Cowen Advises: Place Your Mobile Internet Bets On Google, Not Apple 13 comments
- Visit Tech Trader Daily Blog
- Visit Barrons.com
- Subscribe to Tech Trader Daily RSS Feed
- More articles
-
Font Size:
-
Print
- TweetThis
Berman thinks both Apple and Google will benefit significantly from the emergence of the “mobile Internet.” But he also notes that Apple shares are up 35% in two months. He writes in his latest Technology Focus newsletter:
At this stage, we would rather commit fresh capital to stocks that have not already been bid up in paroxysms of excitement over the mobile Internet. In our view, both Google’s and Apple’s business are levered to the emergence of the mobile Internet…But at this stage, only Apple has been bid up aggressively on the concept.
His conclusion: “In the months to come, Google is the much stronger candidate to benefit from a hype cycle whose DNA is similar to the one that has propelled Apple’s share price to dizzying heights.”
Berman says that the extra $24 billion in market cap tacked on to Apple’s stock over the last two months makes him think that the old adage “buy the hype, sell the reality” will likely apply here. He says the market now values the iPhone at 2/3 the market valuation of Motorola (MOT), or about 1/3 of Nokia (NOK).
Berman also notes that the P/E ratios for Google and Apple are now nearly identical. “Should Apple and Google trade at the same valuations?” he asks. “We think the correct answer to this question is ‘absolutely not.’ Growth, risk and return are the holy trinity of corporate financial performance. Google trumps Apple in all 3 categories.”
Google is growing far faster than Apple. He says risk at Apple is far higher; as a hits-driven company, it is “just one product cycle miss away from being treated with all the love and tenderness institutional investors reserve for Motorola.” On returns, Google wins again, though by a smaller margin: Google’s ROA tops Apple’s, 29% to 24%.
Berman agrees that Apple will sell a lot of iPhones; he says that by the end of July, the goal of selling 10 million iPhones in 2008 “is likely to look more like a floor than a ceiling.”
But he thinks the market is over-estimating the value of each phone sold. Over the next five years, he notes, Nokia will likely ship over 2 billion phones. Given an enterprise value of $76 billion, he calculates, the market is paying about $38 for each phone Nokia will sell over five years. For the iPhone to be valued on the same per unit basis, he says, Apple would have to sell 600 million iPhones over the same span.
Berman concedes iPhones will generate more profit than the average Nokia phone. If you value each iPhone sold over five years at $100, then the extra $24 billion in market cap implies 240 million phones over 5 years. But that seems highly unlikely. So he concludes that the market is valuing each phone sold at far more than $100 each.
If you were to assume the iPhone takes 15% of the U.S. market, in five years there would be 30 million phones sold here, of about 200 million total. If the U.S. is about 60% of the world market, total phones sold would be 50 million. If the installed base grows by 10 million each year, and users upgrade to new models every other year, he figures the company would then sell 90 million over five years. Under that analysis, he comes up with a market value of $267 per phone, 7x what the market is paying for future Nokia phone sales. “Is this 7x premium justified?” he asks. “We certainly don’t think so.”
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 13 comments:
The iPhone comes with subscriber revenue sharing, all in all which stands to benefit AAPL to the tune of $6-10B/year pretty soon. If the guy can't do basic maths, he should go back to kindergarten. What a stupid, stupid call., AAPL was at $86 in January - 2006! It was around the same price in January - 2007! So it went nowhere for almost a year almost solely due to two things:
1) Fears that the Intel transition would slow Mac sales (it didn't - they still grew over 30%)
2) All the BS and FUD over the options backdating issue, which proved to be a total canard raised by th bears and doom sayers (as AAPL watchers were saying all along).
With those two issues behind it, and following YoY earnings growth of almost 90$ in Q1 and a similar report for Q2, AAPL finally took off.
What part of 90% earnings growth does this buffoon not understand? AAPL is, at $120, reflecting fair value considering its current sales growth for its existing product lines. The iPhone does not, in fact, even figure in the pps - although I fully understand why people who haven't bothered to do some simple calculations might not understand that.
Lesson for analysts: do the maths before you open your mouths. You're only going to look bloody stupid in a few months time.
Do you know how much one SD card of 8GB is in China right now?
2GB is
Apple and OS X is THE pre-eminent platform for a whole new paradigm of connecting the masses to the internet.
Nokia managed OK with voice and SMS...
..and failed completely with everything else such as music, contact management, video, voicemail and internet.
For Apple the voice and SMS is just 2% of the game.
Game changed, calculations in this article are made on entirely the wrong assumptions. Wake up to it guys..!
Symbian own 100million users in Asia. Can do mp3, Microsoft Office, Email, game. RIMM is popular even in your APPLE-water-in-head US. Sorry, RIMM do not use OS X.
Microsoft, no body like him, but you have to admit so many high-end PDA like phone, in Verizon, Cingular, is by HTC+WM6.0.
Tell me, what's the weakness of WM6.0, except the low install bases to Symbian, but not to you! Apple.
Wake up, too, you.
Arnie needs to take into account the extraordinary nature of the iPhone. Although he and the media haven't recognized it yet, the iPhone is a full Mac OS X computer in your hand. The incredible quality and experience of the iPhone and iPod will lead to an explosive virtuous cycle of appl product adoption.
1 - Today's iPhone user experience will not be approached, let alone matched, for several years. Remind you of the iPod? Apple will have a 50%+ share of the high end phone mkt, making 150 million iPhones in 5 years very reachable.
2 - Apple's control over pricing will support a thriving used iPhone mkt. When iPhone 2 comes out, many 1st buyers will upgrade and easily sell their originals on eBay. This will support a surging demand for iPhone 2 (3, 4, ...) on launch days. What's not to like about explosive adoption rates at each launch? Can you spell SIZZLE?
3 - Since it is a hand computer, people at the low end, like my friend Steve, will buy it because it's portable and they will be able to eliminate the $60/mo cost of wired dsl/phone to the home. Why? They'll visit friends, Paneras, or roam to get free access to the internet and all the Web 2.0, Ajax services, VOIP phone AND email, Facebook etc... My friend would like a Full computer, but it's way too expensive for him when you include the wired connection costs. In fact, since he's going through bankruptcy, he (and all value customers) will get their prepaid plan and use the phone minutes judiciously.
4 - At the business end, with a future of 100 million + iPhones (Mac OS X) developers will line up and pay aapl for certification to run on the iPhone. aapl controls all that plays natively, just like MS, and Sony control their game machines. Apple will use this control to maintain RELIABILITY and SECURITY on the phone. The iPhone will be known as KING in security and reliability. Do you think enterprises and gov'ts might value that?
5 - (See 4 above). As large orgs STANDARDIZE on the iPhone, they will finally open the door to Mac OS X adoption in the desktop, laptop, and server spaces.
There's probably more to be said, but I hope you get the picture. Jobs and company have introduced so many huge gamechangers (Apple II, Mac, iPod, TOY STORY). This is another one and the rest of the industry will be flailing at their taillights from now on.
PS - Oh, and what do you think the iPhone means to the Google partnership? (Hint: It's already resulted in YouTube being upformatted from the current proprietary Flash to the swifter and cleaner H.264 standard.)
Regards, from a very happy aapl long!
Those numbers are cumulative - just imagine what happens as they sell anything close to 45M in 2009 as Munster would suggest - I for one don't think they'll get the same revenue share outside the U.S., but they will get something.
AAPL = brand loyalty, something the carriers are drooling for... and AT&T now has.
If that's not enough, look at what the Apple TV unit will do after online movie rentals go live (anywhere from calendar Q3 (rumor) to early 2008 (analysts estimate). That alone is a multi-billion dollar industry and it will only grow as bandwidth speeds to the home increase.
Finally, look at Mac sales - they're absolutely on fire and getting BETTER. This quarter alone could see 50% growth YoY instead of 30% as new MacBooks have been flying off shelves. Leopard will be a catalyst for additional sales in Fiscal Q4 as well. Leopard alone will bring in over $300M in Q4 alone - not bad for ONE quarter.
Oh, and one more thing , SJ hinted at a totally new product coming later this year - no telling what it is, but you know it's going to make a splash.
The bottom line is that AAPL is BASF of the electronics industry - they don't make the products (first), they make them better.
would make for a continously updated product.
Years ago, when I came up with good ideas, I used to wonder why my older ideas weren't working in business. I tried to analyze my ideas and compare them to financially successful ones. It was very hard to figure out because things that were absolutely worthless were considered financial successes, compared to my well-engineered ideas. As soon as I started to negatively critique others besides myself, I learned to have a certain level of disrespect for their characteristics. Then it became possible to me that American business was more corrupt and stupid than I ever would have guessed, just being a consumer. So then I started making generalizations, with the reservation that there are exceptions to a rule. One rule I found myself tending to is that there must be an element of corruption, collusion, and unfairness to every successful business idea. Idiots with nothing to speak of were somehow making it big, so there had to have been an explanation, such as "daddy got it for them" or "they had sex with the right person." As soon as that clicked, I decided that I had to trust my gut, because it was my gut suspicion that was more correct than my own eyes. One way or another, nobody ever gets a chance unless they decide for themselves that the rules don't apply, and they are just going to make up their own rules.
So, in the above, I'd say that Steve Jobs had sex with Bill Gates, or the financial equivalent thereof, and was given his chance to develop neat toys for people. Jobs is probably the best CEO around. He has an intimate knowledge of the mindset of the customer base. He is a marketing wiz, so let's all hail Steve Jobs. Now when he was up there with Bill Gates in his little talks where he charged people to come and see them sit on the stage and jabber, and they said "We've been married now for 10 years and nobody even knew about it," do you think they were kidding? $150 million stock purchase back there? Who bought who again?
Lots of people can do this stuff. The creeps that print out currency just don't let them.
"If the U.S. is about 60% of the world market"
since he talk about google, If he would have just typed:
"wealthy world population"
he could have had a look to this page
www.wider.unu.edu/rese...
and understand that the 60% he is talking about just come out of his mind fantasy !
the total number of new mobiles sold (or rented) each year has passed the Billion mark !
(it is why Apple has choosen a 1 % target of 10M ! )
following his maths, 60% would mean 600M mobiles per year.
to simplify if we take the total population of USA (around 300 millions) this would mean 2 mobile per each american each year? I doubt it !
and it is even worse if you take into account the Age, the 15 to 65 years old likely buyers represent around 200M people, this would mean 3 phones each /year ? without talking about wealth to support not only the buying cost but also the phone bill! wich again reduce the potential.
but 10 million mid or end 2008 worldwide is certainly doable!
the discussion on profits per sales is far more complex than a rule of three (specially when parameters are wrong;o)
From news stories about the first day
- 1: One first purchaser said "It is like holding a piece of art in your hand"
- 2: Another said "When my friends see it, they all want it- even the anti iPhone friends."
- 3: It was pointed out by a reporter that the first 10 people in line did NOT own Macs.
Go to Apple's guided tour:
www.apple.com/iphone/u...
Now tell me the thing is not extraordinary!