Trefis Top 5 – June 7 Insights (AAPL, PCLN, CLF, VALE, GM)
In Tuesday’s roundup, we look at Apple’s (NASDAQ:AAPL) announcement regarding iCloud, which we think will help strengthen its mobile platform. Priceline (NASDAQ:PCLN) teams up with JetStar Airways, and we look at its impact on market share. We take a moment to break down Cliffs Natural Resources (NYSE:CLF) iron ore business in Asia and discuss the impact on Vale (NYSE:VALE) if iron ore prices sag in the coming years. Finally, we explore which markets helped to drive GM’s (NYSE:GM) Q1 results in Europe.
iCloud: Fortifying Apple’s Moat in Mobile
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Apple (NASDAQ:AAPL) unveiled its new iCloud service yesterday at its Developers Conference (WWDC). [1] We provided a preliminary glimpse of what we expected from the iCloud announcement yesterday morning and highlighted how we thought it would benefit Apple by strengthening its halo effect on other more valuable products like the iPhone, Mac and iPad (see iCloud Should Strengthen Halo Effect of Apple Platform). Here we look at how these efforts could help consolidate Apple’s position in the mobile device market. Mobile phone operating system players like Google (NASDAQ:GOOG), Nokia (NYSE:NOK) and Research in Motion (NASDAQ:RIMM) continue to face pressure from Apple’s OS, which has established itself as a leader in the mobile OS market. We currently have a $430 price estimate for Apple stock, which is about 25-30% above market price.
Priceline Partners with Jetstar Airways as OTAs Race to Pair up with Airlines
Priceline (NASDAQ:PCLN) recently announced a private-label partnership with Jetstar Airways, one of the leading low cost carriers in Asia-Pacific via Agoda — Priceline’s very popular hotel-booking subsidiary in Asia. This follows the on-going trend of online travel agencies offering hotel bookings on airlines’ websites, and now Priceline will provide bookings at thousands of hotel properties at Jetstar Airways’ 17 destinations within Asia. [2] The announcement comes soon after Expedia (NASDAQ:EXPE), Priceline’s biggest competitor, entered into a joint venture with AirAsia, the leading budget carrier in Asia (See Expedia Partners With AirAsia) and into a similar private-label partnership with South African Airways (See After AirAsia, Expedia Now Partners With South African Airways).
Understanding Cliffs’ Asia-Pacific Iron Ore Business
Cliffs Natural Resources (NYSE:CLF) has been reinforcing its position as the largest producer of iron ore pellets in North America. But over the years, the company has been following a strategy of geographical diversification while also diversifying its mineral portfolio. The first step it undertook as a part of this strategy was to expand its century-old iron ore business from the confines of North America across the Pacific Ocean. Cliffs’ Asia-Pacific iron ore business came into existence in 2005, and supplies direct-shipping lump and fines iron ore out of Australia. In this article, we will provide an overview of this division, and understand how much value it contributes to the company. Cliffs competes with other international mining and natural resources companies like Vale (NYSE:VALE), BHP Billiton (NYSE:BBL) and Rio Tinto (NYSE:RIO).
Prospects of Iron Ore Oversupply Could Weigh on Vale
Vale (NYSE:VALE) is one of the world’s largest mining companies and is headquartered in Brazil. As the world leader in iron ore and iron ore pellets production and the world’s largest nickel reserves, the company has benefited from the booming demand in emerging markets like China. However, as China builds its inventories and global production rises from heavyweights like Vale, Rio Tinto (NYSE:RIO) and BHP Billiton (NYSE:BHP), we expect average prices for iron ore to drop off in the coming years. If these prices drop more than we expect, there could be downside risk to our $42 price estimate for Vale, which is roughly 30% ahead of market price.
GM’s EU Business Improves on Cost Cutting & Recovering Demand
GM (NYSE:GM) reported a 26% year-on-year increase in revenues from its European operations for 2011 Q1. GM’s European operations accounted for almost 18% of total revenues in 2011 Q1, and it seems poised to emerge from its loss-making streak. Here we will look at some of the major trends that emerged in Q1 that affect GM’s European division. GM competes with other global automakers like Ford (NYSE:F), Daimler AG (NYSE:DAI), Honda (NYSE:HMC), Toyota (NYSE:TM), Hyundai (SEO:005380) and Nissan (PINK:NSANY).
Notes:- Apple Introduces iCloud, June 6th 2011 [↩]
- Agoda.com partners with Jetstar Airways, www.breakingtravelnew.com, June05′ 2011 [↩]