THE APPLE INVESTOR: Wall Street Has No Idea What To Make Of Apple's iAd

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AAPL Shares Continue To Climb
AAPL continues its upward trend today.  The shares are up about $0.70, at $242.50. AAPL currently trades at the high-end of the tech group at 20x estimated fiscal-year 2010 EPS and 19x Enterprise Value / Trailing Twelve Months Free Cash Flow. Upcoming catalysts include March quarter results on Tuesday, April 20 (after close); March NPD data on Mac unit sales (presumably out this week); and the launch of the next generation iPhone this summer.

Wall Street Has No Idea What To Make Of Apple’s Mobile Advertising Platform, iAd (The Wall Street Journal)
Wall Street weighed in on Apple’s new mobile advertising product iAd, unveiled last week at the iPhone OS 4 announcement. It ranges from the sublime to the ridiculous:

  • Deutsche Bank’s Chris Whitmore believes that iAd is “extremely important as it provides App developers a monetization avenue (while drawing even more developers to the platform) in addition to producing yet another revenue stream for Apple.” Whitmore estimates that iAd could generate $125 million in 2010 and $375 million in 2011.
  • Piper Jaffray’s Gene Munster believes that mobile in-app advertising could reach $700 million by 2013 with Apple capturing $380 million of this market through the iAd platform. He also believes that Apple’s dominance in the consumer electronic and online music markets is going unmatched while interest in the iPhone continues to rise. He maintains his Overweight rating and $287 price-target.
  • Kaufman Bros. analyst Shaw Wu believes the financial contribution from iAd will be “negligible as this is more of a service for app developers to make money.” Interesting. Wonder if he’s factoring in the 60 / 40 revenue share.

iPhone Set To Over Take The BlackBerry In The Enterprise (The Financial Times)
Apple may be on its way to becoming a big player in the enterprise market, which represents an additional driver of growth beyond the consumer market. ChangeWave Research estimates that the iPhone had 27% U.S. corporate market share in February 2010, up from 22% in November 2009 while BlackBerry held steady at 69%. An increasing number of companies are seeing the efficiency benefits of the iPhone and now the iPad. So much so that analysts are forecasting that Apple could catch up to Research In Motion (BlackBerry) in the next few years in terms of smartphone share. Henry Blodget at Business Insider believes this trend is very important, because the enterprise is the last safe bastion of incumbents Microsoft and Research in Motion, and it is a huge opportunity that Apple has yet to penetrate.  TBI Research noticed the trend accelerating in late 2009.

No Really, What Is Apple Going To Do With All The Cash? (The Wall Street Journal)
Apple’s market cap is currently about 5x book value (the value of assets carried on the balance sheet), which basically means that for every dollar Apple uses, it realises about five dollars in value. Because of this, Apple probably won’t buy back shares any time soon (too expensive). Not only has Steve Jobs said he won’t pay a dividend, but the market is demanding a higher return rate on the cash anyway. Finally, we don’t see the company making any major acquisitions either.  As a result, Apple has created quite the conundrum for itself and “management will need to tread carefully to not affect the share price.”

Apple Crushes Sony And Nintendo On Gaming Options (Business Insider)
Apple’s mobile gaming platform is huge compared to its rivals and is only likely to get stronger. The company recently unveiled the Game centre during its iPhone OS 4 presentation. Scott Forstall, Senior Vice President of iPhone division says, “If you look at dedicated gaming devices like the Sony PSP and the Nintendo DS, we just blow them out of the water.” While it’s unclear how many of those titles are free versus paid or small/independent versus big titles, it nonetheless illustrates Apple’s rise in the $10 billion gaming market.

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