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What You Need to Know About Google and Roku's New Product Launches

By Evan Niu, CFA - Oct 9, 2017 at 12:07PM

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Two Fools discuss the new devices Roku and Google announced last week and what they could mean for each company's business.

It was a busy week for gadget lovers, as Roku (ROKU -5.71%) and Alphabet (GOOGL -2.45%) (GOOG -2.57%) subsidiary Google both announced a slew of new devices. In this week's episode of Industry Focus: Tech, analyst Dylan Lewis and tech specialist Evan Niu take a dive into all of the new products from both companies, and what they could mean for their businesses in the long run. Listen in to find out how Google's Pixel upgrades compare to Apple's (AAPL -1.80%) iPhone 10, why Roku's new devices aren't rousing much investor (or consumer) interest, how Google is expanding into the smart-home market and giving GoPro (GPRO -1.25%) a run for its money, and more.

A full transcript follows the video.

This video was recorded on Oct. 6, 2017.

Dylan Lewis: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's Friday, Oct. 6, and we're running through the week in device news. I'm your host, Dylan Lewis, and I'm joined on Skype by tech specialist Evan Niu. Evan, what's going on?

Evan Niu: It's been a busy couple of weeks. Everyone's coming out with new products.

Lewis: Yeah, it's almost like we're leading into the holiday season and people are trying to build up some excitement and release some new products before people start spending for gifts.

Niu: I know, right? It's like people buy stuff for the holidays.

Lewis: [laughs] We're going to touch on an update on our Roku discussion from earlier last month, and we're also going to touch on some Google product news. They showed off a ton of really flashy new stuff earlier this week. But Evan, let's start with Roku. We did a rundown on their S-1 as soon as we got our hands on it, and we ran through the standard, "This is what we think of this business, these are the things to watch" type of episode that we like to do. But, I figure now that the company is publicly traded and shares are on the free market, we could do a little follow-up and talk about how things have been going for them and what their valuation looks like now that we can get a sense of how the market feels about the company.

Niu: Absolutely. And speaking of product announcements, they also updated their entire product line last week. They unveiled five new products. Nothing really huge, mostly updates and incremental processor improvements, performance improvements, just getting ready for this holiday shopping season. Nothing game-changing on the hardware side. But just something to acknowledge that they did just refresh their lineup.

Lewis: For folks that maybe didn't catch that show, some background on the business: Roku is a company that makes devices that allow you to stream content on your TV. They sell their namesake devices typically between $30-$100, that's their sweet spot. They have all the various content providers like Netflix (NFLX -1.96%) and Amazon (AMZN -2.49%) Prime integrated as apps on their platform. They also do some stuff on the smart TV side where they license out their brand. But, really you can think of them as a device company that helps you stream stuff, if you don't know them. Shares are available. They originally priced at $14 for the issuance. They've hit highs in the upper $20s, and they're now somewhere in the low $20s. We're looking at a valuation of roughly $2 billion for this company. You look over at the last 12 months, that puts them at five times sales, Evan, which seems a little steep for a hardware business.

Niu: Yeah, it's pretty steep. That's the hard thing with the price-to-sales multiple of 5 to 5. Most of the time, hardware-only companies generally trade for anywhere from 1-2, maybe less than 1, in some cases. Whereas software-as-a-service companies can go much higher than that depending on what company you're talking about. They can go much higher. One challenge is that Roku is a pure-play on streaming TV, and there aren't really any comparable peers. So much of valuation is really predicated on comparable analysis, and there really aren't any. That does make it a little challenging to evaluate Roku, if you think it's expensive or cheap, because you want to compare it to peers and there's not really any good comparisons. That being said, I think a lot of it depends on where you think Roku can take this business from here. Certainly the narrative they're trying to put together is, they're really moving more toward this platform business, they're trying to be very aggressive on hardware, price very aggressively, sacrifice margins up front on the hardware, in order to grow their installed base. So, that's definitely what they're trying to do. If you think they can be successful with really building out this platform, that would warrant a higher valuation, because then you start shifting more into the software-as-a-service and away from hardware.

Lewis: Yeah, and those businesses are far more scalable and they command much higher margins. We've spent some time in the past talking about their platform business, but I think it's worth revisiting it because, long-term, if you like this company, that's the business that you really have to like, because they've made it pretty clear that they don't really mind that they're making very little money on their hardware. In fact, they're pretty OK with basically getting Rokus into as many living rooms as possible if it means building out that installed base and then being able to make money on the services side later. So, that platform business is basically the money that the company is making through advertising on their platform, so as people consume content, and then from subscription revenue shared with the content providers. But really, Evan, you just wrote a piece about this, it's primarily advertising revenue.

Niu: Right. They get a 20% revenue share of subscription and a la carte transactions, so, people buying individual movies or subscribing. They get a 30% share of video ad inventories. So, channels that are free and ad-supported, Roku can choose to take up to 30% of the ad inventory. They don't always do this, especially for the smaller channels when it doesn't really make a difference. But for bigger channels, they certainly want to monetize that usage. They get a little bit of money from the licensing deals that you mentioned with TV makers, and they also get some money from those dedicated buttons on the remote, they get a little bit of money from the channel.

Lewis: It's not much, but it's something, right?

Niu: Yeah, it's not material. The vast majority of this platform revenue is from ads. About two-thirds of it. So, if you're betting on this platform business, you're really betting that Roku could become an advertising company. If you look at breaking it down even further in terms of usage, in the first half of this year, they streamed 6.7 billion hours. Of that, 2.9 billion, a little over 40%, included advertising. And that ad-supported viewership includes YouTube, which is a pretty big channel, obviously. Roku gets nothing from YouTube. They get zero revenue from YouTube, which is a pretty big portion of that ad-supported viewership. The flip side is, if about 40% includes advertising, then 60% does not have ads. And we know that Netflix is about a third of all hours streamed. So, Netflix is about a third of all of that non-ad viewership. And Roku makes very little money from Netflix. They do make a little bit, but it's not material, and they don't really break it out for that beyond saying it's not really significant. So, the ad side of the business, it doesn't really seem super promising to me. If you want to invest in the advertising business, there are much bigger and better advertising businesses out there, like we've talked about before. The market is pricing in really high hopes that they're going to be able to pull this off. And they just launched the Roku Channel last month, which offers a bunch of free content that Roku will monetize directly through ads. Since it's their channel, they'll get 100% of ad inventory. But, it's kind of like Crackle, that service that Sony owns, which is mostly a bunch of older stuff that's just sitting around and not doing anything, so they figure you may as well monetize it through ads. But it's not terribly engaging because a lot of the stuff is really old. It's stuff like Karate Kid or Legally Blonde, those are some of the examples they mentioned in the press release. It's not really super engaging type of content.

Lewis: Not exactly titles that are flying off the shelves. [laughs] I will say, if you look at a hardware company, a pure-play hardware company in a space that is fiercely competitive, I think you have to like that they're focusing on the platform side of their business. That is maybe their best bet at staying relevant long-term. I've written some stuff about this in the past, and I know you have, too. But it can be really tough to make it as a hardware business, particularly when you're in a space where the upgrade cycles aren't really defined yet. We don't know how often people are going to be buying new streaming devices. As new features like 4K streaming come out, and people actually have the TVs to support it, that might force some of the upgrades. But I've owned a Chromecast for four years, and I haven't had any need to upgrade. You look at that, and you're like, "It makes sense that they're going to focus on the platform side, particularly because it's higher-margin." But you need to qualify that the ceiling might not be super high looking at their relationships with these content providers, and how much of those streaming hours they're really able to make money off of.

Niu: I definitely agree. Hardware is generally not a great business to be in. I think you had a good point there. In essence, the upgrade cycle for their hardware is derivative of TV upgrade cycles, which we've talked about in the past. They're really long, five to seven years on average. If you don't have 4K TV, and Roku comes out with a 4K player, you're not going to buy a 4K player unless you have a 4K TV, so it's kind of limited there. I think, in terms of platform plays, the best-case scenario for Roku, the absolute best-case scenario, would be if they could create a platform that's differentiated with content that's exclusive to the platform, and third-party channel creators are able to build these large subscription bases with recurring revenue where Roku is getting that 20% cut. That would be the ideal situation. But the reality is, that's not really what's happening, at least not to the scale or extent to where you feel really confident about this business. That is happening to some extent. But I think the majority of the usage is still dominated by things like Netflix and YouTube, and these free ad-supported channels, which, again, I'm not really sold on Roku as an advertising business. I would be much more interested in it if it was much more of a platform play in terms of the subscription revenue sharing. But I don't believe that's really a driver here. Which is unfortunate for the company.

Lewis: So, Evan, I think I might already know your answer to this -- I put out a note on Twitter telling folks we were going to be talking about Roku this week, and asking if people have any specific questions they wanted us to hit, and I have a few here. This first one, from a loyal Fool, Austin -- not our guy behind the booth, but someone who's part of the Fool community -- he asks, "What has to happen for Roku to 5X or 10X in value? On the flip side, what would cause them to lose half their value? And, of course, which one seems more likely to you?" So, do you want to unpack that one a little bit?

Niu: The valuation already is really stretched. The share has hit almost $28, around $28 in the first week of trading. Right now, like you mentioned, they're in the low $20s. I haven't checked this morning, but they're probably like $23-$24. And at that four or five or even six times sales, there's a lot being priced in. They would really have to execute very well on this platform side. And I have my doubts on their ability to do so at these valuation levels. I think there's more downside risk at these prices versus upside potential.

Lewis: I do think Austin is thinking about this in totally the right way. You want to be able to set your expectations for what a stock is capable of doing. You look at the multiples you're talking about, 5X or 10X in some period of time, that would take them to a $10 or possible $20 billion company.

Niu: Which sounds insane for a company like this. [laughs] 

Lewis: Yeah. And once you put it in those terms, it's a lot easier to get a sense of, wow, for them to really become a multibagger, a lot of things have to go right. If you're trying to build the case for something like that happening, I'm going to point to a couple of the levers that Roku identified in its S-1. The big things for them are their ability to grow active accounts. So, that's more people owning Roku devices. Growing hours streamed, which is basically their proxy for engagement, the more that people are using it, the more that metric is going to go up. And then, grow average revenue per user, or ARPU. That's basically saying, "We're going to better monetize every user that's on the platform." And that really comes down to them making their advertising more compelling and more interesting to people with ad spend budgets. You look at those three, and I think growing active accounts is probably the easiest way to meaningfully move them as a company. If you want to look at the numbers here, about a year ago, midway through summer of 2016, they had about 10 million active accounts. Now, a year later, they're somewhere in the 15 million range. So, there's definitely been growth there. But for them to get to a 5X or 10X, they would need to continue to multiply that at a pretty big rate. They need to double or triple the number of active accounts. And I look at the number of players in the streaming space, and even if they're able to get some really good worldwide traction, that's going to be super hard for them to do.

Niu: Right. And even if they do, they also have to simultaneously grow the platform business. As far as the way they calculate ARPU, they basically take their platform revenue over the last 12 months and divide that out. And as we've been talking about, that platform revenue is mostly based on advertising. So, they have to grow active accounts while they're executing on the platform front, which is primarily just getting better ads. So, I do think, in terms of these specific metrics that they've hit, they have to pull off flawless execution across all three of these metrics going forward to really have any possibility at upside from here, at least upside that's justified. I mean, who knows what the market's going to do.

Lewis: The one thing I do think is interesting for them on the ad side, I'm generally bearish on the company and would take the 50% haircut on where they currently are over the 5X strongly, Austin. That's where I stand on this. But with their ad business, I do see some interesting possibilities with basically taking what has been a very popular format for ad spend budgets, the video ads that people are used to experiencing with cable, and being able to layer in some digital tracking on that because their digital platform. 

Niu: There's a big shift going from TV ad spending to digital streaming. They definitely have that going for them.

Lewis: Yeah. And I think if you can get some really great analytics and show there's some ROI there, you might be able to convince people, because that's been what really worked for Google and Facebook (META -1.64%). That's why they command 50% of digital ads spend together. That said, when you get into the digital ad spend space, that's who you're competing with. So, for you to have a really great value proposition to advertisers, you need to prove that money is better spent there, and that's a tough sell, frankly.

Niu: That's what I'm getting at, too. When it comes to actually executing on an ad business, there's all these little intricate things that Roku doesn't have a lot of experience with. We talk about targeting, engagement, measurement, analytics. At the same time, Roku offers, users can opt out through their privacy policies to really not share this data with them if users don't want to. So, we say, they have to go the ad business, but you can boil that down into what they actually have to do to actually execute, and these aren't things that Roku is really good at compared to the Googles and the Facebooks that are very good at this kind of stuff. So, that's why I have my doubts about them being able to really grow the ad business, because they have to really put together all these core competencies that they don't currently have.

Lewis: And that answer there, Evan, touches on a question that we got from another listener. It's Stephan, sorry if I'm mispronouncing it, he basically asks, with Google, Amazon, and Apple in the space, can Roku survive? I think what he's talking about there is a little bit more on the hardware side, and them being able to maintain a fairly large active user base and have people continuing to buy Rokus as they upgrade their devices and get that next streaming device. What are your thoughts on that?

Niu: It depends on what people are using these for. If people are buying Rokus just to stream Netflix and YouTube, that's not good for Roku. Particularly if they're selling hardware at minimum margins and being really aggressive just to grow active accounts and the installed base. But if all those people are just doing stuff like Netflix or YouTube, basically stuff that you can do on any device these days, on your phone or tablet or PC, you can do these things from any device -- if that's where this goes, Roku essentially gets relegated to this commoditized hardware. And, as we just touched on, that's not a good business to be in. As far as competing with them on the platform front, I don't think they have a really good chance. Put yourself in the shoes of a content creator -- if you wanted to build out a channel for yourself, you don't put your stuff exclusively on Roku, you focus on the big platforms, and maybe on the side you also put it on Roku. But on the hardware side, I don't think it looks great if people are just using it for Netflix or YouTube. And I don't think there's a lot of differentiated content on Roku's platform. I do think they're facing an uphill battle against some very big, competent, rich companies.

Lewis: We're going to touch on some of the super exciting products that one of those big tech companies unveiled earlier this week, Google.

Evan, we teased that there are some major tech players in the streaming space. That's not all that Google has been up to, though. They showed off a ton of super exciting consumer devices earlier this week. What really stood out to you?

Niu: They unveiled a bunch of stuff. We knew a new Pixel phone was coming. Now there's the Pixel 2 and Pixel 2 XL, which cost $650 and $850, respectively. New flagship phones that are going to offer a pure Android experience. Again, made by Google, contract manufactured by HTC and LG. They also showed off Pixelbooks, which is a really high-end Chromebook. This time, they're also making their own stylus, which they're calling the Pixel Pen. So, they're jumping into the stylus game, kind of like Apple and Microsoft. The Google Home family is getting pretty interesting. They're expanding that lineup, moving both up market and down market with the Home Max and Home Mini, respectively. The Mini is kind of like an Echo Dot, it's a small $50 device you can put anywhere in your house and you have access to Google Assistant and their smart home features. The Google Max is this really high-end speaker with high-end audio. It's going to cost $400, so it's going to compete directly with Apple's HomePod, which comes out in December. They also unveiled the Clips camera which is a small camera that you're supposed to put around your house that will recognize when to take pictures on its own using AI. You can manually tell it to take pictures, but the idea is that you leave it there to capture those moments you would normally miss. Normally, if you want to capture something, you have to take your phone out of your pocket, and by then you might miss something your kid or pet is doing. Which is who Google is positioning this device for. They're also jumping into wireless earbuds directly with Pixel Buds, which have a little neck tether, but they're not wired to your phone, which is pretty interesting. They're looking to compete with Apple AirPods, even priced at the same $159 price point. Helps you have Google Assistant right in your ear, kind of like how with AirPods, you have Siri in your ear. So, getting really big into the hardware side of it. Which isn't surprising, because they just announced a big $1.1 billion acquisition of HTC's Pixel engineering team a few weeks back. Going forward, it's very obvious that they're making a really big bid on hardware, and they're not going to stop anytime soon.

Lewis: So, there's a ton to sift through there. You've got smartphone stuff, you have productivity tablet stuff, you have smart home stuff, you have camera and you have headphones. Looking at the investing takeaways from what we saw with these products, it sounds to me like the smartphone is a nice product for Android users, from what I understand it has a ridiculous camera. But I don't know that's it's really going to stack up against a lot of the smartphones out there, and I certainly don't think it's something that's going to steal any market share from Apple or anything like that.

Niu: These look like really good phones, but the price points that Google is competing in, which are similar to last year, but Google is really getting into the premium space. And when you're competing against companies like Apple and Samsung, it's really tough to justify such high-end prices. If they had just been a little more aggressive, they would have had a better value proposition. But the Pixel 2 looks pretty solid $650. But the Pixel 2 XL I think is a really stretched comparison, because at that price point, you're going up against the iPhone 8 Plus and the Galaxy Note 8. And it doesn't look very competitive compared to those devices. The Pixel 2 XL, if you get the storage upgrade, you're talking about $950, which is almost like an iPhone 10. It's really tough to justify that comparison, whereas those other phones have much better specs, much better features. For example, the dual camera system on the 8 Plus is a really good camera, and these cameras that Google is using are good, but it's not quite there in terms of, if you stack these products up side by side, it doesn't look very competitive at these prices. So, I think it's tough to say. But Pixel has never been about Google becoming some volume leader in the smartphone market. It's really about, next program, putting out a really great example of what an amazing Android phone can be, and hoping that your third-party OEMs get on board and produce comparably good hardware.

Lewis: So, not something that's going to be necessarily super disruptive in the smartphone space. One of the products that they did reveal that I think seemed to scare investors a little bit is the Clips camera. It seems like it got GoPro on its heels a little bit, and definitely scared some folks. GoPro ended up taking a hit earlier this week. Do you want to talk about that a little bit?

Niu: It's funny, because as soon as GoPro went public a few years back, there was always talk about mainstream adoption. Maybe that'll be a great driver for unit sales, everyone's going to go out and buy a GoPro. And I never really bought that narrative, because no one needs a $400 rugged action camera to take a picture of what they're eating for lunch and putting it on Facebook. It doesn't really make sense. Why would you go out and buy this super expensive thing? And GoPro really tried to push this, and they tried to rebrand themselves as a storytelling company, and pivoted their marketing to say, "You can use these devices for everyday activities." But that's about all they did, they never actually made a product that was properly positioned for that use case. You don't need a rugged action camera that can survive a 500 foot fall off a cliff if you're just wanting to record your kid riding a bike. There's a big disconnect between how this product is positioned, with the features and the pricing compared to what they were hoping from mainstream adoption. And Google is now doing exactly what they should have done years ago with Clips, which is basically making these small little cameras that you can set up on your house to capture these everyday moments, that don't require ridiculously high-end hardware that can withstand a beating. I think that's why GoPro has disappointed. Don't get me wrong, GoPro is very successful within their niche of extreme sports enthusiasts that really need action cameras. But there was a big disconnect in valuation, because investors initially were pricing in these expectations that they would get to this mainstream adoption phase, but they never really tried to do that, in terms of the product side. And that's what I think is scaring investors now, and why GoPro shares have taken a hit. 

On the flip side, parts of the Clips camera sound a little invasive and creepy, to be honest, because what it does is, Google wants you to put this thing in your house, you're not supposed to interact with it very much manually -- I mean, you can tell it to take pictures, but the idea is, you leave it alone, and the AI Google Assistant will recognize your face, it will learn your face, it will learn your kids' faces, your family's faces, and the camera itself decides when to start recording based on what it's seeing. So, you're trusting that this thing will be able to recognize a moment that's worth capturing. And it will capture a seven-second clip, and you can keep it as a video, you can take a screenshot of one specific frame. And you just kind of leave it there. And the idea is, it captures those moments that you would otherwise miss. You're not behind the camera, you're actually in the shot. And Google is very cognizant that this might freak people out in terms of privacy concerns. So, they're very upfront that this thing does not have a microphone, it's not listening to you, and all of the processing is done locally, everything is stored locally, nothing is being sent to the cloud or Google, they're not monitoring you, like that. So, they're aware that this might weird people out. But that's how they're positioning it. It just seems like, this is what GoPro should have done two years ago.

Lewis: This is another instance of technology coming into people's homes in maybe a more invasive way, depending on how you look at it. Another segment where that is particularly true is the smart-home products. We see a lot of people playing in this space. I know this is something that you've particularly tuned into recently. Do you want to talk about what they've unveiled and how it stacks up against what's already in that space, and any changes that you see there?

Niu: I think it's actually really exciting what they're doing. They're kind of taking Amazon's playbook. Amazon has been extremely aggressive, particularly this year. They've come out with four or five different new Echo products that span of a wide range of prices. They're all really affordable. The whole idea is to allow you to bring Alexa to any room in your house with a small, low-cost device, or, if you want, a more expensive, more full-featured device. And that's what Google Mini is about. It's basically just an Echo Dot. It's $50. You can't plug a speaker into it like you can the Echo Dot. But other than that, it's a small device that's intended to be placed around the house. The smart-home technology space is all about having access points to be able to control your smart home with your voice command. And you want to have a lot of those in your house so you don't have to worry about, is the device near enough to hear me. If they're just everywhere, you can confidently speak to your house wherever you are and it'll work. I think that's the problem with Apple's strategy, at least right now. And who knows what Apple will do in the future, but at this point, they just have one device coming out that's $350, it doesn't have as many smart-home integrations, in part because Apple used to put these really strict hardware requirements on people that wanted to be part of its HomeKit platform, these requirements that are basically why manufacturers haven't been getting on board with them over the last three years. They've only now started to loosen these hardware requirements, and now we're starting to see more manufacturers come on board. So, hopefully Apple will get something going. But they're still really far behind. And people aren't going to buy five HomePods to put all over your house, like in your bathroom and kitchen, because that's thousands of dollars at $350 each. So, I think Apple is missing out right now in this opportunity, because ideally, Apple should also create these more low-cost devices where you can add Siri to your room. Low-cost for Apple would probably still be a premium compared to Home Mini or Echo Dot. But, something cheaper than $350. They need to do something if they actually want to make a dent in the smart-home space. I think it's pretty interesting, because Google coming out with the Mini and Max really puts more pressure on Apple to come down and offer something more affordable, at the same time that Google is saying, maybe there is a market for high-end speakers that are $350-$400 that can also do the smart-home stuff.

Lewis: Yeah, I think dropping $1,500-$2,000 to outfit your home with all the Apple products is essentially a home renovation at cost. I don't know how many people are going to be too keen on that. 

Niu: You don't need high-fidelity audio, for example, if you just want to have Siri in your bedroom to be able to control your smart home. You don't need high-fidelity audio in your room, or a bathroom, or an office. Whatever it is, you don't need that kind of audio everywhere. But you might want Siri everywhere.

Lewis: Right. The whole point is that it makes things easier. So, I can understand the multiple access points. One thing that they showed off that, I think the investing takeaway is a little tougher to shoehorn in, but I thought from a device perspective, this was so darn cool, was looking at what they were doing with the Pixel Buds, and the feature of live translation being built into the headphones. That's so futuristic, so cool. I don't know what's going to happen with it, or what adoption is going to look like, but that's like science fiction type technology.

Niu: [laughs] Yeah. The Pixel Buds were pretty cool, and I don't think anyone really saw them coming, them getting the wireless headphones. I've never used Apple AirPods, but everyone that uses the AirPods loves them and can't stop talking about them. I think, they're so small, I feel like I would just lose them immediately. So, kind of nice that Google has a tether between the two of them, which makes you less likely to lose them. But, I think the more important thing is, it's about Google Assistant vs. Siri, because one of the big features is bringing these assistants right into your ear for the convenience of always having it available. It's pretty common knowledge that Siri is just not that great, even though Apple was the first mover with Siri. They really dropped the ball in terms of keeping Siri competitive as a virtual assistant and AI. Google Assistant is just hands-down much better than Siri. So, if that's the whole point of this product, to have the assistant AI in your ear and accessible anytime, then I think Pixel Buds are pretty compelling. They're the same price point. They're pretty cleverly designed to have this little loop that can adapt to your ear to make it fit better, which is something that Apple doesn't do. And that feature you're talking about is really cool. It can live translate into your ear someone speaking a foreign language, and it supports up to 40 languages at this point. And basically, someone talks into your phone, your phone translates it, and Google Assistant feeds it into your ear. You talk into the Pixel Buds in your language, it feeds it back into your phone, and then it displays the translation to who you're talking to in that other language. But, someone pointed out online, even today, you can kind of type translations into your phone and pass your phone back and forth. So, the incremental improvement is kind of arguable. You can already do something pretty similar by just passing your phone back and forth. It sounds awesome, and the demonstrations were really cool. But I don't know how appealing this is to most mainstream consumers -- for example, if they don't travel internationally much, there might not be a huge use case. But, the demonstration and the concept is really pretty awesome.

Lewis: Yeah. I'm going to file that one in the "This is really neat" category. [laughs] I don't know what the business case is going to be for it, I don't know what adoption is going to look for it, but it's just really cool that we've gotten to that point with technology. One other thing I want to hit with Google's product releases is, you look at them jumping in with wireless headphones, and you look at some of the design decisions that they made with their smartphones, deciding to not have a headphone jack, for example, something that Apple decided to do, there was a lot of blowback for it and they stuck with it. It just signals to me that, one, that was probably the right decision by Apple; and two, the future for a lot of these consumer device companies is going to be wireless, and they're going to be relying more and more on wireless charging formats, wireless listening formats. That technology is just going to get bigger and bigger.

Niu: Oh, absolutely. It's funny, because Google was mocking Apple last year for ditching the headphone jack. And this year, of course, everyone is ditching the headphone jack. Apple pushes things forward more aggressively than any other company, specifically when it comes to shifting away from old technologies, hands down, Apple is the most aggressive across the board, and there's dozens of examples over the decades of them doing this. And you're starting with the floppy drive. They're the ones that, if they think something needs to die, they will put their full weight behind killing some old standard. And once they do that, they get a bunch of crap about it, and a lot of criticism, but then everyone else jumps on board, and the end result is they do push those forward.

Lewis: Yeah, and three years later, everyone is like, "Remember when Apple did that, how brilliant that was?" [laughs] 

Niu: "Even though we gave them such a hard time when they did it?" [laughs] 

Lewis: Yes. Such is the life of being an innovator and dealing with the 24-hour news cycle. Evan, anything else before I let you go? We did a huge rundown on device stuff.

Niu: More bigger picture, when it comes to Google and this hardware stuff, I do think it will be interesting to see. Right now, they aggregate all their hardware into "other" revenue. And the more they emphasize growing their hardware business and operations, I think eventually, investors might want to know, are you going to break this out and give us more granular disclosures? Because if you're saying this business is so important, and you're investing this heavily and coming out with this many products -- they have an online Google store that's just adding more more products every year -- there's a case to be made that they should start breaking this out, giving investors more detail in terms of revenue, maybe operating income, maybe gross margin, just something, give us some more information. Because if you want investors to focus on this hardware business, you have to give more data and more actual detail about how this business is doing. So, that's something to keep an eye out for going forward. Whether or not they'll actually start disclosing any more information, that's up to them. I think they should, if they really think this hardware business is going to be that important.

Lewis: Well, listeners, that does it for this episode of Industry Focus. If you've got any questions or feedback for us, you can always shoot us an email it, or tweet us @MFIndustryFocus. If you're looking for more of our stuff, subscribe on iTunes or check out the Fool's family of shows over at As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Heather Horton for subbing in behind the glass today. For Evan Niu, I'm Dylan Lewis. Thanks for listening and Fool on!

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Netflix, Inc. Stock Quote
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Alphabet Inc. Stock Quote
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GoPro, Inc. Stock Quote
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