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JaysRage (88.89)

I don't know why I go to extremes

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November 15, 2011 – Comments (1) | RELATED TICKERS: AAPL , AMZN , GOOGL

My two favorite technology companies are polar opposites in many ways.     These two tech companies are behemoths Apple and Amazon.   

Apple -- Ipod, Ipad, Iphone, Macs, Digital Media and Content

Amazon -- E-Retailer, Digital Media and Content, technology infrastructure, Kindle

Apple

What I like -- Earnings, Profit, Cash, Cool, Quality 

The best companies have the best brand, and the Apple brand brings quality.   Apple builds a premium product and they aren't afraid to charge a premium price.    This translates to great margins, enormous cash flows, and best-of-breed profitability.   

What I don't like -- Visionary Leadership Gap

Apple can put it on cruise control and generate an enormous pile of cash that make Richie Rich envious......but they don't return cash to shareholders, so um, what exactly are you going to do with all that cash?    Traditionally, Apple hasn't been in the acquisition market.   Traditionally, Apple hasn't had a cash dividend.   Traditionally, Apple has used their cash to fuel growth.   So, um, what exactly are you going to do with all the cash?   Until Apple figures that out and communicates it to shareholders, the uncertainty will hurt the stock price, because no one knows if they will like the plan.    Apple is going to have to make some "untraditional" moves in the near future, regarding their cash.   Unless they decide to burn it all up in a big bonfire, it can only help the stock price, because current valuation is at bonfire level.  

Add it up -- CASH

Amazon

What I like -- Growth, Innovation, Investment, Data,  Horse Power

It's impossible to ignore Amazon's top-line revenue growth.  It's also impossible to ignore that they sell a lot more than books.    They have their fingers into every technology that relates directly to their ability to increase retail sales.  Amazon is emerging as THE on-line e-retailer, getting a bite out of a larger and larger share of on-line transactions.   Their use of data is perhaps the most under-estimated asset that Amazon has.   Everyone talks about one-click purchasing, which is great, but it's their data intelligence algorithms that really differentiate.   Only Google does more with data than Amazon.   Their ability to suggest good additional purchases, combined with free shipping at certain buying levels guarantees additional "unneeded" purchases.   Amazon continues to make good investment purchasing decisions to help build out their portfolio.   Their entrance into England and Germany was aided through wise acquisitions in those markets that opened up doors to their continued expansion.   Amazon's cloud infrastructure enables their seemless entrance into streaming video and games, and it will help additional verticals as well.

What I don't like -- Profitability, Transparency

Any critic of Amazon will point to their "low profit margins" and "decreasing profitability".   Earnings aren't growing as fast as revenue.    It doesn't bother me that earnings aren't growing as fast as revenue.   When you grow as fast as Amazon did, it's almost impossible for earnings to keep up with revenue.   However, if it keeps growing while the top-line growth explodes, you can reasonably project that when it does catch up, it will be a sudden huge explosion.   It does bother me when earnings are decreasing, which is what has happened recently.   I think I understand why, but I'm not 100% sure.....because.....Amazon has a layer of secrecy about investments and growth strategies that helps them to have surprisingly strong entries into markets and acquire businesses that translate into great extensions of their business plan.......but.......until they tell me about them....I kind of have to trust them.    Past history has been outstanding, but can they keep it up? 

So Apple doesn't know what to do with their cash.....and Amazon throws it into growth and R&D before you can say PE.   Two extremes.....two great companies.    The two best in tech.  

1 Comments – Post Your Own

#1) On November 15, 2011 at 3:25 PM, ikkyu2 (99.26) wrote:

The AAPL cash pile is mostly held overseas awaiting a repatriation tax holiday, which everyone knows is coming sooner or later.  They could repatriate it now and pay $20 billion, or repatriate it in a year or two and pay $4 billion.  Which decision do you want to own a part of?

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