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My Thoughts On Apple’s iPad And Its Impact On Their Business (and Stock)

13 February 2010 9 Comments

Ok, the dust has settled a bit on the brand new product from Apple Inc. (AAPL).  Apple’s iPad had enormous hype surrounding its release that there is no wonder many people are saying it didn’t live up to it.  Unless the iPad could cure cancer while you watch a movie, I don’t think it would have been able to live up to the hype.  Thus is the bar that Apple has set for itself over the years.  A mark of extreme success in my opinion.

So, with that said, I believe the iPad is killer.  I haven’t seen or played with one myself yet as most people haven’t, but from the product reviews and videos, I think it actually is a game changer.  Many people don’t see it that way.

The Criticisms & Headwinds

Let’s first look at the common criticisms of the device.  The biggest concern I’ve heard expressed is that the device doesn’t have a definite market or need.  It’s not a phone, it’s not a laptop.  It doesn’t fit in your pocket, yet it’s smaller than my computer.  From my point of view, I think that this criticism is being over-played.

The ability for a person to be either in bed, in a coffee shop, or on an airplane and do the following things in sequential order: 1) watch a movie  2) read a book  3) check email  4) surf the web on the same device on a beautiful screen & interface I think overshadows all concerns of a lack of a defined category for the device.  What other device can you do that on?  The ease of use that imagine will come with it (like all Apple devices) will make it a must-have device for many people.  Individuals looking to buy a netbook or a Kindle I think will opt for an iPad instead.  I believe it’s a perfect addition to Apple’s product line sitting nicely between the iPhone/iPod Touch and the Macbook.

A legitimate headwind is the economy.  Simply put, consumers are hurting, and no matter how revolutionary or “cool” a new device is, your sales will be impacted.  Fortunately, for Apple, they have some pricing flexibility.  I was actually surprised at the $500 entry price for the device, and most people expect the prices to fall in the near future similar to all pricing behavior of new electronic gadgets.    Amazingly, the iPad is reportedly only costing Apple $229 to build, which means they have some fat margins in there and as I already mentioned, room to reduce the price.  This will help offset the weak consumer, but not completely.

For me personally, I own an iPhone, but at this point will not be buying an iPad.  I would love to have one, but I’m in a pretty frugal phase of my life and simply can’t justify buying the “latest gadget”.  People with less restraint and/or more money will perhaps be buying the device.  If I traveled full time like I used to, it would probably buy it immediately for airplane use.

Impact On Their Business & Stock

The impact to top-line revenue will probably be minimal for the next couple quarters, but I will not be surprised to see the iPad become a nice contributor to Apple’s top line and definitely the bottom line.  I do believe that the device will be a success.  It might not sell as many units as the iPhone does, but it does not need to in order to be a success.

As an investor, unfortunately, you need to be aware of the broad market direction as much as you need to be familiar with Apple’s fundamentals.  All stocks will move upward and lower with the broad market to some extent in the short run, and I do believe the broad market is a little high for new money to be allocated into most stocks.  Apple (AAPL) has had an enormous run, and it’s tough to buy at current levels.

If you’re a long term investor, keep an eye on Apple’s stock and consider picking up shares if the stock moves below $150 or so.  It’s a great company with an absolutely killer product line in the industry.  This won’t change anytime soon in my opinion.

Disclosure: No Apple (AAPL) position.

9 Comments »

  • Ted said:

    I loved this post! At this time, I do not feel like an Ipad fits my needs just yet. I am waiting get a little more financially solid and then see where prices are at. I may make the almighty switch to the Iphone in the next year or so, and I feel like the Iphone would fit everything I need to do. But, if I was commuting via train or using planes a lot, I would buy one yesterday.

  • Charles said:

    Why would anyone listen to someone not even able to afford an iPad? Curious?

  • 20smoney (author) said:

    Is my opinion less relevant because I'm frugal w/ my money?

  • FFB said:

    I'm not going to get an iPad. Just don't need it. But that doesn't mean its not real neat! As for use, back in the day people thought cell phones weren't needed. Later they questioned iPod. The iPad will find it's market in time.

    The real impact to Apple stock is not people buying the iPad but in them building their brand even further. As soon as you see folks carrying iPads around it adds to the credibility of iMacs and Macbooks. I read somewhere that the reason the Ipad doesn't have all the features you may think it needs is because they still want you to spread the love and buy their other products.

  • Nile said:

    FFB,
    It's called the "Halo Effect." Apple wants you to buy the cheeper things like iPods or iPhones and see how easily they work so they can get you to come back and spend more money on their computers. It has been a great strategy that has gained more market shares and will continue in the future.

    Like you said, the iPad will find it's own market and help create others like iTunes did for music. Unlike 20smoney, I don't see this going to $150 within the next six months. But I have been wrong in the past.

  • 20smoney (author) said:

    I'm not predicting Apple goes to $150, but I wouldn't be surprised if it does. During the previous run to $200, I'm sure you would have said there's no way that Apple will go down to $80. The upside buying Apple at $200 is not nearly high enough to justify the risk in my opinion. Wait for a broad correction is my strategy. Good luck either way.

  • nile said:

    I don't want to beat a dead horse but last down turn to $80 and now are totally different. Apple (AAPL) has broken through it's ceiling $207 and even though now has gone below it, it still has logged higher lows. All signs for upward momentum. With that said, I would be surprised if Apple went to $150 but as we all know, it's not impossible..

  • blogc2011 said:

    All stocks will move upward and lower with the broad market to some extent in the short run, and I do believe the broad market is a little high for new money to be allocated into most stocks. Apple (AAPL) has had an enormous run, and it’s tough to buy at current levels. Forex Programming