Welcome back to the Joseph Carlson show on this episode.
Apple is working on a hardware subscription service for
iPhones. This might seem like just a blip
in the news. It came and went in a day but I
think this is a much bigger deal.
I think this is a substantial key part of apples.
Overall master plan, I'm going to explain their master plan.
In this episode, we also have news apples, not going to be
charging their fees for video and music apps.
So users can come in and sign up through a All without paying
their tax, the Apple App Store tax and I'll explain why this is
a good move for apple as a shareholder.
This is the exact type of move. I like to see Meta.
On the other hand right now is having a difficult time
retaining top talent. This is a story that I've been
hearing over and over again for the past month, meta is losing a
lot of their top talent to competitors and we're going to
dive in and try to explain why. And then, we also finally have
some positive economic news. People are going back to work at
a very brisk Pace. I'll show you Quick people are
going back to work in this episode and then of course, we
have my portfolio. There's no major changes to it.
Other than the fact that I sold a little bit of my core, I sold
a little SCH G and a little s CH D to buy more dominoes that is
around 6% of my portfolio. So it is a substantial by but
it's not. Like I'm going all in on this
company. I do think the company's
attractively valued and although I can't predict short-term moves
in the market. I think the Domino's has a very
bright future. You want more information on
this trade, in this company, you can refer to my previous video.
Now let's go ahead and jump right in there is some news
about a week ago that just popped up for about a day and
then it quickly faded away into the background and the News was
that apple is working on a hardware subscription service
for iPhones. That's the headline.
Now, most people that read this might shrug their shoulders and
think, okay, another subscription service, right?
I've heard this before, but I think this is much bigger news
for Apple than people are giving it.
For especially investors in apple.
This is incredibly important news.
Let's back up here for a minute. First of all, you know that, I'm
a big fan of subscription Services, I've made a number of
videos on the subjects. Now, of course, we have Netflix,
Netflix, almost invented the model.
They actually turn the entire TV industry upside down in the
cable industry upside down with their direct-to-consumer
subscription model. It's much more consumer
friendly. You can look at Costco.
Costco is a Warehouse that provides so much value that
people pay a subscription in order to shop there, they're
paying Costco money, just to get into the store before they can
start buying things. That's the amount of value that
company offers but the big part of their business model is the
yearly subscription with the low churn rate.
Then we can look at Amazon, Amazon is almost like the sped
up version of Costco brought online and it likewise turn the
online retail industry upside down with its Amazon Prime
subscription. Action model offering two day
shipping to Prime members, Amazon gains, billions of
dollars in pure operating income on a reliable basis, every
single year with their subscription model.
Now, of course, when you think of Amazon and subscriptions your
mind goes to Amazon Prime, that's the subscription they
sell. You can also look at another big
aspect of their business which is AWS Amazon web services,
although AWS isn't exactly a subscription model.
It's extremely similar AWS runs off of a model where they're
selling. Are big infrastructure.
All of the buildings that they've built that host.
All of the web they're selling that infrastructure as a service
that's literally what the business model is its
infrastructure as a service, and similar to subscriptions, they
are tied into their customers. They already have their credit
card numbers. They already have their payment
information and they just build them reoccurring every single
month or every single year based entirely off of their usage.
So Amazon has dual levels of subscription.
They The Amazon Prime subscription and then they have
the infrastructure as a service through AWS.
This is an evolution in the subscription model aimed at the
corporate world. Now, the thing that's important
to understand from the investment perspective is that
service-based and subscription based companies.
Almost always earn a higher multiple from investors than
simply one time sales companies. The multiple I'm talking about
is the price to earnings or the price to sales.
Microsoft for example, has a 33 PE on a trailing basis A 29
forward P/E. That's a pretty high multiple.
But Microsoft has always been looked at as an incredibly wide
mode subscription based company. So always has that premium, that
people pay over other companies that simply don't have this type
of sticky reoccurring Revenue. Now, if we compare Microsoft's
Revenue to Apples, Apples is always been a little bit more
jarring, a little bit more back and forth, never quite as
consistent as Microsoft's because Apple has been largely
based off of one time sales of lots of different Biases, the
iPad and MacBook, and mostly the iPhone sales.
Not as much of their revenue has been based off of that
reoccurring Revenue. But Apple has been working
almost desperately to change this.
We look at the company overall and we cut out the different
forms of Revenue, aside from just Services.
The services have grown substantially on a
year-over-year basis. It's growing like a startup
company. This is the quarterly growth of
just their services. The most recent quarter, the
services were 51 billion dollars.
But I look at Microsoft and Apple and I know that these two
companies envy each other in different aspects, Microsoft
envies apples position as having so much Hardware with a direct
connection to the consumer. They wish that they had more
Hardware in consumers hands. I know, that's something
Microsoft wishes they had, the Apple currently has, and
likewise I know that apple looks at Microsoft as a company and
envies, the fact that they have so much reoccurring subscription
Revenue, that's something that Apple wishes they had.
So each of these companies are trying to become more like each
other in two different ways. But with this blip of news, a
headline, that was last week and quickly faded away it revealed
apples. Big step into becoming like
Microsoft. Apple is working on a brand new
type of subscription. It's not SAS, it's not software
as a service. It's not infrastructure as a
service like AWS are Azure. This is hardware as a service.
This is the big push that Apple's going to make.
They're going to turn their Hardware into a Service just
like Netflix. Now let's go ahead and listen to
this news report from the person that broke it to try to break
down. Really?
What this is yeah thank you for having me.
This would be no different like you said than your monthly
ten-dollar Apple music subscription or $15 a month,
Apple One bundle subscription right?
You'd be paying for the phone on a monthly basis.
Like you might on a car, at least.
Now this is different than installment programs and carrier
subsidy programs today. What apple and the carrier's
allow you to do? If you don't want to buy, the
phone outright is split up the cost.
Whether that's Five hundred dollars, fourteen, hundred
dollars, or less for an sc and such over 12, 18, 24, 30 months,
depending on your carrier. This would be a set fee.
That's not the cost of the phone /.
You know how many months they're already here two years?
So this is not simply taking the foam price and breaking it up
into monthly payments. It shouldn't be viewed that way,
because it's not doing the same thing.
You actually don't own the phone and the same way is if you just
broke up, the payments Apple wants to make it so that their
Hardware R is you too much more like apple music or Spotify or
Netflix? It's just in a different medium,
you get a phone sent to you, you pay a monthly price every single
month and then you get the newest phone sent to you and so
on and so forth. You're paying a subscription
price for an ongoing service, only in the form of Hardware.
So they say that the service would be apples.
Biggest push yet into automatic reoccurring sales, allowing
users to subscribe to hardware for the first time rather than
just Digital Services but the It is still in development.
So this is all inside rumored information, but I have a very
strong belief that these rumors are true.
And apple will eventually introduced this type of Hardware
as a service. Now, I know what you're thinking
and I'm thinking the same thing. This is awfully reminiscent of
that whole, you'll own nothing and be happy quote from Black
Rock, the whole idea of you actually owning nothing.
That's what companies seem to want, right?
Well, I actually think about this, I don't think it's quite
as Sinister. Apple is a company that sells
consumer electronics and at least for The iPhone.
They have a very short shelf, life of how long they're on the
bleeding edge. Technology, moves incredibly
fast. IPhones only stay really good
for three or four years until you probably want to upgrade to
the latest one. So most of us, even though we
own our iPhone, they are rapidly depreciating assets.
They lose their value, incredibly fast.
After a couple years, they're only worth half or quarter as
much. And many people even though they
quote unquote own their iPhone are constantly just junking
their old iPhone buying. One, junking their old one,
buying a new one. So for that huge swath of
people, this would actually come in as an easy way.
They just subscribe to the newest one and be insured.
You're always going to have the latest and greatest for very
frugal people for investors and most of you watching this show,
you're probably in the category where this doesn't look like
such a great deal, but you got to look at this through the lens
of the average. Apple consumer, millions of
people just want to have the latest technology.
They spend all of their time on these devices and having an easy
way to do that. At with less friction is a
win-win for both the consumer. And for Apple, it will make it
so that they finally have the huge reoccurring revenue of a
Microsoft like company and for the consumer.
It creates less friction to constantly upgrading their
device. In my opinion, I think there's a
very good chance to Apple will push into Hardware as a service.
And I also think there's a very good chance, they'll be widely
successful at it. It will build a more reoccurring
Revenue stream to give Apple more consistent, Microsoft like
revenue. And interestingly, Apple's PE
ratio their multiples have climbed to almost perfectly
match. Microsoft's apples forward, P/E
is out of 29 and Microsoft is out of 29.
And in my opinion, this makes sense.
I think that Apple should trade around the same as Microsoft.
So, that is Apple's master plan and I think they have a decent
chance of pulling this off. Not a quick side note, Apple
also said that they're now going to allow video music apps to
sign up new subscribers without paying fees.
So basically with apps like Netflix and Spotify, you might
be able to sign up through the The app if Netflix and Spotify
want you to and you won't have to pay Apple any type of fees, I
think the reason that Apple's doing this is smart, they
realize that these big companies like Netflix and Spotify are
simply circumventing it. Anyway, they're not signing up
through apple and that creates less lock in with their
ecosystem. So, they're saying, you know, if
more and more apps do this and circumvent the App Store, we may
as well lower the fees and have them sign up through the app
store because in those customers have a close connection with
Apple. So, You know, this will hit the
top line revenue for Apple little bit.
I think that overall this is a very positive thing.
It looks good to Consumers, it looks like apples doing a right
step and lowering fees, and it also creates more lock in on the
Apple App Store because more and more people are going to be
signing up through the App Store.
Now, moving on, we have struggles that a lot of tech
companies have faced recently, especially the big ones of an
exodus of talent. And it seems like a lot of them
are leaving for start-up companies or new Ventures where
they're going for lots of Equity and meta is facing a lot of this
issue. I think in part because of the
stock price plummeting, but also because of the rapid shift and
direction for the company, they say that the top talent is
quitting as the lab tries to keep Pace with Rivals at least
four prominent members of meta a a I have departed in recent
months according to people familiar with the matter and
Linkedin analysis, Karl Herman, an AI entrepreneur who used to
work at the Rival. Lab deepmind told CNBC on
Monday. The true figure could be More
like half a dozen. Adding that the company's
London, AI lab had seen an alarming number of exit, quote
metas, London office, just collapsed, and they lost most of
their top researchers in the span of six weeks.
That sounds pretty Grim, the whole office collapsing in it.
They asked people the reason why they think they're leaving and
it seems like just a variety of different reasons.
Quote, some people jump to another big lab because I fill
it will advance their career or research agenda.
Better, that is a frequent reason that Engineers leave
company. He's for career advancement.
You don't want to get too complacent with where you're
working. Another one is quote, others go
because comps or hiring potential for their team is
better elsewhere, The Source added quote, others just want to
do startups or get involved with smaller companies for some it
might be tied to meta stock tanking, but I wouldn't say
that's necessarily the main reason.
So seems like there's a lot of different reasons and I've heard
this same thing Through the Grapevine.
I've heard a lot of people are leaving, not only meta but other
big Companies to pursue different Endeavors.
And this is a risk for big Tech, Talent is their most important
asset and they have to find a way to retain them apples.
Chosen way of retaining. Them seems to be throwing two
hundred thousand dollar stock bonuses per year at their key
Engineers. That is the way that I think
apples trying to handle this is by simply paying them, an
absolute fortune on top of their salary.
But unless you're willing to dish out this much money, seems
like a lot of these Engineers are going to be leaving to other
opportunities. So it's difficult to know how
Much, this type of news will affect the investment overall of
meta or other big tech companies in my opinion, I wouldn't Factor
this type of negative news too much into an investment thesis
of meta. I don't think that a couple
engineers at the company are going to make or break their
effort. I think that overall if your
entire thesis is reliant on 12 or 15 Engineers, that's probably
a bigger concern with a company like meta, they have tens of
thousands of employees and they should be able to work past
this. Now, moving on, we have Actual
positive news about the economy. This is something that we don't
hear all that often. The March jobs report is out and
it shows extremely strong hiring momentum.
This is more than just a Brisk Pace.
I think that they're actually understating how rapid this job
growth has been. Because look at this, they see,
employers added 431,000, jobs in March, another 400,000 plus jobs
in March and employment in January, and February combined
was 95,000 higher than previously reported.
And the report marked the eleventh straight month of job
gains above 400 Thousand, Eleven months in a row.
That's the longest stretch of growth in records dating back to
1939. The unemployment rate fell to
3.6 percent that is quickly approaching the February 20, 23
pandemic rate of 3.5% a 50-year low.
Now the employer participation rate hasn't fully recovered but
that's recovering very rapidly as well.
So, everything in terms of employment is moving rapidly.
Back to normalize levels back into a good direction.
And again, I think this is happening incredibly fast.
Look at this graphic here is an example.
This shows basically every time there's been huge job loss in
the u.s. history and it shows it with different colored lines.
2020 was the red line. So you can see that this was
essentially the worst job loss we've ever had by far the
highest levels of unemployment at an incredibly Fast Pace, but
look how fast the recovery's been.
That against 2007. In 2007, it took years and years
and years to get back to the amount of jobs that we had prior
to the recession. And you can see the trend in
2020. What used to take years is now
taking months and it looks like in just a couple months.
We might be back to where we were pre-pandemic level.
I think that's pretty incredible.
So I'm not trying to paint a Rosy picture about the economy.
There's certainly a ton of challenges we're facing with
inflation and Rising interest rates, but the jobs gains have
been a bright spot looking at the Employment rate illustrates
this in a different way. You can see the massive spike in
2020, as many people are prevented from working.
And all of that quickly returning, we're almost back
down to the exact unemployment rate that we were prior to the
pandemic. In my opinion, I think it's a
very positive thing that people are going back to work.
So that's all for now. If you want to get an updated
link of my portfolio, there's one in the description of this
video and also, if you want to try out the patreon, you can try
it out today with a free trial for this month, and you'll be
able To see if you like it and you want to stick around.
There's also a link in the description for that other than
that, I'll see you in the next episode.