Saturday, June 13, 2015

Wall Street Discounts Apple’s Revenue and Earnings Trend

On Friday, June 12th, Apple’s share price closed at $127.17. This represents a valuation of 15.72 times trailing 12-month earnings of $8.09 and about 14.10 times the current Wall Street consensus earnings per share estimate of $9.02 for the fiscal year ending in late September.

As I will illustrate in this article, I consider today’s valuation of Apple to be low and I expect the share price to move significantly higher over the next six months. 

Apple’s Revenue And Earnings Trend
Following a five-quarter period of single-digit revenue growth that ended in the June quarter one year ago, Apple’s revenue has risen on a year-over-year basis by nearly 25% over the most recent three fiscal quarters. The graph below illustrates the rebound in Apple’s revenue growth rates and the beginning of the company’s current fast-growth epoch that will continue through next fiscal year.
Apple’s earnings per share have risen nearly 39% over the same nine-month period. The graph below illustrates the return to earnings per share growth that began in FQ1 2014 and the acceleration of the earnings per share growth rate over the most recent six fiscal quarters.
Apple’s Net Income And Gross Margin By Quarter
Since the nadir of 36.87% gross margin in FQ3 2013, Apple’s gross margin has rebounded to 40.78% in the recent March quarter. Rising iPhone unit sales have delivered the company’s highest gross margins in three years and the company is now riding down the cost curve on the larger-screen iPhone handsets. The iPhone 6 series handsets will deliver high gross margin through the two-year handset cycle. The graph below illustrates the company’s gross margin recovery over the most recent seven fiscal quarters.

The graph below illustrates the rising percentage of revenue flowing to the company’s net income line since the release of the iPhone 6 handsets. Fast rates of revenue growth combined with higher gross margin have dramatically increased the percentage of revenue flowing to the net income line. The sharp rise year-over-year in the percentage of revenue flowing to the net income line will continue through the end of FY2015.

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.