“If everyone is making everything, how can anyone perfect anything?” the commercial asks.
That’s a fair sentiment, and one that the late Steve Jobs was a firm believer in. But the problem is that as a publicly traded company, Apple has to balance the need for growth and profits with the need to be “perfect.” And as a company that hasn’t truly wowed consumers since the first incarnation of the iPad over three years ago, investors are running out of patience waiting for “the next something.”
That’s why Apple is down about 18% year-to-date. And say what you want about Google (GOOG) trying to do everything — from fiber optics Internet access to its Android OS to its quirky Google Glass — it’s up 25% to beat the market.
If you’re a consumer or an Apple engineer, it might be just fine to wait for the next perfect Apple product. But investors don’t have that luxury of time.
You could argue that rushing a product to market or just chasing quarter-to-quarter profits instead of long-term stability is ultimately bad for investors, too. And that’s a fair point.
You also could argue that Apple has long made it clear that its mission is to make premium products that are the very best at what they do — and by design, aren’t intended to appeal to everyone. Going back on this premium, exclusive brand would forever tarnish the Apple logo in the minds of consumers.
Think Hewlett-Packard (HPQ) which once was seen as a premium electronics and computing brand in the late 1980s, well-run by its founders and dedicated to its customers … but after the Compaq merger and a lack of focus under CEO Carly Fiorina, it became synonymous with crappy printers that overcharged you for ink cartridges.
Or think Sears (SHLD) brands Kenmore and Craftsman, once seen as the top-of-the-line offerings in appliances and tools, respectively. Now they are just two more brands lost in the noise, damaging both the profit potential of these lines as well as the potential benefit to Sears’ overall appeal with its customers.
Clearly Apple can’t afford to go downscale too far. But moves with the iPad Mini and low prices for older-generation iPhones are logical and responsible ways to prop up sales, even if they are lower-margin items.
However, if Apple can’t go further downmarket and continues to lack a compelling, new, upscale product … what is the appeal for investors?
Apple might have innovation behind the scenes and a great bunch of developers working hard right now. It might have its customers’ best interests in mind and a great long-term plan for its gadget line. And ultimately, it might continue its track record of success with a gadget that makes a big splash down the road.
But that’s cold comfort for investors who have seen the stock crash 35% since September as the market has soared almost 15% in the same period. Sure, there’s a $100 billion plan to return capital to shareholders via dividends and buybacks … but that will probably only support shares, not send them much higher.
“There are a thousand ‘nos’ for every ‘yes,’” says Apple’s new commercial. And I’m sure that in the long run, that’s a good way to run its business.
But in the short run, investors can’t afford to stick around and wait as sentiment continues to drag AAPL down.
Apple stock is likely dead money until we start hearing a “yes” or two.
- Check out Apple’s new TV commercial. (Apple.com)
- “Apple’s good looks only get it so far.” (WSJ)
- Macbook Pro survives in a mobile age … for now. (CNET)
- Why you should sell Apple and buy Google. (MarketWatch)
- The new iOS called “simply confusing.” (The Verge)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.