I was attracted to Apple because of its brand. Right now, Apple is hot. It’s iPhone is the coolest phone the market. Mac sales are soaring (because Mac is cool). Ipod sales are slowing, but that’s because everyone already owns an iPod. Pretty much anything Apple sells, there’s going to be a demand for the product.
Apple is now trading just shy of $170. It was previously trading at $200 during its October highs, and it may get back up there. With Apple being the hottest brand on the market, who knows how much it will beat Wall Street estimates. Why did I sell then?
Well, quite frankly, it’s because Apple’s brand is hot right now doesn’t mean its brand will continue to be hot in a few years. Right now, everyone needs an iPhone. People who have absolutely no practical reason to shell out $400 for an iPhone are buying them. I use an Iphone and love it. But I run an Internet business, so I have a reason to check my email every 5 minutes. My little sister in college wants an iPhone or at least a blackberry (she was whining at my parents to buy her one). I told them, under no uncertain terms, should they shell out the money for one since she simply does not need it.
Apple had a great quarter because Mac sells soared. Apple’s brand and image led people to want to buy more Macs (my sister in fact begged my parents to buy her a mac). I have a Mac laptop, and it’s ok. But I chose a PC for a dekstop since, pound for pound, PCs are a far better value for the dollar right now (and shit, I’m rich!) People are buying Macs right now because they are cool, not out of any need.
Apple could leverage its brand into more fields and could continue to grow at a rapid pace. Apple TVs? Apple microwaves? Apple cars even!? Who knows. A hot brand sells. But, a hot brand can also cool off. In my opinion, unless Apple expands its product line even more, it’s going to run into growth issues.
Apple’s moat is its brand. A brand can be a great moat, but who knows how long a ‘hot’ brand will stay ‘hot.’ After all, the appeal of Apple’s products is a sort of quality/elitist sense. If everyone has an iPhone, I’m going to want to buy some sort of souped up Blackberry instead.
Disclaimer: Author is a former Apple shareholder at the time of his posting.