On Wednesday, after much hype and drama, Steve Jobs walked onstage and unveiled Apple's latest creation - the iPad. Having watched almost every key address for Apple for many years I, like many others, were disappointed that the product didn't live up to the hype. Nonetheless, Apple will sell a boatload of these products, but not as many as the iPhone.
Upon reflection, it occurred to me that Steve Jobs is changing the whole business model of Apple and I don't believe anyone has caught on to this yet.
In all the reports I've read after the launch of the iPad, I think every writer/analyst missed this key point: Steve Jobs wants to be like King Gillette.
If you don't know who King Gillette was, you may not old enough to shave. King Gillette started his business at the beginning of the century. His business model is what I believe Apple's business model will be in the future.
Long ago, King Gillette decided to practically give the razor away at or below cost, but sell the razor blades separately.
So here's what I think, I think Apple wants to give the iPhone and the iPad to as many people as possible at cost or with a small profit. Remember now, AT&T subsidized the iPhone and Apple gets a slice of the pie from every AT&T customer that has an iPhone. Now why would they do that you might ask?
The key reason, I would argue, is that Apple wants the magic of recurring revenues. This is the dream of many companies - to have millions of folks paying a small amount of money every month for using a service. What makes Apple stand out is the fact that they have an army of developers who are writing code for some very cool apps. Yes, there is an app for that. In fact, there is an app for almost every idea ever thought of.
Not only has the app store been widely successful, but Apple also has iTunes, and iBooks along with iTV coming down the road. So this is what I believe Apple's business model is going to be: with 125 million people who are giving Apple their contact and credit card information, Apple has a huge base of customer,s much like the newspapers and magazines did in the '60s and '70s, but on a much smaller scale. Now Apple can upsell products to those customers at will. The genius part about all of this is the fact that other people are creating products to be sold through the Apple store. Apple just reinvented the King Gillette model in a thoroughly modern way. Hat's off to you Steve.
That’s my take on Apple’s stealth business model.
Now let's take a look at the stock.
In my short video, I explain to you some key factors I'm watching that I think will make the difference in this market. If you have a few minutes, please take the time to watch this juggernaut of a stock and what I think is ahead for the market in the next 2 months.
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The only request that we make is that if you find the video interesting or even disagree with the analysis, please comment on a blog. We would love to hear from you.
All the best,
36 thoughts on “Steve Jobs, Apple, the iPad, and King Gillette”
interesting point, Adam; watched keynote yesterday so I have it fresh Steve saying: "we want to give iPad to everybody"
now, as we say, a pullback would be healthy, we'll see which fib level it nears.
what do you think of this: Chuck Hughes thinks AAPL could fligh 380ish based on premse of $12 EPS and keeping P/E at 32
quote from YouTube video
... recent accounting change will dramatically lower the P/E Ratio for Apple stock this year providing investors with this years best profit opportunity. Since 2003 Apple stock has traded at an average P/E Ratio of 32 (trailing 12-month). Based on the recent accounting rule changes Apple is expected to earn $12 per share this year. If Apple trades at its recent historical P/E Ratio of 32 the price of Apple stock will rise from its current price of 206 to 384 this year...
#but can we really count on EPS projection and P/E ratio ???
Thank you for your feedback.
I think the only thing you can count on now in this topsy-turvy world is price action. If the general market goes down it will be very difficult for Apple or any company to buck the trend. One only has to look at Apple's history to see some fairly significant moves both on the upside and downside in relatively short periods of time.
All the best,
Just when you think AAPL will not hit a low/high, it does:
Year 2009 2008 2007 2006 2005 2004
Hi Price 213.95 200.26 202.96 93.16 75.46 34.79
Low Price 78.2 79.14 81.9 50.16 31.3 10.59
Fundamentals for AAPL are good but market sentiment may mean lower AAPL prices.
New marketclub member and after watching Adam's analysis on AAPL, he's right on the money. Great insight. Thanks, Adam.
I think Apple depends a lot on Steve Jobs,
and his health is always iffy.
There is certainly a wide variety of opinion regarding the current value and future value of AAPL. Rather than being totally in or totally out, I like scaling in over time. This approach, along with some realistic stops should keep you in the action if the stock takes off to the upside, and minimize your loss if it falls.
Speaking like a true trader, Mike!
WOULD NEVER DISPUTE ADAMS DOWN SIDE TARGET. THINK APPLE WILL HOLD $170 AS A LOW. BUT , I WOULDN'T HAVE A PROBLEM , IF IT WENT DOWN FURTHER. APPLE IS WORTH A BIT OVER $300, REGARDLESS OF THE I- PAD. I WAS NOT DISAPPOINTED, HOWEVER, THE COMMENTS ABOVE ARE VALID. I TOO WOULD LIKE TO SEE THOSE FEATURES AS WELL. I DO NOT HAVE A CORE HOLDING AND PREFER TO HOLD ETFS. BUT, CONSIDER APPLE AN EXCELLENT ONE. THE MARKET IS EXTREMELY OVERBOUGHT ON A HISTORICAL BASIS, BOUND TO DROP TO A OVERSOLD CONDITION. THIS IS AN OPPORTUNITY TO BUY THE CREAM AT A LOW PRICE AT HALF PRICE. (AND SO WILL ADAM).
The Ipad could be the "Kindle Killer". Other than that...wait for Ipad V.2...V.3...V.4...etc.
I look forward to buying the iPad when it reaches my shore (Singapore).
Hello - I heard you speak at one of Computrac's TAG seminars a long time ago. My analysis of the distribution area on this daily AAPL chart follows: After a steady markup period, the first sign of the start of major distribution (which now signifies that a substantial decline is forthcoming) came on the big markup on Oct 23 with the huge expansion in volume on that and the preceeding day indicating large scale selling. Supply began to overcome demand at this level, as the market stopped right there and then lost all of the recent gain over the next 7 sessions. Due to the influence of the support seen on Oct 19th, the selling then stopped at the same level seen on the low of Oct 19th and then enough buying came in to allow the large operators to engineer a rally (although on less volume indicating less demand) back to the high level of Oct 23rd, where the advance was arrested once again. Then a sagging decline ensued, with very low volume on the few up days, signifying a lack of demand on those up days. This decline culminated in a minor selling climax on Dec 6-7, as evidenced by the increase in volume with no further down side progress after Dec 7th. This selling climax was successfully tested on less volume (showing no more supply at that level for the time being) on Dec 19th. This low volume test suggested that another attempt to rally was forthcoming. This forcasted rally unfolded over the next six days. Notice the higher volume on Dec 28th compared with the previous day, yet that day's range (Dec 28th) was only half as much as the previous day, with a closing far below the day's high, thus indicating supply was again overcoming demand, and that all buyers were being filled up by the stronger sellers, capping the rally temporarily on that day. Then came the most telling day, Jan 7th, when the volume was about as high as the volume on Dec 28th, yet the day's range was less than half that of the range of Dec 28th, with a close well off the day's high - a clear and definate indication that supply had indeed overcome demand, that the sellers were gaining control, that the day's high was made at the expense of short covering and sucker buying, and emphasized the likelihood that the rally was nearly over. Then on Jan 19th, the market tried to resume the advance on high and increased volume, closing on the high. Had the volume on this day represented good, absorption buying, the market would have been expected to move higher the next day. But instead, it moved lower, suggesting that the selling was better than the buying on Jan 19th. The sharp move down over the next three days, emphasized the weakness shown on Jan 19th. The sharply increased and enourmous volume on Jan 26-27, as the market tried to go up, tried to go down, and closed in the middle signaled the end or approaching end of the distribution phase, and indicated that the beginning of the markdown phase was at hand. Based on the extent of distribution going back to Oct 23, a substantial decline may be expected, possibly taking this stock to the $100 level.
Mark: good history and analysis. thanks, you made my day with the $100 prediction as a low price. See above comment above. Didn't believe apple stock owners, could be that disappointed. Further, the media is quick to poo poo Mac with any introduction product by Apple. Stockholders have made a killing over time with stock splits and advancing price over the years. But, a large hit is still a hit, and it is wise to take the profit and wait to buy back in the future. Think you are low, but it is very possible that the correction could fall farther than the 666 level as the recession/depression is alive and well. When all world markets are falling its very serious, as globalism, encouraged by many, is not only unfair. but to mind, is to maintain rich nations to call all the shots and keep third world nations in line and poor. Stealing their natural resources for their own benefit.
I didn't see your analysis, as i believe that apple has run to its high for now. the market is grossly overbought and crash shortly. As for apple, the stock price, is undervalued and worth at least $300. The new windoz 7 is fact a fine product. much to my amazement. Windoz has proved to me that it can sell their system in spite of of its poor quality, and in the past a total failure. Year after year customers are willing to to put up with major flaws and lack of imagine and a copy of apple. The hardware innovations of apple products are quickly identical in the next generation by all manufactures as apple is the leader. The system OSX is worth the price and the hardware is free having owned many micodoz loaded machines and now i bought my first Mac 7 years ago. My wife refused to give me any more money for anything that contained a MSFT program, as it proved to her, it was a black-hole, which would crash like all the other versions and required my restoring the program weekly , if i was lucky and a 24 hr. job. Needless to say, i bought an Apple for $700, which is now used everyday by my- son- in law. DSL made my older machine like new, as fast as anyones machine regardless of cost or spec. I currently drive a used power Mac with all the power i need to launch a rocket at NASA. APPLE products are worth every penny, reliable, and and hardware is all first class. and best of all MADE IN AMERICA. I have never had one fixed, it is rare to see one in repair shop-ask any owner or your local repairmen. some of my friends are still using much older machines, happy with them, and wouldn't part with them. Why buy a Hugo if you can afford a ROYCE ROYCE for a few bucks more? And you buy fewer machines over the time??
Hi Adam and friends out there in Market Club and/or electric trader land
It is a beautiful sunny Sunday morning over here on this green emerald island.
While the markets have recently shown some volatility, I am convinced that there is no turning back to the lows of last year.
This temporal market resistance should be seen as an oppertunity to stock up on top stock such as AAPL and also on essential commodities through various ETF,s.
With respect there is no rational explanation to convinces me why a company such as Apple should fall drastically in price over the next few months:
1. Apple has a great brand name, and logo.
2. Its products are superior to the competition, ( which are still in the horse and cart age).
3. Its intelectual property is massive,
4. Apple has unriavavled humen capital,
5. It also has the ability to grow which can't be said of all big brand names,
6. It gave us the App which has unlimited applications, could be as historic as the printing press,
7. Every young person I know aspires to owning an i phone
8. Folk just love this company, apple eminates the feel good factor.
9. And most of all its balance sheet is healthy and it has thrived through out the recession.
Yet again; the stock market is running on sentiment and not reality, spiced up with greed and fear; these patterns have even appeared in Apple stocks recently. Warren Buffett is correct when he says "Be greedy when others are fearful and fearful when others are greedy" Currently I am switching on the greedy mode and I am looking forward to the orchard opening on monday to survey that delicious fresh apple tree again.
In brief, don't follow the crowd and let the roar of the masses ove-ride your judgment because I think that Apple shares are currently oversold
Ode to Apple:
Pick fresh apples while they are cheep
Because the apple moat is wide and deep
Harness your emotions and rely on facts
Because Steve Jobs performance is hard to beat
He,s my type of guy that does not except defeat
and he has miles to go before he sleeps, and miles to go before he sleeps(Thanks Mr frost)
Kind regards to Adam and friends
Sean Corrigan Ireland
CAVEAT EMPTOR: this is my opinion only and it is not intended as market advice,
i am so astonished how everyone is trying to put Jobs down, the guy is a Genuis, How many companies do you know that have sales of 50 billion dollars.
They say when you build fences around people , you get sheep.
I trust we are not doing this to ourselves.
It always amazed me how Steve Jobs can turn something which has been on the market for ages into "the grand idea of apple" and every sucker buys it, even though its grossly overrated.
You're definitely hitting it on the nail more than once in your analysis.
Thanks for your email i am your subcriber for trader now its our part time job for searching.It is pointed out that pyourprofit and bonus to send me through western union or through cheaque.
thanks for your chart analysis of AAPL.. I usually learn something from your chart analysis, even when I do not trade the particular stock you comver.
Adam I think you are correct. Combine your analagy with the overall market and I think Apple is going down further.
Excellent. Trading is difficult. I think I am learning because when AAPL did not hold 200, I sold it.......
I do believe your assessment of Apple and Steve Jobs is on target. I think your technical assessment of Apple Stock is on target as well.
Thanks for all you do to keep inform investors.
Gerald A. Starling
GOOD STUFF. I AM KEEPING THIS IN MY WORK FOLDER. THANKS LOADS.DL
I too believe that you are right on about AAPL Adam, especially given that the whole market has shown negative divergence in several indicators for several months and is, or will soon go into, a correction mode, thus helping AAPL move down as well.
I dont agree with you Adam
The apatite for apple is massive far greater world wide than you can imagine
I cant recall any other producer that has as big a cult following as apple
Remember this is a company that has doubled in the greatest recession known to the modern man
We are in the 21 century now and books and papers will be read in the future on the i pad, which in time will have the extras such as a camera and an USB port, but then maybe Steve knows that USB ports will shortly be a requirement of the past replaced by blue tooth. He has made so many other products a thing of the past, do you remember CD,s
Snap up apple while it remains below 200, I know I will
Kind Regards Adam I admire your work Sean Corrigan Ireland
You are one savvy, savvy dude, Adam.
Thank you for for this trenchant insight.
I suspected this three days ago but did not have the edification to be convinced. I wish you had put this up two days earlier. My financial results would have been much different for this past week
Thanks for this post. I am looking forward to being a member of The Market Club after the trial subscription because of this kind of paragmatic factual and relevant approach to trading and market coaching.
Would you by chance have on opinion on trading FOREX? I have been told there is less whipsawing in it than the equities market and I am interested but unsure.
Thanks in advance
Interesting stuff 4 sure ..... I think Apple is also ..... as the car industry did years ago .... manufacturing a product that has a shorter life span altogether .... a Bic mentality ........ I have a G3 ...... how old is that ???? still runs fine ..... in the mean time ......... I've run a G4 .... and a G5 into the ground .... power supply goes takes the motherboard ..... wrecks the hard drive ..... now I have a pentium I-mac .....
So I agree ..... I think Mac like so many other companies .... Has learned how to ensure .....
Resale ........ to it's loyal customers ....... so ???? wait a while and buy Apple ???
I'm interested in your video, I think everything you said is on-point. The only thing I would comment on is the "hype" period you've referred to.
Sure investor's probably knew there was going to be another product coming out, but the 100%+ gain we saw between March's low and December's higher high had a lot to do with it's solid built company. As you mentioned, the monthly "paycheck" that Apple receives from all of its Iphone users, and iTunes purchases (totalling easily in the 15-30 billion songs bought in 2009) left the company VERY undervalued in March.
It was due to rise just about as much, even if they didn't release the iPad for another year.
I've watched 3 of your videos so far and find them very informative and enjoyable.
I do belive that Apple is taking the world by surprise , and the stock has long way to go ,this is just the begining.
Short term ,many can not belive that such company exists, long term everybody will belive in and use Apple.
Apple is a gold mine.And it is a great investment into the future.
How did you come up with the 185.57 number for the monthly trade triangle to go red?
It would be helpful to know how to estimate these monthly triangle reversal numbers for my charts so I can have a possible entry point to short or long an EFT or stock that I am watching.
Thank you for your feedback.
The number 185.57 is the low set in November for Apple. I believe If Apple goes below that number it will see further downside pressure.
All the best,
I think you have it right Adam. Talking with a number of Apple junkie friends over bthe past week they all felt disappointed with the IPad for the same reasons that you stated. It didn't live up to the build up.
I will be watching for an opportunity to enter into a put option position.
The iPad is a strange divergence in the marketplace. Between a MacBook and an iPhone - it is missing features that are included in lesser products. You would think Apple would put a camera in it if they wanted it to be a 'kitchen computer' or a living room. Communication options are very limited.
I hope Jobs learned the lesson of AppleTV. It was a very limited entertainment device and would not play leading file formats - it was crippled and depended on iTunes to do everything. Sales were poor and there was a lot of disappointment from buyers.
Unless Apple realizes that entertainment and communications markets require open formats, the iPad won't be much more than a big iPod Touch that doesn't fit into your pocket.
OS X or standalone capabilities, not tethered-to-iTunes-AppStore
Adobe Flash support
You hit the nail on Apple, Adam!
"Apple wants the magic of recurring revenues"
Right. Although I think what will really bring in the cash is their own search engine. Which I believe is on the way.
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