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Dialectical Materialist

Dialectical Materialist
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  • Apple Watch Is Making Luxury Watchmakers Uncomfortable [View article]
    I am finding the biggest benefit of the watch is txt notifications.

    Back in the pocket watch days, time was important. You had to catch that train, or call that person at two, or get to lunch, or whatever. Constantly checking the time with a pocket watch was annoying enough that wristwatches caught on. They did the same thing as the pocket watch, only better.

    Well I am finding in my day I get texted a lot by both friends and coworkers. Meeting updates, ideas, social invitations, whatever. And the watch does the same thing as my iPhone in this regard, but it is just so much more convenient that this function alone makes it a keeper.

    Programmers know that if you are optimizing code, you want to focus on the code that is executed frequently. When we do something over and over again, a small improvement to that action can result in substantial benefits. Getting text messages on my wrist sounded like a bit of a gee whiz function to me before I actually experienced it. Now I've come to depend on it. And I think that this one function will justify the watch's popularity for many people. What's more there are many other functions that could amount to the same kind of essential function for others that text messaging is for me. I think the Watch has very bright days ahead.
    Jul 28, 2015. 05:35 PM | 1 Like Like |Link to Comment
  • If YouTube Is Valued At $80 Billion, How Much Is Netflix Worth? [View article]
    Gary you are right, of course. Some shares trade on prospects not earnings. But even these shares are trading on the prospect of future earnings, as that is what their "prospect" is. So earnings inevitably come into the picture.
    Jul 28, 2015. 12:08 PM | 1 Like Like |Link to Comment
  • Apple: Fiscal 2015 Was OK, But Fiscal 2016 Shaping Up To Be A Better Year [View article]
    Ratty, I entirely agree. I was responding to the idea that there was no compelling reason to upgrade because the 4s can do what the 6 can. I was certainly not suggesting that their was anything wrong with having to replace a 4 year old gadget with a newer one in order to have access to the latest features. I think Apple has done a very good job of keeping their older devices useful and enjoyable. In fact I think this is largely responsible for the iPad sales curve that has so many knickers in a twist. Older iPads are still great. They will be replaced eventually, but they remain useful for a very long time, (in tech years).
    Jul 28, 2015. 11:39 AM | 1 Like Like |Link to Comment
  • If YouTube Is Valued At $80 Billion, How Much Is Netflix Worth? [View article]
    Netflix current market cap values it at $692 per subscriber. That seems very high.

    Of course, Netflix will be adding subscribers in the coming years, but then investors also expect its market cap to increase, so it's not clear how quickly this ratio will improve.

    But if each subscriber paid $10 a month and NFLX managed 20% profit (which is far above their current .6% margin), it would take over 28 years to generate earnings equal to their current market cap. These numbers suggest that current NFLX shareholders are a very optimistic bunch.

    Jul 28, 2015. 10:23 AM | 6 Likes Like |Link to Comment
  • Apple: Fiscal 2015 Was OK, But Fiscal 2016 Shaping Up To Be A Better Year [View article]
    AAPL's bonds were very competitively positioned, and interest rates are at historic lows. Additionally, each share they buy back is a share they will not have to pay dividends on (effectively canceling 1.5-2% of the interest cost). The interest is further a tax deductible expense. And perhaps most importantly, the debt is used as a substitute for repatriation, and the interest is substantially less than the taxes they would pay on bringing the money home.

    There is no compelling reason I can think of for Apple not to sell bonds when rates are at these historic lows. Apple'e foreign debt offerings may even end up net negative interest because of FX.

    Buybacks don't always make sense for companies. Some have timed their buybacks very poorly. But that does not prove that Apple's buybacks are unwise. And furthermore there is evidence that Apple's capital return program to date has been very good for shareholders.

    There is an argument that they should be as aggressive as possible and purge as much excess cash as they can to buyback as many shares as possible at the lowest average price. Buying over time as the stock rises is less optimal from this perspective.

    But one thing the huge capital return program allows Apple to do is defend its shares against irrational declines like we saw in 2012. A bear raid is much harder if the company stands poised to give support at some unknown level. Just the knowledge that Apple can and will defend its shares makes it a less satisfying target for short sellers. It can decrease volatility as well. Both of these are good for common shareholders. Thus, Apple's capital return program makes good sense for Apple investors.
    Jul 28, 2015. 02:07 AM | 4 Likes Like |Link to Comment
  • Apple: Fiscal 2015 Was OK, But Fiscal 2016 Shaping Up To Be A Better Year [View article]
    No problem,

    But it does suggest that Apple's buyback during times of price to book much higher than 2 have been quite effective. Buying at 84 was a bargain. Unless you are suggesting that AAPL isn't worth more than 84 a share...
    Jul 27, 2015. 06:17 PM | 1 Like Like |Link to Comment
  • Apple: Fiscal 2015 Was OK, But Fiscal 2016 Shaping Up To Be A Better Year [View article]
    Dennis I thought you were going to point out the obvious differences between the 4s and the 6 so I didn't bother. But the 4s can't do Apple Pay and can't connect to your apple watch. So really the 4s is a great example of a phone that must be upgraded to enjoy the current features Apple offers with the 6.

    If those features are not important to the user, that is fine. But it is quite different from the idea that the 4s can do what the 6 can.
    Jul 27, 2015. 05:34 PM | Likes Like |Link to Comment
  • Apple: Fiscal 2015 Was OK, But Fiscal 2016 Shaping Up To Be A Better Year [View article]
    "5 years ago Apple traded at just 2x book value"

    I didn't remember this happening, so I went to yCharts to see. It shows AAPL's Price to book 5 years ago was 5.5 - very close to where it is today. I am not sure where you are getting your numbers.

    During the 50% haircut, when AAPL traded at its recent lows in 2013, it traded just below 3x book.

    I can't really debate unless there is agreement about things as fundamental as these simple ratios. So maybe you could explain how or why you think Apple traded at 2x book 5 years ago.
    Jul 27, 2015. 11:25 AM | 4 Likes Like |Link to Comment
  • Netflix And Pricing Power [View article]
    "But maybe you guys think companies should use guesses and gut feel to set prices instead."

    Do your surveys also include straw men? Because it's important to find out what they think, too.
    Jul 27, 2015. 10:47 AM | Likes Like |Link to Comment
  • Apple: Fiscal 2015 Was OK, But Fiscal 2016 Shaping Up To Be A Better Year [View article]
    "Apple is like the roach motel of phone makers. Customers come in, but they don't come out."

    I picture Don Draper at his desk, slightly annoyed, asking Peggy Olson, "What else you got?"
    Jul 26, 2015. 10:50 PM | Likes Like |Link to Comment
  • Netflix And Pricing Power [View article]
    You probably mean "when [U.S.] consumers' willingness to pay is tested," right? Or do the most accurate and trustworthy methods available suggest the same pricing power for international customers as well?

    Oddly the report includes no data about the sample size or even what geographical market is being described.

    And just as interesting: if "a minor price increase" was not to blame for missing subscription targets, that would mean something else was.
    Jul 26, 2015. 07:29 PM | 2 Likes Like |Link to Comment
  • Buying Apple: Consider The Scale Of The Potential Investment [View article]
    “Keep all your eggs in one basket, but watch that basket closely.”

    Here he is paraphrasing Carnegie:
    Keep all your eggs in one basket and watch that basket!

    But as it turns out, Carnegie was actually quoting Mark Twain's Pudd'nhead Wilson. (Published in 1894)
    Jul 26, 2015. 03:46 PM | Likes Like |Link to Comment
  • Apple: Fiscal 2015 Was OK, But Fiscal 2016 Shaping Up To Be A Better Year [View article]
    YakovAnd,

    Great points. And I agree with much of what you are saying.

    Regarding AAPL, yes it is true that if not for buybacks they would be trading at PE 16.5 rather than 14.5 using today's price. But they'd also have zero debt and about $40B more in their war chest, so they might warrant that higher PE in that case. In other words, backing out cash net of debt in both cases would get you to about the same PE.

    INTC would not be a better investment if it took on net debt to reduce float. Except maybe insofar as they save money on dividends and right off the cost of the interest payments. But they wouldn't necessarily be a worse investment either.

    PE is just one number and it doesn't tell the whole story, I certainly agree with that.

    If you are of the opinion, as I am, that at least a correction and possibly something much worse is coming for the US stock market, you do have some difficult questions to ask. Is it worth putting any new money in this market? Should a move to greater portion of cash be made? It's tough to time the markets, but it is also insane to think they will go upward with no pauses or declines along the way.

    I think stocks in general are overvalued today. But that is all the more reason to look for quality stocks like AAPL with huge cash reserves, modest valuations (relative to their peers) and quality earnings.

    The story of why AAPL revenue became stagnant is actually an interesting one. If you assumed 2012 was closer to the $48B it should have been based on its growth trajectory, then you'd see 48, 50, 53. It is only because 2012 was just off the hook that growth appeared to stall so badly. So it is hard to punish a company for having had one insanely high year of revenue. The story would have been better if they had actually missed out on $8b in revenue in 2012, which is kind of twisted when you think about it.
    Jul 26, 2015. 01:08 PM | 2 Likes Like |Link to Comment
  • Apple: Fiscal 2015 Was OK, But Fiscal 2016 Shaping Up To Be A Better Year [View article]
    LOL, and you have a bunch of people claiming that eating at home is cheaper and basically the same experience, and anyway it is more popular so it must be better. Plus it's more customizable, don't you know.
    Jul 25, 2015. 11:38 PM | 3 Likes Like |Link to Comment
  • Buying Apple: Consider The Scale Of The Potential Investment [View article]
    "What happens to this business model when interest rates finally rise I do not know."

    I can tell you what happens when interest rates rise: Their debt will cost more.

    But you know what else? The nearly $200B cash pile they have will start to yield some startling amounts of cash. With a 3% return, it would generate over a dollar a share in earnings that drops right to the bottom line. In a very high interest rate environment it would not be unusual to see a 5% yield. That would be $10B in additional earnings every year (and the cash pile is only growing larger).

    Apple would love to see this era of free money end. They don't need free money and they could use a decent yield on their savings.

    Now other companies out there, you know the ones that have negative free cash flow and are valued on aggressive growth models. Those are the companies that would not survive a 5% interest rate environment.
    Jul 25, 2015. 08:51 PM | 3 Likes Like |Link to Comment
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