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Apple's AT&T Deal: Setting the Record Straight

To think that Apple is going to be able to extract the same amount of subsidy without offering exclusivity is insane. Apple made the deal they made with AT&T because it was the only way to get the price low enough to make the iPhone a mass-market product. Even if you're the world's #1 Apple fanboy, you know that the knock on Apple is that their products are overpriced. By handing AT&T a monopoly that will generate years of profits in exchange for up-front subsidies, Apple is able to handle that problem. If anyone can sell the iPhone, you will see a reduction in subsidy and eventual price cuts by Apple to get the phone into a mass-market-acceptable price range. They cut the deal with AT&T because the hotness of the phone and the limited initial production capacity allowed them to do so on favorable terms. If you think the price is going to go up/remain steady, please name one historical consumer electronic good the price of which has increased or remained the same as more people produce and sell it.

How the iPhone and Poor Management Contribute to Apple's Downfall

There's a reason we have GAAP. You should ignore any company that emphasizes non-GAAP earnings over GAAP earnings - they are gaming you and subtracting expenses to make the margins and P/E look good. Example: Oracle. They actually have the gall to subtract stock option expense from the GAAP earnings to produce more impressive headline non-GAAP numbers. Deep in the report they'll explain that they believe stock option expense was necessary to retain and motivate employees (including Larry, who really doesn't need any more shares at this point), contributed to the development of products/revenues, and will recur in future quarters. But they subtract it out as if it's an exceptional expense!

AAPL is very straightforward about their earnings and doesn't try to inflate the numbers for the short-term boost. I respect that. The stock will eventually reach a fair value. However, it might not be as high as you think, what with:

1. Strong competition with lower prices on their major products (NOK, RIMM, plus all the computer makers).
2. Massive damage to the U.S. consumer.
3. Long-term aversion of investors to no-yield, high volatility stocks after last year's debacle.

The best thing Apple could do would be to return some cash to shareholders or invest in some venture capital/private equity. The tendency of big tech to stockpile cash at tiny interest rates is one of the biggest value destroyers of the last 10 years. MSFT has seen the light and should do pretty well going forward, but AAPL and GOOG have to get moving. It's not all bad to go into this sort of economic crisis with a cash hoard, but it's shameful to go out of it with one. At today's prices AAPL could buy out plenty of other companies - maybe Bank of America should become Bank of Apple.

Tech Bellwethers Looking Cheap?

smart1: Of course. Also, any day now everyone is going to start using open source software, unlike the last 15 years in which no one except dorks with a lot of opinions even bothered to look at it. Furthermore, you can tell that MSFT sucks because 80%+ of the computer-using world uses their products. It's not a staple item at all.

Apple: Though Tempted, I Wouldn't Bite Just Yet

Maybe some of you are younger than me and don't remember the bad days of Apple, or maybe some of you are older and only started seeing tech stocks as serious businesses after the tech crash established reasonable valuations. In any case, I think a lot of people ignore one of the biggest factors holding AAPL stock down, which is that those who predicted the continued domination of Windows machines have been right for the last 20 years. My first computer was an Apple II GS, but you have to admit that Apple didn't do a very good job of marketing and price competition in the following years. Now, I agree with most of you that AAPL is great at these prices (though I have to laugh at anyone who bought it above $150). But when you talk about Apple's growing market share, cool brand image, etc. to a general audience of potential American stockbuyers, you're talking to a lot of people who successfully ignored Apple throughout the late 80s and all of the 90s, who have been pestered by Mac users for 20 years, and who don't really find overpriced gadgets cool.

You're talking about a company that's really a consumer company for those who want the latest and hottest: any Apple product has much cheaper competition that does the same essential functions (admittedly without so many cool features, attractive design, and brand image - but in tough times price and function come first). Do you really think that consumers will be able to afford the price premium in the environment of the next few years? I'm not talking about dedicated Mac users; I'm talking about the marginal Apple product buyer who fuels growth. In the long run Apple is almost certainly worth more than today's price (like almost every stock), but a really bad earnings announcement could be painful for a company that has so many excited momentum-driven investors. The price decline is marking both the general market problems and the particular risk for Apple of that possibility.

Apple: Great Company with Lofty Valuation - Due for Pullback

Can we declare a moratorium on "OMGZ!!!! YOU ARE SHORT!!! THIS ARTICLE IS SO BIASED!"? Would you rather read articles by people who are throwing out ideas without actually trading on them? Why would advice be better if the person writing wasn't sure enough to be short when they think the price will go down and be long when they think the price would go up? There are lots of articles written by neutral observers - analyst reports, Morningstar, etc. On a blog site you're going to see people talking their own positions, and there's nothing wrong with that. Only those who fail to disclose or make false arguments should be criticized.

Does anyone really think that a weakly-written blog criticism of AAPL is going to bring the stock price lower? David Einhorn struggles to talk the ALD share price lower, and he gave a well-publicized speech, wrote a book, and actually makes sense in both. If you believe that random internet chatter can make AAPL stock cheaper, you should be happy, because it will create buying opportunities for you.

JosephKr: Your argument would apply to any stock. Do you mean to suggest that buying puts is objectively better than shorting shares? Why does short-selling still exist, and why do well-known, successful investors practice it? Also, buying puts has the same upside potential as selling short - the profit limit occurs when the stock goes to $0.

To those who talk up cash: Of course a company should have some cash, but a company like AAPL really should not be sitting on this much cash. If your reason for investing in stocks is to have claim on a big pile of cash, why not invest in a long bond or CD? Investors get no dividends from AAPL, so the only way they make a profit is through growth of the company. Cash earning 2 or 3% is not going to produce the 20%+ growth that AAPL stockholders expect. That cash must be either distributed as dividends or applied to AAPL growth. The sooner the better - it would be nice if they don't have to take the MSFT route of offering a one-time $3 dividend that does nothing but knock $3 off the share price and incur taxes/reinvestment requirements for investors.

How Apple Stock Should Be Valued: P/FCF

DougM: You live in a bubble. No one I know under the age of 30 owns a Mac. Everyone I know uses a Windows system at work and at home. I also live in a bubble, but mine is 90% or more of America and yours is 10% or less of America.

I once lived in a place and social circle where everyone I knew shopped at Whole Foods and half of my friends worked there. That doesn't mean everyone in America shops at Whole Foods and Whole Foods is a great investment - on the contrary, in fact. Most of America resents Whole Foods because they don't like high prices and they don't like the people that work and shop there.

How Apple Stock Should Be Valued: P/FCF

AppleFinland: Please note that my comment was not a recommendation that anyone buy or sell AAPL, or an argument that AAPL is or is not over-valued. My argument is that AAPL is not diversified, cannot expect with any strong degree of certainty to continue recent blockbuster sales (and generate the kind of FCF that the OP talked about), and therefore involves a fair bit of risk as an investment.

Of course AAPL might manage to take some huge percentage of the global phone, computer and music market, and in that case they would prove to be a phenomenal investment going forward. On the other hand, their margins and their product differentiation are going to face massive competition as other companies look at the huge profits AAPL is making and try to get their piece of the pie. AAPL is hugely vulnerable to someone else generating the next hot PC, music player or phone. They are hugely vulnerable to a loss of key creative personnel who generate these ever-improving products. With the potential great rewards of investing in AAPL come great risks, and no matter how you mess with the numbers to justify your own investment, you have to understand those risks.

How Apple Stock Should Be Valued: P/FCF

You guys are almost all missing some important facts:

1. The difference between AAPL's cash flow and earning is a difference in timing rather than magnitude (mostly). If they recognized all the earnings now they'd have a massive quarter due to the iPhone release, but earnings would look weak a couple years out as iPhone sales decline in anticipation of the next generation or another carrier's hot new phone. Subscription accounting is just a way to smooth out the earnings relative to the cash flow and to recognize the nature of the company's business (mobile phones are subscription-driven).

2. AAPL is not guaranteed the right to sell some ever-increasing number of iPods or iPhones at high prices every year. You can't just predict that they'll grow x% every year based on historical data. Take a look at Palm sales now compared to the late 90s/2000. Take a look at Sony profit margins now compared to the earlier days of their TVs. Current explosive growth is driven by penetration of new markets, fickle consumer perception of the iPhone as one of the best phones, and the current status symbol aspect of expensive phones. New markets could dry up, consumer could prefer the next hot thing next year, and phone prices could come way down as they become more of a stable and less of a luxury display good.

3. AAPL is not a diversified company (as someone suggested up there). The iPod, iPhone and their various computers all have a core function in common (playing videos and music). All are luxury consumer discretionary products. All sell to a similar type of consumer. All are supported by the same creative teams, style, and brand image. All are vulnerable to general reductions in consumer spending, style shifts, competitor imitation/competion, or decay in the quality of AAPLs creative employees. This is not the same sort of company as GE, MMM, WMT, or a diversified bank.

AAPL has been a great investment and may continue to be a great investment. But when a stock has had this kind of run-up and commands a high price, holders take on a lot of risk. A lot of events could knock off AAPL's stock prices

Replacing P/E in Valuing Apple Stock

While it's nice to tell yourself that you see something about AAPL that the big investors don't get, it's unlikely that those managing large blocks of money haven't examined AAPL's cash flow. The information is readily available and up-front in any financial report. Everyone knows that cash matters because the concept is intuitive. So why exactly do you think that the stock market would collectively undervalue AAPL's cashflow?

Everyone on this site and other internet sources already agrees that AAPL is a great buy. Doesn't that suggest that the share price is probably pretty fair? That AAPL will continue to grow but eventually level out or run into a problem? That the success of the iPhone will encourage other manufacturers to develop similar phones and compete with AAPL on pricing? Why should AAPL's share price grow faster than the market as a whole? It's a very well-followed company that most people love. Isn't it more likely that you would find an undervalued company by looking for an unknown in a boring industry that most investors don't know about?

Frankly, I'm glad AAPL is sticking to conventional accounting and EPS reporting: CF information is there too if you want to read it, but we have standards for a reason. I try to stay away from companies that put big emphasis on "pro forma" or "EBITDA" or "earnings excluding items".

Did Apple Manufacture a First-Day iPhone Shortage?

Yeah, and while we're at it, perhaps a person who's upset and worried about waiting a week for a new gadget has a bit of a problem? We're not talking about "You can't have any bread this week." or "You're gonna have to be on the waiting list til next year." It's a week, for a consumer product. Get over your acquisitive self! Go outside and do something with your life!