These Two Sentences Will Explain Why Apple Will Not Rally Like Google Did Last Friday

Per Bloomberg, last Thursday’s report “marked the first time since 2013 that Google has announced quarterly adjusted earnings per share higher than expectations.” The market responded accordingly, rallying Google’s stock to an all-time high of $699.62 (a 16% increase), and provided 39 points of the Nasdaq Composite Index’s 47-point gain for the day. As Walter Todd, CIO of Greenwood Capital Associates LLC puts it, “It’s a good feeling. The move in market cap is just insane.”

Now investors are wondering… can Apple repeat the same magic Google performed?

Once the market closes today, Apple is going to report earnings for its fiscal Q2 — the period covering April, May and June. Almost all signs point to a no.  To understand why, take a look at this Fortune article. More specifically, these two lines…

Google’s rally was sparked by quarterly earnings that beat Wall Street expectations for the first time since 2013.

Apple’s earnings have exceeded the expectations of Fortune‘s panel of Wall Street analysts eight quarters in a row.

What happened with Google was an anomaly. But with Apple, anomalies happen so frequently that it becomes normal — Apple is expected to outperform the expectations of Wall Street analysts anyway. So even if Apple exceeds their expectations today, it’ll just be another normal, boring earnings report.

BUT… there are a couple things that could push Apple’s stocks up today (albeit not as much as what happened with Google) … and these are the numbers investors are looking at closely.

iPhones: Apple is now an iPhone company. Revenue generated from everything else they do and sell are nothing more than rounding errors for the company.

Analysts are expecting Apple to sell 49.4 iPhones this quarter — a 40% growth (!) annually on a quarterly basis.

Apple should have no problem beating these expectations: since the release of the iPhone 6 and iPhone 6 Plus, Apple has blown all demand and delivery expectations out of the water. In fact, if Apple can prove that there’s still a strong demand for the current generation iPhone 6 and iPhone 6 Plus before the newer generation comes out sometime in September, it has the potential to positively affect Apple’s stock price even more.

The entire iPhone line is quite a miracle: it’s a $154 billion business that not only has the potential to, but does grow 40% annually without ever having to lower its profit margins. A report recently emerged highlighting Apple’s insane profit margins on these iPhones: even though the company only has 20% of the sales in the smartphone industry, it’s taking 92% of the profits.

Apple Watch: Apple’s newest product line went on sale at the end of April, which means that Apple will have to report earnings on it for the first time ever.

Due to competitive reasons, Apple will not report its Watch sales as an independent category, and instead will lump it with all the “other products”. The “other products” category is usually comprised of iPods, Apple TVs, Beats Electronics, and other accessories.

All the “other products” did $1.7 billion in revenues last quarter — it’s up to the analysts to figure out how much of the difference this quarter versus last quarter in the “other products” category is due to the Watch sales.

This is what revenues from the “other products” category currently look like (via QZ)

atlas_Ekee27LF@2x

The Watch is an entirely new product line for Apple, which means one thing: analysts really don’t know what to expect.

So here’s how they’re going to decide if Apple is performing well on the Watch sales or not: if revenues for the “other products” are much higher for this quarter than it was for last quarter, then Apple crushed it. If revenues are the same or only experience a slight bump, then Apple bombed it.

Indicative measures: These are the usual big numbers everyone is paying attention to that will indicate if Apple is doing well or not (via B.I.)

  • Revenue: $49.22 billion, via Yahoo Finance (would be growth of 31.5%)
  • EPS: $1.80, via Yahoo Finance (would be growth of 41%)
  • iPhone units: 49.4 million, via Fortune (would be growth of 40%)
  • Gross Margin: 39.5%, via Gene Munster of Piper Jaffray
  • Revenue guidance: $50 billion, via Gene Munster of Piper Jaffray

Everyone will be able to listen in on Apple’s post-earnings conference call with analysts at 5 p.m. ET (2 p.m. PT) today. Here’s the link.

EXCLUSIVE: Reddit’s Internal Plan To Fix Itself

As Reddit charts its future with a new CEO, co-founder Steve Huffman, the company has been scrambling to decide on what to do with the hateful subreddits that currently exist on the site (such as /r/CoonTown). The Michael Report talked to several employees and people familiar with the matter and here was what they told us…

  • The company has reached a middle ground between what previous CEOs Yishan Wong and Ellen Pao wanted for Reddit (for it to be as free as possible from restrictions; to allow offensive content to exist as a small price to pay for having meaningful discussions and not letting users feel as though they’re censored) and what the board of directors wanted for the company (for Reddit to purge all of its offensive subreddits once and for all, so the site becomes more ad-friendly).
  • Under Steve Huffman’s guidance, Reddit will allow the offensive subreddits to exist, but each of them will be flagged and hidden from those who aren’t looking for them specifically (i.e. logged-out users). TMR has also heard that Reddit plans to exclude these subreddits from search (it was not clear from our source whether this means Reddit’s internal search system, Google search, or both).
  • Subreddits that host offensive content will be flagged with some version of the NSFW tag. In order to view these subreddits, users would have to create a Reddit account and get to them through URLs rather than search.
  • This is done in part to demotivate people from creating more of these hateful subreddits, and to decrease viewership numbers to the more offensive parts of Reddit. If and when traffic to the offensive subreddit decreases, it will be easier for the company to just purge them all once and for all.

Tip us off if you know more!

CHAOS REIGNS: Sources Tell Us What Really Happened At Reddit With The Firing Of Key Employee Victoria Taylor… (Exclusive)

Reddit, the Internet’s bulletin board that serves 7.55 billion pageviews monthly, is in complete chaos after the company’s first Director of Communications, Victoria Taylor, was fired abruptly. Since Taylor’s termination on Thursday night, several default subreddits have gone “dark” (setting themselves to private, and thus blocking the public’s access to the subreddits’ content) in protest and to show solidarity with Taylor.

Taylor, during her time at Reddit, was arguably the company’s most public face, having organized, verified and moderated most of the celebrities’ AMAs (“ask me anything”).

Those who knew Taylor personally said that she was warm and genuine, and had the integrity to never let anyone but the celebrities themselves answer the questions posed by Reddit’s users. Almost universally beloved, Taylor’s firing puzzled many. Taylor’s presence was also instrumental to getting celebrities onboard with the idea of doing AMAs, helping them understand, most crucially, the format which may seem hectic and disorienting for first-time users.

But now, all of a sudden, she’s gone.

No explanation, nothing. Just fired.

Why?

After speaking to several Reddit employees (all of whom declined to be named due to the high tensions surrounding this issue) and people familiar with the site’s operations, here’s what The Michael Report exclusively found out… and it’s not pretty at all.

Reddit wanted to commercialize AMA, but Taylor wasn’t comfortable with selling users out

When Reddit received a $50 million investment from prominent venture capitalists such as Marc Andreessen, Peter Thiel and Ron Conway in October last year, the site, which operated in the red, promised to be profitable in the near future. One of the ways the executive team overseeing Reddit’s operations thought they could do that was if they pushed harder to commercialized the AMA subreddit, which often featured prominent celebrities such as President Obama and a guy with two fully functioning penises. Taylor, however, was not comfortable with how much Reddit wanted to commercialize the AMAs.

Multiple sources within Reddit told us that the management team including Reddit’s founder Alexis Ohanian wanted Taylor “extract soundbites from celebs that they can sell on shirts and cups and whatever” during the AMAs, which would require Taylor to either modify the users’ questions or selectively pick questions in hopes of getting the soundbites instead of doing what users expected her to do, which is to ask the most upvoted questions. Other sources said that Reddit’s management team, most of who rarely reads the AMAs themselves, often pushed for Taylor to modify the questions posed, angling it such that Reddit would be able to obtain more advertisers.

In one particularly egregious example, a current Reddit employee told us that there were high-level discussions for convince Taylor to receive questions from a celebrity’s agent (the source declined to reveal which) and have the celebrity answer those questions with prepared statements that is intended to generate goodwill among the site’s users.

One of the ideas floated around by higher-ups at Reddit was also to do video AMAs (instead of the current text format), which would command extremely high ad rates from advertisers due to the attention given to certain celebrities. The idea, we were told, was to “pre-sell ad spots to advertisers beforehand”, including but not limited to preroll video ads and having the celebrities plug the sponsored products during the interview. As far as we know, Taylor has resisted these pressures and remained loyal to the site’s users.

“[Victoria] pissed the management team enough that they thought she should be replaced by someone… more obedient,” a source within Reddit told us.

There’s a huge disconnect between Reddit’s management team and users

Despite having a community team whose job is to appease Reddit’s moderators (volunteers who manage the subreddits), it seems like the team has not been very effective in doing their jobs. The general sentiment among the site’s moderators is that the administrators (paid Reddit employees) often brushed off their question and concerns whenever they had one or needed the admins’ intervention. Taylor, on the other hand, often tried her best to assist the moderators in resolving their issues. “What really lit the fuse was that literally none of the moderators knew Reddit was gonna fire Victoria, and Reddit didn’t bother telling them. Reddit’s execs, who don’t even use Reddit, really don’t know what’s going on and the shit that just hit the fan,” a person close to Reddit’s operations told us.

Indeed, Reddit’s moderators seem to have no idea that Taylor was going to be terminated (neither did Taylor: in one thread, Taylor said she was “dazed” by the decision). One of the r/AMA mods, who goes by the username karmanaut, wrote in a post explaining why the subreddit went dark:

Today, we learned that Victoria was unexpectedly let go from her position with Reddt. We all had the rug ripped out from under us and feel betrayed.

Before doing that, the admins really should have at least talked to us (and all the other subs that host AMAs, like/r/Books, /r/Science, /r/Music, etc.) (Edit: not to suggest that we expect to know about Reddit’s inner workings. Just that there should have been a transition in place or something worked out to ensure that Victoria’s duties would be adequately handled, which they are not) We had a number of AMAs scheduled for today that Victoria was supposed to help with, and they are all left absolutely high and dry (hence taking IAMA private to figure out the situation)…

The admins didn’t realize how much we rely on Victoria. Part of it is proof, of course: we know it’s legitimate when she’s sitting right there next to the person and can make them provide proof. We’ve had situations where agents or others have tried to do an AMA as their client, and Victoria shut that shit down immediately. We can’t do that anymore.

Part of it is also that Victoria is an essential lifeline of communication.

Part of it is also organization. The vast majority of scheduling requests go through her and she ensures that we have all of the standard information that we need ahead of time (date, time, proof, description, etc.) and makes it easier for the teams that set up AMAs on both ends. She ensures that things will go well and that the person understands what /r/IAMA is and what is expected of them. Without her filling this role, we will be utterly overwhelmed. We might need to scrap the calendar altogether, or somehow limit AMAs from those that would need help with the process.

We have been really blindsided by all of this. As a result, we will need to go through our processes and see what can be done without her.

Sources we talked to said that Reddit’s commercialization efforts are inherently at odds with the site’s purpose… “look at what happened to Digg or StumbleUpon and look at where this is headed,” an ex-employee told us, referring to two once-dominating social networks which have since fallen by the wayside. One employee whose job used to be interacting with Reddit’s moderators and users viewed the entire drama with disgust, comparing the monetization efforts to turning Reddit into a graveyard.” “Reddit, without its users, is an ugly ass site,” he continued. “But the users make it great. The only thing Reddit can ever monetize is the incredible community… but piss them off, and they leave. They’re literally destroying the product they’re monetizing. Maybe one day they’ll be smart enough to realize that.”

Reddit’s founder Alexis Ohanian’s nonchalant response to the drama (“The popcorn tastes good.”) has further agitated users (update: he has since backtracked).

When asked for comment regarding Taylor’s termination, a spokeswoman for Reddit told The Michael Report “we don’t comment on individual employee matters.” It is interesting to note, however, that the response came not from a Reddit employee but from an executive at Abernathy MacGregor, a crisis management public relations firm.

A current petition to remove Ellen Pao as Reddit’s interim CEO has reached 16,200+ signatures.

EDITOR’S NOTE & UPDATE: In light of new information provided by multiple former and current employees, as well as people currently familiar with the situation, TMR has rewritten significant portions of the original post to reflect our better understanding of the rapidly evolving situation.

VCs Are Becoming Increasingly Desperate, Explained In 2 Charts

What is the capital markets environment for startup tech companies?

I think these two charts tell most of the story:

median pre-money

Seed and Series A is more or less healthy. Series B is getting overheated. Series C and beyond has gone crazy.

public market trends

Public markets are rational. Tech stock performance has been strong but is driven by strong revenue growth and good business fundamentals generally speaking.

The disconnect is entirely between the late stage private markets and the public markets. That’s where things are unstable.


This post was written by top venture capitalist Fred WilsonRead more of Fred Wilson’s work on his blog, AVC.

Charts: One Strong Evidence That We’re Headed Towards An Early 2000s Tech Stock Bust

Facebook is now worth more than Walmart!

Source: Quartz
Source: Quartz

Three years since Facebook went public, the social media giant’s stock has surged rapidly, while Walmart’s has remained somewhat stagnant.

As Quartz pointed out, Facebook’s stock has jumped over 30% in the last year as the broader S&P 500 struggled to grow. The surge in Facebook’s stock added more than $65 billion to Facebook’s market value, bringing it just slightly above Walmart’s $235 billion.

However…

Source: Quartz
Source: Quartz

Facebook’s annual revenue is nowhere close to Walmart’s!

Back in the early 2000s, one of the biggest reasons why the dot-com bubble burst was because technology companies that weren’t generating enough revenue to justify their valuations. Arguably, we’re seeing the same thing happening now.

But! The charts above does not represent the broader trend.

It is, in fact, very unlikely that we’re headed towards a crash as violent as the one in the early 2000s….

Source: B.I.
Source: B.I.

As you can see from the chart above, we’re currently nowhere close to where we were in the early 2000s, when the bubble and subsequent crashed occurred. The only reasonable explanation, then, is that we’re at the height of the boom cycle. Every 10 years or so, the tech economy accelerates (boom) before decelerating (bust). We’re now at the height of the boom — and should expect to see the economy decelerate in the next two years or so.

During the bust period, some startups and companies in Silicon Valley will be hurt (especially those that are based on extremely lofty valuations). People will start screaming that it’s a bubble. But I suspect that the major companies, like Facebook, will emerge from the bust period just fine.

The REAL problem is if we don’t enter a bust period in the next few years and the economy continues to accelerate…

So, Apple Caved To Taylor Swift. That’s Smart.

screenshot 2014-11-13 08.09.27

Taylor Swift wanted Apple to pay artists during its three-month Apple Music customer trial period. In an open letter to Apple on Tumblr late yesterday, Swift called Apple’s decision to not pay artists during the three-month trial period “shocking, disappointing, and completely unlike this historically progressive and generous company”.

She even closed the letter with a gut punch: “We don’t ask you for free iPhones. Please don’t ask us to provide you with our music for no compensation.”

After less than a day of the letter’s publication, Apple’s media boss Eddy Cue started calling reporters up to tell them the good news: Apple, after a meeting, has changed its position — it will now pay the artists’ label royalties during the three-months trial period.

The news broke on Sunday night. And everyone went into a frenzy.

Just how did a 25-year-old girl get the upper-hand against the world’s richest company?

But here’s the truth: sure, Apple did cave to Swift — but they did so to benefit themselves. As they would, and should.

Look, Apple is no charity. They’re not obligated to pay artists any more than Spotify or Tidal or any of the other music streaming services are paying artists. If they’re going to do so, they would need a very good reason to.

And they seem to have found it: marketing for Apple Music.

Apple launched Music in WWDC this year — a conference that normal people don’t usually watch. Sure, the press covered it, but in all honesty, how many normal people would take the time to read about Apple’s latest offering that isn’t a new iPhone or iPad?

To reach the normals, Apple is already planning a massive marketing campaign for Music. Swift, one could very reasonably argue, is just part of that marketing campaign.

Swift has got a massive social media following: 59.2M Twitter followers, 71+M Facebook followers and more than 5 billion views on YouTube. She posted the open letter on both Twitter and Facebook. It’s very likely, therefore, that at least (a lowball, back-of-the-envelop estimate) that 20 million people saw the letter.

For those 20 million people, here’s the first thing they’re going to think of when they start reading the letter: so Apple came out with this music service thing and my idol, Taylor, doesn’t like it because it doesn’t pay musicians. WTF Apple?

It’s the type of negative association that could potentially kill a product as fragile as the Apple Music. Apple can’t have that. And so an easy (and given how quickly Apple reversed its decision — cheap!) way to earn goodwill among Swift’s fans would be to, obviously, start paying the artists!

There’s also a bonus in store for Apple: since everyone thinks that Apple only changed course to appease Swift’s demands, she’s also implicitly pressured to put her latest album, 1989, on the service. This is important because Swift is special in the music business: she’s probably the only really huge star who isn’t represented by a label. She can do anything she want. So far, Swift has declined to put her latest album on any music streaming services. But now, after all that Apple has done for her, she’s going to be pressured to put her album up on Apple Music, or risk looking somewhat foolish.

After Apple changed its course, Swift doesn’t have a reason/excuse to not put her album up on Apple Music.

1989 was not only the best selling (8.6 million worldwide!) album, but also the first to earn the Platinum label in 2014. It definitely won’t hurt Apple to have the exclusive rights to streaming it on their new service.

As Swift would say, “Everything Has Changed!”

EXPOSED: This Is Hillary Clinton’s “Talking Points” For “Friends And Allies”

On Friday afternoon, Hillary Clinton’s campaign spokeswoman Adrienne Elrod sent out a memo to supporters containing “talking points” for “friends and allies”.

The memo, which includes a preview of Clinton’s speech on Saturday, articulates how the campaign plans to ramp up its efforts in the primary states by focusing on building a grassroots organization.

Among other things, the memo also addresses how the campaign plans to deal with the presence of Hillary’s husband, Bill Clinton’s presence at his wife’s events (“the speaking program will feature Hillary Clinton exclusively”) as well as how Hillary will go into greater detail with regards to her specific policies in the “coming weeks and months.”

Throughout the entire memo, the Clinton team makes one thing clear: they’re not taking anything for granted.

Read the full memo after the break.

Continue reading