Today is the day where many citizens in states across the country set off to the voting booth. Baring some form of miracle, Donald Trump or Hillary Clinton will become the 44th President of the United States of America. For this moment I'll be setting ALL political thoughts aside, save for one: Which President elect's tax plan would benefit Apple the most?
Trump's offshore tax policy states it will reduce the Federal repatriation tax to 10%. Tim Cook, when testifying before Congress in 2013, believed a fair tax rate would be around 26% (state and fed total), which is typically Apple's domestic tax rate in any given quarter. If Trump became President and was able to pass a 10% repatriation tax rate, Apple would likely move most, if not all, of their offshore holdings back to the US. This past summer the European Union (EU) pushed into Ireland's banking laws, demanding Apple pay the EU $14.5 billion in taxes. Trump's policy would likely motivate Apple all the more to move their holdings back into the states and out of other countries, where Apple's cash is vulnerable to swiftly changing perceptons and laws.
Forget what side of politics you play on. I am tossing my views aside for this article, just laying out the “logic” cards. Apple is supporting the Hillary Clinton campaign, and even more so Tim Cook. If you thought Apple’s best interests would be to support Trump, who talks about fighting tough on trade imbalance, or better tax rates, there is a lot more to it than that.
First and perhaps foremost is viewing how Cook separates Apple’s needs and wants with his own personal politics. Cook is involved in LGBT politics, and Apple is squarely in support of many LGBT ideals. But many shareholders wonder what this has to do with company profits? And which Presidential candidate should Apple support for maximum financial gains? But maybe Cook and many others on Apple’s board think beyond financial goals with their politics, but there are a few items we can clearly understand (well, as best we can in this crazy Presidential race).
It is an old debate, but one worth revisiting at Apple. Does hiring the best employees result in becoming politically incorrect? And if so, will Apple sacrifice political expediency for the best employees? It does not necessarily have to be a false argument, as Apple could, theoretically achieve both, which is what Apple appears to be striving for.
Market dynamics dictate that companies should hire the best employees it can, in order to maintain and achieve a competitive edge over its competition. If a company hired a majority of Japanese, Russians, Hindus, or Latinos, it makes no difference to the corporation, so long as those people are most qualified to do the job. However, in today’s society, if a company practices such policies — hiring the best of the best — and the results of those hired does not match the race or gender (and perhaps soon religious) demographics of the country, these companies are increasingly coming under political fire that the company may be racist or bigoted. Apple is in such a position of prominence, it is rapidly becoming a target for such scrutiny.
Stocks across the globe have been on a recent downward slide. China twice devaluated their currency last week, hitting companies like Apple hard with worries their products would no long be affordable to the Chinese consumer. This morning the DOW Industrial Average started with a 1,000 point plunge, and AAPL sank to $94.05 a share at the opening bell, leading the massive fear-based sell off. Then Apple CEO, Tim Cook, did something unheard of for the Cupertino-based company.
Cook emailed CNBC's Jim Cramer stating the following: “Jim, As you know we don't give mid-quarter updates and we rarely comment on moves in Apple stock. But I know your question is on the minds of many investors.”
Vacationing across Australia and Indonesia, a young surfer found himself struggling to figure out how to take decent selfie of himself while on his board. Taking a 35mm camera and strapping it onto his hand – via a rubber band no less – he quickly discovered that quality and practicality was lacking, but the idea merited exploring. Nick Woodman had given birth to GoPro.
Vans to trade shows, and hard work to hustle, GoPro started going viral, finding a market replacing the point and shoot camera. Smartphones, lead by Apple's camera quality, were absorbing the pocket camera market. Canon and Nikon countered, pushing higher-end pro-sumer and HDSLR cameras. GoPro had found a solid and vacant space, going public in June of 2014. Would GoPro strike Wall Street gold as it had the quality selfie video market? On day one, GoPro closed over $31 a share. Fast forward to today and GPRO continues its meteoric climb, now over $62 a share on swelling sales. Where will it end? Perhaps in Cupertino.
You can forget yesterday’s record shattering numbers Apple CEO, Tim Cook, proudly revealed for Apple’s 3rd quarter of 2015. Ignore the fact that iPhone sales grew 35% year-over-year, or that Apple now has over $200 billion in cash for the first time in history. This is all irrelevant. None of this matters. Why? Because analysts guessed that Apple would sell between 50 - 55 million iPhones in the quarter, when in reality Apple only sold a record breaking 47.53 million iPhones. Apple did not achieve the conjured up sales figures the “experts” spewed forth, and therefore the result was Apple’s stock price must be punished. No offense to the political naive who do not understand history, but in the investment world, this makes about as much sense as, say, cutting a nuclear deal with Iran trusting they will do the right thing. The sad reality is, this vapid illogic is how the stock market largely operates each and every day. Companies stocks rise when they beat the expert guesstimates. Stocks prices fall when companies do not meet the expert expectations. It does not matter how the company actually preformed. It is all about the experts guessing game. Reason and logic need not apply.
Financial reports and comments on them are one thing, but getting those little morsels of coded information from Tim Cook or Luca Maestri are quite another. Today at 2:00 p.m. Pacific Time, Apple will be holding their Q3 2015 financial conference call with a host of financial analysts and investment researchers. Apple's financial statement, released at roughly 1:10 p.m. Pacific, should be fairly pedestrian. Financial analysts are anticipating 50-55 million iPhones sold, earnings at the higher end of Apple’s revenue guidance of $48 billion, all while keeping a keen eye for any Apple Watch sales information. But beyond the expected is where questions from the likes of Piper Jaffray's Gene Munster or UBS’s Steve Milunovich come forth precious nuggets of Apple’s future.
There are three major areas of commentary I'm looking for during the Q3 call. The first is HomeKit. It was a no-show at Apple’s Worldwide Developers Conference in June. The likely reason for the omission was due to the second area of interest, Apple TV. Both topics go hand-in-hand, as it is highly rumored that the next generation Apple TV will be, amongst other things, Apple’s home automation hub, requiring HomeKit specific tools. Cook will be asked about Apple TV. The question is, will he deliver any hints as to what may be coming, or how current Apple TV sales have been since the $30 price drop earlier in the year (now only $69)?
Apple’s stock has been stuck at the $120-130/share range for the past several months. It’s peak was $134.45 back in February. But since that time the stock has been relatively flat when compared to the previous year of continual growth.
If you've ever wondered how Apple stacks up financially in relation to software giant Microsoft, perhaps your perspective should be flipped. It is Microsoft that must be viewed in relation to Apple’s success. During the last quarter Apple amassed an additional $32.7 billion in net income and cash, while Microsoft’s total revenue for the quarter stalled at $21.7 billion, up only 6% YOY. This meager growth barely tracks above inflation, and is not keeping pace with internal cost increases. The downward trend for Microsoft came in their net income, which saw a 5% decline in the face of larger revenues, a seriously dangerous equation. Microsoft blamed the strong US dollar for the fall, but Apple had no need for such excuses during their quarterly report. Apple’s YOY revenues grew 27%, while driving larger gross margins and a 30% rise in net income. The two companies couldn't be on more different paths.