Apple Briefing 3. March 2024
Vision Pro, Sports App, and Apple Car
Hi Everyone, Ray here!
Today I am starting a new series on Global Equity Briefing called “Briefings”. These will be shorter articles on topics that I find interesting. The first Briefing is on Apple. Enjoy!
February has been quite an eventful month for Apple.
First, the company lost the status of the world’s biggest company to Microsoft. Microsoft’s rapid adoption of AI tools to create Co-Pilot, and its partnership with Open AI are driving a lot of positive market sentiment. Let’s not forget about the unbelievable compounding demand that AI adoption will generate for Microsoft’s Azure business.
Then the long-anticipated VR headset, Vision Pro was released, possibly the most important Apple product since the iPhone. Can Vision Pro succeed and outcompete Meta, driving the “Spatial computing” revolution?
On 21. February Apple launched its Apple Sports App. An iPhone app that sports fans can use to check live results, announcements, and statistics. It might seem like a trivial and small App, but I believe it is a bigger deal than it seems.
February ended with a shocking revelation that Apple is stopping its decade-long project Titan, Apple’s electric vehicle venture.
Vision Pro
The long-anticipated Apple virtual reality headset finally hit the market this month. As usual for Apple product launches, it generated a lot of media interest, excitement from the fans, and ridicule from Apple detractors.
A lot of people were stunned by its high price tag, $3499. Nothing unusual for Apple, the company has always been ridiculed for the price of its products. Steve Balmer famously said that the iPhone will fail because of the $500 price tag. In my opinion, people predicting Vision Pro’s failure are missing the forest for the trees.
I am not going to dwell on the technical specifications of Vision Pro, there are plenty of good YouTube reviews. It is obvious that this version of the Vision Pro is the worst it will ever be and the company will improve the product with each subsequent release, the same as with the iPhone, iPad, and other products.
This is Apple’s foray into the next stage of computing. The company went from PC’s to MacBooks to the iPhone. Virtual reality, or spatial computing, as Apple prefers to call it, is the obvious next step. Anyone who has ever tried a VR headset can see the immense potential of this technology. From gaming, movies, and experiences to workstations. Spatial computing has the opportunity to radically change the way we live and work.
Meta is the biggest player in this industry. Mark Zuckerberg notoriously hates Apple and the control iPhone gives them over the internet. He has made it his life mission to not be dependent on Apple in the next stage of the internet. The company’s rebranding from Facebook to Meta symbolizes this goal. Meta’s Reality Labs unit has lost $42 billion since 2020.
Apple has no intention to compete on price, Meta Quest Pro, Meta’s most expensive headset goes for $1499, while Meta Quest 2 is available for $299. The companies have chosen different strategies, Meta is trying to gain market share and increase adoption, while Apple is aiming for exclusivity and hoping to monetize its existing fanbase. Meta is trying to be the Andriod of the Metaverse, while Apple, is just being Apple.
The key to success will be the developer's enthusiasm. Apple has had rocky relationships with developers, many have complained about high fees and Apple’s “Walled Garden” approach. Ultimately, if there are no good apps on Vision Pro, people won’t buy it. Meta has the first-mover advantage, but Apple has a large clout. Developers want to make money and if Vision Pro sells well, they will be forced to make apps for Vision Pro or risk being left behind.
Some notable companies that have refused to make apps for Vision Pro include, Netflix, Spotify, YouTube, and Roku. However, Disney+, HBO, and Paramount have created Vision Pro apps. Furthermore, Apple’s influence in gaming means that over 250 games were available at the launch. And let’s not forget that Apple itself is expanding its services offering rapidly. Its streaming service Apple TV+ was available at launch and is likely to have a great user interface and customizations that create an amazing viewing experience.
Looking at Google Trends activity, we see that there is very healthy interest in Vision Pro. Peak interest after the release was double that of Christmas interest in Meta Quest and stayed elevated for longer, since then it’s consistently been above Meta Quest. The reaction to Vision Pro has been mixed, some people love it and predict great success while others claim it’s a failure.
Mark Zuckerberg made what I can only categorize as a cringe video, where he claimed that the cheaper Quest 3 is better than the Vision Pro, despite the price difference. Obviously, as the CEO of Meta, he is not reliable, and his comments mean nothing. Whatever the truth is, as the CEO he would always say that his product is better. What struck me was that he made the video in the first place. I can’t imagine Tim Cook releasing a video like that. Seemed cringe and pathetic to me.
There are no sales figures available. The reaction has been polarizing so it’s difficult to say how the product launch is going. In any case, it is unlikely that Vision Pro will have a material impact on Apple’s finances, at least for a few years. However, whatever the sales figures say, I will be writing about it in the future.
Apple Sports App
On 21. February Apple announced its latest App, Apple Sports. It is a free app, targeting the most engaged sports fans interested in real-time scores and statistics. This might seem not important as there are dozens of such sports apps. However, I believe this is an important step and signals that Apple is serious about becoming a sports juggernaut.
Apple TV+ recently signed its exclusive 10-year $2.5 billion deal with Major League Soccer. Furthermore, the company was instrumental in bringing the biggest football star in the world, Lionel Messi to Inter Miami. This is a revolutionary deal and the first of its kind. Sports for decades has been the crown jewel of the cable bundle. A lot of sports fans have built habits around it and are fickle and superstitious. Consequently, major leagues have been slow and cautious with expansion to streaming, offering some limited games and often demanding cable presence as well.
MLS agreed to show all games exclusively on Apple TV+. Apple will surely learn from this experience and discover what works and what doesn’t. This is where the Apple Sports app will play a crucial role.
I believe TV set is the operating system of the living room. While Apple decided to not release a TV set of their own, Apple has a second chance to become the living room OS with its Apple TV+ streaming service.
While released probably a few years later than ideal, it has massive potential. The growth of Apple TV+ has been slow but steady. Apple TV+ had a 7% US streaming market share in Q3 2023. The company doesn’t release detailed subscription numbers, but 3rd party estimates say Apple TV+ has 25M paid subscribers and 25M subscribers from promotional offers. Apple gives 3 months free subscription with a purchase of iPhone, iPad or a Mac.
To me, it is evident that Apple wants it to become the backbone of the Apple One subscription bundle. For that to happen sports must be a huge part of Apple TV+.
Variety reported that in 2023 from the top 100 most viewed US TV events, 56 were sports related. Sports is the only thing keeping the cable bundle alive and the loss of it will be what ultimately kills it.
Apple MLS deal is just the beginning, the new sports app will provide a significant complementary value. You can expect exclusive content, videos, interviews, podcasts, and news. In the future, undoubtedly the app will stream sports events.
The Apple Sports App will become the operating system of Apple's sports efforts!
It will work together well with Vision Pro. I expect Apple to create some kind of exclusive VR sports experience on the Vision Pro.
Furthermore, Apple will likely bid aggressively for sports rights. Don't be surprised when Apple outbids everyone for US Premier League rights in 2028. NBC cannot compete with Apple's war chest. NBA rights expire next year as well.
I believe that in the next decade, the way customers watch and engage with live sports is going to change dramatically and Apple will be at the forefront of these changes.
Expect exclusive deals, VR experiences, increased cord-cutting, and crying from legacy media about the supposed monopolistic practices of Apple.
Death of the Apple Car
“Project Titan” was the decade-long Apple’s electric and autonomous vehicle venture. The project had over 2000 employees and the company reportedly spent $10 billion on it. The New York Times reports that some Apple employees are happy about the closure of the project and long considered it fruitless. Some were even calling it “Project Titanic disaster”.
This announcement came as a shock to me and many, while simultaneously vindicating those who for years said that the car would never happen.
I was one of those who thought Apple Car would be its next $100 billion-a-year product.
My thinking was that a company with such financial resources, tech prowess, large and broad customer base, could massively increase the adoption of electric vehicles. Honestly, I was a bit disappointed by this announcement. However, I don’t have access to the same information that Tim Cook has. The sunk cost fallacy has caused many CEO’s to pursue fruitless projects, it is very hard to admit ones mistakes and axe a project one has spent years on. Thats why it is so common for new CEO’s to cancel projects as they don’t have emotional attachments to them.
It is better to admit defeat early, rather than wasting billions and losing anyway.
Since taking over from Steve Jobs, Tim Cook has proven to be an excellent CEO. Apple has grown immensely in the last decade. Successfully releasing massive hit products like Apple Watch, AirPods, and others.
I believe the decision was likely made due to the following reasons:
Tesla
With its unbelievable growth, Elon’s company has surprised everyone, except its fans. In 2018 the company delivered 245K vehicles, by 2023 the deliveries increased to 1.8M. If we could go back in time to 2019 and speak to automobile industry experts, legacy auto CEOs, and Tim Cook, they would call anyone crazy, who would suggest that in just 5 years Tesla will 7X their deliveries.
Yet Tesla did and Tesla is the only large-scale EV manufacturer not losing money. Ford, GM, BMW, Rivian, and Lucid all lose money on every EV they sell.
Tim Cook probably realized that they were too slow, and now are years behind Tesla. To come even close to competing with Tesla, Apple would need to accelerate spending. Increased capex spending would certainly crush the stock price, as in the short term Apple’s profitability would take a hit. Because it would take years for these investments to generate meaningful returns.
Margins
Apple killed its TV set project because the margin profiles were not to Apple’s liking. Many Korean, Japanese, and Chinese TV manufacturers make great TVs for a few hundred $. Apple realized that for them to get its desired margins and make a compelling product, the company would have to sell it for many thousands of $, likely making it a niche product.
It seems that history is repeating itself with EVs. Tesla's gross margins have fallen from around 30% to around 20%. Rivian has a negative gross margin of 46%, Lucid gross margin is -138%.
Apple likely decided that for them to gain meaningful market share the company would have to settle on lower margins. Certainly, Apple could sell a $200K car, but most people can’t afford it, so the sales volumes would be low. Why bother?
AI
AI revolution is here and so far, Apple has been in the back seat. From my own experience, Siri is completely useless, and I haven’t seen any improvements in it for years. ChatGPT stunned the world when it was released. Apple will dedicate the recourses previously used by the Apple Car project to AI development. The company spent years and many billions trying to develop self-driving cars and now hopes to take those lessons and apply them to their AI efforts.
I am not a software engineer or AI expert, so I don’t know if there is any overlap there. But I suspect that this is just a face-saving talk, it is hard to admit that the company wasted 10 years and billions and got nothing out of it.
Conclusion
Only history will tell us if canceling the car was a wise decision. I suspect if Vision Pro is a success no one will remember the cancelled car projected and wasted billions. The future of the company and the returns of Apple shareholders rest on Vision Pro’s shoulders.
The spatial computing revolution is coming, whether Meta, Apple, or both are winners. Apple’s Sports efforts can be a significant driver of Vision Pro sales if Apple is to create unique and special sports experiences. The Sports app is a great start and I will be following any new developments.
Thank you for reading, follow me on:
X(Twitter): @TheRayMyers
LinkedIn: TheRayMyers
Disclaimer: Global Equity Briefing by Ray Myers
The information provided in the "Global Equity Briefing" newsletter is for informational purposes only and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. Ray Myers, as the author, is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.
The content presented in this newsletter is based on publicly available information and sources believed to be reliable. However, Ray Myers does not guarantee the accuracy, completeness, or timeliness of the information provided. The author assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.
Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned in the "Global Equity Briefing" report. Any investment decisions made based on the information in this newsletter are at the sole discretion of the reader, and they assume full responsibility for their own investment activities.