Lately, it seems like all
Well, that was in 2001 and my girls were not even teenagers then. That’s when the first generation iPod was unveiled setting in motion for a complete and total turn around in Apple’s fortunes and that of its shareholders as well.
However the last few years the zing has gone out of the Apple shares. No longer are shareholders seeing above market returns. In fact the returns now are below what the indices are returning biggest buyback in the world completely notwithstanding. In three years, Apple stock is up a mere 20% or so depending on which month one picks back in 2012. That is a complete disaster as far as shareholders are concerned. This despite the fact that the company has spent about $125 billion of shareholder money on buybacks and dividends. Activists shareholders like Carl Icahn have been pushing the company hard to return capital to shareholders but that is not having any significant effect either.
Some folks like to use the “too big too move” theory to give Apple a pass on relative weak performance the last few years but there is no market cap monitor or prefect sitting around deciding on market cap limits for companies anywhere that I know of.
The reality is simple, Apple is not performing as it should due to a combination of Tim Cook over promising and under delivering and lack of truly new products hitting the consumer market. Tinkering with size and shape of the current stable of products, upgrades of the current operating systems and the continuation of developing and adding best apps in the world do not fit the "best new product pipeline" quote.
Let's take a look at Tim Cooks statements over the years:
January 25, 2012: Apple's momentum is incredibly strong, and we have some amazing new products in the pipeline..."
January 23, 2013: Apple's product pipeline is "chock full of incredible stuff."
January 27, 2014: "We are working on things that are things you see today, but we are working on things that you can't see today.."
April 23, 2014: "I don't want to be specific, but I'm just saying that we've got some really great stuff coming in the fall and across all of 2014."
July 15, 2014: When asked about Eddy Cue talking about the best product pipeline he had seen in 25 years, Tim Cook said "I'd agree with Eddy. I totally agree with him."
Lets quickly take a look at the Apple product timeline from the iPod on (comments in parentheses are mine):
October 23, 2001: Ist gen iPod (new product-world changer)
January 6, 2004: iPod Mini 1st Gen (tinkering with size)
January 11, 2005: iPod Shuffle 1st Gen (tinkering)
September 7, 2005: iPod Nano 1st Gen (tinker)
March 21, 2007: Apple Tv 1st Gen (new product)
June 29, 2007: iPhone 4G &8G 1st Gen (new product-major world changer)
February 5, 2008: iPhone 16G 1st Gen (tinker)
July 11, 2008:iPhone 3G 8G & 16G (tinker)
June 19, 2009: iPhone 3GS 16G& 32G (tinker)
April 3, 2010: iPad (new product-major world changer)
June 24, 2010: iPhone 4 GSM 16G & 32G (tinker)
February 10, 2011: iPhone 4 CDMA 16G & 32G (tinker)
October 14, 2011: iPhone 4S 16G, 32G & 64G (tinker)
September 21, 2012: iPhone 5 (tinker)
November 1, 2012: iPad Mini (tinker)
September 20, 2013: iPhone 5C and iPHone 5S (tinker)
November 1, 2013: iPad Air (tinker)
September 19, 2014: iPhone 6 & iPhone 6 Plus: (tinker)
April 24, 2015: Apple Watch: new product category-Finally-status TBD)
June 30, 2015: Apple Music (status TBD)
Yes, there have been countless upgrades to Macs, iMacs, MacAirs, MacBooks, operating systems, app additions to iTunes through the years but the above is a timeline of major new produces since the iPod came out. Changing the size of an iPad, iPhone etc. is not a new product no matter how much technology went into the reduction or expansion of the size/shape/nuts and bolts of the product.
Apple Pay could also turn out to be a world beater over time. Apple Watch is a totally new product category but we know so little about how well its doing right now that calling it a world beater at the moment would be very pre-mature.
There is no denying that Apple is bringing the entire ecosystem masterfully and making it impossible for a consumer to leave once tied in to the ecosystem due to the ease of inter-operability between the family of products. Yes, even if far cheaper alternatives are available in the market place from the competition.
All the above is well and good but it does not get me excited to buy the shares right now. Does it you?
So, here is what the company needs to do now in order to make the shares a must own tomorrow morning when the markets open for trading:
- True new products must be brought to market and they have to be game changers like the iPod was or the iPhone was at the time they were introduced.
- Tighten up on expenses a la
Google did when new CFO Ruth Porat took over. Whether its cutting down on bells and whistles at the new spaceship campus (a toilet bowl is, after all, a toilet bowl, whether its made of gold or porcelain) or cutting the fat among the work-force or squeezing the suppliers. There is nothing better shareholders like seeing than more money flowing to the bottom-line. If Luca Maestri (current Apple CFO) is not the man to be able to do that, find a Ruth Porat. There will be a handful out there, at least. - I am not a fan of buybacks and dividends so an increase in either or both will not make a meaningful difference to the share price. It has not made much of a difference thus far, so why would it with an increase?
- Make a world beating acquisition might be something to think about. There was a time, just a few years ago, that Apple could have bought the likes of FaceBook for a fraction of where it is valued today. Maybe, they focus on a company that is not yet public. Maybe, its not even a company that is widely known at the moment. However, just like Tim says above, they are working on products and services that most have not thought about yet. Maybe, there is a company out there doing just that as well. Not talking about the so-called "unicorns" because of their totally out-of-whack valuations but a company that is working on a technology or a product that has world beating potential.
- This might not be a popular suggestion, but Apple needs to reduce/stop the millions of dollars being spent on Hollywood-like associations/promotions with stars like Bono, Christy Turlington et al. Apple products are great enough that celebrities will flock to them even if not paid to do, so like the rest of us do. Seeing Tim on stage with this celebrity and that celebrity does nothing for me as an existing shareholder or for the person standing next to me who might be considering buying shares in Apple. In addition, I have never had anyone tell me that the reason they want to or have bought Apple shares is because they saw Apple management glad-handling a celebrity at an Apple event. Have you?
Apple needs not only to keep coming out with new products that will change our lives but also find a way into an existing/potential shareholder's mindset. Saying the stock is cheap or the shares trade at a value right are just phrases and does nothing for an investor/potential investor who wants to make money now and in the long term.
In addition, for management to say that "we don't worry about the stock price" is one of the most asinine things for any management to say and for shareholders to hear. If you don't focus on the share price, the tens of millions of dollars (in many cases hundreds of million-see Cook, Tim) worth of options management has been granted or in most cases granted themselves will be worthless. Hiring quality people will also be impossible if management does not focus on share price. So, the next time you hear a company CEO saying he doesn't care about the stock price, run as fast and as far away from that company as possible.
Just like Apple management is focused on making a consumer think; "I want that that Apple product right now," they have to find a way or provide a solidly irrefutable reason (like NFLX did with sub growth and Amazon did with profitability) for a shareholder, existing or new, to say; "I want those Apple shares right now."
Thus far that solid irrefutable reason has just not been there.
(Please note I am long apple, Facebook, google, apple and GOOGL puts, amazon,
