Apple Is Still Executing

Apple (AAPL) dropped 10% after hours, and we are going to buy on today's dip. I'll very likely be selling puts, as I'd be quite pleased to own Apple at $135 (selling $140 puts for $5+), since they are on track to earn $5 for the year. I don't mind paying a P/E of 27 for a company that is growing sales at 30% and profits at 25% a year.

The headline failure at Apple is a miss in IPod shipments at 22.1M vs 25M expected. But Apple was on target with their own forecast, and, in yet another example of how analysts are idiots, Apple's concentration on higher-end iPods, including the iPod Touch, led to a 17% iPod revenue increase over last year with an average unit price of $181 vs $172 last year. Sell more iPods for more money per iPod - it would seem simple enough for even a CNBC anchor to understand, but you would think Apple released the Zune the way they were treated on TV this evening!

As CFO Peter Oppenheimer said in last night's conference call:

One of our primary goals for this holiday season was to establish an entirely new type of iPod in the marketplace, the iPod Touch. This new iPod has the potential to grow the iPod from being just a music and video player into being the first mainstream WiFi mobile platform running all kinds of mobile applications. Because of the higher cost associated with the large touch screen and more powerful processor required to run applications like Safari, this was the most expensive iPod we've brought to market for some time. So we had the challenge of establishing a completely new type of iPod at the top of the line at a price point above where we've been for quite some time, and we succeeded.

Another little tidbit about $136B market cap Apple: While revenues were UP $2.5B for the Quarter to $9.2B ($180B market cap Google, by comparison, has $4.2B in quarterly revenues), they also "deferred" an additional $508M in revenues for the quarter on iPhones and Apple TV (something we've discussed in the past), bringing their deferred revenue total up to $1.44B. Revenue at Apple Stores grew 53%, with revenue per 201 stores now averaging $8.5M vs. $6.6M last quarter. Those stores pumped out 504,000 Macs, 64% more than last year, and 50% of the buyers were first-time Mac purchasers. 38.4M people visited Apple stores during the quarter, a 35% traffic increase from last year.

Cash increased by over $3B, giving Apple $18.4B in cash at the quarter's end, with $2.76B in free cash flow. Apple's projection for the next quarter is a 29% increase over last year, whereas the year before Q2 grew 21% from the prior year. So Apple is, in fact, projecting accelerating revenue growth; they are simply being punished for runaway expectations. But when push comes to shove this company is executing, and I will buy at $140 and I will buy at $120 and I will buy at $100 (I wish) and if it drops below that I will probably sell everything else I own and buy then too, at which point I will retire from the markets for the duration of the depression (as that is what is would take) and come back when I'm back with a double.

Disclosure: Author is long Apple and some members of his family own the stock.

Comments

[rajsekar:]

The author is forgetting the fact that 2008 is beginning of a recession and how many people out of 38.4 million who visited Apple stores last quarter carried a MacBook. Will the same number visit the stores this quarter to buy the new Air or MacBook? Why will someone shell out $1800 or $1200 to buy a new Macbook when you can get a much powerful and decent Windows laptop from HP, Toshiba, Dell and Sony for less than $900? Apple can milk consumers when economy is brighter but otherwise their wallets remained closed. The days of iPod growth are over worlwide since there are much cheaper and good MP3 players in the market that can play non-DRM and non-iTunes songs. By end of 1Q 2008, Apple stock should close below $110 or even $100.

2008 Jan 24 03:22 PM

[jonreagan:]

I'm not sure I can argue with any thing in this article; the company is hugely successful, with products that people want. And they've executed flawlessly. I would have to question the target of 10 million i-phones by the end of 2008; while they have a full year to go, they've had the benefit of a huge product launch and a full holiday selling season. Good luck with the next 5.5 million....

On the other hand, I've heard one of the CNBC "Fast Traders" recommend getting long AAPL every night since MacWorld began! With each decline, he's declared a buying opportunity--and here we are more than sixty points down two weeks later.

Markets aren't rational; in fact, they're more irrational (and rigged) than ever. Apple is a great company, but at this point, a broken stock. From where I'm sitting, it's a classic "stage 4" stock, right out of Stan Weinstein's writings.

2008 Jan 24 07:38 PM

[theobannion:]

I was reading your post of the 20th or 22nd, & just wanted to point out that FDR was elected in '33 & inaugurated in '34. That same year, 1934, a group of businessmen, led by Du Pont and Morgan, planned to overthrow him with a military coup and install a fascist government modelled after Mussolini's regime. They promised General Smedley Butler an army of half a million, unlimited backing, plus positive media spin. Unfortunately, Butler reported the plot to Congress. Just one of many little-known facts of American History. The darkness continues as long as the lights are left off: With all the talk about the Great Depression and its similarities (& dissimilarities) to our present era, how many people have you heard talking about the similarities between the roaring twenties & post-Reagan America? The GD, by many accounts, had already bottomed in 1933.

I enjoy your posts.

Best,
Seamus O'Bannion
seamusobannion.blogspo...

Jan 24 11:11 AM

[theobannion:]

Phil,

Sorry, my comment was an O-o-ops! FDR was elected in '32 & inaugurated in '33. The planned coup was intended to take place in '34.

SOB.

Jan 24 12:15 PM