Apple and The Meta Game

I have been working from home in Coronado the last few days and it has been insanely productive. My daily view from the dining room table/desk is here:

It seems like years ago that Schwab email blasted their customers after the markets had been plunging for a month to warn of the bear market. It was just Monday. I suspected that was a tradeable bottom and have had a few good days watching this rebound.

Which brings me to Apple and their stock plunge this evening.

I am surprised Tim Cook did not blame George Soros and The Honduran caravan for the ‘sales miss’ this quarter.

There is nothing more important and more silly than quarterly earnings and conference calls. They are important because public companies need to be accountable and it is a ritual that is not going away. They are silly because they are gamed. Apple is a $1 trillion company and impossible to truly measure so anyone trading earnings is proof that Elon Musk is right. We are part of the simulation.

Instead of ‘permabull’ me analyzing the Apple quarter and reaction, I just clipped my friend Danny Jassy’s (super smart friend and CFA) email to me on the subject. I think it’s extremely well done:

Hey Howard,

Wanted to ping you on one big news item that sent AAPL lower AH – they were already down on a not “huge beat” but it was when they said this:

that the stock took an extra nosedive. My first impression…yikes thats bad.

Less transparency is really hard to spin as good. Here’s some counterpoints though. At the time (mid September) I had heard that Lisa Jackson’s presentation at the Apple Keynote Event was significant. I never watched it or cared, so it didn’t register, but I thought maybe they’d have mentioned something about a software not hardware focus or something like that and this link pretaining to her speech came up:

Ben Thompson (Stratechery) on her speech:

That is the iPhone: it is a franchise, the closest thing to a hardware annuity stream tech has ever seen. Some people buy an iPhone every year; some are on a two-year cycle; others wait for screens to crack, batteries to die, or apps to slow. Nearly all, though, buy another iPhone, making the purpose of yesterday’s keynote less an exercise in selling a device and more a matter of informing self-selected segments which device they will ultimately buy, and for what price.

Horace Dediu (Asymco) on her speech:

I think Lisa Jackson’s presentation at the September 2018 iPhone launch event was perhaps the most interesting and most profound…

Apple now strives to design and build durable products that last as long as possible. That means long-lasting hardware coupled with long-lasting software. She pointed out that iOS 12 runs even on iPhone 5S, now five years old. Because iPhones last longer, you can keep
using them or pass them on to someone who will continue to use them after you upgrade…

So why would Apple want to do this? What is the logic of this durability focus as a business model? It may be good for the environment but is it good for the bottom line?
The important call to make is that Apple is making a bet that sustainability is a growth business. Fundamentally, Apple is betting on having customers not selling them products.

So now it’s clear in hindsight that they were telegraphing moving away from being a “hardware” company into…a software or lifestyle brand (you were what, like 8 yrs ahead of this trend here?) – but whatever it is, the conclusion seems to be “we’ve squeezed out unit sales, now we want to monetize the device you have whether its 1 day or 5 yrs old, and thats our focus”. And to best highlight that, they’re taking to focus off units and on revenue.

Anyway, this is my take on it – don’t have a pov on if the market immediately gloms onto that view, but Apple has been extremely smart in how they run the business, so I’m erring to think this new focus (irrespective of how they report it) pays off for shareholder returns.

– Daniel Jassy, CFA

My point of view is the same as it’s been for a long time…stay long Apple. Buy the big dips.

Tim Cook is crushing it. He had an almost impossible job and shoes to fill. The genius bar, the retail stores and the move to focus on ‘revenue’ – especially service revenue – is very META. If the shareholder base has to change short term (ridding the stock of iPhone unit sales, China growth and India growth blathering every day) to get the multiple up long-term (software and services)…count me in.

PS – I still have a Sweet Tarts high going from yesterday.

Also published on Medium.