AAPL - Apple Inc.

[SHDL]

[...] Buffett came along, and then all of a sudden the stock almost doubled for no good reason [...]

 

Between FY 2016 and 2018, tax rates went down, revenue & pre-tax earnings went up, and the number of shares outstanding went down, so it's not like this was all pure euphoria.  By my estimation, about 1/2 of the ~100% gain in share price was attributable to improved fundamentals and 1/2 was due to improved sentiment (i.e., multiple expansion).  And now that the stock price is down nearly 40% from its peak, the latter "bubble" component has pretty much popped.

[KCLarkin]

It's just amazed me how everyone just completely ignored obvious problems that were in plain view until Buffett came along, and then all of a sudden the stock almost doubled for no good reason and there were still folks saying it was "cheap" when nothing changed. Apples advantage IMO continues to erode. There is no real innovation occurring anymore, and I still kind of think the current valuation is predicated on people continuing to be stupid with their money, ie upgrading every 18 months even though they're buying the same phone more or less they just had. It seems folks are wisening up, and if they do, Apple loses a lot of its halo and a lot of its earnings.

 

Let's mute our opinions for a moment. Turn off CNBC. Breathe. Let the numbers wash over you.... EPS, RPS, ROE, Shares Outstanding, Balance Sheet. What a beautiful sight. Relax as you enjoy one of the most profitable companies of all time... What a profit machine...

 

...

 

Now turn your opinions back on. No innovation. Blackberry. Margins. China. Android. Apple fanboys. Upgrade cycles. Samsung. OnePlus.

 

...

 

The emotional distance between objective reality and our opinions is precisely why large caps get mis-priced.

 

...

 

P.s. "The no real innovation" is a pet peeve: Apple's silicon is so far ahead of the competition, it's not even a fair fight anymore.

[nkp007]

It's just amazed me how everyone just completely ignored obvious problems that were in plain view until Buffett came along, and then all of a sudden the stock almost doubled for no good reason and there were still folks saying it was "cheap" when nothing changed. Apples advantage IMO continues to erode. There is no real innovation occurring anymore, and I still kind of think the current valuation is predicated on people continuing to be stupid with their money, ie upgrading every 18 months even though they're buying the same phone more or less they just had. It seems folks are wisening up, and if they do, Apple loses a lot of its halo and a lot of its earnings.

 

Let's mute our opinions for a moment. Turn off CNBC. Breathe. Let the numbers wash over you.... EPS, RPS, ROE, Shares Outstanding, Balance Sheet. What a beautiful sight. Relax as you enjoy one of the most profitable companies of all time... What a profit machine...

 

...

 

Now turn your opinions back on. No innovation. Blackberry. Margins. China. Android. Apple fanboys. Upgrade cycles. Samsung. OnePlus.

 

...

 

The emotional distance between objective reality and our opinions is precisely why large caps get mis-priced.

 

...

 

P.s. "The no real innovation" is a pet peeve: Apple's silicon is so far ahead of the competition, it's not even a fair fight anymore.

 

A++++++

[Jurgis]

https://www.bloomberg.com/opinion/articles/2019-01-03/questions-on-apple-aapl-earnings-strategies-after-outlook-cut

https://www.bloomberg.com/opinion/articles/2019-01-02/apple-s-iphone-warning-comes-years-too-late

https://www.bloomberg.com/opinion/articles/2019-01-03/apple-s-china-iphone-woes-foretold-by-japan-machine-makers

 

Bearish slant articles, but with some interesting numbers and graphs.

 

BTW, although I agree with KCLarkin a bit, I think that some numbers (not opinions) are not that great: number of iPhones sold is clearly not a positive. So it's not just opinions.

 

[johnny]

The fact that a 5% YoY decline is sufficiently arousing to bring all of the Bears out for a victory lap is probably a stronger testament to the strength of the iPhone franchise than any "positive" number I've seen out of the company in the past few years.

[rb]

[...] Buffett came along, and then all of a sudden the stock almost doubled for no good reason [...]

 

Between FY 2016 and 2018, tax rates went down, revenue & pre-tax earnings went up, and the number of shares outstanding went down, so it's not like this was all pure euphoria.  By my estimation, about 1/2 of the ~100% gain in share price was attributable to improved fundamentals and 1/2 was due to improved sentiment (i.e., multiple expansion).  And now that the stock price is down nearly 40% from its peak, the latter "bubble" component has pretty much popped.

Yea, Gregmal likes to push the Buffett narative. But the truth is that the stock really took off after they last reported. They had a REALLY good quarter, people got cheery and up went the stock.

[zen]

P.s. "The no real innovation" is a pet peeve: Apple's silicon is so far ahead of the competition, it's not even a fair fight anymore.

 

Not to mention wearables. Something will eventually disrupt the mobile phone. It might be glasses, it might be an audio device like the movie Her, it might be chips embedded in our bodies. Who knows, it's the stuff of science fiction, much like the thought of an iPhone 30 years ago. But it's not happening next year or the year after or the year after that.

 

I think it's happening slowly with wearables, much to the media's chagrin. A watch: "it's just for fanboys!" AirPods: "look how dumb they are!" Glasses: "Hmmm, interesting... innovation?"

 

Look at Apple Watch, look at AirPods, look at them slowly creeping into healthcare and then look at their patents which are filed every day advancing all of those directions. Tell me who else comes close. Sure there's a chance it is someone else, but there's a bigger chance it's birthed from Apple and until then I'll sit around and watch them gobble up shares.

[KCLarkin]

number of iPhones sold is clearly not a positive. So it's not just opinions.

 

Not sure I agree. iPhone unit sales have clearly plateaued. But I'd like to see a two year stack on unit sales (to account for S cycle). However, Apple has messed with pricing and product cycles, so it is very difficult to extrapolate. Is this just a temporary blip caused by aggressive price increases (or Chinese economy)?

 

Are unit sales Signal or Noise? We probably won't know for another 12-24 months.

[Jurgis]

number of iPhones sold is clearly not a positive. So it's not just opinions.

 

Not sure I agree. iPhone unit sales have clearly plateaued. But I'd like to see a two year stack on unit sales (to account for S cycle). However, Apple has messed with pricing and product cycles, so it is very difficult to extrapolate. Is this just a temporary blip caused by aggressive price increases (or Chinese economy)?

 

Are unit sales Signal or Noise? We probably won't know for another 12-24 months.

 

I see what you are saying. You are making legit points. Yeah it's tough to know what would have happened if Apple went with different price points.

 

Let's see what the numbers are in coming year(s).

 

You frequently have interesting observations and insights. Thanks.  8)

[Gregmal]

I thought this was well done

 

http://unemon.com/ResearchEasy/201901_AAPL/20190103_AAPL.html

 

 

[johnny]

I thought this was well done

 

http://unemon.com/ResearchEasy/201901_AAPL/20190103_AAPL.html

 

That looks like a note that would be attached to a pipe bomb sent to CNBC, and anybody whose pitch is so heavily reliant on projecting AAPL in 2040 is unhinged.

[Picasso]

I thought this was well done

 

http://unemon.com/ResearchEasy/201901_AAPL/20190103_AAPL.html

 

That looks like a note that would be attached to a pipe bomb sent to CNBC, and anybody whose pitch is so heavily reliant on projecting AAPL in 2040 is unhinged.

 

Having met you in person, reading your posts in your voice makes your already amazing posts 100x better.

[ERICOPOLY]

 

 

sorry guys.

 

I will make money shorting Apple over the next few years...it is impossible to keep a deflationary product

cycle going.......It has the 3rd biggest market cap on the planet...your top is near.(in the next year)...purely speculating of course.

I do not have a short postion.

 

Dazel.

 

 

It has returned 15% annual returns over the past 8 years before dividends, and we're not talking about FFH.  Seriously crazy for the 3rd biggest market cap on the planet!

[Cigarbutt]

sorry guys.

I will make money shorting Apple over the next few years...it is impossible to keep a deflationary product

cycle going.......It has the 3rd biggest market cap on the planet...your top is near.(in the next year)...purely speculating of course.

I do not have a short postion.

Dazel.

It has returned 15% annual returns over the past 8 years before dividends, and we're not talking about FFH.  Seriously crazy for the 3rd biggest market cap on the planet!

A note has been made to re-visit this area of the thread in January 2027. :)

[DCG]

Not sure if was correctly valued at $1 trillion, but quarterly earnings were revised down around $10B, but the stock is down $400B.

[ERICOPOLY]

Further... it's not the 3rd biggest anymore!  It slipped!

 

MSFT, GOOG, and AMZN all have larger market capitalizations today!  AAPL's 8 yr returns were the worst among this group.

 

 

[Jurgis]

Trillion dollar curse and Buffett curse strike again!  8)

[gfp]

Quarterly revenues were revised down $9 Billion at the most - from a range of 89-93 Billion to 84 Billion.  I really doubt that resulted in a $10 Billion hit to quarterly earnings.

 

Not sure if was correctly valued at $1 trillion, but quarterly earnings were revised down around $10B, but the stock is down $400B.

[BTShine]

$10 Billion in annual earnings (is how I interpreted it).

[Gregmal]

I thought this was well done

 

http://unemon.com/ResearchEasy/201901_AAPL/20190103_AAPL.html

 

That looks like a note that would be attached to a pipe bomb sent to CNBC, and anybody whose pitch is so heavily reliant on projecting AAPL in 2040 is unhinged.

 

I think that entirely misses the point.

 

The Apple thesis hinges on a couple things, nominal NI growth, disciplined financial engineering, and no major acquisitions. The stability of iPhone sales is the key. The "oh they are getting into this, or that" angle IMO is irrelevant. Why? Look at all the public companies in those areas, heck even healthcare. Assume Apple can become a top player. More likely than not those earnings still mean very little against the current market cap.

 

If phone sales can remain stable, and they continue to return capital to shareholders, then AAPL will be a very good investment. If they don't, or if they deviate from this, I wouldn't want to be near this.

[John Hjorth]

Not sure if was correctly valued at $1 trillion, but quarterly earnings were revised down around $10B, but the stock is down $400B.

 

DCG,

 

USD 10 B quarterly earnings revision compared to what?

[Dazel]

 

 

Ericopoly,

 

Thanks for pointing out that great short... take a look at the 40% drop in Apple share price then! And then the buy backs began....Which is why Mr. Buffett is involved...it’s the secret to the math. Long term I was wrong short term then (year) was brilliant. lol

I did not short it this time however sadly. Same percentage drop however, and if shareholders get that 15% per annum lift off from here it would be spectacular.

 

Good luck to all!

 

Cheers,

 

Dazel

[KCLarkin]

I think that entirely misses the point.

 

Yes. The investment case is pretty simple. Can Apple maintain iPhone unit sales, ASP, and margins? If they can, you just assume they will payout 100% of "owner earnings". That's going to be your expected return. You get growth in services, AirPods, Watch, and Apple Pay for free. You don't need to model this out to 2050. Just 5 to 10 years.

 

However, I don't think Unemon's assumptions are great. Tech tends to be deflationary, so assuming pricing keeps up with inflation doesn't seem conservative (however growth of other products should offset this). Also, I wouldn't assume any PE expansion.

 

I don't see a no-brainer at current prices, but it should be a pretty good "equity-bond".

[KCLarkin]

Look at all the public companies in those areas, heck even healthcare. Assume Apple can become a top player. More likely than not those earnings still mean very little against the current market cap.

 

After you strip out net cash (Cook says 100% will be used for buybacks), you get about $550B.

 

If Apple Watch makes some medical breakthrough, you could see a plausible path to $100B in revenue. At 5x sales, that gets you $500B market cap. In the meantime, all the FCF from iPhone is returned to shareholders.

 

Wouldn't be my base case. But it is plausible that this is still a good investment if iPhone goes into decline.

[Gregmal]

Look at all the public companies in those areas, heck even healthcare. Assume Apple can become a top player. More likely than not those earnings still mean very little against the current market cap.

 

After you strip out net cash (Cook says 100% will be used for buybacks), you get about $550B.

 

If Apple Watch makes some medical breakthrough, you could see a plausible path to $100B in revenue. At 5x sales, that gets you $500B market cap. In the meantime, all the FCF from iPhone is returned to shareholders.

 

Wouldn't be my base case. But it is plausible that this is still a good investment if iPhone goes into decline.

 

There's a lot of if's either way. I wouldn't say it's possible and wouldn't say it's impossible, I just wouldn't predicate a position on it. While on one end a medical breakthrough and 100B in sales is theoretically possible, I think Apple's healthcare unit trading for more than twice the valuation of Pfizer is a bit of a stretch...