yes, i do like the upside on the business/education side, of selling more ipads/pcs/iphones to corporations and schools, and taking market share there from traditional pcs. note from my model, i've taken an extremely conservative approach of just modelling just the same units sold in Q1 for remainder of the quarters in 2013, which implies a decline in units sold from 2012 levels. this could prove to be too conservative and could provide some upside particularly given business/education sales.
thanks very much. i took those haircuts so it can help remind myself of what should be the absolute bottom, and hopefully force me to be patient through the short term pain, until some positive news from apple hopefully can get announced (ie: china mobile deal, new iphone 6 later this yr, iTV, etc.) and can begin to get priced in. i just hope internally, apple hasn't started to focus more on operations (b/c of tim's background, iphone 5 and ipad mini felt like operational type products, of just increasing or decreasing screen size/speed capabilities of existing products) over innovation.
very good comment tom. patience and long term horizon are advantages that individuals have (b/c we don't have quarterly/annual results and comps against benchmarks). but the hard part is picking which stocks are a good long term investments. there are also such things as bad long term investments, especially related to tech stocks that can change so much do to newer technology products that come along (ie: what happened to NOK, RIMM, HPQ in the past 5-7 years, to apple's benefit). i want to believe apple remains long term secular play, but until apple announces new info that proves otherwise (new iphone 6 that creates excitement again, new china mobile contract, new iTV), then i can only give them credit now at best as an income like stock at 10x P/E, while keeping in mind potential downside that has happened to other tech stocks in the past (and apple is no different, they at the end of the day, need to continue to innovate or they too will be like NOK in the past).
i hope Apple does announce something positive as a catalyst soon, so i can update my valuation to the upside. but for now, it remains at best $550, without accounting for momentum/fear discount.
i think that for now partly shows up in their itunes/services category (which is 9% of sales, and 12% of gross profit if you assume service has 50% gross margins). for example, when they kicked google maps off, google had to then create a google map app. and whatever eventual map ads google sells, in theory they would have to give apple their 30% cut b/c its under the App contract. also, Apple's passbook app prob gets some kind of cut for helping to promote store value cards, movie tickets, coupons, etc.
going forward, i agree apple could do more with search ads/mobile ads, with their existing safari on mobile and maybe offer their own search platform. but i think that takes a good amount of r&d and possibly different expertise to offer a good offering (look at apple's map app, it's unfortunately inferior to google maps and they've gotten criticized for it since launching it).
apple has a huge advantage in mobile, b/c of beautifully designed hardware consumer products that alot of people use. but on the software side, they need to decide whether to a) continue to be a platform and leverage 3rd party developers (like they do with apps), or b) if they want to and can successfully develop their own software that is as good/if not better than competitors (apple mail, safari, maps). good luck.
i think apple still has alot of premium appeal in general in china, but i think samsung has made up some of that gap. and its also product specific, ipads still have premium appeal (even the ipad mini), but iphone may be losing some of its previous luster (iphone 5 wasn't as overwhelming/innovative as previous iphone launches unfortunately).
i think the size of the phone, and these phablets (galaxy note II), also has some china specific considerations. when people save up and buy a smartphone, it becomes their main content consumption product. the majority of people here just dont have the income level to buy an iphone, ipad, macs, etc. they save up and buy one, and use it 24/7. so these phablets/larger screen phones have a certain appeal in china, b/c people can use it on the move, and at home to watch video/surf internet/etc (they prob dont have also another personal computer/full tablet as well as home, or if they do, it's some old/cheap one). so while iphone 5 screen size may be the best option in say the U.S. (b/c ergonomically it allows 1 hand use, and people will then switch to ipad at home), it may not be the best in other international markets (ie: china).
the downside (that tim cook probably thinks about, since he's such an ops guy) to offering too many product lines, is that it will lower gross margins. it's more profitable due to operating leverage to just sell say 150mm of one type of iphone, than it is to sell 150mm across 4-5 types of iphones. so it's a difficult trade-off that apple is probably thinking through. and it goes back to what i mentioned in the article, if the incremental sales offsets the margin loss so that absolute net income grows, than it's a good thing. if not, then it's a bad thing.
i think at a minimum though, apple needs to at least go from 1 iphone size/type to say 2 types (a larger screen size, or iphone mini). but it probably doesn't make sense for them to go to +5 types (like a samsung), given apple doesnt own their own much of their manufacturing capabilities (exponentially harder to manage with multiple suppliers/contract manufacturers for a bunch of product lines than just 1 line). good luck.
i dont believe so, china mobile is committed to their own 3G technology b/c i think chinese govt wants to push more home grown technology. but this doesnt mean apple cant sell china mobile iphones, it just means they need to create an iphone that's compatible with the local network (so maybe it takes a bit longer, especially given apple cares alot about consumer experience, and if the local 3G is not as good as international standards, then apple will prob spend the extra time/cost to adjust the components within their iphone (what they can control) so it does help deliver high level of consumer experience. i don't know how difficult that is to do (i'm not an engineer), but maybe that's why there's been such a long hold-up on a china mobile deal. good luck.
i'm not sure buying netflix would add value to apple shareholders. apple already provides video through pay per clip basis, instead of subscription basis, which is the most best risk/reward path (they just serve as middlemen and collect their 30% fee), and they don't have to incur upfront content costs for subscription models have to incur (like nflx and amzn prime video).
even though netflix has popped recently (may be more related to short squeeze than real demand), i'm not convinced paying up for expensive content costs and charging subs just $8, is a successful, long term profitable business model. you can get short term success in sales and subscriber growth, b/c you are essentially under-pricing your offering (compared to paying per video, or cable networks), but we'll see in the long run if it's profitable though. good luck.
i agree, there can always be more research to be done, whether you already own a stock, or thinking of buying a new one. yes, i wished i knew what i know now back when i bought apple in the first place, b/c i probably could have gotten in at a lower price point.
unfortunately, there's only so much research i can do as an individual investor, given I can't allocate 100% of my time to researching stocks (i also have to do my normal job). i'm not going to be able to do retail channel checks, apple supplier checks, foot traffic counts outside apple stores or verizon/at&t/etc. stores, research on competitive products, consumer surveys, etc. so what i do is wait for new information from the company (like the Q1 results that just released), and then update my expectations. i also read research reports on apple (from guys that do, do this for their job), but as mentioned above, i can't rely on them too much and need to form my own opinion/projections.
i wish i could do this 100%, b/c this stuff is just very fascinating to me (who knows, maybe in the future). good luck.
i agree that's true, if you don't own apple now and may be getting a discount price b/c of the fear getting priced in. unfortunately, i own apple already, so it's more pain to me in the short term.
hi richbar, it's shown above in the table. i take the $43 times 10x P/E, gets you to $433, then i add the cash balance $137bn or $145 per share, and subtract out $23.5bn taxes owed (or $25 a share) from the $94bn cash that's overseas (the $14bn deferred tax liab on their balance sheet, doesn't mean they've paid for this. it's a liab, just like a debt, so you need to take it out of the cash balance still). good luck.
i wish i did buy apple back in 2009. my cost basis would be much much lower. unfortunately i didn't start doing a deep dive into apple until recently (b/c i thought i saw a value play there).
i live in china now. i also travel around asia a good amount (i like backpacking and seeing the rest of the world with my fiance). yes, apple is everywhere, you'll see all these 3rd party, illegal apple retail stores in countries that dont have apple stores b/c there's that much local demand (which was another reason i bought the stock).
however, just remember some of that is already reflected in their results and the stock, +60% of apple's sales in Q1 was from outside of the U.S. http://1.usa.gov/Vo2ngT
i agree, at a 10x P/E, it's as if you're getting a 10% return on your money (u get all your money back in 10 years, if apple paid all net income out in dividends). and maybe that partly explains some of the sell off (growth funds ditch apple b/c no longer growth story, and have to wait for income funds to pick up apple).
btw, if you compare my 2013 EPS of $42.76, i'm actually projecting a decline from 2012 EPS of $44.15. again, i'm valuing apple as if going forward it's a income stock, not a growth stock. and i get to a $550 price. but again, i can't control the fear factor. and again, i can still be too high on 2013 EPS, if apple has more severe margin issues (or increased competition that starts taking away from their market share).
amzn's P/E has to do with their really low net profit margins (1% or less, compared to aapl at 27%), and belief that amzn's margin will increase in the future (historically they have hit 4%, which is in line with other retailers like walmart, target, etc.). if you look at sales multiple, they're at just 2x sales, which is not crazy.
i don't like amzn for other reasons besides their low margins (cloud biz is just 3% of sales not as big as people think, they're not as successful overseas (50% of sales), especially in china, as they are in the u.s., but they get credit as if all they dominate all e-commerce globally, don't like hardware kindle biz, traditional retailers stepping up their game, online video content costs very expensive, etc.). but i can see how amzn bull's make their case (base on thin margins increasing over time, current 2012E P/E is 170x, but if margins increase from 1% to 4%, then that P/E drops from 170x to 42.5x). good luck.
apple has just 5-6 retail stores total in china. they also have deals to sell through china unicom and china telecom, but not china mobile which is the largest carrier here. i think apple/china mobile is taking so long b/c a) china mobile runs on their own locally developed 3G/4G technology (they were forced to develop their own by chinese govt, while the other 2 carriers got to use international systems, so to even the playing field), b) they're probably also debating the wholesale discount that china mobile would get (since in china, carriers also need to do similar subsidies to their subscribers to lower the price point to something more affordable/mainstream appeal).
in terms of demand (once they get over these operational issues and hopefully get the china mobile deal done), i think their is a good amount of demand here in china (i live in shanghai), and people here (even though on average may only make $500 USD a month, prob closer to $1,250 USD in urban cities) will save up to buy a smartphone (most people commute to work on subway and takes up 1-2 hrs total a day, so everyone is on their phones during their commute, keeps them sane). although i've seen a good amount of samsung galaxy III recently in the subways. which is why i do hope apple will eventually also consider a larger screen option (consumers seem to like it, even if tim cook/apple team think differently). good luck.
i agree, i think its just too cheap now, which is why i'm still holding on to apple. but i have to remember that i was wrong before, and if my assumptions are still too optimistic, then the target price that the model spits out still will be too high (garbage in, garbage out).
i think though i am very conservative now in my assumptions. i assume almost no additional product growth/new product launches (iphone mini, larger iphone screen, itv, etc.), no product refresh (if iphone 6 comes out later this year, then that quarter will have a bump as well), no seasonal pickup prior to school starting, no PC replacement pickup (PCs typically have replacement cycles of 3-4 yrs), etc.
again, this is just my current target price, if new info comes out from the company (either positive like a new carrier contract or new product launch, or negative like less units sold than i projected in Q2), then i will need to revise the assumptions again. good luck everyone.
Lessons Learned From An Apple Bull [View article]
Lessons Learned From An Apple Bull [View article]
Lessons Learned From An Apple Bull [View article]
i hope Apple does announce something positive as a catalyst soon, so i can update my valuation to the upside. but for now, it remains at best $550, without accounting for momentum/fear discount.
Lessons Learned From An Apple Bull [View article]
going forward, i agree apple could do more with search ads/mobile ads, with their existing safari on mobile and maybe offer their own search platform. but i think that takes a good amount of r&d and possibly different expertise to offer a good offering (look at apple's map app, it's unfortunately inferior to google maps and they've gotten criticized for it since launching it).
apple has a huge advantage in mobile, b/c of beautifully designed hardware consumer products that alot of people use. but on the software side, they need to decide whether to a) continue to be a platform and leverage 3rd party developers (like they do with apps), or b) if they want to and can successfully develop their own software that is as good/if not better than competitors (apple mail, safari, maps). good luck.
Lessons Learned From An Apple Bull [View article]
i think the size of the phone, and these phablets (galaxy note II), also has some china specific considerations. when people save up and buy a smartphone, it becomes their main content consumption product. the majority of people here just dont have the income level to buy an iphone, ipad, macs, etc. they save up and buy one, and use it 24/7. so these phablets/larger screen phones have a certain appeal in china, b/c people can use it on the move, and at home to watch video/surf internet/etc (they prob dont have also another personal computer/full tablet as well as home, or if they do, it's some old/cheap one). so while iphone 5 screen size may be the best option in say the U.S. (b/c ergonomically it allows 1 hand use, and people will then switch to ipad at home), it may not be the best in other international markets (ie: china).
the downside (that tim cook probably thinks about, since he's such an ops guy) to offering too many product lines, is that it will lower gross margins. it's more profitable due to operating leverage to just sell say 150mm of one type of iphone, than it is to sell 150mm across 4-5 types of iphones. so it's a difficult trade-off that apple is probably thinking through. and it goes back to what i mentioned in the article, if the incremental sales offsets the margin loss so that absolute net income grows, than it's a good thing. if not, then it's a bad thing.
i think at a minimum though, apple needs to at least go from 1 iphone size/type to say 2 types (a larger screen size, or iphone mini). but it probably doesn't make sense for them to go to +5 types (like a samsung), given apple doesnt own their own much of their manufacturing capabilities (exponentially harder to manage with multiple suppliers/contract manufacturers for a bunch of product lines than just 1 line). good luck.
Lessons Learned From An Apple Bull [View article]
Lessons Learned From An Apple Bull [View article]
even though netflix has popped recently (may be more related to short squeeze than real demand), i'm not convinced paying up for expensive content costs and charging subs just $8, is a successful, long term profitable business model. you can get short term success in sales and subscriber growth, b/c you are essentially under-pricing your offering (compared to paying per video, or cable networks), but we'll see in the long run if it's profitable though. good luck.
Lessons Learned From An Apple Bull [View article]
unfortunately, there's only so much research i can do as an individual investor, given I can't allocate 100% of my time to researching stocks (i also have to do my normal job). i'm not going to be able to do retail channel checks, apple supplier checks, foot traffic counts outside apple stores or verizon/at&t/etc. stores, research on competitive products, consumer surveys, etc. so what i do is wait for new information from the company (like the Q1 results that just released), and then update my expectations. i also read research reports on apple (from guys that do, do this for their job), but as mentioned above, i can't rely on them too much and need to form my own opinion/projections.
i wish i could do this 100%, b/c this stuff is just very fascinating to me (who knows, maybe in the future). good luck.
Lessons Learned From An Apple Bull [View article]
Lessons Learned From An Apple Bull [View article]
Lessons Learned From An Apple Bull [View article]
i live in china now. i also travel around asia a good amount (i like backpacking and seeing the rest of the world with my fiance). yes, apple is everywhere, you'll see all these 3rd party, illegal apple retail stores in countries that dont have apple stores b/c there's that much local demand (which was another reason i bought the stock).
however, just remember some of that is already reflected in their results and the stock, +60% of apple's sales in Q1 was from outside of the U.S. http://1.usa.gov/Vo2ngT
good luck.
Lessons Learned From An Apple Bull [View article]
i agree, at a 10x P/E, it's as if you're getting a 10% return on your money (u get all your money back in 10 years, if apple paid all net income out in dividends). and maybe that partly explains some of the sell off (growth funds ditch apple b/c no longer growth story, and have to wait for income funds to pick up apple).
btw, if you compare my 2013 EPS of $42.76, i'm actually projecting a decline from 2012 EPS of $44.15. again, i'm valuing apple as if going forward it's a income stock, not a growth stock. and i get to a $550 price. but again, i can't control the fear factor. and again, i can still be too high on 2013 EPS, if apple has more severe margin issues (or increased competition that starts taking away from their market share).
Lessons Learned From An Apple Bull [View article]
i don't like amzn for other reasons besides their low margins (cloud biz is just 3% of sales not as big as people think, they're not as successful overseas (50% of sales), especially in china, as they are in the u.s., but they get credit as if all they dominate all e-commerce globally, don't like hardware kindle biz, traditional retailers stepping up their game, online video content costs very expensive, etc.). but i can see how amzn bull's make their case (base on thin margins increasing over time, current 2012E P/E is 170x, but if margins increase from 1% to 4%, then that P/E drops from 170x to 42.5x). good luck.
Lessons Learned From An Apple Bull [View article]
apple has just 5-6 retail stores total in china. they also have deals to sell through china unicom and china telecom, but not china mobile which is the largest carrier here. i think apple/china mobile is taking so long b/c a) china mobile runs on their own locally developed 3G/4G technology (they were forced to develop their own by chinese govt, while the other 2 carriers got to use international systems, so to even the playing field), b) they're probably also debating the wholesale discount that china mobile would get (since in china, carriers also need to do similar subsidies to their subscribers to lower the price point to something more affordable/mainstream appeal).
in terms of demand (once they get over these operational issues and hopefully get the china mobile deal done), i think their is a good amount of demand here in china (i live in shanghai), and people here (even though on average may only make $500 USD a month, prob closer to $1,250 USD in urban cities) will save up to buy a smartphone (most people commute to work on subway and takes up 1-2 hrs total a day, so everyone is on their phones during their commute, keeps them sane). although i've seen a good amount of samsung galaxy III recently in the subways. which is why i do hope apple will eventually also consider a larger screen option (consumers seem to like it, even if tim cook/apple team think differently). good luck.
Lessons Learned From An Apple Bull [View article]
i agree, i think its just too cheap now, which is why i'm still holding on to apple. but i have to remember that i was wrong before, and if my assumptions are still too optimistic, then the target price that the model spits out still will be too high (garbage in, garbage out).
i think though i am very conservative now in my assumptions. i assume almost no additional product growth/new product launches (iphone mini, larger iphone screen, itv, etc.), no product refresh (if iphone 6 comes out later this year, then that quarter will have a bump as well), no seasonal pickup prior to school starting, no PC replacement pickup (PCs typically have replacement cycles of 3-4 yrs), etc.
again, this is just my current target price, if new info comes out from the company (either positive like a new carrier contract or new product launch, or negative like less units sold than i projected in Q2), then i will need to revise the assumptions again. good luck everyone.