Thoughts on AAPL earnings report# Stock
e*r
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1. Earnings and Revenue both beat the expectation, not by a great margin.
But considering the strong dollar and the fact that only 2-days of new
iphone sale were included, the numbers are respectable.
2. The high end of the guidance is above analysts' forecast. Apple
routinely beats the high end of its own guidance, by greater margin
especially in Q1s.
3. Iphone number came in just ever so slightly below the expectation by 0.1
M. no biggie there again considering the fact that only 2-days of new iphone
sale were included for the quarter. ASP increased by $67 is simply amazing.
4. Apple watch: Apple probably sold 1 million more watches than the previous
quarter -- certainly not enough to silence the critics on the street. Apple
watch clearly did not achieve the initial runaway sucess ipad enjoyed when
it was first introduced. My take is that the coming holiday quarter will be
the real test... whether or not it's the hot gift item on everyone's desire
list. No need to tell me you don't like the watch and have not seen any
among your friends. It doesnot matter, none of us on this board is
representative of average consumers. Swiss watch makers are feeling the pain
, and that is all i need to know.
5. China revenue: the qoq sequential decrease from 13.2 billion to 12.5
billion remains a concern to the naysayers on the street in spite of Tim
Cook's reassuring comments on China growth. My take is that with the
expansion of apple store presence in china from current 25 to 40 mid-2016,
and knowing how vain and materialistic our fellow countrymen are, Apple's
future in the middle kingdom is bright.
6. Ipad # is not that bad considering the inventory reduction while
expecting the November launch of ipad-pro.
7. Mac business is strong. I would like to have that 27 inch imac on my desk
.
8. share buybacks: 14 billion in the open market vs. 10 billion in the
previous quarter. So apple took notice of the sharp drop in its share price
in the recent quarter and took advantage. 14 billion is Apple's biggest open
market share buyback ever in a single quarter. Average price paid for was $
114.75. (question: if apple was aggressively buying at that price... what
should you do?) And I kept going through the math on how long would it take
for apple to buy back all shares and take itself private... as radical and
far-fetched as this might sound, it could happen if the street keeps
undervaluing AAPL at this ridiculously low level.
9. Reasons to be optimistic: the street is expecting apple to have zero
growth for the next few quarters, which is one of the justification for the
low PE multiple assigned to AAPL. It sets a very low bar for apple to clear
in the coming year. With China growing at the white-hot pace along with new
product releases (apple TV, ipad pro, etc.) and enterprise push, I would
not be shocked to see a growth rate in the low-teens. Expansion in P/E
multiple will occur when growth returns.
10. The PROBLEMS:
--- Apple the company:
None whatsoever. Cash, dividend, growth, profit, innovation, execution...
whatever you name it, Apple has it.
--- Apple the stock:
the biggest problem: the street does not know how to properly value AAPL.
Apple does not fits any mold in wall street's playbook and it is not suppose
to exist in reality. A mature and big company should not be disruptive like
Apple, and should not be allowed to have growth AND profit at the same time
. In wall street's playbook, losing money to gain market share at a high
growth rate is a prerequisite for awarding high P/E. Apple does not help
itself either as it grows in cycles --- a super growth period followed by a
mediocre growth period due to product launch cycles. Typically S-iphone
years will have difficult comp from the previous year and thus slower
growth rate.
The "one product company" meme: You hear this all the time... Apple is one
product company so it must be doomed... but in reality, companies focus on
the one thing they does the best in order to be successful. Google is a
search company, Microsoft is a software company, Ford is a car company and
etc. Apple is in fact rare in that it does remarkably well in all areas:
hardware, software and services. But it happens to reap in most profit from
a well integrated product - the iphone. But don't forget, Apple's non-
iphone business is bigger than Google, or alphabet (what a silly name, by
the way).
The "law of large numbers" meme... Apple had more profit than Microsoft,
Google and amazon combined, and grew at a faster pace. The street has no
problem giving three companies of a combined market cap of over 1.2 trillion
. The "law of larg numbers" only applies to Apple, apparently!
The "market share" meme... this has died down a little. Android never took
any of apple's market share. Android gained market share from dumb feature
phones. with Android to ios conversion rate at the highest ever, apple's low
global market share (low teens) is a positive. Apple has ample room to
expand going forward at Android's expense even as the overall smartphone
market stalls in growth.
All in all... a good quarter.... as frustrating as it is holding AAPL at
times, my conviction in Apple was never shaken. Someday, AAPL the stock will
have to reflect the true value of Apple the company.
But considering the strong dollar and the fact that only 2-days of new
iphone sale were included, the numbers are respectable.
2. The high end of the guidance is above analysts' forecast. Apple
routinely beats the high end of its own guidance, by greater margin
especially in Q1s.
3. Iphone number came in just ever so slightly below the expectation by 0.1
M. no biggie there again considering the fact that only 2-days of new iphone
sale were included for the quarter. ASP increased by $67 is simply amazing.
4. Apple watch: Apple probably sold 1 million more watches than the previous
quarter -- certainly not enough to silence the critics on the street. Apple
watch clearly did not achieve the initial runaway sucess ipad enjoyed when
it was first introduced. My take is that the coming holiday quarter will be
the real test... whether or not it's the hot gift item on everyone's desire
list. No need to tell me you don't like the watch and have not seen any
among your friends. It doesnot matter, none of us on this board is
representative of average consumers. Swiss watch makers are feeling the pain
, and that is all i need to know.
5. China revenue: the qoq sequential decrease from 13.2 billion to 12.5
billion remains a concern to the naysayers on the street in spite of Tim
Cook's reassuring comments on China growth. My take is that with the
expansion of apple store presence in china from current 25 to 40 mid-2016,
and knowing how vain and materialistic our fellow countrymen are, Apple's
future in the middle kingdom is bright.
6. Ipad # is not that bad considering the inventory reduction while
expecting the November launch of ipad-pro.
7. Mac business is strong. I would like to have that 27 inch imac on my desk
.
8. share buybacks: 14 billion in the open market vs. 10 billion in the
previous quarter. So apple took notice of the sharp drop in its share price
in the recent quarter and took advantage. 14 billion is Apple's biggest open
market share buyback ever in a single quarter. Average price paid for was $
114.75. (question: if apple was aggressively buying at that price... what
should you do?) And I kept going through the math on how long would it take
for apple to buy back all shares and take itself private... as radical and
far-fetched as this might sound, it could happen if the street keeps
undervaluing AAPL at this ridiculously low level.
9. Reasons to be optimistic: the street is expecting apple to have zero
growth for the next few quarters, which is one of the justification for the
low PE multiple assigned to AAPL. It sets a very low bar for apple to clear
in the coming year. With China growing at the white-hot pace along with new
product releases (apple TV, ipad pro, etc.) and enterprise push, I would
not be shocked to see a growth rate in the low-teens. Expansion in P/E
multiple will occur when growth returns.
10. The PROBLEMS:
--- Apple the company:
None whatsoever. Cash, dividend, growth, profit, innovation, execution...
whatever you name it, Apple has it.
--- Apple the stock:
the biggest problem: the street does not know how to properly value AAPL.
Apple does not fits any mold in wall street's playbook and it is not suppose
to exist in reality. A mature and big company should not be disruptive like
Apple, and should not be allowed to have growth AND profit at the same time
. In wall street's playbook, losing money to gain market share at a high
growth rate is a prerequisite for awarding high P/E. Apple does not help
itself either as it grows in cycles --- a super growth period followed by a
mediocre growth period due to product launch cycles. Typically S-iphone
years will have difficult comp from the previous year and thus slower
growth rate.
The "one product company" meme: You hear this all the time... Apple is one
product company so it must be doomed... but in reality, companies focus on
the one thing they does the best in order to be successful. Google is a
search company, Microsoft is a software company, Ford is a car company and
etc. Apple is in fact rare in that it does remarkably well in all areas:
hardware, software and services. But it happens to reap in most profit from
a well integrated product - the iphone. But don't forget, Apple's non-
iphone business is bigger than Google, or alphabet (what a silly name, by
the way).
The "law of large numbers" meme... Apple had more profit than Microsoft,
Google and amazon combined, and grew at a faster pace. The street has no
problem giving three companies of a combined market cap of over 1.2 trillion
. The "law of larg numbers" only applies to Apple, apparently!
The "market share" meme... this has died down a little. Android never took
any of apple's market share. Android gained market share from dumb feature
phones. with Android to ios conversion rate at the highest ever, apple's low
global market share (low teens) is a positive. Apple has ample room to
expand going forward at Android's expense even as the overall smartphone
market stalls in growth.
All in all... a good quarter.... as frustrating as it is holding AAPL at
times, my conviction in Apple was never shaken. Someday, AAPL the stock will
have to reflect the true value of Apple the company.