Apple’s Bane = Percentages. Not Profits. Not Revenue.

Consider this chart from Marketwatch on Apple’s Q2, YOY revenue growth:

2013 04 22 10 29 47

Any reasonable reader would conclude that those numbers are impressive. For comparison purposes, 437 companies in the Fortune 500 list earned less than that for all of 2012. At the same time, any smart reader can also see that the YOY percentage growth, is slowing. And while this chart doesn’t address margins, there are various other charts that show those slowing down also (last chart here). 

Unfortunately for Apple shareholders, that % slowdown has caused a stunning fall in Apple’s stock price over the last few months. 

Never mind that the iPhones – old and new – continue to sell very well. Never mind the fact that the iPad line – classic and mini – continues to be the tablet to own for many – both in the US and outside the US. Never mind the fact that Apple’s Mac lines have brought in more revenue than all of the PC industry combined (last chart) for the last quarter of 2012.  

Ignore all of that. Slowing percentage growth is bad. Period.

So until Apple’s executives introduce a killer new product or figure out what to do with all of that cash on its balance sheet, and in the process, show “more” growth, the stock must to be punished. 

Makes perfect sense, right?

Disclaimer: I am long AAPL. And I used the recent sub-$400 dip to buy more. I would like to think that I would feel this way about Apple even if I didn’t own Apple stock.

Pepsi To Pursue “Meaningful Structural Alternatives”


Per Corporate Finance, when a company has many divisions – some of them growing faster than others, as is often the case – the sum of the value of each division is more than the combined company. This is not just theory, but something you see in practice too. Here’s a longish article from Strategy+Business on this subject that includes some real-world examples, if you care about that. 

Anyway, this came to the fore because of what Pepsico’s (NYSE: PEP) CEO, Indra Nooyi, said on its latest earnings call, as Lily Kuo writes on Quartz:

Pepsi CEO Indra Nooyi gave the first hint she may be open to breaking up the company, which has been under pressure to separate its snack business from the underperforming beverages operation. Speaking on the earnings call, Nooyi said, “We’re taking out costs to drive margin and improve returns under our current structure while we continue our work to explore sensible opportunities to unlock incremental value through meaningful structural alternatives.” Given her previous opposition—last year she launched the ”Power of One” campaign, marketing Pepsi drinks and chips together, to squash such talk—her veiled comment is almost a sea change. Nooyi said she wouldn’t talk about the subject again until early next year.

Everyone wonders if this means that the growing snack division might be spun out into a separate company (the stagnant/declining beverages division continuing to operate under the Pepsi brand kinda makes sense, no?).

And if so, that would be an interesting reversal. 


The SEC, Social Media and Netflix

Public companies are mandated by the Securities and Exchange Commission in the US to disclose important (“material”) news, developments and information pertinent to their health, prospects and performance.

But it is not enough to simply disclose that type of information. They must do so via media that all investors in these companies can access easily. Insider trading, for example, stems from a gross  violation of that mandate where a handful have access to information that others don’t.


Why Does Wall Street Roll Over for Amazon?


Amazon-IR.pngWall Street analysts (and other financial analysts that don’t necessarily work on Wall St…but you know what I mean) constantly evaluate how well different companies are doing.

They look at revenue, margins, net income, various other financial metrics and growth – year on year (YOY) and quarter vs same quarter last year – to recommend that investors buy, sell or hold a company’s stock. They also set price targets on the stocks. Markets react to these recommendations, for the most part.

Now, with that background, consider Apple.

After it announced earnings a few days ago, the stock dropped more than 10% ($55+, given where it was trading just before earnings were announced that fateful day). As this column on Fortune magazine says:

The company didn’t have a bad quarter. In fact, it posted its best quarter ever with earnings per share of $13.81 on sales of $54.51 billion, up 7% and 27% year over year, respectively, when adjusted for last year’s extra week.

What it came down to, though, is expectations (which are of course “made up” things created by the analysts…its not that Apple promised to come in at X and instead came in 10% lower):

But the stock market is an expectations game and Apple is expected to blow past analysts’ estimates, not miss them. On Wednesday, it beat the Street’s earnings estimate but missed on revenue. 

Take a look at some of the charts in the Fortune article I excerpted the quotes above, from. Quite interesting. Or sad…if you are long Apple (ahem…).

Now, for a study in contrast, consider Amazon:

  1. Negative “earnings per share” or EPS
  2. Razor-thin margins (1%, anyone?)
  3. Misses “consensus” earnings expectations regularly = stock price jumps (over and over)

Many sane and otherwise rational investors can’t be blamed for wondering what’s behind these atypical reactions?

The best explanation for that is an article on HBR that I just read is that

Jeff Bezos has trained elements of the investment community to expect that low profits (or big losses) now represent investments that will eventually pay off, not signs of trouble.

In other words, why be afraid of Wall Street and what they will do to your stock all the time when you are the one in your shoes and they are not? So you run your company well, show consistent (and spectacular) growth and keep reiterating that you don’t care about the price of your stock.

Words alone don’t matter though…you do things like not participating in your company’s analyst earnings call (unlike other CEOs) to convey the healthy amount of disrespect you have for Wall St analysts.

The full article is a great read, not just for the analysis but also for the humor and wit.




The best stock pickers, brought to you by JP Morgan Chase


While stock picking is not for the faint of heart, and if you believe some, a losing proposition in the long-run (mutual funds, they say are way better), if you disagree, here is someone whose stock picking advice you may want to take: JP Morgan Chase.

Noelle Grainger (head of Americans equity research at JPM)’s team had the best track record of picking stocks, according to a survey by Connecticut-based Greenwich Associates that used what appears to be a pretty large and focused sample set:

To compile the ranking, Stamford, Connecticut-based Greenwich Associates surveyed 980 buy-side analysts at 216 investment management firms, mutual funds, hedge funds, pensions and insurers. The analysts were asked to name the Wall Street research teams they considered their most important sources of advice on investments in 58 industries. Those were winnowed to 35 to ensure a statistically significant number of responses.

The full article has interesting data on other analysts and firms with better than average track records and abilities. 

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