Tuesday, 04/23/13: $406.13 (EARNINGS DAY!)

[Deleted]

Its funny how everyone is after Apple to make a lower priced iPhone for emerging markets, and now that the iPhone 4 is cheaper and affecting ASP by $30, it's affecting margin and not a good thing. Well you can't have it both ways...I'm perfectly fine just going as is and bringing out the iPhone 5S and retiring the old iPhone 4 and leaving the iPhone 4S as the cheap phone.

Also, theres always resale markets if someone wants a cheap, old iPhone. Also, if we bring out the iPhone 5S with moderate improvements, the margins for the 5S would be quite large if they use the same form factor...not a bad thing.

[Mav]

Largest buyback in history! Still not enough?

Wow. Sure hope not. Remember also, that divvy isn't likely to go _down_ each year.

[phoebear611]

Apr 23, 2013 17:58:34 GMT -8 vitalogy80 said:

Apr 23, 2013 17:36:39 GMT -8 phoebear611 said:

3.6 million shares per quarter - if we assume 20 business days a month - is approximately 60k per day. It will not make a dent in share price for sure. It's just not aggressive enough. Won't even put floor on stock IMHO.

I think your expectations might have been a little of line if you think a $60B buyback over 2.5 years is not aggressive enough. While I would have liked it to be larger, it's actually larger than I thought Apple would make it.

Wasn't the size - it was the time that underwhelmed me...amongst other things. I had - more than anything - hoped guidance would be more upbeat so that it would stabilize the stock and give us a floor. At this point, sadly, I am not even looking for a spike up...would just like to establish a floor and stability - only then can we rebuild share price constructively. Guess I will have to wait a bit longer.

[Mav]

Apr 23, 2013 17:30:56 GMT -8 archibaldtuttle said:

By my count, that would be a 29% y-o-y reduction in earnings. And this quarter was a 18% reduction in earnings.

So what PE is fair for a company that has a -20% growth rate?

Hm. For a quarter or for an actual whole fiscal year?

[prazan]

Apr 23, 2013 17:36:39 GMT -8 phoebear611 said:

Apr 23, 2013 17:28:27 GMT -8 @greggthurman said:

Apple is going to use $60 Billion to buy back between now and end of calendar year 2015. That's (spread out evenly) ~$1.8 Billion per quarter, or at $500/share about 3.6 million shares. That's a lot, especially over such an extended time frame.

Still, I have never thought Apple was buying to reduce share count as much as it was to reduce share creep.

3.6 million shares per quarter - if we assume 20 business days a month - is approximately 60k per day. It will not make a dent in share price for sure. It's just not aggressive enough. Won't even put floor on stock IMHO.

Here's my calculation. I'd appreciate confirmation or correction.

$60 billion buyback through calendar year 2015 = 32 months
$60 billion / 32 months = $1.875 billion per month
$1.875 billion / 21 business days per month = $89.3 million per day
$89.3 million / $400 per share = 223,000 shares per day.

At the current share price, $60 billion buys 150 million shares, reducing share count by 16%.

[archibaldtuttle]

So the buyback effectively increases EPS by 15% (maximum) over the course of 2.5 years. Not nothing, but not enough to significantly boost share price in the face of decreasing EPS.

[archibaldtuttle]

Apr 23, 2013 18:04:27 GMT -8 Mav said:

Apr 23, 2013 17:30:56 GMT -8 archibaldtuttle said:

By my count, that would be a 29% y-o-y reduction in earnings. And this quarter was a 18% reduction in earnings.

So what PE is fair for a company that has a -20% growth rate?

Hm. For a quarter or for an actual whole fiscal year?

Well, we had 0 growth in Q1, -18% Q2, and we're looking at probably another -25% in Q3. Correct me if I'm wrong.

Hopefully Q4 will show some growth, but who knows.

So we could very well have -15% or -20% EPS growth for the whole fiscal year..

[Mav]

Yup prazan - at current prices, AAPL buys back 16% of the company over a little over 2.5 years. They don't call it the world's largest corporate buyback ever for nothing.

Because Apple is very capable of super-leveraging against its ridiculous $102B in offshore cash, it's actually not entirely out of the question that Apple could expand the new, history's-biggest buyback program, though IMHO it's much less likely than the all-but-scheduled annual divvy increases.

So if I may shift the discussion a little...if AAPL increases the dividend about 10-15% per year, what impact might that have on share price?

[Mav]

WS looks ahead. It hasn't assigned AAPL a multiple anywhere near its actual YOY growth the past several years. But while it's a mystery what multiple it'll assign AAPL now, you can't just project one year's worth of results and call it a day.

Also, much as I'd rather not think it, there are other ways to gauge company value once earnings growth comparisons stop making sense or temporarily don't make sense. You've got NFLX and AMZN on one extreme and companies like WMT on another (6% estimated earnings growth this year - the "rule of percentage growth" obviously doesn't apply to its multiple). Then there's all kinds of other metrics and intangibles that I'm not qualified to go into.

Btw, one source has the S&P 500 average earnings growth rate as being essentially flat. And yet, the S&P has a nonzero multiple (I think it's around 16). Curious, that.

[mark]

Apr 23, 2013 15:02:59 GMT -8 Red Shirted Ensign said:

Apr 23, 2013 14:58:17 GMT -8 sponge said:

Ok here is what I got wrong. The 200 basis points in margin took .70 from eps. The lower Average iPhone price also cost me $1.2 billion in revenue and the 300K less Macs cost $400 billion in revenue.

1.6 billion + 43.6 = 45.2

Add an extra 400 million in Mini and we would have been on the mark.

Sponge, with all due respect....almost everybody else missed by less and can make the same statements more easily about making a few adjustments and being "on the mark". I was at $10.45.....almost "on the mark".. Only missed by.....a lot.


Now we get to look to 135 million shares being retired over the next 35 months. That new metric may make estimating in 2015/16 easier....or not.

How do you figure 135 million? What average price are you using over the next 32 months?

[Mav]

Eh, just divide buyback authorization by market cap and adjust as you go, I say. Expect AAPL to be especially opportunistic on dips, which will keep things interesting if nothing else.

Heck, maybe Apple will buy back 5% of the company on a crash to 200 in a single day.

[Mav]

Relative to other companies, this is one massive share purchase authorization, at least for this year. The next highest buyback program (as of early April) is Home Depot at a "mere" $17B. Also to be completed at the end of 2015.

blogs.marketwatch.com/thetell/2013/04/04/10-largest-share-buybacks-so-far-in-2013/

[prazan]

Apr 23, 2013 18:19:38 GMT -8 Mav said:

Yup prazan - at current prices, AAPL buys back 16% of the company over a little over 2.5 years. They don't call it the world's largest corporate buyback ever for nothing.

Because Apple is very capable of super-leveraging against its ridiculous $102B in offshore cash, it's actually not entirely out of the question that Apple could expand the new, history's-biggest buyback program, though IMHO it's much less likely than the all-but-scheduled annual divvy increases.

So if I may shift the discussion a little...if AAPL increases the dividend about 10-15% per year, what impact might that have on share price?

Good in the long term, but aren't dividend stocks rated by continuity of dividend increases? I'm not a dividend investor, but that has been my sense of it.

[Mav]

No idea. But I think it's pretty clear that absent some giant disaster befalling Apple (it still increased cash $7 or so billion despite burning up about $4B or so in divvies and buybacks, IIRC), dividend increase continuity will certainly be there.

[mark]

Apr 23, 2013 15:57:16 GMT -8 bud777 said:

I'm right back out on the ledge again.

15 year fixed mortgages are available for 2.5% Apple is paying 3%. Explain why I would not want to refinance and take $400,000 cash out and buy 1000 shares? I net about $3000 a year in interest the first year and it gets better after that because of amortization.

Does ANYONE believe that Apple will not be above 500 sometime in the next 15 years? Does anyone believe that the dividend will not increase?

If we see an end to easy money and interest rates rise, I am locked into 2.5% so who cares? If the current situation continues, great. If we see a period of massive deflation and the stock and market tanks, I have 15 years to recover. Really, this started out as a wild hair, but
I am getting more and more serious. The bank seems to be willing to consider it, what am I missing?

Can you really get a 2.5% rate on a refi with cash out? If so, I might also consider it.

[Mav]

Leveraging one's future in the stock market (I'd count something like putting your house or essential/retirement savings at risk as that category) isn't something I would advise, EVER, if I gave advice.

[mark]

Apr 23, 2013 15:47:52 GMT -8 sponge said:

I think WS smells blood after selling the stock and forcing a bigger buyback then originally planned. Now they will bitch about a bigger dividend the. Just 15% increase that they got.

One part that concerns me is that Apple really has no big plans for their cash pile other then making it slowly bigger over the next 5 years.

The one positive about the buyback is that it will really create a floor in the stock at $400 regardless of what the numbers are next quarter.

The challenge is moving the stock over 550 after Oct.

I'm not sure if ~5,000,000 shares a month are enough to create a "floor" of 400.

[Mav]

The floor, bottom, whatever can only be seen in retrospect.

So until then, we go back to level by level. Fundamentals forecasting is tough, because even though it's quite easy to throw together a decent estimate, the output doesn't translate since Apple currently _isn't_ in a growth phase. Investments in the future, investments to pave the Primrose Path to Corporate Demise™, fact is investments are being made by Apple (which have rapidly brought gross margin back to "normal") and it's tough to see where they'll lead quarter to quarter without new product.

[Deleted]

Apr 23, 2013 18:27:51 GMT -8 mark said:

Apr 23, 2013 15:02:59 GMT -8 Red Shirted Ensign said:

Sponge, with all due respect....almost everybody else missed by less and can make the same statements more easily about making a few adjustments and being "on the mark". I was at $10.45.....almost "on the mark".. Only missed by.....a lot.


Now we get to look to 135 million shares being retired over the next 35 months. That new metric may make estimating in 2015/16 easier....or not.

How do you figure 135 million? What average price are you using over the next 32 months?

Just take average PPS you expect between now and Dec. 31, 2015. Hopefully, it's at least around $575, front loaded when shares are soft. I think approx. 90M shares can be repurchased for additional $50B

[Mav]

Depending on the amount of cash Apple already has ready to go, I'm not expecting the buyback to be anywhere near "even" from quarter to quarter.

I think we've just entered the Twilight Intervention Zone. Who knows what'll happen but with Apple's checkbook and higher dividend yield, things could get a lot more interesting at these levels.

Btw, as you might have guessed, Einhorn is...somewhat positive on the news:

dealbook.nytimes.com/2013/04/23/einhorn-supports-apples-big-payouts/

[Mav]

OK, Nasdaq 100 futures STILL suck (down about 60 basis points). Seriously, the only thing I can think of with the US futures "divergences" is a bet on AAPL tanking tomorrow, even though it's a whopping 50ish basis points down post-AH bear raid.

Am I missing something?

EDIT: Probably. Investing.com's Nas 100 futures readings are screwed up.

[zzmac]

you've been reading too many posts by sponge

Apr 23, 2013 15:57:16 GMT -8 bud777 said:

I'm right back out on the ledge again.

15 year fixed mortgages are available for 2.5% Apple is paying 3%. Explain why I would not want to refinance and take $400,000 cash out and buy 1000 shares? I net about $3000 a year in interest the first year and it gets better after that because of amortization.

Does ANYONE believe that Apple will not be above 500 sometime in the next 15 years? Does anyone believe that the dividend will not increase?

If we see an end to easy money and interest rates rise, I am locked into 2.5% so who cares? If the current situation continues, great. If we see a period of massive deflation and the stock and market tanks, I have 15 years to recover. Really, this started out as a wild hair, but
I am getting more and more serious. The bank seems to be willing to consider it, what am I missing?

[zzmac]

+1000

How can they not make a major move now when the share price is so low (financial insanity).

Apr 23, 2013 17:36:39 GMT -8 phoebear611 said:

Apr 23, 2013 17:28:27 GMT -8 @greggthurman said:

Apple is going to use $60 Billion to buy back between now and end of calendar year 2015. That's (spread out evenly) ~$1.8 Billion per quarter, or at $500/share about 3.6 million shares. That's a lot, especially over such an extended time frame.

Still, I have never thought Apple was buying to reduce share count as much as it was to reduce share creep.

3.6 million shares per quarter - if we assume 20 business days a month - is approximately 60k per day. It will not make a dent in share price for sure. It's just not aggressive enough. Won't even put floor on stock IMHO.

[terps530]

I'm not sure why some are stressing the 'no new products until the fall' concept. The last two iPhones have been in fall, same with ipad4 and ipad mini. I guess ipad 3 breaks the rules coming out spring '12 but that's less of an impact vs the phones or something brand new. Plus no one was expecting a surprise that the iPhone 5s or any iPhone would come out in the summer at this point, nor were people expecting any new 'category' in the next few months.
Soooo, we wait and hopefully watch aapl stabilize, then begin to watch the ball start rolling (upwards).
I'm not a fan of the same old for 6 months while the s4 is coming out now, but it was expected. I just hope things will 'leak' out bit by bit over the next few months to start the lips-licking process and possibly win back some customers who are considering jumping ship.

[Deleted]

Gene has some positive post-event comments re: the Tim and Peter show. I guess this rules out an appearance on CNBC. Why: NEW PRODUCT CATEGORIES: TV . iWatch . Mobile Payment Processing.

macdailynews.com/2013/04/23/piper-jaffrays-munster-apples-going-into-a-good-year/

[Mav]

Welcome back burgess?

Also, "new product categories" isn't just a cheap/big iPhone? Or a Mac Pro? ;D

Seems iTV is definitely in the works, as if we didn't have enough confirmation. They read your mind, Mercel.

[applemuncher]

Here is something new to think about. In 2012 Apple announced the WWDC event on April 25. In 2011 they announced it on March 28, and in 2010 they announced it on April 28. I expect the 2013 WWDC announcement any day now. However, I will be concerned if Apple has not announced the 2013 date by this time next week. To me, that could indicate a delay in the next iOS release.

[Deleted]

Lets review for a minute before we go all doom and gloom...what were the positives from today.

Revenue - Slightly over PO's high estimate...always a good sign when AAPL reports over upside estimates.

iPad sales - Still growing at a staggering pace

Buyback - 60 Billion over 32 months is nothing to sneeze at. That equates to about 15% of market cap...if the stock was flat and they theoretically bought back all shares at $400, EPS would rise by 18% just because of buyback.

Dividend - 3% yield, 15% growth with a 20% payout ratio looks mighty appetizing to any dividend investor. Apple still has plenty of room to grow the dividend in future years, which is what dividend investors want. I certainly wouldn't complain about 15% raises to my income every year, and if I was old and retired, Apple gives me raises of 15% would sure be nice.

iPhone - Sales were still strong, not growing huge anymore, but I don't think anyone expected it to.

Mac - Slight decline of 2%, but thats still 12% better than PC sales as a whole, and I'm sure a lot of those missing sales went to iPad instead, which is still a win.

iTunes - Massive growth and growing faster every month it seems...keep in mind iTunes itself is extremely low margin, at least for Apple's standards.

Issues??

The iPad mini is bringing down margins, but I see more iPad sales as a win regardless. Its tough to complain about growth from 11.8M units to 19.5M units in a single year...this is a win no matter what way you look at it.

Margins - Down significantly...but why?

The main reason, other than the iPad Mini and the troubling issue with the stock in my opinion is iPhone ASP. It's dropped from $640 to $612, which is troubling. Now the question is why? The answer is obviously that more people bought cheaper iPhone 4's than people last year bought cheap iPhone 3G's. So we have to ask ourselves...is that the only reason ASP was down? I don't know, but I imagine there are smarter people than me who will answer it, like Horace or someone here.

If we assume that 50% of sales are the latest (most expensive) version and that the ratio will continue to stay the same, I would think that ASP would continue to stay about the same, maybe fall down to the $600 range if the ratio to cheaper iPhone drops a little more...I certainly don't see Aplpe reducing the cost of the iPhone 5 in Canada, at least not for the first 6-8 months of release. I don't expect that to change.

Conclusion

The iPad is still the unquestioned market leader in a market growing 50%+ yearly, this is no doubt a massive opportunity. The Smartphone market is the key with Apple though right now...the market is still expected to grow at a 20% clip though for the next few years, and Apple's Market Share has been rising the past few quarters...so as long as it doesn't drop significantly, Apple will still sell significantly more iPhones on a yearly basis.

I see AAPL as a significant bargain at $400 and expect to see dividend growth funds and investors to start buying, these people love seeing solid, sustainable yields with room to grow and more importantly, the willingness to grow the dividend. Apple has shown all of these things today...the days of Apple as a growth company are pretty much over, at least from a 40%+ growth days, barring a massive new product release. We have to look Apple as a value stock now, and look at KO or Walmart for an example...they certainly aren't cheap at PE's of 22 and 16. If Apple shows stabilizing or 10% growth again, which I see easily doable, funds will come rushing in. This isn't a short term fix for the stock though, I think we'll need to see what happens in the fall before any massive gains will happen, and more likely 2014.

[Mav]

WWDC is historically in June and it'll probably sell out in less than two hours, like last year. This isn't really a cash conference expectations game kind of thing.

Even if you're cynical about it, you have to admit Apple's app developer community's doing pretty OK. Which implies there's a ton of 'em more than willing to jet/drive down to WWDC on a moment's notice. If it's more a matter of app developers getting out there than it is Apple's own people prepping for the conference, the WWDC announcement could easily be in May.

[Mav]

For issues, you forgot the almost-scary guidance with implied EPS as low as $6.50ish.