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.