Bulls and bears alike agree that Apple (AAPL) stock has had some major problems over the past 12 months. One of the biggest obstacles that the company is facing is a slowdown in revenue. Sales growth of 0.4% does not sit well with big investors. And that number does not leave much of a cushion. There is a real possibility that the revenue for Q3 could be down compared to last year when the earnings are reported on Tuesday, July 23. The low estimate of $32.84 billion would be down over $2 billion from 2012:
|Revenue Est||Current Qtr.|
|No. of Analysts||45||44||53||52|
|Year Ago Sales||35.02B||35.97B||156.51B||171.12B|
|Sales Growth (year/est)||0.40%||5.20%||9.30%||9.00%|
The only thing that will get that revenue up again is to come out with the sexy new products that Apple has been famous for. Last month when the company confirmed the rumors that it would be unveiling its new iTunes Radio later this year, analysts and investors were not sure what impact it would have on Apple stock and on competitors such as Google (GOOG), Sirius XM Radio (SIRI) and Pandora (P). Many analysts are taking a "wait and see" position until the new radio service is unveiled. But they are eager to hear any news that might tip the scales in favor of one radio provider versus the other.
BTIG Media Analyst Rich Greenfield has produced an Apple iTunes Radio iOS 7 Beta 3 Video Demonstration via YouTube, which gives investors a glimpse of how Apple radio will look and operate. According to the Apple website, listeners can find brand new songs each week that are exclusive to Apple. This is sure to appeal to the "gotta have it first" crowd. As a side note, this is the same crowd that bought the first iPhones. And many of them are still loyal to a fault:
As the world's most popular music store, iTunes has access to thousands of new songs every week. And you'll hear some of that music on iTunes Radio before you hear it anywhere else. Whether it's an exclusive track from an up-and-coming band or a pre-release of the next big hit....
Even though I have been skeptical about the possible success of iTunes Radio in the past, the fact that Apple will offer exclusive songs will give it an edge over all of the competition. There is not any doubt that a free radio service of this caliber will be an instant success, which will translate into more sales, because listeners will have to (and want to) purchase new iOS 7 devices to access the exclusive music.
But will it be soon enough? Will investors see the possibilities in this new service now, or will they wait for the revenue results next Spring after Apple radio is released in the Fall. The company still has a lot of catching up to do:
Since many investors will wait to see what the new Apple products are, the contrarian play would be to gamble on a soft earnings report, and buy the stock as earnings are announced. Again, like every investment this is a gamble. Apple is still on very shaky ground.
Even though the Apple short interest will take only two days to cover, it has doubled in the last year. And on Friday it was the second "most viewed short interest" stock according to NASDAQ. So the share price is higher right now as those shorts scramble to cover their positions. Because in spite of the fact that the short positions are only 3% of the float, they constitute almost $12 billion at the current share price of $426.51:
Keep in mind that there are risks involved with streaming radio services like Apple, Google and Pandora. The cost, availability, and reliability of data can be a problem compared with satellite radio. Although some may argue that satellite is becoming obsolete, it beats internet radio in some circumstances.
As I have mentioned in several articles, data and internet reception can be hard to find in rural areas. On a recent trip in Texas, I hit a stretch of Interstate which had no internet or cell phone reception. But Sirius XM satellite kept playing without skipping a beat. And there is the high cost of data downloads and streaming for IP. Here is an AT&T data coverage map:
iTunes Radio looks like it will be a much needed shot in the arm for Apple stock, even though it may not take off before the end of the year. But I think it will ultimately boost the share price at the expense of Google and Pandora Radio. Google does not rely on its radio service for revenue like Pandora does, and so its stock should not be affected by iTunes Radio. But Pandora is going to be facing some serious competition. And that company may not survive. I look for Sirius to continue on its own upward path as car sales increase, oblivious to anything that Apple does until someone develops WiFi that has more coverage than satellite.