Tech Brew Ride Home - Thu. 04/27 – Meta Does Good

Episode Date: April 27, 2023

Meta reported earnings that surprised investors in the good way. But that doesn’t mean they’re backing off the Metaverse. Global smartphone shipments continue to plummet. Might congress ban children from social media? Amazon gets out of the health tracker business. And the interesting way that rejection of the Microsoft Activision deal is using a somewhat novel argument. Sponsors: Miro.com/podcast Shopify.com/ride Links: Facebook Parent Meta Platforms Sees First Sales Increase in Nearly a Year (WSJ) Meta beats revenue expectations, remains committed to metaverse (TechCrunch) Smartphone Market woes continue with 14.6% Drop in first quarter this year, According to IDC Tracker (IDC) Senators unveil bipartisan legislation to ban kids under 13 from joining social media platforms (CNN Business) Amazon shuts down Halo division and discontinues all devices (The Verge) Google on why Authenticator sync isn’t E2E encrypted, but option coming later (9to5Google) Microsoft’s $69 Billion Deal Tripped Up by Niche Gaming Market (Bloomberg) Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the TechMame right home for Thursday, April 27th, 2023. I'm Brian McCullough today. Meta reported earnings that surprised investors in the good way, but that doesn't mean they're backing off the Metaverse. Global smartphone shipments continue to plummet. Might Congress ban children from social media? Amazon gets out of the health tracker business and the interesting way that rejection of the Microsoft Activision deal is using a somewhat novel argument. Here's what you missed today in the world of tech. In recent times, we've shared so many bad earnings reports from Meta, it's maybe worth underlining that they just reported a good one. META's stock jumped 10% overnight on the news that Q1 revenue rose 3% year over year. Its number of daily active people

among its family of apps jumped 5% to 3.02 billion, but it's the revenue number that really counts here. This is meta's first sales increase in almost a year, quoting the Wall Street Journal. That snapped a streak of three quarters in which meta's revenue had retreated from the year prior, the only time that has occurred since the company went public in 2012. Shares surged by more than 12% in after-hours trading, as the company also forecast that second quarter revenue could reach as high as $32 billion. The 3% increase is an improvement from the 4.5% drop in revenue that the company posted in the final quarter of 2022, indicating that meta's heavy investment in artificial intelligence tools to improve its ad-targeting systems is working.

Mr. Zuckerberg attributed some of those gains to reels, the company's short-form video product, Mr. Zuckerberg said that Reels is increasing overall app engagement and that the company believes it is gaining share in the short form video market. When we started this work last year, our business wasn't performing as well as I wanted, but now we're increasingly doing this work from a position of strength, Mr. Zuckerberg said on Wednesday in a call with analysts. Mr. Zuckerberg said he expects so-called generative AI to have impact on every one of meta's apps and services. He theorized that the technology could help marketers more easily create advertisements for meta's services, power chatbots for businesses on Messenger and WhatsApp and help Metaverse users more easily

create avatars and virtual worlds, end quote. Let's get back to those interesting details on Reels. Meta says time spent on Instagram grew by more than 24% ever since Reels launched, thanks to AI recommendations, and they expect Reels to be revenue neutral by the end of the year or at least early 2024. Now, Meta's Reality Labs unit, read its Metaverse investments, reported Q1 revenue down 51% year-over-year from $695 million to just $339 million, and an operating loss up 35% year-over-year from $2.96 billion in losses to $3.99 billion. But what I think the street liked about those

numbers was the loss is growing, but at a decelerated pace. Because Meta said they expect Reality Labs operating losses to continue to increase, but I guess the street figures, at least it's not increasing at the rate we saw before. And Mark Zuckerberg himself disputed that meta is moving its focus away from his metaverse vision, and he sees AI tech working in tandem with that vision, quoting TechCrunch. A narrative has developed that we're somehow moving away from focusing on the metaverse vision, so I just want to say up front that that's not accurate, Zuckerberg said. We've been focusing on AI in the metaverse, and we will continue to do so. Our vision for AR glasses involves an AI-centric operating system that we think will be the basis

for the next generation of computing, Zuckerberg said on the call. When it comes to its metiverse vision, Zuckerberg said that half of daily active users on its Quest headsets spend more than one hour per day on their device. Meta did not disclose how many people are actually using Quest headsets on a daily basis. Building the Metaverse is a long-term project, but the rationale for it remains the same, and we remain committed to it, Zuckerberg said, end quote. Global smartphone shipments fell 14.6% year-over-year to 268.6 million units in Q1 of 23, the seventh consecutive quarter of decline. Samsung failed. 8.9%, Apple, 2.3%, and

Xiaomi, 23.5%. This is from IDC, quote. While the decline is more than the 12.7% IDC previously forecasted, the results aren't surprising. Inventory has remained elevated across regions. However, it is in significantly better shape compared to six months ago, thanks to reduced shipments and heavy promotional activities. The industry is going through a period of inventory clearing and adjustment.

Market players remain cautious, deploying a conservative approach, rather than dumping more stock into channel to chase temporary gains and share. I think this is the smart thing to do if we want to avoid an unhealthy situation like 2022, said Nabila Popal, research director with IDC's worldwide tracker team. While we are optimistic about recovery by the end of the year, we still have a tough three to six months ahead. Everyone is anxious about exactly when the tide will turn and wants to be first to ride the wave of recovery. However, it's a tricky situation. Anyone who jumps in too soon will drown in excess inventory. Now more than ever, it's important to keep a close pulse of the market,

barring unforeseen elements. IDC expects the market to cross into positive territory in the third quarter and see healthy double-digit growth by the holiday quarter, and quote. Almost all the regions suffered double-digit declines in Q1 of 2023. China witnessed close to 12% in terms of a drop, which was slightly more than expected despite the recent reopening of the market. Consumers are prioritizing travel and entertainment over smartphone purchases and, on uncertainty still lingers, which is dampening consumer sentiment. Developed markets like the USA and Western Europe fared better than others with declines of 11.5% and 9.4% respectively. Emerging markets saw a 17 to 20% decline range. On a positive note based on recent discussions we've had with

OEMs and supply chains, yet appears the smartphone industry is collectively gaining confidence that we'll see return to growth late this year and into 2024, said Ryan Reith, group VP with IDC's worldwide tracker team, end quote. U.S. Senators have unveiled a bipartisan bill that bans kids under 13 from joining social media and requires tech companies to get parental consent for teens' accounts. Quoting CNN Business. Under the bill known as the Protecting Kids on Social Media Act, social media platforms would be barred from letting kids below the age of 13 create accounts or interact with other users, though children would still be permitted to view content without logging into an account,

according to draft text of the legislation. Tech platforms, covered by the legislation would also have to obtain a parent or guardian's consent before creating new accounts for users under the age of 18. The companies would be banned from using teens personal information to target them with content or advertising, though they could still provide limited targeted recommendations to teens by relying on other contextual clues. It's the latest step by lawmakers to develop age limitations for tech platforms after similar bills came into law this year in states such as Arkansas and Utah. But the legislation could also trigger a broader debate and possible future court challenges, raising questions

about the privacy and constitutional rights of young Americans. Most major social media companies already bar kids younger than 13 from their platforms, the result of a federal children's privacy law known as Copa, but enforcing the restriction has been a challenge. And what could be one of the most far-reaching changes to the technology landscape, the bill seeks to create a government-run age verification program that can certify users' ages or parental status based on identification they upload to the government system or to a third-party verifier. Under the bill, that program would be a pilot project administered by the Department of Commerce and participation and use of the federally mandated age verifier would be voluntary, but it would represent a potentially vast expansion of

the government's role in regulating websites where age verification is a requirement, end quote. Amazon is shutting down its health-focused halo division, discontinuing its halo brand, halo view, and halo rise devices, and plans to lay off portions of the teams involved. Quoting the verge, we have made the difficult decision to wind down the Halo program, which will result in role reductions. Melissa Cha, Amazon's VP of Smart Home and Health, told staffers in an email obtained by the verge. More recently, Halo has faced significant headwinds, including an increasingly crowded segment and an uncertain economic environment. Although our customers love many aspects of Halo,

we must prioritize resources and maximize benefits to customers and the long-term health of the business, end quote. Chah went on to write that all Halo hardware would be discontinued with operations winding down over the next several months. to the Wayback Machine, the Halo View was available earlier this month, while both the band and Rise were available last week. However, it seems that the band, View, and Rise have all since been pulled from Amazon's site, though they are available at some third-party retailers as of this writing. The news isn't a huge surprise. Not only did Amazon kick off another round of layoffs today, but the company was also incredibly late to the fitness tracker game. The original Halo

Band was a bare-bones tracker that launched in 2020. At the time, rivals like Fitbit Apple and Samsung had already added EKG and atrial fibrillation features to their smartwatches. The simple band, while affordable, was also somewhat controversial. Its two marquee features were that it could generate a 3D image of a user to measure body fat, as well as monitor a user's tone when speaking to others. It followed up with the Halo View in 2021 and recently launched the Halo Rise, a contactless sleep tracker, and smart alarm clock. In a blog, Amazon now says that it will fully refund any customers who bought a Halo

device or accessory ban in the last 12 months. All unused prepaid Halo subscription fees will be refunded, and users will no longer be charged. Amazon also noted that the devices will stop working on August 1st and that all remaining data will be deleted. Users can also download or delete their data before then via the settings page in the Halo app, end quote. I have to say I was wondering about this angle when I first told you about this story. Google says it plans to add end-end encryption to Google Authenticator down the line, in their words. After researchers warn that that new feature to sync two-factor authentication codes to your Google account is not end-to-end encrypted. Quoting 9 to 5 Google. Google today explained that the goal of

authenticator's new sync feature is to, quote, offer features that protect users but are useful and convenient, acknowledging that end-to-end encryption is a powerful feature that provides extra protections. The downside is that users might get locked out of their own data without recovery if they forget or lose their Google account password or extra layer of added security. The Google password manager today offers on-device encryption that, quote, turns your device into a key that's used to lock your passwords before they're saved a Google password manager. However, if you lose the key, you could lose your passwords too. That being said, Google, quote, plans to offer end-end encryption for Google Authenticator down

the line. In the meantime, it reminded users that they can continue to use the app offline without Google AccountSync. The company also added today that it encrypts data in transit, and Rest for Google Authenticator and all other Google products. On a side note, if you have Google Authenticator set up on several devices, be careful when updating to the new version and enabling sync. When syncing, Google will not recognize identical codes or automatically merge them. You might end up with multiple duplicates as a result. To avoid this, first set up sync on your main device and then delete every other instance

of Google Authenticator app. As such, when you reinstall the updated app on secondary devices, it will just sync from your main device and not show duplicates, end quote. Finally today, an interesting little analysis of yesterday's rejection by the UK's CMA of that Microsoft Activision deal. The rationale for the block focused on the nascent cloud gaming market, which is a departure from regulators' traditional focus on mature markets. Quoting Bloomberg, analysts expressed surprise Wednesday that UK regulators would move to thwart a deal in a nascent field where companies are still finding their footing. Cloud gaming is dwarfed by the larger console-based business. Titles like World of Warcraft and

Overwatch, quote, will be important for the competitive offering of cloud gaming services at the market continues to grow and develop, the authority said in a statement. The regulator concluded that under Microsoft, Activision wouldn't have enough incentive to cede its games across multiple services. analysts were baffled that concerns over the evolution of cloud-based play could prove fatal to the biggest ever deal in gaming. After three years, Alphabet's Google shuttered its Stadia cloud gaming offerings in January, while Amazon's Luna has seen dozens of games leave its subscription service. Regulators more often focus on deals that threaten competition in mature developed markets, but the UK Action Wednesday reflects a growing emphasis on deals that could impede rivalry in the

future. The Federal Trade Commission, for example, didn't challenge Facebook's $1 billion acquisition of Instagram in 2012 and was criticized later for letting the world's largest social network eliminate what probably would have become a major competitor. These days, regulators are increasingly focused on emerging industries like cancer detection and virtual reality. Cloud-based gaming services generated just $5.1 billion in 2022 in terms of revenue, while console game sales amounted to nearly $35 billion, according to research firm Omdia. It's just not a big market, said Peter Pecter, an analyst at Wedbush Securities, citing cloud gaming's volatility and potential to change. It doesn't make sense that Microsoft would keep nascent cloud gaming services that haven't even been imagined yet

from launching by locking up content, end quote. He compared the agency's reasoning to the idea that no other streaming service could compete with Netflix. Microsoft currently has a 60 to 70% share of the global cloud gaming market, according to the CMA. Sony has a parallel offering PlayStation Plus, although PlayStation Plus boasts about 46 million subscribers. The service doesn't offer splashy new releases on their day of launch. Sony also doesn't own its own data centers. Analysts on Wednesday questioned whether the CMA was making an apples to oranges comparison between the Microsoft Game Pass's cloud offering and those of Amazon, Sony, NVIDIA, and others.

I think they're rather misinformed on what the cloud gaming market is, said Jusufan Van Dernan, who lectures at New York University's Stern Business School. They're conflating cloud gaming with the revenue model. Then they're looking at it as a distinct technology and a market in another sense, end quote. For example, the CMA may be overstating the Game Pass's role in Microsoft's cloud gaming dominance when cloud gaming is just one feature of the service. I don't think we can compare the way Microsoft uses cloud games,

to the way Amazon uses it for Luna, said Juce Revolt, an associate professor of strategy and entrepreneurship at University College London School of Management. The market share is driven by the popularity of Game Pass, not the popularity of cloud gaming within gamers, end quote. So, yeah, there was no miracle at the Eddiehead yesterday. Turns out Man City are a good team. I guess being able to have two, $50 million or more superstars

at basically every position, makes you into a good team. That is a bit churlish, though. They played perfectly and Arsenal did not. It's not mathematically over, but yeah. By the way, speaking of long shots, anyone out there have a connection to Mark Cuban. I've got a portfolio company with the Ride Home Fund in the health space that I think would be right up his alley. If anyone could intro, contact me at Brian at Ride Homefund.com. Talk to you tomorrow.