Why are investors seemingly blind to the fact that Apple is fighting tooth and nail to protect their App Store revenue (while looking like jackasses in the court of public opinion and pissing off regulators and their relationship with developers) because if the App Store money in their pocket dries up, all hell breaks loose because all of their hardware products are no longer growing. The stock will crash and the executive team will be in trouble.
I think the cracks will start to show the longer big apps don’t come to Vision Pro. Apple has spent the last decade pissing off developers and partners, and just when they need them the most - during the fragile time of getting an entire new platform off the ground - they are doubling down on being assholes.
Every single review I’ve seen mentions that Netflix and YouTube aren’t on Vision Pro. One of the biggest applications of VR is gaming and they’re going nuclear with Epic instead of developing a great partnership to bring high value gaming to Vision Pro. Hubris before the fall.
Apple themselves seem to forget that a huge selling point for the iPhone/iPod Touch was video games. Seeing those bright flashy games rendering on such a beautiful screen in the palm of your hand- it blew everything else out of the water.
Social media eventually took over as the killer apps, but for a while it was Angry Birds and Fruit Ninja on everyone's phone.
The reality is it's a dev demo unit but pride doesn't allow them to say it.
It's over speced with hardware as it won't be mass sold for a few more years at which point the price for the components will have naturally dropped allowing selling it for a more "reasonable" price. This is apple so it still won't be cheap.
It's made with metal to get the brand of being the "best" build, but watch them drop it on future units (while folks still keep thinking of it as best in build)
The investors aren't interested in Apple selling more phones each year than previous. The investors are interested in people using the iPhone as a yearly or bi yearly upgrade cycle product in their life and giving Apple money without much bother and accepting it as a part of culture, especially American.
I wouldn't have thought India, a country that is so price sensitive, would be a place you find so many iPhones. But Indians love what America does and follow them blindly.
The iPhone might not be the next big thing, but for most invested in the cloud and app ecosystem, the choice they have to make is whether you upgrade this year or next. It's like Visa or Mastercard. You can cry all you want about high transaction fees. America is still going to keep using it and give them money.
Investors are loving this trend. Starbucks, Visa, Mastercard, Nike, American Express, Bank of America, Coca Cola and what not. Investors love companies that become part of the culture and despite their horrifying practices, people seem to still go back to them.
> I wouldn't have thought India, a country that is so price sensitive, would be a place you find so many iPhones. But Indians love what America does and follow them blindly.
I said 'find so many iPhones' I didn't say they were leading. Apple sells millions of units in India and with a 5% market share in a country where average annual household income is about 5 iPhones you must realise that this is a very significant and important share. I see a lot of resell market customers preferring iPhone 7 and 8 at around 100$ over similarly priced Android phones. the top 5% income households generally buy new iPhones and that trickles down to the masses after 3-5 years in the resell market. Thats how it works here as a lot of labour population seems to also have some old iPhone.
Our population is too large to even 5% be enough of a market segment. 5% is still a hell lot of phones. In Tier-1 cities and urban centers, you would see iPhones everywhere in offices and restaurants. Nobody cares about blue messages here but the phone itself is definitely a status symbol here.
On the other hand, Indian government loves doing what EU does. After USB-C and moving towards AI Safety laws, we expect a DMA-like law soon.
This is indeed an analysis that we don't see often enough. Apple is viewed as a "tech company" and tech companies are all about innovation and growth. And their stocks are priced accordingly. But, Apple is actually extremely conservative with product rollouts and new markets (c.f. having essentially missed the boat on AI). They make phones and sell phone apps. They do a few other things, but at the end of the day their balance sheet says "Apple sells phones".
And the phone market is saturated now. Everyone's got one. They keep getting better and people keep them longer. And Apple already has a 50% share of units sold, and a much higher proportion of total revenue. This market is tapped out. It's not going to grow.
Really the mess happening in Europe (mostly in Europe anyway) is best seen as a desperate struggle to push the growth reckoning far enough out for them to roll out a new successful product. They're rent seeking just to keep the balance sheet clean, but it won't work forever.
Really this happens to all big tech companies. Eventually the original product set starts to commoditize and there's nothing left to fill the void.
What boat? Not being first to market with a fancy commercial-grade model and charging $20/mo for consumer-style access (a la OpenAI)? Not having a cloud offering (MS, etc)? Not having a fancy in-your-pocket AI (like… no one? Siri is behind the times, and a better Siri would be great, but IMO the issue isn’t so much the quality of the language model but that Siri is oddly limited in what it can interact with).
I agree that Apple hasn’t been amazingly innovative in the last few years, but being off the AI hype boat seems off the mark.
AI is producing shareholder value like crazy. No, that's not the same thing as a new market, exactly, but it speaks to the same need in the C suites. Apple didn't get on that boat, and so is being forced into squeezing their partners and fighting in the trenches on essentially unwinnable regulatory points just to preserve the illusion of growth. AI is a much more effective illusion of growth!
As long as new people are growing up, they're going to need their own phones, so there will always be a market. The same of course with many other consumer goods.
That's an interesting thought and makes me think, because of declining birth rates and an ageing population, Apple will have fewer and fewer people to sell phones to as time goes on.
But not a growing market. You don't get a 27.27 P/E ratio by selling phones to the same fraction of the general population. Indeed, that's "the same as many other consumer goods", so go check valuations of Nestle or Proctor & Gamble or whatever.
The point is that an Apple stock priced at a level commensurate with a static market would be a catastrophic loss of shareholder value.
I'd recommend looking at P/S, Gross Margin and Operating Margins. They're more robust measurement tools than P/E and Net Margin, because – unlike Net Income (Earnings) – Revenue, Cost of Revenue and Operating Expenses are not accounting magic.
Today, Apple trades at 6.94 Price/TTM Sales per Share. P&G trades at 4.7.
Apple's TTM Gross Margin and TTM Operating Margins are 45% and 30.7%.
P&G's are 50% and 22%.
Apple's TTM Operating Margin is 1.395x of P&G's, and their P/S is 1.476x of P&G. This is the explanatory variable for the higher P/S – higher operating efficiency. Which makes sense because their blend of revenue includes services and insurance, not just high-margin physical products.
IDK the point you're trying to make, because these companies have essentially the same multiples today. Apple's market cap is higher because their TTM revenue is $386B and P&G's is $84B. But their key ratios are not so far apart.
I wrote all this up to show you the perils of P/E comparisons... before realizing that Apple and P&G actually have essentially identical P/E valuations (~26-27). In this instance, there's not a lot of peril, because they're both in a similar phase of corporate life: operating as late-stage growth companies surfing the wave separating innovation from profit-maximization for as long as they can – where generating income is important (so net income is not hovering around zero) but not the end-all/be-all (there're still expectations of YoY revenue growth).
Besides, Apple's customer and revenue composition is also not at all static, and you'd understand this if you read their earnings reports. They are not a dam that's waiting to burst, in spite of some people willing them to be. On the contrary, they've never been stickier or more mass-market than they are today.
Well of course nothing can grow forever. But Apple can still keep making profits every year and pay dividends. Why should I or anybody else care any more than that for the shareholders? Boo-hoo?
A walled garden is difficult and expensive to maintain. In Apple's case, it also requires a constant battle against the public interest, because they've carved out various niches in domains that intrude on interoperability, consumer rights, privacy, censorship, surveillance, tax evasion, child slavery, and so on. If they cede ground, they lose money, so they develop and execute strategies that minimize or mitigate loss in conjunction with maximizing gain.
Apple has no principles or ethics or morals to which it is bound; it's governed by an optimization algorithm that pits the profit incentive against the constraints of resources, legislation, and their public image.
Apple's only as effective as the humans who execute their assigned roles within the overall algorithm, so the organization is subject to the usual human weaknesses and foibles.
Pride. Arrogance. Bullheadedness. Complacency.
If these weaknesses infect the culture, spreading across many roles, then many things can degrade and spin out of control. Apple is just as mortal and vulnerable as MySpace, Yahoo, Sears, Blockbuster, or any other big company or institution.
Without the advantages afforded by the unsavory, unethical, and unprincipled aspects of their business, Apple might not be able to maintain their walled garden effectively. Apple's particular variety of golden goose may not continue to be compatible with the markets in which it currently dominates, since much of the regulation, litigation, and legislation will focus on Apple's effects on the world.
Lots of things could happen outside their control that would kill the golden goose. Lots more things could happen if they fall prey to human failure modes.
Blind? I assumed that the monopoly on iphone app distribution (and the corresponding growth in fee revenue) was why the stock has been so high recently.
