According to foreign media reports, Apple may not find the reason for innovation: because it is not a technology company! No kidding, this is what Apple CEO Tim Cook said. According to CNBC, Cook told reporters that the company in Cupertino, Calif., is not so much a technology company as a consumer goods manufacturer.
Cook said, “(Buffett) knows very well that he doesn’t invest in technology companies or invest in companies he doesn’t know. He knows this completely. So he obviously sees Apple as a consumer goods company.”
For the time being, the idea of ”logical ghosts” Cook is correct. If he can reshape Apple into a consumer products company, the return will be unbelievable. Bespoke Investment Group calculates the P/E ratios of various industries. Currently, Apple’s stock price-to-earnings ratio is 17.47 times. The price-to-earnings ratio of consumer goods companies is 20.07 times. Top-tier consumer goods companies such as Proctor & Gamble and Colgate Palmolive are trading at nearly half the price-to-earnings ratio. If Apple’s P/E ratio reaches a similar level, the stock will reach $296. At the same time, large technology companies are being under siege. European regulators have implemented a rigorous new law, the General Data Protection Regulations (GDPR), to protect privacy and undermine the efforts of large technology companies to devour consumer data and create new business models. Cook praised the EU’s new regulations in October last year. Moreover, he has been one of the most resounding supporters of regulation in the United States. This is not surprising, as Facebook is likely to completely subvert Apple’s business model.
Almost all of Apple’s profits come from the iPhone. Cupertino produces hardware and writes code to make everything silky smooth. But Facebook is eroding software, and its Facebook, Instagram, Messenger and WhatsApp are the most popular iOS apps. Last week, The Wall Street Journal reported that the social media giant is negotiating with Mastercard, Visa and First Data Corp. on a payment system that will turn Facebook’s assets into Become an active ecosystem. This development may make physical hardware irrelevant. In China, WeChat also enjoys a similar status. Ben Thompson of Stratechery put forward a point worth considering: despite Apple’s huge investment in China, WeChat is the reason why Apple’s performance in China is not good. Apple has 50 stores in China, and there are more investments than in Europe. However, a study by research firm International Data Corporation (IDC) in April found that Apple’s market share in China was only 12%, down 30% from the same period last year.
Apple needs to stop Facebook from building its own ecosystem, persuading investors themselves to look for other business models and reinventing their brands to get rid of potential regulation.
The first two actions are going smoothly. For several months, Cook has been attacking Facebook. He also told everyone who is willing to listen, the company that is supported by the iPhone is now a service company.
Growing service revenues make this a compelling story. In the second quarter of this year, services such as Apple Music, App Store, iTunes, Apple Pay, and Google’s authorized payments accounted for 20% of sales, about 115 One hundred million U.S. dollars. However, the iPhone still accounts for 54% of sales.
Cook also tried to increase earnings per share through a large-scale stock repurchase program and issued many high-profile public statements about the nature of the company. Cook made most people on Wall Street believe that Apple has changed and let them forget that the iPhone is a profitable business.
The irony is that today’s Apple looks a lot like IBM in 2011. At the time, Buffett bought the shares of Big Blue for $170. He praised the company’s stock repurchase and a long history of profitability. He eventually sold the position with an 18% loss in 2018. During the same period, the S&P 500 index rose by 116%.