Apple’s Reality Check

Plus: The advertisers Musk claims returned to Twitter haven’t ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

June 6, 2023

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TOGETHER WITH

Good morning.

The first rule of operating an unlicensed securities exchange in the USA is to never, ever send an email saying you are operating an unlicensed securities exchange in the USA.

On Monday, the SEC sued Binance, alleging the world’s largest cryptocurrency exchange misused customer funds and illegally operated a trading platform in the US. Among the evidence, as listed in the SEC’s court filings, is an apparent admission in 2018 from Binance’s chief compliance officer who told another colleague “We are operating as a f****** unlicensed securities exchange in the USA bro.” Tyler Durden would like a word, bro.

Morning Brief

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Apple wants to have one more big thing.

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Twitter ‘ain’t what she used to be.

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If you can’t stand the heat, get out of California.

Tech

Apple Stock Hits Intraday Record Amid Headset Announcement

Apple is seldom the first to arrive at a party, but it knows how to make a grand entrance when it does show up.

After years of delays, rumors, speculation, and hype, Apple finally unveiled its mixed-reality headset, dubbed Vision Pro and set for launch sometime early next year. The Cupertino company’s share price briefly shot to a record high of $184.95 during intraday trading, with some speculating its market cap could soon kiss $3 trillion. But can a ridiculously expensive piece of hardware — carrying a launch price of $3,499, higher than most expectations — actually become tech’s Next Big Thing?

Through the Looking Glass

When confronted with the choice of reality or the metaverse, it seems Apple is asking “Why choose at all?” Like Meta’s headsets, the Vision Pro will allow users to dive into (supposedly) immersive virtual worlds. But unlike typical VR headsets, the Vision Pro uses an array of high-powered outward-facing cameras, super-HD screens, and a hefty dose of computing power to channel real-world surroundings back at the user — effectively allowing wearers to interface with both reality and typical Apple app mainstays like FaceTime, Apple TV, and Safari, all at once (thousands of third-party iPhone and iPad apps will also be available for Vision Pro use at launch, Apple says). Meanwhile, the device’s outward-facing screens project live feeds of the wearer’s eyes, making it appear as if they’re merely wearing some souped-up ski goggles.

Still, Apple’s device could fairly be described as prohibitively expensive (though it is billed as something of an alternative to also-expensive laptops and desktops). At $3,499, the Vision Pro is about 12 times the price of the best-selling VR headset of all time, the Meta Quest 2. But that’s not exactly a difficult title to hold, with demand for Meta’s headsets having already all but dropped off a very real cliff. Shipments for the Meta Quest product line declined by over 90% year-over-year in Q4 2022, according to estimates from International Data Corp., to around just 310,000.

Can Apple effectively expand a niche market into the mainstream simply with sleek design? So far, analysts, perhaps looking at the impact of the iPod, iPhone, iPad, and Apple Watch, are leaning toward bearishness, at least in the immediate future:

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“Nobody expects this to be a financially meaningful product near-term,” Rosenblatt Securities analyst Barton Crockett wrote in a note. “But the hope is that it will look like an interesting effort that can gain momentum over time.”

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How much momentum? “AR/VR has the potential to become Apple’s next $20 billion-plus compute platform,” Morgan Stanley analyst Erik Woodring wrote in a note to clients just ahead of the launch event.

Despite the trading spike and some analysts upping their pricing guidance ahead of the event to north of $190 a share, Apple’s share price settled slightly down at $179.58.

The Best of the Rest: Apple’s biggest product event in years wasn’t just about the Vision Pro. Along the way, the company also outlined the next major iOS software update, a new line of MacBook Airs, and a $7,000 Mac Pro desktop. So the reality is, before you get your hands on Vision Pro, you’ll have to upgrade your old device — and then take out a loan.

– Brian Boyle

Corporate News

Twitter’s Ad Revenue is Down, Just Not According to Elon

Elon Musk says nearly all of those hundreds of advertisers who left Twitter in recent months have returned. Well if they have, they’re not spending any money.

A report by The New York Times found that Twitter’s ad revenue from April to May was only $88 million, a nearly 60% drop from a year earlier. Which is it? We read both of those statements on the internet. So they must both be true, right?

‘I Don’t Care’

After some legal hiccups, Musk bought Twitter in October for a monumental $44 billion. Fearing it would become a breeding ground for misinformation, hate speech, and good old-fashioned trolls, popular celebrities and news networks left Twitter, while companies like General Mills, United Airlines, and Audi paused their ad spending. Most CEOs would be pulling at their collars and asking “is it hot in here,” but Musk of course is not your typical CEO. His response has been a very apathetic and very Gen X “meh.”

Twitter may well go on to become the everything app, known simply as X, that Musk envisions. But until then, it’ll remain a playground for him to say whatever he wants, whether that’s comparing George Soros to the X-Men supervillain Magneto, or joking that he’s taking Tesla private at $420 a share — a blunder that cost him $40 million in SEC fines. Last month, during an interview with NBC, he was asked why he was willing to risk hurting Twitter’s bottom line. By way of an answer, he referenced a scene in The Princess Bride where Spanish swordsman Inigo Montoya finally confronts his father’s murderer and says not all the money or power in the world could keep him from delivering the killing blow. “I’ll say what I want to say, and if the consequence of that is losing money, so be it.”

Well, losing money he is:

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Such a drastic dive in ad sales is usually not good for a company that historically earns 90% of its revenue from advertisements. While overall ad sales are down, the NYT reported that Twitter is now marketing businesses it used to avoid like online gambling, marijuana products, and erectile dysfunction meds.

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In less than a year, Twitter’s valuation has dropped to $15 billion, roughly one-third of Musk’s original purchase price, according to asset manager Fidelity.

A New Face that Runs the Place: Even the advertisers who want to be on Twitter have difficulty contacting the platform’s office, likely a product of Musk cutting 80% of the staff. The hope is that Twitter’s prospective CEO, Linda Yaccarino, will correct course, win back advertisers, and turn the platform into a money maker again. “For a period, we weren’t even sure who to get on the phone with to talk to,” Dave Campanelli, the chief investment officer of Horizon Media, told the NYT. “With Linda coming in, that could change that in a big way.” So, as the old Monty Python gag has it, this bird isn’t dead. It’s resting.

– Griffin Kelly

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Insurance

Home Insurance is Hard to Come by in California

(Photo Credit: Dave Hoefler/Unsplash)

You’re not in good hands.

Allstate, the insurance company marketed by the beautifully deep-voiced Dennis Haysbert, says it will no longer issue new home insurance policies in California because of incessant wildfires.

Burning Down the House

In 2022 alone, there were nearly 7,500 wildfires in California that burned a total of 362,000 acres, according to the state Department of Forestry and Fire Protection. And the fires are not limited to one region of the Golden State either, occurring as far north as Klamath National Forest and as far South as San Diego.

Roughly 875 buildings were harmed or destroyed by the fires. And that’s just too much for Allstate:

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Current policyholders are safe, but the group is no longer taking on clients. “The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes, and higher reinsurance premiums,” the company told The Wall Street Journal.

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They’re not alone in their California retreat, either. State Farm, the insurer marketed by the not-quite-as-deep-voiced but still beautifully baritone J.K. Simmons, also announced it would stop issuing new policies. The similarly named but separate Farmers — the second-largest property insurer in California — hasn’t pulled back entirely but did say it will limit new policies.

Packing Up and Moving Out: The insurance exodus is creating quite a debacle for the already-tumultuous California housing market. If prospective homebuyers can’t get insurance, they’ll likely not want to move there. For the past three years, the state has been losing residents as buyers look for cheaper housing in places like Texas, Nevada, Oregon, and Idaho. Between July 2021 and July 2022, the net movement out of California was a record 407,000 people, The New York Times reported. As the LA punk band The Garden sings, California here we go.

– Griffin Kelly

Extra Upside

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Insecure: Massive hack leaves personal data exposed for tens of thousands of employees at BBC, British Airways, and elsewhere.

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Hit Rewind: Spotify lays off 200 workers from its podcast division.

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