MorningWord 7/29/14: King of the Beats – $AAPL

by Dan July 29, 2014 9:44 am • Commentary

OK people, get ready, cause what I am about to write is likely to send you Apple holders into deep contemplation about finally taking profits in your stock, but not for the reasons you think.  I am not going to rail against Tim Cook, or talk about innovation or  impending margin pressure from Samsung or Chinese competition, but merely commend them on a recent acquisition and on a customer experience.

As Apple’s stock nears the prior all time highs from September 2012 public sentiment towards the company and the stock seems really good, buoyed by the anticipation of the launch of the iPhone 6 in September.  Much like late summer 2012, I am getting excited about Apple’s impending phone release, except this time I have had 2 experiences with Apple as a consumer that have caused me to think different about their recent strategic moves and prospects.

First things first. When the rumor that Apple was interested in buying Beats surfaced I was not the least bit positive on the combination of the two very different consumer brands.  If the deal was for the streaming music service, then I am willing to give the guys in Cupertino (who revolutionized the music industry at the turn of last century) the benefit of the doubt that they had a plan to once again turn the tables and possibly revamp iTunes and the way the masses buy and listen to digital music.

But on the hardware/accessory front, I just didn’t get it.  Why would Apple, who has tirelessly curated their brand, tuck in such a seemingly disparate customer base and product portfolio??  At the time, the assumption was that Apple needed to be seen as cool again. A company that had for years been seen as the brand for hipsters had suddenly become the brand for oldsters. As CC tweeted at the time:


Well, I found the answer as to whether this new plan from Apple was working about a month or so ago when a 4 foot 70 pound package in the form of my daughter demonstrated the success of the initiative with 400 of my dollars.  My 11 year old daughter Alex, who has one of my own iPhones had 2 big gift opportunities, the first for being a great sport during a 3 day hospital stay In June and the second for her birthday last week.  The first request were pink Beats headphones, and the second for the Beats Pill portable speaker.   So aside from wanting an iPhone with a 5 handle on it (which she has to wait till I get one with a 6 handle on it) all she wanted were Beats products – not a pony or a kitten or a new bike – but shiny plastic music listening devices from an ol’ skool rapper that she has never heard.  Oh, the other thing she knows is that Apple is buying them, but this had little to do with her desire.  She specifically asked that she get ones with the Beats logo, not an Apple logo.  So here is the thing – I had never given their brand a thought for my own use.  For the most part, I see them on kids of all kinds and ages, but never considered their products as they are too much of a fashion statement, but all of the sudden I find myself considering the PowerBeats wireless headphones. Which by all accounts from audiophiles are over priced and not very good. But they are cool.

Many of you probably already got the point before me. Apple is thinking about the next generation. They already have the iPod classic owners locked up (like me), but their kids who were up for grabs are a fertile battleground, and a $3 billion acquisition, no matter what the valuation, was a drop in the bucket given the possibilities.

One more story – a few weeks ago a crack appeared on my iPhone 5s screen and yesterday the phone just stopped working.  I made a genius bar appointment in my neighborhood Apple store at 4:20pm, was met my a genius at 4:27pm, and walked out with a brand new 32 gb iPhone 5s replacement at 4:40pm.  WOW, that was an awesome retail experience and one that quite frankly I had been puckering up for 4 hours prior. They exceeded all of my expectations.  Once again, happy Apple customer.

While I have been a skeptic on the stock from time to time, I think it is important not to mistake enthusiasm and/or disappointment as a customer with the prospects for a stock.  We have made this point on numerous occasions, most notably about Amazon, as we think the very reason why Amazon’s customers are so happy is the very reason shareholders of the stock have been disappointed over the last six months.

As for Apple, with the stock likely to touch the prior all-time highs this week, highs that this guy thought would take a heck of a lot longer than 22 months to re-take, I think it is important to remember that sentiment can be a force to be reckoned with when it comes to investing.  While Apple’s ascent back to the highs has little resemblance to the mania that existed in 2012, the stock has rallied 35% in the past 3 months, so expectations are quite a bit higher.  That might mean some near-term struggles for the stock.  However, the long-term business machine that is Apple Corp. is still doing a fabulous job of pleasing customers around the world, including my daughter and me.