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AAPL Off On Earnings
Markets are up in early trading as France and Germany put the finishing touches on a huge expansion of Europe’s bailout fund. Shares of AAPL, however, are ~4% as the company missed consensus estimates last night (see below). Catalysts include upgrade cycle and conversion to the iPhone 4S and response to the free iPhone 3GS; update to the iPad in early 2012; continued growth of the Mac business line; mobile adoption in China and emerging markets; iCloud / iOS 5 rollout and adoption; the evolution of Apple TV; and platforms such as mobile advertising (iAd), books / publishing and social (Ping). Shares of Apple trade at 9.5x Enterprise Value / Trailing Twelve Months Free Cash Flow (including long-term marketable securities). For Business Insider’s updated Apple model, including financials, charts, graphs, discounted cash flow and valuation metrics, click here.Wall Street Reacts To Earnings By Saying The Same Thing (Various)
Apple delivered revenue of $28.3 billion, well below consensus of $29.7 billion and EPS of $7.05 versus consensus of $7.38. The principal shortfall was in iPhones as well as light iPad sales. Words from the defenders who are all essentially saying the same thing:
- Morgan Stanley: While Apple missed consensus estimates, Katy Huberty doesn’t see any structural issues. She also see significant upside to the holiday quarter in light of strong iPhone momentum post the 4S launch. She raised her price target to $480 and maintains her Overweight rating.
- Goldman Sachs: Bill Shope was disappointed and surprised that results were below expectations, particularly on the iPad line, but he still expects the company to deliver solid December quarter results, boosted by iPhone 4S sales momentum. He reiterates his Buy rating and Conviction List membership on Apple, with a 12-month price target of $520.
- Bernstein Research: Toni Sacconaghi views Apple’s fiscal fourth quarter results as a “blip”, not a fundamental reset. He continues to like Apple long-term as the best secular story in the hardware space. He continues to have strong conviction that Apple is well positioned to win in the emerging smartphone and tablet marketplaces. Apple remains his top pick with an Outperform rating and price-target of $575.
- Bank of America Merrill Lynch: Scott Craig says that essentially, Apple took iPhones away from this quarter and pushed them into the holiday quarter with the late iPhone 4S launch. He does not view this as a sign of softening iPhone demand. On the contrary, healthy demand should drive a huge rebound in iPhone sales. He remains a buyer of the stock with a Buy rating and increased price-target of $515.
- Deutsche Bank: Chris Whitmore believes that Apple will continue to show impressive growth despite its size and is well positioned to benefit from the halo effect of three major product cycles: iPhone, iPad and Macs. Coupled with greater geographic expansion, increases his confidence in Apple’s ability to continue to outperform. He maintains his Buy rating and $530 price-target.
- Barclays: Ben Reitzes understands the negative reaction to the news, but he believes Apple’s miss versus consensus was driven by iPhone sales being pushed from one quarter into the next rather than a change in fundamentals. He reiterates his Overweight / Positive rating and price-target of $555.
Expect a monster holiday quarter then. Beyond that, it’s anyone’s guess.
The Collapse Of Apple’s Retail Revenue Last Quarter (Business Insider)
According to Henry Blodget, the most startling news in Apple’s weak quarter was actually the performance of the company’s retail stores. Despite opening 30 new stores in the quarter, Apple’s retail revenue increased only 1% year-over-year. On a same-store basis, the performance was even worse. The average Apple store sold $10.7 million worth of stuff this year, versus $11.8 million last year, or a decline of 9%. Most of the disappointment here can be traced to the iPhone shortfall.
Waiting To Launch The iPhone 4S Put Apple At A Disadvantage (Business Insider)
Henry Blodget believes the iPhone delay, combined with the release of a mere upgrade instead of a revolutionary new phone, has done two things to weaken Apple’s overall market position:
- It has given Android-based products three more months as well as time to catch up
- It has caused Apple to lose more market-share globally to Android
The risk on the market-share side is that the same thing will happen to Apple in smartphones that happened to it in the PC market in the 1990s. A ubiquitous platform (Windows and now Android) grows so rapidly that eventually it becomes the industry standard and reduces Apple to a premium niche product.
Two-Thirds Of Apple’s Cash Pile Is Offshore (The Next Web)
During Apple’s conference call last night, Apple’s Tim Cook revealed that two-thirds of Apple’s cash was off shore, which means that $54 billion of the $81 billion in cash isn’t in the U.S. Apple added $5.4 billion to its cash reserves in the last 3 months. That figure would have likely been higher had Apple not purchased the rights to more than 6,000 Nortel patents. Some say that acquisitions or dividends are the best course of action as uses for the cash. Cook, however, believes innovation is the best use, “we’ve got a pipeline that’s unbelievable.”
When Dropbox Denied Steve Jobs (Forbes)
Cloud-based file storage service Dropbox turned down a multi-million-dollar, nine-figure offer from Apple and a personal pitch from Steve Jobs in 2009. Founder Drew Houston said he didn’t want to sell his company despite Jobs telling them he was going to enter that space and Dropbox would simply be a feature within a larger platform. iCloud is largely designed for iOS devices while Dropbox automatically syncs files and folders for users on a range of devices giving users more flexibility on what files to sync and how to share them with others.
Will Apple Launch A Smaller iPad? (Pad Gadget)
rumours out of Taiwan are saying that a third or fourth generation iPad is in design phase and will be sporting a mini. Apple is rumoured to have paired up with LG Display and AU Optronics for a new 7.85-inch iPad to be released in early 2012. The smaller iPad would supposedly carry the same resolution of the current iPad but would help Apple compete with the recently-announced 7-inch Kindle Fire from Amazon. I’m not a believer, however, I’m sure Apple is experimenting.