A Lousy First Half, Eh? $AAPL FQ1 2016 Earnings “Estimate” + FQ2 Quick Look

Today, I’m takin’ it to 11.

Eleven consecutive home game AAPL quarterly earnings previews/estimates/whatevers, that is. Why? There must be some reason I keep this up. Clearly it’s not the fame. 😛

Anyway, for those of you who suffered through the “background” $77B revenue mix post (a thought exercise, but which included some genuine “estimates” on the non-iPhone revenue lines), this will (should) be shorter, and will include my for-entertainment-purposes only horseshoe toss (read: “estimate”) on FQ1 2016 results, plus a dash of comment on the upcoming Impossible Compare FQ2 2016. For both fiscal quarters, it’s still all about iPhone, with a side of Apple Watch and iPad Pro, until we see otherwise. So let’s get right to it.

(REMINDER: Please refer to the About + Disclaimer section. You won’t ever find actionable investing/trading advice here, just a humble home gamer in his corner of the Web trying to understand Apple and tech a bit better. As you know, no one has any clue what AAPL stock will do from day to day, quarter to quarter, year to year, even if earnings “seem good enough”.)

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The Great 2016 iPhone Crisis (of Confidence) + $AAPL FQ1 2016 Revenue Mix “First Look”

If you prefer to only focus on iPhone, I’ve re-posted that one section here as a separate post for additional clarity and brevity.

Everyone knows that it’s out there, so I’ll spare you all the novella…on this particular sub-topic. (New Readers/New Readers from Apple News: Big-time TL;DR warning. Sorry, earnings doesn’t lend itself well to bite-sized analysis.)

All that “iPhone unease” on Wall Street (or piling on by various other journos, bloggers, etc.) that’s out there? An apparent excuse for AAPL trading at such a…appreciable discount to…a few indexes you might know? That’s why I made the (unspeakably “gorgeous”) iPhone Wall of Worry some months back. And generally speaking I think it’s still holding up quite well.

It’s probably not too far off the mark to say the “over/under” on iPhone is quite literally…whether iPhone unit sales are over or under the FY2015 total of about 231.1 million.

There are many guesses, all of them…well, no more than guesses, even the most educated ones. Whether iPhone unit sales will grow for all of fiscal year/calendar 2016 isn’t something anyone can know, and it’s hardly something Apple of all companies will ever give insight into…except, indirectly, by necessity, in the context of FQ4 2016 guidance. 😀

Base speculation on “Peak Apple” has failed, badly, since the last time Apple actually posted a true decline in YOY revenues. Which was…well…probably a few years before the iPhone Era. The point is, just arguing about it really doesn’t advance understanding. Apple looks about 90 days ahead, when Tim and Co. aren’t talking megatrends or very broad topics on conference calls, and that’s that.

So, as is the wont of your humble correspondent, let’s start with the most knowable known out there – Apple’s own revenue guidance for the biggest, iPhone-heaviest fiscal quarter it will have in FY 2016 – and see if a little home gamer guesswork, involving actual dartboard-toss “educated guesses” typed in an actual blog post, can’t compare numbers to narratives.

…I know, an actual revenue mix preview. Last seen in February 2015? Well, since I’m newly on the Apple News RSS list (please do subscribe to the channel, I promise to update…quarterly? 😉 ), and since iPhone Worry is such a hot topic, and since I haven’t updated the blog in a while, why not.

(FIRST, A REMINDER: Please refer to the About + Disclaimer section. You won’t ever find actionable investing/trading advice here, just a humble home gamer in his little corner of the Web trying to understand Apple and tech a bit better. As you know, no one has any clue what AAPL stock will do from day to day, quarter to quarter, year to year, even if earnings “seem good enough”.)

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Apple’s Taiwan Revenues 2012-2014(+?) A “Small” But Fascinating Piece of the Revenue Puzzle

“Minor World Exclusive” 😛 / Did You Know?(tm)

Apple has given out annual revenue data for Taiwan for the past three fiscal years.

At least I’m quite sure it did.

I found this data basically by accident (hint: it’s a little scattered), and yet once I found it, I very quickly knew what it was. For my next super-annoying puzzle: Guess how. 😉 Yes, you can find it too, it’s all there, in the “hiding in plain sight” category. No shoe leather required, in journo-speak. It was all there for a few months, it was just waiting to be found.

apple-taiwan-revenues-fy2012-2014

Based on the very few data points, seems Taiwan revenue grew around 11.6% year-to-year in FY 2013, and 13.5% YOY for FY 2014. Taiwan sales crossed the $1B mark in FY 2013, presumably for the first time. Good, steady business in that country, apparently, and Apple has had a presence in Taiwan for some years now.

Will Apple “provide” Taiwan annual revenue data once again (in indirect fashion) for fiscal 2015? Seems so given recent reporting methodology. Farther out than that? We’ll see. A very interesting piece of the puzzle, in any case.

There’s two other interesting puzzle pieces to be found, MUCH bigger ones, once you know where to look. More on one of them later, maybe. (I’m workin’ on it.)

The Miracle (of Tim Cook), Earnings Chicken, and the Normalcy of Slowing Growth

I apologize in advance…both for this stream-of-consciousness-esque post, and for being unapologetically corny:

I woke up at the moment
When the miracle occurred
Heard some analysts give props the stock deserved

Every point it ever lost
Now has been returned
The most profitable firm I’d ever heard

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$AAPL FQ3 2015 Earnings Preview + FQ4 Quick Look: Set Your Watch to “Tiebreaker”

Welcome to the AAPL Tree’s ninth consecutive home game quarterly earnings preview.

Let’s get right to the two rather obvious storylines of FQ3 in order of importance: (1) iPhone “carryover momentum” and (2) searching for the first, albeit intentionally obfuscated clues of Apple Watch’s sales performance in its first 10 weeks of availability (give or take a day or two)…

…well, after the preliminaries of current analyst expectations, Mac, iPad, Services, and non-Watch Other Products. (REMINDER: Please refer to the About + Disclaimer section. You won’t ever find actionable investing/trading advice here, just a humble home gamer in his corner of the Web trying to understand Apple and tech a bit better. As you know, no one has any clue what AAPL stock will do from day to day, quarter to quarter, year to year, even if earnings “seem good enough”. AAPL’s essentially been in a range for over five months – enough said.)

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A Surface-Level Look at Apple’s “Cash-Trapped” Situation

ADVANCE WARNING: I am not an accountant and don’t play one on the Interwebs TV. This post is subject to correction in case of hilariously bad errors. Though this blog post is intended to be generally objective, note my About + Disclaimer section anyway.


I’m a little too proud of myself for that silly “cash-trapped” pun.

Apple’s cash position (and what to do with it) is a recurring discussion in tech/finance circles, because well just look at all them billions (chart is screencap of Apple’s Investor Relations >> Return of Capital website linked here, green rectangle added by me; click all image thumbnails to view at full resolution)

aapl-cash

About $194B cash in hand. $150B net of debt. $22B in the US. $171B held offshore.

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Previewing Apple’s FQ2+FQ3 (Quickly) – Pick a(n) (iPhone) Number, Any Number (to a Point)

It’s All About iPhone

And this theme should continue clear into FQ3, absent a HUGE surprise from the soon-to-launch Apple Watch (which isn’t to say Watch won’t play an important role).

The AAPL Tree (read: your humble correspondent – c’mon, you know it’s just me, not some faux-plural “we” 😀 ) may be going very minimalist for FQ2 earnings. I know, I know, all none of you may be a bit dismayed by the implications. What, no not-exactly-scholarly-anyway OpEx/margin/FQ3 look-ahead “commentary” like the previous seven quarters? Well, I could always bring them back at some point, but let me lay out the case for my “iPhoning it in” this quarter.

It’s…all about iPhone for FQ2. 😛 And I’ll claim some “offsetting credit” against my relative lack of effort this eighth consecutive quarter of home game AAPL earnings “coverage” for having discussed this not-terribly-controversial idea in my early bird Apple earnings preview back in February.

To briefly recap:

— Apple is guiding as high as an astonishing $55B in revenues, despite fierce ForEx headwinds.

— Mac could well grow but nowhere near enough to keep pace with iPhone either in YOY unit growth or revenue.

— iPad, in my humble opinion, was essentially telegraphed by Tim Cook as a YOY decliner for this quarter and the next – so the revenue/unit growth takeaways seem pretty obvious.

— The decline of iPad YOY (if it happens the way Tim Cook indirectly hints it might), combined with potential Mac ASP YOY trending (note the very high prior-year ASP compare of $1334), could well mean Mac + iPad account for over a billion dollars less revenue YOY. Meaning – yes, if my fragile assumptions hold – that iPad + Mac are a collective revenue anchor, even though Mac line revenue could rise “modestly” (<10%) YOY.

— Services, based on recent past history, is “likely” (heavy air quotes) to continue YOY growth. A larger than normal iPhone unit sales number for FQ1 2015 (of which some significant portion are new to iPhone, meaning iOS had some significant installed base add in the quarter) will help quite a bit in this regard. New users, new apps, new media, new AppleCare contracts to amortize, the addition of UnionPay as payment method, and a light sprinkle of Apple Pay revenue, though it could be a matter of “mere” millions – a rounding error in a category at the ~$5B scale. Then again…~$5B scale. Inherently limited in terms of upside impact.

— “Other Products” – well, Apple Watch will do a terrible job hiding itself in this category revenue-wise, but it’s a no-show for FQ2. Add Beats hardware, subtract iPod continuing to fade away, it’s a “very small” revenue category at a little under $2B per quarter anyway.

Add that all up, and where’s the growth coming from? Now that the analyst consensus is $750M over top-end guidance as per Yahoo! Finance? Hmm.

I’ll use the same Mac, iPad, Services and Other Products assumptions from earlier, as well as my prior iPhone ASP assumption.

That leaves one question: How many iPhones was Apple able to sell in FQ2? Between 56.1M units and around 60.5M units, “parameters” I covered in the sneak preview, I’ll go with…

REVENUES revs units “ASP”
iPhone $38.71B 59.1M 655
iPad $5.60B 13.5M 415
Mac $5.82B 4.75M 1225
Services $5.213B
Other Products $1.7B
YOY iPhone 35.2%
YOY iPad -17.4%
Total revs $57.06B YOY Mac 14.9%
YOY Services 14%
YOY Other Products -9.6%

Now, yes, iPhone unit growth was a staggering 46% YOY just last quarter (which also involved very strong adverse ForEx effects). And what we might as well call “the base case” (given the expectations set by the FQ1 blowout numbers) represents unit growth of around 28% YOY.

So…why did I randomly go and pick about 35%? Oh me of little faith? I’ll first acknowledge some elements of the bull case real quick.

Yep! Tim Cook more or less said <15% of the “replacement cycle” had occurred in one heck of an epic iPhone quarter (FQ1 2015), which couldn’t possibly be beat by anything other than, well, FQ1 2016 (though skepticism about following up such an amazing number is already brewing, and honestly, fairly understandable considering how surprised everyone was).

Additionally:

And also:

And also:

Furthermore, as I noted in a prior blog post or two (“earnings chicken”, hehe):

Now, the “temperance” case. Is 35% iPhone unit growth from FQ2 2014 to FQ2 2015 really all that low? Maybe, maybe not? It’s a horseshoe toss, slightly akin to Apple Watch but on an entirely different scale. One thing I think I know: 35% YOY growth in ~CQ1 2015, “conservative” as it may seem (mind the supergiant unit scale from a single vendor not named Samsung, though), “should” represent outperformance relative to the rest of the smartphone market. No small feat, considering the you-would-think-somewhat-limited segments in which Apple plays (to hear the conventional wisdom tell it).

Basically, I’m “cautious” on iPhones (though quite bullish based on this yardstick) – despite Apple management ebullience, iPhone 6/Plus’s unquestionable success in key markets (BRIC, for instance), the double-favorable channel inventory situation (below target range look-forward plus the ability to increase channel inventory to avg. 6 weeks) – on account of a potential iPhone “sales nova” effect. Is “aggravated seasonality” in play with its implied eventual gravitational effects? Will it make itself known during the iPhone 6 generation, or more like the 6S generation, or not at all? I’m thinking the first option, though I have no clue as to the extent of the enhanced seasonality.

To wrap up, my “bonus” (heavy air quotes) home game estimates and a super-quick note on that ever-unpredictable Wall Street analyst expectations game.

$57.06B revs (25% YOY growth)

40.5% GM

$5.5B OpEx

26.3% tax rate

$13.24B net income (~23.2% net margin)

5.8B shares outstanding (share-weighted) (total wild guess)

$2.28 EPS (~37% EPS growth)


The Wall Street Expectations Game for FQ3/”The June Quarter”

Wall Street probably has two opportunities to glean some clue about Apple Watch from Apple directly, and the more likely one arrives maybe sometime late July, and in the form of a blended (yet sort of hiding in plain sight) Other Products revenue number. Will Apple announce any initial sales number on earnings day? Apple’s explicit statement to not give competitors any unnecessary clues about Watch sales aside, “quiet period” considerations (which I may incorrectly understand to be more guidelines and protocol than actual rule) and proximity to some pretty big Apple financials news would seem to militate against any Apple Watch specifics (platitudes, sure, why not). I could be wrong – we’ll find out in a few days.

Anyway, surprise of surprises, the FQ3 landscape as we see it now looks pretty darn similar to FQ2 with the exception of Apple Watch, the backordered unknown quantity. Not a bad time to launch, either, since FQ3 has been one of Apple’s slowest of late.

What are analysts currently expecting? Well, Luca Maestri isn’t backing down from the enthusiasm pedal, so they’re “holding Maestri to his implied word” – with consensus revenues of almost $47B, plus EPS of $1.68. 25.4% revenue growth (year-ago revs were “a mere” $37.4B) and about 31% EPS growth. Expected from a company this big. Wow.

Can Apple do it? Yes. Blithely, tremendously oversimplifying, were I to “project” a “repeat” of my FQ2 2015 wild guess, that’s 25% revenue growth. Every 1M Apple Watch sales, depending on who you ask, might contribute an additional $500-$600M in revenues – at FQ3 YOY growth scale, that’s about 1.33% YOY revenue growth per million Watch units at a $500 “ASP”. So Watch could be the meaningful tiebreaker I thought it had a faint chance of being in the recently-ended FQ2.

Of course, the big question is – is Apple Watch a million-plus-per-quarter-scale product.

I think it is, but it’s just another horseshoe toss, and not an expertly thrown one at that.


That’ll just about do it for the super-condensed, iPhoning-it-in version of my quarterly Apple earnings preview. Hope at least some of you found it at least somewhat entertaining. 😉

A New Car? Who Knows – But Apple Could, for a Time, “Easily Hide” a Project of This Magnitude in Plain Sight

 

In the Unlikely Event You Didn’t Already Hear About This, a Quick Recap

You may have recently heard or read about something a bit outside Apple’s usual product domain.

I’ll admit to not being the world’s biggest fan of Business Insider’s editor…or Business Insider in general.[1] But as it turns out…BI might’ve been the first to report on a really, really big story (even if fortuitously). BI’s Sam Colt reported on a mysterious unsolicited e-mail from “an employee at Apple” about “vehicle development”.

I was skeptical at first. The “employee at Apple” went unnamed and Business Insider didn’t even make a coy “the e-mail and employee appear to be genuine” type of statement – I mean, I would have. And the notion that said employee would risk near-certain termination from Apple (it’s not like they couldn’t find out who sent the e-mail), by contacting Business Insider?[2] Really?

Well, then we get some “corroboration” today from The Financial Times’ Tim Bradshaw and Andy Sharman, with the headline “Apple hiring automotive experts to work in secret research lab”.  (paywalled***) Then the WSJ followed up, with Daisuke Wakabayashi and Mike Ramsey’s sub-hed reading, “IPhone Maker Has 100s Working on Design of a Minivan Like Vehicle” (also paywalled***). As helpfully summarized by Jordan Kahn over at 9to5Mac, the new hires include a former Ford executive and the President/CEO of Mercedes-Benz Research & Development.

Yeah, this is starting to sound like something slightly bigger than CarPlay 2.0. And that the Apple employee might have been better described as an authorized higher-up. I have no idea if it’s for real – but what might some actual numbers tell us about what’s possible?


Economies Stealth of Scale – Looking Back at a Well-Known Automotive Upstart

Which of course is Tesla Motors. I know, I’m no good at burying ledes.

Anyway, I assumed (and tweeted) that a project as big as a car would at some point become far too large to ignore even on Apple’s balance sheet. Sure, Apple incurs unknown tens of millions in R&D expense (or more) for things that may never, and won’t ever, shipped. But Apple would be essentially starting from scratch. There’s no foundational technology at all from which to build on. Apple Watch borrowed from iPhone, which borrowed from iPod and Mac and even Newton to some degree. An actual car? Build it yourself, “borrow” some other automaker’s platform as a head start, it wouldn’t matter! Expenses would be huge!

…right?

So I decided to test that assumption by checking on Tesla’s financials. After all, they started from scratch too.

First, some humble home gamer context. Real quickly – and I assume Wikipedia to be generally correct on the details – Tesla was founded in July 2003, with Elon Musk joining the company in early 2004. The Tesla Roadster prototype was introduced in 2006, and went into general production in March 2008. Meanwhile, the Model S was announced June 2008, with initial deliveries starting in June 2012.

Now, Tesla’s obviously quite small for an automaker ($3.2B in revenues in 2014), and its market cap “modest” compared to megacaps (at about $25.6B per Yahoo! Finance as of Friday’s close). But since no less than Elon Musk, rockstar CEO and poacher of Apple employees, is at the helm, its ambitions can be safely assumed to be vast. And since Musk, his team and his investors clearly wanted the company to succeed, it can also be safely assumed that Tesla was tooling up and investing in R&D as much as it possibly could, right on up to (and past) the absolutely key Model S launch. (Considering 2011 saw Tesla bring in about $204M in revenues but a $254M loss, “make or break” doesn’t seem too sensationalistic at all.)

So, let’s have a look at Tesla’s R&D expenses plus property, plant and equipment net values over the first seven years of what you might call its active business phase. Its first annual report is from 2011, but helpfully, it provides summary financial data back to 2006. (As far as I’m aware, Tesla is a standalone entity which accounts for 100% of its expenses as well as revenues.)

tesla-chart1

A bit surprised? So was I. The “hype” back then seemed a heck of a lot bigger than Tesla’s actual expenditures and investments. Even in 2010, with the Tesla Roadster shipping and Model S development well underway, total R&D was under $100M, and net PP&E value just over $100M.

Of course, Tesla was in the middle of a frantic scaling-up phase, and it showed in the 2011 financials. R&D expenses slightly more than doubled, and PP&E net value close to tripled.

So let’s assume Apple’s intent on entering the actual automaking industry, but with even grander ambitions and maybe even a faster development schedule than Tesla. It does have the resources to somewhat compensate for lack of expertise, after all. Just for fun, let’s “spot Apple a few years” and see what happens when you compare Tesla’s 2011 R&D/PP&E (with Roadster production winding down, and Model S soon to start selling) to Apple’s R&D and PP&E from 2013.

tesla-chart2-plus-apple

Yep. Apple’s 2013 numbers are 21.4x Tesla’s “Year 8” R&D expense, and 55.6x Tesla’s “Year 8” PP&E value.[3] For additional reference, Tesla ended 2011 with 1,417 full-time employees. Per WSJ, Apple’s “Project Titan” group leader was given the green light to form a 1,000-person team (including existing Apple employees, at least somewhat similar to how the iPhone team at Purple Dorm was formed).

Let’s pretend Apple spent the same amount of money as Tesla on R&D and PP&E for this secret Apple Car project in FY 2013.

4.6% of R&D? 1.8% of PP&E?[4] That could easily have been mistaken for, say, development and tooling for iPhone 6 with those rumored bigger, sapphire screens. Even a watch prototype. Or maybe bigger iPads? Refreshed iPads? New Retina Macs? The ever-elusive next-gen or next-form-factor Apple TV? 😀

The “cloud cover” is also evident even if you compare Tesla’s 2012 R&D budget (Model S now shipping, plus Model X development), which, while about 31% higher year-on-year at about $274M, is a “mere” 6.1% of Apple’s 2013 R&D expenses. For indirect reference and a sense of scale, Apple signed a $578M prepayment agreement with GT Advanced sometime in 2013.

To wrap up, my takeaway from this exercise? Given Apple’s scale “even” in 2013 (supposedly, they didn’t greenlight the project until late 2013/early 2014), no one would ever have noticed an entire automobile development operation was well underway.


 

1 Responsible for dubious hits including “The iPhone’s Market Share Is Dead In The Water” (actually a reprise of a post from 2011, sorry, no link to this one).

2 To be fair, and to my “consternation” back in January 2014, none other than former Apple CFO Peter Oppenheimer cited a BI Intelligence report during an earnings call.

3 “Year 8” literally meaning Year 8 of Tesla’s existence. Or “Year 5” of the active business phase – either way, Apple’s been given a substantial hypothetical “head start” on Apple Car R&D, for instance.

4 (Yes, accounting types, I’m aware that “PP&E” might be a depreciable R&D expense for not-shipping products, but stay with me here.)

***There is “one weird trick” (heh) to legitimately getting a “free sample” article from either site. The only “price” (depending on how you look at it): Using one of at least two popular search engines (Bing, Google, I dunno) to do it.

 

 

An Informal Evaluation of $AAPL Valuation

(ADVANCE NOTE: Not intended as addressing or criticizing anyone in particular. Not like they’d even notice li’l ol me out here. Per usual, refer to the About + Disclaimer section.)

Out-Numbered

AAPL’s price/earnings multiple (ttm basis) today stands at 16.44.

The S&P 500 multiple (includes Apple, but whatever) as of last Friday was 20.03.

The NASDAQ multiple (also includes Apple, of course) as of last Friday was 22.75.

So, what of it?

Not “The One True Valuation Metric”, At All, but Still Illustrative

Just to get this out of the way, I’m well aware there’s schools of thought that dismiss the simplistic, outmoded price/earnings multiple (especially on a ttm basis). Heaven help you if that’s the only basis for your investing/trading decisions. But the fact remains, the ttm P/E number is a marquee metric whether you’re talking Yahoo! Finance, Google Finance, CNBC or Bloomberg.

And while a few companies don’t have one, and some are claimed to not be properly measured by one, I still think it to be a somewhat useful one, even as industries, and financial situations even between relative industry peers, vary widely.


Addressing Some Justifications – Not (Always) Without Justification

Let’s quickly address what I think are the top two (quite sensible) reasons why Apple is a below-market-multiple stock. More to show my awareness than for the self-selecting audience here, but whatever.

1) Apple’s the highest-market-cap publicly-traded stock trading today (as far as I know), and it’s a huge market cap to boot.

No argument there. Apple inhabits a space that no other tech company other than Microsoft occupied back when the year was…that’s right…1999. (Shame I can’t seem to find an official Prince music video.) Depending on how correct “1999-to-today” dollar calculators are, Microsoft, at $586B in market cap then, may still be the US market cap record holder. Apple was a bigger company than Microsoft was when its market cap passed $600B in 2012 (briefly), and it’s bigger and stronger than ever today.

Still, ~$700B is a massive market cap, no question about it. A definite factor in the “cautious” 16.44 multiple.

2) Apple’s “cash-trapped”, which makes it tough to give full value to the $140B+ net cash pile.

Another very good point! (See what I did there, by the way?) It’s difficult to see Apple making “full use” of its offshore cash when there’s one hundred and fifty eight frickin’ billion parked there. Sure, componentry, Retail expansion, all that CapEx jazz, but there’s zero evidence this will start reducing Apple’s international cash balance anytime soon.

Apple’s capital return program is severely hamstrung by its domestic cash balance, which “despite” all of the supplemental borrowing from Apple USA, remains at a “mere” $20B. Apparently, Tim Cook (at the Goldman Sachs event) is more than willing to amp up capital return (whatever your thoughts on it – and yes, I think it’s a good thing for AAPL longs). Unfortunately, $20B doesn’t give much breathing room considering you need free cash domestically to grow and invest, maybe even acquire in your “home market country”. And at some unknown debt level, S&P might not be so willing to maintain Apple’s AA+ credit risk rating, which in turn might raise the interest rates on Apple Bonds.

Now for what I think are…not-so-valid justifications for this top-performing company’s underperforming P/E multiple.

(3) Apple’s running up against the Law of Large Numbers. Its newfound growth can’t last.

Why don’t we unpack that as “large numbers” and “growth” and address them in that order.

“Large Numbers”

Ugh. Not that “Law of Large Numbers” again when trying to explain the increasing difficulty of growing the same percentage from a larger revenue/income base. What is with that continuous misapplication of a probability theory? The more appropriate “law” is one of Business Physics™ to me.

Ask for it by name. Or something.

All right, let’s look at one super-high-revenue company. (Financial info sourced from Yahoo! Finance, SEC 10-K filings, company websites, etc.)

WMT ($281B market cap)

One of my favorite examples. King of revenue growth? If you call analyst estimates of 2.3% for the year massive. It’s rung up a giant amount of sales, projected at almost $490B for its 2015 fiscal year. Days of growth? C’mon – long gone. You don’t get much more blue-chip, low-margin, or boring for a stock than a giga-discount-retailer.

P/E? About 18, depending on who you ask.

Ephemeral Growth

Kind of front-running a bit, considering Apple grew almost 30% in the December quarter, but fine. Want a sort-of-peer “growth” stock? Here, have two.

GOOG(L) ($367B market cap)

A healthy company, no doubt. Growing?

Well…revenue? Not bad, about 15% YOY in the most recent quarter. On the other hand, full-year YOY growth was 18.8% in 2014 ($66B full-year revenues), 20.5% in 2013, 21.5% in 2012, 29.3% in 2011. So…decelerating growth in terms of sales. Net income? Back out the one-time boost from discontinued operations, and year-over-year non-GAAP income rose in CQ4 2014 from $4.57B to $4.74B. Good for around 3.7% net income growth.

Yeah, sorry, that’s not really growth. It’s not anywhere near doom, but it’s far behind the revenue generation pace. How about the rest of 2014, same non-GAAP basis, net income YOY growth? About 6.4% in Q124.4% in Q2, 14.5% for Q3. Rather uneven. That growth translated to about $14B in net income for all of 2014.

(For comparison, Apple’s net income growth rates in CY 2014 from ~CQ1 to ~CQ4 were: 7.1%, 12.3%, 13.1%, 37.8%. ttm net income is $44.46B.)

Google’s Moto acquisition? Not exactly a success. Android? Still waiting on any data from Google about its contribution to financials. AOSP? Well, that’s certainly not helping “Google Android’s” cause – just look at Cyanogen. Google Glass? On the backburner, and that might be being kind. So, you’ve basically got the core search business as the key to growth, since “Other” is barely over 10% of revenues. Put it all together and what do you get? P/E of 25.5.

AMZN ($173B market cap)

Amazon’s revenues are up to $89B, but it’s a similar story to Google’s. YOY annual revenue growth rates from 2014 to 2011: 19.5%, 21.9%, 27.1%, 40.6%. You can’t exactly say that Fire Phone or tablets have really been boosting sales, eh?

As for income? Well, this is Amazon we’re talking about (full disclosure: I shop Amazon, so I guess I’m not helping :D). Best described as “sporadic” – note the $241M net loss, ttm basis. Resulting P/E? Yep, not applicable, and completely meaningless until – or if? – Amazon ever achieves (or decides to achieve, pick your theory) consistent profitability.

(4) Apple’s innovation engine will sputter at some point.

Speaking of engines, what better industry is there for reinventing the wheel than the auto industry?

F (Ford). ($62B market cap)

Plenty of revenue – $144B for 2014. But it was $2.8B higher in 2013.

Ford’s been chugging along at compound annual growth rate of 4.5% or so since 2009, when revenues were about $115B. Its current revenue level is still far from its peak of nearly $177B back in 2005 (albeit with net income of just $1.44B).

Net income – well, it’s kind of hard to tell. One-time tax benefit this, one-time charge that. Ford has yet to exceed the $8.7B in pretax income record set in 2011. It recorded $6.3B pre-tax income for 2014.

Innovation? Well, EcoBoost is pretty neat as one of the many suddenly mainstream turbocharged engine choices available to car buyers. Existing car lines from Focus to Fusion to F-150 are always up for a clean-sheet redesign every so often, and there’s apparently room for segments like extra-compact SUVs. EV vehicles are only now gaining serious popularity.

“But at day’s end, Ford still just sells cars, trucks and vans with a supporting financing business.”

Resulting P/E? About 20.

(Similarly-sized-and-financially-situated GM, with a near-identical market cap of $60B, has a P/E of about 22.7.)

(5) Apple is too reliant on iPhone.

That’s a patently silly one.

Ford – mostly auto sales. Google – predominantly search. Wal-Mart – retail. Amazon – predominantly online retail, much more than it might like to admit.

$349B market cap Microsoft – absolutely dependentupon software licensing profits. (Its P/E is about 17.2, by the way, 4.6% higher than AAPL.)

Apple – $185B+ consumer electronics (including a dash of accessories), $140B or so probably being iPhone, $45B or so being iPad and Mac, with a $15B+ side of software and services. Uh oh, problem?

(6) Speaking of iPhone, Apple’s profitability potential is tapped out.

Don’t be so sure. The iPhone 6 generation, via FQ1 2015 results as well as guidance, is already showing signs of breaking the margin bottoming cycle of iPhone 4 and 5. My wild guess: Gross margins of 41% and maybe a few percent north of that (as a near-term ceiling) are quite possible by the time iPhone 6S and/or Apple Watch start selling in volume.

I wouldn’t want to be anywhere near a tech blogger drinking something when they get the iSuppli estimated teardown price of an Apple Watch Edition (which has shocking amounts of room to “undersell” existing luxury watch brands). Or when said blogger rakes Apple over the coals for the sure-to-be-deemed “extortionate” pricing for spare Apple Watch bands. Good thing there aren’t any watchbands available in 18K gold. Yet.


The (Potential) Upside of Below-Par

Many frustrated AAPL longs’ sole solace with often-below-market-multiple intervals was the inherent strength of Apple’s financials and strong cash balances. So maybe it wouldn’t “shine through”, but it’s a valuation backstop, right? Of course, that wasn’t much solace at all during the 2 years it took between late 2012 and late 2014 just for AAPL to return to $100 per share.

Luckily, many of the factors that could have pressured AAPL so badly have dissipated or are at least somewhat mitigated.

Margins? Stable and improving, thanks to cost engineering improvements (as seen in iPhone 5C, 5S, and 6/Plus), higher unit volumes, and the temporary peak of the highly-margin-dilutive iPad.

Revenues? Wall Street’s looking for 23% YOY revenue growth in the fiscal year, higher than both Google and Amazon’s recent growth rates, from a much bigger revenue base – and “helpfully”, a large amount of skepticism is already baked into FY 2016 estimates (just 3.8% consensus revenue growth expectation).

Capital return? $102.7B thus far, 65% of which was funded by Apple’s existing cash reserves, speaks for itself.

Share price accessibility/liquidity? Hard to argue that the 7-for-1-share split didn’t have an impact.

Sentiment? At least normalized, aided by advocates like “Uncle” Carl Icahn constantly pounding the table on AAPL and looking crazy like a fox for likely buying in somewhere south of 70.

Market conditions?

Well, you never know when the next correction (or worse) will catch you off guard. Or if any given stock will participate in a broader market rally. But there are probably worse trading/investing strategies than looking for undervalued stocks – particularly if they may eventually be too undervalued to be ignored.

Is AAPL one such stock? Undervalued, on the rise, or both? You know where I stand, but time will tell as it always does. Let’s see how the next year or two goes.

$AAPL FQ2 2015 Earnings Sneak Preview: Pace-Setting Guidance, Accelerated Expectations, Supreme Management Confidence

I know, it’s a bit early to be talking FQ2 2015, especially for me, right?

Well, recent history prompted this post. To illustrate, let’s start with a chart.

(REMINDER: Please refer to the About + Disclaimer section. You won’t ever find actionable investing/trading advice here, just a humble home gamer in his little corner of the Web trying to understand Apple and tech a bit better. As you know, no one has any clue what AAPL stock will do from day to day, quarter to quarter, year to year, even if earnings “seem good enough”.)

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