Apple embracing its role as maker of 'blockbusters,' not niche products, UBS says

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in AAPL Investors
In the age of the blockbuster, Apple's iOS platform is leading the way far ahead of its competitors, investment firm UBS said in a note to investors on Tuesday.




Inspired by the Anita Elberse book Blockbusters: Hit-making, Risk-taking, and the Big Business of Entertainment, analyst Steven Milunovich compared the record smashing success of the new Star Wars film to Apple's lucrative approach to business.

According to Elberse, who is a Harvard business professor, media companies should build their businesses around tentpole franchises, because in the age of the Internet, consolidation and concentration have grown. She went on to say that Apple's approach to defeating its rivals "looks an awful lot like a blockbuster strategy."

To Milunovich, this makes sense, because the iOS ecosystem is a cohesive platform, making it difficult for other device makers to compete with Apple's level of hardware and software integration.

In addition, Apple executives are aware and acknowledge that their company is dependent on blockbuster hits, Milunovich argued. To him, this was evidenced by the appearance of Apple executives on 60 Minutes Sunday night, offering more insight into how the company operates.

"A higher public profile boosts brand awareness while heightening the mystery around secretive Apple," Milunovich wrote. "It's no longer just the CEO but also designer Jony Ive and retail baroness Angela Ahrendts with whom the public can become familiar. Selling luxury to the masses requires mass appeal."

Milunovich believes Apple's "blockbuster" presentation will continue to work for the company in the long-term, though he did admit he sees tough near-term comparisons for the iPhone 6s product cycle. Still, in his view, Apple is in its "strongest competitive position ever."

UBS has reiterated its "buy" rating for AAPL stock with a price target of $130.

Comments

  • Reply 1 of 15
    So niche products don't work? Disney's $1.3B niche movie "Frozen" suggests otherwise. And NEVER forget Jar Jar Binks...
  • Reply 2 of 15
    lkrupplkrupp Posts: 7,154member
    This is the “pump” part of “pump and dump.”
    fruitstandninjaIanMC2cornchip
  • Reply 3 of 15
    Price target of $130, assigning Apple a FY16 PE of 12.5

    How Bold 
    teejay2012cornchip
  • Reply 4 of 15
    hentaiboy said:
    So niche products don't work? Disney's $1.3B niche movie "Frozen" suggests otherwise. And NEVER forget Jar Jar Binks...
    I'm not sure I understand your point. How is 'Frozen' a niche movie? It was massively advertised, had a huge budget, big stars, and cross-promoted in television shows, songs, and books.

    And I don't understand the reference to Jar Jar. While Star Wars episode I didn't fare well with critics, it made over a billion dollars in ticket sales. If anything, Jar Jar seems to support Elberse's theory – with a giant blockbuster franchise (like Star Wars) even occasional missteps don't blunt its economic potential.
    mwhiteIanMC2
  • Reply 5 of 15
    SoliSoli Posts: 8,966member
    hentaiboy said:
    So niche products don't work? Disney's $1.3B niche movie "Frozen" suggests otherwise. And NEVER forget Jar Jar Binks…
    In that sense, sure, it's niche, but then so is everything else. Even toilet paper isn't used by a huge portion of the world's population, but I don't consider it a niche for the market for which it's meant, nor do I think a Disney movie geared toward kids (often with some material only adults will get) is niche. The number of ticket sales to get that amount of theater revenue as compared to other films shows that it's not at all niche.


    edit: Pipped by afrodri.
    edited December 2015
  • Reply 6 of 15
    irelandireland Posts: 17,616member
    Stop raising the prices of your peripherals then.
    tallest skil
  • Reply 7 of 15
    foggyhillfoggyhill Posts: 4,767member
    hentaiboy said:
    So niche products don't work? Disney's $1.3B niche movie "Frozen" suggests otherwise. And NEVER forget Jar Jar Binks...

    Frozen is a mass market as possible. Man, you don't know what the hell niche is.
    Niche markets often cater to only one specific need of a much broader market.

    Like HD audio streams in the overall streaming market.
    edited December 2015 radarthekat
  • Reply 8 of 15
    ireland said:
    Stop raising the prices of your peripherals then.
    Wasn't aware Apple was raising their prices. 
  • Reply 9 of 15
    It seems that Amazon (AMZN) will soon break 1000 ! A P/E of 1000, that is. It's at 950 and climbing. And its price has doubled since the beginning of the year, while Apple is back where it started. But Apple is making money - lots of it - while Amazon is spending all it makes, and has never promised investors that it will pay a dividend. This doesn't add up.
  • Reply 10 of 15
    afrodri said:
    hentaiboy said:
    So niche products don't work? Disney's $1.3B niche movie "Frozen" suggests otherwise. And NEVER forget Jar Jar Binks...
    I'm not sure I understand your point. How is 'Frozen' a niche movie? It was massively advertised, had a huge budget, big stars, and cross-promoted in television shows, songs, and books.

    And I don't understand the reference to Jar Jar. While Star Wars episode I didn't fare well with critics, it made over a billion dollars in ticket sales. If anything, Jar Jar seems to support Elberse's theory – with a giant blockbuster franchise (like Star Wars) even occasional missteps don't blunt its economic potential.
    I liked "The Phantom Edit" better than the original. The fact that Lucas didn't sue them into dust - whoever they were - suggests that he might not have disagreed with what they did.
  • Reply 11 of 15
    foggyhillfoggyhill Posts: 4,767member
    plovell said:
    It seems that Amazon (AMZN) will soon break 1000 ! A P/E of 1000, that is. It's at 950 and climbing. And its price has doubled since the beginning of the year, while Apple is back where it started. But Apple is making money - lots of it - while Amazon is spending all it makes, and has never promised investors that it will pay a dividend. This doesn't add up.

    Not only that, to make sense by "traditional" means, the amazon PE means they've cornered the whole retail market in all of north America and Europe with nothing left for anyone else... Nothing. But, logic mogic.... Who needs to make sense.

    Considering cloud margins are going down (with competition heating up a lot), this makes even less sense (even if they diversified).

    Entertainment, another area they're going in is not an area of regular big profit. Disney is #1 and they're way down in the list of top companies worldwide.

    Amazon is pure insanity no matter how you look at it.

  • Reply 12 of 15
    "Blockbuster strategy"? Meaningless doublespeak. Apple's massive success has happened incrementally over decades. Successes were built on top of other successes and so on. A "blockbuster strategy" is what movie studios engage in and a lot of times those "strategies" flop.
    palomine
  • Reply 13 of 15
    Except what Wall Street hasn't realized is that Apple has vanquished it's competitors with expertise, ecosystem completion and economies of scale.  For Apple, the door is wide-open at this point & WS can't see it. 
  • Reply 14 of 15
    red oak said:
    Price target of $130, assigning Apple a FY16 PE of 12.5

    How Bold 
    You forgot to account for the cash balance. So, FY16 P/E of 10.5 (give or take).

    Compared to the average S&P P/E of 20 with estimated growth of 3-5%. Given that benchmark, Wall Street has factored in a 10-30% earnings cut for Apple in FY16.

    Possible, I suppose, but $9 EPS/year can buy 9% of the share float per year. Thus, leaving my shares with a larger slice of that earnings pie. 
  • Reply 15 of 15
    steviestevie Posts: 956member
    plovell said:
    It seems that Amazon (AMZN) will soon break 1000 ! A P/E of 1000, that is. It's at 950 and climbing. And its price has doubled since the beginning of the year, while Apple is back where it started. But Apple is making money - lots of it - while Amazon is spending all it makes, and has never promised investors that it will pay a dividend. This doesn't add up.
    Wall street does not understand Apple.  That is why they hate it.
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