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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(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).