Quote:
Originally Posted by Rustjive
Been thinking about this idea for a while, just can't think of a pair to make it market neutral, although it is paired against a few things. I haven't pulled the trigger on it because I'm uncertain as to how the general market will perform on a 1 to 3 month timeline, so w/o a good pair it's still just an idea.
The long half of it is AAPL. The idea is the tablet. This is nothing that most people haven't thought about and is nothing special from an investment idea POV. I do think it will overperform relative to the median expectation, but a lot of variables up in the air.
The short side of it is AMZN, which is also sort of obvious (but will elaborate), and BKS.
This isn't really an e-reader play, although obviously it's a part of it. I'll break it down as such:
AAPL:
1. Strategically the tablet is stronger than most analysts realize. Apple has long contended that they cannot and will not make a sub-1k computer, because 'they don't know how to make a good one at that price'. That's horse**** - their margins are higher than everyone else in the industry, and their prices reflect Apple's hope that the public considers Macs a luxury good. Although recently the Oppenheimer guy has come out and predicted that the tablet will be @ a $1k price point, I disagree (although I don't have any specific info) because:
- at that price point they constrain themselves for upgrades
- they won't be able to occupy that sweet spot for people who want more fully featured netbooks, a market that Apple said they weren't all that interested in, yet they watched helplessly as tons of these things were turned into functional Hackintoshes
- won't be able to compete directly w/ the Kindle DX
2. Competing with the Kindle DX is an under-discussed advantage of the prospective tablet. The DX was aimed at textbooks and students, priced at $489, but it's failed woefully in that regard. Students hated it in pilot programs at Princeton, moaning about the difficulty of note-taking, among other things. A capacitive touchscreen is built for note-taking, especially if it accommodates a stylus. Apple already has built in marketing for the tablet through Apple Stores on a huge # of campuses around the country. These will give discounts to students to make the tablet even more price competitive w/ the Kindle, while still allowing the Apple to set the list price where they want to.
3. Even before announcing anything solid re: the hardware or software OR distribution terms, publishers are bending over backwards in anticipation for the tablet. This speaks volumes about the distribution power of iTunes as a platform, but it also sheds a bit of insight into how dissatisfied publishers are w/ Amazon's terms.
AMZN:
1. First and foremost, this is here because I can't think of a great pair. It seems like it's a natural pair because of the e-reader aspect, but AMZN is a retailer that happens to be a tech company, and they're likely crushing B&M retailers for the holiday season.
2. Kindle DX blows. As discussed above.
3. The terms AMZN gives to publishers is a 50/50 split for non exclusive books, and 30/70 (Amazon/publisher) for exclusives. Apple is apparently proposing 30/70 for non-exclusives. That gap is going to narrow in a hurry or Amazon is going to see its catalog shrink.
BKS:
1. The real loser in all of this. Nothing against the Nook, or books in general, but if Kindle DX is the first target for the tablet then textbooks are the target. BKS is a big player in the college bookstore market (around 30% of BKS revenue), where a significant portion of revenues is from huge markups in used textbooks. Cover the iTunes eBooks in DRM and this market shrinks significantly. New textbook revenue will also shrink.
2. eBooks have been around for a while, and BKS has done semi-okay over this period, but they've never been distributed by a content platform like iTunes.
Book publishers are probably going to take it in the ass too, but they have been for a while and now they might finally be able to make it up in terms of units sold, despite prices getting crushed.
maybe more later
Whoops, didn't think that BKS might be a PARTNER.
With today's rumor that BKS is the partner, I'm glad I didn't pull the trigger on this. With AAPL doing okay and AMZN likely to take it in the butt a bit, and BKS up today, it would've been 'a wash' with long AAPL, short AMZN, short BKS - except for the fact that my likely position sizing would've resulted in me getting killed.
Last edited by Rustjive; 01-26-2010 at 12:09 PM.
