Probably Apple will become the world’s first trillion-dollar company this year

During the dot-com-crazed 1990s, Cisco Systems became the world’s most valuable company. By many it was expected to become the first company to hit a trillion-dollar market value, it made it barely halfway there. When the technology sector peaked in March 2000, Cisco had a capitalisation close to $US550 billion.

From those glory days, the entire technology sector imploded. Cisco fared even worse than the Nasdaq, losing 87 per cent from its zenith to its nadir. Today, some 18 years later, Cisco is worth about $US221 billion ($277.7 billion); its average annual compounded returns from those lofty heights is a negative minus 2.17 per cent per year, including reinvested dividends.

The world, it seems, would have to wait a while for its first true trillion-dollar market capitalisation company.

I was discussing this with a friend earlier this week. Apple is inching toward that trillion-dollar mark (its valuation hovers around $US900 billion). Prior to the recent 12 per cent market swoon, Apple had been trading at an all-time high of $US180.10 per share. As of this week, it eclipsed that, recovering all of that February drawdown.

The trend suggests that sometime this year, Apple will become America’s first trillion-dollar company. What will drive the move to a trillion dollars?

Consider these four factors as key to Apple’s continued upward momentum:

1. Share repurchases: Since 2012, when management first announced its intentions to do big share buybacks, Apple has shrunk its outstanding publicly traded shares considerably. As of 2013, there were 6.6 billion shares available to the public. Today, that count stands at a little over 5.07 billion shares – a 23.2 per cent reduction.

Apple’s board of directors had most recently authorised a $US210 billion share-repurchase program that is expected to be completed by March 2019, according to Apple investor relations. That was before the very corporate friendly 2017 tax reform bill was passed. One would expect that bill will encourage even more share repurchases. We should not be surprised to see a 10 or even 20 per cent share count reduction over the next five years.

What is the effect of reducing share count? It makes the earnings of each share greater proportionately. At the same price, higher earnings equal a lower price-to-earnings ratio, and the company appears cheaper. This could have the impact of enticing value buyers, including…

2. Warren Buffett: The famous value investor has been notoriously tech averse throughout his career. His recent announcement that he is out of IBM and into Apple in a big way surprised a few people.

SANTA MONICA, CA – SEPTEMBER 6: Amazon CEO Jeff Bezos unveils new Kindle reading devices at a press conference on September 6, 2012 in Santa Monica, California. Amazon unveiled the Kindle Paperwhite and the Kindle Fire HD in 7 and 8.9-inch sizes. (Photo by David McNew/Getty Images)

Buffett said Apple is now Berkshire Hathaway’s second biggest holding (after troubled serial fraudster Wells Fargo); Apple was the stock Buffett’s investment firm bought the most of in 2017. Although he claims he still has confidence in Wells Fargo, he cut his stake last year; don’t be surprised to see Berkshire’s Wells holdings get further reduced.

Buffett’s loyal devotees often follow his lead, and are likely to add Apple to their portfolio of value stocks.

3. Index buyers: The past decade has seen indexing go from a modest niche to one of the most popular styles of investing. The explosive gains in assets under management for Vanguard ($US5 trillion) and Blackrock ($US6 trillion) attest to the power of passive investing.

Apple is the biggest company in the Standard & Poor 500, the Nasdaq 100 and the Dow Jones Industrial average — three of the best-known, most-followed indices. As such it captures the flow into index holdings, whenever markets rise. Apple accounts for almost 4 per cent of the S&P 500 (its market cap is about $US23 trillion); 4.9 per cent of the price-weighted Dow; and over a whopping 11 per cent of the Nasdaq 100 ($US7.85 trillion).

4. New products: A slew of new and upgraded products are in the making. These usually direct the next cycle in Apple’s revenue, profits and ultimately price. New services, iPhones, AirPods, wireless chargers, over-the-ear headphones and home devices could be the spark that adds the next $US100 billion in market cap.

I know, there are skeptics. There has been lots of skepticism about Apple for literally decades. The Mac site Daring Fireball has kept a running list of “claim chowder” — all of the bad reviews of iPhones, iPads, Apple Watches, etc. that (incorrectly) forecasted disastrous sales. I see no reason this time is any different.

What factors could derail seeing a huge T in Apple’s market capitalisation? Two quickly to mind:

The market not falling in line: We tend to forget that the overall market and a company’s sector are responsible for about two-thirds of its gains. If tech falls out of favour, or if the overall market rolls over, it will put a trillion dollars out of reach for Apple.

Apple comes in second: The most likely challenger in the race to a trillion would be Jeff Bezos and Amazon.com. It has a market cap of $US732 billion dollars — and an infinitely higher valuation — so it has a tougher road to travel. But I would not put anything past Bezos & Co., and it would not be the first time they saw a 35 per cent gain in a year.

Cisco jinx be damned, I predict a better than 40 per cent chance that Apple’s trillion-dollar valuation will occur this year.2018.

Bloomberg

www.money-au.com

Henry Sapiecha

Google loses crown to Amazon as world’s most valuable brand.Yes or No..? Junk bonds for Amazon or not?

The most valuable brand in the world is no longer Google, with Amazon taking top spot in a long-running global ranking of the top companies.

The global search giant fell to third place in 2018 on the Brand Finance Global 500 report, despite increasing its brand value by more than $US11 billion ($13.7 billion), leaving it tens of billions of dollars behind retail giant Amazon and tech company Apple.

Apple increased its brand value by almost $US40 billion over the year to $US146 billion and Amazon jumped about 40 per cent to a $US151 billion ($187.5 billion) value.

Amazon, which launched in Australia in December, has been given the permission of stakeholders to “extend relentlessly into new sectors and geographies”, Brand Finance chief executive David Haigh said.

This is the first year since the study began in 2007 that all top five companies have been in the technology sector. The ranking estimates the net economic benefit the company owner would achieve by licensing its brand.

Ranking Brand value ($US million)
Amazon 1 150,811
Apple 2 146,311
Google 3 120,911
Samsung 4 92,289
Facebook 5 89,684
AT&T 6 82,422
Microsoft 7 81,163
Verizon 8 62,826
Walmart 9 61,480
ICBC 10 59,189
Source: Brand Finance Global 500, 2018

Korean brand Samsung, one of only two non-American companies in the top 10, increased its ranking from sixth to fourth. Facebook rounded out the top five.

In Australia, the top brand name was telecommunications company Telstra, despite the company experiencing a significant drop in market value over the year.

Australia’s 10 most valuable brands

TelstraCommonwealth BankANZWoolworthsColesNABWestpacBHPOptusRio Tinto0200040006000800010000120001400016000($ millions)
Source: Brand Finance Australia 100

This is the third year Telstra has been ranked first, now 120th globally, after a 13.6 per cent increase in brand value.With a brand worth $US12.4 billion ($15.4 billion) Telstra has a $US4 billion lead over Commonwealth Bank and ANZ in second and third spots.

Media and chief marketing officer for the 100-year-old telco brand Joe Pollard said the company was pleased with the result.

“Everything we do has a direct impact on the way our customers experience modern life”, she said.

She flagged customer service as an area at the top of its list for future improvements.

Telstra’s brand is worth more than four times that of its nearest competitor Optus, which maintained its ranking at ninth place with a $4.91 billion brand value up from $4.1 billion in 2017.

Australia’s top 10 brands included a mixture of telcos, banks, mining companies and the big two retailers – Coles and Woolworths.

Prior to 2015, Woolworths was in top spot.

Brand Finance Australia managing director Mark Crowe said the two “exceptional performers” were Qantas and Harvey Norman – both ranked top for brand strength, despite lower rankings for overall brand value.

Brand strength is a measure of how much the brand contributes to the overall revenue for the business.

The “strongest” Australian brand, based on marketing investment and stakeholder equity, was the Commonwealth Bank.

Amazon and Google have been contacted for comment.

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Henry Sapiecha

 

Almost unknown start-up Meituan Dianping smashed into a $30 billion valuation

China’s Meituan Dianping just became the world’s fourth-most valuable start-up, reaching a $US30 billion ($38 billion) valuation that puts it ahead of high-fliers like Airbnb and Space X.

Never heard of Meituan? You’re not alone. The Beijing-based company, led by Wang Xing, is almost unknown beyond its home country. It delivers food to people’s homes, sells groceries and movie tickets, provides reviews of restaurants, and markets discounts to consumers who buy in groups. It’s a sort of mashup of Groupon, Yelp, Foodpanda and Uber Eats.

Meituan’s appeal for investors is its dominant position in a market of more than a billion people. It was formed through the 2015 merger of Meituan.com and Dianping.com, creating the leading player for internet-based services ordered via smartphone apps. It raised $4 billion in the latest round from Tencent Holdings, Sequoia Capital and US travel giant Priceline Group.

“It’s a quasi-monopoly built on the stomachs of 1.4 billion people,” said Keith Pogson, global assurance leader for banking and capital markets in Hong Kong at consultant EY.

Flipping smart $4 billion funding round by Meituan

Wang started Meituan.com in 2010 as a group-buying site similar to Groupon, where people can get discounts by buying electronics or restaurant meals together. Dianping was founded in 2003 in Shanghai with reviews of restaurants and other local businesses, then diversified into group discounts. The companies were valued at $US15 billion when they merged two years ago.

Meituan Dianping delivers food to peoples homes

www.foodpassions.net

The combined companies have far surpassed their US peers. Chicago-based Groupon, once a sensation in the US, has dropped to a market value of less than $US3 billion. Yelp, based in San Francisco, has tumbled from its peak in 2014 to $US3.6 billion.

Meituan Dianping has expanded well beyond its original businesses. With a few taps to navigate its smartphone apps, Chinese customers can order hot meals, groceries, massages, haircuts and manicures at home or in the office. One popular service offers the ability to have your car washed while you’re at work and it’s parked on the street – the service sends a photo to your phone to verify the job. Meituan says it now has 280 million annual active users and works with 5 million merchants.

The offerings, collectively known as online-to-offline or O2O services, may ultimately prove more successful in China than in the US. Labor costs are lower in China, cities are more densely populated and there are more people. The country’s O2O market surged 72 per cent to 762 billion yuan ($US115 billion) last year, according to estimates from consultant IResearch.

“China’s market is big enough for a company this size,” said Wang Ling, an analyst with IResearch. “After years of consolidation, Meituan is one of the few contenders in areas with gigantic revenue.”

Meituan is facing increasingly stiff competition from China’s technology giants and their proxies. In particular, Alibaba Group Holding has backed a rival service called Ele.me, which recently acquired Baidu’s business, Waimai. Alibaba, Tencent’s primary rival, is boosting its investment to bankroll expansions into more cities and businesses.

“Meituan faces so many competitors because of its wide range of business,” said Cao Lei, director of the China E-Commerce Research Centre in Hangzhou. “Lifestyle e-commerce, which includes online travel and dining reservations, is one of the fastest growing sectors in the country.”

Travel is becoming the latest competitive ground. With the recent fundraising, Meituan plans to spend hundreds of millions of dollars over the next three to five years to become a leading travel booking site. It’s also exploring opportunities to collaborate with Priceline as part of the investment. That may present a challenge to China’s biggest online travel site, Ctrip.com International, which is backed by Baidu. Ctrip shares fell 8.2 per cent in US trading.

It’s a quasi-monopoly built on the stomachs of 1.4 billion people.

 

China’s tech titans take their battle to a new frontier

In the latest funding, Meituan also received money from Canada Pension Plan Investment Board, Trustbridge Partners, Tiger Global Management, Coatue Management and the Singaporean sovereign wealth fund GIC. Meituan said it would use the cash to expand in artificial intelligence and drone-delivery technology.

Meituan is one of the new generation of Chinese technology companies that has rapidly gained popularity thanks to the rise of smartphones. Where Baidu, Alibaba and Tencent have come to be collectively known as BAT, new media upstart Jinri Toutiao, Meituan Dianping and ride-sharing king Didi Chuxing have now earned their own acronym: TMD.

The $30 billion financing ranks the company fourth in the world in start-up valuations, according to CB Insights. The first three are Uber Technologies, Didi and Chinese smartphone maker Xiaomi Corp.

EY’s Pogson however cautioned that valuations in China may be getting a bit overheated. Shares of private companies like Meituan and Uber aren’t traded in liquid markets every day, so valuations change only rarely and typically go up. In addition, many of the fundraisings in China and the US are done with ratchets, or protections so that investors get compensation if the valuations fall later on.

“You have to take these numbers with a grain of salt,” he says.

Bloomberg L.P.

Henry Sapiecha

Warren Buffett’s Berkshire invests $US1 billion in the Apple group.

Warren Buffett’s Berkshire Hathaway Inc on Monday revealed a new stake in Apple Inc, in a bet that the stock’s price could rebound after iPhone sales fell for the first time.

Berkshire held 9.81 million Apple shares worth $US1.07 billion ($1.47 billion) as of March 31, according to a regulatory filing detailing most stock holdings of Buffett’s Omaha, Nebraska-based conglomerate.

It is unclear whether the Apple investment was made by Buffett or by one of his portfolio managers, Todd Combs and Ted Weschler, who each invest about $US9 billion.

apple corp building logo image www.profitcentre.net

Apple shares look ‘stunningly cheap’: Wallman Investment Counsel founder Steve Wallman.

Buffett typically makes Berkshire’s multibillion-dollar investments, while Combs and Weschler make smaller wagers.

The investment deepens Berkshire’s commitment to the technology sector, which Buffett has largely shunned apart from a big stake in International Business Machines Corp, which grew slightly in the first quarter.

Apple last month reported its first quarterly decline in revenue in 13 years as an increasingly saturated market hurt iPhone sales.

apple share chart image www.profitcentre.net

Apple shares have taken a beating over the past month.

Chief Executive Tim Cook is looking to develop other technologies, and last week unveiled a $1 billion investment in Chinese ride-hailing service Didi Chuxing.

Shares of Apple have fallen by nearly one-third since April 2015. They were up $US2.13, or 2.4 percent, at $US92.65 in Monday morning trading, likely because of Berkshire’s imprimatur.

“The stock is stunningly cheap, and it has a massive pile of cash,” said Steve Wallman, founder of Wallman Investment Counsel in Middleton, Wisconsin, who has owned Berkshire since 1982 and Apple since 2003. “Apple is not getting credit for research and development it is doing behind the scenes, which will eventually show up in new products.”

An Apple spokeswoman did not immediately respond to requests for comment.

Despite his aversion to technology sector, Buffett told CNBC on Monday, he offered to help Dan Gilbert, the chairman of Quicken Loans and owner of the Cleveland Cavaliers basketball team, finance a bid for Internet company Yahoo Inc.

Reuters first reported Buffett’s support on Friday.

The Apple investment may have been made with proceeds from the sale of AT&T Inc stock, as Berkshire exited what had been a $US1.6 billion stake in the quarter.

Berkshire’s investment also puts it at odds with investors that have retrenched from Apple.

Last month, billionaire activist investor Carl Icahn said he sold his entire Apple stake, on concern that China could make it harder for the company to do business there.

David Tepper’s Appaloosa LP also shed his Apple stake in the first quarter, while Ray Dalio’s Bridgewater Associates cut its investment by two-thirds.

In Monday’s filing, Berkshire also reported higher stakes in Bank of New York Mellon Corp, Deere & Co and Visa Inc, and lower stakes in MasterCard Inc and Wal-Mart Stores Inc.

Reuters

SMS

Henry Sapiecha

While share markets panic, this Japanese day trader makes $48 million while in his pyjamas

Day trader CIS IMAGE www.profitcentre.com

Day trader CIS. He likes to stay anonymous as he’s worried about robbery or extortion. Photo: Shiho Fukada/Bloomberg

While investors around the world were hitting the panic button during the global share sell-off on Monday, a Japanese day trader who’d made a big bet against the market timed the bottom almost perfectly.

Giving a play-by-play of the trade to his 40,000 Twitter followers, he claims to have walked away with $US34 million ($48 million).

As financial markets got crazy this week, many people turned cautious. Some were paralysed. Not the 36-year-old day trader known by the Internet handle CIS.

“I do my best work when other people are panicking,” he said in an interview Tuesday, about an hour after winding up the biggest trade of a long career betting on stocks. He asked that his real name not be used because he’s worried about robbery or extortion. To support his claims, he shared online brokerage statements showing his trades second by second.

CIS had been shorting futures on the Nikkei 225 Stock Average since mid-August, wagering it would fall. By the market close on Monday, a paper profit of $US13 million was staring him in the face. He kept building the position. When he cashed out late that night, a collapse in New York had caused his profit to double.

Instead of celebrating, he kept trading. He started betting the market had bottomed. When he finally took his winnings off the table on Tuesday, he tweeted, “That’s the end of my epic rebound trade.” His profit, he said, had almost tripled.

“It was a perfect trade,” said Naoki Murakami, who follows CIS on Twitter and whose markets blog has made him a minor celebrity in his own right.

Trash talking

Last year, when he was the subject of this profile story, CIS said that in a decade of day trading, mostly from a spare bedroom in a rented apartment, he had amassed a fortune of about $US150 million. At the time, he shared tax returns and brokerage statements to back up his claims. One document showed he had traded $US14 billion worth of Japanese equities in 2013 — about half of 1 per cent of all the share transactions done by individuals on the Tokyo Stock Exchange that year.

CIS became a cult figure among Japan’s tight-knit community of day traders by trash talking on internet message boards early in his career.

He’s notorious for lines like “Not even Goldman Sachs can beat me in a trade.” Last year he opened a Twitter account, on which he talks about video games and, regularly, his trading. It’s impossible to say how many of his followers are also day traders, and how many of those buy and sell in his wake. Those who do, of course, are quite possibly helping him make money.

Playing poker

During this week’s interview at a Tokyo coffee shop, where he had agreed to talk before continuing on to a poker game with buddies, he explained his recent trades step by step. Dressed in a plain gray T-shirt with a flannel shirt tied around his waist, he was monitoring a brokerage account on his iPad and had a $US1600 burgundy under one arm, a 2003 Domaine de la Romanee- Conti. (It wasn’t a celebratory bottle, he said; he drinks a lot of good wine.)

“Of course I’m happy about today, but you win some and you lose a lot, too,” he said, explaining the Greek financial crisis had cost him about $US6 million.

CIS said he has no idea whether or not China is going to drag down the global economy. He doesn’t even care. When he trades, he tracks volumes and price moves to follow the momentum. For him the basic rule is: “Buy stocks that are being bought, and sell stocks that are being sold.”

Latest trade

The latest trade began on August 12, when CIS noticed a shift in equity markets he hadn’t seen for a while. Shares in the major indexes were struggling to recover from sell-offs. He started shorting Nikkei futures: 200 contracts the first day and another 1300 over the following week and a half.

The stakes were enormous. With 1500 contracts at a notional value of about $US160,000 each, his bet against the Nikkei was about $US240 million. For every 100 yen move in the index, he stood to make or lose $US1.25 million.

The market was mostly flat over the next few days; CIS bided his time playing video games. Then last Friday, August 21, the Nikkei dipped. On Monday, the index plunged the most in two years, and the futures fell more than 1000 points to 18,410. By the close at 3 pm in Tokyo, his profit stood at about $US13 million.

Feedback loop

This is the point where most traders would take their money off the table and call it a year. Not CIS.

“I’m adding to my position,” he wrote on Twitter. “Then I’m going to go for a walk and prayer.”

He sold 100 more futures contracts. Two hours later, he sold another 100. His bet against the Nikkei had risen to about $US275 million. He would lose $US1.4 million for every 100-yen increase in the index.

His logic for hanging on to the trade until the US open, at 10:30 pm Tokyo time, was this: Panic would grip American investors returning from a weekend after they saw the scope of Asian selling, including Shanghai’s 8.5 per cent plunge. That would trigger selling, which, in a feedback loop, would pull Nikkei 225 futures down violently amid the thin volume of late- night trading.

“I figured there would be a lot of fear around the US open and that’s what I was aiming for,” he said.

On cue, the Dow Jones Industrial Average fell more than 6 per cent in early trading. Nikkei futures tumbled again, dipping 1250 yen below the 3 pm closing level. CIS, home in his pyjamas, finally cashed out his short position. His profit had hit $US27 million.

‘Too delicious

There was still more money to be made from the panic though. Some investors that night were willing to pay a hefty premium for options that protected against the Nikkei crashing below 10,500. That would be a collapse of almost 40 per cent. In CIS’s view, these investors were looking to buy insurance against a near impossibility.

He was happy to take the other side of that trade. The contracts were worth another $US250,000 to him. He made the first deal within 10 seconds of what would prove to be the market’s bottom at 10:34 pm.

“Too delicious,” he tweeted.

About an hour later, as he became more confident in a rebound, he started buying Nikkei futures. Now the play was the opposite of the short bet he’d started the day with. By 1 o’clock Tuesday morning, he’d accumulated 970 contracts, a $US145 million wager that the market would start to climb.

He made one more trade before bed: a few more option contracts sold to straggling panickers. Those were worth $US6,250. By now, at 1:40 am, he was a rich man stooping to pick up pennies.

He dashed off a last tweet at 2 am. “What a day. Still holding on to all my buys,” he wrote. “Time to sleep.”

The rebound trade

CIS returned to Twitter five hours later. Nikkei futures opened at about 18,000 and slowly recovered. Early that afternoon, he closed out his long position.

At the coffee shop later that day, CIS was pretty nonchalant for man who had made tens of millions of dollars in less than 24 hours. For him, it was just one trade out of thousands he would make this year.

“When a trade goes right I feel like bragging a little, but I don’t get on Twitter to talk about it if I lose,” he said with a laugh.

Bloomberg News

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Henry Sapiecha