2025-05-31 22:01:58
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Today at a glance:
🛒 Costco: Premium Still Intact
☁️ Salesforce: Data Power Play
📦 PDD: Temu, Tariffs, and Turmoil
💻 Dell: Riding the AI Wave
🧠 Synopsys: AI Demand vs China Risk
📶 Marvell: Custom AI Tailwinds
☁️ Zscaler: AI and MDR Momentum
🧑⚕️ Veeva: Beating Goals Early
🔐 Okta: Cautious Tone Spooks
🛒 Best Buy: Tariffs Trim Outlook
🔍 Elastic: Soft FY26 Guidance
🤖 UiPath: Slow AI Monetization
👁️ SentinelOne: Guidance Reset
🧠 C3 AI: Federal Tailwinds
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Costco’s Q3 FY25 (May quarter) revenue grew 8% Y/Y to $63.2 billion ($0.1 billion beat), with EPS of $4.28 ($0.05 beat). Adjusted same-store sales rose 8.0% overall and 7.9% in the US, while e-commerce jumped 15.7%. Membership fee income surged 10% to $1.2 billion, reflecting Costco’s loyal customer base. The warehouse giant continues to outpace rivals like Walmart and Target, gaining share in both physical retail and digital. With 905 warehouses globally (8 added in the quarter) and expanded hours for discounted fuel, the company is leaning into convenience and value.
Tariffs added a new wrinkle, but Costco is navigating the storm. Management preemptively shifted supply chains, sourcing more goods locally or rerouting from high-tariff countries. Despite cost pressures, Costco lowered prices on staples like eggs and butter, absorbing margin impact to protect member value. That playbook is why the stock commands a premium—currently 56x forward earnings. For now, Costco continues to prove it deserves the benefit of the doubt.
Salesforce beat expectations in Q1 FY26 (April quarter), with revenue up 8% Y/Y to $9.8 billion ($80 million beat) and adjusted EPS of $2.58 ($0.03 beat). Annual recurring revenue for its AI and Data Cloud offerings topped $1 billion, up 120% Y/Y, with over 8,000 Agentforce deals signed since launch. Management raised full-year revenue guidance by $0.4 billion to $41.3 billion on the high end, and Q2 guidance also came in above consensus, signaling building momentum in AI-led productivity.
To strengthen its position, Salesforce announced an $8 billion acquisition of Informatica, a leader in data integration and master data management. While the deal won’t impact FY26 results, it’s a clear signal Salesforce is serious about powering its “digital labor force” with cleaner, AI-ready data. Informatica complements MuleSoft and boosts Salesforce’s enterprise data stack, helping customers consolidate messy data pipelines—a key bottleneck for AI adoption. Investors appear cautiously optimistic, with shares rebounding.
PDD’s Q1 revenue grew just 10% Y/Y to $13.18 billion ($1.2 billion miss), its slowest pace in three years. Net income plunged 47% to $2.0 billion, well below expectations, as Temu’s expansion was derailed by new US tariffs and the end of the de minimis exemption. The US scrapped its duty exemption for low-value packages and raised tariffs on Chinese imports in April, prompting Temu to increase prices and slash US ad spending. Online marketing revenue increased by 15%, while transaction services rose by only 6%.
Domestically, Pinduoduo is also losing momentum as subsidies favor rivals like JD.com and Alibaba. While PDD is pivoting to local fulfillment to mitigate the impact, the damage is already evident in slowing growth and declining margins. Management pledged $13 billion in ecosystem support over the next three years but warned of “prolonged pressure” on profitability. While PDD still boasts over $50 billion in cash, its growth story faces structural headwinds from geopolitical friction and fierce local competition.
2025-05-30 20:01:37
Welcome to the Free edition of How They Make Money.
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🔜 Coming up:
Saturday: PRO coverage with Salesforce, Costco…
Sunday: Premium monthly report with 150+ visuals
In case you missed it:
NVIDIA just posted another jaw-dropping quarter: $44 billion in revenue, up 69% year-over-year.
But this time, the story wasn’t just about growth. It was about friction.
While demand for AI infrastructure remains “incredibly strong,” geopolitical headwinds are hitting harder. The latest US export ban triggered a $4.5 billion inventory write-down and left an $8 billion hole in next quarter’s guidance.
CEO Jensen Huang issued a warning on the call:
“China’s AI moves on with or without US chips.”
The stakes are rising.
NVIDIA is powering ahead, but the runway is bumpier than it used to be.
Today at a glance:
NVIDIA’s Q1 FY26.
Three scaling laws.
Key quotes from the call.
What to watch looking forward.
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NVIDIA’s fiscal year ends in January, so the April quarter was Q1 FY26. I’m focusing on sequential growth (Q/Q) to capture momentum.
Revenue jumped +12% Q/Q to $44.1 billion ($0.8 billion beat).
⚙️ Data Center grew +10% Q/Q to $39.1 billion.
🎮 Gaming surged +48% Q/Q to $3.8 billion.
👁️ Professional Visualization was flat Q/Q to $0.5 billion.
🚘 Automotive declined -1% Q/Q to $0.6 billion.
🏭 OEM & Other dropped -12% Q/Q to $0.1 billion.
Gross margin was 61% (-13pp Q/Q).
Operating margin was 49% (-12pp Q/Q).
Non-GAAP operating margin was 53% (-12pp Q/Q).
Non-GAAP EPS $0.81 ($0.06 beat).
Operating cash flow was $27.4 billion (62% margin).
Free cash flow was $26.1 billion (59% margin).
Cash and cash equivalents: $53.7 billion.
Debt: $8.5 billion.
Revenue +2% Q/Q to $45.0 billion ($0.7 billion miss).
Gross margin 72% (+11pp Q/Q).
NVIDIA is still firing on all cylinders, but geopolitical friction is catching up. The company beat expectations again. But the big story was China.
⚙️ Data Center remains the powerhouse, generating $39.1 billion (up 73% Y/Y and 10% Q/Q). That’s nearly 90% of total revenue. Cloud hyperscalers drove demand, with Blackwell architecture ramping across all segments. Compute sales hit $34.2 billion (+5% Q/Q), while networking surged 64% sequentially to $5.0 billion thanks to growing NVLink adoption and Spectrum-X momentum.
⚡ Compute: Blackwell shipments accelerated across cloud, enterprise, and sovereign customers. NVIDIA also began test shipments of its GB300 NVL72 AI supercomputer, signaling another leap in large-scale AI infrastructure.
🔌 Networking: Continued strong growth, driven by NVLink and Ethernet AI deployments. This is a major piece of NVIDIA’s integrated system strategy.
🎮 Gaming: A surprise highlight. Revenue jumped 48% Q/Q and 42% Y/Y to a record $3.8 billion, fueled by the fastest-ever ramp of Blackwell gaming GPUs. It beat analyst expectations by over 30%.
👁️ Professional Visualization: Flat Q/Q at $511 million, up 19% Y/Y. Adoption of Ada RTX workstations for AI-accelerated workflows in design, healthcare, and simulation continues to grow steadily.
🚘 Automotive: Revenue came in at $567 million, up 72% Y/Y but down 1% Q/Q. Autonomous vehicle platforms and digital cockpit solutions remain key drivers, with new partnerships continuing to emerge.
📉 Margins temporarily under pressure. A $4.5 billion H20 inventory write-down (linked to US export controls) pushed gross margin down. Excluding the charge, non-GAAP gross margin was 71%. Management expects a rebound to 72% next quarter and is still targeting mid-70s by year-end.
🌏 China fallout hits hard. NVIDIA missed $2.5 billion in Q1 H20 sales and projected an $8 billion loss in Q2 due to the same issue. Huang warned that the long-term implications could be serious, especially as Chinese firms like DeepSeek gain ground. Regulatory scrutiny in China is also intensifying.
🔮 Outlook still solid. Q2 revenue is projected at $45 billion (+2% Q/Q) despite the $8 billion impact from H20 sales. Blackwell’s ramp and sovereign AI cloud projects are expected to continue driving growth.
⚠️ Risks are mounting. US-China trade tensions, stricter export controls, rising competition from AMD and in-house AI chips, and regulatory backlash could all weigh on NVIDIA’s next leg of growth.
Big picture: NVIDIA is still the undisputed AI leader, but the game is evolving. Blackwell momentum is strong, and global demand is resilient—but with geopolitical uncertainty rising, the road ahead looks less effortless than before.
NVIDIA may have just posted a record quarter, but the tone was anything but celebratory. The US government’s April ban on H20 chip exports to China blocked $2.5 billion in revenue for Q1, with another $8 billion revenue loss for Q2.
Huang didn’t shy away from the geopolitical stakes:
“The $50 billion China market is effectively closed to US industry.”
“The H20 export ban ended our Hopper Data Center business in China. We cannot reduce Hopper further to comply.”
“Shielding Chinese chipmakers from US competition only strengthens them abroad and weakens America's position.”
Rather than downplay the impact, Huang warned that export restrictions are accelerating China’s innovation:
“Export restrictions have spurred China's innovation and scale. The AI race is not just about chips. It's about which stack the world runs on.”
Huang argued that US policy is built on a flawed assumption:
“The US has based its policy on the assumption that China cannot make AI chips. That assumption was always questionable and now it's clearly wrong.”
NVIDIA is still exploring “limited options” to serve China under the new rules, but nothing is ready for market.
While China is cut off, global demand is going vertical.
Huang pointed to a global wave of AI infrastructure investment—what he calls Sovereign AI—as a key growth engine for NVIDIA:
“Countries are racing to build national AI platforms to elevate their digital capabilities. […] Japan, Korea, India, Canada, France, the UK, Germany, Italy, Spain, and more are now building national AI factories to empower startups, industries and societies.”
NVIDIA is partnering with governments and companies around the world—from Taiwan to Sweden—to build AI factories and supercomputing clusters at unprecedented scale.
“We delivered another strong quarter with revenue of $44 billion, up 69% year-over-year, exceeding our outlook in what proved to be a challenging operating environment. […] AI workloads have transitioned strongly to inference, and AI factory buildouts are driving significant revenue. Our customers’ commitments are firm.”
She emphasized that Blackwell now represents nearly 70% of Data Center compute revenue, signaling that the transition from Hopper is nearly complete.
Kress provided updates on the three major customer categories:
☁️ Cloud Service Providers account for just under 50% of Data Center revenue, ramping Blackwell deployments at massive scale (Amazon, Microsoft, GCP, Oracle).
💬 Consumer Internet companies like Meta, xAI, and Google Cloud driving adoption of Spectrum-X networking.
🏢 Enterprises deploying co-pilots, custom LLMs, and agentic AI across sectors including financial services, healthcare, and retail.
“Our Blackwell ramp, the fastest in our company's history, drove a 73% year-on-year increase in Data Center revenue. […] Microsoft, for example, has already deployed tens of thousands of Blackwell GPUs and is expected to ramp to hundreds of thousands of GB200s with OpenAI as one of its key customers.”
GB200 systems are being shipped at scale:
“On average, major hyperscalers are each deploying nearly 1,000 NVL72 racks—or 72,000 Blackwell GPUs—per week.”
She also previewed the next wave:
“Sampling of GB300 systems began earlier this month at the major CSPs, and we expect production shipments to commence later this quarter.”
“Losing access to the China AI accelerator market, which we believe will grow to nearly $50 billion, would have a material adverse impact on our business going forward and benefit our foreign competitors in China and worldwide.”
She clarified that Q2 guidance reflects a full $8 billion loss in H20 orders, and future China shipments remain uncertain. Yes, without the export restrictions, Q2’s revenue guidance would have been $53 billion. 👀
“Inference serving startups are now serving models using B200, tripling their token generation rate and corresponding revenues for high-value reasoning models such as DeepSeek-R1. […] Developer engagements increased with adoption ranging from LLM providers such as Perplexity to financial services institutions such as Capital One, who reduced agentic chatbot latency by 5x.”
Inference is the new battleground. The surge in token generation is driving real revenue for NVIDIA’s customers, particularly in reasoning-heavy use cases. From startups to banks, everyone wants faster, smarter models—and they’re turning to NVIDIA to deliver.
NVIDIA just set a new record for capital return, buying back $14 billion in Q1 alone. Management clearly sees more upside ahead—but as sovereign AI projects and global demand accelerate, some investors may wonder: will buybacks compete with investments in capacity, M&A, or onshoring?
We recently reviewed Wall Street’ top picks in the latest 13F filings for Q1 2025. Atreides (Gavin Baker) and Viking (a Tiger Cub) increased their NVDA allocation.
The trend? Funds aren’t buying aggressively anymore, but they’re not selling either. NVDA remains one of the most widely held stocks. That said, now that NVDA makes up nearly 7% of the S&P 500, most top money managers are underexposed relative to the index.
At 32x forward earnings, NVIDIA trades close to Microsoft and well above most chip peers. But this isn’t a dot-com rerun: $20 billion in net income last quarter, up 31% Y/Y, proves the profits are real—even after a massive write-down. Still, with China off the table, expectations are sky-high.
If you’re a regular reader, you already know the key risks:
Cycles boom and bust: NVIDIA’s growth relies on sustained demand. But if the AI buildout slows—even temporarily—revenues could compress fast.
Geopolitics are tightening: Options for China are limited, and the full impact of US tariffs on NVIDIA’s supply chain is still unfolding.
Customer concentration: Hyperscalers still buy, while simultaneously building their own AI chips.
If we’ve learned anything from Big Tech’s recent earnings, it is that CapEx is still rising.
While China is closed, the rest of the world is wide open. Huang pointed to 100+ NVIDIA-powered AI factories already underway across Saudi Arabia, Taiwan, the UAE, and beyond:
“Every nation now sees AI as core to the next industrial revolution.”
NVIDIA’s opportunity isn’t just enterprise software—it’s powering national infrastructure. From Blackwell racks to sovereign clouds, the company is positioning itself as the foundation layer for AI across both private and public sectors.
The road ahead won’t be smooth, and policy friction is real.
But across the board, one view stands out: It’s still early days.
That’s it for today!
Stay healthy and invest on!
We’ve visualized all the Magnificent Seven into a single report.
You can download it here. 👇
Disclosure: I own AAPL, AMD, AMZN, GOOG, META, and NVDA in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2025-05-27 20:02:58
Welcome to the Premium edition of How They Make Money.
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In case you missed it:
In 2007, Airbnb launched with 3 air mattresses on the floor and a dream.
The original name comes from Air Bed and Breakfast. Seventeen years later, it wants to be more than where you stay.
It’s no secret that co-founder and CEO Brian Chesky wants Airbnb to become much more than its initial premise, a la Amazon. From matching hosts to developing social features, he wants to disrupt more than hotels.
At its 2025 Summer Release, Airbnb unveiled its biggest product shift in years: a redesigned app with two new pillars: Services and Experiences.
The goal is to recreate access to amenities and tailored activities, from room service to guided tours, without having to book a 5-star hotel.
Chesky summed it up:
“Basically, it’s the Airbnb of anything.”
This is more than a product refresh. It’s a bet that Airbnb can become an aggregator beyond homes and capture a larger share of your lifestyle. And it’s happening as the core business matures, growth cools, and the company seeks new ways to monetize its vast user base.
But is this a bold leap forward or a beautifully designed stretch?
Let’s dive in.
Today at a glance:
📱 The new Airbnb
📊 Airbnb economics
🧠 Founder Mode impact
🔎 Opportunities vs. risks
🤝 Marketplace dream vs. reality
🧭 Wallet share and network effects
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Like how Ring disrupted home security, this company is revolutionizing smart blinds & shades— with $10M+ in revenue, 200% Y/Y growth, and sold in 127 Best Buy stores, they are primed for massive expansion.
Airbnb’s app just got its biggest makeover in years—and it’s no longer just about booking a place to sleep.
Now, it’s built around three icons: Homes, Experiences, and Services.
Going beyond lodging is a natural expansion for Airbnb.
Consider OTA giant Expedia (parent to VRBO). Lodging revenue in Q1 was comparable to Airbnb’s at $2.3 billion. But Expedia made another $0.7 billion via other segments, like advertising, flights, and car rentals.
Airbnb has long left money on the table, prioritizing focus on its core mission. So, the Summer 2025 release makes a lot of sense.
Here’s what’s inside:
A curated marketplace of in-home professionals you can book even when you’re not traveling.
Book a private chef for a dinner party.
Personal trainers, makeup artists, photographers, and more.
Massage therapists and spa services delivered to your doorstep.
Many services start under $50, with Airbnb taking a ~15% commission.
Unlike home rentals, Services are manually vetted, with providers averaging 10+ years of experience. Airbnb wants to guarantee quality, not just quantity.
Chesky explained:
“We don’t accept things that we don’t think will sell. […] We’ll probably manually vet them forever.”
It’s the kind of high-touch approach you’d expect from a hotel, now available from home, whether you are traveling or not. The goal is to seamlessly integrate these services within your trip and replicate the hotel experience. Though scaling could be more of a challenge when vetting manually (more on this in a minute).
Not entirely new, but completely revamped. Experiences are now smaller in number but bigger in ambition.
Try lucha libre wrestling in Mexico City.
Learn to make ramen in Tokyo from an award-winning chef.
A restoration architect guides you through Notre-Dame in Paris.
Or join an Airbnb Original: like playing football with Patrick Mahomes.
There are nearly 20,000 hand-picked listings across 650 cities, each curated for uniqueness and quality. The average price? About $66.
Airbnb is steering away from tourist traps—and toward authenticity at scale. The goal? Replicating the success of its homes segment by focusing on uniqueness. If the platform can aggregate one-of-a-kind experiences, the inventory will become more valuable and harder to replicate elsewhere.
Critically, Airbnb is building a social element with guest profiles within the new app. You’ll be able to see who else is attending, message other guests, share photos, and keep in touch.
With Services and Experiences, Airbnb is betting on a future where people plan their activities through the app. And that future is starting to look a lot more like a lifestyle brand than a travel utility.
Airbnb is a typical two-sided marketplace, connecting guests and hosts.
The company now counts:
5 million+ hosts.
2 billion+ guest arrivals.
8 million+ active listings worldwide.
220+ counties with listings available.
At IPO, 90% of hosts were individuals, and most had just one listing. That fragmentation is still a feature, not a bug: it creates unique, local inventory that platforms like Expedia or Booking can’t easily replicate. And it may be Airbnb’s secret weapon as it expands into services and experiences.
Hosting is the foundation of the Airbnb experience. The company's long-term success depends on its capacity to acquire and retain hosts on its platform, fueling network effects for its marketplace.
The dollar value guests spend is called Gross Booking Value (GBV), growing 12% Y/Y to $82 billion in FY24. It includes host earnings, service fees, and taxes. Airbnb keeps roughly ~13% of GBV via fees (or 15% excluding taxes).
Airbnb’s revenue has two main components:
🛖 A host fee, in % of the price set by the host (3% for homes).
👨👩👧👧 A guest fee, in % of the price set by the host (12%).
Nights and experiences booked: up +8% Y/Y to 143 million.
Gross Booking Value: up +7% Y/Y to $24.5 billion.
Revenue: up 6% Y/Y (or 8% fx neutral) to $2.3 billion ($10 million beat).
Now let’s visualize why Airbnb looks nothing like Expedia or Booking when it comes to where the money goes.
2025-05-24 22:01:08
Welcome to the Saturday PRO edition of How They Make Money.
Over 200,000 subscribers turn to us for business and investment insights.
In case you missed it:
📊 Monthly reports: 200+ companies visualized.
📩 Tuesday articles: Exclusive deep dives and insights.
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Today at a glance:
✅ Intuit: Raising the Bar
🔒 Palo Alto: NGS Keeps Going
⚙️ Analog Devices: Tariffs Pull Forward
👔 Workday: Same Outlook Despite AI
🏗️ Autodesk: Guidance Boost
❄️ Snowflake: AI Momentum Grows
🎯 Target: Consumer Weakness Lingers
🖥️ Zoom: AI Features Shine
⛷️ Amer Sports: Asia-Based Growth
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Intuit’s Q3 revenue (April quarter) grew 15% to $7.75 billion ($190 million beat), with EPS of $11.65 ($0.74 beat). The strong performance was fueled by a standout tax season, 19% growth in Global Business Solutions, and a 31% jump in Credit Karma. QuickBooks Online rose 21%, while TurboTax Live saw accelerating adoption, supported by AI Assistants and human experts.
Management raised full-year guidance across the board: revenue is now expected to grow 15% Y/Y to $18.7 billion ($0.5 million raise). Q4 guidance also came in ahead of consensus, indicating extension season tailwinds. Despite a shrinking base of free filers, Intuit is monetizing more deeply through higher-value services, positioning itself as the AI-powered operating system for consumers and small businesses alike.
INTU was a recurring name on our list of Wall Street’s top stocks in Q1.
Palo Alto’s Q3 revenue rose 15% Y/Y to $2.3 billion ($10 million beat), driven by 16% growth in subscription and support revenue. Next-Generation Security ARR hit $5.1 billion, up 34% Y/Y, reflecting strong customer adoption of its expanding cybersecurity platform. Remaining performance obligations rose 19% Y/Y to $13.5 billion, offering continued long-term visibility.
EPS of $0.80 beat by $0.03, though gross margin slipped to 73%, below expectations. Despite higher costs, management raised FY25 EPS guidance to ~$3.27 ($0.06 raise), and reaffirmed revenue at $9.2 billion (+14% Y/Y). With ARR and RPO still compounding and a strong Q4 outlook, Palo Alto is maintaining momentum as a consolidator in AI-driven cybersecurity.
2025-05-23 20:01:14
Welcome to the Free edition of How They Make Money.
Over 200,000 subscribers turn to us for business and investment insights.
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👓 Meta’s Ray-Bans have sold 2 million pairs since their October 2023 launch, and Zuck aims to produce 10 million per year by the end of 2026.
Competitors are taking notes — and this week, Google joined the race in earnest, unveiling a wave of AI-powered glasses and XR initiatives at its I/O developer conference.
And more AI-infused wearables are on the way:
OpenAI just spent $6.5 billion to acquire io, the secretive device startup co-founded by Jony Ive — the legendary designer behind the iPhone. Their mission? Build a new class of AI-native hardware that reduces friction and reimagines how we interact with technology. What are they cooking? We don’t know, but they aren’t thinking small.
The AI device race is heating up — and it’s no longer just about headsets.
Are glasses the new consumer tech war for multimodal AI? Let’s review.
Today at a glance:
Google I/O: The 1-minute version
Are glasses the new phones?
Meta’s Reality Labs roadmap
Apple’s next move in wearables
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CEO Sundar Pichai explained:
“This feels very far from a zero-sum moment.”
At I/O 2025, we saw that Gemini is powering everything from search and email to smart glasses and filmmaking tools. The message: AI is the new interface. It’s less about replacing search and more about expanding what people expect search to do.
🔎 Search with Gemini 2.5: Google’s most advanced AI model powers the new AI Mode in Search — now available to all US users. It replaces standard links with contextual, conversational answers, using a “Deep Think” mode for complex queries. We broke down Gemini’s search impact in our Alphabet earnings review.
🛍️ Smarter Shopping: AI Mode enables virtual try-ons, agentic checkout, and context-rich recommendations — all within search results.
🎥 Generative Creation Tools: Google introduced Veo 3 for video generation and Imagen 4 for high-quality images. A new tool called Flow lets creators storyboard and edit videos using natural language.
📞 Google Beam: The rebranded Project Starline now enables 3D video calls without a headset, designed to make virtual meetings feel lifelike.
💼 AI in Workspace: Gmail and Meet are getting smarter with AI replies and real-time translation. Google also launched new tiers: AI Pro at $20/month and AI Ultra at $250/month, offering early access to experimental tools like Project Mariner (an AI-powered browser assistant) and Deep Think.
The show closed with a preview of a new hardware line-up focused on glasses.
Wearables got a lot of love with smart glasses powered by Gemini AI and built on Android XR. It’s taking a page from Meta’s playbook with many form factors to cater to different use cases.
Everyday eyewear with a smart twist.
These are stylish, lightweight glasses that look and feel like what you already wear, but with voice, photo, and AI capabilities baked in.
Capture a photo or video.
Voice prompts via Gemini.
Real-time translations via audio.
This is a direct answer to Meta’s Ray-Ban Smart Glasses — the ones already in the hands of millions, via EssilorLuxottica.
To make it happen, Google is teaming up with Gentle Monster and Warby Parker, the DTC eyewear brand that disrupted the optometry industry a decade ago.
Alphabet is investing up to $150 million in Warby Parker — half already committed to product development, and the rest pending key milestones. In return, Warby will help design a line of connected glasses expected to launch after 2025, blending their signature style with technology.
It’s a big deal. For perspective, Warby Parker made $224 million in revenue in Q1, and the business just turned profitable. The stock surged 16% on the news.
With the partnership, the Mountain View giant gets design credibility and retail distribution. Warby Parker gets a stake in the next computing platform. Meta might have Ray-Ban, but Alphabet’s betting it can make AI glasses look just as good.
Immersive tech for a heads-up future.
Separate from the Warby Parker collaboration is Project Aura, Alphabet’s most advanced AR glasses effort yet, built in partnership with Xreal and powered by a Qualcomm Snapdragon XR chipset.
These aren’t just smart, they’re immersive:
AI-powered memory and object recognition.
Visual overlays for navigation and contextual information.
Real-time translations displayed in the user's field of vision.
This is the answer to Meta’s Project Orion, the in-development AR glasses Meta hopes to launch around 2027 under the consumer name Artemis. Think of it as the next step beyond smartphones, and a serious bet that glasses could be the future of computing. Project Aura may hit the market first, offering an open, Android-based alternative at a lower price point.
Alphabet is also collaborating with Samsung on a separate mixed reality headset initiative (more similar to Apple Vision Pro), known as Project Moohan, adding another front in its XR platform strategy.
Whether it’s stylish everyday glasses or immersive AR hardware, Big Tech wants to own the interface between your eyes and the digital world. And if it works? The next big thing in AI might not live in your pocket, but right on your face.
Still burning billions — and still playing the long game.
Reality Labs has become a permanent fixture in Meta’s earnings reports because it reliably loses roughly $4 billion per quarter. Since 2020, Meta has poured $50+ billion into building the hardware and software that could power the next wave of computing.
📉 The financial reality: As shown below, the division has operated at a steep loss every quarter, while the company’s core Family of Apps keeps footing the bill. Even after a year focused on efficiency, Reality Labs closed Q1 2025 with a $4.2 billion operating loss.
🧪 What’s being built: Meta is building the OS, chips, and AI models for an entirely new category of devices. The goal? Avoid another era of control by Apple and iOS. From wrist-based neural input (via the CTRL-Labs acquisition) to onboard multimodal assistants, Zuck wants to rethink human-computer interaction from the ground up.
🛠️ What’s next: Behind closed doors, Meta continues to work on Project Orion, but it may not be the first to market after all. It will take several iterations, but Zuck believes Orion could eventually become the primary way we interact with technology.
Meta isn’t waiting for a perfect product to start scaling. It's betting that AI-enhanced glasses, even in simpler forms, will prime users for what comes next — and ensure Meta controls both the hardware and the assistant. The real battle is to gain control of the interface that powers your prompts, requests, and payments.
While Reality Labs is still deep in the red, Meta’s core apps business continues to generate massive profits, giving the company room to play the long game.
Worst-case scenario: Meta’s hardware strategy comes short. But you can afford to swing for the fences when your core business generates nearly $100 billion in operating profit annually.
AI, Antitrust, and the race for the next interface
Apple's financial engine runs on the iPhone, with high-margin Services like the App Store and Google Search deals boosting its bottom line. But the rise of AI assistants and smart glasses presents both risk and opportunity.
⚖️ The Antitrust Angle: Alphabet's annual TAC payments to Apple, estimated at over $20 billion, are under scrutiny in ongoing antitrust investigations. A ruling against this arrangement could significantly impact Apple's Services revenue, which has become increasingly vital to its bottom line. While Services were only 26% of the company’s revenue in FY24, they made up 42% of gross profit.
🕶️ The Smart Glasses Frontier: While competitors like Meta and Alphabet have made significant strides in smart glasses, Apple's approach has been more cautious. Recent reports from Bloomberg indicate that Apple is developing specialized chips for smart glasses, with potential releases as early as 2027. These glasses may initially focus on features like photography, audio, and voice interaction, rather than full-fledged AR capabilities.
However, Apple has faced setbacks. The company reportedly canceled its N107 AR glasses project due to technical challenges and cost concerns. Despite these hurdles, Apple continues to explore the smart glasses space, conducting internal studies to assess market potential. Vision Pro sales have underwhelmed, and reports suggest the company is considering a lighter, cheaper version of the XR headset.
🧠 The AI Imperative: As AI becomes the new interface, Apple's Siri faces stiff competition from more advanced assistants like Gemini and Meta AI. Apple's integration of AI into its ecosystem, including the development of AI servers and on-device intelligence, will be crucial in maintaining its competitive edge. For now, the company has yet to deliver several Apple Intelligence features teased a year ago.
With WWDC on June 9, Apple’s next big move may finally come into focus. But the pressure is mounting. The OpenAI–Ive partnership is a symbolic challenge to Apple’s dominance, led by the man who once designed its crown jewels.
Sam Altman and Jony Ive aim to build AI-native hardware that reduces friction between people and technology — echoing Steve Jobs’s obsession with simplicity, but with AI at the center instead of apps.
If Apple keeps dragging its feet, others won’t hesitate to fill the void.
That’s it for today.
Stay healthy and invest on!
Disclosure: I own AAPL, GOOG, and META in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2025-05-20 20:02:39
Welcome to the Premium edition of How They Make Money.
Over 200,000 subscribers turn to us for business and investment insights.
In case you missed it:
A mobile bank for the masses, finally stepping into the spotlight.
Chime has officially filed for its long-awaited IPO, aiming to make a splash in the fintech world. The neobank reportedly plans to raise over $1 billion at a valuation of around $11 billion, significantly lower than its $25 billion Series G round during the 2021 tech bubble.
The company grew revenue 30% in 2024 and turned a profit for the first time in Q1 2025. But with growing competition, regulatory scrutiny, and its heavy reliance on interchange-based fees, can Chime become a long-term winner in consumer banking?
I read Chime’s 300+ page S-1 filing so you don’t have to.
Let’s visualize how they make money and the key insights that matter.
Today at a glance:
Overview
Business Model
Financial highlights
Risks & Challenges
Management
Use of Proceeds
Future Outlook
Personal Take
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Chime was founded in 2012 with a mission to reimagine banking for the everyday American. Rather than operating as a bank itself, Chime partners with regulated institutions like The Bancorp Bank and Stride Bank to offer checking and savings accounts, earning money primarily through interchange fees on debit and credit card transactions.
The company gained widespread adoption during the pandemic by enabling early access to stimulus checks when many consumers needed it most.
From day one, Chime positioned itself as the antithesis of traditional banks: no overdraft fees, no minimum balances, no physical branches. Its mobile-first experience and user-friendly tools helped make it one of the most downloaded finance apps in the US.
Headquarters: San Francisco, California.
Mission: Help members achieve financial progress by eliminating fees and making banking more accessible.
2012: Founded to reduce reliance on overdraft and maintenance fees.
2014: Public launch of Chime’s first bank account and debit card.
2020: Surged in popularity amid stimulus-driven demand.
2021: Raised $750 million at a ~$25 billion valuation.
2024: Revenue surpassed $1.6 billion; losses narrowed significantly.
2025: Filed to go public on Nasdaq under the ticker CHYM.
As of March 2025, Chime reported 8.6 million active users (+23% Y/Y), with 67% using it as their primary financial account—a key internal benchmark for user engagement. On average, active members made 54 transactions per month in Q1 2025—highlighting how deeply integrated Chime is in users’ daily financial lives.
What makes Chime sticky isn’t just zero fees—it’s the product suite that builds long-term loyalty:
SpotMe: Fee-free overdrafts up to $200.
MyPay: Early access to earned wages.
Credit Builder: Secured card to build credit score.
Auto-Save: Round-up and save features.
These tools increase engagement and retention, especially for financially vulnerable users.
Rather than chase a “super app” strategy, Chime sticks to a focused mission: delivering simple, trusted, mobile-first banking for the mass market.
In the 12 months ending March 2025, the company processed $121 billion in payment volume.
Chime positions itself as a mobile-first financial platform for Americans underserved by traditional banks. Rather than charging fees, it makes money primarily through interchange fees—a small slice of the total amount merchants pay when users swipe their Chime-issued Visa card.
Bank partners The Bancorp and Stride hold customer deposits and issue accounts. Chime wraps these services in a seamless mobile app with consumer-friendly features designed to build financial health.
Underpinning these features is ChimeCore, the company’s proprietary transaction engine launched in 2024. By owning its backend ledger and payments infrastructure, Chime reduces third-party dependencies and keeps its operating costs lean—a key reason it can offer fee-free banking while maintaining high gross margins.
Here’s how the model works:
A customer makes a debit card purchase.
The merchant pays an interchange fee to Visa.
Chime earns a portion of that fee.
Chime keeps users engaged with various tools and features, encouraging recurring usage and account primacy.
For now, over 72% of Chime’s revenue comes from interchange-based fees.
Chime’s model scales with card usage, not deposits or lending.
The more users treat Chime as their primary financial account, the more revenue the platform generates, without charging users directly.
Chime tracks its operating efficiency using a non-GAAP metric called Transaction Profit, which is defined as revenue minus direct costs like payment processing, partner bank fees, fraud losses, and credit-related costs tied to its secured credit card product.
In Q1 2025, Chime generated $349 million in transaction profit on $519 million in revenue—a 67% transaction margin.
That’s up from $236 million in Q1 2024, though transaction margin declined from 79% as the company scaled newer features like Credit Builder and MyPay.
This measure reflects the core unit economics of Chime’s business, before factoring in fixed costs like R&D, customer support, and compliance. Management uses it to highlight the sustainability of the business even without monetizing through fees or interest spreads.
Unlike peers like SoFi, Chime doesn’t currently make money from loans or net interest income. However, the S-1 suggests the company may explore credit offerings in the future.
For now, Chime’s strategy is simple: offer banking that feels free, friendly, and fast, and earn when people swipe.
Now, let’s dive into the numbers.
Let’s break down the KPIs that tell the real story.