On this episode of The Six Five Webcast, hosts Patrick Moorhead and Daniel Newman discuss the tech news stories that made headlines this week. The handpicked topics for this week are:
- Apple Glowtime Event
- Oracle Database @AWS News
- Oracle Q1FY25 Earnings
- Is OpenAI Worth 150 Billion?
- EU Strikes Down On Google & Apple
- Real Time Adobe Q3FY24 Earnings Reaction
Be sure to subscribe to The Six Five Webcast so you never miss an episode.
Watch the episode here:
Listen to the episode here:
Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we ask that you do not treat us as such.
Transcript:
Patrick Moorhead: Six Five is live and we are a day early. Yes, we are a day early and I want to thank you all for checking in. So why are we early? Well, Pat could be getting another medical procedure. I might get one every single day. No, I actually don’t. It seems like I do. But yes, bright and early, I’m getting a 3D, clearly calcium heart scan at my local outlet here. So we’re going early and I want-
Daniel Newman: We should run to a commercial. This show has been brought to you by Patrick Moorhead’s Health.
Patrick Moorhead: One of Patrick Moorhead’s doctors, exactly, functional medicine doctors. No, seriously, man. It’s been a great week so far. Dan, you and I were in our second home for tech analysts, CEOs of tech analyst companies, and that is Las Vegas. We were out there at Oracle. But Dan, it is great to see you, my friend.
Daniel Newman: Yeah, man, look, it’s good to see you too. You ever seen the movie Ace Ventura: Pet Detective?
Patrick Moorhead: I am happy to say I’ve never watched the full show.
Daniel Newman: Oh my gosh. There’s this part where I can’t remember exactly what happened, but Jim Carrey’s character looks and he goes, “Obsessed much.” That’s Pat in health now. He’s found his groove, he’s found his thing. I used to go to tech conferences and talk about technology. Now I go to tech conferences and I talk about wearables for healthcare. So you know what? You found your blend, man, that’s still health and tech. So health tech care cat. Oh, we can’t make cat comments this week. It’d be way too weird.
Patrick Moorhead: That’s correct. That would be weird. Hey, we’ve got a great, we do have a great show for you, but before I talk about what we’re going to talk about, I do want to give the typical caveat is that we are going to talk about publicly trading companies, but don’t take anything we say in investment advice. We’re not certified. We don’t make illegal price targets like some people who are not certified. FINRA certified, I believe. But hey, let’s dive in.
Daniel Newman: Okey dokey.
Patrick Moorhead: Got this great show here. We’re going to be talking about Apple Glowtime. Oh gosh. Are we going to get the 19th version of the iPhone? It looks exactly like the previous seven versions. I don’t know, let’s see. We’re going to talk about the conference, Oracle had a cloud world this week and big big announcement with AWS. We’re going to be talking about Oracle earnings. Interesting, they did earnings while they are at the event. We’re going to be talking about our seventh favorite topic and that is antitrust. EU is putting the kibosh on both Google and Apple. It’s hard to keep track of this stuff on which one they’re doing, but we’re going to help traverse that. OpenAI going in for more money. Are they really worth $150 billion? I don’t know, maybe. Their announcement today might’ve been a hint that they are, but let’s dive in. And Adobe just went to the print earnings Q3. How they do, is AI clicking in or not? I don’t know. We will see. Dan, let’s dive in. iPhone, iPad, Air Pod lover, Daniel Newman. Let’s talk about the Glowtime event.
Daniel Newman: Hold on, put my Air Pods in. Oh you mean, all right. All right, here we go. So, Glowtime, everybody was waiting. This was the moment, it was the time, we were going to have a super cycle. We’re going to get 5% more, 10% more. Everybody’s going to be running to their local store to get the next iPhone because Apple intelligence. This was the thing, this was the rage, this was the future. I couldn’t tell you if that was what happened, because I fell asleep in the 90-minute-long presentation, just kidding. But Pat, look, I’ll just start off. I’m going to be straight forward, disappointed. I’m not going to say I’m disappointed in perpetuity, I just think it was a setup problem. The setup was that this was going to be this moment, this game changing, life changing AI powered device. And what we ended up getting was a camera slider button on the side.
By the way, 2010 Windows phone did that as well. We got some camera enhancements that I still don’t think match the Samsung devices. We’ve got some new colors. Colors are cool. And we got basically, I think the theme of this week’s Glowtime event, Pat was something along the lines of coming soon. Meaning that, basically nothing that they’re talking about, whether it’s some of the photo and augmented reality capabilities, whether it was some of the automations and productivity tools, basically none of them are going to work out of the box. So what you got was a device that has an NPU, I personally think is a little light on memory coming out of the box at eight gigs of memory.
Patrick Moorhead: I know, I know. I’ll understand that.
Daniel Newman: That is supposed to be this next generation AI device and I think what it was, ended up being another kind of hype cycle. Now on the positive side, Pat, this is something I’m going to let you talk more about is, I thought they did some interesting stuff with the health technology. I think some of the new stuff with the watches, some of the health capabilities, I think the hearing aids offering and helping people take something that’s about 10% of the cost of a professional hearing aid and turn it into an enhancement that might enable people with hearing disabilities. Tinnitus, I talked about that a little bit when I was on Fox Business this week. But Pat, what I didn’t find at least personally was that convincing. I got to jump out of my chair, I got to run to the store and I got to buy.
Now I’ll leave it with this because like I said, there’s so much you could cover. We could cover A18, we could cover how this is good for ARM and V9. We could cover how this is good for TSMC and they’re basically boundless demand for their three nanometer process. But what I couldn’t talk about was that run out of my chair, have to go buy this next device. I’m sitting here now still with my 13 Pro Max, still unconvinced that I need a new device and I know that I need a 15 pro or newer to take advantage of Apple Intelligence, Pat. But I didn’t see enough features there, I didn’t get the run out of my chair moment. That’s what I wanted. Last thought, I do like that a lot of this can be done in software, but cannot fix the eight gigs of memory that will not be fixable. So when you don’t have enough memory, that’s going to cause some problems in terms of running significant large language models on a device. Having said that, a lot of these features will be upgradable. So as you’re using the device longer, you can add more Apple intelligence features as they come. Pat, C minus, D plus. That’s how I rate it over to you.
Patrick Moorhead: No, I think that’s pretty fair and I don’t want to make this an Apple slam fest, but let me explain first of all why I’m so tough on Apple. So they have a monopoly in the United States on smartphones. And their bad behavior with developers, competing app stores and not paying their suppliers to the point where they want them to go out of business. They steal intellectual property as we’ve seen with Qualcomm and Massimo. I mean, they’re just a nasty company and they can do better. But I do want to give them kudos on hearing aids. I do think that, I mean, hearing aids are very expensive, and I’m hoping that this will disrupt that market. I have my brother-in-law who is analyzing the signal wave intensity to see just exactly how well they compare to gosh, 1,000, %5,000 hearing aids that seemed to squeak and creak whenever I talked to my dad and my father-in-law.
So, kudos to Apple to take the risk to do this. After using a ton of health apps and really getting into the whole wellness thing, Apple is woeful on the software. They really give you no idea of how to mitigate stress, how to make your sleep better. Things to eat, not to eat, has no insights into recovery and resilience and it’s pretty horrible, they can do better. Now, I think sleep apnea was a good thing to add. Samsung has that in over 42 different countries. And oh by the way, Samsung also has blood pressure in 42 different countries as well and unfortunately not here, FDA approved in the United States. So, Apple can do better and I don’t know if it’s the risk profile. They certainly have more money than anybody, so it’s not funding. Or maybe on the app side they’re trying to give their third party developers like athletic, that I use on my iPhone. But you guys got to check out Samsung Watch and Samsung Ring. It’s an exceptional experience, I will tell you more. I can even do body segment analysis on the Samsung Watch where I totally did not believe it. They said it was 95% as accurate on body fat and muscle mass as a DEXA scan. But sure as heck it was the closest one. It’s even better than my dedicated segment withing scale that told me this morning that I’m gaining fat and losing muscle after going hardcore.
Daniel Newman: I did notice that.
Patrick Moorhead: It’s so weird. I asked, my trainer said, it’s probably fluid buildup. It doesn’t know how to distinguish between fat and fluid that comes into your muscles. And the blood that starts pumping. But anyways, I digress. A couple of things came up too.
Daniel Newman: Wait, wait, wait, wait. Did you think it could be the breakfast you’ve been posting online? I mean, I think the world should know Pat, that you eat four eggs, six ounces of steak, four pieces of sourdough and avocado and just a tiny taste of burnt hashbrown potatoes every morning for breakfast and then you like to tweet about how you’re burning fat.
Patrick Moorhead: That one blew up in my face, baby. We will see, but I think, anyways, I’ve got my trainer on KPI bonus plan that give me 10 pounds of muscle mass in six months and he gets a bonus. So I don’t know, we’ll see. This got me into a couple other conversations. Apple came out and said their Bionic processor was more powerful than a desktop processor. I think that’s on a Geekbench single thread. I got to tell you, I cannot wait for this new Qualcomm part to come out on the smartphones. And I don’t know how Geekbench ST and MT got leaked on the processor, but I think it’s time that Apple, I don’t know gets shown that they’re not the only game in town when it comes to smartphone processors. I mean the PC folks in Qualcomm surely showed Apple that they’re not the only game in town on a high performance, low power notebook chip. That’s for sure. We will see. And the final thing I’m going to say is what would it take for people who’ve had iPhones for five or six years to defect Apple as a monopoly in the United States at 51% market share, but the rest of the world, it’s more in the 20s and 30s. So it’s not about defecting. There are a lot of people out there who do not use Apple and sometimes we forget all of the goodness of the Android ecosystem and all of the people who buy that. Anything else you want to add, Dan?
Daniel Newman: No, I mean I think we hit that one on the head and we got a lot more to go buddy. So let’s rock forward.
Patrick Moorhead: Yeah, I thought the most interesting thing about Apple intelligence conversation with Craig Federighi doing parkour. I love that guy. I wish I could meet him someday. But let’s dive into our next topic here. That’s Oracle database at AWS. So a little background here. AWS has been around for 15 years. They invented cloud computing as a service. And for about 10 years, they have been trying to kill off the Oracle database. And you might say, oh Pat, that’s such a strong comment. Why would you say something like that? Well, maybe it’s because AWS has a database called Redshift and Oracle’s primary color is red and they might want customers to shift from Oracle to Redshift. And I would say the last seven reinvents that I’ve either watched online or attended, maybe not last year, there were direct swipes at Oracle, particularly when Andy Jassy was delivering the message.
So hopefully you believe me that they were trying to kill Oracle. Well, here’s the deal. AWS did a deal where it is going to put Exadata racks. So literally, non-AWS infrastructure inside of an AWS hyper scaler data center. Let that sink in. Even in video with DGX cloud are not DGX boxes. I believe this could be the only non-AWS infrastructure inside an AWS hyper scaler data center. So why on earth would AWS do this? So, it’s because first of all, they’re not going to kill off the Oracle database. We always talk about the 80% of data that’s on prem for 15 years into the cloud. A lot of that data is sitting inside of an Oracle database. AWS wants to wrap every ancillary service, whether it be Bedrock, machine learning, 100 services around that, and they need Oracle data to light that up and that’s why they want to do this. Why does Oracle want to do that? What’s the benefit? Oracle database can be the lingua franca. Sorry, speak German, not French. It essentially becomes my favorite term, Dan, what am I going to say? Multi-cloud fabric.
Daniel Newman: Oh, I thought you were going to say connecting the back to the front. With multi-cloud fabric.
Patrick Moorhead: Yeah, the multi-cloud fabric. Essentially, if you standardize an Oracle database, you can access services from Google Cloud, AWS, Azure, and of course inside OCI and baby, on-prem. Pretty cool. What is the biggest inhibitor right now to enterprise data? Sorry, enterprise AI, it’s getting your data act and gear. So I brought this up on Yahoo Finance. Essentially this puts Oracle in the position to be the AI data broker for those very large, very regulated and highly secure organizations. My final comment’s going to be on security, where you know what, every vendor out there says they’re the most secure. And I’ve had a couple of vendors do the wink, wink, nudge, nudge to me on we do the three-letter acronym agencies out there. Freaking Oracle got the CIA on stage to talk about how secure Oracle was. I’m going to read this quote from La’Naia Jones, the CIO of the CIA. Say that 10 times fast. The CIO of the CIA, I can barely say it twice. She said, “We appreciate that Oracle cares as much about security as us.” Dan, does it get any better than that? Any bigger?
Daniel Newman: What customer number was the CIA for Oracle?
Patrick Moorhead: Number one, thank you for asking me. Anyways, there was a lot of stuff that went on. I mean, we talked to Steve Miranda, who runs Oracle Fusion. We talked to leadership, CEO, Evan Goldberg of NetSuite. And maybe one of the topics you might want to talk about is AI pricing.
Daniel Newman: Yeah, well that’s a really interesting one as well, Pat. I mean, you hit the database news really. Look, so Pat, this is a bit of an inflection on our whole hybrid and lots of workloads are on-prem. All these companies that have sort of leaned hard on that. A lot of the conversations about repatriation interesting here. What’s the biggest on-prem workload for most enterprises today? It’s their ERP. It’s going to be their core enterprise data workloads. That’s ERP CRM workloads sometimes if you have older systems, but those are often in the clouds already. Supply chain data, HR data, other things that you’ve run on-prem. And of course you have different analytics platforms, long and longer has been not having AWS and Oracle synced up has been sort of a boondoggle for some of the on-prems now you suddenly have a situation where no matter which public cloud provider you use, you get Exadata Oracle in the cloud in their data center, fast speed, low latency, high quality.
You said hell had frozen over. I mean, look, I just saw that as a partnership that would never happen. And now this happened and I think it really changes the trajectory, Pat, of everything in that particular space right now. It also really positioned Oracle well, Oracle liked to say that it was kind of the only full stack we know and we agree that that’s not necessarily the case. Microsoft has a very full stack hardware database, software application. But having said that, there really are only a couple. And when it comes to the volume of the workload, the ERP database workloads, Oracle’s the dominant SAP, the biggest too in that particular workload. So all of a sudden you’ve really changed the trajectory of the whole business, any cloud. And of course it runs incredibly well on its own cloud and its own cloud grew really quickly. So Pat, this was good news, big news. I think it sort of stole the show at Oracle Cloud world, and I think this really sets us up pretty well to flow into the topic.
Patrick Moorhead: The next topic, wow. Did you just tee me up for the next topic?
Daniel Newman: The next topic. Or is it the next topic?
Patrick Moorhead: It’s the next topic. Absolutely. I’m sorry buddy, I’m not trying to mess with you. Oracle, Earnings Q1, Larry was on fire, talk to me.
Daniel Newman: Well, I mean look, let’s just kind of finish where we started. I mean, so Oracle made this big announcement and then you saw, I think Oracle stock is actually up 20% in one week. Again, this isn’t Nvidia, this isn’t AMD, this isn’t some cool Palantir, this is Oracle. This is Oracle, like really? So Oracle had a strong beat guide. It led with this Oracle database at AWS and it led because it was just that shocking to people. And like I said, such a big moment. And I think people are starting to see the capacity for growth, the scale for growth that this deal could give to the company. And you and I had the chance to spend time with our EVP of revenue ops, Jason Maynard. We actually have a full pod, I think it may be dropped or it’ll drop any time now. We’re just kind of talking about the evolution here, but this is a company that is sort of seen its growth go exponential. If you actually look at its valuation shift over the last decade, it’s like a six X magnitude, it’s incredible.
Patrick Moorhead: Yeah.
Daniel Newman: Companies like half a trillion dollars in value now. And it’s doing so through being able to diversify, being able to successfully enter the cloud space on the app side and on the infrastructure side, the fastest growing infrastructure. It is smaller, but their cloud infrastructure is wielding towards $12 billion. Now, this is not a small business and obviously they’ve been able to take advantage of their database and their cloud. So all that migration of on-prem to the cloud, they offer one alternative that’s been doing pretty well. Now they can do it on theirs, you can do it in AWS, can do it in Microsoft, you can do it in Google, wherever you want to run it, Pat, it’s encouraging. And then Larry was really on fire. I mean talking about going from hundreds of data centers, like 162 to talking about thousands of data centers over the next several years. He’s talking about going from 800 megawatt to multi gigawatt. He’s talking about expansion. He’s talking about using the utility relationships to build nuclear, local nuclear to be able to power these things. By the way, looking great at 80 years old up there on stage.
Patrick Moorhead: Amazing. I want to be him when I grow up.
Daniel Newman: You want to be, we all do. We all want to be Larry Ellison when we grow up. And then, of course, you have the growth across the board. You got NetSuite growth, we just sat down with CEO Evan Goldberg, we got apps growth double-digit, 10% plus. We heard from Steve Miranda, Pat, the company just overall is really, really well positioned. The autonomous technology is market leading. Again, it’s hard to get swoon over Oracle. It just is. It’s historically just been a tough company to be swoon about. But, I literally looked at these earnings, I’m like, this is just really good. And then he talked about 3000, what was it? This 3 billion, sorry, is the number I’m looking for in GPU commits.
Now we don’t know exactly what those contracts look like, what the per hour rate is and how much money the company’s making. But Pat, one thing we did here over and over, whether it was Evan, whether it was Miranda, whether it was Clay McGurk, whether it was Jason Maynard, is they believe AI is part of what they’re charging for. Which is interesting, because I had felt that being able to show incremental value was going to be super important. They seem to believe if it makes their products great, people will pay more for them, they’ll stick with them. But much more incremental in terms of how they’re thinking about it rather than any sort of one time charging. And you and I both hammered on that pretty hard throughout the course of the week.
Patrick Moorhead: Yeah, that’s great stuff. Dan. So Oracle had their investor conference today in Las Vegas. That was and back to back to back to meetings, but I think what the company has to show, first and foremost, Larry talked about a hundred thousand data centers. What’s the CapEx going to look like on that? Because right now they’re not spending, they’re spending about a little over 10% of what some of the MAG seven companies are spending now. If you put that in comparison that they don’t have a consumer franchise, they have to pay for Google and Microsoft, but it’s more equivalent to let’s say an AWS who deals with enterprise. And then if you narrow that into very large, very highly regulated, require the highest level of security, you still have to get to something other than I think AWS has the 7X, the CapEx. I’m really interested to see as small as they might be, what kind of CapEx is going to be need to put in there on that. It’s also very clear to me that, from a bump on their earnings, I think also had to do with the realization with the smart investors on what this can mean for the future. If you are the database of record, and it really enables multicloud that really hasn’t taken off.
And also let’s say 80% of that data on-prem becomes 50% on-prem, that’s going to be 30% more data going into the public cloud. Imagine what that could do for the hyperscalers and what they can do. I know we’re here talking about Oracle, but I think it’s as important to talk about the network effects and ecosystem effects that this type of move can make. The apps business is going to be interesting. I think humming along at double digits there. And listen, overall apps are hard to move there. I can’t tell you I can put a, I mean they’re doing well, obviously. They have a lot of openness, particularly around ERP of both NetSuite and Fusion. But I’m wondering, Dan, it’s unclear to me what can turn that into deep double-digit, right from 10% to 20% to 30% to 40% if they’re not charging extra for AI. And as Steve Miranda said, “It’s not free, it’s included.” So interesting stuff there. Dan Oracle overnight became a more interesting company to investors out there. I think you and I always thought they were an interesting company for various reasons, but it’s now on the radar screen and if nothing else, they’re going to be lumped into the AI, the very rich AI category. Good. Anything else Dan?
Daniel Newman: No, man, it’s your show. Let’s run.
Patrick Moorhead: All right man. Just want to give you the last word. You’re my bestie. Okay, let’s jump into OpenAI. So according to Bloomberg, OpenAI fundraising is out there to get the startup’s valuation to $150 billion. Talking about raising six and a half billion dollars in equity financing and maybe a cool $5 billion with debt. Daniel, valuation comes down to a couple of things. And I think first and foremost on a company like this, it comes up with differential advantage over time. There was no doubt that when OpenAI came out with ChatGPT, it was the differential advantage on top of everybody. It wasn’t even close. And then Google came out with Bard, stumbled their toe came out with Gemini, stumbled their toe, and apparently 90% of even tech unicorns are using OpenAI. And then, what happened? Is you had Meta come along and with Llama and essentially enabled almost as good of results for free, a complete disruptor. You have Microsoft that created its own models with fee or Fi, I never know if I’m using the right word there. And then you’ve got companies like AWS who are embracing open source but also have their own models like Titan.
And IBM is in the same category there. Today, OpenAI dropped a new piece of technology, not GPT-5, but GPT-4.0.1 that apparently in particularly two, three or four different use cases looks superior. Clearly, they brought this thing out to help buttress their debt and equity financing. But I got to tell you, Dan, I don’t see this as a runaway like Nvidia. Meaning, it’s going to be hard for people to catch up. Llama is close. And that’s probably the next best thing, particularly for enterprise. Gemini is getting better. The ecosystem is embracing free Llama for Meta out there and the enterprise. And if you don’t have, I would say a guaranteed and perceptual two to three year lead over everybody all the time, I just, I’m struggling to find the moat. The other part is although there are rumors about OpenAI making ASIC or an XPU with multiple vendors, 75 to 85% of their cogs are going to Nvidia. And they’re burning cash precipitously. So I’m not seeing it in the cards. I don’t understand this valuation. It looks like the rest of the open source industry is surrounding it and doing good enough.
Daniel Newman: I don’t know if I’m cynical Pat for saying this, but as I watch this number grow, I just think Ponzi scheme.
Patrick Moorhead: Interesting.
Daniel Newman: Listen, what I’m saying is, you have companies that have just poured massive capital into this thing at high valuations. How do they ever get out of it? You’re losing 5 billion a year. You’ve built a technology that is somewhat, like you said, it may be market leading, but the subs number and the revenue number, you’re running billions a year in cash. You don’t have by any means a moat that truly allows you like language models like Claude, Groq, Llama, Coher, there’s different models out there that all perplexity that most of us would argue, Google Gemini, that’re all pretty good and somewhat interchangeable to use. So what is the IP that this company holds that turns this thing into anything more than the way we run our federal government right now? You just keep stacking up valuation so that people can exit and new people come in at higher valuations and then they turn money by bringing in. So what’s the next round going to be, Pat? Another 5 billion in a year at 300 billion about, more than. Right now it’s worth two Intels.
Patrick Moorhead: Right?
Daniel Newman: It’s worth two Intels. And I’m not saying Intel’s in great shape right now, but you actually look at the number here, Pat, and you’re, I just can’t figure it out. And so what is it that they have that’s proprietary, that’s unique? I mean clearly they’ve done some incredible work. The data’s not really theirs. The data’s everyone else’s, everyone else’s training on this. They do have a ton of capital that’s invested in order to have this model. But what is Saudi in it for when they went 50%? When they bought 49, is it 20 billion? There’s 20 million valve. They put 10, 20. So you’re telling me Microsoft is 8Xed it’s value since it put the money in? And by the way, Microsoft is so emphatically in belief in this company that they believe they’re a competitor now. That’s how much they believe in the technology that they’re going to build their own to compete with it. The company’s got all kinds of weird toxicity inside of the business with leadership, with people leaving with turnover.
And I mean, look, you and I often do have the inside scoop. I can truly sit here and be honest when I say I’m going to be genuine. I don’t have under the hood here. I’ve not been inside. I do not know what IP they have. I don’t know how close they are to AGI. I know Strawberry hit today or something announced today, Pat, wasn’t there an announcement? I’ve been so heads down I haven’t had a lot of time to look at it. But Pat, I don’t know. I mean I just don’t know where this comes from, how we get to this valuation. But what I know is this is if they get another double in the next valuation, they’re bigger than AMD and Qualcomm. They get another double in the next valuation, they’re worth more than Broadcom. And then one more after that Pat, and they’re more than TSMC. I mean, when do you actually have to build something and actually have a robust cash generating company? Because public companies are held to an incredible scrutiny. We will talk about Adobe a little bit later. They beat considerably this quarter. They missed on guidance and their company lost 8% of value. This company’s burning $5 billion or more of cash per year with no plan to be cash flow positive anytime soon. And they get their valuation 8Xed in 18 months, so.
Patrick Moorhead: Yeah, it’s interesting. Amazon went years without making any money. And some companies, when investors view that there’s this differential advantage they just dial in, man.
Daniel Newman: Yeah, absolutely. So I don’t know, Pat, like I said, I love seeing the AI thing, the story evolve. I know the company needs money, they want to build their own accelerators. By the way, that’s more cash. What’s the development on one of those? Like 600 million on average? Five, 600 million or more just in development costs. They have some licensing ideas, they have a subscription model, but they have a lot of competition. And Pat, I don’t know, I use Groq, I use Llama-based tools and I use Perplexity every day and ChatGPT. But I’m telling you, it’s not so good that it’s the only one I could use if I didn’t have access to it tomorrow, I think I’d be fine.
Patrick Moorhead: Yeah, I agree. Okay, let’s move on. In antitrust news, Europe basically said, “Nope, Google, you’re going to pay.” And on a Irish tax issue, Apple was forced to pay as well. Dan, is this just the EU trying to regulate itself and be the most innovative regulatory beast out there? Or are these just big companies acting poorly?
Daniel Newman: Yeah, I love this stuff. Hey listen, so this was an interesting week just because Apple had its event. Apple had a lot, it was getting a lot of attention. And then Apple got strapped with a 13 or so billion dollars tax bill. Company has been fighting on the onus that it had paid taxes in the US so it shouldn’t have to pay taxes. And this came back to me and I did some second tier TV about this, but I was talking about how, one is, you really can’t avoid paying taxes anywhere. So tax efficiency is the strategy of every company. They take advantage of every loophole. And companies like Apple have more lawyers and accountants than ever necessary to figure out ways to pay less tax in different regions. Like Ireland’s often been a market that has been particularly ripe for avoiding or delaying or deferring taxes.
There was a period where under Donald Trump you were able to bring repatriate dollars to the US at a lower penalty or lower cost, which a lot of companies took advantage of. And now what’s happening is, Europe is coming home to roost on the fact that maybe you did or didn’t pay a fair share of tax over in Europe. Pat, I’m always one of those people that if the law is written a certain way, I admire companies for finding a way to be as efficient as possible. But if their taxes are due, the taxes are due. I’m sure they’re going to try to find a way to kick this can down the road for another 10 years before they’ll actually have to pay it. Because the fundamental belief of these companies is, they’ll do more with a dollar than the government will, which I don’t think I could disagree with in any circumstance.
They also could then use this money to do some absorbent buyback. If anyone’s ever checked the chart of Apple buybacks, it’s remarkable. So that’s kind of the situation on Apple. I mean EU, I say this every time, Pat that we end up in talking on this topic, their innovation is stagnant, the economy is not growing. Their best companies tend to leave and that’s because it’s just not a great place to build a company. Its entire focus is on, they’ve got this privacy focus, but this privacy focus is more about data control. The data control practice is all about giving strong abilities for these companies to find the DMA to be able to charge tax and find these companies and speed bumps and tolls for existing. Companies like Spotify and others that have been successful in Europe, they leave Europe, they want to redome a cell because it’s not a great place to build companies, and that’s unfortunate. But this isn’t like unique. I mean Google also got hit with a $2.5 billion fine per search. They’ve had over $8 billion in fines over the last five years or so. One was related to search, one was related to shopping. And the entire thing with Google, similarly to the Apple thing is just they’re looking at fundraising activities. So there’s very little GDP growth, there’s very little startup few unicorns. They don’t seem to exist there. So the way that Vestager historically and EU competition and leadership in this particular area make money is they find companies.
Does that mean that I genuinely believe these companies do no wrong? Absolutely not. I’m not suggesting by any means that these companies do not take advantage of their technology to give themselves preference or misused data. I’m just saying that there is a conflicted policy set in Europe that continues to make doing business there not particularly lucrative for big tech companies and startups. You’re seeing features not being rolled out in that market frequently by companies. And eventually if it gets too strict, they may just not roll features or come to these markets at all. So Pat, it’s been a revolving door. It’s been Google, it’s been Microsoft, it’s been Qualcomm, it’s been Intel, it’s been Apple, it’s been Amazon. It is a merry-go-round of 10 figure plus fines in Europe. What I’m not seeing though right now where I’m at least not understanding right now is what is their plan to actually stimulate and create enthusiasm and excitement for tech to participate, to grow, to invest both at the startup end and then of course for big tech. It’s getting kind of murky over there.
Patrick Moorhead: Yeah, it’s hard for me to peanut butter any of this stuff going on there because some of these I totally get. I mean statistically speaking, Google has a monopoly in the digital advertising market. And not only do they have the double-click as probably the biggest weapon, and by the way, they bought double-click when I was at Alta Vista, the best acquisition that was made here, and this is before most advertising was digital. So technically they do have a monopoly. And I don’t even think it’s the fines that make any difference at all. I mean Google has wrapped up $8.25 billion in fines, but that doesn’t mean anything. Sorry, 8.25 billion euros over the last decade. It means nothing to these companies.
Daniel Newman: Speed bump, speed bump.
Patrick Moorhead: Unless they have to charge. I think with Apple they have $48 billion left of cash that they can’t buy any big companies. They can’t over invest in markets here. So all they can do is share buybacks. So they’re in this weird conundrum, but only if you make them change something, is it going to hurt? So for instance, Apple having to allow third-party app ecosystems into their store, that is going to be difficult for Apple. And we’ve seen Apple try to not do what it’s been asked do multiple, multiple times. And I’m sorry, I am not buying the security thing. I think Apple is acting quite frankly, like a little baby who was told it can’t play with this toy and it’s going to sit in a corner, it’s going to scream, it’s going to gnaw and it’s going to gnash. But you can sideload an Android, you have adults, you can do that. I think the Android not being secure is a non-issue at this point. I keep waiting for the cataclysmic event that Apple keeps talking about with Android and who knows, maybe in 10 years it might, but I just think it’s an excuse. And when it comes to a lot of these big companies, they just want to be the biggest monopolist out there. So Dan, let’s go into our last topic here. So about, was it 30 minutes or an hour?
Daniel Newman: An hour, it’s over an hour. I mean I don’t know, you and I, we were time zoning when we put this on the calendar, but yeah, what’s it three o’clock here? The market closes. So about an hour and a half ago.
Patrick Moorhead: So, the company beat on EPS by a range you would expect that it’s done over the last three quarters, between two and 3%, it beat by 2.49%. And on revenue it beat on a very similar structure, which was 0.65%. You can say it met it beat, but that was very eerily similar to the previous three beats, a 0.3 0.71 and 0.59. But as we know, it’s all about the guide, missed on revenue, it’s slightly missed on EPS for the fourth quarter. And Dan, as you said, it is down roughly 8% after hours. But let’s talk about growth here. So digital media grew around 11%. Digital experience grew 10%. Digital experience revenue grew by 12% and digital media ARR was four, 500 million of net new ARR. I mean very clippity business, you know what I’m saying? They just deliver, fricking EPS 4 dollars and 65 cents. I mean that’s just absolutely astonishing.
I think the important thing that everybody is looking at from Adobe is unfortunately, or fortunately, investors want to know what are you doing in AI? Adobe is not making it very easy to parse out exactly what that growth is. I’m certainly paying, gosh, almost 20 bucks a month to be able to query my PDS. I’ll be honest, the experience is not great and sometimes I feel like I get much better results taking that PDF, having it sucked into perplexity and giving me answers. But listen, for large enterprises, Adobe is the language of creative professionals. And I would say, after Salesforce, when it comes to overall CX and marketing and being able to tie the creative with the actual marketing and the campaigns, Adobe is right in there. And my final comment, well I guess the reason why their target market of I would say enterprises is important is I don’t see enterprises just willy-nilly moving off to some new startup technology like Sora, let’s say.
And the reason for that is, is that Adobe I think looks, and I think in many cases, is actually a more internally regulated company when it comes to these types of things. Wouldn’t you hate to be a Ford Motor Company, you use all of Adobe’s tools, you send out all the creative for print advertising, digital media advertising, and then you realize that, my gosh, you used some copyrighted something or other and then you’re getting take down requests in every single country on the planet. You’re ripping down billboards, you’re getting DMCA notices, it just gets ugly. And there’s a lot of workflows inside of big companies, and my daughters work for a big tech company and their entire workflow and all their creative comes from Adobe. They’re just not going to rip out something. By the way, if Adobe waited too long on something like a video service, I think they’ve shown when it comes to still images and integrated in all their creative suite that they’ve been able to light up experiences that people are actually using and find valuable.
But when it comes to the end-to-end process here, you’re going to not have any enterprise that’s going to move unless Adobe would be one or two years behind. Final comment, Adobe in the spirit of not being behind in certain things, they dropped, let me see, what date was that? Oh well it was yesterday. An update on generative AI, bringing generative AI video with Adobe Firefly video model. They gave a little bit of a fun little update on some examples that they put out there. And again, like I said before, highlight that says all of which designed to be commercially safe and available in beta later this year, sign up for the wait list here. So it’s not ready, it’s not commercialized, but there is a sign of life for Adobe Firefly video model.
Daniel Newman: Right on. So listen, first of all, Pat, we were joking about company misses slightly. This is a company, that in the last quarter, generated a net income of one point, hold on, I’m going to pull this number up here. It had $4.65 cents of, and it recorded 1.68 billion of net income this quarter, positive. The market gap of the company at close was $260 billion. After they dropped 8%, it just went down to about 240. So it’s barely more valuable than OpenAI at this point currently. So anyways, this is why, I know I sound sardonic a little bit about it, but it’s been a bit of a tumultuous run with the kind of reactions. This stuff is hard, this image generators and trying to figure out what’s licensed. And you and I both knew that one of the biggest problems and challenges that were going to have to be solved going forward is going to be rights usage for AI. And so Adobe did its best to train and make sure it had the right rights for all-
Patrick Moorhead: Stubbed its toe a few times.
Daniel Newman: And it stubbed its toe a few times. And that’s definitely been a bit of an area. I mean it’s been performant. I think at times as CEO Shantanu had to say, Hey, it’s a little slower. It’s a little conservative. Pat, you and I have talked about this. This is the economy too, it’s not that good out there people, I’m sorry. It’s just-
Patrick Moorhead: Where’s the first area? What do you cut first?
Daniel Newman: Marketing.
Patrick Moorhead: Marketing. Exactly.
Daniel Newman: Marketing. And so while companies are looking to get more efficient and use generative AI, we saw the subscription revenue grew double digits, by the way, 11% right on par with what Sales force grew right up. This is what Adobe apps grew. This is how much that market is growing right now it’s about 10% for enterprise applications. So they’re growing-
Patrick Moorhead: Netsuite. Netsuite infusion, ERP boom, 10%.
Daniel Newman: Yeah, they actually grew a little faster, but same thing. Yeah, I mean they were in a sub-twenty. And so the point is everything is slowing, the market’s slowing, the economy’s slowing. We’re seeing inflation drop a little bit. I’m not meaning to make this all about economy, but sometimes company performance, when you’re CEO, you have to have the gall to say, “It’s getting slower out there. I’m not going to over promise. I’d rather take the hit now over deliver later.” The 11% growth in digital media with Firefly, it’s good, I think people want to hear this AI growth thing. Though they want to hear it’s growing a lot, it’s growing fast and there’s a ton of money coming in from it. And Pat, you and I have gone that kind of the gambit today. We talked about Oracle saying we’re not going to charge at all for it.
Companies like Adobe have been able to make money with tools like Firefly using tokens and rights. And I don’t think we’ve settled on which is the right approach just yet. I think near term though, investors want to hear, we’re making more money because of AI. I still like Adobe, a lot of recurring, a lot of predictable revenue, the company is in good shape. It’s got those little toe stubs to deal with. Diversified across different parts of creative and more traditional marketing and documents. And Pat, they beat. I mean, look, nobody’s ever going to be okay with a bad guide or a down guide, but hopefully that guide sets the company up to have a better performance next quarter versus expectations.
Patrick Moorhead: Yeah, good stuff Dan. And just a correction, Oracle Enterprise SaaS was 10% growth when you peeled back the onion on Fusion Cloud ERP, it was 16% and-
Daniel Newman: NetSuite was 20.
Patrick Moorhead: NetSuite was 20. So good catch on that I was correcting myself. So Dan, great show. I want to thank everybody for tuning in. We are off to Salesforce Dreamforce next week and then I’m going to shoot up to Seattle to do an unnamed meeting with some companies you would never even guess. But Dan, what’s on the agenda for you buddy? I know we’re going to Dreamforce.
Daniel Newman: Yeah, I’ll be at Dreamforce. Maybe a couple of other things while I’m in tending the time 100 dinner while I’m there.
Patrick Moorhead: Nice.
Daniel Newman: I didn’t make the list, I don’t think Elon Musk did either, but Scarlett Johansson did. So that’s good.
Patrick Moorhead: Wow. Yeah, don’t even get started, man. I just don’t get it.
Daniel Newman: I can’t help myself. Can’t help myself.
Patrick Moorhead: Yeah. But hey, I want to just thank everybody for tuning into this show. We are early. Tell your friends who watch the pod to come back. This is live right now, but it’s obviously on time release on every platform you would actually want to watch this on, including YouTube, LinkedIn and X. So hey, thanks for tuning in everybody. We appreciate you for signing off and bye-bye.
