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Friday, March 18, 2011

What Should Apple Do While Netflix Flourishes On iOS?


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Friday, March 18, 2011
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AAPL Down In Up Market
The stock market is trading in the positive today on news that Libya declared a cease-fire and the Global 7 staged a coordinated intervention to devalue the yen. Shares of Apple are down on against a positive tech tape. Unsubstantiated rumors are circulating that Steve Jobs might be stepping down and new photos of him appearing really thin have emerged in the mainstream media. Upcoming catalysts for the stock include news regarding Steve Jobs' healthy return; iPad 2 sales updates and international launch next week; monthly NPD data to gauge Mac / iPod businesses; iPhone sales updates on new carrier Verizon, the push in China, as well as the launch of the iPhone 5 anticipated this summer; new revenue streams such as video, books / publishing and social (Ping); moving iTunes into the cloud; and the continued evolution and adoption of Apple TV. Shares of Apple trade at 14x Enterprise Value / Trailing Twelve Months Free Cash Flow (incl. long-term marketable securities).

Wall Street Comes To Apple's Defense In Light Of Analyst Downgrade (Various)
The bulls pound the table:
  • Foxconn Correlation Coincidence (Apple Insider): A suggestion that slow growth at Foxconn could be a bad sign for Apple has been called out. Analyst Yair Reiner with Oppenheimer & Co.  says that "Apple's contribution to Han Hai (which uses the trade name Foxconn) is limited. The correlation between Apple and Hon Hai's revenue therefore appears to be a product of coincidence more than causality." He also noted that assemblers like Foxconn are typically paid on a cost-plus basis.
  • Focus On Demand, Not Supply (Barron's): Piper Jaffray’s Gene Munster advised investors not to worry about potential supply-chain shortages for Apple that may impact the iPad and other products. “Historically, calls based on supply-side concerns have led investors astray, but demand for Apple’s products continues to rise.” Munster reiterated an Overweight rating and a $483 price target.
  • Initiation With Outperform And $500 Price-Target (MarketWatch): Credit Suisse analyst Kulbinder Garcha launched coverage on Apple with an outperform rating and a whopping price target of $500 a share. He believes that Apple should be able to deliver outsized revenue / earnings growth of 50% / 46% over the next two years, which is significantly ahead of consensus expectations. He sites sustained competitive advantage in software, hardware and services / apps ecosystem.
Read about more analysts blowing holes in the Foxconn theory at Business Insider.

What Are Apple's Options In The Video War With Netflix? (GigaOM)
At least part of Netflix’s success (61% share of video streams / downloads) is a direct result of Apple. How did Apple end up opening the back door to such strong competition in the digital video space? Perhaps more favorable deals for content providers while making up that difference by applying subscription fees to Netflix accounts originating on iOS devices would make up some of the revenue lost. That could drive Netflix to pull out of the App Store (and subsequently Apple TV), which would put Apple at risk of alienating users. Pretty risky. What about an outright acquisition? With Netflix valued at $11 billion and antitrust warming up again, that is not likely.  Read »

Apple Could Face Logistical Component Constraints Due To Japan Disaster (Bloomberg)
Apple may face logistical problems and supply shortages for components of its iPad 2 tablet after the earthquake and tsunami in Japan, according to iSuppli. Five parts for the device are made in Japan: Nand flash-memory chips from Toshiba; dynamic random-access memory from Elpida Memory; an electronic compass from AKM Semiconductor; the touch-screen overlay glass, probably from Asahi Glass; and the system battery from Apple Japan. It comes at a time when the company is struggling to meet demand anyway in light of shortages. This echos Apple analyst Gene Munster's sentiment as well.  Read »

Price-Matched Xoom Still Won't Trump The iPad 2 (PC World)
The good news is that the Wi-Fi-only Xoom will be available next week and will cost $599, a price match to the equivalent iPad 2. The bad news is that Motorola still hasn't fixed some of the issues with the Xoom (Flash, SD card support), and the 3G version still costs more than the equivalent iPad. Motorola didn't introduce a third model of the Xoom with only 16GB of storage, but perhaps it should have, considering that iPad model flying off the shelves the quickest.  Read »

Chart Of The Day: Mac Store Already Half The Size Of iPad Store On Revenue (Business Insider)
Apple's Mac App Store is still relatively new, but it's already drumming up healthy business for the 300 most popular applications in store. App analytics company Distimo took at look at the top 300 paid apps for the US Mac, iPad, and iPhone app stores. While downloads for the Mac store are just a fraction of downloads on the the other platform, sales are already half what you see on the iPad. The reason? The average price of a top Mac app is $11.21 versus $4.19 for iPad, and $1.57 for iPhone.  Read »

War Of Words Between Two Techies (RoughlyDrafted Magazine)
Not everyone respects Apple’s chief executive Steve Jobs. Seth Weintraub, tech contributor for Fortune, accused Jobs of lying about just about everything at the recent iPad 2 launch. Daniel Eran Dilger at RoughlyDrafted believes Weintraub has a limited grasp of the tech industry and tries to belay his "seething contempt" in a colorful and entertaining column.  Read »



Get complete Apple coverage on Business Insider. Read »

Heather Leonard is a former tech research associate at Goldman Sachs and co-host of Business Insider's daily video show.
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