The Next Evolution in the Apple Investing Thesis

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Brendan: Hey Fools, Brendan Byrnes here, joined by Andrew Tonner, our Tech and Telecom Analyst for

Andrew, let's talk Apple, but we're not going to talk about iPads or iPhones or iPods right now. Maybe a little bit, but let's focus on the app ecosystem, and some recent numbers that we got on that.

Andrew: Yeah. I think we saw a data point that Apple has now surpassed 40 billion app downloads from its App Store, and half of that came in 2012 alone.

I think we need to see an evolution in the thinking about Apple as an investment, from the ecosystem really being the sustainable competitive advantage. It's Apple's moat, but it's not where they make most of their money.

It's so easy to focus on things that really drive the profit, and rightfully so; things like the iPad and iPhone, which are the vast majority of Apple's overall sales and profitability.

But now that Apple has gained such substantial share in both the smartphone and tablet market space, people are starting to get more and more locked in on these ecosystems, and we're seeing the content consumed and content stored on these ecosystems now only increasing. That's, I think, what really makes the experience sticky for someone looking at Apple.

You're so much less likely to defect to another ecosystem when you have $50 worth of apps and movies already downloaded. We see that in some of the loyalty numbers we're also seeing analysts uncover for Apple, as well. Things like 90% of iPhone users are planning on purchasing an iPhone when they purchase their next smart device, as well.

At the same time, now that Apple has complementary and leading products in both smartphones and tablets, they feed into one another because, again, we know you're more likely to purchase a tablet once you've purchased a smartphone, and you're more likely to purchase the same company's tablet as you're likely to purchase their smartphone.

It really solidifies the fact that Apple's real advantage is going to, over the longer term, feed into its ecosystem. That's also reassuring because, again, we've never seen competition be greater for Apple, as well. In the tablet space, now, we have the Microsoft Surface, and an updated and largely-improved Kindle Fire HD, as well.

Google is going to improve its Nexus 7; they're going to come out with a larger form factor, as well, and now we see Research In Motion and Nokia trying to regain the turf that they lost in the smartphone space, as well.

Again, people say that's a huge knock against Apple. I think it's been a headwind for the stock but, at the same time, I think it's slightly misunderstood that Apple's competitive stance is actually a lot stronger than most people give it credit for.

Brendan: Yeah, I totally agree. Definitely an overlooked advantage, I think, for Apple. Thank you so much, Andrew. Make sure you head over to for more analysis.

Read/Post Comments (12) | Recommend This Article (4)

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  • Report this Comment On January 11, 2013, at 7:22 PM, TimKnows wrote:

    They barely breakeven on apps dummy. They don't have anything to offer for all of 2013. People don't care if they have $ 200 in apps if the phone sucks, it plain sucks and they'll move on. You need to go to school.

  • Report this Comment On January 11, 2013, at 8:12 PM, Arthur1111 wrote:

    Don't listen to this kid. He had many videos this week bashing RIMM, and guess what RIMM surged 13.8% today. If these guys have any respect for themselves they should send this kid back to high school, assuming he qualifies.

    Sell Apple and buy RIMM. Go with innovation anywhere you can find it. RIMM is the star for 2013.

  • Report this Comment On January 11, 2013, at 9:00 PM, Chippy55 wrote:

    I have shoes older than this RIMM-Bashing Tonner guy, and by the way, why doesn't he just sell Apple ad space on his forehead. If yinz can't see the obvious bias, then you must also own Apple stock, that's your choice, but Apple has been mired at around $520 for a while while RIMM has made some major upside moves. And, AND, look at upside potential vs downside risk, how far can Apple fall vs RIMM? As for these people who CONSTANTLY talk about all these apps, well if you download 273 per day for an entire year you'd have 100,000 of them. That's how many RIMM has, but there are people who want you to believe that Apple's 700,000 makes them a "better" company. Duh, I have a Tracfone with zero apps, I invest in smartphones, I don't need one. Since you're not supposed to text and drive, and you're at work for 8 hours a day, and HAVE A REGULAR LIFE, just how many apps does one person need?? Either go get a life or stare at your phone all day, decisions decisions.

  • Report this Comment On January 12, 2013, at 2:02 AM, mirra88888 wrote:

    Wow!!! Some of you are so mean. A lot of knowledgeable people are younger these days and bashing them would seriously put you behind .

    I do however believe that it is easier for Rim to go from 12 or 13 to 20 than it would be for Apple to go from $520 to $1,200.

    I also don't think that $50 worth of apps would stop people from going to a superior phone. Good Apps are important, however larger numbers of useless apps brings confusion and not added value. I rather have a few thousand valuable apps than hundred of thousands of useless ones.

  • Report this Comment On January 12, 2013, at 11:39 AM, starpark88 wrote:

    How is this a competitive advantage or a moat? The same reasoning applies for Android Apps. The Android app store offer roughly the same amount of apps as Apple and Android overtook Apple in total downloads awhile ago.

    I like Apple from a valuation standpoint but if anything I'd argue the app store is becoming a negative relative to Android.

  • Report this Comment On January 12, 2013, at 12:54 PM, magnaman1969 wrote:

    Lol...yeah..the Apple ecosystem is their "moat"...

    What a joke.

    HTML5 web Apps will detroy that whole business model of Apps and App Stores....allowing developers to build one app/cross platform apps accessed on the web...with revenue driven from ad traffic.

    You guys are suck blatant apple fans it makes me sick.

    Do you really think people use your hot air to make investment decisions.

    The whole ecosystem argument is changing with HTML5 and you don't even mention it....

    RIMM on the other hand is protecting for BOTH scenarios by pursing developer relationships and launching with the largest ecosystem ever for a new OS...and making sure. Their OS is optimized for HTML5 protocol.

    Fastest webbrowser on the planet and fully flash enabled.

    Do some real research....

  • Report this Comment On January 12, 2013, at 1:00 PM, magnaman1969 wrote:
  • Report this Comment On January 12, 2013, at 1:50 PM, Arthur1111 wrote:


    A professional person can't justify wasting so much time on a stock that he or she hates so much. Same comment goes to the Tonner boy. Get a real job and stay away from RIMM. It is making both of you look and sound like idiots

  • Report this Comment On January 12, 2013, at 8:23 PM, stapleboy wrote:

    I've had an iPhone for almost 3 years not. I compare it to newer versions, and it's the same old hat. I don't think that they are bringing anything new to the table.

    I saw a BB10 demo a few days ago, and this thing looks totally amazing. It makes my iPhone look super old. I'm up for renewal in a few weeks, so looks like I will be getting the new BB10.

  • Report this Comment On January 13, 2013, at 1:58 AM, stapleboy wrote:

    If you saw it on video, it doesn't serve it justice. You need to see it live and in person to appreciate how fast and fresh it is.

    Believe me, this will be the next phone that you will get as well, once you get your hands on it for an hour.

    This company has all its ducks in a row.

    It's nice to see that a large amount of short sellers covered their position on Friday because there is nothing from stopping these shares from soaring through the roof.

    BB10 will be the talk of 2013.

  • Report this Comment On January 14, 2013, at 9:00 AM, gordonthebull wrote:

    InfoThatHelp........what a piece of crap you are. It looks like you spend all day on the Internet bashing RIMM. You just write about all this RIMM bs and try to convince us not to buy BB10. What is your problem? Are you jealous that IOS is losing its lustre and that BB10 will be the talk of the town?

    Can't stand your bs blogging!

  • Report this Comment On January 14, 2013, at 5:34 PM, Sn8keiis wrote:'ve been drinking too much KoolAid. You give new meaning to the term Apple Fanboy. Not taking anything away from Apple mind you. It's an amazing company with some very bright, talented employees. However, the overly restrictive nature of Apple's IOS and proprietary components of its hardware (i.e. No Playboy apps, ridiculously overpriced power cables, no SD ports, no HDMI out, etc, etc) is a BIG turn off for many consumers. Open source OS (Android), and the flexibility of WIN 8 Phone and Pro will have a larger market share than Apple based on that alone. Than there is the enterprise market, don't know enough about RIMM's new products to make an informed decision but Microsoft will parlay their OS and business software foundations and dominate that market. Apple < $500 is an attractive price point and is a good buy but it won't see > $650 again for years if ever and a trillion dollar market cap is just delusional. There is simply too much competition. BTW, I bought Nokia @ 4.63 instead of Apple @ 499.

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