As promised in my ill-fated one day short coverage of MOT, I am now covering it long and strong. Barring a market meltdown -- which I will admit is a frightening prospect as we move through this Spring -- I see MOT gaining due to the nearly viral growth of the Droid sales.
The timeframe on this one might be a little aggressive, but that is how we make the big bucks here at PT. Time is money.
My reasoning... first the obvious: Droid is far and away the best phone you can currently get in the Verizon store. Yes, HTC/Google did release the Nexus One on Verizon today, as expected, but I do not see it really taking the VZW stores by storm until Summertime at the earliest, because they'll want to get the most out of their joint Droid marketing campaign. Plus, they need to train their sales geeks to sell it.
Now, on to the obligatory oversimplified yet controversial point. Let's look at some numbers. AAPL is trading at a $208B market cap! More than 1/3 of their net sales come from the iPhone. Their stock is up over 100% in the past year. Guess what else is up almost 100% in that same timeframe? iPhone sales. Nothing else on their 10-Q even approaches it. This is my answer to those who say that MOT is a big company and that one little product cannot affect its market cap. If an additional $3B in iPhone sales can drive AAPL from $100B to $208B in one year, then why can't a very legitimate competitor drive MOT from $17B to $35B? I realize there is a flaw in the timeframe there, but I am trying to be aggressive and I think MOT is undervalued now whereas AAPL was not undervalued a year ago.
Some other objections: the Droid is tied to one network. So what, you've seen the iDon't campaign. It's becoming universally accepted that the VZW network offers better quality than the TDMA/GSM competitors, so I think this actually is a point in favor of Droid. At some point, we'll probably see the descendents of both of these phones lift this limitation anyway.
Yes, Motorola's operating model is quite different than Apple's, so equivalent sales might not affect the stock commensurately. Apple has iTunes, and so on. To whit, you can't compare Apples to... Motorolas. Ha! A pun, who would have expected that in one of my articles? :) Anyway, this is a valid point, but still we are talking about a company with $15B in revenue with a 40% gross margin vs a company with a 30% margin on $5B in revene, so they are not all that dissimilar. In fact, one of the biggest differences I see is in the stock price.
Perhaps the most valid objection is Apple's hegemony in the iPhone market as compared to Droid's position in the Android warehouse. The Nexus One and other upcoming Android phones pose a threat to the Motorola, but we cannot forget that phones like these increase the utility of the Droid as well through network externalities since they all use the same OS. Plus, Droid has the whole name confusion thing going for it. Don't always assume the buyer is fully informed. Mark my word, there are people out there who hear that they need an Android phone, and they buy the Droid because they think it's the same thing. Lots of people. If this weren't true, then do you really think there would be so many iPhone users, when there are myriad other phones on the market that might better suit the needs of said users?
Buy Motorola. I don't know if it will go up 100% in 2 months. I admit am trying to be aggressive to bump my score. But at $7, either it's way underpriced or AAPL is way overpriced, and as of this writing, AAPL keeps going up.