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Replies to post #19128 on The Rising Influence of Rising Affluence
01/19/20 6:49 PM
Apple (AAPL) is viewed as a technology company, but it is actually a consumer-electronics company. They can have either a hit or a miss product and that has enormous implications for revenue. The iPhone was an iconic, revolutionary smartphone. Today, it is no longer as competitively advantaged and, in fact, disadvantaged on many fronts and trying to play catch-up.
For its pivot to services, iPhone sales matter. And in the bulk of the services, they are competing against well-endowed companies—Spotify on music and Netflix (NFLX), Amazon.com (AMZN), and Disney (DIS) on content. They neither have content nor a first-mover advantage. The fact that they are spending $6 billion to build a content library to keep [their] consumer tells me how difficult the core business is. Think about [Apple] as a blue chip of yesterday, as opposed to a blue chip of tomorrow—the worst kind of investment because all the good news is priced into the stock, while the bad news is not.
Netflix (NFLX) is viewed as Teflon, but the stock is not factoring in the competitive risks today. The definition of a franchise is one that can raise prices if costs go up. Netflix’s costs are going up, but it cannot raise prices, due to increasing competition, which eats into profitability. In fact, it will have to lower prices because Disney has just said they will offer the service at a much lower price point. This is the beginning of the end of that franchise.
And the international opportunity is overrated. Most [people abroad] prefer to consume local content, and the local companies are extremely strong, which is why Bollywood is No. 2 to Hollywood. Netflix also has a lot of debt—a recipe for disaster. Financial leverage on top of operating leverage can become a death spiral.
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