TRADE: Long AAPL vs. Short AMZN
I have had this trade on for a short while, but today looks like it may be a breakout day for this trade. Although I am basically weighted 1:1 on this trade, I think it is probably better to short less AMZN as the key bet is on the music segment (also AMZN is more volatile).
PREMISE:
Who hasn't heard of the iPod? The initial buzz created by the ad campaign is now becoming increasingly self-sustaining as the Internet is creating momentum for the buzz. I don't claim to be a Buffett-style investor (certainly he would never invest in such a high P/E stock), but he did stress the importance of brand. The replacement costs for creating a competing brand are tremendous. Just ask Sony.
iTunes is actually more potent than iPod because it is a new media delivery mechanism for the Internet that ranks higher than Wal-Mart or Amazon in satisfaction IMHO. Instant gratification is the name of the game here, and iTunes delivers this better than any Internet mechanism I know.
On the flip side, Amazon is running dry of ideas. Bezos talks about how customer satisfaction is job one (what CEO doesn't say that?), and how word of mouth advertisement is more potent than any ad campaign (thereby justifying his policy of not advertising on tv and passing on "savings" through free shipping). Certainly true, but maybe it also suggests that Amazon's business is cutting so thin that it can't afford to advertise or maybe it has nothing new to advertise.
Also ominous was its recent dour guidance. In terms of sales, it clumps music sales into the media category. This seems to be a new label as it no longer talks specifically about music, books, & dvds. Media represents 2/3 of their sales. So, the surge in iPod sales cannot be good for the music category. There is no clarity on just how these music sales are doing. Amazon is famous for obfuscation. My guess is that media sales will start to slump mysteriously and that Amazon knows this is in the pipeline which is why it is issuing cautionary statements.
Amazon is offering free music downloads. However, these seem to be offerings from amateurs. They have seen that Walmart.com is not making headway against iTunes, so certainly throwing money at a strategy when they are already behind MSFT, Wal-Mart, RealNetworks, Sony, etc., will probably be interpreted as a sign of weakness, not strength.
My guess is that the trade should play itself out by the Christmas season. Also, back to school sales has not yet peaked. If you get on board the trade today, there should still be plenty of juice.
Stick with the leader.
I have had this trade on for a short while, but today looks like it may be a breakout day for this trade. Although I am basically weighted 1:1 on this trade, I think it is probably better to short less AMZN as the key bet is on the music segment (also AMZN is more volatile).
PREMISE:
Who hasn't heard of the iPod? The initial buzz created by the ad campaign is now becoming increasingly self-sustaining as the Internet is creating momentum for the buzz. I don't claim to be a Buffett-style investor (certainly he would never invest in such a high P/E stock), but he did stress the importance of brand. The replacement costs for creating a competing brand are tremendous. Just ask Sony.
iTunes is actually more potent than iPod because it is a new media delivery mechanism for the Internet that ranks higher than Wal-Mart or Amazon in satisfaction IMHO. Instant gratification is the name of the game here, and iTunes delivers this better than any Internet mechanism I know.
On the flip side, Amazon is running dry of ideas. Bezos talks about how customer satisfaction is job one (what CEO doesn't say that?), and how word of mouth advertisement is more potent than any ad campaign (thereby justifying his policy of not advertising on tv and passing on "savings" through free shipping). Certainly true, but maybe it also suggests that Amazon's business is cutting so thin that it can't afford to advertise or maybe it has nothing new to advertise.
Also ominous was its recent dour guidance. In terms of sales, it clumps music sales into the media category. This seems to be a new label as it no longer talks specifically about music, books, & dvds. Media represents 2/3 of their sales. So, the surge in iPod sales cannot be good for the music category. There is no clarity on just how these music sales are doing. Amazon is famous for obfuscation. My guess is that media sales will start to slump mysteriously and that Amazon knows this is in the pipeline which is why it is issuing cautionary statements.
Amazon is offering free music downloads. However, these seem to be offerings from amateurs. They have seen that Walmart.com is not making headway against iTunes, so certainly throwing money at a strategy when they are already behind MSFT, Wal-Mart, RealNetworks, Sony, etc., will probably be interpreted as a sign of weakness, not strength.
My guess is that the trade should play itself out by the Christmas season. Also, back to school sales has not yet peaked. If you get on board the trade today, there should still be plenty of juice.
Stick with the leader.
posted by Johnny @ 1:29 PM
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