How Am I Doing? 2013 Year in Review

Former NYC mayor Ed Koch was famous for asking “How am I doing”?

Since this blog is now a year old, I’m initiating a new tradition – pausing each December for an objective look on how I’ve done with my predictions. Obviously, I won’t be right all the time, but I do accept responsibility for both hits and misses in my predictions. So here is how my predictions in all twelve blog postings since inception fared in 2013:

Does Apple’s Valuation Make Sense?

Blog Date: December 10, 2012

Hit or Miss? Mixed

Comment: AAPL is up 6%, but not as much as the market because AAPL sunk further before rebounding. But sentiment did turn in 2013 and AAPL rebounded 44% from its low of 390 on 4/19/13 to 560 today.

AAPL price change: 6%

DJIA price change: 25%

Cure for Apple’s Achilles Heel -- "Track Changes"

Blog Date: December 13, 2012

Hit or Miss? Hit

Comment: Apple’s improvements in its office suite have continued to erode Microsoft’s position, and Apple’s decision in October 2013 to bundle iWork for free with a new Mac will continue that trend.

AAPL price change: 6%

DJIA price change: 25%

What Will Apple Likely Build First in the US?

Blog Date: December 17, 2012

Hit or Miss? Bulls-eye

Comment: Most analysts expected Apple to build an iMac or Mac Mini in the U.S. at a site unknown. I took a different path and predicted it would be a new MacPro and the location would be Texas. Bulls-eye on both predictions!

AAPL price change: 8%

DJIA price change: 25%

iPhone Lack of Lines in China – A Reason to Panic?

Blog Date: December 17, 2012

Hit or Miss? Hit

Comment: Since then, Apple has increased its market share in China.  That trend accelerated in the third quarter of 2013 with Apple increasing shipments of iPhones 32% to a market share of 8% in smartphones – all without a deal with China Mobil in place. In October, Apple’s share increased to 12% versus 3% a year earlier. Demand for the iPhone 5s has been so high that the gold-colored “champagne” model initially sold for 10,000 yuan (US$1,630) among unofficial sellers in China’s grey market

AAPL price change: 8%

DJIA price change: 25%

Will Apple Launch an Integrated TV?

Blog Date: December 19, 2012

Hit or Miss? Bulls-eye

Comment: My prediction ran counter to most analysts, who were very confident that Apple would introduce a full-on integrated Apple TV in 2013. Such a TV is nowhere in sight, and most analysts have now backed off and instead expect incremental improvements to the Apple TV set-top box instead (which was my prediction back in 2012)

AAPL price change: 6%

DJIA price change: 24%

Will Wireless Carriers Reduce Subsidies, thus Adversely Affecting Apple Profitability?

Blog Date: January 17, 2013

Hit or Miss? Too Soon to Tell

Comment: This still is the biggest risk to Apple, but so far the carriers in the U.S. have been unable to wean themselves off the addiction of market share growth/preservation that are associated with Apple’s subsidies. It will be interesting to see if Apple extracted similar concessions from China Mobile – no doubt the delay in closing that deal had something to do with negotiations on subsidies.  Keep you eye on this development because it is still the biggest cloud over Apple’s profits and stock price.

AAPL price change: 11%

DJIA price change: 21%

IGZO – An Alternate Explanation for Apple Cancelling Display Orders, and Great News For Apple Stock

Blog Date: January 21, 2013

Hit or Miss? Hit

Comment: Few analysts were predicting this, but as I predicted in January 2013, Apple released the new iPad Air/iPad mini in October 2013 and both use IGZO in order to reduce the form factor of the larger iPad and increase the display resolution to retina in the iPad Mini -- while sustaining long battery life in both models through the IGZO savings. Next year, I predict IGZO will come to the iPhone line.

AAPL price change: 12%

DJIA price change: 21%

From Insanely Great to Pure Insanity – Why the Recent Collapse in Apple Stock Price Spells Opportunity

Blog Date: January 29, 2013

Hit or Miss? Hit

Comment: AAPL is up 22%, which is more than the market

AAPL price change: 22%

DJIA price change: 18%

Tale of Two Tech Giants – Contrasts between Apple and Amazon

Blog Date: February 1, 2013

Hit or Miss? Miss (so far)

Comment: AAPL and Amazon are both up more than the market, but Amazon continues to grow its market valuation faster despite poor profitability. I still believe that there will be an eventual correction, but it could take a long time in this market that still dismisses profitability as an important metric for such darlings as Amazon, Tesla and Twitter. This triumvirate should eventually see their day of reckoning, but not yet.

AAPL price change: 23%

Amazon price change: 50%

DJIA price change: 18%

How Apple Can Sell a Low-cost iPhone Without Making a Low-Cost iPhone

Blog Date: April 19, 2013

Hit or Miss? Hit

Comment: Apple sales in India in FY 2013 rose 51 percent and China rose 14%, and this is partly due to Apple’s creative financing options when faced with a carrier that does not support subsidies. AAPL’s stock price is up three times the market appreciation since I posted this blog.

AAPL price change: 43%

DJIA price change: 13%

Is the Sky REALLY Falling for Apple? Analysts Find the Glass is 5% Empty

Blog Date: April 26, 2013

Hit or Miss? Bulls-eye

Comment: AAPL has increased almost 3 times as fast as the market

AAPL price change: 34%

DJIA price change: 12%

The Next Big Thing for Apple Has Arrived – and Surprise -- It’s not a Gadget

Blog Date: September 29, 2013

Hit or Miss? Hit

Comment: Since my blog posting, Apple has launched iBeacon and the initial pilot was even at Macy’s (which I used as an example). My prediction of using iPhones as payment devices to reduce credit card fraud in stores will take longer to play out, since it will take several years for the iPhone 5s and its successors to dominate the iPhone installed base.

AAPL price change: 16%

DJIA price change: 8%

So overall, 3 bulls-eyes, 6 hits, 1 mixed, 1 too-soon-to tell and 1 miss. Not bad, eh?

Disclosure: I've owned Apple shares since 1985

The Next Big Thing for Apple Has Arrived – and Surprise -- It’s not a Gadget

Analysts continue to lust for the Next Big Thing from Apple, with speculation whether it will be a TV, an iWatch or some other marvelous gadget.  Well, surprise – The Next Big Thing is nearly here, and it’s none of those. I predict Apple’s new iPhone 5s with its unique killer feature of Touch ID (finger-print access) will not only give Apple's users the capability to unlock their iPhone but usher in a whole new era -- thus allowing Apple to unlock its Next Big Business and become the Leading Payment Processor for non-Apple transactions. Specifically, I believe Apple is on the cusp of launching a breakthrough offering for retail that virtually eliminates credit card fraud and streams information to assist the customer in making purchases in a fun, informed and convenient way.

Apple’s success is that it always starts with big problems and selectively incorporates technology to eliminate those problems. Apple has told us that half of its iPhone users do not enter a security code, and hence their private data is vulnerable. Much like Apple’s introduction of Time Machine solved the problem that 75% of Mac users were not backing up, Touch ID fills the void by protecting all those unsecured phones while also simplifying access with one-touch convenience. Both security and simplicity/convenience are tremendous benefits, and 9 million customers demanding phones in the first weekend of sales confirm this.

But is that “all” that Apple is up to? I believe not -- the real endgame is for Apple to use that secure fingerprint system to solve a much bigger problem of credit card fraud, which costs retailers in the US $190 billion a year (see Forbes).  Most people don’t realize it, but when we inform our bank of fraudulent use and the bank magnanimously tells us that we are not responsible, it is mostly the merchant (not the bank) that pays for those fraudulent charges (Forbes reports that the merchants pay 93% ($190 billion), the bank pays 5% ($11 billion) and consumers 2.3% ($5 billion)). So how much would a merchant pay Apple for an inexpensive and easy solution to bring that loss ratio close to zero? A lot – maybe as much as 30% of the losses avoided. Further, the cost to Apple of hardware investment other than servers is $0 since we are all kind enough to pay for that with a little help from subsidies from ATT or Verizon when we buy our iPhones and most likely merchants would pay for their own access points/hardware. Apple’s transaction processing costs are also minimal since no people are required to process the transactions. So Apple’s gross margins and profits would be spectacular. Apple makes about $50 billion a year in profit, and if they captured 30% the fraud savings and spent a few billion dollars a year in sales and marketing it would be a business contributing order of magnitude as much profit as everything Apple currently sells. Put differently, it would be a business making more profit than any other company in the world -- other than Apple’s existing businesses! Apple would be more than twice as profitable as Exxon-Mobil -- the second most profitable company making “only” about $35 billion annually. This is not even counting the profits from hordes of Android users who would switch to iPhones in order to access that killer feature, or the tens of millions of pre-iPhone 5s users now given an excuse to upgrade.

But I predict Apple would not stop there. Ever wonder why Apple has dragged its heels about incorporating NFC (Near Field Communication)? Perhaps it is because Apple sees greater benefit by connecting your phone over the whole floor of a retailer with the longer range Bluetooth 4.0 that has been incorporated into iPhones since the iPhone 4s. With as few as five access points, Macy’s could communicate with line-of-sight iPhones anywhere on a floor, and not just to process payments but also to send information about products as well as in-store coupons and specials. Truly revolutionary.

Apple has huge advantages versus competitors in pulling off this revolution.  With over 600 million Apple customers with iTunes accounts and registered credit cards, no other company (including giants such as Google, Microsoft and Samsung) can match that. With an ecosystem of over 700 million IOS devices in use, and a track record of pushing out software updates to most of those devices, others can’t match that. And with Apple’s track record of streamlining the user experience, no one is likely to win by building a “better mouse trap.” Newcomers such as Jumio and PayPal lack all those Apple strengths and don’t even stand a chance.

So for analysts that think that Apple innovation is dead and growth has plateaued – think again. And think differently! All this will help propel Apple’s stock price to new all-time highs, and even send AAPL through the $1000/share barrier into new territory at some point in the foreseeable future.

Disclosure: I've owned Apple shares since 1985