Despite being one of our generation's most innovative and disruptive technology companies, Apple has been assigned an earnings multiple which reflects 30% discount to the S&P 500. This discount is an expression of the market's dwindling faith in Apple as the daring growth titan it once was, and a well accepted transition into boring-dividend-blue-chip.
With $150B and climbing mountain of cash I think its time for Apple to do something exciting. The iWatch doesn't count; and neither does the iTV. It's time for Apple to take a real chance.
If Bitcoin becomes a widely adopted as a form of mobile or online payments; the leading Bitcoin wallet/payment service stands to benefit greatly and the price of Bitcoin could rise dramatically from today's levels. Apple is in the unique position of being able to get a piece of the action on both ends.
In theory this would be executed in 4 phases:
1. Apple begins acquiring a significant amount ($1-2B or even more, or 10-20%) of all Bitcoin to store and hold, in the open market. Quietly.
2. Apple announces the adoption of Bitcoin for its newly patented mobile payments system and integration with iBeacon for physical retail purchases.
3. Price of Bitcoin soars on the news, and the liquidity is dramatically increased as more people use/store Bitcoin.
4. Apple acts as the 'Fed' of Bitcoin by manipulating and stabilizing interest rates by either increasing or decreasing liquidity in the market by utilizing the supply of Bitcoin it accumulated in Part 1 (just like a Central Bank).
By step 4 of this phase Apple will have reaped a massive gain on its initial investment of Bitcoin worth several $Billion and be leading the transition to a global crypto-currency.
Because of its dominance in the smartphone sector Apple possess the differential ability to immediately expedite the adoption of Bitcoin. This would create a huge lead for Apple in the emerging $1T mobile payments industry, and leverage its installed user base as a network of 500M+ new Bitcoin bank accounts.
Among other things; Apple could potentially repatriate a portion of its foreign cash reserves in Bitcoin, or at the minimum utilize a fraction of its padlocked overseas fortune to fund this entire project. The potential opportunities for Bitcoin if it were to be aided by a brand as powerful as Apple, are nearly limitless. Credit cards, Paypal, Stripe and traditional banks become imminently obsolete if Apple were to offer comparable services in the digital currency.
The stabilization of Bitcoin by Apple is a critical point, and would open up a debt market for the currency. As volatility decreases a pseudo Bitcoin shadow-banking sector becomes an inevitability as consumers will have the option of cheaper and less restricted capital.
With billions in reserves, and hundreds of millions of clients seeking capital, Apple becomes the most streamlined online lender in the market. In theory, Apple could make the process of getting a loan or mortgage all go through its own online platform, and be denominated in Bitcoin. While doing so it could offer lower rates to clients, and achieve a higher margin per loan than a traditional financial institution. This nuance can be attributed to centuries of infrastructure within banks, which has now turned into excess baggage that drags down operating margins, and limits the competitiveness of offered rates (when compared to a streamlined online lender).
From a broader perspective we are at an inflection point in the financial system as banks struggle to meet Basel III requirements and the majority of whom are consistently posting negative returns on capital. Banks are being competed into unprofitability, and Apple has a monumental advantage of no excess infrastructure costs, which it could translate into lower rates for its customers.
An expansion of Apple's modern minimalism into finance, is in my opinion a welcomed change. Disagree? Try comparing Apple's income statement and balance sheet against that of the Federal Reserve, and then reconfigure your trust in the stability of both entities. One is governed by an economist dictatorship, the other by free market capitalism. In 2014 it's pretty clear which structure allows fiscal responsibility to flourish.
Disclosure: I am long AAPL.