Seeking Alpha

"The king is dead, long live the king," Doug Kass declares on CNBC (video) following Apple's...

"The king is dead, long live the king," Doug Kass declares on CNBC (video) following Apple's (AAPL -12.3%) FQ1 report. Kass, no stranger to criticizing Apple, foresees "a new normal" of slow growth and lower multiples. Sell-side loyalists are counting on some mixture of new iPhones, a retina iPad Mini, carrier partnerships, and an iTV to reignite growth. Canaccord: “The timing of new products that could excite the market is going to be key to whether the stock continues to go down." (more) (transcript)
Comments (33)
  • Kass is just following the hedge fund and IB liquidation of their holdings in Aapl ("hedge fund hotel" -- funny but true). Goog, Amzn and Nflx are the beneficiaries of this exchange of gaming chips, as are the Russell 2000 and various financials.
    24 Jan 2013, 07:29 PM Reply Like
  • Sorry, but there is nothing this man could say that I would believe. He's been on both sides of the story talking his book in the last month. Just another bad guy I'm afraid that shouldn't be given a soapbox, but then CNBC obviously hates Apple, it's all negative comments all the time.
    24 Jan 2013, 07:50 PM Reply Like
  • As my late Mom would have said: "He (Kass) talks a lot of bloody rubbish.." And when questioned he stumbles and bumbles.
    Why do I bother reading this stuff....
    25 Jan 2013, 01:02 AM Reply Like
  • Actually Krichard, AAPL might never have gotten to an absurd $700 price had it not been for the cheer-leading of CNBS. Their incessant rah-rah'ing, with Crammers comments for good measure, created a frenzy of hysteria which many apparently fell victim to.


    Of course, unlike other 'analysts', CNBS is seemingly immune for their stock hyping behaviors.
    24 Jan 2013, 08:03 PM Reply Like
  • I don't think the managers at the big funds sit around and watch CNBC and with a $500B market cap, it's unlikely that retail investors really move this stock.
    24 Jan 2013, 08:23 PM Reply Like
  • A lot of institutional investors aka closet indexers underperformed last year because they did not own enough AAPL. It would be amusing if they underperformed this year because they owned too much AAPL.
    24 Jan 2013, 08:39 PM Reply Like
  • Why doesn't AAPL buy CNBC and close it down. Worth $50 billion in market cap?
    24 Jan 2013, 09:26 PM Reply Like
  • The reports of my death have been greatly exaggerated.


    (Mark Twain)
    24 Jan 2013, 09:27 PM Reply Like
  • one of my favorite "Twainers".
    25 Jan 2013, 01:06 AM Reply Like
  • just a matter of time before we can say Kass is dead, who cares
    24 Jan 2013, 09:49 PM Reply Like
  • Just a matter of time before Apple opens up the new content box to lets the animal spirits out, catching Mr. Kass & Company with their pants down.
    24 Jan 2013, 10:19 PM Reply Like
  • This shill can't go away fast enough.
    24 Jan 2013, 09:52 PM Reply Like
  • What side of his neck was he talking out of?
    24 Jan 2013, 10:17 PM Reply Like
  • From a simple P/E multiple / DCF perspective, Apple was fairly valued at $700 if one had assumed some relatively conservative forward estimates. At that time, the P/E ratio was about 16X. The corresponding earnings yield was 6.3 percent.


    If one assumed earnings would grow at 6 percent for the next five years, then level out to 4 percent thereafter, and used a discount rate of 11 percent (fairly standard for equities), the $700 price was justified.


    Now look at the situation.


    AAPL stock is about $450 a share. The P/E multiple is 10X. The earnings yield is now 10 percent. If one assumes that Apple will demonstrate forward EPS growth of 1.5 percent flatlined out forever, and use the 11 percent discount rate, then the current 10X multiple is justified. It implies that an investor, given the option of otherwise normal market returns, believes that Apple is done growing.


    Seems a bit irrational.


    The market can be irrational. It doesn't have to behave as we think it should. It can stay irrational a long time. But investors are now expecting Apple stock will hardly grow anymore.


    One more thought: let's say that we assume that Apple will grow earnings at 10 percent a year for five years, then level off to 5 percent growth a year onward. That's doesn't sound too outlandish. To justify a 11X multiple, one must require a discount rate of 17.5 percent. That means that an investor assumes that the risk of AAPL's earnings is so risky, an alternative market return of 17.5 percent would be needed to him to compensate for that risk.
    24 Jan 2013, 10:21 PM Reply Like
  • "One more thought: let's say that we assume that Apple will grow earnings at 10 percent a year for five years, then level off to 5 percent growth a year onward. That's doesn't sound too outlandish."


    4Q11 earnings were $13.1b. 4Q12 earnings were $13.1b. Assuming 10 percent earnings growth next year, never mind five consecutive years, may in fact be outlandish. And that's not counting the assumption of 5 percent growth out to infinity. Apple's revenues went up 17% while earnings were flat. That's a non-trivial development.
    24 Jan 2013, 10:34 PM Reply Like
  • Agreed, Zhang Fei


    P/E and DCF is all about assumptions.


    If one assumes that AAPL will not grow at all: zero EPS growth..... forever.....then the P/E (at 11 percent discount rate) should fall to 9.1X. We'd have a $400 stock.


    Consensus analysts now indicate Apple EPS will grow at 10 percent this year, then 17 percent in 2014. These estimates could continue to go down.


    One can jigger the assumptions, but the math is set.


    As they say, you place your bets and you takes your chances.
    24 Jan 2013, 10:54 PM Reply Like
  • Zhang - you can't seem to grasp that the earnings released last night were up 7.8% from last year WHEN ANALYZED ON A WEEKLY BASIS. You cannot compare a 14 week quarter to a 13 week quarter. Sales are judged by the day, and on a day-by-day basis AAPL is earning 7.8% more than it did in the year ago period. Yes, margins are compressing. But, assuming a 5% ongoing EPS growth rate is not unfair (and is less than they have been producing). Now, just allow them to buy-back 20 billion in shares each year (4% market cap), and this "EPS growth" will be near 10% for the next 3-5 years.
    24 Jan 2013, 11:02 PM Reply Like
  • "Zhang - you can't seem to grasp that the earnings released last night were up 7.8% from last year WHEN ANALYZED ON A WEEKLY BASIS."


    4Q11 featured a 12 week quarter for the Iphone 4S, whereas 4Q12 featured a 13 week quarter for the Iphone 5, a much bigger upgrade than the Iphone 4S. That's all there is to it. AAPL's numbers were a disappointment, and people who are seriously looking at the numbers rather than parroting Tim Cook's excuses are reacting to real issues with the quarter's results by trimming the amount of AAPL stock they own.
    24 Jan 2013, 11:12 PM Reply Like
  • iPhone 4S didn't have any of the supply constraints as the iPhone 5. The real question is this current quarter because iPhone 5 sales should spill over and apple would therefore have higher growth than they did last year.
    25 Jan 2013, 04:01 AM Reply Like
  • @Ray - you obviously forgot to take the 144 billion cash into account. Try again.
    25 Jan 2013, 05:22 AM Reply Like
  • Hi Truffel


    Yes, I ignored their 137 billion cash. Just wanted to keep it simple. Taking the cash out lowers the current P/E farther. It makes the numbers even more pronounced.
    25 Jan 2013, 09:12 AM Reply Like
  • And AAPL had a 29% YoY increase in iPhone sales. Is that a disappointment?
    25 Jan 2013, 11:04 AM Reply Like
  • Only true if one doesn't take the different lengths of the quarters into account. The recent quarter was a full week shorter than the previous years. That's also a non-trivial data point.
    25 Jan 2013, 01:42 PM Reply Like
  • "iPhone 4S didn't have any of the supply constraints as the iPhone 5."


    The Iphone 5 had no material supply constraints. It was available everywhere for most of the quarter on the Apple website, and at various distributors such as AT&T, Verizon and Best Buy. The Iphone 4S suffered widespread shortages, such that orders were being pushed into January 2012. Just google the headlines for the period. You could have verified this for yourself during that period by checking store and online inventory at the various outlets.
    26 Jan 2013, 02:03 AM Reply Like
  • Apple's technological breakthrough and the consequent meteoric rise of the recent years, has furnished the company with many detractors, from the success-hating OWS media to competitors, trying to tarnish Apple's shine by targeting its stock. Remember the hoopla with the iPhone 4 antennae, and similar attacks that greatly exaggerated problems (if any) with every new Apple's product. The Wall Street (unoccupied) has now joined the assault, in an attempt to increase AAPL volatility and maximize trading profits. So, the first thing that Apple should do is to protect its stock by making 1 to 10 split and rising dividend to 3-4 percent. After that they may continue with innovations.
    24 Jan 2013, 10:26 PM Reply Like
  • The new king of the mountain now google.... now everyone can try and topple them......wall street blood sport...
    24 Jan 2013, 10:48 PM Reply Like
  • The "new king of the mountain is google". Apple made more money in the last quarter than google did all year.
    24 Jan 2013, 10:59 PM Reply Like
  • you took my comment the wrong is the high priced dog...let wall street grind their bones
    24 Jan 2013, 11:11 PM Reply Like
  • Wall street is so short-sighted. I've owned GOOG for years, and I remember at $380 a couple years ago there were posts and articles, and endless commentary on CNBC about how GOOG was imploding, and cost of clicks had stopped growing, and they could never make it to mobile, etc etc. Then there was chatting about how Brin would drive the company into the ground.


    Indeed, cost per clicks is now dropping. GOOG is making into mobile. The company will be fine. That being said, I have trimmed my GOOG position 50% after the earnings pop.


    No company is invincible. The media just swings from despair to euphoria - and often those are the best times to get in or out.
    24 Jan 2013, 11:06 PM Reply Like
  • To me the future still looks bright for Apple if they can expand iPhone popularity even a relatively modest amount. We'll see what/how the move in China brings this year. My belief, and I'm starting to sound like a broken record, is that we need a much larger screen iPhone, at least as an option. With that I believe things can start snowballing in a more positive direction....without it I fear we will just see gradual slowing of iPhone demand...which would be the kiss of death for the stock. Sure I could be wrong or sure Apple could have other major phone tricks up it's sleeve....but I will be reluctant to invest again until I see the iphone design gain a bit more mojo. Hungry for iphone6.
    25 Jan 2013, 04:06 AM Reply Like
  • AAPL won the smart phone war in the US. Everyone seems to ignore this.
    25 Jan 2013, 05:24 AM Reply Like
  • Not me.
    26 Jan 2013, 08:43 PM Reply Like
  • They still have to release a 5 inch screen no matter what market they go into. They need to announce it right away otherwise they will lose even more sales to Samsung when they release their new phone in March. The 5-inch phone screen is not an option but rather an imperative.
    26 Jan 2013, 01:44 AM Reply Like
DJIA (DIA) S&P 500 (SPY)