Author Topic: AAPL - Apple Inc.  (Read 1612152 times)

racemize

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Re: AAPL - Apple Inc.
« Reply #350 on: September 17, 2012, 03:11:10 PM »
Come on Parsad, that MSFT one was a bit cheap--the P/E was crazy high at its peak!
But I would say MSFT is more of an annuity business than AAPL - at least until recently.  Namely, people bought desktops every 3 or so years and upgrade from Win3.1 --> 95 --> 2000 --> XP, etc.  Can't say the same would go on for as long period for AAPL.  For myself, I did buy iphone 4 and 4S, but would likely switch to another brand next time.

sure, but I don't think anyone would even be discussing Apple if it were at a P/E of 60 (or MSFT at that time).  Additionally, MSFT has actually performed very well from its peak, so it just doesn't seem that relevant. 

Speaking for myself, the competition will have to be significantly be better than iPhone to get me to switch, so I'm pretty much on a 2 year phone annuity...


gokou3

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Re: AAPL - Apple Inc.
« Reply #351 on: September 17, 2012, 03:55:56 PM »
Speaking for myself, the competition will have to be significantly be better than iPhone to get me to switch, so I'm pretty much on a 2 year phone annuity...

Yes, I agree this would be the mentality for many iphone users.

There are a few billion people who has never had smartphone though.  Would they still consider buying one now?  Again, I still expect Apple to sell incrementally more iphones than 4S... before the trajectory is getting flatter... quickly.

valueInv

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Re: AAPL - Apple Inc.
« Reply #352 on: September 17, 2012, 04:24:16 PM »
Speaking for myself, the competition will have to be significantly be better than iPhone to get me to switch, so I'm pretty much on a 2 year phone annuity...

Yes, I agree this would be the mentality for many iphone users.

There are a few billion people who has never had smartphone though.  Would they still consider buying one now?  Again, I still expect Apple to sell incrementally more iphones than 4S... before the trajectory is getting flatter... quickly.

So, you think doubling of sales is incremental?

Uccmal

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Re: AAPL - Apple Inc.
« Reply #353 on: September 17, 2012, 04:32:25 PM »
Apple is not expensive; the balance sheet backs the valuation. I just think at some point the valuation of the entire business is absurd. At todays valuation, let alone a market cap of 800 billion in two years, Apple is worth more than all the TBTF banks combined, the combined market cap of the airlines and railroads, or all the auto makers and Boeing.

800 billion for a company that essentially innovates the original iPod (a toy) every five years and incrementally adds to their innovation in the interim is absurd. I cannot bring myself to invest in Apple (though I like their products) because there is no way to project their earnings into the future. I don't see a clear moat other than their size. I'm positive an entrepreneur could build another Apple for 600 billion; furthermore, if everyones iDevice stopped working tomorrow, the world would continue to run without much of a hiccup.

Apple might continue at it's present trajectory and be worth 800 billion in a couple years. I don't trust the market to have enough sense to value this toy maker at a reasonable level in the next two years, and there is no way I would short it. I would guarantee Berkshire Hathaway with or without Buffett will be worth more than Apple in 2030, 2050, or 2100 so I will just buy BRK instead and let those who want to chase Apple chase it.

Very well articulated. 

RE: apple bears owning the products.  I can like Coke but be bearish on the stock.  I have never implied that Apple was going to go out of business or stop making decent products.  Their profits are going to normalize, and so is their stock price. 
GARP tending toward value

gokou3

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Re: AAPL - Apple Inc.
« Reply #354 on: September 17, 2012, 04:35:28 PM »
Speaking for myself, the competition will have to be significantly be better than iPhone to get me to switch, so I'm pretty much on a 2 year phone annuity...

Yes, I agree this would be the mentality for many iphone users.

There are a few billion people who has never had smartphone though.  Would they still consider buying one now?  Again, I still expect Apple to sell incrementally more iphones than 4S... before the trajectory is getting flatter... quickly.

So, you think doubling of sales is incremental?

I was referring to iphone 5 vs 4S worldwide sales.  Is it what you see doubling?  I doubt it is, and even if it is it is irrelevant because that's just a few days of sales.

valueInv

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Re: AAPL - Apple Inc.
« Reply #355 on: September 17, 2012, 05:02:46 PM »
Ironic,the Apple bears in this thread seem to buy Apple products themselves and think that other people will stop buying them.

BTW, the evidence seems to be pointing towards a GM decline ;)
http://www.intomobile.com/2012/09/17/iphone-5-flop-apple-doomed-oh-wait-its-most-successful-iphone-yet/

Remarkable...and they'll dominate for some time!  But remember this?

http://finance.yahoo.com/echarts?s=IBM+Interactive#symbol=ibm;range=19701106,19930215;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

How about this?

http://finance.yahoo.com/echarts?s=msft#symbol=msft;range=19950217,20030901;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

Lastly?

http://finance.yahoo.com/echarts?s=aapl#symbol=aapl;range=19840907,19971230;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

"Those Who Forget The Past, Are Doomed To Repeat It"

Cheers!

This is like trying to predict how the stock market will perform this year by looking at skirt lengths. Here's the funny thing with history:

   - History never repeats itself, but rhymes
   - No two versions of history agree with each other

Therein lies the problem with the bears - they're simply not willing to do an analysis of the business and instead quote analogous companies. Take your investment in Dell, I can point out 10 tech companies that failed turnarounds and you can point to 10 that did. Do you think that would meaningfully help you predict how Dell will turn out? This is what I call reasoning by analogues and I see people use it when they're not willing to do the analysis work.

Lets take this "GMs will decline since competitors have caught up" theory:

1, It does not explain Apple's past. GMs for products in the 2nd Steve Jobs era, GMs did not decline in a big way for iPods or Macs despite more feature-filled offerings  from competitors (Zune, etc)
2, It does not explain Apple's present. According to you guys, Samsung and other have equivalent or better devices currently or have already had them for a year. However, Apple's sales show signs of continuing to double. So guess what, Tim Cook has no reason to drop prices and impact GMs

So you have a theory that does not explain the past or the present. So what goes a logical person do? Use the theory to predict the future?

Uccamal predicted that Apple would stumble this year and would peak at $500-$600B. Well, Apple went on to one of the biggest patent wins in history and blew past the market cap limit within 6 months. Now, you would this that this would make one rethink or write it off as something one doesn't understand but no way. Instead, its like the ECRI recession call - "it'll happen soon". When Liberty presented with with facts about Apple's processor, I quickly admitted I was wrong and changed my position. Its like arguing with intelligent design proponents, the more facts you produce, the more they retrench and rationalize.

I don't see any depth of argument, an understanding of what drives Apple's sales or arguments supported by facts. Instead, I see vague, surface arguments (Steve Jobs is dead, Samsung has feature X or I don't like iPhones anymore) or cliches (no company can grow forever, they are bound to screw up, they have too much competition, they are too big).

Thats my problem with the bears- No analysis, no facts, no understanding, no conviction

 

valueInv

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Re: AAPL - Apple Inc.
« Reply #356 on: September 17, 2012, 05:03:54 PM »
Speaking for myself, the competition will have to be significantly be better than iPhone to get me to switch, so I'm pretty much on a 2 year phone annuity...

Yes, I agree this would be the mentality for many iphone users.

There are a few billion people who has never had smartphone though.  Would they still consider buying one now?  Again, I still expect Apple to sell incrementally more iphones than 4S... before the trajectory is getting flatter... quickly.

So, you think doubling of sales is incremental?

I was referring to iphone 5 vs 4S worldwide sales.  Is it what you see doubling?  I doubt it is, and even if it is it is irrelevant because that's just a few days of sales.

Have you seen the news?

gokou3

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Re: AAPL - Apple Inc.
« Reply #357 on: September 17, 2012, 05:15:58 PM »
Speaking for myself, the competition will have to be significantly be better than iPhone to get me to switch, so I'm pretty much on a 2 year phone annuity...

Yes, I agree this would be the mentality for many iphone users.

There are a few billion people who has never had smartphone though.  Would they still consider buying one now?  Again, I still expect Apple to sell incrementally more iphones than 4S... before the trajectory is getting flatter... quickly.

So, you think doubling of sales is incremental?

I was referring to iphone 5 vs 4S worldwide sales.  Is it what you see doubling?  I doubt it is, and even if it is it is irrelevant because that's just a few days of sales.

Have you seen the news?

Enlighten me.  Like I said, I was making a call on the iphone 5 vs 4S sales, and there's no meaningful iphone 5 sales figures yet given it has only been available for pre-ordering for a few days.

In case you didn't catch it, I am not a AAPL bear.  I am just a non-bull who's commenting because I am interested in the cellphone industry.  And have I seen the news, you ask?  I am sure I have seen more cellphone-related news than most on this board.  You base your calls on the past and present.  I base mine on what I see going forward.  Btw, I didn't become *less optimistic* on Apple's prospect until recently, so it's not like I was calling on the demise of Apple when it put out iphone 3G.

kevin4u2

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Re: AAPL - Apple Inc.
« Reply #358 on: September 17, 2012, 05:57:04 PM »

I don't see any depth of argument, an understanding of what drives Apple's sales or arguments supported by facts. Instead, I see vague, surface arguments (Steve Jobs is dead, Samsung has feature X or I don't like iPhones anymore) or cliches (no company can grow forever, they are bound to screw up, they have too much competition, they are too big).

Thats my problem with the bears- No analysis, no facts, no understanding, no conviction

As I mentioned before you appear quite biased toward the company, and that can be a dangerous in investing.  I don't know if any argument would be sufficient for you. 

You asked for some facts and analysis, so here are some

http://aswathdamodaran.blogspot.ca/2012/08/apples-crown-jewel-valuing-iphone.html

Let me quote part of the article.

Here is the larger point, though. About 55% of Apple's business value comes from its iPhone franchise and there are three pressure points that will test this value.

The first is Apple's capacity to maintain pricing power and earn its current margins; there isn't a competitor within shouting distance of Apple, when it comes to margins. If the after-tax margin drops to 15% from its current 21%, the value of the franchise drops to $219 billion (estimated value of $307 billion).

The second is that Apple will be able to prevent the life cycle from speeding up further and that it can continue to innovate at a reasonable cost (with this cost in conjunction with the loss in earnings during the second part of the cycle not exceeding 50% of the after-tax earnings during the period). Reducing the life cycle to one year from two almost halves the value of the franchise.

The third is that Apple is able to maintain a net positive switching ratio (more of the competitors' customers switch to Apple than vice versa), allowing it to increase in market share in dollar value terms. Assuming a neutral switching ratio (customers switching in = customers switching out), reduces the value of the franchise to $255 billion.
 

And...

The question that investors face right now is whether Apple can continue its winning streak. The high valuations attached to the company assume that the company can keep doing what it is right now, that the iPhone 5 will not only launch successfully, but be followed by the iPad Mini and the iPhone 6 and so on. The risk that investors have to take into account when investing in Apple is that somewhere along the way, the winning streak may will be broken. Unlike other large market cap companies with long product life cycles or diversified product portfolios, Apple’s value rests on being a Phoenix, constantly reinventing itself every few years.

That last point is exactly why Buffett would never invest in Apple despite what you claim.  One would have to know the future in order to accurately value Apple. 

Buffett doesn't invest in these types of rapidly changing industries for a reason.  He prefers bubble gum, carpet, and bricks.  Demand for those items will be higher in the future, but what about the iphone?  Nobody knows.  Five years ago the iphone didn't even exist.  Change is the enemy of a value investor. 

I have maintained that much of the success of Apple is because of social metaphysics.  Sure they make good products, but many people buy them because they want to be percieved to be "cool" by their friends.  Many people derive their self worth based on what other's think of them.  This is the reason for the overwhelming success of Facebook and the endless nonsense posted on everyone's bragging board.  It's the reason why people wear brand names (and pay high prices), to be socially accepted by the group.  Nobody wants to be rejected by their peers.  So much of social interaction is based on these principles.  These are powerful psychological forces, but predicting and investing in them are very difficult.  However if you can ever get them to work in your favor, as Apple has, the results are huge. 

ExpectedValue

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Re: AAPL - Apple Inc.
« Reply #359 on: September 17, 2012, 06:49:46 PM »
Who cares about whether or not Buffett would buy Apple. It's besides the point.

To be clear, I have no position in Apple, but it's a company I monitor with interest. I think it's important to stick with the facts, it seems like a lot of people have instinctive emotions driving their feelings towards Apple, when they really should just look at the company's numbers.

At its current price, Apple is not expensive, instead, it looks pretty cheap. The company trades at between 9-10x EV/EBIT, which for a company with Apple's growth thus far, is really really good.

There definitely is a law of large numbers issue, where its going to get harder and harder for Apple to grow and contribute materially as its size grows. But the market is not really pricing Apple for growth, it is priced like any other value stock (low price relative to cash flows).

A lot of you are harping on about the margins being so high. One of the reasons the company's margins are growing is a result of its fixed costs. So if you think margins have to compress, you will need volumes to decline or pricing to compress. On the first point, given that the smartphone market is competitive, it's possible this could happen. On the second point, I'm really not so sure. I'd argue that over the last 10 years or at least since 2003, Apple has really not played the game of being the lowest cost provider for anything. On their computers, tablets, mp3 players, phones, etc -- everything always goes after the premium segment. Apple seems pretty content with chasing profit-share not market-share and that's a really important distinction. I think it's highly unlikely that you'll see competitive pressures forcing Apple prices down.

Some of you seem to think growth in smartphones will run out. Maybe that's true, but I think there's still a pretty decent runway where you'll have penetration spreading to a lot of underserved markets. Increasingly, the smartphone market looks like an iOS/Android world, with a small sliver out there for Microsoft/NOK. You've also got embedded call options on things like TVs, etc.

What's interesting, what that "Hardware is Dead" article mentions, is the idea that brands are beginning to become important in consumer electronics. I think this is a point that might not be appreciated by a lot of folks on here, but is important to consider. I'm not saying it's going to happen, but if it does happen it can have pretty substantial implications. If consumer electronics shifts to a hardware + software + brand model, you could very well have margins continue to stay elevated.