The Case for Shorting Apple 32 comments
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Let's start with the technical argument. Below is the weekly chart; note the evening star reversal pattern.
click to enlarge
Fundamentally, we've seen the market award Apple with a higher market capitalization than Google. Basically, the market is arguing that Apple's (AAPL) future profits are greater than Google's (GOOG) potential profits, and hence the company is worth more. I find this to be completely inaccurate; Google is in a league of its own, and its strategy centers around free services -- something I think gives the company an enormous marketing edge, one that will only appreciate as the cost of building a technology business continues to fall. And while we have seen a broad rally in US equities since March, my bias is still bearish as I believe we are in a long-term bear trend, and so I still favor opportunities where there is bearish momentum.
Disclosure: No Position
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This article has 32 comments:
Then he uses technical analysis to confound the discussion. Technical analysis which shows, by the way, that AAPL's share price behavior in April and May could have been called a reversal at the time, had it not continued to rise.
Pretty flimsy case, I would say. Please compare Apple's non-GAAP earnings and free cash flow to Google. Then see which stock is undervalued.
And if you want to see future growth, just look on a college campus and see the mac to pc ratio. These college students will never go back to pc, and will raise a new generation of Mac using families. The future belongs to Apple.
The telecom operator has procured as many as 5 million WCDMA network-based iPhones from Apple Inc. (NASDAQ: AAPL) for CNY 2,000 each or CNY 10 billion in total, said sources familiar with the matter."
www.tradingmarkets.com.../
"Rumor: NetDragon to Operate iPhone App Store
An unnamed source says Apple (Nasdaq:AAPL) has selected NetDragon (0777.HK) to operate its China application store, reports TechWeb.com.cn. Apple has contacted many local developers to provide applications, the source said."
www.jlmpacificepoch.co...
Business Week have reasons why Apple is more valuable than Google
www.businessweek.com/t...
Please short AAPL ;)
Also, because of the huge following of Apple stock, it is easy to stir up the "faithful" with a new, better, higher recommendation to support the stock for a short period.
And as "rrtzmd" noticed, they only trot out Steve Jobs when they need to reassure the troops that all is well. With a market float of 888,000,000 plus shares outstanding, it is a full time job of a small army of analysts, public relations guys, and yes the activist people long the stock that storm anyone saying anything bad about the stock.
The interesting thing is Apple computers make up about 7.5 percent of the market just a little more than Toshiba with a 6.8 percent. Yet when was the last time you heard anyone talk about Toshiba? As I said it takes a lot of work to keep the myths and hype going. If it weren't for the enormous "PR" hype, the stock would be at half the price.
So be cautious when you short Apple, it has a good support group and that group can out last you on the way up. If you are going to short the stock, don't hesitate to take your profits, you can always go back in a little higher, and there is no such thing as long term gains in a short sale.
Current position: Day Trader, short at around 9:47 AM, looking to get out, its around 10:16
www.nytimes.com/2009/0...
news.cnet.com/Why-Tosh...
If anyone starts talking about this company, they won't have anything good to say about it and more investors will run away screaming. Toshiba is on it's way down. Apple is on it's way up.
"iPhone market share grew 375% in Q2
Sales of Nokia's (NOK) Symbian smartphones are drifting. Apple's (AAPL) iPhone is gaining on RIM's (RIMM) BlackBerry. Microsoft's (MSFT) Windows Mobile is still sinking. And the launch of the Palm (PALM) Pre barely made a ripple in the gobal smartphone market.
Those were the headlines from the smartphone portion of Gartner's 2009 Q2 mobile phone report, which saw smartphone sales grow 27% even as overall mobile phone sales, feeling recessionary pressure, fell 6%.
In this context, Apple was the clear winner. Its iPhone sales, as Gartner counts them, grew more than 500% year to year, and its market share, as we figure it, grew 375%."
brainstormtech.blogs.f...
"Blackberry, iPhone sales up in down mobile market"
sanjose.bizjournals.co...
"Apple Inc (AAPL): Current Valuation Still Reasonable"
financial-alchemist.bl...
"Apple Inc. (nasd:AAPL) $162.83- Despite Apple shares rising more than 100% from its 2009 low of $78, the stock still appears to be attractively valued especially as a long-term holding. Using cash-flow and non-GAAP earnings, AAPL trades at less than 15x on a trailing 12-month basis. Since sales and cash flows were likely significantly depressed over that time period due to the sharp economic contraction, demand should improve considerably in the quarters ahead. Thus, forward multiples would be even lower given the anticipated rebound in sales and earnings growth.
The modest price multiple at which AAPL currently trades leads me to conclude that investors are: 1) Attributing the slowdown in Mac and iPod segments to a permanent secular decline, rather than temporary weakness consistent with economic contractions. 2) Ignoring/underapprecia... the growth potential of the iPhone and products yet to be introduced.
Non-GAAP Earnings & Cash Flow:
Apple has reported $5.72 GAAP EPS for the past 4 quarters combined (ttm). However, over the same period, Apple has earned $9.23 in non-GAAP EPS (ttm). The non-GAAP figures are a better representation of Apple's earnings power since iPhone revenues are recognized in the period sold and not deferred over a 24 month time frame as is the case with GAAP EPS. The GAAP EPS numbers grossly understate Apple's profitability and cash-flow generation.
Looking at the difference between GAAP revenue and non-GAAP revenue for the past 4 quarters, GAAP revenue would be $7.7B higher, or 22.3% if Apple were not required to account for iPhone sales using the subscription method. Reported EPS (ttm) would have been $3.51, or 61.4% higher as well. The most noticeable difference is the effect iPhone sales have on profit margins. Since the iPhone carries the highest margin for Apple hardware, there is a dramatic impact on gross and net margins when subscription accounting is reversed. Gross margin rises from 35.5% to 39.6%, and net margin increases from 15.0% to 19.7%.
From June 2008 to June 2009, Apple's cash holdings increased $10.35B, from $20.77B to $31.12B. On a per share basis, cash/share increased $11.38, or 50% from $22.85/share (June 2008) to $34.24/share (June 2009). Apple generated $10.26B in free cash flow over the last 4 quarters, or $11.28/share.
GAAP Revenue (ttm) has increased 10.9% compared to the prior trailing 4 quarters, yet non-GAAP sales increased 22.9%, more than double the rate of GAAP revenue growth. GAAP earnings growth (ttm) versus the prior 4 quarters was 10.5% ($5.72 vs. $5.12). However, non-GAAP EPS (ttm) increased 39.9% ($9.23 vs $5.55) compared to the same period for the prior year.
It is clearly evident that the reported GAAP figures widely understates Apple's true performance. Therefore, investors should focus on the non-GAAP numbers and cash flow when evaluating Apple."
How did that short work out for you this morning?
Looks like AAPL is up a bit this morning, hope you didn't lose your shirt.
By the way, please enlighten everyone on how Apple is "fudging" it's numbers in order to maintain it's valuation.
But...NOT TODAY!!
One thing a company can do, is to set up the company stores as separate entities. Thereby allowing the corporation to show sales to the stores as a profit, while allowing the stores to list the product as current inventory and not necessarily a chargable expense. Also, when Apple opens up a new market, their sales increase as they "fill the pipeline" even though the buyer in the new market has the right to return product in the future. As I think I mentioned, a company can use this accounting move to make a quarter or even a year look good, eventually it will come back to hurt them if their products are not sold.
I've watched companies do this to make a particular period of time look good for them. Usually what will happen if they are unable to over come the bad quarters, they will bunch all the bad numbers into a one time write off, take the big hit, and come back with a clean p&l statement to start the process all over again.
On Aug 13 11:23 AM Twodales wrote:
> @Techtrader10.
>
> How did that short work out for you this morning?
> Looks like AAPL is up a bit this morning, hope you didn't lose your
> shirt.
> By the way, please enlighten everyone on how Apple is "fudging" it's
> numbers in order to maintain it's valuation.
Go to his bio, no information, no credentials, he either works for Apple, owns the stock and is plugging it, or works for a company that is long the stock and is plugging it.
Also Notice, no disclosure...
On Aug 13 10:54 AM bobthenoob wrote:
> To AAPL shorts, here's more for you to ponder...
>
> "iPhone market share grew 375% in Q2
> Sales of Nokia's (seekingalpha.com/symbo...) Symbian smartphones
> are drifting. Apple's (seekingalpha.com/symbo...) iPhone
> is gaining on RIM's (seekingalpha.com/symbo...) BlackBerry.
> Microsoft's (seekingalpha.com/symbo...) Windows Mobile
> is still sinking. And the launch of the Palm (seekingalpha.com/symbo...)
> Pre barely made a ripple in the gobal smartphone market.
>
> Those were the headlines from the smartphone portion of Gartner's
> 2009 Q2 mobile phone report, which saw smartphone sales grow 27%
> even as overall mobile phone sales, feeling recessionary pressure,
> fell 6%.
>
> In this context, Apple was the clear winner. Its iPhone sales, as
> Gartner counts them, grew more than 500% year to year, and its market
> share, as we figure it, grew 375%."
> brainstormtech.blogs.f...
>
>
> "Blackberry, iPhone sales up in down mobile market"
> sanjose.bizjournals.co...
>
>
> "Apple Inc (seekingalpha.com/symbo...): Current Valuation
> Still Reasonable"
> financial-alchemist.bl...
>
> "Apple Inc. (nasd:seekingalpha.com/symbo...) $162.83- Despite
> Apple shares rising more than 100% from its 2009 low of $78, the
> stock still appears to be attractively valued especially as a long-term
> holding. Using cash-flow and non-GAAP earnings, AAPL trades at less
> than 15x on a trailing 12-month basis. Since sales and cash flows
> were likely significantly depressed over that time period due to
> the sharp economic contraction, demand should improve considerably
> in the quarters ahead. Thus, forward multiples would be even lower
> given the anticipated rebound in sales and earnings growth.
>
> The modest price multiple at which AAPL currently trades leads me
> to conclude that investors are: 1) Attributing the slowdown in Mac
> and iPod segments to a permanent secular decline, rather than temporary
> weakness consistent with economic contractions. 2) Ignoring/underapprecia...
> the growth potential of the iPhone and products yet to be introduced.
>
>
> Non-GAAP Earnings & Cash Flow:
> Apple has reported $5.72 GAAP EPS for the past 4 quarters combined
> (ttm). However, over the same period, Apple has earned $9.23 in non-GAAP
> EPS (ttm). The non-GAAP figures are a better representation of Apple's
> earnings power since iPhone revenues are recognized in the period
> sold and not deferred over a 24 month time frame as is the case with
> GAAP EPS. The GAAP EPS numbers grossly understate Apple's profitability
> and cash-flow generation.
>
> Looking at the difference between GAAP revenue and non-GAAP revenue
> for the past 4 quarters, GAAP revenue would be $7.7B higher, or 22.3%
> if Apple were not required to account for iPhone sales using the
> subscription method. Reported EPS (ttm) would have been $3.51, or
> 61.4% higher as well. The most noticeable difference is the effect
> iPhone sales have on profit margins. Since the iPhone carries the
> highest margin for Apple hardware, there is a dramatic impact on
> gross and net margins when subscription accounting is reversed. Gross
> margin rises from 35.5% to 39.6%, and net margin increases from 15.0%
> to 19.7%.
>
> From June 2008 to June 2009, Apple's cash holdings increased $10.35B,
> from $20.77B to $31.12B. On a per share basis, cash/share increased
> $11.38, or 50% from $22.85/share (June 2008) to $34.24/share (June
> 2009). Apple generated $10.26B in free cash flow over the last 4
> quarters, or $11.28/share.
>
> GAAP Revenue (ttm) has increased 10.9% compared to the prior trailing
> 4 quarters, yet non-GAAP sales increased 22.9%, more than double
> the rate of GAAP revenue growth. GAAP earnings growth (ttm) versus
> the prior 4 quarters was 10.5% ($5.72 vs. $5.12). However, non-GAAP
> EPS (ttm) increased 39.9% ($9.23 vs $5.55) compared to the same period
> for the prior year.
>
> It is clearly evident that the reported GAAP figures widely understates
> Apple's true performance. Therefore, investors should focus on the
> non-GAAP numbers and cash flow when evaluating Apple."
AAPL
167.67 at 9:47 <-- you short AAPL
167.01 at 10:16
167.02 at 10:18 <--you posted at SA below
"Techtrader10 Aug 13 10:18 AM:
Current position: Day Trader, short at around 9:47 AM, looking to get out, its around 10:16"
167:41 at 10:20
167.47 at 10:22
167.59 at 10:24
167.64 at 10:26
167.55 at 10:28
167.55 at 10:30
167.47 at 10:32
167.43 at 10:34 <-- this was the lowest price AAPL traded after you posted at 10:18 and have not dipped this low as of 12:27 when you posted that you got out.
"Techtrader10 Aug 13 12:27 PM:
Apple's price will sometimes spike first thing in the morning, and then has a quick sell off. As a "day trader", an hour is a long time for me. My average sell price was $167.69, I got out at and average 167.07. A total of a little over 5,000 shares"
167.48 at 10:36
167.70 at 10:38
167.94 at 10:40
167.90 at 10:42
167.92 at 10:44
167.92 at 10:46
167.88 at 10:48
167.90 at 10:50
168.11 at 10:52
168.45 at 10:54
168.55 at 10:56
I just don't see how you're able to average at 167.07.
Who are you again?
This is the "PR" type of guy I have been talking about, all hype, makes the stock look good in every sentence.
Go to his bio, no information, no credentials, he either works for Apple, owns the stock and is plugging it, or works for a company that is long the stock and is plugging it.
Also Notice, no disclosure..."
So you short AAPL and post negative crap with no links to support it. And your point is?
Just look at AAPL quarter after quarter the past five years if you think they're hiding anything. Here's my disclosure if you failed to see it based on my posts... I'm AAPL long.
You're just bitter because you bet on the wrong stock LOL
Can you provide evidence that Microsoft, Dell, HP, Palm, Nokia, Toshiba, etc, don't use exactly the same accounting method when "filling the pipeline?" AFAIK, that's a standard accounting practice. Suppliers find it difficult to track actual retail sales in stores they don't own, other than stuff that goes out minus stuff that's returned. Apple (and some others) are in a better position, as they can track activations of SOME items (iPhones, for example, or Macs registered via the Internet), but not all.
On Aug 13 07:55 AM Timeline Strategy Consulting wrote:
> So Google is going to get ahead by.....giving away free stuff. And
> Apple's going to fall by....the author doesn't say why.
>
> Then he uses technical analysis to confound the discussion. Technical
> analysis which shows, by the way, that AAPL's share price behavior
> in April and May could have been called a reversal at the time, had
> it not continued to rise.
>
> Pretty flimsy case, I would say. Please compare Apple's non-GAAP
> earnings and free cash flow to Google. Then see which stock is undervalued.
And in china Apple had to give sharing the profits and just sell the phone to the carrier. But hey in china no company was willing to get stuffed just to get one, and apple knows full well Media tek and going to be selling a boat load of smart phones much cheaper.
Now what about you...who are you and what do you really do?
On Aug 13 01:12 PM bobthenoob wrote:
> TechTrader is full of BS...
>
> AAPL
> 167.67 at 9:47 <-- you short AAPL
>
> 167.01 at 10:16
> 167.02 at 10:18 <--you posted at SA below
>
> "Techtrader10 Aug 13 10:18 AM:
> Current position: Day Trader, short at around 9:47 AM, looking to
> get out, its around 10:16"
>
> 167:41 at 10:20
> 167.47 at 10:22
> 167.59 at 10:24
> 167.64 at 10:26
> 167.55 at 10:28
> 167.55 at 10:30
> 167.47 at 10:32
> 167.43 at 10:34 <-- this was the lowest price AAPL traded after you
> posted at 10:18 and have not dipped this low as of 12:27 when you
> posted that you got out.
>
> "Techtrader10 Aug 13 12:27 PM:
> Apple's price will sometimes spike first thing in the morning, and
> then has a quick sell off. As a "day trader", an hour is a long time
> for me. My average sell price was $167.69, I got out at and average
> 167.07. A total of a little over 5,000 shares"
>
> 167.48 at 10:36
> 167.70 at 10:38
> 167.94 at 10:40
> 167.90 at 10:42
> 167.92 at 10:44
> 167.92 at 10:46
> 167.88 at 10:48
> 167.90 at 10:50
> 168.11 at 10:52
> 168.45 at 10:54
> 168.55 at 10:56
>
> I just don't see how you're able to average at 167.07.
On Aug 13 01:32 PM GSlusher wrote:
> @Techtrader10:
>
> Can you provide evidence that Microsoft, Dell, HP, Palm, Nokia, Toshiba,
> etc, don't use exactly the same accounting method when "filling the
> pipeline?" AFAIK, that's a standard accounting practice. Suppliers
> find it difficult to track actual retail sales in stores they don't
> own, other than stuff that goes out minus stuff that's returned.
> Apple (and some others) are in a better position, as they can track
> activations of SOME items (iPhones, for example, or Macs registered
> via the Internet), but not all.
As I said, I'm a day trader, not a position trader. I don't hold most stocks more than a short time...by that I mean less than a day.
On Aug 13 01:26 PM bobthenoob wrote:
> "Techtrader10 Aug 13 12:41 PM
> This is the "PR" type of guy I have been talking about, all hype,
> makes the stock look good in every sentence.
>
> Go to his bio, no information, no credentials, he either works for
> Apple, owns the stock and is plugging it, or works for a company
> that is long the stock and is plugging it.
>
> Also Notice, no disclosure..."
>
> So you short AAPL and post negative crap with no links to support
> it. And your point is?
>
> Just look at AAPL quarter after quarter the past five years if you
> think they're hiding anything. Here's my disclosure if you failed
> to see it based on my posts... I'm AAPL long.
>
> You're just bitter because you bet on the wrong stock LOL
I distinctly recall, on a quarterly phone call (March or July), that either Oppenheim or Cook said that the "counts" were sell-through counts, not channel count. Unless you have proof of what Apple is actually doing, you are making up things here for reasons unknown. I remember Toni-the-Warehouse, supposedly an analyst, made the same channel-stuffing claim back in January of '08 and was then resoundingly proven wrong once Apple revealed its quarterly results.
Can you now point to a specific instance over the past 12 quarters when Apple's reporting has returned to "bite" it? As in Apple counted high and sold low? How do you account for the growing margin, growing profit and growing cash if this is happening?
Are you implying, without being specific, that Apple is cooking its books? That is a very serious accusation, even in a simple informal forum like this.
On Aug 13 12:27 PM Techtrader10 wrote:
> Apple's price will sometimes spike first thing in the morning, and
> then has a quick sell off. As a "day trader", an hour is a long
> time for me. My average sell price was $167.69, I got out at and
> average 167.07. A total of a little over 5,000 shares
>
> One thing a company can do, is to set up the company stores as separate
> entities. Thereby allowing the corporation to show sales to the
> stores as a profit, while allowing the stores to list the product
> as current inventory and not necessarily a chargable expense. Also,
> when Apple opens up a new market, their sales increase as they "fill
> the pipeline" even though the buyer in the new market has the right
> to return product in the future. As I think I mentioned, a company
> can use this accounting move to make a quarter or even a year look
> good, eventually it will come back to hurt them if their products
> are not sold.
>
> I've watched companies do this to make a particular period of time
> look good for them. Usually what will happen if they are unable
> to over come the bad quarters, they will bunch all the bad numbers
> into a one time write off, take the big hit, and come back with a
> clean p&l statement to start the process all over again.
...
Apple's shares exploded in after-hours trading. Having closed at $189.86, shares leaped more than 13 points in the next hour and 40 minutes to $202.87 — an all-time high."
brainstormtech.blogs.f.../
Hey shorties, maybe you'll get your shirts back tomorrow? or maybe loose more?