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Month June 2018

Asymcar 44: The view from Tokyo with Bertel Schmitt

Bertel Schmitt, industry propagandist, journalist and legend joins us for a rousing conversation on production, low-end cars, Tesla, and the Great ‘Round-the-globe Automotive Factory tour Tour.

One of the most fun shows I’ve ever recorded. Highly recommended.

Listen here.

Sponsor: OpenBundle and The Commoditization of Google

We know the story so far. Newspapers controlled distribution, allowing them to bundle content with ads to form a lucrative business. Then Google modularized and commoditized content and moved the profits elsewhere in the value chain by bundling search results with ads.

For one slice of the web — high quality professional content — the discovery method is no longer the hardest thing. Trust is. Discovery is modularized into search, social, newsletters, rss, apps, or directly visiting the trusted source.

OpenBundle integrates trusted sources with a subscription tool, taking the power back. Consumers get credentials to 9 publications of their choosing for one subscription, and publishers take advantage of bundle economics without a middleman, and take back the role of delivering their own content.

If you run a publication with a paywall, please reach out at openbundle.io. We’re forming our launch cohort and would love to tell you about it.

On knowing the value of everything and the price of nothing

At the latest Apple Summit in Los Angeles the question of Apple’s valuation was foremost on many minds. The illustration I used there to discuss valuation is shown below.

It shows the history of revenues (by reported segments) and gross margin for the five largest companies in the world by market capitalization. I have been publishing this illustration for five years[1] in order to contrast the growth and perception of value between companies that might be considered comparable with Apple. Thus the graphs show the top and (near) bottom lines of the companies over an epoch of about a decade.[2]

In contrast with the histories above, there is a price set on the equities today. These prices are captured by the market capitalizations as follows:

Current market cap (billion)  Peak market capitalization (Billion)
Apple

$918

$955

Amazon

$844

$856

Alphabet

$810

$825

Microsoft

$780

$789

Facebook

$584

$589

 

Market capitalizations are interesting because they show perceptions of value. The traders in the equity are negotiating with each other on what the shares are worth and, as a voting system in a liquid public asset, share pricing is very representative of the perceptions about that asset. Representative because there are literally millions of decisions being made on a daily basis which determine this price.

Notes:
  1. initially with Samsung rather than Facebook because it was originally a set of “challengers” to Apple. The fact that with only one substitution the illustration turned into a view of the five largest companies in the world was a welcome surprise. []
  2. This being the iPhone epoch []

Apple Summit, Los Angeles

Technorati and I are proud to announce the first investor summit dedicated to the long-term investors in Apple.

We will host folks interested in discussing the fundamentals of Apple as a business and how it operates as a recurring revenue model.

Titled “The Goose That Lays The Golden Eggs” it was inspired by a blog post from 2013 foreshadowing how human nature instinctively discounts Apple and yet how that nature is mismatched to how Apple actually works.

If you are curious about why Wall Street says “Sell” and Warren Buffet says “Buy” on Apple you might want to spend some time with us.

Agenda:

  • How to read the company’s performance given its published results. We will review how to build a model of the company’s financials and how it can be used to forecast the next quarter. We can go line-by-line through the income statement.
  • How to think about the markets Apple considers important. This is the best way to forecast the company’s performance beyond its current portfolio. This requires calibrating your sense of timing of innovations. What is too early, what is too small, what is something where Apple can’t exercise control? Innovation theory is essential to this understanding. If you know where Apple could go next and where it won’t it helps you build patience into your planning.
  • How to understand Apple’s culture and its resources and processes. This gets into the critical management question that leadership at Apple is concerned with. I’ve had a few conversations with and have some great insight from former managers. Curiously, this is Apple’s greatest competitive advantage and its sustainability is the key “moat” question. Most people don’t even realize that this is the most important question for investors.
  • How to understand the market’s reaction to Apple. If you understand the three points above it becomes necessary to juxtapose how others see the company. There is a compelling case of asymmetry of information even though “everyone” is watching the same data. I use the fable of “The Goose that Lays the Golden Eggs” to best describe how most people react when they observe Apple. Apple is something which cannot possibly exist and therefore it is fragile and must be treated as a transient system. It leads to deep discounting in the market. This cognitive illusion has an opposite: monopolies are over-valued because they are seen as invulnerable and permanent even though they are brittle. I use antifragility as another metaphor. Many anecdotes from Steve Jobs also indicate that he understood this asymmetry and instilled it in the company. Investors need to understand this dynamic in order to profit from it.

Sign up here.

Apple Summit