Short These Stocks and Blame Apple
Apple's (NAS: AAPL) influence extends far beyond computers, phones, and tablets. Apple has managed to turn a number of industries on their heads through its App Store, allowing third-party companies to make innovative products. Intentionally or not, Apple is shaking up decades of ingrained business models with the flick of a finger.
Below I've identified three affected industries and three companies I will add an underperform CAPScalls on, predicting they will underperform the market.
The video game industry has been built on a relatively constant business model for more than 30 years. Sell a critical mass of gaming consoles, driven initially by hardcore gamers, and leverage the base of consoles by selling high-margin games. Rinse and repeat every five to eight years.
Since new product launches often garner $60 for a hot title, not including now-common add-ons, gaming companies have enjoyed immense profits at the peak of this cycle.
Apple's iTunes store has turned that business on its head, changing the way Electronic Arts (ERTS) and Activision (NAS: ATVI) look at their games. Instead of buying $60 games, Apple has proliferated the $0.99 game, popularized by Angry Birds, Cut The Rope, and Fruit Ninja. Electronic Arts, in particular, has begun to move into this market, but revenue isn't nearly as strong as with a console game.
The company I really question is Activision, which has already started to lose World of Warcraft users. The company has made a killing on expansive multiplayer games and repeat releases like Guitar Hero, but I think the company's hot streak is soon coming to an end.
World of Warcraft subscriptions fell 15% in 2011 and I think the company is reaching its limit of Call of Duty players. The games on iPhones, iPads, and any new Apple TV device could make these games much less attractive very quickly.
Revolutionizing the printed word
After being disrupted by the Internet, traditional news sources may be toppled by the new information ecosystem Apple made possible. Despite being a standard-bearer in news, TheNew York Times Co. (NYS: NYT) can't seem to stop the loss of revenue that the new age of news has brought. The company has tried to adopt new formats for iPhone and iPad devices, but revenue hasn't followed. In fact, the company reported a decrease of 4.9% in digital product revenue, and digital subscribers are still at anemic numbers. Apple has allowed new competitors to enter the picture and steal some of New York Times' thunder, which doesn't bode well for its stock.
Some companies will be able to thrive in the new environment. Apps for a variety of sources have brought me to new sites and Twitter has changed the way some of us devour information.
On the flip side of newspapers' struggles, Apple's influence on the book market was on display when it introduced its new iBooks textbook format. The company has a chance to upend some competitors there as well, but I see textbooks and more interactive offerings as an opportunity for publishers, rather than a threat. Education hasn't changed much in decades and it's time someone shook them up and offered new innovative ways to learn. McGraw-Hill and Pearson are adopting this format quickly and could benefit greatly from Apple.
Cutting the cable cord
I consume a lot of media, but more and more has moved to online or on-demand sources. That's leaving traditional television behind, something cable providers don't want to hear.
I have my eye on you, Comcast (NAS: CMCSA) and Time Warner Cable. Comcast and Time Warner provide the Internet connections Apple products use, but Apple may have its eye on innovating around the cable TV connection. In the past year, Comcast lost 135,000 video customers, showing that the cord is slowly starting to be cut.
With iTunes, Apple is partnering straight with media companies to provide content to consumers and an upgrade of the Apple TV would likely take this to another level.
Foolish bottom line
Apple has created a platform that has affected video games, books, and media companies in different ways. Those companies that can innovate and adapt will grow, but it's difficult to give up an entrenched profitable business.
I'm adding underperform CAPScalls for Activision, New York Times Co., and Comcast because of the impact I think Apple will have on their businesses. You can see all of my picks here.
To add these companies to My Watchlist, click on the links below.
- Add The New York Times to My Watchlist.
- Add Electronic Arts to My Watchlist.
- Add Comcast to My Watchlist.
- Add Activision Blizzard to My Watchlist.
- Add Apple to My Watchlist.
At the time this article was published Fool contributorTravis Hoiummanages an account that owns shares of Apple. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdingsor follow his CAPS picks atTMFFlushDraw.The Motley Fool owns shares of Apple and Activision Blizzard and has written calls on Activision Blizzard.Motley Fool newsletter serviceshave recommended buying shares of Activision Blizzard and Apple, as well as creating a bull call spread position in Apple and a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.