Wells Fargo defends 'market perform' rating on Apple stock, says company is in midst of transition

Posted:
in AAPL Investors edited April 2014
Having downgraded its rating on Apple stock in January, Wells Fargo on Friday defended their neutral outlook for the company's near future, characterizing it as a long-term opportunity for investors that faces near-term hurdles while the industry transitions.




Analyst Maynard Um said in his latest note to investors, a copy of which was provided to AppleInsider that he believes Apple and its peers are in the midst of a transition phase -- one where Apple may struggle in the short term. In his view, the rise of modern smartphones, which led to Apple's astounding success in recent years, has already gone through two phases: ecosystem creation (2007-2010), and a focus on establishing market share (2010-2013).
Wells Fargo sees downward pressure on Apple's margins in the near future, and has given the company's stock a "market perform" rating.
Um believes those phases are now in the past, while the industry is now in the midst of driving usage of applications, services, and the so-called "Internet of things." At the moment, companies are focusing on extending their ecosystem to include physical devices, which includes the recent interest in wearable electronics and connected devices.

This is what Um believes is "phase three" of the industry's transition, and he says it's now well underway.

In the near-term, Um believes Apple will join the trend and enter the wearable and connected device markets. He forecasts that devices like a rumored "iWatch" could allow Apple to learn more about its users in helpful ways that would further tie them into the company's ecosystem of devices.

In the current phase, platforms like Android Wear and other wearable devices are already seeking to tie users in to the ecosystem of devices by offering them new and meaningful ways of interacting with technology.




Um's anticipated "phase four" will be to enhance these ecosystems by leveraging "Big Data" collected from users. He sees these efforts being driven by machine learning, or artificial intelligence.

"By combining data points such as age, gender, location, calendar information, behavioral history, or even data mined from e-mails, like travel itineraries (and much more), Apple could effectively become a more proactive personal assistant," Um said. "Hence, the ultimate goal of this phase will be likely to offer a value-add service to not only simplify, but also become a more proactive personal assistant."

During this transition, Um doesn't believe the focus for many companies will yet be monetization. Instead, companies will be focused on making their ecosystem of services and devices more useful.

It's finally in Um's predicted "phase five" that monetization would become the focal point. However, he said companies could find other ways of profiting, and break from traditional monetization models.




One of the "radical" changes to how a company like Apple turns a profit, Um said, could be allowing users to give permission to applications and devices to access their personal data. Apple could then charge for this access and profit from other parties.

"For example, a user can allow a healthcare provider to access iWatch health and exercise data directly in-app to get lower premiums," he said. "In this model, we note that the distribution of 'ads' (or really, value) is driven by the distribution of apps. Hence, Apple's ecosystem provides a powerful distribution platform for companies that may be looking to use their own apps to drive targeted marketing opportunities."

It's in getting to this mythical "phase five" that Um sees hurdles and challenges for Apple. He said on Friday that there are certain changes that the company must implement if it wants to find success, including "improvements on user identification to authenticate data, more sophisticated and back-end data access, deeper analytics platforms, greater ad service capability combined with app creation capability, privacy, and security, to name a few."

Um said he sees "phase five" opening up more market-cap opportunity for Apple, though the interim phases will require "a lot of work" that may not be as profitable. For that reason, he has maintained is "market perform" rating bestowed upon Apple since January.

In the near-term, he's concerned about gross margins for the company's next iPhone, as margins have historically taken a hit with each of Apple's major smartphone redesigns. He also sees limited market capitalization opportunities in its current markets, as well as new areas of expansion such as television and a smart watch.

In its "market perform" rating, Wells Fargo has a projected valuation range for AAPL stock between $505 and $575. The company is currently within that range, trading at around $521 as of Friday morning.
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Comments

  • Reply 1 of 39
    buckalecbuckalec Posts: 192member
    He forgot to include the connected toaster
  • Reply 2 of 39
    hydrogenhydrogen Posts: 219member
    buckalec wrote: »
    He forgot to include the connected toaster


    And the robots, too !
  • Reply 3 of 39
    kent909kent909 Posts: 695member
    Who cares?
  • Reply 4 of 39
    hametahameta Posts: 79member
    [B][SIZE=5][COLOR=blue]Do You Know WHO THE HELL " WELLS FARGO " IS ?[/COLOR][/SIZE][/B]

    [B][SIZE=5][COLOR=#f3f]Wells Fargo, Rio Tinto, Getco ( HIGH FREQUENCY TRADER ), etc. etc. TO NAME A FEW ![/COLOR][/SIZE][/B]


    [B][SIZE=5][COLOR=red]They're ALL BAGMEN OF VILLAIN !!!!!![/COLOR][/SIZE][/B]
  • Reply 5 of 39
    sambirasambira Posts: 90member
    These guys mouths move but all I hear is "blah, blah, blah"
  • Reply 6 of 39
    And he forgot door locks.
  • Reply 7 of 39
    tzterritzterri Posts: 96member
    I want my cats to be connected too.
  • Reply 8 of 39
    jbcarojbcaro Posts: 47member
    Don't forget the connected toilet. If you forgot to flush you can do it from the other room.
  • Reply 9 of 39
    SpamSandwichSpamSandwich Posts: 30,429member
    AI has become quite the mouthpiece for blowhard analysts with lousy track records.

    Their loyalty certainly is certainly not on the side of the readers. If it was (see Philip Elmer de Witt for the difference) stories like this would critically analyze these claims instead of regurgitating them.
  • Reply 10 of 39
    tallest skiltallest skil Posts: 43,399member

    Worst. Best. Television. Icon. Ever.

  • Reply 12 of 39
    512ke512ke Posts: 781member

    Really?  They think somebody is going to make a lot of money selling internet-connected washer/driers?

     

    All the phases are just things we already have with a wifi antenna stuck on them.

     

    I felt this report showed a lack of imagination.  I predict Wells Fargo will be backpedaling frantically as Apple knocks it out of the park not in Phase Five, but over the course of 2014.

  • Reply 13 of 39
    SpamSandwichSpamSandwich Posts: 30,429member
    512ke wrote: »
    Really?  They think somebody is going to make a lot of money selling internet-connected washer/driers?

    All the phases are just things we already have with a wifi antenna stuck on them.

    I felt this report showed a lack of imagination.  I predict Wells Fargo will be backpedaling frantically as Apple knocks it out of the park not in Phase Five, but over the course of 2014.

    They make these phony predictions to influence the direction of the stock. There is no penalty attached to such bloviation.
  • Reply 14 of 39
    MacProMacPro Posts: 17,835member
    And which company has the most successful eco system with the most proven high paying customers in the[S] galaxy[/S] Universe? Oh, wait a minute ... let me think?
  • Reply 15 of 39
    flaneurflaneur Posts: 4,485member
    Um's main point shouldn't go unchallenged. He's suggesting that Apple sell out its users to third parties (excuse me, "provide access") as part of its next critical growth stage. In other words, be like Google.

    Dammit, Um, it's about ethics. Can you try to remember that?
  • Reply 16 of 39
    lkrupplkrupp Posts: 6,530member
    Quote:

    Originally Posted by HAMETA View Post



    Do You Know WHO THE HELL " WELLS FARGO " IS ?



    Wells Fargo, Rio Tinto, Getco ( HIGH FREQUENCY TRADER ), etc. etc. TO NAME A FEW !





    They're ALL BAGMEN OF VILLAIN !!!!!!

     

    Colorful you are.

  • Reply 17 of 39
    asciiascii Posts: 5,941member

    He's brave laying out those phases ahead of time, usually you need an historical perspective to do that kind of thing. He's also going on the assumption that the various tech firms have no better imagination than he does.

  • Reply 19 of 39
    More useless blather from useless Wall Street chuckleheads. These people are clueless on the tech sector. Or any sector for that matter.
  • Reply 20 of 39
    What (his type of) capitalism likes more than anything is gathering rent. Once you own something you can rent out, it's great. You do stuff all and get paid fot it. And it just keeps coming in, nice and steady, predictable, forever.

    That's what this guy is saying. Apple needs to up its subscription models. Product sales are once off, and they can flatline any day. Lock in some nice rent streams. Like selling user data.

    Apple doesn't want to align with the standard capitalist model. So it's going to get blowback like this all the time.
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