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iPad Mini: What We Know (AAPL, GOOG, AMZN) 10.9.2012

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For the first time in a while AAPL is not the first mover in this space. This could turn out to be an advantage, for being first does not always equal success. Players like AMZN, HPQ, BKS, GOOG, and RIMM have all pumped out smaller tablet devices.  While some are clearly more successful than others, AAPL will still need to differentiate the iPad mini with their iconic slick design and user-friendly operating system, for savvy consumers will maximize their hard earned buying power.

The market leading iPad 3 is 9.7 inches; some analysts and AAPL followers are expecting a 7.85 inch liquid crystal display (LCD).  These dimensions are slightly different than the prevailing 7-inch norm.  The heaviest competition is expected to come from the ANZN Kindle Fire and the GOOG Nexus 7; both of which have fresh models out on the market already. The new 7” Kindle Fire is priced at $159.00. At this price point AMZN is expected to just break even considering the cost breakdown, but everything after that, including items like books and movies, is what AMZN is really in the tablet business for. AAPL is expected to naturally price at the higher end of the market. Some reports have surfaced regarding Apple suppliers facing production delays. Staying on track for the unconfirmed rumored release date of Oct. 17th 2012 will be a challenge.

The ‘Apple edge’ really just dominates the competition. This includes the 680,000 apps, ecosystem, and massive following. It is hard to quantify Apple’s social clout, but as of late, anything they engineer turns to gold or at least a few billion in market capitalization. A lot is expected from the iPad mini, but it is hard to make judgments this early.

E-mail the author with any comments, questions, or inquiry mark@keeneonthemarket.com.

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Morning Rage 10.8.2012

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UnitedHealth Group (UNH | 57.13) announced the purchase of 90% Brazil’s largest health care company Amil for $4.3 billion in cash. The company modified its earnings for Q3 2013 by almost $0.20, saying the purchase will improve profits immediately.

Apple (AAPL | $652.59) continues to lose value since the release of the iPhone 5. The list of complaints about its operating system continues to grow including a purple glare when taking photos. The stock is down another $4.09 in pre-market trading after losing about $15 on Friday. Apple will report its earnings on October 25th.

Alex Kalish has a masters in economics from Suffolk U.

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Apple is Not Perfect: Maps App Disappoints 10.2.2012

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In actuality, only 0.55 percent of all iPhone 4 users complained to the company about the issue, and the number of phones returned to Apple was only 1.7 percent; 4.3 percentage points less than the number of iPhone 3GS models that were returned in the first month of that phone’s launch.

So in case you missed it, AAPL basically started to use their own data for the new map app in the iOS update, as opposed to GOOG data, and some 3D satellite images and directions were botched…and that’s it. Many strategic speculations can be pulled from this news, but basically it is an example of AAPL’s push for dominance in the app space they pioneered. Apple obviously wants to own the app tiles on your iPhone screen and the map function was ripe for the taking. The app market is a pretty organic, considering the low barriers to entry. Anyone who wants to make an app can readily develop one and have the marketplace decide if it is good. Should an entrepreneur be discontent, he or she is not held back by AAPL. If we have learned anything from Steve Jobs it is not to accept the status quo and keep pushing, for new frontiers await.

In order to remain unbiased, it is important to look at what the market said during this period. For us, it always boils down to the trade. AAPL longs hope this will blow over quickly before the media cycle really takes a hold on the story and puts a new ‘headline risk’ into the stock. Shares are off some 6% from the all time high, but with the rumored iPad mini coming out in a while, that high could soon be violated. Google longs could probably care less, for every day GOOG seems to push against a new high; and at last check GOOG was $3.00 away from said high.

In related news, AAPL analyst Shawn Wu at Sterne Agee said that iPhone yields are going to move positively with volume. The firm went on to reiterate the strong product cycle and a buy rating on AAPL shares with a $840 price objective despite map app concerns.

E-mail the author with any comments, questions, or any inquiry

mark@keeneonthemarket.com

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Is AAPL or GOOG a better buy? 9.26.2012

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First let’s get the important, yet dry, accounting out of the way. Below is a chart of AAPL operating income vs various expenses. Generally speaking, it is a good indicator if operating income is growing faster than other accounts…in a smooth fashion, like AAPL below.

These figures were quarter over quarter; so consequently there may be ‘lumpy’ periods. GOOG, below, is showing less operating income now, however this could be a function of a growing company too, not only a company that is spending. Like AMZN, another QQQ ‘heavy weight’, the two may be forgoing short-term profits for long-term market share positioning, employee dedication, and dominance. Google’s main operating cost component has historically been traffic acquisition costs. In 2011, however, increases in employee compensation drove a meaningful decline in EBITDA margins from 64% in 2010 to 58% in 2011. On another accounting statement, the balance sheet, we will find the amount of cash each company has.

To put this wild amount of cash into prospective, AAPL’s cash size is about the same as the market capitalization of INTC, the 6th largest weight in the QQQ. The two cash sizes (net of debt) are $35 billion and $116 billion for GOOG and AAPL respectively. They trade at 15.8x TTM (AAPL) and 22.2x TTM (GOOG); but backing out the cash net of debt the two trade at 13x TTM (AAPL) and 19.1x TTM (GOOG) while the SPY trades at 15x.

Depending on what your time horizon is…AAPL or GOOG may fit you better. It is important to remember that fundamental analysis does not support stock price in the short term, so if AAPL or GOOG goes against you with a long bear candle on a 15-minute intraday chart, in this example, trailing 12 month PE multiple less cash does not help support price.

It can be argued that GOOG may be the stock for the long term and AAPL for the medium term. At its ‘core’ Apple is just a consumer products company with a large following (large being an understatement). Perhaps the low multiple in AAPL is reflective of the ‘fad’ risk implied in the business. Hopefully there will be another great American entrepreneur like Steve Jobs; that revolutionizes the industry and destroys the status quo. While AAPL may be in its prime, they are now no longer the underdog…they have become the competition and the one to beat. GOOG, on the other hand, is also the major player in their space. Google is clearly a beneficiary to the smart phone revolution, as mobile search ads represent nearly 34% of GOOG’s stock price, according to Trefis Price Analysis. At one point in time 80% of GOOG’s mobile search revenue came from iOS devices (AAPL), but this figure has been leaking lower as consumers adopt other phones.

It is important to remember that these are just stocks. AAPL and GOOG may have historically been winners, but there is no guarantee that tomorrow they will be anything similar. Each day you ‘re-buy’ your portfolio, essentially confirming that you like the underlying price & fundamentals in addition to the risk-reward relationship. If this is so, considering we are near all time highs in both AAPL & GOOG, the risk reward is up to you.


E-mail the author with any comments, questions, or any inquiry

mark@keeneonthemarket.com

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