What's in Apple's Wallet? Cash

1. Apple minted money last quarter. Cash, cash equivalents, and marketable securities rose from $24.49 to $28,145 billion in Q1 2009, a whopping $3.655 billion gain. That's $4.10 a share for one quarter's contribution. Right now Apple's cash is worth $31.60 a share. If Apple continues adding $4.10 a quarter, its cash position will be equal to $85 a share in thirteen quarters, the price at which Apple currently trades.

2. What has Apple been doing with its colossal cash position? Buying other companies at exorbitant prices? Playing a high rolling investor and buying stock back when it traded at $190? Making risky investment bets? Nope. Investing in Treasuries, commercial paper, government securities. What's impressive in this 50% down market is that the company's securities and commercial paper only had a $122 million unrealized loss. That's a miniscule 0.4% unrealized loss, an amount that may never actually occur. According to investor relations at Apple, the portfolio currently yields approximately 2.4%, or over $675 million a year. Wouldn't you like the guy who runs Apple's money to manage your portfolio?

3. At a time when everyone's cash is disappearing, Apple's cash growth is accelerating.

4. To put Apple's cash position in perspective, it's bigger than the market caps of 9 Dow Industrial Stocks. Next quarter its cash position likely will be larger than Disney's (DIS) market cap. Excluding GE and the financials, the average Dow stock has $8.5 billion in cash.

The three stories the market continues to ignore about Apple:

1. Its real earnings are given by its non-GAAP figures, not GAAP. It's the only way to follow the iPhone story.

2. The capturing of market share of its products throughout the world.

3. The piling up of cash.

Disclosure: Long AAPL

Comments

[.crazylegs..]

Last quarter's cash generation was due to the holiday season and it should not be expected to continue at that rate in the next 3 quarters, until the next holiday season of course.

2009 Mar 09 10:08 AM

[Roger Knights]

Apple's cash generation has been rolling along regularly, not spiking seasonally. It's the effect of the deferred revenue accounting (GAAP) for the iPhone.

2009 Mar 09 10:43 AM

[Murphy Mac]

As a long I'm pretty happy to see Apple's pile of cash staying right where it is. I knew this stock doesn't pay a dividend when I bought in, so why would I expect one now?

Apple has the discipline not to run around making senseless acquisitions. The cash they have now lets them continue to research new markets and products while the competition scrambles to keep up.

I'm glad Apple has ignored the hundreds of articles pushing them to spend the cash.

2009 Mar 09 10:53 AM

[relayer75]

I'm pretty sure that "$28,145 billion" equals $28,145,000,000,000, which would be approximately $28.1 trillion dollars. Why can't fact-checkers ever get their millions and billions and trillions straight? Or at least not get their commas and decimal points confused! :o)

Other than that, I agree whole-heatedly with the premise of this article. Long AAPL; I believe it is a compelling buy below $100.

2009 Mar 09 11:39 AM

[.crazylegs..]

Roger, you are factually incorrect. In FY2008, the numbers get skewed due to the 3G launch, but cash from ops as follows:

2.7b Q1 (4th calendar Q of 2007)
1.2B Q2
1.4B Q3
4.2B Q4 (calendar q ending 9/30 - includes 3G launch)

1Q 2009 they generated $3.9B cash from ops and I guarantee that this quarter that number will be down by 50% due to seasonality. Look what happened in fy2008, cash from ops fell over 50% from 1Q (holiday) to 2Q. It was slightly up in 3Q, then spiked in 4Q because of the new iphone. This will be repeated in 2009, especially if they introduce another new iphone in the june time frame.

The deferred rev has no impact on cash generation from ops. So there is, in fact, a spike in the holiday season that has nothing to do with iphone rev recognition and everything to do with the fact that ipods, iphones, macs are heavily purchased as gifts.

On Mar 09 10:43 AM Roger Knights wrote:

> Apple's cash generation has been rolling along regularly, not spiking
> seasonally. It's the effect of the deferred revenue accounting (seekingalpha.com/symbo...)
> for the iPhone.

2009 Mar 09 11:52 AM

[Stephen Rosenman]

relayer75: Unfortunately, Seeking Alpha typed a comma instead of a period.

crazylegs: Please see my previous article for rising cash positions.

seekingalpha.com/artic...

2009 Mar 09 01:34 PM

[kris23]

Cash growth acceleration is a lot more than any other company can say right now. Despite their great cash position, they have been downgraded by several analysts and sentiment dropped to become bearish (www.predictwallstreet....) in line with dropping PC demand/sales. The holiday period definitely helped Apple out so hopefully they can continue with this position into the next quarters.

2009 Mar 09 02:49 PM

[Alan Hill, L.A.]

Apple should take 3 Billion and buy Netflix. Each day millions of people open rented DVDs and see that inside flap of advertising. Why not advertise AppleTV there? Or a new iPhone, or Mac. Apple could guide all those millions of people into the Apple family, with a streaming rental system that delivers movies to AppleTV.

At 3 Billion for a profitable and growing company, Netflix is cheap. Given the potential for the value of that inside flap of those millions of red envelopes that go out each day, Netflix is VERY cheap.

Come on Steve spend a little (very little) bit of that money! It will add value to Apple Inc. and increase the conversion rate to the Mac.

2009 Mar 09 03:33 PM

[net55]

I know were the money is NOT going. And that is back into the hands of their loyal customers.Can someone please tell me what it means when, during a recession, Apple decides to bring out their new Mac Pro at $500 MORE than their previous model? Previous 8 core=$2799. New 8 core=$3299. All this while their press release tries to spin customers by saying Apple has dropped the price by $300. This being an outright lie because they don't tell you they also took an entire processor out leaving you with only four cores and a price of $2499.

2009 Mar 09 04:04 PM

[.crazylegs..]

stephen - i don't understand why your previous article would shed any light on the seasonality of cash generation. it is simply a fact that the fy1q for apple is always strongest due to the holidays, except when they introduce a new iphone, which spikes cash generation as well. i have no argument with the tremendous amount of cash they are building, but I don't believe for a second that apple will generate almost 20% more free cash than last year when the economy is very different today than a year ago.

2008FY FCF:$9.1B
2009FY FCF:$10.8B (stephen's $12 per share X 900 mln shs roughly)

I bet they come in with a FCF number that is less than last year - but still pretty strong. and I agree the stock is ridiculously cheap.

2009 Mar 09 07:16 PM

[brewer]

Crazylegs: no way do macs sell at Christmas. iPods and iPhones do, but macs tend to spike in the fall for back to school.

On another note, deferred iPhone revenue is still ramping up and virtually ignored.

2009 Mar 11 03:57 AM