I am talking about the Apple (AAPL) charge card brought to you by Goldman Sachs (GS) that brought a very solid yawn from both tech and fintech folk who don't give a damn about what it could mean for either company.
But maybe that's the good news for either stock, because if we were simply going into this with Dickensian Great Expectations, I would predict utter failure on the part of both entities with only their silent party, Mastercard (MA) , putting up a couple of basis points of upside.
And therein lies the genius of the project.
Yesterday TheStreet.com polled a couple of thousand people about what intrigued them with the Apple announcements -- and the Apple card came out on top -- by far, garnering 44% of the mindshare. Television, focused on the most by the media, came in second at 32%, with news at 13% and the arcade at 11%.
Admittedly, there were Great Expectations for television, because Hollywood loves to talk Hollywood -- and the false dichotomy/zero sum game with Netflix was painful, meaningless, diversionary, stupid and exciting all at once. Media is tough: The under 30 crowd doesn't read and the over 30 crowd is pretty hidebound. Candidly, it was a bit like Publishers Clearing House with me, that and a combination of student discounts that we used to get years ago.
I do pay $32.99 for the Wall Street Journal per month -- and if I knew exactly what I was missing out on, I would feel better about cancelling the both bundle, but I want my kids to read and it will work for them. The family plan saves money and I remember once spending a day with my CFO finding out how much I could save on everything if I did more family plans -- and it was more than $1000, so I will do the same with this and television and magazines.
But it's the card that's going to be the winner. Why?
First, because its partner is Goldman Sachs, which wants very much to diversify away from its old roots and start doing a ton of small business lending and credit card work. Consider it trying to be American Express (AXP) . For Apple, because of its vast clout -- it's the Costco (COST) of tech -- the deal is just found money. Goldman bears all the risk. The instant cash back is a total win because points are opaque. Is it enough for you to switch to the Apple system if you are on another ecosystem? Maybe. Is it worth having to replace a current card? If they get more perks, they can take share from Amex.
At the same time, it can only enhance Goldman Sachs -- which has become, bizarrely, the cheapest stock on a price-to-earnings model of any of the major banks. That's because its revenue stream is considered episodic. If it can leverage algorithms to figure out who to lend to with the card, and it can use the Apple ecosystem to, say, get 10 million cards -- which is not a stretch -- it smooths out the episodic nature of its business as much as it might smooth out the episodic nature of cellphone launches.
In both cases, the analysts are going to have to start factoring the card into the valuation -- although they will do so kicking and screaming, because it's not in their models and they don't like to plug in new streams unless they are done by acquisition.
We don't know how many people are going to be lured into the 2% cash back that shows up instantly on your balance. We don't know how many people are instantly going to want 3% back on apps. We don't know how many will switch from Samsung to Apple to get these niggling gains. Except they aren't niggling gains to the working person.
As Dan Schulman, CEO of Paypal (PYPL) , says, it's a one hundred trillion total addressable market. For Apple, it just got into the race with NO financial risk. That's' all born by Goldman. For Goldman, there is no cannibalization because there is no other card. Apple sells at 15x earnings. Goldman sells at 8x earnings.
With no expectations, the idea of a one turn in multiple isn't thought about now -- especially because Goldman's not covered by fintech, which, even if you look at lowest of the majors, American Express, is 13x earnings. Apple? Do you think these analysts know anything about credit card economics beyond what they googled about when Costco switched from American Express to Citi (C) ? Nope.
No expectations are the best kind of expectations -- and Goldman and Apple now wait for analysts to plug the card into the models. It has not happened yet. It can only be positive from here.
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