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Avi Fogel
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Avi is a board member at New York Angels, and runs its education committee. He's also a board member at the Israel Venture Network (IVN), a social venture / philanthropy organization, a board member at Localytics - a leading mobile app analytics company and a board member at CoursHorse - a NYC... More
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  • Apple (AAPL) - All In

    Apple (NASDAQ:AAPL) - All In

    This article presents our rationale why Apple shares now present an entry opportunity, for profitable returns, not seen since December of 2011. The article includes an assessment for a substantial top line and bottom line beat in the upcoming earnings release on Jan 23rd, where it seems reasonable that the share price will break through the double bottom base pivot at ~$595 for a new breakout post earnings.

    A combination of several factors has put pressure on AAPL shares since September, 2012.

    · Year-end selling to retain the 2012 tax levels on profits

    · Tax loss selling for those that rode the stock down

    · Shorts piling on tax based sellers

    · Supplier "checks" by several sell side analyst firms

    · Various operational concerns raised by many of the same sell side analysts, such as cannibalization of iPad by iPad-Mini, supply constraints for iPhone 5 and iPad-Mini, soft demand for iPad in FQ4/'12, pricing of iPad-Mini being too high and concerns about Apple losing its mojo with the passing of Steve Jobs.

    While many of the concerns have been addressed well in previous articles, I'll just mention several additional points mitigating some of these:

    iPad cannibalization by iPad Mini - While iPad-Mini is rolling off the shelves in China and other lower income geographies, indications are that Mini will not exceed 25%-30% of the total, as hinted to by theanalysis published by Localytics

    iPad-Mini pricing - Despite such pricing - numerous reports have since suggested that iPad-Mini can't be manufactured fast enough, and that it is a major hit in China

    Supply constraints - since late November, deliveries on iPhone 5 were from stock and iPad-Minis were for delivery within 1 week.

    The analysis here will focus on 2 areas:

    1. Supply "checks" vs. demand-side projection

    2. The company's projected performance this quarter, based on its historic performance

    There are additional important considerations regarding the relative strength of AAPL's P/E and PEG (P/E to Growth), as compared to AMZN, GOOG, QCOM, which we will not address here.

    While you never really know, and risks remain, AAPL now seems to present an unprecedented entry opportunity for very substantial gains, in the short, mid and long term, and may be one of those rare opportunities one gets, for an "all-in" investment. The "all-in" is used as a metaphor, and not as an actual recommendation. Please perform your own risk/reward assessments for any allocation of your investments into Apple.

    Supply checks vs. demand-side data

    All the projections used as rationale for estimate reductions were a result of what the sell-side analysis call "supply chain checks".

    What are these checks? As a Taiwanese or Japanese supplier to Apple, what would the motivation be to provide accurate information? Besides breaching confidentiality agreements with Apple and risking its business, the only thing such a supplier might benefit from is if, as a result of their information, the stock swoons, and they can pick it up cheaply. Why in the world would the suppliers care about accountability, and why are sell side analysts willing to bet their projections on such illegal info sharing? makes you wonder…

    We are all better off relying on demand side information than this questionable supply side "data" which even if accurate is limited at best - since AAPL continuously modifies its supply chain and does on-going supplier adjustments for what is probably the best Just-In-Time (JIT) product manufacturing process on the planet.

    So what does demand side data show for the December quarter?

    AT&T smartphone sales bode well for AAPL from 1/8/13

    Apple steals throne from Android from 1/7/13

    Large iPad - the preferred tablet for enterprises from 1/7/13

    Apple's app store downloads have increased to a total of 40 billion with payout to app developers accelerating from 1/7/13

    As a matter of fact, between January and July of 2011, Apple reported that 5 billion app download took place, which equates to 830 millions download per month. In 2012, 20 billion downloads took place over the 12 months, equating to 1.67 billions download per month - so downloads are increasing, and with it monetization for Apple and its developer eco-system

    Largest number of iPhones ever - 2M, sold in China over opening week-end - from 12/16/12

    Morgan Stanley's Katy Huberty on Customer Demand for iPhone and iPad - from 12/17/12

    Apple's iPhone takes 68.2% of new small & medium business smartphone activations - from 12/19/12

    Record AT&T smartphone sales bode well for iPhone - from 12/5/12

    IBM: Apple's iOS dominated holiday shopping, 330% greater than Android - from 11/25/12

    Hardly indications of a company in decline or stagnation, but rather a continued very high growth player and a very successful potential FQ1/'13.

    History of projections vs achievements

    Given the strong demand-side indications, the excessive bearish sentiment and the larger short interest since mid-November 2012, we project rapid ramp-up for the stock, post earnings, resulting from a massive revenue and EPS beat for AAPL in this FQ1, 2013, as can be seen in the leftmost column - with revenues of $61.48B, 58 million iPhones sold and 26 million iPads, of which 10 million are projected to be iPad-Minis. ASP's for the phone and tablet, include accessories.

    Of the $61B+ in revenues - $37.7B will be from iPhone sales, $11.78B from iPad sales and $12B from other revenue.

    Enclosed below is a table showing 11 quarters worth of data, including:

    · Actual, company projected and analyst consensus on revenues

    · Actual, company projected and analyst consensus on EPS

    · Over(or under) achievement vs. company projection and analyst consensus on both revenues and EPS

    · Gross margins - actual and projected

    · Unit sales of iPhone, iPad, MAC, iPod

    · iPhone and iPad quarterly revenues and ASP's

    · Year over year (YoY) growth for revenues EPS and unit counts

    Given the pent up demand held back in FQ4/'12 for iPad and iPhone, due to imminent releases of iPhone 5 and iPad Mini - expectations are for a large "make-up" for that pent-up demand, like we saw in FQ1/'12, after the release of the iPhone 4S. We are therefore projecting YoY iPhone unit growth in FQ1'13 of 57, in line with FQ4/12 YoY growth - resulting in 58 million units. Similarly, based on demand indications as outlined above we are projecting a 69% YoY unit growth in iPads, resulting in 26 million units.

    These numbers drive a revenue over-achievement relative to company projection, of 18.2% - within the range seen in FQ1/'12 (25.2%) and FQ1/'11 (16.3%).

    EPS over-achievement relative to company projection, is 24.3% - lower than seen in FQ1/'12 (49.1%) and FQ1/'11 (34%).

     

     

     

    12/12

    9/12

    6/12

    3/12

    12/11

    9/11

    6/11

    3/11

    12/10

    9/10

    6/10

     

    FQ1/'13

    FQ4/'12

    FQ3/'12

    FQ2/12

    FQ1/'12

    FQ4/'11

    FQ3/'11

    FQ2/'11

    FQ1/'11

    FQ4/'10

    FQ3/'10

    Rev ($B)

    61.48

    35.97

    35.02

    39.19

    46.33

    28.27

    28.57

    24.67

    26.74

    20.34

    15.70

    Proj Rev ($B)

    52.00

    34.00

    34.00

    32.50

    37.00

    25.00

    23.00

    22.00

    23.00

    18.00

    13.40

    Rev OvrAchv(%)

    18.2%

    5.8%

    3.0%

    20.6%

    25.2%

    13.1%

    24.2%

    12.1%

    16.3%

    13.0%

    17.2%

    Rev Cons ($B)

    54.58

    36.40

    37.30

    36.30

    38.70

    29.20

    24.80

    23.30

    23.80

    18.40

    14.60

    Rev Cons Ovr(%)

    12.6%

    -1.2%

    -6.1%

    8.0%

    19.7%

    -3.2%

    15.2%

    5.9%

    12.4%

    10.5%

    7.5%

    EPS ($)

    14.61

    8.67

    9.32

    12.30

    13.87

    7.05

    7.79

    6.40

    6.43

    4.64

    3.51

    Proj EPS ($)

    11.75

    7.65

    8.68

    8.50

    9.30

    5.50

    5.03

    4.90

    4.80

    3.44

    2.39

    EPS OvrAchv(%)

    24.3%

    13.3%

    7.4%

    44.7%

    49.1%

    28.2%

    54.9%

    30.6%

    34.0%

    34.9

    46.9%

    EPS Cons ($)]

    13.33

    8.75

    10.35

    10.03

    9.79

    7.31

    5.81

    5.35

    5.38

    4.05

    3.08

    EPS Cons Ovr (%)

    9.6%

    -0.9%

    -10.0%

    22.6%

    41.7%

    -3.6%

    34.1%

    19.6%

    19.5%

    14.6%

    14.0%

    Net Profit ($B)

    13.53

    8.22

    8.82

    11.62

    13.06

    6.62

    7.31

    5.99

    6.00

    4.31

    3.25

    GM(%)

    38.5%

    40.0%

    42.8%

    47.4%

    44.7%

    40.3%

    41.7%

    41.4%

    38.5%

    36.9%

    39.1%

    Proj GM (%)

    36.0%

    38.5%

    41.5%

    42.0%

    40.0%

    38.0%

    38.0%

    38.5%

    36.0%

      

    iPhones (NYSE:M)

    58.00

    26.90

    26.00

    35.10

    37.04

    17.07

    20.34

    18.65

    16.24

    14.11

    8.40

    YoY growth (%)

    57%

    58%

    28%

    88%

    128%

    21%

    142%

        

    IPhone Rev ($B)

    37.70

    17.10

    16.20

    22.70

    24.40

    11.00

    13.30

    12.30

    10.47

    8.00

    5.30

    IPhone ASP ($)

    650.00

    635.69

    623.08

    646.72

    658.75

    644.41

    653.88

    659.52

    644.70

    566.97

    630.95

    iPad

    26.00

    14.00

    17.00

    11.80

    15.43

    11.12

    9.25

    4.69

    7.33

    4.19

    3.27

    YoY growth (%)

    69%

    26%

    84%

    152%

    111%

    165%

    183%

        

    IPad Rev ($B)

    11.78

    7.50

    9.20

    6.60

    9.10

    6.90

    6.00

    2.80

    4.61

    2.80

    2.20

    IPad ASP ($)

    453.08

    535.71

    541.18

    559.32

    589.76

    620.50

    648.65

    597.01

    628.92

    668.26

    672.78

    MAC

    5.00

    4.90

    4.00

    4.00

    5.20

    4.89

    3.95

    3.76

    4.13

    3.89

    3.47

    iPod

    11.00

    5.30

    6.80

    7.70

    15.40

    6.62

    7.54

    9.02

    19.45

    9.05

    9.41

    Other Rev ($B)

    12.00

    11.37

    9.62

    9.89

    12.83

    10.37

    9.27

    9.57

    11.66

    9.54

    8.20

     

    iPad-mini

    9/12-iPh 5

     

    iPad 3

    10/4 - iP4S

    1st Q closed

     

    iPad2

      

    iPhone 4

    Events

     

    iPad 4

      

    10/12-Icloud

    by Cook

         
                
                
                

    Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: My long position in AAPL is using mid-term call-option bull spreads

    Disclosure: I am long AAPL.

    Additional disclosure: Using mid-term options

    Tags: AAPL
    Jan 09 4:34 PM | Link | 3 Comments
  • Apple (AAPL) – Comparing Fundamental Valuation To GOOG, QCOM, AMZN – As Of 1/7/13 Close

    Given the recent rout to Apple (NASDAQ:AAPL) shares it may be valuable to compare the fundamentals based valuations for AAPL with 3 of its peers:

    · Google (NASDAQ:GOOG) - competing in some of the same markets (smartphones, tablets, cloud services, music downloads, TV set-top boxes and others)

    · Qualcomm (NASDAQ:QCOM) - supplying communication chips for smartphones and tablets from Apple and others

    · Amazon (NASDAQ:AMZN) - competing with Apple in tablets, content (book, music, movie) services, cloud services

    Enclosed below is a table summarizing key fundamental metrics.

    Wherever possible instead of using regular P/E, we use PLC (price per share less cash per share)/E.

    Most numbers are based on current values on Yahoo Finance. Apple's cash per share is from Apple most recent earnings release, as the number on Yahoo is incorrect.

     

     

     

    Market Cap

    Price

    Cash/share

    Diluted EPS

    PLC/E

    Diluted EPS

    PLC/E

    Diluted EPS

    PLC/E

    Growth

    PEG

    Growth

    PEG

    Rev ($B)

    Price to

    EBITDA ($B)

    Price to

     
     

    1/7/13 Close

    1/7/13 close

     

    TTM (9/30)

    TTM

    12/31 - cons

    12/31 - cons

    FTM

    FTM

    2012

    TTM

    Next 5 yrs

    FTM/5 yr

    TTM

    Sales (NYSE:TTM)

     

    EBITDA

     
     

    $B

    $

    $

    $

     

    $

     

    $

     

    %

     

    %

     

    $B

     

    $B

      

    AAPL

    $492.30

    $523.90

    $127.61

    $44.15

    8.98

    $43.61

    9.09

    $48.72

    8.13

    10.40

    0.86

    20.67

    0.39

    $156.51

    3.15

    $58.52

    8.41

     
     

    AMZN

    $121.60

    $268.46

    $11.59

    $0.08

    3,210.88

    ($0.02)

    (12,843.50)

    $1.74

    147.63

    (102.00)

    (31.48)

    32.54

    4.54

    $57.26

    2.12

    $2.09

    58.18

     
     

    GOOG

    $241.43

    $734.75

    $135.80

    $31.91

    18.77

    $32.94

    18.18

    $46.31

    12.93

    10.50

    1.79

    13.44

    0.96

    $47.54

    5.08

    $15.85

    15.23

     
     

    QCOM

    $109.07

    $64.01

    $7.26

    $3.51

    16.17

    $3.66

    15.51

    $4.31

    13.17

    16.20

    1.00

    14.68

    0.90

    $19.12

    5.70

    $6.66

    16.38

     
     

    So what does all this mean?

    The following shows 4 of the fundamental metrics above and computes what the AAPL price per share would be if it were based on the metrics of its peers.

     

     

    AAPL's price if it had

              
                

    GOOG PLC/E

    $1,096

    GOOG PLC/E (ftm)

    $833

    GOOG PEG/FTM (5 yr)

    $1,281

    GOOG Price/EBITDA

    $949

    QCOM PLC/E

    $944

    QCOM PLC/E (ftm)

    $848

    QCOM PEG/FTM (5 yr)

    $1,194

    QCOM Price/EBITDA

    $1,020

    AMZN PLC/E

    $187,410

    AMZN PLC/E (ftm)

    $9,508

    AMZN PEG/FTM (5 yr)

    $6,040

    AMZN Price/EBITDA

    $3,623

                
                

    Average price for AAPL based on the 4 metrics above

    GOOG

    $1,040

          

    Average price for AAPL based on the 4 metrics above

    QCOM

    $1,001

          

    Average price for AAPL based on the 4 metrics above

    AMZN

    $51,645

          

    So average price based on the metrics used for GOOG and QCOM would be approximately $1,000 and for AMZN's outlier valuation metrics the incredible value of AAPL would be over $50,000/share.

    So expect some reversion to the mean for both AAPL and AMZN, although as the adage goes, the market can stay unreasonable longer than we can stay solvent……

    Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: My long position in AAPL is using mid-term call options

    Jan 08 3:55 PM | Link | Comment!
  • AAPL - Is Apple's IPad Mini Really Cannibalizing The Larger IPad

    Several sell side analysts, such as UBS, have concluded a possible larger anticipated cannibalization by the AAPL iPad-Mini of the larger iPad's sales. One very interesting analytics study seems to counter that thesis. A TechCrunch article from this week, quotes real time analysis from mobile analytics firm Localytics, which tracks real-time mobile sessions of hundreds of millions of smartphones and tablets, stating that iPad-Mini traffic in November 2012 only constituted 2% of all iPad traffic. This 2% share is small compared to previous iPad release results tracked by Localytics. Thus, for example, iPad 3 took 14% of all traffic within one week of release.

    With approximately 25M-30M iPads in total slated to ship in the 4th calendar quarter of 2012 and approximately 98M iPads shipped through the end of the 3rd calendar quarter - this 2% share translates to approximately 2.0M-2.5M iPad-Minis shipped between release date on Nov. 2nd, 2012 and the end of November. Extending this to December, even with doubling of the pace of iPad Minis - to a total for the quarter of 7M-8M, still leaves a healthy 17M-22M units of the larger iPad - vs. 14M in the previous quarter and 15.4M in the year ago quarter, a YoY growth of 10%-43%.

    The conclusion is that since iPad-Mini availability it captures approximately only 25% of all iPad shipments, with a still substantial 26% YoY median growth projection for the larger iPad. In addition since it seems iPad 4 share of the total is still small, the higher margin older, larger iPads will most likely represent at least 50% of all iPads shipped - driving a higher total gross margin for this product line, than anticipated.

    Disclosure: I am long AAPL.

    Additional disclosure: My long bias is using mid-term call options

    Tags: AAPL
    Dec 17 11:30 AM | Link | Comment!
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