Feedback Loup: Snapchat Announces Diminished Reality

On Tuesday, Snapchat rolled out new features to its platform, including an infinite snap timer, looped videos, emoji drawing, and a magic eraser. With the new snap timer and looped videos, recipients will now be able to see a picture or video until they choose to exit the snap. Once the recipient exits the snap, it is deleted. These are nominal improvements but they show the direction and emphasis of Snap’s R&D as well as it’s technical chops in the field of Augmented Reality.

We are most excited about the Magic Eraser feature, an example of Diminished Reality. The Magic Eraser allows users to remove objects from a photo, by scanning the surrounding colors and filling in over a selected area. Let’s play a quick game of Photo Hunt. How many changes do you see?

Read More

Facebook Planting A Flag In AR

Facebook reported Q1 earnings last night and briefly discussed its augmented reality and virtual reality efforts on the call. Following the trend of F8 last month, CEO Mark Zuckerberg spent more time talking about augmented reality than virtual reality. Zuckerberg reiterated that the camera is the focal point of near-term AR and made it sound like Facebook is unashamedly taking a page out of Snapchat’s playbook as a “camera company.” Facebook’s opening up of the camera to third-party developers is a play to establish the company as the platform where AR developers go to create applications, although we believe that Apple and Google’s ownership at the OS layer will enable the richest application development.

Zuckerberg also highlighted computer vision applications beyond the type of facial manipulation that is so popular in social now. He mentioned the ability of the camera in Facebook to recognize objects in the real world and then give the user the ability to interact with them to receive information or even make a purchase. Facebook, like Google and Apple, should have a real play in object recognition, but the interesting thing about this concept is that it expands the use cases of Facebook beyond communication.

The reason that filters and facial masks work well in social is because they’re meant to be shared. Using the camera within Facebook or Instagram to get product information or make purchases is a departure from the core use case of the platform. It will be interesting to see how Facebook’s vision differs from Google’s given their natural play on organizing the world’s information.

While we expect Facebook to keep investing in both platforms, the slight tone shift says that Facebook intends to be a major player in AR despite being late to the game.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Tesla is the Next Apple

This note was originally published on Business Insider.

Apple is the world’s largest company with a market cap of nearly $770 billion as of this writing. Tesla is one of the world’s largest automakers with a market cap of close to $55 billion, although we think the Tesla story is just getting started.

There are many parallels between Apple about a decade ago and Tesla today, market cap being one of them.  In Q4 2005, Apple’s market cap was close to where Tesla’s is today ($54 billion). A decade from now, we think we’ll look back at Tesla and realize it was the next Apple.

There are five major similarities to Tesla today and Apple in the mid-2000s:

  1. Brand
  2. Visionary leadership
  3. Integrated hardware and software
  4. Halo effect
  5. Reshaping a market

Brand

Tesla’s brand is to the car industry what Apple’s brand is to consumer electronics. Tesla owners love their Teslas.

According to a Consumer Reports survey, 91% of Tesla owners state they would “definitely” buy their cars again, the highest rating of any automaker. The next two closest automakers were Porsche at 84% and Audi at 77%. By comparison, Tim Cook stated on Apple’s Dec-16 earnings call that iPhone had a 97% satisfaction rate.

Beyond tangible customer satisfaction metrics, we believe there is a less tangible cool factor to the Tesla brand, much like Apple in the late 1990s and early 2000s. In many ways, Tesla has the same “think different” attitude that Apple popularized.

Tesla has built a brand around being a different kind of automaker. Not only because its vehicles are powered entirely by electric, but also because they don’t use model year numbers and treat software updates more similar to updating an iPhone app than a car. The company has done this all while squarely placing itself in the conversation with BMW as one of the best-engineered cars in the world. Tesla has established itself as an aspirational brand by taking a new approach to the car market.

Visionary Leader

Elon Musk and Steve Jobs share similarities in that they are visionary entrepreneurs that simultaneously operated multiple groundbreaking companies.  Musk with Tesla and SpaceX and Jobs with Apple and Pixar.  However, both seem to have different guiding lights.

Read More

Apple Results Reinforce Importance of AR

Apple reported Mar-17 quarterly results below Wall Street – and Loup Ventures’ – expectations. Judging by the mild negative reaction of the stock in after-market trading, it appears that investors are focused on the coming iPhone X product cycle and beyond. We agree with the market that a bet on shares of AAPL is a bet on the company’s ability to transition from their existing iPhone platform to an augmented reality-driven platform in the future. Underlying this transition is the Services business, which was solid in Mar-17 ($7.0B vs. our estimate of $7.1B) despite lower-than-expected iPhone units (50.8m units vs. our estimate of 54.8m). This shows Services revenue has resilience in the face of relatively soft iPhone growth.

The Beginning of the Transition to AR-Driven Computing. Tim Cook attributed the “pause” in iPhone sales to earlier and more prevalent rumors of future iPhones, but we see something bigger going on. Every 10-15 years we’ve seen a shift in the dominant computing platform: from the PC in the 80s, to the internet in the 90s, to the smartphone in the mid-2000s. And we think we are in the early stages of the next big shift – to augmented reality-driven computing. In short, wearables and other AR-devices will eventually replace the smartphone. Apple’s Mar-17 iPhone growth rates (-1% y/y in Mar-17), and growth rates in the global smartphone market, are slowing; however, we note that channel-adjusted iPhone growth was +1% y/y in Mar-17. Regardless, slowing iPhone growth will compel Apple to accelerate its development of wearables and AR-driven devices to ensure it’s position as a leader in the next dominant computing platform.

Slowing iPhone growth will compel Apple to accelerate its development of wearables and AR-driven devices.

Supply issues aside, the success of AirPods represents an early win for Apple in its exploration of wearables. We expect the company to continue its development of hardware products (e.g., Apple Watch and AirPods) along with the core technologies that will facilitate the emergence of AR-driven computing. We’ve outlined our thesis on why Apple is well positioned to win the jump ball for the next dominant computing platform. And the recent trend in iPhone growth rates only serves to emphasize the importance of this transition for Apple.

Read More

Apple Results & Guidance a Non-Event; Clear Sailing to iPhone X

Expect Slight Upside In Mar-17 From Easy Comps and Typical Conservative Guidance for Jun-17. Apple reports Mar-17 quarterly results tomorrow, May 2nd. Despite shares at an all time high, investor optimism for an iPhone X super cycle this fall remains high, which should continue to push AAPL’s multiple higher into the fall. There appears to be little risk from the Mar-17 results or Jun-17 guidance that would change iPhone X anticipation. Fast forwarding to the fall, shares are setting up to enter a range-bound period as investors playing the iPhone X trade will likely unwind positions.

If Apple guidance midpoint is 1-3% below our Jun-17 estimates, we will likely maintain our estimates.

Mar-17 & Jun-17 Expectations. We expect Apple’s Mar-17 quarter slightly ahead of Street consensus numbers given the 17pps easier comp, vs the Dec-16 quarter, and the Street is generally looking for similar iPhone growth from Dec-16 to Mar-17.  As for the June quarter guidance, we expect a typically conservative outlook. This is understandable given investors are expecting a step up in iPhone growth from around 7% in Mar-17 to 13-15% in Jun-17. Part of the step up in iPhone Jun-17 growth is due to the 5pps easier comp in the Jun-17 quarter.

On The Call. We will be paying close attention to the following topics:

  • Super Or Typical Cycle? Investors will be tuned into any unlikely commentary from Apple to help answer the question of whether we are entering a super cycle with the iPhone X (reason for accelerated upgrades) or just a modest step up in iPhone growth. We’re not expecting much color from Apple, but are encouraged by our estimates that this fall the 2-year old or older iPhone base should exceed 300m units, a strong base of potential customers to fuel investor expectations of the  unit sales between 235-245m phones in FY18 during the iPhone X cycle.
  • Services Potential.  Apple will continue to be heavy on the services growth message. We expect CEO Tim Cook to reiterate comments from the Dec-16 call that he expects the Services business to double in the next four years, implying annual growth of about 19%. We expect services to grow from 14% of revenue in FY17 to 20% in FY22.
  • AR & Auto Ambitions. Related to AR, Cook has made six public comments in the past 9 months and we expect him to continue to emphasize that Apple will be a winner in AR. It’s been widely reported that one version of the iPhone X will have 3D mapping capabilities.  We see the iPhone as the AR device for the next 5 years. As for automotive, recent news of Apple’s permit to test self-driving cars in California should not have come as much of a surprise given the poorly kept secret of Project Titan. The permit does beg the question of whether Apple is building a car or just building software for a car. Our take Apple is almost certainly exploring how it could build an entire car, but as we learned the hard way with Apple television, exploration does not mean a product comes to market.

What To Expect With The iPhone X. Read our thoughts on iPhone X and the features we expect to advance Apple’s lead in AR-enabled devices.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.