Is the Apple Vision Pro Worth It? & Regional Banks Could Be in Trouble Again

0:00Tonight on NBC, Jimmy Fallon and Bozma St John host the highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best I do win! On Brand with Jimmy Fallon. Series premiere tonight on NBC. Good morning for your daily show. I'm Neil Freiman. And I'm Toby Howell. Today, the Apple Vision Pro is officially live.

0:37Will it be the future of computing or another plot in a headset graveyard? Then another regional banking crisis might be looming if commercial real estate can't pull itself off the struggle bus. It's Friday, February 2nd. Let's ride.

0:57It is Groundhog Day, the very strange holiday where a bucktooth rodent in rural Pennsylvania will tell us whether we'll get an early spring or six more weeks of winter. If you're keeping track at home, Punxsutawney Phil has forecasted a longer winter for the past three years, so maybe we're due for an early spring this time around. Also, ever since that Bill Murray movie came out, Groundhog Day has symbolized a day you are condemned to repeat over and over and over again. Toby, let's say somehow you had to relive a single day of your life for eternity, but you could choose which one it is. Which are you going with?

1:30Oh, gosh, you're hitting me with the existential questions really early in the morning. OK, so I haven't had a kid yet. I haven't gotten married. So those are like the two easy ones that I would say, but that hasn't happened yet. So I'm just going to go pick a really good meal I had, which I mean, for my birthday a few years ago, I had this great sushi meal in Seattle. I don't remember what the place is called, but I'm going to relive that day because the bites were so good. I'm going with back when I was a senior in high school, my doubles partner and I lost a match that would have won our team the state final for tennis and so i really was frustrated at the end of that day and i would love to go back and beat those guys from eastern mass uh so that's the one i'm picking and it would be great it was also just a senior i was a senior in high school it was a summer day so might as well pick a summer day where you have a ton of daylight and it's warm yeah exercise those demons neil speaking of groundhog day it feels like every day we get a repetitive headline of another cyber security hack it's certainly been one of the main topics we've covered on this show, which is why it's great.

2:28Veeam is our sponsor because hopefully we can help some businesses avoid being another ransomware headline. Yeah, Veeam knows that a secure backup is your best line of defense. So don't pay that ransom if your data gets hacked. Pay for Veeam instead. Head to Veeam.com today to learn more. That's V-E-E-A-M.com today. This episode is brought to you by State Farm. Checking off the boxes on your to-do list is a great feeling. And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you. Whether you prefer talking in person, on the phone, or using the award-winning app, it's nice knowing you have help finding coverage that best fits your needs.

3:08Like a good neighbor, State Farm is there.

3:13Happy Vision Pro Day, everyone. Today is launching its VR headset, the company's first major new product in nearly a decade, and one it spent years and billions of dollars perfecting before releasing it into the wild. And I don't think it's an exaggeration to say that today, February 2nd, 2024, will go down in history. On one hand, it could represent the beginning of a new era of how humans interact with the world and each other. Instead of having computers in our pockets, we'll wear them on our faces. That's the future Apple is betting on. On the other hand, the Vision Pro could become a flop of epic proportions.

3:47VR headsets have been around for 10 years, and they have not made any significant headway. If Apple, the undisputed king of gadgets, the maker of the iPhone, for God's sakes, can't make headsets go mainstream, then maybe no one can. If the Vision Pro fails to catch on, it could mean that the concept of wearing a computer on your face is doomed, and maybe tech companies will shift their focus elsewhere. Of course, we won't find out which path we are on for years, but this new adventure starts today. Was that dramatic enough, Toto? That was dramatic, and you're right. It is a blank slate right now.

4:18Is this going to be for work? Is it going to be for play? Is it going to be for both? Are developers going to embrace it and populate it with this rich ecosystem of apps? Are people going to pay almost$4 ,000 for this thing? There's so many questions, but all I know right now is that it is exciting, and it does feel like a new frontier in a way that no hard tech has in years. I still think that entertainment is going to be the main use case here still. avatar director james cameron he did a demo in it and he called it a religious experience again he's known as someone who wholeheartedly embraces new technological advances but other reviewers also let out some like ooze and aahs and said they were really impressed with the entertainment side of things they did uh they weren't as impressed with the work side of things obviously this comes with a full you know mass desk mac desktop uh microsoft 365 also made its apps for the Vision Pro, but a bunch of the reviewers who got their heads on this thing tried doing some work, and they said, honestly, it wasn't as easy or intuitive as me just working at my desktop.

5:21So I think Apple has some work to do to try to make it an office productivity tool. In general, I think we read a bunch of reviews because a bunch of the tech columnists were able to try it out. And the main theme across the board was, this is an incredible product. Like when I put this on, I am in another world. The screen resolution is unlike anything I've ever seen. It's so immersive. But just like Billie Eilish asked, what was I made for? Like what is the use case that will unlock the potential of a headset? And I think Apple and its marketing has still not answered that question. Yeah, and there's a couple of not awesome parts to it too.

6:01The main gripes have been there's this big battery pack that they had to create an external battery pack in order to make this thing not so heavy. But that's the issue already, is that people say, if you wear it for any extended period of time, your neck gets tired, your face gets tired, because this thing is chunky. It is the same weight as an 11-inch iPad Pro on your face. So, just imagine strapping one of those to your face, and you see why people are having some neck pain here. In total, if we want to zoom out, Apple is expecting around 400 ,000 total units this year, which again would translate to$1.4 billion in sales.

6:36Kind of a drop in the bucket actually for a company of Apple size, but still early innings yet. I'm excited. I'm going to go to the Apple store and try it on. Like, of course. That is what we recommend. You know, maybe you're not going to shell out$3 ,500 for this thing, but you should go to the Apple store because they are doing demos. So you might as well go put it on. And it might help out actually the VR industry as a whole because Apple is, you know, introducing this particular gadget, and maybe you're not going to shell out for it, but there's a bunch of lower-priced ones that maybe you'll say, okay, I kind of like this experience, but I'm not going to pay$3 ,500.

7:14Maybe I'll go to Meta's or all the other ones that are about. So maybe it's a rising tide lifts all boats kind of situation. Moving on, three of the magnificent seven big tech stocks reported earnings yesterday, and for the most part, they were magnificent. One day after getting grilled by Congress on Capitol Hill over child safety, Meta CEO Mark Zuckerberg was in rare form reporting that his company's revenue jumped 25 % to$40 billion, its largest year-over-year quarterly sales growth in more than two years. It also introduced a dividend for shareholders for the first time. Amazon also had a fantastic holiday quarter as everyone shelled out for Christmas presents.

7:52Its profits of$10.6 billion and sales of$170 billion crushed Wall Street expectations. Those reports were giving a standing O by investors who sent the company's stock prices surging. Metas jumped 17%, Amazon spiked 8%, adding$280 billion in combined stock market value. And then there's Apple. Apple did okay, growing sales for the first time in a whole year, but a big decline in China is causing a great deal of anxiety over whether Apple's losing the smartphone war in its second largest market. Apple's stock dipped nearly 3 % after its report. What were your big takeaways? I mean, let's just start at the top.

8:31You talked about Meta at the beginning. I saw a tweet yesterday saying, like, is Zuck's last 18, last 12 months of management Some of the best in corporate management history. I mean, Meta was dead in the water. VR wasn't catching on. Apple kind of turned their ad business on its head. The company was bloated after overhiring in COVID. And then Zuck announced the year of efficiency. They pivoted to AI very successfully. They got market validated by Apple's efforts to enter VR. And they also saw their ad business bounce back big time. Now it's offering a dividend, which is something you never really expected from a company like Meta.

9:08It just has been this huge renaissance for Meta in a year where, if you go back a year ago, it looked like anything but. Right. Their headcount is now 22 % lower than it was at the start of the year last year, which is a huge shaving and huge cost savings. And they need those cost savings because they are spending and losing so much money on the Metaverse. I don't know exactly what Zuck's doing there, but it's Reality Labs division, which is Metaverse unit, lost$16.1 billion. So to be able to lose$16.1 billion on, say, R &D on your next decade or two that you think is going to propel your company into the future and post billions in profits like you did, your ad business must be making so much money.

9:54Yeah, and issue a dividend and do a$50 billion share buyback so they have some cash. Amazon also became just a lot more lean and efficient and profitable. I mean, yeah, you mentioned their net income surge. The holiday bump did its thing. Again, that's a big period for Amazon every year. AWS still growing. Not the world beater it once was. It was up 13 % in the fourth quarter, but it used to be in the 20%, the 50 % growing range. And then, yeah, Andy Jassy kind of talked about AI, too, a little bit. Amazon has this generative AI assistant called Rufus that it's testing among some users. So Amazon's hitting all the beats that you're supposed to hit as well.

10:31And then finally, Apple, I know we talked about at the top with the Vision Pro, but you can kind of see from this report why the Vision Pro is so important to Apple, because its growth units are just not growing as much. Its wearables business declined 11 % in the December quarter. Its services unit, which contains the App Store, grew 11%. That's definitely not the growth that it's expecting. and it has regulators bearing down. It's had to revamp its app store in the EU. Sales in China declined 13 % amid growing competition over there. So it's really looking for its next big thing, Apple, and it's betting on this headset.

11:10All right, let's move on. Another bank might be in trouble, Neil. This time, it's New York Community Bank that reported a bigger-than-expected loss last quarter and has fallen 38 % and 11 % in back-to-back days. Now, one bank reporting less than seller earnings usually isn't an issue that Warren's talking about. But remember, we had a mini crisis last March that saw Silicon Valley Bank implode, eventually taking out a variety of banks in its wake, including New York-based Signature Bank. Well, the majority of Signature Bank's assets and liabilities were snapped up by none other than New York Community Bank last year.

11:44But NYCBCO said the company is still adjusting to the regulatory demands and growing pains of being a large bank after absorbing Signature. and jumping past that$100 billion in total assets threshold, which is a key regulatory measure where stricter capital and liquidity standards come in. Neil, this has been a bumpy quarter for NYCB for sure, but there's also been some nervous whispers that as commercial property comes under pressure, things could start spinning and spiraling for regional banks again. Yeah, this was a terrible quarter for New York Bancorp, but the problem was it wasn't just contained to the United States.

12:19banks as far as Switzerland, Germany, and Japan all kind of plummeted yesterday because there's just a lot of spooked. There's a lot of anxiety around all the commercial real estate loans they have on their books. This has been a slow train wreck coming. It's kind of like that test you have at the end of the semester that you know you're going to fail. You keep asking the professor for an extension, but he's not going to give it. So that's the big problem we have that there is a slow moving crisis in commercial real estate. We haven't seen it kind of implode right now, but people are still not returning to the office, and these values on offices have completely plunged.

12:54Yeah, I mean, the test at the end of the semester that you mentioned is that there's more than$2.2 trillion of U.S. commercial property loans that are set to come due by 2027. And a lot of those property loans are on these regional banks. They're more exposed to the sector than some of the bigger banks. So, again, when those loans come mature, it will be make or break time. Can they either refinance and push the loans to a longer timeline so they can get them off their books? Or is it going to we're going to see another eruption, another mini banking crisis like we saw last year? Right. This is I just want to make sure that this is emphasized that this is a separate kind of issue than what happened with Silicon Valley Bank.

13:32But this one might be even bigger because of how exposed regional banks, these smaller banks are to commercial real estate. as you mentioned, they account for almost 29 % of assets at small banks compared to just 6.5 % at bigger lenders. So these smaller banks, which also have less of a buffer all around than the JP Morgan's, the cities of the world, the city banks of the world, they're going to be the ones that take the brunt of the valuation plungings of office space. And the problem is we just don't know yet how much the value of these huge buildings that are now empty are because the market has kind of frozen over.

14:06There haven't been that many transactions. There was, there There have been a couple and they have been very alarming. There was the Aon Center, which is the third tallest building office tower in Los Angeles. It recently sold for$150 million, which was 45 % less than the previous purchase price in 2014. So that's kind of the canary in the coal mine. These transactions haven't happened. But once they do and all of these valuations kind of come to the fore, it's not going to be good. Yeah, especially when we're all wearing Vision Pros and not community office, just using virtual reality to sit in our office chairs.

14:38All right, before we jump into the next part of our show, we're going to take a quick break.

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15:23You can even target buyers by job title, industry, company, seniority, skills, and... Did I say job title? See how you can avoid the void and reach the right buyers with LinkedIn ads. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started at linkedin.com slash campaign. Terms and conditions apply. It has been a rough winter for Delaware. First, the pride of the Blue Hens, Joe Flacco lost in the playoffs. And now Elon Musk is threatening to yank Tesla from incorporating in the state and take his talents to Texas. Musk's beef with Delaware began earlier this week when a judge blocked his$56 billion pay package after finding the process for its approval was deeply flawed.

16:06And after that major setback, Musk warned other companies to never incorporate in Delaware and escalated the feud by saying he'd hold a shareholder vote to incorporate in Texas. Tesla, like most other companies, is incorporated in Delaware because of the state's business-friendly laws and its court system that has literally centuries of experience with thorny corporate legal issues. 68 % of Fortune 500 companies are incorporated in Delaware, and about four out of five of all U.S. IPOs in 2022 were registered in the state. In Delaware, there are more registered companies than people. But in recent years, other states, including Texas, have been looking at Delaware and thinking, hey, maybe we should build this legal infrastructure to have companies incorporate here.

16:48And Musk's effort to move Tesla to Texas could fan the flames of interstate competition. Yeah, this is really bad for Delaware if Elon kind of starts this precedent. I mean, having nearly 70 % of the Fortune 500 in corporate there has brought in$2 billion in fees since 2022, which is a quarter of its entire budget. So again, this is kind of an existential threat here. If if Elon starts leading this march out of Delaware, like this is the thing Joe Flacco and this was the thing Delaware had. So, yeah, it is kind of some warning signs flashing if Elon kind of leads this charge. Maybe because Elon Musk is always kind of an outlier.

17:24So it's hard to draw broader conclusions with what Elon Musk says. I'm not sure shareholders will even vote to move Tesla to Texas because Elon Musk wants to move it because he wants to you know, he kind of he's accused of railroading the shareholders with this pay package. So if I'm a shareholder and I'm looking at this proposal saying, oh, I want more power, you know, I'm upset with the fact that this judge ruled in favor of the shareholders. I want more power and I want to move this to Texas. If I'm a Tesla shareholder, I'm like, maybe I want that checks and balances that Delaware provides.

17:56I also think if we just go into kind of like psychology behind you, I'm reading the Elon Musk biography right now. So I kind of am in his head a little bit right now. And this is not the first time that this specific judge has ruled against him in Delaware. McCormick was also the same judge who oversaw Twitter's when he tried to back out of the Twitter lawsuit. So this is two times now that he's been kind of taken an L in Delaware courts. So I think that is actually paying a bigger role than people like to admit. His personal grudges. I think you're absolutely right. But how did Delaware get here in the first place and why does everyone incorporate in Delaware?

18:30And it's a lot because of this court system. I mean, there's seven judges that just have so much experience dealing with the most complex corporate issues that you can imagine. There's no jury. It's very predictable. You know, besides maybe these these recent Elon Musk rulings, it's very predictable. So when corporations have any issues with shareholders, with their corporate governance structures, they know when going to the Delaware court, they're going to get a very experienced judge, someone who's seen everything before. And no other state has that infrastructure, not even Texas. Texas is trying to build up a business court that they're launching in September 1st.

19:06But experts are saying it's going to take years and years and years for them to build up the experience necessary to make the right call. Yeah, and it's quick, which is the biggest thing. No juries, just judges makes the whole process fast, which is another reason. Okay, let's head to our Friday segment, Stock of the Week, Dog of the Week, where Neil and I bring you guys one stock that loves Morning Brew Daily and one stock that likes being alone with its thoughts. Weird. I won the pre-show game of who can pronounce Chipotle worse, so I'm up first. And my stock of the week is Ferrari. Now, as our Formula One obsessed listeners already know, there was a little bit of news yesterday that sent everyone into a tizzy.

19:44Seven-time world champion Lewis Hamilton is set to leave Mercedes' F1 team to take his talents to Ferrari starting in 2025. This is like Tom Brady leaving the Patriots in his prime to go join the Colts or the Seahawks. But as much as we'd like to fanboy over the ramifications for F1, shares of Ferrari also hit a record high for reasons other than the Hamilton news. Ferrari reported an 11 % increase in fourth quarter revenue to cap off a record year that has seen it inch closer to$100 billion valuation for the first time. It issued guidance that expects the upcoming year to be even stronger. So landing Lewis Hamilton and taking a victory lap on an earnings call, not a bad week for Ferrari.

20:26Wow. Yeah. Great week for Ferrari. It looks like what drives Ferrari's performance these days is these personalization and customization you can do with its cars. I personally have not shopped for a Ferrari, so I can't really speak to this personally. But it seems like you can add your own paint job and that really drives the price higher. And that's what's doing so well for it. the average selling price for a Ferrari car was at a record high of$431 ,000 last year. So the last quarter, that's like 11 vision pros, right? That's a lot of money. So they're really leaning into this customization. It's working out so well for them.

21:00That was not 11 vision pros. I got that totally wrong. But also you're totally right about like the margins driving Ferrari because Ferrari's deliveries actually declines 2 % in the quarter, but their revenue increased 11%. Their operating profit margin is almost 25%. Tesla, remember, which is held up as this great margin business, is only at an 8.2 % operating profit margin. So you can just see that there is gulfs between the luxury car market and the normal car market. The 25 % margin, that's just luxury goods. That's just not even a car. That's just a luxury good that you want to show off. And now it has Lewis Hamilton, which is just a huge deal.

21:42I'm pumped. It's weird seeing him in red. I can tell you that for sure. OK, moving on for our dog of the week. 23andMe stock took a DNA test and found out it was 98 percent not there. Once one of the highest flying startups in Silicon Valley worth six billion dollars, the genetic testing company has plunged 98 percent from its peak to a share price of 73 cents. And it's now being threatened with delisting off the Nasdaq exchange. The problems facing Susan Wojcicki, 23andMe's CEO, run the gamete. It's never made a profit in its history and could burn through its cash by 2025. Last year, it did three rounds of layoffs, reducing its headcount by a quarter.

22:21It also suffered a major hack last fall when the non-genetic information of 6.9 million customers was exposed, leading to a class action lawsuit. Wojcicki still thinks this ship can be turned around by mutating 23andMe into a more comprehensive healthcare company that sells subscriptions and develops drugs. But judging by the stock price, investors are increasingly doubtful that the company received the dominant gene. Yeah, I think there's just a little bit of a fundamental issue with kind of their business model. Remember, customers only need to take a 23andMe test one time, which is not good if you're trying to drive extended revenue over long periods of time.

22:57And then also the pitch that 23andMe will use this data to develop these new drugs is also a little flawed because the development timelines of these drugs is so long. It can take 10 years, hundreds of millions of dollars to get these across the finish line. And it's just something that a company of 23andMe size can't withstand. It's crazy to think where this company was just five years ago. Eddie Murphy name checked it on SNL. Oprah was hyping it up. Lizzo was hyping it up. Susan Wojcicki was kind of the toast of Silicon Valley. She had a kid with Sergey Brin, the Google co-founder. So she was like in this aura of Silicon Valley eliteness.

23:35and now this company is just absolutely plunged in value. It's a pretty big fall from grace. Yeah, fall from grace, but I mean, she's still bullish on it. I do think there is some merit to allowing people to have more control over their healthcare and know more about their bodies and how they can treat it. So there is still a glimmer of hope, but yeah, it's been a rough few months and a rough few years. Finally, let's move on. Super Bowl Sunday is fast approaching and it's clear that the presence of Taylor Swift won't just influence number 87 on the Chiefs play. It's also changing how advertisers are looking at the game.