It’s not a mystery why Warren Buffett’s Berkshire Hathaway has doubled its stake in Apple and now holds 133 million shares – 2.5 percent of the outstanding stock. At the March 2 closing price of $138.96, that would make Buffett’s Apple stock worth nearly $18.5 billion.
Apple has both an illustrious past and a bright future.
Confounding, though, is why investors fell all over themselves to buy the initial offering of stock in Snap Inc., the parent company of Snapchat.
Analysts said the company was valued at around $29 billion after its first day of trading following the company’s initial public offering. Shares opened at $24 on March 2 and sold for as much as $25.42; the March 1 IPO price was $17.
Why do I find this confusing? Easy. Here’s why: Snap lost $514.6 million in 2016 and $372.9 million in 2015. Lost.
Will Snap’s investors meet the same demise as those who invested early in Twitter? I hope not and certainly they hope not.
Twitter, a comparable social media company, despite being President Donald Trump’s favorite communication vehicle, also loses money and its stock has dropped from $26 a share to $16 share since going public in 2013.
Correct me if I’m wrong, but I do not see an encouraging trend here. Even so, this type of pie-in-the-sky investing where dreams battle reality has been going on forever. In the technology world, it has continued feverishly since the dot.com days. Remember those?
It’s lunacy.
Apple’s iPhone is synonymous with mobile phones. Its name is often used to identify mobile phones made by other companies. This is called being “ubiquitous.”
“Call me on your iPhone,” we say in generalization. “Look it up on your iPhone.”
This reminds us of the days when Xerox was constantly sending out threatening letters pointing out it was a licensed brand and should not be used interchangeably with the verb “to copy.”
“Go Xerox this,” someone in an office might ask of someone when needing a paper copy of a document. This type of statement overlooked that many other companies made machines that produced copies.
Apple and the iPhone and related products such as the MacBook Air, iPad and iPod dominate the industry. Recent reports indicate sales of the iPhone have dropped quarter to quarter.
This might mean the company has begun to saturate the market but it also means there is a substantial base for Apple’s growth as long as the company continues to invent. It has demonstrated great strength in being competitive and inventive.
I switched to Apple products years ago after futilely trying to prove to myself that Apple could not “make” me use all of its wares. Fighting its dominance became counterproductive.
Buffett claims that he has watched his grandchildren and their friends use iPhones (he uses an old-fashioned flip phone, reportedly) and realized the vibrancy and strength of the brand. That proves more astute observation than intuitive genius.
I guess what he has not seen is that his grandchildren and their friends use Snapchat and Instagram more than email, for instance. Even if he did, it’s easy to suspect he would not be fooled by Snapchat’s popularity and utility versus its balance sheet, profit and loss statement, and dismal results.
Apple is profitable. It pays a dividend ($4) and has a vault of cash on hand.
Buffett’s decision is far less genius than common sense.
The Snapchat investors should stock up on Powerball tickets. The chances of success are about the same – with a slight nod to lottery tickets.
Richard Connor is president and publisher of the Fort Worth Business Press. Contact him at rconnor@bizpress.net