Apple

[Jakensama]

nice read about Siri being a very scary thing for google:

<!-- m --><a class="postlink" href="http://www.forbes.com/sites/ericjackson/2011/10/28/why-siri-is-a-google-killer/">http://www.forbes.com/sites/ericjackson ... le-killer/</a><!-- m -->

Except it doesn't actually say why google has to fear siri or really say anything other than "Siri is totally like a real person and friendless hipsters can finally know what it is like to have someone to talk to!"

Even if everyone stopped googling on their phones, are they implying that we are all just going to start talking to our computers as well?

[Slamz]

Hmm. Are we certain Siri isn't using Google APIs? Seems like a lot of work to invent a solid voice recognition system and then additionally invent a massive data search engine to drive it. I had assumed it was being driven off of one of the existing search engines, likely Google.

I wouldn't say Google is an advertising company -- I'd call them a data company. Advertising is just one more thing you can do with a bunch of data. They wouldn't want to compete with Siri if they could instead simply sell them access to data.


And yes, Apple is still a hardware company. They do make software, but it's for their hardware. You wouldn't say Tivo is a software company or Samsung is a software company, even though they have software for their devices. When I hear "software company", I think of a company that sells software which runs on other people's hardware, which Apple mostly tries to avoid. It's probably only with great reluctance that iTunes runs on Windows.

[Grieve]

Siri bypasses search where possible. For example, it gets info from wikipedia, yelp, wolfram alpha, etc. And of course it's integrated with iPhone apps. If none of those will do what it needs to do, it will do a web search. By default it goes to Google, but you can change that to Bing or Yahoo. Apparently it can do most things without a search engine, though, and that will become more than case as time goes by. E.g. connect to OpenTable to book a restaurant, to Expedia to book a plane, etc. It's definitely bad news for Google, and MS and Yahoo as well.

[Vanraw]

I wouldn't say Google is an advertising company -- I'd call them a data company. Advertising is just one more thing you can do with a bunch of data. They wouldn't want to compete with Siri if they could instead simply sell them access to data.


And yes, Apple is still a hardware company. They do make software, but it's for their hardware. You wouldn't say Tivo is a software company or Samsung is a software company, even though they have software for their devices. When I hear "software company", I think of a company that sells software which runs on other people's hardware, which Apple mostly tries to avoid. It's probably only with great reluctance that iTunes runs on Windows.

Yea my only point is revenue priorities. Most everything Google does is to generate ad dollars. They give away android for the ad dollars.... etc. Most of what apple does seems to be focused on selling new hw. Even iTunes, though it accidently became a revenue stream outside of hw sales. You would think apple would learn from that.

The only way apple takes over the TV market is if they be I e a service and software company....... which they could do.

[Slamz]

The more I think about it, the more I suspect there is zero threat to Google.

Google doesn't make money by getting you to go to their website and do a search (they might get SOME money that way, if you click on any of the ads). I think they mostly make money by selling their search engine to people who need to do searches, which likely includes Siri. Google sells API keys and those keys cost money based on usage. A worldwide product like Siri that employed Google searches would be paying Google a pretty penny.

So if you need to book a flight and use Siri rather than Google, I'm not sure this is costing Google anything. Google isn't exactly losing money just because I type "expedia.com" in my browser, either. And unless Siri has an API that competes directly with Google APIs, I doubt Google even looks at them as a competitor.

[Grieve]

The more I think about it, the more I suspect there is zero threat to Google.

Google doesn't make money by getting you to go to their website and do a search (they might get SOME money that way, if you click on any of the ads). I think they mostly make money by selling their search engine to people who need to do searches, which likely includes Siri. Google sells API keys and those keys cost money based on usage. A worldwide product like Siri that employed Google searches would be paying Google a pretty penny.

So if you need to book a flight and use Siri rather than Google, I'm not sure this is costing Google anything. Google isn't exactly losing money just because I type "expedia.com" in my browser, either. And unless Siri has an API that competes directly with Google APIs, I doubt Google even looks at them as a competitor.

You have it backwards. Google makes almost every penny of revenue they get (like 98%) from advertising. When you get a list of Google results, they make money from the ads that appear next to the results. When you click one, the companies pay google money. They can also pay a premium so their ads are targeted - i.e. if you search for "halloween", you'll get ads from companies selling halloween costumes. I researched it back when I was setting up a website. And you don't need to go through the Google homepage - most searches are done from a toolbar.

As for Apple paying Google, you also have that back to front. Google pays Apple (in the hundreds of millions range) so that Apple makes Google the default search engine on Safari (and probably Siri too). That's the way all the search engines work - they pay web browsers and other apps to make them the default or bundle them as a toolbar - how many times have you seen that checkbox to install a Google or Ask.com toolbar with a freeware app?

Mobile search is the holy grail of search advertising, and Google (ironically) makes a fortune from iPhone users, because iOS has by far the most web traffic (and the users tend to be more wealthy). Every time Apple does a new iOS release there is always buzz that Microsoft will have paid them millions to switch to Bing as the default, but it hasn't happened yet. Kind of surprising, really, considering how relations are between the two companies. The Maps app uses Google as well, but the Stocks and Weather apps uses Yahoo.

Anyway, Siri is in fact a huge threat to Google, and there have been a lot of financial articles saying so. Anything that bypasses search to get you the info you want is going to cost Google money.

[Jakensama]

Except the crap siri fetchs from 3rd party apps was already searched for using 3rd party apps or going to their websites beforehand.

For example, if I ask siri to get me a flight and it goes to expedia or wherever, yes google is cut out.

But then again, prior to siri (and after since I'm not a big enough douche to be talking to my phone) I bypassed google since I just went to expedia by default.

I could see them switching to bing for the web search options as a threat to google, but that is nothing inherent in Siri.. The threat to google is the general movement away from googling everything to using specialized apps/sites to get information because you know it is the best way - and this has been going on for quite some time.

And hey, look, forbes agrees with me:

<!-- m --><a class="postlink" href="http://www.forbes.com/sites/briansolomon/2011/10/27/apps-not-siri-threaten-google-search/">http://www.forbes.com/sites/briansolomo ... le-search/</a><!-- m -->

[Grieve]

I don't disagree that apps are bad for Google as well, but I think people are far more likely to use Siri than apps a lot of the time, just because Siri knows the best place to look. Unless it's something really specific, I'll generally use a search because it's easy...I know it's going to bring up something useful. Even if I know I want wikipedia, it's easy to just type "Tower of London" in the google search bar than bring up the wikipedia app or website. I know it's going to be one of the first hits.

But saying it with Siri is easier still. The difference is that Google gets skipped entirely that way.

Over time Apple is going to link Siri to more and more partners, until you never need to use google at all. Sure, it's the apps that are helping you do that, but Siri is the glue that holds them together - the gateway.

[Jakensama]

I honestly cant remember the last time I googled something on my smartphone to begin with, I think most people are into using apps - be it wiki, yelp, etc. etc.

Anyways, considering that google is monetizing advertising in all the free apps as well (and the fact that the android app store has now superceeded the apple app store in downloaded apps), I'm fairly sure they are going to figure out how to monetize what they have. And lots of people are still using PCs.

The claims that Siri is going to be a death knell to Google is specious fanboism at its worst.

[Arsilon]

The question I have on the business model as it pertains to smartphones for Google is who gets the Ad money that's embedded in all the apps?

Is that a way for the app developers to make money vs. selling the app itself like you do for Apple? Or does Google also get a cut for this?

If so then Google still wins either way given the broader reach they potentially have by not being locked to a single hardware platform (what happens with Motorola remains to be seen). They may lose part of the Apple revenue with Siri (which is by no mean insignificant) but if their growth is tied more to Android continuing to take more and more share, then the offset still probably works in Google's favor.

[Jakensama]

Just like when websites use adsense to put ads on their website, google takes a cut for offering the service and the website gets the rest.

Admob (their ap ad service) works the same way, with google taking some revenue and the developer getting the rest.

[Grieve]

Google really has little benefit from Android taking share, except that they can gear it more to use Google apps/services (with resulting ad revenues). But any manufacturer using Android can push Google out of the picture (look at the Kindle Fire).

Google benefits from ANY mobile OS, as long as people use Google services with it. They make more money from iOS right now than Android.

As for ads in apps, Apple has their own, called iAd. From what I remember, Apple takes a 30% share, just like app and magazine sales. Plus they design the ads themselves in a lot of cases, and charge a lot for it (up to $1m).

So yeah, as a dev you can either charge for your app, or making it free with ads bringing in the revenue. I don't know the numbers off the top of my head, but iOS apps make way more money than Android apps.

[Vanraw]

<!-- m --><a class="postlink" href="http://www.marketwatch.com/story/time-to-sell-apple-2012-01-12">http://www.marketwatch.com/story/time-t ... 2012-01-12</a><!-- m -->

Good write up on Apple future growth concerns. The aspects of reliance on vendors is true. If Att or Verizon has a higher margin on an android or windows phone, the will push that in the store.

[Grieve]

Yeah, I read that this morning. I don't buy it. Android has always had a higher profit margin, but Apple still sells out phones as fast as it can make them. I'm not saying Apple will go up forever, but I don't see any reason why growth would imminently come to a halt.

[Grieve]

I know you guys hate Apple, and I've generally stopped posting about them on other parts of the board. But this is supposed to be investing forum, and I do genuinely want to share ideas that I think will make everyone money.

So I thought I'd share a few pretty cool facts from a bullish note JP Morgan put out today.

o If Apple were an industry, it would be the sixth largest industry in the S&P
. o Larger than Insurance, Food & Staples Retailing, Diversified Financial Services, and Media.
o If Apple were a sector, it would be the eighth largest industry in the S&P
. o Larger than Materials, Utilities, and Telecom.
o Apple has contributed 14 points to the S&Ps rise since October
o If Apple were in the Dow, it would be over 14,000 right now
o 44% of the S&P 500's earnings growth in 4Q11 came from AAPL
. o The next highest was AIG, with a 1% contribution to earnings growth
o Earnings per share are growing 56%, better than 471 stocks in the S&P 500
. o Trading at 12 times 2012 estimates, Apple is the 130th-cheapest stock in the index
o AAPL at current valuation is undervalued
. o On absolute P/E (12.0x vs. 12.7x S&P 500)
. o On relative P/E (94% vs. historical avg of 164%), or PEG ratio.
o 40% of large-cap mutual funds do not count Apple as a top position
. o These 112 funds are underperforming their benchmark average by 60 basis points
. o Funds that are significantly overweight Apple are outperforming by 0.3% year-to-date
o Only 72% of Apple shares are owned by institutional investors
. o Well below the 77% ownership for the rest of the S&P 500.
o There is still widespread room for more adoption
. o Apple's global smartphone market share is 19%, versus 30% in the U.S.
. o 5% in PCs, versus 11% in the U.S.

So the upshot is that the stock is under-owned by institutions, more will be buying into it, and it has a long way to grow even without any new products.

[Jakensama]

[youtube]http://www.youtube.com/watch?v=ZomwVcGt0LE[/youtube]

[Vanraw]

I think there is alot of up shot for Apple. And i think there is alot of down risk. In a way apple is like its own little bubble. The stock reminds alot of AOL back in the day. AOL had a great product, had tons of market cap and domonated the dialup internet service. They destroyed the long standing leaders like compuserve. There was plenty of compitition but individually, they could not be touched. In the end they lost to the competative pressures and the next big thing. But it was a long strong run.

Now im not saying apples run is over. Not by a long shot. But the time will come, the question is when. Today their revenue is all about iphone and ipad hardware sales. Their strength is it great design, and an almost religous following, coupled with a per unit profit margin that is crazy strong.

But, from a real money perspective, apples growth is all about just those2 product lines. Add to that, the fact that the market (except china) is becoming sturated. Apples brand loyalty is its biggest strengths. But anti apple brand loyalty may become its growth limiter.

I dont know when, but there will be a time where apple will hit a wall like every other growth company, in which the numbers will flaten some. It cant not happen. When it does, i dont want to own apple. The option plays that you have been playing is the best option.

[Grieve]

Where's my money

These things take time, sadly. First I have to tell my wife, and then I have to get out of hospital, and then I need to explain to the kids there will be no birthday presents (or possibly even food) this year...

[Vanraw]

Today aapl hit a market cap of half a trillion. And all I can think of is how hype has priced the stock.... I say this more by shaking my head at the market in general and what drives people and institutions to buy the stock at these levels, and not as a slam to appl. However when you look at the numbers they stll look good. So then I shake my head at the willingness for customers to continue to pay the premium they pay for smart phones in general. Im sorry did someone say there was a bad economy??

This is what i see.

Aapl numbers from a profit and revenue perspective is outstanding. But the stock has to stop trading like a growth stock at some point. But thats only going to happen if and when profit margins start to hit reality. I find it strange that competitive pressures have not impacted the smart phone and tablet markets. In this "bad economy", it makes no sense.

Lets compare a non growth stock at the same market cap area. Exon.

<!-- m --><a class="postlink" href="http://www.google.com/finance?q=NYSE:XOM&fstype=ii">http://www.google.com/finance?q=NYSE:XOM&fstype=ii</a><!-- m -->

475 billion in anual revenue.
42 billion in net income
410 billion mkt cap
8.42 eps
4.7 b shares
10.35 p/e


<!-- m --><a class="postlink" href="http://www.google.com/finance?q=NASDAQ:AAPL&fstype=ii">http://www.google.com/finance?q=NASDAQ:AAPL&fstype=ii</a><!-- m -->

126 billion in anual revenue.
33 billion in net income
500 billion mkt cap
35.11 eps
.933 b shares
15.25 p/e

In general these stock prices compare as long as you consider aapl a growth stock. Its the profit margin of 25% that makes aapl shares viable, as well the total shares at 1/4 of xom. But xom has a dividend yield of around 2%. Still aapl market cap is 90 billion more then xom and xom has 9 b more anual net income.

Understanding the differance in these companies is important. The main differance is appl profit margin and that its trading like a growth stock. Impact any one of those 2 things, and reality will hit aapl like a boat anchor. The real question is can appl continue growth at the same levels with the price point for phone and tablets at current levels. There is ho other question in my opinion.

In a way the hype reminds me of the telecomunications hype in the late 90s. We had revenue pictures of the future that were unreal, but justified. The concept was untapped global revenue. At that point it was estimated there was 2 trillion of untapped unrealized revenue in the world. What companies like mci failed to realize is many ofnthose people didnt care about a phone as much as we do.

We are looking for a bubble, and it might be the new tech bubble based on phones, tablets, and all the chip and service providers ssociated.

One false step and I could see the whole thing crash. If it happens, companies like samsung will fare better then apple because of diversity of product line. Apple revenue is very single threaded.

Random thoughts... Sorry for formating and spelling as im back on tablet, and lazy.

[Breand]

I know it's crazy...but AAPL stock is still cheap. It is trading at 13 times its expected earnings compared to the NASDAQ's 18. And they are sitting on a gigantic heap of cash for further development. If they can find a sweet spot on price and innovation, I can see them taking over the PC market as well. Their sales grew 73% last year. That is insane for one of the top valued companies. They certainly need to find a new "it" product for future growth but they certainly have the tools necessary to find it.

I own 7 whopping shares lol. But my costs basis is $378.

[Grieve]

What breand said. Apple ISN'T trading like a growth stock, it's trading like it has no growth. Look at the P/E ratios of something like amazon, which has far lower growth.

The reason Apple has been going up every day is that the price is still catching up with the last earnings blowout. And if/when they blowout numbers again, the same will be true. This has been happening for 10 years, and all along the way people have said "this growth is not sustainable". I'm sure it's not forever, but there is nothing pointing to it slowing anytime soon.

If you think it's too risky, buy way out of the money options.

[Vanraw]

Greive, give me your take on the stock on Tomorrows ipad3 launch? Stock was under some pressure due to notes such as the link below, but is now bucking the trend of the market.

<!-- m --><a class="postlink" href="http://www.thestar.com/business/article/1141426--ipad-3-may-lack-magic-analyst-cautions">http://www.thestar.com/business/article ... t-cautions</a><!-- m -->

Wondering if there isnt a high risk options play here. Quick shorterm 20% buying some March 17 calls.

[Grieve]

I honestly don't know. Apple often sells off "on the news", and obviously if there is a sense that tomorrow is a disappointment in any way, it could be ugly. I think a lot of people will be surprised by the announcement, though. I'm guessing a 4G/LTE retina (2X resolution) iPad with Siri and a better camera (called iPad HD), PLUS a full HD 1080P AppleTV (the box not the TV) and new 1080P content on iTunes.

I think trading tomorrow is too risky. Better to buy LEAPs, or at least a call spread dated around the next earnings date in April. I'm betting on the stock being $600 or even $700 by next January.

Apple did behave well today compared to the broader market. I bought more call spreads this morning. If the stock falls more, say to $500, I'll back up the truck.

[Grieve]

Something else the iPad 3/HD might have that would be pretty cool (and a Siri-like way to distinguish itself from other tablets) is haptic-feedback. That means if the screen is showing something like stone or sand, it will feel rough to move your finger over it. If it's something smooth, like the body of a car, your finger will move over it with no resistance. Or say you are playing Angry Birds...as you pull back the catapult, your finger feels more resistance the further you go back. Also great for baby apps (lots of regular baby books have various fabrics and surfaces in the book itself, where they can feel what elephant hide might feel like, for example, or sand on a beach).

Not a world-changing feature, but something pretty cool that people aren't expecting that could juice the stock.

[Vanraw]

I did not trigger on a short term call yesterday because I felt the same, meaning it could go either way.