MorningWord 5/29/13: Tim Cook Is Losing – $AAPL

by Dan May 29, 2013 9:22 am • Commentary

MorningWord 5/29/13:  Watching the video (here) and reading the transcript (here) of AAPL CEO Tim Cook’s interview last night with the WSJ’s Walt Mossberg at the All Things Digital Conference, I can’t help but think that Cook just doesn’t get it.  He is still running plays off of the playbook that worked so well for Steve Jobs and his “reality distortion field”, and for reasons in and out of his control he is failing.  Cook is not Jobs, and despite his break with Jobs prior thinking and the company’s use of cash, Cook appears to be staying the course on the product front and trying to dictate what the consumer should be using, rather than what they will want.  To paraphrase Wayne Gretzky, since the introduction of the iPod more than 10 years ago, AAPL was always skating to where the puck was going to be, not where it’s been. That doesn’t seem to be the case anymore.

Cook’s answers  to Mossberg regarding iPhone size and thoughts about portfolio anger me as a die-hard customer, and insult my intelligence as an investment professional who has followed the AAPL story for more than 15 years.  Excerpt from

Walt: on product strategy. With the iPod, Apple had a range of products, each designed to hit different markets and use cases. In one case, Apple killed off its best-selling iPod mini and introduced the nano. You haven’t done that with the iPhone.

Instead, Apple has covered price points by keeping around older models at lower prices.

Why not do what Apple did with the iPod, and have a range of new products each year?

Cook: We haven’t so far. That doesn’t shut off the future.

As to why not so far, “It takes a lot of really detailed work to do a phone right.”

My only point is these products all served a different person, a different type. On the phone, that is the question. Are we now at a point to serve enough people that we need to do that?

Walt: Let me help you. There seem to be people that like much larger screens. There are people that like “phablets” that are between phones and tablets.

Cook: A large screen today comes with a lot of trade-offs. People do look at the size. They also look at things like do the photos show the proper color. Battery life, brightness, etc.

What our customers want is for us to weigh those and come out with a decision. At this point, we’ve felt the Retina display that we are shipping is overwhelmingly the best.

Cook can keep going off the Jobs script, specifically the lines about knowing what’s best for everyone. But for almost every excuse he has about why they only have one 4g phone or why they have chosen the screen size that they have, Samsung has an answer.  Maybe this is a bit obvious by the price action in the stock, but AAPL is losing, and Tim Cook better move his ass a bit and take some chances, or risk presiding over what could look like the sinking of the Titanic.

The 3 year chart of AAPL (orange line) vs Samsung (white line) fairly adequately sums up how dire the situation is for AAPL as it relates to loss of consumer mind-share.  Back in 2010, AAPL had a smartphone market share lead over Samsung and had just introduced the iPad which would help catapult them to a near dominate position in tablets.  Since then Samsung has routinely introduced products that have had AAPL’s one iPhone and iPad in their sights, but then chose to surround those products with choices for customers of all different demographics in many different geographies, thus giving consumers what they really want, choice.

AAPL vs Samsung 3 yr chart from Bloomberg
AAPL vs Samsung 3 yr chart from Bloomberg

The chart showing Samsung basing near its all time highs, and AAPL still flirting with recent lows speaks to the sentiment of the respective company’s future product offerings.  Samsung investors seem fairly comfortable that they will continue to do what they do, nothing revolutionary but offer a wide range of high quality reasonably priced gadgets (something for everyone), while AAPL investors are left to guess if and when the company can continue to innovate the way they have in the past, and if they will adapt to a quickly evolving consumer.






MorningWord 5/28/13:  What the hell is wrong with FB?? I keep getting this question from pros and from Mom & Pop (not my my mom and pop, they still don’t know what it is).  On Wednesday’s Fast Money program (below) we highlighted FB’s ytd performance (now down 8.6% ytd as of Friday’s close ) which is massively under-performing the Nasdaq (up about 14.5%) and stocks like YHOO (up 32%), GOOG (up 23%) & even MSFT (up 28%).

Aside from just looking my usual handsome, I highlighted the fact that from a purely technical standpoint the chart was (and remains) particularly challenged when the stock was $25, and now looks to be testing a fairly important prior resistance level after last summer’s breakdown.

FB 1 yr chart from Bloomberg
FB 1 yr chart from Bloomberg

From a fundamental standpoint, fellow panelist, Josh Brown of the Reformed Broker blog, and social media maven mentioned the fact that the kids today are using FB less and less in favor of more micro blogging or focused sites like Instagram (which FB bought last year for $1b), Twitter and WhatsApp, which is has been a frequent topic in the media (here).

Back on May 9th when the stock was $27, I debated the formidable Guy Adami of Optionmonster on the merits of FB as a stock (I was the bear), but my main points were these:

Sent: Thursday, May 9, 2013 2:50 PM
Subject: Re: 5pm – New Street Fight – Facebook
1. Technically the stock is stuck in the mud, 1.75 billion shares outstanding, most every holder under water, who is the incremental buyer without a material uptick in earnings?
2. company has declining margins, declining revenue growth, increased competition from Google Plus, and losing engagement based on minutes spent on site
3. investors get excited for like 2 mins after they report 30% mobile ad gains QoQ, but then realize at the expense of desktop and such a small % of overall sales.
4. Zuckerburg is NO Steve Jobs, Page or Brinn, I think it is probably safe to say that we will see an Eric Schmidt sort of Exec running the show or this thing could go the way of MYspace.
5. May be a long time before it ever grows into current valuation, 35x expected 2014 earnings and 8x next years expected sales.

I guess my main take-away at the time was the overwhelmingly negative response to FB on Twitter as the viewers weighed in and were steadfastly in support of the Bearish view.  This struck me like a ton of bricks, based on my assumption that tons of retail investors still own the shares.   By no means is this story over, and I would suspect that a trans-formative acquisition, something like a knockout bid for Twitter would change investors psychology on the stock very quickly.

Full disclosure I don’t use their product, and never will but my kids, both under 10, have recently asked for Twitter accounts not Facebook. That is not a good anecdotal sign for future growth in the developed world.

Something has to give here and soon, and I suspect the stock will continue to trickle lower unless the company can create some sort of Killer Social App, not just maintain their lead in the soon to be Myspace-esque service.  If and when the stock gets washed out, back towards the previous lows, I would assume that would be a good spot to take shot, that Zuck and crew, who state they are taking the “Long View” will be able to right the ship.  I still contend though that a stock and cash deal valued in the mid to high teens for Twitter would like see the stock rally sharply, gaining much of the market cap put up to make such a deal.   IN the meantime it feels like a slow blood as the stock continues to see little incremental buy interest.