Morning Brew Daily - SpaceX attempts history, Schwab's $41B deposit loss, Netflix's live fail

Episode Date: April 17, 2023

Episode 40: Neal and Toby break down how SpaceX will attempt to launch Starship, the most powerful rocket ever built. They also discuss Charles Schwab's latest earning reports and how they lost $41 billion in deposits over the first 3 months of 2023. They also break down Google's race to beat Microsoft in AI after Samsung ponders a change in search engines. Plus, Netflix's 'Love is Blind' live streaming fail on Sunday night and what we are looking forward to this week.  Learn more about our sponsor, TaxAct: https://www.taxact.com Learn more about our sponsor, Fidelity: https://fidelity.com/stocksbytheslice Listen Here: https://link.chtbl.com/MBD Watch Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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pwc.com slash U.S. slash brew AI. That's pwc.com slash us slash brewaI. Good morning brew daily show. I'm Neil Freyman. And I'm Toby Howell. We've got a big show today on this Monday. SpaceX was planning to launch its Starship rocket on its first orbital trip this morning.

Whether it happens or not, we'll explain why Starship is the reason you will be living on Mars in 20 years. And I never thought I'd say these words out loud, but we are going to talk about the love is blind debacle on Netflix last night. Then we'll tell you why Charles Schwab's bet on zero fee trading is potentially biting them in the arse and introduce you to the hottest new Drake song with a surprising twist. Neil, it's Monday, April 17th. Let's ride.

All right, Toby, I've got a little butterflies going on in my stomach because as we speak at a little after 9 am. Eastern SpaceX was preparing for the first orbital launch of its starship rocket from southern Texas. While rocket launches have seen commonplace in the past few years, this one is different. Elon Musk has built Starship as the key for visits to the moon, Mars, and to make humans a multi-planetary species because it's so dang big and powerful. So no matter what happens with this launch, and it looks like it is not happening, which is a little sad, but it shows you just how hard space is. Still, this is worth talking about. It's a historic launch.

mug, even Musk, even before the day, the launch, Musk pegged the chances of Starship reaching orbit at 50%. He said, I'm not saying it will get to orbit, but I'm guaranteeing excitement. It won't be boring. Was it boring? I know. It seems a little boring because they did end up scrubbing it. It looks like because a valve wouldn't open. But yeah, you're totally right. It shows how complicated space is. Honestly, Musk loves playing up the interplanetary aspect of this. And I feel like it's something that investors in SpaceX kind of just go like, yeah, okay, buddy, like whatever you want to say. I truly think that the biggest deal of this launch is the business side of things because SpaceX's satellite launch business is kind of their moneymaker. It made a billion dollars

last year. Their Starlink satellites are the thing. It's already profitable. It's actually the only division that's profitable within SpaceX. And Starship's a big deal for that because you can now launch more satellites and heavier satellites. And so that, even though we're talking about going to Mars and we're talking about interplanetary species, I truly think it's the moneymaker. It brings home the bacon for SpaceX. And that's why it's kind of a big deal. Yeah.

You're right. You're more of a romantic. I'm the engineer. I'm not an engineer at all. But just looking at the specs of this thing, it is really freaking huge. It's stacked. This launch was supposed to be the first time it was stacked on top of its super heavy booster. So combined, the entire thing is that.

by far the tallest rocket ever, ever not launched. It's going to be 394 feet tall. So it's this towering figure that's above the Statue of Liberty. 33 Raptor, it has 33 engines, which is unheard of. You were talking about the Russians tried this and it did not work. Yeah, during the space race, the Soviet Union tried to build this rocket called the N1 that had 30 engines in it. And they tried four times. It exploded every single time. And then they just gave up. To put into context, the rocket, the Saturn 5 rocket that the Americans use, five engines. Right. So Elon, for some reason, he's going back to the Soviet era and say, we just need more

engines because this thing is heavy. This thing is heavy because it is made of stainless steel. And most other space ventures use composite components. But Elon just went straight up stainless steel. Yeah, he says it's a great material because it withstands the reentry temperature. It's a little heavier, but they're like, we can just make up for it with more. with more boosters. It's an interesting choice. Another thing that is a little unique about this particular rocket is that it's fueled by methane

and not hydrogen. And people speculate that the reason that they're using methane is because there are trace amounts of methane on Mars and it could refuel in space. Yeah. Again, it's always the Mars angle. But NASA is going to use this rocket. They're sending it to the moon for their Artemis missions. Again, another big revenue driver for SpaceX is these NASA contract tickets. And so even though Elon's looking at it and saying the future of humanity rests on this, NASA is probably looking at it very closely and going, you've got to figure this stuff out because we're sending people to the moon in less

than a decade. The contract, I think, was worth $2.9 billion with a bunch more kind of tacked on after that. And what's going to happen is Starship is going to be orbiting the moon. And NASA's rocket, the NASA's vehicle is going to link up with Starship. and Starship will take people from, you know, the outer reaches of the moon down onto the moon as the lunar lander. So this is a very, you know, versatile space vehicle. Yeah, for sure.

It's such a bummer. It's such a bummer. It's such a bummer. We really wanted to hype it up. It still is a big deal. It's still a huge deal. And hopefully they figure it out. One final thing I wanted to mention about Starship is that the key point is that it is reusable. Yeah. Which shaves tens of millions of dollars off of every launch cost. So you can lift, I think, 100.

I'm not going to get it right, but you can do a massive launch with a very large payload that's now under $10 million because you can... Cheap. Very cheap because these things land back on the landing pad so you can reuse them. And if they just kind of blow up in the atmosphere or they crash down into the water, then it renders them unusable for the next time. Yeah. It's an incredible piece of machinery that eventually we'll see making it off the ground.

Okay, Neil, let's return from space a little bit and dive into an equally exciting story about zero fee trading in Charles Schwab. Okay. The story actually starts back in 2019 when Charles Schwab shocked the world by offering zero fee trading. The idea was that their bank would actually drive the majority of their profits and that they could kind of write off the brokerage as kind of like this loss leader customer acquisition tool. For a while, it looked like a great decision. The pandemic hit interest rates hovered at near historic lows. and Schwab raked in billions of dollars from their banking business. But last month's collapse of Silicon Valley Bank has kind of turned everything on its head.

So after a flurry of rate hikes, Swab's balance sheet got a little dicey, deposits from customers sank a little bit, while unrealized losses from these long-term treasury bonds and mortgage-backed securities piled up. The stock is down 33% in March alone. It's had its worth months ever since 1987. And basically all eyes turned to earnings, which happened this morning, because people were really curious to see how did deposits fare.

Because if deposits kind of really dropped too much, then we could see a similar situation to Silicon Valley Bank. So we got earnings this morning. They were mixed. Total revenue was up 10% year over year, but those deposits that I mentioned were down 11% from the previous quarter

and 30% from over a year ago. So it's not great, but it's not the catastrophic, like, world-ending thing that would cause Charles Schwab to really be in a tough It's crazy that Schwab got caught up in this mess. It's a massive financial giant. It has $7 trillion in assets, $35 million accounts. So the fact that it got swept up with a lot of the SBB stuff, whereas a lot of other

bigger financial institutions didn't. It's mostly just because they are doing the same thing that everyone was doing the same thing. They were parking their money in these long-term bonds. And even no matter what size you are, like you're still susceptible to this. the same rate hikes that Silicon Valley Bank did. So people are focusing on honestly just two words with Schwab and it kind of shows what's going on in the broader financial world and this is cash sorting.

And basically now that the Fed has risen, it has increased interest rates, people are shuffling around their money from low paying bank accounts to take advantage of higher yields in products like money market funds or CDs that are paying, you know, four to five percent. And that's happening at Schwab. So Schwab used to be paying just point-fying just point-fing. 5% on customer deposits. Now it's shelling out over 4% in some cases. Yeah, it's, we've

talked about this before. We did, I think it back on Friday. Right. It's definitely becoming a theme here that these banks can't get away with just giving you 0.1% on your money. You're going to move your money to a higher yielding account. Exactly. And just to finally touch on, we talked about Charles Schwab's getting rid of brokerage fees on trading.

And that was a big deal in 2019. Everyone else followed suit. Like everyone fell in line. Yeah, but I think you're missing. a key point. What happened two years before? The Robin Hood. Robinhood. They didn't do it on their own. Robin Hood came on the scene and offered no fee trading and then it forced every, all of the legacy brokerages to do the same thing. To get on board with it. Yeah. And just to give a context on how big of a business that was, in 2018, before it got rid of the fees, it brought in $7.63 million in revenue from that, which was right around 7.5% of its total revenue. So it wasn't this massive,

massive revenue driver, but they're probably looking back and thinking, well, it would be nice to have a little money coming in from that. Yeah, I'm not sure how Robin, I mean, I don't think Robinhood has been doing well, and it doesn't have that bank aspect. Right, exactly. It just offers no people. It literally is just. I know it's tried to whip out new products, kind of like trying to become a bank. I know it has like a high yield savings account now. It's, it's definitely like the disruptor did its disrupting, and now they're trying to like live in the, in the post-disrupted environment. I'm looking up Robin Hood stock right now. It's not good.

Not doing well. There's going to be a lot of red, I think. All right, while you do that, we're going to jump on to our next story, Neil. We have a good old-fashioned love triangle going on in the search engine world. So Google and Samsung have kind of been the best of friends, the best of lovers over the last few years. Anyone who's purchased a Samsung device in the last decade has opened the Internet to search for something and been greeted by Google. But now Samsung has a bit of a wandering eye. They've been texting Microsoft on the side to see if they want to have a little fling with Bing.

That's because Bing has had a massive glow up recently. They do not look the same as they did in high school. They're kind of sexy now, and it all comes down to the addition of AI. So now Samsung's looking at Google and saying, why don't you look like them? Why can't you do what they do? And Google is very hurt by this. They're shocked that Samsung is even talking to Microsoft because Samsung phones have run on Google's Android operating system since they've come out.

They were literally built for each other, but now Samsung is kind of like willing to risk it all to get a taste of that sweet AI-powered search. Neil, Google's freaking out about that a little bit. That was an inspired intro. I've got to say 9 out of 10. Thank you. Google is freaking out.

I know they had this, you know, red alarm back when ChatGBTBTBT just launched, and their search engine is $162 billion business. This is their lifeblood if Bing or any other chatbots come and eat it away. they're kind of sunk. Yeah. So you can tell that they're scrambling to work on solutions.

And the New York Times reported last night that they have this working group called Project Magi. I'm not sure how they made that name. I love the project name. It's a project that has two goals. One is to add AI tweaks to its current search engine. And eventually they plan on revamping it completely and launching a completely new search engine. If it's got a project title, you know it's a big deal. But they only have, they have 100.

160 people working on, 140 people working on it? It should be more, right? I know. Yeah. Yeah. That again, I think open AI does not have that many people either. So I guess these things aren't really labor intensive. Smaller's nimbler, I guess.

We also have an interview from Google CEO, Sunder Pichai, who went on 60 minutes last night and basically caution against the all-out AI race that's going on right now. I think one of the things we need to be careful when it comes to AI is avoid what I would call race conditions. conditions where people working on it across companies, et cetera, so get caught up in who's first that we lose, you know, the potential pitfalls and downsides to it. The first thing I think of when I hear him saying that is that sounds like someone who's losing the AI race would say. Totally. Because someone in second place would say, we need to slow down.

Like, we don't know how this race is going to pan out. Like, it doesn't matter who's first. We just need to make sure it's right. So Google has released a chatbot called BARD and people were not exactly impressed with it. So that adds to the pressure that their big first launch in the space was kind of subpar. Right. My theory on this is that AI chatbots kind of have these almost personalities at this point where people are going to start gravitating towards the ones that they think has the best voice or a voice that they empathize with. So it's almost like barred they didn't connect with.

They didn't vibe with on the same level as they were with Open AI. Because maybe it wasn't as smart. And when you're just talking to someone who's not spit in fact or just not as smart as you want them to be, you just kind of get less interested. True that. It's all about relationships. My takeaway here is that searching web search is going to be completely different two years from now. Yeah. It'll be what we're doing right now where we query Google and get a list of results of links that half of which are ads.

That is going to be rotary phone level antique. All right. You hear to hear first. I mean, that's not. No, I agree with you. It will be different. It is crazy to think about now that Google is, like, certainly revamping its search engine is going to roll out a new one.

The way we search the internet for the past 25 years is going to be bust. All right, Neil, great first half of the show. Before we jump into the next half, we're going to take a quick break. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills, starting at 170. like the next grill three 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 to homedipo.com slash price match for details. Study and play. Come together on a Windows 11 PC. And for a limited time, college students get the best. both worlds get the unreal college deal everything you need to study and play with select windows 11 PCs eligible students get a year of Microsoft 365 premium and a year of Xbox game pass ultimate with a custom color Xbox wireless controller learn more at windows.com slash student offer while supplies last ends june 30th terms at ak a.m.m.m.s slash college PC all right so last night I'm sitting in my jammies have my sleepy time tea getting ready to watch accession open

Twitter for some reason and all of a sudden it starts blowing up with people who are angry at Netflix. I had no idea what was going on. Why are people angry at Netflix? Turns out that Netflix completely fumbled its live stream of the Love is Blind reunion. And I know you were really keyed in and for this. Just kidding. You had no idea what was going on. I know, but I did see what was going on on Twitter. So it was supposed to start at 8 p.m. Eastern, this this live stream reunion of Love is Blind, which is their very popular reality show. but it was not available then and then this poor social media person for Netflix

had to keep posting and saying we're sorry it'll come online soon we're having technical difficulties and then eventually they said all right we're just going to tape it and then put it online for you all at put it on our platform at 3 p.m. Eastern today so they completely fumbled this rollout

it was very high stakes considering this is only the second live thing that Netflix has done yeah I was honestly just surprised that they're doing live shows at all because for the longest time Netflix has vocally shunned live content, especially sports. They were saying, we don't want to touch it with a 10-foot pole. It's too expensive. It's not what we're good at. And yet here they are trying to live-stream some of their

shows. And they kind of were self-fulfilling prophecy. Like it was, it didn't go well. Like they weren't equipped to handle it. And I just truly think that this shows the state of the current streaming wars is that Netflix is just looking for any edge, any differentiating factor. So even though they've in the past said we don't want to do it, they're now doing it because they want to stand out in some way. Well, maybe the, well, maybe the differentiated factor is that they suck at live things because a lot of their competitors are getting really good at it. Right. YouTube TV just has an NFL Sunday ticket. Apple TV Plus is showing MLS and MLB games.

Amazon Prime is showing Thursday night football kind of without a hitch. So their differentiating factor is that you cannot go there for live because they're just terrible at doing this. I mean, Love is Blind reunion, you know, sports producers can obviously correct me on this. Seems like a lot lower of a lift in terms of production than a NFL football game, which is extremely complex. And Amazon has pulled that off. Right. I also think an funny angle of this was just how involved the brands, as we call them, were on social media. I was going through who was in the Instagram live stream of Love is Blind.

Cheesecake Factory brand account was in there MTV all recipes It was like this weird cultural moment Which is why I think it created so much chatter Is that for some reason Like love is blind Is just a very culturally impactful show right now And so like it was crazy

Hulu there's a Hulu tweet Of them basically like sub-tweeting them Blockbuster was in I saw that replies like roasting Netflix They said remember renting VHS from us You could start it on time No problem this is what we get So fun

I mean even I remember roasted Netflix in the newsletter this morning. Right. It was for some reason this just struck a nerve with a lot of people on social media. So it is not a good look. They're obviously want to get into live stuff because they wouldn't be testing this if not. So it doesn't seem like this obviously is kind of like a three steps back situation because their reputational risk is now very high. Can't trust Netflix. The replies were just kind of like you suck like. It was pretty bad. It was tough out there. All right, we'll keep an eye on Netflix. Let's go to our Monday segment, Winner of the Weekend, where Toby and I will each pick a thing or a person or a vibe that

won the weekend, and I'm going to kick it off to Toby to go first. My winner of the weekend is a new song that Drake in the Weekend put out called Heart on My Sleeve. It's actually about Selena Gomez in the weekend's former relationship, and it slaps. The only issue is it's completely AI generated. So this anonymous creator called Ghost Rider says the song was made using an AI trained on the singer's voices, and we have a quick clip of the song that will play for you now. You wouldn't know that this is made by a computer. I'm head bopping, too.

It does go pretty hard, honestly. We were debating even playing the song for you guys, because we didn't really know if we'd get in trouble or not. Would Drake or the weekend get mad at us? Would the YouTube algorithm punish us? Because of copyright. Right, because of copyright issues. is it even someone else's music if AI made it?

So it's introduced all these crazy questions about the future of music, the future of rights and music. And it's part of a discussion that Universal Music Group has already kind of touched on. Yeah, I think they sent a notice being like stop to AI companies saying stop scraping our music for your AI stuff like that you're stealing IP. Right. It's only going to become more. And then even Drake kind of weighed in. Not on this song.

There's another song of him rapping in. Ice Spice song, and he literally posted the video on his Instagram account and said, this is the last straw. So artists are in this weird spot, too, because it's this uncanny value of you hear yourself, but it's not you singing the words. Is Drake the most A-Iable artist? Yeah, probably. It's very easy.

What does that say about his music? To get his vibe, yeah. All right, let's go with my winner, which is also in the music realm, Phantom of the Opera. You might think that Toby and I are big jocks, and we just care about golf and sports, But no, we actually love musical theater. And so Phantom the Opera dropped for the final time, close for the final time on Sunday.

It is the longest running show in Broadway history, had its final performance on Sunday. It debuted in 1988, before we were born. It played nearly 14,000 performances for more than 20 million people, made $1.3 billion.

And here's a fun fact. It also was the biggest job creator in U.S. theater history. During its run, it employed 6,500 people, people, including about 20 people that worked on the show back in 1980 all the way through 2023. This makes me kind of sad. I thought fandom would be one of those things that would just, it's so synonymous with

theater and Broadway that to have it not on Broadway anymore just feels wrong. It's going to come back. And now we have kind of a shuffling at the top of the longest running Broadway musical. So Wicked just replaced Cats last week as the fourth longest running show all the time. So you have Phantom and then Chicago and then Lion King and then Wicked. That's a... Wicked and Lion King could be there for a long time. Yeah, that's a murder's row of musical theater right there.

All right, let's get into the week ahead, give you a preview of what's going on this week and what you should be paying attention to. Start off the bat today, Boston Marathon. Good luck to everyone running. Very excited. Are you going to run next year? Next year, I plan on running, yes.

That is awesome. We also have tax day tomorrow. Something I did not know that could be useful for people is that, obviously, it's the deadline to file your federal taxes, but it's also the deadline to make contributions. to some tax deferred accounts, such as an IRA. So there's the limit of $6,000 that you can deposit into an IRA if you're younger than 50 years old. So you might want to consider topping that off before Wednesday hits.

Next year, the cap rises to $6,500. So make sure, I had no clue. I looked at my thing. I was like, did I reach the limit? We have more earnings reports. We have Netflix is reporting earnings. So they'll definitely be asked about their live ambitions, Bank of America, Goldman Sachs, American Express, and Tesla and a dozen other firms.

I have a fun fact about earnings so far, so 30 companies have reported. 90% so far have beat on earnings per share. That's the highest week one statistics going back to at least 2012. So earnings have been good so far. Maybe the bar is low. Yeah, that's good. It was, but it's still good. Earnings will definitely shape the stock market going forward.

We have the G7 summit in Japan, where all the foreign ministers get together and talk about geopolitical challenges like China's aggression toward Taiwan, the war in Ukraine, climate change, finance, all those great things. We also have a lot of playoffs. I thought we weren't jocks, Neil. We didn't care about sports. Oh, we care.

You flip to any channel this week at like seven through midnight and you're going to get NHL and NBA. The NBA playoffs have had an amazing start with the Kings. I want the Kings, baby. And Russell Westbrook Renaissance last night. So very am for that. We also have Ramadan. is ending at sundown on Friday. Earth Day is Saturday. And then a couple of days before is 420.

Let's go. Which I don't know why 420 is. Central Park is going to be lit. That's all I'll say. I mean, it smells like weed all the time in New York. So I don't know if 420 is going to make a difference. That's our show for you. That is a wrap on Monday. You can always reach us at Morningbrewdaily at morningbrew.com. Stinks that Starship didn't blast off, but space is really freaking hard. Let's roll these credits. The show's producer and editor is Emily Milliron. Our technical director is Euchenoa Ogu. Our supervising producers, Bryce Belloff.

Raymond Lou is our associate producer. James Etamian is our sound guy. Hair and makeup is picketing outside Netflix's headquarters. Devin Emery is our chief content officer. Our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow. All. Pay off your home. Travel for Life.

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