Apple, the Cupertino based company, cut through analyst forecasts like a hot knife through butter, today, after it reported quarterly revenues of $46.3 billion, and Earnings per share of $13.87 (diluted shares). Comparing this with Q3 2010, when the company disclosed revenues of $26.74 with a net profit of $ 6billion. This quarter's net profit of $13.06 billion is more than the entire yearly profit of Google, one of its main competitors. Shares jumped to a maximum of 10% in the pre-trading market, and are now hovering around 6.43% in the green.
The Apple of our eyes
The spectacular growth in revenues was buttressed by the 37.04 million iPhones sold, up 128% from its year-on-year figure. Another 111% percent increase is Ipads sold brought the total number to 15.43 million. Conversely, the growth in sold Macs of "only" 26% was most likely boosted by the popularity of the other products. Furthermore, the decline of 21% in marketed Ipods, reminds investors again of the cyclical nature of Apple products. As today, Apple may be on a massive tidal wave of popularity and consequently profitability, will it be able to maintain the momentum and come up with more market breaking products ? The issue here is that the market is discounting growth multiples that imply the continuation of this spectacular pattern, and, in case of even a mild disappointment, share prices may fall precipitously. This is the case with high growth stocks: the market is already implying further massive surge in demand for Apple products. It may take a wile until the company develops new ground breaking products. From Financial Times:
The second issue with the Apple stock is its $100 billion warchest. At a market capitalisation of almost $419 billion, a good quarter of this represents cash and cash equivalents. The argument that cash hoarding is justified by the fact that there are no better alternatives is faulty: invest in R&D,vertically integrate your supply chain, return some cash flow to shareholders.
Another interesting development is that Goldman Sachs hiked their price expectations by almost $100 to a share price of $600 and is now aggressively marketing Apple stock. This may mean that the trading department is fading the rally and is calling an inflexion point (when the growth is cooling off). With 60% of its market cap being held by an increasing number of hedge funds (current figure is more than 200), unloading the stock as a result of negative news will certainly be painful. Excerpt from the Goldman Sachs report:
"We are raising our estimates after this quarter’s upside results. For FY2012, we forecast revenues of $148.26 billion and EPS of $40.36, up from $138.34 billion and $35.13. Our forecast now calls for revenues and EPS of $166.09 billion and $44.55 in FY2013 and $186.24 billion and $49.10 in FY2014, up from $160.55 billion and $40.03, and $180.83 billion and $43.50, respectively. Even after this quarter’s upside, we believe the year is chock full of catalysts to drive further share price momentum. We continue to expect a late March quarter iPad refresh and a lower price point for the iPad 2, as well as a mid-year iPhone refresh. We believe the MacBook Air will continue to gain share in the PC sector, and we believe Apple will finally launch an iOS-based television in late 2012 or early 2013. Finally, our expectation for a dividend announcement this year could represent a critical catalyst that brings a new class of investors into the stock."
Perception: Apple warrants an annual growth of over 30%. Reality: its products suffer from cyclicality and their popularity will at one point start to decrease. Conclusion: there is considerable risk (and it will increase as the stock price goes higher and higher) in the company and a conservative investor should stay out. Alternatives: check the Apple suppliers for good prospects.