 |
Do you hear a loud hum coming from the direction of Cupertino, California? That’s the sound of negative feedback emanating from news that Apple (AAPL) is about to make a $3.2 billion bid for streaming music provider and headphone maker Beats Electronics.
Traders were lukewarm to the deal when the rumor arose last week, pushing Apple shares down 0.4 percent. It should be worse, as this is a desperate move by a reeling company that has lost its way.
To me it looks like Apple wanted the Beats streaming music service and was forced to take the headphones, which are not very good and are mostly a fashion item with a short half-life ahead.
Yet if this is so, I find the move even more puzzling because the streaming music service isn’t very good either. Beats, which was a re-skinning of the old MOG online music brand, Â is supposed to be differentiated by its “curation,” but Spotify has been doing this for years, and much better.
I tried the Beats service when it launched and found its curation appalling — slow, pedestrian and immature. I tried it again over the weekend and it has not gotten any better. Curation after all is in the ears of the beholder. It’s hard to trust someone you don’t know, and whose tastes you don’t understand. Discovering new music is largely serendipitous, requiring trial and error. Beats’ artificial intelligence is mostly artificial and not very intelligent. Haphazard is a word that comes to mind.
 |
| Traders were lukewarm to Apple’s deal to buy Beats Electronics. |
It’s hard to see why Apple felt they needed this. It looks like Apple Chief Exec Tim Cook was trying to get some hip-hop cred to rub off on him, but my guess is that this acquisition will go down as ineffective, irrelevant and a waste of time.
Apple needs to focus on making its products better, and the longer it produces rinky-dink, run-of-the-mill, over-priced toys like the iPhone and the MacBook laptops, the better it will be for Apple shareholders and the entire tech ecosystem. The only thing Apple has going for it is that, after two years of neglect, the shares are cheap relative to current sales levels. However they may end up looking expensive if sales and earnings growth don’t pick up speed with some interesting, innovative new products pronto — preferably by mid-June.
I have been telling readers that the sun was setting on the iPhone for two years, as Android phones from HTC and Motorola are far superior in every category. But I was surprised recently to find that Dell, of all companies, makes laptops now with better screens, sound and cameras than the much more expensive MacBook Pro. I have used the latter for two years, feeling it was the standard for monitor and sound, yet my new Dell mobile workstation, weighing in at just 4.4 pounds, blows away my MacBook Pro in every sense that counts. The monitor is brighter, the onboard camera is sharper, the sound is actually kind of amazing, and the chip set is much more powerful.
Time for Cook to get back in the game, or find someone else who can get Apple cranking again.
* * *
Momentum stocks enjoyed a bounce Friday after a difficult week, with Groupon (GRPN) adding 7 percent, LinkedIn (LNKD) gaining 2.5 percent, and Pandora (P) advancing 1.9 percent. After dropping below its 200-day moving average for the first time since late April, the Biotech iShares (IBB) rebounded to finish with a 1.4 percent gain. I would never buy Groupon in a million billion years, but after two years of being harassed by investors, it is actually cheap now, at 1.4x sales and 23x earnings. Hard to believe it is still a $4.1 billion company, down 80 percent from its October 2011 high in its first post-IPO week.
[Editor’s note: Jon closely follows companies that have gone public in the past three to forty-eight months and have undergone their post-IPO slumps — so you get them when the IPO hysteria has worn off and prices are less inflated. Click here to read his latest report.]
On the earnings front, casual chic retailer Gap (GPS) gained 3.3 percent — pushing over its 50- and 200-day moving average to end a four-month downtrend — thanks to a huge beat on April same-store sales, up 9 percent vs. a consensus estimate for a 1.5 percent drop. The company also issued better-than-expected guidance, lending support to the idea that the economy is enjoying a surge of demand after a harsh winter. I have read a couple of good interviews of Gap’s new design chief, Rebekka Bay, a native Dane. One is at Elle, and the other at Business Week. Check them out.
***
Twitter (TWTR) lost nearly 20 percent of its value last week as its post-IPO lockup period ended, opening a new supply of shares onto the market. This was not a surprise, so it is unclear exactly what the fuss was about. Execs who sold shares have to report these as insider dispositions. The record shows that there just was not that much supply put on the market; the most was from a finance exec who said he needed the money to pay taxes, and still owns a lot of shares.
If it wasn’t the end of the lockup that killed the shares, then the obvious reason was that sellers were more motivated than buyers as it becomes increasingly obvious how overpriced the shares are. That’s not to say it’s not a great company or cool service. But there just has to be more rationality in the pricing, and sellers are making that happen.
Tesla Motors (TSLA) warned that operating expenses will rise, and investors slammed the shares down nearly 14 percent last week. Bond titan Jeff Gundlach told Elon Musk in a Bloomberg article that he should stop selling cars and focus on batteries. That’s not a bad idea, as it seems that before long we may be living in a post-car society.
OK, perhaps that’s a bit of a stretch, but check out this London Telegraph article, Are you part of the pay-as-you-live generation? It points out that the millennials, people in their mid-20s to late-30s, are increasingly moving to an “asset-light” model for their lives: owning as little as possible and renting only what they need, when they need it.
Thus they are not buying CDs or even downloading music; they are streaming music from Spotify and Youtube. They are not buying DVDs or going to theaters; they are streaming movies and TV shows from Netflix and Amazon. They are not buying vacation houses; they are renting through AirBnB. They are not buying cars; they are using public transportation or renting from Zipcar when they have to move groceries or couches. If this keeps up, owning a car might be something that the next generation “kind of remembers” their grandparents used to do.
Best wishes,
Jon Markman
