The Market Wants Apple to Unveil a Time Machine
blogs.hbr.org
blogs.hbr.org
> But a public company exists only to boost its share price, and its share price is determined, incredibly enough, by 'analysts' - spotty-faced youths who live on another planet where growth-at-any-price is the only deity one is encouraged to worship. Medium- or long-term strategies were for wimps and amateurs, in their estimation, This quarter's results, this quarter's growth, were the only things that mattered to them. It almost seemed, at times, as if profit was a dirty word. If we were making 'profits', asked the 'analysts', weren't we in danger of 'wasting' money that could have been invested to produce more 'growth'?
I thought it ridiculous when AAPL rose above $500, presumably because a mobile phone company is now the most important thing on earth; I find it equally ridiculous it's back under it now, for unknown and unknowable and probably nonsensical reasons. The madness of crowds...
And then there's something in between ;)
These put together should make AAPL far more valuable than it is even considering it's the most valued company in the world by market cap.
By the numbers almost any way you slice it, AAPL is undervalued. Forward P/E of 8.86 is insanely low considering how diversified the company is in comparison to say, MSFT or GOOG.
http://blogs.technet.com/cfs-filesystemfile.ashx/__key/commu...
I suspect if you look at the correlation between people who buy / use Office and people who buy / use Windows you'd find something very similar - they're closer to one product than they are to two.
In reality neither company are particularly diversified (ditto Google who are basically still a search company if you look at where the money is made).
I stopped reading at this point. Does the author even realize how immature that sounds?
> The critics that are screaming right now are intellectually lazy. They're throwing temper tantrums instead of looking at the big picture. Like two-year-olds, they don't really know what they want. And they're not happy when they get it, anyway.
I'm sorry, but that is an absurd sentence. And that's where I stopped reading.
That said: Apple is perfectly positioned for a Google Glass product. I believe this is the next form-factor for computers after phones (because you can't make phones much smaller, and still read the screen, get your fingers on it). It also needs eyetracking for input. But Google Glass looks terrible - an Apple version would indeed look like a fashion accessory (e.g. Ray-Bans). Plus, Apple has manufacturing/technology/design experience in smaller form-factors (e.g. shuffle/nano).
tl;dr If Apple can make smartphones fashionable, sunglasses should be easy.
Macbook Pro Retina is beautiful, no other computer company can touch it. Still seems to be a big land-grab in the PC world, and halo effect could ripple on. Windows 8 sucks and my iPad collects dust when it comes to professional uses.
They do have an adjustment period to go through after showing a few missteps last year. Maybe they'll around $400-500 for the year until something shiny comes out like TV or iWallet.
Nobody said the market was rational. If you want to have fun, trade weekly options.
- The trailing P/E was 11. 11! For a disruptive technology company! And that is well trailing since they are just about to announce new earnings.
- Apple has tremendous cash reserves.
- The stock pays a dividend.
To me the only explanation for the stock drop that makes sense is technical--i.e. it is driven by an alignment in high-volume market-timing maneuvers rather than business fundamentals.
Uhh... I wonder if that had anything to do with the financial crisis....
I think his point was that they are all horrible points. He's using the ones for Jobs as a proof by absurdity that the ones for Cook should be ignored.
I think they'll do well for the next few years because they are directing effort towards making computers and devices for people that don't know how to use computers. Apple's devices are attractive and are more intuitive/simple to use for many people (for example, most of my family prefers OS X to Windows). Unfortunately I believe their implementation comes at the expense of user experience for power users.
It seems wise to go long on AAPL for now, but I shan't be purchasing more of their devices personally.
Now, this is only an opinion, but I strongly feel that the core behind the disruptions were the technologies (or combination thereof) we know as capacitative touch-screen, multi-touch, accelerometer, and gyroscope (i'm sure i missed something). In fact, I should further point out that it is not merely the use of such technologies but rather the perfection of these technologies that allowed Apple to use them and create a user experience that would amaze the world, followed by developers using the perfected technologies to create even more delightful experiences.
Now, going back to the Title of the article that caught my eye in the fist place, while it is realistic for people to expect enhancements of hardware, new design, new software, etc. from Apple, it is unrealistic to expect Apple to release revolutionary products every year, simply because the core technologies don't follow a 1-year introduction cycle. This is something the market just doesn't understand.
I do believe that there are new core technologies in Apple's pipeline which are waiting to mature into perfection, but for now, we have to be content with Apple maximizing user experience with what they have.
So "experts" are simply embracing the whole "Apple is doing bad" meme out of contrarianism, just to have something to say.
I wish he stubbornly sticks to his course - whatever that maybe - and get all of his sub-ordinates to stubbornly stick to their courses and despite all the noise external parties are making about whether they are doing well or not, come out with another kick-ass products.
It's always satisfying to silence your critics by being stubborn and and then proven right.
AAPL will close up at least 20% higher on March 15 than last night's close.
There's a growth plateau for every company and I believe the market believes by now that Apple is approaching it.
EDIT: There's of course the iPad but I would prefer a few more years to see how things develop for Apple in this front.
I expect Tim Cook to do well. He may do better than Jobs. He may also get hit by a bus tomorrow. He may do a competent job but ultimately be judged not the visionary jobs is as most expect. And he may be just plain bad. In that last case the naysayers will say they told us so.
So I'm making my way through his article wondering what the point is... is it "Tim Cook is teh REAL DEALZ" or "give Tim Cook more time" or, wait here it is: "stop tanking my portfolio fuckers"
As one of the most held equities, AAPL isn't an easy asset to game.
Apple has enormous, historic profit levels, and are sitting at an incredible altitude. If you really can't see the risk factors there -- why people might be skeptical -- especially given some broad shifts in the market (where competitors have largely kept up and are forcing Apple to iterate much more quickly, and to start to introduce products that compete against themselves, both of which threaten Apple's unprecedented profit margins), you aren't looking at the market rationally. Assuming that anything is a sure thing is just ridiculous.
Yes, which is why it's hovering around $500 instead of $0.
But the real question is why competing companies have P/E ratios despite demonstrably worse prospects--Microsoft, for example, has a P/E of almost 15 despite far worse prospects in mobile, lower profits, and a smaller cash reserve. Explain that.
Even a back-of-the-envelope look at AAPL's business shows there is something weird going on with the stock.
Apple and Microsoft's P/E ratio aren't that far off each other. The latter, however, pays a dividend (the two ways to make money off an equity are appreciation and dividends). Further, and saying this with the understanding the P/E is more general guidance than science, Microsoft's products are structural, and despite an endless stream of disasters Microsoft can still pull in the relatively mammoth profits. Apple, on the other hand, exists almost entirely on the backs of the iPhone and the iPad, neither of which have much structural fixedness at all. If the iPhone 6 is a dud for any reason, or the supply lines of either of those face any issues...boom, Apple's profits evaporate. There is dramatically more risk factored into Apple's profits.
Further more, Apple's P/E of 11.4 vs microsoft's near-15 is a pretty big difference. Not Amazon big, at 3872x! But among the tech sector, it barely covers Apple's incoming 5 year cash flow in a zero-growth scenario.
Supply lines for Apple are the same supply lines for other manufacturers, so that's not it. As for "the next phone being a flop and boom, dead", that concept seems rather far fetched, no? A slow meltdown in favour of Android or others is much more likely than any one model somehow being magically disastrous. How often has this ever happened in consumer electronics?
Whoa, totally didn't see the news that they had caved to pressure and gone the dividend route. It isn't actually 10x, however, as AAPL has approximately 1/10th the shares issues. Their dividends are very similar.
Regarding the P/E ratio, it isn't so big. Just a few months ago AAPL had a similar 15x P/E ratio.
that concept seems rather far fetched, no
Ask RIM. They owned the market, and one year everyone was talking about how much cash they had in reserves, and the next they were on life support. Apple has even less of a lock-in than RIM (enterprise blackberry messenger being how RIM hung in for a little while), though they've been trying to make their own platforms (Me, Facetime, Airplay, etc).
If the next version simply isn't a compelling enough upgrade for existing users, Apple will see very rapidly declining fortunes.
So for Apple, the two areas to watch out for will be: market and profit share losses (so far Android has not been growing at Apple's expense- that may change), and whether they fail with a major "me too" feature that another carrier brings to market and has big success with. The latter I havent seen any real sign of. The former, there's a question mark if Android can successfully kill margins in the mobile phone space through their market share to a point that hurts everyone (Samsung, Apple, etc) but mostly Apple. On the other hand, Android is buying its market share from being a fully Google-subsidized set of software with no licensing fees. Is that sustainable?
As for lock-in, surely the success of iTunes and the integration of AirPlay across all devices has caused significant lock in? I mean, media options in the Android world pale in comparison, only Microsoft Xbox Live really has a comparable selection of movies and tv shows. Similarly, the App Store selection have been a huge advantage to Apple with strong equivalents being slow to appear on Play.
So of course, to your last point, if Apple doesn't keep making compelling upgrades, their fortunes will decline. but that goes for EVERY manufacturer that wishes to make a profit. if the Samsung Galaxy S4 isn't compelling, wouldn't that benefit Nokia and HTC and Apple? Samsung's profit growth too is almost exclusively driven from Smartphones - their other product lines aren't as profitable.
Ultimately I think Apple has many risks ahead but I don't think they're as fragile as you seem to believe.
Exactly, and what has substantially changed in their business since then? Nothing, which is why the depression in the share price is weird/suspicious.
With all due respect, it seems like you have a mental narrative about Apple and you're just going to stick to it without regard to the details of this specific situation. You didn't even know the stock pays a dividend.
We'll just have to wait and see what the earnings report looks like. If it is satisfactory or good, as I expect, then I think it's likely the stock will be back over $600 within a couple months, and likely even higher by the summer.
You say that people aren't looking at the market rationally, but look at the volatility in AAPL just this week. It's decidedly not normal for a stock with a price that high to see 4% fluctuations day-to-day unless there's real news. Everything out there has been asinine rumors.
As for having their lunch eaten by those looking for value... I bought call options yesterday on the wacky price dip; they were up over 200% today. Granted I only bought one option on the bet that a lot of this activity has been based on attempts to drive down the stock price on rumor alone so it's not like I made a whole lot (about $180 in profit), but people with much more money to throw around than myself taking a similar bet made stupid amounts of money in the last 36 hours or so.
I'll also point out here is that Apple has all of the profits in the industry, even if it doesn't have the marketshare. It's been true of the Mac for years, and is increasingly true of the cell phone market as Samsung eats into marketshare. Guess what? I care about profit, not marketshare, which is why I'm long AAPL.
That is no longer true. Samsung had a great 2012 and seems poised to have an even better with the S4 and the Note 2. Apple is still making a shitload of money but none of the market trends are in their favor right now.
What's more, the rise of the "phablet" and the explosion of mobile form factors means iOS development is about to get a lot harder. Developers used to pixel-perfect layouts are going to have to shift to a completely different mindset and the tools Apple provides for handling dynamic layouts are far more difficult to use than those of the competition.
> That is no longer true.
> What's more, the rise of the "phablet" and the explosion of mobile
> form factors means iOS development is about to get a lot harder.
Apple can't keep playing this doubling/halving game forever. They already strained things with the iPhone 5 form factor enough that I'm still seeing tons of apps that haven't been updated and if they want to compete with things like the Note 2 then they're really going to have to break the mold. All those beautiful IB designs are going to go out the window.
And no, I didn't miss AutoLayout but it's got to be one of the worst Apple APIs in a long time. The textual shorthand is cryptic enough to impress a Perl programmer.
Thus I don't think Apple is going to be shifting form factors for phablets, the iPad Mini is basically their concession to a middle road form factor (and by most accounts is selling very well).
The WSJ's story claiming Apple cut iPhone 5 component orders in half is definitely real news if it turns out to reflect a real drop in demand.
Also the initial report suggested the cut was from 65 million units, which means even at half of that it would have been a record non-holiday quarter, but that number was soon removed from the WSJ report because it may not have supported their fear-mongering.
Something is fishy here.
The market is adversarial, which is why it is seeing the fluctuations that it does (doubly so because it is an equity that most have been incredibly bullish about until quite recently, so it's at a potential transition point). The market is entirely rational, though the positions and perspectives that define each persons idea of rational vary.
I'll also point out here is that Apple has all of the profits in the industry, even if it doesn't have the marketshare.
This is an odd note to add on the end. Aside from Samsung making egregious profits as well (on a "commodity, race-to-the-bottom" platform), the fact that Apple makes so much profit in the consumer electronics market -- a market where profit margins average low single digits -- is exactly what makes so many nervous about Apple's long term outlook. The iPad Mini, for instance, is all about trying to save an iPad sale that they might have lost, at the cost of significant profit. For the first time ever I am seeing sales on Apple devices, including the latest and greatest. All is not at all what it was a year ago.
But what do I know? I only have a few thousand dollars in mutual funds through an RRSP and don't do financial software development.
The WSJ has never had credibility in this regard.