The bear narratives for AAPL

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by cbus20122

The same Bear narratives I hear now is what I heard in 2012. Same as 2014. Same as 2016. But AAPL keeps going up.

So have things changed?

I would argue that the bear narratives were correct that you mention. The issue is that you’re just looking at this on a much longer time frame. You have to understand time frames for bearish narratives. Some may be longer, others may be shorter. Saying “they were wrong” is like someone being bearish in 2007, then pointing at the fact that the S&P 500 is up 10 years later as evidence for them being wrong.

  • Apple in 2012-2013: 43% drawdown from highs.
  • Apple from 2015-2016: 33% drawdown from highs.
  • Apple in late 2018: 38% drawdown from highs.

All of these drawdowns were well beyond the S&P 500, but we obviously got full recoveries each time.

Bigger Picture Bearish Views

FWIW, I have no position in Apple. I’m not really bearish or bullish, but I believe I understand the bearish thesis here. FWIW, I’m just trying to summarize some of the popular bearish viewpoints on Apple here. If I had to take a pick, I would rather be bearish on a shorter term time-frame, but I’m not inclined to take a position here at all.

  • Incremental unit growth is decreasing. Apple stopped reporting IPhone unit sales in the last few quarters, which to me is a bit suspect, and they’re trying to mask the fact that they’re not selling as many iphones as they used to.
  • Phones are undergoing a bit of a transition these days, where users are no longer demanding the newest and most up-to-date phone as they used to. Think of the life cycle of desktop pc’s coming out of the 2000’s, or laptop computers coming out of the 2010’s. For the average user, there is less and less need to get the latest item, and for general purposes (web browsing, app usage, communication, photos), older phones are lasting much longer. There will still be demand here of course, but it’s not what it was in 2010.
  • A lot of people seem to be ignoring the debt Apple has piled onto their balance sheet. I get why they did this, but they’re no longer the complete cash cow with a fortress balance sheet that they used to be. Even with debt service being relatively low, it provides less of a cushion in the event of a revenue drawdown, which will be more painful if the economic cycle is in fact slowing as some see.
  • Apple’s incremental growth is rather uninspiring in my opinion. They’re chasing after the same thing every tech company seems to be doing these days when they don’t know what to do with their $ – getting into streaming content and services. Not saying there isn’t money to be had here, but there is hardly anything to get excited about on a long term timeframe. For a company like Apple, their biggest drivers of growth and profitablity has been new technology breakthroughs, which allowed them to differentiate themselves from competitors on a long term time frame. That just isn’t there right now. TBD if this changes of course.
  • Their products are very cyclical. Demand for luxury technology tends to drop off a cliff during a recession. Concerns about recession are going to impact investor sentiment and pricing of company shares.
  • Supply chain disruptions. Apple depends on a global supply chain that is under fire due to political conflict, slowing global growth, and US-China trade relations. Regardless of the outcomes here, the input costs of Apple phones are likely going up, which will compress margins in the future.
  • Global demand slowdown, especially coming from China. China prefers to champion domestic brands moreso. Apple still is selling a lot of products in China, but there is increasing strain here, and even without the political strain, Chinese consumer demand is down as the economy has been slowing in China for quite some time irrespective of the trade war.

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