"Frankly, we just couldn’t quite bring ourselves to use smart watches or TVs as reasons to raise numbers – nor were we fully convinced that these products could move the needle like new categories did in the old days," says Reitzes. "As a result, we believe it is time to step aside, given a maturing smart phone market."
Devices like the rumored iWatch are seen as making the iPhone more useful; rather than new categories in themselves.
"We believe Apple’s story is all about iPhones and 'new categories' seem to be designed to make the iPhone more useful – but don’t necessarily re-accelerate growth in the iPhone category to sustainable double-digit levels."
Finally, Reitzes likens Apple to Microsoft.
"We look at a valuation analogy vs. Microsoft from 2000 to about 2010 and see no precedent that large-size tech companies simply start to broadly outperform again after a tough year or two if the law of large numbers is catching up to them and margins have peaked."
Reitzes observed the following:
● Microsoft's all-time high market cap of $620 billion was hit in 1999, becoming the clear winner in the PC/Internet revolution. Apple beat the most-valuable company record in August 2012, which shares rose above $700 following the launch of iPhone 5. Apple's market cap hit a peak of $650, making it the mobility revolution winner;
● Investors have "re-rated" the companies given ebbing expectations that each company will have a "next big thing" product in the pipeline. "Apple now trades at 12.7x consensus 2014 estimates – down from its P/E of 15.9x in October 2012. Microsoft traded around 20x in 2004 after a strong rebound in 2003, but its multiple has settled in the mid-teens since that time;"
● Both companies peak market valuation coincided with a high point in gross margins; and
● Both Apple and Microsoft eventually gave into market pressure for a more shareholder-friendly capital allocation; Microsoft issued dividends while Apple gave the nod to dividends and buybacks. Both efforts didn't lead to a "resurgence" in share price, Reitzes noted.
The analyst suggests that Apple might need to set up its Research & Development to keep pace.
"Apple invests the smallest amount in R&D and also maintains one of the leanest opex structures. While revenue per employee is quite high – at over $2 million it is by a wide margin the highest in the group – growth seems stalled compared to Amazon, Google and Facebook. We would point to the lack of real new products of late as the reason for the growth differential – and that may be something that Apple may have to spend to fix."
[via SAI] [via SI]