Tech Brew Ride Home - Wed. 05/01 - Apple’s Earnings Were Bad, But Investors Rejoiced

Episode Date: May 1, 2019

Apple’s earnings were bad, but investors rejoiced, Andreessen Horowitz is continuing its transformation, Eric Schmidt is leaving Google’s board, don’t sleep on Hulu in the streaming wars and some thoughts on F8. Sponsors: PixelUnion.net Sonic.com/ride Links: Apple Trade-Ins and Discounts Spark iPhone Revival (Bloomberg) A16z ushers in new fund strategy with $2.75B (TechCrunch) Former Google CEO Eric Schmidt will leave Alphabet’s board after 18 years (The Verge) Scoop: e-Bike startup led by mobile veterans raises $20 million (Axios) SoftBank makes a huge bet on Latin America (TechCrunch) Hulu Grows to 28 Million Subscribers (The Hollywood Reporter) At F8, Facebook focuses on privacy — and little else (The Interface) Subscribe to the ad-free premium feed! 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 Tech meme ride home for Thursday, May 1st, 2019. I'm Brian McCullough today. Apple's earnings were bad, but investors rejoiced. Andresen Horowitz is continuing its transformation. Eric Schmidt is leaving Google's board. Don't sleep on Hulu in the streaming wars and some thoughts on Facebook's F8.

Here's what you missed today in the world of tech. And just like that, tech earnings season groans to a close. Apple reported Q2 revenue of $58 billion down 5% year over year. iPhone revenue was $31.1 billion down from $37.6 billion year over year. Mac revenue was $5.5 billion down from $5.8 billion. iPad revenue was actually up to $4.9 billion from $4 billion. But yes, generally this is another quarter where Apple had to report actual shrinkage. not just drops in growth. Last time, the culprit was China, right?

Indeed, Apple also had to report sales in greater China were $10.22 billion down from $13.02 billion year over year. So things are not so good, right? Then would it surprise you to know that Apple is currently up more than 6% at the time of this writing and is sitting right back at that magical $1 trillion market cap, number. What gives? Well, it seems that Wall Street has indeed bought into the services narrative that Apple has been peddling these last few quarters. Services revenue came in at a record $11.5 billion. There are now 390 million paid subscriptions across all of Apple's various services, and Apple's

chief financial officer said on the earnings call yesterday that services now account for one-third of Apple's gross profits. Also, hidden in the numbers, the drops in actual iPhone shipments were curbed a bit. They were curbed by giveaways and whatnot. But the bottom line is, investors just want to see more Apple devices in people's hands, because now, they figure, more I devices mean more services sold. In a sense, they're starting to think that the hardware is just the gateway drug that gets you hooked. And that is what they want to see going forward. More devices, bigger user base, so that the services can continue to build out. Quoting from Mark German and Bloomberg.

Apple resorted to traditional tactics such as discounts and generous trade-ins to revive its iPhone prospects. That dense hardware profit margins but creates a larger base of device owners to support an expanding roster of digital services. iPhone pricing had gotten greedy in 2018 and it makes sense to trim prices in 2019. said Neil Mawston, executive director of the global wireless practice at Strategy Analytics. Quote, Apple has the world's most valuable user base of premium smartphones, tablets, and smartwatches. It has potentially a billion people it can sell services to, end quote. Yes, apparently Apple took in four times as many trade-ins last quarter than the same period a year ago. Lots of iPhone 6s, 7s, etc. Lots of iPhone 6s and 7s.

were traded in for newer models, but all of those upgrades mean more services. Services revenue grew 16% year-over-year, which is slower than previous quarters. But if that number is going to grow, Apple just needs to expand the device user base. So a couple things. Apple is probably not going to join the race to a $2,000 phone anytime soon. In fact, expect them to continue to move downward where they can in terms of gadget pricing. Also, this is a textbook example of laying out a narrative for investors, and so far at least having that narrative pay off. In a tweet storm that I'm just going to quote in its entirety, Dave Girard lays out the rationale for what is happening with Apple, and I have to admit it makes a ton of sense.

Number one, Apple is becoming a subscription business with iPhone, the key acquisition of and retention of subscribers. Number two, analysts should bucket Apple's revenue as iPhone hardware and iPhone subscriptions. Number three, Apple should logically aim to lower gross margins on hardware, given that it has a given and proven subscription revenue stream for each user. It's how they add to their user base. Number four, number of active subscriptions will become a more important metric than new iPhone sales in a couple of years. Number five, Apple will increasingly look like an enterprise software as a service service. business with little to no competition and unimaginably large market opportunity. Rocket ship emoji, end quote.

Andresen Horowitz has closed on two new funds. One, a $750 million early stage fund, and the second a $2 billion later stage fund. That would bring the total raised by the firm to nearly $10 billion. The latter fund I mentioned will be managed by newly minted A16Z general partner David George. Again, this is notable as a follow-on or follow-through on the firm's recent strategy pivot, which we talked about, quoting TechCrunch. The A16Z model, one that couples capital with agency-like services, has for years been replicated by other big venture firms. Now A16Z expects to lead the charge again by turning itself into a registered investment advisor.

The move will allow A16Z to experiment in new areas, including the public markets, other VC funds, and cryptocurrencies. George is investing across industries, offering up his knowledge of late-stage economics, valuations and underwriting to Andresen Horowitz's large and growing team of dealmakers. George is at least the fourth high-level addition to the team in the last year, including Katie Juan, who joined in June to lead a 16-Z's cryptocurrency investment effort. Angela Strange and Connie Chan additionally were promoted to GPs last summer, end quote. Also notable, after 186.

years, former Google CEO, Eric Schmidt, will be leaving Alphabet's board of directors. Schmidt will not seek re-election to the board this coming June when terms for board seats are up. Quoting The Verge, Schmidt said that he would be stepping down in order to help the next generation of talent to serve. He said he would be teaching more, working at his philanthropic organization, Schmidt Futures, and using his role as technical advisor to quote, coach alphabet and Google's business slash tech end quote there's a new e-bike startup in town bond mobility has just raised $20 million from backers including the japanese car part giant denso bond wants to focus on dockless bikes that are also e-bikes which means they have electric motor pedal assist capabilities

that not only make getting up hills easier but can achieve top speeds of 30 miles per hour so think of this as something in between the e-scooter offerings and the traditional docked bike share offerings, Bond CEO Kurt McMaster says that adding electric pedal assist to a bike turns it into a full-on car substitute for shorter trips. Also notable is the presence of prominent tech analyst Horace Dedu as co-founder and chief strategy officer. If you follow Deju at all, then you'll note that over the last couple of years, he has become something of a fully converted and committed micromobility expert. So he's putting his money, or at least his time and energy, where his mouth is when it comes to this space. Rappi, an on-demand delivery startup operating in Latin America has raised $1 billion from SoftBank, making this the largest ever round raised by a Latin American tech startup.

based in Bogota, Colombia, the on-demand delivery startup, has apparently taken Latin America by storm. And according to TechCrunch, this is not just a story of one company taking off, because Latin American startups seem to be hot at the moment. Quote VC funding in Latin America catapulted to new heights in 2018. Startups located across Argentina, Brazil, Chile, Colombia, and more have secured nearly $2.5 billion since the beginning of 2018, according to Pitchbook. up from less than $1 billion invested in 2017, end quote. This most recent round for Rappi brings its total raise to date to $1.2 billion. The company was already a unicorn when last year it was valued at a billion during a $200 million financing round.

There are a handful of unicorns in Latin America, including Sao Paulo-based New Bank, a fintech startup that has a $4 billion private valuation. And again, don't sleep on Hulu as a quiet contender in the streaming video wars. Hulu announced that it has 26.8 million paying subscribers in the U.S., up from 23 million just at the end of 2018. So that means that over the last year, Hulu has grown its subscriber base by 40%, a growth rate in the U.S. that Netflix hasn't seen in a long while. And that was before Hulu recently started cutting its prices. Over the last five years, Hulu has grown its user base by 133% compared to Netflix, which grew by 75% in the U.S. over the same period.

And if those rumors of Disney trying to acquire the last bit of Hulu that it doesn't own actually pan out, well, you can see a strategy here, quoting TechCrunch. Though Marvel owner Disney is preparing to launch its own direct-to-consumer streaming service later this year, Disney's majority ownership of Hulu is proving to be an advantage, as it can shift some of the more adult-oriented Marvel properties to Hulu instead of the more family-focused Disney Plus streaming service, end quote. And then there's the fact that Hulu is also playing in those ad-supported streaming waters that seem to be on the up lately. And then there's the fact that Hulu has already established itself as a producer of respected content in its own right, with The Handmaid's Tale being the most obvious example.

Again, I feel like I should note that I am not being paid to say this, but George Clooney's adaptation of my all-time favorite book, Catch-22, is coming in a few weeks, so I, personally, will be getting a Hulu subscription for the first time since the debut of Handmaid's Tale any day now. At the second day of F8, Facebook focused a lot on AI and AR, VR, VR. The company touted the investments it is making in AI that helps it catch problematic content with as little human supervision as possible. They talked up the advances in natural language processing as well as object recognition that has helped Instagram identify violent photos. They talked about creating full-body 3D avatars for AR and VR environments. They also touted their social VR apps,

spaces, venues, and rooms where they want you to interact with those avatars all while feeling like you're in a comfortable safe space. In other words, they're trying to build in anti-harassment tools into AR and VR from day one in ways that kind of felt like they came right out of the pages of snow crash, to be honest. But also, I did want to catch a couple of odds and ends. from F8 yesterday that I missed. Instagram has a new redesign to its camera that will make it easier to make high-quality posts

without importing media. So in other words, all those apps you use to make your Insta's fabulous, Instagram hopes you won't need them anymore. Instagram is also testing anti-bullying features such as warning users before they say something harmful and the ability to limit interactions

with a user without actually fully blocking them. And finally, just to note that for the conference that is largely supposed to be for developers, I and a lot of other people notice that there hasn't been a lot, or at least in the official keynotes, not a lot, for developers. Though I will admit that as part of their AI pitch today, they rolled out two new open-sourced AI tools, Bo Torch, which is based on Pi Torch for Bayesian Library Optimization and Axe, a platform for managing AI experiments. Instead, though, especially yesterday, everything has been about underlying that Facebook wants to move in a new direction to social as private interactions. The emphasis

seems to be de-emphasizing sharing, de-emphasizing the news feed especially, but sharing full stop. In a way, that change of emphasis alone is revolutionary for a company who for a decade tried to convince all of us that sharing was the sine qua non of the modern era. As Casey Newton noted, for Mark Zuckerberg, at least, the public broadcast model of social is over. That's why, Casey, like me, tends to think that this change in orientation is real, not because Facebook is chastened, but in fact because it is afraid of falling behind the times. As I said on a recent weekend episode, Zuckerberg has always been a slave to what he sees in the data. He knows your user behavior is changing before anyone else does, maybe even you. Facebook is changing, but the

They're doing it for themselves, not for you, quoting Casey. One way of looking at Facebook in this moment is as an unstoppable behemoth that bends reality to its will, no matter the consequences. This is how many journalists tend to see it. Another way of looking at the company is from the perspective of its fundamental weakness as a slave to ever-shifting consumer behavior. This is how employees are more likely to look at it. In the short term, Facebook's strength is undeniable. The company is earning record profits. Usage of its products is at an all-time high, and it continues to find new users around the world. But in his interview with the Times, where Zuckerberg talked about stories, groups, and messaging, overtaking newsfeed and activity almost entirely in the near future, Zuckerberg admits that the writing is on the wall. If the company wants to remain dominant, it has to refocus, end quote. And then there was this moment that a lot of commentators took note of yesterday.

Now look, I get that a lot of people aren't sure that we're serious about this. I know that we don't exactly have the strongest reputation on privacy right now to put it lightly. You can't see without the video, but Zuckerberg genuinely thought those would be laugh lines. Instead, there were crickets. It was a Jeb Bush please clap sort of moment, quoting Owen Williams, declaring that the future is private is a big refocus for a company at the scale of Facebook, but one that felt significantly watered down by a single wisecrack and fails to answer a key question for me.

Why should Facebook even have a part in any private future, except to ensure its own survival, end quote. That's all for today. I've been your host, as always Brian McCullough. You can follow me on Twitter at Brian MCC. Our show's subreddit is our slash ride home, Our Sister Show in its third week of life is the primary ride home covering all the news from the campaign trail. And if you want to support the show directly and get rid of the ads in the process,

link to the premium ad-free version of the show is the last link in the show notes. Talk to you tomorrow. I think the next president needs to be a lot quieter, but send a signal that we're prepared to act in the national security interests of this country to get back in the business of creating a more peaceful world. Please clap.