A modest stock sell-off greeted long-sidelined CEO Steve Jobs' reappearance on Sept. 9, but investors say Apple provided reasons to keep buying
Judging by the response of some Apple (AAPL) fans, the company's Sept. 9 digital music event in San Francisco was disappointing. There was no tablet computer, no Beatles catalog on iTunes. Even audience whoops and hollers were held to a minimum. The stock? It slumped about 1% after rallying in the runup to the event.
Yet investors say Apple shares will soon resume their climb as the company's other announcements—which include new iPods and iTunes software—keep shoppers returning to its stores, help Apple sell more music and applications for iPods, and create more PC-to-Mac converts. It didn't hurt that Apple's highly regarded CEO Steve Jobs made his first appearance at a public company event in almost a year.
Wall Street analysts foresee more gains following the stock's 52-week-high closing price of 172.93 on Sept. 8. "We still think Apple is one of the best ways to play the convergence of media and technology," says Shaw Wu, an analyst at Kaufman Brothers, who has a buy rating on Apple shares. Shares of Apple slipped 1.79, to 171.14, on Sept. 9.
A highlight of the event was the appearance by Jobs. True to form, he created compelling theater, addressing the audience of Apple employees, journalists, bloggers, and software developers in highly personal terms. At the event's outset, he strode wordlessly on stage—a statement in itself, given his absence from the proscenium—and silently took in a standing ovation from the throng. "Some investors just wanted to see that he was back," says Bill Fearnley Jr., managing director of FTN Equity Capital, who has a buy rating on Apple.
Apple's Stock Doubled Without Jobs
The CEO looked gaunt and his voice was a bit weak at the outset. It gained strength as he spoke and he appeared energetic and enthusiastic about his return to the company in June. Jobs, who has battled pancreatic cancer, had a liver transplant earlier this year. "I now have the liver of a mid-20s person who died in a car crash," said Jobs, who urged audience members to become organ donors, too. "I'm back at Apple, loving every day of it," he said. Jobs thanked COO Tim Cook and other executives for running the company "very ably" in his absence.
The company's performance during that period assuaged many investors' concerns about Apple's ability to manage without Jobs. "The stock wouldn't be here at 171 today if there was concern about a management transition," Wu says. Apple's shares were parked between 80 and 100 between November 2008 and March 2009 amid economic weakness, as some shareholders wondered how the company would fare should Jobs need to permanently step down. The stock has rebounded, doubling as the economy revived and fears about Apple's management ebbed. "Over the last six months, investors have become a lot more comfortable with the thought of a post-Jobs Apple," says Bill Kreher, a senior technology analyst at Edward Jones, who rates Apple stock a buy. Adds Kreher: "But if you can go with or without a genius of his type, most people would prefer to have him around."
Jobs and Apple marketing head Phil Schiller used the forum, which featured a performance by Norah Jones, to talk up the company's iPod business, which has been sagging. Sales of iPods fell 7% in the company's fiscal third quarter, which ended in June.
iPod Nano Challenges Cisco's Flip
Apple cut the price of its most sophisticated iPod, the Touch, to $199 for a model with 8GB of storage, a "magic price point" for expanding the market, Schiller said. Models of the Touch with 32GB and 64GB of storage will sell for $299 and $399, respectively. The move also prices the cheapest iPod Touch at parity with Microsoft's (MSFT) new Zune HD player, although that device has become an also-ran, says FTN analyst Fearnley. "Nobody's afraid of the Zune anymore," he says.
The iPod Classic, aimed at consumers with jumbo-size music collections, got a boost in storage capacity to 160GB, enough to hold 40,000 songs; it still sells for $249 but has 40GB more storage. Apple also built a video camera and microphone into a new iPod Nano, challenging Cisco Systems' (CSCO) popular Flip recorder as the device of choice for YouTube (GOOG) aficionados.
Apple unveiled a new version of iTunes and an "iTunes LP" album format that includes liner notes, photos, and video interviews with artists. "Some of us here are old enough that we actually bought LPs," Jobs said on stage. "It was great." But much of the world's album art and essays "left when we went to CDs," and more so in the transition to digital music, he said.
Apple Goal: "Facilitate Transactions"
iTunes LP is an attempt to sell a greater number of albums by making them more visually attractive, and Apple is supplying artists and record labels with software tools to design digital albums in the format. For example, the Grateful Dead's American Beauty album on iTunes now includes photos and a chronology of Dead albums. The iTunes LP version of The Doors' self-titled debut album includes exclusive video interviews with Doors organist Ray Manzarek, including one that Apple showed in which Manzarek reminisces about meeting Jim Morrison.
Though iPod sales are declining, Apple is trying to increase revenue from each device sold by making it easier to manage applications, buy albums, and play games on the devices. "Point after point hammered home that Apple wants to facilitate transactions," says Ross Rubin, an analyst at market researcher NPD Group. The spruced-up music players could also increase traffic in Apple stores this fall and convince more consumers to replace their cell phones and PCs with iPhones and Macs, analysts said.
Inevitably, some holdout fans were disappointed that the company didn't announce a tablet computer, reportedly in development, or bring The Beatles' catalog to iTunes on the same day as the release of The Beatles: Rock Band video game and a set of remastered CDs. "There's so much anticipation and hope" for a big surprise at each Apple event, says Edward Jones analyst Kreher.
Yet the return of Apple's impresario and a solid set of portable products for the holiday sales season have inspired plenty of other reasons for optimism.