Tuesday, April 24, 2012

Apple: Profit Taking Or Future Profit

The faster the ascent, the harder they fall; so seems to be the case recently with Apple and its stock price.  With its earnings call looming this evening, the stock price has dropped quickly.  Can Apple keep its momentum, how many more iPhones can they sell, and what is next in the pipeline? We should get some of those answers soon enough.   But unlike the internet bubble, Apple manufactures actual products, sells digital content and has a world to conquer.  One quarter may be slow...

But, the future for Apple remains bright.  I believe in the market predictors that see Apple's price rising to $800 or higher.  It is not just one product but the whole package they offer that causes customers to start with one Apple product and end up buying more.  Happy with your iPhone, buy an iPad.  Love your iPad, buy a Mac to replace your PC.  Love your Mac, buy an Apple TV.  And with multiple devices in the home, let the iCloud and purchases from your iTunes account bring content to each device.

So bring on the financials. At the end of the year when the next gen iPhone and other products are announced, Apple will once again be the technical and media darling of Wall Street.
Post announcement - Another record quarter and Apple again delivers.  Looks like after close market has stock bouncing back.

Netflix Not Growing Fast Enough For Some

All companies seem to suffer from the same problem, the classic bell curve.  In its youth, the growth curve is steep; in its maturity, the growth slows and then declines.  For those companies that can spot the next new product or service, new growth emerges as company strategies shift.  Apple has found new growth with the introduction of new and improved product lines; Netflix has attempted to grow with its move from DVD to streaming business.  But for these and other companies, the question that shareholders and the stock market always ask is what will you do for me next?

In the world of media, Netflix's streaming business has grown to a size comparable to Comcast's cable subscription business.  At almost 25 million customers paying $9 or more a month, Netflix is not constrained by franchise or continent.  "The company is racing to add viewers to confront competition from Comcast Corp. (CMCSA)’s StreamPix and Verizon Communication Inc. (VZ)’s online venture with Coinstar Inc. (CSTR)’s Redbox. While Netflix may post a second-quarter profit, investors are focused on subscriber additions."  And there it is, that same question, what are you going to do next, where are you getting more customers.

While I don't own a position in Netflix, I do see that they have an advantage to others; they can operate internationally.  With content rights, they can go everywhere.  Streaming also enables a second stream of advertising revenue.  And a potential to push into e-commerce and other revenue programs.  Eventually subscriber growth has to stall, it is inevitable; the challenge is finding other revenue models and other businesses that start new growth trends.