I Might Actually Buy Apple For A Change…

March 11, 2015 0 Comments

I own a lot of Apple products, and I am usually one of the first people who have them once they release. With that being said, it would probably sound very weird if I admit that I currently do not own any shares of Apple. Not even indirect exposure to Apple through a mutual fund or an ETF.  To tell you the truth, most of my money made from the company was through my decision to short Apple shares.

A very bold move to do, especially when prominent investors such as Carl Icahn has backed the company 100% (more on Carl Icahn’s investment of Apple in another blog). Despite all of this, I’ve been rather good at shorting Apple.

Letters highlighted in yellow are successful shorts (well, mostly). Starting in Q3, when I initially started getting the hang of short selling. October 27th, 2012, shares fall due to lower than expected earnings gathered in their earnings forecast. Apple made $8.2 billion, or $8.67 earnings per share, short of analyst expectations of $8.79. Apple shares fell $3.18. January  21st, 2013, Apple shares beat market estimates of $13.43 by $0.38. However, shares fell due to disappointing iPhone 5 sales.

The quarter after showed promise with better earnings and large than expected revenue growth, which is nice. Although, technical indicators show the stock moving below the 50 moving day average, signaling a possible short term sell off of the stock, which is great for shorting. The other two financial quarters involved weaker than expected revenue and sales. The only time I remember losing a short position in an Apple trade was Q4 2014, when the company posted better than expected earnings.

Overall, Apple can be a pretty good stock to short, considering that 1% of the company’s float holds a short position. However, if 1% of the company’s tradable shares are shorted at any given time, why would I consistently hold short positions in Apple (despite being an Apple fan)? Apple is a fine company, and its growing consistently. The problem is that over the last couple of years Apple has been coupled with margin compression due to the growing number of Android phone sales. One of the problems is that more than 70% of Apple’s revenue consist of iPhone sales. Being that its their number one source of revenue, greater competition creates greater margin compression.

Also, Apple has gone from an innovator to a stock that simply creates products that fail to impress in recent years. The company has gone from a stock that virtually only sold computers, to a company that reinvented the portable media player (iPod) and snatched it away from Sony’s walkman. From there, you had the iPhone, which resulted in greater revenue. These products resulted in higher corporate margins, and looking at it from a revenue perspective, Apple has simply gone from being a computer company to a mobile phone company, just like Nokia and Samsung. Much of their sales relies on the company to find something new and innovative to stay ahead of the competition. This failure resulted in less than expected revenue growth with the iPhone 5 models, and greater than expected revenue growth with the iPhone 6.

Recently, I can’t find myself to bet against the stock no longer, especially since the stock split last year (one of the reasons why I always short was because the stock was too expensive). This time around, Apple may go from being an mobile phone company into a real TECH company.

Apple had a lot of interesting technology to show off at the event on Monday. The Apple Watch received the most attention, of course, since it was originally announced in the last Apple event, which unveiled the iPhone 6 for the very first time. Apple also took the time to mention the release of a brand new MacBook Air (which I will discuss in another post), which is supposed to be lighter and slimmer. The one thing that I found most interesting (besides the watch) was the partnership between the Apple TV and HBO for the upcoming launch of HBO Now.

This is similar to HBO Go; however, HBO Go is only available to those who have an HBO subscription from their cable service provider, HBO Now is a subscription service that will be available to anyone with an internet connection. Similar to Netflix (and hopefully with a better selection of movies), users will charged a monthly fee of $14.99. The only problem is that this is only available to Apple users for the first three months. At least, this is only a problem if you don’t already have an Apple TV (now only $69), and this is also great news for investors.

For one, as I have already said, for the first three months the service will only be available to Apple TV users. This means all of the popular HBO shows (Game of Thrones, True Blood, Silicon Vally, etc) will only be available to those who have an HBO subscription with their cable service provider, as well as people who have Apple TV. In addition to this, HBO is planning future promotions with their partnership with Apple, which is a key long-term strategy that can mainly benefit consumers and investors.

While everyone will be discussing the sales/margin impact of the new MacBook, the Apple Watch and that Apple Car (which I still haven’t written about yet), I think this strategy that will benefit Apple in the long-term sustainable streams of revenue growth (especially as they build on the Time Warner/HBO relationship), rather than rely on random earnings fluctuations of singular gimmicks. Whether or not I will pick up shares of Apple is still up in the air, but with moves like this, I’m certainly considering it…

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