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Apple’s Rotten Truth

Apple’s Rotten Truth

Apple Inc.’s (Nasdaq: AAPL) iTunes is dead.

The iconic music software that helped drive iPod and iPhone sales is on the way out. Eighteen is such a young age to go. *Sniff*

But it is a necessary death. iPhone sales have tanked for the past two quarters. Consumers just don’t see the point in paying more than $1,000 for a device with a few extra cameras. Apple is finally seeing the writing on the wall and is trying to wean itself off dependence on the iPhone.

To do that, Apple is breaking up iTunes into a myriad of separate apps for music, videos, podcasts and even video games. So, we’re trading one app for four … clear as mud, right?

The problem is that Apple isn’t doing anything that’s not already being done elsewhere. This is nothing new: MP3 players, smartphones, PCs and laptops all existed before Apple came along. What is new is that Apple is no longer innovating on these products.

For instance:

  • Apple Music competes with Spotify Technology S.A. (NYSE: SPOT), Amazon.com Inc.’s (Nasdaq: AMZN) Amazon Music Unlimited and Alphabet Inc.’s (Nasdaq: GOOG) Google Play Music.
  • Apple TV Plus, which CEO Tim Cook claims is not just another streaming service, is just another streaming service competing with Netflix Inc. (Nasdaq: NFLX), Amazon and The Walt Disney Co.’s (NYSE: DIS) Hulu (and soon Disney+) … just to name a few.
  • Apple Arcade (the new Apple video game subscription service) … I can’t even take this seriously. This service is doomed to fail just like its Android counterpart, the Ouya. Ever heard of the Ouya? Nope. No one has.

This was Cook’s big plan. Killing iTunes and emphasizing individual services to compete with better-positioned products already on the market. Products, I might add, that are not bound by Apple’s “walled garden.”

In fact, unless you’re interested in a $6,000-plus Mac Pro, this year’s Worldwide Developers Conference has been a big bust.

The Takeaway:

In a way, the death of iTunes (due to the deterioration in iPhone sales) heralds the eventual demise of Apple. We’ve seen this play before.

Put simply: Apple is the new IBM. Once a king of hardware and innovation, Apple is sliding into software and services for revenue growth. IBM tried that. It eventually sold off its hardware division, ditched consumer-oriented software and focused on enterprise software. Now, IBM is a shell of its former self. This is the path Apple has chosen. It has a few more years of positive growth left, and that’s about it.

The bottom line: Hold AAPL stock for now if you have it, but look for a good price to sell.

The Good, the Bad and the Ugly

The Good: “Most Attractive Internet IPO Since Facebook”?

The brokerage bunch turned out for Uber Technologies Inc. (NYSE: UBER) on Monday. A bevy of brokerages … a group, a gang, a gathering … an assemblage of analysts! Twenty-five brokerage firms initiated coverage on the ride-sharing guru, and none of them said UBER is a “sell.” Buys and holds from everyone!

Given some of their comments, however, I think more than a few of them are a bit confused. “We see Uber as the most attractive internet IPO since Facebook,” said Deutsche Bank. Umm … internet company? You do know Uber is a ride-sharing service, right?

Regardless, the sheer number of buy ratings is good for UBER investors, who’ve had little to cheer about since the company went public. I just can’t help but think there must be better IPO investments out there right now.

The Bad: How Revolting!

It seems like nobody likes Facebook Inc. (Nasdaq: FB) these days. Heck, even FB shareholders are fed up with the company, especially its CEO. According to a filing on Monday, 68% of FB shareholders voted to oust CEO Mark Zuckerberg as chairman. That figure is up from 51% in last year’s annual shareholder meeting … ouch.

But it didn’t stop there. Some 83% of shareholders voted to scrap Facebook’s dual-class share structure. As it stands, Class A shareholders get one vote per share, while Class B holders get 10 votes. Guess who holds a majority of those Class B shares?

It’s gotta be hard to be the guy who helps millions of people make friends online, only to be hated by the investors closest to you. Luckily, due to his Class B holdings, Mr. Zuckerberg isn’t going anywhere.

It’s good to be the king, but not so good to be a plebian FB shareholder right now.

The Ugly: What … Is Your Quest?

To find the holy grail … of data security! On second thought, let’s not go with Quest Diagnostics Inc. (NYSE: DGX) … ’tis a silly place.

How silly? The company just reported that about 11.9 million patient records were exposed in a data breach — including their financial data, medical records, Social Security number and other personal information. Furthermore, a billing collections vendor actually found the leak. Not Quest.

When your job is data intensive, providing diagnostic testing, information and services, you’d think that data security would be quite high on your list of priorities. I mean, if I went ’round saying I was a health care diagnostics firm and some hacker lobbed a data breach at me, they’d put me away!

Quest stock is taking the news like all companies with data breaches these days … it’s up about 1%. Given the company’s strong revenue history and growth potential, all I can say (and it pains me to do this following a data breach) is buy the recent dip.

Turn on your images.

Google brought this on themselves with the Answer Box that scrapes information from websites. It’s a brilliant idea from an engineering perspective, but it steals views from the sites they scrape.

More than 60% of searches don’t result in a click through because the Answer Box provides the answer. It seems like Google lawyers could have flagged that and avoided an obvious antitrust problem.—  Michael Carr, editor of Peak Velocity Trader and Precision Profits.

Once again, Mr. Carr hits the nail on the head with Great Stuff’s quote of the week. Ad tech firms and publishers have long been at odds with Google — the No. 1 online ad firm. Cross Google, and you risk losing revenue, and potentially your livelihood.

Now, the U.S. government’s hitmen at the Department of Justice are on the case. As Mike notes, Google’s legal team might have been able to stop this mess before it began.

Hit the Spot With This Music Streaming Guru

So, iTunes is dead … or dying, at least.

Sure, you can turn to Apple Music to get your fix. But there will be a lot of disaffected subscribers out there who won’t want to have anything to do with Apple after this mess. Here in the Great Stuff household, we ditched iTunes years ago. The software just doesn’t like to play well with Windows … or Android … or basically anything that isn’t Apple.

So, where’s a music streaming aficionado to go these days?

You could try Google Play Music … but that, too, is dying a slow and painful death. I’m just as hyped about YouTube Music as I am about my dentist appointment next week, or the Amazon Music Unlimited interface.

The obvious and most painless choice for seamless music streaming on mobile or PC is Spotify.

First and foremost, Spotify is platform agnostic. It’s not that Spotify doesn’t believe in a platform, it just has no proof that one true platform actually exists.

In other words, Spotify doesn’t care if you’re using a Mac, PC, iPhone, Android or Commodore 64 — you can stream music.

Earnings growth has been solid and revenue has risen by an average of more than 25% during the past four quarters. For fiscal 2019, analysts are expecting sales to grow by 26.8%.

And right now, SPOT is trading at a discount. The consensus price target for SPOT stock rests at $164.51. At last check, Spotify shares were hovering near $125.50. That’s a potential 30% upside!

With the other major streaming players in upheaval right now, Spotify is poised to grow even more. Meaning analysts’ price-target projections could be conservative.

So, take advantage of the death of iTunes. Ditch those Apple shares for a company that still knows how to innovate and buy Spotify.

Until next time, good trading!

Regards,

Joseph Hargett
Great Stuff Managing Editor, Banyan Hill Publishing

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