Apple Inc

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If You Thought Apple Was Dead, Here's Why You're Dead Wrong


Written by Ophir Gottlieb

Yesterday we penned an article that revealed how Google (NASDAQ:GOOGL) just (quietly) announced it has created a new app for Apple (NASDAQ:AAPL) iPhone users that expands its Google Search ecosystem. A day earlier we penned an article that documented how Google and Facebook (NASDAQ:FB) are slowly making overtures to China to try to gain access to the largest base on Internet users in the world. For now both companies are locked out of China (as is Amazon) -- while Apple generates more than half its operating income from the country.

Further we noted that Google and Facebook face a frightening threat from Apple in general, and ad blocking software in particular. In fact, Google's SVP of advertising called a new project Google is spearheading as "essential for survival."

Today we receive yet another reminder that while the mainstream media would have you think that Apple is run by a group of bumbling fools, in fact, the joke is on them. Apple is ahead of everyone, not behind, and the news today is yet another reminder that stock drop and all, Apple is doing just fine.

In a stunning announcement last night, Apple revealed that it has invested $1 billion in China's top ride sharing app, Didi Chuxing. The company is often referred to as "China's Uber" and already dominates the market. The company claims it fulfilled one billion rides last year and holds 87% of the country's private ride-hailing market (Tech Crunch). At the same time, Uber announced in February that it was losing over $1 billion a year in China.

Apple CEO Tim Cook said,

We are making the investment for a number of strategic reasons, including a chance to learn more about certain segments of the China market.

Of course, we believe it will deliver a strong return for our invested capital as well.

Source: Reuters

We have to go back to February to get news of the latest valuation, but back then the service was valued at $20 billion. We have to assume that valuation has risen, but whatever the case, Apple now stands as a non-trivial owner and Didi couldn't be happier. CEO Cheng Wei said:

The endorsement from Apple is an enormous encouragement and inspiration for our four-year-old company.

Source: Tech Crunch

The story is much bigger than an investment in one of China's crown jewel start-ups. After a wonderfully open door policy to Apple for several years, all of a sudden a cacophony sounded when China ordered the closure of iBooks Store and iTunes and Movies just six months after the services launched in China.

Next up, in a pretty odd story, China did not uphold a Trademark case for Apple, where another company was allowed to use the term "iPhone" for accessories. Those moves together scared billionaire Carl Icahn totally out of the stock. He was ever so clear to note that the bullish thesis for Apple was still there, but the China risk was so large that he had to sell his stake (at a $2 billion gain).

This move for Apple was more strategic than monetary. With $170 billion in net cash (cash after debt), $1 billion is literally rounding error. What is not rounding error is the size and importance of China to Apple and the lead it has in the country as Google, Facebook and Amazon are totally locked out.

We cover the much broader bullish thesis for Apple in a different CML Pro dossier, but for now, Apple has caught everyone off guard again, and does have some of the tech world tongue tied... again.

This isn't market moving news, but in many ways it's this news that really matters. This action from Apple isn't the end-all be-all, but it is a calculating, brilliant, methodical move that underscores the strength of this tech giant -- stock drop and all.

There's so much going on with Apple it's impossible to cover in one report but you have to be aware of the trickling news, the hidden announcements in order to really understand the landscape. Then, to take it even a step further and to find the 'next Apple' or 'next FANG stock' we have to get ahead of the curve. This is what CML Pro does. Our research sits side-by-side with Goldman Sachs, Morgan Stanley and the rest on professional terminals, but we are the anti-institution and break the information monopoly that the top .1% have.

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Thanks for reading, friends.