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Chapter 1: What is the main topic discussed in this episode?
Apple's about to get new leadership. This is Motley Fool Money. Welcome to Motley Fool Money. I'm Tyler Crowe. Today, I'm joined by longtime Fool contributors, Matt Frankel and Lou Whiteman. We've been asking for questions from listeners all along. First, thanks to everyone who's been sitting, we love it and we're getting a ton of them.
We're going to actually tackle a couple of mailbag questions today related to the SpaceX IPO and our thoughts on AST Space Mobile. But first, we want to discuss the big news that came out yesterday, and that's Tim Cook is stepping down. Yesterday, Apple announced a transition plan
where Cook will become the executive chairman of Apple, and John Ternes, who was the head of engineering for hardware, will take over for the CEO role starting in September. Now, I'm not going to say this came completely out of the blue. Cook had been the CEO for close to 16 years, He was in operating roles at the company since the dot-com days.
There were some breadcrumbs that Ternus would be the next in line. For a company that seems like a rock of stability, it had quite a few retirements and transitions in the C-suite over the past year. Less than a month ago, there was a long Bloomberg article published that was talking about Ternus being the heir apparent. Now, we're not eulogizing Cook here.
But as we think about Apple under Tim Cook's leadership, what do you see as his lasting legacy, Lou? Stability. He kept the plan on course.
Simple as that.
Aside from the stock price performance, which I'm sure we'll talk about more in a little bit, he had some pretty decent achievements. I think he'll be remembered as a highly effective CEO. Just looking at what he accomplished, Apple's profits are up about 700% since he took over. He's known for stability, like Lou said.
He took the existing products, the iPhone, the iPad, that were successes before he took over, and they're still successful. But he made Apple into the leading smart wearables company with the Apple Watch and AirPods, those launched under his watch. They're not just handheld electronics anymore. But I think the most significant part of his legacy
is the growth of Apple's service business, which is now the most profitable part of the company. Under Cook's leadership, Apple built some highly successful subscription products. They were still on iTunes, pay-per-song business model when he took over. He led the Apple Music thing, for example. Apple now has more than one billion paid subscriptions throughout its ecosystem.
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Chapter 2: What are Tim Cook's major accomplishments at Apple?
Yeah, on that profits going up thing, since Tim Cook took over and it was September of 2011, shares of Apple on a total return basis has generated about 3,100% returns for investors, compared to 731% for the S&P 500 on a total return basis. So, absolutely speaking, Cook's tenure has been a resounding success for anyone invested in the company.
And one thing we can say about Apple under Cook, it's been an outstanding operator. that's not really surprising. He came from the operations side. You think about supply chain management, and as Lou, you said, keeping the things steady, keeping the trains running on time has been really Cook's strongest suit.
But I think if there was a mild critique, and I know, Matt, you highlighted the wearables and the service revenue and stuff like that. I would say the critique that A lot of people have had of Apple over the years, despite all of the success. Not everyone can be happy, right?
There was this mild grumbling that some of its more recent developments and progress were like incremental gains instead of like these revolutionary products like we had with the iPhone. And the iPhone was like... by all accounts, a resounding success that transformed the way we think about mobile, everything like that.
Part of it is assuming that when we're bringing in a hardware and engineering guy, somebody really deep in the design, bringing new products to the fore, is this a sign where you guys think Apple is going to be going with Ternus here?
I think the markets are hoping so. You know, look, that's what Steve Jobs taught us, to expect that one more thing, right? That was almost the legacy of Apple was, they do these great presentations, they tell you what you already know, and then surprise you or wow you with some innovation. And that has been missing from the business for the last decade plus.
People have looked at, whether it's the car, whether it's, you know, all sorts of things, Apple TV, Apple Car, all of these great inventions and all of these wonderful stories we've told ourselves in our head of how they were just going to do for some other product what they already had done with the iPhone. They haven't done that.
And yes, in theory, bringing in a hardware guy could change this, but let's be honest. Ternus has been the president of hardware for five years. to imply that he was sitting on some new innovation, some new wow, some new product category that is just going to blow us away.
That sort of implies either he was sabotaging Tim Cook or Tim Cook was keeping Tennis and his team from rolling the new stuff out. I don't think that's the case. I don't think investors should get their hopes up that just because there's a hardware person in charge that there's going to be a new iPhone or a new just category killer. I think those are really, really hard.
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Chapter 3: What challenges will Jon Ternus face as Apple's new CEO?
And Matt's right. To the extent that they can figure out to get AI onto the device of customers, they will have no problem finding an AI that will partner with them. They just need to figure out the device. And then, honestly, I think having the customer is more valuable than having the model in two years.
Not for nothing, too, and we just saw this, throwing a little extra curveball at Apple at the same time here. I don't know if you guys saw this, but the European Union put out some new regulations saying, basically, you can't have obsolescence with a lot of devices. Basically, you're going to have to have replaceable batteries in iPhones.
I don't know about you guys, but I've definitely had to replace iPhones from time to time because of battery replacement. Maybe just a little extra curveball. I don't know how much that's going to really move the needle or change the bottom line for Apple because, look, they're going to sell their products pretty much anyway.
But something like that, the European Union always seems to be adding some extra regulations to throw a wrench in things. So after the break, we are going to get into the mailbag.
Every Tuesday, we cover the latest Apple news on MacBreak Weekly. Hi, this is Leo Laporte inviting you to join us this week as we talk about the big news. Tim Cook announces he is stepping down as CEO of Apple as soon as September 1st. Who's taking over and what does it mean for the future of Apple? We discuss with Jason Snell, Andy Anako, and Christina Warren.
That's this week on MacBreak Weekly. You'll find it at twit.tv slash mbw or wherever you get your podcasts.
Just a quick reminder, as we said, we're getting a ton of mailbag questions. Thank you for that. We want to keep it going. If you have questions for us, please send them into podcasts at fool.com and we'll try to answer them on air. You can ask most anything related to investing. All we do is ask you to keep it Foolish.
One thing I have learned from reading everyone's emails and questions so far, try to keep it short so we can actually read it on air. We've gotten some pretty long ones. It's a little bit hard to manage that into our time space. I'm going to ask a question here. This is an email from one of our readers.
It's an encapsulation of about four or five emails that we've gotten in the past couple of days. I thought this was the most succinct one that we could do with it. This comes from Garrett Campbell. He asks, I heard that the S&P 500 is considering a rule change to allow SpaceX to join without meeting the traditional requirements for the index.
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Chapter 4: How has Tim Cook's leadership impacted Apple's stock performance?
So this next question comes in from Kalade Arashakola. Great name, by the way, for investing podcast, He Who Is Surrounded by Wealth. That's an awesome name when it comes to investing. I love it. Here's the question. I want to ask your opinion on AST Space Mobile, the ticker is ASTS, as a business in the space industry.
According to Kalade, he says their technology appears to be superior in the D2D space compared to SpaceX's Starlink or Amazon's Low Earth Orbit. They've also partnered with... multiple MNOs and business looks good on paper. Please share your honest opinion about the stock and any potential risks investing in it. Thank you, Kolade."
I wanted to tackle this question today specifically of all the e-mail questions that we've had is because AST Space was actually in the news recently because Blue Origin, they had a little oopsie and they put one of AST satellites into the wrong orbit yesterday and they're trying to figure out whether that actually means anything.
I'm going to be honest here, I am not the space guy of the three of us. I'm going to stand back and I'm going to let you guys have the floor here. Lou, when you see AST Space Mobile in the entire space investing landscape, what are you seeing?
Yeah, Tyler, they said they have to de-orbit the satellite. And I don't want to sugarcoat it here, but that's like when your parents said that your dog went to the farm. The satellite is not of this world, unfortunately. Well, that's what insurance is for. Right. Well, that's the good news for AST, is that it is insured and it isn't their fault.
But it is a setback for a company trying to do this 45 to 60 times this year so they can actually start generating revenue. which is kind of important for a business. Forget profits, those are still years off. But this is a company that is traded at a conservative 130X future sales.
And again, those future sales are assuming that they get 45 launches up and they can actually start generating revenue. They do seem to have a product that works. I find it interesting that they are technically superior to Starlink or Amazon Leo. I don't think we know enough to know. It's definitely a little bit different.
But my pushback there is that that is at least three competitors, and there's more in a market that, while it exists, is second best. If your cell phone is currently getting a signal off of a tower, that's going to be the better way to do it. So you have a lot of companies chasing what is a real limited market at sky-high valuations and a ton of capex and execution risks.
I think there's a lot of reason to be excited here, but I think that this is speculative at best, and I would caution anyone getting too kind of out ahead of themselves here. There's a lot of risk here, bottom line.
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Chapter 5: What is Tim Cook's legacy in terms of product innovation?
cheap in retrospect. But I don't see that as the base case scenario.
Yeah. I don't know what to make of that $4 billion to $5 billion person number, because how many of those who don't have access right now can afford to cover AST or someone else's costs with this, which is really the hard thing about that market? Here's the other thing that gets me. Say they get it right, T-Mobile trades at, what, two-and-a-half times sales? So there is a long way to come down.
Even if this works as planned, I don't know if you can justify even a fraction of the multiple. I'll tell you, Tyler, if there's an investing takeaway from this incident, and we talked about this at our member event in San Diego, There are not enough reliable launch partners right now. If you can establish yourself as a company that can reliably get things into space, you are going to succeed.
Rocket Lab is booked up. SpaceX is sending its own company up, Starlink. I don't want to call Blue Origin. Blue Origin has a decent track record, but there are a lot of companies that are on the cusp of establishing themselves as reliable launch providers. To the extent they get there, that looks like a better investment to me than ASTS. is right now.
Full disclosure on my personal life, I've lived in some places, we call them emerging marketplaces, that I think AST is saying where they don't have this cellular coverage, where it isn't great. I can say, yeah, it's not great, but it's very usable. I've been able to do a remote job from places running on a 3G dongle. It's very possible.
Again, the economics of it are a little bit harder than I think they're saying. But what I'm hearing from both of you is that you're lukewarm on ASD Space Mobile. Staying in that space investing area, we'll just do a quick top-up. If somebody is looking for an investment in space, what is your best idea that you have right now? Matt, you go first.
As far as my best idea in space, I have to go with Lou's Rocket Lab, although I know I just stole what he was going to say. They're not pre-revity. As Lou said, they're booked up. They have a great track record of delivering. They take the time to get what they're doing right. They're not going to hit every milestone on their timetable, which they don't have to. They're doing a great job.
I think that it's still a compelling long-term opportunity.
I'll go with the theme that I just gave here. Again, this is speculative, they're not there yet, but Firefly Aerospace, ticker FLY, is beginning to look like they're a reliable launch partner. Again, if they get there, and I Can't emphasize the if enough. This is rocket science. This is hard.
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