"Buy Low, Sell High" was an industrial era investor expression. Before we shifted into an information economy, investors were admonished to invest along with economic cycles, buying during recessions and selling during booms. In today's information economy, it's not nearly so simple. While growth occurs, companies falter and disappear (Sun Microsystems and Silicon Graphics, for example). Meanwhile, during bad economic periods, there are flourishing growth companies. Company performance today has much more to do with whether the company's products and services are aligned with trends and market shifts created by trends, than the overall economy. When revenues first show signs of faltering, often the company fails completely, unable to react to market shifts. Competitors quickly steal customers, revenue and precious cash flow. Investors frequently have little warning, or time, before company value slides into the oblivion, leaving them with negative returns. So now, it's more important to look at trends to where product and service markets are headed, than overall economic conditions. The economy won't save a company that's against the trend or hurt a company that's delivering the market trend. Yahoo! caught the early trend toward the Internet usage. In the early years, people didn't quite know what to do on the Internet; so content providers, aggregators and ability to search were valuable. People like Yahoo! because it gave them what they wanted and the company flourished as it became the home page for over 80 per cent Internet users. Advertisers loved the user base, so they bought ads. Then the market shifted. Users gained more experience and didn't need the aggregation function Yahoo! provided. Increasingly, they wanted to find answers themselves, making the quality of search more important than content. A white page with a simple box (Google) that did great searching across the entire Web overtook the content of Yahoo! And, as time progressed, people started using the Internet as a primary location for socially connecting with friends and colleagues, making the content aggregation even less valuable. The time spent on Yahoo! as a percent of time on-line began dropping: But although this trend began in 2009, and was clear in 2010, Yahoo! CEO kept pushing the same business model. She missed the trend. The market kept right on shifting and by 2011, Yahoo! is in a very bad competitive position:So, nobody should be surprised that revenue would fall, correct? It's not that the folks at Yahoo! are wasteful or not working hard. They are simply out of step with the market trend. The result one would expect is worsening results in the old, 'core' business and that's exactly what is happening: Meanwhile, where the eyeballs go is where the display ad revenues go as well. And with the trends, that means we would expect display ad revenue growth to move away from Yahoo! as it has done: So, when Yahoo! announced its earnings this time, it was a disappointment. What increase Yahoo! had in the fast-growing display ads (5 per cent) was insufficient to cover the decline in search ads (down 15 per cent). Clearly, Yahoo! missed the market shift. But the CEO did not admit that the business model was ineffective (as results indicate). Rather, she said the company needed more salespeople! This proclivity to look inward, as if working harder, faster and better would 'fix' Yahoo!, defies the reality that the company is no longer competitive where the market is headed. Carol Bartz can't succeed by trying to defend and extend the traditional Yahoo! business model. Yahoo! doesn't need more salespeople; it needs an entirely different business! Alternatively, Apple exemplifies the other side of this coin. I have been an unabashed bull on Apple for months. Why? Because, it does create solutions tightly linked to market trends. People, as consumers or in business, demand more mobility. And Apple's products deliver that mobility more seamlessly and effectively than any other solution provider. Apple could well have kept itself focused on Mac sales. But had it done so, it might have been out of business today. Instead, Apple focused the bulk of its development on delivering products that fulfilled trends. The result has been expansion into new markets, which have delivered massive revenue gains. Last quarter, Apple sold more iPhones and even more iPad tablets (9.25 million units, $6.1 billion) than it sold Macs (four million units, $5.1 billion). The old business has been replaced (cannibalised) by the new, growing businesses that support the market trend. In fact, iPads are now 11 per cent of the PC business overall and growing fast, as they obsolete PCs. Combined, iPads and Macs sold 13.25 million 'computing devices' which would make it second in the world, only behind HP (15.3 million PCs). Bigger than Dell, for example, that has stuck to its 'core' PC business. Because Apple is all about delivering on trends, there's really no reason to think revenues and profits won't continue growing. The shift to mobility has just taken hold, and there are legions of people still without an apps-powerful smartphone (lots of BlackBerry customers out there to shift). Also, the shift to Tablets has just started. As these trends continue, Apple is continuing to develop new solutions that keep it ahead of competitors. Where the Yahoo! CEO wants to add more salespeople, in hopes that she can push outdated products, Steve Jobs had discussed new products in the earnings call, "Right now, we're very focused and excited about bringing iOS5 and iCloud to our users this fall." Yahoo! is trying to do more of what it had always done, even as the market moves away. But Apple keeps its collective management eyes on the future and where the market is headed to constantly bring new solutions that deliver on the trends. Sell Yahoo!, if you haven't already. And buy Apple. It's all about investing with the trends.
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