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(Full disclosure: I bought Apple stock and calls in the last 2 days, for a short term trade. Yes, I was &*!@-ing my pants yesterday when it hit ~$505.) The di
by steve8918 14y ago
(Full disclosure: I bought Apple stock and calls in the last 2 days, for a short term trade. Yes, I was &*!@-ing my pants yesterday when it hit ~$505.)
The difference with Apple and other momentum stocks is that Apple isn't like Netflix, where hype deeply overshadowed the problem they have with increasing content costs, or Groupon, which simply has a terrible business model.
Apple makes an incredible amount of real money and real demand. In this 4th quarter, Apple will make more money than Cisco will throughout its entire year.
My concern isn't that people will all of a sudden stop buying Apple hardware... that simply won't happen. They will continue to make billions upon billions of dollars.
My concern is that there are a number of strategic missteps almost as soon as Steve Jobs died. I think the iPad mini will cannibalize iPad sales completely and I think a lot of strategic decisions appears to be fraught with confusion and desperation, like Apple Maps, releasing iPad 4 6 months after iPad 3, etc. I get the argument as to why they made the iPad Mini (my wife wants to get one because it will fit in her purse easier), but I still think very few will buy iPads, and they will need to double iPad Mini sales to make up for lost iPad sales, but I guess we'll see in January.
The major difference with Apple and a company like Microsoft or Cisco is that they don't have much recurring revenue streams. Most of their revenues come from consumers purchasing their goods quarter after quarter. In order to keep growing revenues, they really have to maintain their amazing pace of innovation.
If they make a really bad strategic misstep, and people slow down in terms of buying the products, it will show up immediately, and they won't have a strong enterprise pipeline to buffer them. In 2011, Apple sales were about $60B. In fiscal 2012, they were over $100B. So, could their revenues drop to $60B in a year? It's not probable, but it's possible.
That being said, their PE ratio is ridiculously low, something like 10x next year's earnings, and they have $120B in cash. They can do something ridiculous like buy Facebook or even Cisco for cash, and still have more money than most other companies out there, so there is a lot of room for dramatic and aggressive action by Apple.
- angstrom 14y agoI think their logical next move that's been fairly obvious to most people is the television. $120B ought to be enough to make that a reality and is the first true test of a post Jobs Apple. It's likely been in the pipeline long enough to have Jobs's impressions, but if it lacks the final polish it will be glaringly obvious Apple is letting its focus slip. My expectation is something on par with the original iPhone launch.
- arn 14y agoI'd argue their willingness to cannibalize their exisiting products is exactly why they are doing so well. The product that finally killed the iPod was the iPhone.
- wmeredith 14y agoActually it was the iPod Mini that killed the iPod. Then the Nano killed the Mini. Then the iPhone killed the entire line. So, the spirit of your statement is right on the money. This is Apples truth strength. Their lack of complacency. The iPad Mini will eat the iPad. I would nearly guarantee that's the whole idea.
- nicholassmith 14y agoI saw it phrased as "Better to eat your own young than let something else do it", which is slightly grim but I'd say close to the mark.
- tspiteri 14y agoI think the iPad mini will cannibalize iPad sales completely I think Apple prefer that to Android 7" tablets cannibalizing iPad sales.
- rdl 14y agoI bought some 2013-APR-20 $600 calls yesterday, too (I'm glad I didn't see the $505 drop; I think I got mine when the price was around $520). I'm hoping they release a new product between now and then. Unfortunately iPad Mini has both lower margins and lower selling price than the iPad, so while it might get some secondary sales for people who own an iPad already (either a new one or upgrading sooner than otherwise), it will probably hurt more than that because it will cannibalize iPad 4 sales. Supply issues also kind of suck -- they won't have the new iMacs in time for christmas or end of the year budget, and there's no retina external monitor, so the Mini isn't as great a choice as a desktop. The rMBP15 remains the high end choice. If there's any disruption to iPad 4, iPad Mini, or iPhone 5 supply, they're screwed (and it appears there are pretty big supply constraints for each, which might last through the season.) Apple has been pretty horrible at services, so I think the best chance is a TV device, or potentially a sufficiently refreshed computing line as to take over more business sales.
- netcan 14y agoIMO, it's about volume & margins Apple, for a long time were a high margins, low volume company. Excellent products that people are willing to pay extra for. It's what they called "differentiation" (as opposed to penetration) when I was at uni. Macs work like this. I'm willing to pay a lot for a mac, more than twice what I'd pay for a Windows machine because I want a mac specifically. Most people don't though. They want to pay less for a computer or they want something Apple don't make. With ipods, iphones & ipads, Apple created or re-invented markets. They also learned to produce more cheaply. The upshot was that they go to keep their margins as high as always but got market leadership too, even dominance. That's an anomaly though. In a free market a company is not going to be able to keep such high margins and high market share forever. Apple are impressive, but its probably inevitable that one or the other will give. Just like no company can maintain a startup rate of growth forever. IMO, that at the heart of everything.
- AJ007 14y agoI think Apple's biggest risk is that their products become stale, while Android moves a step or two ahead in innovation. The early adapters that I know have moved on to Android products, and so far they are very happy.