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David Room

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  • Whether Apple Stock Dropping Below $400 On iPad Rumours Is A Tree Shake Or Something More [View article]
    Interesting update today - according to a Reuters report, Braziian officials say that Foxconn and the government just can’t come to an agreement on tax breaks, work conditions and the like. Therefore the Brazil factory allegedly ready to start producing iPads may not happen.

    This potentially rules out one of the more widely touted reasons for an iPad production cut.

    Together with new rumours suggesting only one iPhone (and by the way I firmly believe there will be only one 'new' iPhone next week), stock price has moved firmly under $400.

    I hope Apple can deliver the goods on earnings as in this skittish market the consequences of any weakness could be severe!
    Sep 29 05:54 PM | Likes Like |Link to Comment
  • Apple Vs. Amazon: The Valuation Dilemma [View article]
    I'm surprised that you didn't expand further on the point about being in different industries.

    50% of Apple's valuation (according to Trefis) is down to one product - the iPhone. That's a lot of product risk. In addition the tech sector, in particular consumer gadgets, is highly susceptible to changing trends, sentiment, brand 'coolness' and short product life cycles. Apple has lost the CEO behind much of their success and his successor needs to prove himself to the market.

    Amazon have an almost untouchable position in online sales - just think of how many products they sell - for which the market cycle will likely continue indefinitely (or until someone invents a replacement for the web). Now they are pushing into tablets which is arguably the convergence of many gadgets built for music, video, games etc over the last decade. And in competition with Apple. In addition market cap is much lower (Apple had a much higher PE when trading at Amazon's size).

    I think to conclude that there is no rational explanation for why Apple is not worth $2500 or Amazon worth $35 is overlooking some of the above reasons; in addition the fundamental law of big numbers as companies mature from high growth / high PE to high growth / low PE mega caps.

    That's not to say Apple is not undervalued - it is - but there are some valid (and quantifiable) reasons for the low PE in the market's view and Apple certainly does not deserve to trade at Amazon's PE.
    Sep 29 04:31 PM | 1 Like Like |Link to Comment
  • Whether Apple Stock Dropping Below $400 On iPad Rumours Is A Tree Shake Or Something More [View article]
    Well, the Amazon Kindle Fire has been announced. The only surprise is probably the price - at $199 it's cheaper than even the most bullish estimates.

    What effect is this going to have on iPad sales this holiday season and do any of you feel that the (alleged) iPad production cuts could be Apple pre-empting Amazon's unexpectedly aggressive pricing?
    Sep 28 01:25 PM | Likes Like |Link to Comment
  • Whether Apple Stock Dropping Below $400 On iPad Rumours Is A Tree Shake Or Something More [View article]
    It should be clear from the article that I am cautious on Q4 iPad numbers based on some of the inflated estimates out there, but bullish on overall revenue and EPS. I am sorry if you did not find the overall message clear but hopefully others did.
    Sep 28 01:16 PM | Likes Like |Link to Comment
  • Whether Apple Stock Dropping Below $400 On iPad Rumours Is A Tree Shake Or Something More [View article]
    Hi, thanks for your comment. To respond to the points you raise:

    1) I'm saying iPad sales were light based upon analyst expectations for the quarter. The iPad sales number was highlighted by analysts as a 'miss' based on expectations for Q2. It was still a phenomenal number for such a new product by any other measure!

    2) I do not disagree that the iPad is the only established tablet in the market. In fact I commented further down the article that "some (to) say that iPad IS the tablet market." The iPad stealing market share statement was based on the latest IDC data which showed that iPad share actually increased to 68.3% from 65.7% in the last quarter. Although this should be taken with a pinch of salt the overall thesis is one where Apple has done better than expected at this stage in the lifecycle, as based upon the rise of Android in the smartphone segment it was expected by some to quickly gain share in the tablet space.

    As to your closing statement, this story has generated massive debate in the last 24 hours which will no doubt continue until results are published. Interestingly, Peter Misek of Jefferies & Co., wrote this morning that “We have confirmed the iPad 2 build plans have been scaled back”. They have cut their estimate for calendar Q4 to 12 million units from 13.6 million units.
    Sep 28 01:11 PM | Likes Like |Link to Comment
  • Research In Motion At Inflection Point And Poised to Rally [View article]
    You say: "The weakness in the August quarter should already have been anticipated as it was outlined by the company in its prior May quarter report."

    Sure they did, but they MISSED YET AGAIN on earnings, below even the bottom of the forecast range (which was in itself massively lowered). That's almost criminal considering the short time frame.

    Maybe the stock has bottomed for now, but how many times can you miss guidance before the Street loses confidence completely and all credibility with investors is lost? That is what has happened to RIM. This is why the PE now looks so low.
    Sep 28 12:55 PM | Likes Like |Link to Comment
  • Is Apple's Growth Tiring? [View article]
    I must take issue with your point "The reason Apple comes under pressure is stated in my article. It's not because of valuation, but because of the market share it is charged to defend now. 73% is not defensible in iPads,".

    This is a non-issue - look at what happened to the iPhone. Recent data suggests Android up at 43% with iPhone on 28%. How has this impacted iPhone sales? The answer is not in the slightest, they are still booming ahead.

    iPhone is also still by far the most important product for Apple in terms of revenue and profit margins, so therefore even a marked deterioration of the tablet market - should it happen (and I bet it won't) - will not have an outsize impact on Apple's bottom line going forward as long as iPhone continues to grow strongly.

    Everyone knows that a 73% market share for iPad is indefensible. In the same way Android led to the launch of hundreds of smartphone models we will have increasing numbers of tablet competitors (starting today with Amazon) and it will inevitably lead to erosion of Apple's market share.

    But this won't stop iPad sales from moving ahead in a growing market. In my view iPad sales could be light in the upcoming quarter but this is nothing to do with market share decline, more to do with general economic weakness or folks holding back ahead of the holiday season, as I write in my article here:

    http://seekingalpha.co...
    Sep 28 09:53 AM | Likes Like |Link to Comment
  • Buy Apple Options Ahead Of iPhone Release [View article]
    Re. 1) You may be clear on what you mean, but you do state (as fact) "It is widely acknowledged that Apple will release two iPhones, which is causing significant investor optimism: iPhone 4S and iPhone 5." If Apple does not change the spec of the iPhone 4 other than lowering the price and giving it 8GB, then I think it is difficult to call this a new release. I think there is more uncertainty here than the specifications of the product - at the end of the day, nobody knows for sure what Apple will release.

    2) Let's see what happens on October 4.

    3) I am confused. The reason I said traders should not bank on this as driving the stock price is exactly because everyone believes 2 phones will be released (it was widely acknowledged that the recent 'pop' was down to rumours of the lower priced 4S - two phones). If Apple don't do this then maybe investors will be disappointed?

    I don't disagree about the earnings boost from the 5 but you yourself say "The financial impact of the new iPhone 5 is largely baked into the current stock price," and "a lower priced iPhone is the catalyst that can accelerate the climb." You then say "For long term investors, there is minimal to worry about, but traders should be worried. Apple historically rises on the weeks leading up to product announcements, stagnates before the launch, and declines immediately after the launch."

    So are we not in the stagnation phase already - less than one week away from launch at time of publication? In which case we are not in disagreement?
    Sep 27 07:32 AM | Likes Like |Link to Comment
  • Hold Onto Your Apple: Its PE Is About To Experience A Gut Wrenching Drop [View article]
    Apple's PE range declined since the financial crisis of 2008/09. Several author's have written good pieces on why this is so and why we will not see the heady days of 20+ PEs again e.g. the so-called 'Jobs premium'.

    For what it's worth, I think your earnings estimate is likely to be close to the money. But I am surprised that so many continue to be shocked by the PE range. Apple is a mega-cap, it trades at a PE almost twice that of Microsoft and others. Based on pure fundamentals, yes of course it should be higher. But it is easy to get carried away in Apple euphoria - remember that half of Apple's market cap - an astonishing $190bn is based on one product - the iPhone.

    I would love Apple's PE to be higher but I am happy to remain long knowing that the share price will track earnings growth going forward. 20-30% year on year will mean 20-30% share price growth and a PE that remains in the 15-18 range.

    I still think it is highly unlikely that Apple's PE will experience a 'gut-wrenching drop'. It is highly likely that the share price will approach again, or pass, all-time highs before results are released. Apple showed in July that it was not comfortable to trade below a PE of 15 for long.

    If I am right, by late October Apple's PE will be pretty much exactly the same as where we are right now, but the stock will be 10-15% higher. If anything this is likely to mean a gut-wrenching (by your definition) surge HIGHER in Apple PE from now until October 17, followed by a return to PE 15 by the end of the month.

    I still believe the article headline is sensationalistic. The drop from PE 250 to 50 would qualify but the days of moves of that size in Apple PE are long since over.
    Sep 27 06:27 AM | 1 Like Like |Link to Comment
  • InterDigital: Waiting Is The Hardest Part [View article]
    Deal reporter says deal in 1-2 billion range, not 5 billion many were hoping for. Seems very low to me, but maybe the bidding war just didn't happen the way people hoped for? I wonder if that is just first round bids as well.......
    Sep 26 02:48 PM | Likes Like |Link to Comment
  • Buy Apple Options Ahead Of iPhone Release [View article]
    I like what you've done with this series of articles and you're certainly getting the mileage from the framework you've put in place. However, I think you should be careful not to report rumour as fact:

    "The iPhone 4S will essentially be a larger/faster iPhone 4 at a lower price point ". This is a completely unproven rumour, and latest articles seem to be reversing stance to just one new iPhone plus a reduced price 4.

    Why would Apple increase the specs of an iPhone 4 to an 'S' version if they intend to sell it in emerging markets / prepay? It just makes no sense to lower margins on a product which is still selling just fine as the flagship phone.

    The 4 will likely be lowered to $99 with 8GB, but the upshot is we just don't know for sure and traders should not bank on this as a catalyst to the stock price. Just look at the action this morning to see what happens when rumours go bad!
    Sep 26 10:26 AM | 1 Like Like |Link to Comment
  • Hold Onto Your Apple: Its PE Is About To Experience A Gut Wrenching Drop [View article]
    We should probably give the author the benefit of the doubt in terms of the sensationalist headline. SA editors have a habit of coming up with their own headlines for your articles.

    However if this was the intention then in my book a 'gut-wrenching drop' in Apple's PE doesn't equate to a reduction from 16 to 15 or god-forbid 13.7. In fact, Apple's PE approached this level earlier this year in July before the big pop to $400.

    The disappointing aspects of the article for me are that there is (a) no explanation whatsover as to author's estimate of $29.49 and (b) the disparity between "It is virtually certain the company's valuation will drop further" and "Incidentally, if Apple's share price increases 10% and the analysts' are right, PE stays at 16."

    If the author is right then PE is 15 which is certainly not a 'gut-wrenching drop' and seemingly contradicts the main point of his article.

    The author is probably closer to the mark than the analysts. Apple has tended to trade recently in a 15-18 range and by the time earnings are released the SP probably will be 10% higher.

    Unfortunately, however, all this tells us is that the article has added little to the Apple debate, but has probably cornered a large number of page views on the sensationalist headline.
    Sep 26 09:48 AM | 2 Likes Like |Link to Comment
  • Why Ancestry.com Has Staying Power, A Double In The Making [View article]
    ACOM down another 9% - Fly on the Wall attributes this to:

    10:32 EDT Ancestry.com weakness attributed to a negative CFRA report (ACOM)

    As an analyst tracking the stock, have you heard anything about this report as I cannot find any reference to it?
    Sep 23 10:49 AM | Likes Like |Link to Comment
  • Why Ancestry.com Has Staying Power, A Double In The Making [View article]
    The problem is, despite the tempting fundamentals as outlined above, ACOM stock is a falling knife, and seemingly in free fall below key support levels.

    $30 was touted as key long term support in another Valuentum article, and ACOM took that out with ease.

    At $23 right now, we are looking at a PE of 15 on next year's earnings, down from 19 when this article was written. We are a long long way from Valuentum's base case valuation of $40!

    But in a market meltdown, who is to say that this is cheap or not? Relative to normal conditions, yes of course it is, but there is so much fear out there right now, most experienced investors would say 'never catch a falling knife' and wait to see some evidence of a turnaround.

    £23 could be the bottom or it could be just the beginning of a brutal market sell off.

    I also note that ACOM floated post the 2008/09 crisis, therefore we have no benchmark as to how it performed in a recession environment. How do we know that consensus $1.50 will be achieved next year? If you had a choice of putting food on the table, gas in the car, or doing some genealogical research, what would you do? If you had a forced choice of cancelling Netflix or Ancestry, which would you cancel?

    If growth deteriorated and they earned just $1.25 then we are still looking at forward PE of 20.

    In saying that, ACOM is certainly on my radar and worth watching for a turnaround in sentiment.
    Sep 23 09:52 AM | Likes Like |Link to Comment
  • Avoid Hewlett-Packard As Future Remains In Doubt [View article]
    Any article on the future of HP can surely not be complete without some kind of reference or comment on the acquisition of Autonomy. A $10 billion deal to enter a high-margin enterprise software sector is much more significant, IMO, than the failure of the Touchpad and disposal of Web OS.

    Autonomy has been a shining (& unappreciated) star in the London FTSE 100, has experienced stellar growth and is more than likely to thrive under HP. This is due to the dedication and drive of CEO Mike Lynch who will remain at Autonomy, combined with HP's global reach. ML would not sell the company he built from scratch unless he was very confident that HP were the best suitor in order to take Autonomy to the next level on the global stage.

    Although clearly a troubled time for the company, the acquisition of AU may yet prove to be a winner for HP. It at least deserves to be included in the analysis of HP's future prospects.
    Sep 7 12:37 PM | Likes Like |Link to Comment
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