Trip Chowdhry: Apple is doomed

This quirky independent analyst—a ubiquitous presence at developer conferences—sees zero innovation (repeat, zero innovation) at Apple.

From his latest note to subscribers, broken English and eccentric formatting intact:

(-) Apple has been singularly focused on pleasing the Wall Street Analysts by wrongly focusing on optimizing Profitability and ignoring to create the most innovative Products
  • Apple stock trades on a multiple based on product innovation, and not on profitability matrix
  • Apple Product road-map is NULL – Stock multiple contraction will occur
  • Apple has raised the price of iPhones >$1,000, while having zero innovation and zero new capabilities. In doing so, Apple’s customer base has been priced out, 
    • at >$1,000 iPhone, customer expects ground breaking capabilities, which iPhone X has none
    • Apple has taken its customer base for granted, which is a recipe for disaster, and sadly, there is no Steve Jobs this time around to bail out Apple  

(-) iPhone franchise has been around for >10 years, which is a very long time for any electronic device; dynamics will be similar to iPod, iMac and iPad … spiral fatigue sets in

  • Expecting y-y growth in iPhones is fundamentally flawed
  • having iPhone upgrades as investment thesis is fundamentally flawed…not going to work
(-) Apple App Economy thesis is Dead; Ecosystem thesis is also Dead 
  • App Discovery on Apple Store is a perpetual problem for Developers
  • The most revenue generating Apps – Netflix, AirBnB, UBER, LYFT etc pay Zero$ to Apple
    • Question for the investors, where do you see the leverage within Apple AppStore, they cannot even get $0.01 from any of the most revenue generating Apps
  • Apple Ecosystem thesis is Super Dead…
    • Question for the investors, if Apple Ecosystem thesis was alive and well, then why Apple Home Pod has become a royal failure 
    • …why has Apple TV continued to struggle for more than 10 years
    • …why Beats acquisition (a $3.5 Billion) has been a flop 
(-) Apple Software Skills in backend technologies is ZERO; Front-end is FINE; DML (Deep Machine Learning) is ZERO; Developer Ecosystem is Slipping
  • Apple is losing Developers within its Ecosystem to MSFT, AMZN, GOOGL and UBER
  • Developer interest in iOS Hackathons is Dwindling 
  • Apple has very poor lead generation program for Developers; both MSFT and AMZN-AWS has 10x better lead generation program for the Developers
  • The above is secular negative for Apple…
    • Less Developers = Less Developers on Apple Platform = Less Applications = Market share losses
(+) Services Revenue is the only bright spot, but growth may not be durable …we are monitoring the situation
  • The components of Service revenues include: Digital Content and Services, Apple Care, Apple Pay, Licensing and others
    • (+) Digital Content and Services revenues will continue to grow ..
    • (+/_) Apple Care revenues will start Plateauing in the FY3Q’2019 and beyond, as Apple hardware Unit sales continue to show negative y-y growth
    • (-) Apple Pay is struggling because of very poor execution on a very promising opportunity, it should not be a part of any investment thesis  

My take: I usually ignore Trip Chowdhry’s hyperbolic missives, but this one—with its Street-low Apple price target—could cause some trouble. Are there still investors, I wonder, who take him seriously?

See also: How wrong-headed can one Apple analyst be? (From Fortune.com, July 8, 2013)

42 Comments

  1. Robert Harris said:

    Another troll is the way I look at him. Very easy to write this fiction while the market is down. He Wrote nothing while market and Apple were at ATH. How good is an analyst who warns you when you are at a low. This is the problem with all Analysts they take the price down when it’s too late to be of any value. I look at them like a futurist who tells you what is going to happen yesterday

    2
    December 28, 2018
  2. Jonny Tilney said:

    Not just achingly bad analysis, but now Apple needs ‘bailing out’ does it?
    But then if he were saying anything remotely normal we’d never see him on CNBC or anything else..

    1
    December 28, 2018
  3. Dan Scropos said:

    I’ll address his description of HomePod as being a “royal failure.” Here we go:

    “It’s probably fair to say that Apple’s first-generation HomePod didn’t exactly revolutionize the smart-speaker industry, which is already dominated by heavyweights like Amazon and Google,” Ashraf Eassa writes for The Motley Fool. “In fact, according to Strategy Analytics, HomePod ‘did not feature in the top-five ranking by shipments’ during the second quarter of 2018.”

    “That might lead you to think that the HomePod is something of a dud, right? Well, not so fast,” Eassa writes. “Strategy Analytics also says that HomePod ‘did top the market value rankings with 16% share of wholesale revenues.’ HomePod also apparently nabbed ‘a [dominant] 70% share of the small but growing [$200-plus] premium price band.””

    “In other words, Apple’s HomePod has captured a significant chunk of industry-wide smart speaker revenues and has a very high share in the market for high-priced smart speakers (Apple’s HomePod sells for $349),” Eassa writes. “The HomePod story is far from written yet, and I look forward to seeing how both the product and its performance in the marketplace evolve over time.”

    1
    December 28, 2018
    • S Lawton said:

      “Strategy Analytics also says that HomePod ‘did top the market value rankings with 16% share of wholesale revenues.’
      Not hard to do when it costs quite a bit more than the other smart speakers which is fine if all you want to do is listen to music. Note that is revenue on the speaker itself, not all the ancillary products that are also bought to work with them such as plugs, lights, security cameras…

      0
      December 28, 2018
      • Dan Scropos said:

        Apple skates to where the puck is going. Once the world tires of cheap, throw-away devices priced under $80, they’ll once again dominate the high-end segment. You know, the place where all the profits are. They already command 70% of the market, and that’s with the pilot iteration. I’d call that a solid success.

        0
        December 28, 2018
        • S Lawton said:

          70℅ of what market? Smartphones? OK That is Apples major focus. For how many of its competitors is that their main focus?

          0
          December 28, 2018
          • Dan Scropos said:

            70% of the smart speaker market over $200. Like all other Apple products, I see HomePod as something that will be enjoyed far longer than the low quality segment that is currently the fad. Apple has proven once again that it can get woke to spend money on high quality products. When tasked with the same, Amazon and Google cannot.

            0
            December 28, 2018
            • S Lawton said:

              Do you consider Sonos and Bose low quality?

              0
              December 28, 2018
  4. Robert Paul Leitao said:

    I watch Apple very carefully and having been doing so now for 25 years. I don’t know much about Mr. Chowdhry but do know he has been persistently negative on Apple. He has his own perspective. Perspectives are fine, but perspectives are not facts.

    I challenge anyone to find any documented and meaningful facts in this opinion-laden missive. Bear markets bring out fear and fear is a commodity that sells in a broad market sell-off. If few people give his comments credence in a bull market, why all of a sudden would his opinions have greater value in a bear market? It’s not his perspectives that have value. It’s fear that give his perspectives the appearance of value in a market down turn.

    2
    December 28, 2018
    • Mark Visnic said:

      Robert –

      I agree that Mr. Chowdhry’s analysis invites deep skepticism.

      Is there any truth to this point?

      The most revenue generating Apps – Netflix, AirBnB, UBER, LYFT etc pay Zero$ to Apple

      0
      December 28, 2018
      • Dan Scropos said:

        I found this article snippet from August if this year:

        TechCrunch says that it has confirmed with Netflix that the company is currently running a test in a large number of countries.

        TechCrunch has learned and confirmed that Netflix, in its own words, is “testing the iTunes payment method” in 33 countries. More specifically, Netflix is testing how to bypass iTunes. Until September 30, new or lapsed subscribers in selected markets across Europe, Latin America and Asia will be unable pay using iTunes. They are instead getting redirected to the mobile web version to log payment details directly with Netflix […]

        The full list of countries where the billing test is running is as follows: Argentina, Australia, Austria, Belgium, Brazil, Canada, Colombia, Croatia, Czech Republic, Denmark, Ecuador, Finland, France, Germany, Great Britain, Hungary, India, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, Norway, Peru, Philippines, Poland, Slovakia, South Africa, Spain, Sweden, Taiwan and Thailand.
        Apple currently receives 30% of first-year Netflix subscriptions through the app, and 15% from the second year on. The loss of that income could be significant.

        Apple and subscription-based services like Netflix and Spotify have long been frenemies – the App Store providing a source of new customers, but taking a significant cut in return. Apple switched from a flat rate 30% commission to one of 30% in year 1 and 15% in year 2 onward in an attempt to reduce tensions.

        If Netflix declares the test a success, and switches off iTunes billing altogether, it won’t be the first company to decide it can survive without in-app purchases. Amazon famously doesn’t allow books to be purchased through its Kindle apps on iPhone and iPad precisely to avoid the need to give Apple a cut.

        0
        December 28, 2018
        • Aaron Belich said:

          I have never subscribed to Netflix via iTunes, I imagine most long term Netflix users are in the same boat. That Apple has been getting any revenue from Netflix is a bonus… oh wait, we watch on our phones, iPads, and Apple TV. I suppose those don’t have any tie ins to other revenue driving devices, apps, or services.

          As a subscriber to Netflix, Amazon, and HBO, I have never bought so much digital content as now. I believe I’ve purchased over 100 titles in the last 12 months alone. Anecdotal, but I can’t imagine I’m the only one.

          1
          December 28, 2018
      • Robert Paul Leitao said:

        Mark:

        AT&T doesn’t pay Apple when I make a phone call either. But that doesn’t diminish the value of Apple’s eco-system or the iPhone in my pocket. It’s not Apple’s intent to create a toll road. It is Apple’s intent to deliver rich and robust services to consumers.

        Services attachment remains low yet Services revenue is growing at double-digit rates. Apple does receive a portion of the revenue from subscriptions I purchase through the App Store along with the full revenue from services I acquire from the company including AppleCare, Apple Music and iCloud storage. If I contract for a content subscription through the App Store, Apple does receive a portion of that subscription revenue. Consumers are also free to contract for services outside of the App Store. I don’t see a reason for Apple to force customers to purchase content services only through Apple.

        I do use Apple Pay where I can and will acquire subscriptions through the App Store for one very good reason – security. I’ve had multiple exposures to data breaches and more than a few rounds of being issued new credit cards because of a retailer’s weakness on security. There have been no security issues yet in which my Apple ID or the payment method linked to my Apple ID have been compromised.

        1
        December 28, 2018
        • Mark Visnic said:

          Thanks Robert. I get and agree with the value proposition in Apple’s business model.

          Why wouldn’t Apple get a percentage of the revenue from Uber, Lyft and Netflix if the iOS app for those services is the vehicle through which the Netflix content subscription is purchased and the Lyft and Uber ride services are paid?

          I do recall the Amazon and Netflix efforts to keep purchases from being transacted on iOS apps but to the extent consumers do purchase Netflix content through the app, is Apple getting shut out?

          0
          December 28, 2018
          • Gregg Thurman said:

            While it is prudent to monitor Apple’s revenue streams, I don’t think Netflix working to avoid Apple fees is worrisome. You partner where/when you can and for as long as it makes sense. Netflix (and others) believe they have come the the end of the “makes sense” period.

            Apple’s move into content creation, if successful, will more than cover lost revenue from subscription firms like Netflix.

            That said I’m going to cancel my Apple Music subscription. iTunes has lost my iCloud music library and it’s “curated” Christmas music was geared to rap loving millennials (I’m 72). Tried Pandora on my sister’s (Apple product user and AAPL investor) suggestion and found it easier to use than Apple Music, with the music I want to hear. There is a bigger threat to Apple than Netflix leaving the App Store.

            0
            December 28, 2018
            • Mark Visnic said:

              Try “essential Christmas” before you go. I think it will work for you.

              1
              December 28, 2018
            • George Ewonus said:

              Hi Gregg. Enjoyed the comment. I’m only 70 but I found Apple’s curated Christmas lists to be suited to my tastes, which don’t happen to include Rap. A while back Pandora was light years ahead of Apple in curation but over the years Apple has closed the gap and in my opinion has now surpassed Pandora.

              0
              December 28, 2018
        • Mark Visnic said:

          Robert,

          I’ve learned that Netflix recently made this statement with respect to App Store purchases:

          We no longer support iTunes as a method of payment for new members. Existing members who currently use iTunes as a method of payment can continue to do so.
          Apple is a valued partner with whom we work closely to deliver great entertainment to members around the world across a range of devices including the iPhone and Apple TV.

          All existing Netflix subscribers using iTunes to pay can continue to do so.

          0
          December 30, 2018
  5. S Lawton said:

    70% of the market over 200 and exactly who would those be? Meanwhile the under $200 can do much more than Homewood including audio and visual. They are the gateway. Something Apple promised years ago and failed to deliver significantly.

    0
    December 28, 2018
  6. Ralph McDarmont said:

    Trip has been an idiot for a very long time. Consistently and maliciously wrong about Apple. Readers and investors here can easily pick him apart but why bother. Time for lunch.

    3
    December 28, 2018
    • Dan Scropos said:

      Folks, he has a rich history of terrible calls.

      2015–Happy Anniversary Trip Chowdhry… or something like that. Last year — March 20, 2014 to be exact — Mr. Chowdhry, then a managing director at Global Equities Research, was quoted providing perhaps the worst analyst call on Apple (NASDAQ:AAPL) ever.

      In a CNBC article entitled, “Time is ticking for Apple to announce an iWatch, say analysts,” he was quoted as saying:

      They only have 60 days left to either come up with something or they will disappear. It will take years for Apple’s $130 billion in cash to vanish, but it will become an irrelevant company … it will become a zombie, if they don’t come up with an iWatch.

      One year later, Apple still hasn’t released its watch — it will unveil the product next month — but still exists, and is firing on all cylinders. At the end of the quarter in which Mr. Chowdhry proclaimed Apple’s demise, Apple had $145 billion in cash; that number increased to $178 billion in the last reported quarter — far from vanishing. The stock is up 70% since his prediction.

      1
      December 28, 2018
  7. Michael Gabrys said:

    Communication style and intent aside, I believe a lot of Trips points are valid business concerns and many are worth having discussions on individually. It’s always good to keep an open mind. Who thought AAPL was going under $150 in October?

    0
    December 29, 2018
    • Kirk Burgess said:

      I’m curious to know which points you think are valid? Everything in that note I thought was mindless drivel, but it’s possible I missed something.

      0
      December 29, 2018
  8. Kirk Burgess said:

    LOL – what a buffoon. Even blatantly contradicts himself in the same note, unless he is so clueless he doesn’t realise App Store revenue is a considerable chunk of Services revenue.

    0
    December 29, 2018

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