How High or Low will Apple’s Stock Go? 2013 Q3 Preview

Hola Todos!

Today is a rare day – it only happens four times per year.  Apple rarely talks company performance but when they do, it always interesting to see if they’ll divulge anything new or interesting.  Sometime later today after the market has closed (EST), Apple will announce their 2013 3rd quarter results.

Philip Elmer-DeWitt does a bang up job gathering and summarizing both the institutional and the independent analysts’ projections.  In short, most feel we’ll see flat revenue  and profits  or perhaps the first year-to-year revenue drop in 10 years.  If that happens, I can’t see how the stock isn’t going to take a hit.

This story can all be summarized to one word: growth.  The iPod, iPhone, iPad and iTunes have fueled Apple for the past ten years and their growth is not the same.  I still expect iPad to be strong and even iTunes could be a Fortune 500 company.  I do not believe the smartphone market has peaked but I do believe it is not growing at the same pace it was in 2011.  Recently, I started listening to Horce Dideu of the Asymco.com blog and his Critical Path podcast and he consistently emphasizes that Tim Cook and team has to have a few new products up their sleeves to fuel the next wave of Apple’s growth.

I’ll be listening – and I wonder if Apple will fare better than Google and Microsoft did in the past week.

Best regards

Dr. Dan-o

 

Daniel M. Ladik, Ph.D.,

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

 

 

How Low Will Apple’s Stock Go?

Hola Todos!

It’s absolutely amazing what has happened to Apple’s share price over the last six months.  From a high of $702 in September 2012 to the lower 400’s in March 2013, it’s been one wild ride.  Full disclosure: I do not own any shares of Apple or shares of any other firm for that matter.  Even fuller disclosure:  I am a marketing Ph.D. not a finance Ph.D. and sometimes Wall Street makes no sense to me whatsoever.

Case in point – Apple.  The rumormongering goes something along the lines of this:  Apple has not had a blockbuster product since Steve Jobs died and worries persist that Android/Samsung is eating into iPhone’s market share.  I believe I started this paragraph with the word rumormongering.

Apple has one of the best balance sheets in recent memory ($137 billion in cash, zero debt, $12 to $16 billion in new cash per quarter, a single-digit P/E ratio).  As for iPhone, not only did the iPhone 5 outsell Galaxy in the US and around the world, but the iPhone 4s ALSO outsold Galaxy in the US and around the world for the last quarter of 2012.  While no one seemed too excited about iPad mini (even I complained they missed the price point), Apple could not keep the device in stock during the holiday shopping season.  Over 80% of Apple’s revenue came from products released in the last 12 months.

Once again, Philip Elmer-DeWitt of the Apple 2.0 blog hit the nail on the head.  Steve Jobs was known for having a reality distortion field around him.  In this post, Philip suggests that the reality distortion field has been inverted: now everything is normal inside Apple yet people on the outside cannot grip reality.

Here is my take – the business press has been writing positive articles about Apple for so long that those articles are no longer interesting to readers anymore.  Instead, the articles that say Apple is “in big trouble,” “losing it’s cool” or “just plain doomed” attract more attention.  I’m curious to see how long business press will keep ignoring fundamentals and instead continue with rumormongering just to attract attention.  What will they do if Apple does roll out at least one or perhaps two new product lines this year?  We’ll just have to wait and see.

Something to think about today…

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, Ph.D.,

 

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

 

iPad Mini: Apple Messed up the Pricing

Hola Todos!

So much had been leaked about the iPad mini, that the only real mystery yesterday was how much was it going to cost? True, true, we were not sure what the name was going to be but the price was the key piece of information that was unknown.

When Phil Schiller announced it at the keynote yesterday (90 second version here – full-length version here), I could not believe my eyes and the first thought that popped into my head was that Apple blew it.

This was an excellent opportunity for Apple to go for the jugular and practically wipe out the 7-inch tablet competition.  I didn’t think Apple had to match the $199 price point – – $249 is still close enough to make anyone think twice about spending $200 bucks and trading off that much product quality and performance.  Even $299 would have psychologically kept the price under $300 bucks therefore being more of a threat to competition.  At $329, Google, Nook and Amazon breathed A LOT deeper yesterday, as they know they still have some breathing room at the entry-level price point.

As I say in class, the #1 rule in pricing is “Price what the market will bear” meaning the marketplace should determine how high or how low something should be priced to potential buyers.  Apple made a clear decision to forgo volume for margin and chose to ignore the marketplace for the most part, therefore aiming for lower volume with higher margin.  While that practice has been the traditional modus operandi at Apple, Apple has made exceptions in the past in marketplaces where volume/growth is exceptional (read=smartphones) and the marketplace pushed Apple to price more to market levels.

Perhaps the table market is not ready to explode and scale and Apple still thinks they have another 12 to 18 months to suck up fatter margins before some additional economies of scale kicks in.  I will be stunned if the entry price was NOT under $300 bucks this time next year when the market is gowning substantially faster.

Finally, I’m sure there were a lot of cash strapped school districts that were disappointed yesterday.  In essence, the entry price point did not get much better for them to be able to swap books for iPads. As usual, Philip Elmer-DeWitt of the Apple 2.0 blog is on top of this.  He posted two excellent columns in the past 24 hours; (1) illustrating the radical drop in Apple’s stock right after the price announcement and (2) the analysts’ reactions/comments to iPad mini and its high price point.  I’m looking forward to Apple’s earnings call on Thursday because I know CEO Time Cook will field a lot of questions (if not the first question) on why Apple picked the $329 price point.

Something to think about today…

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

 

Apple’s Stock Price: 6-to-1 Split and Headed to the DJIA?

Hola Todos!

Financially speaking, Apple has certainly earned the right to be considered for the Dow Jones Industrial Average and Paul R. La Monica of CNNmoney.com makes a solid case for Apple’s inclusion (click here).  The current tech companies on the DJIA include struggling Cisco and HP, as well as, the stronger set of IBM, Microsoft, and Intel.

One major issue that would prevent Apple from joining the DJIA is that the Dow is a price-weighted average and not a market cap-weighted index like the S&P 500 or the NASDAQ Composite.  With Apple’s share price hovering around $600, Apple would skew the Dow too much at its current price but a 6-to-1 split could rectify that.

The question remains however, does CEO Tim Cook want to steer Apple in the DJIA direction?  While there is no question that Mr. Cook is doing things a bit differently than Mr. Jobs (dividends for instance), but I have listened to Mr. Cook on a number of earnings calls and I’m not even sure I would even use the word “lukewarm” to describe his interest on this issue when probed by the analysts.

There is no question, just like Mr. Jobs, that Mr. Cook’s #1 focus is on Apple’s products and not Wall Street.  My though is unless there is a strategic reason or positioning that Apple wants to achieve, Mr. Cook will not distract Apple from its main focus: products.  And with all that is rumored on Apple’s plate for the remainder of this year (click here), Apple probably does not want to be distracted.  Moreover, Apple does one or two major things at a time, and I doubt that this is #1 or #2 over the next 6 months.

Something to think about today…

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

 

How High (or Low) will Apple’s Stock Go?: Commentary on Q3 Results

Hola Todos!

I think the headline from yesterday’s AllthingsD blog says it all: “Apple Earnings: a Bummer, Not a Beat” (click here).  While Apple hit their very conservative guidance, it was only the second time in 39 quarters the company reported results that missed analysts’ profit and revenue expectations (click here for The Wall Street Journal details).  Apple’s stock dropped about $30 dollars or around 5% in after hours trading yesterday.

At center stage and Apple’s main issue were sales for iPhone have slowed down much more that expected and at the moment, iPhone drives sales and margin for the entire firm.  Apple sold 26 million iPhones in its quarter ended June 30, a 28% increase from the same quarter a year ago but down from the 35.1 million sold in the prior quarter this year.

Rumors, the strongest for any non-announced product I can think of in recent memory, have been rampant and many US consumers are holding out for this mythical iPhone 5.  Add that demand in Europe was weak and sales in China did not pick up the slack resulted in a bummer quarter for Apple’s standards.  As John Gruber of the Daring Fireball blog stated (click here), “It’s a testimony to just how remarkable Apple’s last few years have been that 23 percent year-over-year growth looks so bad on a chart.” Dan Frommer of blog SplatF does an excellent job graphically illustrating how Apple’s major product lines have trended in recent quarters (click here). I guess its not surprising that Apple pushed up the release for its new Mountain Lion OS (click here) for the day after the earnings call so that the business press will have something else to talk about other than Apple’s Q3 sales and earnings.

Philip Elmer-Dewitt of the Apple 2.0 blog is the best in the business on tracking Apple particularly on the financial side.  Click here for yesterday’s post earnings call commentary, click here for the amateurs vs. pros forecast analysis on Apple data, and click here for commentary from all the financial analysts thoughts on yesterday’s call details.

The bottom line is Apple was “bitten by the product transition bug” as stated by one of the analysts. Other than iPad, Macs got a major OS overhaul as well as significant product refresh, and everyone is waiting for a new form factor iPhone 5.  Moreover, the Apple TV rumors as well as a new 7-inch iPad mini are quite strong as well.  I feel the analysts are correct; Apple’s Q4 (July, August & September) will also be very soft.  However, Q1 (October, November & December), and Q2 (January, February, & March) should be back to Apple’s standards or better if we see at least two of the three rumored products (e.g., iPhone 5, Apple TV and/or iPad mini).  One of the analysts called this “the calm before the storm” and if I had the money, I’d buy now before some of these new products push the stock even higher.

 

Something to thing about today…

 

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, PhD

Associate Professor of Marketing

Stillman School of Business

Seton Hall University