Displaying items by tag: technology

Note: New research is available for subscribers at the bottom of this article.

This research report is going to be a bit different. As you know, I chose Google as my stock pick in the 2^nd Annual CNBC Stock Draft – after winning it last year with Google. This (as with most of my public moves) proved to be both contrarian and controversial. There were other companies to choose from (which I will share with my subscribers over the upcoming weeks), but do to my father passing away and the fact that I run a subscription service, I did not have the time parse a pick that wasn't the purview of my subscription service.

Alas, Google will do just fine and I believe it has a very strong future – as long as the stock as long as the market doesn’t come crashing back to reality!

As per Google’s CEO, they “had a really strong start to 2013, with Q1 revenue up 31% year-on-year to $14 billion.” This tends to overshadow the real strength in Google’s performance, and that is its very significant investment in future products and innovations. Again, as per the CEO, “Over the last two years, we worked hard to increase our velocity, improve our execution, and focus on the big bets that will make a difference in the world.”

If you remember Apple’s Siri, you remember a microcosm of the universe in which Apple and Google exist, complete with their strengths and weaknesses. Apple is a marketing behemoth, but their engineering lacking in relation to their data hungry adversary. Google is an engineering behemoth, although their marketing may be a tad understated for certain shareholder’s tastes – and particularly when compared to Apple. Siri essentially is a flop. As for Google Now, Google’s version of Siri (which predated Siri)…

“Take Google now, our goal is to get you the right information at just the right time. Launched nine months ago, Now provides boarding passes, delivery updates, and traffic conditions without you having to ask first. In this quarter, we added movie tickets nicely packaged with directions to the theatre. I am also excited about our Voice Search momentum. Looking for the nearest pharmacy, just ask Google for directions, and we’ll deliver them instantly, no typing needed. And you can now ask conversational questions like do I need a jacket this weekend. Voice commands are going to be increasingly important, it's just much less hassle to talk than type.”

The importance of Google’s voice command technology cannot be understated. These are examples that I just used for those unfamiliar with the tech. 

As compared to the closest competitor, Apple's Siri...

These commands take even more precedent when viewed in context of Google's biggest launch of the year, Glass....

Google is in the final phases of launching a product, a product that is to personal productivity as the smart phone was to computing. The company is up about 10% since that video about a month and change ago...

From the latest quarterly valuation update for BoomBustBlog subscribers (click here to subscribe): 

BoomBustBlog releases its updated valuation on Google Inc. The stock has registered a +47% return since our last valuation update in March 2012.

Google continues to play a dominant-leader role in the online advertisement and search market. Its market share in online advertisement has been consistently growing not only in the US, but also in the other geographies. Besides being a leader in the online advertisement market, the company has been continuously taking initiatives to broaden its product and service offering. The last year has seen a number of (now) well-known products.

The continuous endeavor to diversify product and services through sustained efforts in research & development forms an important component of our valuation. While we expect that the company will continue to grow its revenue off its leading space in the advertisement and search market, its ability to diversify its future revenue in different streams is a key to the current valuation. We therefore expect its revenue to grow along a more diversified route. This statement requires some explanation, for most still don’t seem to understand the Google business model. Google monetizes the vast majority of its initiatives through ad revenue. This causes many to label Google’s various ventures as a failure, due to being misled by cost shifting. Google cost shifts through a myriad of products, disrupting entire industries, then monetizes the results through “Ad Revenue”. Thus, looking for direct revenue streams from Android is fruitless in comparison to searching for strength in ad revenue bolstered by Android.

Google has almost consistently outgrown the adoption rate of web advertising. What does this mean? Well, it means that although Web advertising is getting bigger and more popular as a slice of the total advertising pie, Google is getting even bigger and more dominant in the space – not less. Google is beating competition back even as the market grows! 

•  Google Q1 2013 Valuation Note - Retail
  (Technology)
•  Google Q1 2013 Valuation Note - Professional & Instititional
  (Technology)

This short post has more pertinent Apple analysis than a year's worth of Goldman's research. Don't believe me? Get some of the best Goldman research from the year and compare it, or better yet send it to me and I'll post it so we can all compare! In the meantime...  

In February I opined on Apple's attempt to appease institutional investors in the post "Regarding A Potential Stock Split & Cash Dividend For Apple". I am vehemently against Apple paying dividends or splitting its stock. Apple has witnessed a significant operating obstacle in front of it, and instead of attempting to navigate deftly around that obstacle, it is allowing itself to be distracted by non-operators (large investors, primarily hedge funds, who are eyeing its cash horde). Worry less about fancy cash repatriation schemes via debt issuance, cash dividends and stock splits and worry more on how to stem the tide of market share, technological capability and innovation loss relative to the extremely aggressive and capable Android powered competition. More importantly, focus on how to defeat the progenitor of Android, Google. 

As excerpted from the afore-linked article:

Only short term thinking traders really want Apple to return cash, reference Apple, Big Hedge Fund Stars & The Sell Side/Vaudeville Act To Burn Your Hard Earned Money As A Punchline That's Just Not Funny. Apple needs to put that cash horde to work aggressively, and quite quickly to build up its expertise and assets in the cloud, where it's sorely behind and in danger of never catching up. Apple also needs to significantly beef up its hardware and software in the portable device field. All three of these aspirations will hit margins, and Apple is seriously behind in all three aspects as well. For more on this, reference In Case The Mainstream Media Didn't Get The Memo, I Crush The Apple Reality Distortion Field On CNBC.

Giving cash to shareholders when you should be investing it yourself is an awful idea for the long term prominence of this company, whose days already appear to be quite numbered as a leading tech titan.

Now, to be honest, all tech titan's days are numbered, at least as a tech titan. Apple is currently and sorely outclassed in the tech features and capability race at the same time it has lost its iconic leader and competition has more than quintupled.

I rehash these points because as I fine tune our most recent Apple valuation model, incorporating the most recent quarterly results along with the bond offering details, I see some alarming developments that further my belief that Apple is no longer a growth company in spirit, in practice, and soon in growth rate, but has matured and is taking on the characteristics of a company who market has matured. The major problem with this is that Apple's market has NOT matured, and as a matter of fact, is still in the high growth stage. It is Apple management which has dropped the ball here, foregoing longer term opportunity to appease financial investors' shorter term desires. A very bad idea, and a devaluing event for longer term equity investors of Apple stock.

It is no surprise that Apple's margins are dropping uncontrollably for they can no longer differentiate their product enough to justify a premium. Notice hos the drop in margins track the drop of R&D/marketing, albeit with the requisite time lag.

This 15 minute video features all of the ins and outs of how Apple fell, why it fell, and how it can rise again.

Apple's management is in desperate need of a cloud infrastructure build-up and build-out. They also need a significant hardware and OS refresh. Without such, they will become RIMM'd, or shall I say Blackberry'd. As you can in the app below, Apple's mobile product margins are all trending down, at the same time their market share and ASPs are downward trending as well.  This sample is one page out of our ten section Apple valuation model, a model which I will make available to all professional and institutional subscribers next week, one updated with the latest quarterly results and the recent bond offering. You can subscribe here to access this model, as well as Google's and Facebook's next week. 

The app below is also what was used to create the charts above...

Related articles:

What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

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...

image124image124

This report is still available for download to paying subscribers:

•  Apple 4Q2012 update professional & insitutional
  
•  Apple 4Q2012 update - retail

Apple's most recent quarter was about as close to my analytical forecast and predictions as it can get. Amazingly enough, media and analysts STILL are refusing to face the facts that this company's heyday is well done. Stick a fork in it. A picture's worth a thousand words, so let's make this a short post.

I will be  releasing updated Apple research, including analysis that includes their recent bond offereing, within 48 hours to my paying subscribers. Pro and institutional subscribers will get granular access to the model and/or the model output. In the meantime, let's review the work from the recent past....

Most Accurate Apple Analysis Ever Pt 2, The Only Investor Accurately Calling To Short Apple Tells What's Next Tuesday, 05 March 2013 13:35

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...

image124

This report is still available for download to paying subscribers:

•  Apple 4Q2012 update professional & insitutional
  
•  Apple 4Q2012 update - retail

With 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)

Related reading:

In Case The Mainstream Media Didn't Get The Memo, I Crush The Apple Reality Distortion Field On CNBC

What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

 The short call - October 2012, the month of Apple's all-time high and my call to subscribers to short the stock:  Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

This crux of that article was to debunk the widely assumed notion that I was bearish on Apple's share price for 2 years. The reality of the matter was that the paid research and opinion clearly supported much of Apple's share price until right about the last earnings report and release of the iPhone 5, until I notably went bearish and Apple promptly lost 35%, or about 4 Dells with a LinkedIn thrown in to boot...

apple stock and front month optionsapple stock and front month options

Notice how this chart shows subscription research would have provided ample profits LONG and short, with the long presumed to be unleverred as a straight stock purchase. This is to put to bed any naysayers. Now, as to whether my many proclamations over the last two years regarding Apple were able to hold water, we let the facts speak on the reasoning behind the call and the accuracy of my call in the deterioration of Apple's margins, market share and status.

Now, if you recall, there were many sell side analysts calling for Apple to break $1,000 per share just a few months ago. On Friday, 25 January 2013 I penned "What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!", and is excerpted as follows:

I was going to name this piece "Why Sell Side Wall Street and the Mainstream Media Can't Touch Me", but I decided to go the humble route :-) Do you guys remember those highly paid Wall Street analysts and popular MSM guys who had $1,000+ price targets on Apple just a few months ago? Let's reminisce, shall we...

• Gene Munster [Piper Jaffrey] Says Apple Is Going to $1,000 - Businessweek Apr 2012
• Apple's Quarter Was Lousy, But Stock Still Headed To $1,000 - Forbes Oct 26, 2012
• Andy Zaky: Apple will cross $1,000 within 15 months - Apple 2.0 ...Sep 18, 2012 – And hit $1500 before the end of 2014, predicts the manager of an Apple-only hedge fund Zaky called that bottom in mid May.
• Cramer's 'Mad Money' Recap: Apple $1,000 Not Half-Baked...Apr 3, 2012

Let's contrast this to what I have espoused over a similar time frame...

1. 1. 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 - This pretty much says it all, right Mr. Munster of Piper Jaffrey??? Yeah, I called you out on this one! Here is an excerpt for good measure, but before you read it remember that Apple's thrashing at the exchange has forced it to renounce its earnigns manipulating ways - just as I anticipated!!!

Well, let's see what's in today's news... Oh yeah!!! Apple cuts MacBook Pro Retina and Air prices, boosts specs 

Apple has slashed the price of its MacBook Pro with Retina display notebooks, throwing in some updated specifications along the way.

Hey, wait a minute! Didn't I say that in the CNBC segment yesterday, and all through last year? Subscribers can access my full Apple report and valuation here Apple 4Q2012 update professional & institutional and Apple 4Q2012 update - retail). Those of you who don't subscribe can review the dated, redacted version below...

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If after reading the articles and viewing the videos above and you believe that I'm the best thing since Wall Street brokerages were private partnerships that couldn't squander other peoples capital at insanely levered levels while misleading muppets with inanely bullshit analysis and sales pitches to 89% losses on their recommendations (reference Multiple Muppet Mashing Leaves Groupon Shareholders Holding The Bag After 89% Off IPO Coupon) just to get paid multi-million dollar bonuses instead of jail time, then feel free to subscribe here.

I appeared on CNBC Friday to go for my 2nd win in their Stock Draft Challenge. Of course, I started trouble. I took the liberty of compiling  snippets from the last contest, the results and the most recent airing last Friday - along with some interesting notes. Pay attention to the argument that ensued when discussing Google's business model towards the middle of the video.

I will release fresh, updated Google research that incorporates projections for Google Glass and Google X Phone, as well as this quarter's most recent earnings update. In the meantime, refresh your collective memories with the last Google update published, see Google's Q4, 2012: This Looks To Be The Leader Of The New Distributed Information Paradigm.

Subscription research (click here to subscribe):

Google Q1-2012 Valuation Summmary 04/20/2012

I've been hard on Facebook over the last year or so, and especially hard over the last 30 days... Last month I opined on The Truth About Facebook That No Media Outlet Or Analyst Has Bothered To Notice. As its shares marched back up towards its ridiculous IPO price that I warned the entire year previous was basically a marketing/hype scam. I ended last week with It's Official, The Farcebook Ad Model Is A Sham!

One of the major reasons for being so bearish was that it was IPO'd at a multiple that was pure highway robbery, Cyprus savings account style! Now what I mean? And as  I warned throughout the year preceding the IPO...

Facebook is a farce even with the froth taken off of the IPO price. Why? As gleaned from Internet World Stats...

These stats are from the 2011-2012 YEAR! Growth has likely slowed more since then! Here's a tidbit for those who don't subscribe that clearly illustrates... When it sounds too good to be true, it's probably not true!

As I ended my last article on this topic, this is simply Grouponzi 2.0 - just on a much larger scale!

The updated valuation for Facebook (which has actually has an increase in terms of value now that we have more information to deal with) is available to download for all paying subscribers (FB Q4-2012 Analysis & Valuation Note - update with per share valuation). I'm available to discuss this with professional and institutional subscribers via phone or Google+. Click here to subscribe or upgrade.

Last month I opined on The Truth About Facebook That No Media Outlet Or Analyst Has Bothered To Notice. As its shares marched back up towards its ridiculous IPO price that I warned the entire year previous was basically a marketing/hype scam engineered to confiscate one's hard earned capital, sell side analysts and mainstream media types ignored basic yet blatant cracks in this media darlings armor yet again. For one, we know this high growth company is already experiencing negative growth in active users...

We also know that Google has essentially caught up to Facebook as a social media platform, reference I Don't Think Facebook Investors Will "Like" This!!! Google Has Already Caught Up In Terms Of Active Users. Despite these pertinent (and quite negative) facts, FB shares have been on the rise, although recently have last some of their froth. Why did the shares pop? Irrational exuberance! The sell side marketing analysis has it that Facebook is perfecting the marketing and mobile business model, and as a result is able to monetize its massive, yet shrinking user base. 

The counter to this argument is basically that it's not true. For one, the shrinking user base is real. The school age youth, once a mainstay of Facebook, is moving on. Simply ask the one's that you know. More importantly, it's ad model is basically a Sham! Any sell side analyst who attempted to value this company based on ad revenues without actually trying out its ad system is not worth postage used to send his bonus check. I tried the ad system out. While the click through rates were actually about 2/3rds that of Google's comparable ad model, the actual sales from the ads were less than abysmal - and this is for a rather interesting product. Even worse, the delivery of the ads proved to be highly intrusive, causing a significant and material amount of negative feedback from the Facebook community. Here are some examples of the feedback received from the so-called Facebook 'ads" that I paid for...

• "Hey, I don't like this post. Please remove it."
• "Please remove me from your list"
• "I am getting unsubscribed advertisements and friend request that say I approved them"

There's actually a lot more than that, this just what was sitting in my inbox before it was deleted. Here's a screenshot of a conversation I had with on of the recipients of the so-called Facebook ads which are essentially paid for placements on somebody's wall...

"I am getting... friend request that say I approved them"??? Does that sound like a sustainable business model to you? This is simply Grouponzi 2.0, just on a much larger scale!

The updated valuation for Facebook (which has actually has an increase in terms of value now that we have more information to deal with) is available to download for all paying subscribers (FB Q4-2012 Analysis & Valuation Note - update with per share valuation). I'm available to discuss this with professional and institutional subscribers via phone or Google+. Click here to subscribe or upgrade.

As I State Previously, Apple Is Done, Samsung Sets the Bar, and Hardware Still Looks To Be A Razor Margin Business In a Few Years If Not Less. The HTC ONE and the Galaxy S4 are the most feature packed portable devices available today. They are (presumably with the Galaxy) being offered at the same nominal prices as their predecessors were last year, yet offering dramatic upshift in technology. Can this be sustained? The tech capability ramp up has been on a tear over the last 4 years! Within a couple of years, the Chinese/SEA OEMs armed with Google's open sourced Android OS will force margins so close to zero as to have the mobile handset business make the traditional PC business look like Apple.  Until then, we get to enjoy the feature enriching, price compressing battle between vendors to gain maximum market share - benefiting consumers to the utmost. As I read the many reviews of the just announced Samsung Galaxy SIV, I still see rampant comparisons to the Apple iPhone 5 and upcoming 5S. Apple is done (What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!), unless it dramatically ups its game in terms of technical prowess, features and marketing - all activities which will compress margins, as I've been asserting for two years and running.

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...

Research in Motion in early 2010: Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion

Reference "Cost Shifting Your Way To Prominence Using The Network Effect, Or Google Wins - Apple, RIM & Microsoft Have ALREADY LOST!" as well as my videos below...

Blackberry's new Z line has been used as a comparison as will. Although I haven't tried the device, I hear very good things about it. That's good on a device-specific level, but I'm doubtful that Blackeberry can compete in this margin compression race, putting out revolutionary products every year for less and less money. In addition, marketshare/mindshare has been more than decimated. With the advent of the Z10, et. al. Blackberry has shown it still has the chops to compete short term, its medium to long term that concerns me. Since I doubt I'm the only one that feels this way, this makes Blackberry an interesting target for a thin margin, enterprise specialist OEM that doesn't have a strong handset presence in the US. Someone like Lenovo, Asus or Acer. Lenovo and Asus would be more interesting, and an Asus acquisition of Blackberry could pose risks to competitors who are not paying attention. 

Even an enterprise software company can do damage, particularly one who's aggressive and has not ties to Android (unlike the hardware OEMs Lenovo and Asus). Aggressive + enterprise + software = Oracle! OF course, Microsoft should have bought Blackberry(RIMM) 10 years ago, but that's a different story. 

For those who don't understand why this space is so competitive and why margins are destined to dive toward zero (actually, they already are for ALL operators in this space, profits are increasing due to revenue expansion in an expanding market, margins are going in the opposite direction, even for Samsung - the market leader, see Samsung Will Be Ready To Do That Fruit Thing, Just Like Blackberry & Apple - Courtesy Of Google, #MarginCompression!)....

HTC 's One phone is also compared, and HTC has often produced competent, if not superior, hardware. The problem is they don't promote and market heavily enough, so they achieve (at best) one hit wonder status. The company has also made many errors attempting to buy brand status vs building brand status organically. In essence, they're still acting as contract manufacturers versus acting like a successful standalone OEM and marketing concern. If only....

The wild card in this space is also the company that started this competitive melee in the first place and the company that stands to benefit the most - Google. 

I also laid clear the path to Google's prominence as far back as 2010, when there was not a peep from the sell side, see Google's Q4, 2012: This Looks To Be The Leader Of The New Distributed Information Paradigm .

Now, Samsung seems to be the most innovative of the handset vendors to date, but if I'm right, they will end up having to innovate in a commodity space just like the traditional PC manufacturers (Dell, HP, etc.) have to do now. Why?  Because of point number Three...

The new PC is not even a PC anymore, its a multi-tiered, multi-function, distributed cluster of interactive, location aware, multimedia applications sharing your social activities and data through a network of servers - in short, it's the cloud!

For right now, GOOGLE IS THE CLOUD! See my video descriptions of Google's business models above.

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Two and a half years ago I declared in my mobile computing wars series that Google would commoditize the mobile computing space. Four months ago, I reiterated that assertion in Smartphone Hardware Manufacturers Are Dead and did so yet again the following month in Computer Hardware Vendors Are Dead, Part Deux! These premonitions cover not only the obvious also rans and marginal companies who's management complained about losing the forest due to tree bark obstruction, but the very darlings of the industry as well. This includes the "used to be" market darling Apple (What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!) and even the current reigning champion, Samsung. That's right, I said it! Samsung! Hey, I'll say it again just to drive the point home, Samsung! How and why is that, you ask? Well, the same Google Android generated, creative destruction pathogen that brings us such great technology at such a rapid pace at such quickly diminishing prices that has wiped out those companies that I have warned of so extravagantly doesn't just disappear when your current market darling get's knocked off its perch. Let's recap & excerpt the link above so we can clearly isolate the common thread...

So, you ask, "How is it that hardware is dead?" Well....

1. 1. The open source OS paradigm calls for rapidly improving hardware specs at ever lower prices. I have pointed to evidence of this above, as these Asian OEMs produce ever better product at ever lower prices - just like the old school PC industry. This drives Google's info-centric business model which is why Google pushes free Android.
   2. After years of outsourcing manufacturing tech and IP integration to low cost labor Asian countries, those countries have found a way to produce trinkets of their own. Of limited quality and value so you say? Well, remember the iPhone is a Chinese phone, through and through -at least Chinese built. So now you argue, it's American designed, just Chinese made! Please peruse the Oppo Finder 5, a phone that's drastically superior to the iPhone 5 in practically every single way, retailing for $100 less than the cheapest iPhone 5 made. Low cost, low margin products combined with Google's free OS will drive the price of hardware down to near zero, if not negative. Google even has its own hardware arm now (Motorola) to facilitate this downward march in margins and prices. Suppose Google decides to create best of breed Nexus devices and give them away just below cost? Imagine the best smartphone available in the world, unlocked, without a contract, for the cost of a single monthly wireless phone payment??? Google's Nexus program is acting as a training ground to teach Google's Motorola division to build best of breed! Google's biggest and most successful partner - Samsung, is an Asian company. Samsung Electronics of South Korea reported today that its quarterly profit  jumped 76%, as its Galaxy smartphones beat rival Apple's iPhone in each quarter of 2012. What many seem to have missed is that EBITDA, Operating and Gross margins all slipped QonQ though. A sign of things to come??? Remember, Google benefits most when the barriers to access information are least. Reference "Cost Shifting Your Way To Prominence Using The Network Effect, Or Google Wins - Apple, RIM & Microsoft Have ALREADY LOST!" as well as my videos below...

Research in Motion in early 2010: Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion

Apple from 2010 till the ultimate short call in October just past: Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

I also laid clear the path to Google's prominence as far back as 2010, when there was not a peep from the sell side, see Google's Q4, 2012: This Looks To Be The Leader Of The New Distributed Information Paradigm .

Now, Samsung seems to be the most innovative of the handset vendors to date, but if I'm right, they will end up having to innovate in a commodity space just like the traditional PC manufacturers (Dell, HP, etc.) have to do now. Why?  Because of point number Three...

The new PC is not even a PC anymore, its a multi-tiered, multi-function, distributed cluster of interactive, location aware, multimedia applications sharing your social activities and data through a network of servers - in short, it's the cloud!

For right now, GOOGLE IS THE CLOUD! See my video descriptions of Google's business models above.

What's the purpose of going through said lengthy exercise? 

My regular readers should know an "I told 'ya so" is coming, in the form of an analysis of Samsung's latest quarter results. I was simply going to link to this Business Insider article by Jay Yarrow, but to be honest (and with all due respect, I think these guys work hard) the assumptions and conclusions drawn in it are erroneous and faulty. Thus let's recreate the argument from scratch the BoomBustBlog way.
The article starts off well, by stating that Samsung will fall the way Apple has through margin compression, but the accuracy ends there. The analyst quoted assumes Apple's problems stemmed from the market for high end handsets being saturated, thus the demand bulge moving downstream. This was the justification given for the relatively weak uptake and acceptance of the iPhone 5. This actually the OPPOSITE of the truth. The demand for high end handsets has actually never been higher, which is why so many OEMs are pushing out flagship after flagship. Samsung's best selling device, by far, is its GS3 device (not withstanding the true flagship is the Note 2, but that is more of a specialty device, whose uptake is actually increasing as well). The author of the article and the analyst from which he quotes have succumbed to the Apple RDF (Reality Distortion Field) again.

Apple's iPhone 5 failed in resuming rapid adoption not because high end devices are nearing saturation, but because it's not a high end device yet tried to compete with said devices!!! It may be marketed as a high end device, but it can do relatively little that the Android high end devices can, ex. NFC, Full HD screen, >430 ppi screen density, 5 inch screen, quad core processing (yes, this makes a difference, the new androids smoke the iPhone 5), LTE high speed connectivity, etc. That's a pretty long list off of the top of my head. I saw this feature disparity coming in 2010 as Apple relied more on marketing and less on tech to sell its technology products more as life style fads instead of telecomm/computing/media consumption devices. Reference BoomBustBlog paid research  Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All. The result of Apple continuing along these lines is simply more of the same. Reference Most Accurate Apple Analysis Ever Pt 2. So what will be the cause of Samsung's margin compression if they are doing "high end" it right? See the two videos above. Samsung will be forced to put more tech in each device at ever lowering price points because that is the business model of the Open Sourced OS that they have succeeded in using - Android. It's the cost of admission into this high growth club. Now, Samsung has two big advantages that Apple doesn't and one advantage that Apple did. To wit:

1. Samsung makes many of its own critical parts (screens, processors, memory chips). Apple actually has to buy these from its Android competitors (Samsung, Sony, LG), thus exposing it further to margin compression.
2. Samsung has a much more diversified product mix. Apple was overexposed, big time. It garnered 72% of its operating profit from one single, product that had more than half the mobile tech space gunning for it. What do you think was going to happen?
3. Apple, more so than Samsung, has enough brand cache to take the onus off of the underlying tech and move it to the brand, per se. People are buying (or were buying) iPhones, not iOS products. People are now starting to recognize the Samsung & Galaxy brand, giving Samsung some leverage over Android.

Expect an Android fork, or the Tizen OS to play a greater role in Samsung's love/hate relationship with Google.

Despite these advantages, as Google pushes hardware and data access prices to near zero, margins in these spaces will collapse along with it. You can't stop this collapse without slowing the progression in the tech space (for that's what the consumer has been trained to expect) or successfully cost shifting - as Google has.

You know, it's amazing how far an awareness of cognitive biases and a mastery of second grade math can get you on Wall Street. It can actually bring you tomorrows news yesterday!

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...

This report is still available for download to paying subscribers:

•  Apple 4Q2012 update professional & insitutional
  
•  Apple 4Q2012 update - retail

With 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.

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.

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…

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.

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).

 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.

It all started in June of 2011, many months before the IPO of one of the biggest scams to cross the US equity exchanges (and that's saying a lot in and of itself). I posted a forensic analysis of Groupon “What Does Groupon and the Matrix Have In Common?". I warned, I valued, the company went public, and... Nov 12, 2012 Multiple Muppet Mashing Leaves Groupon Shareholders Holding The Bag After 89% Off IPO Coupon. In that particular post, I actually offered the full Groupon research to download for free. It's amazing how this obvious Ponzi scheme got so much analyst and investor attention. Any and all BoomBustBlog subscribers saw it for exactly what it was, and hopefully shorted accordingly!

Earlier, I got on the Ponzi Exposure Express once again... Sep 26, 2011 I Suggest Groupon Offer Coupons To It's IPO Investors, They're Going To Need Them. And previous to that, once again...

Here's an abstract from our June subscriber-only analysis - Groupon Forensic Analysis & Valuation (923.04 kB 2011-06-16 10:34:36):

“Groupon’s revenue consists of the gross amount paid by customers for purchased Groupon while gross profit is the amount that the company retains after paying its merchants an agreed upon percentage of the purchase price to the featured merchant. So the comparable number for price-to-sales to use for Groupon is gross profit, or the fees it collects from merchants, which the management has correctly stated as the best proxy for the value created by the company. To put things into perspective, if eBay used the same math as Groupon does, it would have reported revenues of $61bn instead of $9bn. The company reported gross profit of $530m over last 12 months. At $25bn valuation that would put the valuation at 42x “comparable sales”. To put things in perspective, Google trades at Price-to-sales of 5.8x, Apple at 4.7x, Microsoft at 3.3x, Amazon at 2.6x and Yahoo at 3.4x.“

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In the latest S-1 registration statement, the company has revised its revenue figures by more than half. The company has restated its 2010 revenues from $713m to $313m while Q1-11 revenues were restated to $296m from $645m previously. The company has restated its financial results “to correct for an error” in the way it reported revenue. The revenue accounting change is Groupon’s second since it filed to go public. The company has also changed the presentation of certain expenses to be consistent with reporting revenue. Clearly, such errors and frequent change in the accounting policies clearly puts strain on the credibility of management – and that’s putting it lightly, especially for a company that is contemplating an IPO, not to mention that such changes are top line numbers such as revenues. In another blow to Groupon, the company’s COO Margo Georgiadis is leaving the firm to join back Google.

How about... Muppets Get MASHED Once Again - Groupon Half-off (Share price) Sale, Aug 14, 2012 – CNBC reports that Groupon [GRPN 5.815 -1.735 (-22.98%)] plunged more than 20 percent...

I can go on, but why bother? This company was pumped, dumped and marketed by several big name analysts and banks. One would think independent analyst shops would be one of the biggest shops in all of Wall Street, no?