What Investors Need to Know About Uber's IPO

Lyft (LYFT 1.14%) was first to market, but Uber was first to the industry, and it's the biggest dog in the ride-hailing yard by far. In this week's episode of Industry Focus: Tech, host Dylan Lewis and Motley Fool analyst Evan Niu dive into Uber's S-1 filing to dig up the fundamentals of the business -- and its long-term outlook. Find out how Uber is different from Lyft, what Uber Eats and Uber Freight could mean in the future, and why you should probably wait a few quarters on this one, if not ignore it altogether. Plus, the hosts also take a close look at Apple's (AAPL 0.64%) earnings report -- the most important numbers and what they mean, what sent shares flying, and what trends investors should watch in the next few years.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on May 3, 2019.

Dylan Lewis: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It is Friday, May 3, and we're talking about tech companies old and new. I'm your host, Dylan Lewis, and I've got fool.com's Evan Niu on Skype. Evan, it's been a little while. How are you doing?

Evan Niu: Pretty good! Did you see Avengers: Endgame, along with everyone else in the world?

Lewis: I haven't seen it, but Jess, my girlfriend, went and saw it. She saw an 11 o'clock screening of it because it was the only ticket that was left. She's a diehard superhero fan and loves that universe so she made a point to see it. I happened to be out of town when she saw it. I would have seen it but I'm not big on that stuff, Evan. Have you seen it? 

Niu: Yeah, I took the family. It's pretty good. It's like three hours, and naturally, my son has to go to the potty at the very end, at the exact climactic moment at the very end of the movie. But, I mean, what do you expect for a six-year-old in a three-hour movie? [laughs] 

Lewis: [laughs] That's a commercial for Netflix right there. Just hit pause. You can't pull that off in the theaters, unfortunately. Well, it's nice to have you back! We've been doing a lot of shows with Brian Feroldi, we've been doing some shows with some other Fools. But I love doing S-1 shows with you, Evan, and I love talking Apple with you. And that's what we're going to be doing today. We have not gotten to Uber's numbers yet, and this is going to be the show where we talk about the ridesharing company that is about to be going public. And of course, we can't really let a quarter go by without talking Apple results. It's one of your favorite companies to cover, Evan. Had to have you on to talk those two!

Niu: Glad to be here!

Lewis: We have talked about Lyft a little bit on the show before, so I don't know that the ridesharing industry needs a ton of introduction for our listeners. Uber was the first company to step up in this space. They are the dominant player. They're a little different than Lyft in some ways, though. They operate internationally. They're not just in North America like Lyft is. And they have a couple of different business segments. It's not just ride-hailing and ridesharing and some of these mobility concepts that Lyft has.

Niu: Right. They're much bigger than Lyft. Lyft's in two countries. They're just in North America, in the U.S. and Canada. Uber's in like 63 countries. They have 5X as many total users, which makes sense, given how many more countries they operate in. But yeah, like you mentioned, they also have Uber Eats, which is meal delivery; they have Uber Freight, which is a platform to connect shippers and carriers. It's not the autonomous truck driving stuff that they were exploring very controversially a couple of years ago. So, yeah, is a really sprawling company. They've also imagined flying cars, they're trying to develop autonomous cars. They're still looking at autonomous trucks. They had this setback last year when they had a fatal accident involving one of their autonomous cars, but they're still pushing forward there. They have their hands in a lot of stuff.

Lewis: Despite the fact that they're a little bit more diversified than Lyft maybe when it comes to business operations, really, mobility is still the name of the game for them, personal mobility, and that's the ridesharing/ride-hailing business. I think that all told made up just over $9 billion in revenue, or 82% of revenue for 2018. I think the total pie was about $11.2 billion. So that's where most of the money's coming from. Uber Eats is surprisingly large, $1.5 billion in 2018, roughly 13% of revenue. Freight is a very quickly growing part of their business, but only $370 million in 2018. I think they're doing like 400% year over year growth over there, but it's on a pretty small denominator. 

Niu: Right, exactly. I was also surprised at how large Uber Eats is, but it also ties back into just the sheer size of their global footprint and how many countries in which they operate. For example, if you compare it to a pure-play like Grubhub, who's obviously a big player in local food delivery in the U.S., Uber Eats actually has more restaurants on their platform than Grubhub. But, again, I think that's mostly a function of just the number of countries where they operate.

Lewis: Yeah. The pitch that they are really trying to get across to investors, it seems, is, we are the everything for mobility and delivery and transportation, kind of an Amazon of transportation type pitch. Uber Eats plays into that a little bit. In the S-1, I noticed, I think 15% of people that are active consumers on the ride-hailing business have used Uber Eats in the most recent quarter, Q4, that was finished. So the idea is, we build out this massive network of people that use us for ride-hailing; as we add on all this other stuff, they come to us for that, too. 

Niu: Right, absolutely. That actually comes back to how they define one of their active users, which is, either you take a ride in one of their cars and/ or you get a meal delivered. If you were to just use one or the other -- obviously, they want you to do both -- but, to your point, they're trying to build one platform that does a bunch of stuff and anyone that's using any of these services is considered an active user. 

Lewis: If you're taking a quick look at this business, it might look like Uber is profitable when Lyft is not. That is really the case because of some non-operating reasons, though. The company did post $1 billion in net income in 2018, but they posted a $3 billion operating loss during that period. Most of, if not all of, that profitability was due to divestitures and unrealized gains on investments. The core business here is still not profitable. The company managed to post a profit last year, but don't expect that going forward. 

Niu: Right. I think it boils back down to this idea that the underlying unit economics around these rides is just not very good, arguably not sustainable in my mind, but we'll see how that plays out. But kind of like when we talked about Lyft, for the core business of facilitating these rides, the numbers just do not look good. 

Lewis: And that's because you have two insanely competitive companies that are trying to build up their base of both drivers and riders. They're trying to incentivize drivers to be a part of the platform. They're trying to incentivize riders to use it. That means very high marketing spend. That shows up a couple of different ways for those companies, but it's just going to eat in the profitability, no matter how you account for it. 

Niu: Right. They have to compete on price because it's a commodity. A lot of the drivers, too -- it's very common knowledge that most drivers are on both platforms. They're competing at the same time for both the drivers and the riders and whoever can offer the best financials.

Lewis: I looked over some of the key business metrics. A lot of stuff moving in the right direction. As you might expect with a company that is going public, a lot of enthusiasm around the core business numbers, even if the financials aren't looking that pretty. You look over at the monthly active platform consumers, their user number for our purposes, 91 million in 2018. That's up 34%. And I think Uber has said that the number is roughly 2% of the combined populations of the countries that they are focused in, like you said, about 63 countries. They use that to illustrate that penetration is still very low, despite the fact that they have tens of millions of people as users.

Niu: Right. Of course, their argument is going to be, look how much upside there is. But at the same time, there's a lot of debate over where the ceiling is, because a lot of people still just like to have their cars. Of course, in urban environments like you live in, you use a lot of ridesharing. I am in a suburban environment, I use almost no ridesharing. So there's a lot of debate over the long term, what does consumer behavior look like, and the demographic geographical differences. How high can that number go? We'll have to see.

Lewis: It's been funny to see how these two different companies have positioned themselves in terms of market share as they've gone public or are going public. With Lyft, they were saying, "Hey, we've got 39% of the North American ride hailing market," and I think they were really touting that number to say, "We're not that far behind Uber, really. We're a strong No. 2." You look at Uber's prospectus, and they say, "We have less than 1% market share of all transportation." [laughs] It's a really interesting case study in how a market leader vs. a second-place company tries to position themselves as they're building hype as they go public. 

Niu: Yeah, it's all about their perspective. Who do you want compare yourself against?

Lewis: Yeah, exactly. And to your point, Evan, one number that is plateauing for the company is monthly trips per MAPC, that user number we were talking about. It's pretty much hung out at about 5.5 for the last year or so. I worry that there's a little bit of a usage ceiling there. Most of the growth that they're experiencing is from having more riders come onto the platform, not that the existing riders are taking more rides. That's pretty consistent with what we've seen looking at Lyft's prospectus. They see a huge jump in the cohorts of riders and usage from year one to year two, and then they more or less see it plateau, I think it's single-digit percentage growth year two and year three, and so on. So it's not hugely concerning because you're seeing it with the other major player in the space, but yes, there is a limit, I think, to how much people will use it until we see a maybe step change with autonomy or something like that. 

Niu: To put a number to it, if you look at Lyft's numbers, their average rides per user were somewhere around eight or nine. It was the same thing -- it's not growing a lot, it's bouncing between this eight and nine level, give or take, fluctuating within a pretty narrow range. But it is interesting that Uber's number is slightly lower than Lyft's on an absolute basis. 

Lewis: Yep. And it's going to be impossible for us to not talk about these companies in lockstep, even though they define some numbers differently, just because they are the two pure-plays out there. You could argue Lyft is the actual pure-play because Uber has all these other offerings, but they're going to be the Pepsi and Coke for the ride hailing businesses. Evan, looking at the reports we're seeing, I think Uber's offering somewhere just short of 200 million shares, I think it's about 180 million shares, somewhere in the range of $44 to $50 a piece. From what I understand, the offering is already oversubscribed. There are a lot of people that want their hands on these shares, so they're probably going to be up toward the higher end of that valuation range, which will be somewhere between $80 billion and $90 billion. 

Niu: Right. I think they're looking to raise about $8 billion to $9 billion. I think the latest updated S-1 said they're expecting to get about $8.4 billion after paying off the fees and stuff, so, net of proceeds in that neighborhood. So yeah, a value of about $100 billion. It's going to be pretty wild. I think there was a lot of demand. I mean, people have been clamoring to get their hands on Uber for years and years and years. And now I can buy either one, Lyft or Uber. 

Lewis: It's a rich valuation, but it is a crazy growth story. You look back, the top line for them has tripled between 2016 and 2018. There is no way, though, that this business will be profitable anytime soon. I mean, operating losses in the billions for the past couple of years. The ridesharing business is not going to get less competitive. I think if anything, it's more competitive, because Lyft is in a stronger position now than they were a couple of years ago. And, you have all these scooter companies in the mix in all of these cities where Lyft and Uber are trying to compete now. 

Niu: Right, exactly. I mean, there's all this competition coming, they're expanding the scooters. We were just talking about this before the show, the economics behind the scooters is also terrible. This core mobility business, between ridesharing and e-scooters, the economics around both of those are just terrible. 

Lewis: Yeah. I think it's something like, you need to have them on the road for four to six months to start hitting payback period because the scooters are not cheap. They're a couple of hundred dollars. Unfortunately, you also have to pay people to charge the scooters, distribute the scooters, all these things, and the useful life of the scooter is about a month, maybe six weeks, because when people are renting a scooter for a couple of dollars, they ride a scooter like they're renting it for a couple of dollars. [laughs] They don't value it the way they would if they paid a couple of hundred bucks for it themselves.

Niu: Right. And they're coming from behind in the scooter space. Bird and Lime are the big players there. And of course, now Uber and Lyft see that as a threat, so they're jumping in. That space is also going to be crazy competitive. And it's just burning through capital, just like in the core business. 

Lewis: Yeah. I will say, I think that those two companies are in a pretty good position for the scooter wars. Bird and Lime really have their work cut out for them if they're going to try to unseat Uber and Lyft. As someone who has the Uber and Lyft app and has had those two apps downloaded for years now at this point, all I need to do is switch over and look for scooters. I don't need to download a new app, set up a new profile, give new payment information, which is what I need to do for all these other companies. So I think they were quick in how they responded to that, that at a certain point, they might just be able to out-survive the other companies that came in to try to disrupt them while they're burning cash. But, that doesn't solve the fact that there are some rough economics there, like you mentioned before. 

Niu: I mean, if it's just who can burn more cash faster, [laughs] I don't think that's a business I want to be part of.

Lewis: [laughs] I think that's been the last 10 years in tech, Evan. [laughs] 

Niu: [laughs] That's fair!

Lewis: I think long-term, this is a somewhat interesting business just because it is basically benefiting from a huge tailwind, especially in a lot of urban areas where people don't own cars at the same rates that they did. One of the things that comes with that, though, is, what happens when we start getting autonomous cars on the roads? That really changes the economics of the business because you're not paying the driver; you're creating the car, or maybe licensing software, and then maybe only paying out a small fixed cost, enjoying all the usage on top of the fixed costs rather than having a variable cost that you have to pay out with each ride. But Uber isn't even necessarily in the front of the pack when it comes to that. 

Niu: Right. Alphabet, Waymo, are up top. Tesla is coming; but of course, no one knows what to expect from Tesla, because you can never believe what Elon Musk says, and the timing of whatever he says is always off by years. [laughs] But conceptually, Tesla's out there wanting to create this Tesla Network of ridesharing, where people can rent out their autonomous cars. He's saying robo-taxis on the road, a million by next year, which is probably not going to happen. But, Waymo's already out there right now, delivering autonomous rides to very limited markets. So yeah, Uber and Lyft are certainly way behind in terms of the technology in my opinion. And it's so core to their business, because again, these are pure-play companies and the core economics around the core businesses are so terrible that you need this big, revolutionary type of technology to really make these businesses attractive. 

Lewis: And you're competing with companies that have a ton of cash on hand. Alphabet, Google parent, isn't really struggling. They had maybe a rough earnings report, but they're still doing just fine when it comes to cash in the bank. They've got plenty they can plow in to R&D to try to make that happen. All to say, a lot of what Uber and a lot of what Lyft are trying to do, a lot of the markets they're trying to play in, it's just hard. What you ultimately want is something that's relatively easy and something that's somewhat predictable. If you're looking at a software-as-a-service company, and you see that they're adding consumers onto their platform and they're getting people that they've had as customers to pay more for their product, add stuff on over the course of time, you know that business is going to keep growing. There are a lot more question marks, a lot more step changes in the technology, that these two companies are going to have to navigate. I think it makes it a little bit tougher to make a bull case for them because of that. 

That said, if Freight becomes a much larger part of the top line; if Uber Eats has very different economics than the core ridesharing business, maybe there's something there. But with 80% being in the ridesharing world, it's kind of hard to imagine that it meaningfully impacts the financials anytime soon. 

Niu: Exactly. I just don't see the point in investing in Uber at this point because of all the points you just mentioned. The core mobility stuff is terrible. If you're interested in local food delivery, go buy Grubhub, they're a pure-play, they seem to be doing pretty well. Their numbers look strong. The Freight is such a tiny part of the business. You're not going to buy Uber for Freight. So what's the point? 

Lewis: Yeah. And to buy a share, you're going to be paying a hefty premium. We talked about the valuation that it'll be going live at. Not profitable, you're still paying a hefty multiple on sales there. And they're going to have to live up to that. I'm sure there's going to be a pop day one. So I will just say, if even after all this conversation, you are still dead set on buying Uber shares, just wait a couple of days, maybe wait a couple of months. Let it settle in, let some of the demand die down, and let them put out a couple of earnings reports and get exposure. We might see that over time, the business starts to materialize, especially as some of the technology that they're really relying on starts to come a little bit more into the mainstream. But nothing wrong with holding your horses here and watching this business for a little while, especially because we have a fairly new CEO at the helm, trying to refurbish this company's image. 

Niu: Right. I think that's another point, too, the matter of all this moral and ethical baggage that Uber has. This company has done so many terrible things throughout its history. Even though they kicked out Travis Kalanick a few years back and brought in Dara Khosrowshahi, I'm probably butchering the pronunciation, he's definitely making a lot of positive changes in terms of internal corporate culture, but a lot of the fallout from Uber's past is still there. Kalanick still owns about 9% of this company. This IPO's going to make him worth $9 billion. Many drivers even today still struggle to make a living wage as a result of how Uber has historically underpriced its fares. There's this long-term effect that affects consumers' value perception of how much a ride is supposed to cost. It's easy to bring that number down, but it's really hard to push that number back up. They've pushed back against so many basic safety regulations over time that have resulted in bad things happening to riders. I mean, there's just so much going on there. For me, ethically, I don't use Uber, ever. If I need to use ridesharing, I call a Lyft. It's just a lot for me to really be OK with. 

Lewis: All right, Evan, why don't we switch gears from talking about a business that you and I are both not super fond of, though fascinated with, to a company that we love to talk about, and that is Apple. It would not be an Apple earnings show without Evan Niu. You are our resident expert. The company put out numbers this week. Pretty strong reaction from the market. They seemed to like what they saw. 

Niu: Yeah. The total revenue was down about 5% to $58 billion. iPhone was the biggest drag on that top line. Revenue from iPhone was down 17% to about $31 billion. But I think the market's been expecting that and pricing it in, so it's not really all that surprising, particularly when you think about what's happening with the smartphone market globally. Worldwide unit volumes are starting to come down a little bit. The market's matured, volumes have peaked. In particular, the premium end with the smartphone market, where Apple primarily plays, is getting hit the hardest. Even though they don't disclose iPhone unit volumes anymore, we're getting some third-party estimates that think that iPhone units probably fell somewhere between 20% and 30%. 

Lewis: Yeah, and that's tough to overcome when the biggest contributor to your top line is a business that's struggling. Part of the problem with them, too, is that one of the big growth opportunities for them with the iPhone was China. That market has stalled a little bit. We aren't seeing some of the growth that we have seen there historically. When people don't have the wage growth, the lifestyle growth, that they're expecting, a lot of the premium products are going to suffer. 

Niu: Yeah, and the local brands of China are doing really well. Huawei, their units were up something like 50% last quarter because they're putting out these really good phones at really affordable prices, and that's really resonating now. Whereas Apple, their units went down something like 30% in China, according to some recent estimates. They're definitely losing quite a bit of share there. But at the same time, Apple's trying to pull certain levers to try to grow that business again. I think there are some signs that it's working, which we can get to when we talk about their guidance. 

Lewis: Yeah. I will say, before we move over there, hardware wasn't all bad. We saw some good numbers out of the iPad segment, 22% growth. It's still only about $5 billion of the top line. But that is the strongest growth we've seen there in I think five or six years. Wearables, Home also did pretty well. Same number there, about $5 billion contributing to the top line. 

We can talk about hardware all day, though. What Apple really wants us to focus on is the Services segment, Evan.

Niu: Right. They've been really hammering the Services narrative for a couple of years now. Services hit a new quarterly record of $11.5 billion. On a trailing 12-month basis, Services is now up to about $43 billion. They're on target to hit this $50 billion number in 2020 that they put out a couple of years ago. That's very much within reach at this point, particularly when you add in these new services that they introduced last month, you have News Plus, TV Plus, this Apple credit card and a subscription gaming service. Over the past six quarters, they've been adding 30 million paid subscriptions. At this point, they're up to 390 million. In January, they set a different target, saying, "We're going to hit 500 million paid subscriptions at some point in 2020." So even if you assume no acceleration from these new services, that would be 120 million more subscriptions over the next year. That puts them well over 500 million. On that target, too, I think they're really executing pretty well on growing the Services business and trying to convince investors why they should care, and also putting up the numbers to back that up.

Lewis: As an investor, I care, because that is high-margin revenue that is coming in, and I'm happy about that. You think about having 500 million people paying something to the company, and that really just builds out the ability to add stuff down the road. If they start adding more services, if they build out something on the streaming side, who knows, that creates the market and the appetite for a lot of that stuff that they can just tack stuff onto, especially once people are in the habit of paying Apple or going in through the App Store or what have you to add stuff to whatever hardware they're using. 

Niu: And to your point about profitability, gross margin on the Services business did take up a little bit on a sequential basis. But at the same time, you don't know where that's going to go in the future because each of these services has a very different margin profile. This video stuff is going to be so expensive, to buy and develop and produce all this original video content, which we know is so expensive, from looking at companies like Netflix, for example. Each service is totally different. But that number is still overall, heading in the right direction. 

Lewis: We can't talk about Apple without also briefly touching on the capital return program, one of the reasons investors love this company so much. This is the time of the year where we get an update on what's going on there, Evan. They didn't disappoint. 

Niu: Right. Always in the April/May timeframe every year, they give us this update. If you look back, last year in calendar 2018, they bought back about $71 billion worth of stock, which is just mind-boggling. That was more than double what they bought in 2017, which was $32 billion. This was all, of course, thanks to tax reform at the end of 2017. They had pulled back on the repurchase activity in the fourth quarter a little bit because they missed their revenue guidance so badly. But in the first quarter, they just bought back $24 billion, which is actually more than they bought back at any quarter last year. And the board has authorized another $75 billion on top of that for future share repurchases; and on top of that, they boosted their dividend by 5% to $0.77 per share. Same thing they've been doing every year. Every year, they want to get more back and they allocate most of that toward share repurchases over dividends because they think that the shares are still undervalued and compelling prices to try to retire their shares at.

Lewis: I'm inclined to agree. Coming down to either a dividend policy or a share buyback policy for a business that you know is generally going to be moving up and to the right, like Apple's, you want to take those shares off the books if you can. For me, I look at a company paying a dividend, and that's basically saying, "I can't do anything better with this money. I'm just going to hand it to you." I'd rather they work down the shares outstanding, boost that EPS just a little bit every single quarter, and wind up returning a little bit more value to people that way. 

Niu: Yeah. Their broader capital structure, they have an idea where they want their capital structure to be, and that involves reducing a lot of this equity that's outstanding. At the same time, they appreciate that they have a lot of income investors, they do want to still give some of those dividends to the people that rely on it. But they have their goals set, and they've been very consistent with how they've been executing. 

Lewis: Yeah. And for the time that they've been running this epic capital return program, it's almost always made sense for them to be buying back shares. You look back at an Apple chart, for the most part, they're almost always buying back shares at a lower valuation than they're currently trading. Particularly true if you go back a couple of years. I think that's what people need to remember with these buybacks. They're in a way reinvesting in themselves by taking all this stuff out from their shares outstanding, and you're benefiting from this because you own a larger portion of the earnings that are coming in. Hard to argue with that as an investor. 

Niu: And they're definitely timing it, too. If you look at what was happening, the entire market pulled back in the fourth quarter quite a bit. Everything was selling off. So coming into the first quarter of 2019, a lot of stocks were just low. They obviously saw that and really ramped up their buying activity. Half of the $24 billion they bought back is part of an accelerated share repurchase program. They're definitely factoring in current market conditions when they make these decisions. 

Lewis: Yeah. Before we taped today's show, I did a quick look, because I remember things being a little dire in the beginning of 2019 for Apple. Shares are up 48% since early January. Remarkable!

Niu: They were like $145 at the beginning of the year.

Lewis: Yeah! Absolutely remarkable for a company that size, outpacing the S&P's returns, and just a reminder of, this is what a capital return program can do for you, as an investor when you have a lot of cash to work with. 

A really strong reaction to this earnings report. The market was really happy with it. Nothing that we've talked about really raises too many eyebrows so far, Evan. I think that the reason most people were excited was Apple's management said, "Things are going to look a little bit better next quarter than maybe you thought."

Niu: Yeah, their guidance was actually pretty strong, particularly coming off all the pessimism around how badly they missed in the fourth quarter. Their guidance came in above expectations. They're expecting second quarter revenue to be $52.5 billion to $54.5 billion, vs. the market was expecting under $52 billion. They're comfortably above expectations there. Gross margin should be around 38%. Tim Cook basically said that Apple is starting to recover in a lot of these key markets where it struggled in the fourth quarter, most notably China. They've been taking a series of measures to try to improve their competitiveness, such as absorbing foreign exchange movements in order to stabilize local pricing. They're reducing a lot of friction related to smartphone trade-ins, a bunch of little levers like that they're pulling. In aggregate, when you combine the effects, I think that's what we're seeing in this revenue forecast that's pretty good. I think it's a testament that those efforts are working, at least if they can hit their forecasts, unlike they did when they missed so badly in December.

Lewis: This is how we got here, right? Yeah, yeah. Of course. [laughs] 

Niu: [laughs] So, at face value.

Lewis: Yeah. With them back up to roughly where they were a couple of months back now, I think they're just hovering below that $1 trillion valuation. I will say, if you are a fairly new investor, it's hard to go wrong buying shares of Apple, honestly. But they might not be the greatest mega-cap tech stock out there if you're looking for some serious growth, because they are facing some headwinds with their biggest segment, the iPhone segment. A lot of stuff to like with Services. I'm sitting, I'm hanging out with my shares, basically. I'm holding the shares that I've bought several years back and just enjoying the capital return program, enjoying some of that dividend and the reinvestment there. If I am looking to add to a major tech player, Apple might not be first on my list, just because I'm a little worried about what growth might look like for the next couple of years for them.

Niu: Yeah, I'm in the same boat as you, I'm just sitting on it, not really doing anything with it. I think that one thing that Apple does need to do, looking several years out, is show investors what a post-iPhone Apple looks like, when the iPhone is no longer as big of a part of the business as it has been over the past 10 years. It's very clear that the smartphone market is maturing and saturating. These premium, $1,000 phones aren't selling as many as you need to really keep this business growing the way that it is. What does that look like? They don't have an answer for that yet. But we'll see. 

Lewis: Yeah, I think few people do. I will say that they got me. I bought a XR because I was in desperate need of an upgrade. And let me tell you, I feel like I am living the life of luxury right now with my battery life. So I am absolutely thrilled! But yeah, Evan, I don't think that people really have figured out what that next phase looks like. It wasn't the Apple Watch. I don't know that they expected the Apple Watch to be the next "it" category in terms of consumer electronics. We've seen some other phone makers mess around with folding phones. There have been some issues that have come with that. Lots to say here, there are just more questions and answers when it comes to the future of consumer hardware and the thing that everyone's going to have in their pockets. Apple needs to figure that out. 

Niu: Yeah. Is there going to be augmented reality glasses? I don't know. Apple self-driving car? [laughs] Who knows?

Lewis: It's one of the more fun things to imagine. We've got time to figure that out, though, Evan. Thanks for hopping on today's show!

Niu: Thanks for having me!

Lewis: Listeners, that does it for this episode of Industry Focus. If you have any questions or you want to reach out and say hey, you can shoot us an email at [email protected], or you can tweet us @MFIndustryFocus. If you want more of our stuff, you can subscribe on iTunes or check out videos from this podcast over on YouTube. 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 Austin Morgan for all his work behind the glass! For Evan Niu, I'm Dylan Lewis. Thanks for listening and Fool on!