|Shares Out. (in M):||925||P/E||23.0x||13.0x|
|Market Cap (in $M):||324,000||P/FCF||17.3x||10.0x|
|Net Debt (in $M):||-66,000||EBIT||18,385||32,000|
Apple gets well over half (~60% in the most recent quarter) of its revenue - and purportedly a higher percentage of its earnings - from iPhone and iPad sales, and both of these products compete in large, rapidly growing markets.
The smartphone market is clearly on a tear. It is estimated to have grown by 70% in 2010 alone, and market research firm IDC expects Smartphone shipments to increase another 43.7% in 2011. Another analyst expects the market to grow at a 20% CAGR through 2016. (Note: the worldwide mobile phone market grew by almost 20% in 2010, so these smartphone projections don't sound all that unbelievable.) Furthermore, Apple's "effective" market size will increase at an even greater rate as it offers the iPhone to more countries and carriers. Indeed, even the sillier forecasts that predict Windows to be the #2 mobile platform in 2015 expect Apple to have nearly quadrupled iPhone sales by then.
Compared to the smartphone market, the tablet market is much newer and growing even faster. This market didn't really exist a year ago, and in a year's time Apple has sold 20M iPads, adding an incremental $10B+ to its annual revenues, and demand for iPad 2 has been stunning - leading to what Tim Cook calls "the mother of all backlogs." Interestingly enough, the iPad is gaining significant adoption even beyond Apple's typical consumer market. Hospitals, Law Firms, and Fortune 100 companies have all been snatching them up because they are seeing gains in productivity. (Note: I think this looks similar to early adoption of Blackberries in the enterprise.) Benefits in education are also apparent as some school districts have already made bulk orders and several universities are requiring students to use them for certain courses. Market forecasters have caught onto this and expect the tablet computer market to grow five-fold (to roughly $50B) by 2015. However, this could prove conservative given the incredible demand currently seen for the iPad 2. (In my estimation, the iPad alone should see over $20B in sales in 2011.) Gartner expects Apple to remain in the lead with nearly 50% market share of a 300M unit market by 2015 - this implies total market unit growth of ~1500% over 2011. Of course, market forecasts should generally be viewed with healthy skepticism. However, in this case, I agree because the underlying causal drivers are the benefits people derive from a very portable, extremely versatile computer with a large intuitive interface. Apple COO Tim Cook expects tablets to one day outnumber PCs, and I have a hard time disagreeing with him. Anecdotally, everyone I know who has one thinks the iPad is great, and given that these devices will only get better and cheaper with more content over time, the modern tablet computer would seem here to stay.
Apple's Scale Advantage
Apple is already the largest mobile device maker in the world by revenue, but more importantly, Apple is a really strange company! It brings in annual revenues well over $60B (and rising) by selling just a handful of product lines. In fact, looking under the hood, Apple sells yet a smaller number of configurations. For example, the iPhone, iPod Touch, iPad and Apple TV have a tremendous amount of commonality in both software and hardware.
Apple's sheer size and extreme product commonality have two major competitive implications. First, when Apple goes shopping for components, it distorts the global supply base in its favor, and second, Apple can devote more resources toward each product and still achieve lower fixed costs per product. Together, these mean that Apple can bring the benefits of vertically integrated products to market at prices non-vertical competitors can't match.
Everyone's Best Customer
Whether by luck or by design, Apple's voracious component appetite allows it an unfair advantage in the component marketplace. As an example, consider how Apple achieved its 70% market share of portable music players:
When rival music and media players got too close, matching the iPod in both features and price, Apple prepaid $1.25 billion to Hynix, Intel, Micron, Samsung Electronics, and Toshiba, thereby securing long-term NAND flash memory supply. Rivals were unable to match Apple's orders and therefore remained prone to shortages and price shocks due to seasonal trends and artificial shortages created by the Apple deal.
Apple has continued this strategy of securing long-term component supply at attractive prices. The following lists some of Apple's recent supply deals:
Further recent anecdotal evidence reinforces this point. One sell-side analyst estimates that Apple has already booked over 60% of available touch panel capacity. Another analyst says Apple has been "aggressively attacking" the component situation in Japan by offering upfront cash payments, in a move that could block competitors from access to critical components.
No other OEM has the scale to match Apple in securing component supply, and it is hard to challenge Apple's offerings when you can't get yours to market... or in sufficient quantity... or at comparable prices which offer an acceptable return, and of course, without a reasonable installed base, few developers have any incentive to develop for your platform. Suffice it to say, I think this is a huge advantage for Apple, and should Apple continue its growth, this advantage will continue to increase.
Economies of Scale
Clearly vendor contracts are one benefit of Apple's scale, but so too are the economies of scale in design, development, marketing, etc. This is apparent in hardware and software development, and it is further amplified collaboration present in the company. For instance, its flagship PC operating system, Mac OS X, formed the basis for iOS, which is now shared among the iPod Touch, iPhone, and iPad. In addition, new breakthroughs from iOS development are making their way back into OS X with the next version to be released this year. On the hardware side, as mentioned above, the iPod Touch, iPhone, iPad, and even the Apple TV share remarkably similar internals, and hardware work on the iPad has begun to influence the Mac line, which can be seen in the most recent MacBook Air. Therefore, should equality ever reappear in component prices, Apple's competitors would still face an uphill battle in fixed costs per unit because rival OEMs sell several models with added complexity, while Apple leverages focused investments into industry leading revenues. Perhaps this helps explain why, in December, the iPhone enjoyed a 22% share of the mobile industry's revenues and accounted for more than half its profits (or 51%).
Unfortunately for Apple's competitors, Apple's scale advantage is even beginning to be seen in Apple's relatively low volume PC market. Consider the anecdotal evidence of the recently released Samsung Series 9 notebook. This is Samsung's MacBook Air competitor. To be fair, it does out-spec the current MacBook Air in some areas, but its base model is also $350 more expensive than the entry level 13-inch Air. The "Apple Tax" may have dwindled all the way to a negative figure by now...
Apple has over 200M customer accounts tied to credit cards. In its most recent quarter, Apple recorded over $1B in revenues from iTunes, the App Store, and iBooks. This is significant because, for the most part, the content bought through these channels can only be used on Apple devices. Over time, this locks customers into Apple's product portfolio for new purchases, or it at least creates an impediment for users wanting to switch brands.
The Installed Base
This content ecosystem is also partly responsible for what many call the "halo" surrounding Apples products. For instance, early iPod users were more prone to switch to the Mac, iPod and Mac users were much more likely to purchase the iPhone over competitive offerings, and now the iPad is garnering more attention due to Apple's huge installed base. As this installed base grows it can be leveraged into more and more product areas. For example, if Apple were to come out with a TV, it would already have ~100M potential customers with expensive, sophisticated Apple remotes (read: iPhones or iPod touches) already in their pockets. Apple's installed base makes it significantly easier for Apple to sell new or existing products. Furthermore, Apple is "cool." In addition to customers, Apple has "Fans." While some might find this weird (if not creepy!), it means that Apple can move the first ~2M units of seemingly any product. Apple's rivals lack this momentum.
Apple's events oftentimes make the news - not just the financial news - the LOCAL news! This is an almost unfair advantage. Harvard Business School professor David Yoffie has said that the introduction of the iPhone in 2007 resulted in headlines worth $400 million in advertising. Subsequent product announcements and releases have enjoyed similar, if not larger, advantages. Further attention is drawn from the large lines queuing up for new products in busy retail centers, and in a way, each success breeds more success as Apple's huge installed base uses their distinctive products out in the wild for others to see.
Contrarian Arguments to Widely Held Assumptions
Because there is no shortage of information circulating about Apple, there is more than enough false, flawed, or misleading information circulating about Apple. The result is that Apple's situation is not well-understood and in some cases quite misunderstood.
Many people are viewing the smartphone market (and probably the tablet market, too) through the wrong lens. Most expect a repeat of the Windows vs. Mac battle of the 80's and early 90's, and using history as a guide, these folks have already declared that Android will become the dominant platform. That sounds reasonable enough, but it's actually a flawed argument. Windows overwhelmingly won out over the Mac mainly because of the Mac wasn't interoperable with the growing Windows installed base. This all occurred before the internet was very important to everyday computing and at a time when file formats were more or less exclusive to each platform. Those are the two conditions led to the emergence of a dominant platform in the PC industry. Those two conditions no longer hold. As evidence, the Mac has grown its share of the PC market significantly over the past five years. How was this possible? Because Mac users access the same internet as Windows PCs users and Mac users can now open, edit, and share MS Word documents. iPad users can do the same today, and I have yet to learn of an all-important app, that is important to almost everyone, that only Android users can access. Thus, while certainly possible, it is in no way inevitable that the mobile computing story ends with a single, dominant platform, and therefore, I think it is hard to argue that the iOS platform will see a significant decline in the near future (see competitive advantage discussion above).
Is Android really winning?
Several recent studies have claimed that Apple's iOS is losing mobile OS share to Android. This isn't necessarily the case, and even if true, these stories are still quite misleading. First of all, other recent studies have shown the opposite and most pro-Android studies neglect the impact of iPad and iPod on mobile OS share. Furthermore, and more importantly, according to smartphone unit data, Apple is actually growing at a faster rate than the overall smartphone market (i.e., gaining market share). So, perhaps other OEMs are switching from another OS to Android, or maybe Android is taking down Blackberry numbers. This is hard to say, but as long as the iPhone outgrows the market, it's hard to say that consumers are abandoning it.
iOS remains the developer favorite
Despite all the publicity showing Android's share gains over Apple, Apple remains the top choice among developers. The reason for this is simple: there is more money in iOS apps. Apple's App Store had sales of over $1.7B in 2010, representing over 80% of all mobile app sales. Most iPhone and iPad users regularly buy apps (and many iPad apps are high in value) and can easily transfer them to future Apple devices, while most Android users don't pay for apps and fragmentation makes users less certain they will be able to keep their apps after upgrading to their next device.
Android platform has a fragmentation issue
Because Android is available to all, it forces device makers into fiercer competition. This leads OEMs to take steps to differentiate their product offerings, and this causes Android platform fragmentation. Most developers consider this a problem.
Uncertainty for developers makes it harder to plan investments. Unlike the iPhone, for which developers know that each version is the standard for a year and each version will be supported by Apple for at least two years, Android devices can be hit or miss. Also contributing to the trouble are the non-standard configurations between rival handset makers. Just knowing how much RAM devices have is a critical factor in order to ensure adequate app performance. Some Android developers have found themselves trying to forecast which Android devices will be good sellers so they can plan their development activity accordingly. Android is not Android is not Android. As some evidence, the head of Angry Birds maker (Rovio Mobile, probably the most successful mobile developer) said last year the he expects Apple to be "the number one platform for a long time from a developer perspective." Just last November he had to apologize for poor game performance for some Android users and had to promise to develop a dumbed-down solution for lower-end Android devices. At a conference last week, he said that he still sees "fragmentation of the [Android] ecosystem" as an issue, and that, with some Android devices, mobile carriers are starting to mess with the experience again, which is an unattractive environment to developers.
iPad is more insulated from Android competition than iPhone ever has been
Many industry experts expect Android's smartphone success to translate directly into tablet success. I do not share this view. Unlike the smartphone market in which Android devices were able to gain a foothold in uncontested areas, Apple will cede no such breathing room to Android devices in the tablet market (for the record, the iPhone is still on far fewer carriers than Android). This is because the WiFi version of the iPad can be readily sold to anyone without going through the slow process of individual carrier negotiations. Furthermore, this slower Android adoption by consumers would cause a significant difference in developer interest. Also, because moving Apps from older iPads to newer iPads is pretty seamless, users will feel more comfortable purchasing the much higher value apps available for iPad (already evidence of this). This means developers have a huge incentive to focus on the iPad.
Vertical Integration and the mobile computing paradigm
When computers consisted of a large plastic box or two and a monitor on a desk, consumers paid scarce attention to a product's size and weight (and obviously battery life hadn't yet entered the picture). Price and performance were seemingly all that mattered. However, as products become more mobile and are carried around in pockets, bags and briefcases, a premium is now being placed on the new dimensions of size, weight, and battery life. This new era plays into the strengths of the vertical integrator because he can tailor the designs of nonstandard components to better optimize the overall system across all dimensions.
Apple's always been an odd duck in the computer industry because of its stubborn insistence on vertical integration. In addition to developing its own proprietary OS, now Apple design its own mobile chips. Apple's latest system on a chip, the A5, is designed specifically for use with Apple's iOS software and specifically for use in Apple's mobile products. As a result, the iPad 2 is able to deliver a combination of graphics performance, size, weight, and battery life that can't presently be matched using commercially available chips. Furthermore, because Apple can spread the design and production costs over 100M or more units annually, its custom chips aren't much more expensive than generic ones. As a result, the iPad 2 is able to come to market with the best performance, at the lowest cost, and with the highest margins. The iPod Touch is in a similar situation - as is the iPhone, although the many carriers and subsidies currently cast a fog over the situation. In summary, as the only vertically integrated device maker in the "post-PC" market, Apple can make better products than its competitors, and because of its scale advantages, Apple can also do this at lower costs.
What's AAPL worth?
As of March 26, 2011, Apple had cash, cash equivalents, and marketable securities amounting to roughly $70 per share and TTM EPS of $21. Most reputable analysts expect Apple to have $87 per share in the bank and TTM EPS of $27 by the end of its fiscal year in October.
Bear Case: Given Apple's dramatic growth prospects, I think a fairly conservative bear case would have Apple seeing no growth. In such a scenario, AAPL shares might be worth 10x trailing EPS + cash and securities per share, which would correspond to share prices of $280 today or $357 in October. These prices are ~20% below current share price and roughly equal with it, respectively. In either case, even without growth, annual cash flows of ~$20B+ would continue to pile up on the balance sheet, increasing AAPL's value with time.
Neutral Case: Perhaps with low growth (i.e., that stemming from declining share of a high growth market), AAPL shares might be worth 15x trailing EPS + cash and securities per share, which would correspond to share prices of $385 today or $492 in October. These prices are roughly 10% and 40% current share price, respectively.
Bull Case: What if I am right about both Apple's markets and competitive position? If that proves to be the case, Apple could reasonably double its revenues and earnings over the next 2-3 years. This could mean $40-$60 EPS and at least $140 per share in cash and securities in two or three year's time. Even with a 10x multiple, this would mean $540 to $740 (or more) per share. This corresponds to gains of at least 55% and potentially over 100%. Furthermore, should the market begin to better understand Apple's competitive position, Apple's multiple will likely expand. (I estimate multiple expansion to ~20x would boost AAPL to ~$600 per share yet this year.) Finally, because Apple's scale and demand advantages come from it selling more and more of its products and subsequently locking customers into its ecosystem, Apple's competitive advantages actually strengthen through each growth year, further extending its lead over competitors. Thus, this virtuous cycle actually makes Apple's business more predictable, or less risky, as it grows.
In summary, I think Apple is largely a misunderstood company, and thus, I think AAPL shares currently represent a mispriced bet.
I am sure there are many. Clearly, Steve Jobs' leadership will end someday and that could lead to a power struggle that hurts business performance. Apple could also blow its growing cash hoard on a wasteful acquisition. Alternatively, Apple's annual product refreshes could slip and allow openings for competitors, or Apple might grow so large that it becomes a target of antitrust litigation.
All this and more could happen, but even still, considering Apple's current valuation, competitive position in growing markets, etc., I continue to think the risk/reward is acceptable (if not quite attractive).
I neglected to mention a few things above because the above argument does not depend on them. However, should operations continue as they seem to at present, the following could account for significant improvements to Apple's future performance.
The Mac Business
I haven't even mentioned Apple's PC business (the Mac computer) because at ~10% of 2011 sales, it's becoming a smaller and smaller portion of Apple's overall business. However, the Mac is a product line that shares a great deal of product development synergy with Apple's iOS products, and it has been growing much faster than the overall PC market for the past five years. It also has significant headroom for continued growth because its share of the PC market is only just ~10% in the US and ~5% worldwide. The Mac continues to see more adoption amongst consumers and small businesses (every quarter Tim Cook happily reports that about 50% of Mac purchasers in Apple retail stores are new to the Mac). Furthermore, the Mac is even making inroads into the enterprise. A late 2010 survey by the (albeit slightly biased) Enterprise Desktop Alliance indicates that Mac sales into the enterprise should grow by about 23% in 2011 and "the number of organizations with a measurable proportion of Macs will grow to 70% by the end of 2011." So, should these trends continue, the Mac could continue to add to Apple's growth.
It should be mentioned that neither the iPod nor the iPhone, nor the iPad existed a decade ago, and Apple is supposedly always secretively working away on the "next big thing" and maintains a multi-year product development roadmap. Thus, it certainly would seem possible for Apple to have a fourth big hit come along over the next few years. I'm certainly not counting on this, and I think Steve Jobs' continued leadership is extremely important to the success of a completely new product; however, this unquantifiable "plus" is nice to have in an otherwise attractive stock.
Culture and Management
|Subject||RE: Jobs CEO Exit|
|Entry||08/25/2011 11:03 AM|
I missed this writeup the first time around but I would have rated it highly. I usually focus on smaller companies but when I look at the risks and opportunities out there in techland it seems impossible to not own Apple. While the writeup is compelling IMHO you did not really discuss a couple of the most compelling strategic advantages Apple has.
First is their IP. It is "patently" obivous that the biggest challengers to the iPhone and the iPad, Samsung's Galaxy line of phones and tablets, are blatant rip-offs. Apple has patented many of the unique features of its designs, and very recently has been successful blocking the sale of Galaxy phones and tablets in fairly important EU markets. They are also working on blocking the importation of HTC Android phones into the U.S. MSFT is already getting a healthy royalty on the sales of many Android phones and there is a good chance in the future Apple may be getting another substantial, virtually 100% margin stream for extracting patent royalties on Android phones and tablets. Or they may be able to block certain competing products altogether.
Second is I think people underestimate the ecosystem lock-in. Apple learned a lot of lessons from its loss to Windows. I first got a Mac laptop computer for personal use in 2006 or so because I decided I would never own another piece of shit Dell laptop and the reviews for Windows Vista were so poor. Once all my photos and music (especially purchases in iTunes) were on my Mac there was probably no going back. I looked into getting an Android phone last year and decided it would be too big of a headache to sync all the files sine my iPhone is also my primary camera and music/media player. I also bought an iMac last January (fastest I have ever spent $1300 in a retail store) for home use. Since we now live in a virtualized world here I can access my work Microsoft applications through a Citrix client on the Mac, it is effective for working from home. The more people who try the iPhone an the iPad the more people who will standardize on iTunes media and iPhoto for pictures and who will buy Macs in the future. After that it gets very hard to go to a different platform. Since phones are regularly replaced, this is something more like recurring revenue.
I personally think the biggest overhangs on the stock (other than the health of Jobs himself) are the sustainability of margins and the company's overcapitalization. I think the margins are more sustainable than people think, because you have to remember that Apple is also a software company, not just a hardware company. In effect, you should not compare Apple's margins to Dell or Samsung, you should compare them to a theoretical combination of Dell + Microsoft. Thinking about it this way makes the margins seem more sustainable. Google's willingness to give Android away for free may not be so free for phone makers who could end up owing $20 in royalties per unit to Apple and Microsoft. As for the overcapitalization, it is a frustrating symptom of the Silicon Valley mentality that growth companies don't need to pay dividends. However, given the history of the company I doubt they would do anything as crazy as AOL/Time Warner. I really think the stock will be up 20% the day they announce a 2.5% dividend, and the board may be saving this bullet for some time in the future (like when Steve Jobs finally succubs to his health problems).
While long-term investors have certainly been burned in MSFT and CSCO when both were similarly dominant, back then MSFT and CSCO had forward P/Es in the 30s and 40s, not single digits when you take out cash. And both then spent a decade putting up good financial performance but suffering from declining multiples. It is hard to imagine AAPL's multiple declining from here.
As for Jobs leaving, it is hard to say what the long term effect will be, but I don't think it will be apparent for 5 years or so given the company's product roadmap and the relative headroom in smartphones, tablets and the Mac's share of the PC market. It's hard to see how iOS gets knocked from its perch until a company comes up with a truly game-changing innovation like the Blackberry or the original iPhone. So far Google, Samsung et al. are just playing Apple's game. I hope I recognize that innovation when I see it.
BTW investors are also so numb to AAPL's amazing financial performance they yawn after earnings beats, but this calendar fourth quarter has the potential to be an absolute monster with $10.00+ in earnings.
|Entry||10/18/2011 06:27 PM|
I kind of saw it as a matter of sellside setting up high expectations and the company cannibalizing their Q4 with their Q1. Gross margins were good, which indicates that their competitive position remains as healthy as ever. Cash flow generation continues to be giant. There was nothing not to like in my mind except that the stock is down because of bad optics/aggressive sellside set up. I guess if you were going to poke a whole in anything, it would be that iPad units could have been even bigger.
Curious your thoughts post quarter.
|Subject||RE: The quarter|
|Entry||11/09/2011 01:19 AM|
sorry for the long delay! I meant to answer this, then forgot... my apologies!
I completely agree with your thoughts, though. I think the analysts may not have sufficiently accounted for the shift in iphone launch this year. Anyway, yes, the iPad numbers did concern me. Sure, they're showing explosive growth YoY, but sequentially, they were about flat. Overall, I think my original thesis is intact, but I am waiting to see what the Kindle Fire actually looks like. I suspect it will be fairly limited with its lack of multitouch and smaller screen size, but I am a bit concerned because Amazon has an entirely different business model, and could therefore be dangerous. But, we'll have to wait and see.
Other than that, I'm blown away by the iPhone 4S success so far. Anecdotally, I've noticed many non-iphone users I know go out and buy one, which I think is somewhat indicative of the success AAPL will be seeing after opening the iphone to more carriers in more markets.
|Subject||new phase in Apple's growth cycle?|
|Entry||11/21/2011 11:55 AM|
I saw an interesting quick editorial on AAPL that takes the opposite view here http://nelson.belpointe.com/files/Apple-Investors-Living-Denial.html. His thesis is that growth expectations for AAPL are slowing (w/ consensus showing aroudn 25% growth in revenues for 2012, 15% for 2013, and 8% for 2014 according to what I see in Bloomberg now), and suggests that Apple is transitioning from a hypergrowth stock to a more mature name, with a change in investor base accompanying it. I'm not suggesting that Apple is expensive (it's not exactly trading right now at a hypergrowth multiple), but what's wrong with the thesis that Apple is in transition?
|Subject||RE: new phase in Apple's growth cycle?|
|Entry||11/21/2011 07:55 PM|
Nothing is wrong with that thesis in general, and I wouldn't argue that AAPL can continue to grow near 100% indefinitely, but nonetheless, I think expectations are too low for a company that in my view is more likely to transistion from hyper-growth, to high, to med-high growth for a while before it gets down to moderate or low growth. As one data point, iphone (most profitable product) sales this quarter are poised to grow more than 50% YoY. There is also a purported revolutionary Television waiting in development to be introduced in 2012-13. Finally, I expect the iPad market to really take off over the next couple years as entry points start to come down.
Most important for me, though, is that if I'm wrong and growth slows to single digits in 2014, it's still hard to lose much when buying at 9.5x 2012 earnings, and that's not even considering AAPL's cash position.
|Subject||today's cfo conference call|
|Entry||12/08/2011 09:04 AM|
CFO peter Oppenheimer has a cc with Wedge partners at 11:30. I don't have access (unless someone here knows the dial in). I would hope that the first thing asked is why no dividend or stock buyback. One of my concerns is the Job's quotes from the biography about useing it's cash hoard to go nuclear on google. (I appreciate the fact that they haven't "wasted" the cash on personal projects, but waht multiple do you pay on cash sitting on the books if it will just accumulate at low rates of return)? I am very worried that Tim and the BOD are living in Steve's shadow, and won't do anything shareholder friendly with the cash because Steve didn't. I think this is one of the main reasons the stock remains "undervalued". Does anyone have any greater insight into when, if ever, we could see a dividend / stock buyback, or whether I am making too much of a big deal about this?
|Subject||RE: today's cfo conference call|
|Entry||12/09/2011 08:29 PM|
The main use of their cash is to invest heavily in their suppliers, which helps them get critical components in sufficient quantities and also allows them to lock up supply in long term contracts with favorable pricing. That being said, they have more than enough cash to cover the $5B or so spent on this.
Another use is CapEx of new facilities. For instance, the NC data center cost $1B. I suspect they'll continue to build out their cloud infrastructure too.
Another potential use had been somewhat alluded to over the years by Jobs saying that they needed to have a lot of dry powder in order to do "something big." Apple loves to control the entire user experience, so you could imagine them investing into other areas of the value chain (from telecom to content).
Despite all the above, AAPL continues to pile up cash at an increasing rate. So, at what point do they have enough to do whatever they're saving up for? Hard to say, but one would think $100B or so would be enough. I do think Cook and BOD have probably similar plans/views to Jobs on the use of their cash hoard, so I think we won't see a dramatic change in policy, but if things keep the way they are, AAPL will almost have to give back some of their future earnings to shareholders.
I think we're seeing them go nuclear on google right now in the courts, and that's not a huge expense for them. If they really wanted to crush android in an unprofitable or irrational manner, they could slash prices to displace android sales, but that seems very antithetical to their culture.
|Subject||how important is the delayed ITC result?|
|Entry||12/14/2011 03:40 PM|
Does anyone have a view on the delay, and whether aapl's weakness can/should be attributed to this? I am tempted to chalk it up to weakness of the overall market, yet its under performance vs. so many other GARP stocks (google in particular) despite what I thought were increasingly good data points makles me wonder. I have heard the law of large numbers and all the negative technical analysis but never found the arguments compelling.
|Subject||Is apple dead money for the next few months|
|Entry||07/24/2012 11:27 PM|
I am struggling to find anything positive coming out of the conference call. I understand the argument that the stock is cheap and it is just time shifting, but are their any meaningful positives beyond that? Also, if anyone knows why they are delaying the buyback, it would be appreciated. I have the suspicion that Tim is an empire builder and his concessions to increasing shareholder value seem very small, all things considered. I know there was a big fight a while back on one of the threads over whether aapl or google was the better company. I would love to hear any updated thoughts on this name from those posters, who are far more knowledgable than I am. The only consolation I can take as a long is that institutional shareholders are underweight and hopefully are looking to buy on pullbacks. Given the tone of the call however, I wonder if this is going to be the case.
|Subject||Have any VIC aapl bulls changed their minds?|
|Entry||10/10/2012 06:04 AM|
I don't know what they are doing on Mapgate, but I don't hear them doing the kind of big fixes I would have expected (creating a separate division and a thousand people to fix it, for example), and I have read there were plenty of early warning signs that went ignored. I hear the aluminum is easily scratched (I get that aapl wanted to make the iphone5 lighter, but couldn't they have used titanium? Does anyone know if they even considered this?) I have heard aside from these issues that the Iphone 5 is great, but I don't know for sure since the one i ordered still hasn't arrived. I thought Tim Cook was the master of supply chain management. At some point, people who are waiting for an iphone will hear enough bad things that they will decide they can do with something else (I have seen the commercials, and am underwhelmed. If I were running marketing, I would be directly taking on the Galaxy 3). I have seen Piper's teen survey, so I know aapl is still very popular. I figured Tim Cook would be hell bent on proving he could replace Jobs (even though he would never say so), but maybe all the doubters were right. Any thoughts appreciated.
|Subject||RE: Have any VIC aapl bulls changed their minds?|
|Entry||10/10/2012 07:14 AM|
I'm sure there are cogent bullish arguments regarding growth prospects, valuation, balance sheet, etc.
All you really need to know, though, is that two months ago CVS Caremark Corporation mandated that all staff phones be transitioned from Blackberry to iPhone. If that's not a definitive sign that the halo of "cool" is dead, I don't know what is. I think that bulls underestimate the importance of self-styled "opinion leaders" in driving the past success of Apple. Take a comprehensive look at the media reviews of the iPhone 5. They were struggling hard to come up with any technical superiority versus the competition, so many of the reviews focused on the phone's industrial design, gushing that it looked more like a piece of art than the competition. Really? There may be a few folks out there who really care about what their phone looks like when it's sitting on the table in front of them at Starbucks while they sip their pumpkin latte, but that's not a recipe for long-term mass market competitive success.
|Subject||RE: Have any VIC aapl bulls changed their minds?|
|Entry||10/10/2012 08:39 AM|
New to this thread but thought the ad that Samsung is running with the guy holding the place in line for his parents hit on exactly ZZZ's point regarding cool. This is sort of the Facebook effect, as it was cool back when there were a lot of hot college chicks posting pictures of themselves in bikinis, but not so much now that your grandma has a page and there are ads everywhere. http://theweek.com/article/index/233639/samsungs-anti-apple-galaxy-s-iii-ad-are-the-jokes-wearing-thin
Personally, I'm pretty excited to get this new Note II, which seems to be surprisingly popular despite what many have said is way too big... For the first time I can recall, the tech gadget community is actually gushing over the features of a non-Apple product. http://www.engadget.com/2012/10/08/samsung-galaxy-note-ii-review/
Hard to short AAPL, but I suspect that there are A LOT of low net guys that are long GOOG/short AAPL as a paired trade betting on some market cap convergence. Multiples aside, AAPL's TEV of $570bn still dwarfs GOOG's of $210bn, and one could easily argue that the latter is the market leader, has a more stable revenue stream, and will be causing significant margin compression on the former for some time to come (and this is for the people who consider AAPL a software company rather than a hardware company, which is another debate).
|Subject||VIC aapl bulls changed their minds?|
|Entry||10/10/2012 08:55 AM|
Thanks for the responses so far. I would love to here from the Apple bulls. The argument that Apple is a software company because everyone has to upgrade their phones every two years never made much sense to me. I would greatly appreciate it if someone would make the software/recurring revenue stream argument.
|Subject||RE: VIC aapl bulls changed their minds?|
|Entry||10/10/2012 09:39 AM|
I'm not an AAPL bull, but I think the "Apple is a software company" argument is based on the premise that the "ecosystem" (a loaded term in and of itself) is so strong. I think this is true only as long as the gadgets themselves are the coolest and highest tech available, when that stops, whatever "ecosystem" you thought you were buying falls apart pretty fast.
Having switched from AAPL to Android myself, it takes about 5 minutes. Maybe you have to re-purchase your apps if you switch (?) but most apps are free.
Under the ecosystem argument, if you have a Gmail account and/or use Google search, aren't you part of the "Google Ecosystem"? I just don't think it matters.
Also, where does AAPL make its money and what would AAPL's revenue stream look like if it just licensed its software to hardware manufacturers? The answer to that question should tell you to what extent its a software vs. a hardware company.
As you can probably tell, I think AAPL is overvalued and overhyped, but that the peak cash flow makes the stock look cheap on the multiples. This is less so if you cut the gross margins by 30-40%, which is where this is ultimately headed in my view.
|Subject||RE: RE: RE: VIC aapl bulls changed their minds?|
|Entry||10/10/2012 10:49 AM|
Very well written, Casper. Thx.
|Subject||: RE: VIC aapl bulls changed their minds?|
|Entry||10/10/2012 10:51 AM|
It was well written. No one wants to take the other side?
|Subject||RE: VIC aapl bulls changed their minds?|
|Entry||10/10/2012 11:58 AM|
Agree re the cash flow argument and agree it's not smart to short high FCF companies (and I'm not short AAPL), but to say that "AAPL is the best company of all time (can't argue against that)" strikes me as a little ridiculous. The company has been a 5-7 year story, basically, and it is simply no longer the market leader by either technology or by volume. It simply has the highest market cap, but as we all know that can be fleeting, particularly in consumer electronics.
As for AAPL being inarguably the best company of all time, I'll take a stab at it. How do Apple's total returns to shareholders, with all dividends reinvested, compare to KO, XOM, JNJ, MSFT, WMT? Microsoft had a Total Enterprise Value of $561 billion in Feb 2000. Sure, that was a bubble, but one could say that Apple today is a bubble? And, twelve years later, MSFT continues to return capital to shareholders despite some notable failures. Who knows where Apple will be 12 years from now?
Further to that argument, if AAPL is the greatest company of all time, why is Bill Gates worth $61 billion (and he had co-founders who are multi-billionaires too), while Jobs Trust is only $11 billion (and that includes DIS!). Similar argument for the Walton heirs at WMT, who in total are north of $100 billion. So, to say you "can't argue" AAPL is the best company of all time is just silly in my view.
|Subject||RE: RE: VIC aapl bulls changed their minds?|
|Entry||10/10/2012 12:12 PM|
Is there much more to the "software" (I use the term loosely) argument other than people will always buy the next version of there hardware? I always thought that given its resources and market position, they would find some way to have reoccuring revenue streams independent of upgrades. Other than music, is this a pipe dream?
|Subject||RE: RE: RE: VIC aapl bulls changed their minds?|
|Entry||10/10/2012 12:36 PM|
Culyer, what do you think the impact is of Apple's recent patent/IP legal victory? Will there be an additional licensing revenue stream from most smart phones sold in the US? Will Apple be able to pull Samsung's phones from the market? I apologize for not being up to speed on the impact of this, but it did appear to be meaningful at the time of the lawsuit. And if Apple is going to make $50-100/phone sold by its competitors (I heard HTC is paying something like that to them per phone), perhaps that would make Apple the best business of all time?
|Subject||RE: RE: VIC aapl bulls changed their minds?|
|Entry||10/10/2012 12:55 PM|
Sugar - I'm not a lawyer and I'm not long or short either GOOG or AAPL, so I'm probably not the best guy to comment on the nuances of AAPL's recent legal victory. That said, I think there is zero chance that this will have any meaningful negative impact on Samsung/GOOG as their new Jelly Bean products are about to hit the shelves. Both sides have very deep pockets here and by the time this is fully litigated the technology will have most certainly moved on. That is a simplistic view, of course.
My personal view is that AAPL products are unsustainably expensive, the new iPhone feels cheap in your hand and is obviously buggy, and is just not even in the same ballpark as the newest Android products. As for even the Mac products, I think they're a pain in the ass and would never use them in the business world (granted, I don't have an artsy job).
Further, I easily converted my iTunes songs over to my Android, and now I buy all my music from AMZN, which does not regulate where you play it!!! iTunes is simply does not lock customers into Apple.
Apple, for better or worse, is a cult. That has worked in Apple's favor BIG TIME in the last couple of years. Unfortunately for Apple, the cult is starting to get some defectors since its spiritual leader died and left them with an inferior product and inferior technology.
To Casper's point about how we love to live in the day, this reminds me a lot of when I was in 2nd grade everyone thought that the Apple II was the greatest thing since shirtpockets and Apple was invincible. Didn't really work out that way as I recall - everyone called Microsoft a copycat and sure enough, MSFT ate Apple's lunch for them. It's happening again, but this time with GOOG/Sammy.
|Subject||RE: RE: RE: patents|
|Entry||10/10/2012 01:16 PM|
If I'm not mistaken, two of the three recent patent "victories" involved patents for 1) square homescreen icons having rounded corners, and 2) having a list "bounce" off the bottom when you reach the end while scrolling.
You can't fault Apple for exploiting what is clearly a completely f**ked up US patent system, everybody is going it, but this is hardly the kind of stuff from which competitive long-term differentiation is built.
|Subject||RE: VIC aapl bulls changed their minds?|
|Entry||10/10/2012 01:23 PM|
|Subject||RE: RE: VIC aapl bulls changed their minds?|
|Entry||10/10/2012 01:33 PM|
That last link actually prompted me to make another point or two that I don't think have been discussed much so far.
1) In this crappy economy, how sustainable is it that probably 75%+ of iPhone customers have a liquid net worth lower than the unsubsidized cost of the phone itself? I only partially jest, of course, as many these phones are bought for kids by their parents, but still? People in America are largely broke - of course the phone is a status symbol and is probably the #1 thing everyone wants to stretch to buy - but this can't be sustainable.
2) What impact has the student loan bubble had on North American sales of ALL Apple products? What college kid can legitimately afford to a new $2500 MacBook every couple years, a new iPhone & iPad every 2 years if Uncle Sam isn't financing it for them?
3) What are the odds that Apple actually launches its own internal financing arm? Does it even matter if its products are no longer at the leading edge? This is probably the single prospective development that would scary me the most about a short here.
These points, of course, apply to the industry as a whole, but I would argue have a disproportionate impact on AAPL.
|Subject||lots of good comments|
|Entry||10/10/2012 03:05 PM|
Not a bull amongst you (some admittedly neutral). Still looking for an answer as to whether they can create reoccuring revenue streams of any significance not tied to product replacement. So far, the answer seems to be no.
|Subject||Apple buys YHOO?|
|Entry||10/10/2012 03:30 PM|
Tyler - Why wouldn't AAPL just buy YHOO? Could this maps debacle be just the catalyst to push them to move forward? Could this be Dan Loeb's endgame?
I'm no tech expert, but this would seem to be a perfect fit. Apple could just rebrand Yahoo completely to Apple Search and boom have a recurring revenue stream and theoretically steal a sh*tload of users away from Google instantly (wouldn't every Apple cult member immediately decide Apple search was the greatest thing ever? Of course.)
There is more to the story, of course, but the revenue synergies would seem to be enormous here. And, to your question, it would give AAPL a true recurring revenue stream.
Is this batshit crazy? Read here: http://www.wired.com/business/2012/09/apple-yahoo-should-hook-up/
|Subject||RE: Apple buys YHOO?|
|Entry||10/10/2012 03:38 PM|
I leave that to others better informed than me. Viscerally, would it be an admission on Tim's part that he can't work things out on his own (how big is Tim's ego)?
|Subject||RE: lots of good comments|
|Entry||10/10/2012 03:51 PM|
OK, before I respond, let me just say that my identity is not wrapped up in being long AAPL, at some point we'll sell, and this just isn't an investment where I feel like butting heads with the best and brightest of VIC. But since no longs have responded to the comments here, I might as well chime in, since AAPL has been our largest long position over the past twelve months and it's still our largest long.
I'm not the AAPL guy on our team and just take orders from my analysts, so I'll just copy and paste the email sent to me by our AAPL analyst when I asked him if we should sell at $660 on August 23.
The story hasn't changed in 12 months. When I first wrote up Apple, it was trading at 15x earnings. Today it's up 70%, and trading a 15.7x earnings. They've announced a dividend and share repurchase program, so the cash is more arguably worth something to investors, and the cash balance has grown 54% YoY. Ex-cash, Apple trades at 11.9x trailing earnings. The >50% growth Apple is going to see this year is not "priced in".
Virtually every low-hanging fruit opportunity I mentioned a year ago still exists today:
iPhone growth - In developed markets, smartphones are still only 50% of sales and Apple is about 30% of smartphone sales. So at 15%, Apple has tremendous headroom, and it's even better in emerging markets. A deal with China Mobile has yet to be signed, and recent comments from China Telecom indicate that the iPhone is a source of growth. China Mobile alone is a market as large as the US. The Android ecosystem is in worse shape than it was a year ago, Samsung is on the cusp of losing a major patent infringement trial, and cellphone sales have slowed globally in anticipation of the iPhone 5 which will be the first 4G iPhone.
iPad Growth - iPad growth has been insane, all competing products have been flops. Apple is rumored to be releasing a small form factor with the next two months. There is no end in sight, computer manufacturers are getting creamed, dell, HP, lenovo, asus, sony, all running around like chickens with their heads cut off.
Computers - Apple is the only company growing computer unit sales. And Windows 8 is so awful Hempton sold his MSFT stock. When baby boomers walk into best buy and see what windows 8 is all about, they're going to buy macs. And the new macbook pro is the Ferrari of computers. It has a retina display. It was sold out for months. They're bringing the retina display to the 13-inch model soon.
China growth - Still insane, people there love Apple, it's not something that can be ripped off like a Coach bag. I believe they still only have 3 stores, but they've announced plans to open more. A new store opening in Dalian will be Apple's largest. Also rumors of expansion in the other BRIC countries.
Apple TV - Rumors from parts suppliers suggest it's coming in time for Christmas. The market could be substantial and nobody has it in their models yet (easily $100B of market cap).
Apple should be by far our largest position. It should be 20% (or more with options). It's virtually the only long worth owning right now, and I can't find a single stock that compares to it. Nothing is growing as quickly, as cheap, and as stable as Apple. And the options are still cheap too. You're paying 0.7x more for trailing eps than you did last year, but you're heading into a far more significant iPhone upgrade cycle and the potential release of the TV. Failing to load up on Apple is a huge mistake, and selling is just unjustifiable.
If there's any takeaway here, it's that there are better shorts out there.
|Subject||RE: RE: lots of good comments|
|Entry||10/10/2012 03:56 PM|
Thanks. Would very much appreciate hearing updated thoughts given what has happened recently, particularly with respect to China.
|Subject||RE: RE: Apple buys YHOO?|
|Entry||10/10/2012 04:13 PM|
I think AAPL buying YHOO would just finally make AAPL the vertically integrated company (hardware/software/search) that they want to be. Seems like a no brainer. The revenue synergies alone would make the deal a homerun for AAPL -- how much more would advertisers pay to be on Apple Search than on Yahoo? Probably a lot, and it would be a disaster for GOOG, at least in the short term.
|Subject||RE: RE: lots of good comments|
|Entry||10/10/2012 04:56 PM|
Kerrcap, I would also be very interested in your analyst's opinion as to Cook's choice of aluminum (vs. titanium or something more durable) knowing it would scratch easily.
|Subject||RE: RE: RE: RE: lots of good comments|
|Entry||10/10/2012 05:22 PM|
Utah, you are definitely a raging bull on AAPL. I'd challenge the following:
1) You cite BGR.com a couple times. They would probably be among the few that are BIGGER bulls on Apple than you. It is impossible to find anything resembling unbiased on that site in my experience. Fwiw, I think Engadget is more balanced in their reviews.
2) You contradict yourself in your comment about maps not being a big deal and then later saying how "AAPL is hyper-aware of what happens when they start making junk, and that's why you see them have longer product refresh cycles." Why the hell would you put out a phone with a maps feature that is, by all accounts, junk? By your argument, they'd have just waited until they got it right, then released.
3) Please name one consumer electronics/hardware company that has not seen margins drop significantly over time. Strong competition and rising labor costs will drive in this case as well.
4) I have personally switched from Apple iPhone 4 to Samsung GS 2 - this means that I switched music, photos and everything else. It literally took minutes. If the Apple ecosystem is so powerful, I think fact that people use Google search and Gmail means that they have a pretty strong ecosystem of their own. As I mentioned, I buy music via AMZN and they don't put ridiculous restrictions on the music's use like Apple does. It simply downloads the MP3 onto your computer and leaves a copy in their cloud.
5) If you think that the student loan bubble isn't driving demand for Apple products, it is YOU who is saying “I have absolutely no idea what I’m talking about.” While neither of us can ever pin down the number, the fact is that student loans are used to buy Apple products en masse. How else is it that you think every college student in America has an iPhone and a MacBook? You think the parents are paying all these bills? After paying tuition itself, the first place student loan money goes is to tech. And, it's not just in America: http://www.guardian.co.uk/education/mortarboard/2012/apr/25/how-do-you-spend-your-student-loan
6) Apple is no longer as cool as it used to be because the tech specs are a generation behind Samsung. Sure, it's still cool, but definitely not as cool as it was when the iPhone 4 came out and euphoria peaked. When your parents and grandparents have one, it's not as cool. This is not a Porsche or Ferrari we're talking about.
Is the stock a long or a short? I have no idea, but I think a long GOOG/short AAPL pair works very well.
|Subject||RE: RE: RE: RE: RE: lots of good comments|
|Entry||10/10/2012 06:25 PM|
No dog in this fight since we find it hard to imagine what either AAPL or GOOG look like in 2-3 years but a few observations:
|Subject||lots of good comments|
|Entry||10/10/2012 11:44 PM|
casper719, is AAPL even the 10th or 20th best short out there? What do you think it's going to be worth?
|Subject||Itunes and reocuring stream|
|Entry||10/11/2012 03:46 AM|
Utah, others: I know your're not Nostradamus, but could you please elaborate on the comment that "AAPL's other services are a big deal". How big a deal are they, and how much of a focus is this for management? Two years ago, I expected it to be a lot more than it is now (I thought, perhaps naively, that they would be expanding into all kinds other things (frankly, I thought they would do something in search, if for no other reason than Job's antipathy toward Google)). Is Tim Cook just a "manufacturing guy"? Who is the "services guy" , how big are you thinking it will be over time, what areas will they go into and how will they beat competitors? Will Cook's ego allow him to take risks in non production areas? Once again, thanks to all who have commented so far.
|Subject||RE: RE: Apple buys YHOO?|
|Entry||10/11/2012 09:58 AM|
I'd love to hear some more thoughts as to why AAPL would, or would not, buy YHOO.
Seems to be quite a few positives, and no obvious negatives:
- Immediately have a global search product that can be rebranded and "cleaned up" with Apple's look and feel. Can AAPL live without a search product over the long term? For those who believe in the "ecosystem" isn't the internet/search a major part of that?
- Apple takes on YHOO's strong server and cloud architecture.
- Apple gets YHOO's newly expanded ad/content partnership with FB. http://allthingsd.com/20120706/exclusive-yahoo-and-facebook-strike-patent-peace-deal-expand-ad-and-content-partnership/
- Immediately convert enormous # of global Apple diehards away from GOOG and to the new Apple Search product, generating enormous incremental revenues as advertisers flock to this "exciting" "new" product.
- Recurring revenue stream is immediately created.
- Marissa gets #2 or #3 job at Apple, immediately able to recruit top talent from GOOG who would never in a million years leave to go to YHOO, but would happily leave to go to AAPL.
- Is there a better return on cash available to AAPL in this market? This deal, even at $30, would be a drop in the bucket for AAPL at the rate their generating cash. AAPL pays for this deal with just a few quarters of cash flow.
- AAPL kills (ok, maybe maims) two birds (MSFT & GOOG) with one stone. What's not to like about that if you're AAPL?
Noteworthy that Loeb has added further to his enormous stake in YHOO lately. Call me nuts, but this has to be at the top of his exit thesis list. Microsoft's involvement with YHOO and FB perhaps complicate the situation a bit, but presumably with the synergies AAPL would bring, they could just ditch the MSFT partnership.
Again, I have not seen this thesis discussed widely, but here are two posts I thought interesting: http://www.wired.com/business/2012/09/apple-yahoo-should-hook-up/
|Subject||RE: RE: RE: Apple buys YHOO?|
|Entry||10/11/2012 12:37 PM|
I do not understand how an acquisition of yahoo's search, re branded, cannot make a ton of money for AAPL? Is the argument that it will still have the YHOO stigma and therefore won't be valuable? On another note, I am stunned at the lack of positive comments on what I thought was the most widely owned hedge fund stock (maybe the average VIC member is significantly smarter than the average large hedge fund).
|Subject||RE: RE: RE: Apple buys YHOO?|
|Entry||10/11/2012 12:52 PM|
That is exactly my point. An acquisition of YHOO would absolutely make AAPL a ton of money. GOOG is run-rating at $30 billion in annual revenues from its owned sites alone. Add in its partner sites and run-rate is >$40 billion.
YHOO total revenue for LTM is $5 billion, projected to be $4.4 billion for FY12.
I don't think it's crazy to think that a re-branded Apple Search could double or triple annual revenues in short order, which if tripled would still leave Apple Search at < 1/3 of GOOG's revenues. The math almost doesn't matter it's so silly accretive, as GOOG runs 60%+ gross margins.
Then, with the next OS update or bug fix, wouldn't Apple just ask users if they want to default to GOOG or Apple Search function? Then boom, you immediately have switched over a meaningful percentage of an enormous fan base to Apple Search.
From an investment perspective, this would be a home run.
Why would AAPL not do this deal?
|Entry||10/11/2012 01:12 PM|
Thought I should correct something I said yesterday. Spoke to my CVS guy today, and apparently the IT department pulled the plug on the planned switchover from Blackberry to iPhone. They couldn't get comfortable w/security, and didn't like the latency inherent in the pull technology.
|Subject||RE: RE: RE: RE: Apple buys YHOO?|
|Entry||10/11/2012 01:17 PM|
I believe Yahoo search is powered by Bing. Yahoo no longer has a proprietary search engine technology so what exactly would apple be buying other than some - market share losing - display ad platforms and the asian assets which it doesn't need??
Also, after the maps debacle i would hope that Tim Cook would revert to the Steve Jobs philosophy of giving consumers the best possible product rather than trying to displace someone who has 10x more experience and better technology than yourself in a segment that is not your core business. Why would apple take the risk of pissing off its customers by forcing them to use an inferior search engine that has been in decline for years??
|Subject||RE: RE: RE: RE: Apple buys YHOO?|
|Entry||10/11/2012 01:29 PM|
You think YHOO just threw its own search tech in the trash can? I think not. I bet they could literally flip a switch and be back to their own tech. I also think that these search engines are all very, very similar in ways that matter to users. I know, that would be considered a ridiculously naive comment by the technorati, but I don't care, they all seem to turn up the same results.
Besides, even if YHOO search tech is (initially) modestly inferior to GOOG's, what would the Cult of Apple care? They love anything with a clean white screen and a grey fruit logo. Plus, if AAPL needed to invest in a little catch up R&D, they could probably dig up the spare change to hire a few of Marissa's friends from GOOG to handle that for them, as well as fund whatever litigation from a stunned GOOG were to follow.
Can't see how this isn't a no brainer even at $30+, and I have the stock and OTM calls to express the view.
|Subject||RE: RE: RE: RE: RE: Apple buys YHOO?|
|Entry||10/11/2012 01:43 PM|
If you read through the long messages thread on GOOG here on VIC you might start thinking a bit differently about the search business. It is not for nothing that after 5 years of trying and more than $10 billion spent (more than the entire cumultative R&D budget of Apple for the past 5 years!) Bing has not managed to gain even 1 basis point of market share from Google. We keep on hearing people saying things like search is easily replicable and Facebook could destroy Google because Mark said he has "a team working on search", etc. This usually stems from a lack of understanding of what a high qulaity search product entails. Yahoo did not exit search just like that. And re-entering would be enourmously expensive and difficult with very uncertain benefits.
Besides, if it were so easy Apple could just create a search engine rather than spending billions buying Yahoo...
|Subject||RE: RE: RE: RE: RE: RE: Apple buys YHOO?|
|Entry||10/11/2012 01:57 PM|
I have always suspected that GOOg dominance had to some degree been a branding issue. I use google because I assume it is better than Microsoft or yahoo. I don't think people would make the same assumption regarding I search.
|Subject||RE: RE: RE: RE: RE: Apple buys YHOO?|
|Entry||10/11/2012 01:58 PM|
It is not easy or cheap to build a search engine from scratch (MSFT has proven that), especially as you have to build it for umpteen different countries and languages around the world. YHOO already has that infrastructure in spades. Check this out: http://everything.yahoo.com/world/en-US
MSFT was not successful in search because everybody hates MSFT. It is not a quasi-religion like AAPL is. If you provide AAPL customers with a "decent" search engine, I suspect they'll use it instantly and profess their love for it far and wide.
If I'm right about AAPL's ability to double or triple YHOO's revs in short order, assuming 60%+ gross margins and, I don't know 40-50% contribution margin, this deal would pay for itself very, very quickly.
Plus, you still have non-core assets that would probably also increase in value under AAPL's ownership -- What is Yahoo Japan worth if rebranded to Apple Japan? Guessing slightly more :)
|Subject||RE: RE: RE: RE: RE: RE: Apple buys YHOO?|
|Entry||10/11/2012 02:01 PM|
YCOMB - Thanks for the comment. I doubt AAPL is interested in licensing any kind of strategic asset from MSFT or anyone else. AUTH is a tiny example. They like to own it. YHOO deal would be wildly accretive and wildly popular in a rebranding.
|Subject||RE: RE: RE: RE: RE: RE: Apple buys YHOO?|
|Entry||10/11/2012 02:12 PM|
Microsoft IS unsuccessful in search because its product is signifcantly inferior to google. Have you tried switching your homepage to bing or yahoo for a while? it is a worthwhile experiment.
Maps has caused a lot of negative reaction even among the apple religious at a time when competition is intensifying. Switching to an inferior search product at a time when android is outselling apple by more than 2-to-1 sounds like an enourmous risk for the sake of what??they currently receive an estimated 50% share of search revenue from google on safary browser searches.
When it comes to consumer product religions one has to tread carefully because these trends can change very rapidly if you screw up the qulaity image of the brand.
All that said, the key point remains that buying Yahoo does not consitute buying a search engine no matter how you turn it. It is not soemnthing you just switch on and off like some database. Search is a dynamic product that needs constant adjusting (website content changes every second, etc) and upgrading. Google issues hundreds of upgrades to its search engine annually.
|Subject||2 points i can't believe that no one else has made|
|Entry||10/11/2012 03:41 PM|
first, it is very easy to get into search. QIHU did it for a few million dollars and is on its way to becoming the dominant Chinese search engine.
second, more seriously, i think the flaw with capitalizing the apple earnings stream is that it is much more tenuous than people believe. specifically, the average consumer buying the iphone pays $200 for it, when the true retail price is $800 ($650 price to carriers plus avg retail CE markup). this opacity has allowed aapl to enjoy hardware margins that are truly unprecedented, not the absolute quality of the device. how many consumers would pay $800 for the iphone instead of $300 for an android? is it that much better? or is it really pretty similar and, as the msft windows/mac experience from the 1990's has shown us, similar is good enough?
if you believe this, then the bulk of aapl's profit stream relies on the two guys running VZ and T. because if they decide, independently or in collusion, that they are not going to subsidize (or force their customers to subsidize) aapl any more, then suddenly the iphone costs $400 with a 2 yr contract and sales drop in half.
i personally wouldn't pay 15x for that...
|Subject||oints i can't believe that no one else has made|
|Entry||10/11/2012 04:25 PM|
I don't think getting into search in the United States with a product that is at least somewhat competitive with Google is easy at all. I think yahoo or bing search would get a lot more use if it was called I search and was the default on Apple products.
|Subject||David Einhorn has Appl as his largest position|
|Entry||10/11/2012 05:01 PM|
I have never spoken with Mr. Einhorn, but I believe he has made the case that it is really a software company that you have to upgrade every two years by buying new phones and tablets. If anyone here is familiar with his thinking, is that all there is to it? Sorry to beat this to a dead horse, but I can't understand why the company isn't moving into businesses with more stable cash flows, and if Steve Job's wanted to crush Google, why didn't he buy the bing or yahoo algorithms and patents and re brand it? I would really like to hear a bull argument that addresses this point.
|Subject||David Einhorn has Appl as his largest position|
|Entry||10/12/2012 02:28 AM|
Finn, others: You referred to the various software (itunes, Apps, Icloud, etc). Most responses to this thread seem to regard this as negligible in terms of profit centers. Are they right? Assuming they get locked into the Apple ecosystem, how much money does Apple make from this ecosystem absent hardware upgrades. This is what I have been trying to get at in terms of sustainable, reoccuring revenue streams. One of the things I find troubling about Apple is that management doesn't seem to be too concerned with shareholder value. My take on them is that they just want to be celebrated in the press for making good hardware. Are there any software or services like Icloud that they can expand and really move the needle? Thanks to everyone. Please keep the anwsers coming. Maybe another way of asking this question, which Cuyler already addressed, is what would you do differently if you were in charge of Apple?
|Subject||David Einhorn has Appl as his largest position|
|Entry||10/12/2012 08:07 AM|
Thanks Biffins. I know that the other music related products and services are small. I also understand your point that they will get obliterated by smart phone commoditization in the next few years. So what if anything is Apple doing about this? Do you believe management is unaware of this? Several years from now, will there be a Harvard Business School case study about how Apple failed to adapt? This seems obvious to me and therefore I assumed it was obvious to Apple management. So the question I have been trying to ask, perhaps not lcearly enough, is whether apple can branch out or develop services that will set the stage for future growth. I would have thought an Isearch product would have been a no-brainer, but the consensus opinion seems to be that it won't work. So is there anything else they can do(perhaps expanding their cloud offering) that would move the needle? As long as Tim Cook is still producing best in class products, does he really care about the stock price or how he is seen by the business community.
|Subject||RE: David Einhorn has Appl as his largest position|
|Entry||10/12/2012 09:48 AM|
This is an interesting chain. Utah-generally, I'm with you("Gapple" is f*&$% brilliant). I would not bet against this Company. They have effectively invented (or re-imagined to such a degree that they may as well have invented), three distinct businesses: music retail; phones; tablets (one could argue personal computers as well-those colors were trippy) Who knows what else they have up their sleeves? Certainly not a bunch of security analysts sixteen degrees removed from the secret laboratories in Cupertino. Hard to have any idea what you don't know. Over the last fifteen years, this Company has demonstrated an unrivaled capacity to innovate. Yes, losing Steve Jobs is certainly a detractor-he was unique. But shorting great innovators is a dance I will gladly sit-out.
|Subject||RE: RE: My model|
|Entry||10/12/2012 10:55 AM|
I only brought up Einhorn because he has championed the "software" argument, and I wanted to know if there was more to it than people will buy new phones every two years because they wear out? I was not at all suggesting buying AAPL because he was long it. I was just hoping that someone here was more familiar with his argument than I was.
|Entry||10/12/2012 12:26 PM|
To summarize the not-long thesis, it seems like there are a few main concerns:
1. The iPhone 5 isn't good, has bad specs, or Apple is renting its brand name. This is not true. Reviews have been awesome, a simple google search for "iPhone 5 review" makes this pretty clear. Consumers will love the phone. The specs are also totally comparable. Check http://www.wired.com/gadgetlab/2012/09/iphone5-spec-showdown/ and http://www.redmondpie.com/iphone-5-performance-benchmarks-detailed-its-the-fastest-smartphone-available-today/ You can't objectively claim that the iPhone 5 is inferior or lagging.
2. 3-5 years from now, this entire market will be commoditized and the iPhone 10 will sell (retail off contract) for $100 with gross margins of 10%. Uh, this is obviously crazy. Laptops are commoditized and the macbook pro doesn't cost $500 with 10% gross margins. You know what costs $100 dollars? This Cisco IP phone on my desk right now. It doesn't need to fit in my pocket, it doesn't need to run on a super-advanced battery, it doesn't take HD video, send text messages, play games, doesn't search the internet, respond to voice commands, have 50 gigs of music on it, no GPS, doesn't send email, can't read books on it on the subway...... If you believe that in 5 years the iPhone 10 will costs as much as my Cisco IP phone costs today, you should recheck your assumptions because something doesn't add up.
3. The market is saturated, grandma has one, exponential growth for all companies approaches some normalized 5% rate over time. China.
I wanted to leave my response there, but there's one other thing I want to mention. The 4s generated tremendous sales growth for Apple, and that truly was an incremental upgrade. Siri and a better camera, that's it. The iPhone 5 is a major major upgrade. It's 4G. The difference between 4G and 3G is extraordinary. The fact that Apple sold more than ten 3G phones in 2012 is a miracle... it's almost laughable. How many people passed on that upgrade because it wasn't 4G? The second biggest hangup consumers had was the small screen size. The 5 is bigger, and it still fits comfortably in your hand. These were, by far, the two biggest impediments to iPhone 4s adoption, and growht was still insane. iPhone 5 growth should blow away the 4s this christmas and chinese new year.
4. History is the best teacher, look at all these other companies that were great 10 years ago and suck today. History IS the best teacher... look at Apple one year ago. The bear arguments were exactly the same as they are today, the stock is up with zero multiple expansion because the company grew. 10 years from now I don't know what will be. But I'm highly confident that next year, AAPL will trade between 12-17x earnings, and therefore the most important question to answer is what will earnings look like. If you believe that Apple will grow earnings by 40% than nothing else matters because the multiple can compress to 12x and you will still be up 12% from here, not a bad return (plus dividends). If you don't believe AAPL will grow by 40%, please see my response to point 3 above and recheck your assumptions.
5. Everybody knows about Apple and LOVES the stock, everything is baked in, no room for upside. This message board is as bearish on Apple as the average person I speak to. Investors do not love Apple. They jump on the first sign of weakness. Call 5 random people on the phone and ask what they think of Apple stock, you're not going to get an excessively optimistic response. Whenever my friends or family ask what they should invest in, I say apple and they say "Really?! Why?!". On the subway everyday, I see some nutso calling the apocalypse, it's right around the corner! I don't know what it is about human nature that makes us like to call the apocalypse, but it's there and it's a bias. The Apocalypse is not coming. Apple has fat margins and tremendous revenue growth because they've built sustainable competitive advantages. They have tremenous brand power, supplier power, design power, distribution power, advertising power, legal power, and financial power. All these advantages are not going to disappear tomorrow because your map sent you to a starbucks in Antarctica.
|Subject||RE: iphone 5|
|Entry||10/12/2012 01:00 PM|
My understanding is that the chinese telco's will not subsidize at anything close to the U.S. Is that correct?
|Subject||Insight of the Week|
|Entry||10/12/2012 05:38 PM|
SumZero's Insight of the Week comes from the latest issue of Graham and Doddsville.
"My students sometimes ask, “What do you do for a company that is in a competitive industry, or technology is causing major changes, or new products are coming out, or some other circumstance makes it very difficult to estimate what future earnings might be?” I tell them to just skip that company and find a company that they can analyze. It is very important to know what you don’t know."
With Apple, I think this discussion has made it pretty clear that we don't know what we don't know. So why do we have to have an opinion, much less a trade?
|Subject||RE: Insight of the Week|
|Entry||10/13/2012 07:14 AM|
On the other hand, his Magic Formula approach is premised on effectively being agnostic to the underlying business and letting trailing numbers (ROIC and earnings yield) speak for themselves. On those two metrics, AAPL scores pretty well, and in fact has been a top Magic Formula candidate in the recent past.
|Subject||RE: iphone 5|
|Entry||10/16/2012 06:30 PM|
While this is not particularly relevant to the working bear hypothesis of a re-play of the PC commoditization / closed architecture issues from earlier in Apple’s history, Kerrcap’s 10/12 observation: “You can't objectively claim that the iPhone 5 is inferior or lagging” may lend support to Biffins’ claim that “the market won't see the ton of bricks coming.” To focus on the (arguably) most important and easy for non-technical folk to appreciate smartphone HW component, the 10/12 IHS iSuppli Note made the following observations:
|Subject||Anyone care to opine on the quarter?|
|Entry||10/25/2012 09:49 PM|
Biffins in particular, is your time line still intact?
|Subject||RE: Anyone care to opine on the quarter?|
|Entry||10/26/2012 07:19 AM|
|Subject||RE: RE: Anyone care to opine on the quarter?|
|Entry||10/26/2012 07:32 AM|
The stock is holding up pretty well for a miss. Currently trading 610+ with futures down 11.
|Subject||OT for Casper|
|Entry||10/30/2012 10:00 AM|
I am sure this ahas been discussed many times, but what would you do if you ran apple? Are there obvious oves to be made? In particular, why would't search ("I-search), be a viable business? Is it Cook's ego (we are a hardware company and are not interested in acquiring a yahoo serach platform, even if we would use siri to run it better). Presumably he sees the long term writing on the wall, or is he another empire builder. Asided from that, are there any other ideas that you would implement to make the company better? Second, and this one is totally OT, but how big a threat is amzn to google - As people increasing come to rely on Amzn for their shopping needs, why go anywhere else, and then what is the use of goog as far as advertisers are concerned?
|Subject||RE: RE: OT for Casper|
|Entry||10/30/2012 07:21 PM|
I have been rereading a lot of older posts, and came accross one you made in april on the goog thread where you said the following:
The one thing that’s a lock is if you had to pair trade here it would be GOOG/FACE (and regardless on the multiple difference FACE probably pops to a 120-130 billion market cap so to look for upside vs GOOG it has to get as big). And yes, I still believe in the trade even after Page decided to try to get even with Zuckerberg’s ridiculously unfriendly corporate structure. Someday, maybe it takes 20 years, that control provision is going to be a huge controversy and pain for the people who just HAD to own Facebook because it is the future of the world and I will enjoy it.
I was wondering if you had any updated thoughts, and as regards goog, hasn't mobile become a very serious problem for them? I know this is way off topic, but appl is such a large hedgefund hotel that I am trying to figure out where the money goes as liquidation occures. It doesn't seem like there are any clear winners, but lots of pitfalls going forward. From the long side, is there any technology (or for that matter a nontech company) that really excites you?
|Subject||RE: RE: RE: RE: OT for Casper|
|Entry||10/30/2012 09:51 PM|
Thanks very much. My biggest concern with goog (aside from mobile) is fidelity to shareholders. Thoughts from anyone else appreciated.
|Subject||RE: RE: RE: RE: RE: RE: OT for Casper|
|Entry||10/31/2012 01:25 AM|
Haven't paid much attention to Reggie since he was pounding the table on shorting Prepaid Legal (not that his analysis was wrong, but the trade didn't work). He seems very promotional, but I suppose that isn't necessarily a bad thing.
|Subject||RE: RE: RE: RE: RE: RE: RE: RE: RE: OT for Casper|
|Entry||10/31/2012 09:00 AM|
Casper, unless I am misreading, would it be fair to say that you are fundamentally a bear on the overall market? If that is the case, aren't there better shorts out there than aapl (I recognize that you are trading the stock, but why even consider it as a short)?
|Subject||RE: RE: RE: RE: RE: RE: RE: RE: RE: OT for Casper|
|Entry||10/31/2012 10:07 AM|
Casper, appreciate the time you spent on this thread. Would love to hear what names you think are shorts absent a bear market.
|Entry||11/01/2012 09:24 AM|
Thanks for the response.
|Subject||RE: RE: RE: One more comment/question for Biffins|
|Entry||11/16/2012 12:04 PM|
Worthless anecdotal evidence: The Note 2 is incredible. I bought one the first day available on AT&T last week, and everyone I see asks me about it and is blown away.
|Subject||AAPL margin killers in China|
|Entry||11/26/2012 11:06 AM|
To Casper's point from a while back, the question is not necessarily whether Samsung is Apple's only competition as there are incredibly strong phones now in production for sale at a fraction of the price, made in China of course. This is evolving very quickly, virtually in real time if you follow the tech blogs. This does not mean AAPL is going away, of course, just that its margins will return to Earth and at some point people will realize that AAPL is more like a $20-25bn net income company, not a $50+bn net income company.
The Xiaomi Phone 2 is a perfect example of what is probably (in my opinion) going to (eventually) crush AAPL's margins. Here's the new Engadget review, entitled "Xiaomi Phone 2 review: high-end specs in a surprisingly affordable package." http://www.engadget.com/2012/11/14/xiaomi-phone-2-mi-two-review/
Most importantly in my view, note this sentence: "the quad-core Xiaomi Phone 2 -- the star of this review -- for ¥1,999, which is well below its ¥2,350 ($380) raw cost, according to CEO Lei Jun." So, this phone, which costs $380 to make, is being sold for $323.
Further, this is what a JPM analyst covering mobile chips has to say about Xiaomi:
Xiaomi Tech, one of the fastest growing Chinese smartphone OEMs, started selling its highly anticipated Mi-2 smartphone in China this week. Xiaomi’s high-end smartphone Mi-2 (also known as Xiaomi Phone 2) uses the eS305 chip solution from Audience, and this further solidifies Audience’s design win footprint in the fast-growing Chinese smartphone market. Xiaomi is considered the “Apple” of China and competes with Samsung, Apple, and HTC among others in the Chinese domestic market. The company is reshaping the Chinese smartphone landscape by offering high-end smartphones at less than half the cost of comparable smartphones. For instance, Xiaomi’s first-generation Mi-1 has been a top-selling smartphone in China since its launch in August 2011 and has sold over 3.5 million units and 1.8 million of its Mi-1S (slight upgrade to Mi-1) smartphones.
As for other potential “AAPL margin killers” made in China, these are the leading contenders:
|Entry||11/26/2012 11:43 AM|
1. Can Apple's design quality and aesthetics be copied?
2. Is there any imminent technology coming down the pike that will allow Apple to introduce new capabilities that blow us away?
|Subject||RE: RE: RE: Please talk real data - not conjecture|
|Entry||11/27/2012 12:33 PM|
Utah, would you mind elaborating on:
“Win-Tel is an outdated analogy because everything (except mostly media) is now compatible across platforms”
I had trouble following this statement? Are you saying, among other things, that hardware, API coverage, and price points, as well as the pace of evolution of the above are materially similar across platforms? (This is more of an academic question since it may not matter over say the next 12 months.)
It seems that Cuylet (post 172) and other are providing some objective datapoints that offer a fairly close parallel to the Apple/IBM/Win-Tel days when a relatively more open system with messier developer and user experience stories but more competitive ecosystem prevailed, among other reasons, due to lower price points and faster pace of hardware and software improvement enabled by less “centrally-planned” approach to innovation – an issue very much present in the current discussion.
|Subject||RE: : RE: Please talk real data - not conjecture|
|Entry||11/27/2012 04:50 PM|
|Subject||closed vs open|
|Entry||11/28/2012 10:36 AM|
dr, I think the key difference is that Apple's iProducts are much more "open" than the closed systems you cited. What was inside pre-Intel Macs or the RISC Unix machines? Motorola 68K, PowerPC, SPARC, DEC Alphas, SGI MIPS, etc... proprietary CPU architectures that couldn't keep up with the WinTel volume/scale/innovation feedback loop that drove Intel.
What's in an Apple iProduct? Pretty much industry standard components. Is an Android competitor going to source a better ARM processor? Better GPU? Better NAND flash? Better LCD screens? Apple is taking advantage of the all of the tech industry's innovation. In fact, Apple is driving innovation in the supply chain and has access to better components before its competitors.
|Subject||RE: closed vs open|
|Entry||11/28/2012 10:42 AM|
If Apple has access to better components before its competitors, why are the hardware specifications arguably inferior to (or, at a minimum, not any better than) the latest Samsung products?
The Samsung chip story (whether a price increase goes through or not) would seem to indicate that AAPL can only control certain of its suppliers, while others that compete with them (such as Sammy), not so much at least as it pertains to sourcing ability.
I think your comment may have been true a couple years ago but not so sure that's still the case.
|Subject||RE: RE: RE: closed vs open|
|Entry||11/28/2012 11:20 AM|
I think a lot of people would disagree that iOS is "vastly superior" to Android. That may have been true a couple of generations ago, but there's a credible argument to be made that the 4.0+ versions of Android are, in fact, demonstrably superior to iOS. Apple exercises more militant control over every piece of software that ends up on its platform so, yes, Apple is able to maintain an edge in the overall seamlessness of the entire user experience, but Android has certainly surpassed iOS with respect to many elements of the user interface. Side-by-side, IMO, iOS looks and feels dated compared to either Ice Cream Sandwich (4.0) or Jelly Bean (4.1-4.2).
|Subject||RE: RE: RE: RE: closed vs open|
|Entry||11/28/2012 11:41 AM|
zzz, that's great that you feel it's dated. Many, many people disagree. So what? What matters is that whether you're talking about the feel of the OS or a handful of raw tech specs for the hardware, any objective oberserver would conclude that both OS' and all of these high-end phones are very good. There is simply no reason for AAPL to get killed in this battle any more than there is for Android. Coke vs Pepsi.
dr123, I'll try to respond more fully soon, assuming YCOMB, urban et al dont beat me to it. I think you're painting some very different situations with the same broad brush, alough I think you raise some good things to discuss.
|Subject||RE: RE: RE: RE: RE: closed vs open|
|Entry||11/28/2012 03:54 PM|
Thought this over a little more and it's really not a question of open vs. closed, it's all about high volume economics. High volume economics drives innovation and always wins.
You start off with something cheaper, but good enough for low-end applications. Let the price advantage drive high volume, which then leads to better scale economics, which can be invested in innovation to move the technology to higher-end applications, displacing the lower volume incumbent.
IBM mainframes owned the server side, but beat by RISC Unix machines that started out as workstations. The higher volume of the workstation market drove innovation so that RISC Unix boxes eventually moved up to take over the server side. x86 started out in the even higher volume desktop PC market. The higher volume of the PC market drove innovation and eventually x86 took over workstations and then server.
"Open" may be one factor that enables high volume (i.e., WinTel), but is not necessary (how "open" where the Sun SPARC boxes?).
I don't think this pattern repeating with Apple and smartphones. The Galaxy is the only comparable phone to the iPhone and even then iPhone units are multiples of the Galaxy.
Interesting to think through the implications for INTC though vs the much higher volume of the ARM ecosystem right now, especially as ARM server chips are beginning to be adopted for low-end applications.
|Subject||RE: RE: RE: RE: RE: RE: closed vs open|
|Entry||11/28/2012 06:20 PM|
It is fair that historical analogies have numerous differences from the iOS-Android discussion that can be picked at, but such differences are mostly peripheral to the main point. The discussion of feature parity, economics, and volumes were not the primary intention. iOS devices are indeed largely based on open HW technology so referring to these as “closed systems” has muddled the waters further.
A better term may be “centrally planned ecosystem” of iOS contrasted to the “bazaar” of Android. The point is that “centrally planned” innovation by a gatekeeper of a platform is almost by definition slower and less likely to stumble upon optimal products and feature sets than the wisdom of the crowds. This sounds similar and is reinforced by but is orthogonal to the innovator’s dilemma. There are very few, if any, companies in the tech space that have been able to consistently guess the next big thing or optimal feature sets for evolving products, so the best bet for an ecosystem to out-innovate the competition and capture the market share that will drive all the virtuous feedback loops discussed on this thread is to have more monkeys typing on more typewriters faster, even if it comes at the cost of non-uniformity of customer experience and compatibility headaches. Whether on the HW or SW innovation side, this has been a key driver of the waves I presented. If one believes all the mobile innovation of the future will occur above the HW and OS layers at the app layer than this dynamic is probably not a problem and in fact may be a tailwind for AAPL (as long as they don’t sensor the app store and peripherals too heavily). If one believes that HW and OS innovation is not dead then this will be an issue for iOS. AAPL’s missing the 7’’ tablet train and reactionary catch-up moves in this area are one illustration of the dynamic. Because of the formidable head-start that AAPL enjoyed in the space, there are only subtle signs of this, for now.
A corollary to the virtues of the “bazaar” ecosystems is the ability to efficiently find the “good-enough” feature set that drive the best price-performance compromise to maximize the addressable market, something AAPL has little incentive to do and did not appear to pursue in the tablet space. If one believes that some Chinese manufacturers are getting to a product that’s “close-enough” to a sub-$200 iPhone 4 and that may be “good enough” in the eyes of a marginal consumer, that makes estimating AAPL’s normalized earnings power an interesting exercise.
|Subject||RE: RE: RE: RE: RE: RE: RE: RE: closed vs open|
|Entry||11/29/2012 10:35 AM|
- To say AAPL is not the most loved stock because it doesn't have the highest EBITDA multiple is silly. By that argument, what about companies that have negative EBITDA and a positive TEV, particularly those with high short interest? I would agree if you had said that AAPL is not the most "speculative" stock out there.
- To say that AAPL is underowned when looking at this chart (http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/11/AAPL%20HF%20Sept%2030.jpg) is silly as well. According to Goldman, 31% more hedge funds own AAPL than the #2 most owned name GOOG. Short interest is only 2%.
In this day and age, there is no bigger career limiting maneuver than for a sellside analyst to be bearish on AAPL or for a long-only manager to be underweight this name.
We are definitely not at max bullishness now as the stock has pulled back a bit making some people jumpy. The love is still strong, however.
|Entry||11/29/2012 01:39 PM|
The Jan 2013 issue of Consumer Reports is out. They rated smartphones, as they seem to do at least a couple of times a year. Hard to argue that they aren't one of the only media outlets out there without an axe to grind on one side or the other. Their conclusion(s) are basically what you might conclude had you read all the comments on this thread, that is, neither phone ecosystem or operating system is clearly better.
With respect to the operating systems, concluded that neither operating system is demonstrably superior. Each operating system has its pluses and minuses (Android has more innovative features, more customizable desktop, but also more production variation due to myriad of manufacturers; iOS has better product uniformity, easier to use, but more cluttered home screens and lacking some advanced features).
iPhone 5 didn't rank at the top with any of the major carriers , there were always at least a few Android phones ranking ahead of it, but there were also many Android phones ranking below it. Roughly speaking, the iPhone 5 probably ranked in the top third of tested phones across carriers. The iPhone 4 generally ranked at the bottom of all tests, which isn't surprising given that it's now dated vs. Android phones.
So, take from it what you will. Probably not likely to change anybody's mind...
|Subject||RE: RE: RE: RE: RE: RE: RE: RE: closed vs open|
|Entry||11/29/2012 08:13 PM|
With full respects to Olivia’s point, following-up on Utah’s questions and observations:
“I do think that hardware on the mobile side is in the 8th inning. We've mostly hit the natural limit of what these devices can do for now”
|Entry||12/13/2012 12:54 PM|
“There are a couple challenges here for Apple. 1) Will the important innovations continue to be usability-based in the future? 2) Will the pace of innovation slow to the extent that the clones can "catch up" by copying?
The answer to (1) is, I think, yes. I would note that all of the futuristic technologies mentioned by dr123 are design problems with the exception of NLP (which is also not a hardware problem).“
One problem is that developing a refined and highly optimized user experience is not always aligned with innovation which may require ecosystem’s experimentation with a wide variety of dead-end approaches. So the answer to who is leading in the usability space depends on one’s definition of usability. This may be at the core of why some folks on this thread have some much trouble “getting” one another. Two people can have well-articulated reasons for why they think either iOS or Android devices are more “usable”. As incumbents are often prone to, AAPL is already settling for more stability and uniformity with less risk to the established customer base at a cost of innovation in form factors (where the latest iPad and iPhone HW was at least partially reactive to Android’s smaller tablets and larger phones), customization (messy iPhone screen compared to a customized Android, or even Windows Mobile), radio/data (lagging in LTE adoption and data features) and input methods (keyboard choices), among others.
In general, one can make a case that the lines among technology, design, and usability can get pretty blurry as a new paradigm matures and having too many designers driving the car (AAPL) can prove as problematic over the long run as having too many engineers (MSFT). One illustration from the past and two from the present: Was pre-emptive multi-tasking a design/usability or a technology problem? It started as an OS feature that most users probably didn’t care about in 1990. AAPL’s MACs remained slicker, cleaner, and more uniform, etc. etc. By the mid-90’s as applications and user scenarios got more complex the lack of this feature became a very severe usability problem. The use of data services while talking and eye tracking are a few of the mobile scenarios that span the HW, OS, and App layers while directly impacting usability. The former shortcoming alone makes iPhone 5 unusable for some while it is not even known to others.
|Subject||RE: RE: RE: innovation|
|Entry||12/14/2012 12:53 PM|
While engagement metrics are one of the ways to try and quantify usability, the way one chooses to go about measuring engagement is subject to discretion. The math of statistics is not subjective but sample selection and the subsequent analysis almost always are. The discussion would be too long for the thread, but most of us can probably identify pretty quickly the main pitfalls in trying to draw conclusions about current or future usability from this data, let alone forecast margins or market share.
|Entry||01/24/2013 11:10 AM|
Not to kind of stoke the fires on the debate on this one, which is on the verge of getting personal! And maybe this is more of a topic for the general discussion. Anyway I was chatting with a friend today on tech on a broader view and his commentary was:
"valuation doesn't work in tech. End of. AAPL - apparently cheap. NFLX 60x P/E +40%. I honestly think tech is almost entirely momentum"
What do people think? Is it just winner takes all and valuation doesn't matter? As value guys should we just stick the entire sector in the "too hard" file?
Admin - feel free to shunt this somewhere else if not pertinent to the discussion on Apple!
|Entry||01/24/2013 11:55 AM|
It's not that valuation doesn't matter.... it's that simplistic P/E multiples don't work for stocks not growing in a steady state with little debate.
NFLX = a subscriber growth story. It's not up becase EPS was 11 cents better. And the reason it is a subscriber growth story is that subscriber growth drives the long term earnings, which is what really matters. If they can get to 75MM streaming US subs, they can raise prices, push back on distributors for content price, etc. If they peak out at 30mm US subs... Different story.
AAPL = Everyone is worried about margins.... if this is a 10% operating margin company and they are going to squander their cash pile, AAPL is actually quite expensive. (Note: not my opinion.)
In these cases, the market is using a non-EPS based metric to estimate future valuation. As well they should... simple P/E mutlipes are theoretically short hand DCFs that can be applied to steady-state businesses. Most "tech" stocks are rarely in a steady growth mode as the industry is constantly developing new "tech" that puts the old tech at risk. What use is the P/E multiple if the E is constantly in flux?
It's not just tech where this matters; it's any stock where there is concern/debate about what steady state growth will look like. Take building products, my biggest longs. For most, the market doesn't give a damn about the P/E multiple (or P/S or any other garbage). The market cares about housing starts (or order growth + gross margin, for builders), because that will drive the long term value.
Not that I think darthtrader (AWESOME name, btw) is doing this, but people always say "valuation doesn't matter" when are scared to buy, are getting crushed, or can't understand something. Valuation always matters eventually (they will generate cash and be able to hand it to you), but in the near and medium term the market will often grasp on to something (margins, sub growth, housing starts) that it uses to estimate future valuation. Understanding what the market is looking for might affect how you trade, but over the long term, true valuation is just how much cash they will make and give to you. If AAPL's margins hold and they make $45 next year and grow from there, I guarantee you will make money buying AAPL stock and holding it for a decade, either from stock price appreciation or from dividends.
|Subject||RE: RE: Valuation|
|Entry||01/24/2013 11:59 AM|
Yeah, that Einhorn guy is guilty of completely messing up his AAPL research. The poor guy only has 19.4% annualized returns for nearly 17 years, so he messes up all the time. Now, he's probably a few millimeters below that "Capitulation" area on the chart, firmly in the downward spiral heading straight for "Despair".
|Subject||RE: RE: RE: Valuation|
|Entry||02/07/2013 04:48 PM|
How do i message YCOMBINATOR on this vic platform? (i wish there were an app for that - yes i went there with that lame of a joke). I'd like to pull him (her? ..i doubt it, women don't like/know tech that much) into this discussion thread.... he knows tech so curious to read his opinions. Is Vitality KAtsenelsen's comparison to Nokia "the bitch" relevant when comparing downside gross margin scenarios for aapl?
|Entry||02/23/2015 04:31 PM|
We found a new phase: Super-Delusion. It's probably because of the student loan bubble.
In all seriouness, Biffins, where's the short writeup?
|Subject||Re: Re: Re: FWIW|
|Entry||02/26/2015 12:13 AM|
Siegfried, you just restored my faith in humanity.
I looked back at your post #259 that I must have missed, and there is some confusion I want to clear up. You seem to think I used that chart seriously. I realize this is seven months late, but to give you context I pasted that mind-numbingly stupid chart sarcastically. Another rather vocal member had previously used it and now I am trolling him. Read a few comments from the 2011/2012 time period for some fun history of VIC's take on Apple.
|Entry||02/26/2015 07:51 AM|
Siegfried considers Android the "OS for poor people and nerds who want to run some custom dork shit on their phone."
I think of iOS as the "OS for stupid rich people who couldn't find a setting menu if their life depended on it, as well as Communists and lobotomized mental patients who like to be told what to do."
All just a matter of perspective.
|Subject||Re: Re: Re: Re: Re: Re: FWIW|
|Entry||02/26/2015 12:54 PM|
I have a smart phone I bought for $50 and as far as I can tell it does everything my old apple phone could.
Make phone call: check
Send sms + Whatsapp: check
Get emails: check
Bloomberg app: check
I can even play candy crush.
Now why do I need to spend $1000? Why do I need the apple ecosystem? I dont get it, Siegfried here is your chance to sell me the Iphone 6.
|Subject||Re: Re: Re: Re: Re: Re: Re: FWIW|
|Entry||02/26/2015 02:08 PM|
"I dont get it"
Finally an honest admission. Bafana, if you're still asking this question just accept that you don't get it and move on. There's no shame in it. I don't get the price of gold...I shrug and move on. I have a Hyundai Elantra I bought for $18,000 and it does everything my friend's $120,000 Porsche Panamera Turbo does. Start engine? Check. Drive me fron point A to point B? Check. Trunk opens? Check. Shall we continue this game with the kajillion other things people consume?
Siegfried/Biffins, what I don't get is how anyone can make a call on phone replacement rates. I think we're all generally in agreement that it's an enormous part of Apple's success and ability to keep growing, but how do you make a call on it? What evidence is there? Just claiming it'll inevitably lengthen isn't much of a thesis because people have been saying this for years only to be dead-wrong. It ignores human behavior, new products, etc. I mean, at some point the replacement rate will degrade for Apple, but hell if I know when. Some obscure data point(s) from China isn't the Rosetta Stone, it's not the secret decoder ring.
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|Entry||02/26/2015 10:07 PM|
Maybe what Google needs to do is in its up coming versions on android is create
(1) a very simple uncluttered version
(2) a professional version
These will be close sourced and charge for it
(3) leave the open source version and let Samsung and others screw it up my loading their crappy additional programs
the biggest negative I see in current android offering is its not uniform - every phone maker has its own crappy software on it
a simple clean clean version of android could give Apple a run for its money
also Google is not tied to any cell company - its time they figure a way to offer cell service
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: FWIW|
|Entry||02/27/2015 09:06 AM|
I am traveling in Asia and I am seeing smart phones everywhere from cab drivers in India to tuk tuk drivers in Thailand. Same thing in sub Saharan Africa.
Everybody is now getting the Internet over the phone.
Android dominates - cause it cheap and free.
I have no strong view on APPL - i don't trade the stock or have ever owned it (i suck !).
This topic and discussion is interesting cause we have the world's largest company whose fortune is tied to a single product that comes in 2 models.
The product is a technology product that changes every 18-24 months - are the changes in the future so radical to force upgrades every cycle.
For me the iphone 6 plus over iphone 5 was a massive change - but its just a larger screen size that really made the difference for me.
The risk I see for apple and the opportunity for its competitors is someone offering a full bundle - data service, phone service, device, search, ecosystem.
Something like Amazon tried and failed miserably with Fire. I don't think Bezos is giving up.
Apple is so tied to celluar companies it cannot offer this full package - google can.
All this may be 3-5 years out and apple generates another 200 bil in cash by than.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: FWIW|
|Entry||02/27/2015 09:18 AM|
In Central America right now. Same thing. Only apples to be found are from roadside vendors. Judging by most of the cars on the road, though, indigenous population probably not really into "fit and finish".
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|Entry||02/27/2015 01:13 PM|
I believe that's Symbian (mostly Nokia but also Ericsson, Samsung, Motorola, etc.)
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: FWIW|
|Entry||02/27/2015 02:09 PM|
"Users like you, however, are a large part of why Androd is a comparitively valueless ecosystem"
Try tell this to mark the next time he says FB has cracked mobile. Surely his wasting his time chasing utilitarians like me. "But, but Mark ...... you wasting your time gathering 1bil andriod users when all you need is the 10mil AAPL guys who you know like to waste money on gimmicky gadgets and apps."
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: FWIW|
|Entry||02/27/2015 02:30 PM|
Bafana, you're inadvertantly proving Siegfried's point. All you want in a phone is core abilities for call/text/email and maybe one or two other things. So you buy a low-end phone once every five years and do relatively little with it because you just don't care that much, which is fine. Guess who's monetizing that? No one. To the extent you're on Facebook, Zuckerberg is monetizing that, but you probably don't even click on ads. You are a deadbeat customer.
Whether you can wrap your head around it or not, Apple customers want a new phone every two years. They want more apps. They want the latest iOS software. They want to buy movies through iTunes. They want to own other Apple devices. They want their Mac and AppleTV and iPad to work with their phone. And their friends' phones. They want to consume more data. They want to click on Facebook ads. They want to purchase things in-apps more. And a hundred other things. Guess who monetizes that? Apple. Every single time, Apple. Over and over and over again.
|Subject||Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: FWIW|
|Entry||02/28/2015 11:30 PM|
Is there any third party popular software written for Apple that is not writen for android or vice versa ?
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|Entry||03/01/2015 04:20 PM|
Go long AAPL. Risk is equivalent to betting that the sun will rise tomorrow.
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|Entry||03/01/2015 05:07 PM|
Out of all the idea discussions on VIC, I found the debate about the merits of an investment in Apple probably the most tiresome, vacuous, emotional, and full of rhetoric a couple years ago.
I see the same stuff emerging now, when I even mentioned re-visiting the merits of the case. Clearly this is not a forum conducive to a thoughtful discussion on this idea. I am not going to engage this time.
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|Entry||03/01/2015 09:24 PM|
Clearly, you are either a poor person or a nerd who just wants to put dork shit on their phone. Please reengage once you have learned to appreciate good fit and finish.
p.s. I bet you can change your own oil in your car, can't you?
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|Entry||03/02/2015 12:37 PM|
i will contribute just two thoughts.
first, let's acknowledge that this message must hold the vic record for the message with the most Re:s on the header. i understand that this is position will be hard to defend. (it may also signal that there was more heat than light in the prior messages).
second, as for defending the position that aapl is not a short, i would only say to biffins that his/her statement "The reason is very simple. Apple is not a staples business or some other sustainable company. Apple is a retail consumer electronics company and no other consumer electronics company in history has sustained an edge in gross profits for this wide for this long." is incomplete.
aapl is a fantastic brand, not just a retail consumer electronics company. now, great brands can stumble (see KO, MCD), but don't you really have to see some evidence of stumbling before you put a short on? can a short be justified on valuation alone vis a vis a fantastic brand like aapl?
as a compare and contrast, i am short tsla, as i think not only is its valuation excessive but that it has stumbled. add to that its brand is nowhere near aapl's value. i am a nervous tsla short, since tsla still has a cult following that imbues its brand with excessive goodwill, but i am betting that this goodwill will wane. wouldn't want to bet that with aapl.
|Entry||03/03/2015 07:00 AM|
I haven't been either long or short AAPL outright...ever. Don't have the patience to go back through the thread but I'm pretty sure I never indicated that I was involved on either side, and I wouldn't be surprised if I actually explicitly disclosed that I had no involvement at some point. So I'm not really sure how I can be "wrong".
I'm upset that you are not going to be nice to me anymore. That hurts my feelings. Looks to me like you've been on the VIC site for about a year. Once you've been around long enough to judge whether you add any value or not, everybody here can make their own judgment about which of the two of us is humorless. I'm very comfortable with where collective judgement on that one will fall out.
|Subject||Re: Re: Siegfried|
|Entry||03/03/2015 07:51 AM|
In terms of value-add, here are my comments. Value-add may be overstating things.
If I'm not long or short, why have I made any comments at all? Simply put, I find the FanBoy attitude of "my products are sooooo much better than yours" and "Apple is the most amazing innovation company in the world" annoying and misguided. I didn't read your comments about dorks and poor people as particularly humorous, and the fact that you felt it necessary to reiterate (in a recent prior post) that the "substantance" of those comments is true (on the one hand) while claiming to be a funny guy (on the other hand) as pretty good support of this IMO.
I run an Android phone. Other people in my family run Apple phones. I don't have a strong affinity or love for Android but, yes, I choose to use an Android phone because 1) I think the price/performance trade-off is much better, 2) I prefer the Android's customization potential. With respect to the latter, there are really obvious customization elements (ability to set up and adjust homescreens, live tiles) that are materially enhacing from a productivity standpoint, don't qualify as "dork shit", and which Apple has inexplicably refused to include in their design.
Apple makes nice products. However, the statement/belief that Apple products are demonstrably better than Android products is false. Full stop. Yes, the "average" Apple product performs better and has nicer fit and finish than the "average" Android product, but that's like saying that the "average" Lamborghini product performs better than the "average" Chevrolet product. Apple makes high end products, while Android addresses the entire low-high spectrum. So, the correct comparison is an Apple product to a high-end Android product. And in that comparison, the results are in no way definitive. There are multiple high-end Android phones that have performance equal to or better than the flagship Apple phone on any relevant performance spec. When the newest generation iPhone is released, it will generally hold a performance advantage for a few months, and then as that product grows stale high end Android products will take the performance crown. This is well documented. For full disclosure, Android supporters claims that Android products can provide Apple-like performance at a 50% (pick your number) price discount is also unfair, because high-end Android phones do not generally sell at a material discount to iPhones. So, both sides are guilty of hyperbole on this one. Fit and finish is more subjective. I don't spend enough time checking out the beveled edges of my phone under a looking glass to make an informed opinion. If Apple fans want to claim better fit and finish, that's fine with me, but I don't think that is enough to justify a $750bn mkt cap.
Ecosystem. Yes, Apple has a nice ecosystem. I don't think it's nearly as impervious to switching as others have indicated. The "numbers" (i.e. hard data) indicate that Apple garnered 90% of operating profits in the last quarter. I'll take this as fact (somebody posted earlier in the thread). It's a stretch, IMO, though to assume that this is a testament to their "ecosystem". My 78-year-old mother didn't like shelling out a lot of money to Verizon each month for her iPhone contract, so when the 2-year contract expired she took it into Verizon and downgraded to a much cheaper (Android) option. The salesguy had all her personal info ported over in about 15 minutes. I've moved other family members data back and forth before and you don't need to be a dork to make it happen. All of the big telecom providers and Android hardware producers provide tools to make it really easy. So why is Apple garnering such a high % of smartphone profits? Because they dominate the high end. Why do they dominate the high end? Because they make technology "easy" and their product still carries a cachet. That's my belief.
I think that Google/Android is playing the long game when it comes to ecosystem. I don't have stats, but I'm willing to bet that one of the highest penetrations of iPhones is in the cohort of people who grew up when Apple products were dominant in the classroom. Tough to draw a line from there to here, but I wouldn't dismiss this. Apple is losing out big time today to Google in the classroom. Even with huge educational discounts, there is no way for Apple to compete against Chromebooks. We are not talking about a school buying one or two Apple machines for each classroom, we are talking about them purchasing laptops for every student. Google/Chrome is winning this war. And when a school goes with Android/Chrome, they aren't just buying laptops. They are moving their entire educational URL over to Google. That means that all the school communications are going across Google servers that have been personalized for the school system, and the kids are exclusively using Google Docs. Switching costs once a municipality/county makes this move are substantial. Microsoft is a huge loser here, and I believe that Apple ultimately will be as well. Google/Android is working its way into the system in an insidious way. How will this play out? I don't know. I think it's something that you see 10 years down the road, but it won't be a positive for Apple. Apple owned the classroom for many, many years. In my view, the Google/Android "ecosystem" is actually much, much broader than what Apple is currently providing for this reason, but admittedly it is likely irrelevant for anybody with an investment horizon of <5 years. My broader point is that I think it is naive to dismiss Google/Android as a competitor that is only producing a product fit for poor people and dorks.
Innovation. This one is easy. You, or other Apple product lover, may find Apple incredibly innovative. I do not. We can probably chalk this up to semantics, and agree to disagree. From my perspective, "great" innovation means revolutionary leaps forward. This is not in Apple's DNA. Apple is a master of industrial design, but not of revolutionary technology development. If you look at the company's history, this is well established. Apple waits until somebody else has created a revolutionary design, then they study it, and make incremental improvements. They wrap a great industrial design around other company's core ideas.
Sterotypes. Apple lovers look down their noses at (all) Android users. High-end Android users look at Apple lovers with disdain. Low-end Android users don't give a shit. Like all stereotypes, there is a reasonable element of truth to all these statements.
|Subject||Re: Re: Event last night|
|Entry||03/10/2015 01:29 AM|
i an still trying to get my thumb ID to work on my iphone6, so i see more bs than $
|Subject||Re: Re: Re: Re: Event last night|
|Entry||03/10/2015 06:26 AM|
must be my right thumb is all thumbs. i know how to set it up, but after a day or so, it says try again 3 times and then passes my to log in