Morning Brew Daily - Is the Apple Vision Pro Worth It? & Regional Banks Could Be in Trouble Again

Episode Date: February 2, 2024

Episode 249: Neal and Toby have the latest news and reviews following the official arrival of the Apple Vision Pro. Plus, the latest regional bank that could be in trouble and the biggest earnings takeaways from big tech reports yesterday. Also, why Elon Musk is thinking of moving Tesla to Texas and the guys share their stock and dog of the week. Finally, why Super Bowl ad space is already sold out. 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 for your daily show. I'm Neil Fryman. And I'm Toby Howell. Today, the Apple Vision Pro is officially live. Will it be the future of computing or another plot in a headset graveyard? Then another regional banking crisis might be looming if commercial real estate can't pull itself off the struggle bus. It's Friday, February 2nd. Let's ride.

It is Groundhog Day, the very strange holiday where a bucktoothed rodent in rural Pennsylvania will tell us whether we'll get an early spring or six more weeks of winter. If you're keeping track at home, Punksitani Phil has forecasted a longer winter for the past three years. So maybe we're due for an early spring this time around. Also, ever since that Bill Murray movie came out, Groundhog Day has symbolized a day you are condemned to repeat over and over and over again. Toby, let's say somehow you had to relive a single day of your life for eternity. But you could choose which one it is. Which are you going on? Oh, gosh, you're hitting me with the existential questions really early in the morning.

Okay, so I haven't had a kid yet, and I haven't gotten married. So those are like the two easy ones that I would say, but that hasn't happened yet. So I'm just going to go pick a really good meal I had, which, I mean, for my birthday a few years ago, I had this great sushi meal in Seattle. I don't remember what the place is called, but I'm going to relive that day because the bites were so good. I'm going with back when I was a senior in high school, my doubles partner and I lost a match that would have won our team, the state final for tennis. And so I really was frustrated at the end of that day.

I would love to go back and beat those guys from Eastern Mass. So that's the one I'm picking, and it would be great. It was also just a senior. I was a senior in high school and it was a summer day. So might as well pick a summer day where you have a ton of daylight and it's warm. Yeah, exercise those demons, Neil. Speaking of Groundhog Day, it feels like every day we get a repetitive headline of another cybersecurity hack. It's certainly been one of the main topics we've covered on this show, which is why it's great.

Veem is our sponsor because hopefully we can help some businesses avoid being another ransomware headline. Yeah, Vime knows. that a secure backup is your best line of defense, so don't pay that ransom if your data gets hacked. Pay for Veem instead. Head to veem.com today to learn more. That's VEEAM.com today. We're the Hartford, with decades of experience ensuring millions of unique small businesses when it comes to your small business insurance. Thank you. One size, absolutely does not fit all. Get a quote or find an agent today at thehartford.com slash small business. Happy Vision Pro Day, everyone. Today is launching its VR headset, the company's first

major new product in nearly a decade, and one it's spent years and billions of dollars perfecting before releasing it into the wild. And I don't think it's an exaggeration to say that today, February 2nd, 2024, will go down in history. On one hand, it could represent the beginning of a new era of how humans interact with the world and each other. Instead of having computers in our pockets, we'll wear them on our faces. That's the future. future Apple is betting on. On the other hand, the Vision Pro could become a flop of epic proportions. VR headsets have been around for 10 years and they have not made any significant headway. If Apple, the undisputed king of gadgets, the maker of the iPhone, for God's sakes, can't

make headsets go mainstream, then maybe no one can. If the Vision Pro fails to catch on, it could mean that the concept of wearing a computer on your face is doomed and maybe tech companies will shift their focus elsewhere. Of course, we won't find out which path we are on for a year. but this new adventure starts today. Was that dramatic enough to? That was dramatic, and you're right. It is a blank slate right now. Is this going to be for work?

Is it going to be for play? Is it going to be for both? Are developers going to embrace it and populate it with this rich ecosystem of apps? Are people going to pay almost $4,000 for this thing? There's so many questions, but all I know right now is that it is exciting, and it does feel like a new frontier in a way that no hard tech has in years. I still think that entertainment is going to be. to be the main use case, Here Still, Avatar director James Cameron, he did a demo in it,

and he called it a religious experience. Again, he's known as someone who wholeheartedly embraces new technological advances. But other reviewers also let out some ooze and awes and said they were really impressed with the entertainment side of things. They did. They weren't as impressed with the work side of things. Obviously, this comes with a full, you know, mass desk, Mac desktop. Microsoft 365 also made its apps for the Vision Pro but a bunch of the reviewers who got their heads on this thing, tried doing some work, and they said, honestly, it wasn't as easy or intuitive as me just working at my desktop.

So I think Apple has some work to do to try to make it an office productivity tool. In general, I think we read a bunch of reviews because a bunch of the tech columnists were able to try it out. And the main theme across the board was, this is an incredible product. When I put this on, I am in another world. the screen resolution is unlike anything I've ever seen. It's so immersive.

But just like Billy Elish asked, what was I made for? What is the use case that will unlock the potential of a headset? And I think Apple and its marketing has still not answered that question. Yeah, and there's a couple of not awesome parts to it too. The main gripes have been, there's this big battery pack that they had to create an external battery pack in order to make this thing not so heavy. But that's the issue already is that people say, if you wear it for any extended period of time, your neck gets tired, your face gets tired because this thing is chunky. It is the same weight as an 11-inch iPad Pro on your face. So just imagine strapping one of those to your face. And you see why people are having some neck pain here. In total, if we want to zoom out, Apple is expecting around 400,000 total units this year, which, again, would translate to $1.4 billion in sales. Kind of a drop in the bucket, actually, for a company of Apple. but still early innings yet. I'm excited.

I'm going to go to the Apple store and try it on. Like, of course. That is what we recommend. You know, maybe you're not going to shell out $3,500 for this thing, but you should go to the Apple store because they are doing demos. So you might as well go put it on. And it might help out, actually, the VR industry as a whole

because Apple is, you know, introducing this particular gadget. And maybe you're not going to shell out for it, but there's a bunch of lower prices. ones that maybe you'll say, okay, I kind of like this experience, but I'm not going to pay $3,500. Maybe I'll go to Metas or all the other ones that are about. So maybe it's a rising tide, lifts all boats kind of situation. Moving on, three of the magnificent seven big tech stocks reported earnings yesterday, and for the most part, they were magnificent. One day after getting grilled by Congress on Capitol Hill over child safety, meta CEO Mark Zuckerberg was in rare

form reporting that his company's revenue jumped 25% to $40 billion, its largest year-over-year quarterly sales growth in more than two years. It also introduced a dividend for shareholders for the first time. Amazon also had a fantastic holiday quarter as everyone sheld out for Christmas presents. Its profits of $10.6 billion in sales of $170 billion crushed Wall Street expectations. Those reports were giving a standing O by investors who sent the company's stock prices surging. Metas jumped 17%. Amazon spiked 8%, adding $280 billion in combined stock market value. And then there's Apple. Apple did okay, growing sales for the first time in a whole year, but a big decline in China is causing a great deal of anxiety over whether Apple's losing the

smartphone war in its second largest market. Apple stock dipped nearly 3% after its report. What were your big takeaways? I mean, let's just start at the top. You said, talked about meta at the beginning. I saw a tweet yesterday saying, like, is Zuck's last 18 last 12 months of management? Some of the best in like corporate management history. I mean, meta was dead in the water. VR wasn't catching on. Apple kind of turned their ad business on its head. The company was bloated after overhiring in COVID. And then Zuck announced the year of efficiency. They pivoted to AI very successfully. They got market validated by Apple's efforts to enter. VR, and they also saw all their ad business bounce back big time. Now it's offering a dividend, which is something you never really expected from a company like MEDA. It just has been this huge renaissance for META in a year where if you go back a year ago, it looked like anything but. Right. Their head count is now 22% lower than it was at the start of the year last year, which is a huge shaving and huge cost savings. And they need those cost savings because they are

spending and losing so much money on the Metaverse. I don't know exactly what Zuck's doing there, but it's Reality Labs Division, which is Meta's, you know, Metaverse unit lost $16.1 billion. So to be able to lose $16.1 billion on, you know, say, R&D on your next decade or two that you think is going to propel your company into the future and post billions and profits like you did, you know, your ad business must be making so much money. Yeah, and issue a dividend and do a $50 billion dollar share buyback so they have some cash. Amazon also became just a lot more lean and efficient and profitable. I mean, yeah, you mentioned their net income surge. The holiday bump did its thing. Again, that's a big period for Amazon every year. AWS still growing. Not the world beater it once was.

It was up 13% in the fourth quarter, but it used to be in the 20, the 50% growing range. And then, yeah, Andy Jassy kind of talked about AI2 a little bit. Amazon has this generative AI assistant called Rufus that it's testing among some users. So Amazon's hitting all like the beats that you're supposed to hit as well. And then finally, Apple, I know we talked about at the top with the Vision Pro, but you can kind of see from this report why the Vision Pro is so important to Apple because its growth units are just not growing as much. It's wearables business declined 11% in the December quarter. Its services unit, which contains the app store, grew 11%. That's definitely not the growth that it's expecting.

And it has regulators bearing down. It's had to revamp its app store in the EU. Sales in China declined 13% amid growing competition over there. So it's really looking for its next big thing, Apple, and it's betting on this headset. All right, let's move on. Another bank might be in trouble, Neil. This time it's a New York community bank that reported a bigger than expected loss last quarter and has fallen 38% in 11% in back-to-back days.

Now, one bank reporting less than seller earnings usually isn't an issue that Warren's talking about, but remember, we had a mini crisis last March that saw Silicon Valley Bank implode, eventually taking out a variety of banks in its wake, including New York-based Signature Bank. Well, the majority of signature bank's assets and liabilities were snapped up by none other than New York Community Bank last year, but NYCBCO said the company is still adjusting to the regulatory demands and growing pains of being a large bank after absorbing signature and jumping past that $100 billion in total assets threshold, which is a key regulatory measure where our stricter capital and liquidity standards come in. Neil, this has been a bumpy quarter for NYCB for sure, but there's also been some nervous

whispers that as commercial property comes under pressure, things could start spinning and spiraling for regional banks again. Yeah, this was a terrible quarter for New York Bank Corp, but the problem was it wasn't just contained to the United States. Banks as far as Switzerland, Germany, and Japan all kind of plummeted yesterday because there's just a lot of spooked. There's a lot of anxiety around all the commercial real estate loans they have on their books. This has been a slow train wreck coming. It's kind of like that test you have at the end of the semester that you know you're going to fail.

You keep asking the professor for an extension, but he's not going to give it. So that's the big problem we have that there is a slow moving crisis in commercial real estate. We haven't seen it kind of implode right now, but people are still not returning to the office, and these values on offices have completely plunged. Yeah, I mean, the test at the end of semester that you mentioned is that there's more than $2.2.2 trillion of U.S. commercial property loans that are set to come due by 2027. And a lot of those property loans are on these regional banks. They're more exposed to the sector than some of the bigger banks.

So, again, when those loans come mature, it will be make or break time. Can they either refinance and push the loans to a longer timeline so they can get them off their books? Or is it going to, we're going to see another eruption, another mini banking crisis like we saw last year? Right. This is definitely, I just want to make sure that this is emphasized that this is a separate kind of issue than what happened with Silicon Valley Bank. But this one might be even bigger because of how exposed regional banks, these smaller banks are to commercial real estate, as you mentioned. They account for almost 29% of assets at small banks compared to. just 6.5% at bigger lenders. So these smaller banks, which also have less of a buffer all

around than the JP Morgan's, the cities of the world, the city banks of the world, they're going to be the ones that take the brunt of the valuation plungings of office space. And the problem is we just don't know yet how much the value of these huge buildings that are now empty are, because the market has kind of frozen over. There haven't been that many transactions. There have been a couple, and they have been very alarming. There was the Aeon Center, which is, the third tallest building office tower in los angeles it recently sold for 150 million dollars which was 45% less than the previous purchase price in 2014 so that's kind of the canary and the coal mine these transactions haven't happened but once they do and all of these valuations kind of come to the

four it's not going to be good yeah especially when we're all wearing vision pros and not community office just using virtual reality to to sit in our office shares all right before we jump into the next part of our show we're going to take a quick break it's time to refresh your your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills starting at $179, like the next grill three burner gas grill. Or get $50 off to select Weber Spirit grill and bring big flavor to your backyard.

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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, terms at AKA.m.m.S. College PC. It has been a rough winter for Delaware. First, the pride of the blue hens Joe Flacco lost in the playoffs.

And now Elon Musk is threatening to yank Tesla from incorporating in the state and take his talents to Texas. Musk's beef with Delaware began earlier this week when a judge blocked his $56 billion pay package after finding the process for its approval was deeply flawed. And after that major setback, Musk warned other companies to never incorporate in Delaware and escalated the feud by saying he'd hold a sure. shareholder vote to incorporate in Texas. Tesla, like most other companies, is incorporated in Delaware because of the state's business-friendly laws and its court system that has literally centuries of experience with thorny corporate legal issues. Sixty eight percent of Fortune 500 companies are incorporated in Delaware, and about four out of five of all U.S. IPOs in 2022 were registered in the state. In Delaware, there are more registered companies than people.

but in recent years other states including texas have been looking at delaware and thinking hey maybe we should build this legal infrastructure to have companies incorporate here and musk's effort to move tesla to texas could fan the flames of interstate competition yeah this is really bad for delaware if elon kind of starts this precedent i mean having nearly 70% of the fortune 500 incorporate there has brought in two billion dollars in fees since 2022 which is a quarter of its entire budget so again, this is kind of an existential threat here. If Elon starts leading this march out of Delaware, like this is the thing. Joe Flacco and this was the thing Delaware had. So yeah, it is kind of some warning signs flashing if Elon kind of leads this charge. Maybe because Elon Musk is always

kind of an outlier. So it's hard to draw broader conclusions with what Elon Musk says. I'm not sure shareholders will even vote to move Tesla to Texas because Elon Musk wants to move it because he wants to, you know, he kind of, he's accused of railroading the shareholders with this pay package. So if I'm a shareholder and I'm looking at this proposal saying, oh, I want, I want more power. You know, I'm upset with the fact that this judge ruled in favor of the shareholders. I'm, I want more power and I want to move this to Texas. If I'm a Tesla shareholder, I'm like, maybe I want that checks and balances that Delaware provides. I also think if we just go into kind of like psychology behind you, I'm reading the Elon Musk biography right now.

So I kind of am in his head a little bit right now. And this is not the first time that this specific judge has ruled against him in Delaware. McCormick was also the same judge who oversaw Twitters when he tried to back out of the Twitter lawsuit. So this is two times now that he's been kind of taken an L in Delaware courts. So I think that is actually paying a bigger role than people like to admit his personal grudges. I think you're absolutely right. But how did Delaware get here in the first place and why does everyone incorporate in Delaware? And it's a lot because of this court system.

I mean, there's seven judges that just have so much experience dealing with the most complex corporate issues that you can imagine. There's no jury. It's very predictable, you know, besides maybe these recent Elon Musk rulings, it's very predictable. So when corporations have any issues with shareholders with their corporate governance structures, they know when going to the Delaware court, they're going to get a very experienced judge, someone who's seen everything before. and no other state has that infrastructure, not even Texas. Texas is trying to build up a business court that they're launching in September 1st. But, you know, experts are saying it's going to take years and years and years for them to build up the experience necessary to make the right call. Yeah, and it's quick, which is the biggest thing.

No juries, just judges makes the whole process fast, which is another reason. Okay, let's head to our Friday segment, Stock of the Week, Dog of the Week, where Neil and I bring you guys one stock that loves Morning Brew Daily and one stock that likes being, alone with its thoughts? Weird. I won the pre-show game of who can pronounce Topoli worse, so I'm up first, and my stock of the week is Ferrari. Now, as

our Formula One obsessed listeners already know, there was a little bit of news yesterday that sent everyone into a tizzy. Seven-time world champion, Lewis Hamilton, is set to leave Mercedes's F-1 team to take his talents to Ferrari starting in 2025. This is like Tom Brady leaving

the Patriots in his prime to go join the Colts or the Seahawks, but as much as we'd like to fanboy over the ramifications for F1. Shares of Ferrari also hit a record high for reasons other than the Hamilton news. Ferrari reported an 11% increase in fourth quarter revenue to cap off a record year that has seen an inch closer to $100 billion valuation for the first time. It issued guidance that it expects the upcoming year to be even stronger. So landing Lewis Hamilton and taking a victory lap on an earnings call, not a bad week for Ferrari.

Wow, yeah. Great week for Ferrari. It looks like what drives Ferrari's performance these days is these personalization and customization you can do with its cars. I personally have not shopped for a Ferrari, so I can't really speak to this personally. But it seems like you can add your own paint job, and that really drives the price higher, and that's what's doing so well for it. The average selling price for a Ferrari car was at a record high of $431,000 last year.

So the last quarter. That's like 11 vision pros right there. That's a lot of money. So they're really leaning into this customization. It's working out so well for them. That was not 11 Vision pros. I got that totally wrong. But also, you're totally right about the margins driving Ferrari because Ferrari's deliveries actually declines 2% in the quarter, but their revenue increased 11%. Their operating profit margin is almost 25%. Tesla, remember, which is held up as this great margin business, is only at an 8.2% operating profit margin. So you can just see that there is, gulfs between the luxury car market and like the normal car market that luck you know the 25% margin that's just luxury goods right that's just not even a car that's just a luxury good that you want to

show off and now it has lewis hamilton which is just a huge deal i'm pumped it's it's weird seeing in red i can tell you that for sure okay moving on for our dog of the week 23 and me stock took a dna test and found out it was 98% not there once one of the highest flying startups in silicon valley worth $6 billion. The genetic testing company has plunged 98% from its peak to a share price of 73 cents, and it's now being threatened with delisting off the NASDAQ exchange. The problems facing Susan Wigiske, 23 and Me's CEO, run the gamete. It's never made a profit in its history and could burn through its cash by 2025.

Last year, it did three rounds of layoffs, reducing its count by a quarter. It also suffered a major hack last fall when the non-genetic information of 6.5. $2.9 million customers was exposed leading to a class action lawsuit. Wigiski still thinks this ship can be turned around by mutating 23 and Me into a more comprehensive healthcare company that sells subscriptions and develops drugs. But judging by the stock price, investors are increasingly doubtful that the company receive the dominant gene. Yeah, I think there's just a little bit of a fundamental issue with kind of their business

model. Remember, customers only need to take a 23-Me test one time, which is not good if you're trying to drive extended revenue over long periods of time. And then also the pitch that 23 and me will use this data to develop these new drugs is also a little flawed because the development timelines of these drugs is so long. It can take 10 years, hundreds of millions of dollars to get these across the finish line. And it's just something that a company of 23Mee size can't withstand. It's crazy to think where this company was just five years ago. Eddie Murphy named checked it on SNL. Oprah was hyping it up. Lizzo was hyping it up.

Susan Wigiski was kind of the toast of Silicon Valley. She had a kid with Sergey Brin, the Google co-founder. So she was like in this aura of Silicon Valley eliteness. And now this company is just absolutely plunged in value. It's a pretty big fall from grace. Yeah, fall from grace. But I mean, she's still bullish on it. I do think there is some merit to allowing people to have more control over their health care

and know more about their bodies and how they can treat it. So there is still a glimmer of hope, but yeah, it's been a rough few months and a rough few years. Finally, let's move on. Super Bowl Sunday is fast approaching, and it's clear that the presence of Taylor Swift won't just influence number 87 on the Chiefs play. It's also changing how advertisers are looking at the game. Three new health and beauty brands have decided to buy prime time ads during CBS's coverage of this year's Super Bowl. Two, L'Oreal and Elf cosmetics are brand new to the game, while the third dove is coming back after a long hiatus. It's a sign that brands are counting on Taylor Swift's involvement to drive outsize female viewership.

Now, CBS has been nearly sold out of its inventory since back in November when Tay and Trav were still relatively early in their relationship, and far before we actually knew who'd be playing in the Super Bowl. But it stands the reason that some of the inventory that CBS held off on selling was snapped up by brands hoping to capitalize on this unique bridge that Swift provides to female viewers. All signs point to this being one of the most viewed. Super Bowls ever. And now we also have this neat wrinkle of health and beauty brands targeting the game for the first time. Yeah, there was no health and beauty brands last year. It's very interesting to look at Super Bowl ad composition as a sort of time capsule for where we are in the world. Go back to 2000. There were so many dot com companies that advertised.

Then you go back to 2022. That one was called the Crypto Bowl because you had Larry David in that FDX commercial and so many different crypto commercials. And now you look and you see a lot more health and beauty brands than usual. And this is the Taylor Swift moment we're living in. Yeah. And I also think it's interesting about kind of the demand for ads around the Super Bowl. When CBS kind of was selling off its inventory, the ad market was still pretty soft. And what they did was actually they didn't exorbitantly erase the prices. They kind of kept them in line with last year. So they immediately sold out of all their inventory. And also another wrinkle here is that the Super Bowl isn't the end-all be-all anymore for advertisers trying to reach an NFL audience.

Remember, there's a much bigger inventory, thanks in part to Thursday night football and Amazon getting in on that. So I do think that we're not seeing record prices, even though we are seeing very strong demand this year, if you combine both Taylor Swift with the fact that the ad market has kind of rebounded. All signs point to this being the most watched Super Bowl ever. Absolutely. You know, we have producers saying, like, this is a gift from the gods that Taylor Swift

is involved. I know a lot of people maybe are frustrated, some are excited about it, some are tired of hearing about it. But either way, whatever you think, like people are going to watch. And this is going to be an absolute gold mine for CBS and these advertisers getting in front of, you know, a female audience that maybe did not pay attention to the Super Bowl before or football. I mean, it's just been a huge sea change in the amount of people that I watch football, which was already massive. And then you see like 20, 30 percent growth because of the Taylor Swift effect. It's just incredible to watch. I think people need to get over it.

She's on the screen for like 24 seconds, people. Come on, get over yourself. All right. We have to wrap it up there. Dang, another week in the books. Happy Friday, everyone. We're very receptive to feedback. So if you have any thoughts on the show,

please write into Morning Brew Daily at Morningbrew.com. But make sure it's in a feedback sandwich, please. Let's roll the credits. Emily Milliron is our editor and producer. Raymond Lou is our associate producer. Yuchenoa Ogu is our technical director. Billy Minino is on audio. Hair and makeup did not see their shadow.

Devin Emery is our chief content officer and our shows of production of Morning Brew. Great Saturday, Neil. I wish you all well. Yamava Resort and Casino at San Manuel is California's number one entertainment destination for today's superstars. Catch the Jonas Brothers return to the Yamava Theater stage on April 30th, the powerful vocals of Demi Lovato on May 17th, and the signature Southern Country Rock of Eric Church on July 19th. Tickets on sale now at Yamavatheater.com. only at Yamava Resort and Casino,

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