Piper Jaffray's Gene Munster Pipes Up on Apple

Today we're at the IGNITION Conference with Piper Jaffray's lead technology analyst, Gene Munster.

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What's your opinion on Apple going forward with all these new competitors coming in, copying them on the iPhone, and the Droid system for the iPad and RIM introducing one. Is it as bullish as you thought the past two years?

Definitely. I think that what the iPad's doing is, there's a fundamental difference in how consumers engage in technology. The iPad is really altering mobile devices, something that is going to be global. We're still very early in the iPad, and I think that based on the iPad – not only for the December quarter but in 2011, that's a reason to own it. I think you're gonna see upside in the street numbers based on more rapid adoption, particularly international on the iPad.

You're concerned with competitors? Google or whoever coming into the market? Do you think the iPad has enough of a lead that their App Store and all that will propel them like it did in the phone market?

We're not concerned in the sense of the impact of the Apple numbers and the numbers to go up fast enough [for] the stock to go up. But in terms of market share we do think that they're gonna lose meaningful market share going from 90% this year to basically 45% in 2012. And that's just a natural explosion of these devices. The important part is not to look at the market share but to look at the impact to their numbers, and their numbers are going up because of the iPad.

What about the app business, the music business. Do you have a theory that Apple controlling these devices will control the music market, will control buying TV? Tell us about that.

Well, they are definitely the gatekeepers in music because everyone has an iPod and iPod's the digital music player with 90% market share. But in movies and TV shows we think it's going to be more fragmented. Essentially, they have 45% share of those. We think that a lot of content players will create apps that run on all of these different devices. So, the simple take is, they're not gonna be the gatekeepers of movies and [TV] like they are in music. But they will ultimately define what the consumer experience is like over the next 10 years in terms of how this media is consumed.

Is there something that no one has ever asked before that you'd love to tell us?

I think one thing that doesn't get talked about, that people don't ask about, is North Carolina and the data center and what's going on there. A lot of people just gloss over it as kind of an add-on to their existing mobile business. But it has the opportunity to be something that could fundamentally change television. They could come out with something that we call the iTunes TV Pass, which basically offers a la carte cable, a la carte content subscription.

It sounds like an oxymoron, but for you to pick and choose which cable channels you want, but you get it over the Internet. That's one of the things that not a lot of people are talking about that we think is an important part of the story over the next many years as Apple moves into the television and gets into an integrated, all-in-one TV, which is very different from their strategy today.

Have you seen the data center?

I haven't actually seen it. But if you go to YouTube and [enter ‘Apple Data Center'] there's a helicopter flying over it and it's pretty massive. Keep in mind that a third of the space is basically cooling. So you gotta divide by three if you think about the storage size of that. There's something big going on there and we don't know what it is and we think it's related to television.

Where do you think Amazon is going? Is it the controller of online retail?

Amazon has really taken over the world of retail. They've had huge numbers in the past three years. They've just seen accelerated growth. When someone buys something online on Amazon they typically, a year later, spend 3x that amount. It's just a good experience and as more and more people get comfortable with e-commerce – still only 6% of stuff bought in the US is bought online, that number could be 20% in the next several years – and Amazon is in the best position. Even though that stock has had a huge move, there's still a lot of reasons to be optimistic over Amazon over the next five years.

Amazon vs. eBay?

Amazon's gonna win. We downgraded eBay this week ‘cause they're gonna lose share to Amazon.

Is that because the user experience is not as…

There [are] a lot of pieces that go into it, but that's the fundamental reason – user experience. That plays into the amount of products that are available, trust, search, all those features play into a user experience.

I think it's just a fundamental where eBay started as a platform versus fulfillment. I think it's one of the reasons why it's hard for them to improve the experience. They've made a lot of improvements but it takes time to do that.

Groupon and Google – everyone is talking about Google paying $5 billion, $6 billion, $7 billion for Groupon. Groupon is growing tremendously fast. People are saying the revenue is $500 million, so that's a 10x multiple. What's your opinion on that?

I think it's a lot of money. It doesn't matter for Google because they've got $33 billion in cash. Four, five, six billion, it doesn't matter, it's all a rounding error for them. It doesn't matter if it's diluted if they're trying to buy great businesses that they can build around over the next many years. From that standpoint, it's not great for investors, but it is great for their business longer-term.

How did you become an analyst? What were your steps? Was this always your goal?

I always loved business and I basically started right out of college. I went to a small, private school in Minnesota, University of St. Thomas. I got hired by an analyst who covered media and digital technology in 1995. That's kind of emerged; a lot of the companies that I worked with in ‘95 have kind of emerged into becoming a lot of these companies today. I've been lucky enough to research some pretty exciting growth areas. But it really kind of started out getting into one area and just sticking it out.

How long have you been at Piper Jaffray?

Fifteen years.

Now you're the lead guy. Did that start in 2002?

I think at the end of the day what's unique about our team is that we do real work and we make big bets on our real work and thankfully they've worked out.

Do you have any opinion on analysts moving to the other side and going to work for a corporation?

I love doing what I do. [Switching sides is] not for me, but you can do very well for yourself and have a good life too. So I can't blame anybody for taking that jump.