Morning Brew Daily - Apple Beats Expectations Despite iPhone Sales Slump & FL Bans Lab-Grown Meat

Episode Date: May 3, 2024

Episode 315: Neal and Toby recap Apple’s earnings which have calmed investors for now despite its struggling iPhone sales. Then, Gov. Ron DeSantis signs a bill to have lab-grown meat manufacturing and distribution banned in Florida. Also, how Ozempic literally changed the economy and livelihood of Denmark. Next, Carvana wins stock of the week while Peloton is the dog of the week. Meanwhile, a startup wants to take poop deep underground to save the planet. Lastly, the real reason why there hasn’t been record-breaking performances in the Kentucky Derby in over 60 years. Visit https://www.wendys.com/morningbrew for more! 00:00 - Intro 03:00 - Apple Earnings 07:15 - Fake meat in Florida 11:45 - Ozempic in Denmark 16:30 - Stock/Dog of the week 19:00 - Carbon startup 24:00 - Kentucky Derby Horses Per My Last Email: Spotify, Apple, YouTube or wherever you listen to podcasts Get your Morning Brew Daily Mug HERE: https://shop.morningbrew.com/products/morning-brew-daily-mug?utm_medium=youtube&utm_source=mbd&utm_campaign=mug Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning, Brew, Daily Show. Neil Fryman. And I'm Kyle Hagey. Today, Florida became the first state to ban lab-grown meat. Is this industry cooked? And the story of a startup that is taking poop and putting it underground to solve climate change. Today is May 3rd. Let's Ride. Omaha, Nebraska will be at the center of the business universe tomorrow when Warren Buffett holds Berkshire Hathaway's annual shareholder meeting, also known as the Woodstock for Capitalist. We've got Kyle here who's filling in for Toby today.

today, Kyle, you've actually been to this event. What was it like? Well, first, Omaha is always the center of the business world, of course. I went when I was like eight. So shout out to my dad. So I don't remember much, except I do remember a ton of dilly bars, which was huge. I don't know if I learned a lot about business. However, it is an incredible event. They have all of Berkshire Hathways like Port Coe companies out there. And you get to hear from Charlie Munger, RIP, to the goat and Warren Buffett. So I had a lot of fun and I actually was back in Minneapolis with my parents and I saw the passes for this year's. So I really wanted to go, but unfortunately I'm going to be in D.C. this weekend. Oh, got it. Yeah. So this year will definitely have a lot of

tributes to Charlie Munger who died last week or last year and was really a stalwart of this particular conference. And he was such a VIP and All-Star there and shared a lot of the wisdom. So it'll just be Buffett waxing poetic up there. And I'm sure there'll be a lot of lot of tributes and it'll be emotional to Charlie. Yeah, he, it'll be an emotional event. Charlie is amazing. And also like Warren Buffett, Loki is like the best salesman of all time. When they're up there, he's like drinking Coca-Cola because they have a major steak in Coca-Cola. He's talking about seize candies, which they own. He is always selling. He's a great business leader. Now let's hear from our friends at Wendy's. A lot of things about the mornings are bitter. The coffee, the wind,

the nightmarish sound of your alarm going off. You could really use some sweetness. Well, Well, fortunately, Wendy's can help with its all-new Cinebun pull apart. This slice of heaven is sweet in every sense of the term. Cinnamon sugar-roll dough, gooey texture, and that signature cream cheese frosting plopped on top. I can not think of anything better for a Friday morning treat to send us into the weekend. So let's hurry up and finish this podcast so I can grab one. All right, all right. You're foaming at the mouth, Kyle.

We'll get this thing going. If you also want to start your Friday morning on a sweet note, grab a Cinebun pull apart at a Wendy's near you or visit wendies. dot com slash morning brew for more information. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills starting at $179, like the next grill 3-burner gas grill, or get $50 off a select Weber Spirit grill and bring big flavor to your backyard. Then set the scene with Hampton Bay string lights that bring it all together.

Shop spring backyard days for seven days at the Home Depot. Now through May 6th. Exclusion supplies, see homediva.com slash price match for details. Ahead of Apple's earnings report yesterday, everyone was ready to declare a three-alarm fire at the tech giant. It was slipping in the crucial Chinese market. Its Vision Pro headset wasn't being adopted by the masses, and it's been conspicuously silent on the subject of AI. But when the report dropped, it was like sticking an icy hot patch on a sore back. Apple's first quarter was not as bad as feared, sending shares up 8%.

To be fair, revenue did fall for the fifth time in the last six quarters because fewer people bought iPhones, which account for half of Apple's total sales. But China revenue came in better than expected, margins increased. And most crucially, for a purely stock perspective, Apple announced an astonishing $110 billion stock buyback plan, which is the largest in U.S. history. Repurchasing your own stock is seen as a company deploying its cash to reward its shareholders. and by the stock jump, they were pretty pumped about it. Still, Apple has a lot of tough questions to answer this year about its lack of innovation because the iPhone is 16 years old now and you can't help but wonder where growth is going to come from.

Where is the next big thing? Yeah, this is a really interesting position that Apple finds itself in. I feel like they are in the innovator's dilemma where like your current business model, your current product, the cash cow, the iPhone is so successful and it takes all the resources, all the focus of the company, that it's really hard to innovate or come up with the next product that's going to take you the next decade past. Historically, they've been really great at navigating this dilemma. Do you know who killed the iPod, Neil? I don't know. It's Steve Jobs. It was Apple. So they had iPod. It was their largest driving revenue in the late Otts. They came out with the

iPhone, and that killed that product. So it's a really risky move. They basically said, like, our cash cow, we're going to kill, but we're going to come out with something better. Now, I think they're in this like post, maybe post-touchscreen, post-wearable world that we're looking to be in. And they're like, are we going to be the ones that disrupt us or is it going to be two guys in a garage that end up doing it? And that's the kind of tricky position they find themselves in. And I think the Applevision Pro advanced Siri, these are some attempts at overcoming this dilemma. We're going to see if they pull it off. But I feel like historically, you just don't bet against Apple. Maybe you don't bet against Apple, but a lot of those next big things that would

after the iPhone or become its next big cash cow have been squashed this year. I mean, they had this self-driving car, which they worked on for a better part of a decade and poured in billions of dollars. They stopped doing that. They could have sold that car at maybe $100,000 a pop. The Vision Pro, yes, they released it, but it's still a very niche item. It's not selling in any quantities. It's not adding much to the top line revenue right now. Their biggest source of growth recently has been this services business, which is why its margins increased, and they're selling all of this software and subscriptions on top of all of the three billion iPhones that they have deployed in the world. So the services business has been

growing, but that could also be capped by all this regulatory pressure that's going on at Apple now. The DOJ sued Apple earlier this year, alleging that it has a monopoly in the smartphone market. The EU is bearing down now, and for the first time ever, Apple has to allow users in Europe to to buy apps outside of the app store. So that could dent some services revenue. And there's a ton of competition in China. So all the stuff I mentioned are headwinds that are facing Apple. And yet it's still assuaged investors fears a little bit with this report and said,

our phones are selling OK in China, nothing to see here. We've got new iPhones rolling out later this year. And you're going to hear a lot about what we're doing in AI. I know we've been silent about it for a long time. But we've got this big worldwide developers conference coming up in June. and we're going to talk a lot about AI. Yeah, and you mentioned the stock buyback, the largest in U.S. history, which is great for investors, but some people can take that as a sign that with any extra cash, you actually don't have an

innovative product to throw it at, so you're just going to buy back your share. So a lot of people view that as a bearish sign for the stock or the company, because it's like, do you have a new product to dump this cash into? However, you mentioned, they are extremely diversified. I'm not betting against Apple as long as they got the blue bubbles. A lot of the regulatory pressure now is having us Android users being able to incorporate more into the Apple IMessage system. So it seems like this hierarchy might be converging a little bit. Yeah, it's going to be a fun story to watch.

Our next story is real news about fake meat. Yes, you heard that right. We're going to the great state of Florida, where the governor, Ronda, signed SB 1084, which will outlaw the manufacturer and distribution of lab-grown meat in the state. DeSantis said, quote, take your fake lab-grown meat somewhere else. We're not doing that in the state of Florida. Now, what's the why behind this? Well, beef cattle sales and sales of breeding stock generate a total economic impact of over $900 million annually,

according to the Florida Department of Agriculture and customer services. And the state ranked ninth for beef cattle production, and almost 50% of the state's land set aside for agriculture is for cattle. So clearly, there's a very important industry for Florida, and the bill seeks to protect that industry. Neil, are you sad? You can't go to Tallahassee and get a stem cell burger anymore? I'm pretty pissed.

I know we say a lot of things are culture wars. This is very overtly a culture war, and all these guys who are trying to ban lab-grown meat are very explicit about it. They're saying that the growth of lab-grown meat, which is not impossible burger or beyond meat, those are plant-based patties. This is when you literally take an animal stem cell, cultivate it in a lab, and grow meat out of it to eat. And the point is to avoid all the emissions that come with livestock and agriculture. And the opponents of it, DeSantis and a bunch of conservative leaders of other states that are pushing to do the same thing,

say that it is part of a conspiracy by liberal elites like the world. economic format, Davos and Bill Gates, to, it's a war on agriculture, and they want to not, they want to have you all driving EVs, they want you eating insects, and they want to basically kill the cattle industry to impose their view and their, the way they live on, on the rest of us regular folks. And they say that very explicitly in, and why they're banning lab grown meat. And what's interesting about this lab grown meat industry is they're making it seem like a big threat, but it's actually pretty nascent. And the cost to bring this to market are enormous. Good meat, which is one of these companies, the CEO, Josh Tetrick said,

a facility able to produce 30 million pounds of cultivated meat would cost as much as 650 million. And to get the price point down to competing with like real beef, it actually couldn't. And so this is something for people that maybe are a little more conscientious and they want, they're able to spend more for meat. But this isn't going to affect, I don't think, an average American. And in fact, researchers found that the environmental impact of this lab-grown meat actually might be higher than meat raised naturally. So I'm not clear on the threat to Florida, but it does sound like they're trying to, you know, protect that industry. Right. Well, critics are saying, look, you're not even, you're a free market person,

not even giving consumers the option to try this industry. I mean, they're basically nipping it in the bud. And, you know, what if a consumer wants to try lab-grown meat? And with the development of lab-grown meat, they bring costs down. It becomes more. more palatable or appetizing to the average person, you are going completely against free market principles to not allow consumers this choice. And you're basically stamping out this industry that hasn't even had a chance to get going or try it out from doing much. I mean, Florida is one of the most populous states in the nation and a bunch of other very populous states are also thinking about doing this. And maybe with Florida doing it, they might get a little momentum in doing it.

you know, Alabama, Arizona, and Tennessee also have bills or restrictions on the table for lab-grown meat. So critics just say, wow, this is so protectionist of you to protect one industry that we don't even know the impacts of it. Meanwhile, the meat lobby came out against this ban because the Tyson Foods of the World, they all invested in lab-grown meat companies to diversify because they see the writing on the wall that a lot of agricultural impacts might be curtailed as we try to health climate change. Yeah, it's pretty interesting. One of the sponsors of this bill said, quote, who wants to have a biomass ship to their house, put in a tank, grown in a lab, and then put it through a 3D printer to make it look like a steak you want to eat? It has real, like,

real man eat, real meat energy, which is just kind of a distraction, I think, from what the core of this bill is trying to get at. So interesting developments in Florida. Yeah, there are 60 startups at least working on lab grown meat right now, and I think they will have to rethink whether they're going to invest all this money into growing their products when states are clamping down. Yeah. Think of a capacity crowd at Madison Square Garden, 19,500 people. Now, tack on another 5,000 more. And that's how many people are starting to take the weight loss drug, Wagovi, every single week in the U.S.

25,000 people up from just 5,000 last December. That is, according to Novo Nordisk, the Danish pharma giant that makes Wagovi and its diabetes treatment cousin, O-Zempec. The company reported earnings this week and said demand for these drugs remains as strong as ever with sales of Wagovi more than doubling in the first quarter. For a small country like Denmark, having a company that's on a role like Novo has been transformative. Novo recently became the largest company in Europe by market value, now worth about $570 billion. That's bigger than the entire Danish economy. Its philanthropic foundation, which owns a majority of its shares has twice the number of assets as the Gates Foundation. Last year, Novo Nordisk paid $2.3 billion

in income taxes and helped Denmark's GDP expand by almost 2%. Without Nova Nordisk, without OZemPEC, economic growth in Denmark would have been negative. Kyle, it seems like there's limitless demand for these weight loss drugs. And the only thing holding Novo back from making even more money is just having enough factories to make them. This is, I think, one of the most interesting stories out there right now. And I got to give a shut up. Bloomberg wrote a story about this. It's an absolute banger. It's one of the best stories I've ever read. What I think is happening in Denmark or what they're trying to avoid is a resource curse where you have one industry or one resource that is so popular, you're generating so much revenue from it that you stop caring about the other sectors of

your economy. And if you're not able to take that money and diversify it, put it into new industries. If that industry starts to tank, you end up in a really bad spot. But they have I think they're doing a great job of this, and they also have a perfect example right to the north of them in Norway. Norway got immense, immensely wealthy from their oil fields. But as many people know, they actually now have the world's largest sovereign wealth fund. They took that oil money and they diversified it across equities across the entire world to make sure that if oil capacity goes down, they still have an ability to generate revenue elsewhere. That's what the Danes are trying to do. And I love this because it's like a company that's absolutely booming, but it's coming up against Dana. culture as well, which is known for being like not ostentatious, like really humble. And I think it was the CEO of the company said, when you have superpowers, you have super responsibility citing this pippy lawnstocking story. And so it seems like, and Spider-Man. So it seems like they're trying to balance this booming industry, but also make sure that everyone in Denmark is seeing the benefits. Right. And all they have to do is look to their neighbor to the North Finland for what could happen,

because what was the biggest Finnish company around the 2000s was Nokia. Nokia accounted for 4% of Finland's GDP. It was the Novo Nordisk of Finland during that time. But Nokia got its lunch eaten by all these other smartphone makers that came along. And in 2009, Finland's GDP dropped 8%. And Nokia accounted for half of that drop. So you really want to avoid what's known as the curse of Nokia, where you're all in on one company. And meanwhile, you know, there are threats to Novo Nordisk's business because there is an American competitor, Eli Lilly, based in Indianapolis, that makes the same kind of drug. Some say it's even more effective than what Novo Nordisk is making. And Eli Lilly is dropping its prices. So is Novo Nordis to try to compete. Their patents expire in 2032. There's regulatory pressure from American lawmakers and lawmakers overseas to drop these prices, which are over $1,000 at list value right now.

So there is increasing pressure on Novo Nordisk and Eli Lilly because this is going to be probably the biggest drug market in history. Goldman Sachs estimates it's going to be $100 billion at one point. These drugs are going to be the best selling drugs that we've ever seen. And there's going to be increased competition. So expect Novo Nordics to drop its prices and look to innovate or find new drugs while it's riding this high right now. Yeah.

And the city that all of this is happening in is seeing this really exceptional boom. They reported that this gas station that is by the construction facility where they're building this new facility is repairing up to 66 pounds of pork every morning to meet this booming demand by construction workers. And also they've done studies in saying every role that Novo creates, three more are created in the local economy. So it is having this halo effect for that town. Up next, one of the most epic turnarounds in recent business history. Own it all. Pay off your home. Travel for life.

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And this week we're exploring two COVID-era stocks, one stock that is out with friends doing cool stuff, and one stock that is still doing Zoom happy hours. Now, as a reminder, this is not financial advice. I cheated in my AP accounting class in high school, and I still got a C-minus. Definitely not financial advice. Neil, you won the morning game of Duck, Duck Goose,

so you get to go first. All right, my stock of the week is Carvana, the company that sells used cars from those vending machine towers. Carvana shares popped 34% yesterday as it puts the finishing touches on what analysts are calling an epic turnaround. Grab your barf bag because this is a roller coaster of a story. During peak COVID when cars were in short supply, Carvana was a big winner. It stock popped more than 1,000% because it sold used cars, everyone wanted a used car, and prices were skyrocketing.

Then the world returned mostly back to normal. The auto supply chain healed and shares plummeted from a peak of 300. $60 to just $7. The word bankruptcy was thrown around. But down 28 to 3, Carvana would not give up. It restructured its company, took out over a billion dollars in annual expenses, and this week said Q1 was its best quarter in company history, smashing projections and turning a profit.

Sometimes it's at your lowest point where you learn how to run a sustainable business. I love Carvana, and I love the concept of the vending machine. I think more businesses just need to incorporate vending machines. But I think Carvana needs to take even further. I want to order the car like I'm ordering something from a vending machine. I want to type in E-13. I want a Honda Civic to drop down, get stuck in the little area, and then have to order another car to get both of them out.

That would just be super fun. So Carvana. Carvana works so hard from its depths to be back at a normal level now. And now you want to just throttle its business by making people type in E3 when they want a car. But if it gets stuck, you got to order too. So this could be a growth market for Carvana. My dog of the week is Peloton, the company that stapled an iPad to a bike and at its peak at a valuation of $47.2 billion, saw their share slide under $3 a share.

This comes paired with the news that it's reducing its headcount by 15% or about 400 workers in an effort to cut its cost by $200 million by June 2025 and that its current CEO, Barry McCarthy, announced that he's actually going to be stepping down after just having the role for slightly more than one year. Neil, does Peloton have a chance of rebounding or how are you thinking about this company? Well, Barry McCarthy came in in 2022 and took over for the co-founder John Foley and you can't criticize him for not trying. He literally threw everything at the wall to try to rejuvenate Peloton. He tried to make it a subscription business and make people just buy the app and he didn't have to buy the bike. He got in two dicks and sold an Amazon. He

made partnerships with Hyatt and other hotel chains. He did a partnership with Lulu Lemon for apparel. He literally tried every single lever to get this business back on track. And yet now it is still worth a billion dollars compared to its peak of near $50 billion. So if he can't do it, I don't know who can. I mean, I'm not saying he's the biggest business genius in the world. He was a former exec at Netflix and Spotify. But he literally tried everything to get Peloton back. It just seems like people are not in the space to buy this expensive bike. And that's the core of their business. And if no one wants the bike, then they're not going to do that well.

And I think, to Peloton's credit, they have an incredible brand equity. I just think they haven't figured out the business model. I think the logical conclusion is an acquisition. I could see Apple. I could see Spotify. I could see a lifetime fitness acquiring this brand while the prices are low. So it'll be a stock to watch, maybe not for its earning potential, but maybe for its acquisition potential. Imagine if an entrepreneur walked into Shark Tank and told them,

I'm building a company that's going to shoot poop and other biomass waste into massive underground wells to help stop climate change. You think the sharks would go for it? Well, the company exists, and it doesn't need any help from Mr. Wonderful. Vaulted Deep, inked a $58 million deal with major brands like JP Morgan's Stripe, Alphabet, Meta, and Shopify in a major endorsement of its efforts to sequester organic waste underground, so it doesn't heat up the planet. Volta Deep is one of many companies trying to make carbon removal a thing.

The concept is to take carbon dioxide out of air, water, or solid matter, and put it in long-term storage. In the case of Vaulted Deep, that's in wells up to 7,500 feet below the Earth's surface. Supporters of carbon removal say it could be a key part of a multi-pronged effort to fight climate change, but skeptics say it's just too inefficient and expensive right now to make a difference. But the technology is advancing, costs are coming down, and a significant amount of carbon is being removed. Through this deal, vaulted deep will stash away over 150,000 metric tons of CO2 by 2027. That's equivalent to roughly 40% of the annual emissions from a single US gas-fired

power plant. Kyle, you think they're onto something sending poop underground. I actually do think they're onto something because one kind of key note of this story is that the startup is a spinoff of Advent tech waste management services, which was doing this with oil. And so when the fracking boom happened, they were able to take the excess waste and shoot it into pipes underground. They've basically taken that strategy and applied it to a new domain. So they're not having to reinvent this technology. They're just applying it to a new industry. So I actually have a lot of confidence in this company. What is so interesting, though, is like, this is an idea a third grader would come up with. They're like, what if we took the poop and we just shot it down a big tunnel underground, but it's

working. So like, maybe we just got to go to a third grade classroom and start sourcing startup ideas. The problem for the carbon removal industry is very expensive to do that. I mean, yes, a third bearer could come up with it. But then when you actually tell them to create a business plan from it, they probably say, uh, yeah, the financials don't really work out because you need to get to about $100 per ton in costs to put this, to make this economically feasible to grow adoption of this. Right now, the biggest carbon removal company that's doing it right now, it costs $600 per ton. So six times as much as it needs to be. Vulted Deep is now at $382 per ton. So it's kind of in the midway. So if it can continue to lower costs, then it definitely could be viable. The big part of

lowering costs, the one way you do it is you situate these wells near to where you're grabbing the waste. And so that is the big problem that they're trying to solve. The CEO said, ours is really a McDonald's problem. It's finding the best intersection to put the McDonald's to get the most car traffic. So they needed to scout out places to where they're actually sourcing this biomass waste, which comes from farms,

which comes from wastewater sites, which comes from, yeah, other agricultural uses, and just, like, eliminate the transportation costs that require you get, from getting the waste to the well.

Yes, I'll be watching this poop tunnel story very closely. Let's move on to our final story of the day. And I have some news. The winning times of the Kentucky Derby have something in common with your weight at the doctor. office. And what is that? They're not getting any faster. That's right. There has been no significant

change in the times of the winning horses at Churchill Downs since 1960. In fact, the average Kentucky derby winner in the 2010s ran a tad slower than the average winner from the 1960s. And Secretary's record of one minute, 59.4 seconds set in 1973, has not been broken in a half century. Now, there's many theories as to why this might be. Maybe horses have reached their maximum speed, maybe that selective breeding has reduced the chances of producing faster horses, or that horses can't benefit from more effective equipment like humans can. Neil, what do you take of those theories, or do you think that just horses don't have that dog in them?

Horses definitely don't have that dog in them. But yeah, when you watch the Kentucky Derby tomorrow, there is just no way that anyone is going to beat Secretariat's record in 1973. The most fascinating reasons why horses have not gotten any faster to me is. is that they just don't have, they aren't motivated to break a record unlike humans. Like, we have egos. We train hard because we want to beat records and get famous.

Horses just aren't born with wanting to beat Secretariat's record. They just want to frolic. They don't have any conception. They just run as fast as hard, but they, you know, as fast as they can. But maybe with a little extra motivation, they're like, oh, I really want to beat Secretariat, then they might go a little bit faster. But yes, they might have just reached their physiological limit. and that's because of this very selective gene pool that they come from.

I mean, pretty much every single racehorse that has ever existed comes from a single horse, the Darley Arabian stallion in 1700. So they've, of course, this industry, it's a huge industry. They've tried every single thing they can to get these horses to go faster because millions of dollars are on the line. I mean, all of this breeding techniques, all of the food that they're giving them. But just like they can't get the, the horses have reached their maximum capacity. The track at Churchill Downs hasn't changed. It's still a dirt track in decades.

Meanwhile, in the human races, we've created these beautiful Nike shoes. We have the new tracks are way bouncier. They get people to go faster. So it's just a fascinating stat that I really have just been thinking about for the past 48 hours. I want to throw a crazy business idea at you. Morning Brew Daily buys a horse and races it in the Kentucky Derby. Just imagine Toby saying, let's ride. and then literally riding a horse.

That is electric, electric content. All right, let's wrap it up there. Thanks so much for listening and have a great weekend and Derby Day. For any thoughts, concerns, questions, effusive praise, send an email to Morning Brew Daily at Morningbrew.com. We love hearing from you. Let's roll the credits.

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Thanks for listening, everyone, and I wish you all well.