MorningWord 12/2/13: Droning On and On $AAPL $AMZN $WMT $TGT

by Dan December 2, 2013 9:19 am • Commentary

MorningWord 12/2/13:  Reports this morning suggest that Black Friday weekend sales were down almost 3% year over year, which should not come as a massive surprise given the weak retail results and guidance over the last few weeks by the likes of WMT & TGT (here and here), and by the October Consumer Confidence report hitting a 7 month low.

Make no mistake, this holiday selling season will be no different than ones past where a few of the “haves” (think AAPL) are sopping up a disproportionate amount of the discretionary spend, and the “have nots” (think WMT & TGT) are left to compete on price with the likes of AMZN, who have routinely demonstrated that they care little about profit margins and only care about market share. This is not exactly a disaster for WMT and TGT as media reports such as this one from, Apple’s iPad A Big Winner On Black Friday, suggest that “Apple products were 22% of Target’s sales on Black Friday” and that “iPad Mini the top seller at Walmart”.   But I guess the point is that despite AAPL having what most would call cosmetic updates to its product line, they clearly have the “It” item (again) of the Holiday season.

Enis had a very nice technical rundown in his Chart of the Day Post (here) on AAPL, taking into account its recent run to new highs for 2013, the first since the first week of the year, and suggesting that the stock could be set to consolidate recent gains (especially if the rumored China Mobile distribution deal does not materialize in the coming weeks).  That being said, if you own AAPL, or bought it well for a trade in the last few weeks, I see little reason to sell here as the news flow is likely to stay positive on sales trends into Christmas, and that could be the time to take some profits.

ONE MORE THING, the big thing from AMZN on 60 Minutes last night (video below) was Drone Delivery of goods coming at some point in the (maybe not so distant) future.  For those of you who love Sci-Fi, or are big Jetsons fans than here is an investment theme for you.  As Enis and I riffed on Friday in this space (here), AMZN is expected to have total sales of $26 billion in this Holiday quarter, but they guided for the potential of an operating loss.  This is the sort of stuff that AMZN shareholders are subsidizing.  And if the stock price is any indication of their willingness to do so, they seem almost giddy about it.

I guess I will leave you with this – AMZN CEO Jeff Bezos is clearly a genius, he has transformed modern consumerism, and will likely continue to do so.  At the same time, he has brainwashed shareholders into trusting him that the profits will eventually come.  I guess what I don’t understand is that how will AMZN actually monetize Drone Delivery – will they actually be able to charge for it in a manner that will every make back their investment and cost to maintain such a massive logistical undertaking??  The counter would be that years ago when the company introduced Amazon Prime, free 2 day shipping all year for only $80, analysts were convinced this would be a big loser for them, but Bezos was convinced it would hook consumers to their online store and keep them coming back.  Well, that worked very well, but again the company sells lots of stuff at cost just to keep your business.

Maybe, just maybe, AMZN management is a bit too profligate with its spending/investment projects simply because investors are all too willing to finance it.