What A Weird, Whacky and Wild Stock Market Ride!

I’ve been receiving inquiries about when I will publish my next article. My answer is: “Soon.” I primarily cover Apple’s fundamentals with an emphasis on performance trends. I’m sure what I describe as a “Weird, Whacky and Wild Stock Market Ride!” has created some curiosity as to how I view Apple and the market in the midst of this rollercoaster ride on Wall Street.

Because I follow Apple’s fundamentals and not technical charts or the broad market in general, I’m a bit bemused by the recent pummeling of Apple’s share price. In my view, the company’s fundamentals remain strong in the midst of a $140 billion share repurchase program, a dividend increase put in place last spring and recent comments from the company’s CEO the iPhone’s performance in Greater China in on track with management’s expectations for the current quarter. As of the end of the June quarter, Apple had about $150 billion in cash, cash equivalents and marketable securities net of debt acquired to fund share repurchases.

In other words, management has ample resources to fund the share repurchase program, increase the quarterly dividend again next April while investing in research and development on existing products and yet-to-be-announced products and services.

I consider Apple a buy-and-hold long-term investment. Although I continue to acquire shares, I do not “trade” the stock or any other stock. I’m not one to provide stock market advice. I don’t have a margin account, I have never purchased options and have no desire to “trade” stocks. I am a long-term Apple shareholder focused on the company’s fundamentals. I tend to hold equities for more than a few minutes or a few months.

My current view is as follows: 

Around this time last year the Street’s consensus revenue estimate for the current fiscal year ending in September was $197 billion. The company is closing in on about $235 billion in revenue for the period.

At this time the Street’s consensus revenue estimate for FY2016 is, according to Yahoo! Finance, $244.66 billion or an estimated revenue growth rate of about 4.90%. According to the same source, the Street’s current eps consensus estimate for FY2016 is $9.76 or about a 7.2% eps growth rate over the current eps estimate for FY2015 of $9.13. 

In the first time nine months of the current fiscal year Apple’s revenue rose about 30%. iPhone unit sales, representing roughly two-thirds of the company’s reported revenue total, rose about 41% in this nine-month period. Apple Watch revenue will be wholly accretive to revenue growth on a year-over-year basis in the first six months of the fiscal year beginning in late September.

More than a device maker, I consider Apple a “customer relationship continuum.” I consider each new product release and the company’s new services such as Apple Pay, Apple Music and the highly anticipated TV content service as continuations of the ongoing “conversation” Apple has with its global customer base. While past performance is not necessarily an accurate indicator of the company’s future performance metrics, I do expect Apple’s revenue and earnings per share growth performance in FY2016 to handily beat the Street’s current expectations. 

I see a great deal of strength in Apple’s product and services lines and in the ongoing relationship the company has with its hundreds of millions of product and services customers. While I don’t expect the same revenue and eps growth rates next fiscal year the company is enjoying this fiscal year, I do see real opportunities for continued growth in each of Apple’s regional revenue segments.

I’ll be back with my next article soon. In the meantime I remain bemused by the dramatic drop in the share price over the past few weeks, the broad market’s significant pullback not withstanding. 

I’m not one to give investment advice and please don’t consider any content I post to be investment advice. All investors need to perform their own due diligence and make informed decisions based on their circumstances and objectives. But in my own ongoing conversation with the readers of my blog, I’m confident in the ability of Tim Cook & Co. to continue to successfully execute the company’s business plan, I look forward to trading in my iPhone 5s for the next flagship iPhone handset this fall and acquiring the new Apple TV (when it finally arrives!). Until then I’ll watch with more than mild curiosity the wild gyrations in the share price. My next article is: “Coming Soon.” 

Robert Paul Leitao

Disclosure: The author is long Apple shares

Apple: Follow The Road Paved With Gold

On Friday, November 2, 2012, Apple closed down on the day 3.31% at $576.80. This was the lowest closing price for the shares since July 27, 2012 and the shares ended the day and the trading week off more than 18% from the all-time high of $705.07 set on September 21, 2012.

For long-term investors, Friday's closing price represents an excellent entry opportunity to realize very strong share price gains in the months ahead while capturing a more than 1.8% annual dividend yield. Apple is currently trading with more than 22% of the share price backed by cash and a price-earnings multiple at the low-end of a nearly three-year trend. 


Apple: Follow The Road Paved With Gold
The graph below illustrates at Friday's closing price the company's cash and marketable securities per share represented 22.17% of the share price. Meanwhile, the company's price-earnings multiple has fallen to just over 13x trailing 12-month earnings. This is despite 59.5% earnings per share growth in the fiscal year ended September 29, 2012. The high cash per share and very low price-earnings multiple is occurring at the beginning of a six-month period that will deliver record revenue and earnings for the company.

Using the first trading day of the month following the release of quarterly earnings since February 1, 2010, Apple's cash per share has continued to rise while the company's price-earnings multiple has continued in a steady decline. From a price-earnings multiple of 20.08 times trailing 12-month earnings on November 1, 2010 to a multiple of 13.06 times trailing twelve-month earnings on November 2, 2012, Apple's multiple has fallen about 35% while cash per share has risen about 133% percent.

Since February 1, 2010, Apple's trailing 12-month earnings per share has risen over 331% while the share price has advanced by only 196% over this thirty-three month period. Not only will Apple's share price retrace to new highs over the next six months, investors will be rewarded with a quarterly dividend of $2.65 per share and the prospect of significant additional appreciation while the shares maintain a conservative earnings multiple. 

Apple's Monster Quarter - The Sequel

Last fall I dubbed Apple's December quarter "The Monster Quarter". The company's December quarter performance lived up to the name. In the 14-week period ended December 31, 2011, Apple reported recognized revenue growth of 73.27% to $46.333 billion and eps growth of 115.71% to $13.87. 

Apple's Monster Quarter - The Sequel
Today I am calling the company's March quarter "Apple's Monster Quarter - The Sequel." For the 13-week period ended March 31, 2012, I am estimating reported revenue of $44.028 billion and earnings per share of $13.15, representing anticipated revenue growth of 78.49% and eps growth of 105.47%. 

The chart below illustrates my estimated revenue mix for the March quarter. I expect the Apple iPad and iPhone to represent 77% of the reported revenue in the quarter and for the iPhone to be the primary product in determining the quarter's revenue growth, gross margin and eps outcome for the period.

The Braeburn Group AAPL March Quarter Estimates

On April 24th Apple will announce results for the company's 2nd fiscal quarter ended March 31st. To gauge expectations for the March quarter, we asked members of the Braeburn Group, formerly known as the AAPL Independent Analysts, to submit estimates for the company's March quarter performance. The group takes its new name from the braeburn apple, a hybrid cultivar of the popular fruit.

Among the fifteen Braeburn Group members who submitted estimates for the March quarter are Dennis Hildebrand, Navin Nagrani, Patrick Smellie and newcomers Scott Millar and Christian Peel. Collectively these fifteen individuals represent a cross section of the Group's members and come from a variety of professional backgrounds and career interests. Membership in this private group is open to those willing to register and actively participate in the group's lively discussions. 

On average Braeburn Group Index participants anticipate the following March quarter unit sales results:

		Macs	4,617,307	22.80%	YOY Growth
		iPhones	38,232,733	105.03%	YOY Growth
		iPads	13,301,667	183.38%	YOY Growth
		iPods	6,844,933	-24.09%	YOY Growth

Notes on the Unit Sales Estimates:

Mac Sales: In Apple's 14-week December quarter, Mac unit sales rose 25.74% to 5.198 million units. The average unit sales growth estimate from the Braeburn Group Index participants suggests unit sales growth of 22.80%, on track with the 22.19% unit sales growth Apple reported in in the fiscal year ended last September. 

iPhone Unit Sales: On average, the Braeburn Group Index participants expect iPhone unit sales growth of 105% to 38.232 million units. This is below the December quarter unit sales growth pace of 128% and slightly above the FY2011 unit sales growth rate of 99%.

iPad Unit Sales: The introduction of the new iPad in the final month of the March quarter has produced a wide range of unit sales estimate from the Braeburn Group Index analysts. For the quarter, the fifteen participants anticipate on average unit sales of sales of 13.301 million iPads and associated unit sales growth of over 183%.

iPod Unit Sales: On average, the index participants anticipate a nearly 25% decline in year-over-year iPod sales to about 6.845 million units. 

Apple's "Monster Quarter" Will Deliver Monster-Sized Results

Apple stands at the threshold of becoming the nation's largest technology company. Apple will soon surpass Hewlett-Packard in quarterly revenue while delivering more than $.25 of each revenue dollar to the net income line. By the end of this month and in response to the company's December quarter results, Apple will again surpass Exxon-Mobil in market cap to become the nation's most highly valued enterprise.

To put Apple's recent rates of growth in perspective, in FY2011 that ended in late September, the company's $108.249 billion in revenue represented a 677% rise in revenue in the six years since FY2005 and the $27.68 in earnings per share represented 1,686% growth over this same six-year period. Apple is the undisputed enterprise success story of the new millennium.

It's product innovation that drives Apple's accelerated rates of growth and it's innovation that will deliver monster-sized results in what I have dubbed "Apple's Monster Quarter."

Today I am publishing my revenue and earnings estimates for Apple's first quarter of FY2012 ended December 31st. For the quarter I estimate revenue of about $44 billion and earnings per share of $12.20. In this one quarter Apple's revenue and eps results will most likely exceed the company's total revenue and earnings per share for all four quarters of FY2009 that ended just over two years ago. These estimates represent an expectation of 64.54% year-over-year revenue growth in the quarter and 89.75% growth in earnings per share.

The Sources of Apple's Frenetic Rates of Growth

Apple's accelerated rates of growth are fueled by the popularity of the company's iOS-based products including the iPhone and iPad and the company's relentless geographic expansion. Currently, the only practical limits on Apple's rates of growth are device production capacity and the pace at which the company can create sales and support infrastructure in underserved global markets. At this time Apple is addressing only a fraction of the global market for the company's digital lifestyle products. 

Although domestic revenue as a percent of total revenue will rise in the December quarter due to the initial release of the iPhone 4S in the United States and the addition of Sprint as an authorized iPhone carrier, by next fiscal year revenue sourced from outside the United States may represent two-thirds of the company's revenue total.

The graph below illustrates the influence of the iPhone and iPad on my anticipated December quarter revenue outcome. Collectively the two products represent about 71.5% of estimated revenue in the quarter and both products have been brought to market within the past five years. 

Apple's $170 Billion Fiscal Year

On September 25th, Apple entered its current fiscal year with the strongest product line in the company's storied history. In a recent article titled Apple's 25% Solution, I provided an overview of Apple's extraordinary FY 2011 revenue and earnings growth performance, including the nearly 25% of recognized revenue that flowed to the net income line. Today I'm publishing my preliminary revenue and earnings per share estimates for FY 2012. For the current fiscal year ending next September, I anticipate 57% revenue growth to $170 billion and earnings per share growth of 66.2% to $46. 

In FY 2012, Apple will surpass HP in revenue to become the nation's largest technology company and maintain its position as the most highly valued enterprise in the industry measured by market capitalization.

The graph below illustrates the percentage of revenue I anticipate each of Apple's major product lines will contribute to the $170 billion recognized revenue total.

The Apple iPhone As The Principal Growth Catalyst

Before I delve into an overview of the anticipated unit sales and revenue performance for each of Apple's major product lines, mention needs to be made of the Apple iPhone as the company's growth catalyst. In FY 2012 I anticipate the popular smartphone line will represent 50% of Apple's recognized revenue and about 62% of the expected 57% rise in revenue. Almost 75% of Apple's projected FY 2012 recognized revenue will be derived from iOS-based products including the Apple iPhone, the Apple iPad and the iPod touch. Each of those products have been brought to market within the past five years. 

The Apple iPhone alone will deliver over $85 billion in revenue in FY 2012 or an amount equal to at least 130% of the company's FY 2010 recognized revenue total.

The AAPL Independent Analysts FQ4 Estimate Index

On October 18th Apple will announce results for the company's 4th fiscal quarter ended September 24th. To gauge expectations for the quarter, we asked members of the AAPL Independent Analysts group on Linkedin and members of the Apple Finance Board who have participated in prior quarterly indexes to submit estimates of the company's 4th fiscal quarter performance. 

Among the fourteen individuals who submitted estimates for this September quarter index are well known independent analysts Horace Dediu and Daniel Tello, returning analysts Navin Nagrani and Patrick Smellie and newcomers Michael Cranston and Martin Epstein. Collectively these individuals represent a cross section of the AAPL independent analyst community and come from various professional backgrounds and career interests. 

On average index participants anticipate the following September quarter unit sales results:

	Macs	4,677,500			20.40% YOY Rise
	iPhones	23,765,071			68.52% YOY Rise
	iPods	7,158,857			20.91% YOY Decline
	iPads	13,624,214			225.32% YOY Rise

Notes on the Unit Sales Numbers:

Mac sales: Over the first nine months of FY 2011, Macintosh unit sales rose 21.1%. The index average is inline with the recent unit sales trend and reflects confidence in Mac sales during the recent back-to-school season.

iPhone sales: The index average reflects expectations of a slower rate of growth in iPhone unit sales in the 4th quarter due to the release of the iPhone 5 in the holiday quarter. During the first nine months of the fiscal year iPhone unit sales rose 113%. 

iPod sales: The Apple iPod remains in a state of steady unit sales decline. The iOS-based Apple iPod touch remains the biggest revenue generator among the available iPod models. Apple's decision this year to offer $100 in iTunes content to students purchasing a new Mac versus a free iPod touch will influence iPod unit sales results in the quarter. 

iPad sales: The index average suggests anticipation of strong iPad unit sales in the September quarter as Apple strived to resolve the challenge of constrained product supplies. Index participants expect a rise in unit sales of 225% over the prior-year period. 

The AFB AAPL FQ3 Estimate Index

The Apple Finance Board (AFB) is home to many AAPL traders, investors and Apple product enthusiasts. Among the members of the AFB are well know independent analysts Daniel Tello (deagol), Horace Dediu (aysmco), Turley Muller and Andy Zaky. I serve as the moderator of the AFB under the DawnTreader moniker. 

AFB AAPL FQ3 Estimates

Each fiscal quarter active members of the AFB are polled for their estimates of Apple's quarterly performance based on product unit sales and financial outcome. This article highlights the anticipated financial outcome for the three-month period ended in late June (Apple's FQ3 2011). Tomorrow I will post the unit sales estimates from each index participant by product line that underpin these financial performance estimates. 

On average the 30 active AFB members participating in the June quarter index estimate Apple will report the following results for the company's third fiscal quarter:

AFB Member AAPL FQ3 Estimate Averages:

Revenue			$26,556	69.14%	(% YOY Revenue Growth)
Gross Margin			10,714	40.35%	(% of Reported Revenue)
Operating Expenses			2,542	9.57%	(% of Reported Revenue)
Pre-Tax Income			8,235	31.01%	(% of Reported Revenue)
Tax Expense			1,987	24.12%	(% of Pre-Tax Income)
Net Income			6,248	23.53%	(% of Reported Revenue)
EPS			6.66	89.61%	(% YOY EPS Growth)

All numbers in thousands except per share data.

During the first six months of the current fiscal year Apple's revenue rose 76.2% and eps rose 83.2% in year-over-year comparisons. As a group AFB members estimate the pace of revenue growth in the June quarter will have slowed slightly to 69.14%. However, the pace of eps growth is estimated to rise above the performance of the first six months of the current fiscal year to 89.61%.

Factors Impacting the June Quarter Financial Performance

The June quarter represents the first fiscal quarter in which Apple iPad sales are a factor in the prior-year performance. This factor alone will will have an impact on year-over-year revenue growth. iPad unit sales and the resulting revenue were not a factor in the prior-year financial performance comparisons in the December (FQ1) and March (FQ2) quarters.

Apple has effectively managed the growth in operating expenses relative to revenue growth. The company's ability to keep this major expense segment under 10% of reported revenue and the rate of growth of operating expenses well below the rate of growth of revenue is having a significant and positive impact on the company's earnings per share performance. AFB members are estimating the percentage of revenue that flows to the net income line will reach above 23.5%.

Robert Paul Leitao

Disclosure: The author is long AAPL shares

FY 2012 Analyst Estimates: Why AAPL Is Set To Pop

On September 11, 2010 I published a post titled FY2011 Analyst Estimates: Why AAPL Is Set To Pop. At the time the post was published AAPL had ended the week's trading at $263.41. Seven months later and with AAPL closing on Friday at $335.06, the share price is poised to again move higher and more than surpass the all-time trading high of $364.90 set on February 16, 2011.

Analyst FY 2011 Estimates

At Friday's closing price of $335.06 and a price-earnings multiple of 18.69 times trailing 12-month earnings per share, AAPL is trading at a deep discount to the company's 67% rate of eps growth in FY 2010 and the December quarter's eps growth rate of 75.2%. The current Wall Street consensus for the March quarter is revenue of $23.18 billion and eps of $5.33 per share or an eps growth rate of 60%. For FY 2011, ending in September, analysts are expecting revenue of $100.43 billion or about 54% revenue growth and eps of $22.97 or  eps growth of about 51.2%. Both estimates are well below current rates of growth. In the December quarter revenue rose 70.5% and eps 75.2%. But the disconnect between the analyst consensus and the company's current rates of growth become even more dramatic for fiscal year 2012 that begins in late September. 

FY 2012 Analyst Estimates

Expanding on a comment I made on a recent Apple 2.0 column titled AAPL: What Could Go Wrong?, the Street FY 2012 estimates for AAPL deny reality. The current Wall Street analyst consensus for FY 2012 is revenue of $117.95 billion and eps of $26.51. It's possible (and increasingly probable) Apple will meet or exceed those average estimates this fiscal year. In other words, the Street is forecasting zero revenue and earnings growth for next fiscal year. If Apple's December quarter rates of revenue and eps growth remain consistent, the company will report revenue of $111.20 billion and eps of $26.54 this fiscal year. For the March quarter I estimate revenue growth of  87% and eps growth of just under 90%. For the fiscal year I expect earnings per share of no less than $27. 

To reach the Street's current FY 2012 revenue consensus in FY 2011 revenue would need to rise this fiscal year by about 81%. To reach the FY 2012 eps consensus in FY 2011, eps would need to rise this fiscal year about 75% or about the same rate of eps growth reported in the December quarter.

Apple's Dynamic Revenue Mix

To sustain strong revenue and eps growth over the next eighteen months and through FY 2012, Apple does not need to release additional new products. In the recent December quarter (and according to my estimates again in the March quarter), iPhone revenue growth exceeded total revenue from iPad sales activity. The company's existing product lines (now including the Apple iPad) already provide a strong foundation for revenue and earnings growth for at least the next eighteen months. 

iPad revenue will surpass the revenue generated from Macintosh unit sales in the current June quarter, positioning the iPad as Apple's second highest revenue generator behind only the iPhone. The expanded domestic iPhone distribution that now includes Verizon network subscribers and the expected expansion of iPhone distribution in China sometime prior to the start of FY 2012 will sustain high rates of iPhone unit sales growth through the next fiscal year. The global market for the Apple iPad is in its early stages of development and iPad unit sales growth will also support strong revenue growth for the next several quarters. These factors alone suggest FY 2012 revenue of at least $165 billion and eps of at least $40, well above current Wall Street analyst estimates.

The AFB AAPL FQ2 Estimate Index

The AFB AAPL FQ2 Estimate Index

The active members of the Apple Finance Board are best described as an assemblage of talented individuals with colorful personalities. They are outspoken, hardworking and focused on understanding everything there is to know about Apple and the company's financial performance.

As a service to the members of the AFB, a popular and well respected discussion board, I'm hosting the revenue and earnings estimates for Apple's second fiscal quarter developed by members of the community. As the host of the index and commentator on the members and their entries I've published my quarterly estimates in a separate blog entry at Posts At Eventide. 

This is the second consecutive quarter AFB member quarterly estimates have been collected and published. Although several members are new to the quarterly estimate development process newness to publishing estimates belies years of studying Apple as a company and years of familiarity with the company's popular and award-winning products. 

The average estimate of the 24 AFB members participating in the FQ2 index indicates expected revenue of $25.746 billion and earnings per share of $6.39. This is in contrast to the current Wall Street consensus of $23.15 billion in revenue and eps of $5.32. The AFB member revenue estimate represents an expected 90.7% rise in revenue in the quarter and eps growth of 91.9% over the prior-year period. All numbers in the chart below are in millions except per share data. 

Knowing the active members of the AFB from years of moderating the discussion board, it's a pleasure to host the FQ2 index at Posts At Eventide. Comments on the index can be made below and for registered members of the AFB in the topic created specifically for this discussion. 

Robert Paul Leitao


(Post edited 04/10/2011 to include estimates from Andy M. Zaky)

Posts At Eventide Resource Guide

Posts At Eventide Resource Guide
As a moderator of the Apple Finance Board and an independent Apple analyst, two of the challenges I encounter in preparing quarterly estimates are finding useful historical information about Apple's quarterly results and formatting that information for purposes of analysis.

My AAPL quarterly estimates and share price forecasts are influenced by the company's most recent results. Consequently, finding and storing relevant financial information is essential in the estimate and forecast development process. As a benefit to members of the AFB and regular readers of this blog, I've posted a Posts At Eventide Resource Guide comprised of  links to Eventide posts that provide financial information for use in the developing quarterly estimates for future periods based at least in part on the company's recent results. 

It's my desire for this work to be a benefit to all readers seeking to understand Apple's recent quarterly performances and to serve as a repository of information about the company's quarterly financial results for the benefit of other independent analysts preapring quarterly estimates and share price forecasts. 

To maintain relevance and timeliness, the listing below includes only AAPL-related articles published over the most recent 12 months. 

Posts At Eventide AAPL analysis articles listed by month of publication. 

Robert Paul Leitao

AAPL FQ 1 Revenue Results With And Without The iPad

AAPL FQ 1 Revenue Results With And Without The iPad

On Tuesday Apple reported record revenue of $26.741 billion for the company's 1st fiscal quarter ended on December 25, 2010, representing 70.5% growth in revenue over the prior-year period and a 31.5% rise in revenue sequentially over the fiscal quarter that ended in late September. This frenetic pace of revenue growth was fueled by strong growth in iPhone sales and the emergence of the Apple iPad in the company's product line-up. 

The graph below illustrates the percentage contribution to revenue from each of Apple's largest revenue segments. Combined, the Apple iPhone and the Apple iPad represented 56.38% of Apple's reported revenue. The Macintosh line of personal computers contributed just over 20% to the revenue total and the Apple iPod line represented just over 1/8th of the total at 12.81%. 

AAPL FQ1 ’11 Results As Reported
	FQ1 ’11		FQ 1 ’10	FQ 1  ’11	%  of Revenue
Revenue Segment	Revenue	% of Total	Revenue	Growth	Growth
Macintosh	5,430,000,000	20.31%	4,450,000,000	980,000,000	8.86%
iPhone	10,468,000,000	39.15%	5,578,000,000	4,890,000,000	44.22%
iPod	3,425,000,000	12.81%	3,391,000,000	34,000,000	0.31%
iPad	4,608,000,000	17.23%	0	4,608,000,000	41.67%
Peripherals	593,000,000	2.22%	469,000,000	124,000,000	1.12%
Software, Service	786,000,000	2.94%	631,000,000	155,000,000	1.40%
Other Music	1,431,000,000	5.35%	1,164,000,000	267,000,000	2.41%
Total	26,741,000,000	100%	15,683,000,000	11,058,000,000	100.00%