Apple's Greatest Idea Yet 48 comments
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There is an Apple (AAPL) story that I don't want you to miss. It's bigger than the Mac, it's bigger than the iPod, and it's bigger than the iPhone. Steve Jobs briefly mentioned it in the quarterly conference call and it deserves repeating, "We've never seen anything like this in our careers".
Of course, I'm talking about the App Store. This store is causing a sea change in both the mobile phone industry and the gaming industry that threatens the viability of all competitors. There have already been approximately 250 million apps downloaded among the 6000 applications available. Mr. Jobs adds:
Competitors are scrambling to copy our App Store but it's not as easy as it looks and we are far along in creating the virtuous cycle of cool applications begetting more iPhone sales, thereby creating an even larger market which will attract even more iPhone software development. It is clear that customers are now attracted to iPhone not only for its amazing functionality and revolutionary multi-touch user interface but also for its unique ability to let users easily purchase, download, and use thousands of different applications, ranging from free games to financial planning and health management -- all of this in only 102 days.
Apple has brought the Internet to the next level. That level that everyone expected during the tech bubble has arrived. The efficiency of distribution is impossible for the traditional model to compete with. Consumers are eating this thing up. During a quarter in which consumers supposedly quit spending, Apple grew real revenue by 54.5% and grew net income by a staggering 81.2%. That kind of growth is absurd for a company as mature as Apple. That kind of growth is absurd during an economic collapse. But it happened. And it's just beginning. The $199 price tag on the iPhone was a brilliant move by Apple as it allows them to fly below the radar of the economic downturn. The iPhone is the must have item for the holidays; teenagers and adults don't even want any other gifts and they'll be happy as long as they get their iPhone, and it's not just because of the touchscreen or the safari internet browsing. It's because the App store is the gift that keeps on giving.
Apple brought a new twist to an aging industry and it worked. Steve Jobs further remarked on the conference call:
I think the traditional game in the phone market has been to produce a voice phone in a hundred different varieties. But as software starts to become the differentiating technology of this product category, I think that people are going to find that a hundred variations presented to a software developer is not very enticing and most of the competitors in this phone business do not really have much experience in a software platform business. So we are extremely comfortable with our strategy, our product strategy going forward and we approach it as a software platform company, which is pretty different than most of our competitors.
The competition is too late to the party. The snowball has begun. There will come a time when Apple stock will no longer be bogged down by its sector. I don't know exactly when that day is but it's coming. Investors ask, where can I make money? Apple offers the best answer in the market. During the last 13 months of this bear market Apple has proved itself again and again. It maintains record sales even in the worst of times. Modern day society values its computers and phones above all else. These items are more important than cars, jeans, jewelry, entertainment, vacations, etc...
When looking for market leadership, look no further than the App store. Just imagine what is going to happen when this gets introduced throughout China. The iPhone as a $199 laptop will set all kinds of records among the Chinese. Apple in the $80 range offers a unique wealth building opportunity. Definitely time to buy and hold.
Disclosure: Long AAPL 2011 calls.
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This article has 48 comments:
(But make that the $90 range--Apple closed yesterday at 89.91)
"attenuation"
not everyone needs a smartphone-the touch gives you access to the app store without the contracts...it's just as big.
Consider this, Apple stands to have an even better result with the fall in input prices. Flash memory is falling like a stone - and who in the world is benefiting from that than Apple??
If Apple grew laptop sales 28% last month it's obvious Apple products are being treated differently to everything else.
If your world needs cheering up don't go and buy a Dell or a Nokia, buy an Apple product.
On Nov 19 09:39 AM the AdMan wrote:
> While I agree with the general assertions of the article, Jason,
> your hyperbole undermines your credibility. Tone down your enthusiasm
> a notch and you'll attract more believers.
Buy and hold - now there's a novel concept. Once the air clears of one horrible financial story after another every day, people will get comfortable with holding stocks.
I completely agree with your assertions and I think that what Apple will put together for their Q1'09, in the midst of this downturn, will create a stampede to get into the shares.
Apple is a truly amazing company and always has been.
With the iPhone, I think they are going to exceed what they accomplished with the iPod. No, not 70% marketshare. Just look at Jason's article, he's effusing like a little boy. It's just like the movie, Field of Dreams, when the brother-in-law looks up and asks "when did they get here?" referring to the ballplayers. All of a sudden, they are the biggest cheerleaders around, as if they discovered gold.
Look at the iPhone, it already generates more in non-GAAP revenues than the iPod, ever did. The iPod had iTunes to drive follow-up sales. You loved your iPod when it shuffled to a song you hadn't heard since highschool. The iPhone is better. It has Apps to drive follow-up sales. Anytime you want to fall in love with your iPhone, just download a new App, a free one or a 99 cent one like Ocarina. Pure joy, that's what it is.
And, what's great, is it builds on top of the existing iPod ecosystem. The 3rd-party mfrs are already making iPod cases and speakers have very little retooling to make iPhone and Touch cases and speakers. How many iconic devices have a Billion-dollar ecosystem, a virtuous cycle?
@Dividends, margins are not declining. The more iPhone revenue that hits the bottom line lifts gross margins, as the GM on the iPhone is 47.8%, far above Apple's normal GM of between 30 and 33%. Now, GMs have been guided lower, as the cost of mfring the unibody Macs is expensive, but Apple CHOSE to spend more on mfring. That's a key difference.
All kidding aside buy the stock with Jan 2010 120 put for $133. (9% risk)
At least you're guaranteed $120 in 14 months and may profit.
If it falls to $30 take your cash out and triple up...
But I think the iPhone will put them into another category within the next six months.
iPod touch is brilliant in that it's contributing a great deal to the app store success. Still a few apps require iPhone, such as the amazing new google mobile app for iPhone. And internet everywhere is very cool, as is not paying for that with iPod. You can have the app store either way, and I don't see nintendo, msft, sony, competing with Apple.
People simply won't pay $60 for a game when they can get it for $5-$10 on the app store.
I still have them and I've bought more since. If this rotten market would leave me any cash, I'd buy more today.
Take a look at the company's financials for crying out loud. The Big 3 Auto makers are looking for a $25B bailout. Apple has that in cash (and would be wise not to invest in Detroit).
you should diversify into other ideas too. stock prices dont always reflect the companies intrinsic value. my uncle put all his eggs into AGU, and i told him there were cheaper companies out there... sure enough. plop and drop.
right now, apple is a buy. 2 reasons:
it's a growth stock trading like it's not going to grow anymore.
when you plant an apple in the ground, it grows a tree. johnny appleseed is back. and someone just burned down his apple orchard. he's planting.
I agree with your caution, but your analysis might be wrong as well. We don't know. For example, I read recently that people of all income levels are buying the iPhone. The speculation was that for some people this replaces a laptop and a game console so is a good investment whereas the conventional wisdom pegs it as an upscale product.
Same with the laptops. Apple is not a high-end luxury product though the selling price is higher than that of some other laptops. It may be that when money is tight people will wasting money on throw-away $500 laptops and opt for a $1,200 laptop that will last three to five years.
Finally, I'll disagree with your characterization of Apple being a consumer trend. That sounds like we're talking about a popular color or the newest hair-style. It misses the underlying utility provided by Apple products. Yes, they might lose share someday, but analyzing their share as a fad or trend is wrong.
Y.I. :
As many have noticed figuring the upside to AAPL is very difficult. It is one thing to try to estimate sales of laptops and iPods but then they throw you a curve and come out with the iPhone. Then they throw a change up and come out with the App Store.
Apple has enormous upside potential. They could become the leading purveyor of home electronics. How much is that worth? Who knows? With no road map from Apple how do estimate this?
On a technical basis, though, Apple is still not in a great place. It's held support at 85, but I wouldn't get in until we see an uptrend in order to avoid the risk of a collapse. Just think if it broke under the 85 level...and you could get it even cheaper. Either way, once AAPL starts heading up, it'll be tough to stop.
First off I'm not an investor I'm a techie I don't even know how I got here but when I scanned the article I felt a sorry for you guys. Now I know why the stock market's where it's at. I'm going to school you now for free before I go to bed.
Have you heard of something called a G1 phone by Google ?
Have you heard of something called Open Source ?
This is my prediction the G1 phone is going to bury the iphone.
Snapple is proprietary they always have been and they always will be.
They hit the market just right to take Open Source and turn it into proprietary money. That era just ended with the G1 phone.
The game is over as far as applications built on anything but Open Source. The Snapple phone is built on Snappleware.
The G1 is built on Open Source. Take a look at what's under the hood on those Apps you find little databases built on something called mysqlite. I'm not sure what Snapple is built on because I wouldn't waste my time looking at it but you can bet that it's got the Snappleware logo on it some where.
As the G1 phone picks up steam the Snapple iphone will be relegated to the ash heap just like the drink it was named after.
I work for non-profit and make about 36k a year. I bought a G1 phone.
Ok no more free help go out there an buy more snapple.
Apple has about 8% of the domestic computer market, and about 3% internationally. MSFT Windows has MUCH bigger numbers, for historic reasons involving the evolution of Enterprise computing; and MSFT has these numbers in spite of: 1) Vastly inferior products (Windows isn't even as good as LINUX, never mind OS X) 2) Extremely high support costs 3) weak development tools. It is my expectation that Apple's computer marketshare will top 50% within 7 or 8 years, picking up momentum after Enterprise starts to capitulate. It will dawn on even the most Neanderthal IT types that Intel makes upgrading to Apple EASY; you can virtualize those nasty old Visual Basic billing and accounting programs at FULL speed on a Mac these days. Even if Enterprise moves more glacially than usual, there's ENORMOUS potential share increase ex-US as we see from the numbers above.
This is all ON TOP of Apple's cash; it's software offerings (iApps; Filemaker: Logic: Final Cut Pro; iWorks); and the iPhone.
I'm a nervous investor; I'll sell most of my AAPL around the time they hit 20-25% domestic computer market share. I think that's not even a "stretch goal"; it's eminently "do-able".
On Nov 19 04:51 PM Y.I. wrote:
> Quick question for the AAPL fans: At what price is this stock too
> expensive?
but...here's the thing...so i tried to think of it as a work tool. um, well, then i downloaded the first game. and the next..and then some books, and then more stuff...and finally it hit me... THIS is what will change everything!! and sure enough...everywhere i am, people are interested in the iPhone. if i let them use it for awhile, they give it back...but reluctantly. heh, heh, heh. The stock is well priced. I'm long APPL and i will not tone down my enthusiasm. This company is amazing and deserves the excitement it generates. And in this crummy economy...we can use something to cheer about.
Hint, it's a Finnish word.
On Nov 20 01:25 AM Ivan Putsky wrote:
> Sounds like a bunch of Apple investors giving each other back rubs.
>
>
> First off I'm not an investor I'm a techie I don't even know how
> I got here but when I scanned the article I felt a sorry for you
> guys. Now I know why the stock market's where it's at. I'm going
> to school you now for free before I go to bed.
>
> Have you heard of something called a G1 phone by Google ?
> Have you heard of something called Open Source ?
> This is my prediction the G1 phone is going to bury the iphone.<br/>
>
> Snapple is proprietary they always have been and they always will
> be.
>
> They hit the market just right to take Open Source and turn it into
> proprietary money. That era just ended with the G1 phone.
>
> The game is over as far as applications built on anything but Open
> Source. The Snapple phone is built on Snappleware.
>
> The G1 is built on Open Source. Take a look at what's under the hood
> on those Apps you find little databases built on something called
> mysqlite. I'm not sure what Snapple is built on because I wouldn't
> waste my time looking at it but you can bet that it's got the Snappleware
> logo on it some where.
>
> As the G1 phone picks up steam the Snapple iphone will be relegated
> to the ash heap just like the drink it was named after.
>
Both handset manufacturers and network operators have application purchase functionality on their devices. Most devices allow for both hardware and operator app stores. Europe and Asia have lead in this, but you can buy apps on all devices and operators in the US.
Companies have been doing this for many years, more than a decade. And yes, they all make a lot of money selling apps.
But to imply that Apple either invented the concept or owns the market in mobile application sales has no foundation in reality, sorry.
Those of you who commented on the G1's "style, look, size, etc." are all missing the point. Android is an OS, there will be many, many, many phones with android made going forward. Look for a customizable phone with android in the near future, customizable like a laptop from dell, hp, etc...
The poster with the 50% market share prediction... LOL.
I recommend Apple. Perhaps the lone technology survivor for the ultimate-equity-risk-a...
.. Start the clock
800, which I look for within five years.
Annual AT&T cost is, what, $1,200? How many out-of-work Apple enthusiasts will spend $1,200 on iPhone, another $1,200 on cable, Dish, etc. and $12,000 to $30,000 on housing, plus transportation, etc. Priorities?
In this economy, the fundamentals are impossible to forecast. Thus, uncertainty could keep the stock in a trading range for some time, and price momentum is bearish.
Morningstar estimates AAPL's fair value is $169, but M* has been very slow in lowering its fair value estimates. Stock is selling for only 2.3 times sales per share and for a relatively low 7.78 times cash flow? Why is the market pricing the stock this way?
Again, uncertainty. I own some AAPL, but I won't buy more until the daily, weekly and point and figure charts are bullish.
On Nov 19 10:23 AM Jon T wrote:
> Dividends Anonymous,
>
> Flash memory is falling like a stone - and
> who in the world is benefiting from that than Apple??
1. There is a company that actually competes with Apple. One company that builds its own hardware, software, and ecosystem for all the same devices Apple does.
2. That company builds products that are comparable to Apple's products in quality and joy of ownership.
The only other thing that could cause me to sell Apple is if the company started listening to idiot analysts that advise them to do really dumb things (license the OS, build econooxes, subscriptions for iTunes music, and on and on and on).
@Ivan Putsky
Open source is important. Open Source will contribute a lot of innovation to the tech world. But Open Source is for geeks.
Open source will never become a force in the consumer electronics market. Consumers want to turn on the blender and have the strawberries and yogurt become a smoothie. Open source is for folks who want to add a coil to the motor to give another quarter-horse power.
A lot of future great iPhone Apps will crash the G1.
THAT is what they said about Computers in general as well as the INTERNET some years ago.
On Nov 22 02:13 AM Rip Ragged wrote:
> I'll sell Apple when two things happen.
>
> 1. There is a company that actually competes with Apple. One company
> that builds its own hardware, software, and ecosystem for all the
> same devices Apple does.
>
> 2. That company builds products that are comparable to Apple's products
> in quality and joy of ownership.
>
> The only other thing that could cause me to sell Apple is if the
> company started listening to idiot analysts that advise them to do
> really dumb things (license the OS, build econooxes, subscriptions
> for iTunes music, and on and on and on).
>
> @Ivan Putsky
>
> Open source is important. Open Source will contribute a lot of innovation
> to the tech world. But Open Source is for geeks.
>
> Open source will never become a force in the consumer electronics
> market. Consumers want to turn on the blender and have the strawberries
> and yogurt become a smoothie. Open source is for folks who want to
> add a coil to the motor to give another quarter-horse power.
>
> A lot of future great iPhone Apps will crash the G1.