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The Folly Of Stand-Pat Apple

Feb 21 2014, 12:32am CST | by

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The Folly Of Stand-Pat Apple
 
 

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The Folly Of Stand-Pat Apple

The speed and size of Facebook ’s (FB) move to buy WhatsApp for $19 billion has sent shock waves through the entire tech landscape.

You can’t say that Mark Zuckerberg isn’t willing to look himself in the mirror and admit his mistakes.

Photo-sharing app Instagram was exploding and becoming the way to share photos with your friends. He bought them.

WhatsApp has emerged as a huge messaging platform especially popular in North America and overseas geographies. It actually surpassed Facebook in photo sharing by a mile. Now it’s part of Facebook.  WhatsApp also helps Facebook tap into the intense interest of a lot of people to stay private, rather than publicly share their lives.

And Mark Zuckerberg was willing to do whatever it took to keep these hugely popular services out of the hands of his rival.

Twitter (TWTR) wanted to buy Instagram back in 2012. Jack Dorsey thought he had an in by knowing Kevin Systrom so well.  But Facebook was a month away from IPO’ing and Twitter wasn’t.  Facebook had more cash and more valuable (and soon to be liquid stock).  Facebook was able to pay $1 billion in cash and stock. Twitter wasn’t. Done deal.

Now Facebook’s stock is riding high, running close to $200 billion even though it was a third of that not too long ago.  So Zuckerberg is spending $4 billion in cash and the rest in its own stock to do this deal.  You can say the stock is inflated or not. It doesn’t matter.  Mark Zuckerberg is using all the assets that the world has given him.

Contrast this approach with Apple (AAPL) and Tim Cook.

Apple is a universally respected product-centric company.  It has a culture of building rather than buying.  It is plodding.  It doesn’t rush around to keep up with the Joneses.  It sets the pace.  It has kept its eye on its North Star and it’s made it the most valuable company in the world.

The satisfied Apple bulls say this is enough.  They say patience is a good thing.  They say Apple always has a plan.

You don’t think they have phones with big enough screens?  Well, it’s complicated. So, wait for three years and they’ll get around to it.

You say they should have a TV?  They’re working on it.

If things have always worked out for a company like Apple with this deliberate approach – and all its executive team has matured in their careers within this fishbowl – why would you question it?  Apple can just keep on keeping on.

Why spend part of that $158 billion in cash on acquisitions?  Why give others our stock too as part of an acquisition deal?  We’ve never had to do it before.  Why should we start now?

I have a simple question: how would Mark Zuckerberg or someone like Elon Musk run Apple?

I think it’s pretty clear both would probably not spend a dime on stock buybacks.

Think of this for a second: Apple spent $14 billion on its own stock a few weeks ago and now the stock is lower from where it was after they announced it proudly.  Facebook spent $16 billion on WhatsApp (before RSUs).  Which company spent its money more wisely for the long-term health of the business?

I also think Zuckerberg or Musk as Apple CEO would be highly acquisitive and not be afraid to use Apple’s stock to do deals.

While it’s true that Facebook’s current market leadership in social networking might be more fragile than Apple’s in phones and tablets, it’s hard to argue that every niche in the mobile world isn’t itself incredibly competitive.

It’s also clear that Apple has lots of weak areas that it should be more aggressive in filling in: cloud services (it would nice for iMessage not to go down), web/app services (hello Ping and MobileMe), adding key mobile apps beyond things like iPhoto and iMovie, and maybe even turning its back on the whole walled garden approach with iCloud and iMessage by acquiring a leading cloud company like DropBox and messaging app to open it beyond Apple users.

There’s also been the recent blocking and tackling problems of getting iOS 7 itself to run smoothly (which supposedly will get fixed in the upcoming 7.1 software update).

The bottom line is I think Zuckerberg or Musk (or pick another young entrepreneur like a David Sacks) would have no hesitation to use Apple’s cash and stock to make it a much better company.  Zuckerberg just spent $4 billion of the $11.4 billion on his company’s balance sheet on this WhatsApp deal.  To spend the same percentage of his cash on hand, Tim Cook would have to go out and spend $56 billion of his $159 billion.

What’s a quick way Apple could deploy $50 billion in cash?  Well, they could pay $400/share to take out Tesla (TSLA) and make an audacious huge play for the Internet-connected car, as well as snagging Musk into the fold in one fell swoop.  Expensive? Of course. But it would be audacious. It would cause people to catch their breaths, just like we did in hearing the WhatsApp news yesterday.  More importantly, it would be known by everyone in the Valley and around the world that Apple was back, baby.

Seriously, what good is that cash if you don’t put it to work in a – dare I say – magical way?

For the longest time, I’ve sat back nodding in quiet agreement with the Apple bulls who say: “We need to have faith in Tim Cook even though he’s been so reluctant to do any M&A because we don’t know what Apple is working on in its labs.”

No longer.  Apple needs to start playing offense.

Apple needs to start picking off strategic assets as if their life depends on it, rather than continuing on with a plodding attitude that doesn’t match the speed of their competitive environment.

It’s time for Apple to get aggressive.

[No positions]

Source: Forbes

 

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