Welcome back to the Joseph Carlson show on this episode. Apple is working on a hardware subscription service for iPhones. This might seem like just a blip in the news. It came and went in a day but I think this is a much bigger deal. I think this is a substantial key part of apples. Overall master plan, I'm going to explain their master plan. In this episode, we also have news apples, not going to be charging their fees for video and music apps.
So users can come in and sign up through a All without paying their tax, the Apple App Store tax and I'll explain why this is a good move for apple as a shareholder. This is the exact type of move. I like to see Meta. On the other hand right now is having a difficult time retaining top talent. This is a story that I've been hearing over and over again for the past month, meta is losing a lot of their top talent to competitors and we're going to
dive in and try to explain why. And then, we also finally have some positive economic news. People are going back to work at a very brisk Pace. I'll show you Quick people are going back to work in this episode and then of course, we have my portfolio. There's no major changes to it. Other than the fact that I sold a little bit of my core, I sold a little SCH G and a little s CH D to buy more dominoes that is around 6% of my portfolio. So it is a substantial by but
it's not. Like I'm going all in on this company. I do think the company's attractively valued and although I can't predict short-term moves in the market. I think the Domino's has a very bright future. You want more information on this trade, in this company, you can refer to my previous video.
Now let's go ahead and jump right in there is some news about a week ago that just popped up for about a day and then it quickly faded away into the background and the News was that apple is working on a hardware subscription service for iPhones. That's the headline. Now, most people that read this might shrug their shoulders and think, okay, another subscription service, right? I've heard this before, but I think this is much bigger news for Apple than people are giving it.
For especially investors in apple. This is incredibly important news. Let's back up here for a minute. First of all, you know that, I'm a big fan of subscription Services, I've made a number of videos on the subjects. Now, of course, we have Netflix, Netflix, almost invented the model. They actually turn the entire TV industry upside down in the cable industry upside down with their direct-to-consumer subscription model. It's much more consumer friendly. You can look at Costco.
Costco is a Warehouse that provides so much value that people pay a subscription in order to shop there, they're paying Costco money, just to get into the store before they can start buying things. That's the amount of value that company offers but the big part of their business model is the yearly subscription with the low churn rate.
Then we can look at Amazon, Amazon is almost like the sped up version of Costco brought online and it likewise turn the online retail industry upside down with its Amazon Prime subscription. Action model offering two day shipping to Prime members, Amazon gains, billions of dollars in pure operating income on a reliable basis, every single year with their subscription model.
Now, of course, when you think of Amazon and subscriptions your mind goes to Amazon Prime, that's the subscription they sell. You can also look at another big aspect of their business which is AWS Amazon web services, although AWS isn't exactly a subscription model. It's extremely similar AWS runs off of a model where they're selling. Are big infrastructure. All of the buildings that they've built that host.
All of the web they're selling that infrastructure as a service that's literally what the business model is its infrastructure as a service, and similar to subscriptions, they are tied into their customers. They already have their credit card numbers. They already have their payment information and they just build them reoccurring every single month or every single year based entirely off of their usage. So Amazon has dual levels of subscription.
They The Amazon Prime subscription and then they have the infrastructure as a service through AWS. This is an evolution in the subscription model aimed at the corporate world. Now, the thing that's important to understand from the investment perspective is that service-based and subscription based companies. Almost always earn a higher multiple from investors than simply one time sales companies. The multiple I'm talking about is the price to earnings or the price to sales.
Microsoft for example, has a 33 PE on a trailing basis A 29 forward P/E. That's a pretty high multiple. But Microsoft has always been looked at as an incredibly wide
mode subscription based company. So always has that premium, that people pay over other companies that simply don't have this type of sticky reoccurring Revenue. Now, if we compare Microsoft's Revenue to Apples, Apples is always been a little bit more jarring, a little bit more back and forth, never quite as consistent as Microsoft's because Apple has been largely based off of one time sales of lots of different Biases, the iPad and MacBook, and mostly the iPhone sales.
Not as much of their revenue has been based off of that reoccurring Revenue. But Apple has been working almost desperately to change this. We look at the company overall and we cut out the different forms of Revenue, aside from just Services. The services have grown substantially on a year-over-year basis. It's growing like a startup company. This is the quarterly growth of just their services. The most recent quarter, the services were 51 billion dollars.
But I look at Microsoft and Apple and I know that these two companies envy each other in different aspects, Microsoft envies apples position as having so much Hardware with a direct connection to the consumer. They wish that they had more
Hardware in consumers hands. I know, that's something Microsoft wishes they had, the Apple currently has, and likewise I know that apple looks at Microsoft as a company and envies, the fact that they have so much reoccurring subscription Revenue, that's something that Apple wishes they had. So each of these companies are trying to become more like each other in two different ways. But with this blip of news, a headline, that was last week and quickly faded away it revealed
apples. Big step into becoming like Microsoft. Apple is working on a brand new type of subscription. It's not SAS, it's not software as a service. It's not infrastructure as a service like AWS are Azure. This is hardware as a service. This is the big push that Apple's going to make. They're going to turn their Hardware into a Service just like Netflix. Now let's go ahead and listen to this news report from the person that broke it to try to break down. Really?
What this is yeah thank you for having me. This would be no different like you said than your monthly ten-dollar Apple music subscription or $15 a month, Apple One bundle subscription right? You'd be paying for the phone on a monthly basis. Like you might on a car, at least. Now this is different than installment programs and carrier subsidy programs today. What apple and the carrier's allow you to do? If you don't want to buy, the phone outright is split up the cost.
Whether that's Five hundred dollars, fourteen, hundred dollars, or less for an sc and such over 12, 18, 24, 30 months, depending on your carrier. This would be a set fee. That's not the cost of the phone /. You know how many months they're already here two years? So this is not simply taking the foam price and breaking it up into monthly payments. It shouldn't be viewed that way, because it's not doing the same thing.
You actually don't own the phone and the same way is if you just broke up, the payments Apple wants to make it so that their Hardware R is you too much more like apple music or Spotify or Netflix? It's just in a different medium, you get a phone sent to you, you pay a monthly price every single month and then you get the newest phone sent to you and so on and so forth. You're paying a subscription price for an ongoing service, only in the form of Hardware.
So they say that the service would be apples. Biggest push yet into automatic reoccurring sales, allowing users to subscribe to hardware for the first time rather than just Digital Services but the It is still in development. So this is all inside rumored information, but I have a very strong belief that these rumors are true. And apple will eventually introduced this type of Hardware as a service. Now, I know what you're thinking
and I'm thinking the same thing. This is awfully reminiscent of that whole, you'll own nothing and be happy quote from Black Rock, the whole idea of you actually owning nothing. That's what companies seem to want, right? Well, I actually think about this, I don't think it's quite as Sinister. Apple is a company that sells consumer electronics and at least for The iPhone. They have a very short shelf, life of how long they're on the bleeding edge. Technology, moves incredibly
fast. IPhones only stay really good for three or four years until you probably want to upgrade to the latest one. So most of us, even though we own our iPhone, they are rapidly depreciating assets. They lose their value, incredibly fast. After a couple years, they're only worth half or quarter as much. And many people even though they quote unquote own their iPhone are constantly just junking their old iPhone buying. One, junking their old one,
buying a new one. So for that huge swath of people, this would actually come in as an easy way. They just subscribe to the newest one and be insured. You're always going to have the latest and greatest for very frugal people for investors and most of you watching this show, you're probably in the category where this doesn't look like such a great deal, but you got to look at this through the lens of the average. Apple consumer, millions of people just want to have the latest technology.
They spend all of their time on these devices and having an easy way to do that. At with less friction is a win-win for both the consumer. And for Apple, it will make it so that they finally have the huge reoccurring revenue of a Microsoft like company and for the consumer. It creates less friction to constantly upgrading their device. In my opinion, I think there's a very good chance to Apple will push into Hardware as a service.
And I also think there's a very good chance, they'll be widely successful at it. It will build a more reoccurring Revenue stream to give Apple more consistent, Microsoft like revenue. And interestingly, Apple's PE ratio their multiples have climbed to almost perfectly match. Microsoft's apples forward, P/E is out of 29 and Microsoft is out of 29. And in my opinion, this makes sense. I think that Apple should trade around the same as Microsoft.
So, that is Apple's master plan and I think they have a decent chance of pulling this off. Not a quick side note, Apple also said that they're now going to allow video music apps to sign up new subscribers without paying fees.
So basically with apps like Netflix and Spotify, you might be able to sign up through the The app if Netflix and Spotify want you to and you won't have to pay Apple any type of fees, I think the reason that Apple's doing this is smart, they realize that these big companies like Netflix and Spotify are simply circumventing it. Anyway, they're not signing up through apple and that creates less lock in with their
ecosystem. So, they're saying, you know, if more and more apps do this and circumvent the App Store, we may as well lower the fees and have them sign up through the app store because in those customers have a close connection with Apple. So, You know, this will hit the top line revenue for Apple little bit. I think that overall this is a very positive thing.
It looks good to Consumers, it looks like apples doing a right step and lowering fees, and it also creates more lock in on the Apple App Store because more and more people are going to be signing up through the App Store. Now, moving on, we have struggles that a lot of tech companies have faced recently, especially the big ones of an
exodus of talent. And it seems like a lot of them are leaving for start-up companies or new Ventures where they're going for lots of Equity and meta is facing a lot of this
issue. I think in part because of the stock price plummeting, but also because of the rapid shift and direction for the company, they say that the top talent is quitting as the lab tries to keep Pace with Rivals at least four prominent members of meta a a I have departed in recent months according to people familiar with the matter and Linkedin analysis, Karl Herman, an AI entrepreneur who used to work at the Rival. Lab deepmind told CNBC on Monday. The true figure could be More
like half a dozen. Adding that the company's London, AI lab had seen an alarming number of exit, quote metas, London office, just collapsed, and they lost most of their top researchers in the span of six weeks. That sounds pretty Grim, the whole office collapsing in it. They asked people the reason why they think they're leaving and it seems like just a variety of different reasons. Quote, some people jump to another big lab because I fill it will advance their career or research agenda.
Better, that is a frequent reason that Engineers leave company. He's for career advancement. You don't want to get too complacent with where you're working. Another one is quote, others go because comps or hiring potential for their team is better elsewhere, The Source added quote, others just want to do startups or get involved with smaller companies for some it might be tied to meta stock tanking, but I wouldn't say that's necessarily the main reason.
So seems like there's a lot of different reasons and I've heard this same thing Through the Grapevine. I've heard a lot of people are leaving, not only meta but other big Companies to pursue different Endeavors. And this is a risk for big Tech, Talent is their most important asset and they have to find a way to retain them apples.
Chosen way of retaining. Them seems to be throwing two hundred thousand dollar stock bonuses per year at their key Engineers. That is the way that I think apples trying to handle this is by simply paying them, an absolute fortune on top of their salary. But unless you're willing to dish out this much money, seems like a lot of these Engineers are going to be leaving to other
opportunities. So it's difficult to know how Much, this type of news will affect the investment overall of meta or other big tech companies in my opinion, I wouldn't Factor this type of negative news too much into an investment thesis of meta. I don't think that a couple engineers at the company are going to make or break their
effort. I think that overall if your entire thesis is reliant on 12 or 15 Engineers, that's probably a bigger concern with a company like meta, they have tens of thousands of employees and they should be able to work past this. Now, moving on, we have Actual positive news about the economy. This is something that we don't hear all that often. The March jobs report is out and it shows extremely strong hiring momentum. This is more than just a Brisk Pace.
I think that they're actually understating how rapid this job growth has been. Because look at this, they see, employers added 431,000, jobs in March, another 400,000 plus jobs in March and employment in January, and February combined was 95,000 higher than previously reported. And the report marked the eleventh straight month of job gains above 400 Thousand, Eleven months in a row.
That's the longest stretch of growth in records dating back to 1939. The unemployment rate fell to 3.6 percent that is quickly approaching the February 20, 23 pandemic rate of 3.5% a 50-year low. Now the employer participation rate hasn't fully recovered but that's recovering very rapidly as well. So, everything in terms of employment is moving rapidly. Back to normalize levels back into a good direction. And again, I think this is happening incredibly fast.
Look at this graphic here is an example. This shows basically every time there's been huge job loss in the u.s. history and it shows it with different colored lines. 2020 was the red line. So you can see that this was essentially the worst job loss we've ever had by far the highest levels of unemployment at an incredibly Fast Pace, but look how fast the recovery's been. That against 2007. In 2007, it took years and years and years to get back to the amount of jobs that we had prior
to the recession. And you can see the trend in 2020. What used to take years is now taking months and it looks like in just a couple months. We might be back to where we were pre-pandemic level. I think that's pretty incredible. So I'm not trying to paint a Rosy picture about the economy. There's certainly a ton of challenges we're facing with inflation and Rising interest rates, but the jobs gains have been a bright spot looking at the Employment rate illustrates
this in a different way. You can see the massive spike in 2020, as many people are prevented from working. And all of that quickly returning, we're almost back down to the exact unemployment rate that we were prior to the pandemic. In my opinion, I think it's a very positive thing that people are going back to work.
So that's all for now. If you want to get an updated link of my portfolio, there's one in the description of this video and also, if you want to try out the patreon, you can try it out today with a free trial for this month, and you'll be able To see if you like it and you want to stick around. There's also a link in the description for that other than that, I'll see you in the next episode.