Author Topic: AAPL - Apple Inc.  (Read 1630272 times)

johnny

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Re: AAPL - Apple Inc.
« Reply #6840 on: July 31, 2020, 03:22:10 PM »
- Lastly, so important - FOCUS.  Most Managements with this kind of balance sheet would be elephant hunting new acquisitions or incinerating capital with dumb ideas that never pan out.  APPLE IS FOCUSED ON WHAT THEY ARE GOOD AT AND STAY WITHIN THEIR CIRCLE OF COMPETENCE. 

Ok, I'm done here.  Love aapl, obviously, second largest holding.

Funny, this is the biggest reason I had to eliminate the position. I completely disagree--I'd say they clearly are quite unfocused, and that the sheer scale of the iOS platform monopoly and the magnitude of profits it generates allows them to escape any serious scrutiny of their forays outside of their circle of competence.

Apple TV+, Apple News+, Apple Music, etc--none of these are "best of breed" services that people are choosing to participate after soberly evaluating all options. They are pathetical mediocrities that skate by by being the default (and heavily "nudged") solutions within the iPhone ecosystem. They do serve the very suspicious non-financial purpose of elevating Tim Cook to a tastemaker...something I increasingly get the sense he is massively desirous of. I'm not sure why everybody on this board is so tolerant of the fact that billions of dollars in shareholder wealth are being spent on getting Eddie Cue facetime with Jessica Alba and making Tim Cook Oprah's BFF.

While they spend billions on zero-value-add financial participation in Hollywood productions (productions, you must know, they can only participate in by outbidding all of the other, more disciplined and experienced players in the space), they rely on the iPhone not just for financing such adventures, but for providing a baseline level of "demand" that they can then go on the quarterly calls and brag about. Service revenues! Meanwhile, while they pursue business lines that they have no advantage in, and no financial reason to fight over, they constantly let opportunities right under their nose get gobbled up by more attentive and dynamic companies. Amazon Echo was a success, and Apple had all the ingredients to own that space years before Bezos. Spotify exists because Apple was too late to realize the value of a music business. Now Spotify is making a play for the entire podcast world--an entire industry/category that is named after an Apple product. What has Apple been doing to drive that category forward? Nothing, Apple neglected it for almost two decades, while devoting hundreds of millions of dollars to things like "Carpool Karaoke" and "Jessica Alba reviews apps".

The iPhone is a great product, iOS generally, in fact. Their hardware design and ID remains unparalleled. These are the economic engines for the company. Despite their gimmicks and presentations, that is the entire sum of all of the value of the company. Apple is not a service company. It's a hardware company that has found a way to extract slightly more revenue from its more affluent hardware customers, by setting all new devices to an "annoy" mode and allowing rich assholes to just pay $10 or $20 or $30 a month to stop being fucking annoyed. I'm one of those assholes, and I'm happy to make that trade, and good on Apple for figuring it out. But the second I'm not buying an three iPhone(s) a year, do you think I'm paying $15 for an Apple Music family subscription? So why would you assign a higher multiple to the business?

Nothing about that service revenue gimmick is, in and of itself bad. Price discrimination is good. Selling $1400 and $400 iPhones with the same underlying silicon is good and evolving into this status quo is a large part of why Apple has enjoyed so much financial success over the past few years. My problem is that Apple has successfully sold a nonsensical narrative that these service revenues should be considered independent of and superior to the hardware unit sales they are, logically, entirely derivative of. That's really silly.

At a PE of 30, I'm not sure what anybody is expecting. This is a company who is today, more than ever, totally dependent on a single product line. While the iPhone franchise is, IMO, more entrenched than it has ever been, almost all of that EPS growth over the past half-decade come largely from a combination of better price discrimination (mentioned above) and the share buybacks that many posters here absolutely love at $400/share but apologetically excused the reduced pace of a year and half ago when the stock fell to $150. The share price management focus of the buybacks is, by now, quite clear.

They've had some great products post-iPhone. The iPad has been life changing for me. The Watch is great. These are both incredible products, that nonetheless are essentially "iPhones, but smaller/bigger". Only so many times you can go to that well, but let's assume they have a few more left in them. Come up with an estimate of the "valuation" of those product lines, and pretend they're able to come up with two more products as good as them in the next decade. What's the actual, plausible impact on the sum of parts valuation? A few hundred billion, generously? In a company whose valuation is now bumbling around by $100B in a day? They are now priced for something more than the mere continuation of the very mature iPhone product line.

Let me ask you something. Assume you were really high up in the Apple organization, such that you had eyes on all of the R&D and potential products that might be coming out in the next 5 years. Let's say you were around for the iMac, the iPod, the iPhone, and the iPad, so you've seen what those massive hits look like at the embryo stage. Now let's say that somebody called you up from a VP's office and asked if you'd like to spend your time hammering out a deal with Oprah for bringing Oprah TV to the Apple Watch. Is that an assignment you'd be interested in?

If there was, internally, another epoch-defining product in the works, would the top leadership of the company be spending so much of their time on ideas like "What if netflix sucked but was free?" and "what if a building was a circle?" and, my favorite of all "what if i quit my job as the Jesus of Apple to spend even more time with Bono?"

I'm no longer devil's advocating while being long. With the exception of the look-through on Berkshire, I'm completely out of the stock. In fact, I'm considering shorting as my Tesla position has not yet resulted in bankruptcy and divorce.

Posted just so there's a timestamp for people to own me over when Apple hits $5T



« Last Edit: July 31, 2020, 07:15:45 PM by johnny »


Spekulatius

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Re: AAPL - Apple Inc.
« Reply #6841 on: July 31, 2020, 04:57:13 PM »
Its 2020, so we dont have to rationalize anything. We even have a Kodak moment. I never thought I would live to see this again.
Life is too short for cheap beer and wine.

aryadhana

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Re: AAPL - Apple Inc.
« Reply #6842 on: July 31, 2020, 06:28:37 PM »
Amazing rant.  But is Apple's p-e ratio all that notable given where it was when rates were much higher (20-25) or where the S&P 500 is today (28)?  Even Coke is at like 25.  What's so great about Google that it deserves a 36?  (Other than the 12 people working on the 1 thing that accounts for like 4/5ths of its revenue and probably well over 5/5ths of its real profit.  I will concede that Waymo is fantastic). 

Lower rates can do an enormous amount for companies that can credibly at least maintain their free cash flow decades out from here, even if they are powerless to grow it much, and continue wasting a little too much of their operating cash flow on unworthy capex. 

fareastwarriors

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Re: AAPL - Apple Inc.
« Reply #6843 on: July 31, 2020, 07:15:53 PM »
Apple Acquired Mobeewave, a Startup That Lets Smartphones Accept Payments Using NFC

https://www.macrumors.com/2020/07/31/apple-acquires-mobeewave-payments-startup/

According to Bloomberg, Apple purchased the startup for approximately $100 million. Mobeewave's technology works with NFC, which is built into all modern iPhones. Mobeewave's website says sending payments with the Mobeewave app is as simple as inputting a transaction amount and tapping an NFC-enabled card on the back of a smartphone.


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https://www.bloomberg.com/news/articles/2020-08-01/apple-buys-startup-to-turn-iphones-into-payment-terminals?srnd=premium

longterminvestor

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Re: AAPL - Apple Inc.
« Reply #6844 on: August 01, 2020, 04:03:11 AM »
jonny,

I do not quarrel with all your thoughts.  Especially the closing thought (Apple could be a 2.5X from here, hehe).   I prefer to add some additional insight on how my understanding of Apple's business model has changed.  I, like you, was frustrated for a time watching companies like Spotify gain market share or create a business from nothing and become market leader.  I sat scratching my head saying, "Why didn't Apple think of that? WTF???".  So I did a deep dive on business, history, understanding culture, and I learned a ton.  An "Ah ha" moment for me was when I wrapped my head around the App Store.  I thought the App Store was a place for Apple to make $0.30 on a $1.00 purchase.  Now I see the app store as the GLUE to keep people buying phones.  Think about the gestation of Television.  Invented in the early 1930's, but wasn't really commercially viable until the late 1950's/1960's when towers/coaxial cable could deliver the signal AND (very important "and") the content was available in wide array - sitcoms, news, late night tv, morning cartoons, mid-day soaps, ect - "something for everyone". 

Wireless towers and 5G aside..."the rails", lets focus on content part of the analogy.  When I saw the app store as "content", my mind changed.  So now I celebrate when Spotify does a product revamp, because if Spotify gains a lifetime customer (who already owns an iPhone) then they are not leaving Spotify ERGO NOT LEAVING iPHONE.  The platform is so sticky - they can't leave.  I DON'T CARE if the upgrade cycle is now 3-5 years where the old cycle was 1-2 years.  WHY?  Because the when people were upgrading every 2 years the phone cost $750 (so 6 years - 3 upgrades, thats $2,250 in revenue for Apple).  At new price and new upgrade cycle, (6 yrs - 2 upgrades at $1400 a phone) the revenue is actually more - $2,800. 

APPLE IS PLAYING THE LONG GAME.  They are thinking 5-7-10-15 years out.  they don't care what they reported last quarter, or what they will report next quarter.  And that is wonderful for shareholders.  For example, when Exxon was most valuable biz in world, what do you think management did every day?  They probably talked about reporting numbers, and their options, and how to stay rich.  Cook doesn't care.  He just wants to make great products.  So simple. 

Part of your rant alleges over-valuation.  I don't disagree.  Apple's valuation does not detract from wonderful long term business prospects.  The path exists to current valuation, albeit rocky and filled with execution risk.  However, I won't bet against Apple's management.  And for me, selling would be a bet against management. 

You also point out "Apple is a hardware company, not a service company".  Lets unpack this comment.  #1 - agree, they are a hardware company.  #2 - agree, they are not a service company.  #3 - they are a software company (never forget this).  Samsung makes phones - cool, good for them.  Google makes the software for the phones Samsung makes.  Apple on the other hand is vertically integrated and there are risks here but there are huge upside potentials as well.  For example, when Jobs started NExt.  He wanted to build the best computer and then his computer needed software.  So Next built software as well as hardware.  My understanding is when NExt was purchased by Apple and Jobs was brought back - the software team at NExt are the ones who became king of the jungle at Apple and that culture is what brought you the Mac OS and iOS of today.  So true, Apple is a hardware company.  But they are just as much a software company.  iPhones without iOS are just a battery, some aluminum, glass, and silicone.  And dont even get me started on the fact that Apple owns the IP for their chips in the phones.  That alone is a huge store of value for shareholders that is no where on balance sheet and helps get a little closer to your 30X earnings val. 

I could go on - hope to learn more as I age.  Please, please tell me where I am wrong - or difference in opinion is - this is the fun.  All I can say is grab your bag of pop corn and watch Apple - this is gonna be a saga for the ages.

cubsfan

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Re: AAPL - Apple Inc.
« Reply #6845 on: August 01, 2020, 09:28:38 AM »
Nice post.

I worked at NeXT early in my career in sales, circa 1991.

The software was frickin' amazing. The OS was way, way ahead of it's time - nothing was even close. I was absolutely blown away.

When you showed it to customers/prospects, they were amazed. But there were 2 problems to adoption.

1) The software was tied to the NeXT hardware. On the hardware side, your competition was Sun, HP, Silicon Graphics, and several other Unix players.
    That hardware market was a COMPLETE leapfrog game - one year HP has the fastest box, next year it's Sun, etc, etc.
    NeXT had neither the resources or scale to complete effectively in that hardware game - so hardware was effectively a dead end.

2) On the Software side: NeXT Step OS, did not integrate with anything to speak of. It was a closed system and tightly controlled environment.
    It was not "open" like other unix platforms - and you couldn't do anything with your Microsoft applications. You had "apps" from NeXT and
    a small handful of independent developers. That was about it.

So that limited the appeal to the customer - in spite of the fact the NeXT Step apps were stunningly beautiful and easy to use.

All that changed when Jobs saw the opportunity to remake Apple Mac with the NeXT OS.  But the real homerun came when they effectively
ported the software to the iPHONE because of the cost of handheld computing power. A workstation that I might have sold for $10,000 in
1991, now you could effectively have on your Phone for $900.  It was a brilliant move on Jobs part. The closed system gave Apple the
ability to control the look and feel in a highly secured OS. (no virus/malware issues to speak of)

gfp

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Re: AAPL - Apple Inc.
« Reply #6846 on: August 06, 2020, 11:31:19 AM »
Amazing strength in market price here.  $60 Billion short of a bunch of $2 Trillion market cap headlines.  Ignoring the ongoing repurchase activity, it would be 467.77 / share that made $2 Trillion.  Berkshire is almost to $114 Billion pre-tax.  Big numbers add up quick

John Hjorth

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Re: AAPL - Apple Inc.
« Reply #6847 on: August 06, 2020, 12:29:08 PM »
It's actually crazy to think about, from an accounting perspective. Personally, I think of it as a better option to think about look-through-earnings, ref. Dynamic's ongoing calculations shared here on CoBF.

Wonderful company, no matter how one think of it. [Price matters, investment related.]
In the race of excellence there is no finish line.
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Gregmal

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Re: AAPL - Apple Inc.
« Reply #6848 on: August 06, 2020, 12:48:39 PM »
I recall hilariously missing the forest for the trees on this one in December/January '19. At $150 I decided it was cheap enough to maybe take a pussy flyer by purchasing BRK at $196 for pass through exposure. Valuable lessons always to be learned. Sigh.

rb

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Re: AAPL - Apple Inc.
« Reply #6849 on: August 06, 2020, 03:27:07 PM »
I recall hilariously missing the forest for the trees on this one in December/January '19. At $150 I decided it was cheap enough to maybe take a pussy flyer by purchasing BRK at $196 for pass through exposure. Valuable lessons always to be learned. Sigh.
That was a crazy time. I backed up the truck at that point (15% position). It was trading at like 7x earnings ex cash. Everyone was going but... but.. but... the market. It was 7x earnings on a majour brand with huge installed base stupid.

Anyway, I sold out around 340 when I thought that the valuation was getting out there. So at 455 i guess I'm the schmuck.