The Apple (AAPL +2.46%) bears have won the recent battle for Apple's stock, but with shares now bumping just over $450, I think the sell-off has gone too far. Investors are giving way too much credit to the competition and not realizing the stickiness Apple has built into its model. I think there are a lot of reasons to like Apple, whether investors listen to David Einhorn or not.
Is Android really the problem?
Over the past few months I've become concerned that Google (GOOG +4.72%) Android's spread from smartphones into tablets would continue to eat away at Apple's market share. But fellow Fool Evan Niu had an interesting look at Android in his article, "Google Has Lost Control of Android." Evan outlines how smartphone and tablet makers like Amazon and BlackBerry are piggybacking Google's work without giving Google the benefit integrating into the Android Compatibility Program. It even takes some major work to get Google's standard apps loaded onto a Kindle device.
So, if Google is losing control of Android, it loses incentive to develop new versions and support it. Google also loses control over functionality and quality, something that Apple guards with its life. Maybe Android's share will continue to rise, but maybe the plethora of Android versions will eventually become too much for consumers to handle. Every interface could be different, every app ecosystem incompatible with the next. At least with Apple you know your apps, music, and movies are compatible across all devices, not something Android can say.
Long-term, is Android a problem? In a way, it is, but I think the Android experience will eventually become diluted as more versions come out and more manufacturers fork (i.e., modify) their own versions. This doesn't help create a self-reinforcing ecosystem of Android devices the way Apple does, and may explain why Apple's market share was up 2.0 percentage points in the fourth quarter to 36.3%, according to comScore. The Android isn't the problem a lot of people make it out to be.
Building an ecosystem one user at a time
It's easy to see that if you're an iPhone user you're more likely to buy and iPad and a Mac. The three devices sync seamlessly through iCloud and there are hundreds of thousands of apps that can be used on multiple devices and transferred to new devices when you upgrade.
This creates a stickiness to Apple's devices for millions of users. Even if Apple doesn't gain a single new user for the next decade, it has a hold on users (like me) who have multiple devices and have an incentive to stay within the ecosystem.
If Apple introduces an Apple TV that's compelling, I know I'll take a long look at it because everything else I own is Apple. Once you're in the ecosystem, it's hard to get out.
Everyone is down and out?
What's interesting when you look at the whole market is, there's pessimism everywhere. Microsoft (MSFT +2.68%) trades at similar multiples to Apple with a similar cash hoard (proportionally) and people say it's because Microsoft missed the smartphone and tablet boat, largely because of Apple. If Microsoft is losing and Apple is losing, who is winning? Google? BlackBerry?
The smartphone and tablet markets are huge -- and they're growing -- and I think Apple, Microsoft, and Google will be big players in these businesses for years to come. With everybody trading like they're going out of business, someone will be a big winner and Apple has a better chance than most of being that company.
Don't forget Apple is growing
Let's recall that Apple is still a fast-growing company. Revenue was up double-digits even in the latest "disappointing" quarter, something that's rare for a stock with an 11 P/E ratio.
AAPL Revenue Quarterly YoY Growth data by YCharts.
We're treating Apple like it's a company without a competitive advantage in a market where competitors are coming out of the woodwork with better products. I don't think that's even close to the case right now. iPads and iPhones will continue to grow and even a little margin pressure will be OK given the sheer size of the market. And let's not forget that once people buy Apple's devices, they're more likely to buy more and they get sucked into Apple's ecosystem.
