• Obtained a massive user-base applying social psychology to grow very quickly (link)
• Embraced Mobile As a Primary Platform (link)
• Targeted Social Advertising and Massive User Engagement (link)

Specifically, they can handle the growth and every move they make is well considered in light of the impact on their user base. They’ve now proven they can monetize their users.

I wrote a previous article about Google’s (GOOG) scalability (link) and how that’s a part of their culture but honestly, I could have applied that same ruler to Facebook as well. For all these reasons, I don’t see Facebook going away anytime soon and I believe these are the reasons why Facebook is surprising the market and has our attention.

An Options Trade Gone Right

In the middle of all the uncertainty of last week, I executed a Facebook option trade that went very well and I wanted to share that with you.

Facebook compared to S&P 500 During Week of August 26, 2013

This trade took place over the three day period from Tuesday to Thursday and happened much quicker than most of my trades.

Tuesday, August 27, 2013 – Bad News

On Tuesday morning, the market gapped down on news of a possible military action by the United States against Syria. I had been looking for another entry point for Facebook after taking profits as I still expected quite a bit of upside with positive results from future earnings. More importantly, I believed that the market was expecting good things as well.

After a review of the Facebook options chain, I selected the Nov $44 Calls and placed a limit order at $2.25. The price at the time was above $2.30 and the price was already well down from where it had been so I felt that was a good entry point.

Later that day the price dropped even more and my order was filled.

Wednesday, August 28, 2013 – Worse News

The S&P 500 had fallen from a high of $1669.51 on Monday to a low of $1627.41 on Wednesday morning. Facebook was significantly down from its Monday levels even though it had gapped up. When I checked the options prices, my Tuesday purchase was showing a loss. My Nov 44 Calls were down to $2.14.

I agonized over my next decision but I decided that if I could get the right price I’d double my position on the Nov 44 Calls. None of my reasons for being bullish had changed and social media tends to increase usage in times of global crisis so I entered a limit order for $2.00 flat on the off chance it would get filled.

Later that morning, my second order filled and I was now all in on my calls at both $2.25 and $2.00 respectively.

Throughout the day on Wednesday, Facebook continued to rally even though the S&P as a whole didn’t.

Thursday, August 29, 2013 – That Was Yesterday and Yesterday’s Gone

A position check on Thursday morning showed that I had a significant profit resulting from a gap up in Facebook’s stock price to $40.89.

Even though the market hadn’t recovered from the news

I had an order set to sell higher but with the current uncertainty I decided I wanted to take my profits and close out my position. I sold all my contracts at $2.59 at a 21.88% profit.

Post-Mortem Analysis

On Friday, Facebook gapped up even higher indicating I could’ve probably gotten a few more points out of my trade but all things considered I’m happy with my exit.

Facebook ended up closing lower returning most of its gains either from profit-taking or continued nervousness by investors. Incidentally, the Facebook Nov 44 Calls are selling for $2.40 as of the time of this article.

Conclusion

Facebook still has a lot of upside in its stock and I will continue to look for entry points to execute trades. I’m hoping for more opportunities in the coming weeks resulting a bit from investor nervousness over tapering but specifically from the potential for a US strike against Syria.

Regardless of what the coming weeks bring, I’m nervous about how investor’s will receive the Facebook earnings in October. Analysts are estimating $0.18 EPS but even with a meet or a slight beat, it seems possible that this has already been priced into the stock. For this reason, I plan on structuring my trades to leverage the anticipated run-up prior to earnings but plan on hedging through the earnings announcement.

I thought quite a bit about this article and nearly decided not to write it, but I’m hoping it will provoke discussions on the company and perhaps generate new trading ideas around this stock. I’m looking forward to your comments and feedback.

Apple’s Performance Not So Sweet

My thesis has been that Apple is changing into a different type of company. What happened last night is strong evidence that I’m right. And I’m sorry about that. I’ve been an Apple user, developer, and investor for nearly three decades. From the day the first Mac launched in 1984 I’ve been on-board. I’ve ridden the roller-coaster and fully enjoyed the ride. But it’s over.

Last night, Apple presented an earnings announcement that had some good news but a significant amount of bad-news for those who still haven’t let go of the dream.

So let’s take a look at what happened.

Cash on the Books

Cash fuels growth. Apple fans have been touting pile of cash that Apple has on hand. For most companies this would be significant. But Apple’s stock isn’t priced on traditional principles. It’s priced on insanely unbelievably amazing products that destroy existing markets and create new markets. But that’s a different company than the Apple that reported earnings last night.

This Apple increased its dividend to $3.05 a share and announced the largest stock buyback in history totaling more than $50 billion.

So I started by saying that cash fuels growth except Apple is spending its excess cash by doing things that mature, stable and low to no-growth big-cap companies do. They cater to investors.

There are a lot of opinions on whether and when companies should pay dividends but in my mind its very simple. A company pays dividends when its exhausted its growth. I invest in dividend stocks in my retirement accounts. For trading, I look for growth stocks. Once in a while, I’ll come across a company that shows signs of being both a growth and an income stock but that’s rare and typically doesn’t last.

Slowing Growth

Apple isn’t growing as fast as it was. You can suggest a lot of reasons for this but the fact is that Apple didn’t function like most companies. It created products that compelled consumers to go and stand in-line and camp out to buy them. Something that usually only happens for rock concerts and movies like Star Wars. I’m not completely sure, but I think I saw Darth Vader standing in line to buy an iPhone 4.

That isn’t happening any more. Net sales are down along with profits and I believe that this is simply the beginning.

It can be argued that the economy is to blame. Poor economic data from china has had massive impact on growth for global companies like Apple.

But there is something more fundamental going on. Apple has always played on its own field. It created markets and then dared others to compete with them. No longer. Now Apple tries to match price and features with other lower-end phones to be competitive. Never, as far as I can remember, all the way back to the famous Apple II have they tried to go head-to-head with low-end products.

It will be a sad day if they ever try to compete with Google (GOOG) Chromebooks. It’s simply not an Apple thing to do. Or at least it wasn’t.

Future Guidance

Tim Cook suggested that exciting products are coming. The problem is that Mr. Cook has a much different idea of exciting than Apple fans have come to expect. These products are expected to be announced in the fall making it a much longer period of time without something insanely great being announced.

On Replacing Tim Cook

There has been speculation that Tim Cook should be held accountable for the poor performance of the Apple stock. That would be both unfair and tragic. Before following up with that idea, you would need to consider who you would find to replace him.

Tim, by any other measure of performance, has done an admirable job. He has made sound management decisions. He knows the company and the market and under any other circumstances this wouldn’t even be a consideration.

But, he is operating under the shadow of the former Apple and a big shadow it is.

Conclusion

So what do you do with Apple as an investor?

I’ve been out of Apple since Steve Job’s health problems started surfacing. I’ve been waiting for it to settle into its new reality but while watching it, I’ve seen something that I haven’t seen in other companies. The Apple user-base just isn’t letting go causing this to be a protracted maturation process. I watched the same thing happen with Microsoft and it didn’t last this long or have anywhere near this amount of associated emotion.

The stock needs to find its new price but this won’t happen if growth continues to slow as I believe it will. The PE is more than acceptable but you need to maintain revenue to support it and they won’t be able to do that without continue to innovate which I believe they cannot do.

I think the other shoe will drop when they announce their “amazing new hardware, software and services” in the fall. If they don’t deliver on that promise in true Apple style, I think the transformation into a “just another tech company” will be accelerated and even the most die-hard Apple believers will have to admit that the show is over.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

In this article, i’d like to present a mostly qualitative argument that without Steve Jobs there is no Apple. Instead you are left with a boring company that hit its maturity prematurely and will be the subject of plenty of debates, internal and external, on how it should be operated. For example, due to its recent momentum from the sales of iPhone and iPad sales, Apple recently (August 2012) hit a market capitalization of $623.5 billion making it the largest company in the world against this measure surpassing Microsoft (MSFT).

I’ll argue that the Apple that everyone knows and loves is a disruptive company that destroyed existing markets and created new markets. And i’ll suggest that Apple today is a sustainable company that is sadly overpriced and will eventually find its level.

On October 5, 2011, Steve Jobs passed away and will be sorely missed. Not only by friends and family but all of the Apple fans who fell in love with the dream. The picture of the future that he painted with his products. Since his passing, Apple has made one misstep after another producing mostly derivative products such as smaller iPads and minor upgrades to the iPhone.

Fans who are still in denial will point to the success of the iPhone 5 and current revenue but to quote Roger Kay of Endpoint Technologies, “Apple can continue to fly along on the fumes of the Steve Jobs-era for quite a while.”

One of the most interesting aspects of the Jobs-effect is how Apple behaved when he was at the helm compared to the other CEOs both during the dark period when Jobs left to create Next Computer and since his passing with Tim Cook as the CEO.

The Decline from 1986 to 1997

After Steve Jobs left Apple as the result of a dispute between him and John Sculley (then CEO of Apple), things changed. For a while, Apple coasted on the success of the Macintosh, a Steve Jobs product, but the success simply couldn’t last without the creative follow-through. For the most part products produced during this time were disasters including the Newton (remember that one?) and Pink; an attempt to upgrade the Mac OS which also failed miserably.

When the board had enough of Gil Amelio’s performance, they got rid of him and put Steve Jobs in-place as the iCEO (interrim CEO). Gil had recently purchased Next Computer and the NextSTEP OS which was to become OS X. Turns out this was the last and the most significant thing he did.

The Golden Years from 1998 to 2011

With the launch of the iMac, the iPod, the iTunes music store, the iPhone and the iPad, Apple stock soared. Even the mistakes were not just forgiven, they were completely dismissed. It seemed to me that Jobs would simply pretend they didn’t happen and we all agreed. The simple truth was that Apple produced amazing products. They were functional, innovative and simply beautiful.

The Two Faces of Apple: Disruptive Apple

Apple computer was a disruptive company under Steve Jobs. They produced new products that created new markets, destroyed the markets for existing products and innovated unlike any company to date.

While the whole personal computer industry in the 80s was disruptive, by the time Steve Jobs left it was starting to become main-stream. Throughout the majority of the 90s, Apple floundered looking for sustainable improvement to existing products and while they tried to launch a disruptive product or two (remember the Newton?) they did it in a timid almost apologetic way. When Jobs returned, the first thing he did was turn the company upside down. He fixed the lagging Macintosh product line with a new OS, new look and feel and that special brand of Steve Jobs “cool” that was missing with Sculley, Spindler and Amelio.

Then he set out to create products and markets that hadn’t been done before, using each one as a stepping stone for the next. No roadmaps existed for this journey.

When Apple created the iPod, nothing like it really existed. We had MP3 players but the iPod wasn’t meant to be an MP3 player. The MP3 player was just another take on the CD and the Cassette player. The only thing that was changed was the medium and the number of supported songs.

The iPod was different. It married the computer and the music player allowing you to manage your music, create playlists and otherwise enhance your experience. Add in the other cool aspects of the iPod Touch for example and now its a game changer.

Then, Jobs completely turned the music business upside down with the iTunes music store. All of a sudden, the CD music industry is in a decline that one company created single-handedly. And before you say anything, I’m intentionally ignoring Napster and some of the other less successful attempts prior to the iPod in this discussion.

So after restructuring the music industry, Apple decides they need to help the convergance of technologies and turn an iPod into an iPhone. This didn’t set well with most of the phone manufacturers which for most companies would have been the end of the project but not for Jobs. He decided that if the phone companies wouldn’t do it, then Apple would build their own phone. In 2007, Apple under Steve Jobs vision, created the smartphone, starting a path that would pretty much make feature phones obsolete and all but destroy Research in Motion (BBRY).

The Two Faces of Apple Computer: Sustainable Apple

For the time that Steve wasn’t at Apple, the company was run in exactly the way you would expect a public company to be run. The performance of existing products was analyzed and the products were enhanced or killed accordingly. New products were determined by committee, risk was estimated and weighted against return and the projects lived or died accordingly.

Tim Cook is very qualified to run a large company. He has the education and the background and has been taught by the best. But he’s missing one thing that makes Apple…well, Apple. He is not disruptive. Tim will do the right thing including pay dividends when investors like David Einhorn demand it.

Tim Cook will take disruptive, market creating, innovative Apple computer and set it on a path towards calmer waters. Tim Cook will turn Apple into a model Clayton Christensen, sustainable tech company.

And thats not a bad thing but the problem with that is the current stock price has a disruptive Steve Jobs valuation. Everyone wanted a part of whatever Steve created next. You won’t get that with Tim Cook. The stock will have to find its new level as the market adjusts to the new personality of Apple computer.

I wanted to see the effect that Steve Jobs had on the stock price both while he was at Apple and during his absences and in the process noticed that the stock price distinctly shows the companies two different personalities.

Steve Jobs’ Apple acts like an innovative company focused on product development and the user experience.

The other Apple caters to investors and fills the product development void with dividends.

Apple Stock Prices from 1980 – 2000

And the market is starting to notice. Jeff Gundlach, CEO of Doubleline Capital, lamented the lack of innovation at the new Apple asking if they were going to release a tutti-frutti iPad in different colors.

Apple Stock Prices from 2009-2013

How To Trade Apple

Apple is the exact opposite of Facebook (FB). Facebook with Zuckerberg at the helm is the company investors love to hate. They don’t want to acknowledge the potential growth, simply because Zuckerberg seems to have taken the place of Bill Gates as the new head of the evil empire. This stock moves like a brick. Even good news is overshadowed by the lackluster presentation of its CEO.

Apple is in a different position. Apple has a cult-ish user-base that absolutely loves the products and to some extent is still in denial. As new derivative products are releases, you will still see pops in the stock price simply because the herds of fans will go stand in lines to be the first to get the new “Mango Orange” mini-ipad.

Wait for these pops and either short-sell the stock or buy puts on the upswing. You can also use these pops to divest of any shares you bought during Apple’s heyday.

We’ll miss you Steve Jobs.

Mark Zuckerberg Introduces Facebook Home

A new phone would have put them in a niche market (Smartphones for avid Social Network Users) with very little justification for most people to buy the phone. A lot of people use Facebook but I’m not convinced they are so obsessed with it that they would buy a phone centered around the site. The new OS approach makes it even more complicated since they have all of the same problems with the added overhead of managing and maintaining yet another version of Android.
So why was Facebook Home the best possible approach?

Click here to read more…

Netflix Qwikster Debacle

Then Netflix sent us the “Dear John” email. They were changing the plan. First, they would raise their rates and reduce their services. We would get less for more. But honestly, that wasn’t the weird part. The strange part was they were trying to split-off and re-brand their DVD service. They would call the DVD service Qwikster and keep the Netflix brand for their streaming service. A user would now have to manage two separate accounts and two different queues for reasons that just didn’t make sense to most subscribers.

Click here to read the full article “Netflix Earnings Play: Is Netflix Acquirable Or Is Icahn Wrong?” …

The practice of reviewing products at a brick and mortar store and then buying the same product online for less is called show-rooming. WhenBorders’ bankruptcy hit the news, I realized that practice was not only a significant factor in the demise of the Borders chain but also the key to a paradigm shift in retail. In fact, this change is coming so quickly that I predict a large number of retailers won’t have a chance to change in time to survive. Darwinian evolution at its most brutal; adapt or die.

Click here to read the entire article…

Due to my past entries in the contest itself, i’m on the mailing list to receive notices and announcements for participants.  As of about 30 minutes ago, I received a general compliance email announcing that some participants have failed to comply with the Netflix Prize rules by creating multiple teams with an identical set of members.  According to the Netflix rules, any participants and all teams to which they belong may be suspended from participation in the contest and may be ineligible for the coveted one million dollar prize.

Sounds fair right?  So here is the rub.   On June 26, 2009 Team “BellKor’s Pragmatic Chaos” reached the 10% improvement over the Cinematch algorithm required to claim the million dollar prize.    According to the rules, once this goal is reached, all teams have 30 days to submit their final results to be considered for the prize.  The clock is ticking and the last day of the contest is July 26, 2009.   But…

BellKor’s Pragmatic Chaos is an amalgam of multiple teams that have collaborated to win the prize.  The current leaderboard for the list looks like someone was playing musical chairs with the team names including things like “Pragmatic Theory”, “BellKor in BigChaos”, “BigChaos”, “BellKor” and so on.

The leading team openly admits that they have collaborated to create a winning algorithm and it may well be that the prestige of beating Cinematch will be sufficient to satisfy their competitive spirits but it sure seems like Netflix is already prepping the world for the announcement that the winning team may be disqualified.

I realize the rules were published years ago and have been very clearly stated but I have to admit, this sure feels like bad sportsmanship to me in a game that Netflix created and could benefit from since, also according to the rules, they own the submissions and the algorithms used to generate them.

After a little research I found Tweetlater and in a short while, I was contributing to the problem myself. I realized that everyone on Twitter must know about Tweetlater and were already using it. Eventually I got to the point that I was only receiving spam for direct messages and many of the tweeps that I followed were just twitterbots. My twitter experience was really suffering. So recently, i’ve started cleaning up my friends list removing bots, blocking spammers, and overall just trying to clean up my account. But I still get the usually inane “OMG, thanks so much for following me! Now go to my blog at http://www.we-can-both-make-so-much-freaking-money-together.com.”

I understand the motivation. For those individuals, Twitter is about networking, keeping in contact with your industry, and ultimately generating business. I don’t fault them for doing it. I do it and most of you do it too. But on the receiving end I still should be able to control it and since most of the automated stuff is not useful to me anyway, I was looking for a way to control it. Thats when I found it. You can opt-out of direct messages from Tweetlater.

Here is how:

1. login to twitter and follow @OptMeOut.
2. wait until you get the email saying @OptMeOut was following you back.
3. send a DM to @OptMeOut with any message you like.
4. now optionally unfollow @OptMeOut so that you won’t appear in the list of @OptMeOut followers.
5. you will receive a confirmation of the fact that you are fully opted out.

Thats it! For the original article on the Tweetlater.com site visit Tweetlater.com/optout.

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