Apple Inc. (NASDAQ:AAPL) has confirmed the line-up of its Worldwide Developers Conference, or WWDC, slated to start on June 5. All eyes will be on CEO Tim Cook’s keynote on the first day as the Cupertino company looks set to launch its highly-anticipated mixed reality or MR device.
DIGITIMES highlighted in a recent commentary how Apple has gone about its pre-WWDC releases differently from its past behavior. DIGITIMES noted that “Apple has been revealing upcoming software updates” before the event.
The updates include a “notable revelation” to Apple’s iPadOS, announcing the “launch of Final Cut Pro and Logic Pro,” which is considered a “departure” from Apple’s habit of keeping such critical releases under wraps before WWDC.
Therefore, it has been speculated that Apple is likely “clearing the way” to prepare developers to focus on what could be Apple’s most significant product release in “eight years.“
I think enough hype and anticipation have been built into Apple’s MR device release since the start of 2023. Notably, Bloomberg’s Mark Gurman has gotten his hands (incidentally) on Meta Platforms’ (META) “upcoming [XR] model, the Quest 3.”
Gurman’s review of the Quest 3 (expected to cost more than Quest 2’s $400) was positive, suggesting that Meta remains well-poised to be the market share leader in the lower-end segment. Moreover, Gurman highlighted that “Meta may even benefit from Apple helping popularize XR,” bolstering CEO Mark Zuckerberg & his Reality Labs team to push ahead before Apple’s mass market launch subsequently.
Notwithstanding, I think Gurman correctly identified that the critical battle for supremacy between Meta and Apple will likely come down to who can deliver the “killer apps.”
Meta possesses a “several-year advantage over Apple in top-flight games built for VR.” However, Apple could mitigate that advantage by “offering access to hundreds of thousands of iPad apps” and providing easy conversion into xrOS.
I think it’s essential for investors to note that Apple has always targeted the premium segment for its iPhone and allowed Android to corner the less profitable budget segment. Therefore, I don’t expect Apple’s hardware strategy for its MR device to be significantly different to protect Apple’s highly-prized profitability margins.
Therefore, while Meta could have a lead in the lower-end segment for now, Apple’s market leadership in the consumer ecosystem could still see it making more profits against Meta.
Meta has the world’s largest social network, with nearly 3B monthly active users. However, that hasn’t translated into runaway leadership in its XR business. Notwithstanding, Meta managed to accumulate about “20 million sales” for its Quest devices as of late March.
In contrast, Apple has revised its projections downward from 3M to 900K “due to factors such as cost considerations.” In addition, Apple doesn’t expect to make money initially, with the MR devices “sold roughly at cost.”
Deepwater Asset Management’s (formerly Loup Ventures) Gene Munster expects Apple’s MR device to account for 10% of its total revenue by 2030. He highlighted that Apple seems to be “entering the headset market earlier than it usually does when entering a new product category.” As such, he indicated that investors would need to account for higher execution risks compared to its other key product launches. Notably, he sees “two potential outcomes for Apple’s headset: it’s a flop or it’s a hit.”
I assessed that Apple likely sees the importance and urgency of defining the potential “post-iPhone era.” The rapid diffusion of the power of generative AI could help players like Microsoft (MSFT) make a comeback in defining a “platform shift” that could be detrimental to Apple’s gatekeeper ambitions.
I believe Meta likely sees significant potential in the interplay between AI and the Metaverse. Meta’s President of Global Affairs, Nick Clegg, highlighted in a recent event that “both generative AI and the metaverse can coexist and complement each other.” He added that “generative AI is essential for enhancing the metaverse experience and streamlining processes such as building virtual worlds.”
Therefore, I believe Apple is likely seeing a potential for generative AI to challenge its walled garden dominance as competitors build up their AI capabilities to define what could be the next computing platform.
However, Stratechery’s Ben Thompson reminded investors that Apple remains well-poised to benefit from the open-source generative AI community. Given Apple’s 2B device base (or 1B+ installed base), Apple is a behemoth in the consumer tech ecosystem. Therefore, he highlighted that the proliferation of open-source models could help Apple if its devices could perform generative AI at the edge.
Possible? You bet. Qualcomm (QCOM) CEO Cristiano Amon discussed in a recent interview that the leading Android chipset maker has a generative AI strategy at the edge, which it sees as the continued shift toward edge computing to benefit makers like Qualcomm. As such, the company has developed “hardware architecture that can support high-performance AI computations on various edge devices, such as phones, PCs, and cars.”
Who dares to bet against Tim Cook & his team that Apple doesn’t have such a strategy? But, most importantly, which company is the best-placed to navigate a shift toward MR or generative AI at the edge than Apple?
I believe Apple bears should not understate the significant moat of Apple’s consumer ecosystem. Moreover, Nvidia (NVDA) CEO Jensen Huang’s recent commencement speech at a graduation ceremony suggests why Apple’s massive installed base proffers it such a critical lead against Microsoft, Amazon (AMZN), or Meta Platforms.
Nvidia investors should know that Nvidia’s data center GPU moat stretches beyond its hardware capability. It has built up such a defensible moat with its CUDA ecosystem. However, Nvidia needed to solve a “chicken or egg problem” at the start.
Why? Because CUDA has no large installed base of consumers to start with. Nvidia couldn’t attract enough developers to build for CUDA without having a large installed base. Likewise, it couldn’t grow a large installed base of customers buying applications without having enough developers to build applications.
Hence, how did Jensen Huang solve this quandary? Here’s what Huang articulated:
So to solve the chicken or egg problem, we used GeForce GPU, our gaming GPU, which already had a large market of gaming, to build the installed base. – DIGITIMES
There you have it. Morningstar also corroborated the substantial moat of Apple’s iOS ecosystem:
Switching costs from iOS are as strong as ever thanks to more auxiliary products and services that make switching away from iOS more difficult over time, while a non-Apple iOS experience does not exist – Morningstar
Despite that, AAPL’s “F” valuation grade and less constructive price action suggest investors should remain patient about a pullback before adding. However, the lack of decisive sell signals indicates that AAPL could continue grinding higher and potentially re-testing its all-time highs.
However, I see the risk/reward as fairly balanced at the current levels, with no optimal entry points. Hence, I parsed that investors have likely baked in a strong slate at Apple’s upcoming WWDC as it looks to launch a new potentially category-defining product.
Rating: Hold (Reiterated).
Important note: Investors are reminded to do their own due diligence and not rely on the information provided as financial advice. The rating is also not intended to time a specific entry/exit at the point of writing unless otherwise specified.
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Apple (NASDAQ:AAPL) stock has already rallied sharply this year. So, is it too late to invest in Apple now?
It’s a tough call, as some critics might express doubts about the company’s upcoming foray into virtual reality hardware. On the other hand, Apple’s recently announced deal with a famous chip maker could prove to be a major revenue generator.
Since Apple is such a huge and highly revered company, there’s always the concern that Apple could fall from grace. For instance, Loop Capital analyst Ananda Baruah downgraded Apple to “hold” after the company “reduced its iPhone shipping for the June quarter.”
Okay, so Apple will encounter hiccups and missteps just like any other company will. This doesn’t mean Apple shouldn’t take risks and try out audacious ideas. In the end, Apple has always rewarded loyal shareholders with superior returns, so investors have no reason to bail on the company now.
Since AAPL stock has run higher this year so far, any failure on Apple’s part could prompt a share-price pullback. Concern about Apple’s upcoming mixed-reality headset, which is expected to be introduced sometime this year, makes sense.
I propose it will be challenging, but not impossible. Remember, Apple created and then dominated new markets with the Macintosh computer, the iPod, the Apple Watch and of course, the iPhone.
Besides, Apple doesn’t need to succeed in this niche market. It’s not make-or-break for Apple. The company can always fall back on its other products, which have exhibited year-on-year growth.
Apple Strikes a 5G Hardware Deal
Only time will tell whether Apple’s venture into VR hardware will be a hit or a flop. One foray that will almost certainly be a winner, however, is Apple’s collaboration with chip maker Broadcom (NASDAQ:AVGO).
No exact time frame or dollar figure was revealed, as this is a “new multiyear, multibillion-dollar agreement.” Still, it’s huge news as Apple stands to generate vast revenue from developing 5G hardware with Broadcom.
If you’re interested in the geek-speak, Apple and Broadcom plan to develop “5G radio frequency components — including FBAR filters — and cutting-edge wireless connectivity components.” The companies aren’t starting from scratch, by any means, as Broadcom already has a “major” 5G component production facility in Colorado.
If you agree with me that 5G has a strong future, then this development provides another reason to invest in Apple now. Indeed, I’d consider this news item to be much more impactful than anything related to Apple’s upcoming VR headsets.
So, Is It Too Late to Buy AAPL Stock?
Are you tempted to take profits and bail on your share stake in Apple? The choice is yours, but don’t discount Apple’s relentless drive to grow and innovate.
Sure, Apple’s mixed-reality gear might not be a blockbuster hit. At least, we can commend Apple for taking risks and trying out a variety of ideas.
Long-term, AAPL stock will likely move higher as long as Apple continues to advance cutting-edge products and services. Therefore, it’s definitely not too late to start or add to a share position in Apple.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
With shares of tech giant Apple(AAPL 1.41%) up more than 32% year to date, some investors might be wondering if the stock has become overvalued. After all, revenue or earnings didn’t grow during this period. On the contrary, they contracted.
The stock’s big gain, therefore, has been driven solely by valuation multiple expansion. Is the big move justified? Or is it time for shareholders to take some profit off the table?
Despite the stock’s sharp and rapid rise this year, shares not only don’t look overbought, but they arguably appear attractive.
Some context is in order
First, it’s worth noting that the stock’s recent gain is more of a recovery than a run-up. Put another way, the iPhone maker’s shares aren’t getting ahead of themselves this year; they’re just recovering.
Indeed, Apple shares are still about 5% below their all-time highs. The stock’s highest levels were actually more than a year ago, on Jan. 3, 2022. On this day, the stock price crossed $180.
The big thing that pulled Apple stock down leading up to its surge higher during the first half of 2023 was a broader-market decline, particularly in tech. This is evidenced by the S&P 500‘s 19% pullback last year and the outsize decline of the tech-heavy Nasdaq Composite, which plummeted 33% during the year.
A compelling valuation
Recent stock price movements may provide context, but they lack the substance needed for an investor to be as informed as they need to be in order to form an opinion on whether a stock is a buy, sell, or hold. Investors should go deeper and look at Apple stock’s valuation. On this front, the tech stock scores quite well.
At first glance, a price-to-earnings ratio of 29 might seem a bit excessive for a company struggling to grow revenue and earnings in recent quarters. But investors should realize that Apple is coming off of a period of extraordinary growth.
For example, though trailing-six-month revenue and earnings per share declined 4% and 6% year over year, respectively, revenue and earnings per share in the 12-month period ending one year earlier rose 10% and 18% year over year, respectively. Looking further back to the same trailing-six-month period ended two years ago, Apple’s revenue grew 34% year over year, and its earnings per share skyrocketed 63%. Growth like this in the rearview mirror is difficult to trump.
Historically, volatility in the company’s growth rates has been normal. Apple reported negative year-over-year growth rates in 2016 and 2019, for instance. But when zooming out to Apple’s longer-term trends, the tech giant has proven it can steadily grow its top line and earnings per share.
Analysts unsurprisingly expect similar trends over the next few years. The consensus analyst forecast calls for about 7% top-line growth in both fiscal 2024 and fiscal 2025 and earnings-per-share growth rates of 9% and 11% for those same years, respectively.
The stock’s valuation is also supported by robust cash flow and an impeccable balance sheet. Apple’s trailing-12-month free cash flow was more than $97 billion. Strong cash flow like this has helped the company build a balance sheet with $166 billion of cash and marketable securities.
Net of its long-term debt, Apple still has $57 billion of cash remaining. With a goal for its cash position to eventually equal its debt position, the company has plenty of excess cash — and management is putting it to work with share buybacks and dividends.
All this said, shares don’t look overbought at all. Indeed, today could prove to be a good time to buy in hindsight. There are risks, of course.
Investors, for instance, will want to watch the company’s financial results over the next few years to ensure that Apple once again proves it can return to growth as it has following previous slowdowns in its business. If this growth fails to materialize, shares could underperform or even decline.
But given Apple stock’s fairly conservative valuation, the company’s long history of execution, its strong brand, and loyal customers, there’s a lot to like about the stock today.
Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
On April 27, 2023, I published an article previewing Apple Inc’s (NASDAQ:AAPL) financial results for the second quarter of fiscal 2023, in which I anticipated that the company’s cost optimization would show the first signs of completion and that it would be difficult for the company to maintain margins against the backdrop of a deteriorating macroeconomic environment – so I expected Tim Cook to issue relatively gloomy guidance, causing AAPL stock to fall under the weight of its overvaluation.
Although AAPL has proven to be one of the slowest-growing stocks [among FANGMAN companies] since the end of April, it has still gained more than 4% since the publication of my last article:
Even though AAPL stock has so far performed contrary to my thesis, I’m in no hurry to upgrade my Sell rating – I remain convinced that the stock is obviously growing for non-fundamental reasons and that the rally we’ve seen lately has no legs and offers potential buyers limited upside in the medium term. Let me explain.
AAPL’s Q2 FY2023 Actual Results
Apple Inc. saw a 4.69% rise closing trading on May 5, 2023, after surpassing expectations in its fiscal 2Q FY2023 earnings report. Constant currency sales increased despite a 2.5% decline in revenue due to currency headwinds. iPhone revenue grew 2% and exceeded forecasts by $2.5 billion, while Mac revenue declined by 31% in line with the PC market. Services revenue reached a new high, growing by 6%. Apple’s management announced a 4% increase in its dividend and authorized an additional $90 billion for share repurchases.
While weak consumer demand for edge devices and high inventories affect Apple’s fiscal 3Q23 outlook [as I initially expected], the company continues to outperform the market. Argus Research wrote in its post-earnings note [proprietary source], that Apple shows potential for growth in smartphones, wearables, services, and other areas. With a base of over 2 billion active devices, including one billion iPhones, Apple maintains a competitive advantage.
Concerning particular business segments: iPhone revenue increased by 1.5% as Apple shipped around 55.5 million iPhones, maintaining a 20.5% market share in smartphones. The average selling price [ASP] for iPhones rose to $925, and Apple deliberately differentiated features between iPhone 14 models to attract users across different price points. Mac revenue declined by 31%, similar to the PC market, while iPad revenue fell by 13% annually and 31% sequentially due to economic softness and production constraints. Services revenue reached an all-time high of $20.9 billion, driven by growth in various services and over 975 million paid subscriptions.
In general, Apple was able to “slightly” positively surprise the market precisely because of the cost reduction – this can be seen from the comparative analysis by Goldman Sachs [proprietary source], which was published immediately after the release of the company’s quarterly report:
The company reported gross margins of 44.3% for the March quarter, the highest in a decade, and guided gross margins for the June quarter to be between 44.0% and 44.5%. The guidance is higher than Morgan Stanley’s prior forecast of 44.1% [proprietary source] and is driven by more favorable commodities costs, logistics costs, and product mix. However, foreign exchange is expected to be a headwind. Inventory on the balance sheet increased by 10% QoQ due to Apple’s strategic pre-purchasing of components. Despite an expected 230 basis point YoY headwind in FX for the June quarter, Apple is confident in reaching mid-46% gross margins by the September/December quarters, MS reports.
If Everything Is This Good – Why Am I Bearish?
There are several reasons why I remain bearish on Apple. And the first one of them is the demand side’s current condition.
A decline in consumer demand for Apple’s products and services is a real risk I’ve been writing about since late 2022. Apple relies heavily on consumer purchases, particularly for iPhones, which accounted for over 50% of its revenue in FY2022. Any weakening in the macroeconomic environment could result in reduced demand for Apple’s products and services – factors such as longer replacement cycles and improved product durability could negatively impact the demand for upgrades.
Unfortunately, it’s difficult to assess the demand side of companies with broad moats like Apple – consumers of such companies’ products are too loyal to predict their actions amid macro turbulence. But despite its loyal customers, Apple is still subject to mood swings that are sometimes very difficult to gauge. There are several indirect signs I’d like to draw your attention to – one of which is consumers’ plans for using their tax refunds:
Why does this matter? I don’t mean at all that tax refunds somehow directly affect purchasing power – again, it’s an indirect sign of what moves people. If the desire to “put money aside for a rainy day” is growing – the growth of the inflows into savings – I think that speaks volumes. First off, it means that less money is flowing into the real economy, especially for price-elastic goods like iPhones, Macs, and so on. The reduction in spending activity and the expansion of savings lead to a decline in sales and thus in the margins and EPS.
Another indirect sign of weakening demand is falling inflation. In case you didn’t know: in financial theory, lower inflation often indicates a weaker economy and can lead to a decline in consumer spending – when consumers are reluctant to spend or cut back on purchases, businesses see lower sales, leading to a decline in revenue and profitability.
This coincides well with what Morgan Stanley’s AlphaWise team conclude based on their survey of ~2,000 consumers in the U.S. from April 28 to May 1: consumers are cutting back on discretionary spending, particularly on consumer electronics, leisure activities, household appliances, and restaurant visits. Groceries are the only category in which low- and moderate-income individuals plan to spend more in the next 6 months. They don’t plan to spend more on services. High-income consumers have positive spending intentions on travel, the only service category, and food is the only goods category with positive spending intentions. Interestingly, the high-income group’s spending intentions for eating out/leisure services are negative this month.
At this point, I’d like to refer once again to Morgan Stanley’s report that recommends buying AAPL shares based on its Q2 results:
As you can see, the bank is assuming a very generous price-to-earnings ratio of 25.5x for FY2024 – and this generous forecast represents only 5.61% of the closing price on May 19. And this against the background that the current P/E ratio is close to its local and historical highs:
Another investment bank sees a 12-month price target of $200, which implies 14.2% growth from the last closing price. At the same time, EV/EBITDA for FY2024 should be 18.4x – so no significant decline in the multiple is expected.
This state of demand and its likely decline that I wrote about above is permanent – it doesn’t occur all at once, and the actual change in consumer behavior is somewhat lagging behind the indicators we’re watching for. So the 11% YoY revenue growth in FY2024 predicted by Morgan Stanley’s tech team differs from the findings of another study by the bank [AlphaWise], which suggests that Apple’s revenue decline could last longer than currently priced in.
Therefore, I don’t believe that the current risk-reward ratio is on the side of the buyers with a close-to-high valuation of the company.
The Bottom Line
As last time, I must again warn of the risks to my thesis. First, the strong rally in technology companies that we have been seeing since early 2023, although it looks very unstable now, has every chance of lasting until the end of this year and perhaps even longer. No one knows exactly when the inflated valuation multiples will burst [if they’ll burst at all], so I’m not trying to time the market at that particular point – I’m just arguing that the risk-reward ratio looks unfavorable at this point. Even the bulls’ targets of 5-14% of upside potential look bleak amid all the challenges we’ll likely face ahead. The second risk to my thesis is Apple’s phenomenal resilience. I have to give management credit – they’re doing a great job of keeping such a large company alive and running despite the headwinds. From a strategic standpoint, I’m not bearish on Apple stock, as I believe the company is the best in its niche. Tactical positioning may lose to strategic positioning this time as well – my thesis isn’t immune to such an outcome of events.
However, despite the upside risks to my thesis, I remain bearish on Apple and expect a break of the current trend, as I believe the stock’s rally has no legs.
I don’t recommend buying Apple stock at current levels, and for existing shareholders, I recommend selling covered calls – an options trading strategy in which an investor who owns the underlying asset (e.g., stock) sells call options on that asset.
The oft delayed AR/VR device from Apple Inc. (NASDAQ:AAPL) appears set to finally launch in the next few weeks. The tech giant is expected to finally release the mixed reality headset at the Worldwide Developers Conference (“WWDC”) in a few weeks following a period of apparently limited focus from executives. My investment thesis remains ultra Bearish on Apple stock, priced for perfection while the one product that could justify this current price crawls towards the finish line.
Tim Cook’s Legacy Product
Apple CEO Tim Cook turns 63 on November 1. The executive possibly won’t be in charge of the tech giant when the next large product category is released – the potential Apple Car in 2026 or beyond – making the AR/VR device part of his legacy.
The CEO had an initial goal of a smart glasses-type device consumers could wear all day similar to eyeglasses. The device would handle daily functions like emailing, playing games etc., but Bloomberg Techreported that Tim Cook and other executives have become less involved in the product due to the device shifting more towards AR devices similar to competitors like the Quest Pro from Meta Platforms, Inc. (META).
The product has routinely been delayed over the last few years, with the blame apparently linked to a lack of leadership from Cook and other executives like senior Vice President for hardware technologies Johny Srouji. Mr. Srouji apparently didn’t want to divert high-performing chip development assets away from the iPhone. The AR/VR device has been in development since at least 2015, with an expected announcement of a product that now hardly innovates from current devices on the market.
According to Bloomberg Tech, the headset projections have now scaled back to less than 1 million units, down from an original plan for 3 million units. The ultimate goal is for the AR/VR device to match the iPad and Apple Watch with $25 billion in annual sales, but the estimated $3,000 device now won’t even top $3 billion in sales for FY25.
The device won’t be announced until June 5 at WWDC, at the earliest, with a launch likely at the start of FY25. Our dead money article from March 2022 had forecast how crucial sales of new products would fail to meet aggressive projections and this is playing out right now.
Some of the amazing data points are the plans of Apple to only sell the product at cost, so the tech giant won’t even make a gross profit on these devices. Even worse, the battery pack will apparently reside in a user’s pocket with a power cord attached in a less than appealing design shift from the original concepts of Tim Cook.
Influential Apple analyst Ming-Chi Kuo had already warned of the delay until the WWDC with limited units sold in 2023. The tech giant was wisely pushing back on the product release due to worries over market feedback, considering the Reality device apparently is tethered to a battery pack.
A big problem here is Apple lacking a roadmap to the next device and the eventual smart glasses that fit the original goal of Tim Cook. The clear lack of involvement by executives in the product development of the AR/VR devices appears to be a main contributor in the product delays with the smart glasses development virtually stopped now.
On the flip side, our previous research highlighted the well-outlined device roadmap from Meta Platforms. In addition, CEO Mark Zuckerberg has constantly pushed a Metaverse view, and quarterly investment in the billions while Apple is only purportedly spending $1 billion on the product of the future.
Michael Gartenberg, former Apple marketing executive may have summed up the issue with the product release as follows (emphasis added):
one of the great tech flops of all time… I suspect there’s a lot of internal pressure for the next big thing.
The former executive went on to provide the following expanded view to Insider:
Apple builds devices that can be sold in the millions with a solid profit margin, not high cost ‘experiments’ to be unveiled in public and sold to developers or enthusiasts with deep pockets. This is a doomed model that Google tried with Glass & Microsoft with HoloLens.
All signs are pointing towards Mr. Gartenberg being correct and Apple having to explain why this AR/VR product was even released after so many delays.
Not Priced For Failure
Our negative view on Apple stock has constantly harped on this disconnect with the stock market. Apple is struggling with product development in areas such as AR/VR and the future Apple Car that are needed to drive earnings growth in the years ahead.
Loop Capital just came out with a downgrade of Apple to a Hold based on downside risk on iPhone shipments. The tech giant is already forecast to watch FQ3’23 sales to fall ~2%, and now analyst Ananda Baruah sees risks out for the next couple of quarters.
The crazy part is the decision to leave the price target at $180. Apple trades near all-time highs and is valued at 27x forward EPS estimates, which is not a valuation where growth questions should exist.
The analyst community remains content to leave the stock propped up while not actually having bullish views. The average analyst price target is only $179 now, leaving meager upside of just 3%.
The key investor takeaway is that investors really have no reason to be so bullish on Apple Inc. stock. The company could deliver a flop with the launch of an AR/VR device in a few weeks, which could alter the view of AAPL stock going forward.
Apple Inc. investors should use the stock trading at all-time highs as another opportunity to unload the stock.
In Meta’s quarterly earnings call in April, chief executive Mark Zuckerberg was on the defensive. The metaverse, the vision of a globe-spanning virtual reality that he had literally bet his multibillion-dollar empire on creating, had been usurped as the new hot thing by the growing hype around artificial intelligence (AI).
Critics had even noticed Meta itself changing its tune, highlighting the difference between a November statement from Zuckerberg, in which he described the project as a “high-priority growth area” and a March note that instead focused on how “advancing AI” was the company’s “single largest investment”.
Not so, said the world’s richest millennial. “A narrative has developed that we’re somehow moving away from focusing on the metaverse vision, so I just want to say upfront that that’s not accurate.
“We’ve been focusing on AI and the metaverse for years now, and we will continue to focus on both … Building the metaverse is a long-term project, but the rationale for it remains the same and we remain committed to it.”
But more than 18 months after Facebook changed its name to Meta – demonstrating Zuckerberg’s firm belief that “the metaverse will be the successor of the mobile internet” – the future he promised seems no closer to existence than it did backthen.
Reams of concept art, tech demos and prototype devices have given way to little meaningful progress. The company has even struggled to actually define what it is hoping to build: in a lengthy blogpost published last May, Nick Clegg, the former UK deputy prime minister who is now Meta’s president of global affairs, described the ambition only in vague terms, despite elaborating across 8,000 words how it would nonetheless change the world.
“The metaverse is a logical evolution. It’s the next generation of the internet – a more immersive, 3D experience. Its defining quality will be a feeling of presence, like you are right there with another person or in another place,” he said. “Early versions of it already exist in the virtual worlds of games like Roblox, Minecraft and Fortnite. It incorporates technologies like virtual reality (VR) and augmented reality (AR) that, while still young, have been in use for some time.”
But, Clegg insisted, the concept was not limited to niche gadgets that may or may not catch on: it already exists today. “The metaverse isn’t just about the detached worlds of VR, where we don headsets that take us out of our environment in the physical world and transport us somewhere new. VR is one end of a spectrum. It stretches from using avatars or accessing metaverse spaces on your phone, through AR glasses that project computer-generated images onto the world around us, to mixed reality experiences that blend both physical and virtual environments.”
Such an expansive definition – simply setting up a Memoji on your iPhone or logging into Fortnite could count as “using the metaverse” – helps Meta dodge criticism that the dream the company promised looks no closer to fruition now than it did 18 months ago.
It also helps to make the prospect of actually building the damn thing look more appealing.
In a piece of research commissioned by Meta this month, the Deloitte consultancy said that the metaverse could contribute “between £40bn and £75bn in additional GDP [gross domestic product]” to the UK alone by 2035.
The 25-page report – one of nine commissioned for every large market Meta operates in, from “the metaverse and its potential for the United States” to “Enabling the metaverse in sub-Saharan Africa” – argues optimistically that “there is a large opportunity for the UK as a metaverse leader” and concludes that the benefits could reach as high as 2.4% of GDP. To reach those figures, Deloitte applied much the same vague definition as Clegg, but stretched the net even further, pulling in the entirety of the cryptocurrency space as a side benefit.
“The metaverse will also likely necessitate the use of new verification technologies based on ledgers of permanent entries – blockchains, broadly referred to as ‘Web3’ – to support its decentralised nature,” the report argued. Some challengers for Meta’s claim to the metaverse are more like blockchains with rudimentary 3D engines attached: virtual worlds such as Decentraland and the Sandbox trade “land” and “objects” for real-world money but attract few active users otherwise.
“Economic value will be created by new markets, business models, skills development and better ways of working in the UK,” said Deloitte. What new markets? Well, Liverpool football club launched an NFT (non-fungible token) collection in March 2022 “and generated revenue of £1.13m, even though 95% of the digital collection did not sell”. A few months later, Liverpool spent £85m on Benfica striker Darwin Núñez, so it is fair to guess that the NFT collection did not have a huge impact on the club’s bottom line for the year.
“You see a lot of poorly reported or badly written articles referring to the metaverse as ‘3D worlds such as the Sandbox, Decentraland and Roblox’. The frustrating thing is, two of those are terrible website experiences that serve hundreds of people and one of them is a video game platform that serves 66 million active users per day,” said James Whatley, the chief strategy officer at creative agency Diva.
He added: “Beware of the consultant that promises you metaverse numbers but then delivers a Web3 website experience. If you’re a serious player in this space, you want to speak to hundreds of millions of people – and those people play video games. Not crap 3D websites.”
Education could also be booted, Deloitte insisted. “The metaverse could help transform classroom settings while allowing students to avoid the costs of moving to and living in the UK. This could be a boon for the approximately 600,000 international students currently attending UK universities.” So could healthcare, industry, live entertainment – and even just plain old office jobs.
It is not just outsiders Meta needs to convince. Even its own shareholders are starting to revolt. The company lost $13.7bn on its “reality labs” unit, which handles research into virtual reality and augmented reality tech, in the last year alone. In a December 2022 blogpost from the unit’s head, Andrew Bosworth, he predicted that a full fifth of the company’s expenditure this year would land with the unit.
But despite the years of investment, there is still only one real area where the underlying technology is actually paying off: video games.
Meta’s Quest 2 headset, a £400 standalone device, is the market leader, capable of handling some of the most popular VR games on the market, including the Meta-owned rhythm game Beat Saber, and VR exercise title Supernatural. Connect it to a powerful gaming PC and it can play even more, including the critically acclaimed Half-Life Alyx, a sequel to 2004’s Half-Life 2. (For non-gamers, imagine if Doctor Who had returned from its 1996 to 2005 hiatus in the form of a Sarah Jane Smith-focused spin-off series that was exclusive to 3D TVs. And then won a best drama Bafta.)
“Meta has done a huge amount of backpedalling about what it thinks is and is not the metaverse,” said Whatley. “I’ve seen Meta presentations that say augmented reality filters on Instagram count as the metaverse. But then I’ve also seen them say that we are all building the metaverse together. It’s quite telling that 100% of the top 38 bestselling experiences for the Quest 2 are all video games. The 39th is a ‘walk the plank’ experience.”
And in that world, Meta is hardly unchallenged. Half-Life Alyx was made for a rival PC platform, the £919 Valve Index, which serves the needs of diehard VR gamers with its “room scale” approach, while Sony’s £529 PlayStation VR2 offers a similar high-fidelity approach for console gamers with a PlayStation 5 in the living room.
And then there is the elephant in the room – and the reason why it may still be too early to fully write off Meta’s metaverse ambitions altogether. On 5 June, Apple is set to lift the lid on the worst kept secret in tech: its own virtual reality headset.
Piecing together leaks from the supply chain, reports from California and the groundwork the company has laid with developers, it is clear that the iPhone maker is planning to take a radically different approach from its rival, with a price tag in the thousands of dollars and a long-term goal to create a device that people do not feel the need to take off when they want to speak to people in the same room as them.
Like so much in the metaverse space, it is a vision that makes sense when you are planning for a decade’s time: with a refined version of these headsets that bundles the same technology in a pair of glasses, it could even be an appealing prospect to speak to the avatar of a work colleague floating in virtual space if the alternative is staring at yet another Zoom window.
But getting from here to there is going to be a hard and thankless slog – and even Zuckerberg cannot burn $10bn a year for ever.
Apple(AAPL 0.06%) is building its ecosystem, attracting people with its innovative products. Fool.com contributor and finance professor Parkev Tatevosian discusses why stock market investors are talking about Apple stock.
*Stock prices used were the afternoon prices of May 17, 2023. The video was published on May 19, 2023.
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An ex-Apple marketing exec thinks the company’s upcoming headset risks being a flop.
Michael Gartenberg told Insider if rumors and leaks are correct, it “would be a very un-Apple product.”
Apple is expected to debut its mixed-reality headset next month, and is expected to cost $3,000.
A former marketing executive at Apple is casting doubt on the company’s upcoming mixed-reality headset that is expected to debut in less than a month.
Michael Gartenberg, a former marketing exec at Apple, told Bloomberg the headset may be “one of the great tech flops of all time.”
Gartenberg indicated that Apple’s headset was a risky bet due to the current lack of a major market for similar headsets — reportedly a concern among Apple’s employees too — and the underwhelming sales from other competitors in the space like Magic Leap and Microsoft’s HoloLens, according to Bloomberg.
“I suspect there’s a lot of internal pressure for the next big thing,” Gartenberg told the news publication.
Apple is reportedly planning to debut its mixed-reality headset at its Worldwide Developers Conference on June 5 following delays in the last couple of years and despite reported concerns from Apple employees about its $3,000 price tag, overall usefulness, and how it will perform. Bloomberg previously reported that some early testers have said the headset, which is reportedly ski goggle-shaped, is uncomfortable and doesn’t have a “killer” app.
Gartenberg told Insider that if the rumors and leaks around the headset “are correct,” it “would be a very un-Apple product.”
“Apple builds devices that can be sold in the millions with a solid profit margin, not high cost ‘experiments’ to be unveiled in public and sold to developers or enthusiasts with deep pockets,” Gartenberg said. “This is a doomed model that Google tried with Glass & Microsoft with HoloLens.”
Apple did not immediately respond to Insider’s request for comment ahead of publication.
Unless Apple’s headset has “some surprise use case beyond games, which is the only mass market use we have seen,” the headset just seems expensive and too large with its rumored external battery pack, Gartenberg said. He added that it’s possible outsiders don’t know Apple’s reasoning behind the headset, “but also possible Apple wants to demonstrate some sort of innovation at a time when iPhones and iPads are just iterative products from the Jobs era,” while other companies are coming out with new products like foldable phones and AI services.
“It also appears that it could be a huge flop because of the hype and the fact that expectations from Apple have been high since the iPhone was introduced,” Gartenberg said.
Gartenberg previously wrote about his thoughts on Apple’s new headset, saying he doesn’t believe it’s Apple’s “next big thing.”
“Until Apple, or any other company, can demonstrate a truly compelling reason for large numbers of people to want to wear AR around, or add VR to their quiver of home-entertainment options, I fear that the tech will struggle to gain widespread adoption,” Gartenberg wrote.
If the headset debuts on June 5, it will be the newest major product from Apple since its Apple Watch was released in 2015 — a product that saw some criticism and skepticism early on but has since driven significant revenue for the iPhone company and become a market leader in the category.
Apple has reportedly been working on its mixed reality headset for seven years, and previously missed deadlines to release it in 2019 and 2022. Some employees working on the product told The New York Times in a March report that the headset release could be delayed again due to an uncertain economy, but the latest report from Bloomberg indicates the current plan is to unveil it to the world on June 5.
Apple is officially launching its new multiview feature for sports fans on the Apple TV 4K, allowing viewers to watch up to four simultaneous streams at once. The feature was previously in beta and is currently limited to watching select sports content, including Major League Soccer matches, Friday Night Baseball games, and certain MLS and MLB live shows, Apple says.
The ability to watch multiple streams, not just a picture-in-picture mode, has become a selling point for some TV streaming platforms. YouTube TV, for instance, recently opened up access to its own multiview feature that also allows for four streams.
The new Apple TV version of multiview is fully customizable, Apple notes, as it allows users to choose which games are displayed and how they’re shown on the screen. That is, sports fans can move games around on the screen, make one game larger than others, or watch games in either two or four evenly split screens. When one game is the main focus, the other games get stacked to the right side of the screen.
Viewers can also switch between audio using the remote so they can control which game they want to hear. This includes access to the home radio feed for MLS Season Pass.
Apple has been making its TV platform more engaging for sports fans with the addition of Friday Night Baseball, which is included with the $6.99 per month Apple TV+ subscription. To access MLS Season Pass, fans have to pay either $12.99 or $14.99 per month, depending on whether they’re Apple TV+ subscribers. Non-subscribers can watch a few matches for free, but Friday Night Baseball is no longer a free offering as of earlier this year.
However, Apple is now rolling out a 1-month free trial of MLS Season Pass alongside the launch of multiview.
The company is also teasing an MLS special announcement that will stream live today on the MLS Season Pass on the Apple TV app at 1:45 pm ET today. Presenters will include MLS Commissioner Don Garber, Mr. Mohamed Mansour and Sycuan Tribe, who will be joined by San Diego mayor Todd Gloria and other special guests.