I apologize for the misleading title. It was not my original title for this article. As you pointed out, the purpose of the article was to make a narrow argument about future iPhone earnings in the US. If one feels that iPhone earnings may be under pressure in the near future but that overseas growth and iPad sales can make up for it, then this article can be safely ignored.
The link to the WSJ article says that Apple makes 80% of smartphone operating profit, not 80% market share of smartphones. As you pointed out, Apple does not have 80% market share of smartphones.
I agree that the telcos offer the iPhone because that's what the subscribers want, and it's unlikely that demand for the iPhones on the customer side will wane. Given the choice between and iPhone and an Android phone at the same price, the customer will choose the iPhone.
The problem is that all 3 telcos are heavily subsidizing each iPhone they sell even when you take into the account the revenue on the entire 2-year relationship. So there's motivation on the part of the telcos to push their Android phones harder.
AT&T was killing Verizon in subscriber growth when they had an iPhone exclusive, which is fine, but the question is, did all those subscribers add to AT&T's bottom line? The numbers say no.
Since AT&T is the only telco that's been selling iPhones for more than 2 years, they are the only example we can look at, and the AT&T link in my article addresses this. Sprint felt that they had no choice but to offer iPhones, and they added new subscribers, but in doing so they lost even more money than before iPhone sales.
The telcos are starting to realize that the only company that benefits from an iPhone customer is Apple. The telcos themselves are making very little if any money.
The question I try to raise in the article is, how much more money are the telcos willing to lose to subsidize Apple's valuation? Either they will have to raise the price on the customer side, which will cut into gross sales (fewer phones sold), or they will have to negotiate better prices from Apple which will cut into Apple's iPhone margins, or they will eventually go bankrupt.
The $500 billion market cap is a mistake. I'm sorry about that.
I only own Apple puts that expire in July, and it's a tiny part of my portfolio. I've never seen that position move more than $300 from one day to the next, so I did not write this article to move the market and make money. Come on, this is one article on SA from a first-time writer versus the largest market-cap in the world, so who do you think is going to win that fight? If that was my sole purpose, the per-hour return was not worth the several hours I spent writing this article.
Plus, owning puts is not at odds with the price going up in the longer term. It just has to move down a little before July for me to make money. Again, that is going to happen (or not), independent of whether I write this article.
I've never been short Apple stock and I have no plans to do so. Again, as I said in the article, if I am wrong and Apple earnings momentum can continue, then $500 is cheap for this stock.
This article was meant to focus on the iPhone part of Apple earnings. Again, I agree with the commenters that it's only a part of Apple earnings.
I apologize for the sensational nature of the article's title. The title of my article was changed by the SA editors because the original title was too long, so I can see how I could be making grander claims than the article was originally intended to do. A better title might have been "A closer look at Apple iPhone earnings," which would have been less sensational and more accurate.
All the other assertions in the article have the sources linked, and you can check out the quotes and decide for yourself. Although the iPhone accounts for the majority of Apple's earnings, as multiple people have pointed out, it's true over time that newer products will make their contribution to earnings.
The main gist of this article is that I believe that, over the short term, Apple right now has squeezed all it can from US carriers as far as smartphone pricing (and in the case of Sprint, volume sales). That might influence the contribution of iPhone earnings in the next 2 or 3 earnings reports.
Moody's downgrades the sovereign debt of Spain by two notches, and the debt of Italy, Portugal, Slovakia, Slovenia, and Malta by one notch. In addition, Moody's outlooks for France, the U.K., and Austria are being revised to negative, though each country is maintaining its A3 rating for now. [View news story]
The same thing we do every day: open down, buy it up through the close. Or, gap up, pull it down in the morning, buy it up through the close.
Options Expiration Week, Let The Games Begin [View instapost]
Stocks definitely move in weird ways during expiration week. The big traders have to hedge positions that they're going to hold past expiration. It makes sense that this would happen, since what happens in the options market has to get reflected in the stock price in some way. However, research has shown that this effect is not strong enough to make a consistent profit. Otherwise, there's nothing to prevent the retail trader from taking the same position as the large traders and profiting from this consistent pattern.
Once again, on Friday, it opened down, but creeps up during the day. Buying SPY at 11:30 and selling at 3:45 would have worked again. I have multiple SPY options position which net out bearish, so it drives me nuts to see this action every day.
I also have a large VXX position opened earlier this week (a good day on Friday, to say the least), so I'm following your daily updates. Thanks for posting these articles.
Enormous Apple Options Volume; Where Next? [View article]
I own July 430 puts. I'll keep those and start buying the July 480 puts as well. I'm hoping that AAPL will keep the up movement for a while until I can build my position.
Elsewhere it's been pointed out that Sprint bought a 1-year supply of iPhones in the last quarter that will probably not all get used, and their stock price is getting crushed. Verizon isn't making much money on iPhones either. Both carriers are using iPhones as a loss leader, but if Apple is making so much money that they're squeezing out the carriers, at some point the carriers are going to scale back to the point where they're breaking even. Or start pushing their Android phones.
Yes, the P/E on the shares are low right now. But the assumption on SA and elsewhere is that the "E" will stay the same or keep growing. We need to examine the most recent earnings report and question whether that momentum will continue.
As an illustration, look at the most recent Google earnings report. They reported on January 19th after market close, and I had a bearish vertical option spread in place. The expectations where overwhelmingly positive -- in fact, I could not find a single post expecting bad earnings from Google. One SA post wrote that the tech ETF was probably going to go up the next day on the strength of Google's earnings. And while it's true that Google shares often pop right after a positive report, with sentiment skewed overwhelmingly in one direction, I felt that the reward was greater on the downside. Within minutes of the earnings miss, Google fell from $640 to $580. With everyone already piling into the shares BEFORE the earnings report and the high expectations, I figured $660 was a reasonable target if they beat expectations, unless the beat was outrageous, which I didn't think would happen. I actually run a web site where I run Google Ads, and the month-to-month revenue give me a (albeit limited) view on whether the earnings trend is up or down.
Back to AAPL and my 430 puts. At this point, with the stock at $495 and the overwhelmingly positive sentiment and the parabolic move that is unsustainable, I think it's a no-brainer that AAPL will hit 430 before July. Or, put another way, I think that $430 is a more likely target from here rather than $560 (both $65 away from the current price), and it may happen at the next earnings report or soon after. With several SA contributors calling for AAPL $1000 and everyone calling the stock "cheap" (assuming a continuation of record earnings), the risk/reward favors the downside rather than the upside. I rarely buy options outright, preferring spreads or selling premium, but I'm doing it with AAPL because of the compelling risk/reward.
As for where AAPL is headed long-term, I have no idea and I have no horse in that race. I'm more focused on shorter term options trading. When my profit targets are hit, I close the positions and move on.
Complacency Risk Is High - Awaiting The Next Uh-Oh Moment [View article]
Good analysis. I want to agree with you, since I am long VXX.
However, as I'm sure you've noticed, whenever sentiment crosses the "too bullish" line, the market tends to go up for a while. The lack of catalysts for the market moving higher is actually a bullish factor, since investors are not expecting anything specific, and thus aren't affected by specific disappointments.
On the other hand, from your chart it looks like 15 is a solid bottom for the VIX, although it can stay near 15 for months. However, there are so many factors I can think of for a market panic in 2012 that will spike the VIX up to 40 again. At least that's my hope.
Like you, I've been amazed and puzzled at the current market rally. Again, that's another argument for it continuing to go higher, since people are sitting on the sidelines waiting for it to go down.
How Microsoft Could Kill Google on the Web [View article]
The problem is that right now no one clicks on the Microsoft ads.
I run a business where we advertise on both Microsoft and Google using almost the same keywords. The ROI is about the same on both (dollars in advertising spent to produce a dollar of revenue), but I spend thousands on Google ads each month (anywhere from $3000 - $5000), and about $10/month on Microsoft. Giving me that $10/month for free isn't going to stop me from giving my thousands to Google every month. If Microsoft was able to give me the same ROI and charge me thousands a month, I would gladly take it. Right now I've maxed out the Google spending, because if I bid more, I reduce my ROI.
As an aside, I stopped my Yahoo ads several years ago, because their 10 cent minimum bid meant that I simply could not make my money back on their advertising. I was grandfathered in at 3 and 4 cents from the old Goto.com / Overture.com days, but they sent me an email telling me that they were going to automatically convert my bids to 10 cents, so I angrily canceled my entire account. Now they've removed the 10 cent minimum, but I still haven't returned to Yahoo, because I'm still pissed off.
Microsoft needs more traffic, pure and simple. You would think all those PhDs in Microsoft Research could duplicate Google's algorithm, but I think the difference is that the Google employees are on a mission and the Microsoft employees are kinda tired. Back in the days when Microsoft stock was going up, you could pay less than the going rate for programmers, but those days are over, and Google's pay and perks are much better than Microsoft's, so they get the better people. One of the smartest people I know (he got his PhD in Math in his mid-20's) left Microsoft Research a long time ago, and is now working for Google. Multiply this scenario by thousands, and I think you get to the heart of the problem.
Why I'm Worried About Apple Growth [View article]
Why I'm Worried About Apple Growth [View article]
Why I'm Worried About Apple Growth [View article]
The problem is that all 3 telcos are heavily subsidizing each iPhone they sell even when you take into the account the revenue on the entire 2-year relationship. So there's motivation on the part of the telcos to push their Android phones harder.
AT&T was killing Verizon in subscriber growth when they had an iPhone exclusive, which is fine, but the question is, did all those subscribers add to AT&T's bottom line? The numbers say no.
Since AT&T is the only telco that's been selling iPhones for more than 2 years, they are the only example we can look at, and the AT&T link in my article addresses this. Sprint felt that they had no choice but to offer iPhones, and they added new subscribers, but in doing so they lost even more money than before iPhone sales.
The telcos are starting to realize that the only company that benefits from an iPhone customer is Apple. The telcos themselves are making very little if any money.
The question I try to raise in the article is, how much more money are the telcos willing to lose to subsidize Apple's valuation? Either they will have to raise the price on the customer side, which will cut into gross sales (fewer phones sold), or they will have to negotiate better prices from Apple which will cut into Apple's iPhone margins, or they will eventually go bankrupt.
Why I'm Worried About Apple Growth [View article]
I only own Apple puts that expire in July, and it's a tiny part of my portfolio. I've never seen that position move more than $300 from one day to the next, so I did not write this article to move the market and make money. Come on, this is one article on SA from a first-time writer versus the largest market-cap in the world, so who do you think is going to win that fight? If that was my sole purpose, the per-hour return was not worth the several hours I spent writing this article.
Plus, owning puts is not at odds with the price going up in the longer term. It just has to move down a little before July for me to make money. Again, that is going to happen (or not), independent of whether I write this article.
I've never been short Apple stock and I have no plans to do so. Again, as I said in the article, if I am wrong and Apple earnings momentum can continue, then $500 is cheap for this stock.
This article was meant to focus on the iPhone part of Apple earnings. Again, I agree with the commenters that it's only a part of Apple earnings.
I apologize for the sensational nature of the article's title. The title of my article was changed by the SA editors because the original title was too long, so I can see how I could be making grander claims than the article was originally intended to do. A better title might have been "A closer look at Apple iPhone earnings," which would have been less sensational and more accurate.
All the other assertions in the article have the sources linked, and you can check out the quotes and decide for yourself. Although the iPhone accounts for the majority of Apple's earnings, as multiple people have pointed out, it's true over time that newer products will make their contribution to earnings.
The main gist of this article is that I believe that, over the short term, Apple right now has squeezed all it can from US carriers as far as smartphone pricing (and in the case of Sprint, volume sales). That might influence the contribution of iPhone earnings in the next 2 or 3 earnings reports.
Moody's downgrades the sovereign debt of Spain by two notches, and the debt of Italy, Portugal, Slovakia, Slovenia, and Malta by one notch. In addition, Moody's outlooks for France, the U.K., and Austria are being revised to negative, though each country is maintaining its A3 rating for now. [View news story]
Options Expiration Week, Let The Games Begin [View instapost]
Enormous Apple Options Volume; Where Next? [View article]
http://on.wsj.com/wf8SMU
VIX - Options Volatility Sonar: Thursday Recap [View article]
I also have a large VXX position opened earlier this week (a good day on Friday, to say the least), so I'm following your daily updates. Thanks for posting these articles.
Enormous Apple Options Volume; Where Next? [View article]
Elsewhere it's been pointed out that Sprint bought a 1-year supply of iPhones in the last quarter that will probably not all get used, and their stock price is getting crushed. Verizon isn't making much money on iPhones either. Both carriers are using iPhones as a loss leader, but if Apple is making so much money that they're squeezing out the carriers, at some point the carriers are going to scale back to the point where they're breaking even. Or start pushing their Android phones.
Yes, the P/E on the shares are low right now. But the assumption on SA and elsewhere is that the "E" will stay the same or keep growing. We need to examine the most recent earnings report and question whether that momentum will continue.
As an illustration, look at the most recent Google earnings report. They reported on January 19th after market close, and I had a bearish vertical option spread in place. The expectations where overwhelmingly positive -- in fact, I could not find a single post expecting bad earnings from Google. One SA post wrote that the tech ETF was probably going to go up the next day on the strength of Google's earnings. And while it's true that Google shares often pop right after a positive report, with sentiment skewed overwhelmingly in one direction, I felt that the reward was greater on the downside. Within minutes of the earnings miss, Google fell from $640 to $580. With everyone already piling into the shares BEFORE the earnings report and the high expectations, I figured $660 was a reasonable target if they beat expectations, unless the beat was outrageous, which I didn't think would happen. I actually run a web site where I run Google Ads, and the month-to-month revenue give me a (albeit limited) view on whether the earnings trend is up or down.
Back to AAPL and my 430 puts. At this point, with the stock at $495 and the overwhelmingly positive sentiment and the parabolic move that is unsustainable, I think it's a no-brainer that AAPL will hit 430 before July. Or, put another way, I think that $430 is a more likely target from here rather than $560 (both $65 away from the current price), and it may happen at the next earnings report or soon after. With several SA contributors calling for AAPL $1000 and everyone calling the stock "cheap" (assuming a continuation of record earnings), the risk/reward favors the downside rather than the upside. I rarely buy options outright, preferring spreads or selling premium, but I'm doing it with AAPL because of the compelling risk/reward.
As for where AAPL is headed long-term, I have no idea and I have no horse in that race. I'm more focused on shorter term options trading. When my profit targets are hit, I close the positions and move on.
Enormous Apple Options Volume; Where Next? [View article]
VIX - Options Volatility Sonar: Thursday Recap [View article]
Complacency Risk Is High - Awaiting The Next Uh-Oh Moment [View article]
However, as I'm sure you've noticed, whenever sentiment crosses the "too bullish" line, the market tends to go up for a while. The lack of catalysts for the market moving higher is actually a bullish factor, since investors are not expecting anything specific, and thus aren't affected by specific disappointments.
On the other hand, from your chart it looks like 15 is a solid bottom for the VIX, although it can stay near 15 for months. However, there are so many factors I can think of for a market panic in 2012 that will spike the VIX up to 40 again. At least that's my hope.
Like you, I've been amazed and puzzled at the current market rally. Again, that's another argument for it continuing to go higher, since people are sitting on the sidelines waiting for it to go down.
How Microsoft Could Kill Google on the Web [View article]
I run a business where we advertise on both Microsoft and Google using almost the same keywords. The ROI is about the same on both (dollars in advertising spent to produce a dollar of revenue), but I spend thousands on Google ads each month (anywhere from $3000 - $5000), and about $10/month on Microsoft. Giving me that $10/month for free isn't going to stop me from giving my thousands to Google every month. If Microsoft was able to give me the same ROI and charge me thousands a month, I would gladly take it. Right now I've maxed out the Google spending, because if I bid more, I reduce my ROI.
As an aside, I stopped my Yahoo ads several years ago, because their 10 cent minimum bid meant that I simply could not make my money back on their advertising. I was grandfathered in at 3 and 4 cents from the old Goto.com / Overture.com days, but they sent me an email telling me that they were going to automatically convert my bids to 10 cents, so I angrily canceled my entire account. Now they've removed the 10 cent minimum, but I still haven't returned to Yahoo, because I'm still pissed off.
Microsoft needs more traffic, pure and simple. You would think all those PhDs in Microsoft Research could duplicate Google's algorithm, but I think the difference is that the Google employees are on a mission and the Microsoft employees are kinda tired. Back in the days when Microsoft stock was going up, you could pay less than the going rate for programmers, but those days are over, and Google's pay and perks are much better than Microsoft's, so they get the better people. One of the smartest people I know (he got his PhD in Math in his mid-20's) left Microsoft Research a long time ago, and is now working for Google. Multiply this scenario by thousands, and I think you get to the heart of the problem.