Gene Munster: Apple and Amazon are safe havens

From note to Loup Ventures subscribers posted Friday:

People are upset that FB abused their trust, although it doesn’t seem that users are upset about social media in aggregate… Apple and Amazon are relative safe havens.

  • We expect over the next year investors will look favorably on Apple given the company’s privacy-first ethos in an age where privacy is becoming a more prevalent topic.
  • Amazon will also likely benefit from the Facebook blowback given Amazon relies less on data to run its business than ad-focused companies.
  • The biggest risk to Facebook is attrition and, to a lesser, extent regulation.

Apple’s privacy ethos.  Tim Cook has made privacy a religion at Apple. It impacts everything from secrecy around new products to Apple Pay‘s anonymous transaction framework. In fact, Apple has a section on its website that outlines all of the ways Apple protects user privacy across all of the ways one uses their devices…

Amazon is service-first. Amazon’s focus is on delighting the customer through the services they provide. While Amazon does sell targeted ad space on their website, the “Other” revenue segment, which mostly constitutes advertising revenue, was less than 3% of total revenue in the Dec-17 quarter ($1.7B out of $60.5B). Advertising has never been a focus of the company, and it’s inconceivable they would abandon their current core businesses to pivot to an ad-first model that leaves them exposed to the risks we’ve highlighted in this note.

My take: I’m skeptical about this talk of positive blowback for Apple and Amazon. I suspect a lot of the anger at Facebook is a proxy for anger about the results of the 2016 election.

11 Comments

  1. John Butt said:
    I agree with you PED. Follow the money leads you very quickly to the money spent on winning the election. Quite clearly Facebook left the door open too long, but they closed it over 2 years ago. CA may have been “Nasty” but they were just classical sellers of a service, one that many marketers have offered for years, but in a more simply way – Focus groups then targetted marketing based on the results.
    The primary driver of the behaviour was the purchaser of the activity – whoever that was – GOP? Trump people? Russia? Anarchists? Who knows yet.

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    March 23, 2018
  2. Michael Thompson said:
    How exactly is Amazon with a PE over 300, a safe haven? Amazon earned $3 billion in net income in 2017. Apple will earn more than $60 billion in net income in 2018. Amazon will NEVER earn $60 billion in one year in its entire future.

    To discuss Apple and Amazon like they’re similar companies is a joke. One is a financial behemoth and the other will see its stock price decline by 70-90% in the future, never to return to these ridiculous levels again.

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    March 24, 2018
  3. George Providakes said:
    This too shall pass like gun safety. The perceived value of Facebook to users and the very low expectations people have on privacy make this an unlikely target for serious regulation. If the horrendous and much more serious information leaks from Credit Services, Stores, and even the Government has resulted in effectively no action it is hard to imagine much happening to Facebook.

    Regarding influencing elections, I remain skeptical that for all practical purposes the efforts only reinforce or vindicate existing narratives and beliefs. In fact, it is unlikely that the advocates and audience of these false stories really care about truth, merely reinforcing views that matter.

    So with the sole exception of the EU, I do not see any significant action and in the case of the EU is supported by legal institutional views on privacy as well as most companies affected are American and are targeted for a host of reasons by EU.

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    March 24, 2018
    • Jonathan Mackenzie said:
      What we have learned about psychology tells us that people are always more confident in their ability to resist suggestion than they actually are. We naturally think we are in control of our decisions but experiment after experiment suggests that these decisions are vulnerable to influence in many subconscious ways.

      Regarding voters, I agree that you won’t change people’s minds very much. But that’s not what you need to do. All you need to do is make an impact on the edge. You may enjoy popcorn and you may have money to buy popcorn. An advertiser can’t do much about those factors. But motivating you to actually buy popcorn is another matter. In a close election all it would take is for some would be voters to be fired up enough to go to the polls (or for other would be voters to be turned off enough to stay home). And subconscious prodding into action is where advertising works its mojo.

      We all like to think we do the things we do for rational reason which are under our control, but if advertising didn’t work, companies would not spend billions of dollars each year doing it. The reality is that we respond emotionally to the world around us and these emotions can be tweaked in very subtle ways by the advertising we are exposed to.

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      March 24, 2018
      • David Emery said:
        Is there any actual research on how (in)effective these targeted ads were in changing (political) opinions?

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        March 24, 2018
        • Jonathan Mackenzie said:
          It would be hard to do that research. In the first place its effectiveness (if it has any effectiveness) is mostly in terms of motivating people to vote rather than changing their opinion. Voting is more than having an opinion, it’s actually taking the time to go to the polls. These targeted ads try to either fire up people to get them excited or angry enough to go vote or else get them so discouraged or disgusted that they choose not to vote.

          But the second reason it would be hard to prove the effectiveness of these ads is that most people don’t know the specific reasons they choose to vote or not vote. Very few people would be able to say, “I saw the ads about how Hillary Clinton was involved in a child sex ring at a pizza parlor and that made me angry enough to go vote for Trump.” Its very hard to establish control groups for any solid social science.

          But it is clear that some folks in Russia thought a psy-ops campaign was worth the effort. Maybe it wasn’t effective. Maybe it didn’t degrade the quality of our social discourse or amplify existing schisms in our society. Maybe it’s a coincidence that these operations took place while we’re living in the most polarized political environment in 50 years. And I mean that sincerely. Correlation is not causation. Maybe our current political discourse would be just as shrill without any help from Facebook and Russia.

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          March 24, 2018
          • Jonathan Mackenzie said:
            I did find this current article on the subject of micro-targeting and the answer it provides is “maybe yes, maybe no.” This is the same answer that applies to the more general question of whether political advertising works at all in any form.

            https://mashable.com/2018/03/24/how-microtargeted-ads-affect-behavior/#nnlR7nOCOqqr

            I was a political science major many years ago and was dismayed at how little science there is to any of it. Social science is already soft enough. And since voting is done so rarely compared to other activities (like shopping) it presents a special challenge. Studying voter behavior and trying to extract solid provable facts about why people voted the way they did is pretty much impossible.

            It is commonly believed that advertising works and that targeted advertising works as least as well. But there are lots of studies that suggest people are not affected by political ads. The important point to me is that in a close election something can be only marginally effective and still have an impact on the outcome.

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            March 24, 2018
  4. Tommo_UK said:
    Amazon uses people like Soylent Green. Apple doesn’t.

    Amazon deserves the same scrutiny as Facebook for it reprehensible data harvesting and abuse tactics. Apple has for the entirety of its existence cherished privacy and actively promoted it.

    Finally if there’s a down market, does anyone really think a stock with a PE of almost 300 is going to survive without at LEAST a 50% cut? Apple may get dragged down, but considering when you account for the cash it’s trading at a fPE of about 10, AAPL is the only stock I would put money on. Apple thrived in the last recession, and it’ll thrive in the next one because it products are both a necessity, affordable, and many are now available on a subscription model – whether hardware or services- protecting it against falling incomes or unemployment.

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    March 24, 2018
    • Jonathan Mackenzie said:
      Both AAPL and AMZN could drop 50% in a market downturn. But I’d bet dollars to navy beans that AAPL would be more likely to recover.

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      March 24, 2018
      • Tommo_UK said:
        AAPL wouldn’t drop 50%… probably a maximum of 30%. AMZN I’d put at 70% downside, but it would take awhile… drip drip to death, taking the indices down with it along with the other overpriced unicorn behemoths like Netflix.
        You’re dead right about AAPL recovering first. It would lead the market back.

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        March 24, 2018
        • Jonathan Mackenzie said:
          AAPL has fallen to a sub 10 PE on severe pullbacks. I wouldn’t bet a million dollars that it couldn’t happen again. I think AAPL could easily go as low as 90 in a panicked market where everything is falling sharply.

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          March 24, 2018

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