Companies Ignore IT Pricing Inquiry And Continue To Sell Over Priced Items
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Australia is normally a pretty low key continent. The country avoids wars, has a great opera house, and also have one of the lowest gun related homicide rates in the world. One thing Australia can't avoid is over priced tech devices. Three major tech companies are being "summonsed to speak at a public hearing on March 22 in Canberra to answer questions regarding the increased pricing of its technology in Australia."
Parliament member Ed Husic said, "These firms should have cooperated and been prepared to be more open and transparent about their pricing approaches." He then continued by saying there are "A few firms that have continually defied the public’s call for answers and refused to appear before the IT Pricing Inquiry."
Microsoft (NASDAQ: MSFT) is one of these companies. Even with a market cap of more than $233 billion, the company's stock has declined nearly 9% in 2012. The company's Free Cash Flow (FCF) has followed the same pattern as its revenues the past five years, decreasing only in 2009. The company shows a FCF yield of nearly 12%, and seems to be growing. So, does the Australian government's claims have any merit?
Yes. Technology prices vary from country to country, but prices in Australia seem to consistently be higher than in other countries. For example, the Microsoft Surface RT generally starts at $499 in the United States, while it starts at $575 in Australia. Yes, tax rates play a role, but 16%? Really?
Although Adobe's (NASDAQ: ADBE) market cap is just over $19 billion, its stock has increased by 19% in the past year as well. No, the company is not as big as Microsoft, but its revenues have edged them out by 1% in the past five years, increasing 23% total. Adobe's FCF yield is solid, but is still 5.6% lower than that of Microsoft. Regardless of how Adobe is doing, the numbers show that they also raise prices in Australia.
For example, a copy of Adobe's Photoshop CS5 Extended would retail for $699, while the Australian website shows it listed at $1,519. Claims have been made this is the case with virtually ever item on the website. The price increase is not as obvious on Adobe's Creative Cloud subscription service. In the United States, this subscription costs $50/month. In Australia, the same subscription comes out at $63/month. Maybe Australian buyer's complaints are true after all.
One company still remains to be examined. The final company Australia is summoning to speak already has a history in Australia. In June of 2012, Apple (NASDAQ: AAPL) paid a $2 million fine to the Australian officials for misleading the public about the new iPad's capabilities. So this is not unchartered territory for the tech giant of the world. We all know about the company's stock's mid-year crisis, but the stock isn't even down 5% over the past year. Even with this recent fall, Apple is still a discounted stock that shows a 10.6% FCF yield.
Apple's prices are expensive anywhere, and Australia is certainly no exception. On the Australian Apple website, the iPad Mini is listed at $379 - $50 more than in the United States. The base 27-inch iMac is priced at $1,799 in America, $2,054 in Australia, and $2,352 in the UK. So, Australia isn't getting the worst end of the deal, but it still seems out of place to charge almost 15% more in Australia than here at home.
The Foolish Conclusion...
It appears as though the claim from the Australian government is valid for all three companies. CHOICE, the organization that originally approached the Australian government with concerns, claims that, "Australians are paying on average 34% more for software, 52% more for iTunes music, 88% more for Wii games and 41% more for computer hardware than U.S. consumers." Obviously some of these allegations include other companies, but they are centralized on these three. Regardless of the outcome of these allegations, I would not expect these three companies to be affected in a major way.
tlwofford has no position in any stocks mentioned. The Motley Fool recommends Adobe Systems and Apple. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!