Saturday, August 30, 2014

Apple’s Success Is In The Sensational And The Subtle

On Friday, August 29th, Apple’s share price ended the month’s trading at an all-time closing high of $102.50 after setting an all-time trading high of $102.90 earlier in the day’s session. For the month of August, the share price rose about 8% from the opening price of $94.90 on August 1, 2014. Since Apple announced the return to profit growth following the close of trading on April 23, 2014, the share price has risen about 37%. 

At Friday’s closing price, the company’s market capitalization stands at about $614 billion dollars. Because of the ongoing $90 billion share repurchase program and despite the recent all-time highs, the company’s market cap remains below the record levels set in late September 2012 and institutional ownership remains at a curiously low 62% of outstanding shares. 

No matter the dramatic rise in the share price over the past four months, opportunities remain for long-term shareholders to be richly rewarded over the next several quarters. 

Apple’s September 9th Event
There’s no shortage of rumors and speculation concerning what products and services Apple will choose to announce at the upcoming September 9th event. There’s very little doubt Apple will announce the next iteration of the company’s popular line of smartphones and expectations are high Apple will also announce its foray into mobile payments as well as new services to complement the much-anticipated iWatch line of accessories. 

Various reports from component suppliers suggest Apple will produce record numbers of iPhones, with larger screen sizes, to accommodate what is predicted to be unprecedented demand for the new handsets and demand on a scale that may prove to be high even by lofty iPhone standards. But the fact of the matter is it would actually be worrisome if demand for the new iPhone handsets didn’t break all previous records by a proverbial country mile. 

Apple’s Dependence On iOS Devices
The graph below illustrates Apple’s reliance on the iPhone and iPad product lines for revenue and revenue growth. Since the June quarter (FQ3) of FY2011, the iPhone and iPad lines have contributed at least 60% of Apple’s reported revenue. In seven of the most recent fifteen quarters, the iPhone and iPad lines have contributed at least 70% of Apple’s reported revenue total.
The graph below delineates the revenue performance of the iPhone and iPad lines over the most recent fifteen quarters. Against a backdrop of 5.42% aggregate revenue growth in the first three quarters of the current fiscal year, iPhone revenue rose 9.12% to $78.313 billion while iPad revenue fell 3.21% to $24.967 billion. Combined, the two product lines delivered $103.280 billion or 73.42% of the $140.672 billion in reported revenue in the nine-month period. As Apple determines the best path forward for growth in iPad unit sales, the iPhone line is and will remain Apple’s primary revenue growth driver.

Saturday, July 26, 2014

Apple's Game Of Inches

On Friday, July 25, 2014, Apple’s share price reached a 52-week closing high of $97.67. This was also the highest split-adjusted closing price since September 24, 2012 and within range of the all-time high closing price of $100.30 set on September 19, 2012.

From the closing high of 100.30 on September 19, 2012 to the closing share price nadir of $55.79 on April 19, 2013 to Friday’s closing price of $97.67, it’s been a startling roller coaster ride for Apple’s long-term shareholders. It’s simply a matter of time before Apple’s share price vaults above its previous all-time closing high and begins an ongoing series of new records.

Despite the share price volatility of the past two years, Apple’s growth moving forward will be best seen in sublime advances of technologies and less in sharp spikes and slides in revenue and earnings growth rates that have characterized the past four years of the company’s financial performance.

Apple is engaged in a game of inches and has entered an era that will again reward long-term shareholders for their conviction, patience and grit. 

Apple’s Return To Glory
While much attention has been placed on Apple’s recent 7-for-1 stock split, the share price rise from the closing price on the first day of post-split trading on June 9, 2014 of $93.70 to Friday's closing price represents a share price gain of 4.24%.

However, the share price rise from the closing price immediately prior to the release of March quarter results on April 23, 2014 has been 30.29%. Apple’s return to organic net growth income growth has delivered extraordinary share price gains in just over three months. Apple has now concluded two consecutive quarters of net income growth following a four-quarter slide in underlying profitability. 

The graph below illustrates the company’s net income performance over the most recent nineteen fiscal quarters. Rising net income is and will remain the primary catalyst for Apple’s share price appreciation.