Apple - Growth Or Value Stock

Apple released its quarterly earnings and based on how you want to view their business, it was strong or disappointing.  They continue to generate an amazing amount of revenue while raising their gross margin.  They have new businesses that are generating monthly revenues and an ecosystem that has delivered a loyal customer base.  But the disappointment lies in its ability to continue to grow at a a high level quarter over quarter, year over year.    Apple may be a profitable, successful company, but it is seen less as a growth company and more as an old timer, value company.  They are no longer seen as Superman, simply as Clark Kent.

The challenge is that its mainstay product, the iPhone may have reached saturation.  Are there more non Apple users out there ready to buy and are current users ready to upgrade.  The level of each generation's improvement over the last no longer makes it so necessary to buy a new iPhone every year or two.  Like its iPad, we may be able to enjoy using it for 5 or more years before we need to upgrade. 

More importantly, investors are waiting for the next must have product for the home.  It is yet to be the Apple Watch or iPad Pro or Apple TV and it is hard to see it extending out to an Apple Car.  I've suggested Apple build its version of the Amazon Echo and deliver more of the Apple infrastructure into the home.  No word yet on that idea.  What 2016 will bring is next generations of each of their product lines.  Great for Apple loyalists, but less impressive for Wall Street. 

Google Pays Apple For Search

Bloomberg has shared some new information about Google and Apple.  In 2014, Google paid Apple $1 billion to be the search engine for the platform.  Its all part of a revenue sharing agreement between the two tech giants.  According to the story, this financial information was never meant to be disclosed.  It makes you wonder what other agreements Apple has that provide other incremental revenue streams. 

Its Time For Cable Operators To Transform Their Business

For cable operators to worry about the number of cable subscribers is old school.  It is time that they re-examine their business model and transform themselves for the 21st Century.  If you ask a cable operator what their business or mission is, the most likely response may be that they are the conduit for entertainment, communication, and data.  Unfortunately subscriber numbers are falling, growth across their businesses are slowing and they are consolidating to find greater efficiencies.

It is time for cable operators to be greater than the sum of their parts.  Just as Google has renamed itself Alphabet to become more than just a search engine, cable operators need to be more than just a conduit to bring wire and wireless to the home.  They need to make their mission Smart Home Makers.

As a Smart Home Maker, the business becomes more than just bringing a wire to the home, it involves being a full service provider from smart door locks to home security and video surveillance, from HVAC partnerships to data cloud security.  From full home wiring to high performance wireless streaming.  Cable and broadband become just another piece of being the Master of the Client's Domain.  Along with training to the homeowner, the cable operator becomes the key player in growing the smart home universe.  And the revenue comes from installation to maintenance and monthly service packages.

Viacom Activist Wants To Partner With AMC Networks

A Viacom shareholder questions the health of CEO Sumner Redstone and the future of the company.  According to Multichannel, he proposes a merger with AMC Networks as one way to solve Viacom's problems.  But does Viacom's networks, including MTV, VH1, CMT and Spike, bring any synergy to the AMC Networks family?  While AMC has done some previous acquisitions, including Sundance Channel and BBC America, I do not think that such a merger with Viacom has value to AMC.

Comcast, the largest of the MSOs has just announced its move of CMT and Spike from basic to a higher digital tier.  That does not speak well for future subscription growth.  MTV, once a must have network for key demographics, have lost their luster to other networks like the former ABC Family, now Freeform, as well as You Tube and other online websites.  It would require a significant investment to recapture its glory.  And VH1...well, enough said.

Lastly, is AMC Networks more likely a seller than a buyer?  Its owners, Chuck and Jim Dolan, have already sold Cablevision Systems and smaller networks like Fuse.  Jim Dolan might just want to keep his MSG and sports teams and sell off this next piece of their empire.  And for that reason I doubt that AMC would invest in Viacom.

As Cable Rates Rise, Expect More Cord Cutting

Programming license fees continue to rise and cable operators respond by raising monthly subscription rates to its customers.  According to Multichannel, cable rates are expected to rise about 3% in 2016.  It amounts to a few dollars more each month but consumers are already getting tired of any and all increases.  Comcast rates are rising just as they planned to move channels off basic to more expensive digital tiers.  That means that consumers are paying more for less.  Skinnier packages don't necessarily mean lower costs. 

What will subscriber levels look like this year.  Some cable operators have seen a slowdown in lost customers and try to point to a reversal in the trend toward more cord cutting.  First quarter subscriber levels should dispel those myths.  As OTT networks like Amazon Prime, Hulu, and Netflix continue to push more original programming, and customers become more inclined to use them over cable TV for their video offerings, the value of cable decreases.  Cord cutting will only become more severe.  And for households on a limited budget, cable TV will stop becoming a must have for the home. 

Millennial usage has significantly shifted from the big screen television set to the handheld tablet or smartphone.  Their primary video consumption, driven partly by peer pressure, to watch and binge on OTT programming.  And if this next generation sees less value from cable, then when they leave their parents' home for their own residence, cable TV will not be a necessary utility for their new home. 

The wire to the home will be seen only for broadband consumption, not for cable or for phone.  And if cellular companies can make wireless packages that keep the price point for data reasonable, then consumers may make the cell phone company the primary provider of broadband services.  That is the trend facing the cable operator and that is the challenge that this industry must focus to find its next growth opportunity. 

Comcast Pushes Channels Off Basic

The NY Post has reported that Comcast is taking underperforming networks off their basic tier to reduce costs.  The networks targeted include Pop (the former TV Guide Channel, Spike and CMT (both Viacom owned networks) that are being moved to a more expensive digital tier.  It may not be a drop but it certainly reduces their subscriber base.  The article says that Comcast is creating skinnier bundles and reducing costs but it is unlikely that those costs will be passed directly on to consumers; rather, it may only delay the need to raise the costs of the basic tier. 

Unfortunately, when you look a little deeper, these three networks are hardly the financial reason why a cable subscription is expensive.  They are pennies per month in license fees compared to sports programming and other more popular cable networks.  And they were chosen because Pop is an independent network and Viacom has very little leverage with its other sister networks MTV, VH1 and Comedy Central.  None have the cache or demand that they once had. 

Comcast and other cable operators are already feeling the heat from cord cutting.  And big cable networks like ESPN are suffering directly with lost subscriber fees.  This article may only be detailing Comcast's first steps at taking more bolder steps to create a skinnier basic package to retain its cable customer base.  Cutting cable costs and promoting faster broadband service with a cable subscription are two ways cable operators like Comcast can reverse the cord cutting trend. 

Amazon Prime Has A Deal For You

Amazon Prime has found more streaming media success when the Golden Globes awarded them for their latest original series, "Mozart In The Jungle". To celebrate their win, Amazon Prime is reducing their annual subscription by 26% for new subscribers.  "Subscribing will cost $73 — down from the regular $99 — from 9 pm PT Friday until 11:59 pm local time Sunday night." according to re/code. Quite a savings and sure to drive subscription numbers!

Has Time Warner Lost Its Way?

The challenge for a company as it grows is how to successfully manage its parts in a way that makes the combined entity that much stronger.  But sometimes, too much growth or too many business units operating independently can cause bits of implosion.  They can distract from the core mission or lead to missed opportunities.  And when a company is public with active investors, the value of the parts being greater than the whole creates new pressures on the management team.

Time Warner Inc has been one of those companies under such pressure.  As an acquisition target of AOL, it led to complete disarray.  Once divorced from that mistake, it tried to right itself only to feel pressure to continue to split off pieces.  Time Warner Cable was spun off as was the Time Inc. company.  And what is left are the Turner cable networks like TBS and TNT, the HBO premium cable subscription network, and the Warner Bros movie studio.  But investors want more and believe that Time Warner needs to be either split again or sold to another with deeper pockets.

Recently, some rumors have emerged that Apple could be interested in buying them to support their Apple TV brand.  But if you look at the Apple business, they are a technology company and aggregators of content, from music to video to apps, that they can bundle and sell to customers through their technology.  They don't have the management experience to run a content company.  And owning an HBO or TBS might limit their ability to aggregate other video content.

A more likely scenario might be for Murdoch and the Fox team or Malone and the Liberty Media team to kick the tires on Time Warner.  And ABC might be interested too.  As for CBS, an ailing owner might make it harder for them to manage such a large acquisition.  Time Warner Inc has shown a willingness to part with companies and a spin off of HBO could be a more realistic move in the short run to allay investor concerns.  Although given the recent direction of the stock market these days, the timing to sell may not be right at the moment.

Apple Continues To Impress

Despite worries that iPhone sales may not exceed expectations, the company continues to demonstrate that it is more than a one trick pony.  According to a new study by Juniper Research, the Apple Watch "estimates 17.1 million smartwatches shipped globally last year, with the Apple Watch accounting for 51.5 percent of shipments — or 8.8 million devices sold."  Yes more than half of all global smartwatches sold is an Apple Watch.  And the smartwatch business is still a nascent growing new industry.

The second bit of good news announced recently is that its new streaming music venture, Apple Music, has passed 10 million subscribers in only 6 months of business according to Financial Times.  And according to the article, Apple Music could possibly surpass its main competition Spotify in 2 years.  Not a bad business model to be in, one with a measurable, regular monthly revenue stream.

Of course there is always the next generation iPhone, the new iPad Pro, the push to the Apple TV, and perhaps an inkling in the future of a possible Apple Car.  Apple is clearly Not a company resting on its past laurels.