Morning Brew Daily - Meta Investing Billions in Eyewear? & Netflix Keeps Adding Subscribers

Episode Date: July 19, 2024

Episode 369: Neal and Toby discuss Meta’s interest in buying a stake in Ray-Ban owner EssilorLuxottica, signaling it wants to lead the pack in smart eyewear tech. Then, Netflix adds another 8 million subscribers and continues to show why it’s the king of streaming. Next, the EA Sports College Football 25 video game launches after an 11-year hiatus now that NIL allows college players to profit from their likeness. Plus, small cap companies are the week’s standout stock and Bud Light is the week’s Dog of the Week. Meanwhile, Elon Musk is apparently fed up with California and is taking SpaceX and X to Texas. Lastly, high school students are getting better grades, improving attendance, and engaging with one another in NYC. The school needed to lock up their phones.  Expand your world with Meta AI. Now on Instagram, WhatsApp, Facebook and Messenger. Get your Morning Brew Daily T-Shirt HERE: https://shop.morningbrew.com/products/morning-brew-radio-t-shirt?_pos=1&_sid=6b0bc409d&_ss=r&variant=45353879044316  Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow 00:00 - Microsoft outage 2:30 - Meta leans into eyewear tech 07:30 - Netflix keeps its crown 11:15 - College Football (video game) is back! 16:45 - Stock: Small-cap companies, Dog: Bud Light 22:20 - SpaceX moves to TX 25:00 - Lock away the phones Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning, Brew, Daily Show. Neil Fryman. And I'm Toby Howell. Today, a college football video game returns after more than a decade. Toby, are we going to take Western Michigan to the ship? That Zuck is coming for your eyes. Why meta is exploring an investment in the company that makes its meta raybans. It's Friday, July 19th. Let's ride. If you're just waking up, brace yourself. It is total chaos out there. A massive IT outage has disrupted businesses, banks, airlines, media outlets, and emergency services, across the world. The problem appears to be caused by a crowd strike update that affected millions of Microsoft Windows devices, sending them crashing in countries from the U.S. to China to Australia.

Microsoft said it was working on a fix and was observing a positive trend in service availability, but as of 6 a.m. Eastern time, it's still bedlam. I mean, this thing affected everything. The FAA at one point grounded all flights from Delta, United American Airlines due to a communication issue. 911 emergency call centers in Alaska, New York City have also been impacted. They were hand-riding boarding passes at some airports in India this morning. And then the UK broadcaster, Sky News, literally wasn't able to broadcast its morning news bulletin because of the outage. It is chaos.

Well, what? Can I still watch the British Open? There's no word on the British Open, but I certainly hope so. If we can't watch it, let's try to get on a flight and go and watch it in person, Neil. I don't know if we can. I mean, everything is groundstop. Yeah, this is total chaos. So just keep your eye on what's happening today. It looks like they're trying to restore it. But the effects will be widespread and will ripple across countries everywhere. Now, let's hear a word from our sponsor, Meta-I-I-I-I-I-I-So something so fundamentally human about our search for answers. Resources like elders, books, and even search engines have always been around. But now we have the added advantage of being able to ask AI for help.

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You win? Details at Yamava.com must be 21-20. Please gamble responsibly. Monopoly is a trademark of Hasbro. Hasbro is not a sponsor of this promotion. Never one to shy away from a spectacle, Mark Zuckerberg is now considering investing in spectacles. Meta is reportedly exploring a multi-billion dollar investment in the eyewear group, Excel Sur Luxottica, to take a 2 to 5% stake in the company.

It has spent dobs of money in recent years trying to move from dominating your screen time to existing all over your body. Meta's push into wearables includes not only its bulky reality headsets, but also its sleek meta-ray-band glasses first launched back in 2021 in partnership with Excel or Luxottica. They have turned into a smash hit for the company. The newest generation that launched in October of last year sold more in just a few months than the previous version did in two years, according to Luxottica's CEO. The glasses are part social media tool. You can live stream what you see directly onto Facebook and Instagram and part AI tool. The glasses come

integrated with Meta's AI assistant, which you can interact with your voice. You have all heard us talk admonaution about the headset wars raging between the meta quest and the Applevision Pro. But clearly, this potential investment shows Zuck sees a future in eyewear. He totally does. And he even told us himself when we interviewed him back in February. We actually have a clip of him specifically talking about the glasses. It's really been a very fascinating partnership. I mean, the technology behind even producing kind of normal glasses before you put any electronics in it is actually quite sophisticated. And through this partnership, I think we've produced something that brings state-of-the-art technology around AI

with something that has been a fashion icon for decades. And I think it's pretty neat. You can just tell that he is really excited about this and he wasn't expecting it. And he just has this feeling of like, maybe we're onto something here. Yeah, previously Zuck had said that glasses would need full holographic displays

to be a large market. But you, again, heard in his voice. He's almost surprised by the success that Meta-Rabans have had. Part of the reason why, meta values this partnership so much is that unlike a smartphone, things or even like a smart watch, you wear things, when you wear things on your face, you have to have some sort of fashion sense. It can't just be a one-size-fits-all. You do, people want different sort of

sunglasses, different sort of silhouettes on their faces. So they've approached this very collaboratively with Rayband to make sure that these products are something that you would be proud and you wouldn't, that's the issue that like Snapchat has run into with their Snapchat specs. They didn't look very good. That's why META is doubling down on this partnership because they want to make beautiful-looking pieces of hardware. And a reminder, SLO-L Lux-Satica doesn't just make RayBan. They make every single thing that goes on your face and they also owns LensCrafter.

So they have this retail distribution point that to sell these things as well. And, I mean, S-LOR Lux Zatica, we haven't talked about them over the past year and a half on this podcast. They haven't come up once. And then now they're in our podcast for the last. Two days. Remember, yesterday they acquired, or they said they were going to acquire Supreme for $1.5 billion. And they are on the move to expand their technology and engineering capabilities in 2022. They bought an Israeli hearing tech startup called Nuance Hearing, which comes with acoustic beam forming technology.

And then the same day, they acquired Supreme. They also took an 80% stake in Heidelberg engineering, which is a German engineering company that specializes in eye surgery technology. So this is a glasses eyewear company that is trying to expand its tech capabilities. At the same time, Meta is also trying to get into, I guess, fashion. I have had a chance to wear the meta ray bands. And one of the killer features that I also have seen a lot of people share the assessment is actually, they're great for listening to music or listening to audio while you're walking around because you don't have AirPods in, you just have your sunglasses on.

And then the other killer use case that I can see for these Meta Ray bands expanding their market is, As a parent, I would love these things because think about being able to film your kid growing up in first person via the META Rayvan smart glasses without having to pull your phone out every single time. So I do think that this is part of the reason why meta is taking a step back and saying, all right, we do need to double down on this field because there are some use cases popping up that we didn't see coming and are also superior to maybe like the bulky headsets that they've been plowing billions of dollars. Yeah, I mean, they've spent $46 billion on the Metaverse. since they changed their name in 2021. And they might have just stumbled on the actual use case here with what seemed to be a limited partnership with RayBAN. So we'll see what comes of that.

And maybe more companies will invest in smart glasses. At a time when other media companies are in retreat, Netflix just keeps pushing the throttle. In its earnings report yesterday, the streamer said it added 8 million subscribers in the second quarter much better than expected and brought in 17 percent more revenue than a year ago. now with 278 million global subscribers, it is the undisputed streaming king, and we are all but serfs tending to its fiefdom. What got more users on board last quarter for Netflix? Maybe it was FOMO about the new season of Bridgeton or all the tea about the thriller Baby Raneer. Maybe it was to laugh at the roast of Tom Brady, which attracted the company's largest live audience ever.

And it could very well be that the company's two-pronged strategy to reignite growth is still humming right along. Remember, in 2022, Netflix was wobbling. losing subscribers and held a tenuous grip on the streaming throne, but then it sprung into action. It began, one, cracking down on password sharing to get you off your family's account, and two, offering a lower-priced ad tier to lure new subscribers who were more cost-conscious. And it worked like a charm. This month, Netflix's share of total TV viewing in the U.S.

climbed to more than 8%, which is more than double any other paid streaming service. There's no stopping it. There's no stopping it. Netflix has gotten a lot better at making money. I mean, they've invested so much in getting their top line revenue, gross revenue a little bit beefier because stuff like that password sharing crackdown, stuff like its ad-supported tier, in addition to just hiking prices across the board, it has matured into a company.

It is finally a company that wants to make money, doesn't want to lose money on subscriber growth, and that contributes to this quarter where they made $9.56 billion dollars. It's very good at making money now. And you'll see, and you know how confident it is because they had this quote in their letter to shareholders that you don't typically see, which was kind of stomping on their rivals. They wrote, the challenge for so many of our competitors is that while they're investing heavily in premium content, it's generating relatively small viewing on their streaming services. You don't always see that in a corporate letter, just taking a, you know, taking a stab at your rivals. But it shows just how confident they are that they are just lapping the competition.

Netflix just nails the content pipeline better than its streaming rivals. I mean, you mentioned Bridger Shinn came out. It's been crushing baby reindeer. It does seem like they create these cultural moments around each new content they piece. They're also pushing more into their live event strategy. I mean, the rest of Tom Brady attracting its biggest live audience yet is fascinating to me. I guess it shows Tom Brady still has some juice left. It was fun.

But they also remember they won the streaming rights to two NFL games set to air on Christmas Day, so they're pushing further into sports or trying to satisfy their advertisers' appetite for this new kind of revenue stream that they've opened up. So their ad tiers chugging along very, very nicely, group 34% quarter over quarter. If you go back a year ago,

the ad tier only had, or the ad tier only had 5 million subscribers. Now in May it said it had 40 million subscribers, so that's going very nicely. The future is looking very bright for Netflix going forward. It is. Yeah. And the one aspect,

of their company that we haven't talked about is the move into in real life experiences. They're opening Netflix houses, which are two 100 square foot entertainment venues in former department stores in King of Prussia, Pennsylvania, and in Dallas. And they're trying to make that into a mini Disney world where, say, you watch Bridgeton or Squid Game, you go and you can have an experience in real life with them and obviously buy some birch. And maybe that increases your loyalty to their IP, which they're hoping extends your longevity on their platform.

Say goodbye to having a productive rest of the summer because EA Sports College Football 25 comes out today. This franchise has a stranglehold on a certain demographic of our listeners. If you came through high school or college during EA's NCAA football heyday, you no doubt have great memories of long nights grinding Appalachian State or some random school to bring them to the national title game. But it's been a long time since a new game came out. The previous NCAA football series was discontinued in 2013, after a court decision sided with players who sued the game developer over using their likeness.

But NIL reopened the door for the franchise to comeback, with the added bonus of allowing the athletes to finally make money off their name, image, and likeness this time around. Neil, this game is going to be huge. There is so much pent-up demand for it. It looks great from a graphics and gameplay perspective. What school should we play as? UMass, baby. UMass, let's go. Victor Cruz.

No, I grew up near UMass. Don't have a great football program, but I want to bring them to the top of the college football landscape. Yeah, this may be the most anticipated sports video game release ever in the United States. I mean, sports video games come out year after year, and the thing people want from them is mostly updated rosters. But the fact that this has been dormant for more than a decade is just fueling an hype machine unlike any I've ever seen in sports video games. the scale of a college football game is just kind of mind-blowing to me because there are over 130 teams. And in order to get all of those players' names actually in the video game, they had to get their consent. So they sent birds out to over 14,000 players.

Walk-ons from Colorado State that have never even seen the field once. They needed to get their, they needed to get their approval. And what they did was they paid him $600, gave them a free copy, and some other perks to get them in the game. And some of these players are pretty hype about it. They were hustling to get as many athletes as possible. The first thing they did was just send out mass emails to their college email addresses. But if that didn't work, they started sliding into players' DMs,

into their inboxes. They started calling their parents, their mothers. And then also sometimes they jump onto video conference team meetings and just say, hey, guys, EA people are here. They want your signed consent to put you in the game. I do think EA has also nailed this rollout. They offered the game up for early release this past week. It felt like the game has already been out.

If you just scroll through social media, tons of clips have been going viral. It's been very funny too because people were saying, I've been waiting like a literal decade for this game and then like a few tweets later like, I can't figure out of stop the freaking run. Someone's got to help me here. I'm out of practice.

So you know this is a passionate audience. Just to show how passionate this audience is is that some fans have been manually updating the rosters on NCAA football 14 for the last 10 years to keep those rosters up to date. So people are ravenous. College football fans are notoriously just pretty crazy and combine that with video game fans as well. And you have all the ingredients for a very successful release. It just shows how the college sports landscape has changed from the previous editions of this game,

where when you would play, it would literally be like running back number five for USC. and it would be a Reggie Bush kind of fake out and or number 15 for Tim Tebow on Florida and that would be Tim Tebow. But it just shows how this landscape has completely changed where players can get paid for their name, image, and likeness and video games are following suit. Up next, it's time to open those portfolios again

because stock of the week, dog of the week is coming right up. 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 three-burner gas grill, or get $50 off the select Weber Spirit Grill and bring big flavor to your backyard. Then set the scene with Hampton Bay string lights

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Welcome to your ocean front room. Just steps from the water. The Hilton sale is on now. Book on Hilton.com or the Hilton app and save up to 20% to get the stay you expected. When you want savings, not surprises. It matters where you stay. Hilton for the stay. Stock of the week, Dog of the Week is without a doubt my favorite segment of the show because it means the weekend is just hours away. But before we get there, you'll learn about one stock that summited a mountain and another that stayed at base camp.

I won the pre-show baby juggling contest. Yeah, I went a full 10 seconds without dropping one. So I get to go first. And my stock is actually a group of stocks, the Russell 2000. The Russell 2000 is an index made up of companies known as small caps worth between $250 million and $2 billion. But don't tell them size matters. Over the past month, the previously stagnant Russell 2000 has surged about 8% far outpacing the S&P 500 and index of large companies that has stayed flat over the same period.

They're also calling the phenomenon the great rotation on Wall Street, and it's one of the main themes dominating investors' thoughts right now. Investors are pulling their money from tech behemists like Nvidia and Apple and putting them into smaller companies you've never heard of, sending their share prices soaring. And by companies you've never heard of, I'm talking biofuscary. pharma prelude therapeutics, crypto miner, cipher mining, home medical provider, Aviana healthcare, and more obscure names that have all popped by double digits recently. The small cap rally did take a breather yesterday with the Russell 2000 dropping more than 2%.

But the trend is clear after being unloved for years, tiny public companies are starting to see interest pick back up. Yeah, the general thought of why this is happening is because small caps are particularly sensitive to macroeconomic shifts. They often carry a lot more debt, especially more floating rate debt, so they can't quite service as well as large-cap company. So that is why Powell's comments on interest rates and that the fact that the market is pricing in a near certain interest rate cut in September really affected the Russell 2000 more so than the S&P 500.

In general, those small-cap stocks are pretty underloved because if you think about it, the best small-cap stocks eventually become mid-caps, the best mid-caps eventually become large-caps. So why not just invest in the large-caps because it's a self-filtering mechanism? But every once in a while, you do got to show some love to the Avon Therapeutics of the world. Right. I mean, many of them are biotech companies where they just have this one drug in a pipeline and this clinical trial can really make or break it. So if they pass the clinical trial and it shows efficacy, then they'll pop like a Moderna of the world or something like that.

But many of them, just their drugs don't work in clinical trials and then they go to become penny stocks. So it's a very risky part of the market that a lot of investors just don't really pay attention to and they just focus on it in videos of the world. But there is a lot more attention now. And the AI trade of all these data center companies and big tech companies that are investing in AI has taken a huge breather over the past month. Yeah, just remember, though,

over 41% of small cap index is unprofitable compared to 7.4% of large cap, so tread lightly. My dog of the week is Bud Light. The former number one beer in America has now tumbled even further from its purse to the number three spot. After getting passed by Modelo last year for the top spot, Mickelope Ultra has snuck into the second position.

If you look at the beer sales in the U.S. for the four weeks ending July 6, you'll see Modelo on top with 9.7% of the market, then the locale Mikalob Ultra coming in at 7.3, while Bud Light lags behind at 6.5%. The fall of Bud Light shows the lasting effect from the boycott that began in April of last year when a transgender influencer posted a video advertising for the brand. the next month, Bud Light lost its top spot and has trailed Modello ever since. The brand has continued to suffer in the 14 months since, though, in most part because

retailers have started to give it less shelf space. But it's not all bad news because guess who owns Mickelope Ultra, A.B. InBev, the same company that brews Bud Light. Yeah, this shows that shelf space is destiny. A.B. InBev's CEO said that the conglomerate had lost between 5% and 7.5% of shelf space going into the spring, which, you know, most of those losses coming from Bud Light. And this was not just any stretch on the beer calendar.

It was from Memorial Day to July 4th when a lot of beer is consumed outside by the grill with a hot dog in hand. So this is a big deal, and it shows the lasting impact of what happened to Bud Light and the rides of Mikhailob Ultra. Yeah, it is setting up to be a Mikhailob summer. Already, they had a very big summer sponsoring the Copa America. They sponsor Leonel Messi. and then they're also the sponsor for Team USA at the Paris Olympics. And McLeod does attract a more health-conscious drinker. It is low-cal, 95-calories.

So it's trying to zero in on its target audience. And by sponsoring all these main sporting events, I think they're doing a great job of doing that. One other beer to pay attention to an AB&B's portfolio, Bush Light. Sales are up 13% in the last four weeks. They know their audience. Yeah, I know Bush Light.

Bush Light is targeting, like, the concert series, like the country concert. So, again, A.B. and Bev is, they're no fools here. They know exactly who their core audience for each beer is. And, yeah, Bush Light is another beer that's on the come up. Elon Musk has had it with California and is packing his expensive toys up and leaving for Texas. The mercurial billionaire said on Tuesday that he is officially moving the headquarters of SpaceX and X from California to Texas. The straw that finally broke Musk's back, a new change. gender identity law signed by California governor Gavin Newsom that Musk disagrees with.

But the thing about companies is that people work at them. And when you make the decision to move companies, people have to move too. So other startups have started to circle SpaceX and X's most valuable assets, the brains and the brawn that build the rockets and the algorithms, looking to poach them away in a time of flux. At least two space companies have launched public appeals for SpaceX employees to come join them with one CEO from the startup latitude, promising engineers 12 bottles of champagne if they make the jump. Neil, these CEOs were literally just jumping into the comments under Elon's ex post saying, hey, if you don't want to move to Texas or your values don't align with Elon's decision,

come work for us. And frankly, I respect the hustle. We've seen that with a lot of companies owned by Elon Musk recently, with other rival companies trying to poach employees, especially in X as their employee base, has gone from $8,000 down to $1,500. It remains to be seen whether this is actually going going to be a big shift in relocating workers, though. I mean, when Tesla, he moved Tesla's headquarters to Texas from California a few years ago. And in the interim, Tesla has only expanded its operations in California. And because SpaceX has over 13,000 employees, it has factories in states all over the country. It could be that they still maintain a big presence in California.

And this is just a symbolic move by Elon to stick it to California and move to Texas. where the corporate friendliness is a little nicer. Right. There might be some tax implications here, but SpaceX is very heavily concentrated in Hawthorne, California. It's all its manufacturing facilities are there, and they've kind of grown out like an amoeba from this one spot. And in that case, it is something where you cannot decouple from California completely.

That said, though, they have invested a lot of money in Texas as well. that's where they have spent $3 billion in developing its star base there where it launches its starship from. So, yeah, it comes with tax, comes with legal, comes with political implications. But Musk had almost already but the future of the company on Texas as well. So maybe this is a more logical step than it's not as out of the blue as you might think. Definitely not out of the blue. And also, Texas is working to court more companies by establishing a court to rival Delaware's Chancery Court, which Elon Musk moved Tesla's incorporation from Delaware to Texas recently because of a court ruling that invalidated his $56 billion pay package, which is now back on the table.

Finally, here's a wholesome story to send you into the weekend. Some schools around New York State have recently banned phones in classrooms, and the kids are digging it? Actually, according to Bloomberg, high schools that prohibited phones have seen higher test scores, students acting more engaged in class and more participants. in extracurricular activities. At KIP, NYC College Prep High School, attendance at sporting events and other activities jumped by 50% since the ban. Principal Monica Samuels even said

some students secretly went up to her and thanked her for getting rid of phones in school. With anecdotes like these, momentum will only grow for more cities to restrict phones in class. In a recent poll, 72% of high school teachers said cell phone distraction is a major problem in the classroom.

And there's a robust debate over the mental health impacts of smartphone addiction on teens. Some cities are plowing ahead already come next spring. Public schools in Los Angeles, the second largest district in the country, will ban phones during the school day. And the largest school district, New York City, has pledged to do it the same. Toby, are you surprised that kids like not having phones on them during the school day?

I was surprised because, or I wasn't surprised, because initially they started showing signs of withdrawal where they were reaching for their phones into their pockets, these phantom pangs that you want to check your phone. They were trying to smash their locks to get into their lockers to get their devices. It's literally signs of addiction working its way out of a system. But yeah, of course kids are going to eventually come around and say, like, I've been enjoying my no phone time because their kids, their job is to play when they're young and being interacting with your classmates and being more present in school and being able to focus more in your classes does sound like a great thing. So I was surprised to see how widespread these

phone bans are becoming and how there is a real possibility that the entire state of New York bans it and there's momentum other states as well. Yeah, well, another entity here that is really loving this momentum towards banning phones in school is a San Francisco company called Yonder. And Yonder sells the pouches that they require kids to put their phones in when they go into school. And it is just raking in the money right now. They had $2.1 million in government contracts last year, which was a 10x increase from just two years earlier. This company started by going up to events in concert saying, hey, put your phone in here because you should be paying attention to the concert. It expanded to Dave Chappelle stand-up sets, Wanda Sykes. It went into

courtrooms where you're not allowed to phone. So this company has found a niche where, you know, there are spaces where you're not allowed to bring on your phone. And you have to put it in their little plastic pouches. I went to a comedy show recently where I had to ditch my phone. First of all, you feel like the coolest thing ever because you're like, oh, I'm about to see some stuff that I'm not allowed to film. But it was also just the most enjoyable experience ever because you finally can be present in the moment. It was my favorite show of the year. So I do think Yonder is only going to, they've said that they haven't done any marketing. It's literally just been word of mouth from school administrators to concert goers to people, comedians. So I do think that this is a growing space.

and yeah, no phone spaces. I'm all for it. All right, that is all the time we have. Thanks so much for starting your morning with us and have a wonderful Friday and weekend ahead. For any questions or comments on anything you heard, feel free to drop us a line at the email address Morning Brew Daily at MorningBrew.com.

Let's roll the credits. Emily Milliron is our executive producer. Raymond Liu is our producer. Olivia Graham is our associate producer. Yucenoa Ogu is our technical director. Billy Minino is on audio. Hair and makeup said they couldn't work because of the outage, but who's going to tell them we don't use Windows?

Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. I wish you all well.