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Goldman’s $430 Target, Screaming Buy On Apple At Its All Time High Is In Direct Contravention To Reggie Middleton’s Logic – Who’s Right? Well, Who Has Been More Right In The Past?
Goldman has recently issued a strong buy recommendation on Apple,
offering a $430 price target. I have been on record many times stating
that Apples will be facing the toughest competition of its existence
since Microsoft nearly put them out of business. This, of course,
appears to be in direct contravention to the Goldman Sachs call which
just happened to come out the day Apple hits its all time high. Being
that Apple has more than its fair share of fans who ignore common sense,
this is enough to set the stock on fire. The question still remains
though, “Is Goldman right?” Goldman very well could be right, but not
for the reasons most retail investors believe. Despite overwhelming
evidence plus plain old history to the contrary, many investors and
mainstream media outlets still take the sell side of Wall Street at
their word. Sell side analysts are marketing arms for the brokerage
sales force, the investment banking sales force and the traders who move
inventory in and out of their respective banks. What they are not are
wealth and strategy advisers for retail and institutional investors.
Their historical performance clearly illustrates this, thus their is not
need to take this entrepreneurial investor and blogger’s word for it.
Well, for those of you who either don’t know of me or don’t know of
Goldman, here’s a quick recap of Reggie Middleton vs. Goldman Sachs:
Who was more accurate concerning Google? Google’s 3rd Quarter Operating Results: The Foregone Conclusion That Was Amazingly Unanticipated by the Street!!! Monday, November 8th, 2010
Who was more accurate concerning Lehman Brothers, the Ivy league, ivory tower boys doing God’s work or that blogger with the smart ass mouth from Brooklyn?
Please click the graph to enlarge to print quality size.
As a matter of fact, who was more accurate during the ENTIRE Asset
Securitization and Credit Crisis of the last three years? We believe
Reggie Middleton and his team at the BoomBust bests ALL of Wall Street’s
sell side research: Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?
From the October 28th, 2008 post “Blog vs. Broker: Whom do you trust?”
Reggie vs Wall Street
As many may have surmised, my team
and I have blown out the results of Wall Street’s biggest and most
reknown name brand brokers. It wasn’t even close enough to fit in a
small graph. JP Morgan failed to beat the S&P over the period
that the blog has been in existence (since 9/07). The blog’s research
returns are 132% above the BEST performing Wall Street Broker’s analyst recommendations. For the supporting data that goes behind this study, see Blog vs. Broker, whom do you trust!. Please click the graph to enlarge to print quality size.
5
Reggie vs Goldman Sachs
Why didn’t Wall Street read my post on Lehman being a yellow lying lemon? See “Is Lehman really a lemming in disguise?”
and realize that this post was made on February 20th, when Goldman
Sachs had a recommended price of about $55 while this blog warned that
Lehman may be done for. This very similar to when I warned about the
potential demise of Bear Stearns in January, when the rest of the
Street had a “buy” at about $130 per share. See Is this the Breaking of the Bear?. 7 We all know how both of these stories ended.
Now that we have have that out of the way, let’s return to the topic
at hand. Goldman’s Apple call is rather late if you ask me. Apple has
been on a tear as of late and has obliterated much of its competition.
That was then, this is now. Apple has a new level of competition in the
revamped Microsoft phone OS (again, rather late, but a phenomenal effort
that should tie in well with other products, more of a threat to RIMM
than to Apple, though), and more so from Google’s Android OS and related
offerings. Apple must battle Google on the OS front and top hardware
manufacturers on the equipment front (ex. LG, Motorola, HTC and
Samsung), many of which Apple must actually source parts for the single
product from which it derived 70% of its profits! That sounds awfully
risky to me, you know relying on your staunchest competitors to keep the
vast majority of your profits rolling in. See “A Quick Peek Into the REAL WORLD Logic That Went Into Building the BoomBustBlog Apple Model: It’s Called Compression!!!”
for detailed analysis of this Apple conundrum. Apple also has to battle
literally tens of thousands of individual open source programmers who
contribute mightily to the Google platform. For those of you who don’t
think this makes a big, and I mean very big, difference I suggest you
mozy on over to the XDA Developers site
to see what they have going on. They have solved much of the major (and
practically every minor) issue(s) with the Android platform in near
real time an made the fix available to the public. There is no way in
hell Apple can code and develop at this pace, and it is showing in the
rate of development of Android (3 major releases in the time span that
Apple has released 1).
In Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space,
I outlined a preliminary strategy that Google is using to monetize
Android at the expense of Apple. What wasn’t mentioned in that article
is probably the most serious threat, not just to Apple but to any
company that attempts to offer software through app stores. Let’s walk
through the logic behind this wise man’s thinking by looking at the
phenomenal growth that is Android.
- Android Sales Overtake iPhone in the U.S.: Tech News
- Google: Android now shipping on 60000 handsets per day Feb 16, 2010 …
- 160000 Android Phones Sold Per Day Jun 23, 2010 ..
- Google: 200000 Android Phones Sold Every Day | Gadget Lab | Wired.com Aug 5, 2010
- @ARubin: 300000 Activations Per Day December 2010
Android now outsells iOS in the US and worldwide. This is not lost on
developers who wish to monetize their efforts. The most ubiquitous
platform will get the most developer attention. It’s as simple as that.
We have modeled and predicted this occurrence in detail for paying
subscribers (click here to subscribe) with our our 
Smartphone Market Model – Blog Download Version;
which granularly breaks down the market share of various handset
manufacturers with data as recent as last quarter, catching the launch
of the iPhone 4 and the HTC Evo, two of the most important product
launches of the year. We have also included the Mobile Operating System Market Share Model which compares OS shipments across device and hardware type.
So, what does this all mean? Google was able to commoditize, and then
cannibalize several other industry’s revenues by offering their
products for free or at a highly discounted price while still profiting
by subsidizing the offering with ad revenues. Google takes the
advertising model to the next level – just ask those in print media! In
order to do this, Google needs volume and mass. They need to be the
leader in client software. They have actually achieved this in an
phenomenally short period of time and their rate of growth is actually
increasing dramatically. If Google succeeds in transforming the software
delivery model to that of an ad-based model, the current Apple App
Store model and all of its competitors (Ex. Microsoft and Research in
Motion) who are trying to emulate it are going to have their business
models totally up ended. The kicker is, even they recognize this risk,
the only way to do anything about is to have both the advertising
infrastructure (ex. Google’s Acquisition of AdMob) and the sales mass
and volume (ex. 300,000+ activations per day) to be able to monetize
such aspirations.
This is why those who proclaim that Google only makes the OS, not the
hardware and Apple profits from both are absolutely missing the forest
because of all of that brown bark stuck in their eyes! Some of the best
apps available for smart phones ring now are ad supported and free to
the end user, save certain premium upgrades. Guess who those apps come
from? Google Voice, Google Earth, Google Apps, GMail, Google Analytics,
Google Voice Search, etc. Then there are other apps that are simply
phenomenal which don’t come from Google but still look to take advantage
of the ad model. Long
story short (that is if it isn’t already too late in this lengthy
missive:-)), the probability of Google succeeding in making mobile and
even desktop software (Google has added an app store to its Chrome OS as
well) ad supported is simply too great to ignore. If it succeeds,
significant disruption will ensue to the benefit of the consumer and to
the detriment of Google’s competitors.
As excerpted from Even Steve Wozniak, the Co-Founder of Apple, Made a Freudian Slip Extolling the Virtues and Inevitable Dominance of Android! Friday, November 19th, 2010:
The Mac OS actually had the first
mover advantage and blew it doing the same thing that they are doing
now, which was trying to fight the commodization of their cash cow
platform by maintaining a totally vertical manufacturing and
distribution channel – controlling software, hardware and firmware
while refusing to license any portion out. The result was the
proliferation of PC clones that drove the costs of computers
considerably below $1000 per unit while Apple was charging up to $3000+
while having an inferior selection of 3rd party applications. Does this sound familiar??? Think of the growth of the Android platform to date.
It is absolutely amazing to hear the founder of Apple iterate such,
even though he did attempt to backtrack some. Even with the back
tracking, he still assets that Android will probably takeover the market
as did Windows. Apple investors should take note, and look at MSFT’s
revenues and profits as compared to Apple’s over that same time period.
Even Steve Wozniack is implicitly endorsing Google as an investment! He
also refers to voice commands, which is absolutely phenomenal and has no
comparison in iOS.
Keep in mind this feature came out 2 entire revisions ago (a 3rd,
major upgrade – Gingerbread – is due out any day now). In addition,
stating that “almost every app I have is better on iOS”
is not a glowing endorsement from the guy who literally started and
owns the company makes iOS. Parsed semantically, it is an admittance
that the apps he doesn’t have, and cannot get are
superior than what is available on the iPhone. Before anyone jumps on me
for that analysis, take a look at the apps that are unique to Android
and let me know if I have a point:
For the record, I use this app regularly on my HTC Evo, and it is not
only quite multi-linguistic conversation starter, but literally
amazing. I have muddled through conversations in Taiwanese, Mandarain,
Hatian, Dutch, etc.
This is also a revolutionary product that is unique to Android in
terms of full integration. It can be used indirectly on other platforms,
but the Android implementation/integrations is far superior.
I invite all to take a look at the power and capability of Google Voice via their Youtube Channel.
Those of you who can’t see the potential in this will probably never be convinced, so I won’t even bother elaborating…
While the effects and templates are uber cool in this app, the
reviewer failed to elaborate on what is by far the most notable feature
of this Android camera replacement app, and that is the ability to set
Android to record images nearly uncompressed in JPEG and at max
resolution. On my HTC Evo, that is 3264×2448 pixels using the 8 MP
camera. The highest settings create 5 to 7 mb files, but the pictures
are absolutely phenomenal when taken in adequate lighting. I have had
several professional photographers (as in more than 2) say that their
next phone will definitely be an Android after seeing how this app
combines with the Evo’s 4.3 inch screen and 8 mp camera. The range of
real time processing settings and templates are very, very extensive as
well.
So, does all of this Android stuff really make a difference? Let’s excerpt Empirical Evidence of Android Eating Apple!
. 
Below is a graph showing the longer term trend of Apple market share
in the smart phone space. It illustrates the explosive growth Apple has
had through its iPhone series, and it also shows some seasonality (ex.
lull before hardware upgrade season, etc.). As you can see, the growth
trend, viewed either directly or as a moving average, shows marked
downward momentum. Of course, it is highly unreasonable to expect a
company to continue to grow at the pace that Apple has, but that is
exactly what many Apple valuation models that I have come across have –
literally hard-coded in. This is folly, in my opinion – particularly
considering the effect of the Android competition that is already
showing up. If you look closely, Apple’s smart phone market share is
already showing NEGATIVE growth!
Since I know that the chart may be a little difficult to read at the
tail end encompassing several years of data, I have taken the liberty
to drill down to the past year to get a closer look. Remember, Android
sales didn’t really get started until 8 months ago, and the big surge
didn’t occur until the Evo/Droid X/Samsung Galaxy series were launched
in June, July and August – most of which is not captured here. The same
is to be said for Apple and the iPhone 4.
Click to enlarge to printer size!
Despite increases in both the overall mobile market and more importantly, the smart phone contingent’s penetration of said market:
- Apple’s smart phone shipments are showing a negative growth trend
- and more importantly, Apple’s smart phone market share is
experiencing a very sharp downward trend as shown by both direct
observation and that of the 2 period moving average.
The game has been changed ever since HTC released the Evo, which is essentially a networked pocket supercomputer. We outlined the technically superior features of HTC’s flagship phones in “A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone”
as well as supplying a graphical comparison of the major Android
handset releases compared to their most potent competition – Research in
Motion Blackberries and the Apple iPhone:
Note to Subscribers, this chart takes precedent over the one included in the Apple business strategy document, 
Apple business model note. This also ties in with 
Apple iPhone Profit Margin Scenario Analysis Model.
This has not been lost on the market either, reference Big Money Starts to Dump Apple After I Warned of Margin Compression on CNBC Hours Before Apple Announced Compression Friday, November 12th, 2010 and Google’s 3rd Quarter Operating Results: The Foregone Conclusion That Was Amazingly Unanticipated by the Street!!! Monday, November 8th, 2010 and most importantly A Quick Peek Into the REAL WORLD Logic That Went Into Building the BoomBustBlog Apple Model: It’s Called Compression!!!Tuesday, October 19th, 2010
You see, I thought it was rather prescient to call margin compression, live on CNBC
(3:40 into the video), just hours before Apple announced… Margin
Compression… At a time when just about everyone who could spell Apple
shouted Buy! Buy! Buy! Buy! Buy!!!
So, following up on the piece that I did just a few hours ago – Reggie Middleton Wasn’t the ONLY Openly Apple Bear in the Blogoshpere, Was He? along with this cute chart…
Relevant links and articles:
- There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
- The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift
- An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
- A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone
- Android is gaining preference as the long-term choice of application developers
- A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple
- Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance
- Apple on the Margin
- RIM Smart Phone Market Share, RIP?
- Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
- How
Google is Looking to Cut Apple’s Margin and How the
Sell Side of Wall Street Will Enable This Without
Sheeple Investor’s Having a Clue - Empirical Evidence of Android Eating Apple!
- More of the Android Onslaught: Increasing Handset Revenues and Growth
- Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion
- The BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download
- The Complete, 63 pg Google Forensic Valuation is Available for Download
- iSuppli Continues to Validate BoomBustBlog’s Original Thesis: Android as the Viral Game Changer!
- BoomBustBlog Research Hits Another One Out the Park! Google up nearly 10% after hours, true blowout earnings unlike JPM
- As
I Warned in June, DO NOT DISCOUNT Microsoft in This Mobile Computing
War! Their Marketing Campaign is PURE GENIUS! and it Appears as if
the Phone Ain’t Bad Either - Reggie Middleton Wasn’t the ONLY Openly Apple Bear in the Blogoshpere, Was He?
- A Quick Peek Into the REAL WORLD Logic That Went Into Building the BoomBustBlog Apple Model: It’s Called Compression!!!
- advertisements -
Erin Burnett was showing off an ipad with a new attached keyboard gadget and she was so excited. That's called a freakin 2 piece POS laptop with little functionality!, Gee maybe you should add a mouse to it too! How cool would a DVD drive be? wow, how bout an SD card slot and an HDMI slot. Wait, how bout a real processor!?
How stupid are people? Apparently plenty.
Apple had a great great lead on coming out w/ first ipod and then a couple iphones. That is not the case with the ipad. Fast followers are pretty damn fast and will continue to erode product launch advantages going forward. Especially when the gadgets are all made by the same company in china!
Whatever...
Apple is not just an iPhone. It is a complete eco system of iPhones, iTouches, iPads and yes... even Macs. With such a small share (but growing) of the desktop market along with a booming iSomething market, followed up with the AppStore for desktops Apple has a lot more crow to feed to Reggie.
How about a long shot... they brought iTunes to the PC, supposed they bring iOS/AppStore to the PC ?
Apple, unless a crash occurs hits 400.
I think Reggie's analysis is premature because the IPHONE has been contained to AT&T network. One of the most important aspects of any business is not mentioned in Reggie's article. Basically, if you ask anybody which smartphone phone they would buy, the answer will be the IPHONE. APPL distribution channel has been limited to AT&T while at the same time winning the race to earn a lofty customer's loyalty that not even free Android phones will kill. This will be confirmed once the IPHONE is sold by Verizon and AAPL increase global market presence. Let's face it: the IPHONE and IPADs are the gadgets to have today and for a long time to come.
Here is a startling perspective.
Businesses that are innovative and well run, are innovative and well run irrespective of what a bunch of Wall Street morons think about the stock. Does not matter if it is Google, Apple or Netflix. They all do very well because they are smart business people.
Well run businesses have to adapt and innovate in response to changing conditions as well. It is the measure of good business sense.
The retards on Wall Street do it by asking for government handouts so they can trade into Benrons big mo.
What a CFmoron at Goldman says has nothing to do with why Apple and Netflix are well run companies.
Reggie, let me know when you put your money where your mouth is with regards to apple. There is enough room in the world for droid and the iPhone.
Not sure there is enough room in the world for Apple's 243 billion market cap.
I see a tipping point in all this: Take the number of developers at Apple, A, multiply by the number of functions-per-hour they write, B, multiply by the hours-per-day they write, C. A times B times C equals X. If X is less than the number of open-source-functions given away, every single day, we don't by Apple.
Reggie, watch this clever little web 2.0 Nativity Story! It's practially an ad for Google:http://www.youtube.com/watch?v=GkHNNPM7pJA
HOWEVER! It was shared on the ultimate platform for sharing: Facebook.
Where does Facebook fit in all this, Reggie? It could dominate in the ad space because of its "like" feature. And it continues to partner with Microsoft (Bing, etc.).
Where can it go? Where is it going. Can it enter the Smart Phone Space? And ultimately the tv/programming/content space.
Apple could extend and pretend with additional carriers. Its a tough call short term. Long term their isolated product plan is risky and puts tremendous pressure on them to keep up and exceed outside competition. Droid and other competition is forcing Apple to speed up its releases of new products and features. Can they keep up to keep the pipeline filled with new goodies and apps?
Google voice search is dayum accurate for me. Apple voice command is atrocious.
"Apple could extend and pretend with additional carriers. Its a tough call short term. Long term their isolated product plan is risky and puts tremendous pressure on them to keep up and exceed outside competition. Droid and other competition is forcing Apple to speed up its releases of new products and features. Can they keep up to keep the pipeline filled with new goodies and apps?"
Bingo!!!
So it seems the fundamental struggle is can apple expand distribution and come up with new products/features to expand their business as their market share gets eroded.
Getting another carrier will have great positive leverage for Apple, since they are selling existing products to new customers. Longer term they are certainly not the only game in town and have very tough competition. I doubt they have any game changers in their quiver any more. Even if they did, will the economically deteriorating consumer public afford to buy any more gadgets?
short term external factors boosting Apple are the funds window dressing for year end momentum trade, piling into winners and selling losers.
I could see a nice pullback after more disappointments and lowered guidance for 4th quarter come out of retail (BestBuy).
We are learning a lesson that the market can be irrational longer than we remain solvent. fundamental analysis is important but become less relevant in todays trading environment when you have 40-70% of volume run by computers/algos and you have the Fed GROSSly distorting the markets.
To combat any 4th qtr or competitive softness Apple just needs to come up with a "Cloud" marketing/PR plan and the game will continue like it has for netflix and salesforce.com. Don't interrupt investors' wet dreams!
Keep up the good work Reggie, I really enjoy reading your analysis.
so instead of using all sorts of fancy graphs sales numbers to make your case why dont you just say that goldman is scamming its customers and that apples sales are really irrelevant?
also i noticed you have no comments on being an apple hater, if your giving investment advice should you not give full disclosure?
i do want to say your stuff on real estate is awesome, but like you i thought the bust should have happened much sooner then it did, and even now real estate stocks dont make sense but they are still doing well. so apple could have go for a while, after the goldman selloff happens
Reggie is in deep shit with Harry. Harry is going to come on this forum and throw so many numbers at Reggie he will quit his job and shut down boombust'....
hey reggie 2 questions,
since apple is loosing 1.x percent of market share right now with having only one carrier(att) and a crappy carrier at that, what happens if all of the rumors about the iphone getting to verizon in january are true. att increased its termination fee, apple ordering millions of CDMA chips etc.
also you grip on apple users as buying apple and hiding behind blinders, but you really seem to be the same against apple, or at least you come off that way. im a PC guy but i will give apple props for making great products if you can deal with all the proprietary crap that they dish out and paying a premium for it.
edit: also when goldman puts out a buy it seems pretty clear that they are just trying to get the volume up so they can sell their shares
Verizon may need it more than anyone thinks
http://www.macrumors.com/2010/12/14/verizon-loses-ground-to-atandts-ipho...
How's them Apples, Reggie?
GS oil going to $200..... just before it promptly fell from all time high
GS oil going much lower ....just before it doubled
I've been holding an AAPL since it was under $10 (sadly not much). Apple has even spanked the gold-bitches.
Reggie, I hear a little hot sauce goes good with crow.
Meanwhile, Microsoft loses another customer every 74 seconds.
@widow
The way Windows Phone sales are going, MSFT may be losing a CEO soon as well.
That presumes that they actually had one.
No CEO I know refuses to accept the old adage, "the customer is always right," and now MS customers are simply proving it no matter how much Ballmer increases the price promoting the "Microsoft way" rather than the market's.
Funny that.
......should be obviously CLEAR that all 'smart phones' are getting to converge on the original APPLE model - thanks apple, but NOW everyone ELSE can do the same....AND THE MARKETING IS THRU THE ACTUAL CARRIERS...
Already, there are signs of deep discounting on all 'smart phones' which are sold ONLY (almost only..) with a two year phone company data/voice delivery contract...they will ALL deliver 4G (or the equivalent, T-mobile has a different mode ...)
Phones, supposely retail priced at $600, being literally given away for $100 OR LESS for two year contract....and FYI in two years, those phones will be TOTALLY OBSOLETE in the hardwar....
Commoditized...Apple, you are FUCKED, end of proprietary business model that worked since the middle 1980's....Oh, yes, I-phone hardware itself is NOT made by apple, but by the same Far East companies making ALMOST all the OTHER SMART PHONES...
Don't bet on ANY of these companies, for very much longer....FYI, they are mere 'toys' afterall, no real business level serious keyboards, no screen size, no processor worth a shit 1Ghz single CPU is like 2003....you want internet, 'on the go' use a laptop and free internet wireless at all MacDonalds, all Starbucks, and all burger kings....etc...and your public library too
OH, Microsoft? not even in the picture, THIS TIME their business model of waiting til some poor sucker-company-partnership does the spear-heading-risk and MS then buys THAT company, and/or completely DEVASTATES that company, kinda Napoleon style....
Napoleon, Oh yes, didn't Gates say, 15 years ago that the two people whom he admired and copied was 'my years at General Motors...(who WAS that), and Napoleon...studies IN DEPTH..
the O/s SYSTEM 7 professional is equally a piece of insecure shit as was win 98/win 2000, win xp...NOTHING NEW, just more internalized patches of a non-extensible software...and then still more 'patches' after public release...bullshit..
Oh, also, STUXNET (sp?) windows o/s IS such an accomodating HOST for guest malware...yes WHY would anyone (who cares about security) EVER host any industrial, high impact application on ANY microsoft product - engineered for customer satisfaction and maximum sales, but NOT for maximum security, after all the average customer seems to NOT mind the continous 'patches'....the heros here ARE the Hackers, thank god that they, too, are doing GODS WORK...so many diligent workers out there...
Not sure Barmy Ballmer was the right choice to begin with.
I can live without a bunch of apps on a Windows Phone, but the reality of the availability of apps (as in an indirect indicator of developer attraction to the platform) is an indicator of success.
Well, that's a plate full of linky wonder, coupla days worth. Thanks! I couldn't agree more on Apple, it's Cinderellas pumpkin-shiny. All the big playahs will make money, but then they all have synchronized watches to time the stroke of midnite. (Midnite for Apple = the core marketing talent bails leaving the brand to the tender, delusional mercy of Steve Jobs.)
This can only mean they have a ton of Apple to unload -- to YOU, sucka!!
Where's Harry?
Reggie, didn't you sell out of AAPL around $250?