My apologies for not posting anything for the last little while but I have a thought that might make it worth the wait...
My bold prediction is this: Apple stock price will drop by 50% within 3 years time.
I know what your thinking... Apple is one of the most valuable and recognizable brands out there. Everywhere you look, someone is playing with their iPhone, iPad, switching songs on their iPod / Shuffle, typing away at the local Starbucks on their Macbook or changing channels on their Apple TV. But I ask you this, when was the last truly ground breaking device that Apple has come out with in the last 3 years? Ever since Steve Jobs ceded his role as CEO to Tim Cook in Fall 2011, the company has simply stopped innovating.
Not only did Apple used to be one the most admired technology companies in the world, but one of the greatest period. I won't go into what a genius Jobs was as we all know what he was and what he represented. The discussion here simply surrounds why Apple, dare I say it, may go the way of beloved tech darling Research in Motion within 3-5 years if it doesn't start bringing category breaking products to market. Sure in its most recent Q2-14 earnings release, the Company beat estimates on both top line ($45.6 billion in reported sales vs. an average estimate of $43.6 billion) and bottom line ($11.62/share vs. $10.16/share expected). Further, the Company continues to hoard cash like its going out of fashion with $156 billion on hand at the end of the quarter. The company topped it off by announcing a 7 for 1 stock split which will allow more mom and pop investors to afford the stock and possibly add fuel to its share price and announced a 15% increase to its dividend which at $3.29/share, or 2.2% on an annualized basis, (based on a closing price of $592.58 on May 2/14) makes it attractive to yield hungry investors.
However, there were also some warning signs that did not sit well with me:
- iPad sales for the quarter continued to decline with a drop of 16% year-over-year with 16.35 million units sold compared to 19.7 million units expected by analysts (iPad sales make up roughly 25% of its revenues). Samsung continues to eat Apple's lunch in this regard with its share of the tablet market increasing to 26% at the end of Mar/14 compared to 32% for Apple
- Although ASP for the iPad of $465 was above the $430 expected by analysts it represents a far cry from an ASP of $660 in Q2 2010 back when the device was first came to market
- As can be seen from the graphs below, Apple's TTM revenues have flattened considerably over the last several quarters
(Source: www.businessinsider.com)
(Source: www.businessinsider.com)
- iPhone sales growth rates have also begun to decline (though part of that is due to the fact that its harder to grow from a higher bases) but nevertheless, a disturbing trend
(Source: www.businessinsider.com)
By and large, Apple is clinging to the success of one product (the iPhone). To this point Samsung, HTC and LG have all brought feature packed Android based phones to the market over the last few years at a much more reasonable price point and thus is eating into current and future share.
My bold prediction is this: Apple stock price will drop by 50% within 3 years time.
I know what your thinking... Apple is one of the most valuable and recognizable brands out there. Everywhere you look, someone is playing with their iPhone, iPad, switching songs on their iPod / Shuffle, typing away at the local Starbucks on their Macbook or changing channels on their Apple TV. But I ask you this, when was the last truly ground breaking device that Apple has come out with in the last 3 years? Ever since Steve Jobs ceded his role as CEO to Tim Cook in Fall 2011, the company has simply stopped innovating.
Not only did Apple used to be one the most admired technology companies in the world, but one of the greatest period. I won't go into what a genius Jobs was as we all know what he was and what he represented. The discussion here simply surrounds why Apple, dare I say it, may go the way of beloved tech darling Research in Motion within 3-5 years if it doesn't start bringing category breaking products to market. Sure in its most recent Q2-14 earnings release, the Company beat estimates on both top line ($45.6 billion in reported sales vs. an average estimate of $43.6 billion) and bottom line ($11.62/share vs. $10.16/share expected). Further, the Company continues to hoard cash like its going out of fashion with $156 billion on hand at the end of the quarter. The company topped it off by announcing a 7 for 1 stock split which will allow more mom and pop investors to afford the stock and possibly add fuel to its share price and announced a 15% increase to its dividend which at $3.29/share, or 2.2% on an annualized basis, (based on a closing price of $592.58 on May 2/14) makes it attractive to yield hungry investors.
However, there were also some warning signs that did not sit well with me:
- iPad sales for the quarter continued to decline with a drop of 16% year-over-year with 16.35 million units sold compared to 19.7 million units expected by analysts (iPad sales make up roughly 25% of its revenues). Samsung continues to eat Apple's lunch in this regard with its share of the tablet market increasing to 26% at the end of Mar/14 compared to 32% for Apple
- Although ASP for the iPad of $465 was above the $430 expected by analysts it represents a far cry from an ASP of $660 in Q2 2010 back when the device was first came to market
- As can be seen from the graphs below, Apple's TTM revenues have flattened considerably over the last several quarters
(Source: www.businessinsider.com)
(Source: www.businessinsider.com)
- iPhone sales growth rates have also begun to decline (though part of that is due to the fact that its harder to grow from a higher bases) but nevertheless, a disturbing trend
(Source: www.businessinsider.com)
By and large, Apple is clinging to the success of one product (the iPhone). To this point Samsung, HTC and LG have all brought feature packed Android based phones to the market over the last few years at a much more reasonable price point and thus is eating into current and future share.
Apple used to be a four headed monster with multiple ways to win and its shareholders were handsomely rewarded. Shareholders did not need to be enticed to own the stock because its product line up and cutting edge innovation did the talking. However, since the introduction of Cook, the company has introduced a dividend, bought back stock (which is proven to add nothing to shareholder value) and introduced a 7 for 1 stock split (financial tricks which Jobs would have puked over) all in an effort to win back shareholders.
Apple used to be its own asset class. Now? It's being lumped with all the other sleepy tech giants (i.e. Microsoft, Intel, Cisco, HP etc). Simply put, Apple needs to get back to its old "category breaking" ways quick or investors will soon lose patience and the stock price will plummet (just as RIM's did). Luckily for Apple, their massive cash pile will "buy" them some time. Here's a novel idea... Why not go on a buying spree and buy some revenue and innovative spirit? I do admire Apple as a tech company but given its stagnant ways, would not touch the stock with a ten-foot pole no matter what financial shenanigans Cook and his team pull to prop up the share price...
Apple used to be its own asset class. Now? It's being lumped with all the other sleepy tech giants (i.e. Microsoft, Intel, Cisco, HP etc). Simply put, Apple needs to get back to its old "category breaking" ways quick or investors will soon lose patience and the stock price will plummet (just as RIM's did). Luckily for Apple, their massive cash pile will "buy" them some time. Here's a novel idea... Why not go on a buying spree and buy some revenue and innovative spirit? I do admire Apple as a tech company but given its stagnant ways, would not touch the stock with a ten-foot pole no matter what financial shenanigans Cook and his team pull to prop up the share price...
