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The Tampon Brand

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March 15, 2010 – Comments (3) | RELATED TICKERS: AAPL , WMT

Sorry for the title, just a comment in a post I was reading on the valuation of Apple made me laugh:

A rational person would tend to believe that a 24.9% margin would tend to come under pressure over time, especially if the company's big new idea sounds like a tampon brand. 

Here comes the ipad...  Ok, so I am still laughing at that one. 

But more seriously, contrasting the valuation of Walmart with Apple is interesting.

A point being debated in the link is that Walmart may have huge sales, but the profit margin is low, 5.4% versus Apple's 24.9%.

What has always concerned me about Apple is the market saturation of the product.  Sales will go great guns and then what when everyone has one?  Well, Apple has beaten my expectations with an ever increasing exceptional new line-up of products, keeping up the demand for every increasing sales.  I teach and it seems like all of my students have an ipod, and you can see the evolution of ipods in what they have.  Certainly the ipods of 2-3 years ago hold little interest or value for students compared to what the newer ipods can do.

But, this new ipad, wow, it looks amazing

It seems to me that there is a huge emphasis on consumables, the i-tunes store, the i-books store and the apps store, additionally the i-phone and data plans.  

Short term it seems that there is a huge spike in sales from the i-pad coming online, but when the market is saturated, then you move to replacement sales comparable to how often people replace their desktop computers.  This is where the stores are important.  I can see people constantly downloading new music, videos, books games, etc., and the prices seem to be in a range where people will tend to pay rather then pirate.

It is a very good business model, but without digging for hours I'd be hard pressed to what I think is fair valuation.  I am just going to leave my bad call for now.  I see a spike in "capital" sales, the ipad, but longer term that goes down.  The consumable sales seems to be a growth industry that I tend to think will get stronger.

I really under estimated the business model on this one.

3 Comments – Post Your Own

#1) On March 16, 2010 at 1:28 PM, ByrneShill (74.82) wrote:

Apple's miracle is selling dreams. For every one of their product, the competition offers something more compelling. But using the cult of personnality, they managed to move a lot of their products.

The big question here, is what happens when the guru dies? The stores will keep selling books and songs, but if hardware sales dwindle, enventually people will figure out that istore sells for more than its competitors (let alone piracy...).

The ipad will most probably be a dud. The name isn't the only problem. It's a badly conceived product which doesn't really have a use, and outside of Apple zealots I don't really see who's gonna buy that. It's more akin to the next AppleTV than it is to the next ipod or iphone.

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#2) On March 20, 2010 at 10:06 AM, dwot (97.29) wrote:

ByrneShill,

I think the ipad will be a huge success.  I saw it and thought, if I had one of those would I ever need to buy a bound book again if I could buy them electronically, and I can adjust the font. 

I think there are huge applications and they will replace laptops for a certain niche.  I'd sooner pack something like that for vacation then a laptop and it looks like it would do everything I'd use a laptop for on vacation and more.  Going back to the books, it look way better for reading a book off and the battery life is substantially superior.

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#3) On March 20, 2010 at 10:36 AM, starbucks4ever (98.82) wrote:

You were not wrong. My estimate of fair value for AAPL is $40. If it's now selling for $200, it shows you bubble thinking at its worst.

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