I don’t hate Apple, I just play a guy on TV who does. Regular readers know that I am a huge fan of Apple products and have been for years. I agree with Apple fanboys that the best smartphone, laptop, tablet and desktop on the market all sport the Apple logo. In my household of four, we have in use (of different iterations) 4 iPhones, 2 iPads, 3 MacBook Airs, 2 iMacs, 2 AppleTvs, use Apple Pay, Apple Music and iTunes for video. The Nathans are embedded in the fabric of the Apple ecosystem that has made the company the most valuable the world has ever seen.
But as an investor/trader/part-time market pundit, I find the universal bullishness from the tech/financial press and sell side analysts boring and sycophantic. There is no better example of the disconnect between those seeking access to the company (analysts and journos) and investors than the fact that there are 44 Buy ratings, 6 Holds and 3 Sells among the sell side analyst community, despite the fact that the stock is down 23% from its all time highs made in the first half of 2015 (this while the S&P 500 and the Nasdaq are within a percent or so from their all time highs). Perma-bulls will argue that the stock is merely taking a time-out as the company digests a maturing smartphone market and they shift to the next leg of the mobile revolution which will be mobile Services. But in the company’s fiscal Q3 reported in July, Services made up less than 15% of the company’s $42.35 billion in revenue, sporting less than spectacular 19% year over year growth (that was flat on a sequential basis). I would not be holding my breath for a segment like services to re-accelerate growth of a $215 billion revenue base that is expected to decline for the first time more than a decade.
Would I rather own AAPL than the S&P 500 here? Sure. AAPL is trading 12x expected f2017 earnings, with 40% of their market cap in cash (26% net of debt) and with a dividend yield equal to the SPX. But if you are looking for alpha, this ain’t gonna be the place for some time. That will only come when they introduce a new hardware product that can create at least $20 billion in annual demand.
And I mean real products. Remember this load of crap from 2014?
OMG, he totally lied.
— Dan Nathan (@RiskReversal) September 7, 2016
And then this hours before Wednesday’s massively over-produced and underwhelming/delivery event:
— Carl Quintanilla (@carlquintanilla) September 7, 2016
They keep talking about all their magical and revolutionary products in the pipeline, but we haven’t seen the reality of that in years. The reality distortion field of Steve Jobs is gone. Tim Cook has done an amazing job executing on Job’s vision since his untimely death. But since then, revolutionary has merely been evolutionary.
Oh, and one more thing. Apple is sticking with the same phone design for the third consecutive year. But this comes at a time when the upgrade cycle by consumers is already slowing due to more transparent device pricing at mobile carriers (sticker shock) and the marginal improvements we’ve seen since the last significant design change in the iPhone 6 size, via Wall Mossberg of the Verge:
This is highly unusual, especially for a company that prides itself on being the world’s technology design leader. In its two-year release cycle, this should have been the year for an all-new-looking iPhone. But we didn’t get it. Instead, Apple is hoping you’ll buy a premium phone featuring the very nice, but aging, iPhone design it introduced in 2014. The next big design change isn’t set until 2017.
And of all the tweaks and product intros coming out of the event, the most talked about tweak was something missing from the new iPhone, the 3.5mm headphone jack. And this is how the company explained their bold move.
— The Verge (@verge) September 8, 2016
Come on people, you can’t defend this silliness in the same week you lambaste Elon Musk (someone who is sincerely trying to change the world and is willing to go to the brink to do so) for attempting to vertically integrate and finance his attempt to make a high quality mass market electric vehicle.