Cramer: Apple loses the playbook
Jim Cramer | firstname.lastname@example.org
Tim Cook, the CEO of Apple, apparently has never heard of UPOD. Apple's dreary presentation Tuesday, where we got more colors and more security but no pizzazz and no smart pricing to challenge Samsung, the colossus of handsets, is the exact opposite of UPOD. It's almost as if Cook never went to growth-management investing school or disdains it and thinks he is above it.
He acts as if it doesn't matter what he promises or delivers. What matters is that Apple is great, so shut up and love it, and if you disagree with us, hit the road, as three analysts from three major firms did yesterday when they downgraded the stock to "hold" from "buy."
If you look at so many of the fabulous growth stocks that hit highs yesterday--Netflix, Chipotle Mexican Grill, Under Armour, and Starbucks, to name a few--you find companies with CEOs who know the game. They never let expectations get ahead of reality. They don't make promises that they can't deliver on, and then some. And while all of these execs who run these terrific firms would tell you that they disdain focusing on the stock and not just the business, they know who owns the company and they want to please them.
Maybe Cook believes in the homily, "Please all, please none"? Apple is so prickly these days that it is worth seeing where the over-promising came in.
Go back to the charm offensive that Apple launched last fall and winter. Even back then, analysts were grousing about a dearth of innovation and a lack of execution. The company introduced a phone that wasn't ready with a new jack that didn't have a ton of benefits that were visible to customers, even if they were visible to Apple management. The new phones had different weights, but they weren't the answer--the answer, that is, to Samsung, which is a company that has simply decided it is going to win.
Samsung is like Ulysses S. Grant, who was perceived to be a simple, no-nonsense general who didn't make lots of friends and didn't promote himself. He kept his job, though, because President Lincoln praised him with the famous line, "I like this man; he fights." I like Samsung; it fights.
Or if you want to stick with other historical analogies, Samsung's variant on under-promising and over-delivering is a bit like Theodore Roosevelt on technological steroids: Speak softly and carry a big Galaxy.
But what did Tim Cook do when he didn't have anything that pleased the critics? (And believe me, they weren't critics the year before.) He said, basically, "You ain't seen nothing yet." He told people that 2014 would be filled with dazzling devices, including something breakthrough and revolutionary with television. He didn't rein in expectations or discourage talk about Apple taking over your living room. He stoked it.
Well, here we are in September 2013, and where are they? Multi-colors? Didn't we have that for the iPod years ago? Touchscreen IDs? Yeah, that's what I've been waiting for. How about a price scheme that would take back share from Samsung, which is famous for the price-cutting that is necessary for countries that have no real carrier subsidies? Nope, high price points.
And how about the huge deals with the Chinese telcos that Wall Street was chattering about? Maybe they just haven't hit yet. They'd better, because by not reining in those rumors, you aren't practicing UPOD.
You think Netflix promises anything like that? Go over their calls. Netflix simply says it is doing the best it can. Chipotle stopped promising anything or giving you any false hopes after its stock plunged 100 points a year ago. Here it is all the way back up, because it has been under-promising and over-delivering. Or how about Under Armour? There's a company that promises technological gains that could be outsized and then shocks you with what it has developed. Under Armour reminds me of the old Apple.
Sure, you get a periodic promise from Starbucks CEO Howard Schultz, a promise that Europe is going to turn, as he did last year when we interviewed him on CNBC's "Squawk on the Street," or when he said at his huge analyst day in New York at year-end that his Chinese business wasn't going to falter like Yum Brands'. Or when he said there was no U.S. cannibalization coming.
So what happens? We get a real turn in Europe, super growth in China as well as an acceleration of sales in the U.S. Talk about under-promising and then over-delivering. Then Howard announces new baked goods and new juices that have been tested and are moving up same-store sales numbers. Now there's a man who knows what presentation is about.
Or how about two of the best-performing stocks of 2013, Celgene and Regeneron from the biotech world? Have you ever seen how they keep estimates and excitement down? Len Schleifer of Regeneron has kept a lid on estiamates for Eylea, his revolutionary macular degeneration drug, for two years now. Bob Hugin at Celgene has tried to discourage anything that's too optimistic about his company because he may under-deliver on approvals. He knows better.
The most important issue you must understand is that it's not a dirty game or beneath anyone. I first heard UPOD explained to me by the chief executive of a major consumer-products company. He came to see me as part of a roadshow, and I told him what I thought he could earn and all of the good news that could come out from his firm. He told me to give him a break, that he wasn't going to go there. When I asked why, he said "UPOD" and he spelled out the letters.
He then explained to me what it stood for and how he practiced it. The goal, he said, is to never let anyone get too far ahead of what the company could do and never promise anything that couldn't be delivered because the shareholders had a right not to be disappointed.
A right not to be disappointed. He viewed it as his job. The man subsequently sold his company for a huge amount of money. He truly practiced UPOD, and he was a terrific exec when it came to running his company and putting out the best product.
What could Cook have done? I have suggested the litany. If you don't have a breakthrough product and you don't have social media and you don't own the living room, go do something about it, something bold. Buy Twitter for social. Buy Netflix for video. Buy CBS or Sprint and DirecTV and bundle it with Netflix. Buy the NFL package to reach 118 million people. When you promise that 2013 would be the year of big products and you hint that it's Apple TV, you better have your ducks in a row.
Apple didn't. That's how a stock gets crushed as this one did yesterday.
Apple doesn't practice UPOD. It practiced OPUD. And when you practice UPOD, you now see what you get.
Disclosures: Cramer's charitable trust is long AAPL and YUM.