Apple Inc. (NASDAQ:AAPL)’s Phillip Schiller responded to critics of Apple’s recent line of products by stating “can’t innovate? My ass!” Well, I for one was very disappointed with what I have seen so far from Apple’s developers conference. I’m certainly not going to recommend dumping the stock, but following Tim Cook’s recent keynote speech, I think investors should stand on the sidelines and wait to jump in when the company inevitably innovates again.
Does Apple have the greatest advantage in business?
Apple Inc. (NASDAQ:AAPL)’s 500 million iTunes and App Store account holders is up 55% from the end of 2011, and is projected to hit 600 million by the end of 2013. Many of these accounts also use Apple’s other services, and purchase the newest hardware devices. This user base is second only to Facebook Inc (NASDAQ:FB) in the world of tech. The difference between Apple and Facebook is that Apple users are spending money, to the tune of an average of $329 per account, which translated to $95 in FCF last year. Facebook Inc (NASDAQ:FB) might have more users, but Apple Inc. (NASDAQ:AAPL) has what Facebook can only dream of: paying customers. In fact, Facebook recently stopped showing search ads in its search features, which will reduce the number of its ad products by over 50%. A major transition like this could increase risks to the company’s near-term revenue prospects. As Facebook Inc (NASDAQ:FB) is moving past peak monetization and beginning to see a declining user base, investors should stay clear of Facebook shares.
So what exactly is Apple doing with this advantage? The potentials seem endless, yet this goldmine remains relatively unexplored. One of the opportunities is mobile payments, where Apple Inc. (NASDAQ:AAPL) can leverage its large user base, secure platform, and acquired AuthenTec technology.
iRadio isn’t a Pandora Media Inc (NYSE:P) killer
An Apple radio has been highly anticipated as being a Pandora-killer. Analysts predicted that Apple could easily attract more users than Pandora Media Inc (NYSE:P)’s 200 million users. Pandora’s stock saw a lot of selling pressure in the days before the iRadio announcement. Pandora is already an established player in the internet radio market, with a net addition of 700,000 paying subscribers up 114% year over year bringing the total to 2.5 million. Pandora Media Inc (NYSE:P)’s revenues are expected to rise 48% this year, and unlike Apple Inc. (NASDAQ:AAPL) shares are up in 2013, delivering an almost 100% return compared to Apple’s 20% loss.
The Apple conference has come and gone, and with iRadio officially announced it is clear that the limited and somewhat disappointing features pose no threat to Pandora. The iRadio shares many features with other web-radio products that already exist. Though there is no doubt that that the iRadio increases the competitive pressure, Pandora Media Inc (NYSE:P)’s service still has a longer reach because it is available on other platforms besides Apple Inc. (NASDAQ:AAPL) including 100 new car models. Moreover, Apple’s deals with the major record companies are similar to those of Pandora. Shareholders can breathe a sigh of relief as the $14 billion radio market is large enough for multiple internet players. A declining Pandora Media Inc (NYSE:P) price can prove to be an attractive entry point for new investors.
Product refresh and new toys
Apple Inc. (NASDAQ:AAPL) should be delivering new iPhone and iPad refreshes in the fall, just in time for the ever popular holiday season. A new iPad would be a welcome move as the tablet market is projected to be larger than the PC market.
New products investors (and clients) are waiting for include a potential smart TV or watch product.