1 00:00:00,080 --> 00:00:04,320 Apple is a really big company. Apple makes a lot of money. 2 00:00:04,400 --> 00:00:09,400 Last year, Apple made nearly $100 billion in free cash flow. 3 00:00:09,800 --> 00:00:12,640 That's amongst the top earning companies in the world. 4 00:00:12,760 --> 00:00:16,840 Apple got this big and makes this much money not only because 5 00:00:16,840 --> 00:00:19,960 they make good products and services, but also because they 6 00:00:19,960 --> 00:00:23,720 have constructed an illegal monopoly over the past decade. 7 00:00:24,240 --> 00:00:28,200 An ecosystem of products and services that work together and 8 00:00:28,200 --> 00:00:32,040 force out competition. A monopoly that serves Apple and 9 00:00:32,040 --> 00:00:35,880 Apple's profits but does not serve competitors or customers. 10 00:00:36,000 --> 00:00:38,720 That is the argument that the Department of Justice is making 11 00:00:38,720 --> 00:00:41,560 in their new ground breaking lawsuit against Apple. 12 00:00:41,760 --> 00:00:45,080 Apple doesn't agree with the DOJ's characterization of their 13 00:00:45,080 --> 00:00:47,200 success. Apple says this lawsuit 14 00:00:47,200 --> 00:00:50,120 threatens who we are and the principles that set Apple 15 00:00:50,120 --> 00:00:52,960 products apart in fiercely competitive markets. 16 00:00:53,360 --> 00:00:57,040 If successful, it would hinder our ability to create the kind 17 00:00:57,040 --> 00:01:00,680 of technology people expect to see from Apple where hardware, 18 00:01:00,680 --> 00:01:04,120 software and services intersect. Apple also believes that the 19 00:01:04,120 --> 00:01:06,760 Department of Justice is overstepping their boundaries, 20 00:01:06,960 --> 00:01:10,760 not only trying to regulate Apple, but now trying to design 21 00:01:10,760 --> 00:01:14,160 consumer products, saying quote, it would also set dangerous 22 00:01:14,160 --> 00:01:18,080 precedent empowering government to take a heavy hand in 23 00:01:18,080 --> 00:01:21,120 designing people's technology. So in this episode we'll be 24 00:01:21,120 --> 00:01:24,800 going over both sides of this case, both the 88 page lawsuit 25 00:01:24,800 --> 00:01:27,840 filed by the Department of Justice and Apple's likely 26 00:01:27,840 --> 00:01:29,480 rebuttal. I'll be giving you some thoughts 27 00:01:29,480 --> 00:01:32,600 on whether or not this is a buying opportunity, a bump in 28 00:01:32,600 --> 00:01:35,720 the road for Apple or whether this presents a long term risk 29 00:01:35,720 --> 00:01:37,520 for the company. So we have a lot to get into 30 00:01:37,520 --> 00:01:39,080 this episode. We're going to be breaking down 31 00:01:39,080 --> 00:01:40,640 all of that. There's also a couple other 32 00:01:40,640 --> 00:01:42,120 things we have to get to in this episode. 33 00:01:42,240 --> 00:01:45,680 There's a new company to the stock market, Reddit IPO D 34 00:01:45,680 --> 00:01:47,920 yesterday. It's so new that Qualtrum 35 00:01:47,920 --> 00:01:51,360 doesn't even have a logo for it. Regardless, we have some of the 36 00:01:51,440 --> 00:01:54,960 early financials of the company, the revenue, the EBITDA, the 37 00:01:54,960 --> 00:01:57,080 cash flows and the shares outstanding. 38 00:01:57,080 --> 00:01:59,800 We'll be doing an analysis on the financial situation of 39 00:01:59,800 --> 00:02:02,440 Reddit and we have another upgrade for Google. 40 00:02:02,480 --> 00:02:05,640 It is now the best idea for Woodbush, which says that the 41 00:02:05,640 --> 00:02:08,160 threat to Google search is overstated. 42 00:02:08,240 --> 00:02:10,320 We'll be looking at their arguments of why they have 43 00:02:10,320 --> 00:02:13,480 Google as their best idea. Let's first dive into this Apple 44 00:02:13,480 --> 00:02:15,040 lawsuit. The first thing I want to 45 00:02:15,040 --> 00:02:17,320 mention is that I really like Apple. 46 00:02:17,440 --> 00:02:20,880 I like it as both a stock, but also as a company. 47 00:02:20,880 --> 00:02:23,640 In fact, I've always liked Apple as a company. 48 00:02:23,880 --> 00:02:25,800 I think they make fantastic roducts. 49 00:02:26,000 --> 00:02:28,880 I like just about every single thing Apple makes. 50 00:02:29,160 --> 00:02:31,120 I have an iPhone. I have an Apple Watch. 51 00:02:31,120 --> 00:02:34,080 I have tablets. I have Macbooks and I have the 52 00:02:34,080 --> 00:02:36,440 Apple TV. My favorite part of Apple 53 00:02:36,440 --> 00:02:38,360 products is not just the hardware. 54 00:02:38,560 --> 00:02:41,680 I do think the hardware is good. Apple, for example, was one of 55 00:02:41,680 --> 00:02:45,040 the first companies to make a laptop that had a really big 56 00:02:45,040 --> 00:02:47,560 trackpad and it worked really well. 57 00:02:47,680 --> 00:02:50,880 I remember using PCs before switching to the MacBook, and I 58 00:02:50,880 --> 00:02:54,320 just noticed that the trackpad was so much bigger and better. 59 00:02:54,560 --> 00:02:57,640 It tracked better, it just worked better all around. 60 00:02:57,800 --> 00:03:01,040 I remember the keyboards, the keys on it were just better. 61 00:03:01,240 --> 00:03:04,440 The screen had a higher resolution, the speakers were 62 00:03:04,440 --> 00:03:07,160 louder and clearer, and the battery life was better. 63 00:03:07,480 --> 00:03:10,560 I was impressed that basically every part of the design, it was 64 00:03:10,560 --> 00:03:13,160 superior to the PC that I used to use. 65 00:03:13,480 --> 00:03:17,040 After buying a number of Apple devices like this, I became 66 00:03:17,040 --> 00:03:21,360 convinced that this company was intensely focused on the quality 67 00:03:21,360 --> 00:03:24,080 of products they were designing. They wanted to be differentiated 68 00:03:24,080 --> 00:03:27,440 by the quality from the competition, but after using 69 00:03:27,440 --> 00:03:30,560 Apple products for a while, I realized that the real value in 70 00:03:30,560 --> 00:03:33,680 them is not simply the incredibly good hardware, but 71 00:03:33,680 --> 00:03:36,600 it's the seamlessness in which their hardware works together. 72 00:03:36,720 --> 00:03:40,080 Every Apple product is like a different form factor of the 73 00:03:40,080 --> 00:03:43,640 same overall product. The Apple ecosystem, every 74 00:03:43,640 --> 00:03:46,560 product, whether it's the iPhone, the iPad, the MacBook, 75 00:03:46,560 --> 00:03:49,640 the iMac, all of them work seamlessly together. 76 00:03:49,880 --> 00:03:52,800 All of your notes sync on the Notes app perfectly. 77 00:03:53,120 --> 00:03:57,080 All of your photos sync on the photo apps perfectly. iMessage 78 00:03:57,080 --> 00:03:59,160 works perfectly amongst every device. 79 00:03:59,360 --> 00:04:03,240 FaceTime works perfectly amongst every device every single time, 80 00:04:03,320 --> 00:04:05,600 without fail. It's true that Android has 81 00:04:05,600 --> 00:04:08,480 syncing capabilities across their devices, but it never 82 00:04:08,480 --> 00:04:10,920 seemed to work quite as good. It never seemed to work and 83 00:04:10,920 --> 00:04:13,720 function the same way as Apple's, and part of the issue 84 00:04:13,720 --> 00:04:18,160 for Android is it's so open, supporting so many devices, so 85 00:04:18,160 --> 00:04:21,680 many form factors that it's difficult to support everything 86 00:04:21,880 --> 00:04:23,880 and be seamless and work Florida State. 87 00:04:23,880 --> 00:04:28,640 At the same time, the closed ecosystem of Apple is part of 88 00:04:28,640 --> 00:04:31,400 the strength that has allowed it to build this seamless 89 00:04:31,400 --> 00:04:34,720 experience for its users. A completely open ecosystem 90 00:04:34,720 --> 00:04:37,000 that's forced to support anything and everything, 91 00:04:37,200 --> 00:04:40,280 thousands upon thousands of different devices has a much 92 00:04:40,280 --> 00:04:43,320 more difficult time building out the same seamless experience 93 00:04:43,320 --> 00:04:47,200 that a closed ecosystem does. And ALE has proven that overtime 94 00:04:47,200 --> 00:04:48,840 O. When I look at ALE as a company 95 00:04:48,840 --> 00:04:52,200 and the value proposition offers to consumers, I see it as 96 00:04:52,200 --> 00:04:54,680 twofold. They build incredibly good 97 00:04:54,680 --> 00:04:58,400 devices just on a 1 to 1 measurement of the device and 98 00:04:58,400 --> 00:05:01,160 the capability, the build and the form factor. 99 00:05:01,480 --> 00:05:03,720 I think they build very good devices. 100 00:05:03,880 --> 00:05:06,600 The other half of their value proposition to consumers is 101 00:05:06,600 --> 00:05:10,480 their incredibly smooth, functional, cohesive, flawless 102 00:05:10,600 --> 00:05:13,960 ecosystem where every device works seamlessly one to another. 103 00:05:14,160 --> 00:05:16,960 When you're in the Apple ecosystem, it's as if you bought 104 00:05:17,160 --> 00:05:20,520 one big device and every part of it is just a different form 105 00:05:20,520 --> 00:05:22,120 factor. These two different value 106 00:05:22,120 --> 00:05:25,600 propositions combined both the high quality product and the 107 00:05:25,680 --> 00:05:29,120 high quality ecosystem is an incredible value proposition. 108 00:05:29,400 --> 00:05:32,520 And that's why you see so many people choosing Apple and 109 00:05:32,520 --> 00:05:36,000 they're expensive devices over the cheaper alternatives. 110 00:05:36,200 --> 00:05:39,280 Time and time again, people choose Apple routinely over 111 00:05:39,280 --> 00:05:41,760 their competitors. So that is how I view Apple. 112 00:05:41,800 --> 00:05:43,800 I don't view it as a perfect company. 113 00:05:44,080 --> 00:05:46,280 I don't believe that it's without flaw, but I view Apple 114 00:05:46,280 --> 00:05:49,840 as an incredibly good company amongst a lot of inferior 115 00:05:49,840 --> 00:05:52,520 companies. The way that Apple has executed 116 00:05:52,520 --> 00:05:56,760 its plan over time and the value proposition offers customers, I 117 00:05:56,760 --> 00:05:59,280 think is unparalleled. And it must be said that my view 118 00:05:59,280 --> 00:06:02,920 on this is not unique. Apple routinely has been rated 119 00:06:02,920 --> 00:06:06,160 one of the top most liked companies by customers, 120 00:06:06,400 --> 00:06:10,160 typically within the top five Customers love Apple. 121 00:06:10,400 --> 00:06:14,760 Customers love Apple products. They gravitate to this ecosystem 122 00:06:14,760 --> 00:06:16,280 because they like the experience. 123 00:06:16,640 --> 00:06:20,400 This has been reinforced by study after study after study. 124 00:06:20,560 --> 00:06:23,680 But as always, there's two sides to every argument and the DOJ 125 00:06:23,680 --> 00:06:26,480 does not see things this way. They believe that Apples 126 00:06:26,480 --> 00:06:30,600 ecosystem in particular has been instrumental in forcing 127 00:06:30,600 --> 00:06:34,560 customers to use Apple over competitors and boxing out 128 00:06:34,560 --> 00:06:37,200 competition. That is the basis of this 129 00:06:37,200 --> 00:06:39,440 lawsuit. This lawsuit is intensely 130 00:06:39,440 --> 00:06:43,440 focused on the Apple ecosystem, with the core focuses being the 131 00:06:43,440 --> 00:06:46,920 App Store, the Wallet, the Watch, and iMessage. 132 00:06:47,160 --> 00:06:50,480 These are different factors of Apple's ecosystem that work 133 00:06:50,480 --> 00:06:53,280 better with Apple than they do with other devices. 134 00:06:53,680 --> 00:06:56,240 Now, we can go into each of these, but it's important to 135 00:06:56,240 --> 00:06:59,440 know that this lawsuit hangs on a lot of statements that I would 136 00:06:59,440 --> 00:07:02,840 say are subjective or even false statements. 137 00:07:02,840 --> 00:07:05,680 They're they're based on opinion, and I think the opinion 138 00:07:05,680 --> 00:07:09,000 of the DOJ is simply wrong here. For example, on paragraph ten of 139 00:07:09,000 --> 00:07:11,360 the opening introduction, they say that this complaint 140 00:07:11,360 --> 00:07:14,800 highlights 5 examples of Apple using the mechanisms to suppress 141 00:07:14,800 --> 00:07:17,520 technologies that would have increased competition among 142 00:07:17,520 --> 00:07:19,920 smartphones. Suppressing these technologies 143 00:07:19,920 --> 00:07:22,000 does not reflect competition on the merits. 144 00:07:22,240 --> 00:07:25,200 Rather, to protect its smartphone monopoly and the 145 00:07:25,200 --> 00:07:28,320 extraordinary profits that monopolies generate, Apple 146 00:07:28,320 --> 00:07:32,640 repeatedly chose to make its products worse for consumers. 147 00:07:32,640 --> 00:07:36,360 To prevent competition from emerging, Apple repeatedly chose 148 00:07:36,360 --> 00:07:39,960 to make its products worse for its own customers to prevent 149 00:07:39,960 --> 00:07:42,680 competition. That is quite the claim on the 150 00:07:42,680 --> 00:07:44,600 sub argument here they mentioned super apps. 151 00:07:44,600 --> 00:07:48,000 Super apps provide a user with a broad range of functionality and 152 00:07:48,000 --> 00:07:49,920 a single app. Super Apps can improve 153 00:07:49,920 --> 00:07:52,680 smartphone competition by providing A consistent user 154 00:07:52,680 --> 00:07:55,240 experience that can be ported across devices. 155 00:07:55,560 --> 00:07:59,440 Suppressing super apps harms all smartphone users, including 156 00:07:59,440 --> 00:08:02,240 Apple users, by denying them access to high quality 157 00:08:02,240 --> 00:08:05,600 experiences and harms developers by preventing them from 158 00:08:05,600 --> 00:08:08,760 innovating and selling products. This first allegation from the 159 00:08:08,760 --> 00:08:13,080 DOJ that Apple denies access to super apps seems like they 160 00:08:13,080 --> 00:08:16,040 didn't do their homework or they are grossly misinformed. 161 00:08:16,400 --> 00:08:20,680 Apple has no ban on Super Apps. They support the biggest super 162 00:08:20,680 --> 00:08:23,200 app on their phone, which is WeChat in China. 163 00:08:23,680 --> 00:08:27,120 In the US you have meta which supports messaging, payment, 164 00:08:27,320 --> 00:08:44,760 commerce, all in They say cloud streaming game 165 00:08:44,760 --> 00:08:47,960 apps could provide users with ways to play computing intensive 166 00:08:47,960 --> 00:08:50,920 games in the cloud. Cloud streaming games, and cloud 167 00:08:50,920 --> 00:08:53,840 streaming in general, can improve smartphone competition 168 00:08:53,840 --> 00:08:57,040 by decreasing the importance of expensive hardware to accomplish 169 00:08:57,040 --> 00:08:59,160 high compute tasks on a smartphone. 170 00:08:59,520 --> 00:09:02,840 Suppressing cloud streaming games harms users by denying 171 00:09:02,840 --> 00:09:06,400 them the ability to play high compute games, and it harms 172 00:09:06,400 --> 00:09:09,600 developers by preventing them from selling such games to 173 00:09:09,600 --> 00:09:12,600 users. Now they outline that 174 00:09:12,720 --> 00:09:17,240 suppressing cloud streaming games is a bad thing, basically 175 00:09:17,240 --> 00:09:19,520 alleging that this is what Apple's doing. 176 00:09:20,000 --> 00:09:23,560 But the DOJ knows that again, this is not something that 177 00:09:23,560 --> 00:09:26,960 Apple's doing. Apple originally denied cloud 178 00:09:26,960 --> 00:09:28,720 streaming games. That was one of the first moves 179 00:09:28,720 --> 00:09:30,840 they made, but they quickly reversed it. 180 00:09:30,920 --> 00:09:33,600 This was over two months ago. Apple is correcting it's 181 00:09:33,600 --> 00:09:36,320 terrible approval requirements for game streaming apps in iOS 182 00:09:36,320 --> 00:09:39,600 17.4 going to be corrected this year. 183 00:09:39,720 --> 00:09:42,600 This is already released news. It's established Apple was 184 00:09:42,600 --> 00:09:45,400 already headed this direction before this lawsuit, so the 185 00:09:45,400 --> 00:09:47,760 first two complaints they launch are a non issue. 186 00:09:47,800 --> 00:09:49,960 We move on to their next complaint centered around of 187 00:09:49,960 --> 00:09:51,600 messaging apps. This is where they get into 188 00:09:51,600 --> 00:09:53,880 iMessage. Messaging apps are apps that 189 00:09:53,880 --> 00:09:56,440 allow users to communicate with friends, family, and other 190 00:09:56,440 --> 00:09:58,960 contacts. Messaging apps that work equally 191 00:09:58,960 --> 00:10:02,040 well across smartphones can improve competition among 192 00:10:02,040 --> 00:10:05,520 smartphones by allowing users to switch phones without changing 193 00:10:05,520 --> 00:10:08,040 the way they communicate with friends, family, and others. 194 00:10:08,320 --> 00:10:10,960 Apple makes third party messaging apps on the iPhone 195 00:10:11,200 --> 00:10:15,320 worse generally and relative to Apple Messages, Apple's own 196 00:10:15,320 --> 00:10:18,520 messaging app, by prohibiting third party apps from sending or 197 00:10:18,520 --> 00:10:20,160 receiving carrier based messages. 198 00:10:20,480 --> 00:10:23,640 By doing so, Apple is knowingly and deliberately degrading 199 00:10:23,640 --> 00:10:27,480 quality, privacy, and security for its users who do not have 200 00:10:27,480 --> 00:10:30,240 iPhones. Apple also harms developers by 201 00:10:30,320 --> 00:10:32,880 artificially constraining the size of their user base. 202 00:10:32,880 --> 00:10:35,920 So this third complaint is centered around the blue bubble 203 00:10:35,920 --> 00:10:38,800 versus the green bubble. We all know we've all been 204 00:10:38,800 --> 00:10:40,680 there. If you're an Apple user, there's 205 00:10:40,680 --> 00:10:43,000 someone in the group conversation that has an 206 00:10:43,000 --> 00:10:45,240 Android, and they ruin it for everyone. 207 00:10:45,440 --> 00:10:48,520 Now everyone has to message the person that has the green bubble 208 00:10:48,760 --> 00:10:51,440 and you no longer get those awesome messaging features. 209 00:10:51,920 --> 00:10:55,280 And I will say that this this does seem like a somewhat valid 210 00:10:55,280 --> 00:10:57,880 complaint from the DOJ. They're basically saying that 211 00:10:57,880 --> 00:11:01,400 Apple's not playing friendly with other phones and it's kind 212 00:11:01,400 --> 00:11:03,040 of degrading the experience for everyone. 213 00:11:03,120 --> 00:11:04,920 And I've, I've been there as well. 214 00:11:04,920 --> 00:11:07,160 I have. I I know someone with the green 215 00:11:07,160 --> 00:11:10,880 bubble and that does create a little bit of awkwardness and a 216 00:11:10,880 --> 00:11:12,520 barrier when you're trying to text someone. 217 00:11:12,800 --> 00:11:15,640 And it doesn't work quite as well, unfortunately for the 218 00:11:15,640 --> 00:11:18,680 Department of Justice and their lawsuit that they launched 219 00:11:18,680 --> 00:11:21,880 yesterday. Months ago, Apple already said 220 00:11:21,880 --> 00:11:24,560 that it would support RCS in 2024. 221 00:11:24,720 --> 00:11:28,280 They said this November 26 of 2023. 222 00:11:28,640 --> 00:11:30,920 So this is something that Apple has released publicly, that 223 00:11:30,920 --> 00:11:34,520 they're going to support RCS, which fixes all of the security 224 00:11:34,520 --> 00:11:37,840 concerns, all of the messaging problems, knowing when people 225 00:11:37,840 --> 00:11:40,720 are typing, being able to respond with emojis, all those 226 00:11:40,720 --> 00:11:42,840 great things are going to be in RCS. 227 00:11:43,000 --> 00:11:45,680 If we're keeping track here, this is the third complaint by 228 00:11:45,680 --> 00:11:49,360 the DOJ out of the top three, which is a non issue. 229 00:11:49,520 --> 00:11:52,840 Apple has already addressed this and is already moving in this 230 00:11:52,840 --> 00:11:55,520 direction. Why is the Department of Justice 231 00:11:55,520 --> 00:11:59,160 raising this like it's a grave concern that needs to be fixed? 232 00:11:59,400 --> 00:12:02,600 When Apple says they're fixing it, they're already moving in 233 00:12:02,600 --> 00:12:05,440 this direction. The purpose of lawsuits is to 234 00:12:05,440 --> 00:12:07,920 compel companies to move in a certain direction. 235 00:12:08,360 --> 00:12:11,880 So why are they suing Apple for something that Apple already 236 00:12:11,880 --> 00:12:14,320 said they're doing? This next argument, I believe, 237 00:12:14,320 --> 00:12:16,600 is especially misguided by the DOJ. 238 00:12:16,880 --> 00:12:19,600 They say that smart watches are an expensive accessory that 239 00:12:19,600 --> 00:12:21,840 typically must be paired to a smartphone. 240 00:12:22,080 --> 00:12:25,280 Smartwatches can be paired with different smartphones and allow 241 00:12:25,280 --> 00:12:28,800 users to retain their investment in the smartwatch when switching 242 00:12:28,800 --> 00:12:32,480 phones, thereby decreasing the literal cost associated with 243 00:12:32,480 --> 00:12:34,760 switching from 1 smartphone to another. 244 00:12:34,800 --> 00:12:37,640 By suppressing key functions of third party smartwatches, 245 00:12:37,640 --> 00:12:40,480 including the ability to respond to notifications and messages 246 00:12:40,800 --> 00:12:43,160 and to maintain consistent connection with the iPhone, 247 00:12:43,560 --> 00:12:47,520 Apple has denied users access to high performing smartwatches 248 00:12:47,680 --> 00:12:51,880 with preferred styling. Now again, they're adding in 249 00:12:51,880 --> 00:12:56,200 subjective claims here. Apple's denying users their 250 00:12:56,200 --> 00:12:59,840 preferred styling because the Department of Justice knows best 251 00:12:59,840 --> 00:13:03,360 what your preferred styling is. They also say that they're 252 00:13:03,360 --> 00:13:07,520 denying users with better user interfaces and services. 253 00:13:08,080 --> 00:13:11,520 That is a wildly up to statement for the DOJ to make. 254 00:13:11,880 --> 00:13:15,120 They can say definitively what a better user interface and 255 00:13:15,120 --> 00:13:17,600 services. There's better user interfaces 256 00:13:17,600 --> 00:13:19,840 and services than the Apple smartwatch. 257 00:13:19,920 --> 00:13:22,280 Now, I'm not going to pretend that I know quite as much about 258 00:13:22,280 --> 00:13:27,040 user design and consumer preferences as the DOJ does, but 259 00:13:27,040 --> 00:13:30,840 I believe the reason that the Apple Watch has dominated every 260 00:13:30,840 --> 00:13:33,920 other smartwatch in the category isn't just because of their 261 00:13:33,920 --> 00:13:37,360 linkage to the iPhone. It's partly because Apple makes 262 00:13:37,360 --> 00:13:41,480 a really, really good watch with a really, really good design 263 00:13:41,800 --> 00:13:43,600 like they do most of their hardware. 264 00:13:43,680 --> 00:13:45,760 The Department of Justice is trying to pass through 265 00:13:45,760 --> 00:13:49,720 subjective opinions as though it's fact certified and proven. 266 00:13:49,920 --> 00:13:52,840 There's better user interfaces and services out there, but you 267 00:13:52,840 --> 00:13:55,240 just don't have access to them because you're stuck with the 268 00:13:55,240 --> 00:13:56,800 iPhone. They've also mentioned that it's 269 00:13:56,800 --> 00:13:59,400 harm smart watch developers by decreasing their ability to 270 00:13:59,400 --> 00:14:01,960 innovate and sell products, which of course they have zero 271 00:14:01,960 --> 00:14:03,760 evidence for. The reason that I mentioned that 272 00:14:03,760 --> 00:14:05,960 this complaint from the Department of Justice is 273 00:14:05,960 --> 00:14:09,360 especially egregious is because there's no legal reason that 274 00:14:09,360 --> 00:14:12,800 Apple has to open up their accessories for their devices to 275 00:14:12,800 --> 00:14:15,400 everyone. This is not a standard that any 276 00:14:15,400 --> 00:14:18,480 other company in the world is required to function by. 277 00:14:18,480 --> 00:14:21,520 There's no requirement that Sony controllers must be compatible 278 00:14:21,520 --> 00:14:24,520 with Xbox, even though they're the largest market share of 279 00:14:24,520 --> 00:14:27,560 gaming devices. There's no other reference or 280 00:14:27,560 --> 00:14:30,600 standard anywhere throughout business that they can use as a 281 00:14:30,600 --> 00:14:34,400 president for this claim. This is simply a unique function 282 00:14:34,400 --> 00:14:37,080 of them targeting Apple with something they're not targeting 283 00:14:37,080 --> 00:14:39,120 any other company with. The argument that every 284 00:14:39,120 --> 00:14:42,160 accessory Apple builds should work equally well with 285 00:14:42,160 --> 00:14:45,680 competitors is a ridiculous claim, and it's also not a 286 00:14:45,680 --> 00:14:48,040 function of how even other phone companies work. 287 00:14:48,360 --> 00:14:52,200 Android watches work better with Androids than they do with the 288 00:14:52,200 --> 00:14:54,600 iPhone. They do preference their own 289 00:14:54,600 --> 00:14:56,520 devices. They work more seamless with it, 290 00:14:56,800 --> 00:14:59,640 as they should. Those are the people designing 291 00:14:59,640 --> 00:15:02,160 the device. It makes logical sense that the 292 00:15:02,160 --> 00:15:05,600 people designing and building and manufacturing the device and 293 00:15:05,600 --> 00:15:08,640 the software have it work better with other things they've 294 00:15:08,640 --> 00:15:11,400 designed and built. The idea that the DOJ has of 295 00:15:11,400 --> 00:15:14,640 taking an accessory device and having it function equally well 296 00:15:14,880 --> 00:15:18,560 with other ecosystems that it wasn't built for is absurd. 297 00:15:18,600 --> 00:15:21,800 The final complaint the DOJ has is centered around the Apple 298 00:15:21,800 --> 00:15:24,280 wallet. This is the thin tech category 299 00:15:24,280 --> 00:15:26,320 of Apple. Digital wallets are an 300 00:15:26,320 --> 00:15:29,760 increasingly important way that smartphones are used and are a 301 00:15:29,760 --> 00:15:33,320 product in which users develop a great deal of comfort and trust 302 00:15:33,320 --> 00:15:36,280 as they typically contain users most sensitive information. 303 00:15:36,640 --> 00:15:40,160 Digital wallets that work across smartphone platforms allow users 304 00:15:40,160 --> 00:15:43,280 to move from 1 smartphone brand to another with decreased 305 00:15:43,360 --> 00:15:45,120 friction. Among other things. 306 00:15:45,520 --> 00:15:49,080 Apple has denied users access to digital wallets that would have 307 00:15:49,080 --> 00:15:52,560 provided a wide variety of enhanced features and denied 308 00:15:52,560 --> 00:15:56,360 digital wallet developers often banks the opportunity to provide 309 00:15:56,360 --> 00:15:59,480 advanced digital payment services to their own customers. 310 00:15:59,480 --> 00:16:02,440 So the complaint is that Apple has one wallet and they keep it 311 00:16:02,440 --> 00:16:05,680 all to themselves in a very anti friendly way. 312 00:16:05,920 --> 00:16:09,040 They just hog all the wallet space to themselves making it 313 00:16:09,040 --> 00:16:11,240 difficult for you to transfer to a different phone. 314 00:16:11,600 --> 00:16:15,000 This would be a very valid complaint if it was launched 315 00:16:15,160 --> 00:16:17,920 over a year ago. From the Apple Developer 316 00:16:17,920 --> 00:16:20,120 website, Tap to Pay on the iPhone. 317 00:16:20,360 --> 00:16:22,960 Payment apps can now accept contactless payment from 318 00:16:22,960 --> 00:16:26,520 contactless credit and debit cards, Apple Pay, Apple Watch, 319 00:16:26,760 --> 00:16:30,760 and smartphones with other digital wallets right on the 320 00:16:30,760 --> 00:16:33,360 iPhone without any extra terminal or hardware. 321 00:16:33,480 --> 00:16:35,280 It seems as though the Department of Justice has been 322 00:16:35,280 --> 00:16:38,520 working on this case for like 3 years, and a lot of the 323 00:16:38,520 --> 00:16:41,440 complaints they came up with originally have already been 324 00:16:41,440 --> 00:16:43,320 solved. Apple may have felt that 325 00:16:43,320 --> 00:16:45,680 pressure and already made some changes. 326 00:16:46,040 --> 00:16:48,480 And the Department of Justice is like, you know what? 327 00:16:48,760 --> 00:16:51,000 We already came up with all of these complaints, even though 328 00:16:51,000 --> 00:16:53,800 Apple has solved them. Let's just launch the lawsuit 329 00:16:53,800 --> 00:16:55,760 anyways. We don't want to throw away all 330 00:16:55,760 --> 00:16:58,840 this effort and time that we put into this lawsuit, so let's just 331 00:16:58,840 --> 00:17:01,400 go ahead and sue them anyway. So in this lawsuit, the 332 00:17:01,400 --> 00:17:04,319 Department of Justice faces a number of challenges, one of 333 00:17:04,319 --> 00:17:07,800 them being the easy Apple defense they can point to and 334 00:17:07,800 --> 00:17:10,760 say, look, all of these things that you're complaining about, 335 00:17:10,960 --> 00:17:14,400 we're basically doing all of them ahead of time Before this 336 00:17:14,400 --> 00:17:17,240 lawsuit was launched, why are you complaining about things 337 00:17:17,240 --> 00:17:19,640 that were already actively moving to fix? 338 00:17:19,960 --> 00:17:22,480 That's one thing they'll be able to point out to the judge. 339 00:17:22,839 --> 00:17:25,800 The other challenge for the Department of Justice is proving 340 00:17:26,119 --> 00:17:29,800 that they are harming customers, that Apple is actively harming 341 00:17:29,800 --> 00:17:32,560 its customer base. It's difficult to prove that for 342 00:17:32,560 --> 00:17:36,120 a company that's so chosen so frequently by its customers and 343 00:17:36,120 --> 00:17:38,560 receive such positive feedback from customers. 344 00:17:38,840 --> 00:17:41,640 Apple have an easy time proving that their customers are 345 00:17:41,640 --> 00:17:43,560 extremely happy with their product. 346 00:17:43,560 --> 00:17:46,040 The Department of Justice has to create a false narrative. 347 00:17:46,360 --> 00:17:48,800 The people only choose Apple because they're locked into the 348 00:17:48,800 --> 00:17:52,560 ecosystem that there's no other preference or reason that Apple 349 00:17:52,720 --> 00:17:54,720 is the preferred choice over Android. 350 00:17:54,760 --> 00:17:57,960 They'll also have to prove that it's a monopoly and that users 351 00:17:57,960 --> 00:18:01,360 of Apple are simply trapped in and they have no choice in the 352 00:18:01,360 --> 00:18:03,600 matter. They can't possibly choose one 353 00:18:03,600 --> 00:18:06,680 of the various other cell phones that exist when there are so 354 00:18:06,680 --> 00:18:10,320 many readily available options and so many ways of transferring 355 00:18:10,320 --> 00:18:12,520 over. I think all of that is going to 356 00:18:12,520 --> 00:18:15,440 be a big challenge for the Department of Justice. 357 00:18:15,520 --> 00:18:17,640 So after looking at the Department of Justice's core 358 00:18:17,640 --> 00:18:20,040 arguments, I think the likelihood of them winning this 359 00:18:20,040 --> 00:18:22,520 case in a meaningful way is very small. 360 00:18:22,560 --> 00:18:24,680 It's very unlikely in my opinion. 361 00:18:25,240 --> 00:18:28,480 I believe the most likely outcome of this is that it is an 362 00:18:28,480 --> 00:18:31,560 overhang on Apple stock. That is something that investors 363 00:18:31,560 --> 00:18:34,320 have to concern themselves with in the back of their mind for 364 00:18:34,320 --> 00:18:37,360 the next couple years. And ultimately, I think over the 365 00:18:37,360 --> 00:18:40,520 next couple of years, most of these concerns will work their 366 00:18:40,520 --> 00:18:43,160 way out. Apple likely won't have to make 367 00:18:43,240 --> 00:18:45,640 any meaningful changes. I believe they'll make a few 368 00:18:45,640 --> 00:18:48,120 concessions here and there. But ultimately, I think it will 369 00:18:48,120 --> 00:18:51,280 have minimal impact on the trajectory of Apple and the 370 00:18:51,280 --> 00:18:54,400 intrinsic value of the company. It is true that most regulation 371 00:18:54,400 --> 00:18:57,280 by the government in an effort to break down big companies 372 00:18:57,560 --> 00:18:59,800 typically further solidifies the incumbents. 373 00:19:00,120 --> 00:19:02,680 That may not happen here, but that could be the outcome. 374 00:19:03,000 --> 00:19:06,120 It's also true that every single time Apple has dipped throughout 375 00:19:06,120 --> 00:19:10,120 its entire history because of regulatory concerns has been a 376 00:19:10,120 --> 00:19:12,680 buying opportunity. Apple has dipped a little bit. 377 00:19:12,680 --> 00:19:15,440 This year it's down 7%. I don't think that's a 378 00:19:15,440 --> 00:19:17,560 meaningful dip. The company's still doing 379 00:19:17,560 --> 00:19:20,520 incredibly well over the past five years, but either way, I 380 00:19:20,520 --> 00:19:23,480 see this as unlikely to impact the meaningful long term 381 00:19:23,480 --> 00:19:26,160 trajectory of Apple. It could diminish the mote 382 00:19:26,160 --> 00:19:29,160 slightly, but I think that's something that Apple's prepared 383 00:19:29,160 --> 00:19:31,520 to deal with. The bigger challenges I believe, 384 00:19:31,520 --> 00:19:34,080 facing Apple is simply its vast size. 385 00:19:34,080 --> 00:19:37,840 The company is already enormous. It already sells 2.2 billion 386 00:19:37,840 --> 00:19:41,360 devices that have active users. It already has so many software 387 00:19:41,360 --> 00:19:44,840 features it's trying to offer. It's tough for a company of this 388 00:19:44,840 --> 00:19:46,760 size to grow in a meaningful way. 389 00:19:46,880 --> 00:19:49,080 I think it's going to be a bigger challenge for Apple to 390 00:19:49,080 --> 00:19:51,840 find meaningful growth paths than it is to defeat this 391 00:19:51,840 --> 00:19:54,200 lawsuit. So As for me, when I look at 392 00:19:54,200 --> 00:19:57,520 Apple and this lawsuit, I view it as a slight negative. 393 00:19:57,560 --> 00:20:00,560 It could cause potential issues. Right now it's bringing down 394 00:20:00,560 --> 00:20:03,600 sentiment, but overall, I don't think it's the biggest factor we 395 00:20:03,600 --> 00:20:05,600 should concern ourselves with, with Apple. 396 00:20:05,880 --> 00:20:07,520 Now, of course, we have to talk about Reddit. 397 00:20:07,520 --> 00:20:10,840 This is the new IPO that happened yesterday, a company 398 00:20:10,840 --> 00:20:14,120 that was founded in 2005, So it's roughly 18 years old. 399 00:20:14,600 --> 00:20:18,520 And we finally get to see the financials of this almost 2 400 00:20:18,520 --> 00:20:21,600 decade old social media company now in Coltrim. 401 00:20:21,600 --> 00:20:23,880 We don't have all the metrics We'll get them in eventually, 402 00:20:23,880 --> 00:20:25,840 especially after the first quarterly report. 403 00:20:25,840 --> 00:20:27,800 But we do have some of the financial metrics here. 404 00:20:28,040 --> 00:20:31,000 We have the revenue of the company, which is kind of 405 00:20:31,000 --> 00:20:33,360 interesting. Reddit actually grew its revenue 406 00:20:33,600 --> 00:20:38,280 rapidly from 2020 to 2023. So they're certainly having user 407 00:20:38,280 --> 00:20:41,440 growth, engagement growth and they're adding in a lot more 408 00:20:41,440 --> 00:20:43,240 ads. You've noticed that if you've 409 00:20:43,240 --> 00:20:48,520 been a Reddit user, in 2020 they did $228 million in revenue and 410 00:20:48,520 --> 00:20:52,240 then the most recent year 2023, they did 804. 411 00:20:52,640 --> 00:20:55,640 So that's very fast revenue growth over a four year period. 412 00:20:56,000 --> 00:20:58,840 I actually like seeing this top line growth for such an old 413 00:20:58,840 --> 00:21:01,520 company, but I have a feeling that most of this revenue growth 414 00:21:01,520 --> 00:21:05,240 was by shoving in a lot of ads. Suddenly over the past four 415 00:21:05,240 --> 00:21:08,160 years, the EBIT of the company has been negative every single 416 00:21:08,160 --> 00:21:10,920 year. In 2023, it's slightly less in 417 00:21:10,920 --> 00:21:14,480 the red than it was in 2022. So I guess that's a positive 418 00:21:14,480 --> 00:21:18,600 movement in the right direction. But they still lost $126 million 419 00:21:18,600 --> 00:21:20,400 in EBITDA. Now of course, we get to the 420 00:21:20,400 --> 00:21:22,760 free cash flow, which I believe is the most meaningful metric 421 00:21:22,760 --> 00:21:25,680 for profitability and it also doesn't look great. 422 00:21:26,120 --> 00:21:30,480 Reddit has been free cash flow negative since 2020 every single 423 00:21:30,480 --> 00:21:37,440 year. 20/20 was -64,000,000, 2020 1 -, 132 million, 2022 -, 424 00:21:37,440 --> 00:21:41,120 100 million and 2023 - 84,000,000. 425 00:21:41,120 --> 00:21:44,040 So we have an 18 year old company that's never generated 426 00:21:44,040 --> 00:21:47,160 free cash flow. We also add in stock based comp. 427 00:21:47,400 --> 00:21:49,680 We have to make sure these employees and executives get 428 00:21:49,680 --> 00:21:52,280 their payday. While the company is losing cash 429 00:21:52,280 --> 00:21:55,120 flow, it is paying its executives and employees 430 00:21:55,120 --> 00:21:57,280 handsomely with stock based compensation. 431 00:21:57,560 --> 00:22:02,840 In 2021 we had 149 million, they paid more in stock based comp 432 00:22:02,840 --> 00:22:04,480 than they lost in free cash flow. 433 00:22:04,920 --> 00:22:09,240 In 20/22 it was 55,000,000 and then the most recent year it was 434 00:22:09,240 --> 00:22:12,520 47 million. So they seem to be cutting down 435 00:22:12,520 --> 00:22:15,920 on their Rs US or they've trimmed the amount of employees 436 00:22:15,920 --> 00:22:17,800 they have. Either way their stock based 437 00:22:17,800 --> 00:22:20,360 comp is going down. Now, as you would imagine, a 438 00:22:20,360 --> 00:22:23,080 company that's not generating any cash flow, in fact, it's 439 00:22:23,080 --> 00:22:26,400 losing money every single year, is also diluting to pay for 440 00:22:26,400 --> 00:22:29,920 those developers and executives. They went from 48 million shares 441 00:22:29,920 --> 00:22:33,000 outstanding to 59 million over the past four years. 442 00:22:33,360 --> 00:22:36,960 In the past one year, they diluted around 3.3%. 443 00:22:37,000 --> 00:22:39,800 When we get to the profitability ratios of the company, this is 444 00:22:39,800 --> 00:22:44,400 also where we see a company that you would imagine is immature, A 445 00:22:44,400 --> 00:22:46,840 newer one trying to just get to scale. 446 00:22:47,160 --> 00:22:48,840 But we're talking about Reddit here. 447 00:22:48,960 --> 00:22:51,960 This is one of the top ten biggest websites in the world. 448 00:22:52,200 --> 00:22:54,920 It's basically the result of every single Google search. 449 00:22:55,280 --> 00:22:58,720 This company is at massive scale and it has been for over a 450 00:22:58,720 --> 00:23:02,120 decade, but yet the return on capital employed is negative 451 00:23:02,120 --> 00:23:05,240 every single year. The gross margins are very high. 452 00:23:05,640 --> 00:23:09,160 Now the gross margins are high because this company has no real 453 00:23:09,160 --> 00:23:12,120 costs of goods. They don't really sell anything 454 00:23:12,120 --> 00:23:14,160 that has a physical cost. It's all digital. 455 00:23:14,400 --> 00:23:17,560 So they have 86% gross margins. But when we look at their 456 00:23:17,560 --> 00:23:20,840 operating margins and we add in those operational cost of paying 457 00:23:20,840 --> 00:23:24,240 employees and and different operational expenses, the 458 00:23:24,240 --> 00:23:28,720 margins go negative -17% and then the profit margin of the 459 00:23:28,720 --> 00:23:32,560 company's -11%. I guess it's headed in the right 460 00:23:32,560 --> 00:23:35,040 direction. Hopefully they'll have positive 461 00:23:35,040 --> 00:23:38,200 profit margins in the future. But right now they have huge 462 00:23:38,200 --> 00:23:40,240 operational problems with this company. 463 00:23:40,320 --> 00:23:42,720 When we look at the expenses of the company, this is where we 464 00:23:42,720 --> 00:23:45,400 see the glaring issues with how they're running their business 465 00:23:45,800 --> 00:23:47,360 in their research and development. 466 00:23:47,400 --> 00:23:54,840 Last year they spent $438 million on R&D, 438. 467 00:23:54,960 --> 00:23:57,840 Their total revenue for the year was 804. 468 00:23:58,040 --> 00:24:01,680 So they spent over half of their revenue on R&D. 469 00:24:01,680 --> 00:24:03,760 What is a company like Reddit doing? 470 00:24:03,760 --> 00:24:07,480 Spending 400 + 1,000,000 dollars on research and development? 471 00:24:07,520 --> 00:24:10,000 That's not counting their sales and marketing, that's not 472 00:24:10,000 --> 00:24:11,880 counting their general and administrative. 473 00:24:12,120 --> 00:24:15,800 This is just R&D. And they spent almost half a 474 00:24:15,800 --> 00:24:18,160 billion dollars for a company like Reddit. 475 00:24:18,600 --> 00:24:22,520 They run a website that looks almost no different than it did 476 00:24:22,560 --> 00:24:24,960 10 years ago. I don't like social media 477 00:24:24,960 --> 00:24:28,480 companies as investments that much anyway, but I especially 478 00:24:28,480 --> 00:24:30,920 don't like Reddit. I think it's right there with 479 00:24:30,960 --> 00:24:33,960 other companies like Pinterest and Snapchat, companies that 480 00:24:33,960 --> 00:24:36,400 will likely disappoint investors for a long period of time. 481 00:24:36,440 --> 00:24:39,320 Now, finally, we have good news for shareholders of Google. 482 00:24:39,560 --> 00:24:42,680 It's finally getting upgrades and positive vibes from 483 00:24:42,680 --> 00:24:44,520 different analysts, one of them being Wedbush. 484 00:24:44,640 --> 00:24:47,320 Google search faces competitive risks from other generative 485 00:24:47,320 --> 00:24:50,920 artificial intelligence players. But one Wedbush says investors 486 00:24:50,920 --> 00:24:54,560 concerns are exaggerated. Scott Devin moved Alphabet to 487 00:24:54,560 --> 00:24:58,200 the Wedbush Best Ideas list and increased the stock price target 488 00:24:58,200 --> 00:25:02,200 to 175 from 160. They wrote on a note Friday that 489 00:25:02,200 --> 00:25:04,880 they believe, quote, the perceived structural risks to 490 00:25:04,880 --> 00:25:07,680 Google search are overstated. Alphabet's competitive 491 00:25:07,680 --> 00:25:11,000 advantages are multifaceted. The company has an unmatched 492 00:25:11,000 --> 00:25:14,600 breadth of data to develop and train AI models across text, 493 00:25:14,600 --> 00:25:17,800 images and video. A massive user base spanning 494 00:25:17,800 --> 00:25:20,800 Google Search, YouTube, Android and other Google applications, 495 00:25:21,280 --> 00:25:23,680 AI optimized compute infrastructure supported by 496 00:25:23,680 --> 00:25:27,800 custom silicon and access to leading engineering talent, and 497 00:25:27,800 --> 00:25:30,280 a proven track record of effective monetization. 498 00:25:30,480 --> 00:25:34,000 As evidence of Google's ability to monetize AI and actually make 499 00:25:34,000 --> 00:25:38,000 it a good revenue stream is the talks the potential deal between 500 00:25:38,000 --> 00:25:42,160 Google and Apple to license Gemini as part of Apple devices 501 00:25:42,160 --> 00:25:46,120 to use that AI technology. Apple's a bit behind an AI, so 502 00:25:46,120 --> 00:25:48,520 they want to go to a good partner and they're leaning 503 00:25:48,520 --> 00:25:50,600 towards Google. Now, we don't know the specific 504 00:25:50,600 --> 00:25:53,600 finances of this potential deal, but it does illustrate that 505 00:25:53,600 --> 00:25:57,000 Google does have great potential to monetize their AI. 506 00:25:57,280 --> 00:25:58,920 So I agree with the upgrade here. 507 00:25:58,920 --> 00:26:01,720 I think Google will be above 175 eventually. 508 00:26:01,840 --> 00:26:03,280 Of course I'm holding the company. 509 00:26:03,360 --> 00:26:05,160 I remain bullish on it. That's going to be it for this 510 00:26:05,160 --> 00:26:06,320 time. If you want to see more 511 00:26:06,320 --> 00:26:09,720 exclusive content, AMA's lots of different things, you can check 512 00:26:09,720 --> 00:26:11,760 out the Patreon. When you join the Patreon, you 513 00:26:11,760 --> 00:26:15,840 also get access to qualtrum.com, which is the analysis website 514 00:26:15,840 --> 00:26:17,840 that I built. So try it out for free. 515 00:26:17,880 --> 00:26:19,760 There's a link in the ping comment below. 516 00:26:20,120 --> 00:26:21,720 Other than that, I'll see you in the next one.