Saturday, March 28, 2015

Painting With Numbers: Apple’s Regional Revenue Mix

Since the release of Apple’s larger-screen iPhone handsets last fall, the company has entered a new era of growth. My forecasting models suggest the company will deliver impressive rates of revenue growth through this fiscal year and through at least FY2016 which commences in late September. While the iPhone currently delivers about 70% of the company’s reported revenue, the resurgent iPhone product line along with the rising popularity of Apple’s Macintosh line of personal computers will boost the rates of growth of constituent accessories and services such as the forthcoming Apple Watch and a new TV service expected this fall.

The fast rates of revenue growth expected through at least FY2016 are due not only to the success of the iPhone, but also Apple’s ongoing geographic expansion. Apple will soon reach one billion product and services customers across the globe with the Macintosh line, the iPad line and the company’s robust eco-system of apps, content and services playing important supporting roles in the company’s fast rates of growth.

Concurrent with the release of December quarter (FQ1 2015) results in January, Apple’s management changed reporting of revenue on a regional basis. Apple eliminated the reporting of revenue of its global franchise of retail stores as a separate regional revenue segment and incorporated the revenue from the stores in the geographic regions in which the stores are located. The company also provided retrospective reports for fiscal years 2012 through 2014.

Apple’s FY2014 Regional Revenue Mix
The graph below illustrates Apple’s revised regional revenue mix for the fiscal year that ended last September. 
For the fiscal year, the Americas and Europe regions combined represented 68% of reported revenue. Greater China, Japan and the Rest of Asia Pacific comprised the remaining 32% of the company’s reported revenue total. Apple’s highest concentrations of retail stores are in the US, Canada and Europe. The reporting of retail store revenue in the regions in which the stores are located provides a clearer picture of revenue activity on a geographic basis. 

FY2014 Revenue Growth By Region
The graph below illustrates the rate of growth by region in a fiscal year in which aggregate revenue rose at a modest 6.95% rate. Greater China was the fastest growing revenue region while Japan also delivered double-digit revenue growth. The Rest of Asia Pacific region realized a revenue decline in the 12-month period.

Saturday, February 28, 2015

Apple’s Success Is Based On Fundamentals

On February 27th Apple’s share price ended the month’s trading at $128.46 after achieving an all-time high of $133.60 in intra-day trading on Tuesday, February 24th. The closing price represented an 8.82% rise in the share price from the opening bell on Monday, February 2nd and a 17.70% rise in the share price since the release of December quarter results on January 27th. 

Speculation About An Apple Car
In addition to Apple’s strong December quarter performance sparked by record iPhone unit sales and iPhone revenue, speculation about the development of an Apple car has added a new and alluring element to the company’s share price action. No matter the fact if an Apple car is under serious development it would not reach the consumer market before 2020, investors are attracted to the concept of Apple entering the auto industry as a new sector for revenue and profit growth.

Apple’s March 9th Special Event
Choosing the first weekday following the seasonal change in time to announce the release date and pricing for the Apple Watch, Apple has sent out invitations for a March 9th special event. The Apple Watch is the first new product line to be released by the company since the appointment of Tim Cook as CEO. While expectations for unit sales vary widely among analysts, the Apple Watch will deliver new revenue and net income for the company. The Apple Watch will add appreciably to Apple’s revenue and earnings per share growth rates particularly in the first four fiscal quarters following release. 

FY2015 Revenue and Earnings Per Share Expectations
The Wall Street consensus revenue estimate for the fiscal year ending in September currently stands at $225.24 billion, representing anticipated year-over-year revenue growth of 22.22%. The Street’s current consensus earnings per share estimate of $8.59 represents anticipated eps growth of 33.18%.

In contrast, my current revenue target for FY2015 is $235 billion and earnings per share for the fiscal year of over $9.25. My comparatively bullish outlook, anticipating revenue growth of 28.56% and earnings per share growth in the range of 44%, is based only in part on expectations for the early success of the Apple Watch. Rising iPhone and Mac sales are integral to my revenue growth models. Apple’s net income per revenue dollar is rising quickly as the rate of revenue growth zooms beyond 20%.

Apple’s Success Is Based On Fundamentals, Not Faddishness
While an Apple car is an interesting topic for conversation and as we mark time waiting for news on the release date for the Apple Watch, management is hard at work boosting the company’s underlying financial performance.

The graph below illustrates Apple’s net income performance over the most recent twenty one fiscal quarters. The recent December quarter’s iPhone unit sales growth rate of 45.94% sparked a 37.88% rise in net income and boosted net income per revenue dollar to 24.16%.


The graph below illustrates in a more simple way Apple’s net income per revenue dollar over the same 21-quarter period. The larger-screen iPhone 6 handsets have not only boosted unit sales, the increase in the average selling price (ASP) has boosted the company’s gross margin.