Morning Brew Daily - Apple Sales in a Major Slump & Your AI Dating Wingman

Episode Date: August 4, 2023

Episode 118: Neal and Toby celebrate Friday by diving into Apple and Amazon earnings reports, including Amazon's blowout profit and why Apple is struggling with sales... But customers have over $10 billion deposited in their savings accounts. Plus, why gas prices are the highest they have been this year and why Airlines want you to travel domestically. Also the guys share their stock and dog of the week and how AI can help you write your dating profile. Finally how scientists in South Korea are trying to recreate the superconductor. 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. I'm Neil Fryman. And I'm Toby Howell. On today's pod, you might have noticed that filling up a tank of gas has gotten considerably more expensive. We'll discuss what's going on. And a story on way you may want to travel to Tulsa instead of Tuscany. Then AI has come for the dating apps and promises everlasting happiness or at least more right swipes. Plus, is meme stock madness back?

We'll let you know in our Stock of the Week, Dog of the Week section coming up in a bit. It's Friday, August 4th. Let's ride. All right, Toby, it is Friday, so I need to know. Was it a fast week or a slow week? In other words, were you rushing or were you dragging? I was perfectly on tempo, Neil. No, today, this week was a fast week.

It's because it's my girlfriend's birthday tomorrow. And so that has been like this weight that's been dragging me towards the end of the week. Your girlfriend's birthday is a weight. No, in a good way, though, because we're doing a field day in Central Park where we're getting a bunch of friends together doing like egg toss doing some events. So I'm really excited about that. That's the most you and Celia birthday act can imagine. What about you? It was a fast week for me, lots of work, lots of activities. If I were Gen Z, I'd say it's giving Wednesday today. You are Gen Z. Neil, the fact that you do this podcast with me, I'm rubbing off on you a little bit. All right, Neil, let's jump into our top

story where we're talking about two A's again, but no, it's not America's credit rating or my middle school report card. It's just the first two letters of Apple and Amazon who reported earnings yesterday. Let's start with Apple, though, who reported its third straight quarter with a revenue decline. iPhone, Mac, and iPad sales all fell, but it wasn't all rotten. Apple's services business, which is the subscriptions you probably don't even know you're paying for, like Apple Music or Apple TV, jumped 8.2% year over year. Just some other rapid fire highlights from the call. Sales in China grew even as Apple tries to expand its supply chain outside of its borders. Tim Cook also casually mentioned that Apple has been working on generative AI for years

because, of course, it has. Finally, demos for its new Vision Pro VR headset will start in Apple stores shortly. There was a lot in there, Neil. What do you think about this last quarter for Apple? I mean, the hardware sales is definitely a little alarming. It's the third straight quarter of declining iPhone sales, which is not a good sign, but the services segment is really propping up the hardware segment, which is crazy to think about because I remember maybe 10 years ago, Apple launched this services business and everyone was like, what's going on? Aren't you a hardware company? And that looks so prescient now because Tim Cook and all of Apple executives know that there's only

so many smartphones you can sell. There's only so many times you can throttle an iPhone where someone's like, all right, well, I guess I need a new one. So to move into the services area with payments and digital products, you get a subscription revenue. It's also much higher margin than hardware. It doubles up. You know, the margins on these things are 70% as opposed to hardware is 35%. So Apple, Apple was already extremely profitable because the iPhone is an extremely profitable product. And then you double the profit margins on that. It looks just like a great future-looking call to dive into services and it's paying off in a

big way. Yeah, this is what Tim Cook kind of hung his hat on at stepping into the post Steve Jobs era. he's like, yes, we have to figure out how to monetize the existing body of hardware that we have out there in the world. And it looks like he's done it really well. Also, just picking up on another topic we've talked about on this podcast before, Apple's savings accounts, Apple card savings accounts reached $10 billion in deposits, which we've talked about, like we're living in the golden age of past. They're offering a 4.1% yield on that savings account. So, I mean, everything Apple touches turns to gold. and there's 10 billion just sitting in those cash accounts gaining yield right now. My headline number from this report is that Apple said it has 1 billion paid subscribers to its services. That is kind of an insane number. I know it sounds insane, and it is.

That's more paid subscriptions. That's twice as many paid subscriptions as Disney Plus Netflix, HBO, and Peloton combined. They're so big. So, yeah, you said you don't know you're paying for Apple services. I'm an Android guy. I was thinking to myself, like, do I even pay for Apple? any Apple service? And I was like, I suppose so. I think I have Apple TV Plus. Meanwhile, speaking of that, Tim Cook dropped Messi's name. Oh, did he? Yeah, yeah. He was like,

Messi moving to Inter Miami really helped us because Apple TV has a deal to stream MLS games. So he did a messy name drop, but he's like, yeah, it was big for us. That's Messi's second name drop because Palantir also, well, an analyst dropped it in reaction to Palantir. So Messi, man, he's just driving earnings season right now. Okay, now let's move on to Amazon. Amazon had its biggest earnings beat since Q4 of 2020 as some familiar business units stepped up to put the team on its back. Amazon Web Services was back to its old ways growing 12% in Q2. As CEO, Andy Jassy said companies are starting to spend again after a period where economic uncertainty ate into profits. But a more surprising star of the show was Amazon's advertising.

business, which grew 22%, which grew out a faster rate than Google, whose ad revenue was just grew at a 3.2% rate, or Facebook's which grew 12%. I feel like Amazon has definitely been benefiting from the soft landing that we spoke about yesterday. Its ads business bounce back in a big way. Yeah, but also I think what's driving Amazon's quarter was the core businesses of AWS and e-commerce, which, I don't know, e-commerce is a very low market. in business that it uses to bring in people to the ecosystem. But Andy Jassy looks real good. I know.

He looks really good because he was able to cut costs across the board. They stopped. He came in a couple years ago, and Bezos was doing all these pet projects of expansions and building warehouses and doing all this kind of stuff that we talked about, grocery yesterday. Huge expansion. And Jassy was like, this is probably not all going to pan out. We need to cut costs.

So, you know, Zuck branded this year of a lot. efficiency, but really everyone was doing it, and Jassy pulled it off by reining in costs and also boosting revenue. But yeah, the ad business is super interesting. Ten billion dollars a year is more annualized than YouTube makes, and it's more than the combined annual revenues of Snapchat and the New York Times. So this is a beast. Yeah, Amazon's so big. And then also, yeah, we, just to put a bow on it, AWS is always the start of the show. It accounted for 70% of Amazon's $7.7 billion operating profit. So it's literally like the e-commerce business, like breaks even, kind of.

And then you layer on the AWS and the advertising, and that's where you get like the cherry on top. All right. So that's the end on big tech earnings. We got through it. Let's do it again in next quarter. Next quarter. All right. Moving on, I really thought with the success of Barbenheimer, we were turning the page on sequels.

But no, we are rehashing old IP once again with return of the high gas prices. No one asked for this. So yes, after a major dip over the wiser. winter and spring, gas prices reached their highest level of the year yesterday at $3.82 a gallon in the U.S. They've climbed more than 12% since July 1st as a result of higher oil prices. While filling up your tank is still much cheaper than last year's peak of $5 a gallon, prices are still quite elevated and there are a couple factors driving your gas bill higher. One is the heat waves. As anyone who's watched True Detective Season 1 knows,

so many of our gas refineries are along the Gulf of Mexico and tech. Texas and Louisiana. These refineries aren't equipped to do their job when temperatures are above 95 degrees, which they have been frequently down there this summer. Second is the Saudis. They're a major oil producer, and they simply don't want lower oil prices because lower oil prices means less money to spend on Ronaldo's teammates. So yesterday they announced they were extending their supply cuts through September and could make even more cuts on top of that. Econ 101 tells us that constrained supply in the market will drive prices higher. So it's a pretty gnarly one-two punch that's driving higher gas prices.

And if you want to talk about the one, two, three punch, we're also rolling into hurricane season two, peak hurricane season. And again, a lot of these oil refineries are right along the Gulf of Mexico. So if we get a particularly active hurricane season two, then that might impact gas prices even more. So yeah, there's a lot of punches coming to gas prices. It's not great because this is inflation. I know. I know Joe Biden must be so mad because, I mean, there was a joke about it in the newsletter that's coming out this morning where a lot of people are going to start posting the picture of the gas pump saying like, thanks a lot, Joe Biden. Even though it's like heat waves, OPEC and hurricanes that are actually driving gas prices higher. But yeah, it's just annoying too as because gas prices are just kind of peaks in the summer too as people are kind of driving to their summer homes. It does seem like if the hurricane season doesn't pan out, then gas prices. prices will moderate. So AAA, I don't know what you call it, AAA, AAA, AAA. They put out a report

yesterday about gas prices because everyone was kind of wondering about what the future holds. And they were like, they very well could moderate because we are seeing, you know, refineries are coming back. It's cooling down a little bit back there. The big question is this hurricane season, whether it's going to wipe out these refiners. Why do we put like critical gas infrastructure right in the path of hurricanes and heat waves? Someone explained to me that? I mean, I know. why because it's right at the end of a shipping route at the end of the Mississippi down there. But either way. All right.

So that's gas prices. I want to move on to travel. There's a fascinating trend happening in air travel right now. And to tell the full story, I have to go back a few years to COVID when if you wanted to travel, all you could do is stay in the U.S. So we took advantage. I found out that Fargo, North Dakota is a pretty cool place and I almost died on a hike in Montana.

You played golf until 11 p.m. in northern Michigan and also spent time in Seattle and Florida. but this summer, the borders have been flung open and people are leaving the U.S. for vacation. So much so that airlines focused on the domestic market are in a lot of pain. Over the past week and a half, a bunch of airlines that fly predominantly U.S. routes have warned of a major slowdown in domestic travel demand. I'm talking about the Jet Blues and Alaska Airlines, the Southwest Spirits, frontiers of the world. They've all gotten crushed.

And to incentivize people to stay in the country, they're slashing prices, running flight promotions, U.S. roundtrip fairs are down 11% compared to last year in 2019, according to hopper.com. Honestly, I think the only reason anyone is flying within the U.S. right now is to see Beyonce and Taylor Swift. They are still. And to go to weddings like you. Yeah, driving and I was reading this story, I was so mad, though, because I have been flying domestically all summer, and it's been so expensive.

And I'm like... You bought them at the wrong time earlier. I guess so, because, yeah, all signs point to domestic travel, like, not being that expensive, but I was shaking my head. But one of my favorite stats is comparing just luxury versus domestic. Nightly rates at, yeah, international, nightly rates at luxury hotels in Paris rose more than 22% in the first half of the year compared to luxury hotel rates in Orlando, Florida, rose just 0.2%,

which is a hilarious comparison that we're comparing Paris to Orlando. But I know, like, all the theme parks are in Orlando, but it just made me laugh that were, the luxury. remarket in Orlando's being compared to the luxury market in Paris. And there has been a slow to, I mean, that's a real thing because there has been a slowdown in amusement parks. I mean, we know Disney World was kind of empty. Universal Six Flags SeaWorld. They all said lower numbers this summer. And a huge factor is that people, I mean, when you're making a decision on a vacation, you do, you know, you weigh your options like, am I going to go to SeaWorld or am I going to go to, you know,

Lisbon or something like that, or am I going to go to Paris? And after many years of or several years of being kind of held in the U.S. artificially, people are like, all right, well, I've been at Disney World the last couple of years. Like, maybe I'll go somewhere else to Europe or something. Yeah. I do hope that we get some sort of price race within the U.S. domestic airlines, because, yeah, Southwest Spirit Frontier all have been holding promotions left and right. So maybe it'll be back to like the good old days of the millennial subsidized lifestyle and just some price cuts to get people flying again. That's what they're doing. All right, Neil, great first half of the show. jump into our next story. We're going to take a quick break.

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and a year of Xbox GamePass Ultimate with a custom color Xbox wireless controller. Learn more at Windows.com slash student offer. While supplies last, ends June 30th. a.m.m.m. All right, Neil, it's time for our Friday segment, Stock of the Week, Dog of the Week,

where we check in on one stock that has been a very good boy and one stock that ate your shoe and peed all over the floor. As always, we are just humble podcasters who get up way too early, not financial advisors, so please do take whatever we say with the biggest grain of salt imaginable. Neil, congratulations, man. You get to go first.

What is our stock of the week? Thank you. Our stock of the week is the triage of the week is the trucking company, Yellow. Now, I never took finance classes in college, but I'm generally of the understanding that if a company shuts down its operations, plans to file for bankruptcy,

and lays off 30,000 people, then its stock shouldn't necessarily go up, but I forgot about memes. Shares of Yellow, the 99-year-old trucking company that went bust on Sunday, have shot up 500% over the past week and a run reminiscent of the meme stocks of 2021. And Yellow is not alone in this.

Shares in several other struggling companies like Tupperware and Rite Aid have also soared in the past week or two. Our writer Molly compared this phenomenon to an artist or musician only getting famous after they're dead. And while that was a joke, I think it's kind of super insightful. You know, these days warning you'll go bankrupt. At least in the case of Yellow and Tupperware, gives you kind of this notoriety among traders that makes you an attractive target for social media

fueled stock surge. Yeah, it's so interesting how it worked once, like it worked with GameStop. And so now every time a company does go bankrupt or something like this, traders are like, listen, there's huge potential upside. Like, I'll just splash a little bit on it. And a lot of people are thinking that way. And so it just drives the share price back up again. I just don't think we'll ever truly see the end of meme stocks now because there's always that hope. There's always that hope. that hope deep down that a rally like this might happen. And if enough people think like that, it like manifested it into reality. It's crazy, though, that we're still seeing the vestiges of like the game stop craze to this

very day. The big thing here is Hertz. Hertz went bankrupt. Hertz is like the golden child of this. This is what all of these traders are hoping will happen. Hertz went bankrupt. And then in a financing deal that took it out of bankruptcy, somehow the shareholders got paid out. And normally the equity holders get paid out less and they get completely wiped out.

But, and the bondholders get paid first. But Hertz had this crazy deal for the shareholders. So they all made a lot of money. And so everyone who piled into Hertz when it was bankrupt and everyone said like, oh, you're meme traders, you're crazy. They all got handsomely rewarded for that. So everyone's hoping that all of these other bankrupt companies will be the next Hertz. And there will be some miracle deal that happened that they somehow make money. And remembered, yellow got a $700 million loan from the federal government in 2020. And so that resulted in taxpayers holding 30% of the outstanding stock of the company. So technically, like, U.S. public, like, we as a taxpaying member of society, own a little bit of yellow.

Or yellow just wiped us all out. I know. That's another way of looking at it. There's two sides of every coin. All right, Neil, speaking of two sides, let's get to our dog of the week, which is the online marketplace Etsy. We've talked a lot about unions going on strike this summer, and it looks like Etsy could be facing a similar, albeit less official strike soon. Etsy has pissed off a bunch of their sellers by withholding their money for far longer than is feasible. The company has a policy which can freeze up to 75% of a creator's earnings in reserve for as long as 45 to 90 days,

which if you're trying to run a business can send you into some dire financial straits. How are you supposed to buy supplies or pay your bills if the platform you sell on is holding your money for months on end? Etsy says it has the policy to help with refunds and charge back, but sellers are still mad and are organizing a potential boycott. Etsy doesn't actually have a union, but there are over 1,200 members of an Etsy Reserve Strike Group on Facebook right now who are threatening to leave the platform if the policy isn't changed. Overall, its stock dropped 13% yesterday, which is good enough to make. it our dog of the week. It feels like Etsy sellers are always on the verge of strike. I know.

There's so many stories about them getting upset with the platform for whatever reason. This gives me shades of Reddit too, where if you're running a platform business, like your number one goal should be to not make the people who use the platform mad. And so even if this policy makes a lot of sense, like from a business perspective for Etsy, if it rankles the community and makes them mad, then I don't think it's worth it. So I do think we'll see Etsy, like, roll it back in some ways going forward. I think they've made some concessions. All right.

For our next story, Neil, it sits right at the confluence of RIS and AI. Matt's group, the owner of Tinder, said that it's testing out an AI photo selection feature to help users pick which photo of them holding a fish has a potential partner swooning the most. The AI will comb through your camera roll and pick the best pictures that will hopefully lead to a right swipe. Match Group is also launching a number of other initiatives that use AI to eliminate awkwardness from the online dating game. But Neil, do we think this is actually going to lead to more love, or is it a way for Match Group to kind of cram AI into its earnings calls just so it can get it in on the fun? I think that these dating apps have been using AI for years. That's literally how they show you what match, you know.

I have a dating profile and I'm getting my, you know, my matches and whatever people say about me or swipe left or right, that's getting fed into a machine learning algorithm that's getting sent to a bunch of other people and decides which pool of, you know, potential other users I'm getting sent to. So they are, they've been using AI for a long time. This is just more consumer facing stuff. But I think it's a smart move. I mean, I, you know, people don't like. choosing or they don't know what pictures that they want to use. And a lot of times these prompts are off for a lot of people to create. So, I mean, there's a stat out there that says 20% of people are already using chat GPT to write their prompts. So I can see this being a huge hit for people who have a lot of fatigue with the online dating and they're at the end of the day and they just finished their job and they're like, damn, well, I have to open these apps. And it's like a whole other job to think of all these creative things to say. So I can see them definitely using these AI tools. I think this is replacing the friend that everyone just hands her phone to and says, hey, can you

look at my dating profile and just like tell me how it looks? Because yeah, the two, like the biggest anxiety around online dating comes from like how funny is my bio? Does it reflect who I am? Like, should it be funnier? Should it be more serious? And so these bio writing tools, I think are going to be very helpful. And then yeah, people have horrible taste when it comes to picking their own pictures. And I would use that. Yeah. I have no clue what picture. I'll help you out, Neil. Come on. But think about this.

Okay, but it goes through your entire photo album and selects pictures. Yeah, I mean, that's so efficient. That's such a time saving mechanism. Yeah, a little scary, too, if you think about it. And that was my first thought when I heard, like, AI is becoming more and more involved with the online dating scene because now AI can generate pictures. It can generate a bio. It can talk to people.

So I feel like catfishing and spammers and scammers are just going to be more of an issue. It is kind of like this Pandora's box thing where I think that the dating app industry really wants to embrace AI, but I'm not quite sure if they've thought through exactly where this leads to if you embrace it too much. I just think users will embrace it. Yeah, users will certainly embrace it. There's always bad actors to do. It's a time saver. Yes, the bad actors thing will definitely proliferate. That won't be good.

But eventually, yeah, we're going to have algorithms dating algorithm. Yeah, and then you'll, yeah, you'll just come in at the end for. like the meet and greet face-to-face. All right. Well, that's a fun story. We'll see what happens. I think it's pretty inevitable that, you know, AI takes over dating, whatever happens.

All right, finally, I want to circle back to the superconductor claims that we talked about last week because in the words of Ron Burgundy, that escalated quickly. Somehow, superconductors have become the viral sensation of the summer, and we have to recap all the wild developments

that have happened in the past week. So, just to recap, last month, obscure South Korean scientists made the shocking claim that they produced a superconductor that works in room temperature and ambient pressure. This is the holy grail of physics, something people have been working on for a hundred years. Finding a material that eliminates electrical resistance and doesn't require intense pressure or freezing temperatures would change all of our lives for the better.

It's been credited with solving climate change, making floating trains feasible, producing medical breakthroughs. Anything that uses electricity would be in for a revolution in efficiency. So when this claim was made, scientists were extremely skeptical. And what do skeptical scientists do but try to replicate the experiment on their own? And so over the last week, social media has been buzzing with professionals and amateur superconductor hobbyists, trying this DIY method of reproducing the South Korean breakthrough and have been publishing their work to the internet for people to validate.

And never thought I'd say this, but it is a hot, solid state physics summer. Absolutely. I've been absolutely eating it up, but also eating it up. but also eating it up from a perspective of, like, I'm reading these papers, and I'm not quite sure what's going on. I'm just happy everyone is having a good time. But I do think that this is a prime example of what science should be in the modern era, where you have a claim that is made, and then a lot of people come forth and start trying to substantiate it or replicate it in public. Like, this is, this feels like what social media should be for on, on some elemental level. And it's also coming out a great time, too, because science has kind of been going through this replication. crisis where a lot of very famous researchers, like Stanford researchers, have been fabricating

data and, like, people have been having trouble replicating some of these supposed big breakthroughs. So I do think that this is a replication crisis happening in real time, and it's just like a much healthier way to go about approaching science. So I'm just happy to be there. It's so fun. It's so fun. It's kind of like a breath of fresh air on social media at a time when everyone's like Twitter's dying, and everything's bad, blah, blah, blah. It's just also so, so big if this does turn out to be true. Like, truly anything that electricity touches, like, this is a Leaps and Brown's breakthrough. And so I do think that's why, like, even though it seems like niche science, this truly is,

like, we say, we toss around the term holy grail of physics a little too cavalierly. Like, this truly would be, like, the biggest thing humanity is done since, like, fire, basically. So that's, that's, I'm putting my fist down, right? right there. I don't know if some physicists going to come out and say, no, we've done a lot sense fire, but this is what it feels like. The best part is that it's so visual because to show that you're super, you know, the material you've created as a superconductor is you have to make this substance levitate over a magnet. So everyone's just posting videos of this little rocky looking thing, levitating. So it has this visual element. Everyone around the world is just trying to get

a metal to levitate. And I love it. Let's get in on it, Neil. Let's see, let's try our hand at it. All right, we have to wrap it up there. I hope everyone has a wonderful weekend if you want to write in and say hi. Our email is Morning Brew Daily at Morningbrew.com. Emily Milliron is our editor and producer. Samantha Velas and Raymond Lou are associate producers. Also, I have to mention, it is Sam's birthday. So we got to wish a happy 23 to our sleigh queen. Would not want to spend the pre-dawn hours with anyone else. Happy birthday, Sam. Happy birthday, Sam. Uh, Yuchinawa Ogu is our technical director. Billy Minino is on audio. Hair and makeup left the country like every other American.

Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, meal. I wish you all well. Pay off your home, travel for life, drive a Ferrari. In celebration of the world premiere of the Monopoly Big Board Buckslot Machine by Aristocrat Gaming, Yamava Resort and Casino at San Manuel is giving one person a $1.6 million dream package. The biggest prize in Yamaba's history. Club Serrano members can earn daily instant prizes and secure a spot in the finale May 29th. Don't pass go and own it all.

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