Arena football is done. Could Apple or Google be next?
Today's Financial News - Posted December 15, 2008
Almost every day, we hear of more negative economic news. Today, we learned the Arena Footbal League is closing up shop for the season. What next? Are we going to lose Disney on Ice?
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): Do you need proof of the economic mess this country is in? If so, turn to the sports world. All six diehard fans of the Arena Football League (AFL) are on their knees today after learning the league has cancelled its upcoming season.
Even with star team owners like Jon Bon Jovi and John Elway rooting for the NFL’s annoying little brother, it is not hard to believe the 22-year-old league is in financial trouble. As the economy sinks, the marginal businesses are going to disappear. And we all know arena football was marginal at best.
While only a few avid fans will miss the AFL, there are some other closely followed businesses showing some “marginal” issues. One of them is Google (NASDAQ:GOOG). The other is Apple (NASDAQ:AAPL). Both companies are not having the greatest of days today.
Too little, way too late
After falling by more than 50% over the past year, Goldman Sachs (NYSE:GS) finally came out of its shell to warn investors to stay away from shares of Apple.
Gee, thanks.
Google is doing its best to stave off the wolves unleashed by a negative article below the fold in this morning’s Wall Street Journal that accuses it off demanding preferential treatment of its content on the web. After years of defending net neutrality, today’s accusations (if proven true) would show a major stance reversal at the maturing company.
Arena football is pretty much out of business. Apple is forced to swallow its pride and sell its latest phones in, of all places, Wal-Mart (NYSE:WMT). And Google is “secretly” working behind the scenes to lock in permanent competitive advantage while it can still afford to buy the web.
While these three stories have little in common at first glance, they show the sizeable impact dwindling profit margins can have on a firm’s bottom line. When the economy is good, these companies can charge a premium for their product. But as soon as things get sour, consumers realize they have been duped and turn away in droves.
Over the past two months, we have heard and read countless stories of retailers slashing their prices in order to entice customers into their stores. Just about the only major retailer not offering virtual two-for-one sales is Abercrombie and Fitch (NYSE:ANF). Its management is wise enough not to permanently degrade the company’s brand in order to boost a quarter or two worth of sales figures.
Google and Apple are not quite so brand savvy. You see, they never had to work on their brand. It just sort of fell on their laps one day. Now, when the economy is not so conducive to their business model, their share prices get hit harder than their average competitor.
For proof, look at their beta scores of 1.6 and 1.9, respectively. Google and Apple soared when times were good. Now that same momentum is working against them.
What happened to the good ole’ days?
Even as the top competitor in their industries (a debatable point for Apple), this recession is going to mark a critical point in each company’s history. Google’s best days are behind it. The free food, massages and roller hockey are going to get cut out of the budget.
As for Apple, all that it can do is hope its flood of new products and brand dilution does not follow the same paths so many of its predecessors have haphazardly wondered down. That trail leads to a dead end.
If you bought shares of these companies below today’s prices, now is a great time to unload them. If you own them and paid more than current prices, continue to hold. You have a long-term investment on your hands. Google will not see $700 again for a long time.
Finally, if you have some AFL tickets, sell them on eBay. As of today, they are collector’s items.
Next Article: Learning from Madoff’s expensive lesson
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