Microsoft would love for the
Zune media player to be the
iPod killer. Unfortunately, teenagers don’t want it. It’s not as “cool” as an iPod. I could care less what teens or even worse, “tweens” think. Tweens are those kids aged 9-12 that make up a large part of the demographic devices like iPods go to.
Tweens are setting the new trends and they get younger every year. 10 they say, is the new teen.
I say hooey. Who cares? Tweens don’t have money. Ipods may be the coolest mp3 players around but when you get down to it, its just a gimmick. Apple will always have the crowd when it comes to the popularity contest. Apple represents the underdog even though it’s market share is insane, and the stock price reflects that. The original “Think different” campaign was not only a stab at the vast majority of PCs out there but was also posing the idea to challenge your thinking, to not be one of the masses. Alas now, they are the masses.
Apple’s market cap is a whopping $78 Billion dollars. Microsoft still trumps that with a $288 Billion market cap, but their stock prices are vastly different. Apple(AAPL), which grows at nearly 18 percent, and trades at 40 times earnings is well above the fair value price at $91.81 a share. The upside is limited here. I talked about apple a few days ago and it nearly hit $100 a share. It’s just about run its legs out and you are going to see a correction as people take profits off the table. I think the company is still strong but the iPod sales are built in already. Apple also doesn’t have the same market cap as Microsoft because they primarily make hardware. The software they do make is only available on Apple computers. Microsoft wins out here in my opinion for a few reasons.
Microsoft(MSFT) grows at 16 percent and trades at only 23 times earnings and it’s current price is $29.39. Microsoft has been climbing steadily since october with news of the Zune. Also after numerous delays in the new Vista operating system, it is finally nearing completion for next year. Zune won’t be an ipod killer, however I can attest to the disappointment I have with Apple’s products. I purchased a 40 GB iPod photo 4 months before the video ipod came out. Now I can’t even store photos on my ipod because of memory leaks in iTunes and Apple’s proprietary ithmb file format the ipod uses to store photos. At best I can only use my ipod as disk storage for backing up my photo collection. Suffice to say, I no longer use the ipod for showing photos because itunes crashes every time it tries to optimize them. How long do you think people are going to put up with this kind of software problem. Not long.
If the Zune is stable, it could mean a certain percentage of those ipod users that are unhappy (of which there are a lot, read any of the support boards at apple.com) switch to the Zune or other device. Sure none of them are going to replace the iPod but then again does it really matter? Format wars are endless and will always happen because it’s good for the economy.
With Microsoft you get an upside of $40. That’s 10 points from where it’s at and it will get there by the end of the year 2007. I say take your profits in AAPL and buy MSFT.
