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Most Accurate Apple Analysis Ever Pt 2, The Only Investor Accurately Calling To Short Apple Tells What's Next
Following up on Deconstructing The Most Accurate Apple Analysis Ever, I am offering subscribers an updated valuation of Apple now that it has fallen to EXACTLY where I warned subscribers in October (the week of its all-time high of about $707 it would fall) to. After playing with the iPhone 5 for about a week, I told subscribers to expect the stock to bounce up against the pessimistic band of our valuation analysis. Apple last traded at $420, this is how I put it 5 months ago...
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This report is still available for download to paying subscribers:
Apple 4Q2012 update professional & insitutionalWith this report and Apple's subsequent ~40% or so drop, we have profited from Apple on both the long and short sides (After My Contrarian Calling Apple's 3rd Miss Accurately, I Release My Apple Research Track Record For 2 1/2 Years)
Now it's time to discuss where the stock will go from here. Valuation and specifics are the purview of paying subscribers only. All subscribers may email me for my valuation numbers (a quick summary only) and professional/institutional subscribers may contact me for a 5 minute discussion on this topic. I will have an updated valuation report out with 48 hours, likely by tomorrow midday. In the meantime I'll share a smattering of metrics, facts and trends that the sell side is still refusing to face. Let's dance, shall we?
Apple Is In Trouble – Plain & Simple!
Apple has successfully transformed itself from a portable and desktop computer company to a mobile device company, and managed to do so right at the crux of the mobile computing boom. As such, it has benefited mightily, briefly becoming the largest and most respected company in the world. Alas, what goes up must eventually come down. The largess revenues and margins gleaned by Apple brought massive competition, and in the case of Google’s Android, business models specialized in gutting the fat margins which caused Apple to prosper. As a result, margin compression ensued, but very few actually saw signs of it until it was too late (reference Deconstructing The Most Accurate Apple Analysis Ever).
Take note of the chart below which show Apple’s expenses at the corporate level spike.
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The spiking of expenses is corroborated by nearly all fundamental profitability metrics. Before delving into these metrics, let’s review how they margin compression is actually being leveraged. You see, Apple’s margin problem is not emanating from just aggressive competition with smart business models, ubiquitous cloud services (Google) and low cost means of production (Samsung). Apple is now paying the piper for its shift into mobile by having its pipeline effectively saturated with mobile products, thus nullifying the margin expansion that the move into mobile products have brought on. Mobile products had higher margins than their desktop/laptop counterparts. The chart below shows Apple as a nearly completely mobile products company.
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Now, one may say, “but even if they have turned completely into a mobile products company, margins should stabilize, not compress!”. How true, young grasshopper, except for the fact that as Apple has nearly completed its transformation, Google has started compressing margins in the mobile space, which has in turn started to put pressure on the margins of this nearly completely transformed company. Look at the progression of the revenue/product mix over time.
As can be seen from the chart below, Apple is not a phone/tablet company…
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From margin perspective, one may see an extra hit to margins as Apple has actually had a relative increase in Mac sales, whose margins are materially lower than iPad and iPhones. This will be compounded by iPhone 5 and iPad mini sales, both of which have lower margins than the products they replaced or are cannibalizing.
Now, follow the trend in entity level margin compression (below) while cross referencing the (the product mix revenue above) and you will see that there is a near saturation of mobile products, with lesser margin tablets and even lower margin notebooks creeping in over the last three quarters…
As a matter of fact, this has been the largest drop in margin (in terms of %) since I’ve followed the company.
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Oh, and BTW, you can have shrinking margins AND shrinking market share, re: 4:58 in this CNBC video below (watch the whole clip if you haven't seen it before).
So, exactly how did this all come to be?
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Stay tuned. Tradable numbers will be forthcoming to subscribers (click here to subscribe) within 48 hours. To all retail investors (pros should know better) who do not subscribe, please do not attempt to read into what's in the subscription material by guessing from my public posts. All of the opinion and analysis that I make public has been of extremely high quality and quite accurate in aggregate, but it was not intended to be used as investment advice. That is what you pay for.
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Well beat me with an ugly stick! Reggie right again! Reggie da man!
william bulls eye Tell Reggie...so whats in your quiver?
watch the i-watch and don't swatch it.
margin crash; if the market doesn't get a crush on Justin B's i-watch.
In the meantime Samsung plays at Samson and Google stalks the Apple from its mapped out eagle-eyed fortress. Bite that kinky Apple and you will be damned Google, who goggles like Ham, son of Noah Sam.
Maybe Reggie, point man on third base, has the sequel to that story as he comes in on home run.
awesome stuff reg! i love a "call'em like i see'em" kinda guy.
obvious question as side-effect of the apple call:: with this kinda killer
pediction, shouldn't you have made so much coin that you'd have retired
to an island somewhere? you know, like the famous lines from trading
places: looking good lewis... feeling good billy ray... ;)
kind of a "hall of fame" call - ok to talk about years later...
What tells us he didn't?
Like the dude said: Reggie is the MAN!
Reggie's the man -shut up Brussels bank guy
Reggie Middleton will have grey hair and be in his rocking chair, decades from now
And still saying, to his fellow senior citizens ...
'Man, you know I really called that one on Apple !'
Bitter about your APPL long? Or you just another anonymous Reggie rock thrower that kept incorrectly stating that Reggie went short AAPL consistently the past 4 years..?
I don't think you could afford get into his retirement club assuming he takes his own medicine
and Bear Stearns,
& Lehman
& GGP
& Google
& MBIA
& Ambac
& Principal Financial
& Greece
& Ireland
& France
& Italy
& BNP Paribas
& EU crisis
& Goldman
& Morgan Stanley
& Research in Motion
and about 62 other calls (see Who is Reggie Middleton?)...
I make plenty of mistakes (like most people), thus there's little reason to simply gloss over what I get right or belittle it.
LOL- and all of these because you read about them on ZeroHedge first......
You got served.
Zerohedge wasn't even around when he made 3/4 of those calls.
Unfortunatley, you are blind to the fact he is one of the original folks on ZH.. or certainly one of the more senior guys here in terms of membership length.
Oh SNAP!
Give the man his due. He called Apple perfectly.
IMHO, though Reggie, you're discounting the insanity that the iWatch will bring. Yeah.. I know... it's stupid and mostly useless. But the kids are going to love it.
As Reggie pointed out perfectly: Apple isn't good at maintaining it's margins. Particularly when China gets going with cheap knockoffs.
But...
Apple is *ridiculously* good at inventing new product categories.
If Apple was coming out with iPhone 6, iPad 5 and another generation of MacBook Air, I'd say "short the pig".
But they're not.
They're coming out with a brand new category, and it's going to be inexpensive and carry a high margin. 'Just saying Reggie. Be careful. Phones are now ultra competitive and yes, Apple is losing it's edge there.
But Apple with a new category on it's hands? A new must-have gift at Xmas time? Staying short is playing with dynamite here IMHO.
(I have no position btw. I just know the rabid insanity of teenagers. The iWatch is going to be a home run).