The Tampon Brand
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.