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Tag: Bernstein

  • Major Banks Joining Forces to Take on Apple Card, PayPal

    Major Banks Joining Forces to Take on Apple Card, PayPal

    Major banks are reportedly joining forces in an effort to better take on Apple Card and PayPal in the digital wallet market.

    In the era of digital transactions and wallets, traditional banks have found themselves playing second fiddle to tech companies. According to CNBC, several of the biggest banks want to change the status quo and exert more direct influence.

    Bank of America, JPMorgan Chase, and Wells Fargo are among those reportedly looking to work together to create their own digital wallet that will link to customers’ debit and credit cards.

    The new cards reportedly could launch later in 2023, with both Visa and Mastercard on board.

    The banks are likely driven by a desire to maintain a more direct relationship with the customer, along with the possibility of selling them additional services as a result of that relationship. Banks are probably also somewhat leery of tech deals that leave them with the short end of the stick. For example, Goldman Sachs has reportedly lost somewhere between $1 to $3 billion on the Apple Card deal.

    Nonetheless, entering the market and competing with established tech companies won’t be easy, experts warn.

    Bernstein analyst Harshita Rawat said banks have “likely always had PayPal envy,” but that didn’t mean the way forward is going to be easy.

    “It simply takes a very long time, a killer customer experience (which needs to be better than incumbents, not just similar), and a compelling merchant value proposition to build the two-sided network effects in payments to achieve scale,” Rawat said in a note to clients.

  • Analyst Says Google Should Conduct Layoffs

    An analyst is calling on Google to lay off employees, saying attrition alone will not be sufficient to cut costs.

    The tech industry has been beset with mass layoffs amid an economic downturn that is impacting a range of industries. Virtually ever major tech player has already engaged in layoffs, but Google has so far managed to avoid them. According to Business Insider, Bernstein analyst Mark Shmulik says the company should rethink its stance.

    “Google is likely going to find it difficult to reduce headcount growth below revenue growth without more drastic actions,” Shmulik wrote.

    As Insider points out, Google has avoided layoffs as a matter of pride. The company has built a reputation as an employee-friendly workplace and has never conducted a mass layoff. Instead, the company has always relied on attrition to reduce its numbers, letting employees take jobs at other companies without putting forth any effort to stop them.

    The current economic situation is no longer conducive to that approach. While there was a shortage just months ago, there is now a glut of qualified candidates as tens of thousands of tech workers have been laid off and are looking for work.

    “The VC market has cooled dramatically, meaning there is no more funding to grow headcount, and the crypto market has imploded, which cuts out an entire subsector of the potential tech employment pool,” Shmulik wrote. 

    In the meantime, Google employees are already being subjected to tighter performance reviews, a measure that could be a precursor to layoffs.

    “If you have a job at Google, you’re keeping your head down and hoping that cutting toro from the sushi bar is the only cut that affects you,” Shmulik added.

  • Apple’s Privacy Hypocrisy: The $15 Billion Google Deal

    Apple’s Privacy Hypocrisy: The $15 Billion Google Deal

    Google is continuing to pay Apple to remain the default search engine in iOS, a deal that benefits Apple to the tune billions of dollars.

    Google is the dominant search engine by far, but it’s hard to know whether that is the result of true technological superiority or through the sheer power of its market dominance. A key element to that dominance is paying smartphone makers to make Google the default search engine in the browsers they ship with their devices.

    Such an arrangement is extremely profitable for smartphone makers, bringing in a steady stream of income for essentially no work. At the same time, however, it poses a signifiant privacy and moral dilemma for Apple. The Cupertino company has built a reputation around protecting user privacy, often more so than its rivals, including Google. Because the iPhone maker is primarily in the business of selling hardware, it doesn’t rely on monetizing user data the way Google does.

    Despite that stance, however, Apple is projected to reap $15 billion in 2021 for keeping Google the default search engine in iOS Safari, and as much as $20 billion 2022, according to Bernstein analysts, via long-time Apple reporter Philip Elmer-DeWitt.

    While Apple no doubt sees it as a way to give customers what it thinks they want, in terms of the search engine they’re probably most familiar with, it’s still a strange compromise for a company that puts so much value in protecting privacy. It would be far better, and more in line with the company’s overall stance, to refuse Google’s money and offer users a choice when they first set up their iPhones.

    The more time passes, the harder it will be to defend this deal.

  • Analyst: Can You Have a Healthy Apple if iPhone Sales Decline Going Forward?

    Analyst: Can You Have a Healthy Apple if iPhone Sales Decline Going Forward?

    Analyst Toni Sacconaghi at Bernstein says, “The issue is all about if units are weak on iPhone what is that saying about the sustainability and health of that business and the sustainability and health of the growth of the installed base?

    Toni Sacconaghi, Senior Technology Research Analyst at Bernstein, recently discussed investors reaction to Apple’s latest earnings report on CNBC:

    iPhone Sales Decline Concerns Investors

    The real issue is that if you work from Apple’s guidance they’re saying effectively, or we impute, that iPhone units are going to decline five to ten percent in the December quarter. That is really the key controversy going forward. Can you have a healthy Apple if iPhone units are gonna decline going forward?

    You may say, well they’re getting price increases and revenues are still going to increase this year. However, if units do go down this cycle, and it looks quite likely that they will, the market is effectively saying… we’re not sure that we can take price increases from you anymore Apple. If iPhone prices don’t go up and smartphone units are down this year and will likely continue to be down then all of a sudden you’re talking about 60 plus percent of the revenues of the company that are going down. If units aren’t fuelling the installed base, installed base drives services growth, then all of a sudden you have a different story.

    Are Weaker iPhone Sales a Result of Price Increases?

    That’s really the controversy. It’s not so much that they withdrew units. People really view the withdrawal of unit information as a validation that units are going to be weak this year. The issue is all about if units are weak on iPhone what is that saying about the sustainability and health of that business and the sustainability and health of the growth of the installed base?

    I think there will be an investor debate and that’s what you’re seeing in the market’s reaction today about whether lower unit growth this year is portending something more structural going forward. It’s not black and white. The market was expecting units to be flat and ASPs to be strong. ASPs are going to be strong but units are going to be down, so the markets recalibrating that. Really the core strategic question is what is weaker unit growth saying about how consumers are responding to Apple’s prices and what does that mean about future unit growth and its implications for services growth?

  • Apple Search Advertising: Their Next Multi-Billion Dollar Business?

    Apple Search Advertising: Their Next Multi-Billion Dollar Business?

    Senior Analyst at Berstein, Toni Sacconaghi, released a note today predicting that Apple’s advertising business will be worth billions by 2020. Similar to Amazon, Apple is incrementally focusing on expanding adverting opportunities, especially within the App Store.

    Toni Sacconaghi, Analyst at Bernstein, recently predicted that Apple would increasingly focus on and expand its advertising business:

    Obviously, advertising is a very attractive business because it has 80 percent gross margins. If you think about Amazon, the conversation around Amazon has increasingly moved towards advertising which is now a four to five billion dollar business, very high margins. That’s all just happened in the last two years and now we’re starting to see Apple do very analogous things to what Amazon does.

    Apple’s Ad Business is at $1 Billion Today With Big Potential

    Apple’s principal advertising foray today is in the App Store when you search for an app, ads pop up based on what you search for. This is very analogous to what Amazon is doing with Amazon sponsored product ads where an ad will pop up when you search for an item. We think this business today is maybe a $500 million to $1 billion dollars, but it’s only in 13 countries.

    Apple Ads Are Not in China Yet

    They’ve just actually rolled it out to six more,  that’s including six recently rolled out to. It’s not in China yet. We’re not seeing very high ad load, so you only get one ad when you do a search, whereas on Google or Amazon you might get four or five. The potential for this business to really inflect is significant and again it’s a very high margin business.

    Apple Has Big Potential for Increased Ad Load

    If you go to Amazon or Google you literally have to scroll down an entire page before you get non-advertised based hits and Apple today is only one, so it’s certainly possible that you could do more ads. Moreover, what Apple doesn’t do is once you’ve once you’ve done your search and you go to the next page there’s no advertising and that also occurs at Amazon and Google.

    There certainly may not be the potential for the same ad load going forward but Apple’s is so low relative to what we’re seeing elsewhere that we think there’s a potential for increased ad load.

    Apple’s Privacy Stance is a Limitation in Its Efforts to Advertise

    I think Apple’s privacy stance has really been a limitation in its efforts to advertise. Obviously, targeted advertising is worth much much more than general advertising, so Apple will continue to try and do both while preserving privacy. The ads are really based on very limited data. They’re based on whether you’re on an iPhone or an iPad, they’re based on your geographic location, age, and gender, and that’s it.