Globalstar Signs Launch Deal With SpaceX, SpaceX on Apple’s Radar?
Hello everyone. We kick things off with Neil’s thoughts on Globalstar, the satellite operator that Apple is relying on for Emergency SOS via satellite, signing a $64M launch deal with SpaceX. The discussion then turns to answering the question: Does SpaceX’s dominance push Apple to become more hands-on with satellites? Let's jump into today's update.
Globalstar Signs Launch Deal With SpaceX
The direct-to-device satellite communications space is heating up.
Last year, Apple unveiled Emergency SOS via satellite for iPhone 14 and 14 Pro. Apple partnered with satellite operator Globalstar for the feature. Earlier this year, the two companies signed a ~$250M funding deal that boils down to Apple funding Globalstar's efforts to update its dozens of low Earth orbit (LEO) satellites in exchange for making the constellation available to Apple. Meanwhile, SpaceX is working with T-Mobile on providing cell phone users satellite service. AT&T is working with AST SpaceMobile to boost its coverage. Qualcomm has turned to Iridium with Android devices in mind.
As for Globalstar updating its constellation, here's SpaceNews:
“Globalstar has contracted SpaceX to launch Apple-backed satellites in 2025 to replenish its low Earth orbit (LEO) connectivity constellation.
The operator said in an Aug. 30 regulatory filing it will pay a total $64 million to launch the first set of satellites ordered last year from MDA, which is using Rocket Lab to supply chassis for the spacecraft.
While the company did not give further details about the launch agreement, its $327 million contract with MDA covered 17 satellites for deliveries anticipated in 2025. The manufacturing contract also includes an option for up to nine additional satellites at $11.4 million each.
Apple has agreed to reimburse Globalstar for 95% of the constellation, including manufacturing and launch costs. The smartphone giant is also lending Globalstar $252 million to help cover upfront costs.
In return, Apple would use 85% of the new network’s capacity to upgrade satellite services launched last year for its latest iPhone, which can connect with one of Globalstar’s 24 existing satellites for emergency services when cell towers are out of reach.”
Even though Globalstar relied on SpaceX to launch a satellite in mid-2022, this new deal will raise the level of awkwardness between the two companies.
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Apple Considering Supplier Shift for Vision Pro Displays, Vision Pro and China, Thursday Q&A
We kick things off with some news on the Vision Pro supply chain front. While things can certainly change between now and the Vision Pro launch next year, we are getting a better view of what appears to be a challenge manufacturing Vision Pro at scale: OLEDoS (OLED on Silicon) displays. The discussion then goes over Neil’s thoughts on Vision Pro manufacturing and assembly in China. We conclude with the latest installment of Thursday Q&A in which Neil answers the following questions from Above Avalon members:
What’s motivating Apple’s deal strategy with live sports?
Do you agree that it has become increasingly challenging to estimate installed base totals for key Apple product categories? Will Apple change its approach? Is the lack of disclosure related to antitrust issues?
Did Apple change its commentary regarding installed base figures in the last earnings call?
Apple Considering Supplier Shift for Vision Pro Displays
“When Apple dealt with Chinese manufacturers in the past, it was to buy low-level components such as small metal parts, paper boxes and batteries. For advanced parts such as displays and chips, the iPhone maker turned to firms headquartered in the U.S., Japan, South Korea and Taiwan.
Times are changing.
Apple is currently testing advanced displays made by two Chinese suppliers for possible inclusion in future models of its Vision Pro mixed-reality headsets, said two people with direct knowledge of the matter. The two suppliers, BOE Technology and SeeYa Technology, are among a crop of Chinese companies that are making high-end technologies, spurred by government policies designed to reduce China’s reliance on foreign tech while also making its homegrown firms more competitive.”
The Information’s article suffers from what has unfortunately become a norm in the Apple news sphere: narrative-based writing. A piece of reporting is wrapped in an opinion-based narrative. In this case, the new reporting is BOE Technology and SeeYa Technology working with Apple on a possible future supplier arrangement with Vision Pro in mind. The story used to wrap the reporting in is that Apple is benefiting from Chinese policies put in place to hurt the U.S. It’s quite the stretch. We will talk more about China shortly.
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Amazon Reportedly Interested in ESPN Deal, Apple Vision Pro and Live Sports Consumption, Apple Changes Scorsese Film Release
We kick things off with Neil’s thoughts on Amazon talking with Disney about a potential ESPN deal. The update goes over Disney’s motivation with ESPN, where Big Tech becomes involved, and Apple’s connection. The discussion then turns to how live sports consumption can become a major use case for Apple Vision Pro. We go over two big questions about live sports as immersive experiences. We conclude with Apple changing the theatrical release plan for “Killers of the Flower Moon.”
Hello everyone. Happy Wednesday. Apple sent invites for its next product event. September 12th at Steve Jobs Theater. New iPhones and Apple Watches are expected.
Let’s jump into today’s update.
Amazon Reportedly Interested in ESPN Deal
“Amazon has had early talks with The Walt Disney Company about working on the streaming version of ESPN it is developing, said people familiar with the matter. The tech giant could offer the service through one of its streaming offerings, helping to expand its distribution, while possibly also taking a minority stake in ESPN.
Such an arrangement could shore up ESPN’s status as the biggest force in sports media, even as declining TV viewership and advertising, combined with rising sports programming costs, have squeezed the sports channel and Disney, its majority owner. It could also reposition the tech behemoth, which has been trying to make a dent in sports streaming, as more friend than foe to ESPN. And it could weaken the sports leagues’ bargaining power.
ESPN is considering charging between $20 and $35 a month for the new streaming service, said people familiar with the matter, a potential price range that could make it the most expensive streaming service in the U.S. and add pressure on already-stagnant growth in the streaming sector."
The Information went on to say “multiple current and former Disney and ESPN insiders” value ESPN at between $25B and $35B. My first reaction was to wonder if former executives are running with ultra conservative assumptions when coming up with that $25B figure. While we don’t have a whole lot to go off of from a Disney financials perspective, my math (discussed in the July 19th update) pegged ESPN as potentially being valued at anywhere from $40B to $100B depending on one’s assumptions about future performance.
While there seems to be a throw everything against the wall and see what happens complex going on with Disney and ESPN, the crux of the situation is somewhat straightforward.
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More on Apple’s Photo of Vision Pro in a Developer Lab, EyeSight’s Visual Cues, My EyeSight Theory
Happy Tuesday.
Given incoming questions about yesterday’s update, we are going to keep the discussion going. Some members wanted to know more about what was and wasn’t shown in the following image included in Apple’s article drawing attention to the Vision Pro developer labs. Let's jump right in.
More on Apple’s Photo of Vision Pro in a Developer Lab
Following the Vision Pro unveiling at WWDC, there have been quite a few questions regarding EyeSight. Positioned as one of the device’s marquee features, EyeSight is meant to lower the personal computing barrier found with wearing a computer in front of your eyes.
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Apple Gives Sneak Peek Inside Apple Vision Pro Labs, Vision Pro Apps vs. Apple Watch Apps
Welcome to a new week. Today’s update takes us to Vision Pro land. Apple is peeling back the cover of its Apple Vision Pro developer labs. We examine Apple’s motivation for hosting the labs. The discussion then turns to key differences between early Apple Watch app development and what we see unfold with Vision Pro app development. Let’s jump right in.
Apple Gives Sneak Peek Inside Apple Vision Pro Labs
“As CEO of Flexibits, the team behind successful apps like Fantastical and Cardhop, Michael Simmons has spent more than a decade minding every last facet of his team’s work. But when he brought Fantastical to the Apple Vision Pro labs in Cupertino this summer and experienced it for the first time on the device, he felt something he wasn’t expecting.
‘It was like seeing Fantastical for the first time,’ he says. ‘It felt like I was part of the app.'
That sentiment has been echoed by developers around the world. Since debuting in early August, the Apple Vision Pro labs have hosted developers and designers like Simmons in London, Munich, Shanghai, Singapore, Tokyo, and Cupertino. During the day-long lab appointment, people can test their apps, get hands-on experience, and work with Apple experts to get their questions answered. Developers can apply to attend if they have a visionOS app in active development or an existing iPadOS or iOS app they’d like to test on Apple Vision Pro.”
Included in Apple’s article is one of the first press photos, shown below, of someone wearing and presumably trying out Vision Pro. To date, ABC News has been the only news outlet allowed to film (video and picture) someone wearing Vision Pro. The Vision Pro mini-site on Apple’s webpage has a number of marketing clips/snippets of Vision Pro being worn.
Judging from the visuals shown on the headset’s outward-facing display, the wearer is fully immersed in an experience.
These developer labs have been flying under the radar this month.
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Peloton’s Ongoing Death Spiral, Sizing up the Digital Fitness Opportunity
Hello everyone. We are getting to the last few CY2Q23 earnings reports. Today’s focus: Peloton. After going over the key numbers from the quarter, we look at the broader market opportunity found with digital fitness. Let’s jump right in.
Peloton’s Ongoing Death Spiral
For the past two years, we have been closely following Peloton’s implosion. Early red flags appeared in the company’s Form S-1 filing (IPO). Jump ahead two years and growth metrics began to deteriorate when the company should have been seeing explosive growth figures.
The Peloton story eventually shifted from being a possible Apple Fitness+ competitor to offering another look into the still young digital fitness space.
Back in May, Peloton unveiled a branding pivot to focus on accessibility (to appeal to more users). New membership tiers for digital fitness classes were also announced. Both came across as not fully thought out. Peloton moved away from its premium workout branding while not moving away from premium product pricing. The result is cognitive dissonance. As for the membership tiers, they are too confusing, limiting, and expensive.
Accordingly, it doesn’t come as a surprise that Peloton’s FY4Q23 earnings had every membership-related line item show continued deterioration.
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Sonos FY3Q23 Earnings, Sonos Taking Speaker Share, Sonos vs. Apple
Happy Wednesday. For today’s update, we take a closer look at Sonos’ FY3Q23 earnings. The discussion then goes over Sonos taking market share in the speaker categories that the company competes in. We conclude with key differences/similarities between Sonos and Apple.
Let’s jump right in today’s update.
Sonos FY3Q23 Earnings
Sonos has had a very busy 2023. New speakers (Era 100 and 300), services (Sonos Pro), and partnerships (Apple Music spatial audio) have fulfilled the company’s promise of continuing to move the platform forward. However, Sonos is unable to escape the consumer electronics gadget recession. Sales promotions continue to be needed to maintain speaker sales trends.
The following exhibit shows Sonos speaker sales on a TTM (trailing twelve months) basis to remove the seasonality associated with the holidays. The sales decline is becoming more noticeable.
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Meta’s Ray-Ban Stories Sales Figures Leak, Ray-Ban Stories’ Retention Problem, Ray-Ban Stories vs. Vision Pro
Hello everyone. It’s good to be back. It looks like the news flow was relatively quiet. This will afford us time to catch up on a few items. For today’s update, we take a closer look at the WSJ’s reporting regarding Meta’s Ray-Ban Stories smart glasses. The discussion includes a broader overview of why the devices have such a poor retention problem with users.
Today’s email will focus on an update regarding the smart glasses space.
Meta’s Ray-Ban Stories Sales Figures Leak
In an article published on August 3rd, here’s the WSJ:
“The Ray-Ban smart glasses launched by Meta Platforms almost two years ago have struggled to catch on with owners, many of whom appear to be using the devices infrequently, according to internal company data.
Less than 10% of the Ray-Ban Stories purchased since the product’s launch in September 2021 are used actively by purchasers, according to a company document from February reviewed by The Wall Street Journal. Meta sold a total of 300,000 of the wearable devices through February, but the company only had about 27,000 monthly active users.
The device, an important part of Meta’s hardware strategy, allows users to take photos and listen to music with the frames of their glasses, among other features. It has experienced a 13% return rate, according to the document.
Among the top drivers of poor user experience were issues with connectivity, problems with some of the hardware features including battery life, inability for users to import media from the devices, issues with the audio on the product and problems with voice commands for the smart glasses, according to the document.”
Meta released Ray-Ban Stories in September 2021 as the world was still engulfed in the pandemic. Travel and work patterns were disrupted while leisure activities hadn’t returned to normal. After an initial burst of media exposure, the buzz surrounding Stories quickly evaporated. There was good reason to assume the product wasn’t selling well.
We now have what appears to be our answer. With a $299 starting price, Meta sold 300,000 pairs of Stories in 18 months or so. That isn’t good. We aren’t talking about a HW start-up trying to get in front of consumers.
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Apple Launches “Pay the Apple Way” Marketing Campaign, Apple and the Pac-12 Implosion
Hello everyone. For today’s update, we look at Apple’s new Apple Pay marketing push. The discussion then turns to craziness in the sports world as Apple finds itself at the center of the Pac-12 implosion.
Let’s jump right in.
Apple Launches “Pay the Apple Way” Marketing Campaign
“Apple is doubling down on its fintech ambitions with ‘Pay the Apple Way,’ spotlighting the no-hassle framework of its Pay feature via an expansive campaign that could help market additional payment tools from the company that were unveiled earlier this year. Among the new features is a high-yield savings account for Apple Card users, announced in April, which has since reached over $10 billion in deposits. Apple also began rolling out its buy now, pay later program in March.
‘Pay the Apple Way’ is meant to present a solution to the inconveniences of traditional money-dealing like carrying around a bulky wallet, struggling to find the right card and feeling concerned about privacy. Apple is flexing the ease of its Pay feature, which allows payments to be made directly from an Apple device, with a DOOH [digital out-of-home] experience that’s being billed as both dynamic and immersive, per release details. The ads will appear across prominent street and mall placements in London, Birmingham and Manchester in the UK along with Atlanta and Dallas in the U.S., touting straight-forward messages like ‘Your watch is your wallet’ and ‘Pay the secure way.’”
In addition to the physical marketing (examples shown below), Apple is also spending money on video advertisements and social media with Apple Pay campaigns on X and TikTok.
This marketing campaign comes as society returns to pre-pandemic behavior in terms of leisure, travel, and spending time out and about. The value found with mobile payments increases as people spend more time out of the home.
Apple Pay adoption among merchants has not been an issue outside the U.S. given the proliferation of contactless payments. In the U.S., after years of work to improve merchant adoption, digital payments like Apple Pay are on the verge of finally being described as widely accepted.
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Emergency SOS via Satellite Used During Hawaii Wildfires, Defining Apple Innovation, Apple Savings Hits $10 Billion in Deposits
Hello everyone. For today’s update, we will look at two stories that popped up on my radar over the weekend. The discussion begins with Emergency SOS via satellite. The service was used to save a family during the Hawaii wildfires. We look at the service in terms of Apple’s innovation definition. The update then turns to Apple flexing some Apple Pay PR muscle by disclosing the amount of Apple Savings deposits.
Emergency SOS via Satellite Used During Hawaii Wildfires
News out of Maui continues to worsen as the death toll from last week’s wildfires climbs. As stories of narrowing escapes emerge, one grabbed quite a bit of attention on X (formerly Twitter).
Michael Miraflor detailed how a family of five was trapped by the fires but was able to use an iPhone 14 model to get rescued. With cell phone service down, Emergency SOS via satellite was used. Emergency SOS via satellite is a relatively new service available on the iPhone 14 family. Apple is partnering with satellite operator Globalstar for the feature.
There are a few things worth pointing out from the exchange.
The longer messages detailing five people trapped in a white van may have been partially written based on the series of multiple choice questions that the caller is asked when dialing for help using Emergency SOS via satellite. The following tweet appears to show some answers to the question. (The messages were sent to the caller’s emergency contact in real time).
The questions are meant to get the most important and relevant information from the caller in as concise of a message as possible (to reduce the time it takes the message to send). Once messages reach ground stations, they are routed to emergency call centers that can receive text messages or relay centers set up by Apple where trained workers are in communication with emergency responders on the ground.
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Disney 3Q23 Earnings, Iger Setting Low Expectations, Disney Raises DTC Streaming Prices
Hello everyone. We end the week with one of the more anticipated earnings releases of the current cycle: Disney. Let’s jump right in.
Disney 3Q23 Earnings
This was not the disaster of a quarter that some were expecting. One could go so far as to say it was an OK quarter, although there are caveats found with that statement.
There were several moving parts found in Disney’s earnings. Expectations of this release being a disaster were never realistic to begin with. More on that shortly.
The moving parts:
Linear Networks (cable/broadcast) results weren’t great with revenue down 7% and operating income down 23%. The weak numbers were found in both Domestic and International.
Parks & Experiences benefited from an easy year-over-year compare for Shanghai Disney Resort (related to COVID closures). Domestic results were on the weak side with just 4% revenue growth. Lower volumes at Disney World were partially offset by Disneyland results that were modestly better year-over-year. The numbers add credibility to the WSJ’s article about fewer visitors at Disney World.
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Apple 3Q23 10-Q Takeaways, Apple's Share Buyback Update, Apple R&D Expense Growth Slows
Happy Wednesday. Today’s update will conclude our Apple 3Q23 earnings review.
Friday (Aug 4): Apple 3Q23: By the Numbers, The Most Impressive Apple Number, About That Weak iPad Number
Monday (Aug 7): Apple's 3Q23 in Three Charts
Tuesday (Aug 8): Reading Between the Lines of Apple's 3Q23 Earnings Q&A With Analysts
In today’s update, we will go over Apple’s 3Q23 10-Q. We will then discuss Apple’s latest share buyback and R&D expense trends.
Let’s jump right in.
Apple 3Q23 10-Q Takeaways
Published at the end of FY1Q, 2Q, and 3Q, 10-Q filings provide additional commentary and disclosures regarding a company's business and financial results.
The following items from Apple's 3Q23 10-Q jumped out at me.
Product Details. Apple provided additional commentary behind sales trends for its major product categories.
iPhone. Net sales decreased in 3Q23 due “primarily to lower net sales from certain iPhone models, partially offset by higher net sales of iPhone 14 Pro models.” Based on that wording, higher iPhone ASP was registered in 3Q23 causing iPhone revenue growth to exceed unit sales growth. My model has iPhone ASP up 4% while unit sales were down 6%.
Services. Net sales increased in 3Q23 due “primarily to higher net sales from advertising, cloud services, and the App Store.” Last quarter, the ordering was cloud services, music and advertising. Advertising includes licensing revenue. App Store revenue was likely up a few percentage points year-over-year.
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Reading Between the Lines of Apple’s 3Q23 Earnings Q&A With Analysts
Hello everyone.
In today’s update, we will focus on Apple’s 3Q23 earnings Q&A session with analysts. After recapping each question-and-answer exchange that occurred on the call between Apple and sell-side analysts, we will go over my thoughts / response to the exchange. Let’s go beyond what was talked about on the call.
NOTE: The following earnings call questions (“Q (Sell-Side Firm)”) and answers (“Cook” or “Luca”) have been cut, summarized, paraphrased, and rearranged for clarity. To read the full question and answer exchanges, Seeking Alpha offers a written transcript here.
Reading Between the Lines of Apple’s 3Q23 Earnings Q&A With Analysts
Consumer Behavior
Q (Morgan Stanley): How is the consumer behaving today versus 90 days ago? Are there geographical differences?
Cook: Emerging markets was a strength. China saw acceleration. Europe saw a record for the June quarter. There are “some really good signs in most places in the world.” The smartphone market remains challenging in the U.S.
My response: The going theory for why the U.S. has been the outlier in terms of iPhone weakness is that economic anxiety (higher inflation and rates) combined with consumer behavior shifts (budget shift to services, leisure, eating out, and travel) have strained the appetite for consumer electronics. It also should be pointed out that the U.S. has one of, if not the highest, iPhone sales share in the world. There are fewer people in a position to switch to iPhone.
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Apple's 3Q23 in Three Charts
Hello everyone. Welcome to Monday and a new week. We will continue our Apple 3Q23 review.
Given how the past few quarters for Apple have contained similar themes, we are going to try something different for this quarter's review. We will focus on three charts that sum up Apple's 3Q23. As we will see, there is quite a bit of consistency on display with each chart. (We will cover all of the granular takeaways from Apple's 3Q23 earnings call in tomorrow’s update.)
Before jumping into today’s update, one clarification regarding Friday’s update. When talking about Apple’s hardware margins, the commentary was garbled. That part of the update should have read:
Products (HW) gross margin: 35.4% (vs. my 35.7%). My iPhone gross margin estimate was a tad bit too optimistic. On a year-over-year basis, HW gross margins were up by 85 basis points.
Apple's 3Q23 in Three Charts
Gross Profit Resiliency
3Q23 results: $36B gross profit (up 1.5% from 3Q22)
There has been much attention placed on Apple’s gross margins (and rightly so). Gross margin is cost of goods subtracted from revenue. Based on management commentary, the company will come close to reporting a 11-year quarterly high for gross margin percentage 1Q24. Management provided a 44.0% to 45.0% range. Gross margin percentages don’t tell the full story though. Instead, we need to look at gross profit in absolute terms to obtain a cleaner assessment of Apple’s business.
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Apple 3Q23: By the Numbers, The Most Impressive Apple Number, About That Weak iPad Number
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 takeaways. We also examine how Apple’s results compared to Neil’s expectations. The discussion will continue next week.
Hello everyone. We will begin reviewing Apple's FY3Q23 results. Let's jump right in.
Apple 3Q23: By the Numbers
The themes that guided the past few quarters for Apple were present in the company’s FY3Q23 results. Emerging markets strength is being offset by a slowdown in iPhone upgrading in the U.S. Meanwhile, solid Services revenue generation is being offset by weak Mac and iPad results. The result is mostly flat revenue growth with FX continuing to serve as a growth headwind (Apple’s FX hedging program creates a lag in receiving any weaker dollar benefit).
This past Monday, we went over three factors that point to FY2024 being a better one for Apple financially. Following Apple’s FY3Q23 results and earnings call, there has been no change in my thinking.
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Alphabet 2Q23 Earnings, Ruth Porat to Oversee Alphabet’s Other Bets, My Updated Apple Earnings Model
We begin with Neil’s thoughts on Alphabet’s earnings. The discussion includes commentary on Alphabet/Google CFO Ruth Porat transitioning to a new role at the company. 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.
Hello everyone.
In keeping with our usual practice, tomorrow’s update (Thursday) will be pushed back a day so that we have a special Friday edition of the update to review Apple’s earnings. Apple will release earnings Thursday at 4:30 pm ET.
For today, we will focus on Alphabet’s earnings.
Alphabet 2Q23 Earnings
Alphabet reported a solid quarter as delays in some expenses and investments helped to boost CY2Q23 profitability.
Revenue was up 7% (up 9% excluding FX) with gross margins up 140 basis points year over year. Operating income was up 12%. Free cash flow was $22B.
While much of Alphabet’s earnings call was dedicated to AI, the more tangible takeaway was continued stabilization in the digital ads market. Like Meta, Google saw additional improvement in its core ads business. As macro issues subside, the purveyors over the most valuable pieces of digital real estate are positioned to see a return to ad revenue growth.
There is an asterisk found with the preceding statement.
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My FY3Q23 Apple Estimates, Early Thoughts on Apple’s FY4Q23
Apple reports FY3Q23 earnings 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 includes qualitative explanations for each of Apple’s product categories. We then look at Neil’s expectations for what Apple will say about guidance (FY4Q23).
Hello everyone. Welcome to August.
We will continue our Apple 3Q23 earnings preview with a look at my granular estimates. The update will conclude with a few thoughts on what Apple may say regarding 4Q23 guidance. My updated earnings model will be available in tomorrow’s update.
My 3Q23 Apple Estimates
Here are my granular estimates for Apple’s 3Q23:
Revenue: $82.0B (consensus: $81.6B)
Overall gross margin: 44.4% (guidance: 43.5% to 44.5%)
Gross margin (HW): 35.7%
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Setting the Stage for Apple’s FY3Q23 Earnings
Apple reports FY3Q23 earnings (results from April to June) later this week. Today’s update includes Neil’s big picture thoughts heading into Apple’s earnings.
Happy Monday.
Apple reports earnings on Thursday. For those of you who may be new to Above Avalon membership, I wanted to quickly discuss the typical game plan for Apple earnings coverage.
Prior to Apple’s earnings release, we go over my expectations for what will be announced. These expectations cover both qualitative and quantitative items. Expectations are important given the role they play in adding context to a company’s results. My Apple earnings previews typically extend across two, possibly three, updates.
Once Apple reports earnings, we will then go over everything there is to say about the release, the earnings conference call, and even the 10-Q or 10-K. By the end of the process, we have a comprehensive overview of both Apple’s results for the prior three months and analysis of guidance for the current quarter.
Today, we will kick off my Apple earnings preview with an overview of the setup heading into Thursday’s release.
Setting the Stage for Apple’s FY3Q23 Earnings
Over the next few months, the setup is becoming more positive for Apple’s financial results. My expectation is that when Apple reports earnings on Thursday, we will begin to see and hear the early signs of this improvement. Apple’s guidance for FY4Q23 could still point to the business facing macro pressures, but that would then clear the deck in a way for an all-around better FY2024.
There are three factors behind this “improvement on the horizon” theme:
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Meta 2Q23 Earnings, Reality Labs Losses, Meta Stock
Happy Thursday. We will continue our earnings reviews with Meta. The discussion includes Neil’s thoughts on Meta’s 2Q23 results, the significant loses associated with Reality Labs (AR/VR), and Meta’s stock rollercoaster. Apple reports earnings a week from today – Thursday, August 3rd.
Meta 2Q23 Earnings
Meta’s core business of monetizing user attention via advertising continues to stabilize. We saw the early stages of this improvement in Meta’s last earnings release three months ago.
Management provided a few factors behind the continued improvement in 2Q23:
An easier year-over-year compare. 2022 saw weakened results. 2Q marked a full quarter without Russia revenue.
Improved Reels monetization.
Increased ad supply.
FX turning from a revenue growth headwind to tailwind. (This is something to note with Apple’s earnings next week.)
There is a simpler explanation at play for the continued stabilization: Thanks to Reels, Meta’s TikTok copycat, Meta is holding its own on the engagement front against TikTok. Not only is Reels keeping users on Facebook and Instagram, but it appears to be successfully adding new people into the Meta fold.
Key Meta data points from the quarter:
3.9B people use at least one Meta property on a monthly basis.
3.1B people use at least one Meta property on a daily basis in June.
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More information about Above Avalon membership, including the full list of benefits and privileges, is available here.
Microsoft FY4Q23 Earnings, The Microsoft Business, Apple vs. Microsoft
Hello everyone. We will continue our earnings reviews with the second-largest market cap company: Microsoft. The discussion includes Neil’s thoughts on Microsoft’s FY1Q24 guidance, the big picture regarding Microsoft’s business, and the competitive dynamic found with Microsoft and Apple.
Microsoft FY4Q23 Earnings
When it comes to Microsoft's quarterly earnings releases, there usually aren’t many surprises. Management gives very detailed segment guidance for the current quarter. It’s not common for results to deviate from those numbers. This is one benefit found with having so much enterprise-focused recurring revenue – it’s easier for management teams to forecast out for the remainder of the quarter (i.e. two months). As a result, earnings focus is usually put squarely on management’s new guidance and insights as to how business has been trending during the current quarter.
Along those lines, there weren’t many surprises found with Microsoft’s FY1Q24 guidance, although it’s easy to see why some people may have been spooked. Microsoft (smartly) downplayed revenue contribution from AI in the near-term (i.e. don’t expect much acceleration in cloud revenue growth) while mentioning a larger increase in cost of revenue (i.e. don’t expect much margin improvement) and a need for greater capex in FY24.
It's been easy to talk away slowing or steady revenue growth in the current environment as long as
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(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
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