarters to its new European Silicon Design Centre. Munich is already Apple’s largest engineering hub in Europe, and the engineering teams there are integral to the new innovations that delight Apple customers around the globe.
‘Our Munich engineering teams are on the cutting edge of innovation, helping imagine new technologies at the heart of the products we make,’ said Tim Cook, Apple’s CEO. ‘Apple has been in Munich for more than 40 years, and we’ve never been more excited about what the future holds here.’
Building on Apple’s longstanding presence in Germany and growing investments across Europe, the company will design and construct a state-of-the-art research facility at Seidlstrasse. With significant lab space, cutting-edge design, and a central location, the space will enable Apple’s R&D teams to come together in new ways, enhancing collaboration and innovation.”
Apple released the following drawing of where the new buildings will be located in Munich.
The building names are based on the street names. Karlstrasse is part of Apple’s initial $1B investment announced in early 2021. Seidlstrasse, Denisstrasse, and Marsstrasse represent new buildings that will comprise Apple's hub.
Europe / Israel continues to be a major source of hardware and related technologies R&D for Apple.
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Peter Stern Departs Apple, Apple’s Services Reorganization, My Concern With Warner Bros. Discovery (Daily Update)
Hello everyone. Today’s update kicks off with Neil’s thoughts on Peter Stern departing Apple. The discussion then expands to talk about Apple’s Services reorganization. We conclude with some qualutiative takeaways from Warner Bros. Discovery’s most recent earnings call. Neil has a concern with the company’s strategy. Let's jump right in.
Peter Stern Departs Apple
In an article published back in January, here’s Claire Atkinson over at the Insider:
“One of Apple's top subscriptions executives is exiting the company.
Peter Stern, who had been helping establish Apple's presence in sports rights in addition to running Apple TV+, has informed colleagues that he is exiting Apple to spend more time on the East Coast, according to a source close to the executive. Stern, whose title is VP Services, is leaving at the end of the month.
Apple is reorganizing its Services unit, and Stern's responsibilities will be split into three separate divisions, according to two people familiar with internal conversations at Apple. The shape of the restructure is still being negotiated, but one of those executives will be Oliver Schusser, who is currently in charge of Apple Music; another is Robert Kondrk, whose current title is VP, Apple Product Services and Design.
Stern, who was widely tipped as a possible successor to Apple's SVP Services, Eddy Cue, was in charge of a broad swath of the company's subscription businesses and was largely responsible for building the business operations of Apple TV+. He is one of about 20 direct reports under Cue.
During his six-year tenure at Apple, Stern helped build subscription products such as Arcade, Books, and Apple One, News+, Fitness+, iCloud+. Before that, he was an exec Tim Warner Cable.”
We will talk about Apple’s Services reorganization shortly.
It’s not clear where the “widely tipped as a possible successor to Apple’s SVP Services, Eddy Cue…” comes from. Yes, Stern was a VP and Apple made him available to speak to outsiders/press. However, claiming Stern was some kind of de facto Cue successor feels off.
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Apple Lends $250M to Globalstar, Why Doesn’t Apple Get Into Satellites?, EU Narrows Apple Probe (Daily Update)
Hello everyone. Today’s update kicks off with Neil’s thoughts on Apple lending $250M to Globalstar. The discussion then expands to talk about Apple getting into the satellite business itself. We conclude with a closer look at the EU narrowing its Apple probe to focus on anti-steering.
Let’s jump right into today’s update.
Apple Lends $250M to Globalstar
Over at SpaceNews, here’s Jason Rainbow:
“Globalstar said Feb. 28 that Apple is lending the company $252 million to help cover upfront costs for replenishing its low Earth orbit (LEO) constellation.
Apple is providing the funds as a prepayment for using the network to upgrade satellite services launched last year for its latest iPhone, which can connect with one of Globalstar’s existing 24 satellites in LEO for emergency services outside cellular coverage.
Globalstar picked MDA and Rocket Lab in February 2022 to supply an initial 17 satellites for launch by the end of 2025 in a contract worth $327 million. The contract includes an option for up to nine additional satellites at $11.4 million each.
The satellite operator intends to fund any upfront costs not covered by Apple’s prepayment with its own cash.
Apple has already agreed to reimburse Globalstar for 95% of the constellation; however, it previously required the satellite operator first to raise third-party financing to fund the manufacturing contract.
Removing the need to raise this financing amid challenging macroeconomic conditions clears a significant degree of uncertainty for Globalstar’s constellation plans.”
With interest rates continuing to rise and prospects of securing third-party financing getting dim, Globalstar was in trouble. Apple decided to jump in and loan Globalstar the required cash to keep moving forward (to construct and deploy satellites for Apple). The use of “decided” may be charitable as Apple probably didn’t have much choice other than to step in and bail Globalstar out. Without the loan, Globalstar may not have been able to launch the satellites that Apple needs.
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Sonos FY1Q23 Earnings, Sonos Hints Again at Entering New Product Category, Sonos vs. Big Tech (Above Avalon Daily)
Hello everyone.
Today’s update has a Sonos focus. We begin with Neil’s thoughts on Sonos FY1Q23 earnings (October to December). The discussion then turns to Sonos management once again hinting at the company entering a new product category. We discuss what that product category likely is and the challenges facing Sonos. The update concludes by examining a Sonos comment regarding Big Tech not doing a whole lot in the speaker space.
Sonos FY1Q23 Earnings
Back on February 8th, Sonos reported FY1Q23 earnings (covering October to December).
Revenue was up 1% (7% excluding currency impact) with speaker unit sales up 4% (to 2.5M). Sonos speaker demand was driven by promotional activity. Management called out sales around sets (more than one speaker) as being especially effective with promotions. Sonos talked about speaker share gains. It would not be surprising to find out those gains are coming against Amazon, Google, and traditional speaker companies (Bose, Samsung/Harman, Sony).
Here is Sonos speaker sales on a TTM basis to remove the seasonality associated with the holidays:
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The WSJ on iPhone’s Security “Vulnerability," Thoughts on the WSJ’s Article/Video, Apple Watch and iPhone Security (Daily Update)
We kick things off with a closer look at the WSJ’s article regarding a growing problem with iPhone security and passcodes. The discussion goes over Neil’s thoughts on how the WSJ covered the story and the publication’s recommendations to readers for safeguarding themselves. We also look at some major holes in the WSJ’s coverage and argument, including the absence of Apple Watch from the discussion.
Hello everyone. Welcome to a new week. We have mostly wrapped up our earnings reviews. There are a few companies that remain on my watch list – such as Sonos and Warner Bros. Discovery. For today’s update, we will focus on a WSJ story published late last week.
The WSJ on iPhone’s Security “Vulnerability”
Over at the WSJ, here are Joanna Stern and Nicole Nguyen:
“In the early hours of Thanksgiving weekend, Reyhan Ayas was leaving a bar in Midtown Manhattan when a man she had just met snatched her iPhone 13 Pro Max.
Within a few minutes, the 31-year-old, a senior economist at a workforce intelligence startup, could no longer get into her Apple account and all the stuff attached to it, including photos, contacts and notes. Over the next 24 hours, she said, about $10,000 vanished from her bank account.
Similar stories are piling up in police stations around the country. Using a remarkably low-tech trick, thieves watch iPhone owners tap their passcodes, then steal their targets’ phones—and their digital lives.
The thieves are exploiting a simple vulnerability in the software design of over one billion iPhones active globally. It centers on the passcode, the short string of numbers that grants access to a device; and passwords, generally longer alphanumeric combinations that serve as the logins for different accounts.”
This story spread like wildfire on social media. The WSJ put it on the front page of the weekend edition.
According to the WSJ, Apple has not done enough to protect iPhone users from passcode theft.
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Netflix Slashes Pricing in Dozens of Countries, YouTube’s Market Positioning (Daily Update)
Hello everyone. We begin with Neil’s thoughts on Netflix cutting prices in more than 100 territories. It is quite the surprising development. The discussion then turns to YouTube and where the streaming service sits in the broader video streaming industry. Will YouTube’s market positioning shift with the company moving deeper into paid video? Will YouTube run into user resistance as it looks to evolve beyond being a source of free, ad-supported content?
Let’s jump right in.
Netflix Slashes Pricing in Dozens of Countries
A long-term trend in paid video streaming has been higher pricing. We can go so far as to say price increases were the big trend in 2022 as companies prioritized revenue and profitability.
As a sign of how the streaming industry is far from settled, Netflix is trying something new in 2023. Here’s the WSJ:
“Netflix Inc. has reduced the cost of its service in more than three dozen countries in recent weeks, as it tries to appeal to customers around the world who have an ever-growing list of streaming options.
The streaming company’s recent price cuts span Middle Eastern countries including Yemen, Jordan, Libya and Iran; sub-Saharan African markets including Kenya; and European countries such as Croatia, Slovenia and Bulgaria.
In Latin America, nations including Nicaragua, Ecuador, and Venezuela have seen reductions in subscription costs, as have parts of Asia including Malaysia, Indonesia, Thailand and the Philippines.
The cuts apply to certain tiers of Netflix in those markets—in some cases halving the cost of a subscription.”
This is a surprising development. It is the opposite of what Netflix management talked about on its most recent earnings call. While management teams are not obliged to follow product strategy discussed on earnings calls, the breadth and magnitude of these price cuts strongly support the view of a strategy shift being in play.
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Consumers Spending Less on Electronics, Impact on Apple, Swiss Watch Sales Data for 2022 (Daily Update)
Hello everyone. Happy Wednesday. It feels good to get back into the swing of things after a little time off.
We kick off today’s update with Neil’s thoughts on Walmart and Home Depot pointing to major shifts in how consumers are spending their money. We look specifically at the impact the trend will have on Apple. The update concludes with an examination of Swiss watch industry sales for 2022 and why Neil thinks Apple Watch continues to impact the Swiss.
Consumers Spending Less on Electronics
Earlier today, a WSJ article with the headline “Walmart, Home Depot Give Cautious Outlook as Shoppers Spend More on Basics,” jumped out at me. Here’s Sarah Nassauer:
“Consumers are spending more on food and less on electronics, apparel and home improvements as inflation and changing habits zap demand for many goods, two of the country’s largest retailers reported Tuesday.
Walmart Inc. and Home Depot Inc. have enjoyed robust sales for much of the past two years as people looked for bargains or fixed up their homes. Now more of shoppers’ budgets are going to higher-priced groceries and travel, executives said.
For Home Depot, which primarily sells home-improvement goods, that dynamic meant flat sales in the most recent quarter. For Walmart, which relies on groceries for the majority of its sales, it meant larger-than-expected sales growth. But executives from both companies said consumers’ spending habits pressured profits and they gave muted outlooks for the rest of the year amid economic uncertainty.
‘Customers are still spending money,’ said Walmart Chief Executive Doug McMillon. ‘It’s obviously not as clear to us what the back half of the year looks like.’”
The following slide from Walmart’s earnings release serves as a helpful summary of what the largest retailer is seeing:
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Alphabet FY4Q22 Earnings, The Subscription War, Peloton FY2Q23 Earnings (Daily Update)
Hello everyone. We kick off today’s update with Neil’s thoughts on Alphabet’s earnings. The discussion also goes over an observation regarding the changing competitive landscaping involving Google, Amazon, and Apple. We then examine Peloton’s earnings. Let’s jump right in.
An anecdote regarding Apple TV+ and Hollywood star branding.
Looking over my Apple TV+ usage over the past few months, actors/actresses have played a key role in my watch habits. Apple’s heavy marketing around the new Jennifer Lawrence movie "Causeway" included making her Hunger Games films available to TV+ subscribers for free for a limited time. Those movies represented a decent amount of my TV+ watch time in the back half of 2022.
It is fair to question if this star power emphasis appeals to certain age demographics (i.e. older) over others. However, considering that all Apple TV+ subs are essentially family subs, Apple only needs to appeal to one family member to do well in the subscription engagement/dollars battle.
Alphabet FY4Q22 Earnings
Continuing our earnings reviews, we turn to Alphabet. The company reported 4Q22 earnings back on February 2nd.
Here are the major financial line items compared to those of peers:
(click / tap here to view table)
In what has become a theme with these releases, a main takeaway from Alphabet’s earnings call was a focus on cost controls. There was talk of economic anxiety, softness in various businesses, and a resulting push for optimization and improved profitability.
A big difference between Google and Amazon is that Google Search remains highly profitable.
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Branding in Paid Video Streaming, Amazon 4Q22 Earnings (Daily Update)
Hello everyone. We will begin today's update with one topic from yesterday that deserves more attention: branding in video streaming. Branding will gain importance as competition intensifies. The discussion will then turn to Amazon earnings. We go over Neil’s thoughts on the company’s 4Q22 earnings release and conference call.
Let's jump right in.
Branding in Paid Video Streaming
One of the more controversial debates in paid video streaming has been found with branding.
A few years ago, Bob Greenblatt, formerly of WarnerMedia, claimed Netflix lacked a brand:
“It's just a place you go to get anything -- it's like Encyclopedia Britannica. That's a great business model when you're trying to reach as many people on the planet as you can."
At the time, his comments lit a firestorm in various streaming circles. Some people thought he was right while others thought he was clueless. My view was that he was more right than wrong. Greenblatt was referring to Netflix not having any discernible content branding. While Netflix has had hit shows, the service was known more as a destination for consuming general video entertainment. “Watch Netflix” was used by some to simply mean watch TV.
HBO wrapped its brand around marquee shows. Say HBO and “Game of Thrones” or “Succession” probably comes to mind.
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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):
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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).
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