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When Apple (AAPL) Speaks, We Should All Listen

By: Martin Tillier
Posted: 6/18/2013 10:16:00 AM
Referenced Stocks: AAPL

Corporations communicate with us in two basic ways, one unfiltered and the other heavily controlled. The first, unfiltered channel of communication is through their balance sheet. The story of profit and loss, of cash flow and estimates, is usually the thing we should be listening to. Hard numbers tell a story. Once you learn to read that story, it is generally best to tune out all of the noise, and focus on the fundamental health and prospects of a company. The second way that companies communicate with us is via their propaganda; their advertising and PR. While what is actually said there is usually best ignored by investors, we can often learn from the tone of corporate pronouncements and people’s reaction to them.

I happened, the other day, to be watching television with a group of people. It was actually the US Open golf, but I don’t want to gloat too much about the English victory; it was, after all, the first since 1970. Anyway, while glued to the thrilling victory by the heroic and charming Justin Rose, we were treated to the latest Apple (AAPL) commercial. If you haven’t seen it, it is a soft focus, “feel-good” piece about….nothing. It is purely an expensive piece of PR that tells us nothing about any product. The message seems to be that AAPL “cares”; that they lovingly design and craft electronic gizmos because they care deeply about us, the consumers. Do I sound a little cynical? If I do it’s because I am.

These types of ads are usually run by companies with image problems. BP seems to have spent as much money cleaning up its corporate image as it did cleaning up the water in the Gulf, for example. Apple doesn’t have this problem, so there must be another reason. Unfortunately, the logical conclusion is that they have nothing but their image to sell. Or, nothing but their image compares favorably to their competitors.

When we saw the commercial, the conversation progressed in an interesting way. “What was that?” somebody asked.

 “I’m not sure…” was the general response.

“It was a commercial for Apple, but not for anything in particular.”

“That reminds me, have you seen the one for the Galaxy S4 where the guy falls asleep and his phone pauses the video, that’s amazing. That’s the phone that you can just wave at to pick it up….”

“Yeh, that Windows phone looks pretty interesting too…” etc,etc.

It was incredible, but AAPL had managed to spend presumably millions of dollars to make this small, admittedly not scientific, focus group sing the praises of their biggest competitors. As I said, this wasn’t a scientific sample and the evidence is purely anecdotal, but the underlying problem is clear. AAPL needs to come up with another product that captures the public imagination soon, or the corporate image ads will be about damage control. The gadget buying public is notoriously fickle.

Apple is still a huge, successful company when judged by the traditional channel of communication, the balance sheet. They are still selling enormous quantities of phones and tablets in the developed world and have massive potential for expansion in the developing markets of India, Asia and Latin America. The problem is that the continued demand for their products elsewhere is, to some extent, dependent upon their continued trendiness here in the US.

The fact that Apple can find nothing to sell us other than their image worries me. They have got where they are on the back of great products, for sure, but the perception of them as a cool company has been integral to their success. When they can legitimately be compared to BP, that cool factor is in trouble. They need to re-establish that perception, and quickly.

I have a history with the stock, and with the fan base. Back in August, I suggested that AAPL may be approaching a top when it was just below $700. The comments section quickly filled with derisive, vaguely threatening comments (now deleted) from Apple fanboy types. I then, somewhat prematurely, said that the selling was overdone at around $500. I am no longer convinced about the value of AAPL as a long term investment. The hard numbers are still good, but the propaganda is beginning to take on the smell of desperation. I will risk the recurrent wrath of the fanboys and say that I believe the stock will underperform the market in the coming months, at least until they have something new to sell us.