Apple Inc. - Transcript of Apple Discussion with Expert Horace Dediu
A strategic thinker
Horace Dediu runs the market intelligence site Asymco.com and is a Senior Fellow at the Clayton
Christensen Institute for Disruptive Innovation. In this wide-ranging talk he opines about Apple at a
strategic level. He analyses the company as an annuity and considers the stock undervalued, essentially
pricing in significant erosion in either the customer base or the sums they pay Apple, which he views as
unlikely.
Customer loyalty the most important metric
He blames iPhone shortfalls on China economic weakness and lengthening upgrade cycles. However, the
ecosystem is in excellent shape. Horace posits that Apple is like Microsoft, where Windows doesn't grow
every year but the loyal customer base provides long-term opportunities. Indeed, he thinks Apple is
better viewed as an annuity than as a hits-driven business because customers are unlikely to abandon
Apple. However, a price of being a luxury brand is that Apple cannot afford failures the way Google and
Facebook can—Apple has to hit home runs.
Apple could be a leader in the next wave of user input
Horace points out that Apple typically waits for market penetration by a new technology of at least 5-
10% before entering (Apple Watch being an exception). The company has been especially adept at
capitalizing on new input methods. Technology is moving from the mind to the heart to the visceral,
which plays to Apple's strengths. Input is evolving to voice and motion such as VR/AR, where Apple
should play. The investment in Didi suggests the car may be as much service as product. Although Apple
appears to be lagging in AI, it has proven better at monetizing than competitors. Despite or perhaps
because of all the competition Apple faces, it has emerged as an anti-fragile company.
Valuation: Buy with price target of $115
The stock likely is range bound for now with low multiples acting as downside support and lack of
demand catalysts an upper ceiling. If estimates have further to fall, it will be hard for the stock to muster
more than a bounce for now. Increasingly F18 looks like the catalyst for more substantial appreciation.
Our price target of $115 is still 13x F17e EPS.